<PAGE>
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 June 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
GIANT CEMENT HOLDING, INC.
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(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
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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 9,827,227 Shares Outstanding
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Page 1 of 14
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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 Six-Month Periods Ended June 30, 1996 and 1995............ 3
Condensed Consolidated Balance Sheets - June 30, 1996 and
1995 and December 31, 1995.................................... 4
Condensed Consolidated Statements of Cash Flows -
Six-Month Periods Ended June 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 4. Submission of Matters to a Vote of Security Holders........... 12-13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
(a)Reports on Form 8-K........................................ 13
2
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six-month periods ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues $ 32,414 $ 27,919 $ 53,205 $ 47,237
Operating costs and expenses:
Cost of sales and services 22,491 20,432 39,272 37,068
Selling, general and administrative 2,082 1,721 4,216 3,633
--------- --------- --------- ---------
Operating income 7,841 5,766 9,717 6,536
Other income (expense):
Interest expense (317) (45) (578) (142)
Other, net 35 47 (63) 113
--------- --------- --------- ---------
Income before taxes 7,559 5,768 9,076 6,507
Provision for income taxes 2,646 2,006 3,177 2,278
--------- --------- --------- ---------
Net income $ 4,913 $ 3,762 $ 5,899 $ 4,229
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share $ .50 $ .38 $ .60 $ .42
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares 9,876 10,000 9,898 10,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,838 $ 184 $ 8,102
Accounts receivable, less allowances of
$1,162, $959, and $973, respectively 17,648 15,346 12,557
Inventories 16,636 16,134 17,102
Other current assets 1,754 1,945 1,750
--------- --------- ---------
Total current assets 38,876 33,609 39,511
--------- --------- ---------
Property, plant and equipment, at cost 153,144 139,849 148,778
Less accumulated depreciation 83,684 76,335 79,303
--------- --------- ---------
69,460 63,514 69,475
Deferred charges and other assets 2,970 2,211 2,728
--------- --------- ---------
Total assets $ 111,306 $ 99,334 $ 111,714
--------- --------- ---------
--------- --------- ---------
LIABILITIES
Current liabilities:
Accounts payable $ 5,830 $ 10,064 $ 8,172
Short-term borrowings - 1,400 2,279
Accrued expenses 9,592 7,045 7,333
Current maturities of long-term debt 4,079 2,982 4,188
--------- --------- ---------
Total current liabilities 19,501 21,491 21,972
Long-term debt, net of current maturities 9,343 5,788 11,337
Accrued pension and postretirement benefits 8,585 8,251 9,259
Deferred income taxes 4,569 5,372 4,532
--------- --------- ---------
Total liabilities 41,998 40,902 47,100
--------- --------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 20,000
shares authorized, 10,000 shares
issued 100 100 100
Capital in excess of par value 41,022 40,985 40,985
Retained earnings 32,513 18,128 26,614
Less:
Common stock held in treasury: 157 shares
in 1996 and 63 in 1995 1,858 - 616
Reduction for additional
pension liability 2,469 781 2,469
--------- --------- ---------
69,308 58,432 64,614
--------- --------- ---------
Total liabilities and
shareholders' equity $ 111,306 $ 99,334 $ 111,714
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six-month periods ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Operations:
Net income......................................... $ 5,899 $ 4,229
Depreciation and depletion......................... 4,492 3,943
Amortization of deferred charges and other......... 214 309
Deferred income taxes.............................. 37 -
Changes in operating assets and liabilities:
Receivables........................................ (5,091) (4,812)
Inventories........................................ 466 (2,090)
Other current assets and deferred charges.......... (460) (925)
Accounts payable................................... (2,342) 1,185
Accrued expenses................................... 1,585 206
------- -------
Net cash provided by operations................. 4,800 2,045
------- -------
Investing:
Purchase of property, plant and equipment.......... (4,477) (13,439)
------- -------
Financing:
Repayment of long-term debt........................ (2,103) (1,216)
Proceeds from short-term borrowings................ 3,106 1,400
Repayment of short-term borrowings................. (5,385) (201)
Transfer of treasury stock to Profit
Sharing Plans.................................... 253 -
Purchase of treasury stock......................... (1,458) -
------- -------
Net cash used by financing...................... (5,587) (17)
------- -------
Decrease in cash and
cash equivalents........................ (5,264) (11,411)
Cash and Cash Equivalents:
Beginning of period................................ 8,102 11,595
------- -------
End of period...................................... $ 2,838 $ 184
------- -------
------- -------
Supplemental Information:
Cash paid for:
Interest (net of $212 capitalized in 1995) $ 602 $ 146
Income taxes..................................... 627 1,145
</TABLE>
See accompanying notes to consolidated financial statements.
5
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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 June 30, 1996 and
1995 and for the interim periods ended June 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):
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Finished goods $ 2,975 $ 3,057 $ 3,913
In process 1,043 1,308 1,270
Raw materials 1,989 1,885 1,527
Supplies, repair parts and coal 10,629 9,884 10,392
-------- -------- --------
$ 16,636 $ 16,134 $ 17,102
-------- -------- --------
-------- -------- --------
</TABLE>
3. ACCRUED EXPENSES (IN THOUSANDS):
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Compensation $ 1,545 $ 1,528 $ 1,913
Pension plan contributions 3,170 1,808 3,446
Income taxes 2,222 1,776 -
Other 2,655 1,933 1,974
-------- -------- --------
$ 9,592 $ 7,045 $ 7,333
-------- -------- --------
-------- -------- --------
</TABLE>
6
<PAGE>
4. CONTINGENCIES:
In September 1995, the Company's subsidiary Keystone was named as a
defendant in a civil complaint, filed by the Pennsylvania Environmental
Enforcement Project Inc. ("PEEP"), a non-profit corporation, under the
Citizen Suit Provisions of certain Environmental Laws. The complaint seeks
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 seeks civil penalties for the alleged violations. The
Company has filed a motion to dismiss the complaint to which PEEP has filed
a response. The Company's motion to dismiss was denied without prejudice
to Keystone's raising the same issues following discovery. PEEP
subsequently filed for a preliminary injunction to enjoin Keystone from
burning hazardous waste. A hearing has been scheduled for September 3, 1996
to hear arguments on the preliminary injunction case restricted to the
issues surrounding Keystone's cement kiln dust (CKD) generation and
storage.
Management and counsel believe the claim is without merit and the Company
has meritorious defenses. However, the likelihood of an unfavorable
outcome cannot presently be determined. The burning of hazardous waste-
derived fuels is a key factor to the profitability of the Company. An
unfavorable outcome to the litigation and/or a substantial reduction in the
Company's ability to substitute hazardous waste-derived fuels for
traditional fossil fuels could have a material adverse effect on the
Company's financial condition and/or results of operations.
7
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GIANT CEMENT HOLDING, INC.
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 June 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; and competition
from other waste disposal alternatives. There can be no assurance that the
Company's resource recovery services revenues will increase at historical rates
or remain at current levels.
8
<PAGE>
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1996 VERSUS SIX MONTH PERIOD ENDED JUNE 30,
1995.
Operating revenues increased 12.6% to $53.2 million in 1996 as compared to $47.2
million in 1995. Revenues from product sales increased $6.5 million or 16.1% to
$47.0 million in 1996, compared to $40.5 million in 1995, as a result of
increased shipping volumes and higher average selling prices of cement. Cement
shipping volumes increased 11.7% in 1996, as a result of volume increases in
both of the Company's market areas.
The Company's average selling price per ton of cement increased 4.7% for the
period ended June 30, 1996 compared to 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.
Resource recovery services revenues decreased $568,000 or 8.4% to $6.2 million
in 1996, compared to $6.7 million in 1995. The decrease resulted from lower
prices realized for liquid fuels processing in both of the Company's markets,
which were partially offset by higher liquid and solid fuel volumes processed.
Gross profit increased 37.0% to $13.9 million in 1996, compared to $10.2 million
in 1995, as a result of higher operating revenues and lower per unit
manufacturing costs. The Company's gross margins increased to 26.2% in 1996
from 21.5% in 1995. In 1996, cost of sales and services increased $2.2 million
or 5.9% primarily as a result of higher shipping volumes and increased
depreciation expense. Cement manufacturing costs per ton have decreased 2% in
1996 compared to 1995. Clinker and cement manufactured increased 6.4% and 4.2%,
respectively, as compared to the first six months of 1995, as a result of
capital improvements made in 1995.
Selling, general and administrative expenses increased $583,000 to $4.2 million
in 1996 or 7.9% of sales, as compared to $3.6 million or 7.7% of sales in 1995.
The expense increase was attributable to higher compensation and other
administrative costs.
Interest costs increased $436,000 to $578,000 as a result of higher average
borrowings outstanding and lower amounts of interest capitalized in 1996.
The income tax provisions recorded for the six month periods ended June 30, 1996
and 1995, relate to federal and state income taxes and were recorded at an
estimated annual effective rate of 35%.
Net income increased $1.7 million or 39.5% to $5.9 million in 1996 compared to
$4.2 million in 1995, primarily as a result of increased operating revenues.
9
<PAGE>
QUARTER ENDED JUNE 30, 1996 VERSUS QUARTER ENDED JUNE 30, 1995.
Operating revenues increased 16.1% to $32.4 million in 1996 as compared to $27.9
million in 1995. Revenues from product sales increased $4.5 million or 18.4% to
$28.8 million in 1996, as compared to $24.3 million in 1995, as a result of
increased shipping volumes and higher average selling prices of cement. Cement
shipping volumes increased 15.9% in 1996, as a result of volume increases in
both of the Company's market areas.
The Company's average selling price per ton of cement increased 2.0% for the
quarter ended June 30, 1996 compared to the comparable period in 1995, as a
result of the aforementioned April 1, 1996 price increase.
Resource recovery services revenues were $3.6 million for the second quarter in
both 1996 and 1995. Higher volumes of both liquid and solid wastes were
substantially offset by lower liquid fuel pricing.
Gross profit increased 32.5% to $9.9 million in 1996, compared to $7.5 million
in 1995, as a result of higher operating revenues and lower per unit
manufacturing costs. The Company's gross margins increased to 30.6% in 1996
from 26.8% in 1995. In 1996, cost of sales and services increased $2.1 million
or 10% for the quarter primarily as a result of higher shipping volumes. Cement
manufacturing costs per ton decreased 3.5% in 1996 as a result of a 4.6%
increase in cement production volumes and higher costs incurred in 1995 to
import clinker to meet customer demand.
Selling, general and administrative expenses increased $361,000 to $2.1 million
in 1996 or 6.4% of sales, as compared to $1.7 million or 6.2% of sales in 1995.
The expense increase was attributable to increased compensation and other
administrative costs.
Interest cost increased $272,000 for the quarter to $317,000 as a result of
higher average borrowings outstanding.
The income tax provisions recorded for the six months ended June 30, 1996 and
1995, related to federal and state income taxes and were recorded at an
estimated annual effective rate of 35%.
Net income increased $1.1 million or 30.6% to $4.9 million in 1996 compared to
$3.8 million in 1995, primarily as a result of increased operating revenues.
10
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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. The Company's borrowings have
historically increased during the first half of the year because of the
seasonality of its business and the annual plant maintenance performed primarily
in the first quarter.
Cash and cash equivalents totalled $2.8 million at June 30, 1996 compared to
$8.1 million at December 31, 1995. At June 30, 1996, and December 31, 1995 the
Company had net working capital of $19.4 million, and $17.5 million, with
current ratios of 2.0 and 1.8, respectively. Accounts receivable increased $5.1
million or 40.5% to $17.6 million at June 30, 1996 compared to December 31,
1995 as a result of higher cement and resource recovery revenues in June 1996
compared to December 1995. Inventories decreased $466,000 or 2.7% to $16.6
million at June 30, 1996, as a result of higher sales volumes.
Cash provided by operations for the six-month period ended June 30, 1996 was
$4.8 million compared to $2.0 million for the comparable 1995 period. The
increase in cash provided by operations was primarily the result of increased
net income, depreciation and accrued expenses. Net cash used by investing
activities decreased from $13.4 million in 1995 to $4.5 million in 1996 as a
result of decreased capital expenditures in 1996. Net cash used by financing
activities increased by $5.6 million in 1996 as a result of increased debt
payments and repurchases of the Company's outstanding common stock. Through
June 30, 1996, the Company has expended $2.1 million of the $5.0 million
approved by the Board of Directors for stock repurchases. The Company utilized
a total of $5.3 million in cash in 1996 versus $11.4 million in 1995, primarily
as a result of decreased capital spending.
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 forward-looking statements that involve a number of
business risks and uncertainties including; economic conditions, construction
spending, supply and demand and other risks as described in the Company's Annual
Report on Form 10-K, filed with the SEC for the year ended December 31, 1995.
11
<PAGE>
GIANT CEMENT HOLDING, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1995, the Company's subsidiary Keystone was named as a defendant in
a civil complaint, filed by the Pennsylvania Environmental Enforcement Project
Inc. ("PEEP"), a non-profit corporation, under the Citizen Suit Provisions of
certain Environmental Laws. The complaint seeks 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 seeks civil penalties for the
alleged violations. The Company has filed a motion to dismiss the complaint to
which PEEP has filed a response. The Company's motion to dismiss was denied
without prejudice to Keystone's raising the same issues following discovery.
PEEP has subsequently filed for a preliminary injunction to enjoin Keystone from
burning hazardous waste. A hearing has been scheduled for September 3, 1996 to
hear arguments in the preliminary injunction case restricted to the issues
surrounding Keystone's cement kiln dust (CKD) generation and storage.
Management and counsel believe the claim is without merit and the Company has
meritorious defenses. However, the likelihood of an unfavorable outcome cannot
presently be determined. The burning of hazardous waste-derived fuels is a key
factor to the profitability of the Company. An unfavorable outcome to the
litigation and/or a substantial reduction in the Company's ability to substitute
hazardous waste-derived fuels for traditional fossil fuels could have a material
adverse effect on the Company's financial condition and/or results of
operations.
For additional 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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 14, 1996, the Company held its 1996 Annual Meeting of
Shareholders.
(b) Not applicable.
(c) The stockholders approved the following matters:
(1) Gary Pechota, Dean M. Boylan, Edward Brodsky, Robert L.
Jones and Terry Kinder were re-elected as directors of the
Company (6,755,465 shares for, 3,400 withheld).
12
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(2) Coopers & Lybrand L.L.P. was ratified as the Company's
independent auditor for fiscal 1996 (6,756,114 shares for,
2,651 shares against).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
During the quarter ended June 30, 1996, the Company did not file
any reports on Form 8-K.
Items 2, 3 and 5 are not applicable.
13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIANT 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: August 9, 1996
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2838
<SECURITIES> 0
<RECEIVABLES> 17648
<ALLOWANCES> 1162
<INVENTORY> 16636
<CURRENT-ASSETS> 38876
<PP&E> 153144
<DEPRECIATION> 83684
<TOTAL-ASSETS> 111306
<CURRENT-LIABILITIES> 19501
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 69208
<TOTAL-LIABILITY-AND-EQUITY> 111306
<SALES> 53205
<TOTAL-REVENUES> 53205
<CGS> 39272
<TOTAL-COSTS> 39272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578
<INCOME-PRETAX> 9076
<INCOME-TAX> 3177
<INCOME-CONTINUING> 5899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5899
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
