-----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, VvAiqfxuND40Vl6IbA8jyzuGMggBTCq4iMH4qAGw8NEItURJ1Y8dPVm1i9GRzXll F8WmAV+9g+L6y11WQfKUSA== 0000950133-99-003531.txt : 19991115 0000950133-99-003531.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950133-99-003531 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 001-08584 FILM NUMBER: 99749946 BUSINESS ADDRESS: STREET 1: 11130 SUNRISE VALLEY DR STE 300 CITY: RESTON STATE: VA ZIP: 22091-4329 BUSINESS PHONE: 7032643600 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1999 ------------------------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number 001-08584 ---------------------------------------------------------- LAFARGE CORPORATION - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) MARYLAND 58-1290226 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11130 SUNRISE VALLEY DRIVE, SUITE 300, RESTON, VA 20191-4393 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 703-264-3600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock, par value $1.00 per share, of Lafarge Corporation (the "Common Stock") outstanding as of the latest practicable date, October 29, 1999, was 68,446,118. In addition, as of such date, there were outstanding 4,468,686 Exchangeable Preference Shares, no par value per share, of Lafarge Canada Inc. that are exchangeable at any time into 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 stockholders of the Registrant. 2 LAFARGE CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income (unaudited) - Three-Month and Nine-Month Periods Ended September 30, 1999 and 1998 1 Condensed Consolidated Balance Sheets - September 30, 1999 (unaudited), September 30, 1998 (unaudited) and December 31, 1998 2 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine-Month Periods Ended September 30, 1999 and 1998 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURE 20 INDEX TO EXHIBITS 21
i 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LAFARGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------------ ------------------------------- 1999 1998 1999 1998 ------------- ------------- -------------- ------------- NET SALES $ 872,416 $ 810,239 $ 1,962,411 $ 1,819,826 ------------- ------------- -------------- ------------- COSTS AND EXPENSES Cost of goods sold 585,434 542,893 1,440,661 1,349,332 Selling and administrative 59,105 53,608 170,213 160,462 Amortization of goodwill 4,388 4,800 13,221 12,819 Other (income) expense, net (6,968) (760) (12,175) 5,081 ------------- ------------- -------------- ------------- Earnings from operations 230,457 209,698 350,491 292,132 Interest expense 14,622 14,280 45,534 32,476 Interest income (3,012) (6,290) (10,229) (15,915) ------------- ------------- -------------- ------------- EARNINGS BEFORE INCOME TAXES 218,847 201,708 315,186 275,571 Income tax expense (79,816) (77,964) (116,598) (106,535) ------------- ------------- -------------- ------------- NET INCOME $ 139,031 $ 123,744 $ 198,588 $ 169,036 ============= ============= ============== ============= NET INCOME PER COMMON EQUITY SHARE-BASIC $ 1.91 $ 1.71 $ 2.74 $ 2.35 ============= ============= ============== ============= NET INCOME PER COMMON EQUITY SHARE-DILUTED $ 1.90 $ 1.70 $ 2.72 $ 2.33 ============= ============= ============== ============= DIVIDENDS PER COMMON EQUITY SHARE $ .15 $ .12 $ .45 $ .36 ============= ============= ============== =============
See Notes to Condensed Consolidated Financial Statements. 1 4 LAFARGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31 1999 1998 1998 (UNAUDITED) (UNAUDITED) (AUDITED) ----------------- ---------------- ---------------- ASSETS Cash and cash equivalents $ 211,061 $ 166,280 $ 271,138 Short-term investments 10,812 60,224 17,070 Receivables, net 570,690 515,075 335,229 Inventories 277,182 243,933 247,944 Other current assets 78,571 59,874 66,510 ----------------- ---------------- ---------------- Total current assets 1,148,316 1,045,386 937,891 Property, plant and equipment, (less accumulated depreciation and depletion of $1,275,783, $1,121,513 and 1,148,919) $ 1,561,997 1,311,565 1,400,753 Excess of cost over net assets of businesses acquired, net 350,403 331,710 353,548 Other assets 209,870 211,108 212,605 ----------------- ---------------- ---------------- TOTAL ASSETS $ 3,270,586 $ 2,899,769 $ 2,904,797 ================= ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 399,081 $ 372,048 $ 353,736 Short-term borrowings and current portion of long-term debt 86,194 35,816 44,560 Income taxes payable 79,759 58,908 16,681 Payable to Lafarge S.A - 28,299 - ----------------- ---------------- ---------------- Total current liabilities 565,034 495,071 414,977 Long-term debt 737,286 753,714 751,151 Deferred income tax 111,716 103,824 110,398 Other post-retirement benefits 155,046 150,007 150,064 Other long-term liabilities 66,134 59,897 63,033 ----------------- ---------------- ---------------- Total liabilities 1,635,216 1,562,513 1,489,623 ----------------- ---------------- ---------------- Common equity Common stock ($1.00 par value; authorized 110.1 million shares; issued 68.4, 67.1 and 67.4 million shares, respectively) 68,442 67,084 67,370 Exchangeable preference shares (no par or stated value; authorized 24.3 million shares; issued 4.5, 5.2 and 4.9 million shares, respectively) 32,865 37,229 35,814 Additional paid-in-capital 691,489 650,169 672,555 Retained earnings 958,498 736,457 792,058 Accumulated other comprehensive loss (115,924) (153,683) (152,623) ----------------- ---------------- ---------------- Total shareholders' equity 1,635,370 1,337,256 1,415,174 ----------------- ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,270,586 $ 2,899,769 $ 2,904,797 ================= ================ ================
See Notes to Condensed Consolidated Financial Statements. 2 5 LAFARGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED AND IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------- 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATIONS Net income $198,588 $ 169,036 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation, depletion and amortization 123,534 115,983 Provision for bad debts 1,497 2,096 Gain on sale of assets (6,636) (2,506) Deferred income taxes (6,661) (4,772) Other post-retirement benefits 4,208 3,610 Other noncash charges and credits, net (3,258) 14,045 Net change in working capital (156,233) (142,044) ------------- ------------- Net cash provided by operations 155,039 155,448 ------------- ------------- CASH FLOWS FROM INVESTING Capital expenditures (214,008) (152,170) Acquisitions (55,554) (37,922) Redemptions of short-term investments 6,258 95,144 Proceeds from property, plant and equipment dispositions 13,176 17,757 Other 13,179 28,442 ------------- ------------- Net cash used for investing (236,949) (48,749) ------------- ------------- CASH FLOWS FROM FINANCING Repayment of Lafarge S.A. payable - (690,000) Net increase in short-term and long-term borrowings (includes current portion) 24,516 621,378 Issuance of equity securities, net 3,747 10,517 Dividends, net of reinvestments (18,838) (23,343) Financing costs and other - (11,998) ------------- ------------- Net cash provided by (used in) financing 9,425 (93,446) ------------- ------------- Effect of exchange rate changes 12,408 (21,136) ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (60,077) (7,883) ------------- ------------- CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 271,138 174,163 ------------- ------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 211,061 $ 166,280 ============= =============
See Notes to Condensed Consolidated Financial Statements. 3 6 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Lafarge Corporation, together with its subsidiaries ("Lafarge" or the "Company"), is North America's largest diversified supplier of aggregates, concrete and concrete products, cement and cementitious materials, gypsum wallboard and other construction materials used for residential, commercial, institutional and public works construction. The Company's core businesses are organized into three operating segments: the Cement Group; the Construction Materials Group; and Lafarge Gypsum. See note 8 herein, for information regarding the Company's operating segments and products. Lafarge has approximately 500 operations doing business in most states and throughout Canada, where it operates through its major operating subsidiary, Lafarge Canada Inc. ("LCI"). The Company's primary U.S. markets are in the northeast, midsouth, midwest, northcentral, mountain and northwest areas. Lafarge S.A., a French corporation, and certain of its affiliates ("Lafarge S.A.") own a majority of the voting securities of Lafarge, including the Company's outstanding common stock, par value $1.00 per share (the "Common Stock") and LCI's Exchangeable Preference Shares (the "Exchangeable Shares"). On June 3, 1998, the Company acquired certain Redland PLC businesses in North America ("Redland") from Lafarge S.A. for $690 million. Redland produces and sells aggregates, ready-mixed concrete and asphalt and performs paving and related contracting services. Redland operated primarily in the U.S. and owned two quarry operations in Ontario, Canada. Lafarge S.A. acquired Redland PLC in December 1997. Since the Company acquired Redland from its majority stockholder, the acquisition was accounted for similar to a pooling of interests for financial reporting purposes. Accordingly, as of December 31, 1997, Redland assets and liabilities acquired by the Company from Lafarge S.A. were transferred to the Company at Lafarge S.A.'s historical cost, which approximates the $690 million purchase price paid by the Company. The Company's condensed consolidated balance sheets as of September 30, 1999, December 31, 1998 and September 30, 1998 include the balance sheets of Redland. The condensed consolidated statements of income and cash flows include Redland from January 1, 1998. 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 generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly the Company's financial position as of the applicable dates and the results of its operations and its 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 the Company's 1998 Annual Report on Form 10-K. 3. Because of seasonal, weather-related conditions in most of the Company's marketing areas, earnings of any one quarter should not be considered as indicative of results to be expected for a full year or any other interim period. 4. Inventories are valued at the lower of cost or market. The majority of the Company's U.S. cement inventories, other than maintenance and operating supplies, are costed using the last-in, first-out ("LIFO") 4 7 method, and all other inventories are valued at average cost. At September 30, 1999 and 1998, and at December 31, 1998, inventories consisted of the following (in thousands):
September 30 ----------------------- December 31 1999 1998 1998 -------- -------- -------- Finished products $150,159 $126,147 $129,838 Work in process 18,677 12,025 10,878 Raw materials and fuel 53,410 59,998 55,760 Maintenance and operating supplies 54,936 45,763 51,468 -------- -------- -------- Total inventories $277,182 $243,933 $247,944 ======== ======== ========
5. Cash paid for interest and income taxes is as follows (in thousands):
Nine months Ended September 30 -------------------------------------- 1999 1998 ------------- -------------- Interest $ 33,205 $ 24,521 Income taxes (net of refunds) $ 68,057(a) $ 96,133
(a) Includes a refund of $23.4 million from the Internal Revenue Service. 6. Earnings per share for the three and nine months ended September 30, 1999 and 1998 includes the following components (in thousands, except per share amounts):
Three Months Ended Nine Months Ended September 30 September 30 ----------------------- ------------------------ 1999 1998 1999 1998 -------- -------- -------- --------- BASIC CALCULATION - ----------------- Net Income $139,031 $123,744 $198,588 $169,036 ======== ======== ======== ======== Weighted average number of common equity shares 72,740 72,229 72,519 72,004 ======== ======== ======== ======== Basic net income per common equity share $ 1.91 $ 1.71 $ 2.74 $ 2.35 ======== ======== ======== ======== DILUTED CALCULATION - ------------------- Net Income, assuming dilution $139,031 $123,744 $198,588 $169,036 ======== ======== ======== ======== Weighted average number of common equity share 72,740 72,229 72,519 72,004 Net effect of dilutive stock options based on the treasury stock method 372 487 414 626 -------- -------- -------- -------- Weighted average number of common equity shares assuming full conversion of all potentially dilutive securities 73,112 72,716 72,933 72,630 ======== ======== ======== ======== Diluted net income per common equity share $ 1.90 $ 1.70 $ 2.72 $ 2.33 ======== ======== ======== ========
Basic earnings per common equity share were computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per common equity share assumed conversion of stock options, to the extent such conversion is dilutive. 5 8 7. Comprehensive income consists of the following (in thousands):
Three Months Ended Nine months Ended September 30 September 30 ------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 139,031 $ 123,744 $ 198,588 $ 169,036 Foreign currency translation adjustment 3,774 (35,471) 36,699 (56,324) --------- --------- --------- --------- Comprehensive income $ 142,805 $ 88,273 $ 235,287 $ 112,712 ========= ========= ========= =========
8. Lafarge adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosures about products and geographic areas. Lafarge's three reportable operating segments, which represent separately managed strategic business units that have different capital requirements and marketing strategies, are the Construction Materials Group, the Cement Group and Lafarge Gypsum. The basis of segmentation is consistent with the Company's December 31, 1998, year-end financial statements. Lafarge evaluates operating performance based on profit or loss from operations before the following items: other post-retirement benefit expense for retirees, goodwill amortization related to the Redland acquisition, income tax expense, interest and foreign exchange gains and losses. 6 9 Lafarge accounts for intersegment sales and transfers at market prices. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Operating segment information consists of the following (in millions):
Three Months Ended Nine months Ended September 30 September 30 ----------------------- --------------------------- 1999 1998 1999 1998 --------- --------- ---------- ----------- Net sales: Construction Materials Revenues from external customers $ 472.8 $ 453.6 $ 1,044.9 $ 992.8 Intersegment revenues 0.5 0.3 2.5 1.6 Cement Revenues from external customers 357.2 329.9 804.7 752.3 Intersegment revenues 40.8 38.0 93.5 87.9 Gypsum Revenues from external customers 42.3 26.7 112.8 74.7 Intersegment revenues 0.9 - 0.9 - Eliminations (42.1) (38.3) (96.9) (89.5) --------- --------- ---------- ----------- Total net sales $ 872.4 $ 810.2 $ 1,962.4 $ 1,819.8 ========= ========= ========== ===========
Three Months Ended Nine months Ended September 30 September 30 ----------------------- ----------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Earnings from operations: Construction Materials (a) $ 95.0 $ 94.4 $ 135.2 $ 124.7 Cement (a) 139.5 126.5 230.5 207.6 Gypsum (a) 12.1 5.7 32.2 13.3 Corporate and other (16.2) (16.9) (47.4) (53.5) --------- --------- --------- --------- Earnings before interest and income tax expense 230.4 209.7 350.5 292.1 Interest expense, net (11.6) (8.0) (35.3) (16.5) --------- --------- --------- --------- Earnings before income tax expense $ 218.8 $ 201.7 $ 315.2 $ 275.6 ========= ========= ========= =========
(a) Excludes other post-retirement benefit expense for retirees, goodwill amortization related to the Redland acquisition, income tax expense, interest and foreign exchange gains and losses. Condensed consolidated geographic information consists of the following (in millions):
Three Months Ended Nine months Ended September 30 September 30 ---------------------- -------------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- Net sales: United States $ 612.4 $ 554.9 $ 1,390.5 $ 1,259.9 Canada 260.0 255.3 571.9 559.9 -------- -------- ---------- ---------- Total net sales $ 872.4 $ 810.2 $ 1,962.4 $ 1,819.8 ======== ======== ========== ========== Earnings from operations: United States $ 149.6 $ 125.7 $ 244.8 $ 182.0 Canada 80.8 84.0 105.7 110.1 -------- -------- ---------- ---------- Earnings before interest and income tax expense 230.4 209.7 350.5 292.1 Interest expense, net (11.6) (8.0) (35.3) (16.5) -------- -------- ---------- ---------- Earnings before income tax expense $ 218.8 $ 201.7 $ 315.2 $ 275.6 ======== ======== ========== ==========
7 10 Assets by operating segment consist of the following (in millions):
September 30 ------------------------- December 31 1999 1998 1998 ---------- ---------- ---------- Assets: Construction Materials $ 1,315.2 $ 1,224.4 $ 1,095.3 Cement 1,127.5 943.4 956.4 Gypsum 94.1 69.9 70.6 Corporate, Redland goodwill and other 733.8 662.1 782.5 ---------- ---------- ---------- Total assets $ 3,270.6 $ 2,899.8 $ 2,904.8 ========== ========== ==========
9. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Company must adopt this statement no later than January 1, 2001. SFAS No. 133 establishes 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. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company is reviewing SFAS No. 133 and does not currently expect it to materially impact its financial condition or results of operations. 10. In January 1999, the Company completed the acquisition of a gypsum wallboard plant located in Newfoundland, Canada. In late January 1999, the Company announced plans to construct a $90 million state-of-the-art gypsum wallboard plant in northern Kentucky, just outside of Cincinnati. Scheduled to begin operations in the first half of 2000, this facility will have the capacity to produce up to 900 million square feet of wallboard a year, which would make it the largest single production line in the U.S. On March 30, 1999, the Company completed the acquisition of Corn Construction Co., an aggregates and asphalt paving business in New Mexico and Southern Colorado. In September 1999, the company announced that its Lafarge Gypsum division will build a new $85 million gypsum wallboard manufacturing facility in northern Florida. When the plant begins operating in early 2001, Lafarge's gypsum wallboard capacity will increase to more than 2.5 billion square feet per year. 11. The Company self-insures for workers' compensation, automobile and general liability claims up to a maximum per claim. The undiscounted estimated liability is accrued based on a determination by an outside actuary. This determination is impacted by assumptions made and actual experience. In 1992, the Company's Canadian subsidiary, LCI, along with Bertrand & Frere Construction Company Limited and others, became a defendant in lawsuits instituted in the Ontario (Canada) Court (General Division) arising from claims brought by building owners, the Ontario New Home Warranty Program and other plaintiffs regarding alleged defective concrete, fly ash and cement used in defective footings, foundations and floors. The damages claimed total more than Canadian $65 million. The amount of LCI's liability, if any, in these lawsuits is uncertain. LCI has denied liability and is contesting the lawsuits vigorously. LCI has also introduced claims against some of its primary and excess insurers for defense costs 8 11 and indemnity, if any. The lawsuits were joined and the hearing was completed in December 1998. The matter was taken under advisement by the presiding judge and a decision is expected before December 31, 1999. In the third quarter of 1999, LCI became involved as a defendant in a class action brought by homeowners claiming to have defective foundations poured with concrete supplied by Bertrand & Frere in the same time period as the plaintiffs in the completed trial. The number of potential members in the class and the total amount of damages claimed are undetermined at this time. LCI is opposing certification of the action as a class action and is defending the claim vigorously. A hearing is set for late November 1999 to decide if the certification and other related motions will be stayed until the decision is handed down in the completed trial. Currently, the Company is involved in two remediations at two different sites 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. At one site where the Company had been named a potentially responsible party ("PRP"), the remedial activities are complete, long-term maintenance and monitoring are under way, and partial contribution has been obtained from financially viable parties, including the Company. The United States Environmental Protection Agency ("EPA") has delisted this site from the National Priority List. At the other site, also on the National Priority List, some of the PRPs named by the EPA have initiated a third-party action against some 47 other parties including the Company. The Company also has been named a PRP at this site. The suit alleges that in 1969 a predecessor company of the Company sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense and numerous other large disposers of hazardous substances are associated with this site. Management believes that neither matter is material to the financial condition, results of operations or liquidity of the Company. When the Company determines 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, an estimate of the required remediation costs is recorded as a liability in the financial statements. As of September 30, 1999, the liabilities recorded for environmental obligations are not material to the financial statements of the Company. Although the Company believes its environmental accruals are adequate, environmental costs may be incurred that exceed the amounts provided at September 30, 1999. However, management has concluded that the possibility of material liability in excess of the amounts reported in the September 30, 1999 Condensed Consolidated Balance Sheet is remote. In the ordinary course of business, the Company is 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 total amount of these legal actions and claims cannot be determined with certainty. Management believes that all legal and environmental matters will be resolved without material adverse impact to the Company's financial condition, results of operations or liquidity. 9 12 LAFARGE CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Lafarge Corporation, together with its subsidiaries ("Lafarge" or the "Company"), is North America's largest diversified supplier of construction materials. The Company's core businesses are organized into three operating segments: The Cement Group - produces and distributes portland and specialty cements, cementitious materials, and processes fuel-quality waste and alternative raw materials for use in cement kilns. The Construction Materials Group - produces and distributes construction aggregates, ready-mixed concrete, other concrete products and asphalt, and constructs and paves roads. Lafarge Gypsum - produces and distributes gypsum wallboard and related products. Lafarge's broad range of products is complemented by its geographic diversity. Unlike many of its competitors, Lafarge has approximately 500 operations doing business in most states in the U.S. and throughout Canada, where it operates through its major operating subsidiary, Lafarge Canada Inc. Due to seasonal, weather-related conditions, earnings of any one quarter should not be considered as indicative of results to be expected for a full year or any other interim period. The Company acquired certain North American construction materials operations of Redland PLC ("Redland") effective December 31, 1997 for accounting purposes. The consolidated statements of income and cash flows include the results of Redland from January 1, 1998. Since the acquisition was not financed until June 1998, significant financing costs were not incurred until the third quarter of 1998. THREE MONTHS ENDED SEPTEMBER 30, 1999 During the three months ended September 30, 1999, the Company had net income of $139.0 million, or $1.90 per common diluted equity share. This compares with net income of $123.7 million, or $1.70 per common diluted equity share, for the third quarter of 1998. Operating results improved in all of the Company's main product lines (cement, ready-mixed concrete, aggregates and gypsum wallboard) reflecting higher sales volumes and prices. The Company's Canadian operations reported net income of $51.3 million, or $4.2 million lower than 1998, whereas the U.S. net income was $87.7 million, $19.4 million better than 1998. The Company's net sales increased 7.7 percent to $872.4 million, up from $810.2 million in 1998. Canadian net sales were $260.0 million, up 1.8 percent, while U.S. net sales increased 10.4 percent to $612.4 million. The struggling economy in British Columbia and reduced project work in Alberta have lowered shipments in most principal product categories in those markets. Prices trended upward in all main product lines of cement, ready-mixed concrete, aggregates and gypsum wallboard. Cement shipments increased 6.4 percent while gypsum wallboard volumes rose 26.4 percent. Ready-mixed concrete shipments increased 1.5 percent while aggregates volumes were relatively flat. 10 13 The Cement Group The third quarter earnings from the Company's cement and waste-derived fuel processing operations were $139.5 million, $13.0 million higher than last year. An increase in shipments in Eastern Canada and in the U.S. were partly offset by a decline in shipments in Western Canada resulting from the weaker economy in British Columbia and delayed paving jobs. Net sales increased 8.2 percent reflecting both increased sales volumes and improved pricing in both countries. Canadian earnings, excluding the exchange rate fluctuation, were $46.4 million, $0.3 million higher than 1998. In Canada, a 3.7 percent increase in shipments and a 2.1 percent increase in the delivered price per ton to customers net of freight costs ("net realization") were offset by increased costs due to the startup of the newly modernized Richmond, British Columbia cement plant and unplanned kiln repairs at Bath and Exshaw. U.S. income increased $13.1 million to $93.1 million in the quarter due to increased cement shipments of 7.1 percent and increased net realization of 1.4 percent. Of the 7.1 percent increase in cement shipments 2.4 percent was due to the acquisition of the Seattle, Washington cement plant on October 16,1998. Overall clinker production volumes increased 3.8 percent primarily due to the acquisition of the Seattle, Washington plant, which increased production volumes by 3.3 percent. The Construction Materials Group The Company's construction materials operations earned $95.0 million, $0.6 million better than the third quarter of 1998. Net sales of $473.3 million were 4.3 percent higher than 1998, reflecting an increase in ready-mixed concrete shipments and higher average selling prices of both ready-mixed concrete and aggregates due to price increases and favorable product and geographic mix. In Canada, income of $41.2 million was $0.4 million lower than last year, excluding exchange rate fluctuations. Net sales in Canada were 1.9 percent lower than 1998 due to reduced ready-mixed concrete volumes of 2.2 percent partly offset by higher average ready-mixed concrete and aggregates selling prices of 1.8 percent and 2.9 percent, respectively and an improvement in aggregates sales volumes which were 3.4 percent higher than 1998. The reduced ready-mixed concrete volumes were mainly due to poor weather conditions in Alberta and Manitoba, a lack of major projects in Alberta and the weak economy in British Columbia. Aggregates volumes in Canada increased as higher volumes in Quebec and northeast Ontario were partly offset by lower shipments (15.8 percent) in Western Canada due to the same factors causing a decrease in ready-mixed concrete volumes. In the U.S., third quarter operating earnings of $53.9 million were up $1.7 million from 1998. Net sales were up 9.0 percent as a result of higher average prices in both ready-mixed concrete and aggregates of 2.5 percent and 4.5 percent, respectively. Ready-mixed concrete volumes increased 6.0 percent due to completing backlogged projects delayed due to poor weather conditions earlier in the year, acquisitions and several large projects in Louisiana and Missouri partly offset by a slow market and unseasonably wet weather in Maryland during September and postponement of public works projects in New Mexico. Aggregates volumes decreased 4.8 percent to 12.6 million short tons due to slower activity in the Cleveland, Eastern Great Lakes and New Mexico markets and poor weather conditions in Maryland. Lafarge Gypsum Operating profit from the Company's gypsum wallboard operations was $12.1 million, $6.4 million better than 1998 primarily due to higher shipments and prices. The U.S. market is still distributing wallboard to customers on a strict allocation basis. Net selling price to customers, net of freight, was 25.2 percent higher and shipments were 26.4 percent higher, which boosted net sales by 62.1 percent. Shipments of gypsum wallboard increased 6.3 percent as a result of higher production and strong demand in the U.S., 11.1 percent as a result of the inclusion of Canadian operations acquired in January 1999 and 9.0 percent as a result of wallboard imports. Final permits have been obtained and construction has begun on the 900 square foot wallboard plant to be built in Silver Grove, Kentucky. 11 14 For the quarter ended September 30, 1999, net income was favorably impacted by certain nonrecurring gains and losses, including the settlement of an outstanding insurance claim and a downward revision of the Company's estimated annual effective tax rate to 37 percent. The insurance settlement and tax rate revision contributed approximately 6 cents per share to the quarter's net income. For the quarters ended September 30, 1999 and 1998, the Company recorded income tax expense of $79.8 million and $78.0 million as a result of the earnings from its Canadian and U.S. operations. NINE MONTHS ENDED SEPTEMBER 30, 1999 The Company's net income of $198.6 million, or $2.72 per diluted common equity share compares with net income of $169.0 million or $2.33 per share for the first nine months of 1998. In Canada, net income was $70.2 million, $6.7 million lower than 1998. U.S. net income of $128.3 million was $36.2 million higher than 1998. Net sales were $2.0 billion, a 7.8 percent increase over net sales in 1998. Cement shipments were 5.5 percent higher than 1998. Aggregates volumes decreased 1.3 percent, ready-mixed concrete volumes improved 2.8 percent and gypsum volumes improved 24.3 percent. Canadian net sales of $571.9 million were 2.2 percent above 1998 while U.S. net sales of $1.4 billion improved by 10.4 percent. The Cement Group Earnings from the Company's cement and waste-derived fuel processing operations were $230.5 million, $22.9 million better than last year due to increased shipments and higher net realized prices partly offset by increased maintenance and repair costs. Overall net sales from cement and waste-derived fuel processing improved by 6.9 percent. Earnings from Canadian operations of $72.0 million were $1.0 million lower than 1998, excluding exchange rate fluctuations. Canadian net sales decreased by 0.2 percent. Overall Canadian cement shipments were flat; however, Western Canada cement shipments decreased 10.5 percent due to weak conditions in British Columbia, poor weather in certain markets during the third quarter and delayed paving jobs. In the U.S., earnings were $158.5 million, $25.2 million or 18.9 percent higher than 1998 with a 9.2 percent increase in net sales, of which 1.9 percent was due to the acquisition of the Seattle, Washington plant on October 16, 1998. This improvement was due to an increase in shipments of 7.1 percent, of which 2.3 percent was due to the acquisition of the Seattle, Washington plant, and an increase in net realized prices of 2.2 percent. Overall clinker production increased 0.5 million tons or 5.6 percent mainly due to the acquisition of the Seattle, Washington plant (3.4 percent). The Construction Materials Group The Company's construction materials operations earned $135.2 million, $10.5 million better than 1998. Net sales improved 5.3 percent. In Canada, earnings were $51.3 million, $2.4 million better than 1998, excluding exchange rate fluctuations. Canadian net sales were 1.0 percent greater, reflecting an increase in aggregates volumes of 1.5 percent and a 2.6 percent increase in ready-mixed concrete volumes. Aggregates selling prices increased 4.5 percent from the prior year and ready-mixed concrete selling prices increased 3.1 percent. U.S. earnings were $83.9 million, $9.0 million better than 1998. U.S. net sales were up 8.5 percent. Aggregates volumes decreased by 3.8 percent and ready-mixed concrete volumes increased 3.1 percent. Aggregates selling prices increased 4.1 percent from the prior year and ready-mixed concrete selling prices increased 3.6 percent. 12 15 Lafarge Gypsum The Company's gypsum operations earned $32.2 million, $18.9 million higher than 1998, due to increased volumes of 7.6 percent which resulted from higher demand, the acquisition of the Cornerbrook, Newfoundland plant which increased volumes 12.9 percent and a 3.9 percent increase resulting from the sale of imported wallboard. Net selling price to customers, net of freight, was 21.0 percent higher than 1998. Overall, net sales increased by 52.2 percent. Income tax expense was $116.6 million, $10.1 million greater than 1998. The Company's estimated annual effective income tax rate was 37.0 percent in 1999 and 38.7 percent in 1998. LIQUIDITY AND CAPITAL RESOURCES The Company has a syndicated, committed revolving credit facility totaling $300.0 million extending through December 8, 2003. At September 30, 1999, no amounts were outstanding. The Company is required to pay annual commitment fees of 0.1 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 federal funds rate and are subject to certain conditions. Net cash of $155.0 million was provided by operating activities in the first nine months of 1999 compared with net cash provided of $155.4 million in the same period in 1998. Net cash used for investing activities in the nine-month period of 1999 was $236.9 million higher than the same period last year mainly due to higher capital expenditures which resulted from increased spending on plant modernizations underway in Richmond, British Columbia and Kansas City, Missouri. In the first nine months of 1999, net cash provided by financing activities was $9.4 million compared with net cash used of $93.4 million in the same period in 1998 due to a repayment to Lafarge S.A. made in 1998. During the first nine months of 1999, the most significant uses of cash were capital expenditures of $214.0 million, acquisitions of $55.6 million and dividends paid of $18.8 million, net of dividend reinvestment. This compares with capital expenditures of $152.2 million, acquisitions of $37.9 million and dividends paid of $23.3 million during the first nine months of 1998. The most significant sources of funds during the first nine months of 1999 were short-term and long-term borrowings of $24.5 million and proceeds on sale of property, plant and equipment of $13.2 million. This compares with short-term and long-term borrowings of $621.4 million and proceeds in sale of property, plant and equipment of $17.8 million in the nine months ended September 30, 1998. Capital expenditures (including acquisitions already completed or in process) are expected to be approximately $450.0 million in 1999. The Company is exposed to foreign currency exchange rate risk inherent in its Canadian revenues, expenses, assets and liabilities denominated in Canadian dollars, as well as interest rate risk inherent in the Company's debt. The Company primarily uses fixed-rate debt instruments to reduce the risk of exposure to changes in interest rates and uses forward treasury lock agreements to hedge interest rate change on anticipated debt issuances. There have been no significant changes in expected maturity dates and average interest rates since the December 31, 1998 year end. 13 16 OTHER FACTORS AFFECTING THE COMPANY - YEAR 2000 OVERVIEW Year 2000 computer issues may affect the Company's business application software and supporting computer infrastructure ("IT Systems") and embedded technology systems such as process control equipment, instrumentation and other field systems ("Non-IT Systems"). The Year 2000 computer problem originated from programmers writing software code that used two digits instead of four to represent the year. Computer systems using the "two-digit" format may experience problems handling date-sensitive calculations beyond the year 1999. This inability to recognize or properly treat the Year 2000 could cause computer systems and embedded technology to produce inaccurate results or to fail, and could result in an interruption in, or a failure of, certain business activities or operations. In addition, the Year 2000 is a leap year, which may further exacerbate incorrect calculations, functions or system failures. At this time, it is difficult to predict the effects such disruptions could have and the liabilities that any company may face as a result of these failures. Moreover, companies must not only consider their own products and computer systems, but also the Year 2000 readiness of any third parties, including principal customers, key vendors and suppliers, utilities, banks and similar service providers. Potential operating disruptions of the Company caused by Year 2000 computer issues may be mitigated because: - none of the Company's products - cement, ready-mixed concrete, aggregates and gypsum wallboard - contain date-sensitive technology; - typically, in December and January, construction activities utilizing the Company's products slow down, and may even cease, due to winter weather; - the Company, in anticipation of the winter seasonality typical of its operations, traditionally builds its inventories to supply winter and early spring demands for the Company's products; - the Company's quarries (gypsum, limestone and other minerals) supply many of the raw materials to produce the Company's products; - except for utilities, banks and similar services providers, the Company is not significantly dependent on any single third-party supplier or vendor; and - the Company has no significant single customer. However, even with these possible mitigating factors, and although the Company believes it has an effective plan to address Year 2000 issues, certain Year 2000 issues are beyond the Company's control. Because these issues concern, for example, the Year 2000 readiness of third parties, including utilities, banks and similar service providers, the Company is unable to determine the likelihood of a material impact on its financial condition, results of operations or liquidity. However, the Company's Year 2000 compliance program (the "Year 2000 Program") is expected to significantly reduce the Company's level of uncertainty about Year 2000 issues, including Year 2000 readiness of third parties. The Company believes that after completion of the Year 2000 projects as scheduled, the possibility of significant interruptions of its normal operations should be reduced. 14 17 State of Readiness In the first half of 1997, the Company organized and implemented its Year 2000 Program, which includes a program management office staffed with full time professionals dedicated to the resolution of Year 2000 issues. The objective of the Year 2000 Program is to avoid loss of revenues, unplanned downtime or other adverse impacts on the Company's business. Each of the Company's major operating locations has a designated point of contact who is responsible for the development and implementation of that operating location's Year 2000 strategy. The Year 2000 Program addresses the essential phases, activities and tasks that the Company must undertake for the successful execution of its Year 2000 Program. The Company has identified four phases to describe its process of achieving Year 2000 readiness: (1) inventory and assessment, (2) optimum scenario definition, (3) transition plan definition and (4) implementation. The Company has completed the first three phases and determined the potential impact of the Year 2000 on its IT Systems and Non-IT Systems. The transition plan developed in the third phase includes the replacement of certain equipment and modification of certain software to recognize the turn of the century. Phase four, the implementation phase, is in its final stages and management believes full implementation will be accomplished prior to year end. The Company's IT Systems that were not Year 2000 ready are in the process of being replaced by software applications or upgraded to Year 2000 ready systems. The IT Systems implementation phase is expected to be completed by November 30, 1999. As of September 30, 1999, approximately 85 percent of the Company's IT Systems are Year 2000 ready. Of the remaining 15 percent of the IT Systems that are not Year 2000 ready, 20 percent are considered critical. "Critical," as applied to IT and Non-IT Systems, means systems that are critical to maintaining operations or the failure of which would result in significant costs or disruptions or shutdowns of operations. As of September 30, 1999, approximately 90 percent of the Company's Non-IT Systems are Year 2000 ready. Of the remaining 10 percent of the Company's Non-IT Systems that are not Year 2000 ready, 30 percent are considered critical. Other computer system projects have not been significantly postponed due to the Year 2000 Program. The dates on which the Company believes the Year 2000 projects will be completed are based on the best estimates of management, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. There can be no guarantee that these estimates will be achieved or that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 Program. Third Parties The Company's operating locations have identified their principal suppliers and vendors to whom letters have been sent requesting information on their Year 2000 readiness programs and their state of readiness. As of September 30, 1999, approximately 75 percent of the Company's principal suppliers and vendors identified have provided a written response. The operating locations analyze the responses received to those letters, and review the 25 percent from whom no response was received, and evaluate the risks and develop follow-up plans and/or alternatives and/or contingency plans as necessary. 15 18 Costs to Address Year 2000 Issues The Year 2000 Program is expected to result in estimated non-recurring spending of approximately $18.6 million to $21.3 million. As of September 30, 1999, the Company has incurred approximately $15.3 million ($9.0 million capital and $6.3 million expense) for upgrading or replacing its IT and Non-IT Systems. Of the expenditures remaining, approximately 60 percent will be capitalized. Internal resource requirements are estimated at 54,000 hours of which approximately 49,000 hours have been incurred through September 30, 1999. The Company believes, with appropriate system replacement or modification, it will be able to operate its time-sensitive IT Systems and Non-IT Systems through the turn of the century. However, certain Year 2000 issues are beyond the Company's control including the Year 2000 readiness of third parties. Quality Assurance Review The Company's Year 2000 strategies include the audit of Year 2000 readiness of its major operating locations. This Quality Assurance Review includes the Company's 15 cement plants, 3 gypsum plants and a sampling of construction materials plant sites. The Quality Assurance Review has already been performed at 12 cement plants, 2 gypsum plants and 33 construction materials plant sites and offices. Findings have been documented and discussed with local management and corrective actions are being implemented, when applicable. Contingency Plans A Year 2000 risk management methodology has already been implemented in all the Company's operating locations. For most operating locations, risks have been identified, assessed for probability and impact, and prioritized. For most operating locations, drafts of the contingency plans were submitted for review by March 31, 1999. Mitigation actions are currently being implemented and, when necessary and justified, contingency plans are being developed and validated with an estimated completion date of November 30, 1999. Risks of the Company's Year 2000 Issues The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. At this time, the Company is unable to determine if the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. This is substantially the result of the general uncertainty of the Year 2000 problem, and the uncertain impact of Year 2000 readiness of third parties. The dates on which the Company believes the Year 2000 projects will be completed are based on the best estimates of management, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved or that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 projects. The Year 2000 Program is expected to significantly reduce the Company's level of uncertainty about Year 2000 issues, including the Year 2000 compliance and readiness of third parties. The Company believes that, with completion of the projects as scheduled, the possibility of significant interruptions of normal operations should be reduced and that it would be able to operate its date-sensitive business applications and embedded technology systems through the turn of the century. At the present time, the Company anticipates that its 16 19 computer systems will be Year 2000 ready in all material respects. There can be no assurance, however, of complete compliance. 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. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions ("Factors") which 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 the Company's business; national and regional economic conditions in the U.S. and Canada; Canadian currency fluctuations; the outcome and impact of the Year 2000, including Year 2000 readiness of third parties; seasonality; the 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; and other Factors disclosed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. In general, the Company is 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 the Company undertakes no obligation to update them, whether as a result of new information, future events or otherwise. 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 11 of the "Notes to Condensed Consolidated Financial Statements" is incorporated herein by reference, pursuant to Rule 12b-23. On March 18, 1998, a shareholder derivative lawsuit, Harbor Finance Partners v. Collomb et al., was filed in the Circuit Court for Montgomery County, Maryland. The lawsuit, filed against all of the directors of Lafarge Corporation (the "Company"), alleges that they committed breach of fiduciary duty, corporate waste, and gross negligence in connection with the Company's purchase of a number of construction materials businesses in North America from Lafarge S.A., its majority stockholder (the "Redland Transaction"). Lafarge S.A. took control of these businesses in late 1997, when it acquired the British construction materials firm Redland PLC. The Redland Transaction was proposed to the Company in late 1997. The Company's Board of Directors appointed a special committee of independent directors to evaluate the Redland Transaction. The special committee conducted extensive due diligence and retained independent professionals to assist with its 17 20 evaluation, including an investment banking firm which advised the committee regarding the fairness of the price and terms of the proposed Redland Transaction. Based on its due diligence and the opinions of its specially-retained advisers, the special committee recommended the Redland Transaction for approval by the full Board of Directors of the Company. On March 16, 1998, the full Board, consisting of a majority of independent directors, approved the Redland Transaction. The Redland Transaction was publicly announced on March 17, 1998. After the initial complaint was filed on March 18, 1998, the directors filed a motion to dismiss on May 19, 1998, which was granted on July 20, 1998. With the court's permission, the plaintiff filed an amended complaint on August 28, 1998. The directors filed a motion to dismiss the amended complaint on September 10, 1998. That motion was argued on February 22, 1999. On April 27, 1999, the court ruled that the suit could proceed notwithstanding the plaintiff's failure to make a demand on the Company's Board of Directors prior to bringing the lawsuit. In a series of strategic amendments by interlineation of the amended complaint, filed on May 28, June 9, and July 16, 1999, respectively, two individual shareholders joined this litigation and the original plaintiff, Harbor Finance Partners, deleted itself from the case. The case in the Circuit Court for Montgomery County, Maryland, is now captioned Werbowsky et al. v. Collomb et al. The plaintiffs are seeking an unspecified amount of money damages for the alleged breach of fiduciary duty, corporate waste and gross negligence in connection with the alleged overpayment by the Company for the businesses it acquired in the Redland Transaction. Discovery on the merits of this matter is near completion. On October 22, 1999, the Directors filed a summary judgement motion seeking to dismiss the case based on the plaintiffs failures to make a demand on the Board of Directors and because the plaintiffs have insufficient proofs for their claims of breach of fiduciary duty, waste and gross negligence. The motion is expected to be argued before the end of 1999. The Company has been advised by its directors that the lawsuit against them, which challenges their conduct in evaluating and approving the Redland Transaction, is without merit. The directors have been vigorously contesting the lawsuit. As previously reported in the Registrant's Form 10-Q for the quarterly period ended September 30, 1998, the Michigan Department of Environmental Quality ("MDEQ") had issued notices to the Company's cement plant in Alpena, Michigan for: alleged violations of permit limits for emissions of hydrogen chloride gas; alleged violations of storm and surface water runoff; alleged deficiencies with respect to closure of prior on-site cement kiln dust ("CKD") disposal areas; alleged violations of permit limits and state regulatory requirements for fugitive dust emissions; and alleged deficiencies in record keeping as required by the Boiler and Industrial Furnaces regulations under the federal Resource Conservation and Recovery Act of 1976. On December 1, 1998, the Company reached an administrative settlement for $134,655 with the MDEQ for alleged violations of storm and surface water runoff and received an order from the MDEQ affirming the settlement. On February 14, 1999, the MDEQ and the Company settled outstanding stipulated penalties for $90,000 in connection with the alleged violations of CKD disposal, and deficiencies in record keeping. Currently, the Company is engaged in discussions with the MDEQ to resolve the alleged violations of hydrogen chloride gas and fugitive dust emissions. The Company expects that if the MDEQ assesses a penalty for the remaining alleged violations that the total penalty assessed for the remaining alleged violations will exceed $100,000 but will not have a material adverse effect on the financial condition, results of operations, or liquidity of the Company. 18 21 ITEM 5. OTHER INFORMATION On May 26, 1999, the Company made the following executive officer in its cement operations effective September 1, 1999: Peter H. Cooke, 50, was appointed Executive Vice President-Cement of Lafarge Corporation with responsibility for cement strategy and performance. Cooke previously served as Executive Vice President of Lafarge Corporation, responsible for Canadian cement operations from March 1, 1996 to August 31, 1999. Prior to that, he served as Senior Vice President and President of the Company's Eastern Cement Region from July 1990 to February 1996. Michael J. Balchunas, 51, became Senior Vice President and President of Cement-U.S. Balchunas previously served as Senior Vice President of Lafarge Corporation, and President of the Company's western Canada cement operations from July 1, 1996 to August 31, 1999. From March 1992 to July 1996, he was President of Systech Environmental Corporation, a wholly-owned subsidiary of the Company. Prior to that, he served as Vice President of Operations of the Company's Great Lakes Region from July 1990 to March 1992. Jean-Marc Lechene, 41, was appointed Senior Vice President of Lafarge Corporation and President of Cement-Canada, following the consolidation of the Company's cement operations in Canada into one region with its main office in Montreal, Quebec. Lechene previously served as Management Director of cement and concrete operations in China for the Lafarge Group from March 1996 to August 31, 1999. On July 22, 1999 the Company's Board of Directors elected Eric Olsen, 35, as Senior Vice President-Strategy and Development, effective August 16, 1999. Mr. Olsen was previously employed by Trinity Associates where he had been a partner since 1993. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibit is filed as part of this Form 10-Q and is incorporated herein by reference.
EXHIBIT NUMBER DESCRIPTION ------ ------------ 27 Financial Data Schedule
(b) Reports on Form 8-K The Company has not filed any reports on Form 8-K during the quarter ended September 30, 1999. 19 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAFARGE CORPORATION Date: November 12, 1999 By: /s/ Larry J. Waisanen ---------------------- LARRY J. WAISANEN Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 20 23 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule
21 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999, OF LAFARGE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 211,061 10,812 570,690 0 277,182 1,148,316 2,837,780 1,275,783 3,270,586 565,034 737,286 0 0 792,796 842,574 3,270,586 1,962,411 1,962,411 1,440,661 1,440,661 1,046 0 45,534 315,186 (116,598) 198,588 0 0 0 198,588 2.74 2.72
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