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, 1997
__ 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.
(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 9,421,082 Shares Outstanding
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, 1997 and 1996....... 3
Condensed Consolidated Balance Sheets - June 30, 1997 and
1996 and December 31, 1996............................... 4
Condensed Consolidated Statements of Cash Flows -
Six-Month Periods Ended June 30, 1997 and 1996........... 5
Notes to Condensed Consolidated Financial Statements..... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................ 13
Item 4. Submission of Matters to a Vote of Security Holders...... 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, 1997 and 1996
(Unaudited)
Three Months Ended Six Months Ended
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share data)
Operating revenues ........... $ 32,323 $ 32,414 $ 56,681 $ 53,205
Operating costs and expenses:
Cost of sales and services . 21,589 22,491 41,884 39,272
Selling, general and
administrative ........... 1,895 2,082 3,918 4,216
-------- -------- -------- --------
Operating income ....... 8,839 7,841 10,879 9,717
Other income (expense):
Interest expense ........... (245) (317) (473) (578)
Other, net ................. 35 35 126 (63)
-------- -------- -------- --------
Income before taxes .... 8,629 7,559 10,532 9,076
Provision for income taxes ... 2,935 2,646 3,600 3,177
-------- -------- -------- --------
Net income ............. $ 5,694 $ 4,913 $ 6,932 $ 5,899
======== ======== ======== ========
Net income per common share .. $ .60 $ .50 $ .73 $ .60
======== ======== ======== ========
Weighted average common shares 9,455 9,876 9,478 9,898
See accompanying notes to consolidated financial statements.
3
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, June 30, December 31,
1997 1996 1996
---- ---- ----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ................ $ 1,043 $ 2,838 $ 10,432
Accounts receivable, less allowances of
$1,315, $1,162, and $1,123, respectively 20,036 17,648 14,897
Inventories .............................. 16,686 16,636 17,656
Other current assets ..................... 2,196 1,754 2,071
-------- -------- --------
Total current assets ............... 39,961 38,876 45,056
-------- -------- --------
Property, plant and equipment, at cost ..... 163,632 153,144 155,770
Less: accumulated depreciation ........... 87,727 83,684 85,352
-------- -------- --------
75,905 69,460 70,418
-------- -------- --------
Deferred charges and other assets .......... 3,478 2,970 3,142
-------- -------- --------
Total assets ....................... $119,344 $111,306 $118,616
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable ......................... $ 7,215 $ 5,830 $ 10,437
Short-term borrowings ................ 500 -- --
Accrued expenses ......................... 7,979 9,592 6,843
Current maturities of long-term debt ..... 892 4,079 1,070
-------- -------- --------
Total current liabilities .......... 16,586 19,501 18,350
Long-term debt, net of current maturities .. 10,114 9,343 10,681
Accrued pension and postretirement benefits 6,485 8,585 6,332
Deferred income taxes ...................... 6,125 4,569 6,125
-------- -------- --------
Total liabilities .................. 39,310 41,998 41,488
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 20,000
shares authorized, 10,000 shares
issued ................................. 100 100 100
Capital in excess of par value ............. 41,103 41,022 41,022
Retained earnings .......................... 48,967 32,513 42,035
Less:
Treasury stock, at cost: 579, 157 and
336 shares, respectively .............. 8,598 1,858 4,491
Reduction for additional
pension liability ..................... 1,538 2,469 1,538
-------- -------- --------
80,034 69,308 77,128
-------- -------- --------
Total liabilities and
shareholders' equity ............ $119,344 $111,306 $118,616
======== ======== ========
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, 1997 and 1996
(Unaudited)
1997 1996
---- ----
(In thousands)
Operations:
Net income ................................. $ 6,932 $ 5,899
Depreciation and depletion ................. 4,864 4,492
Amortization of deferred charges and other . 214 251
Changes in operating assets and liabilities:
Receivables ................................ (5,139) (5,091)
Inventories ................................ 970 466
Other current assets and deferred charges .. (675) (460)
Accounts payable ........................... (1,858) (2,342)
Accrued expenses ........................... 1,458 1,838
-------- --------
Net cash provided by operations ......... 6,766 5,053
-------- --------
Investing:
Purchase of property, plant and equipment .. (11,715) (4,477)
-------- --------
Financing:
Repayment of long-term debt ................ (745) (2,103)
Proceeds from short-term borrowings ........ 2,500 3,106
Repayment of short-term borrowings ......... (2,000) (5,385)
Purchase of treasury stock ................. (4,195) (1,458)
-------- --------
Net cash used by financing .............. (4,440) (5,840)
-------- --------
Decrease in cash and
cash equivalents ............. (9,389) (5,264)
Cash and Cash Equivalents:
Beginning of period ........................ 10,432 8,102
-------- --------
End of period .............................. $ 1,043 $ 2,838
======== ========
See accompanying notes to consolidated financial statements.
5
<PAGE>
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, 1997 and 1996 and for the
interim periods ended June 30, 1997 and 1996 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, 1996 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 1996 Annual Report
to Shareholders.
2. Inventories(in thousands):
June 30, June 30, December 31,
1997 1996 1996
---- ---- ----
Finished goods ................ $ 2,945 $ 2,975 $ 3,141
In process .................... 1,008 1,043 1,236
Raw materials ................. 1,712 1,989 2,025
Supplies, repair parts and coal 11,021 10,629 11,254
------- ------- -------
$16,686 $16,636 $17,656
======= ======= =======
3. Accrued Expenses (in thousands):
June 30, June 30, December 31,
1997 1996 1996
---- ---- ----
Compensation ............. $ 1,720 $ 1,545 $ 2,161
Pension plan contributions 1,887 3,170 2,781
Income taxes ............. 2,208 2,222 --
Other .................... 2,164 2,655 1,901
------- ------- -------
$ 7,979 $ 9,592 $ 6,843
======= ======= =======
6
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4. Contingencies:
The Company's operations and properties are subject to extensive and
changing federal, state and local laws (including common law), regulations and
ordinances relating to noise and dust suppression, air and water quality, as
well as to the handling, treatment, storage and disposal of wastes
("Environmental Laws"). In connection with the Company's quarrying and
manufacturing operations and its utilization of hazardous waste-derived fuel,
Environmental Laws require certain permits and other authorizations mandating
procedures under which the Company shall operate. Environmental Laws also
provide significant penalties for violators, as well as liabilities and costs of
cleaning up releases of hazardous wastes into the environment. Violations of
mandated procedures under operating permits, even if immaterial or
unintentional, may result in fines, shutdowns, remedial actions or revocation of
such permits.
5. Pending Acquisition
In December 1996, the Company announced it had entered into a Letter of
Intent to acquire three lightweight aggregate plants, five concrete block plants
and a drum processing/fuel blending facility of a privately held manufacturer
with operations principally in the South-Atlantic United States. The Company
entered into a revised Letter of Intent in July 1997. The acquisition is subject
to finalization of a definitive agreement and, among other matters, approvals by
various regulatory authorities. If completed, the acquisition (which would be
accounted for as a purchase) would require approximately $34 million to be
financed through the issuance of 750,000 common shares and bank borrowings of
approximately $20 million.
6. Earnings Per Share
The Financial Accounting Standards Board has issued Statement No. 128
"Earnings Per Share". FAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997. FAS No. 128 will be implemented in
the Company's financial statements filed with Form 10-K for the year ended
December 31, 1997. The Company does not expect that FAS No. 128 will have a
material impact on the earnings per share computation.
7
<PAGE>
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. 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, 1997 are not
necessarily indicative of the results that may be expected for the full year. As
a result of the cyclicality of the Company's business, there can be no assurance
that cement prices and revenues will continue to increase at historical rates or
remain at current levels.
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.
The Company's cement manufacturing hourly employees are represented by the
United Paperworkers International Union ("UPIU"). In June 1997 Giant Cement
Company reached an agreement with UPIU Local 50216 for the period of May 1, 1997
to April 30, 2000. The agreement included wage increases of approximately 3% per
annum among other changes, the total impact of which is not expected to have a
material effect on the Company's results of operations.
8
<PAGE>
Results of Operations
Six month period ended June 30, 1997 versus six month period ended June 30,
1996.
Operating revenues increased 6.6% to $56.7 million in 1997 compared with $53.2
million in 1996. Revenues from product sales increased $1.6 million or 3.4% to
$48.6 million in 1997, compared with $47.0 million in 1996, as a result of
higher average selling prices of cement and increased aggregate sales. Cement
shipping volumes decreased 2.0% in 1997, primarily as a result of volume
decreases in the Company's Middle-Atlantic market area.
The Company's average selling price per ton of cement increased 4.2% for the
period ended June 30, 1997 compared with 1996, as a result of price increases
implemented in April 1996 and 1997. The Company realized a price increase of $4
per ton in April 1997 in its Middle-Atlantic market.
Resource recovery services revenues increased $1.9 million or 30.6% to $8.1
million in 1997, compared with $6.2 million in 1996. Liquid fuels utilized
increased 12.3%, while liquids pricing improved 8.8% over the prior year period.
The Company's solid fuels volume increased 48% to 8,800 tons. The average price
realized improved 16% over the first six months of 1996 for solid fuels. The
Company anticipates that its year over year growth rate of resource recovery
revenues will be more modest in the third and fourth quarter of 1997 due to a
more difficult comparison to the prior year.
Gross profit increased 6.5% to $14.8 million in 1997, compared with $13.9
million in 1996, as a result of higher cement selling prices and resource
recovery revenues. The Company's gross margins in the 1997 and 1996 periods were
26%. In 1997, cost of sales and services increased $2.6 million or 6.6% to $41.9
million, compared with $39.3 million in 1996. The increase in cost was the
result of a more extensive winter maintenance shutdown, higher resource recovery
volumes, and higher costs incurred to import clinker to meet customer demand in
the Company's South-Atlantic markets. Cost of sales per ton of cement increased
2.6% in 1997 compared to 1996.
Selling, general and administrative expenses decreased $298,000 to $3.9 million
in 1997 compared with $4.2 million in 1996. The expense decrease primarily
related to lower insurance and other administrative costs.
Interest costs decreased $105,000 for the six month period to $473,000 as a
result of lower average borrowings outstanding.
The income tax provisions recorded for the six month periods ended June 30, 1997
and 1996, relate to federal and state income taxes and were recorded at
estimated annual effective rates of 34.2% and 35.0%, respectively.
9
<PAGE>
Net income increased $1.0 million or 17.0% to $6.9 million in 1997 compared with
$5.9 million in 1996, primarily as a result of increased operating revenues. Net
income as a percentage of net sales increased from 11.1% in 1996 to 12.2% in
1997.
Quarter ended June 30, 1997 versus quarter ended June 30, 1996.
Operating revenues remained relatively unchanged for the quarter at $32.3
million in 1997 and $32.4 million in 1996. Revenues from product sales decreased
$1.2 million or 4.2% to $27.6 million in 1997, compared with $28.8 million in
1996, as a result of decreased shipping volumes, partially offset by higher
average selling prices of cement. Cement shipping volumes decreased 9.5% in the
second quarter of 1997 compared with the second quarter of 1996, primarily as a
result of a seasonal shift in shipments between the second quarter and the first
quarter, when shipments were up 9.7% compared to the first quarter of 1996. The
seasonal shift was caused by the harsh winter in 1996, which deferred business
into the second quarter of 1996, followed by the mild winter in 1997, which
pulled business into the first quarter of 1997.
The Company's average selling price per ton of cement increased 4.1% for the
quarter ended June 30, 1997 compared with the second quarter of 1996, primarily
as a result of the $4 per ton April 1997 price increase implemented in the
Company's Middle-Atlantic market.
Resource recovery services revenues increased $1.2 million or 33.3% to $4.8
million in the second quarter of 1997, compared with $3.6 million in the second
quarter of 1996. Liquid fuels utilized increased 15.1%, while liquids pricing
improved 13.1% over a year earlier. The Company's solid fuels volume increased
36.8% to 4,800 tons, while the average price realized improved 8.2% over the
second quarter of 1996.
Gross profit increased 8.1% to $10.7 million in the second quarter of 1997
compared with $9.9 million in the 1996 period, as a result of higher cement
pricing, improved resource recovery revenues and lower manufacturing costs. The
Company's gross margins increased to 33.2% in 1997 from 30.6% in 1996. In 1997,
cost of sales and services decreased $902,000 or 4.0% for the quarter primarily
as a result of lower shipping volumes. Cost of sales per ton of cement decreased
4.0% in 1997, primarily as a result of reduced fuel and power costs partially
offset by the impact of higher cost imported clinker purchased.
Selling, general and administrative expenses decreased $187,000 to $1.9 million
in 1997 or 5.8% of sales, compared with $2.1 million, or 6.4% of sales, in 1996.
The expense decrease primarily related to lower insurance and other
administrative costs.
Interest cost decreased $72,000 for the 1997 quarter to $245,000 as a result of
lower average borrowings outstanding.
The income tax provisions recorded for the three months ended June 30, 1997 and
1996, related to federal and state income taxes and were recorded at estimated
annual effective rates of 34% and 35%, respectively.
10
<PAGE>
Net income increased 15.9% to $5.7 million in 1997 compared with $4.9 million in
1996, primarily as a result of increased resource recovery revenues. Net income
as a percentage of net sales increased from 15.2% in 1996 to 17.6% in 1997.
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 $1.0 million at June 30, 1997 compared to
$10.4 million at December 31, 1996. At June 30, 1997, and December 31, 1996 the
Company had net working capital of $23.4 million, and $26.7 million, with
current ratios of 2.4 and 2.5, respectively. Accounts receivable increased $5.1
million or 34.5% to $20.0 million at June 30, 1997, compared with December 31,
1996, as a result of higher cement and resource recovery revenues in June 1997
compared with December 1996. Inventories decreased $1.0 million, or 5.5%, to
$16.7 million at June 30, 1997. Total current liabilities decreased $1.8
million, or 9.6%, to $16.6 million at June 30, 1997, primarily as a result of
decreased amounts payable to vendors for capital projects compared with December
31, 1996.
Cash provided by operations for the six-month period ended June 30, 1997 was
$6.8 million compared with $5.1 million for the comparable 1996 period. The
increase in cash provided by operations was primarily the result of increased
net income and depreciation compared with the 1996 period. Net cash used by
investing activities increased from $4.5 million in the first half of 1996 to
$11.7 million in the 1997 period as a result of increased capital expenditures.
The $11.7 million of capital expenditures in 1997, as reflected in the Condensed
Consolidated Statements of Cash Flows, include $1.6 million of accounts payable
at December 31, 1996, for 1996 capital expenditures that were paid in 1997. Net
cash used by financing activities decreased by $1.4 million in 1997 as a result
of decreased debt payments, partially offset by repurchases of the Company's
common stock which have increased by $2.7 million in the 1997 period. Through
June 30, 1997, the Company has expended $8.6 million of the $10.0 million
approved by the Board of Directors for stock repurchases. The Company utilized a
total of $9.4 million in cash in the first half of 1997 versus $5.3 million in
the comparable 1996 period, primarily as a result of increased capital spending
and common stock repurchases.
The Company believes that its bank term loan and credit facility, together with
internally generated funds, will be sufficient to meet its needs for the
foreseeable future.
11
<PAGE>
Disclosure Regarding Forward Looking Statements
This document contains forward-looking statements, containing the words
"believe," "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, 1996.
12
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GIANT CEMENT HOLDING, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 13, 1997, the Company held its 1997 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 (7,667,008 shares for, 20,793
withheld).
(2) Coopers & Lybrand L.L.P. was ratified as the Company's
independent auditor for fiscal 1997 (7,662,683 shares
for, 4,625 shares against).
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
During the quarter ended June 30, 1997, 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 4, 1997
14
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<ARTICLE> 5
<LEGEND>
(This schedule contians summary financial nformation extracted from the
Company's financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
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<RECEIVABLES> 20036
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