<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
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>
EXPLANATORY NOTE
Items 1 and 2 to Lone Star Technologies Inc.'s ("Lone Star") Form 10-Q are being
amended herein to revise Lone Star's Consolidated Financial Statements
(unaudited) resulting from the restatement of Lone Star's Consolidated Financial
Statements for the year ended December 31, 1999.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <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............................................ 10
Results of Operations......................................................... 10
Financial Condition and Liquidity............................................. 12
</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 31.7 26.2
-------------------------
TOTAL CURRENT LIABILITIES 114.4 85.2
-------------------------
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 263.5 155.2
-------------------------
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 (13.8) (21.0)
Treasury stock (321,866 and 462,991 common shares, respectively) (7.8) (14.7)
-------------------------
TOTAL SHAREHOLDERS' EQUITY 224.1 195.9
-------------------------
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>
See accompanying notes.
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 and 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
-------------------------
OILFIELD PRODUCTS (IN MILLIONS)
<S> <C> <C>
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.
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
8
<PAGE>
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
$261.6 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 income (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.
NOTE 12 - RESTATEMENT OF FINANCIAL STATEMENTS
Lone Star's Consolidated Balance Sheet as of March 31, 2000 has been revised as
a result of the restatement of Lone Star's Consolidated Financial Statements for
the fourth quarter of 1999 and the year ended December 31, 1999 to reflect the
utilization of the remaining $800,000 of Lone Star's reserve related to an
inventory purchase commitment which was originally recorded in 1998.
A summary of the effect of the restatement is as follows (in millions):
<TABLE>
<CAPTION>
As Reported As Restated
<S> <C> <C>
Accrued Liabilities $ 32.5 $ 31.7
Total Current Liabilities 115.2 114.4
Total Liabilities 264.3 263.5
Accumulated Deficit (14.6) (13.8)
Total Shareholder's Equity 223.3 224.1
</TABLE>
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 $15.7
million from flat rolled steel and other products, representing increases of
172%, 112%, and 124%, respectively.
First quarter 2000 shipments increased to 217,900 or 110% when compared to the
same period in 1999 and were comprised of 125,400 tons of oilfield products,
50,300 tons of specialty tubing products and 42,200 tons of flat rolled steel
and other products. Oilfield products, specialty tubing products, and flat
rolled steel and other product shipments increased by 124%, 105%, and 81%,
respectively.
10
<PAGE>
Consolidated revenues reported in the statements of income are as follows:
<TABLE>
<CAPTION>
($ 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:
<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.
11
<PAGE>
Aside from a reduction of $800,000 of accrued liabilities and an increase of
$800,000 of retained earnings, the revision of Lone Star's consolidated balance
sheet as of March 31, 2000 (see Note 12) has no effect on results of operations,
financial condition or liquidity for the period ended March 31, 2000.
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.
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.
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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.
SIGNATURE
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: June 1, 2000
By: /s/ Charles J. Keszler
-------------------------
(Charles J. Keszler)
Vice President - Finance
Dated: June 1, 2000
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