<PAGE> 1
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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 MARCH 31, 1998
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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1200 SMITH STREET
SUITE 2400
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 April 30, 1998 there were 23.6 million common shares outstanding.
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<PAGE> 2
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
---
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet
March 31, 1998 and December 31, 1997 1
Statement of Consolidated Earnings
Three months ended March 31, 1998 and 1997 2
Statement of Consolidated Cash Flows
Three months ended March 31, 1998 and 1997 3
Statement of Consolidated Revenues and Operating Earnings
by Business Segment
Three months ended March 31, 1998 and 1997 4
Statement of Shareholders' Equity
Three months ended March 31, 1998 4
Notes to Consolidated Financial Statements 5
Independent Accountants' Review Report 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79.7 $ 85.1
Short-term investments 7.8 4.0
Accounts and notes receivable, less allowance for doubtful
accounts of $3.9 and $3.9 81.5 75.7
Inventories (Note 4) 75.8 64.2
Prepaid expenses and other 9.2 11.7
------------ ------------
Total current assets 254.0 240.7
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $382.7 and $372.4 609.8 608.7
Goodwill 69.9 70.6
Other long-term assets 55.5 54.2
------------ ------------
$ 989.2 $ 974.2
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1.4 $ 1.5
Accounts payable and accrued liabilities 82.5 81.2
------------ ------------
Total current liabilities 83.9 82.7
Long-term debt 162.9 162.9
Deferred income taxes 133.1 132.1
Minority interest in consolidated joint venture 28.0 27.7
Long-term portion of postretirement benefit obligation 66.8 67.7
Other long-term liabilities and deferred credits 17.4 16.9
------------ ------------
492.1 490.0
------------ ------------
Shareholders' equity:
Common stock, $1.25 par value (Note 5) 30.9 30.9
Capital in excess of par value 300.5 300.4
Reinvested earnings 212.0 199.2
Treasury stock, at cost (46.3) (46.3)
------------ ------------
497.1 484.2
------------ ------------
$ 989.2 $ 974.2
============ ============
</TABLE>
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<PAGE> 4
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
------------------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 155.8 $ 151.4
------------ ------------
Costs and expenses:
Operating 101.6 104.0
Depreciation, depletion and amortization 12.2 11.6
Selling and marketing 4.6 4.1
General and administrative 9.6 8.7
Other income, net (2.1) (1.6)
------------ ------------
125.9 126.8
------------ ------------
Earnings before interest, income taxes and minority interest 29.9 24.6
Interest, net of amounts capitalized (3.8) (3.2)
------------ ------------
Earnings before income taxes and minority interest 26.1 21.4
Income tax expense (9.3) (7.5)
------------ ------------
Earnings before minority interest 16.8 13.9
Minority interest, net of income taxes (0.3) (0.3)
------------ ------------
Net earnings $ 16.5 $ 13.6
============ ============
Dividends on preferred stock $ -- $ (1.2)
============ ============
Earnings attributable to common stock $ 16.5 $ 12.4
============ ============
Earnings per common share:
Basic $ 0.70 $ 0.57
============ ============
Diluted $ 0.69 $ 0.55
============ ============
Average shares outstanding:
Basic 23.6 21.5
============ ============
Diluted 24.0 24.5
============ ============
</TABLE>
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<PAGE> 5
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 16.5 $ 13.6
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 12.2 11.6
Deferred income tax expense 1.0 1.7
Amortization of debt issuance costs 0.2 0.2
Changes in operating assets and liabilities (13.3) (21.1)
Net cash used in discontinued operations (0.2) (0.2)
------------ ------------
Net cash provided by operating activities 16.4 5.8
------------ ------------
Investing activities:
Additions to property, plant and equipment (13.7) (13.5)
Purchase of short-term investments (3.9) --
Maturity of short-term investments 0.1 2.9
Proceeds from asset sales -- 0.8
Other investing activities (0.3) 0.1
------------ ------------
Net cash used in investing activities (17.8) (9.7)
------------ ------------
Financing activities:
Reductions in long-term debt (0.1) (0.9)
Dividends (2.4) (3.4)
Distributions to minority interest (0.3) (0.5)
Purchase of treasury stock -- (13.7)
Other financing activities (1.2) (0.6)
------------ ------------
Net cash used in financing activities (4.0) (19.1)
------------ ------------
Net decrease in cash and cash equivalents (5.4) (23.0)
Cash and cash equivalents at beginning of period 85.1 45.4
------------ ------------
Cash and cash equivalents at end of period $ 79.7 $ 22.4
============ ============
</TABLE>
Cash payments for income taxes totaled $400,000 and $200,000 in the first
quarters of 1998 and 1997, respectively. Interest paid, net of amounts
capitalized, was $6.7 million and $6.2 million in 1998 and 1997, respectively.
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<PAGE> 6
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF SELECTED CONSOLIDATED SEGMENT DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Contributions to revenues:
Cement
Sales to customers $ 103.0 $ 96.4
Freight to customers 5.6 6.1
Other products 2.0 1.4
------------ ------------
Total cement revenues 110.6 103.9
Concrete products 57.2 60.1
Intersegment sales (12.0) (12.6)
------------ ------------
$ 155.8 $ 151.4
============ ============
Contributions to earnings before interest,
income taxes and minority interest:
Operating profit
Cement (1) $ 32.7 $ 27.5
Concrete products 2.7 2.5
------------ ------------
35.4 30.0
Corporate overhead (5.5) (5.4)
------------ ------------
$ 29.9 $ 24.6
============ ============
</TABLE>
- --------------
(1) Minority interest in earnings of consolidated joint venture is presented as
a separate line item, net of tax, rather than a component of the cement segment.
There have been no material changes in total assets by segment as disclosed in
the December 31, 1997 financial statements.
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------------------------------------
COMMON STOCK CAPITAL
------------------------- IN EXCESS OF REINVESTED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 23.6 $ 30.9 $ 300.4 $ 199.2 $ (46.3)
Net earnings -- -- -- 16.5 --
Dividends paid on common stock -- -- -- (2.4) --
Exercise of stock options -- -- -- (1.3) --
Other -- -- 0.1 -- --
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 23.6 $ 30.9 $ 300.5 $ 212.0 $ (46.3)
========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 7
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 March 31, 1998 and the Statements of Consolidated
Earnings, Consolidated Cash Flows, and Shareholders' Equity for the periods
indicated herein have been prepared by the Company without audit. The
Consolidated Balance Sheet at December 31, 1997 is derived from the December 31,
1997 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 1997 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 March 31, 1998 are not necessarily indicative of results to be
expected for the full year. Certain data from the prior year have been
reclassified for purposes of comparison.
NOTE 2 - ACQUISITION OF MEDUSA CORPORATION:
On March 17, 1998, the Company and Medusa Corporation ("Medusa")
entered into a definitive agreement pursuant to which Medusa will merge with a
wholly-owned subsidiary of the Company in a stock-for-stock transaction. Under
the terms of the agreement, which was approved by the boards of directors of
both companies, Medusa shareholders will receive .88 shares of Company common
stock for each Medusa share of common stock. The transaction will be tax-free to
shareholders and is intended to be accounted for by the Company as a pooling of
interests.
Medusa produces and sells portland and masonry cements, mines,
processes, and sells aggregates, home and garden and industrial limestone
products, and provides construction services for highway safety. Medusa's
operations are principally in the eastern half of the United States.
On April 20, 1998, the Company announced that the Federal Trade
Commission granted a request for early termination of the waiting period of the
premerger notification rules with respect to the merger transaction. Completion
of the transaction is subject to required approvals by shareholders of both
companies, registration of the shares of the Company's stock issuable in the
transaction under the securities laws, and other customary closing conditions.
This transaction is expected to close by mid-summer.
NOTE 3 - NEW ACCOUNTING STANDARDS:
Effective January 1, 1998, the Company adopted two new Statement of
Financial Accounting Standards: 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
establishes standards for reporting and displaying comprehensive income and its
components.
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<PAGE> 8
There are no items that the Company is required to recognize as components of
comprehensive income. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in interim and
annual financial statements. The Company's reporting of information about its
operating segments was essentially in conformity with SFAS No. 131 prior to the
adoption of this new standard. These two new statements have had no effect on
the Company's consolidated results of operations, financial position, cash flows
or financial statement disclosures.
NOTE 4 - EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS 128, which
simplifies the standards for computing and presenting earnings per share, became
effective for periods ending after December 15, 1997. Accordingly, earnings per
share as previously reported have been restated to conform to the new standard.
Earnings used to compute basic per share earnings in the three months ended
March 31, 1997 were net of preferred stock dividends of approximately $1.2
million. There is no preferred stock outstanding in 1998. Basic earnings per
share were computed using the average number of common shares outstanding in
each of the three month periods ending March 31, 1998 and 1997. Diluted earnings
for 1998 and 1997 assume the dilutive impact of stock options and, for 1997, the
conversion of all outstanding shares of preferred stock into common stock.
NOTE 5 - INVENTORIES:
<TABLE>
<CAPTION>
(UNAUDITED, IN MILLIONS)
-----------------------------
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Finished goods $ 18.9 $ 17.0
Work in progress 18.7 9.2
Raw materials 6.3 7.0
Supplies 31.9 31.0
------------ ------------
$ 75.8 $ 64.2
============ ============
</TABLE>
Inventories stated on the LIFO method were $36.4 million of total
inventories at March 31, 1998 and $25.7 million of total inventories at December
31, 1997 compared with current costs of $47.1 million and $36.4 million,
respectively.
NOTE 6 - CAPITAL STOCK:
COMMON STOCK
At March 31, 1998, a total of approximately 24,785,000 shares of common
stock were issued and approximately 23,619,000 shares of common stock were
outstanding. On November 22, 1996, the Board of Directors approved a common
stock repurchase program under which the Company was authorized to repurchase up
to 1.5 million shares of the Company's outstanding common stock. On March 17,
1998, this common stock repurchase program was cancelled by the Board of
Directors of the Company. Through December 31, 1997, 1,166,000 shares of common
stock had been purchased in open market transactions at a cost of $46.3 million.
No shares have been purchased in 1998.
-6-
<PAGE> 9
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 March 31, 1997. Dividends paid on the Series D
Preferred Stock were approximately $1.2 million during the three-month period
ended March 31, 1997. All of the Series D Preferred Stock was converted into
common stock during the third quarter of 1997.
NOTE 7 - 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 or cash flows 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 8 - 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 March 31, 1998
and for the three months then ended follows.
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<PAGE> 10
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 March 31, 1998, and the related
consolidated statements of earnings and cash flows for the three months ended
March 31, 1998 and 1997 and the consolidated statement of shareholders' equity
for the three months ended March 31, 1998. 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, 1997 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 27, 1998, 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, 1997 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
April 16, 1998
-8-
<PAGE> 11
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 17 through 27 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 should be read in conjunction
with the discussion contained herein.
RESULTS OF OPERATIONS
CONSOLIDATED FIRST QUARTER EARNINGS
Net earnings for the first quarter of 1998 were $16.5 million, $0.69
per share on a diluted basis, a 21% increase over the $13.6 million, $0.55 per
share for the prior year quarter.
Consolidated revenues in the first quarter of 1998 increased 3% over
the same period of the prior year, primarily because of improved sales prices in
the Cement segment. First quarter 1998 earnings before interest, income taxes
and minority interest improved $5.3 million over the same quarter of the prior
year, primarily reflecting improved earnings achieved by the Cement segment in
1998.
Although interest incurred was approximately level with the prior year
period, first quarter interest expense for 1998 increased compared with the
prior year quarter, reflecting lower capitalized interest on construction
projects in the current period.
SEGMENT OPERATING EARNINGS
CEMENT
Operating earnings were up 19% compared with the prior year quarter.
The period-to-period improvement in the segment was primarily attributable to a
weighted average $4.37 per ton improvement in cement sales prices over the
comparable period in the prior year. The higher sales price was the result of
price increases implemented during the previous twelve months at several
locations, particularly in the southern California market area where cement
sales prices improved by 16%. Clinker production improved 111,000 tons compared
with the first quarter of 1997, resulting in a 3% decline in manufacturing costs
on a per unit basis.
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<PAGE> 12
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
MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Tons of cement sold (thousands) 1,499 1,499
============ ============
Weighted average per ton data:
Sales price (net of freight to customers) $ 68.69 $ 64.32
Manufacturing and other plant operating costs (1) 47.54 46.39
------------ ------------
Margin $ 21.15 $ 17.93
============ ============
</TABLE>
- --------------
(1) Includes fixed and variable manufacturing costs, freight to terminals,
cost of purchased cement, selling expenses, plant general and
administrative costs, other plant overhead and miscellaneous costs.
CONCRETE PRODUCTS
Operating earnings for the Concrete Products segment increased $200,000
over the prior year quarter. First quarter 1998 results for the Florida
operation improved, despite higher operating costs and a weather-induced 9%
decline in Florida ready-mixed concrete sales volumes, because of a $3.98 per
yard increase in average ready-mixed concrete sales prices. Operating earnings
from the California Concrete operations declined slightly, primarily because
improved results from ready-mixed concrete were offset by lower earnings from
the aggregate operation. Ready-mixed concrete earnings of the California
operation were favorably impacted by firming prices which more than offset a 15%
volume decline in the quarter. Sales volumes in the California market were
adversely impacted by extremely poor weather conditions during the quarter.
Sales volumes, average unit price and cost data and unit operating
profit margins relating to the Company's sales of ready-mixed concrete appear in
the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cubic yards of ready-mixed concrete sold (thousands) 807 904
============ ============
Weighted average per cubic yard data:
Sales price $ 57.50 $ 53.91
Operating costs (1) 55.71 52.87
------------ ------------
Margin (2) $ 1.79 $ 1.04
============ ============
</TABLE>
- --------------
(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 $1.2 million and $1.6 million of operating earnings for the three
month periods ended March 31, 1998 and 1997, respectively.
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<PAGE> 13
CORPORATE
Corporate overhead expenses for the first quarter of 1998 increased
slightly primarily because of higher consulting and employee benefit costs.
Included in corporate overhead is interest income in the first quarter of 1998
of $1.1 million compared with $662,000 in the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $16.4 million in cash provided by operating
activities for the three months ended March 31, 1998, a significant increase
over the comparable period in 1997. The Company has used these 1998 operating
cash flows, plus existing cash and short-term investment balances, to fund $13.7
million in capital additions related to several expansion/cost reduction
projects in the Cement segment and to pay $2.4 million of dividends on common
stock, in addition to meeting all working capital requirements. Internally
generated cash flow during the first three months of 1997 were utilized to (i)
invest approximately $13.5 million in property, plant and equipment, (ii)
repurchase $13.7 million in common stock of the Company, (iii) fund working
capital requirements, and (iv) pay dividends on capital stock.
The Company's revolving credit facility totals $200 million and matures
in June 2002. The terms of the facility also 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
this facility. At March 31, 1998, there were no borrowings and $59.9 million in
letters of credit outstanding under the revolving credit facility, leaving
$140.1 million of unused capacity. The Company is in compliance with the
financial ratios and covenants contained in the revolving credit agreement and
indenture. Management believes the Company's operating cash flows plus its
unused capacity under the Company's revolving credit facility provide ample
liquidity to fund the cash portion of the fees, expenses and severance payments
associated with the proposed merger between a subsidiary of the Company and
Medusa Corporation ("Medusa") as well as meeting other working capital
requirements of the Company.
The Company expects to receive approval from its bank group by mid-May,
1998 to modify the Company's revolving credit agreement to permit (i) the merger
between a wholly owned subsidiary of the Company and Medusa; (ii) the assumption
of the existing indebtedness of Medusa of up to $100 million (as of March 31,
1998, Medusa's outstanding long-term debt was approximately $40 million) and
(iii) the guarantee of a $15 million lease obligation associated with the Medusa
acquisition. In addition, the Company is also asking its bank group to release
the bank group's liens on the collateral security, including the security
interest in five of the Company's cement plants and the Company's interest in
the Kosmos joint venture.
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December
31, 1997 and March 31, 1998 reflected the utilization of internally generated
cash flow during the period to fund capital expenditures, working capital
requirements and capital stock dividends. Accounts and notes receivable
increased primarily because of the strong sales activity occurring in March 1998
relative to lower December 1997 sales. The increase in inventories as a result
of improved manufacturing performance relative to sales volume reflected the
typical build-up of cement inventories during the first quarter of the
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<PAGE> 14
year. Prepaid expenses and other decreased because of payments made by the
Voluntary Employee Beneficiary Association to fund employee health care costs.
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, in accordance with
industry practice, 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 is presently excluded from regulation as hazardous
waste. CKD that is infused with water may produce a leachate with an alkalinity
high enough to be classified as hazardous and may also leach certain hazardous
trace metals present therein. Although the U.S. Environmental Protection Agency
("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, and it is estimated that the new standards for CKD will be
proposed in late summer 1998. These CKD standards 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. 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, which is not complete, the Company
has no reason to believe it will be required to spend significant sums on these
matters in excess of the amounts already provided for in the Company's financial
statements. 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. 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.
-12-
<PAGE> 15
Import Competition - 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 Japan and Venezuela. 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. Legislation passed by the U.S. Congress in December 1994
requires the initiation of "sunset" reviews of the antidumping orders prior to
January 2000 to determine whether these antidumping orders and the suspension
agreement should terminate or remain in effect.
A substantial reduction or elimination of the existing antidumping
duties as a result of adverse rulings on appeals, future administrative reviews,
or sunset reviews, 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. U.S. imports of
foreign cement began to increase in the mid-1990's as U.S. cement consumption
began its recovery. The Portland Cement Association has estimated that imports
represented approximately 18% of U.S. consumption in 1997 as compared with
approximately 16% in both 1996 and 1995. During this recent period of strong
demand, however, and as a result of outstanding antidumping orders and the
suspension agreement, the prices of cement imports have risen. Unlike the
imports during the 1980's, most of the current imports have played a
supplementary rather than a disruptive role.
Year 2000 Compliance - The Company, like most entities relying on
automated data processing, is faced with the task of modifying systems to become
Year 2000 compliant. To determine the Company's current exposure, corporate
personnel, along with an outside consulting firm specializing in Year 2000
problems, conducted a formal assessment to quantify the task of becoming
compliant. Based on the information available to date, the Company estimates the
incremental cost to achieve Year 2000 compliance will be approximately $1.5
million to $2.0 million over the cost of normal software upgrades and
replacements during 1998 and 1999. The costs of achieving Year 2000 compliance
will be charged against earnings as incurred. No assurances can be given,
however, that total Year 2000 compliance can be achieved because of the
significant degree of interdependence with third party suppliers, service
providers and customers.
Kosmos Joint Venture Severance Tax Audit - In late 1997, the State of
Kentucky proposed a deficiency assessment against Kosmos Cement Company
("Kosmos"), the Company's 75% owned and operated Joint Venture, for severance
tax payments related to limestone mined at the Kosmosdale cement plant. The
total assessment, which is being contested by Kosmos, is approximately $3.7
million, including penalty and interest. A substantial portion of the severance
tax relates to limestone mined specifically for use by a local electric utility
company which is contractually liable for severance taxes on limestone provided
to it under a processing and supply agreement. A preliminary meeting was held
with the Kentucky Revenue Cabinet in late January 1998 to discuss the disputed
assessments. Discussions are still in the preliminary stages, however, and the
Company is unable to evaluate whether an unfavorable outcome is either probable
or remote. The Company would indirectly bear 75% of any settlement and legal
costs through its participation in the Kosmos Joint Venture.
-13-
<PAGE> 16
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
orders issued by the Mineral Management Service ("MMS") of the Department of the
Interior ("DOI") asserting that two separate gas contract settlement payments
made to Pelto prior to its purchase by EDC were royalty bearing. By letter dated
March 10, 1998, the MMS advised that it was withdrawing its royalty claim in the
amount of $1.35 million on one of the settlement payments, without prejudice to
possible reassertion at a later date, as a result of any injunction issued in
July 1997 in favor of the current owner of Pelto. The Company also disagrees
with MMS' preliminary determinations of royalty underpayment, in an amount
unspecified, on the second gas contract settlement payment of $5.9 million.
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.
Discontinued Environmental Services Segment - Although a few courts
have held that indemnification for such environmental liabilities is
unenforceable, the Company has both given environmental and other
indemnifications to and received environmental and other indemnifications from
others for properties previously owned. 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.
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 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 or cash flows in
a particular period.
Disclosure Regarding Forward Looking Statements - This document
includes 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 lines of
business and are generally identifiable by statements containing words such as
"expects," "believes," "anticipates," "estimates" or similar expressions.
Statements related to future performance involve certain assumptions, risks and
uncertainties, many of which are beyond the control of the Company, and cannot
be guaranteed. 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. Important factors that
could cause actual results to differ materially from the Company's expectations
include, among others, foreign and domestic price competition, the loss or
material adverse modification of existing antidumping orders, 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. The reader is cautioned to
consider such disclosures 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 reference to these Cautionary
Disclosures.
-14-
<PAGE> 17
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 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 March 31, 1998 and will
have no material adverse effect on the consolidated financial statements of the
Company.
(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
Company is in violation of the Clean Water Act by virtue of the alleged
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"). 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. The USX Case was dismissed on November 13, 1997, without
prejudice. 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 Company intends to move the Court for a dismissal of the
GEC Case based on the recent transaction. GEC, however, opposes the Company's
position and has filed a motion with the Court to join the new owners as parties
to this action and to amend its complaint.
(c) On December 20, 1996, the Company filed a lawsuit against Leslie S.
Allen, a prior owner of the Company's former Allworth, Alabama hazardous waste
processing facility for any investigation and cleanup costs resulting from
contamination of the facility during Mr. Allen's ownership. The Company is
seeking a judgment declaring Mr. Allen liable for all costs and damages,
directing Mr. Allen to reimburse the Company for any and all cleanup costs, and
awarding the Company punitive damages and attorney's fees. That case is
captioned Southdown, Inc. v. Leslie S. Allen, Case No. CV-96-N-3300-S (N.D. AL).
-15-
<PAGE> 18
This action arises from historic soil and groundwater contamination
that the Company was first made aware of from sampling analysis conducted by
potential purchasers of the Allworth facility in late 1994 and the first quarter
of 1995. Although the Company conveyed the Allworth facility to Nortru, Inc. on
April 28, 1995 through a Stock Purchase Agreement, as a condition of that
conveyance, the Company assumed all liability relating to soil and groundwater
contamination at the facility and agreed to remediate the contamination to the
extent required by law.
The Company has undertaken the first phase of investigation of the
contamination at the facility, through a qualified consultant. Preliminary
reports indicate that there is some contamination of the groundwater. However,
the Company's consultant has not yet determined the scope of the contamination,
nor has it been determined whether any cleanup will be required. Accordingly, it
is not possible to determine if the Company's loss exposure is material. In any
event, the lawsuit against the prior owner could significantly reduce or
eliminate the Company's loss exposure.
(d) On September 12, 1997, Region 4 of the United States Environmental
Protection Agency ("EPS") issued an administrative Order Requiring corrective
Action ("Order") to the Company, which is identified in the Order as "doing
business as" Kosmos Cement Company, directing the Company to perform
confirmatory sampling at seven areas identified as "solid waste management
units" ("SWMUs") and potentially other areas at the Kosmos Cement Company plant
in Louisville, Kentucky. That Order, which is captioned as In the Matter of
Southdown, Inc. d/b/a Kosmos Cement Company, Docket No. 97-15-R (EPA, Region 4),
was issued under Section 3008(h) of the Resource Conservation and Recovery Act
("RCRA"). The Order also specified that additional investigation and potential
"corrective action" (i.e., remediation) could be required by EPA, should the
results of the confirmatory sampling indicate that conditions at any of the
seven SWMUs or any other areas of concern pose a threat to human health or the
environment.
The Company entered into a Consent Order with EPA which replaces the
September 12, 1997 Order. Under the terms of that Consent Order, which became
effective on April 21, 1998, the Company is required to undertake confirmatory
sampling at six of the seven SWMUs identified by EPA. Should the sampling
indicate that there are no hazardous constituents of concern at the SWMUs or
that there does not appear to be a threat to human health or the environment
from such constituents, EPA will provide a "no further action determination." If
there are hazardous constituents present at levels of concern at any of the
SWMUs, the Consent Order provides a mechanism under which EPA can require
in-depth investigation and an analysis of whether remediation is necessary at
any such SWMUs. However, the Consent Order itself does not require remediation
or provide a mechanism for remediation or require any payment by the Company to
EPA. Should EPA ultimately conclude that conditions warrant remediation, it
would have to issue a new order to that effect. In that case, the Company would
be able to raise technical and legal arguments to address the necessity and
scope of any remediation sought by EPA. The cost of the confirmatory sampling
required by the Consent Order appears highly unlikely to be material, but it is
not possible at this time to predict (i) the results of that sampling; (ii)
whether further investigation will thereafter be required; or (iii) whether
remediation will be sought by EPA based on the results obtained. Thus, while the
Consent Order could pose a loss contingency to the Company, there is no basis at
this juncture for determining the likelihood that such a contingency could be
material.
-16-
<PAGE> 19
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
27.1 Financial Data Schedule - Three months ended March 31, 1998
27.2 Financial Data Schedule - Restated Financial Data Schedule for
the quarterly periods ended March 31, June 30, and September 30,
1997, respectively
27.3 Financial Data Schedule - Restated Financial Data Schedule for
the quarterly periods ended March 31, June 30, and September 30,
1996, respectively
27.4 Financial Data Schedule - Restated Financial Data Schedule for
the years ended December 31, 1996 and 1995, respectively
(b) Reports on Form 8-K
On March 18, 1998, an Item 5 Current Report on Form 8-K was filed
containing the March 18, 1998 Press Release announcing the proposed merger
involving the Company and Medusa Corporation and also the related merger
agreement.
-17-
<PAGE> 20
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: May 8, 1998 By: DENNIS M. THIES
----------------------------------------
Dennis M. Thies
Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: May 8, 1998 By: ALLAN KORSAKOV
----------------------------------------
Allan Korsakov
Vice President and Corporate Controller
(Principal Accounting Officer)
-18-
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
11 Statement of Computation of Per Share Earnings
15 Independent Accountants' Letter re Unaudited Interim Financial
Information
27.1 Financial Data Schedule - Three months ended March 31, 1998
27.2 Financial Data Schedule - Restated Financial Data Schedule for
the quarterly periods ended March 31, June 30, and September 30,
1997, respectively
27.3 Financial Data Schedule - Restated Financial Data Schedule for
the quarterly periods ended March 31, June 30, and September 30,
1996, respectively
27.4 Financial Data Schedule - Restated Financial Data Schedule for
the years ended December 31, 1996 and 1995, respectively
</TABLE>
<PAGE> 1
Exhibit 11
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In millions, except per share amounts - Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MONTH ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings for basic earnings per share:
Net earnings before preferred stock dividends $ 16.5 $ 13.6 $ 7.1 $ 5.0
Preferred stock dividends -- (1.2) -- (0.4)
---------- ---------- ---------- ----------
Net earnings for basic earnings per share $ 16.5 $ 12.4 $ 7.1 $ 4.6
========== ========== ========== ==========
Earnings for diluted earnings per share $ 16.5 $ 13.6 $ 7.1 $ 5.0
========== ========== ========== ==========
Average outstanding common shares for basic
earnings per share 23.6 21.5 23.6 21.4
Other potentially dilutive securities:
-- common stock equivalents from assumed
exercise of stock options 0.4 0.4 0.5 0.4
- assumed conversion of the Series D convertible
preferred stock at 1.51 shares of common stock -- 2.6 -- 2.6
---------- ---------- ---------- ----------
Total for diluted earnings per share 24.0 24.5 24.1 24.4
---------- ---------- ---------- ----------
Earnings per share:
Basic $ 0.70 $ 0.57 $ 0.30 $ 0.21
========== ========== ========== ==========
Diluted $ 0.69 $ 0.55 $ 0.30 $ 0.20
========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 15
April 16, 1998
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
March 31, 1998 and 1997, as indicated in our report dated April 16, 1998.
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 March 31, 1998 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 Sections 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 MARCH 31, 1998 AND THE RELATED
STATEMENT OF CONSOLIDATED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 80
<SECURITIES> 8
<RECEIVABLES> 85
<ALLOWANCES> 4
<INVENTORY> 76
<CURRENT-ASSETS> 254
<PP&E> 993
<DEPRECIATION> 383
<TOTAL-ASSETS> 989
<CURRENT-LIABILITIES> 84
<BONDS> 163
0
0
<COMMON> 31
<OTHER-SE> 466
<TOTAL-LIABILITY-AND-EQUITY> 989
<SALES> 156
<TOTAL-REVENUES> 156
<CGS> 113
<TOTAL-COSTS> 126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 26
<INCOME-TAX> 9
<INCOME-CONTINUING> 17
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, JUNE 30, AND SEPTEMBER 30,
1997, RESPECTIVELY, AND THE RELATED STATEMENT OF CONSOLIDATED EARNINGS RESTATED
TO REFLECT THE FOURTH QUARTER OF 1997 ADOPTION OF STATEMENT OF FINANCIAL
ACCOUNTING STANDARD NO. 128, "EARNINGS PER SHARE." THE SCHEDULE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 22 41 67
<SECURITIES> 9 1 3
<RECEIVABLES> 87 91 98
<ALLOWANCES> 5 4 4
<INVENTORY> 74 71 62
<CURRENT-ASSETS> 197 208 233
<PP&E> 950 968 978
<DEPRECIATION> 363 370 374
<TOTAL-ASSETS> 916 934 963
<CURRENT-LIABILITIES> 95 99 116
<BONDS> 149 148 138
0 0 0
86 86 0
<COMMON> 28 28 31
<OTHER-SE> 321 334 437
<TOTAL-LIABILITY-AND-EQUITY> 916 934 963
<SALES> 151 339 538
<TOTAL-REVENUES> 151 339 538
<CGS> 115 245 379
<TOTAL-COSTS> 127 272 419
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3 6 10
<INCOME-PRETAX> 21 60 109
<INCOME-TAX> 7 21 38
<INCOME-CONTINUING> 14 39 71
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14 39 71
<EPS-PRIMARY> 0.57 1.69 3.15
<EPS-DILUTED> 0.55 1.59 2.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, JUNE 30, AND SEPTEMBER 30,
1996, RESPECTIVELY, AND THE RELATED STATEMENT OF CONSOLIDATED EARNINGS RESTATED
TO REFLECT THE FOURTH QUARTER OF 1997 ADOPTION OF STATEMENT OF FINANCIAL
ACCOUNTING STANDARD NO. 128, "EARNINGS PER SHARE." THE SCHEDULE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 8 8 38
<SECURITIES> 0 0 0
<RECEIVABLES> 80 99 94
<ALLOWANCES> 10 10 10
<INVENTORY> 82 73 63
<CURRENT-ASSETS> 175 183 196
<PP&E> 899 901 913
<DEPRECIATION> 336 339 345
<TOTAL-ASSETS> 887 893 909
<CURRENT-LIABILITIES> 74 84 90
<BONDS> 207 187 170
0 0 0
152 152 152
<COMMON> 22 22 22
<OTHER-SE> 191 206 235
<TOTAL-LIABILITY-AND-EQUITY> 887 893 909
<SALES> 127 306 495
<TOTAL-REVENUES> 127 306 495
<CGS> 101 229 361
<TOTAL-COSTS> 115 259 402
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 6 11 16
<INCOME-PRETAX> 7 36 77
<INCOME-TAX> 2 12 26
<INCOME-CONTINUING> 5 24 51
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (11) (11) (11)
<CHANGES> 0 0 0
<NET-INCOME> (7) 12 40
<EPS-PRIMARY> (0.52) 0.43 1.87
<EPS-DILUTED> (0.50) 0.52 1.67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995,
RESPECTIVELY, AND THE RELATED STATEMENTS OF CONSOLIDATED EARNINGS RESTATED TO
REFLECT THE FOURTH QUARTER OF 1997 ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARD NO. 128, "EARNINGS PER SHARE." THE SCHEDULE IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 45 8
<SECURITIES> 12 0
<RECEIVABLES> 85 78
<ALLOWANCES> 7 9
<INVENTORY> 62 70
<CURRENT-ASSETS> 210 161
<PP&E> 943 895
<DEPRECIATION> 354 330
<TOTAL-ASSETS> 932 876
<CURRENT-LIABILITIES> 90 79
<BONDS> 164 175
0 0
86 152
<COMMON> 27 22
<OTHER-SE> 326 202
<TOTAL-LIABILITY-AND-EQUITY> 932 876
<SALES> 664 596
<TOTAL-REVENUES> 664 596
<CGS> 481 444
<TOTAL-COSTS> 537 499
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20 27
<INCOME-PRETAX> 108 71
<INCOME-TAX> 37 23
<INCOME-CONTINUING> 71 48
<DISCONTINUED> 0 0
<EXTRAORDINARY> (12) 0
<CHANGES> 0 0
<NET-INCOME> 59 48
<EPS-PRIMARY> 2.86 2.18
<EPS-DILUTED> 2.49 2.03
</TABLE>
