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, 1998
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) (Employer ID No.)
320-D Midland Parkway, Summerville, South Carolina 29485
Registrant's telephone number, including area code: (843) 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 9,216,367 Shares Outstanding
Page 1 of 17
<PAGE>
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, 1998 and 1997 3
Condensed Consolidated Balance Sheets - September 30, 1998
and 1997 and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows - Nine-Month
Periods Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
(a) Exhibits 17
(b) Reports on Form 8-K 17
2
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS for the three and nine-month periods ended
September 30, 1998 and 1997
(Unaudited in thousands, except per share data)
Three Months Ended Nine Months Ended
1998 1997 1998 1997
Operating revenues $ 47,445 $ 31,672 $111,653 $ 88,354
Operating costs and expenses:
Cost of sales and services 33,035 20,715 83,735 62,600
Selling, general and administrative 4,065 1,845 9,766 5,763
-------- -------- -------- --------
Operating income 10,345 9,112 18,152 19,991
Other income (expense):
Interest expense (653) (253) (1,375) (726)
Other, net 397 62 2,074 188
-------- -------- -------- --------
Income before taxes 10,089 8,921 18,851 19,453
Provision for income taxes 3,429 3,033 6,383 6,633
-------- -------- -------- --------
Net income $ 6,660 $ 5,888 $ 12,468 $ 12,820
======== ======== ======== ========
Earnings per common share:
Basic $ .72 $ .63 $ 1.34 $ 1.35
======== ======= ======== ========
Diluted $ .70 $ .62 $ 1.32 $ 1.34
======== ======== ======== ========
Weighted average common shares:
Basic 9,314 9,406 9,306 9,492
Diluted 9,458 9,507 9,447 9,559
See accompanying notes to consolidated financial statements.
3
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
September 30, December 31,
1998 1997 1997
ASSETS
Current assets:
Cash and cash equivalents $ 4,873 $ 5,728 $ 12,674
Accounts receivable, less allowances of
$1,747, $1,450 and $1,325, respectively 27,347 18,312 14,927
Inventories 22,352 15,376 19,238
Other current assets 3,698 2,122 3,652
-------- -------- --------
Total current assets 58,270 41,538 50,491
-------- -------- --------
Property, plant and equipment, at cost 198,806 165,747 168,077
Less: accumulated depreciation 100,417 89,912 92,446
-------- -------- --------
98,389 75,835 75,631
-------- -------- --------
Prepaid Pensions 3,902 - -
Permits, net 9,006 1,763 1,977
Deferred charges and other assets 1,325 1,942 501
-------- -------- --------
Total assets $170,892 $121,078 $128,600
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 13,391 $ 5,326 $ 11,567
Accrued expenses 9,482 7,124 8,258
Current maturities of long-term debt 3,315 909 888
-------- -------- --------
Total current liabilities 26,188 13,359 20,713
Long-term debt, net of current maturities 29,372 9,875 9,661
Accrued pension and postretirement benefits
and other liabilities 6,156 6,195 2,907
Deferred income taxes 11,095 6,367 7,674
-------- -------- --------
Total liabilities 72,811 35,796 40,955
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 20,000 shares
authorized, 10,000 shares issued 100 100 100
Capital in excess of par value 44,027 41,208 41,317
Retained earnings 70,588 54,855 58,120
Less: Treasury stock, at cost: 784, 604 and 675
shares, respectively 15,989 9,343 11,247
Accumulated other comprehensive income,
minimum pension liability adjustments 645 1,538 645
-------- -------- --------
98,081 85,282 87,645
-------- -------- --------
Total liabilities and shareholders'
equity $170,892 $121,078 $128,600
======== ======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 1998 and 1997
(Unaudited in thousands)
1998 1997
---- ----
Operations:
Net income $12,468 $12,820
Depreciation and depletion 8,902 7,319
Deferred income taxes 492 153
Amortization of deferred charges and other 456 322
Changes in operating assets and liabilities:
Receivables (6,414) (3,415)
Inventories 2,423 2,280
Other current assets and deferred charges (1,097) (847)
Accounts payable (5,630) (3,388)
Accrued expenses (1,760) 230
------- -------
Net cash provided by operating activities 9,840 15,474
------- -------
Investing:
Purchase of property, plant and equipment (14,967) (14,459)
Proceeds from sales of property, plant
and equipment 754 -
Acquisition, net of cash acquired 1,347 -
------- -------
Net cash used by investing activities (12,866) (14,459)
------- -------
Financing:
Proceeds of long-term debt 23,910 2,500
Repayments of long-term debt (21,653) (3,467)
Purchases of treasury stock (7,032) (4,752)
------- -------
Net cash used by financing activities (4,775) (5,719)
------- -------
Decrease in cash and cash equivalents (7,801) (4,704)
Cash and Cash Equivalents:
Beginning of period 12,674 10,432
------- -------
End of period $ 4,873 $ 5,728
======= =======
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 shareholders. The financial statements as of September 30, 1998
and 1997 and for the interim periods then ended 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, 1997 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 1997
Annual Report to Shareholders.
2. Inventories (in thousands):
September 30 December 31
1998 1997 1997
Finished goods $ 5,567 $ 2,516 $ 4,131
In process 2,734 714 1,322
Raw materials 1,344 1,456 2,178
Supplies, repair parts and coal 12,707 10,690 11,607
------- ------- -------
$22,352 $15,376 $19,238
======= ======= =======
3. Accrued Expenses (in thousands):
September 30 December 31
1998 1997 1997
Compensation $ 2,724 $ 2,010 $ 2,429
Pension cost 1,071 1,434 2,394
Income taxes 590 1,377 -
Insurance 1,277 319 252
Other 3,820 1,984 3,183
------- ------- -------
$ 9,482 $ 7,124 $ 8,258
======= ======= =======
6
<PAGE>
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 quarry sites and 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, the
loss of any one of which could have a material adverse effect on the
Company's results of operations.
In December 1997, the resource recovery operation at Keystone Cement
Company, a wholly owned subsidiary of Giant Cement Holding, Inc.,
experienced a fire at its waste fuel storage tank farm and, as a
result, suspended the utilization of waste fuel. There were no injuries
and no known environmental damage. Only very minimal damage to
equipment at the plant occurred. Keystone reached an agreement with the
Pennsylvania Department of Environmental Protection, effective July 13,
1998, to allow it to resume waste fuel burning. Under terms of the
agreement, Keystone will pay a fine of $488,000 in installments over a
ten-year period, substantially all of which was accrued in the fourth
quarter of 1997 and the remainder of which is included in accrued
expenses as of September 30, 1998.
5. Acquisition
On April 30, 1998, the Company acquired Solite Corporation and certain
of its subsidiaries in exchange for 325,000 shares of its common stock.
The Solite transaction included three lightweight aggregate
manufacturing facilities with their associated resource recovery
operations, five concrete block plants, and a waste treatment and
blending facility. The terms of the transaction included the assumption
of approximately $19.9 million of Solite's long-term debt, in addition
to other liabilities. Under the terms of the purchase agreement, the
Company issued 175,000 shares of its common stock from treasury shares
to Solite shareholders', which were valued at $5.0 million or $28.57
per share, the fair market value on the date of issuance. The remaining
150,000 shares of common stock were placed in escrow, which shares are
included in the 784,000 treasury shares held at September 30, 1998. Of
the 150,000 escrowed shares, 75,000 will be issued if Solite satisfies
certain minimum net worth and net asset covenants as of April 30, 1998.
The remaining 75,000 escrowed shares will be issued one-half on April
30, 2000 and one-half on April 30, 2001 subject to Solite satisfying
certain indemnification's against unrecorded liabilities arising
subsequent to the acquisition date. Based upon the results of the audit
of Solite's balance sheet as of April 30, 1998, subject to the right of
7
<PAGE>
Solite's former shareholders to appeal, none of the 75,000 shares held
in escrow relative to financial covenants will be issued. However,
Solite's former shareholders have appealed the purchase price
adjustment computation. The Company and Solite's former shareholders
have engaged a third party arbitrator to resolve the dispute and
anticipate resolving this matter by December 31, 1998.
The acquisition has been accounted for as a purchase and, accordingly,
the operating results of Solite have been included in the Company's
consolidated financial statements since the date of acquisition. The
purchase price was $5.0 million based upon the 175,000 shares of the
Company's common stock issued, which, including $30.2 million of
liabilities assumed, was primarily allocated $17.3 million to property,
plant and equipment, $14.7 million to current assets and $6.7 million
to identifiable intangibles (hazardous waste storage and burning
permits), which will be amortized over a forty year period. The
purchase price will be increased if any of the escrowed shares are
issued.
The following unaudited pro forma financial information assumes the
acquisition had occurred on January 1 of each period (in thousands,
except per share data):
1998 1997
---- ----
Net sales $128,082 $128,106
Net income 9,534 14,160
Earnings per share - basic $ 1.02 $ 1.47
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been completed as of the
beginning of each of the interim periods presented, nor are they
necessarily indicative of future consolidated results. The results of
Solite for the nine months ended September 30, 1998, which are included
in the pro forma results above for that period, include nonrecurring
charges of $4.6 million against income to reduce the carrying values of
certain assets to fair market value as of the acquisition closing date,
April 30, 1998.
6. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"), which established new standards for computing and
presenting earnings per share information. As required, the Company
adopted the provisions of SFAS 128 in its year-end 1997 financial
statements and has restated all prior-year earnings per share
information. Basic earnings per share of common stock were determined
by dividing net income applicable to common shares by the weighted
average number of common shares outstanding during each year. Diluted
earnings per share reflect the potential dilution that could occur
assuming exercise of all issued and unexercised stock options. A
reconciliation of the net income and numbers of shares used in
computing basic and diluted earnings per share is as follows:
8
<PAGE>
Three Months Ended Nine Months Ended
1998 1997 1998 1997
Basic earnings per share:
Net income $6,660 $5,888 $12,468 $12,820
Weighted average common shares
Outstanding for the year 9,314 9,406 9,306 9,492
------ ------ ------- -------
Basic earnings per share of
common stock $ .72 $ .63 $ 1.34 $ 1.35
====== ====== ======= =======
Diluted earnings per share:
Net income $6,660 $5,888 $12,468 $12,820
------ ------ ------- -------
Weighted average common shares
Outstanding for the year 9,314 9,406 9,306 9,492
Increase in shares which would
result from:
Exercise of stock options 144 101 141 67
------- ------ ------- -------
Weighted average common shares,
assuming conversion of the above
securities 9,458 9,507 9,447 9,559
------ ------ ------- -------
Diluted earnings per share of
common stock $ .70 $ .62 $ 1.32 $ 1.34
====== ====== ======= =======
7. Debt:
Long-term debt consists of the following:
September 30, September 30, December 31,
1998 1997 1997
Term loans $12,518 $ 2,217 $ 2,048
Revolving credit loans 19,909 8,159 8,159
Other 260 408 342
------- ------- -------
32,687 10,784 10,549
Less current maturities 3,315 909 888
------- ------- -------
Long-term debt, net current
maturities $29,372 $ 9,875 $ 9,661
======= ======= =======
On April 30, 1998, the Company increased the borrowing limits on
its $32 million Credit Facility to $46 million ($30 million
revolving credit, $12 million term loan and $4 million letters of
credit) in order to refinance $19.9 million of Solite's existing
indebtedness. Advances under the Credit Facility bear interest at
the lesser of LIBOR plus 1.50% or the bank's base rate minus
1.25%. At September 30, 1998 amounts outstanding and available
under the Credit Facility totaled $30.9 million and $11.1
million, respectively.
9
<PAGE>
8. Accounting Standards:
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
Accordingly, the shareholders' equity section of the Condensed
Consolidated Balance Sheets has been modified to comply with the new
requirements. There were no items of other comprehensive income in the
periods presented.
The Financial Accounting Standards Board has issued Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information".
FAS No. 131 is effective for financial statements issued for fiscal
years beginning after December 15, 1997. FAS 131 is expected to be
implemented in the Company's financial statements filed with Form 10-K
for the year ended December 31, 1998.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company's construction products operations (cement, lightweight aggregate,
crushed stone and lightweight block) 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 construction products 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 interim periods 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.
In addition to revenues from the sale of construction products, the Company
derives revenues 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 and lightweight
aggregate. 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
polices; 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.
11
<PAGE>
Results of Operations
Nine-month period ended September 30, 1998 versus nine-month period ended
September 30, 1997
Operating revenues increased 26.4% to $111.7 million in 1998, compared with
$88.4 million in 1997. Revenues from product sales increased $18.2 million or
23.9% to $94.4 million in 1998, compared with $76.2 million in 1997, as a result
of the addition of Solite's lightweight aggregate and block revenues, higher
average selling prices of cement and increased aggregate sales. Cement shipping
volumes increased 1.0% in 1998 due to increased shipments in the Company's
Middle-Atlantic market, while shipments in the South-Atlantic market remained
level with 1997 volumes.
The Company's average selling price per ton of cement increased 3.1% for the
period ended September 30, 1998, compared with the comparable period in 1997, as
a result of price increases implemented in April 1997 and 1998. In April 1998,
the Company realized price increases of approximately $3 per ton in its
Middle-Atlantic market and $2 per ton in its South-Atlantic market. Solite's
product sales totaled $15.0 million, for the five month period subsequent to the
acquisition.
Resource recovery services revenues increased $5.1 million or 41.8% to $17.3
million in 1998, compared with $12.2 million in 1997. The increase resulted from
the addition of Solite's resource recovery revenues for the five month period
subsequent to the acquisition, offset by decreases resulting from the Company's
suspension of the fuels program at Keystone for the first six months of 1998 and
downtime associated with the installation of the new solid waste fuel shredder
at Giant in the second quarter of 1998.
Gross profit increased 8.4% to $27.9 million in 1998, compared with $25.8
million in 1997, as a result of the addition of Solite's gross profit for the
five months subsequent to the acquisition. The Company's gross margins decreased
to 25.0% in 1998 from 29.1% in 1997. In 1998, cost of sales and services
excluding the Solite operations increased $6.4 million or 10.2% to $69.0
million, compared with $62.6 million in 1997. The increase in cement
manufacturing costs was primarily the result of higher maintenance costs,
increased imported clinker purchases and higher fuel costs due to decreased
liquid waste fuel utilization at Keystone and decreased solid waste fuel
utilization at Giant.
Selling, general and administrative expenses increased $4.0 million to $9.8
million in 1998, compared with $5.8 million in 1997. Excluding Solite, the
expenses decreased $77,000 or 1.3% compared with 1997.
Interest costs increased $649,000 for the nine month period to $1.4 million on
higher average borrowings outstanding. The Company assumed and subsequently
refinanced approximately $19.9 million of Solite's debt in connection with the
Solite acquisition.
Other income increased $1.9 million in 1998 as a result of the recovery under
the Company's business interruption insurance policy of $1.6 million of the
Company's losses related to the Keystone incident. The recovery partially offset
resource recovery revenues lost and additional fuel expenses incurred between
December 8, 1997 and June 30, 1998.
12
<PAGE>
The income tax provisions recorded for the nine month periods ended September
30, 1998 and 1997, relate to federal and state income taxes and were recorded at
estimated annual effective rates of approximately 34.0%.
Net income decreased $352,000 or 2.7% to $12.5 million in 1998, compared with
$12.8 million in 1997, primarily as a result of Keystone's inability to utilize
waste fuels during the first six months of 1998 and increased manufacturing
costs, partially offset by earnings of Solite subsequent to its acquisition on
April 30, 1998.
Quarter ended September 30, 1998 versus quarter ended September 30, 1997
Operating revenues increased 49.8% to $47.4 million in 1998, compared with $31.7
million in 1997. Revenues from product sales increased $11.4 million or 41.5% to
$39.0 million in 1998, compared with $27.6 million in 1997, as a result of the
addition of Solite's block and lightweight aggregate revenues and higher average
selling prices of cement. Product revenues exclusive of Solite increased 10.4%.
Cement shipping volumes increased 5.6% in the third quarter of 1998 compared
with the third quarter of 1997.
The Company's average selling price per ton of cement increased 3.7% for the
quarter ended September 30, 1998, compared with the third quarter of 1997, as a
result of the price increases implemented in April 1998. The average cement
price per ton realized during the quarter increased approximately $3 per ton in
the Middle-Atlantic market and $2 in the South-Atlantic market.
Resource recovery services revenues increased $4.3 million or 105.6% to $8.4
million in the third quarter of 1998, compared with $4.1 million in the third
quarter of 1997. The increase resulted from the addition of Solite's resource
recovery revenues. Excluding Solite, resource recovery revenues decreased
slightly due to the gradual restart of the liquid fuels program at Keystone as
well as the new solid waste fuel shredder at Giant.
Gross profit increased 31.5% to $14.4 million in the third quarter of 1998,
compared with $11.0 million in the 1997 period, as a result of the addition of
Solite's gross profit. The Company's gross margins decreased to 30.4% in 1998
from 34.6% in 1997. In 1998, cost of sales and services excluding the Solite
operation increased $3.8 million, or 18.4% for the quarter primarily as a result
of increased imported clinker purchases, increased supplies and repairs, and
increased coal utilization due to the reduction in waste fuel utilization.
Selling, general and administrative expenses increased $2.2 million to $4.1
million in 1998 or 8.6% of sales, compared with $1.8 million, or 5.8% of sales,
in 1997. Excluding Solite, the expenses decreased $204,000 or 11.1% compared
with 1997.
Interest cost increased $400,000 for the 1998 quarter to $653,000 as a result of
higher average borrowings outstanding primarily as a result of the Solite
acquisition.
Other income increased $335,000 in 1998 as a result of higher interest income
and a portion of the aforementioned business interruption insurance recovery.
13
<PAGE>
The income tax provisions recorded for the three months ended September 30, 1998
and 1997, related to federal and state income taxes and were recorded at
estimated annual effective rates of approximately 34.0%.
Net income increased 13.1% to $6.7 million in 1998 compared with $5.9 million in
1997, primarily as a result of Solite's earnings subsequent to its acquisition
on April 30, 1998, which were partially offset by increased manufacturing costs.
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 $4.9 million at September 30, 1998, compared
with $12.7 million at December 31, 1997. At September 30, 1998, and December 31,
1997 the Company had net working capital of $32.1 million and $29.8 million,
respectively, with current ratios of 2.2 and 2.4, respectively. Accounts
receivable increased $12.4 million to $27.3 million at September 30, 1998,
compared with December 31, 1997, as a result of the Solite acquisition ($7.0
million) and seasonally higher cement sales. Inventories increased $3.1 million
to $22.4 million at September 30, 1998, as a result of the addition of Solite
inventories ($5.2 million), partially offset by seasonally lower cement
inventories compared with December 31, 1997. Total current liabilities increased
$5.5 million to $26.2 million at September 30, 1998, primarily as a result of
the Solite acquisition partially offset by decreased trade accounts payable at
the Company's other operations.
Cash provided by operations for the nine-month period ended September 30, 1998
was $9.8 million, compared to $15.5 million for the comparable 1997 period. The
decrease in cash provided by operations, compared with 1997, was primarily the
result of cash utilized to reduce trade accounts payable and accrued expenses
and increased accounts receivable. Net cash used by investing activities
decreased from $14.5 million in 1997 to $12.9 million in 1998 as a result of the
cash acquired with Solite and from the sale of equipment at Solite. Capital
spending of $16 to $17 million is planned for the full year 1998. Net cash used
by financing activities decreased from $5.7 million in 1997 to $4.8 million in
1998 as a result of increased borrowings, partially offset by increased
purchases of the Company's common stock. In June 1998 the Company completed its
third $5 million share repurchase program and the Board of Directors authorized
an additional $5 million for the repurchase of the Company's common stock, of
which $4.2 million had been expended by September 30, 1998. During 1998, the
Company has repurchased 295,000 shares at a cost of $7.2 million.
14
<PAGE>
On April 30, 1998, the Company acquired certain lightweight aggregate and
concrete block facilities of Solite Corporation, located principally in the
South-Atlantic United States. The acquisition, accounted for as a purchase, was
financed through the exchange of 325,000 shares of the Company's common stock,
175,000 shares of which were issued from treasury shares to Solite's former
shareholders and 150,000 shares of which were placed in escrow (see Note 5). The
Company increased the limit on its $32 million Credit Facility to $46 million in
order to refinance $19.9 million of Solite's existing indebtedness. The Company
believes that its credit facility, together with internally generated funds,
will be sufficient to meet its needs for the next eighteen months.
On December 8, 1997, the resource recovery operation at Keystone Cement Company,
a wholly owned subsidiary of the Company, experienced a fire at its waste fuel
storage tank farm. There were no injuries and no known environmental damage and
only minor damage to the equipment. Keystone negotiated an agreement with the
DEP to allow it to resume waste fuel burning, effective July 13, 1998. Under the
terms of the agreement, Keystone will pay a fine of $488,000 in installments
over a ten-year period. In June 1998, the Company settled its business
interruption insurance claim related to the Keystone incident for $1.6 million,
which is included in other income for the nine month period ended September 30,
1998.
Year 2000
The Company is in the intermediate stages of addressing year 2000 computer
software and operating system issues. Information technology (IT) and non-IT
systems have been inventoried and assessment and testing procedures are in
process. The Company is utilizing a combination of internal and external
resources to assess the necessary modifications to its various information and
operating systems. Through a combination of replacement and reprogramming of
non-compliant systems, the Company expects to have all significant systems in
compliance by the year 2000. Replacements of non-compliant systems with new
information systems will be capitalized and amortized over the life of the new
systems. The cost of reprogramming and correcting existing systems will be
expensed as incurred. The Company's primary accounting and management
information systems, with the exception of systems acquired with Solite, which
are expected to be replaced by early 1999, are essentially year 2000 compliant
already. The Company has not finalized its estimate of costs, but based upon the
work performed to date, the costs of correcting the Company's internal year 2000
compliance issues are not expected to be material to the Company's business,
operations or financial condition.
The Company is dependent upon numerous third parties including customers, power
generators, financial institutions and other significant suppliers. The Company
has no control over these third parties' systems and potential year 2000 IT and
non-IT system problems. The Company is in the process of inquiring of third
parties and seeking guidance as to their state of readiness, however, there can
be no assurance that the Company can avoid disruptions of supplies and services
from its suppliers or purchases by its major customers in the event that these
15
<PAGE>
entities encounter unforeseen year 2000 problems, any of which could have a
material adverse effect on the Company's business, operations or financial
condition.
The Company anticipates developing a contingency plan, by mid-1999, that would
be designed to reduce the impact of certain year 2000 problems. However, not all
eventualities can be covered.
Disclosure Regarding Forward Looking Statements
This document contains 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,
year 2000 computer system problems 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, 1997.
16
<PAGE>
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, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
* (27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company did
not file any reports on Form 8-K.
Items 2, 3, 4 and 5 are not applicable.
* Filed herewith
17
<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
Dated: November 11, 1998
18
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 4873
<SECURITIES> 0
<RECEIVABLES> 29094
<ALLOWANCES> 1747
<INVENTORY> 22352
<CURRENT-ASSETS> 58270
<PP&E> 198806
<DEPRECIATION> 100417
<TOTAL-ASSETS> 170892
<CURRENT-LIABILITIES> 26188
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 97981
<TOTAL-LIABILITY-AND-EQUITY> 170892
<SALES> 111653
<TOTAL-REVENUES> 111653
<CGS> 83735
<TOTAL-COSTS> 83735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1375
<INCOME-PRETAX> 18851
<INCOME-TAX> 6383
<INCOME-CONTINUING> 12468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12468
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.32
</TABLE>
