Cement Americas: You've just returned from the Portland Cement Association's Board of Directors meeting. How was the reception from your fellow board members since Southdown's leaving the Southern Tier Cement Producers [which led several successful dumping suits against Mexico, Venezuela, and Japan in the early 1990s].

Clarence Comer: I think there were a lot of people who couldn't understand why we made this decision. But the logic is fairly apparent: the industry is doing very well right now and we don't think these dumping orders are necessary.

CA: Do you think this will ever be an issue again? Will the new domestic capacity coming on stream over the next few year start competing with imports?

CC: We'll certainly look at the future with open eyes, but most of the new capacity that's being built today is being built by companies with import terminals. And most of the imports coming into the United States are coming in through facilities owned by companies that manufacture cement in the United States. So one would presume that as the capacity comes on line, a company would reduce its imports to absorb its own production.

CA: Some might say it's easier and less expensive to buy new terminals and import product than it is to build or upgradeplants.

CC: But we're manufacturers not merchants, and the returns in manufacturing at reasonable price levels are much better than those in the terminal business.

In fact, it's strange to me that anybody would want to be in the terminal business as a merchant because the history is so bad. When construction cycles down, the domestic cement producers aren't going to shut their plants down. So the terminal guys get squeezed out and go through hard times. They usually end up selling out to the manufacturers or shutting down altogether. It's a dangerous business to be in on a long-term basis.

CA: Yet you just purchased two new terminals recently [in Brunswick, Ga. and Mobile, Ala].

CC: Yes we did. It's one thing to be a domestic manufacturer who supplements capacity with a terminal. We can shut the terminal down in favor of running our plants long term or utilize the terminal volumes to service the market while new capacity is being constructed. That's a supplement to your domestic manufacturing operation. You don't really look at it as a profit center like a merchant does; you look at it as a way to balance supply and demand and to manage the business more effectively. It's a totally different mind set.

CA: With these two new import terminals, you now operate five. Is that how you view your import operations?

CC: Sometimes regional markets go through growth spurts. They don't always last or maintain consumption at higher levels. So temporarily using imports to fill those needs makes a lot of sense.

CA: How does Southdown supply its import network on the East Coast? Where is that material coming from?

CC: It varies over time. The area that everyone is looking to today, of course, is Asia. There's fairly significant export capacity over there, and the pricing is very low. I think most people who import are trying to take pressure off by resourcing out of Asia to the greatest extent possible.

Historically, Southdown has gotten most of its imported cement from Latin American countries, but in the past few years, it's been from Asian nations. It makes a lot of sense from a market perspective to try to absorb some of the excess.

CA: Back to your recent departure from the Southern Tier group. Were you worried about making that announcement on a public relations level?

CC: I do what I think is best for Southdown's business and its shareholders, which I also think is in the best interest of the industry. I didn't have any concerns about having to explain this decision to whomever was interested in the industry.

CA: I don't think it's an overstatement to say you were the founding and driving force in the Southern Tier Cement Producers. It spoke volumes to many when you bowed out; some might have even felt it was a slap in the face to the other remaining companies in the group.

CC: I think we have a logical explanation for the decision. The Southern Tier group was effectively Southdown's idea. We led it; we paid for it. It was a Southdown initiative. It was successful, but that was a decade ago. If you look at the industry today, the pricing environment is very positive, profitability is outstanding. In this environment, we couldn't see any reason to persist with this litigation. I don't think it's necessary.

CA: There was some speculation at some recent industry meetings that Southdown's decision had something to do with a pending agreement or deal that your company was looking into in Latin America. I noticed that the paper Southdown presented at the Latin American Cement Forum was titled "Looking South." Is there any truth to that?

CC: I think it's logical at this point in our evolution for Southdown to consider the possibility of some international investments.

CA: And you really don't have any now, do you? You're free of international entanglements unlike some of your competitors.

CC: Well, we don't have definitive plans at this time. We're considering the issue and looking at the opportunities. For the record, the title of that presentation at the Latin American Forum was something that the sponsors invented.

CA: Are there any foreign markets that look particularly exciting to Southdown?

CC: I think as a company, we've been very aggressive in terms of acquisitions and in terms of internal expansion at existing facilities.

We have a strategy we think can pay big dividends. We're driving toward 15 million tons of cement capacity by 2001. I think it's fairly unique that our five biggest plants have a total capacity of about 10 million tons, and three of those are on water. So the design concept for two-thirds of our capacity is very large-scale manufacturing facilities with low manufacturing costs and excellent low-cost distribution flexibility.

Bringing that strategy to fruition over the next two to three years is going to be a big earnings driver for us. We're not worried about our ability to grow the company or grow earnings over the next three to four years. Beyond that, we think we may have gone as far as we can go in terms of development of our position in domestic cement. So what are the other options?

CA: "Looking South"?

CC: But even thinking domestically, we can invest more aggressively in aggregates or ready-mixed concrete or some combination of the two. We have about 4.5 million yards of ready-mix capacity, which is fairly substantial. It's just an issue of being able to buy positions at reasonable prices.

And then obviously this international thing is something we have to consider. I'd say at this point we've thought about it, but we haven't made any commitments.

CA: Do you feel that it's become almost necessary for any North American cement producer to have some sort of international flavor, either through ownership or partnership?

CC: It's fairly obvious that the cement industry is globalizing. A recent study that Southdown did said that, if you exclude China, the six or seven largest cement companies in the world now account for roughly 44% of the world's capacity. The people that are operating in the United States are by and large owned by these giant international companies. There's just not much left of the U.S.-owned segment of the industry. Southdown and Ash Grove are really the only two sizeable, U.S.-owned cement players.

Do we need to be international to be competitive? That's the question. I think probably not. From a manufacturing position, we're in as good a position as anybody else. The question of internationalization runs more to the issue of: if you want to grow long term, do you have to be international or can you stay in a market like the United States, which is relatively mature, and still have acceptable earnings growth in the long run? That's the real question.

CA: So what's the answer?

CC: [Laughing] Well that's the stuff I can't tell you.

CA: I noticed in one of your most recent press releases that part of your strategy seems to be buying back a considerable amount of Southdown stock. What's the thinking there?

CC: Southdown has had good profitability and our cash flow has been excellent. We're aggressively reinvesting in assets. Our capital budget was about $800 million to $1 billion in a five-year period; we've ramped the company up from roughly 10 million- to 15 million-tpy capacity. It's big dollars for a company our size. We've been able to do that out of internally generated cash flow and still have significant accumulations of cash. If you look at the price of the stock relative to what we perceive to be the intrinsic value of the company, it's kind of a ridiculous situation for the shareholders.

CA: So you think you're undervalued at this point?

CC: Fifty dollars is a bargain price. Any company that can generate $7 or $8 per share of after-tax cash is worth more than $50. As long as we have the ability to grow the business as aggressively as we can, there's no reason for us not to buy the stock back. If there were a large acquisition opportunity or additional internal expansion opportunity, we'd be prepared to make that move as well. But if you do all those things and still have excess cash flow, you should be buying your stock back aggressively.

CA: Are there any markets that Southdown is excited about in terms of growth or growth potential over the next few years?

CC: We like California. That's where our Victorville plant is, and we're putting a new line in there to replace an existing line. It should take the plant up to 3.1 million-tpy capacity, making it our biggest plant. It's going to look a lot different after this modernization. The old long dry kiln will be gone, and we'll have another modern preheater system beside the No. 2 kiln, which we totally upgraded as well in 1997.

It will be a low-cost facility. it has excellent distribution flexibility. Beyond our local markets in southern California, we can cost effectively serve contiguous markets in northern California, Arizona, and Nevada. These markets looks good to us in the long term. California is really only just now getting back to the levels it saw 12 years ago. We think there are good growth prospects beyond that. We've changed the character of the Victorville plant from being just a Southern California plant to a four-region plant.

All the markets look good right now. We're not in the far Northeast, which I think has been kind of lackluster for a long time. We'll let other people worry about that.