<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO _____________________
COMMISSION FILE NUMBER 1-6117
SOUTHDOWN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-0296500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1200 SMITH STREET
SUITE 2400
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ No___
At October 31, 2000 there were 36.0 million common shares outstanding.
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SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
PART I. FINANCIAL INFORMATION ----
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 1
Statements of Consolidated Earnings
Three and Nine Months Ended September 30, 2000 and 1999 2
Statements of Consolidated Cash Flows
Nine Months Ended September 30, 2000 and 1999 3
Statements of Selected Consolidated Segment Data
Three and Nine Months Ended September 30, 2000 and 1999 4
Statement of Consolidated Shareholders' Equity
Nine Months Ended September 30, 2000 5
Statements of Consolidated Comprehensive Income
Three and Nine Months Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Independent Accountants' Review Report 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19.0 $ 21.8
Accounts and notes receivable, less allowance for doubtful
accounts of $4.8 and $5.4 166.1 129.4
Inventories 142.0 135.4
Prepaid expenses and other 18.8 20.0
--------------- ---------------
Total current assets 345.9 306.6
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $702.8 and $679.4 1,068.4 920.3
Goodwill 131.2 134.2
Other long-term assets 76.4 69.6
--------------- ---------------
$ 1,621.9 $ 1,430.7
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 0.3 $ 0.4
Accounts payable and accrued liabilities 168.6 146.8
--------------- ---------------
Total current liabilities 168.9 147.2
Long-term debt 185.2 165.7
Deferred income taxes 137.2 131.1
Minority interest in consolidated joint venture 46.5 35.9
Long-term portion of postretirement benefit obligation 84.6 87.7
Other long-term liabilities and deferred credits 27.7 30.0
--------------- ---------------
650.1 597.6
--------------- ---------------
Shareholders' equity:
Common stock, $1.25 par value 50.0 50.0
Capital in excess of par value 377.5 376.3
Reinvested earnings 749.9 612.2
Currency translation adjustment (1.4) (1.2)
Treasury stock, at cost (204.2) (204.2)
--------------- ---------------
971.8 833.1
--------------- ---------------
$ 1,621.9 $ 1,430.7
=============== ===============
</TABLE>
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<PAGE> 4
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 358.0 $ 362.5 $ 992.1 $ 940.8
---------- ---------- ---------- ----------
Costs and expenses:
Operating 224.1 214.6 621.5 577.8
Depreciation, depletion and amortization 18.8 19.1 58.2 54.4
Selling and marketing 7.3 7.5 24.1 21.8
General and administrative 12.9 14.4 44.9 47.6
Acquisition charge (credit) 4.8 -- 4.8 (1.5)
Other income, net (2.1) (2.0) (5.0) (11.4)
---------- ---------- ---------- ----------
265.8 253.6 748.5 688.7
---------- ---------- ---------- ----------
Earnings before interest, income taxes
and minority interest 92.2 108.9 243.6 252.1
Interest income 0.1 1.1 0.2 4.0
Interest expense, net of amounts capitalized (1.4) (3.6) (5.8) (10.4)
---------- ---------- ---------- ----------
Earnings before income taxes and minority interest 90.9 106.4 238.0 245.7
Income tax expense (31.4) (37.2) (82.2) (83.6)
---------- ---------- ---------- ----------
Earnings before minority interest 59.5 69.2 155.8 162.1
Minority interest, net of income taxes (1.1) (1.8) (2.0) (3.7)
---------- ---------- ---------- ----------
Earnings from continuing operations 58.4 67.4 153.8 158.4
Loss from discontinued operations,
net of income taxes -- -- -- (1.0)
---------- ---------- ---------- ----------
Net earnings $ 58.4 $ 67.4 $ 153.8 $ 157.4
========== ========== ========== ==========
Earnings per common share:
Basic
Earnings from continuing operations $ 1.62 $ 1.80 $ 4.28 $ 4.16
Loss from discontinued operations, net of income taxes -- -- -- (0.03)
---------- ---------- ---------- ----------
$ 1.62 $ 1.80 $ 4.28 $ 4.13
========== ========== ========== ==========
Diluted
Earnings from continuing operations $ 1.60 $ 1.78 $ 4.23 $ 4.12
Loss from discontinued operations, net of income taxes -- -- -- (0.03)
---------- ---------- ---------- ----------
$ 1.60 $ 1.78 $ 4.23 $ 4.09
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 35.9 37.4 35.9 38.1
========== ========== ========== ==========
Diluted 36.4 37.8 36.4 38.5
========== ========== ========== ==========
</TABLE>
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<PAGE> 5
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Operating activities:
Earnings from continuing operations $ 153.8 $ 158.4
Adjustments to reconcile earnings from continuing
operations to cash provided by operating activities:
Depreciation, depletion and amortization 58.2 54.4
Other non-cash charges 6.7 0.7
Changes in operating assets and liabilities (33.5) (52.7)
Other adjustments 1.7 (2.9)
Net cash used in discontinued operations (0.4) (1.2)
--------------- ---------------
Net cash provided by operating activities 186.5 156.7
--------------- ---------------
Investing activities:
Additions to property, plant and equipment (195.1) (94.2)
Acquisitions, net of cash acquired (1.3) (60.0)
Proceeds from asset sales 5.2 14.7
Purchase of short-term investments -- (14.8)
Maturity of short-term investments -- 29.6
Other investing activities (0.2) (2.7)
--------------- ---------------
Net cash used in investing activities (191.4) (127.4)
--------------- ---------------
Financing activities:
Additions to debt 10.6 --
Reductions in debt (0.8) (0.7)
Dividends (16.2) (17.2)
Contributions from minority partner 8.5 5.3
Distributions to minority partner (1.0) (5.0)
Purchase of treasury stock -- (124.0)
Other financing activities 1.0 3.8
--------------- ---------------
Net cash provided by (used in) financing activities 2.1 (137.8)
--------------- ---------------
Net decrease in cash and cash equivalents (2.8) (108.5)
Cash and cash equivalents at beginning of period 21.8 143.8
--------------- ---------------
Cash and cash equivalents at end of period $ 19.0 $ 35.3
=============== ===============
</TABLE>
Cash payments for income taxes totaled $63.8 million and $67.7 million
for the nine months ended September 30, 2000 and 1999, respectively. Interest
paid, net of amounts capitalized, was $5.3 million and $12.9 million in the 2000
and 1999 periods, respectively.
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<PAGE> 6
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF SELECTED CONSOLIDATED SEGMENT DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contributions to revenues:
Cement
Sales to customers $ 242.7 $ 254.5 $ 653.8 $ 642.8
Freight to customers and other 11.6 15.0 33.9 35.7
---------- ---------- ---------- ----------
Total cement revenues 254.3 269.5 687.7 678.5
Concrete products 76.7 66.2 233.4 191.2
Aggregates 51.1 45.2 142.9 122.5
Intersegment sales (24.1) (18.4) (71.9) (51.4)
---------- ---------- ---------- ----------
$ 358.0 $ 362.5 $ 992.1 $ 940.8
========== ========== ========== ==========
Contributions to earnings before interest,
income taxes and minority interest:
Operating profit
Cement $ 91.9 $ 105.4 $ 237.5 $ 241.2
Concrete products 6.3 5.3 19.6 16.1
Aggregates 9.6 9.0 25.3 29.1
---------- ---------- ---------- ----------
107.8 119.7 282.4 286.4
Corporate overhead (10.8) (10.8) (34.0) (35.8)
Acquisition (charge) credit (4.8) -- (4.8) 1.5
---------- ---------- ---------- ----------
$ 92.2 $ 108.9 $ 243.6 $ 252.1
========== ========== ========== ==========
</TABLE>
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<PAGE> 7
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------------------------------------------
CAPITAL CURRENCY
COMMON STOCK IN EXCESS REINVESTED TRANSLATION TREASURY
SHARES AMOUNT OF PAR VALUE EARNINGS ADJUSTMENT STOCK
---------- ---------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 40.0 $ 50.0 $ 376.3 $ 612.2 $ (1.2) $ (204.2)
Net earnings -- -- -- 153.8 -- --
Dividends paid on common stock -- -- -- (16.2) -- --
Exercise of stock options -- -- 1.2 0.1 -- --
Foreign currency translation adjustment -- -- -- -- (0.2) --
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 40.0 $ 50.0 $ 377.5 $ 749.9 $ (1.4) $ (204.2)
========== ========== ========== ========== ========== ==========
</TABLE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net earnings $ 58.4 $ 67.4 $ 153.8 $ 157.4
Foreign currency translation
adjustments, net of tax (0.1) -- (0.2) 0.2
---------- ---------- ---------- ----------
Comprehensive income $ 58.3 $ 67.4 $ 153.6 $ 157.6
========== ========== ========== ==========
</TABLE>
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<PAGE> 8
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
This quarterly report presents the following financial statements of
Southdown, Inc. and subsidiary companies ("Southdown" or the "Company"):
- The Consolidated Balance Sheets at September 30, 2000 and December 31, 1999.
- The Statements of Consolidated Earnings, Selected Consolidated Segment Data,
and Consolidated Comprehensive Income for the three and nine month periods
ended September 30, 2000 and 1999.
- The Statements of Consolidated Cash Flows for the nine months ended September
30, 2000 and 1999.
- The Statement of Consolidated Shareholders' Equity for the nine months ended
September 30, 2000.
The financial statements presented in this report were not audited.
This report presents extracts from the Consolidated Balance Sheet at December
31, 1999 drawn from the December 31, 1999 audited financial statements of the
Company. This report does not include all disclosures required by generally
accepted accounting principles. The reader should also review the 1999
consolidated financial statements and the notes to those statements included in
the Company's Annual Report on Form 10-K.
Management believes that the financial statements reflect all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company on a consolidated basis. Management
also believes that all such adjustments are of a normal recurring nature. The
interim statements for the period ended September 30, 2000 do not necessarily
indicate what the Company's results will be for the full year.
NOTE 2 - PENDING MERGER:
On September 28, 2000, the Company entered into a definitive merger
agreement with CEMEX, S.A. de C.V., a large international company engaged in the
production and sale of cement, ready-mixed concrete and aggregates. Pursuant to
the merger agreement, an indirect subsidiary of CEMEX has commenced a tender
offer to purchase all of the outstanding stock of the Company for $73 per share
in cash or a total of approximately $2.8 billion including long-term debt.
The tender offer is conditioned upon, among other things, (i) the
tender of at least two-thirds of the outstanding shares of the Company's common
stock, (ii) regulatory approvals, and (iii) certain consents. Consummation of
the tender offer would be followed by a merger in which each share of the
Company's common stock not purchased in the tender offer will be converted into
the right to receive in cash the price paid in the tender offer.
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<PAGE> 9
NOTE 3 - ACQUISITION OF MEDUSA CORPORATION:
On June 30, 1998, the Company concluded a merger transaction with
Medusa Corporation and issued approximately 14.7 million shares of its common
stock for all of the outstanding common stock of Medusa. Remaining merger
transaction liabilities at September 30, 2000 of $.8 million relate to ongoing
lease payment obligations for the closed Medusa corporate office. Details of the
merger related costs are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------------------------------------------------------
ORIGINAL BALANCE AT
MERGER AMOUNTS SEPTEMBER 30,
COST PAID ADJUSTMENTS 2000
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Merger transaction costs and
professional fees $ 18.4 $ 18.9 $ 0.5 $ --
Severance costs 54.3 47.2 (7.1) --
Closure costs 10.2 6.8 (2.6) 0.8
--------------- --------------- --------------- ---------------
Total $ 82.9 $ 72.9 $ (9.2) $ 0.8
=============== =============== =============== ===============
</TABLE>
NOTE 4 - EARNINGS PER SHARE:
Basic earnings per share were computed using the weighted average
number of common shares outstanding in each of the three and nine month periods
ended September 30, 2000 and 1999. Diluted earnings per share assume the
dilutive impact of stock options.
Earnings available to common shareholders and share amounts used in the
computation of basic and diluted earnings per share follow:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic calculation
Net earnings $ 58.4 $ 67.4 $ 153.8 $ 157.4
=============== =============== =============== ===============
Weighted average outstanding common shares 35.9 37.4 35.9 38.1
=============== =============== =============== ===============
Basic earnings per share $ 1.62 $ 1.80 $ 4.28 $ 4.13
=============== =============== =============== ===============
Diluted calculation
Net earnings $ 58.4 $ 67.4 $ 153.8 $ 157.4
=============== =============== =============== ===============
Weighted average outstanding common shares 35.9 37.4 35.9 38.1
Effect of dilutive stock options 0.5 0.4 0.5 0.4
--------------- --------------- --------------- ---------------
Total outstanding shares for diluted
earnings per share 36.4 37.8 36.4 38.5
=============== =============== =============== ===============
Diluted earnings per share $ 1.60 $ 1.78 $ 4.23 $ 4.09
=============== =============== =============== ===============
</TABLE>
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<PAGE> 10
NOTE 5 - INVENTORIES:
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Finished goods $ 42.1 $ 45.7
Work in progress 30.1 22.7
Raw materials 11.8 10.4
Parts and supplies 58.0 56.6
--------------- ---------------
$ 142.0 $ 135.4
=============== ===============
</TABLE>
Inventories stated on the Last In, First Out method were $67.1 million
of total inventories at September 30, 2000 and $60 million of total inventories
at December 31, 1999 compared with current costs of $84.0 million and $76.9
million, respectively.
NOTE 6 - COMMON STOCK:
The Company has paid a quarterly dividend of $0.15 per share of common
stock since December 1998, when the quarterly dividend was increased from $0.10
per share.
During 1999, the Board of Directors approved and expanded a common
stock repurchase program under which the Company was authorized to purchase up
to 4 million shares of its common stock. The Company made open market purchases
of 2.9 million shares of common stock at a cost of $159 million during 1999.
During the first nine months of 2000, there have been no purchases of shares of
common stock. Pursuant to the merger agreement between the Company and CEMEX,
the Company is precluded from purchasing shares of common stock until the merger
is terminated or consummated.
NOTE 7 - NEW ACCOUNTING STANDARDS:
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." A derivative is a financial
instrument that takes or "derives" its value from the value of another financial
instrument or instruments. Statement No. 133 requires that a company recognize
all derivatives as either assets or liabilities on its balance sheet and measure
those instruments at fair value. Statement No. 133, as amended, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management currently believes that this new accounting standard should not have
any material impact on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101,
as amended, is effective beginning in the fourth quarter of 2000. Management
currently believes that this new accounting pronouncement should not have any
material effect on the Company's consolidated financial statements.
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<PAGE> 11
NOTE 8 - CONTINGENCIES:
See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - Known
Events, Trends and Uncertainties" for a discussion of certain contingencies.
NOTE 9 - REVIEW BY INDEPENDENT ACCOUNTANTS:
The unaudited financial information presented in this report has been
reviewed by the Company's independent public accountants. The review was limited
in scope and did not constitute an audit of the financial information in
accordance with auditing standards generally accepted in the United States of
America such as is performed in the year-end audit of financial statements. The
report of Deloitte & Touche LLP relating to its limited review of the financial
information as of September 30, 2000 and for the three and nine months ended
September 30, 2000 and 1999 follows.
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<PAGE> 12
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF
SOUTHDOWN, INC.
HOUSTON, TEXAS
We have reviewed the accompanying consolidated balance sheet of
Southdown, Inc. and subsidiary companies as of September 30, 2000, and the
related statements of consolidated earnings and comprehensive income for the
three and nine month periods ended September 30, 2000 and 1999 and the
consolidated statements of cash flows for the nine month periods ended September
30, 2000 and 1999 and shareholders' equity for the nine month period ended
September 30, 2000. These financial statements are the responsibility of
Southdown's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet of Southdown, Inc. and subsidiary companies as of December 31, 1999 and
the related consolidated statements of earnings, shareholders' equity, cash
flows and comprehensive income for the year then ended (not presented herein);
and in our report dated January 26, 2000, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
Houston, Texas
October 12, 2000
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations included on pages 21 through 30 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 should be read in conjunction
with the following discussion.
RESULTS OF OPERATIONS
CONSOLIDATED THIRD QUARTER RESULTS
Net earnings for the third quarter of 2000 were $58.4 million, or $1.60
per diluted share, compared with $67.4 million, or $1.78 per share, in the third
quarter of 1999. The current quarter includes a $4.8 million pre-tax charge,
$0.08 per diluted share after-tax, for fees and expenses related to the proposed
merger of the Company. Despite improved revenues from the Concrete Products and
Aggregates operating segments, consolidated revenues in the third quarter of
2000 decreased slightly over the same period of the prior year because of
reduced cement demand caused by delays in anticipated public infrastructure
work, a modest slowing in residential and commercial activity and an increase in
wet weather conditions compared with the prior year. Third quarter 2000 earnings
before interest, income taxes and minority interest declined because of lower
earnings from the Cement segment.
Interest income decreased because of lower levels of investable cash
during the current quarter. Interest expense also declined as a result of higher
capitalized interest on construction projects and the retirement of $123.5
million of 10% Senior Subordinated Notes, which was replaced with lower cost
bank debt.
CONSOLIDATED YEAR-TO-DATE RESULTS
Net earnings for the nine months ended September 30, 2000 were $153.8
million or $4.23 per share compared with $157.4 million or $4.09 per share in
1999. The current period includes a $4.8 million pre-tax charge, $0.08 per
diluted share after-tax, for fees and expenses related to the proposed merger of
the Company. The results for 1999 include a $6 million pre-tax gain, or $0.10
per share after-tax, from the sale of a non-core aggregates operation.
Consolidated revenues for the 2000 period increased 5% over the same
period of the prior year, because of improvement in all three operating
segments. Earnings before interest, income taxes and minority interest in 2000,
excluding the $4.8 million acquisition charge in 2000, the $1.5 million
acquisition credit in 1999 and the 1999 gain on the sale of the non-core
aggregates operation ($6 million pre-tax), improved slightly over the prior year
period primarily reflecting improved earnings from the Concrete Products and
Aggregates segments. Interest income and interest expense declined for the
reasons discussed previously.
SEGMENT OPERATING EARNINGS
CEMENT
Third Quarter - Cement segment operating earnings were $91.9 million
compared with earnings of $105.4 million in the prior year quarter. Cement sales
volumes decreased 4% compared with the prior year quarter as a result of reduced
demand in the Midwestern and Southeastern markets, primarily due to a modest
slowing in residential and commercial construction and delays in public works
spending, partially offset by
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<PAGE> 14
higher sales volumes in the markets served by the Company's Victorville,
California cement plant. Average cement sales prices declined slightly as
moderate price improvement in Florida and certain Midwest markets were offset by
lower prices attributable to competitive price conditions in the Southeast and
market penetration efforts in California. Per unit operating costs increased 5%
in the third quarter of 2000 because of lower clinker production and higher
maintenance costs resulting from kiln outages in California caused by electrical
power interruptions from extreme summer heat conditions and the slower than
anticipated start-up of the Louisville, Kentucky plant expansion. Operating
earnings were also negatively impacted by the loss of $1.3 million in earnings
from the March 2000 expiration of a limestone supply agreement.
Year-to-Date - Cement segment earnings for the period ended September
30, 2000 decreased slightly to $237.5 million compared with $241.2 million in
the prior year period. Cement sales volumes increased 2% compared with the prior
year period, reflecting higher sales volumes at the Company's western region
plants, which more than offset some softness in demand in the Midwestern and
Southeastern markets. Cement sales prices declined slightly as moderate price
improvement in the Florida and certain Midwest markets were offset by lower
prices attributable to competitive price conditions in the Southeast and market
penetration efforts in California. Despite a 3% improvement in clinker
production, per unit operating costs increased slightly compared with the prior
year period. The increase in clinker production resulted primarily from: (i)
capacity improvements at the Charlevoix, Michigan plant, (ii) the completion of
Clinchfield, Georgia plant expansion project in mid-1999 and (iii) improved
execution of maintenance outages requiring less downtime than in the prior year.
The favorable effect from this production increase was offset by 103 days of
downtime combined with start-up costs incurred for the plant expansion at the
Louisville, Kentucky facility. Operating earnings were also negatively impacted
by the loss of $3.3 million in earnings from the recent expiration of the
previously mentioned limestone supply agreement.
Sales volumes, average unit price and cost data, and unit operating
profit margins relating to the Company's cement plant operations appear in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tons of cement sold (thousands) 3,369 3,521 9,057 8,863
========== ========== ========== ==========
Weighted average per ton data:
Sales price (net of freight) $ 72.03 $ 72.26 $ 72.19 $ 72.52
Manufacturing and other costs (1) 44.76 42.81 45.89 45.69
---------- ---------- ---------- ----------
Margin $ 27.27 $ 29.45 $ 26.30 $ 26.83
========== ========== ========== ==========
</TABLE>
----------
(1) Includes manufacturing costs, freight to terminals, purchased cement,
selling expenses, plant general and administrative costs and other plant
overhead costs.
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<PAGE> 15
CONCRETE PRODUCTS
Third Quarter - Concrete Products operating earnings increased to $6.3
million compared with $5.3 million in the third quarter of 1999. Ready-mixed
concrete sales volumes increased 13% as a result of strong demand in both the
California and Florida markets and contributions from the Sunshine Materials
operation acquired in late August 1999. Operating margins were 11% lower as
higher prices in Florida were more than offset by higher costs for materials and
fuel in all markets.
Year-to-Date - Concrete Products operating earnings improved 22% to
$19.6 million compared with $16.1 million in the prior year period including
gains on sales of inactive plant sites of $0.5 million and $1.8 million,
respectively. Ready-mixed concrete sales volumes increased 19% because of strong
demand in both the California and Florida markets and contributions from the
Sunshine Materials operation, which was acquired in the third quarter of 1999.
Operating margins increased slightly as a result of higher pricing in the
Florida market attributable to a price increase in the current year.
Sales volumes, average unit price and cost data, and unit operating
profit margins relating to the Company's sales of ready-mixed concrete appear in
the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cubic yards of ready-mixed concrete
sold (thousands) 1,072 949 3,268 2,740
============= ============ ============ ============
Weighted average per cubic yard data:
Sales price $ 60.25 $ 59.00 $ 60.04 $ 59.37
Operating and other costs (1) 57.11 55.49 55.99 55.39
------------- ------------ ------------ ------------
Margin (2) $ 3.14 $ 3.51 $ 4.05 $ 3.98
============= ============ ============ ============
</TABLE>
----------
(1) Includes plant costs, delivery, selling, general and administrative costs.
(2) Does not include real estate gains of approximately $0.5 million for the
three and nine month periods ended September 30, 2000 and $0.8 million and
$1.8 million for the three and nine month periods ended September 30, 1999,
respectively, or concrete block and other related products which totaled
$2.5 million and $1.1 million of operating earnings for the three month
periods ended September 30, 2000 and 1999, respectively, and $5.9 million
and $3.4 million of operating earnings in the year-to-date 2000 and 1999
periods, respectively.
AGGREGATES
Third Quarter - Operating earnings for the Aggregates segment increased
7% to $9.6 million in the current quarter compared with $9.0 million in the
third quarter of 1999 because of improved results from the Company's highway
safety business, which more than offset a slight decline from the construction
and specialty aggregates operations. Aggregates sales volumes improved from the
prior year quarter primarily reflecting contributions from the Sunshine
Materials operation, which was acquired in the third quarter of 1999. The
improvement in aggregates sales prices reflects a favorable product mix of
higher priced specialty aggregates and realization of price increases in
California. However, operating costs were adversely impacted by (i) legal and
consulting costs incurred at the Sparta facility relating to an environmental
issue and (ii) higher fuel costs and contract quarrying expenses.
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<PAGE> 16
Year-to-Date - Operating earnings from the Aggregates segment increased
10% to $25.3 million compared with $23.1 million in the prior year period,
excluding the prior year $6 million gain on the sale of a North Carolina quarry.
Aggregates sales volumes and sales prices increased significantly as a result of
contributions from the Sunshine Material operation, which was acquired in the
third quarter of 1999, and stronger demand in California. Per unit operating
costs increased primarily because of (i) legal and consulting costs incurred at
the Sparta facility relating to an environmental issue and (ii) higher fuel
costs and contract quarrying expenses.
Sales volumes, average unit sales price and cost data, and unit
operating profit margins relating to the Company's aggregates operations appear
in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tons of aggregates sold (thousands) 3,938 3,775 10,655 9,612
========== ========== ========== ==========
Weighted average per ton data:
Sales price $ 8.59 $ 8.06 $ 9.32 $ 8.86
Operating and other costs (1) 6.55 5.86 7.15 6.56
---------- ---------- ---------- ----------
Margin $ 2.04 $ 2.20 $ 2.17 $ 2.30(2)
========== ========== ========== ==========
</TABLE>
----------
(1) Includes plant costs, delivery, selling, general and administrative costs.
(2) Excludes $6 million gain on sale of a non-core aggregates operation in
January 1999.
CORPORATE
Third Quarter - Corporate overhead expenses in the third quarter of
2000 were unchanged compared with the prior year quarter.
Year-to-Date - Corporate overhead expenses for 2000 declined $1.8
million compared with the prior year period. This reduction in expense primarily
reflects the absence of a $1 million charge related to the prior year
termination of the Board of Directors' retirement plan. The current period was
also favorably impacted by a higher than expected credit to pension expense and
lower consulting expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $186.5 million in cash from operating activities
in the first nine months of 2000, a 19% increase over the comparable period in
1999. The Company has used these operating cash flows and borrowings under the
Company's credit lines to: (1) fund $195.1 million in capital additions,
primarily related to several expansion/cost reduction projects in the Cement
segment, (2) pay $16.2 million of dividends on common stock, and (3) meet all
working capital requirements. During the first nine months of 1999, internally
generated cash flow, plus existing cash and short term investment balances and
proceeds from asset sales, were used to: (1) invest approximately $94.2 million
in property, plant and equipment additions, (2) acquire additional ready-mixed
concrete operations and a construction aggregates quarry in Florida, (3)
repurchase 2.2 million shares of common stock at a cost of $124 million, (4)
fund working capital requirements and (5) pay $17.2 million of dividends on
common stock.
-14-
<PAGE> 17
The Company has a $200 million revolving credit facility that matures
in June 2002 and a second $250 million revolving credit facility that matures in
December 2001. The $200 million revolving facility permits standby letters of
credit up to a maximum of $95 million in lieu of borrowings. At September 30,
2000, there were $125 million of borrowings and $71.1 million in letters of
credit outstanding under the revolving credit facilities, leaving $253.9 million
of unused capacity. The Company is in compliance with the financial ratios and
other covenants contained in the revolving credit arrangements.
In addition to the borrowing capacity under the Company's revolving
credit facilities, the Company increased its borrowing flexibility by providing
additional borrowing capacity for working capital and other liquidity
requirements when it entered into a $20 million unsecured line of credit,
payable on demand, with a commercial bank in February 2000. At September 30,
2000, there were no borrowings outstanding under the line of credit.
Management believes the Company's operating cash flows plus the unused
capacity under its outstanding credit facilities provide ample liquidity to fund
anticipated capital additions and meet other working capital requirements of the
Company.
In late March 2000, the Company announced that its Board of Directors
was exploring and evaluating several options to enhance the value of the
Company's shares. On September 28, 2000, the Company entered into a definitive
merger agreement with CEMEX, S.A. de C.V., a large international company engaged
in the production and sale of cement, ready-mixed concrete and aggregates.
Pursuant to the merger agreement, an indirect subsidiary of CEMEX has commenced
a tender offer to purchase all of the outstanding stock of the Company for $73
per share in cash or a total of approximately $2.8 billion including long-term
debt. The tender offer is conditioned upon, among other things, (i) the tender
of at least two-thirds of the outstanding shares of the Company's common stock,
(ii) regulatory approvals, and (iii) certain consents. The Company can provide
no assurance as to the ultimate outcome of the proposed merger of the Company.
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December
31, 1999 and September 30, 2000 reflected the utilization of internally
generated cash flow and borrowings under the Company's credit facilities during
the period to fund capital expenditures, working capital requirements and common
stock dividends. Accounts and notes receivable increased primarily because sales
activity occurring in September 2000 was higher than in December 1999. The
increase in inventories was a result of an increase in manufacturing performance
from capacity improvements and improved execution during several maintenance
outages, which required less downtime than the prior year period combined with
lower than expected cement sales volumes. The increase in other assets reflects
higher prepaid pension costs. Accounts payable and accrued liabilities increased
because of the timing of payments on normal trade and other obligations.
Minority interest in consolidated joint venture increased primarily because of
contributions made by the minority partner to fund the expansion of the
Louisville plant.
KNOWN EVENTS, TRENDS AND UNCERTAINTIES
Industry Dynamics - Although the industry and the Company are
experiencing reduced demand because of delays in public sector spending and a
slowing in residential and commercial activity, the Company believes that
current overall market conditions continue to support cement demand at or
slightly below prior year levels. The Transportation Equity Act for the 21st
Century related to public infrastructure spending should
-15-
<PAGE> 18
have a more significant impact in 2001 as committed appropriations are
translated into actual construction activity.
A recent economic and construction forecast by the Portland Cement
Association suggests that total cement consumption should grow from 120.5
million tons in 1999 to over 131 million tons in 2004. Despite a number of
announced capacity expansions in the industry, management believes industry
dynamics should remain favorable for the next several years. Because of the
logistics involved in the design, permitting and construction of major cement
plant expansions and new cement plants, there is generally a several year lead
time between the announcement of major cement capacity expansions and the actual
availability of such production capacity. In the meantime, the shortfall between
domestic demand and domestic production capacity is being met by imports
(approximately 26% of 1999 consumption according to the Portland Cement
Association). These imports serve as a buffer, and imports would be expected to
decline as a result of any increase in domestic production capacity or any
decrease in domestic consumption. One of the reasons why the Company withdrew
its support from the committees pursuing the continuation of anti-dumping duty
orders against certain foreign cement producers was the largely supplemental
role which imports have played in the United States markets over the past
several years. If these conditions change and unfairly priced cement and clinker
were imported into the U.S., the Company would not hesitate to initiate
proceedings seeking relief from unfair trade practices.
Environmental Matters - The Company is subject to a wide range of
federal, state and local laws, regulations and ordinances dealing with the
protection of human health and the environment. These laws regulate water
discharges, noise, air emissions including dust, as well as the handling, use
and disposal of hazardous and non-hazardous waste materials. These laws also
create a shared liability by responsible parties for the cost of cleaning up or
correcting releases to the environment of designated hazardous substances. The
Company, therefore, may have 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 Company or its predecessors have conducted industrial operations at
the Company's manufacturing facilities for many years. As was common in the
industry, the Company in the past disposed of various materials used in or
generated by its cement manufacturing, concrete products and aggregates
operations in onsite and offsite facilities. Today, some of these materials may
be classified as hazardous substances.
Several of the Company's previously and currently owned facilities have
become the subject of various local, state or federal environmental proceedings
and inquiries. While some of these matters have been settled, others are in
their preliminary stages and may not be resolved for years. The information
developed to date on these matters is not complete. Based on what it knows
currently, however, the Company does not believe it will be required to spend
significantly more on these matters than the amounts already recorded in the
Company's financial statements. However, until all (1) environmental studies and
investigations, (2) remediation work, (3) negotiations with other parties that
may be responsible, or (4) litigation against other potential sources of
recovery have been completed, it is impossible for the Company to determine the
ultimate cost that it might incur to resolve these environmental matters.
Currently, the Company commits substantial resources to complying with
the laws and regulations concerning the protection of human health and the
environment. However, because of the complexity and uncertainty of existing and
future environmental requirements, permit conditions, cost of new and existing
technology, potential remedial costs and insurance coverages, and/or
enforcement-related activities and costs, it is difficult for management to
estimate the ultimate level of Company expenditures related to environmental
-16-
<PAGE> 19
matters. 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 industrial operations
to modify various facilities and alter methods of operations at costs that may
be substantial. With respect to known environmental contingencies, the Company
has recorded provisions for estimated probable liabilities and does not believe
that the ultimate resolution of such matters will have a material adverse effect
on the Company's Consolidated Financial Statements.
Cement Kiln Dust - Cement manufacturing plants, depending on their
process design, raw materials characteristics, product specifications and other
factors, may generate a low toxicity by-product known as cement kiln dust or
CKD. Most manufacturing plants in the industry typically disposed of CKD in and
around their plant sites since the inception of cement manufacturing operations.
If CKD comes into contact with water, liquid that leaches out may have an
alkalinity level high enough to be classified as hazardous waste, if discarded.
CKD in contact with water may also leach out trace amounts of certain hazardous
metals if they are present. CKD is currently not regulated as a hazardous waste,
but on August 20, 1999, EPA published a proposed rule addressing CKD management
standards. As proposed, these CKD standards may require the cement industry to
adopt more stringent management, monitoring and recordkeeping practices for this
material. No final action is scheduled in this rulemaking until 2001. If a final
rule is adopted, it could be substantially different from that initially
proposed.
The Company has been investigating potential contamination from several
CKD piles at its cement plant in Michigan. On March 1, 2000, the Michigan
Department of Environmental Quality confirmed that the parties had agreed in
principle to a remediation plan. The parties are continuing to negotiate the
terms of a consent order, which would incorporate the terms of the remediation
plan, among other things. Management believes, based on current information,
that the reserves previously accrued on the books of the Company are adequate to
cover the estimated cost of remediation and penalty payments. However, it is
possible that the ultimate remediation costs will be greater than current
estimates.
Air Quality Issues - Regulations issued under the Clean Air Act
Amendments of 1990 may result in increased capital and operational expenses in
the future for a broad range of industrial sectors, including portland cement
manufacturing. The Company does not know the precise amount of these costs but,
because of the age, condition and design of its plants, management does not
believe the Company would be at a disadvantage as a result of these regulations
with respect to its competitors. Some of the more significant regulatory
developments pertaining to air quality issues are as follows:
o In July 1997, the U.S. EPA promulgated revisions to two National
Ambient Air Quality Standards under the Clean Air Act - particulate
matter and photochemical oxidants (ozone). There will be no immediate
impact from these rules on the Company's operations because a federal
appeals court in May 1999 sent the matter back to the U.S. EPA. Even if
the rules ultimately become effective as proposed, the Company has not
determined that the impact would be material.
o In October 1998, the U.S. EPA issued regulations requiring 22 states to
adopt new measures by September 1999 to reduce emissions of various
nitrogen oxides by specific percentages. Legal challenges filed against
this rule resulted in the court finding cause to remand the rule back
to the U.S. EPA and to stay the date for affected states to submit
implementation plans to the U.S. EPA. In two recent court rulings, in
response to the U.S. EPA's appeal, the D.C. circuit court affirmed the
U.S. EPA rule, with some modifications, and lifted the stay on the
submittal date, changing it to late October 2000. Once submitted, the
implementation plans would be subject to U.S. EPA
-17-
<PAGE> 20
review and approval. The effective date of this rule is May 31, 2004.
The Company is in the process of evaluating the impact of this
regulation.
o In June 1999, the U.S. EPA issued air toxics standards for portland
cement plants that will take effect for existing facilities in 2002 and
upon start-up for new or significantly modified facilities. The new
rule establishes, among other things, a limit on emissions of
dioxin/furans. The Company is in the process of evaluating the impact
of these air toxics standards.
o Global warming and the international accord to move toward greenhouse
gas stabilization or reduction are potentially significant to the
cement industry because carbon dioxide is generated from combustion of
fuels and from the calcination of limestone to make cement clinker. Any
imposition of raw material or production limitations or fuel-use or
carbon taxes could have a significant impact on the cement
manufacturing industry. It will not be possible to determine the impact
on the Company until governmental requirements are defined and/or the
Company can determine whether emission offsets and/or credits are
obtainable, and whether alternative cementitious products or
alternative fuel can be substituted.
Sparta Quarry - The Company and the New Jersey Department of
Environmental Protection have entered into an administrative consent order,
which resolves some previously issued administrative orders from the NJDEP. The
Company has paid a civil penalty of $246,350 pursuant to the consent order.
Louisville, Kentucky Expansion Project - In late October 2000, Kosmos
Cement Company received a claim from the general contractor for the recent
expansion of its cement plant located in Louisville, Kentucky. The contractor is
claiming approximately $18.5 million in additional compensation in excess of the
guaranteed contract amount. The Company is only beginning its evaluation of the
claim, and at this time is unable to predict how much it may have to pay with
respect to the claim. Any payments as a result of the claim would be included as
part of the capitalized cost of the project and amortized over the life of the
project. The Company believes that any payments made as a result of the claim
would not have a material effect on its financial condition or results of
operations.
Claims for Indemnification - The Mineral Management Service of the
Department of the Interior claimed that the Company's former oil and gas
subsidiary, Pelto Oil Company, owed royalties on two separate gas contract
settlement payments that Pelto received. When the Company sold Pelto in 1989, it
agreed to protect the purchaser from any future claims related to these two
payments. In a 1998 letter, the MMS advised that it was withdrawing its royalty
claim in the amount of $1.35 million on one of the settlement payments because
of a 1997 court ruling, which prohibited further claims against the current
owner of Pelto and that owner's affiliates. The MMS, however, reserved its right
to possibly reassert the claim at a later date.
The Company also disagrees with MMS' claim that an unspecified amount
of royalties are owed on the second gas contract settlement payment of $5.9
million. If one or both of MMS' claims against Pelto are ultimately successful,
the Company could have liability for royalties, plus late payment charges, in
amounts, which are not currently determinable. Such expenditures would result in
a charge to discontinued operations.
Discontinued Environmental Services Segment - The Company has both
given and received environmental and other indemnifications related to
properties the Company previously owned. A few courts have held that such
promises to protect other parties from loss for environmental liabilities are
unenforceable.
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<PAGE> 21
At present, the Company is not able to estimate the extent of contamination,
remediation cost or recoverability of cost from prior owners, if any, regarding
these discontinued operations.
Several years ago, the Company learned of some soil and groundwater
contamination at or near a subsidiary's former Alabama hazardous waste
processing facility. Although the Company sold the facility in April 1995, it
agreed to retain some liability for the existing soil and groundwater
contamination at the facility prior to that time. The Company's investigation
has not definitively determined the scope of the contamination or the extent of
any cleanup that may be required. It is too early to determine the amount of the
Company's exposure to loss with any degree of certainty. The Company has agreed
to remediate the soil and groundwater contamination at the Alabama facility to
the extent required by law, and it has filed lawsuits against the former owner
and former customers of the facility. The claims against that former owner and
other potentially responsible parties could significantly reduce the Company's
loss exposure.
Other - In addition to those matters separately disclosed above, the
Company has incurred in the regular course of business certain other commitments
and contingent liabilities including, among other things, (1) personal injury
lawsuits, (2) indemnity and other hold harmless agreements, (3) environmental
remediation liabilities, (4) product liability claims, (5) commercial disputes
and litigation, and (6) claims by disgruntled employees. These various
commitments and contingent liabilities, in the judgment of management will not
result in losses that would materially affect the Company's consolidated balance
sheet. However, because the Company's results of operations vary considerably
with construction activity and other factors, it is at least reasonably possible
that charges for contingencies in the future could, depending on when they occur
and how large they are relative to results of operations or cash flows for a
particular period, have a material negative impact on the Company's results of
operations or cash flows for that period.
Disclosure Regarding Forward-Looking Statements - This document
includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company based these statements on current
expectations, estimates and projections about the general economy and the
Company's lines of business. These statements are generally identifiable by
phrases containing words such as "expects," "believes," "anticipates,"
"estimates," "will," "should," 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 not say
with certainty that what it expects will actually happen. Important factors that
could cause actual results to differ materially from the Company's expectations
include, among others, (1) excess cement production capacity in other parts of
the world, (2) foreign and domestic price competition, (3) cost effectiveness,
(4) environmental problems or changes in environmental regulation, (5) abnormal
periods of inclement weather, and (6) general economic and market conditions
such as interest rates, the availability of capital and the cyclical nature of
the construction industry. The Company cautions the reader to consider these
disclosures when reading the forward-looking statements included in this report.
Subsequent written and oral forward looking statements made by the Company or by
persons acting on behalf of the Company are completely qualified by these
cautionary disclosures.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. Because of the short duration
of the Company's investments, changes in market interest rates would
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<PAGE> 22
not have a significant impact on their fair value. Expected maturity dates and
average interest rates of long-term debt are essentially unchanged since
December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company may from time-to-time
be a named defendant in lawsuits related to various matters including personal
injury, contractual indemnifications, environmental remediation, product
liability, employment matters and commercial disputes and litigation. Other than
those disclosed elsewhere in this document, 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 result in losses that would materially affect the Company's
consolidated balance sheet. However, the Company's results of operations vary
considerably with construction activity and other factors. It is, therefore, at
least reasonably possible that charges for contingencies in the future could,
depending on when they occur and how large they are relative to results of
operations or cash flows for a particular period, have a material negative
impact on the Company's results of operations or cash flows for that period.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 Statement of Computation of Per Share Earnings
15 Independent Accountants' Letter re Unaudited Interim
Financial Information
27 Financial Data Schedule - Nine Months Ended
September 30, 2000
(b) Reports on Form 8-K
On September 29, 2000, the Company filed a Current Report on Form 8-K
reporting that the Company and CEMEX, S.A. de C.V., have entered into a
definitive merger agreement under which CEMEX will acquire all of the
outstanding shares of common stock of the Company for $73 in cash per
share.
On October 20, 2000, the Company filed a Current Report on Form 8-K
reporting that the Bylaws and Rights Agreement of the Company have been
amended.
No other reports on Form 8-K were filed during the quarter ended
September 30, 2000.
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<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHDOWN, INC.
---------------------------------
(Registrant)
Date: November 3, 2000 By: /s/ DENNIS M. THIES
---------------------------------
Dennis M. Thies
Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: November 3, 2000 By: /s/ RICARDO ARREDONDO
---------------------------------
Ricardo Arredondo
Vice President and Controller
(Principal Accounting Officer)
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<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11 Statement of Computation of Per Share Earnings
15 Independent Accountants' Letter re Unaudited Interim Financial Information
27 Financial Data Schedule - Nine Months Ended September 30, 2000
</TABLE>
