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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ............... TO ...............
COMMISSION FILE NUMBER 0-11936
LAFARGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 58-1290226
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
11130 SUNRISE VALLEY DRIVE 22091
SUITE 300 (Zip Code)
RESTON, VIRGINIA
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 264-3600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- -----------------------------
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE, INC.
THE TORONTO STOCK EXCHANGE
MONTREAL EXCHANGE
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2013 NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act:
Titles of Class
---------------
NONE
Indicate by 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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
/ /
State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant at March 9, 1994:
$754,132,042
Indicate the number of shares of each of the Registrant's classes of common
stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 9, 1994
----- ----------------------------
COMMON STOCK, PAR VALUE $1.00 PER SHARE 67,510,800 SHARES (INCLUDING 9,104,150
EXCHANGEABLE PREFERENCE SHARES OF
LAFARGE CANADA INC.)
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH THE
DOCUMENT DOCUMENT IS INCORPORATED
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Proxy Statement dated Part III
March 23, 1994
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Item 1. BUSINESS
Lafarge Corporation (the "Registrant"), a Maryland corporation, is engaged in
the production and sale of cement and ready-mixed concrete, aggregates,
asphalt, concrete blocks and pipes and precast and prestressed concrete
components in the United States and Canada. The Registrant believes that it is
one of the largest producers of cement and construction materials in North
America. The Registrant is also engaged in road building and other
construction using many of its own products. Its wholly-owned subsidiary,
Systech Environmental Corporation ("Systech"), provides waste-derived fuels and
alternative raw materials to cement plants for use in kilns across North
America. The Registrant's Canadian operations are carried out by Lafarge
Canada Inc. ("LCI"), a major operating subsidiary of the Registrant. Lafarge
Coppee S.A. ("Lafarge Coppee"), a French corporation, and certain of its
affiliates own a majority of the Registrant's outstanding voting securities.
The terms "Registrant", "LCI" and "Systech", as used in this Annual Report,
include not only Lafarge Corporation, LCI, Inc. and Systech Environmental
Corporation, respectively, but also their respective subsidiaries and
predecessors, unless the context indicates otherwise.
The Registrant manufactures and sells various types of portland cement, which
is widely used in most types of residential, institutional, commercial and
industrial construction. The Registrant also manufactures and sells a variety
of special purpose cements. At December 31, 1993 the Registrant operated 15
full-production cement manufacturing plants with a combined rated annual
clinker production capacity of approximately 12.3 million tons and two cement
grinding facilities. The Registrant sells cement primarily to manufacturers of
ready-mixed concrete and other concrete products and to contractors throughout
Canada and in many areas of the United States. During 1993 the Registrant's
cement operations accounted for 47 percent of consolidated net sales, after the
elimination of intracompany sales, and 76 percent of consolidated income from
operations.
Management believes that LCI is the largest producer of concrete-related
building materials in Canada, where approximately 73 percent of the
Registrant's construction materials facilities were located at December 31,
1993. The U.S. construction materials operations are located primarily in
Texas, Louisiana, Ohio, Pennsylvania, Illinois, New York, Missouri, Kansas and
Washington. The Registrant's significant construction materials activities
include the manufacture and sale of ready-mixed concrete, construction
aggregates, other concrete products and asphalt and road construction. The
Registrant has operations at approximately 420 locations including ready-mixed
concrete plants, crushed stone and sand and gravel sites, concrete product and
asphalt plants. During 1993 the Registrant's construction materials operations
accounted for 53 percent of consolidated net sales, after the elimination of
intracompany sales, and 24 percent of consolidated income from operations.
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At December 31, 1993 Systech operated eight facilities at cement plants in the
U.S. and Canada, including five plants that are owned by the Registrant.
Systech processed approximately 66 million gallons of supplemental fuel in
1993. Systech's results of operations are included in the results of the
Registrant's construction materials operations.
The executive offices of the Registrant are located at 11130 Sunrise Valley
Drive, Suite 300, Reston, Virginia 22091, and its telephone number is (703)
264-3600.
(A) GENERAL DEVELOPMENT OF BUSINESS
In 1970, Lafarge Coppee acquired control of Canada Cement Lafarge Ltd.
(now LCI) which was Canada's largest cement producer. In 1974, LCI extended
its cement manufacturing operations into the United States through a joint
venture which operated three cement plants in the United States. Following the
termination of the joint venture in 1977, the Registrant (which was
incorporated in Maryland in 1977 under the name Citadel Cement Corporation of
Maryland) operated two of these U.S. cement plants. In 1981, a subsidiary of
the Registrant acquired the stock of General Portland Inc. ("General
Portland"), the second largest cement producer in the U.S. In 1983, a
corporate reorganization was effected which established the Registrant as the
parent company of LCI and General Portland (General Portland was merged into
the Registrant in 1988), and the Registrant's name was changed to Lafarge
Corporation. In 1986, the Registrant purchased substantially all the assets of
National Gypsum Company's Huron Cement Division, consisting of one cement
plant, 13 cement terminals and related distribution facilities around the Great
Lakes. Also in 1986, the Registrant acquired Systech. During 1989, 1990 and
1991, the Registrant significantly expanded its U.S. construction materials
operations through acquisitions, the largest of which included 32 plant
facilities in five states and substantial mineral reserves acquired from
Standard Slag Holding Company headquartered in Ohio. The Registrant acquired
Missouri Portland Cement Company, Davenport Cement Company and certain related
companies and assets in 1991. This acquisition included three cement plants
and 15 cement distribution terminals located in the Mississippi River Basin,
more than 30 ready-mixed concrete and aggregate operations and the assets of a
chemical admixtures business.
Restructuring
In December 1993 the Registrant announced the restructuring of its North
American business units to be more efficient and cost competitive. The
Registrant will consolidate 11 regional operating units into six in its two
main business lines, cement and construction materials. To increase
organizational efficiency, the Registrant is reducing management layers,
eliminating duplicative administrative functions, and standardizing procedures
and information systems. Manufacturing and distribution facilities will not be
materially affected by the reorganization.
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As of January 1, 1994, the Registrant's new North American organization
included three regions for construction materials: Western, based in Calgary,
Alberta; Eastern, based in Toronto, Ontario; and U.S., based in Canfield, Ohio.
Similarly, the cement group was divided into Western, Eastern and U.S. regions,
with office locations in Calgary; Montreal, Quebec; and Southfield, Michigan,
respectively. A technical services group will be maintained at the
Registrant's research center in Montreal and Corporate headquarters will remain
in Reston, Virginia.
See page II-7 of Item 7 and page II-35 of Item 8 of this Annual Report for
further discussion regarding the restructuring.
Sale of Demopolis Cement Operations
Effective February 1, 1993 the Registrant sold its cement plant in Demopolis,
Alabama. The sale included the Registrant's 810,000 ton single- kiln plant and
related assets, seven cement distribution terminals and two terminal leases in
the southeastern United States, a cement grinding plant and several barges.
The purchase price was approximately $50 million in cash. The Registrant used
the proceeds from the sale to repay debt. The gain from the sale was
immaterial. Systech continues to supply the Demopolis plant with waste-derived
fuels.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Registrant's operations are closely integrated. For reporting purposes,
the Registrant currently has only one industry segment, which includes the
manufacture and sale of cement, ready-mixed concrete, precast and prestressed
concrete components, concrete blocks and pipes, aggregates, asphalt and
reinforcing steel. In addition, the Registrant is engaged in road building and
other construction utilizing many of its own products. Its subsidiary,
Systech, provides waste-derived fuels and alternative raw materials for use in
cement kilns. Financial information with respect to the Registrant's product
lines and geographic segments is set forth under Item 7 Management's Discussion
of Income on pages II-3 through II-19, Management's Discussion of Cash Flows on
pages II-20 and II-21 and Item 8 - Consolidated Financial Statements and
Supplementary Data on pages II-45 and II-46 of this Annual Report.
The Registrant's business is affected significantly by seasonal variations in
weather conditions, primarily in Canada and the northern United States.
Information with respect to quarterly financial results is set forth in Item 8
page II-54 of this Annual Report.
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(C) NARRATIVE DESCRIPTION OF BUSINESS
Cement Product Line
The Registrant manufactures and sells in Canada (through its subsidiary LCI)
and in the United States various types of portland cement, a basic construction
material manufactured principally from limestone and clay or shale. Portland
cement is the essential binding ingredient in concrete, which is widely used in
most types of residential, institutional, commercial and industrial
construction. In addition to normal portland cement, the Registrant
manufactures and sells a variety of special purpose cements, such as high early
strength, low and moderate heat of hydration, sulphate resistant, silica fume,
masonry and oilwell cement.
At December 31, 1993 the rated annual clinker production capacity of the
Registrant's operating cement manufacturing plants was approximately 12.3
million tons with about 5.2 million tons in Canada and approximately 7.1
million tons in the United States. The Canadian Portland Cement Association's
"Plant Information Summary Report" dated December 31, 1992 shows that the
Canadian capacity is the largest of the cement companies in Canada and
represented approximately 31 percent of the total active industry clinker
production capacity in that country. This same report for the U.S. at December
31, 1992 shows that the Registrant's operating cement manufacturing plants in
the United States accounted for an estimated nine percent of total U.S. active
industry clinker production capacity.
Cement Plants
The following table indicates the location, types of process and rated annual
clinker production capacity (based on management's estimates) of each of the
Registrant's operating cement manufacturing plants at December 31, 1993. The
total clinker production of a cement plant might be less than its rated
capacity due principally to product demand and seasonal factors. Generally, a
plant's cement production capacity is greater than its clinker production
capacity.
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Rated Annual Clinker Production Capacity of
Cement Manufacturing Plants
(In short tons) *
United States Plants Canadian Plants
------------------------------------------ ---------------------------------------
Clinker Clinker
Location Process Capacity Location Process Capacity
-------- ------- -------- -------- ------- --------
New Braunfels, TX Dry ** 880,000 Brookfield, N.S. Dry 599,000
Paulding, OH Wet 470,000 St. Constant, QUE Dry 1,091,000
Fredonia, KS Wet 382,000 Bath, ONT Dry *** 1,040,000
Whitehall, PA Dry *** 873,000 Woodstock, ONT Wet 628,000
Alpena, MI Dry 2,002,000 Exshaw, ALTA Dry ** 1,135,000
Davenport, IA Dry ** 858,000 Kamloops, B.C. Dry 214,000
Sugar Creek, MO Dry 482,000 Richmond, B.C. Wet 522,000
Joppa, IL Dry *** 1,150,000
--------- ---------
Total capacity 7,097,000 Total capacity 5,229,000
========= =========
Total 1993 clinker production 6,383,000 Total 1993 clinker
========= production 3,763,000
=========
1993 production as a percentage 1993 production as a
of total capacity 90% percentage of total
========= capacity 72%
=========
* One short ton equals 2,000 pounds.
** Preheater, pre-calciner plants. The capacity of Exshaw's
preheater, pre-calciner kiln is 53 percent of the plant's clinker
production capacity.
*** Preheater plants.
All of the Registrant's cement plants are fully equipped with raw grinding
mills, kilns, finish grinding mills, environmental protective dust collection
systems and storage facilities. Each plant has facilities for shipping by rail
and by truck. The Richmond, Alpena, Bath, Davenport, Sugar Creek and Joppa
plants have facilities for transportation by water. The Exshaw and Brookfield
plants and the Kamloops limestone and cinerite quarries are located on sites
leased on a long-term basis. The Registrant owns all other plant sites. The
Registrant believes that each of its producing plants is in satisfactory
operating condition.
At December 31, 1993, the Registrant owned cement grinding plants for the
processing of clinker into cement at Fort Whyte, Manitoba; Edmonton, Alberta;
Saskatoon, Saskatchewan; Montreal East, Quebec and Superior, Wisconsin. The
Edmonton, Montreal East, Saskatoon and Superior grinding plants have been
shutdown for several years as cement grinding has not been cost effective at
these locations. These plants were used during 1993 for the storage of cement.
The Registrant also owns a cement regrind plant and terminal facilities at
Tampa, Florida which include facilities for receiving cement by water. The
Registrant owns clinker producing plants which have been shut down in Havelock,
New Brunswick, Ft. Whyte, Manitoba and Metaline Falls, Washington.
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During 1987 the Registrant re-opened the two million ton clinker capacity
Alpena plant with restructured low-cost operations utilizing waste- derived
fuels supplied by Systech. The Alpena plant was acquired by the Registrant in
December 1986. In January 1989 the Registrant announced a multi-year,
two-phase modernization and expansion program for the Alpena plant. The first
phase of this project, substantially completed in 1990, included approximately
$55 million for equipment and related support systems and between $10 and $15
million in facility upgrades. The second phase of the modernization program
totalling approximately $26 million is currently underway and will involve
additional improvements to the plant's raw materials handling and storage
facilities. The facility upgrade and modernization program is expected to
reduce operating costs and increase the plant's rated annual cement production
capacity to 2.5 million tons.
In January 1991, as part of the Missouri Portland/Davenport acquisition, the
Registrant acquired three cement plants located in the Mississippi River Basin:
a 1,150,000-ton clinker capacity cement plant located in Joppa, Illinois, a
858,000-ton clinker capacity cement plant located in Davenport, Iowa and a
482,000-ton clinker capacity cement plant located near Kansas City, Missouri
(Sugar Creek). Total 1993 clinker production from these three dry-process
cement plants was 2,225,000 short tons, or 89 percent of capacity. The three
cement plants acquired in the Missouri Portland/Davenport acquisition increased
the Registrant's annual clinker production capacity by 25 percent.
The Manufacturing Process
The Registrant manufactures cement by a closely controlled chemical process
which begins with the crushing and mixing of calcium carbonates, argillaceous
material (clay, shale or kaolin) and silicates (sand). Once mixed, the crushed
raw materials undergo a grinding process, which mixes the various materials
more thoroughly and increases fineness in preparation for the kiln. This
mixing and grinding process may be done by either the wet or the dry method.
In the wet process, the materials are mixed with water to form "slurry", which
is heated in kilns, forming a hard substance called "clinker". In the more
fuel-efficient dry process, the addition of water and the formation of slurry
are eliminated, and clinker is formed by heating the dry raw materials. In the
preheater process, which provides further fuel efficiencies, the dry raw
materials are preheated by air exiting the kiln, and part of the chemical
reaction takes place prior to entry of the materials into the kiln. In the
pre-calciner process, an extension of the preheater process, heat is applied to
the raw materials, increasing the proportion of the chemical reaction taking
place prior to the kiln and, as a result, increasing clinker production
capacity. After the addition of gypsum, the clinker is ground into an
extremely fine powder called cement. In this form, cement is the binding agent
which, when mixed with sand, stone or other aggregates and water, produces
either concrete or mortar.
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The raw materials required to manufacture cement are obtained principally from
operations which are owned by the Registrant or in which it has long-term
quarrying rights. These sources are located close to the manufacturing plants
except for the Joppa and Richmond quarries which are located approximately 70
and 80 miles, respectively, from the plant site. Each cement manufacturing
plant except New Braunfels is equipped with rock crushing equipment. At New
Braunfels and Richmond, the Registrant owns the reserves, but does not
currently quarry them. The Registrant purchases limestone for Richmond from a
local source and for New Braunfels from Parker Lafarge, Inc. an affiliate of
the Registrant. At Whitehall, Joppa and Kamloops the Registrant sub-contracts
the quarry operations.
Fuel represents a significant portion of the cost of manufacturing cement. The
Registrant has placed special emphasis on becoming, and has become, more
efficient in its sourcing and use of fuel. Dry process plants generally
consume significantly less fuel per ton of output than do wet process plants.
At year-end approximately 79 percent and 89 percent of the Registrant's clinker
production capacity in Canada and the United States, respectively, used the dry
process.
As an additional means of reducing energy costs, most plants are now equipped
to convert from one form of fuel to another with very little interruption in
production, thus avoiding dependence on a single fuel and permitting the
Registrant to take advantage of price variations between fuels.
The use of waste-derived fuels supplied by Systech has also resulted in
substantial fuel cost savings to the Registrant. At December 31, 1993, the
Registrant used industrial waste materials obtained and processed by Systech as
fuel at three of the Registrant's United States cement plants.
Waste-derived fuels supplied by Systech constituted approximately 10 percent of
the fuel used by the Registrant in all of its cement operations during 1993.
In August 1991, the Registrant's U.S. cement plants which utilize hazardous
waste-derived fuels became subject to a substantial new federal permit program
known as the Resource Conservation and Recovery Act ("RCRA") boiler and
industrial furnaces (BIF) regulations. In August 1992, these plants submitted
certifications of compliance for the emission limits established under these
regulations. In Canada, the St. Constant and Brookfield plants have submitted
permit applications to use hazardous waste as supplemental fuel. These
applications are in the public review phase.
The following table shows the possible alternative fuel sources of the
Registrant's cement manufacturing plants in the United States and Canada at
December 31, 1993.
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Plant Location Fuels
-------------- -----
United States:
New Braunfels, Texas. . . . Coal, Coke, Natural Gas, Wood Chips,
Tire Derived Fuel
Paulding, Ohio. . . . . . . Coal, Coke, Industrial Waste Materials
Fredonia, Kansas. . . . . . Coal, Industrial Waste Materials,
Natural Gas
Whitehall, Pennsylvania . . Coal, Oil, Coke, Tire Derived Fuel
Alpena, Michigan. . . . . . Coal, Coke, Industrial Waste Materials,
Natural Gas
Davenport, Iowa . . . . . . Coal
Sugar Creek, Missouri . . . Coal, Coke, Natural Gas
Joppa, Illinois . . . . . . Coal, Natural Gas
Canada:
Brookfield, Nova Scotia . . Coal, Oil, Coke, Oil Sludge
St. Constant, Quebec. . . . Natural Gas, Oil, Coke, Pitch Fuel
Bath, Ontario . . . . . . . Natural Gas, Coke, Coal
Woodstock, Ontario. . . . . Natural Gas, Coal, Coke
Exshaw, Alberta . . . . . . Natural Gas
Kamloops, British Columbia. Natural Gas, Coal, Coke
Richmond, British Columbia. Natural Gas, Coke, Coal,
Coal Tailings, Bio Gas, Tire Derived Fuel
Marketing
Cement is sold by the Registrant primarily to manufacturers of ready-mixed
concrete and other concrete products and to contractors throughout Canada and
in many areas of the United States. The states in which the Registrant had the
most significant U.S. sales in 1993 were Texas and Wisconsin. Other states in
which the Registrant had significant sales include Florida, Illinois, Indiana,
Iowa, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New
Jersey, New York, North Dakota, Ohio, Pennsylvania, Tennessee and Washington.
The provinces in Canada in which the Registrant had the most significant sales
of cement products were Ontario and Quebec, which together accounted for
approximately 44 percent of the Registrant's total Canadian cement shipments in
1993. Approximately 35 percent of the Registrant's cement shipments in Canada
were made to affiliates.
The Registrant sells cement to several thousand unaffiliated customers. No
single unaffiliated customer accounted for more than 10 percent of the
Registrant's cement sales during 1993, 1992 or 1991. Sales are made on the
basis of competitive prices in each market area, generally pursuant to
telephone orders from customers who purchase quantities sufficient for their
immediate requirements. The amount of backlog orders, as measured by written
contracts, is normally not significant.
At December 31, 1993 sales offices in the United States were located in or near
New Orleans, Louisiana; Buffalo, New York; Dallas, Texas; Tampa, Florida; Fort
Wayne, Indiana; Whitehall, Pittsburgh and Hamburg,
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Pennsylvania; East Cambridge, Massachusetts; Chicago, Illinois; Cleveland,
Ohio; Lansing, Michigan; Milwaukee, Wisconsin; Seattle and Spokane, Washington;
Minneapolis, Minnesota; Kansas City , Missouri; Davenport, Iowa; Valley City
and Grand Forks, North Dakota and Nashville, Tennessee.
At December 31, 1993 sales offices in Canada were located in Dartmouth, Nova
Scotia; Moncton, New Brunswick; Quebec City and Montreal, Quebec; Toronto,
Ontario; Winnipeg, Manitoba; Regina and Saskatoon, Saskatchewan; Calgary and
Edmonton, Alberta; and Kamloops and Vancouver, British Columbia.
Distribution and storage facilities are maintained at all cement manufacturing
and finishing plants and at approximately 100 other locations including five
deep water ocean terminals. These facilities are strategically located to
extend the marketing areas of each plant. Because of freight costs, most
cement is sold within a radius of 250 miles from the producing plant, except
for waterborne shipments which can be shipped economically considerably greater
distances. Cement is distributed primarily in bulk but also in paper bags.
The Registrant utilizes trucks, rail cars and waterborne vessels to transport
cement from its plants to distribution points or directly to customers.
Transportation equipment is owned, leased or contracted for as required. In
addition, some customers in the United States make their own transportation
arrangements and take delivery of cement at the manufacturing plant or
distribution point.
Construction Materials Product Line
The Registrant is engaged in the production and sale of ready-mixed concrete,
aggregates, asphalt, precast and prestressed concrete, concrete block, concrete
pipe and other related products. The Registrant is also engaged in highway and
municipal paving and road building work. During 1993, 1992 and 1991 no single
customer accounted for more than 10 percent of the Registrant's construction
materials sales.
LCI is the only producer of ready-mixed concrete and construction aggregates in
Canada that has operations extending from coast to coast. Ready-mixed concrete
plants mix controlled portions of cement, water and aggregates to form concrete
which is sold primarily to building contractors and delivered to construction
sites by mixer trucks. In addition, management believes that LCI is one of the
largest manufacturers of precast concrete products and concrete pipe in Canada.
These products are sold primarily to contractors engaged in all phases of
construction activity. The Registrant owns substantially all of its
ready-mixed concrete, concrete products and aggregates plants and believes that
all such plants are in satisfactory operating condition.
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The Registrant owned or had a majority interest in 311 construction materials
facilities in Canada at December 31, 1993. Of these, 118 are ready-mixed
concrete plants concentrated in the Provinces of Ontario (where approximately
one-half of the plants are located), Alberta, Quebec and British Columbia. The
Registrant also owns ready-mixed concrete plants in New Brunswick, Nova Scotia,
Saskatchewan and Manitoba. The Registrant owns 112 construction aggregates
facilities in Canada, more than half of which are located in Ontario. The
other aggregates facilities are located in Alberta, Saskatchewan, British
Columbia, Quebec, Manitoba, New Brunswick and Nova Scotia. The Registrant's 29
Canadian asphalt facilities are also concentrated primarily in Ontario with the
remaining plants in Alberta, Nova Scotia, New Brunswick and Quebec. The
Registrant owns a total of 52 precast and prestressed concrete, concrete block
and concrete pipe plants and miscellaneous other construction materials
operations in Ontario (where approximately one-half of the plants are located),
Alberta, British Columbia, Manitoba, Quebec and New Brunswick.
In the U.S., the Registrant owned or had a majority interest in 117
construction materials facilities at year end. Of these, 54 are ready- mixed
concrete plants concentrated in Texas, Missouri, and to a lesser extent,
Louisiana, Ohio and Kansas. Of the Registrant's 44 U.S. construction
aggregates facilities, 12 were in Ohio, 14 in Texas, five in Pennsylvania, with
the remainder located in West Virginia, New York, Louisiana, Michigan,
Missouri, and Washington. Two of the Registrant's six U.S. asphalt plants were
located in New York and four in Texas. The Registrant owned a total of 13
concrete paving stone, road paving, soil cement, concrete paving and
miscellaneous other construction materials operations located in Ohio,
Michigan, Texas, Pennsylvania, Missouri and New York.
In addition, the Registrant has minority interests in a number of smaller
companies primarily engaged in the manufacture and sale of ready- mixed
concrete, other concrete products and aggregates in Canada and the U.S.
Systech Environmental Corporation provides waste-derived fuels and alternative
raw materials for use in cement kilns. Using a technology called
co-processing, Systech is able to use high BTU value waste as a fuel substitute
for coal, natural gas and petroleum coke in heating the cement kiln.
Co-processing preserves natural resources and serves as a safe and efficient
method to manage selected waste. In addition, co- processing makes the product
more competitive by reducing fuel cost, which represents about 15 percent of
the expense of cement manufacturing.
Research, Development and Engineering
The Registrant is involved in research and development work through its own
technical services and laboratories and through its participation in the
Portland Cement Association. In addition, Lafarge Coppee, LCI
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and the Registrant are parties to agreements relating to the exchange of
technical and management expertise under which the Registrant has access to the
research and development resources of Lafarge Coppee. Research is directed
toward improvement of existing technology in the manufacturing of cement,
concrete and related products as well as the development of new manufacturing
techniques and products. Systech is also engaged in research and development
in an effort to further develop the technology to handle additional waste
materials. Research and development costs, which are charged to expense as
incurred, were $7.3 million, $8.1 million and $7.5 million for 1993, 1992 and
1991, respectively. This includes amounts accrued for technical services
rendered by Lafarge Coppee to the Registrant, under the terms of the agreements
discussed above of $4.8 million during 1993, $5.3 million during 1992 and $5.4
million during 1991.
Capital Expenditures and Asset Dispositions
The Registrant's business is relatively capital-intensive. During the
three-year period ended December 31, 1993 the Registrant invested approximately
$209 million in capital expenditures, principally for the modernization or
replacement of existing equipment. Of this amount, approximately 42 percent
related to cement operations and 58 percent to construction materials
operations. During the same period, the Registrant also invested approximately
$31 million in various acquisitions that expanded its market and product lines
which primarily related to the Registrant's construction materials operations.
For a discussion on the sale of the Demopolis cement operations see "General
Development of Business - Sale of Demopolis Cement Operations".
Cement terminal facilities in St. Louis, Missouri and Houston, Texas were
shutdown in February 1993. The Registrant intends to sell the land on which
these terminals and related assets are located.
In September 1992, the Registrant sold the assets of Conchem, a chemical
admixtures business located in the United States and Canada. The divestiture
included seven facilities engaged in the production and sale of admixture and
specialty products for the concrete and construction industry throughout North
America. The U.S. assets had been acquired as part of the Missouri
Portland/Davenport acquisition in January 1991 (see "General Development of
Business"). During 1993, 1992 and 1991 the Registrant disposed of various
surplus properties; however, there were no other material divestments of
property, plant and equipment during these three years.
In December 1993 the Registrant's Construction Materials operations purchased a
plant from Koch Industries, Inc. for grinding iron blast furnace slag into slag
cement at Spragge, Ontario. In April 1993 the Registrant entered into a joint
venture, Richvale-York Block Inc. with another block producer to carry on its
concrete block business in the Greater Metropolitan Toronto area. The
Registrant is the majority
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shareholder in this joint venture which owns two modern block plants that are
strategically located in this market.
Environmental Matters
The Registrant's operations, like those of other companies engaged in similar
businesses, involve the use, release/discharge, disposal and clean-up of
substances regulated under increasingly stringent federal, state, provincial
and/or local environmental protection laws. The major environmental statutes
and regulations affecting the Registrant's business and the status of certain
environmental enforcement matters involving the Registrant are discussed in
Item 7 of this Annual Report in the "Environmental Matters" section of
Management's Discussion and Analysis beginning on page II-15. Additionally,
certain enforcement matters are described in Item 3 (Legal Proceedings) of this
Annual Report.
Employees
As of December 31, 1993, the Registrant and its subsidiaries employed
approximately 7,400 individuals of which 4,640 were hourly rated wage workers.
Approximately 1,530 of these hourly employees were engaged in the production of
portland cement products and approximately 3,110 were employed in the
Registrant's construction materials operations. Salaried employees totalled
approximately 2,750. These employees generally perform work in administrative,
managerial, marketing, professional and technical endeavors. Overall, the
Registrant considers its relations with employees to be satisfactory.
- - - U.S. CEMENT OPERATIONS
The majority of the Registrant's approximately 2,200 U.S. hourly employees are
represented by labor unions. During 1993, labor agreements were renegotiated at
the Buffalo, Iowa and Fredonia, Kansas cement plants (including distribution
terminals in Fort Worth, Texas and Westlake, Louisiana). Five other terminal
labor agreements expired and new agreements were reached during 1993: Waukegan,
Illinois; Duluth, Minnesota; Superior, Wisconsin; Toledo; Ohio and Oswego, New
York. Four cement plant labor agreements will expire in 1994: Whitehall,
Pennsylvania; Sugar Creek, Kansas; Paulding, Ohio; and Balcones, Texas. The
labor agreement for Whitehall was renewed for a period of 46 months in early
1994. Effective February 1, 1993, the Registrant completed the sale of its
Demopolis, Alabama cement plant and surrounding sales and distribution
operations (see "General Development of Business - Sale of Demopolis Cement
Operations" above). In addition, terminal facilities in St. Louis, Missouri and
Houston, Texas were shut down in February. The Registrant intends to sell the
land on which these terminals and related assets are located. In late 1993, it
was announced that in connection with the restructuring of the Registrant's
North American business units (see "General Development of Business -
Restructuring" above), the administrative operations of the Southern Region
office in
I-12
14
Dallas would be consolidated into one U.S. region based in Southfield,
Michigan. This transition is expected to be completed by June 1994.
- - - U.S. CONSTRUCTION MATERIALS OPERATIONS
The Registrant's approximately 1,715 U.S. construction materials employees
consist of approximately 1,200 hourly employees and 515 salaried employees. In
1993, divestiture of aggregate and construction operations in southern Ohio,
northern Kentucky and central Illinois resulted in a reduction of 119 employees
(96 hourly and 23 salaried). In the Registrant's Sullivan Lafarge operations in
New York, the closure of six plants resulted in the severance of 110 hourly
employees. In the Registrant's Standard Lafarge division, a labor agreement
covering six plants was negotiated in 1993, and four single site labor
agreements covering a total of approximately 105 employees will expire in 1994.
Although a work stoppage is possible at one of these sites, it is expected that
operations will continue without interruption.
At the Registrant's Kurtz Lafarge division, the labor agreement for ready-mixed
concrete truck drivers expired in May 1993 for the plants located west of the
Missouri River. Negotiations were unsuccessful and 35 drivers went on strike
July 15, 1993 and remain on strike. Replacement drivers have been hired and
the affected plants are now operating. The labor agreement for the drivers on
the east side of the Missouri River expired on March 15, 1994 and negotiations
for a new contract have begun. A work stoppage could occur but is not expected.
The Kurtz Lafarge operations which are based in Sedalia, Missouri negotiated a
new labor agreement in 1993. Labor agreements relating to operations based in
Waynesville and Kansas City, Missouri will expire in 1994.
- - - CANADIAN CEMENT OPERATIONS
Substantially all of the approximately 540 Canadian cement hourly employees are
covered by labor agreements. The Kamloops, British Columbia plant's labor
agreement was renewed in 1993 for a period of two years. On January 7, 1994 a
lock-out was initiated by the Registrant for its 112 hourly employees at the
Exshaw, Alberta plant and it remains in effect as of the date of this Report.
The plant has continued to operate without interruption, and this situation
will not have a material effect on the Registrant's financial condition or
results of operations in 1994. The Bath, Ontario plant's labor agreement
expired at the end of 1993 and was renewed for 23 months. Labor agreements for
the Woodstock, Ontario plant and the St. Constant, Quebec plant will expire in
1994 and are expected to be renegotiated without any work stoppage. Also,
several terminal labor agreements will expire in 1994.
I-13
15
- - - CANADIAN CONSTRUCTION MATERIALS OPERATIONS
Employees working in the Canadian construction materials operations totalled
approximately 2,825 at the end of 1993 with approximately 1,915 hourly
employees and 910 salaried employees. In western Canada, twelve labor
agreements were renegotiated in 1993, and it is anticipated that 24 labor
agreements will be renegotiated during 1994. In eastern Canada, sixteen labor
agreements were renegotiated.
Competition
The competitive marketing radius of a typical cement plant for common types of
cement is approximately 250 miles except for waterborne shipments which can be
economically transported considerably greater distances. Cement, concrete
products and aggregates and construction services are sold in competitive
markets. These products and services are obtainable from alternate suppliers.
Vigorous price, service and quality competition is encountered in each of the
Registrant's primary marketing areas.
The Registrant's operating cement plants located in Canada represented an
estimated 31 percent of the rated annual active clinker production capacity of
all Canadian cement plants at December 31, 1992. The Registrant is the only
cement producer serving all regions of Canada. The Registrant's largest
competitor in Canada accounted for approximately 23 percent of rated annual
active clinker production capacity. The Registrant's operating cement plants
located in the United States at December 31, 1992 represented an estimated nine
percent of the rated annual active clinker production capacity of all U.S.
cement plants. The Registrant's three largest competitors in the United States
accounted for 14, seven and five percent, respectively, of the rated annual
active clinker production capacity. The preceding statements regarding the
Registrant's ranking and competitive position in the cement industry are based
on the U.S. and Canadian Portland Cement Industry: "Plant Information Summary
Report" dated December 31, 1992.
The Registrant also encounters competition from foreign cement producers,
especially in its markets in the southern coastal portion of the United States.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The information with respect to foreign and domestic operations and export
sales is set forth on pages II-45 and II-46 of Item 8 - Financial Statements
and Supplementary Data of this annual report and is incorporated herein by
reference.
I-14
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following tabulation sets forth as of March 25, 1994 the name and age of
each of the executive officers of the Registrant and indicates all positions
and offices with the Registrant held by them at said date.
Name Position Age
- ------------------ ----------------------------- ---
Bertrand P. Collomb Chairman of the Board 51
Michel Rose President and Chief Executive Officer 51
John M. Piecuch Senior Executive Vice President 45
and President - Construction
Materials Group
R. Gary Gentles Executive Vice President and 44
President - Cement Group
President U.S. Cement Region
Jean-Pierre Cloiseau Executive Vice President and 49
Chief Financial Officer
Peter H. Cooke Senior Vice President and 45
President - Eastern Cement Region
H. L. Youngblood Senior Vice President and 58
President - Western Cement Region
Duncan Gage Senior Vice President - 44
Planning and Development
Edward T. Balfe Senior Vice President - 52
Construction Materials
Patrick Demars Senior Vice President - 45
Corporate Technical Services
Thomas W. Tatum Senior Vice President - 56
Human Resources
John C. Porter Vice President and Controller 55
Philip A. Millington Treasurer 40
David C. Jones Vice President - Legal Affairs and 52
Secretary
David W. Carroll Vice President - Environment and 47
Government Affairs
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17
Bertrand P. Collomb was appointed to his current position in January 1989. He
has also served as Chairman of the Board and Chief Executive Officer of Lafarge
Coppee since August 1, 1989. From January 1, 1989 to August 1, 1989 he was
Vice Chairman of the Board and Chief Operating Officer of Lafarge Coppee, and
from 1987 until January 1, 1989 he was Senior Executive Vice President of
Lafarge Coppee. He served as Vice Chairman of the Board and Chief Executive
Officer of the Registrant from February 1987 to January 1989.
Michel Rose was appointed to his current position in September 1992. He
previously served as President and Chief Executive Officer of Orsan, a Lafarge
Coppee subsidiary, from 1987 until September 1992. Since 1989 he has served as
Senior Executive Vice President of the Lafarge Coppee Group.
John M. Piecuch was appointed to his current position in July 1992. Prior to
that, he served as Executive Vice President and President of the Registrant's
Cement Group. He served as Senior Vice President and President of the
Registrant's Great Lakes Region from January 1987 to January 1989.
R. Gary Gentles was appointed to his current position in November 1992. He
served as President of Lafarge Coppee's European plaster operations from 1990
to 1992 and was President of the Registrant's Northeast Cement Region from 1987
to 1990.
Jean-Pierre Cloiseau was appointed to his current position in January 1994. He
previously served as Senior Vice President and Chief Financial Officer of the
Registrant from September 1990 to December 1993. Prior to that, he served as
Vice President and Controller of the Registrant from January 1989 to September
1990. He had served as Vice President and Treasurer of the Registrant from May
1985 to January 1989.
Peter H. Cooke was appointed to his current position in July 1990. Prior to
that, he served as Vice President of Operations of the Registrant's Great Lakes
Region from April 1987 to June 1990.
H. L. Youngblood was appointed to his current position in January 1989. He
served as Vice President - Distribution of the Registrant's Great Lakes Region
from May 1987 to January 1989.
Duncan Gage was appointed to his current position in January 1994. He
previously served as Senior Vice President and President of the Registrant's
Southern Region from May 1992 to December 1993. He served as President of
Parker Lafarge, a construction materials affiliate of the Registrant, from 1990
to 1992 and President of Francon Lafarge, another construction materials
affiliate of the Registrant, from 1987 to 1990.
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18
Edward T. Balfe was appointed to his current position in January 1994. Prior
to that he served as President of the Registrant's Construction Materials
Eastern Group and President and General Manager of Permanent Lafarge, a
construction materials affiliate of the Registrant, from 1990 to 1993. He had
served as President and General Manager of Permanent Lafarge from 1986 - 1990.
Patrick Demars was appointed to his current position effective February 1991.
He previously served as Vice President - Products and Process of the
Registrant's Corporate Technical Services operations from July 1990 to January
1991. He was a Regional Vice President at CNCP, a Brazilian subsidiary of
Lafarge Coppee, from July 1986 to June 1990.
Thomas W. Tatum was appointed to his current position in April 1987.
John C. Porter was appointed to his current position in September 1990. He
served as Vice President and Controller of the Registrant's Great Lakes Region
from April 1989 until September 1990 and was Assistant Controller of that
Region from August 1987 until March 1989.
Philip A. Millington was appointed to his current position in January 1989. He
served as Assistant Treasurer of the Registrant from October 1987 to January
1989 and as Controller of the Registrant from 1983 to 1987.
David C. Jones was appointed to his current position in February 1990. He
served as Corporate Secretary of the Registrant from November 1987 to February
1990.
David W. Carroll was appointed to his current position in February 1992. He
served as Director Environmental Affairs of the Registrant from February 1990
to February 1992. Prior to that he was Director Environmental Programs for the
Chemical Manufacturers Association from 1978 to 1990.
There is no family relationship between any of the executive officers of the
Registrant or its subsidiaries. None was selected as an officer pursuant to
any arrangement or understanding between him and any other person. The term of
office for each executive officer of the Registrant expires on the date of the
next annual meeting of the Board of Directors, scheduled to be held on May 3,
1994.
I-17
19
Item 2. PROPERTIES
Information set forth in Item 1 of this Annual Report, insofar as it relates to
the location and general character of the principal plants, mineral reserves
and other significant physical properties owned in fee or leased by the
Registrant, is incorporated herein by reference in answer to this Item 2.
All of the Registrant's cement plant sites (active and closed) and quarries
(active and closed), as well as terminals, grinding plants and miscellaneous
properties, are owned by the Registrant free of major encumbrances, except the
Exshaw and Brookfield plants and the Kamloops limestone and cinerite quarries.
Title to the Brookfield plant site is held by Industrial Estates Limited, a
Crown corporation of the Province of Nova Scotia, in connection with assistance
provided by the Province in financing the cost of construction of the plant.
The site is leased by LCI at rentals sufficient to repay principal and interest
on the loan. The lease, which expires in 1998, grants LCI an option to acquire
title to the plant site during the term of the lease upon payment of the unpaid
principal amount. During 1993, LCI exercised its option to acquire title to
the Brookfield plant by paying the unpaid principal. Title to the property is
in the process of being transferred to the Registrant.
The Exshaw plant is built on land leased from the Province of Alberta. The
original lease has been renewed for a 42-year term commencing in 1992. Annual
payments under the lease are presently based on a fixed fee per acre.
The Kamloops plant, as well as the gypsum quarry which serves this plant, is on
land owned by the Registrant. The limestone and cinerite quarries are on land
leased from the province of British Columbia until March 2022.
Limestone quarry sites for the cement manufacturing plants in the United States
are owned and are conveniently located near each plant except for the Joppa
plant quarry which is located approximately 70 miles from the plant site. At
December 31, 1993, the Registrant also owned substantial reserves which
previously supplied raw materials to former cement production facilities which
are located at Miami, Tampa, Fort Worth and Dallas. The Fort Worth plant
facility is now a cement terminal. The Tampa plant is now operated as a cement
grinding and distribution facility.
LCI's quarrying rights for limestone in the Canadian provinces of Manitoba, New
Brunswick, Quebec, Nova Scotia, Ontario, Alberta and British Columbia, are held
under quarry leases, some of which require annual royalty payments to the
provincial authorities. Management of the Registrant estimates that its
limestone reserves for the cement plants currently producing clinker will be
adequate to permit production at present capacities for at least 20 years.
Other raw materials, such as clay, shale, sandstone and gypsum, are either
obtained from reserves
I-18
20
owned by the Registrant or are purchased from suppliers and are readily
available.
Deposits of raw materials for the Registrant's aggregate producing plants are
located on or near the plant sites. These deposits, due to their varying
nature, are either owned by the Registrant or leased upon terms which permit
orderly mining of reserves.
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Item 3. LEGAL PROCEEDINGS
During 1989 and 1990, CSX Transportation, Inc., Metro-North Commuter Railroad
Company, National Railroad Passenger Corp., Peerless Insurance Company and
Massachusetts Bay Transit Authority (the "Railroads") filed actions against
Lone Star Industries Inc. and affiliates ("Lone Star") for damages resulting
from its fabrication and sale of allegedly defective concrete railroad ties to
the Railroads. The Registrant and LCI have been named in third party actions in
which Lone Star is claiming indemnity for liability to the Railroads, for
damages to its business and for costs and losses suffered as a result of the
Registrant and LCI supplying allegedly defective cement used by Lone Star in
the fabrication of the railroad ties. The damages claimed total approximately
$226.5 million. The Registrant denied the allegations and vigorously defended
against the lawsuits (the "Lone Star Case"). During September and October 1992,
Lone Star entered into agreements with all five plaintiff Railroads settling
their claims regarding the Lone Star Case for an amount totalling approximately
$66.7 million. These settlements have been submitted to and approved by the
United States Bankruptcy Court for the Southern District of New York which is
handling the Lone Star bankruptcy. Lone Star commenced trial in November 1992
in its third party complaint against the Registrant and LCI seeking indemnity
for the Railroads' claims in addition to its own claim for business
destruction. A jury verdict in this case reached in December 1992 awarded Lone
Star $1.2 million as damages. Both Lone Star and the Registrant and LCI have
appealed the trial court verdict to the United States Court of Appeals for
Fourth Circuit. A decision is expected in the near future.
In late 1990 Nationwide Mutual Insurance Company ("Nationwide"), one of the
Registrant's primary insurers during the period when allegedly defective cement
was supplied to Lone Star by the Registrant, filed a complaint for declaratory
judgement against the Registrant, several of its affiliates and eleven other
liability insurers of the Registrant (the "Coverage Suit"). The complaint
seeks a determination of all insurance coverage issues impacting the Registrant
in the Lone Star Case. The Registrant has answered the complaint,
counterclaimed against Nationwide, cross-claimed against the co-defendant
insurers and filed a third party complaint against 36 additional insurers. In
December 1991, the Registrant and Nationwide entered into a settlement
agreement pursuant to which Nationwide settled its claim in the Coverage Suit
and, among other things, paid the Registrant a portion of past due defense
expenses in the Lone Star Case, promised to pay its proportion of continuing
defense expenses therein and to post the entire remaining aggregate limits of
its policies as reserves to be used in the Lone Star Case, if necessary.
Virtually all of LCI's Canadian insurers involved in the Coverage Suit filed
motions for summary judgment. In January 1993, the court denied all of the
insurers' summary judgment motions. In January 1994 the Registrant filed
motions for partial summary judgment regarding the insurers' defense
obligations and regarding the reasonableness of fees and expenses included in
the defense of the Lone Star Case. In addition, the Registrant filed a motion
to strike the designation of several expert witnesses of the insurers. The
Registrant
I-20
22
believes that it has substantial insurance coverage that will respond to a
large portion of defense expenses and liability, if any, in the Lone Star Case.
During 1992, a number of owners of buildings located in Eastern Ontario, Canada
most of whom are residential homeowners, filed actions in the Ontario Court
(General Division) against Bertrand & Frere Construction Company Limited and a
number of other defendants seeking damages as a result of allegedly defective
footings, foundations and floors made with ready-mixed concrete supplied by
Bertrand. The largest of these cases involves claims by approximately 99
plaintiffs owning 53 homes, a 20-unit condominium building and a municipal
building. Together, these plaintiffs are claiming approximately Cdn. $40
million against Bertrand, each plaintiff seeking Cdn. $200,000 for costs of
repairs and loss of capital value of their respective home or building, Cdn.
$200,000 for punitive and exemplary damages and Cdn. $20,000 for hardship,
inconvenience and mental distress, together with interest and costs. Other
owners, owning a total of 13 buildings (of which 11 are residential homes),
have instituted similar suits against Bertrand and, based on the information
available at this time, these claims total approximately Cdn. $9 million. As of
the end of December 1993, LCI has been served with third- or fourth-party
claims by Bertrand in all but one of the referenced lawsuits. Bertrand is
seeking indemnity for its liability to the owners as a result of the supply by
LCI of allegedly defective flyash. LCI also supplied cement to Bertrand. It is
expected that Bertrand will file a third-party claim against LCI in the other
case as well. LCI has delivered its statements of defense. The discoveries are
to begin in February 1994. LCI has denied liability and will defend the
lawsuits vigorously. The Registrant believes it has substantial insurance
coverage that will respond to defense expenses and liability, if any, in the
said lawsuits.
The Registrant has received a notice of violation and/or a complaint with
respect to each of its three cement plants that use hazardous waste derived
fuel alleging violations of the Boiler and Industrial Furnaces ("BIF")
regulations of the federal Resources Conservation and Recovery Act ("RCRA").
These notices of violation and complaints were issued by the U.S. Environmental
Protection Agency ("EPA") with respect to the plants, located in Fredonia,
Kansas and Paulding, Ohio and by the State of Michigan, which has been
delegated BIF enforcement authority by the EPA, with respect to the plant
located in Alpena, Michigan. Although the details of each notice of violation
or complaint are specific to the particular plant, the major recurring issue
has been the existence or adequacy of the plant's waste analysis plan to ensure
compliance with the established allowable emission limits and feed rates. The
State of Michigan has proposed a penalty of $979,750 for the Alpena plant and
the EPA has proposed penalties of $619,800 for the Paulding plant and
$1,200,474 for the Fredonia plant. The Registrant has submitted a response to
each notice of violation and complaint setting forth certain defenses and
factual information and has had meetings with the EPA and Michigan state
officials to discuss the alleged violations and possibilities of settlement.
At this time, it is unknown whether the Registrant will be able to settle any
or all of these matters or whether
I-21
23
one or more adjudicatory proceedings will result. With respect to a similar
EPA complaint regarding the Registrant's Demopolis, Alabama plant (which was
sold by the Registrant in early 1993), the Registrant settled the matter in
September 1993 by paying a civil penalty of $594,000, approximately one-third
of the penalty originally proposed by the EPA.
In 1993, the State of Michigan alleged that the Registrant's Alpena plant was
managing CKD in violation of applicable state solid waste management
requirements. The Registrant has formally responded to the State setting forth
defenses and factual information and has had numerous meetings with State
officials to discuss the matters raised, the possible technical solutions and
the possibilities of settlement. Although significant progress has been made
towards potential settlement, it is unknown at this time whether the Registrant
will be able to settle this matter by agreeing to make certain operational
changes at the plant and/or by paying a penalty amount, or whether an
adjudicatory proceeding will result.
In another matter relating to the Alpena plant and CKD, the State of Michigan
has contacted the Registrant and the former owner of the plant seeking
remediation of an old CKD pile from which there is runoff of hazardous
substances into Lake Huron. The Registrant has advised the State that it is
not responsible for remediating this property because the property was
expressly excluded in the purchase agreement pursuant to which the Registrant
acquired the plant. The Registrant has advised the former plant owner of the
Registrant's position on this matter.
In July 1993, the Registrant received a complaint from the EPA alleging certain
RCRA violations at its cement plant in Buffalo, Iowa. The alleged violations
related to the storage of leaded grease hazardous waste at the plant, and the
EPA proposed a penalty of $284,020. The Registrant has reached an agreement in
principle with the EPA to settle this matter by paying a penalty of
approximately $40,000.
On or about March 2, 1994 the Registrant was served with a civil investigative
demand by the U.S. Department of Justice, Antitrust Division, requesting the
production of documents and responses to interrogatories in connection with an
investigation of potential price fixing and market allocation by cement
producers. The Registrant is presently engaged in preparing its responses to
the inquiry.
The Registrant is involved in certain other legal actions and claims. It is
the opinion of management that all such legal matters will be resolved without
material effect on the Registrant's Consolidated Financial Statements.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter ended December 31, 1993.
I-23
25
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information required in response to Item 5 is reported in Item 7, pages II-24
and II-25 of this Annual Report and is incorporated herein by reference.
On March 9, 1994, 58,406,650 Common Shares were outstanding and held by
approximately 2,970 record holders. In addition, on March 9, 1994, 9,104,150
exchangeable preference shares of LCI, which are exchangeable at the option of
the holder into Common Shares on a one-for-one basis and have rights and
privileges that parallel those of the Common Shares, were outstanding and held
by 7,040 record holders.
The Registrant may obtain funds required for dividend payments, expenses and
interest payments on its debt from its operations in the U.S., dividends from
its subsidiaries or from external sources, including bank or other borrowings.
LCI's loan and credit agreements do not contain restrictions on the payment of
dividends but do contain maximum borrowing restrictions.
II - 1
26
Item 6. SELECTED FINANCIAL DATA
The table below summarizes selected financial information for the Registrant.
For further information, refer to the Registrant's consolidated financial
statements and notes thereto presented under Item 8 of this Annual Report.
SELECTED CONSOLIDATED FINANCIAL DATA
(in millions except as indicated by an *)
Years Ended December 31
----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------
OPERATING RESULTS
Net Sales $1,494.5 $1,511.2 $1,568.8 $1,769.6 $1,664.8
======================================================================
INCOME BEFORE THE FOLLOWING ITEMS: $ 70.2 $ 28.0 $ 17.7 $ 145.1 $ 205.6
Interest expense, net (42.7) (49.4) (52.0) (46.8) (35.8)
Income taxes (21.6) (15.7) (16.1) (55.4) (71.3)
----------------------------------------------------------------------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES 5.9 (37.1) (50.4) 42.9 98.5
Cumulative effect of change in
accounting principles - (63.5) - - -
----------------------------------------------------------------------
NET INCOME (LOSS) 5.9 (100.6) (50.4) 42.9 98.5
Depreciation and depletion 108.5 117.6 112.1 100.5 87.9
Cumulative effect of change in
accounting principles - 63.5 - - -
Restructuring 21.6 - - - -
Other items not affecting cash 18.9 (3.8) 10.9 (44.3) (18.1)
----------------------------------------------------------------------
NET CASH PROVIDED BY OPERATIONS $ 154.9 $ 76.7 $ 72.6 $ 99.1 $ 168.3
======================================================================
FINANCIAL CONDITION AT YEAR END
Working capital $ 315.4 $ 253.0 $ 253.5 $ 318.8 $ 270.6
Property, plant and equipment, net 880.7 982.3 1,056.3 1,066.4 1,002.7
Other assets 207.8 205.0 209.0 223.6 171.3
----------------------------------------------------------------------
TOTAL NET ASSETS $1,403.9 $1,440.3 $1,518.8 $1,608.8 $1,444.6
======================================================================
Long-term debt $ 373.2 $ 515.2 $ 564.6 $ 594.9 $ 464.8
Other long-term liabilities 239.0 225.2 112.2 121.5 114.6
Shareholders' equity 791.7 699.9 842.0 892.4 865.2
----------------------------------------------------------------------
TOTAL CAPITALIZATION $1,403.9 $1,440.3 $1,518.8 $1,608.8 $1,444.6
======================================================================
COMMON EQUITY SHARE INFORMATION
Net income (loss)* $ .10 $ (0.63)(a) $ (0.90) $ 0.77 $ 1.81
Dividends* $ .30 $ 0.30 $ 0.35 $ 0.40 $ 0.40
Book value at year end* $ 11.84 $ 11.79 $ 14.85 $ 16.14 $ 15.79
Average shares and equivalents
outstanding 61.6 58.7 55.9 55.8 54.4
Shares outstanding at year end 66.9 59.4 56.7 55.3 54.8
=====================================================================
STATISTICAL DATA
Capital expenditures $ 58.4 $ 54.9 $ 95.8 $ 173.0 $ 153.8
Acquisitions $ 15.2 $ 4.3 $ 11.1 $ 42.9 $ 161.7
Net income (loss) as a percentage
of net sales* 0.4% (2.5)%(a) (3.2)% 2.4% 5.9%
Return on average shareholders'
equity* 0.8% (4.8)%(a) (5.8)% 4.9% 12.7%
Long-term debt as a percentage
of total capitalization* 26.6% 35.8 % 37.2 % 37.0% 32.2%
Number of employees at year end* 7,400 7,700 7,900 8,800 9,400
Exchange rate at year end
(Cdn. to U.S.)* 0.755 0.787 0.865 0.862 0.864
Average exchange rate for year
(Cdn. to U.S.)* 0.775 0.828 0.873 0.851 0.844
======================================================================
(a) Before cumulative effect of change in accounting principles.
II - 2
27
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto:
MANAGEMENT'S DISCUSSION OF INCOME
The Consolidated Statements of Income (Item 8, page II-28) summarize the
Registrant's operating performance for the past three years. To facilitate
analysis, sales and operating profit will be discussed by product line and are
summarized in the table on page II-4 (in millions). The Registrant's two
product lines are:
1. Cement-the production and distribution of portland and specialty
cements and cementitious materials.
2. Construction materials-the production and distribution of ready-mixed
concrete, construction aggregates, other concrete products, asphalt,
road construction and the conversion of industrial waste into fuels
for use in cement kilns.
II - 3
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Years Ended December 31
-------------------------------------------------
1993 1992 1991
-------------------------------------------------
Net Sales
Cement $ 801.4 $ 794.3 $ 808.0
Construction materials 802.2 830.6 873.4
Eliminations (109.1) (113.7) (112.6)
-------------------------------------------------
Total Net Sales $1,494.5 $1,511.2 $1,568.8
=================================================
Gross Profit
Cement $ 161.0 $ 138.5 $ 134.5
Construction materials 91.2 83.3 89.8
-------------------------------------------------
Total 252.2 221.8 224.3
-------------------------------------------------
Operational Overhead and
Other Expenses
Cement (64.6) (71.9) (82.6)
Construction materials (60.6) (73.6) (75.5)
-------------------------------------------------
Total (125.2) (145.5) (158.1)
-------------------------------------------------
Income from Operations
Cement 96.4 66.6 51.9
Construction materials 30.6 9.7 14.3
-------------------------------------------------
Total Operating Profit 127.0 76.3 66.2
Corporate and unallocated
expenses (56.8) (48.3) (48.5)
-------------------------------------------------
Total Income From Operations $ 70.2 $ 28.0 $ 17.7
=================================================
Identifiable Assets
Cement $ 759.2 $ 863.7 $ 909.4
Construction materials 697.3 711.3 813.3
Corporate and unallocated
assets 217.2 192.4 113.7
-------------------------------------------------
Total Assets $1,673.7 $1,767.4 $1,836.4
=================================================
II - 4
29
YEAR ENDED DECEMBER 31, 1993
Net Sales
The Registrant's net sales were $1,494.5 million, down slightly from $1,511.2
million in 1992. The decrease was due to a drop in the value of the Canadian
dollar relative to the U.S. dollar and sales lost from divested operations
including the Registrant's cement plant in Demopolis, Alabama. Partially
offsetting these declines were a four percent increase in average cement net
sales prices and higher sales volumes from both cement and construction
materials operations. Canadian net sales were $640.5 million, a decline of
four percent from last year while U.S. net sales increased one and one-half
percent to $854.0 million.
The Registrant's net sales from cement operations increased one percent in
1993. Cement average net sales prices improved four percent over 1992 due to a
six percent increase in the U.S. Canadian net sales decreased four percent due
to the impact of exchange rates. In the U.S., net sales increased three
percent. Prices increased an average of six percent in the Great Lakes U.S.
market and seven percent in the southern U.S. The Canadian average net sales
price remained stable with lower prices in Ontario offset by higher prices in
the west.
Cement shipments (after adjusting for sales from the Demopolis, Alabama plant,
which was divested in February 1993) increased four percent in 1993 to 12.3
million tons from 11.8 million tons in 1992. Demand was strongest in U.S.
markets and in western Canada. U.S. and Canadian shipments increased four
percent and two percent, respectively. Spot shortages occurred during 1993 in
the southern Great Lakes and Mississippi River markets as the continued
improvement in the U.S. construction market increased the demand for cement.
Additionally, construction activity in the Midwest increased after the flood
waters receded. Shipments in the Pennsylvania and New England markets
increased over 1992 and prices improved three percent from 1992's depressed
levels. The Florida market performed well in 1993, with sales volumes up 14
percent from the previous year. Oilwell cement sales in the western provinces
of Canada nearly doubled in 1993 as an increase in natural gas prices and
changes to the royalty system resulted in an increase in drilling activity.
Additionally, cement shipments in British Columbia increased nine percent over
1992. In 1993, market conditions in eastern Canada were adversely impacted by
excess cement capacity. However, the Registrant used surplus capacity in
Ontario to supplement U.S. facilities that were facing inventory shortages.
The Registrant's two cement plants in Ontario increased production and lowered
unit costs although cement demand dropped two percent in the province.
Shipments in the Quebec and Atlantic provinces of Canada were flat in 1993.
II - 5
30
Net sales from the Registrant's construction materials and waste management
operations were $802.2 million, down three percent from 1992. The drop in the
value of the Canadian dollar, sales lost from divested operations in 1992, the
sluggish economy in Canada and flooding in the midwest U.S. were the major
causes of this decline. In Canada, net sales dropped five percent primarily
due to the decline in the value of the Canadian dollar and the divestment of
the Registrant's chemical admixtures operations in 1992. Net sales in the U.S.
declined slightly as a result of the weak performance in the Registrant's
northern markets, flooding in the midwest and the divestment of several
construction materials businesses. These declines were nearly offset by strong
performance in the Registrant's southern U.S. markets. Registrant-wide,
ready-mixed concrete shipments of 6.1 million cubic yards were one percent
higher than a year ago. Aggregate sales of 48.1 million tons were four percent
higher than the previous year. In Canada, ready-mixed concrete shipments
increased two percent due to an increase in construction activity in British
Columbia and Quebec while infrastructure work in eastern Canada boosted
aggregate volumes by eight percent. In the U.S., ready-mixed concrete and
aggregate volumes declined slightly due to the floods and a drivers strike in
St. Louis coupled with the 1992 sale of several construction materials
businesses.
Gross Profit and Cost of Goods Sold
The Registrant's gross profit as a percentage of net sales improved from 15
percent in 1992 to 17 percent in 1993. Cement gross profit was 20 percent
compared to 17 percent in 1992 as a result of improved prices. Over the two
year period, construction materials gross profit was approximately 11 percent.
The Registrant's cement cost per ton is heavily influenced by plant capacity
utilization. The following table summarizes the Registrant's cement production
(in millions of tons) and the utilization rate of clinker production capacity.
The 1993 figures exclude the Demopolis, Alabama plant which was divested in
February 1993.
Years Ended December 31
-----------------------------
1993 1992
-----------------------------
Cement production 11.25 11.79
Clinker capacity utilization 82% 83%
=============================
Cement production and clinker capacity utilization in 1993 were down somewhat
from a year ago. In the U.S., cement production totalled 7.2 million tons, an
11 percent decrease from 1992. Capacity utilization at U.S. plants was 90
percent in 1993 compared to 95 percent in 1992. The decrease in production and
utilization was due to operating problems at three of the Registrant's cement
plants. Canadian cement production
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31
was 4.1 million tons in 1993, an increase of 11 percent from 3.7 million tons
in 1992. Capacity utilization was 72 percent and 66 percent in 1993 and 1992.
The increase in production and utilization was primarily due to higher sales
volumes and the use of surplus capacity in the Registrant's Ontario plants to
supplement U.S. markets that were experiencing cement shortages.
Selling and Administrative
Selling and administrative expenses were $161.4 million in 1993, $23.3 million
(13 percent) lower than 1992. This reduction resulted primarily from
divestments and actions taken to streamline operations and reduce costs in the
Registrant's cement and construction materials operations over the last two
years. Selling and administrative expenses as a percentage of net sales
declined to 10.8 percent in 1993 from 12.2 percent in 1992.
Other (Income) Expense, Net
Other income and expense consists of items such as net retirement costs, equity
income, amortization of intangibles and nonrecurring gains and losses from
divestitures. Other income, net was $1.0 million in 1993 compared to expense
of $9.1 million in 1992. The change was the result of higher divestment gains
from the sale of non-strategic assets and lower amortization coupled with the
absence of strike related costs at the Richmond plant.
Restructuring
In the fourth quarter of 1993, the Registrant recorded a one-time pre-tax
restructuring charge of $21.6 million ($16.4 million net of tax benefits) to
cover the direct expenses of restructuring the Registrant's North American
business units to increase organizational efficiency. The primary components
of the restructuring charge are separation benefits for approximately 350
employees ($15.2 million), and employee relocation ($3.3 million). The charge
also includes expenses such as office relocation and lease termination. No
amounts were paid relative to these items in 1993.
The restructuring plan entails the consolidation of 11 regional operating units
into six units in the Registrant's two main business lines. This consolidation
reduces management layers, eliminates duplicative administrative functions and
standardizes procedures and information systems. Manufacturing and
distribution facilities will not be materially affected by the restructuring.
The Registrant expects the annual expense reductions from the restructuring to
be approximately $8 million after-tax in 1994 and increasing to approximately
$19 million after-tax once the restructuring is fully implemented.
II - 7
32
Performance by Line of Business
In 1993, the Registrant's operating profit from cement operations (before
corporate and unallocated expenses) was $96.4 million, $29.8 million better
than 1992. All regions reported better results than the prior year. Cement
results were much better due to higher prices and stronger shipments,
particularly in the second half of 1993. The most notable progress was in the
U.S. markets. Prices were up six percent in the U.S. but unchanged in Canada.
The Registrant's Canadian operations reported an operating profit of $46.2
million, $5.5 million better than last year. Earnings increased in western
Canada due to higher shipments and the absence of costs related to the strike
at the Richmond plant that was settled in March 1992. Earnings declined in
central Canada due to the continued sluggish market but improved in eastern
Canada primarily due to higher intraregional sales to the U.S. New England
markets. Earnings from U.S. cement operations were $50.2 million, or $24.3
million better than 1992. Results improved in all U.S. regions, mainly due to
the six percent increase in average net selling prices combined with a four
percent increase in shipments.
The operating profit from the Registrant's construction materials and waste
management operations in 1993 (before corporate and unallocated expenses) was
$30.6 million, $20.9 million better than 1992. Earnings were boosted by cost
reductions and higher ready-mixed concrete and block prices in central Canada,
improved ready-mixed concrete and aggregate volumes in eastern Canada,
partially offset by lower ready-mixed concrete prices in the western provinces
due to competitive pressures in a number of markets. The Canadian operations
contributed $20.3 million, $14.7 million higher than the prior year. Most of
the increase was attributable to the Registrant's Ontario-based concrete
products operations. The U.S. operating profit totalled $10.3 million, $6.2
million better than 1992. This improvement was primarily attributable to the
Registrant's construction materials operations in the southern U.S. resulting
from higher ready-mixed concrete volumes, lower stone costs and a $3.1 million
write-down of a quarry last year. Partially offsetting these gains were an
earnings decline in the Registrant's northern U.S. markets due to the continued
poor economic climate and high operating costs in the midwest markets as a
result of the summer floods and a drivers strike.
Total Income From Operations
Total income from operations was $70.2 million in 1993, an increase of $42.2
million from 1992. The improved performance was due largely to a six percent
increase in the U.S. average cement net sales price. Also contributing to the
results were an $18.2 million turnaround in profitability of the Registrant's
construction materials operations in central and eastern Canada, higher
shipments in the western cement region, higher divestment gains from the sale
of non-strategic assets and a 13 percent reduction in selling and
administrative expenses. These improvements were partially offset by a
one-time restructuring
II - 8
33
charge of $21.6 million. The Registrant's operating profit from its Canadian
operations was $36.7 million, $3.2 million better than 1992. Operating profit
from U.S. operations was $33.5 million, $39.0 million better than 1992.
Interest Expense, Net
Net interest expense decreased by $6.7 million in 1993 due to lower average
debt levels.
Income Taxes
Income tax expense increased $5.9 million in 1993. U.S. taxes increased $3.0
million primarily due to a $2.6 million increase in deferred income taxes. The
Canadian income taxes increased $2.9 million due to higher earnings in Canada.
The Canadian effective income tax rates were 46.1 percent in 1993 and 42.7
percent in 1992. Certain elements of the Canadian income tax provision are
fixed in amount. The increase in the Canadian effective tax rate in 1993 was
caused by the relatively higher percentage of these fixed amounts to the higher
earnings experienced in 1993, partially offset by a tax rate reduction enacted
during 1993.
Net Income
In 1993, the Registrant reported net income of $5.9 million. This was $106.5
million better than 1992's net loss of $100.6 million. The 1992 loss included
$12.1 million after-tax of employee severance and other nonrecurring charges,
while 1993 results included an after-tax charge of $16.4 million related to
corporate restructuring recorded in the fourth quarter. The 1992 loss also
included $63.5 million in after-tax charges related to the adoption of new
accounting rules for postretirement benefits and income taxes. Excluding this
one-time charge, net income in 1993 was $43.0 million better than 1992.
Excluding one-time charges resulting from the adoption of these new accounting
rules, the Registrant's Canadian operations reported net income of $20.5
million, $0.8 million higher than 1992. The increase was due to better results
in the Registrant's ready-mixed concrete and aggregate operations in central
and eastern Canada, higher shipments in the western cement region and the
absence of strike related costs at the Richmond plant. These increases were
offset by a four percent decline in net sales and lower divestment gains.
After excluding one-time charges resulting from the adoption of new accounting
rules, the Registrant's U.S. operations incurred a net loss of $14.6 million.
This was $42.2 million better than 1992. The improved U.S. performance was the
result of a $4.9 million gain realized from the expropriation of property at
one of the Registrant's construction materials operations and an increase in
cement volumes and
II - 9
34
prices. In addition, interest expense in the U.S. was $6.2 million lower than
the previous year. U.S. results were negatively impacted by infrequently
occurring maintenance projects (those required every three years or more) and
an earnings decline in the Registrant's northern and midwest construction
materials markets.
Recent Acquisitions
On January 16, 1991, the Registrant acquired Missouri Portland/ Davenport which
was engaged in the production and distribution of cement and construction
materials. The three cement plants acquired increased the Registrant's annual
clinker production capacity by 25 percent and created significant production
and distribution synergies with the Registrant's existing operations,
especially along the Mississippi River.
The acquisition included 30 ready-mix operations, two aggregate quarries as
well as the assets of a chemical admixtures business which was divested in
1992.
General Outlook
The Registrant's general outlook for 1994 in the Cement Group is favorable,
particularly in the United States. According to the Dodge/Sweet's Outlook '94,
total new construction in the U.S. is projected to increase six percent in real
terms in 1994. This would be the third consecutive year of improvement.
Cement consumption generally correlates with trends in construction
expenditures. In Canada, cement consumption is expected to be boosted by the
housing sector and Ottawa's Cdn. $6 billion public works program.
Additionally, in early 1994, the Registrant was chosen to supply 160,000 metric
tons of silica fume cement over three years starting in 1994 for the
construction of the Prince Edward Island eight-mile bridge in Canada's Atlantic
provinces. The Portland Cement Association ("PCA") forecasts higher cement
consumption in all provinces.
The upward trend in prices during 1993 and the higher cement consumption
forecasted by the PCA provides some optimism about the 1994 climate for cement
prices. Price increases were phased in at various times during 1993;
therefore, their full impact will not be realized until 1994. Also, the
Registrant has announced increases for the first part of 1994 in most North
American markets.
The Registrant's expectations for the construction materials group hold promise
for 1994. In Canada, the gradual recovery of construction activity should
allow room for a modest increase in construction materials volumes, although
performance will once again vary by region. In the Maritimes, the Registrant
has a contract to furnish approximately 370,000 cubic meters of concrete over a
three year period for the bridge to Prince Edward Island. In the U.S., the
group's major business line,
II - 10
35
aggregates, is likely to experience a decline in volumes due to recent
divestments; however, average margins are expected to improve. The
Registrant's U.S. ready-mixed concrete deliveries should improve as the
economic recovery continues to gain momentum.
II - 11
36
YEAR ENDED DECEMBER 31, 1992
Net Sales
Net sales in 1992 decreased four percent to $1,511.2 million from $1,568.8
million in 1991 due to sluggish construction activity in central and eastern
Canada and a drop in the value of the Canadian dollar relative to the U.S.
dollar.
The Registrant's net sales from cement operations declined two percent in 1992
due mainly to a five percent decline in the average value of the Canadian
dollar. The average net sales price declined slightly from 1991 due to lower
prices in the U.S. In the Great Lakes and Northeastern Regions, competitive
pressures caused prices to fall, offsetting price gains in the west. Cement
shipments were up two percent from 1991 due to improvements in the U.S. Great
Lakes. In Canada, higher shipments in the west were offset by decreases in
eastern and central Canada due to sluggish construction activity.
Net sales from the Registrant's construction materials and waste management
operations were 12 percent less than 1991 in Canada but nine percent more in
the U.S., resulting in an overall decline of five percent. Compared to 1991,
ready-mixed concrete and aggregate volumes in Canada were nine and six percent
lower due to the continued weakness in the Toronto and Montreal markets.
Ready-mixed concrete and aggregate volumes in the U.S. were six percent and 11
percent higher. The U.S. improvement was primarily the result of a greater
market penetration in the northern U.S. and an improving market in Texas.
Gross Profit and Cost of Goods Sold
The Registrant's gross profit as a percentage of net sales was 14.7 percent in
1992, slightly better than 14.3 percent in 1991. Cement gross profit as a
percentage of net sales was 17.4 percent in 1992 and 16.6 percent in 1991.
Over the two-year period, construction materials gross profit as a percentage
of net sales was approximately 10 percent.
The Registrant's cement unit cost is heavily influenced by plant capacity
utilization. The following table summarizes the Registrant's cement production
(in millions of tons) and the utilization rate of clinker production capacity.
Years Ended December 31
-----------------------------
1992 1991
-----------------------------
Cement production 11.79 11.62
Clinker capacity utilization 83% 85%
=============================
II - 12
37
Cement production increased one and one-half percent in 1992 while clinker
capacity utilization was 83 percent, down from 85 percent in 1991. In the
U.S., cement production totalled 8.1 million tons, an increase of four percent
over 1991. Capacity utilization at U.S. plants was 95 percent in 1992 compared
to 94 percent in 1991. The increase in production and utilization was
primarily due to higher sales volumes. Canadian cement production fell to 3.7
million tons in 1992, a decline of three percent from 1991. Capacity
utilization was 66 percent and 71 percent in 1992 and 1991, respectively. The
decline resulted from the temporary shutdown of certain kilns at three of the
Registrant's plants in Canada due to a decrease in cement demand.
Selling and Administrative
Selling and administrative expenses decreased seven percent in 1992 primarily
due to the 1991 restructuring of the Registrant's cement operations following
the Missouri Portland/Davenport acquisition in January 1991 and other
restructuring in the Registrant's construction materials operations,
particularly in Ontario. These savings were partially offset by 1992
provisions for additional restructuring.
Selling and administrative expenses as a percentage of net sales were 12.2
percent in 1992, down from 12.7 percent in 1991.
Other (Income) Expense, Net
Other income and expense consists of items such as net retirement costs, equity
income, amortization of intangibles and nonrecurring gains and losses from
divestitures. Other expense, net was $9.1 million in 1992 compared to $8.1
million in 1991. The change was the result of recurring expenses from adopting
the new accounting rule for postretirement benefits as well as nonrecurring
provisions for contingencies and restructuring. These charges were partially
offset by lower retirement costs, higher equity income and divestment gains
from the sale of non- strategic assets and lower costs related to the strike at
the Richmond plant.
Performance by Line of Business
The Registrant's operating profit from cement operations in 1992 was $66.6
million, $14.7 million better than 1991. Earnings improved in three of the
Registrant's four cement regions. Depreciation expense increased by $3.4
million as a result of the new accounting rule for income taxes. The Canadian
operating profit was $40.8 million, $7.5 million better than 1991. Profits in
western Canada improved due to the end of a strike at the Richmond plant plus
higher shipments and prices. Profits declined in central and eastern Canada
due to sluggish construction activity. In the U.S., operating profit was $25.8
million, up $7.2 million from 1991. Earnings improved in all markets except
the Northeast.
II - 13
38
In 1992, operating profit from the Registrant's construction materials and
waste management operations was $9.7 million, $4.6 million lower than 1991.
Earnings declined because of lower shipments in central and eastern Canada.
Canadian operating profit was $5.6 million, $11.6 million less than 1991. Weak
construction activity in central and eastern Canada was primarily responsible
for the decline. Profit was higher in western Canada as a result of higher
shipments. In the U.S., operating profit in 1992 was $4.1 million, or $7.0
million better than the previous year. The improvement resulted from better
market conditions and higher prices in the South coupled with a reduction of
overhead expenses in the Midwest.
Total Income From Operations
Total income from operations improved in 1992 to $28.0 million from $17.7
million in 1991, after recording as an additional expense the $9.4 million
recurring impact of accounting changes. A majority of the improvement came
from restructuring and cost-reduction programs as well as divestment gains.
Earnings were boosted by $9.6 million of gains from the sale of non-strategic
assets. Operating profit from the Registrant's Canadian operations before the
impact of accounting changes was $34.4 million, $7.6 million better than 1991.
The U.S. operating profit before accounting changes was $3.0 million, $12.1
million better than 1991.
Interest Expense, Net
In 1992, net interest expense decreased five percent due to lower interest
rates and lower average debt levels in both the U.S. and Canada.
Income Taxes
Income tax expense decreased $0.4 million in 1992. The Canadian effective
income tax rates were 42.7 percent in 1992 and 56.0 percent in 1991. Certain
elements of the Canadian income tax provision which are fixed in amount were
higher in 1991 but lower in 1992. The decrease in the Canadian effective tax
rate in 1992 was caused by a lower percentage of these fixed amounts relative
to the higher earnings experienced in 1992.
Net Loss
The Registrant's net loss in 1992, excluding charges resulting from the
adoption of the new accounting rules, was $28.1 million. This was a 44 percent
improvement over the 1991 net loss of $50.3 million. The Registrant's Canadian
operations reported net income of $20.3 million, an $8.1 million increase over
1991. Canadian earnings benefitted from
II - 14
39
$4.1 million of gains (net of tax), realized primarily from the sale of surplus
land and a chemical admixtures business. In addition, expenses were reduced
from actions taken in 1991 and during 1992 to streamline operations and reduce
cost, and a reallocation of corporate overhead from the U.S. to Canada.
Offsetting these gains were a nine percent decline in Canadian net sales due to
weak shipments in eastern and central Canada, nonrecurring provisions for
contingencies and restructuring, and a decrease in the value of the Canadian
dollar. In the U.S., the net loss before accounting changes was $48.4 million,
which was $14.1 million better than 1991. The U.S. improvement was primarily
due to restructuring and cost reduction programs as well as better market
conditions and higher prices in the Registrant's southern construction
materials operations offset by reallocation of corporate overhead from Canada.
ENVIRONMENTAL MATTERS
The Registrant's operations, like those of other companies engaged in similar
businesses, involve the use, release/discharge, disposal and clean-up of
substances regulated under increasingly stringent federal, state, provincial
and/or local environmental protection laws. Many of the regulations are
technically and legally complex, posing significant compliance challenges. The
Registrant's environmental compliance program includes an environmental policy
designed to provide corporate direction for all operations and employees,
routine compliance oversight of the Registrant's facilities, routine training
and exchange of information by its environmental professionals, and routine and
emergency reporting systems.
The Registrant has been, or is presently involved in certain environmental
enforcement matters, in both the U.S. and Canada. Management's philosophy is
to attempt to actively resolve such matters with the appropriate governmental
authorities. In certain circumstances, notwithstanding management's belief
that a particular alleged violation poses no significant threat to the
environment, the Registrant may decide to resolve such matter by entering into
a consent agreement and/or paying a penalty.
In 1992, the Registrant's four cement plants using hazardous waste derived
fuels submitted certifications of compliance for the emission limits
established under the federal Resource Conservation and Recovery Act ("RCRA"),
Boiler and Industrial Furnaces ("BIF") regulations. The BIF regulations also
require extensive record keeping of operational parameters and of fuels and raw
materials used. The BIF regulations are extremely complex and certain
provisions have been subject to different interpretations. The Registrant has
received a notice of violation and/or a complaint alleging violations of the
BIF regulations at each of four cement plants. These notices of violation and
complaints were issued by the U.S. Environmental Protection Agency ("EPA") with
respect to three plants and by the State of Michigan, which has been delegated
BIF enforcement authority by the EPA, with respect to a fourth plant.
II - 15
40
Although the details of each notice of violation or complaint are specific to
the particular plant, a recurring issue has been the existence or adequacy of
the plant's waste analysis plan to ensure compliance with the established
allowable emission limits and feed rates. All of the Registrant's plants which
are subject to the BIF regulations have revised their waste analysis plans and
submitted them for approval. Furthermore, to reduce the potential recurrence
of BIF violations, the Registrant has designated an employee who is responsible
for managing the Registrant's BIF compliance, including routine auditing of
plant operations and plant records which are required to document compliance
with the BIF regulations. The current status of these BIF-related matters is
as follows: With respect to the Demopolis, Alabama plant (which was sold by
the Registrant in early 1993), the Registrant settled the matter by paying a
penalty of $594,000, approximately one-third of the penalty originally proposed
by the EPA. The State of Michigan has proposed a penalty of $979,750 with
respect to the Alpena, Michigan plant and the EPA has proposed penalties of
$619,800 with respect to the Paulding, Ohio plant and $1,200,474 with respect
to the Fredonia, Kansas plant. The Registrant has submitted a response to each
notice of violation and complaint setting forth certain defenses and factual
information and has had meetings with the EPA and Michigan State officials to
discuss the alleged violations and the possibilities of settlement. At this
time, it is unknown whether the Registrant will be able to settle any or all of
these matters or whether one or more adjudicatory proceedings will result.
In late February 1994, a decision was issued in a lawsuit challenging certain
aspects of the BIF regulations. The court's decision, among other things,
vacated the tier III standard for hydrocarbon emission levels and instructed
the EPA to reconsider the tier III standard. Two of the Registrant's plants
have been complying with the tier III standard and are currently not able to
meet either the tier I standard or the tier II standard, which are the two
remaining standards. The Registrant is evaluating potential raw material
alternatives and technological modifications at these two plants to determine
whether one or both of the plants could meet the tier I standard or the tier II
standard. The Registrant is also working with the EPA to have an interim
replacement standard put in place pending the EPA's reconsideration of the tier
III standard. In the absence of the tier III standard or a substantially
similar replacement standard, the Registrant might have to stop using
supplemental fuels at one or both of these plants.
A by-product of many of the Registrant's cement manufacturing plants is cement
kiln dust ("CKD"). CKD has been excluded from regulation as a hazardous waste
under the so-called "Bevill Amendment" to RCRA until the EPA completes a study
of CKD, determines if it is hazardous waste, and issues appropriate rules. On
December 30, 1993, the EPA issued its Report to Congress and proposed five
regulatory options for CKD. The EPA has solicited public comments on the
Report to Congress and the regulatory options, following which it will make a
final regulatory
II - 16
41
determination of how, if at all, CKD should be regulated in the future.
The Registrant is actively participating in this opportunity to submit comments
and offer constructive regulatory alternatives. One of the regulatory
alternatives being considered by the EPA would classify as a hazardous waste
the CKD which is produced by facilities burning hazardous waste as a
supplemental fuel. The Registrant's management does not believe that the data
included in the Report to Congress support such an approach. If, however, this
option is selected by the EPA, the Registrant could incur significant capital
costs to meet these new standards, might have to stop using supplemental fuels
at its plants, and/or might close one or more plants.
In 1993, the State of Michigan alleged that the Registrant's Alpena plant was
managing CKD in violation of applicable state solid waste management
requirements. The Registrant has formally responded to the State setting forth
defenses and factual information and has had numerous meetings with State
officials to discuss the matters raised, the possible technical solutions and
the possibilities of settlement. Although significant progress has been made
towards potential settlement, it is unknown at this time whether the Registrant
will be able to settle this matter by agreeing to make certain operational
changes at the plant and/or by paying a penalty, or whether an adjudicatory
proceeding will result.
In another matter relating to the Alpena plant and CKD, the State of Michigan
has contacted the Registrant and the former owner of the plant seeking
remediation of an old CKD pile from which there is runoff of hazardous
substances into Lake Huron. The Registrant has advised the State that it is
not responsible for remediating this property because the property was
expressly excluded in the purchase agreement pursuant to which the Registrant
acquired the plant. The Registrant has advised the former plant owner of the
Registrant's position on this matter.
In view of the current uncertainty regarding the future regulatory treatment of
CKD and with the goal of minimizing long-term liability exposure, the
Registrant has been assessing its management practices for CKD in the U.S. and
Canada and is voluntarily taking remedial steps and instituting new management
practices as well as assessing and modifying process operations, evaluating and
using alternative raw materials and implementing new technologies for reducing
the generation of CKD.
As with most industrial companies in the U.S., the Registrant is involved in
certain remedial actions to clean up historical problem waste disposal sites as
required by federal and state laws, which provide that responsible parties must
fund remedial actions regardless of fault or legality at the time of the
original disposal. In this regard, the Registrant is presently involved in
approximately 15 federal and state administrative proceedings. At all but four
of these sites, the Registrant is either a de minimis party or the Registrant
has information to support its position that it did not contribute/dispose, or
is not legally responsible for the disposal of materials at the site. With
respect to two of the four sites, the Registrant has entered into
II - 17
42
consent agreements with the applicable governmental authorities and
received approval in late 1993 to proceed with its proposed remediation plans.
In these two cases, the Registrant has recorded provisions for exposure, but
has sought to obtain contributions from other non-settling parties and/or
believes that its liability insurance covers these costs and is pursuing
recovery from its insurers. At a third site, the Registrant has undertaken
remediation under a state order of property which the Registrant had leased to
an automobile workshop that had a leaking underground storage tank. The lessee
vacated the property and did not have the financial resources to clean up the
site. The Registrant has completed remediation of the site and is awaiting
state approval. The fourth site is the old CKD pile at the Alpena plant
discussed above.
The 1990 Clean Air Act Amendments have the potential to result in significant
capital expenditures and operational expenses for the Registrant. The Clean
Air Act Amendments established a new federal operating permit and fee program
for virtually all manufacturing operations. By 1995, the Registrant's U.S.
operations that are deemed to be "major sources" of air pollution will have to
submit detailed permit applications and pay recurring permit fees. To ensure
the timely submittal and completeness of permit applications for the
Registrant's "major sources", the Registrant has designated an employee to
manage the identification of "major sources", prepare permit applications, and
negotiate permit terms with the appropriate state agencies. The EPA is also
developing air toxics regulations for a broad spectrum of industrial sectors
including portland cement manufacturing. The EPA has indicated that the new
maximum available control technology ("MACT") standards could force a
significant reduction of air pollutants below existing levels. The Registrant
is actively participating with other cement manufacturers in working with the
EPA to define test protocols, better define the scope of MACT standards and
develop realistic emission limitations for the portland cement industry. Until
the EPA better defines the applicability and scope, and the proposed emission
standards, management cannot determine whether technology in fact exists today
to meet such standards and, if it does, the facilities which will be required
to install additional controls and the associated costs for such controls.
The Registrant's ready-mixed concrete operations generate a cement sludge from
concrete recycling. Governmental authorities, especially in Canada, are
beginning to focus on regulating management of this residual waste. The
Registrant has been voluntarily assessing its cement sludge management
practices in the U.S. and Canada. The Registrant hopes to identify new
technologies, process modifications and alternative raw materials/additives
with the goal of reducing the generation of cement sludge and/or establishing
alternative management practices.
Because of differences between requirements in the U.S. and Canada, and the
complexity and uncertainty of existing and future environmental requirements,
permit conditions, costs of new and existing technology, potential remedial
costs and insurance coverage, and/or enforcement
II - 18
43
related activities and costs, it is difficult for management to estimate
the ultimate level of the Registrant's expenditures related to environmental
matters. The Registrant's capital expenditures and operational expenses for
environmental matters have increased, and are likely to increase in the future.
The Registrant, however, cannot determine at this time if capital expenditures
and other remedial actions that the Registrant has taken, or may in the future
be required to undertake, in order to comply with the laws governing
environmental protection will have a material effect upon its capital
expenditures or earnings.
II - 19
44
MANAGEMENT'S DISCUSSION OF CASH FLOWS
The Consolidated Statements of Cash Flows summarize the Registrant's main
sources and uses of cash. These statements show the relationship between
operations which are presented in the Consolidated Statements of Income and
liquidity and financial resources which are depicted in the Consolidated
Balance Sheets.
The Registrant's liquidity requirements arise primarily from the funding of its
capital expenditures, working capital needs, debt service obligations and
dividends. The Registrant has met its operating liquidity needs primarily
through internal generation of cash and expects to continue to do so for both
the short-term and long-term. However, because of the seasonality of the
Registrant's business, it must borrow to fund operating activities during the
spring and summer.
The net cash provided by operations for each of the three years presented
reflects the Registrant's net income (loss) adjusted primarily for
depreciation, depletion and amortization, changes in working capital,
restructuring charges in 1993, and the cumulative effect of accounting changes
in 1992. Depreciation and depletion increased in 1992 from 1991 because of
capital expenditures and acquisitions but declined in 1993 due to lower capital
spending and divestments. In addition, net income (loss) was adjusted by the
provision for bad debts. This provision has declined over the three year
period due to tighter credit policies and a healthier construction market in
1993. During all three years presented, net income (loss) was also adjusted
for the turnaround of deferred income taxes, primarily from reversing
depreciation differences in Canada, and changes in working capital, which is
discussed in Management's Discussion of Financial Position. Finally, net
income (loss) from operations was adjusted for gains on sales of assets and
other noncash charges and credits. These charges and credits consist
principally of equity income net of dividends received, other postretirement
benefit accruals, increases in prepaid pension assets and minority interests.
Cash flows invested consist primarily of capital expenditures and acquisitions
partially offset by proceeds on property, plant and equipment dispositions.
Sales of property, plant and equipment during 1993 and 1992 included
significant divestments of non-strategic assets. During 1993 the Registrant's
proceeds from the sale of non-strategic assets and surplus land totalled
approximately $68.9 million. In 1992 the proceeds from divestment of several
construction materials businesses and surplus land totalled $25.1 million.
Capital investments, including acquisitions, by product line were as follows
(in millions):
II - 20
45
Years Ended December 31
---------------------------------
1993 1992 1991
---------------------------------
Cement $ 27.2 $ 28.0 $ 34.1
Construction materials 45.8 30.8 72.4
Other 0.6 0.5 0.3
---------------------------------
Total capital investments $ 73.6 $ 59.3 $106.8
=================================
Capital investments related to existing operations are not expected to exceed
$130 million in 1994. This capital spending is anticipated to be funded by
cash flows from operations, after dividends, and proceeds from divestments.
During 1993, the Registrant continued its program to regain financial
flexibility by reducing its debt position. Debt was reduced by cash flows from
operations, divestments and proceeds from the sale of Common Shares. Net cash
outflows from financing activities were $124.4 million in 1993 and $14.9
million in 1992. In 1991, cash flows from financing activities were $26.3
million, reflecting borrowings required to finance a portion of the
Registrant's capital investments.
In February 1993, the Registrant sold its Demopolis, Alabama cement facility
and other related assets for approximately $50 million cash. In early 1992,
the Registrant sold 1.7 million Exchangeable Shares of LCI, a wholly owned
subsidiary, that it had accumulated through exchange transactions for net
proceeds of $25.8 million. In October 1993 the Registrant completed an
offering of 6.75 million Common Shares priced at $18.25 per share. The net
proceeds from the offering, which were used initially to reduce long-term debt,
totalled $117.6 million. The Registrant intends to apply the proceeds to
internal capital improvement projects and investment or acquisition
opportunities to enhance or expand the Registrant's competitive position in the
U.S. and Canada.
The Registrant has access to a wide variety of short-term and long-term
financing alternatives in both the U.S. and Canada. Effective December 15,
1993, the Registrant extended the maturity of its $200 million committed credit
facility to December 31, 1996. Although none of the credit facility had been
drawn down at December 31, 1993, approximately $11 million was utilized to back
outstanding short-term bank loans.
Most of the Registrant's cash and cash equivalents are in Canada. If the cash
were transferred to the U.S., a 10 percent withholding tax would be levied in
Canada which, because of the Registrant's U.S. net operating loss position,
would not provide an offsetting tax credit in the U.S.
II - 21
46
MANAGEMENT'S DISCUSSION OF FINANCIAL POSITION
The Consolidated Balance Sheets summarize the Registrant's financial position
at December 31, 1993 and 1992.
The value reported for Canadian dollar denominated net assets decreased from
December 31, 1992 as a result of a drop in the value of the Canadian dollar
relative to the U.S. dollar. At December 31, 1993 the U.S. dollar equivalent
of a Canadian dollar was $ .76 versus $ .79 at December 31, 1992.
Working capital, excluding cash and current portion of long-term debt,
decreased $6.5 million as a result of the drop in the value of the Canadian
dollar relative to the U.S. dollar. The impact of these exchange rate changes
was to reduce accounts receivable by $5.8 million, inventories by $4.0 million,
and accounts payable by $2.7 million.
Working capital, excluding cash, current portion of long-term debt and the
impact of exchange rate changes, decreased $49.2 million from December 31, 1992
to December 31, 1993. Accounts receivable increased $14.3 million during the
year primarily due to a five percent increase in net sales in the fourth
quarter of 1993 compared to 1992. (Net sales are detailed in Management's
Discussion of Income). Inventories decreased $36.1 million mainly due to a
seven percent increase in cement shipments in the fourth quarter resulting from
the continued improvement in the construction market coupled with milder
weather conditions in most of the Registrant's major markets. Also
contributing to the decline in inventories was the impact of divestments. The
increase in other current assets was due to higher deferred income tax assets.
Accounts payable and accrued liabilities increased $38.8 million, mainly due to
the $21.6 million restructuring accrual and the timing of purchases and
payments.
Net property, plant and equipment decreased $101.6 million during 1993. The
impact of exchange rates resulted in $16.0 million of this decrease.
Depreciation and divestments were $108.5 million and $51.9 million. Capital
expenditures and acquisitions totalled $67.2 million.
The excess of cost over net assets of businesses acquired related primarily to
a 1981 U.S. acquisition. During 1993, this balance decreased primarily due to
current year amortization. Other long-term liabilities increased $13.9 million
during 1992. The increase was due to higher minority interests of $12.4
million primarily resulting from a construction materials joint venture in
Canada ($7.2 million) and proceeds from the expropriation of property in a U.S.
construction materials joint venture ($4.7 million). The adoption of SFAS No.
106, "Employers Accounting for Postretirement Benefits Other than Pensions",
was recorded effective January 1, 1992 and resulted in the establishment of a
$111.0 million liability. The related 1993 and 1992 accruals, net of actual
payments, were $4.5 million and $6.0 million, respectively. The new accounting
standard requires that the expected cost of retiree health care and life
insurance benefits be charged to expense during the
II - 22
47
years that the employees render service rather than the Registrant's past
practice of recognizing these costs on a cash basis.
The Registrant's capitalization is summarized in the following table:
December 31
-----------------------------
1993 1992
-----------------------------
Long-term debt 26.6% 35.8%
Other long-term liabilities 17.0% 15.6%
Shareholders' equity 56.4% 48.6%
-----------------------------
Total capitalization 100.0% 100.0%
=============================
The increase in shareholders' equity is discussed in Management's Discussion of
Shareholders' Equity. The decline in long-term debt is discussed in
Management's Discussion of Cash Flows.
II - 23
48
MANAGEMENT'S DISCUSSION OF SHAREHOLDERS' EQUITY
The Consolidated Statements of Shareholders' Equity summarize the
activity in each of the components of shareholders' equity for the three years
presented. Shareholder's equity increased $91.7 million in 1993. The increase
was mainly due to the October 1993 sale of 6.75 million shares of Common Shares
for net proceeds of $117.6 million. Also positively impacting 1993
shareholders' equity was net income of $5.9 million. Partially offsetting
these increases were dividend payments, net of reinvestments of $14.3 million,
and a change in the foreign currency translation adjustments of $24.6 million
resulting from a decline in the value of the Canadian dollar relative to the
U.S. dollar.
Shareholders' equity decreased $142.0 million in 1992 due to the net loss of
$100.6 million, a change in the foreign currency translation adjustments of
$62.8 million resulting from a significant decline in the value of the Canadian
dollar relative to the U.S. dollar and dividend payments, net of reinvestments,
totalling $7.7 million. Offsetting these declines were the sale of 1.7 million
Exchangeable Shares of LCI in February 1992 for net proceeds of $25.8 million.
Common equity interests include Common Shares and the LCI Exchangeable Shares,
which have comparable voting, dividend and liquidation rights. Common Shares
are traded on the New York Stock Exchange under the ticker symbol "LAF" and on
The Toronto Stock Exchange and the Montreal Exchange. The Exchangeable Shares
are traded on the Montreal Exchange and The Toronto Stock Exchange.
The following table reflects the range of high and low closing prices of Common
Shares by quarter for 1993 and 1992 as quoted on the New York Stock Exchange:
Quarters Ended
----------------------------------------------------------
March June Sept. Dec.
31 30 30 31
----------------------------------------------------------
1993 Stock Prices
High $17-3/4 $17-3/4 $19-3/4 $22-7/8
Low 14-3/4 15 15-1/8 18-1/4
1992 Stock Prices
High $15-3/8 $17-7/8 $16 $15-1/8
Low 12-1/2 14-1/8 12-1/8 11-7/8
==========================================================
II - 24
49
Dividends are summarized in the following table (in thousands, except per share
amounts):
Years Ended December 31
------------------------------------
1993 1992 1991
------------------------------------
Common equity dividends $ 18,390 $ 17,606 $ 19,599
Less dividend reinvestments (4,073) (9,918) (10,227)
------------------------------------
Net cash dividend payments $ 14,317 $ 7,688 $ 9,372
====================================
Common equity dividends
per share $ .30 $ .30 $ .35
====================================
Net dividend payments during 1993 were higher than 1992 because of an increase
in the number of shares outstanding during the year and a decrease in the
reinvestment of dividends.
II - 25
50
MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA
The Selected Consolidated Financial Data provides both a handy reference for
some data frequently requested about the Registrant and a useful record in
reviewing trends.
The Selected Consolidated Financial Data for 1990 and 1989 has been restated
from January 1, 1989 to reflect the Missouri Portland/Davenport acquisition.
The Registrant's net sales increased six percent from 1989 to 1990 because of
acquisitions and, to a lesser extent, increased business activity in the
Registrant's markets. The 11 percent decline in the Registrant's net sales
from 1990 to 1991 reflects the lower sales volumes during the recession,
whereas the four percent decline from 1991 to 1992 was caused by sluggish
construction activity in central and eastern Canada coupled with a decline in
the average value of the Canadian dollar. The one percent decline from 1992 to
1993 was due to the drop in the value of the Canadian dollar and lost sales
from divested operations, partially offset by a four percent increase in
average cement net sales prices and higher cement and construction materials
sales volumes as discussed in Management's Discussion of Income.
Inflation has not been a significant factor in the Registrant's sales or
earnings growth due to lower inflation rates in recent years, and because the
Registrant continually attempts to offset the effect of inflation by improving
operating efficiencies, especially in the areas of selling and administrative
expenses, productivity and energy costs. The ability to recover increasing
costs by obtaining higher prices for the Registrant's products varies with the
level of activity in the construction industry and the availability of products
to supply a local market.
During 1989 and 1990, the Registrant's cement selling price increases in the
U.S. and in Canada were generally less than the rate of inflation. In 1991,
that pattern continued in the U.S.; however, Canadian selling prices were
relatively stable in 1991. In 1992, selling prices in the U.S. decreased 1.4
percent while Canadian selling prices increased one percent. In 1993 selling
prices in the U.S. increased six percent while average Canadian prices were
unchanged despite depressed volumes and competitive pressures in Ontario.
Net cash provided by operations consists primarily of net income (loss),
adjusted primarily for depreciation, restructuring charges in 1993 and, in
1992, the cumulative effect of changes in accounting principles. The
Registrant is in a capital intensive industry and as a result recognizes large
amounts of depreciation. The Registrant has used the cash provided by
operations primarily to expand its markets and to improve the performance of
its plants and other operating equipment.
II - 26
51
Capital expenditures and acquisitions totalled $771.1 million over the five
years and included the acquisition of The Standard Slag Company (Part of the
U.S. Region) which has a network of aggregates and construction materials
businesses located in the U.S. Great Lakes area. Other significant investments
during the period included a variety of cement plant projects to increase
production capacity and reduce costs, the installation of waste fuel receiving
and handling facilities, the building of additional distribution terminals to
extend markets and improve existing supply networks, acquisitions of
ready-mixed concrete plants and aggregate operations, and modernization of the
construction materials mobile equipment fleet.
II - 27
52
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended December 31
---------------------------------------------------
1993 1992 1991
---------------------------------------------------
NET SALES $1,494,491 $1,511,231 $1,568,829
---------------------------------------------------
Costs and Expenses
Cost of goods sold 1,242,246 1,289,394 1,344,532
Selling and administrative 161,449 184,792 198,501
Interest expense, net 42,732 49,398 51,954
Other (income) expense, net (1,007) 9,060 8,096
Restructuring 21,600 - -
---------------------------------------------------
Total costs and expenses 1,467,020 1,532,644 1,603,083
---------------------------------------------------
Pre-tax income (loss) 27,471 (21,413) (34,254)
Income taxes 21,574 15,700 16,111
---------------------------------------------------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLES 5,897 (37,113) (50,365)
Cumulative effect of change in
accounting principles - (63,531) -
---------------------------------------------------
NET INCOME (LOSS) $ 5,897 $ (100,644) $ (50,365)
===================================================
NET INCOME (LOSS) PER COMMON
EQUITY SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES - PRIMARY AND
ASSUMING FULL DILUTION $ 0.10 $ (0.63) $ (0.90)
Cumulative effect of change in
accounting principles - (1.09) -
---------------------------------------------------
NET INCOME (LOSS) PER COMMON
EQUITY SHARE - PRIMARY AND
ASSUMING FULL DILUTION $ 0.10 $ (1.72) $ (0.90)
===================================================
DIVIDENDS PER COMMON EQUITY SHARE $ 0.30 $ 0.30 $ 0.35
===================================================
See Notes to Consolidated Financial Statements
II - 28
53
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31
-------------------------------------------------
1993 1992 1991
------------------------------------------------
CASH FLOWS FROM OPERATIONS
Net income (loss) $ 5,897 $(100,644) $ (50,365)
Adjustments to reconcile net
income (loss) to net cash
provided by operations:
Depreciation, depletion,
and amortization 114,970 125,198 118,515
Provision for bad debts 5,735 6,371 9,906
Deferred income taxes (5,676) (8,729) (5,692)
Gain on sale of assets (16,995) (10,934) (103)
Cumulative effect of change
in accounting principles - 63,531 -
Restructuring 21,600 - -
Other noncash charges and
credits, net 757 3,456 (1,444)
Changes in operating working
capital (see below)* 28,584 (1,580) 1,783
------------------------------------------------
NET CASH PROVIDED BY OPERATIONS 154,872 76,669 72,600
------------------------------------------------
CASH FLOWS INVESTED
Capital expenditures (58,427) (54,939) (95,792)
Acquisitions (15,203) (4,338) (11,050)
Proceeds from property, plant
and equipment dispositions 68,940 25,140 5,986
Note receivable, net - - 15,745
Other 3,933 (3,417) (7,769)
------------------------------------------------
NET CASH INVESTED (757) (37,554) (92,880)
------------------------------------------------
CASH FLOWS FROM FINANCING
Additional long-term borrowings 23,000 77,519 171,381
Repayment of long-term debt (257,834) (113,781) (142,280)
Issuance of equity securities, net 124,713 29,088 6,590
Dividends, net of reinvestments (14,317) (7,688) (9,372)
------------------------------------------------
NET CASH PROVIDED (CONSUMED) BY FINANCING (124,438) (14,862) 26,319
------------------------------------------------
Effect of exchange rate changes (5,041) (12,350) (81)
------------------------------------------------
NET INCREASE IN CASH 24,636 11,903 5,958
CASH AT THE BEGINNING OF THE YEAR 84,658 72,755 66,797
------------------------------------------------
CASH AT THE END OF THE YEAR $ 109,294 $ 84,658 $ 72,755
================================================
*ANALYSIS OF CHANGES IN WORKING
CAPITAL ITEMS
Receivables, net $ (20,166) $ (16,548) $ 16,518
Inventories 32,841 10,186 (4,344)
Other current assets (1,912) (4,081) 4,999
Accounts payable and accrued liabilities 16,798 (10,425) (14,687)
Income taxes payable 1,023 19,288 (703)
------------------------------------------------
NET CHANGE IN OPERATING WORKING CAPITAL $ 28,584 $ (1,580) $ 1,783
================================================
See Notes to Consolidated Financial Statements
II - 29
54
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31
--------------------------------
1993 1992
--------------------------------
ASSETS
Cash and cash equivalents $ 109,294 $ 84,658
Receivables, net 253,207 244,694
Inventories 186,082 222,205
Other current assets 36,661 28,585
--------------------------------
Total current assets 585,244 580,142
Property, plant and equipment, net 880,724 982,277
Excess of cost over net assets of
businesses acquired, net 39,636 43,049
Other assets 168,114 161,973
--------------------------------
TOTAL ASSETS $1,673,718 $1,767,441
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 226,585 $ 190,544
Income taxes payable 28,846 28,799
Current portion of long-term debt 14,373 107,773
--------------------------------
Total current liabilities 269,804 327,116
Long-term debt 373,230 515,233
Other long-term liabilities 239,019 225,162
--------------------------------
Total liabilities 882,053 1,067,511
--------------------------------
Common Equity Interests
Common Shares ($1.00 par value;
authorized 110.1 million shares;
issued 55.3 and 46.6 million
shares, respectively) 55,290 46,605
Exchangeable Shares (no par or stated
value; authorized 24.3 million
shares; issued 11.6 and 12.8 million
shares, respectively) 78,443 85,689
Additional paid-in capital 535,685 408,338
Retained earnings 164,702 177,195
Foreign currency translation adjustments (42,455) (17,897)
--------------------------------
Total shareholders' equity 791,665 699,930
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,673,718 $1,767,441
================================
See Notes to Consolidated Financial Statements
II - 30
55
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Years Ended December 31
-------------------------------------------------------------------------------
1993 1992 1991
-------------------------------------------------------------------------------
Amount Shares Amount Shares Amount Shares
PREFERRED STOCK
Balance at January 1 $ - - $ - - $ 1,006 1,006
Redemption of Third
Preferred Stock - - - - (1,006) (1,006)
------------------------------------------------------------------------------
Balance at December 31 $ - - $ - - $ - -
==============================================================================
COMMON EQUITY INTERESTS
COMMON SHARES
Balance at January 1 $ 46,605 46,605 $ 45,683 45,683 $ 44,422 44,422
Issuance of Common Shares for:
Dividend reinvestment plans 168 168 664 664 721 721
Sale of Common Shares 6,750 6,750 - - - -
Employee stock purchase plan 45 45 51 51 54 54
Systech acquisition agreement - - - - 451 451
Exchange of Exchangeable Shares 1,286 1,286 26 26 3 3
Exercise of stock options 436 436 181 181 32 32
------------------------------------------------------------------------------
Balance at December 31 $ 55,290 55,290 $ 46,605 46,605 $ 45,683 45,683
==============================================================================
EXCHANGEABLE SHARES
Balance at January 1 $ 85,689 12,767 $ 72,384 10,976 $ 70,285 10,841
Issuance of Exchangeable
Shares for:
Dividend reinvestment plans 1,027 64 975 66 1,035 71
Employee stock purchase plan 257 38 419 51 1,081 67
Sale of Exchangeable Shares - - 12,086 1,700 - -
Exchange of Exchangeable Shares (8,667) (1,286) (175) (26) (17) (3)
Exercise of stock options 137 13 - - - -
------------------------------------------------------------------------------
Balance at December 31 $ 78,443 11,596 $ 85,689 12,767 $ 72,384 10,976
==============================================================================
ADDITIONAL PAID-IN CAPITAL
Balance at January 1 $408,338 $383,559 $369,095
Issuance of Common and/or
Exchangeable Shares for:
Dividend reinvestment plans 2,877 8,279 8,472
Sale of Common Shares 110,869 - -
Employee stock purchase plan 1,073 1,187 709
Systech acquisition agreement - - 4,121
Sale of Exchangeable Shares - 13,648 -
Exchange of Exchangeable Shares 7,381 148 14
Exercise of stock options 5,147 1,517 393
Redemption of Third Preferred
Stock - - 755
------------------------------------------------------------------------------
Balance at December 31 $535,685 $408,338 $383,559
==============================================================================
RETAINED EARNINGS
Balance at January 1 $177,195 $295,445 $365,409
Net income (loss) 5,897 (100,644) (50,365)
Dividends-common equity interests (18,390) (17,606) (19,599)
------------------------------------------------------------------------------
Balance at December 31 $164,702 $177,195 $295,445
==============================================================================
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Balance at January 1 $(17,897) $ 44,873 $ 42,213
Translation adjustments (24,558) (62,770) 2,660
------------------------------------------------------------------------------
Balance at December 31 $(42,455) $(17,897) $ 44,873
==============================================================================
TOTAL SHAREHOLDERS' EQUITY $791,665 $699,930 $841,944
==============================================================================
See Notes to Consolidated Financial Statements
II - 31
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Together with its subsidiaries, Lafarge Corporation (the "Registrant"), a
Maryland corporation, is engaged in the production and sale of cement,
ready-mix concrete, aggregates and other concrete products. The Registrant
operates in the U.S. and its major operating subsidiary, LCI, operates in
Canada. The Registrant's wholly-owned subsidiary, Systech Environmental
Corporation, and its Canadian affiliate (together "Systech"), are involved in
the conversion of waste into fuels for use in cement kilns. Lafarge Coppee
S.A., a French corporation, and certain of its affiliates ("Lafarge Coppee")
own a majority of the voting securities of the Registrant.
ACCOUNTING AND FINANCIAL REPORTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Registrant
and all of its majority-owned subsidiaries (the "Registrant"), after the
elimination of intercompany transactions and balances. Investments in
affiliates in which the Registrant has less than a majority ownership are
accounted for by the equity method.
Foreign Currency Translation
Assets and liabilities of LCI are translated at the exchange rate prevailing at
the balance sheet date. Revenue and expense accounts for this subsidiary are
translated using the average exchange rate during the period. Foreign currency
translation adjustments are disclosed as a separate item in shareholders'
equity.
Revenue Recognition
Revenue from the sale of cement, concrete products and aggregates is recorded
at the time the products are shipped. Revenue from waste recovery and disposal
is recorded at the time the material is received, tested and accepted. Revenue
from road construction contracts is recognized on the basis of units of work
completed, while revenue from other indivisible lump sum contracts is
recognized using the percentage-of-completion method.
Change in Accounting Principles
Effective January 1, 1992 the Registrant adopted Statements of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and No. 109, "Accounting for
Income Taxes." The cumulative effect of these changes in accounting principles
of $63.5 million (after-tax) was recorded as a charge to expense in 1992.
II - 32
57
Other Postretirement Benefits
SFAS No. 106 requires that the expected cost of retiree health care and life
insurance benefits be charged to expense during the years that the employees
render service rather than the Registrant's practice, prior to 1992, of
recognizing these costs on a cash basis. The January 1, 1992 noncash
cumulative charge for the adoption of this standard was $86.1 million, or $1.47
per share, after income taxes of $24.9 million. This charge represents the
discounted present value of expected future benefits attributed to employees'
service rendered prior to January 1, 1992. The adoption of this accounting
principle also reduced 1992 pre-tax income by approximately $6.0 million. The
amount of claims paid for these benefits was approximately $7.2 million, $5.5
million and $3.9 million during 1993, 1992 and 1991, respectively.
Income Taxes
SFAS No. 109 requires a change from the deferred method to the liability method
of accounting for income taxes. Under the liability method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax laws and rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under this standard, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. Under the deferred method, deferred taxes
were recognized using the tax rate applicable to the year of the calculation
and were not adjusted for subsequent changes in tax rates. The January 1, 1992
noncash cumulative credit recognized as income for the adoption of this
standard was $22.6 million, or $.39 per share. The adoption of SFAS No. 109
reduced 1992 pre-tax income from continuing operations by $3.4 million.
Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, "cash" includes cash
and cash equivalents. The Registrant considers liquid investments purchased
with a maturity of three months or less to be cash equivalents. Because of the
short maturity of those investments, their carrying amount approximates fair
value.
Inventories
Inventories are valued at lower of cost or market. The majority of the
Registrant's U.S. inventories, other than maintenance and operating supplies,
are stated at last-in, first-out ("LIFO") cost and all other inventories are
valued at average cost.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed for financial
reporting purposes using the straight-line method over the estimated useful
lives of the assets. These lives range from three years on light mobile
equipment to forty years on certain buildings. Land and mineral
II - 33
58
deposits include depletable raw material reserves on which depletion is
recorded using a units-of-production method.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over fair value of net assets of businesses acquired is
amortized on a straight-line basis over periods not exceeding forty years. The
amortization recorded for 1993, 1992 and 1991 was $4.3 million, $5.4 million
and $6.4 million, respectively. Accumulated amortization at December 31, 1993
and 1992 was $38.2 million and $33.9 million, respectively.
Research and Development
The Registrant is committed to improving its manufacturing process, maintaining
product quality and meeting existing and future customer needs. These
objectives are pursued through various programs. Research and development
costs, which are charged to expense as incurred, were $7.3 million, $8.1
million and $7.5 million for 1993, 1992 and 1991, respectively.
Interest
No interest was capitalized during 1993, 1992 or 1991. Interest income of $5.3
million, $4.5 million and $3.3 million, has been applied against interest
expense for 1993, 1992 and 1991, respectively. The interest differential to be
paid or received as a result of interest rate swaps is accrued as interest
rates change and recognized over the life of the agreements as an adjustment to
interest expense.
Net Income Per Common Equity Share
The calculation of net income per common equity share is based on the weighted
average number of the Registrant's Common Shares and the Exchangeable
Preference Shares of LCI ("Exchangeable Shares") outstanding in each period and
the assumed exercise of stock options. The weighted average number of shares
and share equivalents outstanding was (in thousands) 61,636, 58,652 and 55,925
in 1993, 1992 and 1991, respectively. The computation of fully diluted
earnings per share was antidilutive in 1993, 1992 and 1991.
Other Postemployment Benefits
In December 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Accounting for Other Postemployment
Benefits." SFAS No. 112 requires the accrual of the estimated cost of benefits
provided to former or inactive employees after employment but before
retirement. These benefits include long-term disability, temporary disability
income, medical coverage continuation and COBRA medical coverage continuation.
This new standard, which the Registrant must adopt by 1994, requires that the
expected cost of these benefits be charged to expense during the years that the
employees render service. The Registrant will adopt this new
II - 34
59
standard on January 1, 1994. The impact of adopting this standard will not be
material to the Registrant's financial position and operating results.
RESTRUCTURING
In the fourth quarter of 1993, the Registrant recorded a one-time pre-tax
restructuring charge of $21.6 million ($16.4 million net of tax benefits, or
$.27 per share) to cover the direct expenses of restructuring the Registrant's
North American business units to increase organizational efficiency. The
primary components of the restructuring charge are separation benefits for
approximately 350 employees, employee relocation costs and early retirement
benefits for eligible employees electing early retirement. The charge also
includes expenses such as office relocation and lease termination.
The restructuring plan entails the consolidation of eleven regional operating
units into six units in the Registrant's two main business lines. This
consolidation reduces management layers, eliminates duplicative administrative
functions and standardizes procedures and information systems. Manufacturing
and distribution facilities will not be materially affected by the
restructuring.
RECEIVABLES
Receivables consist of the following (in thousands):
December 31
-------------------------
1993 1992
-------------------------
Trade and note receivables $ 269,600 $ 261,382
Retainage on long-term contracts 7,679 7,565
Allowances (24,072) (24,253)
-------------------------
Total receivables, net $ 253,207 $ 244,694
=========================
II - 35
60
INVENTORIES
Inventories consist of the following (in thousands):
December 31
-------------------------
1993 1992
-------------------------
Finished products $ 89,700 $ 109,105
Work in process 10,681 18,988
Raw materials and fuel 39,668 43,416
Maintenance and operating supplies 46,033 50,696
-------------------------
Total inventories $ 186,082 $ 222,205
=========================
Included in the finished products, work in process and raw materials and fuel
categories are inventories valued using the LIFO method of $54.8 million and
$74.4 million at December 31, 1993 and 1992, respectively. If these inventories
were valued using the average cost method, such inventories would have
decreased by $7.5 million and $9.7 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31
---------------------------
1993 1992
---------------------------
Land and mineral deposits $ 194,265 $ 198,073
Buildings, machinery and equipment 1,650,884 1,742,165
Construction in progress 21,434 38,213
---------------------------
Property, plant and equipment,
at cost 1,866,583 1,978,451
Less accumulated depreciation and
depletion (985,859) (996,174)
---------------------------
Total property, plant and equipment,
net $ 880,724 $ 982,277
===========================
II - 36
61
OTHER ASSETS
Other assets consist of the following (in thousands):
December 31
----------------------------------
1993 1992
----------------------------------
Long-term receivables $ 23,896 $ 26,788
Investments in unconsolidated
companies 37,688 36,817
Prepaid pension asset 56,493 48,820
Property held for sale 26,235 26,053
Other 23,802 23,495
----------------------------------
Total other assets $ 168,114 $ 161,973
==================================
Property held for sale represents certain permanently closed cement plants and
land which are carried at the lower of cost or estimated net realizable value.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
December 31
----------------------------------
1993 1992
----------------------------------
Trade accounts payable $ 73,164 $ 72,679
Accrued payroll expense 36,558 37,524
Accrued interest expense 5,375 7,195
Restructuring 21,600 -
Other accrued expenses 89,888 73,146
----------------------------------
Total accounts payable and
accrued liabilities $ 226,585 $ 190,544
==================================
II - 37
62
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31
-------------------------------
1993 1992
-------------------------------
Long-term bank loan maturing in
1995 bearing interest at a fixed
rate of 8.6 percent $ 20,000 $ 118,000
Medium-term notes maturing in
various amounts between 1994 and
2006, bearing interest at fixed
rates which range from 8.9 percent
to 9.8 percent 215,000 245,000
7% Convertible Debentures maturing
in 2013, convertible into Common
shares at a conversion price of
$22.125 per share, with sinking
fund requirements beginning in 1999 100,000 100,000
Short-term bank loans backed by a
long-term revolving credit facility
with a weighted average interest rate
of 3.4 percent 11,060 83,775
Tax-exempt bonds maturing in various
amounts between 1994 and 2011, bearing
interest at floating rates which range
from 3.1 percent to 6.0 percent 37,400 48,242
Other 4,143 27,989
-------------------------------
Subtotal 387,603 623,006
Less current portion (14,373) (107,773)
-------------------------------
Total long-term debt $ 373,230 $ 515,233
===============================
The fair value of long-term debt at December 31, 1993 was approximately $428.0
million. This fair value was estimated based upon quoted market prices or
current interest rates offered to the Registrant for debt of the same maturity.
The Registrant, does not generally anticipate the refinancing of these
obligations prior to maturity.
II - 38
63
The Registrant is a party to $98 million net notional amount of interest rate
swap agreements which have effectively fixed the interest rates on its floating
rate debt. The fixed rates payable under these agreements have a weighted
average of 9.3 percent with terms expiring at various dates from 1996 through
2000.
The Registrant is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements, but does not anticipate
nonperformance by such parties. Based on current market interest rates, the
net termination cost at December 31, 1993 for the Registrant to unwind its
various hedging positions was approximately $17.0 million.
Annual principal payment requirements on long-term debt for each of the five
years in the period ending December 31, 1998, after the exclusion of short-term
bank loans for which anticipated refinancing is available, are as follows (in
millions):
1994 1995 1996 1997 1998 Thereafter
----------------------------------------------------------------------------------
Repayments $ 14.4 $ 45.1 $ 30.8 $ 26.7 $ 29.2 $241.4
----------------------------------------------------------------------------------
Effective December 15, 1993, the Registrant extended the maturity of its $200
million revolving credit facility to December 1996. At the end of 1993, no
amounts were outstanding under the revolving credit facility. The Registrant
is required to pay annual commitment fees of up to one-quarter of one percent
of the unused portion of the funds available for borrowing under these credit
agreements. There was approximately $11.1 million of short-term debt backed by
the revolving credit facility outstanding at December 31, 1993. The revolving
credit facility and several other off-balance sheet arrangements are generally
at market conditions.
The Registrant's debt agreements require the maintenance of certain financial
ratios relating to cash flow, leverage, working capital and net worth. At
December 31, 1993, the Registrant was in compliance with these requirements.
II - 39
64
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following (in thousands):
December 31
--------------------------------
1993 1992
--------------------------------
Deferred income taxes $ 101,395 $ 103,196
Minority interests 13,906 1,534
Other postretirement benefits 120,676 116,598
Other 3,042 3,834
--------------------------------
Total other long-term liabilities $ 239,019 $ 225,162
================================
PREFERRED STOCK
At December 31, 1990, there were 9.0 million shares of the Registrant's Third
Preferred Stock authorized, of which 1 million were outstanding. These shares
were issued at a par value of $1.00 per share and were held by Lafarge Coppee.
The holders were entitled to one vote per share. The shares were not entitled
to any equity participation or dividends and had a cash redemption and
liquidation value of $.25 per share. The Third Preferred Stock had certain
mandatory redemption provisions and all outstanding shares were redeemed under
these provisions on December 31, 1991. The Registrant's charter provides that
redeemed shares of Third Preferred Stock automatically become authorized but
unissued shares of Common stock.
COMMON EQUITY INTERESTS
Holders of Exchangeable Shares have voting, dividend and liquidation rights
which parallel those of holders of the Registrant's Common Shares. The
Exchangeable Shares are exchangeable into the Registrant's Common Shares on a
one-for-one basis. Dividends on the Exchangeable Shares are cumulative and
payable at the same time as any dividends declared on the Registrant's Common
Shares. The Registrant has agreed not to pay dividends on its Common Shares
without causing LCI to declare an equivalent dividend in Canadian dollars on
the Exchangeable Shares. Dividend payments and the exchange rate on the
Exchangeable Shares are subject to adjustment from time to time to take into
account certain dilutive events.
At December 31, 1993 the Registrant had reserved for issuance approximately
13.4 million Common Shares to allow for the exchange of outstanding
Exchangeable Shares. Additional common equity shares are reserved to cover
grants under the Registrant's stock option program (3.3 million), employee
stock purchase plan (.8 million), conversion of the Convertible Debentures (4.5
million) and issuances pursuant to the Registrant's optional stock dividend
plan (.5 million).
II - 40
65
In February 1992, the Registrant sold 1.7 million Exchangeable Shares that it
had accumulated through exchange transactions for net proceeds of $25.8
million.
On October 13, 1993, the Registrant sold 6.75 million Common Shares for $18.25
per share with net proceeds of $117.6 million. Lafarge Coppee, the
Registrant's majority shareholder, purchased 1.0 million of these shares.
OPTIONAL STOCK DIVIDEND PLAN
The Registrant has an optional stock dividend plan which permits holders of
record of common equity shares to elect to receive new common equity shares
issued as stock dividends in lieu of cash dividends on such shares. The common
equity shares are issued under the plan at 95 percent of the average market
price, as defined in the plan.
STOCK OPTION AND PURCHASE PLANS
Options to purchase the Registrant's Common Shares and Exchangeable Shares have
been granted to key employees of the Registrant at option prices based on the
market price of the securities at the date of grant. One-fourth of the options
granted are exercisable at the end of each year following the date of grant,
and all the options granted are exercisable in four years. The options expire
ten years from the date of grant.
II - 41
66
The following table summarizes activity for options related to the Registrant's
common equity interests:
Years Ended December 31
------------------------------------------------------------------
1993 1992 1991
------------------------------------------------------------------
Average Average Average
Option Option Option
Shares Price Shares Price Shares Price
--------------------- --------------------- --------------------
Balance outstanding
at beginning
of year 2,566,828 $14.23 2,407,578 $13.82 2,112,478 $13.57
Options granted 437,500 15.75 526,500 14.28 455,000 14.24
Options exercised (503,725) 12.71 (262,000) 9.99 (94,025) 9.70
Options cancelled (51,375) 15.43 (105,250) 15.73 (65,875) 14.51
--------------------- --------------------- --------------------
Balance outstanding
at end of year 2,449,228 $14.79 2,566,828 $14.23 2,407,578 $13.82
--------------------- --------------------- --------------------
Options exerci-
able at end
of year 1,356,853 1,459,428 1,322,904
==================================================================
The Registrant has an Employee Stock Purchase Plan which permits substantially
all employees to purchase the Registrant's common equity interests through
payroll deductions at 90 percent of the lower of the beginning or end of plan
year market prices. In 1993, 83,517 shares were issued to employees under the
plan at a share price of $15.08 and in 1992, 101,866 shares were issued at a
share price of $12.94. At December 31, 1993 and 1992, $.7 million and $.8
million were subscribed for future share purchases, respectively.
INCOME TAXES
Pre-tax income (loss) is summarized by country in the following table (in
thousands):
Years Ended December 31
--------------------------------------------------
1993 1992 1991
--------------------------------------------------
United States $(10,622) $(55,832) $(61,704)
Canada 38,093 34,419 27,450
--------------------------------------------------
Pre-tax income (loss) $ 27,471 $(21,413) $(34,254)
==================================================
II - 42
67
The provision for income taxes includes the following components (in
thousands):
Years Ended December 31
---------------------------------------------
1993 1992 1991
---------------------------------------------
Current
United States $ 1,400 $ 1,000 $ 750
Canada 25,850 23,429 21,053
---------------------------------------------
Total current 27,250 24,429 21,803
---------------------------------------------
Deferred
United States 2,600 - -
Canada (8,276) (8,729) (5,692)
---------------------------------------------
Total deferred (5,676) (8,729) (5,692)
---------------------------------------------
Total income taxes $ 21,574 $ 15,700 $ 16,111
=============================================
A reconciliation of taxes at the U.S. federal income tax rate to the
Registrant's actual income taxes is as follows (in millions):
Years Ended December 31
---------------------------------------------
1993 1992 1991
---------------------------------------------
Taxes at the U.S. federal
income tax rate $ 9.6 $ (7.3) $ (11.7)
U.S./Canadian tax rate
differential 1.2 1.4 1.1
Canadian tax incentives (1.9) (1.7) (1.3)
State and Canadian
provincial income taxes,
net of federal benefit 3.3 2.7 3.2
U.S. alternative minimum tax 1.3 - -
Tax effect of certain U.S.
operating losses 1.5 20.3 19.8
Other items 6.6 0.3 5.0
---------------------------------------------
Provision for income taxes $ 21.6 $ 15.7 $ 16.1
=============================================
Effective January 1, 1992 the Registrant adopted SFAS No. 109 "Accounting for
Income Taxes." The cumulative effect of this accounting change is reported in
the Consolidated Statements of Income.
Deferred income taxes for 1993 and 1992 reflect the tax consequences of
"temporary differences" between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. These temporary differences
are determined in accordance with SFAS No. 109 and are more
II - 43
68
inclusive in nature than "timing differences" as determined under previously
applicable accounting principles.
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities are as follows (in thousands):
December 31
----------------------------
1993 1992
----------------------------
Deferred tax assets:
Reserves and other liabilities $ 47,804 $ 37,069
Other postretirement benefits 46,596 43,390
Tax loss carryforwards 42,204 56,713
Investment and other credit
carryforwards 4,422 4,619
Other 5,489 5,625
----------------------------
Gross deferred tax assets 146,515 147,416
Valuation allowance (68,121) (66,208)
----------------------------
Net deferred tax assets 78,394 81,208
----------------------------
Deferred tax liabilities:
Property, plant and equipment 122,605 136,302
Prepaid pension asset 22,013 17,912
Other 9,267 10,383
----------------------------
Gross deferred tax liabilities 153,885 164,597
----------------------------
Net deferred tax liability 75,491 83,389
Net deferred tax asset-current 25,904 19,807
----------------------------
Net deferred tax liability-noncurrent $101,395 $103,196
============================
Upon adoption of SFAS No. 109, effective January 1, 1992, the Registrant
determined a valuation allowance requirement in the amount of $46.5 million.
During 1993 and 1992, the valuation allowance increased to $68.1 million and
$66.2 million, respectively, due primarily to the increase in unutilized net
operating losses in 1992.
In 1991 and prior years, deferred income taxes resulted from timing differences
in the recognition of revenues and expenses for tax return and financial
reporting purposes. The primary timing difference was caused by tax
depreciation less than book depreciation.
II - 44
69
At December 31, 1993 the Registrant had tax net operating loss and investment
and other tax credit carryforwards of $110.3 million and $4.4 million,
respectively, which expire as follows (in thousands):
Net
Operating
Loss Credits
---------------------------
1994 $ 1 $ 300
1995 410 405
1996 844 680
1997 1,322 791
1998 2,030 554
1999 5,294 786
2000 19,199 765
2001 8,683 125
2002 1,109 17
2003 1,893 -
2004 - -
2005 7,590 -
2006 37,723 -
2007 24,203 -
---------------------------
$110,301 $ 4,423
===========================
At December 31, 1993, cumulative undistributed earnings of LCI were $546.9
million. No provision for U.S. income taxes or Canadian withholding taxes has
been made since the Registrant considers the undistributed earnings to be
permanently invested in Canada. The Registrant believes that such earnings, if
repatriated, would not result in significant U.S. income taxes because of tax
planning alternatives but would incur a Canadian withholding tax of ten percent
of the amount remitted.
The Registrant's U.S. federal tax liability has not been finalized by the
Internal Revenue Service for any year subsequent to 1983 due to the existence
of tax net operating loss and credit carryforwards. The Registrant's Canadian
federal tax liability for all taxation years through 1989 has been reviewed and
finalized by Revenue Canada Taxation except for certain transactions for the
tax years 1984 through 1989 which are currently being reviewed.
SEGMENT INFORMATION
The Registrant's single business segment includes the manufacture and sale of
cement and ready-mixed concrete, precast and prestressed concrete components,
concrete block and pipe, aggregates, asphalt and reinforcing steel. In
addition, the Registrant is engaged in road building and other construction
utilizing many of its own products, and in waste recovery and disposal
utilizing industrial waste as supplemental fuels in cement kilns.
II - 45
70
Sales between the United States and Canada are accounted for at fair market
value. Income from operations equals net sales plus other income less cost of
goods sold, selling and administrative expenses and, in 1993, restructuring
charges. It also excludes interest expense and income taxes. Financial
information by country is as follows (in millions):
Years Ended December 31
---------------------------------------------
1993 1992 1991
---------------------------------------------
Net sales
Canada $ 640.5 $ 670.0 $ 736.4
United States 854.0 841.2 832.4
---------------------------------------------
Total net sales $1,494.5 $1,511.2 $1,568.8
=============================================
Income (loss) from operations
Canada $ 36.7 $ 33.5 $ 26.8
United States 33.5 (5.5) (9.1)
---------------------------------------------
Total income from operations $ 70.2 $ 28.0 $ 17.7
=============================================
Identifiable assets
Canada $ 794.0 $ 799.3 $ 858.2
United States 879.7 968.1 978.2
---------------------------------------------
Total identifiable assets $1,673.7 $1,767.4 $1,836.4
=============================================
SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities included (in thousands) the
issuance of 232, 730, and 792 common equity shares upon the reinvestment of
dividends totalling $4.1 million, $9.9 million, and $10.2 million in 1993, 1992
and 1991, respectively.
II - 46
71
Cash paid during the year for interest and income taxes is as follows (in
thousands):
Years Ended December 31
-----------------------------------------------
1993 1992 1991
-----------------------------------------------
Interest $ 44,553 $ 49,934 $ 53,500
Income taxes (net of
refunds) $ 27,177 $ 8,179 $ 20,225
===============================================
PENSION PLANS
The Registrant has several defined benefit and defined contribution retirement
plans covering substantially all employees. Benefits paid under the defined
benefit plans are based generally either on years of service and the employee's
compensation over the last few years of employment or years of service
multiplied by a contractual amount. The Registrant's funding policy is to
contribute amounts that are deductible for income tax purposes.
The following table summarizes the consolidated funded status of the
Registrant's defined benefit retirement plans and provides a reconciliation to
the consolidated prepaid pension asset recorded on the Registrant's
Consolidated Balance Sheets at December 31, 1993 and 1992(in millions). For
1993 the assumed settlement interest rate was 7.5 percent for the Registrant's
U.S. plans and 8.0 percent for the Canadian plans. For 1992, the assumed
settlement rate was 8.0 percent for the Registrant's U.S. plans and 8.5 percent
for the Canadian plans. For 1993, the assumed rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations was 4.5 percent. The 1992 rate was 5.0 percent.
The expected long-term rate of investment return on pension assets, which
include listed stocks, fixed income securities and real estate, was 9.0 percent
for each year presented.
II - 47
72
December 31
-------------------------------
1993 1992
-------------------------------
Actuarial present value of:
Vested benefit obligations $ 302.4 $ 283.3
Accumulated benefit obligations 310.5 294.3
===============================
Projected benefit obligation for
service rendered to date $ 351.0 $ 336.9
Market value of plan assets 393.0 380.3
-------------------------------
Excess of plan assets over projected
benefit obligations 42.0 43.4
Unrecognized net gain due to past
experience different from
assumptions made and amortized
over the average future working
lifetime of those expected to
receive benefits 27.9 22.3
Unrecognized net assets at transition
to SFAS No. 87 (13.4) (16.9)
-------------------------------
Prepaid pension asset $ 56.5 $ 48.8
===============================
The preceding table includes information for certain pension plans with an
excess of accumulated benefit obligations over plan assets. These particular
plans are generally unfunded in nature and result in net deferred pension
liabilities in 1993 and 1992 of $14.0 million and $12.1 million, respectively.
Net retirement cost for the years indicated includes the following components
(in millions):
Years Ended December 31
--------------------------------------------
1993 1992 1991
--------------------------------------------
Service cost of benefits
earned during the period $ 10.5 $ 10.4 $ 10.3
Interest cost on projected
benefit obligation 26.2 26.6 27.2
Actual gain on plan assets (31.7) (24.6) (60.6)
Net amortization and deferral (3.5) (11.9) 28.2
--------------------------------------------
Total defined benefit plans cost 1.5 0.5 5.1
Defined contribution plans cost 4.4 4.7 3.6
--------------------------------------------
Net retirement cost $ 5.9 $ 5.2 $ 8.7
============================================
II - 48
73
Certain employees are also covered under multi-employer pension plans
administered by unions. Amounts included in the preceding table as defined
benefit plans retirement cost and contributions to such plans were $3.5
million, $3.5 million and $3.4 million for 1993, 1992 and 1991, respectively.
The data available from administrators of the multi-employer plans are not
sufficient to determine the accumulated benefit obligation, nor the net assets
attributable to the multi-employer plans in which Registrant employees
participate.
The defined contribution plans costs in the preceding table relate to thrift
savings plans for eligible U.S. employees in 1991 and for all eligible U.S. and
Canadian employees in 1992 and 1993. Under the provisions of the plans, the
Registrant contributes an amount proportionate to each participant's salary and
will also match a portion of each participant's contribution.
OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1992 the Registrant adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The cumulative
effect of this accounting change is reported in the Consolidated Statements of
Income.
The Registrant provides certain retiree health and life insurance benefits to
eligible employees who retire in the U.S. or Canada. Salaried participants
generally become eligible for retiree health care benefits when they retire
from active service at age 55 or later, although there are some variances by
plan or unit in Canada and the U.S. Benefits, eligibility and cost-sharing
provisions for hourly employees vary by location and/or bargaining unit.
Generally, the health plans pay a stated percentage of most medical/dental
expenses reduced for any deductible, co-payment and payments made by government
programs and other group coverage. These plans are unfunded. An eligible
retiree's health care benefit coverage is coordinated in Canada with Provincial
Health and Insurance Plans and in the U.S., after attaining age 65, with
Medicare. Certain retired employees of businesses acquired by the Registrant
are covered under other care plans that differ from current plans in coverage,
deductibles and retiree contributions.
In the U.S., salaried retirees and dependents under age 65 have a $1,000,000
health care lifetime maximum benefit. At age 65 or over, the maximum is
$50,000. Lifetime maximums for hourly retirees are governed by the location
and/or bargaining agreement in effect at the time of retirement. In Canada,
some units have maximums, but in most cases there are no lifetime maximums. In
some units in Canada, spouses of retirees have lifetime medical coverage.
In Canada, both salaried and nonsalaried employees are generally eligible for
life insurance benefits. In the U.S., life insurance is provided for a number
of hourly retirees as stipulated in their hourly bargained agreements, but not
for salaried retirees except those of certain acquired companies.
II - 49
74
The following table sets forth the plans' combined status reconciled with the
accrued postretirement benefit cost included in the Registrant's Consolidated
Balance Sheets (in thousands):
December 31
----------------------------
1993 1992
----------------------------
Accumulated Postretirement
Benefit Obligation
Retirees $ 79,854 $ 66,339
Fully eligible active
participants 19,657 20,637
Other active participants 26,675 29,622
----------------------------
Total accumulated post-
retirement benefit obligation 126,186 116,598
Unrecognized net gain (5,510) -
----------------------------
Accrued postretirement benefit cost $120,676 $116,598
============================
Net periodic postretirement benefit cost includes the following components (in
thousands):
December 31
-----------------------------
1993 1992
-----------------------------
Service cost of benefits earned
during the period $ 2,517 $ 2,756
Interest cost on accumulated post-
retirement benefit obligation 9,296 8,740
-----------------------------
Net periodic postretirement
benefit cost $11,813 $11,496
=============================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation differs between U.S. and Canadian plans. For
plans in both the U.S. and Canada, the pre-65 assumed rate was 13.4 percent
decreasing to 5.5 percent over 14 years. For post-65 retirees in the U.S., the
assumed rate was 8.8 percent decreasing to 5.5 percent over 14 years with a
Medicare assumed rate for the same group of 7.9 percent decreasing to 5.5
percent over 14 years. For post-65 retirees in Canada, the assumed rate was
11.6 percent decreasing to 5.5 percent over 14 years. If the health care cost
trend rate assumptions were increased by 1 percent, the accumulated
postretirement benefit obligation as of December 31, 1993 would be increased by
11.7 percent. The effect of this change on the net periodic postretirement
benefit cost for 1993 would be an increase of 13.3 percent.
II - 50
75
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent for U.S. plans and 8.0
percent for Canadian plans.
COMMITMENTS AND CONTINGENCIES
The Registrant leases office space and certain equipment. Total rental expense
for 1993, 1992 and 1991 was $16.7 million, $19.3 million and $16.2 million,
respectively.
Future minimum annual rental commitments for all non-cancelable leases are as
follows (in thousands):
1994 $ 13,842
1995 11,691
1996 10,777
1997 8,733
1998 7,338
Thereafter 30,034
--------
Total $ 82,415
========
During 1989 and 1990, CSX Transportation, Inc., Metro-North Commuter Railroad
Company, National Railroad Passenger Corp., Peerless Insurance Company and
Massachusetts Bay Transit Authority (the "Railroads") filed actions against
Lone Star Industries Inc. and affiliates ("Lone Star") for damages resulting
from its fabrication and sale of allegedly defective concrete railroad ties to
the Railroads. The Registrant and LCI have been named in third party actions in
which Lone Star is claiming indemnity for liability to the Railroads, for
damages to its business and for costs and losses suffered as a result of the
Registrant and LCI supplying allegedly defective cement used by Lone Star in
the fabrication of the railroad ties. The damages claimed total approximately
$226.5 million. The Registrant denied the allegations and vigorously defended
against the lawsuits (the "Lone Star Case"). During September and October 1992,
Lone Star entered into agreements with all five plaintiff Railroads settling
their claims regarding the Lone Star Case for an amount totalling approximately
$66.7 million. These settlements have been submitted to and approved by the
United States Bankruptcy Court for the Southern District of New York which is
handling the Lone Star bankruptcy. Lone Star commenced trial in November 1992
in its third party complaint against the Registrant and LCI seeking indemnity
for the Railroads' claims in addition to its own claim for business
destruction. A jury verdict in this case reached in December 1992 awarded Lone
Star $1.2 million as damages. Both Lone Star and the Registrant and LCI have
appealed the trial court verdict to the United States Court of Appeals for
Fourth Circuit. A decision is expected in the near future.
In late 1990 Nationwide Mutual Insurance Company ("Nationwide"), one of the
Registrant's primary insurers during the period when allegedly defective cement
was supplied to Lone Star by the Registrant, filed a
II - 51
76
complaint for declaratory judgement against the Registrant, several of its
affiliates and eleven other liability insurers of the Registrant (the "Coverage
Suit"). The complaint seeks a determination of all insurance coverage issues
impacting the Registrant in the Lone Star Case. The Registrant has answered
the complaint, counterclaimed against Nationwide, cross-claimed against the
co-defendant insurers and filed a third party complaint against 36 additional
insurers. In December 1991, the Registrant and Nationwide entered into a
settlement agreement pursuant to which Nationwide settled its claim in the
Coverage Suit and, among other things, paid the Registrant a portion of past
due defense expenses in the Lone Star Case, promised to pay its proportion of
continuing defense expenses therein and to post the entire remaining aggregate
limits of its policies as reserves to be used in the Lone Star Case, if
necessary. Virtually all of LCI's Canadian insurers involved in the Coverage
Suit filed motions for summary judgment. In January 1993, the court denied all
of the insurers' summary judgment motions. In January 1994 the Registrant filed
motions for partial summary judgment regarding the insurers' defense
obligations and regarding the reasonableness of fees and expenses included in
the defense of the Lone Star Case. In addition, the Registrant filed a motion
to strike the designation of several expert witnesses of the insurers. The
Registrant believes that it has substantial insurance coverage that will
respond to a large portion of defense expenses and liability, if any, in the
Lone Star Case.
During 1992, a number of owners of buildings located in Eastern
Ontario, Canada most of whom are residential homeowners, filed actions in the
Ontario Court (General Division) against Bertrand & Frere Construction Company
Limited ("Bertrand") and a number of other defendants seeking damages as a
result of allegedly defective footings, foundations and floors made with
ready-mixed concrete supplied by Bertrand. The largest of these cases involves
claims by approximately 99 plaintiffs owning 53 homes, a 20-unit condominium
building and a municipal building. Together, these plaintiffs are claiming
approximately Cdn. $40 million against Bertrand, each plaintiff seeking Cdn.
$200,000 for costs of repairs and loss of capital value of their respective
home or building, Cdn. $200,000 for punitive and exemplary damages and Cdn.
$20,000 for hardship, inconvenience and mental distress, together with interest
and costs. Other owners, owning a total of 13 buildings (of which 11 are
residential homes), have instituted similar suits against Bertrand and, based
on the information available at this time, these claims total approximately
Cdn. $9 million. As of the end of December 1993, LCI has been served with
third- or fourth-party claims by Bertrand in all but one of the referenced
lawsuits. Bertrand is seeking indemnity for its liability to the owners as a
result of the supply by LCI of allegedly defective flyash. LCI also supplied
cement to Bertrand. It is expected that Bertrand will file a third-party claim
against LCI in the other case as well. LCI has delivered its statements of
defense. The discoveries are to begin in February 1994. LCI has denied
liability and will defend the lawsuits vigorously. The Registrant believes it
has substantial insurance coverage that will respond to defense expenses and
liability, if any, in the said lawsuits.
II - 52
77
The Registrant is involved in certain environmental enforcement matters
including being notified by the EPA that it is one of several potentially
responsible parties for clean-up costs at waste disposal sites. The Registrant
accrues for fines, penalties and/or costs of remedial actions when it believes
it has a responsibility for the enforcement matter. The ultimate costs related
to all such matters and the Registrant's degree of responsibility, in some of
these matters, is not presently determinable. In addition, the Registrant is
involved in certain other legal actions and claims. It is the opinion of
management that such legal and environmental matters will be resolved without
material effect on the Registrant's Consolidated Financial Statements.
RELATED PARTY TRANSACTIONS
The Registrant is a participant in agreements with Lafarge Coppee for the
sharing of certain costs incurred for technical, research and managerial
assistance and for the use of certain trademarks. The net expenses accrued for
these services were $4.8 million, $5.3 million and $5.4 million during 1993,
1992 and 1991, respectively. In addition, the Registrant purchases various
products from Lafarge Coppee. Such purchases totaled $6.3 million, $17.1
million and $27.5 million in 1993, 1992 and 1991, respectively. All
transactions with Lafarge Coppee were conducted on an arms-length basis.
Lafarge Coppee reinvested a portion of dividends it was entitled to receive on
the Registrant's Common Shares during 1993, 1992 and 1991. These reinvestments
totaled $3.0 million, $8.9 million and $9.2 million, respectively.
At year-end, $15 million of the Registrant's 7% Convertible Debentures were
held by Lafarge Coppee.
In 1993, Lafarge Coppee purchased 1.0 million Common Shares as part of the
Registrant's equity offering of 6.75 million Common Shares. The price paid for
these shares was the price to the public. (See Common Equity Interests).
II - 53
78
QUARTERLY DATA (UNAUDITED)
The following table summarizes financial data by quarter for 1993 and 1992 (in
millions, except per share information):
First Second Third Fourth(c) Total
------------------------------------------------------------------
1993
Net Sales $ 192 $ 394 $ 510 $ 398 $1,494
Gross profit (loss) (42) 81 129 84 252
Net income (loss) (72) 22 54 2 6
Income (loss) per common
equity share (a):
Primary (1.23) 0.37 0.90 0.03 0.10
Fully diluted (1.23) 0.37 0.87 0.03 0.10
==================================================================
First Second Third Fourth(b) Total
------------------------------------------------------------------
1992
Net Sales $ 211 $ 415 $ 505 $ 380 $1,511
Gross profit (loss) (37) 82 116 61 222
Net income (loss) before
effect of accounting change (80) 17 44 (18) (37)
Cumulative effect of
accounting changes (64) - - - (64)
Net income (loss) (144) 17 44 (18) (101)
Income (loss) per common
equity share (a):
Primary, before effect of
accounting changes (1.38) 0.28 0.74 (0.30) (0.63)
Primary (2.48) 0.28 0.74 (0.30) (1.72)
Fully diluted (2.48) 0.28 0.71 (0.30) (1.72)
==================================================================
(a) The sum of these amounts does not equal the annual amount because of
changes in the average number of common equity shares outstanding during
the year.
(b) Loss for the fourth quarter of 1992 includes nonrecurring charges of
$12.1 million, after tax. Excluding these charges, losses per share for
the fourth quarter and year were $(.10) and $(.42), before the cumulative
effect of accounting changes.
(c) Income for the fourth quarter of 1993 includes nonrecurring restructuring
charges of $16.4 million, after tax. Excluding these charges, earnings
per share for the fourth quarter and year were $0.28 and $0.36. See
Restructuring.
II - 54
79
MANAGEMENT'S REPORT ON FINANCIAL REPORTING RESPONSIBILITY
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements of Lafarge Corporation and subsidiaries and
other information contained in this Annual Report. This responsibility
includes the selection of accounting procedures and practices, which are in
accordance with generally accepted accounting principles. The consolidated
financial statements have been prepared in conformity with these procedures and
practices applied on a consistent basis. These consolidated financial
statements reflect informed judgments and estimates, which management believes
to be reasonable, in the determination of certain data used in the accounting
and reporting process.
The Registrant maintains an effective system of internal accounting controls
which is periodically modified and improved to correspond with changes in the
Registrant's operations. An important element of the system is an ongoing
internal audit function, which has direct access to the Audit Committee of the
Board of Directors. The internal audit staff coordinates its audit activities
with the Registrant's independent public accountants, Arthur Andersen & Co., to
maximize audit effectiveness.
The Board of Directors, acting through its Audit Committee, monitors the
accounting affairs of the Registrant and has approved the consolidated
financial statements. The Audit Committee, consisting of five outside
directors, reviews audit plans and results as well as the actions taken by
management in discharging its responsibilities for accounting, financial
reporting and internal control systems and recommends to the Board of Directors
the appointment of the independent public accountants. The Audit Committee
meets periodically and privately with management, internal auditors and the
independent public accountants to assure that each is carrying out its
responsibilities.
/s/ BERTRAND P. COLLOMB /s/ JEAN-PIERRE CLOISEAU
------------------------------------------------ ------------------------------------------------
Bertrand P. Collomb Jean-Pierre Cloiseau
Chairman of the Board Executive Vice President
and Chief Financial Officer
/s/ MICHEL ROSE /s/ JOHN C. PORTER
------------------------------------------------ ------------------------------------------------
Michel Rose John C. Porter
President and Vice President and
Chief Executive Officer Controller
II - 55
80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lafarge Corporation:
We have audited the accompanying consolidated balance sheets of Lafarge
Corporation (a Maryland corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, cash flows, and
shareholders' equity for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (appearing on pages
II-28 through II-53) present fairly, in all material respects, the financial
position of Lafarge Corporation and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in the notes to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions and for income taxes.
Arthur Andersen & Co.
Washington, D.C.,
January 27, 1994
II - 56
81
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
II - 57
82
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section entitled "Election of Directors" appearing on pages four through
seven of the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 3, 1994 sets forth certain information with
respect to the directors and nominees for election as directors of the
Registrant and is incorporated herein by reference. Certain information with
respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption "Executive Officers of the
Registrant" in Part I of this Annual Report. Information with respect to
directors' and officers' compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the section entitled "Executive
Compensation - Compliance with Section 16(a) of the Exchange Act" on page 16 of
the Registrant's proxy statement referred to above.
III - 1
83
Item 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing on pages seven through
16 of the Registrant's proxy statement for the annual meeting of stockholders
to be held on May 3, 1994 sets forth certain information with respect to the
compensation of management of the Registrant, and is incorporated herein by
reference.
III - 2
84
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The sections entitled "Voting Securities", "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" appearing on pages
one through four and "Election of Directors" appearing on pages four through
seven of the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 3, 1994 set forth certain information with
respect to the ownership of the Registrant's voting securities, and are
incorporated herein by reference.
III - 3
85
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The sections entitled "Executive Compensation - Indebtedness of Management" and
"Executive Compensation - Transactions with Management and Others" appearing on
pages 15 and 16 of the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 3, 1994 set forth certain information with
respect to relations of and transactions by management of the Registrant, and
are incorporated herein by reference.
III - 4
86
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements
Consolidated Financial Statements filed as part of this Form 10-K are
listed under Part II, Item 8 of this Form 10-K.
2. Financial Statement Schedules and Report of Independent Public
Accountants
Page Number
-----------
Report of Independent Public Accountants on
Consolidated Supporting Schedules as of
December 31, 1993 and for each of the three
years in the period then ended IV - 8
Consolidated Supporting Schedules
II - Amounts Receivable from Related
Parties and Underwriters, Promoters
and Employees other than Related Parties IV - 9
V - Property, Plant and Equipment IV - 11
VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant
and Equipment IV - 12
VIII - Valuation and Qualifying Accounts IV - 13
X - Supplementary Income Statement Information IV - 14
IV - 1
87
Schedules I, III, IV, VII, XI, XII and XIII have been omitted because they are
not applicable or the information is included in the consolidated financial
statements. Column and line items not included in certain schedules have been
omitted because the information is not applicable.
(a)(2) Exhibits
--------
3.1 Articles of Amendment and Restatement of the Registrant, filed May 29, 1992.
3.2 By-Laws of the Registrant, (as most recently amended on October 26, 1993)
4.1 Form of Indenture dated as of October 1, 1989 between the Registrant and Citibank, N.A., as Trustee, relating to $250
million of debt securities of the Registrant (incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-3 (Registration No. 33-31333) of the Registrant, filed with the Securities and Exchange Commission on
October 3, 1989).
4.2 Form of Fixed Rate Medium-Term Note of the Registrant (incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-3 (Registration No. 33-31333) of the Registrant, filed with the Securities and Exchange Commission
on October 3, 1989).
4.3 Form of Floating Rate Medium-Term Note of the Registrant (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-3 (Registration No. 33-31333) of the Registrant, filed with the Securities and Exchange Commission
on October 3, 1989).
4.4 Instruments with respect to long-term debt which do not exceed 10 percent of the total assets of the Registrant and its
consolidated subsidiaries have not been filed. The Registrant agrees to furnish a copy of such instruments to the
Commission upon request.
9.1 Trust Agreement dated as of October 13, 1927 among Canada Cement Company Limited, Montreal Trust Company, Henry L.
Doble and Alban C. Bedford-Jones, as amended (composite copy) (incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 (Registration No. 2-82548) of the Registrant, filed with the Securities and
Exchange Commission on March 21, 1983).
9.2 Amendment dated June 10, 1983 to Trust Agreement filed as Exhibit 9.1 (incorporated by reference to Exhibit 9.2 to the
Registration Statement of Form S-1 (Registration No. 2-86589) of the Registrant, filed with the Securities and
Exchange Commission on September 16, 1983).
IV - 2
88
10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Registrant, Canada Cement Lafarge, Lafarge Coppee
and Montreal Trust Company, as trustee (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 2-82548) of the Registrant, filed with the Securities and Exchange
Commission on May 5, 1983). Canada Cement Lafarge changed its name on January 1, 1988 to Lafarge Canada Inc.
10.2 Guarantee Agreement dated as of May 1, 1983 between the Registrant and Canada Cement Lafarge (incorporated by reference
to Exhibit 10.2 to Amendment No. 1 to the Registration Statement of Form S-1 (Registration No. 2-82548) of the
Registrant, filed with the Securities and Exchange Commission on May 5, 1983).
10.3 Agreement dated as of March 31, 1975 between Industrial Estates, Limited and Canada Cement Lafarge concerning expansion
of plant at Brookfield, together with certain schedules thereto (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-1 (Registration No. 2-82548) of the Registrant, filed with the Securities and Exchange
Commission on March 21, 1983).
10.4 Special Surface Lease dated as of August 1, 1954 between the Province of Alberta and Canada Cement Lafarge, as amended
(incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the
Registrant, filed with the Securities and Exchange Commission on March 21, 1983).
10.5 Director Fee Deferral Plan of the Registrant (incorporated by reference to Exhibit 10.21 to the Registration Statement
on Form S-1 (Registration No. 2-86589) of the Registrant, filed with the Securities and Exchange Commission on
September 16, 1983).
10.6 1993 Stock Option Plan of the Registrant.
10.7 1983 Stock Option Plan of the Registrant, as amended and restated May 2, 1989 (incorporated by reference to
Exhibit 28 to the Registrant's report on Form 10-Q for the quarter ended June 30, 1989).
10.8 Optional Stock Dividend Plan of the Registrant (incorporated by reference to Exhibit 10.22 to the Annual Report on
Form 10-K filed by the Registrant for the fiscal year ended December 31, 1987).
10.9 Description of Bonus Plan of the Registrant (incorporated by reference to Exhibit 10.24 to Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 2-86589) of the Registrant, filed with the Securities and
Exchange Commission on November 23, 1983).
IV - 3
89
10.10 Director Fee Deferral Plan of General Portland, assumed by the Registrant on January 29, 1988 (incorporated by
reference to Exhibit 10(g) to the Annual Report on Form 10-K filed by General Portland for the fiscal year ended
December 31, 1980).
10.11 Option Agreement for Common Stock dated as of November 1, 1993 between the Registrant and Lafarge Coppee.
10.12 Deferred Compensation Program of Canada Cement Lafarge (incorporated by reference to Exhibit 10.57 to Amendment No. 1
to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Registrant, filed with the Securities
and Exchange Commission on November 23, 1983).
10.13 Agreement dated November 8, 1983 between Canada Cement Lafarge and Standard Industries Ltd. (incorporated by
reference to Exhibit 10.58 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589) of
the Registrant, filed with the Securities and Exchange Commission on November 23, 1983).
10.14 Stock Purchase Agreement dated September 17, 1986 between the Registrant and Lafarge Coppee, S.A. (incorporated by
reference to Exhibit B to the Registrant's report on Form 10-Q for the quarter ended September 30, 1986).
10.15 Promissory Note dated December 11, 1987 of Philip A. Millington (incorporated by reference to Exhibit 10.32 to the
Annual Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1989).
10.16 Promissory Note dated July 17, 1987 of Bertrand P. Collomb (incorporated by reference to Exhibit 10.64 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1987).
10.17 Promissory Note dated July 31, 1987 of Thomas W. Tatum (incorporated by reference to Exhibit 10.65 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1987).
10.18 Promissory Note dated August 4, 1987 of Jean-Pierre Cloiseau (incorporated by reference to Exhibit 10.66 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1987).
10.19 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Registrant relating to expenses for
research and development, strategic planning and human resources and communication techniques (incorporated by
reference to Exhibit 10.42 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended
December 31, 1988).
IV - 4
90
10.20 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Registrant relating to access to the
reputation, logo and trademarks of Lafarge Coppee (incorporated by reference to Exhibit 10.43 to the Annual Report
on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1988).
10.21 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.20 (incorporated by reference to
Exhibit 10.21 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1992).
10.22 Description of Nonemployee Director Retirement Plan of the Registrant, effective January 1, 1989 (incorporated by
reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended
December 31, 1989).
10.23 Promissory Note dated February 6, 1989 of John M. Piecuch (incorporated by reference to Exhibit 10.41 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1989).
10.24 Promissory Note dated February 27, 1989 of John M. Piecuch (incorporated by reference to Exhibit 10.42 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1989).
10.25 Promissory Note dated January 17, 1989 of H. L. Youngblood (incorporated by reference to Exhibit 10.44 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1989).
10.26 Promissory Note dated September 20, 1990 of John C. Porter (incorporated by reference to Exhibit 10.40 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1990).
10.27 Reimbursement Agreement dated January 1, 1990, between Lafarge Coppee and the Registrant relating to expenses for
Strategic Planning and Communication techniques (incorporated by reference to Exhibit 10.41 to the Annual Report on
Form 10-K filed by the Registrant for the fiscal year ended December 31, 1990).
10.28 Revolving Credit Facility Agreement, dated as of December 15, 1992, among the Registrant, the banks listed therein and
Banque Nationale de Paris, New York Branch, as agent (incorporated by reference to Exhibit 10.28 to the Annual Report
on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1992).
10.29 Amendment No. 1 dated December 15, 1993 to Revolving Credit Facility Agreement filed as Exhibit 10.28.
IV - 5
91
10.30 Memorandum of Understanding dated September 1, 1992 between the Registrant and Lafarge Coppee relating to the
reimbursement to the Registrant of a portion of Michel Rose's compensation and expenses (incorporated by reference to
Exhibit 10.29 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1992).
11 Statement regarding computation of net income per common equity share.
22 Subsidiaries of the Registrant.
24 Consent of Arthur Andersen & Co., independent public accountants.
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the last quarter of the
fiscal year covered by this Annual Report.
IV - 6
92
CONSOLIDATED SUPPORTING SCHEDULES
IV - 7
93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lafarge Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Lafarge Corporation included in this Form
10-K and have issued our report thereon dated January 27, 1994. Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The consolidated schedules (Schedules II, V, VI, VIII and X) are the
responsibility of the company's management and are presented for the purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These consolidated schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Washington, D.C.,
January 27, 1994.
IV - 8
94
SCHEDULE II
LAFARGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Years Ended December 31, 1993, 1992 and 1991
Deductions Balance
-------------------------- ----------------------
Balance at Amounts
Beginning Amounts Written Not
Name of Debtor of Year Addition Other(8) Collected Off Current Current
- -------------- ----------- -------- ----- --------- ------- ------- ---------
1993:
B. P. Collomb (1) $114,980 $ - $ - $ (7,884) $ - $ 7,884 $ 99,212
R. W. Murdoch (2) 100,313 - - (100,313) - - -
J. M. Piecuch (1) 161,667 - - (10,000) - 10,000 141,667
T. W. Tatum (1) 102,688 - - (6,996) - 6,996 88,696
B. K. Saunders (5) 112,503 - (4,321) (4,923) - 4,796 98,463
R. T. Sandberg (1) 176,472 - (6,725) (9,844) - 9,590 150,313
J. Cheong (1) 100,000 - - (5,000) - 5,000 90,000
M. McNaney (7) 390,238 - - (62,021) - 197,209 131,008
G. White (4) - 270,000 - (270,000) - - -
P. Heimich (4) - 124,064 - (124,064) - - -
1992:
B. P. Collomb (1) $122,864 $ - $ - $ (7,884) $ - $ 7,884 $107,096
R. W. Murdoch (2) 104,063 - - (3,750) - 3,750 96,563
J. M. Piecuch (1) 171,667 - - (10,000) - 10,000 151,667
T. W. Tatum (1) 109,684 - - (6,996) - 6,996 95,692
J.-P. Cloiseau (1) 105,750 - - (6,750) - 6,750 92,250
H. L. Youngblood (3) 111,420 - (9,848) (6,209) - 5,899 89,464
B. K. Saunders (5) 128,945 - (11,510) (4,932) - 4,686 107,817
R. T. Sandberg (1) 199,669 - (17,942) (5,255) - 4,992 171,480
G. Kessler (6) 107,935 - (9,598) (4,850) - 4,608 88,879
M. McNaney (7) 63,375 329,842 - (2,979) - 333,092 57,146
J. Cheong (1) - 100,000 - - - 5,000 95,000
W. Smith (4) - 253,337 - (253,337) - - -
A. Rodriguez (4) - 159,785 - (159,785) - - -
1991:
B. P. Collomb (1) $130,748 $ - $ - $ (7,884) $ - $ 7,884 $114,980
R. W. Murdoch (2) 107,813 - - (3,750) - 3,750 100,313
J. M. Piecuch (1) 181,667 - - (10,000) - 10,000 161,667
T. W. Tatum (1) 116,680 - - (6,996) - 6,996 102,688
J.-P. Cloiseau (1) 112,500 - - (6,750) - 6,750 99,000
H. L. Youngblood (3) 117,461 - 505 (6,546) - 6,491 104,929
B. K. Saunders (5) 131,901 - 535 (3,491) - 3,462 125,483
R. T. Sandberg (1) 209,852 - 898 (11,081) - 10,987 188,682
P. Trempe (4) 147,419 - 1,830 (149,249) - - -
G. Kessler (6) 111,837 - 465 (4,367) - 4,909 103,026
M. McNaney (7) - 384,633 - (321,258) - 3,250 60,125
IV - 9
95
(1) Represents a non-interest bearing house loan to an officer or
employee of the Registrant. Principal is to be repaid monthly at a
rate of 5 percent per year. Term of the loan is for twenty years
and the loan is secured by a second mortgage on the individual's
house.
(2) Represents a non-interest bearing house loan to an officer of the
Registrant. Principal is to be repaid at a minimum of $3,750 per
year, with balance due at maturity. Term of this loan is for twenty
years and the loan is secured by a second mortgage on this
individual's house. Effective 1-1-93, this employee retired and the
house loan was paid in full in 1993.
(3) Represents an non-interest bearing long-term house loan of Cdn
$152,000 and a non-interest bearing short-term house loan of $38,488
to an officer of the Registrant. The long-term loan, which is
secured by a second mortgage on the individual's house, carries a
term of twenty years with annual principal repayments of 5 percent
per year. The short-term loan was repaid in 1990.
(4) Represents an interest-free, short-term house loan to an employee of
the Registrant.
(5) Represents an interest-free long-term house loan to an employee of
the Registrant. Principal is to be repaid at the rate of Canadian
$4,000 for the first three years, Canadian $6,349 for the next two
years and Canadian $9,013 for the following fifteen years. The loan
is secured by a second mortgage on the individual's house.
(6) Represents a long-term, non-interest bearing house loan of Canadian
$62,300 and an interest bearing long-term loan to an employee of the
Registrant. The house loan, which is secured by a second mortgage
on the individual's house, carries a term of twenty years, with
principal repayments of 5 percent per year. The interest bearing
long-term loan carries a term of fifteen years with monthly
repayments of Canadian $672.
(7) Represents a 1991 non-interest bearing, short-term loan of $319,633,
which was repaid in 1991. 1992 includes an interest bearing,
short-term loan of $329,842 and a non-interest bearing, long-term
house loan of $65,000. The long-term house loan of $65,000 was
repaid in 1993. The interest-bearing, short-term loan of $329,842
was replaced in 1993 with another short-term loan of $194,176 and
two non-interest bearing, long-term house loans of $60,666 and
$75,000. The loan of $194,176 was interest-bearing from November
1992 until July 1993. The $60,666 loan, which is secured by a
second mortgage on the individual's house, carries a term of twenty
years with annual principal repayments of 5 percent per year. The
$75,000 loan, which is secured by a third mortgage on the
individual's house, is payable when the individual's house is sold.
(8) Canadian to U.S. foreign currency translation.
IV - 10
96
LAFARGE CORPORATION AND SUBSIDIARIES SCHEDULE V
CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
Balance at Effect of Transfers and
Beginning Pooling of Additions Retirements Reclass-
of Year Interests at Cost or Sales ifications (1)
---------- ---------- --------- ----------- --------------
Description
- -----------
1993
- ----
Land and mineral
deposits $ 198,073 $ - $ 156 $ (10,300) $ 7,497
Buildings, machinery
and equipment 1,742,165 - 32,192 (131,476) 30,330
Construction in
progress 38,213 - 26,079 - (42,024)
--------- -------- -------- -------- --------
$1,978,451 $ - $ 58,427 $(141,776) $ (4,197)
========== ======== ======== ======== ========
1992
- ----
Land and mineral
deposits $ 203,022 $ - $ 936 $ (3,886) $ 8,111
Buildings, machinery
and equipment 1,737,724 - 24,226 (29,085) 95,363
Construction in
progress 63,630 - 29,777 - (52,245)
--------- -------- -------- -------- --------
$2,004,376 $ - $ 54,939 $ (32,971) $ 51,229 (2)
========== ======== ======== ======== ========
1991
- ----
Land and mineral
deposits $ 186,688 $ 19,049 $ 3,399 $ (995) $ (5,550)
Buildings, machinery
and equipment 1,529,661 145,308 37,091 (23,064) 38,166
Construction in
progress 47,792 653 55,302 - (40,218)
---------- -------- -------- -------- --------
$1,764,141 $ 165,010 $ 95,792 $ (24,059) $ (7,602)
========== ========= ======== ======== ========
Foreign
Exchange Balance at
Acquisitions Adjustment End of Year
------------ ---------- -----------
Description
- -----------
1993
- ----
Land and mineral
deposits $ 2,886 $ (4,047) $ 194,265
Buildings, machinery
and equipment 13,048 (35,375) 1,650,884
Construction in
progress - (834) 21,434
-------- --------- ---------
$ 15,934 $ (40,256) $1,866,583
======== ======== =========
1992
- ----
Land and mineral
deposits $ 330 $ (10,440) $ 198,073
Buildings, machinery
and equipment 1,476 (87,539) 1,742,165
Construction in
progress - (2,949) 38,213
-------- --------- ---------
$ 1,806 $(100,928) $1,978,451
======== ========= =========
1991
- ----
Land and mineral
deposits $ - $ 431 $ 203,022
Buildings, machinery
and equipment 7,026 3,536 1,737,724
Construction in
progress - 101 63,630
-------- -------- ---------
$ 7,026 $ 4,068 $2,004,376
========= ======== ==========
- --------------------------------
(1) Primarily represents transfers from construction in progress to the
other components of fixed assets.
(2) Includes adjustment for adoption of SFAS 109.
IV - 11
97
LAFARGE CORPORATION AND SUBSIDIARIES SCHEDULE VI
CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
Additions
Balance at Effect of Charge to Transfers and Foreign
Beginning Pooling of Cost and Reclass- Exchange Balance at
of Year Interests Expenses Retirements ifications Adjustment End of Year
---------- ---------- --------- ----------- ------------- ---------- ----------
Description
- -----------
1993
- ----
Land and mineral
deposits $ 14,701 $ - $ 1,768 $ (388) $ 2,633 $ (488) $ 18,226
Buildings, machinery
and equipment 981,473 - 106,221 (89,442) (5,607) (25,012) 967,633
--------- -------- -------- -------- -------- -------- --------
$ 996,174 $ - $ 107,989 $ (89,830) $ (2,974) $ (25,500) $ 985,859
========= ======== ======== ======== ======== ======== ========
1992
- ----
Land and mineral
deposits $ 15,931 $ - $ 1,291 $ (479) $ (883) $ (1,159) $ 14,701
Buildings, machinery
and equipment 932,180 - 114,114 (18,286) 11,827 (58,362) 981,473
--------- -------- -------- -------- -------- -------- --------
$ 948,111 $ - $ 115,405 $ (18,765) $ 10,944 (1) $ (59,521) $ 996,174
========= ======== ======== ======== ======== ======== ========
1991
- ----
Land and mineral
deposits $ 13,978 $ 1,429 $ 1,418 $ (36) $ (906) $ 48 $ 15,931
Buildings, machinery
and equipment 806,181 41,118 110,691 (18,140) (9,413) 1,743 932,180
--------- -------- -------- -------- -------- -------- --------
$ 820,159 $ 42,547 $ 112,109 $ (18,176) $ (10,319) $ 1,791 $ 948,111
========= ======== ======== ======== ======== ======== ========
- --------------------------------
(1) Includes adjustment for adoption of SFAS 109.
IV - 12
98
SCHEDULE VIII
LAFARGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
Additions Deductions
--------- -----------------------------------
Balance at Effect of Charge to From Reserve for
Beginning Pooling of Cost and Purposes for Which Balance at
Description of Year Interests Expenses Reserve Was Created Other (1) End of Year
- ------------ ---------- ---------- --------- ------------------- --------- -----------
Reserve applicable to
current receivable
For doubtful accounts:
1993 $ 19,138 $ - $ 5,735 $ (5,451) $ (338) $ 19,084
1992 $ 20,942 $ - $ 6,371 $ (6,432) $ (1,743) $ 19,138
1991 $ 16,633 $ 1,113 $ 9,906 $ (6,638) $ (72) $ 20,942
For cash and other
discounts:
1993 $ 5,115 $ - $ 35,733 $ (35,213) $ (647) $ 4,988
1992 $ 3,699 $ - $ 34,928 $ (31,444) $ (2,068) $ 5,115
1991 $ 4,589 $ 278 $ 21,193 $ (22,238) $ (123) $ 3,699
- --------------------------------
(1) Primarily foreign currency translation adjustments.
IV - 13
99
LAFARGE CORPORATION AND SUBSIDIARIES SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
Charged to Costs and Expenses
-------------------------------------------
1993 1992 1991
-------------------------------------------
Items
- -----
Maintenance and repairs $145,440 $146,806 $151,962
===========================================
Taxes, other than payroll
and income taxes $ 22,338 $ 22,687 $ 22,838
===========================================
IV - 14
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LAFARGE CORPORATION
By: /s/ JEAN-PIERRE CLOISEAU
----------------------------
Jean-Pierre Cloiseau, Senior
Vice President and Chief
Financial Officer
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHEL ROSE President and Chief March 25, 1994
- ----------------------------- Executive Officer
Michel Rose and Director
/s/ JEAN-PIERRE CLOISEAU Executive Vice March 25, 1994
- ----------------------------- President and
Jean-Pierre Cloiseau Chief Financial
Officer
/s/ JOHN C. PORTER Vice President March 25, 1994
- ----------------------------- and Controller
John C. Porter
/s/ BERTRAND P. COLLOMB Director March 25, 1994
- -----------------------------
Bertrand P. Collomb
/s/ JOHN D. REDFERN Director March 25, 1994
- -----------------------------
John D. Redfern
/s/ THOMAS A. BUELL Director March 25, 1994
- -----------------------------
Thomas A. Buell
IV - 15
101
Director March 1994
- -----------------------------
Marshall A. Cohen
/s/ BERNARD L. KASRIEL Director March 25, 1994
- -----------------------------
Bernard L. Kasriel
/s/ JACQUES LEFEVRE Director March 25, 1994
- -----------------------------
Jacques Lefevre
/s/ ALONZO L. MCDONALD Director March 25, 1994
- -----------------------------
Alonzo L. McDonald
/s/ DAVID E. MITCHELL Director March 25, 1994
- -----------------------------
David E. Mitchell
/s/ ROBERT W. MURDOCH Director March 25, 1994
- -----------------------------
Robert W. Murdoch
/s/ BERTIN F. NADEAU Director March 25, 1994
- -----------------------------
Bertin F. Nadeau
/s/ JOE M. RODGERS Director March 25, 1994
- -----------------------------
Joe M. Rodgers
/s/ RONALD D. SOUTHERN Director March 25, 1994
- -----------------------------
Ronald D. Southern
/s/ EDWARD H. TUCK Director March 25, 1994
- -----------------------------
Edward H. Tuck
IV - 16
102
INDEX OF EXHIBITS
Exhibit Sequentially
Number Numbered Pages
- ------ ----------------------------------------------------------------------------------------- --------------
3.1 Articles of Amendment and Restatement of the Registrant, filed May 29, 1992.
*3.2 By-Laws of the Registrant, (as most recently amended on October 26, 1993)
4.1 Form of Indenture dated as of October 1, 1989 between the Registrant and Citibank,
N.A., as Trustee, relating to $250 million of debt securities of the Registrant
(incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-3 (Registration No. 33-31333) of the Registrant, filed with the
Securities and Exchange Commission on October 3, 1989).
4.2 Form of Fixed Rate Medium-Term Note of the Registrant (incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333)
of the Registrant, filed with the Securities and Exchange Commission on
October 3, 1989).
4.3 Form of Floating Rate Medium-Term Note of the Registrant (incorporated by reference
to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 33-31333)
of the Registrant, filed with the Securities and Exchange Commission on October 3, 1989).
4.4 Instruments with respect to long-term debt which do not exceed 10 percent of the total
assets of the Registrant and its consolidated subsidiaries have not been filed.
The Registrant agrees to furnish a copy of such instruments to the Commission upon request.
9.1 Trust Agreement dated as of October 13, 1927 among Canada Cement Company Limited, Montreal
Trust Company, Henry L. Doble and Alban C. Bedford-Jones, as amended (composite copy)
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1
(Registration No. 2-82548) of the Registrant, filed with the Securities and Exchange
Commission on March 21, 1983).
9.2 Amendment dated June 10, 1983 to Trust Agreement filed as Exhibit 9.1 (incorporated
by reference to Exhibit 9.2 to the Registration Statement of Form S-1 (Registration
No. 2-86589) of the Registrant, filed with the Securities and Exchange Commission
on September 16, 1983).
IV-17
103
INDEX OF EXHIBITS
Exhibit Sequentially
Number Numbered Pages
- ------ ----------------------------------------------------------------------------------------- --------------
10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Registrant, Canada
Cement Lafarge, Lafarge Coppee and Montreal Trust Company, as trustee (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 2-82548) of the Registrant, filed with the Securities and Exchange
Commission on May 5, 1983). Canada Cement Lafarge changed its name on January 1, 1988
to Lafarge Canada Inc.
10.2 Guarantee Agreement dated as of May 1, 1983 between the Registrant and Canada Cement
Lafarge (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration
Statement of Form S-1 (Registration No. 2-82548) of the Registrant, filed with the
Securities and Exchange Commission on May 5, 1983).
10.3 Agreement dated as of March 31, 1975 between Industrial Estates, Limited and Canada
Cement Lafarge concerning expansion of plant at Brookfield, together with certain
schedules thereto (incorporated by reference to Exhibit 10.6 to the Registration
Statement on Form S-1 (Registration No. 2-82548) of the Registrant, filed with the
Securities and Exchange Commission on March 21, 1983).
10.4 Special Surface Lease dated as of August 1, 1954 between the Province of Alberta
and Canada Cement Lafarge, as amended (incorporated by reference to Exhibit 10.7
to the Registration Statement on Form S-1 (Registration No. 2-82548) of the
Registrant, filed with the Securities and Exchange Commission on March 21, 1983).
10.5 Director Fee Deferral Plan of the Registrant (incorporated by reference to
Exhibit 10.21 to the Registration Statement on Form S-1 (Registration No. 2-86589)
of the Registrant, filed with the Securities and Exchange Commission on
September 16, 1983).
*10.6 1993 Stock Option Plan of the Registrant.
IV-18
104
INDEX OF EXHIBITS
Exhibit Sequentially
Number Numbered Pages
- ------ ----------------------------------------------------------------------------------------- --------------
10.7 1983 Stock Option Plan of the Registrant, as amended and restated May 2, 1989
(incorporated by reference to Exhibit 28 to the Registrant's report on Form 10-Q for
the quarter ended June 30, 1989).
10.8 Optional Stock Dividend Plan of the Registrant (incorporated by reference to
Exhibit 10.22 to the Annual Report on Form 10-K filed by the Registrant for the fiscal
year ended December 31, 1987).
10.9 Description of Bonus Plan of the Registrant (incorporated by reference to Exhibit 10.24
to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589)
of the Registrant, filed with the Securities and Exchange Commission on November
23, 1983).
10.10 Director Fee Deferral Plan of General Portland, assumed by the Registrant on January 29,
1988 (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K filed
by General Portland for the fiscal year ended December 31, 1980).
*10.11 Option Agreement for Common Stock dated as of November 1, 1993 between the Registrant
and Lafarge Coppee.
10.12 Deferred Compensation Program of Canada Cement Lafarge (incorporated by reference to
Exhibit 10.57 to Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 2-86589) of the Registrant, filed with the Securities and Exchange
Commission on November 23, 1983).
10.13 Agreement dated November 8, 1983 between Canada Cement Lafarge and Standard Industries
Ltd. (incorporated by reference to Exhibit 10.58 to Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 2-86589) of the Registrant, filed with the
Securities and Exchange Commission on November 23, 1983).
10.14 Stock Purchase Agreement dated September 17, 1986 between the Registrant and Lafarge
Coppee, S.A. (incorporated by reference to Exhibit B to the Registrant's report on
Form 10-Q for the quarter ended September 30, 1986).
10.15 Promissory Note dated December 11, 1987 of Philip A. Millington (incorporated by
reference to Exhibit 10.32 to the Annual Report on Form 10-K filed by the Registrant
for the fiscal year ended December 31, 1989).
IV-19
105
INDEX OF EXHIBITS
Exhibit Sequentially
Number Numbered Pages
- ------ ----------------------------------------------------------------------------------------- --------------
10.16 Promissory Note dated July 17, 1987 of Bertrand P. Collomb (incorporated by reference
to Exhibit 10.64 to the Annual Report on Form 10-K filed by the Registrant for the fiscal
year ended December 31, 1987).
10.17 Promissory Note dated July 31, 1987 of Thomas W. Tatum (incorporated by reference to
Exhibit 10.65 to the Annual Report on Form 10-K filed by the Registrant for the fiscal
year ended December 31, 1987).
10.18 Promissory Note dated August 4, 1987 of Jean-Pierre Cloiseau (incorporated by reference
to Exhibit 10.66 to the Annual Report on Form 10-K filed by the Registrant for the
fiscal year ended December 31, 1987).
10.19 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the
Registrant relating to expenses for research and development, strategic planning and
human resources and communication techniques (incorporated by reference to Exhibit
10.42 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year
ended December 31, 1988).
10.20 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Registrant
relating to access to the reputation, logo and trademarks of Lafarge Coppee (incorporated
by reference to Exhibit 10.43 to the Annual Report on Form 10-K filed by the Registrant
for the fiscal year ended December 31, 1988).
10.21 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.20 (incorporated
by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Registrant
for the fiscal year ended December 31, 1992).
10.22 Description of Nonemployee Director Retirement Plan of the Registrant, effective January 1,
1989 (incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by
the Registrant for the fiscal year ended December 31, 1989).
10.23 Promissory Note dated February 6, 1989 of John M. Piecuch (incorporated by reference to
Exhibit 10.41 to the Annual Report on Form 10-K filed by the Registrant for the fiscal
year ended December 31, 1989).
10.24 Promissory Note dated February 27, 1989 of John M. Piecuch (incorporated by reference to
Exhibit 10.42 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year
ended December 31, 1989).
IV-20
106
INDEX OF EXHIBITS
Exhibit Sequentially
Number Numbered Pages
- ------ ----------------------------------------------------------------------------------------- --------------
10.25 Promissory Note dated January 17, 1989 of H. L. Youngblood (incorporated by reference to
Exhibit 10.44 to the Annual Report on Form 10-K filed by the Registrant for the fiscal
year ended December 31, 1989).
10.26 Promissory Note dated September 20, 1990 of John C. Porter (incorporated by reference to
Exhibit 10.40 to the Annual Report on Form 10-K filed by the Registrant for the fiscal year
ended December 31, 1990).
10.27 Reimbursement Agreement dated January 1, 1990, between Lafarge Coppee and the Registrant
relating to expenses for Strategic Planning and Communication techniques (incorporated by
reference to Exhibit 10.41 to the Annual Report on Form 10-K filed by the Registrant for
the fiscal year ended December 31, 1990).
10.28 Revolving Credit Facility Agreement, dated as of December 15, 1992, among the Registrant,
the banks listed therein and Banque Nationale de Paris, New York Branch, as agent
(incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K filed
by the Registrant for the fiscal year ended December 31, 1992).
*10.29 Amendment No. 1 dated December 15, 1993 to Revolving Credit Facility Agreement filed
as Exhibit 10.28.
10.30 Memorandum of Understanding dated September 1, 1992 between the Registrant and Lafarge
Coppee relating to the reimbursement to the Registrant of a portion of Michel Rose's
compensation and expenses (incorporated by reference to Exhibit 10.29 to the Annual
Report on Form 10-K filed by the Registrant for the fiscal year ended December 31, 1992).
*11 Statement regarding computation of net income per common equity share.
*22 Subsidiaries of the Registrant.
*24 Consent of Arthur Andersen & Co., independent public accountants.
- ------------------------------------------------
* Filed herewith.
IV-21