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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM_____________________ TO ____________________
COMMISSION FILE NUMBER 1-6117
SOUTHDOWN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-0296500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET
SUITE 2400
HOUSTON, TEXAS 77002-4486
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1.25 per share New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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As of January 31, 1997, the number of shares of common stock outstanding
was 23.6 million. As of such date, the aggregate market value of voting stock
held by nonaffiliates, based upon the closing price of these shares on the New
York Stock Exchange, Inc. was approximately $1.47 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual proxy statement to be
filed within 120 days of the Registrant's fiscal year ended December 31, 1997
are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business..................................................................................... 1
General................................................................................... 1
Industry ................................................................................. 1
Business Strategy......................................................................... 1
Cement Operations......................................................................... 2
Concrete Products Operations.............................................................. 8
Environmental Matters..................................................................... 9
Employees................................................................................. 12
Segment Information....................................................................... 12
Item 2. Properties................................................................................... 12
Item 3. Legal Proceedings............................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters................................................................................... 15
Item 6. Selected Financial Data...................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 17
Item 8. Financial Statements and Supplementary Data.................................................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................................... 60
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 60
Item 11. Executive Compensation....................................................................... 60
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 60
Item 13. Certain Relationships and Related Transactions............................................... 60
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 60
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P A R T I
ITEM 1. BUSINESS.
GENERAL
Southdown, Inc. (the "Company") was organized in Louisiana in 1930 and
maintains its principal executive offices at 1200 Smith Street, Suite 2400,
Houston, Texas 77002-4486, telephone (713) 650-6200. Substantially all of
Southdown's cement and concrete products operations are conducted at the parent
company level. Unless the context indicates to the contrary, the terms
"Southdown" and the "Company" as used herein should be understood to include
subsidiaries of Southdown and predecessor corporations.
The Company is one of the leading cement and ready-mixed concrete
companies in the United States. The Company operates eight manufacturing
facilities, seven quarrying sites and a network of 20 cement storage and
distribution terminals for the production, importation and distribution of
portland and masonry cements, primarily in the Ohio valley and the southwestern
and southeastern regions of the United States. The Company is also vertically
integrated in the regional vicinity of its two largest cement plants, with
ready-mixed concrete operations serving markets in Florida and southern
California.
INDUSTRY
Demand for cement is derived from the demand for concrete products
which, in turn, is dependent on the demand for construction. According to
estimates of the Portland Cement Association ("PCA"), the industry's primary
trade organization, the three construction sectors that are the major components
of cement consumption are (i) public works construction, including public
buildings, (ii) commercial and industrial construction, and (iii) residential
construction, which comprised 54%, 17% and 23%, respectively, of U.S. cement
consumption in 1996, the most recent period for which such data are available.
Construction spending and cement consumption have historically fluctuated
widely. The construction sector, and hence demand for cement and concrete, is
affected by the general condition of the economy and prevailing interest rates,
and can exhibit substantial variations in activity across the country as a
result of the differing cycles and structures of regional economies. The impact
on the Company of regional construction cycles may be mitigated to some degree
by its geographic diversification. Because of the high fixed-cost nature of the
business, however, the overall profitability of cement manufacturers, including
the Company, is sensitive to variations in sales volumes and shifts in the
balance between supply and demand. The Company's business is seasonal to the
extent that construction activity tends to diminish during the winter months in
many areas of the country and during other periods of inclement weather.
BUSINESS STRATEGY
To enhance profitability and return on investment, the Company intends
to continue to focus on its core business through internal and external growth
opportunities, improving productivity and enhancing the Company's market
position. The Company plans to continue to take advantage of opportunities for
internal growth by modernizing and expanding certain of its existing cement
plants. In 1997, the Company completed a major capital project to modernize,
upgrade and expand its Fairborn, Ohio cement plant which increased the plant's
annual productive capacity by approximately 100,000 tons and significantly
reduced manufacturing costs. The Company also initiated a multi-phased capital
project during 1997 which is currently planned to expand the productive capacity
of its Victorville, California cement plant by
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approximately 650,000 tons per year. The first phase of this project was largely
completed during 1997 and will add approximately 300,000 tons to the plant's
annual capacity for 1998. The second phase of the project, which is currently in
the engineering phase, is expected to provide an additional 350,000 tons of
capacity available in 1999. The Company's 1998 capital program also includes
projects which are designed to expand the annual cement capacity of the Lyons,
Colorado and Brooksville, Florida plants by approximately 75,000 tons and 90,000
tons, respectively. Another project, planned for completion during 2000, is
expected to expand the capacity of the Company's Kosmosdale, Kentucky cement
plant by as much as 500,000 tons per year. Other capacity expansions and
efficiency modifications are also being evaluated. In the Company's two largest
markets, Florida and southern California, the Company has strengthened its
market position through the acquisition of additional cement terminals and
ready-mixed concrete operations. The Company will continue to evaluate other
internal and external opportunities to expand and improve its competitive
position and increase profitability. Further, in an effort to increase the
demand for cement and concrete, the Company is taking a leadership role in the
industry=s development of new promotional programs to increase concrete=s market
share in certain applications relative to other building products. In addition,
the Company will continue to pursue antidumping actions, if necessary, to
prevent unfairly priced foreign cement from adversely impacting the Company's
markets.
CEMENT OPERATIONS
COMPANY OPERATIONS
Cement is the basic binding agent for concrete, a primary construction
material. The Company's cement products are produced primarily from raw
materials found at or near the Company's plant locations. Depending upon the
process at individual plants, production of one ton of finished product consumes
approximately 1.6 tons of raw material. The principal raw material used in the
production of portland cement is calcium carbonate found in the form of
limestone. The Company's total estimated recoverable reserves of limestone are
approximately 740 million tons located on approximately 20,000 acres, most of
which are owned by the Company in fee. Other raw materials, used in
substantially smaller portions than limestone, include sand, iron ore or other
iron bearing materials, clay and gypsum. When not found in adequate amounts in
the Company's quarries, these materials are purchased from outside suppliers.
The manufacture of portland cement primarily involves the crushing,
grinding and blending of limestone and other raw materials into a chemically
proportioned mixture which is then processed in a rotary kiln at extremely high
temperatures to produce an intermediate product known as clinker. The clinker is
cooled and interground with a small amount of gypsum to produce finished cement.
As fuel is a major component in the cost of producing clinker, the
pyroprocessing systems of most modern cement plants, including seven of the
eight plants operated by the Company, incorporate some form of the more fuel
efficient "dry process" technology. In preheater/precalciner kilns, the most
modern application of this technology, the raw materials are initially
introduced into a preheater tower that utilizes hot exhaust gases from the kiln
to effect partial calcination of the raw materials before they enter the rotary
kiln. At present, kilns utilizing some variation of the dry process
manufacturing technology comprise approximately 95% of the Company's clinker
capacity. In contrast, based on 1996 data, the most current information
available, the PCA estimates that approximately 72% of the domestic cement
industry's capacity utilizes "dry process" technology.
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The Company's cement production facilities are located in California,
Florida, Kentucky, Ohio, Tennessee, Texas, Colorado and Pennsylvania. These
plants have a combined cement manufacturing capacity of approximately 7.1
million tons (6.8 million tons, excluding the joint venture interests of
others). All of the facilities are wholly-owned except for the Kentucky and
Pennsylvania plants. These two plants are owned by Kosmos Cement Company
("Kosmos Cement"), a joint venture owned 75% by the Company and 25% by Lone Star
Industries, Inc. ("Lone Star"). The Company is the operator of all eight plants,
including the two joint venture plants.
The following table sets forth certain information regarding the
Company's cement plants at December 31, 1997:
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ANNUAL
NO. CLINKER CEMENT ESTIMATED
OF MANUFACTURING CAPACITY (1) LIFE OF
PLANT LOCATION KILNS PROCESS (IN 000 TONS) (2) LIMESTONE RESERVES
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Victorville, California 2 Preheater/precalciner 1,950 70+ years
Long dry kiln
Brooksville, Florida 2 Preheater 1,304 90+ years
Kosmosdale, Kentucky (3) 1 Preheater 850 100+ years
Fairborn, Ohio 1 Preheater 750 45+ years
Knoxville, Tennessee 1 Preheater/precalciner 750 65+ years
Odessa, Texas 2 Preheater 560 100+ years
Long dry kiln
Lyons, Colorado 1 Preheater/precalciner 520 20+ years
Pittsburgh, Pennsylvania(3) 1 Wet 408 30 years(4)
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</TABLE>
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(1) Based on clinker capacity at December 31, 1997 converted to cement at
each plant's 1997 product mix.
(2) All references to "tons" in this table and throughout this document
are to U.S. short tons (2,000 pounds).
(3) Owned by Kosmos Cement. The Company owns 75% of the joint venture and
operates the joint venture's plants, sales offices and terminals.
(4) The Company has a long-term supply agreement with an independent third
party to provide limestone for this plant.
As a result of continued high uptime and demand, the ratio of actual
clinker production to rated kiln capacity was approximately 98% in each of the
three years ended 1997. During each of the past three years, the Company has
also purchased cement from others for resale. In 1997, 7.7% of the cement sold
by the Company was acquired from third parties compared with 6.2% in 1996 and
7.5% in 1995.
During 1997, the Company sold approximately 7.3 million tons of cement
compared with 7 million tons in 1996 and 6.3 million tons in 1995. Excluding the
joint venture interests of others, sales volumes were 7 million tons, 6.7
million tons and 6.1 million tons for 1997, 1996 and 1995, respectively. High
levels of construction activity in most regions of the country during the last
several years has resulted in a more favorable balance in the supply and demand
for cement which, in turn, has allowed sales prices to rise. During 1997, the
industry continued to benefit from demand growth and higher sales prices. As
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a consequence of these improvements in market conditions, the Company's cement
segment revenues and earnings have followed a pattern of continued growth since
1991.
Although industry capacity has remained relatively stable in recent
years, according to the PCA total U.S. clinker capacity at the end of 1996, the
most recent data available, had declined by 7.3 million tons or 8% from its peak
in 1975. During the last few years, several companies, including the Company,
have announced or undertaken capital projects to enhance the productivity and
incrementally expand the capacity of existing cement manufacturing facilities.
COMPETITION
On the basis of statistics published by the PCA, the Company believes
that, as of the end of 1996, the most recent period for which such data is
available, it ranked third in total active cement manufacturing capacity among
the 46 cement producers (including joint ventures) in the U.S. as set forth in
the following table:
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U.S. CLINKER (1)
PERCENT OF
RANK CAPACITY U.S. INDUSTRY COMPANY NAME
(000 TONS)
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1 11,113 13.3% Holnam, Inc.
2 6,613 7.9 Lafarge Corporation
3 5,806 6.9 Southdown, Inc.
4 5,507 6.6 CBR-HCI Construction Materials Corporation
5 5,339 6.4 Ash Grove Cement Company
6 4,942 5.9 Blue Circle, Inc.
7 4,170 5.0 Essroc Corporation
8 3,945 4.7 Lone Star Industries, Inc.
9 3,550 4.2 Medusa Cement Company
10 3,136 3.8 California Portland Cement Company
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54,121 64.7 Total Top Ten
29,478 35.3 Others
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83,599 100.0% Total Industry
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</TABLE>
Source: Portland Cement Association. Clinker capacity for joint venture
operations is based on each company's ownership interest.
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(1) In general, one ton of clinker will
produce approximately 1.05 tons of cement although this conversion
varies depending on the type of cement being produced and other
factors.
The cost of transporting cement is high relative to the value of the
product and, therefore, cement markets are generally regional. The majority of
the Company's cement sales are made directly to users of portland and masonry
cements, generally within a radius of approximately 200 miles of each plant.
However, access to water transport, which is less expensive than truck or rail
shipment, can effectively expand the market area of a particular production
facility.
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The following table presents information regarding the market area
served by each of the Company's plants and the Company's estimate of the number
of competitors serving the same market area.
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PLANT LOCATION PRINCIPAL MARKET AREA SERVED* NUMBER OF MAJOR COMPETITORS**
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Victorville, California Southern California, Arizona and southern Six cement producers and four deepwater
Nevada import facilities
Brooksville, Florida Florida Three cement producers and eleven
deepwater import facilities
Kosmosdale, Kentucky Kentucky, West Virginia and portions of Eight cement producers
Ohio, Indiana and Tennessee
Fairborn, Ohio Central and southern Ohio, eastern and Eight cement producers
southern Indiana
Knoxville, Tennessee Eastern Tennessee, North Carolina, and Nine cement producers and one deepwater
portions of Kentucky, Virginia, South import facility
Carolina, Georgia and Alabama
Odessa, Texas West Texas and Texas Panhandle, eastern Seven cement producers and an import
New Mexico, western Oklahoma, facility
southeastern Colorado and
southwestern Kansas
Lyons, Colorado Northern and central Colorado and Three cement producers
southeastern Wyoming
Pittsburgh, Pennsylvania Western Pennsylvania and portions of West Five cement producers
Virginia and Ohio
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</TABLE>
* Includes markets served by the Company's cement distribution terminals.
** Number of major producers and import facilities in competition with
the Company.
Cement is a homogeneous commodity that is manufactured to meet standardized
technical specifications and is marketed primarily in bulk quantities without
special packaging or labeling. The Company's bagged cement products, which
represented approximately 5 to 6% of the Company's total sales volume over the
past three years, are marketed under the "Southdown" label. The Company also
manufactures limited amounts of premium priced, specialty cement products.
Because of the commodity nature of the product, competition among suppliers of
cement is based primarily on price, with consistency of quality and service to
customers being of lesser significance. The overall demand for cement is
relatively price inelastic, however, since cement represents only a small
portion of total construction costs and cement has few substitutes in many
applications.
The primary purchasers of cement in each of the Company's regional markets
are ready-mixed concrete companies. Except with respect to certain major
construction projects, it is not common in the industry to enter into long-term
sales contracts. Although the Company has occasionally entered into long-term
contracts in prior years, it had no such contracts during 1997. From
time-to-time, the Company has entered into annual sales contracts with other
cement manufacturers or distributors, but no one customer represents 10% or more
of the Company's consolidated revenues. As a result of the Company=s vertical
integration, approximately 40% of the cement sold by the Company's Brooksville,
Florida plant in each of the three years ended December 31, 1997 was sold to the
Company's Florida ready-mixed concrete products operations. Approximately 19%,
18% and 14%, respectively, of the cement sold by the Company's California plant
in the years ended December 31, 1997, 1996 and 1995 was sold to the Company's
California ready-mixed concrete
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operations. Other principal customers are manufacturers of concrete products
such as blocks, roof tiles, pipes and prefabricated building components. Sales
are also made to building materials dealers, other cement manufacturers,
construction contractors and, in some regions, oil well cementing companies.
Approximately 58% of the Company's Texas plant's cement sales volume consisted
of sales to oil well cementing companies for each of the three years ended
December 31, 1997.
The Company's sales efforts are concentrated in its eight sales offices. In
addition, the Company utilizes a network of cement distribution terminals which
serves to broaden the Company's marketing area. These cement sales offices and
distribution terminals are located as follows:
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CEMENT SALES OFFICES CEMENT DISTRIBUTION TERMINALS
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STATE CITY STATE CITY
- ----------------------- -------- --------------------- --------------------- -------- ---------------------
California Brea Arizona Phoenix
Colorado Denver California La Mirada
Florida Brooksville Colorado Florence
Kentucky Kosmosdale* Florida Jacksonville
Ohio Fairborn Florida Miami
Pennsylvania Pittsburgh * Florida Palm Beach
Tennessee Knoxville Florida Pensacola
Texas Odessa Florida Tallahassee
Florida Tampa
Georgia Atlanta
Kentucky Lexington*
North Carolina Castle Hayne
North Carolina Statesville
North Carolina Wilmington
Ohio Cincinnati*
Tennessee Grey Station
Tennessee Kingsport
Texas Amarillo
West Virginia Charleston*
West Virginia Huntington*
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</TABLE>
* Owned by Kosmos Cement. The Company operates the joint venture's plants,
sales offices and terminals.
Import Competition - Historically, cement imports into the U.S. have
increased primarily to supplement domestic cement production during peak demand
periods. During the 1980's, however, competition from low priced imported cement
in most coastal and border areas of the U.S. grew significantly. According to
the PCA, U.S. consumption of foreign cement increased from approximately 4% of
total U.S. consumption in 1982 to a peak of approximately 20% in 1987. The large
volume of low priced imported cement, especially in the southern part of the
U.S. from California to Florida, depressed cement prices during a period of
strong growth in cement consumption.
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 ("ITC") and the Department of Commerce
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("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. The Company and other U.S. producers have benefited substantially
from the antidumping orders and the suspension agreement.
As a result of these orders, importers must tender antidumping duty 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. Although imports from Mexico have continued, they declined
sharply after the antidumping order and remain far below pre-order levels. 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 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 for at
least five more years.
In the case of Mexico, the dumping margins are subject to appeal to
binational dispute panels under the North American Free Trade Agreement
("NAFTA"). NAFTA has thus far had no material adverse effect on the antidumping
duty cash deposit rates imposed on gray portland cement and clinker imported by
Cemex, the principal Mexican exporter. On September 13, 1996, a NAFTA binational
dispute resolution panel unanimously rejected Cemex's appeal of the DOC's final
results of the third administrative review. The binational panel found that
DOC's initiation of the original investigation was consistent with U.S. and
international law and rejected Cemex's claim that an unadopted 1992
recommendation by a General Agreement on Tariffs and Trade dispute resolution
panel required DOC to terminate the antidumping order. In the third
administrative review, DOC determined a dumping margin for Cemex of 62% based on
using the margin from the original investigation as best information available
("BIA"). The panel found that DOC had properly used BIA because of Cemex's
refusal to provide DOC with requested information on Cemex's home market pricing
of cement.
DOC has also found significant dumping margins in all other administrative
reviews of the antidumping order on Mexican cement. The final margin was 61% in
the first review, 109% in the second review and the fourth review and 74% in the
fifth review. The final results of the fourth and fifth administrative reviews
have been appealed to NAFTA binational panels. Cemex's estimated liability for
antidumping duties exceeds $120 million for its entries during the first five
review periods. The sixth and seventh administrative reviews are pending before
the DOC.
A substantial reduction or elimination of the existing antidumping duties
or elimination of the suspension agreement as a result of adverse rulings in
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 PCA has estimated
that imports represented approximately 18%
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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
the outstanding antidumping orders and the suspension agreement, the prices of
cement imports have risen. Unlike the imports during the 1980's, most imports
during the 1990's to date have played a supplementary rather than a disruptive
role. The Company owns or leases a total of four cement terminals in locations
capable of receiving imported cement. To supplement its production capacity, the
Company sought to meet excess demand with limited purchases of imported cement
in 1994 and increased purchases of imported cement in 1995, 1996 and 1997.
CONCRETE PRODUCTS
COMPANY OPERATIONS
Ready-mixed concrete is a versatile, low-cost building material used in
almost all construction applications. Concrete is produced in batch plants by
mixing stone, sand, water and admixtures with cement, the basic binding agent,
and is transported to the customer's job site in mixer trucks. The Company has
vertically integrated its operations in the regional vicinity of its two largest
cement plants, which are located in Florida and in southern California. During
the last three years, the Florida concrete products operations have consumed
approximately 40% of the cement sold by the Company's Florida cement plant,
while the southern California concrete products operations have purchased
between 14% and 19% of the cement sold by the Company's California cement plant.
The Company believes that this vertical integration into ready-mixed concrete
and concrete products enhances its overall competitive position in these
markets, where most cement producers are vertically integrated.
The Company, doing business in southern California as Transit Mixed
Concrete Company ("Transmix") and City Concrete Products and through the
Company's subsidiary, is a producer of ready-mixed concrete in that area and is
a supplier of aggregate in southern California. Transmix and the Company's other
concrete affiliates in California sell primarily to commercial and industrial
builders, as well as contractors on public construction projects. The Company,
doing business as Florida Mining & Materials Concrete Corp. ("Florida Mining"),
is a major producer and supplier of ready-mixed concrete and concrete masonry in
Florida. Florida Mining's sales include a high percentage of sales to
residential builders.
The Company's Concrete Products segment operates a combined total of
approximately 600 ready-mixed concrete trucks, approximately 66 batch plants, 12
concrete block plants and, in California, two aggregate quarries, one of which
is under a long-term lease. The Company's estimate of its combined annual
practical capacity as of December 31, 1997 is in excess of 5 million cubic
yards. The Company's concrete products operations in California and Florida each
purchase most of their cement from the Company's cement plant in California and
Florida, respectively. The southern California concrete products operation
extracts sand and gravel for use in its operations primarily from the two
California aggregate quarries. The Company presently purchases sand and gravel
for use in its Florida ready-mixed concrete operations under a long-term
aggregate supply contract. Alternative supplies of cement and aggregate are
readily available from other sources, if necessary.
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MARKET CONDITIONS
The demand for concrete products is derived from the demand for
construction. The construction sector is subject to the vagaries of weather
conditions, the availability of financing at reasonable interest rates and
cyclical fluctuations in regional economies. The burden of relatively high fixed
costs results in a disproportionate impact on profits from only minor variations
in sales volume. Seasonal factors are not as significant in the market areas
served by the Company's concrete products businesses as in some markets, but
construction activity tends to diminish during prolonged periods of inclement
weather. In 1997, Company sales volumes were 3.7 million cubic yards of
ready-mixed concrete and approximately 3.2 million tons of aggregate (1.4
million tons to third parties). In 1996 and 1995 ready-mixed concrete sales
volumes totaled approximately 3.7 million cubic yards and 3.4 million cubic
yards, respectively, while sales volumes for the Company's southern California
aggregate operations were approximately 3 million tons (1.4 million tons to
third parties) in both years.
Competition within each market includes numerous small and several large
ready-mixed concrete operators. Competition for sales volume is strong, and is
based primarily on price, with consistency of quality and service to customers
being of lesser significance. In Florida, Florida Mining's principal competitors
include Tarmac Florida, Inc., Rinker Materials Corp. and Florida Rock
Industries, Inc. In California, the Company's principal competitors include
United Ready-Mixed Concrete Co. Inc., A&A Ready-Mixed Concrete, Inc.,
Robertson's Ready Mix, Inc. and Catalina Pacific Concrete, Inc. and, for
aggregate, CalMat Co.
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. The
most significant of these federal laws are the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Water
Pollution Control Act (commonly known as the "Clean Water Act") and the Clean
Air Act (as amended in 1990). These laws regulate water discharges and air
emissions, as well as the release of hazardous substances. CERCLA creates 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.
The Clean Air Act Amendments of 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. Environmental Protection Agency ("U.S. EPA")
is developing air toxics regulations for a broad spectrum of industrial sectors,
including portland cement manufacturing. U.S. EPA has indicated that the new
maximum available control technology standards could require significant
reduction of air pollutants below existing levels prevalent in the industry.
Management has no reason to believe, however, that these new standards would
place the Company at a disadvantage with respect to its competitors. To the
contrary, given the age,
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condition, design and other features of the Company's cement manufacturing
facilities, these more stringent standards may enhance the Company's competitive
position.
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. Several of the Company's previously and currently owned facilities
are the subject of various local, state or federal environmental proceedings and
inquiries, including being named a potentially responsible party with regard to
Superfund sites, primarily at locations to which they are alleged to have
shipped materials for disposal. While some of these matters have been settled
for de minimis amounts, others are in their preliminary stages and final results
may not be determined for years. Based on information developed to date, the
Company has no reason to believe it will be required to spend significant sums
on these matters in excess of the amounts 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, the ultimate cost that might be incurred by the
Company to resolve these environmental matters cannot be assured.
Recurring Costs of Environmental Compliance - Management believes that the
Company's current procedures and practices for handling and management of
materials are generally consistent with industry standards and legal
requirements and that appropriate precautions are taken to protect employees and
others from harmful exposure to hazardous materials. However, because of the
complexity of operations and legal requirements, there can be no assurance that
past or future operations will not result in operational errors, violations,
remediation liabilities or claims by employees or others alleging exposure to
toxic or hazardous materials. Owners and operators of industrial facilities may
be subject to fines or other actions imposed by the U.S. EPA and corresponding
state regulatory agencies for violations of laws or regulations relating to
hazardous substances. The Company has incurred fines imposed by various
environmental regulatory agencies in the past.
The Company's compliance with the exacting requirements and varying
interpretations of applicable laws and regulations related to the protection of
human health and the environment requires substantial expenditures and
significant amounts of management time and energy. Although the Company does not
maintain records that segregate such costs from the other costs of on-going
operations, management believes recurring environmental compliance costs are a
material component of total costs. In addition to current period expenses, the
Company typically spends several million dollars a year on capital projects
related to environmental compliance. Approximately $6 million, 6% of the
budgeted 1998 capital expenditures, is related to compliance with environmental
regulations.
While the Company commits substantial resources to complying with the laws
and regulations concerning the protection of human health and the environment,
the Company considers this dedication of resources to be an integral part of its
business. As a consequence, management does not believe that environmental
compliance expenditures place the Company at a competitive disadvantage with
respect to other companies engaged in similar lines of business operating in the
U.S.
10
<PAGE> 13
Cement Kiln Dust - Cement kiln dust ("CKD") is a by-product of the cement
manufacturing process. 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. EPA.
On January 31, 1995, the U.S. EPA issued its decision on the regulatory status
of CKD. Although the U.S. EPA determined further regulation of CKD was
necessary, the agency stated that it (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 identify 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 new
standards for CKD will be proposed in mid-1998. These CKD standards may require
the cement industry to develop new methods for handling this high volume, low
toxicity waste.
Most manufacturing plants in the industry have typically disposed of CKD 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. Leaching has led to the
classification of at least three CKD disposal sites of other companies as
federal Superfund sites. Over the period from mid-1991 through the end of 1995,
as information became available, the Company recorded charges aggregating
approximately $13.3 million relating to a remediation project at an inactive CKD
disposal site in Ohio. The Company has expended a total of approximately $12.4
million of the reserved amount on remediation of the site through January 31,
1998. In late 1996, the Company submitted to the Ohio Environmental Protection
Agency ("OEPA") a Feasibility Study report which identified various remedial
alternatives to address long term control of releases from the CKD disposal
site. The OEPA is currently reviewing this report and the Company is awaiting
final action on the site. The unexpended portion of the total accrued liability
is intended to cover the costs for this final remedy. Until the OEPA renders a
final decision on the Feasibility Study report, the Company is unable to
determine what additional costs, if any, may be incurred on the project. No
substantial investigative work has been undertaken at the Company's other
inactive CKD disposal sites around the country to determine if remedial action
is required and, if so, the extent of any such remedial action.
Concrete Products - As with the cement operations, the concrete products
operations are presently the subject of extensive local, state or federal
environmental laws and regulations. The Company, along with other entities with
operations in the San Gabriel basin in the vicinity of Azusa, California, has
received notices of potential responsibility and requests for information by the
U.S. EPA. The Company presently leases and operates a quarry in the vicinity of
Azusa which the Company sold, together with a related landfill, to a subsidiary
of Browning-Ferris Industries, Inc. ("BFI") in 1987.
BFI is contractually obligated to indemnify the Company for any
environmental liability arising from the Company's prior ownership of the land
comprising its current aggregate and ready-mixed plant and the landfill site.
BFI is also contractually obligated to indemnify the Company for any
11
<PAGE> 14
environmental liability arising from the Company's operation of the Azusa
landfill prior to the sale of the property to BFI in 1987. The Company has
formally requested that BFI indemnify and defend the Company with respect to
these matters.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 2,400 persons,
including approximately 1,100 in the cement manufacturing operations, 1,200 in
the concrete products operations and the remainder in the corporate office.
Approximately 31% of the employees are represented by collective bargaining
units, primarily the International Brotherhood of Boilermakers for the cement
plants and the International Brotherhood of Teamsters at the Company's unionized
concrete products operations in California. Collective bargaining agreements are
in effect at all the Company's cement plants, except for the non-union facility
located in Florida. The Company negotiated extensively with two Teamster local
unions representing employees at the southern California ready-mixed operations
to renew contracts which expired April 1, 1997. These negotiations did not
result in agreements and the employees represented by one of the local unions
struck the Company on June 30, 1997, when the Company implemented its last
offer. The Company continued operations and replaced those employees who refused
to return to work. The Teamsters local filed unfair labor practice charges with
the National Labor Relations Board against the Company. The Board dismissed the
charges and the Teamsters have filed an appeal. Negotiations continued with the
other Teamsters local until October 1997. Agreement could not be reached and the
Company implemented its final offer on November 3, 1997. The employees
represented by this local continued to work under the implemented terms and
conditions. The Teamsters local filed unfair labor practice charges with the
National Labor Relations Board against the Company and the Company is in the
process of responding to these charges. The employees previously represented by
the International Union of Operating Engineers in the concrete products
operations in California filed a decertification petition with the National
Labor Relations Board and on June 24, 1997 voted to decertify the union. These
employees are therefore no longer represented by the Operating Engineers.
SEGMENT INFORMATION
Revenues and earnings before interest expense and income taxes contributed
by each of the Company's industry segments during the periods indicated as well
as identifiable assets, depreciation, depletion and amortization and capital
expenditures by segment are presented in Note 3 of Notes to Consolidated
Financial Statements, which is incorporated herein by this reference.
ITEM 2. PROPERTIES
The material appearing under Item 1 herein is incorporated hereunder by
reference, pursuant to Rule 12b-23. The Company's ownership interest in five
cement manufacturing facilities and the Company's joint venture interest in
Kosmos Cement Company, a Kentucky general partnership, are pledged as security
under the Company's revolving credit facility. (See also Note 11 of Notes to
Consolidated Financial Statements.)
12
<PAGE> 15
ITEM 3. 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 December 31, 1997 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.
(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).
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
13
<PAGE> 16
conveyance, the Company assumed all liability relating to soil and underground
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 ("EPA") issued an administrative Order Requiring Corrective
Action ("Order") to Southdown, 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") 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"). EPA contends
that it has "corrective action" authority under RCRA Section 3008(h) in light of
the Kosmos Cement Company's previous efforts to burn hazardous waste as a fuel.
EPA contends that under this authority it may require Southdown to investigate
the SWMUs at the Kosmos Cement Company facility and to remediate the SWMUs
should the sampling identify releases of hazardous constituents from the SWMUs
that pose a significant risk to human health or the environment. Southdown has
the right under the Order to respond to EPA's allegations, to take the matter to
an administrative hearing and/or to seek settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1997.
14
<PAGE> 17
P A R T I I
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
MARKET PRICES AND DIVIDENDS ON COMMON STOCK AND SHAREHOLDER INFORMATION
The Company's common stock is traded on the New York Stock Exchange
(Symbol: SDW). The following table sets forth the high and low sales prices of
the stock for the indicated periods as reported by the NYSE.
<TABLE>
<CAPTION>
FISCAL YEAR 1997 HIGH LOW DIVIDEND
--------------------------------------- --------------------- ------------------- ----------------
<S> <C> <C> <C>
First Quarter, ended March 1997 $36.88 $29.00 $0.10
Second Quarter, ended June 1997 44.63 33.13 0.10
Third Quarter, ended September 1997 54.63 41.63 0.10
Fourth Quarter, ended December 1997 59.44 51.75 0.10
FISCAL YEAR 1996 HIGH LOW DIVIDEND
--------------------------------------- --------------------- ------------------- ----------------
First Quarter, ended March 1996 $24.50 $18.00 $0.10
Second Quarter, ended June 1996 24.88 20.75 0.10
Third Quarter, ended September 1996 25.75 19.50 0.10
Fourth Quarter, ended December 1996 32.88 24.50 0.10
</TABLE>
On February 2, 1998, the Board of Directors approved the payment of a ninth
consecutive $0.10 per share quarterly dividend on the Company's common stock.
The dividend was paid on February 27, 1998 to shareholders of record on February
13, 1998.
For certain information describing the Company's capital stock, rights plan
and change in control provisions, see Note 18 of Notes to Consolidated Financial
Statements.
On January 31, 1998, there were 1,565 holders of record of the Company's
common stock. On January 31, 1998, the closing price of the stock was $63.0625.
15
<PAGE> 18
ITEM 6.SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 719.2 $ 664.4 $ 596.1 $ 560.3 $ 507.7
======= ======= ======= ======= =======
Earnings from continuing operations $ 96.7 $ 71.2 $ 47.5 $ 30.1 $ 3.6
Loss from discontinued environmental services
operations, net of income taxes (1) -- -- -- (5.9) (3.6)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) -- -- -- (21.6) --
Extraordinary charge, net of income taxes (2) -- (11.5) -- -- (1.0)
Cumulative effect of change in accounting
principle, net of income taxes (3) -- -- -- -- (48.5)
------- ------- ------- ------- -------
Net earnings (loss) $ 96.7 $ 59.7 $ 47.5 $ 2.6 $ (49.5)
======= ======= ======= ======= =======
Basic earnings (loss) per share -
Continuing operations $ 4.23 $ 3.50 $ 2.18 $ 1.20 $ (0.09)
Loss from discontinued environmental services
operations, net of income taxes (1) -- -- -- (0.34) (0.21)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) -- -- -- (1.26) --
Extraordinary charge, net of income taxes (2) -- (0.64) -- -- (0.06)
Cumulative effect of change in accounting
principle, net of income taxes (3) -- -- -- -- (2.86)
------- ------- ------- ------- -------
Net earnings (loss) $ 4.23 $ 2.86 $ 2.18 $ (0.40) $ (3.22)
======= ======= ======= ======= =======
Diluted earnings (loss) per share -
Continuing operations $ 3.98 $ 2.97 $ 2.03 $ 1.16 $ (0.09)
Loss from discontinued environmental services
operations, net of income taxes (1) -- -- -- (0.33) (0.21)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) -- -- -- (1.21) --
Extraordinary charge, net of income taxes (2) -- (0.48) -- --
(0.06)
Cumulative effect of change in accounting
principle, net of income taxes (3) -- -- -- -- (2.86)
------- ------- ------- ------- -------
Net earnings (loss) $ 3.98 $ 2.49 $ 2.03 $ (0.38) $ (3.22)
======= ======= ======= ======= =======
Total assets $ 974.2 $ 932.0 $ 875.5 $ 881.0 $ 907.0
======= ======= ======= ======= =======
Capital expenditures (4) $ 66.2 $ 64.5 $ 32.9 $ 28.8 $ 13.4
======= ======= ======= ======= =======
Depreciation, depletion and amortization (5) $ 46.9 $ 45.1 $ 42.9 $ 42.8 $ 41.3
======= ======= ======= ======= =======
Total debt $ 164.4 $ 165.6 $ 175.2 $ 186.1 $ 293.9
======= ======= ======= ======= =======
Shareholders' equity $ 484.2 $ 439.3 $ 375.0 $ 337.1 $ 262.2
======= ======= ======= ======= =======
Ratio of debt to total capitalization (6) 25.3% 27.4% 31.8% 35.6% 52.9%
======= ======= ======= ======= =======
Cash dividends paid per share of
common stock $ 0.40 $ 0.40 $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
(1) In November 1994, the Company decided to exit the environmental services
business and these business activities are presented as discontinued
operations for years 1994 and 1993.
(2) Premium on early extinguishment of debt.
(3) Cumulative after-tax effect of change in accounting for initial obligation
for estimated postretirement health care benefits as required by adoption
of Statement of Financial Accounting Standards No. 106 effective January 1,
1993. (4) Excluding acquisition expenditures of $6.2 million, $12.6
million, $16.1 million and $2.9 million in years 1996, 1995, 1994 and 1993,
respectively. There were no acquisition expenditures in 1997. (5) Includes
amortization of debt issuance costs. (6) Total capitalization represents
the sum of the book value of total debt and shareholders' equity.
Management's Discussion and Analysis of Financial Condition and Results of
Operations related to this information appears on Page 17 of this report.
16
<PAGE> 19
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 719.2 $ 664.4 $ 596.1
========== ========== ==========
Costs and expenses $ 552.0 $ 530.7 $ 492.8
========== ========== ==========
Earnings before interest, income taxes
and extraordinary charge $ 159.7 $ 127.5 $ 97.5
========== ========== ==========
Interest expense $ (14.0) $ (19.8) $ (26.7)
========== ========== ==========
Income tax expense $ (49.0) $ (36.5) $ (23.3)
========== ========== ==========
Earnings before extraordinary charge $ 96.7 $ 71.2 $ 47.5
========== ========== ==========
Net earnings $ 96.7 $ 59.7 $ 47.5
========== ========== ==========
Diluted earnings per share
Earnings before extraordinary charge $ 3.98 $ 2.97 $ 2.03
========== ========== ==========
Net earnings $ 3.98 $ 2.49 $ 2.03
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED EARNINGS
1997 compared with 1996 - Net earnings for the year ended December 31, 1997
were $96.7 million, $3.98 per share, diluted. Net earnings for the prior year
were $59.7 million, $2.49 per share, diluted, including an extraordinary charge
of $11.5 million, $0.48 per share, reflecting prepayment premium and other costs
incurred on the early retirement of 14% Senior Subordinated Notes due 2001,
Series B (the "14% Notes").
An 8% 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
25% increase in Cement segment earnings, a fourth consecutive record year for
the segment. A 7% increase in Concrete Products earnings and a 29% reduction in
interest expense also contributed to the year-over-year improvement. Interest
expense in 1997 declined compared with the prior year, reflecting the
refinancing of the 14% Notes with 10% Senior Subordinated Notes due 2006 (the
"10% Notes") in March 1996 and no borrowings on the Company's revolving credit
facility.
1996 compared with 1995 - Net earnings for 1996 were $59.7 million or $2.49
per share, diluted, compared with $47.5 million or $2.03 per share in the prior
year. Results for 1996 included an extraordinary charge of $11.5 million, $0.48
per share diluted, reflecting prepayment premium and other costs incurred on the
early retirement of $125 million of the 14% Notes. The year-over-year
improvement resulted primarily from record Cement segment earnings which
surpassed the previous
17
<PAGE> 20
record by $22.1 million or 20%. A $5.9 million improvement in the results
reported by Concrete Products, a 9% reduction in Corporate expenses and a 26%
reduction in interest expense also contributed significantly to the
year-over-year improvement. The 26% reduction of interest expense for the year
reflects the refinancing of the 14% Notes and lower borrowings on the Company's
revolving credit facility.
The Company's effective tax rate, which includes state taxes, was lower
than the federal statutory rate for 1997, 1996 and 1995, primarily because of
the favorable impact of permanent differences related to statutory depletion in
excess of cost depletion applicable to the Company=s limestone mining
operations.
SEGMENT OPERATING EARNINGS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Cement $525.5 $473.0 $419.1
Concrete Products 248.3 241.0 219.2
Intersegment sales (54.6) (49.6) (42.2)
------ ------ ------
$719.2 $664.4 $596.1
====== ====== ======
CONTRIBUTIONS TO EARNINGS BEFORE INTEREST,
INCOME TAXES AND EXTRAORDINARY CHARGE:
Operating profit
Cement $168.4 $134.8 $112.7
Concrete Products 14.7 13.8 7.9
------ ------ ------
183.1 148.6 120.6
Corporate overhead (23.4) (21.1) (23.1)
------ ------ ------
$159.7 $127.5 $ 97.5
====== ====== ======
------------------------------------------------------------------------------------------------------------
</TABLE>
Cement - Operating earnings for the year ended December 31, 1997 were
$168.4 million compared with $134.8 million in the prior year. 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. Despite a 6% increase in clinker
production, unit cost of sales increased slightly compared with the prior year,
primarily because of a 122,000 ton increase in outside purchases of higher cost
cement. Operating earnings for 1996 were $134.8 million compared with $112.7
million in 1995. The Cement segment benefitted from a 667,000 ton increase in
1996 cement sales volumes and a 3% improvement in weighted average sales price
over 1995. The higher sales volumes and sales price reflect strong demand and
continued improvement in market conditions since the early 1990's.
18
<PAGE> 21
Sales volumes and average unit prices, unit manufacturing and other plant
operating costs and unit margins relating to cement plant operations for the
past three years appear in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Tons of cement sold (thousands) 6,982 6,725 6,058
=========== ========== ==========
Weighted average per ton data:
Sales price (net of freight) $ 66.97 $ 62.45 $ 60.69
Manufacturing and other plant operating costs (1) 43.11 42.43 41.97
----------- ---------- ----------
Margin $ 23.86 $ 20.02 $ 18.72
=========== ========== ==========
</TABLE>
(1)Includes fixed and variable manufacturing costs, cost of purchased cement,
selling expenses, plant general and administrative costs, other plant
overhead and miscellaneous costs.
Concrete Products - The Concrete Products segment's operating earnings for
1997 were $14.7 million compared with $13.8 million in the prior year. Earnings
from the Concrete Products segment improved compared with the prior year
primarily because higher earnings from the aggregate operation offset declines
from the ready-mixed concrete and block operations. Earnings from the Florida
Concrete operation declined by 13% 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 to supply selected
market areas 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 because of higher aggregate earnings. Earnings
from the aggregate operation were favorably impacted by partial realization of
price increases implemented during the previous twelve months 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 results are the asset sale gains of $2 million and $1.5 million for 1997
and 1996, respectively.
The Concrete Products segment's operating earnings for 1996 were $13.8
million compared with $7.9 million in the prior year. Revenues in 1996 increased
10% over 1995 reflecting higher sales volumes from the Florida operation and
improved sales prices from both Florida and southern California operations. Even
excluding a $1.5 million gain on the sale of surplus California real estate in
1996, the Concrete Products segment achieved a significant improvement,
primarily because of higher earnings from the Florida Concrete operation. Fair
weather and a strong Florida construction market resulted in higher sales
volumes and sales prices. Excluding the previously mentioned gain, operating
results from the California Concrete Products operations improved slightly. The
California Concrete Products operating results were favorably impacted by a 6%
improvement in ready-mixed concrete sales prices offset by a 16% decline in
earnings from the aggregate operation. Sluggish construction activity in the
California market area for concrete products continued to negatively impact
operating results.
19
<PAGE> 22
Sales volumes, average unit prices and unit operating costs and unit
margins relating to the Company's ready-mixed concrete operations for the past
three years appear in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cubic yards of ready-mixed concrete
sold (thousands) 3,656 3,704 3,442
=========== ========== ==========
Weighted average per cubic yard data:
Sales price $ 54.99 $ 53.06 $ 51.34
Operating costs (1) (2) 53.95 51.45 50.75
----------- ---------- ----------
Margin (3) $ 1.04 $ 1.61 $ 0.59
=========== ========== ==========
</TABLE>
(1)Includes plant costs, delivery, selling, general and administrative and
miscellaneous operating costs.
(2)Excludes a $2 million and $1.5 million gain, respectively, from the sale of
surplus real estate for 1997 and 1996, respectively.
(3)Does not include aggregate, concrete block and other related products which
totaled $8.7, $6.3 million and $6 million of operating earnings for 1997,
1996 and 1995, respectively.
Corporate Overhead - Corporate overhead consists primarily of costs
attributable to the Company's Houston, Texas office, which are not generally
allocated to the business segments, as well as interest income on invested funds
and miscellaneous other income and expense items. Corporate overhead expenses
for 1997 exceeded the prior year by $2.3 million, primarily because of higher
salaries and bonus accruals. Also included in corporate overhead for 1997 is
interest income of $3.1 million compared with interest income of $2.2 million in
the prior year. Corporate overhead in 1996 declined primarily because the
current year credit to pension expense was $1.7 million higher than the prior
year.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 89.1 $ 57.2 $ 7.7
====== ====== ======
Working capital $158.0 $119.8 $ 81.8
====== ====== ======
Net cash provided by operating
activities $160.2 $150.4 $ 65.4
====== ====== ======
Net cash used in investing activities $ 54.1 $ 71.1 $ 37.8
====== ====== ======
Net cash used in financing activities $ 66.4 $ 41.6 $ 27.3
====== ====== ======
Total assets $974.2 $932.0 $875.5
====== ====== ======
Total debt $164.4 $165.6 $175.2
====== ====== ======
Capital expenditures $ 70.1 $ 59.0 $ 32.9
====== ====== ======
Capital acquisitions - $ 6.2 $ 12.6
====== ====== ======
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's short-term liquidity needs have generally been satisfied by:
(i) internally generated cash flow from operations, (ii) borrowings under the
Company's revolving credit facility or (iii) a combination of these two sources.
The Company generated $160.2 million in cash provided by operating activities
for the year ended December 31, 1997, a 7% increase over 1996. The Company has
used these 1997 operating cash flows, plus existing cash and short-term
investment balances, to fund $70.1 million in capital additions primarily
related to several expansion/cost reduction projects in the Cement segment and
to repurchase $40.7 million of the Company's common stock, in addition to
meeting all working capital requirements and paying $12.7 million of dividends
on capital stock. In 1996, internally generated funds from operations were
utilized to (i) invest approximately $59 million in plant, property and
equipment, (ii) acquire a cement distribution terminal in Phoenix, Arizona,
(iii) reduce borrowings outstanding under the Company's 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 the 10% Notes. The net proceeds from this issuance and other funds
were utilized to repurchase $125 million of the Company's 14% Notes and to pay
the related prepayment premium and other costs.
In the third quarter of 1997, all of the outstanding shares of the
Company's Preferred Stock, $2.875 Cumulative Convertible Series D ("Series D
Preferred Stock") were converted into approximately 2.6 million shares of common
stock. Conversion of the Series D Preferred 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.
In late 1996, the Company called for redemption of all of the shares of its
Preferred Stock, $0.70 Cumulative Convertible Series A ("Series A Preferred
Stock") and Preferred Stock, $3.75 Convertible
21
<PAGE> 24
Exchangeable Series B ("Series B Preferred Stock"). One hundred percent of the
Series A Preferred Stock was converted into 997,000 shares of common stock.
Substantially all of the Series B Preferred Stock was converted into 2,285,000
shares of common stock. The conversion of the Series A Preferred Stock and the
Series B Preferred Stock into common stock has enhanced the Company's capital
structure by reducing fixed charges attributable to the difference between
preferred and common stock dividends of approximately $3.5 million per year.
During 1996, the Company received $20 million in proceeds from the exercise
of 1,250,000 warrants issued pursuant to the terms of a Warrant Agreement dated
as of October 31, 1991. Each warrant entitled the holder to purchase one share
of common stock at a price of $16 per share until October 31, 1996.
During 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. The Company's ownership interest in five cement manufacturing
facilities and the Company's joint venture interest in Kosmos Cement are pledged
to secure the Company's revolving credit facility. The terms of the revolving
credit facility also permit the issuance of standby letters of credit up to a
maximum of $95 million in lieu of borrowings. At January 31, 1998, there were no
borrowings and $59.9 million of letters of credit outstanding under the
revolving credit facility, leaving $140.1 million of unused and unrestricted
capacity.
CASH FLOWS
Operating Activities - Cash provided by operating activities in 1997 was
$160.2 million. Cash provided by operating activities in 1996 and 1995 was
$150.4 million and $65.4 million, respectively. The increase in cash provided by
operating activities in 1997 compared with 1996 resulted from a significant
increase in earnings before extraordinary charge. The increase in cash provided
by operating activities in 1996 compared with 1995 resulted from: (i) a
significant increase in earnings before extraordinary charge, (ii) the timing of
payments on normal trade, tax and other obligations, (iii) a decline in cement
and clinker inventory levels, and (iv) the repayment of various large notes
receivable.
Investing Activities - Net cash used in 1997 investing activities was $54.1
million including $70.1 million of additions to property, plant and equipment,
offset by $8.2 million in proceeds from miscellaneous asset sales and $7.8
million in net proceeds from the maturity of short-term investments. Investing
activities in 1996 included approximately $59 million of capital expenditures
and $6.2 million in acquisitions. Investing activities for 1995 included
approximately $32.9 million of capital expenditures and $12.6 million in
acquisitions.
Financing Activities - Net cash used in financing activities in 1997 was
$66.4 million primarily to repurchase $40.7 million of common stock and pay
dividends on capital stock. The proceeds from the issuance of $125 million of
the 10% Notes combined with other borrowings were utilized in 1996 to repurchase
$125 million of the 14% Notes and to pay the related prepayment premium and
other costs. Cash was also used in financing activities in 1996 to repurchase
$5.6 million of common stock and pay dividends on capital stock. The 1996
exercise of 1.25 million warrants to purchase common stock
22
<PAGE> 25
provided $20 million in cash from financing activities. Net cash used in
financing activities in 1995 was $27.3 million in order to reduce long-term debt
by $12.7 million and pay dividends on preferred stock.
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December 31,
1996 and December 31, 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. The decrease in goodwill reflects the continuing
amortization of goodwill and the utilization of investment tax credits acquired
in a 1988 purchase of Moore McCormack Resources, Inc. The decrease in other
long-term assets reflects the final accelerated payment on a long-term
receivable during 1997. Accounts payable and accrued liabilities decreased
because of the timing of payments on normal trade and other obligations. The
decrease in the long-term portion of postretirement benefit obligation reflects
the continuing amortization of the Company's unrecognized prior service credit
and unrecognized net gain. The reduction in the Series D Preferred Stock and the
increase in common stock and capital in excess of par value reflects the
conversion of all of this preferred stock issue into shares of common stock.
CAPITAL EXPENDITURES
The Company invested approximately $70 million in property, plant and
equipment in 1997 compared with 1998 planned capital expenditures of
approximately $103 million. Capital expenditures during 1997 amounted to
approximately $58 million for the Cement segment compared with $57 million and
$25 million in 1996 and 1995, respectively. Improved cash flow from operations
enabled the Company to maintain its capital expenditure budget in 1997 in order
to achieve process enhancements which are expected to yield improvements in
efficiency and productivity. The budgeted Cement segment 1998 capital outlays of
approximately $86 million include $32 million to increase the productive
capacity of the Victorville, California plant and $17.5 million to increase the
productive capacity of the Lyons, Colorado and Brooksville, Florida plants.
Budgeted 1998 capital expenditures also include approximately $3.5 million
related to compliance with environmental regulations. The Company believes its
expected cash flow from operating activities will be sufficient to fund these
capital expenditures. If necessary, the Company has sufficient borrowing
capacity available under its revolving credit facility to supplement these
expected future operating cash flows.
Capital expenditures during 1997 amounted to approximately $7 million for
the Concrete Products segment, consistent with similar amounts in both 1996 and
1995. Capital expenditures in 1997 were primarily designed to further increase
labor productivity, improve equipment availability and increase plant production
rates. In most instances new mobile equipment is being leased instead of
purchased. Capital outlays for the Concrete Products segment in 1998 have been
budgeted at approximately $13 million, including approximately $6 million in
plant expansion, equipment replacement and modernization, $1.5 million in quarry
development, $2.5 million related to compliance with environmental regulations
and the balance for general purchases.
23
<PAGE> 26
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 new standards for CKD will be
proposed in mid-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 environmental 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 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.
24
<PAGE> 27
Recurring Costs of Environmental Compliance - The Company's compliance with
the exacting requirements and varying interpretations of applicable laws and
regulations related to the protection of human health and the environment
requires substantial expenditures and significant amounts of management time and
energy. Owners and operators of industrial facilities may be subject to fines or
other actions imposed by the U.S. EPA and corresponding state regulatory
agencies for violations of laws or regulations relating to hazardous substances.
Although the Company does not maintain records that segregate such costs from
the other costs of on-going operations, management believes recurring
environmental compliance costs are a material component of total costs. In
addition to current period expenses, the Company typically spends several
million dollars a year on capital projects related to environmental compliance.
Approximately $6 million, 6% of the budgeted 1998 capital expenditures, is
related to compliance with environmental regulations.
While the Company commits substantial resources to complying with the laws
and regulations concerning the protection of human health and the environment,
the Company considers this dedication of resources to be an integral part of its
business. Management believes that the Company's current procedures and
practices for handling and management of materials are generally consistent with
industry standards and legal requirements and that appropriate precautions are
taken to protect employees and others from harmful exposure to hazardous
materials. However, because of the complexity of operations and legal
requirements, there can be no assurance that past or future operations will not
result in operational errors, violations, remediation liabilities or claims by
employees or others alleging exposure to toxic or hazardous materials.
Regulatory changes, enforcement activities or other factors could alter
environmental compliance costs at any time. In addition, future changes in
regulatory requirements related to the protection of human health and the
environment may require the Company and others engaged in industry to modify
various facilities and alter methods of operations at costs that may be
substantial. Management, however, has no reason to believe that the Company
would be placed at a competitive disadvantage with respect to other companies
engaged in similar lines of business operating in the U.S.
OTHER CONTINGENCIES
Import Competition - Historically, cement imports into the U.S. have
increased primarily to supplement domestic cement production during peak demand
periods. During the 1980's, however, competition from low priced imported cement
in most coastal and border areas of the U.S. grew significantly. According to
the Portland Cement Association ("PCA"), U.S. consumption of foreign cement
increased from approximately 4% of total U.S. consumption in 1982 to a peak of
approximately 20% in 1987. The large volume of low priced imported cement,
especially in the southern part of the U.S. from California to Florida,
depressed cement prices during this period of strong growth in cement
consumption.
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 ("ITC") 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
25
<PAGE> 28
cement producers. 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 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
or elimination of the suspension agreements as a result of adverse rulings in
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 PCA 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 the outstanding antidumping orders
and the suspension agreement, the prices of cement imports have risen. Unlike
the imports during the 1980's, most current imports have played a supplementary
rather than a disruptive role.
Year 2000 Compliance Problem - The Company, like most entities relying on
automated data processing and controls, is faced with the Year 2000 compliance
problem. 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, including penalty and interest, is approximately $3.7 million.
A substantial portion of the severance tax relates to limestone mined
specifically for use by a local 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.
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. The Company
disagrees with MMS' 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.
26
<PAGE> 29
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 in a particular
period.
INFLATION AND CHANGING PRICES
Inflation has become less of a factor in the U. S. economy as the rate of
increase has moderated during the last several years. The Consumer Price Index
rose approximately 2% in 1997, and approximately 3% in both 1996 and 1995. The
impact of inflation and changing prices on the Company's net sales and revenues
and on net earnings, however, has been significant as a general firming of
cement and concrete prices throughout the industry during the three years ended
December 31, 1997 has enabled the Company to increase its cement segment per
unit profit margin in each successive year.
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," "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, 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.
27
<PAGE> 30
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The businesses of the Company's Cement and Concrete Products segments are
seasonal to the extent that construction activity and hence, the demand for
cement and concrete products, tends to diminish during the winter months and
other periods of inclement weather. The following tables set forth certain
unaudited selected quarterly financial data for each of the last two years:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 151.4 $ 187.2 $ 199.2 $ 181.4
======= ======= ======= =======
Gross profit (1) $ 36.6 $ 57.4 $ 64.9 $ 57.5
======= ======= ======= =======
Earnings before interest and income taxes $ 24.1 $ 42.1 $ 52.5 $ 41.0
======= ======= ======= =======
Net earnings $ 13.6 $ 25.2 $ 32.5 $ 25.4
======= ======= ======= =======
Earnings per share:
Basic $ 0.57 $ 1.12 $ 1.44 $ 1.07
======= ======= ======= =======
Diluted $ 0.55 $ 1.04 $ 1.34 $ 1.05
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 127.4 $ 178.2 $ 189.3 $ 169.5
======= ======= ======= =======
Gross profit (1) $ 26.3 $ 50.4 $ 57.5 $ 48.9
======= ======= ======= =======
Earnings before interest and income taxes $ 12.9 $ 34.1 $ 46.0 $ 34.5
======= ======= ======= =======
Earnings before extraordinary charge $ 4.8 $ 18.9 $ 27.4 $ 20.1
======= ======= ======= =======
Extraordinary charge, net of income taxes (11.4) - - (0.1)
======= ======= ======= =======
Net earnings (loss) $ (6.6) $ 18.9 $ 27.4 $ 20.0
======= ======= ======= =======
Earnings (loss) per share: (2)
Basic
Earnings before extraordinary charge $ 0.14 $ 0.95 $ 1.43 $ 0.96
======= ======= ======= =======
Extraordinary charge, net of income taxes (0.66) - - (0.01)
======= ======= ======= =======
$ (0.52) $ 0.95 $ 1.43 $ 0.95
======= ======= ======= =======
Diluted
Earnings before extraordinary charge $ 0.13 $ 0.79 $ 1.15 $ 0.82
======= ======= ======= =======
Extraordinary charge, net of income taxes (0.63) - - (0.01)
======= ======= ======= =======
$(0.50) $ 0.79 $ 1.15 $ 0.81
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gross profit is revenues less operating expense and depreciation expense
relating to cost of sales. Depreciation expense relating to cost of sales
was $10.8 million, $10.6 million, $10.4 million and $10.4 million in each
of the quarterly periods of 1997, respectively. Depreciation expense
relating to cost of sales was $9.2 million, $9.2 million, $9.8 million and
$10.7 million in each of the quarterly periods of 1996, respectively.
(2) Because of the dilutive effect of the extraordinary charge in the first
quarter, the sum of the earnings per share for the four quarters of 1996
does not equal the earnings per share for the twelve months ended December
31, 1996.
28
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL SECTION
Statement of Consolidated Earnings for the years ended December 31,
1997, 1996 and 1995 .................................................. 30
Consolidated Balance Sheet as of December 31, 1997 and
1996................................................................... 31
Statement of Consolidated Cash Flows for the years ended December 31,
1997, 1996 and 1995 .................................................. 32
Statement of Consolidated Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ..................................... 33
Notes to Consolidated Financial Statements:
Note 1- The Company and Basis of Presentation......................... 34
Note 2- Summary of Significant Accounting Policies.................... 34
Note 3- Business Segment Information.................................. 37
Note 4- Cash and Cash Equivalents..................................... 38
Note 5- Accounts and Notes Receivable................................. 38
Note 6- Inventories................................................... 39
Note 7- Property, Plant and Equipment................................. 40
Note 8- Other Long-Term Assets........................................ 40
Note 9- Accounts Payable and Accrued Liabilities...................... 41
Note 10 - Disclosures About Fair Value of Financial Instruments..... 41
Note 11 - Long-Term Debt............................................ 42
Note 12 - Income Taxes.............................................. 44
Note 13 - Minority Interest in Consolidated Joint Venture........... 45
Note 14 - Other Long-Term Liabilities and Deferred Credits.......... 46
Note 15 - Pension Plans............................................. 46
Note 16 - Health Care and Life Insurance Benefits................... 49
Note 17 - Commitments and Contingent Liabilities.................... 50
Note 18 - Capital Stock............................................. 53
Note 19 - Stock Option Plans........................................ 56
Independent Auditors' Report.............................................. 59
29
<PAGE> 32
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 719.2 $ 664.4 $ 596.1
------------ ------------ ------------
Costs and expenses:
Operating 460.6 442.4 408.3
Depreciation, depletion and amortization 45.9 42.4 40.3
Selling and marketing 17.2 16.0 15.0
General and administrative 38.0 34.8 34.6
Other income, net (9.7) (4.9) (5.4)
------------ ------------ ------------
552.0 530.7 492.8
Minority interest in earnings of consolidated
joint venture (Note 13) 7.5 6.2 5.8
------------ ------------ ------------
559.5 536.9 498.6
------------ ------------ ------------
Earnings before interest, income taxes and
extraordinary charge 159.7 127.5 97.5
Interest, net of amounts capitalized (14.0) (19.8) (26.7)
------------ ------------ ------------
Earnings before income taxes and extraordinary charge 145.7 107.7 70.8
Federal and state income tax expense (Note 12) (49.0) (36.5) (23.3)
------------ ------------ ------------
Earnings before extraordinary charge 96.7 71.2 47.5
Extraordinary charge, net of income taxes (Note 11) - (11.5) -
------------ ------------ ------------
Net earnings $ 96.7 $ 59.7 $ 47.5
Dividends on preferred stock (2.5) (7.7) (9.8)
------------ ------------ ------------
Earnings attributable to common stock $ 94.2 $ 52.0 $ 37.7
============ ============ ============
Earnings per share (Notes 18, 19 and Exhibit 11):
Basic
Earnings before extraordinary charge $ 4.23 $ 3.50 $ 2.18
Extraordinary charge, net of income taxes (Note 11) - (0.64) -
------------ ------------ ------------
Net earnings $ 4.23 $ 2.86 $ 2.18
============ ============ ============
Diluted
Earnings before extraordinary charge $ 3.98 $ 2.97 $ 2.03
Extraordinary charge, net of income taxes (Note 11) - (0.48) -
------------ ------------ ------------
Net earnings $ 3.98 $ 2.49 $ 2.03
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
30
<PAGE> 33
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 4) $ 85.1 $ 45.4
Short-term investments (Note 10) 4.0 11.8
Accounts and notes receivable, net (Note 5) 75.7 77.3
Inventories (Note 6) 64.2 62.4
Prepaid expenses and other 11.7 13.1
------------ ------------
Total current assets 240.7 210.0
Property, plant and equipment, net (Note 7) 608.7 588.8
Goodwill 70.6 75.4
Other long-term assets (Notes 8 and 15) 54.2 57.8
------------ ------------
$ 974.2 $ 932.0
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Notes 10 and 11) $ 1.5 $ 1.2
Accounts payable and accrued liabilities (Note 9) 81.2 89.0
------------ ------------
Total current liabilities 82.7 90.2
Long-term debt (Notes 10 and 11) 162.9 164.4
Deferred income taxes (Note 12) 132.1 120.3
Minority interest in consolidated joint venture (Note 13) 27.7 28.0
Long-term portion of postretirement benefit obligation (Note 16) 67.7 71.7
Other long-term liabilities and deferred credits (Note 14) 16.9 18.1
------------ ------------
490.0 492.7
------------ ------------
Commitments and contingent liabilities (Notes 14, 15, 16 and 17)
Shareholders' equity (Notes 18 and 19):
Preferred stock, $.05 par value, 10,000,000 shares authorized:
$2.875 Cumulative Convertible Series D, 1,725,000 shares
issued and outstanding in 1996 - 86.3
Common stock, $1.25 par value, 40,000,000 shares authorized,
24,742,000 and 23,576,000 shares issued and outstanding, respectively, in
1997 and 21,948,000 and 21,766,000 shares
issued and outstanding, respectively, in 1996 30.9 27.4
Capital in excess of par value 300.4 213.3
Reinvested earnings 199.2 117.9
Treasury stock, at cost (46.3) (5.6)
------------ ------------
484.2 439.3
------------ ------------
$ 974.2 $ 932.0
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
31
<PAGE> 34
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings before extraordinary charge $ 96.7 $ 71.2 $ 47.5
Adjustments to reconcile earnings before
extraordinary charge to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 45.9 42.4 40.3
Deferred income tax expense 13.3 9.2 15.5
Amortization of debt issuance costs 1.0 2.7 2.6
Minority interest in earnings of consolidated
joint venture 7.5 6.2 5.8
Gain on sale of assets (2.8) (3.3) (1.5)
Changes in operating assets and liabilities
Decrease in accounts and notes receivable 6.0 8.4 9.8
(Increase) decrease in inventories (1.8) 7.7 (15.5)
(Increase) decrease in prepaid expenses and other (0.1) (3.8) 0.4
Increase in other long-term assets (3.8) (3.4) (1.7)
Increase (decrease) in accounts payable and
accrued liabilities 3.5 22.0 (24.7)
Decrease in other long-term liabilities and
deferred credits (4.2) (7.5) (10.4)
Net cash used in discontinued operations (1.0) (1.4) (2.7)
------------ ------------ ------------
Net cash provided by operating activities 160.2 150.4 65.4
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (70.1) (59.0) (32.9)
Proceeds from asset sales 8.2 6.5 7.0
Purchase of short-term investments (6.9) (11.8) -
Maturity of short-term investments 14.7 - -
Acquisitions, net of cash acquired - (6.2) (12.6)
Other investing activities - (0.6) (0.5)
Net cash provided by discontinued operations - - 1.2
------------ ------------ ------------
Net cash used in investing activities (54.1) (71.1) (37.8)
------------ ------------ ------------
FINANCING ACTIVITIES:
Additions to long-term debt (Note 11) - 125.0 -
Reductions in long-term debt (Note 11) (1.2) (137.4) (12.7)
Purchase of treasury stock (40.7) (5.6) -
Dividends (Note 18) (12.7) (16.8) (9.8)
Distributions to minority interest (7.8) (9.2) (3.8)
Securities issuance costs (0.3) (4.6) (1.2)
Exercise of warrants to purchase common stock - 20.0 -
Premium on early extinguishment of debt (Note 11) - (11.9) -
Other financing activities (3.7) (1.1) 0.2
------------ ------------ ------------
Net cash used in financing activities (66.4) (41.6) (27.3)
------------ ------------ ------------
Net increase in cash and cash equivalents 39.7 37.7 0.3
Cash and cash equivalents at the beginning of the year 45.4 7.7 7.4
------------ ------------ ------------
Cash and cash equivalents at the end of the year $ 85.1 $ 45.4 $ 7.7
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
32
<PAGE> 35
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK CAPITAL
--------------------- ------------------- IN EXCESS OF REINVESTED TREASURY
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS STOCK
------ ------ ------ ------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 4.6 $ 152.0 17.3 $ 21.6 $ 126.6 $ 36.9 $ -
Net earnings - - - - - 47.5 -
Dividends on preferred stock - - - - - (9.8) -
Exercise of stock options - - - - 0.2 (0.1) -
Tax benefit from exercise of stock options - - - - 0.1 - -
Other - (0.1) - - 0.1 - -
------- ------- --------- ------ --------- -------- ----------
Balance at December 31, 1995 4.6 $ 151.9 17.3 $ 21.6 $ 127.0 $ 74.5 $ -
Net earnings - - - - - 59.7 -
Dividends on preferred stock - - - - - (7.7) -
Dividends paid on common stock - - - - - (7.4) -
Exercise of warrants to purchase
common stock - - 1.3 1.6 18.4 - -
Conversion of Series A and B Preferred
Stock into common stock (2.9) (65.6) 3.3 4.1 61.5 - -
Exercise of stock options - - - 0.1 - (1.2) -
Tax benefit from exercise of warrants
and stock options - - - - 6.4 - -
Purchase of treasury stock - - - - - -
(5.6)
------- ------- --------- ------ --------- -------- ----------
Balance at December 31, 1996 1.7 $ 86.3 21.9 $ 27.4 $ 213.3 $ 117.9 $ (5.6)
Net earnings - - - - - 96.7 -
Dividends on preferred stock - - - - - (2.5) -
Dividends paid on common stock - - - - - (9.0) -
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 - (3.9) -
Tax benefit from exercise of
stock options - - - - 4.1 - -
Purchase of treasury stock - - - - - - (40.7)
------- ------- --------- ------ --------- -------- ----------
Balance at December 31, 1997 - $ - 24.7 $ 30.9 $ 300.4 $ 199.2 $ (46.3)
======= ======= ========= ====== ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
33
<PAGE> 36
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
Southdown, Inc. (the "Company") engages in the production and marketing of
cement and concrete products. The Company operates eight manufacturing
facilities, seven quarrying sites and utilizes a network of 20 cement storage
and distribution terminals for the production, importation and distribution of
portland and masonry cements, primarily in the Ohio valley and the southwestern
and southeastern regions of the United States. The Company is also vertically
integrated in the regional vicinity of its two largest cement plants, with
ready-mixed concrete operations serving markets in Florida and southern
California. For information regarding the relative importance of the Company's
business segments see Note 3 of Notes to Consolidated Financial Statements. The
consolidated balance sheet of Southdown, Inc. and subsidiary companies as of
December 31, 1997 and 1996 and the related statements of consolidated earnings,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997 are presented on the basis of generally accepted
accounting principles.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Consolidation - The consolidated financial statements of the Company
include the accounts of its divisions, its wholly-owned subsidiaries and its
majority-owned joint venture after elimination of significant intercompany
transactions and balances. Certain data for prior years have been reclassified
for purposes of comparison.
Cash and Statement of Consolidated Cash Flows Supplemental Disclosures -
For purposes of the Statement of Consolidated Cash Flows, short-term investments
which have an original maturity of three months or less are considered cash
equivalents. Cash payments for income taxes totaled $29.6 million in 1997, $11
million in 1996 and $12.1 million in 1995. In addition, the Company paid a $7.6
million tax assessment in January 1995 as a result of an Internal Revenue
Service audit of prior year federal income tax returns. Interest paid, net of
amounts capitalized was $13.3 million, $16.7 million and $24.3 million in 1997,
1996 and 1995, respectively. Interest capitalized was $2.9 million, $2 million
and $1.5 million in 1997, 1996 and 1995, respectively. Non-cash financing
activities in 1997 included the conversion of 1.7 million shares of preferred
stock with a carrying value of $86.3 million into 2.6 million shares of common
stock. Non-cash financing activities in 1996 included the conversion of 2.9
million shares of preferred stock with a carrying value of $65.6 million into
3.3 million shares of common stock. Non-cash investing activities in 1995
included (i) the assumption of $4.1 million in liabilities as partial
consideration for the acquisition of six ready-mixed concrete batch plants and
(ii) the receipt of $8.4 million in notes receivable as partial consideration in
connection with the sale of the Company's remaining hazardous waste processing
facilities.
34
<PAGE> 37
Investments - In addition to cash equivalents, the Company has investments
in debt securities that mature in more than three months but no more than one
year. All such investments are expected to be held-to-maturity and are carried
at amortized cost, without recognition of gains or losses that are deemed to be
temporary, because the Company has both the intent and the ability to hold these
investments until they mature. As of December 31, 1997 and 1996, the Company's
investments consist primarily of commercial paper maturing within one year. The
fair value of these investments approximates their amortized cost.
Inventories - Inventories are valued at the lower of cost (which includes
material, labor and manufacturing overhead) or market. The valuation of cement
inventories is determined on the last-in, first-out ("LIFO") method. The
valuation of the remaining inventories, primarily parts and supplies, is
determined on the first-in, first-out or average cost method. (See also Note 6
of Notes to Consolidated Financial Statements.)
Property, Plant and Equipment - The Company capitalizes all direct and
certain indirect expenditures incurred in conjunction with the acquisition or
construction of major facilities. Depreciation and amortization of these
capitalized costs commence when the completed facility is placed in service.
Depreciation and amortization of property, plant and equipment are computed
primarily on a straight-line basis over estimated useful lives of the related
assets, ranging from three to 50 years. On average, buildings and improvements
are depreciated based on a 50 year life; machinery and equipment are depreciated
over estimated useful lives ranging from ten to 35 years; office furniture,
fixtures and equipment over lives ranging from five to ten years and mobile
equipment over lives ranging from four to 25 years. Depletion of mineral rights
is computed on the units-of-production method. Certain costs and expenses
associated with the acquisitions of various facilities have been capitalized and
are being amortized over the estimated useful lives of the related assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset. Gain or loss is generally reflected
in earnings upon the retirement or sale of property, plant and equipment. (See
also Note 7 of Notes to Consolidated Financial Statements.)
Environmental Expenditures - The Company bases its estimates of
environmental liabilities on the nature or extent of contamination, methods of
remediation required, existing technology, presently enacted laws and
regulations and prior Company experience in remediation of contaminated sites.
Environmental expenditures that extend the life, increase the capacity, improve
the safety or efficiency of property owned by the Company, mitigate or prevent
environmental contamination that has yet to occur, or that are incurred in
anticipation of a sale of property are capitalized. Expenditures that relate to
an existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. The Company's policy is to
accrue environmental and clean-up related costs of a non-capital nature when it
is both probable that a liability has been incurred and the amount can be
reasonably estimated, whether or not a claim has been asserted or this coincides
with the completion of a remediation investigation/feasibility study or the
Company's commitment to a formal plan of action. Such estimates are revised as
additional information becomes known. (See also Note 17 of Notes to Consolidated
Financial Statements.)
Goodwill - The excess of cost over the fair value of net assets of
businesses acquired is amortized, on a straight-line basis, over periods ranging
from 15 to 40 years. Such amortization amounted to $2.8
35
<PAGE> 38
million, $2.9 million and $2.7 million in 1997, 1996 and 1995, respectively.
Accumulated amortization of goodwill was $22.2 million and $19.4 million as of
December 31, 1997 and 1996, respectively. The Company utilizes estimates of
undiscounted future cash flows of the acquired operations to evaluate any
possible impairment of the related goodwill.
Revenue Recognition - Revenue is generally recognized on the sale of
products or services when the products are shipped or the services delivered,
all significant contractual obligations have been satisfied and the collection
of the resulting receivable is reasonably assured. Interest income is recognized
on impaired notes receivable using a combination of the cost recovery and the
cash basis methods. The Company recognized no material amounts of interest
income on impaired notes receivable during the years ended December 31, 1997 and
1995, but recognized approximately $1.1 million of such interest income during
the year ended December 31, 1996.
Stock-Based Compensation - As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company continues to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
expense has been recognized for the Company's employee stock option plans. The
disclosure-only provisions of SFAS No. 123 have been included in Note 19 of
Notes to Consolidated Financial Statements.
Income Taxes - In computing its federal and state income tax liabilities,
the Company uses accelerated depreciation and deducts currently certain
expenditures that are capitalized for financial reporting purposes. Deferred
income taxes are provided on these and other temporary differences between the
tax bases of assets and liabilities and their bases for financial statement
purposes. Investment tax credit carryforwards are accounted for under the
flow-through method and, accordingly, reduce federal income taxes in the years
in which their utilization is assured. (See also Note 12 of Notes to
Consolidated Financial Statements.)
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 each of the
three years ended 1997 were net of preferred stock dividends of approximately
$2.5 million in 1997, $7.7 million in 1996 and $9.8 million in 1995. Basic
earnings per share were computed using average number of common shares
outstanding in 1997, 1996 and 1995. Diluted earnings for 1997, 1996 and 1995
assume the dilutive impact of options and warrants and the conversion of all
shares of preferred stock to common stock. (See also Note 18 of Notes to
Consolidated Financial Statements.)
New Accounting Standards - 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
consolidated results of operations, financial position or cash flows, but
management is
36
<PAGE> 39
currently evaluating what, if any, additional disclosures may be
required when these two statements are adopted in the first quarter of 1998.
Restatement of financial statement disclosures for prior years would also be
required.
NOTE 3 - BUSINESS SEGMENT INFORMATION:
Operating results and certain other financial data for the Company's
principal business segments for and at the end of each year presented are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Contributions to revenues:
Cement $ 525.5 $ 473.0 $ 419.1
Concrete Products 248.3 241.0 219.2
Intersegment sales (54.6) (49.6) (42.2)
----------- ----------- -----------
$ 719.2 $ 664.4 $ 596.1
=========== =========== ===========
Contributions to earnings before interest, income taxes and
extraordinary charge:
Operating profit
Cement $ 168.4 $ 134.8 $ 112.7
Concrete Products 14.7 13.8 7.9
----------- ----------- -----------
183.1 148.6 120.6
Corporate overhead (23.4) (21.1) (23.1)
----------- ----------- -----------
$ 159.7 $ 127.5 $ 97.5
=========== =========== ===========
Identifiable assets, end of year:
Cement $ 651.7 $ 621.7 $ 606.7
Concrete Products 140.6 146.6 145.4
Other 181.9 163.7 123.4
----------- ----------- -----------
$ 974.2 $ 932.0 $ 875.5
=========== =========== ===========
Depreciation, depletion and amortization:
Cement $ 32.2 $ 29.4 $ 27.1
Concrete Products 10.0 9.5 9.0
Other 4.7 6.2 6.8
----------- ----------- -----------
$ 46.9 $ 45.1 $ 42.9
=========== =========== ===========
Capital expenditures:
Cement $ 57.6 $ 56.7 $ 25.1
Concrete Products 6.8 6.8 6.7
Other 1.8 1.0 1.1
------------ ------------ -----------
$ 66.2 $ 64.5 $ 32.9
============ ============ ===========
</TABLE>
The Cement segment includes the operations of seven quarrying sites, eight
manufacturing facilities and a network of 20 cement storage and distribution
terminals for the production, importation and distribution of portland and
masonry cement. The Concrete Products segment includes primarily the production
and sale of ready-mixed concrete, and to a lesser extent, the sale of
construction aggregate and concrete block. Corporate overhead is generally not
allocated to the operating segments. All of the Company's operations are
conducted in the United States. Intersegment sales occur primarily between the
Company's Florida cement manufacturing plant and the related Florida concrete
products operations and between the Company's southern California cement
manufacturing plant and the related California concrete products operations.
Intersegment sales are accounted for at prices which approximate market prices
and are eliminated for purposes of preparing consolidated financial statements.
Capital expenditures shown above exclude capital acquisitions of $6.2 million
and $12.6 million, respectively, for the years ended December 31, 1996 and 1995.
There were no capital acquisitions in 1997.
37
<PAGE> 40
NOTE 4 - CASH AND CASH EQUIVALENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash on hand and demand deposits $ 7.2 $ 6.0
Commercial paper, certificates of deposit, Eurodollar
investments and money market preferreds - at cost,
which approximates market value 77.9 39.4
--------- ---------
$ 85.1 $ 45.4
========= =========
</TABLE>
There is no requirement for the Company to maintain compensating balances
under any of the agreements with the Company's lending banks.
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Trade accounts and notes receivable $ 77.7 $ 80.5
Allowance for doubtful accounts (3.9) (7.4)
--------- ---------
73.8 73.1
Other receivables 1.9 4.2
--------- ---------
$ 75.7 $ 77.3
========= =========
</TABLE>
Significant Group Concentrations of Credit Risk - A majority of the
Company's receivables are from users of portland cement, such as ready-mixed
concrete producers and manufacturers of concrete products such as blocks, roof
tile, pipe and prefabricated building components. Sales are also made to
building materials dealers, other cement manufacturers, construction contractors
and, particularly from the Texas plant, oil well cementing companies. During
each of the years ended December 31, 1997, approximately 58% of the Texas
plant's cement sales volume consisted of oil well cement sales and the balance
represented sales to local construction markets. Approximately 19%, 18% and 14%,
respectively, of the cement sold by the Company's California plant in the three
years ended December 31, 1997 was sold to the Company's ready-mixed concrete
operations in California and approximately 38% of the cement sold by the Florida
plant in each of the three years ended December 31, 1997 was sold to the
Company's Florida concrete products operations. The Company is a major producer
of ready-mixed
38
<PAGE> 41
concrete in southern California, and a major producer and
supplier of such products throughout Florida. There were no sales to any single
third-party customer which aggregated in excess of 10% of consolidated revenues
for 1997, 1996 or 1995.
An analysis of the activity in the allowance for doubtful accounts
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Beginning balance $ 7.4 $ 8.8 $ 7.2
Additions 0.6 2.6 3.6
Accounts written off (3.2) (4.1) (2.2)
Recoveries (0.9) 0.1 0.2
----------- ----------- -----------
Ending balance $ 3.9 $ 7.4 $ 8.8
=========== =========== ===========
</TABLE>
Restructured Accounts Receivable - The Company has from time-to-time
converted trade receivables into longer term notes receivable. As of December
31, 1997 and 1996, restructured accounts receivables aggregated $0.3 million and
$4 million, respectively. At December 31, 1997 and 1996, the related allowance
for doubtful accounts attributable to the restructured accounts receivable
aggregated $0.2 million and $3.8 million, respectively.
In the opinion of management, the Company is adequately reserved for credit
risks related to its potentially uncollectible receivables. However, the Company
continues to assess its allowance for doubtful accounts and may increase or
decrease its periodic provision as additional information regarding the
collectibility of these and other accounts becomes available.
NOTE 6 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Finished goods $ 17.0 $ 16.9
Work in process 9.2 9.6
Raw materials 7.0 6.8
Parts and supplies 31.0 29.1
--------- ---------
$ 64.2 $ 62.4
========= =========
</TABLE>
Inventories valued on the LIFO method were $25.7 million at December 31,
1997 and $26.1 million at December 31, 1996 compared with current costs of $36.4
million and $34.7 million, respectively.
39
<PAGE> 42
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
<S> <C> <C>
1997 1996
Land (at cost):
Cement $ 32.7 $ 33.1
Concrete Products 22.1 22.5
Corporate and other 2.9 2.6
--------- ---------
57.7 58.2
--------- ---------
Plant and Equipment (at cost):
Cement 804.3 763.9
Concrete Products 103.3 104.2
Corporate and other 15.8 16.7
--------- ---------
923.4 884.8
Less accumulated depreciation, depletion
and amortization (372.4) (354.2)
--------- ---------
$ 608.7 $ 588.8
========= =========
</TABLE>
NOTE 8 - OTHER LONG-TERM ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Prepaid pension costs (Note 15) $ 32.3 $ 28.5
Land held for sale (1) 6.5 8.8
Unamortized debt issuance costs (2) 4.5 5.2
Net present value of purchased supply contracts (3) 3.4 4.2
Other 7.5 11.1
--------- ---------
$ 54.2 $ 57.8
========= =========
</TABLE>
- -----------------------
(1) Includes various non-income producing real estate parcels offered for sale.
(2) Costs and expenses associated with the issuance of certain of the Company's
senior debt and senior subordinated notes. Debt issuance costs are being
amortized over the respective terms of the debt.
(3) Two contracts to supply flyash through 1999 and 2004, respectively, were
acquired in conjunction with the purchase of Moore McCormack Resources,
Inc. (Moore McCormack) in 1988. The supply contracts were recorded at their
net present values at the date of acquisition and are being amortized over
the respective lives of the contracts.
40
<PAGE> 43
NOTE 9- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Trade accounts payable $ 23.4 $ 26.0
Accrued compensation and benefits 18.6 19.6
Accrued liabilities, trade 16.7 18.3
Accrued interest payable 4.3 4.5
Accrued taxes, other 3.9 3.2
Current portion of postretirement benefit obligation 3.0 3.0
Accrued environmental remediation costs 1.1 2.2
Income tax liability 1.5 1.5
Other accrued liabilities 8.7 10.7
--------- ---------
$ 81.2 $ 89.0
========= =========
</TABLE>
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Investments with maturities between three and twelve months are considered
short-term. Short-term investments consist of debt securities such as commercial
paper, time deposits, certificates of deposit, bankers' acceptances and
marketable direct obligations of the U.S. Treasury. All of the Company's
short-term investments as of December 31, 1997 were classified as
held-to-maturity in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Because of the short duration of these investments, changes in market interest
rates would not have a significant impact on their fair value. Accordingly, the
fair market value of these securities approximates their amortized cost of $4
million and $11.8 million as of December 31, 1997 and 1996, respectively.
The carrying amounts of the Company's other assets and liabilities which
are considered to be financial instruments approximate their value, except for
long-term debt. The estimated fair value amounts for the Company's long-term
debt as of December 31, 1997 and 1996 have been determined by the Company using
appropriate valuation methodologies and information currently available to
management. Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values presented
herein are indicative of the amounts that would be realized in a free market
exchange. The fair value of the Company's long-term debt was estimated based on
the quoted market prices for similar issues or on the current rates available to
the Company for debt with similar terms and remaining maturities.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-------------------------------------------------
1997 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Long-term debt $ 164.4 $ 176.5 $ 165.6 $ 172.8
========== ========== =========== ==========
</TABLE>
The Company held no derivative financial instruments as of December 31,
1997 or 1996.
41
<PAGE> 44
NOTE 11 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Senior debt:
Revolving credit facility $ - $ -
Industrial development and pollution control bonds 38.5 39.3
Other 0.9 1.3
Subordinated debt:
10% senior subordinated notes 125.0 125.0
--------- ---------
164.4 165.6
Less current maturities (1.5) (1.2)
--------- ---------
$ 162.9 $ 164.4
========= =========
</TABLE>
Revolving Credit Facility - The Company's revolving credit facility is with
Wells Fargo Bank, N.A., in its individual capacity and as agent; Societe
Generale, Southwest Agency; The Bank of Nova Scotia; Credit Suisse First Boston;
Caisse Nationale De Credit Agricole; an affiliate of Canadian Imperial Bank of
Commerce; Banque Paribas and BankBoston, N.A. ("Revolving Credit Facility"). The
Company's ownership interest in five cement manufacturing facilities and the
Company's joint venture interest in Kosmos Cement Company, a Kentucky general
partnership, are pledged to secure the Revolving Credit Facility.
During 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. The Revolving Credit Facility also permits the issuance of
standby letters of credit up to a maximum of $95 million in lieu of borrowings.
The Revolving Credit Facility contains various negative and affirmative
covenants and cross default provisions and customary conditions to borrowing.
Borrowings under the Revolving Credit Facility bear interest at margins either
at or above a prime rate or above LIBOR as selected by the Company from
time-to-time. As of December 31, 1997, there were no borrowings outstanding and
$59.9 million in letters of credit outstanding under the Revolving Credit
Facility leaving $140.1 million of unused capacity.
Industrial Development and Pollution Control Bonds - The industrial
development and pollution control bonds were issued by various state or local
financing authorities and are due on various dates through the year 2017. The
obligations bear interest, which is nontaxable to the payees, at varying rates
that approximate 50% of the prevailing prime rate. The obligations are secured
by irrevocable letters of credit issued under the Revolving Credit Facility. The
Company refunded bonds totaling $7.5 million during 1997, extending their
maturity until 2017. During the first quarter of 1998, the Company also
negotiated an extension of $17.8 million of the pollution control bonds until
2013.
10% Senior Subordinated Notes - On March 19, 1996, the Company issued an
aggregate of $125 million principal amount of 10% Senior Subordinated Notes due
2006 (the "Notes") in a private placement. The net proceeds of the Notes and
other funds were used to retire $125 million in principal amount of the
Company's 14% Senior Subordinated Notes due 2001, Series B (the "14%
42
<PAGE> 45
Notes") which the Company had offered to repurchase. The total cost to the
Company was $136.9 million plus accrued interest. The Company recorded a $11.5
million net of tax extraordinary charge in 1996 to reflect the prepayment
premium and other costs incurred in the repurchase.
The Notes were issued pursuant to an Indenture dated as of March 19, 1996
between the Company and State Street Bank and Trust Company, as Trustee
("Indenture"). During 1996, all of the Notes were exchanged in a registered
exchange offer for $125 million aggregate principal amount of the Company's 10%
Senior Subordinated Notes Due 2006, Series B ("10% Notes") pursuant to a
Registration Rights Agreement entered into at the time of the private placement.
The 10% Notes were also issued under the Indenture, and the terms of the 10%
Notes are substantially identical to those of the Notes. The 10% Notes pay
interest semiannually, mature on March 1, 2006 and are noncallable until March
1, 2001, after which the 10% Notes are callable at the option of the Company, in
whole or in part, at any time at 105% of the principal amount, declining ratably
in annual increments to par on or after March 1, 2004. The 10% Notes are
subordinate in right of payment to all existing and future senior debt, as
defined, of the Company, rank on a parity with all existing and future senior
subordinated debt, as defined, of the Company, and rank senior to all other
existing and future subordinated debt of the Company. The Indenture includes
affirmative and negative covenants which in certain instances restrict, among
other things, incurrence of additional indebtedness, certain sales of assets,
certain mergers and consolidations, dividends and distributions and redemptions
and repurchases of equity securities.
Annual Aggregate Maturities of Long-term Debt - The approximate aggregate
principal payments due in future years on long-term debt as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1998$ 1.5
1999 0.1
2000 -
2001 -
2002 0.1
Thereafter 162.7
--------
$ 164.4
</TABLE>
43
<PAGE> 46
NOTE 12 - INCOME TAXES:
The following table provides a breakdown of the current and deferred
components of the provisions for federal and state income taxes attributable to
the earnings before income taxes and extraordinary charge.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Federal income tax expense:
Current $ 30.9 $ 25.3 $ 6.9
Deferred 12.8 8.7 14.5
State income tax expense
Current 4.8 2.0 0.9
Deferred 0.5 0.5 1.0
------------ ------------ -----------
$ 49.0 $ 36.5 $ 23.3
============ ============ ===========
</TABLE>
The tax benefit allocated to the 1996 extraordinary charge was $6.2
million.
A reconciliation between the income tax expense recognized in the Company's
Statement of Consolidated Earnings and the income tax expense computed by
applying the statutory federal income tax rate to the earnings before income
taxes and extraordinary charge follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes
and extraordinary charge $145.7 $107.7 $ 70.8
====== ====== ======
Income tax expense
computed at statutory rate $ 51.0 35.0% $ 37.7 35.0% $ 24.8 35.0%
Benefit of statutory depletion (5.5) (3.8) (4.2) (3.9) (4.0) (5.6)
Effect of non-deductible goodwill 0.7 0.5 0.8 0.7 0.7 1.0
Effect of state income tax
expense 3.4 2.4 1.6 1.5 1.3 1.8
Other (0.6) (0.5) 0.6 0.6 0.5 0.7
------ ------ ------ ------ ------ ------
$ 49.0 33.6% $ 36.5 33.9% $23.3 32.9%
====== ====== ====== ====== ====== ======
</TABLE>
The provision for deferred income taxes represents the change in the
Company's deferred income tax liability during each year, including the effect
of any enacted tax rate changes. A deferred income tax liability or asset is
recognized for the net effect of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
after applying enacted statutory tax rates and laws in effect for the year in
which the differences are expected to reverse and, in certain instances, (ii)
the deferred tax effects of tax net operating loss and tax credit carryforwards.
44
<PAGE> 47
Significant components of the Company's net deferred tax liability as
of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax bases of
property, plant and equipment $ 155.5 $ 151.1
Assets of overfunded pension plan 12.7 10.9
Other 8.9 11.4
---------- ----------
177.1 173.4
---------- ----------
Deferred tax assets:
Postretirement benefit obligation 27.8 28.6
Reserves not currently deductible 10.1 11.6
Deferred state income taxes 5.0 3.7
Tax credit carryforwards - 1.9
AMT credit carryforwards 6.5 15.0
Other - 0.2
---------- ----------
49.4 61.0
Valuation allowance - (2.0)
---------- ----------
49.4 59.0
Net deferred tax liability $ 127.7 $ 114.4
========== ==========
</TABLE>
The valuation allowance has been reduced by $2 million during 1997 because
of the anticipated use on the 1997 federal income tax return of investment tax
credits acquired in prior business combinations and for which no tax benefit was
recognized at the time of acquisition. Goodwill related to the acquisition of
these investment tax credit carryforwards has been reduced by a corresponding $2
million.
The consolidated federal income tax returns of the Company for 1993 through
1995 and various state income tax returns are currently under examination. In
the opinion of management, adequate provision has been made at December 31, 1997
for income taxes that might be due as a result of these audits and any resulting
assessments will have no material effect on the Company's consolidated earnings.
NOTE 13 - MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE:
Kosmos Cement Company ("Kosmos Cement") is a partnership which includes a
cement plant located in Kosmosdale, Kentucky and a cement plant located near
Pittsburgh, Pennsylvania along with related terminals and facilities. The
partnership is 25% owned by Lone Star Industries, Inc. ("Lone Star") and
operated and 75% owned by the Company. The Company's Consolidated Balance Sheet
includes 100% of the assets and liabilities of Kosmos Cement. Lone Star's 25%
interest in Kosmos Cement and the earnings therefrom have been reflected as
"Minority interest in consolidated joint venture" and "Minority interest in
earnings of consolidated joint venture" on the Company's Consolidated Balance
Sheet and Statement of Consolidated Earnings, respectively.
45
<PAGE> 48
NOTE 14 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Estimated liabilities on discontinued operations $ 4.2 $ 5.1
Deferred payment obligation 8.2 8.2
Supplemental pension liabilities (Note 15) 3.8 3.4
Other 0.7 1.4
--------- ---------
$ 16.9 $ 18.1
========= =========
</TABLE>
Discontinued Operations - The Company has accrued loss provisions for
certain environmental issues under the indemnification provisions of sales
agreements associated with the environmental services operations discontinued in
1994 and for which the Company remains contingently liable. In addition, as part
of the acquisition of Moore McCormack in 1988, the Company assumed certain fixed
and contingent liabilities pursuant to certain guarantees and undertakings
related to operations that had been previously discontinued by Moore McCormack.
Deferred Payment Obligation - In connection with the July 1990 purchase of
a hazardous waste processing facility from an affiliate of Browning-Ferris
Industries, Inc. ("BFI"), the Company assumed a conditional payment obligation
payable to the former shareholders of the BFI subsidiary.
NOTE 15 - PENSION PLANS:
The Company has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's
compensation and are integrated with Social Security. The Company's policy is to
fund its pension plan in accordance with sound actuarial principles.
The funded status of the Company's pension plan is based on a comparison of
the market value of the plan's assets at the end of the year with actuarial
estimates of the projected benefit obligation. The assumed weighted average
discount rate used to measure the projected benefit obligation was 6.875% in the
year ended 1997 as compared with 7.5% in both 1996 and 1995. The rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation was 4.5% in all three years ended
1997. The expected long-term rate of return on assets was 8.5% in all three
years ended 1997. Differences in estimates used and actual experience, along
with changes in assumptions from year-to-year, are included in net deferred
gains or losses. The Company amortizes the unrecognized net gains or losses
whenever such amount exceeds 10% of the greater of the projected benefit
obligation or the market value of plan assets. The unrecognized net obligation
or net asset, unrecognized net gain or loss and prior service costs were
amortized over periods of 6 to 11 years for 1997, over periods of 7 to 12 years
for 1996 and over periods of 8 to 13 years for 1995 which approximated the
estimated average remaining service periods of employees expected to receive
benefits under the plan.
46
<PAGE> 49
The Company recognized pension income of approximately $4.3 million, $3.4
million and $1.6 million in 1997, 1996 and 1995, respectively, under such
Company-sponsored plans. In addition to the Company-sponsored plan, certain
union employees of the Company's Colorado cement operations are covered under a
multi-employer defined benefit plan administered by its union. Amounts
contributed to the multi-employer plans and included in pension expense were
$0.7 million in 1997, $1.1 million in 1996 and $1.6 million in 1995.
The pension plan's assets exceeded the accumulated benefit obligation as of
both December 31, 1997 and 1996. The following table sets forth information
regarding the plan's funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested portion $ (128.9) $ (117.6)
Nonvested portion (2.6) (2.2)
--------- ---------
Accumulated benefit obligation (131.5) (119.8)
Effect of estimated future pay increases (10.9) (9.2)
--------- ---------
Projected benefit obligation (142.4) (129.0)
Plan assets at fair value, primarily debt
and equity securities (1) 211.6 185.9
--------- ---------
Overfunded status 69.2 56.9
Unrecognized net gain (39.4) (31.3)
Unrecognized prior service cost 2.7 3.1
Unrecognized net asset (0.2) (0.2)
--------- ---------
Prepaid pension costs $ 32.3 $ 28.5
========= =========
</TABLE>
(1) Plan assets include 224,500 shares of the Company's common stock at
December 31, 1997 and 1996.
The components of net periodic pension cost included in the results of
operations for the years ended December 31, 1997, 1996 and 1995 under
Company-sponsored plans were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 2.7 $ 2.5 $ 2.0
Interest cost on projected benefit obligation 9.4 9.1 8.5
Actual return on assets (34.6) (20.7) (38.3)
Asset gain deferred 19.2 6.3 26.5
Amortization of unrecognized -
Net gain (1.4) (1.0) (0.6)
Prior service cost 0.4 0.4 0.4
Net asset - - (0.1)
----------- ----------- -----------
Net pension income $ (4.3) $ (3.4) $ (1.6)
=========== =========== ===========
</TABLE>
47
<PAGE> 50
Directors Pension Plan - The Company also has an unfunded defined benefit
pension plan covering the members of its Board of Directors who have five years
of service and are not participants in any of the Company's qualified pension
plans. Eligible directors are entitled to a monthly benefit equal to two-thirds
of their average monthly fee. The benefit is payable over
a number of months equal to such director's service on the Board. During
1997 and 1996, the Company included in expense $151,000 and $154,000,
respectively, to provide for benefits accrued under the plan.
Retirement Savings Plan - The Company maintains a retirement savings plan
("Savings Plan") in which substantially all employees are eligible to
participate. The Savings Plan is designed to qualify under Sections 401(a) and
401(k) of the Internal Revenue Code of 1986 ("Code"). Under the Savings Plan, a
participating employee may elect to defer taxation on a portion of his or her
eligible earnings up to a maximum amount defined by the Code, by directing the
Company to contribute such earnings to the Savings Plan on the employee's
behalf. A participating employee may also make after-tax contributions to the
Savings Plan. The Company contributes an amount to the Savings Plan equal to 50%
of an employee's contributions, subject to certain limitations. The Company's
matching contributions are invested solely in its common stock acquired in open
market purchases. All employee contributions and Company matching contributions
are fully vested when made. Amounts held by the Savings Plan for the account of
a participating employee are distributable as a lump-sum upon termination of
employment for any reason. Subject to certain conditions and restrictions, a
participating employee may receive a distribution or a loan of a portion of his
account balance while employed by the Company. The Company contributed $2.2
million in 1997, $2 million in 1996 and $1.9 million in 1995, in matching
contributions that were charged to compensation expense and invested in the
Company's common stock.
Supplemental Executive Retirement Plan ("SERP") - Effective October 1,
1997, the Company adopted a non-qualified supplemental retirement plan for a
group of senior line and staff management personnel. Under the SERP,
participants will receive an additional monthly retirement benefit equal to the
difference between the amount calculated under the Company's qualified defined
benefit plan discussed above and the amount that would be calculated assuming
compensation, including incentive compensation earned pursuant to the Company's
Annual Incentive Plan, was determined without regard to limitations imposed by
the Internal Revenue Code of 1986, as amended.
The SERP is unfunded. The annual amount charged to pension expense and
accrued as a pension liability under the SERP for financial reporting purposes
is the sum of (1) the present value of the actuarially determined projected
benefit obligation, using an assumed weighted average discount rate of 6.875%
and an assumed rate of increase in future compensation levels of 4.5%, and (2)
the amortization of the unrecognized prior service cost over a period of 8 years
which approximates the estimated average remaining service period of those
certain senior employees expected to receive benefits under the SERP. The
Company recognized SERP pension expense of $146,000 during 1997. As of December
31, 1997, the unrecognized prior service cost and the projected benefit
obligation for the SERP were $2.1 million and $2.5 million, respectively.
Supplemental Pension Liabilities - A small number of former employees and
retirees of the Company are eligible for payments under non-qualified
supplemental pension agreements. Under such arrangements, the present value of
probable future cash outlays was accrued during the expected service life of the
employee and charged to earnings for financial reporting purposes. (See also
Note 14 of Notes to Consolidated Financial Statements.)
48
<PAGE> 51
NOTE 16 - HEALTH CARE AND LIFE INSURANCE BENEFITS:
The Company offers health care benefits to active employees and their
dependents. Certain retirees under the age of sixty-five and their dependents
are also offered health care benefits which consist primarily of medical and
life insurance benefits. However, benefit payments for covered retirees
sixty-five years of age or older are reduced by benefits paid by Medicare.
The following table sets forth the Company's accumulated postretirement
benefit obligation, none of which has been funded, reconciled with the amount
shown in the Company's balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO)
Retirees $ 25.8 $ 26.3
Fully eligible active participants 0.9 0.7
Other active participants 3.1 2.8
------------ ------------
29.8 29.8
Plan assets at fair value - -
------------ ------------
Accumulated postretirement benefit obligation 29.8 29.8
Unrecognized prior service credit 26.3 28.6
Unrecognized net gain 14.6 16.3
------------ ------------
Accrued postretirement benefit costs $ 70.7 $ 74.7
============ ============
</TABLE>
The components of net periodic postretirement benefit costs included in the
results of operations for the three years ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(IN MILLIONS)
---------------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Service cost $ 0.3 $ 0.3 $ 0.3
Interest cost on APBO 2.1 2.1 2.4
Amortization of unrecognized prior service
credit and net gain (4.2) (4.2) (4.7)
-------- ------- --------
$ (1.8) $ (1.8) $ (2.0)
======== ======= ========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for general health care and prescription drugs
was 8%, 8.67% and 9% as of December 31, 1997, 1996 and 1995, respectively. For
all three years, rates were assumed to decrease each successive year until it
reaches 6% in 2004 and thereafter. The health care cost trend rate assumption
has a significant effect on the amount of the obligation and periodic cost
reported. For example, a one-percentage-point increase in the assumed health
care cost trend rate for each year would increase the APBO as of December 31,
1997 and net periodic postretirement health care cost by approximately 5% and
4%, respectively. The assumed discount rates used in determining the APBO were
6.875% as of December 31, 1997 and 7.5% as of December 31, 1996 and 1995,
respectively.
49
<PAGE> 52
Most of the Company's health care benefits are self-insured and
administered on cost plus fee arrangements with a major insurance company or
provided through health maintenance organizations. Claims, premiums and
administrative costs paid for active employees and their dependents were $9.8
million, $7.8 million and $8.2 million in 1997, 1996 and 1995, respectively. For
retirees and their dependents these costs were $2.7 million in 1997, $3.4
million in 1996 and $3.2 million in 1995.
The Company provides life insurance benefits to its active and retired
employees. Generally, life insurance benefits for retired employees are reduced
over a number of years from the date of retirement to a minimum level. Costs
paid for life insurance benefits for employees were approximately $830,000 in
1997, $637,000 in 1996 and $896,000 in 1995. The costs of providing such
benefits for retired employees were de minimis in each of the three years in the
period ended December 31, 1997.
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES:
Operating Leases - Rental expense covering manufacturing, transportation
and certain other facilities and equipment for the years 1997, 1996 and 1995
aggregated $19.8 million, $17.2 million and $14 million, respectively. Minimum
annual rental commitments as of December 31, 1997 under noncancellable leases
are set forth as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------
MANUFACTURING
MOBILE EQUIPMENT
EQUIPMENT AND OTHER TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
1998 $ 10.7 $ 3.3 $ 14.0
1999 10.1 2.8 12.9
2000 8.4 2.6 11.0
2001 5.2 2.3 7.5
2002 2.3 2.1 4.4
Thereafter 3.1 10.4 13.5
----------- ----------- -----------
$ 39.8 $ 23.5 $ 63.3
=========== =========== ===========
</TABLE>
Environmental Matters - Industrial operations have been conducted at some
of the Company's facilities for almost 100 years. Many of the raw materials,
products and by-products associated with the operation of any industrial
facility, including those for the production of cement or concrete products,
contain chemical elements or compounds that are designated as hazardous
substances. The Company's operations involving such materials are regulated by
federal, state and local laws and regulations pertaining to the protection of
human health and the environment. In the past, in accordance with industry
practice, the Company disposed of various materials, both onsite and offsite, in
a manner which in some cases would not be permitted under current environmental
regulations. Certain of these materials, if discarded today, might be
categorized as hazardous substances or wastes.
Remediation under environmental clean-up rules can be costly. Federal
environmental laws as well as analogous laws in certain states, create joint and
several liability for the cost of cleaning up or correcting releases into the
environment of designated hazardous substances. Among those who may be held
jointly and severally liable are those who generated the hazardous substances,
those who
50
<PAGE> 53
arranged for disposal of the hazardous substances, those who owned or operated
the disposal site or facility at the time of disposal, and subsequent owners and
operators.
While several of the Company's facilities are the subject of various local,
state or federal environmental proceedings and inquiries, most of these
investigations are in their preliminary stages and final results may not be
determined for years. In certain instances, the Company has been named as one of
several potentially responsible parties ("PRP") charged with remediation
activities pursuant to CERCLA. Despite the fact that current law imposes joint
and several liability on all parties at any Superfund site, the Company's
accrual for estimated liability in these instances reflects only the Company's
expected share based on the Company's assessment of (i) its proportionate
volumetric contribution to the waste material, (ii) whether responsibility is
being disputed, (iii) the terms of any existing agreements, (iv) the solvency of
other parties and (v) experience regarding similar matters. While some of these
matters have been settled for de minimis amounts, others are in their
preliminary stages and final results may not be determined for years. The
Company accrues a charge for an environmental reserve when it is probable that a
liability has been incurred and the amount of the liability is reasonably
estimable, whether or not claims have been asserted. All environmental accruals
have been recorded without giving effect to any possible future recoveries from
insurance or other third parties. It is often difficult to estimate the future
impact of environmental matters and accruals are adjusted as further information
develops or circumstances change.
Accrued liabilities specifically related to environmental matters were, in
the aggregate, $1.2 million, $2.3 million and $3.4 million at December 31, 1997,
1996 and 1995, respectively. Additional amounts related to closure, remediation
and other environmental related liabilities were included in the charge accrued
in conjunction with the 1994 loss on disposal of the discontinued environmental
services operations. Cash expenditures often lag by a number of years the period
in which an accrual is recorded. Based on the information developed to date, 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. Until all environmental studies, investigations,
remediation work and negotiations with or litigation against potential sources
of recovery have been completed, however, the ultimate cost that might be
incurred by the Company to resolve these environmental issues cannot be assured.
Additions to and expenditures charged against the Company's environmental
accruals related to continuing operations during the past three years were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
------------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Beginning balance $ 2.3 $ 3.4 $ 4.2
Expense provisions 0.1 0.3 1.7
Expenditures (1.2) (1.4) (2.5)
--------- --------- --------
Ending balance $ 1.2 $ 2.3 $ 3.4
========= ========= =======
</TABLE>
Based solely upon the information developed to date, which is subject to
change as additional information becomes available, management of the Company
believes that known matters can be successfully resolved in cooperation with
local, state and federal regulating agencies. However, because the Company's
results of operations vary considerably with construction activity and other
51
<PAGE> 54
factors, it is at least reasonably possible that future charges for
environmental contingencies could, depending on their timing and magnitude, have
a material adverse impact on the Company's results of operations in a particular
period.
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 fees for its
cement manufacturing plants. In addition, the U.S. Environmental Protection
Agency ("U.S. EPA") is developing air toxics regulations for a broad spectrum of
industrial sectors, including portland cement manufacturing. U.S. EPA has
indicated that the new maximum available control technology standards could
require significant reduction of air pollutants below existing levels prevalent
in the industry. Management has no reason to believe, however, that these new
standards would place the Company at a disadvantage with respect to its
competitors.
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 agreement 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. The MMS's Houston Compliance Division has advised EDC that it had
determined that a lump sum payment made by Tennessee Gas Pipeline Company to
Pelto was, for several alleged reasons, royalty bearing and, accordingly, it had
made a determination of underpayment of royalties in the amount of $1.35 million
attributable to these proceeds. The Company has been notified by EDC that EDC
was exercising its indemnification rights under the 1989 stock purchase
agreement for Pelto with respect to both the Tennessee Gas matter and an earlier
similar MMS determination of royalty underpayment, in an amount unspecified,
with respect to a separate $5.9 million gas settlement payment from
Transcontinental Gas Pipe Line Corporation to Pelto. The Company disagrees with
MMS' 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. In a different case, the U.S. Circuit Court of Appeals
for the Sixth Circuit reached a decision in 1997 which may be contrary. A
petition for review of the Sixth Circuit's decision by the U.S. Supreme Court
was denied. Final resolution of other cases now pending before the MMS,
including those of EDC, may depend upon further proceedings in the District of
Columbia District Court and the D.C. Circuit regarding implementation of the
D.C. Circuit's opinion disallowing royalty in the 1996 case.
52
<PAGE> 55
Kosmos Cement Joint Venture Severance Tax Audit - In October 1997, the
State of Kentucky proposed a deficiency assessment against Kosmos Cement, 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,
including penalty and interest, is approximately $3.7 million. A substantial
portion of the severance tax relates to limestone mined specifically for use by
a local utility company which is contractually liable for severance taxes on
limestone provided to it under a processing and supply agreement. Management
believes there are good defenses regarding the other portions of the assessment.
Kosmos Cement and its outside counsel in Kentucky filed a Protest and Refund
Request with the State on behalf of Kosmos Cement on December 5, 1997. 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 Cement Joint Venture.
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.
Other - The Company has certain other commitments and contingent
liabilities incurred in the ordinary course of business including, among other
things, being a named defendant in lawsuits related to various matters including
personal injury, contractual indemnifications, environmental remediation,
product liability and employment matters. These various commitments and
contingent liabilities, in the judgment of management, will not result in losses
which would materially affect its consolidated financial position. However,
because the Company's results of operations vary considerably with construction
activity and other factors, it is at least reasonably possible that future
charges for contingencies could, depending on their timing and magnitude, have a
material adverse impact on the Company's results of operations in a particular
period.
NOTE 18 - CAPITAL STOCK:
The authorized capital stock of the Company comprises 40,000,000 shares of
Common Stock, $1.25 par value ("Common Stock"), and 10,000,000 shares of
Preferred Stock, $.05 par value (the "Preferred Stock"). Chemical Shareholder
Services Group, Inc., a subsidiary of Chemical Banking Corporation, serves as
the registrar and transfer agent for the Common Stock.
COMMON STOCK
At December 31, 1997, there were approximately 24,742,000 shares of common
stock issued and approximately 23,576,000 shares of common stock outstanding and
held of record by approximately 1,549 shareholders, and approximately 1.7
million shares were reserved for future issuance upon exercise of options
granted under employee benefit plans and stock issued under phantom stock plans.
A dividend of $0.10 per share of common stock has been paid quarterly beginning
in March 1996.
53
<PAGE> 56
A reconciliation of the income available to common shareholders and share
amounts used in the computation of basic and diluted earnings per share follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
(in millions except per share amounts)
<S> <C> <C> <C>
Earnings before extraordinary charge
and preferred stock dividends $ 96.7 $ 71.2 $ 47.5
Less: preferred stock dividends (2.5) (7.7) (9.8)
----------- ----------- -----------
Earnings available to common shareholders
for basic earnings per share 94.2 63.5 37.7
Effect of dilutive securities:
Convertible preferred stock 2.5 7.7 9.8
----------- ----------- -----------
Earnings available to common shareholders
for diluted earnings per share $ 96.7 $ 71.2 $ 47.5
=========== =========== ===========
Average outstanding common shares for basic
earnings per share 22.3 18.2 17.3
Effect of dilutive securities:
Stock options and warrants 0.4 0.5 0.2
Convertible preferred stock 1.6 5.3 5.9
----------- ----------- -----------
Total outstanding shares for diluted earnings
per share 24.3 24.0 23.4
=========== =========== ===========
Earnings before extraordinary charge per share
Basic $ 4.23 $ 3.50 $ 2.18
=========== =========== ===========
Diluted $ 3.98 $ 2.97 $ 2.03
=========== =========== ===========
</TABLE>
COMMON STOCK REPURCHASE PROGRAM
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 December 31,
1997, approximately 1,166,000 shares of common stock had been purchased in open
market transactions at a cost of $46.3 million.
SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights plan pursuant to which each holder of
common stock has one Right per share with an exercise price of $60, subject to
adjustment (the "Purchase Price"). The Rights are not exercisable generally
until the earlier of (i) ten days following a public announcement that a person
or group (an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of common stock
(the date of such announcement being the "Stock Acquisition Date") or (ii) ten
business days following the commencement of a tender offer or exchange offer
that would result in a person's becoming an Acquiring Person.
With certain exceptions, in the event a person becomes an Acquiring Person,
each Right (except those held by the Acquiring Person or certain related
persons, which become void) will then entitle the holder to purchase a number of
shares of common stock of the Company having a then
54
<PAGE> 57
current market value equal to twice the Purchase Price. In the event that any
time on or after the Stock Acquisition Date, (i) the Company is acquired in a
merger or other business combination, with certain exceptions, or (ii) 50% or
more of the Company's assets or earning power is sold or transferred, each Right
(except those held by the Acquiring Person or certain related persons, which
become void) will then entitle the holder to purchase a number of shares of
common stock of the acquiring company (or in certain cases its controlling
person) having a then current market value equal to twice the Purchase Price.
The Rights expire at the close of business on March 14, 2001, and at any
time until ten days following a Stock Acquisition Date, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right, payable, at
the option of the Company, in cash, shares of common stock, or other
consideration. The provisions of the shareholder rights plan are intended to
discourage, or may have the effect of discouraging, partial tender offers,
front-end loaded two-tier tender offers and certain other types of coercive
takeover tactics and inadequate takeover bids and to encourage persons seeking
to acquire control of the Company first to negotiate with the Company. The
Company believes that these provisions on balance provide benefits to the
Company's shareholders by enhancing the Company's potential ability to negotiate
an improvement in terms with the proponent of an unfriendly or unsolicited
proposal to take over or restructure the Company.
PREFERRED STOCK
The Board of Directors is authorized to designate series of preferred
stock and fix the powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereon.
Series A and B Preferred Stock - In 1987, the Company issued 1,999,998
shares of Preferred Stock, $.70 Cumulative Convertible Series A ("Series A
Preferred Stock"). In 1988, the Company issued 960,000 shares of Preferred
Stock, $3.75 Convertible Exchangeable Series B ("Series B Preferred Stock"). In
late 1996, substantially all of the Series A and Series B Preferred Stock were
converted into 3.3 million shares of common stock. Dividends paid or accrued on
the Series A and B Preferred Stock amounted to approximately $2.7 million in
1996 and $4.8 million in 1995.
Series C Preferred Stock - In connection with the distribution of the
Rights on March 14, 1991, the Board of Directors of the Company authorized
400,000 shares of Series C Preferred Stock, none of which are outstanding. The
Series C Preferred Stock would be issued only upon the exercise of Rights, in
certain limited cases, and only if the Rights were exercised. The Rights are not
exercisable as of the date hereof. See "Shareholder Rights Plan."
Series D Preferred Stock - In 1994, the Company issued 1,725,000 shares of
Preferred Stock, $2.875 Cumulative Convertible Series D ("Series D Preferred
Stock"). Dividends paid on the Series D Preferred Stock were approximately $2.5
million during 1997. Dividends paid or accrued on the Series D Preferred Stock
were approximately $5 million in both 1996 and 1995. 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, basic earnings per share would
have been reduced by $0.19 for the year ended December 31, 1997.
55
<PAGE> 58
NOTE 19 - STOCK OPTION PLANS:
Employee Stock Option Plans - As of December 31, 1997, there are two stock
option plans for officers and certain key employees of the Company. Both the
1987 Stock Option Plan ("1987 Plan") and the 1989 Stock Option Plan ("1989
Plan") each had initially available for award up to 2,000,000 shares of the
Company's common stock. As of December 31, 1997, 1,993,622 options and 1,559,800
options for the 1987 Plan and the 1989 Plan, respectively, had been awarded. The
Employee Compensation and Benefits Committee of the Board of Directors may
determine to permit any option granted thereunder to be exercisable immediately
upon the date of grant or at any time thereafter; provided, however, that no
option granted thereunder may be exercised within the first six months after the
date of grant except in the event of the death or disability of the optionee.
Since August of 1994, options granted have typically become exercisable over
four equal annual installments at the end of each year after the date of grant
of continued employment with the Company. Options granted are exercisable at the
fair market value of the stock at the date of grant and typically expire ten
years from the date of grant. Unoptioned shares available for grant as of
December 31, 1997 were 6,378 and 440,200 under the 1987 Plan and 1989 Plan,
respectively.
Non-Employee Directors' Plan - Under the 1991 Nonqualified Stock Option
Plan for Non-Employee Directors ("1991 Directors' Plan"), options for a total of
up to 400,000 shares of the Company's common stock are available for grant to
directors of the Company who are not employed by the Company or any of the
Company's subsidiaries. The 1991 Director's Plan provides that: (i) 2,000
options are automatically granted to each non-employee director on the date of
each annual meeting of shareholders where he or she continues to serve as a
director of the Company, (ii) options granted are exercisable at the fair market
value of the common stock at the date of grant and expire ten years from the
date of grant, (iii) all options granted are exercisable six months after the
date of the grant, and (iv) upon the termination of service as a director on the
Board by a non-employee director who is eligible for benefits under the
Southdown, Inc. Directors' Retirement Plan, any of such director's options
outstanding as of the date of such termination of service on the Board shall be
exercisable for ten years from the date of grant of such options. As of December
31, 1997, a total of 188,000 options had been awarded under the 1991 Directors'
Plan. Unoptioned shares available for grant as of December 31, 1997 under the
1991 Director's Plan were 212,000.
56
<PAGE> 59
Summary information with respect to all of the Company's stock option
plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
VESTED SHARES AVERAGE
OPTIONS UNDER EXERCISE
EXERCISABLE OPTION PRICE
------------ ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1994 743,993 1,103,693 $ 19.03
============ ===========
Granted 182,800 20.27
Exercised (43,000) 14.21
Canceled (26,000) 21.30
------------
Balance, December 31, 1995 846,293 1,217,493 $ 19.34
============ ===========
Granted 354,900 23.46
Exercised (420,705) 17.05
Canceled (19,400) 21.73
------------
Balance, December 31, 1996 580,278 1,132,288 $ 21.48
============ ===========
Granted 237,400 32.61
Exercised (584,896) 21.32
Canceled (4,700) 26.30
------------
Balance, December 31, 1997 224,867 780,092 $ 24.85
============ ============ ===========
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------- ---------------------------------------------------
Weighted-Average
Range of Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding at Contractual Exercise Exercisable Exercise
12/31/97 Life Price at 12/31/97 Price
- ------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.00 to 19.875 111,510 5.77 $15.21 95,710 $14.74
20.00 to 27.0625 414,882 7.61 22.79 99,407 23.25
30.375 to 55.9375 253,700 9.07 32.47 29,750 36.81
- ------------------------------------------------------------- ---------------------------------------------------
$11.00 to 55.9375 780,092 $24.85 224,867 $21.42
============================================================= ====================================================
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require
companies to record compensation cost for employee stock-based compensation
plans at fair value. Because of the inexact and subjective nature of deriving
the fair value of stock-based compensation, the Company has adopted the
disclosure-only provisions of SFAS No. 123 and continues to account for
stock-based compensation as it has in the past using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, because the exercise price of stock-based
compensation equals the market price of the underlying stock on the date of
grant, no compensation expense has been recognized for the Company's stock
plans.
As permitted by SFAS No. 123, the Company has estimated the pro forma fair
value of its stock-based compensation for disclosure purposes by using the
Black-Scholes model, a generally
57
<PAGE> 60
recognized option pricing model. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant date for awards consistent with the provisions of SFAS No. 123, the
Company's net earnings and diluted earnings per share would have been reduced by
$1.4 million or $0.06 per share, $1.2 million or $0.05 per share and $717,000 or
$0.03 per share in 1997, 1996 and 1995, respectively. The pro forma fair value
of options at date of grant was estimated using the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate (U.S. Treasury 5 year notes) 6.20% 6.45% 6.14%
Volatility 30.341% 31.077% 31.687%
Dividend yield 1.27% 1.67% 0.0%
- ---------------------------------------------------------------------------------------------------
Weighted average fair value at grant date $ 8.88 $ 6.54 $ 6.28
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Black-Scholes model was originally developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the use of subjective
assumptions including the expected life of the option and expected stock price
volatility. Because the Company's stock-based compensation has characteristics
different from those of traded options and because of the subjective nature of
certain assumptions used, no assurances can be given that the weighted average
fair value amounts reflected in the table above will be achieved. Also, the
computed pro forma impact only includes the effects of grants since January 1,
1994. Because it is likely that additional options will be granted in future
years and will vest ratably, the reported pro forma results are not necessarily
representative of the effects on reported pro forma results for future years.
Phantom Stock Plan - Effective January 1, 1997, the Board of Directors
adopted the Phantom Stock and Deferred Compensation Plan for Non-Employee
Directors (the "Phantom Stock Plan") which was approved by the shareholders at
the 1997 Annual Meeting. This plan calls for the non-employee directors to
receive on a deferred basis, in lieu of cash, 50% of their monthly directors'
fees in fair market value of Common Stock. The fair market value is determined
based upon the average of the high and low prices of the Common Stock on the
last New York Stock Exchange trading day of the month the fee is payable. The
non-employee director may elect to receive on a deferred basis his total monthly
fee in fair market value of Common Stock. The plan defers the recognition of
compensation by the director by deferring the issuance of Common Stock to the
director until he or she leaves the Board. The director's account will also be
credited with fair market value of Common Stock equal to cash dividends on
Common Stock that would have been received had the Common Stock been issued when
earned. A total of 250,000 shares of Common Stock have been reserved for
issuance under this plan. As of December 31, 1997, no shares, but approximately
8,000 stock equivalent units have been issued.
58
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SOUTHDOWN, INC.
Southdown, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Southdown, Inc.
and subsidiary companies as of December 31, 1997 and 1996, and the related
statements of consolidated earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Southdown, Inc. and subsidiary
companies as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas January 27, 1998
59
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS Item 8 of this report lists certain consolidated
financial statements and supplementary data of the Company and its
subsidiaries.
2. FINANCIAL STATEMENT SCHEDULES
No schedules are included because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
60
<PAGE> 63
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as
amended through March 4, 1991 incorporated by reference
from Exhibit 4.1 to the Company's Current Report on Form
8-K dated December 21, 1993
3.2 Articles of Amendment to the Restated Articles of
Incorporation of the Company dated January 25, 1994 -
incorporated by reference from Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993
3.3 Bylaws of the Company amended as of May 15, 1997 -
incorporated by reference from Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
4.1 Indenture dated as of March 19, 1996 between the Company
and State Street Bank and Trust Company as Trustee as
relating to the Company's 10% Senior Subordinated Notes
due 2006, Series B - incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (Registration No. 333-02585) filed April 17, 1996
4.2 Certain instruments defining the rights of holders of
long-term debt instruments representing less than 10% of
the consolidated assets of the Company have not been filed
as exhibits to this report. The Company agrees to furnish
a copy of any such instrument to the Commission upon
request
4.3 Rights Agreement dated as of March 4, 1991 between the
Company and Chemical Shareholder Services Group, Inc.
(formerly Texas Commerce Bank National Association) as
Rights Agent - incorporated by reference from Exhibit 4.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996
*+10.1 1987 Stock Option Plan of Southdown, Inc.
+10.2 1989 Stock Option Plan of Southdown, Inc. - incorporated
by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,1993
*+10.3 Forms of Nonqualified Stock Option Agreement
+10.4 Special Severance Program dated May 18, 1989 -
incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
+10.5 Form of Supplemental Pension Agreement and amendment to
Supplemental Pension Agreement - incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report for
the quarter ended June 30, 1993
+10.6 Employment Agreements and form of Amendment to Employment
Agreements between the Company and certain executive
officers, as more specifically described below:
Date of
Name of Officer Employment Agreement
--------------- --------------------
(a) J. Bruce Tompkins November 1, 1989
(b) Eugene P. Martineau March 23, 1992
- incorporated by reference from Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
*+10.7 Forms of Employment Agreements between the Company and
certain executive officers, as more specifically described
below:
Date of
Name of Officer Employment Agreement
--------------- --------------------
(a) Clarence C. Comer December 19, 1997
(b) Dennis M. Thies December 19, 1997
(c) Steven R. Miley December 19, 1997
+10.8 Southdown, Inc. Pension Plan as adopted on May 19, 1994 -
incorporated by reference from Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994
+10.9 Southdown, Inc. Retirement Savings Plan as amended and
restated on July 1, 1990 - incorporated by reference from
Exhibit 99.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994
+10.10 Southdown, Inc. Directors' Retirement Plan - incorporated
by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
+10.11 First Amendment to the Southdown, Inc. Directors'
Retirement Plan - incorporated by reference from Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended 1996
+10.12 Southdown, Inc. 1991 Nonqualified Stock Option Plan for
Non-employee Directors - as amended November 21, 1996 -
incorporated by reference from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended 1996
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
+10.13 Southdown, Inc. Phantom Stock and Deferred Compensation
Plan for Non-employee Directors - incorporated by
reference from Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended 1996
+10.14 Southdown, Inc. Annual Incentive Plan dated April 11, 1996
- incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended 1996
*+10.15 Southdown, Inc. Key Employee Share Option Plan effective
December 30, 1997
*+10.16 Supplemental Executive Retirement Plan effective October
1, 1997
10.17 Third Amended and Restated Credit Agreement as of November
3, 1995 among the Company; Wells Fargo Bank, N.A.; Societe
Generale, Southwest Agency; Credit Suisse First Boston;
Caisse National De Credit Agricole; Banque Paribas; CIBC
Inc.; The Bank of Nova Scotia; and BankBoston, N.A. -
incorporated by reference to Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.18 Letter Agreement dated February 29, 1996, amending the
Third Amended and Restated Credit Agreement as of November
3, 1995, among the Company and the banks party thereto -
incorporated by reference from Exhibit 99.2 to the
Company's Registration Statement on Form S-4 (Registration
No. 333-02585) filed April 17, 1996
10.19 Amendment Number Two to Third Amended and Restated Credit
Agreement, dated as of September 30, 1996, among the
Company; Wells Fargo Bank, N.A.; Societe Generale,
Southwest Agency; Credit Suisse First Boston; Caisse
National De Credit Agricole; Banque Paribas; CIBC, Inc.;
The Bank of Nova Scotia; and the BankBoston, N.A. -
incorporated by reference from Exhibit 99.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
10.20 Amendment Number Three to the Third Amended and Restated
Credit Agreement, dated as of August 6, 1997, among the
Company, Wells Fargo Bank, N.A.; Societe Generale,
Southwest Agency; Credit Suisse First Boston; Caisse
National De Credit Agricole; Banque Paribas; CIBC, Inc.;
The Bank of Nova Scotia; and BankBoston, N.A. -
incorporated by reference from Exhibit 99.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.21 Agreement dated May 1, 1996 by and between Kosmos Cement
Company and the International Brotherhood of Boilermakers,
Cement, Lime, Gypsum and Allied Workers Division Lodge
D595 - incorporated by reference from Exhibit 99.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996
10.22 Agreement dated August 16, 1993, as amended November 16,
1995, by and between the Company and the United
Paperworkers International Union - incorporated by
reference from Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995
*10.23 Agreement dated as of December 15, 2003 between Kosmos
Cement Company and International Brotherhood of
Boilermakers, Cement, Lime, Gypsum and Allied Workers
Division Lodge D-592
10.24 Agreement dated March 1, 1994 by and between the
Southwestern Portland Cement and the International
Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division, Local Lodge No. D357 incorporated
by reference from Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994
10.25 Agreement dated July 31, 1994 by and between the
Southwestern Portland Cement Company (Odessa Plant) and
the United Cement, Lime, Gypsum and Allied Workers
Division, Boilermakers International Union, A.F.L.-C.I.O.,
Local No. D476 - incorporated by reference from Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994
10.26 Agreement dated March 1, 1995 by and between the Company
and Cement, Lime and Gypsum Worker's Division
Boilermaker's Union, Local Lodge No. D140 - incorporated
by reference from Exhibit 99.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995
10.27 Agreement dated June 21, 1995 by and between the Company
and the International Union of Operating Engineers, Local
Union No. 9 - incorporated by reference from Exhibit 99.2
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995
*11 Statement of computation of per share earnings
</TABLE>
64
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
*21 Significant Subsidiaries of Southdown, Inc. as of December
31, 1997
*23 Consent of independent auditors
*27 Financial Data Schedule
--------------------
* Filed herewith
+ Compensatory plan or management agreement.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
</TABLE>
65
<PAGE> 68
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOUTHDOWN, INC.
(Registrant)
By CLARENCE C. COMER
------------------------------------------
Clarence C. Comer
President and Chief Executive Officer
Date: March , 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES POSITIONS DATE
<S> <C> <C>
CLARENCE C. COMER President, Chief Executive Officer March , 1998
- --------------------------------------------
Clarence C. Comer and Director (Principal Executive
Officer)
DENNIS M. THIES Executive Vice President and Chief March , 1998
- --------------------------------------------
Dennis M. Thies Financial Officer (Principal Financial Officer)
ALLAN KORSAKOV Vice President and Corporate Controller March , 1998
- --------------------------------------------
Allan Korsakov (Principal Accounting Officer)
K. L. HUGER, JR. Director March , 1998
- --------------------------------------------
K. L. Huger, Jr.
ROBERT G. POTTER Director March , 1998
- --------------------------------------------
Robert G. Potter
FRANK J. RYAN Director March , 1998
- --------------------------------------------
Frank J. Ryan
WHITSON SADLER Director March , 1998
- --------------------------------------------
Whitson Sadler
ROBERT J. SLATER Director March , 1998
- --------------------------------------------
Robert J. Slater
DAVID J. TIPPECONNIC Director March , 1998
- --------------------------------------------
David J. Tippeconnic
RONALD N. TUTOR Director March , 1998
- --------------------------------------------
Ronald N. Tutor
V. H. VAN HORN, III Director March , 1998
- --------------------------------------------
V. H. Van Horn, III
STEVEN B. WOLITZER Director March , 1998
- --------------------------------------------
Steven B. Wolitzer
</TABLE>
66
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as
amended through March 4, 1991 incorporated by reference
from Exhibit 4.1 to the Company's Current Report on Form
8-K dated December 21, 1993
3.2 Articles of Amendment to the Restated Articles of
Incorporation of the Company dated January 25, 1994 -
incorporated by reference from Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993
3.3 Bylaws of the Company amended as of May 15, 1997 -
incorporated by reference from Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
4.1 Indenture dated as of March 19, 1996 between the Company
and State Street Bank and Trust Company as Trustee as
relating to the Company's 10% Senior Subordinated Notes
due 2006, Series B - incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (Registration No. 333-02585) filed April 17, 1996
4.2 Certain instruments defining the rights of holders of
long-term debt instruments representing less than 10% of
the consolidated assets of the Company have not been filed
as exhibits to this report. The Company agrees to furnish
a copy of any such instrument to the Commission upon
request
4.3 Rights Agreement dated as of March 4, 1991 between the
Company and Chemical Shareholder Services Group, Inc.
(formerly Texas Commerce Bank National Association) as
Rights Agent - incorporated by reference from Exhibit 4.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996
*+10.1 1987 Stock Option Plan of Southdown, Inc.
+10.2 1989 Stock Option Plan of Southdown, Inc. - incorporated
by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,1993
*+10.3 Forms of Nonqualified Stock Option Agreement
+10.4 Special Severance Program dated May 18, 1989 -
incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
+10.5 Form of Supplemental Pension Agreement and amendment to
Supplemental Pension Agreement - incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report for
the quarter ended June 30, 1993
+10.6 Employment Agreements and form of Amendment to Employment
Agreements between the Company and certain executive
officers, as more specifically described below:
Date of
Name of Officer Employment Agreement
--------------- --------------------
(a) J. Bruce Tompkins November 1, 1989
(b) Eugene P. Martineau March 23, 1992
- incorporated by reference from Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
*+10.7 Forms of Employment Agreements between the Company and
certain executive officers, as more specifically described
below:
Date of
Name of Officer Employment Agreement
--------------- --------------------
(a) Clarence C. Comer December 19, 1997
(b) Dennis M. Thies December 19, 1997
(c) Steven R. Miley December 19, 1997
+10.8 Southdown, Inc. Pension Plan as adopted on May 19, 1994 -
incorporated by reference from Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994
+10.9 Southdown, Inc. Retirement Savings Plan as amended and
restated on July 1, 1990 - incorporated by reference from
Exhibit 99.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994
+10.10 Southdown, Inc. Directors' Retirement Plan - incorporated
by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
+10.11 First Amendment to the Southdown, Inc. Directors'
Retirement Plan - incorporated by reference from Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended 1996
+10.12 Southdown, Inc. 1991 Nonqualified Stock Option Plan for
Non-employee Directors - as amended November 21, 1996 -
incorporated by reference from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended 1996
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
+10.13 Southdown, Inc. Phantom Stock and Deferred Compensation
Plan for Non-employee Directors - incorporated by
reference from Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended 1996
+10.14 Southdown, Inc. Annual Incentive Plan dated April 11, 1996
- incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended 1996
*+10.15 Southdown, Inc. Key Employee Share Option Plan effective
December 30, 1997
*+10.16 Supplemental Executive Retirement Plan effective October
1, 1997
10.17 Third Amended and Restated Credit Agreement as of November
3, 1995 among the Company; Wells Fargo Bank, N.A.; Societe
Generale, Southwest Agency; Credit Suisse First Boston;
Caisse National De Credit Agricole; Banque Paribas; CIBC
Inc.; The Bank of Nova Scotia; and BankBoston, N.A. -
incorporated by reference to Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.18 Letter Agreement dated February 29, 1996, amending the
Third Amended and Restated Credit Agreement as of November
3, 1995, among the Company and the banks party thereto -
incorporated by reference from Exhibit 99.2 to the
Company's Registration Statement on Form S-4 (Registration
No. 333-02585) filed April 17, 1996
10.19 Amendment Number Two to Third Amended and Restated Credit
Agreement, dated as of September 30, 1996, among the
Company; Wells Fargo Bank, N.A.; Societe Generale,
Southwest Agency; Credit Suisse First Boston; Caisse
National De Credit Agricole; Banque Paribas; CIBC, Inc.;
The Bank of Nova Scotia; and the BankBoston, N.A. -
incorporated by reference from Exhibit 99.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
10.20 Amendment Number Three to the Third Amended and Restated
Credit Agreement, dated as of August 6, 1997, among the
Company, Wells Fargo Bank, N.A.; Societe Generale,
Southwest Agency; Credit Suisse First Boston; Caisse
National De Credit Agricole; Banque Paribas; CIBC, Inc.;
The Bank of Nova Scotia; and BankBoston, N.A. -
incorporated by reference from Exhibit 99.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.21 Agreement dated May 1, 1996 by and between Kosmos Cement
Company and the International Brotherhood of Boilermakers,
Cement, Lime, Gypsum and Allied Workers Division Lodge
D595 - incorporated by reference from Exhibit 99.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996
10.22 Agreement dated August 16, 1993, as amended November 16,
1995, by and between the Company and the United
Paperworkers International Union - incorporated by
reference from Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995
*10.23 Agreement dated as of December 15, 2003 between Kosmos
Cement Company and International Brotherhood of
Boilermakers, Cement, Lime, Gypsum and Allied Workers
Division Lodge D-592
10.24 Agreement dated March 1, 1994 by and between the
Southwestern Portland Cement and the International
Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division, Local Lodge No. D357 incorporated
by reference from Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994
10.25 Agreement dated July 31, 1994 by and between the
Southwestern Portland Cement Company (Odessa Plant) and
the United Cement, Lime, Gypsum and Allied Workers
Division, Boilermakers International Union, A.F.L.-C.I.O.,
Local No. D476 - incorporated by reference from Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994
10.26 Agreement dated March 1, 1995 by and between the Company
and Cement, Lime and Gypsum Worker's Division
Boilermaker's Union, Local Lodge No. D140 - incorporated
by reference from Exhibit 99.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995
10.27 Agreement dated June 21, 1995 by and between the Company
and the International Union of Operating Engineers, Local
Union No. 9 - incorporated by reference from Exhibit 99.2
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995
*11 Statement of computation of per share earnings
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
*21 Significant Subsidiaries of Southdown, Inc. as of December
31, 1997
*23 Consent of independent auditors
*27 Financial Data Schedule
--------------------
* Filed herewith
+ Compensatory plan or management agreement.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
1987 STOCK OPTION PLAN
OF SOUTHDOWN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
SOUTHDOWN, INC. (the "Company") hereby grants on , to (the "Optionee"),
a key employee of the Company or one of its parent or subsidiary companies
("Affiliates"), a nonqualified option (the "Option") to purchase from the
Company up to but not exceeding in the aggregate shares of Common Stock, par
value $1.25 per share, of the Company ("Common Stock") at $ per share, such
number of shares and such price per share being subject to adjustment as
provided in Paragraph 9 of the 1987 Stock Option Plan of Southdown, Inc. as
amended from time to time (the "Plan"), and further subject to the following
terms and conditions:
1. The Option is issued in accordance with and subject to all of
the terms, conditions and provisions of the Plan and the administrative
interpretations thereunder, if any, which have been adopted by the Employee
Compensation and Benefits Committee of the Board of Directors of the Company
(the "Committee") and are in effect on the date hereof. References to the
Optionee herein also include his heirs or other legal representatives.
2. (a) The Option shall be exercisable as follows:
(i) After one year of continued employment, the Option
shall be exercisable for any number of shares of
Common Stock up to and including, but not in excess
of 25% of the aggregate number of shares subject to
the Option;
(ii) After two years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 50% of the
aggregate number of shares subject to the Option; and
(iii) After three years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 75% of the
aggregate number of shares subject to the Option; and
(iv) After four years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable; provided that the number of shares of
Common Stock as to which the Option becomes
exercisable shall, in each case, be reduced by the
number of shares theretofore purchased or
relinquished pursuant to the terms hereof.
(b) Notwithstanding the provisions of Paragraph 2(a) above, the
Option shall be fully exercisable in the event of:
<PAGE> 2
(i) Death or disability of the Optionee while in the
employment of the Company or any Affiliate; or
(ii) Termination of the Optionee's employment by
retirement under or in accordance with the retirement
plan of the Company or any Affiliate in which he is
then participating but only if approved in writing by
the Committee.
3. The Option shall terminate and be of no force and effect with
respect to any shares not previously taken up by the Optionee
upon the first to occur of (a) the expiration of ten years from
the date of the grant of the Option or (b) the expiration of
ninety days after the termination of employment of the Optionee
with the Company and any of its Affiliates for any reason (other
than death, disability or retirement under or in accordance with
the retirement plan of the Company or any of its Affiliates in
which he is then participating).
4. (a) Subject to the terms and conditions of this Paragraph 4, the
Optionee, to the extent entitled to exercise the Option
under the terms hereof, in lieu of purchasing the entire
number of shares subject to purchase hereunder, shall have
the right to relinquish all or any part of the unexercised
portion of the Option for a number of shares of Common
Stock, for an amount of cash or for a combination of Common
Stock and cash to be determined as follows:
(i) The written notice of exercise of the right of
relinquishment shall state the percentage, if any, of
the Appreciated Value (as defined below) that the
Optionee elects to receive in cash ("Cash
Percentage"), such Cash Percentage to be in
increments of 10% of such Appreciated Value up to
100% thereof;
(ii) The number of shares of Common Stock, if any,
issuable pursuant to a relinquishment shall be the
number of such shares, rounded to the next greater
number of full shares, as shall be equal to the
quotient obtained by dividing (x) the difference
between (a) the Appreciated Value and (b) the result
obtained by multiplying the Appreciated Value and the
Cash Percentage by (y) the then current market value
per share of Common Stock;
(iii) The amount of cash payable pursuant to a
relinquishment shall be an amount equal to the
Appreciated Value less the aggregate current market
value of the shares of Common Stock issued pursuant
to the relinquishment, if any; and
(iv) For the purposes of this Paragraph 4(a), "Appreciated
Value" means the excess of (x) the aggregate current
market value of the shares of Common Stock covered by
the Option or the portion hereof to be relinquished
over (y) the aggregate purchase price for such shares
specified in the Option.
(b) Subject to the Committee consent provisions of Paragraph
4(e) below in the case of certain cash relinquishments, the
right of relinquishment may be exercised only
- 2 -
<PAGE> 3
upon receipt by the Company of a written notice of such
relinquishment which shall be dated the date of election to
make such relinquishment; and, for purposes of the Plan,
such date of election shall be deemed to be the date when
such notice is sent by registered or certified mail, if by
mail, or when receipt is acknowledged by the Company, if
mailed by other than registered or certified mail or if
delivered by hand or by any telegraphic communications
equipment of the sender or otherwise delivered; provided,
that, in the event the method above described for
determining such date of election shall not be or remain
consistent with the provisions of Section 16(b) of the
Exchange Act or the rules and regulations adopted by the
Securities and Exchange Commission thereunder, as currently
existing or as may be hereafter amended, then such date of
election shall be determined by such other method consistent
with said Section 16(b) or rules or regulations as the
Committee in its discretion shall select and apply.
(c) For purposes of this Paragraph 4, the "current market value"
of a share of the Common Stock shall be deemed to be the
average (mean) of the reported "high" and "low" sales prices
per share of such stock reported in The Wall Street
Journal's NYSE-Composite Transactions listing for the date
(corrected for obvious typographical errors) on which
written notice of relinquishment is received by the Company
or, if such shares are not reported in such listing, then
the average of the reported "high" and "low" sales prices on
the largest national securities exchange (based on the
aggregate dollar value of securities listed) on which such
shares are listed or traded, or if such shares are not
listed or traded on any national securities exchange, then
the average of the reported "high" and "low" sales prices
for such shares in the over-the-counter market, as reported
on the National Association of Securities Dealers Automated
Quotations System, or, if such prices shall not be reported
thereon, the average between the closing bid and asked
prices so reported, or, if such prices shall not be
reported, then the average of the closing bid and asked
prices reported by the National Quotations Bureau
Incorporated, or, in all other cases, the value established
by the Board in good faith.
(d) The Option, or any portion thereof, may be relinquished only
to the extent that (i) it is exercisable on the date written
notice of relinquishment is received by the Company and (ii)
the Committee, subject to the provisions of Paragraph 4(e)
below, shall consent to the election of the Optionee to
relinquish the Option in whole or in part for cash as set
forth in such written notice of relinquishment.
(e) The Committee shall have sole discretion to consent to or
disapprove, and neither the Committee nor the Company shall
be under any liability by reason of the Committee's
disapproval of, any election by the Optionee to relinquish
the Option in whole or in part for cash as provided in
Paragraph 4(a) above, except that no such consent to or
approval of a relinquishment for cash shall be required
under the following circumstances. If the Optionee is
subject to the short-swing profits recapture provisions of
Section 16(b) of the Exchange Act (a "Covered Optionee") at
the time of any relinquishment, the Covered Optionee shall
be entitled to receive
- 3 -
<PAGE> 4
payment only in cash when Options are relinquished during
any window period commencing on the third business day
following the Company's release of a quarterly or annual
summary statement of sales and earnings and ending on the
twelfth business day following such release ("Window
Period"); provided, however, that payment shall be so made
in cash only in respect of 50% of the Options covered by
this Nonqualified Stock Option Agreement. If the Optionee
is a Covered Optionee, he shall be entitled to receive
payment only in shares of Common Stock upon (i) the
relinquishment of Options outside a Window Period and (ii)
the relinquishment of Options during a Window Period once
the Optionee has received payment in cash for the
relinquishment of 50% of the Options covered by this
Nonqualified Stock Option Agreement.
(f) Neither the Option nor any right to relinquish the same to
the Company as contemplated by Paragraph 4(a) above shall be
assignable or otherwise transferable except by will or the
laws of descent and distribution.
(g) Subject to the limitations set forth elsewhere herein, the
right of relinquishment granted hereby may be exercised by
written notice delivered by the Optionee to Southdown, Inc.,
1200 Smith Street, Suite 2400, Houston, Texas 77002-4486,
which notice shall state the number of shares of Common
Stock purchasable for cash or previously owned Common Stock
under the Option or the portion thereof being relinquished
by such holder in consideration of shares of Common Stock
pursuant to the terms hereof together with any Cash
Percentage elected by such holder.
(h) Upon relinquishment of the Option or any portion thereof for
cash and/or shares of Common Stock as provided herein, the
Option or the portion thereof so relinquished shall
thereupon terminate and be of no further force or effect,
and the Company shall have no further obligation to issue
and deliver shares of its Common Stock with respect thereto.
(i) The obligation of the Company to issue and deliver shares
pursuant to the relinquishment of the Option shall be
subject to all applicable laws, rules and regulations and to
such filings with or approvals by any governmental agencies
or national securities exchanges as may be required and the
Optionee agrees that he will not exercise the right of
relinquishment granted hereby, and that the Company will
have no obligation to effect such relinquishment, if the
exercise of such right or the consummation of such
relinquishment would constitute a violation by the Optionee
or the Company of any applicable law or regulation.
(j) Notwithstanding any provision of this Paragraph 4, the
Option shall terminate and be of no force or effect after
the expiration date determined in accordance with the terms
and provisions of Paragraph 3 above.
- 4 -
<PAGE> 5
(k) A right of relinquishment may not be exercised unless the
Appreciated Value exceeds zero.
(l) No right of relinquishment may be exercised by the Optionee
within the first six months after the date of the award of
the Option; provided, however, that this limitation shall
not apply in the event of death or disability.
5. Subject to the limitations set forth herein and in the Plan, the
Option may be exercised by written notice mailed to the Company
at Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas
77002-4486. In addition to any information required by Paragraph
4 to exercise a right of relinquishment hereunder, such written
notice shall (a) state the number of shares with respect to which
the Option is being exercised and (b) be accompanied by cash
(including certified check, bank draft and postage or express
money order payable to the order of the Company) in the full
amount of the purchase price for any shares being acquired other
than pursuant to a right of relinquishment or, at the option of
the Optionee, accompanied by Common Stock theretofore owned by
the Optionee equal in value to the full amount of the purchase
price (or any combination of cash or such Common Stock). For
purposes of determining the amount, if any, of the purchase price
satisfied by payment in Common Stock, such Common Stock shall be
valued at its fair market value on the date of exercise in
accordance with Paragraph 5(b) of the Plan. Any Common Stock
delivered in satisfaction of all or a portion of the purchase
price shall be appropriately endorsed for transfer and assigned
to the Company. In addition, whether or not the options and
shares covered by the Plan have been registered pursuant to the
Securities Act of 1933, the Company may, at its election, require
the Optionee to give a representation in writing that he is
acquiring such shares for his own account for investment and not
with a view to, or for sale in connection with, the distribution
of any part thereof. If any law or regulation requires the
Company to take any action with respect to the shares specified
in such notice, the time for delivery thereof, which would
otherwise be as promptly as practicable, shall be postponed for
the period of time necessary to take such action.
6. The Optionee may pay all or any portion of the taxes required to
be withheld by the Company or paid by the Optionee in connection
with the exercise of all or any portion of the Option by electing
to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(b) of the
Plan, equal to the amount required to be withheld or paid. The
Optionee must make the foregoing election on or before the date
that the amount of tax to be withheld is determined ("Tax Date").
All such elections are irrevocable and subject to disapproval by
the Committee. If the Optionee is a Covered Optionee, any such
election may not be made within six months of the grant of the
Option, provided that this limitation shall not apply in the
event of death or disability. Where the Tax Date in respect of
the exercise of all or any portion of the Option is deferred
until six months after such exercise and the Optionee elects
share withholding, the full amount of shares of Common Stock will
be issued or transferred
- 5 -
<PAGE> 6
to the Optionee upon exercise of the Option, but the Optionee
shall be unconditionally obligated to tender back to the Company
the number of shares necessary to discharge the Company's
withholding obligation or the Optionee's estimated tax obligation
on the Tax Date.
7. The Optionee's rights under the Plan and this Nonqualified Stock
Option Agreement are personal; no assignment or transfer of the
Optionee's rights under and interest in the Option may be made by
the Optionee otherwise than by will or by the laws of descent and
distribution; and the Option is exercisable only by the Optionee
identified in the first paragraph of this Nonqualified Stock
Option Agreement during his lifetime.
SOUTHDOWN, INC.
By:
--------------------------------
The Option covered by this Nonqualified Stock Option Agreement has
been accepted as of the above date by the undersigned, subject to the terms and
provisions of the Plan and the administrative interpretations thereof referred
to above.
-----------------------------------
Optionee
- 6 -
<PAGE> 1
EXHIBIT 10.3
1989 STOCK OPTION PLAN
OF SOUTHDOWN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
SOUTHDOWN, INC. (the "Company") hereby grants on , to (the
"Optionee"), a key employee of the Company or one of its parent or subsidiary
companies ("Affiliates"), a nonqualified option (the "Option") to purchase from
the Company up to but not exceeding in the aggregate shares of Common Stock,
par value $1.25 per share, of the Company ("Common Stock") at $ per share, such
number of shares and such price per share being subject to adjustment as
provided in Paragraph 9 of the 1989 Stock Option Plan of Southdown, Inc. as
amended from time to time (the "Plan"), and further subject to the following
terms and conditions:
1. The Option is issued in accordance with and subject to all of the
terms, conditions and provisions of the Plan and the
administrative interpretations thereunder, if any, which have
been adopted by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Committee") and are in
effect on the date hereof. References to the Optionee herein
also include his heirs or other legal representatives.
2. (a) The Option shall be exercisable after the date hereof as
follows:
(i) After one year of continued employment, the Option
shall be exercisable for any number of shares of
Common Stock up to and including, but not in excess
of 25% of the aggregate number of shares subject to
the Option;
(ii) After two years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 50% of the
aggregate number of shares subject to the Option; and
(iii) After three years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 75% of the
aggregate number of shares subject to the Option; and
(iv) After four years of continued employment with the
Company or any Affiliate, the Option shall be fully
exercisable; provided that the number of shares of
Common Stock as to which the Option becomes
exercisable shall, in each case, be reduced by the
number of shares theretofore purchased or
relinquished pursuant to the terms hereof.
<PAGE> 2
(b) Notwithstanding the provisions of Paragraph 2(a) above, the
Option shall be fully exercisable in the event of:
(i) Death or disability of the Optionee while in the
employment of the Company or any Affiliate; or
(ii) Termination of the Optionee's employment by
retirement under or in accordance with the retirement
plan of the Company or any Affiliate in which he is
then participating but only if approved in writing by
the Committee.
(c) If the Optionee's employment with the Company and any of its
Affiliates is terminated for any reason other than as
specified in clauses (i) and (ii) of Paragraph 2(b) above,
the Option may be exercised during the remainder of its term
only with respect to the number of shares exercisable at the
date of such termination.
3. The Option shall terminate and be of no force and effect with
respect to any shares not previously taken up by the Optionee
upon the first to occur of (a) the expiration of ten years from
the date of the grant of the Option or (b) the expiration of
ninety days after the termination of employment of the Optionee
with the Company and any of its Affiliates for any reason (other
than death, disability or retirement under or in accordance with
the retirement plan of the Company or any of its Affiliates in
which he is then participating).
4. (a) Subject to the terms and conditions of this Paragraph 4, the
Optionee, to the extent entitled to exercise the Option
under the terms hereof, in lieu of purchasing the entire
number of shares subject to purchase hereunder, shall have
the right to relinquish all or any part of the unexercised
portion of the Option for a number of shares of Common Stock
to be determined as follows:
(i) The number of shares of Common Stock issuable
pursuant to a relinquishment shall be the number of
such shares, rounded to the next greater number of
full shares, as shall be equal to the quotient
obtained by dividing (x) the Appreciated Value (as
defined below) by (y) the then current market value
per share of Common Stock;
(ii) For the purposes of this Paragraph 4(a), "Appreciated
Value" means the excess of (x) the aggregate current
market value of the shares of Common Stock covered by
the Option or the portion hereof to be relinquished
over (y) the aggregate purchase price for such shares
specified in the Option.
(b) The right of relinquishment may be exercised only upon
receipt by the Company of a written notice of such
relinquishment which shall be dated the date of election to
make such relinquishment; and, for purposes of the Plan,
such date of election shall be deemed to be the date when
such notice is sent by registered or certified mail, if by
mail, or when receipt is acknowledged by the Company, if
mailed by
- 2 -
<PAGE> 3
other than registered or certified mail or if delivered by
hand or by any telegraphic communications equipment of the
sender or otherwise delivered; provided, that, in the event
the method above described for determining such date of
election shall not be or remain consistent with the
provisions of Section 16(b) of the Securities Exchange Act
of 1934 ("Exchange Act") or the rules and regulations
adopted by the Securities and Exchange Commission
thereunder, as currently existing or as may be hereafter
amended, then such date of election shall be determined by
such other method consistent with said Section 16(b) or
rules or regulations as the Committee in its discretion
shall select and apply.
(c) For purposes of this Paragraph 4, the "current market value"
of a share of the Common Stock shall be deemed to be the
average (mean) of the reported "high" and "low" sales prices
per share of such stock reported in The Wall Street
Journal's NYSE-Composite Transactions listing for the date
(corrected for obvious typographical errors) on which
written notice of relinquishment is received by the Company
or, if such shares are not reported in such listing, then
the average of the reported "high" and "low" sales prices on
the largest national securities exchange (based on the
aggregate dollar value of securities listed) on which such
shares are listed or traded, or if such shares are not
listed or traded on any national securities exchange, then
the average of the reported "high" and "low" sales prices
for such shares in the over-the-counter market, as reported
on the National Association of Securities Dealers Automated
Quotations System, or, if such prices shall not be reported
thereon, the average between the closing bid and asked
prices so reported, or, if such prices shall not be
reported, then the average of the closing bid and asked
prices reported by the National Quotations Bureau
Incorporated, or, in all other cases, the value established
by the Board in good faith.
(d) The Option, or any portion thereof, may be relinquished only
to the extent that it is exercisable on the date written
notice of relinquishment is received by the Company.
(e) Under no circumstances may the Option be relinquished for
cash.
(f) Neither the Option nor any right to relinquish the same to
the Company as contemplated by Paragraph 4(a) above shall be
assignable or otherwise transferable except by will or the
laws of descent and distribution.
(g) Subject to the limitations set forth elsewhere herein, the
right of relinquishment granted hereby may be exercised by
written notice delivered by the Optionee to Southdown, Inc.,
1200 Smith Street, Suite 2400, Houston, Texas 77002-4486,
which notice shall state the portion of the Option being
relinquished by such holder in consideration of the issuance
of shares of Common Stock pursuant to the terms hereof.
- 3 -
<PAGE> 4
(h) Upon relinquishment of the Option or any portion thereof for
shares of Common Stock as provided herein, the Option or the
portion thereof so relinquished shall thereupon terminate
and be of no further force or effect, and the Company shall
have no further obligation to issue and deliver shares of
its Common Stock with respect thereto.
(i) The obligation of the Company to issue and deliver shares
pursuant to the relinquishment of the Option shall be
subject to all applicable laws, rules and regulations and to
such filings with or approvals by any governmental agencies
or national securities exchanges as may be required and the
Optionee agrees that he will not exercise the right of
relinquishment granted hereby, and that the Company will
have no obligation to effect such relinquishment, if the
exercise of such right or the consummation of such
relinquishment would constitute a violation by the Optionee
or the Company of any applicable law or regulation.
(j) Notwithstanding any provision of this Paragraph 4, the
Option shall terminate and be of no force or effect after
the expiration date determined in accordance with the terms
and provisions of Paragraph 3 above.
(k) A right of relinquishment may not be exercised unless the
Appreciated Value exceeds zero.
(l) No right of relinquishment may be exercised by the Optionee
within the first six months after the date of the award of
the Option; provided, however, that this limitation shall
not apply in the event of death or disability.
5. Subject to the limitations set forth herein and in the Plan, the
Option may be exercised by written notice mailed to the Company
at Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas
77002-4486. In addition to any information required by Paragraph
4 to exercise a right of relinquishment hereunder, such written
notice shall (a) state the number of shares with respect to which
the Option is being exercised and (b) be accompanied by cash
(including certified check, bank draft and postage or express
money order payable to the order of the Company) in the full
amount of the purchase price for any shares being acquired other
than pursuant to a right of relinquishment or, at the option of
the Optionee, accompanied by Common Stock theretofore owned by
the Optionee equal in value to the full amount of the purchase
price (or any combination of cash or such Common Stock). For
purposes of determining the amount, if any, of the purchase price
satisfied by payment in Common Stock, such Common Stock shall be
valued at its fair market value on the date of exercise in
accordance with Paragraph 5(b) of the Plan. Any Common Stock
delivered in satisfaction of all or a portion of the purchase
price shall be appropriately endorsed for transfer and assigned
to the Company. In addition, whether or not the options and
shares covered by the Plan have been registered pursuant to the
Securities Act of 1933, the Company may, at its election, require
the Optionee to give a representation in writing that he is
acquiring such shares for his own account for investment and not
with a view to, or for sale in connection with, the distribution
of any part thereof. If any law
- 4 -
<PAGE> 5
or regulation requires the Company to take any action with
respect to the shares specified in such notice, the time for
delivery thereof, which would otherwise be as promptly as
practicable, shall be postponed for the period of time necessary
to take such action.
6. The Optionee may pay all or any portion of the taxes required to
be withheld by the Company or paid by the Optionee in connection
with the exercise of all or any portion of the Option by electing
to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(b) of the
Plan, equal to the amount required to be withheld or paid. The
Optionee must make the foregoing election on or before the date
that the amount of tax to be withheld is determined ("Tax Date").
All such elections are irrevocable and subject to disapproval by
the Committee. If the Optionee is subject to the short-swing
profit recapture provisions of Section 16(b) of the Exchange Act,
any such election may not be made within six months of the grant
of the Option, provided that this limitation shall not apply in
the event of death or disability. Where the Tax Date in respect
of the exercise of all or any portion of the Option is deferred
until six months after such exercise and the Optionee elects
share withholding, the full amount of shares of Common Stock will
be issued or transferred to the Optionee upon exercise of the
Option, but the Optionee shall be unconditionally obligated to
tender back to the Company the number of shares necessary to
discharge the Company's withholding obligation or the Optionee's
estimated tax obligation on the Tax Date.
7. The Optionee's rights under the Plan and this Nonqualified Stock
Option Agreement are personal; no assignment or transfer of the
Optionee's rights under and interest in the Option may be made by
the Optionee otherwise than by will or by the laws of descent and
distribution; and the Option is exercisable only by the Optionee
identified in the first paragraph of this Nonqualified Stock
Option Agreement during his lifetime.
SOUTHDOWN, INC.
By:
-------------------------------
The Option covered by this Nonqualified Stock Option Agreement has
been accepted as of the above date by the undersigned, subject to the terms and
provisions of the Plan and the administrative interpretations thereof referred
to above.
----------------------------------
Optionee
- 5 -
<PAGE> 6
1989 STOCK OPTION PLAN
OF SOUTHDOWN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
SOUTHDOWN, INC. (the "Company") hereby grants on , to (the "Optionee"),
a key employee of the Company or one of its parent or subsidiary companies
("Affiliates"), a nonqualified option (the "Option") to purchase from the
Company up to but not exceeding in the aggregate shares of Common Stock, par
value $1.25 per share, of the Company ("Common Stock") at $ per share, such
number of shares and such price per share being subject to adjustment as
provided in Paragraph 9 of the 1989 Stock Option Plan of Southdown, Inc. as
amended from time to time (the "Plan"), and further subject to the following
terms and conditions:
1. The Option is issued in accordance with and subject to all of the
terms, conditions and provisions of the Plan and the
administrative interpretations thereunder, if any, which have
been adopted by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Committee") and are in
effect on the date hereof. References to the Optionee herein
also include his heirs or other legal representatives.
2. (a) The Option shall be exercisable after the date hereof as
follows:
(i) After one year of continued employment, the Option
shall be exercisable for any number of shares of
Common Stock up to and including, but not in excess
of 25% of the aggregate number of shares subject to
the Option;
(ii) After two years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 50% of the
aggregate number of shares subject to the Option; and
(iii) After three years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 75% of the
aggregate number of shares subject to the Option; and
(iv) After four years of continued employment with the
Company or any Affiliate, the Option shall be fully
exercisable; provided that the number of shares of
Common Stock as to which the Option becomes
exercisable shall, in each case, be reduced by the
number of shares theretofore purchased or
relinquished pursuant to the terms hereof.
(b) Notwithstanding the provisions of Paragraph 2(a) above, the
Option shall be fully exercisable in the event of:
<PAGE> 7
(i) Death or disability of the Optionee while in the
employment of the Company or any Affiliate;
(ii) Termination of the Optionee's employment by
retirement under or in accordance with the retirement
plan of the Company or any Affiliate in which he is
then participating but only if approved in writing by
the Committee; or
(iii) A Change in Control (as defined below) of the
Company.
For the purposes of Paragraph 2(b)(iii) above, a "Change in
Control" shall be conclusively deemed to have occurred if
(and only if) any of the following shall have taken place:
(x) a Change in Control is reported by the Company in
response to either Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act"), or Item 1 of Form 8-K
promulgated under the Exchange Act; (y) any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing forty percent or
more of the combined voting power of the Company's then
outstanding securities; or (z) following the election or
removal of directors, a majority of the Company's Board of
Directors ("Board") consists of individuals who were not
members of the Board two years before such election or
removal, unless the election of each director who was not a
director at the beginning of such two-year period has been
approved in advance by directors representing at least a
majority of the directors then in office who were directors
at the beginning of the two-year period.
(c) If, prior to a Change in Control of the Company, the
Optionee's employment with the Company and any of its
Affiliates is terminated for any reason other than as
specified in clauses (i) and (ii) of Paragraph 2(b) above,
the Option may be exercised during the remainder of its term
only with respect to the number of shares exercisable at the
date of such termination. If, following a Change in Control
of the Company, the Optionee's employment with the Company
and any of its Affiliates is terminated for any reason, the
Option may be exercised during the remainder of its term to
the extent unexercised.
3. The Option shall terminate and be of no force and effect with
respect to any shares not previously taken up by the Optionee
upon the first to occur of (a) the expiration of ten years from
the date of the grant of the Option or (b) the expiration of
ninety days after the termination of employment of the Optionee
with the Company and any of its Affiliates for any reason (other
than death, disability or retirement under or in accordance with
the retirement plan of the Company or any of its Affiliates in
which he is then participating) prior to a Change in Control of
the Company; provided, however,
- 2 -
<PAGE> 8
that if death of the Optionee occurs within ninety days of
termination of employment prior to a Change in Control of the
Company, clause (b) shall be inapplicable.
4. (a) Subject to the terms and conditions of this Paragraph 4, the
Optionee, to the extent entitled to exercise the Option
under the terms hereof, in lieu of purchasing the entire
number of shares subject to purchase hereunder, shall have
the right to relinquish all or any part of the unexercised
portion of the Option for a number of shares of Common Stock
to be determined as follows:
(i) The number of shares of Common Stock issuable
pursuant to a relinquishment shall be the number of
such shares, rounded to the next greater number of
full shares, as shall be equal to the quotient
obtained by dividing (x) the Appreciated Value (as
defined below) by (y) the then current market value
per share of Common Stock;
(ii) For the purposes of this Paragraph 4(a), "Appreciated
Value" means the excess of (x) the aggregate current
market value of the shares of Common Stock covered by
the Option or the portion hereof to be relinquished
over (y) the aggregate purchase price for such shares
specified in the Option.
(b) The right of relinquishment may be exercised only upon
receipt by the Company of a written notice of such
relinquishment which shall be dated the date of election to
make such relinquishment; and, for purposes of the Plan,
such date of election shall be deemed to be the date when
such notice is sent by registered or certified mail, if by
mail, or when receipt is acknowledged by the Company, if
mailed by other than registered or certified mail or if
delivered by hand or by any telegraphic communications
equipment of the sender or otherwise delivered; provided,
that, in the event the method above described for
determining such date of election shall not be or remain
consistent with the provisions of Section 16(b) of the
Exchange Act or the rules and regulations adopted by the
Securities and Exchange Commission thereunder, as currently
existing or as may be hereafter amended, then such date of
election shall be determined by such other method consistent
with said Section 16(b) or rules or regulations as the
Committee in its discretion shall select and apply.
(c) For purposes of this Paragraph 4, the "current market value"
of a share of the Common Stock shall be deemed to be the
average (mean) of the reported "high" and "low" sales prices
per share of such stock reported in The Wall Street
Journal's NYSE-Composite Transactions listing for the date
(corrected for obvious typographical errors) on which
written notice of relinquishment is received by the Company
or, if such shares are not reported in such listing, then
the average of the reported "high" and "low" sales prices on
the largest national securities exchange (based on the
aggregate dollar value of securities listed) on which such
shares are listed or traded, or if such shares are not
listed or traded on any national securities exchange, then
the average of the reported "high" and "low" sales prices
for such
- 3 -
<PAGE> 9
shares in the over-the-counter market, as reported on the
National Association of Securities Dealers Automated
Quotations System, or, if such prices shall not be reported
thereon, the average between the closing bid and asked
prices so reported, or, if such prices shall not be
reported, then the average of the closing bid and asked
prices reported by the National Quotations Bureau
Incorporated, or, in all other cases, the value established
by the Board in good faith.
(d) The Option, or any portion thereof, may be relinquished only
to the extent that it is exercisable on the date written
notice of relinquishment is received by the Company.
(e) Under no circumstances may the option be relinquished for
cash.
(f) Neither the Option nor any right to relinquish the same to
the Company as contemplated by Paragraph 4(a) above shall be
assignable or otherwise transferable except by will or the
laws of descent and distribution.
(g) Subject to the limitations set forth elsewhere herein, the
right of relinquishment granted hereby may be exercised by
written notice delivered by the Optionee to Southdown, Inc.,
1200 Smith Street, Suite 2400, Houston, Texas 77002-4486,
which notice shall state the portion of the Option being
relinquished by such holder in consideration of shares of
Common Stock pursuant to the terms hereof.
(h) Upon relinquishment of the Option or any portion thereof as
provided herein, the Option or the portion thereof so
relinquished shall thereupon terminate and be of no further
force or effect, and the Company shall have no further
obligation to issue and deliver shares of its Common Stock
with respect thereto.
(i) The obligation of the Company to issue and deliver shares
pursuant to the relinquishment of the Option shall be
subject to all applicable laws, rules and regulations and to
such filings with or approvals by any governmental agencies
or national securities exchanges as may be required and the
Optionee agrees that he will not exercise the right of
relinquishment granted hereby, and that the Company will
have no obligation to effect such relinquishment, if the
exercise of such right or the consummation of such
relinquishment would constitute a violation by the Optionee
or the Company of any applicable law or regulation.
(j) Notwithstanding any provision of this Paragraph 4, the
Option shall terminate and be of no force or effect after
the expiration date determined in accordance with the terms
and provisions of Paragraph 3 above.
(k) A right of relinquishment may not be exercised unless the
Appreciated Value exceeds zero.
- 4 -
<PAGE> 10
(l) No right of relinquishment may be exercised by the Optionee
within the first six months after the date of the award of
the Option; provided, however, that this limitation shall
not apply in the event of death or disability.
5. Subject to the limitations set forth herein and in the Plan, the
Option may be exercised by written notice mailed to the Company
at Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas
77002-4486. In addition to any information required by Paragraph
4 to exercise a right of relinquishment hereunder, such written
notice shall (a) state the number of shares with respect to which
the Option is being exercised and (b) be accompanied by cash
(including certified check, bank draft and postage or express
money order payable to the order of the Company) in the full
amount of the purchase price for any shares being acquired other
than pursuant to a right of relinquishment or, at the option of
the Optionee, accompanied by Common Stock theretofore owned by
the Optionee equal in value to the full amount of the purchase
price (or any combination of cash or such Common Stock). For
purposes of determining the amount, if any, of the purchase price
satisfied by payment in Common Stock, such Common Stock shall be
valued at its fair market value on the date of exercise in
accordance with Paragraph 5(b) of the Plan. Any Common Stock
delivered in satisfaction of all or a portion of the purchase
price shall be appropriately endorsed for transfer and assigned
to the Company. In addition, whether or not the options and
shares covered by the Plan have been registered pursuant to the
Securities Act of 1933, the Company may, at its election, require
the Optionee to give a representation in writing that he is
acquiring such shares for his own account for investment and not
with a view to, or for sale in connection with, the distribution
of any part thereof. If any law or regulation requires the
Company to take any action with respect to the shares specified
in such notice, the time for delivery thereof, which would
otherwise be as promptly as practicable, shall be postponed for
the period of time necessary to take such action.
6. The Optionee may pay all or any portion of the taxes required to
be withheld by the Company or paid by the Optionee in connection
with the exercise of all or any portion of the Option by electing
to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(b) of the
Plan, equal to the amount required to be withheld or paid. The
Optionee must make the foregoing election on or before the date
that the amount of tax to be withheld is determined ("Tax Date").
All such elections are irrevocable and subject to disapproval by
the Committee. If the Optionee is subject to the short-swing
profits recapture provisions of Section 16(b) of the Exchange Act
(a "Covered Optionee") any such election may not be made within
six months of the grant of the Option, provided that this
limitation shall not apply in the event of death or disability.
Where the Tax Date in respect of the exercise of all or any
portion of the Option is deferred until six months after such
exercise and the Optionee elects share withholding, the full
amount of shares of Common Stock will be issued or transferred to
the Optionee upon exercise of the Option, but the Optionee shall
be unconditionally obligated to tender back to the Company the
number of shares
- 5 -
<PAGE> 11
necessary to discharge the Company's withholding obligation or
the Optionee's estimated tax obligation on the Tax Date.
7. The Optionee's rights under the Plan and this Nonqualified Stock
Option Agreement are personal; no assignment or transfer of the
Optionee's rights under and interest in the Option may be made by
the Optionee otherwise than by will or by the laws of descent and
distribution; and the Option is exercisable only by the Optionee
identified in the first paragraph of this Nonqualified Stock
Option Agreement during his lifetime.
SOUTHDOWN, INC.
By:
-------------------------------
The Option covered by this Nonqualified Stock Option Agreement has
been accepted as of the above date by the undersigned, subject to the terms and
provisions of the Plan and the administrative interpretations thereof referred
to above.
----------------------------------
Optionee
- 6 -
<PAGE> 12
1989 STOCK OPTION PLAN
OF SOUTHDOWN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
SOUTHDOWN, INC. (the "Company") hereby grants on to (the
"Optionee"), a key employee of the Company or one of its parent or subsidiary
companies ("Affiliates"), a nonqualified option (the "Option") to purchase from
the Company up to but not exceeding in the aggregate shares of Common Stock,
par value $1.25 per share, of the Company ("Common Stock") at $ per share, such
number of shares and such price per share being subject to adjustment as
provided in Paragraph 9 of the 1989 Stock Option Plan of Southdown, Inc. as
amended from time to time (the "Plan"), and further subject to the following
terms and conditions:
1. The Option is issued in accordance with and subject to all of the
terms, conditions and provisions of the Plan and the
administrative interpretations thereunder, if any, which have
been adopted by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Committee") and are in
effect on the date hereof. References to the Optionee herein
also include his heirs or other legal representatives.
2. (a) The Option shall be exercisable after the date hereof as
follows:
(i) After one year of continued employment, the Option
shall be exercisable for any number of shares of
Common Stock up to and including, but not in excess
of 25% of the aggregate number of shares subject to
the Option;
(ii) After two years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 50% of the
aggregate number of shares subject to the Option; and
(iii) After three years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 75% of the
aggregate number of shares subject to the Option; and
(iv) After four years of continued employment with the
Company or any Affiliate, the Option shall be fully
exercisable; provided that the number of shares of
Common Stock as to which the Option becomes
exercisable shall, in each case, be reduced by the
number of shares theretofore purchased pursuant to
the terms hereof.
<PAGE> 13
(b) Notwithstanding the provisions of Paragraph 2(a) above, the
Option shall be fully exercisable in the event of:
(i) Death or disability of the Optionee while in the
employment of the Company or any Affiliate; or
(ii) Termination of the Optionee's employment by
retirement under or in accordance with the retirement
plan of the Company or any Affiliate in which he is
then participating but only if approved in writing by
the Committee.
(c) If the Optionee's employment with the Company and any of its
Affiliates is terminated for any reason other than as
specified in clauses (i) and (ii) of Paragraph 2(b) above,
the Option may be exercised during the remainder of its term
only with respect to the number of shares exercisable at the
date of such termination.
3. The Option shall terminate and be of no force and effect with
respect to any shares not previously taken up by the Optionee
upon the first to occur of (a) the expiration of ten years from
the date of the grant of the Option or (b) the expiration of
ninety days after the termination of employment of the Optionee
with the Company and any of its Affiliates for any reason (other
than death, disability or retirement under or in accordance with
the retirement plan of the Company or any of its Affiliates in
which he is then participating).
4. Subject to the limitations set forth herein and in the Plan, the
Option may be exercised by written notice mailed to the Company
at Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas
77002-4486. Such written notice shall (a) state the number of
shares with respect to which the Option is being exercised and
(b) be accompanied by cash (including certified check, bank draft
and postage or express money order payable to the order of the
Company) in the full amount of the purchase price for any shares
being acquired or, at the option of the Optionee, accompanied by
Common Stock theretofore owned by the Optionee equal in value to
the full amount of the purchase price (or any combination of cash
or such Common Stock). For purposes of determining the amount,
if any, of the purchase price satisfied by payment in Common
Stock, such Common Stock shall be valued at its fair market value
on the date of exercise in accordance with Paragraph 5(b) of the
Plan. Any Common Stock delivered in satisfaction of all or a
portion of the purchase price shall be appropriately endorsed for
transfer and assigned to the Company. In addition, whether or
not the options and shares covered by the Plan have been
registered pursuant to the Securities Act of 1933, the Company
may, at its election, require the Optionee to give a
representation in writing that he is acquiring such shares for
his own account for investment and not with a view to, or for
sale in connection with, the distribution of any part thereof.
If any law or regulation requires the Company to take any action
with respect to the shares specified in such notice, the time for
delivery thereof, which would otherwise be as promptly as
practicable, shall be postponed for the period of time necessary
to take such action.
- 2 -
<PAGE> 14
5. The Optionee may pay all or any portion of the taxes required to
be withheld by the Company or paid by the Optionee in connection
with the exercise of all or any portion of the Option by electing
to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(b) of the
Plan, equal to the amount required to be withheld or paid. The
Optionee must make the foregoing election on or before the date
that the amount of tax to be withheld is determined ("Tax Date").
All such elections are irrevocable and subject to disapproval by
the Committee. If the Optionee is subject to the short-swing
profit recapture provisions of Section 16(b) of the Exchange Act,
any such election may not be made within six months of the grant
of the Option, provided that this limitation shall not apply in
the event of death or disability. Where the Tax Date in respect
of the exercise of all or any portion of the Option is deferred
until six months after such exercise and the Optionee elects
share withholding, the full amount of shares of Common Stock will
be issued or transferred to the Optionee upon exercise of the
Option, but the Optionee shall be unconditionally obligated to
tender back to the Company the number of shares necessary to
discharge the Company's withholding obligation or the Optionee's
estimated tax obligation on the Tax Date.
6. The Optionee's rights under the Plan and this Nonqualified Stock
Option Agreement are personal; no assignment or transfer of the
Optionee's rights under and interest in the Option may be made by
the Optionee otherwise than by will or by the laws of descent and
distribution; and the Option is exercisable only by the Optionee
identified in the first paragraph of this Nonqualified Stock
Option Agreement during his lifetime.
SOUTHDOWN, INC.
By:
--------------------------------
The Option covered by this Nonqualified Stock Option Agreement has
been accepted as of the above date by the undersigned, subject to the terms and
provisions of the Plan and the administrative interpretations thereof referred
to above.
-----------------------------------
Optionee
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<PAGE> 15
1989 STOCK OPTION PLAN
OF SOUTHDOWN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
SOUTHDOWN, INC. (the "Company") hereby grants on January 22, 1998 to
(the "Optionee"), a key employee of the Company or one of its parent or
subsidiary companies ("Affiliates"), a nonqualified option (the "Option") to
purchase from the Company up to but not exceeding in the aggregate shares of
Common Stock, par value $1.25 per share, of the Company ("Common Stock") at
per share, such number of shares and such price per share being subject to
adjustment as provided in Paragraph 9 of the 1989 Stock Option Plan of
Southdown, Inc. as amended from time to time (the "Plan"), and further subject
to the following terms and conditions:
1. The Option is issued in accordance with and subject to all of the
terms, conditions and provisions of the Plan and the
administrative interpretations thereunder, if any, which have
been adopted by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Committee") and are in
effect on the date hereof. References to the Optionee herein
also include his heirs or other legal representatives.
2. (a) The Option shall be exercisable after the date hereof as
follows:
(i) After one year of continued employment, the Option
shall be exercisable for any number of shares of
Common Stock up to and including, but not in excess
of 25% of the aggregate number of shares subject to
the Option;
(ii) After two years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 50% of the
aggregate number of shares subject to the Option; and
(iii) After three years of continued employment with the
Company or any Affiliate, the Option shall be
exercisable for any number of shares of Common Stock
up to and including, but not in excess of 75% of the
aggregate number of shares subject to the Option; and
(iv) After four years of continued employment with the
Company or any Affiliate, the Option shall be fully
exercisable; provided that the number of shares of
Common Stock as to which the Option becomes
exercisable shall, in each case, be reduced by the
number of shares theretofore purchased or
relinquished pursuant to the terms hereof.
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<PAGE> 16
(b) Notwithstanding the provisions of Paragraph 2(a) above, the
Option shall be fully exercisable in the event of:
(i) Death or disability of the Optionee while in the
employment of the Company or any Affiliate;
(ii) Termination of the Optionee's employment by
retirement under or in accordance with the retirement
plan of the Company or any Affiliate in which he is
then participating but only if approved in writing by
the Committee; or
(iii) A Change in Control (as defined below) of the
Company.
For the purposes of Paragraph 2(b)(iii) above, a
"Change in Control" shall be conclusively deemed to
have occurred if (and only if) any of the following
shall have taken place: (x) a Change in Control is
reported by the Company in response to either Item
6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended
("Exchange Act"), or Item 1 of Form 8-K promulgated
under the Exchange Act; (y) any person (as such term
is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing forty percent or more of the combined
voting power of the Company's then outstanding
securities; or (z) following the election or removal
of directors, a majority of the Company's Board of
Directors ("Board") consists of individuals who were
not members of the Board two years before such
election or removal, unless the election of each
director who was not a director at the beginning of
such two-year period has been approved in advance by
directors representing at least a majority of the
directors then in office who were directors at the
beginning of the two-year period.
(c) If, prior to a Change in Control of the Company, the
Optionee's employment with the Company and any of its
Affiliates is terminated for any reason other than as
specified in clauses (i) and (ii) of Paragraph 2(b) above,
the Option may be exercised during the remainder of its term
only with respect to the number of shares exercisable at the
date of such termination. If, following a Change in Control
of the Company, the Optionee's employment with the Company
and any of its Affiliates is terminated for any reason, the
Option may be exercised during the remainder of its term to
the extent unexercised.
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<PAGE> 17
3. The Option shall terminate and be of no force and effect with
respect to any shares not previously taken up by the Optionee
upon the first to occur of (a) the expiration of ten years from
the date of the grant of the Option or (b) the expiration of
ninety days after the termination of employment of the Optionee
with the Company and any of its Affiliates for any reason (other
than death, disability or retirement under or in accordance with
the retirement plan of the Company or any of its Affiliates in
which he is then participating) prior to a Change in Control of
the Company; provided, however, that if death of the Optionee
occurs within ninety days of termination of employment prior to a
Change in Control of the Company, clause (b) shall be
inapplicable.
4. Subject to the limitations set forth herein and in the Plan, the
Option may be exercised by written notice mailed to the Company
at Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas
77002-4486. Such written notice shall (a) state the number of
shares with respect to which the Option is being exercised and
(b) be accompanied by cash (including certified check, bank draft
and postage or express money order payable to the order of the
Company) in the full amount of the purchase price for any shares
being acquired or, at the option of the Optionee, accompanied by
Common Stock theretofore owned by the Optionee equal in value to
the full amount of the purchase price (or any combination of cash
or such Common Stock). For purposes of determining the amount,
if any, of the purchase price satisfied by payment in Common
Stock, such Common Stock shall be valued at its fair market value
on the date of exercise in accordance with Paragraph 5(b) of the
Plan. Any Common Stock delivered in satisfaction of all or a
portion of the purchase price shall be appropriately endorsed for
transfer and assigned to the Company. In addition, whether or
not the options and shares covered by the Plan have been
registered pursuant to the Securities Act of 1933, the Company
may, at its election, require the Optionee to give a
representation in writing that he is acquiring such shares for
his own account for investment and not with a view to, or for
sale in connection with, the distribution of any part thereof.
If any law or regulation requires the Company to take any action
with respect to the shares specified in such notice, the time for
delivery thereof, which would otherwise be as promptly as
practicable, shall be postponed for the period of time necessary
to take such action.
5. The Optionee may pay all or any portion of the taxes required to
be withheld by the Company or paid by the Optionee in connection
with the exercise of all or any portion of the Option by electing
to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(b) of the
Plan, equal to the amount required to be withheld or paid. The
Optionee must make the foregoing election on or before the date
that the amount of tax to be withheld is determined ("Tax Date").
All such elections are irrevocable and subject to disapproval by
the Committee. If the Optionee is subject to the short-swing
profits recapture provisions of Section 16(b) of the Exchange Act
(a "Covered Optionee") any such election may not be made within
six months of the grant of the Option, provided that this
limitation shall not apply in the
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<PAGE> 18
event of death or disability. Where the Tax Date in respect of
the exercise of all or any portion of the Option is deferred
until six months after such exercise and the Optionee elects
share withholding, the full amount of shares of Common Stock will
be issued or transferred to the Optionee upon exercise of the
Option, but the Optionee shall be unconditionally obligated to
tender back to the Company the number of shares necessary to
discharge the Company's withholding obligation or the Optionee's
estimated tax obligation on the Tax Date.
6. The Optionee's rights under the Plan and this Nonqualified Stock
Option Agreement are personal; no assignment or transfer of the
Optionee's rights under and interest in the Option may be made by
the Optionee otherwise than by will or by the laws of descent and
distribution; and the Option is exercisable only by the Optionee
identified in the first paragraph of this Nonqualified Stock
Option Agreement during his lifetime.
SOUTHDOWN, INC.
By:
------------------------------
The Option covered by this Nonqualified Stock Option Agreement has
been accepted as of the above date by the undersigned, subject to the terms and
provisions of the Plan and the administrative interpretations thereof referred
to above.
---------------------------------
Optionee
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between
Southdown, Inc., a Louisiana corporation ("Company"), and ____________, a
resident of [Houston, Harris] County, Texas ("Executive"), effective as of
_________, 1997. The Company and the Executive are sometimes referred to
herein as the "Parties."
1. Introduction. In connection with the revision of existing
employment agreements, the Company believes that the assurance of the
Executive's continued employment by the Company and the benefit of his business
experience are of material importance. Therefore, the Company and the
Executive intend by this Agreement to rescind any existing employment
agreement and to specify the terms and conditions of the Executive's continuing
employment relationship with the Company.
2. Employment. The Company hereby employs the Executive and the
Executive hereby accepts continuing employment with the Company upon the terms
and conditions set forth herein.
3. Duties and Responsibilities.
3.1. Extent of Service. The Executive shall, during the term
of this Agreement, devote such of his entire time, attention, energies and
business efforts to his duties as an executive of the Company as are reasonably
necessary to carry out his duties specified in Paragraph 3.2 below. The
Executive shall not, during the term of this Agreement, engage in any other
business activity (whether or not such business activity is pursued for gain,
profit or other pecuniary advantage) if such business activity would impair the
Executive's ability to carry out his duties hereunder. This Paragraph 3.1,
however, shall not be construed to prevent the Executive from investing his
personal assets as a passive investor in such form or manner as will not
contravene the Company's Statement of Policy Regarding Corporate Ethics and
Conflicts of Interest ( "Policy Statement").
3.2. Position and Duties. Subject to the power of the Board of
Directors of the Company to elect and remove officers, the Executive shall
serve the Company as ____________ (or in such other office of comparable or
greater responsibility as the Board of Directors of the Company may determine)
and shall perform, faithfully and diligently, the services and functions
relating to such office or otherwise reasonably incident to such office as may
be designated from time to time by the Board of Directors of the Company;
provided that all such services and functions shall be reasonable and within
the Executive's area of expertise; and provided further that the Executive
shall be physically capable of performing the essential requirements of the job
with or without reasonable accommodation.
3.3. Place of Employment. During the term of this Agreement,
the Company shall maintain its principal executive offices in the greater
Houston, Texas area, and the Executive's primary place of employment shall be
at such principal executive offices. During the term of this Agreement, the
Company will provide the Executive with a private office, an executive
secretary
<PAGE> 2
and other customary staff support services, all as are commensurate with the
services and functions to be performed by him hereunder.
4. Salary and Other Benefits. Subject to the terms and conditions
of this Agreement:
4.1. Salary. As compensation for his services under and during
the term of his employment under this Agreement, the Executive shall be paid an
annual salary of not less than $__________, payable in accordance with the then
current payroll policies of the Company. Such salary shall be subject to
increase by the Board of Directors of the Company (or the appropriate committee
thereof) from time to time. The annual salary payable from time to time by the
Company to the Executive pursuant to this Paragraph 4.1 is herein sometimes
referred to as his "Base Salary."
4.2. Other Benefits. As long as the Executive is employed by
the Company, the Executive shall be entitled to receive the following benefits
in addition to his Base Salary:
(a) The Executive shall be entitled to participate in
the Company's discretionary bonus plan (the "Bonus Plan") for senior management
of the Company and its consolidated subsidiaries, pursuant to which he shall be
paid each year such additional compensation by way of bonus as the Board of
Directors of the Company (or the appropriate committee thereof) in its sole
discretion shall authorize or agree to pay, payable on such terms and
conditions as it shall determine.
(b) The Executive shall have the right to participate
in all group benefit and applicable retirement plans of the Company (including
without limitation, disability, accident, medical, life insurance,
hospitalization and pension), all in accordance with the Company's regular
practices with respect to its senior officers.
(c) The Executive shall be entitled to
reimbursement from the Company for reasonable out-of-pocket expenses incurred
by him in the course of the performance of his duties hereunder.
(d) The Company shall provide the Executive with an
automobile allowance in the amount of $1,000 per month, subject to statutory
withholdings. Executive shall bear all expenses incurred in connection with
owning or operating his personal automobile.
(e) In order to promote the interests of the Company,
the Company shall reimburse the Executive for the initiation fees and all
annual dues incurred by him in connection with his membership in one luncheon
club and one country club as may be agreed upon by the Executive and the
Company (and the Company agrees to post any bond required by such clubs and
each such bond will remain the property of the Company).
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<PAGE> 3
(f) The Company shall reimburse Executive an amount up
to $5,000 per year for personal financial, tax and estate planning.
(g) The Executive shall be entitled to such vacation,
holidays and other paid or unpaid leaves of absence as are consistent with the
Company's normal policies or as are otherwise approved by the Company's Board
of Directors (or the appropriate committee thereof).
5. Term. The term of this Agreement shall be for one year and shall
be automatically extended each day, from ___________, 1997.
6. Termination and Resignation. The Company shall have the right to
terminate the Executive's employment hereunder at any time and for any reason,
and upon any such termination the Executive shall be entitled to receive from
the Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 7 below. The Executive shall have the right to
terminate his employment hereunder at any time by resignation, and he shall
thereupon be entitled to receive from the Company prompt payment of the amount
determined pursuant to the applicable subparagraph of Paragraph 7 below.
7. Payments Upon Termination and Resignation.
7.1. Pro Rata Payment. In the event of the following:
(i) the Company terminates the Executive's employment for Cause (as
defined below),
(ii) the Executive dies or becomes disabled (being the inability of
the Executive to perform the essential requirements of the job with or
without reasonable accommodation),
(iii) the Executive resigns prior to the occurrence of a Change in
Control (as defined below) of the Company at a time when there is no
uncured breach by the Company of any term of this Agreement, or
(iv) the Executive resigns after the occurrence of a Change in Control
for any reason other than for Good Reason (as defined below);
then in each case the Executive shall be entitled to receive only his Base
Salary on a pro rata basis to the date of termination or resignation.
7.2. Base Salary Payment. If prior to the occurrence of a
Change in Control (i) the Company terminates the Executive's employment for any
reason other than for Cause or the Executive's death or disability or (ii) the
Executive resigns because of the breach by the Company of any term of this
Agreement (but only if such breach is not remedied by the Company promptly
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<PAGE> 4
after it receives notice thereof from Executive), then in each case the
Executive shall be entitled to receive a lump sum payment equal to two times
his Base Salary.
7.3. Multiple Base Salary Payment. If after the occurrence of
a Change in Control of the Company, (a) the Company terminates the Executive's
employment hereunder for any reason other than for Cause, or (b) the Executive
voluntarily resigns his employment hereunder for Good Reason within one year
(as defined below) of the Change in Control, then in each case the Company will
pay to the Executive a lump sum termination payment equal to 2.99 times the sum
of his Base Salary and his Target Bonus (as defined below) (collectively, the
"Lump Sum Payment"), subject to adjustment as provided in Paragraph 9 below.
7.4. Certain Definitions.
(a) "Target Bonus" shall mean the target bonus for
Executive specified under the Company's Bonus Plan (as defined in Paragraph
4.2(a)) for the year in which a Change in Control of the Company occurs.
(b) Termination by the Company of the Executive's
employment for "Cause" shall mean termination upon the willful misappropriation
of funds or properties of the Company or the willful contravention of the
standards referred to in the last sentence of Paragraph 10 below. For purposes
of this definition, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board of Directors of the Company at a meeting
of the Board duly called and held (after reasonable notice to the Executive and
an opportunity for the Executive, together with his counsel, to be heard before
the Board) finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth above and specifying the particulars
thereof in detail.
(c) A "Change in Control" shall be conclusively deemed
to have occurred if (and only if) any of the following shall have taken place:
(i) a change in control is reported by the Company in response to either Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), or Item 1 of Form 8-K
promulgated under the Exchange Act, or any similar reporting requirement
hereafter promulgated by the Securities and Exchange Commission; (ii) any
person, entity or group (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than any employee benefit plan sponsored by the
Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing forty percent or more of the combined voting power of the
Company's then outstanding securities (as determined under
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<PAGE> 5
paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in the case of
rights to acquire common stock); or (iii) following the election or removal of
directors, a majority of the Board consists of individuals who were not members
of the Board two years before such election or removal, unless the election of
each director who was not a director at the beginning of such two-year period
has been approved in advance by directors representing at least a majority of
the directors then in office who were directors at the beginning of the two-
year period.
(d) "Good Reason" shall mean, in any case only if an
action or event described in this Paragraph 7.4(d) is not remedied by the
Company promptly after it receives notice thereof from Executive,
(i) the assignment to the Executive of any duties
substantially inconsistent with the Executive's position
(including offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Paragraph 3.2 hereof;
(ii) the failure of the Company to comply with any of the
provisions of Section 4.2 hereof; or
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Paragraph 3.3 hereof
.
8. Acceleration of Options. Contemporaneously with the occurrence
of a Change in Control of the Company, the Board of Directors of the Company
(or the appropriate committee thereof) will accelerate all outstanding options
previously granted to the Executive under any then existing Company stock
option, stock appreciation or other employee incentive plan that are not
otherwise exercisable by the Executive at the time the Change in Control of the
Company occurs.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended ("Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties, additions to
tax or additional amounts, being collectively referred herein to as the "Excise
Tax"), then Executive shall be entitled to receive and the Company shall make
an additional payment or payments (individually referred to herein as a "Gross-
Up Payment," and any two or more of such additional payments being referred to
herein as "Gross-Up Payments") in an
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<PAGE> 6
amount such that after payment by Executive of all taxes (as defined in
Paragraph 9(k) imposed upon the Gross-Up Payment, Executive retains an amount
of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Paragraph 9(c) through (i),
any determination (individually, a "Determination") required to be made under
Paragraphs 9(a) or 9(b), including whether a Gross-Up Payment is required and
the amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by nationally recognized tax counsel mutually acceptable to the
Company and Executive ("Tax Counsel"). Tax Counsel shall provide detailed
supporting legal authorities, calculations, and documentation both to the
Company and Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is reasonably
requested by the Company or Executive. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by Executive with respect to a
Payment or Payments, it shall furnish Executive with an opinion that no Excise
Tax will be imposed with respect to any such Payment or Payments. Executive
shall have the right to dispute any Determination (a "Dispute") within 15
business days after delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as determined pursuant to such
Determination shall, at the Company's expense, be paid by the Company to
Executive within five business days of Executive's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Executive's right to receive the Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such Determination shall be binding,
final and conclusive upon the Company and Executive, subject in all respects,
however, to the provisions of Paragraph 9(c) through (i) below. As a result of
the uncertainty in the application of Sections 4999 and 280G of the Code, it is
possible that Gross-Up Payments (or portions thereof) which will not have been
made by the Company should have been made ("Underpayment"), and if upon any
reasonable written request from Executive or the Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at the Company's expense,
thereafter determines that Executive is required to make a payment of any
Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall,
at the Company's expense, determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
Executive.
(c) The Company shall defend, hold harmless, and indemnify
Executive on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgments, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Executive resulting from any Final Determination (as defined
in Paragraph 9(j)) that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending
or threatened audit, examination, investigation or administrative, court or
other proceeding which, if pursued successfully, could result in or give rise
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<PAGE> 7
to a claim by Executive against the Company under this Paragraph 9(d)
("Claim"), including, but not limited to, a claim for indemnification of
Executive by the Company under Paragraph 9(c), then such party shall promptly
notify the other party hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against Executive ("Executive
Claim"), Executive shall take or cause to be taken such action in connection
with contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide
that the Company shall be solely responsible for the payment of any and all
fees and disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
(i) within 30 calendar days after the Company receives
or delivers, as the case may be, the Tax Claim Notice relating to such
Executive Claim (or such earlier date that any payment of the taxes
claimed is due from Executive, but in no event sooner than five calendar
days after the Company receives or delivers such Tax Claim Notice), the
Company shall have notified Executive in writing ("Election Notice")
that the Company does not dispute its obligations (including, but not
limited to, its indemnity obligations) under this Agreement and that the
Company elects to contest, and to control the defense or prosecution of,
such Executive Claim at the Company's sole risk and sole cost and
expense; and
(ii) the Company shall have advanced to Executive on an
interest-free basis, the total amount of the tax claimed in order for
Executive, at the Company's request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of Paragraph 9(g), sue for a refund of
such tax if such claim for refund is disallowed by the appropriate
taxing authority (it being understood and agreed by the parties hereto
that the Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold Executive
harmless, on a fully grossed-up after tax basis, from any tax imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and
(iii) the Company shall reimburse Executive for any and
all costs and expenses resulting from any such request by the Company
and shall indemnify and hold Executive harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such reimbursement.
(f) Subject to the provisions of Paragraph 9(e), hereof, the
Company shall have the right to defend or prosecute, at the sole cost, expense
and risk of the Company, such Executive Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently
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<PAGE> 8
by the Company to a Final Determination; provided, however, that (i) the
Company shall not, without Executive's prior written consent, enter into any
compromise or settlement of such Executive Claim that would adversely affect
Executive, (ii) any request from the Company to Executive regarding any
extension of the statute of limitations relating to assessment, payment, or
collection of taxes for the taxable year of Executive with respect to which the
contested issues involved in, and amount of, the Executive Claim relate is
limited solely to such contested issues and amount, and (iii) the Company's
control of any contest or proceeding shall be limited to issues with respect to
the Executive Claim and Executive shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue raised by the Internal
Revenue Service or any other taxing authority. So long as the Company is
diligently defending or prosecuting such Executive Claim, Executive shall
provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Executive Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Executive Claim. The Company shall keep
Executive informed of all developments and events relating to any such
Executive Claim (including, without limitation, providing to Executive copies
of all written materials pertaining to any such Executive Claim), and Executive
or his authorized representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating to any such
Executive Claim.
(g) If, after actual receipt by Executive of an amount of a
tax claimed (pursuant to an Executive Claim) that has been advanced by the
Company pursuant to Paragraph 9(e)(ii), hereof, the extent of the liability of
the Company hereunder with respect to such tax claimed has been established by
a Final Determination, Executive shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, Executive
with respect to such tax (together with any interest paid or credited thereon
by the taxing authority and any recovery of legal fees from such taxing
authority related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions of this
Agreement or otherwise. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Paragraph 9(e)(ii), a determination is made
by the Internal Revenue Service or other appropriate taxing authority that
Executive shall not be entitled to any refund with respect to such tax claimed
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.
(h) With respect to any Executive Claim, if the Company fails
to deliver an Election Notice to Executive within the period provided in
Paragraph 9(e)(i), hereof or, after delivery of such Election Notice, the
Company fails to comply with the provisions of Paragraph 9(e)(ii), and (iii)
and (f) hereof, then Executive shall at any time thereafter have the right (but
not the obligation), at his election and in his sole and absolute discretion,
to defend or prosecute, at the sole cost, expense and risk of the Company, such
Executive Claim. Executive shall have full control of such defense
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<PAGE> 9
or prosecution and such proceedings, including any settlement or compromise
thereof. If requested by Executive, the Company shall cooperate, and shall
cause its affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such Executive
Claim. The Company may attend, but not participate in or control, any defense,
prosecution, settlement or compromise of any Executive Claim controlled by
Executive pursuant to this Paragraph 9(h) and shall bear its own costs and
expenses with respect thereto. In the case of any Executive Claim that is
defended or prosecuted by Executive, Executive shall, from time to time, be
entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by Executive in connection
with such defense or prosecution.
(i) In the case of any Executive Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this Paragraph
9(i), the Company shall pay, on a fully grossed-up after tax basis, to
Executive in immediately available funds the full amount of any taxes arising
or resulting from or incurred in connection with such Executive Claim that have
not theretofore been paid by the Company to Executive, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Executive,
within ten calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company shall pay,
on a fully grossed-up after tax basis, to Executive in immediately available
funds the full amount of any taxes arising or resulting from or incurred in
connection with such Executive Claim at least ten calendar days before the date
payment of such taxes is due from Executive, except where payment of such taxes
is sooner required under the provisions of this Paragraph 9(i), in which case
payment of such taxes (and payment, on a fully grossed-up after tax basis, of
any costs and expenses required to be paid under this Paragraph 9(i) shall be
made within the time and in the manner otherwise provided in this Paragraph
9(i).
(j) For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
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<PAGE> 10
(l) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to
direct or cause the direction of the management and policies of such entity or
other person, whether through the ownership of voting securities, by contract
or otherwise.
10. Preservation of Business; Fiduciary Responsibility. The
Executive shall use his best efforts to preserve the business and organization
of the Company and the Company's consolidated subsidiaries (collectively, the
"Consolidated Company"), to keep available to the Consolidated Company the
services of present employees and to preserve the business relations of the
Consolidated Company with suppliers, distributors, customers and others. The
Executive shall not commit any act, or in any way assist others to commit any
act, which would injure the Consolidated Company. So long as the Executive is
employed by the Company, the Executive shall observe and fulfill proper
standards of fiduciary responsibility attendant upon his service and office and
shall comply with the terms of the Company's Statement of Policy Concerning
Corporate Ethics and Conflicts of Interest, as may be amended from time to
time.
11. Competitive Activities.
11.1. As an independent covenant, Executive agrees to refrain
for one (1) year after the termination of his employment for any reason,
without written permission from the Company, from becoming involved in any way,
within the boundaries of the United States, in the business of manufacturing or
selling any cement or ready-mix concrete products, or other products or
services competitive at the time of the termination with those sold and
furnished by the Consolidated Company as an employee, director, officer,
shareholder, consultant, partner, proprietor, or in any other capacity, except
as a shareholder owning less than five percent of the shares of a corporation
whose shares are publicly traded.
11.2 As an independent covenant, Executive agrees to refrain
during his employment by the Company, and in the event of the termination of
his employment for any reason, for one (1) year thereafter, without written
permission from the Company, from diverting, taking, soliciting and/or
accepting on his own behalf or on the behalf of another person, firm, or
company, the business of any customer of the Consolidated Company or any
potential customer of the Consolidated Company whose identity became known to
Executive through his employment by the Company.
11.3 As an independent covenant, Executive agrees to refrain
during his employment by the Company, and in the event of the termination of
his employment for any reason
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<PAGE> 11
for a period of one (1) year, thereafter, from inducing or attempting to
influence any employee of the Consolidated Company to terminate his employment.
11.4 Executive further agrees that these covenants are made to
protect the legitimate business interests of the Company, including interests
in the Company's "confidential information" as defined in Paragraph 12, and not
to restrict his mobility or to prevent him from utilizing his general technical
skills. Executive understands as a part of these covenants that the Company
intends to exercise whatever legal recourse against him for any breach of this
Agreement and in particular for any breach of these covenants.
12. Non-Disclosure of Confidential Information. Executive agrees
not to make any unauthorized use, publication, or disclosure, during or
subsequent to his employment by the Company, of any confidential information,
generated or acquired by him during the course of his employment, except to the
extent that the disclosure of confidential information is necessary to fulfill
his responsibilities as an employee of the Company. Executive understands that
"confidential information" includes confidential or trade information not
generally known by or available to the public about or belonging to the
Consolidated Company or belonging to other companies to whom the Consolidated
Company may have an obligation to maintain information in confidence, and that
authorization for public disclosure may only be obtained through the Company's
written consent. Executive also understands and agrees that the information
protected by this provision includes, but is not limited to, information of a
technical and a business nature such as ideas, discoveries, designs,
inventions, improvements, trade secrets, know-how, manufacturing processes,
product formulae, design specifications, writings and other works of
authorship, computer programs, financial figures, marketing plans, customer
lists and data, business plans or methods and the like, which relate in any
manner to the actual or anticipated business of the Consolidated Company or
related to its actual or anticipated areas of research and development.
13. Notice. All notices, requests, demands and other communications
given under or by reason of this Agreement shall be in writing and shall be
deemed given when delivered in person or when mailed, by certified mail (return
receipt requested), postage prepaid, addressed as follows (or to such other
address as a party may specify by notice pursuant to this provision):
(a) To the Company:
Southdown, Inc.
Attention: Secretary
1200 Smith Street, Suite 2400
Houston, Texas 77002
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<PAGE> 12
(b) To the Executive:
------------------------
------------------------
------------------------
14. Controlling Law and Performability. The execution, validity,
interpretation and performance of this Agreement shall be governed by the law
of the State of Texas.
15. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by binding arbitration in
Houston, Texas by one arbitrator appointed in the manner set forth by the
American Arbitration Association. Any arbitration proceeding pursuant to this
Paragraph 15 shall be conducted in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. Judgment may be
entered on the arbitrators' award in any court having jurisdiction.
16. Expenses. The Company will pay or reimburse the Executive for
all costs and expenses (including arbitration and court costs and attorneys'
fees) incurred by the Executive as a result of any claim, action or proceeding
arising out of, or challenging the validity, advisability or enforceability of,
this Agreement or any provision thereof.
17. No Obligation to Mitigate. The Executive shall not be required
to mitigate the amount of any payment provided for in Paragraph 7 by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in Paragraph 7 be reduced by any compensation earned by the Executive as a
result of employment by another employer or otherwise.
18. Additional Instruments. The Parties shall execute and deliver
any and all additional instruments and agreements that may be necessary or
proper to carry out the purposes of this Agreement.
19. Entire Agreement and Amendments. This Agreement contains the
entire agreement of the Parties relating to the matters contained herein and
supersedes all prior agreements and understandings, oral or written, between
the Parties with respect to the subject matter hereof; provided, however, that
nothing herein shall affect in any respect the rights and obligations of the
Company and the Executive under any Incentive Agreements implemented prior to
the date of this Agreement and not expressly referred to herein or under any
Indemnity Agreement entered into between the Company and Executive. This
Agreement may be changed only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
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<PAGE> 13
20. Separability. If any provision of the Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a
court of last resort, the Parties shall promptly meet and negotiate substitute
provisions for those rendered or declared illegal or unenforceable to preserve
the original intent of this Agreement to the extent legally possible, but all
other provisions of this Agreement shall remain in full force and effect.
21. Assignments. The Company may assign (whether by operation of law
or otherwise) this Agreement only with the written consent of the Executive,
which consent shall not be withheld unreasonably, and in the event of an
assignment of this Agreement, all covenants, conditions and provisions
hereunder shall inure to the benefit of and be enforceable against the
Company's successors and assigns. The rights and obligations of Executive
under this Agreement are personal to him, and no such rights, benefits or
obligations shall be subject to voluntary or involuntary alienation, assignment
or transfer.
22. Effect of Agreement. Subject to the provisions of Paragraph 21
with respect to assignments, this Agreement shall be binding upon the Executive
and his heirs, executors, administrators, legal representatives and assigns and
upon the Company and its respective successors and assigns (whether direct or
indirect, by purchase, merger, consolidation or otherwise).
23. Execution. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
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<PAGE> 14
24. Waiver of Breach. The waiver by either Party of a breach of any
provision of the Agreement by the other Party shall not operate or be construed
as a waiver by such Party of any subsequent breach by such other Party.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the date first above written.
"COMPANY"
SOUTHDOWN, INC.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
"EXECUTIVE"
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 15
VERSION "B"
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between
Southdown, Inc., a Louisiana corporation ("Company"), and ____________, a
resident of [Houston, Harris] County, Texas ("Executive"), effective as of
_________, 1997. The Company and the Executive are sometimes referred to
herein as the "Parties."
1. Introduction. In connection with the revision of existing
employment agreements, the Company believes that the assurance of the
Executive's continued employment by the Company and the benefit of his business
experience are of material importance. Therefore, the Company and the
Executive intend by this Agreement to rescind any existing employment agreement
and to specify the terms and conditions of the Executive's continuing
employment relationship with the Company.
2. Employment. The Company hereby employs the Executive and the
Executive hereby accepts continuing employment with the Company upon the terms
and conditions set forth herein.
3. Duties and Responsibilities.
3.1. Extent of Service. The Executive shall, during the
term of this Agreement, devote such of his entire time, attention, energies and
business efforts to his duties as an executive of the Company as are reasonably
necessary to carry out his duties specified in Paragraph 3.2 below. The
Executive shall not, during the term of this Agreement, engage in any other
business activity (whether or not such business activity is pursued for gain,
profit or other pecuniary advantage) if such business activity would impair the
Executive's ability to carry out his duties hereunder. This Paragraph 3.1,
however, shall not be construed to prevent the Executive from investing his
personal assets as a passive investor in such form or manner as will not
contravene the Company's Statement of Policy Regarding Corporate Ethics and
Conflicts of Interest ( "Policy Statement").
3.2. Position and Duties. Subject to the power of the
Board of Directors of the Company to elect and remove officers, the Executive
shall serve the Company as ____________ (or in such other office of comparable
or greater responsibility as the Board of Directors of the Company may
determine) and shall perform, faithfully and diligently, the services and
functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board of Directors of the
Company; provided that all such services and functions shall be reasonable and
within the Executive's area of expertise; and provided further that the
Executive shall be physically capable of performing the essential requirements
of the job with or without reasonable accommodation.
3.3. Place of Employment. During the term of this
Agreement, the Company shall maintain its principal executive offices in the
greater Houston, Texas area, and the Executive's primary place of employment
shall be at such principal executive offices. During the term of this
Agreement, the Company will provide the Executive with a private office, an
executive secretary
<PAGE> 16
and other customary staff support services, all as are commensurate with the
services and functions to be performed by him hereunder.
4. Salary and Other Benefits. Subject to the terms and
conditions of this Agreement:
4.1. Salary. As compensation for his services under and
during the term of his employment under this Agreement, the Executive shall be
paid an annual salary of not less than $__________, payable in accordance with
the then current payroll policies of the Company. Such salary shall be subject
to increase by the Board of Directors of the Company (or the appropriate
committee thereof) from time to time. The annual salary payable from time to
time by the Company to the Executive pursuant to this Paragraph 4.1 is herein
sometimes referred to as his "Base Salary."
4.2. Other Benefits. As long as the Executive is employed
by the Company, the Executive shall be entitled to receive the following
benefits in addition to his Base Salary:
(a) The Executive shall be entitled to
participate in the Company's discretionary bonus plan (the "Bonus Plan") for
senior management of the Company and its consolidated subsidiaries, pursuant to
which he shall be paid each year such additional compensation by way of bonus
as the Board of Directors of the Company (or the appropriate committee thereof)
in its sole discretion shall authorize or agree to pay, payable on such terms
and conditions as it shall determine.
(b) The Executive shall have the right to
participate in all group benefit and applicable retirement plans of the Company
(including without limitation, disability, accident, medical, life insurance,
hospitalization and pension), all in accordance with the Company's regular
practices with respect to its senior officers.
(c) The Executive shall be entitled
to reimbursement from the Company for reasonable out-of-pocket expenses
incurred by him in the course of the performance of his duties hereunder.
(d) The Company shall provide the Executive with
an automobile allowance in the amount of $1,000 per month, subject to statutory
withholdings. Executive shall bear all expenses incurred in connection with
owning or operating his personal automobile.
(e) In order to promote the interests of the
Company, the Company shall reimburse the Executive for the initiation fees and
all annual dues incurred by him in connection with his membership in one
luncheon club and one country club as may be agreed upon by the Executive and
the Company (and the Company agrees to post any bond required by such clubs and
each such bond will remain the property of the Company).
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<PAGE> 17
(f) The Company shall reimburse Executive an
amount up to $5,000 per year for personal financial, tax and estate planning.
(g) The Executive shall be entitled to such
vacation, holidays and other paid or unpaid leaves of absence as are consistent
with the Company's normal policies or as are otherwise approved by the
Company's Board of Directors (or the appropriate committee thereof).
5. Term. The term of this Agreement shall be for one year and
shall be automatically extended each day, from ___________, 1997.
6. Termination and Resignation. The Company shall have the right
to terminate the Executive's employment hereunder at any time and for any
reason, and upon any such termination the Executive shall be entitled to
receive from the Company prompt payment of the amount determined pursuant to
the applicable subparagraph of Paragraph 7 below. The Executive shall have the
right to terminate his employment hereunder at any time by resignation, and he
shall thereupon be entitled to receive from the Company prompt payment of the
amount determined pursuant to the applicable subparagraph of Paragraph 7 below.
7. Payments Upon Termination and Resignation.
7.1. Pro Rata Payment. In the event of the following:
(i) the Company terminates the Executive's employment for Cause
(as defined below),
(ii) the Executive dies or becomes disabled (being the inability of
the Executive to perform the essential requirements of the job with or
without reasonable accommodation),
(iii) the Executive resigns prior to the occurrence of a Change in
Control (as defined below) of the Company at a time when there is no
uncured breach by the Company of any term of this Agreement, or
(iv) the Executive resigns after the occurrence of a Change in
Control for any reason other than for Good Reason (as defined below);
then in each case the Executive shall be entitled to receive only his Base
Salary on a pro rata basis to the date of termination or resignation.
7.2. Base Salary Payment. If prior to the occurrence of a
Change in Control (i) the Company terminates the Executive's employment for any
reason other than for Cause or the Executive's death or disability or (ii) the
Executive resigns because of the breach by the Company of any term of this
Agreement (but only if such breach is not remedied by the Company promptly
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<PAGE> 18
after it receives notice thereof from Executive), then in each case the
Executive shall be entitled to receive a lump sum payment equal to his Base
Salary.
7.3. Multiple Base Salary Payment. If after the
occurrence of a Change in Control of the Company, (a) the Company terminates
the Executive's employment hereunder for any reason other than for Cause, or
(b) the Executive voluntarily resigns his employment hereunder for Good Reason
within one year (as defined below) of the Change in Control, then in each case
the Company will pay to the Executive a lump sum termination payment equal to
2.99 times the sum of his Base Salary and his Target Bonus (as defined below)
(collectively, the "Lump Sum Payment"), subject to adjustment as provided in
Paragraph 9 below.
7.4. Certain Definitions.
(a) "Target Bonus" shall mean the target bonus
for Executive specified under the Company's Bonus Plan (as defined in Paragraph
4.2(a)) for the year in which a Change in Control of the Company occurs.
(b) Termination by the Company of the Executive's
employment for "Cause" shall mean termination upon the willful misappropriation
of funds or properties of the Company or the willful contravention of the
standards referred to in the last sentence of Paragraph 10 below. For purposes
of this definition, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board of Directors of the Company at a meeting
of the Board duly called and held (after reasonable notice to the Executive and
an opportunity for the Executive, together with his counsel, to be heard before
the Board) finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth above and specifying the particulars
thereof in detail.
(c) A "Change in Control" shall be conclusively
deemed to have occurred if (and only if) any of the following shall have taken
place: (i) a change in control is reported by the Company in response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), or Item 1 of Form 8-K
promulgated under the Exchange Act, or any similar reporting requirement
hereafter promulgated by the Securities and Exchange Commission; (ii) any
person, entity or group (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than any employee benefit plan sponsored by the
Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing forty percent or more of the combined voting power of the
Company's then outstanding securities (as determined under
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<PAGE> 19
paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in the case of
rights to acquire common stock); or (iii) following the election or removal of
directors, a majority of the Board consists of individuals who were not members
of the Board two years before such election or removal, unless the election of
each director who was not a director at the beginning of such two-year period
has been approved in advance by directors representing at least a majority of
the directors then in office who were directors at the beginning of the
two-year period.
(d) "Good Reason" shall mean, in any case only if
an action or event described in this Paragraph 7.4(d) is not remedied by the
Company promptly after it receives notice thereof from Executive,
(i) the assignment to the Executive of any duties
substantially inconsistent with the Executive's position
(including offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Paragraph 3.2 hereof;
(ii) the failure of the Company to comply with any of the
provisions of Section 4.2 hereof; or
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Paragraph 3.3
hereof.
8. Acceleration of Options. Contemporaneously with the
occurrence of a Change in Control of the Company, the Board of Directors of the
Company (or the appropriate committee thereof) will accelerate all outstanding
options previously granted to the Executive under any then existing Company
stock option, stock appreciation or other employee incentive plan that are not
otherwise exercisable by the Executive at the time the Change in Control of the
Company occurs.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended ("Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties, additions to
tax or additional amounts, being collectively referred herein to as the "Excise
Tax"), then Executive shall be entitled to receive and the Company shall make
an additional payment or payments (individually referred to herein as a
"Gross-Up Payment," and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an
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<PAGE> 20
amount such that after payment by Executive of all taxes (as defined in
Paragraph 9(k) imposed upon the Gross-Up Payment, Executive retains an amount
of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Paragraph 9(c) through
(i), any determination (individually, a "Determination") required to be made
under Paragraphs 9(a) or 9(b), including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall initially be made, at
the Company's expense, by nationally recognized tax counsel mutually acceptable
to the Company and Executive ("Tax Counsel"). Tax Counsel shall provide
detailed supporting legal authorities, calculations, and documentation both to
the Company and Executive within 15 business days of the termination of
Executive's employment, if applicable, or such other time or times as is
reasonably requested by the Company or Executive. If Tax Counsel makes the
initial Determination that no Excise Tax is payable by Executive with respect
to a Payment or Payments, it shall furnish Executive with an opinion that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Executive shall have the right to dispute any Determination (a "Dispute")
within 15 business days after delivery of Tax Counsel's opinion with respect to
such Determination. The Gross-Up Payment, if any, as determined pursuant to
such Determination shall, at the Company's expense, be paid by the Company to
Executive within five business days of Executive's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Executive's right to receive the Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such Determination shall be binding,
final and conclusive upon the Company and Executive, subject in all respects,
however, to the provisions of Paragraph 9(c) through (i) below. As a result of
the uncertainty in the application of Sections 4999 and 280G of the Code, it is
possible that Gross-Up Payments (or portions thereof) which will not have been
made by the Company should have been made ("Underpayment"), and if upon any
reasonable written request from Executive or the Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at the Company's expense,
thereafter determines that Executive is required to make a payment of any
Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall,
at the Company's expense, determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
Executive.
(c) The Company shall defend, hold harmless, and
indemnify Executive on a fully grossed-up after tax basis from and against any
and all claims, losses, liabilities, obligations, damages, impositions,
assessments, demands, judgments, settlements, costs and expenses (including
reasonable attorneys', accountants', and experts' fees and expenses) with
respect to any tax liability of Executive resulting from any Final
Determination (as defined in Paragraph 9(j)) that any Payment is subject to the
Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending
or threatened audit, examination, investigation or administrative, court or
other proceeding which, if pursued successfully, could result in or give rise
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<PAGE> 21
to a claim by Executive against the Company under this Paragraph 9(d)
("Claim"), including, but not limited to, a claim for indemnification of
Executive by the Company under Paragraph 9(c), then such party shall promptly
notify the other party hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against Executive ("Executive
Claim"), Executive shall take or cause to be taken such action in connection
with contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide
that the Company shall be solely responsible for the payment of any and all
fees and disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice
relating to such Executive Claim (or such earlier date that any
payment of the taxes claimed is due from Executive, but in no event
sooner than five calendar days after the Company receives or delivers
such Tax Claim Notice), the Company shall have notified Executive in
writing ("Election Notice") that the Company does not dispute its
obligations (including, but not limited to, its indemnity obligations)
under this Agreement and that the Company elects to contest, and to
control the defense or prosecution of, such Executive Claim at the
Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Executive
on an interest-free basis, the total amount of the tax claimed in
order for Executive, at the Company's request, to pay or cause to be
paid the tax claimed, file a claim for refund of such tax and, subject
to the provisions of the last sentence of Paragraph 9(g), sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any
proceeding in, for example, United States Tax Court) and shall
indemnify and hold Executive harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by the
Company and shall indemnify and hold Executive harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
(f) Subject to the provisions of Paragraph 9(e), hereof,
the Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all appropriate
proceedings, which proceedings shall be defended or prosecuted diligently
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<PAGE> 22
by the Company to a Final Determination; provided, however, that (i) the
Company shall not, without Executive's prior written consent, enter into any
compromise or settlement of such Executive Claim that would adversely affect
Executive, (ii) any request from the Company to Executive regarding any
extension of the statute of limitations relating to assessment, payment, or
collection of taxes for the taxable year of Executive with respect to which the
contested issues involved in, and amount of, the Executive Claim relate is
limited solely to such contested issues and amount, and (iii) the Company's
control of any contest or proceeding shall be limited to issues with respect to
the Executive Claim and Executive shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue raised by the Internal
Revenue Service or any other taxing authority. So long as the Company is
diligently defending or prosecuting such Executive Claim, Executive shall
provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Executive Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Executive Claim. The Company shall keep
Executive informed of all developments and events relating to any such
Executive Claim (including, without limitation, providing to Executive copies
of all written materials pertaining to any such Executive Claim), and Executive
or his authorized representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating to any such
Executive Claim.
(g) If, after actual receipt by Executive of an amount of
a tax claimed (pursuant to an Executive Claim) that has been advanced by the
Company pursuant to Paragraph 9(e)(ii), hereof, the extent of the liability of
the Company hereunder with respect to such tax claimed has been established by
a Final Determination, Executive shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, Executive
with respect to such tax (together with any interest paid or credited thereon
by the taxing authority and any recovery of legal fees from such taxing
authority related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions of this
Agreement or otherwise. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Paragraph 9(e)(ii), a determination is made
by the Internal Revenue Service or other appropriate taxing authority that
Executive shall not be entitled to any refund with respect to such tax claimed
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period provided in
Paragraph 9(e)(i), hereof or, after delivery of such Election Notice, the
Company fails to comply with the provisions of Paragraph 9(e)(ii), and (iii)
and (f) hereof, then Executive shall at any time thereafter have the right (but
not the obligation), at his election and in his sole and absolute discretion,
to defend or prosecute, at the sole cost, expense and risk of the Company, such
Executive Claim. Executive shall have full control of such defense
- 8 -
<PAGE> 23
or prosecution and such proceedings, including any settlement or compromise
thereof. If requested by Executive, the Company shall cooperate, and shall
cause its affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such Executive
Claim. The Company may attend, but not participate in or control, any defense,
prosecution, settlement or compromise of any Executive Claim controlled by
Executive pursuant to this Paragraph 9(h) and shall bear its own costs and
expenses with respect thereto. In the case of any Executive Claim that is
defended or prosecuted by Executive, Executive shall, from time to time, be
entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by Executive in connection
with such defense or prosecution.
(i) In the case of any Executive Claim that is defended
or prosecuted to a Final Determination pursuant to the terms of this Paragraph
9(i), the Company shall pay, on a fully grossed-up after tax basis, to
Executive in immediately available funds the full amount of any taxes arising
or resulting from or incurred in connection with such Executive Claim that have
not theretofore been paid by the Company to Executive, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Executive,
within ten calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company shall pay,
on a fully grossed-up after tax basis, to Executive in immediately available
funds the full amount of any taxes arising or resulting from or incurred in
connection with such Executive Claim at least ten calendar days before the date
payment of such taxes is due from Executive, except where payment of such taxes
is sooner required under the provisions of this Paragraph 9(i), in which case
payment of such taxes (and payment, on a fully grossed-up after tax basis, of
any costs and expenses required to be paid under this Paragraph 9(i) shall be
made within the time and in the manner otherwise provided in this Paragraph
9(i).
(j) For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
- 9 -
<PAGE> 24
(l) For purposes of this Agreement, the terms "affiliate"
and "affiliates" mean, when used with respect to any entity, individual, or
other person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to
direct or cause the direction of the management and policies of such entity or
other person, whether through the ownership of voting securities, by contract
or otherwise.
10. Preservation of Business; Fiduciary Responsibility. The
Executive shall use his best efforts to preserve the business and organization
of the Company and the Company's consolidated subsidiaries (collectively, the
"Consolidated Company"), to keep available to the Consolidated Company the
services of present employees and to preserve the business relations of the
Consolidated Company with suppliers, distributors, customers and others. The
Executive shall not commit any act, or in any way assist others to commit any
act, which would injure the Consolidated Company. So long as the Executive is
employed by the Company, the Executive shall observe and fulfill proper
standards of fiduciary responsibility attendant upon his service and office and
shall comply with the terms of the Company's Statement of Policy Concerning
Corporate Ethics and Conflicts of Interest, as may be amended from time to
time.
11. Competitive Activities.
11.1. As an independent covenant, Executive agrees to
refrain for one (1) year after the termination of his employment for any
reason, without written permission from the Company, from becoming involved in
any way, within the boundaries of the United States, in the business of
manufacturing or selling any cement or ready-mix concrete products, or other
products or services competitive at the time of the termination with those sold
and furnished by the Consolidated Company as an employee, director, officer,
shareholder, consultant, partner, proprietor, or in any other capacity, except
as a shareholder owning less than five percent of the shares of a corporation
whose shares are publicly traded.
11.2 As an independent covenant, Executive agrees to
refrain during his employment by the Company, and in the event of the
termination of his employment for any reason, for one (1) year thereafter,
without written permission from the Company, from diverting, taking, soliciting
and/or accepting on his own behalf or on the behalf of another person, firm, or
company, the business of any customer of the Consolidated Company or any
potential customer of the Consolidated Company whose identity became known to
Executive through his employment by the Company.
11.3 As an independent covenant, Executive agrees to
refrain during his employment by the Company, and in the event of the
termination of his employment for any reason
- 10 -
<PAGE> 25
for a period of one (1) year, thereafter, from inducing or attempting to
influence any employee of the Consolidated Company to terminate his employment.
11.4 Executive further agrees that these covenants are
made to protect the legitimate business interests of the Company, including
interests in the Company's "confidential information" as defined in Paragraph
12, and not to restrict his mobility or to prevent him from utilizing his
general technical skills. Executive understands as a part of these covenants
that the Company intends to exercise whatever legal recourse against him for
any breach of this Agreement and in particular for any breach of these
covenants.
12. Non-Disclosure of Confidential Information. Executive
agrees not to make any unauthorized use, publication, or disclosure, during or
subsequent to his employment by the Company, of any confidential information,
generated or acquired by him during the course of his employment, except to the
extent that the disclosure of confidential information is necessary to fulfill
his responsibilities as an employee of the Company. Executive understands that
"confidential information" includes confidential or trade information not
generally known by or available to the public about or belonging to the
Consolidated Company or belonging to other companies to whom the Consolidated
Company may have an obligation to maintain information in confidence, and that
authorization for public disclosure may only be obtained through the Company's
written consent. Executive also understands and agrees that the information
protected by this provision includes, but is not limited to, information of a
technical and a business nature such as ideas, discoveries, designs,
inventions, improvements, trade secrets, know-how, manufacturing processes,
product formulae, design specifications, writings and other works of
authorship, computer programs, financial figures, marketing plans, customer
lists and data, business plans or methods and the like, which relate in any
manner to the actual or anticipated business of the Consolidated Company or
related to its actual or anticipated areas of research and development.
13. Notice. All notices, requests, demands and other
communications given under or by reason of this Agreement shall be in writing
and shall be deemed given when delivered in person or when mailed, by certified
mail (return receipt requested), postage prepaid, addressed as follows (or to
such other address as a party may specify by notice pursuant to this
provision):
(a) To the Company:
Southdown, Inc.
Attention: Secretary
1200 Smith Street, Suite 2400
Houston, Texas 77002
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<PAGE> 26
(b) To the Executive:
------------------------
------------------------
------------------------
14. Controlling Law and Performability. The execution, validity,
interpretation and performance of this Agreement shall be governed by the law
of the State of Texas.
15. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by binding arbitration in
Houston, Texas by one arbitrator appointed in the manner set forth by the
American Arbitration Association. Any arbitration proceeding pursuant to this
Paragraph 15 shall be conducted in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. Judgment may be
entered on the arbitrators' award in any court having jurisdiction.
16. Expenses. The Company will pay or reimburse the Executive for
all costs and expenses (including arbitration and court costs and attorneys'
fees) incurred by the Executive as a result of any claim, action or proceeding
arising out of, or challenging the validity, advisability or enforceability of,
this Agreement or any provision thereof.
17. No Obligation to Mitigate. The Executive shall not be
required to mitigate the amount of any payment provided for in Paragraph 7 by
seeking other employment or otherwise, nor shall the amount of any payment
provided for in Paragraph 7 be reduced by any compensation earned by the
Executive as a result of employment by another employer or otherwise.
18. Additional Instruments. The Parties shall execute and deliver
any and all additional instruments and agreements that may be necessary or
proper to carry out the purposes of this Agreement.
19 Entire Agreement and Amendments. This Agreement contains the
entire agreement of the Parties relating to the matters contained herein and
supersedes all prior agreements and understandings, oral or written, between
the Parties with respect to the subject matter hereof; provided, however, that
nothing herein shall affect in any respect the rights and obligations of the
Company and the Executive under any Incentive Agreements implemented prior to
the date of this Agreement and not expressly referred to herein or under any
Indemnity Agreement entered into between the Company and Executive. This
Agreement may be changed only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
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<PAGE> 27
20. Separability. If any provision of the Agreement is rendered
or declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a
court of last resort, the Parties shall promptly meet and negotiate substitute
provisions for those rendered or declared illegal or unenforceable to preserve
the original intent of this Agreement to the extent legally possible, but all
other provisions of this Agreement shall remain in full force and effect.
21. Assignments. The Company may assign (whether by operation of
law or otherwise) this Agreement only with the written consent of the
Executive, which consent shall not be withheld unreasonably, and in the event
of an assignment of this Agreement, all covenants, conditions and provisions
hereunder shall inure to the benefit of and be enforceable against the
Company's successors and assigns. The rights and obligations of Executive
under this Agreement are personal to him, and no such rights, benefits or
obligations shall be subject to voluntary or involuntary alienation, assignment
or transfer.
22. Effect of Agreement. Subject to the provisions of Paragraph
21 with respect to assignments, this Agreement shall be binding upon the
Executive and his heirs, executors, administrators, legal representatives and
assigns and upon the Company and its respective successors and assigns (whether
direct or indirect, by purchase, merger, consolidation or otherwise).
23. Execution. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
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<PAGE> 28
24. Waiver of Breach. The waiver by either Party of a breach of
any provision of the Agreement by the other Party shall not operate or be
construed as a waiver by such Party of any subsequent breach by such other
Party.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the date first above written.
"COMPANY"
SOUTHDOWN, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
"EXECUTIVE"
---------------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
-14-
<PAGE> 1
EXHIBIT 10.15
SOUTHDOWN, INC.
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Effective Date of Plan: December 30, 1997
<PAGE> 2
SOUTHDOWN, INC.
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Table of Contents
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
Preamble 1
I Definitions 1
II Award of Options 3
III Exercise of Options 5
IV Amendment or Termination 6
V Administration 7
VI Trust Provisions 9
VII Miscellaneous 9
</TABLE>
ii
<PAGE> 3
SOUTHDOWN, INC.
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Preamble
Southdown, Inc. (the "Employer") hereby establishes the Southdown,
Inc. Key Employee Security Option Plan(TM) (the "Plan"), effective as of the
date specified herein. The purpose of the Plan is to provide a vehicle for the
payment of compensation (either salary or bonuses) otherwise payable to the
participating key executives of the Employer, commensurate with their
contributions to the success of the Employer's activities, in a form that will
provide incentives and rewards for meritorious performance and encourage the
recipients' continuance as employees of the Employer. The Plan is intended to
be a nonqualified stock option plan within the meaning of Section 83 of the
Internal Revenue Code, and is not intended to be covered by the provisions of
the Employee Retirement Income Security Act of 1974.
ARTICLE I
Definitions
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.1 "Beneficiary" means the person or persons designated by a
Participant, or otherwise entitled, to exercise Options after a Participant's
death.
1.2 "Code" means the Internal Revenue Code of 1986, any amendments
thereto, and any regulations or rulings issued thereunder.
1.3 "Committee" means the committee appointed in accordance with
Section 5.1 to determine awards of Options and administer the Plan.
1.4 "Designated Property" means shares of regulated investment
companies or any other property (not including cash, cash equivalents, or
securities of the Employer) designated by the Committee as subject to purchase
through the exercise of an Option.
1.5 "Effective Date" means December 30, 1997.
1.6 "Employee" means any individual who is employed by the Employer.
1.7 "Employer" means Southdown, Inc., and any successor thereto.
1.8 "Exercise Price" means the price that a Participant must pay in
order to exercise an Option.
1
<PAGE> 4
1.9 "Grant Date" means, with respect to any Option, the date on which
an Option is awarded to the Participant.
1.10 "Key Employee" means an Employee who is classified in a salary
grade 16 or above.
1.11 "Option" means the right of a Participant, granted by the
Employer in accordance with the terms of this Plan, to purchase Designated
Property from the Employer at the Exercise Price established under Section 2.5.
1.12 "Option Agreement" means an agreement to be executed by the
Employer and by a Participant to whom Options have been awarded, acknowledging
the issuance of the Options and setting forth any terms that are not specified
in this Plan.
1.13 "Participant" means any Key Employee who has received an award of
Options in accordance with Section 2.4 and whose Options have not been
completely exercised. After a Participant's death, his Beneficiary is
considered to be a Participant to the extent necessary to facilitate the
exercise of any Options that continue to be exercisable under the terms of the
Plan. In the event of a Participant's disability or other legal incapacity, the
Participant's legal representative is considered to be a Participant to the
extent necessary to facilitate the exercise of any Options that are or become
exercisable under the terms of the Plan.
1.14 "Plan" means the Southdown, Inc. Key Employee Security Option
Plan(TM), as set forth herein and as from time to time amended.
1.15 "Plan Year" means the operating year of the Plan, which ends on
December 31.
1.16 "Trust" means the trust that may be established pursuant to
Article VI to hold the Designated Property that is subject to purchase through
the exercise of an Option.
1.17 "Trust Agreement" means an agreement setting forth the terms of
the Trust established pursuant to Article VI.
1.18 "Trust Fund" means the Designated Property that is held in the
Trust.
1.19 "Trustee" means the persons or institution acting as trustee of
the Trust.
1.20 Rules of construction
1.20.1 Governing law. This Plan and any Options or Option Agreements
hereunder shall be governed by and construed and interpreted according to the
laws of the State of Texas without regard to the choice of law principles of
such state.
2
<PAGE> 5
1.20.2 Headings. The headings of Articles, Sections and Subsections
are for reference only and are not to be utilized in construing the Plan.
1.20.3 Gender. Unless clearly inappropriate, all pronouns of whatever
gender refer indifferently to persons or objects of any gender.
1.20.4 Singular and plural. Unless clearly inappropriate, singular
terms refer also to the plural number and vice versa.
1.20.5 Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the remaining provisions are to remain in
full force and effect and to be construed and enforced in accordance with the
purposes of the Plan as if the illegal or invalid provision did not exist.
ARTICLE II
Award of Options
2.1 Form. Awards under the Plan shall be in the form of Options.
2.2 Eligibility for awards. Awards of Options in any Plan Year may be
made only to an Employee who was a Key Employee at any time during the month of
December immediately preceding such Plan Year.
2.3 Powers of Committee. Within the limits of the express provisions
of the Plan, the Committee shall determine: (i) the eligibility of Key
Employees to whom awards hereunder may be granted, (ii) the time during which
such awards must be requested, (iii) the time or times at which such awards
shall be granted, (iv) the form and amount of the awards, including the form of
any Option Agreement, and (v) the limitations, restrictions and conditions
applicable to any such request or award. In making such determinations, the
Committee may take into account such factors as the Committee in its discretion
shall deem relevant. These powers notwithstanding, the Committee shall not
grant awards in excess of the amount requested by a Key Employee. Furthermore,
the Committee may not grant an award to any Key Employee failing to make a
timely request.
2.4 Procedure for awarding Options. The request to receive Options
shall be made by the eligible Key Employee in writing, signed by such Key
Employee, and delivered to the Committee during the time specified by the
Committee for such actions. With respect to awards of Options granted as
performance bonuses, such requests must be made on or before November 15 prior
to the Plan Year in which such awards of Options are granted. However, with
respect to awards of Options granted as performance bonuses to be paid during
calendar year 1998, such requests must be made prior to the Effective Date.
With respect to all other awards of Options, such requests must be made prior
to the first day of the Plan Year in which the awards are
3
<PAGE> 6
earned. A request for an award of Options delivered to the Committee hereunder
may not be revoked by the requesting Key Employee after the deadline above for
making such requests. The Committee shall determine Options to be awarded to
eligible Key Employees and shall notify affected Key Employees of such
determinations. The Committee, however, is not obligated to grant any award
requested. No Committee member may take part in any way in determining the
amount of any award of Options to himself. Awards become effective upon the
Grant Date. Awards may be made at any time on or after the Effective Date and
prior to the termination of the Plan.
2.5 Selection of Designated Property and Establishment of Exercise
Price. When an Option is awarded, the Committee will specify in the Option
Agreement, among other things, the Designated Property that may be purchased by
exercise of the Option and the Exercise Price. Unless otherwise specified in a
particular Option Agreement, the Exercise Price will equal seventy percent
(70%) of the fair market value of the Designated Property as reasonably
determined by the Committee.
2.6 Held in Trust. As soon as practicable after the grant of an
Option, the Employer will acquire and contribute to the Trust Designated
Property having a fair market value on the date of contribution of no less than
30 percent of the Option award. At the time of contribution to the Trust,
Designated Property must:
(a) not be subject to any security interest, whether or not
perfected, or to any option or contract under which any other person
may acquire any interest in it, except as otherwise provided in
Section 6.2; and
(b) be readily tradable on an established market or consist wholly
of interests in property that is readily tradable on an established
market.
2.7 Effect of dividends and distributions with respect to Designated
Property. The Employer agrees, whenever any dividend or other distribution is
paid on the Designated Property that is held in the Trust, to reinvest all said
dividends and distributions in additional property of the same kind (or as
nearly the same kind as feasible, if property of the same kind is not
available). Any property acquired through this investment or reinvestment will
immediately be subject to the same Option as provided for the purchase of the
Designated Property from which the dividends or distributions arose. Such
property acquired thereafter through reinvestment shall be referred to and
treated as Designated Property.
2.8 Substitution of other property for Designated Property. At any
time after the grant of an Option, the Committee may, in its discretion, after
consultation with the Participant substitute other property of equal value for
Designated Property subject to that Option. After substitution, such Option
shall not be exercisable for six months or the period specified in the Option
Agreement, whichever is later.
4
<PAGE> 7
ARTICLE III
Exercise of Options
3.1 Period for exercise of Options. Options may be exercised by a
Participant at any time during the period beginning six months after the Grant
Date and ending on the earliest of:
(a) the expiration of fifteen (15) years from the date of the
Grant Date, or such earlier date specified in the Option
Agreement, or
(b) the expiration of 180 days after the termination of employment
of the Participant with the Employer for any reason other than
(i) death, (ii) disability of the Participant while in the
employment of the Employer, or (iii) retirement of the
Participant, and immediate commencement of benefits, under or
in accordance with the Employer's qualified defined benefit
pension plan in which such Participant is then participating.
3.2 Procedure for exercising Option. A Participant may exercise an
Option by giving written notice to the Committee, specifying the date of
exercise, tendering payment, in cash or other property acceptable to the
Employer, of the applicable Exercise Price and making arrangements with the
Employer for the withholding of applicable taxes.
3.3 Inalienability of Options. No Option may be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise), except as
provided by will or the applicable laws of descent or distribution, and no
Option shall be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
an Option, or levy of attachment or similar process upon the Option not
specifically permitted herein shall be null and void and without effect. A
Option may be exercised only by a Participant during his or her lifetime or by
his or her estate or the person who acquires the right to exercise such Option
upon his or her death by bequest or inheritance.
3.4 Delivery of Designated Property. On the date of exercise, or as
soon as practicable thereafter (but in no event later than five business days
after the date notice of exercise is received by the Committee), and
conditioned on receipt of payment of the Exercise Price, the Employer will
deliver or cause to be delivered the Designated Property then being purchased
to the Participant or, if applicable, the Participant's Beneficiary as
designated in Section 3.6. In the event that the listing, registration or
qualification of the Option or the Designated Property on any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection
with, the exercise of the Option, then the Option will be deemed not to be
exercised until such listing, registration, qualification, consent or approval
has been effected or obtained.
3.5 Tax Withholding. Whenever Designated Property is to be delivered
upon exercise of
5
<PAGE> 8
an Option under the Plan, the Employer will require as a condition of such
delivery (a) the cash payment by the Participant of an amount sufficient to
satisfy all federal, state and local tax withholding requirements related
thereto, (b) the withholding of such amount from any Designated Property to be
delivered to the Participant, (c) the withholding of such amount from
compensation otherwise due to the Participant, or (d) any combination of the
foregoing, at the election of the Participant with the consent of the Employer.
Such election will be made before the date on which the amount of tax to be
withheld is determined by the Employer, and such election will be irrevocable.
With the consent of the Employer, the Participant may elect a greater amount of
withholding, not to exceed the maximum amount permitted by the Code. Such
election will be made at the same time and in the same manner as provided
above.
3.6 Election of Beneficiary.
3.6.1 Designation or Change of Beneficiary by Participant. When
Options are first awarded to a Key Employee, the Committee will send him a
Beneficiary designation form, on which he may designate one or more
Beneficiaries and successor Beneficiaries. A Participant may change his
Beneficiary designation at any time by filing the prescribed form with the
Committee. The consent of the Participant's current Beneficiary is not required
for a change of Beneficiary, and no Beneficiary has any rights under this Plan
except as are provided by its terms. The rights of a Beneficiary who
predeceases the Participant who designated him immediately terminate, unless
the Participant has specified otherwise.
3.6.2 Beneficiary if no election is made. Unless a different
Beneficiary has been elected in accordance with Section 3.6.1, the Beneficiary
of any Participant who is lawfully married on the date of his death is his
surviving spouse. The Beneficiary of any other Participant who dies without
having designated a Beneficiary is his estate.
ARTICLE IV
Amendment or Termination
4.1 Employer's right to amend or terminate Plan. The Employer's Chief
Executive Officer, acting within the scope of his general authority, may on
behalf of the Employer, at any time and from time to time, amend, in whole or
in part, any of the provisions of this Plan or may terminate it as a whole or
with respect to any Participant or group of Participants. Any such amendment is
binding upon all Participants and Beneficiaries, the Committee and all other
parties in interest. No amendment or termination of the Plan shall directly or
indirectly deprive any Participant or Beneficiary of all or any portion of any
Option granted prior to such amendment or termination.
4.2 When amendments take effect. Any amendment or the termination the
Plan becomes effective as of the date of such action by the Chief Executive
Officer or such later date as he may specify.
6
<PAGE> 9
4.3 Amendment of Options. An Option Agreement may be amended by the
Committee at any time if the Committee determines that an amendment is
necessary or advisable as a result of:
(a) any addition to or change in the Code or any other law or
regulation which occurs after the Grant Date and by its terms
applies to the Option,
(b) any substitutions of Designated Property subject to an Option,
(c) any Plan amendment or termination pursuant to Section 4.1,
provided that the amendment does not materially affect the
terms, conditions and restrictions applicable to the Option,
or
(d) any circumstances not specified in Paragraphs (a), (b), or
(c), with the consent of the Participant.
4.4 Cancellation of Options. An Option Agreement may be canceled by
the Committee if the Participant engages in competition with the Employer, as
determined by the Committee, without written consent of the Employer.
"Competition" shall exist if, in the judgment of the Committee, the Participant
directly or indirectly owns, operates, manages, controls or participates in the
ownership, management, operation or control of or is employed by, or paid as a
consultant or independent contractor by a business which competes or at any
time did compete with the Employer in a trade area served by the Employer or
its subsidiaries at any time during the term of the Option Agreement, if the
Participant continues to be so engaged 60 days after written notice has been
given to him. An Option Agreement with respect to any Beneficiary succeeding
to the Option Agreement by reason of the death of the Participant may be
canceled by the Committee. On the date of such cancellation, or as soon as
practicable thereafter, the Participant or Beneficiary, as appropriate, will
receive cash or other property equal to the fair market value of the Designated
Property less the Exercise Price under the Option Agreement canceled.
ARTICLE V
Administration
5.1 The Committee. The Plan will be administered by a Committee
consisting of one or more persons appointed by the Chief Executive Officer of
the Employer. The Committee will act by a majority of its members at the time
in office and may take action either by vote at a meeting or by consent in
writing without a meeting.
(a) The Chief Executive Officer may remove any member of the
Committee at any time, with or without cause, and may fill any
vacancy. If a vacancy occurs, the remaining member or members
of the Committee will have full authority to act.
7
<PAGE> 10
(b) Any member of the Committee may resign by written resignation
delivered to the Chief Executive Officer. Any such
resignation will become effective upon its receipt by the
Chief Executive Officer or on such other date as agreed to by
the Chief Executive Officer and the resigning member.
5.2 Powers of the Committee. In carrying out its duties with respect
to the general administration of the Plan, the Committee will have, in addition
to any other powers conferred by the Plan or by law, the following powers:
(a) to determine eligibility to participate in the Plan and
eligibility to receive Options;
(b) to grant Options, and to determine the form, amount and timing
of such Options;
(c) to determine the form, terms and provisions of the Option
Agreements, and to modify such Option Agreements as provided
in Section 4.3 or cancel such Option Agreements as provided in
Section 4.4;
(d) to substitute Designated Property subject to an Option as
provided in Section 2.8;
(e) to maintain all records necessary for the administration of
the Plan;
(f) to prescribe, amend, and rescind rules for the administration
of the Plan to the extent not inconsistent with the terms
thereof;
(g) to appoint such individuals and subcommittees as it deems
desirable for the conduct of its affairs and the
administration of the Plan;
(h) to employ counsel, investment managers, record keepers,
accountants and other consultants to aid in exercising its
powers and carrying out its duties under the Plan; and
(i) to perform any other acts necessary and proper for the conduct
of its affairs and the administration of the Plan, except
those reserved by the Employer.
5.3 Determinations by the Committee. The Committee will interpret and
construe the Plan, the Options, and the Option Agreements, and its
interpretations and determinations will be conclusive and binding on all
Participants, Beneficiaries and any other persons claiming an interest under
the Plan, Option, or any Option Agreement.
5.4 Indemnification of the Committee. The Employer will indemnify and
hold harmless each member of the Committee against any and all expenses and
liabilities arising out of such member's action or failure to act in such
capacity, EXPRESSLY INCLUDING EXPENSES AND LIABILITIES ARISING OUT OF SUCH
MEMBER'S OWN NEGLIGENCE, but excepting only expenses and liabilities arising
out of such member's own willful misconduct or gross negligence.
(a) Expenses and liabilities against which a member of the
Committee is indemnified hereunder will include, without
limitation, the amount of any settlement or judgment, costs,
counsel fees and related charges reasonably incurred in
connection with a claim asserted or a proceeding brought
against him or the
8
<PAGE> 11
settlement thereof.
(b) This right of indemnification will be in addition to any other
rights to which any member of the Committee may be entitled.
(c) The Employer may, at its own expense, settle any claim
asserted or proceeding brought against any member of the
Committee when such settlement appears to be in the best
interests of the Employer, with such member's consent which
will not be unreasonably withheld.
5.5 Expenses of the Committee. The members of the Committee will serve
without compensation for services as such. All expenses of the Committee will
be paid by the Employer.
ARTICLE VI
Trust Provisions
6.1 Establishment of the Trust. A trust may be established to hold all
Designated Property contributed by the Employer pursuant to Section 2.6. Any
trust so established shall conform substantially to the terms of the model
trust set forth in Rev. Proc. 92-64 or any successor thereof. Except as
otherwise provided in the Trust Agreement, the Trust will be irrevocable and no
portion of the Trust Fund will be used for any purpose other than the delivery
of Designated Property pursuant to the exercise of an Option, and the payment
of expenses of the Plan and Trust.
6.2 Trust Status. The Trust is intended to be a grantor trust, within
the meaning of section 671 of the Code, of which the Employer is the grantor,
and this Plan is to be construed in accordance with that intention.
Notwithstanding any other provision of this Plan, the Trust Fund will remain
the property of the Employer and will be subject to the claims of its creditors
in the event of its bankruptcy or insolvency. No Participant will have any
priority claim on the Trust Fund or any security interest or other right
superior to the rights of a general creditor of the Employer.
ARTICLE VII
Miscellaneous Provisions
7.1 No Rights of Shareholder. No Participant (or Beneficiary) will be,
or will have any of the rights and privileges of, a stockholder with respect to
any Designated Property purchasable or issuable upon the exercise of an Option,
prior to the date of exercise of such Option.
7.2 No Right to Continued Employment. Nothing contained in the Plan
will be deemed to give any person the right to be retained in the employ of the
Employer, or to interfere with the
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<PAGE> 12
right of the Employer to discharge any person at any time without regard to the
effect that such discharge will have upon such person's rights or potential
rights, if any, under the Plan. The provisions of the Plan are in addition to,
and not a limitation on, any rights that a Participant may have against the
Employer by reason of any employment or other agreement with the Employer.
7.3 Notices. No request, direction, revocation or notice will be
binding on the Committee until received by the Committee or its designee at the
Employer's principal executive offices. Every request, direction, revocation,
cancellation, or notice authorized or required by the Plan shall be deemed
delivered to the Participant on the date it is personally delivered to the
Participant, or three business days after it is sent by registered or certified
mail, postage prepaid, addressed to him or her at the last address shown for
him or her on the payroll records of the Employer.
IN WITNESS WHEREOF, Southdown, Inc. has caused these presents to be
executed by its duly authorized officer this 23rd day of December, 1997.
Southdown, Inc.
By: /s/ Clarence C. Comer
----------------------
10
<PAGE> 1
EXHIBIT 10.16
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------
(Effective October 1, 1997)
PREAMBLE
Southdown, Inc. has adopted this Supplemental Executive Retirement Plan,
effective October 1, 1997, for a group of senior line and staff management
personnel to ensure that the overall effectiveness of the Company's executive
compensation program will attract, retain and motivate qualified senior
management personnel.
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below
unless the context clearly indicates otherwise:
1.1. "Beneficiary" means (1), subject to (2) below, with respect to
the Participant, the Participant's Spouse or Surviving Spouse as defined in
Section 1.48 of the Pension Plan or, with respect to the Surviving Spouse, the
contingent annuitant as described in Section 1.10 of the Pension Plan, or (2)
any natural person or persons requested by the Participant and approved by the
Retirement Committee to be a Beneficiary with respect to the Participant's
benefit under this plan or to be a contingent annuitant (as described in
Section 1.10 of the Pension Plan) with respect to the 10-years certain option
described in the Pension Plan.
1.2. "Company" means Southdown, Inc. and any successor thereto.
1.3. "Compensation" means, with respect to any Participant, the sum of
(a) the basic cash remuneration paid to a Participant by the Company for
personal services rendered during the Calendar year, (i) without regard to
hours of work or units produced, and is exclusive of any remuneration paid on
account of overtime, overtime premium, extended workweek, shift differentials,
or other penalties, or premium rates, or bonuses or all other forms of special
pay, but including (ii) any amount contributed by the Company pursuant to a
salary reduction agreement and which is not included in the gross income of the
Participant, pursuant to IRC Section 125, 402(a)(8), 402(h) or 403(b); and (b)
the incentive compensation received pursuant to the Company's Annual Incentive
Plan. The total dollar amount of incentive compensation received within a
calendar year shall be allocated in equal amounts to each month of such
calendar year.
1.4. "Early Retirement Supplemental Benefit" shall have the meaning
set forth in Section 3.3 hereof.
1.5. "Internal Revenue Code" or "IRC" means the Internal Revenue Code
of 1986 as amended.
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<PAGE> 2
1.6. "Late Retirement Supplemental Benefit" shall have the meaning set
forth in Section 3.4 hereof.
1.7. "Normal Retirement Supplemental Benefit" shall have the meaning
set forth in Section 3.2 hereof.
1.8. "Participant" means any employee of the Company who meets the
eligibility requirements of Section II.
1.9. "Pension Plan" means the Southdown, Inc. Pension Plan, adopted
May 19, 1994, as heretofore and hereafter amended from time to time or any
successor thereto.
1.10. "Plan" means the Supplemental Executive Retirement Plan.
1.11. "Plan Average Monthly Compensation" means monthly Compensation of
a Participant averaged over the five (5) consecutive calendar years from his
date of employment which produces the highest monthly average. If a Participant
has less than five (5) consecutive calendar years of employment at his date of
termination, his Plan Average Monthly Compensation will be based on his monthly
Compensation during his months of service from his date of employment to his
date of termination. Compensation subsequent to termination of participation
shall not be recognized.
1.12. "Retirement Committee" means the Employee Compensation and
Benefits Committee of the Company's Board of Directors.
1.13. "Supplemental Plan Benefit" means the monthly retirement benefit
payable in accordance with the Plan.
1.14. As used herein, the terms "Accrued Benefit", "Actuarial
Equivalent", "Administrators", "Normal Retirement Date", "Early Retirement
Date", "ERISA", "Late Retirement Date", and "Vested" shall have the same
meanings as provided in the Pension Plan.
SECTION II
ELIGIBILITY TO PARTICIPATE
A senior management employee of the Company is eligible to become a
Participant in the Plan provided such employee is designated as a Participant
by the Retirement Committee in writing; and provided further that at the time
of such designation and approval the employee:
a. Is a vested participant in the Pension Plan, and
b. Has Plan Average Monthly Compensation in excess of the
limitations set forth in IRC Section 401(a)(17) or has a benefit
provided by the Pension Plan limited by IRC Section 415.
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<PAGE> 3
Once an employee becomes a Participant, he shall remain a Participant
until his termination of employment with the Company and thereafter until all
benefits to which he or his Beneficiary is entitled under the Plan have been
paid or until such benefits are forfeited pursuant to Section 6.1.
SECTION III
ELIGIBILITY FOR AND AMOUNT OF BENEFITS
3.1. Benefit Eligibility. Each Participant is eligible to receive a
Supplemental Plan Benefit under the Plan beginning on one of the following
dates:
a. Normal Retirement Date;
b. Early Retirement Date; or
c. Late Retirement Date.
3.2. Normal Retirement Supplemental Benefit. The Normal Retirement
Supplemental Benefit of a Participant who attains his Normal Retirement Date
shall be equal to (i) the monthly retirement benefit such person would have
received under Section 5.1(a) of the Pension Plan if such Section 5.1(a)
monthly retirement benefit had been calculated on the basis of Plan Average
Monthly Compensation without regard to the limitations and rules set forth
under Section 401(a)(17), 415 and 414(q)(6) of the Internal Revenue Code; less
(ii) the monthly retirement benefit payable to such person under the Pension
Plan at his Normal Retirement Date.
3.3. Early Retirement Supplemental Benefit. The Early Retirement
Supplemental Benefit of a Participant who attains his Early Retirement Date
shall be equal to his Normal Retirement Supplemental Benefit reduced for early
commencement by the factors set forth in Section 5.1(b) of the Pension Plan.
3.4. Late Retirement Supplemental Benefit. The Late Retirement
Supplemental Benefit of a Participant who delays retirement pursuant to Section
5.1(d) of the Pension Plan shall be equal to (i) the monthly retirement benefit
such person would have received under Section 5.1(d) of the Pension Plan if
such Section 5.1(d) monthly retirement benefit had been calculated on the basis
of Plan Average Monthly Compensation without regard to the limitations and
rules set forth under Section 401(a)(17), 415 and 414(q)(6) of the Internal
Revenue Code; less (ii) the monthly retirement benefit payable to such person
under the Pension Plan at his Late Retirement Date. In the determination of the
Late Retirement Supplemental Benefit, the definition of "Accrued Benefit" in
Section 5.1(d) of the Pension Plan shall have the same meaning as provided in
Section 1.1(f) of the Pension Plan, but substituting "Plan Average Monthly
Compensation" for "Average Monthly Compensation" in such Section 1.1(f).
3.5. Pension Benefit Offset by Other Plans. In the event a monthly
retirement benefit payable to the Participant by the Pension Plan is subject to
reduction by monthly retirement benefits provided by any other defined benefit
plan to which the Company contributes on behalf of the Participant as
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<PAGE> 4
provided in Section 1.1(b)(vii) of the Pension Plan, in the calculation of the
benefit payable under this Plan the benefit payable under the Pension Plan will
be determined as if such offsets under the Pension Plan do not exist, to
preserve the effect of the offset in the Pension Plan.
3.6. Re-employment. If a Participant's employment with the Company is
terminated for any reason, and the Participant is re-employed and once again
becomes a Participant, such renewed participation shall not result in
duplication of benefits. Accordingly, if a Participant has received a
distribution of any Supplemental Plan Benefit under the Plan, his Supplemental
Plan Benefit upon any subsequent termination of employment shall be reduced by
the Actuarial Equivalent of the present value of such distribution as of the
date of distribution. If a former Participant who is receiving benefits
payments from the Plan is re-employed by the Company, the payment of benefits
will be suspended during his period of re-employment under the same terms and
in the same manner as applies to benefits payable under the Pension Plan.
SECTION IV
FORM AND COMMENCEMENT OF BENEFITS
4.1. Form of Distribution of Benefits. Supplemental Plan Benefits
payable to a Participant or Beneficiary pursuant to Section III will be payable
in a lump sum amount or in any other form permitted by Section 5.7(a) of the
Pension Plan and shall be the Actuarial Equivalent of a single life annuity.
The Participant must irrevocably elect a permitted form of distribution of
benefits at a time no later than 30 days after commencement of participation in
the Plan. If the Participant fails to elect a permitted form of distribution of
benefits, such benefits will be payable as a lump sum. The election of a form
of distribution of Supplemental Plan Benefits shall not require spousal
consent.
4.2. Commencement of Benefits. A Supplemental Plan Benefit payable to a
Participant pursuant to Plan Sections 3.2, 3.3 or 3.4 will commence on the same
date of commencement of the benefit provided by the Pension Plan. A
Supplemental Plan Benefit payable to a Beneficiary will commence on the first
day of the month coincident with or next following the Participant's death.
Payment of a Supplemental Plan Benefit to a Participant will terminate with the
payment made on the first day of the month in which the Participant dies,
unless the form of payment to the Participant provides for continuation of
payments following his death, in which event payments will continue in
accordance with such form. Payment of a Supplemental Plan Benefit to any
Beneficiary will terminate with the payment made on the first day of the month
in which such Beneficiary dies. After payment of the Supplemental Plan Benefit
in a lump sum, the Plan shall have no further obligation to the Participant or
to Participant's Beneficiaries.
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<PAGE> 5
SECTION V
AMENDMENT AND TERMINATION
5.1. Amendment or Termination. The Company reserves the right to amend
or terminate the Plan when, in the sole opinion of the Company, such amendment
or termination is advisable. Any such amendment or termination shall be made
pursuant to a resolution of the Board of Directors of the Company and shall be
effective as of the date of such resolution or such later date as the
resolution may expressly state. No amendment or termination of the Plan shall
directly or indirectly deprive any Participant or Beneficiary of all or any
portion of any Supplemental Plan Benefit accrued to the effective date of the
resolution amending or terminating the Plan. If a Plan amendment has the effect
of reducing future accruals of a Supplemental Plan Benefit, the Company shall
cause the trust contemplated in Section 7.1 to be established, if not
previously established, and transfer a sufficient amount of assets to the trust
in order that trust assets immediately after such amendment equal the aggregate
of Supplemental Plan Benefits of all Participants.
5.2. Termination Benefit. In the case of a Plan termination, each
Participant on the termination date shall become vested in his accrued
Supplemental Plan Benefit as of the termination date. Such accrued Supplemental
Plan Benefit shall be based on service and compensation factors as of the Plan
termination date. Upon Plan termination, the Company shall cause the trust
contemplated in Section 7.1 to be established, if not previously established,
and transfer a sufficient amount of assets to such trust in order that trust
assets immediately after termination equal the aggregate of Supplemental Plan
Benefits of all Participants.
5.3. Corporate Successors. The Plan shall not be automatically
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other
entity, but the Plan shall be continued after such sale, merger or
consolidation. In the event the Plan is not continued by the transferee,
purchaser or successor entity, then the Plan shall terminate subject to the
provisions of Plan Sections 5.1 and 5.2.
SECTION VI
MISCELLANEOUS
6.1. Forfeitures of Benefits. Notwithstanding any other provision of the
Plan, future payment of a Supplemental Plan Benefit hereunder to a Participant
or a Beneficiary will, at the sole discretion of the Retirement Committee, be
discontinued and forfeited, and the Company will have no further obligation
hereunder to such Participant or Beneficiary, if any of the following
circumstances occur:
a. The Participant is discharged from employment with the
Company for cause. For purposes of this Plan, cause shall
mean: (A) the Participant's conviction (including a plea of
guilty or nolo contendere) of a felony or any crime or
theft, dishonesty or moral turpitude; or (B) the willful or
grossly negligent contravention
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<PAGE> 6
of (i) the standards of fiduciary responsibility attendant
upon the Participant's service and office or (ii) the terms
of the Company's Statement of Policy Concerning Corporate
Ethics and Conflicts of Interest as amended from time to
time; or
b. The Participant engages in competition with the Company, as
determined by the Retirement Committee, within two years
following his termination of employment with the Company
and prior to attaining the age of 65 years, without written
consent of the Company. "Competition" shall exist if the
Participant directly or indirectly owns, operates, manages,
controls or participates in the ownership, management,
operation or control of or is employed by, or paid as a
consultant or independent contractor by a business which
competes or at any time did compete with the Company in a
trade area served by the Company at the time distributions
are being made or are to be made or within two years
following his termination of employment with the Company
and in which the Participant has represented the Company
while employed by it, if the Participant continues to be so
engaged 60 days after written notice has been given to him.
The portion of the benefit subject to forfeiture under the conditions
described in this Section 6.1 are as follows:
a. The total benefit, or if the Participant is in pay status,
any benefit unpaid as of the date such Competition
commenced, is subject to forfeiture, except as provided in
b. below.
b. In the case of a Participant who is retiring at his
Mandatory Retirement Age, as defined in the Age
Discrimination in Employment Act of 1967, as amended from
time to time, the provisions of paragraph a. above shall
not apply to that portion of the benefits computed under
this Plan which, when added to the retirement payments
under the Pension Plan (prior to any reduction for the cost
of a survivor annuity) does not exceed the nonforfeitable
retirement income requirement of ADEA Section 12(c)(i).
6.2. No Effect on Employment Rights. Nothing contained herein will
confer upon any Participant the right to be retained in the service of the
Company nor limit the right of the Company to discharge or otherwise deal with
the Participant without regard to the existence of the Plan.
6.3. Spendthrift Provision. No benefit under the Plan or any right or
interest in such benefit shall be assignable or subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge of any kind, including, but not limited to, pursuant to any domestic
relations order (within the meaning of ERISA Section 206(d)(3) and IRC Section
414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings, prior to actual receipt thereof by the
payee, and any attempt so to anticipate, alienate, sell, transfer, assign,
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<PAGE> 7
pledge, encumber or charge prior to such receipt shall be void; and the Company
shall not be liable in any manner for or subject to the debts, contracts,
liabilities, engagements or torts of any person entitled to any benefit under
the Plan.
6.4. Administration. The Retirement Committee shall be responsible for
the general operation and administration of the Plan and for carrying out the
provisions thereof. All provisions set forth in the Pension Plan with respect
to the administrative powers and duties of the Pension Plan's Administrators,
expenses of administration and procedures for filing claims shall also be
applicable with respect to the Plan. The Retirement Committee shall be entitled
to rely conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by the Company with respect to the Plan.
6.5. Disclosure. Each Participant shall receive a copy of the Plan and
the Retirement Committee will make available for inspection by any Participant
or Beneficiary a copy of the rules and regulations used by the Retirement
Committee in administering the Plan.
6.6. State Law. The Plan is established under and will be construed
according to the laws of the State of Texas, to the extent that such laws are
not preempted by the Employee Retirement Income Security Act and valid
regulations published thereunder.
6.7. Incapacity of Recipient. In the event a Participant or Beneficiary
is declared incompetent and a conservator or other person legally charged with
the care of his person or of his estate is appointed, any benefits under the
Plan to which such Participant or Beneficiary is entitled shall be paid to such
conservator or other person legally charged with the care of his person or his
estate. Except as provided above in this Plan Section, when the Retirement
Committee in its sole discretion determines that a Participant or Beneficiary
is unable to manage his financial affairs, the Retirement Committee may direct
the Company to make distributions to any person for the benefit of such
Participant or Beneficiary.
6.8. Unclaimed Benefit. If any payment to which a Participant or
Beneficiary is entitled is unclaimed, such payments shall be forfeited after a
period of two years from the date the first such payment was payable and shall
not escheat to any state or revert to any party; provided, however, that any
such payment or payments shall be restored if any person otherwise entitled to
such payment or payments makes a valid claim.
6.9. Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Company nor any individual acting as an
employee or agent of the Company or as a member of the Retirement Committee
shall be liable to any Participant, former Participant, Beneficiary or any
other person for any claim, loss, liability or expense incurred in connection
with the Plan.
6.10 Termination of Employment. Upon termination of a Participant's
employment by the Company for any reason other than as set forth in Section
6.1, the Company shall cause the trust
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<PAGE> 8
contemplated in Section 7.1 to be established, if not previously established,
and transfer a sufficient amount of assets to such trust in order that trust
assets immediately after termination of employment equal such Participant's
Supplemental Plan Benefit and such amount so transferred shall be reserved by
the trust for the benefit of the Participant.
SECTION VII
SOURCE OF PAYMENT
7.1. Source of Payments. Benefits arising under this Plan and all costs,
charges, and expenses relating thereto will be payable from the Company's
general assets. The Company may, however, establish a trust to pay such
benefits and related expenses, provided such trust does not cause the Plan to
be "funded" within the meaning of ERISA. Any trust so established shall conform
to the terms of the model trust set forth in Rev. Proc. 92-64 or any successor
thereof. To the extent trust assets are available, they may be used to pay
benefits arising under this Plan and all costs, charges, and expenses relating
thereto. To the extent that the funds held in the trust, if any, are
insufficient to pay such benefits, costs, charges and expenses, the Company
shall pay such benefits, costs, charges, and expenses from its general assets.
In addition, the Company may, in its sole discretion, purchase and distribute
one or more commercial annuity contracts, or cause the trustee of the trust to
purchase and distribute one or more commercial annuity contracts, to make
benefit payments required under this Plan, provided, however, that the purchase
and distribution of any such annuity contracts shall be no sooner than the
expiration of any forfeiture provisions applicable under the Company's
non-competition guidelines. Such annuity contracts may be purchased from a
commercial insurer acceptable to the Retirement Committee. Further, the
Retirement Committee, in its sole discretion, may determine to pay additional
sums to the Participant, from the Company's general assets or from the trust,
if any, to reimburse the Participant for additional federal and state income
taxes estimated to be incurred by reason of the distribution of any such
annuity contracts. The Retirement Committee shall establish a methodology or
methodologies for determining the amount of such additional sums. The
methodology or methodologies selected shall be those that the Retirement
Committee, in its sole discretion, determines to be the most effective and
administratively feasible for the purpose of producing after-tax periodic
benefit payments that approximate the after-tax periodic benefit payments that
would have been received by the Participant in the absence of the distribution
of the annuity contract.
7.2. Unfunded Status. The Plan at all times shall be entirely unfunded
for purposes of the IRC and ERISA and no provision shall at any time be made
with respect to segregating any assets of the Company for payment of any
benefits hereunder. Funds that may be invested through a trust described in
Section 7.1 shall continue for all purposes to be part of the general assets of
the Company. The Plan constitutes a mere promise by the Company to make benefit
payments under this Plan in the future. No Participant shall have any interest
in any particular assets of the Company by reason of the right to receive a
benefit under the Plan and to the extent the Participant acquires a right to
receive benefits under this Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company.
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EXHIBIT 10.23
KOSMOS CEMENT COMPANY
Neville Island - Pittsburgh, Pennsylvania
AGREEMENT
between
KOSMOS CEMENT COMPANY
and
INTERNATIONAL BROTHERHOOD OF BOILERMAKERS,
CEMENT, LIME, GYPSUM & ALLIED WORKERS DIVISION
Lodge D-592
1997 - 2003
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I - RECOGNITION...........................................................................................1
ARTICLE II - UNION COOPERATION....................................................................................1
ARTICLE III - THE CORE CONCEPT....................................................................................2
ARTICLE IV - UNION ACTIVITY.......................................................................................2
ARTICLE V - MANAGEMENT RIGHTS.....................................................................................3
ARTICLE VI - WAGES................................................................................................3
ARTICLE VII - VACATIONS...........................................................................................4
ARTICLE VIII - LEAVES OF ABSENCE..................................................................................5
ARTICLE IX - GRIEVANCE PROCEDURE..................................................................................8
ARTICLE X - OVERTIME LUNCH........................................................................................9
ARTICLE XI - NON-BARGAINING UNIT EMPLOYEES.......................................................................10
ARTICLE XII - STRIKES AND LOCKOUTS...............................................................................10
ARTICLE XIII - HOLIDAYS..........................................................................................10
ARTICLE XIV - SENIORITY..........................................................................................12
ARTICLE XV - JOB BIDDING.........................................................................................14
ARTICLE XVI - WORKWEEK AND OVERTIME..............................................................................17
ARTICLE XVII - SAFETY AND HEALTH.................................................................................17
ARTICLE XVIII - BULLETIN BOARD...................................................................................18
ARTICLE XIX - FURNISHING OF TOOLS................................................................................18
ARTICLE XX - DUES CHECK-OFF......................................................................................19
ARTICLE XXI - UNION SECURITY.....................................................................................20
ARTICLE XXII - BENEFIT PLANS.....................................................................................20
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XXIII - TERMS OF AGREEMENT...............................................................................21
SCHEDULE A - PAY PROCEDURES......................................................................................23
APPENDIX A - LETTERS OF UNDERSTANDING............................................................................27
APPENDIX B - PACKING INCENTIVE PLAN..............................................................................32
</TABLE>
<PAGE> 4
AGREEMENT
This Agreement, dated December 15, 1997 is made by and between the
KOSMOS CEMENT COMPANY and the INTERNATIONAL BROTHERHOOD OF BOILERMAKERS,
CEMENT, LIME, GYPSUM, AND ALLIED WORKERS DIVISION LOCAL LODGE NO.
D592, referred to respectively as the "Company" and the "Union."
ARTICLE I - RECOGNITION
1.1 The Company recognizes the Union as the sole bargaining agent for its
employees as is defined in Section 2 who work at the Company's plant at Neville
Island, Pennsylvania, for the purpose of collective bargaining with respect to
rates of pay, hours, and other conditions of employment.
1.2 The term "employee" as used in this Agreement shall include all
permanent production and maintenance employees including lead persons, and
laboratory employees, but excluding all clerical employees, guards and
supervisors as defined in the Act and all other employees.
1.3 Union officers and members shall refrain from any Union solicitation
on Company time.
1.4 All provisions of this Agreement shall be applied to all employees
without regard to race, color, sex, religious creed, age or national origin. The
Company and the Union will comply with all federal and state laws concerning the
rights of workers including the Americans with Disabilities Act and the Family
and Medical Leave Act.
ARTICLE II - UNION COOPERATION
2.1 The Union agrees that it will cooperate with the Company in all
matters of industrial relations including carrying out Equal Employment
Opportunity obligations and will support the Company's efforts to assure a fair
day's work on the part of its members and that it will actively strive to
eliminate absenteeism and other practices which restrict production. It further
agrees that its members will abide by the rules of the Company in its effort to
prevent accidents, to eliminate waste in production, conserve materials and
supplies, improve the quality of workmanship, and strengthen goodwill between
the Company and its employees.
2.2 The Union agrees that it will use its best efforts to assist the
Company in enhancing the competitiveness of the Company, and augmenting or
increasing revenue generation.
2.3 The parties hereto intend by this Agreement to provide a stabilized
and mutually beneficial
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relationship between them and to insure the production of quality products on
schedule and at competitive costs during the life of this Agreement. The
Company and the Union will also establish an active Employee Participation
Program to facilitate ideas and develop and implement programs to improve the
overall operations and enhance employee involvement.
ARTICLE III - THE CORE CONCEPT
3.1 The parties agree that the basic structure of the Company's operation
and the organization of its work force is based on the "Core Concept." Under the
Core Concept, employees will generally perform the "core" of the work to be done
at the plant with the remainder to be performed by substantial but various
numbers and types of outside contractors. The parties recognize that the Company
is in the primary business of manufacturing cement and other products requiring
similar process (utilizing alternative substitute fuels). The parties further
recognize that the business is limited in scope and that the Company should
avoid, to the extent possible, getting into other businesses such as special
projects, special maintenance other than routine preventive maintenance, day to
day labor pool work, janitorial work, trucking and the like, where other
business concerns may have more expertise, competence, economies of scale or
other advantages. The Company has the right to subcontract these and other types
of work where in the Company's judgement such subcontracting is in the economic
best interest of the Company and its employees. It is understood and agreed that
the Core Concept does not require any specific number of employees, nor does it
cover any specific work or job classifications. Rather, the Core Concept is a
way of doing business which is designed to increase productivity of the plant
and the job security of the employees. Subcontracting will not be used to
permanently replace bargaining unit employees.
ARTICLE IV - UNION ACTIVITY
4.1 The Company agrees that during all reasonable times when the plant is
operating a duly accredited representative of the Union shall be entitled
access to the plant during the regular working hours for the purpose of
assisting in the adjustment of pending grievances, provided that the designated
representative of the Company is properly notified in advance and the Union
representative establishes proper identification. If it is necessary to go into
the work area of the plant (for example, to view a particular operation
relative to a pending grievance), then the appropriate Company official shall
accompany the Union representative so that both parties see the same thing so
as to aid in resolving the grievance.
4.2 The Union Grievance Committee representing the employees in matters
other than negotiations shall consist of not more than three (3) employees which
will include the local president, the grievance committee chairman and the
department shop steward. The Plant Manager or his designee will meet with the
Committee within five (5) days, excluding Saturdays, Sundays and holidays, of
any request by the President of the Local Union to the Plant Manager for such a
meeting.
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4.3 Insofar as practical, meetings will be conveniently scheduled by the
Company so as to complete all business within normal working hours. Such
employees attending meetings will be compensated at their regular straight time
rate of pay for hours normally scheduled to work.
4.4 Employees receiving formal disciplinary action will receive it in the
presence of a Union representative unless the employee refuses Union
representation. Management will not consider any disciplinary action which
occurred eighteen (18) months or more preceding the act which brought about the
disciplinary action.
ARTICLE V - MANAGEMENT RIGHTS
5.1 The Union recognizes that the management of the plant, the direction
of the working forces, including the right to hire, discipline for just cause,
the right to make and change and enforce (after posting) rules for the
maintenance of discipline and safety; the exclusive rights to determine partial
or permanent discontinuance or shutdown of operations (the Company's only
obligation when exercising this right is to bargain with the Union over the
effects of that decision); the right to promote, or transfer employees; the
right to transfer and relieve employees from duty because of lack of work or
other legitimate reason, and the right to establish and change the working
schedules and duties of employees are vested in the Company, except as otherwise
provided in the Agreement. The listing of specific rights in this Agreement is
not intended to be nor shall be considered restrictive of or a waiver of any of
the rights of management not listed and not specifically surrendered herein,
whether or not such rights have been exercised by the Company in the past.
ARTICLE VI - WAGES
6.1 It is agreed that for the duration of this Agreement, the wage groups
and the rates of pay shall be those set in Schedule "A".
6.2 FOR SHIFT PREMIUM PURPOSES ONLY:
(1) All regularly scheduled work beginning between 6:00 A.M. and
1:59 P.M. inclusive, shall be considered day shift work.
(2) All regularly scheduled work beginning between 2:00 P.M. and 9:59
P.M. inclusive, shall be considered middle shift work.
(3) All regularly scheduled work beginning between 10:00 P.M. and 5:59
A.M. inclusive, shall be considered night shift work.
6.3 Each employee regularly scheduled to work on the middle shift shall be
paid a premium of fifty cents ($.50) for all hours worked by the employee on
that shift. Each employee regularly
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scheduled to work on the night shift shall be paid sixty cents ($.60) for all
hours worked by the employee on that shift. These premium rates do not apply to
day workers even though they may work over into a premium pay shift. If,
however, the day worker is scheduled to take the place of a regular scheduled
shift worker, then the premium rate applies.
6.4 Shift workers (continuous operations employees) will be paid at their
normal scheduled shift premium. Shift premium beyond their normal eight hour
shift will be determined by the applicable shift premium for those hours worked
on that shift. For shift workers, the day shift will begin between 6 AM and 10
AM, the middle shift will begin between 2 PM and 6 PM, and the night shift will
begin between 10 PM and 2 AM. In the event an employee for specific reasons is
temporarily assigned to a starting time outside of these aforementioned start
windows, then that employee's shift premium will be paid in accordance with
Article 6.2
ARTICLE VII - VACATIONS
7.1 Each employee meeting all the requirements of Section 2 of this Article
shall be eligible for vacation in accordance with the following schedule:
After completion of one (1) year of service with the Company since the
employee's last date of hire -- two (2) weeks vacation during the year
following the employee's anniversary date.
After completion of five (5) years of service with the Company since
the employee's last date of hire -- three (3) weeks vacation during
the year following the employee's anniversary date.
After completion of ten (10) years of service with the Company since
the employee's last date of hire -- four (4) weeks of vacation during
the year following the employee's anniversary date.
Continuous service only for employees on the payroll December 1, 1988,
shall include continuous service recognized with Lone Star/Marquette.
7.2 An employee shall receive a vacation according to Section 1 of this
Article provided that such employee has actually worked at least one thousand
(1,000) hours during the year preceding their most recent anniversary date.
7.3 Vacations will not be cumulative, but so far as practical will be
granted at times most desired by employees within the entire 12 month calendar
year, with the final right to allotment of vacation period exclusively reserved
to the Company in order to ensure the orderly operation of the plant. When
requested vacation periods conflict, preference shall be given to the employee
having the most continuous service (including continuous service accumulated
with Lone Star/Marquette). In
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the event a paid holiday falls during an employee's vacation period, the
employee shall receive holiday pay in addition to vacation pay.
7.4 No vacation may be taken prior to the employee's first applicable
anniversary date. An employee must take their vacation the calendar year after
qualifying for it. As an employee's service grows and the employee reaches a
milestone and vests for an additional week of vacation, the employee must
schedule the newly vested week after the vesting date and before the end of
that calendar year. An employee cannot carry over vacation time from year to
year. An employee must have been actively employed (at work) at sometime during
the calendar year to be eligible for vacation pay during that calendar year.
Upon voluntary termination, employees will be paid for all unused
vacation time and pay, provided that such employee has actually worked one
thousand (1,000) hours during the year preceding their most recent anniversary
date.
An employee may receive one week of vacation pay per year in lieu of
time off if requested. This may be extended to an additional week with Company
approval.
7.5 Vacation periods will commence on the first day following the
employee's regular scheduled days off.
7.6 Scheduling of Vacations.
1. Prior to December 1 of each calendar year eligible employees shall
request vacation periods. Employee's request for vacation will be put on a
standard vacation form and will be posted on or before December 15 showing
vacation allotments for the following year.
2. Employees with the most seniority will be given preference for two
(2) weeks as a first choice except in cases of extenuating circumstances agreed
to by the Company and the Union. Second choice will be granted after every
employee has completed their first choice, then the employees with the most
seniority will pick the remainder of their vacation allotment.
3. The departments for vacation allotments will be as follows:
Production, Mechanical Maintenance, Electrical, Laboratory, Shipping, and
General. The storeroom attendant will be included in General.
4. The Company will not consider employees who take military leave as
defined in Article VIII when scheduling annual vacations.
ARTICLE VIII - LEAVES OF ABSENCE
8.1 JURY DUTY It is agreed that the Company shall make up the wage loss
incurred by a regular employee (as distinguished from a probationary employee)
because of jury service by payment of
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the difference between the amount received for such jury service on the day
such employee would have been regularly scheduled to work and their regular
rate of pay computed on the same basis as vacation pay. Any employee reporting
for jury duty will not be required to work their regular shift that calendar
day or with management approval an adjoining calendar day may be substituted
for third shift employees. The employee will be excused for the entire day
without loss of pay. Hours spent on jury service and paid for hereunder shall
be considered as time actually worked for all overtime purposes. Further as
outlined above, the Company shall make up the wage loss incurred by an employee
when subpoenaed as a witness in an action when the employee or the Union or the
Company are neither the plaintiff nor the defendant.
To receive pay from the Company under this provision, the employee
must provide the Company with a statement signed by an official of the court
certifying as to the employee's service as a juror or court witness or
appearance in court for such purposes, the date or dates of attendance, and the
compensation paid to the employee exclusive of any transportation and/or
subsistence allowance.
8.2 MILITARY LEAVE Employees who are members of organized reserve
components of the Armed Forces, including the National Guard, will be allowed
leave of absence annually for the purpose of attending required military
training encampments or cruises. The Company will pay any employee who goes on
such leave of absence the difference between the employee's straight time pay
for up to two (2) weeks (ten (10) working days) annually and the employee's
military pay including longevity pay but excluding all allowances such as rent,
subsistence, uniform, and travel. Payment will be made when the employee returns
from reserve training on presentation of satisfactory proof of the amount of pay
received.
8.3 FUNERAL LEAVE When an employee who has completed the probationary
period is absent from work solely to arrange for and/or attend the funeral of
the employee's parent, stepfather, stepmother, wife or husband, son or daughter,
or stepchildren, brother, sister, grandfather, grandmother, grandson,
granddaughter, father-in-law or mother-in-law, grandparents of spouse,
son-in-law or daughter-in-law, the Company will pay up to three (3) consecutive
work days, or four (4) consecutive work days if the employee is required to
travel at least five hundred miles to attend funeral services, of eight (8)
hours each, at the employee's regular hourly rate for each scheduled workday the
employee is absent with the permission of the Company. The funeral leave must be
taken within seven (7) consecutive calendar days from the date of the death or
funeral services.
Funeral leave will be granted only for absences occurring on the
employee's regularly scheduled workdays and will not apply to employees on
vacation, layoff or other non-working status. Hours paid under this Article
will be counted as hours worked for the purpose of computing overtime. To be
eligible for benefit under the Article, the employee must supply upon request
reasonable documentary evidence of covered death and family relationship and
must attend the funeral.
8.4 UNION LEAVE Any employee elected or appointed to a full time position
with the
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International Brotherhood of Boilermakers, Cement, Lime, Gypsum and Allied
Workers Division may be granted a leave of absence up to two (2) years provided
thirty (30) days notice is given to the Company prior to the beginning of such
leave. During such leave, seniority shall accumulate. Insurance benefits shall
be suspended upon the commencement of such leave and will be in effect the
first day of returning to work with the Company. Upon returning to work, such
employee shall be reinstated to their former job providing it is still in
existence; if not, the employee should be eligible to apply for any job within
the bargaining unit by means of the then-existing bidding procedure. The
Company agrees to consent to the absence of no more than one (1) employee at
any time under this paragraph.
8.5 PAID MEDICAL LEAVE If an employee with at least one (1) year of service
is absent from work due to disability, sickness and accident benefits are
payable. The disability must prevent the employee from performing the duties of
the job because of a non-occupational sickness or injury. This benefit is
payable if confined to a hospital or home.
After a waiting period of one (1) week (waived if the employee is
hospitalized as an in-patient), the disability benefits are payable at a rate
of fifty-five dollars ($55) per day for a maximum of five days per week. A
disabled employee may receive weekly sickness and accident benefits during the
period of disability not to exceed five (5) months. It is the employee's
responsibility to make application for this benefit and the attending physician
must document the nature of the disability and expected date of return to work.
While an employee is off work due to a disability and is receiving weekly
sickness and accident benefits, that employee will not be required to pay the
monthly contribution for group medical/dental insurance.
No benefits shall be payable for the following:
1. disability which you are not under the direct care of a licensed
physician.
2. sickness or injury which is purposefully self-inflicted while
sane or insane.
3. disability due to an injury arising out of the course of
employment.
4. disability due to disease which benefits are payable under
Worker's Compensation, Occupational Disease or similar law.
This benefit terminates upon retirement or upon termination of employment.
8.6 UNPAID PERSONAL LEAVE An employee may request in writing an unpaid
personal leave for up to thirty (30) calendar days for good and significant
personal reasons not covered under the Family and Medical Leave Act. The Company
may approve or disapprove any request for a personal leave of absence. Under no
circumstances will an employee on unpaid personal leave be permitted to work for
another employer.
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ARTICLE IX - GRIEVANCE PROCEDURE
9.1 Should differences arise during the term of this Agreement between the
Company and the Union, or an individual employed by the Company, as to the
meaning and application of the provisions of this Agreement, an earnest effort
shall be made by the parties to settle such differences promptly and in the
following manner:
(1) STEP I. The complaint, within seven (7) days of its occurrence,
or the occurrence of the matter out of which the complaint arises, may be taken
up by the employee involved, with or without Union representation, with their
management representative. The employee shall state the specific article(s) and
paragraph(s) of the Contract that is alleged to have been violated in order for
the grievance to be considered and processed.
(2) STEP II. If no satisfactory settlement is reached in Step I, the
matter shall be reduced to writing and presented to the Plant Manager and/or
designee within five (5) days from the date of the meeting with the management
representative. The employee shall state the specific article(s) and
paragraph(s) of the Contract that is alleged to have been violated in order for
the grievance to be considered and processed. At the time of presentation, or
within five (5) days, the Plant Manager will meet with the employee with the
assistance of a Union Representative if requested by the employee to hear and
discuss the grievance. The Company shall answer the grievance in writing within
five (5) days after said meeting.
(3) STEP III. If no agreement is reached in Step II, the Committee
may, within five (5) days of the receipt of the above answer, refer the matter
to higher officials of the Company and the Union, who may attend a meeting to
be held within thirty (30) days upon request.
(4) STEP IV.
a. Any grievance not settled in Step III above may be referred to
arbitration. Notice to refer a grievance to arbitration shall be given in
writing within fifteen (15) days after being notified of the decision rendered
in Step III or the matter will be considered closed. Only one (1) grievance may
be submitted to or under review by any one (1) Arbitrator at any one (1) time
unless by prior mutual written consent of the parties.
b. In the event the parties are unable to agree upon an
Arbitrator within seven (7) days after arbitration is invoked, then they shall
jointly petition the Federal Mediation and Conciliation Service, which shall
submit a panel of seven (7) qualified arbitrators, and the parties shall select
a single arbitrator from such panel. The Arbitrator shall be appointed by
mutual consent of the parties hereto. If the arbitrators included in this panel
are unacceptable to either party, a second panel shall be requested from the
Federal Mediation and Conciliation Service and a single arbitrator selected
from this panel.
c. Any grievance referred to arbitration shall be heard as soon
as possible and a decision rendered within thirty (30) days of the hearing or
the date of postmark of the post hearing briefs. The Arbitrator shall have no
power to add to or subtract from or change, modify or amend
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any of the provisions of this Agreement. The decision rendered by the
Arbitrator will be final and binding upon the Union, the Company, the grievant,
and all the employees covered by this Agreement. The Arbitrator selected
pursuant to this Article shall interpret and apply the terms of this Agreement;
the Arbitrator shall not substitute the arbitrator's discretion and judgement
for that of the Company. If the Arbitrator finds that a dischargeable offense
was committed by the employee, the Arbitrator shall not substitute the
Arbitrator's judgement for that of the Company as to whether discharge or a
more lenient penalty was appropriate in a particular case.
d. It is expressly agreed that no Arbitrator shall have the
authority to decide any matter involving the exercise of a right reserved to
management under this Agreement.
e. Each party hereto shall pay the expense incurred in the
presentation of its own case, and the expenses incident to the services of the
Arbitrator, including the cost of the transcript, shall be shared equally by
the Company and the Union.
9.2 The time limits referred to in the foregoing paragraphs exclude
Saturdays, Sundays and holidays.
9.3 Any grievance growing out of a discharge or suspension must be
submitted in writing by the aggrieved employee directly to the Union and from
the Union to the Plant Manager or designee within forty-eight (48) hours of the
discharge or suspension or it will not be recognized and action taken shall be
final.
9.4 Any grievance not presented or appealed within the time limits
provided, unless mutually agreed to extend the time, shall be considered settled
on the basis of the decision which was not appealed and shall be final and
binding on the parties involved.
9.5 Grievances presented in any of the regular steps set forth and not
answered within the time specified or as the same may be extended by mutual
agreement shall be considered appealed to the next step of the grievance
procedure.
ARTICLE X - OVERTIME LUNCH
10.1 Any employee who works more than ten (10) consecutive hours, where such
overtime hours are unscheduled, shall be given a lunch or lunch allowance. No
lunch or lunch allowance will be provided if such overtime hours are scheduled
with twelve (12) hours advance notice. Any employee working fourteen (14)
consecutive hours, in a scheduled working day, who has not already been
provided an overtime lunch, will be entitled to a lunch or a lunch allowance.
10.2 Any employee who is called out and works more than five (5)
consecutive hours on the callout shall be given a lunch or lunch allowance.
10.3 There shall be no duplication of lunches or lunch allowances under the
foregoing sections
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10.1 and 10.2. Any lunch allowance(s) earned under the foregoing shall be paid
weekly on the employee's paycheck.
10.4 Each lunch allowance will not exceed $7.00.
ARTICLE XI - NON-BARGAINING UNIT EMPLOYEES
11.1 It is understood and agreed that during the normal course of operations
it may be necessary for non-bargaining unit employees to perform some bargaining
unit work from time to time. Such work will be incidental to the normal duties
of said non-bargaining unit employees, as long as such work does not permanently
displace or replace a bargaining unit employee. Such work shall include work
involving corrective action which must be performed expeditiously; instruction
or training of employees; demonstration; inspection or testing of equipment;
work of an emergency nature; and development work for new processes and/or
procedures.
11.2 When equipment, expertise, facilities, and manpower are available, work
customarily performed by bargaining unit employees will continue to be
performed by these employees. Subcontracting may be used as needed to
supplement the work force.
ARTICLE XII - STRIKES AND LOCKOUTS
12.1 The Union agrees that there shall be no picketing or strikes by the
Union or by its members, of any kind or degree whatsoever, or walkout,
suspension of work, slowdowns, limiting of production, or any other interference
or stoppage, total or partial, of the Company's operations for any reason
whatsoever, such reasons including, but not limited to, unfair labor practices
by the Company or any other Employer. It is further agreed that neither the
Union or its members shall engage in the above prohibited conduct in support of
picketing, strikes or any labor dispute actions engaged in by any other
organization or person. In addition to any other recourse or remedy available to
the Company for violation of the terms of this Article by the Union and/or any
Union member, the Company may discharge or otherwise discipline any employee who
authorizes, causes, engages in, sanctions, recognizes, or assists in any
violation of this Article. The Company will not engage in any lockouts during
the term of this Agreement.
ARTICLE XIII - HOLIDAYS
13.1 The Company recognizes the following nine (9) paid holidays per year:
New Year's Day, Good Friday, Memorial Day, 4th of July, Labor Day, Thanksgiving,
Day after Thanksgiving, Christmas Eve, and Christmas Day. Effective January 1,
2000, the Company will recognize a personal holiday as an additional paid
holiday. The personal holiday may not be carried over from one calendar year to
another, but so far as practical will be granted at times most desired by
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employees within the entire 12 month calendar year, with final right to
allotment of the personal holiday exclusively reserved to the Company in order
to ensure the orderly operation of the plant. Employees must submit their
request for the personal holiday by December 1 of the previous calendar year.
When requested personal holidays conflict, plant seniority will prevail. Only
non-probationary employees will be eligible for the personal holiday.
13.2 Holiday pay will be equal to eight (8) hours pay at the employee's
straight time hourly rate. Such holiday pay will not be paid if the employee is
absent from work on the holiday if scheduled to work on the holiday or if the
employee is absent on the scheduled day preceding or following the holiday
unless such absences are excused by Management. In no event shall a holiday be
paid for unless an employee has also actually worked at least one (1) day
during the fifteen (15) day period immediately preceding or immediately
following the holiday.
13.3 Working on a Holiday, Pay Procedure
A. If an employee is required to work on a holiday, they will
receive eight (8) hours pay for the holiday (holiday pay)
plus one and one-half (1 1/2) times the employee's regular
hourly holiday pay rate for hours up to eight (8) hours
actually worked on the holiday.
B. All hours worked in excess of eight (8) hours on a holiday
will be paid at two (2) times the employee's regular rate of
pay.
C. No overtime pyramiding of a worked holiday. If an employee
works on a holiday and the holiday falls on what would have
otherwise been one of the employee's normally scheduled five
(5) days that week of straight time worked, then the holiday
pay will be counted as part of the forty (40) hours of work
that week for the purposes of calculating overtime pay.
However, if the employee works on a holiday and that holiday
would have otherwise been one of the employee's normally
scheduled two (2) days off that week, then the worked holiday
hours will not be counted toward the forty (40) hours of work
that week for the purposes of calculating overtime pay.
13.4 When a holiday falls on Sunday, it will normally be observed on the
following Monday. Under certain conditions the Company may elect to observe the
holiday on the preceding Friday in lieu of Monday. Employees assigned to
continuous shift operations, however, will observe holidays falling on Sundays
on the actual day.
ARTICLE XIV - SENIORITY
14.1 Seniority shall consist of an employee's length of continuous service
with the Company since the employee's last day of hire at its facility located
at Neville Island, Pennsylvania. Continuous service only for employees employed
by the Company before December 1, 1988 shall include
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continuous service at Neville Island, Pennsylvania recognized by Lone
Star/Marquette.
14.2 Each new employee shall be considered as a probationary employee for
the first ninety (90) calendar days of full time employment after which the
employee's seniority shall date back to their date of hire. There shall be no
seniority among probationary employees and probationary employees do not qualify
for group medical/dental insurance benefits. Such employees shall not have
recourse to the grievance procedure of this Agreement and may be laid off or
discharged as exclusively determined by the Company.
14.3 An employee's seniority shall be lost and continuous service shall be
broken when an employee:
1. is discharged;
2. is terminated upon permanent shutdown of the Company's
facilities;
3. is laid off for a period of three (3) years or the length of
their seniority as of their last day of work, whichever
period is shorter;
4. voluntarily quits which shall be deemed to include:
a) failure to notify the Company of the employee's intention
to return to work after layoff within three (3) working days,
and to actually report to work within seven (7) working days
(unless this latter period is extended in writing by the
Company) after the employee has been notified by certified
mail (either by delivery or attempted delivery) at the last
address appearing on the Company's records to report to work;
b) an absence from work for two (2) consecutive scheduled
work days without reporting to work unless excused by
Management in advance;
c) the employee fails to return to work on the first
regularly scheduled work day following the termination of any
leave of absence or any other leave approved by the Company
unless excused by Management.
5. retires.
14.4 When a vacancy occurs for which a laid off employee is qualified, the
employee will be given certified mail notice of recall at the last address as
shown on Company records. The employee must notify the Company of the
employee's intention to return to work after layoff within three (3) working
days and must actually report to work within seven (7) working days (unless
this latter period is extended in writing by the Company) after the employe has
been notified by certified mail (either by delivery or attempted delivery).
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14.5 An employee on continuous absence due to disability shall accrue
seniority and retain recall rights for a period not to exceed thirty-six (36)
months or the length of seniority as of the last day worked (minimum of twelve
(12) months), whichever period is shorter. An employee absent because of
disability shall only be recalled for a vacancy which occurs after the employee
is physically able to return to work. However, should such an employee be
declared totally and permanently disabled prior to thirty-six (36) months, such
employee's name shall be removed from the payroll and a certified mail notice to
this effect will be sent to the last address as shown on Company records. This
provision of this Agreement applies to recall rights only.
14.6 If an incapacitated employee is released to return to work and is not
physically able to perform the job that the employee was performing before the
disability occurred, the released employee shall be allowed, subject to mutual
agreement between the Company and the Union, to displace a less senior employee
in a job that the released employee is physically capable of performing. The
displaced employee shall be the least senior person in the job classification.
Qualification will be handled as in the normal bidding procedure. If a less
senior employee is displaced from their job, the displaced employee, with the
ability and qualification to perform another job, shall be allowed to also
displace a less senior employee.
14.7 Should an employee in the bargaining unit after December 15, 1993, be
promoted to a supervisory position outside the coverage of this Agreement and
within ninety (90) days after promotion be demoted, the employee's seniority
will be reinstated in the amount the employee had when promoted.
14.8 Seniority lists agreed to by and between the Company and the Union
shall be posted on the bulletin board as of May 1 and November 1 of each year.
Corrections shall be made in the seniority lists when it is proved an employee
is placed in the wrong position on said list, but all requests for corrections
must be made within thirty (30) days from date of posting or the list shall be
valid as posted.
14.9 When the Company declares that a full time opening exists (not
including temporary openings), employees in the classification and employees
entering the classification may exercise their seniority to choose established
days off and shift within the classification. In order to balance the skills and
training on various shifts, the Company may delay certain changes in days off
for up to six (6) months from the time the opening is filled.
14.10 The Company recognizes that all employees shall retain the right to
seniority preference in cases of layoffs and recall. The last employee hired
shall be the first laid off and the last laid off the first rehired. Such
preferences in the cases of layoffs and recall shall take into consideration
the employee's ability to perform the available work and the efficient
operations of the operation. It is recognized that, in periods where business
conditions necessitate that the level of production be reduced to a point where
only a minimum of employees is required, it shall be necessary, in some cases,
to deviate from strict plant seniority in order that some positions be
available to service and adjust the equipment when production requirements
increase. If the Company does not layoff in
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<PAGE> 17
accordance with seniority, the Company will meet with the Union to explain the
reasons prior to the layoff.
14.11 In the event that an employee is displaced by the installation of
mechanical equipment, change in production methods, the installation of new or
larger equipment, the combining of jobs, the elimination of jobs, or by a more
senior person, the employee may elect to exercise plant seniority to displace
the least senior person in a position the senior employee is qualified to
perform after being placed on the job. To qualify, the senior employee must
demonstrate the ability to adequately perform a satisfactory amount of the
primary duties within a reasonable amount of time not to exceed thirty (30)
calendar days as determined by the Company.
14.12 SUMMER HELP PROGRAM
1. Summer help employees may be employed between May 1 and
September 30, or longer if there is a mutual agreement
between the Union and the Company.
2. Preference may be given to family members of employees in
applying for summer help positions.
3. The Company reserves the sole right to determine who will be
hired.
4. Summer help employees will be treated as "at will"
probationary employees and may be terminated by the Company
with or without cause or reason. Summer help employees will
not be entitled to participate in benefit plans found in
Article XXII or paid leaves in Article VIII. Summer help
employees will not bid jobs but may be temporarily assigned
to various jobs by the Company.
ARTICLE XV - JOB BIDDING
15.1 When the Company determines a vacancy exists, other than a minimum pay
job, the Company will post a notice of such fact, such notice to remain posted
for a period of at least five (5) days, not including Saturdays, Sundays, or
holidays. This notice shall state rates of pay, hours, and job requirements.
The Union will be provided with a copy of each bid. All bids shall be
considered in the manner provided herein in Section 15.3 and the successful
applicant's name will be posted within seven (7) days after the bids are
opened, except where testing is required. Said delay will not exceed ten (10)
days, unless additional time is agreed to between the Union and the Company.
The successful bidder will be placed on the job within as reasonable a time as
possible from the date of posting award. In the event of the successful
applicant's failure to qualify in the opinion of the Company, then it is
understood that said employee is to be restored to their former position and
standing. Employees will submit their bid to the supervisor and will be given a
receipt for the bid. No bids will be withdrawn after the time and date the bid
is removed from the board.
14
<PAGE> 18
The successful bidder will be placed on the job as soon as possible
unless an extension is agreed to by the Company and the Union. The Company may
choose to cancel the bid at any time. If a successful bidder is not assigned to
the new job within thirty (30) working days following the awarding of the bid,
the employee shall receive the applicable starting rate of the new job.
Furthermore, the Company and the Union will meet to discuss the reasons for the
delay. The successful bidder may be disqualified by the Company within the
first 120 days of assignment to the new job at the sole discretion of
management. In the event of the successful applicants failure to qualify in the
opinion of the Company, then it is understood that said employee is to be
restored to their former position and standing.
15.2 If within twenty-four (24) months following the assignment to a new job
under this procedure, an employee applies for another new job of equal or lower
classification, the Company may, at its discretion, disregard such application.
After twenty-four (24) months employees may only bid for promotional job
opportunities except by mutual agreement between the parties. This provision
does not apply to employees successfully bidding into the Entry Level
Mechanical, Electrical, or Instrument Training Program.
Lateral or down-bids for any position shall only be permitted one
time, per employee, during the course of this agreement.
15.3 The following factors shall apply in the awarding of all jobs:
(1) Qualifications of the Applicant (which shall include: ability
to perform the work, aptitude as determined by the applicant
achieving a minimum correct score of 70% on the mechanical
aptitude test published by the Psychological Corporation,
skills, Pittsburgh plant experience, other experience,
training for the job, and attendance);
(2) Ability to physically perform the essential job functions of
the job with reasonable accommodation by the Company, if
necessary;
(3) Seniority.
Where (1) and (2) are equal, (3) shall apply.
If the employee selected shall fail to qualify after a fair trial
period, in the exclusive judgement of the Company, the employee shall be
returned to their former position and the next bidder shall be given
consideration.
15.4 Temporary Reassignment. An employee who is temporarily assigned by
their supervisor to perform work of a higher paid job classification will be
paid the rate of such higher job classification for time actually worked. An
employee temporarily assigned by their supervisor to perform work in an equal or
lower paid classification will be paid the base hourly wage rate of the
employee's
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<PAGE> 19
permanent classification.
15.5 In no event shall the Company be requested or required to post any job
temporarily vacated by reason of vacations, illness, or injury. The Company, at
its discretion, may create temporary jobs not to exceed one hundred twenty
(120) work days. Successful bidders bidding down or laterally on such temporary
jobs will be placed in the labor classification upon completion of the job.
Should the Company determine that any temporary job becomes permanent, the
Company shall post the job as provided in this Article.
15.6 Knowledge, training, skill and ability gained while holding jobs under
the bid system and seniority, will be given consideration in making promotions,
layoffs, or reductions in work force.
15.7 If an employee bids on a higher rated job and is awarded the job, that
employee will be slotted at the starting progression rate for the new job.
However, if the transferring employee is leaving a position with a rate of pay
greater than the starting rate of the new position, then the transferring
employee will retain their former rate of pay until the time in the new
classification allows the employee to move up to the incremental increase in
progression. This provision does not apply to down bids.
15.8 Pay Practice on Down Bids. Any employee who bids to a lower job
classification will receive the starting rate for the new position unless the
down bidding employee has had the job before. The experienced down bidder's pay
rate will be determined as follows:
a) the halfway point progression rate (found in Schedule A)
between the starting rate and the top rate, provided the
employee had held the top rate in the down bid job before, or
b) if not having achieved the top rate previously in the down
bid job (completed progression program), the down bidder will
be placed at the starting rate.
15.9 The Company will continue the current practice of assigning laborers by
seniority to temporary openings and in filling vacancies when a job bid is not
filled through the bidding procedure. This section does not preclude the
Company from filling unbid job opportunities from any source.
ARTICLE XVI - WORKWEEK AND OVERTIME
16.1 During the life of this Agreement it is understood that the "normal
work day" is the twenty-four (24) hour period beginning with the start of the
employee's shift. The "normal work day" is eight (8) consecutive hours of work
in a twenty-four (24) hour period, broken by established meal periods, except as
necessitated to maintain efficient plant operations.
16
<PAGE> 20
The "normal work week" is made up of five (5) consecutive "normal work
days" within a seven (7) day period beginning with the morning shift on
Mondays. The "normal work week" for certain employees may begin on a day other
than Monday. One and one half (1 1/2) times the employees regular hourly rate
will be paid for all hours worked in excess of forty (40) hours per week or in
excess of eight (8) hours per day. The Company will notify the Union should the
need arise to deviate from the "normal work week".
16.2 CALLOUTS
If an employee is called out after the employee's regular shift and
after leaving the plant, or on off days, the employee shall be paid a minimum
of four (4) hours pay at one and one-half (1-1/2) times the employee's regular
rate. However, such hours shall not be counted toward the calculation of
overtime pay paid for working in excess of forty (40) hours per week.
If such employee is notified twelve (12) hours or more in advance of
the employee's shift, the four (4) hour minimum will not apply.
16.3 Weekly manning schedule shall be posted not later than the end of the
day shift on Fridays barring unforeseen circumstances outside the Company's
control.
16.4 Insofar as practical, overtime will be equalized in each department by
classification. The current overtime distribution policy will be posted by the
Company. The overtime equalization list will be updated weekly and posted.
ARTICLE XVII - SAFETY AND HEALTH
17.1 A joint Safety and Health Committee will be established consisting of
members appointed by the Company and the Union. The "Committee" will consist of
two (2) members from the Union and two (2) members from the Company plus the
Plant Manager or designee. Meetings will be held regularly to address safety
and health concerns and make recommendations to the plant management. The
"Committee" will establish an Accident Investigation Team. The Accident
Investigation Team will begin their investigation as soon as possible following
an accident. Safety issues, complaints and/or disputes may be investigated by
the "Committee". Any safety and health issues not resolved by the "Committee"
will be addressed through the normal grievance procedure. The Company will
continue to provide employees with required safety equipment. Employees will be
required to properly use and maintain all personal protective equipment
supplied by the Company.
17.2 The Company will furnish approved basic prescription ground safety
glasses to active bargaining unit employees, including the cost of an annual eye
exam. Prescription safety glasses will not be replaced unless the safety glasses
were damaged or broken during the performance of duties.
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<PAGE> 21
17.3 The Company will annually reimburse active bargaining unit employees
for the purchase of safety shoes not to exceed two pairs per year. The total
annual reimbursement for this safety equipment may not exceed $160.
17.4 All time spent by a bargaining unit employee as a member of the
committees in the Articles listed in this section, including all time spent
during Federal and State inspections and pre and post close-out meetings, shall
be compensated at the employee's regular straight time rate. Any time spent
during the hours the employee is scheduled to work shall count toward the
calculation of any penalty or premium pay section of this Agreement including,
but not limited to, daily or weekly overtime.
17.5 A Plant Substance Abuse Policy dated December 15, 1997, has been
developed which by reference thereto is incorporated herein and made a part of
this labor agreement.
ARTICLE XVIII - BULLETIN BOARD
18.1 The Union agrees to post only notices concerning elections, meetings,
reports and other official Union business and notices of social and
recreational activities on the Company bulletin board. A copy of each notice
will be supplied to the Plant Manager at the time of its posting. The Union
agrees further that it will post no matter which is in the disinterest of the
Company. However, notwithstanding the above, it is understood that the
Company's decision concerning the use of the bulletin board shall be final.
ARTICLE XIX - FURNISHING OF TOOLS
19.1 The Company shall furnish all tools and equipment for its employees,
except to maintenance employees, in which case these employees shall furnish
their own hand tools. In case of breakage or loss, the Company will replace or
repair such tools; such breakage or loss shall be reported immediately to the
Company. "Hand Tools" as used herein shall not include socket sets, wrenches
more than twelve (12) inches long, and all other specialized tools incident to
the work of the mechanical, maintenance, and skilled trades.
ARTICLE XX - DUES CHECK-OFF
20.1 Check-off: During the term of this Agreement, the Company will continue
to check off monthly dues, and initiation fees, each as designated by the
Treasurer of the Local Union, as membership dues in the Union on the basis of
and for the term of individually signed check-off authorization cards, a copy of
which is reproduced below, or hereafter submitted to the Company. The Company
shall promptly remit any and all amounts so deducted to the Treasurer of the
Local Union with a list of the employees from whom the deduction was checked
off.
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<PAGE> 22
20.2 On or before the last Friday of each calendar month the Union shall
submit to the Company a summary list of cards transmitted in each month.
20.3 Dues for a given month shall be deducted from the last payday in that
month; deductions on the basis of authorization cards submitted to the Company
shall commence with respect to dues for the month in which the Company receives
such authorization cards.
20.4 Unless the Company is otherwise notified, the only Union membership
dues to be deducted for payment to the Union from the pay of the employee who
has furnished an authorization shall be the monthly Union dues. The Company will
deduct initiation fees when notified, by notation on the list referred to in
20.2 above, and assessments as designated by the Treasurer of the Local Union.
20.5 The Union shall indemnify the Company and hold it harmless against any
and all suits, claims, demands and liabilities that shall arise out of or by
reason of any action that shall be taken or not taken by the Company for the
purpose of complying with the foregoing provisions of this Article, or in
reliance on any list or certificate which shall have been furnished to the
Company by the Union under any such provisions.
20.6
CHECK-OFF AUTHORIZATION
FOR INTERNATIONAL BROTHERHOOD OF
BOILERMAKERS, CEMENT DIVISION
- -----------------------------------------
Company
19
- ----------------------------------------- ---------- --
Plant Date
Pursuant to this authorization and assignment, please deduct from my
pay each month, while I am in employment within the collective bargaining unit
in the Company, monthly dues, assessments and (if owing by me) an initiation
fee each as designated by the Treasurer of the Local Union, as my membership
dues in said Union.
The aforesaid membership dues shall be remitted promptly by you to the
Treasurer of the International Brotherhood of Boilermakers, Cement, Lime,
Gypsum and Allied Workers Division, Local Lodge D592, or its successor.
19
<PAGE> 23
This assignment and authorization shall be effective and can be
canceled any time by written notice and cannot be reinstituted for a twelve
(12) month period or until the termination date of the current collective
bargaining agreement between the Company and the Union, whichever occurs
sooner.
Local Union No. D592
International Brotherhood of Boilermakers, Cement
Division -----------------------------
Signature
- -------------------------------- ---------------------------
Witness Date
ARTICLE XXI - UNION SECURITY
21.1 All employees covered by this Agreement, who as of December 15, 1997,
are members of the Union in good standing, and all employees who thereafter
become members, shall, as a condition of continued employment, remain members of
the Union in good standing for the duration of the Agreement.
All new employees covered by the Agreement shall, as a condition of
employment, become members of the Union on or immediately after the thirtieth
(30th) calendar day following their employment.
ARTICLE XXII - BENEFIT PLANS
22.1 During the term of this Agreement the Company will provide employees
with participation in the Southdown, Inc. Group Medical Network Benefit Plan,
the Southdown, Inc. Dental Plan, the Southdown, Inc. Life Insurance and
Accidental Death and Dismemberment Plan, the Southdown, Inc. Long Term
Disability Plan, the Southdown, Inc. Pension Plan, the Southdown, Inc.
Retirement Savings Plan, the Southdown, Inc. Post Retirement Retiree Medical
Insurance Plan, and the Southdown, Inc. Voluntary Life Insurance Plan, including
all amendments and modifications to said plans during the life of this
Agreement, on the same basis as the benefits and eligibility requirements are
provided to Southdown, Inc.'s salaried employees.
ARTICLE XXIII - TERMS OF AGREEMENT
23.1 After ratification by the members of the Local Union, this Agreement
shall become effective and remain in force and effect and be binding upon the
parties hereto from December 15, 1997, to and including December 14, 2003, and
it shall continue to be in full force and effect thereafter from
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<PAGE> 24
year to year until either party on or before October 14, of any year, beginning
October 14, 2003, gives written notice to the other party of its desire or
intention either to alter and modify or terminate the same. If such notice is
given, the parties hereto shall begin negotiations not later than November 15 in
such year.
23.2 The Labor Agreement, and Summary Plan Descriptions for the Pension Plan,
401K, and Insurance Plan will be printed at Company expense. The Company will
provide each member with a copy of the booklet.
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<PAGE> 25
IN WITNESS WHEREOF, the Union has caused this Agreement to be executed
in its name, after due authorization by a vote of a majority of its members,
and the Company has caused it to be executed in its name, by its duly
authorized representatives.
INTERNATIONAL BROTHERHOOD OF KOSMOS CEMENT COMPANY
BOILERMAKERS, CEMENT, LIME,
GYPSUM AND ALLIED WORKERS,
DIVISION LOCAL LODGE NO. D592
By: By: William A.
------------------------------ --------------------------
Smith. David E.Tiller
By: By: Mark Kelly
------------------------------ --------------------------
Norman J. Gilbertson
By: By:
------------------------------ --------------------------
Wayne G. Summers Luis Garcia
By:
------------------------------
Beverly J. Rice
By:
------------------------------
Samuel J.Gioia
Signed this 15th day of Signed this 15th day of
December, 1997 December, 1997
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<PAGE> 26
SCHEDULE A - PAY PROCEDURES
A1 - GAINSHARING: The employees will participate in a gainsharing program
developed by the Company. An oversight committee made up of two (2) members
from management and two (2) members from the Union will meet monthly and
publish a report. Employees will be encouraged to submit ideas to the
committee.
A2 - RATE STRUCTURE: The rate structure shall consist of a starting rate, one
thousand (1,000) hour worked incremental rates during the qualification period,
and a qualified or "top" rate. An employee becomes eligible for one thousand
(1,000) hour worked incremental rates by being evaluated as showing
satisfactory progress.
A3 - LEADPERSONS: Leadpersons will be paid $1 per hour in addition to their
normal rate of pay while they are designated as leadpersons to perform certain
quasi-supervisory tasks incidental to their normal hands-on work.
A4 - SERVICE SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
12/15/97 12/15/98 12/15/99 12/15/00* 12/15/01 12/15/02
-------- -------- -------- -------- -------- --------
Contract wage increases $ 0.50 $ 0.40 $ 0.35 See below $ 0.35 $ 0.35
* A lump sum bonus of $1,400.00 will be paid on January 15, 2000.
GENERAL GROUP 12/15/97 12/15/98 12/15/99 12/15/00 12/15/01 12/15/02
-------- -------- -------- -------- -------- --------
LABORER
Starting Rate $ 9.55 $ 9.95 $10.30 $10.30 $10.65 $11.00
End of 1,000 hours worked $10.85 $11.25 $11.60 $11.60 $11.95 $12.30
SHIPPING GROUP
PACKHOUSE OPERATORS
UTILITY (Packhouse personnel, including the Pumpperson*)
Starting Rate $11.15 $11.55 $11.90 $11.90 $12.25 $12.60
End of 1,000 hours worked $13.25 $13.65 $14.00 $14.00 $14.35 $14.70
BULKLOADER
Starting Rate $11.40 $11.80 $12.15 $12.15 $12.50 $12.85
End of 1,000 hours worked $13.50 $13.90 $14.25 $14.25 $14.60 $14.95
</TABLE>
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<PAGE> 27
<TABLE>
<CAPTION>
LAB GROUP 12/15/97 12/15/98 12/55/99 12/15/00 12/15/01 12/15/02
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LAB TECHNICIANS
Starting Rate $12.95 $13.35 $13.70 $13.70 $14.05 $14.40
End of 1,000 hours worked $13.53 $13.93 $14.28 $14.28 $14.63 $14.98
End of 2,000 hours worked $14.11 $14.51 $14.86 $14.86 $15.21 $15.56
End of 3,000 hours worked $14.69 $15.09 $15.44 $15.44 $15.79 $16.14
End of 4,000 hours worked $16.45 $16.85 $17.20 $17.20 $17.55 $17.90
MAINTENANCE GROUP
STOREROOM ATTENDANT
Starting Rate $12.95 $13.35 $13.70 $13.70 $14.05 $14.40
End of 1,000 hours worked $13.40 $13.80 $14.15 $14.15 $14.50 $14.85
End of 2,000 hours worked $13.85 $14.25 $14.60 $14.60 $14.95 $15.30
LUBEPERSON**
Starting Rate $12.95 $13.35 $13.70 $13.70 $14.05 $14.40
End of 1,000 hours worked $13.40 $13.80 $14.15 $14.15 $14.50 $14.85
End of 2,000 hours worked $14.30 $14.70 $15.05 $15.05 $15.40 $15.75
BAGHOUSE REPAIRPERSON**
Starting Rate $13.05 $13.45 $13.80 $13.80 $14.15 $14.50
End of 1,000 hours worked $13.50 $13.90 $14.25 $14.25 $14.60 $14.95
End of 2,000 hours worked $14.40 $14.80 $15.15 $15.15 $15.50 $15.85
MECHANICAL REPAIRPERSON
Starting Rate $12.95 $13.35 $13.70 $13.70 $14.05 $14.40
End of 1,000 hours worked $13.40 $13.80 $14.15 $14.15 $14.50 $14.85
End of 2,000 hours worked $13.85 $14.25 $14.60 $14.60 $14.95 $15.30
End of 3,000 hours worked $14.30 $14.70 $15.05 $15.05 $15.40 $15.75
End of 4,000 hours worked $14.75 $15.15 $15.50 $15.50 $15.85 $16.20
End of 5,000 hours worked $15.20 $15.60 $15.95 $15.95 $16.30 $16.65
End of 6,000 hours worked $15.65 $16.05 $16.40 $16.40 $16.75 $17.10
End of 7,000 hours worked $16.10 $16.50 $16.85 $16.85 $17.20 $17.55
End of 8,000 hours worked $16.55 $16.95 $17.30 $17.30 $17.65 $18.00
</TABLE>
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<PAGE> 28
<TABLE>
<CAPTION>
12/15/97 12/15/98 12/15/99 12/15/00* 12/15/01 12/15/02
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ELECTRICAL REPAIRPERSON
Starting Rate $12.95 $13.35 $13.70 $13.70 $14.05 $14.40
End of 1,000 hours worked $13.40 $13.80 $14.15 $14.15 $14.50 $14.85
End of 2,000 hours worked $13.85 $14.25 $14.60 $14.60 $14.95 $15.30
End of 3,000 hours worked $14.30 $14.70 $15.05 $15.05 $15.40 $15.75
End of 4,000 hours worked $14.75 $15.15 $15.50 $15.50 $15.85 $16.20
End of 5,000 hours worked $15.20 $15.60 $15.95 $15.95 $16.30 $16.65
End of 6,000 hours worked $15.65 $16.05 $16.40 $16.40 $16.75 $17.10
End of 7,000 hours worked $16.10 $16.50 $16.85 $16.85 $17.20 $17.55
End of 8,000 hours worked $16.55 $16.95 $17.30 $17.30 $17.65 $18.00
INSTRUMENT TECHNICIAN
(Requires Electrical Repairperson Training)
Starting Rate $16.55 $16.95 $17.30 $17.30 $17.65 $18.00
End of 1,000 hours worked $16.72 $17.12 $17.47 $17.47 $17.82 $18.17
End of 2,000 hours worked $16.89 $17.29 $17.64 $17.64 $17.99 $18.34
End of 3,000 hours worked $17.06 $17.46 $17.81 $17.81 $18.16 $18.51
End of 4,000 hours worked $17.25 $17.65 $18.00 $18.00 $18.35 $18.70
PRODUCTION GROUP
PRODUCTION OPERATORS (Crane Operator, Material Handler, Endloader)
Starting Rate $13.15 $13.55 $13.90 $13.90 $14.25 $14.60
End of 1,000 hours worked $13.63 $14.03 $14.38 $14.38 $14.73 $15.08
End of 2,000 hours worked $14.11 $14.51 $14.86 $14.86 $15.21 $15.56
End of 3,000 hours worked $15.07 $15.47 $15.82 $15.82 $16.17 $16.52
PROCESS ATTENDANT
Starting Rate $13.15 $13.55 $13.90 $13.90 $14.25 $14.60
End of 1,000 hours worked $13.63 $14.03 $14.38 $14.38 $14.73 $15.08
End of 2,000 hours worked $14.11 $14.51 $14.86 $14.86 $15.21 $15.56
End of 3,000 hours worked $14.59 $14.99 $15.34 $15.34 $15.69 $16.04
End of 4,000 hours worked $16.05 $16.45 $16.80 $16.80 $17.15 $17.50
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
12/15/97 12/15/98 12/15/99 12/15/00* 12/15/01 12/15/02
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONTROL ROOM OPERATOR (Requires Process Attendant or Lab Technician Training)
Starting Rate $16.05 $16.45 $16.80 $16.80 $17.15 $17.50
End of 1,000 hours worked $16.35 $16.75 $17.10 $17.10 $17.45 $17.80
End of 2,000 hours worked $16.65 $17.05 $17.40 $17.40 $17.75 $18.10
End of 3,000 hours worked $16.95 $17.35 $17.70 $17.70 $18.05 $18.40
End of 4,000 hours worked $17.25 $17.65 $18.00 $18.00 $18.35 $18.70
CONTROL ROOM OPERATOR (Without Process Attendant or Lab Technician Training)
Starting Rate $15.10 $15.50 $15.85 $15.85 $16.20 $16.55
End of 1,000 hours worked $15.45 $15.85 $16.20 $16.20 $16.55 $16.90
End of 2,000 hours worked $15.80 $16.20 $16.55 $16.55 $16.90 $17.25
End of 3,000 hours worked $16.15 $16.55 $16.90 $16.90 $17.25 $17.60
End of 4,000 hours worked $16.50 $16.90 $17.25 $17.25 $17.60 $17.95
End of 5,000 hours worked $16.85 $17.25 $17.60 $17.60 $17.95 $18.30
End of 6,000 hours worked $17.25 $17.65 $18.00 $18.00 $18.35 $18.70
</TABLE>
* The Packhouse Pumpperson only will receive an additional $1 dollar per hour
on a temporary upgrade while performing minor repair work provided the
Pumpperson is qualified to perform the minor repair work.
** The Lubeperson and Baghouse Repairperson shall receive the Mechanical
Repairperson 4000 hours level rate on a temporary upgrade while performing
repair work.
A5 - INCENTIVE FOR PACKHOUSE EMPLOYEES
(1) In the interest of enhancing the productivity of the Pittsburgh packaged
cement operation, the Company will initiate "The Pittsburgh Improved Packhouse
Incentive Plan". Up to four (4) designated Packhouse employees (two (2)
Packers, one (1) Pumpperson and one (1) Lift Truck Driver) can earn escalating
incentives above the previous flat $3/1000 bag daily rate provided the packing
team packs above threshold rates. The matrix found in Appendix B - Packhouse
Incentive Chart depicts the new incentive rates for an eight (8) hour day based
on number of bags packed per half hour.
(2) Technology Changes. If the Company invests in new packing equipment which
upgrades the productivity of the Pittsburgh packing operation, then the
following actions will be taken before the installation is completed:
(a) The Company will notify and discuss with the Union committee
the nature of the upgrade and its effect on the operation.
(b) The Packhouse Incentive Plan will be revised to reflect the
change in technology.
26
<PAGE> 30
APPENDIX A - LETTERS OF UNDERSTANDING
December 15, 1997
Mr. William A. Smith
International Representative
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum, and Allied Workers Division
119 Helen Avenue
Niles, OH 44446
Dear Mr. Smith:
Pursuant to our discussions during the 1997 Pittsburgh contract
negotiations regarding the Southdown, Inc. Fringe Benefit Plans listed in
Article 22.1 of the agreement. The Company has no intent at this time to
terminate these plans during the term of this agreement. While the coverage and
eligibility requirements are subject to modification at the discretion of the
Company, no changes shall be effected without notifying the local Union
committee of the nature, reasons and timing of the changes. Union notification
will be made as far in advance as practical.
Sincerely,
David E. Tiller
Human Resources Director
Eastern Region
DET:mjb
27
<PAGE> 31
December 15, 1997
Mr. William A. Smith
International Representative
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum, and Allied Workers Division
119 Helen Avenue
Niles, OH 44446
Dear Mr. Smith:
Pursuant to our discussion during the 1997 Pittsburgh contract negotiations
regarding the development of Article 3.1, this will confirm that it is not the
intent of the Company to replace bargaining unit employees who quit or retire
with subcontractors. This, however, does not restrict the Company's rights to
supplement the workforce to maintain efficient plant operations.
Sincerely,
David E. Tiller
Human Resources Director
Eastern Region
DET:mjb
28
<PAGE> 32
December 15, 1997
Mr. William A. Smith
International Representative
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum, and Allied Workers Division
119 Helen Avenue
Niles, OH 44446
Dear Mr. Smith:
It is not the intent of the parties during the Pittsburgh negotiations
for the Company to incur duplicate expenses for health and medical coverage
because of future National or Governmental enacted health and medical programs.
In the event of such a requirement, the parties agree to meet and develop
mutually acceptable alternatives.
Sincerely,
David E. Tiller
Human Resources Director
Eastern Region
DET:mjb
29
<PAGE> 33
December 15, 1997
Mr. William A. Smith
International Representative
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum, and Allied Workers Division
119 Helen Avenue
Niles, OH 44446
Subject: Letter of Understanding
Dear Mr. Smith:
Pursuant to our discussions during the 1997 Pittsburgh contract
negotiations regarding the Gainsharing Program found in Schedule A of the
agreement, the parties agree that following these negotiations the Company and
the Union will review the current gainsharing program by December 31, 1997. Any
changes made by the Company will be discussed with the Union before the final
decision to modify the program is reached.
Sincerely,
David E. Tiller
Human Resources Director
Eastern Region
DET:mjb
30
<PAGE> 34
December 15, 1997
Mr. William A. Smith
International Representative
International Brotherhood of Boilermakers,
Cement, Lime, Gypsum, and Allied Workers Division
119 Helen Avenue
Niles, OH 44446
Subject: Letter of Understanding
Dear Mr. Smith:
Pursuant to our discussions during the 1997 Pittsburgh contract
negotiations regarding employee monthly contribution for group medical/dental
insurance, the current rate schedule for bargaining unit employees will not
change during the life of this contract. This rate schedule is as follows:
Employee only $30/month
Employee and children $50/month
Employee and spouse $60/month
Employee and family $70/month
Sincerely,
David E. Tiller
Human Resources Director
Eastern Region
DET:mjb
31
<PAGE> 35
APPENDIX B
PACKING INCENTIVE PLAN
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DOLLARS PER DAY PACKING INCENTIVE
- -----------------------------------------------------------------------------------------------------------------------------------
BAGS PER PACKING DAY HOURS PER DAY PACKING
- -----------------------------------------------------------------------------------------------------------------------------------
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
250
500 $3.00 per Thousand Bags in this Area.
750
1000
1250 $3.00 per Thousand Bags in this Area.
1500
1750 $5.85
2000 $6.90 $3.00 per Thousand Bags in this Area.
2250 $7.95 $7.45
2500 $9.00 $8.50
2750 $10.05 $9.55 $9.30 $9.05 $3.00 per Thousand Bags in this Area.
3000 $11.10 $10.60 $10.10 $9.85
3250 $11.65 $11.15 $10.65
3500 $12.70 $12.20 $11.70 $11.45 $3.00 per Thousand Bags in this Area.
3750 $13.75 $13.25 $13.00 $12.75 $12.50
4000 $17.05 $16.30 $15.55 $14.80 $14.05
4250 $17.80 $17.05 $16.30 $15.55 $14.80
4500 $19.30 $18.55 $17.80 $17.05 $16.30 $15.55
4750 $20.05 $19.30 $18.55 $17.80 $17.05 $16.30
5000 $20.80 $20.05 $19.30 $18.55 $17.80 $17.05
5250 $22.30 $21.55 $20.80 $20.05 $19.30 $18.55 $17.80
5500 $23.05 $22.30 $21.55 $20.80 $20.05 $19.30 $18.55
5750 $23.80 $23.05 $22.30 $21.55 $20.80 $20.05 $19.30
6000 $25.30 $24.55 $23.80 $23.05 $22.30 $21.55 $20.80 $20.05
6250 $25.30 $24.55 $23.80 $23.05 $22.30 $21.55 $20.80
6500 $26.55 $25.80 $25.05 $24.30 $23.55 $22.80 $22.05 $21.30
6750 $27.10 $26.35 $25.60 $24.85 $24.10 $23.35 $22.60
7000 $28.40 $27.65 $26.90 $26.15 $25.40 $24.65 $23.90
7250 $29.70 $28.95 $28.20 $27.45 $26.70 $25.95 $25.20
7500 $30.25 $29.50 $28.75 $28.00 $27.25 $26.50
7750 $31.55 $30.80 $30.05 $29.30 $28.55 $27.80
8000 $32.85 $32.10 $31.35 $30.60 $29.85 $29.10
8250 $33.40 $32.65 $31.90 $31.15 $30.40
8500 $34.70 $33.95 $33.20 $32.45 $31.70
8750 $36.00 $35.25 $34.50 $33.75 $33.00
9000 $36.55 $35.80 $35.05 $34.30
9250 $37.85 $37.10 $36.35 $35.60
9500 $39.15 $38.40 $37.65 $36.90
9750 $39.70 $38.95 $38.20
10000 $41.00 $40.25 $39.50
10250 $42.30 $41.55 $40.80
10500 $42.85 $42.10
10750 $44.15 $43.40
11000 $45.45 $44.70
11250 $46.00
11500 $47.30
11750 $48.60
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOLD FACE indicates a rate over the present $3.00 per thousand bags
<PAGE> 1
EXHIBIT 11
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Earnings for basic earnings per share:
Earnings before extraordinary charge and
preferred stock dividends $ 96.7 $ 71.2 $ 47.5
Preferred stock dividends (2.5) (7.7) (9.8)
---------- ---------- ----------
Earnings before extraordinary charge 94.2 63.5 37.7
Extraordinary charge, net of income taxes -- (11.5) --
---------- ---------- ----------
Net earnings for basic earnings per share $ 94.2 $ 52.0 $ 37.7
========== ========== ==========
Earnings for diluted earnings per share:
Earnings before extraordinary charge $ 96.7 $ 71.2 $ 47.5
Extraordinary charge, net of income taxes -- (11.5) --
---------- ---------- ----------
Net earnings for diluted earnings per share $ 96.7 $ 59.7 $ 47.5
========== ========== ==========
Average outstanding common shares for basic
earnings per share 22.3 18.2 17.3
Other potentially dilutive securities:
- common stock equivalents from assumed
exercise of stock options and warrants 0.4 0.5 0.2
- assumed conversion of Series A convertible
preferred stock at one-half share of common stock -- 0.8 1.0
- assumed conversion of Series B convertible
preferred stock at 2.5 shares of common stock -- 1.9 2.3
- assumed conversion of the Series D convertible
preferred stock at 1.51 shares of common stock 1.6 2.6 2.6
---------- ---------- ----------
Total outstanding shares for diluted earnings per share 24.3 24.0 23.4
========== ========== ==========
Earnings per share:
Basic
Earnings before extraordinary charge $ 4.23 $ 3.50 $ 2.18
Extraordinary charge, net of income taxes -- (0.64) --
---------- ---------- ----------
$ 4.23 $ 2.86 $ 2.18
========== ========== ==========
Diluted
Earnings before extraordinary charge $ 3.98 $ 2.97 $ 2.03
Extraordinary charge, net of income taxes -- (0.48) --
---------- ---------- ----------
$ 3.98 $ 2.49 $ 2.03
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF SOUTHDOWN, INC.
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
State of
Subsidiary * Organization
------------ ------------
<S> <C>
KOSMOS CEMENT COMPANY (A PARTNERSHIP) ............................ KENTUCKY
</TABLE>
- --------------------
* KOSMOS CEMENT COMPANY CONDUCTS BUSINESS UNDER ITS NAME.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-23328 on Form S-8, Registration Statement No. 33-35011 on Form S-8,
Registration Statement No. 33-45144 on Form S-8 and Registration Statement No.
33-16517 on Form S-3, of our report dated January 27, 1998 on the consolidated
financial statements of Southdown, Inc. and subsidiary companies appearing in
this Annual Report on Form 10-K for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Houston, Texas
March 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 85
<SECURITIES> 4
<RECEIVABLES> 80
<ALLOWANCES> 4
<INVENTORY> 64
<CURRENT-ASSETS> 241
<PP&E> 981
<DEPRECIATION> 372
<TOTAL-ASSETS> 974
<CURRENT-LIABILITIES> 83
<BONDS> 163
0
0
<COMMON> 31
<OTHER-SE> 453
<TOTAL-LIABILITY-AND-EQUITY> 974
<SALES> 719
<TOTAL-REVENUES> 719
<CGS> 503
<TOTAL-COSTS> 560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 146
<INCOME-TAX> 49
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97
<EPS-PRIMARY> 4.23
<EPS-DILUTED> 3.98
</TABLE>
