<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K/A
-------------------------
CURRENT REPORT
AMENDMENT NO. 1
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JANUARY 3, 2000
LONE STAR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 1-12881 75-2085454
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
15660 NORTH DALLAS PARKWAY,
SUITE 500, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (972) 386-3981
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
<PAGE>
AMENDMENT NO. 1
Amend Item 7. FINANCIAL STATEMENTS AND EXHIBITS by deleting such item in its
entirety and substituting therefor the following:
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
- Report of Independent Public Accountants
- Consolidated Balance Sheet as of December 31, 1998
- Consolidated Statement of Income for the Year Ended
December 31, 1998
- Consolidated Statement of Partners' Capital for the
Year Ended December 31, 1998
- Consolidated Statement of Cash Flows for the Year
Ended December 31, 1998
- Notes to Consolidated Financial Statements
- Unaudited Condensed Consolidated Balance Sheet as of
September 30, 1999
- Unaudited Condensed Consolidated Statements of Income
for the Nine Months Ended September 30, 1999 and 1998
- Unaudited Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended September 30, 1999
and 1998
- Notes to Unaudited Condensed Consolidated Financial
Statements
(b) PRO FORMA FINANCIAL INFORMATION.
- Unaudited Pro Forma Balance Sheet at September 30,
1999
- Notes to Unaudited Pro Forma Balance Sheet
- Unaudited Pro Forma Income Statement for the Nine
Months ended September 30, 1999
- Unaudited Pro Forma Income Statement for the Twelve
Months ended December 31, 1998
- Notes to Unaudited Pro Forma Statements of Operations
(c) EXHIBITS.
2.1* Asset Purchase Agreement dated as of November 16,
1999 by and among Lone Star Technologies, Inc.,
Fintube Technologies, Inc. and Fintube Limited
Partnership.
2.2* First Amendment to Asset Purchase Agreement dated as
of January 1, 2000 by and among Lone Star
Technologies, Inc., Fintube Technologies, Inc. and
Fintube Limited Partnership.
99.1* Press release dated January 3, 1999.
- ----------
* Previously filed as an exhibit to the Form 8-K on January 18, 2000.
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
FINTUBE LIMITED PARTNERSHIP:
Report of Independent Public Accountants F-2
Consolidated Balance Sheet as of December 31, 1998 F-3
Consolidated Statement of Income for the Year Ended December 31, 1998 F-4
Consolidated Statement of Partners' Capital for the Year Ended December 31, 1998 F-5
Consolidated Statement of Cash Flows for the Year Ended December 31, 1998 F-6
Notes to Consolidated Financial Statements F-7
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1999 F-12
Unaudited Condensed Consolidated Statements of Income for the Nine
Months Ended September 30, 1999 and 1998 F-13
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1 and 1998 F-14
Notes to Unaudited Condensed Consolidated Financial Statements F-15
</TABLE>
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LONE STAR TECHNOLOGIES, INC.:
Introduction to Pro Forma Financial Information F-17
Unaudited Pro Forma Balance Sheet at September 30, 1999 F-18
Notes to Unaudited Pro Forma Balance Sheet F-19
Unaudited Pro Forma Income Statement for the Nine Months ended September 30, 1999 F-21
Unaudited Pro Forma Income Statement for the Twelve Months ended December 31, 1998 F-22
Notes to Unaudited Pro Forma Statements of Operations F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Fintube Limited Partnership:
We have audited the accompanying consolidated balance sheet of Fintube
Limited Partnership (a Delaware Limited Partnership) and subsidiaries as of
December 31, 1998, and the related consolidated statement of income,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fintube Limited Partnership
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
January 27, 1999
F-2
<PAGE>
FINTUBE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 628,000
Accounts receivable, net of allowance for doubtful accounts of $152,461 10,903,157
Inventories 8,585,322
Prepaid expenses 74,986
--------------
Total current assets 20,191,465
--------------
PROPERTY, PLANT AND EQUIPMENT 36,959,749
Less - accumulated depreciation 15,615,646
--------------
21,344,103
--------------
OTHER ASSETS 281,054
--------------
$ 41,816,622
==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,945,979
Accrued liabilities 257,722
Accrued payroll and employee benefits 1,045,799
Other accrued liabilities 817,366
--------------
Total current liabilities 5,066,866
--------------
LONG-TERM DEBT 18,225,853
--------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 20,592,124
Less - notes receivable for purchase of Partnership interest (2,068,221)
--------------
NET PARTNERS' CAPITAL 18,523,903
--------------
$ 41,816,622
==============
</TABLE>
The accompanying notes are an integral
part of this consolidated balance sheet.
F-3
<PAGE>
FINTUBE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 61,215,649
COST OF SALES 45,621,021
--------------
Gross profit 15,594,628
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,800,521
--------------
Operating income 5,794,107
INTEREST EXPENSE 1,474,601
GAIN ON DISPOSAL OF FIRE DAMAGED ASSETS 1,743,270
OTHER INCOME 835,865
--------------
INCOME BEFORE TAX PROVISION 6,898,641
TAX PROVISION 115,267
--------------
NET INCOME $ 6,783,374
==============
</TABLE>
The accompanying notes are an integral
part of this consolidated statement.
F-4
<PAGE>
FINTUBE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
PARTNERS' CAPITAL, January 1, 1998 $ 15,287,682
COMPREHENSIVE INCOME:
Net income for the year ended December 31, 1998 6,783,374
Foreign translation adjustment (83,715)
------------
TOTAL COMPREHENSIVE INCOME 6,699,659
DISTRIBUTIONS TO PARTNERS (1,395,217)
------------
PARTNERS' CAPITAL, December 31, 1998 $ 20,592,124
============
</TABLE>
The accompanying notes are an integral
part of this consolidated statement.
F-5
<PAGE>
FINTUBE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,783,374
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation 2,492,897
Amortization 292,327
Gain on disposition of fire damaged assets (1,743,270)
Expenses reimbursed from fire (397,759)
Gain on disposal of assets (5,154)
Change in assets and liabilities-
Decrease in accounts receivable 1,215,983
Decrease in inventories 474,420
Decrease in prepaid expenses 617,019
Increase in other assets (169,899)
Increase in accounts payable 254,829
Decrease in accrued liabilities (2,409,870)
------------
Net cash provided by operating activities 7,404,897
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,838,638)
Proceeds from insurance company 2,891,296
------------
Net cash used in investing activities (2,947,342)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 26,862,985
Repayment of long-term debt (29,913,000)
Distributions to partners (1,395,217)
------------
Net cash used in financing activities (4,445,232)
------------
NET INCREASE IN CASH 12,323
CASH AT BEGINNING OF YEAR 615,677
------------
CASH AT END OF YEAR $ 628,000
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,474,601
============
</TABLE>
The accompanying notes are an integral
part of this consolidated statement.
F-6
<PAGE>
FINTUBE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. OPERATIONS AND ORGANIZATION:
FORMATION
Fintube Limited Partnership (the Partnership) is a limited partnership
organized on July 19, 1991, under the Delaware Revised Uniform Limited
Partnership Act. The Partnership's wholly-owned subsidiaries include TEKtube,
Kentube Engineered Products and Aletas y Birlos, S.A. de C.V., a Mexican
entity. The General Partner is Division Fintube Corporation (DFC), an
Oklahoma corporation. DFC is also the Class B Limited Partner. In addition,
the Partnership owns 99% of Fintube Properties, LLC.
The Partnership has operations in Oklahoma, Mexico and Canada. Primary
operations include the application of fins and studs to tubes and the
manufacturing of heat economizers and retromizers. The manufacturing
operations are internally supported by a steel coil slitting division and a
tube mill. Principal markets are throughout the U.S., Asia and South America.
In 1998, significant sales of manufacturing equipment were made and the
Partnership expects to make similar sales in future years.
SHARING RATIOS
Under the Limited Partnership Agreement, net income and net loss are allocated
as follows:
1) For each fiscal year in which the Partnership has net income, a
preferred return will first be made to the Class B Limited Partner
in an amount equal to the interest rate applicable to the revolving
line of credit multiplied by the average daily Class B Limited
Partner capital account. The remaining net income will be allocated
to the General Partner and the Class A Limited Partners on a
pro-rata basis based on their respective capital accounts.
2) For each fiscal year in which the Partnership has a net loss, it
will be allocated to the General Partner and the Class A Limited
Partners on a pro-rata basis based on their respective capital
accounts. In no event shall the allocation of a net loss create or
increase a negative capital account for any Limited Partner.
DISTRIBUTION PREFERENCE
The Class B Limited Partner has a preferred distribution right of $1,800,000 at
December 31, 1998.
F-7
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Raw materials $5,853,752
Work in process 1,586,032
Finished goods 1,145,538
----------
$8,585,322
==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated on either
a straight-line or accelerated basis over the estimated useful lives (5-20
years) of the assets. Maintenance, repairs and betterments, including
replacement of minor items of physical properties are charged to expense. Major
additions to physical properties are capitalized. The cost of the assets retired
or sold is credited to the asset accounts and the related accumulated
depreciation is charged to the accumulated depreciation accounts. The gain or
loss from sale or retirement of property, if any, is included in the
consolidated statement of income. Property, plant and equipment consisted of the
following at December 31, 1998:
<TABLE>
<S> <C>
Land and land improvements $ 1,222,274
Buildings 7,944,286
Machinery and equipment 22,548,827
Furniture and fixtures 2,633,760
Construction in progress 2,610,602
-----------
$36,959,749
===========
</TABLE>
REVENUE RECOGNITION
The Partnership recognizes revenue upon shipment.
WARRANTY
The Partnership maintains a reserve for potential warranty claims based on
known conditions. The warranty period on all products is 1 to 2 years based
on the product line and is limited to the replacement cost of the product.
ROYALTIES
The Partnership has four royalty agreements under which income is received
based on a percentage of the net selling price, as defined in the agreements,
of products manufactured under the agreements.
INCOME TAXES
The Partnership is not a taxable entity for federal and state income tax
purposes. As a partnership, the taxable income of the Partnership is included
in the taxable income of its partners. During 1998, taxes of $115,267 were
paid by the Partnership on behalf of its Mexican subsidiary, Aletas y Birlos,
S.A. de C.V.
F-8
<PAGE>
CONSOLIDATION
All significant intercompany accounts and transactions between the
Partnership and its subsidiaries have been eliminated.
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions and financial statements are translated in
accordance with Statement of Financial Accounting Standards No. 52. Assets
and liabilities are translated to U.S. dollars at the current exchange rate.
Income and expense accounts are translated using the weighted average
exchange rate for the period. Adjustments arising from translation of foreign
financial statements are reflected in a cumulative translation adjustment
account in the partners' capital section of the consolidated balance sheets.
Transaction gains and losses are included in net income.
COMPREHENSIVE INCOME
During 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
requires reporting of all nonowner changes in equity in a financial statement
of the period for which they are recognized. The Partnership has chosen to
disclose Comprehensive Income, which consists of the foreign translation
adjustment, in the Consolidated Statement of Partners' Capital.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INVOLUNTARY CONVERSION OF NONMONETARY ASSETS:
On January 27, 1998, the Partnership suffered a structural fire at one of its
manufacturing facilities. The fire caused approximately $3,200,000 in damage
to property, plant, equipment and inventory. Proceeds received from the
insurance carrier resulted in a gain of approximately $1.7 million being
included in the Consolidated Statement of Income. In addition, the fire and
subsequent building and equipment repairs affected production capacity,
resulting in an operating variance for 1998.
4. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Revolving line of credit, interest payable monthly at Corporate Base Rate minus .75%
(7.0% at December 31, 1998). $ 7,099,383
Bank term loan, payable in varying annual amounts, interest at Corporate Base Rate
minus .75% (7.0% at December 31, 1998). 9,500,000
Industrial revenue bond, monthly payments of $22,500 plus interest at 82%
of Wall Street Journal prime (6.36% at December 31, 1998), maturing in
April 2006.
1,626,470
--------------
$ 18,225,853
==============
</TABLE>
F-9
<PAGE>
The revolving line of credit agreement extends through June 2000 and provides
for maximum borrowings of $15,000,000 less any letters of credit outstanding
under a letter of credit facility ($1,591,329 outstanding at December 31,
1998). The bank term loan agreement is payable in varying annual amounts
through July 2003, with remaining principal and interest due August 30, 2003.
The Partnership plans to use its borrowing availability under the revolving
line of credit to fund the monthly installments due in 1999 on the term loan
agreement and the industrial revenue bond. The line of credit, the term loan
and the industrial revenue bond are collateralized by substantially all
assets of the Partnership. The agreements contain certain covenants with
which the Partnership was in compliance at December 31, 1998.
Aggregate maturities of long-term debt at December 31, 1998 are:
<TABLE>
<S> <C>
1999 $ -
2000 9,036,050
2001 2,436,667
2002 2,770,000
2003 1,936,666
Thereafter 2,046,470
---------------
$ 18,225,853
===============
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
PARTNERS' INCOME TAX PAYMENTS
The Partnership Agreement provides for quarterly distributions on or before
January 10, April 10, June 10 and September 10 to all partners in an amount
sufficient to pay all federal, state and local income tax liabilities
resulting from allocation of income.
On January 10, 1999, the Partnership paid a distribution of approximately
$564,000 to its partners.
ROLLUP TRANSACTION
The Class A Limited Partners have the option to initiate a tax-free rollup
transaction in which all partners would exchange their partnership interest
for an equivalent equity interest in a new corporation.
CLAIMS AND LITIGATION
The Partnership is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts, management believes the resolution of claims and pending litigation
will not have a material adverse effect on the Partnership's consolidated
financial statements.
6. MANAGEMENT INVESTMENT IN PARTNERSHIP:
Certain key management personnel have purchased interests in the Partnership
under the provisions of a Management Equity Participation Plan. Purchases
prior to 1997 were financed through notes payable to the Partnership due in
2000 with interest payable annually at the lesser of a bank's prime rate or
ten percent. Effective January 1, 1997, two notes totaling $350,000 were
issued for Partnership interests. The new notes payable to the Partnership
are due in 2006 with interest payable at the lesser of a bank's prime rate or
ten percent. The notes are deducted from the partnership capital in the
consolidated balance sheets. Notes payable to the Partnership at December 31,
1998, totaled $2,068,221. The
F-10
<PAGE>
Partnership applies variable accounting to the plan, however, compensation
expense for the year ended December 31, 1998 was $0.
Throughout the term of the notes, the Partnership is obligated to repurchase
the interest of a participant in the event of death, termination or
withdrawal at a price based on the participant's purchase price or the
valuation formula provided in the agreement with the participant.
7. RETIREMENT SAVINGS PLAN:
The Partnership sponsors a defined contribution benefit plan. The Partnership
may, on a discretionary basis, make contributions to the plan. In 1998,
Partnership contributions to the plan were approximately $165,000.
F-11
<PAGE>
FINTUBE LIMITED PARTNERSHIP
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 402,286
Accounts receivable, net of allowance for doubtful accounts of $215,517 15,805,842
Inventories 8,604,224
Prepaid expenses 6,203
--------------
Total current assets 24,818,555
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of
$16,490,396 22,197,295
OTHER ASSETS 1,190,667
--------------
$ 48,206,517
==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 7,179,867
LONG-TERM DEBT 17,746,112
PARTNERS' CAPITAL 23,280,538
--------------
$ 48,206,517
==============
</TABLE>
The accompanying notes are an integral part of this
condensed consolidated balance sheet.
F-12
<PAGE>
FINTUBE LIMITED PARTNERSHIP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
REVENUES $ 60,738,399 $ 46,445,363
COST OF TRADE SALES 40,998,774 34,336,138
------------- --------------
Gross profit 19,739,625 12,109,225
SELLING, GENERAL AND ADMINISTRATIVE 8,880,290 7,599,083
------------- --------------
Operating income 10,859,335 4,510,142
INTEREST EXPENSE 917,676 1,124,405
OTHER INCOME 1,767,649 704,665
------------- --------------
NET INCOME $ 11,709,308 $ 4,090,402
============= ==============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
F-13
<PAGE>
FINTUBE LIMITED PARTNERSHIP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,281,313 $ 5,289,021
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,074,811) (5,189,311)
Proceeds from insurance company - 2,005,000
------------- --------------
Net cash used in investing activities (3,074,811) (3,184,311)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash flow of debt (479,742) (1,127,825)
Distributions to partners (7,952,474) (1,057,942)
------------- --------------
Net cash used in financing activities (8,432,216) (2,185,767)
------------- --------------
NET DECREASE IN CASH (225,714) (81,057)
CASH, at beginning of period 628,000 615,677
------------- --------------
CASH, at end of period $ 402,286 $ 534,620
============= ==============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
F-14
<PAGE>
FINTUBE LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF REPORTING:
The condensed consolidated financial statements included in this report have
been prepared by Fintube Limited Partnership without audit pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, these statements reflect all adjustments (consisting of normal
recurring entries) which are, in the opinion of management, necessary for a
fair presentation of the financial results for the interim periods presented.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Partnership's audited
financial statements for the year ended December 31, 1998 included in this
report.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following at September 30, 1999:
<TABLE>
<S> <C>
Raw materials $ 3,085,146
Work in process 5,069,238
Finished goods 449,840
-----------
$ 8,604,224
===========
</TABLE>
3. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the financial statements, but would be
substantially unchanged from the footnotes presented in the Partnership's
December 31, 1998 audited financial statements included in this report, and
are incorporated herein by reference as follows:
NOTE DESCRIPTION
---- -----------
1. Operations and Organization
2. Significant Accounting Policies
3. Involuntary Conversion of Nonmonetary Assets
4. Long-term Debt
5. Commitments and Contingencies
6. Management Investment in Partnership
7. Retirement Savings Plan
F-15
<PAGE>
4. MANAGEMENT INVESTMENT IN PARTNERSHIP:
The Partnership maintains a Management Equity Participation Plan and applies
variable plan accounting for the plan. Compensation expense for the nine
months ended September 30, 1999 and 1998 was $1,000,000 and $0, respectively.
5. OTHER INCOME:
During August 1999, the Partnership received a non-refundable earnest money
deposit of $1 million from a potential acquiror. The potential acquiror
was not able to complete the acquisition and the Partnership recognized the
deposit as other income in the nine months ended September 30, 1999.
6. SUBSEQUENT EVENT:
In November 1999 Lone Star Technologies, Inc. and Fintube Limited Partnership
executed an asset purchase agreement for the acquisition of substantially all
of the assets of Fintube Limited Partnership and its subsidiaries. The
purchase was effective January 1, 2000, for a base purchase price of $82
million plus a $2.5 million adjustment for working capital. Of the purchase
price, $20 million was paid through the issuance of 760,237 shares of Lone
Star common stock directly to the selling stockholders. Promissory notes
receivable from the Management Equity Participation Plan of approximately $2
million were excluded from the transaction. The Partnership's bank debt ($17
million as of January 3, 2000), litigation and expenses incurred in
conjunction with the sale of Fintube Limited Partnership's assets to Lone
Star, among other things, were excluded from the transaction.
F-16
<PAGE>
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on the nine-month period ended September 30,
1999, and the year ended December 31, 1998 Financial Statements of Lone Star
Technologies, Inc. ("Lone Star") and Fintube Limited Partnership ("Fintube"),
which are included elsewhere in this Prospectus, and has been prepared to
illustrate the effects of the transactions described below.
The following unaudited pro forma statements of operations for the nine
months ended September 30, 1999, and the year ended December 31, 1998, give
effect to the acquisition by Lone Star's subsidiaries of the assets of
Fintube and its subsidiaries (the "Acquisition"), and the issuance of the
Lone Star common stock, as if such transactions had occurred on January 1,
1999 and 1998, respectively. The pro forma unaudited balance sheet as of
September 30, 1999, has been prepared as if the Acquisition of Fintube had
occurred on that date.
The Acquisition of Fintube will be accounted for using the purchase method of
accounting. The total purchase costs of the Acquisition (approximately $85
million) have been allocated to the tangible and intangible assets and
liabilities acquired based upon their respective fair values. The allocation
of the aggregate purchase price reflected in the Pro Forma Financial
Information is preliminary. The final allocation of the purchase price is
contingent upon an audit of the working capital adjustment, a review for
other intangible assets and an assessment of the acquired net assets;
however, that allocation is not expected to differ materially from the
preliminary allocation.
The Pro Forma Financial Information is based on the historical financial
statements of Lone Star and Fintube and the assumptions and adjustments
described in the accompanying notes. The unaudited pro forma statements of
operations do not purport to represent what Lone Star's results of operations
actually would have been if the Acquisition had occurred as of the date
indicated or what results will be for any future periods. The Pro Forma
Financial Information is based upon assumptions that Lone Star believes are
reasonable and should be read in conjunction with the Financial Statements
and the related notes thereto included elsewhere in this Prospectus.
F-17
<PAGE>
LONE STAR TECHNOLOGIES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Lone Star
Lone Star Pro Forma Technologies
Technologies Fintube Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,000,000 $ 402,286 $ - $ 17,402,286
Short-term investments 1,200,000 - - 1,200,000
Accounts receivable, net 56,700,000 15,805,842 - 72,505,842
Inventories 82,600,000 8,604,224 - 91,204,224
Prepaid expenses - 6,203 - 6,203
Other current assets 3,600,000 - - 3,600,000
------------ ------------ ------------ ------------
Total current assets 161,100,000 24,818,555 - 185,918,555
MARKETABLE SECURITIES 15,400,000 - - 15,400,000
PROPERTY, PLANT, AND EQUIPMENT, net 150,500,000 22,197,295 (3,440,976)(a) 169,256,319
GOODWILL AND OTHER INTANGIBLES - - 48,869,082 (a) 48,869,082
OTHER ASSETS 15,600,000 1,190,667 (640,667)(a)(c) 16,150,000
------------ ------------ ------------ ------------
Total assets $342,600,000 $ 48,206,517 $ 44,787,439 $435,593,956
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,000,000 $ - $ 6,000,000 (d) $ 8,000,000
Accounts payable 47,400,000 3,050,259 - 50,450,259
Accrued liabilities 20,300,000 4,129,608 - 24,429,608
------------ ------------ ------------ ------------
Total current liabilities 69,700,000 7,179,867 6,000,000 82,879,867
LONG-TERM DEBT, net 7,500,000 15,175,907 17,824,093 (d) 40,500,000
REVOLVING CREDIT FACILITY 25,800,000 2,570,205 24,243,884 (d) 52,614,089
OTHER NONCURRENT LIABILITIES 59,200,000 - - 59,200,000
------------ ------------ ------------ ------------
Total liabilities 162,200,000 24,925,979 48,067,977 235,193,956
STOCKHOLDERS' EQUITY 180,400,000 23,280,538 (3,280,538)(b) 200,400,000
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $342,600,000 $ 48,206,517 $ 44,787,439 $435,593,956
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this unaudited
pro forma balance sheet.
F-18
<PAGE>
LONE STAR TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
a) Reflects the preliminary allocation of the purchase price for the
Acquisition. The Acquisition will be accounted for using the purchase method
of accounting. Lone Star has not yet determined the final allocation of the
purchase price and, accordingly, the amounts shown below may differ from the
amounts ultimately determined; however, that allocation is not expected to
differ materially from the preliminary allocation.
The preliminary pro forma allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price for net assets of Fintube $85,264,089
Less- Net assets of Fintube acquired (Fintube
long-term debt and revolving credit facility
not acquired) 41,026,650
-----------
Excess of purchase price over historical
amounts to be allocated $44,237,439
===========
Allocation of excess of purchase price based on preliminary estimated
values:
Property, plant, and equipment $(3,440,976)
Goodwill and other intangibles 48,869,082
Other assets (1,190,667)
-----------
$44,237,439
===========
(b) The adjustment to stockholders equity consists of:
Issuance of LST common stock $20,000,000
Less- Elimination of Fintube stockholders' equity
at September 30, 1999 (23,280,538)
------------
$(3,280,538)
===========
(c) This adjustment reflects the elimination of historical Fintube other assets
which were determined to have no fair market value and recognition of the
deferred financing costs associated with the financing described in (d),
below.
Historical Fintube other assets $(1,190,667)
Deferred financing costs 550,000
-----------
Total adjustment $ (640,667)
===========
</TABLE>
F-19
<PAGE>
(d) Reflects bank financing of $39,000,000 under the terms of a six year term
loan agreement and $26,814,089 of proceeds from revolving credit facilities
used to finance the acquisition, less the Fintube long-term debt and
revolving credit facility not assumed.
<TABLE>
<CAPTION>
Current Noncurrent Revolving
Long-Term Long-Term Credit
Debt Debt Facility
---------- ----------- -----------
<S> <C> <C> <C>
Transaction financing $6,000,000 $33,000,000 $26,814,089
Less- Fintube debt not assumed - (15,175,907) (2,570,205)
---------- ----------- -----------
$6,000,000 $17,824,093 $24,243,884
========== =========== ===========
</TABLE>
F-20
<PAGE>
LONE STAR TECHNOLOGIES, INC.
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
(a) (b) Lone Star
Lone Star Pro Forma Technologies
Technologies Fintube Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES/REVENUES $ 240,400,000 $ 60,738,399 $ - $ 301,138,399
COST OF SALES (236,200,000) (40,998,774) 368,676 (c) (276,830,098)
------------- ------------- ------------- -------------
Gross profit 4,200,000 19,739,625 368,676 24,308,301
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (11,300,000) (8,880,290) (1,398,227)(d) (20,578,517)
1,000,000 (e)
------------- ------------- ------------- -------------
Operating income (loss) (7,100,000) 10,859,335 (29,551) 3,729,784
INTEREST INCOME 1,300,000 - - 1,300,000
INTEREST EXPENSE (3,300,000) (917,676) (3,453,327)(f) (7,671,003)
OTHER INCOME (EXPENSE) (300,000) 1,767,649 - 1,467,649
------------- ------------- ------------- -------------
Income (loss) before income taxes (9,400,000) 11,709,308 (3,482,878) (1,173,570)
INCOME TAX BENEFIT (EXPENSE) - - - -
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (9,400,000) $ 11,709,308 $ (3,482,878) $ (1,173,570)
============= ============= ============= =============
NET LOSS PER SHARE
Basic $ (.42) - - $ (.05)
Diluted $ (.41) - - $ (.05)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 22,586,000 - 770,000 23,356,000
Diluted 22,960,000 - 770,000 23,730,000
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-21
<PAGE>
LONE STAR TECHNOLOGIES, INC.
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
(a) (b) Lone Star
Lone Star Pro Forma Technologies
Technologies Fintube Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES/REVENUES $ 432,400,000 $ 61,215,649 $ - $ 493,615,649
COST OF SALES (428,000,000) (45,621,021) 491,568 (c) (473,129,453)
------------- ------------- ------------- -------------
Gross profit 4,400,000 15,594,628 491,568 20,486,196
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (20,000,000) (9,800,521) (1,864,303)(d) (31,664,824)
SPECIAL CHARGES (14,500,000) - - (14,500,000)
------------- ------------- ------------- -------------
Operating income (loss) (30,100,000) 5,794,107 (1,372,735) (25,678,628)
INTEREST INCOME 2,000,000 - - 2,000,000
INTEREST EXPENSE (4,000,000) (1,474,601) (4,353,403)(f) (9,828,004)
OTHER INCOME (EXPENSE) (200,000) 2,579,135 - 2,379,135
------------- ------------- ------------- -------------
Income (loss) before income taxes (32,300,000) 6,898,641 (5,726,138) (31,127,497)
INCOME TAX EXPENSE - (115,267) - (115,267)
EXTRAORDINARY ITEMS 7,400,000 - - 7,400,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (24,900,000) $ 6,783,374 $ (5,726,138) $ (23,842,764)
============= ============= ============= =============
NET LOSS PER SHARE
Basic $ (1.10) - - $ (1.02)
Diluted $ (1.10) - - $ (1.02)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 22,550,000 - 770,000 23,320,000
Diluted 22,550,000 - 770,000 23,320,000
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-22
<PAGE>
LONE STAR TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
a) The historical balances for Lone Star are derived from the unaudited
accounting records of Lone Star for the nine months ended September 30,
1999, and the audited financial statements of Lone Star for the twelve
months ended December 31, 1998.
b) The historical balances for Fintube are derived from the unaudited
accounting records of Fintube for the nine months ended September 30, 1999,
and the audited financial statements of Fintube for the twelve months ended
December 31, 1998.
c) Reflects the incremental change in depreciation expense due to purchase
accounting adjustments to the fair value of property, plant, and equipment
consistent with the depreciation policies utilized by Lone Star.
(d) Reflects the incremental change in amortization expense due to purchase
accounting and adjustments to intangible assets in connection with the
acquisition consistent with the amortization policies utilized by Lone Star.
(e) Reflects the elimination of compensation expense from the Fintube Management
Equity Participation Plan, obligations of which Lone Star did not acquire.
(f) Reflects interest expense (at an assumed rate of 8.64%) associated with the
borrowings under the revolving credit agreement and term loan, and
amortization of deferred financing cost in connection with the Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Interest expense related to new borrowings $ 4,371,003 $ 5,828,004
Less - Historical interest expense of Fintube (debt not (917,676) (1,474,601)
assumed) ----------- -----------
Pro Forma Adjustment $ 3,453,327 $ 4,353,403
=========== ===========
</TABLE>
F-23
<PAGE>
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.
Date: February 3, 2000 LONE STAR TECHNOLOGIES, INC.
By:/s/ Charles J. Keszler
------------------------------------
Charles J. Keszler
Vice President-Finance and Treasurer
3
