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 March 31, 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) (I.R.S. Employer ID No.)
320-D Midland Parkway, Summerville, SC 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 9,560,522 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 Income -
Three-Month Periods Ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets - March 31, 1998 and
1997 and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibits 13
(b) Reports on Form 8-K 13
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the three-month periods ended March 31, 1998 and 1997
(Unaudited, in thousands, except per share data)
Three Months Ended
1998 1997
Operating revenues $ 23,475 $ 24,358
Operating costs and expenses:
Cost of sales and services 19,862 20,295
Selling, general and administrative 2,124 2,023
--------- ---------
Operating income 1,489 2,040
Other income (expense):
Interest expense (221) (228)
Other, net 140
--------- ---------
91
Income before taxes 1,408 1,903
Provision for income taxes 472 665
--------- ---------
Net income $ 936 $ 1,238
========= =========
Earnings per common share:
Basic $ .10 $ .13
--------- ---------
Diluted $ .10 $ .13
--------- ---------
Weighted average common shares:
Basic 9,263 9,618
Diluted 9,393 9,654
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1998 1997 1997
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents ............ $ 3,353 $ 2,973 $ 12,674
Accounts receivable, less allowances of
$1,461, $1,186 and $1,325, respectively 14,986 15,034 14,927
Inventories 20,303 18,972 19,238
Other current assets 3,299 1,889 3,652
-------- -------- --------
Total current assets 41,941 38,868 50,491
-------- -------- --------
Property, plant and equipment, at cost 175,064 160,185 168,077
Less accumulated depreciation 94,655 87,024 92,446
-------- -------- --------
80,409 73,161 75,631
-------- -------- --------
Deferred charges and other assets 2,401 3,166 2,478
-------- -------- --------
Total assets $124,751 $115,195 $128,600
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 9,754 $ 8,635 $ 11,567
Accrued expenses 7,066 6,419 8,258
Current maturities of long-term debt 863 938 888
-------- -------- --------
Total current liabilities 17,683 15,992 20,713
Long-term debt, net of current maturities 9,457 10,329 9,661
Accrued pension and postretirement benefits 2,878 6,411 2,907
Deferred income taxes 7,674 6,125 7,674
-------- -------- --------
Total liabilities 37,692 38,857 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 41,317 41,103 41,317
Retained earnings 59,056 43,273 58,120
-------- -------- --------
100,473 84,476 99,537
Less: Treasury stock, at cost; 744, 458
and 675 shares, respectively 12,769 6,600 11,247
Accumulated other comprehensive income,
minimum pension liability adjustments 645 1,538 645
-------- -------- --------
87,059 76,338 87,645
-------- -------- --------
Total liabilities and shareholders'
and shareholders' equity $124,751 $115,195 $128,600
======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three-month periods ended March 31, 1998 and 1997
(Unaudited, in thousands)
1998 1997
---- ----
Net cash flows from operating activities:
Net income.......................................... $ 936 $ 1,238
Depreciation and depletion.......................... 2,731 2,397
Amortization of deferred charges and other.......... 131 107
Changes in operating assets and liabilities:
Receivables......................................... (59) (137)
Inventories......................................... (1,065) (1,316)
Other current assets and deferred charges........... 94 51
Accounts payable.................................... (3,914) (595)
Accrued expenses.................................... (1,221) (176)
------- -------
Net cash provided (used) by operating activities (2,367) 1,569
------- -------
Net cash flows from investing activities:
Purchase of property, plant and equipment........... (5,203) (6,347)
------- -------
Net cash flows from financing activities:
Repayment of long-term debt......................... (229) (484)
Purchase of treasury stock.......................... (1,522) (2,197)
------- -------
Net cash used by financing activities........... (1,751) (2,681)
------- -------
Decrease in cash and cash equivalents...... (9,321) (7,459)
Cash and Cash Equivalents:
Beginning of period................................. 12,674 10,432
------- -------
End of period....................................... $ 3,353 $ 2,973
======= =======
See accompanying notes to unaudited consolidated financial statements.
<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 March 31,
1998 and for the interim periods ended March 31, 1998 and 1997 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): March 31, December 31,
--------- ------------
1998 1997 1997
---- ---- ----
Finished goods $ 4,067 $ 3,967 $ 4,131
In process 3,050 1,388 1,322
Raw materials 2,060 2,042 2,178
Supplies, repair parts and coal 11,126 11,575 11,607
------- ------- -------
$20,303 $18,972 $19,238
======= ======= =======
3. Accrued Expenses (in thousands): March 31, December 31,
--------- ------------
1998 1997 1997
---- ---- ----
Compensation $ 1,723 $ 1,537 $ 2,429
Pension plan contribution 2,402 2,528 2,394
Income taxes - 427 -
Other 2,941 1,927 3,435
------- ------- -------
$ 7,066 $ 6,419 $ 8,258
======= ======= =======
<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 is in the process of
negotiating a consent agreement with the Pennsylvania Department of
Environmental Protection to allow it to resume waste fuel burning and
resolve all outstanding alleged violations of environmental statutes.
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 operations acquired had revenues of
approximately $53 million for the twelve months ended March 31, 1998.
The terms of the transaction included the assumption of approximately
$20.0 million of Solite's long-term debt, in addition to other
liabilities.
6. Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 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. A reconciliation of the net income and numbers of shares
used in computing basic and diluted earnings per share is as follows:
<PAGE>
March 31,
1998 1997
(in thousands, except
per share data)
Basic earnings per share:
Net income $ 936 $1,238
Weighted average common shares outstanding
for the year 9,263 9,618
------ ------
Basic earnings per share of common stock $ .10 $ .13
====== ======
Diluted earnings per share:
Net income $ 936 $1,238
Weighted average common shares outstanding
for the year 9,263 9,618
Increase in shares which would result from:
Exercise of stock options 130 36
------ -----
Weighted average common shares, assuming
conversion of the above securities 9,393 9,654
------ ------
Diluted earnings per share of common stock $ .10 $ .13
====== ======
7. Comprehensive Income:
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.
<PAGE>
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 March 31,
1998 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 cement manufacturing hourly employees are represented by the
United Paperworkers International Union ("UPIU"). The Agreement between Keystone
Cement Company and UPIU Local 10547 expired April 30, 1998. While the Company
will endeavor to negotiate a new agreement with the UPIU, no agreement was
reached by the contract expiration date and there can be no assurance that an
agreement will be reached on terms favorable to the Company, nor can there be
assurance that the Company will not incur work stoppages, slowdowns or a strike.
<PAGE>
Results of Operations
Three-month period ended March 31, 1998 versus three-month period ended March
31, 1997.
Operating revenues decreased 3.6% to $23.5 million in 1998, compared with $24.4
million in 1997. Revenues from product sales decreased $400,000 or 1.9% to $20.6
million in 1998, compared with $21.0 million in 1997, as a result of decreased
shipping volumes. Cement shipping volumes decreased 4.1% in 1998 due to
unusually wet weather conditions in the South-Atlantic market, partially offset
by increased shipments in the Company's Middle-Atlantic market.
The Company's average selling price per ton of cement increased 1.1% for the
quarter ended March 31, 1998 compared to the same period in 1997, as a result of
price increases implemented in April 1997. Effective for April 1, 1998, the
Company has announced a $4 per ton increase in its Middle-Atlantic market; and a
$3 per ton increase in its South-Atlantic market. Based upon current cement
demand, both increases are expected to be realized; however, there can be no
assurance that these price increases will be realized or that current price
levels will not decline should cement demand decline in relation to supply.
Resource recovery services revenues decreased $477,000 or 14.4% to $2.8 million
in 1998, compared with $3.3 million in 1997. The decrease was the result of the
Company's suspension of the utilization of waste fuels at Keystone, due to a
fire at Keystone's waste fuel storage tank farm in December 1997, the impact of
which was partially offset by increased volumes of waste fuels utilized at Giant
Cement.
Gross profit decreased 11.1% to $3.6 million in 1998, compared with $4.1 million
in 1997, as a result of lower operating revenues. The Company's gross margins
decreased to 15.4% in 1998 from 16.7% in 1997. In 1998, cost of sales and
services decreased $433,000 or 2.1% to $19.9 million, compared with $20.3
million in 1997. The decrease in cost resulted from lower shipping volumes.
Cement manufacturing costs per ton increased 3.2% in 1998, compared with the
first quarter of 1997, due to increased depreciation expense from recent capital
expenditures and higher fuel costs from decreased waste fuel utilization at
Keystone.
Selling, general and administrative expenses increased $101,000 to $2.1 million
in 1998. The expense increase primarily related to higher health insurance
costs.
Interest costs decreased $7,000 for the quarter to $221,000 as a result of lower
average borrowings outstanding. Other income increased to $140,000 for the
quarter as a result of higher interest income.
The income tax provisions recorded for the three month periods ended March 31,
1998 and 1997, relate to federal and state income taxes and were recorded at
estimated annual effective rates of 33.5% and 35%, respectively.
Net income decreased $302,000 to $936,000 in 1998 compared with $1.2 million in
1997, primarily as a consequence of decreased operating revenues and Keystone's
inability to utilize waste fuels.
<PAGE>
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 in the
first quarter.
Cash and cash equivalents totaled $3.4 million at March 31, 1998 compared to
$12.7 million at December 31, 1997. At March 31, 1998, and December 31, 1997 the
Company had net working capital of $24.3 million and $29.8 million, respectively
with a current ratio of 2.4 in both periods. Accounts receivable increased
$59,000 or less than 1% compared to December 1997. Inventories increased $1.1
million or 5.5% to $20.3 million at March 31, 1998, as a result of an increase
in work in process (clinker) inventories as compared to December 31, 1997. Total
current liabilities decreased $3.0 million or 14.6% to $17.7 million at March
31, 1998, primarily as a result of decreased trade accounts payable and accrued
expenses.
Cash used by operations for the three month period ended March 31, 1998 was $2.4
million compared to $1.6 million cash provided for the comparable period in
1997. The increase in cash used by operations, compared with 1997, was primarily
the result of cash utilized to decrease trade accounts payable and accrued
expenses. Net cash used by investing activities decreased from $6.3 million in
1997 to $5.2 million in 1998 as a result of decreased capital expenditures in
1998. Capital spending of $13 to $15 million is planned for the year 1998. Net
cash used by financing activities decreased from $2.7 million in 1997 to $1.8
million in 1998 as a result of decreased repurchases of the Company's
outstanding common stock. Through March 31, 1998, the Company has expended $13.5
million of the $15.0 million approved by its Board of Directors for stock
repurchases. The Company used a total of $9.3 million in cash in 1998 versus
$7.5 million in 1997, primarily as a result of reductions to trade accounts
payable and accrued expenses.
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, which will be accounted for as a
purchase, was financed through the issuance of 325,000 common shares and bank
borrowings of approximately $20 million. The Company increased the limit on its
$32 million Credit Facility to $46 million in order to refinance approximately
$20 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 foreseeable future.
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.
<PAGE>
Immediately after the incident, Keystone ceased utilization of waste fuels and
later entered into a negotiated consent agreement with the Department of
Environmental Protection (DEP) of the State of Pennsylvania to halt the use of
waste fuels at its plant pending an investigation of the cause and determination
of the appropriate corrective actions to ensure that a similar incident does not
occur in the future. A report on the findings and recommended corrective actions
was submitted to the DEP on December 31, 1997. Keystone is in the process of
negotiating a further consent agreement with the DEP to allow it to resume waste
fuel burning and resolve all outstanding alleged violations of environmental
statutes. The Company believes the interruption of its waste fuel business is
partially covered by insurance; however, no amounts have been recorded for this
recovery pending further evaluation of the claim and the ability to estimate the
amounts, if any, that may be recovered. Keystone continues to fuel its kilns
entirely with coal while negotiating with the DEP. The Company took a charge of
$1.4 million in the fourth quarter of 1997 related to this incident. Management
expects to reach a settlement with the DEP and resume waste fuel burning in May
1998, however, there can be no assurance as to when a settlement will be
reached. Based upon such expectation, management estimates the impact on the
Company's second quarter earnings to be approximately $.08 per share. However,
should the interruption of Keystone's waste fuel business continue, it would
have a greater impact on the Company's second quarter and could have a material
adverse effect on earnings beyond the second quarter.
Disclosure Regarding Forward Looking Statements
This document contains certain 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, 1997.
<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 March 31, 1998, the Company did not
file any reports on Form 8-K. Subsequent to the quarter ended
March 31, 1998, the Company filed a Form 8-K for an event of
April 30, 1998 reporting in Item 2 therein the acquisition of
Solite Corporation.
Items 2 through 5 are not applicable.
*Filed herewith
<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: May 15, 1998
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 3353
<SECURITIES> 0
<RECEIVABLES> 16447
<ALLOWANCES> 1461
<INVENTORY> 20303
<CURRENT-ASSETS> 41941
<PP&E> 175064
<DEPRECIATION> 94655
<TOTAL-ASSETS> 124751
<CURRENT-LIABILITIES> 17683
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 86959
<TOTAL-LIABILITY-AND-EQUITY> 124751
<SALES> 23475
<TOTAL-REVENUES> 23475
<CGS> 19862
<TOTAL-COSTS> 19862
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 221
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</TABLE>
