SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
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 : 0-24850
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GIANT CEMENT HOLDING, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-0997411
------------------------------ -------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer ID No.)
320-D Midland Parkway, Summerville, South Carolina 29485
--------------------------------------------------------
Registrant's telephone number, including area code: (803) 851-9898
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the date of this filing.
Common Stock, $.01 Par Value 9,716,177 Shares Outstanding
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Page 1 of 13
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GIANT CEMENT HOLDING, INC.
INDEX
PART I FINANCIAL INFORMATION
- ---------------------------- Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Three
and Nine-Month Periods Ended September 30, 1996 and 1995.. 3
Condensed Consolidated Balance Sheets - September 30, 1996
and 1995 and December 31, 1995............................ 4
Condensed Consolidated Statements of Cash Flows -
Nine-Month Periods Ended September 30, 1996 and 1995...... 5
Notes to Condensed Consolidated Financial Statements...... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8-11
PART II OTHER INFORMATION
- -------------------------
Item 1. Legal Proceedings........................................ 12
Item 6. Exhibits and Reports on Form 8-K......................... 12
(a) Reports on Form 8-K.................................. 12
Page 2 of 13
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues $29,335 $28,800 $82,540 $76,037
Operating costs and expenses:
Cost of sales and services 19,636 19,287 58,908 56,355
Selling, general and administrative 1,820 1,792 6,036 5,425
------- ------- ------- -------
Operating income 7,879 7,721 17,596 14,257
Other income (expense):
Interest expense (242) (39) (820) (181)
Other, net 207 32 144 145
------- ------- ------- -------
Income before taxes 7,844 7,714 16,920 14,221
Provision for income taxes 2,746 2,699 5,923 4,977
------- ------- ------- -------
Net income $ 5,098 $ 5,015 $10,997 $ 9,244
====== ====== ====== ======
Net income per common share $ .52 $ .50 $ 1.11 $ .92
====== ====== ====== ======
Weighted average common shares 9,818 10,000 9,871 10,000
See accompanying notes to consolidated financial statements.
Page 3 of 13
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 December 31
------------ -----------
1996 1995 1995
---- ---- ----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 6,577 $ 2,347 $ 8,102
Accounts receivable, less allowances of
$1,041, $959 and $973, respectively 17,047 16,899 12,557
Inventories 15,809 15,746 17,102
Other current assets 2,006 1,744 1,750
-------- -------- -------
Total current assets 41,439 36,736 39,511
-------- -------- -------
Property, plant and equipment, at cost 154,529 144,567 148,778
Less accumulated depreciation 85,503 78,379 79,303
-------- -------- -------
69,026 66,188 69,475
Deferred charges and other assets 2,970 2,424 2,728
-------- -------- -------
Total assets $113,435 $105,348 $111,714
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 6,479 $ 8,183 $ 8,172
Short-term borrowings - 1,963 2,279
Accrued expenses 8,145 7,665 7,333
Current maturities of long-term deb 4,039 3,270 4,188
-------- -------- -------
Total current liabilities 18,663 21,081 21,972
Long-term debt, net of current maturities 8,388 8,126 11,337
Accrued pension and postretirement benefits 8,484 7,702 9,259
Deferred income taxes 4,332 4,992 4,532
-------- -------- -------
Total liabilities 39,867 41,901 47,100
-------- -------- -------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 20,000
shares authorized, 10,000 shares
issued and outstanding 100 100 100
Capital in excess of par value 41,022 40,985 40,985
Retained earnings 37,611 23,143 26,614
Less:
Common stock held in treasury: 218 shares
in 1996 and 63 in 1995 2,696 0 616
Reduction for additional pension liability 2,469 781 2,469
-------- -------- -------
73,568 63,447 64,614
-------- -------- -------
Total liabilities and
shareholders' equity $113,435 $105,348 $111,714
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 4 of 13
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(In thousands)
Operations:
Net income................................... $10,997 $ 9,244
Depreciation and depletion................... 6,767 6,009
Amortization of deferred charges and other... 314 389
Deferred income taxes..................... (200) 357
Changes in operating assets and liabilities:
Receivables.................................. (4,490) (6,365)
Inventories.................................. 1,293 (1,702)
Other current assets......................... (812) (1,017)
Accounts payable............................. (1,693) 411
Accrued expenses............................. 37 (460)
------- -------
Net cash provided by operations......... 12,213 6,866
------- -------
Investing:
Purchase of property, plant and equipment.... (6,318) (19,206)
------- -------
Financing:
Repayment of long-term debt.................. (3,098) (2,170)
Proceeds from long-term debt................. - 3,500
Repayment of short-term borrowings........... (5,385) (1,201)
Proceeds from short-term borrowings.......... 3,106 2,963
Transfer of treasury stock to Profit
Sharing Plans........................... 253 -
Purchase of treasury stock................ (2,296) -
------- -------
Net cash (used)provided by financing.... (7,420) 3,092
------- -------
Decrease in cash and
cash equivalents.............. (1,525) (9,248)
------- -------
Cash and Cash Equivalents:
Beginning of period.......................... 8,102 11,595
------- -------
End of period................................ $ 6,577 $ 2,347
======= =======
Supplemental Information:
Cash paid for:
Interest (net of amount capitalized)...... $ 872 $ 163
Income taxes.............................. 4,037 4,413
See accompanying notes to consolidated financial statements.
Page 5 of 13
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GIANT CEMENT HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with the requirements for interim financial
statements and, accordingly, they are condensed and omit disclosures which
would substantially duplicate those contained in the most recent Annual
Report to stockholders. The financial statements as of September 30, 1996
and 1995 and for the interim periods ended September 30, 1996 and 1995 are
unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. Due to the seasonal nature of the Company's business,
operating results for the interim periods are not necessarily indicative of
the results that may be expected for the full year.
The financial information as of December 31, 1995 has been derived from the
audited financial statements as of that date. For further information,
refer to the financial statements and notes included in the Company's 1995
Annual Report to Shareholders.
2. Inventories(in thousands):
--------------------------
September 30 December 31
------------ -----------
1996 1995 1995
---- ---- ----
Finished goods $ 2,478 $ 2,588 $ 3,913
In process 608 1,178 1,270
Raw materials 1,968 1,540 1,527
Supplies, repair parts and coal 10,755 10,440 10,392
------- ------- -------
$15,809 $15,746 $17,102
======= ======= =======
3. Accrued Expenses (in thousands):
--------------------------------
September 30 December 31
------------ -----------
1996 1995 1995
---- ---- ----
Compensation $ 1,956 $ 1,757 $ 1,913
Pension plan contributions 1,996 2,192 3,446
Income taxes 1,963 1,467 -
Other 2,230 2,249 1,974
------- ------- -------
$ 8,145 $ 7,665 $ 7,333
======= ======= =======
Page 6 of 13
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4. Contingencies:
--------------
On August 30, 1996, Keystone reached a settlement agreement with the
Pennsylvania Environmental Enforcement Project Inc. ("PEEP"). By Order of
the United States District Court for the Eastern District of Pennsylvania,
dated August 30, 1996, the PEEP suit against Keystone was dismissed with
prejudice. The settlement agreement had no financial or operating impact
on the Company.
The suit was brought in September 1995 by PEEP, a non-profit corporation,
against the Company's subsidiary Keystone Cement, under the citizen suit
provisions of certain environmental laws. The complaint sought principally
to enjoin Keystone from burning hazardous wastes, enjoin Keystone from
further alleged violations of certain environmental laws and to abate
alleged conditions which endanger health or the environment. The complaint
also sought civil pnalties for the alleged violations.
Page 7 of 13
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Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
General
- -------
The Company's cement operations are directly related to the construction
industry. The regional markets in which the Company operates, the
Middle-Atlantic and South-Atlantic regions, are highly cyclical, experiencing
peaks and valleys in demand corresponding to regional and national construction
cycles. Additionally, the demand for cement is seasonal because construction
activity diminishes during the winter months of December, January and February.
The seasonal impact can be particularly acute in the Company's Middle-Atlantic
market. In addition, the Company performs a substantial portion of its routine
annual major maintenance projects during the period of low plant utilization,
typically the first quarter of its fiscal year, which results in significant
additional expense during this period. The Company believes that the routine
annual maintenance performed in the first quarter results in lower maintenance
costs throughout the remainder of the year. Accordingly, the Company has
historically experienced its lowest levels of revenue and gross profit during
the first quarter and thus the results for the interim period ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the full year.
The Company derives revenues from the sales of products, primarily cement, as
well as from the provision of resource recovery services. Resource recovery
services revenue is primarily derived from third parties that pay the Company to
utilize their waste as fuel, which additionally reduces the cost of traditional
fossil fuels used in the manufacture of cement. Due to the nature of the
Company's operations and the fact that the burning of waste-derived fuels is
inseparable from the manufacture of cement, it is impractical to disaggregate
the costs of sales and services by revenue classification. The Company's
resource recovery operations are dependent on general and regional economic
conditions; federal, state and local environmental policies; competition from
other waste disposal alternatives; and operation of the Company's cement kilns.
There can be no assurance that the Company's resource recovery services revenues
will increase at historical rates or remain at current levels.
Results of Operations
- ---------------------
Nine month period ended September 30, 1996 versus nine month period ended
September 30, 1995.
Operating revenues increased 8.6% to $82.5 million in 1996, compared with $76.0
million in 1995. Revenues from product sales increased $7.2 million or 11.0% to
$72.7 million in 1996, compared with $65.5 million in 1995, as a result of
increased shipping volumes and higher average selling prices of cement in the
Company's South-Atlantic markets. Cement shipping volumes increased 7.4% in
1996, as a result of volume increases in both of the Company's market areas.
Page 8 of 13
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The Company's average selling price per ton of cement increased 4.1% for the
period ended September 30, 1996, compared with the comparable period in 1995, as
a result of price increases implemented in April 1995 and 1996. The Company
realized a price increase of $4 per ton in April 1996 in its South-Atlantic
market where demand and the Company's ability to increase prices were
particularly strong. No price increases were realized in the Company's
Middle-Atlantic market in 1996.
Resource recovery services revenues decreased $635,000 or 6.0% to $9.9 million
in 1996, compared with $10.5 million in 1995. The decrease resulted from lower
prices realized for liquid fuels processing in both of the Company's markets,
which was partially offset by higher liquid and solid fuel volumes processed.
Gross profit increased 19.8% to $23.6 million in 1996, compared with $19.7
million in 1995, primarily as a result of higher operating revenues. The
Company's gross margins increased to 28.6% in 1996 from 25.9% in 1995. In 1996,
cost of sales and services increased $2.6 million or 4.5% primarily as a result
of higher shipping volumes and increased depreciation expense. Cement
manufacturing costs per ton decreased slightly in 1996, compared with 1995.
Clinker and cement manufactured increased 3.3% and 3.6%, respectively, compared
with the first nine months of 1995, as a result of capital improvements made in
1995. Both of the Company's plants have operated at effective capacity
throughout 1996.
Selling, general and administrative expenses increased $611,000 to $6.0 million
in 1996 or 7.3% of sales, compared with $5.4 million or 7.1% of sales in 1995.
The expense increase was attributable to higher compensation and other
administrative costs.
Interest costs increased $639,000 to $820,000 as a result of higher average
borrowings outstanding and substantially greater amounts of interest capitalized
in 1995.
The income tax provisions for the nine month periods ended September 30, 1996
and 1995, relate to federal and state income taxes and have been recorded at an
estimated effective annual rate of 35.0%.
Net income increased $1.8 million or 19.0% to $11.0 million in 1996, compared
with $9.2 million in 1995, primarily as a result of increased operating
revenues.
Quarter ended September 30, 1996 versus quarter ended September 30, 1995.
Operating revenues increased 2.4% to $29.3 million in 1996, compared with $28.8
million in 1995. Revenues from product sales increased $602,000 or 2.1% to
$25.6 million in 1996, compared with $25.0 million in 1995, as a result of
higher average selling prices of cement in the Company's South-Atlantic market.
Cement shipping volumes decreased slightly in 1996 as a result of the impact of
hurricane Fran and abnormally heavy rainfall experienced in the South-Atlantic
region, the effects of which were partially offset by an increase in shipping
volumes in the Middle-Atlantic region.
Page 9 of 13
<PAGE>
The Company's average selling price per ton of cement increased 3.1% for the
quarter, compared with the comparable period in 1995, as a result of the
aforementioned April 1, 1996 price increase in the Company's South-Atlantic
market.
Resource recovery services revenues decreased $67,000 to $3.7 million in 1996,
compared with $3.8 million in 1995. The decrease resulted from lower liquid fuel
pricing, which was partially offset by increased solid fuel revenues.
Gross profit increased 2.1% to $9.7 million in 1996, compared with $9.5 million
in 1995, as a result of higher operating revenues. The Company's gross margins
increased to 33.1% in 1996 from 33.0% in 1995. In 1996, the Company's gross
margins were adversely impacted by lower shipments in the South-Atlantic region,
where selling prices are higher relative to the Middle-Atlantic region. In
1996, the cost of sales and services increased $349,000 or 1.8%, primarily as a
result of higher depreciation and solid fuel processing costs. Cement
manufacturing costs per ton increased 2.6% in 1996 as a result of higher fuel
costs.
Selling, general and administrative expenses were $1.8 million, or 6.2% of
sales, in both 1996 and 1995.
Interest costs increased $203,000 for the quarter to $242,000, primarily as a
result of the capitalization of $201,000 in interest in 1995.
The income tax provisions for 1996 and 1995, relate to federal and state income
taxes and have been recorded at an estimated effective annual rate of 35%.
Net income increased $83,000 or 1.7% to $5.1 million in 1996 compared with $5.0
million in 1995, primarily as a result of increased operating revenues.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity requirements arise primarily from the funding of capital
expenditures, debt service obligations and working capital needs. The Company
has historically met these needs through internal generation of cash and
borrowings on revolving credit facilities. Due to the seasonality of the
Company's business and the annual plant maintenance cost generally incurred in
the first quarter, the Company's borrowings have historically increased during
the first half of the year.
Cash and cash equivalents totalled $6.6 million at September 30, 1996, compared
with $8.1 million at December 31, 1995. At September 30, 1996, and December 31,
1995 the Company had net working capital of $22.8 million, and $17.5 million,
with current ratios of 2.2 and 1.8, respectively. Accounts receivable increased
$4.5 million or 26.3% to $17.0 million at September 30, 1996, compared with
$12.6 million at December 31, 1995, primarily as a result of higher cement and
resource recovery revenues in the month of September 1996 compared with the
month of December 1995. Inventories decreased $1.3 million or 7.6% to $15.8
million at September 30, 1996, compared with $17.1 million at December 31, 1995,
primarily as a result of higher sales volumes in 1996.
Page 10 of 13
<PAGE>
Cash provided by operations for the nine-month period ended September 30, 1996
was $12.2 million, compared with $6.9 million for the comparable 1995 period.
The increase in cash provided by operations was primarily the result of
increased net income, increased depreciation, a lesser increase in accounts
receivable and a decrease in inventory. Net cash used by investing activities
decreased from $19.2 million in 1995 to $6.3 million in 1996 as a result of
decreased capital expenditures in 1996. Net cash used by financing activities
was $7.4 million in 1996 as a result of the repayment of $5.4 million in debt,
and the expenditure of $2.3 million for the repurchase of shares of the
Company's outstanding common stock. Through September 30, 1996, the Company has
expended $2.7 million of the $5.0 million initially approved by the Board of
Directors for stock repurchases. On October 11, 1996, the Company's Board of
Directors authorized a twelve month extension of the $5.0 million share
repurchase program.
The Company anticipates that its capital expenditures will reach $10.0 to $11.0
million for 1996 and plans to spend a similar amount in 1997. The Company
believes that its Term Loan and Credit Facility, together with internally
generated funds, will be sufficient to meet its needs for the foreseeable
future.
Disclosure Regarding Forward Looking Statements
- -----------------------------------------------
This document contains certain forward-looking statements, containing the words
"believes," "anticipates," "expects," and words of similar import, based upon
current expectations that involve a number of known and unknown business risks
and uncertainties. The factors that could cause results to differ materially
include the following: national and regional economic conditions, changes in
the levels of construction spending, changes in supply or pricing of waste fuels
and other risks as further described in the Company's Annual Report on Form 10-K
filed with the SEC for the year ended December 31, 1995.
Page 11 of 13
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GIANT CEMENT HOLDING, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
On August 30, 1996, Keystone reached a settlement agreement with the
Pennsylvania Environmental Enforcement Project Inc. ("PEEP"). By Order of the
United States District Court for the Eastern District of Pennsylvania, dated
August 30, 1996, the PEEP suit against Keystone was dismissed with prejudice.
The settlement agreement had no financial or operating impact on the Company.
The suit was brought in September 1995 by PEEP, a non-profit corporation,
against the Company's subsidiary Keystone Cement, under the citizen suit
provisions of certain environmental laws. The complaint sought principally to
enjoin Keystone from burning hazardous wastes, enjoin Keystone from further
alleged violations of certain environmental laws and to abate alleged conditions
which endanger health or the environment. The complaint also sought civil
penalties for the alleged violations.
For information regarding environmental proceedings and legal matters, see
"Legal Proceedings" as reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Reports on Form 8-K
During the quarter ended September 30, 1996, the Company did not
file any reports on Form 8-K.
Items 2, 3, 4 and 5 are not applicable.
Page 12 of 13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIANT CEMENT HOLDING, INC. - Registrant
By: /s/ Terry L. Kinder
----------------------------------------
Terry L. Kinder
Vice President and Chief Financial Officer
Secretary-Treasurer
By: /s/ Victor Whitworth
----------------------------------------
Victor Whitworth
Corporate Controller
Principal Accounting Officer
Date: November 1, 1996
Page 13 of 13
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6577
<SECURITIES> 0
<RECEIVABLES> 17047
<ALLOWANCES> 1041
<INVENTORY> 15809
<CURRENT-ASSETS> 41439
<PP&E> 154529
<DEPRECIATION> 85503
<TOTAL-ASSETS> 113435
<CURRENT-LIABILITIES> 18663
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 73568
<TOTAL-LIABILITY-AND-EQUITY> 113435
<SALES> 82540
<TOTAL-REVENUES> 82540
<CGS> 58908
<TOTAL-COSTS> 58908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820
<INCOME-PRETAX> 16920
<INCOME-TAX> 5923
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</TABLE>
