-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ReRO24mn5NujDGZFT8KPAhcFs4uAybNJf6X/RzruInWaiev9lkfaZxYM47KXC5d6 6J6noP7ZDHwZCEHWWPV70w== 0000950133-96-000304.txt : 19960401 0000950133-96-000304.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950133-96-000304 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAFARGE CORP CENTRAL INDEX KEY: 0000716783 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 581290226 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08584 FILM NUMBER: 96540706 BUSINESS ADDRESS: STREET 1: 11130 SUNRISE VALLEY DR STE 300 CITY: RESTON STATE: VA ZIP: 22091-4329 BUSINESS PHONE: 7032643600 10-K405 1 LAFARGE 10-K 12/31/95 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, 1995 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 COMPANY 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)
Company'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 Company (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 Company 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 Company'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. / X / State the aggregate market value of the voting stock held by nonaffiliates of the Company at March 8, 1996: $ 608,300,080 2 Indicate the number of shares of each of the Company's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MARCH 8, 1996 ----- ---------------------------- COMMON STOCK, PAR VALUE $1.00 PER SHARE 69,498,938 SHARES (INCLUDING 8,499,924 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 25, 1996
================================================================================ 3 ITEM 1. BUSINESS Lafarge Corporation (the "Company"), 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 Company believes that it is one of the largest producers of cement and construction materials in North America. The Company 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 cement kilns. The Company's Canadian operations are carried out by Lafarge Canada Inc. ("LCI"), a major operating subsidiary of the Company. Lafarge S.A., a French corporation, and certain of its affiliates own a majority of the Company's outstanding voting securities. The terms "Company", "LCI" and "Systech", as used in this Annual Report, include not only Lafarge Corporation, Lafarge Canada Inc. and Systech Environmental Corporation, respectively, but also their respective subsidiaries and predecessors, unless the context indicates otherwise. The Company manufactures and sells various types of portland cement, which is widely used in most types of residential, institutional, commercial and industrial construction. The Company also manufactures and sells a variety of special purpose and specialty cements, and cementitious materials. At December 31, 1995 the Company operated 14 full-production cement manufacturing plants with a combined rated annual clinker production capacity of approximately 11.5 million tons and two cement grinding facilities. The Company 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 1995 the Company's cement operations accounted for 54 percent of consolidated net sales, after the elimination of intracompany sales, and 84 percent of consolidated income from operations. Management believes that LCI is the largest producer of concrete-related building materials in Canada, where approximately 80 percent of the Company's construction materials facilities were located at December 31, 1995. The U.S. construction materials operations are located primarily in Illinois, Kansas, Louisiana, Missouri, Ohio, Pennsylvania, Washington and West Virginia. The Company's significant construction materials activities include the manufacture and sale of I-1 4 ready-mixed concrete, construction aggregates, other concrete products and asphalt and road construction. The Company has operations at approximately 400 locations including ready-mixed concrete plants, crushed stone and sand and gravel sites, and concrete product and asphalt plants. During 1995 the Company's construction materials operations accounted for 46 percent of consolidated net sales, after the elimination of intracompany sales, and 16 percent of consolidated income from operations. At December 31, 1995 Systech operated five facilities at cement plants in the U.S., including three plants that are owned by the Company. Systech processed approximately 44 million gallons of supplemental fuel in 1995. Systech's results of operations are included in the results of the Company's construction materials operations. The executive offices of the Company 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 (now Lafarge S.A.) 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 Company (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 Company acquired the common 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 Company as the parent company of LCI and General Portland (General Portland was merged into the Company in 1988), and the Company's name was changed to Lafarge Corporation. In 1986, the Company 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 Company acquired Systech. During 1989, 1990 and 1991, the Company significantly expanded its U.S. construction materials operations through acquisitions, the largest of which included 32 plant facilities I-2 5 in five states and substantial mineral reserves acquired from Standard Slag Holding Company headquartered in Ohio. The Company 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 Company announced the restructuring of its North American business units to be more efficient and cost competitive. The restructuring plan entailed the consolidation of 11 regional operating units into six in the Company's two main product lines. This consolidation was substantially completed by the end of 1995 and is slated for full completion in the first half of 1996. This consolidation has reduced management layers, eliminated duplicative administrative functions and standardized procedures and information systems. Manufacturing and distribution facilities were not materially affected by the restructuring. The Company's North American organization includes 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 is divided into Western, Eastern and U.S. regions, with office locations in Calgary, Alberta; Montreal, Quebec; and Southfield, Michigan, respectively. A technical services group is maintained at the Company's research center in Montreal and corporate headquarters is in Reston, Virginia. See page II-8 of Item 7 and page II-45 of Item 8 of this Annual Report for further discussion regarding the restructuring. Recent Significant Divestments In January 1995, the Company sold its 65 percent interest in a Texas aggregate operation for approximately $12.7 million in cash. In December 1994, the Company sold 29 Texas ready-mixed concrete plants and five related sand and gravel plants. The sales price was approximately $32.6 million in cash. I-3 6 In September 1994, the Company sold its Balcones cement plant in Texas, three cement terminals and an equity interest in an aggregate and asphalt company in Houston, Texas for approximately $95.8 million in cash, excluding working capital, and the repayment of $7.4 million of debt to the Company. In February 1993, the Company sold its cement plant in Demopolis, Alabama. The sale also included seven cement distribution terminals and two terminal leases in the southeastern United States, a cement grinding plant and several barges. The sales price was approximately $50 million in cash. Systech continues to supply the Demopolis plant with waste-derived fuels. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company's operations are closely integrated. For reporting purposes, the Company 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 Company 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 Company's product lines and geographic segments is set forth under Item 7 - Management's Discussion of Income on pages II-3 through II-25, Management's Discussion of Cash Flows on pages II-26 through II-28 and Item 8 - Consolidated Financial Statements and Supplementary Data on pages II-57 and II-58 of this Annual Report. The Company's business is affected significantly by seasonal variations in weather conditions. Information with respect to quarterly financial results is set forth in Item 8 page II-68 of this Annual Report. I-4 7 (c) NARRATIVE DESCRIPTION OF BUSINESS Cement Product Line The Company 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 Company 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, 1995 the rated annual clinker production capacity of the Company's operating cement manufacturing plants was approximately 11.5 million tons with about 5.1 million tons in Canada and approximately 6.4 million tons in the United States. The Canadian Portland Cement Association's "Plant Information Summary Report" dated December 31, 1994 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, 1994 shows that the Company's operating cement manufacturing plants in the United States accounted for an estimated 8 percent of total U.S. active industry clinker production capacity. I-5 8 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 Company's operating cement manufacturing plants at December 31, 1995. 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. 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 -------- ------- -------- -------- ------- -------- Paulding, OH Wet 470,500 Brookfield, N.S. Dry 507,700 Fredonia, KS Wet 375,900 St. Constant, QUE Dry 1,046,300 Whitehall, PA Dry *** 676,200 Bath, ONT Dry *** 1,065,800 Alpena, MI Dry 2,295,700 Woodstock, ONT Wet 559,900 Davenport, IA Dry ** 930,200 Exshaw, ALTA Dry ** 1,185,500 Sugar Creek, MO Dry 516,600 Kamloops, B.C. Dry 207,200 Joppa, IL Dry *** 1,158,600 Richmond, B.C. Wet 553,700 --------- --------- Total capacity 6,423,700 Total capacity 5,126,100 ========= ========= Total 1995 clinker production 5,767,300 Total 1995 clinker production 4,625,100 ========= ========= 1995 production as a percentage 1995 production as a percentage of total capacity 90% of total capacity 90% ========= =========
* 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 Company'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, I-6 9 Davenport, Sugar Creek and Joppa plants have facilities for transportation by water. The Exshaw plant and the Kamloops limestone and cinerite quarries are located on sites leased on a long-term basis. The Company owns all other plant sites. The Company believes that each of its producing plants is in satisfactory operating condition. At December 31, 1995, the Company owned cement grinding plants for the processing of clinker into cement at Fort Whyte, Manitoba; Edmonton, Alberta; Saskatoon, Saskatchewan; Montreal East, Quebec; Superior, Wisconsin and Port Manatee, Florida. The Fort Whyte grinding plant was shut down in 1994; furthermore, 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 1995 for the storage of cement. The 600,000 ton cement grinding plant at Port Manatee, Florida was acquired in May 1995. The Company also owns a cement grinding plant and terminal facilities at Tampa, Florida. The Port Manatee and Tampa plants include facilities for receiving clinker and cement, respectively, by water. The Company owns clinker producing plants which have been shut down in Havelock, New Brunswick; Ft. Whyte, Manitoba and Metaline Falls, Washington. With respect to the Company's Alpena plant, the second phase of the modernization program costing approximately $26 million was completed in early 1995 and involved additional improvements to the plant's raw materials handling and storage facilities. The facility upgrade and modernization program has reduced operating costs and increased the plant's rated annual cement production capacity to 2.5 million tons. The Manufacturing Process The Company manufactures cement by a closely controlled chemical process which begins with the crushing and mixing of calcium carbonates, argillaceous material (clay, shale or kaolin), silicates (sand) and iron-rich materials. 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 process. 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 I-7 10 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 Portland 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. The raw materials required to manufacture cement are obtained principally from operations which are owned by the Company 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 is equipped with rock crushing equipment. At Richmond, the Company owns the reserves, but does not currently quarry them. The Company purchases limestone for Richmond from a local source. At Whitehall, Joppa and Kamloops the Company sub-contracts the quarry operations. Fuel represents a significant portion of the cost of manufacturing cement. The Company 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 78 percent and 87 percent of the Company'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 Company 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 Company. At December 31, 1995, the Company used industrial waste materials obtained and processed by Systech as fuel at three of the Company's United States cement plants. Waste-derived fuels supplied by Systech constituted approximately 8 I-8 11 percent of the fuel used by the Company in all of its cement operations during 1995. The Company's three U.S. cement plants which utilize hazardous waste-derived fuels are subject to emission limits and other requirements under the Federal Resource Conservation and Recovery Act ("RCRA") and Boiler and Industrial Furnaces ("BIF") regulations. See pages II-18 through II-25 of Item 7 of this Annual Report for further discussion regarding the RCRA and BIF regulations. The following table shows the possible alternative fuel sources of the Company's cement manufacturing plants in the United States and Canada at December 31, 1995.
Plant Location Fuels -------------- ----- United States: Paulding, Ohio. . . . . . . Coal, Coke, Oil, 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 Davenport, Iowa . . . . . . Coal, Coke, Oil Sugar Creek, Missouri . . . Coal, Coke, Natural Gas, Waste Oil Joppa, Illinois . . . . . . Coal, Coke Canada: Brookfield, Nova Scotia . . Coal, Coke, Oil, Waste Oil 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 Tailings
Marketing Cement is sold by the Company 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 Company had the most significant U.S. sales in 1995 were Michigan and Florida. Other states in which the Company had significant sales include Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Tennessee, Wisconsin and Washington. I-9 12 The provinces in Canada in which the Company had the most significant sales of cement products were Ontario and British Columbia, which together accounted for approximately 45 percent of the Company's total Canadian cement shipments in 1995. Other provinces in which the Company had significant sales include Alberta and Quebec. Approximately 35 percent of the Company's cement shipments in Canada were made to affiliates. The Company sells cement to several thousand unaffiliated customers. No single unaffiliated customer accounted for more than 10 percent of the Company's cement sales during 1995, 1994 or 1993. 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, 1995 sales offices in the United States were located in Buffalo, New York; Port Manatee, Florida; Fort Wayne, Indiana; Whitehall, Pennsylvania; Cleveland, Ohio; Lansing, Michigan; Milwaukee, Wisconsin; Seattle and Spokane, Washington; Kansas City, Missouri; Davenport, Iowa; Valley City, Bismarck and Grand Forks, North Dakota and Nashville, Tennessee. At December 31, 1995 sales offices in Canada were located in Moncton, New Brunswick; Quebec City and Montreal, Quebec; Toronto, Ontario; Winnipeg, Manitoba; Regina and Saskatoon, Saskatchewan; Edmonton, Alberta; and Kamloops and Vancouver, British Columbia. Distribution and storage facilities are maintained at all cement manufacturing and finishing plants and at approximately 90 other locations including six 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 Company 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. I-10 13 Construction Materials Product Line The Company 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 Company is also engaged in highway and municipal paving and road building. During 1995, 1994 and 1993 no single unaffiliated customer accounted for more than 10 percent of the Company'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 Company owns substantially all of its ready-mixed concrete, concrete products and aggregates plants and believes that all such plants are in satisfactory operating condition. The Company owned or had a majority interest in 328 construction materials facilities in Canada at December 31, 1995. Of these, 119 are ready-mixed concrete plants concentrated in the provinces of Ontario (where approximately 46 percent of the plants are located), Alberta, Quebec and British Columbia. The Company also owns ready-mixed concrete plants in New Brunswick, Nova Scotia, Saskatchewan and Manitoba. The Company owns 133 construction aggregates facilities in Canada, approximately 41 percent 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 Company's 30 Canadian asphalt facilities are also concentrated primarily in Ontario with the remaining plants in Alberta, Nova Scotia, New Brunswick and Quebec. The Company owns a total of 46 precast and prestressed concrete, concrete block and concrete pipe plants and miscellaneous other construction materials operations in Ontario (where approximately 50 percent of the plants are located), Alberta, British Columbia, Manitoba, Quebec, New Brunswick and Nova Scotia. In the U.S., the Company owned or had a majority interest in 61 construction materials facilities at year end. Of these, 32 are ready-mixed concrete plants concentrated in Missouri, and to a lesser extent, I-11 14 Louisiana, Ohio and Kansas. Of the Company's 20 U.S. construction aggregates facilities, 9 are in Ohio, 4 in Pennsylvania, with the remainder located in Illinois, Missouri, Washington and West Virginia. The Company owns a total of 9 concrete paving stone, trucking and miscellaneous other construction materials operations located in Ohio, Michigan, Pennsylvania and Missouri. In addition, the Company 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 provides 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 cement plant more competitive by reducing fuel cost, which represents about 14 percent of cement manufacturing cost. Research, Development and Engineering The Company is involved in research and development through its own technical services laboratories and through its participation in the Portland Cement Association. In addition, Lafarge S.A., LCI and the Company are parties to agreements relating to the exchange of technical and management expertise under which the Company has access to the research and development resources of Lafarge S.A. 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 $6.6 million, $5.5 million and $6.2 million for 1995, 1994 and 1993, respectively. This includes amounts accrued for technical services rendered by Lafarge S.A. to the Company, under the terms of the agreements discussed above, of $5.5 million during 1995, $4.3 million during 1994 and $4.8 million during 1993. I-12 15 Capital Expenditures and Asset Dispositions The Company's business is relatively capital-intensive. During the three-year period ended December 31, 1995 the Company's capital expenditures were approximately $276 million, principally for the modernization or replacement of existing equipment. Of this amount, approximately 60 percent related to cement operations and 40 percent to construction materials operations. During the same period, the Company also invested approximately $49 million in various acquisitions that expanded its market and product lines. Of this amount, approximately 45 percent related to cement operations and 55 percent to construction materials. In January 1996, the Company acquired the remaining interest in Tews Company, a ready-mixed concrete and building materials supplier located in the greater Milwaukee area. In May 1995, the Company purchased all of the issued and outstanding capital stock of National Portland Cement Company which operated a grinding plant in Port Manatee, Florida. In April 1995, the Company acquired the Grey Stone cement terminal in Wilder, Kentucky and effective September 9, 1994, the Company acquired the Red Rock Cement terminal in St. Paul, Minnesota. In December 1993, the Company purchased from Koch Industries, Inc. a plant at Spragge, Ontario for grinding iron blast furnace slag into slag cement. In April 1993, the Company 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 Company is the majority shareholder in this joint venture which owns two modern block plants that are strategically located in this market. See General Development of Business - "Recent Significant Divestments" for a discussion on the sale of certain significant non strategic assets. During 1995, 1994 and 1993, the Company disposed of various surplus properties, none of which were material. In 1995 the Indianapolis, Indiana terminal facility was shut down. Cement terminal facilities in St. Louis, Missouri and Houston, Texas were shut down in February 1993. During 1994, the Company sold the St. Louis terminal land and intends to sell the land on which the Houston terminal was located. I-13 16 Environmental Matters The Company's operations, like those of other companies 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 Company's business and the status of certain environmental enforcement matters involving the Company are discussed in Item 7 of this Annual Report in the "Environmental Matters" section of Management's Discussion and Analysis beginning on page II-18. Additionally, certain enforcement matters are described in Item 3 (Legal Proceedings) of this Annual Report. Employees As of December 31, 1995, the Company and its subsidiaries employed 6,624 individuals of which 4,043 were hourly employees. Approximately 1,041 of these hourly employees were engaged in the production of portland cement products and 3,002 were employed in the Company's construction materials operations. Salaried employees totalled 2,581. These employees generally perform work in administrative, managerial, marketing, professional and technical endeavors. Overall, the Company considers its relations with employees to be satisfactory. - - U.S. Cement Operations The majority of the Company's 551 U.S. hourly employees are represented by labor unions. During 1995 labor agreements were negotiated at cement plants located at Paulding, Ohio and Davenport, Iowa and distribution terminals located at Detroit and Saginaw, Michigan and Oswego and Buffalo, New York. Two more agreements expired in 1995 but were not renewed at Ownesboro, Kentucky (now non-union) and Forestview, Illinois. During 1996, agreements will expire at the Fredonia, Kansas cement plant and distribution terminals at Cleveland and Toledo, Ohio; Duluth, Minnesota; Superior, Wisconsin and Waukegan, Illinois. - - U.S. Construction Materials Operations The Company's 1,133 U.S. construction materials employees consist of 845 hourly employees and 288 salaried employees. During 1995, the Company sold its interest in a Texas aggregate operation and acquired ready-mixed concrete operations in Missouri and Louisiana. I-14 17 In the U.S., approximately 75% of hourly employees are covered by 20 collective bargaining agreements with 6 major unions. During 1995, 3 collective bargaining agreements were successfully renegotiated with union bargaining agents without a work stoppage. During 1996, 8 labor agreements will expire and are expected to be successfully concluded without a work stoppage. - - Canadian Cement Operations Substantially all of the 490 Canadian cement hourly employees are covered by labor agreements. In 1995, agreements were reached at the Kamloops, British Columbia; Bath, Ontario and Brookfield, Nova Scotia cement plants, and distribution terminals at Montreal East, Quebec and Winnipeg, Manitoba. In 1996, the agreement will expire at the Stoney Creek, Ontario slag plant. - - Canadian Construction Materials Operations Employees working in the Canadian construction materials operations totalled 2,915 at the end of 1995 with 2,157 hourly employees and 758 salaried employees. In western Canada, hourly employees are covered by 31 collective bargaining agreements with several unions. During 1995, 16 collective bargaining agreements were successfully renegotiated with union bargaining agents without a work stoppage. Seven other contracts expired on December 31, 1995 and are expected to be renegotiated early in 1996. During 1996, 8 labor agreements will expire. In eastern Canada, hourly employees are covered by 63 collective bargaining agreements with a number of unions. There are 40 non-union business units in which negotiations are held directly with employees. During 1995, 33 collective bargaining agreements were successfully renegotiated with union bargaining agents without a work stoppage. Thirty collective bargaining agreements will expire in 1996 throughout eastern Canada. All labor and benefit agreements covering hourly bargaining unit employees which expire in 1996 are expected to be successfully concluded without a work stoppage. I-15 18 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 Company's primary marketing areas. The Company'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, 1994. The Company is the only cement producer serving all regions of Canada. The Company's largest competitor in Canada accounted for approximately 23 percent of rated annual active clinker production capacity. The Company's operating cement plants located in the United States at December 31, 1994 represented an estimated 8 percent of the rated annual active clinker production capacity of all U.S. cement plants. The Company's three largest competitors in the United States accounted for 14, 7 and 6 percent, respectively, of the rated annual active clinker production capacity. The preceding statements regarding the Company'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, 1994. (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-57 and II-58 of Item 8 - Financial Statements and Supplementary Data of this Annual Report and is incorporated herein by reference. I-16 19 EXECUTIVE OFFICERS OF THE COMPANY The following tabulation sets forth as of March 29, 1996 the name and age of each of the executive officers of the Company and indicates all positions and offices with the Company held by them at said date.
Name Position Age - ------------------ ----------------------------- --- Bertrand P. Collomb Chairman of the Board 53 Michel Rose President and Chief Executive Officer 53 Edward T. Balfe Executive Vice President and 54 President Construction Materials Group Duncan Gage Executive Vice President and 46 President U.S. Cement Operations Peter H. Cooke Executive Vice President and 47 President - Canadian Cement Operations H. L. Youngblood Senior Vice President and 60 President - Western Cement Region Patrick Demars Senior Vice President - 47 Corporate Technical Services Guillaume Roux Senior Vice President - 36 Planning and Marketing Thomas W. Tatum Senior Vice President - 59 Human Resources Larry J. Waisanen Senior Vice President and 45 Chief Financial Officer John C. Porter Vice President and Controller 57 David C. Jones Vice President - Legal Affairs and 54 Secretary David W. Carroll Vice President - Environment and 49 Government Affairs Kevin C. Grant Treasurer 40
I-17 20 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 S.A. 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 S.A., and from 1987 until January 1, 1989 he was Senior Executive Vice President of Lafarge S.A. He served as Vice Chairman of the Board and Chief Executive Officer of the Company 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 former Lafarge S.A. subsidiary, from 1987 until September 1992. Since 1989 he has served as Senior Executive Vice President of the Lafarge S.A. Group. Edward T. Balfe was appointed to his current position in July 1994. Prior to that he served as Senior Vice President of the Construction Materials Group. He served as President of the Company's Construction Materials Eastern Region and President and General Manager of Permanent Lafarge, a construction materials affiliate of the Company, from 1990 to 1993. He had served as President and General Manager of Permanent Lafarge from 1986 - 1990. Duncan Gage was elected to his current position effective March 1, 1996. From October 1994 to February 1996 he was Senior Vice President and President of the Company's U.S. Cement Region. He previously served as Senior Vice President - Planning and Development from January 1994 to September 1994. He served as Senior Vice President and President of the Company's Southern Region from May 1992 to December 1993. He also served as President of Parker Lafarge, a former construction materials affiliate of the Company, from 1990 to 1992 and President of Francon Lafarge, another construction materials affiliate of the Company, from 1987 to 1990. Peter H. Cooke was elected to his current position effective March 1, 1996. He previously served as Senior Vice President and President of the Company's Eastern Cement Region from July 1990 to February 1996. Prior to that he was Vice President of Operations of the Company'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 Company's Great Lakes Region from May 1987 to January 1989. I-18 21 Patrick Demars was appointed to his current position effective February 1991. He previously served as Vice President - Products and Process of the Company's Corporate Technical Services operations from July 1990 to January 1991. He was a Regional Vice President at CNCP, a Brazilian subsidiary of Lafarge S.A., from July 1986 to June 1990. Guillaume Roux was appointed to his current position effective February 1, 1996. From May 1994 to January 1996 he served as Deputy General Manager of Clause Semences, a former subsidiary of Lafarge S.A. Prior to that, he served as a Vice President in the Lafarge S.A. Finance Department from November 1992 to May 1994. He was Chief Financial Officer of Harris Moran Seeds Company, a former subsidiary of Lafarge S.A., from May 1989 to November 1992. Thomas W. Tatum was appointed to his current position in April 1987. Larry J. Waisanen was appointed to his current position effective January 1, 1996. He served as Assistant General Manager of Lafarge S.A.'s interests in Turkey from May 1992 to December 1995. Prior to that he served as Vice President Controller of Lafarge S.A. from March 1989 to April 1992. John C. Porter was appointed to his current position in September 1990. He served as Vice President and Controller of the Company's Great Lakes Region from April 1989 until September 1990. David C. Jones was appointed to his current position in February 1990. He served as Corporate Secretary of the Company 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 Company from February 1990 to February 1992. Prior to that he was Director Environmental Programs for the Chemical Manufacturers Association from 1978 to 1990. Kevin C. Grant was appointed to his current position effective June 1, 1995. He previously served as Vice President - Human Resources Development from June 1994 to June 1995. He also was Sales Manager from June 1992 to June 1994 and Manager of Strategic Studies from June 1991 to June 1992 for Lafarge Fondu International, a subsidiary of Lafarge S.A. I-19 22 There is no family relationship between any of the executive officers of the Company 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 Company expires on the date of the next annual meeting of the Board of Directors, scheduled to be held on May 7, 1996. I-20 23 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 Company, is incorporated herein by reference in answer to this Item 2. All of the Company'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 Company free of major encumbrances, except the Exshaw plant and the Kamloops limestone and cinerite quarries. 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 Company. 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, 1995, the Company also owned substantial reserves which previously supplied raw materials to former cement production facilities located at Miami and Tampa, Florida and Fort Worth, Texas. The Tampa plant is now operated as a cement grinding and distribution facility. Most of the Miami property was sold in January 1996. LCI's quarrying rights for limestone used by cement manufacturing plants in the Canadian provinces of 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 Company 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 owned by the Company or are purchased from suppliers and are readily available. I-21 24 Deposits of raw materials for the Company's aggregate producing plants are located on or near the plant sites. These deposits, due to their varying nature, are either owned by the Company or leased upon terms which permit orderly mining of reserves. I-22 25 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 Company and LCI were named in third party actions in which Lone Star claimed indemnity for liability to the Railroads, for damages to its business and for costs and losses suffered as a result of the Company 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 Company 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 totaling approximately $66.7 million. These settlements were submitted to and approved by the United States Bankruptcy Court for the Southern District of New York which handled the Lone Star bankruptcy. Lone Star commenced trial in November 1992 in its third party complaint against the Company 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 Company and LCI appealed the trial court verdict to the United States Court of Appeals for the Fourth Circuit which in April 1994 reversed the verdict, remanded the case to the district court for retrial on damages and liability and reinstated Lone Star's claim under Massachusetts Chapter 93A which prohibits unfair and deceptive trade practice and provides for recovery of double or treble damages and attorneys' fees. The re-trial of this suit began on October 24, 1994 with Lone Star claiming approximately $88.8 million in damages. On November 30, 1994 the jury returned a verdict in favor of the Company on the claims of implied warranty, negligence, fraud and indemnification but found in favor of Lone Star on the claim of breach of express warranty in the amount of $8.9 million. On December 20, 1994 the Court entered partial summary judgment in the amount of the verdict plus prejudgment interest of $0.9 million. Subsequently on April 3, 1995 the Court ruled in favor of the Company and LCI on Lone Star's Massachusetts Chapter 93A claims awarding it nothing and entered its final judgment awarding Lone Star $8.4 million damages and $0.9 million prejudgment interest. In August 1994 Lone Star commenced a new suit against the Company and LCI for damages as a result of conduct which parallels that alleged in the Lone Star Case involving approximately I-23 26 8,000 railroad ties sold three railroads, a construction company and the U.S. Navy and claiming an amount not less than $11.2 million plus double or treble damages under Massachusetts Chapter 93A and attorneys' fees ("Union Pacific Case"). Because the case was not filed until August 1994, it was not included in the disposition of the Lone Star Case. In May 1995 Lone Star appealed and the Company and LCI cross appealed the Court's final judgment order to the United States Court of Appeals for the Fourth Circuit. During the pendency of this appeal the parties agreed to settle the Lone Star Case, the Union Pacific Case, and all other claims or potential claims Lone Star has or had concerning allegedly defective cement supplied by the Company or LCI and used in concrete railroad ties for a cash payment of $11.2 million which was paid on August 31, 1995 and the cases were dismissed with prejudice. The settlement was funded by payments from the Company's and LCI's insurers except for $4.865 million which was paid by the Company and for which the Company and LCI have sought repayment through litigation. In late 1990 Nationwide Mutual Insurance Company ("Nationwide"), one of the Company's primary insurers during the period when allegedly defective cement was supplied to Lone Star by the Company, filed a complaint for declaratory judgment against the Company, several of its affiliates and eleven other liability insurers of the Company (the "Coverage Suit"). The complaint sought a determination of all insurance coverage issues in the Lone Star Case. The Company answered the complaint, counter-claimed against Nationwide, cross-claimed against the co-defendant insurers and filed a third party complaint against 36 additional insurers. In 1991, the Company and Nationwide entered into a settlement agreement pursuant to which Nationwide settled its claim in the Coverage Suit and, among other things, paid the Company 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. In September 1995 the Company and LCI commenced suit in the U.S. District Court for the District of Maryland against National Union Fire Insurance Company of Pittsburgh, PA ("NUF") as a result of its failure to contribute to the settlement of the Lone Star Case. The complaint includes claims for declaratory relief regarding NUF's obligation to pay $4.865 million in indemnity under its insurance policy, breach of contract, violations of the Texas Insurance Code and common law bad faith. This case was severed from the Coverage Suit and is expected to be tried sometime in the first half of 1996. The Coverage Suit was I-24 27 tried to a jury from mid October to early November 1995. On November 2, 1995 the jury awarded the Company and LCI approximately $19.5 million of the $27.5 million sought as the necessary and reasonable expenses incurred in defense of the Lone Star Case. After the jury returned its verdict the Court ruled on the Company's motion to mold the verdict and awarded it pre and post judgment interest, apportioned the policy deductibles, determined the equitable apportionment of the verdict among the defendant insurers and entered its final judgment order effective January 16, 1996. The Company and LCI have settled with all but two of their insurers and have appealed certain issues in this matter to the Court of Appeals. Since 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 118 plaintiffs complaining about 80 basement foundations including a 20-unit condominium. Together, these and other plaintiffs are claiming more than Cdn. $62 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. LCI has been served with third- or fourth-party claims by Bertrand in most 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 fly ash. Bertrand has amended all of its claims to allege that the cement supplied by LCI is also defective. In July 1995, the Ontario New Home Warranty Program instituted a lawsuit against Bertrand, LCI and certain other defendants to recover approximately Cdn. $3 million in costs for replacing or repairing the foundations of 29 houses which were covered under the warranty program. The amount of LCI's liability, if any, is uncertain. LCI has denied liability and is defending the lawsuits vigorously. It has introduced third and fourth party claims against its insurers to have the insurance coverage issues dealt with by the Court at the same time as the liability case. The Company believes it has substantial insurance coverage that will respond to defense expenses and liability, if any, in the lawsuits. The State of Michigan has contacted the Company and the former owner of the Company's Alpena cement plant seeking remediation of an old CKD I-25 28 pile from which it alleges there is runoff of hazardous substances into Lake Huron. The Company 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 Company acquired the plant. The Company has advised the former plant owner of the Company's position on this matter and has filed a legal action in federal district court seeking to have the deed reformed to be consistent with the asset purchase agreement. This action has been transferred to the bankruptcy court for the Northern District of Texas which administered the bankruptcy proceedings of the former plant owner. The Company is awaiting the bankruptcy court's determination in this matter. In June 1994, the Company was sued by approximately 24 plaintiffs for injury to and death of passengers and observers of a collision between a ready-mixed concrete truck owned by the Company and a church van which occurred in 1992. The plaintiffs contend that the negligent acts and omissions of the driver and the Company constitute the proximate cause of the accident and all of the plaintiffs' injuries and damages arising therefrom. The claim for damages is approximately $106 million. The Company tendered its policy limits under its primary insurance policy and transferred control of the defense of this litigation to the excess insurance carrier, which paid $9.2 million in settlement of this litigation in 1995. Following the publication in late July 1995 of articles in a Quebec City (Canada) newspaper alleging price fixing and bid rigging agreements among suppliers in the ready mixed concrete industry, the Canadian Bureau of Competition Policy has started an investigation and executed search warrants against several ready mixed concrete producers operating in the Quebec City area, including LCI. LCI is presently conducting an internal investigation. The Company 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 Company's Consolidated Financial Statements. I-26 29 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None during the fourth quarter ended December 31, 1995. I-27 30 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information required in response to Item 5 is reported in Item 7, pages II-31 and II-32 of this Annual Report and is incorporated herein by reference. On March 8, 1996, 60,999,014 Common Shares were outstanding and held by 2,972 record holders. In addition, on March 8, 1996, 8,499,924 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 6,826 record holders. The Company 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. II - 1 31 ITEM 6. SELECTED FINANCIAL DATA The table below summarizes selected financial information for the Company. For further information, refer to the Company'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 --------------------------------------------------------------------------- 1995 1994 1993 1992 1991 --------------------------------------------------------------------------- OPERATING RESULTS Net Sales $ 1,472.2 $1,563.3 $1,494.5 $1,511.2 $1,568.8 =========================================================================== INCOME BEFORE THE FOLLOWING ITEMS: $ 185.4 $ 141.9 $ 70.2 $ 28.0 $ 17.7 Interest expense, net (15.2) (28.8) (42.7) (49.4) (52.0) Income taxes (40.6) (32.5) (21.6) (15.7) (16.1) --------------------------------------------------------------------------- NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 129.6 80.6 5.9 (37.1) (50.4) Cumulative effect of change in accounting principles - - - (63.5) - --------------------------------------------------------------------------- NET INCOME (LOSS) 129.6 80.6 5.9 (100.6) (50.4) Depreciation and depletion 90.2 97.5 108.5 117.6 112.1 Cumulative effect of change in accounting principles - - - 63.5 - Restructuring (4.8) (13.6) 21.6 - - Other items not affecting cash (96.7) (16.5) 18.9 (3.8) 10.9 --------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATIONS $ 118.3 $ 148.0 $ 154.9 $ 76.7 $ 72.6 =========================================================================== TOTAL ASSETS $ 1,713.9 $1,651.4 $1,687.7 $1,767.4 $1,836.4 =========================================================================== FINANCIAL CONDITION AT YEAR END Working Capital $ 448.6 $ 402.3 $ 315.4 $ 253.0 $ 253.5 Property, plant and equipment, net 797.0 751.9 880.7 982.3 1,056.3 Other assets 198.3 192.4 221.8 205.0 209.0 --------------------------------------------------------------------------- TOTAL NET ASSETS $ 1,443.9 $1,346.6 $1,417.9 $1,440.3 $1,518.8 =========================================================================== Long-term debt $ 268.6 $ 290.7 $ 373.2 $ 515.2 $ 564.6 Other long-term liabilities 194.3 214.5 253.0 225.2 112.2 Shareholders' equity 981.0 841.4 791.7 699.9 842.0 --------------------------------------------------------------------------- TOTAL CAPITALIZATION $ 1,443.9 $1,346.6 $1,417.9 $1,440.3 $1,518.8 =========================================================================== COMMON EQUITY SHARE INFORMATION Net income (loss)* $ 1.88 $ 1.18 $ 0.10 $ (0.63)(a) $ (0.90) Dividends* $ 0.375 $ 0.30 $ 0.30 $ 0.30 $ 0.35 Book value at year end* $ 14.17 $ 12.34 $ 11.84 $ 11.79 $ 14.85 Average shares and equivalents outstanding 69.0 68.3 61.6 58.7 55.9 Shares outstanding at year end 69.2 68.2 66.9 59.4 56.7 =========================================================================== STATISTICAL DATA Capital expenditures $ 121.9 $ 95.4 $ 58.4 $ 54.9 $ 95.8 Acquisitions $ 29.3 $ 4.7 $ 15.2 $ 4.3 $ 11.1 Net income (loss) as a percentage of net sales* 8.8% 5.2% 0.4% (2.5)%(a) (3.2)% Return on average shareholders' equity* 14.2% 9.9% 0.8% (4.8)%(a) (5.8)% Long-term debt as a percentage of total capitalization* 18.6% 21.6% 26.3% 35.8 % 37.2 % Number of employees at year end* 6,600 6,500 7,400 7,700 7,900 Exchange rate at year end (Cdn. to U.S.)* 0.733 0.713 0.755 0.787 0.865 Average exchange rate for year (Cdn. to U.S.)* 0.729 0.732 0.775 0.828 0.873 ===========================================================================
(a) Before cumulative effect of change in accounting principles. II - 2 32 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and alysis 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-38) summarize the Company'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 Company'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 and raw materials for use in cement kilns. II - 3 33
Years Ended December 31 ---------------------------------------------------- 1995 1994 1993 ---------------------------------------------------- NET SALES Cement $ 901.6 $ 876.6 $ 801.4 Construction Materials 683.2 799.7 802.2 Eliminations (112.6) (113.0) (109.1) ---------------------------------------------------- TOTAL NET SALES $1,472.2 $1,563.3 $1,494.5 ==================================================== GROSS PROFIT Cement $ 243.9 $ 207.8 $ 161.0 Construction Materials 79.0 100.8 91.2 ---------------------------------------------------- TOTAL 322.9 308.6 252.2 ---------------------------------------------------- OPERATIONAL OVERHEAD AND OTHER EXPENSES Cement (59.8) (69.5) (71.7) Construction Materials (43.2) (69.3) (63.2) ---------------------------------------------------- TOTAL (103.0) (138.8) (134.9) ---------------------------------------------------- INCOME FROM OPERATIONS Cement 184.1 138.3 89.3 Construction Materials 35.8 31.5 28.0 ---------------------------------------------------- TOTAL OPERATING PROFIT 219.9 169.8 117.3 Corporate and Unallocated Expenses (34.5) (27.9) (47.1) ---------------------------------------------------- TOTAL INCOME FROM OPERATIONS $185.4 $ 141.9 $ 70.2 ==================================================== IDENTIFIABLE ASSETS Cement $ 756.9 $692.3 $ 759.2 Construction Materials 601.3 605.0 697.3 Corporate and Unallocated Assets 355.7 354.1 231.2 ---------------------------------------------------- TOTAL ASSETS $1,713.9 $1,651.4 $1,687.7 ====================================================
II - 4 34 YEAR ENDED DECEMBER 31, 1995 During the second quarter of 1995, the Company reached an agreement with Revenue Canada Taxation related to the pricing of certain cement sales between its operations in Canada and the U.S. for the years 1984 through 1994. The result was an increase in net sales and pre-tax income in Canada of U.S. $30.1 million with corresponding adjustments in the U.S. The impact of this agreement was immaterial to consolidated net income. Management's Discussion and Analysis that follows excludes the impact of this agreement (except for the discussion on income taxes). NET SALES Net sales declined 6 percent in 1995 to $1,472.2 million from $1,563.3 million in 1994. However, after adjusting for sales from the Company's 1994 divestments in the U.S., net sales from continuing operations increased 4 percent. The divested operations were in Texas and include the Company's Balcones cement plant and three cement terminals, equity interests in two aggregate operations and an asphalt company, and ready-mixed concrete plants and related assets. The increase in net sales was mostly due to a 6 percent improvement in cement prices partially offset by weak construction activity in Canada and poor weather in the fourth quarter relative to 1994. Canadian net sales were $660.8 million, a 1 percent decline from 1994. U.S. net sales decreased 9 percent to $811.4 million due to the 1994 divestments partially offset by cement price improvement. The Company's net sales from cement operations were $901.6 million, an increase of 3 percent. Excluding sales from the Company's Texas operations divested in 1994, net sales from continuing operations were 8 percent higher although cement shipments at 12.2 million tons were essentially flat. A decline in cement shipments in western Canada was offset by shipments from a cement grinding plant in Florida that was acquired in early 1995. Canadian net sales increased 3 percent due to a 5 percent increase in average selling prices and higher shipments of cementitious products, offset by a 5 percent reduction in shipments reflecting lower demand in Quebec, British Columbia and Alberta and poor weather in the fourth quarter of 1995 compared to 1994. In the U.S., net sales were 3 percent higher as average prices increased 6 percent while cement shipments II - 5 35 declined 5 percent. Excluding operations divested, revenues improved 9 percent while cement shipments were relatively flat. The increase in revenues was due to higher prices. Net sales from the Company's construction materials and waste management operations were $683.2 million, down 15 percent from 1994. Net sales from continuing operations were only 1 percent lower than 1994. From continuing operations, ready mixed concrete volumes slipped 9 percent to 5.4 million cubic yards and aggregate volumes dropped 2 percent to 37.5 million tons. In Canada, ready-mixed concrete volumes were 10 percent lower, reflecting sharp declines in Quebec and British Columbia due to slowdowns in construction activity, partially offset by higher shipments to the fixed-link bridge project in the Atlantic Provinces. Aggregate volumes were 4 percent lower. Despite lower volumes, net sales in Canada declined only 1 percent because of price improvements in most product lines and higher shipments of concrete products. Net sales from continuing operations in the U.S. declined 1 percent. Ready-mixed concrete shipments decreased 6 percent mainly due to the construction slowdown in St. Louis; however, aggregate volumes were 3 percent higher. GROSS PROFIT AND COST OF GOODS SOLD The Company's gross profit as a percentage of net sales increased to 22 percent in 1995 from 20 percent in 1994. Cement gross profit was 27 percent compared to 24 percent in 1994. The increase was the result of higher prices and lower production costs in Canada, partially offset by the impact on U.S. margins of higher cement and clinker purchases. Construction materials gross profit margin was 12 percent in 1995, down slightly from 13 percent in 1994. The Company's cement cost per ton is heavily influenced by plant capacity utilization. The following table summarizes the Company's cement production from continuing operations (in millions of tons) and the utilization rate of clinker production capacity. II - 6 36
Years Ended December 31 ------------------------------- 1995 1994 ------------------------------- Cement production 11.01 10.94 Clinker capacity utilization 90% 86% ---------------------------------
Cement production increased 1 percent over 1994. Total U.S. cement production totalled 6.5 million tons, a 2 percent decrease from 1994. Clinker capacity utilization at U.S. plants was 90 percent in 1995 compared to 94 percent in 1994. Manufacturing setbacks at some U.S. plants necessitated higher purchases of cement and clinker to replace lost production. In Canada, cement production was 4.5 million tons, an increase of 5 percent from last year. Canadian clinker capacity utilization increased to 90 percent from 75 percent in 1994. Two idle kilns in eastern Canada were restarted for part of the year to supplement shipments to the U.S. Great Lakes market and to the fixed-link bridge project in the Atlantic Provinces. In addition, record production levels were achieved in western Canada. SELLING AND ADMINISTRATIVE Selling and administrative expenses were $141.1 million in 1995 compared to $163.4 million in 1994. The reduction resulted from the Company's staff reductions related to restructuring and from divestments. Selling and administrative expenses as a percentage of net sales declined to 9.6 percent in 1995 from 10.4 percent in 1994. OTHER (INCOME) EXPENSE, NET Other income and expense consists of items such as equity income, amortization of intangibles and gains and losses from divestitures. Other income, net was $3.5 million in 1995 compared to expense of $3.4 million in 1994. The change was the result of the absence of various nonrecurring charges and higher equity income partially offset by lower divestment gains from the sale of non strategic assets. II - 7 37 RESTRUCTURING During 1995 and 1994, the Company spent $4.6 million (decreased by $.2 million of exchange rate impact) and $14.7 million (increased by $1.1 million of exchange rate impact), respectively, which was charged to the previously provided restructuring accrual (see Management's Discussion of Income on pages II-15 and II-16). The Company anticipates that the remaining accrual of $2.3 million will be spent in the first half of 1996 as the Construction Materials Group completes its restructuring. In 1995 and 1994, the annual expense reductions (mostly from the termination of 273 employees through December 31, 1995) that resulted from the restructuring totalled approximately $14.0 million pre-tax and $10.0 million pre-tax, respectively, consistent with expectations. In 1994, these expense reductions were mostly offset by nonrecurring charges for development of the new financial system for construction materials and for secondary employee relocations that were triggered by the restructuring. The estimated annual savings upon full implementation of the restructuring plan, after reduction for savings identified for operations that have been divested, are $20 million pre-tax. This reduction is substantially consistent with Management's original expectations. PERFORMANCE BY LINE OF BUSINESS The Company's operating profit from cement operations (before corporate and unallocated expenses) was $184.1 million, $45.8 million better than 1994. The improvement resulted from higher sales prices in all markets reduced by higher plant costs and higher clinker and cement purchases in the U.S. The Company's Canadian operations reported an operating profit of $63.5 million, $20.6 million better than 1994. Higher prices throughout Canada, an increase in exports to the U.S. and lower plant costs at Exshaw were partially offset by lower sales volumes in Quebec, British Columbia and Alberta. In the U.S., operating profit was $120.6 million, $25.2 million higher than 1994. The improvement was due to higher prices partially offset by lower shipments, an increase in costs at some plants and the effect on margins of higher cement and clinker purchases. II - 8 38 The Company's operating profit from construction materials and waste management operations (before corporate and unallocated expenses) was $35.8 million, $4.3 million higher than 1994. The improvement was due mostly to the absence of nonrecurring charges of approximately $7 million at the Company's waste management operations that were recorded in 1994. The Canadian construction materials operations earned $21.5 million, $2.8 million better than last year. Ready-mixed concrete and aggregate margins improved in western Canada. Concrete product margins in eastern Canada were up due to higher pipe sales. Selling and administrative expenses were lower due to staff reductions related to restructuring. The Company's U.S. operations contributed $12.6 million, $6.8 million worse than 1994. The lower earnings were mostly a result of the absence of earnings from divested operations in Texas and lower earnings in the northern aggregate operations due to higher operating costs. TOTAL INCOME FROM OPERATIONS The 1995 total income from operations was $185.4 million, $43.5 million better than 1994. The improvement was due to higher earnings in the Company's cement and waste management operations. Negative factors were lower earnings from the Company's construction materials operations and lower divestment gains. Operating profit from Canadian operations was $75.5 million, $25.6 million better than 1994. Operating profit from U.S. operations was $109.9 million, $17.9 million higher than 1994. NET INTEREST EXPENSE Net interest expense decreased by $13.6 million in 1995 due to lower average debt, higher average cash invested at higher interest rates and capitalized interest on construction in progress. Capitalized interest was $2.1 million and $0.7 million in 1995 and 1994, respectively. INCOME TAXES The following analysis of income taxes reflects the impact of the agreement with Revenue Canada Taxation related to the pricing of II - 9 39 certain cement sales between the Company's operations in Canada and the U.S. Income tax expense increased from $32.5 million in 1994 to $40.6 million in 1995. U.S. income taxes declined $7.0 million. U.S. earnings were essentially fully taxable in 1995 whereas earnings in 1994 benefited from the utilization of substantially all of the net operating loss carryforwards. In the third quarter, the U.S. tax provision was lowered by $23.0 million due to a reduction of a valuation allowance on deferred tax assets which had been recorded in 1992. The reduction stems from the favorable long-term outlook for the U.S. cement market, three consecutive years of taxable income in the U.S. and management's projection of future taxable income in the U.S. which is expected to be in excess of amounts needed to realize these deferred tax assets. Therefore, management believes it is more likely than not that the related deferred tax assets will be realized. In Canada, taxes increased $15.1 million due to higher earnings. The Canadian effective income tax rates were 37.0 percent in 1995 and 46.9 percent in 1994. Certain elements of the Canadian income tax provision are fixed in amount. The decrease in the effective tax rate was caused by a lower percentage of these fixed amounts relative to the higher earnings experienced in 1995. NET INCOME In 1995, the Company reported record net income of $129.6 million compared to net income of $80.6 million in 1994. The earnings improvement was mainly due to an increase in cement prices, lower selling and administrative expenses, lower interest expense in the U.S. and the absence of nonrecurring charges related to waste management operations. Earnings were negatively impacted by lower divestment gains, the absence of earnings from divested operations and higher clinker and cement purchases in the U.S. GENERAL OUTLOOK For 1996, there is some uncertainty about short-term economic growth in Canada; however, it is expected that construction activity will approximate current levels in the United States. In the cement group, the Company has announced price increases in essentially all markets. U.S. cement demand should continue to II - 10 40 exceed domestic production capacity. The Company's Canadian operations will help offset the shortfall. The Portland Cement Association projects modest growth in U.S. cement demand for 1996 due to continued strength in the commercial, institutional and public works sectors. In Canada, the Portland Cement Association projects that cement demand will improve in Quebec after a poor showing in 1995, and a small increase is forecast in Ontario. Shipments in the Atlantic provinces are projected to remain moderately strong due to the fixed-link bridge project, which is scheduled to be completed in 1997. In western Canada, the Portland Cement Association projects a resumption of growth in demand over the next three years in British Columbia and 5 percent growth in the prairies in 1996. In the Company's Construction Materials Group, the outlook for 1996 is favorable. The restructuring plan will be completed and should have a positive impact. In Canada, modest price and volume gains are anticipated across diverse product lines in the Eastern Region. Austerity measures taken by Ontario's new government will continue to impact public works construction. In the Atlantic provinces, concrete usage for the fixed-link bridge project is expected to increase. In the Western Region, shipments for 1996 are expected to be flat or decrease slightly in most product lines; however, pricing should improve. Reviewing the Company's U.S. markets, Kansas City is operating near a market peak while the St. Louis market is a concern as it has been extremely soft, particularly in the housing sector. However, the market outlook for the New Orleans and the northern aggregates divisions is positive. II - 11 41 YEAR ENDED DECEMBER 31, 1994 NET SALES The Company's net sales increased 5 percent in 1994 to $1,563.3 million from $1,494.5 million in 1993. Excluding sales from the Company's operations divested in 1994 and 1993, net sales were 9 percent higher than 1993. These divested operations include the Company's Balcones cement plant in Texas, three cement terminals and an equity interest in an aggregates and asphalt company in Houston, Texas that were sold in September 1994 and the aggregate operations located in southern Ohio and Illinois which were sold in late 1993. The improvement in net sales was primarily due to 5 percent and 10 percent increases in cement and ready-mixed concrete shipments, respectively, and 6 percent higher cement prices. Partially offsetting these increases was the exchange rate impact resulting from a drop in the value of the Canadian dollar relative to the U.S. dollar. Canadian net sales were $666.8 million, an increase of 4 percent from 1993. U.S. net sales rose 5 percent to $896.5 million. The Company's net sales from cement operations were $876.6 million, an increase of 9 percent. After adjusting for sales lost from the Company's operations divested in 1994 and 1993, net sales from continuing operations were 14 percent higher than 1993. Cement shipments rose in 1994 to 12.8 million tons from 12.3 million tons in 1993. Excluding shipments from the divested Texas cement plant, shipments from continuing operations increased 8 percent. All three cement regions had higher sales volumes than the previous year. Cement average net sales prices increased 6 percent over 1993. U.S. prices increased 7 percent and Canadian prices increased 4 percent, before exchange rate fluctuations, led by a 7 percent increase in eastern Canada. Canadian net sales and shipments increased 5 percent and 7 percent, respectively. Net sales were reduced by a drop in the value of the Canadian dollar relative to the U.S. dollar. Sales volumes in eastern Canada increased 8 percent due to strong domestic volumes resulting from Canada's $6 billion federal infrastructure renewal program. In the U.S., net sales were 11 percent higher while cement shipments increased 4 percent. Excluding operations divested, revenues and shipments from continuing operations increased 16 percent and 8 percent, respectively, over 1993. The improvement was due to the II - 12 42 strong construction activity throughout the year, which resulted in U.S. cement consumption far exceeding domestic capacity. Net sales from the Company's construction materials and waste management operations were $799.7 million, down slightly from $802.2 million in 1993. Net sales from continuing operations were 5 percent higher than 1993. Sales volumes from continuing operations in 1994 were higher in both of the group's primary product lines, ready-mixed concrete and construction aggregates. Ready-mixed concrete volumes climbed 10 percent to 6.7 million cubic yards from 6.1 million cubic yards in 1993, with the largest gains coming from midwestern and southern markets of the U.S. and the Atlantic and Ontario markets of Canada. As a result of divestments, aggregate volumes fell 3 percent in 1994 to 46.5 million tons from 48.1 million tons in 1993. Aggregate volumes from continuing operations rose 8 percent, reflecting growth in the eastern half of Canada and all U.S. markets. In Canada, net sales were up 4 percent despite the negative impact from the declining value of the Canadian dollar relative to U.S. currency. Compared to 1993, ready-mixed concrete and aggregate volumes in Canada increased approximately 6 percent due to 13 percent increases in each product line in eastern Canada. The improvement from the previous year was due to the continued growth in construction activity in Ontario and shipments to the fixed-link bridge project in the Canadian Maritimes. Net sales in the U.S. were 7 percent lower than 1993 mainly due to divested operations. Ready-mixed concrete volumes were 21 percent higher than a year ago while aggregate sales volumes from continuing operations rose 9 percent. The U.S. construction materials operations benefitted from a rebound in construction that took place in the midwest markets following the summer floods of 1993, the end of a drivers strike in St. Louis and strong activity in the southern markets and in the northern aggregate markets. GROSS PROFIT AND COST OF GOODS SOLD The Company's gross profit as a percentage of net sales improved from 17 percent in 1993 to 20 percent in 1994. Cement gross profit margin was 24 percent compared to 20 percent in 1993. The increase was a result of improved volumes and prices. Construction materials gross profit margin was 13 percent in 1994, up from 11 percent in 1993. II - 13 43 The Company's cement cost per ton is heavily influenced by plant capacity utilization. The following table summarizes the Company's cement production (in millions of tons) and the utilization rate of clinker production capacity.
Years Ended December 31 ------------------------------- 1994 1993 ------------------------------- Cement production 10.94 10.37 Clinker capacity utilization 86% 81% ===============================
Cement production from continuing operations increased 6 percent from 1993 mainly due to the strong product demand in the U.S. Total U.S. cement production totalled 6.6 million tons, an increase of 5 percent from last year. In Canada, cement production was 4.3 million tons, up slightly from 4.1 million tons in 1993. Clinker capacity utilization at U.S. plants was 94 percent in 1994 compared to 90 percent in 1993 while Canadian capacity utilization increased to 75 percent from 72 percent in 1993. Capacity utilization in the Company's Canadian plants increased from higher cement shipments in Canada and higher exports to the U.S. Total U.S. cement consumption exceeded domestic production capacity. To meet the cement needs of U.S. customers, the company purchased more cement from its Canadian plants which had underutilized cement capacity, and imported cement from South American and European sources. Spot cement shortages occurred in some U.S. markets. SELLING AND ADMINISTRATIVE Selling and administrative expenses were $163.4 million in 1994 compared to $161.4 million in 1993. Although some expense reductions were achieved from office consolidation and termination of some employees in the first phase of a restructuring program (see "Restructuring" below), these reductions were mostly offset by nonrecurring charges for development of a new financial system for construction materials and for secondary employee relocations that II - 14 44 were triggered by the restructuring. Selling and administrative expenses as a percentage of net sales declined to 10.4 percent in 1994 from 10.8 percent in 1993. 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 $3.4 million in 1994 compared to income of $1.0 million in 1993. The change was the result of write-downs of surplus properties, higher retirement costs, a provision for settlement of a lawsuit and interest rate swap expenses. These charges were partially offset by higher divestment gains from the sale of non strategic assets. RESTRUCTURING In the fourth quarter of 1993, the Company 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 Company's North American business units to increase organizational efficiency. The primary components of the restructuring charge were separation benefits for approximately 310 employees (after reduction for employees identified for operations that have been divested), employee relocation costs and retirement benefits for eligible employees electing early retirement. The charge also included office relocation and lease termination expenses. The restructuring plan entailed the consolidation of 11 regional operating units into six units in the Company's two main product lines. This consolidation, which began in 1994 and will be substantially completed in 1995, will reduce management layers, eliminate duplicative administrative functions, and standardize procedures and information systems. Manufacturing and distribution facilities are not materially affected by the restructuring. During 1994, the Company spent $14.7 million (includes $1.1 million of exchange rate impact) on the restructuring and anticipates that the remaining accrual of $6.9 million will be substantially spent in 1995 as the Construction Materials Group completes most of its restructuring. II - 15 45 In 1994, the annual expense reductions (mostly from the termination of 238 employees) that resulted from the restructuring totalled approximately $10 million pre-tax, consistent with expectations. These expense reductions were mostly offset by nonrecurring charges for development of the new financial system for construction materials and for secondary employee relocations that were triggered by the restructuring. PERFORMANCE BY LINE OF BUSINESS The Company's operating profit from cement operations (before corporate and unallocated expenses) was $138.3 million, $49.0 million better than 1993. Cement results were better due to higher sales volumes and prices somewhat offset by higher maintenance costs and fuel costs per unit in certain Canadian plants and higher purchased clinker costs in the U.S. In Canada, operating profit totalled $42.7 million, $3.7 million higher than 1993. Higher sales volumes throughout Canada and higher prices in central and eastern Canada were partially offset by higher plant costs in certain cement plants. The Company's U.S. operations reported an operating profit of $95.6 million. This was $45.3 million better than 1993. Strong product demand coupled with a 7 percent increase in the average net sales price led to the improvement. The Company's operating profit from its construction materials and waste management operations (before corporate and unallocated expenses) was $31.5 million, or $3.5 million better than 1993. Results were better due to significant improvement in the United States and moderate improvement in eastern Canada. Operating profit was reduced by development expenses for a new financial system and nonrecurring charges totalling approximately $7 million at the Company's waste management operations. The Company's Canadian operations contributed $16.4 million. This was $1.5 million worse than the prior year. Earnings were higher in eastern Canada due to increased ready-mixed concrete and aggregate volumes reflecting the continued improvement in economic conditions and shipments to the fixed-link bridge project. These earnings were more than offset by nonrecurring charges at the waste management operations and development expenses for the new financial system. The U.S. operations earned $15.1 million compared to $10.1 million in 1993. The improvement was the result of higher ready-mixed concrete and aggregate volumes due to increased construction II - 16 46 activity following the 1993 floods in the midwest coupled with strong performance in Texas and the northern aggregate markets. Partially offsetting these improvements were nonrecurring charges at the waste management operations and development expenses for the new financial system. TOTAL INCOME FROM OPERATIONS In 1994, total income from operations was $141.9 million, $71.7 million better than 1993. The increase was mostly due to higher earnings in the Company's U.S. cement and construction materials operations, which accounted for 82 percent of the increase. Income from operations was also improved by higher divestment gains from the sale of non strategic assets and the absence of the one-time restructuring charge of $21.6 million in 1993. Offsetting these improvements were nonrecurring charges at the Company's waste management operations, a provision for settlement of a lawsuit, write-downs of surplus properties, expenses for development of a new financial system and interest rate swap expenses. Operating profit from Canadian operations was $49.9 million, $13.2 million better than 1993. The Company's operating profit from U.S. operations was $92.0 million, $58.5 million better than 1993. NET INTEREST EXPENSE Net interest expense decreased by $14.0 million in 1994 due to lower average net indebtedness, higher interest rates on investments and currency exchange gains on U.S. dollar denominated investments in Canada. INCOME TAXES Income tax expense increased from $21.6 million in 1993 to $32.5 million in 1994. In the U.S., taxes climbed only $2.0 million. The higher operating income coupled with the additional taxable income from divestments resulted in a current tax benefit from the utilization of most of the Company's net operating loss carryforwards in the U.S. Canadian income tax expense increased $8.9 million due to higher earnings. The Canadian effective income tax rates were 46.9 percent in 1994 and 46.1 percent in 1993. II - 17 47 NET INCOME The Company reported net income of $80.6 million in 1994. This compares with net income of $5.9 million in 1993. The 1993 results included an after-tax charge of $16.4 million recorded in the fourth quarter related to the Company's restructuring plan. The Company's Canadian operations reported net income of $29.9 million, $9.4 million better than 1993. Earnings increased in eastern Canada due to the continued improvement in economic conditions. Canadian earnings also benefitted from an adjustment of overhead charges between the U.S. and Canada, the absence of the restructuring charge and higher interest income. Partially offsetting these gains were higher maintenance costs and fuel costs per unit in certain plants, nonrecurring charges related to waste management operations and expenses for the development of a new financial system for construction materials. In the U.S., net income was $50.7 million, $65.3 million better than 1993. The U.S. improvement resulted from an increase in cement shipments and prices, a 21 percent increase in ready-mixed concrete shipments, higher divestment gains and the absence of the restructuring charge. In addition, interest expense in the U.S. was $8.8 million lower than 1993. These increases were partially offset by higher purchased clinker costs at certain U.S. plants, nonrecurring charges related to waste management operations, a provision for settlement of a lawsuit and interest rate swap expenses. ENVIRONMENTAL MATTERS The Company'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 Company's environmental compliance program includes an environmental policy and an environmental ethics policy that are designed to provide corporate direction for all operations and employees, an environmental audit and follow-up program, routine compliance oversight of the Company's facilities, environmental guidance on key issues confronting the Company, routine training and exchange of information by its environmental professionals, an environmental II - 18 48 recognition award program, and routine and emergency reporting systems. The Company has been in, 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 government authorities. In certain circumstances, notwithstanding management's belief that a particular alleged violation poses no significant threat to the environment, the Company may decide to resolve such matters by entering into a consent agreement and/or paying a penalty. The Company currently operates three cement plants using hazardous waste-derived fuels that are subject to emission limits and other requirements under the federal Resource Conservation and Recovery Act ("RCRA") and Boiler and Industrial Furnaces ("BIF") regulations. The other BIF requirements include a permitting process, extensive recordkeeping of operational parameters, raw materials and waste-derived fuels use, and corrective action requirements for other solid waste management units at the facilities. The Company completed testing in 1995 recertifying that the three cement plants were in compliance with the BIF interim status emissions limitations. (These standards must be certified every three years until a final RCRA Part B permit is issued.) The BIF regulations are extremely complex, and certain provisions have been subject to different interpretations. The Company in 1992 received three notices of violation and complaints from the U.S. Environmental Protection Agency ("EPA") and one from the State of Michigan Department of Natural Resources ("MDNR"). With the exception of the Paulding, Ohio cement plant, all the enforcement matters have been resolved by entering into a consent decree and paying a penalty. With respect to the Paulding plant, a substantive agreement has been reached on the terms of a consent agreement, penalty amount, and a supplemental environmental project. The EPA is drafting the consent agreement. In the interim, the Company has implemented the agreed upon substantive provisions. At the present time, the Company's BIF facilities are in substantial compliance with the existing requirements. The Company's three BIF cement plants have submitted formal Part B permit applications which is the first step in the permitting II - 19 49 process. The Fredonia, Kansas plant has recently completed its "test burn" which is the next step in establishing permit limitations for incorporation into a draft of the final Part B permit. The EPA is in the process of revising its BIF requirements, using both RCRA and Clean Air Act authority. The EPA plans to publish proposed regulations for public review and comment in early 1996, and issue final regulations in 1997. Under the proposal, cement plants that continue using waste-derived fuels would have three years to meet these standards or other non-hazardous fuels must be substituted. The EPA plans to rely heavily on the Maximum Achievable Control Technology ("MACT") requirements of Title III of the Clean Air Act Amendments of 1990 (hazardous air pollutants) in conjunction with the risk-based authorities of RCRA. It is unclear at this time what the actual standards will be and the ability of Company's facilities to meet these standards without substantial capital investment. The Company plans to actively participate in the regulatory process and thereby help formulate the revised BIF standards that are reasonable, cost-effective, and comply with the RCRA and Clean Air Act statutory language. A by-product of many of the Company's cement manufacturing plants is cement kiln dust ("CKD"). CKD has been excluded from regulations as a hazardous waste under the so-called "Bevill Amendment" to RCRA until the EPA completes a study of CKD, determines if it should be regulated as a hazardous waste and issues appropriate implementing regulations. On January 31, 1995, the EPA issued a regulatory determination in which it found that certain CKD management practices create unacceptable risks that require additional regulation. The EPA specifically identified the potential for groundwater contamination from the management of CKD in karst terrain, fugitive emissions from handling and management of CKD, and surface water/stormwater runoff from CKD management areas. The EPA found that there is no difference between dust generated from kilns that use traditional fuels and those that use supplemental fuels. The EPA also indicated there are no concerns with cement and clinker, and that most beneficial uses of CKD were not of concern with the exception of its use as a "soil amendment" (the EPA indicated it would further study such application during a future rulemaking). The EPA outlined a tentative regulatory approach for further II - 20 50 regulation of CKD to be carried out over the next two-plus years. During this interim period, the Bevill exclusion would be retained. The EPA indicated that existing legal authority under the Clean Air and Water Acts will be used to address the fugitive emissions and stormwater/surface water runoff issues. For those instances where groundwater concerns exist, the EPA indicated it will use Subtitle C of RCRA as its jurisdiction for establishing highly tailored CKD management standards. In this regard, the EPA indicated that industry-developed CKD management standards would likely be the starting point for the rulemaking. During an industry briefing, EPA representatives indicated that the above approach was tentative and could be influenced and/or found to be unnecessary should states adequately regulate CKD, new information shows clear evidence of no need for regulation and/or the cement manufacturing industry implements its own CKD management practices. The Company's management does not believe that the existing data support the tentative regulatory approach set forth by EPA. As a result, the Company and other organizations have filed suit in the U.S. Court of Appeals for the District of Columbia Circuit seeking judicial review of this determination. On March 14, 1995, the Company joined other cement manufacturing companies in submitting a proposed enforceable agreement for the management of CKD. The agreement is premised on the inherent authority of the U.S. Government to enter into contracts, and the substantive provisions are based upon the industry consensus CKD management practices. The agreement provides for public participation and penalties for non-compliance with the terms of the agreement. The industry has presented the enforceable agreement proposal to the EPA. The primary concern expressed by the EPA has been whether they, in fact, have the inherent authority to enter into an enforceable contract. An alternative approach of applying the CKD management standards under state-driven programs is also being explored separately by the EPA and the industry. The Company believes it technically and legally inappropriate for the EPA to develop CKD standards under Subtitle C of RCRA. Should the EPA ultimately proceed to promulgate new CKD management standards under Subtitle C, the Company could incur substantial additional capital costs and operational expenses to meet the new standards. In order to mitigate the longer term impact of CKD regulation at the federal and/or state levels, the Company has undertaken a program to assess its management practices for CKD at operating and inactive facilities in the U.S. and Canada, and is voluntarily II - 21 51 taking remedial steps and instituting management practices consistent with the industry CKD 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. In 1993, the State of Michigan alleged that the Company's Alpena cement plant was managing CKD in violation of applicable state solid waste management requirements. In 1994, the Company settled this matter by entering into a consent judgment in federal district court with the State of Michigan. The agreement finalizes a testing protocol for CKD, how the CKD will be managed, a closure plan for historic CKD areas, and payment of a penalty of $350,000 that essentially covers the costs expended by state agency personnel to resolve this matter. On December 19, 1995, a local citizen group, opposed to cement kilns using hazardous waste as a supplemental fuel, filed a lawsuit against the Company and the head of the MDNR. The suit seeks a judicial determination that CKD management plans, approved by the state in a federal district court consent agreement, violate the Michigan Environmental Protection Act. The suit seeks a court order to stop the Company from using hazardous waste derived fuel and forbid the management of CKD in the quarry on Company property. The Company believes there is no merit to the lawsuit and will vigorously defend it. In another matter relating to the Alpena plant and CKD, the State of Michigan in 1994 contacted the Company and the former owner of the plant, seeking remediation of an old CKD pile from which it alleges there is runoff of hazardous substances into Lake Huron. The Company 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 Company acquired the plant. The Company has advised the former plant owner of the Company's position on this matter, and has a legal action pending in federal bankruptcy court, seeking to have the deed reformed to be consistent with the asset purchase agreement. It is unclear at this time how this matter will be resolved. The portion of the old CKD alleged to be the Company's responsibility is de minimis in comparison to the remaining portion of the CKD pile that is the responsibility of the former plant owner. Accordingly, the Company's pro rata remediation costs should not be material, should it fail to prevail in the bankruptcy court proceedings. II - 22 52 As with most industrial companies in the U.S., the Company is involved in certain remedial actions to clean up and/or close certain historical waste disposal sites, as required by federal, provincial 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 Company is presently involved in approximately 24 federal, state, and provincial administrative investigations, studies and proceedings. At ten of these sites, the Company is either a de minimis party or the Company 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. At four other sites, the remediation has been completed, and closure approval has been received for two sites and approval for two other sites is expected early in 1996. At eight other sites, the Company is in the process of remediating the site or has agreed to voluntarily undertake remediation of the site, and with respect to the eight sites, the Company has recorded provisions for remediation. At one site, the Company and the port authority are attempting to obtain regulatory agency approval to "seal" the property. A lawsuit has been filed seeking indemnification from the prior landowner and real estate agent. The remaining site is the old CKD pile at the Alpena plant discussed above. Title V of the 1990 Clean Air Act Amendments has the potential to result in significant capital expenditures and operational expenses for the Company. The Clean Air Act Amendments established a new federal operating permit and fee program for many manufacturing operations. The Company's U.S. operations that are deemed to be "major sources" of air pollution will have to or will submit detailed permit applications and pay recurring permit fees. The Company has placed a major emphasis on quantifying emissions in order to determine the facilities that will be subject to the federal operating permit requirements. As part of this process, plant and regional personnel have been discussing permit application requirements with the respective state air agencies that have the ultimate responsibility for review and issuance of the federal and/or state operating permits. In many instances, the Company's emissions inventories indicated that its construction materials facilities and cement terminals would generally not be under the federal program, but still required various submittals to the state to document its emissions and operating parameters. For those facilities covered by the federal operating permits, a major II - 23 53 emphasis has been placed on defining likely future operational needs so that the plants ultimately obtain permit operating conditions that allow them to be competitive in the marketplace. On a related permitting issue, the Company has announced that it plans to construct two new state-of-the-art cement plants, one in Sugar Creek, Missouri, and one in Richmond, British Columbia. Prior to commencement of construction, the Company must obtain all necessary permits and approvals. The Company has already conducted testing of both sites to define the information that will be submitted as part of the permit/approval applications. Permit/approval applications are anticipated to be submitted in 1996 so that timely permits and approvals can be obtained consistent with construction schedules. The Clean Air Act Amendments of 1990 also require the EPA to develop air toxics regulations for a broad spectrum of industrial sectors, including portland cement manufacturing. The EPA has indicated that the new MACT standards will force a significant reduction of air pollutants below existing levels. The Company is actively participating with other cement manufacturers in working with the EPA to define test protocols, better define the scope of MACT standards, determine the existence and feasibility of various technologies and develop realistic emission limitations for the cement industry. It is expected that the EPA will develop proposed standards for existing and new facilities and publish them for review and public comment by the middle of 1996. Final MACT regulations are anticipated by late 1997 and existing facilities will have three years to meet the standards or close down operations. The proposed new Sugar Creek plant must meet the new MACT standards at the time of start-up. It now appears that the EPA is prepared to distinguish, in its MACT standards development process, between cement kilns that burn hazardous wastes as a supplemental fuel and those that use traditional fuels. (See BIF MACT discussion above.) The Company's management anticipates that several of its plants are likely to be required to upgrade and/or replace existing air pollution control equipment as a result of both MACT regulations. Management is not able to determine the additional controls and their associated costs until the EPA proposes the actual MACT emission standards based upon specific control technologies, and continuous emissions monitoring techniques to measure compliance. II - 24 54 In Canada, the key environmental issue concerns climate change -- greenhouse gas (CO ) reduction. The potential consequences of CO reduction measures for 2 2 cement producers are significant since CO is generated from combusting fuels, 2 i.e., coal and coke, to produce the high temperatures necessary to manufacture cement clinker. In addition, CO is generated in the calcining of limestone to 2 make cement clinker. Any imposition of raw material or production limitations, fuel use or carbon taxes could have a negative impact on the cement manufacturing industry. The Company has entered into a voluntary industry commitment with the Canadian government providing for a 0.7% annual improvement of energy efficiency per ton of clinker from 1990 to 2000. The Company is confident that through energy efficiency improvements, fuel switching, and plant upgrading underway or to be started in the near-term, it can meet the climate change target for the industry. The Company is committed to making the voluntary approach work in order to offset pressures for the imposition of stringent regulatory or tax measures. At the present time, there is no pressure in the United States for similar voluntary CO reductions. In addition, a carbon tax proposal was soundly 2 defeated by a broad industrial coalition in the early 1990s. 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-related activities and costs, it is difficult for management to estimate the ultimate level of the Company's expenditures related to environmental matters. The Company's capital expenditures and operational expenses for environmental matters have increased and are likely to increase in the future. However, the Company cannot determine at this time if capital expenditures and other remedial actions that the Company 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 - 25 55 MANAGEMENT'S DISCUSSION OF CASH FLOWS The Consolidated Statements of Cash Flows summarize the Company's main sources and uses of cash. These statements show the relationship between operations that are presented in the Consolidated Statements of Income and liquidity and financial resources, which are depicted in the Consolidated Balance Sheets. The Company's liquidity requirements arise primarily from the funding of its capital expenditures, working capital needs, debt service obligations and dividends. The Company has met its operating liquidity needs primarily through internal generation of cash and expects to continue to do so in the future. However, because of the seasonality of the Company's business, cash balances decline in the first two quarters. Short-term borrowings might be required in the future to fund seasonal operating requirements. The net cash provided by operations for each of the three years presented reflects the Company's net income adjusted for noncash items. Depreciation and depletion have declined over the periods presented due to divestments and the 1994 extension of the estimated useful lives at six of the Company's cement plants. Deferred income taxes affected the operating cash flow primarily because of the reversal of depreciation differences in Canada in 1993, the payment of alternative minimum tax in the U.S. in 1994 and a decrease in the valuation allowance in 1995 due to management's belief that it is more likely than not that the related deferred tax assets will be realized. The changes in working capital are discussed in Management's Discussion of Financial Position. Cash flows from investing consist primarily of capital expenditures and acquisitions offset by proceeds from property, plant and equipment dispositions. Capital investments by product line, including acquisitions, were as follows (in millions): II - 26 56
Years Ended December 31 ------------------------------------------------ 1995 1994 1993 ------------------------------------------------ Cement $ 97.1 $ 63.7 $ 27.2 Construction materials 53.0 32.8 45.8 Other 1.1 3.7 0.6 ------------------------------------------------ Total capital investments $151.2 $100.2 $ 73.6 ================================================
Capital investments are expected to be approximately $200 million in 1996. The Company intends to invest in projects that maintain or improve the performance of its plants as well as in acquisition opportunities which will enhance the Company's competitive position in the U.S. and Canada. In October 1995, the Company announced plans to build cement plants to replace existing facilities in Richmond, British Columbia and Sugar Creek, Missouri. The Company projects a capital investment of approximately $95 million for the Richmond plant, which is expected to be completed in 1998. The Sugar Creek plant and a deep underground limestone quarry are expected to cost approximately $135 million and to go on line by the year 2000. Capital spending and dividend requirements are anticipated to be funded by existing cash and by cash flows from operations. In January 1995, the Company sold its equity interest in a Texas aggregate operation. In September 1994, the Company sold its Balcones, Texas cement plant, three cement terminals and an equity interest in an aggregate operation. In late December 1994, the Company sold its Texas ready-mixed concrete plants and related assets. In February 1993, the Company sold its Demopolis, Alabama cement facility and other related assets. During 1995 and 1994 the Company's proceeds from the sale of non strategic assets, surplus land and other miscellaneous items totalled $34.6 million and $157.9 million, respectively. The Company has reduced its net debt by $338.6 million during the three years ended December 31, 1995. This reduction was the result of improved earnings from operations, proceeds from the divestment of non strategic assets, proceeds from the sale of Common Shares in 1993 and moderate levels of capital spending. In October 1993 the II - 27 57 Company completed an offering of 6.75 million Common Shares priced at $18.25 per share. The net proceeds from the offering totalled $117.6 million. The Company has access to a wide variety of short-term and long-term financing alternatives in both the U.S. and Canada. Effective September 1, 1994, the Company cancelled its existing revolving credit facility and established similar, bilateral revolving credit facilities with nine institutions for total commitments of $150 million at favorable terms compared with the previous facility. At December 31, 1995, no amounts were outstanding under the revolving credit facilities. II - 28 58 MANAGEMENT'S DISCUSSION OF FINANCIAL POSITION The Consolidated Balance Sheets summarize the Company's financial position at December 31, 1995 and 1994. The value reported for Canadian dollar denominated net assets increased from December 31, 1994 as a result of an increase in the value of the Canadian dollar relative to the U.S. dollar from $.71 to $.73 at December 31, 1995. The impact of the exchange rate differential on working capital was insignificant. Working capital, excluding cash, short-term investments and current portion of long-term debt increased $66.8 million from December 31, 1994 to December 31, 1995. Inventories increased $34.6 million from December 31, 1994 when inventory levels were at abnormally low levels due to strong shpments in the fourth quarter. The increase in 1995 resulted from accelerated U.S. cement and clinker purchases in mid-year in anticipation of higher shipments, the slowdown of shipments which began late in the third quarter and the unusually cold and wet weather in the fourth quarter. Accounts payable and accrued liabilities decreased $24.5 million mostly due to divestments, a reduction in the restructuring accrual, a decrease in various nonrecurring provisions and the timing of purchases and payments. Net property, plant and equipment increased $45.1 million during 1995. The impact of exchange rate changes was $9.4 million. Depreciation and divestments were $90.2 million and $20.0 million. Capital expenditures and acquisitions of fixed assets totalled $142.0 million. The excess of cost over net assets of business acquired relates primarily to a 1981 U.S. acquisition. Other long-term liabilities decreased $20.2 million during 1995 due to a decrease in deferred income taxes resulting from a $23.0 million reduction of the valuation allowance. II - 29 59 The Company's capitalization is summarized in the following table:
December 31 ---------------------- 1995 1994 ---------------------- Long-term debt 18.6% 21.6% Other long-term liabilities 13.5% 15.9% Shareholders' equity 67.9% 62.5% ---------------------- 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 - 30 60 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. In 1995 Shareholders' Equity increased by $139.5 million mainly from net income of $129.6 million and an increase in foreign currency translation adjustments of $17.0 million (resulting from an increase in the value of the Canadian dollar relative to the U.S. dollar), partially offset by dividend payments, net of reinvestments, of $10.1 million. Shareholders' equity increased $49.8 million in 1994 due to net income of $80.6 million and proceeds from the exercise of stock options of $12.0 million, partially offset by dividend payments, net of reinvestments of $10.1 million and a decrease in foreign currency translation adjustments of $34.6 million. Common equity interests include Common Shares and the Lafarge Canada Inc. 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. II - 31 61 The following table reflects the range of high and low closing prices of Common Shares by quarter for 1995 and 1994 as quoted on the New York Stock Exchange:
Quarters Ended -------------------------------------------------------------------------------- March June September December 31 30 30 31 -------------------------------------------------------------------------------- 1995 STOCK PRICES HIGH $ 18 3/4 $21 3/8 $21 7/8 $19 5/8 LOW 16 3/4 18 3/8 18 3/8 16 3/4 1994 Stock Prices High $26 7/8 $23 5/8 $22 $20 1/4 Low 21 1/2 18 7/8 18 1/4 16 1/4
Dividends are summarized in the following table (in thousands, except per share amounts):
Years Ended December 31 ------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------ Common equity dividends $25,898 $20,430 $18,390 Less dividend reinvestments (15,784) (10,338) (4,073) ------------------------------------------------------ Net cash dividend payments $10,114 $10,092 $14,317 ====================================================== Common equity dividends per share $.375 .30 $.30 ======================================================
II - 32 62 MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA The Selected Consolidated Financial Data provides both a reference for some data frequently requested about the Company and a useful record in reviewing trends. The Company's net sales decreased 4 percent from 1991 to 1992 due to sluggish construction activity in central and eastern Canada coupled with a decline in the average value of the Canadian dollar. The 1 percent decline from 1992 to 1993 was due to the drop in the value of the Canadian dollar and sales lost from operations divested, partially offset by a 4 percent increase in average cement net sales prices and higher cement and construction materials sales volumes. Net sales increased 5 percent from 1993 to 1994 due to increases in cement and ready-mixed concrete shipments and higher cement prices. Net sales were reduced by the declining value of the Canadian dollar relative to U.S. currency and sales lost from operations divested. The Company's net sales declined 6 percent in 1995 compared to 1994. The decline was due to divestments, weak construction activity in Canada and poor weather in the fourth quarter relative to 1994, partially offset by higher cement prices as discussed in Management's Discussion of Income. Inflation has not been a significant factor in the Company's sales or earnings growth due to lower inflation rates in recent years, and because the Company 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 Company's products varies with the level of activity in the construction industry and the availability of products to supply a local market. In 1991, the Company's cement selling price increases in the U.S. were generally less than the rate of inflation; however, Canadian selling prices were relatively stable. In 1992, selling prices in the U.S. decreased 1.4 percent while Canadian selling prices increased 1 percent. In 1993, selling prices in the U.S. increased 6 percent while average Canadian prices were unchanged despite lower volumes and competitive pressures in Ontario. Cement average net sales prices increased 7 percent in 1994 over 1993 in the U.S. while Canadian prices increased 4 percent. Prices in 1995 II - 33 63 increased 6 percent in the U.S. and 5 percent in Canada. Net cash provided by operations consists of net income (loss), adjusted primarily for depreciation, restructuring adjustments in 1994 and 1993 and, in 1992, the cumulative effect of changes in accounting principles. The Company is in a capital-intensive industry and as a result recognizes large amounts of depreciation. The Company has used the cash provided by operations essentially to expand its markets and to improve the performance of its plants and other operating equipment. Capital expenditures and acquisitions totalled $491.0 million over the five years. Significant investments during the period included a variety of cement plant projects to increase production capacity and reduce costs, the installation of receiving and handling facilities for substitute fuels and raw materials, the building and purchasing 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 - 34 64 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial information is included on the pages indicated:
Page ---- Report of Independent Public Accountants II - 36 Consolidated Balance Sheets II - 37 Consolidated Statements of Income II - 38 Consolidated Statements of Shareholders' Equity II - 39 Consolidated Statements of Cash Flows II - 40 Notes to Consolidated Financial Statements II - 41 through II - 68
II - 35 65 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, 1995 and 1994, and the related consolidated statements of income, cash flows, and shareholders' equity for each of the three years in the period ended December 31, 1995. 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-37 through II-67) present fairly, in all material respects, the financial position of Lafarge Corporation and subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The consolidated Schedule II (appearing on page IV-9) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states 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 LLP Washington, D.C. January 25, 1996 II - 36 66 CONSOLIDATED BALANCE SHEETS (in thousands)
December 31 ----------------------- 1995 1994 ----------------------- ASSETS Cash and cash equivalents $ 136,435 $ 193,057 Short-term investments 84,516 50,500 Receivables, net 256,262 257,093 Inventories 210,076 175,433 Other current assets 31,214 31,052 ----------------------- Total current assets 718,503 707,135 Property, plant and equipment, net 797,017 751,880 Excess of cost over net assets of businesses acquired, net 21,302 21,926 Other assets 177,031 170,490 ----------------------- TOTAL ASSETS $1,713,853 $1,651,431 ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 222,458 $ 247,378 Income taxes payable 31,729 39,614 Current portion of long-term debt 15,741 17,813 ----------------------- Total current liabilities 269,928 304,805 Long-term debt 268,636 290,668 Other long-term liabilities 194,311 214,504 ----------------------- Total liabilities 732,875 809,977 ----------------------- Common Equity Interests Common shares ($1.00 par value; authorized 110.1 million shares; issued 60.7 and 59.7 million shares, respectively) 60,735 59,694 Exchangeable shares (no par or stated value; authorized 24.3 million shares; issued 8.5 and 8.5 million shares, respectively) 58,311 57,805 Additional paid-in capital 593,310 576,054 Retained earnings 328,623 224,908 Foreign currency translation adjustments (60,001) (77,007) ----------------------- Total shareholders' equity 980,978 841,454 ----------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,713,853 $1,651,431 =======================
See Notes to Consolidated Financial Statements II - 37 67 CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
Years Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- NET SALES $1,472,159 $1,563,250 $1,494,491 ------------------------------------------- Costs and expenses Cost of goods sold $1,149,168 1,254,646 1,242,246 Selling and administrative 141,112 163,371 161,449 Interest expense, net 15,219 28,780 42,732 Other (income) expense, net (3,507) 3,366 (1,007) Restructuring - - 21,600 ------------------------------------------- Total costs and expenses 1,301,992 1,450,163 1,467,020 ------------------------------------------- Pre-tax income 170,167 113,087 27,471 Income taxes 40,554 32,451 21,574 ------------------------------------------- NET INCOME $ 129,613 $ 80,636 $ 5,897 =========================================== NET INCOME PER COMMON EQUITY SHARE - PRIMARY $ 1.88 $ 1.18 $ 0.10 =========================================== NET INCOME PER COMMON EQUITY SHARE - ASSUMING FULL DILUTION $ 1.82 $ 1.18 $ 0.10 =========================================== DIVIDENDS PER COMMON EQUITY SHARE $ 0.375 $ 0.30 $ 0.30 ===========================================
See Notes to Consolidated Financial Statements II - 38 68 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
Years Ended December 31 ---------------------------------------------------------------------------------- 1995 1994 1993 ---------------------------------------------------------------------------------- Amount Shares Amount Shares Amount Shares COMMON EQUITY INTERESTS COMMON SHARES Balance at January 1 $ 59,694 59,694 $ 55,290 55,290 $ 46,605 46,605 Issuance of Common Shares for: Dividend reinvestment plans 812 812 514 514 168 168 Sale of Common Shares - - - - 6,750 6,750 Employee stock purchase plan 36 36 44 44 45 45 Exchange of Exchangeable Shares 59 59 3,163 3,163 1,286 1,286 Exercise of stock options 134 134 683 683 436 436 ---------------------------------------------------------------------------------- Balance at December 31 $ 60,735 60,735 $ 59,694 59,694 $ 55,290 55,290 ================================================================================== EXCHANGEABLE SHARES Balance at January 1 $ 57,805 8,494 $ 78,443 11,596 $ 85,689 12,767 Issuance of Exchangeable Shares for: Dividend reinvestment plans 722 39 511 26 1,027 64 Employee stock purchase plan 182 27 234 35 257 38 Exchange of Exchangeable Shares (398) (59) (21,383) (3,163) (8,667) (1,286) Exercise of stock options - - - - 137 13 ---------------------------------------------------------------------------------- Balance at December 31 $ 58,311 8,501 $ 57,805 8,494 $ 78,443 11,596 ================================================================================== ADDITIONAL PAID-IN CAPITAL Balance at January 1 $576,054 $535,685 $408,338 Issuance of Common and/or Exchangeable Shares for: Dividend reinvestment plans 14,250 9,313 2,877 Sale of Common Shares - - 110,869 Employee stock purchase plan 1,001 1,475 1,073 Exchange of Exchangeable Shares 339 18,220 7,381 Exercise of stock options 1,666 11,361 5,147 ---------------------------------------------------------------------------------- Balance at December 31 $593,310 $576,054 $535,685 ================================================================================== RETAINED EARNINGS Balance at January 1 $224,908 $164,702 $177,195 Net income 129,613 80,636 5,897 Dividends-common equity interests (25,898) (20,430) (18,390) ---------------------------------------------------------------------------------- Balance at December 31 $328,623 $224,908 $164,702 ================================================================================== FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Balance at January 1 $(77,007) $(42,455) $(17,897) Translation adjustments 17,006 (34,552) (24,558) ---------------------------------------------------------------------------------- Balance at December 31 $(60,001) $(77,007) $(42,455) ================================================================================== TOTAL SHAREHOLDERS' EQUITY $980,978 $841,454 $791,665 ==================================================================================
See Notes to Consolidated Financial Statements II - 39 69 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31 ---------------------------------------- 1995 1994 1993 ---------------------------------------- CASH FLOWS FROM OPERATIONS Net income $ 129,613 $ 80,636 $ 5,897 Adjustments to reconcile net income to net cash provided by operations: Depreciation, depletion, and amortization 94,321 103,586 114,970 Provision for bad debts 588 5,941 5,735 Deferred income taxes (25,101) (21,967) (5,676) Gain on sale of assets (14,585) (17,797) (16,995) Other noncash charges and credits, net (2,918) (1,943) 757 Net change in operating working capital (see below)* (63,651) (483) 50,184 ------------------------------------ NET CASH PROVIDED BY OPERATIONS 118,267 147,973 154,872 ------------------------------------ CASH FLOWS FROM INVESTING Capital expenditures (121,882) (95,415) (58,427) Acquisitions (29,319) (4,739) (15,203) Purchases of short-term investments, net (34,016) (50,500) - Proceeds from property, plant and equipment dispositions 34,628 157,945 68,940 Other 2,920 11,400 3,933 ------------------------------------ NET CASH PROVIDED BY (USED FOR) INVESTING (147,669) 18,691 (757) ------------------------------------ CASH FLOWS FROM FINANCING Additional long-term borrowings - - 23,000 Repayment of long-term debt (24,314) (78,983) (257,834) Issuance of equity securities, net 3,019 13,797 124,713 Dividends, net of reinvestments (10,114) (10,092) (14,317) ------------------------------------ NET CASH CONSUMED BY FINANCING (31,409) (75,278) (124,438) ------------------------------------ Effect of exchange rate changes 4,189 (7,623) (5,041) ------------------------------------ NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (56,622) 83,763 24,636 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 193,057 109,294 84,658 ------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 136,435 $ 193,057 $ 109,294 ==================================== *ANALYSIS OF CHANGES IN WORKING CAPITAL ITEMS Receivables, net $ 7,550 $ (30,540) $ (20,166) Inventories (31,147) (4,021) 32,841 Other current assets (773) (5,294) (1,912) Accounts payable and accrued liabilities (26,078) 40,753 16,798 Restructuring (4,792) (13,596) 21,600 Income taxes payable (8,411) 12,215 1,023 ------------------------------------ NET CHANGE IN OPERATING WORKING CAPITAL $ (63,651) $ (483) $ 50,184 ====================================
See Notes to Consolidated Financial Statements II - 40 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Together with its subsidiaries, Lafarge Corporation ("Lafarge"), a Maryland corporation, is engaged in the production and sale of cement, ready-mixed concrete, aggregates and other concrete products. Lafarge operates in the U.S. and its major operating subsidiary, Lafarge Canada Inc. ("LCI"), operates throughout Canada. The primary U.S. markets are in the mid-western, mid-south, northeastern, north-central and northwestern areas. Lafarge's wholly-owned subsidiary, Systech Environmental Corporation, supplies cement plants with substitute fuels and raw materials. Lafarge S.A.(formerly Lafarge Coppee), a French corporation, and certain of its affiliates ("Lafarge S.A.") own a majority of the voting securities of Lafarge. ACCOUNTING AND FINANCIAL REPORTING POLICIES Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of Lafarge and all of its majority-owned subsidiaries (the "Company"), after the elimination of intercompany transactions and balances. Investments in affiliates in which the Company has less than a majority ownership are accounted for by the equity method. Certain reclassifications have been made to the prior year financial statements to conform to the 1995 presentation. 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. II - 41 71 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. Derivative Financial Instruments The Company utilizes derivative financial instruments ("Derivatives") in order to hedge the impact of adverse changes in interest rates. These Derivatives are not held or issued for trading purposes. The Company is a party to an interest rate swap contract ("Interest Swap") requiring the Company to make a fixed interest rate payment and to receive a floating interest rate payment from a commercial bank. This Interest Swap was transacted in order to hedge a portion of the Company's floating interest rate borrowings from significant increases in interest rates. The net difference in interest payments is accrued as interest rates change and is recognized over the life of the Interest Swap as a component in the "Interest expense, net" caption in the Consolidated Statements of Income. Cash Equivalents The Company considers liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents. Because of the short maturity of these investments, their carrying amount approximates fair value. Short-Term Investments Short-term investments consist primarily of commercial paper with original maturities at date of purchase beyond three months and less than 12 months. Such short-term investments are carried at cost, which approximates fair value, due to the short period of time to maturity. Inventories Inventories are valued at lower of cost or market. The majority of the II - 42 72 Company'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 40 years on certain buildings. Land and mineral deposits include depletable raw material reserves on which depletion is recorded using the units-of-production method. During 1994, the Company completed a review of the estimated useful lives of its cement plants. As a result, the Company extended the estimated useful lives of certain plants effective July 1, 1994. The effect of this change in estimate reduced depreciation expense and increased pre-tax income for the year ended December 31, 1994 by approximately $2.6 million. Excess of Cost Over Net Assets of Businesses Acquired The excess of cost over fair value of net assets of businesses acquired ("goodwill") is amortized using the straight-line method over periods not exceeding 40 years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. In evaluating impairment, the Company estimates the sum of the expected future cash flows, undiscounted and without interest charges, derived from such goodwill over its remaining life. The Company believes that no impairment exists at December 31, 1995. The amortization recorded for 1995, 1994 and 1993 was $2.4 million, $4.0 million and $4.3 million, respectively. Accumulated amortization at December 31, 1995 and 1994 was $37.6 million and $35.2 million, respectively. Other Postretirement Benefits The Company accrues the expected cost of retiree health care and life insurance benefits and charges it to expense during the years that the employees render service. In addition, the Company accrues for benefits provided to former or II - 43 73 inactive employees after employment but before retirement when it becomes probable that such benefits will be paid and when sufficient information exsits to make reasonable estimates of the amounts to be paid. Income Taxes Deferred income taxes are determined by the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Research and Development The Company 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 $6.6 million, $5.5 million and $6.2 million for 1995, 1994 and 1993, respectively. Interest Interest of $2.1 million and $0.7 million was capitalized in 1995 and 1994, respectively. No interest was capitalized during 1993. Interest income of $11.9 million, $9.4 million and $5.3 million, has been applied against interest expense for 1995, 1994 and 1993, respectively. Net Income Per Common Equity Share The calculation of net income per common equity share is based on the weighted average number of Lafarge'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) 68,984, 68,254 and 61,636 in 1995, 1994 and 1993, respectively. The weighted average number of shares and share equivalents outstanding assuming full dilution was (in thousands) 73,504 in 1995 and assumed conversion of the Convertible Subordinated Debentures (the "Convertible Debentures"). The computation of fully diluted earnings per share was antidilutive in 1994 and 1993. II - 44 74 Accounting Pronouncements Not Yet Effective In October 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 is required for financial statements for fiscal years beginning after December 15, 1995 with earlier adoption permitted. Management believes that it will implement the statement beginning in 1996 by disclosing the fair value of stock options issued subsequent to January 1, 1995 and provide a pro forma computation of earnings and earnings per share as if fair value had been used to record the issuance of stock options. Accordingly, adoption of this new standard should not impact the results of operations. RESTRUCTURING In the fourth quarter of 1993, the Company 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 costs of restructuring the Company's North American business units to increase organizational efficiency. The primary components of the restructuring charge were separation benefits for approximately 310 employees, after reduction for employees identified for operations that have been divested, employee relocation costs and early retirement benefits for eligible employees electing early retirement. The charge also included office relocation and lease termination. Through December 31, 1995, 273 employees have been separated. The restructuring plan entailed the consolidation of eleven regional operating units into six units in the Company's two main business lines. This consolidation reduced management layers, eliminated duplicative administrative functions and standardized procedures and information systems. Manufacturing and distribution facilities were not materially affected. During 1995 and 1994 respectively, the Company spent $4.6 million (decreased by $.2 million of exchange rate impact) and $14.7 million (increased by $1.1 million of exchange rate impact) on the restructuring and anticipates that the remaining accrual of $2.3 million will be spent in the first half of 1996 as the Construction Materials Group completes its restructuring plan. II - 45 75 RECEIVABLES Receivables consist of the following (in thousands):
December 31 ---------------------------------- 1995 1994 ---------------------------------- Trade and note receivables $ 271,999 $ 276,310 Retainage on long-term contracts 8,490 9,130 Allowances (24,227) (28,347) ---------------------------------- Total receivables, net $ 256,262 $ 257,093 ==================================
INVENTORIES Inventories consist of the following (in thousands):
December 31 ---------------------------------- 1995 1994 ---------------------------------- Finished products $ 97,950 $ 82,324 Work in process 16,959 8,427 Raw materials and fuel 50,030 45,291 Maintenance and operating supplies 45,137 39,391 ---------------------------------- Total inventories $ 210,076 $ 175,433 ==================================
Included in the finished products, work in process and raw materials and fuel categories are inventories valued using the LIFO method of $67.5 million and $56.4 million at December 31, 1995 and 1994, respectively. If these inventories were valued using the average cost method, such inventories would have decreased by $6.6 million and $9.1 million, respectively. II - 46 76 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following (in thousands):
December 31 ------------------------- 1995 1994 ------------------------- Land and mineral deposits $ 164,187 $ 168,552 Buildings, machinery and equipment 1,544,215 1,434,320 Construction in progress 72,133 54,627 ------------------------- Property, plant and equipment, at cost 1,780,535 1,657,499 Less accumulated depreciation and depletion (983,518) (905,619) ------------------------- Total property, plant and equipment, net $ 797,017 $ 751,880 =========================
OTHER ASSETS Other assets consist of the following (in thousands):
December 31 ------------------------- 1995 1994 ------------------------- Long-term receivables $ 10,985 $ 18,334 Investments in unconsolidated companies 36,894 36,807 Prepaid pension asset 85,192 75,294 Property held for sale 21,221 22,409 Other 22,739 17,646 ------------------------- Total other assets $ 177,031 $ 170,490 =========================
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. II - 47 77 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following (in thousands):
December 31 ---------------------- 1995 1994 ---------------------- Trade accounts payable $ 58,171 $ 67,166 Accrued payroll expense 32,704 36,567 Accrued interest expense 4,235 4,996 Restructuring 2,267 6,902 Bank overdrafts 25,481 25,532 Other accrued expenses 99,600 106,215 ---------------------- Total accounts payable and accrued liabilities $ 222,458 $ 247,378 ======================
II - 48 78 LONG-TERM DEBT Long-term debt consists of the following (in thousands):
December 31 ------------------------------ 1995 1994 ------------------------------ Medium-term notes maturing in various amounts between 1996 and 2006, bearing interest at fixed rates which range from 9.1 percent to 9.8 percent $ 153,000 $ 176,000 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 Tax-exempt bonds maturing in various amounts between 1996 and 2011, bearing interest at floating rates which range from 5.1 percent to 6.8 percent 29,983 30,517 Other 1,394 1,964 ------------------------------ Subtotal 284,377 308,481 Less current portion (15,741) (17,813) ------------------------------ Total long-term debt $ 268,636 $ 290,668 ==============================
The fair value of current and long-term debt at December 31, 1995 and 1994, respectively, was approximately $304.4 and $315.4 million compared with $284.4 and $308.5 million included in the Consolidated Balance Sheets. This fair value was estimated based upon quoted market prices or current interest rates offered to the Company for debt of the same maturity. II - 49 79 The annual principal payment requirements on long-term debt for each of the five years in the period ending December 31, 2000 are as follows (in millions):
1996 1997 1998 1999 2000 Thereafter --------------------------------------------------- Repayments $15.7 $16.5 $29.6 $27.8 $40.5 $154.3 ---------------------------------------------------
The Company has similar, bilateral revolving credit facilities with nine institutions for total commitments of $150 million, extending through August 31, 1999. At the end of 1995, no amounts were outstanding under the revolving credit facilities. The Company is required to pay annual commitment fees of 0.15 percent of the total amount of the facilities. Borrowings made under the revolving credit facilities will bear interest at variable rates based on a bank's prime lending rate or the applicable LIBOR rate. The Company's debt agreements require the maintenance of certain financial ratios relating to fixed charge coverage and leverage. At December 31, 1995, the Company was in compliance with these requirements. At December 31, 1994 the Company was party to $75 million (notional amount) of Interest Swaps which required the Company to pay fixed rates of interest in exchange for floating rate receipts. These Interest Swaps had been entered into in order to hedge the Company's floating interest rate payments. Because the Company had repaid a portion of its liquid, floating interest rate borrowings beginning in 1994, and continuing into 1995, a portion of the notional amount of these Interest Swaps exceeded the current and projected floating interest rate debt levels. During 1995 and 1994 the Company recorded mark-to-market provisions of $1.9 million and $0.5 million respectively for several of the Interest Swaps relative to periods when the Interest Swap positions exceeded associated borrowings. These mark-to-market provisions are included in the "Other (income) expense, net" caption in the Consolidated Statements of Income. In December 1995, the Company terminated Interest Swaps of $50 million (notional value) at a cash cost of $4.7 million. The portion of this cash termination cost associated with the Interest Swaps which continued to be hedges, $2.4 million, was deferred and will be amortized to expense over the original Interest Swap term, while the II - 50 80 remaining termination costs were charged against the previously provided mark-to-market liability on the balance sheet. At December 31, 1995, the Company is a party to a $25 million (notional amount) Interest Swap, which requires the Company to pay a fixed rate of 8.7 percent in exchange for a floating rate receipt which was 5.8 percent at December 31, 1995. The Company's Interest Swap matures in 1999. The differences in swapped interest rates are paid every three months pursuant to the Interest Swap contract. The Company is exposed to credit loss in the event of nonperformance by the other party to the Interest Swap contract but does not anticipate nonperformance. The net payments under the Interest Swaps are dependent on the level of floating commercial paper interest rates. Based on interest rates at December 31, 1995 the net termination cost for the Company to unwind its Interest Swap was approximately $2.6 million. OTHER LONG-TERM LIABILITIES Other long-term liabilities consist of the following (in thousands):
December 31 ------------------------- 1995 1994 ------------------------- Deferred income taxes $ 43,314 $ 68,326 Minority interests 7,808 10,206 Accrued postretirement benefit cost 123,260 120,591 Accrued pension liability 16,466 13,037 Other 3,463 2,344 ------------------------- Total other long-term liabilities $ 194,311 $ 214,504 =========================
COMMON EQUITY INTERESTS Holders of Exchangeable Shares have voting, dividend and liquidation rights which parallel those of holders of the Company's Common Shares. II - 51 81 The Exchangeable Shares are exchangeable into the Company'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 Company's Common Shares. The Company 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, 1995 the Company had reserved for issuance approximately 10.1 million Common Shares to allow for the exchange of outstanding Exchangeable Shares. Additional common equity shares are reserved to cover grants under the Company's stock option program (2.5 million), employee stock purchase plan (0.7 million), conversion of the Convertible Debentures (4.5 million) and issuances pursuant to the Company's optional stock dividend plan (1.2 million). On October 13, 1993, the Company sold 6.75 million Common Shares for $18.25 per share with net proceeds of $117.6 million. Lafarge S.A., the Company's majority shareholder, purchased 1.0 million of these shares. OPTIONAL STOCK DIVIDEND PLAN The Company 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 Company's Common Shares have been granted to key employees and directors of the Company at option prices based on the market price of the securities at the date of grant. One-fourth of the employee options granted are exercisable at the end of each year following the date of grant. The director options are exercisable based upon the length of a director's service on the Company's Board of Directors, becoming fully exercisable when a director has served on the Board for over four years. The options expire ten years from the date II - 52 82 of grant. The following table summarizes activity for options related to the Company's common equity interests:
Years Ended December 31 --------------------------------------------------------------------------------------- 1995 1994 1993 ------------------------ ------------------------------ ------------------------- Average Average Average Option Option Option Shares Price Shares Price Shares Price ------------------------ ------------------------------ ------------------------- Balance outstanding at beginning of year 2,153,720 $17.06 2,449,228 $14.79 2,566,828 $14.23 Options granted 483,800 18.00 467,000 24.13 437,500 15.75 Options exercised (134,308) 13.41 (684,633) 13.88 (503,725) 12.71 Options cancelled (183,375) 19.11 (77,875) 15.77 (51,375) 15.43 ------------------------ ------------------------------ ------------------------- Balance outstanding at end of year 2,319,837 $17.33 2,153,720 $17.06 2,449,228 $14.79 ------------------------ ------------------------------ ------------------------- Options exerciable at end of year 1,379,037 1,081,720 1,356,853 =======================================================================================
The Company has an Employee Stock Purchase Plan that permits substantially all employees to purchase the Company's common equity interests through payroll deductions at 90 percent of the lower of the beginning or end of plan year market prices. In 1995, 62,522 shares were issued to employees under the plan at a share price of $17.21 and in 1994, 79,319 shares were issued at a share price of $15.19. At December 31, 1995 and 1994, $.6 million and $.7 million were subscribed for future share purchases, respectively. II - 53 83 INCOME TAXES Pre-tax income (loss) is summarized by country in the following table (in thousands):
Years Ended December 31 ---------------------------------------------------- 1995 1994 1993 ---------------------------------------------------- United States* $ 57,908 $ 56,691 $(10,622) Canada* 112,259 56,396 38,093 ---------------------------------------------------- Pre-tax income $170,167 $113,087 $ 27,471 ====================================================
* The 1995 amounts shown for Canada and the United States include $30.1 million of cumulative adjustments resulting from an agreement reached with Revenue Canada Taxation (as described below). If these adjustments were not reflected, pre-tax income in Canada would be decreased and pre-tax income in the U.S. would be increased by $30.1 million. The provision for income taxes includes the following components (in thousands):
Years Ended December 31 ---------------------------------------------------- 1995 1994 1993 ---------------------------------------------------- Current United States $ 25,300 $ 21,600 $ 1,400 Canada 40,355 32,818 25,850 ---------------------------------------------------- Total current 65,655 54,418 27,250 ---------------------------------------------------- Deferred United States (26,300) (15,600) 2,600 Canada 1,199 (6,367) (8,276) ---------------------------------------------------- Total deferred (25,101) (21,967) (5,676) ---------------------------------------------------- Total income taxes $ 40,554 $ 32,451 $ 21,574 ====================================================
II - 54 84 The Company'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. During 1995, an agreement was reached with Revenue Canada Taxation related to the pricing of certain cement sales between the Company's operations in Canada and the U.S. for the years 1984 through 1994. The result was an increase in net sales and pre-tax income in Canada by U.S. $30.1 million with corresponding adjustments in the U.S. The impact of this agreement on consolidated net income was immaterial. Under the terms of the Canada-U.S. Income Tax Convention, the agreement has been submitted to the Competent Authorities of Canada and the U.S. and is subject to adjustment. The purpose of the Competent Authorities is to reach agreement for the elimination of double taxation which is not in accordance with the Convention. The Company's Canadian federal tax liability for all taxation years through 1991 has been reviewed and finalized by Revenue Canada Taxation. A reconciliation of taxes at the U.S. federal income tax rate to the Company's actual income taxes is as follows (in millions):
Years Ended December 31 ------------------------------------------------------- 1995 1994 1993 ------------------------------------------------------- Taxes at the U.S. federal income tax rate $ 59.6 $ 39.6 $ 9.6 U.S./Canadian tax rate differential 3.4 1.7 1.2 Canadian tax incentives (7.0) (3.2) (1.9) State and Canadian provincial income taxes, net of federal benefit 8.2 5.9 3.3 Change in valuation allowance (23.0) --- --- Tax effect of certain operating losses and other tax credits, primarily U.S. (1.8) (21.8) (1.9) Other items 1.2 10.3 11.3 ------------------------------------------------------- Provision for income taxes $ 40.6 $ 32.5 $ 21.6 =======================================================
II - 55 85 Deferred income taxes reflect the tax consequences of "temporary differences" between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax law. These temporary differences are determined in accordance with SFAS No. 109. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows (in thousands):
December 31 -------------------------------- 1995 1994 -------------------------------- Deferred tax assets: Reserves and other liabilities $ 54,760 $ 50,419 Other postretirement benefits 48,888 47,322 Tax loss carryforwards 6,689 6,857 Tax credit carryforwards 6,562 13,970 -------------------------------- Gross deferred tax assets 116,899 118,568 Valuation allowance (23,296) (46,276) -------------------------------- Net deferred tax assets 93,603 72,292 -------------------------------- Deferred tax liabilities: Property, plant and equipment 88,998 91,913 Prepaid pension asset 26,640 22,615 Other 4,863 8,578 -------------------------------- Gross deferred tax liabilities 120,501 123,106 -------------------------------- Net deferred tax liability 26,898 50,814 Net deferred tax asset-current 16,416 17,512 -------------------------------- Net deferred tax liability-noncurrent $ 43,314 $ 68,326 ================================
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not under the rules of SFAS No. 109, will be realized. During 1995, the net decrease in the valuation allowance was $23.0 million. The 1995 reduction stems from the favorable long-term outlook for the U.S. cement market, three consecutive years of taxable income in the U.S. and management's projections of future taxable income in the U.S. which is expected to II - 56 86 be in excess of amounts needed to realize these deferred tax assets. The 1994 reduction of $21.8 million resulted primarily from the realization of net operating loss carryforwards and investment tax credits for which a valuation allowance had previously been provided. At December 31, 1995, the Company had net operating loss and tax credit carryforwards of $17.7 million and $6.6 million, respectively. The net operating loss carryforwards are limited to use in varying annual amounts through 2006. The tax credit carryforwards are alternative minimum tax credits that have no expiration date. Included in deferred tax assets is approximately $9.2 million which represents the tax effect of transfer pricing adjustments that have not been deducted in the U.S. pending settlement between the U.S. and Canadian Competent Authorities as previously noted. At December 31, 1995, cumulative undistributed earnings of LCI were $638.9 million. No provision for U.S. income taxes or Canadian withholding taxes has been made since the Company considers the undistributed earnings to be permanently invested in Canada. The Company's management has decided that the determination of the amount of any unrecognized deferred tax liability for the cumulative undistributed earnings of LCI is impracticable since it would depend upon a number of factors which cannot be known until such time as a decision to repatriate the earnings might be made. SEGMENT INFORMATION The Company'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 Company is engaged in road building and other construction utilizing many of its own products, and in supplying cement plants with substitute fuels and raw materials. 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 excludes interest expense and income taxes. Financial information by country is as follows (in millions): II - 57 87
Years Ended December 31 ---------------------------------------------- 1995 1994 1993 ---------------------------------------------- Net Sales * Canada $ 722.3 $ 717.1 $ 685.0 United States 821.1 904.9 862.9 Eliminations (71.2) (58.7) (53.4) ---------------------------------------------- Total net sales $1,472.2 $1,563.3 $1,494.5 ============================================== Income from operations * Canada $ 75.5 $ 49.9 $ 36.7 United States 109.9 92.0 33.5 ---------------------------------------------- Total income from operations $ 185.4 $ 141.9 $ 70.2 ============================================== Identifiable assets Canada $ 845.6 $ 791.3 $ 801.0 United States 868.3 860.1 886.7 ---------------------------------------------- Total identifiable assets $1,713.9 $1,651.4 $1,687.7 ==============================================
* The 1995 amounts shown as income from operations for Canada and the United States exclude $30.1 million of cumulative adjustments resulting from an agreement reached with Revenue Canada Taxation (as described in the "Income Taxes" footnote). If these adjustments were reflected, net sales and income from operations in Canada would be increased with corresponding adjustments in the U.S. There would be no impact on consolidated income from operations. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities included the issuance of 851,000, 540,000 and 232,000 common equity shares upon the reinvestment of dividends totalling $15.8, $10.3 and $4.1 million in 1995, 1994 and 1993, respectively. II - 58 88 Cash paid during the year for interest and income taxes is as follows (in thousands):
Years Ended December 31 ---------------------------------------------------- 1995 1994 1993 ---------------------------------------------------- Interest $ 15,944 $ 29,159 $ 44,553 Income taxes (net of refunds) $ 75,218 $ 41,779 $ 27,177 ====================================================
PENSION PLANS The Company has several defined benefit and defined contribution retirement plans covering substantially all employees. Benefits paid under the defined benefit plans are generally based 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 Company's funding policy is to contribute amounts that are deductible for income tax purposes. The following table summarizes the consolidated funded status of the Company's defined benefit retirement plans and provides a reconciliation to the consolidated prepaid pension asset recorded on the Company's Consolidated Balance Sheets at December 31, 1995 and 1994 (in millions). For 1995 and 1994, the assumed settlement interest rates were 7.5 and 8.5 percent, respectively, for the Company's U.S. plans and 8.25 and 9.0 percent, respectively, for the Canadian plans. For 1995 and 1994, the assumed rates of increase in future compensation levels used in determining the actuarial present values of the projected benefit obligations were 4.5 and 5.0 percent, respectively, for the Company's U.S. plans and 4.25 and 5.0 percent, respectively, for the Canadian plans. The expected long-term rate of investment return on pension assets, which includes listed stocks, fixed income securities and real estate, for each country was 9.0 percent for each year presented. II - 59 89
December 31, 1995 December 31, 1994 ---------------------------------------------------------------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets ---------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligations $ 288.7 $ 37.1 $ 253.3 $ 21.9 Accumulated benefit obligations 292.1 40.6 256.6 25.1 ================================================================================== Projected benefit obli- gation for service rendered to date $ 323.5 $ 43.5 $ 285.5 $ 28.5 Market value of plan assets 403.9 19.5 360.8 14.1 ---------------------------------------------------------------------------------- Plan assets in excess of (less than) pro- jected benefit obligations 80.4 (24.0) 75.3 (14.4) Unrecognized net (gain) loss due to past experience different from assumptions made and amortized over the average future working lifetime of those expected to receive benefits 15.0 6.1 12.0 (0.4) Unrecognized net (assets) obligations at transition to SFAS No. 87 (10.2) 1.4 (12.0) 1.8 ---------------------------------------------------------------------------------- Prepaid pension asset (accrued pension liability) $ 85.2 $ (16.5) $ 75.3 $ (13.0) ==================================================================================
II - 60 90 Net retirement cost for the years indicated includes the following components (in millions):
Years Ended December 31 ------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------ Service cost of benefits earned during the period $ 8.5 $ 11.2 $ 10.5 Interest cost on projected benefit obligation 28.1 26.1 26.2 Actual gain on plan assets (61.3) (7.5) (31.7) Net amortization and deferral 26.4 (26.8) (3.5) ------------------------------------------------------ Total defined benefit plans cost 1.7 3.0 1.5 Defined contribution plans cost 3.6 4.2 4.4 ------------------------------------------------------ Net retirement cost $ 5.3 $ 7.2 $ 5.9 =======================================================
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 include contributions to such plans of $3.2 million, $3.4 million and $3.5 million for 1995, 1994 and 1993, 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 Company employees participate. The defined contribution plans' costs in the preceding table relate to thrift savings plans for eligible U.S. and Canadian employees. Under the provisions of the plans, the Company matches a portion of each participant's contribution and, for eligible U.S. employees through June 30, 1994, contributed an amount proportionate to each participant's salary. OTHER POSTRETIREMENT BENEFITS The Company 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 II - 61 91 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 Company 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 - 62 92 The following table sets forth the plans' combined status reconciled with the accrued postretirement benefit cost included in the Company's Consolidated Balance Sheets (in thousands):
December 31 ----------------------- 1995 1994 ----------------------- Accumulated Postretirement Benefit Obligation Retirees $ 72,864 $ 69,212 Fully eligible active participants 15,330 13,601 Other active participants 19,537 17,148 ----------------------- Total accumulated post- retirement benefit obligation 107,731 99,961 Unrecognized net gain 11,274 15,776 Unrecognized prior service cost 4,255 4,854 ----------------------- Accrued postretirement benefit cost $123,260 $120,591 =======================
Net periodic postretirement benefit cost includes the following components (in thousands):
Years Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Service cost of benefits earned during the period $ 1,285 $ 1,687 $ 2,517 Interest cost on accumulated post- retirement benefit obligation 8,046 8,040 9,296 Net amortization (1,390) (492) - ------------------------------------------- Net periodic postretirement benefit cost $ 7,941 $ 9,235 $11,813 ===========================================
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 10.5 percent decreasing to 5.5 percent over 12 years. For post-65 retirees in the U.S., the assumed rate was 8.0 percent II - 63 93 decreasing to 5.5 percent over 12 years with a Medicare assumed rate for the same group of 7.25 percent decreasing to 5.5 percent over 12 years. For post-65 retirees in Canada, the assumed rate was 10.0 percent decreasing to 5.5 percent over 12 years. If the health care cost trend rate assumptions were increased by 1 percent, the accumulated postretirement benefit obligation as of December 31, 1995 would be increased by 8.0 percent. The effect of this change on the net periodic postretirement benefit cost for 1995 would be an increase of 13.0 percent. For 1995 and 1994, the weighted average discount rates used in determining the accumulated postretirement benefit obligations were 7.5 and 8.5 percent, respectively, for U.S. plans and 8.25 and 9.0 percent, respectively, for Canadian plans. COMMITMENTS AND CONTINGENCIES The Company leases office space and certain equipment. Total rental expenses for 1995, 1994 and 1993 were $12.8 million, $11.8 million and $16.7 million, respectively. Future minimum annual rental commitments for all non-cancelable leases are as follows (in thousands): 1996 $ 13,454 1997 10,913 1998 9,883 1999 9,151 2000 8,125 Thereafter 25,476 --------- Total $ 77,002 =========
The Company self insures for workers' compensation and general liability claims, up to a maximum amount per claim. The estimated liability is accrued based on an actuarial determination prepared by an outside actuary. During 1989 and 1990, five railroad companies (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 Company and LCI were named in third party actions in which Lone Star was claiming II - 64 94 indemnity for liability to the Railroads, for damages to its business and for costs and losses suffered as a result of the Company and LCI supplying allegedly defective cement used by Lone Star in the fabrication of the railroad ties. The damages claimed totalled approximately $226.5 million. The Company denied the allegations and vigorously defended against the lawsuits (the "Lone Star Case"). In late 1992, Lone Star settled with the Railroads for approximately $67 million and proceeded with its case against the Company and LCI which resulted in a jury verdict of $1.2 million in damages for Lone Star. An appeal of the verdict resulted in a retrial and a jury verdict of $8.4 million in damages for Lone Star plus prejudgment interest of $0.9 million. This jury verdict also was appealed. The parties agreed in 1995 to settle the Lone Star Case for a cash payment of $11.2 million. The settlement was funded by payments from the Company's and LCI's insurers (in partial settlement of litigation with these insurers as described below), except for $4.865 million which was paid by the Company and for which the Company and LCI are seeking repayment from one insurer through litigation. In late 1990 Nationwide Mutual Insurance Company ("Nationwide"), one of the Company's primary insurers during the period when allegedly defective cement was supplied to Lone Star by the Company, filed a complaint for declaratory judgment against the Company, LCI and eleven other liability insurers of the Company and LCI (the "Coverage Case"). The complaint sought a determination of all insurance coverage issues in the Lone Star Case. The Company answered the complaint, counter-claimed against Nationwide, cross-claimed against the co-defendant insurers and filed a third party complaint against 36 additional insurers. In 1991, the Company and Nationwide entered into a settlement agreement pursuant to which Nationwide settled its claim in the Coverage Case and, among other things, paid the Company 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. The Coverage Case was tried in late 1995 and the jury awarded the Company and LCI approximately $19.5 million of the $27.5 million sought as the necessary and reasonable expenses incurred in defense of the Lone Star Case (part of which is the Company's ultimate liability pursuant to contractual arrangements with several of its primary insurers). After the jury returned its verdict, the Court awarded the Company and LCI pre- and post-judgment interest, apportioned the policy deductibles, determined the equitable apportionment of the verdict II - 65 95 among the defendant insurers and entered its final judgment order in January 1996. The Company and LCI have settled with all but two of its insurers and are currently weighing possible appeal of this matter to the Court of Appeals. Since 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. There are presently approximately 168 plaintiffs whose claims involve 104 foundations, which are embodied in nine lawsuits. In two of these actions, the plaintiffs have added LCI as a party defendant; in the others, LCI is either a third or fourth party. The damages claimed total more than Cdn. $62 million. In the largest of these actions, approximately 119 plaintiffs are complaining about 81 basement foundations, including a 20-unit condominium, and claiming approximately Cdn. $51.7 million, 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. LCI has also been served with cross-claims or third or fourth party claims by Bertrand in 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. Bertrand amended its claims to allege that the cement supplied by LCI is also defective. In 1995, the Ontario New Home Warranty Program instituted a lawsuit against Bertrand, LCI and certain other defendants to recover approximately Cdn. $3 million in costs for replacing or repairing the foundations of 29 houses which were covered under the warranty program. The amount of LCI's liability, if any, is uncertain. LCI has denied liability and is defending the lawsuits vigorously. It has introduced third and fourth party claims against its insurers to have the insurance coverage issues dealt with by the Court at the same time as the liability case. The Company believes it has substantial insurance coverage that will respond to defense expenses and liability, if any, in the lawsuits. The Company has been notified by the EPA that it is one of several potentially responsible parties for clean-up costs at waste disposal sites. The ultimate costs related to such matters and the Company's degree of responsibility, in some of these matters, is not presently determinable. In addition, the Company is involved in certain other legal actions and claims. It is the opinion of management that all II - 66 96 legal and environmental matters will be resolved without material effect on the Company's consolidated financial statements. RELATED PARTY TRANSACTIONS The Company is a participant to agreements with Lafarge S.A. 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 $5.5 million, $4.3 million and $4.8 million during 1995, 1994 and 1993, respectively. In addition, the Company purchases various products from Lafarge S.A. Such purchases totaled $27.7 million, $11.7 million and $6.3 million in 1995, 1994 and 1993, respectively. All transactions with Lafarge S.A. were conducted on an arm's length basis. Lafarge S.A. reinvested a portion of dividends it was entitled to receive on the Company's Common Shares during 1995, 1994 and 1993. These reinvestments totaled $12.4 million, $9.5 million and $3.0 million, respectively. At year-end, $15 million of the Company's 7% Convertible Debentures were held by Lafarge S.A. In 1993, Lafarge S.A. purchased 1.0 million Common Shares of the Company'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 - 67 97 QUARTERLY DATA (UNAUDITED) The following table summarizes financial data by quarter for 1995 and 1994 (in millions, except per share information):
First Second Third Fourth Total --------------------------------------------------------------------- 1995 Net Sales $ 197 $ 396 $ 510 $ 369 $ 1,472 Gross profit (loss) (16) 103 146 90 323 Net income (loss) (42) 50 86 36 130 Net income (loss) per common equity share (a): Primary (0.62) 0.72 1.24 0.52 1.88 Fully diluted (0.62) 0.70 1.19 0.50 1.82 ======================================================================
First Second Third Fourth Total --------------------------------------------------------------------- 1994 Net Sales $ 208 $423 $528 $404 $1,563 Gross profit (loss) (23) 98 144 90 309 Net income (loss) (61) 38 72 32 81 Net income (loss) per common equity share (a): Primary (0.92) 0.56 1.06 0.47 1.18 Fully diluted (0.92) 0.55 1.01 0.47 1.18 ======================================================================
(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. II - 68 98 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None II - 69 99 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The section entitled "Election of Directors" appearing on pages 5 through 8 of the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 1996 sets forth certain information with respect to the directors and nominees for election as directors of the Company and is incorporated herein by reference. Certain information with respect to persons who are or may be deemed to be executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this Annual Report. III - 1 100 ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing on pages 8 through 17 of the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 1996 sets forth certain information with respect to the compensation of management of the Company, and is incorporated herein by reference. III - 2 101 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 1 through 5 and "Election of Directors" appearing on pages 5 through 8 of the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 1996 set forth certain information with respect to the ownership of the Company's voting securities, and are incorporated herein by reference. III - 3 102 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 16 and 17 of the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 1996 set forth certain information with respect to relations of and transactions by management of the Company, and are incorporated herein by reference. III - 4 103 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 Schedule Page Number ----------- Consolidated Supporting Schedule II - Valuation and Qualifying Accounts IV-9 Schedules I, III, IV and V have been omitted because they are not applicable. IV - 1 104 3. EXHIBITS 3.1 Articles of Amendment and Restatement of the Company, filed May 29, 1992 [incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. 3.2 By-Laws of the Company, (as most recently amended on July 29, 1994) [incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 4.1 Form of Indenture dated as of October 1, 1989 between the Company and Citibank, N.A., as Trustee, relating to $250 million of debt securities of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.2 Form of Fixed Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.3 Form of Floating Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, 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 Company and its consolidated subsidiaries have not been filed. The Company 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 IV - 2 105 Company, 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 Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Company, 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 Company, filed with the Securities and Exchange Commission on May 5, 1983]. Canada Cement Lafarge changed its name in 1988 to Lafarge Canada Inc. Lafarge Coppee changed its name in 1995 to Lafarge S.A. 10.2 Guarantee Agreement dated as of May 1, 1983 between the Company 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 Company, filed with the Securities and Exchange Commission on May 5, 1983]. 10.3 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 Company, filed with the Securities and Exchange Commission on March 21, 1983]. 10.4 Director Fee Deferral Plan of the Company [incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.5 1993 Stock Option Plan of the Company [incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. IV - 3 106 10.6 1983 Stock Option Plan of the Company, as amended and restated May 2, 1989 [incorporated by reference to Exhibit 28 to the Company's report on Form 10-Q for the quarter ended June 30, 1989]. 10.7 Optional Stock Dividend Plan of the Company [incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1987]. 10.8 Director Fee Deferral Plan of General Portland, assumed by the Company 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]. 10.9 Option Agreement for Common Stock dated as of November 1, 1993 between the Company and Lafarge Coppee [incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. 10.10 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 Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.11 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 Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.12 Stock Purchase Agreement dated September 17, 1986 between the Company and Lafarge Coppee, S.A. [incorporated by reference to Exhibit B to the Company's report on Form 10-Q for the quarter ended September 30, 1986]. 10.13 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 Company for the fiscal year ended December 31, 1987]. IV - 4 107 10.14 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 Company for the fiscal year ended December 31, 1987]. 10.15 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company 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 Company for the fiscal year ended December 31, 1988]. 10.16 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company 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 Company for the fiscal year ended December 31, 1988]. 10.17 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.19 [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. 10.18 Description of Nonemployee Director Retirement Plan of the Company, effective January 1, 1989 [incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1989]. 10.19 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 Company for the fiscal year ended December 31, 1989]. 10.20 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 Company for the fiscal year ended December 31, 1989]. IV - 5 108 10.21 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 Company for the fiscal year ended December 31, 1989]. 10.22 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 Company for the fiscal year ended December 31, 1990]. 10.23 Reimbursement Agreement dated January 1, 1990, between Lafarge Coppee and the Company 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 Company for the fiscal year ended December 31, 1990]. 10.24 Form of Revolving Credit Facility Agreements, dated as of September 1, 1994, among the Company and nine separate banking institutions [incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.25 Promissory Note dated June 15, 1994 of Edward T. Balfe [incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.26 Promissory Note dated September 1, 1994 of Duncan Gage [incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.27 Promissory Note dated July 9, 1990 of Peter H. Cooke [incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.28 Amendment dated September 13, 1991 to Cost Sharing Agreement filed as Exhibit 10.18 [incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. IV - 6 109 10.29 Promissory Note dated January 8, 1996 of Larry J. Waisanen. 10.30 Memorandum of Understanding dated September 1, 1992 between the Company and Lafarge Coppee relating to the reimbursement to the Company 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 Company for the fiscal year ended December 31, 1992]. 11 Statement regarding computation of net income per common equity share. 21 Subsidiaries of the Company. 23 Consent of Arthur Andersen LLP, independent public accountants. 27 Financial Data Schedule (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 - 7 110 CONSOLIDATED SUPPORTING SCHEDULE IV - 8 111 LAFARGE CORPORATION AND SUBSIDIARIES SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1995, 1994 and 1993 (In Thousands)
Additions Deductions --------- ---------------------------------- Balance at Charge to From Reserve for Beginning Cost and Purposes for Which Balance at Description of Year Expenses Reserve Was Created Other (1) End of Year - ------------ ---------- --------- ------------------- --------- ----------- Reserve applicable to current receivable For doubtful accounts: 1995 $ 22,698 $ 588 $ (2,843) $ 242 $ 20,685 1994 $ 19,084 $ 5,941 $ (1,842) $ (485) $ 22,698 1993 $ 19,138 $ 5,735 $ (5,451) $ (338) $ 19,084 For cash and other discounts: 1995 $ 5,649 $ 30,691 $ (32,985) $ 187 $ 3,542 1994 $ 4,988 $ 34,567 $ (33,155) $ (751) $ 5,649 1993 $ 5,115 $ 35,733 $ (35,213) $ (647) $ 4,988
- -------------------------------- (1) Primarily foreign currency translation adjustments. IV - 9 112 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. LAFARGE CORPORATION By:/s/ LARRY J. WAISANEN ------------------------------ Larry J. Waisanen Senior Vice President and Chief Financial Officer Date: March 29, 1996 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 Company and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ MICHEL ROSE President and Chief March 29, 1996 - ---------------------------- Executive Officer Michel Rose and Director /s/ LARRY J. WAISANEN Senior Vice President March 29, 1996 - ------------------------------- and Chief Financial Larry J. Waisanen Officer /s/ JOHN C. PORTER Vice President March 29, 1996 - ---------------------------- and Controller John C. Porter /s/ BERTRAND P. COLLOMB Director March 29, 1996 - ---------------------------- Bertrand P. Collomb /s/ THOMAS A. BUELL Director March 29, 1996 - ---------------------------- Thomas A. Buell
IV - 10 113 /s/ MARSHALL A. COHEN Director March 29, 1996 - ---------------------------- Marshall A. Cohen /s/ BERNARD L. KASRIEL Director March 29, 1996 - ---------------------------- Bernard L. Kasriel /s/ JACQUES LEFEVRE Director March 29, 1996 - --------------------------- Jacques Lefevre /s/ PAUL W. MACAVOY Director March 29, 1996 - ---------------------------- Paul W. MacAvoy /s/ CLAUDINE B. MALONE Director March 29, 1996 - ---------------------------- Claudine B. Malone /s/ ALONZO L. MCDONALD Director March 29, 1996 - ---------------------------- Alonzo L. McDonald /s/ DAVID E. MITCHELL Director March 29, 1996 - ---------------------------- David E. Mitchell /s/ ROBERT W. MURDOCH Director March 29, 1996 - ---------------------------- Robert W. Murdoch /s/ BERTIN F. NADEAU Director March 29, 1996 - ---------------------------- Bertin F. Nadeau /s/ JOHN M. PIECUCH Director March 29, 1996 - ---------------------------- John M. Piecuch /s/ JOHN D. REDFERN Director March 29, 1996 - ---------------------------- John D. Redfern /s/ JOE M. RODGERS Director March 29, 1996 - ---------------------------- Joe M. Rodgers /s/ RONALD D. SOUTHERN Director March 29, 1996 - ---------------------------- Ronald D. Southern /s/ EDWARD H. TUCK Director March 29, 1996 - ---------------------------- Edward H. Tuck
IV - 11 114 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 3.1 Articles of Amendment and Restatement of the Company, filed May 29, 1992 [incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. 3.2 By-Laws of the Company, (as most recently amended on July 29, 1994) [incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 4.1 Form of Indenture dated as of October 1, 1989 between the Company and Citibank, N.A., as Trustee, relating to $250 million of debt securities of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.2 Form of Fixed Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.3 Form of Floating Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.4 Instruments with respect to long-term debt which do IV - 12 115 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries have not been filed. The Company 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 Company, 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 Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Company, 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 Company, filed with the Securities and Exchange Commission on May 5, 1983]. Canada Cement Lafarge changed its name in 1988 to Lafarge Canada Inc. Lafarge Coppee changed its name in 1995 to Lafarge S.A. IV - 13 116 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.2 Guarantee Agreement dated as of May 1, 1983 between the Company 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 Company, filed with the Securities and Exchange Commission on May 5, 1983]. 10.3 Special Surface Lease dated as of August 1, 1954 b etween 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 Company, filed with the Securities and Exchange Commission on March 21, 1983]. 10.4 Director Fee Deferral Plan of the Company [incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.5 1993 Stock Option Plan of the Company [incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. 10.6 1983 Stock Option Plan of the Company, as amended and restated May 2, 1989 [incorporated by reference to Exhibit 28 to the Company's report on Form 10-Q for the quarter ended June 30, 1989]. 10.7 Optional Stock Dividend Plan of the Company [i ncorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1987]. IV - 14 117 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.8 Director Fee Deferral Plan of General Portland, assumed by the Company 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]. 10.9 Option Agreement for Common Stock dated as of November 1, 1993 between the Company and Lafarge Coppee [incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. 10.10 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 Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.11 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 Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.12 Stock Purchase Agreement dated September 17, 1986 between the Company and Lafarge Coppee, S.A. [incorporated by reference to Exhibit B to the Company's report on Form 10-Q for the quarter ended September 30, 1986]. IV - 15 118 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.13 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 Company for the fiscal year ended December 31, 1987]. 10.14 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 Company for the fiscal year ended December 31, 1987]. 10.15 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company 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 Company for the fiscal year ended December 31, 1988]. 10.16 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company 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 Company for the fiscal year ended December 31, 1988]. 10.17 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.19 [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. IV - 16 119 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.18 Description of Nonemployee Director Retirement Plan of the Company, effective January 1, 1989 [incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1989]. 10.19 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 Company for the fiscal year ended December 31, 1989]. 10.20 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 Company for the fiscal year ended December 31, 1989]. 10.21 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 Company for the fiscal year ended December 31, 1989]. 10.22 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 Company for the fiscal year ended December 31, 1990]. 10.23 Reimbursement Agreement dated January 1, 1990, between Lafarge Coppee and the Company 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 Company for the fiscal year ended December 31, 1990]. IV - 17 120 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.24 Form of Revolving Credit Facility Agreements, dated as of September 1, 1994, among the Company and nine separate banking institutions [incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.25 Promissory Note dated June 15, 1994 of Edward T. Balfe [incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.26 Promissory Note dated September 1, 1994 of Duncan Gage [incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.27 Promissory Note dated July 9, 1990 of Peter H. Cooke [incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.28 Amendment dated September 13, 1991 to Cost Sharing Agreement filed as Exhibit 10.18 [incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. *10.29 Promissory Note dated January 8, 1996 of Larry J. Waisanen. IV - 18 121 INDEX OF EXHIBITS Exhibit Sequentially Number Numbered Pages - ------ -------------------------------------------------- -------------- 10.30 Memorandum of Understanding dated September 1, 1992 between the Company and Lafarge Coppee relating to the reimbursement to the Company 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 Company for the fiscal year ended December 31, 1992]. *11 Statement regarding computation of net income per common equity share. *21 Subsidiaries of the Company. *23 Consent of Arthur Andersen LLP, independent public accountants. *27 Financial Data Schedule - --------------------------- * Filed herewith IV - 19 EX-10.29 2 PROMISSORY NOTE 1 [] BRACKETED MATERIAL INDICATES DELETED TEXT NOTE January 16, 1996 Fairfax, Virginia 806 Sherlin Lane, Great Falls, Virginia 22066 1. BORROWER'S PROMISE TO PAY In return for a loan that I have received, I promise to pay U.S. $100,000 (this amount will be called "principal"), [plus interest], to the order of the Lender. The Lender is LAFARGE CORPORATION. I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note will be called the "Note Holder." 2. [INTEREST] [I will pay interest at a yearly rate of %.] [Interest will be charged on unpaid principal until the full amount of principal has been paid.] 3. PAYMENTS I will pay principal [and interest] by making payments each month of U.S. $416.67. I will make my payments on the 1st day of each month beginning on February 1, 1996. I will make these payments every month until I have paid all of the principal [and interest] and any other charges, described below, that I may owe under this Note. If, on January 31, 2016, I still owe amounts under this Note, I will pay all those amounts, in full, on that date. I will make my monthly payments by payroll deduction or in any other manner as may hereafter be required by the Noteholder upon notice to me or at a different place if required by the Note Holder. 4. BORROWER'S FAILURE TO PAY AS REQUIRED [(A) LATE CHARGE FOR OVERDUE PAYMENTS] [If the Note Holder has not received the full amount of any of my monthly payments by the end of calendar days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be % of my overdue payment, but not less than U.S. $ and not more than U.S. $ , I will pay this late charge only once on any late payment.] (B) NOTICE FROM NOTE HOLDER If I do not pay the full amount of each monthly payment on time, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date I will be in default. That date must be at least 10 days after the date on which the notice is mailed to me or, if it is not mailed, 10 days after the date on which it is delivered to me. (C) DEFAULT If I do not pay the overdue amount by the date stated in the notice described in (B) above, or if I am in default under the Deed of Trust, I will be in default. If I am in default, the Note Holder may require me to pay immediately the full amount of principal which has not been [paid and all the interest that I owe on that amount.] Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full as described above, the Note Holder will still have the right to do so if I am in default at a later time. (D) PAYMENT OF NOTE HOLDER'S COSTS AND EXPENSES If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back for all of its costs and expenses to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees. 5. THIS NOTE SECURED BY A DEED OF TRUST In addition to the protections given to the Note Holder under this Note, a Deed of Trust, dated , 19 , protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note. That Deed of Trust describes how and under what conditions I may be required to make immediate payment in full of all amounts that I owe under this Note. 6. BORROWER'S PAYMENTS BEFORE THEY ARE DUE I have the right to make payments of principal at any time before they are due. A payment of principal only is known as a "prepayment." When I make a prepayment, I will tell the Note Holder in a letter that I am doing so. A 2 prepayment of all of the unpaid principal is known as a "full prepayment." A prepayment of only part of the unpaid principal is known as a "partial prepayment." I may make a full prepayment or a partial prepayment without paying any penalty. The Note Holder will use all of my prepayments to reduce the amount of principal that I owe under this Note. If I make a partial prepayment, there will be no delays in the due dates or changes in the amount of my monthly payments unless the Note Holder agrees in writing to those delays or changes. I may make a full prepayment at any time. If I choose to make a partial prepayment, the Note Holder may require me to make the prepayment on the same day that one of my monthly payments is due. The Note Holder may also require that the amount of my partial prepayment be equal to the amount of principal that would have been part of my next one or more monthly payments. 7. BORROWER'S WAIVERS I waive my rights to require the Note Holder to do certain things. Those things are: (A) to demand payment of amounts due (known as "presentment"); (B) to give notice that amounts due have not been paid (known as "notice of dishonor"); (C) to obtain an official certification of nonpayment (known as a "protest"). Anyone else who agrees to keep the promises made in this Note, or who agrees to make payments to the Note Holder if I fail to keep my promises under this Note, or who signs this Note to transfer it to someone else also waives these rights. These persons are known as "guarantors, sureties and endorsers." 8. GIVING OF NOTICES Any notice that must be given to me under this Note will be given by delivering it or by mailing it by certified mail addressed to me at the Property Address above. A notice will be delivered or mailed to me at a different address if I give the Note Holder a notice of my different address. Any notice that must be given to the Note Holder under this Note will be given by mailing it by certified mail to the Note Holder at the address stated in Section 3 above. A notice will be mailed to the Note Holder at a different address if I am given a notice of that different address. 9. RESPONSIBILITY OF PERSONS UNDER THIS NOTE If more than one person signs this Note, each of us is fully and personally obligated to pay the full amount owed and to keep all of the promises made in this Note. Any guarantor, surety, or endorser of this Note (as described in Section 7 above) is also obligated to do these things. The Note Holder may enforce its rights under this Note against each of us individually or against all of us together. This means that any one of us may be required to pay all of the amounts owed under this Note. Any person who takes over my rights or obligations under this Note will have all of my rights and must keep all of my promises made in this Note. [Any person who takes over the rights or obligations of a guarantor, surety, or endorser of this Note (as described in Section 7 above) is also obligated to keep all of the promises made in this Note.] I understand that this Note is personal to me and is not transferable to any third party. 10. HOMESTEAD EXEMPTION I waive my Homestead Exemption. 11. The purpose of this loan is for the purchase of a new residence in connection with my transfer to a new place of employment. /S/ Larry J. Waisanen (Seal) ------------------------------------- - Borrower This is to certify that this is the Note described in and secured by a Deed of Trust dated January 16, 1996 on property located in Fairfax County, Virginia. My commission expires: 6/30/96 /S/ Mark Fitzgerald Notary Public -------------------------------- EX-11 3 COMPUTATION OF NET INCOME PER COMMON EQUITY SHARE 1 LAFARGE CORPORATION AND SUBSIDIARIES EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON EQUITY SHARE (Unaudited and in thousands except per share amounts)
Years Ended December 31 ------------------------------------ 1995 1994 1993 ------------------------------------ Primary Calculation Net income applicable to common equity shareholders $ 129,613 $ 80,636 $ 5,897 ==================================== Weighted average number of common equity shares outstanding 68,666 67,736 61,097 Net effect of dilutive stock options-based on the treasury stock method using average market price 318 518 539 ------------------------------------ Weighted average number of common equity shares and share equivalents outstanding 68,98 468,254 61,636 ==================================== Primary net income per common equity share $ 1.88 $ 1.18 $ 0.10 ==================================== Fully diluted calculation Net income $ 129,613 $ 80,636 $ 5,897 Add after tax interest expense applicable to 7% Convertible Debentures 4,473 7,000 7,000 ------------------------------------ Net income assuming full dilution $ 134,086 $ 87,636 $ 12,897 ==================================== Weighted average number of common equity shares outstanding 68,666 67,736 61,097 Net effect of dilutive stock options-based on the treasury stock method using the higher of average or year-end market price 318 518 850 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 73,504 72,774 66,467 ==================================== Fully diluted net income per common equity share $ 1.82 $ 1.20(a) $ 0.19(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. EX-21 4 LIST OF SUBSIDIARIES 1 Exhibit 21 Page 1 of 2 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 - ------------------------------ ---------------- Cement Transport, Ltd. North Dakota Friday Harbor Sand & Gravel Co. Washington International Atlantins Insurance Company Vermont Lafarge Dakota Inc. North Dakota Lafarge Florida Inc. Florida National Minerals Corporation Minnesota Systech Environmental Corporation Delaware Tews Company 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 North Western Concrete Limited Ontario Quality Ready-Mix Limited Ontario Re-Wa Holdings Ltd. Alberta Richvale York Block Inc. Ontario Les sablieres Forestville Inc. Quebec Standard Paving Maritime Limited Nova Scotia Valley Rite-Mix Ltd. British Columbia
Lafarge Corporation also does business under the following names: Florida Portland Cement Company, Lafarge Construction Materials, Trinity Portland Cement Company. 2 Exhibit 21 Page 2 of 2 Lafarge Canada Inc. also does business under the following names: Alberta Concrete Products, Apex Gravel, Best Pipe, Brunswick Ready Mix Concrete, Canada Concrete, Capital Concrete, Challenge Concrete, Champion Concrete, Cinq Concrete, Coldstream Concrete, Columbia Concrete, Conmac Western Industries, Consolidated Sand & Gravel Company, Construction Chemicals, Country Building Supplies, Crown Equipment, Crown Paving and Engineering, Duracon, Forbes Ready Mix, Francon-Lafarge, Guelph Sand and Gravel, Great Lakes Flyash, High River Concrete, Johnston Ready Mix, Lafarge Concrete, Lafarge Concrete Products, Lafarge Construction Materials, Lafarge Materials, Lethbridge Concrete Products, Manitoulin Precast, Maritime Cement, Masonry Products, Nelson Aggregate Co., O.K. Construction Materials, Permanent-Lafarge, Red-D-Mix Block, Redmond Sand & Gravel, Richvale - McCord, Richvale - York, Rocky Mountain Precast, Spartan Explosives, Standard Aggregates, Standard Asphalt, Supercrete, Superior Concrete Products, Trans-Alta Flyash. Information regarding 49 additional subsidiaries of the Company 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-23 5 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 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, Form 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, (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), and (vii) Registration Statement on Form S-8, File No. 33-51873. ARTHUR ANDERSEN LLP Washington, D.C. March 29, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 136,435 84,516 280,489 24,227 210,076 718,503 1,780,535 983,518 1,713,853 269,928 268,636 0 0 712,356 268,622 1,713,853 1,472,159 1,472,159 1,149,168 1,149,168 (3,507) 0 15,219 170,167 40,554 129,613 0 0 0 129,613 1.88 1.82
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