<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________________ TO _________________
COMMISSION FILE NUMBER 1-6117
SOUTHDOWN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-0296500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET
SUITE 2400
HOUSTON, TEXAS 77002-4486
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Stock, par value $1.25 per share New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Preferred Stock, $2.875 Cumulative Convertible Series D New York Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /x/
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 ___
As of January 31, 1994 the number of shares of common stock outstanding
was 17.1 million. As of such date, the aggregate market value of voting stock
held by nonaffiliates, based upon the closing price of these shares on the New
York Stock Exchange, was approximately $626.4 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual proxy statement to be
filed within 120 days of the Registrant's fiscal year ended December 31, 1993
are incorporated by reference into Part III.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Industry Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 27
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 50
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 83
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 83
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 83
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 83
</TABLE>
<PAGE> 3
P A R T I
ITEM 1. BUSINESS.
GENERAL
Southdown, Inc. (Southdown or the Company) was organized in Louisiana
in 1930 and maintains its principal executive offices at 1200 Smith Street,
Suite 2400, Houston, Texas 77002-4486, telephone (713) 650-6200. Unless the
context indicates to the contrary, the terms "Southdown" and the "Company" as
used herein should be understood to include subsidiaries of Southdown and
predecessor corporations. The Company is one of the leading United States
cement and ready-mixed concrete companies. The Company operates eight
quarrying and manufacturing facilities and a network of 17 terminals for the
production and distribution of portland and masonry cements, primarily in the
Ohio valley and the southwestern and southeastern regions of the United States.
The Company is also vertically integrated, with ready-mixed concrete operations
serving markets in Florida, southeast Georgia and southern California.
Substantially all of Southdown's cement and concrete products operations are
conducted at the parent company level.
The Company is also engaged in the environmental services business,
which involves the collection of hazardous waste and processing it into
hazardous waste derived fuel (HWDF) that, together with tires and other waste
materials, is utilized in certain of the Company's cement kilns as supplements
to conventional fuels. (See "Cement Operations - Resource Recovery",
"Environmental Services" and Note 18 of Notes to Consolidated Financial
Statements.) The environmental services business is conducted by Southdown
Environmental Systems, Inc. (SES) through a number of operating subsidiaries.
1
<PAGE> 4
INDUSTRY SEGMENT INFORMATION
The following table presents revenues and earnings before interest
expense and income taxes contributed by each of the Company's industry segments
during the periods indicated. Identifiable assets, depreciation, depletion and
amortization and capital expenditures by segment are presented in Note 3 of
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS)
--------------------------------------------------------------
1993 1992 1991 1990 19891
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Contributions to revenues:
Cement $ 370.9 $ 339.5 $ 328.4 $ 364.8 $ 380.0
Concrete Products 176.3 158.1 181.1 231.6 264.0
Environmental Services 36.1 43.4 36.8 14.9 2 -
Intersegment sales (39.0) (34.3) (41.1) (48.8) (56.0)
Other 0.5 0.7 1.7 3.4 4.5
----------- ---------- ---------- ---------- ----------
$ 544.8 $ 507.4 $ 506.9 $ 565.9 $ 592.5
=========== ========== ========== ========== ==========
Contributions to operating earnings (loss):
Cement $ 81.9 $ 62.6 $ 44.9 $ 72.2 $ 82.9
Concrete Products (1.6) (11.6) (12.7) 6.9 26.6
Environmental Services (2.2) (10.6) (4.4) (0.6)2 -
Write-down of Environmental Services
assets (3.1) (21.4) - - -
Corporate
General and administrative (28.9)3 (32.7) (34.1) (21.9)4 (25.9)
Depreciation, depletion and amortization (4.3) (4.4) (4.3) (3.3) (3.0)
Miscellaneous income (losses) (2.8)5 1.5 6 (5.1)7 (5.7)8 7.3
----------- ---------- ---------- ---------- ----------
$ 39.0 $ (16.6) $ (15.7) $ 47.6 $ 87.9
=========== ========== ========== ========== ==========
</TABLE>
- ----------------
(1) The Company sold its oil and gas operations on November 15, 1989.
Revenues and operating earnings attributable to the oil and gas segment
have, therefore, been excluded. (See Note 20 of Notes to Consolidated
Financial Statements.)
(2) Initial facilities acquired in the third quarter of 1990.
(3) Includes a net charge of $2.5 million to accrue the estimated
postretirement health care benefits calculated under SFAS No. 106 in
excess of claims incurred. (See Note 2 of Notes to Consolidated Financial
Statements.)
(4) Includes a $6.6 million credit to pension expense and a $2.0 million
credit to stock appreciation rights expense.
(5) Includes a $3.0 million charge for remediation of an inactive cement kiln
dust disposal site. (See Note 17 of Notes to Consolidated Financial
Statements.)
(6) Includes a $3.0 million charge to write down the carrying value of certain
aggregate assets and a $3.6 million charge for remediation of an inactive
cement kiln dust disposal site.
(7) Includes a $5.9 million charge to write down the carrying value of certain
aggregate assets and a $3.1 million charge for remediation of an inactive
cement kiln dust disposal site.
(8) Includes a $10.0 million charge attributable to an unfavorable arbitration
ruling.
Revenues for the past three years from each of the Company's industry
segments, expressed as a percentage of total consolidated revenues, were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL CONSOLIDATED REVENUES
----------------------------------------
SEGMENT 1993 1992 1991
------- --------- --------- ---------
<S> <C> <C> <C>
Cement 61.5 % 60.7 % 57.2 %
--------- --------- ---------
Concrete Products:
Ready-mixed concrete 26.3 25.8 29.6
Other 5.6 5.0 5.7
--------- --------- ---------
31.9 30.8 35.3
Environmental Services 6.5 8.4 7.2
Other 0.1 0.1 0.3
--------- --------- ---------
Total consolidated revenues 100.0 % 100.0 % 100.0 %
========= ========= =========
</TABLE>
2
<PAGE> 5
CEMENT OPERATIONS
Company Operations - The Company's cement production facilities are
located in or near Victorville, California; Brooksville, Florida; Kosmosdale,
Kentucky; Fairborn, Ohio; Knoxville, Tennessee; Odessa, Texas; Lyons, Colorado;
and Pittsburgh, Pennsylvania. All of the facilities are wholly-owned except
for the Kosmosdale and Pittsburgh plants. These two plants are owned by Kosmos
Cement Company (Kosmos), a joint venture owned 75% by the Company, which is
also the operator of both plants. The remaining 25% of Kosmos is owned by Lone
Star Cement, Inc., a subsidiary of Lone Star Industries, Inc. (Lone Star).
Cement is the basic binding agent for concrete, a primary construction
material. The Company's cement products are produced primarily from raw
materials found at or near the Company's plant locations. Depending upon the
process at individual plants, production of one ton of finished product
consumes approximately 1.6 tons of raw material. The principal raw material
used in the production of portland cement is calcium carbonate found in the
form of limestone. The Company's total estimated recoverable reserves of
limestone are approximately 700 million tons located on approximately 19,000
acres, most of which are owned by the Company in fee. Other raw materials,
used in substantially smaller portions than limestone, include sand, iron, clay
and gypsum. When not found in adequate amounts in the Company's quarries,
these materials are available for purchase from outside suppliers at acceptable
prices.
The manufacture of portland cement primarily involves the crushing,
grinding and blending of limestone and other raw materials into a chemically
proportioned mixture which is then burned in a rotary kiln at extremely high
temperatures to produce an intermediate product known as clinker. The clinker
is cooled and interground with a small amount of gypsum to produce finished
cement. As fuel is a major component in the cost of producing clinker, most
modern cement plants, including seven of the eight plants operated by the
Company, incorporate the more fuel efficient "dry process" technology. In the
most modern application of this technology, the raw materials are processed
through a preheater tower that utilizes hot exhaust gases from the kiln to
effect partial calcination of the raw materials before they enter the rotary
kiln. At present, approximately 80% of the Company's clinker capacity is from
preheater or preheater/precalciner kilns, and approximately 15% of its capacity
is from long dry kilns. Only the Pittsburgh plant uses the less fuel efficient
"wet process" technology.
3
<PAGE> 6
The following tables set forth certain information regarding the
Company's cement plants and locations of the cement terminals and sales offices
at December 31, 1993.
<TABLE>
<CAPTION>
TONS OF ESTIMATED
NO. CLINKER ANNUAL KILN LIFE OF
OF MANUFACTURING CLINKER/CEMENT DEDICATION LIMESTONE
PLANT LOCATION KILNS PROCESS CAPACITY DATES RESERVES
-------------- ----- ------- -------- ----- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Victorville, 2 Preheater/precal- 1,550/1,650 1985 100+ years
California ciner 1965
Long dry kiln
Brooksville, Florida 2 Preheater 1,200/1,320 1976, 1982 90+ years
Kosmosdale, 1 Preheater 700/735 1974 20+ years(2)
Kentucky(1)
Fairborn, Ohio 1 Preheater 610/680 1974 50+ years
Knoxville, Tennessee 1 Preheater/precal- 600/650 1979 65+ years
ciner
Odessa, Texas 2 Preheater 550/600 1978 100+ years
Long dry kiln 1959
Lyons, Colorado 1 Preheater/precal- 450/475 1980 30+ years(3)
ciner
Pittsburgh, 1 Wet 360/400 1962 100+ years(4)
Pennsylvania(1)
</TABLE>
<TABLE>
<CAPTION>
CEMENT SALES OFFICES CEMENT TERMINALS
- ---------------------------------------------------- ----------------------------------------------------
STATE CITY STATE CITY
- -------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
California West Covina California La Mirada
Colorado Denver Colorado Florence
Florida Brooksville Florida Jacksonville
Kentucky Kosmosdale(1) Florida Pensacola
Ohio Fairborn Florida Tampa
Pennsylvania Pittsburgh(1) Georgia Atlanta
Tennessee Knoxville Indiana Indianapolis(1)
Texas Amarillo Kentucky Lexington(1)
Texas Odessa North Carolina Castle Hayne
North Carolina Statesville
North Carolina Wilmington
Ohio Cincinnati(1)
Tennessee Grey Station
Tennessee Kingsport
Texas Amarillo
West Virginia Charleston(1)
West Virginia Huntington(1)
</TABLE>
- ---------------
(1) Owned by Kosmos, which is 75% owned by the Company and 25% owned by Lone
Star Cement, Inc. The Company operates the joint venture's plants, sales
offices and terminals.
(2) Limestone is barged from a quarry located approximately 30 miles from the
plant facility. Additional reserves are available for purchase adjacent
to the existing quarry.
(3) The Company currently has permits to mine approximately 5-6 years of
these reserves and expects to receive additional permits in 1994 to mine
the balance.
(4) Limestone is barged from an underground quarry located approximately 100
miles from the plant facility.
The ratio of clinker produced to kiln capacity was 94% in 1993, 92% in
1992 and 84% in 1991. During the past three years, the Company has also
purchased minimal amounts of cement from others
4
<PAGE> 7
to be resold at relatively low margins. In 1993, 5.5% of the cement sold by
the Company was acquired from outside sources compared with 3.2% in 1992 and 2%
in 1991.
Cost Saving Initiatives - In 1990, the Company undertook a
comprehensive assessment of all phases of its cement operations, including a
detailed review of production and maintenance practices, organizational
structure, labor utilization efficiency and materials purchasing procedures,
and began implementing a cost reduction program related to its Cement segment.
Specifically, these programs were designed to improve labor productivity, fuel
and power consumption and repair parts utilization, and to result in an
estimated annual cement production capacity increase of 250,000 tons. Based on
management's analysis of Cement segment costs (including fixed and variable
manufacturing costs, selling expenses, plant general and administrative costs,
other plant overhead and miscellaneous costs), these initiatives resulted in
estimated cost savings of approximately $16 million in 1992 compared with 1991
and additional savings of $3 million in 1993 compared with 1992. The Company
has incurred approximately $6.0 million in severance and relocation expenses
and approximately $2.2 million in capital expenditures through 1993 related to
implementation of the program and has budgeted approximately $2.8 for such
capital expenditures in 1994.
The Company's cement plants generally use coal as their primary fuel,
but most of the plants are equipped to burn natural gas and/or fuel oil as an
alternative. Petroleum coke is also used at certain locations from time to
time in conjunction with other fuels. At times during 1993, 1992 and 1991, the
price of natural gas made it more economical than other available fuels at some
plants. Coal and petroleum coke are generally purchased under agreements which
do not exceed a term of one year. The Company has also utilized HWDF, tires
and other waste materials as supplements to conventional fuels in some of its
cement plants since 1987. During 1991, the Company significantly expanded its
activities in the area of alternative fuel utilization. (See "Resource
Recovery".) Because electric power is also a major cost component in the
manufacture of cement, the Company is vulnerable to escalating power costs.
The Company has sought to diminish overall power costs at certain plants by
either adopting interruptible power supply agreements or implementing more
stringent interruptible clauses. While interruptible power supply agreements
result in reduced power costs, they may expose the Company to some increased
risk of production interruptions during periods of power curtailment.
Market Overview - Demand for cement is highly cyclical and derived
from the demand for concrete products which, in turn, is derived from demand
for construction. According to estimates of the Portland Cement Association
(PCA), the industry's leading trade organization, the three construction
sectors that are the major components of cement consumption are (i) public
works or infrastructure construction, (ii) commercial and industrial
construction and (iii) residential construction, which comprised 54%, 22% and
24%, respectively, of U.S. cement consumption in 1992, the most current period
for which such data is available. Construction spending and cement consumption
have historically fluctuated widely. The construction sector is affected by
the general condition of the economy and can exhibit substantial variations
across the country as a result of the differing structures of the regional
economies. Regional cement markets experience peaks and valleys correlated
with regional construction cycles. While the impact on the Company of
construction cycles in individual regions may be mitigated to some degree by
the geographic diversification of the Company, profitability is very sensitive
to small shifts in the balance between supply and demand. New construction
activity stagnated as the U.S. economy entered a recession during the later
half of 1990, declined in 1991 in most areas and, in California, continued to
decline in 1992. Construction activity was flat to slightly higher in most
other regions of the country during 1992 and, at least in some regions, began
to rebound in 1993. As a consequence, the Company's cement segment sales and
earnings followed a similar cyclical pattern.
5
<PAGE> 8
The following table presents information regarding the market area
served by each of the Company's plants and the number of competitors serving
the same market area.
<TABLE>
<CAPTION>
PLANT LOCATION MARKET AREA SERVED MAJOR COMPETITORS
-------------- ------------------ -----------------
<S> <C> <C>
Victorville, Southern California, western Arizona and Five cement producers and four import
California Southern Nevada facilities
Brooksville, Florida Central, southwestern and northern Florida Four cement producers and seven import
facilities
Kosmosdale, Kentucky Kentucky, West Virginia and portions of Ohio, Nine cement producers and an import
Indiana and Tennessee facility
Fairborn, Ohio Central and southern Ohio, eastern and Nine cement producers and an import
southern Indiana and northern and central facility
Kentucky
Knoxville, Tennessee Eastern Tennessee, North Carolina, and Ten cement producers and an import
portions of Kentucky, Virginia, South facility
Carolina, Georgia and Alabama
Odessa, Texas Eastern New Mexico, Texas Panhandle and west Twelve cement producers and an import
Texas, western Oklahoma, southeastern facility
Colorado and southwestern Kansas
Lyons, Colorado Northern and central Colorado and Four cement producers
southeastern Wyoming
Pittsburgh, Western Pennsylvania and portions of West Four cement producers
Pennsylvania Virginia and Ohio
</TABLE>
Various characteristics of the cement industry are relevant to an
understanding of the conditions of competition and the nature of the Company's
business:
(i) Cement is a homogeneous commodity that is manufactured to meet
standardized technical specifications and is marketed primarily in
bulk quantities without special packaging or labeling. Bagged cement,
however, is differentiated by brand name. The Company's bagged cement
products are marketed under the "Victor," "Miami," "El Toro,"
"Mountain," "Broco," "Kosmos" and "Dixie" labels.
(ii) Because transportation costs are high relative to the value of
the product, cement markets are generally regional. During the 1980s,
however, certain foreign cement producers significantly increased
their shipments into the United States (see "Cement Operations -
Competition"). The majority of the Company's cement sales are made
directly to users of portland and masonry cement, generally within a
radius of 300 miles of each plant, although the Kosmos joint venture's
access to navigable rivers permits it to expand its markets beyond the
traditional 300 mile radius.
(iii) The primary end-users of cement in each regional market
include numerous small and sometimes one or more large ready-mixed
concrete companies. Other principal customers are manufacturers of
concrete products such as blocks, roof tiles, pipes and prefabricated
building components. Sales are also made to building materials
dealers,
6
<PAGE> 9
construction contractors and, particularly from the Odessa plant, oil
well cementing companies. During 1993, 1992 and 1991 approximately
52%, 49% and 50%, respectively, of the Odessa plant's cement sales
volume consisted of sales to oil well cementing companies and the
balance represented sales of construction grade cement. The Company
also manufactures limited amounts of premium priced, specialty cement
products.
The Company is integrated vertically in the regional vicinity
of its two largest cement plants with ready- mixed concrete operations
principally in southern California and in Florida. Approximately 15%,
13% and 21% of the cement sold by the Company's Victorville plant in
1993, 1992 and 1991, respectively, and approximately 37%, 42% and 52%
of the cement sold by the Company's Brooksville plant in 1993, 1992
and 1991, respectively, was sold to the Company's ready-mixed concrete
operations.
(iv) As is common in the industry, the Company has not typically
entered into long-term sales contracts except with respect to certain
major construction projects. However, as a result of successful
antidumping petitions filed by a group of domestic cement producers,
including the Company, various importers have decreased the volumes of
cement imported from foreign countries. The Company has become the
replacement supplier for some of these imported volumes and, during
the past several years, has contracted for terms up to fifteen months
under large volume sales contracts with as many as six other cement
manufacturers or distributors, both foreign and domestic. Some of the
contracts have take-or-pay provisions. In exchange for guarantees of
minimum annual sales volumes, these contracts generally provide for
sales prices lower than the Company's customary sales arrangements.
In 1993 and 1992 these contracts, assuming they represented only
incremental sales (i.e., that fixed costs were fully covered by other
production), accounted for approximately 25% and 31% of the Cement
segment's operating earnings, respectively. For 1994 and beyond the
Company has renegotiated certain of these contracts providing for,
among other things, similar minimum annual sales volumes, price
escalation clauses and, in one instance, a multi-year term. No one
customer represents 10% or more of the Company's consolidated
revenues. Nonetheless, the loss of a significant portion of these
large volume contracts would have a material adverse effect on the
Company's results of operations. The Company believes, however, that
at least a portion of the volumes covered by these contracts could be
replaced by direct sales to cement consumers in the Company's existing
markets.
(v) The Company's cement business is seasonal to the extent that
construction activity and hence, the demand for cement, tends to
diminish during the first and fourth calendar quarters because of
inclement weather conditions, such as those experienced during January
and February 1994.
(vi) During 1993, 1992 and 1991 the Company shipped approximately
6.2 million, 5.8 million and 5.3 million tons of cement, respectively.
The overall demand for cement is relatively price inelastic since
cement represents only a small portion of total construction costs and
cement has few substitutes in many applications. Cement demand varies
directly with the level of construction activity which is a function
of a number of
7
<PAGE> 10
socioeconomic factors, including growth in the U.S. economy and
interest rates, as well as individual regional market factors.
Competition - The cement industry is extremely competitive as a result
of multiple domestic suppliers and, beginning in the 1980s, the importation of
foreign cement through various terminal operations. Despite price inelasticity
of overall cement demand, competition among producers and suppliers of cement
is based primarily on price, with consistency of quality and service to
customers being of lesser significance. Price competition among individual
producers and suppliers of cement within a marketing area is intense because of
the fungible nature of the product. On the basis of statistics published by
the PCA, the Company believes that, as of the end of 1992, the most recent
period for which such data is available, it ranked third in total active cement
manufacturing capacity among the 46 cement companies in the United States. The
U.S. cement industry, however, is fragmented into regional markets rather than
a single national market. Because of its low value-to-weight ratio, the
relative cost of transporting cement is high and limits the geographic area in
which each company can market its products economically. No one cement company
has a distribution of plants extensive enough to serve all markets.
<TABLE>
<CAPTION>
U.S. Clinker Percent of
Rank Capacity (000 Tons) U.S. Industry Company Name
---- ------------------- ------------- ------------
<S> <C> <C> <C>
1 11,226 13.5%% Holnam, Inc.
2 7,263 8.8 LaFarge Corporation
3 5,788 7.0 Southdown, Inc.
4 4,977 6.0 Lone Star Industries, Inc.
5 4,771 5.8 Ash Grove Cement Company
6 4,444 5.3 Lehigh Portland Cement Company
7 4,106 5.0 Blue Circle Inc.
8 3,645 4.4 Medusa Cement Company
9 3,530 4.3 Essroc Corporation
10 3,361 4.1 California Portland Cement Company
--------- -------- ---------------------------------------
53,111 64.2 Total Top Ten
29,648 35.8 Others
--------- -------- ---------------------------------------
82,759 100.0% Total Industry
========= ======== =======================================
</TABLE>
Source: Portland Cement Association, adjusted for recent transactions.
Clinker capacity for joint venture operations is based on each
company's ownership interest.
During the 1980s, competition from imported cement along most coastal
and border areas grew significantly, including the Company's markets in Texas,
Florida and southern California, which are easily accessible to many foreign
producers. The large volume of low priced imported cement entering these
markets caused prices to fall despite strong growth in cement consumption.
According to the PCA, total U.S. consumption of foreign cement increased from
approximately 4.5% of total U.S. consumption in 1982 to a peak of approximately
19.1% in 1987. Foreign cement producers began to export to the U.S. primarily
because of (i) slowdowns in their domestic economies, (ii) a cost advantage
created by a strengthening of the U.S. dollar relative to certain foreign
currencies and (iii) a decline in ocean shipping rates. In recent years, the
influx of foreign cement imports has begun to reverse as a result of, in large
part, successful antidumping actions. Other contributing factors include (i)
increases in foreign
8
<PAGE> 11
consumption of cement, (ii) a decline in the value of the U.S. dollar relative
to other currencies and (iii) rising ocean shipping rates. The PCA has
estimated that imports represented approximately 8% of U.S. consumption in
1992, the most recent data available, as compared with 17% of total U.S.
consumption in 1989.
Antidumping petitions filed by a group of industry participants,
including the Company (Ad Hoc Committee), resulted in favorable determinations
by the International Trade Commission (ITC) against manufacturers of cement in
Mexico and Japan in August 1990 and April 1991, respectively. As a result,
significant antidumping duty cash deposits have been imposed on cement imports
from these two nations. In addition, in February 1992, the Commerce Department
announced that it had signed a five-year agreement with Venezuelan cement
producers designed to eliminate the dumping of gray portland cement from
Venezuela into Florida and the United States generally. The agreement requires
Venezolana de Cementos, S.A.C.A. (Vencemos) and Cementos Caribe, C.A. (Caribe)
to price their U.S. sales no lower than their fully-absorbed cost of
production, plus profit of at least 8 percent, plus shipping costs to the
United States, plus distribution costs in the United States if the importer of
record is related to the foreign exporter. To allow the Commerce Department to
monitor compliance with the agreement, Vencemos and Caribe must submit
quarterly reports of their cost of production and home market profit, as well
as their pricing of all sales to the United States. An intentional violation
would expose the Venezuelan producers to civil fraud penalties.
The success of these antidumping suits has, by substantially
eliminating unfair pricing of foreign cement, prevented prices from declining
more precipitously in the Company's two largest markets, Florida and southern
California, despite a decline of approximately 30% in consumption from 1989 to
1992. In addition, the antidumping suits have provided an opportunity for
domestic producers to displace large volumes of imported cement.
The antidumping duties are subject to annual review by the Department
of Commerce and appeal to the U.S. Court of International Trade. The
determinations to impose substantial tariffs on gray portland cement and
clinker imported from Mexico and Japan have been appealed at various levels by
the foreign producers. The ITC determination against Japanese cement is
pending on appeal before the U.S. Court of International Trade. The
antidumping order remains in effect pending appeal. In response to the Mexican
government's challenge of the ITC's injury determination, a dispute resolution
panel of the General Agreement on Tariffs and Trade (GATT) recommended in July
1992 that the antidumping order be vacated and that all duties collected under
the order be returned. The GATT panel determined that the antidumping order
violates the GATT antidumping code because the U.S. Commerce Department
initiated the investigation without first verifying that the petition was filed
on behalf of the domestic cement producers in the region. Under GATT rules,
the full Antidumping Code Committee, of which the U.S. is a member, must
unanimously adopt the panel's recommendation before it becomes a binding GATT
obligation. The decision whether the U.S., as a member of the Antidumping Code
Committee, would vote to adopt the GATT dispute panel report would be made by
the Office of the U.S. Trade Representative (USTR). Even if the USTR were to
adopt the adverse panel report, the industry petitioners have been advised that
an act of the U.S. Congress would be required to vacate the antidumping order.
In February 1993, the U.S. Court of Appeals for the Federal Circuit
affirmed the ITC's August 1990 decision that U.S. cement producers were
injured by Mexican cement imports that were dumped at unfair prices in the
southern tier of the United States. In April 1993, the Commerce Department
reduced the antidumping duty cash deposit rate of Mexico's primary cement
producer from 58 percent
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to 30 percent. In August 1993, the Department of Commerce determined that
Mexico's primary cement producer was selling various types of cement outside
the ordinary course of trade in Mexico. As no information was available to
perform a "difference in merchandise" calculation between the types of cement
sold in the ordinary course of trade in Mexico and sold in the United States,
the Department of Commerce used a constructed value approach to determine a 43
percent dumping margin for cement imported from Mexico's primary exporter
between August 1991 and July 1992 and established a new cash deposit rate of 43%
on future entries. In September 1993, the Department of Commerce amended its
final determination of the dumping margin for cement imported from Mexico's
primary exporter between April 1990 and July 1991, raising the margin from 30
percent to 41 percent on these entries. The Department of Commerce is
currently reviewing imported Mexican cement for the period August 1992 through
July 1993. The antidumping cash deposit rate on imported cement from Mexico is
now 43 percent for the primary exporter and between 53 and 60 percent for all
other exporters.
The Ad Hoc Committee challenged the Department of Commerce's original
final determination of the dumping margins against Mexican cement in the Court
of International Trade, which largely affirmed the findings of the Department
of Commerce. The Ad Hoc Committee thereupon appealed to the U.S. Court of
Appeals for the Federal Circuit. On January 5, 1994 the U.S. Court of Appeals
of the Federal Circuit reversed the judgment of the Court of International
Trade and remanded the case with direction that the Department of Commerce
recalculate the dumping margins without allowing certain deductions for
home-market transportation costs. Mexico's primary exporter has filed a
petition for rehearing. If the petition is denied, the recalculated dumping
margins (and thus antidumping duties levied) should be greater as a result of
this ruling.
In October 1993, the Department of Commerce reduced the antidumping
cash deposit rate of Japan's primary cement exporter from 45 percent to 18
percent. In February 1994, the Department of Commerce preliminarily determined
to reduce that exporter's cash deposit rate to 8 percent. The Company and
other petitioners have appealed the October 1993 determination to the Court of
International Trade and are vigorously contesting the February 1994 preliminary
determination before the Department of Commerce.
Effective July 1995, the Antidumping Code of the GATT will be
substantially altered pursuant to the recently completed Uruguay Round of
multilateral trade negotiations. The new Code applies to new investigations
initiated after July 1995 and to administrative reviews of outstanding orders
that are initiated after July 1995. If the Congress passes legislation to
approve and implement the Uruguay Round agreement, changes will necessarily be
made to U.S. antidumping law. While the antidumping orders outstanding
against cement and clinker from Mexico and Japan and the suspension agreement
on cement and clinker from Venezuela will remain in force, the new Code will
require the initiation of "sunset" reviews of the antidumping orders against
Mexico and Japan prior to July 2000 to determine whether they should terminate
or remain in effect, unless an earlier date is mandated by Congress. Under the
new Code, it could be more difficult to obtain antidumping orders against other
countries. A substantial reduction or elimination of the existing antidumping
duties could adversely affect the Company's results of operations.
The Company does not believe that the North American Free Trade
Agreement will have a material adverse effect on the foregoing antidumping
duties.
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The supply of cement has also been impacted by the retirement of a
substantial amount of industry capacity in the U.S. since 1981. Although the
decline in industry capacity has slowed in recent years, total U.S. clinker
capacity at the end of 1992, the most recent data available, had declined by
6.8 million tons from 1981. Capacity expansions in the future would require
three to five years from initial planning to commencement of operations as a
result of the time required for permitting, financing, fabrication and
construction.
Resource Recovery - As fuel is one of the largest variable costs in
the manufacture of cement, many members of the cement industry have
investigated the use of alternative sources of fuel as a means of mitigating
this cost factor. The Company obtained the requisite permits for the storage
and burning of HWDF at two of its cement plants and is burning, or pursuing
permits to burn, tires or non-hazardous industrial wastes at certain other
cement plants. (See "Environmental Services".)
The Company began substituting liquid HWDF for a portion of the fossil
fuel requirements at its Fairborn cement plant in 1987. Since that time the
Company has significantly expanded its commitment to the recovery of the energy
value in organic hazardous wastes. Beginning in mid-1990, the Company acquired
a total of seven facilities to process hazardous wastes into liquid and solid
HWDF for introduction into the Company's permitted cement kilns and the
permitted kilns of other cement manufacturers. The initial marketing plan was
predicated on a nationwide system of these treatment, storage and disposal
facilities (TSDs) to collect and process diverse waste streams from a number of
small volume generators. After suffering two and one-half years of start-up
losses totaling approximately $16 million, exclusive of write-downs, however,
management reorganized this business in late 1992. Subsequently, the Company's
Board of Directors approved a revised reorganization plan pursuant to which the
Company is narrowing its marketing focus to larger volume generators and its
waste processing to primarily one cost-efficient, high volume processing
facility which would mainly provide HWDF for the Company's own cement kilns.
Accordingly, management announced its intention to sell all but two of the
Company's TSD facilities, one of which is being upgraded and expanded to
provide increased capacity for blending HWDF. Although the Company will no
longer pursue the development of a nationwide network of TSDs, it will continue
to pursue marketing efforts in most regions of the country to acquire such
wastes.
Cement kilns that burn HWDF are currently regulated under the Boiler
and Industrial Furnace Rule (BIF Rule), relevant Clean Air Act and Clean Water
Act regulations and other federal, state and local environmental laws and
regulations. The Company's cement kilns that burn HWDF may be required to
remediate onsite contamination, if any, under the Resource Conservation and
Recovery Act (RCRA) corrective action program or the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) or the
Superfund Amendments and Reauthorization Act of 1986 (SARA) programs. Such
clean-ups can be very costly.
The BIF Rule requires permits similar to those required of commercial
hazardous waste incinerators. Cement kilns that had burned HWDF by August 21,
1991 were eligible to achieve interim status and thus continue to burn HWDF
while pursuing RCRA Part B permits under the BIF Rule. In addition, those
cement kiln operators that demonstrated an intent to burn HWDF, obtained all
federal, state and local permits regulating the use and management of such
fuels and committed to or commenced the construction of all such kiln
modifications, in each case no later than August 21, 1991, also were eligible
to achieve interim status. The regional Environmental Protection Agency
offices have confirmed the interim status of the Company's cement plants in
Tennessee and Ohio and denied the Company's claim for interim status for its
plant in Texas. The Company voluntarily withdrew its interim status
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claims for its Pennsylvania and Florida plants in February 1992 and for its
Kentucky plant in December 1993.
The Tennessee and Ohio plants have completed compliance testing and
appropriate certification under the BIF Rule. The Tennessee plant has also
obtained the requisite air permits to burn both liquid and solid HWDF and began
utilizing liquid and solid HWDF in 1990. The Tennessee plant also has a RCRA
Part B permit for storage under which a new liquids HWDF tank farm and related
handling systems have been constructed. The Ohio plant commenced burning
liquid HWDF in 1987 and from time-to-time between 1987 and late 1991 utilized
liquid HWDF as a fuel supplement. The Ohio plant is presently permitted to
utilize liquid HWDF and tires as fuel supplements under the terms and
conditions of an air permit renewal issued in late 1993. It is anticipated
that the Ohio Hazardous Waste Facilities Board will issue the RCRA Part B
permit for the Ohio plant's HWDF storage facility in late March 1994. Permit
modifications are also in hand or in process to allow for the burning of tires
or other non-hazardous industrial waste materials at five of the Company's
cement plants including the Tennessee plant. Although the Company has no
current plans to do so, it may also initiate new federal and state permitting
efforts covering the burning of HWDF at other cement plants in the future.
Such new permitting processes, however, would take several years and the
Company cannot commence burning HWDF at these plants until all requisite
permits are received.
Cement plants and quarries are subject to regulations and safety
standards established by the federal government under the Mine Safety and
Health Act as well as the safety codes of state and local governments. The
Company's utilization of HWDF in some of its cement kilns has also necessitated
the familiarization of its work force with the more exacting requirements of
applicable environmental laws and regulations with respect to human health and
the environment. The failure to observe the exacting requirements of these
laws and regulations could jeopardize the Company's hazardous waste management
permits and, under certain circumstances, expose the Company to significant
liabilities and costs of cleaning up releases of hazardous wastes into the
environment.
The regulatory status of cement kiln dust (CKD) is governed by the
Bevill amendment, enacted by Congress as part of the Solid Waste Disposal Act
Amendments of 1980 (Act). Under the Bevill amendment, CKD, along with several
other low hazard, high volume wastes identified by Congress, is excluded from
regulation as hazardous waste under the RCRA, Subtitle C, pending completion of
a study and recommendations to Congress by the U.S. Environmental Protection
Agency (U.S. EPA). During 1992 the U.S. EPA collected CKD samples from 15
cement plants, including two of the Company's plants, and analyzed various
samples for organics and metals, dioxins and furans, radionuclides and other
parameters. The U.S. EPA's Report to Congress on CKD (CKD Report) was made in
December 1993 and hearings were held on February 15, 1994.
Under the BIF Rule, the Bevill exclusion also applies to CKD generated
by kilns that utilize HWDF if the concentration of certain constituents in the
CKD is not significantly greater than in the CKD generated when fossil fuels
are used, or if these constituents are present in the CKD at levels determined
by U.S. EPA to present no significant risk to human health. CKD from kilns
burning HWDF that fails to meet both of these requirements is not entitled to
the Bevill exclusion and requires appropriate management.
In September 1992 the U.S. EPA announced it was temporarily
withdrawing its proposed waste identification rule which would have replaced
existing rules determining which materials must be managed as a hazardous
waste. The proposed rule, drafted and released for comment in February 1992,
was
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intended as the replacement for the U.S. EPA's so-called "mixture" and "derived
from" rules which have been held invalid by a federal appeals court. The
mixture and derived from rules recognized by the U.S. EPA and many states
generally classify any solid waste as hazardous if it is mixed with or derived
from any substance listed by the U.S. EPA as hazardous, without regard to the
actual toxicity or other hazardous characteristics of the resultant mixture or
residual, and thereby subject these materials to the same stringent disposal
rules that apply to U.S. EPA listed wastes. If these regulations or others are
modified in the future, the volume and type of hazardous wastes available to
SES's processors could be altered.
Certain critics of the cement industry have asserted that cement
manufactured with HWDF is a hazardous waste under the "derived from" rule and
that such cement contains materially higher levels of organics and metals than
cement manufactured with fossil fuels and have proposed the labeling of such
cement on bulk invoices and on cement bags. At least one locality has banned
the use of such cement in public works projects. However, tests conducted by
the Company and other entities located in the United States and abroad indicate
that the levels of organic constituents detected in cements produced with
conventional fossil fuels and with HWDF are not materially different. Similar
testing also indicates that there is no material difference in the rates at
which metals leach from cement produced with HWDF as compared with cement
produced with conventional fossil fuels, and neither type of cement typically
exhibits hazardous characteristics under U.S. EPA's Toxicity Characteristic
Leaching Procedure test. To date, the U.S. EPA has not indicated that it
intends to regulate cement produced using HWDF as a fuel supplement.
The Company has encountered intense levels of public resistance to the
use of HWDF in its cement kilns. In some cases this resistance has resulted in
the adoption of onerous, and sometimes unenforceable, laws and local
ordinances, including moratoria on burning hazardous waste in cement kilns,
ordinances banning the purchase of cement fired with HWDF and local siting
ordinances. The sources of such resistance vary from groups who desire to stop
the generation of all industrial hazardous waste by preventing its disposal, to
groups of local citizens who have concerns about the impact of the use of HWDF
upon human health and the environment in their community. The Company is
endeavoring to satisfy the concerns of local citizenry through effective
communication programs and, in some cases, public participation in citizen
oversight committees. The Company believes that it can substitute HWDF for a
portion of fossil fuel requirements at its cement plants without endangering
human health and the environment.
According to estimates compiled by the Cement Kiln Recycling
Coalition, a trade association of cement manufacturers actively pursuing the
use of HWDF, there are 108 cement plants with a total of 210 cement kilns
operating in the United States of which approximately 25 kilns actively
participate in the hazardous waste management industry by utilizing HWDF in
resource recovery programs. Based on industry information available to the
Company, the Company believes that approximately five additional kilns may be
seeking authorization to burn HWDF. The Company cannot predict how many of
these additional kilns, if any, will ever engage in resource recovery programs.
Capital Expenditures - Capital expenditures during 1993 amounted to
$8.5 million for the Cement segment compared with $4.9 million and $13 million
in 1992 and 1991, respectively. Capital outlays in 1994 have been budgeted at
approximately $17.5 million. Approximately 14% of the budgeted 1994 total is
related to compliance with environmental regulations.
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Environmental Matters - The cement manufacturing industry, including
the operations of the Company, is regulated by federal, state and local laws
and regulations pertaining to several areas including human health and safety
and environmental compliance. CERCLA, as amended by the SARA, as well as
analogous laws in certain states, create joint and several liability for the
cost of cleaning up or correcting releases to the environment of designated
hazardous substances. Among those who may be held jointly and severally liable
are those who generated the waste, those who arranged for disposal, those who
owned the disposal site or facility at the time of disposal and current owners.
In general, this liability is imposed in a series of governmental proceedings
initiated by the identification of a site for initial listing as a "Superfund
site" on the National Priorities List or a similar state list and the
identification of potentially responsible parties who may be liable for cleanup
costs. Certain of the Company's disposal sites in Victorville, California and
Fairborn, Ohio are in the preliminary stages of evaluation for inclusion on the
National Priorities List compiled under the U.S. EPA's Comprehensive
Environmental Response, Compensation and Liability Information System
(CERCLIS). Inclusion in CERCLIS is designation for further evaluation only and
not a determination of liability or a finding that any response action is
necessary.
The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of all sources of air pollution and established a new federal
operating permit and fee program for virtually all manufacturing operations.
The Clean Air Act Amendments will likely result in increased capital and
operational expenses for the Company in the future, the amounts of which are
not presently determinable. By 1995, the Company's U.S. operations will have
to submit detailed permit applications and pay recurring permit fees. In
addition, the U.S. EPA is developing air toxics regulations for a broad
spectrum of industrial sectors, including portland cement manufacturing. The
U.S. EPA has indicated that the new maximum available control technology
standards could require significant reduction of air pollutants below existing
levels prevalent in the industry. Management has no reason to believe,
however, that these new standards would place the Company at a competitive
disadvantage.
The Federal Water Pollution Control Act, commonly known as the Clean
Water Act (Clean Water Act), provides comprehensive federal regulation of all
sources of water pollution. In September 1992 the Company filed a number of
applications under the Clean Water Act for National Pollutant Discharge
Elimination System (NPDES) stormwater permits. The Company now believes that
some of its existing NPDES permits or pending applications relating to its
cement plants and raw materials quarries may not cover all process water and
stormwater discharges. Legal counsel has advised the Company, based upon its
preliminary review of the matter, that while the Clean Water Act authorizes,
among other remedies, the imposition of civil penalties of up to $25,000 per
day for unpermitted discharges of pollutants to the waters of the United
States, several factors may mitigate against the impositions of substantial
fines. First, the Company is moving forward as expeditiously as practicable to
correct all NPDES permitting deficiencies. Second, some of the permitting
issues arise from mere technical deficiencies in permit applications or from
changes in discharge patterns after submission of permit applications. In each
such case, legal counsel believes that such deficiencies are neither unusual
nor difficult to rectify. Finally, some of the deficiencies relate to
questions of the scope of the Clean Water Act's jurisdiction that are, at best,
unclear.
Management believes that the Company's current procedures and
practices for handling and management of materials are consistent with industry
standards and legal requirements and that appropriate precautions are taken to
protect employees and others from harmful exposure to hazardous materials.
However, because of the complexity of operations and legal requirements, there
can be no
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<PAGE> 17
assurance that past or future operations will not result in operational errors,
violations, remediation liabilities or claims by employees or others alleging
exposure to toxic or hazardous materials.
Industrial operations have been conducted at some of the Company's
cement manufacturing facilities for almost 100 years. Many of the raw
materials, products and by-products associated with the operation of any
industrial facility, including those for the production of cement or concrete
products, may contain chemical elements or compounds that are designated as
hazardous substances. Some examples of such materials are the trace metals
present in CKD, chromium present in refractory brick used to line cement kilns
and general purpose solvents. In the past, the Company disposed of various
materials, including used refractory brick and other products generally used in
its cement manufacturing and concrete products operations, in onsite and
offsite facilities. Some of these residuals, when discarded, are now
classified as hazardous wastes and subject to regulation under federal and
state environmental laws and regulations, which may require the Company to
remediate some or all of the affected disposal sites. During the same period,
the Company placed CKD in abandoned quarries or other locations at its plant
sites and elsewhere.
CKD is currently exempt from management as a hazardous waste, except
CKD which is produced by kilns burning HWDF and which fails to meet certain
criteria. However, CKD that comes in contact with water may produce a leachate
with an alkalinity high enough to classify the leachate as hazardous and may
also leach the hazardous trace metals present therein. Leaching has led to the
classification of at least three CKD disposal sites of other companies as
federal Superfund sites. Several of the Company's inactive CKD disposal sites
around the country are under study to determine if remedial action is required
and, if so, the extent of any such remedial action required. These studies may
take some time to complete. Thereafter, remediation plans, if required, will
have to be devised and implemented, which could take several additional years.
An inactive CKD disposal site in Ohio is currently under investigation
by the Company and state environmental agencies to determine appropriate
remedial action required at the site. In late July 1991, the Company submitted
to the Ohio Environmental Protection Agency (Ohio EPA) for evaluation an
initial remediation study indicating the potential extent and nature of a
remediation problem at this site. The initial study revealed that the leachate
from the site was negatively impacting the environment in the vicinity through
ground and surface water pathways. The full extent of the environmental
impact, however, was not determined during the first phase of the investigation
and a reliable estimate of total remedial costs could not be made at that time.
However, the Company recorded a charge of $3.1 million as its initial estimate
of the minimum remediation cost.
In May 1992, a second phase investigation report related to this site
was finalized by the Company's consultant. The report described the results of
a hydrogeological investigation and provided background data for the assessment
of probable remedial alternatives. In addition, in July 1992 the Ohio EPA
issued an administrative order (Director's Order) with respect to this inactive
CKD disposal site. The Director's Order formalized the Company's own
investigation and remediation plans and required the Company to implement an
approved remediation workplan to be directed and monitored by the Ohio EPA.
Because of the Director's Order and the additional information produced by the
ongoing environmental and preliminary engineering investigations, the Company
recorded an additional $3.6 million pre-tax charge in the second quarter of
1992 to increase its reserve with respect to this site to $6.7 million. In
October 1993, the Company received a consulting report proposing additional
refinements of earlier remediation estimates which increased the total
estimated cost to remediate this site from $6.7
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<PAGE> 18
million to $9.7 million. Accordingly, the Company recorded an additional $3.0
million charge in the third quarter of 1993 to recognize what the Company
believes will be the final change in the estimate.
On a voluntary basis, without administrative or legal action being
taken, the Company is also investigating two other inactive Ohio CKD disposal
sites. The two additional sites in question were part of a cement
manufacturing facility that was owned and operated by a now dissolved cement
company from 1924 to 1945 and by a division of USX Corporation (USX) from 1945
to 1975. The facility was acquired by the Company in December 1976. The
former owners disposed of CKD and other plant waste materials at both sites but
conditions at the two sites in question have remained virtually unchanged from
when they were acquired by the Company. In 1991 the Company contracted to have
an evaluation performed of surface and groundwater characteristics in the
vicinity of the larger of the two sites (the Site). In general, the surface
and groundwater samples downstream from the Site showed elevated levels of
alkalinity and heavy metals classified as hazardous substances under CERCLA.
The Company notified the proper authorities and the U.S. EPA has conducted a
preliminary assessment to determine if the Site warrants further governmental
action. In July 1993, the Ohio EPA placed the Site on its Master Sites List of
sites that potentially pose a threat to public health or the environment from
the release or potential release of hazardous wastes or substances into the
environment.
On September 24, 1993, the Company filed a complaint (Complaint) in
U.S. District Court in Ohio against USX, alleging that USX is a potentially
responsible party under CERCLA and under applicable Ohio law, and therefore
jointly and severally liable for costs associated with cleanup of the Site. On
November 12, 1993, USX responded to the Complaint by filing a motion to dismiss
asserting that no liability for cleanup costs relating to the cement kiln dust
in the Site could be asserted by the Company against USX under CERCLA. The
Company filed a response to the motion to dismiss in December 1993 and, on
January 14, 1994, USX filed a reply to the Company's response to USX's motion
to dismiss.
The Company intends to vigorously pursue its right to contribution
from USX for cleanup costs under CERCLA and Ohio law. Based upon the advice of
counsel, the Company believes (i) that USX should not prevail as a matter of
law on a motion to dismiss the Complaint; (ii) it is probable that the court
should find the Site constitutes a facility from which a release or threatened
release of a hazardous substance has occurred; (iii) the release or threatened
release has caused the Company to incur response costs necessary and consistent
with CERCLA and (iv) that USX is a responsible party because it owned and
operated the Site at the time of disposal of the hazardous substance, arranged
for the disposal of the hazardous substance and transported the hazardous
substance to the Site. Therefore, counsel to the Company has advised that it
appears there is a reasonable basis for the apportionment of cleanup costs
relating to the Site between the Company and USX, with USX shouldering
substantially all of the cleanup costs because, based on the facts known at
this time, the Company itself disposed of no cement kiln dust at the Site and
is potentially liable under CERCLA because of its current ownership of the
Site. These determinations, however, are preliminary, and are based only upon
facts available to the Company prior to any discovery.
Based on the limited information available as of December 31, 1993 the
Company has received two preliminary engineering estimates of the potential
magnitude of the remediation costs for the Site, $8 million and $32 million,
depending on the assumptions used. Given the preliminary nature of these
estimates, neither alternative seems more likely than the other. Under CERCLA
and applicable Ohio law a court generally applies equitable principles in
determining the amount of contribution which a potentially responsible party
must provide with respect to a cleanup of hazardous substances and such
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determination is within the sole discretion of the court. In addition, no
regulatory agency has directly asserted a claim against the Company as the
owner of the Site requiring it to remediate the property, and no cleanup of the
Site has yet been initiated. The previously mentioned CKD Report, however,
expressly cites the Site as an example of a facility from which a release or
threatened release of a hazardous substance has occurred.
In late July 1993, a citizens' environmental group brought suit in
U.S. District Court in Ohio, alleging that the Company is in violation of the
Clean Water Act by virtue of the discharge of pollutants in connection with the
runoff of stormwater and groundwater from the Site and is seeking injunctive
relief, unspecified civil penalties and attorneys' fees, including expert
witness fees. On November 12, 1993 the Company rejected the environmental
group's settlement demand without offering a counterproposal. Accordingly, the
Company is unable to determine at this time what liability, if any, it may have
with respect to this matter.
No substantial investigative work has been undertaken at other CKD
sites in Ohio. Although data necessary to enable the Company to estimate total
remediation costs is not available, the Company acknowledges that the ultimate
cost to remediate the CKD disposal problem in Ohio could be significantly more
than the amounts reserved.
U.S. EPA's Combustion Industry Strategy - On May 18, 1993, the U.S.
EPA promulgated the agency's combustion strategy and waste minimization policy.
Under the combustion strategy, the U.S. EPA essentially imposed an 18-month
moratorium on the permitting of new thermal treatment capacity and ordered all
available agency resources be applied to issuing final burning permits to
offsite boilers and industrial furnaces, including cement kilns. In addition,
the U.S. EPA stated that it would use its omnibus permitting authority to
reduce the particulate standard, to establish a dioxin standard and to require
risk assessments of direct and indirect pathways of exposure. Furthermore, the
U.S. EPA indicated that there was substantial excess thermal treatment capacity
in the United States and that the U.S. EPA should reduce such permitted
capacity by 25% over the next ten years. The Cement Kiln Recycling Coalition
(CKRC), an organization of cement manufacturers that burn HWDF as a fuel
substitute and of which the Company is a member, sued to set aside the
combustion strategy largely because it was, in effect, a rule making without
notice and an opportunity for public hearing. The CKRC supports a legislative
program that would result in technology based standards for particulate and
dioxin controls applicable to all thermal treatment devices and risk assessment
standards that have been exhaustively reviewed during public hearing process.
The U.S. EPA has advised its regional administrators that the particulate and
dioxin standards set forth in the combustion strategy were for discussion
purposes, and would be definitively determined pursuant to subsequent
rulemakings. Therefore, the U.S. EPA and the CKRC have agreed to a nine-month
stay of the CKRC's suit.
Owners and operators of industrial facilities and those who handle,
store or dispose of hazardous substances may be subject to fines and other
sanctions imposed by the U.S. EPA and corresponding state regulatory agencies
for violations of laws or regulations relating to those substances. The
Company has incurred fines imposed by those agencies in the past. As a result
of an aggressive inspection and enforcement initiative targeting combustion
industry facilities, the Company was among a group of owners and operators of
28 boilers and industrial furnaces, including several other major cement
manufacturers, from which the U.S. EPA is seeking over $19.8 million in
penalties. On September 27, 1993, the U.S. EPA issued a Complaint and
Compliance Order (Order) (United States Environmental Protection Agency, Region
5 v. Southdown, Inc. d/b/a Southwestern Portland Cement - Docket No. VW 27-
93) alleging certain violations of the RCRA applicable to the burning or
processing of hazardous waste
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in an industrial furnace. The alleged violations included, among others,
exceedence of certified feed rates for total hazardous waste at the Company's
Ohio cement manufacturing facility, failure to demonstrate that CKD generated
at the facility is excluded from the definition of hazardous waste and storage
at the facility without a permit of CKD alleged to be hazardous by virtue of
that failure to demonstrate its exclusion from the definition. The Order
proposed the assessment of a civil penalty in the amount of $1.1 million and
closure of certain storage silos containing the CKD that allegedly is hazardous
waste. The Company has engaged counsel to respond to the U.S. EPA Order and
believes, after reviewing the complaint and the Company's compliance with the
applicable regulations, there are substantial mitigating factors to the
interpretations and allegations contained in the Order.
For additional discussion of environmental matters related to resource
recovery operations see "Environmental Services - Environmental Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Known Events, Trends and Uncertainties - Environmental Matters",
which are incorporated herein by reference.
CONCRETE PRODUCTS
Company Operations - The Company has vertically integrated its
operations in the regional vicinity of its two largest cement plants, which are
located in southern California and in Florida. The Company, doing business as
Transit Mixed Concrete Company (Transmix), is a major producer of ready-mixed
concrete and a supplier of aggregate in the southern California counties of Los
Angeles and Orange. The Company, doing business as Florida Mining & Materials
Concrete Corp. (Florida Mining), is a major producer and supplier of
ready-mixed concrete and other concrete products in Florida and southeastern
Georgia. The Company believes that vertical integration into concrete products
enhances its overall competitive position in these markets. The Company's
combined annual concrete production capacity is over 5.0 million cubic yards.
Transmix sells concrete primarily to commercial and industrial builders, as
well as contractors on public construction projects, while Florida Mining's
sales include a high percentage of sales to residential builders. Florida
Mining also manufactures and sells concrete blocks and certain related concrete
products.
Concrete is formed by mixing sand, water and gravel with cement, the
basic binding agent. Transmix and Florida Mining each purchases the majority
of its cement from one of the Company's cement plants. Alternative supplies of
cement are readily available from other sources, if necessary. Transmix
extracts sand and gravel for use in its operations from two active aggregate
quarries, one of which is under a long-term lease. The Company sold its three
Florida aggregate operations and presently purchases sand and gravel for use in
its Florida ready-mixed concrete operations under an aggregate supply contract
negotiated in conjunction with the sale. The Company's Concrete Products
operations consist of approximately 550 ready-mixed concrete trucks, 68 batch
plants, two active aggregate quarries, one of which is under long-term lease
and 12 concrete block plants.
In conjunction with the sale of the Company's Florida aggregates
business in late 1991 and 1992, the parties entered into a long-term supply
contract under which the Company's ready-mixed concrete operations in Florida
purchase their requirements for aggregate from Vulcan/ICA Distribution Company
(Vulcan/ICA). Since the sale of the Florida aggregates business operating
results of the Concrete Products segment have been affected by the difference
in the costs to produce these aggregates and the price paid by the Company's
Florida ready-mixed concrete operations to purchase aggregates from Vulcan/ICA
under the long-term supply contract.
18
<PAGE> 21
A slowdown in construction activity in both Florida and southern
California began in 1990 and resulted in lower sales volume in these market
areas which continued throughout 1992. In 1993 ready-mixed concrete volumes
improved approximately 8% to a total of 3.3 million cubic yards, primarily
because of improved volumes in Florida while sales volumes for the Company's
southern California aggregate operation improved approximately 20%. In 1992,
the Company sold approximately 3.0 million cubic yards of concrete and
approximately 750,000 tons of aggregates compared with 3.5 million cubic yards
of concrete and 1.6 million tons of aggregates in 1991.
Market Overview - The demand for concrete products is derived from the
demand for construction. The construction sector is subject to the vagaries of
weather conditions, the availability of financing at reasonable interest rates
and overall fluctuations in regional economies, which tend to be cyclical. The
burden of relatively high fixed costs results in a disproportionate impact on
profits with only minor variations in sales volume. Seasonal factors are not
as significant in the market areas served by the Company's concrete products
businesses as in some markets, but construction activity tends to diminish
during prolonged periods of inclement weather. New construction activity
experienced a slowdown in both market areas in the latter half of 1990 which
continued throughout 1992. While the Florida market stabilized in 1992 and
gave indications of improvement in 1993, the southern California market
slowdown continued during 1993 despite some small signs of improvement and
sales volume increases late in the year.
Competition - Competition within each market includes numerous small
and several large ready-mixed operators. Competition for sales volume is
strong, based primarily on price, with consistency of quality and service to
customers being of lesser significance. In Florida, Florida Mining's principal
competitors include Tarmac Florida, Inc., Rinker Materials Corp., and Florida
Rock Industries, Inc. In California, Transmix's principal competitors include
Beazer West, Inc., A&A Ready-mixed Concrete, Inc. and Catalina Pacific
Concrete, Inc.
Capital Expenditures - Capital expenditures during 1993 amounted to
$3.5 million for the Concrete Products segment compared with $1.5 million and
$5.2 million in 1992 and 1991, respectively. The 1991 downturn in the
ready-mixed concrete business obviated the need for capital expenditures for
mobile equipment. In certain instances equipment is being leased instead of
purchased. Capital outlays in 1994 have been budgeted at approximately $11
million, including approximately $2.5 million in mobile equipment, $1.3 million
in quarry development, $3 million related to compliance with environmental
regulations and the balance for batch plant equipment replacement and
modernization.
Environmental Matters - The concrete products industry is subject to
environmental regulations similar to those governing the Company's cement
operations. As with the cement operations, certain of the concrete products
operations are presently the subject of various local, state and federal
environmental proceedings and inquiries. The Company along with other entities
with activities and operations in the vicinity of Azusa, California, received
notices of potential responsibility and requests for information by the U.S.
EPA. The Company does not believe that, among the many potential responsible
parties (PRPs) in the San Gabriel basin where the Azusa quarry leased and
operated by the Company is located, the Company will become a primary target of
the U.S. EPA's investigation. In October 1991, the U.S. EPA advised that a
former owner/operator of the majority of the area in question had agreed to
conduct a site assessment for possible soil and groundwater contamination and
to reimburse U.S. EPA for costs incurred to date by the agency on this matter.
At that time the U.S. EPA had advised that proper and timely completion of this
site assessment would obviate the need for U.S. EPA to issue a special notice
letter to commence other enforcement actions during this phase of the
investigation process.
19
<PAGE> 22
In February 1994, the Company learned that the U.S. EPA has made
public a Feasibility Study and Proposed Plan for taking interim groundwater
remedial actions in the Baldwin Park Operable Unit located in the San Gabriel
basin, and has indicated its intent to issue a Record of Decision (ROD)
regarding the proposed plan. In addition, the U.S. EPA has indicated its
intent to issue special notice letters requiring the Baldwin Park PRPs,
including the Company, to make a good faith offer to perform the actions
described in the Plan and the ROD. A coalition of PRPs is pursuing efforts to
design and present to EPA a cost effective response to water quality concerns
in the Baldwin Park Operable Unit.
Browning-Ferris Industries, Inc. (BFI) is contractually obligated to
indemnify the Company for any environmental liability arising from the
Company's ownership of the land comprising its current aggregate and ready-mix
plant and the landfill site. BFI is also contractually obligated to indemnify
the Company for any environmental liability arising from its operation of the
Azusa landfill prior to the sale of the property and the landfill operations to
BFI in 1987.
On November 17, 1992, Region IV of the U.S. EPA advised the Company of
certain alleged violations of the NPDES permit issued to a ready-mixed concrete
facility operated by the Company in Tallahassee, Florida. (See also "Legal
Proceedings", "Cement Operations - Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Environmental Matters".)
ENVIRONMENTAL SERVICES
Company Operations - During 1993, the Company's environmental services
business generated revenues of $36.1 million and reported an operating loss of
$2.2 million, excluding a $3.1 million write-down of certain environmental
assets, compared with revenues of $43.4 million and an operating loss of $10.6
million in 1992, excluding a $21.4 million write-down of certain environmental
assets, and revenues of $36.8 million and an operating loss of $4.4 million in
1991.
The Company began substituting liquid HWDF for a portion of the fossil
fuel requirements at its Fairborn cement plant in 1987. The Company
significantly expanded its commitment to the recovery of the energy value in
organic hazardous wastes beginning in mid-1990 with the acquisition of a total
of seven facilities to process hazardous wastes into liquid and solid HWDF for
introduction into permitted cement kilns as a partial substitute for
conventional fuels. The Company receives processing revenues from generators
of hazardous waste and is also able to reduce outside purchases of fossil
fuels, one of the Company's largest variable costs in its cement operations, by
utilizing HWDF. Contrary to management's expectations, however, the Company
experienced start-up losses totaling approximately $16 million, exclusive of
write-downs, in its first two and one-half years in the business. Accordingly,
the Company restructured this business in late 1992, narrowing its focus by
selling, or planning to sell, all but two of its HWDF processing facilities.
The Tennessee facility, one of those being retained, is being upgraded and
expanded to provide increased capacity for blending HWDF. As of December 31,
1993, the Company had sold three of its original seven TSDs and is continuing
efforts to sell two additional TSDs. After trying unsuccessfully to sell its
Alsip, Illinois facility for almost a year, the Company recorded a $3.1 million
pretax charge in the fourth quarter of 1993 to record an estimated $1 million
in remediation costs at that facility and to write down the carrying value of
this facility to reflect the Company's revised estimate of net realizable
value. In January 1994 the Company negotiated a letter of intent for a
proposed sale of this facility that would generate neither a gain or a loss.
In connection with restructuring this segment, the Company recorded a $21.4
million pretax charge in 1992 to write
20
<PAGE> 23
down the difference between book value, including intangible assets, and the
estimated realizable value of the TSDs, net of operating losses expected to
occur prior to disposition, and to expense the non-recoverable portion of
previously deferred environmental permitting costs incurred in the development
of the environmental services business.
SES also owns a TSD facility in Inglewood, California that is
primarily a recycling facility for solvents and other organics. Although these
operations do not coincide with SES's long-term strategy for its environmental
services business, the ultimate disposition of the property is unclear because
of the resolution of a conditional deferred payment obligation and other
issues. (See "Legal Proceedings".) SES will continue to operate the Inglewood
location as a TSD facility until such time as these matters are resolved.
Although SES will no longer pursue the development of a nationwide
network of TSD facilities, it has reaffirmed its initial concept of recovering
the energy value of certain organic hazardous wastes both as a cost saving
alternative source of fuel and as a revenue producing service. SES will
continue to collect hazardous waste from most of the major markets in the
country for processing at the two remaining facilities. SES has retained and
is continuing to develop its sales force and remains committed to the
environmental services business. The segment's results improved significantly
in 1993 compared with 1992 as a result of the processor dispositions and the
related restructuring of the environmental services business.
The two TSD facilities that SES will retain process and dispose of
various hazardous waste streams for a variety of commercial, governmental and
industrial customers. The Tennessee TSD facility is being designed to
ultimately provide capacity to process approximately 90,000 tons of solid and
liquid hazardous waste annually compared with approximately 30,000 tons of
liquid and solid HWDF blended by SES's processor network in 1993. Certain
organic materials are processed and blended into HWDF for use in cement kilns
including some of those operated by the Company. Under the HWDF program, the
energy value of a wide variety of waste materials, including cleaning solvents
and degreasers, paint residues, inks, varnishes, storage tank sludges and
sediments, as well as the protective clothing and equipment for handling such
items, is recovered and used in the cement manufacturing process in a way that
the Company believes can be both economically beneficial and environmentally
sound. Certain non-recyclable residual materials from hazardous waste
treatment processes are disposed of by third-party incineration or land
disposal.
The ability of the Company's environmental services business to
generate operating earnings is dependent on a number of factors, including the
renewal of treatment, storage and disposal permits to authorize the processing
of hazardous waste, the availability of sufficient volumes of hazardous wastes
for processing and the renewal of permits to burn HWDF in certain of the
Company's cement kilns. In May 1993 the U.S. EPA essentially imposed an 18
month moratorium on the permitting of new thermal treatment capacity and began
an aggressive inspection and enforcement initiative targeting combustion
industry facilities, including cement kilns. See "Cement Operations,
Environmental Matters -- U.S. EPA's Combustion Industry Strategy".
21
<PAGE> 24
The following table presents current information for the TSD
facilities to be retained by SES regarding the location, regulatory status,
waste-processing technologies and types of wastes accepted.
<TABLE>
<CAPTION>
Principal
RCRA Waste-Processing Waste Types
Name/Location Status Technologies Accepted
------------- ------ ------------ --------
<S> <C> <C> <C>
Birmingham, Alabama Part B, Solvent recovery - Paints and inks.
approved thin-film evapora- Solvents and
tion. Fuels blending. other organics.
Solids processing. Waste oil
Commercial chemicals.
Mt. Pleasant, Tennessee Part B, Fuels blending. Paints and inks.
approved Solids processing. Solvents and
other organics.
Waste oil.
Commercial chemicals.
</TABLE>
The Birmingham TSD facility's RCRA Part B permit renewal application
was submitted during 1993. There is no assurance that SES's existing TSD
permits or the Company's permits to utilize HWDF at two of its cement plants
will be renewed upon their expiration. It is also possible that existing
permits could be revoked or suspended for a variety of reasons.
Market Overview - The vast majority of organic hazardous waste
produced by U.S. industry, in both liquid and solid forms, is disposed of
onsite by large companies that generate the waste. However, there is a
substantial market for offsite commercial disposal services to be provided to
small and medium sized companies that cannot economically justify the cost of
onsite disposal or to companies, regardless of their size, who choose not to
accept the risks inherent in onsite hazardous waste management. The demand for
offsite hazardous waste management services is primarily driven by two Federal
statutes: RCRA, which was enacted in 1976 to address the management of
currently generated hazardous waste, and CERCLA or Superfund, which was enacted
in 1980 to clean up past mismanagement of hazardous wastes. As a result of the
Hazardous and Solid Waste Amendments of 1984 (HSWA), the U.S. EPA has been
implementing restrictions on land disposal of certain hazardous wastes and
treatment standards as well as establishing an ongoing waste evaluation
program. These restrictions and standards have created a demand for commercial
treatment and disposal capacity for hazardous wastes.
Competition - SES has three principal sources of competition: (i)
offsite hazardous waste service companies, including incinerators, that offer
technologies similar to those offered by SES; (ii) generators that process
their own hazardous wastes onsite; and (iii) hazardous waste treatment
companies that offer treatment technologies, such as detoxification, not
offered by SES. SES competes with commercial offsite hazardous waste companies
including Chemical Waste Management, Inc. (Chemical Waste), Environmental
Systems Company, Rollins Environmental Systems Company, Inc. (Rollins) and
others which provide environmental services including the incineration of
hazardous waste. Chemical Waste and Rollins also operate landfills as an
alternative means of hazardous waste disposal. In addition, the Company
competes with certain other cement companies including Holnam, Inc. (Holnam),
LaFarge Corporation (LaFarge), Essroc Corporation, Ash Grove Cement Company,
Giant Group Ltd., Continental Cement Company, Inc. and others which utilize
HWDF in cement kilns. Holnam and LaFarge are also engaged in the collection,
processing, treatment and disposal of hazardous waste. In mid-1991, Chemical
Waste and Holnam established a joint venture under which Chemical Waste would
provide HWDF for introduction into certain of Holnam's cement kilns.
22
<PAGE> 25
Operating costs and collection and disposal fees for hazardous wastes
vary geographically. Prices for hazardous waste collection and disposal
services are determined by volume, weight and characteristics of the wastes
collected, treatment requirements, risks involved in the handling and disposal,
competitive factors, costs of disposal and the distance to final disposal
sites. Competition in pricing and type and quality of services offered is
intense. Excess thermal treatment capacity has resulted in spot shortages of
certain types of qualified hazardous wastes and a decline in disposal fees.
Hazardous waste services are typically provided to customers under contracts
which can be one-time processing agreements or agreements continuing for a
period of months or years, and usually provide, among other things, for
periodic price adjustments and for the customer to retain legal responsibility
for any wastes that are rejected by SES because the wastes do not conform to
agreed upon criteria.
Capital Expenditures - Capital expenditures amounted to $11 million
during 1993, including $3.1 million for resource recovery operations, compared
with 1992 expenditures of $9.7 million and 1991 expenditures of $10.4 million
subsequent to the acquisitions. Capital outlays in 1994 have been budgeted at
approximately $10.4 million, including approximately $4.6 million for resource
recovery and $4.6 million to complete the expansion of one of the remaining
processing facilities. Approximately $1.4 million of the total is related to
compliance with environmental regulations.
Although a significant portion of the Company's capital and other
expenditures for the Environmental Services segment relate to complying with
the laws and regulations concerning the protection of human health and the
environment, these expenditures have neither materially adversely affected the
earnings of the Company nor placed SES at a competitive disadvantage. The
amounts expended by the Company on its facilities for compliance with laws
relating to human health and the environment did not have a material impact on
the consolidated financial position of the Company in 1993, and the Company
does not currently expect the rate of such expenditures to increase
significantly during the ensuing fiscal years. However, regulatory changes,
enforcement activities or other factors could alter this expectation at any
time. Future changes in regulatory requirements related to the protection of
human health and the environment may require the Company and others engaged in
the hazardous waste management industry to modify various waste processing
facilities and alter methods of operations at costs that may be substantial.
Environmental Matters - Management believes that the Company's current
procedures and practices for handling and management of hazardous wastes are
consistent with industry standards and legal requirements and that appropriate
precautions are taken to protect employees and others from harmful exposure to
such materials. However, because of the complexity of operations and legal
requirements, there can be no assurance that past or future operations will not
result in violations or claims by employees or others alleging exposure to
toxic or hazardous substances.
TSD facilities, including cement plants that burn HWDF, are highly
regulated by federal, state and local environmental regulations. By
definition, the activities of the Environmental Services segment involve
materials that have been designated as hazardous wastes. CERCLA and SARA, as
well as analogous laws in certain states, create joint and several liability
for the cost of cleaning up or correcting releases to the environment of
designated hazardous wastes. If contamination occurs, the Company's TSD
facilities may be required to conduct costly remediation programs under RCRA,
CERCLA or SARA.
The U.S. EPA's financial responsibility regulations require owners or
operators of TSD facilities to demonstrate financial assurance for sudden and
accidental pollution occurrences. Many states have
23
<PAGE> 26
imposed similar requirements on the owners or operators of TSD facilities and
underground storage tanks. To meet existing governmental requirements, the
Company has been able to secure Environmental Impairment Liability insurance
coverage issued by an insurance carrier in amounts substantially in excess of
legal requirements. It is possible that the Company's earnings could be
adversely affected in the event of significant environmental impairment claims
not covered by insurance.
Federal and state regulations also require owners or operators of TSD
facilities to provide financial assurance of their ability to cover the
estimated costs of proper closure and post-closure monitoring and maintenance
of these facilities. The Company has been able to rely upon its consolidated
financial position in many instances, rather than upon other, more costly
financial assurance mechanisms, to satisfy these requirements. Regulatory
limitations on the use of the consolidated financial position, however, may
restrict the use of this financial assurance mechanism, in which case the
Company could be required to resort to other, more costly financial assurance
mechanisms available.
(See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Known Events, Trends and Uncertainties -
Environmental Matters".)
EMPLOYEES
The Company employs approximately 2,650 persons, including
approximately 1,100 in the cement manufacturing operations, 1,200 in the
concrete products operations, 200 in environmental services and the remainder
in the corporate office. Approximately 38% of the employees are represented by
collective bargaining units. Collective bargaining agreements are in effect at
all the Company's cement plants, except for the facility located in
Brooksville, Florida, and are in effect at the southern California ready-mixed
operations and at the TSD facility located in Inglewood, California.
ITEM 2. PROPERTIES
The material appearing under Item 1 herein is incorporated hereunder
by reference, pursuant to Rule 12b-23. Substantially all of the assets of the
Company are pledged as security for long-term debt. (See Note 11 of Notes to
Consolidated Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
(a) On November 17, 1992, Region IV of the U.S. EPA advised the
Company of certain alleged violations of the NPDES permit issued to a
ready-mixed concrete facility operated by the Company in Tallahassee, Florida.
The letter requested that Company representatives attend a meeting on December
15, 1992 to show cause why an enforcement action should not be commenced on
account of the alleged violations. U.S. EPA officials indicated at the meeting
that they would evaluate the information provided by the Company and would
determine what, if any, enforcement action they believe is warranted. On
January 27, 1993, the Company's attorneys were informed through a telephone
call that the U.S. EPA is planning to refer the matter to the Department of
Justice (DOJ) for consideration of civil enforcement. No formal letter or
complaint has been filed. In October 1993, the site was sold and operations
were discontinued. It is not possible to predict the course of the enforcement
response U.S. EPA and DOJ ultimately may select.
(b) Litigation was initiated by former shareholders of a BFI
subsidiary acquired from BFI by the Company and includes claims asserting,
among other things, that an installment of a conditional deferred
24
<PAGE> 27
payment obligation which the Company believed to be in the amount of $9.0
million is actually in the amount of $10.0 million, that adjustments to the
purchase price and certain additional amounts aggregating approximately
$500,000 are payable to such shareholders, that an accounting must be provided
to such shareholders, and that the defendants acted intentionally and
maliciously and therefore that the shareholders are entitled to punitive
damages. (Benita H. O'Meara, an individual; Ernest O. Roehl, an individual, v.
Southdown Environmental Systems, Inc., a Delaware corporation, aka BFI
Environmental Treatment Systems, Inc., a Delaware corporation, aka Southdown
Environmental Treatment Systems, Inc., a corporation; Does 1 through 50,
inclusive) (Superior Court of the State of California for the County of Los
Angeles - Case No. BC 056904) The Company notified BFI of its claim for
indemnity under the stock purchase agreement but BFI denied the Company's
claim. The Company responded timely to the suit and filed a cross-complaint
against BFI seeking judicial clarification as to BFI's liability under the
indemnity agreement, damages and other relief. (Southdown, Inc., a Louisiana
corporation, v. Browning-Ferris Industries, Inc., a Delaware corporation; CECOS
International, Inc., a New York corporation; and Does 1 through 50, inclusive)
(Superior Court of the State of California for the County of Los Angeles - Case
No. BC 063261) On January 3, 1994 all parties orally agreed to an out-of-court
settlement whereby (i) all actions and cross-actions will be dismissed; (ii)
BFI agreed to assume responsibility for the additional $1 million potentially
owed to the former shareholders and (iii) BFI and the Company agreed to
indemnify each other for certain other claims.
(c) U.S. EPA Region IV issued a Complaint and Compliance Order, dated
August 31, 1992, to the Company's Knoxville cement plant. Based on the U.S.
EPA's Compliance Evaluation Inspections conducted in January and July 1992, the
U.S. EPA asserts that the Knoxville cement plant violated certain requirements
of the BIF Rule, promulgated pursuant to the Hazardous and Solid Waste
Amendments to the RCRA, and assessed a civil penalty of $171,250. The Company
is currently negotiating the resolution of the issues with representatives of
the U.S. EPA and has reached an agreement in principle to pay a penalty of
$97,300.
(d) The Antitrust Division of the DOJ has convened a Grand Jury
investigation of certain ready-mixed concrete companies in the Tampa Bay Area.
On August 1, 1990, the Company was served with a subpoena for the production of
documents to the United States District Court, Middle District of Florida. No
charges have been filed against the Company, any of its subsidiaries, or any of
its employees. The Company complied with the request for documents in November
1990. A number of employees were interviewed or testified before the Grand
Jury in 1991 and 1992. In 1993, the investigation was terminated without
handing down an indictment.
(e) In March 1991, SES received notice that the U.S. EPA had initiated
an enforcement action under RCRA against the previous owners of an Avalon,
Texas TSD facility, which SES acquired from BFI in 1990. In its complaint, the
U.S. EPA has alleged that the entity failed to file appropriate reports with
the Texas Water Commission in advance of importing foreign waste materials for
processing at the facility. The U.S. EPA is seeking a civil penalty of
$229,500 based on alleged violations occurring as a result of practices of the
predecessor owners which were discontinued in 1989. Pursuant to the purchase
agreement between SES and BFI, BFI agreed to indemnify the Company against
environmental damages originating prior to SES's acquisition of the processing
facilities. The Company has notified BFI that it intends to exercise its
indemnification rights with respect to any damages arising from the U.S. EPA
action. While BFI acknowledges certain liabilities under the indemnification
provisions of the purchase agreement, BFI contends that the predecessor owners
also bear liability. The Company and BFI have engaged joint counsel to contest
the proposed penalty and pursue indemnities given in favor of BFI by these
previous owners. Counsel has filed an original answer and request for hearing
with the U.S.
25
<PAGE> 28
EPA. In its answer, the Company has asserted numerous legal and factual
defenses including that the regulations allegedly violated are legal and
inapplicable to the given circumstances.
(f) In connection with the acquisition of a hazardous waste processor
in 1990, SES entered into an Oil Purchase Agreement with the seller and a
Consulting Agreement with the sole stockholder of the seller. Based upon the
seller's failure to pay invoices for fuel oil delivered under the Oil Purchase
Agreement, SES terminated the agreement in September 1991. On September 26,
1991, SES sold the assets of the processor relating to the business of
collecting waste oil.
In October 1991, SES filed suit in Texas state court against the
seller for collection of amounts due under the Oil Purchase Agreement and the
Stock Purchase Agreement pursuant to which the Company acquired the processor
and sought a declaratory judgment against the seller and the stockholder with
respect to the rights of the parties under the Stock Purchase Agreement, the
Oil Purchase Agreement and the Consulting Agreement. The defendants filed
counterclaims against the Company seeking a declaratory judgment concerning the
Consulting Agreement, the Stock Purchase Agreement and the Oil Purchase
Agreement and seeking monetary damages in the amount of approximately $30
million for alleged breach of the Consulting Agreement and the Oil Purchase
Agreement and approximately $10 million in punitive damages. (Century
Resources, Inc. and Southdown Environmental Treatment Systems, Inc. v. Torco
Oil Company and Anthony M. Tortoriello) (333rd Judicial District Court of
Harris County, Texas - Cause No. 91-54262) In 1992, the stockholder and the
seller filed suit against the Company in Illinois asserting claims comparable
to those made in their counterclaim in the Texas case and seeking an injunction
forbidding the Company to sell any assets of the processor. In May 1993, the
Illinois cases were stayed by agreement of the parties, pending final
resolution of the Texas lawsuit. The Company believes that it has meritorious
defenses to these claims, and that its ultimate liability thereunder, if any,
will not be material to its consolidated financial position. (Anthony M.
Tortoriello v. Southdown Environmental Treatment Systems, Inc., a Delaware
corporation, and Century Resources, Inc., an Illinois corporation) (Circuit
Court of Cook County, Illinois, Chancery Division - Case No. 92-CH-09365)
(Torco Oil Company, an Illinois corporation v. Southdown Environmental
Treatment Systems, Inc., a Delaware corporation, and Century Resources, Inc.,
an Illinois corporation) (Circuit Court of Cook County, Illinois, Chancery
Division - Case No. 92-CH-9874).
(g) In late July 1993 a citizens' environmental group brought suit in
U.S. District Court for the Southern District of Ohio, Western Division (Greene
Environmental Coalition, Inc., an Ohio not-for-profit corporation v. Southdown,
Inc., a Louisiana corporation - Case No. C-3-93-270) alleging the Company is in
violation of the Clean Water Act by virtue of the discharge of pollutants in
connection with the runoff of stormwater and groundwater from the Site and is
seeking injunctive relief, unspecified civil penalties and attorneys' fees,
including expert witness fees. In August the Company moved to dismiss the
complaint. The environmental group responded on October 22, 1993. On November
4, 1993 the Company filed a reply to the environmental group's response and the
matter is now pending before the court for final disposition. Pursuant to a
preliminary pretrial conference order issued by the court, the environmental
group provided the Company with a written settlement demand in early October
1993. On November 12, 1993 the Company rejected the environmental group's
settlement demand without offering a counterproposal. Accordingly, the Company
is unable to determine at this time what liability, if any, it may have with
respect to this matter.
26
<PAGE> 29
(h) The information appearing under Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Known Events,
Trends and Uncertainties - Environmental Matters" is incorporated hereunder by
reference, pursuant to Rule 12b-23.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1993.
P A R T I I
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS.
MARKET PRICES AND DIVIDENDS ON COMMON STOCK AND SHAREHOLDER INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange
(Symbol:SDW). The following table sets forth the high and low sales prices of
the stock for the indicated periods as reported by the NYSE.
<TABLE>
<CAPTION>
FISCAL YEAR 1993 HIGH LOW DIVIDEND
-------------------------------------- ------ ------ ----------
<S> <C> <C> <C>
First Quarter, ended March 1993 $12.25 $9.63 *
Second Quarter, ended June 1993 17.38 9.63 *
Third Quarter, ended September 1993 24.88 15.88 *
Fourth Quarter, ended December 1993 25.88 19.88 *
FISCAL YEAR 1992 HIGH LOW DIVIDEND
-------------------------------------- ------ ------ ----------
First Quarter, ended March 1992 $16.00 $12.38 *
Second Quarter, ended June 1992 14.88 9.38 *
Third Quarter, ended September 1992 11.00 8.25 *
Fourth Quarter, ended December 1992 11.38 9.38 *
</TABLE>
- --------------
* On April 25, 1991, the Board of Directors suspended the dividend on
the Company's Common Stock.
For certain information describing the Company's capital stock, rights
plan and change in control provisions, see Note 21 of Notes to Consolidated
Financial Statements.
On January 31, 1994 there were 1,937 holders of record of the
Company's Common Stock. On February 23, 1994, the closing price of the stock
was $27.75.
27
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 544.8 $ 507.4 $ 506.9 $ 565.9 $ 592.5
=========== ============ ========== ========== ==========
Earnings (loss) from continuing operations $ - $ (41.4)1 $ (43.2)2 $ 13.4 3 $ 23.0
Earnings from discontinued operations,
net of income taxes 4 - - - - 11.6
Gain on sale of discontinued operations,
net of income taxes 4 - 0.8 - - 33.4
Extraordinary charge, net of related
tax benefit 5 (1.0) - (1.4) - -
Cumulative effect of change in
accounting principle 6 (48.5) - - - -
----------- ------------ ---------- ---------- ----------
Net earnings (loss) $ (49.5) $ (40.6) $ (44.6) $ 13.4 $ 68.0
=========== ============ ========== ========== ==========
Primary earnings (loss) per share -
Continuing operations $ (0.30) $ (2.74) $ (2.86) $ 0.44 $ 0.99
Discontinued operations 4 - - - - 0.69
Gain on sale of discontinued operations 4 - 0.05 - - 1.98
Extraordinary charge, net of related
tax benefit 5 (0.06) - (0.08) - -
Cumulative effect of change in
accounting principle 6 (2.86) - - - -
----------- ------------ ---------- ---------- ----------
Net earnings (loss) $ (3.22) $ (2.69) $ (2.94) $ 0.44 $ 3.66
=========== ============ ========== ========== ==========
Fully diluted earnings (loss) per share -
Continuing operations $ (0.30) $ (2.74) $ (2.86) $ 0.44 $ 1.06
Discontinued operations 4 - - - - 0.57
Gain on sale of discontinued operations 4 - 0.05 - - 1.63
Extraordinary charge, net of related
tax benefit 5 (0.06) - (0.08) - -
Cumulative effect of change in
accounting principle 6 (2.86) - - - -
----------- ------------ ---------- ---------- ----------
Net earnings (loss) $ (3.22) $ (2.69) $ (2.94) $ 0.44 $ 3.26
=========== ============ ========== ========== ==========
Total assets $ 907.0 $ 921.5 $ 986.1 $1,039.7 $ 1,063.5
=========== ============ ========== ========== ==========
Capital expenditures $ 24.4 $ 17.4 $ 31.0 $ 43.0 $ 37.4
=========== ============ ========== ========== ==========
Depreciation, depletion and amortization $ 44.7 $ 52.1 $ 50.2 $ 45.2 $ 45.1
=========== ============ ========== ========== ==========
Total debt $ 293.9 $ 314.8 $ 332.7 $ 317.3 $ 262.0
=========== ============ ========== ========== ==========
Preferred stock subject to
mandatory redemption $ - $ - $ - $ 6.0 $ 12.0
=========== ============ ========== ========== ==========
Shareholders' equity $ 262.2 $ 316.4 $ 362.0 $ 410.1 $ 410.5
=========== ============ ========== ========== ==========
Ratio of debt to total capitalization 52.9% 49.9% 47.9% 43.3% 38.3%
=========== ============ ========== ========== ==========
Cash dividends paid per share of
common stock $ - $ - $ 0.125 $ 0.50 $ 0.50
=========== ============ ========== ========== ==========
</TABLE>
- ---------------------
(1) Includes a $21.4 million pretax write-down of certain environmental
services assets. (See Note 18 of Notes to Consolidated Financial
Statements.)
(2) Includes $16 million equity in pretax loss of unconsolidated joint
venture. (See Note 19 of Notes to Consolidated Financial Statements.)
(3) Includes a $10 million pretax charge attributable to an unfavorable
arbitration ruling and a $6.6 million pretax credit to pension expense.
(4) The Company's oil and gas operations, which were sold on November 15,
1989, are reflected as discontinued operations. (See Note 20 of Notes to
Consolidated Financial Statements.)
(5) Premium on early extinguishment of debt.
(6) Cumulative after-tax effect of change in accounting for initial obligation
for estimated postretirement health care benefits as required by adoption
of Statement of Financial Accounting Standards No. 106 effective January
1, 1993. (See Note 2 of Notes to Consolidated Financial Statements.)
Management's Discussion and Analysis of Financial Condition and
Results of Operations related to this information appears on Page 29 of this
report. Total capitalization represents the sum of total debt, preferred stock
subject to mandatory redemption and shareholders' equity.
28
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues $544.8 $507.4 $506.9
======== ======== ========
Costs and expenses $499.8 $500.0 $520.8
======== ======== ========
Write-down of environmental
services assets $3.1 $21.4 -
======== ======== ========
Operating earnings (loss) $39.0 $(16.6) $(15.7)
======== ======== ========
Equity in net loss of unconsolidated - - $16.0
joint venture
======== ======== ========
Interest expense $39.3 $45.0 $40.7
======== ======== ========
Income tax benefit $0.3 $20.2 $29.2
======== ======== ========
Net loss per share $(3.22) $(2.69) $(2.94)
======== ======== ========
</TABLE>
CONSOLIDATED EARNINGS
1993 compared with 1992
Operating earnings for the year ended December 31, 1993 were $39
million compared with an operating loss of $16.6 million for the prior year.
The years ended December 31, 1993 and 1992 include write-downs of $3.1 million
and $21.4 million, respectively, to adjust the carrying value of certain
environmental services assets. Including a $48.5 million, $2.86 per share,
first quarter charge related to adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS No. 106) and a $1 million redemption premium (net of tax)
resulting from the early retirement of $45 million of 12% Senior Subordinated
Notes, the net loss for the year ended December 31, 1993 was $49.5 million,
$3.22 per share, primary and fully diluted. The net loss for the prior year
period was $40.6 million, $2.69 per share, primary and fully diluted, including
an $800,000 after-tax gain on discontinued operations, $0.05 per share fully
diluted.
Consolidated revenues in 1993 increased 7% over the prior year
primarily because of improvements in sales volumes and sales prices from the
Cement and Concrete Products operating segments. Excluding the write-down of
environmental services assets in both years, 1993 operating earnings increased
$37.3 million over the prior year. This increase was attributable to
improvements in each of the operating segments because of: (i) improved sales
volumes and operating margins from the Cement and Concrete Products operations;
(ii) the sale or prior year classification as "Held for Sale" of four hazardous
waste processing facilities that generated operating losses in the prior year
and (iii) improved operating results from the remaining waste processors. The
current year included (i) a $3 million charge to increase the estimated
liability for remediation of an inactive cement kiln dust (CKD)
29
<PAGE> 32
disposal site; (ii) a $1.7 million charge for proxy contest fees and expenses
and (iii) a $1.2 million gain from the sale of the Company's right to receive
its portion of the settlement of bankruptcy claims against LTV Corporation.
The prior year included (i) a $3.6 million charge related to remediation of the
inactive CKD disposal site previously mentioned; (ii) $1.1 million in charges
to decontaminate hazardous waste processing equipment and incinerate waste
contaminated with polychlorinated byphenyls (PCB), which was accepted and
processed in error at two of the Company's hazardous waste processors; (iii) a
$3.0 million charge to record the loss realized upon closing of the final phase
of the Florida aggregate operation sale; (iv) an $853,000 charge for unpaid use
taxes and penalty and interest due thereon; (v) a $2.7 million gain recognized
on the sale of a cement terminal and (vi) a $2.7 million gain representing a
fee earned for approval of a non-affiliated debt refinancing.
Although 1993 revenues increased 7% over 1992, operating costs
increased only approximately 1% because of a favorable impact of continued cost
savings measures and because of the elimination of operating costs attributable
to the four hazardous waste processing facilities which were sold or classified
as "Held for Sale" by the end of 1992.
Depreciation, depletion and amortization for 1993 declined compared
with the prior year because of the 1992 write-down of certain goodwill and
non-compete contracts and the decision to lease, rather than purchase, new
mobile equipment. Primarily because of cost reduction measures imposed during
1993, general and administrative expenses for the year ended December 31, 1993
decreased by $5 million despite a $2.5 million charge to accrue the estimated
cost of providing postretirement health care benefits in excess of claims
incurred as required by the 1993 adoption of SFAS No. 106.
Interest expense for the year ended December 31, 1993 was $5.7 million
lower than the prior year primarily because of lower outstanding debt.
The effective rate of the tax benefit on the operating loss for 1993
was 100% because of the interaction of the increase of corporate federal income
tax rate, permanent differences between book and tax loss for the year and
state income tax benefit. (See Note 12 of Notes to Consolidated Financial
Statements.)
The $48.5 million charge as a result of the adoption of SFAS No. 106
is reported as the "Cumulative effect of a change in accounting principle", and
represents the estimated liability based on benefit plans in effect at January
1, 1993 for postretirement benefits, other than pensions, attributable to
employee services provided in prior years. (See Notes 2 and 16 of Notes to
Consolidated Financial Statements.)
1992 compared with 1991
Operating earnings for the year ended December 31, 1992 were $4.8
million, excluding the $21.4 million write-down of certain environmental
services assets, compared with an operating loss of $15.7 million in the prior
year. The net loss for 1992 was $40.6 million, $2.69 per share fully diluted,
compared with a 1991 net loss of $44.6 million, $2.94 per share. Both years
had a number of significant, miscellaneous items. The 1992 write-down of
environmental services assets consisted primarily of the difference between the
book value and the estimated fair value of the four of the Company's six
hazardous waste processors to be sold, estimated losses related to such assets
until sold and the write-off of capitalized environmental permitting costs
deemed not to be recoverable. (See Note
30
<PAGE> 33
18 of Notes to Consolidated Financial Statements.) Significant miscellaneous
items included in 1992 results are described in detail above. In the third
quarter of 1992, the Company also recognized an $800,000 after-tax gain on
discontinued operations, $0.05 per share fully diluted, resulting from
recognition of the final portion of the gain deferred from the 1989 sale of the
Company's oil and gas operations. The 1991 operating loss included a number of
significant, miscellaneous charges including: (i) a $5.9 million write-down of
the Florida aggregate operations in connection with the sale of those
operations; (ii) a $3.1 million charge to establish a reserve for estimated
remediation costs of the previously discussed inactive CKD site in Ohio; (iii)
a $1.1 million charge representing the estimated loss on a reverse interest
rate swap transaction and (iv) a $3.6 million charge to increase the allowance
for doubtful accounts. In 1991 the Company also recorded a $12.3 million
pretax write-off of the Company's remaining investment in a thermal
distillation joint venture. The write-down of the environmental services
assets in 1992 resulted in an after-tax charge of $1.01 per share in 1992
compared with the $0.47 per share charge in 1991 as a result of the write-off
of the investment in the joint venture. Also included in 1991 was a $1.4
million after-tax extraordinary charge for the prepayment penalty on the early
retirement of certain debt.
Consolidated revenues in 1992 were essentially the same as revenues in
the prior year. A 3% increase in Cement segment revenues and an 18% increase
in Environmental Services segment revenues were offset by a 13% decline in
Concrete Products segment revenues. Lower Concrete Products revenues resulted
from declining ready-mixed concrete sales volume and prices in the face of the
ongoing recession in the southern California construction industry. An
increase in Florida ready-mixed concrete revenues was offset by the loss of
revenues from the two Florida aggregate operations sold in late 1991.
Consolidated operating earnings in 1992, excluding the $21.4 million
write-down of environmental services assets, improved significantly over the
prior year as a strong recovery in Cement segment earnings and reduced losses
from the Concrete Products segment more than offset increased losses
experienced by the Environmental Services segment. The improvement in Cement
segment earnings resulted from the favorable impact of increased margins and
higher sales volume. Margins increased despite lower average cement sales
prices because of lower operating costs reflecting the impact of a cost
reduction program, as well as the positive impact of spreading fixed costs over
higher production levels needed to fulfill sales demand. Losses in the
Concrete Products segment were lower because the decline in southern California
sales volume was offset by improved margins in the Florida ready-mixed concrete
operations. The Environmental Services segment, excluding the write-down of
certain assets, experienced increased operating losses in 1992 primarily
because of: (i) losses incurred at the Spring Grove, Ohio facility subsequent
to its acquisition in January 1992; (ii) special charges incurred to
decontaminate equipment and incinerate PCB contaminated wastes that were
accepted and processed in error; (iii) lower sales volume and throughput of
liquid hazardous waste derived fuels (HWDF); (iv) higher operating costs in the
Environmental Services segment generally, and (v) higher sales and marketing
expenses incurred as a result of the development of a larger sales force for
the segment.
Interest expense in 1992 increased $4.3 million compared with 1991
primarily because of higher borrowing costs resulting from the issuance of $125
million of 14% Senior Subordinated Notes in late 1991, partially offset by
lower interest rates on the Company's variable rate debt.
The estimated effective income tax rate of 33% for 1992 reflected the
impact of permanent differences between book income and taxable income for the
year. The estimated effective tax rate of
31
<PAGE> 34
40% for 1991 was higher than the statutory rate because of the nature of the
permanent differences which resulted in an increase in the effective rate of
the tax benefit associated with the loss for that year.
SEGMENT OPERATING EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Cement $370.9 $339.5 $328.4
Concrete Products 176.3 158.1 181.1
Environmental Services 36.1 43.4 36.8
Intersegment sales (39.0) (34.3) (41.1)
Other 0.5 0.7 1.7
-------- -------- --------
$544.8 $507.4 $506.9
======== ======== ========
OPERATING EARNINGS (LOSS):
Cement $81.9 $62.6 $44.9
Concrete Products (1.6) (11.6) (12.7)
Environmental Services (2.2) (10.6) (4.4)
Write-down of environmental
services assets (3.1) (21.4) -
Corporate
General and administrative (28.9) (32.7) (34.1)
Depreciation, depletion and (4.3) (4.4) (4.3)
Miscellaneous income (losses) (2.8) 1.5 (5.1)
-------- -------- --------
$39.0 $(16.6) $(15.7)
======== ======== ========
</TABLE>
Cement - Operating earnings for the year ended December 31, 1993 were
$81.9 million on revenues of $370.9 million compared with operating earnings
and revenues of $62.6 million and $339.5 million, respectively, in the prior
year. Operating results improved over the prior year primarily as a result of
a 7% increase in sales volumes and a 27% improvement in margins. The Company
realized price increases in most of the Company's cement markets throughout the
year resulting in a 3% improvement in the average price per ton on a
year-to-year comparison and a 6% increase in average price per ton on a
year-end to year-end comparison. The average operating cost per ton in 1993
declined approximately 3% from 1992 as the segment's cost reduction program
produced additional savings in 1993 operating costs compared with the prior
year. Improvements in operating earnings over the prior year were realized at
six of the Company's cement plants. Operating earnings declined at the
Pittsburgh and Knoxville plants primarily because of higher operating costs
resulting from longer than expected maintenance shutdowns and various other
operating problems during the year.
As a result of successful antidumping petitions filed by a group of
domestic cement producers, including the Company, cement imports into the U.S.
have declined significantly over the past several years. Consequently, the
Company has, in some instances, been able to sell cement to customers who
32
<PAGE> 35
previously bought cement imported from outside the U.S. During the past
several years, the Company has contracted to sell cement for up to fifteen
months under large volume sales contracts with as many as six other cement
manufacturers or distributors. Some of the contracts have take-or-pay
provisions. In exchange for guarantees of minimum annual sales volumes, these
contracts generally provide for lower sales prices than the Company's customary
sales arrangements. In 1993 and 1992 these contracts, assuming they
represented only incremental sales (i.e., that fixed costs were fully covered
by other sales), accounted for approximately 25% and 31% of the Cement
segment's operating earnings, respectively. For 1994 and beyond, the Company
has renegotiated certain of these contracts, providing for, among other things,
similar minimum annual sales volumes, price escalation clauses and, in one
instance, a multi-year term. The loss of a significant portion of the sales
from these large volume contracts would have a material adverse effect on the
Company's results of operations although the Company believes that at least a
portion of the volumes covered by these contracts could be replaced by direct
sales to cement consumers in the Company's existing markets.
Cement segment operating earnings for the year ended December 31, 1992
were $62.6 million compared with $44.9 million in the prior year. Earnings
improved primarily because of an 8% increase in sales volume compared with the
prior year and because of increased margins resulting from lower unit costs.
Unit costs declined in 1992 primarily because of cost saving measures and
higher volumes over which to spread fixed costs. The year ended December 31,
1991 included a special one-time $3.6 million Cement segment charge to increase
the allowance for doubtful accounts while 1992 included an $853,000 charge for
prior year unpaid use taxes and related penalties.
Cement segment revenues were $339.5 million and $328.4 million in 1992
and 1991, respectively. The increase in 1992 revenues over the prior year
resulted from the previously mentioned 8% increase in sales volume, but was
partially offset by a $2.28 per ton decline in average selling prices from 1991
levels. An increase in large volume, lower-priced shipments combined with
competitive price reductions was largely responsible for the 1992 decline in
average selling prices. Cement segment operating earnings improved in 1992
because of the increase in sales volume and because of the improvement in
margins. Sales volumes increased at six of the eight cement plants with only
the Pittsburgh, Pennsylvania and Fairborn, Ohio plants registering decreases
from 1991. The Lyons, Colorado cement plant experienced a 38% increase in
sales volume as the effects of airport construction and an improving regional
economy resulted in increased 1992 demand. Only the Lyons, Colorado and
Pittsburgh, Pennsylvania cement plants reported an increase in 1992 average
selling prices over 1991. Margins improved, however, because of the better
than 9% decrease in unit operating costs.
Sales volumes and average unit prices, manufacturing and other plant
operating costs and margins relating to cement plant operations for the past
three years appear in the table below:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Tons of cement sold (in thousands) 6,196 5,788 5,340
========== ========== =========
Weighted average per ton data:
Sales price (net of freight) $ 51.59 $ 49.98 $ 52.26
Manufacturing and other plant operating costs1 38.57 39.70 2 43.72
---------- ---------- ---------
Margin $ 13.02 $ 10.28 $ 8.54
========== ========== =========
</TABLE>
--------------
(1) Includes fixed and variable manufacturing costs, selling
expenses, plant general and administrative costs, other plant
overhead and miscellaneous costs.
(2) Excludes the effect of an $853,000 charge for unpaid use taxes
related to prior years.
33
<PAGE> 36
Operating costs per ton have declined in each of the last two years
compared with the prior year primarily because of the favorable impact of: (i)
higher sales volume and higher production levels which resulted in fixed costs
being spread over more units and (ii) the effect of a cost reduction program.
Clinker production increased 3% in 1993 compared with the prior year and 9% in
1992 from 1991 levels in response to increased sales demand.
The increase in the average sales price per ton for 1993 compared with
the prior year reflects a general firming of cement prices throughout the
industry and at least the partial realization of price increases implemented at
most of the Company's cement plants during 1993. The average sales price per
ton was lower for 1992 compared with 1991 because of an increase in the
proportion of large volume, lower-priced shipments to total sales combined with
the impact of other competitive price concessions granted during a recessionary
period.
Concrete Products Operations - The concrete products segment's
operating loss for 1993 improved to $1.6 million from the $11.6 million loss
reported in the prior year. Revenues increased approximately 12% over the
prior year primarily because of higher sales volumes and prices from the
Florida concrete products operation.
In spite of lower sales prices and unusual, extremely heavy rains
during the first two months of 1993, the operating loss for the southern
California ready-mixed concrete operation declined significantly because cost
reduction measures were successful. Results also improved from higher
aggregates sales volumes and prices. Operating results for the Florida
ready-mixed concrete operation improved because of a 4% increase in the average
sales price per cubic yard combined with higher operating earnings from the
concrete block, resale and fly ash operations. The period-to-period comparison
was also aided by the late 1992 sale of certain Florida aggregate operations
which lost $1.7 million in the course of that year.
The operating loss for 1992 was $11.6 million compared with $12.7
million in 1991. Revenues in 1992 decreased $23 million compared with 1991.
The smaller loss in 1992 compared with 1991 was the result of improved concrete
prices in Florida which more than offset lower volumes and prices in southern
California which continued to worsen as the California economy stagnated. The
13% decline in ready-mixed concrete sales volume was responsible for the
decrease in 1992 revenues compared with 1991. The majority of the decline
occurred as a result of the slumping southern California market.
Sales volumes, average unit prices and cost data and margins relating
to the Company's ready-mixed concrete operations for the past three years
appear in the following table:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Cubic yards of ready-mixed concrete
sold (in thousands) 3,274 3,038 3,488
========== ========== =========
Weighted average per cubic yard data:
Sales price $ 43.86 $ 43.13 $ 42.97
Operating costs1 45.48 46.66 46.69
---------- ---------- ---------
Margins $ (1.62) $ (3.53) $ (3.72)
========== ========== =========
</TABLE>
--------------
(1) Includes variable and fixed plant costs, delivery, selling,
general and administrative and miscellaneous operating costs.
34
<PAGE> 37
The increase in the weighted average sales price per yard for the year
ended December 31, 1993 compared with the 1992 period reflects higher sales
prices in the Company's Florida market partially offset by lower prices in the
Company's southern California market. The decrease in the weighted average
operating costs per yard for the year ended December 31, 1993 compared with the
1992 periods is attributable to lower material costs and the implementation of
an automated truck-tracking system which has resulted in increased productivity
for the southern California operation.
Effective September 30, 1991, the Company sold its construction
aggregates businesses in Hernando and Polk Counties, Florida to Vulcan/ICA
distribution Company (Vulcan/ICA) for $17 million. The Company also agreed to
sell, subject to the satisfaction of certain conditions, its one remaining
Florida aggregate quarry, located in Charlotte County. The Company recorded
charges totaling $8.9 million 1991 and $3 million in the fourth quarter of 1992
when the sale of the Charlotte County property was concluded. The charges
represent (i) the difference in the selling price and the book value and (ii)
the accrual of certain transaction costs and contingencies. In conjunction
with these sales, the parties entered into a long-term supply contract under
which the Company's ready-mixed concrete operations in Florida purchase their
requirements for aggregates from Vulcan/ICA.
The operating results of the Company's aggregate operations have been
included for financial reporting purposes in the concrete products segment. As
a result of the 1991 and 1992 sales of the Florida aggregate operations,
operating results have been affected by the difference in the costs to produce
these aggregates and the price paid by the Company's Florida ready-mixed
concrete operations to purchase aggregates from Vulcan/ICA under the long-term
supply contract.
Environmental Services - Excluding a $3.1 million write-down of certain
assets in 1993 and a $21.4 million write-down in 1992, the Environmental
Services segment reported an operating loss of approximately $2.2 million for
the year ended December 31, 1993 compared with a loss of $10.6 million in the
prior year. Segment operating losses improved in 1993 because: (i) the prior
year included $4.9 million in operating losses from four hazardous waste
processing facilities which were sold or reclassified as "held for sale" by the
end of 1992; (ii) the prior year period included $1.1 million in charges
related to decontamination of equipment and incineration of pcb contaminated
wastes that were accepted and processed in error; (iii) improved operating
results from the Tennessee, Alabama and California hazardous waste processing
facilities and (iv) a $2.4 million decline in 1993 amortization costs as a
result of the fourth quarter 1992 write-down.
In addition to the operating loss, ses recognized a $3.1 million
charge in the fourth quarter of 1993 to reflect a revised estimate of the fair
value of its Illinois TSD facility after trying unsuccessfully for a year to
sell the facility. In January 1994 the Company negotiated a letter of intent
for a proposed sale of this facility that would generate neither a gain or a
loss.
Operating results for 1992, excluding a $21.4 million write-down of
certain environmental services assets, were a $10.6 million loss compared with
a 1991 operating loss of $4.4 million. Revenues in 1992 increased to $43.4
million from $36.8 million in 1991. Although income from the burning of HWDF
increased in 1992 by $400,000 compared with 1991 and segment revenues increased
18% over 1991, segment losses increased as a result of: (i) losses incurred at
the Spring Grove, Ohio facility subsequent to its acquisition in January 1992;
(ii) a $1.1 million decontamination and incineration charge mentioned
previously; (iii) lower sales volume and throughput of liquid HWDF, and higher
operating
35
<PAGE> 38
costs in the environmental services segment generally and (iv) higher sales and
marketing expenses incurred to create a larger sales force.
Corporate Overhead - Corporate general and administrative costs
consist primarily of costs attributable to the Company's Houston, Texas office
which are not generally allocated to the business segments. In contrast, the
cost caption "general and administrative" as it appears on the Company's
statement of consolidated earnings includes not only general and administrative
expenses incurred at the Company's corporate office, but also amounts incurred
at the Company's various operating locations. Since 1990 the Company has
pursued centralization of general and administrative functions where
practicable and has significantly expanded the level of support provided to its
operating locations from the corporate office. The large increase in corporate
expenses, which includes the establishment of a corporate office environmental
services support staff, has been partially offset by lower general and
administrative expenses at other operating levels as certain functions were
transferred to the corporate office or eliminated entirely.
Excluding the $2.5 million charge accrued as a result of the adoption
of SFAS No. 106, Corporate general and administrative expenses were $26.4
million for the year ended December 31, 1993 compared with $32.7 million in
1992. General and administrative expenses during 1993 were lower than the
prior year for almost all cost categories as a result of cost reduction
measures imposed during 1993. Corporate general and administrative expenses
for 1992 were $32.7 million compared with $34.1 million in 1991 primarily
because of a $1.4 million credit to pension expense in 1992.
Miscellaneous income (losses) - Miscellaneous income (losses) includes
interest income on invested funds as well as miscellaneous other income and
expense items. Miscellaneous income (losses) was a net loss of $2.8 million in
1993, a net $1.5 million of income in 1992 and a net loss of $5.1 million in
1991. Miscellaneous income (loss) in 1993 included: (i) a $3 million charge
for estimated remediation costs for an inactive CKD disposal site; (ii) a $1.7
million charge for proxy contest fees and expenses and (iii) a $1.2 million
gain from the sale of the Company's right to receive its portion of the
settlement of bankruptcy claims against ltv corporation. Miscellaneous income
(loss) in 1992 included: (i) a $3.6 million charge for estimated remediation
costs for the previously mentioned CKD disposal site; (ii) a $3 million
write-down of the Florida aggregate operation; (iii) a $2.7 million gain
recognized on the sale of a cement terminal and (iv) a $2.7 million gain
representing a fee earned for approval of a non-affiliated debt refinancing.
Miscellaneous income (loss) in 1991 included: (i) a $5.9 million write-down
of the Florida aggregate operations; (ii) a $3.1 million charge to remediate
the previously mentioned CKD disposal site and (iii) $1.6 million gain
recognized on the sale of a cement terminal.
36
<PAGE> 39
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents $7.4 $12.5 $14.6
========== ========== ==========
Working capital $55.1 $83.8 $89.5
========== ========== ==========
Net cash provided by operating activities $54.7 $33.7 $9.7
========== ========== ==========
Net cash used in investing activities $(20.6) $(10.0) $(7.3)
========== ========== ==========
Net cash used in financing activities $(39.2) $(25.8) $(6.2)
========== ========== ==========
Total assets $907.0 $921.5 $986.1
========== ========== ==========
Total debt $293.9 $314.8 $332.7
========== ========== ==========
Capital expenditures $24.4 $17.4 $31.0
========== ========== ==========
</TABLE>
The Company's short-term liquidity needs have generally been satisfied
by: (i) internally generated cash flow from operations, (ii) borrowings under
the Company's revolving credit facility or (iii) a combination of these two
sources. Internally generated cash flow from operations, a $15.7 million
federal income tax refund from the carryback to prior years of the 1992 tax
loss and $7.6 million in cash generated from asset sales, were utilized to meet
all of the Company's cash requirements for the year ended December 31, 1993.
Such cash flow was utilized to: (i) invest approximately $24 million in
property, plant and equipment; (ii) reduce long-term debt by approximately $25
million and (iii) pay dividends on preferred stock. Although effective January
1, 1993 the Company adopted an accrual basis of accounting for postretirement
health care benefit costs as required by SFAS No. 106, The Company continues to
pay for such costs as incurred. During 1992 the Company generated
approximately $10 million in miscellaneous asset sales to supplement cash flow
and received an $18.7 million federal income tax refund.
On November 19, 1993, the Company entered into a $200 million restated
Revolving Credit Facility (Restated Revolving Credit Facility) with a group of
eight commercial banks. The Restated Revolving Credit Facility includes $20
million of borrowing capacity that is restricted solely for potential funding
of obligations under an agreement between the Company and the U.S. Maritime
Administration related to certain shipping operations owned previously by Moore
McCormack Resources, Inc. (Moore McCormack), an entity acquired by the Company
in 1988. (See Notes 11 and 14 of Notes to consolidated Financial Statements.)
The facility also includes the issuance of standby letters of credit up to a
maximum of $95 million. The Restated Revolving Credit Facility remains the
same size as a previously existing revolving credit facility between the
Company and its lending banks but (i) extends the maturity of the facility to
November 1996 and (ii) provides the Company with enhanced flexibility under the
restrictive covenants. Substantially all of the Company's assets remain
pledged to secure this facility. At January 31, 1994, $24 million of letters
of credit and $75 million of borrowings, excluding any amounts restricted for
funding the maritime obligations, were available for the Company's use under
the Restated Revolving Credit Facility.
In late January 1994 the Company realized approximately $83 million in
net proceeds from the sale of 1,725,000 shares of a new issue of preferred
stock. (See Note 21 of Notes to Consolidated
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Financial Statements.) The net proceeds were used to prepay an $18 million
promissory note due in March 1994 and to reduce borrowings under the Company's
Restated Revolving Credit Facility, $47 million of which was incurred in early
January 1994 to redeem $45 million principal amount of the Company's 12% Senior
Subordinated Notes Due 1997 (12% Notes). The Company intends to prepay the
remaining $45 million outstanding principal amount of the 12% Notes as promptly
as practicable after May 1, 1994 with additional borrowings under the restated
revolving credit facility. The prepayment of the promissory note enabled the
Company to retire a like amount letter of credit which had served as collateral
for the promissory note. In addition, the Company is actively considering
calling for redemption all of the outstanding shares of its Series B Preferred
Stock at the redemption price of $50.00 Per share plus accrued and unpaid
dividends to the redemption date. Each share of Series B Preferred Stock is
convertible into 2.5 Shares of the Company's common stock (equivalent to a
conversion price of $20.00 Per share of common stock).
The Company's earnings typically follow the cyclical activity of the
construction industry. The Company's earnings have been negatively impacted
since mid-1990 because of the severe downturn in construction activity in most
of the Company's market areas through 1991 and, in southern California through
1992. Construction activity, at least in some regions of the country, began to
give indications of a slight rebound in 1993.
CASH FLOWS
Operating Activities - In spite of the large net losses, cash provided
by operating activities was $54.7 million for 1993 and, $33.7 million for 1992,
compared with $9.7 million in 1991. The increase was attributable to large
non-cash charges and federal income tax refunds in 1993 and 1992. During 1993
the Company received a $15.7 million federal income tax refund from the
carryback to prior years of the 1992 tax loss. During 1992 the Company
received an $18.7 million income tax refund from the carryback to prior years
of the 1991 tax loss.
Investing Activities - In addition to routine capital expenditures,
investing activities in 1993 included $7.6 million in net cash proceeds from
the sale of miscellaneous assets and two hazardous waste processors. Investing
activities in 1992 included $9.8 million in net cash proceeds from the sale of
miscellaneous assets, including the last of the Florida aggregate operations,
compared with $23.7 million of miscellaneous asset sales in 1991.
Approximately $17.4 million was invested in capital expenditures during 1992
compared with a 1991 investment of $30 million in capital expenditures and $6.2
million invested in a thermal distillation joint venture.
Financing Activities - Funds provided by operating activities were
utilized to reduce long-term debt by $25.4 million and to pay dividends during
1993. In spite of adverse economic conditions, the Company was able to achieve
an almost $18 million net reduction in long-term debt in 1992. During 1991,
the Company issued $125 million in 14% Senior Subordinated Notes to refinance
$77 million of senior secured notes and reduce borrowings utilized under the
Company's 1991 credit facility for capital expenditures, scheduled debt
repayments, dividends and redemption of $6 million of redeemable preferred
stock.
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CHANGES IN FINANCIAL CONDITION
The change in financial condition of the Company between December 31,
1992 and December 31, 1993 reflects the utilization of the federal income tax
refund of $15.7 million and cash provided by operating activities to primarily
reduce outstanding long-term debt and to fund capital expenditures. The
improved demand for cement and related products in 1993 has resulted in a
decrease in inventories. The increase in the current deferred income tax asset
reflects the expected utilization of net operating loss carryforwards in 1994.
The decline in prepaid expenses and other current assets reflects the 1993 sale
of two hazardous waste processing facilities which had been classified as
current assets held for sale. Current maturities of long-term debt increased
because of the reclassification of the final scheduled payment of $18 million
on a promissory note due on March 31, 1994. Accounts payable and accrued
liabilities increased because of the timing of payments on normal trade and
other obligations including the aforementioned increase in the estimated
liability for remediation of an inactive CKD disposal site. The large decrease
in the deferred income tax liability and reinvested earnings and the large
increase in the long-term portion of postretirement benefit obligation reflects
the recording of the initial liability for postretirement benefits and the
associated charges to income and deferred income taxes as a result of the
Company's adoption of SFAS No. 106 effective January 1, 1993. (See Note 2 of
Notes to Consolidated Financial Statements.) The decrease in other long-term
liabilities and deferred credits reflects payments made in accordance with
estimated liabilities on the Moore McCormack discontinued operations.
CAPITAL EXPENDITURES
The Company invested $24.4 million in property, plant and equipment in
1993 including approximately $8.5 million for the Cement operations, $3.5
million for Concrete Products and $11.0 million for Environmental Services. In
addition to the Concrete Products segment's 1993 capital budget, $2.9 million
was expended as partial consideration for the acquisition of five ready-mixed
concrete batch plants and one aggregate quarry in 1993. In 1992, the Company
invested approximately $17.4 million in property, plant and equipment. The
Company's 1994 planned capital expenditures are approximately $42 million, of
which $17.5 million is allocated for the Cement segment, $11.1 million for the
Concrete Products segment and $10.4 million for the Environmental Services
segment. The balance of the 1994 capital expenditures budget has been
allocated primarily for computer related hardware and software costs.
Capital expenditures in the Cement and Concrete Products segments were
held to maintenance and strategic necessity levels during 1992 and 1993. The
Cement segment's estimated capital budget for 1994 provides for high priority
expenditures. The Concrete Products segment's estimated capital budget for
1994 includes approximately $2.5 million for mobile equipment and approximately
$8 million for batch plant improvements and equipment, including approximately
$3 million of expenditures related to environmental compliance. The
Environmental Services segment's capital budget for 1994 includes approximately
$4.6 million allocated for improvements and completion of the expansion of one
of the existing TSD facilities to provide increased production capabilities,
and approximately $1.4 million in capital projects related to compliance with
environmental regulations.
While the Company commits substantial resources to complying with the
laws and regulations concerning the protection of human health and the
environment, management does not believe these expenditures have placed the
Company at a competitive disadvantage. The amounts expended by the Company on
its facilities for compliance with laws relating to human health and the
environment did not have a material impact on the consolidated financial
position of the Company in 1993, and the Company
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does not currently expect the rate of such expenditures to increase
significantly during the ensuing two fiscal years. However, regulatory
changes, enforcement activities or other factors could alter this expectation
at any time. Future changes in regulatory requirements related to the
protection of human health and the environment may require the Company and
others engaged in industry to modify various facilities and alter methods of
operations at costs that may be substantial.
KNOWN EVENTS, TRENDS AND UNCERTAINTIES
Environmental Matters
The Company is subject to extensive Federal, state and local air,
water and other environmental laws and regulations. These constantly changing
laws regulate the discharge of materials into the environment and may require
the Company to remove or mitigate the environmental effects of the disposal or
release of certain substances at the Company's various operating facilities.
Industrial operations have been conducted at some of the Company's cement
manufacturing facilities for almost 100 years. Many of the raw materials,
products and by-products associated with the operation of any industrial
facility, including those for the production of cement or concrete products,
may contain chemical elements or compounds that are designated as hazardous
substances. Owners and operators of industrial facilities and those who
handle, store or dispose of hazardous substances may be subject to fines or
other actions imposed by the U.S. Environmental Protection Agency (U.S. EPA)
and corresponding state regulatory agencies for violations of laws or
regulations relating to those substances.
Hazardous waste processing facilities and the cement plants that burn
HWDF, by definition, involve materials that have been designated as hazardous
wastes. The Company's utilization of HWDF in some of its cement kilns has
necessitated the familiarization of its work force with the more exacting
requirements of applicable environmental laws and regulations with respect to
human health and the environment. The failure to observe the exacting
requirements of these laws and regulations could jeopardize the Company's
hazardous waste management permits and, under certain circumstances, expose the
Company to significant liabilities and costs of cleaning up releases of
hazardous wastes into the environment or claims by employees or others alleging
exposure to toxic or hazardous substances. The Company has incurred fines
imposed by various environmental regulatory agencies in the past.
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA), as amended by the Superfund Amendments and
Reauthorization Act of 1986 (SARA), as well as analogous laws in certain
states, create joint and several liability for the cost of cleaning up or
correcting releases to the environment of designated hazardous substances.
Among those who may be held jointly and severally liable are those who
generated the waste, those who arranged for disposal, those who owned the
disposal site or facility at the time of disposal and current owners.
Management believes that the Company's current procedures and
practices for handling and management of materials are consistent with industry
standards and legal requirements and that appropriate precautions are taken to
protect employees and others from harmful exposure to hazardous materials.
However, because of the complexity of operations and legal requirements, there
can be no assurance that past or future operations will not result in
operational errors, violations, remediation liabilities or claims by employees
or others alleging exposure to toxic or hazardous materials. Whenever it is
determined that an environmental liability is both probable and reasonably
estimatable, at least within a reasonable range of estimates, an appropriate
charge and estimated liability are accrued. Such estimates are revised
periodically as additional information becomes known. Actual costs incurred in
future periods
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may vary from these estimates and there can be no assurances that additional
accrual amounts will not be required in the future.
The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of all sources of air pollution and established a new federal
operating permit and fee program for virtually all manufacturing operations.
The Clean Air Act Amendments will likely result in increased capital and
operational expenses for the Company in the future, the amounts of which are
not presently determinable. By 1995, the Company's U.S. operations will have
to submit detailed permit applications and pay recurring permit fees. In
addition, the U.S. EPA is developing air toxics regulations for a broad
spectrum of industrial sectors, including portland cement manufacturing. U.S.
EPA has indicated that the new maximum available control technology standards
could require significant reduction of air pollutants below existing levels
prevalent in the industry. Management has no reason to believe, however, that
these new standards would place the Company at a competitve disadvantage.
The Federal Water Pollution Control Act, commonly known as the Clean
Water Act (Clean Water Act), provides comprehensive federal regulation of all
sources of water pollution. In September 1992 the Company filed a number of
applications under the Clean Water Act for National Pollutant Discharge
Elimination System (NPDES) stormwater permits. The Company now believes that
some of its existing NPDES permits or pending applications relating to its
cement plants and raw materials quarries may not cover all process water and
stormwater discharges. Legal counsel has advised the Company, based upon its
preliminary review of the matter, that while the Clean Water Act authorizes,
among other remedies, the imposition of civil penalties of up to $25,000 per
day for unpermitted discharges of pollutants to the waters of the United
States, several factors may mitigate against the impositions of substantial
fines. First, the Company is moving forward as expeditiously as practicable to
correct all NPDES permitting deficiencies. Second, some of the permitting
issues arise from mere technical deficiencies in permit applications or from
changes in discharge patterns after submission of permit applications. In each
such case, legal counsel believes that such deficiencies are neither unusual
nor difficult to rectify. Finally, some of the deficiencies relate to
questions of the scope of the Clean Water Act's jurisdiction that are, at best,
unclear.
Under the Bevill amendment, CKD is currently exempt from management as
a hazardous waste, except CKD which is produced by kilns burning HWDF and which
fails to meet certain criteria. In December 1993, as required by the Bevill
amendment, the U.S. EPA issued a Report to Congress on CKD (CKD Report) and
hearings were held on February 15, 1994. A change in the status of CKD would
require the cement industry to develop new methods for handling this high
volume, low toxicity waste. Although not presently classified as a hazardous
waste, CKD that comes in contact with water may produce a leachate with an
alkalinity high enough to be classified as hazardous and may also leach the
hazardous trace metals present therein. Leaching has led to the classification
of at least three CKD disposal sites of other companies as federal Superfund
sites. Several of the Company's inactive CKD disposal sites around the country
are under study to determine if remedial action is required and, if so, the
extent of any such remedial action required. These studies may take some time
to complete. Thereafter, remediation plans, if required, will have to be
devised and implemented, which could take several additional years.
An inactive CKD disposal site in Ohio is currently under investigation
by the Company and state environmental agencies to determine appropriate
remedial action required at the site and the Company has recorded charges
aggregating $9.7 million as the total estimated cost to remediate this site.
Approximately $2.6 million of the reserved amount had been expended through
December 31, 1993 with
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the balance to be spent by early or mid-1995. The Company believes it
currently has sufficient cash flow from current operating activities or
borrowing capacity under its Restated Revolving Credit Facility to fund this
remediation.
The Company also owns two inactive CKD disposal sites in Ohio that
were formerly owned by a division of USX Corporation (USX). In September 1993,
the Company filed a complaint against USX alleging that with respect to the
larger of these two sites (the Site), USX is a potentially responsible party
and therefore jointly and severally liable for costs associated with cleanup of
the Site. (Southdown, Inc. v. USX Corporation, Case No. C-3-93-354, U.S.
District Court, Southern District of Ohio Western Division) USX answered the
complaint in November 1993 by filing a motion to dismiss the lawsuit. Based on
the limited information available as of December 31, 1993 the Company has
received two preliminary engineering estimates of the potential magnitude of
the remediation costs for the Site, $8 million and $32 million, depending on
the assumptions used. Counsel to the Company on the USX matter has advised
that it believes USX should not prevail on its motion to dismiss and that it
appears there is a reasonable basis for the apportionment of cleanup costs
relating to the Site between the Company and USX, with USX shouldering
substantially all of the cleanup costs because, based on the facts known at
this time, the Company itself disposed of no CKD at the Site and is potentially
liable under CERCLA because of its current ownership of the Site. These
determinations, however, are preliminary, and are based only upon facts
available to the Company prior to any discovery.
No substantial investigative work has been undertaken at other CKD
sites in Ohio. Although data necessary to enable the Company to estimate total
remediation costs is not available, the Company acknowledges that the ultimate
cost to remediate the CKD disposal problem in Ohio could be significantly more
than the amounts reserved.
As a result of an aggressive inspection and enforcement initiative
targeting combustion industry facilities, the Company was among a group of
owners and operators of 28 boilers and industrial furnaces, including several
other major cement manufacturers, from which the U.S. EPA is seeking over
$19.8 million in penalties. On September 27, 1993, the U.S. EPA issued a
Complaint and Compliance Order (Order) (United States Environmental Protection
Agency, Region 5 v. Southdown, Inc. d/b/a Southwestern Portland Cement -
Docket No. VW 27-93) alleging certain violations of the Resource Conservation
and Recovery Act (RCRA) applicable to the burning or processing of hazardous
waste in an industrial furnace. The alleged violations included, among others,
exceedence of certified feed rates for total hazardous waste at the Company's
Ohio cement manufacturing facility, failure to demonstrate that CKD generated
at the facility is excluded from the definition of hazardous waste and storage
at the facility without a permit of CKD alleged to be hazardous by virtue of
that failure to demonstrate its exclusion from the definition. The Order
proposed the assessment of a civil penalty in the amount of $1.1 million and
closure of certain storage silos containing the CKD that allegedly is hazardous
waste.
The Company has engaged counsel to respond to the U.S. EPA Order and
believes, after reviewing the complaint and the Company's compliance with the
applicable regulations, there are substantial mitigating factors to the
interpretations and allegations contained in the Order. The Company believes,
based on the information currently available, the Order can be resolved without
material adverse effect on the consolidated financial condition of the Company.
The Company recorded loss reserves for pre-acquisition contingencies
in conjunction with its acquisition of the hazardous waste processing
facilities and received certain indemnifications for environmental matters from
the former owners. However, there can be no assurance that such reserves
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and indemnifications will be adequate to cover all potential environmental
losses that may occur with respect to these acquired entities. To the extent
that reserves were not established, are insufficient, or recovery under
indemnifications are not realizable, remediation amounts are charged to
expense.
While the Company's facilities at several locations are presently the
subject of various local, state and federal environmental proceedings and
inquiries, including being named a potentially responsible party (PRP) with
regard to Superfund sites, primarily at several locations to which they are
alleged to have shipped materials for disposal, most of these matters are in
their preliminary stages and final results may not be determined for years.
Management of the Company believes, however, based solely upon the information
the Company has developed to date, that known matters can be successfully
resolved in cooperation with local, state and federal agencies without having a
material adverse effect upon the consolidated financial condition of the
Company, either individually or in the aggregate. This assessment is reviewed
periodically as additional information becomes available.
In forming its belief that the matters described will not have a
material adverse effect on its consolidated financial condition, the Company
considers, among other things, the nature of the matters, the likelihood that a
future event or events will confirm the loss, impairment or the incurrence of a
liability, the response of environmental authorities to date and the experience
of the Company and others with the response of environmental authorities to
similar matters. The Company further evaluates various engineering,
operational and other options which might be available to address these
matters. Estimates of the future cost of environmental issues, however, are
necessarily imprecise as a result of numerous uncertainties including, among
others, the impact of new laws and regulations and the availability of new
technologies. With respect to matters which require fixed or reasonably
determinable expenditures by the Company, the Company also considers the period
of time over which those expenditures might be made. Independently of the
evaluation of any liabilities, the Company also considers whether such matters
are within the scope of contractual indemnities provided by others, the
applicability of insurance coverage or other potential recoveries from third
parties, whether such potential sources of recovery could be considered
probable of realization and, if so, how those indemnities would impact any cost
to the Company. Accordingly, until all environmental studies, investigations,
remediation work and negotiations with potential sources of recovery have been
completed, it is impossible to determine the ultimate cost of resolving these
environmental matters.
Other Contingencies
Status of Additional Sources of Cement Supply - The supply of cement
in the U.S. has declined in recent years primarily because of a decrease in the
volume of imported cement entering the country. During the 1980s, imported
cement flooded U.S. markets, causing prices to fall despite strong growth in
cement consumption. This situation has substantially changed as evidenced by
the reduction in imported cement to an estimated 8% of total U.S. consumption
in 1992 according to the Portland Cement Association, as compared with an
estimated 17% of total U.S. consumption in 1989. This decline is largely the
result of successful antidumping actions filed against importers from Mexico,
Japan and Venezuela. With respect to the California, Florida and Texas
markets, the antidumping suits have provided an opportunity during the current
recession for domestic producers to displace large volumes of imported cement.
A group of domestic cement producers, including the Company, filed
antidumping petitions which have resulted in the imposition of significant
antidumping duty cash deposits on cement imported from Mexico and Japan. In
addition, the U.S. Department of Commerce has signed an agreement with
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Venezuelan cement producers, which is designed to eliminate the dumping of gray
portland cement from Venezuela into Florida and the United States generally.
The antidumping duties are subject to annual review by the Department of
Commerce and appeal to the U.S. Court of International Trade.
Effective July 15, 1995, the Anti-dumping Code of the General
Agreement on Tariffs and Trade will be substantially altered pursuant to the
recently completed Uruguay Round of multilateral trade negotiations. The new
Code applies to investigations initiated after July 1995 and to administrative
reviews of outstanding orders that are initiated after July 1995. If Congress
passes legislation to approve and implement the Uruguay Round agreement,
changes will necessarily be made to U.S. antidumping law. While the
antidumping orders outstanding against cement and clinker from Mexico and Japan
and the suspension agreement on cement and clinker from Venezuela will remain
in force, the new Code will require the initiation of "sunset" reviews of the
antidumping orders against Mexico and Japan prior to July 2000 to determine
whether they should terminate or remain in effect, unless an earlier date is
mandated by Congress. Under the new Code, it could be more difficult to obtain
antidumping duties against other countries. A substantial reduction or
elimination of the existing antidumping duties could adversely affect the
Company's results of operations.
The Company does not believe that the North American Free Trade
Agreement will have a material adverse effect on the existing antidumping
duties.
Discontinued Moore McCormack Operations - In conjunction with the
acquisition of Moore McCormack in 1988, the Company assumed certain liabilities
for operations that Moore McCormack had previously discontinued. These
liabilities, some of which are contingent, represent guarantees and
undertakings related to Moore McCormack's divestiture of certain businesses in
1986 and 1987. Payments relating to liabilities from these discontinued
operations were $2.4 million in 1993, $2.5 million in 1992 and $2.4 million in
1991. The Company is either a guarantor or directly liable under certain
charter hire debt agreements totaling approximately $11 million at December 31,
1993, declining by approximately $4 million per year thereafter through
February 1997. Although the estimated liability under these guaranties has
been included in the liability for discontinued Moore McCormack operations,
enforcement of the guaranty, while not resulting in a charge to earnings, would
result in a substantial cash outlay by the Company. However, the Company
believes it currently has sufficient borrowing capacity under its Restated
Revolving Credit Facility to fund these guaranties, if required, as well as
meet its other borrowing needs for the foreseeable future.
The Company's Restated Revolving Credit Facility includes $20 million
of borrowing capacity that is reserved solely for potential funding of
obligations under a Keepwell Agreement between the Company and MARAD related to
certain Great Lakes shipping operations owned previously by Moore McCormack.
During the second quarter of 1993, the Great Lakes shipping operation sold its
right to receive its portion of the settlement of bankruptcy claims against LTV
Corporation, which has been operating under the protection of Chapter 11 of the
United States Bankruptcy Code since July 17, 1986, and received approximately
$14 million in gross proceeds before expenses and taxes. The net proceeds of
approximately $9 million are available and required to be used to fund the
Great Lakes shipping operation's cash flow deficiencies before the Keepwell is
utilized for such purposes.
Restructured Accounts Receivable - For many years, the Company has
from time-to-time offered extended credit terms to certain of its customers,
including converting trade receivables into longer term notes receivable. This
practice became more prevalent during 1992 and continued during 1993,
particularly in the southern California market area where many of the Company's
customers have been
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adversely affected by the prolonged recession in the construction industry in
that region. A group of five such customers were indebted to the Company at
December 31, 1993 in the amount of $20.6 million. All of the notes and a
portion of the accounts receivable, approximately 78% of the $20.6 million, are
collateralized.
During 1993, two of these customers defaulted on the payment terms of
their notes. The Company restructured its agreement with one of the defaulting
customers late in the second quarter of 1993 and that customer was in
compliance with the terms of the restructured agreement as of December 31,
1993. The Company has stopped selling cement on credit to the other customer
in default and is presently evaluating its options for collection of
outstanding balances. A third customer in this group, while not in default on
its note, had difficulty in maintaining prompt payment for its cement purchases
and restructuring discussions were commenced in late 1993. The Company is
contractually committed to supply up to 90% of the cement requirements of one
of the three non-defaulting customers on extended credit terms, provided this
customer remains current with respect to both current purchases and payments on
its note.
During the final quarter of 1993, the Company purchased most of the
ready-mixed concrete and aggregate assets of two other customers then in
default for forgiveness of a total of approximately $9.2 million owed the
Company, assumption of certain liabilities and other consideration. The
Company realized no gain or loss on either of these transactions. In January
1994, the Company made a preliminary purchase proposal to acquire certain
ready-mixed concrete and aggregate assets of the customer with which it was
engaged in restructuring discussions. The proposal included, as partial
consideration for the acquisition, forgiveness of the $5.8 million owed the
Company as of December 31, 1993.
In the opinion of management, the Company is adequately reserved for
credit risks related to its potentially uncollectible receivables. However,
the Company continues to assess its allowance for doubtful accounts and may
increase or decrease its periodic provision for doubtful accounts as additional
information regarding the collectibility of these and other accounts becomes
available.
Claims for Indemnification - In late August 1993 the Company was
notified by Energy Development Corporation (EDC), the 1989 purchaser of the
common stock of the Company's then oil and gas subsidiary, Pelto Oil Company
(Pelto), that EDC was exercising its indemnification rights under the 1989
stock purchase agreement with respect to a Department of Energy (DOE) Remedial
Order regarding the audit of crude oil produced and sold during the period
September 1973 through January 1981 from an offshore, federal waters field in
which the Company's oil and gas subsidiary owned an interest. The DOE alleged
certain price overcharges and sought to recover a total of $68 million in
principal and interest from Murphy Oil Corporation (Murphy), as operator of the
property. Murphy estimated the Company's share of this total to be
approximately $4 million. On January 24, 1994 the presiding Administrative Law
Judge at the Federal Energy Regulatory Commission (FERC) rendered a favorable
decision for Murphy, materially reducing the amount it potentially owed to the
DOE. This decision also had the effect of precluding the DOE from recovering
from Murphy for any alleged overcharges attributable to Pelto's "in-kind"
production. Murphy has indicated that if the FERC adopts the Administrative
Law Judge's opinion, Pelto will not owe anything to Murphy as a result of the
DOE's claim, other than its pro rata share of attorneys' fees. The Company
cannot assess the likelihood that the DOE would seek to recover sums from Pelto
directly due to Pelto's "in-kind" production, but the Company believes, based
on advice of counsel, that, if it did, any such claim by the DOE would be
barred by limitations.
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Prior to the sale of Pelto in 1989, Pelto entered into certain gas
settlement agreements, including one with Transcontinental Gas Pipe Line
Corporation (Transco). The Minerals Management Service (MMS) of the Department
of the Interior has reviewed the agreement entered into with Transco in 1988 to
determine whether a payment to Pelto thereunder is associated with Federal or
Indian leases and whether, in their view, any additional royalties may be due
as a result of that payment. MMS has advised EDC of a preliminary royalty
underpayment determination resulting from its review, and that MMS proposes to
direct EDC to compute any gas royalties attributable to what MMS characterizes
as a "contract buydown". This does not constitute a final action by MMS; its
stated purpose is to give an opportunity to comment or provide additional
documentation that would refute or alter MMS's preliminary determination. In
late December 1993, the Company was notified by EDC that EDC was exercising its
indemnification rights under the 1989 stock purchase agreement for Pelto with
respect to this matter. The Company is unable to determine what liability it
may have, if any, with respect to this matter, but should the Company be
required to make any payments to the MMS, such expenditures would result in a
charge to discontinued operations.
Macroeconomic Factors - The demand for cement and concrete products is
derived from construction activity which, in turn, is a function of general
economic conditions over which the Company has no control. As a result of the
high operating leverage of the cement industry, profitability is very sensitive
to slight shifts in the balance of supply and demand, which are driven by
general macroeconomic variables. A significant portion of cement and concrete
consumption is for public construction projects including roads, bridges,
airports and similar projects. In the event major construction projects to
repair and replace large parts of the national infrastructure are undertaken
over the next decade, the cement and concrete products industry should benefit.
New construction activities stagnated as the U.S. economy entered a
recession in early-to-mid 1990 and, as a consequence, the Company's sales and
earnings declined from the previous cyclical peak in 1989. Construction
activity in some regions rebounded slightly in 1993. Because transportation
costs are high relative to the value of the product, cement markets are
generally regional. Any improvement in operating earnings will be aided by the
recovery of the regional economies in which the Company operates. Florida, the
Company's second largest market area, experienced an upturn in prices and sales
volume as demand improved somewhat in 1993. Southern California, the Company's
largest market area, showed little or no improvement in 1993. Potential
benefits of any increase in infrastructure spending are dependent upon the
extent to which such expenditures may occur within the market areas served by
the Company's plants and facilities and, therefore, cannot be estimated at this
time.
In January 1994, Los Angeles, California and the surrounding environs
experienced a major earthquake. Although neither the Company's cement plant in
Victorville, California nor the Company's concrete products facilities in
Orange and Los Angeles Counties suffered any significant amounts of damage,
commerce and transportation in the area have been disrupted.
Changes in Accounting Principle
Postretirement benefits - Effective January 1, 1993 the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106) and
recorded a $48.5 million after-tax, non-cash charge which represented the
estimated initial liability for postretirement benefits attributable to
employee services provided prior to 1993. SFAS No. 106 requires the Company to
accrue the estimated cost of retiree benefit payments as the employee provides
services to the Company. The Company previously expensed the cost of these
46
<PAGE> 49
benefits as claims were incurred and continues to pay for postretirement
benefit costs as incurred. (See Note 2 of Notes to Consolidated Financial
Statements.)
Postemployment benefits - In November 1992 the Financial Accounting
Standards Board issued a Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS No. 112), which
requires that the cost of benefits provided to employees after employment, but
before retirement, be recognized in the financial statements on an accrual
basis. The required date of adoption of this new accounting standard was
January 1, 1994. The impact of SFAS No. 112 on the Company did not result in a
material charge to earnings.
INFLATION AND CHANGING PRICES
Inflation has become less of a factor in the U. S. economy as the rate
of increase has moderated during the last several years. The Consumer Price
Index rose 2.6% in 1993, 2.9% in 1992 and 3.1% in 1991. Prices of materials
and services have remained relatively stable over the three-year period.
Strict cost control and improving productivity also minimize the impact of
inflation.
47
<PAGE> 50
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain unaudited selected quarterly
financial data for each of the last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 106.1 $ 144.4 $ 156.1 $ 138.2
=========== ============ ============ ============
Earnings before interest, income taxes,
extraordinary charge and cumulative
effect of a change in accounting principle $ 3.2 $ 14.3 $ 11.4 $ 10.1
=========== ============ ============ ============
Earnings (loss) before extraordinary charge
and cumulative effect of a change in
accounting principle $ (4.4) $ 2.6 $ 1.5 $ 0.3
Extraordinary charge, net of tax benefit 1 - - - (1.0)
Cumulative effect of a change in
accounting principle 2 (48.5) - - -
----------- ------------ ------------ ------------
Net earnings (loss) $ (52.9) $ 2.6 $ 1.5 $ (0.7)
=========== ============ ============ ============
Earnings (loss) per share:
Primary -
Loss from continuing operations $ (0.34) $ 0.08 $ 0.01 $ (0.05)
Extraordinary charge, net of tax benefit 1 - - - (0.06)
Cumulative effect of a change in
accounting principle 2 (2.86) - - -
------------ ------------ ------------ ------------
Net earnings (loss) $ (3.20) $ 0.08 $ 0.01 $ (0.11)
============ ============ ============ ============
Fully diluted -
Loss from continuing operations $ (0.34) $ 0.08 $ 0.01 $ (0.05)
Extraordinary charge, net of tax benefit 1 - - - (0.06)
Cumulative effect of a change in
accounting principle 2 (2.86) - - -
------------ ------------ ------------ ------------
Net earnings (loss) $ (3.20) $ 0.08 $ 0.01 $ (0.11)
============ ============ ============ ============
</TABLE>
- ---------------
(1) Prepayment penalty on early retirement of $45 million of 12% Senior
Subordinated Notes.
(2) Cumulative after-tax effect of change in accounting principle for initial
obligation for estimated postretirement health care benefits as required
by adoption of SFAS No. 106 effective January 1, 1993.
48
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 107.6 $ 136.5 $ 139.2 $ 124.1
============ ============ ============ =============
Earnings (loss) from continuing operations
before interest and income taxes $ (0.1) $ 0.0 $ 9.5 $ (26.0)
============ ============ ============ =============
Loss from continuing operations $ (7.4) $ (7.0) $ (0.5) $ (26.5)
Gain on discontinued operations, net
of income taxes 1 - - 0.8 -
------------ ------------ ------------ -------------
Net loss $ (7.4) $ (7.0) $ 0.3 $ (26.5)
============ ============ ============ =============
Earnings (loss) per share:
Primary -
Loss from continuing operations $ (0.51) $ (0.49) $ (0.10) $ (1.64)
Gain on discontinued operations, net
of income taxes 1 - - 0.05 -
------------ ------------ ------------ -------------
Net loss $ (0.51) $ (0.49) $ (0.05) $ (1.64)
============ ============ ============ =============
Fully diluted -
Loss from continuing operations $ (0.51) $ (0.49) $ (0.10) $ (1.64)
Gain on discontinued operations, net
of income taxes 1 - - 0.05 -
------------ ------------ ------------ -------------
Net loss $ (0.51) $ (0.49) $ (0.05) $ (1.64)
============ ============ ============ =============
</TABLE>
(1) Final portion of the gain deferred from the 1989 sale of the Company's oil
and gas operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 103.9 $ 137.4 $ 141.3 $ 124.3
============ ============ ============ =============
Earnings (loss) from continuing operations
before equity in net loss of unconsolidated
joint venture, interest and income taxes $ (2.0) $ 8.0 $ (4.8) $ (16.9)
============ ============ ============ =============
Loss from continuing operations $ (7.5) $ (2.2) $ (9.7) $ (23.8)
Extraordinary charge, net of tax benefit 1 - - - (1.4)
============ ============ ============ =============
Net loss $ (7.5) $ (2.2) $ (9.7) $ (25.2)
============ ============ ============ =============
Loss per share:
Primary
Loss from continuing operations $ (0.52) $ (0.21) $ (0.65) $ (1.48)
Extraordinary charge, net of tax benefit 1 - - - (0.08)
------------ ------------ ------------ -------------
Net loss $ (0.52) $ (0.21) $ (0.65) $ (1.56)
============ ============ ============ =============
Fully diluted
Loss from continuing operations $ (0.52) $ (0.21) $ (0.65) $ (1.48)
Extraordinary charge, net of tax benefit 1 - - - (0.08)
============ ============ ============ =============
Net loss $ (0.52) $ (0.21) $ (0.65) $ (1.56)
============ ============ ============ =============
</TABLE>
(1) Represents prepayment penalty on early retirement of Senior Secured Notes,
net of income tax effect.
49
<PAGE> 52
The businesses of the Company's Cement and Concrete Products segments
are seasonal to the extent that construction activity and hence, the demand for
cement and concrete products, tends to diminish during the first and fourth
calendar quarters of each year because of inclement weather conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Statement of Consolidated Earnings for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Balance Sheet as of December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . 52
Statement of Consolidated Cash Flows for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Statement of Consolidated Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
50
<PAGE> 53
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 544.8 $ 507.4 $ 506.9
------------ ------------- -------------
Costs and expenses:
Operating 391.7 390.0 397.5
Depreciation, depletion and amortization 41.9 48.5 47.4
Selling and marketing 18.6 17.9 16.4
General and administrative 42.1 47.1 54.3
Other expense (income), net 5.5 (3.5) 5.2
------------ ------------- -------------
499.8 500.0 520.8
Write-down of environmental services assets (Note 18) 3.1 21.4 -
Minority interest in earnings of consolidated
joint venture (Note 13) 2.9 2.6 1.8
------------ ------------- -------------
505.8 524.0 522.6
------------ ------------- -------------
Operating earnings (loss) 39.0 (16.6) (15.7)
Equity in net loss of unconsolidated joint
venture (Note 19) - - (16.0)
Interest, net of amounts capitalized (39.3) (45.0) (40.7)
------------ ------------- -------------
Loss from continuing operations before income taxes,
extraordinary charge and cumulative effect of a
change in accounting principle (0.3) (61.6) (72.4)
Federal and state income tax benefit (Note 12) 0.3 20.2 29.2
------------ ------------- -------------
Loss from continuing operations before extraordinary
charge and cumulative effect of a change in
accounting principle - (41.4) (43.2)
Gain on discontinued operations, net of income
taxes (Note 20) - 0.8 -
Extraordinary charge, net of tax benefit (Note 11) (1.0) - (1.4)
Cumulative effect of a change in accounting
principle (Note 2) (48.5) - -
------------ ------------- -------------
Net loss $ (49.5) $ (40.6) $ (44.6)
Dividends on preferred stock (5.0) (5.0) (5.1)
------------ ------------- -------------
Loss attributable to common stock $ (54.5) $ (45.6) $ (49.7)
------------ ------------- -------------
Loss per share (Notes 21, 22 and Exhibit 11):
Loss from continuing operations $ (0.30) $ (2.74) $ (2.86)
Gain on discontinued operations, net of income
taxes (Note 20) - 0.05 -
Extraordinary charge, net of tax benefit (Note 11) (0.06) - (0.08)
Cumulative effect of a change in accounting
principle (Note 2) (2.86) - -
------------ ------------- -------------
Net loss $ (3.22) $ (2.69) $ (2.94)
============ ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
51
<PAGE> 54
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-------------------------------
1993 1992
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 4) $ 7.4 $ 12.5
Accounts and notes receivable, net (Note 5) 75.7 85.2
Inventories (Note 6) 54.7 58.6
Deferred income taxes (Note 12) 25.5 10.9
Prepaid expenses and other 3.6 14.6
------------- ------------
Total current assets 166.9 181.8
Property, plant and equipment, net (Note 7) 593.2 592.9
Goodwill 74.5 74.6
Other long-term assets (Notes 8 and 15) 72.4 72.2
------------- ------------
$ 907.0 $ 921.5
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Notes 10 and 11) $ 19.9 $ 8.3
Accounts payable and accrued liabilities (Note 9) 91.9 89.7
------------- ------------
Total current liabilities 111.8 98.0
Long-term debt (Notes 10 and 11) 274.0 306.5
Deferred income taxes (Note 12) 127.6 141.6
Minority interest in consolidated joint venture (Note 13) 28.8 31.0
Long-term portion of postretirement benefit obligation (Note 16) 83.8 5.3
Other long-term liabilities and deferred credits (Note 14) 18.8 22.7
------------- ------------
644.8 605.1
------------- ------------
Commitments and contingent liabilities (Notes 10, 14, 15, 16 and 17)
Shareholders' equity (Notes 21 and 22):
Preferred stock, $.05 par value, 10,000,000 shares authorized:
$ .70 Cumulative Convertible Series A, 1,999,000 shares
issued and outstanding 20.0 20.0
$3.75 Convertible Exchangeable Series B, 960,000 shares
issued, 959,000 shares outstanding 47.9 47.9
Common stock, $1.25 par value, 40,000,000 shares authorized,
17,046,000 and 16,945,000 shares issued and outstanding 21.3 21.2
Capital in excess of par value 127.6 126.6
Reinvested earnings 45.4 100.7
------------- ------------
262.2 316.4
------------- ------------
$ 907.0 $ 921.5
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
52
<PAGE> 55
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
--------------------------------------------------
1993 1992 1991
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary item $ (48.5) $ (40.6) $ (43.2)
Adjustments to reconcile earnings from continuing
operations to net cash provided by (used in)
operating activities:
Cumulative effect of a change in accounting principle 48.5 - -
Depreciation, depletion and amortization 41.9 48.5 47.4
Deferred income tax benefit (1.7) (4.7) (13.3)
Amortization of debt issuance costs 2.8 3.6 2.8
Minority interest in earnings of consolidated
joint venture 2.9 2.6 1.8
Write-down of environmental services assets 3.1 21.4 -
Equity in net loss of unconsolidated joint venture - - 16.0
(Gain) loss on sale of assets - (1.2) 5.2
Changes in operating assets and liabilities
(Increase) decrease in accounts and notes receivable 8.0 (7.0) (13.4)
Decrease in inventories 4.2 2.4 6.1
(Increase) decrease in prepaid expenses and other (0.4) 14.3 (1.2)
Increase (decrease) in accounts payable and
accrued liabilities (3.2) (2.6) 5.9
Increase (decrease) in income taxes payable (1.2) (0.5) 4.0
Decrease in other long-term liabilities and
deferred credits (1.7) (2.5) (8.4)
------------ ------------- -------------
Net cash provided by operating activities 54.7 33.7 9.7
------------ ------------- -------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (24.4) (17.4) (30.0)
Acquisitions, net of cash acquired (2.9) (4.9) -
Proceeds from asset sales 7.6 9.8 23.7
Investment in unconsolidated joint venture (Note 19) - - (6.2)
Other (0.9) 2.5 5.2
------------ ------------- -------------
Net cash used in investing activities (20.6) (10.0) (7.3)
------------ ------------- -------------
FINANCING ACTIVITIES:
Additions to long-term debt (Note 11) - 0.5 121.2
Reductions in long-term debt (Note 11) (25.4) (18.4) (106.8)
Reduction in preferred stock subject to mandatory
redemption (Note 21) - - (6.0)
Issuance of warrants (Note 21) - - 3.8
Dividends (Note 21) (5.0) (5.0) (7.3)
Distributions to minority interest (4.3) (2.0) (1.5)
Debt issuance costs (3.5) (0.9) (8.2)
Premium on early extinguishment of debt (Note 11) (1.0) - (1.4)
------------ ------------- -------------
Net cash used in financing activities (39.2) (25.8) (6.2)
------------ ------------- -------------
Net decrease in cash and cash equivalents (5.1) (2.1) (3.8)
Cash and cash equivalents at the beginning of the year 12.5 14.6 18.4
------------ ------------- -------------
Cash and cash equivalents at the end of the year $ 7.4 $ 12.5 $ 14.6
============ ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
53
<PAGE> 56
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
IN MILLIONS)
-----------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK CAPITAL
--------------- ------------ IN EXCESS OF REINVESTED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS
--------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 3.0 $ 67.9 16.9 $ 21.2 $ 122.8 $ 198.2
Net loss - - - - - (44.6)
Cash dividends paid on common stock -
$0.125 per share 1 - - - - - (2.2)
Dividends on preferred stock - - - - - (5.1)
Issuance of warrants - - - - 3.8 -
-------- ------- ------ ------- -------- --------
Balance at December 31, 1991 3.0 67.9 16.9 21.2 126.6 146.3
Net loss - - - - - (40.6)
Dividends on preferred stock - - - - - (5.0)
-------- ------- ------ ------- -------- --------
Balance at December 31, 1992 3.0 67.9 16.9 21.2 126.6 100.7
Net loss - - - - - (49.5)
Dividends on preferred stock - - - - - (5.0)
Exercise of stock options - - 0.1 0.1 (0.1) (0.8)
Tax benefit from exercise of stock options - - - - 1.1 -
-------- ------- ------ ------- -------- --------
Balance at December 31, 1993 3.0 $ 67.9 17.0 $ 21.3 $ 127.6 $ 45.4
======== ======= ====== ======= ======== ========
</TABLE>
- ------------------
(1) On April 25, 1991, the Board of Directors s spended the dividend on the
Company's Common Stock.
See Notes to Consolidated Financial Statements
54
<PAGE> 57
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Southdown, Inc. (Southdown or the Company) engages in the production
and marketing of cement and concrete products. The Company also engages in the
processing, treatment and disposal of hazardous wastes. The operations of the
hazardous waste processing facilities are conducted through Southdown
Environmental Systems, Inc., a wholly-owned subsidiary of the Company, and
several indirect wholly-owned subsidiaries.
Consolidation - The consolidated financial statements of the Company
include the accounts of its divisions, its wholly-owned subsidiaries and its
majority-owned joint venture after elimination of significant intercompany
transactions and balances. Certain data for prior years have been reclassified
for purposes of comparison.
Statement of Consolidated Cash Flows Supplemental Disclosures - For
purposes of the Statement of Consolidated Cash Flows, short-term investments
which have an original maturity of three months or less are considered cash
equivalents. Cash payments for income taxes totaled $2.8 million in 1993,
$200,000 in 1992 and $1.7 million in 1991. During 1993 and 1992 the Company
received a $15.7 million and an $18.7 million federal income tax refund,
respectively, from the carryback to prior years of the previous year's tax
losses. Interest paid, net of amounts capitalized in years 1993 and 1991, was
$36.4 million, $40.4 million and $38.5 million in 1993, 1992 and 1991,
respectively. The $48.5 million noncash charge for the cumulative effect of a
change in accounting principle also resulted in a charge to deferred income
taxes of $25.9 million and a credit to postretirement benefit obligations of
$74.4 million. Noncash investing activities in 1993 included the sale of a
hazardous waste processing facility for preferred stock which the Company
valued at $4.8 million (see Note 18 of Notes to Consolidated Financial
Statements) and the exchange of $9.2 million in accounts and notes receivable
and the assumption of $6.8 million in liabilities as partial consideration for
the acquisition from the debtors of five ready-mixed concrete products batch
plants and one aggregate quarry. Noncash investing activities in 1992 included
receipt of a $1.9 million note as partial consideration for the sale of all of
the common stock of a hazardous waste processor sold effective June 30, 1992
and the assumption of $1.1 million of noncash liabilities in the January 1992
acquisition of a hazardous waste processor. Noncash investing activities in
1991 included an accrual for the acquisition of a seventh hazardous waste
processing facility (also referred to as treatment, storage and disposal (TSD)
facilities or simply, as TSDs) for $4.4 million effective January 1, 1992 and
an additional $1 million of acquisitions for notes.
Inventories - Inventories are valued at the lower of cost (which
includes material, labor and manufacturing overhead) or market. The valuation
of cement inventories is determined on the last-in, first-out (LIFO) method.
The valuation of the remaining inventories, primarily parts and supplies, is
determined on the first-in, first-out (FIFO) or average cost method.
Property, Plant and Equipment - The Company capitalizes all direct and
certain indirect expenditures incurred in conjunction with the acquisition or
construction of major facilities. Depreciation and amortization of these
capitalized costs commence when the completed facility is placed in service.
Depreciation and amortization of property, plant and equipment are computed
primarily on a straight-line basis over estimated useful lives of the related
assets, ranging from three to fifty years. Depletion of
55
<PAGE> 58
mineral rights is computed on the units-of-production method. Certain costs
and expenses associated with the acquisitions of various facilities have been
capitalized and are being amortized over the estimated useful lives of the
related assets. Gain or loss is generally reflected in earnings upon the
retirement or sale of property, plant and equipment.
Environmental Expenditures - Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Environmental
expenditures that extend the life, increase the capacity, improve the safety or
efficiency of property owned by the Company, mitigate or prevent environmental
contamination that has yet to occur, or that are incurred in anticipation of a
sale of property are capitalized. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. The Company's policy is to accrue
environmental and clean-up related costs of a non-capital nature when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated whether or not this coincides with the completion of a
remediation investigation/feasibility study or the Company's commitment to a
formal plan of action. Such estimates are revised as additional information
becomes known.
Goodwill - The excess of cost over the fair value of net assets of
businesses acquired is amortized on a straight-line basis over periods ranging
from 15 to 40 years. Such amortization amounted to $2.4 million, $3.3 million
and $3.1 million in 1993, 1992 and 1991, respectively. In addition, goodwill
was further reduced by approximately $12.3 million in the fourth quarter of
1992 in conjunction with the pending and proposed disposition of certain TSD
facilities. (See Note 18 of Notes to Consolidated Financial Statements.)
Accumulated amortization of goodwill was $12.9 million and $10.5 million as of
December 31, 1993 and 1992, respectively.
Income Taxes - In computing its federal and state income tax
liabilities, the Company uses accelerated depreciation and deducts currently
certain expenditures that are capitalized for financial reporting purposes.
Deferred income taxes are provided on these and other temporary differences
between the tax bases of assets and liabilities and their bases for financial
statement purposes. Investment tax credit carryforwards are accounted for
under the flow-through method and, accordingly, reduce federal income taxes in
the years in which their utilization is assured.
Effective January 1, 1993, the Company revised its method of
accounting for income taxes to conform to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109
requires recognition of deferred tax assets for all existing potential future
tax benefits and then subjection of these deferred tax assets to an impairment
valuation based on the likelihood of realization. (See Note 2 of Notes to
Consolidated Financial Statements.)
Interim Periods - For its cement manufacturing operations, the Company
utilizes a standard manufacturing cost to identify favorable or unfavorable
variances from predetermined cost estimates established by management. For
interim reporting purposes, the Company charges cost of goods sold on the basis
of such estimated costs for the year deferring as a charge or credit to
inventory any difference between actual manufacturing costs and the standard.
At year-end, any variation between the result at standard cost and actual cost
is charged or credited to cost of goods sold.
56
<PAGE> 59
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES:
Postretirement benefits - Postretirement benefits other than pensions
(postretirement benefits) currently provided by the Company to its eligible
retirees consist primarily of health care and life insurance benefits. In
certain instances, retirees under the age of sixty-five and their dependents
are offered health care benefits which are essentially the same as benefits
available to active employees. However, benefit payments for covered retirees
over the age of sixty-five are reduced to the extent that such benefits are
paid by Medicare. Most of the Company's health care benefits are self-insured
and administered on cost plus fee arrangements with a major insurance company
or provided through health maintenance organizations. Generally life insurance
benefits for retired employees are reduced over a number of years from the date
of retirement to a specified minimum level.
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106) and recorded a $48.5 million
after-tax, non-cash charge which represented the initial estimated liability
for postretirement benefits attributable to employee services provided prior to
1993. SFAS No. 106 requires the Company to accrue the estimated cost of
retiree benefit payments as the employee provides services to the Company. The
Company previously expensed the cost of these benefits as claims were incurred,
and it continues to pay for postretirement benefit costs as incurred.
General and administrative expenses for 1993 included a charge of
approximately $1.8 million in each of the first two quarters of the year ($3.5
million in the aggregate) representing the estimated cost of postretirement
health care benefits in excess of claims incurred. The Company amended its
plan for postretirement health care benefits in the latter part of the second
quarter. Effective with the third quarter of 1993, the Company's accrual for
estimated future postretirement benefit costs was reduced by approximately $47
million under the amended plan which the Company will amortize over the 16
years remaining average service life of its active employees as required by
SFAS No. 106. These changes have eliminated the quarterly charge of
approximately $1.8 million as incurred in each of the first and second quarters
of 1993.
Income Taxes - The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) effective
January 1, 1993. SFAS No. 109 supersedes SFAS No. 96, "Accounting for Income
Taxes" which was adopted by the Company in 1988. There was no cumulative
effect on the Company's financial statements resulting from the adoption of
SFAS No. 109. In early August 1993, the President signed into law a bill that
includes, among other provisions, a one percent increase in the maximum federal
income tax rate for corporations retroactive to January 1, 1993. Under the
requirements of SFAS No. 109, the Company recorded a charge of approximately
$2.2 million in the third quarter of 1993 to recognize the increase in the
deferred tax liability as a result of the change in the corporate income tax
rate.
57
<PAGE> 60
NOTE 3 - BUSINESS SEGMENT INFORMATION:
Operating results and certain other financial data for the Company's
principal business segments for and at the end of each year presented are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Contributions to revenues:
Cement $ 370.9 $ 339.5 $ 328.4
Concrete Products 176.3 158.1 181.1
Environmental Services 36.1 43.4 36.8
Intersegment sales (39.0) (34.3) (41.1)
Other 0.5 0.7 1.7
----------- ----------- -----------
$ 544.8 $ 507.4 $ 506.9
=========== =========== ===========
Contributions to operating earnings (loss):
Cement $ 81.9 $ 62.6 $ 44.9
Concrete Products (1.6) (11.6) (12.7)
Environmental Services (2.2) (10.6) (4.4)
Write-down of certain environmental
services assets (3.1) (21.4) -
Corporate
General and administrative (28.9) (32.7) (34.1)
Depreciation, depletion and amortization (4.3) (4.4) (4.3)
Miscellaneous income (losses) (2.8) 1.5 (5.1)
----------- ----------- -----------
$ 39.0 $ (16.6) $ (15.7)
=========== =========== ===========
Identifiable assets, end of year:
Cement $ 591.6 $ 610.4 $ 626.9
Concrete Products 128.0 112.6 133.3
Environmental Services 39.6 41.8 42.0
Other 147.8 156.7 183.9
----------- ----------- -----------
$ 907.0 $ 921.5 $ 986.1
=========== =========== ===========
Depreciation, depletion and amortization:
Cement $ 25.9 $ 27.7 $ 27.2
Concrete Products 8.3 9.7 10.9
Environmental Services 3.4 6.7 5.0
Other 7.1 8.0 7.1
----------- ----------- -----------
$ 44.7 $ 52.1 $ 50.2
=========== =========== ===========
Capital expenditures:
Cement $ 8.5 $ 4.9 $ 13.0
Concrete Products 3.5 1.5 5.2
Environmental Services 11.0 9.7 10.4
Other 1.4 1.3 2.4
----------- ----------- -----------
$ 24.4 $ 17.4 $ 31.0
=========== =========== ===========
</TABLE>
The Cement segment includes the operations of eight quarrying and
manufacturing facilities and a network of 17 terminals for the production and
distribution of portland and masonry cement. The Concrete Products segment
includes primarily the production and sale of ready-mixed concrete, and to a
lesser extent, the sale of construction aggregate and concrete block. The
Environmental Services segment includes the results from collection, treatment
and processing of hazardous wastes and burning of hazardous waste derived fuel
(HWDF). No allocation of corporate overhead is made to the operating segments.
Substantially all of the Company's operations are conducted in the United
States. Intersegment sales occur primarily between the Company's Florida
cement manufacturing plant and the
58
<PAGE> 61
Florida concrete products operations and the Company's southern California
cement manufacturing plant and the related concrete operations. Intersegment
sales are accounted for at prices which approximate market prices and are
eliminated for purposes of preparing consolidated financial statements.
Capital expenditures shown above for 1993 for the Concrete Products segment
exclude $14.6 million in property, plant and equipment additions resulting from
the purchase of five ready-mixed concrete batch plants and one aggregate quarry
during the year. Capital expenditures shown above for the Environmental
Services segment exclude $2.5 million in 1991 which was accrued as property,
plant and equipment in conjunction with the $4.9 million acquisition of a
seventh TSD completed in January 1992.
NOTE 4 - CASH AND CASH EQUIVALENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Cash on hand and demand deposits $ 4.4 $ 3.2
Commercial paper, certificates of deposit
and repurchase agreements - at cost, which
approximates market value 3.0 9.3
---------- ---------
$ 7.4 $ 12.5
========== =========
</TABLE>
There is no requirement for the Company to maintain compensating
balances under any of the agreements with the Company's lending banks.
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Trade accounts and notes receivable $ 80.0 $ 72.5
Allowance for doubtful accounts (7.0) (6.2)
---------- ---------
73.0 66.3
Federal income tax receivables - 14.9
Other receivables 2.7 4.0
---------- ---------
$ 75.7 $ 85.2
========== =========
</TABLE>
Significant Group Concentrations of Credit Risk - The majority of the
Company's receivables are from users of portland cement, such as ready-mixed
concrete producers and manufacturers of concrete products such as blocks, roof
tile, pipe and prefabricated building components. Sales are also made to
building materials dealers, construction contractors and, particularly from the
Odessa plant, oil well cementing companies. During 1993, 1992 and 1991
approximately 52%, 49% and 50%, respectively, of the Odessa plant's cement
sales volume consisted of oil well cement and the balance represented sales to
local construction markets. Approximately 15%, 13% and 21% of the cement sold
by the Company's Victorville, California plant in 1993, 1992 and 1991,
respectively, was sold to the Company's ready-mixed concrete operations in
California and approximately 37%, 42% and 52% of the cement sold by the
Brooksville, Florida plant in 1993, 1992 and 1991, respectively, was sold to
the Company's Florida concrete products operations. The Company is a major
producer of ready-mixed concrete in the southern California counties of Los
Angeles and Orange and a major producer and supplier of such products
throughout Florida and southeastern Georgia. There were no sales to any single
third-party customer which aggregated in excess of 10% of consolidated revenues
for 1993, 1992 or 1991.
59
<PAGE> 62
Because both Florida and southern California were experiencing an
economic downturn and a significant slowing of new construction activities, the
Company recorded a supplemental $3.6 million charge to earnings in 1991 to
increase its allowance for doubtful accounts in addition to the Company's
customary provision. The Company has and may continue to offer extended credit
terms to certain of its customers, including converting certain trade
receivables into collateralized, interest-bearing notes receivable. This
practice became more prevalent during 1992 in southern California where many of
the Company's customers have been adversely affected by the severe recession in
the construction industry in that region. A group of five such customers were
indebted to the Company at December 31, 1993 for a total of $20.6 million, of
which $5.2 million was included in current accounts and notes receivable with
the balance in long-term assets. All of the notes and a portion of the
accounts receivable, approximately 78% of the $20.6 million, are collateralized
primarily by real and personal property of the businesses and, for certain
receivables, by a personal guaranty of the owners. During 1993 approximately
$788,000 in interest income, the majority of which has been collected, was
recognized on these notes. The five customers purchased a total of
approximately 252,000 tons of cement from the Company during 1993. During 1993
two of the customers defaulted in the payment terms of their notes. The
Company restructured its agreement with one of the defaulting customers in the
second quarter of 1993 and that customer was in compliance with the terms of
the restructured agreement as of December 31, 1993. The Company has stopped
selling cement on credit to the other customer in default and is presently
evaluating its options for collection of outstanding balances. A third
customer in this group, while not in default on its note, had difficulty in
maintaining prompt payment for its cement purchases and restructuring
discussions were commenced in late 1993. The Company is contractually
committed to supply up to 90% of the cement requirements of one of the two
non-defaulting customers on extended credit terms, provided this customer
remains current with respect to both current purchases and payments on its
note.
During the final quarter of 1993, the Company purchased most of the
primary ready-mixed concrete and aggregate assets of two other customers then
in default for forgiveness of a total of approximately $9.2 million owed the
Company, assumption of certain liabilities and other consideration. The
Company realized no gain or loss on either of these transactions. In January
1994, the Company made a preliminary purchase proposal to acquire certain
ready-mixed concrete and aggregate assets of the customer with which it was
engaged in restructuring discussions. The proposal included, as partial
consideration for the acquisition, forgiveness of the $5.8 million owed the
Company as of December 31, 1993.
NOTE 6 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Finished goods $ 15.4 $ 14.7
Work in process 7.0 9.4
Raw materials 6.0 7.3
Parts and supplies 26.3 27.2
---------- ---------
$ 54.7 $ 58.6
========== =========
</TABLE>
60
<PAGE> 63
Inventories valued on the LIFO method were $20.4 million at December
31, 1993 and $22.8 million at December 31, 1992 compared with current costs of
$28.3 million and $32.2 million, respectively.
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Land (at cost):
Cement $ 31.0 $ 31.0
Concrete Products 22.1 19.0
Environmental Services 3.8 3.2
Corporate and other 0.4 0.4
---------- ---------
57.3 53.6
---------- ---------
Plant and equipment (at cost):
Cement 665.6 658.0
Concrete Products 94.8 82.5
Environmental Services 34.7 21.6
Corporate and other 17.7 18.3
---------- ---------
812.8 780.4
---------- ---------
Less accumulated depreciation, depletion
and amortization (276.9) (241.1)
---------- ---------
$ 593.2 $ 592.9
---------- ---------
</TABLE>
NOTE 8 - OTHER LONG-TERM ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Prepaid pension costs (Note 15) $ 20.8 $ 19.2
Long-term trade receivables (Note 5) 20.6 23.1
Unamortized debt issuance costs 1 10.1 10.2
Land held for sale 2 7.9 8.3
Net present value of purchased supply contracts 3 5.9 6.4
Other 7.1 5.0
---------- ---------
$ 72.4 $ 72.2
========== =========
</TABLE>
- ---------------------
(1) Costs and expenses associated with the issuance of certain of the
Company's senior debt and senior subordinated
notes. Debt issuance costs are being amortized over the
respective terms of the debt.
(2) Includes various non-income producing real estate parcels offered
for sale.
(3) Two contracts to supply flyash through 1997 and 1999,
respectively, were acquired in conjunction with the Moore
McCormack Resources, Inc. purchase in 1988. The supply contracts
were recorded at their net present values at the date of
acquisitiion and are being amortized over the respective lives
of the contracts.
61
<PAGE> 64
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Trade accounts payable $ 23.4 $ 22.3
Accrued liabilities, trade 14.8 11.9
Accrued compensation and benefits 12.7 12.2
Deferred payment obligation 8.8 9.0
Current portion of pre-acquisition contingencies 2.5 6.7
Accrued interest payable 6.7 6.5
Accrued taxes, other 3.5 3.7
Current portion of liabilities for discontinued operations 2.2 2.2
Accrued environmental remediation costs 9.6 4.2
Accrued loss contingencies on aggregate facilities 0.7 3.7
Current portion of postretirement benefit obligation 3.0 -
Other accrued liabilities 4.0 7.3
---------- ---------
$ 91.9 $ 89.7
========== =========
</TABLE>
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts for all financial instruments have
been determined by the Company using appropriate valuation methodologies and
information available to management as of December 31, 1993 and 1992.
Considerable judgment is required in developing these estimates, however, and
accordingly no assurance can be given that the estimated values presented
herein are indicative of the amounts that would be realized in a free market
exchange.
Except for the following, the carrying amounts of the Company's assets
and liabilities which are considered to be financial instruments approximate
their value:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------------------------------
1993 1992
--------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Long-term debt $ 293.9 $ 318.7 $ 314.8 $ 308.2
Unrealized loss on interest
rate swap agreement - (0.2) - (1.0)
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments as of December 31, 1993 and 1992
for which it is practicable to estimate that value:
Long-term debt - The fair value of the Company's long-term debt was
estimated based on the quoted market prices for the same or similar issues or
on the current rates available to the Company for debt with similar terms and
remaining maturities.
Interest rate swap agreements - The fair value of the interest rate
swap was the amount at which it could be settled based on estimates obtained
from dealers.
62
<PAGE> 65
NOTE 11 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Senior debt:
Revolving credit facility $ 19.0 $ 32.0
Promissory note 18.0 22.5
Industrial development and pollution control bonds 41.0 41.3
9% bank note 1.5 4.4
Other 2.7 3.2
Subordinated debt:
12% senior subordinated notes 90.0 90.0
14% senior subordinated notes 121.7 121.4
---------- ---------
293.9 314.8
Less current maturities (19.9) (8.3)
---------- ---------
$ 274.0 $ 306.5
========== =========
</TABLE>
Restated Revolving Credit Facility - The Company's primary revolving
credit facility is with Wells Fargo Bank, N.A., in its individual capacity and
as agent; Societe Generale, Southwest Agency; Credit Suisse; Caisse Nationale
De Credit Agricole; an affiliate of Canadian Imperial Bank of Commerce; Banque
Paribas; The Bank of Nova Scotia and The First National Bank of Boston.
Substantially all of the Company's assets are pledged to secure the revolving
credit facility.
On November 19, 1993, the Company and its lending banks entered into a
$200 million Restated Revolving Credit Facility (Restated Revolving Credit
Facility). This facility includes the issuance of standby letters of credit up
to a maximum of $95 million and also includes $20 million of borrowing capacity
that is reserved solely for potential funding obligations under a Keepwell
Agreement with the U.S. Maritime Administration (MARAD). (See Note 14 of Notes
to Consolidated Financial Statements.) The Restated Revolving Credit Facility
remains the same size as the previously existing revolving credit facility and
matures in November 1996. The Restated Revolving Credit Facility contains
various negative and affirmative covenants and cross-default provisions and
customary conditions to borrowing. Borrowings under the Restated Revolving
Credit Facility bear interest at margins above either a prime rate or LIBOR as
selected by the Company from time to time. On December 31, 1993, the interest
rate under the Restated Revolving Credit Facility was approximately 6.0%.
As of December 31, 1993, there were $19 million of borrowings and $71
million in letters of credit outstanding under the Restated Revolving Credit
Facility leaving $90 million of unused capacity, excluding the $20 million
reserved under the Keepwell Agreement. On January 5, 1994 the Company borrowed
$47 million under the Restated Revolving Credit Facility to redeem $45 million
principal amount of 12% Senior Subordinated Notes Due 1997 (12% Notes) and to
pay the redemption premium and accrued interest thereon. On January 27, 1994
the Company used approximately $65 million of the proceeds of a January 27,
1994 sale of Series D Preferred Stock to reduce borrowings under the Restated
Revolving Credit Facility. (See Note 21 of Notes to Consolidated Financial
Statements.) The Company intends to use the Restated Revolving Credit Facility
to redeem at par the remaining $45 million outstanding principal amount of 12%
Notes as promptly as practicable after May 1, 1994.
63
<PAGE> 66
Promissory Note - The promissory note for $18 million as of December
31, 1993 was payable on March 31, 1994 with interest at margins above either a
prime rate basis or a Eurodollar rate basis as selected by the Company from
time-to-time and secured by an irrevocable letter of credit issued under the
Restated Revolving Credit Facility. The face amount of the letter of credit
reduces ratably with the promissory note balance. On January 27, 1994 the
note was prepaid without penalty using a portion of the proceeds from the
Company's sale of the Series D Preferred Stock. (See Note 21 of Notes to
Consolidated Financial Statements.)
Industrial Development and Pollution Control Bonds - The industrial
development and pollution control bonds were issued by various state or local
financing authorities and are due on various dates through the year 2006. The
obligations bear interest, which is nontaxable to the payees, at varying rates
ranging from approximately 50% of the prevailing prime rate to 5.5%. The
obligations are secured by irrevocable letters of credit issued under the
Restated Revolving Credit Facility or by liens on the pollution control
equipment.
9% Bank Note - The 9% bank note included in current maturities of
long-term debt at December 31, 1993 was payable to a commercial bank by a
subsidiary of the Company and unconditionally guaranteed by the Company. The
note was paid in full as scheduled in early January 1994.
12% Senior Subordinated Notes - As of December 31, 1993 long-term debt
included $90 million principal amount of 12% Notes due in 1997, but redeemable
at the option of the Company, in whole or in part, at redemption prices (plus
accrued interest to the date of redemption) equal to 101.714% of the principal
amount through April 30, 1994 and 100% of the principal amount thereafter. On
January 5, 1994 the Company borrowed $47 million under the Restated Revolving
Credit Facility to redeem $45 million principal amount of 12% Notes and to pay
the redemption premium and accrued interest thereon. The Company recorded a
$1.6 million extraordinary charge ($1.0 million net of tax) as of December 31,
1993 to reflect the redemption premium on the early extinguishment of the debt.
The Company intends to redeem at par the remaining $45 million outstanding
principal amount of 12% Notes as promptly as practicable after May 1, 1994 with
borrowings under the Restated Revolving Credit Facility.
14% Senior Subordinated Notes - On October 31, 1991, the Company
issued an aggregate of $125 million principal amount of 14% Senior Subordinated
Notes due 2001 (Notes) and warrants to purchase 1,250,000 shares of the
Company's Common Stock (Warrants) in a private placement transaction. The net
proceeds of the offering were used to repay certain other Company notes in full
and the balance of the proceeds was used to reduce borrowings outstanding under
the Company's then existing revolving credit facility.
The Notes were issued pursuant to an Indenture dated as of October 15,
1991 between the Company and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee. Pursuant to a Registration
Rights Agreement entered into at the time of the private placement, during 1992
all of the Notes were exchanged in a registered exchange offer for $125 million
aggregate principal amount of the Company's 14% Senior Subordinated Notes Due
2001, Series B (Series B Notes). The Series B Notes were also issued under an
indenture dated as of October 15, 1991 between the Company and State Street
Bank and Trust Company of Connecticut, National Association, as Trustee,
(Indenture) and the terms of the Series B Notes and such Indenture are
substantially identical to those of the Notes and the original indenture. The
Series B Notes pay
64
<PAGE> 67
interest semiannually, mature in ten years and are noncallable for five years,
after which the Series B Notes are callable at the option of the Company, in
whole or in part, at any time upon thirty days' notice at 105.25% of the
principal amount, declining ratably to par on or after October 15, 1999. The
Series B Notes are subordinate in right of payment to all existing and future
senior debt, as defined, of the Company, rank on a parity with all existing and
future senior subordinated debt, as defined, of the Company, and rank senior to
all other existing and future subordinated debt of the Company. The Indenture
includes affirmative and negative covenants which in certain instances
restrict, among other things, incurrence of additional indebtedness, certain
sales of assets and subsidiary stock, certain mergers and consolidations and
dividends and distributions. Each Warrant is initially exercisable for one
share of Common Stock of the Company at a price of $16.00, subject to certain
anti-dilution adjustments. (See Note 21 of Notes to Consolidated Financial
Statements.) The Warrants expire on October 31, 1996.
Annual Aggregate Maturities of Long-term Debt - The approximate
aggregate payments due in future years on long-term debt as of December 31,
1993 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1994 $ 19.9
1995 1.2
1996 20.2
1997 91.3
1998 26.8
Thereafter 134.5
---------
$ 293.9
=========
</TABLE>
Interest Rate Hedging Transactions - In March 1989, the Company
entered into an interest rate hedging transaction with two commercial banks
based on $100 million of notional principal amount that limited the Company's
exposure to LIBOR interest rate fluctuations through the termination of the
agreement in March 1992.
The Company entered into an interest rate swap agreement with a
commercial bank in January 1988 which, in effect, converted the interest rate
on the $18 million promissory note referred to under "Promissory Note" above
from a floating rate to a fixed rate of 9.225% through March 31, 1992 and
9.35% thereafter. The notional principal amount, which was $18 million and
$22.5 million at December 31, 1993 and 1992, respectively, reduces ratably with
the promissory note balance. The net gain or loss from the exchange of
interest payments is included in interest expense. The Company recorded $1
million, $2.2 million and $2.8 million of interest expense in 1993, 1992 and
1991, respectively, as a result of these two agreements.
65
<PAGE> 68
NOTE 12 - INCOME TAXES:
The following table provides a breakdown of the current and deferred
components of the provisions for federal and state income taxes attributable to
the loss from continuing operations before income taxes and before
extraordinary charges and the cumulative effect of a change in accounting
principle.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current $ .2 $ (15.5) $ (16.9)
Deferred (.2) (4.6) (11.6)
State income tax expense (benefit):
Current .2 - 1.0
Deferred (.5) (0.1) (1.7)
----------- ----------- -----------
$ (.3) $ (20.2) $ (29.2)
=========== =========== ===========
</TABLE>
A reconciliation between the income tax benefit recognized in the
Company's Statement of Consolidated Earnings and the income tax benefit
computed by applying the statutory federal income tax rate to the loss from
continuing operations before income taxes and before extraordinary charges and
the cumulative effect of a change in accounting principle follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS)
------------------------------------------------------------
1993 1992 1991
-------------------- ----------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations
before income taxes and
before the cumulative
effect of a change in accounting
principle and extraordinary
charge $ .3 100.0 $ 61.6 100.0 $ 72.4 100.0
------- --------- ------- ----- ------- ------
Income tax benefit computed
at statutory rate $ (.1) (35.0) $(20.9) (34.0) $(24.6) (34.0)
Benefit of statutory depletion (3.3) (1,100.0) (2.6) (4.2) (1.7) (2.3)
Cumulative effect of increase in
statutory rate 2.5 835.0 - - - -
Effect of non-deductibility of
goodwill .8 266.7 4.1 6.7 1.0 1.4
Reversal of alternative minimum
tax accrual - - - - (3.3) (4.6)
State income tax benefit (.2) (66.7) (0.1) (0.2) (0.5) (0.7)
Other - - (0.7) (1.1) (0.1) (0.1)
------- --------- ------- ------- ------- ------
$ (.3) (100.0) $(20.2) (32.8) $(29.2) (40.3)
======= ========= ======= ======= ======= ======
</TABLE>
The provision for deferred income taxes is based on the liability
method prescribed by SFAS No. 109, and represents the change in the Company's
deferred income tax liability during each year, including the effect of any
enacted tax rate changes. A deferred income tax liability or asset is
recognized for temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in net taxable or deductible amounts in future years as well as the
recognition, in certain instances, of the tax effects of operating loss and tax
credit carryforwards.
66
<PAGE> 69
Significant components of the Company's net deferred tax liability as
of December 31, 1993 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1992
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of
property, plant and equipment $ 153.7 $ 150.0
Assets of overfunded pension plan 8.0 7.2
----------- -----------
161.7 157.2
----------- -----------
Deferred tax assets:
Postretirement benefit obligation 30.0 -
Other reserves not currently deductible 15.9 12.5
Deferred state income taxes 6.0 6.9
Operating loss carryforwards 15.5 17.9
Tax credit carryforwards 9.6 8.6
Other 3.6 1.6
----------- -----------
80.6 47.5
Valuation allowance (21.0) (21.0)
----------- -----------
59.6 26.5
----------- -----------
Net deferred tax liability $ 102.1 $ 130.7
=========== ===========
</TABLE>
The Company has provided a valuation allowance of $21.0 million
against deferred tax assets recorded as of December 31, 1993. There was no
change in the valuation allowance for the year ended December 31, 1993.
Approximately $5.5 million of the valuation allowance will be allocated to
reduce goodwill and other noncurrent intangible assets in future periods if
realization of tax credit carryforwards acquired as a result of business
combinations that occurred in prior years becomes more likely than not.
The Company has included in its calculation of the deferred income tax
liability the tax benefits of net operating loss carryforwards of $44.2
million, net investment tax credit carryforwards after valuation allowance of
$2.6 million and an alternative minimum tax carryforward of $1.5 million. If
not used, the net operating loss and investment tax credit carryforwards will
expire between 1998 and 2007 and between 1994 and 2005, respectively.
The consolidated federal income tax returns of the Company and Moore
McCormack Resources, Inc. (Moore McCormack) for years 1988 through 1992 and
various state income tax returns are presently under examination. In the
opinion of management, adequate provision has been made for income taxes that
might be due as a result of these audits.
NOTE 13 - MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE:
Kosmos Cement Company (Kosmos) is a partnership which includes a
cement plant located in Kosmosdale, Kentucky and a cement plant located near
Pittsburgh, Pennsylvania along with related terminals and facilities. The
partnership is 25% owned by Lone Star Cement, Inc. (Lone Star) and
67
<PAGE> 70
operated and 75% owned by the Company. The Company's Consolidated Balance
Sheet includes 100% of the assets and liabilities of Kosmos. Lone Star's 25%
interest in Kosmos and the earnings therefrom have been reflected as "Minority
interest in consolidated joint venture" and "Minority interest in earnings of
consolidated joint venture" on the Company's Consolidated Balance Sheet and
Statement of Consolidated Earnings, respectively.
NOTE 14 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Estimated liabilities of discontinued Moore McCormack
operations $ 12.9 $ 16.3
Supplemental pension liabilities 4.3 3.2
Other 1.6 3.2
---------- ---------
$ 18.8 $ 22.7
========== =========
</TABLE>
Discontinued Moore McCormack Operations - As part of the acquisition
of Moore McCormack in 1988, the Company assumed certain fixed and contingent
liabilities pursuant to certain guarantees and undertakings related to
operations previously discontinued by Moore McCormack. As of December 31, 1993
and 1992 such estimated liabilities totaled $15.1 million and $18.5 million,
respectively, $2.2 million of which were included in current liabilities in
both years.
In conjunction with the acquisition, Southdown assumed an obligation
to MARAD under a Keepwell Agreement whereby the Company would keep up to $20
million available under its revolving credit facility for cash flow
deficiencies of the former Moore McCormack shipping operations equal to certain
of Moore McCormack's obligations to MARAD. Since that time, the shipping
operations have required only seasonal advances from time-to-time under the
Keepwell Agreement. There were no outstanding advances under the Keepwell
Agreement as of December 31, 1993 and 1992. The Company's contingent
obligation to MARAD declines to under $20 million in 1994 and by approximately
$2.5 million annually thereafter.
Supplemental Pension Liabilities - In order to provide additional
retirement benefits and incentives for certain employees to remain with the
Company, the Company has entered into supplemental pension agreements with
those individuals. The present value of probable future cash outlays is
accrued during the expected service life of the employee and charged to
earnings for financial reporting purposes.
NOTE 15 - PENSION PLANS:
The Company has a defined benefit pension plan covering substantially
all salaried employees. The benefits are based on years of service and the
employee's compensation and are integrated with Social Security. The Company's
union employees are covered by either a multi- employer plan, a salaried plan,
or a collectively bargained Company-sponsored plan providing a flat dollar
benefit for each year of service. The Company's policy is to fund its pension
plans in accordance with sound actuarial principles.
Under rules promulgated by the Financial Accounting Standards Board
and adopted by the Company in 1987, the funded status of the Company's pension
plans is based on a comparison of the
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<PAGE> 71
market value of the plans' assets at the end of the year with actuarial
estimates of the projected benefit obligation. The assumed weighted average
discount rate used to measure the projected benefit obligation was 7.5% in 1993
and 8.5% in 1992 and 1991. The rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation was 4% in 1993 and 5.5% in 1992 and 1991. The expected long-term
rate of return on assets was 8.5% in 1993, 1992 and 1991. Differences in
estimates used and actual experience along with changes in assumptions from
year-to-year are included in net deferred gains or losses. The Company
amortizes the unrecognized net gains or losses whenever such amount exceeds 10%
of the greater of the projected benefit obligation or the market value of plan
assets. The unrecognized net obligation or net asset, unrecognized net gain or
loss and prior service costs were amortized over periods of 9 to 14 years for
1993, over periods of 10 to 16 years for 1992 and over periods of 9 to 15 years
for 1991 which approximated the estimated average remaining service periods of
employees expected to receive benefits under the plans.
The Company recognized pension income of approximately $1.6 million in
1993, pension income of $1.4 million in 1992 and pension expense of $500,000 in
1991 under such Company-sponsored plans. In addition to Company-sponsored
plans, certain union employees of the Company's concrete operations in southern
California and the Colorado cement operations are covered under multi-employer
defined benefit plans administered by the respective unions. Amounts
contributed to the multi-employer plans and included in pension expense were
$1.8 million in 1993 and 1992 and $2.4 million in 1991.
As of December 31, 1993 and 1992 there were no pension plans in which
the accumulated benefit obligation exceeded plan assets. The following table
sets forth information regarding the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1993 1992
---------- ---------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested portion $ (100.2) $ (90.9)
Nonvested portion (3.1) (2.6)
---------- ---------
Accumulated benefit obligation (103.3) (93.5)
Effect of estimated future pay increases (4.9) (6.2)
---------- ---------
Projected benefit obligation (108.2) (99.7)
Plan assets at fair value, primarily debt
and equity securities 1 149.5 136.0
---------- ---------
Overfunded status 41.3 36.3
Unrecognized net gain (22.3) (18.8)
Unrecognized prior service cost 2.2 2.3
Unrecognized net asset (0.4) (0.6)
---------- ---------
Prepaid pension costs $ 20.8 $ 19.2
----------------- ========== =========
</TABLE>
(1) Plan assets include 449,000 shares of the Company's Series A
Preferred Stock.
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The components of net periodic pension cost included in the results of
operations for the years ended December 31, 1993, 1992 and 1991 under
Company-sponsored plans were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 2.1 $ 2.2 $ 2.2
Interest cost on projected benefit obligation 8.1 8.0 8.1
Actual (return) loss on assets (21.4) (11.0) (24.1)
Asset gain (loss) deferred 10.1 (0.2) 14.3
Amortization of unrecognized -
Net gain (0.6) (0.4) -
Prior service cost 0.2 0.2 0.2
Net asset (0.1) (0.2) (0.2)
----------- ----------- -----------
Net pension (income) expense $ (1.6) $ (1.4) $ 0.5
=========== =========== ===========
</TABLE>
Retirement Savings Plan - The Company maintains a retirement savings
plan (Savings Plan) in which substantially all employees are eligible to
participate. The Savings Plan is designed to qualify under Sections 401(a) and
401(k) of the Internal Revenue Code of 1986 (Code). Under the Savings Plan, a
participating employee may elect to defer taxation on a portion of his or her
eligible earnings up to a maximum amount defined by the Code, by directing the
Company to contribute such earnings to the Savings Plan on the employee's
behalf. A participating employee may also make after-tax contributions to the
Savings Plan. The Company contributes an amount to the Savings Plan equal to
50% of an employee's contributions, subject to certain limitations. The
Company's matching contributions are invested solely in its common stock
acquired in open market purchases. All employee contributions and Company
matching contributions are fully vested when made. Amounts held by the Savings
Plan for the account of a participating employee are distributable as a
lump-sum upon termination of employment for any reason. Subject to certain
conditions and restrictions, a participating employee may receive a
distribution or a loan of a portion of his account balance while employed by
the Company. The Company contributed $1.7 million in 1993 and $1.6 million
each year in 1992 and 1991, in matching contributions that were charged to
compensation expense and invested in the Company's common stock.
NOTE 16 - HEALTH CARE AND LIFE INSURANCE BENEFITS:
The Company offers health care benefits to active employees and their
dependents. Certain retirees under the age of sixty-five and their dependents
are also offered health care benefits which are essentially the same as
benefits available to active employees. However, benefit payments for covered
retirees over the age of sixty-five are reduced by benefits paid by Medicare.
Postretirement benefits currently provided by the Company to its
eligible retirees consist primarily of medical and life insurance benefits.
Through December 31, 1992 the Company accounted for postretirement benefits as
costs were incurred. In December 1990, the Financial Accounting Standards
Board issued SFAS No. 106, establishing a new standard for accounting for
postretirement benefits. Under this new accounting standard, companies are
required to recognize the full liability for postretirement benefits in their
financial statements by the date the employee is eligible to receive the
benefits.
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<PAGE> 73
The new standard, which the Company adopted as of January 1, 1993,
required immediate recognition of an initial liability for postretirement
benefits attributable to employee services provided in years prior to 1993 and,
thereafter, the annual cost of the actuarially determined benefit attributable
to employee service in the current year. (See Note 2 of Notes to Consolidated
Financial Statements.)
The following table sets forth the Company's accumulated postretirement
benefit obligation, none of which has been funded, reconciled with the amount
shown in the Company's balance sheet at December 31, 1993.
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation (APBO)
Retirees $ 36.6
Fully eligible active plan participants 2.3
Other active plan participants 6.8
--------
45.7
Plan assets at fair value -
--------
Accumulated postretirement benefit obligation 45.7
Unrecognized net gain 41.1
--------
Accrued postretirement benefit costs $ 86.8
========
</TABLE>
The components of net periodic postretirement benefit costs included
in the results of operations for the year ended December 31, 1993 were as
follows:
<TABLE>
<S> <C>
Service cost $ 1.9
Interest cost on APBO 5.2
Amortization of unrecognized net gain (1.4)
--------
$ 5.7
========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of December 31, 1993 was 9.5%
for general health care and 14% for prescription drugs in 1994, decreasing each
successive year until it reaches 6% in 2017 and thereafter. The health care
trend rate assumption has a significant effect on the amount of the obligation
and periodic cost reported. For example, a one-percentage-point increase in
the assumed health care cost trend rate for each year would increase the APBO
as of December 31, 1993 and net periodic postretirement health care cost by
approximately 7%. The assumed discount rate used in determining the APBO was
7.5%.
Most of the Company's health care benefits are self-insured and
administered on cost plus fee arrangements with a major insurance company or
provided through health maintenance organizations. Claims, premiums and
administrative costs incurred for active employees and their dependents were
$12.3 million, $9.9 million and $10.3 million in 1993, 1992 and 1991,
respectively. For retirees and their dependents these costs were $3.2 million
in 1993 and $2.3 million in 1992 and 1991. In 1993, expenses recognized under
SFAS No. 106 include a net charge of $2.5 million to accrue estimated
postretirement health care benefits in excess of claims incurred.
The Company provides life insurance benefits to its active and retired
employees. Generally, life insurance benefits for retired employees are
reduced over a number of years from the date of retirement to a minimum level.
Costs accrued or paid for life insurance benefits for both active and retired
employees were approximately $984,000 in 1993, $732,000 in 1992 and $800,000 in
1991.
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<PAGE> 74
The costs of providing such benefits for retired employees were approximately
$35,000 in 1993, $41,000 in 1992 and $39,000 in 1991.
In 1990, the Company established a Voluntary Employee Beneficiary
Association (VEBA) to fund its health care benefit payments to employees,
retirees and their dependents. As a result, the Company made annual
contributions to a tax-exempt irrevocable trust established to make such
benefit payments. The Company made payments to the trust of $15.5 million in
1991. No such payments were made in 1992 or 1993.
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES:
Operating Leases - Rental expense covering manufacturing,
transportation and certain other facilities and equipment for the years 1993,
1992 and 1991 aggregated $9.9 million, $9.2 million and $7.9 million,
respectively. Minimum annual rental commitments as of December 31, 1993 under
noncancellable leases are set forth as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------
MANUFACTURING
MOBILE EQUIPMENT
EQUIPMENT AND OTHER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
1994 $ 3.7 $ 2.5 $ 6.2
1995 3.2 2.0 5.2
1996 2.6 1.9 4.5
1997 1.4 1.8 3.2
1998 0.8 1.7 2.5
Thereafter 0.6 2.5 3.1
----------- ----------- -----------
$ 12.3 $ 12.4 $ 24.7
=========== =========== ===========
</TABLE>
Environmental Matters - Many of the raw materials, products and
by-products associated with the operation of any industrial facility, including
those for the production of cement or concrete products, contain chemical
elements or compounds that are designated as hazardous substances. In
addition, the Company has entered the environmental services business. All of
these activities are regulated by federal, state and local laws and regulations
pertaining to human health and the environment.
Federal environmental laws as well as analogous laws in certain
states, create joint and several liability for the cost of cleaning up or
correcting releases into the environment of designated hazardous wastes. Among
those who may be held jointly and severally liable are those who generated the
hazardous waste, those who arranged for disposal of the hazardous wastes, those
who owned the disposal site or facility at the time of disposal, and current
owners. The Company has both given indemnification to and received
indemnification from others for properties previously owned although some
courts have held that indemnification for such environmental liabilities is
unenforceable. Industrial operations have been conducted at some of the
Company's facilities for almost 100 years. In the past, the Company disposed
of various materials, both onsite and offsite, in a manner which would not be
permitted under current environmental regulations. Certain of these materials
are today categorized as hazardous wastes when discarded. The Company's cement
kilns that burn hazardous waste, as well as its TSD facilities, are subject to
extensive federal, state and local environmental laws and regulations and may
be required to clean up onsite waste disposal areas
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<PAGE> 75
under the Resource Conservation and Recovery Act (RCRA)'s corrective action
program. Such clean-ups can be costly.
While the Company's facilities at several locations are the subject of
various local, state and federal environmental proceedings and inquiries,
including being named a potentially responsible party (PRP) at several of its
locations, most of these investigations are in their preliminary stages and
final results may not be determined for years. Management of the Company
believes, however, based solely upon the preliminary information the Company
has developed to date, that known matters can be successfully resolved in
cooperation with the local, state and federal regulating agencies and that the
ultimate resolution of these matters will not have a material adverse effect
upon the consolidated financial condition of the Company. Until all
environmental studies and investigations have been completed, however, it is
impossible to determine the ultimate costs of resolving these environmental
issues. In conjunction with the acquisition of the TSD facilities, the Company
established pre-acquisition contingency reserves which, in the opinion of
management, are sufficient to cover the costs of correcting any known
pre-acquisition environmental deficiencies at these facilities. There can be
no assurances, however, that such reserves are adequate to allow for any
unknown conditions that may exist.
CKD Remediation in Ohio - As discussed in more detail under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Liquidity and Capital Resources - Known Events,
Trends and Uncertainties - Environmental Matters", three of a number of
inactive cement kiln dust (CKD) disposal sites near the Company's Fairborn,
Ohio cement plant have been under investigation by the Company, as well as in
some cases by federal and state environmental agencies, to determine if
remedial action is required at any or all of these sites.
The Company as well as state environmental agencies have conducted
investigations to determine appropriate remedial action required at an inactive
CKD disposal site in Ohio. Based on various remediation investigations,
hydrogeological analyses and feasibility studies performed in prior years, the
Company had recorded charges totaling $6.7 million through the end of 1992 as
the estimated remediation cost for the site, increasing the initial estimates
as additional information became known. In October 1993, the Company received
a consulting report proposing additional refinements of earlier estimates which
increased the total estimated cost to remediate this site from $6.7 million to
$9.7 million. Accordingly, the Company recorded an additional $3 million
charge in the third quarter of 1993 to recognize the change in the estimate.
On a voluntary basis, without administrative or legal action being
taken, the Company is also investigating two other inactive Ohio CKD disposal
sites. The two additional sites in question were part of a cement
manufacturing facility that was owned and operated by a now dissolved cement
company from 1924 to 1945 and by a division of USX Corporation (USX) from 1945
to 1975. On September 24, 1993, the Company filed a complaint (Complaint)
against USX, alleging that USX is a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) and under applicable
Ohio law, and therefore jointly and severally liable for costs associated with
cleanup of the larger of the two sites (Site). USX answered the complaint in
November 1993 by filing a motion to dismiss the lawsuit. Based on advice of
counsel, the Company believes that USX should not prevail on its motion to
dismiss the lawsuit. Based on the limited information available as of December
31, 1993, the Company has received two preliminary engineering estimates of the
potential magnitude of the remediation costs for the Site, $8 million and $32
million, depending on the assumptions used.
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<PAGE> 76
The Company intends to vigorously pursue its right to contribution
from USX for cleanup costs under CERCLA and Ohio law. Based upon the advice of
counsel, the Company believes that USX is a responsible party because it owned
and operated the site at the time of disposal of the hazardous substance,
arranged for the disposal of the hazardous substance and transported the
hazardous substance to the Site. Therefore, counsel to the Company has advised
that it appears there is a reasonable basis for the apportionment of cleanup
costs relating to the Site between the Company and USX, with USX shouldering
substantially all of the cleanup costs because, based on the facts known at
this time, the Company itself disposed of no CKD at the Site and is potentially
liable under CERCLA because of its current ownership of the Site. These
determinations, however, are preliminary, and are based only upon facts
available to the Company prior to any discovery.
Under CERCLA and applicable Ohio law a court generally applies
equitable principles in determining the amount of contribution which a
potentially responsible party must provide with respect to a cleanup of
hazardous substances and such determination is within the sole discretion of
the court. In addition, no regulatory agency has directly asserted a claim
against the Company as the owner of the Site requiring it to remediate the
property, and no cleanup of the Site has yet been initiated.
Other - The Company has certain other commitments and contingent
liabilities incurred in the ordinary course of business which, in the judgment
of management, will not result in losses which would materially affect its
consolidated financial position.
NOTE 18 - WRITE-DOWN OF CERTAIN ENVIRONMENTAL ASSETS:
The Company entered the environmental services business in June 1989
with the signing of an agreement involving as co- participants Browning-Ferris
Industries, Inc. (BFI) and Cadence Chemical Resources (Cadence). The Company
significantly expanded its commitment to the recovery of the energy value in
organic hazardous wastes beginning in mid-1990 with the acquisition of a total
of seven facilities to process hazardous wastes into liquid and solid hazardous
waste derived fuels (HWDF) for introduction into permitted cement kilns as a
partial substitute for conventional fuels.
Contrary to management's expectations, however, the Company
experienced start-up losses totaling approximately $16 million, exclusive of
write-downs, in its first two and one-half years in the business. Accordingly,
the Company restructured this business in late 1992, narrowing its focus by
selling, or planning to sell, all but two of its TSD processing facilities.
The Tennessee facility, one of those being retained, is being upgraded and
expanded to provide increased capacity for blending HWDF. As of December 31,
1993, the Company had sold three of its original seven TSDs and is continuing
efforts to sell two additional TSDs. After trying unsuccessfully to sell its
Alsip, Illinois facility for almost a year the Company recorded a $3.1 million
pretax charge in the fourth quarter of 1993 to record an estimated $1 million
in remediation costs at that facility and to write down the Illinois TSD held
for sale to reflect the Company's revised estimate of net realizable value of
that facility. In January 1994 the Company negotiated a letter of intent for a
proposed sale of this facility that would generate neither a gain or a loss.
In 1992 the Company recorded a $21.4 million pretax charge to write down the
difference between book value, including intangible assets, and the estimated
realizable value of the TSDs, net of operating losses expected to occur prior
to disposition, and to expense the non- recoverable portion of previously
deferred environmental permitting costs incurred in the development of the
environmental services business.
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<PAGE> 77
NOTE 19 - UNCONSOLIDATED JOINT VENTURE
In August 1990, the Company contributed to Southdown Thermal Dynamics
(STD), a Texas general partnership, in exchange for a 50% partnership interest,
the two thermal distillation processing units and certain associated assets it
had acquired from BFI in conjunction with SES's purchase of the TSDs in June
1990. STD was established to construct and operate thermal distillation units
for onsite treatment and remediation of refinery and other organic waste
streams. Because STD was unable to establish the commercial viability of the
process without substantial additional funding and because of the Company's
capital commitments in its other businesses, the Company notified its joint
venture partner in early August 1991 of the Company's intent to dispose of its
interest in this joint venture. On January 6, 1992 a subsidiary of the Company
sold its interest in the partnership to an affiliate of the other 50% partner
for a note which was later exchanged for a replacement note which on November
18, 1992 was, in turn, forgiven in exchange for an indemnification and hold
harmless agreement with a third party. The Company accounted for STD under the
equity method as an unconsolidated joint venture and, as of December 31, 1991
wrote off its remaining capitalized investment in the joint venture with a
$12.3 million pretax charge to earnings recognized in the final quarter of
1991.
NOTE 20 - DISCONTINUED OPERATIONS:
In connection with the 1989 sale of the Company's oil and gas
operations, the Company deferred recognition of a portion of its realized gain
until certain potential loss contingencies were resolved. Upon expiration of
the contingency period in 1992, the Company recognized an additional gain on
the sale of the Company's discontinued oil and gas operations of approximately
$1.4 million, $800,000, net of income taxes.
In late August 1993 the Company was notified by Energy Development
Corporation (EDC), the 1989 purchaser of the common stock of the Company's then
oil and gas subsidiary, Pelto Oil Company (Pelto), that EDC was exercising its
indemnification rights under the 1989 stock purchase agreement with respect to
a Department of Energy (DOE) Remedial Order regarding the audit of crude oil
produced and sold during the period September 1973 through January 1981 from an
offshore, federal waters field known as Ship Shoal Block 113 Unit./South Pelto
20 of which the Company's oil and gas subsidiary was part owner. The DOE has
alleged certain price overcharges and is seeking to recover a total of $68
million dollars in principal and interest from Murphy Oil Company (Murphy), as
operator of the property. Murphy estimated the Company's share of this total
to be approximately $4 million. On January 24, 1994 the presiding
Administrative Law Judge at the Federal Energy Regulatory Commission (FERC)
rendered a favorable decision for Murphy, materially reducing the amount it
potentially owed to the DOE. This decision also had the effect of precluding
the DOE from recovering from Murphy for any alleged overcharges attributable to
Pelto's "in-kind" production. Murphy has indicated that if the FERC adopts the
Administrative Law Judge's opinion, Pelto will not owe anything to Murphy as a
result of the DOE's claim, other than its pro rata share of attorneys' fees.
The Company cannot assess the likelihood that the DOE would seek to recover
sums from Pelto directly due to Pelto's "in-kind" production, but the Company
believes, based on advice of counsel, that, if it did, any such claim by the
DOE would be barred by limitations.
Prior to the sale of Pelto in 1989, Pelto entered into certain gas
settlement agreements, including one with Transcontinental Gas Pipe Line
Corporation (Transco). The Minerals
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<PAGE> 78
Management Service (MMS) of the Department of the Interior has reviewed the
agreement entered into with Transco in 1988 to determine whether a payment to
Pelto thereunder is associated with federal or Indian leases and whether, in
their view, any additional royalties may be due as a result of that payment.
MMS has advised EDC of a preliminary royalty underpayment determination
resulting from its review, and that MMS proposes to direct EDC to compute any
gas royalties attributable to what MMS characterizes as a "contract buydown".
This does not constitute a final action by MMS; its stated purpose is to give
an opportunity to comment or provide additional documentation that would refute
or alter MMS's preliminary determination. In late December 1993, the Company
was notified by EDC that EDC was exercising its indemnification rights under
the 1989 stock purchase agreement for Pelto with respect to this matter. The
Company is unable to determine what liability it may have, if any, with respect
to this matter, but should the Company be required to make any payments to the
MMS, such expenditures would result in a charge to discontinued operations.
NOTE 21 - EARNINGS PER SHARE AND CAPITAL STOCK:
EARNINGS PER SHARE
Earnings used to compute primary per share earnings in 1993, 1992 and
1991 were net of preferred stock dividends of approximately $5.0 million, $5.0
million and $5.1 million, respectively. Primary earnings per share were
computed using the average number of shares of common stock for 1993, 1992 and
1991. Because of the net losses in 1991 through 1993, the effect of an assumed
conversion of the Series A and Series B Preferred Stock referred to below was
anti-dilutive and, therefore, fully diluted earnings per share for those years
is the same as primary earnings per share.
The authorized capital stock of Southdown comprises 40,000,000 shares
of Common Stock, $1.25 par value (Common Stock), and 10,000,000 shares of
Preferred Stock, $.05 par value (the Preferred Stock). Chemical Shareholder
Services Group, Inc., a subsidiary of Chemical Banking Corporation, serves as
the registrar and transfer agent for the Common Stock, the Series B Preferred
Stock and the Series D Preferred Stock described below and as Warrant Agent and
Rights Agent for the Warrants and Rights, respectively. The Company serves as
the registrar and transfer agent for the Series A Preferred Stock.
COMMON STOCK
At December 31, 1993, 17,045,809 shares of Common Stock were issued
and outstanding and held of record by approximately 1,956 shareholders, and
approximately 7.6 million shares were reserved for future issuance upon
exercise of options granted under employee benefit plans or warrants or upon
conversion of convertible securities. Approximately 2.6 million more shares
were subsequently reserved in January 1994 for issuance upon conversion of the
Series D Preferred Stock. On April 25, 1991 the Board of Directors suspended
the dividend on the Company's Common Stock.
WARRANTS TO PURCHASE COMMON STOCK
In October 1991, the Company issued and sold an aggregate of
1,250,000 Warrants to purchase Common Stock (the Warrants) pursuant to the
terms of a Warrant Agreement dated as of October 31, 1991 (the Warrant
Agreement), between the Company and First City, Texas - Houston,
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<PAGE> 79
N.A., as Warrant Agent. Chemical Shareholder Services Group, Inc. is now the
Warrant Agent. Each Warrant entitles the holder to purchase one share of
Common Stock at a price of $16 per share, subject to adjustment in certain
circumstances, until 5:00 p.m. New York City on October 31, 1996. The number
and kind of securities purchasable upon exercise of the Warrants are subject to
adjustment from time-to-time upon the occurrence of certain reclassifications,
mergers or consolidations, stock splits, stock dividends, certain other
distributions and events and certain issuances or sales of Common Stock at
prices less than market value (as defined in the Warrant Agreement). In lieu
of an adjustment to the number of shares of Common Stock issuable pursuant to
the exercise of the Warrants, the Company may elect to issue additional
Warrants.
RIGHTS
On March 4, 1991, the Board of Directors of the Company declared a
dividend of one right to purchase preferred stock (Right) for each outstanding
share of the Company's Common Stock, to shareholders of record at the close of
business on March 14, 1991. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one one-hundredth of a share (a
Unit) of Preferred Stock, Cumulative Junior Participating Series C, par value
$.05 per share (the Series C Preferred Stock), at a purchase price of $60 per
Unit, subject the adjustment (the Purchase Price). The description and terms
of the Rights are set forth in a Rights Agreement dated as of March 4, 1991
(the Rights Agreement) between the Company and First City, Texas-Houston, N.A.,
as Rights Agent. Chemical Shareholders Services Group, Inc. now serves as
Rights Agent.
The Rights are attached to all certificates representing outstanding
shares of Common Stock, and no separate certificates for the Rights have been
distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) ten days following a
public announcement that a person or group of affiliated or associated persons
(an Acquiring Person) has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the date of the announcement being the Stock Acquisition Date), or (ii) ten
business days (or such later date as may be determined by the Company's Board
of Directors before the Distribution Date occurs) following the commencement of
a tender offer or exchange offer that would result in a person's becoming an
Acquiring Person.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 14, 2001, unless earlier redeemed or
exchanged by the Company as described below. In the Rights Agreement, the
Company has generally agreed to use its best efforts to cause the securities of
the Company issuable pursuant to the exercise of Rights to be registered under
the Securities Act, as soon as practicable after the Rights become exercisable,
and to take such action as may be necessary to ensure compliance with
applicable state securities laws.
In the event (a Flip-In Event) that a person becomes an Acquiring
Person (except pursuant to certain Permitted Offers as defined in the Rights
Agreement) each Right will then entitle the holder to receive, upon exercise of
such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market
Price (as defined in the Rights Agreement) equal to two times the exercise
price of the Right. Notwithstanding the foregoing, all Rights that are, or
under certain circumstances were, beneficially owned by any Acquiring Person
(or by certain related parties) will be null and void. The Purchase Price
payable, and the number of Units, or other securities or property issuable,
upon exercise of the Rights are subject to adjustment from time-to-time to
prevent dilution.
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For example, at an exercise of $60 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $120
worth of Common Stock (or other consideration, as noted above), based upon its
then Current Market Price, for $60. Assuming that the Common Stock had a
Current Market Price of $15 per share at such time, the holder of each valid
Right would be entitled to purchase 8 shares of Common Stock for $60.
In the event (a Flip-Over Event) that, at any time on or after the
Stock Acquisition Date, (i) the Company is acquired in a merger or other
business combination transaction (other than a specified type of merger that
follows a Permitted Offer), or (ii) 50% or more of the Company's assets or
earnings power is sold or transferred, each holder of a Right (except Rights
that previously have been voided as set forth above) shall thereafter have the
right to receive, upon exercise, a number of shares of common stock of the
acquiring company (or in certain cases its controlling person) having a Current
Market Price equal to two times the exercise price of the Right.
At any time until ten days following a Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right, payable, at the option of the Company, in cash, shares of Common Stock
or such other consideration as the Board of Directors may determine.
The provisions of the Rights and the Rights Agreement may in some
cases discourage or make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchase or similar means.
These provisions are intended to discourage, or may have the effect of
discouraging, partial tender offers, front-end loaded two-tier tender offers
and certain other types of coercive takeover tactics and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company first
to negotiate with the Company. The Company believes that these provisions,
which are similar to those of many other publicly held companies, provide
benefits by enhancing the Company's potential ability to negotiate with the
proponent of any unfriendly or unsolicited proposal to take over or restructure
the Company that outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement in their terms.
PREFERRED STOCK
The Board of Directors is authorized to designate series of Preferred
Stock and fix the powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereon.
Series A Preferred Stock - Pursuant to the terms of the Restated
Articles of Incorporation (Restated Articles), the Board of Directors has
created a series of Preferred Stock consisting of 1,999,998 shares of Preferred
Stock, $.70 Cumulative Convertible Series A (Series A Preferred Stock). The
Series A Preferred Stock is senior to the Series B Preferred Stock with respect
to dividends and assets. As of December 31, 1993, 1,999,000 shares of Series A
Preferred Stock were issued and outstanding. All such shares are fully paid
and nonassessable.
The Series A Preferred Stock (a) has a stated value and liquidation
preference of $10 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $.70 per year, payable quarterly, and entitle the
holders of a majority thereof to elect two directors if dividends are in
arrears
78
<PAGE> 81
for at least 540 days, (c) is initially convertible into one-half of a share of
Common Stock for each share of Series A Preferred Stock, subject to adjustment,
(d) is redeemable at the option of the Company at 120% of the $10 stated value
thereof (declining to 100% of the stated value after April 30, 1997) plus
accrued and unpaid dividends, and (e) is entitled to one vote per share, voting
as a class with the Common Stock and any other capital stock of the Company
entitled to vote, on all matters submitted to shareholders. In addition, the
holders of Series A Preferred Stock have certain class voting rights, including
the right to approve certain mergers, consolidations and sales of assets;
however, if a holder of Series A Preferred Stock does not grant a proxy to the
Board of Directors to vote in favor of any such merger, consolidation or sales
of assets, the Company may redeem such holder's shares of Series A Preferred
Stock without the payment of any redemption premium. The Company has reserved
999,500 shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock. Dividends paid on the Series A Preferred Stock amounted to
approximately $1.4 million in each of the last three years.
Series B Preferred Stock- Pursuant to the terms of the Restated
Articles, the Board of Directors has created a series of Preferred Stock
consisting of 960,000 shares of Preferred Stock, $3.75 Convertible Exchangeable
Series B (the "Series B Preferred Stock"). The Series B Preferred Stock is
junior to the Series A Preferred Stock with respect to dividends and assets.
As of December 31, 1993, 959,000 shares of Series B Preferred Stock were issued
and outstanding. All such shares are fully paid and nonassessable. Dividends
paid on the Series B Preferred Stock amounted to approximately $3.6 million in
each of the last three years.
The Series B Preferred Stock (a) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $3.75 per year, payable semi-annually, and entitles the
holders of a majority thereof to elect two directors if dividends are in
arrears for at least 180 days, (c) is initially convertible into two and
one-half shares of Common Stock for each share of Series B Preferred Stock,
subject to adjustment, (d) is redeemable at the option of the Company at 100%
of the $50 stated value thereof plus accrued and unpaid dividends, and (e) is
entitle to one vote per share, voting as a class with the Common Stock and any
other capital stock of the Company entitled to vote, on all matters submitted
to shareholders. In addition, the holders of the Series B Preferred Stock have
certain class voting rights. The Company has reserved 2,397,500 shares of
Common Stock for issuance upon conversion of the Series B Preferred Stock. In
addition, the Series B Preferred Stock is exchangeable, in whole but not in
part, at the option of the Company at any time for the Company's 7 1/2%
Convertible Subordinated Debentures Due 2013 (the "Debentures") at a rate of
$50 in principal amount of Debentures per share of Series B Preferred Stock,
provided that all dividends on the Series B Preferred Stock have been paid
through the date of such exchange. The Company's Restated Revolving Credit
Facility requires the Company to obtain the consent of the lenders thereunder
as a condition to the exchange of the Series B Preferred Stock for the
Debentures.
In addition, the Company is actively considering calling for
redemption all of the oustanding shares of its Series B Preferred Stock at the
redemption price of $50.00 per share plus accrued and unpaid dividends to the
redemption date. Each share of Series B Preferred Stock is convertible into
2.5 shares of the Company's common stock (equivalent to a conversion price of
$20.00 per share of common stock).
Series C Preferred Stock - In connection with the distribution of the
Rights on March 14, 1991, the Board of Directors of the Company authorized
400,000 shares of Series C Preferred Stock,
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none of which are outstanding. The Series C Preferred Stock would be issued
only upon the exercise of Rights and only if the Rights were exercised. The
Rights are not exercisable as of the date hereof. See "-- Rights". If issued,
the Series C preferred Stock would be junior to the Series A Preferred Stock,
the Series B Preferred Stock and the Series D Preferred Stock with respect to
dividends and assets.
Series D Preferred Stock - Pursuant to the terms of the Restated
Articles, the Board of Directors in 1994 authorized creation of a series of
Preferred Stock consisting of 1,725,000 shares of Preferred Stock, $2.875
Cumulative Convertible Series D. The Series D Preferred Stock ranks junior to
the Series A Preferred Stock, pari passu with the Series B Preferred Stock, and
will be senior to any Series C Preferred Stock that may be issued. A total of
1,725,000 shares of Series D Preferred Stock were sold on January 27, 1994.
Dividends on the Series D Preferred Stock will be approximately $5 million per
year.
The Series D Preferred Stock (a) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (b) carries a
cumulative annual dividend of $2.875 per share, payable quarterly, and entitles
the holders thereof, voting together as a single class with all other series or
classes of preferred stock which are pari passu with the Series D Preferred
Stock as to dividends and which specifically state that they shall vote with
the Series D Preferred Stock in such a case (which does not include the Series
A Preferred Stock, the Series B Preferred Stock or, if any is issued, the
Series C Preferred Stock), to elect two directors if dividends are in arrears
for at least six quarterly dividend periods, (c) is initially convertible into
1.511 shares of Common Stock for each share of Series D Preferred Stock,
subject to adjustment, (d) may be converted at the option of the Company, in
whole but not in part, at any time on and after January 27, 1997 and until
January 27, 2001, if for at least 20 trading days within a period of 30
consecutive trading days, including the last trading day of such 30 trading day
period, the closing price of the Common Stock equals or exceeds 130% of the
conversion price, into 1.511 shares of Common Stock, subject to adjustment, (e)
is redeemable at the option of the Company at 100% of the started value thereof
plus accrued and unpaid dividend on and after January 27, 2001, and (f) is
entitled to one vote per share, voting as a class with the Common Stock and any
other capital stock of the Company entitled to vote, on all matters submitted
to shareholders. In addition, the Series D Preferred Stock has certain class
voting rights. The Company has initially reserved 2,606,475 shares of Common
Stock for issuance upon conversion of the Series D Preferred Stock.
NOTE 22 - STOCK OPTION AND INCENTIVE PLANS:
1991 Directors' Plan - Under the 1991 Nonqualified Stock Option Plan
for Non-Employee Directors (1991 Directors' Plan), options for a total of up to
150,000 shares of the Company's common stock are available for grant to
directors of the Company who are not employed by the Company or any of the
Company's subsidiaries. In 1991, the Board of Directors awarded to each of the
Company's five non-employee directors an option to purchase 10,000 shares of
the Company's common stock in the future. Newly elected non-employee directors
shall be automatically granted an option to acquire 10,000 shares of the
Company's common stock upon the date of a director's election to the Board of
Directors. An additional option to acquire 5,000 shares of the Company's
common stock shall be awarded to each non-employee director on the date of the
annual meeting of shareholders at which the non-employee director is reelected
to serve an additional three-year term. As provided in the 1991 Directors'
Plan, options vest immediately to the extent of 25% of the total options and an
additional 25% on each of the first through the third anniversaries from the
date of the
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grant. Options granted under the 1991 Directors' Plan expire not more than ten
years from the date of grant. Unoptioned shares available for grant as of
December 31, 1993 under the 1991 Director's Plan were 45,000.
1989 Plan - Under the 1989 Stock Option Plan (1989 Plan) for officers
and certain key employees of the Company and its subsidiaries, options for a
total of up to 2,000,000 shares of the Company's common stock were initially
available for award of which 869,800 options had been awarded as of December
31, 1993. As provided in the 1989 Plan, 20% of the options vest 90 days after
the date of grant and an additional 20% vest on each of the first through the
fourth anniversaries from the date of grant. Options granted under the 1989
Plan expire not more than ten years from the date of grant. Unoptioned shares
available for grant as of December 31, 1993 under the 1989 Plan were 1,130,200.
1987 Plan - Under the 1987 Stock Option Plan (1987 Plan) for officers
and certain key employees of the Company and its subsidiaries, a total of up to
2,000,000 shares of the Company's common stock were initially available for
award of which 1,798,822 shares had been awarded as of December 31, 1992. As
provided in the 1987 Plan, options vest immediately upon grant to the extent of
40% of the total. An additional 30% of the options vest on each of the first
and second anniversaries from the date of grant. Options granted under the
1987 Plan expire not more than ten years from the date of grant. Unoptioned
shares available for grant as of December 31, 1993 under the 1987 Plan were
201,178.
Information with respect to the Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
SHARES AVERAGE
OPTIONS UNDER OPTION
EXERCISABLE OPTION PRICE
----------- ------ -----
<S> <C> <C> <C>
Balance, December 31, 1990 1,158,841 1,415,741 $ 20.99
=========== ===========
Granted 386,000 14.76
Exercised (21,040) 15.41
Canceled (239,500) 23.57
---------------------------------------------------------------------------------------------
Balance, December 31, 1991 1,151,301 1,541,201 19.12
=========== ===========
Granted 472,500 14.02
Exercised - -
Canceled (163,000) 24.60
---------------------------------------------------------------------------------------------
Balance, December 31, 1992 1,118,151 1,850,701 17.20
=========== ===========
Granted 122,105 13.37
Exercised (442,110) 15.83
Canceled (124,674) 19.71
---------------------------------------------------------------------------------------------
Balance, December 31, 1993 1,188,622 1,406,022 $ 17.25
=========== ========== ===========
</TABLE>
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INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SOUTHDOWN, INC.
Southdown, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of
Southdown, Inc. and subsidiary companies as of December 31, 1993 and 1992, and
the related statements of consolidated earnings, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the consolidated financial statement schedules listed in
the "Index to Other Required Schedules". These consolidated financial
statements and consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and consolidated
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Southdown, Inc. and
subsidiary companies as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
Also, in our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 2 of Notes to Consolidated Financial Statements,
the Company changed its method of accounting for postretirement benefits other
than pensions and income taxes effective January 1, 1993 to conform with
Statements of Financial Accounting Standards No. 106 and 109, respectively.
DELOITTE & TOUCHE
Houston, Texas
January 27, 1994
82
<PAGE> 85
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
OF FINANCIAL DISCLOSURE.
None
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year. Such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year. Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year. Such information is
incorporated herein by reference.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
Item 8 of this report lists certain consolidated
financial statements and supplementary data of the
Company and its subsidiaries. For other required
schedules, see "Index to Other Required Schedules" on
Page S-1 of this document.
3. Exhibits
83
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as amended through January 24, 1994 - incorporated by
reference from Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 21, 1993 . . . . .
* 3.2 Articles of Amendment to the Restated Articles of Incorporation of the Company dated January 25, 1994 . .
3.3 Bylaws of the Company amended as of April 20, 1993 - incorporated by reference from Exhibit 99.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 . . . . . . . . . . . . . .
4.1 Indenture dated as of May 1, 1987 between the Company and Texas Commerce Bank National Association, as
Trustee - incorporated by reference from Exhibit 4.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 First Supplemental Indenture dated October 31, 1991, supplementing the Indenture dated as of May 1, 1987
between the Company and Texas Commerce Bank National Association - incorporated by reference from Exhibit
4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 . . . . . .
4.3 Indenture dated as of October 15, 1991 between the Company and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee as amended by First Supplemental Indenture dated as of
December 10, 1993 - incorporated by reference from Exhibit 4.3 to the Company's Current Report on Form 8-K
dated December 21, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4 Warrant Agreement dated as of October 31, 1991 between the Company and Texas Commerce Bank, National
Association (formerly First City, Texas - Houston, N.A.) as Warrant Agent - incorporated by reference from
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 . .
4.5 Rights Agreement dated as of March 4, 1991 between the Company and Texas Commerce Bank National Association
(formerly First City, Texas - Houston, N.A.) as Rights Agent - incorporated by reference from Exhibit A to
the Company's Current Report on Form 8-K dated March 4, 1991 . . . . . . . . . . . . . . . . . . . . . .
* 4.6 Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
84
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<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
4.7 Registration Rights and Lock Up Agreement dated November 22, 1993 among the Company, Richard C. Blum &
Associates, Inc. and The Carpenters Pension Trust for Southern California - incorporated by reference to
Exhibit 4.2 to the Current Report on Form 8-K dated December 21, 1993 . . . . . . . . . . . . . . . . . .
4.8 Certain instruments defining the rights of holders of long-term debt instruments representing less than 10%
of the consolidated assets of the Company have not been filed as exhibits to this report. The Company
agrees to furnish a copy of any such instrument to the Commission upon request . . . . . . . . . . . . . .
+10.1 1987 Stock Option Plan of Southdown, Inc. - incorporated by reference from Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992 . . . . . . . . . . . . . . . . . .
+10.2 Form of Nonqualified Stock Option Agreement - incorporated by reference from Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992 . . . . . . . . . . . . . . . . . .
+10.3 1989 Stock Option Plan of Southdown, Inc. - incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 . . . . . . . . . . . . . . . . . . . .
+10.4 1991 Nonqualified Stock Option Plan for Non-Employee Directors of the Company and form of related Stock
Option Agreement of the Company - incorporated by reference from Exhibit 28.1 to the Company Registration
Statement on Form S-8 dated January 17, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10.5 Special Severance Program dated May 18, 1989 - incorporated by reference from Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 . . . . . . . . . . . . . . . . . . . .
+10.6 Form of Supplemental Pension Agreement and amendment to Supplemental Pension Agreement - incorporated by
reference from Exhibit 10.3 to the Company's Quarterly Report for the quarter ended June 30, 1993 . . . .
</TABLE>
85
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<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
+10.7 Employment Agreements and form of Amendment to Employment Agreements between the Company and certain
executive officers, as more specifically described below:
Date of
Name of Officer Employment Agreement
--------------- --------------------
(a) Clarence C. Comer June 1, 1988
(b) Edgar J. Marston III June 1, 1988
(c) James L. Persky June 1, 1988
(d) Dennis M. Thies June 1, 1988
(e) J. Bruce Tompkins November 1, 1989
(f) Joseph W. Devine August 13, 1990
(g) Eugene P. Martineau March 23, 1992
- incorporated by reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10.8 Discretionary Bonus Program for Senior Executive Officers - incorporated by reference from Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 . . . . . . . . . .
10.9 Second Amended and Restated Credit Agreement as of November 19, 1993 among the Company; Wells Fargo Bank,
N.A. (in its individual capacity and as agent); Societe Generale, Southwest Agency; Credit Suisse; Caisse
National De Credit Agricole; Banque Paribas; CIBC, Inc.; The Bank of Nova Scotia and the First National Bank
of Boston - incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K dated
December 21, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.10 Promissory Note dated April 3, 1984 executed by Southwestern Cement Enterprises, Inc. in favor of Martin
Marietta Corporation - incorporated by reference from Exhibit 10.12 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.11 Agreement dated as of June 19, 1989 by and among BFI Environmental Systems, Inc., Cadence Chemical
Resources, Inc. and the Company - incorporated by reference from Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . .
10.12 Licensing and Supply Agreement dated as of June 19, 1989 by and between Cadence Chemical Resources, Inc. and
the Company - incorporated by reference from Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 [Portions of this exhibit are subject to an order of the Securities and
Exchange Commission granting the Company's application for confidential treatment pursuant to Rule 24b-2]
</TABLE>
86
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<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
10.13 Purchase Agreement dated May 23, 1990 by and among Southdown, Inc., Browning-Ferris Industries, Inc. and
Cecos International, Inc. - incorporated by reference from Exhibit 28.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.14 First Amendment to Purchase Agreement dated May 23, 1990 by and among Southdown, Inc., Browning-Ferris
Industries, Inc. and Cecos International, Inc. - incorporated by reference from Exhibit 28.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 . . . . . . . . . . . . . . .
10.15 Agreement dated September 24, 1990 by and between a wholly-owned subsidiary of the Company and Torco Oil
Company - incorporated by reference from Exhibit 28.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.16 Agreement and First Amendment to Agreement dated October 1, 1990 by and between a wholly-owned subsidiary of
the Company and Torco Oil Company - incorporated by reference from Exhibit 28.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . . . . . . .
10.17 Agreement dated September 21, 1990 by and between a wholly-owned subsidiary of the Company and Leslie S.
Allen - incorporated by reference from Exhibit 28.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.18 Agreement and First Amendment to Agreement dated September 28, 1990 by and between a wholly-owned subsidiary
of the Company and Leslie S. Allen - incorporated by reference from Exhibit 28.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . . . . . . .
10.19 Agreement dated May 1, 1989 by and between a wholly-owned subsidiary of the Company and the International
Union of Operating Engineers, Local Union No. 12 - incorporated by reference from Exhibit 28.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 . . . . . . . . . . . . .
10.20 Agreement dated June 20, 1990 by and between a wholly-owned subsidiary of the Company and the International
Union of Operating Engineers, Local Union No. 9 - incorporated by reference from Exhibit 28.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 . . . . . . . . . . . . .
</TABLE>
87
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<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
10.21 Agreement Number One dated as of March 18, 1992 and June 5, 1992 to Agreement dated June 20, 1990 by and
between a wholly-owned subsidiary of the Company and the International Union of Operating Engineers, Local
Union No. 9 incorporated by reference from Exhibit 10.34 to the Company's Annual Report of Form 10-K for the
fiscal year ended December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.22 Agreement dated July 31, 1990 by and between a wholly-owned subsidiary of the Company, United Cement Lime,
Gypsum and Allied Workers Division, Boilermakers International Union, A.F.L. - C.I.O. and Local Union No.
D476 -incorporated by reference from Exhibit 28.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.23 Agreement dated August 16, 1990 by and between a wholly-owned subsidiary of the Company, Local Union No. 49
and Independent Workers of North America -incorporated by reference from Exhibit 28.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 . . . . . . . . . . . . . . . . . .
10.24 Agreement dated June, 1991 by and between the Southwestern Portland Cement Company and the International
Brotherhood of Boilermakers, Cement, Lime, Gypsum, and Allied Workers Division, Local Lodge No. D357 -
incorporated by reference from Exhibit 28.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.25 Agreement dated March 26, 1991 by and between the Company and Cement, Lime and Gypsum Worker's Division,
Boilermaker's Union, Local Lodge No. D140 - incorporated by reference from Exhibit 28.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 . . . . . . . . . . . . . . . . . . . .
10.26 Agreement dated May 1, 1993 by and between Kosmos Cement Company and the International Brotherhood of
Boilermakers, Cement, Lime, Gypsum and Allied Workers Division Local Lodge No. D595 - incorporated by
reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.27 Agreement dated July 31, 1991 by and between the Company and the United Cement, Lime, Gypsum and Allied
Worker's Division, Boilermaker's International Union, A.F.L. - C.I.O., Local No. D476 - incorporated by
reference from Exhibit 28.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
* 10.28 Agreement dated August 16, 1993 by and between the Company and the United Paperworkers International Union
</TABLE>
88
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
10.29 Agreement dated as of February 19, 1991, between the Registrant and Southcoast Capital Corporation -
incorporated by reference from Exhibit 28.1 to the Company's Registration Statement on Form S-3 dated April
1, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.30 Settlement Agreement dated April 16, 1993, among the Company, Richard C. Blum & Associates, Inc. and the
Carpenters Pension Trust for Southern California - incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report of Form 10-Q for the quarter ended March 31, 1993 . . . . . . . . . . . . . . .
*11 Statement of computation of per share earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*22 Significant Subsidiaries of Southdown, Inc. as of December 31, 1993 . . . . . . . . . . . . . . . . . . .
*23 Consent of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- --------------------
* Filed herewith
+ Compensatory plan or management agreement.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended December
31, 1993.
On January 4, 1994 a Current Report on Form 8-K was filed relating
to (i) two inactive cement kiln dust disposal sites owned by the
Company and (ii) a claim for indemnification by Energy Development
Corporation.
89
<PAGE> 92
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
SOUTHDOWN, INC.
(Registrant)
By CLARENCE C. COMER
-----------------------------------
Clarence C. Comer
President and Chief Executive Officer
Date: February 24, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES POSITIONS DATE
---------- --------- ----
<S> <C> <C>
G. WALTER LOEWENBAUM, II Chairman of the Board of February 24, 1994
- ------------------------------------------ Directors
G. Walter Loewenbaum, II
W. J. CONWAY Vice Chairman of the Board of February 24, 1994
- ------------------------------------------ Directors
W. J. Conway
CLARENCE C. COMER President, Chief Executive Officer February 24, 1994
- ------------------------------------------ and Director (Principal Executive
Clarence C. Comer Officer)
JAMES L. PERSKY Senior Vice President - Finance February 24, 1994
- ------------------------------------------ (Principal Financial Officer)
James L. Persky
ALLAN KORSAKOV Corporate Controller (Principal February 24, 1994
- ------------------------------------------ Accounting Officer)
Allan Korsakov
FENTRESS BRACEWELL Director February 24, 1994
- ------------------------------------------
Fentress Bracewell
KILLIAN L. HUGER JR. Director February 24, 1994
- ------------------------------------------
Killian L. Huger Jr.
EDGAR J. MARSTON III Director February 24, 1994
- ------------------------------------------
Edgar J. Marston III
MICHAEL A. NICOLAIS Director February 24, 1994
- ------------------------------------------
Michael A. Nicolais
V. H. VAN HORN III Director February 24, 1994
- ------------------------------------------
V. H. Van Horn III
</TABLE>
90
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURES POSITIONS DATE
---------- --------- ----
<S> <C> <C>
RONALD N. TUTOR Director February 24, 1994
- ------------------------------------------
Ronald N. Tutor
FRANK J. RYAN Director February 24, 1994
- ------------------------------------------
Frank J. Ryan
ROBERT J. SLATER Director February 24, 1994
- ------------------------------------------
Robert J. Slater
STEVEN B. WOLITZER Director February 24, 1994
- ------------------------------------------
Steven B. Wolitzer
</TABLE>
91
<PAGE> 94
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
INDEX TO OTHER REQUIRED SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
Other schedules for the years ended December 31, 1993, 1992 and 1991:
<S> <C> <C>
II - Amounts receivable from related parties and underwriters,
promoters and employees other than related parties . . . . . . . . . . . . . . . . S-2
V - Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
VI - Accumulated depreciation, depletion and amortization of
property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
VII - Guarantees of securities of other issuers . . . . . . . . . . . . . . . . . . . . . S-5
VIII - Valuation and qualifying accounts . . . . . . . . . . . . . . . . . . . . . . . . . S-6
X - Supplemental statement of earnings information . . . . . . . . . . . . . . . . . . S-7
</TABLE>
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
S - 1
<PAGE> 95
SCHEDULE II
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
====================================================================================================================
BALANCE AT END
BALANCE AT OF PERIOD
------------------
BEGINNING NON-
DEBTOR OF PERIOD ADDITIONS COLLECTIONS WRITE-OFFS CURRENT CURRENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 . . . . . . . Edgar J. Marston III 1 $ 350 - $ 50 - $ 50 $ 250
H. Earl Webber 2 $ 198 - $ 198 - - -
Clarence C. Comer 3 $ 747 - - - - $ 747
Southdown Thermal
Dynamics 4 $ 6,000 $3,946 - $(9,946) - -
1992 . . . . . . . Edgar J. Marston III 1 $ 300 - $ 50 - $ 50 $ 200
Clarence C. Comer 3 $ 747 - - - - $ 747
1993 . . . . . . . Edgar J. Marston III 1 $ 250 - $ 50 - $ 50 $ 150
Clarence C. Comer 3 $ 747 - - - - $ 747
</TABLE>
- --------------
(1) The Company's Employment Agreement with Mr. Marston extended a loan of
$500,000 to Mr. Marston on an interest-free basis to be repaid in ten
annual installments of $50,000 beginning June 1, 1988, subject to the
outstanding indebtedness being forgiven in the event that Mr. Marston
becomes disabled.
(2) Non-interest bearing note secured by Mr. Webber's personal residence in
Florida payable upon sale of said residence.
(3) Note secured by 21,000 shares of the Company's Series B preferred stock
payable December 15, 1996 with interest payable semi- annually at the
Company's borrowing rate on the Restated Revolving Credit Facility plus
1/8%.
(4) Loan made to a partnership in which a subsidiary of the Company owned a
50% interest. On January 6, 1992 the Company forgave this loan in
conjunction with the sale ofthe Company's interest in the joint venture
to an affiliate of the other 50% partner. (See Note 19 of Notes to
Consolidated Financial Statements.)
S - 2
<PAGE> 96
SCHEDULE V
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT 1
(IN THOUSANDS)
<TABLE>
<CAPTION>
==============================================================================================================
OTHER
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS ADD AT END
OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Land:
Cement . . . . . . . . . . . . $ 27,117 $ 1,741 $ (16) $ 1,607 2 $ 30,449
Concrete Products . . . . . . . 24,327 4 - (5,326)5 19,005
Environmental Services . . . . 4,238 - - - 4,238
Corporate and other . . . . . . 427 - - - 427
----------- ---------- --------- ----------- ----------
56,109 1,745 (16) (3,719) 54,119
----------- ---------- --------- ----------- ----------
Plant and equipment:
Cement . . . . . . . . . . . . 645,231 11,227 (579) (126)3 655,753
Concrete Products . . . . . . . 114,662 5,158 (1,621) (29,055)5 89,144
Environmental Services . . . . 15,460 10,359 (73) 2,440 4 28,186
Corporate and other . . . . . . 14,741 2,464 - 113 3 17,318
----------- ---------- --------- ----------- ----------
790,094 29,208 (2,273) (26,628) 790,401
----------- ---------- --------- ----------- ----------
$ 846,203 $ 30,953 $ (2,289) $ (30,347) $ 844,520
=========== ========== ========= =========== ==========
Year ended December 31, 1992:
Land:
Cement . . . . . . . . . . . . $ 30,449 $ 449 $ (81) $ 141 3 $ 30,958
Concrete Products . . . . . . . 19,005 - (127) 127 3 19,005
Environmental Services . . . . 4,238 27 (92) (923)6 3,250
Corporate and other . . . . . . 427 - - - 427
----------- ---------- --------- ----------- ----------
54,119 476 (300) (655) 53,640
----------- ---------- --------- ----------- ----------
Plant and equipment:
Cement . . . . . . . . . . . . 655,753 4,451 (1,979) (245)3 657,980
Concrete Products . . . . . . . 89,144 1,531 (7,470) (699)3 82,506
Environmental Services . . . . 28,186 9,665 (2,557) (13,673)6 21,621
Corporate and other . . . . . . 17,318 1,258 (124) (114)3 18,338
----------- ---------- --------- ----------- ----------
790,401 16,905 (12,130) (14,731) 780,445
----------- ---------- --------- ----------- ----------
$ 844,520 $ 17,381 $(12,430) $ (15,386) $ 834,085
=========== ========== ========= =========== ==========
Year ended December 31, 1993:
Land:
Cement . . . . . . . . . . . . $ 30,958 $ - $ - $ - $ 30,958
Concrete Products . . . . . . . 19,005 - (409) 3,463 7 22,059
Environmental Services . . . . 3,250 2 - 550 8 3,802
Corporate and other . . . . . . 427 - - - 427
----------- ---------- --------- ----------- ----------
53,640 2 (409) 4,013 57,246
----------- ---------- --------- ----------- ----------
Plant and equipment:
Cement . . . . . . . . . . . . 657,980 8,529 (860) (38)3 665,611
Concrete Products . . . . . . . 82,506 3,541 (2,333) 11,128 7 94,842
Environmental Services . . . . 21,621 10,992 (83) 2,207 8 34,737
Corporate and other . . . . . . 18,338 1,358 (2,043) - 17,653
----------- ---------- --------- ----------- ----------
780,445 24,420 (5,319) 13,297 812,843
----------- ---------- --------- ----------- ----------
$ 834,085 $ 24,422 $ (5,728) $ 17,310 $ 870,089
=========== ========== ========= ========== ==========
</TABLE>
- -------------
(1) See Note 1 of Notes to Consolidated Financial Statements for depreciation
method, useful lives and rates.
(2) Primarily reclassification between segments and Other Assets.
(3) Miscellaneous reclassification.
(4) See Note 18 of Notes to Consolidated Financial Statements for information
regarding the purchase of hazardous waste processing facilities.
(5) Relates primarily to the sale of the Company's Florida aggregate
operation.
(6) Deductions include the write-down of certain Environmental Services assets
to net realizable value and the reclassification of three hazardous waste
processing facilities' property, plant and equipment to current assets
held for sale. (See Note 18 of Notes to Consolidated Financial
Statements.)
(7) Relates to the acquisition of various ready-mixed concrete batch plants
and one aggregate quarry.
(8) Includes the reclassification of one hazardous waste processing
facilities' property, plant and equipment from current assets held for
sale.
S - 3
<PAGE> 97
SCHEDULE VI
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
==============================================================================================================
ADDITIONS OTHER
BALANCE AT CHARGED CHANGES BALANCE
BEGINNING TO COSTS ADD AT END
OF PERIOD AND EXPENSES RETIREMENTS (DEDUCT) OF PERIOD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Cement . . . . . . . . . . . . . . $ 145,444 $ 27,065 $ (396) $ 169 1 $ 172,282
Concrete Products . . . . . . . . 30,062 10,329 (1,217) (8,178)2 30,996
Environmental Services . . . . . . 575 1,534 (7) 20 1 2,122
Corporate and other . . . . . . . 2,663 2,216 - (194)1 4,685
---------- ---------- --------- ---------- ------------
$ 178,744 $ 41,144 $ (1,620) $ (8,183) $ 210,085
========== ========== ========= ========== ============
Year ended December 31, 1992:
Cement . . . . . . . . . . . . . . $ 172,282 $ 27,548 $ (1,850) $ 151 1 $ 198,131
Concrete Products . . . . . . . . 30,996 9,052 (5,931) (867)2 33,250
Environmental Services . . . . . . 2,122 2,976 (559) (1,692)3 2,847
Corporate and other . . . . . . . 4,685 2,456 (70) (156)1 6,915
---------- ---------- --------- ---------- ------------
$ 210,085 $ 42,032 $ (8,410) $ (2,564) $ 241,143
========== ========== ========= ========== ============
Year ended December 31, 1993:
Cement . . . . . . . . . . . . . . $ 198,131 $ 25,741 $ (748) $ (100)1 $ 223,024
Concrete Products . . . . . . . . 33,250 7,549 (1,860) 5 1 38,944
Environmental Services . . . . . . 2,847 2,148 (62) 2,734 4 7,667
Corporate and other . . . . . . . 6,915 2,346 (2,043) - 7,218
---------- ---------- --------- ---------- ------------
$ 241,143 $ 37,784 $ (4,713) $ 2,639 $ 276,853
========== ========== ========= ========= ============
</TABLE>
- ---------
(1) Miscellaneous reclassification.
(2) Relates to the sale of the Company's Florida aggregate operation.
(3) Deductions include the write-down of certain Environmental Services
assets to net realizable value and the reclassification of three
hazardous waste processing facilities' property, plant and equipment
to current assets held for sale. (See Note 18 of Notes to Consolidated
Financial Statements.)
(4) Includes the reclassification of one hazardous waste processing
facilities' property, plant and equipment from current assets held for
sale.
S - 4
<PAGE> 98
SCHEDULE VII
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
GUARANTEES OF SECURITIES OF OTHER ISSUERS
<TABLE>
<CAPTION>
==================================================================================================================================
AMOUNT
GUARANTEED AND NATURE OF
ISSUER TITLE OF ISSUE OUTSTANDING GUARANTEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edgar J. Marston III Loan from a bank $275,000 The Company's Employment Agreement with Mr. Marston dated June 1,
1988 provided a guaranty or assurance arrangement to a bank on
behalf of Mr. Marston with respect to a loan that was outstanding
prior to the date of his employment.
</TABLE>
S - 5
<PAGE> 99
SCHEDULE VIII
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
=================================================================================================================
ADDITIONS
---------------------
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO OTHER FROM AT END
OF PERIOD TO EXPENSE ACCOUNTS RESERVES OF PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Allowance for doubtful receivables $ 2,861 $ 6,163 $ - $ 2,041 1 $ 6,983
======== ======== ========== ========= =========
Pre-acquisition contingencies and other $ 18,806 $ 3,120 4 $ 1,281 3 $ 6,261 2 $ 16,946
======== ========== ========== ========= =========
Year ended December 31, 1992:
Allowance for doubtful receivables $ 6,983 $ 2,580 $ 35 3 $ 3,376 1 $ 6,222
======== ======== =========== ========= =========
Pre-acquisition contingencies and other $ 16,946 $ 3,600 4 $ 602 3 $ 6,515 2 $ 14,633
======== ========== =========== ========= =========
Year ended December 31, 1993:
Allowance for doubtful receivables $ 6,222 $ 4,337 $ - $ 3,536 1 $ 7,023
======== ======== ========= ========= =========
Pre-acquisition contingencies and other $ 14,633 $ 3,000 4 $ - $ 9,496 2 $ 8,137
======== ========== ========= ========= =========
</TABLE>
- --------------
(1) Amounts written off.
(2) Discharge of pre-acquisition contingencies and other.
(3) Related to the acquisition of the hazardous waste processing facilities.
(4) Related to remediation of a CKD disposal site.
S - 6
<PAGE> 100
SCHEDULE X
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
SUPPLEMENTAL STATEMENT OF EARNINGS INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
=============================================================================================================
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . $ 46,120 $ 47,233 $ 54,838
Taxes, other than payroll and income taxes . . . . . . . . . . . $ 7,714 $ 7,986 $ 8,242
</TABLE>
S - 7
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT STATE OF TEXAS
TO
RESTATED ARTICLES OF COUNTY OF HARRIS
INCORPORATION
OF CITY OF HOUSTON
SOUTHDOWN, INC.
BE IT KNOWN, That on this 25th day of January, 1994
BEFORE ME, Michelle Raymond, a Notary Public, duly commissioned and
qualified in and for the County of Harris, State of Texas, and in the presence
of the witnesses hereinafter named and undersigned:
PERSONALLY CAME AND APPEARED:
EDGAR J. MARSTON III and WENDELL E. PHILLIPS, II, appearing herein and
acting for Southdown, Inc. (of which Corporation they are, respectively,
Executive Vice President and General Counsel and Secretary), a corporation
organized and existing under the laws of the State of Louisiana, domiciled in
the Parish of Orleans, State of Louisiana, organized by Articles of
Incorporation effective April 4, 1930, which Articles, as amended, were
restated pursuant to Restated Articles of Incorporation effective September 15,
1983, and further amended as of April 10, 1987, December 2, 1987, April 23,
1988, May 23, 1988 and March 4, 1991 ("the Corporation"), who declared that
pursuant to Sections 24B(6) and 33A of the Louisiana Business Corporation Law,
Article IIIB of the Restated Articles of Incorporation of the Corporation,
resolutions of the Board of Directors of the Corporation adopted at special
meetings of the Board of Directors of the Corporation held on November 22, 1993
and January 20, 1994, and resolutions of its duly authorized Special Committee
unanimously adopted at a special meeting of such committee held on January 20,
1994, they now appear for the purpose of executing this act of amendment and
putting into authentic form the amendment so adopted by the Special Committee
of the Board of Directors of the Corporation.
AND THE SAID APPEARERS further declare that by unanimous vote of the duly
authorized Special Committee of the Board of Directors of the Corporation, it
was resolved that Article III of the Restated Articles of Incorporation of the
Corporation be further amended as follows:
1. There is added as a new paragraph F of Article III the following:
F. Of the aforesaid 10,000,000 shares of Preferred Stock,
1,725,000 shares shall constitute a separate series of preferred shares
designated "Preferred Stock, $2.875 Cumulative Convertible Series D"
(hereinafter called the
<PAGE> 2
"Series D Preferred Stock"), which shall have a stated value of $50.00 per
share. The preferences, limitations and relative rights of the Series D
Preferred Stock are as follows:
PREFERRED STOCK, $2.875 CUMULATIVE CONVERTIBLE SERIES D
(1) Dividends. The holders of the Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of the
funds of the Corporation legally available therefor, subject to the prior and
superior rights of the holders of the Corporation's Preferred Stock, $.70
Cumulative Convertible Series A (the "Series A Preferred Stock") and any other
shares of any series or class of stock of the Corporation ranking senior to the
Series D Preferred Stock as to dividends, but pari passu with the Corporation's
Preferred Stock, $3.75 Convertible Exchangeable Series B (the "Series B
Preferred Stock") and any other shares of any series or class of stock of the
Corporation ranking pari passu with the Series D Preferred Stock as to
dividends, and in preference to the holders of the Corporation's Preferred
Stock, Cumulative Junior Participating Series C (the "Series C Preferred
Stock") that may be issued and the holders of the Common Stock of the
Corporation and any other stock of the Corporation ranking junior to the Series
D Preferred Stock as to dividends, cumulative preferential dividends per share
of Series D Preferred Stock in cash at the rate per annum of $2.875, and no
more, until conversion or redemption. Dividends on the Series D Preferred
Stock will be cumulative, will accrue from the date of original issuance and
will be paid (when and as declared by the Board of Directors of the
Corporation) in cash quarterly, in arrears, on the first day of each April,
July, October and January, commencing on April 1, 1994. Each such regular
dividend on the Series D Preferred Stock shall be paid to the holders of record
of shares of the Series D Preferred Stock as they appear on the stock register
of the Corporation on such record date, not exceeding 30 days preceding the
payment date thereof, as shall be fixed by the Board of Directors of the
Corporation. Dividends on account of arrears for any past dividend periods may
be declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors
of the Corporation. No dividend may be declared on any other series or class
of stock ranking on a parity with the Series D Preferred Stock as to dividends
in respect of any dividend period, unless there shall also be or have been
declared on the Series D Preferred Stock like dividends for all periods at the
dividend rates fixed therefor. In the event that full cumulative dividends on
the Series D Preferred Stock have not been paid or declared and
-2-
<PAGE> 3
set apart for payment, the Corporation may not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment
on account of the purchase, redemption or retirement of, the Common Stock or
any other stock of the Corporation ranking as to dividends or distributions of
assets on liquidation, dissolution or winding up of the Corporation junior to
the Series D Preferred Stock (other than, in the case of dividends or
distributions, dividends or distributions paid in shares of Common Stock or
such other junior ranking stock), until full cumulative dividends on the Series
D Preferred Stock are paid or declared and set apart for payment.
(2) Redemption. (a) Shares of Series D Preferred Stock shall be
redeemable for cash, at the option of the Corporation, in whole or in part at
any time or from time to time on or after January 27, 2001, at a redemption
price of $50 per share of Series D Preferred Stock, plus an amount equal to
accrued and unpaid dividends (whether or not declared) to the date fixed for
redemption. If the date of redemption falls after a dividend payment record
date but before the related payment date, the record holders of the Series D
Preferred Stock on that record date shall be entitled to receive the dividend
payable on the Series D Preferred Stock notwithstanding the redemption thereof.
Except as provided in this subparagraph (2)(a), no payment or allowance shall
be made for accrued dividends on any shares of Series D Preferred Stock called
for redemption.
(b) In case of the redemption of only part of the Series D Preferred
Stock at the time outstanding, such redemption shall be made pro rata or by lot
or in such other manner as the Board of Directors of the Corporation may
determine; provided, however, that the Corporation shall not be required to
effect the redemption in any manner that results in additional fractional
shares being outstanding. If full cumulative dividends on the outstanding
shares of Series D Preferred Stock shall not have been paid or declared and set
apart for payment for all regular dividend payment dates to and including the
last dividend payment date prior to the date fixed for redemption, the
Corporation shall not call for redemption any shares of Series D Preferred
Stock unless all such shares then outstanding are called for simultaneous
redemption.
(c) Notice of any proposed redemption of Series D Preferred Stock
shall be given by the Corporation not less than 30 days nor more than 60 days
prior to the date fixed for such redemption to each holder of record of the
shares to be redeemed at the address appearing on the books of the Corporation.
Notice of redemption shall be deemed to have
-3-
<PAGE> 4
been given when deposited in the United States mails, first class mail, postage
prepaid, whether or not such notice is actually received. If on or before the
redemption date specified in such notice all funds necessary for such
redemption shall have been made available at the office of the transfer agent,
in trust for the pro rata benefit of the holders of the shares so called for
redemption, so as to be and continue to be available therefor, then from and
after the date of redemption so designated, notwithstanding that any
certificate representing shares of Series D Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding, the right to receive
dividends thereon shall cease to accrue and all rights with respect to such
shares of Series D Preferred Stock so called for redemption shall forthwith at
the close of business on such redemption date cease and terminate, except only
the right of the holders thereof to receive the redemption price of such shares
so to be redeemed plus an amount equal to accrued and unpaid dividends (whether
or not declared) to the date fixed for redemption, but without interest
thereon.
(d) Any monies so set aside by the Corporation and unclaimed at the
end of three years from the date fixed for redemption shall revert to the
general funds of the Corporation.
(e) The Corporation may, however, prior to the redemption date
specified in the notice of redemption, deposit in trust for the account of the
holders of the shares of Series D Preferred Stock to be redeemed, with a bank
or trust company in good standing organized under the laws of the United States
of America or of any state thereof, having its principal office located in the
continental United States, and having a capital, surplus and undivided profits
aggregating at least $50 million, designated in such notice of redemption, all
funds necessary for such redemption (including accrued and unpaid dividends up
to the date fixed for redemption), together with irrevocable written
instructions authorizing such bank or trust company, on behalf and at the
expense of the Corporation, to cause the notice of redemption to be mailed as
herein provided at least 30 days but not more than 60 days prior to the
redemption date and to include in said notice of redemption a statement that
all funds necessary for such redemption have been so deposited in trust and are
immediately available, and from and after the redemption date, notwithstanding
that any certificate representing shares of Series D Preferred Stock so called
for redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding and all rights with
respect to such shares of Series D Preferred Stock shall
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forthwith at the close of business on such redemption date cease and terminate,
except only the right of the holders thereof to receive from such bank or trust
company, at any time after the redemption date, the redemption price of such
shares so to be redeemed plus accrued and unpaid dividends (whether or not
declared) to the date fixed for redemption, but without interest thereon. In
the event the holder of any such shares of Series D Preferred Stock shall not,
within three years after the redemption date, claim the amount deposited for
the redemption thereof, the depositary shall, upon the request of the
Corporation expressed in a resolution of its Board of Directors, pay over to
the Corporation such unclaimed amount after which time the holders of the
shares so called for redemption shall look only to the Corporation for the
payment thereof.
(f) If any shares of Series D Preferred Stock called for redemption
are not issued and outstanding as of the date fixed for redemption, the amount
set aside or deposited for the redemption thereof shall revert to or be paid
over to the Corporation.
(g) Any shares of Series D Preferred Stock which are redeemed or
otherwise purchased or acquired by the Corporation or any subsidiary thereof
shall be cancelled. The number of shares of Series D Preferred Stock shall be
reduced by the number of shares so cancelled and such cancelled shares shall be
restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to series, and may thereafter be issued but not as
shares of Series D Preferred Stock. For the purposes of this paragraph, a
subsidiary means a corporation of which a majority of the capital stock having
voting power under ordinary circumstances to elect a majority of the board of
directors is owned by (a) the Corporation, (b) the Corporation and one or more
of its subsidiaries or (c) one or more of the Corporation's subsidiaries.
(3) Regarding Voting Rights. (a) Each share of Series D Preferred
Stock shall entitle the holder thereof to one vote and, except as provided
herein or as required by law, the Series D Preferred Stock and the Common Stock
(and any other capital stock of the Corporation at any time entitled to vote)
shall vote together as a single class.
(b) In addition to any provisions herein and any requirement of law,
the Series D Preferred Stock shall vote as a single class with respect to any
proposal (i) to change the dividend rate, liquidation preference, redemption
price, voting rights or conversion rights of the shares of Series D Preferred
Stock or to increase the number of authorized shares of Series D Preferred
Stock; (ii) to increase the authorized
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amount of any series or class of capital stock of the Corporation that ranks
senior to the Series D Preferred Stock as to dividends or distribution of
assets on liquidation; (iii) to authorize, create, issue or sell any shares of
any series or any class of capital stock of the Corporation that ranks senior
to the Series D Preferred Stock as to dividends or assets upon liquidation;
(iv) to change or modify the voting rights of the Series D Preferred Stock and
(v) for the alteration, change or modification of the rights set forth in this
subparagraph (3)(b). The affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series D Preferred Stock shall be
required to take any action on the matters specified in clauses (i) through (v)
of this subparagraph (3)(b).
(c) Unless the vote of a larger percentage is required by law or the
Articles of Incorporation, the affirmative vote of the holders of a majority of
the outstanding shares of Series D Preferred Stock entitled to vote on the
matter shall be sufficient to take any action as to which a class vote of the
holders of the Series D Preferred Stock is required by law or the Articles of
Incorporation.
(d) Whenever, at any time, dividends payable on the Series D
Preferred Stock shall be in arrears for six quarterly dividend periods, the
holders of all classes or series of preferred stock which rank pari passu with
the Series D Preferred Stock as to dividends and which shall specifically state
that they shall vote with the Series D Preferred Stock for the election of two
directors in such a case (specifically excluding the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock) (the "Voting
Preferred Stock"), shall have the exclusive right, voting separately as a
class, irrespective of class or series, to elect by a plurality of the votes
cast two directors of the Corporation, who shall be a Class I director and a
Class II director, respectively, (i) at the Corporation's next annual meeting
of shareholders, (ii) at a special meeting held in place thereof, (iii) at a
special meeting of the holders of shares of the Voting Preferred Stock called
by the Secretary of the Corporation upon the written request of the holders of
record of 25% or more of the total number of shares of Voting Preferred Stock
then outstanding, to be held within 30 days after delivery of such request, or
(iv) by written consent of the holders of a majority of the issued and
outstanding shares of Voting Preferred Stock in lieu thereof, and at each
succeeding meeting of shareholders thereafter at which directors shall be
elected until such rights shall terminate as hereinafter provided. The Board
of Directors of the Corporation hereby unanimously directs the Secretary of the
Corporation to give notice of any special meeting of the
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shareholders of the Corporation required from time to time by the provisions of
this paragraph (3), in the manner prescribed by the Bylaws of the Corporation.
At elections for such directors, each holder of the Voting Preferred Stock
shall be entitled to one vote for each share held. Upon the vesting of such
voting right in the holders of the Voting Preferred Stock, the maximum
authorized number of members of the Board of Directors shall automatically be
increased by two and the two vacancies so created shall be filled by vote of
the holders of the Voting Preferred Stock as hereinabove set forth. The right
of the holders of the Voting Preferred Stock, voting separately as a class, to
elect members of the Board of Directors of the Corporation as aforesaid shall
continue until such time as all dividends accumulated on the Voting Preferred
Stock shall have been paid in full, at which time such right shall terminate,
except as by law expressly provided, subject to revesting in the event of each
and every subsequent default of the character above mentioned. Upon any
termination of the right of the holders of the Voting Preferred Stock to vote
for directors as herein provided, the term of office of all directors then in
office elected by such Voting Preferred Stock voting as a class shall terminate
immediately. If the office of any director elected by the holders of the
Voting Preferred Stock becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office or otherwise, the remaining
director elected by the holders of Voting Preferred Stock voting as a class may
choose a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred. Whenever the special voting powers vested in the
holders of the Voting Preferred Stock shall have expired, the number of
directors shall become such number as may be provided for in the By-Laws, or
resolution of the Board of Directors thereunder, irrespective of any increase
made pursuant to the provisions of this subparagraph (3)(d).
(4) Priority in Event of Dissolution. In the event of any
liquidation, dissolution, or winding up of the affairs of the Corporation,
after payment or provision for payment of the debts and other liabilities of
the Corporation (including any liquidation preferences payable in respect of
the Series A Preferred Stock and any other capital stock of the Corporation
ranking senior to the Series D Preferred Stock as to assets), the holders of
the Series D Preferred Stock shall be entitled to receive, out of the remaining
net assets of the Corporation, $50.00 in cash for each share of Series D
Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
each such share (whether or not declared) up to the date fixed for
distribution, before any distribution shall be made to the holders of the
Common Stock of the Corporation, the Series C Preferred Stock or any other
stock of the
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Corporation ranking junior to the Series D Preferred Stock as to assets.
If upon any liquidation, dissolution or winding up of the affairs of the
Corporation, the assets distributable among the holders of the Series D
Preferred Stock, the Series B Preferred Stock and any other capital stock of
the Corporation ranking on a parity with the Series D Preferred Stock as to
assets shall be insufficient to permit the payment in full to the holders of
all shares of such Series D Preferred Stock, the Series B Preferred Stock and
any other capital stock of the Corporation ranking on a parity with the Series
D Preferred Stock as to assets of all preferential amounts payable to all such
holders, then the entire assets of the Corporation thus distributable shall be
distributed ratably among the holders of the Series D Preferred Stock, the
Series B Preferred Stock and any other capital stock of the Corporation ranking
on a parity with the Series D Preferred Stock as to assets in proportion to the
respective amounts that would be payable per share if such assets were
sufficient to permit payment in full.
(5) Conversion at Option of Holder. (a) Subject to and upon
compliance with the provisions herein, at the option of the holder, shares of
Series D Preferred Stock may at any time be converted into fully paid and
nonassessable shares of Common Stock at the rate of 1.511 shares of Common
Stock for each share of Series D Preferred Stock to be converted (subject to
adjustment as hereinafter provided) (the "Conversion Rate"); provided, however,
that if the Corporation shall have given notice of redemption of any shares of
Series D Preferred Stock pursuant to paragraph (2) above or notice of
conversion at the option of the Corporation pursuant to paragraph (6) below,
such right to convert such shares shall terminate at 5:00 p.m., New York City
time, on the date fixed for redemption or such conversion, respectively (unless
the Corporation shall default in the payment due upon redemption in which case
such conversion rights shall not expire). The result obtained by dividing
$50.00 by the Conversion Rate in effect from time to time is herein referred to
as the "Conversion Price." The initial Conversion Price shall be $33.092.
Whenever the Conversion Price is adjusted pursuant to the provisions of
subparagraph (7)(c) below, the Conversion Rate shall be redetermined by
dividing $50.00 by the then adjusted Conversion Price. The Conversion Rate and
the Conversion Price in effect from time to time shall be calculated to four
decimal places and rounded to the nearer thousandths.
(b) In order to exercise the right to convert, the holder of any
shares of Series D Preferred Stock to be converted shall surrender the
certificate representing such shares of Series D Preferred Stock, accompanied
(if so
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required by the Corporation) by the proper instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder thereof or by his attorney duly authorized in writing, to the
transfer agent of the Series D Preferred Stock or at such other office or
offices, if any, as the Board of Directors shall designate and shall give
written notice to the Corporation at such office that the holder elects to
convert such Series D Preferred Stock. Such shares of Series D Preferred Stock
surrendered for conversion shall be deemed to have been converted immediately
prior to the close of business on the date of the giving of such notice and of
the surrender of such certificates for conversion in accordance with the
foregoing provisions, and at such time the rights of the holder of such Series
D Preferred Stock as such holder shall cease, and the holder thereof shall be
treated for all purposes as the record holder of Common Stock from and after
such time. As promptly as practicable after receipt of such notice and the
surrender of such certificates as aforesaid, the Corporation shall issue and
deliver at such office a certificate or certificates for the number of full
shares of Common Stock issuable upon conversion.
(6) Conversion at Option of Corporation. (a) On and after January
27, 1997 and until January 27, 2001, shares of Series D Preferred Stock
outstanding are convertible, at the option of the Corporation, in whole but not
in part, at any time, into fully paid and non-assessable shares of Common
Stock. The Corporation may exercise this option only if for at least 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the Market Price (as defined below) of the
Common Stock exceeds 130 percent of the Conversion Price on such respective
dates and only if all dividends on the Series D Preferred Stock for all
dividend periods ending on or prior to the dividend payment date next preceding
the Conversion Date (as defined herein) have been paid or set aside for
payment.
(b) In order to exercise its option to convert shares of the
Series D Preferred Stock, the Corporation must, not fewer than 15 nor more than
60 days before the date of such conversion (the "Conversion Date"), issue a
press release announcing the conversion and specifying the Conversion Date,
which announcement shall be made prior to 9:00 A.M., New York City time, of the
second trading day after the end of any such 30-day trading period. The
Corporation shall also give notice of such conversion to the holders of record
of shares of Series D Preferred Stock to be converted at the holders' addresses
shown on the books of the Corporation. Notice of such conversion must be given
by first class mail, postage pre-paid, not fewer than 15 or more than 60 days
before the
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<PAGE> 10
Conversion Date and must state: (i) the Conversion Date; (ii) the Conversion
Rate and the Conversion Price as of the date immediately preceding the date of
the notice; (iii) the place or places where certificates for the shares of
Series D Preferred Stock may be surrendered in exchange for certificates for
shares of the Common Stock; and (iv) that dividends on the shares of the Series
D Preferred Stock to be converted will cease to accrue on the Conversion Date.
Notice is given when deposited in the United States mail, by first class mail,
postage prepaid, whether or not actually received. The Corporation's failure
to mail such notice to a shareholder shall not affect the validity or
effectiveness of the conversion of the shares of Series D Preferred Stock into
shares of Common Stock.
(c) On the date fixed by the Corporation as of the Conversion
Date, the rights of the holders of the shares of Series D Preferred Stock as
such shall cease, the shares of Series D Preferred Stock to be converted shall
no longer be deemed outstanding, dividends thereon shall cease to accrue and
certificates for such shares shall represent (i) the shares of Common Stock
issuable on conversion of the Series D Preferred Stock evidenced thereby and
(ii) the right to receive the amounts payable under Section 7(b) in lieu of the
issuance of any fractional share.
(d) The number of shares of Common Stock issuable for each
share of Series D Preferred Stock so converted shall be equal to the product of
the number of shares of Series D Preferred Stock being converted and the
Conversion Rate in effect as of the Conversion Date.
(7) General Provisions Regarding Conversion. The following
provisions shall be applicable to all conversions of Series D Preferred Stock
pursuant to paragraphs (5) and (6):
(a) If the Conversion Date falls after a dividend payment
record date but before the related payment date, the record holder of the
Series D Preferred Stock on that record date shall be entitled to receive the
dividend payable on the Series D Preferred Stock notwithstanding the
conversion thereof. Except as provided in this subparagraph (a), no payment or
allowance shall be made for accrued dividends on any shares of Series D
Preferred Stock converted or surrendered for conversion.
(b) No fractional share of Common Stock shall be issued upon
conversion of Series D Preferred Stock. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any Series D
Preferred Stock, the Corporation shall pay a cash adjustment equal to such
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fraction multiplied by the Market Price per share of the Common Stock (as
defined below) on the trading day next preceding the date of conversion. In
determining the number of shares of Common Stock and the payment, if any, in
lieu of fractional shares that a holder of Series D Preferred Stock shall
receive, the total number of shares of Series D Preferred Stock surrendered for
conversion by such holder shall be aggregated.
(c) The number and kind of securities issuable upon the
conversion of the Series D Preferred Stock shall be subject to adjustment from
time to time upon the happening of certain events occurring on or after the
date of original issue of the shares of the Series D Preferred Stock as
follows:
(i) In case of any reclassification or change of
Common Stock issuable upon exercise of these conversion rights (other than
a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Corporation with or into
another corporation (other than a merger with another corporation in which
the Corporation is the surviving Corporation and which does not result in
any reclassification or change -- other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination -- of Common Stock issuable upon
exercise of these conversion rights), or in the case of a sale or
conveyance in a single transaction or in a series of related transactions
with the same purchaser or affiliates thereof of all or substantially all
the assets of the Corporation as an entirety, or a statutory share
exchange in which all shares of Common Stock are exchanged for shares of
another corporation or entity, the holders of the Series D Preferred Stock
shall have, and the Corporation, or such successor entity or purchaser,
shall covenant in the constituent documents effecting any of the foregoing
transactions that the holders of the Series D Preferred Stock do have, the
right to obtain upon the exercise of these conversion rights, in lieu of
each share of Common Stock theretofore issuable upon exercise of these
conversion rights, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger, conveyance or sale of assets or share
exchange by a holder of one share of Common Stock issuable upon exercise
of these conversion rights as if they had been exercised immediately prior
to such reclassification,
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<PAGE> 12
change, consolidation or merger, conveyance or sale of assets or share
exchange. The constituent documents effecting any reclassification,
change, consolidation or merger, or share exchange shall provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided in this subparagraph (c). The provisions of this
subparagraph (c)(i) shall similarly apply to successive reclassifications,
changes, consolidations or mergers, conveyances or sales of assets or
share exchanges.
(ii) If the Corporation at any time while any of the Series D
Preferred Stock is outstanding shall subdivide or combine its Common
Stock, the Conversion Price shall be proportionately reduced, in case of
subdivision of shares, as at the effective date of such subdivision, or if
the Corporation shall take a record of holders of its Common Stock for the
purpose of so subdividing, as at such record date, whichever is earlier,
or shall be proportionately increased, in the case of combination of
shares, as at the effective date of such combination or, if the
Corporation shall take a record of holders of its Common Stock for the
purpose of so combining, as at such record date, whichever is earlier.
(iii) If the Corporation at any time while any of the Series D
Preferred Stock is outstanding shall pay to any holders of stock of the
Corporation a dividend payable in, or make any other distribution of,
Common Stock, the Conversion Price shall be adjusted, as of the date the
Corporation shall take a record of the holders of such stock for the
purpose of determining the holders entitled to receive such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying
the Conversion Price in effect immediately prior to such record date (or
if no such record is taken, then immediately prior to such payment or
other distribution) by a fraction (1) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to
such dividend or distribution, and (2) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after
such dividend or distribution (plus in the event that the Corporation paid
cash for fractional shares, the number of additional shares which would
have been outstanding had the Corporation issued fractional shares in
connection with said dividend, except to the extent such payment of cash
is treated as a dividend payable out of earnings or surplus legally
available for
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the payment of dividends under the laws of the State of Louisiana).
(iv) If the Corporation shall issue to all holders of its
Common Stock any warrant, option or other right to subscribe for or
purchase shares of Common Stock at a price per share less than the Market
Price of the Common Stock, the Conversion Price shall be adjusted, as of
the date the Corporation shall take a record of the holders of its Common
Stock for the purpose of receiving such issuance or distribution, to that
price determined by multiplying the Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the date of issuance of such warrants, options or rights
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Market Price per share,
and the denominator of which shall be the number of shares of Common Stock
outstanding on the date of issuance of such warrants, options or rights
plus the number of additional shares of Common Stock offered for
subscription or purchase.
(v) If the Corporation shall distribute to all holders of its
Common Stock evidences of indebtedness of the Company, shares of capital
stock of the Corporation (other than Common Stock) or assets or rights or
warrants to subscribe for or purchase any of its securities (excluding
those dividends, warrants, options and rights referred to in subparagraph
(iv) above and dividends and other distributions paid in cash out of the
profits or surplus of the Corporation legally available therefor under the
laws of the State of Louisiana) then in each case the Conversion Price
shall be adjusted, as of the date the Corporation shall take a record of
the holders of its Common Stock for the purpose of determining the holders
entitled to receive such issuance or distribution, to that price
determined by multiplying the Conversion Price by a fraction the numerator
of which shall be Market Price per share of the Common Stock less the fair
market value (as determined by the Board of Directors of the Corporation,
whose determination shall be conclusive) of the portion of the assets,
evidences of indebtedness for subscription rights so distributed in
respect of one share of Common Stock and the denominator of which is the
Market Price per share of Common Stock on the record date for such
distribution.
(vi) No adjustment of the Conversion Price shall be made in an
amount less than $.05 per share, but any such lesser adjustment shall be
carried forward and shall be
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made at the time together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to $.05 per
share or more.
(vii) The Market Price per share of Common Stock on any day
means the closing price for such shares as reported in The Wall Street
Journal's NYSE-Composite Transactions listing for such day (corrected for
obvious typographical errors), or if such shares are not reported in such
listing, then the closing price for such shares on the largest national
securities exchange (based on the aggregate dollar value of securities
listed) on which such shares are listed or traded, or if such shares are
not listed or traded on any national securities exchange, then the closing
price for such shares in the over-the-counter market, as reported on the
National Association of Securities Dealers Automated Quotations System,
or, if such price shall not be reported thereon, the average between the
closing bid and asked prices so reported, or, if such prices shall not be
reported, then the average closing bid and asked prices reported by the
National Quotation Bureau Incorporated, or, in all other cases, the value
established by the Board of Directors of the Corporation in good faith.
(d) Whenever the Conversion Price and the Conversion Rate are
required to be adjusted as provided herein, the Corporation shall forthwith
compute the adjusted Conversion Price and the adjusted Conversion Rate and
shall prepare a certificate setting forth such adjusted Conversion Price and
adjusted Conversion Rate showing in detail the facts upon which such adjustment
is based. A copy of such certificate shall forthwith be filed with the
transfer agent or agents for the Series D Preferred Stock (if any) and for the
Common Stock; and thereafter, until further adjusted, the adjusted Conversion
Price and the adjusted Conversion Rate shall be as set forth in such
certificate, provided that the computation of such adjusted Conversion Price
and such adjusted Conversion Rate shall be reviewed at least annually by the
independent public accountants regularly employed by the Corporation and said
accountants shall file a corrected certificate, if required, with such transfer
agent or agents. The Corporation shall mail or cause to be mailed to the
holders of Series D Preferred Stock at the time of each quarterly dividend
payment, a statement setting forth the adjustments, if any, made in the
applicable Conversion Price and Conversion Rate and not theretofore reported to
such holders, and the reasons for such adjustment.
(e) The Corporation will at all times reserve and keep available, out
of its authorized and unissued Common Stock
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solely for the purpose of issuance upon the conversion of the Series D
Preferred Stock as herein provided, free from preemptive and other subscription
rights, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding Series D Preferred Stock. The Corporation
shall ensure that all shares of Common Stock which shall be so issuable shall
upon issue be duly and validly issued and fully paid and nonassessable.
(f) If any shares of Common Stock required to be reserved for the
purposes of conversion of Series D Preferred Stock hereunder require
registration with or approval of any governmental authority under any federal
or state law, or listing upon any national securities exchange, before such
shares may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
(g) The issuance of certificates for shares of Common Stock upon the
conversion of Series D Preferred Stock shall be made without charge to the
holders thereof for any transfer or similar taxes that may be payable in
respect of the issue, delivery or acquisition of such certificates. Such
certificates shall be issued in the respective names of the holders of the
Series D Preferred Stock converted.
(8) Sinking Fund. The Series D Preferred Stock shall not be entitled
to any mandatory redemption or prepayment (except on liquidation, dissolution
or winding up of the affairs of the Corporation) or to the benefit of any
sinking fund.
(9) Definition. If the day upon which any payment is to be made or
any other action is to be taken or any event is scheduled to occur pursuant to
the terms of Articles of Amendment is not a business day, the payment shall be
made or the other action shall be taken on the next succeeding business day. A
"business day" is defined as a day in the City of Houston, County of Harris,
Texas, that is not a legal holiday or a day on which banking institutions are
authorized or obligated by law to close.
2. Existing Paragraph F of Article III is relettered as paragraph G.
APPEARERS further stated that all of the shares of the Corporation have
par value; that the Corporation is authorized to issue 50,000,000 shares, of
which 40,000,000 are common shares of the par value of $1.25 per share and
10,000,000 are preferred shares of the par value of $0.05 per share; and that
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the Board of Directors of the Corporation and the Special Committee thereof
each has the authority to amend the articles to fix the preferences,
limitations and relative rights of the preferred shares, and to establish, and
fix variations and relative rights and preferences as between series of
preferred shares, all as more fully set out in Article III of the Restated
Articles of Incorporation.
AND SAID APPEARERS having requested me, Notary, to note said amendment in
authentic form, I do by these presents receive said amendments in the form of
this public act to the end that said amendment may be promulgated and recorded
and thus be read into the Restated Articles of Incorporation of Southdown,
Inc., as hereinabove set forth.
THUS DONE AND PASSED, in my office at Houston, Harris County, State of
Texas, on the day, month and year first above written, in the presence of the
undersigned competent witnesses, who hereunto sign their names with the said
appearers and me, Notary, after a due reading of the whole.
SOUTHDOWN, INC.
By:/s/ EDGAR J. MARSTON III
Edgar J. Marston III
Executive Vice President
and General Counsel
By:/s/ WENDELL E. PHILLIPS, II
Wendell E. Phillips, II
Secretary
WITNESSES:
/s/ LINDA F. HARRELL
/s/ DORA SANTAMARIA
/s/ MICHELLE RAYMOND
NOTARY PUBLIC
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EXHIBIT 4.6
DESCRIPTION OF CAPITAL STOCK
The following descriptions do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the following documents:
(i) the Company's Restated Articles of Incorporation, as amended (the "Restated
Articles"); (ii) the Company's Bylaws, as amended; (iii) the Rights Agreement
dated as of March 4, 1991, between the Company and Chemical Shareholder Services
Group, Inc., as Rights Agent; and (iv) the Warrant Agreement dated as of October
31, 1991 between the Company and Chemical Shareholder Services Group, Inc., as
Warrant Agent.
The authorized capital stock of Southdown comprises 40,000,000 shares of
Common Stock, $1.25 par value, and 10,000,000 shares of Preferred Stock, $.05
par value (the "Preferred Stock").
COMMON STOCK
At December 31, 1993, 17,045,809 shares of Common Stock were issued and
outstanding and held of record by approximately 1,956 shareholders, and
approximately 7.6 million shares were reserved for future issuance upon exercise
of options granted under employee benefit plans or warrants or upon conversion
of convertible securities, excluding 2,606,475 shares reserved for issuance upon
conversion of the Company's Preferred Stock, $2.875 Cumulative Convertible
Series D (the "Series D Preferred Stock").
Subject to the preferences of each series of outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation or dissolution of the Company, holders of Common
Stock are entitled to share ratably (except as described below under the caption
"-- Series C Preferred Stock") in all assets remaining after payment of
liabilities and the liquidation preferences of each series of outstanding
Preferred Stock. Each share of Common Stock generally entitles the holder to one
vote on matters submitted to a vote of shareholders of the Company, including
the election of directors. The Board of Directors of the Company is divided into
three classes, as nearly equal in number as possible, having staggered
three-year terms. Holders of Common Stock have no preemptive rights and no
rights to convert their Common Stock into any other securities. By the
affirmative vote of the holders of 80% of the outstanding shares of all classes
of the Company's stock entitled to vote in the election of directors, the
Company's shareholders may remove any of the Company's directors from office. A
similar vote is required to amend certain provisions of the Restated Articles.
See "-- Change in Control Provisions." All of the outstanding shares of Common
Stock are fully paid and nonassessable.
Chemical Shareholder Services Group, Inc., a subsidiary of Chemical Banking
Corporation, serves as the registrar and transfer agent for the Common Stock and
the Series B Preferred Stock and Series D Preferred Stock described below.
WARRANTS TO PURCHASE COMMON STOCK
In October 1991, the Company issued and sold an aggregate of 1,250,000
Warrants to purchase Common Stock (the "Warrants") pursuant to the terms of a
Warrant Agreement dated as of October 31, 1991 (the "Warrant Agreement"),
between the Company and First City, Texas -- Houston, N.A., as Warrant Agent.
Chemical Shareholder Services Group, Inc. is now the Warrant Agent. Each Warrant
entitles the holder to purchase one share of Common Stock at a price of $16 per
share, subject to adjustment in certain circumstances, until 5:00 p.m. New York
City time on October 31, 1996. The number and kind of securities purchasable
upon exercise of the Warrants are subject to adjustment from time-to-time upon
the occurrence of certain reclassifications, mergers or consolidations, stock
splits, stock dividends, certain other distributions and events and certain
issuances or sales of Common Stock at prices less than market value (as defined
in the Warrant Agreement). In lieu of an adjustment to the number of shares of
Common Stock issuable pursuant to the exercise of the Warrants, the Company may
elect to issue additional Warrants.
<PAGE> 2
RIGHTS
On March 4, 1991, the Board of Directors of the Company declared a dividend
of one right to purchase preferred stock ("Right") for each outstanding share of
the Company's Common Stock, to shareholders of record at the close of business
on March 14, 1991. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Preferred Stock, Cumulative Junior Participating Series C, par value $.05 per
share (the "Series C Preferred Stock"), at a purchase price of $60 per Unit,
subject to adjustment (the "Purchase Price"). The description and terms of the
Rights are set forth in a Rights Agreement dated as of March 4, 1991 (the
"Rights Agreement") between the Company and First City, Texas-Houston, N.A., as
Rights Agent. Chemical Shareholder Services Group, Inc. now serves as Rights
Agent.
The Rights are attached to all certificates representing outstanding shares
of Common Stock, and no separate certificates for the Rights ("Rights
Certificates") have been distributed. The Rights will separate from the Common
Stock and a "Distribution Date" will occur upon the earlier of (i) ten days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the date of the announcement being the "Stock Acquisition Date"),
or (ii) ten business days (or such later date as may be determined by the
Company's Board of Directors before the Distribution Date occurs) following the
commencement of a tender offer or exchange offer that would result in a person's
becoming an Acquiring Person. Until the Distribution Date, (a) the Rights will
be evidenced by the Common Stock certificates (together with a copy of a Summary
of Rights or bearing the notation referred to below) and will be transferred
with and only with such Common Stock certificates, (b) new Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (c) the surrender for transfer of any certificate for Common Stock
outstanding (with or without a copy of the Summary of Rights) will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on March 14, 2001, unless earlier redeemed or exchanged
by the Company as described below. In the Rights Agreement, the Company has
generally agreed to use its best efforts to cause the securities of the Company
issuable pursuant to the exercise of Rights to be registered under the
Securities Act, as soon as practicable after the Rights become exercisable, and
to take such action as may be necessary to ensure compliance with applicable
state securities laws.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon exercise or conversion of certain securities will
be issued with Rights. Except as otherwise determined by the Board of Directors,
no other shares of Common Stock issued after the Distribution Date will be
issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person,
(except pursuant to a tender or exchange offer for all outstanding shares of
Common Stock at a price and on terms that a majority of the independent
directors of the Company determines to be fair to and otherwise in the best
interests of the Company and its shareholders (a "Permitted Offer")) each holder
of a Right will thereafter have the right to receive, upon exercise of such
Right, a number of shares of Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a Current Market Price (as
defined in the Rights Agreement) equal to two times the exercise price of the
Right. Notwithstanding the foregoing, following the occurrence of any Flip-In
Event, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person (or by
certain related parties) will be null and void in the circumstances set forth in
the Rights Agreement. However, Rights are not exercisable following the
occurrence of any Flip-In Event until such time as the Rights are no longer
redeemable by the Company as set forth below.
<PAGE> 3
For example, at an exercise price of $60 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase $120 worth of
Common Stock (or other consideration, as noted above), based upon its then
Current Market Price, for $60. Assuming that the Common Stock had a Current
Market Price of $15 per share at such time, the holder of each valid Right would
be entitled to purchase 8 shares of Common Stock for $60.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination transaction (other than a specified type of merger that follows a
Permitted Offer), or (ii) 50% or more of the Company's assets or earning power
is sold or transferred, each holder of a Right (except Rights that previously
have been voided as set forth above) shall thereafter have the right to receive,
upon exercise, a number of shares of common stock of the acquiring company (or
in certain cases its controlling person) having a Current Market Price equal to
two times the exercise price of the Right. Flip-In Events and Flip-Over Events
are collectively referred to as "Triggering Events."
The Purchase Price payable, and the number of Units or other securities or
property issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Series C Preferred Stock,
(ii) if holders of the Series C Preferred Stock are granted certain rights or
warrants to subscribe for Series C Preferred Stock or convertible securities at
less than the current market price of the Series C Preferred Stock, or (iii)
upon the distribution to holders of the Series C Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
No adjustment in the Purchase Price will be required until cumulative
adjustments amount to at least 1% of the Purchase Price. No fractional Units are
required to be issued and, in lieu thereof, an adjustment in cash may be made
based on the market price of the Series C Preferred Stock on the last trading
date prior to the date of exercise. Pursuant to the Rights Agreement, the
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Series C Preferred Stock will be issued.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right, payable, at the option of the Company, in cash, shares of Common Stock or
such other consideration as the Board of Directors may determine. After the
redemption period has expired, the Company's right of redemption may be
reinstated prior to the occurrence of any Triggering Event if (i) an Acquiring
Person reduces its beneficial ownership to 10% or less of the outstanding shares
of Common Stock in a transaction or series of transactions not involving the
Company and (ii) there are no other Acquiring Persons. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, the Company may exchange the Rights (other than Rights owned by an
Acquiring Person or an affiliate or an associate of an Acquiring Person, which
will have become void), in whole or in part, at an exchange ratio of one share
of Common Stock, and/or other equity securities deemed to have the same value as
one share of Common Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. Shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution
<PAGE> 4
Date. Thereafter, the provisions of the Rights Agreement may be amended by the
Board of Directors in order to cure any ambiguity, defect or inconsistency, to
make changes that do not materially adversely affect the interests of holders of
Rights (excluding the interests of any Acquiring Person), or to shorten or
lengthen any time period under the Rights Agreement; provided, however, that no
amendment to lengthen the time period governing redemption shall be made at such
time as the Rights are not redeemable.
The provisions of the Rights and the Rights Agreement may in some cases
discourage or make more difficult the acquisition of control of the Company by
means of a tender offer, open market purchase or similar means. These provisions
are intended to discourage, or may have the effect of discouraging, partial
tender offers, front-end loaded two-tier tender offers and certain other types
of coercive takeover tactics and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company first to negotiate with the
Company. The Company believes that these provisions, which are similar to those
of many other publicly held companies, provide benefits by enhancing the
Company's potential ability to negotiate with the proponent of any unfriendly or
unsolicited proposal to take over or restructure the Company that outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement in their terms.
PREFERRED STOCK
The Board of Directors is authorized to designate series of Preferred Stock
and fix the powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereon.
Series A Preferred Stock. Pursuant to the terms of the Restated Articles,
the Board of Directors has created a series of Preferred Stock consisting of
1,999,998 shares of Preferred Stock, $.70 Cumulative Convertible Series A (the
"Series A Preferred Stock"). The Series A Preferred Stock is senior to the
Series B Preferred Stock with respect to dividends and assets. As of December
31, 1993, 1,999,000 shares of Series A Preferred Stock were issued and
outstanding. All such shares are fully paid and nonassessable.
The Series A Preferred Stock (a) has a stated value and liquidation
preference of $10 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $.70 per year, payable quarterly, and entitles the
holders of a majority thereof to elect two directors if dividends are in arrears
for at least 540 days, (c) is initially convertible into one-half of a share of
Common Stock for each share of Series A Preferred Stock, subject to adjustment,
(d) is redeemable at the option of the Company at 120% of the stated value
thereof (declining to 100% of the stated value after April 30, 1997) plus
accrued and unpaid dividends, and (e) is entitled to one vote per share, voting
as a class with the Common Stock and any other capital stock of the Company
entitled to vote, on all matters submitted to shareholders. In addition, the
holders of Series A Preferred Stock have certain class voting rights, including
the right to approve certain mergers, consolidations and sales of assets;
however, if a holder of Series A Preferred Stock does not grant a proxy to the
Board of Directors to vote in favor of any such merger, consolidation or sale of
assets, the Company may redeem such holder's shares of Series A Preferred Stock
without the payment of any redemption premium. The Company has reserved 999,500
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock.
Series B Preferred Stock. Pursuant to the terms of the Restated Articles,
the Board of Directors has created a series of Preferred Stock consisting of
960,000 shares of Preferred Stock, $3.75 Convertible Exchangeable Series B (the
"Series B Preferred Stock"). The Series B Preferred Stock is junior to the
Series A Preferred Stock with respect to dividends and assets. As of December
31, 1993, 959,000 shares of Series B Preferred Stock were issued and
outstanding. All such shares are fully paid and nonassessable.
The Series B Preferred Stock (a) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $3.75 per year, payable semi-annually, and entitles the
holders of a majority thereof to elect two directors if dividends are in arrears
for at least 180 days, (c) is initially convertible into two and one-half shares
of Common Stock for each share of Series B Preferred Stock, subject to
adjustment, (d) is redeemable at the option of the Company at the stated value
thereof plus accrued and unpaid dividends, and (e) is entitled to one vote per
share, voting as a class with the Common Stock and any other capital stock of
the Company entitled to vote, on all matters submitted to shareholders. In
addition, the holders of the Series B Preferred Stock have certain class voting
rights. The Company has
<PAGE> 5
reserved 2,397,500 shares of Common Stock for issuance upon conversion of the
Series B Preferred Stock. In addition, the Series B Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company at any time
for the Company's 7 1/2% Convertible Subordinated Debentures Due 2013 (the
"Debentures") at a rate of $50 in principal amount of Debentures per share of
Series B Preferred Stock, provided that all dividends on the Series B Preferred
Stock have been paid through the date of such exchange. The Company's Restated
Revolving Credit Facility requires the Company to obtain the consent of the
lenders thereunder as a condition to the exchange of the Series B Preferred
Stock for the Debentures.
Series C Preferred Stock. In connection with the distribution of the Rights
on March 14, 1991, the Board of Directors of the Company authorized 400,000
shares of Series C Preferred Stock, none of which are outstanding. The Series C
Preferred Stock would be issued only upon the exercise of Rights and only if the
Rights were exercised prior to a Flip-In Event or a Flip-Over Event. The Rights
are not exercisable as of the date hereof. See "-- Rights." If issued, the
Series C Preferred Stock would be junior to the Series A Preferred Stock, the
Series B Preferred Stock and the Series D Preferred Stock with respect to
dividends and assets.
The Series C Preferred Stock has a liquidation preference of $100 per
share, plus accrued and unpaid dividends and distributions (the "Series C
Liquidation Preference"). Following the payment of the Series C Liquidation
Preference, no additional distribution shall be made to the holders of shares of
Series C Preferred Stock unless the holders of Common Stock have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series C Liquidation Preference by (ii) the Adjustment Number.
The Adjustment Number initially is 100, and is subject to adjustment in the
event the Company (i) declares any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivides the outstanding Common Stock or (iii) combines the
Common Stock into a smaller number of shares. Following the payment of the full
amount of the Series C Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series C Preferred Stock and Common Stock,
respectively, holders of Series C Preferred Stock and holders of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to one with respect to the
Series C Preferred Stock and Common Stock, on a per share basis, respectively.
If issued, the Series C Preferred Stock would carry a cumulative dividend
per share equal to the greater of (i) $2.00 or (ii) subject to certain
adjustments, the Adjustment Number times the aggregate per share amount of all
cash dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than
dividends or distributions payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding quarterly dividend
payment date for the Series C Preferred Stock. The Series C Preferred Stock is
redeemable, at the option of the Company, at any time at a redemption price
equal to the Adjustment Number times the current per share market price (as
defined) of the Common Stock, together with accrued and unpaid dividends. Each
share of Series C Preferred Stock entitles the holder thereof to the number of
votes equal to the Adjustment Number for each share held and, except as
otherwise provided by law, the Series C Preferred Stock votes together as a
single class with the Common Stock and any other capital stock of the Company
entitled to vote. The Series C Preferred Stock entitles the holders thereof
(together with the holders of all Preferred Stock (other than the Series A
Preferred Stock and the Series B Preferred Stock) upon which similar voting
rights have been conferred) to elect two directors if dividends are in arrears
for at least 540 days.
Series D Preferred Stock. Pursuant to the terms of the Restated Articles,
the Board of Directors has created of a series of Preferred Stock consisting of
1,725,000 shares of Preferred Stock, $2.875 Cumulative Convertible Series D. The
Series D Preferred Stock ranks junior to the Series A Preferred Stock, pari
passu with the Series B Preferred Stock, and is senior to any Series C Preferred
Stock that may be issued. The Company issued and sold 1,775,000 shares of Series
D Preferred Stock on January 27, 1994. All such shares are fully paid and
non-assessable.
The Series D Preferred Stock (a) has a stated value and liquidation
preference of $50.00 per share plus accrued and unpaid dividends, (b) carries a
cumulative annual dividend of $2.875 per share, payable quarterly, and entitles
the holders thereof, voting together as a single class with all other series or
classes of
<PAGE> 6
preferred stock which are pari passu with the Series D Preferred Stock as to
dividends and which specifically state that they shall vote with the Series D
Preferred Stock in such a case (which does not include the Series A Preferred
Stock, the Series B Preferred Stock or, if any is issued, the Series C Preferred
Stock), to elect two directors if dividends are in arrears for at least six
quarterly dividend periods, (c) is initially convertible into 1.511 shares of
Common Stock for each share of Series D Preferred Stock, subject to adjustment,
(d) may be converted at the option of the Company, in whole but not in part, at
any time on and after January 27, 1997 and until January 27, 2001, if for at
least 20 trading days within a period of 30 consecutive trading days, including
the last trading day of such 30 trading day period, the closing price of the
Common Stock equals or exceeds 130% of the conversion price, into 1.511 shares
of Common Stock, subject to adjustment, (e) is redeemable at the option of the
Company at 100% of the started value thereof plus accrued and unpaid dividends
on and after January 27, 2001, and (f) is entitled to one vote per share, voting
as a class with the Common Stock and any other capital stock of the Company
entitled to vote, on all matters submitted to shareholders. In addition, the
Series D Preferred Stock has certain class voting rights. The Company has
reserved 2,606,475 shares of Common Stock for issuance upon conversion of the
Series D Preferred Stock.
CHANGE IN CONTROL PROVISIONS
Charter Provisions. The Restated Articles require the affirmative vote or
consent of the holders of 80% of all classes of stock of the Company entitled to
vote in the election of directors to approve (a) any merger or consolidation of
the Company with or into any other corporation, (b) any sale or lease of all or
any substantial part of the assets of the Company or (c) any sale or lease to
the Company or any subsidiary thereof of assets with an aggregate fair market
value of $2 million or more in exchange for voting securities of the Company or
any subsidiary thereof (or securities convertible into or exchangeable for such
securities), if as of the record date for the determination of shareholders
entitled to vote or consent with respect to such merger, consolidation, sale or
lease, the other party to such transaction is the beneficial owner (as defined),
directly or indirectly, of 5% or more of the outstanding shares of stock of the
Company entitled to vote in the election of
<PAGE> 7
directors ("5% Beneficial Owner"). The foregoing provisions of the Restated
Articles are inapplicable to (a) any merger or similar transaction if the Board
of Directors of the Company has approved a memorandum of understanding with such
other corporation prior to the time such corporation became a 5% Beneficial
Owner or (b) transactions with a majority-owned subsidiary of the Company.
Statutory Provision. Although the constitutionality of the control share
provisions of the Louisiana Business Corporation Law ("LBCL") has not been
judicially determined, the Company believes that it is an "issuing public
corporation," subject to the control share provisions of the LBCL. Under the
control share provisions of the LBCL, the voting rights of the Company's shares
of voting stock are limited under certain circumstances. Subject to certain
exceptions, generally if "control shares" of the Company are acquired in a
"control share acquisition," the LBCL provides that such shares have the voting
rights they had before the control share acquisition only to the extent granted
by resolution of the shareholders of the Company. Such resolution must be
adopted by a majority of all votes entitled to be cast, excluding all
"interested shares."
"Interested shares" are defined as shares of the Company in respect of
which any of the following persons may exercise or direct the exercise of the
voting power of the Company in the election of directors: (a) an acquiring
person or member of a group with respect to a control share acquisition, (b) any
officer of the Company, or (c) any employee of the Company who is also a
director of the Company. "Control shares" are defined generally as shares that,
but for the control share provisions of the LBCL, would have voting power with
respect to shares of the Company that, when added to all other shares of the
Company owned by a person or in respect to which that person may exercise or
direct the exercise of voting power, would entitle that person, immediately
after acquisition of the shares, directly or indirectly, alone or as a part of a
group, to exercise or direct the exercise of the voting power of the Company in
the election of directors within any of the following ranges of voting power:
(a) one-fifth or more but less than one-third of all voting power, (b) one-third
or more but less than a majority of all voting power, or (c) a majority or more
of all voting power. Subject to certain exceptions, a "control share
acquisition" means the acquisition, directly or indirectly, by any person of
ownership of, or the power to direct the exercise of voting power with respect
to, issued and outstanding control shares.
Under certain circumstances (including, but not limited to, the giving of
an undertaking by the acquiring person to pay the Company's expenses of the
meeting and, under certain circumstances, the obtaining by such person of
commitments for the financing of any cash portion of the consideration to be
paid), an acquiring person may compel the calling of a special meeting of the
Company's shareholders for the purpose of considering the voting rights to be
accorded the shares acquired or to be acquired in the control share acquisition.
Unless the acquiring person agrees in writing to another date, the special
meeting of shareholders shall be held within fifty days after the date on which
definitive proxy materials (within the meaning of the Securities Exchange Act of
1934, as amended, and the regulations thereunder) related to the special meeting
on behalf of the acquiring person and the Board of Directors of the Company have
been filed with the Securities and Exchange Commission.
The Company's Bylaws provide that (i) if no acquiring person statement is
filed by the acquiring person or (ii) if full voting rights are not approved,
the Company may redeem control shares acquired in a control share acquisition
(a) in the case of (i), within 60 days after the last acquisition of control
shares by an acquiring person and (b) in the case of (ii), at any time during
the period ending two years after the shareholder vote with respect to the
voting rights of such control shares. Any such redemption shall be made at the
fair value of the control shares and pursuant to such procedures as may be
adopted by the Board of Directors of the Company. If control shares acquired in
a control share acquisition representing a majority or more of all voting power
are accorded full voting rights, then all shareholders of the Company will have
dissenters' rights to receive the fair cash value of their shares, such amount
not to be less than the highest price per share paid by the acquiring person in
the control share acquisition.
<PAGE> 1
Exhibit 10.28
ARTICLE I
PREAMBLE AND RECOGNITION
Section 1.1 Parties
This Agreement is made and entered into between SOUTHDOWN, INC. dba
SOUTHWESTERN PORTLAND CEMENT COMPANY, at its Victorville Facility, Victorville,
California, (hereinafter referred to as the "COMPANY") and the UNITED
PAPERWORKERS INTERNATIONAL UNION, in behalf of its Local 30049, (hereinafter
referred to as the "Union").
Section 1.2 Bargaining Unit
The Company hereby recognizes the Union as the sole and exclusive bargaining
representative of the following described unit, to wit:
All production and maintenance employees of the Company employed at
its Victorville Facility located in San Bernardino County, California,
as certified by the National Labor Relations Board in Case No. 31-RC
#6094, exclusive of all other employees including administrative
employees, professional employees, research employees, technical
employees, Industrial Relations Department employees, guards, plant
security employees, office and plant clerical employees, and all
supervisors as defined in the Act.
Section 1.3 Application
The articles hereinafter set out shall apply to all employees in the above
described unit, as shown on the Schedule of Classifications and Base Hourly
Wage Rates attached hereto as Appendix A.
Section 1.4 Entire Agreement
This instrument and the Exhibits attached hereto and made a part hereof shall
constitute the complete and entire agreement between the parties, canceling and
superseding any prior oral or written Agreements, commitments or practices with
any prior labor organization and concludes collective bargaining for its term.
This Agreement is subject to amendment, alteration, or addition only by
subsequent written agreement between and executed by, the Company and the
Union.
ARTICLE II
DURATION OF AGREEMENT
After ratification by the members of the Local Union 30049, this Agreement
shall become effective and remain in force and effect and be binding upon the
parties hereto from August 16, 1993, to and including August 16, 1998, and it
shall continue to be in
1
<PAGE> 2
full force and effect thereafter from year to year until either party on or
before, of any year, beginning May 16, 1998, gives written notice to the other
party of its desire or intention either to alter and modify or terminate the
same. If such notice is given, the parties hereto shall begin negotiations not
later than June 16 in such year.
ARTICLE III
MANAGEMENT PREROGATIVES
Section 3.1 Management Rights
Management prerogatives and the exercise thereof shall remain exclusively in
the Management and shall include without limitation all matters not covered by
this Agreement as well as the following, except to the extent that the
following are limited or modified by the terms and conditions of this
Agreement.
A. The right to hire, determine standards of fitness for work, to test
employees for the presence of drugs and alcohol, and to take
appropriate disciplinary or remedial action in the event of positive
test results, lay off, promote, demote, transfer, assign to shifts,
adjust the work force, maintain discipline and efficiency, and
discharge or otherwise discipline employees for just cause.
B. The right to manage the business, to distribute work with outside
contractors or subcontractors, to determine the type of work to be
performed, the job content, the location of work, the schedules of
production, the schedule of working hours, the methods and the
processes and means of production, and protection of company property
and operations, to halt work stoppages, and to take effective action
against slowdowns.
Section 3.2 Waiver
The listing of specific rights in this Agreement is not intended to be nor
shall be considered restrictive of or a waiver of any of the rights of
Management not listed and not specifically surrendered herein, whether or not
such rights have been exercised by the Company in the past.
Section 3.3 Operations
The Union recognizes the Company's exclusive right to determine partial or
permanent discontinuance or shutdown of operations. The Company's only
obligation when exercising this right is to bargain with the Union over the
effects of that decision.
Section 3.4 Non-Bargaining Unit Employees
Supervisory personnel will not routinely perform work on any
2
<PAGE> 3
hourly rated job in the bargaining unit except in the following types of
situations:
A. In emergencies.
B. In the instruction of employees.
C. In the relief of employees for short periods of time. (Not to exceed
two (2) hours)
D. In the performance of work when production difficulties are
encountered on the job; this is not meant to replace or displace
hourly employees.
E. Where such work is incident to the inspection of equipment or checking
of operating efficiency. (Not to replace or displace hourly
employees)
F. In experimental work which requires special techniques and knowledge.
G. While learning the operations. (Not to replace or displace hourly
employees)
H. In studying or testing equipment.
ARTICLE IV
EMPLOYEES' DUTIES AND RESPONSIBILITIES
Section 4.1 Responsibilities
Each employee is required to follow prescribed safety rules, precautions,
instructions, and all work and conduct rules. All employees will, to the best
of their ability, perform any duties to which they are assigned. Each employee
is responsible to an appropriate supervisor for proper performance of his work
assignment. Each employee will, to the best of his ability, use company time,
tools and equipment carefully and productively and will exercise reasonable
care to safeguard company tools, equipment and facilities. Each employee shall
perform the work which may be assigned to him by the Company and shall not
absent himself from his work without consent of the Company.
Section 4.2 Reporting for Work
Each employee is required to arrive at his work location (post of duty) in good
condition for work and in sufficient time that he will be prepared to assume
the responsibilities of his job at his scheduled starting time.
Section 4.3 Obligation to Notify
Any employee unable to report for work on account of sickness or
3
<PAGE> 4
other good reason shall notify his supervisor as soon as possible before his
regular time for beginning work.
A. He must inform the supervisor the reason for absence and the date of
return to work. The employee must notify his supervisor of his
intention to report back for work before the end of the last shift he
would have worked had he not been absent.
B. If an employee fails to give the above notice, the Company will not be
obligated to provide work nor minimum pay for him. Complying with
these provisions does not constitute an excused absence or an approved
leave.
Section 4.4 Relief
Where individual relief is required, each employee must continue to work until
his relief begins work or until he is excused by his supervisor. In the event
an employee is held over due to his relief having not reported to work, and
such employee does not desire to continue working, the Company will endeavor to
obtain relief expeditiously.
ARTICLE V
NO WORK STOPPAGES
The Union agrees there shall be no picketing or strikes by the Union, or by the
employees, of any kind or degree whatsoever, or walkout, suspension of work,
slowdowns, limiting of production, or any other interference or stoppage, total
or partial, of the Company's operations for any reason whatsoever. It is
further agreed that neither the Union nor the employees shall engage in the
above prohibited conduct in support of picketing, strikes or any labor dispute
actions engaged in by any other organization or person. In addition to any
other recourse or remedy available to the Company for violation of the terms of
this Article by the Union and/or any employee, the Company may discharge or
otherwise discipline any employee who authorizes, causes, engages in,
sanctions, recognizes, or assists in any violation of this Article. The
Company will not engage in any lockouts during the term of this Agreement.
ARTICLE VI
EQUAL EMPLOYMENT OPPORTUNITY
Section 6.1 Non-discrimination
Neither the Company nor the Union shall discriminate against any applicant for
employment or an employee because of membership or non-membership in any
church, society, fraternity, or on the basis of disability, race, creed, color,
national origin, sex or age except as permitted by state and federal statutes
or
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executive orders having the same effect as law. The parties hereto agree that
they are jointly committed to an affirmative action program to advance
qualified mentally or physically disabled individuals, disabled veterans, and
veterans of the Vietnam era, and the provisions of the Family and Medical Leave
Act.
Section 6.2 Gender
As used in this Agreement all pronoun references (i.e., "he", "his", "they",
"their") shall be deemed to include the feminine as well as the masculine.
ARTICLE VII
JURY AND WITNESS SERVICE
Section 7.1 Eligibility
An employee who has successfully completed his probationary period, if called
for jury duty or required by summons to attend court proceedings where he has
no direct interest in the case, will be given the necessary time off with pay
to fulfill such obligations, not to exceed 30 calendar days in any given
calendar year.
Section 7.2 Jury/Court Pay
An eligible employee will receive pay from the Company under this provision
only for hours missed from his assigned work schedule due to such service. The
amount of compensation excluding any transportation and subsistence allowance,
due the employee from any governmental agency or from any private source for
serving on jury duty or as a court witness will be deducted from any such pay
he would otherwise have received from the Company for the same hours. Pay for
time not worked but compensated for under this provision shall be computed at
the base hourly wage rate of the employee's permanent job classification and
shall be based on and not exceed eight straight-time hours per day and 40
straight-time hours per week. An employee regularly scheduled to work second
or third shift on the same calendar day as jury service shall be excused from
work for that scheduled day. The effected employee must give his supervisor 72
hours notice, if possible, to assure adequate coverage for work duties and
responsibilities.
Section 7.3 Requirements
To receive pay from the Company under this provision, the employee must provide
the Company with a statement signed by an official of the court certifying as
to the employee's service as a juror or court witness or appearance in court
for such purposes, the date or dates of attendance and the compensation paid
him inclusive of any transportation and subsistence
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allowance.
ARTICLE VIII
DEATH IN THE IMMEDIATE FAMILY
Section 8.1 Allowance
An employee who has successfully completed his probationary period will be
allowed time off in accordance with these provisions to attend the funeral and
take care of arrangements directly related to the death of certain of his
relatives as specified below. Pay for time not worked but compensated for
under this provision shall be computed at the base hourly wage rate of the
employee's permanent job classification, and shall be based on and not exceed
eight straight-time hours per day. The employee shall be granted up to a three
(3) day leave of absence (up to four (4) consecutive days off if the employee
is required to travel beyond a radius of five hundred (500) miles), upon
request, and will be paid for up to a maximum of three (3) scheduled shifts (or
four (4) scheduled shifts) (or such fewer shifts as the employee may be absent)
which fall within a three (3) consecutive (or four (4) consecutive) calendar
day period concurrent with the funeral. Failure to begin the bereavement time
as described above without approval will forfeit the employee's right to any
compensation and time off. Employees on vacation during bereavement will be
excluded from any additional compensation or time off as prescribed above.
Section 8.2 Eligibility
The employee will be allowed time off with pay in the event of the death of his
spouse or persons in the following relationships either with the employee or
with the employee's spouse: children, mother, father, brother, sister,
grandparents, mother-in-law, father-in-law, grandchildren, step-father,
step-mother and step-children. To be eligible for compensation under this
provision, the employee must attend the funeral of the deceased relative and
must furnish proof of death and kinship.
Section 8.3 Exclusion
The above clause shall not apply to an employee who is laid off or on
disability absence, except that when an employee is notified to return to work
effective on or before the date of the funeral, he shall be granted full
funeral leave with pay.
ARTICLE IX
VACATIONS
Section 9.1 Vacation Allowance
After conclusion of one (1) year's continuous service employees shall be
entitled to two (2) weeks vacation. After conclusion of three (3) years
continuous service employees shall be entitled to
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three (3) weeks vacation annually. After the conclusion of ten (10) years
continuous service employees shall be entitled to four (4) weeks vacation
annually. After the conclusion of twenty (20) years continuous service
employees shall be entitled to five (5) weeks vacation annually.
Employees who have earned a sixth (6th) or seventh (7th) week vacation as of
October 1, 1988 shall be grandfathered, and will not earn any additional
credit. All other employees will accrue vacation up to a five (5) week
vacation entitlement maximum, as described above.
Section 9.2 Vacation Pay
9.2 Vacation pay shall be computed by multiplying the number of hours in the
regularly scheduled workweek by the straight-time hourly rate of pay. Vacation
pay will be computed at the rate for the permanently assigned classification on
which an employee is working at the time he takes his vacation; however, if the
employee has held a single higher rated classification for more than three (3)
months during the year preceding his vacation, he will receive vacation pay
computed at the higher rate.
Section 9.3 Vacation Accrual
Employees shall be eligible for their full appropriate vacation from January 1
through December 31 of a calendar year if they have reached their vacation
anniversary date and have worked 1200 hours or more during their anniversary
year. Employees who have reached their anniversary date but have worked less
than 1200 hours during their anniversary year shall have their vacation
computed on the basis of 1/12th for each 100 hours worked. An employee shall
be considered as having worked for the purposes of vacation eligibility, on the
basis of an eight (8) hour day and forty (40) hour week during absence from
work because of illness or injury for a period not to exceed 200 hours.
Employees who are on layoff at the time they reach their vacation anniversary
date shall be paid the pro rata vacation pay to which they become entitled
since their last anniversary date on the same basis as outlined above.
Section 9.4 Unused Vacation at Termination
An employee who qualifies for a vacation in Section 9.1 above and who leaves
the employ of the Company for any reason shall receive vacation pay for the
unused portion of his vacation balance, and applicable pro rata accrual.
Section 9.5 Pro Rata Vacation Allowance
Should an employee die after having become entitled to a vacation, but before
taking said vacation pay he would have received will be paid to his surviving
spouse or estate. In
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addition, the surviving spouse or estate will be paid the pro rata vacation pay
the employee would have received had he been retired because of disability on
the date of his death. The pro rata pay is to be determined on the same basis
as outlined in Section 9.3 above.
Section 9.6 Vacation Scheduling
Vacations may be taken from January 1 through December 31 of a calendar year
starting on any work day of any workweek provided ample notice is given the
Company and provided previous arrangements with the Company have been made.
Where requested vacation periods conflict, preference shall be given to the
employee with the greatest seniority, providing such requests are made at least
thirty (30) days prior to the vacation date desired, provided no changes are
made after February 1st when the schedule is set up. Vacation shall include
(without pay) regular days off as well as those paid days of the vacation
period. Employees failing to make and/or have approved application for vacation
periods in accordance with this Section 9.6 will be assigned periods for
vacation. Employees entitled to vacations shall be permitted to take such
vacations in separate periods of not less than one (1) week each. Seniority
preference, however can be exercised in only one such vacation period.
Section 9.7 Single Day Vacations
A. One (1) week of vacation can be used one day at a time provided the
request is made prior to the schedule being posted for the following
week and the request is granted by the Plant Manager, Department Head
or immediate Supervisor. The Plant Manager or his designee may waive
the time requirement.
B. Employees may use the above said vacation to cover a day of sickness
upon informing his or her supervisor or designee as soon as possible,
prior to the start of his or her scheduled shift.
Section 9.8 Military Duty
In the event an employee enlists or is drafted into the military service or war
relief services due to a national emergency or war, such employee shall be
credited upon return with the time spent in such term of enlistment or draft
toward the increased vacation benefits as set forth in Section 9.1 of this
article.
ARTICLE X
HOLIDAYS
Section 10.1 Recognized Holidays
The following days (excluding probationary employees) shall be
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considered holidays under this Agreement: New Year's Eve Day, New Year's Day,
Memorial Day, Independence Day, Labor Day, Veteran's Day, Thanksgiving Day, Day
after Thanksgiving, Christmas Eve Day and Christmas Day.
Section 10.2 Holiday Worked
Regular scheduled work performed on those holidays shall be paid for at one and
one half (1-1/2) times the applicable straight time shift rate. Such rate
shall be in addition to holiday pay.
Section 10.3 Day of Observance
All holidays specified in this Agreement shall be observed as the Federal
Government observes them.
Section 10.4 Holiday Falling on Day Off
If the holiday falls on an employee's regularly scheduled day off and he is not
required to work, he will receive for such holiday eight (8) hours' pay at the
applicable straight-time rate.
Section 10.5 Holiday Falling during Vacation
If a holiday occurs during an employee's vacation he shall receive (in addition
to his vacation pay) eight (8) hours' pay at the applicable straight-time rate.
The employee may receive an extra day off in conjunction with the vacation,
with prior approval of his supervisor, and it does not create overtime.
Section 10.6 Eligibility
Employees who, after completing their probationary period, do not work on the
holidays specified herein shall receive, as holiday pay, eight (8) hours' pay
at their regular straight-time rate provided they meet all of the following
conditions:
A. The employee shall have worked his last scheduled working day prior to
and his next scheduled working day after such holiday unless excused
therefrom by the Plant Manager on account of sickness, accident, death
in the family, or other excused absence.
B. In no event shall a holiday be paid for unless an employee has also
worked during the thirty (30) day period immediately preceding or
immediately following the holiday.
C. In any event, the employee must work at least one (1) day in the month
in which the holiday is granted.
Section 10.7 Unscheduled Work on Holiday
Employees not scheduled to work the holiday (in accordance with the holiday
scheduling requirements of this Agreement) and who
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subsequently perform work on the holiday will be considered as being on call
out at double time for all hours worked in addition to their holiday pay.
Section 10.8 Failure to Work Scheduled Holiday
Employees scheduled or notified to work on a holiday, but failing to report for
and perform such work (unless excused by the Plant Manager or his designee)
shall not be entitled to any holiday pay.
Section 10.9 Work in Higher Classification
If an employee is temporarily assigned and works a minimum of eight (8) hours
on a higher rated job on both his workday prior to and his workday after a
holiday he shall receive holiday pay at the higher rate.
Section 10.10 Cancellation of Scheduled Work
If an employee is scheduled to work on a holiday, but then is instructed by the
Company not to work without 24 hours notice, he shall receive for that holiday
eight (8) hours pay at two times his regular straight time hourly rate.
Section 10.11 Holiday Overtime Rate
Any employee scheduled or unscheduled on a holiday who performs work for more
than eight (8) hours shall be paid two (2) times their applicable rate for all
hours over eight (8) hours.
ARTICLE XI
SAFETY AND HEALTH
Section 11.1 Mutual Duty to Comply
The Company, the Union, and the employees will comply with applicable State and
Federal laws concerning the maintenance of proper safety, health and sanitary
conditions, and will cooperate to reduce hazards to health and to maintain the
best possible and safest work environment.
Section 11.2 Employee Responsibility
Each employee is required to comply with all safety rules, with the Company's
safety and fire regulations, to use safety devices and equipment furnished by
the Company, and to report to his supervisor any unsafe condition or practice
which may come to his attention. All injuries must immediately be reported to
the employee's supervisor.
Section 11.3 Physical Examinations
The welfare and safety of an employee (and, in many cases, the
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welfare and safety of fellow employees and members of the public whom they
serve or with whom they may come in contact directly or indirectly), depends
upon the employee being physically and mentally fit for the work in which he is
engaged and free of infectious and contagious diseases. The Company may
require an employee to submit to a physical or psychiatric examination whenever
in its judgment it deems such examination to be advisable in the protection of
the health and physical well-being of the employee or of fellow employees or
members of the public. Such examinations shall be made by qualified doctors
selected and paid by the Company. If the employee does not agree with the
findings or recommendations of such doctor, he may, within ten (10) days after
being notified of such findings or recommendations, be examined at his own
expense by a doctor of his own choice. If the two doctors fail to agree, a
third examination may be had by a doctor mutually agreed upon by the employee's
doctor and the doctor selected by the Company and the majority opinion of these
doctors will govern, and is not subject to the grievance procedure. The fees
and expenses of the third doctor will be shared equally by the Employee and the
Company. After full consideration of the findings and recommendations of the
doctors and other relevant factors, the Company will make such changes (if any)
in his job status that are appropriate and necessary under the circumstances.
Section 11.4 Return to Work After Illness or Injury
An employee who has been off work and under the care of a physician for more
than five (5) days will be required to obtain a written release from the
treating physician stating that he is capable of returning to work. The
physician's release shall include the following information:
A. Nature of illness or injury
B. Brief history of illness (if relevant)
C. Period of disability
D. Statement of recovery releasing the employee to return to his normal
duties without limitations; or a conditional release stating
limitations in detail and giving the date that he may resume his
normal duties without restrictions.
The treating physician's release will be submitted to the Human Resources
Department, during normal Office hours. The employee will not be allowed to
return to work until the physician's release has been reviewed by the
Management of the Company. If Management has a question on the release,
Management will contact the treating physician within twenty-four (24) hours,
of receipt of the release, for clarification. If a question still remains the
Company may require an additional examination by a physician of the Company's
choice before approving the employee's return to work. Such additional physical
examination required and
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prescribed by the Company will be scheduled within twenty-four hours and will
be paid for by the Company. If the employee does not agree with the Company's
selected Physician's determination, he may, within ten (10) days after being
notified, request an examination by a doctor to be mutually agreed upon by the
employee's doctor and a doctor selected by the Company. The majority opinion
of these doctors will govern, and is not subject to the grievance procedure.
The fees and expenses of the third doctor will be shared equally by the
Employee and the Company.
Section 11.5 Return to Work After Layoff
An employee who has been on layoff for more than thirty (30) days, will be
required to pass a physical examination prescribed by the Management of the
Company before returning to work. Such physical examination if required will
be paid for by the Company. Section 11.6 Accommodation
The Company and Union agree to cooperate in attempting to reasonably
accommodate employees who, based on competent medical opinion, can no longer
perform the duties of the regular job. The employee may exercise his/her plant
seniority to move to any position within the bargaining unit that he/she would
be capable of performing within a (30 day) training period. The Company's
decision based on competent medical opinion regarding the employee's
incapacitation will be final and binding. Employees displaced by the foregoing
procedure will be allowed to exercise his/her plant seniority to move to any
position within the bargaining unit that he/she would be capable of performing
within a (30 day) training period.
Section 11.7 Incapacitated Employee
Incapacitated employees who have secured a job in accordance with Section 11.6
above cannot be displaced by another employee other than by an employee who is
also incapacitated and has more seniority or if a more senior employee would be
placed in a lay off status.
Section 11.8 Drug Testing
The Company and the Union agree that bargaining unit employees may be tested
for substance abuse pursuant to the Southwestern Portland Cement Company's
Substance Abuse Control Program, which is incorporated by reference into this
Agreement.
Section 11.9 Safety Committee
A Joint Safety and Health Committee shall be established consisting of at least
four (4) members. At least one half (1/2) of the committee shall be hourly
employees, who are Miners Representatives appointed by the Union. A designated
alternate shall be appointed for each committee member. In the event that
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a member is absent from a meeting of the Committee, his alternate may attend
and when in attendance shall exercise the duties of the member. The Plant
Manager or his designee will be the fifth (5th) member and act as Chairman of
the Committee.
A. The Joint Committee shall meet as often as necessary for the purpose
of jointly considering inspecting, investigating accidents, reviewing
health and safety conditions, making constructive recommendations with
respect thereto; including, but not limited to the implementation of
corrective measures to eliminate unhealthy and unsafe conditions and
practices, and to improve existing health and safety conditions and
practices. All matters considered and handled by the Committee shall
be reduced to writing, and joint minutes of all meetings of the
Committee shall be made and maintained. One hourly employee from the
Committee will accompany a Federal or State investigator on a
walk-around inspection or investigation and will attend any pre or
post inspection conference.
B. All time spent in connection with the work of the Committee
representatives, including all time spent in pre or post inspection
conferences and walk-around time spent in relation to Federal and
State inspection and investigations as provided for above, shall be
compensated at the employee's regular straight-time hourly wage rate.
Any time spent during the hours the employee is scheduled to work
shall count toward the calculation of any penalty or premium pay
section of this Agreement including, but not limited to daily or
weekly overtime. Any time spent outside the hours the employee is
scheduled to work shall not count toward the calculation of any
penalty or premium pay section of this Agreement. No time spent
outside of the hours the employee is scheduled to work shall be
compensated at a rate greater than one (1) times the employee's
straight-time hourly wage rate.
C. Any employee who believes his job presents a hazard to his safety or
health may request an immediate review of his job by one (1) Company
and one (1) hourly representative of the Joint Safety & Health
Committee.
D. No employee shall be disciplined or discharged for refusing to work on
a job or in any area if his refusal is based on a bona fide claim that
said job or area is not safe or might unduly endanger his or her
health or safety.
Section 11.10 Safety Glasses
The Company will furnish prescription ground safety glasses to bargaining unit
employees, including the cost of the prescription at an eye care provider
acceptable to the Company. Glasses will not be replaced more frequently than
one (1) pair per year,
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unless damaged or broken during the performance of duties.
ARTICLE XII
GRIEVANCE COMMITTEE
Section 12.1 Grievance Committee
For the purpose of handling grievances, the Union shall appoint a Grievance
Committee of four employees, one of whom shall be the designated Chairman.
12.2 Representatives of the Company will meet with the Grievance Committee
from time to time to discuss questions arising from the Agreement. The
Chairman will submit an agenda to the Human Resources Manager, at least five
calendar days in advance, any subjects to be discussed at such meetings.
12.3 The Union shall notify the Human Resources Manager or designee, in
writing, of the names of the members of the Grievance Committee. The Company
shall not recognize any member of such committee without such written
notification from the Union. A maximum of four Committee members shall attend
a Company-Union meeting, and such four Committee members shall be compensated
for time lost as a result of attending such Company- Union meeting during their
regular scheduled working hours. No member of the Grievance Committee, or any
other employee, shall be compensated for time lost as a result of attending
said meetings for the purpose of collective bargaining.
ARTICLE XIII
GRIEVANCE PROCEDURE
Section 13.1 Definition
Should a disagreement arise as to the meaning or application of the provisions
of this Agreement, an earnest effort shall be made by both parties to settle
such difference promptly in the manner hereinafter outlined.
Section 13.2 Grievance Procedure
In the event of any dispute between the Union or any of the employees subject
to this Agreement and the Company with regard to the meaning or application of
this Agreement, the procedure, unless otherwise specifically provided herein,
shall be as follows:
A. Step 1. Any aggrieved employee, with or without Union representation,
must first consult his foreman before making his complaint.
B. Step 2. All complaints or grievances shall be in writing, stating in
general terms the nature of the complaint or grievance and the
violated Article(s) or Section(s) of this
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Agreement. All such complaints, or grievances, shall be presented to
the Company within ten (10) days from the date of the alleged
grievance. The Company's representative and the Grievance Committee
shall meet and discuss the matter.
C. Step 3. In the event no agreement is reached, the Union may appeal to
the higher officials of the Company within ten (10) days and a
conference shall be held within ten (10) days of such appeal. An
Official of the Company will render a decision within ten (10) days
after said meeting.
A grievance arising out of the terms of this Agreement, which has been properly
processed through the Grievance Procedure within the time limits specified and
not settled, may be submitted to arbitration in accordance with the provisions
of Section 13.3 Arbitration.
Section 13.3. Arbitration
A. Any grievance not settled in Step 3 above may be referred to
arbitration. Notice to refer a grievance to arbitration shall be
given in writing within ten (10) days after being notified of the
decision rendered in Step 3 or the matter will be considered closed.
Only one (1) grievance may be submitted to or under review by any one
(1) Arbitrator at any one (1) time unless by prior mutual written
consent of the parties.
B. In the event the parties are unable to agree upon an Arbitrator within
seven (7) days after arbitration is invoked, then they shall jointly
petition the Federal Mediation and Conciliation Service, which shall
submit a panel of seven (7) qualified arbitrators, and the parties
shall select a single arbitrator from such panel. The arbitrator
shall be appointed by mutual consent of the parties hereto. If the
arbitrators included in this panel are unacceptable to either party, a
second panel shall be requested from the Federal Mediation and
Conciliation Service and a single arbitrator selected from this panel.
The Union shall strike the first name.
C. Any grievance referred to arbitration shall be heard as soon as
possible and a decision rendered within thirty (30) days of the
hearing or the date of postmark of the post hearing briefs. The
Arbitrator shall have no power to add to or subtract from or change,
modify or amend any of the provisions of this Agreement. The decision
rendered by the Arbitrator will be final and binding upon the Union,
the Company, the grievant and all employees covered by this Agreement.
The Arbitrator selected pursuant to this Article shall interpret and
apply the terms of this Agreement.
D. Each party hereto shall pay the expense incurred in the presentation
of its own case, and the expenses incidental to
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the services of the Arbitrator shall be shared equally by the Company
and the Union.
E. Any grievance growing out of a discharge or suspension must be
submitted in writing by the aggrieved employee directly to the Union
and from the Union to the Director of Industrial Relations or Plant
Manager within forty-eight (48) hours of the discharge or suspension
or it will not be recognized and the action taken shall be final.
ARTICLE XIV
HOURS AND SCHEDULES
Section 14.1 Work Day
A day's work shall consist of not more than eight (8) hours within nine (9)
consecutive hours; or ten (10) hours within eleven (11) consecutive hours, if
scheduled for a four day, ten (10) hour per day schedule; all hours beyond the
foregoing shall be considered as overtime and shall be paid for as provided in
this Agreement. Work day, for the purposes of this Agreement, shall be
designated as the twenty-four (24) hour period beginning at the starting time
of an employee's regular scheduled shift.
Any weekly schedule of four (4) days, ten (10) hours per day for a work Unit
will be established by mutual agreement, and reduced to writing, between the
Company and Union.
Section 14.2 Work Week
A work week shall consist of not more than forty (40) hours and may be arranged
so as to permit an employee's days off to run consecutively, except in
instances where the Company determines that it is impractical for consecutive
days off. Work week, for the purpose of this Agreement, shall be considered as
commencing at 7:00 AM Sunday of each week.
Section 14.3 No Layoff to Equalize Overtime
An employee who works in excess of his regular scheduled working time shall not
be laid off to equalize his overtime.
Section 14.4 Continuous Operation
It is further agreed that the Company's right to a seven (7) day per week
continuous operation is in no way affected.
Section 14.5 No Guarantee of Hours
The provisions of this Agreement shall not limit the Company in revising,
eliminating or establishing work shifts and work schedules, and shall not be
construed or interpreted as a guarantee of any specific number of hours in a
workday or as a
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guarantee of any specific number of hours or working days in a workweek.
Section 14.6 Work Schedule
Work scheduled for each work week will be posted on Thursday of the previous
week prior to the end of the first shift.
Section 14.7 Report Pay
Unless a regular employee shall be specifically instructed not to report for
work at least eight (8) hours before starting time of his regular assigned
shift, he shall be considered as having been ordered to report and shall be
given a minimum of four (4) hours work, excepting when causes beyond the
control of the Company make it impossible to give the required notice, in which
case no minimum hours of work shall be given.
Section 14.8 Notice
Such notice referred to in Section 14.7 shall be deemed to have been given when
a reasonable effort has been made by the Company to give such notices orally or
in writing to such employees.
Section 14.9 Shift Defined
All regularly scheduled work beginning between 6:00 AM and 9:00 AM, inclusive,
shall be considered day shift work.
All regularly scheduled work beginning between 2:00 PM and 5:00 PM, inclusive,
shall be considered middle shift work.
All regularly scheduled work beginning between 10:00 PM and 1:00 AM, inclusive,
shall be considered night shift work.
Section 14.10 Shift Differential
Each employee regularly scheduled to work on the middle shift shall be paid a
premium of 50 cents and night shift shall be paid a premium of 60 cents for all
hours worked by him on those shifts. All consecutive hours (exclusive of meal
periods) worked by an employee who begins work at a time specified in the
preceding Section 14.9 shall be deemed to be worked by him on the shift on
which he begins work.
Section 14.11 Day Shift Workers' Shift
The above premium rates do not apply to day shift workers even though they may
work over into a premium shift. However, if the day worker is scheduled or
called out to take the place of a regular scheduled shift worker or an
additional shift is created, then the premium rate applies.
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Section 14.12 Limitations
Shift differentials will apply only to hours of actual work. Shift
differential will not be paid for vacation pay, holidays not worked, or for any
other hours paid for but not actually worked.
Section 14.13 Working through Designated Lunch
An employee who has mutually agreed with his supervisor to work through a
designated lunch period or, whose lunch is interrupted by the requirement to
perform work, will receive one half (1/2) hours pay at the overtime rate and be
allowed sufficient time to eat, as conditions permit.
Section 14.14 Meal Ticket
An employee who works more than ten (10) continuous hours, or more than four
(4) continuous hours on a call out, will be provided a meal allowance of six
dollars $6.00 which will be affixed to the employee's time card and paid
accordingly.
Section 14.15 Over 16 Hours Work within 24 Hours
In the event an employee chooses to work more than sixteen (16) hours in a
twenty-four (24) hour period, he shall be allowed to report late for his next
scheduled shift by the number of hours his longest consecutive off duty period
falls below eight (8) hours and will be allowed to work a complete eight (8)
hour shift. The employee may elect to work a make-up shift on Saturday, at
straight time, if he chooses to take the day off instead of reporting late.
ARTICLE XV
COMPENSATION
Section 15.1 Classifications
Classifications and base hourly wage rates shall be those shown upon the
attached schedule marked Exhibit "A" and made a part of this Agreement. The
classifications specified in Exhibit "A" are for the purpose of pay and not for
restriction of work assignments. The Company will utilize the employees as
necessary to fulfill the work required.
Section 15.2 Pyramiding/Duplicating Prohibited
There will be no pyramiding or duplicating of pay for hours worked, except the
addition of shift differential to the applicable base hourly wage rate. Other
than shift differential, only one type of pay, whether regular, premium, or
penalty pay, shall be paid for any given hours worked. When more than one type
of pay, whether regular, premium, or penalty pay, applies to
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the same hour of work, the higher rate shall be paid.
Section 15.3 Overtime Defined
Employees shall be paid time and one-half for work in excess of eight (8) hours
per work day or in excess of forty (40) hours per work week. However, where an
employees' work week is scheduled to consist four (4) ten (10) hour days, the
employee will only receive one and one-half (1-1/2) times the regular rate of
pay for time worked in excess of ten (10) hours during a scheduled ten (10)
hour day or in excess of forty (40) hours in the workweek. In the event an
employee works more than twelve (12) hours in a work day he shall be paid for
all hours worked in excess of such twelve (12) hours at double the straight
time hourly rate.
The following exceptions to the Agreement will apply to employees scheduled by
the Company to work a four (4) day, ten (10) hour work week.
A. Such employee whose regular scheduled work day falls on one of the
recognized Holidays who is scheduled off work because of the Holiday
will receive ten (10) hours holiday pay. If the holiday falls on one
of his regular scheduled off days the employee will receive eight (8)
hours holiday pay.
B. Such employee who is on jury duty or funeral leave in accordance with
those articles of the Agreement will receive up to the (10) hours pay
rather than eight (8) hours as indicated in the Articles for those
days away from his regular scheduled shift.
Section 15.4 Overtime Rate
Overtime work performed by an employee shall be paid for at one and one-half
(1-1/2) times the established rate for his then scheduled shift except as
otherwise provided in this Agreement.
Section 15.5 Call In
An employee reporting to work in response to being called to work outside his
regularly scheduled hours, after he has left the job and the Company premises,
will receive pay at the rate of one and one-half (1-1/2) times the applicable
base hourly wage rate for all hours worked on the call in, or an amount of pay
equal to four hours at one and one half (1-1/2) times the applicable base
hourly wage rate, whichever is greater. The call in provision shall not apply,
however, if the employee reports unfit for work, leaves work at his own
request, or leaves work without permission from a supervisor. In the event
such called out employee is called for work for a period immediately preceding
his regular shift, he shall not be entitled to the four (4) hours pay at the
one and one half (1-1/2) times rate. If an employee is notified
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during his working hours of a requirement for him to work hours outside his
regular schedule, such hours will not be considered call in regardless of
whether or not such hours are consecutive in time with his regularly scheduled
hours. It is understood that if any employee is called in to work, they may be
required to perform any duties in connection with breakdowns or emergency
situations in addition to the duties for which they were called in.
Section 15.6 Report Pay
An employee reporting to work at the start of his regularly scheduled shift,
without previous notice not to report for work will be provided four hours'
work or four hours' pay at the straight-time base hourly wage rate of his
permanent classification. The report pay provisions shall not apply in the
following instances:
A. If, when reporting to work, the employee is unfit for work;
B. If the employee leaves work at his own request;
C. If the employee leaves work without the permission of his supervisor;
D. If no work is available for the employee due to major breakdown, labor
disturbances or other circumstances beyond the Company's control;
E. If the employee returns to work following an absence without giving
the Human Resources Department notice of his intention to return to
work at least 12 hours prior to the start of his next regularly
scheduled shift;
F. If the Company has made a reasonable effort to notify the employee not
to report;
G. If the employee does not have a current telephone number or current
home address on file with the Human Resources Department.
Section 15.7 Overtime Eligibility
If an employee is not in a pay status on a regularly scheduled workday, that
day shall not be considered as actually a day worked for overtime purposes.
Section 15.8 Overtime Allocation
The Company agrees that, over each calendar year, it will make a reasonable
attempt to allocate overtime equally among employees within the same
classification within which the overtime occurs. An employee may request
relief from scheduled overtime by informing his supervisor of his request not
less than twenty-four
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(24) hours prior to the start of the overtime assignment. The granting of
relief is contingent on the supervisor being able to secure a satisfactory
substitute for such overtime work. The employee will be charged on the
overtime list for all hours worked by the substitute.
Section 15.9 Overtime Notification
Whenever the Company has advance knowledge that overtime work may be required,
every effort will be made to notify employees as soon as possible that they may
be requested to work.
Section 15.10 Excuse from Working Overtime
If an employee is asked and provides a reasonable excuse for not working
overtime he shall be charged on the overtime chart for the amount of hours
worked on that job. The Company shall use whatever means it finds most
expedient or economical to complete the job.
Section 15.11 Sunday Premium
Each employee who works Sunday shall be paid at one-half (1/2) time premium in
addition to any other compensation said employee is entitled to for hours
worked. Sunday as used in this Section shall be deemed to mean the twenty-four
(24) hour period from 7:00 AM Sunday to 7:00 AM Monday.
Section 15.12 Upgrade
An employee who is temporarily assigned by his supervisor to perform work of a
higher paid job classification will be paid the rate of such higher job
classification for time worked, beginning with the second full hour worked in
such job classification on that workday. An employee who performs the work of
a higher paid job classification for less than two (2) hours on a workday will
not be eligible to receive the rate of such higher job classification for the
hours worked that workday. An employee temporarily assigned by his supervisor
to perform work in an equal or lower paid classification will be paid the base
hourly wage rate of his permanent classification.
ARTICLE XVI
MILITARY RESERVE SUMMER CAMP
Active employees with one (1) year seniority and who are in the Reserve of any
branch of the military service, including the National Guard, who are required
to attend a summer encampment as part of their reserve obligation shall receive
from the Company, the difference between the amount of pay received for such
summer encampment and his regular straight-time hourly rate of pay for up to
two (2) weeks per calendar year.
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ARTICLE XVII
SENIORITY
Section 17.1 Hiring and Probationary Period
The Company shall have the right to hire employees from whatever source is
available to it. An employee hired to fill a job shall be on probation for his
first 90 work days of continuous service following his last date of hire by the
Company. The Company shall have the right to discharge an employee during his
probationary period, and such employee shall not have recourse to the grievance
procedure.
Section 17.2 Seniority Defined
Upon completion of his probationary period, an employee hired to fill a
permanent full-time job will be considered on permanent status and his
seniority shall be computed from his last date of hire by the Company. During
his probationary period an employee, who is required by the Company to work on
any of the recognized holidays as outlined in Article X, will receive the same
premium rate as all other employees, but will not be eligible for any paid
benefits as explained elsewhere in this Agreement. Probationary employees will
not receive any holiday compensation unless actually worked by the employee(s)
as described above.
Section 17.3 Loss of Seniority
An employee's seniority shall be lost only by:
A. Discharge for cause.
B. Voluntarily quit.
C. Failure to successfully answer a recall notice within seven days after
notification is delivered by certified mail to the last address the
employee has on file in the personnel office.
D. Three consecutive work days without notifying the Company and
providing a satisfactory reason for such absences.
E. The employee receives a workman's compensation settlement for total
disability.
F. Or as provided in Section 17.4.
G. Death, retirement.
Section 17.4 Seniority Broken
Seniority will be broken for an absence from work for twenty-four (24) months,
due to illness or injury. Seniority shall also be broken for a lay off of
twenty-four (24) months from his last day
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of employ. Seniority will accumulate up to a period of twenty-four (24) months
while an employee is on layoff or absence due to illness or non-occupational
injury. Such employee will have recall rights and if recalled shall have
seniority as prescribed above. Employees on lay-off or absent in excess of
twenty-four (24) months will forfeit all reemployment privileges inclusive of
recall.
Section 17.5 Failure to Answer Recall
In the event a laid-off employee does not answer a certified mail recall notice
sent to his last known address within seventy-two (72) hours of receipt, and he
does not return within ten (10) days of the mailing of such notice, his
seniority shall terminate.
Section 17.6 Seniority during Military Service
Seniority shall accumulate during a term of enlistment or draft into military
service or war relief services due to a national emergency or war.
Section 17.7 Participation in Benefit Programs on Termination
A terminated employee's participation in the Group Insurance program shall
cease effective at the end of the last day the employee works, except as
required by the Comprehensive Omnibus Budget Reconciliation Act of 1986. No
employee will be eligible for holiday or vacation pay, other than pay already
due, after the last day the employee works. No employee shall accumulate
credited service under the Pension Plan after the last day the employee works.
ARTICLE XVIII
PROMOTIONS, TRANSFERS AND LAYOFFS
Section 18.1 Promotion, Transfer, Recall, Lay Off
The Company agrees that in the case of promotion, recalling, or if it becomes
necessary to reduce the working force, the following factors shall be
considered.
A. Experience, individual skill and ability, and efficient service
related to the qualifications of the job. (Efficient service means not
having received repeated disciplinary action for attendance or job
performance in the twelve (12) months prior to bidding a job.)
B. Physical fitness of applicant.
C. Seniority.
D. When A. and B. are equal, C. shall apply.
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Transfers, layoffs and recalls from layoffs shall be based on seniority and
qualifications. "Qualifications" is deemed to mean the ability of an employee
to perform the job in question to the satisfaction of the Management of the
Company.
Section 18.2 No Qualified Bidders
When, in the judgment of the Management of the Company, employees through the
bidding procedure do not have the necessary ability, qualifications or
knowledge to perform a job, or time limits fail to allow for such consideration
of same, said job may be filled by hiring from the outside. No provision of
this Agreement shall be construed as requiring the Company to fill any
permanent or temporary vacancy.
Section 18.3 Vacancy Posting
When a vacancy occurs in other than a minimum paid job, or a new job is
created, notice of said vacancy shall be posted on the bulletin boards for at
least seventy-two (72) hours. Friday, Saturday, Sunday, and holidays excluded.
Such notice shall state rate of pay, and job requirements.
Section 18.4 Temporary Job Vacancy
A temporary job vacancy is one occasioned by the absence of an employee from
his job when it is anticipated that he will return to work within a specified
or approximately known length of time or the creation of a new job which is not
expected to exist permanently. Temporary job vacancies which are not expected
by the Company to exist for a period in excess of 90 work days and all
temporary job vacancies resulting from employees being on vacation may be
filled in any of the following ways, but not necessarily in the order listed:
A. Utilization of a relief man or any other qualified employee.
B. Splitting of shifts.
C. Holdover of an employee.
D. Call in of an employee.
E. Temporary upgrade of an employee.
F. Temporary employment.
Section 18.5 Disqualification or Dissatisfaction With Bid
If an employee upon using the bidding procedure becomes dissatisfied within two
(2) weeks of placement the employee will be returned to his former
classification and rating. If an employee is disqualified after two (2) weeks
of placement the employee will be returned to a laborer position and rate.
Should the Company determine that the employee's progress during his training
period is unsatisfactory, such employee shall be
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returned to his former classification and rating. Management reserves the
right not to consider bids submitted by employees attempting to "bid down" in
job skills or classification for temporary job positions.
Section 18.6 Bidding while on Vacation
An employee desiring consideration for any permanent vacancy which may occur
during his vacation must leave a signed bid specifying the particular job(s) he
wishes to be considered for, in the Human Resources Office prior to leaving.
Said bid will become mute upon the employee's return or after 30 days of the
date signed by the employee whichever is shorter.
Section 18.7 Lay Off Procedure
Should the Company elect to reduce the workforce, employees shall be selected
for retention on the basis of skill, efficiency, job requirements, and
plant-wide seniority. If the senior employee is not retained, the Union
Committee shall be notified and shall have the right of presenting its views to
the Company on the qualification of the employees to be retained for the
Company's consideration in making its decision. If an employee's job is
discontinued, he shall have the right, if immediately qualified, to displace
another employee holding lower seniority.
A. If the Company determines that the number of employees in any job
classification(s) are to be reduced or eliminated, the decision as to
which employee or employees are to be removed from a job
classification, shall be made in accordance with the following
procedure:
1. The following factors shall be considered by Management in
determining which employee in the group will be removed:
First: ability to perform the requirements of the job, past
work record and the experience, individual skill, aptitude,
efficient service and physical fitness of the employee.
Second: if these factors are relatively equal, seniority will
prevail. In the event employees are slated for removal from a
job classification out of their order of seniority, the
Company will advise the Union Committee concerning said
decision prior to its announcement and implementation. The
Company will consider all input by the Union Committee before
arriving at a final decision; however, it is understood that
the final decision concerning qualifications for purposes of
this Article shall be made exclusively by the Company.
2. Any employee so removed from a job classification in
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accordance with paragraph A. 1. above, may exercise his seniority to
move into any other job classification for which he is qualified.
Consequently, if this procedure results in the Company declaring that
the number of employees in the job classification to which the
employee has transferred must be reduced, the same procedure shall be
utilized. Any subsequent transfers as a result of the above procedure
may result with the least senior employee or group of employees being
laid off.
3. Employees will be recalled in reverse order.
B. In the event the Company declares a temporary reduction in the
workforce due to a curtailment or shutdown because of business or any
other conditions, employees retained to perform necessary work shall
be selected on the following basis:
1. Senior employees, whose regular jobs are not required, shall
have the option of accepting available work for which they are
qualified or accepting lay off, except that,
2. The Company has the right to require that senior employees
work during the shutdown if there are not junior employees
with the necessary qualifications to perform the required
work.
C. "Qualified" for purposes of this paragraph B. shall mean that an
employee must be able to perform all duties connected with the job
classification without any training or trial period. It is further
understood that the Company may allow the employee to demonstrate his
abilities to perform as required.
D. The Company's decision concerning qualification as used in this
Article is subject to the grievance procedure.
Should the Company permanently shut down the present facilities affording
employment to employees comprising the bargaining unit (the present facilities
shall be deemed to have been permanently shut down if all productive facilities
are abandoned even though shipping facilities continue to operate) the Company
shall mail a notice informing each affected employee that his employment with
the Company has been terminated because of permanent shutdown. The notice shall
be mailed at least ninety (90) days prior to the shutdown to the employee's
last address on the Company's records.
Section 18.8 Recall
An employee who has completed his probationary period and is subsequently laid
off will, for a period of twenty-four (24) continuous months following his date
of layoff, will be eligible
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for recall in accordance with Section 18.10, provided he/she can perform the
job available. Notification of recall will be certified mail, return receipt
requested, to the employee's last known address as shown by the Company's
records.
Section 18.9 Production Curtailment or Change
Whenever a lay off is planned because of a change or reduction in plant
production requirements, the Company will, not less than ten (10) calendar days
prior to the effective date of the lay off, post a bulletin stating the
expected extent of such lay off, and the expected effect on the work force.
The foregoing does not apply to disciplinary lay offs and lay offs because of
curtailment made necessary by disaster or emergency conditions affecting the
ability of the Company to physically operate the plant.
Section 18.10 Recall Procedure
Recalls from layoff will be made in accordance with Section 18.1. Of those
employees on layoff status eligible for recall, the employee with the greatest
plant seniority will be the first recalled provided he is immediately qualified
to perform the duties of the available job.
ARTICLE XIX
MISCELLANEOUS AND GENERAL
Section 19.1 Day of Injury
When an employee sustains an injury, arising out of and in the course of his
employment with the Company, and the doctor designated by the employee will not
permit him to return to work, such injured employee shall receive pay, at the
base hourly wage rate of his permanent classification, for the remainder of the
shift on which the injury occurred. When the doctor releases an injured
employee to return to work and he does not return to work for the remainder of
his shift, he shall not be paid for that part of his shift not worked.
Section 19.2 Safety Rules
Additional safety rules, precautions and instructions as well as work and
conduct rules will be posted as deemed necessary by the Company following
discussion with the Union and subject to the Grievance Procedure.
Section 19.3 Access for Union Representative
The Company agrees that during all reasonable times when the Plant is
operating, a duly accredited representative of the Union shall be entitled
access to the premises during the regular working hours for the purpose of
assisting in the adjustment of
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pending grievances, provided that the designated representative of the Company
is properly notified in advance and the Union representative establishes proper
identification. If it is necessary to go into the work area of the Plant (for
example, to view a particular operation relative to a pending grievance), then
the appropriate Company official shall accompany the Union representative so
that both parties see the same thing so as to aid in resolving the grievance.
Section 19.4 Copies of Agreement
All members of the Bargaining Unit shall be provided with a copy of the Labor
Agreement in booklet form. Company would agree with paying the printing of
the Pension, Insurance Plan, and the Labor Agreement.
Section 19.5 Subcontracting
All production and maintenance work customarily performed by the Company in its
own plant and quarries by its own employees shall continue to be performed by
the Company with its own employees as long as in the exclusive judgment of the
Company, the Company has the facilities and equipment and available trained
personnel to economically and efficiently perform the work required, without
overtime and within the time limits within which work must be performed in the
opinion of management.
ARTICLE XX
SEPARABILITY
It is agreed between the parties that should any Article or portion of an
Article of this Agreement be declared invalid, or modified in any way by
legally constituted authority all remaining Articles and portions of Articles
shall continue in effect.
ARTICLE XXI
UNION COOPERATION
Section 21.1 Union Cooperation
The Union agrees that it will cooperate with the Company in all matters of
industrial relations including carrying out Equal Employment Opportunity
obligations and will support the Company's efforts to assure a fair day's work
on the part of its members and that it will actively strive to eliminate
absenteeism and other practices which restrict production. It further agrees
that its members will abide by the rules of the Company in its effort to
prevent accidents, to eliminate waste in production, conserve materials and
supplies, improve the quality of workmanship, and strengthen goodwill between
the Company and its employees.
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Section 21.2 Union Assistance
The Union agrees that it will use its best efforts to assist the Company in
enhancing the competitiveness of the Company, and augmenting or increasing
revenue generation. For example, the Union will support, through community
involvement and pro-active measures, the efforts of the Company to obtain
permits and/or other necessary certifications to utilize alternative fuels.
Section 21.3 Mutual Participation and Stability
The parties hereto intend by this Agreement to provide a stabilized and
mutually beneficial relationship between them and to insure the production of
quality products on schedule and at competitive costs during the life of this
Agreement. The Company and the Union will also establish an active Employee
Participation Program to facilitate ideas and develop and implement programs to
improve the overall operations and enhance employee involvement.
ARTICLE XXII
UNION SECURITY
Section 22.1 Union Membership
The Company agrees that the first day following the end of the probationary
period such employee shall have made application and qualified for membership
in the Union as a condition of continued employment, subject to applicable law.
Section 22.2 Union Acceptance
The Union agrees that any of the employees of the Company now working, or
hereafter hired, who are not members of the Union, shall, upon making
application and qualifying for membership in the Union, promptly be accepted as
members without prejudice or discrimination.
Section 22.3 Hold Harmless
The Union agrees to indemnify and hold the Company harmless from any liability
or expense incurred by the Company because of the payment of dues or fees by an
employee or the actual or threatened termination of employment of any employee
as a result of such designation by the Union.
ARTICLE XXIII
UNION DUES CHECK OFF
The Company will make payroll deduction of Union dues and initiation fees when
authorized by presentation of an order signed by the individual employee. The
amount of the deduction and instructions to whom it shall be paid shall be
shown on the
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order, which may be withdrawn by an employee on any anniversary date of this
agreement upon thirty (30) days prior notice to both the Company and the Local
Union.
ARTICLE XXIV
TERMS AND CONDITIONS OF AGREEMENT
After ratification by the members of Local Union 30049, this Agreement shall
become effective and remain in force and effect and be binding upon the parties
hereto from August 16, 1993, to and including August 16, 1998, and it shall
continue to be in full force and effect thereafter from year to year until
either party on or before, of any year, beginning May 16, 1998, gives written
notice to the other party of its desire or intention either to alter and modify
or terminate the same. If such notice is given, the parties hereto shall begin
negotiations not later than June 16 in such year.
IN WITNESS WHEREOF, this Agreement between the parties, has been executed by
their duly authorized representatives on this day of October, 1993.
UNITED PAPERWORKERS INTERNATIONAL UNION
BY: ------------------------------
Jack W. Hammond
BY: ------------------------------
Manuel J. Cordero
BY: ------------------------------
Kenneth D. Crawford
BY: ------------------------------
Edward G. Johnson
BY: ------------------------------
Dale L. Nelson
BY: ------------------------------
Martin L. Wilkes
SOUTHDOWN, INC.
BY: ------------------------------
Bernard M. Reuland
BY: ------------------------------
Michael A. Yannone
BY: ------------------------------
Yselle A. Thomas
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APPENDIX A
WAGE GROUPS
<TABLE>
<S> <C>
GRADE TITLES
2 LABORER
3 JANITOR, TRACK LABORER
4 PACKER, ROTARY DRILLER HELPER, TRACK HANDYMAN, SWEEPER OPERATOR
5 UTILITY EQUIPMENT OPERATOR, *BULK LOADER, STOREROOM ATTENDANT "B", TRAINMAN, UTILITY MATERIAL HANDLER, PACKHOUSE
OPERATOR
6 LUBRICATION INSPECTOR, DUST COLLECTOR MAINTENANCE, PRODUCTION UTILITY HELPER, BRICKLAYER, CRUSHER OPERATOR
7 QUARRY PRODUCTION UTILITY, ENGINEMAN,
STOREROOM ATTENDANT "A"
8 TRACK CREW LEADER, DRILLER, PHYSICAL TESTER, ROCK CAR REPAIR, CRANE OPERATOR, GENERAL MAINTENANCE "A", LOADER
OPERATOR (10 YD), MAINTENANCE MECHANIC, ROUNDHOUSE MECHANIC, MILL UTILITY, LOCOMOTIVE MAINTAINER, LOADER & HEAVY
EQUIPMENT OPERATOR, MACHINIST "A", WELDER LAY OUT
9 ELECTRICAL/INSTRUMENT, CONTROL ROOM OPERATOR "B", QUARRY LEADER, MILL OPERATOR
10 CONTROL ROOM OPERATOR "A", ELECTRICAL/INSTRUMENT LEADMAN
</TABLE>
Employees who bid or are bumped to another job shall receive the rate
of the job to which they bid or are bumped. Notwithstanding the foregoing, no
employee hired before 1/1/88 shall received a reduction in wage below $11.04
during the life of the agreement.
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WAGE RATES
<TABLE>
<CAPTION>
AUGUST 16 AUGUST 16 AUGUST 16 AUGUST 16 AUGUST 16
GRADE 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
2 $10.40 $10.82 $11.04 $11.37 $11.60
3 $11.54 $12.00 $12.24 $12.61 $12.86
4 $13.21 $13.74 $14.01 $14.43 $14.72
5 $13.83 $14.38 $14.67 $15.11 $15.41
6 $14.46 $15.04 $15.34 $15.80 $16.12
7 $15.03 $15.63 $15.94 $16.42 $16.75
8 $15.60 $16.22 $16.54 $17.04 $17.38
9 $16.38 $17.04 $17.38 $17.90 $18.26
10 $17.16 $17.85 $18.21 $18.76 $19.14
Vactor
Operator $12.79 $13.30 $13.57 $13.98 $14.26
</TABLE>
*NOTE: For those "red circled" at $11.04 the rates shall be as follows:
<TABLE>
<S> <C> <C> <C> <C>
$11.48 $11.94 $12.18 $12.55 $12.80
</TABLE>
*Bulkloader classification will move to Grade 6 effective 8/16/94.
Individuals above the base rate for a grade because of the incentive merit
program will receive the same increase as all other employees in the grade for
1993, 1994 and 1995. Beginning in 1996, they will receive an increase only
when their base rate is the same as the base rate for the grade.
INCENTIVE BONUS PROGRAM
The parties recognize the desirability of compensating employees directly for
performance. It is therefore agreed that the Company will continue the current
incentive program which will provide for periodic bonus payments to employees
based on Plant performance.
The incentive program will be based upon the achievement of goals established
prior to the beginning of the year regarding the cost of manufacturing.
Beginning with the year 1994, the goals, including minimum, target and maximum
will be given to the Union prior to the start of the year. Employees who
retire or are laid off during the year will receive the bonus based upon their
gross wages for the period worked.
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On 8/19/93, the parties have tentatively agreed to the following:
NOTE: It is understood that this, with the previous tentatively agreed upon
items constitutes the entire package and contingent upon ratification.
APPENDIX B
ACTIVE EMPLOYEE MEDICAL
All employees covered by the Contract will be placed in the TakeCare HMO, that
was previously discussed. The Company will pay the entire cost of the HMO for
the first two years of the Contract. In the third year, and all subsequent
years, on a monthly basis, employees will bear the first $40. ($20 for single
employees) on any increase in the HMO premium.
ACTIVE EMPLOYEES WHO RETIRE DURING THE TERM OF THE AGREEMENT
Eligibility will be age 62 and 15 years of service. The Company's cost will be
frozen at the 1993 level, but will increase by an amount equal to the rise in
the Los Angeles area CPI, up to a maximum of 4% per year. Employees who have
achieved 30 years of service during the term of the Agreement will be eligible
for retiree medical, provided they retire within the term of the Contract.
Retirees will be allowed to continue in the HMO if the HMO allows them to have
retiree medical. Retirees' medical will change to conform to any changes in
the HMO during the term of the Contract. Any contributions required will not
exceed $60 per month ($30 for single employees) during the term of the
Contract.
Retirees who move out of the HMO coverage area would have the Company post
retirement indemnity plan under the same terms and conditions as other retirees
covered by the indemnity plan.
PENSION
The Victorville Hourly Pension Plan will be merged into the Southdown Salaried
Pension Plan. Any employee retiring during the term of the Agreement will have
his or her pension calculations made under both plans and receive the higher
amount. For the next five (5) years employees will continue to accrue service
under the hourly plan. The pension factor under the hourly plan will be
increased $.50 per year during the term of the Contract. At the end of 5 years
the flat rate amount would be $25.00 per month for each year of service.
Notwithstanding the foregoing, a flat rate of $25.00 per month for each year of
service will be used for pension calculations for any employee who attains 30
years of credited service and retires within the 5 year period beginning August
16, 1993. For the purpose of calculating yearly salary under the Salaried
Pension Plan the gainsharing bonus will be
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included.
LIFE INSURANCE
The Company will provide life insurance coverage at no cost to the employee.
An employee's life insurance is an amount equal to twice (2X) his/her base
hourly rate multiplied by 2,080 hours. Adjustments for life insurance due to
wage changes are made once per year at the beginning of the year.
ACCIDENTAL DEATH AND DISMEMBERMENT
The Company will provide accidental death and dismemberment benefit at not cost
to the employee. An employee's accidental death and dismemberment benefit is
an amount equal to twice (2X) his/her base hourly rate multiplied by 2,080
hours. Adjustments for accidental death and dismemberment benefit due to wage
changes are made once per year at the beginning of the year.
SOUTHDOWN, INC. RETIREMENT SAVINGS PLAN {401(K)}
On a voluntary participation basis, the Company will provide the Southdown,
Inc. Retirement Savings Plan and all amendments thereto during the life of this
Agreement on the same basis the Plan is provided to all other Southdown, Inc.
employees.
LONG TERM DISABILITY
On a voluntary participation basis, the Company will provide the long term
disability insurance, and all amendments thereto during the life of this
Agreement.
34
<PAGE> 35
September 22, 1993
It is hereby agreed between the parties that the Qualified Pension Plan, Life
Insurance and Health and Welfare plans are hereby incorporated by reference
into the collective bargaining agreement.
- ------------------------------ --------------------------------
M. A. Yannone J. W. Hammond, Jr.
Southdown, Inc. United Paperworkers
dba Southwestern Portland Cement International Union,
Local 30049
35
<PAGE> 1
EXHIBIT 11
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) for primary earnings per share:
Loss from continuing operations before preferred
stock dividends $ - $ (41.4) $ (43.2)
Preferred stock dividends (5.0) (5.0) (5.1)
------------ ------------- -------------
Loss from continuing operations (5.0) (46.4) (48.3)
Gain on discontinued operations, net of tax - 0.8 -
------------ ------------- -------------
Loss before cumulative effect of a change in accounting
principle and extraordinary item (5.0) (45.6) (48.3)
Cumulative effect of a change in accounting principle (48.5) - -
Extraordinary item, net of tax (1.0) - (1.4)
------------ ------------- -------------
Net loss for primary earnings per share $ (54.5) $ (45.6) $ (49.7)
============ ============= =============
Earnings (loss) for fully diluted earnings per share:
Loss from continuing operations before preferred
stock dividends $ - $ (41.4) $ (43.2)
Preferred stock dividends (non-convertible only) - - (0.1)
Antidilutive preferred stock dividends (5.0) (5.0) (5.0)
------------ ------------- -------------
Loss from continuing operations (5.0) (46.4) (48.3)
Gain on discontinued operations, net of tax - 0.8 -
------------ ------------- -------------
Loss before cumulative effect of a change in accounting
principle and extraordinary item (5.0) (45.6) (48.3)
Cumulative effect of a change in accounting principle (48.5) - -
Extraordinary item, net of tax (1.0) - (1.4)
------------ ------------- -------------
Net loss for fully diluted earnings per share $ (54.5) $ (45.6) $ (49.7)
============ ============= =============
Average share outstanding:
Common stock 17.0 16.9 16.9
Common stock equivalents from assumed exercise
of stock options and warrants (treasury stock method) 0.2 - -
------------ ------------- -------------
Total for primary earnings per share 17.2 16.9 16.9
Other potentially dilutive securities:
- additional common stock equivalents from assumed
exercise of stock options and warrants at ending
market value 0.6 - -
- assumed conversion of Series A convertible
preferred stock at one-half share of common stock 1.0 1.0 1.0
- assumed conversion of Series B convertible
preferred stock at 2.5 shares of common stock 2.4 2.4 2.4
------------ ------------- -------------
Total for fully diluted earnings per share 21.2 20.3 20.3
Less: Antidilutive securities
Stock options and warrants (0.8) - -
Series A preferred stock (1.0) (1.0) (1.0)
Series B preferred stock (2.4) (2.4) (2.4)
------------ ------------- -------------
17.0 16.9 16.9
============ ============= =============
Earnings (loss) per share primary and fully diluted:
Loss from continuing operations $ (0.30) $ (2.74) $ (2.86)
Gain on discontinued operations, net of tax - 0.05 -
Cumulative effect of a change in accounting principle (2.86) - -
Extraordinary item, net of tax (0.06) - (0.08)
------------ ------------- -------------
$ (3.22) $ (2.69) $ (2.94)
============ ============= =============
</TABLE>
<PAGE> 1
EXHIBIT 22
SIGNIFICANT SUBSIDIARIES OF SOUTHDOWN, INC.
AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY* ORGANIZATION
----------- ------------
<S> <C>
Kosmos Cement Company (a partnership) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kentucky
- -------------------
* Each subsidiary conducts business under the name set forth herein.
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
No. 2-46555 on Form S-8, Registration Statement No. 33-23328 on Form S-8,
Registration Statement No. 33-35011 on Form S-8, Registration Statement No.
33-22553 on Form S-3, Registration Statement No. 33-16517 on Form S-3,
Registration Statement No. 33-39698 on Form S-3, Registration Statement No.
33-45144 on Form S- 8, Registration Statement No. 33-45371 on Form S-3 and
Registration Statement No. 33-45373 on Form S-3 of our report, dated January
27, 1994 on the consolidated financial statements and financial statement
schedules of Southdown, Inc. and subsidiary companies appearing on page 82 of
this Annual Report on Form 10-K for the year ended December 31, 1993.
DELOITTE & TOUCHE
Houston, Texas
February 23, 1994
