==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 1-6117
SOUTHDOWN, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0296500
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1200 Smith Street
Suite 2400
Houston, Texas 77002
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (713) 650-6200
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 periods 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
At July 31, 1997 there were 22.1 million common shares outstanding.
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<PAGE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
INDEX
Page
No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet
June 30, 1997 and December 31, 1996 1
Statement of Consolidated Earnings
Three and Six months ended June 30, 1997 and 1996 2
Statement of Consolidated Cash Flows
Six months ended June 30, 1997 and 1996 3
Statement of Consolidated Revenues and Operating Earnings
by Business Segment
Three and Six months ended June 30, 1997 and 1996 4
Statement of Shareholders' Equity
Six months ended June 30, 1997 4
Notes to Consolidated Financial Statements 5
Independent Accountants' Review Report 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 19
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Southdown, Inc. and Subsidiary Companies
Consolidated Balance Sheet
(Unaudited)
<CAPTION>
(in millions)
----------------------------------------
June 30, December 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41.3 $ 45.4
Short-term investments 1.1 11.8
Accounts and notes receivable, less allowance for doubtful
accounts of $4.2 and $7.4 86.6 77.3
Inventories (Note 2) 71.4 62.4
Prepaid expenses and other 7.6 13.1
--------------- --------------
Total current assets 208.0 210.0
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $369.7 and $354.2 598.6 588.8
Goodwill 74.0 75.4
Other long-term assets 52.9 57.8
--------------- --------------
$ 933.5 $ 932.0
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 16.9 $ 1.2
Accounts payable and accrued liabilities 82.5 89.0
--------------- --------------
Total current liabilities 99.4 90.2
Long-term debt (Note 3) 147.7 164.4
Deferred income taxes 124.1 120.3
Minority interest in consolidated joint venture 28.5 28.0
Long-term portion of postretirement benefit obligation 69.4 71.7
Other long-term liabilities and deferred credits 16.8 18.1
--------------- --------------
485.9 492.7
--------------- --------------
Shareholders' equity:
Preferred stock (Note 4) 86.2 86.3
Common stock, $1.25 par value 27.6 27.4
Capital in excess of par value 213.3 213.3
Reinvested earnings 146.8 117.9
Treasury stock, at cost (26.3) (5.6))
--------------- --------------
447.6 439.3
--------------- --------------
$ 933.5 $ 932.0
=============== ==============
</TABLE>
-1-
<PAGE>
<TABLE>
Southdown, Inc. and Subsidiary Companies
Statement of Consolidated Earnings
(Unaudited)
<CAPTION>
(in millions, except per share data)
----------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 187.2 $ 178.2 $ 338.6 $ 305.6
------------ ------------ ------------ ------------
Costs and expenses:
Operating 119.2 118.6 223.2 210.5
Depreciation, depletion and amortization 11.7 10.1 23.3 20.2
Selling and marketing 4.2 4.0 8.3 7.9
General and administrative 9.8 9.9 18.5 18.4
Other income, net (1.8) (0.2) (3.4) (0.4)
------------ ------------ ------------ ------------
143.1 142.4 269.9 256.6
Minority interest in earnings of consolidated joint venture 2.0 1.7 2.5 2.0
------------ ------------ ------------ ------------
145.1 144.1 272.4 258.6
------------ ------------ ------------ ------------
Earnings before interest, income taxes
and extraordinary charge 42.1 34.1 66.2 47.0
Interest, net of amounts capitalized (2.9) (5.2) (6.1) (11.2)
------------ ------------ ------------ ------------
Earnings before income taxes and extraordinary charge 39.2 28.9 60.1 35.8
Income tax expense (14.0) (10.0) (21.3) (12.1)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 25.2 18.9 38.8 23.7
Extraordinary charge, net of income taxes - - - (11.4)
------------ ------------ ------------ ------------
Net earnings $ 25.2 $ 18.9 $ 38.8 $ 12.3
============ ============ ============ ============
Dividends on preferred stock (Note 4) $ 1.3 $ 2.5 $ 2.5 $ 4.9
============ ============ ============ ============
Earnings (loss) per common share:
Primary
Earnings before extraordinary charge $ 1.10 $ 0.92 $ 1.66 $ 1.05
Extraordinary charge, net of income taxes - - - (0.63)
------------ ------------ ------------ ------------
$ 1.10 $ 0.92 $ 1.66 $ 0.42
============ ============ ============ ============
Fully diluted
Earnings before extraordinary charge $ 1.04 $ 0.79 $ 1.59 $ 1.05
Extraordinary charge, net of income taxes - - - (0.63)
------------ ------------ ------------ ------------
$ 1.04 $ 0.79 $ 1.59 $ 0.42
============ ============ ============ ============
Average shares outstanding:
Primary 21.7 17.9 21.8 17.8
============ ============ ============ ============
Fully diluted 24.3 23.9 24.4 17.9
============ ============ ============ ============
</TABLE>
-2-
<PAGE>
<TABLE>
Southdown, Inc. and Subsidiary Companies
Statement of Consolidated Cash Flows
(Unaudited)
<CAPTION>
(in millions)
-------------------------------------
Six Months Ended
June 30,
-------------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Operating activities:
Earnings before extraordinary charge $ 38.8 $ 23.7
Adjustments to reconcile earnings before extraordinary charge
to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization 23.3 20.2
Deferred income tax expense 5.1 2.5
Amortization of debt issuance costs 0.4 1.4
Changes in operating assets and liabilities (15.0) (16.0)
Other adjustments 2.2 2.5
Net cash used in discontinued operations (0.6) (0.7)
------------- --------------
Net cash provided by operating activities 54.2 33.6
------------- --------------
Investing activities:
Additions to property, plant and equipment (37.1) (17.7)
Purchase of short-term investments (1.1) -
Maturities of short-term investments 11.8 -
Proceeds from asset sales 1.7 0.9
Other (3.1) (0.4)
------------- --------------
Net cash used in investing activities (27.8) (17.2)
------------- --------------
Financing activities:
Additions to long-term debt - 130.7
Reductions in long-term debt (1.0) (120.4)
Purchase of treasury stock (20.7) -
Dividends (6.8) (8.4)
Distributions to minority interest (2.0) (1.5)
Premium on early extinguishment of debt - (11.6)
Securities issuance costs - (4.5)
------------- --------------
Net cash used in financing activities (30.5) (15.7)
------------- --------------
Net increase (decrease) in cash and cash equivalents (4.1) 0.7
Cash and cash equivalents at beginning of period 45.4 7.7
------------- --------------
Cash and cash equivalents at end of period $ 41.3 $ 8.4
============= ==============
Cash payments for income taxes totaled $11.5 million and $1.2 million in the
first six months of 1997 and 1996, respectively. Interest paid, net of amounts
capitalized, was $5.8 million and $9.5 million in the first six months of 1997
and 1996, respectively.
</TABLE>
-3-
<PAGE>
<TABLE>
Southdown, Inc. and Subsidiary Companies
Statement of Consolidated Revenues and Operating Earnings
By Business Segment
(Unaudited)
<CAPTION>
(in millions)
--------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contributions to revenues:
Cement $ 138.8 $ 127.9 $ 242.7 $ 210.5
Concrete products 62.6 63.1 122.7 118.9
Intersegment sales (14.2) (12.8) (26.8) (23.8)
------------ ------------ ------------ ------------
$ 187.2 $ 178.2 $ 338.6 $ 305.6
============ ============ ============ ============
Contributions to earnings before interest,
income taxes and extraordinary charge:
Operating profit
Cement $ 45.4 $ 36.4 $ 72.4 $ 53.5
Concrete products 3.1 4.4 5.6 6.3
------------ ------------ ------------ ------------
48.5 40.8 78.0 59.8
Corporate overhead (6.4) (6.7) (11.8) (12.8)
------------ ------------ ------------ ------------
$ 42.1 $ 34.1 $ 66.2 $ 47.0
============ ============ ============ ============
</TABLE>
<TABLE>
Southdown, Inc. and Subsidiary Companies
Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
(in millions)
-------------------------------------------------------------------------------
Capital
Preferred stock Common stock in excess
------------------- ------------------- of Reinvested Treasury
Shares Amount Shares Amount par value earnings stock
-------- --------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1.7 $ 86.3 21.9 $ 27.4 $ 213.3 $ 117.9 $ (5.6)
Net earnings - - - - - 38.8 -
Dividends on preferred stock
(Note 4) - - - - - (2.5) -
Dividends paid on common
stock - - - - - (4.3) -
Purchase of treasury stock - - - - - - (20.7)
Exercise of stock options - - 0.2 0.2 - (3.1) -
Other - (0.1) - - - - -
-------- --------- ------- --------- ---------- ---------- ----------
Balance at June 30, 1997 1.7 $ 86.2 22.1 $ 27.6 $ 213.3 $ 146.8 $ (26.3)
======== ========= ======= ========= ========== ========== ==========
-4-
<PAGE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation:
The Consolidated Balance Sheet of Southdown, Inc. and subsidiary
companies (the Company) at June 30, 1997 and the Statements of Consolidated
Earnings, Consolidated Cash Flows, Consolidated Revenues and Operating Earnings
by Business Segment and Shareholders' Equity for the periods indicated herein
have been prepared by the Company without audit. The Consolidated Balance Sheet
at December 31, 1996 is derived from the December 31, 1996 audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. It is assumed that these financial statements will be
read in conjunction with the audited financial statements and notes thereto
included in the Company's 1996 Annual Report on Form 10-K.
In the opinion of management, the financial statements reflect all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company on a consolidated basis and all such
adjustments are of a normal recurring nature. The interim statements for the
period ended June 30, 1997 are not necessarily indicative of results to be
expected for the full year.
Note 2 - Inventories:
(unaudited in millions)
--------------------------------------
June 30, December 31,
1997 1996
-------------- ---------------
Finished goods $ 20.1 $ 16.9
Work in progress 13.7 9.6
Raw materials 6.5 6.8
Supplies 31.1 29.1
-------------- ---------------
$ 71.4 $ 62.4
============== ===============
Inventories stated on the LIFO method were $33.9 million of total
inventories at June 30, 1997 and $26.1 million of total inventories at December
31, 1996 compared with current costs of $42.5 million and $34.7 million,
respectively.
Note 3 - Revolving Credit Facility:
On August 6, 1997, the Company amended its revolving credit facility to
(i) extend the maturity to June 30, 2002, (ii) reduce borrowing rates and letter
of credit fees, (iii) modify certain financial covenants and other provisions,
(iv) delete the limitation on the amount of subordinated debt that the Company
may redeem, and (v) increase the amount of capital stock the Company may
repurchase.
-5-
<PAGE>
The terms of the Company's revolving credit facility permit the
issuance of standby letters of credit up to a maximum of $95 million in lieu of
borrowings. The Company's ownership interest in five cement manufacturing
facilities and the Company's joint venture interest in Kosmos Cement Company are
pledged to secure the facility. At June 30, 1997, there were no borrowings and
$52.1 million in letters of credit outstanding under the revolving credit
facility, leaving $147.9 million of unused capacity.
Note 4 - Capital Stock:
Common Stock
At June 30, 1997, a total of approximately 22,104,000 shares of common
stock were issued and 21,318,000 shares of common stock were outstanding. On
November 22, 1996, the Board of Directors approved a common stock repurchase
program under which the Company is authorized to repurchase up to 1.5 million
shares of the Company's outstanding common stock. As of June 30, 1997,
approximately 786,000 shares of common stock had been purchased in open market
transactions at a cost of $26.3 million.
Preferred Stock Redeemable at Issuer's Option
Series D Preferred Stock - The Company had approximately 1,725,000
shares of preferred stock, $2.875 Cumulative Convertible Series D (Series D
Preferred Stock) outstanding at June 30, 1997, December 31, 1996, and June 30,
1996. The Series D Preferred Stock (i) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (ii) carries a
cumulative annual dividend of $2.875 per share, payable quarterly, (iii) is
convertible at the option of the holder into 1.511 shares of common stock for
each share of Series D Preferred Stock, subject to adjustment, (iv) may be
converted at the same rate 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, the
closing price of the common stock equals or exceeds $43.02 per share and (v) is
redeemable at the option of the Company at $50 per share plus accrued and unpaid
dividends on and after January 27, 2001.
The common stock had traded at levels satisfying the 20 days above
$43.02 requirement for the 30 consecutive trading day period ended August 8,
1997. On August 11, 1997, the Company announced that it had elected to convert
all of the outstanding shares of the Series D Preferred Stock into common stock
of the Company on September 2, 1997 (the Conversion Date). The Company has
mailed notices of this conversion to all record holders of the Series D
Preferred Stock. Notwithstanding the Company's election to convert the Series D
Preferred Stock into common stock, holders of Series D Preferred Stock may
exercise their existing right to convert any or all of their shares into common
stock of the Company at any time prior to 5:00 p.m., New York City time, on the
Conversion Date. After 5:00 p.m., New York City time on the Conversion Date,
however, all outstanding shares of Series D Preferred Stock will be converted
into common stock and will no longer be deemed to be outstanding, dividends on
such shares of Series D Preferred Stock will cease to accrue, the rights of the
holders of the shares of Series D Preferred Stock as such shall cease, and the
certificates representing the Series D Preferred Stock shall represent (i) the
shares of common stock issuable on conversion of the Series D Preferred Stock
represented by such certificates and (ii) the right to receive cash in lieu of
the issuance of fractional shares of common stock. No payment or allowance shall
be made for accrued dividends on any shares of Series D Preferred Stock
converted or surrendered for conversion.
-6-
<PAGE>
The Company has declared a regular quarterly dividend of $.10 per share
of common stock to all holders of record of the common stock on August 15, 1997,
payable on August 29, 1997. Only holders of record of the common stock on August
15, 1997 will receive this dividend. Therefore, shares of Series D Preferred
Stock converted into common stock by the holders after August 15, 1997 or
converted by the Company on September 2, 1997, will not receive the quarterly
common stock dividend payable on August 29, 1997.
The conversion agent for the Series D Preferred Stock will be
ChaseMellon Shareholder Services, L.L.C., Reorganization Department, whose
address for hand or overnight courier deliveries is 120 Broadway, 13th Floor,
New York, New York 10271 (by mail, P.O. Box 3302, South Hackensack, New Jersey
07606). On August 11, 1997, there were 1,724,850 shares of Series D Preferred
Stock outstanding. Dividends paid on the Series D Preferred Stock were
approximately $1.3 million and $2.5 million during the three and six month
periods ended June 30, 1997 and 1996.
Note 5 - Contingencies:
The Company has certain commitments and contingent liabilities incurred
in the ordinary course of business including, among other things, being a named
defendant in lawsuits related to various matters including personal injury,
contractual indemnifications, environmental remediation, product liability and
employment matters. These various commitments and contingent liabilities, in the
judgment of management, will not result in losses which would materially affect
the Company's 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.
See also Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - Known
Events, Trends and Uncertainties" for a discussion of certain contingencies.
Note 6 - New Accounting Pronouncements:
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," (SFAS No. 128) in February 1997. SFAS No. 128, which is
effective for periods ending after December 15, 1997, establishes standards for
computing and presenting earnings per share (EPS). SFAS No. 128 replaces the
presentation of primary EPS previously prescribed by Accounting Principles Board
Opinion No. 15 (APB No. 15) with a presentation of basic EPS which is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. SFAS No. 128 also requires
dual presentation of basic and diluted EPS. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB No. 15. Proforma basic and diluted EPS for the
three and six months ended June 30, 1997 and 1996, assuming that SFAS No. 128
was effective as of the beginning of the year, are presented below.
-7-
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Earnings (loss) per common share:
Basic
Earnings before extraordinary charge $ 1.12 $ 0.95 $ 1.69 $ 1.09
Extraordinary charge, net of income taxes - - - (0.66)
----------- ------------ ----------- ------------
$ 1.12 $ 0.95 $ 1.69 $ 0.43
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Diluted
Earnings before extraordinary charge $ 1.04 $ 0.79 $ 1.59 $ 1.00
Extraordinary charge, net of income taxes - - - (0.48)
----------- ------------ ----------- ------------
$ 1.04 $ 0.79 $ 1.59 $ 0.52
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," (SFAS No.
131). SFAS No. 130 and SFAS No. 131 are effective for periods beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. These two
statements will have no effect on the Company's 1997 financial statements, but
management is currently evaluating what, if any, additional disclosures may be
required when these two statements are adopted in the first quarter of 1998.
Note 7 - Review by Independent Accountants:
The unaudited financial information presented in this report has been
reviewed by the Company's independent public accountants. The review was limited
in scope and did not constitute an audit of the financial information in
accordance with generally accepted auditing standards such as is performed in
the year-end audit of financial statements. The report of Deloitte & Touche LLP
relating to its limited review of the financial information as of June 30, 1997
and for the six month periods ended June 30, 1997 and 1996 follows.
-8-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and
Board of Directors of
Southdown, Inc.
Houston, Texas
We have reviewed the accompanying consolidated balance sheet of
Southdown, Inc. and subsidiary companies as of June 30, 1997, and the related
consolidated statements of earnings and cash flows for the six months ended June
30, 1997 and 1996 and the consolidated statement of shareholders' equity for the
six months ended June 30, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Southdown, Inc. and
subsidiary companies as of December 31, 1996 and the related consolidated
statements of earnings, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated January 22, 1997, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Houston, Texas
July 23, 1997 (August 6, 1997 as to Note 3 and August 11, 1997 as to Note 4)
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations included on pages 18 through 29 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 should be read in conjunction
with the discussion contained herein.
Results of Operations
Consolidated Second Quarter Earnings
Net earnings for the second quarter of 1997 were $25.2 million, $1.04
per share on a fully diluted basis, a 33% increase over the $18.9 million, $0.79
per share for the prior year quarter.
Consolidated revenues in the second quarter of 1997 increased 5% over
the same period of the prior year, primarily because of improved sales prices in
the Cement segment. Second quarter 1997 earnings before interest and income
taxes improved $8.0 million over the same quarter of the prior year, primarily
reflecting record quarterly earnings achieved by the Cement segment in 1997.
Second quarter interest expense for 1997 declined compared with the
prior year quarter, reflecting no borrowings under the Company's revolving
credit facility in the 1997 period and an increase in the capitalization of
interest on the Company's various construction projects. The effective income
tax rate in 1997 increased over the prior year quarter primarily because of the
lessened impact of permanent differences on a higher level of earnings.
Consolidated Year-to-Date Earnings
Net earnings for the six months ended June 30, 1997 were $38.8 million,
$1.59 per share, fully diluted. Net earnings for the prior year period were
$12.3 million, $0.42 per share, fully diluted, including an extraordinary charge
of $11.4 million, $0.63 per share, reflecting prepayment premium and other costs
incurred on the early retirement of $120.2 million of 14% senior subordinated
notes.
An 11% improvement in consolidated revenues resulted from higher sales
prices in both the Cement and Concrete Products segments and improved cement
sales volumes. The year-over-year improvement in operating results includes a
35% increase in Cement segment earnings, an 8% reduction in Corporate overhead
expenses and a 46% reduction in interest expense. Interest expense in 1997
declined compared with the prior year period, reflecting the refinancing of 14%
senior subordinated notes with 10% senior subordinated notes in March 1996 and
lower borrowings on the Company's revolving credit facility. The effective
income tax rate in 1997 increased over the prior year period primarily because
of the lessened impact of permanent differences on higher levels of earnings.
-10-
<PAGE>
Segment Operating Earnings
Cement
Second Quarter - Operating earnings were up 25% compared with the prior
year quarter. The improvement was primarily attributable to a $4.38 per ton
improvement in average cement sales prices over the comparable period in the
prior year. Higher sales prices were the result of price increases implemented
during previous months at all locations, particularly in the southern California
market area, as well as the expiration of a low-priced wholesale supply
agreement at the end of 1996. Sales volumes increased about 1.4%. Despite a 3%
increase in clinker production, per unit Cement segment operating costs
increased slightly, primarily because of a six-week outage at the Victorville,
California plant in conjunction with an ongoing expansion project at that plant.
The expansion project is scheduled for completion by late August 1997. The
Victorville expansion project, together with the completed expansion project at
the Company's Fairborn, Ohio cement manufacturing facility, are expected to
yield an additional 400,000 tons of cement capacity.
Year-to-Date - Operating earnings for the six months ended June 30,
1997 were $72.4 million compared with $53.5 million in the prior year period.
The Cement segment benefitted from an 8% increase in cement sales volumes and a
7% improvement in the average sales price. Higher sales volumes and sales prices
reflected strong demand in almost all market areas. Management believes the
Cement segment will achieve a 3-5% increase in cement sales volumes for the full
year 1997 compared with 1996. Despite an 8% increase in clinker production, unit
cost of sales increased slightly compared with the prior year period, primarily
because of a 93,000 ton increase in outside purchases of higher cost cement.
Sales volumes, average unit price and cost data and unit operating
profit margins relating to the Company's cement plant operations appear in the
following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1997 1996 1997 1996
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Tons of cement sold (thousands) 1,838 1,813 3,288 3,032
========== ============ ========== ============
Weighted average per ton data:
Sales price (net of freight) $ 67.18 $ 62.80 $ 65.88 $ 61.83
Cost of sales (1) 43.36 42.72 44.48 44.10
---------- ------------ ---------- ------------
Margin $ 23.82 $ 20.08 $ 21.40 $ 17.73
========== ============ ========== ============
--------------
(1) Includes fixed and variable manufacturing costs, cost of purchased
cement, selling expenses, plant general and administrative costs,
other plant overhead and miscellaneous costs.
</TABLE>
-11-
<PAGE>
Concrete Products
Second Quarter - Operating earnings decreased $1.3 million or 30% over
the prior year quarter. Primarily because of lower sales volumes in the
ready-mixed concrete and concrete block operations, earnings from the Florida
Concrete Products operation declined by 21%. In California, improved aggregate
sales prices resulted from partial realization of price increases implemented
during the previous twelve months. Despite significantly higher earnings from
the aggregate operation, operating earnings from the California Concrete
Products operations declined by 58%. Operating results were adversely impacted
by higher raw material costs in the ready-mixed concrete business and a 6%
decline in ready-mixed concrete sales volumes.
Year-to-Date - Concrete Products operating earnings decreased by 11% to
$5.6 million for the six months ended June 30, 1997, primarily because the
concrete block operations were adversely impacted by higher aggregate costs and
lower sales volumes resulting from the loss of a large customer. Operating
earnings from the California Concrete Products operations improved over the
prior year period because of higher aggregate earnings. Earnings from the
aggregate operation were favorably impacted by the previously mentioned price
increase. Despite improved ready-mixed concrete sales prices, operating results
from the ready-mixed concrete operation in California declined because of higher
raw material costs.
Sales volumes, unit price and cost data and unit operating margins
relating to the Company's sales of ready-mixed concrete appear in the following
table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Yards of ready-mixed concrete
sold (thousands) 926 974 1,830 1,832
=========== =========== ============ ===========
Weighted average per cubic yard data:
Sales price $ 55.26 $ 53.33 $ 54.59 $ 53.04
Operating costs (1) 54.39 51.05 53.64 51.41
----------- ----------- ------------ -----------
Margin(2) $ 0.87 $ 2.28 $ 0.95 $ 1.63
=========== =========== ============ ===========
--------------
(1) Includes variable and fixed plant costs, delivery, selling,
general and administrative and miscellaneous operating costs.
(2) Does not include aggregate, concrete block and other related
products which totaled $2.1 million and $1.9 million of operating
earnings for the three months periods ended June 30, 1997 and
1996, respectively, and $3.8 million of operating earnings in the
year-to-date 1997 period compared with $3.3 million in the 1996
period.
</TABLE>
-12-
<PAGE>
Corporate
Second Quarter - Corporate overhead expenses for the second quarter of
1997 decreased primarily because income from the short-term investment of excess
cash balances benefitted second quarter 1997 results compared with the prior
year quarter. Included in corporate overhead for the second quarter of 1997 is
interest income of $400,000 compared with interest income of $200,000 in the
prior year quarter.
Year-to-Date - Corporate overhead expenses for the first six months of
1997 were $1.0 million below the prior year period primarily because of an
increase in income from the short-term investment of excess cash balances.
Included in corporate overhead for the first six months of 1997 is interest
income of $1.1 million compared with interest income of $400,000 in the prior
year period.
Liquidity and Capital Resources
The Company produced significant excess cash flows through the first
half of 1997. The Company generated $54.2 million in cash provided by operating
activities for the six months ended June 30, 1997, a 61% increase over the
comparable period in 1996. The Company has used these excess cash flows, plus
existing cash and short-term investment balances, to fund $37.1 million in
capital additions related to several expansion/cost reduction projects in the
Cement segment and to repurchase $20.7 million of the Company's common stock, in
addition to meeting all working capital requirements and paying $6.8 million of
dividends on capital stock. In March 1996, the Company realized approximately
$122 million in net proceeds from the issuance of $125 million of 10% senior
subordinated notes. The net proceeds combined with borrowings under the
Company's revolving credit facility were utilized to repurchase $120.2 million
of 14% senior subordinated notes and to pay the related prepayment premium and
other costs. Internally generated cash flow during the first six months of 1996
were utilized to invest approximately $17.7 million in property, plant and
equipment and pay dividends on capital stock.
On August 6, 1997, the Company amended its revolving credit facility to
(i) extend the maturity to June 30, 2002, (ii) reduce borrowing rates and letter
of credit fees, (iii) modify certain financial covenants and other provisions,
(iv) delete the limitation on the amount of subordinated debt that the Company
may redeem, and (v) increase the amount of capital stock the Company may
repurchase.
The terms of the Company's amended revolving credit facility permit the
issuance of standby letters of credit up to a maximum of $95 million in lieu of
borrowings. The Company's ownership interest in five cement manufacturing
facilities and the Company's joint venture interest in Kosmos Cement Company are
pledged to secure the facility. At June 30, 1997, there were no borrowings and
$52.1 million in letters of credit outstanding under the revolving credit
facility, leaving $147.9 million of unused capacity.
Changes in Financial Condition
The change in the financial condition of the Company between December
31, 1996 and June 30, 1997 reflected the utilization of cash, short-term
investments and internally generated cash flow during the period to fund capital
expenditures, repurchases of common stock, working capital requirements and
capital stock dividends. Accounts and notes receivable increased primarily
because of the additional sales activity occurring in the summer construction
season relative to the winter months. The increase in inventories reflected the
seasonal build-up in cement inventories in preparation for the peak selling
months in the second and third quarters. Prepaid expenses and other decreased
because of payments made by the
-13-
<PAGE>
Voluntary Employee Beneficiary Association to fund employee health care costs.
Accounts payable and accrued liabilities decreased because of the timing of
payments on normal trade and other obligations. Current maturities of long-term
debt increased because of the reclassification of certain industrial development
and pollution control bonds that become due in the first six months of 1998. The
Company is in the process of extending the maturity of two issues totaling $17
million of these industrial development and pollution control bonds, subject to
the approval of the bondholders. Reissuance of the bonds, expected to be
completed in the third quarter of 1997, will extend their maturity for fifteen
years to the year 2013.
Known Events, Trends and Uncertainties
Environmental Matters - The Company is subject to a wide range of
federal, state and local laws, regulations and ordinances pertaining to the
protection of the environment. These laws regulate water discharges and air
emissions, as well as the handling, use and disposal of hazardous and
non-hazardous waste materials and create joint and several liability for the
cost of cleaning up or correcting releases to the environment of designated
hazardous substances which may, as a result, 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 or elsewhere.
Industrial operations have been conducted at the Company's cement
manufacturing facilities for many years. In the past, the Company disposed of
various materials used in its cement manufacturing and concrete products
operations in onsite and offsite facilities. Some of these materials, if
discarded today, might be classified as hazardous substances. Most manufacturing
plants in the industry have typically disposed of cement kiln dust (CKD), a
by-product of the cement manufacturing process, in and around their respective
plant sites since the inception of cement manufacturing operations. 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. The regulatory status of CKD is governed by the so-called
Bevill amendment, enacted 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, was excluded from regulation as hazardous
waste under the Resource Conservation and Recovery Act (RCRA), Subtitle C,
pending completion of a study and recommendations to Congress by the U.S.
Environmental Protection Agency (U.S. EPA). Although the U.S. EPA in a 1995
decision determined further regulation of CKD was necessary, the agency stated
that it (i) found no evidence of risks associated with the use of cement
products and (ii) believes most secondary uses of CKD do not present significant
risks to people or the environment. The U.S. EPA has initiated a rulemaking
process in order to develop specially tailored CKD management standards. This
rulemaking is not expected to require the Company to manage CKD as a RCRA
hazardous waste and the Bevill amendment exemption will remain in effect for CKD
until issuance of the new CKD management standards. It is estimated that the
proposed new standards for CKD will be published in late 1997. A change in the
status of CKD may require the cement industry to develop new methods for
handling this high volume, low toxicity waste.
Several of the Company's previously and currently owned facilities have
become the subject of various local, state or federal environmental proceedings
and inquiries. Included among these environmental matters are being named a
potentially responsible party with regard to Superfund sites, primarily at
locations to which the Company is alleged to have shipped materials for
disposal. The Company has also voluntarily undertaken the remediation of an
inactive CKD site in Ohio and investigation of several other inactive CKD
disposal sites in Ohio and elsewhere around the country. While some of these
matters have been settled, others are in their preliminary stages and final
results may not be
-14-
<PAGE>
determined for years. Based on the information developed to date, the Company
has no reason to believe it will be required to spend significant sums in excess
of the amounts reflected in the Company's reserves. However, until all
environmental studies, investigations, remediation work and negotiations with or
litigation against potential sources of recovery have been completed, it is
impossible to determine the ultimate cost that might be incurred by the Company
to resolve these environmental matters.
Amendments to the Clean Air Act in 1990 provided comprehensive federal
regulation of various sources of air pollution, and established a new federal
operating permit and fee program for virtually all manufacturing operations. The
Clean Air Act Amendments may result in increased capital and operational
expenses for the Company in the future, the amounts of which are not presently
determinable. As mandated by the Clean Air Act, beginning in late 1995, the
Company commenced submitting permit applications and paying annual permit fees
for its cement manufacturing plants. In addition, the U.S. EPA is developing air
toxics regulations for a broad spectrum of industrial sectors, including
portland cement manufacturing. U.S. EPA has indicated that the new maximum
available control technology standards could require significant reduction of
air pollutants below existing levels prevalent in the industry. Management has
no reason to believe, however, that these new standards would place the Company
at a disadvantage with respect to its competitors.
Status of Antidumping Orders - In response to the surge of unfairly
priced imports, groups of U.S. industry participants, including the Company,
filed antidumping petitions in 1989 against imports from Mexico and, in
subsequent years, against imports from certain other countries. Based upon
affirmative final determinations of the International Trade Commission and the
Department of Commerce (DOC), an antidumping order was imposed against Mexican
cement and clinker in 1990 and against Japanese cement and clinker in 1991. In
addition, in February 1992, the DOC suspended antidumping and countervailing
duty investigations of cement and clinker from Venezuela, based upon (i) the
Venezuelan cement producers' agreement to revise their prices to eliminate the
dumping of gray portland cement and clinker from Venezuela into the U.S., and
(ii) the Venezuelan government's agreement not to subsidize the Venezuelan
cement producers.
As a result of these orders, importers must make cash deposits to the
U.S. Customs Service with each entry of cement or clinker from Mexico or Japan
equal to the customs value of the cement times the cash deposit rate applicable
to the exporter. In the case of Japan, imports of cement and clinker have
declined precipitously since the imposition of antidumping duty cash deposits.
Imports from Mexico have continued. The dumping margins and resulting rates of
antidumping duty cash deposits are subject to annual review by the DOC. In
addition, legislation passed by the U.S. Congress in 1994 requires the
initiation of "sunset" reviews of the antidumping orders prior to January 2000
to determine whether these antidumping orders and the Venezuelan suspension
agreement should terminate or remain in effect.
A substantial reduction or elimination of the existing antidumping
duties as a result of the World Trade Organization, North American Free Trade
Agreement, currency devaluation or any other reason, or an influx of low-priced
cement from countries not subject to antidumping orders, could materially
adversely affect the Company's results of operations. The Company, however, is
of the opinion an influx of low-priced cement imports from countries not subject
to antidumping orders is unlikely given the present circumstances in the U.S.
market and the ownership profile of import terminals. U.S. imports of foreign
cement once again increased in the mid-1990's as U.S. cement consumption began
its recovery. During this recent period of strong demand, however, the prices of
cement imports have risen. Unlike the imports during the 1980's, many of the
current imports are playing a supplementary rather than a disruptive role.
-15-
<PAGE>
Claims for Indemnification - The Company has been notified by Energy
Development Corporation (EDC), the 1989 purchaser of the Company's then oil and
gas subsidiary, Pelto Oil Company (Pelto), that EDC was exercising its
indemnification rights under the 1989 stock purchase for Pelto with respect to
preliminary determinations by the Mineral Management Service (MMS) of the
Department of the Interior (DOI) that two separate gas settlement payments made
to Pelto prior to its purchase by EDC were royalty bearing. The Company
disagrees with MMS' preliminary determinations of royalty underpayment. However,
if the determinations as to the payments to Pelto are ultimately upheld, the
Company could have liability for royalties, plus late payment charges. Such
expenditures would result in a charge to discontinued operations.
In a 1996 case in which the Company is not involved, a three judge
panel of the U.S. Circuit Court of Appeals for the D.C. Circuit ruled that the
DOI impermissibly departed from established agency practices in attempting to
collect royalties on a settlement payment and that gas producers cannot be
required to pay royalties on payments in settlement of take-or-pay contracts and
related contract claims. Recently, in a different case, the U.S. Circuit Court
of Appeals for the Sixth Circuit reached a decision which may be contrary and
this 1997 case has been appealed to the United States Supreme Court. Final
resolution of other cases now pending before the MMS at the administrative
hearing level, including that of EDC, may depend upon the final outcome of the
appeal of this 1997 case.
Discontinued Environmental Services Segment - The Company has both
given environmental and other indemnifications to and received environmental and
other indemnifications from others for properties previously owned although a
few courts have held that indemnification for such environmental liabilities is
unenforceable. No estimate of the extent of contamination, remediation cost or
recoverability of cost from prior owners, if any, is presently available
regarding these discontinued operations.
Labor Dispute - Certain drivers at the Company's Transit Mixed Concrete
Company (Transmix) ready-mixed concrete operations in southern California are
represented by Local Union No. 420 (Local No. 420) and certain other Transmix
drivers are represented by Local Union No. 186 (Local No. 186) of the
International Brotherhood of Teamsters. Transmix's collective bargaining
agreement with Local No. 420 expired in April 1997. As of June 30, 1997, the
drivers represented by Local No. 420 were on strike. The Company has implemented
its last offer to Local No. 420 and has hired replacement and other temporary
workers. These replacement workers have been hired at a cost savings in
comparison with the unionized workers and thus should enhance the Company's
competitiveness with certain ready-mixed concrete producers in southern
California. Although management of the Company expects the strike to have a
short-term negative impact on the Concrete Products segment's revenues and
costs, the Company does not believe that the strike should have a material
adverse effect on its consolidated financial statements. The extension to
Transmix's collective bargaining agreement with Local No. 186 expired on July
15, 1997. The Transmix drivers represented by Local No. 186 have continued to
work under the terms of the expired contract while the parties continue
discussions.
Other - The Company has certain other commitments and contingent
liabilities incurred in the ordinary course of business including, among other
things, being a named defendant in lawsuits related to various matters including
personal injury, contractual indemnifications, environmental remediation,
product liability and employment matters. These various commitments and
contingent liabilities, 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
-16-
<PAGE>
their timing and magnitude, have a material adverse impact on the Company's
results of operations in a particular period.
Disclosure Regarding Forward Looking Statements - Part I, Item 2 and
Part II, Item 1 of this document include forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
based on current expectations, estimates and projections about the general
economy and the Company's line of business. Although the Company believes that
the expectations reflected in such forward looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Future performance involves certain assumptions, risks and
uncertainties and is not guaranteed. Important factors that could cause actual
results to differ materially from the Company's expectations, including, among
others, foreign and domestic price competition, cost effectiveness, changes in
environmental regulation and general economic and market conditions such as
interest rates, the availability of capital and the cyclical nature of the
construction industry, are disclosed in conjunction with the forward looking
statements included herein (Cautionary Disclosures). Subsequent written and oral
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Disclosures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company may from time-to-time
be a named defendant in lawsuits related to various matters including, among
others, personal injury, contractual indemnifications, environmental
remediation, product liability and employment matters. Based on the information
developed to date and advice of outside counsel, the Company is of the opinion
the liability related to these lawsuits individually or in the aggregate, if
any, will not materially exceed the amounts accrued on the Company's books as of
June 30, 1997 and will have no material adverse effect on the consolidated
financial position of the Company. 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.
(a) The information appearing under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources - Known Events, Trends and Uncertainties - Environmental Matters"
is incorporated hereunder by reference, pursuant to Rule 12b-23.
(b) The Company owns two inactive CKD disposal sites in Ohio that were formerly
owned by a division of USX Corporation (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) v. Southdown, Inc., 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 attorney's fees, including expert witness fees (GEC
Case). In December 1994, GEC agreed to a separate out-of-court
-17-
<PAGE>
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 was stayed pending the completion of a Phase II investigation in
the USX Case, as discussed below.
In September 1993, the Company filed a complaint against USX
alleging that with respect to the USX Site, USX is a potentially
responsible party under CERCLA and, therefore, jointly and severally
liable for costs associated with cleanup of the USX Site. (Southdown,
Inc. vs. USX Corporation, Case No. C-3-93-354, U.S. District Court,
Southern District of Ohio Western Division) (USX Case). In September
1995, the Company and USX entered into a partial settlement agreement
wherein the Company dismissed its claim for response costs incurred
prior to September 29, 1995 and USX agreed to pay the Company a
specified amount representing half of certain costs already incurred
by the Company at the USX Site. The Company and USX jointly funded the
initial project of a phased approach to investigating and remediating
the problems at the USX Site and have since completed a Phase II
investigation of remedial options. A status conference with the Court
was held on June 13, 1997 to discuss the status of settlement. The
parties met on July 1, 1997 to explore settlement opportunities which
included a settlement of the GEC Case discussed above. GEC has
provided the parties with a settlement offer which is currently being
considered by the Company and USX, respectively. A status conference
with the Court has been scheduled for August 29, 1997 to update the
Court on settlement discussions and the need to set the matter for
trial.
-18-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11 Statement of Computation of Per Share Earnings
15 Independent Accountants' Letter re Unaudited Interim Financial
Information
27 Financial Data Schedule
99.1 Bylaws of the Company amended as of May 15, 1997
99.2 Amendment Number Two to Third Amended and Restated Credit Agreement,
dated as of September 30, 1996, among the Company; Wells Fargo Bank,
N.A.; 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
99.3 Amendment Number Three to the Third Amended and Restated Credit
Agreement, dated as of August 6, 1997, among the Company; Wells Fargo
Bank, N.A.; 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
(b) Reports on Form 8-K
On June 3, 1997, the Company filed a Current Report on Form 8-K
reporting the results of matters submitted to a vote of the
shareholders of the Company at its Annual Meeting on May 15, 1997,
namely the election of three directors to the Company's Board of
Directors, the ratification and approval of the Board of Directors'
amendment of the 1991 Nonqualified Stock Option Plan for Non-Employee
Directors, the approval for federal income tax law purposes of the
Company's Annual Incentive Plan, the approval of the Company's Phantom
Stock and Deferred Compensation Plan for Non-Employee Directors and the
ratification of the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the year ending December 31,
1997.
No other reports on Form 8-K were filed during the quarter ended June
30, 1997.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHDOWN, INC.
--------------------------------
(Registrant)
Date: August 13, 1997 By: JAMES L. PERSKY
---------------------------------
James L. Persky
Executive Vice President-
Finance & Administration
(Principal Financial Officer)
Date: August 13, 1997 By: ALLAN KORSAKOV
---------------------------------
Allan Korsakov
Corporate Controller
(Principal Accounting Officer)
-20-
<PAGE>
Exhibit 11
-----------
<TABLE>
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) for primary earnings per share:
Earnings before extraordinary charge and
preferred stock dividends $ 25.2 $ 18.9 $ 38.8 $ 23.7
Preferred stock dividends (1.3) (2.5) (2.5) (4.9)
----------- ---------- ----------- -----------
Earnings before extraordinary charge 23.9 16.4 36.3 18.8
Extraordinary charge, net of income taxes - - - (11.4)
----------- ---------- ----------- -----------
Net earnings for primary earnings per share $ 23.9 $ 16.4 $ 36.3 $ 7.4
=========== ========== =========== ===========
Earnings (loss) for fully diluted earnings per share:
Earnings before extraordinary charge and
preferred stock dividends $ 25.2 $ 18.9 $ 38.8 $ 23.7
Antidilutive preferred stock dividends - - - (4.9)
----------- ---------- ----------- -----------
Earnings before extraordinary charge 25.2 18.9 38.8 18.8
Extraordinary charge, net of income taxes - - - (11.4)
----------- ---------- ----------- -----------
Net earnings for fully diluted earnings per share $ 25.2 $ 18.9 $ 38.8 $ 7.4
=========== ========== =========== ===========
Average shares outstanding:
Common stock 21.3 17.3 21.4 17.3
Common stock equivalents from assumed exercise of
stock options and warrants 0.4 0.6 0.4 0.5
----------- ---------- ----------- -----------
Total for primary earnings per share 21.7 17.9 21.8 17.8
Other potentially dilutive securities:
- additional common stock equivalent from assumed
conversion of stock options and warrants at ending
market price - 0.1 - 0.1
- assumed conversion of Series A convertible
preferred stock at one-half share of common stock - 1.0 - 1.0
- assumed conversion of Series B convertible
preferred stock at 2.5 shares of common stock - 2.3 - 2.3
- assumed conversion of the Series D convertible
preferred stock at 1.51 shares of common stock 2.6 2.6 2.6 2.6
----------- ---------- ----------- -----------
Total for fully diluted earnings per share 24.3 23.9 24.4 23.8
Less: Antidilutive securities
Series A preferred stock - (1.0)
Series B preferred stock - (2.3)
Series D preferred stock - (2.6)
----------- ---------- ----------- -----------
24.3 23.9 24.4 17.9
=========== ========== =========== ===========
Earnings (loss) per share:
Primary
Earnings before extraordinary charge $ 1.10 $ 0.92 $ 1.66 $ 1.05
Extraordinary charge, net of income taxes - - - -0.63
----------- ---------- ----------- -----------
$ 1.10 $ 0.92 $ 1.66 $ 0.42
=========== ========== =========== ===========
Fully diluted
Earnings before extraordinary charge $ 1.04 $ 0.79 $ 1.59 $ 1.05
Extraordinary charge, net of income taxes - - - -0.63
----------- ---------- ----------- -----------
$ 1.04 $ 0.79 $ 1.59 $ 0.42
=========== ========== =========== ===========
</TABLE>
EXHIBIT 15
August 11, 1997
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Southdown, Inc. and subsidiary companies for the periods ended
June 30, 1997 and 1996, as indicated in our report dated July 23, 1997 (August
6, 1997 as to Note 3 and August 11, 1997 as to Note 4). Because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 is
incorporated by reference in Registration Statement No. 33-23328, Registration
Statement No. 33-35011, Registration Statement No. 33-45144, Registration
Statement No. 33-26529, Registration Statement No. 33-26523, all on Form S-8,
and Registration Statement No. 33-16517 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statements prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Section 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Houston, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet as of June 30, 1997 and the related
statement of consolidated earnings and is qualified in its entirety by reference
to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 41
<SECURITIES> 1
<RECEIVABLES> 91
<ALLOWANCES> 4
<INVENTORY> 71
<CURRENT-ASSETS> 208
<PP&E> 968
<DEPRECIATION> 370
<TOTAL-ASSETS> 934
<CURRENT-LIABILITIES> 99
<BONDS> 148
<COMMON> 28
0
86
<OTHER-SE> 334
<TOTAL-LIABILITY-AND-EQUITY> 934
<SALES> 339
<TOTAL-REVENUES> 339
<CGS> 245
<TOTAL-COSTS> 272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 60
<INCOME-TAX> 21
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.59
</TABLE>
Exhibit 99.1
- AS AMENDED MAY 15, 1997 -
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
<PAGE>
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.
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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
Subject to the provisions of the Restated Articles of Incorporation, as amended,
the number of directors is eleven (11) until the 1997 Annual Meeting of
Shareholders, at which time three members of Class III are to be elected and the
number of directors shall be ten (10).
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.
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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
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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.
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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. The Board
of Directors may remove a director and declare vacant the office of such
director who:
(a) has been interdicted or adjudicated an incompetent,
(b) has become incapacitated by illness or other infirmity so that, in the sole
opinion of the Board of Directors, he is unable to perform his duties for a
period of six months or longer, or
(c) has ceased at any time to have the qualifications required by law, the
Restated Articles of Incorporation or these Bylaws.
The remaining directors may fill any vacancy on the Board of Directors for an
unexpired term (including any vacancy resulting from an increase in the
authorized number of directors, or from the failure of the shareholders to elect
the full number of authorized directors).
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.
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SECTION 15 - QUALIFICATIONS FOR OFFICE
(a) 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. 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's seventieth birthday, at which
meeting the shareholders of the corporation shall elect such director's
successor in accordance with Article I of these bylaws.
(b) To be eligible for nomination or election or to continue to hold office
as a director, a person must during each immediately preceding 12 month period
during his term of office have attended at least two-thirds of the aggregate
number of meetings of the Board of Directors and Committees of which he was a
member, unless the failure to attend resulted from illness or other reason
determined by the Board of Directors to excuse the failure to attend. A director
who ceases to meet this attendance qualification shall continue in office until
the expiration of his then current term or unless his office is declared vacant
by the Board of Directors under the preceding Section 11.
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
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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.
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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
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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.
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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
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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.
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(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:
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(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.
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Exhibit 99.2
AMENDMENT NUMBER TWO TO THIRD
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT NUMBER TWO TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of September 30, 1996, is entered into among SOUTHDOWN, INC., a
Louisiana corporation ("Borrower"), 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
permit the repurchase of Borrower Common Stock using proceeds from the exercise
of warrants pursuant to the terms of the Warrant Agreement and to make certain
other amendments; 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" has the meaning set forth in the introduction to this Amendment.
"AMENDMENT" means and refers to this Amendment Number Two to Third Amended
and Restated Credit Agreement among Borrower, Banks parties hereto, and Agent.
"BANK" and "BANKS" have the respective meanings set forth in the
introduction to this Amendment.
"BORROWER" has the meaning set forth in the introduction to this Amendment.
"CREDIT AGREEMENT" means and refers to that certain Third Amended and
Restated Credit Agreement, dated as of November 3, 1995, among Borrower, Banks,
and Agent, as amended.
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1.2 AMENDMENT OF SECTION 1.1 OF THE CREDIT AGREEMENT. Section 1.1 of the
Credit Agreement hereby is amended by (a) adding the defined terms "Warrant
Agreement" and "Warrant Exercise Proceeds," as follows, and (b) deleting the
defined term "Permitted Junior Payments" in its entirety and by substituting
therefor the following defined term:
"PERMITTED JUNIOR PAYMENTS" means and refers to, so long as at each time
thereof, no Event of Default or Unmatured Event of Default has occurred and is
continuing and no such Event of Default or Unmatured Event of Default would
result therefrom, (a) the redemption, payment, repurchase, retirement for value,
or acquisition, in one or more transactions, in an aggregate amount (excluding
any consideration paid in the form of Borrower Common Stock) of up to the Junior
Payment Amount of (i) principal amount of the Senior Subordinated Notes, (ii)
Preferred Stock, (iii) Borrower Common Stock, or (iv) any combination of the
foregoing; PROVIDED, HOWEVER, that the redemption, payment, repurchase,
retirement for value, or acquisition of Borrower Common Stock shall constitute a
Permitted Junior Payment only (y) if, after giving effect to such proposed
redemption, payment, repurchase, retirement for value, or acquisition,
Borrower's Leverage Ratio (which will be calculated by utilizing the Funded Debt
extant as of the date of such redemption, payment, repurchase, retirement for
value, or acquisition after giving effect to the incurrence of any Funded Debt
incurred in connection with such transaction and by utilizing the Consolidated
EBITDA for the four (4) immediately preceding fiscal quarters) would be less
than or equal to 2.00:1.00; PROVIDED, HOWEVER, that Borrower may exclude from
the requirements of this CLAUSE (Y) any redemption, payment, repurchase,
retirement for value, or acquisition of Borrower Common Stock in an aggregate
amount not to exceed the amount of the Warrant Exercise Proceeds, and (z) up to
an aggregate amount equal to the sum of (i) Twenty Five Million Dollars
($25,000,000) and (ii) the Warrant Exercise Proceeds, (b) the incurrence of the
Exchange Subordinated Debt pursuant to SECTION 6.1(C), and (c) the conversion of
any Permitted Preferred Stock into, or the redemption or acquisition of any
Permitted Preferred Stock for, Borrower Common Stock and payments of immaterial
amounts in lieu of fractional shares in connection with any such conversion or
redemption; PROVIDED, HOWEVER, that if no Event of Default or Unmatured Event of
Default had occurred and was continuing on the date that Borrower gives notice
of redemption or otherwise commences any action preliminary to making a
Permitted Junior Payment, Borrower shall be entitled to make such Permitted
Junior Payment notwithstanding the occurrence or continuation of an Event of
Default or Unmatured Event of Default (other than an Event of Default or
Unmatured Event of Default under SECTION 7.1(A) hereof) as of the date such
Permitted Junior Payment is to be made.
"WARRANT AGREEMENT" means that certain Warrant Agreement, dated as of
October 31, 1991, originally between Borrower and First City, Texas-Houston,
N.A., as Warrant Agent.
"WARRANT EXERCISE PROCEEDS" means, in respect of the exercise of up to an
aggregate of 1,250,000 warrants (whether on, before, or after the date hereof)
<PAGE>
pursuant to the Warrant Agreement, the amount of the cash proceeds received
by Borrower in connection therewith.
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 a Secretary or
Assistant Secretary of Borrower attesting to the resolutions of Borrower's board
of directors authorizing the execution and delivery of this Amendment;
2.1.2 the Agent shall have received an executed counterpart of this
Amendment duly executed and delivered by Borrower and each of the Majority
Banks; and
2.1.3 the Agent shall have received a certificate from a Responsible
Officer certifying that:
(i) the representations and warranties of Borrower contained in the Credit
Agreement and the Loan Documents, to the extent that it 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.
ARTICLE 3
MISCELLANEOUS
3.1 EXECUTION IN COUNTERPARTS. 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
<PAGE>
of an executed counterpart of the signature pages of this Amendment by
telecopier shall be equally effective as delivery of a manually executed
counterpart. Any party delivering an executed counterpart 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.
3.2 EFFECTIVENESS. 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.
3.3 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 hereby is incorporated in the Credit
Agreement.
3.4 GOVERNING LAW. This Amendment shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.
[Remainder of page intentionally left blank.]
<PAGE>
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:______________________
<PAGE>
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 99.3
AMENDMENT NUMBER THREE TO THIRD
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT NUMBER THREE TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of August 6, 1997, is entered into among SOUTHDOWN, INC., a Louisiana
corporation ("Borrower"), the banks and financial institutions that are
signatories to the Credit Agreement (as defined below) (collectively, the
"Banks", and individually, a "Bank"), and WELLS FARGO BANK, N.A., a national
banking association, as agent for the Banks hereunder ("Agent").
WHEREAS, Borrower, the Banks, and Agent heretofore have entered into that
certain Third Amended and Restated Credit Agreement, dated as of November 3,
1995, as amended by (a) that certain Letter Agreement, dated as of February 29,
1996, and (b) that certain Amendment Number Two to Third Amended and Restated
Credit Agreement, dated as of September 30, 1996 (as amended, the "Credit
Agreement");
WHEREAS, Borrower has requested, among other things, that the Credit
Agreement be amended to (a) extend the Maturity Date of and modify the interest
rates applicable to the Loans, (b) modify the definitions of Permitted Junior
Payments and Permitted Acquisitions, (c) modify certain covenants relating to
Investments, (d) modify certain financial covenants, and (e) permit Borrower and
its Subsidiaries to enter into a merger pertaining to a Permitted Acquisition so
long as Borrower or such Subsidiary is the surviving entity; and
WHEREAS, subject to the terms and conditions contained herein, the Banks
are willing to so 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 THIRD 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 Third Amendment only, the following initially capitalized terms shall
have the following meanings:
"AGENT" has the meaning set forth in the introduction to this Third
Amendment.
"BANK" and "BANKS" have the respective meanings set forth in the
introduction to this Third Amendment.
<PAGE>
"BORROWER" has the meaning set forth in the introduction to this Third
Amendment.
"CREDIT AGREEMENT" has the meaning set forth in the introduction to this
Third Amendment.
ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT
2.1 Section 1.1 of the Credit Agreement hereby is amended by adding the
following defined terms in alphabetical order:
"DISQUALIFIED STOCK" means any Capital Stock of any Person which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event or with the passage of
time, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the maturity date of the
Securities (as defined in the Indenture), or which is exchangeable or
convertible into debt securities of such Person, except to the extent that such
exchange or conversion rights cannot be exercised prior to the maturity date of
the Securities (as defined in the Indenture).
"INDENTURE" means that certain Indenture, dated as of March 19, 1996,
between Borrower and State Street Bank and Trust Company, a Massachusetts trust
company, as trustee.
"PERMITTED PAYMENT MEASUREMENT PERIOD" means the period from and after
April 1, 1996 through and including the date on which a Permitted Junior Payment
actually is made.
"THIRD AMENDMENT" means Amendment Number Three to Third Amended and
Restated Credit Agreement, dated as of August 6, 1997, among Borrower, the Banks
party thereto, and Agent.
"THIRD AMENDMENT CLOSING DATE" means the date on which the conditions
precedent set forth in ARTICLE 3 of the Third Amendment shall have been
satisfied.
2.2 Section 1.1 of the Credit Agreement hereby is amended by deleting in
their entirety the following defined terms: "Keepwell Agreement," "MARAD,"
"MARAD Reserve," "Warrant Agreement," and "Warrant Exercise Proceeds."
2.3 The definition of "Applicable Base Rate Margin" set forth in Section
1.1 of the Credit Agreement hereby is amended in its entirety to read as
follows:
<PAGE>
"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 2.50:1.00 0.25 percentage points
less than 2.50:1.00 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 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).
2.4 The definition of "Applicable Commitment Fee Percentage" set forth in
Section 1.1 of the Credit Agreement hereby is amended in its entirety 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 2.50:1.00 0.375 percentage points
less than 2.50:1.00,
but greater than or
equal to 1.75:1.00 0.30 percentage points
less than 1.75:1.00,
but greater than or
equal to 1.00:1.00 0.25 percentage points
less than 1.00:1.00 0.22 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 quarter then
ended. The applicable percentage shall be redetermined quarterly on the
date Agent receives quarterly financial statements pursuant to SECTION
5.2(A) hereof
<PAGE>
(or, in the case of the fourth fiscal quarter in each fiscal year, a
certification by the chief financial officer or treasurer of Borrower).
2.5 The definition of "Applicable LIBOR Rate Margin" set forth in Section
1.1 of the Credit Agreement hereby is amended in its entirety to read as
follows:
"APPLICABLE LIBOR RATE MARGIN" means and refers to,
LEVERAGE RATIO APPLICABLE LIBOR RATE MARGIN
greater than or equal
to 2.50:1.00 1.50 percentage points
less than 2.50:1.00,
but greater than or
equal to 1.75:1.00 1.00 percentage points
less than 1.75:1.00,
but greater than or
equal to 1.00:1.00 0.75 percentage points
less than 1.00:1.00 0.50 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). Anything to the contrary contained herein
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.
2.6 The definition of "Free Cash Flow Ratio" set forth in Section 1.1 of
the Credit Agreement hereby is amended in its entirety to read as follows:
"FREE CASH FLOW RATIO" means and refers to, for the period to be
determined, the ratio of (a) Consolidated EBITDA MINUS the lesser of (i) Twenty
Five Million Dollars ($25,000,000) and (ii) actual Capital Expenditures
calculated based upon the immediately preceding four (4) fiscal quarters, to (b)
the sum of cash Interest Expense,
<PAGE>
current provision for income taxes, dividends, and the current portion of
Funded Debt as of the last day of such period (exclusive of Debt under this
Agreement, the Subordinated Debt (to the extent that it is redeemed,
repurchased, exchanged, or refinanced), and the Debt evidenced by the Pollution
Control Bonds). For purposes of calculating the Free Cash Flow Ratio, Capital
Expenditures shall be calculated exclusive of Capital Expenditures incurred or
expended in connection with the consummation of a Permitted Acquisition to the
extent that Borrower consummates such Permitted Acquisition with the Net
Issuance Proceeds of Qualified Offerings that were raised for the express
purpose of consummating such Permitted Acquisition. In order to take advantage
of such exclusion, Borrower shall be required to designate the calculation
thereof to Agent in connection with the delivery of the Officer's Compliance
Certificate pursuant to SECTION 5.2(F).
2.7 The definition of "Junior Payment Amount" set forth in Section 1.1 of
the Credit Agreement hereby is amended in its entirety to read as follows:
"JUNIOR PAYMENT AMOUNT" means and refers to the result of: (a) the sum of
(i) fifty percent (50%) of Consolidated Net Income (or in the event such
Consolidated Net Income shall be a deficit, MINUS one hundred percent (100%) of
such deficit) during the Permitted Payment Measurement Period, PLUS (ii) the Net
Issuance Proceeds of Qualified Offerings received during the Permitted Payment
Measurement Period, PLUS (iii) the amount by which the Debt of Borrower is
reduced on Borrower's balance sheet upon the conversion or exchange (other than
by a Subsidiary) of any Debt of Borrower into or for Capital Stock (other than
Disqualified Stock) of Borrower, during the Permitted Payment Measurement
Period, PLUS (iv) Thirty Million Dollars ($30,000,000); MINUS (b) an amount
equal to the aggregate Dollar amount of dividends (other than dividends paid in
the form of Borrower Common Stock) in respect of Borrower Common Stock and
Preferred Stock paid or accrued during the Permitted Payment Measurement Period.
2.8 The definition of "Maturity Date" set forth in Section 1.1 of the
Credit Agreement hereby is amended in its entirety to read as follows:
"MATURITY DATE" means and refers to June 30, 2002.
2.9 The definition of "Permitted Acquisitions" set forth in Section 1.1 of
the Credit Agreement hereby is amended in its entirety to read as follows:
"PERMITTED ACQUISITIONS" means and refers to Investments or Asset
Acquisitions that (a) are in an aggregate amount (in addition to Borrower's
Investments in KCC permitted under SECTIONS 6.3(J) AND (M) hereof) during the
term of this Agreement of not more than twenty percent (20%) of the book value
of all of Borrower's tangible Assets (exclusive of Borrower's interest in KCC)
at the time of such Investment or Asset Acquisition, (b) are in Persons, or of
Assets, that are engaged in, or useful in connection with, businesses that are
substantially the same as those conducted by
<PAGE>
Borrower and its Subsidiaries on the Closing Date, (c) if the consideration paid
or payable for any such Investment or Asset Acquisition, or series of related
transactions, is in excess of One Hundred Million Dollars ($100,000,000), result
in (or continue) Borrower owning not less than fifty percent (50%) of the Voting
Stock (or membership interests or partnership interests in the case of a limited
liability company or limited liability partnership, respectively) of the Person
in which the Investment is made or the Person that is to acquire the Assets and
with respect to which Borrower also has the right, whether by contract, vote, or
otherwise to exercise substantial input in the management and control of the
business of such Person; (d) are not made utilizing Assets that compose the
Collateral, and (e) are not made utilizing Assets that compose the Brooksville
Plant. For purposes of the foregoing, a contribution of Dollars or Assets by
Borrower to a newly created Subsidiary of Borrower for the purpose of permitting
such Subsidiary to complete an Investment or Asset Acquisition shall not itself
constitute an Investment to the extent such Dollars or Assets are, in fact, used
to complete the proposed Investment or Asset Acquisition.
2.10 The definition of "Permitted Junior Payments" set forth in Section 1.1
of the Credit Agreement hereby is amended in its entirety to read as follows:
"PERMITTED JUNIOR PAYMENTS" means and refers to, so long as at each time
thereof, no Event of Default or Unmatured Event of Default has occurred and is
continuing and no such Event of Default or Unmatured Event of Default would
result therefrom, (a) the redemption, payment, repurchase, retirement for value,
or acquisition, in one or more transactions, in an aggregate amount (excluding
any consideration paid in the form of Borrower Common Stock) of up to the Junior
Payment Amount of (i) Preferred Stock, (ii) Borrower Common Stock, or (iii) any
combination of the foregoing, and (b) the conversion of any Permitted Preferred
Stock into, or the redemption or acquisition of any Permitted Preferred Stock
for, Borrower Common Stock and payments of immaterial amounts in lieu of
fractional shares in connection with any such conversion or redemption;
PROVIDED, HOWEVER, that if no Event of Default or Unmatured Event of Default had
occurred and was continuing on the date that Borrower gives notice of redemption
or otherwise commences any action preliminary to making a Permitted Junior
Payment, Borrower shall be entitled to make such Permitted Junior Payment
notwithstanding the occurrence or continuation of an Event of Default or
Unmatured Event of Default (other than an Event of Default or Unmatured Event of
Default under SECTION 7.1(A) hereof) as of the date such Permitted Junior
Payment is to be made.
2.11 The definition of "Qualified Offerings" set forth in Section 1.1 of
the Credit Agreement hereby is amended in its entirety to read as follows:
"QUALIFIED OFFERINGS" means and refers to all offerings (whether one or
more) by Borrower, on or after November 3, 1995, of equity securities other than
Prohibited Preferred Stock, including, without limitation, the issuance of
equity securities pursuant to warrants.
<PAGE>
2.12 The definition of "Revolving Credit Facility Usage" set forth in
Section 1.1 of the Credit Agreement hereby is amended in its entirety to read as
follows:
"REVOLVING CREDIT FACILITY USAGE" shall mean, on the date any determination
thereof is to be made, the sum of, without duplication: (a) the outstanding
amount of the Revolving Credit Facility Loans; PLUS (b) the Letter of Credit
Usage; PLUS (c) any amounts reserved under SECTION 6.1(D).
2.13 Section 2.1(c) of the Credit Agreement hereby is deleted in its
entirety.
2.14 Clause (b) of Section 2.8 of the Credit Agreement hereby is amended by
deleting the following parenthetical:
(except a Borrowing pursuant to SECTION 2.1(C) which shall be made upon
the written notice provided for therein but shall be subject to the
timing requirement set forth in CLAUSE (I) and SUBSECTION (C) below)
2.15 Clause (d) of Section 5.9 of the Credit Agreement hereby is amended in
its entirety to read as follows:
(D) REPORTING. Borrower promptly shall advise Agent and each Bank in
writing and in reasonable detail of any administrative or judicial
proceeding subject to disclosure under 17 C.F.R.
ss.229.103(5)(C)(1995) that reasonably could be expected to have a
Material Adverse Effect.
2.16 Article 5 of the Credit Agreement hereby is amended by adding the
following Section 5.14:
5.14 AMENDMENT OF REAL PROPERTY COLLATERAL DOCUMENTS. On or before the
date that is sixty (60) days following the Third Amendment
Closing Date, Borrower shall execute and deliver to Agent (a)
such amendments, if any, to the Real Property Collateral
Documents, in form and substance reasonably satisfactory to Agent
and its counsel, as Agent has concluded are necessary as a result
of the Third Amendment to continue the grant to Agent, on behalf
of the Banks, of a Lien upon the Collateral, and (b) an
endorsement to the title policy insuring the same in regards to
the Third Amendment if Agent has concluded that amendments are
necessary pursuant to CLAUSE (A) of this SECTION 5.14.
2.17 Section 6.3 of the Credit Agreement hereby is amended in its entirety
to read as follows:
6.3 INVESTMENTS. Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly make or own any
Investment in any Person, except:
<PAGE>
(a) Borrower and each of its Subsidiaries may make and own
Investments in Cash Equivalents;
(b) Borrower and each of its Subsidiaries may maintain any Investment
extant on the date hereof in any of Borrower's Subsidiaries or in
any other Person as such Investments are set forth in the
Disclosure Statement;
(c) Borrower and its Subsidiaries may make and own loans and
otherwise create Debt as permitted under SECTIONS 6.1(L) and
6.1(I) hereof;
(d) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing and so long as no Event of Default or
Unmatured Event of Default would result therefrom, Borrower and
its Subsidiaries may make and own Investments not otherwise
permitted under this SECTION 6.3 to the extent that such
Investments constitute Permitted Acquisitions;
(e) Borrower and its Subsidiaries may make and own loans or advances
to any of their officers or employees;
(f) Borrower and each of its Subsidiaries may make and own
Investments in any debt or equity instrument (i) that matures
within three hundred ninety (390) days of the date of acquisition
of the Investment and is issued by a Person that on the date of
acquisition of the Investment has a commercial paper rating of
P-1 by Moody's or A-1 by S&P, or better, or such instrument is
irrevocably guaranteed or backed by an irrevocable letter of
credit from the date of acquisition of the Investment through
maturity by a Person having on the date of acquisition of the
Investment a long-term debt rating of no less than Aa by Moody's
or AA by S&P, or (ii) that matures within thirty (30) days of the
date of the Investment and is issued by a Person that on the date
of acquisition of the Investment has a commercial paper rating of
no less than P-2 by Moody's or A-2 by S&P, or such instrument is
irrevocably guaranteed or backed by an irrevocable letter of
credit from the date of acquisition of the Investment through
maturity by a Person having on the date of acquisition of the
Investment a long-term debt rating of no less than A by Moody's
or A by S&P, or (iii) that matures within five hundred forty
(540) days of the date of acquisition of the Investment and is
issued by a Person that on the date of acquisition of the
Investment has a commercial paper rating of P-1 by Moody's or A-1
by S&P, or better, or such instrument is irrevocably guaranteed
or backed by an irrevocable letter of credit from the date of
acquisition of the Investment through maturity by a Person having
on the date of acquisition of the Investment a long-term debt
rating of no less than Aa by Moody's or AA by S&P; PROVIDED,
HOWEVER, that the maximum amount of all such Investments under
this CLAUSE (III) shall not exceed Twenty Five Million Dollars
($25,000,000) in the aggregate outstanding at any one time, or
(iv) with respect to Moore McCormack Insurance Bermuda, Ltd.,
only, which is consistent with past practices and in an aggregate
amount not in excess of that required for collateral security and
capitalization purposes for the conduct of its business;
<PAGE>
(g) Investments in respect of accounts receivable that have become
delinquent, including the acceptance of securities of the account
debtor obtained by Borrower or its Subsidiaries in connection
with a plan of reorganization or workout of the indebtedness of
such account debtor, together with the making of additional
Investments in such account debtors so long as the maximum amount
of additional Investments made in any one such account debtor
under this CLAUSE (G) does not exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) and so long as the maximum amount
of all such additional Investments in such account debtors under
this CLAUSE (G) does not exceed Twenty Five Million Dollars
($25,000,000) in the aggregate;
(h) Borrower may annually make and own loans, advances, or capital
contributions to The Southdown Employee Benefit Trust in an
amount actuarially determined as the amount necessary to provide
for the satisfaction of Borrower's and its Subsidiaries'
estimated health benefit claims;
(i) Borrower may make and own loans to Moore-McCormack Transport,
Inc., or its Affiliates, not otherwise permitted under this
SECTION 6.3 in an aggregate amount not to exceed Three Million
Dollars ($3,000,000) outstanding at any one time;
(j) Borrower may make and own loans to KCC not otherwise permitted
under this SECTION 6.3 in an aggregate amount not to exceed Ten
Million Dollars ($10,000,000) outstanding at any one time;
(k) Borrower and each of its Subsidiaries may make and own
Investments in investment funds that make Investments as
described in CLAUSES (I), (II), AND (III) of CLAUSE (F) above;
(l) Borrower and each of its Subsidiaries may make and own
Investments in respect of state or federal government obligations
so long as any such Investment matures within three hundred
ninety (390) days of the date of acquisition of the Investment
and, in the case of state government obligations, is issued by a
Person that on the date of acquisition of the Investment has a
rating of A-1 by Moody's or A by S&P, or better, or such
instrument is irrevocably guaranteed or backed by an irrevocable
letter of credit from the date of acquisition of the Investment
through maturity by a Person having on the date of acquisition of
the Investment a long term debt rating of no less than Aa by
Moody's or AA by S&P; and
(m) Borrower may make Investments in an aggregate amount not to
exceed Thirty Five Million Dollars ($35,000,000) to acquire the
remaining twenty-five percent (25%) partnership interest in KCC.
2.18 Clause (a) of Section 6.6 of the Credit Agreement hereby is amended in
its entirety to read as follows:
<PAGE>
(A) LEVERAGE RATIO. Borrower shall not permit, on the final day of
any fiscal quarter ending on or after the Third Amendment Closing
Date, its Leverage Ratio, calculated based upon the four (4)
immediately preceding fiscal quarters, including the quarter then
ended, to be greater than the correlative ratios indicated below:
PERIOD RATIO
Third Amendment Closing Date
through March 31, 1999 3.00:1.00
June 30, 1999 through
December 31, 2001 2.75:1.00
March 31, 2002 through
the Maturity Date 2.50:1.00
2.19 Clause (b) of Section 6.6 of the Credit Agreement hereby is amended in
its entirety to read as follows:
(B) CONSOLIDATED TANGIBLE NET WORTH. Borrower shall not permit, as of
the Third Amendment Closing Date, its Consolidated Tangible Net
Worth to be less than Three Hundred Million Dollars
($300,000,000). Thereafter, as of the last date of each fiscal
quarter of Borrower beginning with Borrower's fiscal quarter
ended September 30, 1997, Borrower's minimum Consolidated
Tangible Net Worth requirement shall be the amount applicable to
Borrower's immediately preceding fiscal quarter (or in the case
of such determination on September 30, 1997, Three Hundred
Million Dollars ($300,000,000)) (i) increased, as of the last day
of each of its second and fourth fiscal quarters, by an amount
equal to (y) one hundred percent (100%) of Consolidated Net
Income (solely to the extent that, for any six-month period, such
number is a positive number) for such fiscal quarter and the
immediately preceding fiscal quarter), MINUS (z) the aggregate
Dollar amount of dividends paid or accrued (without duplication
of an accrual taken in any fiscal quarter prior to the
immediately preceding fiscal quarter) by Borrower on account of
its Capital Stock during such fiscal quarter or the immediately
preceding fiscal quarter; and (ii) decreased, as of the last day
of each of its fiscal quarters, by an amount equal to the
aggregate Dollar amount of Permitted Junior Payments paid or
accrued (without duplication of an accrual taken in a prior
fiscal quarter) by Borrower on account of its Capital Stock
during such fiscal quarter.
2.20 Clause (d) of Section 6.6 of the Credit Agreement hereby is amended in
its entirety to read as follows:
(D) FREE CASH FLOW RATIO. Borrower shall not permit, on the final day
of any fiscal quarter ending on or after the Third Amendment
Closing Date, its Free Cash
<PAGE>
Flow Ratio, calculated based upon the four (4) immediately
preceding fiscal quarters, including the quarter then ended,
to be less than 1.15:1.00.
2.21 Clause (f) of Section 6.7 of the Credit Agreement hereby is amended in
its entirety to read as follows:
(f) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing and so long as no Event of Default or
Unmatured Event of Default would result therefrom, (i) Borrower
and its Subsidiaries may make and own Permitted Acquisitions and
(ii) any Permitted Acquisition may be merged or consolidated with
or into Borrower or any of its Subsidiaries so long as Borrower
or any such Subsidiary is the surviving entity of such merger or
consolidation.
2.22 Section 6.19 of the Credit Agreement hereby is amended in its entirety
to read as follows:
6.19 SUBORDINATED DEBT, PREFERRED STOCK, AND BORROWER COMMON STOCK.
Borrower shall not, and shall not cause or permit any of its
Subsidiaries to:
(a) pay, prepay, or set aside funds for the payment or prepayment of
the principal of any Subordinated Debt if an Event of Default or
Unmatured Event of Default has occurred and is continuing or if
an Event of Default or Unmatured Event of Default would result
therefrom; PROVIDED, HOWEVER, that if no Event of Default or
Unmatured Event of Default had occurred and was continuing on the
date that Borrower gives notice of such payment or prepayment, or
otherwise commences any action preliminary to making a such
payment or prepayment, Borrower shall be entitled to make such
payment or prepayment notwithstanding the occurrence or
continuation of an Event of Default or Unmatured Event of Default
(other than an Event of Default or Unmatured Event of Default
under SECTIONS 7.1(A), (C), (D), (G), (H), (I), AND (J) hereof)
as of the date such payment or prepayment is to be made;
(b) pay any amount with respect to any Subordinated Debt in violation
of the terms of the subordination provisions thereof;
(c) redeem, repurchase, or otherwise retire for value any
Subordinated Debt if an Event of Default or Unmatured Event of
Default has occurred and is continuing or if an Event of Default
or Unmatured Event of Default would result therefrom; PROVIDED,
HOWEVER, that if no Event of Default or Unmatured Event of
Default had occurred and was continuing on the date that Borrower
gives notice of redemption or otherwise commences any action
preliminary to redeeming, repurchasing, or otherwise retiring for
value any Subordinated Debt, Borrower shall be entitled to make
such redemption, repurchase, or retirement notwithstanding the
occurrence or continuation of an Event of Default or Unmatured
Event of Default (other than an Event of Default or Unmatured
Event of Default under SECTIONS 7.1(A),
<PAGE>
(C), (D), (G), (H), (I), AND (J) hereof) as of the date such redemption,
repurchase, or retirement is to be made; and
(d) other than Permitted Junior Payments, redeem, repurchase, or
otherwise retire for value, or set aside funds for the
redemption, repurchase, or other retirement for value of any of
its Preferred Stock or the Borrower Common Stock.
ARTICLE 3
CONDITIONS PRECEDENT
CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS THIRD AMENDMENT. The
effectiveness of this Third Amendment is subject to the fulfillment, to the
satisfaction of Agent, of each of the following conditions:
3.1 the Agent shall have received a certificate from a Secretary or
Assistant Secretary of Borrower attesting to the resolutions of Borrower's board
of directors authorizing the execution and delivery of this Third Amendment;
3.2 the Agent shall have received counterparts of this Third Amendment duly
executed and delivered by Borrower and each of the Banks;
3.3 the Agent shall have received a certificate from a Responsible Officer
certifying that:
(a) the representations and warranties of Borrower contained in the
Credit Agreement and the Loan Documents, to the extent that it is
a party thereto, are true and correct in all material respects at
and as of the date of the effectiveness of this Third 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);
(b) neither an Event of Default nor an Unmatured Event of Default has
occurred and is continuing on the date of the effectiveness of
this Third Amendment;
(c) on the date of the effectiveness of this Third Amendment, no
Material Adverse Change has occurred, as a result of one or more
acts or occurrences; and
(d) the Credit Agreement and each of the Loan Documents are in full
force and effect; and
3.4 the Agent shall have received any fees due and owing by Borrower.
<PAGE>
ARTICLE 4
MISCELLANEOUS
4.1 EXECUTION IN COUNTERPARTS. This Third 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 Third Amendment by telecopier shall be equally effective as delivery of a
manually executed counterpart. Any party delivering an executed counterpart of
the signature pages of this Third 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 Third Amendment.
4.2 EFFECTIVENESS. This Third Amendment shall be effective as of the date
hereof, subject to the fulfillment of the conditions set forth in ARTICLE 3 of
this Third Amendment.
4.3 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 Third Amendment conflict with those of the Credit
Agreement, the terms and provisions of this Third Amendment shall control. This
Third Amendment shall be deemed a part of and hereby is incorporated in the
Credit Agreement.
4.4 GOVERNING LAW. This Third Amendment shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third 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 FIRST BOSTON
(FORMERLY KNOWN AS CREDIT SUISSE)
By____________________________
Title:______________________
By____________________________
Title:______________________
CAISSE NATIONALE DE CREDIT
AGRICOLE
By____________________________
Title:______________________
<PAGE>
BANQUE PARIBAS
By____________________________
Title:______________________
By____________________________
Title:______________________
CIBC INC.
By____________________________
Title:______________________
THE BANK OF NOVA SCOTIA
By____________________________
Title:______________________
BANKBOSTON, N.A.
By____________________________
Title:______________________
