<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
COMMONWEALTH OF PUERTO RICO 51-A-66-0189525
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
PO BOX 364487 - SAN JUAN, PUERTO RICO 00936-4487
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code): (787) 783-3000
Securities registered pursuant to Section l2 (b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------- -----------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
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
----- -----
[Cover page 1 of 2 pages]
<PAGE> 2
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. [ ]
The aggregate market value of the voting common stock held by
non-affiliates of the Registrant is $165,742,718. This market value was
computed by reference to the closing price of the common stock on The New York
Stock Exchange on March 23, l999.
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 5,379,074 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
l. Portions of the Company's Annual Report to Security Holders for
the fiscal year ended December 3l, l998, are incorporated by
reference into Parts I and II.
2. Portions of the Company's definitive proxy statement for the
1999 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A are incorporated by reference into Part III.
[Cover page 2 of 2 pages]
<PAGE> 3
CROSS REFERENCE SHEET AND TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ITEM Number Reference
- ---- ------ ---------
<S> <C> <C> <C>
PART I
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 .............................. 13
Executive Officers of the Company ......................... 13
2. Properties .................................................. 14 (3)
3. Legal Proceedings ........................................... 16 (4)
4. Submission of Matters to a Vote of Security Holders ......... 16
PART II
5. Market for the Company's Common Equity
and Related Stockholder Matters ............................ 16 (5)
6. Selected Financial Data ..................................... 16 (6)
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 16 (7)
8. Financial Statements and Supplementary Data ................. 16 (8)
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure......................... 16
</TABLE>
<PAGE> 4
PART III
<TABLE>
<S> <C> <C>
l0. Directors and Executive Officers of the Company ............. 16 (9)
11. Executive Compensation ...................................... 17 (10)
l2. Security Ownership of Certain Beneficial Owners
and Management ............................................. 17 (11)
13. Certain Relationships and Related Transactions .............. 17 (12)
PART IV
l4. Exhibits, Financial Statement Schedules and Reports on
Form 8-K .................................................. 17
</TABLE>
- --------------------
(l) Information incorporated by reference to the Company's Annual
Report to Stockholders for the year ended December 3l, l998
("Annual Report") and the Board of Directors' Proxy Statement
for use in connection with the Company's Annual Meeting of
Stockholders to be held on May 5, l999 ("Proxy Statement").
(2) Annual Report, page 31, section entitled "Notes to
Consolidated Financial Statements, Note 12 / Segment
Information."
(3) Annual Report, page 26, section entitled "Notes to
Consolidated Financial Statements, Note 4 / Property, Plant
and Equipment" and page 31, section entitled "Notes to
Consolidated Financial Statements, Note 13 / Lease
Commitments."
(4) Annual Report, page 32, section entitled "Notes to
Consolidated Financial Statements, Note 15 / Contingent
Liabilities and Other Commitments," and pages 32 to 33,
section entitled "Notes to Consolidated Financial Statements,
Note 16 / Legal Proceedings."
(5) Annual Report, page 18, section entitled "Common Share Prices
and Dividends Per Share," page 35, section entitled
"Five-Year Statistical Comparison" and pages 27 to 28,
section entitled "Notes to Consolidated Financial Statements,
Note 9 / Long-term Debt."
<PAGE> 5
(6) Annual Report, page 18, section entitled "Selected Financial
Data."
(7) Annual Report, pages 15 to 17, section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
(8) Annual Report, pages 19 to 35, sections entitled "Report of
Independent Accountants," "Consolidated Statement of Income,"
"Consolidated Balance Sheet," "Consolidated Statement of
Comprehensive Income," "Consolidated Statement of Changes in
Stockholders' Equity," "Consolidated Statement of Cash
Flows," "Notes to Consolidated Financial Statements,"
"Consolidated Fourth Quarter Results," "Financial Results by
Quarter," and "Five-Year Statistical Comparison."
(9) Proxy Statement, pages 3 to 8, section entitled "Information
about Directors, Nominees and Principal Stockholders."
(l0) Proxy Statement, pages 11 to 20, sections entitled "Executive
Compensation" through and including section entitled "Certain
Transactions with Management."
(11) Proxy Statement, pages 3 to 10, sections entitled
"Information about Directors, Nominees and Principal
Stockholders" and "Security Ownership of Certain Beneficial
Owners."
(12) Proxy Statement, pages 19 to 20, sections entitled
"Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions with Management."
<PAGE> 6
PART I
Item l. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Organization
Puerto Rican Cement Company, Inc. ("PRCC" or the "Company") was organized under
the laws of the Commonwealth of Puerto Rico in l938. The Company is engaged in
the production and sale of cement, ready-mixed concrete and lime; PRCC is also
engaged in the packaging business and in realty operations.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's financial information is disclosed for the following segments:
(1) cement operations, (2) ready-mixed concrete operations, and (3) all other
segments. The "all other segments" category is comprised of the Company's
packaging, lime, financing and realty operations. The cement operations include
the manufacture and sale of cement. The ready-mixed concrete operations include
the sale and distribution of ready-mixed concrete. The packaging division
includes the manufacture and sale of multi-wall paper and polypropylene bags.
The lime operations include the manufacture and sale of lime. The realty
operations include the development, sale and rental of real property owned by
the Company. The financing operations involve mostly providing equipment
financing to customers in the construction related industries.
Information on the industry segments in which the Company has been engaged for
the last three fiscal years, including the amounts of revenue, operating profit
and identifiable assets attributable to each of the Company's industry
segments, is included as part of PRCC's Annual Report, page 31, section
entitled "Notes to Consolidated Financial Statements, Note 12 / Segment
Information," which includes the financial statements and schedules furnished
pursuant to Item 14 and is incorporated herein by reference.
6
<PAGE> 7
(c) NARRATIVE DESCRIPTION OF BUSINESS
CEMENT OPERATIONS SEGMENT
Principal product. PRCC produces Portland grey cement, Type I, manufactured
under specifications of the American Society for Testing Materials. Portland
grey cement is used primarily in the construction of residential, commercial
and public buildings, and highways.
PRCC's cement plant is located in Ponce, on the southern coast of Puerto Rico.
The cement manufacturing process generally involves the extracting, crushing,
grinding and blending of limestone, clay and other raw materials. These raw
materials are proportioned automatically according to chemical analysis and
blended to obtain a stable quality. The Company manufactures cement using the
dry process technology, which is more fuel efficient than other technologies.
Raw materials, pursuant to the dry process technology, are first processed
through a preheating tower, where heat is supplied from hot gases originated in
a rotary kiln, to effect partial calcination of the materials before they enter
the rotary kiln. Once in the rotary kiln, the raw materials are exposed to
extremely high temperatures which create a chemical reaction that converts them
into clinker. The clinker drops from the kiln and is cooled with air. At the
same time, this air serves to recapture the kiln's heat for use in the
preheating process. Finally, gypsum is added to the clinker and both materials
are ground to form finished cement.
The Company sells and distributes cement (both in bulk and bagged) in Puerto
Rico. Sales are made on a direct basis to independent local distributors,
including ready-mixed concrete producers, building material dealers, concrete
product manufacturers, government agencies, and general and highway
contractors.
During the fiscal year ended December 3l, l998, the Company sold 1,037,086 tons
of Portland grey cement to customers in Puerto Rico. Approximately 32.5% of the
cement sold by PRCC in 1998 was sold to its ready-mixed concrete subsidiary,
Ready Mix Concrete, Inc. ("RMC").
Raw Materials. PRCC owns, in fee, properties containing limestone and sand
deposits which directly adjoin or are close to its cement plant site. The
Company also owns properties near such plants that contain clay deposits. The
Company has not conducted a systematic exploratory drilling program ordinarily
considered necessary for the establishment of limestone and other raw material
reserves and, accordingly, makes no tonnage estimate of the availability of
such raw materials. However, based on the results of scattered drilling on
deposits of substantial depths, and past and present production from PRCC's
properties, the Company believes that the availability of limestone and other
raw materials presents no foreseeable problem. There have been no recent
material changes in the exploitation of the principal raw material deposits,
and no material changes are expected.
7
<PAGE> 8
PRCC 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
located on the Company's properties.
Competition. PRCC is the principal producer of cement in Puerto Rico. During
l998, the other cement manufacturing company in Puerto Rico, Essroc San Juan,
Inc. (formerly known as San Juan Cement Company, Inc.), accounted for
approximately 39.4% of the total bags of cement sold in Puerto Rico. The amount
of cement imported to the Puerto Rico market during 1998 was not significant.
Competition for the cement market is based on the price and quality of the
products.
Seasonal Effect on Sales. Demand for cement and related products is largely
dependent on the requirements of the construction industry, which in Puerto
Rico and the Caribbean are not necessarily seasonal because of year-round
favorable climatic conditions. However, from time to time, the construction
industry is affected by major hurricanes. The requirements of the construction
industry depend to some extent on Puerto Rico's general economic conditions.
READY-MIXED CONCRETE OPERATIONS SEGMENT
Principal product. Ready-mixed concrete is produced in batching plants by
mixing controlled portions of cement, aggregates, water and chemical additives.
The product is delivered to construction sites by concrete-mixer trucks owned
by RMC, the Company's ready-mixed concrete subsidiary. The Company sells this
product to contractors on public construction projects and to private
residential and industrial builders. Net sales totaled $77,369,000 in 1998.
The Company's annual ready-mixed concrete production capacity is over 1.6
million cubic yards, which is distributed in 19 batching plants, with delivery
accomplished by a fleet of 256 concrete-mixer trucks. Four batching plants are
located on land owned by the Company while the remaining plants are located on
parcels of land leased to the Company pursuant to operating leases with terms
ranging from one to ten years.
Raw materials. RMC purchases its cement from PRCC. Aggregates, mainly sand and
gravel, and chemical additives used to produce concrete are purchased from
various outside suppliers.
Competition. The Company is the largest producer of ready-mixed concrete in
Puerto Rico. The Company competes with various large ready-mixed companies and
several small ready-mixed operators. Competition is considered to be strong and
is based primarily on price, although product quality, consistency and customer
service are also important.
8
<PAGE> 9
Seasonal Effect on Sales. Demand for cement products, including ready-mixed
concrete, is largely dependent on the requirements of the construction
industry, which in Puerto Rico and the Caribbean are not necessarily seasonal
because of year-round favorable climatic conditions. However, from time to
time, the construction industry is affected by major hurricanes. The
requirements of the construction industry depend to some extent on Puerto
Rico's general economic conditions.
ALL OTHER SEGMENTS
PACKAGING OPERATIONS
Principal Product. Multi-wall paper bags are produced by the Company's St.
Regis Paper and Bag Division. Polypropylene bags are produced by the Company's
wholly-owned subsidiary, Poly Bags and Packaging, Inc., which commenced
production during 1997. Both types of bags are marketed almost exclusively in
Puerto Rico.
During 1998, paper bag sales were made to the following customers: 36% to PRCC
and its subsidiaries; 36% to the grain and animal feed industry; 27% to sugar
and flour producers; and 1% for miscellaneous uses. Polypropylene bag sales
during the year were made to the following customers: 58% to PRCC and its
subsidiaries; 20% to fertilizer and animal feed producers; and 22% for
miscellaneous uses.
Raw Materials. The Company purchases paper, polypropylene and other related raw
materials from various sources outside of Puerto Rico.
Competition. The Company is the principal producer of multi-wall paper bags and
the only producer of polypropylene bags in Puerto Rico. The Company competes
based on the price and quality of its products principally against imported
products.
LIME OPERATIONS
Principal product. The Company manufactures and sells hydrated lime, types Q
and S (both in bulk and bagged), and pebble lime (in bulk only).
During the fiscal year ended December 3l, l998, approximately 16.5% of the lime
produced by the Company was sold to the local construction and agricultural
industries. The remaining 83.5% was sold to other industries for chemical use,
both locally and in export markets. Approximately 16% (21% in 1997) of total
sales of lime were made to the local Government or its agencies, mainly for use
in connection with chemical water purification. Export sales for the year ended
December 31, 1998 represented 63% of total lime sales. A significant portion of
exported lime is used in the alumina refining industry, and thus demand may
vary depending upon the market conditions of that industry.
9
<PAGE> 10
Raw Materials. Limestone with a high level of calcium carbonate is the only raw
material used in the production of lime. The Company currently purchases
limestone from various sources close to the plant.
Competition. The Company is the only producer of lime in Puerto Rico. No
material amount of lime was imported to the Puerto Rico market during 1998.
Seasonal Effect on Sales. Due to the year-round favorable weather conditions of
Puerto Rico and the Caribbean area, sales of limestone are not necessarily
seasonal.
FINANCING OPERATIONS
The Company, through one of its wholly-owned subsidiaries, provides equipment
financing mostly to block manufacturers, hardware stores and ready-mixed
concrete businesses.
REALTY OPERATIONS
The Company, through one of its wholly-owned subsidiaries, owns and holds for
future development and sale approximately 532 acres of land throughout Puerto
Rico. The Company expects to begin the development of a 300-unit, low-cost
housing project on 80 of these acres located in Vega Alta, assuming that the
legal proceedings with respect to the required permits for this site are
concluded favorably (Refer to Part I, Item 3, "Legal Proceedings").
AGGREGATES OPERATIONS
Principal product. The Company expects to commence an operation to extract
limestone from the earth's crust in the municipality of Guanica, Puerto Rico,
assuming that the legal proceedings with respect to the required permits for
this project are concluded favorably (Refer to Part I, Item 3, "Legal
Proceedings"). This operation is located on property leased from the Government
of Puerto Rico. The limestone material extracted from this property will be
sold principally to the Company's lime subsidiary, Florida Lime Corporation.
Additionally, in order to develop the 300-unit housing project mentioned above,
the land upon which the housing units will be built has to be leveled and
prepared, resulting in the production of aggregates (principally sand and
crushed limestone). These aggregates will be used primarily to supply the
Company's ready-mixed concrete operations.
Raw materials. Guanica -- The Company signed a 5-year lease contract, renewable
for two additional 5-year periods. The lease provides for a maximum extraction
of 500,000 cubic meters of raw material per year. The fees for extraction are
$1.00 per cubic meter for the first two years, $1.05 for the next three years
and $1.10 for the second 5-year period. The contract also provides for an
annual fee of $15,000 for the first 5-year period and $20,000 for the second
5-year period. The annual fees as well as the extraction fees for the third
5-year period are to be negotiated in the future.
10
<PAGE> 11
The Guanica facility will provide the Company with high-quality limestone
material necessary to the production of lime.
Vega Alta - PRC owns, in fee, the property located in Vega Alta upon which it
intends to develop the housing project.
Competition. The Guanica site is expected to be the principal supplier of
limestone to the Company's lime subsidiary.
The housing project at Vega Alta will compete with other real estate projects
on the island. Due to a vast need for low-cost housing in the area, the Company
has received numerous requests from potential buyers and has created a waiting
list for this purpose.
Seasonal Effect on Sales. Due to the year-round favorable weather conditions of
Puerto Rico and the Caribbean area, housing development and aggregate
production are not necessarily seasonal.
Total Revenue
Set forth below are (i) the total revenue (in thousands of dollars), net of
intercompany sales, for each of the last three fiscal years contributed by any
class of similar products that accounted for l0% or more of the Company's
consolidated net sales in such fiscal years and (ii) the Company's consolidated
net sales (in thousands of dollars) for each of the last three fiscal years:
<TABLE>
<CAPTION>
Ready-mixed Portland Consolidated
concrete grey cement net sales
---------- ----------- ------------
<S> <C> <C> <C>
1998 $ 77,369 $ 59,587 $ 148,275
1997 81,501 64,790 156,675
1996 75,606 62,409 149,277
</TABLE>
New Products and Services
On March 19, 1998, the Company organized Ponce Capital Corporation ("PCC") as a
wholly-owned subsidiary under the laws of the Commonwealth of Puerto Rico. PCC
was established for the purpose of providing equipment financing to block
manufacturers, hardware stores and ready-mixed concrete businesses. PCC began
operations during September 1998, after obtaining its license from the
Commonwealth's Commissioner of Financial Institutions.
Patents and Trademarks
St. Regis Paper and Bag Division had the right to use, until December 3l, l998,
certain trademarks, trade names and patents owned by Stone Container
Corporation (which trademarks, trade names and patents were once owned by St.
Regis Paper Company of New York, which was acquired by Champion International
during l985, and thereafter sold to Stone Container Corporation). The Company
annually negotiates the renewal of this agreement for the continuing use of
such trademarks, trade names and patents. PRCC believes that failure to renew
such agreement would have no material impact on this business segment.
11
<PAGE> 12
Credit and Working Capital Practices
As of December 31, 1998, the Company had invested 11.4% 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 Company'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. PRCC
sells its products to customers pursuant to normal commercial open-account
payment terms.
Customers
During fiscal year l998, 13.2% of the Company's total sales revenue in the
cement and related products segment were made to four (4) unrelated customers.
None of these customers individually accounted for 10% or more of the Company's
consolidated sales.
Backlog
In the opinion of the Company, backlog is not a relevant consideration in the
types of businesses in which it is engaged.
Government Contracts
No material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
Research and Development
During the last three fiscal years, the Company has not spent any material
amount of money 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.
Environmental Compliance
During l978, PRCC completed the installation of air pollution control equipment
in its cement and lime plants located in Ponce at an aggregate approximate cost
of $l7,000,000. Such equipment was installed in order to comply with
regulations established by the Puerto Rico Environmental Quality Board ("EQB")
and the terms of a consent order signed in August l974 (as amended in July l976
and February l978) with the United States Environmental Protection Agency
("EPA").
12
<PAGE> 13
The Company 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 defeased in l985 as fully described in a Current Report on Form 8-K
dated September l985.
PRCC'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 EPA limit PRCC's annual clinker production capacity.
Until November 1998, such regulations limited the Company's capacity to 971,000
tons. The Company has complied with these limitations and such limitations have
not had a material effect on the capital expenditures, earnings or competitive
position of PRCC. During 1997, the EPA authorized an increase in the Company's
annual clinker production capacity limit to 1,238,100 tons. In November 1998,
the Company obtained final approval from the local EQB for this increase in its
clinker production capacity. During 1998, the Company performed all plant
modifications necessary to increase its plant capacity to comply with the newly
approved limits.
Employees
As of December 3l, l998, the Company and its subsidiaries had 1,008 employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
During 1998, none of PRCC's industry segments depended to any material extent
on foreign operations. A significant portion of Florida Lime Corporation's
sales volume depended on export sales.
(e) EXECUTIVE OFFICERS OF THE COMPANY
1. Miguel Nazario, age 51, President and Chief Executive Officer
of the Company since January 1995; Vice President from August
l994 to December 1994. Prior to joining PRCC, 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 O. Torres, age 53, Assistant Secretary, Vice-President
of Finance and Chief Financial Officer since February 1999;
Assistant Secretary, Treasurer and Vice-President of Finance
from January 1988 to January 1999; Acting Vice-President of
Sales from August 1996 to August 1997; Vice-President and
Treasurer from October l983 to December 1987; Vice-President
of Sales from l982 to October l983; Treasurer from l976 to
l982.
13
<PAGE> 14
3. Antonio L. Ferre Rangel, age 32, Senior Corporate
Vice-President since February 1999; Executive Vice-President
from February 1998 to January 31, 1999; Vice-President of
Operations and Strategic Planning from January 1996 to
February 1998; Vice-President of Strategic Planning from
January 1995 to December 1996. Mr. Ferre joined the Company
in 1992.
4. Rene Di Cristina, age 48, President of RMC since September
1997; Vice-President of RMC from January to September 1997;
General Manager of Concreto Mixto, Inc., from August to
December 1996; Vice-President of Sales of PRCC from October
1983 to August 1996.
5. Eufemio Toucet, age 56, Vice-President and General Manager of
St. Regis Paper and Bag Division since January 1996;
Consultant to the Company from May 1995 to December 1995.
Prior to joining the Company, Mr. Toucet was President and
owner of Reliable Packaging, Inc. and prior to that worked
with Digital Equipment Corporation as Business Operations
Manager.
6. Juan R. Taraza, age 60, Vice-President of Sales and Marketing
since August 1997. Mr. Taraza joined the Company in June
1961.
7. Pedro M. Mena, age 42, Treasurer since February 1999;
Assistant Treasurer from February 1987 to January 1999. Mr.
Mena joined the Company in August 1978.
8. Fernando L. Vargas, age 38, Controller since February 1999;
Plant Administrator from July 1997 to January 1999. Mr.
Vargas joined the Company in April 1991.
All officers are elected to serve for a term of one year and until the election
and qualification of their respective successors.
Item 2. PROPERTIES
Used in cement operations segment
PRCC owns, in fee, a cement plant located in Ponce, Puerto Rico, on a 25-acre
site. The Ponce cement plant operates under the dry process technology. During
1998, the Company produced 1,032,500 tons of cement. During that same period,
the Company produced 890,000 tons of clinker utilizing approximate 70.7% (79.4%
in 1997) of its effective kiln's clinker production capacity.
The Company owns, in fee, properties containing adequate deposits of limestone
and other raw materials, used in the production of Portland grey cement, which
directly adjoin or are near the plant sites.
14
<PAGE> 15
PRCC leases, under a long-term lease expiring in year 2004, with the
municipality of Ponce, a parcel of land on which it has installed certain
facilities for receiving and handling coal. The coal received through one such
facility is used to fuel the Company's cement and hydrated lime manufacturing
operations.
Used in ready-mixed concrete operations segment
PRCC owns, in fee, nineteen batching plants used in the production of
ready-mixed concrete. Four of these batching plants are located on sites owned,
in fee, by the Company. The remaining plants are located on leased properties
with lease terms ranging from one to ten years. The Company does not expect any
problem in the renewal of these contracts. The Company also owns a fleet of 256
concrete-mixer trucks.
During l998, PRCC continued the repairs and maintenance program on its plants.
The Company believes that its plants are currently in good condition and
properly maintained.
Used in all other segments
Packaging. The manufacturing plant of the St. Regis Paper and Bag Division is
located on a site owned, in fee, by the Company in Ponce, Puerto Rico. The
Company believes the plant to be in good condition and properly maintained.
Lime. PRCC owns, in fee, a lime manufacturing plant that is located within the
Ponce cement plant premises. During 1998, the lime plant produced 40,500 tons
of lime and was operated at approximately 81.9% of its capacity. The Company
believes the plant to be in good condition and properly maintained.
Realty. PRCC and one of its subsidiaries own, in fee, and hold for future
development and sale, approximately 542 acres of land throughout Puerto Rico.
Used for office facilities
The Company and its subsidiaries own a one story building which houses its
executive offices located at the Amelia Industrial Park, in Guaynabo, Puerto
Rico.
RMC's administrative offices are located on leased property in Carolina, Puerto
Rico.
Information about leased properties is incorporated by reference from the
Annual Report, page 31, section entitled "Notes to Consolidated Financial
Statements, Note 13 / Lease Commitments."
15
<PAGE> 16
Item 3. LEGAL PROCEEDINGS
There are presently pending against the Company the legal proceedings described
in the Annual Report, page 32, section entitled "Notes to Consolidated
Financial Statements, Note 15 / Contingent Liabilities and Other Commitments,"
and pages 32 to 33, section entitled "Notes to Consolidated Financial
Statements, Note 16 / Legal Proceedings," furnished pursuant to Item 14, to
which reference is hereby made and which is incorporated by reference herein.
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 Company's Annual Report which is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item l0. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Identification of Directors
Information required herein is contained in a definitive Proxy Statement for
use in connection with the Company's Annual Meeting of Stockholders to be held
on May 5, l999 filed with the Commission pursuant to Regulation l4A pages 3 to
8, section entitled "Information about Directors, Nominees and Principal
Stockholders" and is incorporated herein by reference.
(b) Identification of Executive Officers. (See Item 1. Business Section.
Sub-section (e)).
16
<PAGE> 17
Item 11. EXECUTIVE COMPENSATION
Information required by Item 11 is contained in the Proxy Statement, pages 11
to 20, 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 3 to
10, sections entitled "Information about Directors, Nominees 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 19
to 20, sections entitled "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions with Management" and is incorporated
herein by reference.
PART IV
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. Consolidated Financial Statements incorporated by reference
to the Annual Report, pages 19 to 33; and
2. Financial statement schedules and supplementary data required
by Item 8 of Form 10-K filed herewith.
The financial statement schedules required by Item 14(d) of Form 10-K are
excluded since the Company is primarily an operating company. All subsidiaries
included in the consolidated financial statements being filed, in the
aggregate, do not have any minority equity interest and/or indebtedness to any
person other than the Company or the consolidated subsidiaries in amounts which
together exceed l0% of PRCC's total consolidated assets at December 3l, l998.
(b) Reports on Form 8-K: None.
17
<PAGE> 18
(c) Exhibits required by Item 601 of Regulation S-K:
3. Certificate of Incorporation and By-laws
i. 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) amendment 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.*
ii. By-Laws of the Company, 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,* (ii) amendment
dated December 22, 1994, filed as an exhibit to Form
10-K for the fiscal year ended December 31, 1994,*
and (iii) amendment dated February 24, 1999 filed
herewith.*
l0. Material contracts
10.1 Commercial Agreement between PRCC and Carbones de
Colombia, S.A. dated April 17, 1998 filed herewith.*
10.2 (a) Consolidated and restated loan agreement
dated as of September 27, 1985 among PRCC, PRCC's
Guarantors and the Government Development Bank for
Puerto Rico for approximately $18.3 million
encompassing all outstanding debt of the Company to
the bank as of that date.*
(b) Indenture trust agreement dated September
27, l985 between PRCC as grantor and Banco
de Ponce as trustee for the benefit of the
Government Development Bank for Puerto
Rico.*
(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.)
10.3 Form of Severance Compensation Agreement executed
by the Company during the third quarter of 1998 with
25 of the Company's executives, filed as an exhibit
to Form 10-Q for the fiscal quarter ended June 30,
1998.**
18
<PAGE> 19
10.4 Amendment to the Consulting Agreement between PRCC
and Antonio Luis Ferre dated January 1, 1995 filed
as an exhibit to Form 10-K for the fiscal year ended
December 31, 1994.**
10.5 Note Purchase Agreement dated January 27, 1997, with
respect to $50,000,000 of Series A and $20,000,000
of Series B Senior Secured Notes due January 27,
2017 (used to refinance the outstanding principal
balances of various long-term debt) filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1996.*
13. Annual Report to security holders for the year ended
December 3l, l998.
21. Subsidiaries of the Company are included as part of the
Annual Report to security holders, page 37, section entitled
"Subsidiaries." All of the Company'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 PricewaterhouseCoopers LLP, 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).
19
<PAGE> 20
S I G N A T U R E S
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 24, 1999 By: /S/ Miguel Nazario
--------------------------------
Miguel Nazario
President and Chief Executive
Officer and Director
20
<PAGE> 21
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 24, 1999 By: /S/ Miguel Nazario
---------------------------------------
Miguel Nazario
President, Chief Executive
Officer and Director
Date: March 24, 1999 By: /S/ Antonio Luis Ferre
---------------------------------------
Antonio Luis Ferre
Director and Chairman
of the Board
Date: March 24, 1999 By: /S/ Alberto A. Paracchini
---------------------------------------
Alberto M. Paracchini
Director and Vice Chairman
of the Board
Date: March 24, 1999 By: /S/ Hector del Valle
---------------------------------------
Hector del Valle
Director and Vice Chairman
of the Board
Date: March 24, 1999 By: /S/ Antonio L. Ferre Rangel
---------------------------------------
Antonio L. Ferre Rangel
Senior Corporate Vice President
And Director
Date: March 24, 1999 By: /S/ Jose O. Torres
---------------------------------------
Jose O. Torres
Assistant Secretary, Vice-President of
Finance and Chief Financial Officer
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
Date: March 24, 1999 By: /S/ Pedro. M. Mena
---------------------------------------
Pedro M. Mena
Treasurer
Date: March 24, 1999 By: /S/ Fernando L. Vargas
--------------------------------------
Fernando L. Vargas
Controller
Date: March 24, 1999 By: /S/ Jose J. Suarez
---------------------------------------
Jose J. Suarez
Director
Date: March 24, 1999 By: /S/ Carlos del Rio
---------------------------------------
Carlos del Rio
Director
Date: March 24, 1999 By: /S/ Angel Torres
---------------------------------------
Angel Torres
Director
Date: March 24, 1999 By: /S/ Emilio J. Venegas
---------------------------------------
Emilio J. Venegas
Director
Date: March 24, 1999 By: /S/ Oscar A. Blasini
--------------------------------------
Oscar A. Blasini
Director
Date: March 24, 1999 By: /S/ Rosario J. Ferre
---------------------------------------
Rosario J. Ferre
Director
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
Date: March 24, 1999 By: /S/ Federico F. Sanchez
---------------------------------------
Federico F. Sanchez
Director
Date: March 24, 1999 By: /S/ Jorge L. Fuentes
---------------------------------------
Jorge L. Fuentes
Director
Date: March 24, 1999 By: /S/ Luis A. Ferre Rangel
---------------------------------------
Luis A. Ferre Rangel
Director
Date: March 24, 1999 By: /S/ Juan A. Albors
---------------------------------------
Juan A. Albors
Director
Date: March 24, 1999 By: /S/ Waldemar del Valle Armstrong
---------------------------------------
Waldemar del Valle Armstrong
Director
</TABLE>
23
<PAGE> 24
PUERTO RICAN CEMENT COMPANY, INC.
AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants .............................................. 25
Schedule VIII - Valuation and Qualifying accounts for the years ended
December 31, 1998, 1997 and 1996 ............................................ 26
Financial Data Schedule ........................................................ 27
</TABLE>
24
<PAGE> 25
SCHEDULE
VIII
PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------
Additions Deductions from
Balance at Charged to Additions Reserves Write-off Balance at
Beginning Cost and Charged to of Uncollectible End of
DESCRIPTION of Year Expenses Other Accounts Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
1998 $ 1,451,969 $ 145,424 $ 0 $ 301,236 $ 1,296,157
1997 1,538,585 233,135 0 319,751 1,451,969
1996 1,539,788 101,102 0 102,305 1,538,585
</TABLE>
26
<PAGE> 1
EXHIBIT 3.i.ii
CORPORATE RESOLUTION
I, ETIENNE TOTTI DEL VALLE, as Secretary of Puerto Rican Cement Company,
Inc., a corporation organized and existing under the laws of the Commonwealth
of Puerto Rico, with its principal offices at San Juan, Puerto Rico, with its
principal offices at San Juan, Puerto Rico, does hereby
CERTIFY
That at a meeting of the Board of Directors of said corporation held on
February 24, 1999, Guaynabo, Puerto Rico, the following resolution was
unanimously adopted:
RESOLUTION
"RESOLVED: To amended Article III.1 of the By-Laws of the Corporation
to read as follows:
III. DIRECTORS
1. The number of directors which shall constitute the board shall be
sixteen until May 5, 1999, and fifteen thereafter. The number of directors
may be changed from time to time by affirmative vote of a majority of the
Board of Directors within the limits provided by the Certificate of
Incorporation, but no such change shall affect the term of any director
then in office. The Board of Directors shall from time to time make such
determinations pursuant to this section as shall be necessary or
appropriate in order to ensure that, under any circumstances, the holders
of capital stock of any class or series of capital stock having voting
rights established under Article FIFTH of the Certificate of Incorporation
shall be able, after giving effect to all applicable provisions of the
Certificate of Incorporation and of these By-Laws, duly and effectively to
exercise any special right conferred upon them by the Certificate of
Incorporation or any resolution or resolutions of the Board of Directors
adopted pursuant thereto to elect directors of the Corporation. Except as
otherwise provided by law or in the Certificate of Incorporation or any
resolution or resolutions of the Board of Directors thereto, the term of
office of each director heretofore or hereafter elected shall be from time
of his election and qualification until the third annual meeting next
following his election and until his successor shall have been duly elected
and shall have qualified."
I FURTHER CERTIFY, that the aforesaid Resolution has not been repealed and
is in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation, at San Juan, Puerto Rico, this 24th day of March, 1999.
/s/ ETIENNE TOTTI DEL VALLE
-------------------------------
ETIENNE TOTTI DEL VALLE
Secretary
AFFIDAVITO: 1999
Subscribed to before me by Etienne Totti del Valle, of legal age, married
and resident of San Juan, Puerto Rico in his capacity as Secretary of Puerto
Rican Cement Company, Inc, to me personally known this 24th day of March, 1999.
(NOTARY SEAL)
/s/ MARIA EUGENIA CASTRO COLON
-------------------------------
NOTARY PUBLIC
<PAGE> 1
EXHIBIT 10.1
[CARBOCOL LOGO]
COMMERCIAL CONTRACT BETWEEN
CARBOCOL AND PUERTO RICAN CEMENT COMPANY, INC.
This Contract in entered this January 1st, 1998, by and between CARBONES DE
COLOMBIA, S.A., "CARBOCOL", an industrial and commercial state business
organization of Colombia, duly incorporated and domiciled in Bogota, D.F.,
Colombia, herein called "SELLER" and PUERTO RICAN CEMENT COMPANY, INC., a
corporation duly incorporated and domiciled in San Juan, Puerto Rico, herein
called "BUYER", for the sale of coal by Seller to Buyer pursuant to the terms
and conditions set forth herein.
WITNESSETH
WHEREAS, the parties have a Sales Contract signed on 14th December 1982.
WHEREAS, the sales Contract has been extended by several amendments, until the
year 2000.
WHEREAS, the sales contract has been modified since the initial signature in
1982 and needs to be updated.
NOW, THEREFORE, in consideration of the premises and of the mutual convenience
set forth herein, it is agreed by and between the parties the following
Contract, which replace the existing Contract signed on December 14, 1982 and
all the Amendments No. 1, No. 2, No. 3 and No. 4.
I - SOURCE AND DESTINATION OF THE COAL
The entire quantity of Coal shall be supplied from the Cerrejon Mining Complex
in the Republic of Colombia, South America, and shall be used for the production
in facilities owned by BUYER, unless differently agreed by the parties.
II - TERM
The term of the proposed supply agreement shall extend from January 1st, 1998,
until December 31st, 2005, until completion of the obligations assumed under
this Contract as accepted, unless terminated prior to such date under other
provisions hereof. No suspension of an obligation under this Contract as
accepted by reason of force majeure shall extend the term except upon mutual
Agreement of SELLER and BUYER.
Notwithstanding the forgoing, in case of privatization of CARBOCOL, resulting
in change of control or ownership of SELLER, the sale or transfer of
substantially all of the assets of SELLER, BUYER shall have the right to
terminate this agreement upon 30 days written notice.
<PAGE> 2
[CARBOCOL LOGO]
III - QUANITITY
3.1 The SELLER shall deliver and BUYER shall purchase and take delivery of an
annual Firm Quantity for the relevant Coal Shipping Year as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FIRM OPTIONAL
COAL SHIPPING YEAR QUANTITY QUANTITY
- ------------------------------------------------------------------------------
<S> <C> <C>
January 1st 1998 to December 31st, 1998 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 1999 to December 31st, 1999 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2000 to December 31st, 2000 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2001 to December 31st, 2001 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2002 to December 31st, 2002 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2003 to December 31st, 2003 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2004 to December 31st, 2004 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
January 1st 2005 to December 31st, 2005 100.000 mit 75.000 mt
- ------------------------------------------------------------------------------
</TABLE>
3.2 The quantities under Sections 3.01 above, shall be delivered in shipments
of 25,000 MT (Handy size vessels), subject to a variation of plus or minus
10 PCT at SELLER's option.
3.3 BUYER shall exercise its option to purchase the Optional Quantities for
each corresponding Coal Shipping Year, before June 30th of each year.
3.4 Reduction of Contract Quantities. If deliveries of Coal are interrupted or
limited due to a force majeure event or its effects upon either SELLER or
BUYTER, the Contract Quantities for the year of such occurrences shall be
reduced by whatever amounts deliveries are actually reduced because of
force majeure during such year. In any case, BUYER and SELLER can mutually
agree for additional quantities tobe delivered once the force majeure
interruption has been cleared.
IV - QUALITY
Coal shall be unwashed, and with the following typical qualities at the loading
port during the term of this Contract as Accepted:
TYPICAL CERREJON COAL QUALITY PARAMETERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
ASTM STANDARS -
AS RECEIVED BASIS TYPICAL VALUES MAX./MIN.
- ------------------------------------------------------------------------------
<S> <C> <C>
PROXIMATE ANALYSIS (Weigh %)
- ------------------------------------------------------------------------------
Gross Calorific Value (BTU/lb) 11.800 11.300 min.
- ------------------------------------------------------------------------------
Sulfur 0.67 1.0 max.
- ------------------------------------------------------------------------------
Total Moisture 10 14 max
- ------------------------------------------------------------------------------
Ash 7.9 15 max
- ------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
[CARBOCOL LOGO]
<TABLE>
<S> <C> <C>
Volatile Matter 33.8 32 min./36 max.
HGI 48 43 min.
Size (inches) 2 x 0 2 max.
</TABLE>
Quality shall be determined in accordance with testing procedures of the
American Society for Testing and Materials (ASTM).
V. PRICE AND PRICE ADJUSTMENTS
5.1 FOB PRICE:
The FOB Price for the deliveries for coal of 11,800 BTU/lb (as received
basis) shall be calculated using the formula described below:
The formula should take in consideration the price of the four (4) nearest
markets accessible to Puerto Rican Cement. Those markets have different
characteristics as follow:
<TABLE>
<CAPTION>
BTU's Sulphur
----- -------
<S> <C> <C>
United States - Gulf Coast 12,500 1.0%
Colombia - Pto. Bolivar 12,000 0.7%
Colombia - Santa Marta 11,800 0.8%
Venenzuela - Maracaibo 12,600 0.8%
</TABLE>
The prices to be used should be those reported in the Coal Week
International publication of the day of departure from the loading port,
or the last publication of that week.
The formula should consider the prices of the four established markets in
the week of the shipment and the prices of the preceding three weeks of
the shipment. The purpose of using all those prices is to neutralize any
dramatic change of the market.
CALCULATION OF PRICE.
Every week the high and low price of each market is averaged, to determine
the average price (PA).
The average market prices (PA) with different BTU's are adjusted to a base
calorific uniform value of 11,800 BTU's.
FORMULA: Ap = PA / CV X 11,800
Where
Ap = Adjusted Price
PA = Average market price
CV = Calorific value of coal
3
<PAGE> 4
[CARBOCOL LOGO]
The four adjusted market price are averaged, to determine an Average Market
Price (Pam) adjusted to 11,800 BTU's with less than 1.0% sulphur.
FORMULA: Pam = ([Sigma] Ap) / N
Where N =
number of items [maximum of 16 (4x4)]
The adjusted price of the shipment (Ps) will be determined by comparing the
average market price adjusted to a calorific value of 11,800 against the
actual calorific value of the shipment, by means of the following formula:
FORMULA: Ps = Pam / 11,800 X CVs
Where
CVs = Calorific value of the shipment under consideration
If the sulphur of a shipment exceeds 1.0%, the adjusted price of the
shipment will be reduced by $0.70 for each 0.1% difference in excess over
1.0% of sulphur. Under no circumstances does it imply that the BUYER has to
accept shipments of unsatisfactory quality, for this reason the BUYER
maintains its original right not to accept any shipment that does not meet
with the specifications according to the contract.
An example of the price calculation is incorporated in attachment "A" as
reference.
5.2 TRANSPORTATION FREIGHTS:
The following transportation Freights shall apply:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
COAL SHIPPING YEAR APPLICABLE FREIGHT
- -------------------------------------------------------------------
<S> <C>
1998 USD 5.45/MT
- -------------------------------------------------------------------
1999 USD 5.85/MT
- -------------------------------------------------------------------
2000 USD 5.85/MT
- -------------------------------------------------------------------
2001 to 2005 TO BE AGREED
- -------------------------------------------------------------------
</TABLE>
5.3 TRANSPORTATION INSURANCE:
The following transportation Insurance shall apply: USD 0.15/mt
VI - WEIGHING, SAMPLING AND ANALYSIS
6.1 WEIGHING. The actual quantity of coal delivered shall be determined by draft
survey at loading port by an independent surveyor mutually selected by
BUYER
4
<PAGE> 5
[CARBOCOL LOGO]
and SELLER. The cost of weighing to be paid by SELLER. The certified
tonnage will be final and binding and will be reflected in the final
invoice accordingly.
6.2 SAMPLING AND ANALYSIS. The coal shall be sampled at loading port in
SELLER's automatic mechanical equipment technically suitable to sample
steam coal (0 x 50 mm ASTM top size) in accordance with ASTM standards.
Four (4) reference samples shall be obtain during the loading of coal at
Port Bolivar, and shall be kept for forty (40) days after the coal has
arrived at the discharging port.
The samples shall be as specified below for each delivery:
1) 1 sample for shipment analysis
2) 1 sample for SELLER
3) 2 sample for BUYER
The cost of sampling and quality determination shall be borne by the SELLER
at loading port. An independent laboratory satisfactory to BUYER shall
analyze the representative sample of the coal of each shipment, according
to ASTM standards. The analysis shall show the figures for total moisture,
volatile matter, ash, sulfur, fixed carbon HGI, and gross calorific value
(BTU/lb), as the coal should be received by BUYER, SELLER shall cause that
BUYER's samples and the "Certificado de Peso", Draft Survey, Hold Inspect
Certificate and "Certificado de Analisis" be sent to, and received by,
BUYER within 15 days from the Bill of Lading Date ________.
VII - DELIVERY AND TITLE
The coal shall be delivered by SELLER in bulk, CIF Ponce (Puerto Rico), into
geared vessels, unless previously agreed, provided by SELLER. Title to and
risk of loss of Coal shall pass over to BUYER when coal passes the ship's rail
at the loading port. Except as provided otherwise herein, the provisions of
INCOTERMS 1990 shall apply.
VIII - INVOICING AND PAYMENT
8.1 PAYMENT IN CASH. All invoices and payments shall be made in U.S. Dollars.
BUYER shall pay 100% of the shipment value according to Clause "V" by
telegraphic transfer to the bank and account indicated by SELLER, within
forty-five (45) days from Bill of Lading date, provided BUYER has received
the documents specified below not later than 15 days from the Bill of
Lading Date, provided, however that in the event any such documents has not
been received by BUYER by such date, then the 45 days shall be calculated
from the date Buyer receives the all of said documents:
5
<PAGE> 6
EXHIBIT 10.1
[CARBOCOL LOGO]
<TABLE>
<CAPTION>
DOCUMENT ORIGINALS COPIES
- --------------------------------------------------------------------------------
<S> <C> <C>
Final Cargo Invoice 1 1
- --------------------------------------------------------------------------------
Bill of Lading 3 3
- --------------------------------------------------------------------------------
Certificado de Peso 1 1
- --------------------------------------------------------------------------------
Draft Survey - 2
- --------------------------------------------------------------------------------
Certificado de Origen 1 -
- --------------------------------------------------------------------------------
Statement of Facts 1 1
- --------------------------------------------------------------------------------
NOR 1 1
- --------------------------------------------------------------------------------
Hold Inspect. Certificate 1 1
- --------------------------------------------------------------------------------
Certificado de Analisis - 1
- --------------------------------------------------------------------------------
Stowage Plan - 2
- --------------------------------------------------------------------------------
Special Customs Invoice 3 -
- --------------------------------------------------------------------------------
</TABLE>
8.2 FAILURE TO MAKE PAYMENT IN TIME. If at any time payment is not received by
SELLER within the period specified in Article 8.01 "PAYMENT IN CASH" except
for reasons beyond BUYER's control, the BUYER must pay interest at an
annual rate equal to 200 basis points over the rate of interest announced
from time to time by the Chase Manhattan Bank at its principal offices in
New York for 90 days extensions of credit to its preferred customers
("Prime Rate"). Interest shall be calculated on the basis of a 360 days
year and for the actual number of days elapsed after the 45 days provided
in Section 8.01 above.
8.3 PAYMENT OF DEMURRAGES. Any demurrage due from, and payable by, BUYER
according to Article 10.10 will be settled separately from payment on coal
deliveries. Any dispute on demurrage or dispatch shall under no
circumstances be a reason to withhold payment of the shipment value as
stated in the final invoice. Settlement and payment of Demurrages for each
shipment shall be settled not later than 60 days after Bill of Lading date.
8.4 FINANCING. At BUYER's option, SELLER will finance 100 percent of the CIF
value of any shipment for a period of ninety (90) days, once the BUYER
declares this option previous to load the shipment. No interest shall
accrue for the first 45 days as calculated pursuant to Section 8.01 above.
For the second period of forty-five (45) days, SELLER will charge BUYER
interest at a rate equal to 100 basis points over the LIBOR for 180 days
extensions of credit as published in the "Money Rates" column of the Wall
Street Journal effective as of the first day of the second period of
forty-five (45) days. Payment of principal and accrued interest for each
shipment shall be made by BUYER within the last day of the ninety (90) day
period. Interest shall be calculated on the basis of a 360 day year for the
actual number of days elapsed after first 45 days.
6
<PAGE> 7
[CARBOCOL LOGO]
8.5 PREPAYMENT. With a previous notification BUYER will have the option of
paying in advance 100 percent of the CIF value of any shipment, once the
BUYER receive from SELLER the calculation of the final CIF value of the
shipment. SELLER will make a discount to final CIF value of the shipment,
equivalent to a rate of interest equal to 100 basis points over the LIBOR
for 180 days extensions of credit as published in the "Money Rates" column
of the Wall Street Journal effective as of the date of the Bill of the
Lading of each shipment. Interest shall be calculated on the basis of a 360
days and for the actual number of days of prepayment, between the time of
the Bill of Lading date and the 45 days of payment established in clause
8.1 hereabove.
8.6 FINANCIAL REVISIONS. Every Coal Shipping Year, the parties may agreed
modifications over the hereabove financial conditions, as the case may be.
IX - SCHEDULING OF SHIPMENTS
The firm tonnage shall be loaded at Puerto Bolivar evenly spread on a yearly
basis during each Coal Shipping Year, on board of handysize vessels, at dates
to be mutually agreed between BUYER and SELLER. Adjustments to the shipping
schedule can be agreed upon between BUYER and SELLER at the commencement of
each semester. If BUYER exercises for any Coal Shipping Year the option
provided by Section 3.03 hereof, the Optional Quantity shall be loaded during
second semester of each Coal Shipping Year, at dates to be mutually agreed
between BUYER and SELLER at the time of declaration.
Actual laycan periods of ten (10) days at Puerto Bolivar, shall be mutually
agreed between the parties. SELLER shall inform BUYER before loading ship its
arrival to Buyers Port and expected arrival for each coal shipment.
X - VESSEL DISCHARGING CONDITIONS
10.1 PORT RULES: All vessels shall comply with all published rules applicable
to Puerto Ponce (Puerto Rico).
10.2 VESSEL NOMINATION: SELLER will inform BUYER as soon as practicable, but
not later than upon vessel arrival at Loading Port, the vessel's name and
full characteristics and quantity to be loaded. Vessels provided by SELLER
shall not be more than 20 years old.
The vessel shall be acceptable to BUYER, which acceptance will not to be
unreasonably withheld. Acceptance or rejection of the vessel shall be
notified by BUYER to SELLER within one (1) working day after nomination,
provided that all required information of the vessel has been made
available to BUYER.
7
<PAGE> 8
[CARBOCOL LOGO]
10.3 NOTICE OF ARRIVAL: SELLER shall notify BUYER of the expected date and hour
of vessel's arrival destination port by the vessel arrival date at Loading
port but not later than the sailing date to the port of destination.
10.4 NOTICE OF READINESS (NOR): Notice of Readiness will be presented by the
vessel's Master or his representative at any time of day or night,
Saturdays Sundays and holidays ("SHINC"), provided the vessel is in free
pratique and in all respects ready to unload the cargo. In case the berth
is occupied, Notice of Readiness shall be presented from customary
anchorage site, provided the vessel's is ready in all respect for unload
operations and is at total disposition of receivers.
10.5 LAYTIME: Laytime at discharging port shall be calculated on a basis of
twenty-one (21) consecutive hours working days, including Saturdays,
Sundays and holidays ("SHINC").
Laytime shall commence twelve (12) hours after presentation of Notice of
Readiness or when unloading operation starts earlier in which case actual
time used to count as laytime. Time lost waiting for berth shall be counted
as shore interruption for laytime purposes. Laytime shall end when the
vessel gears are withdrawn after completion of unloading.
Ship Captain and stevedoring agent must confirm daily the amount of coal
discharge and the interruptions discharging events during each day. The
method of confirmation is by mutual signing of unloading statement of facts
prepared by the ship agent.
Any time consumed due to any of the following events, shall not count as
used laytime:
a. Awaiting customs and immigration clearance and free pratique.
b. Moving from anchorage place to discharging berth.
c. Governmental authorities prohibits or prevents discharging at any time.
d. If discharge is delayed or interrupted by bad weather.
e. Repositioning of the vessel.
f. Meal time of one (1) hour each, three times a working day, SHINC,
required by appropriate governmental authorities.
Final trimming out of the holds to be for BUYER's account, and time to
count as laytime. The vessel shall hoist on board and shift from hold to
hold and put ashore again, bulldozers and drivers supplied by the BUYER,
subject to weight. Enough amount of bulldozers and stevedores shall be
supplied by the BUYER, following Master requests.
8
<PAGE> 9
[CARBOCOL LOGO]
Laytime will not be interrupted by crane breakdown nor whenever hopper is
full, provided that belt is running properly.
10.6 PORT: SELLER shall provide one safe port and berth at Ponce, Puerto Rico,
for SELLER's vessel, free of all wharfage and sufficient depth to permit a
vessel not exceeding the draft of thirty (30) feet of salt water to lie
always safely, afloat, and that such a vessel can safely reach and leave
at all times.
10.7 CHARGES TO SELLER: The following charges shall be on SELLER's account:
(a) Ocean freight, (b) normal vessel's port expenses at discharging port,
(c) Insurance, (d) discharging operation of self-unloader vessels. Any
wharfage, taxes on freight or cargo, or any other cost involved in the
importation of the coal, shall be on BUYER's account, including
stevedores and front end loader for rough cleaning of vessel. Handling
for loading and unloading of said front end loader to be performed by
vessel crew and equipment without charge to BUYER.
10.8 SIZE OF VESSELS: The provisions of this article are predicated upon the
use of self-trimming geared bulk carrier vessels, carrying about 25,000
metric tons.
10.9 DISCHARGING RATE: Vessel shall selfdischarge using two cranes into three
workable BUYER's hoppers, at rate of 8,000 metric tons / weather working
day of 21 working hours, Sundays and holidays included (SHINC), including
final trimming.
Vessel to selfdischarge using her own cranes, grabs and crew, free of
expense to the BUYER, provided permited by shore regulations, otherwise
shore crew operate cranes at BUYER's expense and risk, in which case
SELLER discharge rate guarantee is void.
BUYER to guarantee a minimum takeaway capacity of 9,000 metric tons /
weather working day of 21 working hours, Sundays and holidays included
(SHINC), and shall provide three hoppers which to placed as instructed by
the master.
In the event vessel is prevented by shore to selfdischarge at mentioned
rate, due to hoppers clogged, stoppages forced by the belt, time lost
waiting for dozers, or any other reason whatsoever beyond the control of
the vessel which prevents vessel to selfdischarge at the agreed rate.
BUYER to compensate SELLER for the time so lost in excess of laytime, at
the agreed demurrage rate.
Alternatively, if vessel can not selfdischarge at 8,000 metric tons /
weather working day of 21 working hours, Sundays and holidays included
(SHINC), then SELLER to compensate BUYER for the excess time used at the
agreed demurrage rate.
9
<PAGE> 10
EXHIBIT 10.1
[CARBOCOL LOGO]
10.10 DUMURRAGE: If SELLER fails to meet the guarantee discharging rate
specified in Clause 10.09 hereabove, other than because of BUYER's default
hereunder, SELLER shall pay to BUYER for the demurrage at the rates
specified herebelow per day, prorated for actual time, provided that BUYER
invoices SELLER for any such demurrage within 60 days after occurrence.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
COAL SHIPPING YEAR APPLICABLE DEMURRAGE
- --------------------------------------------------------------
<S> <C>
1998 USD 8.000/per day
- --------------------------------------------------------------
1999 USD 8.500/per day
- --------------------------------------------------------------
2000 USD 8.500/per day
- --------------------------------------------------------------
2001 to 2005 TO BE AGREED
- --------------------------------------------------------------
</TABLE>
Any payments for demurrage shall be made separately from payment on coal
deliveries.
An example of the demurrage / dispatch calculation is incorporated in Attachment
"B" as reference.
10.11 DAMAGE TO THE OTHER PARTY: Any damage caused by bulldozer working on
vessel's holds, to be settled between BUYER and OWNERS of the vessel. Time
consumed to be for BUYER's account, provided the vessel is actually
delayed, unless damage is caused by vessel's servants.
Any damage caused by vessels to the dock facilities or to unloading equipment at
port discharging site, shall be settled directly between the OWNER of the
vessel, and the BUYER. SELLER shall make its best and any necessary efforts, to
assist BUYER in the prompt solution of the claim.
XI - FAILURE TO PURCHASE CONTRACT QUANTITIES
11.1 SHORTFALL: If in the absence of force majeure, BUYER fails to purchase or
SELLER fail to sale in any year the minimum quantity specified Clause III,
and such failure is not excused by other provisions of this Contract or by
law, the quantity by which BUYER's or SELLER falls short of such minimum
shall be called "Shortfall".
11.2 SHORTFALL PENALTY FOR BUYER: If in any case BUYER incurs in a Shortfall as
described in Section 11.01, SELLER shall charge the BUYER account the
fully amount of the value of such Shortfall, calculated as described in
Section V of this contract. The BUYER must pay interest as described in
Section 8.02 until the full satisfaction of debt. Upon payment SELLER will
deliver the shortfall the next year
10
<PAGE> 11
[CARBOCOL LOGO]
by mutual agreement with BUYER, in which shortfall will not count as part
of the agree yearly shipment.
11.3 SHORTFALL PENALTY FOR SELLER: BUYER agrees that it will maintain as a
safety measure an average of ninety (90) days consumption of coal in
inventory based on current levels of production, and scheduling of
shipments during the Coal shipping year shall be accordingly. If SELLER is
unable to supply coal to BUYER as provided herein, and BUYER's inventory
requirements falls below the required safety amount, BUYER is authorized to
purchase coal from an alternate source to replenish its inventory amounts.
The minimum required amounts shall be adjusted accordingly, and any extra
cost incurred over the cost estipulated in Section V shall be reimbursed by
SELLER to the BUYER. Any additional shortfall occurring in later periods
will cause shortfall penalty that shall follow the same conditions
established in Clause 11.2.
XII-FAILURE OR DELAY OF PERFORMANCE-FORCE MAJEURE
12.1 FORCE MAJEURE EVENTS. No failure or omission to carry out or to observe
any of the terms, provisions or conditions of this Agreement shall give
rise to any claim by one party hereto against the other, or be deemed to be
a breach of this Agreement, if such failure or omission shall be excused by
law or, if the same shall be caused by or arise out of (a) war,
hostilities, acts of the public enemy or belligerents, sabotage, blockade,
revolution, insurrection, riot or disorder; (b) arrest or restraint of
princes, rulers or peoples; (c) expropriation, requisition, confiscation or
nationalization; (d) embargoes, export or import restrictions, rationing or
allocation, whether imposed by law, decree or regulation of by voluntary
cooperation of SELLER or BUYER at the insistence or request of any
government or government instrumentality, or any person purporting to act
therefor; (e) orders, acts, or statutes of military, civil authorities, or
legislative bodies, or refusals to act by same or interference by or
restrictive or onerous regulations, whether legal or de facto, or whether
purporting to act under some constitution, decree or law or otherwise
which directly affects the party's ability to perform hereunder or the
economic effects of such orders, acts, statutes or refusals to act which
result in SELLER suspending its Coal operation in the Cerrejon Zona Central
region: (f) Act of God, fire, flood, frost or ice, earthquake, storm,
lightning, tide, tidal wave or perils of the sea, accidents of navigation
of breakdown or injury of vessels; (g) loss of vessel tonnage due to
sinking by belligerents or to governmental taking whether or not by formal
requisition; (h) accidents to or closing of inland transportation, harbors,
docks, canals, channels or other assistance's to or adjuncts of shipping of
navigation; (i) any monetary loss occurring to SELLER under this
Agreement; (j) epidemic or quarantine; (k) strikes, combination of workmen,
lockouts, or other labor disturbances; (l) explosion or breakdown from any
cause whatsoever or accidents by fire or otherwise to mines, roads, storage
facilities, installations, machinery or other facilities; (m)
11
<PAGE> 12
[CARBOCOL LOGO]
unavailability of materials or equipment; (n) any event, matter or thing
wherever occurring and whether or not of the same class or kind as those
above set forth which by the exercise of due diligence the party concerned
is unable to overcome, whether or not said occurrence is reasonable
foreseeable (the above (a) through (n) herein referred to collectively as
force majeure conditions or events).
12.2 NOTICE AND DURATION. If SELLER is prevented from delivering or BUYER
from receiving all or any part of the Coal by reason of a force majeure
circumstance the party so prevented shall give the other party written
notice thereof and shall continue to deliver or receive the portion, if
any, of the Coal not affected thereby, and as to the remainder shall
promptly resume performance of this Agreement when able, and shall remove
or remedy the cause of such interruptions as rapidly as may be
practicable; provided that, during the period of force majeure, the party
experiencing the force majeure may cancel activities or delay making
investment and construction decisions in an effort to avoid waste and
preserve capital which may prolong the time until performance can begin
after the force majeure condition ceases to exist. Force majeure will
therefore be deemed to continue for a reasonable period of time after the
force majeure condition ceases. Furthermore, a party in removing such
force majeure condition shall not be required to settle strikes or
lockouts or government claims by acceding to any demands when in the
discretion of that party it would be inadvisable to do so.
12.3 PAYMENT NOT EXCUSED. BUYER shall not be excused for reasons of force
majeure from its obligations to make payment of all amounts due on account
of Coal delivered.
XIII - ASSIGNMENT
Except as may be otherwise provided in this contract, this contract as accepted
may not be assigned by either of the parties, in whole or in part, without the
written consent of the other party.
XIV - NOTICES
Except as otherwise provided herein, all notices required or permitted to be
given hereunder shall be deemed properly given when delivered in person to the
party to be notified, or when mailed by registered or certified mail, postage
prepaid, by the fastest mean (excluding Special Delivery), or when sent by
telegraph, telefax of telex to the party to be notified, at its addresses set
forth below, or to the last address the party to be notified may have
designated prior thereto by written notice to the other:
<TABLE>
<S> <C>
As to the BUYER: PUERTO RICAN CEMENT COMPANY, INC.
PO Box 364487
San Juan, Puerto Rico 00936-4487
</TABLE>
12
<PAGE> 13
[CARBOCOL LOGO]
Phone: (787) 783-3000
Telefax: (787) 781-8850
As to SELLER: CARBOCOL, S.A.
Commercial Vice-presidency
Carrera 7 No. 71-52 - Torre B, piso 6
Bogota, Colombia S.A.
Telephone: (571) 312-2145/312-2228
Telefax: (517) 312-206
When any notices is given in person, a confirmation by telex or letter is
required, not later than one calendar week after the notice is given.
ARTICLE XV - ARBITRATION
All disputes, controversies or differences which may arise between the parties,
out of or in relation to or in connection with this Contract as accepted shall
be finally settled by arbitration pursuant to the rules of the American
Arbitration Association, by which each party hereto is bound. Arbitration
proceedings shall take place in New York, and the language used in the arbitral
proceedings shall be English.
SELLER and BUYER shall each promptly select an arbiter from the approved list
of arbiters provided by the American Arbitration Association, and these two
arbiters shall then select a third arbiter. The arbitral award rendered by the
arbiters shall be final and binding to the parties. Consequently, BUYER and
SELLER herewith resign to the possibility of presenting any reclamation on this
Contract as accepted via diplomatic channels.
SMALL CLAIM PROCEDURE. The parties agree that all disputes where the amount in
issues is less than USD 50.000 shall be referred to the Small Claim Procedure
1989 of the London Maritime Arbitrators Association (as amended from time to
time).
XVI - APPLICABLE LAW
This Contract as accepted shall be construed in accordance with and shall be
governed by the laws of New York (USA), without any reference its conflict of
law provisions.
XVII - LIMITATION OF WARRANTIES
THERE ARE NO WARRANTIES, INCLUDING WARRANTY OF FITNESS AND MERCHANDABILITY,
WHICH EXTEND BEYOND THOSE EXPLICITLY SET FORTH IN THIS CONTRACT AS ACCEPTED.
13
<PAGE> 14
XVII - CONSEQUENTIAL DAMAGES
Neither party hereto shall claim any incidental or consequential damages in
connection with any claim or dispute made or brought under this Contract as
accepted.
XIX - INSOLVENCY
If a party becomes insolvent of any proceeding under any bankruptcy law are
commenced against a party, the other party may immediately terminate this
Contract as accepted upon giving written notice to the first party.
XX - NOT IMPLIED WAIVERS
The failure of either party to require the performance by the other party of
any provision hereof shall in no way affect the full right to require such
performance at any time thereafter. The waiver by either party of a breach of
any provision hereof shall not constitute a waiver of any subsequent breach of
the same or any other provision nor it shall constitute a waiver of the
provision itself.
XXI - INTERCOR OPTION
Under the terms of SELLER's Association Contract for the development of the
Cerrejon Mining Complex, SELLER is obligated to Contract INTERCOR a fifty per
cent (50%) participation in the quantities of coal which SELLER is obligated to
supply from the Cerrejon Mining Complex under this Contract as accepted.
Election to participate is within the sole discretion of INTERCOR and SELLER
has no authority to obligate INTERCOR to supply coal to BUYER. If INTERCOR
elects to supply fifty per cent (50%) of the quantity of coal supplied from the
Cerrejon Mining Complex contracted under this Contract as accepted and if BUYER
enters into a separate agreement with INTERCOR, the Annual contract Quantities
of Coal to be supplied from the Cerrejon Mining Complex under this Contract as
accepted shall be reduced by fifty per cent (50%).
XXII - ENTIRE AGREEMENT AND MODIFICATIONS
22.1 This contract as accepted contains the entire Agreement between the
parties, and there are no representations, understanding or agreements,
oral or written, which are not included.
22.2 This Contract as accepted cannot be modified except in writing, signed by
duly authorized representatives of both parties
14
<PAGE> 15
[CARBOCOL LOGO]
XXIII - CONFIDENTIALITY
The parties agree to keep confidential and not to disclose to others with the
exceptions of CARBOCOL's North Block Mine partner (INTERCOR) the terms and
conditions of this Contract. If either party is compelled by any law,
regulation of government order to disclose any of the terms hereof, it shall
take all reasonable steps to prevent further disclosure of the disclosed
materials.
XXIV - TERMINATION
"The PARTIES may terminate, without any further liability, this agreement at
any time for cause. In the event of termination, the terminating party shall
notify the other party in writing of the date of termination and the cause
therefor. For the purposes of this provision, the definition of "cause" shall
include but not be limited to the following:
a) The removal, resignation, withdrawal or elimination, for any reason, of any
of the principal commercial managers of any of the Parties if this action is
considered detrimental to this agreement.
b) Any attempted or actual sale, transfer or assignment by the PARTY of this
agreement or of any of the rights or responsibilities granted to and assumed
by the PARTY hereunder, except as may be provided for herein.
c) Any sale or transfer, by operation of law or otherwise, to any third party
of the principal assets of the PARTIES.
ACCEPTANCE
PUERTO RICAN CEMENT hereby accepts CARBOCOL's Commercial Contract for the sale
of El Cerrajon Coal as of this April 17th, 1998.
CARBOCOL, S.A. PUERTO RICAN CEMENT
By: /s/ Luis E. Bermudez By: /s/ Antonio L. Ferre Rangel
- ------------------------ -------------------------------
Title: President Title: Executive Vice-President
15
<PAGE> 1
EXHIBIT 13
Puerto Rican Cement Company, Inc.
Financial Information
CONTENTS
<TABLE>
<S> <C>
15 Management's Discussion and Analysis
18 Selected Financial Data
18 Common Share Prices and Dividends Per Share
19 Report of Independent Accountants
20 Consolidated Statement of Income
21 Consolidated Balance Sheet
22 Consolidated Statement of Comprehensive Income
22 Consolidated Statement of Changes in Stockholders' Equity
23 Consolidated Statement of Cash Flows
24 Notes to Consolidated Financial Statement
34 Consolidated Fourth Quarter Results
34 Financial Results by Quarters
35 Five-Year Statistical Comparison
36 Directors and Officers
</TABLE>
<PAGE> 2
Puerto Rican Cement Company, Inc.
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
in conjunction with the accompanying financial statements.
Results of Operations
1998 compared with 1997
During 1998, consolidated sales decreased by $8.4 million, or 5%, to $148.4
million from $156.8 million during 1997. This was principally a result of
decreases of 6.9% in cement dollar sales, and 5.1% in ready-mixed concrete
sales, slightly offset by an increase in lime sales.
Consolidated gross margins reported at 26.7% for 1998 decreased from gross
margins of 29.8% for 1997. The principal reason for this decrease was the
interruptions in the clinker production schedules associated with the passage
of Hurricane Georges and scheduled plant shutdowns to complete the upgrade
project during 1998. These interruptions resulted in higher production costs
per unit.
Consolidated selling, general and administrative expenses increased by $2.3
million, or 10.6%, to $24.2 million in 1998 from $21.9 million in 1997. This
increase was principally attributable to higher professional fees for legal
services associated mainly with ongoing legal proceedings against local
Government agencies in the federal and local courts. These expenses are
expected to continue to impact general and administrative expenses during 1999.
Interest and financial charges decreased $550,000, or 9.5%, to $5.2 million in
1998 compared with $5.8 million for 1997. This decrease was due to the
capitalization of $712,000 in interest expense associated with the plant
upgrade project. Interest income decreased by $200,000, or 5.6%, to $3.4
million in 1998 compared with $3.6 million in 1997. This decrease resulted from
a reduction in the Company's investment portfolio due to the sale and
redemption of investments during 1998.
The provision for income taxes as a proportion of income before taxes decreased
to 19.6% for 1998 from 29.8% for 1997. This decrease resulted from the
acquisition, at a discount, of tax credits derived from investments in
government-sponsored incentive programs, the taxation of gains on the sale of
investments at capital gain rates instead of higher regular tax rates, and
proportionately higher tax-free income during 1998.
Cement and related products segment
Cement operations. During 1998, cement dollar sales decreased by 6.9%. This
was principally due to a decrease in sales volume of 60,000 tons, or 5.5%, to
1,037,000 tons in 1998 from 1,097,000 tons in 1997. This decrease was
attributable mainly to unfavorable weather during 1998, especially the
aftermath of Hurricane Georges during September. Cement production costs were
also adversely affected by several interruptions in the clinker production
schedules during 1998. Hurricane Georges disrupted clinker production during
the fourth quarter of 1998 due to the frequent power outages. In addition, the
Company had to shut down its clinker production for 33 days during the months
of January and February to perform work on its kiln as part of a plant upgrade
project. The Company purchased higher-cost clinker to continue the production
of cement during the shutdown impacting its costs of production.
Ready-mixed concrete operations. Ready-mixed concrete sales decreased by $4.1
million, or 5.1%, to $77.4 million in 1998 from $81.5 million in 1997. This was
the result of a 5.9% decrease in sales volume attributable mainly to
unfavorable weather conditions during 1998 mentioned earlier, and to labor
shortages in the construction industry during the fourth quarter of 1998.
Lime operations. Total lime sales increased during 1998 by 5,000 tons, or
15.1%, as a result of an increase in export sales, slightly offset by a
decrease in local sales. This increase contributed to better capacity
utilization of the hydrated lime plant, thereby resulting in lower production
cost per ton.
Packaging segment
Multi-wall paper bags operations. During 1998, sales of multi-wall paper bags
remained at levels similar to those of 1997. There was a reduction in the
pasted bags division sales, entirely offset by increases in the sewn bags and
pocket bags division sales. Reductions in pasted bags sales are associated with
lower packed cement sales.
1997 compared with 1996
During 1997, consolidated sales increased $7.5 million, or 5%, to $156.8
million from $149.3 million during 1996. This increase was principally a result
of increases of 5.4% in cement sales, 7.8% in ready-mixed concrete sales, and
3.6% in paper bag sales, offset by a decrease of 14% in lime sales due to a
reduction in exports.
Consolidated gross margins reported at 29.8% for 1997 compared favorably with
gross margins of 28.1% for 1996. The principal reasons for this increase were
improvements in inventory management and production schedules in both the
cement and bag divisions which yielded lower costs of sale. This reduction in
costs resulted in spite of brief interruptions in the clinker production
related to a plant upgrade project that started during the fourth quarter of
1997.
Consolidated selling, general and administrative expenses increased by $2.7
million, or 14.1%, to $21.9 million in 1997 from $19.2 million in 1996. This
increase was principally attributable to the additional selling costs resulting
from increased sales, normal inflationary growth, and higher expenses related
to professional fees for legal, advertising and security services associated
mainly with the development of the Company's projects and related legal
proceedings for permits.
15
<PAGE> 3
Puerto Rican Cement Company, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Interest and financial charges increased $1.3 million, or 28.9%, to $5.8
million in 1997 compared with $4.5 million for 1996. This increase reflects the
effect of slightly higher interest rates on the $50 million, Series A Notes
issued in January 1997 as compared to the shorter term indebtedness refinanced
with the proceeds from the issuance of these Notes, and the interest on the
additional $20 million in Series B Notes issued in July 1997. Interest income
also increased during 1997 by $900,000, or 33.3%, to $3.6 million compared with
$2.7 million in 1996. This increase resulted from additional investments in the
Company's portfolio, specifically the $70 million, zero-coupon investment
acquired for $17.6 million in December 1996.
Cement and related products segment
Cement operations. During 1997, cement dollar sales increased by 5.4%. This
was principally due to an increase in sales volume of 59,000 tons, or 5.7%, to
1,097,000 tons in 1997 from 1,039,000 tons in 1996. Improved efficiencies in
inventory management and the manufacturing processes, which resulted in lower
costs, favorably impacted the cement operation's gross margins.
Ready-mixed concrete operations. Ready-mixed concrete sales represented the
most significant change in consolidated net sales. Ready-mixed concrete dollar
sales increased by $5.9 million, or 7.8%, to $81.5 million in 1997 from $75.6
million in 1996. This was mainly a result of an increase in sales volume of
3.6%. The gross margins of the ready-mixed concrete operations were favorably
impacted by the increase in sales volume, coupled with economies achieved by
the merger of the Company's two ready-mix concrete subsidiaries which took
effect on January 1, 1997.
Lime operations. Total lime sales decreased in 1997 by 7,000 tons, or 16.7%,
principally the result of a decrease in export sales.
Packaging segment
Multi-wall paper bags operations. During 1997, there was an increase in dollar
sales of multi-wall paper bags of 3.6%. This increase resulted mainly from a
9.4% hike in the pasted bags division sales, offset by a slight decline in the
pocket bags division sales. Efficiencies achieved through improvements in
inventory management and manufacturing process resulted in lower costs, which
yielded improved gross margins for the year.
Significant events
Year 2000 Status
State of Readiness - The Company has taken various actions to address the Year
2000 problem. The Year 2000 problem is the result of certain computer programs
being unable to distinguish between the years 1900 and 2000, and therefore
possibly being unable to function or to continue functioning properly. The
Company has formed a committee to identify existing or potential instances of
Year 2000 problems and to propose and implement actions to solve such problems.
As a result of actions being taken to address the Year 2000 problem, the
Company and its subsidiaries are substantially Year 2000 compliant.
The Company is in the process of migrating its computerized applications to a
new processing architecture commonly known as an Enterprise Resource Planning
System. The company providing the application software for this migration is JD
Edwards. The Company has been advised that the JD Edwards system is Year 2000
compliant. Applications that will be migrated include general ledger, accounts
payable, procurement, inventory management, and payroll. Migration to the new
system will be accomplished utilizing a phased approach with full conversion
expected by December 1999. Since payroll will be the last application to be
converted, program changes were made during the first quarter of 1999 to make
it Year 2000 compliant in the event there is project slippage which may cause
us to miss our December 1999 goal of full conversion to the new system. The
changes made to the payroll system were simple in nature and were performed by
internal personnel. The mainframe computer that supports the current
applications as well as the computer that was recently acquired to support the
new applications are Year 2000 compliant.
A recent study made of all personal computers indicated that a small number of
computers were not Year 2000 compliant. These were older systems that could not
be upgraded and were replaced during the first quarter of 1999.
In the area of manufacturing, the software that supports the x-ray process used
in the cement plant was upgraded to make it Year 2000 compliant. The vendor
that supports the software was contacted and the upgrading was performed during
the first quarter of 1999.
The Company does not depend heavily on third parties. A study of our suppliers
indicated that Year 2000 compliance does not appear to be a substantial
problem. The local banks we deal with have reported that they expect to be Year
2000 compliant during the first half of 1999. The Company's customers may also
have Year 2000 problems. While the Company does not expect that any such
problem would directly prevent or limit such customers' ability to purchase the
Company's products, if such customers were unable to operate or encountered
substantial problems in their ability to operate, sales by the Company could be
affected.
Year 2000 Costs - The cost to bring the Company into Year 2000 compliance was
less than $100,000. This amount includes the changes made to the payroll
system, replacement of older personal computers, and upgrade of software for
the x-ray application.
Year 2000 Risk Factors - Year 2000 risk factors facing the Company are minimal.
16
<PAGE> 4
Puerto Rican Cement Company, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Year 2000 Contingency Plans - The Company's Year 2000 plan is focused on the
migration of its applications to an Integrated Enterprise Resource Planning
system. Changes were made to the present payroll system to make it Year 2000
compliant and will be used in the event of project slippage that could delay
the use of the new system as planned.
New Subsidiary -- Ponce Capital Corporation
On March 19, 1998, the Company incorporated a new subsidiary, Ponce Capital
Corporation ("PCC"), under the laws of the Commonwealth of Puerto Rico. PCC was
established for the purpose of providing equipment financing, primarily to
existing or prospective customers in the construction and related industries.
PCC began operations during September after obtaining its license from the
Commonwealth's Commissioner of Financial Institutions.
Plant Upgrade Project
The Company's plant upgrade project, which increased clinker production
capacity, was completed during the fourth quarter of 1998 upon receipt of final
permits from the local environmental protection agency.
Forward-Looking Statements
Certain statements contained in this document, including in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, that
are not historical facts, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company
and its businesses to be materially different from that expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; political and social
conditions; government regulations and compliance therewith; demographic
changes; sales mix; pricing levels; changes in sales to, or the identity of,
significant customers; changes in technology, including the technology of
cement production; capacity constraints; availability of raw materials and
adequate labor; availability of liquidity sufficient to meet the Company's
needs; the ability to adapt to changes resulting from acquisitions; and various
other factors referenced in this Management's and Discussion Analysis. The
Company could be particularly affected by weather in Puerto Rico, changes in
the Puerto Rico economy, and changes in the Government of Puerto Rico or the
manner in which it regulates the Company.
The Company assumes no obligation to update forward-looking statements to
reflect actual results or changes in or additions to the factors affecting such
forward-looking statements.
Legal Proceedings
The Company is involved in legal proceedings which are fully discussed in Note
15 and Note 16 to the consolidated financial statements.
Realty/Limestone Extraction
The Company has temporarily suspended its operations at Vega Alta and Guanica
pending the conclusion of legal proceedings surrounding the permits for these
projects (Note 16 to the consolidated financial statements provides more
detail). The Vega Alta project consists of the development of a 300-unit,
low-cost housing project on 80 acres of real estate owned by the Company, and
the Guanica project consists of the extraction of limestone from a leased
facility.
Stock Repurchase
The Company repurchased 68,000 shares of its common stock for $3.3 million on
March 18, 1998, in a privately negotiated transaction approved by the Company's
Board of Directors at its January 1998 meeting.
Additionally, the Company's Board of Directors approved a program to repurchase
up to 300,000, or 5.5%, of the Company's outstanding common stock at its
February 1998 meeting. As part of this program, on June 23, 1998, the Company
repurchased 5,000 shares of its common stock for $242,000 in the open market.
17
<PAGE> 5
Puerto Rican Cement Company, Inc.
Selected Financial Data
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $148,377,205 $156,774,092 $149,276,622 $100,231,963 $ 92,829,872
Income before income tax 14,146,406 22,805,472 21,568,030 23,049,750 21,342,365
Tax provision 2,765,222 6,802,261 6,879,639 7,257,317 5,579,153
Net income 11,381,184 16,003,211 14,688,391 15,792,433 15,763,212
Net income per share 2.11 2.91 2.66 2.90 2.76
Current assets 95,979,856 81,725,557 86,800,526 78,548,232 47,298,323
Current liabilities 22,528,532 18,924,124 30,481,303 27,977,386 16,872,039
Working capital 73,451,324 62,801,433 56,319,223 50,570,846 30,426,284
Current ratio 4.26 4.32 2.85 2.81 2.80
Property, plant and equipment, net 162,278,187 158,610,632 143,088,242 142,567,213 112,299,027
Long-term investments 31,987,498 46,367,581 46,980,338 31,228,541 42,030,507
Total assets 298,769,557 291,051,116 281,203,510 255,014,868 201,869,754
Long-term debt (exclusive of
current portion) 80,541,666 76,179,792 67,023,200 57,549,475 31,696,403
Deferred income taxes 32,358,532 35,859,657 33,323,351 30,808,654 27,722,814
Stockholders' equity-net 160,258,378 157,064,315 147,421,046 135,805,923 122,971,336
Dividends per share 0.76 0.76 0.70 0.68 0.62
Cement sales, in tons 1,037,086 1,097,453 1,038,798 968,188 959,561
</TABLE>
Common Share Prices and Dividends Per Share
The Company's common stock is listed on the New York Stock Exchange (trading
symbol: PRN). The following table sets forth the high and low sales price per
share of the Company's common stock.
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------
Price per share High Low High Low
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $52 $43 1/16 $31 3/8 $28 1/8
Second Quarter 54 1/2 45 1/2 32 7/8 28 1/2
Third Quarter 51 39 1/8 41 5/8 30
Fourth Quarter 44 3/8 33 3/8 50 3/4 39 9/16
Full Year 54 1/2 33 3/8 50 3/4 28 1/8
=================================================================================================
Dividends per share $0.76 $0.76
=================================================================================================
</TABLE>
18
<PAGE> 6
(PricewaterhouseCoopers Letterhead)
REPORT OF INDEPENDENT ACCOUNTANTS
February 19, 1999
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, of comprehensive income, of changes in
stockholders' equity 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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/ PricewaterhouseCoopers LLP
- ---------------------------------------
PRICEWATERHOUSECOOPERS LLP
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2001
Stamp 1537427 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
19
<PAGE> 7
Puerto Rican Cement Company, Inc.
Consolidated Statement of Income
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $148,275,297 $156,675,080 $149,172,828
Revenue from realty operations, net 101,908 99,012 103,794
- ------------------------------------------------------------------------------------------------------------
148,377,205 156,774,092 149,276,622
- ------------------------------------------------------------------------------------------------------------
Cost and expenses, including depreciation,
depletion and amortization of $13,331,479
(1997 - $12,383,769; 1996 - $11,111,840):
Cost of sales 108,706,775 110,010,997 107,291,187
Selling, general and administrative expenses 24,205,913 21,879,599 19,168,663
- ------------------------------------------------------------------------------------------------------------
132,912,688 131,890,596 126,459,850
- ------------------------------------------------------------------------------------------------------------
Income from operations 15,464,517 24,883,496 22,816,772
- ------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest and financial charges, net of
interest charged to construction 5,216,096 5,765,894 4,464,152
Interest income (3,398,485) (3,601,063) (2,660,077)
Gain on sale of investments (1,174,705) (50,451) (26,630)
Other 675,205 (36,356) (528,703)
- ------------------------------------------------------------------------------------------------------------
1,318,111 2,078,024 1,248,742
- ------------------------------------------------------------------------------------------------------------
Income before taxes 14,146,406 22,805,472 21,568,030
- ------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Current income taxes 6,080,332 4,265,955 4,402,169
Deferred income taxes (3,315,110) 2,536,306 2,477,470
- ------------------------------------------------------------------------------------------------------------
2,765,222 6,802,261 6,879,639
- ------------------------------------------------------------------------------------------------------------
Net income $ 11,381,184 $ 16,003,211 $ 14,688,391
============================================================================================================
Earnings per share:
Basic and diluted net income per share $ 2.11 $ 2.91 $ 2.66
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
20
<PAGE> 8
Puerto Rican Cement Company, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 7,480,900 $ 2,995,634
Investments available-for-sale 5,580,202
Short-term investments 20,666,648 6,967,225
Notes and accounts receivable, net 28,799,150 28,763,683
Inventories 33,945,940 32,885,743
Prepaid expenses 5,087,218 4,533,070
- -----------------------------------------------------------------------------------------------------
Total current assets 95,979,856 81,725,557
- -----------------------------------------------------------------------------------------------------
Property, plant and equipment, net 162,278,187 158,610,632
Long-term investments 31,987,498 46,367,581
Long-term notes receivable 3,973,232
Other assets 4,550,784 4,347,346
- -----------------------------------------------------------------------------------------------------
$298,769,557 $291,051,116
=====================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 550,773 $ 668,724
Current portion of long-term debt 2,452,649 1,109,781
Accounts payable 8,820,074 6,843,256
Accrued liabilities 8,224,974 7,075,160
Dividends payable 1,022,024 1,035,894
Income taxes payable 1,458,038 2,191,309
- -----------------------------------------------------------------------------------------------------
Total current liabilities 22,528,532 18,924,124
- -----------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term debt, less current portion 80,541,666 76,179,792
Deferred income taxes 32,358,532 35,859,657
Other long-term liabilities 3,082,449 3,023,228
- -----------------------------------------------------------------------------------------------------
Total long-term liabilities 115,982,647 115,062,677
- -----------------------------------------------------------------------------------------------------
Total liabilities 138,511,179 133,986,801
- -----------------------------------------------------------------------------------------------------
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 14,702,914 14,702,914
Accumulated other comprehensive income 567,745
Retained earnings 156,170,341 148,878,203
- -----------------------------------------------------------------------------------------------------
176,873,255 170,148,862
Less - 620,926 (1997 - 547,926) shares of common stock
in treasury, at cost 16,614,877 13,084,547
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 160,258,378 157,064,315
- -----------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
- -----------------------------------------------------------------------------------------------------
$298,769,557 $291,051,116
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
21
<PAGE> 9
Puerto Rican Cement Company, Inc.
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 11,381,184 $ 16,003,211 $ 14,688,391
- ----------------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax:
Unrealized gain on available-for-sale securities:
Unrealized gain arising during the period 420,945 660,296 74,694
Realized gain included in net income (1,174,705) (50,451) (26,630)
- ----------------------------------------------------------------------------------------------------------------------
(753,760) 609,845 48,064
Income taxes related to items of other comprehensive income 186,015 (152,461) (12,016)
- ----------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax (567,745) 457,384 36,048
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 10,813,439 $ 16,460,595 $ 14,724,439
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock
Balance at beginning and end of year $ 6,000,000 $ 6,000,000 $ 6,000,000
- ----------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at January 1 14,702,914 14,702,914 14,482,054
Treasury shares issued 220,860
- ----------------------------------------------------------------------------------------------------
Balance at December 31 14,702,914 14,702,914 14,702,914
- ----------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Balance at January 1 567,745 110,361 74,313
Other comprehensive income (567,745) 457,384 36,048
- ----------------------------------------------------------------------------------------------------
Balance at December 31 -- 567,745 110,361
- ----------------------------------------------------------------------------------------------------
Retained earnings
Balance at January 1 148,878,203 137,047,068 126,216,785
Net income 11,381,184 16,003,211 14,688,391
Dividends declared (4,089,046) (4,172,076) (3,858,108)
- ----------------------------------------------------------------------------------------------------
Balance at December 31 156,170,341 148,878,203 137,047,068
- ----------------------------------------------------------------------------------------------------
Treasury stock
Balance at January 1 (13,084,547) (10,439,297) (10,967,229)
Treasury shares acquired (3,530,330) (2,645,250)
Treasury shares issued 527,932
- ----------------------------------------------------------------------------------------------------
Balance at December 31 (16,614,877) (13,084,547) (10,439,297)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity $ 160,258,378 $ 157,064,315 $ 147,421,046
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
22
<PAGE> 10
Puerto Rican Cement Company, Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,381,184 $ 16,003,211 $ 14,688,391
- --------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and depletion 13,276,268 12,328,558 11,056,629
Amortization of goodwill 55,211 55,211 55,211
Provision for doubtful accounts 145,424 233,135 101,102
Accretion of discounts on investments (2,627,384) (2,859,626) (1,485,257)
Provision for deferred income taxes (3,315,110) 2,536,306 2,477,470
Gain on sale of land and equipment (225,804) (30,976) (121,800)
Gain on sale of investments (1,174,705) (50,451) (26,630)
Changes in assets and liabilities:
Increase in accounts receivable (844,922) (1,586,506) (2,985,029)
(Increase) decrease in inventories (1,060,197) 557,547 (1,220,875)
(Increase) decrease in prepaid expenses (554,148) 91,621 127,496
Increase in other assets (258,649) (68,154) (1,720,590)
Increase (decrease) in accounts payable 1,976,818 (955,339) (649,259)
Increase (decrease) in accrued liabilities 1,149,814 1,774,976 (464,033)
(Decrease) increase in income taxes payable (733,271) 1,259,981 596,664
Increase in long-term liabilities 59,221 68,618 81,180
- --------------------------------------------------------------------------------------------------------------------
Total adjustments 5,868,566 13,354,901 5,822,279
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,249,750 29,358,112 20,510,670
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Issuance of notes receivable (3,849,309)
Collections on notes receivable 540,108
Capital expenditures (17,699,254) (28,028,571) (11,662,959)
Proceeds from sale of land and equipment 981,236 208,600 208,958
Proceeds from sale of investments available-for-sale 13,248,180 1,102,609 550,290
Proceeds from sale of short-term investments 1,711,408
Purchase of investments available-for-sale (1,130,294) (550,290)
Redemption and maturity of investments 10,710,000 1,974,000 2,390,650
Purchase of investments held-to-maturity (16,360,398) (4,000,000) (17,623,200)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,718,029) (29,873,656) (26,686,551)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (3,530,330) (2,645,250)
(Decrease) increase in notes payable (117,951) 668,724 (4,100,000)
Proceeds from loans 7,000,000 70,800,000 36,168,271
Payment of principal on long-term debt (1,295,258) (75,934,679) (18,943,349)
Dividends paid (4,102,916) (4,186,326) (3,739,968)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (2,046,455) (11,297,531) 9,384,954
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 4,485,266 (11,813,075) 3,209,073
Cash and cash equivalents at beginning of year 2,995,634 14,808,709 11,599,636
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,480,900 $ 2,995,634 $ 14,808,709
====================================================================================================================
Supplemental cash flow disclosure:
Interest paid (net of amount capitalized) $ 5,611,000 $ 3,833,000 $ 4,377,000
====================================================================================================================
Income taxes paid $ 6,197,000 $ 3,535,000 $ 3,805,000
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
23
<PAGE> 11
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements
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.
On March 19, 1998, the Company organized Ponce Capital Corporation ("PCC") as a
wholly-owned subsidiary under the laws of the Commonwealth of Puerto Rico. PCC
was established for the purpose of providing equipment financing mostly to block
manufacturers, hardware stores and ready-mixed concrete businesses. PCC began
operations during September 1998, after obtaining its license from the
Commonwealth's Commissioner of Financial Institutions.
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: Florida Lime Corporation ("FLC"), Ready Mix Concrete,
Inc. ("RMC"), Desarrollos Multiples Insulares, Inc. ("DMI"), Poly Bags and
Packaging, Inc. ("PBPI"), and Ponce Capital Corporation ("PCC"). 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 ninety (90) days at the time of
acquisition are considered cash equivalents.
Revenue Recognition
Revenue is recognized when the product is shipped in accordance with billing
terms which are generally FOB shipping point.
Investments
Investments in equity securities that have readily determinable fair values and
all investments in debt securities are accounted for as follows:
- - Debt securities for which the Company has the positive intent and ability to
hold to maturity are classified as investments held- to-maturity and reported at
cost, adjusted for amortization of premiums or accretion of discounts. Such debt
securities are reported as short-term or long-term investments, depending on
whether the remaining term to maturity is shorter or longer than one year.
- - 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. All trading securities are reported as current assets.
- - Debt and equity securities not classified as either held-to-maturity or
trading securities are classified as investments available-for-sale and reported
at fair value, with unrealized gains and losses excluded from earnings and
reported, net of taxes, in accumulated other comprehensive income. All
investments available-for-sale are reported as current assets.
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 salable condition.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and depletion. 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. The 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 $712,000 in 1998.
24
<PAGE> 12
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
Goodwill
Goodwill, included in other assets, 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. Under
this approach, deferred taxes are recognized for temporary differences between
the tax basis and financial reporting basis of assets and liabilities, using
enacted tax laws and rates.
Employee Benefit Plans
The Company has non-contributory defined benefit pension plans covering
substantially all its non-union employees. 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 asset.
The Company's funding policy is to contribute annually the minimum required by
the Employee Retirement Income Security Act of 1974.
The Company also offers post-retirement medical and life insurance benefits to
certain retired employees under an unfunded plan. The expected cost of providing
post-retirement 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 ("EPS") are computed based on the weighted average number of
shares of common stock outstanding during the year. The weighted average number
of shares outstanding for the last three fiscal years was 5,392,491 in 1998,
5,502,074 in 1997 and 5,521,486 in 1996. The Company has no dilutive or
potentially dilutive securities outstanding. Accordingly, there is no difference
between basic and diluted EPS.
Treasury Stock
Treasury stock is carried at cost.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 presentation.
Recently Issued Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 130, "Reporting Comprehensive Income." This statement
established standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. Comprehensive income has been defined as the
change in equity of a business enterprise during a period from transactions and
other events or circumstances, except those resulting from investments by owners
and distributions to owners. The components of comprehensive income are reported
in the accompanying Statement of Comprehensive Income.
Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement established
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Such information must be presented on
the same basis as that used by management to assess performance and allocate
resources. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Note 12 to the
consolidated financial statements presents the segment information in accordance
with this new standard.
Effective December 31, 1998, the Company adopted SFAS 132, "Employers'
Disclosures About Pension and Other Post-Retirement Benefits." This statement
changed the disclosure requirements with respect to pension and other
post-retirement benefits. Note 11 to the consolidated financial statements
presents the disclosure required by this new standard.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative financial
instruments and for hedging activities. It requires that an entity recognize all
derivative instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The Company adopted SFAS 133 effective
July 1, 1998. As permitted by this Statement, upon its adoption the Company
reclassified to available-for-sale investments that were previously classified
as held-to-maturity which had a book value of $7,842,000 and a market value of
$8,033,000. At December 31, 1998 and 1997, the Company did not carry derivative
financial instruments.
Note 2. Notes and Accounts Receivable
Notes and accounts receivable at December 31, consist of:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Notes receivable:
Trade $ 115,934 $ 452,043
Other 857,027 1,184,949
- ------------------------------------------------------------------------
972,961 1,636,992
- ------------------------------------------------------------------------
Accounts receivable:
Trade 27,422,419 27,737,244
Employees and affiliated companies 517,578 77,820
Other 1,182,349 763,596
- ------------------------------------------------------------------------
29,122,346 28,578,660
Less - Allowance for
doubtful accounts 1,296,157 1,451,969
- ------------------------------------------------------------------------
27,826,189 27,126,691
- ------------------------------------------------------------------------
$28,799,150 $28,763,683
========================================================================
</TABLE>
25
<PAGE> 13
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
Note 3. Inventories
Inventories at December 31, consist of:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Finished products $ 1,802,707 $ 1,891,283
Work-in-process 6,467,063 2,973,083
Raw materials 3,787,700 3,939,004
Coal and fuel oil 1,649,393 4,015,335
Maintenance and operating supplies 19,315,872 19,564,436
Land for sale 923,205 502,602
- ----------------------------------------------------------------------
$33,945,940 $32,885,743
======================================================================
</TABLE>
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, consist of:
<TABLE>
<CAPTION>
Useful life
in years 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and quarries $ 13,443,523 $ 12,576,694
Buildings and structures 50 44,914,069 41,244,348
Machinery and equipment 5-20 124,752,869 120,279,062
Pollution control equipment 25 32,580,450 31,001,463
Automobiles and trucks 3-10 23,752,085 20,610,177
Rental property 10 653,524 653,524
Construction in progress 5,298,909 6,244,405
- -------------------------------------------------------------------------------------
245,395,429 232,609,673
Less - Accumulated
depreciation and depletion 83,117,242 73,999,041
- -------------------------------------------------------------------------------------
$162,278,187 $158,610,632
=====================================================================================
</TABLE>
Note 5. Investments
The carrying and market values, and scheduled maturities of investments at
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Cost Market Value Amortized Cost Market Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments available-for-sale, at market value:
U.S. Treasury securities
Due within 1 year $ 748,064 $ 749,063
Due from 1 to 5 years 1,172,204 1,169,847
- ---------------------------------------------------------------------------------------------------------------------------
1,920,268 1,918,910
Municipal and other U.S. Government agency securities
Due from 1 to 5 years 1,153,996 1,165,056
Marketable equity securities 1,752,177 2,496,236
- ---------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ 4,826,441 $ 5,580,202
===========================================================================================================================
Short-term investments held-to-maturity, at amortized cost:
Municipal and other U.S. Government agency securities $16,061,513 $16,039,231 $ 1,050,069 $ 1,047,612
U.S. Treasury securities 4,605,135 4,611,456 5,917,156 5,885,551
- ---------------------------------------------------------------------------------------------------------------------------
$20,666,648 $20,650,687 $ 6,967,225 $ 6,933,163
===========================================================================================================================
Long-term investments held-to-maturity, at amortized cost:
U.S. Treasury securities
Due from 1 to 5 years $ 7,790,692 $ 7,830,134 $19,122,433 $18,700,964
Due after 10 years 20,254,637 25,900,000 18,916,213 22,181,600
- ---------------------------------------------------------------------------------------------------------------------------
28,045,329 33,730,134 38,038,646 40,882,564
Municipal and other U.S. Government agency securities
Due from 1 to 5 years 3,942,169 3,933,379 8,328,935 8,488,696
- ---------------------------------------------------------------------------------------------------------------------------
$31,987,498 $37,663,513 $46,367,581 $49,371,260
===========================================================================================================================
</TABLE>
26
<PAGE> 14
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
The scheduled maturities of investments, based on their carrying values, at
December 31, 1998, are summarized below:
<TABLE>
- --------------------------------------------------------------
<S> <C>
Due within one year $ 20,666,648
Due within 1 to 5 years 11,732,861
Due after 10 years 20,254,637
- --------------------------------------------------------------
$ 52,654,146
==============================================================
</TABLE>
Gross and net unrealized gains and losses at December 31, amounted()to
approximately:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
Held-to- Available- Held-to-
maturity for-sale maturity
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $ 5,693,793 $ 756,117 $ 3,515,767
Gross unrealized losses (33,739) (2,357) (545,560)
-------------------------------------------
Net unrealized gain $ 5,660,054 753,760 $ 2,970,207
=========== ===========
Deferred income taxes (186,015)
---------
Net unrealized gain reported
in accumulated other
comprehensive income $ 567,745
=========
</TABLE>
Gross proceeds from the sale of available-for-sale investments amounted to
$13,248,000, $1,103,000 and $550,000 in 1998, 1997 and 1996, respectively. Gross
realized gains on the sale of these investments totaled $1,175,000, $50,000 and
$27,000 in 1998, 1997 and 1996, respectively.
Gross proceeds from the sale of short-term investments held-to- maturity
amounted to $1,711,000 during 1998. These securities were sold near their
maturity. As discussed in Note 1, during 1998 the Company reclassified
securities with an amortized cost of $7,842,000 and a market value of $8,033,000
from held-to-maturity to available-for-sale upon adoption of SFAS 133. These
securities were subsequently sold.
Note 6. Other Assets
Other assets at December 31, consist of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Investment in real estate $ 94,533 $ 94,533
Goodwill, net of accumulated
amortization of $167,423
(1997 - $112,212) 1,486,110 1,541,321
Other long-term assets 2,970,141 2,711,492
- --------------------------------------------------------------
$4,550,784 $4,347,346
==============================================================
</TABLE>
Note 7. Accrued Liabilities
Accrued liabilities at December 31, consist of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Accrued taxes other than on income $1,290,245 $ 988,190
Accrued payroll expenses 3,428,063 3,000,618
Accrued interest expense 2,277,055 2,226,969
Other accrued liabilities 1,229,611 859,383
- --------------------------------------------------------------------
$8,224,974 $7,075,160
====================================================================
</TABLE>
Note 8. Short-term Borrowing
The Company has lines of credit available for short-term borrowing and the
discount of trade notes receivable in the aggregate amount of $24,600,000.
However, under other loan agreements with financial institutions, the Company
may incur unsecured short-term borrowing only up to $10,000,000 and may discount
trade notes receivable up to $5,000,000 through 1999. No commitment fees are
paid on these credit facilities.
The maximum aggregate short-term borrowing outstanding at any month-end was
$3,100,000 in 1998 and $3,940,000 in 1997. The approximate average aggregate
short-term borrowing outstanding during the year was $919,361 in 1998 and
$980,160 in 1997. The weighted average interest rate of such borrowings computed
annually was 6.06% during 1998 and 6.27% during 1997.
Note 9. Long-term Debt
Long-term debt at December 31, consists of:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
7.29% Series A Senior Secured Notes,
payable in full on January 27, 2017,
interest payable semiannually $50,000,000 $50,000,000
7.34% Series B Senior Secured Notes,
payable in full on January 27, 2017,
interest payable semiannually 20,000,000 20,000,000
6.32% note, payable in quarterly
installments of $200,000 from 1996 to 2000,
followed by quarterly installments of $500,000
in 2001 and 2002; interest payable monthly 5,600,000 6,400,000
Notes payable - one non-interest bearing for
$150,000 due on July 30, 1998, three for
$150,000 each at 7% due in 1999 to 2001, and
one for $200,000 at 7% due in variable quarterly
installments until the full amount is repaid. 552,649 784,792
Drawing on $12.0 million revolving credit
facility due in sixty equal monthly installments
of $75,000 commencing in December 1998,
interest payable monthly at 5.85% 4,425,000
Drawing on $2.5 million revolving credit
facility due in sixty equal monthly installments
of $41,667 commencing in November 1998,
interest payable monthly at 5.34% 2,416,666
Borrowing against cash surrender value of
life insurance policies, bearing interest at 5.0% 104,781
- -------------------------------------------------------------------------------------
Total 82,994,315 77,289,573
Less - Current portion 2,452,649 1,109,781
- -------------------------------------------------------------------------------------
Total long-term debt $80,541,666 $76,179,792
=====================================================================================
</TABLE>
The Series A and Series B Senior Notes are secured by a $70 million zero-coupon
U. S. Treasury bond pledged as collateral. The bond was purchased for $17.6
million in December 1996 and will accrue to $70 million shortly after the
maturity of the Notes. This bond is included in long-term investments
held-to-maturity.
27
<PAGE> 15
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
In October 1998, RMC obtained a $2,500,000 revolving credit facility to finance
the purchase of concrete mixer trucks. Drawings on this facility are guaranteed
by the Company. Drawings on this facility will bear interest at a variable rate
equal to 90-day LIBOR plus 0.75%, adjusted quarterly, or at a fixed rate equal
to the prevailing rate for similar debt at the date of the drawing.
In November 1998, PCC obtained a $12,000,000 revolving credit facility to
finance its operations. Drawings on this facility will be secured by the notes
issued by PCC, and guaranteed by the Company. Drawings on this facility will
bear interest at a variable rate equal to 90-day LIBOR plus 0.75%, adjusted
quarterly, or at a fixed rate equal to 0.75% plus the LIBOR-ask rate for the
loan period on the date of the drawing.
Aggregate maturities of long-term debt at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years Amount
- -------------------------------------------------------
<S> <C>
1999 $ 2,452,649
2000 2,350,000
2001 3,550,000
2002 3,400,000
2003 1,241,666
2004 and thereafter 70,000,000
- -------------------------------------------------------
$82,994,315
=======================================================
</TABLE>
In September 1985, the Company restructured the terms 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 with no interest or principal payments 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 $42.0 million at December 31, 1998 (1997
- - $40.2 million).
The Series A and Series B Senior Secured Notes and other loan agreements 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 (See Note 8), maintaining working capital in
excess of 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, 1998, the Company was in
compliance with the provisions of the loan agreements.
Note 10. Income Taxes
Consolidated tax returns are not permitted under the 1994 Puerto Rico Internal
Revenue Code (the "Code"); therefore, losses, if any, of subsidiaries cannot be
used to offset taxable income of other members of the consolidated group.
However, the Code provides a 100% deduction for dividends from controlled Puerto
Rico corporations.
The Code allows an accelerated flexible depreciation method for certain property
purchased prior to 1996, by which a taxpayer may claim depreciation at any rate
without reference to useful lives. The depreciation claimed is limited to an
amount not greater than income before taxes (determined without taking into
consideration the depreciation deduction). Deferred income taxes have been
accumulated primarily from using the flexible depreciation method for tax
purposes only.
The benefits of 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.
Other provisions of the 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.
The provision for deferred income taxes for the years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax applicable to:
Accelerated depreciation
taken during the year $ 390,000 $ 1,919,921
Reversal of accelerated
depreciation from prior year (2,475,752) $(2,483,526) (2,643,825)
AMT credit used 4,875,563 3,423,687
Tax credits purchased
applicable to future years (2,000,000)
Interest capitalized 277,485
Difference between pension
expense and amounts
deductible for tax purposes 184,489 14,955 49,467
Post-retirement benefit obligation (23,096) (28,054) (35,432)
Other temporary differences 331,764 157,368 (236,348)
- -----------------------------------------------------------------------------------------
$(3,315,110) $ 2,536,306 $ 2,477,470
=========================================================================================
</TABLE>
28
<PAGE> 16
Puerto Rican Cement Company, Inc.
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>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
% 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 $ 5,517,098 39.0 $ 8,894,134 39.0 $ 8,411,532 39.0
Increase (decrease) in taxes resulting from:
Exempt interest earned (1,229,030) (8.7) (1,317,225) (5.8) (941,102) (4.4)
Interest deducted for tax but not for financial statements (698,223) (4.9) (698,223) (3.1) (698,223) (3.2)
Discount on income tax credits (712,000) (5.0) (200,000) (0.9)
Valuation allowance on carryforward losses of subsidiary 280,000 2.0
Effect of capital gain preferential rate (196,071) (1.4)
Other items (196,552) (1.4) 123,575 0.6 107,432 0.5
- --------------------------------------------------------------------------------------------------------------------------------
$ 2,765,222 19.6 $ 6,802,261 29.8 $ 6,879,639 31.9
================================================================================================================================
</TABLE>
The deferred tax assets and liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Prepaid pension cost $ 1,279,230 $ 1,094,727
Tax credits applicable to future years $ 2,000,000
Non-current:
Post-retirement benefit liability 1,202,155 $ 1,179,059
Property, plant and equipment 34,126,981 35,777,522
Other 256,831 411,307 180,201 346,668
- ------------------------------------------------------------------------------------------------------------------
Total deferred tax asset/liability $ 3,458,986 $35,817,518 $1,359,260 $37,218,917
- ------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $32,358,532 $35,859,657
==================================================================================================================
</TABLE>
One of the consolidated subsidiaries enjoys a tax exemption granted 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.
One of the Company's subsidiaries has net operating losses available to reduce
future taxable income amounting to $279,000 and $440,000 which expire in 2004
and 2005, respectively. A valuation allowance of $280,000 was provided for the
related deferred tax asset.
The subsidiaries' aggregate retained earnings amounted to $25,921,000 at
December 31, 1998, (1997 - $23,440,000) 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 on such earnings.
Note 11. Employee Benefit Plans
The Company has non-contributory defined benefit pension plans covering
substantially all of its non-union employees and those of its wholly-owned
subsidiaries. The pension benefits are based on years of service and the
employees' average compensation as defined in the respective plans. The Company
also provides healthcare and life insurance to participants of its plan after
retirement.
29
<PAGE> 17
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
The following table sets forth the Company's pension and post-retirement benefit
obligations and amounts recognized in the Company's consolidated balance sheet
at December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 28,820,939 $ 26,108,753 $ 2,837,886 $ 2,781,313
Service cost 745,360 626,142 58,821 57,237
Interest cost 1,998,007 1,903,451 190,161 190,010
Actuarial gain 1,423,841 1,522,324 63,229 10,609
Benefits paid (1,511,505) (1,339,731) (225,392) (201,283)
- -------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 31,476,642 28,820,939 2,924,705 2,837,886
- -------------------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 36,062,458 29,914,799
Actual return on plan assets 408,522 7,397,390
Employer contribution 90,000
Benefits paid (1,511,505) (1,339,731)
- -------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 34,959,475 36,062,458
- -------------------------------------------------------------------------------------------------------------------------------
Funded status - Fair value of plan assets
greater (less) than benefit obligation 3,482,833 7,241,519 (2,924,705) (2,837,886)
Unrecognized net actuarial (gain) loss (1,142,035) (5,435,339) 126,609 63,380
Unrecognized prior service cost 783,362 933,443
Unrecognized portion of transition asset at
January 1, 1987, being recognized over 15 years (245,724) (338,689)
- -------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 2,878,436 $ 2,400,934 ($2,798,096) ($2,774,506)
===============================================================================================================================
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of benefit obligation and
the projected benefit obligation were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average assump-
tions as of December 31:
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.25% 5.50%
================================================================================
</TABLE>
In measuring the post-retirement healthcare and life insurance benefit
obligation for 1998, the Company assumed a 10.5% annual rate of increase in the
per capita cost of covered healthcare benefits.
The rate was assumed to decrease gradually to 5.25% through the year 2018 and
remain at that level thereafter.
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the healthcare plans. A one-percentage- point change in assumed
healthcare cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- ------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 15,329 $ (15,320)
========================================================================
Effect on post-retirement
benefit obligation $133,285 $(132,422)
========================================================================
</TABLE>
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 745,360 $ 626,142 $ 534,141 $ 58,821 $ 57,237 $ 52,791
Interest cost 1,998,007 1,903,451 1,772,254 190,161 190,010 189,058
Expected return on plan assets (3,167,252) (2,576,676) (2,196,311)
Amortization of transition asset (92,965) (92,965) (92,965)
Amortization of prior service cost 150,081 150,081 150,081 (415) (4,926)
Recognized actuarial gain (110,733) (4,877) (20,908)
- --------------------------------------------------------------------------------------------------------------------
Net periodic benefit (credit) cost $ (477,502) $ 5,156 $ 146,292 $ 248,982 $ 246,832 $236,923
====================================================================================================================
</TABLE>
30
<PAGE> 18
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
Note 12. Segment Information
The Company operates in the cement and related products, and 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, ready-mixed concrete, and lime. Operations in the paper and
packaging industry involve production and sale of paper and polypropylene bags.
Realty operations involve the development, sale and lease of real property.
The cement and ready-mixed concrete operations are the two reportable segments.
The remaining operations have been combined in the "All Other" column in the
table that follows.
The segment information for 1997 and 1996 has been restated to present the
required information for the Company's two reportable segments: (1) Cement, and
(2) Ready-Mixed Concrete. The accounting policies of the segments are the same
as those described in Note 1.
The Company's management evaluates the performance of its segments and allocates
resources to them based on operating profit. Operating profit is total revenue
less operating expenses. Interest income and expense, other income and expenses,
and income tax expense are not deducted in computing operating profit.
The following table presents the required segment information (in thousands):
<TABLE>
<CAPTION>
Cement Operations Ready-mixed Operations All Other Segments
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from customers $ 59,587 $ 64,789 $ 62,409 $77,369 $81,501 $75,606 $11,421 $10,484 $11,262
Intersegment revenues 28,709 30,003 27,505 3,946 4,267 3,667
- --------------------------------------------------------------------------------------------------------------------------------
88,296 94,792 89,914 77,369 81,501 75,606 15,367 14,751 14,929
Depreciation, depletion
and amortization 8,685 7,770 7,411 4,241 4,202 3,301 405 412 400
Other operating expenses 68,029 66,429 61,765 70,625 74,617 71,774 13,588 12,709 12,908
- --------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 11,582 $ 20,593 $ 20,738 $ 2,503 $ 2,682 $ 531 $ 1,374 $ 1,630 $ 1,621
================================================================================================================================
Other charges
Income tax provision
Net income
Capital expenditures $ 10,295 $ 13,944 $ 5,889 $ 5,640 $ 3,280 $ 5,159 $ 1,764 $10,805 $ 615
================================================================================================================================
Identifiable assets:
Segment assets $212,919 $209,861 $193,398 $49,371 $49,393 $49,923 $38,119 $16,739 $13,848
================================================================================================================================
Corporate assets
Total assets
<CAPTION>
Intersegment Eliminations Total
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from customers $148,377 $156,774 $149,277
Intersegment revenues $(32,655) $(34,270) $(31,172)
- ----------------------------------------------------------------------------------------------------
148,377 156,774 149,277
Depreciation, depletion
and amortization 13,331 12,384 11,112
Other operating expenses (32,660) (34,248) (31,099) 119,582 119,507 115,348
- ----------------------------------------------------------------------------------------------------
Operating profit $ 5 $ (22) $ (73) 15,464 24,883 22,817
===============================================================
Other charges 1,318 2,078 1,249
Income tax provision 2,765 6,802 6,880
--------------------------------
Net income $ 11,381 $ 16,003 $ 14,688
================================
Capital expenditures $ 17,699 $ 28,029 $ 11,663
====================================================================================================
Identifiable assets:
Segment assets $(62,861) $(46,063) $(31,637) $237,548 $229,930 $225,532
===============================================================
Corporate assets 61,222 61,121 55,671
--------------------------------
Total assets $298,770 $291,051 $281,203
================================
</TABLE>
Note 13. Lease Commitments
The Company and its subsidiaries lease certain facilities and equipment under
operating lease agreements. Rental expense under such agreements totaled
$928,000 in 1998, $898,000 in 1997 and $781,000 in 1996.
At December 31, 1998, the approximate future minimum lease payments under
noncancellable operating leases were as follows:
<TABLE>
<CAPTION>
Years Amount
- --------------------------------------------------------
<S> <C>
1999 $ 552,651
2000 458,459
2001 397,877
2002 390,524
2003 and thereafter 985,889
- --------------------------------------------------------
$2,755,400
========================================================
</TABLE>
Note 14. 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
period of time to maturity of those instruments.
Investments
The fair values of investments are estimated based on their quoted market prices
or those of similar investments.
Other Current Financial Instruments
The carrying amount of notes and accounts receivable, notes payable, accounts
payable and other current liabilities approximate fair value.
31
<PAGE> 19
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
Long-term Debt
The fair value of the Company's long-term debt is estimated using discounted
cash flow techniques 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>
1998 1997
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,481 $ 7,481 $ 2,996 $ 2,996
Investments available-for-sale 5,580 5,580
Short-term investments 20,667 20,651 6,967 6,933
Notes and accounts receivable 28,799 28,799 28,764 28,764
Long-term investments 31,987 37,664 46,368 49,371
Long-term notes receivable 3,973 3,973
Notes payable 551 551 669 669
Accounts payable and
other liabilities 19,524 19,524 17,546 17,546
Long-term debt 82,994 88,228 77,290 78,059
================================================================================
</TABLE>
Note 15. Contingent Liabilities and Other Commitments
The Company is obligated to purchase, under a long-term supply contract, a
minimum of 100,000 metric tons of coal annually through the year 2005. The
purchase price is calculated using an agreed-upon formula based on market
prices. Coal purchases exceeded the minimum amount required by the contract.
Purchases under the contract amounted to $6,884,000 in 1998, $6,729,000 in 1997
and $6,337,000 in 1996.
The Puerto Rico tax authority has commenced an initiative to audit all companies
with revenues in excess of $10 million. As part of that initiative, the
Company's 1995 income tax return is currently under audit. The tax authorities
are discussing with management the tax treatment of certain transactions, but
have not issued a deficiency notice.
The Company is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the advice of its legal
counsel, that the outcome of these legal matters will not significantly affect
the Company's financial position or results of operations.
Note 16. Legal Proceedings
On October 22, 1998, Essroc San Juan, Inc. (formerly known as San Juan Cement
Co., Inc.), as plaintiff, and the Company and RMC, as defendants, agreed to
dismiss with prejudice a civil suit brought by San Juan Cement Co., Inc. seeking
relief pursuant to the Federal Clayton Act. In a joint stipulation filed by all
parties and approved by the United States District Court for Puerto Rico, all
proceedings have been terminated in this legal action which related to the
acquisition by the Company of two ready-mixed concrete companies, RMC and
Concreto Mixto, Inc. ("CMI") in 1995. CMI was merged into RMC effective January
1, 1997.
On June 27, 1997, the Company filed a lawsuit against the Puerto Rico Department
of Consumer Affairs (the "Department") in response to the Department's
investigation of the Company's practices in the labeling of cement bags during
1995 through 1997. The Department had asserted that the bags should have been
labeled with a disclosure that the cement could not be used in public works.
Management believes that the Department's basis for this assertion was the fact
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 Company had not violated any Department rule. On August 18, 1997, it
was determined that the Department had the authority to conduct 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 administrative judge issued a decision in the
case, holding that the Company did not violate any Department rule. On April 16,
1998, the Department appealed the decision of the administrative judge. On June
29, 1998, the Court of Appeals upheld the administrative judge's decision and
ordered the dismissal of the case. On August 4, 1998, the Department appealed
this decision to the Puerto Rico Supreme Court. On November 20, 1998, the
Supreme Court dismissed this appeal.
On July 8, 1997, The Puerto Rico Planning Board (the "Planning Board") issued a
temporary cease and desist order against the Company's planned housing project
at Vega Alta, asserting that the Company did not have the permits needed to
extract and process sand and gravel from the site. The Company had previously
received permits to build a housing project there, including a "temporary
aggregate permit" which the Company believes was properly obtained and is
sufficient to conduct the planned operations. The Planning Board held public
hearings on the dispute on August 25, and September 23 and 24, 1997. The
Planning Board upheld their cease and desist order upon termination of those
hearings.
On August 22, 1997, the Company filed an appeal before the Court of Appeals
seeking to overturn the action of the Planning Board, but the Court ruled that
the Planning Board's action was a temporary suspension not currently subject to
court review. On September 25, 1997, the Company requested a cerciorari from the
Puerto Rico Supreme Court regarding this matter. On June 30, 1998, the Supreme
Court announced that the Court was evenly divided. As a result, the decision of
the Court of Appeals that the Company's appeal of the Planning Board's actions
was not currently subject to court review was affirmed. On July 17, 1998, the
Company requested a motion for rehearing by the Supreme Court. On October 22,
1998, the Supreme Court denied this motion.
32
<PAGE> 20
Puerto Rican Cement Company, Inc.
Notes to Consolidated Financial Statements (continued)
On February 25, 1998, the Planning Board issued a final cease and desist order
against the project. As a separate action, on March 27, 1998, the Company
appealed this decision to the Puerto Rico Court of Appeals. This appeal is
pending before the Court.
The matters discussed above relate principally to permits for new ventures and
do not involve potential loss contingencies. Legal expenses related to these
matters, included in Selling, General and Administrative expenses in the
Consolidated Statement of Income, totaled $3,890,000 and $1,271,000 in 1998 and
1997, repectively.
Note 17. Stockholders' Equity
During 1998, the Company purchased 73,000 shares of its outstanding stock for
$3,530,330, and during 1997, the Company purchased 75,000 shares of its
outstanding stock for $2,645,250. The Company purchased these shares for future
corporate purposes and does not intend to retire or cancel them. In April 1996,
the Company reissued 22,352 shares of its common stock held in treasury to
complete the acquisition of RMC.
33
<PAGE> 21
Puerto Rican Cement Company, Inc.
Consolidated Fourth Quarter Results (continued)
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31 December 31
---------------------------------------------
(000's Omitted, Except Per Share Amounts) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $35,984 $36,977 $148,377 $156,774
Cost of sales 27,350 26,569 108,707 110,011
- ---------------------------------------------------------------------------------------------
Gross margin 8,634 10,408 39,670 46,763
Selling, general and administrative expenses 6,486 6,390 24,206 21,880
- ---------------------------------------------------------------------------------------------
Income from operations 2,148 4,018 15,464 24,883
- ---------------------------------------------------------------------------------------------
Other charges(credits):
Interest and financial charges 1,359 1,524 5,216 5,766
Interest income (896) (973) (3,398) (3,601)
Other income (274) (159) (500) (87)
- ---------------------------------------------------------------------------------------------
189 392 1,318 2,078
- ---------------------------------------------------------------------------------------------
Income before income taxes 1,959 3,626 14,146 22,805
Tax provision (69) 884 2,765 6,802
- ---------------------------------------------------------------------------------------------
Net income $ 2,028 $ 2,742 $ 11,381 $ 16,003
=============================================================================================
Earnings per share of common stock * $ 0.38 $ 0.51 $ 2.11 $ 2.91
=============================================================================================
</TABLE>
* Based on weighted average of outstanding shares of 5,392,491 in 1998 and
5,502,074 in 1997.
Financial Results by Quarters
<TABLE>
<CAPTION>
(000's Omitted Except Per Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 1998 Mar. 31 Jun. 30 Sept. 30 Dec. 31 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $36,484 $39,359 $36,550 $35,984 $148,377 $37,212 $43,429 $39,156 $36,977 $156,774
==============================================================================================================================
Gross profit 8,807 12,134 10,095 8,634 39,670 10,649 13,775 11,931 10,40 46,763
==============================================================================================================================
Income before income tax 3,879 5,005 3,303 1,959 14,146 5,289 7,947 5,943 3,626 22,805
Tax provision 565 1,385 884 (69) 2,765 1,346 2,801 1,771 884 6,802
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,314 $ 3,620 $ 2,419 $ 2,028 $ 11,381 $ 3,943 $ 5,146 $ 4,172 $ 2,742 $ 16,003
==============================================================================================================================
Per share $ 0.61 $ 0.67 $ 0.45 $ 0.38 $ 2.11 $ 0.71 $ 0.93 $ 0.76 $ 0.51 $ 2.91
==============================================================================================================================
</TABLE>
(*) Based on weighted average of outstanding shares of 5,392,491 in 1998 and
5,502,074 in 1997.
34
<PAGE> 22
Puerto Rican Cement Company, Inc.
Five-Year Statistical Comparison (continued)
<TABLE>
<CAPTION>
December 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Summary
Cash and equivalents $ 7,480,900 $ 2,995,634 $ 14,808,709 $ 11,599,636 $ 114,702
Investments available-for-sale 5,580,202 4,595,908 4,473,536
Short-term investments 20,666,648 6,967,225 1,917,616 974,073
Accounts receivable-net 28,799,150 28,763,683 27,410,312 24,526,385 14,358,827
Inventories 33,945,940 32,885,743 33,443,290 32,222,415 28,916,950
Prepaid expenses 5,087,218 4,533,070 4,624,691 4,752,187 3,907,844
- --------------------------------------------------------------------------------------------------------------------------------
Current assets-total 95,979,856 81,725,557 86,800,526 78,548,232 47,298,323
Property, plant and equipment-net 162,278,187 158,610,632 143,088,242 142,567,213 112,299,027
Other assets 8,524,016 4,347,346 4,334,404 2,670,882 241,897
Long-term investments 31,987,498 46,367,581 46,980,338 31,228,541 42,030,507
- --------------------------------------------------------------------------------------------------------------------------------
$298,769,557 $291,051,116 $281,203,510 $255,014,868 $201,869,754
================================================================================================================================
Notes payable (include current
portion of long-term debt and
short-term borrowing) $ 3,003,422 $ 1,778,505 $ 15,401,050 $ 11,749,853 $ 8,598,571
Accounts payable and
accrued liabilities 19,525,110 17,145,619 15,080,253 16,227,533 8,273,468
- --------------------------------------------------------------------------------------------------------------------------------
Current liabilities - total 22,528,532 18,924,124 30,481,303 27,977,386 16,872,039
Long-term debt (exclusive
of current portion) 80,541,666 76,179,792 67,023,200 57,549,475 31,696,403
Deferred income taxes 32,358,532 35,859,657 33,323,351 30,808,654 27,722,814
Other Long-Term Liabilities 3,082,449 3,023,228 2,954,610 2,873,430 2,607,162
Capital stock(1)(2) 4,088,037 7,618,367 10,263,617 9,514,825 8,830,839
Accumulated other comprehensive income 567,745 110,361 74,313
Retained earnings 156,170,341 148,878,203 137,047,068 126,216,785 114,140,497
- --------------------------------------------------------------------------------------------------------------------------------
$298,769,557 $291,051,116 $281,203,510 $255,014,868 $201,869,754
================================================================================================================================
Statistical data
Book value per share $ 29.79 $ 28.81 $ 26.67 $ 24.67 $ 22.38
Shares outstanding at year-end 5,379,074 5,452,074 5,527,074 5,504,722 5,494,200
Number of stockholders 568 597 622 655 684
Average number of employees 1,008 1,015 969 939 552
Capital expenditures (3) $ 17,699,254 $ 28,028,571 $ 11,662,959 $ 10,249,840 $ 11,256,763
================================================================================================================================
</TABLE>
(1) Includes the purchase of 73,000 shares in 1998, 75,000 in 1997, 75,000
in 1995, and 313,500 in 1994 of the Company's outstanding stock, for
$3,530,330, $2,645,250, $2,181,000 and $9,953,000, respectively.
(2) Also includes the issuance of 107,874 shares of the Company's common
stock held in treasury for the acquisition of RMC.
(3) Includes expenditures in clinker production capacity increase in 1998,
kiln capacity increase project in 1997, and mill conversion in 1995 and
1994.
35
<PAGE> 23
Puerto Rican Cement Company, Inc.
Directors and Officers (continued)
<TABLE>
<CAPTION>
Directors Officers
<S> <C>
ANTONIO LUIS FERRE MIGUEL A. NAZARIO
Chairman of the Board of the Company and President of President and Chief Executive Officer
El Dia, Inc. (Newspaper Publishing Group)
ANTONIO LUIS FERRE RANGEL
ALBERTO M. PARACCHINI Senior Corporate Vice President
Vice Chairman of the Board of the Company and Director
of Banco Popular de Puerto Rico (Commercial Bank) RENE DI CRISTINA
President Ready Mix Concrete, Inc.
HECTOR DEL VALLE
Vice Chairman of the Board of the Company JOSE O. TORRES
Assistant Secretary, Vice President of Finance
MIGUEL A. NAZARIO and Chief Financial Officer
President and Chief Executive Officer of the Company
JUAN R. TARAZA
ANTONIO LUIS FERRE RANGEL Vice President - Sales and Marketing
Senior Corporate Vice President of the Company
EUFEMIO TOUCET
WALDEMAR DEL VALLE ARMSTRONG Vice President and General Manager
Attorney-at Law, Partner of Parra, Del Valle, Frau & Limeres St. Regis Paper and Bag Division
JOSE J. SUAREZ PEDRO M. MENA
Consultant to the Company Treasurer
ANGEL O. TORRES FERNANDO L. VARGAS
President of Bacardi Corporation Controller
OSCAR A. BLASINI ETIENNE TOTTI DEL VALLE
President of G.B. Investments, Inc. Secretary
(Real Estate Development and Investments)
ROSARIO J. FERRE
Second Vice President of Luis A. Ferre Foundation, Inc.
EMILIO J. VENEGAS
President of Sanson Corporation (Rock and Concrete Products)
and Secretary of Venegas Construction Corporation (General Contractors)
FEDERICO F. SANCHEZ
President of Federico F. Sanchez and Company and Interlink
Group, Inc. (Real Estate Consultants, Brokers and Developers)
JORGE L. FUENTES
Chairman of the Board and Chief Executive Officer of Gabriel
Fuentes, Jr. Construction Company, Inc. and Chairman of the Board
and Chief Executive Officer of Fuentes Concrete Pile, Inc. (Concrete
Pile Foundations)
JUAN A. ALBORS
President and General Partner of Albors Development Corp.
(Real Estate Developers and Investors)
LUIS ALBERTO FERRE RANGEL
Co Director, El Dia, Inc, (Newspaper Publishing Group)
CARLOS DEL RIO
Senior Vice President and Chief Operating Officer - MOVA
Pharmaceutical Corporation (Pharmaceutical Products
Manufacturer)
</TABLE>
36
<PAGE> 24
STOCKHOLDER INFORMATION
STATUTORY OFFICES
Ponce, Puerto Rico
EXECUTIVE OFFICES
Guaynabo, Puerto Rico
SUBSIDIARIES(*)
Florida Lime Corporation
Ready Mix Concrete, Inc.
Poly Bags & Packaging, Inc.
Desarrollos Multiples Insulares, Inc.
Limestone Materials, Inc.
Ponce Capital Corporation
(*) All Subsidiaries are 100% owned
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services
New York, New York
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
PUBLIC RELATIONS
Gavin Anderson & Company
New York, New York
LEGAL COUNSEL
Totti & Rodriguez Diaz
San Juan, Puerto Rico
FORM 10-K
A copy of the Annual Report as filed with the Securities and Exchange Commission
on Form 10-K will be mailed upon request made to Mr. Jose O. Torres, Vice
President of Finance and Chief Financial Officer, Puerto Rican Cement Company,
Inc., PO Box 364487, San Juan, Puerto Rico 00936-4487.
PUERTO RICAN CEMENT COMPANY, INC.
ANNUAL MEETING
The Annual Meeting of Stockholders of Puerto Rican Cement Company, Inc. will be
held at the office of the Company in Amelia Industrial Park, Guaynabo, Puerto
Rico, on Wednesday, May 5, 1999 at 10:00 a.m.
[LOGO]
INTERNET ADDRESS:
http//www.prcement.com
<PAGE> 1
EXHIBIT 23
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Report of Independent Accountants
On Financial Statement 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 19, 1999 appearing on page 19 of the 1998 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 Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
PRICEWATERHOUSE COOPERS LLP
San Juan, Puerto Rico
February 19, 1999
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2001
Stamp 1537511 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 7,480,900
<SECURITIES> 20,666,648
<RECEIVABLES> 27,538,353
<ALLOWANCES> 1,296,157
<INVENTORY> 33,945,940
<CURRENT-ASSETS> 95,979,856
<PP&E> 245,395,429
<DEPRECIATION> 83,117,242
<TOTAL-ASSETS> 298,769,557
<CURRENT-LIABILITIES> 22,528,532
<BONDS> 80,541,666
0
0
<COMMON> 6,000,000
<OTHER-SE> 154,258,378
<TOTAL-LIABILITY-AND-EQUITY> 298,769,557
<SALES> 148,275,297
<TOTAL-REVENUES> 148,377,205
<CGS> 108,706,775
<TOTAL-COSTS> 132,912,688
<OTHER-EXPENSES> 1,318,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,146,406
<INCOME-TAX> 2,765,222
<INCOME-CONTINUING> 11,381,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,381,184
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
</TABLE>
