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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
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: 1-4323
GIANT GROUP, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-0622690
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
</TABLE>
150 EL CAMINO DRIVE, SUITE 303, BEVERLY HILLS, CALIFORNIA 90212.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 273-5678
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
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK AS OF THE DATE OF THIS FILING.
COMMON STOCK, $.01 PAR VALUE 5,119,726 SHARES
(NOT INCLUDING 1,846,000 SHARES HELD BY THE COMPANY AS TREASURY SHARES)
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GIANT GROUP, LTD.
INDEX
PART I FINANCIAL INFORMATION
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<CAPTION>
PAGE NO.
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Item 1. Financial Statements
Condensed Consolidated Statements of Operations -- Three-Month Periods
Ended March 31, 1995 and 1994............................................ 3
Condensed Consolidated Balance Sheets -- March 31, 1995 and December 31,
1994..................................................................... 4
Condensed Consolidated Statements of Cash Flows -- Three-Month Periods
Ended March 31, 1995 and 1994............................................ 5
Notes to Consolidated Financial Statements............................... 6-7
Management's Discussion and Analysis of Financial Condition and Results
Item 2. of Operations............................................................ 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 10
Item 6. Exhibits and Reports on Form 8-K......................................... 10
(a) Exhibits............................................................. 10
(b) Report on Form 8-K................................................... 10
</TABLE>
2
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GIANT GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
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<CAPTION>
THREE-MONTHS ENDED
---------------------------------
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
<S> <C> <C>
Revenue:
Investment income............................................. $ 1,107,000 $ 326,000
Other income.................................................. 3,000 5,000
-------------- --------------
Total revenue......................................... 1,110,000 331,000
-------------- --------------
Costs and expenses:
General and administrative.................................... 920,000 916,000
Interest expense.............................................. 43,000 1,235,000
Loss on investments........................................... -- 614,000
Depreciation.................................................. 90,000 97,000
-------------- --------------
1,053,000 2,862,000
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Equity in loss of affiliate..................................... (1,671,000) (850,000)
-------------- --------------
Loss from continuing operations before income taxes............. (1,614,000) (3,381,000)
Income tax expense (credit)..................................... -- (1,149,000)
-------------- --------------
Loss from continuing operations................................. (1,614,000) (2,232,000)
Loss from discontinued operations, net of income taxes.......... -- (397,000)
-------------- --------------
Net loss...................................................... $ (1,614,000) $ (2,629,000)
============ ============
Per common share:
Loss from continuing operations............................... $ (.31) $ (.43)
============ ============
Net loss........................................................ $ (.31) $ (.51)
============ ============
Weighted average common shares.................................. 5,180,000 5,180,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
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GIANT GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1995 1994
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 41,164,000 $ 23,472,000
Marketable securities......................................... 5,372,000 47,501,000
Prepaid expenses and other current assets..................... 955,000 690,000
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Total current assets.................................. 47,491,000 71,663,000
Investment in affiliate......................................... 23,826,000 25,497,000
Property, plant and equipment, net.............................. 3,515,000 3,570,000
Other assets.................................................... -- 165,000
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Total assets.......................................... $ 74,832,000 $100,895,000
============ ============
LIABILITIES
Current liabilities
Short-term borrowings......................................... $ -- $ 1,917,000
Accounts payable and accrued expenses......................... 462,000 1,251,000
Income taxes payable.......................................... 3,197,000 25,435,000
Current maturities of long-term debt.......................... 207,000 193,000
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Total current liabilities............................. 3,866,000 28,796,000
Long-term debt, net of current maturities..................... 1,612,000 1,623,000
Deferred income taxes......................................... 730,000 534,000
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Total liabilities..................................... 6,208,000 30,953,000
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SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 12,500,000 shares,
issued 6,966,000 shares....................................... 69,000 69,000
Capital in excess of par value.................................. 33,508,000 33,508,000
Unrealized holding gains on marketable securities............... 296,000 --
Retained earnings............................................... 50,514,000 52,128,000
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84,387,000 85,705,000
Less common stock in treasury; 1,786,000 shares, at cost........ 15,763,000 15,763,000
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Total shareholders' equity............................ 68,624,000 69,942,000
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Total liabilities and shareholders' equity............ $ 74,832,000 $100,895,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Operations:
Net loss........................................................ $(1,614,000) $(2,629,000)
Loss from discontinued operations............................... -- 397,000
Depreciation.................................................... 90,000 97,000
Loss on investments............................................. -- 614,000
Equity in loss of affiliate..................................... 1,671,000 850,000
Amortization of deferred charges and other...................... -- 46,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets....................... (265,000) (120,000)
Other assets.................................................... 165,000 --
Accounts payable and accrued expenses........................... (788,000) 744,000
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Net cash used by continuing operations............................ (741,000) (1,000)
Net cash used by discontinued operations.......................... -- (2,169,000)
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Net cash used by operations............................. (741,000) (2,170,000)
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Investing:
Sales (purchases) of marketable securities, net................. 42,620,000 (738,000)
Tax payments relating to discontinued operations................ (22,238,000) --
Purchase of property, plant and, equipment:
Continuing operations........................................ (35,000) (2,274,000)
Discontinued operations...................................... -- (607,000)
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Net cash provided (used) by investing................... 20,347,000 (3,619,000)
----------- -----------
Financing:
Proceeds (repayment) of short-term borrowings:
Continuing operations........................................ (1,917,000) 317,000
Discontinued operations...................................... -- 2,423,000
Repayment of long-term debt..................................... 3,000 (38,000)
Repayment of debt -- discontinued operations.................... -- (391,000)
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Net cash provided (used) by financing................... (1,914,000) 2,311,000
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Increase (decrease) in cash and cash equivalents........ 17,692,000 (3,478,000)
Cash and cash equivalents:
Beginning of period.......................................... 23,472,000 4,123,000
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End of period................................................ $41,164,000 $ 645,000
=========== ===========
Supplemental Information:
Cash paid for:
Interest..................................................... $ 43,706 $ 222,000
Income taxes................................................. $22,238,000 $ 80,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
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GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures which would substantially
duplicate those contained in the most recent annual report to stockholders. The
financial statements as of March 31, 1995 and for the interim periods ended
March 31, 1995 and 1994 are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. Certain 1994 amounts have been reclassified to conform
to the 1995 presentation. Operating results for the interim period ended March
31, 1995 are not necessarily indicative of the results that may be expected for
the full year.
The financial information as of December 31, 1994 has been derived from the
audited financial statements as of that date. For further information, refer to
the financial statements and notes included in the Company's 1994 Annual Report
to Shareholders.
2. Cash Equivalents
For the purpose of the consolidated statements of cash flows, short-term
investments purchased with an original maturity date of three months or less are
considered to be cash equivalents. Cash equivalents are recorded at market value
and consist of short-term U.S. Government obligations.
3. Marketable Securities
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". No
adjustment was required to reflect the adoption of the new standard. Investments
in marketable equity securities, U.S. Government obligations and corporate bonds
are considered available for sale. These investments are carried at market and
adjustments for unrealized gains and losses, net of deferred taxes, are reported
as a separate component of shareholders' equity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in investment income. The cost of
securities sold is based on the specific identification method.
4. Investments in Affiliates
Summarized financial information for Rally's Hamburgers, Inc. ("Rally's")
the Company's 48% and 38% owned affiliate, respectively, follows:
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<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
APRIL 3, 1995 APRIL 2, 1994
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Revenues................................ $ 42,470,000 $ 42,805,000
Operating loss.......................... 993,000 477,000
Net loss................................ 3,509,000 1,862,000
Company's share of loss................. 1,671,000 850,000
(1994 includes amortization of excess
purchase cost.)
</TABLE>
5. Discontinued Operations
On October 6, 1994, KCC Delaware, a wholly owned subsidiary of the Company,
sold 100% of the stock of its wholly owned subsidiary Giant Cement Holding, Inc.
(GCHI) through an initial public offering. The net proceeds of this transaction
were $125,822,000 (net of $2,000,000 contributed to GCHI on the date of sale)
6
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GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
resulting in a gain of $76,990,000 before income taxes of $28,767,000. At
December 31, 1994 and March 31, 1995, a receivable of $200,000 related to income
tax liabilities of GCHI, payable to the Company pursuant to their Tax Sharing
Agreement, is included in other current assets.
GCHI was engaged in the manufacture and sale of portland and masonry
cements and construction aggregates, and its operating results for the quarter
ended March 31, 1994 have been included as discontinued operations in the
accompanying consolidated statements of operations and cash flows.
Total operating revenue and operating loss attributable to GCHI for the
quarter ended March 31, 1994 included in discontinued operations was $15,513,000
and $543,000, respectively.
6. Related Party Transactions
In February 1995, the Company purchased $10,400,000 principal amount of
Rally's 9.875% Senior Notes Due 2000 at an aggregate purchase price of
$4,796,000. Investment income includes $237,000 relating to the Senior Notes.
7. Contingent Liabilities
In January 1994, two class action lawsuits were filed on behalf of the
shareholders of Rally's Hamburgers, Inc. in the United States District Court,
Western District of Kentucky, against Rally's, Burt Sugarman and the Company,
and certain of Rally's other officers and directors. The Complaints allege
violations of the Securities Exchange Act of 1934 with respect to Rally's common
stock and seeks unspecified damages. On April 15, 1994, Rally's filed a Motion
to Dismiss and Motion to Stay Discovery. On April 5, 1995 the court struck
certain provisions of the Complaint and denied the Plaintiff's Motion for Class
Certification. The court also denied Rally's Motion to Dismiss. Management is
unable to predict the outcome of this matter at the present time or whether or
not certain available insurance coverages will apply. Rally's and the Company
intend to defend themselves vigorously in this matter.
8. Subsequent Events
In April 1995, the Company acquired 60,000 shares of its common stock for
an aggregate purchase price of $348,000.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenues for the three-month periods ended March 31, 1995 increased to
$1,110,000 as compared to $331,000 in 1994. The increase resulted from a higher
level of investments in cash equivalents and marketable securities in 1995, due
to the sale of the Company's cement operations in October 1994 and the
investment of the proceeds.
Interest costs decreased for the quarter to $43,000 from $1,235,000
primarily as the result of the prepayment in November 1994 of the Company's 7%
Convertible Subordinated Debentures and 14.5% Subordinated Notes.
Equity in losses of the Company's 48% owned affiliate, Rally's increased
from $850,000 in 1994 to $1,671,000 in 1995 as a result of the increase in
Rally's losses in the first quarter of 1995 compared to 1994.
The Company did not record a tax benefit in the first quarter of 1995 due
to the equity in the loss of its affiliate, Rally's. These losses would have to
be realized through the sale of Rally's common stock or future Rally's earnings
in order for the Company to realize a tax benefit. The income tax benefits
recorded in the first quarter of 1994 related to federal income taxes and were
recorded at an estimated annual rate of 34%.
Liquidity and Capital Resources
The primary source of cash and equivalents has historically been generated
from operations of the Company's cement business. Since the sale of the
Company's cement operations, liquidity has been provided through investments and
interest income from cash equivalents and marketable securities.
Net cash used in operations for the three months ending March 31, 1995 was
$741,000 compared to a use of $2,170,000 in the three months of 1994. The cash
used in the first quarter of 1995 was primarily used to fund the operations of
the Company and pay expenses which were accrued from the 1994 sale of the cement
operations.
Cash provided by investing activities was $20,347,000 for three months
ending March 31, 1995, compared to cash used in 1994 of $3,619,000. The cash
generated by investing activities in 1995 was due to the sale of marketable
securities offset by the payment of income taxes in the amount of $22,238,000
relating to the profit on the sale of the Company's cement business. The
remaining proceeds were used to purchase cash equivalents.
Net cash used by financing activities was $1,914,000 in the three months
ending March 31, 1995 compared to net cash provided in the three months of 1994
of $2,311,000. The cash used in 1995 by financing activities was for the
repayment of short term borrowings.
Since the sale of the cement operations, the Company has committed its
resources and attention to identifying and evaluating strategic investment
opportunities. The Company desires to acquire or invest in a company that will
provide growth with a stability of earnings and cash flow. However, with the
stock market at today's high level, finding good values or under-valued assets
is difficult. The Company believes opportunities are in the marketplace but
finding the right opportunity at a reasonable price requires patience and
thorough research. The Company is not prepared to make quick investment
decisions to simply redeploy capital, but will be diligent in finding the right
investment.
The Company believes its existing cash and investments are sufficient to
meet its working capital needs for the foreseeable future.
8
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GIANT GROUP, LTD.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- SEE NOTE 7 TO THE FINANCIAL STATEMENTS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended March 31, 1995, the Company did not file
any reports on Form 8-K.
Items 2, 3, 4 and 5 are not applicable.
9
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SIGNATURE
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.
GIANT GROUP, LTD. -- Registrant
By: /s/ Cathy L. Wood
------------------------------------
Cathy L. Wood
Vice President & Treasurer
Chief Financial Officer
Date: May 11, 1995
10
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EXHIBIT INDEX
-------------
Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 41,164,000
<SECURITIES> 5,372,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,491,000
<PP&E> 5,037,740
<DEPRECIATION> 1,523,186
<TOTAL-ASSETS> 74,832,000
<CURRENT-LIABILITIES> 3,866,000
<BONDS> 1,819,000
<COMMON> 69,000
0
0
<OTHER-SE> 68,555,000
<TOTAL-LIABILITY-AND-EQUITY> 74,832,000
<SALES> 1,110,000
<TOTAL-REVENUES> 1,110,000
<CGS> 1,053,000
<TOTAL-COSTS> 1,671,000
<OTHER-EXPENSES> 1,671,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,000
<INCOME-PRETAX> (1,614,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,614,000)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> 0
</TABLE>
