<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
--------------
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)
<TABLE>
<CAPTION>
<S> <C>
COMMONWEALTH OF PUERTO RICO 51-A-66-0189525
- - --------------------------- ---------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer ID No.)
PO Box 364487 - San Juan, P.R. 00936-4487
- - ------------------------------ ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (787) 783-3000
NOT APPLICABLE
--------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common stock, $1 Par Value; 5,384,074 Shares Outstanding
<PAGE> 2
PUERTO RICAN CEMENT COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet as of March 31, 1998 and
December 31, 1997........................................................ 1 - 2
Consolidated Statement of Income for the three-month periods
ended on March 31, 1998 and 1997 ........................................ 3
Consolidated Statement of Comprehensive Income for the three-month
periods ended on March 31, 1998 and 1997................................. 4
Consolidated Statement of Cash Flows for the three-month
periods ended on March 31, 1998 and 1997................................. 5
Consolidated Statement of Change in Stockholders' Equity for the
three-month periods ended on March 31, 1998 and 1997..................... 6
Notes to Consolidated Financial Statements............................... 7 - 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 9 - 11
Part II - Other Information 11
Signatures 12
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Puerto Rican Cement Company, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March December
31, 1998 31, 1997
-------- --------
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 920 $ 2,996
-------- --------
Investments available-for-sale 1,160 5,580
-------- --------
Short-term investments 5,655 6,967
-------- --------
Notes and accounts receivable - net of allowance
for doubtful accounts of $1,457 in 1998 and
$1,452 in 1997 30,396 28,764
-------- --------
Inventories:
Finished products 1,962 1,891
Work in process 4,732 2,973
Raw materials 4,431 3,939
Maintenance and operating supplies 23,311 23,580
Land held for sale, including development costs 503 503
-------- --------
Total inventories 34,939 32,886
-------- --------
Prepaid expenses 4,415 4,533
-------- --------
Total current assets 77,485 81,726
Property, plant and equipment - net of accumulated
depreciation, depletion and amortization of $77,182
in 1998 and $73,999 in 1997 163,054 158,611
Long-term investments 46,718 46,367
Other assets 3,852 4,347
-------- --------
Total $291,109 $291,051
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
Puerto Rican Cement Company, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March December
31, 1998 31, 1997
-------- --------
(In thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 275 $ 669
Current portion of long-term debt 1,005 1,110
Accounts payable 10,415 7,879
Accrued liabilities 6,890 7,075
Income taxes payable 2,474 2,191
-------- --------
Total current liabilities 21,059 18,924
-------- --------
Long-term liabilities
Long-term debt, less current portion 75,980 76,180
Deferred income taxes 35,520 35,860
Other long-term liabilities, including
postretirement benefits 3,038 3,023
-------- --------
Total long-term liabilities 114,538 115,063
-------- --------
Total liabilities 135,597 133,987
-------- --------
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; issued
6,000,000 shares, outstanding 5,384,074 shares
as of March 31, 1998 and 5,452,074 shares as
of December 31, 1997 6,000 6,000
Additional paid-in capital 14,703 14,703
Accumulated other comprehensive income 12 568
Retained earnings 151,170 148,878
-------- --------
171,885 170,149
Less: Shares of common stock in treasury, at cost
(615,926 shares as of March 31, 1998 and
547,926 shares as of December 31, 1997) 16,373 13,085
-------- --------
Stockholders' equity - net 155,512 157,064
-------- --------
Total $291,109 $291,051
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
Puerto Rican Cement Company, Inc.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
----------- -----------
(In Thousands, except share data)
<S> <C> <C>
Net sales $ 36,459 $ 37,188
Revenue from real estate operations 25 24
----------- -----------
36,484 37,212
Cost of sales 27,677 26,563
----------- -----------
Gross margin 8,807 10,649
Selling, general & administrative expenses 5,523 4,774
----------- -----------
Income from operations 3,284 5,875
----------- -----------
Other (credits) charges:
Interest and financial charges 1,001 1,323
Interest income (867) (841)
Other (income) expenses (729) 104
----------- -----------
Total other (credits) charges (595) 586
----------- -----------
Income before income tax 3,879 5,289
Provision for income tax 565 1,346
----------- -----------
Net income $ 3,314 $ 3,943
=========== ===========
Income per share:
Net income $ 0.61 $ 0.71
=========== ===========
Average common shares outstanding 5,429,407 5,527,074
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
Puerto Rican Cement Company, Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Net income $ 3,314 $ 3,943
-------- --------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising
during the period 151 17
Less: reclassification adjustment
for gains included in net income (893) --
-------- --------
Other comprehensive income before tax (742) 17
Income tax expense related to items of other
comprehensive income 186 (4)
-------- --------
Other comprehensive income, net of tax (556) 13
-------- --------
Comprehensive income $ 2,758 $ 3,956
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
Puerto Rican Cement Company, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March March
31, 1998 31, 1997
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,314 $ 3,943
------- --------
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation, depletion and amortization 3,207 2,998
Accretion of discount on investments (675) (983)
Provision for deferred income taxes (482) (505)
Postretirement benefits cost 15 20
Gain on sale of investments available-or-sale (893) --
Gain on sale of fixed assets (14) (2)
Changes in assets and liabilities:
Increase in notes and accounts receivable (1,632) (3,862)
Increase in inventories (2,054) (3,956)
Decrease (increase) in prepaid expenses 118 (131)
Decrease (increase) in other long-term assets 483 (3,290)
Increase in accounts payable 2,536 1,863
(Decrease) increase in accrued liabilities (185) 1,465
Increase in income taxes payable 611 1,855
------- --------
Total adjustments 1,035 (4,528)
------- --------
Cash provided by (used in) operations 4,349 (585)
------- --------
Cash flows from investing activities:
Capital expenditures (7,645) (3,293)
Redemption of long-term investments 3,835 1,499
Proceeds from sale of investments available-for-sale 2,373 --
Purchase of investments -- (1,063)
Proceeds from sale of fixed assets 23 30
------- --------
Cash used in investing activities (1,414) (2,827)
------- --------
Cash flows from financing activities:
Purchase of treasury stock (3,288) --
Repayment of long-term debt (305) (57,247)
Dividends paid (1,023) (1,050)
Proceeds from loans -- 50,000
Decrease in notes payable (394) --
------- --------
Cash used in financing activities (5,010) (8,297)
------- --------
Decrease in cash and cash equivalents ($2,075) ($11,709)
======= ========
Cash and cash equivalents - beginning of year $ 2,995 $ 14,809
Cash and cash equivalents - end of period 920 3,100
------- --------
Decrease in cash and cash equivalents ($2,075) ($11,709)
======= ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 8
Puerto Rican Cement Company, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Preferred stock:
Balance at beginning and end of period $ - $ -
------- ---------
Common stock:
Balance at beginning and end of period 6,000 6,000
------- ---------
Additional paid-in-capital:
Balance at beginning and end of period 14,703 14,703
------- ---------
Accumulated other comprehensive income:
Balance at beginning of period 568 110
Other comprehensive income (556) 13
------- ---------
Balance at end of period 12 123
------- ---------
Retained earnings:
Balance at beginning of period 148,878 137,047
Net income 3,314 3,944
Cash dividends declared (1,022) (1,050)
------- ---------
Balance at end of period 151,170 139,941
------- ---------
Shares of common stock in treasury -- at cost:
Balance at beginning of period (13,085) (10,439)
Treasury stock acquired (3,288) -
------- ---------
Balance at end of period (16,373) (10,439)
------- ---------
Total stockholders' equity $155,512 $150,328
======== =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 9
PUERTO RICAN CEMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Puerto Rican Cement Company, Inc. (the "Company" or
"Registrant"), the accompanying unaudited financial statements contain all
adjustments necessary to present fairly its financial position at March 31, 1998
and December 31, 1997, and the results of operations, cash flows, and changes
in stockholders' equity for the three-month periods ended March 31, 1998 and
1997. The results of operations are not necessarily indicative of the results to
be expected for the full year.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and displaying of comprehensive income and
its components in general-purpose financial statements. Comprehensive income is
intended to report all changes in the equity of a business enterprise during a
period from transactions and other events or circumstances, except those
resulting from investments by or distribution to owners. Certain
reclassifications have been made to the 1997 financial statements to conform to
the 1998 presentation.
Cash and cash equivalents decreased to $920,000 as of March 31, 1998
from $3.0 million as of December 31, 1997. This decrease resulted, in part, from
the use of funds to repurchase 68,000 shares of the Company's common stock.
Investments, including short-term, available-for-sale, and long-term
investments, decreased to $53.5 million at March 31, 1998 from $58.9 million at
December 31, 1997, a $5.4 million reduction. This was the result of the
redemption of $3.8 million in short-term investments and the sale of $2.4
million in available-for-sale investments, net of $700,000 of accretion in value
of the Company's investment in zero-coupon notes.
Notes and accounts receivable increased by $1.6 million, to $30.4
million at March 31, 1998 from $28.8 million as of December 31, 1997. The
increase resulted from a change in the customer mix in cement sales for the
first quarter of 1998 favoring bulk cement clients which typically have larger
credit terms available.
Consolidated inventories increased by $2.1 million to $35.0 million as
of March 31, 1998 from $32.9 million as of December 31, 1997. The increase
resulted mainly from the build up of work in process inventory, specifically
clinker, to prevent a supply shortage during the production interruption period
related to the plant upgrade project performed during the first quarter of 1998.
Property, plant and equipment increased by $4.4 million to $163.0
million as of March 31, 1998 from $158.6 million as of December 31, 1997. This
increase resulted from capital expenditures of $7.6 million net of depreciation
and amortization of $3.2 million.
7
<PAGE> 10
PUERTO RICAN CEMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Total current liabilities increased $2.1 million to $21.1 million as of
March 31, 1998 from $18.9 million as of December 31, 1997. The increase was
mainly due to an increase in accounts payable trade related to the purchase of
work in process inventory mentioned above.
On March 19, 1998, the Registrant repurchased 68,000 shares of its
outstanding common stock for $3,300,000. This transaction had been previously
approved by the Company's Board of Directors.
At its March 25, 1998 meeting, the Board of Directors of the Registrant
declared a 19 cents per share dividend on its common stock, payable on May 15,
1998 to stockholders of record on April 17, 1998. As of March 31, 1998, the
Registrant had 5,384,074 shares of common stock issued and outstanding.
As of March 31, 1998, $50.2 million, or 17.3% of the Company's total
consolidated assets were attributable to its ready-mixed concrete subsidiary,
Ready Mix Concrete, Inc. ("RMC").
8
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at March 31, 1998, decreased to $56.4 million from
$62.8 million at December 31, 1997. The current ratio decreased to 3.68 to 1 as
of March 31, 1998, from 4.32 to 1 as of December 31, 1997. The decrease in both
items was due mainly to the decrease in current assets resulting from the
redemption of short-term investments and the sale of investments
available-for-sale, coupled with an increase in current liabilities resulting
from higher accounts payable.
Capital expenditures incurred during the three-month period ended March
31, 1998, totaled $7.6 million. Depreciation expense for the same period totaled
$3.2 million.
As of March 31, 1998, the approximate aggregate maturities of long-term
debt for the remainder of 1998 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 805
1999 1,005
2000 1,005
2001 2,170
2002 and thereafter 72,000
--------
Total $76,985
=======
</TABLE>
Loan agreements with term lenders impose certain restrictions on the
Company concerning working capital, indebtedness, dividends, investments and
certain advances, among other restrictions. At March 31, 1998, the Company was
in compliance with the provisions of the loan agreements.
The Company has available credit facilities in the aggregate amount of
$20,600,000 with commercial banks for short-term financing and discount of trade
paper from customers. No amount was outstanding under these facilities at March
31, 1998. The maximum aggregate short-term borrowing outstanding at any
month-end during the three-month period ended March 31, 1998 was $1,050,000
bearing interest at rates ranging from 5.99% to 6.02%. These short-term
facilities are renewable annually at the discretion of the banks, which at this
time do not require any commitment fees.
Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
The Registrant realized first-quarter net income of $3,314,000, or
$0.61 per share, compared with $3,943,000, or $0.71 per share, for the same
period last year, representing a decrease of 16.0%, or $0.10, per share.
9
<PAGE> 12
Consolidated net sales for the first quarter of 1998 decreased by 1.9%
to $36.5 million compared with $37.2 million in the same quarter of 1997. Total
cement sales decreased slightly in dollar amounts, despite an increase in units
sold of 1.5% to 257,000 tons in the first quarter of 1998 from 253,000 tons for
the same quarter of 1997. This was the result of an increase in the ratio of
bulk cement sales to bagged cement sales. The price of bulk cement is lower than
the price of bagged cement. Lime sales for the first quarter of 1998 increased
169.8% from the amount of sales during the same period of 1997 due to the export
sales which had been interrupted through the first quarter of 1997. The paper
and bag division sales for the first quarter of 1998 decreased by 4.6% when
compared to the same period of 1997, in part due to a reduction in orders from
the parent company. Sales in RMC increased less than 1% during the first quarter
of 1998 compared to sales during the same quarter of 1997.
Consolidated cost of sales for the first quarter of 1998 increased by
4.2% to $27.7 million from $26.6 million for the comparable period of 1997. This
increase was mostly attributable to million 36-day interruption in clinker
production during the months of January and February, when the Company performed
substantial work on its kiln as part of a plant upgrade project. The Company
resumed its clinker production during the month of February. No major
interruptions are expected for the remainder of the year.
Gross margins decreased to 24.1% during the first quarter of 1998
compared to gross margins of 28.6% during the same quarter of 1997. Profit
margins were affected by higher costs associated with the production shut down
described in the preceding paragraph.
Selling, general and administrative expenses increased to $5.5 million
in the first quarter of 1998 from $4.8 million over the comparable quarter of
1997. This increase was principally attributable to normal inflationary growth
and higher professional fees for legal services associated mainly with the
development of the Company's new real estate projects and related legal
proceedings for permits. These expenses are mostly nonrecurring. The Company's
new projects are not yet contributing to consolidated operations.
Interest and financial charges decreased by $300,000 to $1.0 million in
the first quarter of 1998 compared with $1.3 million for the same quarter of
1997. This decrease resulted from the net effect of the capitalization of
interest as part of the plant upgrade project, offset by the additional interest
associated with the $20 million, Series B Senior Secured Notes issued in July
1997.
Other (income) expenses changed to $729,000 in income in the first
quarter of 1998 from $104,000 in expense in the same period in 1997. The main
reason for this change was the realization of a $900,000 gain in the sale of
investments available-for-sale during the first quarter of 1998.
The provision for income taxes as a proportion of income decreased to
14.6% for the first quarter of 1998 from 25.5% for the same period of 1997. This
decrease resulted from the acquisition at a discount of tax credits derived from
investments in governmental incentive programs, and the taxation of gains from
sales of investments available-for-sale at capital gain rates instead of higher
corporate tax rates.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
As reported in the Company's 1997 annual report, the Company and RMC
are the defendants in several legal proceedings. Recent developments with
respect to these proceedings are described below.
On June 27, 1997, the Company filed a lawsuit against the Puerto Rico
Department of Consumer Affairs (the "Department") in response to a Department's
investigation of the Company's labeling of bags of cement during 1995 and 1996.
The Department had asserted that the Registrant's bags should have disclosed
that the cement was manufactured utilizing some imported clinker. The lawsuit
was based on the Company's belief that the Department did not have legal
jurisdiction with respect to this matter or, even if it did have jurisdiction,
that the Registrant has not violated any Department rule. On August 18, 1997, it
was determined that the Department had the authority to perform the
investigations. Administrative hearings were held on January 8, 14 and 29, and
March 13, 1998 by an independent administrative judge appointed by the
Department. On March 16, 1998, the independent judge issued a favorable decision
on the case which held that the Company did not violate any Department rule. On
April 16, 1998, the Department appealed the decision of the law judge.
Management believes, based on the advice of its legal counsel, that the
outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
ITEM 5 - OTHER INFORMATION
On March 19, 1998, the Registrant repurchased 68,000 shares of its
outstanding common stock for $3,300,000. This transaction had been previously
approved by the Registrant's Board of Directors.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
27. Financial Data Schedule (for SEC use only)
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUERTO RICAN CEMENT COMPANY, INC.
---------------------------------
Registrant
By: /S/ Angel Amaral
-----------------------------
Angel Amaral
Vice President and Controller
By: /S/ Jose O. Torres
-----------------------------
Jose O. Torres
Vice President of Finance
and Treasurer
Date: 5/15/98
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 920,226
<SECURITIES> 6,815,130
<RECEIVABLES> 30,092,455
<ALLOWANCES> 1,456,712
<INVENTORY> 34,939,350
<CURRENT-ASSETS> 77,485,494
<PP&E> 240,235,838
<DEPRECIATION> 77,182,170
<TOTAL-ASSETS> 291,108,716
<CURRENT-LIABILITIES> 21,059,409
<BONDS> 75,979,792
0
0
<COMMON> 6,000,000
<OTHER-SE> 149,511,608
<TOTAL-LIABILITY-AND-EQUITY> 291,108,716
<SALES> 36,459,310
<TOTAL-REVENUES> 36,484,213
<CGS> 27,677,534
<TOTAL-COSTS> 33,200,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,000,827
<INCOME-PRETAX> 3,879,655
<INCOME-TAX> 565,314
<INCOME-CONTINUING> 3,314,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,314,341
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
