<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
COMMISSION FILE NUMBER: 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
15660 N. DALLAS PARKWAY, SUITE 500
DALLAS, TEXAS 75248
972/770-6401
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of March 31, 2000, the number of shares of Common Stock outstanding
at $1.00 par value per share was 23,822,101.
<PAGE>
LONE STAR TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Income........................................ 3
Consolidated Balance Sheets...............................................4
Consolidated Statements of Cash Flows.....................................5
Notes to Consolidated Financial Statements................................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..........................................8
Results of Operations.....................................................8
Financial Condition and Liquidity.........................................10
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................11
Item 5. OTHER INFORMATION.............................................................11
Item 6. REPORTS ON FORM 8-K...........................................................11
</TABLE>
2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
----------------------
2000 1999
----------------------
<S> <C> <C>
Net revenues $ 153.9 $ 63.7
Cost of goods sold (136.0) (65.9)
----------------------
Gross profit (loss) 17.9 (2.2)
Selling, general and administrative expenses (8.1) (3.8)
----------------------
Operating income (loss) 9.8 (6.0)
Interest income 0.5 0.4
Interest expense (3.0) (0.9)
Other income (expense) 0.2 (0.1)
----------------------
Income (loss) from continuing operations before income tax 7.5 (6.6)
Income tax (0.4) --
----------------------
NET INCOME (LOSS) $ 7.1 $ (6.6)
====================================================================================
PER COMMON SHARE--BASIC:
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 0.30 $(0.29)
====================================================================================
PER COMMON SHARE--DILUTED:
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 0.29 $(0.29)
====================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 23.4 22.5
Diluted 24.0 22.5
</TABLE>
See accompanying notes.
3
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------
2000 1999
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7.1 $ 22.2
Short-term investments 1.3 1.2
Accounts receivable, net 86.9 56.1
Current inventories, net 122.5 88.9
Other current assets 2.5 3.7
--------------------------
TOTAL CURRENT ASSETS 220.3 172.1
Marketable securities 20.4 15.4
Property, plant, and equipment, net 168.0 149.5
Goodwill 48.5 --
Prepaid Bellville assets acquisition cost 14.6 --
Other noncurrent assets 15.8 14.1
--------------------------
TOTAL ASSETS $487.6 $351.1
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current installments on long-term debt $ 8.0 $ 2.0
Accounts payable 74.7 57.0
Accrued liabilities 32.5 27.0
--------------------------
TOTAL CURRENT LIABILITIES 115.2 86.0
--------------------------
Term loan 38.0 7.0
Revolving credit facility 69.3 21.0
Postretirement benefit obligations 26.0 26.1
Other noncurrent liabilities 15.8 15.9
--------------------------
TOTAL LIABILITIES 264.3 156.0
--------------------------
Commitments and Contingencies (See Note 8) -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value
(authorized: 10,000,000 shares, issued: none) -- --
Common stock, $1 par value
(authorized: 80,000,000 shares, issued: 23,822,101,
23,061,864, respectively) 23.8 23.1
Capital surplus 223.7 209.9
Accumulated other comprehensive loss (1.8) (1.4)
Accumulated deficit (14.6) (21.8)
Treasury stock (321,866 and 462,991 common shares,
respectively) (7.8) (14.7)
--------------------------
TOTAL SHAREHOLDERS' EQUITY 223.3 195.1
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $487.6 $351.1
========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
For the Quarter
Ended March 31,
----------------------
2000 1999
----------------------
<S> <C> <C>
BEGINNING CASH AND CASH EQUIVALENTS $22.2 $ 20.9
====================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 7.1 (6.6)
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 5.1 4.2
Accounts receivable, net (15.3) 2.5
Current inventories, net (22.9) 14.5
Accounts payable and accrued liabilities 13.2 (3.3)
Other 2.1 (1.4)
----------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (10.7) 9.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4.0) (1.4)
Short-term investments (0.1) 2.0
Marketable securities (5.0) 2.0
Advance payment for acquisition of Bellville Assets (14.6) --
Cash paid for acquisition of Fintube (67.1) --
----------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (90.8) 2.6
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 10.0
Initial borrowings under new revolving credit facility 6.8 34.0
Net borrowings (payments) under revolving credit facility 41.5 (10.3)
Net payments under old revolving credit facility -- (44.0)
Issuance of term note 39.0 --
Term note repayment (2.0) --
Issuance of common stock 1.1 --
----------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 86.4 (10.3)
----------------------
Net increase (decrease) in cash and cash equivalents (15.1) 2.2
----------------------
ENDING CASH AND CASH EQUIVALENTS $ 7.1 $ 23.1
====================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
ISSUANCE OF COMMON STOCK FOR ACQUISITION $ 20.0 --
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1
In the opinion of management, the unaudited consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of March 31, 2000 and
the cash flows and the results of operations for the three months ended March
31, 2000 and 1999. Unaudited financial statements are prepared on a basis
substantially consistent with those audited for the year ended December 31,
1999. Effective January 1, 2000, Lone Star Technologies, Inc. ("Lone Star")
acquired the assets of Fintube Limited Partnership. The accompanying
consolidated financial statements include the operations of Fintube for the
three-month period ended March 31, 2000. The results of operations for the
interim periods presented may not be indicative of total results for the full
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations promulgated by the Securities and Exchange Commission.
However, management believes that the disclosures contained herein are
adequate to make the information presented not misleading. Certain
reclassifications of prior period amounts have been made to conform with the
current period. The unaudited financial statements should be read in
conjunction with the audited financial statements and accompanying notes in
Lone Star Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE 2 - ACQUISITIONS
On January 3, 2000, Lone Star through Fintube Technologies, Inc. (Purchaser)
(a wholly owned subsidiary of Lone Star), purchased substantially all of the
assets of Fintube Limited Partnership (FLP) for a base purchase price of $82
million plus a $2.5 million adjustment for working capital and approximately
$1.5 million in acquisition related expenses. The acquisition was effective
as of January 1, 2000. The working capital adjustments were estimated at the
closing and is expected to be adjusted on an actual, post-closing basis by
approximately June 30, 2000. The consideration for the Acquisition was
determined following a competitive bidding process in arm's-length
negotiations between Lone Star and FLP. The acquired business involves the
design and production of finned tubes and other products used in a variety of
heat recovery applications. Lone Star intends to operate and to use the
assets acquired in the Acquisition in substantially the same manner as they
were used by FLP prior to the Acquisition. Lone Star and Purchaser utilized
three different sources of financing to pay the purchase price. Lone Star
used $20 million of cash that it received from Lone Star Steel Company
("Steel"), a wholly owned subsidiary of Lone Star, in connection with Steel's
repayment of a $20 million subordinated loan from Lone Star. Steel borrowed
the $20 million that it repaid to Lone Star under Steel's $90 million
revolving line of credit with the CIT Group/Business Credit, Inc., acting on
its own behalf and as agent for other banks. Additionally, Lone Star issued
approximately $20 million of Lone Star common stock directly to the limited
partners or other beneficial owners of FLP. Finally, Purchaser entered into a
new Credit Agreement with Bank of America, acting on its own behalf and as
agent for other banks, in connection with the Acquisition and borrowed (i)
approximately $7 million under the revolving credit facility and (ii) $39
million under the term loan facility.
The acquisition by Purchaser has been accounted for under the purchase method
of accounting, and accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based upon fair value at the date
of the acquisition. The excess purchase price over the fair values of the
tangible net assets acquired was approximately $50.1 million, has been
recorded as goodwill and is being amortized on a straight-line basis over 30
years. In the event that facts and circumstances indicate that the goodwill
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if an adjustment is required.
The net purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current Assets $26,573
Net property & equipment 17,963
Other Assets 675
Goodwill & other intangibles 50,113
Liabilities Assumed 9,799
Net purchase price $85,525
</TABLE>
The allocation of the purchase price is preliminary and subject to adjustment
pending the outcome of an assessment of the intangible assets acquired and
the terms of the working capital purchase price adjustment.
6
<PAGE>
On April 1, 2000 Lone Star purchased substantially all of the assets of
Bellville Tube Corporation for a base purchase price of $14.8 million less a
$0.2 million adjustment for working capital. The working capital adjustments
were estimated at the closing and are expected to be adjusted on an actual,
post-closing basis in May 2000. The consideration for the Acquisition was
determined through arm's length negotiations between Lone Star and Bellville.
Lone Star financed the Acquisition through cash held by Lone Star and $5
million of borrowings. In connection with these borrowings, Steel borrowed $5
million under its present credit facility to repay the remaining $5 million
of its subordinated loan to Lone Star. Lone Star guaranteed an additional $5
million of the Subsidiary's credit facility, pledged the stock of Purchaser
as collateral for such guaranty, and used the loan repayment to fund a
portion of the Bellville purchase price. The cash paid for the acquisition
was wired to Bellville on March 31, 2000, however the purchase was not
effective until April 1, 2000. The acquisition of Bellville will be accounted
for under the purchase method of accounting.
The accompanying consolidated balance sheet reflects a $14.6 million prepaid
deposit for the acquisition and an increase in borrowings under Steel's
revolving credit agreement of $5 million. The actual purchase price
allocation will be recorded on April 1, 2000.
The unaudited pro forma results below assume the acquisitions occurred at the
beginning of the period presented (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 1999
------- --------
<S> <C> <C>
Net sales $154.1 $87.7
Net income (loss) 7.6 (2.6)
Basic income (loss) per share 0.33 (0.11)
Diluted income (loss) per share 0.32 (0.11)
</TABLE>
The above pro forma results include adjustments to give effect to
amortization of goodwill, interest expense and other purchase price
adjustments. The pro forma results are not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results. Lone Star has not yet
determined the final allocation of the purchase price and, accordingly, the
amounts shown may differ from the amounts ultimately determined; however,
that allocation is not expected to differ materially from the preliminary
allocation.
7
<PAGE>
NOTE 3 - BUSINESS SEGMENTS DATA
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
2000 1999
------------------
<S> <C> <C>
(IN MILLIONS)
OILFIELD PRODUCTS
Net revenues $ 81.5 $ 30.0
Operating earnings (loss) 3.5 (4.6)
Identifiable assets 194.5 136.9
Capital expenditures 2.2 0.6
Depreciation and amortization 2.5 2.2
SPECIALTY TUBING
Net revenues $ 56.7 $ 26.7
Operating earnings 6.1 0.4
Identifiable assets 224.7 126.8
Capital expenditures 1.8 0.8
Depreciation and amortization 2.4 1.8
FLAT ROLLED STEEL AND OTHER PRODUCTS
Net revenues $ 15.7 $ 7.0
Operating loss (0.1) (1.2)
Identifiable assets 2.1 15.4
Capital expenditures -- --
Depreciation and amortization 0.2 0.2
CORPORATE AND OTHER NON-SEGMENTS
Net revenues $ -- $ --
Operating earnings (loss) 0.3 (0.6)
Identifiable assets 47.1 35.8
CONSOLIDATED TOTALS
Net revenues $153.9 $ 63.7
Operating earnings (loss) 9.8 (6.0)
Identifiable assets 487.0 314.9
Capital expenditures 4.0 1.4
Depreciation and amortization 5.1 4.2
</TABLE>
NOTE 4 - DEBT
On March 16, 1999, Lone Star Steel Company (Steel) refinanced the $100.0
million revolving credit facility that it had in place at year-end 1998 with
a $90.0 million revolving line of credit and a three-year $10.0 million term
loan. Under the new revolving credit facility, Steel can borrow an amount
based on a percentage of eligible accounts receivable and inventories,
reduced by outstanding letters of credit. At March 31, 2000, borrowings
totaled $67.3 million including $8.5 million on the term loan with a
remaining availability of $30.8 million. At Steel's option, the interest rate
is the prime lending rate plus 1.0% or the LIBOR plus 3.0%. Steel pays a
0.375% per annum fee on the unused portion of the credit facility. The term
loan is repayable in quarterly installments of $0.5 million, together with
interest at the prime lending rate plus 1.5% or the LIBOR plus 3.5%. Steel's
assets other than real estate secure these loans. In connection with Lone
Star's purchase of assets from Fintube Limited Partnership on January 3,
2000, and Bellville Tube Corporation (Bellville) effective April 1, 2000 (see
Note 2), Steel borrowed $25 million under its present credit facility to
repay its $25 million subordinated loan to Lone Star, Lone Star guaranteed
$25 million of Steel's credit facility and Lone Star used the loan repayment
to fund a portion of the purchase price payable in the Fintube Limited
Partnership and Bellville acquisitions.
8
<PAGE>
On January 3, 2000, Lone Star's new subsidiary, Fintube Technologies, Inc.
(Fintube) entered into a new senior credit facility providing a $20 million
revolving line of credit and a $39 million term loan used to pay part of the
cash portion of the purchase price in its acquisition of substantially all of
the assets of Fintube Limited Partnership. Under the revolving line of
credit, Fintube can borrow an amount based on a percentage of eligible
accounts receivable and eligible inventory, reduced by outstanding letters of
credit. At Fintube's option, the interest rate is the prime lending rate plus
1.0% or the LIBOR plus 2.5%. Fintube pays a 0.50% rate on the unused portion
of the credit facility. The interest rate on $20.0 million of the term loan
is fixed by a rate swap agreement at 7.02% and on the remainder of the term
loan is the same as the revolving credit facility. The term loan is repayable
in quarterly installments of $1.5 million through December 31, 2002 and of
$1.75 million thereafter through December 31, 2005. As of March 31, 2000,
borrowings by the Fintube subsidiary totaled approximately $48.0 million,
including the term loan, with a remaining availability, based on eligible
accounts receivable and inventory on such date, of approximately $8.3 million.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock. The numbers of shares used to
compute basic earnings per share for the three months ended March 31, 2000
and 1999, respectively, were 23.4 million and 22.5 million. Diluted earnings
per share is computed by dividing net income by the weighted average number
of shares of common stock and other dilutive securities. The numbers of
shares used to compute diluted earnings per share for the three months ended
March 31, 2000 was 24.0 million - dilutive securities equivalent to 0.6
million shares of common stock were outstanding during the three months ended
March 31, 2000. Dilutive securities were not included in the computation of
diluted EPS for March 31, 1999. Lone Star had losses in that period and the
effect of including the dilutive securities would have been anti-dilutive to
EPS.
NOTE 6 - INVENTORIES
At March 31, 2000, inventories totaled $152.9 million before LIFO and other
reserves and were composed of finished goods, $19.3 million; work in process,
$67.0 million; and raw materials and supplies, $66.6 million. Net of LIFO and
other reserves of $23.1 million, inventories were $129.2 million, of which
$6.7 million (consisting of supplies and spare parts) were classified as
noncurrent assets.
NOTE 7 - CASH, INVESTMENTS, AND MARKETABLE SECURITIES
Lone Star's cash equivalents include highly liquid investments in a fund
consisting of U. S. government and related agencies obligations with original
maturities of less than three months. Short-term investments consist of U. S.
government and related agencies obligations with maturities at purchase
greater than three months and up to one year. Marketable securities consist
of U. S. government and related agencies obligations with maturities at
purchase greater than one year and up to two years. Lone Star's total cash
equivalents, short-term investments and marketable securities, the weighted
average maturity of which is less than one year, are classified as
held-to-maturity because Lone Star has the intent and ability to hold them to
maturity.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Steel and Fintube have various commitments for the purchase of raw materials,
certain tubular goods, supplies, services, and energy arising in the ordinary
course of business. The majority of these commitments are for a period of
less than one year.
Steel's and Fintube's operations are subject to foreign, federal, state,
provincial and local environmental laws and regulations concerning, among
other things, waste materials, wastewater disposal and air emissions. Lone
Star believes that its subsidiaries are currently in material compliance with
all applicable environmental laws and regulations.
NOTE 9 - INCOME TAXES
Lone Star had federal tax net operating loss carryforwards of approximately
$262.4 million at December 31, 1999, a portion of which may be related to
American Federal Bank (AFB), a previous subsidiary of Lone Star, and subject
to an agreement with the Federal Deposit Insurance Corporation (FDIC) whereby
Lone Star may be required to pay the FDIC for certain tax benefits. A
provision for alternative minimum tax of $0.4 million was recognized for the
quarter ended March 31, 2000. Because of the net losses for the three months
ended March 31, 1999, no provision for taxes was recognized for that period.
If not utilized, the net operating loss carryforwards will expire between
years 2003 and 2014.
NOTE 10 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the quarters ended March 31, 2000 and March
31, 1999 was:
9
<PAGE>
<TABLE>
<CAPTION>
(In millions)
March 31, 2000 March 31, 1999
<S> <C> <C>
Net earnings (loss) $ 7.1 $(6.6)
Employee benefit plan stock grant (0.4) --
----- -----
Comprehensive income (loss) $ 6.7 $(6.6)
</TABLE>
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENT
The SEC recently issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
The Company is currently evaluating the impact of this pronouncement, and
does not believe its application will have a material effect on the financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Lone Star is the leading United States manufacturer of welded "oil country
tubular goods," which are steel tubular products used in the completion of
and production from oil and natural gas wells. Lone Star is also a major
manufacturer of line pipe, which is used in the transportation of oil and
gas. In addition, Lone Star is a leading manufacturer of specialty tubing
products used in automotive, construction, agricultural and industrial
applications. Lone Star also manufactures flat rolled steel and other
products for domestic industrial markets. In January 2000, Lone Star
augmented its specialty tubing products by acquiring the assets of Fintube
Limited Partnership, the largest specialty tubing manufacturer of heat
recovery finned tubes, which are primarily used in combined-cycle power
generation plants. Although oil prices have increased and the active rig
count has substantially increased, the oil and gas markets are volatile and
uncertainty exists regarding the future levels of oil and gas prices and
related drilling activity. Therefore, no assurance can be given regarding the
extent of future demand for Lone Star's oilfield products.
RESULTS OF OPERATIONS
Revenues of $153.9 million for the three months ended March 31, 2000
increased 142% from the first quarter of 1999. Revenues comprised $81.5
million from oilfield products, $56.7 million from specialty tubing products,
and $15.7 million from flat rolled steel and other products, representing
increases of 172%, 112%, and 124%, respectively.
First quarter 2000 shipments increased to 217,900 or 110% when compared to
the same period in 1999 and were comprised of 125,400 tons of oilfield
products, 50,300 tons of specialty tubing products and 42,200 tons of flat
rolled steel and other products. Oilfield products, specialty tubing
products, and flat rolled steel and other product shipments increased by
124%, 105%, and 81%, respectively.
Consolidated revenues reported in the statements of income are as follows:
<TABLE>
<CAPTION>
($ in millions)
FOR THE QUARTER ENDED
MARCH 31,
2000 % 1999 %
----- --- ---- ---
<S> <C> <C> <C> <C>
Oilfield products 81.5 53 30.0 47
Specialty tubing products 56.7 37 26.7 42
Flat rolled steel and other products 15.7 10 7.0 11
----- --- ---- ---
Total net revenues 153.9 100 63.7 100
===== === ==== ===
</TABLE>
Shipments of products by segment are as follows:
10
<PAGE>
<TABLE>
<CAPTION>
(in tons)
FOR THE QUARTER ENDED
MARCH 31,
2000 % 1999 %
------- --- ------- ---
<S> <C> <C> <C> <C>
Oilfield products 125,400 58 55,900 54
Specialty tubing products 50,300 23 24,500 24
Flat rolled steel and other tubular products 42,200 19 23,300 22
------- --- ------- ---
Total tons shipped 217,900 100 103,700 100
======= === ======= ===
</TABLE>
Increased revenues for the first quarter of 2000 were due to higher shipment
volumes in all segments. Oilfield revenues advanced on additional shipment
volumes and higher prices as the average number of active rigs advanced 40%
to 770 at the end of the first quarter from the same period in 1999. Revenues
from specialty tubing were higher reflecting the addition of Fintube sales to
this business segment. Fintube's revenues for the first quarter of 2000 were
25% higher than in the same period in 1999 due to increased sales of finned
tubes used in heat recovery steam generation applications in new electricity
power plants. Excluding Fintube, specialty tubing revenues were up 30% from
the first quarter of 1999, due to higher shipment volumes of precision
mechanical tubulars and new heavy wall as-welded tubulars. Revenues from flat
rolled steel and other products were 124% higher than in the first quarter of
1999 due to increased shipment volumes and higher prices compared to the
first quarter of 1999.
Proforma revenues for the three month period ended March 31, 1999 and 2000
including the acquisition of Fintube and Bellville were $87.7 million and
$154.1 million, respectively.
The gross profit and operating income for the three months ended March 31,
2000 were $17.9 million and $9.8 million, respectively, compared to a gross
loss and an operating loss of $2.2 million and $6.0 million, respectively,
for the same 1999 period. Gross profit and operating income benefited from
Fintube's higher margin contribution and increased shipment volumes for all
products and higher prices for oilfield and flat rolled steel and other
products.
Net income in the first quarter of 2000 was$7.1 million, or $0.29 per diluted
share, compared to a net loss of $6.6 million, or $0.29 per diluted share, in
the three months ended March 31, 1999. Net income of $2.9 million for the
first quarter of 2000 was attributable to Fintube. Excluding Fintube, net
income was $4.2 million in the first quarter of 2000, an increase of 164%
over the same period in 1999.
Proforma net income for the three month period ended March 31, 1999 and 2000
including the acquisition of Fintube and Bellville were ($2.6) million and
$7.6 million, respectively.
FINANCIAL CONDITION AND LIQUIDITY
Lone Star has no direct business operations other than Steel or Fintube (see
Note 2 to the consolidated financial statements regarding Bellville) or
significant sources of cash other than from investments or the sale of
securities. Lone Star is reimbursed by Steel for most of its operating costs
as provided by its cost-sharing agreement with Steel. Under Steel's new
revolving credit agreement, Lone Star's operating costs and Steel's portion
of Lone Star's consolidated taxes are the only funds that can be distributed
to Lone Star. Fintube pays Lone Star an annual overhead fee of $1.0 million,
which is the maximum amount permitted under Fintube's credit facility.
At March 31, 2000, Lone Star had available cash and cash equivalents,
short-term investments, and marketable securities of $28.8 million, compared
to $38.8 million at December 31, 1999. Lone Star has no immediate cash
requirements as Steel and Fintube both reimburse Lone Star for their overhead
as described in the preceding paragraph.
Steel and Fintube require capital primarily to fund general working capital
needs and capital expenditures. Principal sources of funds include cash
generated by operations, borrowings under Steel's and Fintube's revolving
credit facilities and from Lone Star.
11
<PAGE>
On March 16, 1999, Steel refinanced the $100.0 million revolving credit
facility that it had in place at year-end 1998 with a $90.0 million revolving
line of credit and a three-year $10.0 million term loan. Under the new
revolving credit facility, Steel can borrow an amount based on a percentage
of eligible accounts receivable and inventories, reduced by outstanding
letters of credit. At March 31, 2000, borrowings totaled $67.3 million
including $8.5 million on the term loan with a remaining availability of
$30.8 million. At Steel's option, the interest rate is the prime lending rate
plus 1.0% or the LIBOR plus 3.0%. Steel pays a 0.375% per annum fee on the
unused portion of the credit facility. The term loan is repayable in
quarterly installments of $0.5 million, together with interest at the prime
lending rate plus 1.5% or the LIBOR plus 3.5%. Steel's assets other than real
estate secure these loans. In connection with Lone Star's purchase of assets
from Fintube Limited Partnership on January 3, 2000, and Bellville Tube
Corporation (Bellville) on March 31, 2000 (see Note 2) Steel borrowed $25
million under its present credit facility to repay its $25 million
subordinated loan to Lone Star, Lone Star guaranteed $25 million of Steel's
credit facility and Lone Star used the loan repayment to fund a portion of
the purchase price payable in the Fintube Limited Partnership and Bellville
acquisitions.
On January 3, 2000, Lone Star's Fintube subsidiary entered into a new senior
credit facility providing a $20 million revolving line of credit and a $39
million term loan used to pay part of the cash portion of the purchase price
in its acquisition of substantially all of the assets of Fintube Limited
Partnership. Under the revolving line of credit, Fintube can borrow an amount
based on a percentage of eligible accounts receivable and eligible inventory,
reduced by outstanding letters of credit. At Fintube's option, the interest
rate is the prime lending rate plus 1.0% or the LIBOR plus 2.5%. Fintube pays
a 0.50% rate on the unused portion of the credit facility. The interest rate
on $20.0 million of the term loan is fixed by a rate swap agreement at 7.02%
and on the remainder of the term loan is the same as the revolving credit
facility. The term loan is repayable in quarterly installments of $1.5
million through December 31, 2002 and $1.75 million thereafter through
December 31, 2005.
As of March 31, 2000, borrowings by Fintube totaled approximately $48.0
million, including the term loan, with a remaining availability, based on
eligible accounts receivable and inventory on such date, of approximately
$8.3 million.
Steel periodically purchases steel slabs under the consignment arrangement
for use in its production process and thereby affords Steel somewhat longer
payment periods for this raw material. Steel makes the payment as the slabs
are used plus interest on unpaid amounts. At the end of the first quarter
2000, $32.3 million was included in the accounts payable.
Steel's and Fintube's operations are subject to numerous environmental laws.
The three major areas of regulation are air quality, water quality, and solid
and hazardous waste management. Steel and Fintube believe that these
environmental expenditures will continue to fall within their respective
contemplated operating and capital plans.
Steel and Fintube believe that funds generated by operations and borrowing
capacity under their revolving credit facilities will provide the liquidity
necessary to fund cash requirements for the remainder of 2000.
The matters discussed or incorporated by reference in this report on Form
10-Q that are forward-looking statements involve risks and uncertainties
including, but not limited to, economic conditions, product demand, the
regulatory and trade environment, and other risks indicated in other filings
with the Securities and Exchange Commission.
The Company completed its identification, assessment and remediation of the
year 2000 compliance issue ("Y2K") in December 1999. To date, the Company has
not experienced any material Y2K failures and to the best of its knowledge
neither have any of its significant customers or service providers. However,
there can be no assurance that in the future issues related to Y2K will not
have a material adverse effect on our financial condition or that of our
significant customers or service providers.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
12
<PAGE>
(a) Exhibits:
No. 27. Financial Data Schedule
(b) Reports on Form 8-K: A Current Report on Form 8-K dated January 18,
2000 was filed reporting under Item 2 the acquisition of the assets of
Fintube Limited Partnership. Amendments to this report were filed on
February 3, 2000, March 17, 2000 and March 29, 2000 to include the
audited financial statements of Fintube Limited Partnership and
unaudited pro forma financial statements of Lone Star reflecting the
acquisition of the Fintube assets.
A current Report on Form 8-K dated March 16, 2000 was filed reporting
under Item 5 the signing of an agreement pursuant to which Lone Star
would purchase the assets of Bellville Tube Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LONE STAR TECHNOLOGIES, INC.
By: /s/ Charles J. Keszler
-----------------------
(Charles J. Keszler)
Vice President - Finance
Dated: May 15, 2000
13
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