-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CPn3cx1hMHIbueKdydTIO2Orh/Ris530AnUkJ/F/GAdv4idog0tjJSQo/bpFitvB iLE1t5WLFgZG7mvHZiThRg== 0000950133-94-000042.txt : 19940328 0000950133-94-000042.hdr.sgml : 19940328 ACCESSION NUMBER: 0000950133-94-000042 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAFARGE CORP CENTRAL INDEX KEY: 0000716783 STANDARD INDUSTRIAL CLASSIFICATION: 3241 IRS NUMBER: 581290226 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08584 FILM NUMBER: 94517905 BUSINESS ADDRESS: STREET 1: 11130 SUNRISE VALLEY DR STE 300 CITY: RESTON STATE: VA ZIP: 22091-4329 BUSINESS PHONE: 7032643600 10-K 1 LAFARGE CORPORATION 10-K 1 =============================================================================== 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 -------- ------------------------ Proxy Statement dated Part III March 23, 1994
================================================================================ 2 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. I-1 3 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. I-2 4 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. I-3 5 (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. I-4 6 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. I-5 7 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. I-6 8 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. I-7 9
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, I-8 10 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. I-9 11 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 I-10 12 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 I-11 13 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
I-15 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. I-16 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. I-19 21 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. I-22 24 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 28
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 II - 6 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 EX-3.2 2 BY-LAWS 1 EXHIBIT 3.2 2 BY-LAWS OF LAFARGE CORPORATION As amended October 26, 1993 ARTICLE I STOCKHOLDERS SECTION 1.01. Annual Meetings. The Corporation shall hold each year an annual meeting of the stockholders for the election of directors and the transaction of any other business within the powers of the Corporation. Annual meetings of stockholders shall be held on such day during the period April l5th to May 14th of each calendar year as shall be designated by the Board of Directors and at a time stated in the notice of meeting. Any business of the Corporation may be considered at an annual meeting without the purpose of such business being specified in the notice, except such business as is specifically required by statute or by the Articles of Incorporation to be specified in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporate existence or affect any otherwise valid corporate acts. SECTION 1.02. Special Meetings. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, a majority of the Board of Directors or by any other person specified in the Charter. Special meetings of the stockholders shall also be called by the Secretary upon 3 the written request of stockholders entitled to cast at least twenty-five per cent (25%) of all the votes entitled to be cast at such meeting; provided, however, that a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve (12) months, unless a meeting is requested by stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting. In any case in which a special meeting is called by written request of the stockholders, such request shall state the purpose of the meeting and the matters proposed to be acted on at it. SECTION 1.03. Place of Meetings. Except as limited by statute, all meetings of stockholders shall be held at such place within or without the State of Maryland as shall be determined from time to time by the Board of Directors and stated in the notice of meeting. SECTION 1.04. Notice of Meetings. Except as provided below, not less than ten (10) days nor more than ninety (90) days before the date of every stockholders' meeting, the Secretary shall give to each stockholder entitled to vote at such meeting, and to each stockholder not entitled to vote who is entitled by statute to notice, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or if otherwise required by statute, the purpose or purposes for which the meeting is called, either by mailing it to him at his address as it appears on the records of the corporation or by delivering it to him personally or by leaving it at his residence or usual place of business. If a special meeting is called by the stockholders, the Secretary shall inform the stockholders who make the 2 4 request of the reasonably estimated cost of preparing and mailing a notice of the meeting, and on payment of these costs to the Corporation shall notify each stockholder entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provisions, a written waiver of any required notice regarding any stockholder meeting, signed by the person or persons entitled to such notice, whether before or after the holding thereof, and filed with the records of the meeting, or by actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such person. SECTION 1.05. Conduct of Meetings. Meetings of stockholders shall be presided over by the Chairman of the Board, or, if he is not present, by the Vice Chairman of the Board, or, if he is not present, by the President and Chief Executive Officer, or, if he is not present, by a Vice President, or, if none of said officers is present, by a chairman to be elected at the meeting. The Secretary or, if he is not present, any Assistant Secretary, shall act as secretary of such meetings; in the absence of the Secretary and any Assistant Secretary, the presiding officer may appoint a person to act as secretary of the meeting. SECTION 1.06. Quorum. Unless otherwise provided in the Charter, at any meeting of stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes entitled to be cast thereat shall constitute a quorum; but this Section shall not affect any requirement under statute or under the Charter for the vote 3 5 necessary for the adoption of any measure. In the absence of a quorum, the stockholders present in person or by proxy, by majority vote and without notice other than by announcement, may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at any meeting as originally notified. In the event that at any meeting a quorum exists for the transaction of some business, but does not exist for the transaction of other business, the business as to which a quorum is present may be transacted by the holders of stock present in person or by proxy who are entitled to vote thereon. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place at a date not to exceed more than 120 days after the original record date, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 1.07. Proxies. A stockholder may vote the shares owned of record by him either in person or by a written proxy signed by the stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from its date, unless otherwise provided in the proxy. A proxy need not be sealed, witnessed or acknowledged. SECTION 1.08. Votes Required. A majority of the votes cast at a meeting of stockholders, duly called and at which a quorum is present, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, unless otherwise provided by statute or by the Charter. Unless the Charter provides for a greater or 4 6 lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. SECTION 1.09. Voting. In all elections for directors every stockholder shall have the right to vote, in person or by proxy, each share of stock owned of record by him, for as many persons as there are directors to be elected and for whose election the share is entitled to be voted. At all meetings of stockholders, unless the voting is conducted by inspectors, the proxies and ballots shall be received, and all questions touching the qualification of the voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. If demanded by a stockholder or stockholders, present at a meeting, in person or by proxy, entitled to cast ten per cent (10%) of the votes entitled to be cast thereat, or if ordered by the chairman, the vote upon any election or question shall be taken by ballot and, upon like demand or order, the voting shall be conducted by two inspectors, in which event the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes, shall be decided by such inspectors. Unless so demanded or ordered, no vote need be by ballot and voting need not be conducted by inspectors. If inspections are demanded by the stockholders or ordered by the chairman, the stockholders at any meeting may choose an inspector or inspectors to act at such meeting, and in default of such election the chairman of the meeting shall appoint such inspector or inspectors. 5 7 No candidate for election as a director at a meeting shall serve as an inspector thereat. SECTION 1.10. Informal Action by Stockholders. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if there is filed with the minutes of proceedings of stockholders a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter; and a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting, but not entitled to vote at it. SECTION 1.11. Voting Rights of Certain Control Shares. Notwithstanding any other provision of the Charter of the Corporation or these By-laws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor by-law, apply to any prior or subsequent control share acquisition. ARTICLE II BOARD OF DIRECTORS SECTION 2.01. Powers. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. All powers of the Corporation may be exercised by or under authority of the 6 8 Board of Directors, except as conferred upon or reserved to the stockholders by statute, the Charter or the By-Laws. SECTION 2.02. Number of Directors. The number of directors of the Corporation which shall constitute the whole Board shall be sixteen (16). By vote of a majority of the entire Board of Directors, the number of directors fixed by the Charter or by the By-Laws may be increased or decreased, from time to time, not to exceed sixteen (16) nor to be less than three (3) directors, but the tenure of office of a director shall not be affected by any decrease in the number of directors so made by the Board. Directors need not be stockholders in the Corporation or residents of the State of Maryland. SECTION 2.03. Election of Directors. At each annual meeting, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office, except as otherwise provided by statute, and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of the removed directors. In case such a removal occurs but the stockholders entitled to vote thereon fail to fill any resulting vacancies, such vacancies may be filled by the Board of Directors pursuant to Section 2.04. Any director may resign at any time upon written notice to the Corporation. SECTION 2.04. Vacancies. Subject to Section 2.03, any vacancy occurring in the Board of Directors for any cause other than by reason 7 9 of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors as constituted prior to such increase. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of the stockholders or until his successor is elected and qualifies. SECTION 2.05. Regular Meetings. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business; and in the event that no other time is designated by the stockholders, the Board of Directors shall meet promptly following the close of such meeting on the day of such meeting. Such first meeting shall be held at such place within or without the State of Maryland as may be designated by the stockholders, or in default of such designation at the place designated by the Board of Directors for such first regular meeting, or in default of such designation at the place of the holding of the immediately preceding annual meeting of stockholders. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors may be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors and no additional notice of such regular meetings shall be required. SECTION 2.06. Special Meetings. Special Meetings of the Board of 8 10 Directors may be called at any time by the Chairman of the Board, by the President and Chief Executive Officer, or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. Notice of Meetings. Notice of the place, day and hour of every special meeting shall be given to each director at least forty-eight (48) hours before the time of the meeting, by delivering the same to him personally, by telephone, by telegraph, or by delivering the same at his residence or usual place of business, or, in the alternative, by mailing such notice no later than the seventh day preceding the day upon which the meeting is to be held, postage paid, and addressed to him at his last known post office address, according to the records of the Corporation; provided, however, that if the person calling the meeting is of the opinion that the matters to be considered thereat involve an emergency, notice of such meeting shall be given by such means and within such time preceding the time at which the meeting is to be held as the person calling the meeting shall in his discretion deem reasonable and appropriate under the circumstances. Unless required by a resolution of the Board of Directors, no notice of any meeting of the Board of Directors and no waiver of notice of any such meeting need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any director who attends such meeting, or to any director who signs a waiver of notice of such meeting, either before or after the holding thereof, and such waiver is 9 11 filed with the records of the meeting. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.08. Quorum. At all meetings of the Board of Directors, a majority of the entire Board of Directors, but in no event fewer than two (2) directors, shall be necessary and sufficient to constitute a quorum for the transaction of business. Except as otherwise provided by statute, by the Charter or by the By-Laws, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be necessary to elect and pass any measure. In the absence of a quorum, the directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2.09. Compensation. The Board of Directors may provide for the payment to directors of stated amounts annually for services incident to serving as directors and committee members, or in the alternative, a fixed sum for attendance at each meeting of the Board of Directors or committees thereof, Directors shall be reimbursed by the Corporation for reasonable expenses incurred in attending such meetings. Except as otherwise provided by the Board of Directors, the receipt of amounts or sums authorized hereby shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 10 12 SECTION 2.10. Informal Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a unanimous written consent which sets forth such action is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. SECTION 2.11. Telephone Meetings. Members of the Board of Directors may participate in a meeting of such Board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. ARTICLE III COMMITTEES SECTION 3.01. Committees. The Board of Directors may appoint from among the directors an Executive Committee and such other committees, to consist of such numbers of directors, not less than two, as the Board of Directors may from time to time determine. The Board of Directors shall have power at any time to remove any members of the Executive Committee and of each other committee and to fill vacancies therein. When the Board of Directors is not in session, the Executive Committee shall have and may exercise, in the absence of or subject to any restrictions which the Board of Directors may from time to time impose, all of the powers of the Board of Directors in the management of the 11 13 business and affairs of the Corporation, except the power to declare dividends or distributions on stock, to issue stock (except as provided by statute), to recommend to stockholders any action requiring stockholders' approval, to amend the By-Laws, or to approve any merger or share exchange which does not require stockholder approval. Other committees shall have such powers, subject to applicable law, as shall be designated by the Board of Directors from time to time. SECTION 3.02. Advisory Committees. The Board of Directors may designate such advisory committees from time to time as the Board of Directors, in its discretion, deems necessary and proper, to perform such duties as may be determined by the Board of Directors at the time of their designation or as may be modified thereafter by the Board of Directors or the Executive Committee; provided, however, that any such advisory committee or committees shall have and may exercise only the power to recommend action to the Board of Directors or the Executive Committee. Each advisory committee shall consist of two or more individuals (with such alternates, if any, as may be deemed desirable) selected by the Board of Directors, who may but need not be members of the Board of Directors. SECTION 3.03. Committee Meetings. Meetings of any committee of directors or advisory committee may be called by the Chairman of the Board or the President and Chief Executive Officer of the Corporation or by any member of the committee and may be held at any office of the Corporation or elsewhere, as specified in the notice or waiver of notice of the meeting, upon not less than twenty-four (24) hours notice by telephone or telegram (notice by telegram shall be deemed given upon 12 14 delivery to the telegraph company), upon notice by mail if such notice is mailed postage prepaid not later than the second day preceding the day upon which the meeting is to be held, or upon written waiver of notice given before or after the meeting; provided, however, that if the person calling the meeting is of the opinion that the matters to be considered thereat involve an emergency, notice of the meeting shall be given to each member by such means and within such time preceding the time the meeting is to be held as the person calling the meeting shall in his discretion deem reasonable and appropriate under the circumstances. Notice of any meeting may be given by the Chairman of the Board or the President and Chief Executive Officer of the Corporation, by any member of the committee or by the secretary of the committee. Neither the business to be transacted at, nor the purpose of, any meeting of a committee need be specified in the notice or the waiver of notice of such meeting. Members of any committee may participate in a meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting through such means shall constitute presence in person at such meeting. Any action required or permitted to be taken at any meeting of a committee may be taken without a meeting if all members of the committee consent thereto in writing filed with the minutes of the proceedings of the committee. A majority of a committee shall constitute a quorum for the transaction of business, and in the event a quorum is not present at any meeting the member or members present may adjourn the meeting from time to time without further notice until a quorum is present. Each committee 13 15 shall designate one of its members as chairman (except that the Chairman of the Board of the Corporation shall act as Chairman of the Executive Committee) and shall appoint a secretary (who need not be a member of the committee), who shall keep minutes of its meetings. As soon as practicable, the minutes of each meeting and any writing evidencing action by unanimous consent shall be submitted to the Board of Directors, with or without a report, as such committee may deem appropriate. ARTICLE IV OFFICERS SECTION 4.01. Elected Officers. The elected officers of the Corporation shall be a Chairman of the Board; a Vice Chairman of the Board; a President and Chief Executive Officer; one or more Executive Vice Presidents, one or more Senior Vice Presidents and one or more Vice Presidents as may be determined by the Board of Directors; a Secretary; a Treasurer; and a Controller. SECTION 4.02. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a Chairman of the Board from among its members, and a Vice Chairman of the Board, a President and Chief Executive Officer, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller, none of whom need be a member of the Board. With the exception of the President and Chief Executive Officer, who may not serve concurrently as a Vice President, any officer may hold more than one office. A person who holds more than 14 16 one office in the Corporation may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. SECTION 4.03. Appointed Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. SECTION 4.04. Compensation. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors, except to the extent that the authority to fix such salaries has been delegated by the Board of Directors to designated officers of the Corporation. SECTION 4.05. Term of Office. Except as may be otherwise provided by the Board of Directors or in the By-Laws, each officer of the Corporation shall hold office until the first meeting of the Board of Directors after the next annual meeting of stockholders following his election or appointment and until his successor is chosen and qualifies. Any officer or agent elected or appointed by the Board of Directors may be removed at any time by an action of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. SECTION 4.06. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and the stockholders. He shall have and exercise such powers as are, from time to time, assigned to him by the Board of Directors. 15 17 SECTION 4.07. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 4.08. President and Chief Executive Officer. The President and Chief Executive Officer shall be the chief executive officer of the Corporation and shall report to the Executive Committee and the Board of Directors, shall have and exercise general and active management of the business and affairs of the Corporation and shall see that all orders and resolutions of the Board of Directors and the Executive Committee are carried into effect. SECTION 4.09. The Vice Presidents. The Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents shall, in the absence or disability of the President and Chief Executive Officer and in the order determined by the Board of Directors, perform the duties and exercise the powers of the President and Chief Executive Officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 4.10. The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and the Executive Committee and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors and the Executive Committee in a book to be kept for that purpose and shall perform like duties for the standing committees, if any. He shall give, or cause to be given, notice of all meetings of the 16 18 stockholders and special meetings of the Board of Directors, and shall perform all of the duties incident to the office of secretary of a corporation and such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, shall generally assist the Secretary and shall perform such other duties and have such other powers as the President and Chief Executive Officer or the Secretary may from time to time prescribe. SECTION 4.11. The Treasurer and Assistant Treasurers. The Treasurer shall have charge of and be responsible for the collection, receipt, custody and disbursement of corporate funds and securities. Subject to the supervision and direction of the President and Chief Executive Officer or such Vice President or other officer as shall be designated as the Chief Financial Officer of the Corporation, he shall be responsible for: (a) carrying out policies with respect to the approving, granting or extending of credit by the Corporation, (b) the preparation and filing of all income tax returns and all other regular 17 19 and special reports to governmental agencies, and (c) the maintenance of adequate records of authorized appropriations and the determination that all sums expended pursuant thereto are accounted for properly. In general, the Treasurer shall perform the duties incident to the office of treasurer of a corporation and such other duties as may from time to time be assigned to him by the Board of Directors, the President and Chief Executive Officer or by such Vice President or other officer as shall be designated as the Chief Financial Officer of the Corporation. In the absence or disability of the Treasurer or in the event the office of Treasurer is or becomes vacant for any reason, the duties of the Treasurer shall be performed by the Assistant Treasurers in the order designated by the Board of Directors or in the absence of any designation then in the order of their election, unless otherwise determined by the Board of Directors. Each Assistant Treasurer shall generally assist the Treasurer and shall perform such other duties and have such other powers as the President and Chief Executive Officer or the Treasurer may from time to time prescribe. SECTION 4.12. Delegation of Duties of Officers. In case of the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director, provided that a majority of the entire Board of Directors shall concur therein. 18 20 ARTICLE V STOCK SECTION 5.01. Certificates of Stock. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, the class of stock and the number of shares represented thereby and shall be signed by the Chairman of the Board, the President and Chief Executive Officer or a Vice President and countersigned by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, or by a facsimile or facsimiles of the signatures of any of such officers, and sealed with the seal of the Corporation or a facsimile of such seal. If any certificate is signed (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 5.02. Transfers of Stock. Transfers of stock shall be made on the books of the Corporation upon the surrender to the Corporation or a transfer agent of a certificate for shares duly 19 21 endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and the Corporation shall thereupon issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Board of Directors may appoint one or more transfer agents and one or more registrars for any one or more classes of the capital stock of the Corporation. SECTION 5.03. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such shares in the name of any other person, whether or not it shall have express or other notice hereof, except as expressly provided by the laws of the State of Maryland. SECTION 5.04. Record Dates. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Except as otherwise provided by statute, such date shall not be prior to the close of business on the day the record date is fixed, and in any case shall be not more than ninety (90) days, and in case of a meeting of stockholders, not less than ten (10) days, prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In lieu of fixing a record date, the 20 22 Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. SECTION 5.05. Stock Ledgers. Original or duplicate stock ledgers, containing the name and address of each stockholder of the Corporation and the number of shares of each class held by each stockholder, shall be kept at the principal executive office of the Corporation. SECTION 5.06. Lost Certificates. A new certificate or certificates for shares of stock of the Corporation may, upon the making of an affidavit of that fact by the person claiming a certificate of stock to be lost, stolen or destroyed, be issued in such manner and under such conditions as the Board of Directors may at any time or from time to time prescribe, to replace the certificate alleged to have been lost, stolen or destroyed, provided that the Board of Directors may, in its discretion, require the owner of any such certificate, or his legal representatives, to give the Corporation a bond, with sufficient surety to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate. A new certificate may be issued without requiring any bond when in the judgment of the directors it is proper so to do. 21 23 ARTICLE VI FINANCE; CONTRACTS SECTION 6.01. Checks; Bank Accounts; Etc. Such officers or agents of the Corporation as from time to time shall be designated by the Board of Directors shall have authority to deposit any funds of the Corporation in such banks or trust companies as from time to time shall be designated by the Board of Directors. Such officers or agents of the Corporation as from time to time shall be authorized by the Board of Directors may withdraw any or all of the funds of the Corporation so deposited in any bank or trust company, upon checks, drafts or other instruments or orders for the payment of money, drawn against the account or in the name or behalf of the Corporation, and made or signed by such officers or agents; and each bank or trust company with which funds of the Corporation are so deposited is authorized to accept, honor, cash and pay, without limit as to amount, all checks, drafts or other instruments or orders for the payment of money, when drawn, made or signed by officers or agents so designated by the Board of Directors until written notice of the revocation of the authority of such officers or agents by the Board of Directors shall have been received by such bank or trust company. From time to time there shall be certified to the banks or trust companies in which funds of the Corporation are deposited, the signatures of the officers or agents of the Corporation so authorized to draw against the same. In the event that the Board of Directors shall fail to designate the persons by whom checks, drafts and other instruments or orders for the payment of money shall be signed, as 22 24 hereinabove provided in this Section, all of such checks, drafts and other instruments or orders for the payment of money shall be signed by any one of the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, an Executive Vice President, a Senior Vice President, a Vice President or an Assistant Vice President and countersigned by any one of the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer. SECTION 6.02. Loans. Such officers or agents of the Corporation as from time to time shall be designated by the Board of Directors shall have authority to effect loans, advances or other forms of credit at any time or times for the Corporation from such banks, trust companies, institutions, corporations, firms or persons, in such amounts and subject to such terms and conditions as the Board of Directors from time to time shall designate; and, as security for the repayment of any loans, advances, or other forms of credit so authorized, to assign, transfer, endorse and deliver, either originally or in addition or substitution, any or all personal property, real property, stocks, bonds, deposits, accounts, documents, bills and accounts receivable and other commercial paper and evidences of debt or other securities or any rights or interest at any time held by the Corporation; and, in connection with any of the foregoing, for any loans, advances or other forms of credit so authorized, such officers or agents shall have authority to make, execute and deliver one or more notes, mortgages, deeds of trust, financing statements, security agreements, acceptances or written obligations of the Corporation, on such terms, and with such 23 25 provisions as to the security or sale or disposition thereof as such officers or agents shall deem proper, and, also, to sell to, or discount or rediscount with, such banks, trust companies, institutions, corporations, firms or persons any and all commercial paper, bills and accounts receivable, acceptances and other instruments and evidences of debt at any time held by the Corporation, and to that end to endorse, transfer and deliver the same. From time to time there shall be certified to each bank, trust company, institution, corporation, firm or person so designated, the signatures of the officers or agents so authorized; and each such bank, trust company, institution, corporation, firm or person is authorized to rely upon such certification until written notice of the revocation by the Board of Directors or the authority of such officers or agents shall be delivered to such bank, trust company, institution, corporation, firm or person. SECTION 6.03. Contracts. Contracts and other instruments in writing which may be properly made or entered into by the Corporation may be executed in its behalf and in its name by any one of the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, an Executive Vice President, a Senior Vice President or a Vice President, under the corporate seal, attested by the Secretary or an Assistant Secretary; provided, that the Board of Directors may by resolution authorize the execution of contracts and other instruments in writing generally or in specific instances in such manner and by such persons as may therein be designated. 24 26 ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.01. Fiscal Year. The fiscal year of the Corporation shall be the calendar year beginning on the first calendar day of each year, unless otherwise provided by the Board of Directors. SECTION 7.02. Seal. The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule or regulation relating to a corporate seal to place the word "(Seal)" adjacent to the signature of the authorized officer of the Corporation. SECTION 7.03. Annual Reports. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the stockholders and placed on file within twenty (20) days thereafter at the principal office of the Corporation in the State of Maryland. Such statement shall be prepared or caused to be prepared by such executive officer of the Corporation as may be designated in an additional or supplementary by-law adopted by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the President and Chief Executive Officer to prepare or cause to be prepared such statement. SECTION 7.04. Bonds. The Board of Directors may require any 25 27 officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. SECTION 7.05. Voting upon Shares in Other Corporations. Any shares in other corporations or associations, which may from time to time be held by the Corporation, may be voted at any meeting of the stockholders thereof by the President and Chief Executive Officer or a Vice President of the Corporation or by proxy or proxies appointed by the President and Chief Executive Officer or a Vice President of the Corporation. A by-law or a resolution of the Board of Directors may appoint some other person or persons to vote such shares, in which case such person or persons shall be entitled to vote such shares upon the production of a certified copy of such resolution. SECTION 7.06. Amendments. (a) Any and all provisions of the By-Laws may be altered or repealed and new by-laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose, and (b) the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation. SECTION 7.07. Books and Records. The Corporation shall keep correct and complete books and records of its accounts (including its capital accounts in the manner provided by statute) and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any executive or other committee when exercising any 26 28 of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the By-Laws of the Corporation, including any amendments to them, shall be kept at the Corporation's principal office. SECTION 7.08. Inspection of Books. The Board of Directors shall determine, subject to law, from time to time, whether, and to what extent and at what time and places and under what conditions and regulations the books, accounts and records of the Corporation or any of them shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any book, record, account or document of the Corporation, except as conferred by law or authorized by resolution of the directors. Unless provided otherwise by statute, any request by a stockholder to examine the books, accounts or records of the Corporation shall be referred to the Board of Directors for action at the first meeting thereof following such request to the end that proper consideration may be given to such request in the light of existing circumstances and of applicable provisions of law. SECTION 7.09. Dividends. The Corporation, if declared by the Board of Directors at any meeting thereof, may pay dividends on its shares in cash, property, or in shares of the capital stock of the Corporation, unless such dividend is contrary to law or to a restriction contained in the Corporation's Charter. 27 29 SECTION 7.10. Reserves. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose or purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 7.11. Severability. The invalidity of any provision of the By-Laws shall not affect the validity of any other provision, and each provision shall be enforced to the extent permitted by law. SECTION 7.12. Gender. Whenever used herein, the masculine gender includes all genders. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Required Indemnification of Directors. The Corporation shall indemnify any director made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), unless it is proved that (1) the act or omission of the director was material to the cause of action adjudicated in the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (2) the director actually received an improper personal benefit in money, property or services, or (3) in the case 28 30 of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the Proceeding; provided, however, if the Proceeding was one by or in the right of the Corporation, indemnification may not be made in respect of any Proceeding in which the director shall have been adjudged to be liable to the Corporation. The termination of any Proceeding by judgment, order or settlement does not create a presumption that the director did not meet the requisite standard of conduct set forth in this Section. The termination of any Proceeding by conviction, or upon a plea of nolo contendere or its equivalent or entry of an order of probation prior to judgment, creates a rebuttable presumption that the director did not meet the requisite standard of conduct set forth in this Section. SECTION 8.02. Prohibited Indemnification of Directors. A director shall not be indemnified under Section 8.01 in respect if any Proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received. SECTION 8.03. Indemnification for Successful Defense. Unless limited by the Charter, a director who has been successful, on the merits or otherwise, in the defense of any Proceeding referred to in Section 8.01 shall be indemnified against reasonable expenses incurred by the director in connection with such Proceeding. 29 31 SECTION 8.04. Determination that Indemnification is Proper. Indemnification under Section 8.01 shall not be made by the Corporation unless authorized for a specific Proceeding after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in Section 8.01. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the Proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such Proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate, (2) by special legal counsel selected by the Board of Directors or a committee of the Board by vote as set forth in (1) above, or, if the requisite quorum of the full Board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full Board in which directors who are parties may participate, or (3) by the stockholders. Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible. However, if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified for selection of such counsel. Shares held by directors who are parties 30 32 to the Proceeding may not be voted on the subject matter under this Section. SECTION 8.05. Payment of Expenses in Advance of Final Disposition. Reasonable expenses incurred by a director who is a party to a Proceeding may be paid or reimbursed by the Corporation in advance of the final disposition of the Proceeding upon receipt by the Corporation of (1) a written affirmation by the director of the director's good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and (2) a written undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. The undertaking required shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make the repayment. Payments under this Section shall be made as provided by the Charter, these By-Laws or contract or as specified in Section 8.04. SECTION 8.06. Expenses of Directors Incurred as a Witness. The Corporation shall pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a Proceeding at a time when the director has not been named as a defendant or respondent to the Proceeding. SECTION 8.07. Director's Service to Employee Benefit Plan. For purposes of this Article, (1) the Corporation shall be deemed to have requested a director to serve an employee benefit plan where the performance of the director's duties to the Corporation also imposes 31 33 duties on, or otherwise involves services by, the director to the plan or participants or beneficiaries of the plan, (2) excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law shall be deemed fines; and (3) action taken or omitted by the director with respect to an employee benefit plan in the performance of the director's duties for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. SECTION 8.08. Officers, Employees or Agents. Unless limited by the Charter, (1) an officer of the Corporation shall be indemnified as and to the extent provided in Section 8.03 for a director, (2) the Corporation may indemnify and advance expenses to an officer, employee, or agent of the Corporation or of any subsidiary of the Corporation or a director of such a subsidiary to the same extent that it may indemnify directors of the Corporation under this Article, and (3) the Corporation, in addition, may indemnify and advance expenses to an officer, employee, or agent of the Corporation or of any subsidiary of the Corporation or a director of such a subsidiary who is not a director of the Corporation to such further extent, consistent with law as may be provided by the Charter, the By-Laws, by action of the Board of Directors or by contract. SECTION 8.09. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation or of any subsidiary 32 34 of the Corporation, or who, while a director, officer, employee, or agent of the Corporation or of any subsidiary of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position, whether or not the Corporation would have the power to indemnify against liability under the provisions of this Article. The Corporation may provide similar protection, including a trust fund, letter of credit, or surety bond, not inconsistent with this Section. The insurance or similar protection provided pursuant to this Section may be provided by a subsidiary or an affiliate of the Corporation. SECTION 8.10. Report of Indemnification to Stockholders. Any indemnification of, or advance of expenses to, a director in accordance with this Article, if arising out of a Proceeding by or in the right of the Corporation, shall be reported in writing to the stockholders with the notice of the next stockholders' meeting or prior to the meeting. SECTION 8.11. Terms. Terms used in this Article, which are not otherwise defined herein, shall have the meaning set forth in Section 2-418 of the General Corporation Law of the State of Maryland. SECTION 8.12. Scope. The indemnification and advancement of expenses provided or authorized by this Article shall not be deemed exclusive of any other rights, by indemnification or otherwise, to 33 35 which a director, officer, employee or agent of the Corporation or of a subsidiary of the Corporation may be entitled under the Charter, the By-Laws, a resolution of stockholders or directors, an agreement or statute or otherwise, as to action in an official capacity or as to action in another capacity while holding such office, and the provisions of this Article shall not be construed to in any way limit any such other rights. ARTICLE IX NOTICES SECTION 9.01. Manner of Giving Notice. Whenever under the provisions of the statutes or of the Charter or of the By-Laws, notice is required to be given to any director or stockholder of the Corporation, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such director or stockholder at such address as it appears on the books of the Corporation, or, in default of other address, to such director or stockholder at the General Post Office in the City of Baltimore, Maryland, and such notice shall be deemed to be given at the time when the same shall be thus mailed. SECTION 9.02. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the Charter, or of the By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the 34 36 holding of the meeting or the taking of any other action referred to therein, shall be deemed equivalent thereto. 35 EX-10.6 3 1993 STOCK OPTION PLAN 1 EXHIBIT 10.6 2 LAFARGE CORPORATION 1993 STOCK OPTION PLAN SECTION I. PURPOSE The purpose of the Lafarge Corporation 1993 Stock Option Plan (the "Plan") is to encourage and enable key employees of Lafarge Corporation (the "Company") and its subsidiary corporations ("Subsidiary" or "Subsidiaries") as defined under Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. Accordingly, the Company may grant to certain employees the option ("Option") to purchase shares of the Common Stock of the Company, par value $1.00 per share ("Stock"), and may award bonuses in the form of Stock subject to the restrictions set forth in Section IX ("Restricted Stock"), as hereinafter set forth. Options granted under the Plan shall be nonqualified stock options which shall not be treated as incentive stock options under Section 422 of the Code. SECTION II. ADMINISTRATION OF THE PLAN The Plan shall be administered by a committee (the "Committee") of three or more directors of the Company appointed by the Board of Directors. Members of the Committee shall not, within one year prior to their appointment to the Committee, have been granted or awarded equity securities pursuant to the Plan or pursuant to any other stock option or stock plan of the Company or any parent or subsidiary corporation of the Company (an "Affiliate") within the meaning of Section 425(e) and (f) of the Code. The Committee shall have sole authority to determine the employees who are to be granted Options or stock appreciation rights or awarded Restricted Stock from among those eligible hereunder and to establish the number of shares of Stock to be optioned to each, the number of stock appreciation rights to be granted to each, and the number of shares to be awarded to each in the form of Restricted Stock after taking into consideration the position held, the duties performed, the compensation received, the services expected to be rendered by such employee and other relevant factors. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, not inconsistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. A majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be deemed the acts of the Committee. All decisions made by the Committee in selecting the employees to whom Options and stock appreciation rights shall be granted or Restricted Stock shall be awarded, in establishing the number of 1 3 shares which may be issued under each Option or awarded as Restricted Stock and in construing the provisions of the Plan shall be final. No member of the Committee shall be liable for any action taken, failure to act, determination or interpretation made in good faith with respect to the Plan or any Option or stock appreciation right granted or Restricted Stock awarded under the Plan. SECTION III. SHARES SUBJECT TO THE PLAN The aggregate number of shares of Stock issued under Options or awarded in the form of Restricted Stock under this Plan shall not exceed 3,000,000 shares. Such shares of Stock may consist of authorized but unissued shares of Stock or previously issued shares of Stock reacquired by the Company. Any of such shares of Stock which remain unissued and which are not subject to outstanding Options and have not been awarded in the form of Restricted Stock at the termination of the Plan shall cease to be subject to the Plan. Should any Option hereunder expire or terminate prior to its exercise in full, or any Stock previously awarded as Restricted Stock be forfeited, the shares of Stock subject to such Option at the time of its expiration or termination and the shares of Restricted Stock so forfeited will again be available for grant or award under the Plan. The aggregate number of shares of Stock which may be issued under the Plan shall be subject to adjustment as provided in Section X hereof. Exercise of an Option in any manner, including an exercise involving an election of an alternative settlement method referred to in Section VII hereof, shall result in a decrease in the number of shares of Stock which may thereafter be available for purposes of the Plan by the number of shares of Stock as to which the Option is exercised. SECTION IV. ELIGIBILITY The Committee shall determine and designate, at any time or from time to time, the key personnel of the Company and the Subsidiaries to whom Options are to be granted or Restricted Stock is to be awarded, but subject to the terms and conditions set forth below: (a) Options may be granted and Restricted Stock may be awarded only to individuals who are key employees (including officers and directors who are also key employees) of the Company or a Subsidiary at the time the Option is granted or the Restricted Stock is awarded. Options may be granted or Restricted Stock awarded to the same employee on more than one occasion. (b) The aggregate number of shares of Stock which may be issued under Options granted or Restricted Stock awarded under the Plan to any one individual shall not exceed 5% of the outstanding shares of Stock. 2 4 SECTION V. OPTION PRICE The Option price per share of Stock underlying each Option shall be fixed by the Committee at the time the Option is granted, but shall not be less than 100% of the fair market value of the Stock at the time of the granting of the Option. For purposes of the Plan, the fair market value of Stock on any particular date shall be determined by the Committee which may use any reasonable method of valuation, including the mean of the high and low sales prices of publicly traded shares of Stock on the date in question as reported on the Composite Transactions reporting system or, if the Stock is listed on a U.S. national securities exchange, the last sales price reported on such exchange on that date. SECTION VI. OPTION TERM The expiration date of an Option shall be determined by the Committee at the time of grant, but shall in no event be later than ten years from the date of grant. SECTION VII. OPTION AGREEMENTS Each Option shall be evidenced by an option agreement ("Option Agreement") and shall contain such terms and conditions not inconsistent with the provisions of the Plan as may be approved by the Committee. The terms and conditions of the respective Option Agreements need not be identical and may be amended by the Committee from time to time, subject to the provisions of the Plan. Payment of the purchase price of any Option exercised shall be made to the Company either (i) in cash (including check, bank draft or money order) or (ii) by delivering shares of Stock already owned by the optionee and which have been owned for at least six (6) months, duly endorsed for transfer or (iii) a combination of such Stock and cash. The fair market value of any Stock so delivered shall be determined on the same basis as provided in Section V hereof. An Option Agreement may provide for the surrender of the right to purchase shares of Stock under the Option in return for a payment in cash or shares of Stock or a combination of cash and shares of Stock equal to the excess of the fair market value of the shares of Stock with respect to which the right to purchase is surrendered over the Option price therefor, on such terms and conditions as the Committee in its sole discretion may prescribe. SECTION VIII. EXERCISE OF OPTIONS (a) Each Option granted under the Plan shall be exercisable during such period commencing on or after the expiration of one year from the date of the grant of such Option as the Committee shall determine; provided, however, that the otherwise unexpired portion of any Option shall expire and become null and void no later than 3 5 upon the first to occur of (i) the expiration of ten years from the date such Option was granted, (ii) the expiration of three months from the date of the termination of the optionee's employment with the Company or an Affiliate for any reason other than death, disability or retirement under the normal or early retirement provisions of a pension or retirement plan maintained by the Company or an Affiliate, or (iii) the expiration of three years from the date of the termination of the optionee's employment with the Company or an Affiliate by reason of death, disability or retirement under the normal or early retirement provisions of a pension or retirement plan maintained by the Company or an Affiliate. Transfer of employment without interruption of service between or among the Company and its Affiliates shall not be considered to be a termination of employment for the purposes of this Plan. Any provision of this Plan to the contrary notwithstanding, the otherwise unexpired portion of any Option granted hereunder shall expire and become null and void immediately upon an optionee's termination of employment with the Company or an Affiliate by reason of such optionee's fraud, dishonesty or performance of other acts detrimental to the Company or an Affiliate. (b) Each Option granted hereunder shall be exercisable in full or in such annual installments as may be determined by the Committee at the time of the grant; provided, however, that the Committee in its discretion may subsequently accelerate the exercise date of an Option. The right to purchase shares of Stock shall be cumulative so that when the right to purchase any shares of Stock has accrued, such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. (c) If the Committee grants stock appreciation rights in connection with an Option, either at the time of grant or by amendment, such right shall be subject to the same terms and conditions as the related Option and shall be exercisable only to the extent the Option is exercisable. Stock appreciation rights shall be granted only in connection with an Option. A right shall entitle the optionee to surrender to the Committee the related unexercised Option, or any portion thereof, and to receive from the Company in exchange therefor cash, shares of Stock, or a combination of cash and Stock, having an aggregate value equal to (i) the excess of the fair market value of one share of Stock over the Option price, times (ii) the number of shares of Stock called for by the Option, or portion thereof, which is surrendered. The number of shares of Stock which may be received pursuant to the exercise of a right may not exceed the number of shares of Stock called for by the Option, or portion thereof, which is surrendered. No fractional shares of Stock will be issued. The Committee shall have the right to determine whether the Company's obligation shall be paid in cash, shares of Stock, or a combination of cash and Stock. The Committee may establish a maximum appreciation value which would be awardable under any granted right or rights. 4 6 (d) No Option or stock appreciation right granted under the Plan shall be transferable by the holder thereof otherwise than by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the optionee only by him. (e) Nothing in this Section shall operate to extend the period of exercise of an Option beyond the expiration date specified in the Option Agreement. SECTION IX. RESTRICTED STOCK The Committee may from time to time, in its sole discretion, award bonuses in the form of Restricted Stock to persons eligible to receive awards of Restricted Stock under Section IV. All Restricted Stock awarded under the Plan shall be subject to such restrictions, terms and conditions, if any, as may be determined by the Committee. The Committee may in its sole discretion remove, modify or accelerate the release of restrictions on any Restricted Stock in the event of death or disability of the recipient of such Restricted Stock, or for such other reasons as the Committee may deem appropriate. Any certificate or certificates representing shares of Restricted Stock shall bear a stamped or printed notice on the face thereof to the effect that such shares have been awarded pursuant to the terms of the Plan and may not be sold, pledged, transferred, assigned or otherwise encumbered in any manner except as set forth in the terms of such award. If the Committee so determines, the certificates representing Restricted Stock shall be deposited by the recipient with the Company or an escrow agent designated by the Company until the restrictions thereon have lapsed or have been removed in accordance with the provisions of this Section. Upon the lapse of the restrictions or removal thereof by the Committee, new unrestricted certificates for the number of shares on which the restrictions have lapsed or been removed shall, upon request by the recipient of the Restricted Stock, be issued in exchange for such restricted certificates. 5 7 SECTION X. ADJUSTMENTS UPON RECAPITALIZATION OR REORGANIZATION In the event the Company shall effect a split of the Stock or dividend payable in Stock (other than pursuant to the Company's Optional Stock Dividend Plan), or in the event the outstanding Stock shall be combined into a smaller number of shares, the maximum number of shares of Stock as to which Options may be granted and Restricted Stock may be awarded under the Plan shall be increased or decreased proportionately. In the event that before delivery by the Company of all of the shares of Stock in respect of which any Option or stock appreciation right has been granted under the Plan, the Company shall have effected such a split, dividend or combination, the shares of Stock still subject to the Option or stock appreciation right shall be increased or decreased proportionately and the purchase price per share of Stock shall be decreased or increased proportionately so that the aggregate purchase price for all of the then optioned shares of Stock shall remain the same as immediately prior to such split, dividend or combination. In the event of a reclassification of the Stock not covered by the foregoing, or in the event of a liquidation or reorganization, including a merger, consolidation or sale of assets, the Board of Directors shall make such adjustments, if any, as it may deem appropriate in the number and kind of shares for which Options, stock appreciation rights or Restricted Stock may be granted or awarded under the Plan and, with respect to outstanding Options and stock appreciation rights, in the number, purchase price and kind of shares covered thereby. The provisions of this Section shall only be applicable if, and only to the extent that, the application thereof does not conflict with any valid governmental statute, regulation or rule. SECTION XI. CONTINUANCE OF EMPLOYMENT Neither the Plan nor any agreement relating to any Option, stock appreciation right or award of Restricted Stock shall impose any obligation on the Company or an Affiliate to continue to employ any employee. SECTION XII. WITHHOLDING The Company shall have the right to withhold taxes, as required by law, from any transfer of cash or Stock to an employee under the Plan or to collect, as a condition of such transfer, any taxes required by law to be withheld. (a) Subject to the provisions of paragraphs (b) and (c) of this Section, at any time when an employee is required to pay to the Company an amount required to be withheld under applicable tax laws in connection with an issuance of Stock upon exercise of an Option or stock appreciation right, the employee may satisfy this obligation in whole or in part by electing (the "Election") to 6 8 have the Company withhold from the issuance shares of Stock having a fair market value equal to the amount required to be withheld. The value of the shares of Stock to be withheld shall be based on the fair market value of such shares as of the date on which shares of Stock are issued to the employee pursuant to exercise of the Option or stock appreciation right (the "Tax Date"). The employee must pay to the Company any difference between the amount required to be withheld by the Company and the value of the shares of Stock so withheld. Any shares of Stock withheld shall not thereafter be available to be subject to an Option granted under the Plan. (b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections and may provide with respect to any Option or stock appreciation right that the right to make Elections shall not apply to such Option or stock appreciation right. An Election is irrevocable. (c) If an employee is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, then an Election is subject to the following additional conditions: (1) No Election shall be effective with respect to a Tax Date which occurs within six months of the grant of the Option or stock appreciation right, except that this limitation shall not apply in the event the death or disability of the employee occurs prior to expiration of the six-month period. (2) The Election must be made either six months prior to the Tax Date or during a period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. SECTION XIII. AMENDMENT OR TERMINATION OF THE PLAN The Board of Directors in its discretion may terminate the Plan at any time with respect to any shares of Stock for which Options have not theretofore been granted or which have not been awarded as Restricted Stock. The Board of Directors shall have the right to alter or amend the Plan or any part thereof from time to time; provided, that no such change may be made which would impair the rights of the optionee under any outstanding Option or the recipient of Restricted Stock without the consent of such optionee or recipient; and provided, further, that the Board of Directors may not make any alteration or amendment which would materially increase the benefits accruing to participants under the Plan, increase the aggregate number of shares of Stock which may be issued pursuant to the provisions of the Plan, or materially modify the 7 9 requirements for participation in the Plan without the approval of the stockholders of the Company. SECTION XIV. EFFECTIVENESS AND EXPIRATION OF THE PLAN If adopted by the Board of Directors and approved by the vote of the holders of a majority of the stock of the Company entitled to vote thereon at a meeting of stockholders duly called and held for such purpose, or at an annual meeting thereof, the notice of which has specified that action is to be taken on the Plan, and the Committee shall have been advised by legal counsel for the Company that in the opinion of such counsel all applicable requirements of law precedent to its becoming effective have been fully met, then the Plan shall become effective on August 4, 1993 or as soon thereafter as the aforesaid requirements have been met. The Plan shall expire five years after the effective date of the Plan. If the stockholders of the Company fail so to approve the Plan, the Plan shall thereupon terminate and all Options previously granted and all awards of Restricted Stock under the Plan shall become void and of no effect. With respect to persons subject to Section 16 of Securities Exchange Act of 1934 (the "1934 Act"), transactions under the Plan are intended to comply with applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provisions of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 8 EX-10.11 4 OPTION AGREEMENT 1 EXHIBIT 10.11 2 OPTION AGREEMENT FOR COMMON STOCK AGREEMENT, dated as of November 1, 1993 (the "Agreement"), between Lafarge Corporation, a Maryland corporation (the "Company"), and Lafarge Coppee S.A., a French corporation (the "Parent"). W I T N E S S E T H: WHEREAS, the Parent presently directly and indirectly holds shares of the Company's Common Stock, $1.00 par value ("Common Stock") and 7% Convertible Subordinated Debenture ("Debenture"), and Exchangeable Preference shares ("Exchangeable Shares") of the Company's subsidiary, Lafarge Canada Inc. ("LCI"). WHEREAS, the Debentures are potentially convertible into Common Stock, and the holders of Exchangeable Shares, through a trust holding Voting Stock, $0.0001 par value ("Voting Stock"), of the Company ("Exchange Trust"), vote as a class with the holders of Common Stock, and any other class or series of capital stock of the Company having general voting rights in the Company; WHEREAS, the Parent presently directly and indirectly holds such number of shares of Common Stock, Exchangeable Shares and Debentures so that (assuming conversion of all outstanding Debentures) the Parent would directly and indirectly hold shares entitling it to cast approximately 54.59% of the total votes cast at a meeting of stockholders of the Company; WHEREAS, by virtue of its ownership of Common Stock and Exchangeable Shares, the Parent has the power to elect all of the directors of the Company and to control decisions to be voted upon by stockholders, except as otherwise provided by law; WHEREAS, the loss of such voting control could have adverse consequences for the Parent and the Company under certain laws of France, Canada and the United States; and the Parent has informed the Company of its intention to maintain such voting control for the foreseeable future; WHEREAS, the Parent, in consideration for benefits conferred upon the Company by it, has requested that the Company agree as set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises hereinafter set forth, the parties hereto agree as follows: 1 3 SECTION 1. Issuance of Relevant Voting Securities (a) In the event that the Company shall from time to time issue to any person other than the Parent any Relevant Voting Securities. as hereinafter defined, the Parent shall have the right to purchase from the Company up to the amount of such Relevant Voting Securities as shall be necessary to permit it to achieve (on a basis assuming the exercise of all conversion, exchange and similar rights of outstanding securities except employee stock options) a control margin of 1,000,000 votes in excess of 50% of the Total Voting Power, as hereinafter defined, to be represented by all Includible Voting Securities, as hereinafter defined, to be outstanding (or deemed to be outstanding) after such issuances by the Company and purchases by the Parent and the other purchaser(s). "Voting Securities" shall mean all shares of Common Stock, Voting Stock, and any other securities of the Company or of a subsidiary of the Company (such as Exchangeable Shares) entitled to vote (regardless of whether such voting rights (i) are presently exercisable or (ii) directly appertain to such securities or (iii) are only available upon subsequent conversion, option or warrant exercise, exchange or other disposition of such securities) on all matters with holders of Common Stock and Voting Stock at meetings of the stockholders of the Company. "Relevant Voting Security"shall mean any Voting Security other than (i) Common Stock issuable upon exercise of the exchange rights of Exchangeable Shares, (ii) Common Stock or other Voting Securities issuable upon exercise of conversion or similar rights of an outstanding Includible Voting Security such as issuable upon conversion of Debentures, (iii) Voting Securities issued, or reserved for issuance, pursuant to a Stock Plan, as hereinafter defined, (iv) securities covered by outstanding options under any Stock Plan which is an employee Stock Plan, and (v) Voting Stock issued to the trustee under the Exchange Trust as a consequence of the issuance of additional Exchangeable Shares. "Total Voting Power" shall mean the total number of votes attributable to all Includible Voting Securities of the Company. For this purpose, the number of shares of Voting Stock shall be calculated on the basis of the maximum number of votes that could be cast at the time of determination under the Indenture, assuming conversion of all Debentures into Common Stock, but the Debentures shall not be added to the calculation. "Includible Voting Securities"shall mean all Voting Securities other than (i) Common Stock issuable upon exercise of the exchange rights of Exchangeable Shares or upon exercise of the conversion, exchange or similar rights of other Includible Voting Securities, (ii) securities reserved for issuance under any Stock Plan and (iii) securities covered by options under employee Stock Plans. 2 4 "Stock Plan" shall mean any employee stock purchase plan, profit sharing plan, incentive, compensation or bonus plan, dividend reinvestment plan, optional stock dividend plan, stock option plan or any other similar plan either (i) approved by the Company's Board of Directors pursuant to which any securities are issued by the Company to its stockholders or to employees of the Company or a subsidiary, or (ii) approved by the Board of Directors of LCI pursuant to which any securities are issued by LCI to its employees or stockholders. For purposes of this Section 1(a), the issuance by a subsidiary of the Company (to a person other than the Company) of securities which have the rights of or are convertible into or exchangeable for Voting Securities, and the sale by the Company of any securities issued by a subsidiary with the aforesaid characteristics, shall be deemed to constitute an issuance of Voting Securities by the Company. Nothing in this Agreement shall be construed to prevent or constrain the Parent from acquiring outstanding shares of Common Stock, Exchangeable Shares or any other securities of the Company or of any subsidiary on the open market or otherwise. (b) The Company shall notify the Parent in writing sufficiently in advance of any proposed issue of Common Stock or other Relevant Voting Security covered by the right to purchase granted to the Parent in Section 1(a) so that the Parent, after its receipt of such notice but prior to any such issuance, shall have a period of fifteen days to determine whether to exercise its right to purchase shares of such Common Stock or other Relevant Voting Security (as the case may be). The Company's notice, to the extent information is known or reasonably subject to estimation, shall include information as to the estimated nature and date of the proposed issue and the estimated price and amount of securities to be issued. If the Parent, within the 15-day period, notifies the Company (which notice shall specify whether the Parent intends to purchase all or only a specified portion of the shares it could elect to acquire) of its intention to exercise this right, then, simultaneously with, or immediately prior to, the issue of such Common Stock or other Relevant Voting Securities, the Parent shall purchase from the Company, and the Company shall issue and sell to the Parent, the number of shares of Common Stock or other Relevant Voting Security determined as provided above in Section 1(a) (or such reduced amount as may be specified in the Parent's notice to the Company) at a price per share determined as provided in Section 1(c) below. (c)(1) In the event the Company issues Common Stock or other Relevant Voting Securities for cash in a public offering subject to a registration statement filed with the Securities and Exchange Commission and/or a comparable filing with a Canadian provincial securities administration, the price at which the Parent shall be entitled to purchase shares of Relevant Voting Securities shall be the price at which such shares are offered to the public. 3 5 (c)(2) In the event the Company issues Relevant Voting Securities pursuant to any transaction, contract, distribution, agreement or arrangement (except as provided in subsection (c)(1) above), the definitive terms of which are or have previously been publicly disclosed or announced, by press release, communication to stockholders, Securities and Exchange Commission filings or otherwise (the "Announcement"): (i) the per share price at which the Parent shall be entitled to purchase shares of Common Stock pursuant to Section 1(a) shall be equal to the average of the closing prices for Common Stock during the thirty (30) day trading period commencing fifteen (15) days prior to the Announcement and ending fourteen (14) days after such Announcement (if the closing to a third party is scheduled to occur prior to the fifteenth trading day after the Announcement, the measuring period shall be the 30 trading days ending the day prior to the date of such closing); (ii) the price at which the Parent shall be entitled to purchase Relevant Voting Securities other than Common Stock shall be the fair market value thereof as determined by reference to the current issuance thereof (assuming, if not the case, that such shares were issued in a public offering and based on an opinion of an independent investment banking firm or other expert retained by the Company, which expert shall be acceptable to the Parent in the exercise of its reasonable discretion). (c)(3) In the event the Company issues Relevant Voting Securities without the making of a prior Announcement relating to such issuance: (i) the per share price at which the Parent shall have the right to purchase shares of Common Stock pursuant to Section 1(a) shall be equal to the average of the closing prices for Common Stock during the thirty (30) day trading period commencing thirty one (31) days prior to the date upon which the Company issues the shares of Relevant Voting Securities to a party other than the Parent (the "Issuance Date") and ending on the day prior to such Issuance Date; (ii) the price at which the Parent shall be entitled to purchase Relevant Voting Securities other than common Stock shall be the fair market value thereof as determined by reference to the current issuance thereof (assuming, if not the case, that such shares were issued in a public offering and based on an opinion of an independent investment banking firm or other expert retained by the Company, which expert shall be acceptable to the Parent in the exercise of its reasonable discretion). (d) At the closing for the purchase and sale of such Common Stock or other Relevant Voting Security (as the case may be), the Company will deliver to the Parent a certificate or certificates (or other appropriate evidence) representing the securities being purchased, 4 6 registered in the name of the Parent or its designee, against payment therefore of same day funds in an amount equal to the aggregate purchase price. The Parent may designate, as the purchaser on its behalf, any corporation (excluding the Company and its subsidiaries) or other entity owned or controlled by it (the Parent and all such corporations and other entities are herein collectively called the "Lafarge Coppee Group"). (e) In the event the Company is unable to issue any Relevant Voting Securities the Parent has the right to purchase pursuant to this Section 1 because the Company's charter does not authorize a sufficient number of shares, the Company shall use its best efforts to cause the stockholders of the Company to amend the Company's charter to increase the number of authorized shares of such Relevant Voting Securities to the number necessary to permit such issuance and the closing of the sale of such shares of Relevant Voting Securities to the Parent shall be postponed to a date when the Company's charter permits such issue. (f) In the event that the Parent shall be entitled to purchase Relevant Voting Securities pursuant to this Agreement and shall have informed the Company of its intent to make such purchase but the closing of the sale to the Parent cannot be accomplished because of a necessity to obtain required approvals from governmental authorities having jurisdiction over the Parent or the Company, then such closing may be delayed at the affected party's request for a period of up to 60 days, provided that the aggregate purchase price shall be increased by an interest factor equal to the daily average of the publicly announced prime commercial lending rate of Wachovia Bank of North Carolina, N.A. in Winston Salem, North Carolina during the period. Such interest rate shall be calculated and certified to by the chief financial officer of the Company or by an officer of Wachovia Bank of North Carolina, N.A. SECTION 2. Representations and Warranties of the Company. (a) The Company is a corporation duly organized and existing in good standing under the laws of the State of Maryland. The Company has the corporate power to own the property owned by it and to conduct the business presently being conducted by it. (b) As of the date hereof, the authorized capital stock of the Company consists of (i) 30,000,000 shares of Voting Stock, of which 12,849,553 shares are issued and outstanding, and (ii) 110,100,000 shares of Common Stock, of which 46,972,292 shares were issued and outstanding on August 31, 1993. All outstanding shares of capital stock are validly authorized and issued, fully paid and nonassessable. SECTION 3. Successors and Assigns. The rights of the Parent under this Agreement may not be assigned or otherwise transferred except to (a) a member of the Lafarge Coppee Group 5 7 or (b) a corporation or entity which succeeds to the ownership of more than 80% of the assets and business of the Parent. SECTION 4. Termination. This Agreement shall terminate on October 31, 2003. SECTION 5. Notice. Any notices or other communications required or permitted hereunder shall be sufficiently given if sent by registered or certified mail, postage prepaid, to the following address: For the Company Lafarge Corporation 11130 Sunrise Valley Drive, Suite 300 Mailing Address: P.O. Box 4600 Reston, Virginia 22090-1415 Attention: Chief Financial Officer For the Parent Lafarge Coppee S.A. 93 rue Nationale F-92100 Boulogne Billancourt Attention: Direction Financiere or such other address as may be specified by the parties for such purposes. SECTION 6. Governing Law. This Agreement relates to the securities of a Maryland corporation, and shall be construed in accordance with, and the rights of the parties shall be governed by, the law of the State of Maryland. SECTION 7. Regulatory Approval. This Agreement is subject to and contingent upon all applicable regulatory approval. 6 8 SECTION 8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the day and year first above written. LAFARGE CORPORATION By /s/ Jean-Pierre Cloiseau ---------------------------------- Senior Vice President and Chief Financial Officer LAFARGE COPPEE S.A. By /s/ Francois Jaclot ---------------------------------- Executive Vice President 7 EX-10.29 5 REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.29 2 AMENDMENT NO. 1 TO REVOLVING CREDIT FACILITY AGREEMENT THIS FIRST AMENDMENT, dated as of December 15, 1993, to the Revolving Credit Facility Agreement dated as of December 15, 1992 (the "Agreement") by and among Lafarge Corporation, the Banks listed therein and Banque Nationale de Paris, New York Branch, as Agent; W I T N E S S E T H : WHEREAS, the parties hereto desire to amend the Agreement in the manner hereafter provided, NOW, THEREFORE, the parties hereto agree that on the Amendment Effective Date (defined below) the Agreement shall be amended as follows (capitalized terms used herein and not otherwise defined herein having the meanings assigned them in the Agreement): SECTION 1. The definition of Permitted Investment Security in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Permitted Investment Security" means any of the following securities: (i) marketable obligations of the United States of America; (ii) marketable obligations for which the related principal and interest are directly and fully guaranteed by the United States of America; (iii) bankers' acceptances and other interest-bearing obligations issued by any bank organized under the laws of the United States of America or any State, territory or possession thereof or the District of Columbia or by the United States branch of any foreign bank with capital, surplus and undivided profits aggregating at least $100,000,000; (iv) overnight repurchase obligations for underlying securities of the types described in clauses (i) or (ii) having a maturity of not more than one year from the date of acquisition entered into with any bank or branch, as the case may be, meeting the qualifications set forth in clause (iii) above and for which possession of the underlying securities is obtained; or (v) commercial paper rated A-1 or higher by Standard & Poor's Corporation or P-1 or higher by Moody's Investors Service, Inc." SECTION 2. The definition of Short Term Investments in Section 1.01 of the Agreement is hereby amended in its entirety as follows: "Short Term Investments" means marketable obligations which (a) have a maturity of less than one year and (b) meet the quality specifications of a Permitted Investment Security or the following marketable obligations for 3 Canadian investments: (i) Canadian or U.S. treasury bills or bonds issued by the governments of Canada, the U.S. or any Canadian province; (ii) investments guaranteed by the governmental bodies mentioned in (i) above; (iii) investments with banks and other financial institutions or commercial paper issued by corporations, each with an R-1 short-term credit rating, as determined by Dominion Bond Rating Service, or a comparable short-term credit rating determined by another credit rating agency." SECTION 3. Section 6.04 of the Agreement is hereby amended to read in its entirety as follows: "SECTION 6.04 Minimum Adjusted Consolidated Net Worth. Adjusted Consolidated Net Worth will at no time be less than $650,000,000 and as of December 31 of each year shall not be less than $700,000,000." SECTION 4. Section 6.08(g) of the Agreement is hereby amended to read in its entirety as follows: "(g) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount any time outstanding not to exceed $20,000,000." SECTION 5. Section 9.01 of the Agreement is hereby amended to read in its entirety as follows: "SECTION 9.01. Termination Date. (a) The obligation of the Banks to make any Loan hereunder shall terminate at 5:00 p.m. (New York City time) on December 15, 1996 (or, if such date is not a Domestic Business Day, then on the next succeeding Domestic Business Day), unless earlier terminated pursuant to the provisions of Section 3.01, 3.02 or 7.01 or unless extended pursuant to subsection (b) hereof (each of December 15, 1995, or such next succeeding Domestic Business Day, or such earlier date of termination or the date to which the obligation of the Banks is so extended being the "Termination Date"). On the Termination Date, the Commitments shall be reduced automatically to zero and the principal amount of all outstanding Loans, together with accrued and unpaid interest thereon and all other amounts payable under this Agreement, shall become due and payable." SECTION 6. In order to induce the Banks to enter into this -2- 4 Amendment, the Company hereby represents and warrants that: (a) no Default or Event of Default exists on the Amendment Effective Date, both before and after giving effect to this Amendment; and (b) on the Amendment Effective Date, both before and after giving effect to this Amendment, all representations and warranties contained in the Agreement are true and correct in all material respects as though made on the date hereof. SECTION 7 This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Agreement. SECTION 8. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. SECTION 9. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. SECTION 10. This Amendment shall become effective on the date (the "Amendment Effective Date") when the Company and each of the Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Agent. SECTION 11. From and after the Amendment Effective Date, all references in the Agreement shall be deemed to be references to the Agreement after giving effect to this Amendment. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. -3- 5 LAFARGE CORPORATION By ----------------------------------- Title: BANQUE NATIONALE DE PARIS, NEW YORK BRANCH By ----------------------------------- Title: By ----------------------------------- Title: CIBC INC. By ----------------------------------- Title: CREDIT LYONNAIS, NEW YORK BRANCH By ----------------------------------- Title: CREDIT LYONNAIS, CAYMAN ISLAND BRANCH By ----------------------------------- Title: SOCIETE GENERALE, NEW YORK BRANCH By ----------------------------------- Title: -4- 6 ROYAL BANK OF CANADA By ----------------------------------- Title: NBD BANK, N.A. By ----------------------------------- Title: NATIONSBANK OF NORTH CAROLINA, N.A. By ----------------------------------- Title: FIRST NATIONAL BANK OF CHICAGO By ------------------------------------ Title: WACHOVIA BANK OF NORTH CAROLINA, N.A. By ----------------------------------- Title: -5- EX-11 6 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 2 EXHIBIT 11 LAFARGE CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON EQUITY SHARE (Unaudited and in thousands except per share amounts)
Years Ended December 31 -------------------------------------------------------- 1993 1992 (b) 1991 -------------------------------------------------------- Primary Calculation Net income (loss) applicable to common equity shareholders $ 5,897 $ (100,644) $ (50,365) ======================================================== Weighted average number of common equity shares outstanding 61,097 58,652 55,925 Net effect of dilutive stock options-based on the treasury stock method using average market price 539 - - -------------------------------------------------------- Weighted average number of common equity shares and share equivalents outstanding 61,636 58,652 55,925 ======================================================== Primary net income (loss) per common equity share $ 0.10 $ (1.72) $ (.90) ======================================================== Fully diluted calculation Net income (loss) $ 5,897 $ (100,644) $ (50,365) Add after tax interest expense applicable to 7% Convertible Debentures 7,000 7,000 7,000 -------------------------------------------------------- Net income (loss) assuming full dilution $ 12,897 $ (93,644) $ (43,365) ======================================================== Weighted average number of common equity shares outstanding 61,097 58,652 55,925 Net effect of dilutive stock options-based on the treasury stock method using the higher of average or year-end market price 850 212 222 Add additional shares assuming conversion of 7% Convertible Debentures 4,520 4,520 4,520 -------------------------------------------------------- Weighted average number of common equity shares assuming full conversion of all potentially dilutive securities 66,467 63,384 60,667 ======================================================== Fully diluted net income (loss) per common equity share $ 0.19(a) $ (1.48)(a) $ (0.71)(a) ========================================================
(a) This calculation is submitted in accordance with regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. (b) All calculations for 1992 include the cumulative effect of changes in accounting principles. EX-22 7 SUBSIDIARIES 1 EXHIBIT 22 2 Exhibit 22 MAJOR SUBSIDIARIES OF LAFARGE CORPORATION The following indicates the corporate names (and all other significant names, if any, under which business is conducted) and jurisdictions of incorporation of the subsidiaries of Lafarge Corporation, all of which are wholly owned or majority owned. Indirect subsidiaries of Lafarge Corporation are indented and listed following their direct parent corporations.
Jurisdiction Name(s) of Incorporation - ------------------------------ ---------------- 1988 Associates, Inc. Delaware Adminco Corp. Missouri Anchor Wate Company Delaware CMAC Corporation Delaware Cement Transport, Ltd. North Dakota Concrete Holding Company Missouri Friday Harbor Sand & Gravel Co. Washington Gen-Tex Trucking, Inc. Texas International Atlantins Insurance Company Vermont Lafarge Concrete, Inc. Louisiana Lafarge Dakota Inc. North Dakota Lafarge K.C.K. Inc. Missouri National Minerals Corporation Minnesota Parker Lafarge Inc. Texas Paving Holding Company Missouri Robertson Construction Materials, Inc. Delaware Systech Environmental Corporation Delaware Walter N. Handy Co., Inc. Missouri Lafarge Canada Inc. Canada Allan G. Cook Limited Ontario Gestion Carim Inc. Quebec International Atlantins Agencies Inc. British Columbia Johnson Concrete & Material Ltd. Saskatchewan Lulu Transport Inc. British Columbia N C Rubber Products Inc. Ontario Quality Ready-Mix Limited Ontario Standard Aggregates Inc. Ontario Standard Paving Maritime Limited Nova Scotia Systech Environmental Inc. Ontario Valley Rite-Mix Ltd. British Columbia
3 Lafarge Corporation also does business under the following names: Davenport Cement Company, Duquesne Slag Products Company, Florida Portland Cement, General Portland Inc., Kurtz-Lafarge, Lafarge Concrete, Lafarge Construction Materials, Missouri Portland Cement Company, Pittsburgh Sand and Gravel, Robertson Construction Materials, St. Charles Quarry Company, St. Louis Slag Products Company, Standard Aggregates, Standard Lafarge, The Standard Slag Company, Sullivan Lafarge, Trinity Portland Cement Company, The Whitehall Cement Manufacturing Company. Lafarge Canada Inc. also does business under the following names: Alberta Concrete Products, Apex Gravel, Bradstone, Brunswick Ready Mix Concrete, Canada Concrete, Capital Concrete, Challenge Concrete, Champion Concrete, Cinq Concrete, Coldstream Concrete, Columbia Concrete, Concrete Pipe Company, Conmac Western Industries, Construction Chemicals, Constructive Communications, Country Building Supplies, Crown Equipment, Crown Paving and Engineering, Forbes Ready Mix, Francon Lafarge, High River Concrete, Jiffy Concrete Products, Johnston Ready Mix, Lafarge Concrete, Lafarge Concrete Products, Lafarge Construction Materials, Lafarge Materials, Lethbridge Concrete Products, Maritime Cement, Marker Building Materials, Masonry Products, McCord, O.K. Construction Materials, Oaks Precast Industries, Permanent Paving, Permanent- Lafarge, Red-D-Mix Block, Red-D-Mix Concrete, Redmond Sand & Gravel, Richvale Block and Ready-Mix, Richvale - McCord, Richvale - York, Rocky Mountain Precast, Supercrete, Superior Concrete Products, Standard Industries, Standard Paving, Standard Pressure Pipe, Standard Slag Cement, York Block, York Brick, Trans-Alta Flyash. Information regarding 55 additional subsidiaries of the Registrant has been omitted because such subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X [17 CFR 210.1-02(v)]. EX-24 8 CONSENT OF ARTHUR ANDERSEN & CO. 1 EXHIBIT 24 2 EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the following Registration Statements of Lafarge Corporation previously filed with the Securities and Exchange Commission: (i) Registration Statement on Form S-8, File No. 2-92414, (ii) Registration Statement on Form S-8, File No. 33-9813, (iii) Registration Statement on Form S-8, File No. 33- 32645, (iv) Registration Statement on Form S-3, File No. 33-32644 (which also constitutes Post-Effective Amendment No. 6 to Registration Statement on Form S-1, File No. 2-82548), (v) Registration Statement on Form S-8, File No. 33-20865, and (vi) Registration Statement on Form S-3, File No. 33-46093 (which also constitutes Post-Effective Amendment No. 7 of Registration Statement on Form S-1, File No. 2-82548). ARTHUR ANDERSEN & CO. Washington, D.C., March 25, 1994. -----END PRIVACY-ENHANCED MESSAGE-----