10-Q 1 w54892e10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 Commission File Number 0-11936 LAFARGE NORTH AMERICA INC. Incorporated in Maryland 12950 Worldgate Dr., Suite 500 Herndon, Virginia 20170 (703) 480-3600 I.R.S. Employer Identification No. 58-1290226 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 [ ] There were 67,815,776 shares of our Common Stock and 4,243,240 Exchangeable Preference Shares of our subsidiary, Lafarge Canada Inc., outstanding as of October 31, 2001, the latest practicable date. The Exchangeable Preference Shares are exchangeable at any time into our Common Stock on a one-for-one basis, entitle their holders to dividend and other rights economically equivalent to those of the Common Stock, and through a voting trust, vote at meetings of our stockholders. LAFARGE NORTH AMERICA INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income (unaudited) - Three Months and Nine Months Ended September 30, 2001 and 2000.........................................1 Condensed Consolidated Balance Sheets - September 30, 2001 (unaudited), September 30, 2000 (unaudited) and December 31, 2000...................................................2 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2001 and 2000..........................................................3 Notes to Condensed Consolidated Financial Statements...................................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................11 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................18 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................................................18 Item 6. Exhibits and Reports on Form 8-K......................................................................18 SIGNATURE..........................................................................................................19
i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30 ----------------------------------- ----------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- ---------------- NET SALES $ 1,140,136 $ 924,604 $ 2,514,294 $ 2,136,974 --------------- --------------- --------------- ---------------- Costs and expenses Cost of goods sold 841,938 651,657 2,012,378 1,598,636 Selling and administrative 74,709 67,575 220,935 197,708 Amortization of goodwill 5,222 4,230 15,452 12,700 Other (income) expense, net (625) (12,918) 7,757 (14,965) Minority interests 1,617 -- 4,869 -- Interest expense 12,801 14,054 41,119 38,232 Interest income (434) (2,290) (4,009) (9,905) --------------- --------------- --------------- ---------------- Total costs and expenses 935,228 722,308 2,298,501 1,822,406 Earnings before income taxes 204,908 202,296 215,793 314,568 Income tax expense (73,481) (75,014) (63,684) (116,116) --------------- --------------- --------------- ---------------- NET INCOME $ 131,427 $ 127,282 $ 152,109 $ 198,452 =============== =============== =============== ================ NET INCOME PER SHARE-BASIC $ 1.83 $ 1.73 $ 2.11 $ 2.70 =============== =============== =============== ================ NET INCOME PER SHARE-DILUTED $ 1.80 $ 1.72 $ 2.09 $ 2.69 =============== =============== =============== ================ DIVIDENDS PER SHARE $ 0.15 $ 0.15 $ 0.45 $ 0.45 =============== =============== =============== ================
See the Notes to Condensed Consolidated Financial Statements. 1 LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER SEPTEMBER DECEMBER 31, 30, 2001 30, 2000 2000 (UNAUDITED) (UNAUDITED) (AUDITED) -------------- -------------- --------------- ASSETS Cash and cash equivalents $ 85,830 $ 201,865 $ 214,089 Receivables, net 596,689 639,141 385,912 Inventories 354,420 313,387 372,423 Other current assets 120,849 94,535 104,161 -------------- -------------- --------------- Total current assets 1,157,788 1,248,928 1,076,585 Property, plant and equipment (less accumulated depreciation and depletion of $1,536,806, $1,372,216 and $1,400,245) 2,185,997 1,877,984 2,122,390 Goodwill, net 478,047 365,218 438,345 Other assets 268,662 244,357 265,264 -------------- -------------- --------------- TOTAL ASSETS $ 4,090,494 $ 3,736,487 $ 3,902,584 ============== ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 492,862 $ 440,555 $ 502,030 Income taxes payable 76,380 83,104 48,199 Short-term borrowings and current portion of long-term debt 350,997 292,253 190,250 -------------- -------------- --------------- Total current liabilities 920,239 815,912 740,479 Long-term debt 682,786 687,550 687,448 Deferred income taxes 175,809 128,338 206,067 Accrued post-retirement benefit cost 174,508 170,791 174,165 Minority interests 113,360 -- 117,010 Other long-term liabilities 80,422 80,681 85,246 -------------- -------------- --------------- Total liabilities 2,147,124 1,883,272 2,010,415 -------------- -------------- --------------- Common Equity Common stock ($1.00 par value; authorized 150.0 million shares; issued 67.7, 68.9 and 67.5 million shares) 67,682 68,911 67,492 Exchangeable shares (no par or stated value; authorized 24.3 million shares; issued 4.5 million shares) 32,357 34,397 34,402 Additional paid-in-capital 680,147 700,633 690,072 Retained earnings 1,356,710 1,189,113 1,237,117 Accumulated other comprehensive loss (193,526) (139,839) (136,914) -------------- -------------- --------------- Total Shareholders' Equity 1,943,370 1,853,215 1,892,169 -------------- -------------- --------------- Total Liabilities and Shareholders' Equity $ 4,090,494 $ 3,736,487 $ 3,902,584 ============== ============== ===============
See the Notes to Condensed Consolidated Financial Statements. 2 LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED AND IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------------- 2001 2000 ---------------- ----------------- CASH FLOWS FROM OPERATIONS Net income $152,109 $198,452 Adjustments to reconcile net income to net cash provided by operations: Depreciation, depletion and amortization 142,976 112,768 Provision for bad debts 3,108 1,799 (Gain) loss on sale of assets 986 (10,459) Other noncash charges and credits, net (16,474) (30,295) Net change in operating working capital (215,755) (235,618) ---------------- ----------------- Net Cash Provided by Operations 66,950 36,647 ---------------- ----------------- CASH FLOWS FROM INVESTING Capital expenditures (241,689) (326,777) Acquisitions, net of cash acquired (82,243) (89,550) Redemptions of short-term investments, net -- 91,626 Proceeds from property, plant and equipment dispositions 6,088 18,332 Other 1,489 (2,329) ---------------- ----------------- Net Cash Used for Investing (316,355) (308,698) ---------------- ----------------- CASH FLOWS FROM FINANCING Net increase in short-term and long-term borrowings (includes current portion) 169,073 272,002 Issuance of equity securities, net 14,751 3,116 Repurchase of common stock (28,970) (17,225) Dividends, net of reinvestments (30,076) (13,992) ---------------- ----------------- Net Cash Provided by Financing 124,778 243,901 ---------------- ----------------- Effect of exchange rate changes (3,632) (7,797) ---------------- ----------------- Net Decrease in Cash and Cash Equivalents (128,259) (35,947) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 214,089 237,812 ---------------- ----------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 85,830 $201,865 ================ =================
See the Notes to Condensed Consolidated Financial Statements. 3 LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED) 1. Lafarge North America Inc., together with its subsidiaries, is North America's largest diversified supplier of aggregate, concrete and concrete products, cement and other cementitious materials, gypsum drywall and other construction materials used for residential, commercial, institutional and public works construction. Our business is organized into three operating segments: Construction Materials, Cement and Cementitious Materials and Gypsum. Each represents a separately managed strategic business unit with different capital requirements and marketing strategies. See Note 13 below for information regarding these segments. We have approximately 900 operations doing business in most states and throughout Canada, where we conduct our business through our subsidiary, Lafarge Canada Inc. ("LCI"). Lafarge S.A., a French company, and its affiliates hold over 54 percent of our common stock. Effective September 1, 2001, we changed our name from Lafarge Corporation to Lafarge North America Inc. 2. The condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of the applicable dates and the results of our operations and our cash flows for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2000 Annual Report on Form 10-K. 3. Most of our markets are affected by seasonal, weather-related conditions, which reduce construction activity. In addition, substantial portions of the year's major maintenance projects are performed during periods of low plant utilization with the associated costs expensed as incurred. Due to seasonal, weather-related conditions, earnings of any one quarter should not be considered indicative of results to be expected for a full year or any other interim period. 4. On January 1, 2001, we adopted the provisions of the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 establish accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The standards also require that changes in the derivative's fair value be recognized currently in earnings unless the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair value is recorded temporarily in equity, then recognized in 4 earnings along with the related effects of the hedged items. Any ineffective portion of hedges is reported in earnings as it occurs. The adoption of SFAS No. 133 and its amendments did not materially impact our consolidated results of operations or financial condition. On April 1, 2001, we adopted the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125," which is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain disclosures that we will be required to include in our December 31, 2001 consolidated financial statements. The adoption of this standard did not have an impact on our results of operations or financial condition. In June 2001, FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply immediately to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we are required to adopt SFAS No. 142 effective January 1, 2002. As of September 30, 2001, we had goodwill, net of amortization, of $478.0 million that will be subject to the provisions of SFAS No. 142. Our results of operations for the nine months ended September 30, 2001 included $15.5 million of goodwill amortization expense that under SFAS No. 142 would not have been required. We are currently reviewing the provisions of these new pronouncements and their impact on our consolidated financial statements. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is to develop consistent accounting for asset retirement obligations and related costs in the financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We will be required to implement SFAS No. 143 on January 1, 2003 and are currently reviewing the provisions of the pronouncement and its impact on our consolidated financial statements. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets, superceding SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." We are required to adopt this statement on January 1, 2002 and are currently reviewing its provisions and its impact on our consolidated financial statements. 5. During 2000, we entered into a receivables securitization program to provide us with a cost-effective source of working capital and short-term financing. Under the program, we agreed to sell, on a revolving basis, certain of our accounts receivable to a wholly-owned, special purpose subsidiary (the "SPS"). The SPS in turn entered into an agreement to transfer, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable to unrelated 5 third-party purchasers up to a maximum of $200 million. According to SFAS No. 140, the transactions were accounted for as sales and, as a result, the related receivables have been excluded from the accompanying Condensed Consolidated Balance Sheets. At September 30, 2001 and December 31, 2000, net accounts receivable amounting to $200.0 million and $146.0 million, respectively, had been sold under this agreement. As of September 30, 2001, the related fees and discounting expense of $5.6 million have been recorded as "other (income) expense, net" in the accompanying Condensed Consolidated Statements of Income. The SPS holds a subordinated retained interest in the receivables not sold to third parties. Included in "receivables, net" is subordinated interest in receivables totaling $144.7 million and $36.6 million at September 30, 2001 and December 31, 2000, respectively. The subordinated interest in receivables is recorded at fair value, which is determined based on the present value of future expected cash flows estimated using management's best estimates of credit losses, timing of prepayments and discount rates commensurate with the risks involved. Under the agreements, new receivables are added to the pool as collections reduce previously sold receivables. We service, administer and collect the receivables sold. 6. We value our inventories at the lower of cost or market. Other than maintenance and operating supplies, we value the majority of our U.S. cement inventories using the last-in, first-out method. We value all other inventories at average cost. At September 30, 2001 and 2000 and at December 31, 2000, our inventories consisted of the following (in thousands):
SEPTEMBER 30 ------------------------------------ DECEMBER 31 2001 2000 2000 ---------------- ---------------- ----------------- Finished products $192,732 $159,191 $205,328 Work in process 24,520 26,502 31,499 Raw materials and fuel 69,189 62,856 69,745 Maintenance and operating supplies 67,979 64,838 65,851 ---------------- ---------------- ----------------- TOTAL INVENTORIES $354,420 $313,387 $372,423 ================ ================ =================
7. In March 2001, we entered into commercial paper agreements, under which we may from time to time issue up to an aggregate principal amount of $300 million in unsecured, short-term promissory notes through private placements. At September 30, 2001, we had $300 million of commercial paper outstanding under the agreements with a weighted-average interest rate of 3.52 percent and maturity dates ranging from 18 to 61 days. The agreements, which expire in March 2002, require the maintenance of certain financial ratios, among other restrictions. 8. For the nine months ended September 30, 2001, income tax expense was reduced by a deferred tax adjustment resulting from the lowering of federal and provincial tax rates in Canada. Enacted in June 2001, the tax reduction program reduced income tax expense by approximately Canadian $23 million (approximately U.S. $15 million) for the nine months ended September 30, 2001, and approximately Canadian $2 million (approximately US $1 million) for the quarter ended September 30, 2001. 9. For the nine months ended September 30, 2001, we bought back approximately 905 thousand shares of our common stock (at an average price of $31.88 per share) pursuant to our previously announced stock buyback program. We have now repurchased approximately 3.4 million shares at an average price of $23.37 per share under this program. 10. Cash paid for interest and income taxes is as follows (in thousands): 6
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------------ 2001 2000 ----------------- --------------- Interest (net of amounts capitalized) $28,810 $26,351 Income taxes (net of refunds) $12,623 $91,561
11. Net income per share for the three and nine months ended September 30, 2001 and 2000 are as follows (in thousands, except per share amounts):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------------------------ ------------------------------------ 2001 2000 2001 2000 ---------------- --------------- ----------------- --------------- BASIC CALCULATION Net income $ 131,427 $ 127,282 $ 152,109 $ 198,452 ================ =============== ================= =============== Weighted average number of shares outstanding 71,981 73,657 72,035 73,503 ================ =============== ================= =============== Basic net income per share $ 1.83 $ 1.73 $ 2.11 $ 2.70 ================ =============== ================= =============== DILUTED CALCULATION Net income assuming dilution $ 131,427 $ 127,282 $ 152,109 $ 198,452 ================ =============== ================= =============== Weighted average number of shares outstanding 71,981 73,657 72,035 73,503 Net effect of dilutive stock options based on the treasury stock method 545 154 472 159 Net effect of dilutive stock warrant based on the treasury stock method 456 -- 262 -- ---------------- --------------- ----------------- --------------- Weighted average number of shares outstanding assuming full conversion of all potentially dilutive securities 72,982 73,811 72,769 73,662 ---------------- --------------- ----------------- --------------- Diluted net income per share $ 1.80 $ 1.72 $ 2.09 $ 2.69 ================ =============== ================= ===============
Basic net income per common equity share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common equity share assumed the exercise of stock options and stock warrant, to the extent such conversion is dilutive, for all periods presented. 7 Comprehensive income consists of the following (in thousands):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------------------------ ------------------------------------ 2001 2000 2001 2000 ---------------- --------------- ----------------- --------------- Net income $131,427 $127,282 $ 152,109 $198,452 Foreign currency translation adjustments (40,953) (15,433) (56,612) (40,020) ---------------- --------------- ----------------- --------------- COMPREHENSIVE INCOME $ 90,474 $111,849 $ 95,497 $158,432 ================ =============== ================= ===============
12. The operating segments reported below are those for which separate financial information is available and for which executive management regularly evaluates operating income or loss amounts (before other post-retirement benefit expense for retirees, goodwill amortization related to the 1998 acquisition of certain Redland PLC businesses in North America from Lafarge S.A., income taxes, interest and foreign exchange gains and losses) in deciding how to allocate resources and in assessing performance. Each of our three reportable operating segments, Construction Materials, Cement and Cementitious Materials and Gypsum, represents a separately managed strategic business unit with its own capital requirements and marketing strategies. The basis of segmentation is consistent with our year-end consolidated financial statements. We account for intersegment sales and transfers at market prices. We attribute revenue to geographic areas based on the location of the assets producing the revenue. Operating segment information consists of the following (in millions):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------------------------ ------------------------------------ 2001 2000 2001 2000 ---------------- --------------- ----------------- --------------- Net sales: Construction Materials Revenues from external customers $ 749.1 $ 533.1 $1,581.5 $1,185.0 Intersegment revenues 0.1 0.3 0.1 0.3 Cement and Cementitious Materials Revenues from external customers 351.6 359.0 824.2 842.7 Intersegment revenues 45.4 44.8 106.3 105.5 Gypsum Revenues from external customers 39.4 32.5 108.6 109.2 Eliminations (45.5) (45.1) (106.4) (105.7) ---------------- --------------- ----------------- --------------- TOTAL NET SALES $1,140.1 $924.6 $2,514.3 $2,137.0 ================ =============== ================= =============== Income from operations: Construction Materials (a) $ 125.6 $ 98.7 $ 151.6 $ 144.3 Cement and Cementitious Materials (a) 130.0 132.8 227.2 242.9 Gypsum (a) (16.1) (8.5) (58.2) 1.8 ---------------- --------------- ----------------- --------------- Total income from operations 239.5 223.0 320.6 389.0 Corporate and unallocated expenses (20.6) (8.9) (62.8) (46.1) ---------------- --------------- ----------------- --------------- Total income before interest and income taxes 218.9 214.1 257.8 342.9 Minority interests (1.6) -- (4.9) -- Interest expense, net (12.4) (11.8) (37.1) (28.3) ---------------- --------------- ----------------- --------------- EARNINGS BEFORE INCOME TAXES $ 204.9 $ 202.3 $ 215.8 $ 314.6 ================ =============== ================= ===============
(a) Excludes other post-retirement benefit expense for retirees, goodwill amortization related to the Redland acquisition, income taxes, interest and foreign exchange gains and losses. 8 Condensed consolidated geographic information consists of the following (in millions):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ----------------------------------- ----------------------------------- 2001 2000 2001 2000 --------------- --------------- ---------------- --------------- Net sales: United States $ 652.7 $ 623.9 $ 1,518.1 $ 1,477.8 Canada 487.4 300.7 996.2 659.2 --------------- --------------- ---------------- --------------- TOTAL NET SALES $ 1,140.1 $ 924.6 $ 2,514.3 $ 2,137.0 =============== =============== ================ =============== Income before interest and income taxes: United States $ 110.9 $ 136.0 $ 133.6 $ 228.7 Canada 108.0 78.1 124.2 114.2 --------------- --------------- ---------------- --------------- Income before interest and income taxes 218.9 214.1 257.8 342.9 Minority interests (1.6) -- (4.9) -- Interest expense, net (12.4) (11.8) (37.1) (28.3) --------------- --------------- ---------------- --------------- EARNINGS BEFORE INCOME TAXES $ 204.9 $ 202.3 $ 215.8 $ 314.6 =============== =============== ================ ===============
Assets by operating segment consist of the following (in millions):
SEPTEMBER 30 ---------------------------------- DECEMBER 31 2001 2000 2000 --------------- --------------- ---------------- Construction Materials $1,788.8 $1,518.4 $1,664.7 Cement and Cementitious Materials 1,127.5 1,213.9 1,052.1 Gypsum 304.2 254.8 279.4 Corporate, Redland goodwill and other 870.0 749.4 906.4 --------------- --------------- ---------------- TOTAL ASSETS $4,090.5 $3,736.5 $3,902.6 =============== =============== ================
14. In February 2001, we purchased substantially all the assets of Buffalo, New York-based Pine Hill Materials Corporation and American Ready-Mix Concrete Corporation. Pine Hill and American Ready-Mix produce approximately one million tons of aggregate (primarily sand & gravel), 400,000 cubic yards of ready-mixed concrete and concrete block at eight locations in the greater Buffalo area. The companies also supply brick and other building materials. In June 2001, we acquired Rocky Mountain Construction Materials, an aggregate and ready-mixed concrete company based in Colorado. With three ready-mix plants and two aggregate facilities, Rocky Mountain produces approximately 1.3 million tons of aggregate and 110,000 cubic yards of ready-mixed concrete annually. This acquisition both complements our existing position in the Vail/Aspen area and supports our strategy to expand the aggregates business in North America. 15. On March 28, 2001, Dunn Industrial Group, Inc. ("Dunn Industrial") filed a lawsuit against us and the City of Sugar Creek, Missouri in the Circuit Court of Jackson County, Missouri at Kansas City. In the suit, Dunn Industrial, the general contractor for the construction of our new cement plant in Sugar Creek, Missouri, alleges that we expanded the scope of work expected of Dunn Industrial in the construction of the plant without commensurate increases in time required for performance and amounts to be paid to Dunn Industrial. In connection therewith, the suit alleges breach of contract, quantum meruit, breach of warranty and negligent misrepresentation and seeks foreclosure of mechanic's liens against us and the City of Sugar Creek, Missouri. While we are in the early stages 9 of evaluating Dunn Industrial's claims and believe Dunn Industrial is seeking in excess of $67 million in damages, the amount of our liability in connection with this suit is uncertain at this time. We intend to vigorously defend the suit. In May 2001, the Ontario Court of Appeal confirmed the decision of the trial court against LCI and other defendants with respect to their liability in a lawsuit originating in 1992 (the "1992 lawsuit") arising from claims of building owners, the Ontario New Home Warranty Program and other plaintiffs regarding allegedly defective concrete, fly ash and cement used in defective foundations. We estimate that the total amount of liability attributed to LCI in capital, interest and third-party costs represents approximately Canadian $15.6 million, net of insured amounts. We believe our insurance coverage (on which the Court of Appeal has yet to rule) and recorded reserves are adequate to cover the defense expenses and liabilities arising from the 1992 lawsuit. LCI has appealed the Court of Appeal decision on liability to the Supreme Court of Canada. In 1999, LCI became involved as a defendant in a class action related to the 1992 lawsuit. The action was certified as a class action in 2000 and potential claimants have until December 2001 to join the class. Although the outcome of any liability related to the 1999 class action cannot be predicted with certainty, we believe that any liability which LCI may incur arising from the class action will not have a material adverse effect on our financial condition. Currently, we are involved in one remediation under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as Superfund, and the corrective action provisions of the Resource Conservation and Recovery Act of 1976. At this site, which the U.S. Environmental Protection Agency ("EPA") has listed on the National Priority List, some of the potentially responsible parties named by the EPA have initiated a third-party action against 47 parties, including us. We also have been named a potentially responsible party for this site. The suit alleges that in 1969 one of our predecessor companies sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this new site is the U.S. Department of Defense and numerous other large disposers of hazardous substances are associated with this site. We believe that this matter will not have a material impact on our financial condition. We have reached an agreement with the State of Michigan and the remaining potential responsible party settling Michigan's complaint alleging that some time between 1952 and 1992, air-scrubber baghouse bags were transported to and disposed of at the Arthur Fivenson Iron and Metal Company. The agreement requires us to pay a total of $70 thousand to settle the action. When we determine that it is probable that a liability for environmental matters or other legal actions has been incurred and the amount of the loss is reasonably estimable, we record an estimate of the required remediation costs as a liability in our financial statements. As of September 30, 2001, liabilities recorded for our environmental obligations are not material to our financial statements. Although we believe our environmental accruals are adequate, environmental costs may be incurred that exceed the amounts provided at September 30, 2001. However, we have concluded that the possibility of material liability in excess of the amount reported in the September 30, 2001 Condensed Consolidated Balance Sheet is remote. In the ordinary course of business, we are involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the 10 total amount of these legal actions and claims cannot be determined with certainty. We believe that all legal and environmental matters will be resolved without material adverse impact to our financial condition, results of operations or liquidity. 16. Effective July 11, 2001, we entered into an agreement with our majority shareholder, Lafarge S.A., to manage and operate certain U.S. cement and construction materials businesses that Lafarge S.A. obtained in its acquisition of U.K.-based Blue Circle Industries PLC on that date. The agreement grants us management authority for most of Blue Circle's U.S. business and provides for a fixed annual management fee plus incentives for improving operating results. We are recognizing revenue from the management agreement on a straight line basis over its term. As of September 30, 2001, we have recorded $2.6 million of revenue from this agreement as "other (income) expense, net" in the accompanying Condensed Consolidated Statements of Income. Incentive fees will be recognized once earned. The management contract expires on December 31, 2002 and is renewable for one-year periods thereafter. During the period covered by the management contract, the assets remain the property of Lafarge S.A. The financial results from the assets under the management contract will not be consolidated as part of Lafarge North America. We are in the process of integrating these businesses into our existing operational network in North America. In conjunction with the management agreement, Lafarge S.A. granted us an option to purchase the assets being managed anytime between July 1, 2002 and December 31, 2004 at a fixed price of $1.4 billion, subject to certain adjustments at the time of the exercise Under a separate related agreement, we purchased for approximately Canadian $20 million certain Blue Circle North American assets outright on July 20, 2001 from Lafarge S.A. that are not part of the U.S. asset management agreement. Those businesses include sand and gravel operations in Ontario and near Buffalo, New York, which have more than 2.5 million tons of sales annually, two Ontario ready-mixed concrete plants and a cold patch asphalt business with operations in Canada and the U.S. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Lafarge North America Inc., together with its subsidiaries, is North America's largest diversified supplier of construction materials. Our core businesses are organized into three operating segments: Construction Materials - the production and distribution of construction aggregate, ready-mixed concrete, other concrete products and asphalt, and the construction and paving of roads. Cement and Cementitious Materials - the production and distribution of Portland and specialty cements and slag, fly ash and associated blended products, and processing of fuel-quality waste and alternative raw materials for use in cement kilns. Gypsum - the production and distribution of gypsum drywall and related products. 11 Our broad range of products is complemented by our geographic diversity. We have approximately 900 operations doing business in most states and throughout Canada, where we operate through our major operating subsidiary, Lafarge Canada Inc. Due to seasonal, weather-related conditions, earnings of any one quarter should not be considered indicative of results to be expected for a full year or any other interim period. THREE MONTHS ENDED SEPTEMBER 30, 2001 During the three months ended September 30, 2001, we reported net income of $131.4 million, or $1.80 per share on a diluted basis. This compares with net income of $127.3 million, or $1.72 per diluted share, for the third quarter of 2000. Due to a decline in value of the Canadian dollar this year, the conversion of our Canadian results to U.S. dollars resulted in a negative exchange rate impact in the most recent quarter of U.S. $3.4 million, net of tax, or $0.05 per share. Third-quarter sales volumes increased from last year in all main product lines; however, demand was weakening in early September and remained weak following the events of September 11, 2001. Late in the month of September, sales began to recover and our activity in October has been in line with prior year. In the U.S., income before interest and income taxes (EBIT) of $110.9 million was $25.1 million lower than 2000 as a result of continued depressed gypsum drywall prices, lower earnings from cement operations due to slightly lower selling prices, start up costs associated with our new plant in Kansas City, and the timing of major plant maintenance, increased pension expense and losses from the accounts receivable securitization program, a program begun late in 2000. Our average drywall selling price was $68 per thousand square feet during the 2001 quarter, down 39 percent from the same period last year. EBIT from our Canadian operations of $108.0 million was $29.9 million better than 2000 mainly due to the impact of the December 2000 acquisition of the Warren Paving & Materials Group, offset somewhat by the devaluation of the Canadian dollar. Net sales increased 23 percent to $1.1 billion, up from $924.6 million in 2000 primarily as a result of recent acquisitions. Net sales in the U.S. of $652.7 million and in Canada of $487.4 million increased 5 and 62 percent, respectively, from last year. CONSTRUCTION MATERIALS Our construction materials operations earned $125.6 million, a $26.9 million improvement from last year. Net sales of $749.2 million were $215.8 million higher than 2000, with recent acquisitions accounting for $187.8 million of the increase. Higher sales volumes were registered in all main product lines in the third quarter, with significant contributions from businesses acquired during the last 12 months. Shipments of ready-mixed concrete and aggregate increased 7 percent and 29 percent, respectively, while average selling prices rose slightly from the same period last year. In the U.S., operating income of $60.0 million was $3.5 million higher than 2000 and sales were up 12 percent. Ready-mixed concrete volumes increased 9 percent from the same period last year largely due to the acquisition of Pine Hill, while average selling prices increased 4 percent due to better market segmentation and changes in geographic and product mix. Aggregate shipments improved 6 percent from 2000 due to the impact of recent acquisitions and gains in most of our heritage markets, somewhat offset by lower demand in parts of the Great Lakes. Aggregate average selling price in most markets 12 was 2 to 4 percent higher than last year except in the eastern U.S. where geographic and product mix negatively affected the comparison. In Canada, earnings of $65.6 million were $23.4 million higher than 2000, despite a $3.0 million reduction in earnings due to the impact of the weaker Canadian dollar, mainly due to the acquisition of the Warren Paving & Materials Group which earned $23.6 million in the quarter. Net sales grew 76 percent primarily due to recent acquisitions. Ready-mixed concrete volumes increased 5 percent, much of which came from increased sales in eastern Canada, due in part to the absence of the concrete truck driver strike in Toronto that reduced volumes in 2000. Ready-mixed concrete average selling prices were 2 percent higher than last year in local currency due to annual price increases and changes in geographic and product mix, but decreased 2 percent upon conversion to U.S. dollars due to the devaluation of the Canadian dollar. Aggregate shipments improved 50 percent from 2000 due to the acquisition of the Warren Paving & Materials Group late in 2000. Excluding shipments from the Warren Paving & Materials Group, aggregate volumes remained flat. Aggregate average selling price increased 9 percent in local currency as the result of annual price increases and changes in geographic and product mix, but due to the devaluation of the Canadian dollar the effective increase in U.S. dollars was reduced to 4 percent. Asphalt sales volumes reached 4.7 million tons, up 74 percent from 2000, and paving sales volumes reached 3.6 million tons, up 84 percent from last year, due primarily to the additional business generated by the Warren Paving & Materials Group. CEMENT AND CEMENTITIOUS MATERIALS Our cement and cementitious materials operations earned $130.0 million in the third quarter of 2001, a $2.8 million drop from last year. Net sales declined 2 percent to $397.0 million. Earnings from operations in the U.S. totaled $83.0 million, $8.0 million worse than last year due to the timing of major plant maintenance programs, quarry flooding at our Iowa cement plant, increased fuel and power costs and start-up costs for our new kiln line outside of Kansas City, Missouri. U.S. sales declined 3 percent as shipments increased 2 percent and average net realization (delivered price per ton to customers less freight) in our principal U.S. markets declined 1.4 percent due to competitive situations in certain markets. Through August, shipments were up 149 thousand tons; however, due to slowing demand and the possible effects of September 11, 2001, volumes for September fell by almost 50 thousand tons and ended the quarter only 95 thousand tons over last year. Canadian operating earnings were $47.0 million, $5.2 million better than 2000 despite a $2.4 million decline due to the impact of the weaker Canadian dollar on the conversion of our Canadian results into U.S. dollars. Canadian sales increased 3 percent compared to 2000 due to a 1 percent increase in cement shipments and a 3 percent increase in net realization in local currency; however, when converted to U.S. dollars net realization declined 4 percent due to the weakened Canadian dollar. GYPSUM For the quarter, the gypsum division reported an operating loss of $16.1 million, $7.6 million worse than 2000. Sales increased 21 percent from last year. The gypsum division's results continued to be negatively impacted by low drywall prices. Our average selling price for the three months ended September 30, 2001 of $68 per thousand square feet declined 39 percent from the same period last year. Since reaching a low in June, three drywall price increases have been implemented and by late September, prices had recovered to approximately $80 per thousand square feet. Compounding the declining prices were higher energy costs and fixed costs associated with the start-up of a paper mill 13 joint venture with the Rock-Tenn Corp., which offset lower gypsum and paper costs in the quarter. Sales volumes increased 79 percent mainly due to shipments made from our new drywall production plant in Palatka, Florida, which went on line at the beginning of 2001. Excluding the production from our Palatka plant, sales volumes were up 32 percent from last year as a result of stronger than expected residential building activity as well as increased production and sales from our Silver Grove, Kentucky plant which began operating in June 2000. SELLING AND ADMINISTRATIVE Selling and administrative expenses of $74.7 million increased 11 percent from the comparable period in 2000 due to growth in our construction materials operations and costs associated with the implementation of the shared service center for our construction materials business. OTHER (INCOME) EXPENSE, NET Other income of $0.6 million decreased $12.3 million from the comparable period in 2000 as a year-to-date pension income/expense adjustment and the gain on sale of surplus land in Canada positively impacted results in 2000. Additionally, losses from the accounts receivable securitization program which was not entered into until September 2000 impacted this year's results. INCOME TAXES For the quarters ended September 30, 2001 and 2000, we recorded income tax expense of $73.5 million and $75.0 million, respectively, as a result of earnings from U.S. and Canadian operations. The 2001 income tax expense included the benefit from a one-time adjustment of approximately Canadian $2 million (approximately U.S. $1 million) to reduce deferred tax balances to reflect a reduction in provincial tax rates in British Columbia. Excluding this one time adjustment, our effective income rate was 36.5 percent for the quarter ended September 30, 2001, compared to 37.1 percent for the same period last year. NINE MONTHS ENDED SEPTEMBER 30, 2001 During the nine months ended September 30, 2001, we reported net income of $152.1 million, or $2.09 per diluted common equity share, compared with net income of $198.5 million, or $2.69 per diluted share, in 2000. Earnings were favorably affected by a deferred tax adjustment resulting from lowering of federal and provincial tax rates in Canada. Enacted in June 2001, the tax reduction program added approximately Canadian $23 million (approximately U.S. $15 million) to net income during the nine months ended September 30, 2001, or $0.21 per diluted share. Due to a decline in value of the Canadian dollar this year, the conversion of Lafarge's Canadian results to U.S. dollars resulted in a negative exchange rate impact during the nine months ended September 30, 2001 of U.S. $3.4 million or $0.05 per diluted share. Our U.S. operations reported EBIT of $133.6 million, $95.1 million lower than 2000, while in Canada, EBIT totaled $124.2 million, $10.0 million higher than last year. Results in 2001 were negatively impacted by deteriorating gypsum drywall prices and a return to more normal winter conditions in contrast to last year's mild first quarter weather. 14 Net sales totaled $2.5 billion, an 18 percent increase over 2000 sales of $2.1 billion, with U.S. and Canadian net sales increasing 3 percent and 51 percent, respectively. Of the $377.3 million increase in net sales, $347.0 million is related to acquisitions made in 2000. Sales were also positively impacted by shipments from our new drywall plant in Florida that was not in operation last year as well as increased production and sales from our Kentucky plant which began operations in June 2000. However, a return to more normal winter weather conditions during the first quarter of 2001 and the impact of depressed gypsum drywall prices offset a significant portion of these gains. CONSTRUCTION MATERIALS Our construction materials operations earned $151.6 million, $7.3 million better than 2000 mainly due to recent acquisitions. Net sales improved 33 percent, reflecting a 31 percent increase in aggregate shipments and a 5 percent improvement in ready-mixed concrete shipments. Ready-mixed concrete and aggregate average selling prices increased modestly. U.S. earnings totaled $89.4 million, $0.5 million worse than 2000, while net sales increased 9 percent. Ready-mixed concrete shipments increased 4 percent and average selling prices increased 4 percent. Aggregate shipments improved 11 percent, mostly attributable to our recent acquisitions. Aggregate average selling prices were generally up 2 to 4 percent, except in the eastern U.S. due to geographic and product mix. The increase in net sales was offset by higher operating costs. Canadian operations reported an operating income of $62.2 million, $7.8 million better than 2000 mainly due to the acquisition of the Warren Paving & Materials Group, which contributed $10.6 million to operating income. The decline in value of the Canadian dollar reduced income from operations by $2.8 million during the period. Net sales increased 66 percent also due primarily to the acquisition of the Warren Paving & Materials Group late in 2000. Ready-mixed concrete and aggregate volumes increased by 6 and 52 percent, respectively. Ready-mixed concrete and aggregate prices improved 3 percent and 7 percent in local currency, respectively; however, due to the devaluation of the Canadian dollar, in U.S. dollars, ready-mixed concrete prices decreased 2 percent and aggregate prices increased 2 percent. During the nine months ended September 30, 2001, asphalt sales volumes reached 8.2 million tons, up 60 percent from last year, and paving sales volumes reached 6.0 million tons, up 68 percent from last year, with the Warren Paving & Materials Group acquisition accounting for the entire increase. CEMENT AND CEMENTITIOUS MATERIALS Earnings from our cement and cementitious materials operations totaled $227.2 million, $15.7 million worse than last year due to lower U.S. sales volumes, increased operating costs and the impact of the weaker Canadian dollar. Net sales of $930.5 million decreased by 2 percent from 2000. In the U.S., earnings were $149.4 million, $16.8 million lower than 2000. U.S. net sales declined 3 percent with U.S. shipments declining 2 percent as more typical winter weather prevailed in the first quarter. Average selling prices in our principal U.S. markets decreased 1 percent due to competitive pressures in several markets. Operating costs also increased due to increased distribution costs resulting from the spring flooding on the Mississippi River, increased fuel and power costs and start-up costs for our new kiln line outside of Kansas City, Missouri. Earnings from Canadian operations of $77.8 million were $1.1 million better than 2000 despite a $3.5 million reduction in earnings due to the impact of the weaker Canadian dollar. Net sales increased 1 percent as Canadian shipments increased 2 percent. Canadian selling prices increased by 3 percent in local currency due to general price increases, but decreased 1 15 percent when translated to U.S. dollars due to the fluctuation in the average exchange rate between the Canadian dollar and U.S. dollar. GYPSUM Our gypsum operations lost $58.2 million, $60.0 million lower than 2000 mainly due to the deterioration of drywall selling prices. Our average selling price for the nine months ended September 30, 2001 of $67 per thousand square feet declined 51 percent from the same period last year. In addition, higher energy costs, fixed costs associated with the start-up of a paper mill joint venture with the Rock-Tenn Corp. and increased operating costs associated with the start-up of the new Palatka, Florida drywall plant negatively impacted operations. Total 2001 drywall sales volumes of 1.2 billion square feet were 79 percent ahead of last year due to shipments from the new plant in Florida as well as increased production and sales from our plant in Kentucky, which began operations in June 2000. SELLING AND ADMINISTRATIVE Selling and administrative expenses of $220.9 million increased 12 percent over the comparable period in 2000 due to growth in our construction materials operations and costs associated with the implementation of the shared service center for our construction materials group. OTHER (INCOME) EXPENSE, NET Other expense of $7.8 million increased $22.7 million from 2000 as a year-to-date pension income/expense adjustment and the gain on sale of surplus land in Canada positively impacted results in 2000. Additionally, losses from the accounts receivable securitization program which was not entered into until September 2000 impacted this years results. INCOME TAXES We recorded income tax expense of $63.7 million for the nine months ended September 30, 2001, compared to $116.1 million last year. The 2001 income tax benefited from a one-time adjustment of approximately Canadian $23 million (approximately U.S. $15 million) to reduce deferred tax balances to reflect a reduction in federal and provincial Canadian tax rates. We expect the multi-year relief plan to positively impact earnings from Canadian operations going forward. Excluding this one time adjustment, our effective income rate was 36.6 percent for the nine months ended September 30, 2001, compared to 36.9 percent last year. LIQUIDITY AND CAPITAL RESOURCES We have a syndicated, committed revolving credit facility totaling $300 million extending through December 8, 2003. At September 30, 2001, no amounts were outstanding under the facility. We are required to pay annual commitment fees of 0.10 percent of the total amount of the facility. Borrowings made under the revolving credit facility will bear interest at variable rates based on a bank's prime lending rate or the applicable federal funds rate and are subject to certain conditions. In March 2001, we entered into commercial paper agreements (see Note 7 in the Notes to Condensed Consolidated Financial Statements concerning this agreement). 16 Net cash of $67.0 million was provided by operating activities in the first nine months of 2001 compared with of $36.6 million in the same period in 2000. The increase in cash provided by operations was primarily due to increased depreciation, depletion and amortization as well as reduced operating working capital due to the accounts receivable securitization program partially offset by a decrease in net income. Net cash used for investing activities in the nine-month period of 2001 was $7.7 million higher than the same period last year due to reduced redemptions of short-term investments offset by lower capital expenditures and acquisition spending. In the first nine months of 2001, net cash provided by financing activities was $124.8 million, compared with $243.9 million in the same period in 2000. The decrease was due to a lower net increase in short-term and long-term borrowings, expenditures made under our common stock repurchase plan and a reduction in dividends reinvested. During the first nine months of 2001, the most significant uses of cash were capital expenditures of $241.7 million, net decrease in operating working capital of $215.8 million and acquisitions of $82.2 million. The most significant source of funds for the first nine months of 2001 was a net increase in short-term and long-term borrowings of $169.1 million. This compares with capital expenditures of $326.8 million, net decrease in operating working capital of $235.6 million, acquisitions of $89.6 million and a net increase in short-term and long-term borrowings of $272.0 million in the first nine months of 2000. Capital expenditures (including acquisitions already completed or in process) are expected to be approximately $450 million to $500 million in 2001. We are exposed to foreign currency exchange rate risk inherent in our Canadian revenues, expenses, assets and liabilities denominated in Canadian dollars, as well as interest rate risk inherent in our debt. We primarily use fixed-rate debt instruments to reduce the risk of exposure to changes in interest rates and have used forward treasury lock agreements to hedge interest rate change on anticipated debt issuances. As of September 30, 2001, we do not have any derivative financial instruments outstanding associated with interest rate or foreign currency exchange rates. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Statements made in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by the context of the statement and generally arise when we are discussing our beliefs, estimates or expectations. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions ("Factors") that are difficult to predict. Some of the Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: the cyclical nature of our business; national and regional economic conditions in the U.S. and Canada; Canadian currency fluctuations; seasonality of our operations; levels of construction spending in major markets; supply/demand structure of the industry; competition from new or existing competitors; unfavorable weather conditions during peak construction periods; changes in and implementation of environmental and other governmental regulations; our ability to successfully identify, complete and efficiently integrate acquisitions; our ability to successfully penetrate new markets; and other Factors disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. In general, we are subject to the risks and uncertainties of the construction industry and of doing business in the U.S. and Canada. The forward-looking statements are made as of this date, and we undertake no obligation to update them, whether as a result of new information, future events or otherwise. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item is contained in "Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations reported in Item 2 of Part I of this Quarterly Report on Form 10-Q and is incorporated herein by reference. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information presented in Note 15 of the "Notes to Condensed Consolidated Financial Statements" is incorporated herein by reference, pursuant to Rule 12b-23. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None (b) Reports on Form 8-K. On September 4, 2001, we filed a Form 8-K dated September 1, 2001 in which we announced that effective September 1, 2001 our name changed to Lafarge North America Inc. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAFARGE NORTH AMERICA INC. Date: November 14, 2001 By: /s/ LARRY J. WAISANEN ------------------------ Larry J. Waisanen Executive Vice President and Chief Financial Officer 19