==============================================================================
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 SEPTEMBER 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 September 30, 1997 there were 23.8 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
September 30, 1997 and December 31, 1996 1
Statement of Consolidated Earnings
Three and nine months ended September 30, 1997 and 1996 2
Statement of Consolidated Cash Flows
Nine months ended September 30, 1997 and 1996 3
Statement of Consolidated Revenues and Operating Earnings
by Business Segment
Three and nine months ended September 30, 1997 and 1996 4
Statement of Shareholders' Equity
Nine months ended September 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 18
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
(IN MILLIONS)
-----------------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66.5 $ 45.4
Short-term investments 3.0 11.8
Accounts and notes receivable, less allowance for doubtful
accounts of $4.3 and $7.4 93.4 77.3
Inventories (Note 2) 62.2 62.4
Prepaid expenses and other 8.3 13.1
--------------- ---------------
Total current assets 233.4 210.0
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $374.0 and $354.2 604.3 588.8
Goodwill 73.3 75.4
Other long-term assets 52.1 57.8
--------------- ---------------
$ 963.1 $ 932.0
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 26.7 $ 1.2
Accounts payable and accrued liabilities 88.8 89.0
--------------- ---------------
Total current liabilities 115.5 90.2
Long-term debt (Note 3) 137.9 164.4
Deferred income taxes 128.0 120.3
Minority interest in consolidated joint venture 28.5 28.0
Long-term portion of postretirement benefit obligation 68.5 71.7
Other long-term liabilities and deferred credits 16.4 18.1
--------------- ---------------
494.8 492.7
--------------- ---------------
Shareholders' equity:
Preferred stock redeemable at issuer's option (Note 4) - 86.3
Common stock, $1.25 par value 30.9 27.4
Capital in excess of par value 296.3 213.3
Reinvested earnings 176.3 117.9
Treasury stock, at cost (35.2) (5.6)
--------------- ---------------
468.3 439.3
--------------- ---------------
$ 963.1 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 199.2 $ 189.3 $ 537.8 $ 494.9
------------ ------------ ------------ ------------
Costs and expenses:
Operating 123.9 122.0 347.1 332.5
Depreciation, depletion and amortization 11.3 10.6 34.6 30.8
Selling and marketing 4.3 4.1 12.6 12.0
General and administrative 9.5 7.7 28.0 26.1
Other income, net (5.1) (3.8) (8.5) (4.2)
------------ ------------ ------------ ------------
143.9 140.6 413.8 397.2
Minority interest in earnings of consolidated joint venture 2.8 2.7 5.3 4.7
------------ ------------ ------------ ------------
146.7 143.3 419.1 401.9
------------ ------------ ------------ ------------
Earnings before interest, income taxes
and extraordinary charge 52.5 46.0 118.7 93.0
Interest, net of amounts capitalized (3.8) (4.6) (9.9) (15.8)
------------ ------------ ------------ ------------
Earnings before income taxes and extraordinary charge 48.7 41.4 108.8 77.2
Income tax expense (16.2) (14.0) (37.5) (26.1)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 32.5 27.4 71.3 51.1
Extraordinary charge, net of income taxes - - - (11.4)
------------ ------------ ------------ ------------
Net earnings $ 32.5 $ 27.4 $ 71.3 $ 39.7
============ ============ ============ ============
Dividends on preferred stock (Note 4) - $ (2.4) $ (2.5) $ (7.3)
============ ============ ============ ============
Earnings (loss) per common share:
Primary
Earnings before extraordinary charge $ 1.42 $ 1.39 $ 3.10 $ 2.44
Extraordinary charge, net of income taxes - - - (0.63)
------------ ------------ ------------ ------------
$ 1.42 $ 1.39 $ 3.10 $ 1.81
============ ============ ============ ============
Fully diluted
Earnings before extraordinary charge $ 1.34 $ 1.15 $ 2.92 $ 2.14
Extraordinary charge, net of income taxes - - - (0.48)
------------ ------------ ------------ ------------
$ 1.34 $ 1.15 $ 2.92 $ 1.66
============ ============ ============ ============
Average shares outstanding:
Primary 22.9 17.9 22.2 17.9
============ ============ ============ ============
Fully diluted 24.3 23.9 24.4 23.8
============ ============ ============ ============
</TABLE>
-2-
<PAGE>
<TABLE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<CAPTION>
(IN MILLIONS)
------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Operating activities:
Earnings before extraordinary charge $ 71.3 $ 51.1
Adjustments to reconcile earnings before extraordinary charge
to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization 34.6 30.8
Deferred income tax expense 9.5 6.8
Amortization of debt issuance costs 0.6 2.2
Changes in operating assets and liabilities (8.6) 8.1
Other adjustments 3.0 2.4
Net cash used in discontinued operations (0.9) (0.9)
------------- -------------
Net cash provided by operating activities 109.5 100.5
------------- -------------
Investing activities:
Additions to property, plant and equipment (54.5) (32.0)
Proceeds from asset sales 4.7 4.6
Purchase of short-term investments (3.0) -
Maturity of short-term investments 11.8 -
Acquisitions, net of cash acquired - (6.2)
Other (1.4) (0.5)
------------- -------------
Net cash used in investing activities (42.4) (34.1)
------------- -------------
Financing activities:
Additions to long-term debt - 125.0
Reductions in long-term debt (1.0) (132.3)
Purchase of treasury stock (29.6) -
Dividends (10.4) (13.4)
Distributions to minority interest (4.8) (6.0)
Securities issuance costs (0.2) (4.6)
Premium on early extinguishment of debt - (11.6)
Exercise of warrants to purchase common stock - 6.4
------------- -------------
Net cash used in financing activities (46.0) (36.5)
------------- -------------
Net increase in cash and cash equivalents 21.1 29.9
Cash and cash equivalents at beginning of period 45.4 7.7
------------- -------------
Cash and cash equivalents at end of period $ 66.5 $ 37.6
============= =============
Cash payments for income taxes totaled $14.1 million and $3.4 million in the
first nine months of 1997 and 1996, respectively. Interest paid, net of amounts
capitalized, was $12.6 million and $16.3 million in the first nine 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contributions to revenues:
Cement $ 148.1 $ 140.4 $ 390.8 $ 350.9
Concrete products 65.4 62.0 188.1 180.9
Intersegment sales (14.3) (13.1) (41.1) (36.9)
------------ ------------ ------------ ------------
$ 199.2 $ 189.3 $ 537.8 $ 494.9
============ ============ ============ ============
Contributions to earnings before interest,
income taxes and extraordinary charge:
Operating profit
Cement $ 52.4 $ 44.3 $ 124.8 $ 97.8
Concrete products 6.0 4.7 11.6 11.0
------------ ------------ ------------ ------------
58.4 49.0 136.4 108.8
Corporate overhead (5.9) (3.0) (17.7) (15.8)
------------ ------------ ------------ ------------
$ 52.5 $ 46.0 $ 118.7 $ 93.0
============ ============ ============ ============
</TABLE>
<TABLE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
(IN MILLIONS)
------------------------------------------------------------------------------------
CAPITAL
PREFERRED STOCK COMMON STOCK IN EXCESS REINVESTED TREASURY STOCK
OF
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT
-------- --------- -------- --------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1.7 $ 86.3 21.9 $ 27.4 $ 213.3 $ 117.9 (0.2) $ (5.6)
Net earnings - - - - - 71.3 - -
Dividends on preferred stock - - - - - (2.5) - -
Dividends paid on common stock - - - - - (6.6) - -
Purchase of treasury stock - - - - - - (0.7) (29.6)
Conversion of Series D Preferred
Stock into common stock (1.7) (86.3) 2.6 3.3 83.0 - - -
Exercise of stock options - - 0.2 0.2 - (3.8) - -
-------- --------- -------- --------- --------- ---------- -------- ---------
Balance at September 30, 1997 - - 24.7 $ 30.9 $ 296.3 $ 176.3 (0.9) $ (35.2)
======== ========= ======== ========= ========= ========== ======== =========
</TABLE>
-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 September 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 September 30, 1997 are not necessarily indicative of results to be
expected for the full year.
NOTE 2 - INVENTORIES:
(UNAUDITED IN MILLIONS)
---------------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- ----------------
Finished goods $ 13.5 $ 16.9
Work in progress 11.2 9.6
Raw materials 6.4 6.8
Supplies 31.1 29.1
--------------- ----------------
$ 62.2 $ 62.4
=============== ================
Inventories stated on the LIFO method were $26.1 million of total
inventories at September 30, 1997 and $26.1 million of total inventories at
December 31, 1996 compared with current costs of $34.7 million and $34.7
million, respectively.
NOTE 3 - REVOLVING CREDIT FACILITY:
On August 6, 1997, the Company amended its $200 million 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 September 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 September 30, 1997, a total of approximately 24,729,000 shares of
common stock were issued and approximately 23,759,000 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 September
30, 1997, 969,500 shares of common stock had been purchased in open market
transactions at a cost of $35.2 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 December 31, 1996 and September 30, 1996.
Dividends paid on the Series D Preferred Stock were approximately $2.5 million
during the nine months ended September 30, 1997. Dividends on the Series D
Preferred Stock were approximately $1.2 million and $3.7 million, respectively,
during the three and nine month periods ended September 30, 1996.
In the third quarter of 1997, all of the outstanding shares of the
Series D Preferred Stock were converted into approximately 2.6 million shares of
common stock. Had this conversion taken place at the beginning of 1997, primary
earnings per share would have been reduced by $0.08 and $0.18, respectively, for
the three and nine months ended September 30, 1997.
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 involving 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.
-6-
<PAGE>
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 nine months ended September 30, 1997 and 1996, assuming that SFAS No.
128 was effective as of the beginning of the year, are presented below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Earnings (loss) per common share:
Basic
Earnings before extraordinary charge $ 1.44 $ 1.43 $ 3.15 $ 2.52
Extraordinary charge, net of income taxes - - - (0.65)
----------- ------------ ----------- ------------
$ 1.44 $ 1.43 $ 3.15 $ 1.87
=========== ============ =========== ============
Diluted
Earnings before extraordinary charge $ 1.34 $ 1.15 $ 2.92 $ 2.15
Extraordinary charge, net of income taxes - - - (0.48)
----------- ------------ ----------- ------------
$ 1.34 $ 1.15 $ 2.92 $ 1.67
=========== ============ =========== ============
</TABLE>
Had the conversion of all of the outstanding shares of the Series D
Preferred Stock into approximately 2.6 million shares of common stock discussed
in Note 4 of Notes to Consolidated Financial Statements occurred at the
beginning of 1997, pro forma basic EPS above would have been reduced by $0.08
and $0.28, respectively, for the three and nine months ended September 30, 1997.
Pro forma diluted EPS for these two periods would not have changed.
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.
-7-
<PAGE>
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 September 30,
1997 and for the nine month periods ended September 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 September 30, 1997, and the
related consolidated statements of earnings and cash flows for the nine months
ended September 30, 1997 and 1996 and the consolidated statement of
shareholders' equity for the nine months ended September 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
October 22, 1997
-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 THIRD QUARTER EARNINGS
Net earnings for the third quarter of 1997 were $32.5 million, $1.34
per share on a fully diluted basis, a 19% increase over the $27.4 million, $1.15
per share for the prior year quarter.
Consolidated revenues in the third quarter of 1997 increased 5% over
the same period of the prior year, primarily because of improved sales prices in
the Cement segment. Third quarter 1997 earnings before interest and income taxes
improved $6.5 million over the same quarter of the prior year, primarily
reflecting record quarterly earnings achieved by the Cement segment in 1997.
Third 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 lower debt issuance costs amortization.
CONSOLIDATED YEAR-TO-DATE EARNINGS
Net earnings for the nine months ended September 30, 1997 were $71.3
million, $2.92 per share, fully diluted. Net earnings for the prior year period
were $39.7 million, $1.66 per share, fully diluted, including an extraordinary
charge of $11.4 million, $0.48 per share, reflecting prepayment premium and
other costs incurred on the early retirement of 14% senior subordinated notes.
A 9% 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
28% increase in Cement segment earnings, an 5% increase in Concrete Products
earnings and a 37% 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
no 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
THIRD QUARTER - Operating earnings were up 18% compared with the prior
year quarter. The period-to-period improvement in the segment was primarily
attributable to a weighted average $5.28 per ton improvement in 1997 cement
sales prices over the comparable period in the prior year. The higher sales
price was the result of price increases implemented during previous months at
all locations, particularly in the southern California market area, as well as
the expiration at the end of 1996 of a low-priced wholesale supply agreement.
Sales volumes decreased slightly for the third quarter of 1997 compared with the
1996 quarter. The volume decrease for the quarter is primarily attributable to
constrained shipments from the Victorville, California plant during the July and
August, 1997 modernization shutdown of one of the Victorville plant kilns to
expand production capacity. The prior year quarter also included significant
shipments under the final year of the wholesale supply agreement. Per unit
Cement segment operating costs increased slightly in the 1997 period because of
regular maintenance costs incurred during the voluntary shutdown at the
Victorville plant. The adverse impact of the shutdown at the Victorville plant
on cement operations for the 1997 quarter was also mitigated by the favorable
impact of several non-recurring gains.
YEAR-TO-DATE - Operating earnings for the nine months ended September
30, 1997 were $124.8 million compared with $97.8 million in the prior year
period. The Cement segment benefitted from a 4% increase in cement sales volumes
and a 7% improvement in the average sales price. Higher sales volumes and sales
prices reflected strong demand in most market areas. Management believes the
Cement segment will achieve an approximately 3% increase in cement sales volumes
for the full year 1997 compared with 1996. Despite a 6% increase in clinker
production, unit cost of sales increased slightly compared with the prior year
period, primarily because of a 105,000 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tons of cement sold (thousands) 1,927 1,971 5,215 5,003
========== ========== ========== ==========
Weighted average per ton data:
Sales price (net of freight) $ 68.27 $ 62.99 $ 66.75 $ 62.28
Cost of sales (1) 41.40 40.75 43.33 42.78
---------- ---------- ---------- ----------
Margin $ 26.87 $ 22.24 $ 23.42 $ 19.50
========== ========== ========== ==========
- --------------
(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
THIRD QUARTER - Operating earnings for the Concrete Products segment
increased $1.3 million in the 1997 period compared with the prior year quarter.
Although a 4% improvement was achieved in Florida ready-mixed concrete sales
prices, third quarter 1997 operating results were adversely impacted by higher
raw material costs and lower earnings from concrete block and other related
products. Earnings from the California Concrete Products operation increased
because of significantly higher earnings from the aggregate operation which was
favorably impacted both by higher sales prices and a 9% improvement in sales
volumes. Operating results from the California ready-mixed concrete operation
were adversely impacted by higher raw material and strike-related costs. Also
included in third quarter 1997 operating earnings for Concrete Products were
gains aggregating $2.0 million on sales of surplus real estate, while the prior
year quarter included gains of approximately $1.5 million from sales of surplus
real estate.
YEAR-TO-DATE - Earnings from the Concrete Products segment were
essentially flat for the two nine-month periods. Earnings from the Florida
Concrete operation declined by 10% in 1997 primarily because of lower earnings
from the concrete block operations. Block operations were adversely impacted by
higher purchases of concrete block from other producers and lower sales volumes
resulting primarily from the loss of a large customer. Earnings from the
California Concrete Products operations in 1997 improved over the prior year
quarter because of higher aggregate earnings. Earnings from the aggregate
operation were favorably impacted by the previously mentioned price increase and
higher sales volumes. Despite improved ready-mixed concrete sales prices,
operating results from the ready-mixed concrete operation in California declined
because of higher raw material and strike-related costs. Also included in the
Concrete Products segment year-to-date results are the asset sale gains of $2.6
million and $2.5 million for 1997 and 1996, respectively, including the above
mentioned third quarter real estate sales.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cubic yards of ready-mixed concrete
sold (thousands) 953 947 2,783 2,779
=========== ========== =========== ==========
Weighted average per cubic yard data:
Sales price (net of freight) $ 55.25 $ 53.21 $ 54.82 $ 53.10
Operating costs (1) (2) 54.03 51.62 53.77 51.48
----------- ---------- ----------- ----------
Margin (3) $ 1.22 $ 1.59 $ 1.05 $ 1.62
=========== ========== =========== ==========
- --------------
(1) Includes variable and fixed plant costs, delivery, selling, general and
administrative and miscellaneous operating costs.
(2) Excludes a $2.0 million and $1.5 million gain, respectively, from the
sale of surplus real estate for the three and nine month periods ended
September 30, 1997 and 1996.
(3) Does not include aggregate, concrete block and other related products
which totaled $2.7 million and $1.6 million of operating earnings for the
three months periods ended September 30, 1997 and 1996, respectively, and
$6.5 million of operating earnings in the year-to-date 1997 period
compared with $5.0 million in the 1996 period.
</TABLE>
-12-
<PAGE>
CORPORATE
THIRD QUARTER - Corporate overhead expenses for the third quarter of
1997 exceeded those in the third quarter of 1996, primarily because the prior
year period included $1.8 million in non-recurring gains and the current year
quarter included higher accruals with respect to the Company's performance based
bonus plan. Included in corporate overhead is interest income in the third
quarter of 1997 of $600,000 compared with $200,000 in the prior year quarter.
YEAR-TO-DATE - Corporate overhead expenses for the first nine months of
1997 exceeded the prior year period by $1.9 million, primarily for the same
reasons discussed above. Also included in corporate overhead for the first nine
months of 1997 is interest income of $1.7 million compared with interest income
of $600,000 in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $109.5 million in cash provided by operating
activities for the nine months ended September 30, 1997, a 9% increase over the
comparable period in 1996. The Company has used these 1997 operating cash flows,
plus existing cash and short-term investment balances, to fund $54.5 million in
capital additions related to several expansion/cost reduction projects in the
Cement segment and to repurchase $29.6 million of the Company's common stock, in
addition to meeting all working capital requirements and paying $10.4 million of
dividends on capital stock. Internally generated cash flow during the first nine
months of 1996 were utilized to (i) invest approximately $32 million in
property, plant and equipment, (ii) acquire a cement distribution terminal in
Phoenix, Arizona, (iii) reduce borrowings outstanding under the revolving credit
facility, and (iv) pay 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.
On August 6, 1997, the Company amended its $200 million 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. At September 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.
In the third quarter of 1997, all of the outstanding shares of the
Company's Series D Preferred Stock were converted into approximately 2.6 million
shares of common stock. Conversion of the Series D Preferred Stock into common
stock has improved the Company's annual cash flow by the difference between
preferred and common stock dividends of approximately $3.9 million per year.
-13-
<PAGE>
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December
31, 1996 and September 30, 1997 reflected the utilization of 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. Prepaid expenses and other decreased
because of payments made by the Voluntary Employee Beneficiary Association to
fund employee health care costs. 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 nine months of 1998. The Company is
in the process of extending the maturity of $25 million of these industrial
development and pollution control bonds, subject to approval of the bondholders.
Reissuance of the bonds, expected to be completed in the fourth 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. These laws also 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 early 1998. A change in the
status of CKD may require the cement industry to develop new methods for
handling this high volume, low toxicity waste.
-14-
<PAGE>
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 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,
-15-
<PAGE>
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.
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 employees 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
employees 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. After extensions to the
agreement, the Company implemented its "best, last and final" offer on June 30,
1997. The employees represented by Local No. 420 went on strike, however, as of
September 30, 1997, all had returned to work or the Company had hired
replacement workers. The extension to Transmix's collective bargaining agreement
with Local No. 186 expired on July 15, 1997, but the employees represented by
Local No. 186 continued to work without an agreement. The Company implemented a
portion of its "best, last and final" offer during the third quarter of 1997 and
the remainder shortly thereafter. The Transmix employees represented by Local
No. 186 have continued to work under these revised terms.
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 involving
personal injury, contractual indemnifications, environmental remediation,
product
-16-
<PAGE>
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 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
September 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 previously owned 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
-17-
<PAGE>
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 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 December 1994, GEC agreed to a separate
out-of-court settlement which included a cash payment by the Company to
GEC and a covenant by the Company not to store, burn or dispose of
hazardous wastes at the Ohio cement plant. As a result of the
settlement, the GEC Case was stayed pending the completion of a Phase
II investigation in the USX Case.
On September 30, 1997, the Company sold the property that is the
subject of these lawsuits to independent third parties. The property
was sold "as is, where is" and the Company assumed no obligations to
remediate the property. Because of the transaction, the Company is
negotiating a stipulated dismissal of this lawsuit with USX
Corporation. Also, since the Company no longer owns this property, the
Company believes it should have no ongoing obligation under the Clean
Water Act to obtain a permit for the alleged discharge from the
property, which is the sole allegation in the GEC Case. The Court has
ordered the parties to attend a settlement conference with the Court. A
date for this conference has not been established as of this writing.
The Company intends to move the Court for a dismissal of the GEC Case
based on the recent transaction.
(c) In the matter of Jack Blair, et al. vs. Ideal Basic Industries, Inc.,
United Cement, Lime, Gypsum and Allied Workers International Union, and
Dixie Cement Company (Chancery Court of Knox County, Tennessee, No.
03A1-CH-00029), the plaintiffs were fifteen former employees of Ideal Basic
Industries, Inc. (Ideal), and the defendants were Ideal, Dixie Cement
Company (Dixie) (a subsidiary of Moore McCormack Resources, Inc., which was
acquired by the Company in 1988), and the United Cement, Lime, Gypsum and
Allied Workers International Union (Union). The Union and Plaintiffs
reached a separate settlement agreement in early 1996 and Plaintiffs' claim
against the Union has been dismissed. In September 1997, the Company and
Plaintiffs reached a final settlement agreement and the Plaintiff's claim
against Ideal and Dixie have been dismissed.
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
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
-18-
<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: , 1997 By: JAMES L. PERSKY
-------------- -------------------------------
James L. Persky
Executive Vice President-
Finance & Administration
(Principal Financial Officer)
Date: , 1997 By: ALLAN KORSAKOV
--------------- ------------------------------
Allan Korsakov
Corporate Controller
(Principal Accounting Officer)
-19-
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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 $ 32.5 $ 27.4 $ 71.3 $ 51.1
Preferred stock dividends - (2.4) (2.5) (7.3)
------------ ----------- ---------- -----------
Earnings before extraordinary charge 32.5 25.0 68.8 43.8
Extraordinary charge, net of income taxes - - - (11.4)
------------ ----------- ---------- -----------
Net earnings for primary earnings per share $ 32.5 $ 25.0 $ 68.8 $ 32.4
====+======= =========== ========== ===========
Earnings (loss) for fully diluted earnings per share:
Earnings before extraordinary charge $ 32.5 $ 27.4 $ 71.3 $ 51.1
Extraordinary charge, net of income taxes - - - (11.4)
------------ ----------- ---------- -----------
Net earnings for fully diluted earnings per share $ 32.5 $ 27.4 $ 71.3 $ 39.7
============ =========== ========== ===========
Average shares outstanding:
Common stock 22.6 17.4 21.8 17.3
Common stock equivalents from assumed exercise of
stock options and warrants 0.4 0.5 0.4 0.6
------------ ----------- ---------- -----------
Total for primary earnings per share 23.0 17.9 22.2 17.9
Other potentially dilutive securities:
- additional common stock equivalent from assumed
conversion of stock options and warrants at ending
market price - 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 1.3 2.6 2.2 2.6
------------ ----------- ---------- -----------
Total for fully diluted earnings per share 24.3 23.9 24.4 23.8
============ =========== ========== ===========
Earnings (loss) per share:
Primary
Earnings before extraordinary charge $ 1.42 $ 1.39 $ 3.10 $ 2.44
Extraordinary charge, net of income taxes - - - (0.63)
------------ ----------- ---------- -----------
$ 1.42 $ 1.39 $ 3.10 $ 1.81
============ =========== ========== ===========
Fully diluted
Earnings before extraordinary charge $ 1.34 $ 1.15 $ 2.92 $ 2.14
Extraordinary charge, net of income taxes - - - (0.48)
------------ ----------- ---------- -----------
$ 1.34 $ 1.15 $ 2.92 $ 1.66
============ =========== ========== ===========
</TABLE>
EXHIBIT 15
October 22, 1997
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002
We have made a review, in accordance with the 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 September 30, 1997 and 1996, as indicated in our report dated
October 22, 1997. 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 September 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 1993, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet as of September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 67
<SECURITIES> 3
<RECEIVABLES> 98
<ALLOWANCES> 4
<INVENTORY> 62
<CURRENT-ASSETS> 233
<PP&E> 978
<DEPRECIATION> 374
<TOTAL-ASSETS> 963
<CURRENT-LIABILITIES> 116
<BONDS> 138
<COMMON> 31
0
0
<OTHER-SE> 437
<TOTAL-LIABILITY-AND-EQUITY> 963
<SALES> 538
<TOTAL-REVENUES> 538
<CGS> 379
<TOTAL-COSTS> 419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 109
<INCOME-TAX> 38
<INCOME-CONTINUING> 71
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> 3.10
<EPS-DILUTED> 2.92
</TABLE>
