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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 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 1-4753
PUERTO RICAN CEMENT COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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COMMONWEALTH OF PUERTO RICO 51-A-66-0189525
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
PO BOX 364487 - SAN JUAN, PUERTO RICO 00936-4487
(Address of Principal Executive Offices) (Zip Code)
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(787) 783-3000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section l2 (b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section l2 (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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[Cover page 1 of 2 pages]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is $182,371,439 (exclusive of shares respecting which
affiliates have either sole or shared voting and dispositive power). This
market value was computed by reference to the closing price of the stock on The
New York Stock Exchange on March 15, l996.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the close of the period covered by this report:
COMMON STOCK, $1.00 PAR VALUE 5,504,722 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
l. Portions of the Registrant's annual report to security holders
for the fiscal year ended December 3l, l995, are incorporated
by reference into Parts I and II.
2. Portions of the Registrant's definitive proxy statement for
the 1996 Annual Meeting to be filed pursuant to Regulation 14A
are incorporated by reference into Part III.
[Cover page 2 of 2 pages]
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CROSS REFERENCE SHEET AND TABLE OF CONTENTS
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Page
ITEM Number Reference
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PART I
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1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (1)
General Development of Business . . . . . . . . . . . . . . . . . . . 6
Financial Information About Industry Segments . . . . . . . . . . . . 6 (2)
Narrative Description of Business . . . . . . . . . . . . . . . . . . 7
Financial Information about Foreign and Domestic
Operations and Export Sales . . . . . . . . . . . . . . . . . . . . 11
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 12
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (3)
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (4)
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 14
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . (5)
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . (6)
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . (7)
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . (8)
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 14
PART III
l0. Directors of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 15
Identification of Directors . . . . . . . . . . . . . . . . . . . . . 15 (9)
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (10)
l2. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (11)
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 15 (12)
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PART IV
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l4. Exhibits, Financial Statement Schedules and
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 15
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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(l) Information incorporated by reference to the Registrant's
Annual Report to Stockholders for the year ended December 3l,
l995 ("Annual Report") and the Board of Directors' Proxy
Statement for use in connection with the Registrant's annual
meeting of stockholders to be held May 1, l996 ("Proxy
Statement").
(2) Annual Report, page 28, section entitled "Notes to
Consolidated Financial Statements, Note 13 /Financial Data by
Industries."
(3) Annual Report, page 23, section entitled "Notes to
Consolidated Financial Statements, Note 5 /Property, Plant and
Equipment," and page 28, section entitled "Notes to
Consolidated Financial Statements, Note 14 /Lease
Commitments."
(4) Annual Report, page 29, section entitled "Notes to
Consolidated Financial Statements, Note 16 / Contingent
Liabilities and Other Commitments."
(5) Annual Report, page 33, section entitled "Common Share Prices
and Dividends Per Share," page 31, section entitled "Five-Year
Statistical Comparison," and page 24, section entitled "Notes
to Consolidated Financial Statements, Note 10 /Long-term
Debt."
(6) Annual Report, page 16, section entitled "Selected Financial
Data."
(7) Annual Report, pages 14 to 16, section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
(8) Annual Report, pages 18 to 31, sections entitled "Consolidated
Balance Sheet," "Consolidated Statement of Income and Retained
Earnings," "Consolidated Statement of Cash Flows," "Notes to
Consolidated Financial Statements," "Report of Independent
Accountants," "Financial Results by Quarter," "Consolidated
Fourth Quarter Results," and "Five-Year Statistical
Comparison."
(9) Proxy Statement, pages 2 to 9, section entitled "Information
about Nominees, Directors and Principal Stockholders."
(l0) Proxy Statement, pages 10 to 17, section entitled "Executive
Compensation," through and including section entitled "Certain
Transactions with Management."
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(11) Proxy Statement, pages 2 to 9, sections entitled "Information
about Nominees, Directors and Principal Stockholders" and
"Security Ownership of Certain Beneficial Owners."
(12) Proxy Statement, pages 16 to 17, sections entitled "Certain
Transactions with Management" and "Compensation Committee
Interlocks and Insider Participation."
5
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PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Organization
Puerto Rican Cement Company, Inc. (the "Registrant"), a corporation organized
under the laws of the Commonwealth of Puerto Rico in l938, is engaged in: (i)
the production and sale of cement, ready-mixed concrete and related products,
(ii) paper and packaging and (iii) realty operations.
Recent Acquisitions
On November 21, 1995, the Registrant purchased 100% of the common stock of
Ready Mix Concrete, Inc. (RMC) and Concreto Mixto, Inc. (CMI) for an aggregate
purchase price of $23,600,000 in cash, stock and notes. These two companies
are major producers of ready-mixed concrete in the island of Puerto Rico,
principally in the north and northeastern region of the island. The
acquisition was accomplished through the issuance of 85,522 shares of the
Registrant's common stock, and the payment of cash and issuance of notes
payable to the sellers in the aggregate amount of approximately $17,700,000.
The assets of these two companies included 195 ready-mixed concrete trucks and
18 concrete batching plants.
Approximately 19% of the shares of RMC have not been delivered to the
Registrant. The transfer of these shares requires the approval of the Court.
The Registrant does not expect any problem to obtain this approval.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information on the industry segments in which the Registrant has been engaged
for the last three fiscal years, including the amounts of revenue, operating
profit and identifiable assets attributable to each of the Registrant's
industry segments, is included as part of the Registrant's Annual Report to
Stockholders for the year ended December 3l, l995 (the "Annual Report"), page
28, section entitled "Notes to Consolidated Financial Statements, Note 13/
Financial Data by Industries," which includes the financial statements and
schedules furnished pursuant to Item 14 and is incorporated herein by
reference.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) Principal Products or Services
The principal products produced or services rendered by the Registrant are:
(A) Cement and related products
1. Portland grey cement, Type I, manufactured under
specifications of the American Society for Testing
Materials ("ASTM")
2. Hydrated lime
3. Ready-mixed concrete
(B) Paper and packaging
l. Multi-wall paper bags
(C) Realty operations
The Registrant's products are sold principally on the island of Puerto Rico.
Portland grey cement is used primarily in the construction of residential,
commercial and public buildings and in the construction of highways. During
the fiscal year ended December 3l, l995, the Registrant sold 5,149,929 barrels
of grey cement. Substantially all these sales were made to customers in Puerto
Rico. Approximately 21% of the cement sold by the Registrant in 1995 was sold
to the ready-mixed concrete operations acquired by the Registrant in November
1995.
During the fiscal year ended December 3l, l995, approximately 29% of the
hydrated lime produced by the Registrant was sold to the construction and
agricultural industry and the remaining 71% was sold to other industries for
chemical usage, both locally and in export markets. Approximately 30.9% (37.4%
in 1994) of total sales of hydrated lime, mainly for use in connection with
chemical water purification, were made to the local Government or its agencies.
Export sales for the year ended on December 31, 1995, represented 36% of the
total sales of hydrated lime.
The annual ready-mixed concrete production capacity of the companies acquired
in November 1995 is over 1.5 million cubic yards. Both companies sell their
product primarily to contractors on public construction projects as well as
residential and industrial builders.
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Multi-wall paper bags produced by the Registrant's St. Regis Paper and Bag
Division was marketed almost exclusively in Puerto Rico and were used by the
following customers: 35% by the Registrant and its subsidiaries for packing its
products; 1% for packaging of cement and related products by other producers;
9% by sugar producers; 50% by the grain and animal feed industry; and 5% for
chemical, rice, fertilizers and other miscellaneous uses.
The Registrant, through one of its majority owned subsidiaries, owns and holds
for future development and sale approximately 532 acres of land throughout
Puerto Rico.
Total Revenue
Set forth below are (i) the total revenue (in thousands of dollars) for each of
the last three fiscal years contributed by any class of similar products that
accounted for l0% or more of the Registrant's consolidated net sales in such
fiscal years and (ii) the Registrant's consolidated net sales (in thousands of
dollars) for each of the last three fiscal years:
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Portland Consolidated
grey cement net sales
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1995 $84,969 $100,232
1994 84,168 92,830
1993 73,895 84,028
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Methods of Distribution
The Registrant sells and distributes cement (both in bulk and bagged) and
related products in Puerto Rico to (i) customers on a direct basis, (ii) to
independent local distributors (which include ready-mixed concrete producers,
building material dealers, concrete products manufacturers, and government
agencies), and (iii) to general and highway contractors.
Ready-mixed concrete is delivered to construction sites by mixer-trucks owned
by the Registrant's subsidiaries.
(ii) New Products
The Registrant has not made any public announcements regarding, nor has it
otherwise made public information about, a new product or industry segment that
is material to the Registrant's business.
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(iii) Raw Materials
The Registrant owns in fee properties containing limestone and sand deposits
which directly adjoin or are close to its cement and hydrated lime plant sites.
The Registrant also owns properties near such plants which contain clay
deposits. The Registrant has not conducted a systematic exploratory drilling
program ordinarily considered necessary for the establishment of limestone and
other raw materials reserve and, accordingly, makes no tonnage estimate of the
availability of such raw materials. However, based on scattered drilling
results on deposits of substantial depths, and past and present production from
the Registrant's properties, the Registrant believes that the availability of
limestone and other raw materials presents no foreseeable problem. There have
been no recent material mining changes in the exploitation of the principal raw
material deposits, and none are expected. The Registrant purchases raw gypsum
in the open market from sources outside Puerto Rico. Coal for firing the kilns
is purchased from Carbones de Colombia, S.A., a Colombian supplier, under a
long-term supply contract. Electricity is purchased from the Puerto Rico
Electric Power Authority, and water is obtained from wells on the Registrant's
properties.
Ready-mixed concrete is formed by mixing controlled portions of cement, water
and aggregates. RMC and CMI each purchases most of its cement from the
Registrant's cement plant. RMC also purchases cement, under a contract signed
prior to the acquisition, from San Juan Cement Company, Inc., the other cement
producer in Puerto Rico. Aggregates, such as sand and gravel, as well as
additives used in the formation of concrete are purchased from various
suppliers.
(iv) Patents and Trademarks
St. Regis Paper and Bag Division had the right to use until December 3l, l995
certain trademarks, trade names and patents owned by Stone Container
Corporation (which were once owned by St. Regis Paper Company of New York, then
acquired by Champion International during l985, and after that sold to Stone
Container Corporation). The Registrant is negotiating, annually, for renewal
of this agreement for continued use of such trademarks, trade names and
patents. The Registrant believes that failure to renew such agreement would
have no material impact on this segment of its business.
(v) Seasonal Effect on Sales
Demand for cement and related products is largely dependent on the requirements
of the construction industry. The requirements of the construction industry in
Puerto Rico and in the Caribbean area are not necessarily "seasonal" because of
the normally favorable climatic conditions of the area; however, the
requirements of the construction industry depend to some extent on general
economic conditions.
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(vi) Credit and Working Capital Practices
As of December 31, 1995, the Registrant had invested approximately 13% of its
total assets in inventory, which consists mainly of operating supplies and
repair parts for its equipment. Taking into account, the geographical
locations of the Registrant's manufacturing facilities as compared to the
geographical locations of its major suppliers, such investment in inventory is
considered normal by industry standards. No significant amounts of finished
goods are required to be maintained in inventory to meet rapid delivery
requirements of customers. The Registrant sells its products to customers
under normal commercial open account payment terms.
(vii) Customers
During fiscal year l995, 27% of the Registrant's total dollar sales in the
cement and related products segment were made to 10 unrelated customers. One of
these customers, Hormigonera Mayaguezana, accounted for approximately 12% of
the Registrant's consolidated sales.
(viii) Backlog
In the opinion of the Registrant, backlog is not a relevant consideration in
the type of business in which it is engaged.
(ix) Government Contracts
No material portion of the business of the Registrant is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Government.
(x) Competition
The Registrant is the principal producer of cement, hydrated lime and
multi-wall paper bags in Puerto Rico. During l995, the other cement
manufacturing company in Puerto Rico, San Juan Cement Company, Inc., which
began production at the end of May l970, accounted for approximately 38.3% of
the total bags of cement sold in Puerto Rico. No material amount of cement was
imported to the Puerto Rico market during 1995.
The Registrant competes based on the price and quality of its products.
The Registrant believes that it is the largest producer of ready-mixed concrete
in Puerto Rico. Competition includes various large ready-mixed companies and
several small ready-mixed operators. Competition for sales volume, based
principally on price, is considered very strong. In addition, product quality
and consistency and customers services are important, although to a lesser
degree.
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(xi) Research and Development
During the last three fiscal years, other than the conversion of two slurry
mills to cement grinding mills, which was completed in the third quarter of
1995, the Registrant has not spent any material amounts on research and
development activities relating to the development of new products, services or
techniques or the improvement of existing products, services or techniques for
itself or for any of its customers.
(xii) Environmental Compliance
During l978, the Registrant completed the installation of air pollution control
equipment in its Ponce cement and lime plants at an aggregate approximate cost
of $l7,000,000. Such equipment was installed in order to comply with (i)
regulations established by the Environmental Quality Board of Puerto Rico and
(ii) the terms of a consent order signed in August l974 (as amended in July
l976 and February l978) with the Federal Environmental Protection Agency.
The Registrant financed the cost of the pollution abatement program through a
loan obtained in l975 from the Government Development Bank for Puerto Rico.
This loan was extinguished in l985 as fully described in a Current Report on
Form 8-K dated September l985.
The Registrant's plants are in compliance with existing environmental
regulations. No significant expenditures for pollution control equipment are
expected in the near future.
Regulations issued by the United States Environmental Protection Agency limit
the Registrant's annual production capacity. In 1995, such regulations
limited the Registrant's capacity to 5,165,000 barrels of clinker. The
Registrant complied with these limitations and such limitations did not have a
material effect on the capital expenditures, earnings or competitive position
of the Registrant.
(xiii) Employees
As of December 3l, l995, the Registrant and its subsidiaries had 939 employees,
including 408 from its ready-mixed concrete subsidiaries.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
None of the Registrant's industry segments depend to any material extent on
foreign operations, except that wholly-owned subsidiary Florida Lime Corp.,
reported a significant portion of its sales volume on export sales.
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(e) EXECUTIVE OFFICERS OF THE REGISTRANT
1. Miguel Nazario, age 48, President and Chief Executive Officer of the
Registrant since January 1, 1995; Vice President of the Registrant
from August 8, l994 to December 31, 1994; prior to joining the
Registrant, Mr. Nazario held various administrative positions over
a ten-year period, most recently as a member of the Corporate
Manufacturing Staff of Digital Equipment Corporation.
2. Jose J. Suarez(1), age 60, Director; Executive Vice President in charge
of Operations of the Registrant from January 1, 1988 to December 31,
1995; Senior Vice President in charge of Operations from October l983
to December 31, 1987; Vice President of Operations from June l982 to
October l983.
3. Jose O. Torres, age 50, Secretary; Treasurer and Vice President of
Finance of the Registrant since January 1, 1988; Vice President and
Treasurer from October l983 to December 31, 1987; Vice President of
Sales from l982 to October l983; Treasurer from l976 to l982.
4. Angel M. Amaral, age 62, Vice President and Controller of the
Registrant since June l982; Controller from l976 to June l982.
5. Rene Di Cristina, age 45, Vice President of Sales of the Registrant
since October l983.
6. Benito del Cueto, age 61, Vice President of Realty Operations.
7. Antonio L. Ferre Rangel(2), age 28, Director; Vice President of
Strategic Planning since January 1, 1995. Mr. Ferre joined the
Company in 1992.
8. Juan A. Carbonell(3), age 74, Vice President and General Manager of St.
Regis Paper and Bag Division from January 1984 to December 31, 1995.
All officers are elected to serve for a term of one year and until the election
and qualification of their respective successors.
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(1) Mr. Suarez retired from his position as Executive Vice President in
Charge of Operations of the Registrant as of December 31, 1995, but
remained as a Director.
(2) Mr. Ferre was named Vice President of Operations and Strategic
Planning effective on January 6, 1996.
(3) Mr. Carbonell retired from his position as Vice President and General
Manager of St. Regis Paper and Bag Division as of December 31, 1995.
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Item 2. PROPERTIES
Used in cement and related products segments
The Registrant owns in fee a cement plant located in Ponce, Puerto Rico on a
25-acre site. It also owns in fee a hydrated lime manufacturing plant that is
located within the Ponce cement plant premises. The Ponce cement plant
operates under the dry process and during the last fiscal year 5,168,693
barrels of cement were produced for an approximate 95% of its effective kiln
capacity. The lime plant produced 26,177 tons of lime and was operated at
approximately 57% of its capacity.
During 1992 the Registrant purchased a 67-acre tract of land located next to
the cement plant and a 149-acre tract of land adjacent to one of the
Registrant's quarries for future quarry operations.
During l995 the Registrant continued the repairs and maintenance program on its
plants. The Registrant believes that its plants are presently in good condition
and properly maintained.
The Registrant owns in fee properties containing adequate deposits of limestone
and other raw materials (See Item l (c) (iii)) which directly adjoin or are
close to the plant sites.
The Registrant leases a parcel of land under a long-term lease with the
municipality of Ponce, on which it installed certain facilities for coal
receiving and handling. The coal received through said facilities is used as
fuel in the Registrant's cement and hydrated lime manufacturing operations.
Used in paper and packaging segment
The manufacturing plant of the St. Regis Paper and Bag Division is located on a
site owned by it in fee in Ponce, Puerto Rico. The Registrant believes the
plant to be in good condition and properly maintained.
Used in realty operations
The Registrant and one of its subsidiaries own in fee, and hold for future
development and sale, approximately 532 acres of land throughout Puerto Rico.
(See Item l (c) (i).)
Used for office facilities
The Registrant and its subsidiaries own a one story building housing its
executive offices located in the Amelia Industrial Park, Guaynabo, Puerto Rico.
Information about leased properties is incorporated by reference from the
Annual Report, page 28, section entitled "Notes to Consolidated Financial
Statements, Note 14/Lease Commitments."
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Item 3. LEGAL PROCEEDINGS
There are presently pending against the Registrant the legal proceedings
described in the Annual Report, page 29, section entitled "Notes to
Consolidated Financial Statements, Note 16/Contingent Liabilities and Other
Commitments," furnished pursuant to Item 14, to which reference is hereby made
and which is incorporated by reference herein.
Among the legal actions currently pending against the Registrant is a lawsuit
brought by San Juan Cement, Inc. in the United States District Court for the
District of Puerto Rico. San Juan Cement, Inc. has sought rescission of the
acquisition by the Registrant of two Puerto Rican ready-mixed concrete
manufacturers: Concreto Mixto, Inc. and Ready Mix Concrete, Inc. San Juan
Cement, Inc. claims that the acquisition violates the federal antitrust laws,
purportedly because it tends to substantially lessen competition. Ready Mix
Concrete, Inc. has moved to dismiss the complaint for lack of subject matter
jurisdiction, and the Registrant and Concreto Mixto, Inc. have joined in the
motion to dismiss. As of March 27, 1996, there has been no decision on the
motion.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
Items 5 through 8 of Part II of this report are omitted as permitted by General
Instruction G (2) since the information required by such items is contained in
the Registrant's Annual Report which is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
Item l0. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Information required herein is contained in a definitive Proxy Statement for
use in connection with the Registrant's Annual Meeting of Stockholders to be
held on May 1, l996 filed with the Commission pursuant to Regulation l4A (the
"Proxy Statement") pages 2 to 9, section entitled "Information about Nominees,
Directors and Principal Stockholders," and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by Item 11 is contained in the Proxy Statement, pages 10
to 17, section entitled "Executive Compensation" through and including the
section entitled "Certain Transactions with Management," and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item l2 is contained in the Proxy Statement, pages 2 to
9, sections entitled "Information about Nominees, Directors and Principal
Stockholders" and "Security Ownership of Certain Beneficial Owners," and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is contained in the Proxy Statement, pages 16
to 17, sections entitled "Certain Transactions with Management" and
"Compensation Committee Interlocks and Insider Participation," and is
incorporated herein by reference.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K:
1. Financial Statements incorporated by reference to the Annual
Report, pages 20 to 29; and
2. Financial statement schedules and supplementary data required
by Item 8 of Form 10-K, filed herewith.
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The financial statement schedules required by Item 14(d) of Form 10-K are
excluded since the Registrant is primarily an operating company. All
subsidiaries included in the consolidated financial statements being filed, in
the aggregate, do not have minority equity interest and/or indebtedness to any
person other than the Registrant or the consolidated subsidiaries in amounts
which together exceed l0% of the Registrant's total consolidated assets at
December 3l, l995.
(b) Reports on Form 8-K: None.
(c) Exhibits required by Section 601 Regulation S-K:
3. Certificate of Incorporation and By-Laws
l. Certificate of Incorporation and amendment thereto
filed as an exhibit to Form S-l on March 25, 1963,
with (i) composite copy of the Certificate of
Incorporation dated May l6, l983 filed as an exhibit
to Form 10-K for the fiscal year ended December 31,
1983, (ii) amendments dated May 6, 1987 filed as an
exhibit to Form 10-Q for the fiscal quarter ended
June 30, 1987, and (iii) amendment dated May 5, 1993
(increasing the number of authorized shares of common
stock from 10 million to 20 million) filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1993.(*)
2. By-Laws of the Registrant, as amended, filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1987, with (i) amendment dated January
1993 filed as an exhibit to Form 10-K for the fiscal
year ended December 31, 1993,(*) and (ii) amendment
dated December 22, 1994 filed as an exhibit to Form
10-K for the fiscal year ended December 31, 1994.
l0. Material contracts
1. Coal Purchase/Sale Agreement between Registrant and
Carbones de Colombia, S.A. dated as of December 14,
1982 filed as an exhibit to Form 10-K for the fiscal
year ended December 31, 1982.(*) Copy of addendum No.
5 which changed the quantity of coal purchases to
100,000 tons per year through the year 2000, was
filed as an exhibit to Form 10-Q for the fiscal
quarter ended March 31, 1992.(*)
2. (a) Consolidated and restated loan agreement
dated as of September 27, 1985 among
Registrant, Registrant's Guarantors and the
Government Development Bank for Puerto Rico
for approximately $18.3 million encompassing
all outstanding debt of the Registrant to the
bank as of that date.(*)
(b) Indenture trust agreement dated September 27,
l985 between Registrant as grantor and Banco
de Ponce as trustee for the benefit of the
Government Development Bank for Puerto
Rico.(*)
16
<PAGE> 17
(Both documents listed above in this paragraph l0.2 were filed as
exhibits to a Current Report on Form 8-K dated September l985 and are
related to the early extinguishment of the debt transaction described
therein.)
3. Loan agreement between the Registrant and Banco
Popular de Puerto Rico in the principal amount of
$10,000,000 dated as of November 6, 1987 filed as an
exhibit to a Current Report on Form 8-K dated
November 1987.(*) Letter dated January 17, 1992,
which modifies certain terms of such loan agreement
(including a reduction in the interest rate and a
change in the original repayment schedule from
quarterly payments to annual payments) filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1991.(*)
4. Form of Severance Compensation Agreement executed by
the Registrant during the third quarter of 1989 with
a consultant and 18 of the Registrant's key officers,
filed as an exhibit to Form 10-Q for the fiscal
quarter ended September 30, 1989.(**)
5. Loan agreement between the Registrant and Banco
Popular de Puerto Rico in the principal amount of
$8,000,000 dated as of December 8, 1993 (used to
finance the conversion to cement grinding of two
existing slurry mills) and letter dated July 11, 1994
(amending certain sections of the original loan
agreement).
6. Loan agreement between the Registrant and The Bank of
Nova Scotia in the principal amount of $16,000,000
dated as of February 26, 1993 (used in the financing
of the conversion of two existing slurry mills to
cement grinding).
7. Loan agreement between the Registrant and Banco
Popular de Puerto Rico in the principal amount of
$6,000,000 dated August 2, 1993 (to pay a $3 million
scheduled installment and an optional $3 million
payment on a long-term debt due August 1993) and
letter dated July 11, 1994 (amending certain sections
of the original loan agreement).
8. Loan agreement between the Registrant and Banco
Popular de Puerto Rico in the principal amount of
$7,000,000 dated September 15, 1994 (used to
refinance the outstanding balance of another loan)
filed as an exhibit to Form 10-Q for the fiscal
quarter ended September 30, 1994.(*)
9. Amendment to the Consulting Agreement between the
Registrant and Antonio Luis Ferre dated January 1,
1995.(**)
17
<PAGE> 18
13. Annual Report to security holders for the year ended
December 3l, l995.
21. Subsidiaries of the Registrant are included as part
of the Annual Report to security holders, page 33,
section entitled "Subsidiaries." All of the
Registrant's subsidiaries are incorporated under the
laws of the Commonwealth of Puerto Rico, except for
Caribbean Cement Carriers Corporation, which is
incorporated under the laws of the Republic of
Panama, and Ferre Export Corporation, which is
incorporated under the laws of the state of New York.
23. Consent of Price Waterhouse, independent public
accountants.
27. Financial Data Schedule.
- -----------------------------------
(*) Incorporated herein by reference.
(**) Exhibit constitutes a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 601 (b) (10) (iii).
SIGNATURES
Pursuant to the requirements of Section l3 or 15(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PUERTO RICAN CEMENT COMPANY, INC. (REGISTRANT)
Date: March 27, 1996 By:/s/ Miguel Nazario
-------------------------
Miguel Nazario
President and Chief Executive
Officer and Director
18
<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
Date: March 27, 1996 By: /s/ Miguel Nazario
------------------------------
Miguel Nazario
President and Chief Executive
Officer and Director
Date: March 27, 1996 By: /s/ Antonio Luis Ferre
------------------------------
Antonio Luis Ferre
Chairman of the Board and
Director
Date: March 27, 1996 By: /s/ Alberto M. Paracchini
------------------------------
Alberto M. Paracchini
Director and Vice Chairman of
the Board
Date: March 27, 1996 By: /s/ Hector del Valle
------------------------------
Hector del Valle
Director and Vice Chairman of
the Board
Date: March 27, 1996 By: /s/ Antonio L. Ferre Rangel
------------------------------
Antonio L. Ferre Rangel
Vice President of Operations and
Strategic Planning and Director
Date: March 27, 1996 By: /s/ Jose O. Torres
------------------------------
Jose O. Torres
Vice President of Finance,
Secretary and Treasurer
Date: March 27, 1996 By: /s/ Angel M. Amaral
------------------------------
Angel M. Amaral
Vice President and Controller
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
Date: March 27, 1996 By: /s/ Jose J. Suarez
------------------------------
Jose J. Suarez
Director
Date: March 27, 1996 By: /s/ Jose Fernandez Paoli
------------------------------
Jose Fernandez Paoli
Director
Date: March 27, 1996 By: /s/ Esteban D. Bird
------------------------------
Esteban D. Bird
Director
Date: March 27, 1996 By: /s/ Emilio J. Venegas
------------------------------
Emilio J. Venegas
Director
Date: March 27, 1996 By: /s/ Oscar A. Blasini
------------------------------
Oscar A. Blasini
Director
Date: March 27, 1996 By: /s/ Hector Puig Ramirez
------------------------------
Hector Puig Ramirez
Director
Date: March 27, 1996 By: /s/ Rosario J. Ferre
------------------------------
Rosario J. Ferre
Director
Date: March 27, 1996 By: /s/ Federico F. Sanchez
------------------------------
Federico F. Sanchez
Director
Date: March 27, 1996 By: /s/ Jorge L. Fuentes
------------------------------
Jorge L. Fuentes
Director
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
Date: March 27, 1996 By: /s/ Carlos J. Suarez
------------------------------
Carlos J. Suarez
Director
Date: March 27, 1996 By: /s/ Luis A. Ferre Rangel
------------------------------
Luis A. Ferre Rangel
Director
Date: March 27, 1996 By: /s/ Juan A. Albors
------------------------------
Juan A. Albors
Director
Date: March 27, 1996 By: /s/ Federico Stubbe
------------------------------
Federico Stubbe
Director
</TABLE>
21
<PAGE> 22
PUERTO RICAN CEMENT COMPANY, INC.
AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independant accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Schedule V - Property, Plant and Equipment for the years ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment for the years ended December 31, 1993, 1994 and 1995 . . . . . . . . 25
Schedule VIII - Valuation and Qualifying accounts for the years ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Schedule IX - Short Term Borrowing for the years ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Schedule X - Supplementary income statement information for the years ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
22
<PAGE> 23
SCHEDULE V
PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
===================================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT BALANCE AT
BEGINNING ADDITIONS END OF
CLASSIFICATIONS OF YEAR AT COST (2) RETIREMENTS (1) TRANSFERS YEAR
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1993
Land and quarries $ 4,892,631 $ 17,298 $ - $ - $ 4,909,929
Buildings 28,074,938 - 222,894 391,764 28,243,808
Machinery and equipment 89,436,860 270,882 2,161,579 1,630,539 89,176,702
Pollution control equipment 28,445,104 22,967 218,325 434,158 28,683,904
Construction in progress - 8,825,821 - (2,456,461) 6,369,360
---------------------------------------------------------------------------------------------
Total $150,849,533 $ 9,136,968 $2,602,798 $ - $157,383,703
=============================================================================================
1994
Land and quarries $ 4,909,929 $ - $ - $ - $ 4,909,929
Buildings 28,243,808 - 68,220 158,047 28,333,635
Machinery and equipment 89,176,702 244,916 4,005,731 2,385,098 87,800,985
Pollution control equipment 28,683,904 700 878,748 215,137 28,020,993
Construction in progress 6,369,360 11,011,147 - (2,758,282) 14,622,225
---------------------------------------------------------------------------------------------
Total $157,383,703 $11,256,763 $4,952,699 $ - $163,687,767
=============================================================================================
1995
Land and quarries $ 4,909,929 $ 5,091,042 $ 14,893 $ - $ 9,986,078
Buildings 28,333,635 973,028 208,628 10,526,618 39,624,653
Machinery and equipment 87,800,985 21,606,873 2,417,782 10,683,442 117,673,518
Pollution control equipment 28,020,993 - 145,467 2,899,665 30,775,191
Construction in progress 14,622,225 9,976,000 - (24,109,725) 488,500
---------------------------------------------------------------------------------------------
Total $163,687,767 $37,646,943 $2,786,770 $ - $198,547,940
=============================================================================================
</TABLE>
- -------------------------------------
(1) Retirements relate mainly to the cost of fully depreciated assets no
longer in use. In 1994, total retirements include equipment written-off
with a book value of $587,671.
(2) Additions, include $27,487,261 of ready mixers acquired in November 21,
1995.
-24-
<PAGE> 24
SCHEDULE VI
PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
===================================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE ADDITIONS BALANCE
AT CHARGED TO AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES (2) RETIREMENTS (1) TRANSFERS YEAR
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1993
Land and quarries $ 419,209 $ 11,397 $ - $ - $ 430,606
Buildings 5,773,779 587,765 222,894 - 6,138,650
Machinery and equipment 25,876,123 5,025,196 2,161,580 - 28,739,739
Pollution control equipment 12,422,287 1,291,688 218,324 - 13,495,651
--------------------------------------------------------------------------------------------
Total $44,491,398 $6,916,046 $2,602,798 $ - $48,804,646
============================================================================================
1994
Land and quarries $ 430,606 $ 12,725 $ - $ - $ 443,331
Buildings 6,138,650 584,410 68,220 - 6,654,840
Machinery and equipment 28,739,739 5,046,397 3,705,109 - 30,081,027
Pollution control equipment 13,495,651 1,305,590 591,699 - 14,209,542
--------------------------------------------------------------------------------------------
Total $48,804,646 $6,949,122 $4,365,028 $ - $51,388,740
============================================================================================
1995
Land and quarries $ 443,331 $ 24,188 $ - $ - $ 467,519
Buildings 6,654,840 592,428 208,628 - 7,038,640
Machinery and equipment 30,081,027 5,457,623 2,400,294 - 33,138,356
Pollution control equipment 14,209,542 1,272,137 145,467 - 15,336,212
--------------------------------------------------------------------------------------------
Total $51,388,740 $7,346,376 $2,754,389 $ - $55,980,727
============================================================================================
</TABLE>
- -----------------------------------------
(1) Retirements relate mainly to accumulated depreciation of fully depreciated
assets.
(2) Additions, include $409,321 of ready mixers acquired in November 21, 1995.
-25-
<PAGE> 25
SCHEDULE VIII
PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
===================================================================================================================================
ADDITIONS ADDITIONS DEDUCTIONS FROM
BALANCE AT CHARGED TO CHARGED RESERVES WRITE-OFF BALANCE AT
BEGINNING COST AND TO OF UNCOLLECTIBLE END OF
DESCRIPTION OF YEAR EXPENSES OTHER (1) ACCOUNTS YEAR
===================================================================================================================================
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts
1993 $1,203,501 $ 1,492 $83,392 $1,121,601
1994 $1,121,601 $ 948 $28,546 $1,094,003
1995 $1,094,003 $ 505,013 $59,228 $1,539,788
</TABLE>
- -------------------------------------
(1) Additions, include $505,013 of ready mixers acquired in November 21, 1995.
-26-
<PAGE> 26
SCHEDULE IX
PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES
SHORT TERM BORROWING
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
=================================================================================================================================
OUTSTANDING DURING
THE PERIOD
BALANCE WEIGHTED ----------------------------- WEIGHTED AVERAGE
CATEGORY AT END AVERAGE MAXIMUM AVERAGE INTEREST RATE
OF BORROWINGS OF PERIOD INTEREST RATE(2) AMOUNT AMOUNT (1) DURING THE PERIOD
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
1993
Banks and other financial
institutions:
Under line of credit None None
1994
Banks and other financial
institutions:
Under line of credit $2,420,000 6.15% $3,400,000 $424,000 5.69%
1995
Banks and other financial
institutions:
Under line of credit $2,175,000 $751,000 6.09%
</TABLE>
- ----------------------------
(1) The average amount outstanding during the period was computed based on the
actual daily balances outstanding during the year.
(2) The weighted average interest rate during the period was computed based
on the sum of the actual interest rates.
-27-
<PAGE> 27
SCHEDULE X
PUERTO RICAN CEMENT COMPANY, INC.
AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENTS INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ITEMS 1995 1994 1993
===================================================================================================
<S> <C> <C> <C>
Maintenance and repairs (1) $4,021,524 $5,264,126 $3,683,584
Depreciation and amortization of
intangible assets, pre-operating
costs and similar deferrals (2) (2) (2)
Taxes, other than payroll and
income taxes:
Excise taxes $1,770,197 $1,698,615 $1,505,312
Property taxes 2,985,342 2,886,411 3,222,074
Other 99,017 100,934 116,523
---------- ---------- ----------
$4,854,556 $4,685,960 $4,843,909
========== ========== ==========
Royalties (2) (2) (2)
Advertising costs (2) (2) (2)
</TABLE>
- -----------------------------------
(1) The amount of 1994,includes $2.3 million from a major overall maintenance
and replacement work of worn interchangeable machinery parts mostly
related to dry process equipment. This kind of work is not recurrent
on an annual basis but is expected to take place every three to five
years.
(2) Amount is not disclosed because it is lower than the minimum required for
reporting in accordance with Rule 12-11 of Regulation S-X.
-28-
<PAGE> 1
FINANCIAL INFORMATION
14 Management's Discussion and Analysis of Financial
Condition and Results of Operations
16 Selected Financial Data
17 Report of Independent Accountants
18 Consolidated Statement of Income and Retained Earnings
19 Consolidated Balance Sheet
20 Consolidated Statement of Cash Flows
21 Notes to Consolidated Financial Statements
30 Consolidated Fourth Quarter Results
30 Financial Results by Quarters
31 Five-Year Statistical Comparison
32 Directors and Officers
IBC Stockholder Information
13
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section represents Management's discussion and analysis of the Company's
consolidated financial condition and results of operations. It should be read
with the accompanying financial statements.
ACQUISITION OF READY-MIXED CONCRETE COMPANIES
As further discussed in Note 2 to the consolidated financial statements, the
Company completed in November 1995 the acquisition of two ready-mixed concrete
companies. These acquisitions positioned Puerto Rican Cement Company within
the global movement in the cement industry toward vertical integration. Assets
acquired included 18 batching plants and a fleet of 195 ready-mixed concrete
trucks.
The Company expects that these acquisitions will serve as a means to
increase operational efficiency and achieve growth within its core business.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
The 1995 results include the impact of the operations (since the date of
acquisition) of the two ready-mixed concrete companies acquired in November.
The effects of these acquisitions are not included in the results of 1994.
Consolidated net sales increased 8% to $100,130,000 in 1995 from
$92,733,000 in 1994. This fluctuation was due
to the inclusion in net sales of $7,243,000 of ready-mixed concrete sales from
November 21, 1995 (date of acquisition) through December 31, 1995, and the
increases in sales in the paper and bag and the lime subsidiaries of $807,000
and $331,000, respectively.
Cement sales, including sales to consolidated subsidiaries, totaled
20,600,000 bags in 1995 compared with 20,416,000 bags in 1994, a minor
increase. Sales of cement, since the date of the acquisitions, to the
ready-mixed concrete companies subsidiaries remained at levels similar to those
experienced before their acquisitions.
Consolidated cost of sales for 1995 was $64,233,000 compared with
$59,514,000 in 1994. The increase of $4,719,000 represented the net effect of
the inclusion of $6,869,000 in costs attributable to the ready-mixed concrete
operations, offset by savings of more than $2,000,000 in the cement operations
principally attributable to a decrease in repair and maintenance expenses.
Cost of sales as a percentage of sales remained at 64% both in 1995 and 1994.
Consolidated selling, general and administrative expenses increased
$2,383,000 in 1995 compared with $11,308,000 in 1994. The increase was
principally due to higher consulting and professional services, increased
pension costs and the additional expenses arising from the ready-mixed concrete
operations.
Consolidated interest expense totaled $2,423,000 in 1995 compared with
$2,305,000 for 1994. The 5% increase was due to the interest expense on loans
related to the mills conversion project completed in the last quarter of 1995.
The Company capitalized the interest on those loans as part of the cost of the
project during the construction period. Interest expense resulting from the
outstanding balances of the Company's credit facilities are expected to
increase in 1996 because of the interest on the mills' project loans and on the
financing facilities obtained for the acquisitions already mentioned.
Consolidated interest income increased 10% to $2,529,000 compared with
$2,287,000 in 1994. The increase resulted principally from higher average
investment balances when compared with the prior year.
Other income with a total of $636,000 in 1995 increased $1,283,000 when
compared with other expenses of $648,000 in 1994. In 1995, the Company sold for
$508,000 equipment no longer used in the cement operations. The figures for
1994 were affected by: the write-off of goodwill purchased before 1970; a
write-off of equipment no longer in use in the cement manufacturing operations;
and an adjustment to the accrual of property taxes.
In 1995, the provision for income taxes as a percentage of income before
taxes increased 30% when compared with 1994 despite an increase of only 8% in
income before taxes. The increase resulted because of a favorable adjustment
of $2,016,000 in 1994 resulting from the enactment of the 1994 Puerto Rico
Internal Revenue Code that decreased the tax provision for that year.
1994 COMPARED WITH 1993
Consolidated net sales increased $9,359,000 in 1994 compared with 1993. A
stronger demand for cement in 1994 allowed the Company to increase its cement
sales by 2,213,000 bags to 20,416,000 bags, or 12% over the prior year. This
resulted from the continued strength of the construction sector of the Puerto
Rico economy and favorable weather conditions.
Consolidated cost of sales increased $6,223,000 in 1994 to $59,514,000,
an increase of 11.7% with a substantial part of this change attributable to the
higher sales volume experienced in 1994. The increased production levels
resulted in a higher consumption of raw materials, which together with major
general repair and maintenance works performed during the year, affected cost
of sales. As a percentage of sales, cost of sales increased from 63.4% in 1993
to 64.1% in 1994.
During the third quarter of 1994 the Company performed general maintenance
and replacement work on worn
14
<PAGE> 3
PUERTO RICAN CEMENT COMPANY, INC.
interchangeable machinery parts mostly related to the dry process equipment at
a cost of $2.3 million. This kind of repair is expected to take place every
three to five years.
Consolidated selling, general and administrative expenses were $11,308,000
in 1994 and $10,397,000 in 1993. The increase of $911,000 was due to higher
equipment rental expenses attributable to higher sales, increased pension plan
expenses resulting from changes in interest rates used in actuarial
computations, and normal inflationary increases in salaries and related
benefits.
Consolidated interest expense of $2,305,000 for 1994 decreased from
$2,654,000 in 1993 due to the refinancing during the second half of 1994 of
high interest credit facilities. In addition, interest expense related to the
mill conversion project loans was capitalized as part of the cost
of the project.
Interest income increased 84.6% from $1,239,000 in 1993 to $2,287,000 in
1994. This increase resulted from higher average investment balances and
interest rates when compared with the prior year.
Other expenses increased $869,000 in 1994 when compared with 1993. This
increase reflected principally the net effect of the write-off of goodwill
purchased before 1970, the write-off of equipment no longer used in cement
manufacturing operations and the adjustment of accrued property taxes related
to the dry process equipment.
The provision for income taxes decreased $1,131,000 when compared with
1993, despite an increase of $2,197,000 in income before taxes. The 1994
Puerto Rico Internal Revenue Code, enacted in October 1994, reduced the maximum
corporate tax rate from 42% to 39%. This change resulted in a favorable
adjustment to the deferred tax liability of $2,016,000, also reflected in the
provision for income taxes for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The information that follows presents the changes and fluctuations in assets
and liabilities for the year 1995 compared with 1994, net of the effect of the
balances (at the date of acquisition) of the assets and liabilities of the two
ready-mixed concrete companies previously discussed.
Cash and cash equivalents at December 31, 1995, totaled $11,600,000
compared with $115,000 at December 31, 1994. The 1995 amounts included
$1,275,000 of cash and cash equivalents balances from the ready-mixed concrete
companies. Working capital at December 31, 1995 of $49,519,000 increased from
$30,426,000 at December 31, 1994. The increase was related to increases in
cash equivalents and short-term investments resulting from the redemption of
long-term investments that the Company reinvested in shorter maturities
securities plus the reclassification to available-for-sale of $4,347,000 in
investments. The current ratio for both years, 1995 and 1994, remained at 2.8
to 1.
Net cash provided by operations for 1995 was $20,380,000 compared with
$25,557,000 in the prior year. The cash provided by operations was principally
used to: pay $3,701,000 in dividends; repurchase 75,000 of the Company's common
stock for $2,181,000; repay $2,420,000 in short-term borrowing; and pay
$5,793,000 in cash for the acquisitions of the ready-mixers previously
mentioned.
Consolidated notes and accounts receivable decreased by $3,781,000 in 1995
when compared with 1994, net of $13,949,000 attributable to the acquisitions of
the ready-mixers. The decrease resulted principally from a decline of
$1,200,000 in notes receivable and a decrease in trade receivables.
The increase of $1,794,000 in consolidated inventories resulted from the
net effect of increases in coal and spare parts inventory, offset by a decrease
of $518,000 in limestone used in the making of lime. Coal inventory increased
was due to a higher amount received (principally the result of the timing of
shipments) during this year when compared with 1994, while consumption of this
material remained at 1994 levels. Spare parts' inventory was $1,601,000 higher
in 1995 when compared with 1994 due to purchases of spare parts equipment
related to the mills project completed in the last quarter of 1995.
Despite the effect resulting from the acquisition of the two ready-mixers,
prepaid expenses decreased $451,000 when compared with 1994. The decline
resulted primarily from a reduction in the prepaid pension cost.
Accounts payable at December 1995, excluding the effect of acquisitions at
the date of the purchase, were $4,353,000 lower than the amount outstanding at
December 1994. The decrease was mainly due to a decline in the amounts payable
to cement plant suppliers.
Capital spending was $10,250,000 and was mainly attributable to the
conversion of two existing slurry mills to cement grinding project completed in
1995. Total project cost amounted to $21 million. The Company obtained the
funding for this project from commercial banks.
Long-term debt proceeds for the year ended on December 31, 1995 were
$38,371,000. These proceeds were used to: repay $10,000,000 of the outstanding
balance of the 7% dry process conversion loan and the 7.3% term loan;
refinance the $6,000,000 outstanding balance of the 9.9% dry process conversion
loan; $16,000,000 used in the refinancing of the debt of the two ready-mixers
acquired and; $6,000,000 to finish the mill conversion project.
15
<PAGE> 4
SELECTED FINANCIAL DATA PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues(1) .......................... $100,231,963 $92,829,872 $84,027,588 $80,021,520 $77,968,505
Income before income tax ....................... 23,049,750 21,342,365 19,145,787 15,426,354 14,666,908
Tax provision .................................. 7,257,317 5,579,153 6,710,065 5,319,720 4,388,418
Effect of change in accounting for
postretirement benefits other than
pensions, net ................................ (1,409,400)
Cumulative effect of change in accounting
for income tax ............................... 853,410
Net income ..................................... 15,792,433 15,763,212 11,879,732 10,106,634 10,278,490
Net income per share(2) ........................ 2.90 2.76 2.14 1.74 1.77
Current assets ................................. 78,548,232 47,298,323 51,207,564 57,862,068 58,209,916
Current liabilities ............................ 27,977,386 16,872,039 17,273,306 13,965,498 12,072,586
Working capital ................................ 50,570,846 30,426,284 33,934,258 43,896,570 46,137,330
Current ratio .................................. 2.81 2.80 2.96 4.14 4.82
Property, plant and equipment .................. 142,567,213 112,299,027 107,968,603 105,747,681 108,353,458
Long-term investments .......................... 31,228,541 42,030,507 32,512,367 8,866,765
Total assets ................................... 255,014,868 201,869,754 193,283,596 174,185,209 168,294,577
Long-term debt (exclusive of current portion) .. 57,549,475 31,696,403 26,633,080 24,500,000 30,357,143
Deferred income taxes .......................... 30,808,654 27,722,814 26,028,233 23,875,370 21,755,663
Stockholders' equity-net ....................... 135,805,923 122,971,336 120,675,030 111,844,341 104,109,185
Dividends per share ............................ 0.68 0.62 0.53 0.41 0.36
Cement sales in barrels ........................ 5,149,929 5,104,038 4,550,738 4,532,476 4,424,466
</TABLE>
(1) Including revenue from realty operations of:1995-$101,997; 1994-$97,095;
1993-$653,721; 1992-$119,634; 1991-$816,503.
(2) Excluding, in 1993, the cumulative effects of changes in accounting for
postretirement benefits and income taxes of ($0.24) and $0.15, respectively.
The increase of $3,058,000 in deferred income taxes resulted principally
from the use, for tax purposes, of the flexible depreciation method offset by
the effect of the decrease in the maximum income tax rates previously
discussed.
As discussed in Note 9 to the Consolidated Financial Statements, the
Company had available credit facilities for short-term borrowing and discount
of trade notes receivable of $19.3 million at December 31, 1995.
In Management's opinion, future cash flows generated from operations,
current cash and cash equivalent balances and the short-term borrowing
resources available to the Company will be sufficient to provide for the
Company's cash requirements in the foreseeable future.
The Company's Board of Directors declared a quarterly dividend of $0.17
per common share at its December 1995 meeting. Dividends declared in 1995
totaled $0.68 per common share compared with $0.62 in 1994.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is effective
for fiscal year 1996. Management estimates that the adoption of this statement
will have no material effect on the Company's consolidated financial statements.
16
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS PUERTO RICAN CEMENT COMPANY, INC.
PRICE WATERHOUSE
February 16, 1996
To the Board of Directors
and Stockholders of
Puerto Rican Cement Company, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Puerto
Rican Cement Company, Inc. and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
CERTIFIED PUBLIC ACCOUNTANTS
(SANJUAN,PUERTORICO)
License No. 10 Expires Dec. 1, 1998
Stamp 1327099 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report.
17
<PAGE> 6
CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .................................................................... $100,129,966 $ 92,732,777 $ 83,373,867
Revenue from realty operations, net .......................................... 101,997 97,095 653,721
- ---------------------------------------------------------------------------------------------------------------------------------
100,231,963 92,829,872 84,027,588
- ---------------------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales .............................................................. 64,232,980 59,514,156 53,290,853
Selling, general and administrative expenses ............................... 13,690,290 11,307,574 10,396,754
- ---------------------------------------------------------------------------------------------------------------------------------
77,923,270 70,821,730 63,687,607
- ---------------------------------------------------------------------------------------------------------------------------------
Income from operations .................................................. 22,308,693 22,008,142 20,339,981
- ---------------------------------------------------------------------------------------------------------------------------------
Other charges (credits):
Interest and financial charges, net of interest charged to construction .... 2,423,200 2,304,604 2,654,054
Interest income ............................................................ (2,528,677) (2,286,583) (1,238,858)
Other (income) expenses .................................................... (635,580) 647,756 (221,002)
- ---------------------------------------------------------------------------------------------------------------------------------
(741,057) 665,777 1,194,194
- ---------------------------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of accounting changes ......... 23,049,750 21,342,365 19,145,787
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Current income taxes ....................................................... 5,251,313 3,884,572 2,683,192
Deferred income taxes ...................................................... 2,006,004 1,694,581 4,026,873
- ---------------------------------------------------------------------------------------------------------------------------------
7,257,317 5,579,153 6,710,065
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes ................... 15,792,433 15,763,212 12,435,722
Cumulative effect of changes in accounting principles, net ................... -- -- (555,990)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income .............................................................. 15,792,433 15,763,212 11,879,732
Retained earnings at beginning of year ....................................... 114,140,497 101,891,599 93,060,910
Cash dividends declared; $0.68, $0.62 and $0.53 per share in 1995,
1994 and 1993, respectively ................................................ (3,716,145) (3,514,314) (3,049,043)
- ---------------------------------------------------------------------------------------------------------------------------------
Retained earnings at end of year ............................................. $126,216,785 114,140,497 $101,891,599
=================================================================================================================================
Earnings per share:
Income before cumulative effect of accounting changes ...................... $ 2.90 $ 2.76 $ 2.14
Cumulative effect of changes in accounting principles ...................... -- -- (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per share .................................................... $ 2.90 $ 2.76 $ 2.05
=================================================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
18
<PAGE> 7
CONSOLIDATED BALANCE SHEET PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................... $ 11,599,636 $ 114,702
Investments available-for-sale ............................................... 4,473,536 --
Short-term investments ....................................................... 974,073 --
Notes and accounts receivable, net ........................................... 24,526,385 14,358,827
Inventories .................................................................. 32,222,415 28,916,950
Prepaid expenses ............................................................. 4,752,187 3,907,844
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets .................................................... 78,548,232 47,298,323
Property, plant and equipment, net ........................................... 142,567,213 112,299,027
Long-term investments ........................................................ 31,228,541 42,030,507
Other assets ................................................................. 2,670,882 241,897
- -----------------------------------------------------------------------------------------------------------------------------
255,014,868 $201,869,754
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .............................................................. $ 4,100,000 $ --
Short-term borrowing ....................................................... -- 2,420,000
Current portion of long-term debt .......................................... 7,649,853 6,178,571
Accounts payable ........................................................... 8,440,255 3,810,152
Accrued liabilities ........................................................ 6,513,011 2,868,989
Dividends payable .......................................................... 939,603 929,818
Income taxes payable ....................................................... 334,664 664,509
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................... 27,977,386 16,872,039
- -----------------------------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term debt, less current portion ....................................... 57,549,475 31,696,403
Deferred income taxes ...................................................... 30,808,654 27,722,814
Postretirement benefit liability ........................................... 2,873,430 2,607,162
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities ............................................. 91,231,559 62,026,379
- -----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, authorized 2,000,000 shares of $5.00 par value each; none issued
Common stock, authorized 20,000,000 shares of $1.00 par value each;
6,000,000 shares issued ................................................. 6,000,000 6,000,000
Additional paid-in capital ................................................. 14,482,054 14,367,927
Unrealized gain on investments available-for-sale .......................... 74,313 --
Retained earnings .......................................................... 126,216,785 114,140,497
- -----------------------------------------------------------------------------------------------------------------------------
146,773,152 134,508,424
Less - 495,278 (1994-505,800) shares of common stock in treasury, at cost .. 10,967,229 11,537,088
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity .............................................. 135,805,923 122,971,336
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities ..................................... -- --
- -----------------------------------------------------------------------------------------------------------------------------
$ 255,014,868 $201,869,754
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................................. $15,792,433 $15,763,212 $11,879,732
- ----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities (net of effect of acquisitions):
Cumulative effect of changes in accounting principles, net .............. -- -- 555,990
Depreciation, depletion and amortization ................................ 7,320,130 6,949,122 6,916,046
Accretion of discounts on investments ................................... (2,202,236) (1,619,542) --
Provision for deferred income taxes ..................................... 3,057,631 1,694,581 4,026,873
Provision for postretirement benefits ................................... 404,804 72,485 390,000
Postretirement benefits paid ............................................ (151,522) (139,270) (146,053)
Gain on sale of land and equipment ...................................... (420,635) -- --
Gain on sales of long-term investments .................................. (22,092) -- (103,613)
Loss on disposition of idle equipment ................................... -- 587,671 --
Write-off of goodwill ................................................... -- 697,770 --
Loss on sale of short-term investments .................................. -- -- 5,534
Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable ................. 3,781,010 (732,668) (2,664,330)
(Increase) decrease in inventories ................................... (1,793,997) 4,224,886 2,631,267
Decrease (increase) in prepaid expenses .............................. 450,554 (419,568) (562,579)
(Increase) decrease in other assets .................................. (188,512) 44,941 113,633
(Decrease) increase in accounts payable .............................. (4,353,055) 24,811 1,376,823
(Decrease) increase in accrued liabilities ........................... (964,873) (1,631,823) 620,351
(Decrease) increase in income taxes payable .......................... (329,845) 40,246 (469,150)
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments .................................................. 4,587,362 9,793,642 12,690,792
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ............................... 20,379,795 25,556,85 424,570,524
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of ready-mixed concrete operations, net of cash acquired ....... (5,793,226) -- --
(Increase) decrease in short-term investments .............................. (3,708,372) 520,000 2,202,403
Capital expenditures ....................................................... 10,249,840) (11,256,763) (9,136,968)
Proceeds from sale of land and equipment ................................... 436,545 -- --
Proceeds from sale and redemption of investments ........................... 12,974,530 1,186,400 17,350,402
Purchases of investments ................................................... -- (9,084,998) (40,892,391)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ................................... (6,340,363) (18,635,361) (30,476,554)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock ................................................. (2,181,000) (9,952,592) --
(Decrease) increase in short-term borrowing ................................ (2,420,000) 2,420,000 --
Proceeds from loans ........................................................ 38,370,962 17,071,589 12,624,815
Payment of principal on long-term debt ..................................... 32,323,466) (13,321,430) (8,857,143)
Payment of notes payable ................................................... (300,000) -- --
Dividends paid ............................................................. (3,700,994) (3,455,651) (2,903,851)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities ..................... (2,554,498) (7,238,084) 863,821
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ............................. 11,484,934 (316,591) (5,042,209)
Cash and cash equivalents at beginning of year ............................... 114,702 431,293 5,473,502
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year ..................................... $11,599,636 $114,702 $431,293
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PUERTO RICAN CEMENT COMPANY, INC.
NOTE
1
- -------------------------------------------------------------------------------
REPORTING ENTITY AND SUMMARY OF
ACCOUNTING POLICIES:
The Company was organized in 1938 under the laws of the Commonwealth of Puerto
Rico. It is engaged primarily in the production and sale of cement and related
products principally within the island of Puerto Rico.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SUMMARY OF ACCOUNTING POLICIES
The following summarizes the most significant accounting policies judged by
management to be the most appropriate
in the circumstances to present the Company's consolidated financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, interest-bearing deposits and
other investments with maturities of less than three months at the time of
acquisition are considered cash equivalents.
INVESTMENTS
Investments in equity securities that have readily determinable fair values and
all investments in debt securities are accounted for as follows:
- - Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
cost, adjusted for amortization of premiums or accretion of discounts.
- - Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings.
- - Debt and equity securities not classified as either held-to-maturity or
trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported, net of taxes, in a separate component of
shareholders' equity.
INVENTORIES
Inventories are stated at the lower of average cost or market. Inventory cost
includes the related material, labor and overhead cost.
Land for sale includes the original cost of land and all development costs
incurred to bring land to a saleable condition.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided on
the straight-line basis over the estimated useful life of each type of asset.
Depletion of quarries is calculated on the units-of-production method.
Maintenance and repair costs which do not extend the life or improve
productive capacity of the respective assets are expensed as incurred. Cost of
renewals and betterments is capitalized. When assets are sold, retired or
otherwise disposed of, their cost and related accumulated depreciation are
removed from the accounts, and any gain or loss is credited or charged to
income.
INTEREST CHARGED TO CONSTRUCTION
The Company capitalizes interest as a component of the cost of construction.
Capitalized interest totaled $811,800 in 1995, $579,700 in 1994 and $88,800 in
1993.
GOODWILL
Goodwill is amortized on a straight-line basis over the estimated period of
benefit not to exceed 30 years.
INCOME TAXES
Income taxes are accounted for following an asset and liability approach to the
recognition of the tax consequences of differences between the tax basis of
assets and liabilities and their reported amounts in financial statements.
Certain expenses, primarily depreciation, are reported for tax purposes in
different periods from those in which they are reported in the financial
statements. Deferred taxes are provided on these and other temporary
differences between the tax basis of assets and liabilities and their reported
amounts in financial statements.
EMPLOYEE BENEFIT PLANS
The Company has a non-contributory retirement plan. Pension costs are computed
on the basis of accepted actuarial methods. The Projected Unit Credit method
is used to determine pension expense. Pension expense includes service cost
for benefits earned during the period, interest cost and amortization of
unrecognized prior service cost, of gains and losses on plan assets and of the
transition amount over a 15-year period. The Company's funding policy is to
contribute annually the maximum amount deductible for income tax.
21
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also offers postretirement medical and life insurance benefits
to certain retired employees under an unfunded plan. The expected cost of
providing postretirement health care and other benefits to an employee or its
beneficiaries is recognized over their service period, is computed based on
accepted actuarial methods, and includes service costs for benefits earned
during the period, interest costs and amortization of actuarial gains and
losses.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of shares
of common stock outstanding during the year. The weighted average number of
shares outstanding during the year was 5,452,204 in 1995, 5,704,800 in 1994 and
5,807,700 in 1993.
PROFIT RECOGNITION ON SALES OF REAL ESTATE
Land and development costs are allocated to lots sold proportionately based on
area and total project cost. Income on sale of land is recognized at the time
of sale except where the collectibility is not reasonably assured and revenue
therefore is not measurable.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
NOTE
2
- --------------------------------------------------------------------------------
ACQUISITIONS:
On November 20, 1995, the Company purchased 100% of the outstanding shares of
Ready Mix Concrete, Inc. (RMC) and Concreto Mixto, Inc. (CMI). The acquisition
was financed through the issuance of 85,522 shares of the Company's common
stock held in treasury, issuance of notes payable to the sellers and cash.
Approximately 19% of the shares of RMC have not been delivered to the
Company. The transfer of these shares requires the approval of the Court. The
Company does not expect any problem to obtain this approval.
The principal business of RMC and CMI is to produce, sell and distribute
ready-mixed concrete throughout the island of Puerto Rico. The Company
accounted for both acquisitions under the purchase method.
The following is a summary of the assets acquired and liabilities assumed
from RMC and CMI at the date of their acquisition (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------
Total
- ----------------------------------------
<S> <C>
Current assets ................. $19,869
Property, plant and equipment .. 27,242
Goodwill ....................... 1,657
Other assets ................... 782
- ----------------------------------------
49,550
- ----------------------------------------
Current liabilities............. 13,186
Long-term debt ................. 12,788
- ----------------------------------------
25,974
- ----------------------------------------
Net assets...................... $23,576
========================================
</TABLE>
The accompanying balance sheet includes the assets and liabilities of RMC
and CMI at December 31, 1995. The statements of income and retained earnings
and of cash flows include their result of operations and cash flows from
November 21 to December 31, 1995.
Unaudited, proforma consolidated results of operations assuming that the
acquisition of RMC and CMI had occurred as of January 1, 1994 follow (in
thousands, except per share figures):
<TABLE>
<CAPTION>
- ----------------------------------------------
1995 1994
- ----------------------------------------------
<S> <C> <C>
Net sales............. $144,385 $137,989
Net income ........... 14,789 13,125
Per share ............ 2.71 2.30
</TABLE>
The above proforma information includes amortization of goodwill,
depreciation and other adjustments related to the acquisition.
NOTE
3
- --------------------------------------------------------------------------------
NOTES AND ACCOUNTS RECEIVABLE:
Notes and accounts receivable consist of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Notes receivable:
Trade ............................... $ 534,699 $ 1,698,752
Other ............................... 30,000 80,253
- ----------------------------------------------------------------
564,699 1,779,005
- ----------------------------------------------------------------
Accounts receivable:
Trade ............................... 25,128,720 13,418,151
Employees and affiliated companies .. 120,133 26,428
Other ............................... 252,621 229,246
- ----------------------------------------------------------------
25,501,474 13,673,825
Less - Allowance for
doubtful accounts ................. 1,539,788 1,094,003
- ----------------------------------------------------------------
23,961,686 12,579,822
- ----------------------------------------------------------------
$24,526,385 $14,358,827
================================================================
</TABLE>
22
<PAGE> 11
PUERTO RICAN CEMENT COMPANY, INC.
NOTE
4
- --------------------------------------------------------------------------------
INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Finished products.........................................$ 2,207,360 $ 1,964,131
Work-in-process........................................... 3,521,451 3,561,875
Raw materials ............................................ 4,651,699 4,202,704
Coal and fuel oil ........................................ 1,838,286 1,195,542
Maintenance and operating supplies........................ 19,501,017 17,685,316
Land for sale ............................................ 502,602 307,382
- ------------------------------------------------------------------------------------
$32,222,415 $28,916,950
====================================================================================
</TABLE>
NOTE
5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
- -----------------------------------------------------------------------------------
Useful life
in years 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and quarries ................ $ 9,986,078 $ 4,909,929
Buildings and structures ......... 50 38,971,129 27,680,111
Machinery and equipment .......... 5-20 104,498,442 87,007,090
Pollution control equipment ...... 25 30,775,191 28,020,993
Automobiles and trucks ........... 3-10 13,175,076 793,895
Rental property .................. 10 653,524 653,524
Construction in progress ......... 488,500 14,622,225
- -----------------------------------------------------------------------------------
198,547,940 163,687,767
Less - Accumulated depreciation,
depletion and amortization .. 55,980,727 51,388,740
- -----------------------------------------------------------------------------------
$142,567,213 $112,299,027
===================================================================================
</TABLE>
NOTE
6
- --------------------------------------------------------------------------------
INVESTMENTS:
As part of the issuance of its Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the Financial Accounting Standards Board agreed to provide
entities a one time opportunity to transfer securities from held-to-maturity
without tainting their remaining held-to-maturity portfolio. In December 1995,
and based on this opportunity, the Company decided to transfer securities with
an approximate amortized cost and market value of $2,960,000 and $3,035,000,
respectively, from held-to-maturity to available-for-sale.
The carrying, market values and scheduled maturities of investments at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities
1-5 years $ 732,342 $ 748,828
5-10 years 1,023,561 1,070,264
- -------------------------------------------------------------------------------
1,755,903 1,819,092
- -------------------------------------------------------------------------------
Municipal and other
U.S. government
agency securities
5-10 years 1,204,327 1,215,450
- -------------------------------------------------------------------------------
Marketable equity
securities 1,438,994 1,438,994
- -------------------------------------------------------------------------------
$4,399,224 $4,473,536
===============================================================================
HELD-TO-MATURITY
LONG-TERM INVESTMENTS
U.S. Treasury securities
1-5 years $17,469,648 $17,238,705 $15,854,936 $14,927,853
5-10 years 6,659,099 6,626,896 17,016,427 15,483,174
- -------------------------------------------------------------------------------
24,128,747 23,865,601 32,871,363 30,411,027
- -------------------------------------------------------------------------------
Municipal and other
U.S. government
agency securities
1-5 years 6,556,213 6,484,377 4,835,315 4,493,454
5-10 years 543,581 540,864 4,323,829 3,992,828
7,099,794 7,025,241 9,159,144 8,486,282
$31,228,541 $30,890,842 $42,030,507 $38,897,309
</TABLE>
<TABLE>
<CAPTION>
NOTE
7
- --------------------------------------------------------------------------------
OTHER ASSETS:
Other assets consist of:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment in real estate ........... $ 94,533 $ 94,533
Goodwill, net of accumulated
amortization of $3,610 ............. 1,653,601
Other long-term assets .............. 922,748 147,364
- --------------------------------------------------------------------------------
$2,670,882 $241,897
================================================================================
</TABLE>
23
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
8
- --------------------------------------------------------------------------------
ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Accrued taxes other than on income....... $ 789,228 $ 153,985
Accrued payroll expenses ................ 2,838,488 1,917,403
Accrued interest expense ................ 206,305 386,510
Other accrued liabilities ............... 2,678,990 411,091
- ------------------------------------------------------------------
$6,513,011 $2,868,989
==================================================================
</TABLE>
NOTE
9
SHORT-TERM BORROWING:
The Company has lines of credit available for short-term borrowing and discount
of trade notes receivable in the aggregate amount of $20,600,000. However,
UNDER exit other loan agreements with financial institutions, the Company may
incur in additional unsecured short-term borrowing up to $10,000,000 and may
discount trade notes receivable up to $5,000,000 through 1999.
No balance was outstanding under short-term credit facilities at December
31, 1995. However, these facilities were guaranteeing notes receivable
discounted with a bank totaling $1.3 million and, therefore, the amount
available for borrowing at that date was $19.3 million. Short-term borrowing
at December 31, 1994 was $2,420,000 with interest ranging from 6.1% to 6.3%.
Maximum aggregate short-term borrowing outstanding at any month-end was
$2,175,000 in 1995 and $3,400,000 in 1994. The approximate average aggregate
short-term borrowing outstanding during the year was $751,000 in 1995 and
$424,000 in 1994. The weighted average interest rate of such borrowing
computed annually was 6.09% during 1995 and 5.69% during 1994.
NOTE
10
<TABLE>
<CAPTION>
LONG-TERM DEBT:
- -------------------------------------------------------------------------------------
Long-term debt consists of:
- -------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
$12 million revolving line of credit,
converted on December 31, 1995 into
term loans maturing in various amounts
between 1996 and 2000, with interest
payable monthly at fixed rates which
range from 6.56%to 7.58% ..................... $12,000,000 $ 5,696,403
6.25% term loan, payable in equal annual
installments of $750,000 and a final
payment of $3,000,000 in 1998;
interest payable monthly ..................... 4,500,000 5,250,000
6.25% term loan, payable in four equal
annual installments of $1,000,000 and a
final payment of $4,000,000 in 1998;
interest payable monthly ..................... 6,000,000 7,000,000
7.35% loan, payable in full on August 13, 1999;
interest payable monthly ................... 3,000,000 3,000,000
6.15% loan, payable in five equal annual
installments of $600,000 and a final
payment of $3,000,000 in 2001;
interest payable monthly ..................... 6,000,000 --
6.55% term loan, payable in five equal annual
installments of $1,005,357 beginning
November 1996 followed by two equal
annual installments of $2,513,393;
interest payable monthly ..................... 10,053,571 --
6.55% term loan, payable in five equal annual
installments of $800,000 commencing
November 1996, followed by two equal
annual payments of $2,000,000; interest
payable monthly .............................. 8,000,000 --
6.32% note, payable in twenty equal quarterly
installments of $200,000 commencing
February 1996, followed by eight equal
installments of $500,000 in years six and
seven; interest payable monthly .............. 8,000,000 --
6% promissory notes, due November 1997;
interest payable quarterly beginning
April, 1996 .................................. 4,865,000 --
5% non-negotiable notes, due November
1997; interest payable quarterly beginning
December, 1995 ............................... 2,675,976 --
Borrowing against cash surrender value of life
insurance policies, bearing interest at 5% 104,781 --
7% dry process conversion loan,
paid in 1995 ............................... -- 3,928,571
7.3% term loan, paid in 1995 ................. -- 7,000,000
9.9% dry process conversion loan,
paid in 1995 ............................... -- 6,000,000
- -------------------------------------------------------------------------------------
Total ...................................... 65,199,328 37,874,974
Less - Current portion ....................... 7,649,853 6,178,571
- -------------------------------------------------------------------------------------
Total long-term debt ....................... $57,549,475 $31,696,403
=====================================================================================
</TABLE>
24
<PAGE> 13
PUERTO RICAN CEMENT COMPANY, INC.
In September 1985, the Company restructured the terms of all of its
outstanding debt with the Government Development Bank for Puerto Rico (GDB).
The maturity date on the loans from GDB was extended to September 2002, and the
annual interest rate was fixed. No interest or principal payments are required
before maturity. Simultaneously, the Company placed U.S. government
securities, with a cost of $8 million and a maturity value of $49.8 million, in
an irrevocable trust. The principal and interest of these securities will be
sufficient to fund the scheduled principal and interest payments on the
Company's debt with the GDB. Accordingly, such debt was considered
extinguished in 1985 and is not included as a liability in the consolidated
balance sheet. The total balance of debt with GDB not included in the
consolidated balance sheet, consisting of principal plus accumulated interest,
amounted to $36.6 million at December 31, 1995 (1994 - $34.8 million).
The loan agreements with banks and other financial institutions impose
certain restrictions on the Company. The most important restrictions are
limitations on unsecured short-term borrowing and on discounting with recourse
of trade paper from customers (Note 9), maintaining working capital greater
than certain defined minimums and limitations on funded debt and other
indebtedness. Other restrictions under such loan agreements relate to
investments in and advances to subsidiaries and other persons, disposition of
fixed assets, and payment of dividends. At December 31, 1995, the Company was
in compliance with the provisions of the loan agreements. The agreements also
impose certain prepayment penalties. In 1995, the Company paid the maximum
amount that may be paid under these loan agreements without triggering the
prepayment penalties.
Aggregate maturities of long-term debt at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------
Years Amount
- ----------------------------------
<S> <C>
1996 ................. $7,649,853
1997 ................. 13,600,423
1998 ................. 10,205,357
1999 ................. 7,819,907
2000 and thereafter .. 25,923,788
- ----------------------------------
$65,199,328
==================================
</TABLE>
NOTE
11
- --------------------------------------------------------------------------------
INCOME TAXES:
Consolidated tax returns are not permitted under the Puerto Rico Income Tax
Law; therefore, losses, if any, of subsidiaries cannot be used to offset
taxable income of other members of the consolidated group.
The Puerto Rico Income Tax Law currently allows an accelerated flexible
depreciation method, by which a taxpayer may claim depreciation at any rate
without reference to useful lives, but limited to an amount not greater than
income before taxes (determined without taking into consideration the
depreciation deduction). Deferred income taxes of $30,808,654
(1994-$27,722,814) have been accumulated primarily from using the flexible
depreciation method for tax purposes only. The benefits available under the
accelerated depreciation methods are limited by the alternative minimum tax
(AMT) provisions of the income tax law. The AMT is based on 22% of regular
taxable income with certain adjustments for preference items, one of which
relates to the accelerated depreciation methods. Any AMT paid may be used to
reduce the regular tax liability of future years, to the extent that the
regular tax exceeds the AMT.
The Company adopted SFAS 109, "Accounting for Income Taxes," effective
January 1, 1993. The cumulative effect of adopting this standard was a
reduction of $853,410 ($0.15 per share) in the deferred income tax liability.
The impact of adopting SFAS109 on the income tax provision for 1993 was not
significant.
A new Puerto Rico Internal Revenue Code was enacted in 1994. This Law
reduced the maximum corporate income tax rate from 42% to 39% for calendar year
1996 and thereafter. This reduction resulted in a decrease of $755,000 and
$2,016,000 ($0.14 and $0.35 per share) in the deferred tax liability for 1995
and 1994, respectively. Also, the new Code generally provides a 100% exclusion
on dividends from controlled Puerto Rico corporations.
Other provisions of the new Code include the replacement of the
flexible depreciation method for property acquired after December 31, 1995 with
a new accelerated depreciation method and the repeal of the reserve method for
bad debts with recapture of the existing reserve over a four-year period. These
provisions, effective for calendar year 1996, will reduce the alternatives for
deferral of income taxes, however, Management does not expect the impact on
cash flow to be significant in the near term because of the availability of
property that qualifies for flexible depreciation.
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Income tax applicable to:
Flexible depreciation taken
during the year .............. $ 9,565,906 $ 7,407,589 $ 5,355,405
Reversal of flexible depreciation
taken in prior years ......... (2,342,018) (2,188,381) (1,732,359)
AMT credit ...................... (4,246,939) (3,867,582) --
Postretirement benefit
obligation ................... (98,780) 28,050 (102,458)
Difference between pension
credits and amounts
deductible for tax .............. (98,305) 78,187 122,840
Interest charged to construction 313,684 243,474 37,308
Other temporary differences ..... (35,917) (6,756) 346,137
- -----------------------------------------------------------------------
$ 3,057,631 $ 1,694,581 $ 4,026,873
=======================================================================
</TABLE>
25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of the difference between the Puerto Rico statutory tax
rate on income before taxes and the consolidated effective tax rate follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
Amount income Amount income Amount income
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax provision.......................... $9,680,895 42.0 $8,963,793 42.0 $8,041,231 42.0
Increase (decrease) in taxes resulting from:
Enacted future rate changes.................... (755,000) (3.3) (2,016,293) (9.4) -- --
Amortization of goodwill....................... -- -- 293,063 1.4 -- --
Tax exempt income.............................. -- -- -- -- (164,729) (0.9)
Interest earned on exempt securities........... (1,017,843) (4.4) (952,765) (4.5) (514,190) (2.7)
Interest deducted for tax but not for
financial statements........................... (1,089,746) (4.7) (995,407) (4.7) (789,241) (4.1)
Other items.................................... 439,011 1.9 286,762 1.3 136,994 0.7
- --------------------------------------------------------------------------------------------------------------------------------
$7,257,317 31.5 $5,579,153 26.1 $6,710,065 35.0
================================================================================================================================
</TABLE>
The deferred tax assets and liabilities at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Prepaid pension cost ....................... -- $ 1,030,305 -- $ 1,128,609
Non-current:
AMT credit ................................. $8,418,775 -- $4,235,307 --
Postretirement benefit liability ........... 1,115,573 -- 1,016,793 --
Property, plant and equipment .............. 39,221,732 31,846,305
Other ...................................... 284,626 375,591 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total deferred tax asset/liability ......... $9,818,974 $40,627,628 $5,252,100 $32,974,914
==============================================================================================================================
Net deferred tax liability ................. $30,808,654 $27,722,814
==============================================================================================================================
</TABLE>
One of the consolidated subsidiaries enjoys a tax exemption grant under
the provisions of the Puerto Rico Tax Incentives Act of 1987. Under this
grant, the exemption rates applicable to income, property and municipal taxes
range from 50% to 90% through year 2008.
The subsidiaries' aggregate retained earnings amounted to $20,121,000 at
December 31, 1995 (1994 - $20,065,000) and arose substantially from partially
tax exempt operations. The subsidiaries' retained earnings are substantially
exempt upon distribution to the Company, therefore no income taxes have been
provided for such earnings.
NOTE
12
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its non-union employees. The benefits are based on years of service and the
employee's average compensation during the last five years of employment. The
net periodic pension cost for 1995 totaled $252,063 (1994 - $155,880), which
decreased the prepaid pension cost by the same amount. In 1993 the net
periodic pension cost resulted in a credit to income of $342,039.
26
<PAGE> 15
PUERTO RICAN CEMENT COMPANY, INC.
Net pension cost included the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period ........... $ 474,075 $ 450,622 $ 307,352
Interest cost on projected
benefit obligation .......... 1,314,808 1,224,251 1,042,511
Actual return on plan assets .. (1,589,649) (1,571,822) (1,452,608)
Deferral and amortization - net 52,829 52,829 (239,294)
- ----------------------------------------------------------------------
Net periodic pension
expense (income) ............ $ 252,063 $ 155,880 $ (342,039)
======================================================================
</TABLE>
The following table sets forth the plan's obligations and amounts
recognized in the Company's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations -
Accumulated benefit obligation, including
vested benefits of $16,135,188
(1994 - $14,906,312) ..........................$16,407,310 $15,167,679
==========================================================================
Projected benefit obligation for service
rendered to date ............................ $19,380,168 $17,994,484
Plan assets at fair value ...................... 24,126,461 20,351,302
- --------------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation .......................... 4,746,293 2,356,818
Unrecognized prior service cost ................ 1,922,721 2,134,858
Unrecognized net gain .......................... (3,064,300) (482,654)
Unrecognized portion of transition cost
at January 1, 1987, being recognized
over 15 years .................................. (955,844) (1,115,152)
- --------------------------------------------------------------------------
Prepaid pension cost included in
prepaid expenses ............................ $ 2,648,870 $ 2,893,870
==========================================================================
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of benefit
obligations and the projected benefit obligation were 7.5% and 5.5%,
respectively. The expected long-term rate of return on assets is 8%.
Investments held by the plan include high grade corporate bonds, U.S. Treasury
securities, and common stock, including shares of the Company. The plan is
administered by a Board of Trustees composed of five Directors of the Company.
The Board uses two independent money managers which, within certain established
guidelines, make investment decisions regarding the assets of the plan.
One of the Company's consolidated subsidiaries has a noncontributory
defined benefit pension plan. This plan provides coverage to substantially all
the subsidiary's employees not covered by a collective bargaining agreement.
Benefits under the plan are based on years of service and the employee's
highest consecutive five-year average compensation within the last ten
completed years of service. The plan's funded status includes an accumulated
benefit obligation of $3,415,000, including $3,324,000 of vested benefits, a
projected benefit obligation of $3,435,000 and plan assets at fair value of
$3,636,000.
The Company also provides health care and life insurance benefits to
participants of the plan after retirement. The employees, upon retirement,
have the option of continuing their participation in the Company's medical
group insurance coverage under the same terms and conditions as prescribed for
active employees. The life insurance plan coverage decreases, for a period of
ten years after age 65, at an annual rate of 7 1/2%.
In January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," and elected to immediately
recognize the transition obligation for future benefits to be paid related to
past employee services. This resulted in a non-cash pretax charge of
$2,430,000 ($1,409,400 after tax or $0.24 per share) that represents the effect
of the change in accounting for prior years.
The postretirement benefit expense for 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1995 1994 1933
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned............ $ 52,791 $ 56,341 $ 62,966
Interest cost 189,058195,064 195,945
Amortization and deferral - net............ (4,026) (178,920) 131,089
- ------------------------------------------------------------------------------------------------
Postretirement benefit expense ............ $236,923 $ 72,485 $390,000
================================================================================================
</TABLE>
The postretirement benefit liability included the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of postretirement
benefit obligations:
Retirees ................................. $1,181,571 $1,181,571
Fully eligible active plan participants .. 695,081 663,331
Other active plan participants ........... 928,291 965,189
- ------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 2,736,040 2,810,091
Unrecognized actuarial (loss) gain ......... (52,426) (202,929)
- ------------------------------------------------------------------------------------------------
Postretirement benefit liability at the
end of the year .......................... $2,683,614 $2,607,162
================================================================================================
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.5%. The assumed health care cost trend rate used to measure
the accumulated postretirement benefit obligation was 10.5% initially, declining
gradually to 5.5% in year 2018 and thereafter. A one-percentage-point increase
in the assumed health care cost trend rate would have increased the 1995
postretirement benefit expense by $28,500 and would have increased the 1995
accumulated postretirement benefit obligation by $275,300.
27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
13
- --------------------------------------------------------------------------------
FINANCIAL DATA BY INDUSTRIES
The Company's financial data by industries for the years ended December 31,
1995, 1994 and 1993 is as follows (000's omitted):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers:
Cement and related products .. $ 93,922 $ 87,486 $ 77,796
Paper and packaging .......... 6,208 5,247 5,578
Realty operations ............ 102 97 654
- --------------------------------------------------------------
$100,232 $ 92,830 $ 84,028
==============================================================
Inter-segment sales:
Cement and related products .. $ 1,926 $ -- $ --
Paper and packaging .......... 3,248 3,581 3,444
- --------------------------------------------------------------
$ 5,174 $ 3,581 $ 3,444
==============================================================
Operating profit:
Cement and related products .. $ 21,625 $ 21,064 $ 18,564
Paper and packaging .......... 582 847 1,122
Realty operations ............ 102 97 654
- --------------------------------------------------------------
$ 22,309 $ 22,008 $ 20,340
==============================================================
Identifiable assets:
Cement and related products .. $204,196 $158,038 $156,373
Paper and packaging .......... 3,978 1,556 2,351
Realty operations ............ 1,226 1,241 1,256
Corporate .................... 45,615 41,035 33,304
- --------------------------------------------------------------
$255,015 $201,870 $193,284
==============================================================
Depreciation, depletion and
amortization:
Cement and related products .. $ 7,243 $ 6,869 $ 6,837
Paper and packaging .......... 77 80 79
- --------------------------------------------------------------
$ 7,320 $ 6,949 $ 6,916
==============================================================
Capital expenditures:
Cement and related products .. $ 10,207 $ 11,217 $ 9,125
Paper and packaging .......... 43 40 12
- --------------------------------------------------------------
$ 10,250 $ 11,257 $ 9,137
==============================================================
</TABLE>
The Company operates in the cement and related products, the paper and
packaging industries and in realty operations mainly within the island of
Puerto Rico. Operations in the cement and related products industry involve
production and sale of cement and hydrated lime and ready-mixed concrete
operations. Operations in the paper and packaging industry involve production
and sale of paper bags. Realty operations involve the sale and lease of real
property.
Operating profit is total revenue less operating expenses. Interest
expense and income taxes have not been deducted in computing operating profit.
Identifiable assets are those that are used in the Company's operations in
each segment. Corporate assets are principally investments and other assets
not used by any industry segment.
In 1995 the Company's largest customer in the cement and related products
segment accounted for 11% of total consolidated sales. Export sales were not
significant.
To reconcile industry information with consolidated amounts, the following
eliminations have been made: $5,354,000 in 1995, $3,581,000 in 1994 and
$3,444,000 in 1993 of inter-segment sales, $52,800 in 1995 $3,600 in 1994 and
$47,500 in 1993 relating to the net change in inter-segment operating profit in
beginning and ending inventories; and $6,217,000 in 1995, $8,392,000 in 1994
and $6,957,000 in 1993 of receivables arising from inter-segment sales.
NOTE
14
- --------------------------------------------------------------------------------
LEASE COMMITMENTS
The Company and its subsidiaries lease certain equipment under operating lease
agreements. Rental expense under such agreements aggregated $296,000 in 1995,
$283,000 in 1994 and $276,000 in 1993.
At December 31, 1995, the approximate future minimum lease payments under
noncancellable operating leases were as follows:
<TABLE>
- ------------------------------------------
Year
- ------------------------------------------
<S> <C>
1996 ..........................$ 340,305
1997 .......................... 335,155
1998 .......................... 291,855
1999 .......................... 275,299
2000 .......................... 362,262
2001 and beyond ............... 1,233,340
- ------------------------------------------
$2,838,216
==========================================
</TABLE>
NOTE
15
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS
The carrying amount of these assets approximates fair value because of the
short maturity of those instruments.
INVESTMENTS
The fair value of investments are estimated based on quoted market prices for
these or similar investments.
28
<PAGE> 17
PUERTO RICAN CEMENT COMPANY, INC.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated using discounted
cash flows based on the current rates offered to the Company for debt of the
same remaining maturities.
The carrying amount and estimated fair values of these financial
instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents.... $11,600 $11,600 $ 115 $ 115
Investments available-.......
for-sale .................. 4,474 4,474 -- --
Short-term investments....... 974 1,047 -- --
Long-term investments........ 31,229 30,891 42,031 38,897
Long-term debt .............. 65,199 63,500 37,875 36,417
</TABLE>
NOTE
16
- --------------------------------------------------------------------------------
CONTINGENT LIABILITIES AND OTHER COMMITMENTS
The Company is obligated to purchase, under a long-term supply contract
renegotiated in January 1992, a minimum of 100,000 metric tons of coal annually
through the year 2000. The purchase price is negotiated annually. Coal
purchases have exceeded the minimum amount required by the contract. Purchases
under the contract amounted to $6,543,000 in 1995, $4,278,000 in 1994 and
$4,690,000 in 1993.
The Company is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final outcome of these matters will not affect the Company's
financial position and results of operations.
NOTE
17
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
During 1995, the Company purchased 75,000 shares of its outstanding stock for
$2,181,000. The Company purchased these shares for future corporate purposes
and does not intend to retire or cancel them. Also, in 1995, the Company
reissued 85,522 shares of its common stock held in treasury as part of the
agreement to purchase one of the ready-mixed concrete companies as further
discussed in Note 2.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Treasury Additional
Number stock at paid-in
of shares cost capital
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993
and 1992 ..................... 192,300 $1,584,496 $14,367,927
Treasury stock purchased ...... 313,500 9,952,592 --
Balance at December 31, 1994 .. 505,800 11,537,088 14,367,927
Treasury stock purchased ...... 75,000 2,181,000 --
Treasury stock reissued ....... (85,522) (2,750,859) 114,127
- --------------------------------------------------------------------------
Balance at December 31, 1995 .. 495,278 $10,967,229 $14,482,054
==========================================================================
</TABLE>
NOTE
18
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash was paid during the year for:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest (net of amount
capitalized) ............ $2,603,000 $2,354,000 $2,855,000
================================================================================
Income taxes ............. $4,501,000 $3,844,000 $3,169,000
================================================================================
</TABLE>
29
<PAGE> 18
CONSOLIDATED FOURTH QUARTER RESULTS PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
(000's Omitted Except Per Share Amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues ............................................ $29,890 $21,940 $100,232 $92,830
Cost of sales ................................................. 19,292 12,962 64,233 59,514
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin .................................................. 10,598 8,978 35,999 33,316
Selling, general and administrative expenses .................. 4,192 3,233 13,690 11,308
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations ........................................ 6,406 5,745 22,309 22,008
- -----------------------------------------------------------------------------------------------------------------------------------
Other charges (credits):
Interest and financial charges ................................ 883 556 2,423 2,305
Interest income ............................................. (680) (626) (2,529) (2,287)
Other income ................................................ (128) 452 (635) 648
- -----------------------------------------------------------------------------------------------------------------------------------
75 382 (741) 666
Income before income taxes 6,331 5,363 23,050 21,342
Tax provision(1) .............................................. 1,448 124 7,258 5,579
Net income .................................................... $ 4,883 $ 5,239 $ 15,792 $15,763
===================================================================================================================================
Earnings per share of common stock* ........................... $ 0.90 $ 0.92 $ 2.90 $ 2.76
===================================================================================================================================
</TABLE>
FINANCIAL RESULTS BY QUARTERS
<TABLE>
<CAPTION>
(000's Omitted Except Per Share Amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Mar. 31 June 30 Sept. 30 Dec. 31 1995 Mar. 31 June 30 Sept. 30 Dec. 31 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues ....... $22,743 $25,201 $22,399 $29,889 $100,232 $22,537 $24,787 $23,566 $21,940 $92,830
=================================================================================================================================
Gross profit ............. 7,999 9,911 7,941 10,148 35,999 8,048 9,294 6,996 8,978 33,316
=================================================================================================================================
Income before income tax 4,967 7,272 4,479 6,332 23,050 5,535 6,349 4,095 5,363 21,342
Tax provision (1) ........ 1,674 2,544 1,591 1,449 7,258 1,963 2,256 1,236 124 5,579
- ---------------------------------------------------------------------------------------------------------------------------------
Net income ............... $ 3,293 $ 4,728 $ 2,888 $ 4,883 $ 15,792 $ 3,572 $ 4,093 $ 2,859 $ 5,239 $15,763
=================================================================================================================================
Per share* ............... $ 0.60 $ 0.87 $ 0.53 $ 0.90 $ 2.90 $ 0.62 $ 0.72 $ 0.50 $ 0.92 $ 2.76
=================================================================================================================================
</TABLE>
* Based on weighted average of outstanding shares of 5,452,204 in 1995 and
5,704,800 in 1994.
(1) Includes, in the last quarter of 1994, and adjustment of approximately
$2,000,000 decreasing the provision for income taxes as the result of the
decrease in the maximum corporate income tax rate from 42% to 39%,
effective in 1996.
30
<PAGE> 19
FIVE-YEAR STATISTICAL COMPARISON
PUERTO RICAN CEMENT COMPANY, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET SUMMARY
<S> <C> <C> <C> <C> <C>
Cash ........................................ $ 11,599,636 $ 114,702 $ 431,293 $ 130,782 $ 221,351
Investments available-for-sale .............. 4,473,536
Short-term investments ...................... 974,073 520,000 8,070,657 11,391,863
Accounts receivable-net ..................... 24,526,385 14,358,827 13,626,159 10,961,829 12,577,715
Inventories ................................. 32,222,415 28,916,950 33,141,836 35,773,103 31,204,693
Prepaid expenses ............................ 4,752,187 3,907,844 3,488,276 2,925,697 2,814,294
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS - TOTAL ................... 78,548,232 47,298,323 51,207,564 57,862,068 58,209,916
Property, plant and equipment-net ........... 142,567,213 112,299,027 107,968,603 105,747,681 108,353,458
Other assets ................................ 2,670,882 241,897 1,595,062 1,708,695 1,731,203
Long-term investments ....................... 31,228,541 42,030,507 32,512,367 8,866,765
- -----------------------------------------------------------------------------------------------------------------------------
$255,014,868 $201,869,754 $193,283,596 $174,185,209 $168,294,577
=============================================================================================================================
Notes payable (include current portion of
long-term debt and short-term borrowing) $ 11,749,853 $ 8,598,571 $ 7,491,735 $ 5,857,143 $ 3,482,143
Accounts payable and accrued liabilities .... 16,227,533 8,273,468 9,781,571 8,108,355 8,590,443
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES - TOTAL ............... 27,977,386 16,872,039 17,273,306 13,965,498 12,072,586
Long-term debt (exclusive of current portion) 57,549,475 31,696,403 26,633,080 24,500,000 30,357,143
Deferred income taxes ....................... 30,808,654 27,722,814 26,028,233 23,875,370 21,755,663
Postretirement benefit liability ............ 2,873,430 2,607,162 2,673,947
Capital stock (1) ........................... 9,514,825 8,830,839 18,783,431 18,783,431 14,783,431
Unrealized gain - inventories
available-for-sale ........................ 74,313
Retained earnings ........................... 126,216,785 114,140,497 101,891,599 93,060,910 89,325,754
- -----------------------------------------------------------------------------------------------------------------------------
$255,014,868 $201,869,754 $193,283,596 $174,185,209 $168,294,577
=============================================================================================================================
STATISTICAL DATA
Book value per share ........................ $ 24.67 $ 22.38 $ 20.78 $ 19.26 $ 17.93
Shares outstanding at year-end .............. 5,504,722 5,494,200 5,807,700 5,807,700 5,807,700
Number of stockholders ...................... 655 684 705 729 729
Number of employees ......................... 939 552 533 534 555
Capital expenditures (including expenditures in
mill conversion in 1995, 1994 and 1993 and
dry process conversion until 1991) ........ $ 10,249,840 $ 11,256,763 $ 9,136,968 $ 4,329,321 $ 19,803,268
=============================================================================================================================
</TABLE>
(1) Including, for 1995 and 1994, the purchase of 75,000 and 313,500 of the
Company's outstanding stocks for $2,181,000 and $9,953,000,
respectively. Also includes the issuance of 85,522 shares of the Company's
common stock held in treasury for the acquisition of a ready-mixed concrete
company.
31
<PAGE> 1
[PRICE WATERHOUSE] [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENTS SCHEDULES
To the Board of Directors of
Puerto Rican Cement Company, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 16, 1996 appearing on page 17 of the 1995 Annual Report to
Shareholders of Puerto Rican Cement Company, Inc. (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement
Schedules listed in Item 14(a) of this Form 10-K. In our opinion these
Financial Statements Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
/s/ Price Waterhouse
San Juan, Puerto Rico
February 16, 1996
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 11,599,636
<SECURITIES> 5,447,609
<RECEIVABLES> 26,066,173
<ALLOWANCES> 1,539,788
<INVENTORY> 32,222,415
<CURRENT-ASSETS> 78,548,232
<PP&E> 198,547,940
<DEPRECIATION> 55,549,475
<TOTAL-ASSETS> 255,014,868
<CURRENT-LIABILITIES> 27,977,386
<BONDS> 57,549,475
0
0
<COMMON> 6,000,000
<OTHER-SE> 129,805,923
<TOTAL-LIABILITY-AND-EQUITY> 255,014,868
<SALES> 100,129,966
<TOTAL-REVENUES> 100,231,963
<CGS> 64,232,980
<TOTAL-COSTS> 77,923,270
<OTHER-EXPENSES> (741,057)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,049,750
<INCOME-TAX> 7,257,317
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,792,433
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
