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, 1994
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:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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 New York Stock Exchange, Inc.
Convertible Series D
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, 1995 the number of shares of common stock outstanding was
17.3 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 $331.0 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, 1994 are
incorporated by reference into Part III.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business........................................................ 1
General....................................................... 1
Industry Segment Information.................................. 2
Employees..................................................... 19
Item 2. Properties...................................................... 19
Item 3. Legal Proceedings............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............. 22
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters.................................................. 22
Item 6. Selected Financial Data......................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 24
Item 8. Financial Statements and Supplementary Data..................... 42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 76
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 76
Item 11. Executive Compensation.......................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 76
Item 13. Certain Relationships and Related Transactions.................. 76
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 76
PART 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,
importation 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.
Beginning in mid-1990, through the fourth quarter of 1994, the Company was
also engaged in the environmental services business, which involved the
collection of hazardous waste and processing it into hazardous waste derived
fuel (HWDF) that, together with tires and other waste materials, was utilized in
certain of the Company's cement kilns to supplement conventional fuels. (See
"Cement Operations - Resource Recovery".) Despite redirecting the focus of the
Company's environmental services business in late 1992, the business continued
to generate losses. Management presented a comprehensive evaluation of all
aspects of the environmental services business to the Company's Board of
Directors at the Board's regularly scheduled November 17, 1994 meeting and a
decision was reached at that time to exit the business. The Company plans to
sell its three remaining hazardous waste processing facilities and to cease all
burning of HWDF in its cement kilns during 1995. (See also Note 2 of Notes to
Consolidated Financial Statements.)
As a result of this decision, the Company's results for the year ended
December 31, 1994 include an after-tax charge of $21.6 million, or $1.26 per
share. The charge includes the difference between the book value of the
environmental services assets and the estimated proceeds from asset sales, as
well as the costs to exit the business and estimated losses to be incurred prior
to the sale of assets. The charge, as well as the previous results from the
Environmental Services segment, are shown in the Company's financial reports as
discontinued operations.
1
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.
YEARS ENDED DECEMBER 31, (IN MILLIONS)
-------------------------------------------
1994 1993 1992 1991 1990
Contributions to revenues(1):
Cement....................... $398.4 $370.9 $339.5 $328.4 $364.8
Concrete Products............ 208.1 176.3 158.1 181.1 231.6
Intersegment sales........... (45.3) (38.1) (33.5) (40.7) (48.8)
Other........................ 0.7 0.5 0.7 1.7 3.4
------ ------ ------ ------ ------
$561.9 $509.6 $464.8 $470.5 $551.0
====== ====== ====== ====== ======
Contributions to operating
earnings (loss)(1):
Cement....................... $ 91.2 $ 81.9 $ 62.6 $ 44.9 $ 72.2
Concrete Products............ 9.3 (1.6) (11.6) (12.7) 6.9
Corporate
General and administrative (25.1) (28.9)(2) (32.7) (34.1) (21.9)(3)
Depreciation, depletion
and amortization..... (5.0) (4.3) (4.4) (4.3) (3.3)
Miscellaneous income
(losses)............. 1.3(4) (2.8)(5) 1.5(6) (5.1)(7) (5.7)(8)
$ 71.7 $ 44.3 $ 15.4 $(11.3) $48.2
====== ====== ====== ====== ======
(1) On November 17, 1994 the Company determined it would discontinue its
environmental services business. Revenues and operating losses attributable
to the Environmental Services segment have, therefore, been classified as
discontinued operations and excluded. (See also Note 2 of Notes to
Consolidated Financial Statements.)
(2) 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 also Note 16 of Notes to Consolidated
Financial Statements.)
(3) Includes a $6.6 million credit to pension expense and a $2.0 million credit
to stock appreciation rights expense.
(4) Includes realization of a $4.8 million gain contingency stemming from the
1988 acquisition of Moore McCormack Resources, Inc. and a $2.9 million
charge to reflect increases in certain estimated environmental
contingencies.
(5) Includes a $3.0 million charge for remediation of an inactive cement kiln
dust disposal site.
(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:
PERCENTAGE OF
TOTAL CONSOLIDATED REVENUES
---------------------------------
SEGMENT 1994 1993 1992
Cement ............................... 63.3% 65.7% 66.2%
----- ----- -----
Concrete Products:
Ready-mixed concrete ............... 30.0 28.2 28.2
Other .............................. 6.6 6.0 5.4
----- ----- -----
36.6 34.2 33.6
Other ................................ 0.1 0.1 0.2
----- ----- -----
Total consolidated revenues ........ 100.0% 100.0% 100.0%
===== ===== =====
2
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 690 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 ore or other
iron bearing materials, 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
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, 1994.
RATED
ANNUAL ESTIMATED
NO. CLINKER CLINKER/CEMENT KILN LIFE OF
OF MANUFACTURING CAPACITY DEDICATION LIMESTONE
PLANT LOCATION KILNS PROCESS (in 000 tons) DATES RESERVES
-------------------------------------------------------------------------------
Preheater/
Victorville, precalciner 1985
California 2 Long dry kiln 1,550/1,650 1965 100+ years
Brooksville, 1976,
Florida 2 Preheater 1,200/1,320 1982 90+ years
Kosmosdale,
Kentucky(1) 1 Preheater 700/735 1974 20+ years(2)
Fairborn, Ohio 1 Preheater 610/680 1974 45+ years
Knoxville, Preheater/
Tennessee 1 precalciner 600/650 1979 65+ years
Preheater 1978
Odessa, Texas 2 Long dry kiln 550/600 1959 100+ years
Preheater/
Lyons, Colorado 1 precalciner 450/475 1980 25+ years
Pittsburgh,
Pennsylvania(1) 1 Wet 360/400 1962 100+ years(3)
CEMENT SALES OFFICES CEMENT TERMINALS
------------------------------------ ----------------------------------
STATE CITY STATE CITY
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) Florida Palm Beach(4)
Tennessee Knoxville Georgia Atlanta
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)
- ---------------
(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 adjacent to the existing
quarry.
(3) Limestone is barged from an underground quarry located approximately 100
miles from the plant facility.
(4) Acquired December 29, 1994.
The ratio of actual clinker production to rated kiln capacity was 93% in
1994, 94% in 1993 and 92% in 1992. During each of the past three years, the
Company has also purchased small amounts of
4
cement from others for resale. In 1994, 5.9% of the cement sold by the Company
was acquired from outside sources compared with 5.5% in 1993 and 3.2% in 1992.
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 51%, 24% and 25%, respectively,
of U.S. cement consumption in 1993, the most recent 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, including growth in the U.S. economy and interest rates, 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.
During 1994, 1993 and 1992 the Company shipped approximately 6.2 million,
6.2 million and 5.8 million tons of cement, respectively. New construction
activity was flat or slightly higher in most regions of the country during 1992
but, at least in some regions, began to rebound in 1993. During 1994
construction activity continued to recover in most regions of the country
including southern California which had a small improvement over 1993. The 1994
recovery resulted in spot shortages in several market areas and rising sales
prices in most regions. As a consequence of these fluctuations, the Company's
cement segment sales and earnings followed a cyclical pattern during this three
year period.
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. Only bagged cement, a
much smaller percentage of cement sales volume, is differentiated by brand
name. The Company's bagged cement products are marketed under the
"Victor," "Miami," "El Toro," "Mountain," "Broco," "Kosmos", "Dixie" and
"Southdown" labels. The Company also manufactures limited amounts of
premium priced, specialty cement products.
(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 cements, generally within a radius of 200 miles of
each plant.
(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,
5
construction contractors and, in some regions, oil well cementing
companies. During each of the three years ended December 31, 1994
approximately one-half of the Company's Odessa plant's cement sales volume
consisted of sales to oil well cementing companies.
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%, 15% and 13% of
the cement sold by the Company's Victorville plant in 1994, 1993 and 1992,
respectively, and approximately 41%, 37% and 42% of the cement sold by the
Company's Brooksville plant in 1994, 1993 and 1992, respectively, was sold
to the Company's ready-mixed concrete operations.
(iv) Except with respect to certain major construction projects, it is not
common in the industry to enter into long-term sales contracts. However,
as a result of successful antidumping petitions filed by a group of
domestic cement producers, including the Company, cement imports from
certain foreign countries have been substantially reduced. The Company has
become the replacement supplier for some of these imported volumes and,
during the past several years, has contracted for long-term, large volume
sales contracts with as many as four other cement manufacturers or
distributors, both foreign and domestic. Some of the contracts have
take-or-pay provisions. In 1994, 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 16%, 25% and 31%
of the Cement segment's operating earnings, respectively. In 1994 the
Company 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 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) 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.
(vii) The supply of cement has been impacted by the retirement of a
substantial amount of industry capacity in the U.S. Although industry
capacity has remained relatively stable in recent years, total U.S.
clinker capacity at the end of 1993, the most recent data available, had
declined by 8.3 million tons from its peak in 1975. Construction of major
new cement manufacturing capacity 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.
6
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. On the basis of statistics
published by the PCA, the Company believes that, as of the end of 1993, the most
recent period for which such data is available, it ranked third in total active
cement manufacturing capacity among the 46 cement producers in the United
States.
U.S. CLINKER PERCENT OF
RANK CAPACITY (000 TONS) U.S. INDUSTRY COMPANY NAME
1 10,947 13.2% Holnam, Inc.
2 6,378 7.7 LaFarge Corporation
3 5,778 7.0 Southdown, Inc.
4 5,166 6.3 Ash Grove Cement Company
5 4,233 5.1 Blue Circle Inc.
6 4,210 5.1 Essroc Corporation
7 4,082 4.9 Lone Star Industries, Inc.
8 3,887 4.7 Lehigh Portland Cement
Company
9 3,669 4.4 Medusa Cement Company
10 3,225 3.9 California Portland Cement
Company
51,575 62.3 Total Top Ten
31,215 37.7 Others
82,790 100.0% Total Industry
Source: Portland Cement Association, adjusted for recent transactions. Clinker
capacity for joint venture operations is based on each company's
ownership interest.
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.
7
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.
PLANT LOCATION PRINCIPLE MARKET AREA SERVED MAJOR COMPETITORS
Victorville, Southern California, western Five cement producers and
California Arizona and southern Nevada four import facilities
Brooksville, Central, southwestern and Four cement producers and
Florida northern Florida eight import facilities
Kentucky, West Virginia and
Kosmosdale, portions of Ohio, Indiana Nine cement producers and
Kentucky and Tennessee an import facility
Central and southern Ohio,
eastern and southern Indiana
Fairborn, and northern and central Nine cement producers and
Ohio Kentucky an import facility
Eastern Tennessee, North
Carolina, and portions of
Knoxville, Kentucky, Virginia, South Ten cement producers and
Tennessee Carolina, Georgia and Alabama an import facility
Eastern New Mexico, Texas
Panhandle and west Texas,
western Oklahoma,
Odessa, southeastern Colorado and Twelve cement producers
Texas southwestern Kansas and an import facility
Northern and central
Lyons, Colorado and southeastern
Colorado Wyoming Four cement producers
Western Pennsylvania and
Pittsburgh, portions of West Virginia
Pennsylvania and Ohio Four cement producers
Competition among 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.
During the 1980s, competition from imported cement in most coastal and
border areas grew significantly. According to the PCA, 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. The large volume of low priced
imported cement entering these markets caused prices to fall during the late
1980s, despite strong growth in cement consumption.
In response to the surge of unfairly priced imports, groups of industry
participants, including the Company, filed antidumping petitions against imports
from Mexico in 1989, against imports from Japan in 1990 and against imports from
Venezuela in 1991. The International Trade Commission (ITC) and the Department
of Commerce (DOC) made affirmative final determinations against cement from
Mexico and Japan. Antidumping orders were imposed against Mexican cement in
August 1990 and against Japanese cement in April 1991. In addition, in February
1992, the DOC suspended two antidumping investigations of cement from Venezuela,
based upon the Venezuelan cement producers agreement to revise their prices to
eliminate the dumping of gray
8
portland cement from Venezuela into the United States. The two major Venezuelan
cement exporters must price their U.S. sales above their cost of production and
home market profit. An intentional violation would expose the Venezuelan
producers to civil fraud penalties. The antidumping orders and suspension
agreement were largely responsible for a reversal in the influx of cement
imports in the 1990s.
Margins of dumping and resulting duties are subject to annual review by the
DOC, and are subject to appeal to the U.S. Court of International Trade (CIT)
and the U.S. Court of Appeals for the Federal Circuit.
U.S. importers must tender antidumping duty cash deposits to the U.S.
Customs Service with each entry of cement from Mexico or Japan equal to the
customs value of the cement times the cash deposit rate applicable to the
exporter, as shown below:
ANTIDUMPING DUTY CASH DEPOSIT RATES
Mexico:
CEMEX.......................................................... 42.74 percent
Apasco......................................................... 53.26 percent
All other exporters............................................ 58.05 percent
Japan:
Onoda.......................................................... 18.30 percent
Nihon.......................................................... 84.70 percent
All other exporters............................................ 63.73 percent
CEMEX is the principal Mexican exporter. Its current cash deposit rate was
established in September 1993 based on the DOC's final determination in the
second administrative review of the antidumping order. In that review, the DOC
calculated CEMEX's dumping margin on imports entered during August 1991 - July
1992. CEMEX's cash deposit rate will change again when the DOC issues its final
determination in the third review, covering import entries during August 1992 -
July 1993. The DOC has preliminarily determined that CEMEX's margin was 60.33
percent in the third review. A fourth review, covering import entries during
August 1993 - July 1994, in now underway. The final results of the first and
second reviews are pending on appeal before the CIT.
Onoda has been the principal Japanese exporter since the antidumping order
was entered in May 1991. Its current cash deposit rate was established in
October 1993, based on the DOC's calculation of Onoda's margin in the first
review, covering import entries during November 1990 - April 1992. That
determination is pending on appeal before the CIT. Onoda's cash deposit rate
will change when the final results are issued in the second review (covering
import entries during May 1992 - April 1993) and in the third review (covering
import entries during May 1993 - April 1994). Onoda has sold virtually no
Japanese cement in the Company's regional markets since the antidumping order
was imposed.
9
In addition, the underlying injury determinations by the ITC against Mexico
and Japan have been appealed by the foreign producers. The ITC determination
against Japanese cement remains in effect pending appeal before the CIT. The
ITC's material injury determination against Mexican cement was affirmed by both
the CIT and the U.S. Court of Appeals for the Federal Circuit. The Mexican
government, however, challenged the ITC's injury determination under the General
Agreement on Tariffs and Trade (GATT). A dispute resolution panel of GATT
recommended in July 1992 that the antidumping order be vacated and that all
duties collected under the order be returned. The United States has refused to
endorse the adverse GATT dispute panel ruling. 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.
Pursuant to the Uruguay Round Agreement, GATT and the GATT Antidumping Code
were superseded on January 1, 1995 by a new GATT, which will be administered by
the newly created World Trade Organization (WTO). 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. New
legislation passed by the Congress in December 1994, however, requires the
initiation of "sunset" reviews of the antidumping orders against Mexico and
Japan and the suspension agreement with Venezuela prior to January 2000 to
determine whether these antidumping orders and the suspension agreement should
terminate or remain in effect.
The North American Free Trade Agreement (NAFTA) has had no material adverse
effect on the foregoing antidumping duty cash deposit rates imposed on gray
portland cement and clinker imported from Mexico. The Company does not believe
that NAFTA will have a material adverse effect on the foregoing antidumping duty
cash deposit rates in the near future. A severe economic crisis in Mexico
resulted in devaluations of the Mexican peso in late 1994 and early 1995.
Because of the retroactive nature of administrative reviews, the impact on the
calculation of antidumping cash deposit rates resulting from the devaluation of
the peso, if any, would not be realized until some future period. However, a
substantial reduction or elimination of the existing antidumping duties as a
result of GATT, NAFTA, currency devaluation or any other reason could adversely
affect the Company's results of operations.
U.S. imports of foreign cement have once again increased as U.S. cement
consumption began its recovery in 1993. The PCA has estimated that imports
represented approximately 13% of U.S. consumption in 1994 as compared with 9% in
1993 and 8% in 1992. Recent cement imports generally appear, however, to be
higher priced than imports during the 1980s and in response to cement demand in
excess of the domestic supply. The Company owns or leases three cement
terminals, including one acquired in late December 1994, located at seaports and
capable of receiving imported cement. To supplement its production capacity the
Company sought to meet excess demand with limited purchases of imported cement
in 1993 and 1994 and expects to increase its purchases of imported cement in
1995.
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 initially tested substituting liquid HWDF for a portion of the
fossil fuel requirements at its Ohio cement plant in 1987. 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 Company
encountered intense levels of public resistance to the use of
10
HWDF in its cement kilns and, more importantly, the environmental services
industry was beset by less than anticipated volumes of acceptable wastes and by
excess disposal capacity. In November 1994 the Company's Board of Directors
approved a plan to exit the business and to cease all burning of HWDF in the
Company's cement kilns by the end of 1995.
Both the Company's Ohio and Tennessee cement plants had completed
compliance testing and appropriate certification to burn HWDF; however, only the
Tennessee plant actively engaged in utilizing HWDF on an other than test basis.
The Tennessee plant's permit to burn HWDF, unless extended temporarily as
provided by law, expires in late June 1995. Although the Company will cease
burning HWDF when the permit to do so at its Tennessee plant expires, the
Company may continue burning tires and other non-hazardous industrial waste
materials as a fuel supplement where permitted to do so. As of February 28,
1995, permit modifications are in hand or in process to allow for the burning of
tires or other non-hazardous waste materials at five of the Company's cement
plants, including Tennessee and Ohio.
CAPITAL EXPENDITURES - Capital expenditures during 1994 amounted to $16.8
million for the Cement segment compared with $8.5 million and $4.9 million in
1993 and 1992, respectively. In addition, in late December 1994 the Company
acquired a cement import terminal located at the Port of Palm Beach in Florida,
including certain working capital items, for approximately $16 million in cash.
While the Company has been somewhat capital constrained for the past several
years, improved cash flow from operations has enabled the Company to
significantly increase its capital expenditure budget in 1995 in order to
achieve process enhancements which could yield improvements in efficiency and
productivity. Capital outlays in 1995 are estimated to be approximately $51.5
million, including $25 million representing a portion of the total cost for new
finish grinding capacity and other improvements at the Company's Ohio plant. An
additional $25 million is estimated to be spent in 1996 to complete the Ohio
plant project. The entire project is subject to final approval by the Company's
Board of Directors. The scope of the project includes the installation of a new
5,500 horsepower finish grinding mill and construction of a clinker storage dome
with 100,000 tons of storage capacity. The project will also include the
construction of finished product silos capable of storing 41,000 tons of cement
and improvements to the existing pyroprocessing system intended to increase the
plant's practical clinker capacity from 610,000 tons to 700,000 tons.
ENVIRONMENTAL MATTERS - Cement manufacturing facilities, including the
operations of the Company, are regulated by various federal, state and local
laws and regulations pertaining to the protection of human health and the
environment. Environmental laws can be broadly categorized into two types (a)
pollution control laws, for example the Resource Conservation and Recovery Act
(RCRA), and the Hazardous and Solid Waste Amendments of 1984 (HSWA), the Clean
Air Act and the Federal Water Pollution Control Act; and (b) pollution clean up
laws, for example the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA) and the Superfund Amendments and Reauthorization
Act of 1986 (SARA).
11
RCRA regulates the generation, transportation, storage, treatment and
disposal of hazardous waste, hazardous waste being defined as a substance
exhibiting any one of four characteristics: toxicity, corrosivity, reactivity
and ignitability or any substance specifically "listed" as a hazardous waste.
RCRA and HSWA are intended to provide comprehensive regulation of hazardous
waste "from cradle to grave" and provide the procedural requirements for
implementing corrective action for releases to the environment.
The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of all major sources of air pollution and established a new federal
operating permit and fee program for virtually all significant 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. Beginning in mid-1995, the Company must, on a
predetermined phase-in schedule, submit permit applications and pay annual
permit fees. In addition, the U.S. Environmental Protection Agency (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 disadvantage with respect to its competitors. To the
contrary, these more stringent standards may enhance the Company's competitive
position, given the age, condition, design and other features of the Company's
cement manufacturing facilities.
The Federal Water Pollution Control Act, commonly known as the 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 imposition 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.
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 wastes. 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 subsequent owners. Although there is a
right of private action under CERCLA, 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
12
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.
Management believes that the Company's current procedures and practices for
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.
CEMENT KILN DUST - 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 cement kiln dust (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 used in its cement manufacturing and concrete products operations, in
onsite and offsite facilities. Some of these residuals, when discarded, may now
be 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.
For many years, the Company also placed CKD in depleted quarries or other
locations at its plant sites and elsewhere. The regulatory status of CKD is
governed by the Bevill amendment, enacted by Congress as part of the Solid Waste
Disposal Act Amendments of 1980. 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. 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 was made in December 1993, hearings were held on February 15,
1994 and, on January 31, 1995, the U.S. EPA issued its decision on the
regulatory status of CKD. Although the U.S. EPA determined further regulation of
CKD was necessary, the agency stated that it found no evidence of risks
associated from the use of cement products and that it believes most secondary
uses of CKD do not present significant risks to people or the environment. CKD
will not be regulated as a full-fledged RCRA hazardous waste and the Bevill
amendment exemption will remain in effect until the issuance of new CKD
management standards. The U.S. EPA will initiate a rulemaking process, which is
estimated to take at least two years, in order to develop these specially
tailored CKD management standards. This change in the status of CKD may require
the cement industry to develop new methods for handling this high volume, low
toxicity waste.
CKD that is infused with water may produce a leachate with an alkalinity
high enough to be classified as hazardous and may also leach certain hazardous
trace metals present therein. Leaching has led to the characterization of at
least three CKD disposal sites of other companies as federal
13
Superfund sites. 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 an
inactive CKD disposal site in Ohio. The initial study revealed that the leachate
from the site was negatively impacting the environment in the vicinity through
ground and surface water pathways. In May 1992, a second phase investigation
report related to this site was finalized by the Company's consultant. In
addition, in July 1992 the Ohio EPA issued an administrative order with respect
to this inactive CKD disposal site formalizing the Company's own investigation
and remediation plans and requiring the Company to implement an approved
remediation workplan to be directed and monitored by the Ohio EPA. In October
1993, the Company received a consulting report proposing additional refinements
of earlier remediation estimates which again increased the total estimated cost
to remediate this site. The Company recorded charges aggregating a total of $9.7
million in increments as information became available over the period from mid
1991 through late 1993.
Although the Company had formerly reported its belief the $9.7 million
estimate would be sufficient to complete the remediation of this site, by late
1994 it was determined that the Company would not be able to complete all of the
remediation work plus monitor the ground water at the site and conduct a study
to determine the success of the remediation project within the previous cost
estimate. Accordingly, after re-evaluating the status of the project, the
Company recorded an additional $2 million charge in the fourth quarter of 1994
to increase the total estimated cost of this remediation project to
approximately $12 million. The Company had expended a total of $9.7 million
through January 31, 1995 and anticipates completion of the investigative and
remedial phases of the project by the end of the first quarter of 1995. The next
phase, which is expected to take approximately twelve months, will consist
primarily of ground water monitoring and testing in order to evaluate the
success of the project in remediating the effects of the CKD leachate. While the
Company has no reason to believe that significant additional sums will be
required to complete the remediation of this site, it remains at least
reasonably possible the Company may be required to incur additional costs on the
project. The results of the groundwater monitoring program may determine whether
the Company will be required to make further modifications to the remediation
program. Until the monitoring process and feasibility testing are complete,
however, the Company is unable to determine what additional costs, if any, may
be incurred on the project.
On a voluntary basis, 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 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 larger of the two sites (USX Site). (See also
Item 3. "Legal Proceedings" - (b).) Based on the limited information available,
the Company has received two preliminary estimates of the potential magnitude of
the remediation costs for the USX Site, $8 million and $32 million, depending on
the assumptions used. The Company intends to vigorously pursue its right to
contribution from USX for cleanup costs under CERCLA and Ohio law. The Company
believes that USX is a responsible party because it owned and operated the USX
Site at the time of disposal of the hazardous substances, arranged for the
disposal of the hazardous substances and transported the hazardous substances to
the USX Site. Therefore, based on the advice of counsel, the Company believes
there is a reasonable basis for the apportionment of cleanup costs relating to
the
14
USX 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 USX Site and is potentially liable under CERCLA
only because of its current ownership of the USX Site.
The Company and USX have held settlement discussions with respect to this
matter. In this regard, USX and the Company have discussed jointly employing
consulting engineers for further investigative work at the USX Site to develop
additional information with respect to the scope of the potential remediation
costs and possible remediation alternatives and delaying additional proceedings
in the USX case while that investigation takes place.
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 USX Site requiring it to remediate the property, and no cleanup of
the USX Site has yet been initiated.
No substantial investigative work has been undertaken at other CKD sites in
Ohio. Although data necessary to enable the Company to estimate additional
remediation costs is not available, the Company acknowledges that it is at least
reasonably possible the ultimate cost to remediate the CKD disposal problem in
Ohio could be significantly more than the amounts reserved.
Several of the Company's other 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.
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. 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 sought over $19.8 million in
penalties. On September 27, 1993, the U.S. EPA issued a Complaint and Compliance
Order (Order) alleging certain Company violations of RCRA applicable to the
burning or processing of hazardous waste in an industrial furnace namely, the
kiln at the Company's Ohio cement manufacturing plant. The Order proposed the
assessment of a civil penalty in the amount of $1.1 million against the Company
and closure of certain Company owned storage silos containing the CKD that
allegedly was hazardous waste. Following several months of extensive settlement
negotiations with U.S. EPA, a final agreement in principle between the parties
was reached in December 1994. Although the paperwork for this agreement has not
been finalized, management believes, based on advice of counsel, that the
remaining tasks for finalizing the agreement in principle will not alter the
significant terms of the agreement which stipulate the payment by the Company
of a significantly reduced penalty and withdrawal by the U.S. EPA of the
proposed closure of the Company's storage silos. (See also Item 3. "Legal
Proceedings" - (c)).
RECURRING COSTS OF ENVIRONMENTAL COMPLIANCE - The Company's compliance with
the exacting requirements and varying interpretations of applicable laws and
regulations related to the protection
15
of human health and the environment requires substantial expenditures and
significant amounts of management time and energy.
Although the Company does not maintain records that segregate such costs
from the other costs of on-going operations, management believes recurring
environmental compliance costs are a material component of total costs.
Compliance activities include, among others, the following:
(i) Maintenance of an in-house staff of professional and support
personnel for permitting, compliance, monitoring and reporting;
(ii) Use of outside attorneys and other consultants to assist in defining
and interpreting environmental laws and regulations, demonstrating
compliance therewith, and defending against enforcement actions related
thereto;
(iii) Proper selection of various raw materials, fuels and other materials
utilized in the Company's manufacturing operations in order to ensure
compliance with environmental requirements;
(iv) Operation and maintenance of a wide variety of emissions control
equipment as well as development and implementation of procedures to
minimize discharges into the environment;
(v) Operation and maintenance of a variety of means to monitor
emissions and comply with stringent recordkeeping and reporting
requirements; and
(vi) Appropriate handling and disposal of any wastes, including hazardous
wastes, if any, which may result from the Company's operations.
In addition to current period expenses, the Company typically spends
several million dollars a year on capital projects related to environmental
compliance. Approximately $5.6 million, 11% of the budgeted 1995 segment capital
expenditures, is 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,
the Company considers this dedication of resources to be an integral part of its
business. As a consequence, management does not believe that environmental
compliance expenditures place the Company at a competitive disadvantage with
respect to other companies engaged in similar lines of business operating in the
United States.
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 southern California. The
16
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 block and certain related concrete products.
Concrete is formed by mixing sand, water, additives and gravel with cement,
the basic binding agent. Transmix and Florida Mining each purchases the majority
of its cement from the Company's cement plant in California and Florida,
respectively. 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, but the Company presently purchases sand and gravel for use in its
Florida ready-mixed concrete operations under an aggregate supply contract. The
Company's Concrete Products segment operates approximately 500 ready-mixed
concrete trucks, 71 batch plants, two active aggregate quarries and 12 concrete
block plants.
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, gave
indications of improvement in 1993 and registered substantial improvement in
1994, the southern California market slowdown continued during 1993 and only
began to show signs of stabilizing in 1994. In 1994 ready-mixed concrete sales
volumes improved approximately 8% to a total of 3.5 million cubic yards,
primarily because of improved volumes in Florida while sales volumes for the
Company's southern California aggregate operation improved approximately 16%. In
1993, the Company sold approximately 3.3 million cubic yards of concrete and
approximately 870,000 tons of aggregates compared with 3.0 million cubic yards
of concrete and 750,000 tons of aggregates in 1992.
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 United Ready-Mixed Concrete Co.
Inc., A&A Ready-mixed Concrete, Inc. and Catalina Pacific Concrete, Inc.
and for aggregates, CalMat Co.
CAPITAL EXPENDITURES - Capital expenditures during 1994 amounted to $9.4
million for the Concrete Products segment compared with $3.5 million and $1.5
million in 1993 and 1992, respectively. Capital expenditures in 1994 were
primarily designed to further increase labor
17
productivity, improve equipment availability and increase plant production
rates. In most instances new mobile equipment is being leased instead of
purchased. Capital outlays in 1995 have been budgeted at approximately $9.9
million, including approximately $7.0 million in plant expansion, equipment
replacement and modernization, $1.1 million in quarry development, $1.3 million
related to compliance with environmental regulations and the balance for mobile
equipment.
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 leases and operates a quarry in the vicinity of Azusa and sold
the quarry and a related landfill to a subsidiary of Browning-Ferris Industries,
Inc.(BFI) in 1987.
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 indicated its intent to issue special
notice letters requiring the Baldwin Park potentially responsible parties
(PRPs), including the Company, to make a good faith offer to perform the actions
described in the Plan and the ROD. In early January 1995, the U.S. EPA issued
"pre-special notice" letters to the sixteen companies it viewed as most
responsible for paying the costs of clean-up; the Company did not receive such a
letter. A number of parties, including the Company, received "no action" letters
from the U.S. EPA in January 1995. The Company's letter advised that based on
the information available, the U.S. EPA did not intend to pursue the Company for
environmental liabilities associated with the operation of the aggregate or
ready-mixed concrete operations at the site. The U.S. EPA has agreed to hold
issuance of special notice letters in abeyance while a coalition of PRPs pursues
efforts to implement a cost effective response to water quality concerns in the
Baldwin Park Operable Unit in conjunction with water purveyors, water producers
and local government agencies.
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 the Company's operation of the Azusa landfill prior to
the sale of the property and the landfill operations to BFI in 1987. The Company
has formally requested that BFI indemnify and defend the Company with respect to
these matters.
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 Item 3.
"Legal Proceedings" - (d), and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Environmental Matters".)
18
EMPLOYEES
The Company employs approximately 2,600 persons, including approximately
1,100 in the cement manufacturing operations, 1,200 in the concrete products
operations and the remainder in the corporate office and the discontinued
environmental services business. 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.
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 also Note 11 of Notes
to Consolidated Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
(a) In early March 1994, the Company and a number of other cement producers
and industry associations received requests for information (Civil Investigative
Demand or CID) relating to the period from 1991 to April 1994 from the Antitrust
Division of the U.S. Department of Justice (DOJ). The DOJ is investigating
possible price-fixing and market allocation by cement producers. The
commencement of such an investigation does not necessarily indicate that an
enforcement action will be commenced against any cement producer. The Company
has produced documents and answered certain interrogatories in response to the
CID. Because of the early stage of the investigation, it is not possible to
predict the outcome of this matter.
(b) The Company owns two inactive CKD disposal sites in Ohio that were
formerly owned by a division of USX. 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. (GEC), 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 larger of these two sites (USX Site) and is
seeking injunctive relief, unspecified civil penalties and attorneys' fees,
including expert witness fees (GEC case). In September 1993, the Company filed a
complaint against USX alleging that with respect to the USX Site, USX is a
potentially responsible party and therefore jointly and severally liable for
costs associated with cleanup of the USX Site. (Southdown, Inc. v. USX
Corporation, Case No. C-3-93-354, U.S. District Court, Southern District of Ohio
Western Division) (USX case). On July 5, 1994, the Court consolidated these
cases, under the caption IN RE SOUTHDOWN, INC., LITIGATION, Case No. C-3-93-270.
On July 13, 1994, the Magistrate Judge issued a Supplemental Report and
Recommendation recommending that a USX motion to dismiss filed in the USX case
be denied in its entirety, reconfirming his previous recommendation. On August
26, 1994, the Company responded to the motion to dismiss filed by third-party
defendant USX in the GEC case. A court-supervised settlement conference was held
on September 30, 1994 and the parties commenced settlement discussions. In
December 1994, GEC agreed to a separate out-of-court settlement which included a
cash payment by the Company to GEC and a covenant by the Company not to store,
burn or dispose of hazardous wastes at the Ohio cement plant. As a result of the
settlement, the GEC case has been stayed for two years pending possible
resolution. In late January 1995 the court
19
overruled as moot USX's motion to dismiss in the GEC case. On February 27, 1995,
the District Judge affirmed the Magistrate Judge's recommendation that the USX
motion to dismiss in the USX case be denied. USX and the Company are continuing
their settlement discussions. In this regard, USX and the Company have discussed
jointly employing consulting engineers for further investigative work at the USX
Site to develop additional information with respect to the scope of the
potential remediation costs and possible remediation alternatives and delaying
additional proceedings in the USX case while that investigation takes place.
(c) 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)
related 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 certain 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 was hazardous waste.
The Company engaged counsel to respond to the U.S. EPA Order and, after
reviewing the complaint and the Company's compliance with the relevant
regulations, presented what the Company believed to be substantial mitigating
factors to the interpretations and allegations contained in the Order. Following
several months of extensive settlement negotiations with U.S. EPA, a final
agreement in principle between the parties was reached in December 1994.
Although the paperwork for this agreement has not been finalized, management
believes, based on advice of counsel, that the remaining tasks for finalizing
the agreement in principle will not alter the significant terms of the
agreement, which stipulate the payment by the Company of a significantly reduced
penalty and withdrawal by the U.S. EPA of the proposed requirement for closure
of the Company's storage silos.
(d) On November 17, 1992, Region IV of the U.S. EPA advised the Company of
certain alleged violations of the National Pollution Discharge Elimination
System (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. The Company voluntarily terminated
operations at the facility in the Spring of 1993 and, in October 1993, the
property was sold.
Although the Company no longer owns the property involved in the alleged
violation, on September 13, 1994, the United States Department of Justice,
acting on behalf of EPA, brought an action against the Company in the United
States District Court for the Northern District of Florida alleging NPDES Clean
Water Act violations and seeking the statutory maximum penalty of $25,000 per
day of violation. A scheduling order has been entered setting a tentative trial
date of March 12, 1996. Discovery in preparation for potential trial is in
progress. However, the parties continue to engage in negotiations to settle this
matter. The Department of Justice has asserted that it
20
believes a penalty in excess of one million dollars is appropriate. The Company
and its counsel believe that a substantially lower aggregate penalty is
appropriate.
(e) In March 1991, Southdown Environmental Systems, Inc. (SES) received
notice that the U.S. EPA had initiated an enforcement action under RCRA against
the previous owners of an Avalon, Texas treatment storage and disposal 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. EPA. In its
answer, the Company has asserted numerous legal and factual defenses including
that the regulations allegedly violated are inapplicable to the given
circumstances.
(f) In JACK BLAIR, ET AL. VS. IDEAL BASIC INDUSTRIES, INC., UNITED CEMENT,
LIME, GYPSUM AND ALLIED WORKERS INTERNATIONAL UNION, AND DIXIE CEMENT COMPANY
(Chancery Court of Knox County, Tennessee, No. 03A1-CH-00029), the plaintiffs
are fifteen former employees of Ideal Basic Industries, Inc. (Ideal), and the
defendants are Ideal, Dixie Cement Company (Dixie) (a subsidiary of Moore
McCormack), and the United Cement, Lime, Gypsum and Allied Workers International
Union (Union). The plaintiff's claims arise out of a December 1983 transaction
in which Dixie purchased a cement plant from Ideal. Among other things, the
plaintiffs allege that they were not hired by Dixie because of their ages, that
their retirements were not voluntary because they were induced to retire through
factual misrepresentations made by Ideal employees, allegedly acting as agents
of Dixie, as to their retirement benefits and Dixie's plans to rehire former
Ideal employees, and that Dixie induced Ideal to breach its collective
bargaining agreement with the Union. Dixie has assumed the defense of Ideal with
respect to the claim under Section 301 of the National Labor Relations Act based
on the indemnification provision of the agreement pursuant to which the
Knoxville plant was acquired. The plaintiffs are seeking compensatory damages
(including back pay and benefits), liquidated damages (under the federal age
discrimination statute), punitive damages, treble damages (under the same
statute prohibiting interference with contracts), interest and attorney's fees.
In December 1992, the trial court granted summary judgment on all claims
against Dixie. However, in November 1994, the Tennessee Court of Appeals
reversed the summary judgment order, and remanded the case to the trial court.
In January 1995, Dixie filed an application for an appeal by permission to the
Supreme Court of Tennessee. At this time, the Supreme Court of Tennessee has not
indicated whether it will hear this case on appeal.
(g) 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.
21
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, 1994.
PART II
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.
FISCAL YEAR 1994 HIGH LOW DIVIDEND
First Quarter, ended March 1994 $30.25 $22.88 *
Second Quarter, ended June 1994 27.25 19.38 *
Third Quarter, ended September 1994 22.00 19.38 *
Fourth Quarter, ended December 1994 20.75 14.25 *
FISCAL YEAR 1993 HIGH LOW DIVIDEND
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 *
- --------------
* 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 19 of Notes to Consolidated
Financial Statements.
On January 31, 1995 there were 1,842 holders of record of the Company's
Common Stock. On February 28, 1995, the closing price of the stock was $16.50.
22
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues .................................................... $561.9 $509.6 $ 464.8 $470.5 $ 551.0
====== ====== ========= ====== ========
Earnings (loss) from continuing operations<F1> .............. $ 30.1 $ 3.6 $ (16.9) $(40.0)<F2> $ 14.0<F3>
Loss from discontinued operations,
net of income taxes ....................................... (5.9) (3.6) (24.5) (3.2) (0.6)
Loss on disposition of discontinued operations,
net of income taxes ....................................... (21.6) -- -- -- --
Gain on disposition of discontinued oil and gas
operations, net of income taxes ........................... -- -- 0.8<F4> -- --
Extraordinary charge, net of
income taxes<F5> .......................................... -- (1.0) -- (1.4) --
Cumulative effect of change in accounting
principle, net of income taxes<F6> ........................ -- (48.5) -- -- --
------ ------ --------- ------ --------
Net earnings (loss) ......................................... $ 2.6 $(49.5) $ (40.6) $(44.6) $ 13.4
====== ====== ========= ====== ========
Primary and fully diluted earnings (loss)
per share<F7> -
Continuing operations .................................... $ 1.20 $(0.09) $ (1.29) $ (2.67) $ 0.48
Loss from discontinued operations, net of
income taxes .......................................... (0.34) (0.21) (1.45) (0.19) (0.04)
Loss on disposition of discontinued operations,
net of income taxes ................................... (1.26) -- -- -- --
Gain on disposition of discontinued oil and gas
operations, net of income taxes ....................... -- -- 0.05<F4> -- --
Extraordinary charge, net of income taxes<F5> ............ -- (0.06) -- (0.08) --
Cumulative effect of change in
accounting principle, net of
income taxes<F6> ...................................... -- (2.86) -- -- --
------ ------- --------- ------- --------
Net earnings (loss) ....................................... $(0.40) $(3.22) $ (2.69) $ (2.94) $ 0.44
====== ======= ========= ======= ========
Total assets ................................................ $881.0 $907.0 $ 921.5 $ 986.1 $1,039.7
====== ======= ========= ======= ========
Capital expenditures ........................................ $ 28.8 $ 13.4 $ 7.7 $ 20.6 $ 37.5
====== ======= ========= ======= ========
Depreciation, depletion and amortization .................... $ 42.8 $ 41.3 $ 45.4 $ 45.2 $ 43.5
====== ======= ========= ======= ========
Total debt .................................................. $186.1 $293.9 $ 314.8 $ 332.7 $ 317.3
====== ======= ========= ======= ========
Preferred stock subject to
mandatory redemption ...................................... $ - $ - $ - $ - $ 6.0
====== ======= ========= ======= ========
Shareholders' equity ........................................ $337.1 $262.2 $ 316.4 $ 362.0 $ 410.1
====== ======= ========= ======= ========
Ratio of debt to total capitalization<F8> ................... $35.6% 52.9% 49.9% 47.9% 43.3%
====== ======= ========= ======= ========
Cash dividends paid per share of
common stock .............................................. $ - $ - $ - $ 0.125 $ 0.50
====== ======= ========= ======= ========
<FN>
<F1> In November 1994 the Company's Board of Directors decided to exit the
environmental services business and these business activities are presented
as discontinued operations for all years shown. (See also Note 2 of Notes
to Consolidated Financial Statements.)
<F2> Includes $16 million equity in pretax loss of unconsolidated joint venture.
<F3> Includes a $10 million pretax charge attributable to an unfavorable
arbitration ruling and a $6.6 million pretax credit to pension expense.
<F4> Final portion of the Company's gain realized in conjunction with the 1989
sale of the Company's oil and gas operations.
<F5> Premium on early extinguishment of debt.
<F6> 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 18 of Notes to Consolidated Financial Statements.)
<F7> Fully diluted earnings (loss) per share are anti-dilutive and are,
therefore, the same as primary earnings (loss) per share for all periods
shown.
<F8> Total capitalization represents the sum of total debt, preferred stock
subject to mandatory redemption and shareholders' equity.
</TABLE>
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues ................................ 561.9 509.6 464.8
===== ===== =====
Costs and expenses ...................... 486.1 462.2 446.7
===== ===== =====
Operating earnings 1 .................... 71.7 44.3 15.4
==== ==== ====
Interest expense ........................ (27.7) (39.3) (45.0)
===== ===== =====
Income tax (expense) benefit ............ (13.9) (1.4) 12.7
===== ==== ====
Earnings from continuing
operations .............................. 30.1 3.6 (16.9)
==== === =====
Net earnings (loss) ..................... 2.6 (49.5) (40.6)
=== ===== =====
Net loss per share ...................... (0.40) (3.22) (2.69)
===== ===== =====
(1) Continuing operations before interest and income tax expense.
CONSOLIDATED EARNINGS
1994 COMPARED WITH 1993
Net earnings for 1994 were $2.6 million compared with a net loss of $49.5
million in 1993. Earnings from continuing operations for 1994 were $30.1 million
compared with $3.6 million for the prior year. The loss from discontinued
operations was $27.5 million in 1994, including a $21.6 million provision for
the disposition of discontinued operations, compared with a loss of $3.6 million
in 1993. Per share results for 1994 were a loss of $0.40 per share, primary and
fully diluted, compared with a loss of $3.22 per share, in the prior year
including the $48.5 million, $2.86 per share, initial charge related to the 1993
adoption of new accounting rules for postretirement benefits, Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS No. 106).
Consolidated revenues in 1994 increased 10% over the prior year period
primarily because of improvements in sales volumes and prices from the Concrete
Products segment and improved prices in the Cement segment. The year-over-year
improvement in net earnings resulted from an 11% increase in Cement segment
operating earnings, a $10.9 million improvement in the results reported by
Concrete Products, a 9% reduction in corporate expenses and a 30% reduction in
interest expense. The Cement segment benefited from an 8% improvement in the
weighted average sales price. The Concrete Products segment achieved a
significant improvement primarily as a result of a substantial upturn in the
Florida operations. The Company's California concrete products operating results
included $1.7 million in gains realized from sales of ready-mixed concrete mixer
trucks.
24
General and administrative expenses declined because the prior year
included a $2.5 million charge to accrue benefits under SFAS No. 106, while
additional accruals have not been necessary subsequent to the July 1, 1993
effective date of the Company's amended postretirement benefits plan.
Miscellaneous income in 1994 included the realization of a $4.8 million gain
stemming from the 1988 acquisition of Moore McCormack Resources, Inc. (Moore
McCormack) and a $2 million charge to increase the estimated liability for
remediation of an inactive cement kiln dust (CKD) disposal site, while the prior
year period included a $3 million CKD remediation charge. The reduction in
interest expense reflects the early retirement of the Company's 12% Senior
Subordinated Notes Due 1997 (12% Notes). The Company's effective tax rate, which
includes state taxes, was lower than the federal statutory rate for 1994
primarily because of the favorable impact of permanent differences related to
statutory depletion in excess of cost depletion applicable to the Company's
limestone mining operations. The effective tax benefit rate for 1993 was higher
than the statutory rate because of the interaction of an increase in the
corporate federal income tax rate, permanent differences between book and tax
loss for the year and a state income tax benefit.
1993 COMPARED WITH 1992
Earnings from continuing operations for the year ended December 31, 1993
were $3.6 million compared with a net loss of $16.9 million for the prior year.
The loss from discontinued operations was $3.6 million in 1993 compared with a
loss of $24.5 million in 1992 which included a $21.4 million charge to adjust
the carrying value of certain assets. Discontinued operations in 1992 also
included an $800,000 after-tax gain, $0.05 per share, on discontinued oil and
gas operations. Including a $48.5 million, $2.86 per share, charge related to
adoption of SFAS No. 106 and a $1 million redemption premium (net of tax)
resulting from the early retirement of $45 million of the Company's 12% Notes
mentioned above, 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 1992 was
$40.6 million, $2.69 per share, primary and fully diluted.
Consolidated revenues in 1993 increased 10% over the prior year primarily
because of improvements in sales volumes and sales prices from the Cement and
Concrete Products segments. 1993 operating earnings increased $28.9 million over
the prior year. This increase was attributable to improvements in each of the
operating segments because of improved sales volumes and operating margins. The
year 1993 included (i) a $3 million charge to increase the estimated liability
for remediation of the inactive CKD disposal site discussed above; (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 year 1992 included (i) a $3.6
million charge related to remediation of the inactive CKD disposal site
previously mentioned; (ii) a $3.0 million charge to record the loss realized
upon closing of the final phase of the Florida aggregate operation sale; (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.
Operating costs increased approximately 4%, less than might be expected
with the above mentioned revenue increase, primarily because of a favorable
impact of continued cost savings measures. Depreciation, depletion and
amortization for 1993 declined compared with the prior year because of 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 $3.8 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
25
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 28%
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 also 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 also Note 18 of Notes to
Consolidated Financial Statements.)
SEGMENT OPERATING EARNINGS
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
(IN MILLIONS)
REVENUES:
Cement ................................. $398.4 $370.9 $339.5
Concrete Products ...................... 208.1 176.3 158.1
Intersegment sales ..................... (45.3) (38.1) (33.5)
Other .................................. 0.7 0.5 0.7
------ ------ ------
561.9 509.6 464.8
====== ====== ======
OPERATING EARNINGS (LOSS):
Cement ................................. 91.2 81.9 62.6
Concrete Products ...................... 9.3 (1.6) (11.6)
Corporate
General and administrative ......... (25.1) (28.9) (32.7)
Depreciation, depletion and
amortization ....................... (5.0) (4.3) (4.4)
Miscellaneous income (losses) ...... 1.3 (2.8) 1.5
------ ------ ------
$ 71.7 $ 44.3 $ 15.4
====== ====== ======
CEMENT - Operating earnings for 1994 were $91.2 million compared with
$81.9 million in the prior year. Despite higher per unit operating costs,
operating earnings improved over the prior year primarily because of a $4.18 per
ton increase in average cement sales prices. The increase in the average sales
price per ton for 1994 reflects the realization of price increases implemented
in most of the Company's markets during the year. The increase in operating
costs per ton for 1994 compared with the prior year was attributable primarily
to higher maintenance and repair costs at several of the manufacturing
facilities, some of which were related to abnormally severe weather conditions
in the first and third quarters of 1994.
26
Cement segment 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 compared with the prior year. Improvements in
operating earnings over the prior year were realized at six of the Company's
cement plants, while the Company's other two cement plants incurred 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
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 four other cement manufacturers or
distributors. Some of the contracts have take-or-pay provisions. In 1994 and
1993 these contracts, assuming they represented only incremental sales (i.e.,
that fixed costs were fully covered by other sales), accounted for approximately
16% and 25% of the Cement segment's operating earnings, respectively. In 1994
the Company 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.
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:
1994 1993 1992
Tons of cement sold (in thousands) ...... 6,218 6,196 5,788
===== ===== =====
Weighted average per ton data:
Sales price (net of freight) .......... $ 55.77 $ 51.59 $ 49.98
Manufacturing and other plant
operating costs(1) .................. 40.95 38.57 39.70(2)
----- ----- -------
Margin ................................ $ 14.82 $ 13.02 $ 10.28
====== ====== ======
(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.
In 1994 the Company was unable to achieve its goal of reducing operating
costs per ton as it had in the prior two years. Operating costs per ton
increased in 1994 primarily because of (i) events related to extreme weather,
(ii) a number of unscheduled production interruptions, (iii) overtime labor and
outside contract services incurred in an attempt to maximize production to meet
increased demand and, (iv) increased grounds keeping and maintenance
expenditures. Operating costs per ton declined in 1993 compared with 1992
primarily because of the favorable impact of: (i) higher sales volume
27
and higher production levels which resulted in fixed costs being spread over
more units and (ii) the effects of a cost reduction program. Clinker production
decreased 1% in 1994 compared with 1993, but increased 3% in 1993 compared with
1992.
The increase in the average sales price per ton compared with the prior
years reflects a general firming of cement prices throughout the industry and
the partial realization of price increases implemented at most of the Company's
cement plants during 1994 and 1993.
CONCRETE PRODUCTS OPERATIONS - The Concrete Products segment's operating
earnings for 1994 were $9.3 million compared with a $1.6 million operating loss
reported in the prior year. Revenues increased 18% over the prior year as sales
volumes and prices from all of the product lines showed improvement.
Results from the southern California operation improved $3.7 million
primarily because of a $1.7 million in gains realized on sales of used mixer
trucks and higher ready-mixed concrete sales prices. Florida's operating results
increased by approximately $7.2 million compared with the prior year reflecting
higher sales volumes and sales prices from the ready-mixed concrete operation as
well as continuing improvement from the block, resale and fly ash operations.
Ready-mixed concrete sales volumes and prices in the Florida market area
improved by 9% and 8%, respectively, reflecting the continued economic recovery
in that region. The increase in the weighted average sales price per yard for
1994 compared with 1993 reflects higher sales prices in both the Company's
Florida and southern California markets. The increase in the weighted average
operating costs per yard for 1994 compared with 1993 is attributable to higher
material costs in Florida (primarily the increased cost of cement which is
discussed under "Cement" above).
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 from 1992 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.
28
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:
1994 1993 1992
Cubic yards of ready-mixed concrete
sold (in thousands) ...................... 3,530 3,274 3,038
====== ====== ======
Weighted average per cubic yard data:
Sales price .............................. $ 47.76 $ 43.86 $ 43.13
Operating costs1 ......................... 47.32 45.48 46.66
------ ------ ------
Margins .................................. $ 0.44 $ (1.62) $ (3.53)
====== ====== ======
--------------
(1) Includes variable and fixed plant costs, delivery, selling, general and
administrative and miscellaneous operating costs, but excluding the $1.7
million gain realized on the sale of trucks during 1994.
The increase in the weighted average sales price per yard for the year
ended December 31, 1994 compared with 1993 reflects partial realization of price
increases implemented in the Company's Florida and southern California markets.
The increase in the weighted average sales price per yard for the year ended
December 31, 1993 compared with 1992 reflects higher sales prices in the
Company's Florida market partially offset by lower prices in the Company's
southern California market. The increase in the weighted average operating costs
per yard for 1994 compared with 1993 is primarily attributable to higher
materials and overhead costs in Florida. The decrease in the weighted average
operating costs per yard for the year ended December 31, 1993 compared with 1992
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.
While most of the revenues for the segment are generated by ready-mix
concrete operations, the concrete products segment operations also include the
manufacture and sale of concrete block, the sale of masonry contractors'
supplies, the mining and sale of aggregate to third parties and the sale of
flyash. These collateral operations, together with the gains realized on the
sales of used mixer trucks contributed, approximately $7.8 million, $3.7 million
and a loss of $900,000 to this segment's operating results in 1994, 1993 and
1992, respectively.
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. Corporate general and administrative expenses for
1994 were substantially below the prior year primarily because 1993 included a
$2.5 million charge to accrue the estimated postretirement health care benefit
calculated under SFAS No. 106. Corporate general and administrative expense also
benefited from the $1 million increase in the pension credit discussed
previously.
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
29
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.
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 income of $1.3 million in
1994, a net loss of $2.8 million in 1993 and a net $1.5 million of income in
1992. Miscellaneous income in 1994 included the $4.8 million gain stemming from
the Moore McCormack acquisition, charges totaling $1.7 million in conjunction
with the disposition of law suits and a $2 million charge to increase the
estimated liability to remediate the inactive CKD disposal site referred to
above. Miscellaneous income (loss) in 1993 included: (i) a $3 million charge for
estimated remediation costs for the 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.
DISCONTINUED OPERATIONS - In November 1994 the Company decided to
discontinue its Environmental Services business and recorded an after-tax charge
of $21.6 million or $1.26 per share to reflect the difference between the book
value of this line of business's assets and the estimated proceeds from asset
sales, as well as the costs to exit the business and estimated losses to be
incurred prior to the sale of assets. The charge as well as the results from the
Environmental Services segment are shown in the Company's financial reports as
discontinued operations, net of income tax effect. The loss from operations of
the discontinued environmental services business was $5.9 million in 1994, $3.6
million in 1993 and $24.5 million in 1992.
LIQUIDITY AND CAPITAL RESOURCES
1994 1993 1992
(in millions)
Cash and cash equivalents ............. $ 7.4 $ 7.4 12.5
====== ====== =====
Working capital ....................... $ 74.1 $ 62.9 83.8
====== ====== =====
Net cash provided by operating
activities ............................ $ 86.8 $ 53.1 35.0
====== ====== =====
Net cash used in investing
activities ............................ $ 50.5 $ 19.0 11.3
====== ====== =====
Net cash used in financing
activities ............................ $ 36.3 $ 39.2 25.8
====== ====== =====
Total assets .......................... $881.0 $907.0 921.5
====== ====== =====
Total debt ............................ $186.1 $293.9 314.8
====== ====== =====
Capital expenditures .................. $ 28.8 $ 13.4 7.7
====== ====== =====
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
30
(iii) a combination of these two sources. Internally generated cash flow from
operations, borrowings under its revolving credit facility and the net proceeds
from the sale of a new issue of preferred stock were utilized to meet all of the
Company's cash requirements for the year ended December 31, 1994. Such cash flow
was utilized to: (i) invest approximately $44.7 million in property, plant and
equipment additions and acquisitions; (ii) reduce debt by approximately $111.6
million and (iii) pay dividends on preferred stock. During 1993, the Company
utilized internally generated cash flow from operations, including a $15.7
million federal income tax refund from the carryback to prior years of the 1992
tax loss, primarily to (i) make investments of approximately $13 million in
property, plant and equipment, (ii) make scheduled debt principal payments of
approximately $25 million and (iii) pay dividends on preferred stock.
The Company's Revolving Credit Facility with a group of eight commercial
banks (Revolving Credit Facility) totals $200 million and matures in November
1996. The Revolving Credit Facility includes $18.5 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 (MARAD)
related to certain shipping operations owned previously by Moore McCormack, an
entity acquired by the Company in 1988. (See also Notes 11 and 14 of Notes to
Consolidated Financial Statements.) The Revolving Credit Facility also includes
the issuance of standby letters of credit up to a maximum of $95 million.
Substantially all of the Company's assets remain pledged to secure this
facility. At January 31, 1995, $95.0 million of unused capacity, excluding any
amounts restricted for funding the maritime obligations, was available for the
Company's use under the 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 also Note 19 of Notes to Consolidated 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 Revolving Credit Facility, $47
million of which was incurred in early January 1994 to redeem $45 million
principal amount of the Company's 12% Notes. The remaining $45 million
outstanding principal amount of the 12% Notes was prepaid on May 1, 1994 with
additional borrowings under the 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.
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
1993. While the southern California construction market only began to show signs
of a mild improvement in 1994, construction activity in most other regions of
the country began to give indications of a slight rebound in 1993 and registered
a more substantial recovery in 1994.
DISCONTINUED OPERATIONS - The $21.6 million in charges recorded by the
Company in the fourth quarter of 1994 in conjunction with its decision to
discontinue its environmental services business is primarily non-cash.
Out-of-pocket expenditures associated with the discontinuance of the
environmental services operations will be limited to severance, administrative
costs associated with the disposition of the environmental services assets and
other exit costs.
31
CASH FLOWS
OPERATING ACTIVITIES - Cash provided by operating activities in 1994 was
$86.8 million. In spite of the large net losses, cash provided by operating
activities was $53.1 million for 1993 and $35.0 million for 1992. 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 - Investing activities in 1994 included approximately
$28.6 million of capital expenditures. In December 1994 the Company acquired a
cement import terminal in Florida along with certain working capital items for
approximately $16 million in cash. In addition to routine capital expenditures,
investing activities in 1993 included the acquisition of five ready-mixed batch
plants, one aggregate quarry and one block plant for $2.9 million in cash plus
the forgiveness of debt owed to the Company and the assumption of certain
liabilities. Investing activities in 1992 included $9.3 million in net cash
proceeds from the sale of miscellaneous assets, including the last of the
Florida aggregate operations. Approximately $7.7 million was invested in capital
expenditures during 1992.
FINANCING ACTIVITIES - During 1994 the Company realized approximately $83
million in net proceeds from the sale of a new series of preferred stock which
was used to prepay an $18 million promissory note and to reduce borrowings under
the Company's Revolving Credit Facility. The Company had used borrowings under
the Company's Revolving Credit Facility to redeem $90 million of the Company's
12% Notes. 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.
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December 31,
1993 and 1994 reflects the realization of approximately $83 million in net
proceeds from the sale of a new issue of preferred stock which was used to pay
down debt, including $18 million classified as current maturities of long-term
debt, and to fund working capital requirements and capital expenditures. Prepaid
expenses and other includes $13.1 million in assets of the discontinued
environmental services segment currently held for sale. Accounts payable and
accrued liabilities increased because of accruals related to the $21.6 million
after-tax charge to exit the environmental services business. Other liabilities
and deferred credits decreased because of payments made in conjunction with the
shipping operations formerly owned by Moore McCormack and other obligations.
CAPITAL EXPENDITURES
The Company invested $36.0 million in property, plant and equipment in
1994 including approximately $16.8 million for the Cement operations (excluding
the acquisition of the Florida cement import terminal), $9.4 million for
Concrete Products and $7.2 million for Environmental Services which has been
discontinued. The Company's 1995 planned capital expenditures are approximately
$64.4 million, of which $51.5 million is allocated for the Cement segment and
$9.9 million for the Concrete Products segment. The balance of the 1995 capital
expenditures budget has been allocated primarily for computer related hardware
and software costs.
32
The Cement segment's estimated capital budget for 1995 provides for
increased expenditures in order to achieve process enhancements which could
yield improvements in efficiency and productivity, including $25 million for a
major project at the Company's Ohio plant. The Company has made application to
the Ohio Environmental Protection Agency for a permit to install new finish
grinding capacity and other improvements, at the Company's Ohio plant. The total
estimated costs of these Ohio plant improvements are approximately $50 million,
to be incurred over a two year period. The entire project is subject to final
approval by the Company's Board of Directors. The Concrete Products segment's
estimated capital budget for 1995 includes approximately $8.3 million for plant
expansion, equipment improvements and equipment, including approximately $1.3
million of expenditures related to environmental compliance, $1.1 million in
quarry development and approximately $500,000 for mobile equipment. In most
instances new mobile equipment is being leased instead of being purchased.
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 Company believes recurring environmental
compliance costs are a material component of total operating costs and, while
the Clean Air Act Amendments of 1990 will likely result in increased capital and
operational expenses for the Company in the future, these amounts are not
presently determinable. Regulatory changes, enforcement activities or other
factors could alter an estimate 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. Management,
however, has no reason to believe that the Company would be placed at a
competitive disadvantage with respect to other companies engaged in similar
lines of business operating in the United States.
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.
The Federal Water Pollution Control Act, commonly known as the Clean Water
Act, provides comprehensive federal regulation of various sources of water
pollution. The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of various sources of air pollution, and established a new federal
operating permit 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. Beginning in mid-1995, the Company must, on a pre-determined
phase-in schedule, submit permit applications and pay annual permit fees. In
addition, the U.S. Environmental Protection Agency (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 disadvantage with respect to its competitors. To the contrary, given the
age, condition, design and other features of the Company's cement manufacturing
facilities, these more stringent standards may enhance the Company's
33
competitive position. 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 subsequent owners. Federal and state regulations
also hold owners or operators of hazardous waste facilities liable for all costs
of closure and post-closure monitoring and maintenance of these facilities upon
cessation of operations.
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, may 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. Management believes that the Company's current procedures
and practices for handling and management of materials are generally 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. Owners
and operators of industrial facilities may be subject to fines or other actions
imposed by the U.S. EPA and corresponding state regulatory agencies for
violations of laws or regulations relating to hazardous substances. The Company
has incurred fines imposed by various environmental regulatory agencies in the
past.
Several of the Company's previously and currently owned 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 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. Based on the information the Company has developed to date, the
Company has no reason to believe it will be required to spend significant sums
with regard to these locations either individually or in the aggregate. However,
until it is determined what, if any, contribution the Company made to these
locations and, 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.
CEMENT KILN DUST - 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 cement kiln dust (CKD), chromium present in refractory brick formerly
widely used to line cement kilns and general purpose solvents. Under the Bevill
amendment, CKD is currently exempt from management as a hazardous waste, except
CKD which is produced by kilns burning hazardous waste derived fuel (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, hearings were
held on February 15, 1994 and on January 31, 1995, the U.S. EPA issued its
decision on the regulatory status of CKD. Although the U.S. EPA determined
further regulation of CKD was necessary, the agency stated that it found no
evidence of risks
34
associated from the use of cement products and that it believes most secondary
uses of CKD do not present significant risks to people or the environment. CKD
will not be regulated as a full-fledged Resource Conservation and Recovery Act
(RCRA) hazardous waste and the Bevill amendment exemption will remain in effect
until the issuance of new CKD management standards. The U.S. EPA will initiate a
rulemaking process, which is estimated to take at least two years, in order to
develop these specially tailored CKD management standards. This change in the
status of CKD may require the cement industry to develop new methods for
handling this high volume, low toxicity waste.
CKD that is infused with water may produce a leachate with an alkalinity
high enough to be classified as hazardous and may also leach certain 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 have been under
investigation by the Company to determine if remedial action is required at any
of the sites and, if so, the extent of any such remedial action. The Company has
recorded charges totaling $11.7 million as the estimated remediation cost for
one of these sites. Approximately $9.5 million of the reserved amount had been
expended through December 31, 1994 with most of the balance to be spent during
1995. The Company believes it currently has sufficient cash flow from current
operating activities or borrowing capacity under its Revolving Credit Facility
to fund this remediation. Although data necessary to enable the Company to
estimate additional remediation costs is not available, the Company acknowledges
that it is at least reasonably possible the ultimate cost to remediate the CKD
disposal problem in Ohio could be significantly more than the amounts reserved.
On a voluntary basis, 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 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 larger of the two sites (USX Site). Based on the
limited information available, the Company has received two preliminary
estimates of the potential magnitude of the remediation costs for the USX Site,
$8 million and $32 million, depending on the assumptions used.
The Company and USX have held settlement discussions with respect to this
matter. In this regard, USX and the Company have discussed jointly employing
consulting engineers for further investigative work at the USX Site to develop
additional information with respect to the scope of the potential remediation
costs and possible remediation alternatives and delaying additional proceedings
in the USX case while that investigation takes place.
The Company believes that USX is a responsible party because it owned and
operated the USX Site at the time of disposal of the hazardous substances,
arranged for the disposal of the hazardous substances and transported the
hazardous substances to the USX Site. Therefore, based on the advice of counsel,
the Company believes there is a reasonable basis for the apportionment of
cleanup costs relating to the USX 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 USX Site and is
potentially liable under CERCLA only because of its current ownership of the USX
Site. (See also Item 3. "Legal Proceedings" - (b) and Note 17 of Notes to
Consolidated Financial Statements).
35
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 USX Site requiring it to remediate the property, and no cleanup of
the USX Site has yet been initiated.
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 13% of total U.S. consumption in
1994 according to the Portland Cement Association, as compared with an estimated
19.1% of total U.S. consumption in 1987.
In response to the surge of unfairly priced imports, groups of industry
participants, including the Company, filed antidumping petitions against imports
from Mexico in 1989, against imports from Japan in 1990 and against imports from
Venezuela in 1991. The International Trade Commission (ITC) and the Department
of Commerce (DOC) made affirmative final determinations against cement from
Mexico and Japan. Antidumping orders were imposed against Mexican cement in
August 1990 and against Japanese cement in April 1991. In addition, in February
1992, the DOC suspended two antidumping investigations of cement from Venezuela,
based upon the Venezuelan cement producers agreement to revise their prices to
eliminate the dumping of gray portland cement from Venezuela into the United
States. The two major Venezuelan cement exporters must price their U.S. sales
above their cost of production and home market profit. An intentional violation
would expose the Venezuelan producers to civil fraud penalties. The antidumping
orders and suspension agreement were largely responsible for a reversal in the
influx of cement imports in the 1990s.
Margins of dumping and the resulting antidumping duties are subject to
annual review by the Department of Commerce and appeal to the U.S. Court of
International Trade and the U.S. Court of Appeals for the Federal Circuit.
Pursuant to the Uruguay Round Agreement, the General Agreement on Tariffs
and Trade (GATT) and the GATT Antidumping Code were superseded on January 1,
1995 by a new GATT, which will be administered by the newly created World Trade
Organization (WTO). 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. New legislation passed by the Congress in
December 1994, however, requires the initiation of "sunset" reviews of the
antidumping orders against Mexico and Japan and the suspension agreement with
Venezuela prior to January 2000 to determine whether these antidumping orders
and the suspension agreement should terminate or remain in effect.
The North American Free Trade Agreement (NAFTA) has had no material
adverse effect on the antidumping duty cash deposit rates imposed on gray
portland cement and clinker imported from Mexico. The Company does not believe
that NAFTA will have a material adverse effect on the foregoing antidumping duty
cash deposit rates in the near future. A severe economic crisis in Mexico
resulted in devaluations of the Mexican peso in late 1994 and early 1995.
Because of the retroactive nature of administrative reviews, the impact on the
calculation of antidumping cash deposit rates resulting from the devaluation of
the peso, if any, would not be realized until some future period. A
36
substantial reduction or elimination of the existing antidumping duties as a
result of GATT, NAFTA, currency devaluation or any other reason could adversely
affect the Company's results of operations.
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 $2.5
million in 1994, $2.4 million in 1993 and $2.5 million in 1992. The Company is
either a guarantor or directly liable under certain charter hire debt agreements
totaling approximately $7 million at December 31, 1994, 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 Revolving Credit Facility to fund these guaranties,
if required, as well as meet its other borrowing needs for the foreseeable
future.
The Company's Revolving Credit Facility includes $18.5 million of
borrowing capacity as of January 31, 1995 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.
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 and 1994,
particularly in the southern California market area where many of the Company's
customers have been adversely affected by the prolonged recession in the
construction industry in that region. Four such customers were indebted to the
Company at December 31, 1994 in the amount of $15.8 million. Approximately 75%
of the $15.8 million in receivables is 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, 1994. The
Company stopped selling cement on credit to the other customer in default in
mid-1993. In February 1995 this customer filed for protection under Chapter 11
of the United States Bankruptcy Code and the Company is presently evaluating its
options for collection of outstanding balances.
A third customer in the California group had difficulty in maintaining
prompt payment for its cement purchases and restructuring discussions were
commenced in late 1993. In anticipation of this restructuring, the Company wrote
off against the allowance for doubtful accounts a $3.3 million note receivable
from an affiliated company of this customer in late 1994. In early February 1995
the Company loaned this customer $750,000 as part of a comprehensive debt
restructuring under which the Company went from an unsecured to a secured
creditor. The Company is contractually committed to supply up to 90% of the
cement requirements of the fourth of these customers on extended credit terms,
provided this customer maintains its current payment status with respect to both
current purchases and payments on its note.
37
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 as additional information regarding the
collectibility of these and other accounts becomes available.
CLAIMS FOR INDEMNIFICATION - Prior to the sale of the Company's then oil
and gas subsidiary, Pelto Oil Company (Pelto) in 1989 to Energy Development
Corporation (EDC), 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 1988 agreement Pelto entered into with Transco to determine whether a
payment to Pelto thereunder is associated with Federal or Indian leases and
whether, in its view, any additional royalties may be due as a result of that
payment. 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. By letter dated September 30, 1994, the
MMS's Houston Compliance Division advised the Company that it had determined
that a $5.9 million payment made by Transco to Pelto was for a "Contract
Buy-Down" and was royalty bearing. The letter directed the Company to compute
and pay royalties on the $5.9 million sum. It also indicated that upon receipt
of the Company's payment, late payment charges would be computed and assessed
from May 1, 1987. On October 30, 1994 the Company timely filed its notice of
appeal of the MMS directive, thereby staying compliance with the letter. On
December 30, 1994 the Company filed with the MMS its statement of reasons
supporting its appeal.
The Company disagrees with the MMS' determination; however, if the MMS'
determination as to the $5.9 million dollar payment to Pelto is ultimately
upheld, the Company could have liability for royalty on that sum, plus late
payment charges.
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. To the extent the recent construction recovery
experienced in most regions of the country will be effected by fluctuations in
mortgage rates, the availability of bank credit, political and economic
developments in Mexico and Canada and domestic political decisions to commit
government resources for public construction projects such as roads, bridges,
airports and similar infrastructure projects, the cement and concrete products
industry will be impacted.
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. Construction activity in many regions rebounded slightly in
1993 and registered a more substantial recovery in 1994. Southern California,
the Company's largest market area, however, showed little or no improvement in
1993 or 1994.
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 2.7% in 1994, 2.6% in 1993 and 2.9% in 1992. Prices of materials and
services have remained relatively stable over the three-year period.
38
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, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Revenues<F1> ....................................................... $111.8 $149.8 $158.5 $141.8
====== ====== ====== ======
Gross profit<F2> ................................................... $ 22.6 $ 38.1 $ 33.4 $ 35.0
====== ====== ====== ======
Earnings from continuing operations before
interest and income taxes<F1> ..................................... $ 6.9 $ 25.3 $ 18.6 $ 20.9
====== ====== ====== ======
Earnings (loss) from continuing operations<F1> ..................... $ (1.3) $ 12.1 $ 8.6 $ 10.7
Loss from discontinued operations,
net of income taxes ............................................... (0.9) (1.1) (2.1) (1.8)
Loss on disposition of discontinued operations,
net of income taxes ............................................... -- -- -- (21.6)
------ ------ ------ ------
Net earnings (loss) .......................................... $ (2.2) $ 11.0 $ 6.5 $(12.7)
====== ====== ====== ======
Earnings per share:
Primary -
Earnings (loss) from continuing operations ........................ $ (0.20) $ 0.54 $ 0.35 $ 0.48
Loss from discontinued operations,
net of income taxes ............................................. (0.05) (0.06) (0.12) (0.10)
Loss on disposition of discontinued operations,
net of income taxes ............................................. -- -- -- (1.25)
------ ------ ------ ------
Net earnings (loss) .......................................... $ (0.25) $ 0.48 $ 0.23 $ (0.87)
====== ====== ====== ======
Fully diluted -
Earnings (loss) from continuing operations ........................ $ (0.20) $ 0.51 $ 0.35 $ 0.48
Loss from discontinued operations,
net of income taxes ............................................. (0.05) (0.05) (0.12) (0.10)
Loss on disposition of discontinued operations,
net of income taxes ............................................. -- -- -- (1.25)
------ ------ ------ ------
Net earnings (loss) .......................................... $ (0.25) $ 0.46 $ 0.23 $ (0.87)
====== ====== ====== ======
<FN>
<F1> Excludes revenues and earnings of the discontinued environmental services
segment which the Company's Board of Directors decided to exit in November
1994.
<F2> Gross profit is revenues less operating expense and depreciation expense
relating to cost of sales. Depreciation expense relating to cost of sales
was $8.3 million, $8.1 million, $8.0 million and $8.4 million in each of
the quarterly periods of 1994, respectively.
</TABLE>
39
<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<F1> ....................................................... $ 96.4 $135.4 $148.0 $129.8
====== ====== ====== ======
Gross profit<F2> ................................................... $ 18.8 $ 31.8 $ 32.0 $ 28.9
====== ====== ====== ======
Earnings from continuing operations before
interest, income taxes, extraordinary charge
and cumulative effect of a change in
accounting principle .............................................. $ 3.0 $ 14.7 $ 12.4 $ 14.2
====== ====== ====== ======
Earnings (loss) from continuing operations
before extraordinary charge and
cumulative effect of a change in
accounting principle .............................................. $ (4.6) $ 2.9 $ 2.2 $ 3.1
Earnings (loss) from discontinued operations,
net of income taxes ............................................... 0.2 (0.3) (0.7) (2.8)
Extraordinary charge, net of income taxes<F3> ...................... -- -- -- (1.0)
Cumulative effect of a change in
accounting principle, net of income taxes<F4> ..................... (48.5) -- -- --
------ ------ ------ ------
Net earnings (loss) ................................................ $(52.9) $ 2.6 $ 1.5 $ (0.7)
====== ====== ====== ======
Earnings (loss) per share:
Primary -
Earnings (loss) from continuing operations ...................... $ (0.35) $ 0.10 $ 0.05 $ 0.11
Earnings (loss) from discontinued operations,
net of income taxes .......................................... 0.01 (0.02) (0.04) (0.16)
Extraordinary charge, net of income taxes<F3> .................. -- -- -- (0.06)
Cumulative effect of a change in
accounting principle, net of
income taxes<F4> ............................................. (2.86) -- -- --
------ ------ ------ ------
Net earnings (loss) .......................................... $ (3.20) $ 0.08 $ 0.01 $ (0.11)
====== ====== ====== ======
Fully diluted -
Earnings (loss) from continuing operations ...................... $ (0.35) $ 0.10 $ 0.05 $ 0.11
Earnings (loss) from discontinued operations,
net of income taxes .......................................... 0.01 (0.02) (0.04) (0.16)
Extraordinary charge, net of income taxes<F3> ................... -- -- -- (0.06)
Cumulative effect of a change in
accounting principle, net of
income taxes<F4> ............................................. (2.86) -- -- --
------ ------ ------ ------
Net earnings (loss) .......................................... $ (3.20) $ 0.08 $ 0.01 $ (0.11)
====== ====== ====== ======
<FN>
<F1> Excludes revenues and earnings of the discontinued environmental services
segment which the Company's Board of Directors decided to exit in November
1994.
<F2> Gross profit is revenues less operating expense and depreciation expense
relating to cost of sales. Depreciation expense relating to cost of sales
was $8.6 million, $8.0 million, $8.0 million and $8.2 million each of the
quarterly periods of 1993, respectively.
<F3> Prepayment penalty on early retirement of $45 million of 12% Senior
Subordinated Notes.
<F4> 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.
</TABLE>
40
<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<F1> ................................................... $ 96.5 $125.9 $129.0 $113.4
====== ====== ====== ======
Gross profit<F2> ............................................... $ 13.5 $ 22.3 $ 24.8 $ 16.5
====== ====== ====== ======
Earnings (loss) from continuing operations
before interest and income taxes .............................. $ 2.2 $ 2.6 $ 12.6 $ (2.0)
====== ====== ====== ======
Earnings (loss) from continuing operations ..................... $ (5.8) $ (5.2) $ 1.7 $ (7.6)
Loss from discontinued operations, net of
income taxes .................................................. (1.6) (1.8) (2.2) (18.9)
Gain on disposition of discontinued oil and
gas operations, net of income taxes<F3> ....................... -- -- 0.8 --
------ ------ ------ ------
Net earnings (loss) ............................................ $ (7.4) $ (7.0) $ 0.3 $(26.5)
====== ====== ====== ======
Earnings (loss) per share:
Primary -
Earnings (loss) from continuing operations .................. $ (0.42) $ (0.38) $ 0.03 $ (0.52)
Loss from discontinued operations, net
of income taxes .......................................... (0.09) (0.11) (0.13) (1.12)
Gain on disposition of discontinued oil and
gas operations, net of income taxes<F3> .................. -- -- 0.05 --
------ ------ ------ ------
Net loss ................................................. $ (0.51) $ (0.49) $ (0.05) $ (1.64)
====== ====== ====== ======
Fully diluted -
Earnings (loss) from continuing operations .................. $ (0.42) $ (0.38) $ 0.03 $ (0.52)
Loss from discontinued operations, net
of income taxes .......................................... (0.09) (0.11) (0.13) (1.12)
Gain on disposition of discontinued oil and
gas operations, net of income taxes<F3> .................. -- -- 0.05 --
------ ------ ------ ------
Net loss ................................................. $ (0.51) $ (0.49) $ (0.05) $ (1.64)
====== ====== ====== ======
<FN>
<F1> Excludes revenues and earnings of the discontinued environmental services
segment which the Company's Board of Directors decided to exit in November
1994.
<F2> Gross profit is revenues less operating expense and depreciation expense
relating to cost of sales. Depreciation expense relating to cost of sales
was $9.2 million, $9.1 million, $9.0 million and $8.9 million each of the
quarterly periods of 1992, respectively.
<F3> Final portion of the gain deferred from the 1989 sale of the Company's oil
and gas operations.
</TABLE>
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.
41
INDEX TO FINANCIAL STATEMENTS
PAGE
Statement of Consolidated Earnings for the years ended
December 31, 1994, 1993 and 1992............................... 43
Consolidated Balance Sheet as of December 31, 1994 and 1993.......... 44
Statement of Consolidated Cash Flows for the years ended
December 31, 1994, 1993 and 1992............................... 45
Statement of Consolidated Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992............................... 46
Notes to Consolidated Financial Statements........................... 47
Independent Auditors' Report......................................... 75
42
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Revenues ........................................................................ $561.9 $509.6 $464.8
------ ------ ------
Costs and expenses:
Operating .................................................................... 399.3 364.8 350.8
Depreciation, depletion and amortization ....................................... 39.4 38.5 41.8
Selling and marketing .......................................................... 13.6 14.0 13.6
General and administrative ..................................................... 37.8 40.1 43.9
Other expense (income), net .................................................... (4.0) 4.8 (3.4)
------ ------ ------
486.1 462.2 446.7
Minority interest in earnings of consolidated
joint venture (Note 13) ........................................................ 4.1 3.1 2.7
------ ------ ------
490.2 465.3 449.4
------ ------ ------
Operating earnings .............................................................. 71.7 44.3 15.4
Interest, net of amounts capitalized ............................................ (27.7) (39.3) (45.0)
------ ------ ------
Earnings (loss) from continuing operations before income
taxes, extraordinary charge and cumulative effect of a
change in accounting principle ................................................. 44.0 5.0 (29.6)
Federal and state income tax (expense) benefit (Note 12) ........................ (13.9) (1.4) 12.7
------ ------ ------
Earnings (loss) from continuing operations before
extraordinary charge and cumulative effect of a change
in accounting principle ........................................................ 30.1 3.6 (16.9)
Loss from discontinued operations, net of income
taxes (Note 2) ................................................................. (5.9) (3.6) (24.5)
Loss on disposition of discontinued operations, net of
income taxes (Note 2) .......................................................... (21.6) -- --
Gain on disposition of discontinued oil and gas operations,
net of income taxes ............................................................ -- -- 0.8
Extraordinary charge, net of income taxes (Note 11) ............................. -- (1.0) --
Cumulative effect of a change in accounting
principle, net of income taxes (Note 18) ....................................... -- (48.5) --
------ ------ ------
Net earnings (loss) ............................................................. $ 2.6 $(49.5) $(40.6)
Dividends on preferred stock .................................................... (9.4) (5.0) (5.0)
------ ------ ------
Loss attributable to common stock ............................................... $ (6.8) $(54.5) $(45.6)
====== ====== ======
Loss per share (Notes 19, 20 and Exhibit 11):
Earnings (loss) from continuing operations ..................................... $ 1.20 $ (0.09) $ (1.29)
Loss from discontinued operations, net of
income taxes (Note 2) ........................................................ (0.34) (0.21) (1.45)
Loss on disposition of discontinued operations, net of
income taxes (Note 2) ........................................................ (1.26) -- --
Gain on disposition of discontinued oil and gas
operations, net of income taxes .............................................. -- -- 0.05
Extraordinary charge, net of income taxes (Note 11) ............................ -- (0.06) --
Cumulative effect of a change in accounting
principle, net of income taxes (Note 18) ..................................... -- (2.86) --
Net loss ................................................................... $ (0.40) $ (3.22) $ (2.69)
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
43
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
------------------------
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 4) .......................................................... $ 7.4 $ 7.4
Accounts and notes receivable, net (Note 5) ................................................. 73.0 75.7
Inventories (Note 6) ........................................................................ 54.0 54.7
Deferred income taxes (Note 12) ............................................................. 26.5 25.5
Assets held for sale (Note 2) ............................................................... 13.2 --
Prepaid expenses and other .................................................................. 3.5 3.6
------ ------
Total current assets ...................................................................... 177.6 166.9
Property, plant and equipment, net (Note 7) .................................................. 560.2 593.2
Goodwill ..................................................................................... 78.6 74.5
Other long-term assets (Notes 8 and 15) ...................................................... 64.6 72.4
------ ------
$881.0 $907.0
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Notes 10 and 11) ...................................... $ 0.3 $ 19.9
Accounts payable and accrued liabilities (Note 9) ........................................... 103.2 84.1
------ ------
Total current liabilities ................................................................. 103.5 104.0
Long-term debt (Notes 10 and 11) ............................................................. 185.8 274.0
Deferred income taxes (Note 12) .............................................................. 122.7 127.6
Minority interest in consolidated joint venture (Note 13) .................................... 28.9 28.8
Long-term portion of postretirement benefit obligation (Note 16) ............................. 82.0 83.8
Other long-term liabilities and deferred credits (Note 14) ................................... 21.0 26.6
------ ------
543.9 644.8
------ ------
Commitments and contingent liabilities (Notes 10, 14, 15, 16 and 17)
Shareholders' equity (Notes 19 and 20):
Preferred stock, $.05 par value, 10,000,000 shares authorized:
$ .70 Cumulative Convertible Series A, 1,999,000 shares
issued, 1,994,000 and 1,999,000 shares outstanding ....................................... 19.9 20.0
$3.75 Convertible Exchangeable Series B, 960,000 shares
issued, 917,000 and 959,000 shares outstanding ........................................... 45.8 47.9
$2.875 Cumulative Convertible Series D, 1,725,000 shares
issued and outstanding ................................................................... 86.3 --
Common stock, $1.25 par value, 40,000,000 shares authorized,
17,266,000 and 17,046,000 shares issued and outstanding ................................... 21.6 21.3
Capital in excess of par value .............................................................. 126.6 127.6
Reinvested earnings ......................................................................... 36.9 45.4
------ ------
337.1 262.2
------ ------
$881.0 $907.0
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
44
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
------------------------------------
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings (loss) from continuing operations .......................................... $ 30.1 $ 3.6 $(16.9)
Adjustments to reconcile earnings from continuing operations to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization ......................................... 39.4 38.5 41.8
Deferred income tax expense (benefit) ............................................ 6.8 (0.6) (5.3)
Amortization of debt issuance costs .............................................. 3.4 2.8 3.6
Minority interest in earnings of consolidated
joint venture .................................................................. 4.1 3.1 2.7
Gain on sale of assets ........................................................... (1.2) -- (1.2)
Changes in operating assets and liabilities
(Increase) decrease in accounts and notes receivable ........................... 7.9 8.0 (7.0)
Decrease in inventories ........................................................ 0.1 3.7 3.2
(Increase) decrease in prepaid expenses and other .............................. -- (0.4) 14.3
(Increase) decrease in other long-term assets .................................. (2.0) (1.6) 1.3
Increase (decrease) in accounts payable and
accrued liabilities .......................................................... 3.5 (3.8) 5.1
Increase (decrease) in other long-term liabilities
and deferred credits ......................................................... 0.5 (1.7) (2.5)
Net cash provided by (used in) discontinued operations .............................. (5.8) 1.5 (4.1)
------- ------ ------
Net cash provided by operating activities ............................................ 86.8 53.1 35.0
------- ------ ------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .......................................... (28.6) (13.4) (7.7)
Acquisitions, net of cash acquired .................................................. (16.1) (2.9) --
Proceeds from asset sales ........................................................... 3.7 0.7 9.3
Other ............................................................................... (2.4) 0.7 1.2
Net cash used in discontinued operations ............................................ (7.1) (4.1) (14.1)
------- ------ ------
Net cash used in investing activities ................................................ (50.5) (19.0) (11.3)
------- ------ ------
FINANCING ACTIVITIES:
Additions to long-term debt (Note 11) ............................................... 3.6 -- 0.5
Reductions in long-term debt (Note 11) .............................................. (111.6) (25.4) (18.4)
Proceeds from sale of preferred stock ............................................... 86.3 -- --
Dividends (Note 19) ................................................................. (6.5) (5.0) (5.0)
Distributions to minority interest .................................................. (3.8) (4.3) (2.0)
Securities issuance costs ........................................................... (4.3) (3.5) (0.9)
Premium on early extinguishment of debt (Note 11) ................................... -- (1.0) --
------- ------ ------
Net cash used in financing activities ................................................ (36.3) (39.2) (25.8)
------- ------ ------
Net decrease in cash and cash equivalents ............................................ -- (5.1) (2.1)
Cash and cash equivalents at the beginning of the year ............................... 7.4 12.5 14.6
------- ------ ------
Cash and cash equivalents at the end of the year ..................................... $ 7.4 $ 7.4 $ 12.5
======= ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
45
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, 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
Net income ................................................ - - - - -- 2.6
Issuance of Series D Preferred Stock ...................... 1.7 86.3 - - -- --
Dividends on preferred stock .............................. - - - - -- (9.4)
Issuance expenses of capital stock ........................ - - - - (4.0) --
Exercise of stock options ................................. - - 0.2 0.2 (0.2) (1.6)
Tax benefit from exercise of stock options ................ - - - - 1.8 --
Other ..................................................... (0.1) (2.2) 0.1 0.1 1.4 (0.1)
---- ------ ------ ----- ------ -------
Balance at December 31, 1994 ............................... 4.6 $152.0 17.3 $21.6 $126.6 $ 36.9
==== ====== ====== ===== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
46
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 operates eight quarrying
and manufacturing facilities and a network of 17 terminals for the production,
importation 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. Beginning
in mid-1990, through the fourth quarter of 1994, the Company was also engaged in
the environmental services business, which involved the collection and
processing of hazardous waste into hazardous waste derived fuel (HWDF) that,
together with tires and other waste materials, were utilized in certain of the
Company's cement kilns as supplements to conventional fuels. The environmental
services business was discontinued in the fourth quarter of 1994. (See also Note
2 of Notes to Consolidated Financial Statements.)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 $300,000 in 1994, $2.8
million in 1993 and $200,000 in 1992. During 1993 and 1992 the Company received
a $15.7 million and an $18.7 million federal income tax refund, respectively,
from the carryback of tax losses. Interest paid, net of amounts capitalized in
years 1994 and 1993, was $26.6 million, $36.4 million and $40.4 million in 1994,
1993 and 1992, respectively. The $48.5 million noncash charge in 1993 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 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.
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,
47
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. (See also Note 6 of Notes to Consolidated Financial Statements.)
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. On average buildings and improvements
are depreciated based on a 50 year life; machinery and equipment are depreciated
over estimated useful lives ranging from ten to 35 years; office furniture,
fixtures and equipment over lives ranging from five to ten years and mobile
equipment over lives ranging from four to 25 years. Depletion of 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. (See also Note 7 of Notes to Consolidated
Financial Statements.)
ENVIRONMENTAL EXPENDITURES - 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. (See also Note 17 of Notes to
Consolidated Financial Statements.)
GOODWILL - The excess of cost over the fair value of net assets of
businesses acquired is amortized, straight-line, on the basis of management's
best estimates of undiscounted future cash flows over periods ranging from 15 to
40 years. Such amortization amounted to $2.5 million, $2.4 million and $3.3
million in 1994, 1993 and 1992, respectively. Accumulated amortization of
goodwill was $13.8 million and $12.9 million as of December 31, 1994 and 1993,
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. (See also Note 12 of Notes to
Consolidated Financial Statements.)
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 also Note 18 of Notes to
Consolidated Financial Statements.)
48
INTERIM PERIODS - For interim reporting purposes for its cement
manufacturing operations, the Company charges cost of goods sold on the basis of
predetermined standard cost estimates established by management; deferring as a
charge or credit to inventory any difference between actual manufacturing costs
and the standard. At year-end, any variation remaining between the result at
standard cost and actual cost is charged or credited to cost of goods sold.
NOTE 2 - DISCONTINUED ENVIRONMENTAL SERVICES SEGMENT:
The Company first attempted to utilize alternative energy sources in its
cement kilns in June 1987 and significantly expanded its commitment to the
recovery of the energy value in organic hazardous wastes beginning in mid-1990.
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 environmental business. Accordingly, the
Company restructured this business in late 1992, narrowing its focus by selling
four of its hazardous waste processing facilities and recording a $21.4 million
pretax charge. Management presented a comprehensive evaluation of all aspects of
the environmental services business to the Company's Board of Directors at the
Board's regularly scheduled November 17, 1994 meeting and a decision was reached
at that time to exit the business entirely. The Company plans to sell its three
remaining hazardous waste processing facilities and to cease all burning of HWDF
in its cement kilns during 1995.
As a result of this decision, the Company's results for the year ended
December 31, 1994 include an after-tax charge of $21.6 million, or $1.26 per
share. The charge includes the $16.6 million difference between the book value
of the environmental services assets and the estimated proceeds from asset
sales, as well as the estimated losses to be incurred prior to the sale of
assets and other direct costs of exiting the business totaling approximately
$5.0 million. The charge, as well as the previous results from the Environmental
Services segment are shown in the Company's financial reports as discontinued
operations and prior years have been restated. Summary operating results of the
discontinued Environmental Services segment and reconciliation to amounts
previously reported are as follows:
(IN MILLIONS)
---------------------------
1994 1993 1992
Revenue:
Continuing operations ....................... $561.9 $509.6 $464.8
Discontinued operations ..................... 32.0 35.2 42.6
------ ------ ------
$593.9 $544.8 $507.4
====== ====== ======
Net loss from discontinued operations ....... $ (5.9) $ (3.6) $(24.5)
====== ====== ======
As of January 31, 1995 the Company had executed two Letters of Intent to
sell all of the outstanding shares of stock of its hazardous waste processing
facilities plus certain working capital items for a combination of $13.2 million
in cash and notes. The transactions as proposed are scheduled to close by
mid-1995.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of the Company's environmental services
business, the extent of the liabilities retained and the operating losses
expected to be incurred prior to disposition. The amounts the Company will
ultimately realize, the liabilities for which the Company may ultimately be held
responsible and the operating losses the Company might actually incur prior to
the disposition of the environmental services
49
business may differ materially from the amounts assumed in arriving at the loss
on disposal of the discontinued operations.
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:
(IN MILLIONS)
-------------------------
1994 1993 1992
Contributions to revenues:
Cement ......................................... $398.4 $370.9 $339.5
Concrete Products .............................. 208.1 176.3 158.1
Intersegment sales ............................. (45.3) (38.1) (33.5)
Other .......................................... 0.7 0.5 0.7
------ ------ ------
$561.9 $509.6 $464.8
====== ====== ======
Contributions to operating earnings (loss):
Cement ......................................... $ 91.2 $ 81.9 $ 62.6
Concrete Products .............................. 9.3 (1.6) (11.6)
Corporate
General and administrative ................... (25.1) (28.9) (32.7)
Depreciation, depletion and amortization ..... (5.0) (4.3) (4.4)
Miscellaneous income (losses) ................ 1.3 (2.8) 1.5
$ 71.7 $ 44.3 $ 15.4
====== ====== ======
Identifiable assets, end of year:
Cement ......................................... $596.1 $591.6 $610.4
Concrete Products .............................. 130.3 128.0 112.6
Discontinued Environmental Services ............ 19.1 39.6 41.8
Other .......................................... 135.5 147.8 156.7
------ ------ ------
$881.0 $907.0 $921.5
====== ====== ======
Depreciation, depletion and amortization:
Cement ......................................... $ 25.8 $ 25.9 $ 27.7
Concrete Products .............................. 8.7 8.3 9.7
Other .......................................... 8.3 7.1 8.0
------ ------ ------
$ 42.8 $ 41.3 $ 45.4
====== ====== ======
Capital expenditures:
Cement ......................................... $ 16.8 $ 8.5 $ 4.9
Concrete Products .............................. 9.4 3.5 1.5
Other .......................................... 2.6 1.4 1.3
------ ------ ------
$ 28.8 $ 13.4 $ 7.7
====== ====== ======
The Cement segment includes the operations of eight quarrying and
manufacturing facilities and a network of 18 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. 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 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 1994 for
the Cement segment
50
exclude the $4.6 million in property, plant and equipment additions resulting
from the purchase of an import terminal located in Florida. 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.
NOTE 4 - CASH AND CASH EQUIVALENTS:
DECEMBER 31,
(IN MILLIONS)
---------------
1994 1993
Cash on hand and demand deposits ............................. $4.5 $4.4
Commercial paper, certificates of deposit and repurchase
agreements - at cost, which approximates market value ...... 2.9 3.0
---- ----
$7.4 $7.4
==== ====
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:
DECEMBER 31,
(IN MILLIONS)
---------------------
1994 1993
Trade accounts and notes receivable .............. $76.9 $80.0
Allowance for doubtful accounts .................. (7.2) (7.0)
----- -----
69.7 73.0
Other receivables ................................ 3.3 2.7
----- -----
$73.0 $75.7
===== =====
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 1994, 1993 and 1992
approximately 47%, 52% and 49%, 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%, 15% and 13% of the cement sold by the
Company's Victorville, California plant in 1994, 1993 and 1992, respectively,
was sold to the Company's ready-mixed concrete operations in California and
approximately 41%, 37% and 42% of the cement sold by the Brooksville, Florida
plant in 1994, 1993 and 1992, respectively, was sold to the Company's Florida
concrete products operations. The Company is a major producer of ready-mixed
concrete in southern California, 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 1994, 1993 or 1992.
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
51
notes receivable. This practice became more prevalent during 1992 and continued
during 1993 and 1994, particularly in the southern California market area where
many of the Company's customers have been adversely affected by the prolonged
recession in the construction industry in that region. Four such customers were
indebted to the Company at December 31, 1994 in the amount of $15.8 million.
Approximately 75% of the $15.8 million in receivables is 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, 1994. The
Company stopped selling cement on credit to the other customer in default in
mid-1993. In February 1995 this customer filed for protection under Chapter 11
of the United States Bankruptcy Code and the Company is presently evaluating its
options for collection of outstanding balances.
A third customer in the California group had difficulty in maintaining
prompt payment for its cement purchases and restructuring discussions were
commenced in late 1993. In anticipation of this restructuring, the Company wrote
off against the allowance for doubtful accounts a $3.3 million note receivable
from an affiliated company of this customer in late 1994. In early February 1995
the Company loaned this customer $750,000 as part of a comprehensive debt
restructuring under which the Company went from an unsecured to a secured
creditor. The Company is contractually committed to supply up to 90% of the
cement requirements of the fourth of these customers on extended credit terms,
provided this customer maintains its current payment status with respect to both
current purchases and payments on its note.
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 as additional information regarding the
collectibility of these and other accounts becomes available.
NOTE 6 - INVENTORIES:
DECEMBER 31,
(IN MILLIONS)
------------------------
1994 1993
Finished goods ............................. $15.1 $15.4
Work in process ............................ 6.5 7.0
Raw materials .............................. 4.6 6.0
Parts and supplies ......................... 27.8 26.3
----- -----
$54.0 $54.7
===== =====
Inventories valued on the LIFO method were $19.2 million at December 31,
1994 and $20.4 million at December 31, 1993 compared with current costs of $27.5
million and $28.3 million, respectively.
52
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31,
(IN MILLIONS)
----------------------
1994 1993
Land (at cost):
Cement ......................................... $ 31.8 $ 31.0
Concrete Products .............................. 22.1 22.1
Discontinued Environmental Services ............ -- 3.8
Corporate and other ............................ 0.4 0.4
------- -------
54.3 57.3
------- -------
Plant and equipment (at cost):
Cement ......................................... 697.1 665.6
Concrete Products .............................. 97.8 94.8
Discontinued Environmental Services ............ -- 34.7
Corporate and other ............................ 17.0 17.7
------- -------
811.9 812.8
------- -------
Less accumulated depreciation, depletion
and amortization ............................... (306.0) (276.9)
------- -------
$ 560.2 $ 593.2
======= =======
NOTE 8 - OTHER LONG-TERM ASSETS:
DECEMBER 31,
(IN MILLIONS)
-----------------
1994 1993
Prepaid pension costs (Note 15) ............................ $23.4 $20.8
Long-term trade receivables ................................ 15.3 20.6
Unamortized debt issuance costs(1) ......................... 7.5 10.1
Land held for sale(2) ...................................... 7.3 7.9
Net present value of purchased supply contracts(3) ......... 5.4 5.9
Other ...................................................... 5.7 7.1
----- -----
$64.6 $72.4
===== =====
(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 1999 and 2004, respectively, were
acquired in conjunction with the Moore McCormack purchase in 1988. The
supply contracts were recorded at their net present values at the date of
acquisition and are being amortized over the respective lives of the
contracts.
53
Note 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
DECEMBER 31,
(IN MILLIONS)
---------------
1994 1993
Trade accounts payable ...................................... $ 28.4 $23.4
Accrued compensation and benefits ........................... 16.4 12.7
Accrued liabilities, trade .................................. 14.4 14.8
Accrued loss contingencies on discontinued environmental
services segment .......................................... 11.7 --
Income tax liability ........................................ 4.7 --
Accrued interest payable .................................... 4.4 6.7
Accrued environmental remediation costs ..................... 4.2 9.6
Accrued taxes, other ........................................ 3.8 3.5
Current portion of postretirement benefit obligation ........ 3.0 3.0
Accrued dividends on preferred stock ........................ 3.0 --
Current portion of liabilities for discontinued
operations .................................................. 2.2 2.2
Current portion of pre-acquisition contingencies ............ 1.7 2.5
Other accrued liabilities ................................... 5.3 5.7
------ -----
$103.2 $84.1
====== =====
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Except for long-term debt, the carrying amounts of the Company's assets
and liabilities which are considered to be financial instruments approximate
their value. The estimated fair value amounts for the Company's long-term debt
as of December 31, 1994 and 1993 have been determined by the Company using
appropriate valuation methodologies and information available to management at
that time. Considerable judgment is required in developing these estimates 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. 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.
DECEMBER 31,
(IN MILLIONS)
----------------------------------------------
1994 1993
------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Long-term debt ............. $186.1 $200.5 $293.9 $318.7
====== ====== ====== ======
54
Note 11 - LONG-TERM DEBT:
DECEMBER 31,
(IN MILLIONS)
------------------
1994 1993
Senior debt:
Revolving credit facility .............................. $ 22.6 $ 19.0
Industrial development and pollution control bonds ..... 40.0 41.0
Promissory note ........................................ -- 18.0
Other .................................................. 1.6 4.2
Subordinated debt:
14% senior subordinated notes .......................... 121.9 121.7
12% senior subordinated notes .......................... -- 90.0
------ ------
186.1 293.9
Less current maturities .................................. (0.3) (19.9)
------ ------
$185.8 $274.0
====== ======
REVOLVING CREDIT FACILITY - The Company's 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.
In November 1993, the Company and its lending banks entered into an
amended $200 million revolving credit facility (Revolving Credit Facility). This
facility provides for the issuance of standby letters of credit up to a maximum
of $95 million and also includes $19.5 million of borrowing capacity that is
reserved solely for potential funding obligations under a Keepwell Agreement
with the MARAD. (See also Note 14 of Notes to Consolidated Financial
Statements.) The Revolving Credit Facility matures in November 1996. The
Revolving Credit Facility contains various negative and affirmative covenants
and cross-default provisions and customary conditions to borrowing. Borrowings
under the Revolving Credit Facility bear interest at margins either at or above
a prime rate or above LIBOR as selected by the Company from time to time. At
December 31, 1994, the interest rate under the Revolving Credit Facility was
approximately 8.5%.
As of December 31, 1994, there were $22.6 million of borrowings and $50.5
million in letters of credit outstanding under the Revolving Credit Facility
leaving $107.4 million of unused capacity, excluding the $19.5 million reserved
under the Keepwell Agreement. In 1994 the Company utilized borrowings under its
Revolving Credit Facility to redeem the $90 million outstanding principal amount
of the Company's 12% Senior Subordinated Notes Due 1997. 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. The net proceeds were used
to prepay an $18 million promissory note due in March 1994 and to reduce
borrowings under the Company's Revolving Credit Facility.
PROMISSORY NOTE - The promissory note for $18 million as of December 31,
1993 was payable on March 31, 1994. On January 27, 1994 the note was prepaid
without penalty using a portion of the proceeds from the Company's sale of
preferred stock. (See also Note 19 of Notes to Consolidated Financial
Statements.) In conjunction with this promissory note, the Company entered
55
into an interest rate swap agreement in January 1988 which in effect converted
the interest rate on the note from a floating rate to a fixed rate. The Company
recorded interest expense of $200,000 in 1994 prior to the retirement of the
swap in connection with the prepayment of the note, $1 million in interest
expense in 1993 and $2.2 million in 1992. The Company held no derivative
financial instruments as of December 31, 1994.
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
Revolving Credit Facility or by liens on the pollution control equipment.
12% SENIOR SUBORDINATED NOTES - On January 5, 1994 the Company borrowed
$47 million under the Revolving Credit Facility to redeem $45 million principal
amount of 12% Notes due in 1997 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 redeemed the remaining $45
million outstanding principal amount of 12% Notes at par on May 1, 1994 with
borrowings under the 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. 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)
pursuant to a Registration Rights Agreement entered into at the time of the
private placement. 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 interest
semiannually, mature on October 15, 2001 and are noncallable until October 15,
1996, 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
56
$16.00, subject to certain anti-dilution adjustments. (See also Note 19 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, 1994 are as
follows:
(IN MILLIONS)
1995............... $ 0.3
1996............... 23.7
1997............... 1.1
1998............... 26.6
1999............... 0.1
Thereafter......... 134.3
------
$186.1
======
The payments due in 1996 include the balance outstanding under the
Revolving Credit Facility ($22.6 million at December 31, 1994) which matures in
November 1996. Historically, the Company has renegotiated the terms of this
facility prior to its maturity.
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 earnings (loss) from continuing operations before income taxes and before
extraordinary charges and the cumulative effect of a change in accounting
principle.
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------
1994 1993 1992
Federal income tax expense (benefit):
Current ................................... $ 6.2 $ .8 $(7.4)
Deferred .................................. 6.4 .9 (5.2)
State income tax expense (benefit):
Current ................................... .9 .2 --
Deferred .................................. .4 (.5) (0.1)
----- ----- -----
$13.9 $ 1.4 $(12.7)
===== ===== =====
57
A reconciliation between the income tax expense (benefit) recognized in
the Company's Statement of Consolidated Earnings and the income tax expense
(benefit) computed by applying the statutory federal income tax rate to the
earnings (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)
---------------------------------------------------------------------
1994 1993 1992
------------------ ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations before
income taxes and before the extraordinary charge
and the effect of a change in accounting principle ..... $44.0 $ 5.0 $(29.6)
===== ====== =======
Income tax expense (benefit) computed at
statutory rate ......................................... $15.4 35.0% $ 1.7 35.0% $(10.1) (34.0)%
Benefit of statutory depletion ........................... (3.6) (8.2) (3.4) (68.9) (2.7) (9.0)
Cumulative effect of increase in statutory rate .......... 2.5 50.4
Effect of non-deductibility of goodwill .................. 0.7 1.6 0.7 13.8 0.7 2.3
State income tax expense (benefit) ....................... 0.8 1.9 (0.2) (4.9) (0.5) (1.7)
Other .................................................... 0.6 1.3 0.1 3.2 (0.1) (0.4)
$13.9 31.6% $ 1.4 28.6% $(12.7) (42.8)%
===== ===== ====== ===== ======= =======
</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 bases 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.
58
Significant components of the Company's net deferred tax liability as of
December 31, 1994 were as follows:
YEARS ENDED DECEMBER 31,
------------------------
1994 1993
---- ----
(IN MILLIONS)
Deferred tax liabilities:
Differences between book and tax bases of
property, plant and equipment .................... $151.3 $153.7
Assets of overfunded pension plan .................. 9.0 8.0
Other .............................................. 15.5 15.5
------ ------
175.8 177.2
------ ------
Deferred tax assets:
Postretirement benefit obligation .................. 32.5 30.0
Loss on sale of discontinued operations ............ 12.5 --
Other reserves not currently deductible ............ 9.3 15.9
Deferred state income taxes ........................ 5.8 6.0
Operating loss carryforwards ....................... 11.8 15.5
Tax credit carryforwards ........................... 7.1 9.6
AMT credit carryforwards ........................... 5.7 0.1
Other .............................................. 0.4 3.5
------ ------
85.1 80.6
Valuation allowance ................................ (5.5) (5.5)
------ ------
79.6 75.1
------ ------
Net deferred tax liability ........................... $ 96.2 $102.1
====== ======
The Company has provided a valuation allowance of $5.5 million against
deferred tax assets recorded as of December 31, 1994. 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 net deferred income tax
liability the tax benefits of net operating loss carryforwards of $33.6 million,
net investment tax credit carryforwards after valuation allowance of $1.6
million and an alternative minimum tax carryforward of $5.7 million. If not
used, the net operating loss and investment tax credit carryforwards will expire
between 1998 and 2007 and between 1995 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. The Internal
Revenue Service has proposed a tax assessment, including interest of
approximately $7.6 million, in a preliminary audit report issued in 1994. In
order not to incur additional interest charges, the Company paid the assessed
amount in early January 1995. In the opinion of management, adequate provision
has been made at December 31, 1994 for income taxes that might be due as a
result of these audits and the proposed assessment will have no effect on the
Company's consolidated earnings.
59
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 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:
DECEMBER 31,
(IN MILLIONS)
-------------
1994 1993
Estimated liabilities of discontinued Moore McCormack operations $ 8.1 $12.9
Deferred payment obligation .................................... 7.7 7.8
Supplemental pension liabilities ............................... 3.9 4.3
Other .......................................................... 1.3 1.6
----- -----
$21.0 $26.6
===== =====
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, 1994
and 1993 such estimated liabilities totaled $10.3 million and $15.1 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. There were no outstanding advances under the
Keepwell Agreement as of December 31, 1994 and 1993. The Company's contingent
obligation to MARAD declined to $19.5 million as of December 31, 1994 and
declines by approximately $2.5 million annually thereafter.
DEFERRED PAYMENT OBLIGATION - In connection with the July 1990 purchase of
a hazardous waste processing facility from an affiliate of BFI, the Company
assumed a conditional payment obligation payable to the former shareholders of
the BFI subsidiary.
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.
60
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.
The funded status of the Company's pension plans is based on a comparison
of the 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 8.5% in 1994,
7.5% in 1993 and 8.5% in 1992. The rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 4% in both 1994 and 1993 and 5.5% in 1992. The expected long-term
rate of return on assets was 8.5% in all three years ended 1994. 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 both 1994
and 1993 and over periods of 10 to 16 years for 1992 which approximated the
estimated average remaining service periods of employees expected to receive
benefits under the plans.
The Company recognized pension income of approximately $2.6 million, $1.6
million and $1.4 million in 1994, 1993 and 1992, respectively, 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 $1.9 million in 1994,
$1.8 million in both 1993 and 1992.
61
As of December 31, 1994 and 1993 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, 1994 and 1993:
DECEMBER 31,
(IN MILLIONS)
--------------------
1994 1993
Actuarial present value of accumulated benefit
obligations:
Vested portion ................................... $ (94.7) $(100.2)
Nonvested portion ................................ (2.3) (3.1)
------- -------
Accumulated benefit obligation ....................... (97.0) (103.3)
Effect of estimated future pay increases ............. (5.8) (4.9)
------- -------
Projected benefit obligation ......................... (102.8) (108.2)
Plan assets at fair value, primarily debt
and equity securities(1) ........................... 144.3 149.5
------- -------
Overfunded status .................................... 41.5 41.3
Unrecognized net gain ................................ (21.6) (22.3)
Unrecognized prior service cost ...................... 3.8 2.2
Unrecognized net asset ............................... (0.3) (0.4)
------- -------
Prepaid pension costs ................................ $ 23.4 $ 20.8
======= =======
(1) Plan assets include 449,000 shares of the Company's Series A Preferred
Stock.
The components of net periodic pension cost included in the results of
operations for the years ended December 31, 1994, 1993 and 1992 under
Company-sponsored plans were as follows:
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-------------------------
1994 1993 1992
Service cost ...................................... $ 2.2 $ 2.1 $ 2.2
Interest cost on projected benefit obligation ..... 8.0 8.1 8.0
Actual return on assets ........................... (3.4) (21.4) (11.0)
Asset (loss) gain deferred ........................ (9.0) 10.1 (0.2)
Amortization of unrecognized -
Net gain ........................................ (0.7) (0.6) (0.4)
Prior service cost .............................. 0.4 0.2 0.2
Net asset ....................................... (0.1) (0.1) (0.2)
----- ------ ------
Net pension income ................................ $(2.6) $ (1.6) $ (1.4)
===== ====== ======
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
62
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 $1.9 million in 1994, $1.7 million in 1993 and $1.6 million in 1992,
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
sixty-five years of age or older 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. Effective January 1, 1993, the Company adopted SFAS No. 106 which
required immediate recognition of an estimated 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 also Note 18
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, 1994 and 1993.
DECEMBER 31,
(IN MILLIONS)
-----------------
1994 1993
Accumulated postretirement benefit obligation (APBO)
Retirees ............................................... $34.3 $36.6
Fully eligible active plan participants ................ 2.4 2.3
Other active plan participants ......................... 6.8 6.8
----- -----
43.5 45.7
Plan assets at fair value ................................ -- --
----- -----
Accumulated postretirement benefit obligation ............ 43.5 45.7
Unrecognized prior service credit ........................ 33.4 35.8
Unrecognized net gain .................................... 8.1 5.3
----- -----
Accrued postretirement benefit costs ..................... $85.0 $86.8
===== =====
The components of net periodic postretirement benefit costs included in
the results of operations for the years ended December 31, 1994 and 1993 were as
follows:
1994 1993
Service cost ............................................. $ 0.7 $ 1.9
Interest cost on APBO .................................... 3.3 5.2
Amortization of unrecognized net gain .................... (2.7) (1.4)
----- -----
$ 1.3 $ 5.7
===== =====
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The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 was 9.5% for
general health care and 14% for prescription drugs, decreasing each successive
year until each 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, 1994 and net periodic postretirement health care cost by approximately 7.0%
and 7.9%, respectively. The assumed discount rates used in determining the APBO
as of December 31, 1994 and 1993 were 8.5% and 7.5%, respectively.
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 paid for active employees and their dependents were $9.8
million, $12.3 million and $9.9 million in 1994, 1993 and 1992, respectively.
For retirees and their dependents these costs were $3.1 million in 1994, $3.2
million in 1993 and $2.3 million in 1992. 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. Such
additional accruals have not been necessary subsequent to the June 30, 1993
effective date of the Company's amended postretirement benefits plan.
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
paid for life insurance benefits for employees were approximately $584,000 in
1994, $984,000 in 1993 and $732,000 in 1992. The costs of providing such
benefits for retired employees were de minimis in each of the three years then
ended.
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES:
OPERATING LEASES - Rental expense covering manufacturing, transportation
and certain other facilities and equipment for the years 1994, 1993 and 1992
aggregated $11.9 million, $9.9 million and $9.2 million, respectively. Minimum
annual rental commitments as of December 31, 1994 under noncancellable leases
are set forth as follows:
(IN MILLIONS)
--------------------------------
MANUFACTURING
MOBILE EQUIPMENT
EQUIPMENT AND OTHER TOTAL
1995.......................... $ 5.3 $ 3.2 $ 8.5
1996.......................... 4.0 2.8 6.8
1997.......................... 3.2 2.5 5.7
1998.......................... 2.3 2.2 4.5
1999.......................... 1.7 0.8 2.5
Thereafter.................... 0.6 5.0 5.6
-------- -------- --------
$ 17.1 $ 16.5 $ 33.6
======== ======== ========
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. All
64
of these activities are regulated by federal, state and local laws and
regulations pertaining to the protection of 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. Remediation under environmental clean-up rules
can be costly.
While the Company's facilities at several locations are the subject of
various local, state and federal environmental proceedings and inquiries, most
of these investigations are in their preliminary stages and final results may
not be determined for years. In certain instances, the Company has been named as
one of several potentially responsible parties (PRP) charged with remediation
activities related to various alleged CERCLA violations. Despite the fact
current law imposes joint and several liability on all parties at any Superfund
site, the Company's accrual for estimated liability in these instances reflects
only the Company's expected share based on the Company's assessment of its
proportionate volumetric contribution to the waste material, whether
responsibility is being disputed, the terms of any existing agreements, the
solvency of other parties and experience regarding similar matters. The Company
is also involved in remedial response and voluntary environmental cleanup
expenditures as to a number of other sites which are not the subject of any
Superfund law proceeding or investigation by federal, state or local agencies.
All environmental accruals have been recorded without giving effect to any
possible future recoveries from insurance or other third parties.
The Company bases its estimates of environmental liabilities on the nature
or extent of contamination, methods of remediation required, existing
technology, presently enacted laws and regulations and prior Company experience
in remediation of contaminated sites. Accrued liabilities related to
environmental matters were, in the aggregate, $6.6 million, $10.5 million and
$7.5 million at December 31, 1994, 1993 and 1992, respectively. Cash
expenditures often lag by a number of years the period in which an accrual is
recorded. However, because of uncertainties inherent in remediation activities
and technologies, regulatory interpretations and the allocation of costs among
various other parties, the Company is unable to accurately estimate the cost
that might ultimately be incurred by the Company to resolve these environmental
issues. Until all environmental studies, investigations, remediation work and
negotiations with potential sources of recovery have been completed, there is at
least a reasonable possibility, however, that amounts in excess of the accruals
may be incurred.
65
Additions to and expenditures charged against the Company's environmental
accruals during the past three years were as follows:
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------
1994 1993 1992
Beginning balance ................. $10.5 $ 7.5 $ 3.8
Expense provisions ................ 3.7 5.6 4.4
Expenditures ...................... (7.6) (2.6) (0.7)
----- ----- -----
Ending balance .................... $ 6.6 $10.5 $ 7.5
===== ===== =====
Based solely upon the information the Company has developed to date, which
is subject to change as additional information become available, management of
the Company believes that known matters can be successfully resolved in
cooperation with local, state and federal regulating agencies. However, because
the Company's result of operations vary considerably with construction activity
and other factors, it is, at least reasonably possible that future charges for
environmental contingencies could, depending on their timing and magnitude, have
a material adverse impact on the Company's results of operations in a particular
period.
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 CKD
disposal sites near the Company's Fairborn, Ohio cement plant have been under
investigation by the Company 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 has recorded charges totaling $11.7 million through the end of 1994 as
the estimated remediation cost for the site, increasing the initial estimates as
additional information became known. While the Company has no reason to believe
that significant additional sums will be required to complete the remediation of
this site, it remains at least reasonably possible the Company may be required
to incur additional costs on the project. Until the monitoring process and
feasibility testing are complete, the Company is unable to determine what
additional costs, if any, may be incurred on the project.
On a voluntary basis, 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 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 larger of the two sites (USX Site). Based on the
limited information available, the Company has received two preliminary
estimates of the potential magnitude of the remediation costs for the USX Site,
$8 million and $32 million, depending on the assumptions used.
The Company intends to vigorously pursue its right to contribution from
USX for cleanup costs under CERCLA and Ohio law. The Company believes that USX
is a responsible party because
66
it owned and operated the USX Site at the time of disposal of the hazardous
substances, arranged for the disposal of the hazardous substances and
transported the hazardous substances to the USX Site. Therefore, based on the
advice of counsel, the Company believes there is a reasonable basis for the
apportionment of cleanup costs relating to the USX 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
USX Site and is potentially liable under CERCLA only because of its current
ownership of the USX Site. A court-supervised settlement conference was held on
September 30, 1994 and the parties commenced settlement discussions. In December
1994 the Greene Environmental Coalition, a third-party plaintiff in the case,
agreed to a separate out-of-court settlement and its claims are stayed for two
years, pending resolution of the case.
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 USX Site requiring it to remediate the property, and no cleanup of
the USX Site has yet been initiated.
CLAIMS FOR INDEMNIFICATION - Prior to the sale of the Company's then oil
and gas subsidiary, Pelto Oil Company (Pelto) in 1989 to Energy Development
Corporation (EDC), 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 1988 agreement Pelto entered into with Transco to determine whether a
payment to Pelto thereunder is associated with Federal or Indian leases and
whether, in its view, any additional royalties may be due as a result of that
payment. 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. By letter dated September 30, 1994, the
MMS's Houston Compliance Division advised the Company that it had determined
that a $5.9 million payment made by Transco to Pelto was for a "Contract
Buy-Down" and was royalty bearing. The letter directed the Company to compute
and pay royalties on the $5.9 million sum. It also indicated that upon receipt
of the Company's payment, late payment charges would be computed and assessed
from May 1, 1987. On October 30, 1994 the Company timely filed its notice of
appeal of the MMS directive, thereby staying compliance with the letter. On
December 30, 1994 the Company filed with the MMS its statement of reasons
supporting its appeal.
The Company disagrees with the MMS' determination; however, if the MMS'
determination as to the $5.9 million dollar payment to Pelto is ultimately
upheld, the Company could have liability for royalty on that sum, plus late
payment charges. 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.
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. However, because the Company's results of
operations vary considerably with construction activity and other factors, it is
at least reasonably possible that future charges for contingencies could,
depending on their timing and magnitude, have a material adverse impact on the
Company's results of operations in a particular period.
67
NOTE 18 - CHANGES IN ACCOUNTING PRINCIPLES:
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 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 $2.5 million 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 year
remaining average service life of its active employees as required by SFAS No.
106. These changes have eliminated the charge incurred in the first six months
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 included,
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.
NOTE 19 - CAPITAL STOCK AND 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, 1994, 17,266,000 shares of Common Stock were issued and
outstanding and held of record by approximately 1,836 shareholders, and
approximately 9.4 million shares were reserved for future issuance upon exercise
of options granted under employee benefit plans or warrants or upon conversion
of convertible securities. The Board of Directors suspended the dividend on the
Company's Common Stock on April 25, 1991.
68
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. Chemical Shareholder Services
Group, Inc. is 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 to 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.
69
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.
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
70
dividends and assets. As of December 31, 1994, 1,994,000 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 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 997,000 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
(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, 1994,
917,160 shares of Series B Preferred Stock were issued and outstanding. All such
shares are fully paid and nonassessable. Dividends accrued or paid on the Series
B Preferred Stock amounted to approximately $3.4 million in 1994 and $3.6
million in 1993 and 1992.
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 2,292,900 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 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
71
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.
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 (Series D Preferred Stock). 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 and are outstanding. Dividends paid or accrued on the Series D
Preferred Stock were $4.6 million in 1994.
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.
EARNINGS PER SHARE
Earnings used to compute primary per share earnings in each of the three
years ended 1994 were net of preferred stock dividends of approximately $9.4
million in 1994 and $5.0 million in both 1993 and 1992. Primary earnings per
share were computed using average number of shares, options and warrants
outstanding in 1994 and using the average number of shares of common stock
outstanding for 1993 and 1992. Additionally, the effect of an assumed conversion
of the Series A, Series B, and in 1994, Series D Preferred Stock referred to
above was anti-dilutive and, therefore, except for the second quarter of 1994,
fully diluted earnings per share for those years is the same as primary earnings
per share.
72
Note 20 - 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 grant.
Options granted under the 1991 Directors' Plan are exercisable at the fair
market value of the stock at the date of grant and expire not more than ten
years from the date of grant. Unoptioned shares available for grant as of
December 31, 1994 under the 1991 Director's Plan were 35,000.
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 1,102,600 options had been awarded as of December 31, 1994.
As provided in the 1989 Plan, the Employee Compensation and Benefits Committee
of the Board of Directors may determine to permit any option granted hereunder
to be exercisable immediately upon the date of grant or at any time thereafter;
provided, however, that no option granted hereunder may be exercised within the
first six months after the date of grant except in the event of the death or
disability of the optionee. Options granted under the 1989 Plan are exercisable
at the fair market value of the stock at the date of grant and expire not more
than ten years from the date of grant. Unoptioned shares available for grant as
of December 31, 1994 under the 1989 Plan were 897,400.
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, 1994. 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
are exercisable at the fair market value of the stock at the date of grant and
expire not more than ten years from the date of grant. Unoptioned shares
available for grant as of December 31, 1994 under the 1987 Plan were 201,178.
73
Information with respect to the Company's stock option plans is as
follows:
SHARES AVERAGE
OPTIONS UNDER OPTION
EXERCISABLE OPTION PRICE
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
========= =======
Granted ............................ 280,000 26.25
Exercised .......................... (545,129) 16.32
Canceled ........................... (37,200) 16.37
- --------------------------------------------------------------------------------
Balance, December 31, 1994 ......... 743,993 1,103,693 $ 19.03
========= ========== =======
74
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, 1994 and 1993, and the related
statements of consolidated earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the consolidated financial statement schedule listed on "Other Required
Schedules". These consolidated financial statements and the consolidated
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the consolidated financial statement schedule 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, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles. Also, in
our opinion, the consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 18 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 LLP
Houston, Texas
January 27, 1995
75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
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.
PART IV
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 "Other
Required Schedules" on Page S-1 of this document.
76
3. Exhibits
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
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 - incorporated by reference from
Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1993.......................................
*3.3 Bylaws of the Company amended as of September
22, 1994.......................................
4.1 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..............................
4.2 Warrant Agreement dated as of October 31, 1991
between the Company and Chemical Shareholder
Services Group, Inc. (formerly Texas Commerce
Bank, National Association) 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.......
4.3 Rights Agreement dated as of March 4, 1991
between the Company and Chemical Shareholder
Services Group, Inc. (formerly Texas Commerce
Bank National Association ) as Rights Agent -
incorporated by reference from Exhibit A to
the Company's Current Report on Form 8-K dated
March 4, 1991..................................
4.4 Description of Capital Stock - incorporated by
reference from Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993........................
4.5 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........
77
+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 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............................
+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)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 Southdown, Inc. Pension Plan as adopted on May
19, 1994 - incorporated by reference from
Exhibit 99.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
June 30, 1994 .................................
78
+10.10 Southdown, Inc. Retirement Savings Plan as
amended and restated on July 1, 1990 -
incorporated by reference from Exhibit 99.2 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994............
10.11 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..............................
+10.12 Amendment Number One to Second Amended and
Restated Credit Agreement as of February 18,
1994 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 99.2 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994...........
*10.13 Amendment Number Two dated as of December 20,
1994 to the 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. ........
10.14 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..............................
10.15 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.......................................
10.16 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.......................................
79
10.17 Agreement dated August 16, 1993 by and between
the Company and the United Paperworkers
International Union - incorporated by
reference from Exhibit 10.28 to the Company's
Annual Report of Form 10-K for the fiscal year
ended December 31, 1993........................
10.18 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......
10.19 Agreement dated as of December 15, 1993
between Kosmos Cement Company and
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum and Allied Workers
Division Lodge D-532 - incorporated by
reference from Exhibit 99.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994...........................
10.20 Agreement dated as of December 15, 1993
between Kosmos Cement Company and
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum and Allied Workers
Division Lodge D-592 - incorporated by
reference from Exhibit 99.4 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994...........................
*10.21 Agreement dated March 1, 1994 by and between
the Southwestern Portland Cement and the
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum and Allied Workers
Division, Local Lodge No. D357 ................
*10.22 Agreement dated July 31, 1994 by and between
the Southwestern Portland Cement Company
(Odessa Plant) and the United Cement, Lime,
Gypsum and Allied Workers Division,
Boilermakers International Union,
A.F.L.-C.I.O., Local No. D476 .................
*11 Statement of computation of per share earnings.
*22 Significant Subsidiaries of Southdown, Inc. as
of December 31, 1994...........................
*23 Consent of independent auditors................
* Filed herewith
+ Compensatory plan or management agreement.
(b) REPORTS ON FORM 8-K.
On November 21, 1994 a Current Report on Form 8-K was filed relating to
the Company's decision to exit the environmental services business.
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: March 3, 1995
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.
SIGNATURES POSITIONS DATE
CLARENCE C. COMER President, Chief Executive Officer March 3, 1995
Clarence C. Comer and Director (Principal Executive
Officer)
JAMES L. PERSKY Executive Vice President - Finance March 3, 1995
James L. Persky and Administration (Principal
Financial Officer)
ALLAN KORSAKOV Corporate Controller (Principal March 3, 1995
Allan Korsakov Accounting Officer)
FENTRESS BRACEWELL Director February 24, 1995
Fentress Bracewell
W. J. CONWAY Director March 3, 1995
W. J. Conway
KILLIAN L. HUGER JR. Director March 3, 1995
Killian L. Huger Jr.
G. WALTER LOEWENBAUM, II Director March 3, 1995
G. Walter Loewenbaum, II
EDGAR J. MARSTON III Director March 3, 1995
Edgar J. Marston III
MICHAEL A. NICOLAIS Director March 3, 1995
Michael A. Nicolais
FRANK J. RYAN Director March 3, 1995
Frank J. Ryan
ROBERT J. SLATER Director March 3, 1995
Robert J. Slater
81
RONALD N. TUTOR Director March 3, 1995
Ronald N. Tutor
V. H. VAN HORN III Director February 27, 1995
V. H. Van Horn III
STEVEN B. WOLITZER Director March 3, 1995
Steven B. Wolitzer
82
S - 1
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
OTHER REQUIRED SCHEDULES
The other required schedule for the years ended December 31, 1994, 1993 and 1992
is as follows:
SCHEDULE VIII
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO TO OTHER FROM AT END
OF PERIOD TO EXPENSE ACCOUNTS RESERVES OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Allowance for doubtful receivables ................. $ 6,983 $2,580 $35<F1> $3,376<F2> $ 6,222
======= ====== ==== ====== =======
Pre-acquisition contingencies and other ............ $16,946 $3,600<F3> $602<F1> $6,515<F4> $14,633
======= ====== ==== ====== =======
Year ended December 31, 1993:
Allowance for doubtful receivables ................. $ 6,222 $4,337 $ -- $3,536<F2> $ 7,023
======= ====== ==== ====== =======
Pre-acquisition contingencies and other ............ $14,633 $3,000<F3> $ -- $9,496<F4> $ 8,137
======= ====== ==== ====== =======
Year ended December 31, 1994:
Allowance for doubtful receivables ................. $ 7,023 $4,816 $ -- $4,619<F2> $ 7,220
======= ====== ==== ====== =======
Pre-acquisition contingencies and other ............ $ 8,137 $4,806<F3> $ -- $4,956<F4> $ 7,987
======= ====== ==== ====== =======
<FN>
<F1> Related to the acquisition of the hazardous waste processing facilities.
<F2> Amounts written off.
<F3> Includes a charge related to remediation of an inactive CKD disposal site
in the amount of $2.0 million, $3.0 million and $3.6 million in 1994, 1993
and 1992, respectively.
<F4> Discharge of pre-acquisition contingencies and other.
</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
EXHIBIT 3.3
- As Amended September 22, 1994 -
BYLAWS
OF
SOUTHDOWN, INC.
ARTICLE I
Shareholders
Section 1 - Place of Holding Meetings
All meetings of the shareholders shall be held at the principal
business office of the corporation in New Orleans, Louisiana, or
at such other place as may be specified in the notice of the
meeting.
Section 2 - Annual Election of Directors
An annual meeting of shareholders for the election of directors
shall be held in each calendar year on such date as the board of
directors may determine but not later than 18 months after the
date of the annual meeting held the preceding year, at such time
as may be specified in the notice of the meeting.
Section 3 - Voting
(a) On demand of any shareholder, the vote for directors, or on
any questions before a meeting, shall be by ballot. All
elections shall be had by plurality, and all questions
decided by majority, of the votes cast, except as otherwise
provided by the articles or by law.
(b) At each meeting of shareholders, a list of the shareholders
entitled to vote, arranged alphabetically and certified by
the transfer agent, showing the number and class of shares
held by each such shareholder on the record date for the
meeting, shall be produced on the request of any
shareholder.
(c) The date and time of the opening and the closing of the
polls for each matter on which the shareholders will vote at
any meeting of the shareholders shall be announced at the
meeting by the chairman of the meeting. The Board of
Directors of the corporation (or any committee designated by
it for that purpose) may, to the extent not prohibited by
law, adopt by resolution such rules, regulations and
procedures for the conduct of any meeting of shareholders as
it may deem appropriate or convenient. Except to the extent
inconsistent with such rules, regulations and procedures as
adopted by the Board of Directors or any such committee, the
chairman of any meeting has the right and authority to
prescribe such rules, regulations and procedures and to do
all such acts as, in the judgment of the chairman, are
appropriate or convenient for the conduct of any meeting.
Such rules, regulations or procedures, whether adopted by
the Board of Directors or any such committee or prescribed
by the chairman of any meeting, may, to the extent not
prohibited by law, include, without limitation,
establishment of the following: (1) an agenda or order of
business for the meeting; (2) rules, regulations and
procedures for maintaining order at the meeting and the
safety of those present; (3) limitations on attendance at or
participation in the meeting to shareholders of record of
the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting
shall determine; (4) restrictions on entry to the meeting
after the time fixed for the commencement thereof; and (5)
limitations on the time allotted to questions or comments by
participants at the meeting. Unless, and to the extent,
determined by the Board of Directors, by a duly appointed
committee or by the chairman of the meeting, meetings of
shareholders are not required to be held in accordance with
the rules of parliamentary procedure.
Section 4 - Quorum
Except as provided herein, any number of shareholders, together
holding at least a majority of the outstanding shares entitled to
vote thereat, who are present in person or represented by proxy
at the meeting, constitute a quorum for the transaction of
business despite the subsequent withdrawal or refusal to vote of
any shareholder. If notice of any meeting is mailed to the
shareholders entitled to vote at the meeting, stating the purpose
or purposes of the meeting and that the previous meeting failed
for lack of a quorum, then any number shareholders, present in
person or represented by proxy and together holding at least one-
fourth of the outstanding shares entitled to vote thereat,
constitute a quorum at such meeting.
Section 5 - Adjournment of Meeting
If less than a quorum is in attendance at any time for which a
meeting is called, the meeting may be adjourned by a majority in
interest of the shareholders present or represented and entitled
to vote thereat.
Section 6 - Special Meeting: How Called
Special Meetings of the shareholders for any purpose or purposes
may be called in the manner set forth in the Restated Articles of
Incorporation.
Section 7 - Notice of Shareholders' Meetings
Written or printed notice, stating the place and time of any
meeting, and, if a special meeting, the general nature of the
business to be considered, shall be given to each shareholder
entitled to vote thereat, at his last known address, at least ten
days before the meeting.
Section 8 - Form of Proxies
Without limiting the manner in which a shareholder may authorize
another person or persons to act for him as proxy, the following
shall constitute a valid means by which a shareholder may grant
such authority:
(a) A shareholder may execute a writing authorizing another
person or persons to act for him or her as proxy. Execution
may be accomplished by the shareholder or his or her
authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to
such writing by any reasonable means including, but not
limited to, by facsimile signature.
(b) Any copy, facsimile telecommunication or other reliable
reproduction of the writing created under subsection (a) of
this section 8 may be substituted or used in place of the
original writing for any and all purposes for which the
original writing could be used, including filing with the
secretary of the corporation at or before the meeting,
provided that such copy, facsimile telecommunication or
other reproduction shall be a complete reproduction of the
entire original writing.
ARTICLE II
Directors
Section 1 - Number of Directors
The number of directors is twelve (12); provided, that the number
of directors shall be increased automaticially (i) by two
directors for such period as the holders of Preferred Stock, $.70
Cumulation Convertible Series A shall be entitled to elect two
(2) directors of the corporation and (ii) by two (2) directors
for such period as the holders of Preferred Stock, $3.75
Convertible Exchangeable Series B shall be entitled to elect two
(2) directors of the corporation, in each case as set forth in
Article III of the Restated Articles of Incorporation, as
amended.
Section 2 - Place of Holding Meetings
Meetings of the directors, regular or special, may be held at any
place, within or outside Louisiana, as the board may determine.
Section 3 - Meeting After Annual Meeting
A meeting of the Board of Directors shall be held immediately
following the annual meeting of shareholders, and no notice of
such meeting shall be necessary to the directors, whether or not
newly elected, in order legally to constitute the meeting,
provided a quorum is present; or they may meet at such time and
place as fixed by the consent in writing of all of the directors,
or by notice given by the majority of the remaining directors.
At such meeting, or at any subsequent meeting called for the
purpose, the directors shall elect the officers of the
corporation.
Section 4 - Regular Directors' Meeting
Any regular meeting of the directors may be held without notice,
if a calendar of regular meeting dates including the date of such
meeting has been established by the directors at least two weeks
prior to such meeting, at the principal business office of the
corporation or at any other location specified in such calendar
of regular meeting dates. Any regular meeting of the directors
may be held in the absence of establishment of such calendar of
regular meeting dates, or at a location other than the principal
business office of the corporation or location specified in such
calendar, by the given notice as required for special directors'
meetings. Any proposed agenda for such regular meetings shall
not be exclusive of other matters properly brought before the
meeting.
Section 5 - Special Directors' Meeting: How Called
Special meetings of the directors may be called at any time by
the board of directors or by the executive committee, if one be
constituted, by the chairman of the board of directors, or by the
president, or in writing, with or without a meeting, by a
majority of the directors or of the members of the executive
committee. Special meetings may be held at such place or places
within or outside Louisiana as may be designated by the person or
persons calling the meeting.
Section 6 - Notice of Special Directors' Meetings
Notice of the place and time of every special meeting of the
board of directors (and of the first meeting of the newly-elected
board, if held on notice) (i) if given by telephone or telegraph
shall be delivered to each director at his residence or usual
place of business at least 3 days before the date of the meeting,
and (ii) if given by a means other than telephone or telegraph
shall be sent to each director at his residence or usual place of
business at least 5 days before the date of the meeting. Any
proposed agenda or statement of purpose or purposes for a special
meeting of directors shall not be exclusive of other matters
properly brought before the meeting.
Section 7 - Quorum
At all meetings of the board, a majority of the directors in
office constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of
Directors, unless the concurrence of a greater proportion is
required for such action by law, the articles of the bylaws. If
a quorum is not present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting,
until a quorum is present. If a quorum be present, the directors
present may continue to act by vote of a majority of a quorum
until adjournment, notwithstanding the subsequent withdrawal of
enough directors to leave less than a quorum or the refusal of
any directors present to vote.
Section 8 - Remuneration to Directors
Directors, as such, shall not receive any stated salary for their
services, but by resolution of the Board, expenses of attendance,
if any, and except as to salaried officers or employees of the
corporation or an affiliated company, a fixed fee for the
performance of their duties as directors, as may be determined
from time to time by resolution of the Board, may be allowed to
directors, but this Section does not preclude any director from
serving the corporation in any other capacity and receiving
compensation therefor.
Section 9 - Powers of Directors
The board of directors has the management of the business of the
corporation, and subject to any restrictions imposed by law, the
articles or these bylaws, may exercise all the powers of the
corporation. Without prejudice to such general powers, the
directors have the following specific powers:
(a) From time to time, to devolve the powers and duties of any
officer upon any other person for the time being.
(b) To confer upon any officer the power to appoint, remove and
suspend, and fix and change the compensation of, subordinated
officers, agents and factors.
(c) To determine who shall be entitled to vote, or to assign and
transfer any shares of stock, bonds, debentures or other
securities of other corporations held by this corporation.
(d) To delegate any of the powers of the board to any standing
or special committee or to any officer or agent (with power to
sub-delegate) upon such terms as they deem fit.
Section 10 - Resignations
The resignation of a director shall take effect on receipt
thereof by the president or secretary, or on any later, date, not
more than thirty days after such receipt, specified therein.
Section 11 - Term of Office
Each director of the corporation shall hold office for the full
term of office to whom he shall have been elected and until his
successor shall have been elected and shall qualify, or until his
death, resignation or removal.
Section 12 - Participation in Meetings
Directors may participate in and be present at any meeting of the
board by means of conference telephone or similar communications
equipment if all persons participating in such meeting can hear
and communicate with each other.
Section 13 - Chairman of the Board
The board of directors shall elect one of its members to be
chairman of the board, to serve in such capacity at the pleasure
of the board. In his capacity as chairman of the board, he shall
not be an officer of the corporation. The chairman of the board
shall preside at meetings of the board of directors and
shareholders and perform such other duties as from time to time
may be assigned to him by the board.
Section 14 - Vice Chairman of the Board
The board of directors may elect one of its members to be vice
chairman of the board to serve in such capacity at the pleasure
of the board. In his capacity as vice chairman of the board, he
shall not be an officer of the corporation. In the absence of
the chairman of the board, the vice chairman of the board shall
preside at meetings of the board of directors and shareholders
and perform such other duties as from time to time may be
assigned to him by the board.
Section 15 - Eligibility
No person shall be eligible for election or reelection as a
director after having attained the age of seventy prior to or on
the day of election or reelection. Effective January 1, 1996, a
director who attains the age of seventy during his or her term of
office shall be eligible to serve only until the annual meeting
of shareholders of the corporation next following such director
seventieth birthday, at which meeting the shareholders of the
corporation shall elect such director's successor in accordance
with Article I of these bylaws.
ARTICLE III
Committees
Section 1 - Executive Committee
The board may appoint an executive committee, which, when the
board is not in session, to the full extent of the powers of the
board shall have and may exercise the powers of the board in the
management of the business and affairs of the corporation and may
have power to authorize the seal of the corporation to be affixed
to documents, provided that the executive committee shall not
have the power to make or alter bylaws, fill vacancies on the
board or the executive committee, or change the membership of the
executive committee.
Section 2 - Minutes of Meeting of Committees
Any committees designated by the board shall keep regular minutes
of their proceedings, and shall report the same to the board when
required, but no approval by the board of any action properly
taken by a committee shall be required.
Section 3 - Procedure
If the Board fails to designate the chairman of a committee, the
Chairman of the Board, if a member, shall be Chairman. Each
committee shall meet at such times as it shall determine, and at
any time on call of the chairman. A majority of a committee
constitutes a quorum, and the committee may take action by vote
of a majority of the members present at any meeting at which
there is a quorum. The Board has power to change the members of
any committee at any time, to fill vacancies, and to discharge
any committee at any time.
Section 4 - Participation in Meetings
Members of a committee may participate in and be present at any
meeting of the committee by means of conference telephone or
similar communications equipment if all person participating in
such meeting can hear and communicate with each other.
ARTICLE IV
Officers
Section 1 - Titles
The officers of the corporation shall be a president, one or more
vice-presidents, a treasurer, a secretary and such other
officers, including a chief executive officer and chief operating
officer, as may, from time to time, be elected or appointed by
the board or appointed by the president. Any two offices may be
combined in the same person, provided that no person holding more
than one office may sign, in more than one capacity, any
certificate or other instrument required by law to be signed by
two officers. No officer need be a director.
Section 2 - President
The president shall be the chief executive officer of the
corporation. Subject to the direction of the board of directors,
he shall have the responsibility for the management and control
of the business and affairs of the corporation; he shall see that
all orders and resolutions of the board are carried into effect
and direct the other officers in the performance of their duties;
and he shall perform all duties and have all powers that are
commonly incident to the office of chief executive or that are
assigned to him by the board of directors. In the absence of the
chairman of the board and the vice chairman of the board, he
shall preside at shareholders' meetings and at directors'
meetings.
Section 3 - Vice Presidents
Each vice president shall have such powers, and shall perform
such duties, as shall be assigned to him by the directors, by the
chairman of the board, or by the president, and, in the order
determined by the board, shall, in the absence or disability of
the chairman and president, perform their duties and exercise
their powers.
Section 4 - Treasurer
The treasurer has custody of all funds, securities, evidences of
indebtedness and other valuable documents of the corporation. He
shall receive and give, or cause to be given, receipts and
acquittances of moneys paid in on account of the corporation, and
shall pay out of the funds on hand all just debts of the
corporation of whatever nature, when due. He shall enter, or
cause to be entered, in books of the corporation to be kept for
that purpose, full and accurate accounts of all moneys received
and paid out on account of the corporation, and, whenever
required by the president or the directors, he shall render a
statement of his accounts. He shall keep or cause to be kept
such books as will show a true record of the expenses, gains,
losses, assets and liabilities of the corporation; and he shall
perform all of the other duties incident to the office of
treasurer. If required by the board, he shall give the
corporation a bond for the faithful discharge of his duties and
for restoration to the corporation, upon termination of his
tenure, of all property of the corporation under his control.
Section 5 - Secretary
The secretary shall give, or cause to be given, notice of all
meetings of shareholders, directors and committees, and all other
notices required by law or by these bylaws, and in case of his
absence or refusal or neglect so to do, any such notice may be
given by the shareholders or directors upon whose request the
meeting is called as provided in these bylaws. He shall record
all of the proceedings of the meetings of the shareholders, of
the directors, and of committees in a book to be kept for that
purpose. Except as otherwise determined by the directors, he has
charge of the original stock books, transfer books and stock
ledgers, and shall act as transfer agent in respect of the stock
and other securities issued by the corporation. He has custody
of the seal of the corporation, and shall affix it to all
instruments requiring it; and he shall perform such other duties
as may be assigned to him by the directors, the chairman of the
board of directors, or the president.
Section 6 - Assistants
Assistant secretaries or treasurers shall have such duties as may
be assigned to them by the directors, by the chairman of the
board, or by the president, and as may be delegated to them by
the secretary and treasurer respectively.
ARTICLE V
Capital Stock
Section 1 - Certificates of Stock
Certificates of Stock, numbered and with the seal of the
corporation affixed or imprinted, signed by the Chairman of the
Board of Directors, or the President or Vice President, and the
Treasurer or Secretary, shall be issued to each shareholder,
certifying the number of shares owned by him in the corporation.
Where such certificate is countersigned (1) by a transfer agent
other than the corporation or its employee, or (2) by a registrar
other than the corporation or its employee, any other signature
on the certificate may be a facsimile.
Section 2 - Lost Certificates
A new certificate of stock may be issued in place of any
certificate theretofore issued by the corporation, alleged to
have been lost, stolen, mutilated or destroyed or mailed and not
received, and the directors may in their discretion require the
owner of the replaced certificate to give the corporation a bond,
unlimited as to stated amount, to indemnify the corporation
against any claim which may be made against it on account of the
replacement of the certificate or any payment made or other
action taken in respect thereof.
Section 3 - Transfer of Shares
Shares of stock of the corporation are transferrable only on its
books, by the holders thereof in person or by their duly
authorized attorneys or legal representatives, and upon such
transfer, the old certificate shall be surrendered to the person
in charge of the stock transfer records, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer, and whenever a transfer is
made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer. The board may make
regulations concerning the transfer of shares, and may in their
discretion authorize the transfer of shares from the names of
deceased persons whose estates are not administered, upon receipt
of such indemnity as they may require.
Section 4 - Record Dates
The board may fix a record date for determining shareholders of
record for any purpose, such date to be not more than sixty days
and, if fixed for the purpose of determining shareholders
entitled to notice of and to vote at a meeting, not less than ten
days, prior to the date of the action for which the date is
fixed.
Section 5 - Transfer Agents, Registrars
The board may appoint and remove one or more transfer agents and
registrars for any stock. If such appointments are made, the
transfer agents shall effect original issuances of stock
certificate and transfers of shares, record and advise the
corporation and one another of such issuances and transfers,
countersign and deliver stock certificates, and keep the stock,
transfer and other pertinent records; and the registrars shall
prevent over-issues by registering and countersigning all stock
certificates issued. A transfer agent and registrar may be
identical.
ARTICLE VI
Miscellaneous Provisions
Section 1 - Corporation Seal
The Corporate seal is circular in form, and contains the name of
the corporation and the words "SEAL, LOUISIANA". The seal may be
used by causing it, or a facsimile thereof, to be impressed or
affixed or otherwise reproduced.
Section 2 - Checks, Drafts, Notes
All checks, drafts, other orders for the payment of money, and
notes or other evidences of indebtedness, issued in the name of
the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall,
from time to time, be determined by the board.
Section 3 - Fiscal Year
The fiscal year of the corporation begins on January 1.
Section 4 - Notice
Whenever any notice is required by these bylaws to be given,
personal notice is not meant unless expressly so stated; any
notice is sufficient if given by depositing the same in a mail
receptacle in a sealed post-paid envelope addressed to the person
entitled thereto at his last known address as it appears on the
records of the corporation; and such notice is deemed to have
been given on the day of such mailing.
Section 5 - Waiver of Notice
Whenever any notice of the time, place or purpose of any meeting
of shareholders, directors or committee is required by law, the
articles or these bylaws, a waiver thereof in writing, signed by
the person or persons entitled to such notice and filed with the
records of the meeting before or after the holding thereof, or
actual attendance at the meeting of shareholders in person or by
proxy or at the meeting of directors or committee in person, is
equivalent to the giving of such notice except as otherwise
provided by law.
Section 6 - Indemnification of officers, directors, employees,
and agents
(a) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative
or investigative, including any action by or in the right of
the corporation by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a
director, officer, employee or agent of another business,
foreign or nonprofit corporation, partnership, joint venture
or other enterprise, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful.
However, in case of actions by or in the right of the
corporation, the indemnity shall be limited to expenses,
including attorneys' fees and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the
estimated expense of litigating the action to conclusion,
actually and reasonably incurred in connection with the
defense or settlement of such action and no indemnification
shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for willful or intentional
misconduct in the performance of his duty to the corporation
unless and only to the extent that the court shall determine
upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, he is
fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. The termination
of any action, suit or proceeding by judgement, order,
settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, or itself, create a presumption
that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) In any event, a director, officer, employee or agent of the
corporation who has been successful on the merits or
otherwise in defense of any such action, suit or proceeding,
or in defense of any claim, issue or matter therein, shall
be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
therewith.
(c) Any indemnification under subsection (a) of this Section,
unless ordered by the Court shall be made by the corporation
only as authorized in a specific case upon a determination
that the applicable standard of conduct has been met. Such
determination shall be made (1) by the board of directors by
a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable and the board of directors
so directs, by independent legal counsel or (3) by the
shareholders.
(d) Expenses incurred in defending such an action, suit or
proceeding may be paid by the corporation in advance of the
final disposition thereof if authorized by the board of
directors, without regard to whether participating members
thereof are parties to such action, suit, or proceeding,
upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to
be indemnified by the corporation as authorized in this
Section.
(e) The indemnification and advancement of expenses provided by
or granted pursuant to the other subsections of this Section
shall not be deemed exclusive of any other rights to which
the person indemnified or obtaining advancement of expenses
is entitled under any agreement, authorization of
shareholders or directors, regardless of whether directors
authorizing such indemnification are beneficiaries thereof,
or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of his heirs and legal representative; however, no
such other indemnification measure shall permit
indemnification of any person for the results of such
person's willful or intentional misconduct.
(f) The corporation shall have power to procure or maintain
insurance or other similar arrangement on behalf of any
person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another business, nonprofit or foreign corporation,
partnership, joint venture or other enterprise against any
liability asserted against or incurred by him in any such
capacity, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him
against such liability under the provisions of this Section.
Without limiting the power of the corporation to procure or
maintain any other kind of insurance or similar arrangement,
the corporation may create a trust fund or other form of
self-insurance arrangement for the benefit of persons
indemnified by the corporation and may procure or maintain
such insurance with any insurer deemed appropriate by the
board of directors regardless of whether all or part of the
stock or other securities thereof are owned in whole or part
by the corporation. In the absence of actual fraud, the
judgment of the board of directors as to the terms and
conditions of such insurance or self-insurance arrangement
and the identity of the insurer or other person
participating in a self-insurance arrangement shall be
conclusive, and such arrangements for insurance shall not be
subject to voidability and shall not subject the directors
approving such arrangement to liability, on any ground,
regardless of whether directors participating in approving
such insurance arrangements shall be beneficiaries thereof.
The provisions of the Insurance Code (Title 22 of the
Revised Statutes) will not apply to any wholly-owned
subsidiary of this corporation if it issues contracts of
insurance only as permitted by this subsection for coverage
of a person who is or was a director, officer, employee, or
agent of this corporation, or who is or was serving at the
request of this corporation as a director, officer,
employee, or agent of another business, nonprofit or foreign
corporation, partnership, joint venture, or other
enterprise, which contracts of insurance for such directors,
officers, employees, or agents may be issued by such wholly-
owned subsidiary without compliance with the provisions of
the Insurance Code.
Section 7 - Redemption of Control Shares
In accordance with Section 140.1 of the Louisiana Business
Corporation Law, the Company may redeem any or all control shares
acquired in a control share acquisition with respect to which
either:
(a) no acquiring person statement has been filed with
the Company in accordance with Section 137 of the
Louisiana Business Corporation Law; or
(b) the control shares are not accorded full voting
rights by the shareholders of the Company as provided
in Section 140 of the Louisiana Business Corporation
Law.
A redemption pursuant to subparagraph (a) hereof may be made at
any time during the period ending sixty (60) days after the last
acquisition of control shares by an acquiring person. A
redemption pursuant to subparagraph (b) hereof may be made at any
time during the period ending two (2) years after the shareholder
vote with respect to the voting rights of such control shares.
Any redemption pursuant to this Paragraph shall be made at the
fair value of the control shares and pursuant to such procedures
as may be adopted by resolution of the Board of Directors of the
Company.
ARTICLE VII
Amendments
Except as otherwise provided in the Restated Articles of
Incorporation, the shareholders or the directors, by affirmative
vote of a majority of those present or represented, may at any
meeting, amend or alter any of the bylaws; subject, however, to
the right of the shareholders to change or repeal any bylaws made
or amended by the directors.
EXHIBIT 10.13
AMENDMENT NUMBER TWO TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT NUMBER TWO TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 20, 1994, is entered into among SOUTHDOWN, INC., a
Louisiana corporation ("Borrower"), the banks and financial institutions that
are signatories to the Credit Agreement (collectively, "Banks", and
individually, a "Bank"), and WELLS FARGO BANK, N.A., a national banking
association, as agent for Banks hereunder ("Agent").
WHEREAS, Borrower has requested that the Credit Agreement be modified to
change certain provisions thereof p e r t aining to pricing, and to permit
Borrower and its Subsidiaries to dispose of the Environmental Service Business
Assets; and
WHEREAS, subject to the terms and conditions contained herein, Banks are
willing to amend such provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, conditions, and
provisions hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions for this Amendment. Any and all initially capitalized terms
used herein shall have the meanings ascribed thereto in the Credit Agreement, as
amended hereby, unless specifically defined herein. For purposes of this
Amendment, the following initially capitalized terms shall have the following
meanings:
"Agent" shall have the meaning set forth in the introduction to this
Amendment.
"Amendment" means and refers to this Amendment Number Two to Second
Amended and Restated Credit Agreement among Borrower, the Banks, and Agent.
"Bank" and "Banks" shall have the respective meanings set forth in the
introduction to this Amendment.
"Borrower" shall have the meaning set forth in the introduction to
this Amendment.
"Credit Agreement" means and refers to that certain Second Amended and
Restated Credit Agreement, dated as of November 19, 1993, among Borrower,
Banks, and Agent, as heretofore amended by that certain Amendment Number
One to Second Amended and Restated Credit Agreement dated as of February
18, 1994, among Borrower, Banks parties thereto, and Agent, together with
any and all exhibits and schedules thereto.
1.2 Amendment of Section 1.1 of the Credit Agreement. Section 1.1 of
the Credit Agreement hereby is amended as follows:
(a) The following definitions contained in Section 1.1 of the
Credit Agreement hereby are amended and restated in their entirety to
read as follows:
"Applicable Base Rate Margin" means and refers to, with
respect to Base Rate Loans,
Leverage Ratio Applicable Base Rate Margin
greater than or
equal to 5.00:1.0 1.25 percentage points
less than 5.00:1.0,
but greater than or
equal to 4.25:1.0 0.875 percentage points
less than 4.25:1.0,
but greater than or
equal to 3.75:1.0 0.50 percentage points
less than 3.75:1.0,
but greater than or
equal to 3.25 0.25 percentage points
less than 3.25:1,0,
but greater than or
equal to 2.25 0.00 percentage points
less than 2.25:1.0 0.00 percentage points
The Applicable Base Rate Margin shall be based upon Borrower's
Leverage Ratio which will be calculated quarterly as at the end of
each fiscal quarter of Borrower based upon the four (4) immediately
preceding fiscal quarters, including the quarter then ended. The
applicable margin shall be redetermined q u arterly on the date Agent
receives quarterly financial statements pursuant to Section 5.2(a)
hereof, (or, in the case of the fourth fiscal quarter in each fiscal
year, a certification by the chief financial officer or treasurer of
Borrower). In addition to the foregoing, (a) within forty-five (45)
days of the date on which Borrower consummates a Qualifying Offering,
Borrower may submit a certification by its chief financial officer or
treasurer regarding its then current Leverage Ratio (using, for the
numerator of such ratio, its then extant level of Funded Debt and, for
the denominator, using Consolidated EBITDA minus Capital Expenditures
determined for the four fiscal quarters ended as of the last day of
the immediately preceding fiscal quarter) and the Applicable Base Rate
Margin shall be determined based upon the Leverage Ratio set forth in
such certification, and (b) within five (5) days of the date of an
exchange of the Convertible Exchangeable Preferred Stock for Exchange
Subordinated Debt, Borrower shall submit a certification by its chief
financial officer or treasurer regarding its then current Leverage
Ratio (using, for the numerator of such ratio, its then extant level
of Funded Debt and, for the denominator, using Consolidated EBITDA
minus Capital Expenditures determined for the four fiscal quarters
ended as of the last day of the immediately preceding fiscal quarter)
and the Applicable Base Rate Margin shall be determined based upon the
Leverage Ratio set forth in such certification.
"Applicable Commercial Letter of Credit Margin" means
and refers to, with respect to Commercial Letters of Credit,
Leverage Ratio Applicable Commercial Letter
of Credit Margin
greater than or
equal to 5.00:1.0 0.50 percentage points
less than 5.00:1.0,
but greater than or
equal to 4.25:1.0 0.45 percentage points
less than 4.25:1.0,
but greater than or
equal to 3.75:1.0 0.40 percentage points
less than 3.75:1.0,
but greater than or
equal to 3.25 0.35 percentage points
less than 3.25:1,0,
but greater than or
equal to 2.25 0.30 percentage points
less than 2.25:1.0 0.25 percentage points
The Applicable Commercial Letter of Credit Margin shall be based
upon Borrower's Leverage Ratio which will be calculated quarterly as
at the end of each fiscal quarter of Borrower based up on the four (4)
immediately preceding fiscal quarters, including the quarter then
ended. The applicable margin shall be redetermined quarterly on the
date Agent receives quarterly financial statements pursuant to Section
5.2(a) hereof, (or, in the case of the fourth fiscal quarter in each
fiscal year, a certification by the chief financial officer or
treasurer of Borrower). In addition to the foregoing, (a) within
forty-five (45) days of the date on which Borrower consummates a
Qualifying Offering, Borrower may submit a certification by its chief
financial officer or treasurer regarding its then current Leverage
Ratio (using, for the numerator of such ratio, its then extant level
of Funded Debt and, for the denominator, using Consolidated EBITDA
minus Capital Expenditures determined for the four fiscal quarters
ended as of the last day of the immediately preceding fiscal quarter)
and the Applicable Commercial Letter of Credit Margin shall be
determined based upon the Leverage Ratio set forth in such
certification, and (b) within five (5) days of the date of an exchange
of the Convertible Exchangeable Preferred Stock for Exchange
Subordinated Debt, Borrower shall submit a certification by its chief
financial officer or treasurer regarding its then current Leverage
Ratio (using, for the numerator of such ratio, its then extant level
of Funded Debt and, for the denominator, using Consolidated EBITDA
minus Capital Expenditures determined for the four fiscal quarters
ended as of the last day of the immediately preceding fiscal quarter)
and the Applicable Commercial Letter of Credit Margin shall be
determined based upon the Leverage Ratio set forth in such
certification. Anything to the contrary contained herein
notwithstanding, there shall not be any increase to, or refund of, any
letter of credit fee previously paid with respect to a Commercial
Letter of Credit that is outstanding on the day on which the
Applicable Commercial Letter of Credit Margin changes.
"Applicable LIBOR Rate Margin" means and refers to,
with respect to LIBOR Rate Loans,
Leverage Ratio Applicable LIBOR Rate Margin
greater than or
equal to 5.00:1.0 2.50 percentage points
less than 5.00:1.0,
but greater than or
equal to 4.25:1.0 2.125 percentage points
less than 4.25:1.0,
but greater than or
equal to 3.75:1.0 1.75 percentage points
less than 3.75:1.0,
but greater than or
equal to 3.25 1.50 percentage points
less than 3.25:1,0,
but greater than or
equal to 2.25 1.25 percentage points
less than 2.25:1.0 1.00 percentage points
The Applicable LIBOR Rate Margin shall be based upon Borrower's
Leverage Ratio which will be calculated quarterly as at the end of
each fiscal quarter of Borrower based upon the four (4) immediately
preceding fiscal quarters, including the quarter then ended. The
applicable margin shall be redetermined quarterly on the date Agent
receives quarterly financial statements pursuant to Section 5.2(a)
hereof, (or, in the case of the fourth fiscal quarter in each fiscal
year, a certification by the chief financial officer or treasurer of
Borrower). In addition to the foregoing, (a) within forty-five (45)
days of the date on which Borrower consummates a Qualifying Offering,
Borrower may submit a certification by its chief financial officer or
treasurer regarding its then current Leverage Ratio (using, for the
numerator of such ratio, its then extant level of Funded Debt and, for
the denominator, using Consolidated EBITDA minus Capital Expenditures
determined for the four fiscal quarters ended as of the last day of
the immediately preceding fiscal quarter) and the Applicable LIBOR
Rate Margin shall be determined based upon the Leverage Ratio set
forth in such certification, and (b) within five (5) days of the date
of an exchange of the Convertible Exchangeable Preferred Stock for
Exchange Subordinated Debt, Borrower shall submit a certification by
its chief financial officer or treasurer regarding its then current
Leverage Ratio (using, for the numerator of such ratio, its then
extant level of Funded Debt and, for the denominator, using
Consolidated EBITDA minus Capital Expenditures determined for the four
fiscal quarters ended as of the last day of the immediately preceding
fiscal quarter) and the Applicable LIBOR Rate Margin shall be
determined based upon the Leverage Ratio set forth in such
certification. Anything to the contrary contained h e rein
notwithstanding, (a) any LIBOR Rate Loan that is outstanding on the
day on which the Applicable LIBOR Rate Margin changes, shall, until
the end of the Interest Period relating to such LIBOR Rate Loan,
continue to bear interest at the Applicable LIBOR Rate Margin that was
in effect on the date such LIBOR Rate Loan was made, and (b) the
letter of credit fee with respect to any Letter of Credit (other than
a Commercial Letter of Credit) that is outstanding on the day on which
the Applicable LIBOR Rate Margin changes, automatically shall be
adjusted as of the date on which the Applicable LIBOR Rate Margin is
adjusted.
(b) The following definitions hereby are added to Section 1.1 of
the Credit Agreement (to be inserted in alphabetical order), to read
as follows:
"Applicable Commitment Fee Percentage" means and refers to,
with respect to the calculation of the Commitment Fee provided for in
Section 2.13 hereof,
Leverage Ratio Applicable Commitment Fee Percentage
greater than or
equal to 5.00:1.0 0.50 percentage points
less than 5.00:1.0,
but greater than or
equal to 4.25:1.0 0.50 percentage points
less than 4.25:1.0,
but greater than or
equal to 3.75:1.0 0.50 percentage points
less than 3.75:1.0,
but greater than or
equal to 3.25 0.375 percentage points
less than 3.25:1,0,
but greater than or
equal to 2.25 0.375 percentage points
less than 2.25:1.0 0.25 percentage points
The Applicable Commitment Fee Percentage shall be based upon
Borrower's Leverage Ratio which will be calculated quarterly as at the
end of each fiscal quarter of Borrower based upon the four (4)
immediately preceding fiscal quarters, including the q u arter then
ended. The applicable percentage shall be redetermined quarterly on
the date Agent receives quarterly financial statements pursuant to
Section 5.2(a) hereof, (or, in the case of the fourth fiscal quarter
in each fiscal year, a certification by the chief financial officer or
treasurer of Borrower). In addition to the foregoing, (a) within
forty-five (45) days of the date on which Borrower consummates a
Qualifying Offering, Borrower may submit a certification by its chief
financial officer or treasurer regarding its then current Leverage
Ratio (using, for the numerator of such ratio, its then extant level
of Funded Debt and, for the denominator, using Consolidated EBITDA
minus Capital Expenditures determined for the four fiscal quarters
ended as of the last day of the immediately preceding fiscal quarter)
and the Applicable Commitment Fee Percentage shall be determined based
upon the Leverage Ratio set forth in such certification, and (b)
within five (5) days of the date of an exchange of the Convertible
Exchangeable Preferred Stock for Exchange Subordinated Debt, Borrower
shall submit a certification by its chief financial officer or
treasurer regarding its then current Leverage Ratio (using, for the
numerator of such ratio, its then extant level of Funded Debt and, for
the denominator, using Consolidated EBITDA minus Capital Expenditures
determined for the four fiscal quarters ended as of the last day of
the immediately preceding fiscal quarter) and the Applicable
Commitment Fee Percentage shall be determined based upon the Leverage
Ratio set forth in such certification.
"Environmental Services Business" means the business of Borrower or certain
of Borrower's Subsidiaries that involves hazardous or other waste treatment,
processing, or incineration.
"Environmental Services Business Assets" means (i) the stock and assets of
the Environmental Subsidiaries, and (ii) the a s sets of Borrower and its
Subsidiaries (other than the Environmental Subsidiaries) that relate primarily
to the conduct of the Environmental Services Business, excluding assets that are
integral or necessary to the conduct by Borrower or any Subsidiary of Borrower
(other than any Environmental Subsidiary) of any business other than the
Environmental Services Business.
1.3 Amendment of Section 2.13 of the Credit Agreement. Section 2.13 of the
Credit Agreement hereby is amended and restated in its entirety to read as
follows:
2.13 Commitment Fee. Borrower shall pay a fee (the "Commitment Fee")
to Agent, to be distributed by Agent to each Bank based upon such Bank's
pro rata share of the Facility A Commitment. The Commitment Fee shall be
payable quarterly in arrears, commencing on December 31, 1993, continuing
on the last day of each September, December, March, and June thereafter so
long as the Facility A Commitment is outstanding, and on the date of final
termination of the Facility A Commitment. The Commitment Fee that is due
and payable on December 31, 1993, shall cover the period of time from the
Closing Date to December 31, 1993. On or before the Closing Date, Borrower
shall pay to Agent the Commitment Fee (as defined and payable under the
1991 Credit Agreement), covering the period of time from October 1, 1993
through the day prior to the Closing Date.
The Commitment Fee shall be equal to the then extant Applicable
Commitment Fee Percentage, per annum, times the average daily amount of the
unfunded portion of the Facility A Commitment, decreased by the amount of
the Letter of Credit Usage extant from time to time and shall be
calculated, as set forth in Section 2.7 hereof, on the basis of a year of
three hundred sixty-five (365) or three hundred sixty-six (366) days, as
applicable, for the actual number of days elapsed.
1.4 Amendment of Section 4.1(c) of the Credit Agreement. Section 4.1(c) of
the Credit Agreement hereby is amended to add a sentence at the end thereof to
read as follows:
In connection with (i) the merger of any Environmental Subsidiary with
or into any other Person pursuant to Section 6.7(i) hereof, or (ii) any
sale or other disposition of any Environmental Services Business Asset
pursuant to Section 6.9(i) hereof, if a former Environmental Subsidiary
should cease to be a Subsidiary of Borrower by reason of such merger, sale,
or other disposition, then, effective as of the moment of consummation of
such merger, sale, or other disposition, the Disclosure Statement
automatically shall be deemed amended to eliminate all references to such
former Environmental Subsidiary that is no longer a Subsidiary of Borrower.
1.5 Amendment of Section 6.7 of the Credit Agreement. Section 6.7 of the
Credit Agreement hereby is amended and restated in its entirety to read as
follows:
6.7 Restriction on Fundamental Changes. Borrower shall not, and shall
not permit any of its Subsidiaries to, change its or their name, enter into
any merger or consolidation, enter into any reorganization or
recapitalization of Borrower's Debt in connection with a troubled debt
restructuring, or liquidate, wind up, or dissolve itself or themselves (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or substantially all of its or their property or assets,
whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of the business, property of, assets of,
or stock or other evidence of beneficial ownership of, any Person, except:
(a) any Specified Subsidiary of Borrower may be merged or
consolidated with or into Borrower or any Specified Subsidiary or be
liquidated, wound up, or dissolved, or all or any part of its
business, property, or assets may be conveyed, sold, assigned, leased,
transferred, or otherwise disposed of, in one transaction or a series
of transactions, to Borrower or any Specified Subsidiary; provided,
however, that in the case of its merger or consolidation, Borrower
shall give notice to Agent thereof and cause any such Specified
Subsidiary to comply with Section 5.11 hereof to effect and continue
the transactions contemplated by this Agreement and the Loan
Documents;
(b) Borrower and its Subsidiaries may make any Investment
permitted under Section 6.3 of this Agreement;
(c) Borrower and its Subsidiaries may sell or otherwise dispose
of properties or assets in accordance with the provisions of Section
6.9 of this Agreement;
(d) upon thirty (30) days prior written notice to Agent, Borrower
or any of the Specified Subsidiaries may change its or their names;
(e) upon three (3) days prior written notice to Agent, any
Subsidiary (other than a Specified Subsidiary) of Borrower may change
its name;
(f) upon ten (10) days prior written notice to Agent, (i) any of
the Specified Subsidiaries may merge with and into any of the other
Specified Subsidiaries, (ii) any of the Environmental Subsidiaries may
merge with and into any of the other Environmental Subsidiaries, and
(iii) any of Borrower's Subsidiaries, other than Environmental
Subsidiaries and Specified S u bsidiaries, may merge with and into any
of Borrower's Subsidiaries, other than Environmental Subsidiaries and
Specified Subsidiaries;
(g) Borrower and its Subsidiaries may acquire all or
substantially all of the business, properties, or assets of a Person
so long as the total purchase consideration per transaction, or series
of related transactions, does not exceed Twenty-Five Million Dollars
($25,000,000);
(h) Borrower may acquire ninety percent (90%) or more of the
Capital Stock (or other evidence of beneficial ownership) of a Person
and, contemporaneously with such acquisition, cause such Person to be
merged with and into Borrower (or its business, properties, and assets
to be transferred to Borrower), so long as the total purchase
consideration for such transaction, or a series of related
transactions, does not exceed Twenty-Five Million Dollars
($25,000,000); and
(i) Any Environmental Subsidiary may merge with or into another
Person, so long as (i) such merger is consummated after December 20,
1994, (ii) the terms of such merger have been approved by the board of
directors of such Environmental Subsidiary in the reasonable exercise
of their business judgment, and (iii) after giving effect to such
merger, neither Borrower nor any Subsidiary of Borrower shall own any
of the equity securities of the surviving Person that results from
such merger.
1.6 Amendment of Section 6.9 of the Credit Agreement. Section 6.9 of the
Credit Agreement hereby is amended and restated in its entirety to read as
follows:
6.9 Sale of Assets. Without obtaining the prior written consent of the
Required Banks, Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, assign, transfer, convey, or otherwise dispose of
their assets, whether now owned or hereafter acquired, except for:
(a) the sale or other disposition by Borrower or any of its
Subsidiaries of (i) property or assets having de minimis value, or
(ii) inventory, in each case, in the ordinary course of business;
(b) an involuntary sale or other disposition (that does not
constitute an Event of Default) of any of the properties or assets of
Borrower or any of its Subsidiaries;
(c) the sale or other disposition by Borrower or any of its
Subsidiaries, during the period from the Closing Date through the
Maturity Date, of properties or assets (the sale or disposition of
which would not have a Material Adverse Effect), having an aggregate
fair value not to exceed Sixty Million Dollars ($60,000,000);
provided, however, that, during any fiscal year of Borrower, such
permitted sales or dispositions shall be limited to properties or
assets having an aggregate fair value not to exceed Twenty Million
Dollars ($20,000,000); provided further, however, that the foregoing
shall not be deemed to p e rmit the sale, discount, sale with
recourse, or other disposition by Borrower or its Subsidiaries of any
of their accounts, general intangibles for the payment of money, or
other rights to payment of money, except that this proviso shall not
preclude the sale of accounts as part of a sale of the business out of
which they arose, an assignment of accounts that is for the purpose of
collection only, a transfer of a right to payment under a contract to
an assignee that is also to do the performance under the contract, a
transfer of a single account to an assignee in whole or partial
satisfaction of a pre-existing indebtedness or any sale, discount or
other disposition to Borrower;
(d) the sale or disposition by Borrower or any of its
Subsidiaries of the Capital Stock or properties and assets of ( i ) R
ho-Chem Corporation, a California corporation, or (ii) Century
Resources, Inc., an Illinois corporation;
(e) the sale or other disposition by any of Borrower's
Subsidiaries of properties or assets to Borrower;
(f) the sale or other disposition by (i) any of B o rrower's
Subsidiaries, other than the Environmental Subsidiaries, of properties
or assets to any of Borrower's Subsidiaries, (ii) any of the
Environmental Subsidiaries of properties or assets to other
Environmental Subsidiaries, or (iii) any of the Environmental
Subsidiaries of properties or assets to Borrower's Subsidiaries that
are not Environmental Subsidiaries, in each case, upon notice by
Borrower to Agent of same and compliance to the extent applicable, at
the request of Agent, with Section 5.11 to effect and continue the
transactions contemplated by this Agreement or the Loan Documents;
(g) the sale or other disposition by Borrower of any of the
Excluded Properties;
(h) the exchange of approximately 140 acres currently owned by
Borrower in Colorado and not necessary for the operation of Borrower's
business for real estate of comparable value in Colorado that is
expected to be useful in Borrower's business; and
(i) the sale or other disposition by Borrower or any Subsidiary
of Borrower, after December 20, 1994, of Environmental Service
Business Assets in one or more transactions, for a price or prices,
and on terms, approved by the board(s) of directors of the Persons
making the sale or disposition in the reasonable exercise of their
business judgment.
Upon receipt of a written request from Borrower or any of its
Subsidiaries with respect to any sale or other disposition permitted under
clause (a), (c), (g), or (i) above, Agent shall execute and deliver all
agreements and documents as reasonably may be requested to effect a release
of the Liens held by Agent, on behalf of Banks, upon the assets or
properties that are the subject of such sale or other disposition permitted
under this Section 6.9.
1.7 Amendment of Section 6.11 of the Credit Agreement. Section 6.11 of the
Credit Agreement hereby as amended to add a sentence to the end thereof to read
as follows:
The foregoing provisions of this Section 6.11 notwithstanding, any
Environmental Subsidiary may enter into any merger permitted by Section
6.7(i) hereof, and Borrower or any of its Subsidiaries may make any sale or
disposition permitted by Section 6.9(i) hereof.
1.8 Amendment of Section 6.12 of the Credit Agreement. Section 6.12 of the
Credit Agreement hereby is amended and restated in its entirety to read as
follows:
6.12 Amendments or Waivers of Certain Documents. Borrower shall not,
and shall not permit any of its Subsidiaries to, agree to any amendment to,
or waive any of its rights with respect to, (a) the terms and provisions
regarding interest rates, principal or interest payment amounts, total
principal amounts, subordination provisions, events of default, or similar
terms and provisions (including applicable definitions) of the Debt, and
related indentures or agreements, referred to in subsections 6.1(b) or (c)
of this Agreement; provided, however, Borrower may agree to an amendment of
the Debt, and the related indentures or agreements, that extends the
maturity date of such Debt; (b) any of the material terms of that certain
Purchase Agreement, dated August 15, 1987, among Borrower, Browning-Ferris
Industries, Inc., and the other signatories thereto, regarding the sale of
the Azusa, California, land-fill site, or (c) except in connection with,
and as a condition of, any merger permitted by Section 6.7(i) hereof or any
sale or other disposition permitted by Section 6.9(i) hereof, any of the
material terms of that certain Purchase Agreement dated as of May 23, 1990,
as amended by that certain First Amendment to Purchase Agreement, dated as
of June 4, 1990, among Browning-Ferris Industries, Inc., Cecos
International, Inc., and Borrower.
1.9 Amendment of Section 6.18 of the Credit Agreement. Section 6.18 of the
Credit Agreement hereby is amended and restated in its entirety to read as
follows:
6.18 Restrictive Agreements. Except in connection with any
then-pending merger permitted by Section 6.7(i) hereof, as a condition
thereof, or in connection with any then-pending sale or other disposition
permitted by Section 6.9(i) hereof, as a condition thereof, Borrower shall
not, and will not permit any of its Subsidiaries to, enter into any
agreement that restricts the ability of such Subsidiary to make payments to
Borrower by way of dividends, advances, reimbursements, or otherwise.
1.10 Amendment of Section 6.22 of the Credit Agreement. Section 6.22 of the
Credit Agreement hereby is amended to add a sentence at the end thereof, to read
as follows:
The foregoing provisions of this Section 6.22 notwithstanding,
Borrower shall not, directly or indirectly, make any Investment after
December 20, 1994, in any Environmental Subsidiary unless such
Environmental Subsidiary was an Environmental Subsidiary on December 20,
1994.
ARTICLE 2
CONDITIONS
2.1 Conditions to the Effectiveness of this Amendment. The effectiveness
of this Amendment is subject to the fulfillment, to the satisfaction of Agent,
of each of the following conditions:
2.1.1 the Agent shall have received a certificate from the Secretary or an
Assistant Secretary of Borrower attesting to the resolutions of Borrower's board
of directors authorizing the execution and delivery of this Amendment and
authorizing specific officers to execute and deliver same;
2.1.2 the Agent shall have received an executed counterpart of this
Amendment duly executed and delivered by Borrrower and each Bank; and
2.1.3 the Agent shall have received a certificate from a Responsible
Officer certifying that:
(i) the representations and warranties of Borrower and the Specified
Subsidiaries contained in the Credit Agreement and the Loan Documents, to
the extent that each is a party thereto, are true and correct in all
material respects at and as of the date of the effectiveness of this
Amendment, as though made on and as of such date ( except to the extent
that such representations and warranties expressly relate solely to an
earlier date);
(ii) neither an Event of Default nor an Unmatured Event of Default has
occurred and is continuing on the date of the effectiveness of this
Amendment;
(iii) on the date of the effectiveness of this Amendment, no Material
Adverse Change has occurred, as a result of one or more acts or
occurrences; and
(iv) the Credit Agreement and each of the Loan Documents are in full
force and effect, except as heretofore modified, terminated, or released in
accordance with the provisions of the Credit Agreement or such Loan
Document.
ARTICLE 3
MISCELLANEOUS
3.1 Effectiveness. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original. All of such counterparts shall constitute but one and the same
instrument. Delivery of an executed counterpart of the signature pages of this
Amendment by telecopier shall be equally effective as delivery of a manually e x
e cuted counterpart. Any party delivering an executed c o unterpart of the
signature pages of this Amendment by telecopier thereafter also shall deliver
promptly a manually executed counterpart, but the failure to deliver such
manually executed counterpart shall not affect the validity, enforceability, or
binding effect of this Amendment. This Amendment shall be effective as of the
date hereof, subject to the fulfillment of the conditions set forth in Section
2.1 of this Amendment. This Amendment shall have no retroactive effect
whatsoever. The foregoing provisions of this Section 3.1 of this Amendment
notwithstanding, (i) with respect to any Commercial Letter of Credit issued
prior to the effectiveness of this Amendment that remains outstanding at the
time this Amendment becomes effective, the letter of credit fee paid with
respect to such outstanding Commercial Letter of Credit shall continue to be
based on the Applicable Commercial Letter of Credit Margin that was extant at
the time such Commercial Letter of Credit was issued, and shall not be affected
by the change in the definition of "Applicable Commercial Letter of Credit
Margin" provided for in this Amendment, provided that this clause (i) shall not
apply with respect to any extension, amendment, modification, or renewal that
occurs after the effectiveness of this Amendment with respect to any Commercial
Letter of Credit first issued prior to the effectiveness of this Amendment, and
(ii) with respect to any LIBOR Rate Borrowing outstanding at the time this
Amendment becomes effective, the interest payable with respect to such LIBOR
Rate Borrowing for the remaining duration of the Interest Period in effect at
the time this Amendment becomes effective shall continue to be based on the
Applicable LIBOR Rate Margin that would have been applicable if this Amendment
had not become effective, and shall not be affected by the change in the
definition of "Applicable LIBOR Rate Margin" provided for in this Amendment.
Notwithstanding anything to the contrary contained in the definitions of the
terms "Applicable Base Rate Margin," "Applicable Commercial Letter of Credit
Margin," "Applicable Commitment Fee Percentage," or "Applicable LIBOR Rate
Margin" to the effect that applicable margins or percentages shall be
redetermined quarterly, but subject to the immediately preceding sentence of
this Section 3.1, the changes in the percentages set forth in such definitions
provided for in this Amendment shall take effect, prospectively, immediately
upon the effectiveness of this Amendment, and the implementation of such changes
shall not be deferred to the end of a fiscal quarter of Borrower.
3.2 No Other Amendment. Except as expressly amended hereby, the Credit
Agreement shall remain unchanged and in full force and effect. To the extent any
terms or provisions of this Amendment conflict with those of the Credit
Agreement, the terms and provisions of this Amendment shall control. This
Amendment shall be deemed a part of and is hereby incorporated in the Credit
Agreement.
3.3 Governing Law. This Amendment shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first set forth above.
SOUTHDOWN, INC.,
a Louisiana corporation
By____________________________
Title:______________________
WELLS FARGO BANK, N.A.,
a national banking
association, in its individual
capacity and as Agent
By____________________________
Title:______________________
SOCIETE GENERALE, SOUTHWEST AGENCY
By____________________________
Title:______________________
CREDIT SUISSE
By____________________________
Title:______________________
By____________________________
Title:______________________
CAISSE NATIONALE DE CREDIT AGRICOLE
By____________________________
Title:______________________
BANQUE PARIBAS
By____________________________
Title:______________________
By____________________________
Title:______________________
CIBC INC.
By____________________________
Title:______________________
THE BANK OF NOVA SCOTIA
By____________________________
Title:______________________
THE FIRST NATIONAL BANK OF BOSTON
By____________________________
Title:______________________
EXHIBIT 10.21
AGREEMENT
Between
SOUTHWESTERN PORTLAND CEMENT
and
INTERNATIONAL BROTHERHOOD
OF BOILERMAKERS,
CEMENT, LIME, GYPSUM AND
ALLIED WORKERS DIVISION
LOCAL LODGE D-357
Effective
March 1, 1994
through
February 28, 1998
<PAGE>
AGREEMENT INDEX
AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1
ARTICLE 1. Purpose . . . . . . . . . . . . . . . . . . . . . . . .Page 1
ARTICLE 2. Recognition. . . . . . . . . . . . . . . . . . . . . . .Page 1
ARTICLE 3. Employment . . . . . . . . . . . . . . . . . . . . . . .Page 2
ARTICLE 4. Management . . . . . . . . . . . . . . . . . . . . . . .Page 3
ARTICLE 5. Union Activity . . . . . . . . . . . . . . . . . . . . .Page 3
ARTICLE 6. Seniority. . . . . . . . . . . . . . . . . . . . . . . .Page 5
ARTICLE 7. Workforce Changes. . . . . . . . . . . . . . . . . . . .Page 8
ARTICLE 8. Promotions & Transfers . . . . . . . . . . . . . . . . .Page 10
ARTICLE 9. Hours & Work Schedules . . . . . . . . . . . . . . . . Page 11
ARTICLE 10. Overtime . . . . . . . . . . . . . . . . . . . . . . . .Page 13
ARTICLE 11. Wages. . . . . . . . . . . . . . . . . . . . . . . . . .Page 15
ARTICLE 12. Holidays . . . . . . . . . . . . . . . . . . . . . . . .Page 16
ARTICLE 13. Vacations. . . . . . . . . . . . . . . . . . . . . . . .Page 18
ARTICLE 14. Jury Duty/Witness Pay. . . . . . . . . . . . . . . . . .Page 20
ARTICLE 15. Funeral Leave. . . . . . . . . . . . . . . . . . . . . .Page 20
ARTICLE 16. Military Reserve Summer Camp . . . . . . . . . . . . . .Page 21
ARTICLE 17. Safety & Health. . . . . . . . . . . . . . . . . . . . .Page 21
ARTICLE 18. Leaves of Absence. . . . . . . . . . . . . . . . . . . .Page 23
ARTICLE 19. Information. . . . . . . . . . . . . . . . . . . . . . .Page 23
ARTICLE 20. Incapacitated Employees. . . . . . . . . . . . . . . . .Page 24
ARTICLE 21. Furnishing of Tools. . . . . . . . . . . . . . . . . . .Page 25
ARTICLE 22. Copies of Agreement. . . . . . . . . . . . . . . . . . .Page 25
ARTICLE 23. Grievance & Arbitration. . . . . . . . . . . . . . . . .Page 25
ARTICLE 24. Strikes & Lockouts . . . . . . . . . . . . . . . . . . .Page 27
ARTICLE 25. Legislation. . . . . . . . . . . . . . . . . . . . . . .Page 28
ARTICLE 26. Overtime Lunch . . . . . . . . . . . . . . . . . . . . .Page 28
ARTICLE 27. Dues Check off . . . . . . . . . . . . . . . . . . . . .Page 29
ARTICLE 28. Scope of Agreement . . . . . . . . . . . . . . . . . . .Page 30
ARTICLE 29. Past Practice. . . . . . . . . . . . . . . . . . . . . .Page 32
ARTICLE 30. Skills Training. . . . . . . . . . . . . . . . . . . . .Page 32
ARTICLE 31. Terms of Agreement . . . . . . . . . . . . . . . . . . .Page 32
SCHEDULE A. Wage Training Requirements . . . . . . . . . . . . . . .Page 34
SCHEDULE B. Wage Rates . . . . . . . . . . . . . . . . . . . . . . .Page 37
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page 38
<PAGE>
AGREEMENT
This Agreement, dated March 1, 1994 is made by and between
the SOUTHWESTERN PORTLAND CEMENT and the INTERNATIONAL
BROTHERHOOD OF BOILERMAKERS, CEMENT, LIME, GYPSUM, AND
ALLIED WORKERS DIVISION, LOCAL LODGE NO. D357, referred to
respectively as the "Company" and the "Union."
PREAMBLE
Both the Union and the Company agree that the successful
operation of the Plant is in the best interests of the
Union, its membership, the Company and the Committee at
large. And the best way to insure a successful operation is
to utilize a cooperative approach to problem solving that
utilizes input from all interested parties and communicate
the results of decisions, and the basis for them, to those
affected. While a cooperative approach does not specify
current or future action, it requires a commitment to
communication, understanding and the future that both the
Union and the Company are willing to make.
In an effort to promote communication and understanding, a
monthly meeting will be held between Union leadership and
Plant management to discuss non-contractual issues regarding
the present and future operation of the Plant, such as
expected production and profitability, potential changes in
working conditions and potential sources of improvement.
Items specifically not to be discussed include grievances
and contractual disputes.
ARTICLE 1 - PURPOSE
1.1 It is the object of the parties to this Agreement to
protect the best interests of the employees and of the
Company and to abide by this Agreement.
ARTICLE 2 - RECOGNITION
2.1 Pursuant to and in conformity with the National Labor
Relations Act, as amended, and the certification by the
National Labor Relations Board, dated January 20, 1956,
the Company recognizes the Union as the exclusive
bargaining agency for all production and maintenance
employees at the Company's plant, Atlas storage
facilities, and quarries located at Fairborn, Ohio, but
excluding all Office Clerical Employees, Guards,
Professional Employees, and Supervisors as defined in
the Act.
ARTICLE 3 - EMPLOYMENT
3.1 (1) The Company shall not discriminate against any
employee because of membership in or activity in
behalf of the Union.
(2) The Company agrees that 85 work days following the
beginning of employment, each permanent employee
shall have made application for membership in the
Union as a condition of continued employment,
subject to applicable law.
3.2 All provisions of this agreement shall be applied to
all employees without regard to race, color, sex,
religion, creed, age, national status or veteran
status. The company and the union will comply with all
federal and state laws concerning the rights of workers
including the Americans with Disabilities Act and the
Family and Medical Leave Act.
3.3 (1) a. All production and maintenance work
customarily performed by the Company in its
own plant, Atlas storage facilities, and
quarries with its own employees shall
continue to be performed by the Company with
its own employees as long as, in the judgment
of the Company, the Company has facilities
and equipment and available trained personnel
to economically and efficiently perform the
work required, within the time limits within
which work must be performed in the opinion
of management.
b. The Company agrees to notify the Local Union
in writing with a copy to the International
Representative who serves the Local Union by
certified mail at least fourteen (14) days in
advance of the date the Company expects to
begin work utilizing any subcontractors (if
such notice is reasonably possible) and to
meet with the Union upon request by the Union
for explanation of the reasons (the Company
does not have the facilities and/or equipment
and/or available trained personnel to
economically and efficiently perform the work
required within the time limits within which
work must be performed in the opinion of
management) causing the Company to decide to
contract out any production and/or
maintenance work. It is understood that the
Company will take into consideration any
facts or recommendations brought to its
attention with regard to the Company's
decision to subcontract production and/or
maintenance work normally performed by
bargaining unit employees; it is further
agreed that after following the above
procedure it will be the Company's decision
in deciding whether or not to subcontract.
(2) Section 3.3 (1) above does not apply to new
construction or major modification work or to the
outsourcing of cement, clinker, and raw materials.
It is hereby agreed that the Company may, in its
exclusive judgment, subcontract any work in
connection with or related to new construction or
major modification.
3.4 It is understood and agreed that during the normal
course of operations it may be necessary for
non-bargaining unit employees to perform some
bargaining unit work from time to time. Such work will
be incidental to the normal duties of said
non-bargaining unit employees, as long as such work
does not displace or replace a bargaining unit
employee. Such work shall include work involving
corrective action which must be performed
expeditiously; instruction or training of employees;
demonstration; inspection or testing of equipment; work
of an emergency nature; and development work for new
processes and/or procedures.
ARTICLE 4 - MANAGEMENT
4.1 The Union recognizes that the management of the plant,
the direction of the working forces, including the
right to hire, discipline for just cause, the right to
make and change and enforce (after posting) rules for
the maintenance of discipline and safety; the exclusive
rights 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); the
right to promote, or transfer employees; the right to
transfer and relieve employees from duty because of
lack of work or other legitimate reason, and the right
to establish and change the working schedules and
duties of employees are vested in the Company, except
as otherwise provided in the Agreement. 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.
ARTICLE 5 - UNION ACTIVITY
5.1 The Union Grievance Committee representing the
employees in matters other than negotiations and
consisting of not more than three (3) employees and the
recording secretary shall meet with the Company once a
month on specified days, except by mutual agreement a
meeting may be postponed or canceled. Provided,
however, that matters pertaining to discharges or other
matters that cannot be reasonably delayed until the
time of the next regular meeting may be presented at
any time by mutual agreement. The normal meeting day
for the monthly meeting shall be the third Thursday of
each month. Should such day be unavailable for either
party at any particular meeting, sufficient notice
shall be given to the other party and arrangements made
for later meeting.
5.2 Insofar as practical, meetings will be conveniently
scheduled so as to complete all business within the
normal working day for day employees. Any employee who
is scheduled to work during the hours the meeting is
held and who attends the meeting will be compensated
only by multiplying his regular classified hourly wage
rate by the straight time hours he attends the meeting.
5.3 When a meeting is scheduled at which a representative
of the International Union or a representative of the
Company from Corporate Headquarters will attend, any
member of the committee who is scheduled to work the
third shift immediately preceding the meeting will be
excused from working the third shift and will be
compensated by multiplying eight (8) hours at his
regular classified hourly wage rate plus shift
differential if the employee has attended the meeting.
5.4 Any member of the committee who is scheduled to work
the second shift immediately following the meeting will
be excused from working the second shift if the
employee has attended the meeting for six (6) hours.
In the event the employee is excused from working the
second shift, he will be compensated by multiplying
eight (8) hours at his regular classified hourly wage
rate plus shift differential.
5.5 Any employee who is receiving sickness and accident
benefits, or Workers' Compensation Benefits for the day
of the meeting or who is absent due to disciplinary
layoff shall not receive any compensation under this
article.
5.6 Two members of the negotiating committee will be paid
for actual straight time spent in attendance at
negotiating meetings with the Fairborn plant not to
exceed eight (8) hours pay at any meeting. The Union
Negotiating Committee representing the employees in
negotiations shall consist of not more than four (4)
employees which shall include local union officers.
5.7 Where possible, a member of the Grievance Committee
shall be notified before any employee is suspended from
work. If a member of the Grievance Committee is not
notified prior to suspension, he shall be notified as
soon as practical thereafter.
5.8 The Company and the Union Grievance Committee shall
meet prior to a discharge of an employee to review the
facts of the case.
5.9 (1) Where there is a discussion between an hourly
employee and a supervisor that is intended as a
disciplinary measure resulting in written warning,
the employee may request that a grievance
committeeman, job steward or other designated
employee be present.
(2) It shall be the responsibility of the Union to
appoint and have available on each shift a
committeeman, job steward or other employee
designated for purposes of this Section who shall
be identified to the Company in writing.
(3) It is not the intent of this Section to expand the
total number of committeemen as provided for in
Article 5.1.
5.10 Union activities shall not be conducted during working
hours, except that, with the consent of the Company, a
member or members of the Union Grievance Committee may
try to adjust an existing problem between the Union and
the Company. There shall be one (1) steward on each
rotating shift who may, in the absence of a committee
member, try to adjust an existing problem. Such
consent will not be unreasonably withheld or delayed.
Local Union officers and stewards off duty and
representatives of the International Union shall, upon
permission from the Company, be permitted on the
Company's premises to investigate grievances. Such
permission shall come from the Plant Manager or his
designee and will not be unreasonably withheld or
delayed.
5.11 An International Representative, upon permission from
the Plant Manager or his designee, may be present at
any of the above-mentioned meetings.
ARTICLE 6 - SENIORITY
6.1 The following factors shall apply in the awarding of
all jobs:
(1) Testing where required and as identified in the
Wage Group Training Requirements (Schedule A)
attached herein.
(2) Physical fitness of the applicant
(3) Seniority
6.2 Where (1) and (2) are equal, (3) shall apply. The
employee selected shall be given a fair trial period.
The Company will provide a written performance
evaluation every 30 calendar days until the employee is
either qualified or disqualified. If after a fair
trial period, in the judgement of the Company, the
employee fails to qualify, he shall be returned to his
former position and the next bidder be given
consideration. Employees who have received repeated
disciplinary tickets, relevant to job performance, in
the twelve (12) months prior to bidding the job, will
not be given consideration for advancement to Wage
Groups 4 and above and the Entry Level Training
Program.
6.3 When a job cannot be filled in the above manner because
of the bidder's failing to have the necessary
qualifications, the senior bidder, provided he is
physically qualified to perform the assigned work, will
be allowed to demonstrate his abilities to perform as
required. It must be reasonable to assume that such
employee will be capable of performing and learning the
duties of such job. However, if in the judgment of the
Company, due to unforseen circumstances, there are no
qualified bidders for Wage Groups 6 and 7, the Company
may fill Wage Groups 6 and 7 from any source.
6.4 (1) As to employees on the payroll when this Agreement
becomes effective, seniority is defined as the
length of continuous service with the Company.
Seniority rights, once established, start from the
date of employment; provided, however, that an
employee shall not have any seniority rights until
after eight-five (85) work days following his last
date of hire by the Company. Such employee shall
not have recourse to the grievance procedure of
this Agreement and may be laid off or discharged
as exclusively determined by the Company.
(2) Temporary employees may be employed between May 1
and October 1. They will not be subject to the 85
work day requirements nor will they be evaluated
as a probationary/permanent employee.
6.5 An employee's employment shall be terminated and the
employee's seniority shall be lost by:
(1) discharge for cause;
(2) voluntary quit;
(3) failure to notify the Company of the
employee's intention to return to work after
layoff within three (3) working days, and to
actually report to work within seven (7) working
days (unless the latter period is extended in
writing by the Company) after he has been notified
by certified mail at his last address appearing on
the Company's records to report to work;
(4) voluntarily retire;
(5) absent for seventy-two (72) or more
consecutive hours without notifying his foreman or
obtaining the approval of such absence. This
employee(s) will be viewed as a voluntary quit
unless the employee's physical condition prevents
proper notification.
(6) failure to return from a medical leave of
absence (occupational or non-occupational) after a
period of twenty-four (24) consecutive months.
(7) failure to return from layoff after a period
of seven (7) consecutive years.
6.6 During a continuous period of absence, an employee
absent due to layoff shall retain recall rights for a
period not to exceed seven (7) years. Employees will
accrue seniority equal to their years of service or
three (3) years, whichever is less.
6.7 When a vacancy occurs for which a laid off employee is
qualified, he will be given certified mail notice of
recall at his last address as shown on Company records.
The employee must notify the Company of the employee's
intention to return to work within three (3) working
days and must report to work within seven (7) working
days (unless the latter period is extended in writing
by the Company) after he has been notified by certified
mail. If the employee is reinstated, he shall be
credited with seniority as prescribed above; if the
employee does not respond or refuses the recall, it
shall be viewed as a voluntary quit and he will forfeit
all seniority and the Company may fill the vacancy with
a new employee.
6.8 (1) An employee on continuous absence due to
disability shall accrue seniority for a period not
to exceed twenty-four (24) months. Should such an
employee be declared totally and permanently
disabled prior to twenty-four (24) months, such
employee's name shall be removed from the payroll
and a certified mail notice to this effect will be
sent to his last address as shown on Company
records.
(2) An employee returning from medical leave who is
physically able to return to work will return to
his former position or be allowed to bump to any
job for which he is physically capable of
performing. Qualification will be handled as in
the normal bidding procedure.
6.9 Should an employee in the bargaining unit be promoted
to a supervisory position outside the coverage of this
Agreement and later after promotion be demoted, his
seniority will be reinstated in the amount he had when
promoted. Any employee promoted to a supervisory
position after March 1, 1994 may only be permitted to
return to the bargaining unit within one (1) year of
the promotion.
6.10 Seniority lists agreed to by and between the Company
and the Union shall be posted on the bulletin board as
of May 1 and November 1 of each year. Corrections
shall be made in the seniority lists when it is proven
an employee is placed in the wrong position on said
list, but all requests for corrections must be made
within thirty (30) calendar days from date of posting
or the list shall be valid as posted.
6.11 When the Company declares that a full time shift
exists, where possible, employees in the classification
affected may exercise their seniority to choose that
full time shift. An employee may exercise his
seniority no more than twice per calendar year for
shift selection.
6.12 Senior employees in the labor force shall be given
preference to filling any temporary job with a higher
wage rate. However, the Company has the right to fill
such temporary job with another senior qualified
laborer, if such employee became qualified in the
position in question while he was the senior laborer,
or under the bid system. If no one in the labor force
is qualified, the most senior laborer will be trained
for the job.
ARTICLE 7 - WORKFORCE CHANGES
7.1 Should the Company reduce the workforce due to layoff
or any other reason, the Company will give the Union
reasonable advance notice of same and, upon request by
the Union, promptly meet to review and explain such
reductions.
7.2 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:
a. 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.
b. 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 accordance with paragraph 7.2 (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 will result with the
least senior employee or group of employees being
laid off.
(3) "Qualified" for purposes of this paragraph 7.2 (2)
shall mean that an employee must be able to
perform all duties connected with the job
classification without any training and within 5
working days. It is further understood that the
Company shall allow the employee to demonstrate
his abilities to perform as required. It must be
reasonable to assume that such employee will be
capable of performing the duties of such job.
(4) Employees will be recalled in the reverse order
that they were laid off.
7.3 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 layoff, 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.
(3) "Qualified" for purposes of paragraph 7.3 (1)
shall mean that an employee must be able to
perform all duties connected with the job
classification without any training and within
five (5) working days.
7.4 The Company's decision concerning qualification as used
in this Article is subject to the grievance procedure.
7.5 Should the Company permanently shut down the present
facilities affording employment to the 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 given in accordance with applicable federal
law.
7.6 New bargaining unit jobs, or bargaining unit jobs that
have experienced significant changes in duties,
equipment, or requirements will be discussed in the
monthly Labor-Management meeting.
ARTICLE 8 - PROMOTIONS AND TRANSFERS
8.1 When the Company determines a vacancy exists, other
than a minimum pay job, the Company will post a notice
of such fact, such notice to remain posted for a period
of at least seventy-two (72) consecutive hours, not
including Saturdays, Sundays, or holidays. This notice
shall state rates of pay, hours, and job requirements.
Employees who wish the job shall be considered in the
manner provided herein in Article 6.1 and 6.2 and the
successful applicant's name will be posted within seven
(7) days after the bids are opened, except where
testing is required. Said delay will not exceed ten
(10) days, unless additional time is agreed to between
the Union and Company. The successful bidder will be
placed on the job within as reasonable a time as
possible from the date of posting award but will
continue to receive his previously established rate
until the Company determines he is qualified to perform
the bid job. In the event of the successful
applicant's failure to qualify in the opinion of the
Company, then it is understood that said employee is to
be restored to his former position and standing.
Employees will submit their bid to their supervisor and
will be given a receipt for the bid.
8.2 Laborers who are assigned to fill a job vacancy, as a
result of no one being awarded the job through the
bidding procedure, are entitled to return to laborer
when there is an employee with less seniority who is a
permanent laborer. The Company will not require any
employee other than a laborer to fill, on a permanent
basis, a job vacancy of a different classification than
his own which is not filled through the bidding
procedure. This Section does not preclude the Company
from hiring new employees to fill such a job vacancy,
nor does it affect the Company's right to temporarily
assign any employee to such a job vacancy.
8.3 If within twenty-four (24) months following his
assignment to a new job under this procedure, an
employee applies for another new job of equal or lower
classification, the Company may, at its discretion,
disregard such application. This provision does not
apply to employees successfully bidding into the Entry
Level Training Program.
8.4 Temporary Reassignment. 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 actually worked. 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.
8.5 In no event shall the Company be requested or required
to post any job temporarily vacated by reason of
vacations, illness, or injury. The Company, at its
discretion, may create temporary jobs not to exceed one
hundred twenty (120) work days. Successful bidders
bidding down on such temporary jobs will be placed in
labor classification upon completion of the job.
Should the Company determine that any temporary job
becomes permanent, the Company shall post the job as
provided in Article 8.1. Such 120 day limitation shall
not apply to temporary jobs posted for reason of
filling vacancies caused by illness or injury to an
employee.
8.6 Knowledge, training, skill, and ability gained while
holding jobs under the bid system will be considered in
making promotions, layoffs, or in reducing the work
force.
ARTICLE 9 - HOURS AND WORK SCHEDULES
9.1 The work week of each employee shall start at 7:30 a.m.
on Sunday morning. A work day shall be the twenty-four
(24) hour period commencing at 7:30 a.m. each day.
9.2 Each employee shall perform work assigned to him by the
Company, and no employee shall absent himself from his
work without consent of the Company. Consent will be
given by the Company for a reasonable excuse.
9.3 Nothing in this Agreement shall be construed as a
guarantee of hours of work per day or per week, or of
days of work per week.
9.4 Work schedules for each work week will be posted by
Friday of the previous week prior to the end of the
first shift only if there is a change in hours, shift
or days scheduled from the previously posted schedule.
It is the employee's responsibility to check his
schedule. If an employee's work schedule is changed
after the end of the first shift of the preceding
Friday, he shall be compensated with a twenty-five
dollars ($25.00) premium for the first eight hours
worked in his new schedule and the premium shall be
paid in addition to whatever compensation the employee
is otherwise entitled to receive under any other
section of this Agreement.
9.5 Unless a regular employee shall be specifically
instructed not to report to work at least twelve (12)
hours before the 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.
Notices referred to in this paragraph shall be deemed
to have been given when a reasonable effort has been
made by the Company to give such notice orally or in
writing to such employee.
9.6 In the event an employee commences work on his shift
and work ceases during his shift for any reason and
there is no other available work for him, he shall be
paid a minimum of eight (8) hours, except when causes
beyond the control of the Company make it impossible,
in which case no minimum hours of work shall be given.
9.7 Work performed by reason of changes of schedules or
reassignment of employees, as herein above provided,
shall not be construed as constituting work in excess
of regular scheduled working time.
9.8 One-half (1/2) hour at time and one-half shall be paid
for any scheduled lunch period interrupted by a work
assignment, and either prior to or subsequent to the
regular lunch period, reasonable time for lunch shall
be granted with pay for same at the employee's regular
rate.
9.9 It is agreed that the Company's right to a seven (7)
day per week continuous operation is in no way
affected.
9.10 Any employee detained from work on account of sickness
or other good reason shall notify either the plant
personnel office or his foreman in accordance with the
Company's A & T Policy. When an employee has been
absent from his job for good cause, he must notify the
plant personnel office or his foreman of his intentions
to report back for work before the end of the last
shift he would have worked had he not been absent. If
an employee fails to give the above notice, the Company
will not be obligated to provide work nor minimum pay
for him.
9.11 Whenever a layoff is planned because of a change or
reduction in plant production requirements, the Company
will, not less than five (5) calendar days prior to the
effective date of the layoff, post a bulletin stating
the expected extent of such layoff and the expected
effect on the work force. In the event the required
notice is not given in accordance with the above, the
Company will pay the laid off employee(s) the scheduled
time lost at the applicable straight time shift rate up
to five (5) days pay. The five (5) calendar days
period shall commence on the day following the posting
of the notice. The foregoing does not apply to
disciplinary layoffs and layoffs because of curtailment
made necessary by disaster or emergency conditions
affecting the ability of the Company to physically
operate the Plant.
9.12 If an employee does not work a regularly scheduled work
day through action of the Company, or because of a
holiday, that day shall not be considered as actually a
day worked for overtime purposes.
ARTICLE 10 - OVERTIME
10.1 It is recognized that overtime work is necessary and
essential in the Company's operation. An employee may
request relief from scheduled overtime by advising his
foreman of his request not later than twenty four (24)
hours prior to the start of the overtime assignment.
If the required work cannot be performed by voluntary
overtime, the employee lowest in seniority in the
required classification shall be assigned the overtime
work.
10.2 Overtime rates shall be as follows:
SCHEDULED RATES CALLOUT RATES
(1) Regular Day/Week
Over 8 hrs/40 hrs 1-1/2x 1-1/2x
Over 12 hrs/Day 2 x 2 x
12 hrs Overlap/Shift 2 x 2 x
(2) 6th Day/Scheduled Off-Day
1st 12 hrs 1-1/2x 1-1/2x
Over 12 hrs 2 x 2 x
(3) 7th Day Worked
1st 12 hrs 2 x 2 x
Over 12 hrs 2-1/2x 2-1/2x
(4) Sundays Worked *
1st 8 hrs 1-1/2x 2 x
Over 8 hrs 1-1/2x 2 x
Over 12 hrs 2 x 2-1/2x
(5) Holidays
1st 8 hrs ** 1-1/2x 2 x
Over 8 hrs 1-1/2x 2 x
Over 12 hrs 2 x 2-1/2x
NOTES
*If an employee is scheduled to work on Sunday, (the
twenty-four (24) hour period from 7:30 a.m. on Sunday to
7:30 a.m. Monday), the employee shall be compensated at one
and one half (1-1/2) times his straight time hourly rate.
**Plus eight (8) hours holiday pay if eligible.
10.3 In the event an employee works more than twelve (12)
hours in his work day, and is being paid at the rate of
double time, his rate of pay shall not be reduced when
his work continues into, or overlaps his regular shift.
However, the Company may exercise the following option:
(1) Send the employee home at any time during the
shift, provided the remainder of the shift is paid
for at straight time. Such employee cannot be
called back to work until he has been off duty for
eight (8) consecutive hours. Time paid for under
this provision shall be counted as time worked for
the purpose of equalization of overtime only.
10.4 Callouts
(1) If an employee is called out after his regular
shift and after leaving the plant, or on off days,
he shall be paid a minimum of four (4) hours pay
at the applicable callout rate.
(2) It is understood that if an employee is called
back to work, he may be required to perform any
duties related to his classification in connection
with breakdowns or emergency situations in
addition to the duties for which he was called
out. If such employee is notified twelve (12)
hours or more in advance of his shift, the four
(4) hour minimum will not apply.
(3) If an employee is called out before his scheduled
shift, and he works over into his scheduled shift,
he shall receive the applicable callout rate until
the expiration of the four hour call-out
guarantee, and then shall receive the applicable
straight time rate for the remainder of his
scheduled shift.
10.5 Overtime Rules
(1) There shall be no pyramiding or duplication of
overtime or premium pay.
(2) Employees who work in excess of their regular
scheduled working time shall not be sent home to
equalize such overtime.
(3) Employees who work more than 15 minutes past the
end of their regularly scheduled shift in any one
day, will be paid for one (1) hour at the
applicable rate. Time worked over one (1) hour
will be paid in 15 minute increments.
(4) 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.
Overtime lists will be posted quarterly. An
employee working on a job shall be given first
consideration if any overtime is needed to finish
the job.
(5) If an employee is asked to work overtime and he
does not so work, he shall be charged on the
overtime chart for the amount of hours worked on
that job by the employee who accepted the
overtime.
(6) An employee shall be eligible for seventh (7th)
day worked overtime rates only if such employee
has worked and completed the sixth (6th) day in a
work week. An employee who is absent a full shift
or less without being excused during his regular
work week will not be eligible for seventh (7th)
day overtime rates and will not be eligible for
sixth (6th) day overtime rates until such employee
has worked forty (40) regular hours.
(7) When overtime is available within a
classification, everyone in that classification
should be called prior to offering the overtime to
anyone outside the classification.
ARTICLE 11 - WAGES
11.1 It is agreed that for the duration of this Agreement,
the wage groups and the rates of pay shall be those set
in Schedule "A" and "B" attached hereto.
11.2 (1) All regularly scheduled work beginning between
6:00 a.m. and 9:00 a.m. inclusive, shall be
considered day shift work.
(2) All regularly scheduled work beginning between
2:00 p.m. and 5:00 p.m. inclusive, shall be
considered middle shift work.
(3) All regularly scheduled work beginning between
10:00 p.m. and 1:00 a.m. inclusive, shall be
considered night shift work.
11.3 Each employee regularly scheduled to work on the middle
shift shall be paid a premium of forty-five (45 Cents) cents
for all hours worked by him on that shift. Each
employee regularly scheduled to work on the night shift
shall be paid sixty-five (65 Cents) cents for all hours
worked by him on that shift. These premium rates do
not apply to day workers even though they may work over
into a premium day shift. If, however, the day worker
is scheduled to take the place of a regular scheduled
shift worker, then the premium rate applies.
11.4 All consecutive hours (exclusive of meal periods)
worked by an employee who normally begins work at a
time specified in the preceding paragraph 11.2 shall be
deemed to be worked by him on the shift on which he
begins work.
11.5 Group Leader: Group leaders are responsible to assist
the Company. The Company will determine when the need
for a group leader exists. Group leader positions will
be filled through the job bidding procedure. Employees
assigned as group leaders shall receive a premium of
$1.50 per hour over Wage Group Seven.
ARTICLE 12 - HOLIDAYS
12.1 (1) The following eleven (11) days shall be considered
holidays:
New Year's Day Thanksgiving Day
Good Friday Day after Thanksgiving Day
Memorial Day Christmas Eve
Independence Day Christmas Day
Labor Day President's Day
New Year's Eve
(2) If any of these holidays fall on Sunday, the
following Monday shall be considered the holiday.
When Christmas Day or New Year's Day fall on a
Sunday or Monday, the Christmas Eve and New Year's
Eve holiday will be celebrated on the Saturday
preceding Christmas Day or New Year's Day. For
the purposes of this Article, a holiday shall be
defined as a twenty-four (24) hour period
beginning at the start of the regular scheduled
day shift on the holiday.
12.2 Employees who do not work on the holidays specified
herein shall receive as holiday pay, eight (8) hours
pay at their regular straight time hourly rate,
exclusive of shift differentials, provided they meet
all of the following conditions:
(1) The employee shall not have less than eighty-five
(85) work days continuous service with the Company
prior to the holiday.
(2) The employee shall have worked his last scheduled
working day prior to and his next scheduled
working day after such holiday unless excused.
(3) 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 except that the thirty (30)
day limitation shall not apply if the employee was
temporarily absent from work because of sickness
or accident.
12.3 Employees scheduled or notified to work on a holiday,
but failing to report for and perform such work, unless
excused by the Company, shall not be entitled to any
holiday pay.
12.4 Where an employee's regular schedule provides for work
on any of the foregoing holidays and he is not required
by the Company to work on such day, such employee
shall, receive eight (8) hours pay at his regular
straight time hourly rate excluding shift differential.
If an employee is rescheduled during a week in which
one or more holidays fall for the purpose of having him
work on another day at straight time, and as the result
of such rescheduling does not work on the holiday(s),
the unworked holiday shall not count as a day worked
for overtime purposes.
12.5 If a holiday occurs during an employee's vacation, he
shall receive eight (8) hours pay at the straight time
rate of his permanently assigned classification, in
addition to vacation pay.
12.6 If an employee is scheduled to work on a holiday, but
then is instructed by the Company not to work without
seventy-two (72) hours notice, he shall receive for
that holiday eight (8) hours pay at two (2) times his
regular straight time hourly rate.
12.7 The phrase "straight time hourly wage rate" as used
solely in this Article, shall mean the higher of either
the employee's regular straight time hourly wage rate
or the highest straight time hourly wage rate for a job
on which the employee works at least eight (8)
consecutive hours in the workweek in which the holiday
falls provided that the hours worked are on the day
before or the day after the holiday whether previously
scheduled or not.
ARTICLE 13 - VACATIONS
13.1 An employee will be eligible for vacation as follows:
(1) For an employee who has been in the continuous
service of the Company for more than one (1) year,
the length of vacation shall be two (2) weeks.
(2) For an employee who has been in the continuous
service of the Company for more than eight (8)
years, the length of vacation shall be three (3)
weeks.
(3) For an employee who has been in the continuous
service of the Company for more than twenty (20)
years, the length of vacation shall be four (4)
weeks.
(4) For an employee who has been in the continuous
service of the Company for more than thirty (30)
years, the length of vacation shall be five (5)
weeks.
13.2 Vacation pay shall include appropriate shift
differential for those on fixed shifts. Employees
working on rotating shifts shall be paid an average of
the rates for the rotating shifts involved.
13.3 Vacation pay shall be computed by multiplying the
number of hours in the regularly scheduled workweek by
the straight time hourly rate of pay, but shall in no
event be more than forty-eight (48) or less than forty
(40) hours pay subject to the provisions listed in 13.5
and 13.6 below. 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 six (6)
months during the year preceding his vacation, he will
receive vacation pay computed at the higher rate.
13.4 Employees shall be eligible for their full appropriate
vacation as of January 1, if they have been in the
continuous service of the Company and have worked 1200
hours or more during the previous calendar year.
Employees who have worked less than 1200 hours during
the previous calendar year shall have their vacation
computed on the basis of 1/12 for each 100 hours
worked. An employee shall be considered as having
worked for the purpose of vacation eligibility on the
basis of an eight (8) hour day and a forty (40) hour
week during absence from work because of illness or
injury for a period not to exceed 400 hours.
13.5 An employee who qualified for a vacation and who leaves
the employ of the Company for any of the reasons
hereinafter set forth shall receive vacation pay for
the unused and pro rata portion of his vacation:
(1) Retirement
(2) Lay off
(3) Illness
(4) Voluntary quit with two (2) weeks notice to the
Company
(5) In the event of the employee's death to his
surviving spouse or to the estate
13.6 An employee who voluntarily quits without two (2) weeks
notice to the Company or who is discharged will not
receive vacation pay for the unused portion of his
vacation.
13.7 Any pro rata vacation shall be computed as outlined in
Section 13.4 of this Article.
13.8 Vacations may be taken at any time at the employee's
convenience, provided ample notice is given the Company
and provided previous arrangements with the Company
have been made and approved. Vacation requests must be
made by January 15. Where requested vacation periods
conflict, seniority will have preference. Such
seniority can only be used once prior to February 1,
when the schedule is posted. Vacation periods not
scheduled prior to February 1, may be scheduled on a
first come, first serve basis until April 1. After
April 1, vacations may be scheduled whenever they do
not cause scheduling or operational problems.
Vacations shall include (without pay) regular days off
prior, and subsequent to the paid days of the vacation
periods.
13.9 The Company has the right to limit vacation to no more
than ten percent (10%) of the workforce in any
department. No employee may take more than two (2)
consecutive weeks vacation during the months of June,
July and August.
13.10 Vacations must be taken during the calendar year.
Employees entitled to vacations shall be permitted
to take such vacations in separate periods of not
less than five (5) consecutive workdays each.
However, one (1) week of vacation can be used one
day at a time provided:
1) The employee makes a request at least
seventy-two (72) hours in advance, and;
2) The request is granted by the Company, or;
3) Employees may use the days vacation to cover
an illness or injury provided the Company is
notified as soon as possible but no later
than 30 minutes before the start of the
shift.
The intent is to arrange absences so that the Company
will not incur penalties and, as such, the Company may
disallow specific requests for a personal leave.
ARTICLE 14 - JURY DUTY - WITNESS PAY
14.1 It is agreed that the Company shall make up the wage
loss incurred by a regular employee (as distinguished
from a probationary employee) because of jury service
by payment of the difference between the amount
received for such jury service on the day such employee
would have been regularly scheduled to work and his
regular rate of pay computed on the same basis as daily
vacation pay. Any employee reporting for jury duty
will not be required to work his regular shift that
calendar day. The employee will be excused for the
entire day without loss of pay. Hours spent on jury
service and paid for hereunder shall be considered as
time actually worked for all overtime purposes.
Further as outlined above, the Company shall make up
the wage loss incurred by an employee when subpoenaed
as a witness in an action when the employee is neither
the plaintiff nor defendant.
14.2 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
exclusive of any transportation and/or subsistence
allowance.
ARTICLE 15 - FUNERAL LEAVE
15.1 An employee (as distinguished from a probationary
employee) upon notification to the Company of the death
of his or her father, mother, spouse, son, daughter,
son-in-law, daughter-n-law, brother, sister,
stepfather, stepmother, stepson, stepdaughter,
half-sister, half-brother, mother-in-law,
father-in-law, brother-in-law, sister-in-law,
employee's grandparents, spouse's grandparents, or
grandchildren, shall be granted up to and including his
or her next three (3) scheduled working days off with
pay (up to four (4) days off with pay if the employee
is required to travel beyond a radius of 500 miles).
Payment by the Company for such time lost shall be on
the basis of eight (8) hours per day at the employee's
regular straight time hourly rate, including shift
differential. To be eligible for benefit under this
Article, the employee must supply reasonable
documentary evidence of the covered death, family
relationship, and attendance at the funeral or service.
15.2 As used herein, brother-in-law is defined to mean (1)
the brother of one's husband or wife, (2) the husband
of one's sister, (3) the husband of the sister of one's
spouse, and sister-in-law is defined to mean (1) the
sister of one's husband or wife, (2) the wife of one's
brother, (3) the wife of the brother of one's spouse.
15.3 The above clause shall not apply to an employee who is
laid off, 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 16 - MILITARY RESERVE SUMMER CAMP
16.1 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 a maximum of two (2) weeks per
calendar year.
ARTICLE 17 - SAFETY AND HEALTH
17.1 A Joint Safety and Health Committee shall be
established consisting of four (4) members, two (2)
appointed by the Company and two (2) appointed by the
Local Union. In the event that 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.
17.2 The Joint Committee shall meet as often as necessary,
but not less than once each month, at a regularly
scheduled time and place for the purpose of jointly
considering, inspecting, investigating, and reviewing
health and safety conditions and practices and
investigating accidents, and for the purpose of jointly
and effectively 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 union representative to the
Committee will accompany a Federal or State
investigator on a walk-around inspection or
investigation and will attend any pre or post
inspection conferences.
17.3 All time spent in connection with the work of the
Committee by a union representative 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.
17.4 Any employee who believes his job presents a hazard to
his safety or health may request through his immediate
supervisor, an immediate review of his job by the Joint
Safety and Health Committee.
17.5 No employee shall be disciplined or discharged for
refusing to work on a job if his refusal is based on a
bona fide claim that said job is not safe or might
unduly endanger his health or safety.
17.6 The Company will furnish prescription ground safety
glasses to bargaining unit employees, including the
cost of the prescription. Glasses will not be replaced
more frequently than one (1) per year, unless damaged
or broken during the performance of duties.
17.7 (1) Should the Company require an employee to wear
foot protection, the Company will reimburse the
employee for the purchase of safety shoes for use
by the employee. The annual reimbursement for
active employees shall be up to $150 per calendar
year. Employees must provide the Company with a
written proof of purchase if not purchased through
a Company authorized safety shoe supplier.
(2) In instances where the safety shoes are damaged on
the job, those shoes will be turned in and the
employee may purchase another pair of shoes as
above.
ARTICLE 18 - LEAVES OF ABSENCE
18.1 Upon request, leave of absence from work may be granted
by the Company on account of sickness, death, or for
sufficient reason personal to such employee for a
period not to exceed ninety (90) calendar days on such
occasions when the Company's business will not suffer
because of such absence. Upon proper showing of reason
therefore, this period may be extended with the consent
of both the Company and the Union.
18.2 Any employee elected or appointed to a full time
position with the International Brotherhood of
Boilermakers, Cement, Lime, Gypsum, and Allied Workers,
or Local Union or the AFL-CIO or any of its subordinate
bodies, shall be granted an indefinite leave of
absence, providing thirty (30) days notice is given the
Company prior to the beginning of such leave. During
such leave seniority shall accumulate. Insurance
benefits shall be suspended after thirty (30) days of
such leave and will again be in effect the first day of
returning to work with the Company. Upon returning to
work, such employee will be reinstated on his former
job, providing it is still in existence; if not, he
shall be eligible to apply for any job within the
Bargaining Unit by means of the existing bidding
procedure, or by bumping. The Company agrees to
consent to the absence of no more than one (1) employee
at any time under Paragraph 18.2.
18.3 No employee covered by this Agreement shall accept
wages or salary while on leave of absence. Any
employee absent from work in accordance with the
foregoing provisions shall not lose seniority, wage
rate, or position, if physically fit upon return to
work. Should an employee accept a position for wages
or salary while on leave of absence, such employee will
terminate employment, and if re-employed, must be
treated as a new employee.
18.4 The Company agrees to consent to the absence of no more
than four (4) employees at any time from work, upon
proper notice, on account of business appertaining to
the business of the Local Union or International Union
on such occasions when the Company's business will not
suffer because of such absence. Any employee absent
from work in accordance with the foregoing provisions
shall not lose his seniority, wage rate, or position.
ARTICLE 19 - INFORMATION
19.1 The Company shall, twice each year, upon written
request by the Union, furnish a seniority list based
upon the first day of the last continuous employment of
each employee, setting forth payroll number, name, date
employed, classification, rate of pay, department, date
of birth, and address as shown on the Company's
records.
19.2 The Company will notify the recording secretary of the
Union promptly as to names and dates of employment of
new employees, birth dates, job classifications,
severances, transfers, and temporary transfers
extending beyond fifteen (15) days.
19.3 The Company will notify the Union as to leaves of
absences of over thirty (30) days.
19.4 The Company will furnish a bulletin board for the
exclusive use of the Union at each time clock location.
19.5 The Company will notify the Union in writing when an
employee terminates employment due to disability or
retirement.
ARTICLE 20 - INCAPACITATED EMPLOYEES
20.1 Any employee who becomes incapacitated and, on the
basis of competent medical opinion, cannot perform the
duties of their regular job may exercise their plant
seniority through the bumping procedure to move to
another position with the bargaining unit at the plant
for which they could be reasonably expected to qualify.
Qualifications will be handled per the normal bidding
procedure. In the event the employee fails to qualify
for the job of his choice, the Union Committee and
Plant Manager will place the individual in an
appropriate position. This in no way affects the
bidding rights of the employee.
20.2 Any employee who is displaced by an incapacitated
employee pursuant to paragraph 20.1 of this Section may
exercise their plant seniority to bump into another
position within the bargaining unit at the plant for
which they are qualified in the same manner as provided
for in the job bidding procedures.
20.3 The Company may require a second medical opinion
regarding the employee's incapacitation. Such
examination will be at Company expense.
20.4 Should an employee be temporarily disabled (for any
reason), or restricted in their ability to preform
their regular job, the Company, if possible, may create
a temporary position that would allow the employee to
be gainfully employed (after mutual agreement is
reached between the Company, the Union, and the
employee and the employee's physician).
The provisions of this paragraph (20.4) will be applied
on an experimental basis for the first year of this
labor agreement. If at the conclusion of the first
year both parties agree to continue the provisions of
this paragraph, it will remain in full force and effect
for the term of the agreement.
ARTICLE 21 - FURNISHING OF TOOLS
21.1 The Company shall furnish all tools and equipment for
its employees, except to maintenance employees, in
which case these employees shall furnish their own hand
tools. In case of breakage or loss, the Company will
replace or repair such tools; such breakage or loss
shall be reported immediately to the Company. "Hand
Tools" as used herein shall not include socket sets,
wrenches more than twelve (12) inches long, and all
other specialized tools incident to the work of the
mechanical, maintenance, and skilled trades.
ARTICLE 22 - COPIES
22.1 The Labor Agreement, Pension Plan, and Insurance Plan
will be printed at Company expense. The Company will
provide each member with a copy of the booklet.
ARTICLE 23 - GRIEVANCE PROCEDURE
23.1 Should differences arise between the Company and the
Union, or an individual employed by the Company, as to
the meaning and application of the provisions of this
Agreement, an earnest effort shall be made by the
parties to settle such differences promptly and in the
following manner:
(1) STEP I. The complaint, within fifteen (15) days
of its occurrence, or the occurrence of the matter
out of which the complaint arises, may be taken up
by the employee involved, with or without Union
representation, with his Team Leader. If the
issue is not resolved verbally, the matter shall
be reduced to writing, stating specific article(s)
and paragraph(s) of the Contract that are alleged
to have been violated. This will be presented to
the employee's Team Leader within 10 days for the
grievance to be considered and processed. The
grievance will be answered in writing within five
(5) days.
(2) STEP II. If no satisfactory settlement is reached
in Step I, the matter shall be presented to the
Plant Manager and/or Designee within five (5) days
from the date of answer by the Team Leader. The
Plant Manager and/or the Director of Industrial
Relations will meet with the Grievance Committee
to hear and discuss the grievance at the monthly
grievance meeting unless the matter requires
immediate attention. The Company shall answer the
grievance in writing within five (5) days after
said meeting.
(3) STEP III. If no agreement is reached in Step II,
the Committee may, within five (5) days of the
receipt of the above answer, refer the matter to
higher officials of the Company and the Union, who
may attend a meeting to be held within thirty (30)
days upon request.
(4) STEP IV.
a. Any grievance not settled in Step III above
may be referred to arbitration. Notice to
refer a grievance to arbitration shall be
given in writing within fifteen (15) days
after being notified of the decision rendered
in Step III or the matter will be considered
closed. Only one (1) grievance
(Arbitrability and grievance to be considered
as a single grievance) may be submitted to or
under review by any one (1) Arbitrator at any
one (1) time unless by the 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.
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 the
employees covered by this Agreement. The
Arbitrator selected pursuant to this Article
shall interpret and apply the terms of this
Agreement; he/she shall not substitute
his/her discretion and judgment for that of
the Company. If the Arbitrator finds that a
dischargeable offense was committed by the
employee, he/she shall not substitute his/her
judgment for that of the Company as to
whether discharge or a more lenient penalty
was appropriate in a particular case.
d. It is expressly agreed that no Arbitrator
shall have the authority to decide any matter
involving the exercise of a right reserved to
management under this Agreement.
e. Each party hereto shall pay the expense
incurred in the presentation of its own case,
and the expenses incident to the services of
the Arbitrator, including the cost of the
transcript, shall be shared equally by the
Company and the Union.
23.2 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 Plant
Manager or his designee within forty-eight (48) hours
of the discharge or suspension or it will not be
recognized and action taken shall be final.
23.3 The time limits referred to in the foregoing paragraphs
exclude Saturdays, Sundays, and holidays.
23.4 Any grievance not presented or appealed within the time
limits provided, unless mutually agreed to extend the
time, shall be considered settled on the basis of the
decision which was not appealed and shall be final and
binding on the parties involved.
23.5 Grievances presented in any of the regular steps set
forth and not answered within the time specified or as
the same may be extended by mutual agreement shall be
considered appealed to the next step of the grievance
procedure.
23.6 Disciplinary letters issued to employees will remain in
the Company's employee file. At the end of the twelve
(12) month period, the disciplinary letters will not be
held against the employee.
ARTICLE 24 - STRIKES AND LOCKOUTS
24.1 The Union agrees that there shall be no picketing
(organized and intentional) or strikes by the Union, or
by its members, 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 Fairborn, Ohio
operations for any reason whatsoever, such reasons
including, but not limited to, unfair labor practices
by the Company or any other Employer. It is further
agreed that neither the Union nor its members 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 Union member, 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 25 - LEGISLATION
25.1 In the event laws are passed which conflict with any
provisions of this Agreement, or any provision or
provisions of this Agreement shall be declared void in
whole or in part, or shall be declared not to affect
any employee or employees by law or final decision by
competent authority, then such provisions or parts
thereof shall be eliminated here from and the matter
covered by such eliminated provisions may be reopened
for negotiation, but the remaining provisions of the
Agreement shall remain in full force and effect.
ARTICLE 26 - OVERTIME LUNCH
26.1 Any employee who works more than ten (10) consecutive
hours, regardless of whether such hours are scheduled
or unscheduled, shall be given a lunch or lunch
allowance. Any employee who works in excess of
fourteen (14) consecutive hours shall be provided with
an additional lunch or lunch allowance. Such option
will be available at the end of every four (4)
consecutive hours worked thereafter.
26.2 Any employee who is called out and works more than four
(4) consecutive hours on the callout shall be given a
lunch or lunch allowance. In addition, said employee
shall be provided with an additional lunch or lunch
allowance every four (4) consecutive hours worked
thereafter.
26.3 There shall be no duplication of lunches or lunch
allowances under the foregoing sections 26.1 and 26.2.
Any lunch allowance(s) earned under the foregoing shall
be paid weekly on the employee's paycheck.
26.4 Overtime lunch periods, not to exceed thirty (30)
minutes, will be assigned by the Team Leader.
26.5 Lunch allowance will be $7.00.
ARTICLE 27 - DUES CHECK-OFF
27.1 Check-off: During the term of this Agreement, the
Company will continue to check off monthly dues, and
initiation fees, each as designated by the Treasurer of
the Local Union, as membership dues in the Union on the
basis of and for the term of individually signed
voluntary check-off authorization cards, a copy of
which is reproduced below, or hereafter submitted to
the Company. The Company shall promptly remit any and
all amounts so deducted to the Treasurer of the Local
Union with a list of the employees from whom the
deduction was checked off.
27.2 On or before the last Friday of each calendar month the
Union shall submit to the Company a summary list of
cards transmitted in each month.
27.3 Dues for a given month shall be deducted from the last
payday in that month; deductions on the basis of
authorization cards submitted to the Company shall
commence with respect to dues for the month in which
the Company receives such authorization cards.
27.4 Unless the Company is otherwise notified, the only
Union membership dues to be deducted for payment to the
Union from the pay of the employee who has furnished an
authorization shall be the monthly Union dues. The
Company will deduct initiation fees when notified, by
notation on the list referred to in 27.1 above, and
assessments as designated by the Treasurer of the Local
Union.
27.5 The Union shall indemnify the Company and hold it
harmless against any and all suits, claims, demands and
liabilities that shall arise out of or by reason of any
action that shall be taken or not taken by the Company
for the purpose of complying with the foregoing
provisions of this Article, or in reliance on any list
or certificate which shall have been furnished to the
Company by the Union under any such provisions.
<PAGE>
27.6
Date:
I, , do hereby
authorize and direct the Company to deduct from my
earnings, accumulated to my credit during the
first pay period ending in the calendar month,
initiation fees and membership dues charged
against me by the INTERNATIONAL BROTHERHOOD OF
BOILERMAKERS, CEMENT, LIME, GYPSUM AND ALLIED
WORKERS DIVISION AFL-CIO LOCAL LODGE D357, and
remit the amount so deducted to said Union upon
presentation of a formal demand by the proper
authorities of said Union.
This assignment and authorization shall be
irrevocable for one (1) year from the above date,
or termination of the current collective
bargaining agreement between Southwestern Portland
Cement and the INTERNATIONAL BROTHERHOOD OF
BOILERMAKERS, CEMENT, LIME, GYPSUM AND ALLIED
WORKERS DIVISION AFL-CIO LOCAL LODGE D357,
whichever is the shorter period, and shall remain
in effect thereafter until revoked by me in
writing.
Signed:
Employee Clock Number:
Witness:
Southwestern Portland Cement
ARTICLE 28 - SCOPE OF AGREEMENT
28.1 During the term of this Agreement the company will
provide employees with participation in the Sub Plan,
Southdown, Inc. Medical Network Plan, the Southdown,
Inc. Group Dental Benefit Plan, the Southdown, Inc.
Life Insurance and Accidental Death and Dismemberment
Plan, the Southdown, Inc. Long Term Disability Plan,
the Southdown, Inc. Pension Plan, the Southdown Inc.
Retirement Savings Plan and the Southdown, Inc.
Voluntary Life Insurance Plan, and continue said plans
for the life of this agreement unless the parties agree
mutually to modify the provisions of these plans.
28.2 During the life of and for the term of this agreement
dated March 1, 1994, the Company will provide post
retirement medical insurance coverage to all eligible
employees covered under this bargaining unit who retire
after having achieved the age of 62 with at least 15
years of company service. The provisions of this
coverage will be the same as the benefits and
eligibility requirements provided for in the Southdown
Inc. Retiree Medical Insurance Plan which are subject
to modification.
28.3 SICKNESS AND ACCIDENT BENEFITS
If a permanent employee (non-probationary/non
temporary) is absent from work due to disability,
sickness and accident benefits are payable. The
disability must prevent the employee from performing
the duties of the job because of a non-occupational
sickness or injury. This benefit is payable if
confined to a hospital or home.
After a waiting period of one (1) week (waived if the
employee is hospitalized as an in-patient), the
disability benefits are payable at a rate of fifty-one
dollars ($51) per day for a maximum of five days per
week. A disabled employee may receive weekly sickness
and accident benefits during the period of disability
not to exceed five (5) months. It is the employee's
responsibility to make application for this benefit and
the attending physician must document the nature of the
disability and expected date of return to work.
No benefits shall be payable for the following:
1. disability which you are not under the direct care
of a licensed physician.
2. sickness or injury which is purposefully self-
inflicted while sane or insane.
3. disability due to an injury arising out of the
course of employment.
4. disability due to disease which benefits are
payable under Worker's Compensation, Occupational
Disease or similar law.
This benefit terminates upon retirement or upon
termination of employment.
Any active employee currently not participating in the
long term disability (LTD) plan and who applies for LTD
and is rejected, will be eligible for up to fifty-two
(52) weeks of short term disability benefits.
<PAGE>
ARTICLE 29 - PAST PRACTICE
29.1 All previous side letters, ad hoc agreements and
informal understandings or past practices are hereby
revoked, withdrawn and canceled and none shall survive
the execution of this contract and no provision shall
have any force or effect whatsoever either as past
practice, special written agreement, oral agreement,
informal understanding or otherwise unless expressly
contained herein.
ARTICLE 30 - SKILLS TRAINING
30.1 The Company is committed to providing employees with
both formal and informal training to improve their job
skills.
ARTICLE 31 - TERMS OF AGREEMENT
31.1 After ratification by the members of the respective
Local Union, this Agreement shall become effective and
remain in force and effect and be binding upon the
parties hereto from March 1, 1994, to and
including February 28, 1998, and it shall continue to
be in full force and effect thereafter from year to
year until either party on or before January 31, of any
year, beginning 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 February 15 in such year.
<PAGE>
IN WITNESS WHEREOF, the Union has caused this Agreement to be
executed in its name, after due authorization by a vote of a
majority of its members, and the Company has caused it to be
executed in its name, by its duly authorized representatives.
INTERNATIONAL BROTHERHOOD SOUTHWESTERN PORTLAND CEMENT
OF BOILERMAKERS, CEMENT,
LIME, GYPSUM AND ALLIED
WORKERS, DIVISION LOCAL
LODGE NO. D-357
By: By:
William A. Smith Bernard M. Reuland
By: By:
David R. Gullett Alan E. Rowley
By: By:
Michael L. Robinson David E. Tiller
By: By:
Gerald A. Day Dennis S. Baldwin
By:
Phillip R. Nawman
<PAGE>
SCHEDULE A
WAGE GROUP TRAINING REQUIREMENTS
WAGE GROUP ONE TESTING REQUIREMENTS
Laborer No Testing
WAGE GROUP TWO TESTING REQUIREMENTS
Material Conveyor Demonstration of ability to
perform after training
Cement Drawer Demonstration of ability to
perform after training
General Equipment Demonstration of ability to
Operator perform after training
Assistant Stockroom Demonstration of ability to
perform after training
Entry Level Testing and regular
Training Program evaluation before
advancement
Dust Collector
Garage
Maintenance/Shop
Electrical
Instrument
WAGE GROUP THREE TESTING REQUIREMENTS
Road Braker Testing and demonstration of
ability to perform after
training
Track Utility Testing and demonstration of
ability to perform
Painter Demonstration of ability to
perform
Second Level Testing and regular
Training Program evaluation before
advancement
Dust Collector
Garage
Maintenance/Shop
Electrical
Instrument
<PAGE>
SCHEDULE A
(continued)
WAGE GROUP FOUR TESTING REQUIREMENTS
Packhouse Operator Testing and fork lift
training and demonstration of
ability to perform after
training
Lubrication Maintenance Demonstration of ability to
perform after training
Material Operators Completion of approved
driver's training program and
demonstration of ability to
perform after training
Process Material Handler Completion of approved
driver's training program and
demonstration of ability to
perform after training
Storekeeper Testing and demonstration of
ability to perform after
training
Welder Testing and welding
test--oral/written/ bend test
Dust Collector Specialist Testing as required in
Training Program
Third Level Testing and regular
Training Program evaluation before
advancement
Garage
Maintenance/Shop
Electrical
Instrument
WAGE GROUP FIVE TESTING REQUIREMENTS
Locomotive Eng/ Testing and demonstration of
Material Storage Opr ability to perform after training
Carpenter Demonstration of ability to
perform
Maintenance Utility Testing and demonstration of
ability to perform after
training
SCHEDULE A
(continued)
Fourth Level Testing and regular
Training Program evaluation before advancement
Garage
Maintenance Shop
Electrical
Instrument
WAGE GROUP SIX TESTING REQUIREMENTS
Utility Equipment Completion of approved
Operators A driver's training program and
demonstration of ability to perform after
training
Inventory Specialist Testing and demonstration of
ability to perform after
training
Process Utility Testing and demonstration of
ability to perform after
training
Physical Tester Testing and demonstration of
ability to perform after
training
Journeyman Completion of Training
Program and demonstration of
ability to perform all tasks
of Journeyman
Sheet Metal Layout
Machinist
Shop Mechanic
Maintenance
Garage
Electric
Instrument
WAGE GROUP SEVEN TESTING REQUIREMENTS
Process Controller Demonstration of ability to
perform after training
Process Operators Testing and demonstration of
ability to perform after
training
<PAGE>
SCHEDULE B
WAGE RATES
10/9/94 3/1/95 3/1/96 3/1/97
Contract wage increase $ .35 $ .30 $ .30 $ .35
For years starting
10/9/94 3/1/95 3/1/96 3/1/97
Wage Group One $10.55 $10.85 $11.15 $11.50
Wage Group Two $12.47 $12.77 $13.07 $13.42
Wage Group Three $13.76 $14.06 $14.36 $14.71
Wage Group Four* $14.81 $15.11 $15.41 $15.76
Wage Group Five $15.59 $15.89 $16.19 $16.54
Wage Group Six $16.11 $16.41 $16.71 $17.06
Wage Group Seven $16.52 $16.82 $17.12 $17.47
*While the Packhouse Operator, included in Wage Group Four,
performs work in Richcolor process, a 25 cent premium per hour worked
is paid.
<PAGE>
APPENDIX A
VACATION BENEFITS FOR EMPLOYEES WITH SENIORITY DATES PRIOR TO
JANUARY 1, 1991
Seven (7) Weeks Vacation as of 1/1/91
EMPLOYEE NAME DATE OF HIRE
D. O. Snouffer 08/15/51
H. F. Salser 04/18/52
G. E. Neal 07/06/53
Six (6) Weeks Vacation as of 1/1/91
EMPLOYEE NAME DATE OF HIRE
S. Terry 08/09/55
C. Conway, Jr. 06/18/56
E. N. Davis, Sr. 02/11/57
H. W. Moore 08/07/57
W. H. Howard 06/05/58
Five (5) Weeks Vacation as of 1/1/91
EMPLOYEE NAME DATE OF HIRE
C. J. Barnes 08/27/68
L. E. Looker 09/03/68
W. R. Yoakum 09/03/68
C. E. Fischer 12/24/68
J. Tretiak, Jr. 01/09/69
A. T. Newell 03/10/69
<PAGE>
Four (4) Weeks Vacation as of 1/1/91
EMPLOYEE NAME DATE OF HIRE
D. P. Horton 04/08/78
E. N. Davis, Jr. 04/14/78
R. L. Keeton 04/15/78
R. L. Shackleford 04/15/78
D. P. Salser 06/26/78
R. D. Sizemore 06/27/78
T. O. Esterline 07/11/78
J. E. Turner 07/24/78
A. J. Kessler 07/24/78
M. E. Johnson 07/30/78
D. K. Golomski 07/31/78
W. R. Wolf 08/08/78
R. E. Warner 08/09/78
D. E. Gullett 08/14/78
A. V. Lewis 08/15/78
D. K. Thompson 08/15/78
T. J. Musciano 08/15/78
T. L. Anderson 08/21/78
G. R. Butts 08/23/78
T. E. Fogle, Jr. 08/24/78
W. T. Fyffe, Jr. 10/11/78
J. P. Combs 11/06/78
R. E. Porter 01/24/79
M. W. Impson 02/05/79
EXHIBIT 10.22
LABOR CONTRACT
Between
Southwestern Portland Cement
Odessa, Texas
and
United Cement, Lime, Gypsum and Allied Workers
Division, Boilermakers International Union,
(A.F.L.-C.I.O.) Local No. D476
July 31, 1994
<PAGE>
TABLE OF CONTENTS
Appendix A Wage Schedule . . . . . . . . . . . 26
Appendix B Health and Welfare/Benefits . . . . 28
Appendix C Pension . . . . . . . . . . . . . . 30
Appendix D Sickness and Accident . . . . . . . 33
Copies of Agreement Article XXII . . . . . . . . . . . 24
Employment Article I . . . . . . . . . . . . . 1
Funeral Leave Article XIII . . . . . . . . . . . 18
Gainsharing Plan Definition . . . . . . . . . . . . 27
Grievance Procedure Article XVIII . . . . . . . . . . . 21
Holidays Article X . . . . . . . . . . . . . 13
Hours and Work Schedules Article VII . . . . . . . . . . . . 8
Incapacitated Employees Article XIX . . . . . . . . . . . . 23
Jury Duty/Witness Pay Article XII . . . . . . . . . . . . 17
Leave of Absence Article XVI . . . . . . . . . . . . 20
Legislation Article XXI . . . . . . . . . . . . 23
Management Article II . . . . . . . . . . . . 1
Military Reserve/Summer Camp Article XIV . . . . . . . . . . . . 18
Overtime Article VIII . . . . . . . . . . . 10
Overtime Meals Article XVII . . . . . . . . . . . 21
Past Practice Article XXIII . . . . . . . . . . . 24
Promotions and Transfers Article VI . . . . . . . . . . . . 7
Safety and Health Article XV . . . . . . . . . . . . 18
Scope of Agreement Article XXIV . . . . . . . . . . . 24
Seniority Article IV . . . . . . . . . . . . 3
Strikes and Lock Outs Article XX . . . . . . . . . . . . 23
Terms of Agreement Article XXV . . . . . . . . . . . . 24
Union Activities/Meeting Article III . . . . . . . . . . . . 2
Vacation Article XI . . . . . . . . . . . . 15
Wages Article IX . . . . . . . . . . . . 13
Work Force Changes Article V . . . . . . . . . . . . . 5
AGREEMENT
THIS AGREEMENT, dated July 31, 1994 is made by and between the
SOUTHWESTERN PORTLAND CEMENT COMPANY (ODESSA PLANT) and the UNITED
CEMENT, LIME, GYPSUM AND ALLIED WORKERS DIVISION, BOILERMAKERS
INTERNATIONAL UNION, A.F.L.-C.I.O., Local No. D476, referred to
respectively as the "Company" and the "Union".
RECOGNITION
The Company recognizes the Union as the exclusive bargaining
agency for all production and maintenance employees at the Odessa,
Texas plant of the Company, excluding all clerical employees,
storeroom clerk, professional and technical employees, guards, and
supervisors as defined in the National Labor Relations Act, as
amended.
ARTICLE I - EMPLOYMENT
Section 1. New employees and those hired after a break in
continuity of service will be regarded as probationary employees for
the first eighty-five (85) days worked and will receive no continuous
service credit nor benefits of any kind, including bidding, during
such period. Probationary employees shall not have recourse to the
grievance procedure of this agreement and may be laid off or
discharged as exclusively determined by Management. Probationary
employees who continue in the service of the Company, subsequent to
the first eighty-five (85) days worked, shall receive full continuous
service credit from date of original hiring.
Section 2. The parties hereto agree to continue to apply the
provisions of this Agreement to all employees without regard to race,
color, sex, age, religion, creed, national origin, handicap, disabled
or Viet Nam Era Veteran. The Company and the Union will comply with
all federal and state laws concerning the rights of workers, including
the Americans with Disabilities Act and the Family and Medical Leave
Act.
Section 3. As used in this Agreement, the word "he" or "his"
shall also be applicable to female employees.
Section 4. A salaried employee may fill any vacant hourly rated
job until an hourly employee in that classification is called in or a
determination is made to let the job remain unfilled. A salaried
employee may work on any hourly rated job to instruct, experiment,
inspect, cover an emergency, or temporarily relieve an hourly rated
employee, or when an hourly employee is not available.
ARTICLE II - MANAGEMENT
Section 1. The Union agrees and acknowledges that the Company
has the exclusive right and unbounded discretion 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, discipline or discharge,
layoff, rehire, promote, demote, retire or temporarily assign
employees within the bargaining unit. The Union further recognizes
the Company's unlimited right to determine the amount of overtime to
be worked; to create, modify, combine or discontinue job
classifications; to determine and change the size and nature of the
work force to hire temporary employees as may be determined necessary,
determine job duties, quality and workmanship standards, hours of work
and other conditions of employment; to make, change and enforce (after
posting) work rules and safety standards, to promote safety,
efficiency, order, and protection of Company property and operations;
to halt work stoppages; and to take effective action against
slowdowns.
The right to manage the business, to distribute work with outside
contractors or sub-contractors, 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.
Section 2. The above list of specific Company rights shall
not be considered restrictive or a waiver of any other rights the
Company has not listed and has not specifically surrendered in this
Agreement; regardless of whether such rights have been exercised in
the past.
Section 3. 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 4. The Company shall give notice of the existence of
this Agreement to any purchaser, lessee, assignee, etc. Such notice
shall be in writing with a copy to the Union not later than the
effective date of sale.
ARTICLE III - UNION ACTIVITIES/MEETINGS
Section 1. If and when necessary, in the opinion of both the
Company and the Union, the Company agrees to meet with a union
grievance committee comprised of a maximum of two (2) employees [(if
bargaining unit employees exceeds seventy-five (75) the union
grievance committee may be increased to three (3) employees)] for the
purposes of discussing matters of mutual concern or interest
(excepting labor negotiations). Not more than one (1) employee will
be excused from any one classification for this purpose. An agenda of
any subjects to be discussed at such meeting must be submitted to the
Plant Manager not less than seventy-two (72) hours in advance of a
scheduled meeting.
Section 2. Meetings will be arranged at a time convenient for
both parties to accomplish the purposes set out in this agreement.
Any employee who is scheduled to work during the hours the meeting is
held and who attends the meeting will be compensated by multiplying
his regular classified hourly wage rate by the hours he attends the
meeting.
Section 3. When a meeting is scheduled at which a
representative of the International Union and a representative of the
Company from Corporate Headquarters will attend, any member of the
committee who is scheduled to work the third shift immediately
preceding the meeting will be excused from working the third shift and
will be compensated by multiplying eight (8) hours at his regular
classified hourly wage rate plus shift differential of the employee
who has attended the meeting.
Section 4. Any member of the committee who is scheduled to
work the second shift immediately following the meeting will be
excused from working the second shift if the employee has attended the
meeting for six (6) hours. In the event the employee is excused from
working the second shift, he will be compensated by multiplying eight
(8) hours at his regular classified hourly wage rate plus shift
differential.
Section 5. The Company will excuse, without reimbursement of
any lost wages, no more than two (2) designated employee members of
the Union negotiating committee for actual time spent in attendance at
negotiating meetings on behalf of the Local Union (D476) in
negotiating with the Company at Odessa, Texas.
Section 6. Union activities shall not be conducted during
working hours, except that a member or members of the Union Grievance
Committee, with the consent of the Company, may try to adjust a mutual
problem. Such consent will not be unreasonably withheld or delayed.
a. There shall be one (1) steward on each rotating shift who
may, in the absence of a committee member, try to adjust an existing
problem.
b. Local Union Officers and stewards off duty and
representatives of the International Union shall, upon permission from
the Company, be permitted on the Company's premises to investigate
grievances.
Section 7. It shall be the responsibility of the Union to
appoint and have available on each shift a Committeeman, job steward
or other employee designated for purposes of this section who shall be
identified to the Company in writing. It is not the intent of this
section to expand the total number of Committeemen as provided in this
article.
ARTICLE IV - SENIORITY
Section 1. Seniority is defined as the length of continuous
service with the Company at the Odessa plant, provided, however, that
an employee shall have no seniority rights until after eighty-five
(85) days worked.
Section 2. The following factors shall apply in the awarding
of all jobs:
a. Experience, individual skill and ability, and efficient
service related to the qualifications of the job. (Employees who have
received repeated disciplinary actions in the twelve (12) months prior
to bidding the job will not be given consideration for advancement.)
b. Physical fitness of the applicant.
c. Seniority.
d. When a. and b. are relatively equal, c. shall apply.
e. If the employee selected shall fail to qualify in the
judgment of the Company after thirty (30) calendar days or less,
he shall be returned to his former position and the next bidder
be given consideration. When a job cannot be filled in the above
manner because of the bidder's failing to have the necessary
qualifications, the Company may fill the job from any source.
Section 3. For employees on the payroll when this Agreement
becomes effective, seniority is defined as the length of continuous
service with the Company. Seniority rights, once established, shall
start from the date of employment.
Section 4. An employee's seniority shall be lost only by:
a. Discharge for cause.
b. Voluntarily quit.
c. Failure to answer recall notice within seven (7) days after
notification is sent by registered mail to the last address the
employee has left on file in the personnel office.
d. If the employee is absent for three (3) consecutive workdays
without notifying or attaining prior approval from his supervisor
for such absence, he shall be considered as having voluntarily
quit.
e. During a continuous period of absence, an employee absent
due to lay off will retain recall rights for a period equal to
his seniority at the time of lay off not to exceed twenty-four
(24) months.
f. An employee on continuous absence due to disability shall
accrue seniority and retain recall rights for a period not to
exceed sixteen (16) months; however, should such an employee be
declared totally and permanently disabled prior to the sixteen
(16) months such employee's name shall be removed from the
payroll and a certified mail notice to this effect will be sent
to his last address as shown on Company record.
Section 5. If a vacancy occurs, for which a laid off employee
is qualified, he will be sent a certified mail notice of recall to his
last address provided to the Company Personnel Office.
a. If the employee does not respond within a seven (7) day
period, or refuses the recall, he will forfeit all seniority and
his employment will be terminated.
b. If the employee is reinstated, he shall be credited with
seniority as prescribed in Section 3 of this Article.
c. If an employee is absent because of a disability, he shall
only be recalled for a vacancy which occurs after he has
recovered and is physically able to return to work.
Section 6. An employee in the bargaining unit, who is
promoted to a supervisory position outside the coverage of this
Agreement and who subsequently returns to the bargaining unit, will
have his previous bargaining unit seniority reinstated.
Section 7. The Company will furnish the Union with a
seniority list every six (6) months.
Section 8. The Company may at its discretion utilize any
hourly employee to fill a salaried or management position, at any
time, without the employee suffering any loss of seniority or benefits
under this agreement, however, if the employee becomes permanent
salaried, he will have no bidding or bumping rights back to the
bargaining unit.
ARTICLE V - WORK FORCE CHANGES
Section 1. Should the Company reduce the work force due to lay
off or any other reason, the Company will give the Union reasonable
advance notice of same and, upon request by the Union, meet to review
such reductions.
Section 2. The Company recognizes that all employees shall
retain the right to seniority preference in cases of layoffs and
recalls subject to the remaining provisions of this Article. 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:
a. 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, job performance 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. Actions taken under this paragraph are subject
to the grievance procedure.
b. Any employee so removed from a job classification in
accordance with Section 2, a., 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 will result with
employee(s) being laid off in accordance with Section 2, a.,
above.
c. Employees will be recalled in reverse order.
Section 3. In the event the Company declares a temporary
reduction in the work force 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:
a. 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,
b. The Company has the right to require that senior employees
work during the shutdown, if there are no junior employees with
the necessary qualifications to perform the required work.
c. "Qualified" for purposes of this Section 3, shall mean that
an employee must be able to perform all duties connected with the
job classification without any training. It is further
understood that the Company shall require the employee(s) to
demonstrate his abilities to perform as required.
Section 4. the Company's decision concerning qualification as
used in this Article is subject to the grievance procedure.
Section 5. Should the Company permanently shutdown the present
facilities affording employment to the employees comprising the
bargaining unit (the present facilities shall be deemed to have been
permanently shutdown 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 one hundred twenty (120) days prior to the
shutdown to the employee's last address on the Company's personnel
record.
ARTICLE VI - PROMOTIONS AND TRANSFERS
Section 1. When the Company determines that a vacancy exists
or a new job is created, other than laborer, the Company will post a
notice of such fact; such notice to remain posted for a period of at
least seventy-two (72) consecutive hours, excluding Saturdays,
Sundays, or holidays. This notice shall state rates of pay, hours,
job requirements and qualifications. Employees who wish the job shall
be considered in the manner provided herein in Article V, Section 2,
and the successful applicant's name will be posted within seven (7)
days after the bids are opened, except where testing is required.
Said delay will not exceed ten (10) days, unless additional time is
agreed to between the Union and the Company.
The successful bidder will be placed on the job within as reasonable
time as possible from the date of posting award. In the event of the
successful applicant's failure to qualify in the opinion of the
Company, within thirty (30) workdays on the job, it is understood that
said employee is to be restored to his former position and standing.
a. Laborers who are assigned to fill a job vacancy as a result
of no one being awarded the job through the bid procedure, may
subsequently remove himself from his assigned job by:
(1) Being the successful bidder on a higher classified job
posting, or
(2) After a period of one (1) year, he may bid on a job of
equal or lower classification or if qualified replace a less
senior new employee upon the completion of that employee's
probationary period.
b. This Section does not preclude the Company from hiring new
employees to fill such a job vacancy, nor does it affect the
Company's right to temporarily assign any employee to such a job
vacancy.
Section 2. An employee may bid to any lower classified job
provided he has held his current job classification for a period of at
least twelve (12) months. Employees must remain in said lower
classification for at least twelve (12) months before he can bid
again.
Section 3. An employee who is temporarily assigned by his
supervisor to work in a higher paid job classification will be paid
the rate of such higher job classification for all time actually
worked. 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.
Section 4. The Company will treat temporary vacancies caused
by vacations, illnesses, injury or other employee caused absences in
the following manner:
a. Choose not to fill the job(s).
b. Fill the job on a transfer basis.
c. Fill the job on a temporary bid basis. If a job is filled
on a temporary bid basis, a successful bidder(s) will return to
their former classification upon completion of the job.
Employees may bid down only once every 12 months.
d. In the event that the Company determines that a job shall
become permanent, the Company shall post the job as provided in
Article VI, Section 1.
Section 5. The Company at its discretion may create new or
additional jobs on a temporary basis not to exceed one hundred and
twenty (120) days.
a. If a job is filled on a temporary bid basis, a successful
bidder(s) will return to their former classification upon
completion of the job. Employees may bid down only once every 12
months.
b. The foregoing Section 5., a., does not apply to employees
whose regular job(s) have been affected by production curtailment
or temporary shutdown.
Section 6. Knowledge, training, skill and ability gained
while holding a job under the bid system will be given consideration
in making promotions, layoffs, or reductions in work force.
ARTICLE VII - HOURS AND WORK SCHEDULES
Section 1. The workweek of each employee shall start at 8:00
a.m. on Sunday morning. A workday shall be the twenty-four (24) hour
period, commencing at 8:00 a.m., regardless of when the employee
commences work.
Section 2. Each employee shall perform work assigned to him
by the Company, and no employee shall absent himself from his work
without consent of the Company.
Section 3. Nothing in this Agreement shall be construed as a
guarantee of hours of work per day or per week, or of days of work per
week.
Section 4. Work schedules will be posted annually. Weekly
changes to work schedules will normally be posted on Thursday before
the end of the day shift, only if there has been a change in hours,
shift or days, from the work schedule.
Section 5. Any vacancies shall be covered as determined by
Management, however:
a. Production (rotating shift) employee vacancies will normally
be covered on an upgrade basis from within the same shift/crew.
b. Production (rotating shift) employees must have the ability
to qualify and perform the duties of all shift classifications to
which they may be upgraded.
c. It is the employee's responsibility to check his work
schedule each week.
Section 6. If an employee's work schedule is changed after
the end of the day shift of the preceding Thursday, he shall be
compensated with a twenty-five dollar ($25.00) premium for the first
eight (8) hours worked in his new schedule and the premium shall be
paid in addition to whatever compensation the employee is otherwise
entitled to receive under any other section of this Article.
Section 7. Unless a regular employee shall be specifically
instructed not to report to work at least eight (8) hours before the
starting time of his regular 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. Notices referred to in this
Article shall be deemed to have been given when a reasonable effort
has been made by the Company to give such notice orally or in writing
to such employee.
Section 8. Work performed by reason of changes in schedules
or reassignments of employees, as herein above provided, shall not be
construed as constituting work in excess of regular scheduled working
time.
Section 9. If after starting his lunch period, an employee is
interrupted by a work assignment, he shall be compensated one-half
(1/2) hour at time and one half (1-1/2) for his scheduled lunch
period. Such employee shall be granted subsequent reasonable time to
complete his lunch without loss of pay.
Section 10. The Company has the right to a twenty-four (24)
hour per day, seven (7) day per week continuous operation; as well as
the sole right to determine work schedules and personnel manning
necessary to cover said schedules.
Section 11. Any employee unable to report for work on account
of sickness or other good reason shall notify his supervisor as soon
as possible before his regular time for beginning work.
a. When an employee has been absent from his job for good
cause, he must notify his supervisor of his intentions 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.
Section 12. Whenever a lay off is planned because of a change
or reduction in plant production requirements, the Company will give
reasonable notice in accord with applicable law prior to the effective
date of the lay off by posting 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.
ARTICLE VIII - OVERTIME
Section 1. Overtime is defined as any hours an employee has
worked which are in excess of eight (8) per day or forty (40) hours in
a workweek. All overtime work, as set forth in this section, will be
paid at one and one-half times (1-1/2) the employee's regular straight
time hourly rate unless otherwise specified in this agreement.
Overtime rates shall be as follows:
SCHEDULED RATES CALL OUT RATES
(1) Regular Day/Week
Over 8 hrs/40 hrs 1-1/2X 1-1/2X
Over 12 hrs/day 2X 2X
Overlap shift/12 hrs 1-1/2X 1-1/2X
(2) Sixth (6th) Day/Scheduled Off
First 12 hrs 1-1/2X 1-1/2X
Over 12 hrs 2X 2X
(3) Seventh (7th) Day Worked
First 12 hrs Worked 2X 2X
Over 12 hrs 2X 2-1/2X
(4) Sunday Worked
First 12 hrs 1-1/2X 2X
Over 12 hrs 2X 2X
(5) Holidays
First 8 hrs 1-1/2X 2X
Over 8 hrs 2X 2-1/2X
plus eight (8) hours holiday pay if eligible.
An employee qualifies for the seventh (7th) day premium when he has
worked six (6) complete, consecutive shifts of work (8 hours each) in
his work week.
Section 2. Pay for time worked in excess of twelve (12) hours
is defined as follows:
a. In the event an employee works more than twelve (12) hours
in his workday he shall be paid for all hours worked in excess of
such twelve (12) hours at double the straight time hourly rate.
b. After an employee has been engaged in work for twelve (12)
consecutive hours, he shall be paid for all consecutive hours
worked immediately succeeding and in excess of such twelve (12)
hours at double the straight time rate.
c. In no event shall the two (2) immediately preceding
provisions of this section be applied to the same hours of work;
however, the provision which creates the highest earning shall be
applied.
d. If an employee is being paid at the rate of double time
under the provisions of this section, and the work continues into
the employees regular shift the Company may elect to continue to
pay the employee double time or send the employee home and pay
straight time pay to the employee for the balance of his/her
regularly scheduled shift.
Section 3. If an employee is called and reports for work
after leaving the plant at the completion of his regular shift or on
his days off, he shall be paid a minimum of four (4) hours pay at the
applicable call out rate, providing the call out is not consecutive
with or contiguous to his regular shift of work. In such event, the
four (4) hour minimum will not be paid, but in no event will the call
out rate be for less than two (2) hours pay. It is understood that if
an employee is called back to work, he may be required to preform any
duties in connection with breakdowns or emergency situations in
addition to the duties for which he was called out.
Section 4. Any hours paid as other than straight time shall
be considered as paid overtime hours and shall not be used for
computation of two (2) or more types of premium pay, duplicated or
accumulated on a daily or weekly basis. There shall be no pyramiding
or duplication of overtime or premium pay.
Section 5. Employees who work in excess of their regular
scheduled working time shall not be laid off to equalize such
overtime.
Section 6. Employees who continue to work in excess of their
scheduled hours in any one (1) day shall receive a minimum of fifteen
(15) minutes time at the applicable overtime rate.
Section 7. The Company's right to require or schedule a
reasonable amount of overtime work will not be affected by layoffs.
Section 8. The Company may schedule overtime as necessary to
insure the continuity of its twenty-four (24) hour, seven (7) day per
week continuous operation as well as overtime necessary to expedite
repair of major production equipment which is down and interrupting
production.
Section 9. The company agrees that, over each calendar year,
it will make a reasonable attempt to allocate overtime equally among
employees within the same classification which the overtime occurs.
It is agreed that employees may not refuse to work overtime unless a
reasonable excuse is given as determined by the Company.
Section 10. In filling overtime needs, the Company will
contact the classified employee(s), who is (are) qualified in
accordance with the understanding in Section 9 of this Article.
a. In the following procedure, the employee will only be
contacted one (1) time and he must immediately accept or decline,
except as otherwise determined by subsection c. of this Section
10.
b. An employee working on a job shall be given first
consideration if any overtime is needed to finish the job.
c. When it is determined that overtime work is required in a
classification(s), Management will make every effort to obtain
necessary workers by asking the lowest person(s) in overtime to
work, until a sufficient number(s) has been obtained. If
refusals result in the Company not being able to obtain
sufficient employees in the affected job classification(s), the
required number of such classified employees with the least
amount of overtime worked will be expected to work the necessary
overtime or be subject to progressive discipline.
d. All worked and/or refused overtime will be charged toward
equalization records.
e. All employees are expected to work a reasonable amount of
overtime.
f. In the event the overtime procedure fails to obtain the
necessary employee(s) needed to work, the Company may perform the
work in any way it deems necessary.
Section 11. If an employee does not work a regularly scheduled
workday that day shall not be considered as actually a day worked for
all overtime purposes.
ARTICLE IX - WAGES
Section 1. It is agreed that for the duration of this
agreement, the wage groups, and rates of pay shall be those set forth
in Appendix A of this Agreement.
Section 2.
a. All regularly scheduled work beginning between 6:00 a.m. and
9:00 a.m., inclusive, shall be considered day shift work.
b. All regularly scheduled work beginning between 2:00 p.m. and
5:00 p.m., inclusive, shall be considered middle shift work.
c. All regularly scheduled work beginning between 10:00 p.m.
and 1:00 a.m., inclusive, shall be considered night shift work.
Section 3. Each employee regularly scheduled to work on the
middle shift shall be paid a premium of forty-five cents ($.45) for
each hour worked by him on that shift. Each employee regularly
scheduled to work on the night shift shall be paid sixty-five cents
($.65) for each hour worked by him on that shift.
These premium rates do not apply to day workers even though they may
work over into a period of time for which the regular shift workers
are paid this premium. If, however, a day worker is scheduled to take
the place of a regular scheduled shift worker, then the premium rate
applies.
Section 4. All consecutive hours (exclusive of meal periods)
worked by an employee who normally begins work at a time specified in
the preceding Section 2, shall be deemed to be worked by him on the
shift on which he begins work.
Section 5. The Company has the prerogative to set the wage
rate of any job not mentioned in this Agreement, or any job with
substantial changes in duties, equipment or requirements, or any new
job(s) created. The Company will advise and meet with the Union at
their request to discuss any wage rates established in accordance with
this section. Any such established rates may be subject to the
grievance procedure.
ARTICLE X - HOLIDAYS
Section 1. The following days shall be considered holidays
under this agreement: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Veteran's Day, Thanksgiving
Day, and Christmas Day, and two (2) "floating" holidays. When a fixed
holiday occurs on Sunday, the following Monday shall be observed as
the holiday.
Section 2. A "floating" holiday may be taken at the
employee's convenience anytime between January 1st and December 31st
of each year, provided the Company is given at least fifteen (15) days
notice prior to the day the employee desires to celebrate such
holiday. "Floating" holidays will be granted at times most desired by
employees so far as practical, however, the right to allotment of
"floating" holidays is exclusively reserved by Management in order to
insure the orderly operation of the Plant. Employees upon completion
of their probationary period will be granted one (1) "floating"
holiday every six (6) months for their first year of service.
a. A floating holiday shall not be taken on any other holiday.
b. A floating holiday may be taken on Sunday providing the only
cost to the Company is eight (8) hours times the employee's
regular straight time hourly rate of his permanently assigned
classification.
c. Seniority preference shall only be utilized one (1) time, in
any calendar year, in the scheduling of floating holidays.
Section 3. Employees who do not work on the holidays
specified herein shall receive as holiday pay, eight (8) hours pay at
their regular straight time hourly rate, exclusive of shift
differentials, provided they meet all of the following conditions:
a. The employee shall not have less than eighty-five (85) days
worked with the Company prior to the holiday.
b. The employee shall have worked his last scheduled working
day prior to and his next scheduled working day after such
holiday. Anything less than eight (8) hours worked will not be
considered as a day worked, unless excused therefrom by the Plant
Manager.
c. 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, except the thirty
(30) day limitation shall not apply if the employee was
temporarily absent from work because of sickness or accident.
Section 4. Employee(s) scheduled or notified to work on a
holiday, but failing to report for and perform such work, unless
excused by the Plant Manager, shall not be entitled to any holiday
pay.
Section 5. If a holiday occurs during an employee's vacation,
he shall receive eight (8) hours pay, in addition to vacation pay, at
the straight time hourly rate of his permanently assigned
classification.
Section 6. If an employee is scheduled to work on a holiday,
but then is instructed by the Company not to work without eight (8)
hours notice, he shall receive for that holiday eight (8) hours pay at
two (2) times his regular straight time hourly rate.
Section 7. The phrase "straight time hourly wage rate" as
used solely in this Article, shall mean the higher of either the
employee's regular straight time hourly wage rate or the highest
straight time hourly wage rate for a job on which the employee worked
at least eight (8) consecutive hours on the day before and the day
after the holiday, whether previously scheduled or not.
ARTICLE XI - VACATION
Section 1. An employee will earn vacation as follows:
a. For an employee who has been in the continuous service of
the Company for more than one (1) year, the length of vacation
shall be two (2) weeks.
b. For an employee who has been in the continuous service of
the Company for more than eight (8) years, the length of vacation
shall be three (3) weeks.
c. For an employee who has been in the continuous service of
the Company for more than twenty (20) years, the length of
vacation shall be four (4) weeks.
d. For an employee who has been in the continuous service of
the Company for more than thirty (30) years, the length of
vacation shall be five (5) weeks.
Section 2. Vacation pay shall not include shift differential
for those employees on fixed shifts; however, regular scheduled shift
workers on rotating shifts shall be paid the shift differential
premium.
Section 3. Vacation pay shall be computed by multiplying the
number of hours in the regularly scheduled workweek by the straight
time hourly rate of pay, but shall in no event be more than forty-
eight (48) or less than forty (40) hours pay subject to the provisions
listed in this section below. 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.
a. Employees shall be eligible for their full appropriate
vacation rights if they have reached their vacation anniversary
date and have worked 1200 hours or more during the previous
calendar year. Employees who have worked less than 1200 hours
during the previous calendar year shall have their vacation
computed on the basis of l/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 fifty (50) workdays (400
hours).
b. Pro rata vacation shall be paid for the following and shall
be computed as outlined in Section 3 a. of this Article:
1. Retirement
2. Lay Off
3. Illness
4. Voluntary quit with two (2) weeks notice to the Company.
5. In the event of the employee's death to his surviving
spouse or to the estate.
Section 4. Vacations may be taken at any time at the
employee's convenience, provided ample notice is given the Company and
provided previous arrangements with the Company have been made and
approved. Vacation requests must be made by January 31 each year.
Where requested vacation schedules conflict, a senior employee may
exercise his seniority preference on a one time basis; however, such
seniority cannot be exercised after January 31 of any calendar
vacation year. Vacation periods not scheduled prior to February 1,
shall be granted on a first come first granted basis or may be
assigned by the Company. Vacations shall include (without pay)
regular days off prior, and subsequent to the paid days of the
vacation periods.
Section 5. The final right to allotment of vacation periods
is exclusively reserved by the Company to insure the orderly operation
of the plant.
Section 6.
a. Employees entitled to vacations shall be permitted to take
such vacations in separate periods of not less than five (5)
consecutive workdays each.
b. One (1) week of vacation can be used one day at a time
provided:
1. The employee makes a request at least seventy-two (72)
hours in advance, and;
2. The request is granted by the Plant Manager or his
designee.
3. 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 7. Vacations will not be cumulative and must be taken
during the calendar year.
Section 8. The scheduling of vacation time off shall
supersede the scheduling of floating holiday time off.
Section 9. If requested and with Company approval, an
employee eligible for three (3) weeks vacation may receive one (1)
week of vacation pay per year in lieu of time off and an employee
eligible for four (4) or more weeks of vacation may elect to receive
one (1) or two (2) weeks of vacation pay per year in lieu of time off.
ARTICLE XII - JURY DUTY/WITNESS PAY
Section 1. Employees, having seniority (not probationary),
who are called for jury duty and serve as jurors on regularly
scheduled workdays, shall be paid the difference between the amount
received for such service and their straight time hourly rate up to
eight (8) hours per day or forty (40) hours per week.
a. To be eligible for payment, an employee called for jury
service must furnish the Company with evidence of attendance from
a court official stating the date(s) jury service was performed,
amount of payment received and the time of day excused from the
court.
b. When excused by the court at a time that would allow an
employee to work (4) hours or more of his normal shift, the
employee shall return to work. Should the employee fail to
return to work, he shall forfeit any jury make-up pay that may be
otherwise due him under the terms of this Article. In such case
if an employee does not return to work he shall be charged with
an incident under the Absenteeism and Tardiness Control program.
c. An employee is limited to fifteen (15) days jury makeup pay
in any one (1) calendar year.
d. When an employee is required to report to the court as a
prospective juror and is excused without being seated, he shall
return to work immediately and will be paid make-up pay only for
scheduled time lost from work. Should the employee fail to
return to work, he shall forfeit any jury make-up pay that may be
otherwise due him under the terms of this Article. In such case
if an employee does not return to work he shall be charged with
an incident under the Absenteeism and Tardiness Control Program.
e. In no event will payment be made for any jury duty pay, as
set forth above, for duty performed by an employee on a holiday,
vacation, layoff, sick leave, workman's compensation, or who are
not otherwise working.
Section 2. The Company shall make up the wage loss of an
employee who has been subpoenaed and loses scheduled time testifying
as a witness in an action, where the employee is neither the plaintiff
or defendant.
ARTICLE XIII - FUNERAL LEAVE
Section 1. An employee who has completed his probationary
period, shall upon notification of the death of his father, mother,
step-father, step-mother, spouse, son, son-in-law, daughter, daughter-
in-law, brother, half-brother, brother-in-law, sister, half-sister,
sister-in-law, mother-in-law, father-in-law, grandparents, or
grandchildren be granted up to a three (3) day leave of absence, upon
request, and will be paid for up to three (3) (up to four (4)
scheduled shifts, if the employee is required to travel beyond a
radius of 500 miles) scheduled shifts (or such fewer shifts as the
employee may be absent) which fall within the next three (3)
consecutive regularly scheduled work days beginning within four (4)
days of the date of the death; provided, however, that one (1) such
consecutive day of absence must be the day of the funeral and the
employee must attend the funeral or forfeit any funeral leave pay due.
Payment for such time lost shall be on the basis of eight (8) hours
pay per day at the employee's regular straight time hourly rate,
excluding shift differential.
Section 2. In no event will the payment of funeral leave pay
be duplicated with holiday pay, vacation pay, workman's compensation,
or accident and sickness insurance payments; nor, will employees on
layoff or those not otherwise working be paid funeral leave pay.
Section 3. A "Request for Funeral Leave" form will be
furnished by the Personnel Office and is to be completed by the
employee prior to leave.
ARTICLE XIV - 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 not to exceed eighty (80)
hours pay per calendar year.
ARTICLE XV - SAFETY AND HEALTH
Section 1. A joint Safety and Health Committee shall be
established consisting of four (4) members who will be appointed by
the Company. At least two (2) members of the committee shall be
hourly employees. A designated alternate shall be appointed for each
committee member. In the event that 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,
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 minutes of all meetings of the Committee shall be
made and maintained. One miner's representative 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
representative, 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. Time spent in connection with MSHA approved monthly employee
safety training meetings shall be compensated at the employee's
regular straight-time hourly wage rate. Such scheduled meetings
will not exceed one hour.
d. 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) miner's representative of the Joint
Safety & Health Committee.
Section 2. 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) per year,
unless damaged or broken during the performance of duties.
Section 3. The wearing of safety shoes manufactured in
accordance with ANSI Standard Z-41.1-1972 is a mandatory condition of
employment for all employees of the Company. Full-time permanent
employees will become eligible for safety shoes' reimbursement after
one (1) year of employment. The Company will reimburse employees up
to eighty dollars ($80) per pair, not to exceed two (2) pair per year.
Shoes will have a minimum of a six inch (6") top. Verification of
purchase must be submitted to the Company for reimbursement.
Section 4. A medical examination of any employee may be made
when, in the opinion of the Company, an examination is necessary to
protect the health or safety of the employee involved, or the health
or safety of other employees.
Section 5. All injuries must be reported to the foreman on
the shift they occur prior to leaving the plant, if possible, but in
no event later than twenty-four (24) hours from time of injury. If an
employee becomes injured on the job and in the opinion of a qualified
medical doctor (M.D.) he is unable to return to work, he shall be paid
for any wages lost that day only.
ARTICLE XVI - LEAVE OF ABSENCE
Section 1. Any employee elected or appointed to a full time
position with the UNITED CEMENT, LIME, GYPSUM, AND ALLIED WORKERS
DIVISION, BOILERMAKERS INTERNATIONAL UNION, AFL-CIO, LOCAL NO. D476 or
any of its subordinate bodies shall be granted an indefinite leave of
absence, providing thirty (30) days notice is given the Company prior
to the beginning of such leave. During such leave seniority shall
accumulate. Insurance benefits shall be suspended after thirty (30)
days of such leave and will again be in effect the first day of
returning to work with the Company. Upon returning to work, such
employee will be reinstated on his former job, providing it is still
in existence; if not, he shall be eligible to apply for any job within
the bargaining unit by means of the existing bidding procedure, or by
bumping. The Company agrees to consent to the absence of no more than
one (1) employee at any time under this article.
Section 2. Any employee absent from work in accordance with
the foregoing provisions shall not lose seniority, wage rate, or
position, if physically fit upon return to work. Except as provided
for in section 2 of this article, should an employee accept a position
for wages or salary while on leave of absence, such employee shall
lose seniority, and if re-employed, must be treated as a new employee.
Section 3. A leave of absence will be granted to employees to
attend union conventions or other like union activities without loss
of seniority and other employment rights and benefits. The Union will
give the Company written notice of at least ten (10) days of any
anticipated leave. Not more than two (2) employees may be absent for
such purposes at any one (1) time. If two employees are from the same
department, both will be excused only if a qualified replacement is
available in the sole judgement of the Company.
ARTICLE XVII - OVERTIME MEALS
Section 1. A meal and reasonable time to eat it, or
compensation ($8.50) in lieu of such meal and meal period, will be
provided when more than four (4) consecutive overtime hours have been
worked beyond the end of an employee's regular shift. Meals when
provided will be at the sole discretion of the Company.
Section 2. Should an employee be called out on a scheduled
off day and he continues to work for more than twelve (12) consecutive
hours, Section 1 of this Article will become applicable.
ARTICLE XVIII - GRIEVANCE PROCEDURE
Section 1. Should differences arise between the Company and
the Union, or an individual employed by the Company, as to the meaning
and application of the provisions of this Agreement, an earnest effort
shall be made by the parties to settle such differences promptly and
in the following manner:
STEP I. The complaint, within seven (7) calendar days of its
occurrence, or the occurrence of the matter out of which the
complaint arises, may be taken up by the employee involved, with
or without Union representation, with his foreman. The employee
shall state the specific article(s) and paragraph(s) of the
Contract that is alleged to have been violated in order for the
grievance to be considered and processed.
STEP II. If no satisfactory settlement is reached in Step I, the
matter shall be reduced to writing and presented to the Plant
Manager or his delegate within five (5) days from the date of the
meeting with the foreman. At the time of presentation, or within
thirty (30) days, the Plant Manager or his delegate will meet
with the Grievance Committee to hear and discuss the grievance.
The Company shall answer the grievance in writing within five (5)
days after said meeting. The employee shall state the specific
article(s) and paragraph(s) of the Contract that is alleged to
have been violated in order for the grievance to be considered
and processed.
STEP III. If no agreement is reached in Step II, The Committee
may, within five (5) days of the receipt of the above answer,
refer the matter to higher officials of the Company and the Union
who may attend such a meeting. Upon request by the Union a
meeting will be held within forty-five (45) days of such request.
The Company shall answer the grievance within five (5) days after
said meeting.
STEP IV. 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 5. Arbitration.
Section 2. Except for Section 1, Step I., the time limits
referred to in this Article exclude Saturdays, Sundays and holidays.
Section 3. Any grievance not presented or appealed within the
time limits provided, unless mutually agreed to extend the time, shall
be considered settled on the basis of the decision which was not
appealed and shall be final and binding on the parties involved.
Section 4. Grievances presented in any of the regular steps
set forth and not answered within the time specified or as the same
may be extended by mutual agreement shall be considered appealed to
the next step of the grievance procedure.
Section 5. Arbitration
Any grievance not settled in Step III above may be referred to
the Dispute Resolution Panel. This panel will consist of one (1)
official of the International Union, one (1) official of the Corporate
Human Resources Department, and one (1) individual mutually agreed
upon by these two (2) officials. Notice to refer a grievance to the
Dispute Resolution Panel shall be given in writing within fifteen (15)
days after being notified of the decision rendered in Step III or the
matter will be considered closed. Only one (1) grievance may be
submitted to or be under review by the Dispute Resolution Panel at any
one (1) time unless by prior mutual written consent of the parties.
The Dispute Resolution Panel 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 Dispute Resolution Panel will
be final and binding upon the Union, the Company, the grievant, and
all employees covered by this Agreement. The Dispute Resolution Panel
shall interpret and apply the terms of this Agreement. Disputes shall
be settled by majority vote. The actual vote cast by each party shall
not be revealed. It is expressly agreed that the Dispute Resolution
Panel shall not have the authority to decide any matter involving the
exercise of a right reserved to management under this Agreement. The
expenses incident to the services of the third party, including the
cost of the meeting room, etc. shall be shared equally by the Company
and the Union.
It is further understood and agreed that effective with the
expiration of this Agreement, on 7/31/98, this Section 5 will continue
only with the mutual consent of the parties. Absent such mutual
consent, this Section 5 will be replaced by Article XVIII, Section 5
of the 1990-1991 Agreement.
Section 6. 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 or designee within forty-eight (48) hours
of the discharge or suspension or it will not be recognized and the
action taken shall be final.
ARTICLE XIX - INCAPACITATED EMPLOYEES
Section 1. Any employee who becomes permanently incapacitated
and, on the basis of competent medical opinion, cannot perform the
duties of his regular job may exercise his plant seniority through the
bumping procedure to move to another position within the plant
bargaining unit for which he is qualified to perform in the same
manner as provided for in the job bidding procedures.
Section 2. Any employee who is displaced by an incapacitated
employee pursuant to Section 1 of this Article may exercise his plant
seniority to bump into another position within the plant bargaining
unit for which he is qualified in the same manner as provided for in
the job bidding procedures.
Section 3. The Company's decision based on competent medical
opinion regarding the employee's incapacitation will be final and
binding.
ARTICLE XX - STRIKES AND LOCKOUTS
The Union agrees that there shall be no picketing or strikes by
the Union, or by its members, 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, such reasons including, but not
limited to, unfair labor practices by the Company or any other
Employer. It is further agreed that neither the Union nor its members
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 Union member, 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 XXI - LEGISLATION
In the event laws are passed which conflict with any provisions
of this Agreement, or any provision or provisions of this Agreement
shall be declared void in whole or in part, or shall be declared not
to affect any employee or employees by law or final decision by
competent authority, then such provisions or parts thereof shall be
eliminated here from and the matter covered by such eliminated
provisions may be reopened for negotiation, but the remaining
provisions of the Agreement shall remain in full force and effect.
ARTICLE XXII - COPIES
A copy of the labor agreement will be provided each full time
employee by the Company. Copies of the Pension and Insurance Plans
will be provided to each full time employee by the Company.
ARTICLE XXIII - PAST PRACTICE
All previous side letters, and ad hoc agreements and informal
understandings or past practices are hereby revoked, withdrawn and
canceled and none shall survive the execution of this contract and no
provision shall have any force or effect whatsoever either as past
practice, special written agreement, oral agreement, informal
understanding or otherwise unless expressly contained herein.
ARTICLE XXIV - SCOPE OF AGREEMENT
This Labor Agreement, Group Insurance Plan and Pension Plan
together contain all the obligations and restrictions imposed upon
each of the parties during their respective terms. It is the intent
of the parties that these documents have settled all issues between
them and all collective bargaining obligations for the terms of the
Labor Agreement (and for the terms of the Group Insurance Plan
relative to insurance and the Pension Plan relative to pensions) and
that no change shall be made in the Labor Agreement and these two
plans prior to the expiration thereof except by mutual written consent
or as may be provided within these documents, or as required by law.
ARTICLE XXV - TERMS OF AGREEMENT
After ratification by the members of the Local Union D476, this
Agreement shall become effective and remain in force and effect and be
binding upon the parties hereto from July 31, 1994, to and including
July 31, 1998, and it shall continue to be in full force and effect
thereafter from year to year until either party on or before May 1, of
any year, beginning May 1, 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 1 in such year.
<PAGE>
IN WITNESS WHEREOF, this Agreement between the parties, has been
executed by their duly authorized representatives on this 31st day of
July, 1994.
UNITED CEMENT, LIME, GYPSUM SOUTHWESTERN
AND ALLIED WORKER, DIVISION PORTLAND CEMENT
LOCAL LODGE NO. D476 BOILER-
MAKERS INTERNATIONAL UNION
AFL-CIO
BY: BY:
George Fields Bernard M. Reuland
BY: BY:
David Johnson Tommy G. Wells
BY: BY:
Robert Sherman Jacque Venable
BY:
Allen Motes
<PAGE>
APPENDIX A
ODESSA
WAGE SCHEDULE
08/01/94 08/01/95 08/01/96 08/01/97
WAGE GROUP ONE
Laborer* $ 9.97 $10.32 $10.62 $10.97
Shift Laborer
Packhouse Laborer
Quarry Laborer
WAGE GROUP TWO
Mech/Electrical Trainee $11.32 $11.67 $11.97 $12.32
WAGE GROUP THREE
Bulkloader $12.40 $12.75 $13.05 $13.40
Crusher Operator
WAGE GROUP FOUR
Quarry Utility $13.49 $13.84 $14.14 $14.49
Equipment Operator
Driller
Quarry Lube/Mechanic
WAGE GROUP FIVE
Production Utility $14.31 $14.66 $14.96 $15.31
Maintenance Mechanic "B"
WAGE GROUP FIVE A
Asst. Process Control Oper $14.59 $14.94 $15.24 $15.59
WAGE GROUP SIX
Maintenance Journeyman $15.01 $15.36 $15.66 $16.01
Heavy Equipment Operator
WAGE GROUP SEVEN
Process Control Operator $15.50 $15.85 $16.15 $16.50
Mobile Equipment/Mechanic
Instrument/Electrician
Maintenance Journeyman/Welder
WAGE GROUP SEVEN A
Instrument/Electrician/
Programmer $15.75 $16.10 $16.40 $16.75
The above wage schedule and corresponding rates shall apply to all new
hires and any employee who bids and is awarded a different job other
than the one in which he was red circled on the effective date of this
Agreement.
* Laborers will be hired at a starting rate of $9.00 for the term of
their probationary period.
WAGE SCHEDULE FOR RED CIRCLED INCUMBENT EMPLOYEES**
GRADE 08/01/94 08/01/95 08/01/96 08/01/97
10 $13.57 $13.92 $14.22 $14.57
13 $14.08 $14.43 $14.73 $15.08
15 $14.36 $14.71 $15.01 $15.36
16 $14.59 $14.94 $15.24 $15.59
**The Wage Schedule, Grade Number and corresponding rates above shall
apply to all incumbent employees who have been red circled in the
grades and wage rates which they held prior to the effective date of
this Agreement.
GAINSHARING
The employees will participate in a gainsharing program developed
by the Company.
<PAGE>
APPENDIX B
Section 1. Health and Welfare
On a voluntary participation basis, the Company will provide
Health and Welfare Coverage identical to the Southdown, Inc., Plan for
Salaried employees and all amendments thereto during the life of this
Agreement. For those selecting to participate, the cost of employee
coverage will be as follows:
01-01-95 01-01-96 01-01-97 01-01-98
Employee Only $25.00 $30.00 $30.00 $30.00
Employee & Children $45.00 $50.00 $50.00 $50.00
Employee & Spouse $45.00 $50.00 $55.00 $60.00
Employee & Family $45.00 $55.00 $60.00 $70.00
An employee's spouse who is working for another employer who is
eligible for health and medical coverage under that employer's group
medical plan is excluded from health and medical coverage under this
Agreement.
Southdown employees who retire directly from the Company will be
eligible for retiree medical and life insurance benefits only after
reaching age 62 and fifteen (15) years of service. Future increases
in retiree health care costs beyond the 1993 cost levels will be the
responsibility of covered retirees.
The Union and each employee covered by this Agreement will be
provided a copy of the Health and Welfare Plan.
a. 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.
b. Accidental Death and Dismemberment - The Company will
provide accidental death and dismemberment benefit at no 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.
Section 2. - Company Provided Benefits
a. 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.
b. 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 on the same basis the long term disability insurance
is provided to all other Southdown Inc. employees.
<PAGE>
APPENDIX C
Section 1. - Pension
Pension Plan Amendments
Conformity with Law
Proposed Amendment - The pension plan shall be amended as
required by current rules and regulations of the Internal Revenue Code
and the Employee Retirement Income Security Act ("ERISA").
Purpose - There have been major enactments of legislation by
Congress since 1981, the date of the last revision of the plan
document, affecting pension plans in general. The pension plan needs
to be amended to provide for changes required by this legislation.
Normal Retirement Pension.
Proposed Amendment - The monthly amount of the normal retirement
pension on a single life basis for retirements after March 31, 1991
and before April 1, 1996, shall be the greater of (a) or (b).
(a) $23.00 ($24.00 effective 08-01-95) multiplied by the
participant's period of service (in years and fractions
thereof), but only for service prior to April 1, 1996.
(b) an amount computed as follows:
(i) 1% of the participant's average monthly compensation
multiplied by his period of service (in years and
fractions thereof); plus
(ii) .65% of the participant's average monthly compensation
to the extent that it exceeds covered compensation
multiplied by his period of service (in years and
fractions thereof) to a maximum of 35 years.
Average monthly compensation shall be the result obtained by
dividing total base pay (up to 2,080 hours of base pay each year)
received in each of five consecutive plan years by 60. (Effective
08/01/94 gainsharing earnings will be included as part of base pay.)
Covered compensation for a plan year means 1/12th of the average of
the Social Security taxable wage bases for the 35-year period ending
with the last day of the calendar year in which the participant
attains (or will attain) Social Security retirement age (generally age
65).
The monthly amount of the normal retirement pension on a single
life basis for retirements after March 31, 1996 shall be the greater
of (a) calculated only as of July 31, 1996, or (b).
Purpose - The proposed amendment is intended to provide
participants (1) for five years hence a minimum pension benefit equal
to the retirement maximum pension benefit provided by the current
pension plan formula; and (2) beginning immediately a maximum pension
benefit provided by the Southdown, Inc. Pension Plan. The pension
formula used by the Southdown, Inc. Pension Plan adjusts automatically
for wage inflation and is designed to achieve along with social
security a wage replacement percentage of 50%-60% for a 30-year
employee. It is expected that most employees would be entitled to the
maximum pension. See attached comparison.
Early Retirement
Proposed Amendment - A participant may elect to retire and
commence receiving a pension benefit prior to attainment of normal
retirement age as follows:
With respect to the minimum benefit calculated in (a) above (the
"Minimum Benefit"), any participant who has 10 years of service and
has attained 55 years of age and who elects to retire and commence
receiving pension benefits prior to his 65th birthday shall be
entitled to receive a pension amount equal to his Minimum Benefit
reduced by three-tenths of one percent (0.3%) for each month by which
his actual retirement date precedes normal retirement date.
Any participant who has accumulated a minimum of 30 years
continuous years of service may elect to retire and immediately
commence receiving pension benefits equal to the Minimum Benefit
without regard to attained age.
With respect to the maximum benefit calculated in (b) above (the
"Maximum Benefit"), any participant who has 5 years of service and has
attained 55 years of age and who elects to retire and commence
receiving pension benefits prior to his 65th birthday shall be
entitled to receive a pension a Maximum Benefit reduced by five-ninths
of one percent for each month up to 60 months by which his actual
retirement date precedes normal retirement date, and additionally by
five-eighteenths of one percent for each month over 60 months by which
his actual retirement date precedes normal retirement date.
Purpose - The proposed amendment extends the early retirement
reduction factors of the current pension plan respecting retirements
entitled to Minimum Benefits for a period of five years. This allows
time for contributions and Company matching amounts in the Southdown,
Inc. Retirement Savings Plan to accumulate as a supplement to the
Pension Plan benefits.
Disability Benefits
Proposed Amendment - It is proposed that the disability
retirement pension be eliminated.
Purpose - The new welfare plan provides for a voluntary long-term
disability plan (the "LTD Plan"). The LTD plan and the disability
retirement pension are redundant inasmuch as they both provide
disability income. The LTD plan, however, provides far better income
replacement benefits than does the pension plan. Income replacement
under the voluntary LTD plan is either 60% (70% if also social
security disabled) or 40% (50% if also social security disabled). The
LTD plan benefits are not subject to federal income taxes whereas the
pension plan disability pension is. Other features and enhancements
of the LTD plan are more fully explained in the welfare plan
information.
Plan Termination
Proposed Amendment - It is proposed that the plan be amended to
provide that in the event the plan is terminated, that the accrued
benefit of each participant will become fully vested and
nonforfeitable. Assets will be allocated in accordance with Section
4040(a) of ERISA. Any assets in excess of amounts allocated in
accordance with Section 4044(a) of ERISA would revert to the Company
subject to applicable IRS and PBGC rules.
Subject to ERISA Section 4044(a), and any applicable regulations
of the IRS and PBGC, distribution of benefits to participants on plan
termination would be made, in whole or part, to the extent that no
discrimination in value results, in cash, in securities or other
assets in kind, or in nontransferable annuity contracts.
Purpose - Department of Labor, Internal Revenue Service, and
Pension Benefit Guaranty Corporation rules and regulations strictly
control the reversion of excess plan assets to employers in order to
provide absolute assurance that plan pension benefits are protected.
The current plan document seems to provide that any excess assets
remaining after the Section 4044(a) allocations are made will be
allocated to non-vested employees and deferred vested former
employees. Since Section 4044(a) of ERISA requires allocations to be
made to all current employees regardless of vesting status and to
terminated employees with a deferred vested benefit, such a provision
seems redundant and unwarranted.
Funding
Proposed Amendment - The plan shall be funded on the basis of
sound actuarial principles and as required by IRS regulations.
Purpose - The IRC specifies the full funding limitation and the
minimum funding amounts of pension plans which are based on sound
actuarial principles. Additionally, funding methods must be approved
by the IRS. The proposed amendment would specify that the plan will
be funded accordingly.
<PAGE>
APPENDIX D
SICKNESS AND ACCIDENT BENEFITS
If a permanent employee (non-probationary/non-temporary) is absent
from work due to disability, sickness and accident benefits are
payable. The disability must prevent the employee from performing the
duties of the job because of a non-occupational sickness or injury.
This benefit is payable if confined to a hospital or home.
After a waiting period of five (5) consecutive work days (waived if
the employee is hospitalized as an in-patient or absent five (5)
consecutive work days), the disability benefits are payable at a rate
of fifty-one dollars ($51) per day for a maximum of five days per
week. A disabled employee may receive weekly sickness and accident
benefits during the period of disability, not to exceed five (5)
months. It is the employee's responsibility to make application for
this benefit and the attending physician must document the nature of
the disability and expected date of return to work.
No benefits shall be payable for the following:
1. disability which you are not under the direct care
of a licensed physician;
2. sickness or injury which is purposefully self-
inflicted while sane or insane;
3. disability due to an injury arising out of the
course of employment;
4. disability due to disease which benefits are
payable under Worker's Compensation, Occupational
Disease or similar law.
This benefit terminates upon retirement or upon termination of
employment.
<PAGE>
October 12, 1994
Mr. George Fields
United Cement, Lime and Gypsum Workers
P.O. Box 460
Glenpool, Oklahoma 74033
Dear Mr. Fields:
This will confirm our discussion in the 1994 Odessa Negotiations that
the Health and Welfare Plan proposed by the Company is a PPO Plan and
it includes examinations for prescription glasses.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:jv
cc: T. G. Wells
D. Johnson
<PAGE>
October 12, 1994
Mr. George Fields
United Cement, Lime and Gypsum Workers
P.O. Box 460
Glenpool, Oklahoma 74033
Dear George:
Pursuant to our discussions during the 1994 Odessa Labor Negotiations,
as of January 01, 1995, the Company agrees to increase its monthly
contribution toward future retiree medical benefits which is capped
based on 1993 cost levels up to an additional 2.5% annually for each
full year for the life of this agreement.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:jv
cc: T. G. Wells
D. Johnson
<PAGE>
October 12, 1994
Mr. George Fields
United Cement, Lime and Gypsum Workers
P.O. Box 460
Glenpool, Oklahoma 74033
RE: Letter of Understanding - Working Spouse
Dear Mr. Fields:
Pursuant to our discussions during the 1994 Odessa Labor Contract
Negotiations, if an employee's spouse is eligible for health care
coverage under another employer's group health plan and the premium
which the spouse is required to pay exceeds $30.00 per month for
individual coverage under that plan, the Company will offset the cost
in excess of $30.00 per month by reducing the employee's monthly
contribution to the Southdown Plan. The offset will not be greater
than the total monthly premium the employee is required to pay to the
Southdown Plan. Affected employees will provide reasonable
documentation to substantiate the cost of spousal coverage.
Other adverse impacts of the spousal exclusion not addressed by the
foregoing will be considered by the Company on a case by case basis.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:jv
cc: T. G. Wells
D. Johnson
October 12, 1994
Mr. George Fields
United Cement, Lime and Gypsum Workers
P.O. Box 460
Glenpool, Oklahoma 74033
RE: Age and Service Eligibility Requirements for
the Southdown, Inc. Retiree Medical Plan
Dear Mr. Fields:
Pursuant to our discussion during the 1994 Odessa Labor Contract
Negotiations, the Company agrees to provide coverage under the
Southdown, Inc. Retiree Medical Plan to employees listed below should
they elect to retire at any time prior to the expiration of the 1994
Labor Agreement which will expire on July 31, 1998, providing they
have at least 30 years of company service on their retirement date:
Billy J. Thompson
Glenn W. Gober
Dickey E. Cross
Ivey J. Roberson
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:jv
cc: T. G. Wells
D. Johnson
<TABLE>
EXHIBIT 11
Page 1
Southdown, Inc. and Subsidiaries
Statement of Computation of Per Share Earnings
(In millions, except per share amounts)
Years ended December 31,
(in millions, except per share amounts)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Earnings (loss) for primary earnings per share:
Earnings (loss) from continuing operations before
preferred stock dividends $ 30.1 $ 3.6 $ (16.9)
Preferred stock dividends (9.4) (5.0) (5.0)
Earnings (loss) from continuing operations 20.7 (1.4) (21.9)
Loss from discontinued operations, net of
income taxes (5.9) (3.6) (24.5)
Loss on disposition of discontinued operations, net of
income taxes (21.6) - -
Gain on disposition of discontinued oil and gas
operations, net of income taxes - - 0.8
Loss before cumulative effect of a change in
accounting principle and extraordinary charge (6.8) (5.0) (45.6)
Extraordinary charge, net of income taxes - (1.0) -
Cumulative effect of a change in accounting
principle, net of income taxes - (48.5) -
Net loss for primary earnings per share $ (6.8) $ (54.5) $ (45.6)
Earnings (loss) for fully diluted earnings per share:
Earnings from continued operations before
preferred stock dividends $ 30.1 $ 3.6 $ (16.9)
Antidulitive preferred stock dividends (9.4) (5.0) (5.0)
Earnings (loss) from continuing operations 20.7 (1.4) (21.9)
Loss from discontinued operations, net of
income taxes (5.9) (3.6) (24.5)
Loss on disposition of discontinued operations, net of
income taxes (21.6) - -
Gain on disposition of discontinued oil and gas
operations, net of income taxes - - 0.8
Loss before cumulative effect of a change in
accounting principle and extraordinary charge (6.8) (5.0) (45.6)
Extraordinary charge, net of income taxes - (1.0) -
Cumulative effect of a change in accounting
principle, net of income taxes - (48.5) -
Net loss for fully diluted earnings per share $ (6.8) $ (54.5) $ (45.6)
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
Page 2
Southdown, Inc. and Subsidiaries
Statement of Computation of Per Share Earnings
(In millions, except per share amounts)
Years ended December 31,
(in millions, except per share amounts)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Average shares outstanding:
Common stock 17.2 17.0 16.9
Common stock equivalents from assumed
exercise of stock options and warrants
(treasury stock method) 0.5 0.2 -
Total for primary earnings per share 17.7 17.2 16.9
Other potentially dilutive securities:
- additional common stock equivalent from assumed
exercise of stock options and warrants at ending
market price - 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 2.5 shares of common stock 2.3 2.4 2.4
- assumed conversion of the Series D convertible
preferred stock at 1.51 shares of common stock 2.4 - -
Total for fully diluted earnings per share 23.4 21.2 20.3
Less: Antidilutive securities
Stock options and warrants (0.5) (0.8) -
Series A preferred stock (1.0) (1.0) (1.0)
Series B preferred stock (2.3) (2.4) (2.4)
Series D preferred stock (2.4) - -
17.2 17.0 16.9
Per share earnings (loss) from continuing operations:
Earnings (loss) from continuing operations $ 1.20 $ (0.09) $ (1.29)
Loss from discontinued operations, net of
income taxes (0.38) (0.21) (1.45)
Loss on disposition of discontinued operations, net of
income taxes (1.22) - -
Gain on disposition of discontinued oil and gas operations,
net of income taxes - - 0.05
Extraordinary item, net of income taxes - (0.06) -
Cumulative effect of a change in accounting
principle, net of income taxes - (2.86) -
$ (0.40) $ (3.22) $ (2.69)
</TABLE>
EXHIBIT 22
Significant Subsidiaries of Southdown, Inc.
As of December 31, 1994
State of
Subsidiary* Organization
Kosmos Cement Company (a partnership). . . . . .Kentucky
___________________
* Each subsidiary conducts business under the name set forth
herein.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statement No. 33-23328 on Form S-8, Registration Statement No. 33-
35011 on Form S-8, Registration No. 33-45144 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. 33-45371 on Form S-3
and Registration Statement No. 33-45373 on Form S-3 of our report,
dated January 27, 1995 on the consolidated financial statements and
financial statement schedule of Southdown, Inc. and subsidiary
companies appearing in this Annual Report on Form 10-K for the year
ended December 31, 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
March , 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet as of December 31, 1994 and the related
statement of consolidated earnings and is qualified in its entirety by reference
to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 80
<ALLOWANCES> 7
<INVENTORY> 54
<CURRENT-ASSETS> 178
<PP&E> 866
<DEPRECIATION> 306
<TOTAL-ASSETS> 881
<CURRENT-LIABILITIES> 104
<BONDS> 186
<COMMON> 22
0
152
<OTHER-SE> 164
<TOTAL-LIABILITY-AND-EQUITY> 881
<SALES> 561
<TOTAL-REVENUES> 562
<CGS> 433
<TOTAL-COSTS> 490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
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<INCOME-PRETAX> 44
<INCOME-TAX> 14
<INCOME-CONTINUING> 30
<DISCONTINUED> (28)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
