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, 1999
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 8,656,562 Shares Outstanding
Page 1 of 20
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GIANT CEMENT HOLDING, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Three
and Nine-Month Periods Ended September 30,1999 and 1998 3
Condensed Consolidated Balance Sheets - September 30, 1999
and 1998 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows - Nine-Month
Periods Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
(a) Exhibits 19
(b) Reports on Form 8-K 19
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS for the three and nine-month periods ended
September 30, 1999 and 1998
(Unaudited in thousands, except per share data)
Three Months Ended Nine Months Ended
1999 1998 1999 1998
Operating revenues $ 44,675 $ 45,759 $126,283 $109,095
Operating costs and expenses:
Cost of sales and services 32,165 31,349 94,011 81,177
Selling, general and administrative 3,819 4,065 12,025 9,766
-------- -------- -------- --------
Operating income 8,691 10,345 20,247 18,152
Other income (expense):
Interest expense (811) (653) (2,055) (1,375)
Other, net 542 397 771 2,074
-------- -------- -------- --------
Income before taxes 8,422 10,089 18,963 18,851
Provision for income taxes 2,866 3,429 6,450 6,383
======== ======== ======== ========
Net income $ 5,556 $ 6,660 $ 12,513 $ 12,468
======== ======== ======== ========
Earnings per common share:
Basic $ .64 $ .72 $ 1.41 $ 1.34
======== ======== ======== ========
Diluted $ .63 $ .70 $ 1.38 $ 1.32
======== ======== ======== ========
Weighted average common shares:
Basic 8,664 9,314 8,894 9,306
Diluted 8,872 9,458 9,079 9,447
See accompanying notes to condensed consolidated financial statements.
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1999 1998 1998
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 5,224 $ 4,873 $ 6,623
Accounts receivable, less allowances of
$1,802, $1,747 and $1,980, respectively 28,245 27,347 23,772
Inventories 28,189 22,352 24,729
Deferred income taxes 4,751 1,536 4,428
Other current assets 959 2,162 3,254
-------- -------- --------
Total current assets 67,368 58,270 62,806
-------- --------- --------
Property, plant and equipment, at cost 254,846 198,806 201,675
Less: accumulated depreciation 131,290 100,417 103,309
-------- -------- --------
123,556 98,389 98,366
-------- -------- --------
Permits, net 12,763 9,006 8,695
Deferred charges and other assets 10,465 5,227 5,315
-------- -------- --------
Total assets $214,152 $170,892 $175,182
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 11,845 $ 13,391 $ 15,464
Accrued expenses 9,013 9,482 7,660
Current maturities of long-term debt 5,115 3,315 3,331
-------- -------- --------
Total current liabilities 25,973 26,188 26,455
Long-term debt, net of current maturities 62,312 29,372 29,272
Accrued pension and postretirement benefits
and other liabilities 8,248 6,156 6,081
Deferred income taxes 13,973 11,095 11,080
-------- -------- --------
Total liabilities 110,506 72,811 72,888
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 20,000 shares
authorized, 10,000 shares issued 100 100 100
Capital in excess of par value 45,067 44,027 45,076
Retained earnings 87,452 70,588 74,939
-------- -------- --------
132,619 114,715 120,115
Less: Treasury stock, at cost: 1,343, 784
and 809 shares, respectively 28,251 15,989 17,099
Accumulated other comprehensive income,
minimum pension liabillity 722 645 722
-------- -------- --------
103,646 98,081 102,294
-------- -------- --------
Total liabilities and shareholders'
equity $214,152 $170,892 $175,182
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS for the nine-month periods ended September 30,
1999 and 1998
(Unaudited in thousands)
1999 1998
---- ----
Net cash flows from operating activities:
Net income $12,513 $12,468
Depreciation and depletion 10,574 8,902
Deferred income taxes (21) 492
Amortization of deferred charges and other 685 456
Gain on sale of property, plant and equipment (451) -
Changes in operating assets and liabilities:
Receivables (1,875) (6,414)
Inventories (3,250) 2,423
Other current assets and deferred charges 1,382 (1,097)
Accounts payable (4,043) (5,630)
Accrued expenses 381 (1,760)
------- -------
Net cash provided by operating activities 15,895 9,840
------- -------
Net cash flows from investing activities:
Purchases of property, plant and equipment (15,579) (14,967)
Proceeds from sales of property, plant and equipment 851 754
Acquisitions, net of cash acquired (25,934) 1,347
------- -------
Net cash used by investing activities (40,662) (12,866)
------- -------
Net cash flows from financing activities:
Proceeds of long-term debt 42,979 23,910
Repayments of long-term debt (8,450) (21,653)
Purchases of treasury stock (11,161) (7,032)
------- -------
Net cash provided (used) by financing activities 23,368 (4,775)
------- -------
Decrease in cash and cash equivalents (1,399) (7,801)
Cash and cash equivalents:
Beginning of period 6,623 12,674
======= =======
End of period $ 5,224 $ 4,873
======= =======
See accompanying notes to condensed consolidated financial statements.
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GIANT CEMENT HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The consolidated financial statements include the financial position,
results of operations and cash flows of Giant Cement Holding, Inc. and its
wholly owned subsidiaries, Giant Cement Company ("Giant"), Keystone Cement
Company ("Keystone"), Giant Resource Recovery Company, Inc. ("GRR") for all
periods presented and Solite Holding, Inc. and its wholly owned
subsidiaries ("Solite") from its acquisition date of April 30, 1998. Where
referred to herein, the "Company" includes these subsidiaries. All
significant intercompany transactions and balances have been eliminated.
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 that
would substantially duplicate those contained in the most recent Annual
Report to shareholders. The financial statements as of September 30, 1999
and 1998 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. Certain prior year balances have been
reclassified to conform to the current year presentation.
The financial information as of December 31, 1998 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 1998
Annual Report to Shareholders.
On August 31, 1999, Solite acquired Southeastern Chemical & Solvent Co. and
its related subsidiaries ("Southeastern") for $12.9 million (see Note 5).
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Southeastern have been included in the Company's
consolidated financial statements since the date of acquisition.
2. Inventories (in thousands):
September 30, December 31,
1999 1998 1998
Finished goods $ 7,535 $ 5,567 $ 6,602
In process 4,805 2,734 2,773
Raw materials 2,035 1,344 2,127
Supplies, repair parts and coal 13,814 12,707 13,227
======== ======== ========
$ 28,189 $ 22,352 $ 24,729
======== ======== ========
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3. Accrued Expenses (in thousands):
September 30, December 31,
1999 1998 1998
Compensation $ 2,985 $ 2,724 $ 2,740
Pension plan contributions 56 1,071 434
Income taxes 192 590 -
Other 5,780 5,097 4,486
======= ======= ========
$ 9,013 $ 9,482 $ 7,660
======= ======= ========
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.
The Company is involved in various administrative matters or litigation.
While the final resolution of any matter may have an impact on the
Company's financial results for a particular reporting period, management
believes that the ultimate disposition of these matters will not have a
materially adverse effect upon the financial position of the Company.
5. Acquisitions:
On August 31, 1999, M&M Chemical & Equipment Company, Inc. ("M&M"), a
wholly owned waste treatment and blending subsidiary of Solite, acquired
Southeastern Chemical & Solvent Co. and its related subsidiaries
("Southeastern") for $12.9 million, in addition to assuming approximately
$300,000 of Southeastern's long-term debt. The acquisition has been
accounted for as a purchase and, accordingly, the operating results of
Southeastern have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price, subject to
final adjustment depending on certain balance sheet variables, was
primarily allocated $8.7 million to property, plant and equipment, $4.7
million to a non-compete agreement, which will be amortized over 15 years
(the term of the agreement), $4.0 million to identifiable intangibles
(hazardous and non-hazardous waste storage and burning permits), which will
be amortized over a forty year period, and $0.7 million to prepaid
insurance, which will be amortized over a nine and one-half year period
(the term of the policy), offset by $4.1 of other long-term liabilities
allocated to closure cost liabilities and deferred taxes.
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On September 22, 1999, the Company acquired a deepwater import terminal in
Portsmouth, Virginia for $12.7 million, plus $300,000 for parts, supplies
and mobile equipment, which is expected to be operational in the second
quarter of 2000 following modifications to the material handling system and
truck load out facilities upgrades. Accordingly, the acquired assets (a
component of the cement segment) are included in projects in process at
September 30, 1999, and no depreciation has been recorded.
On April 30, 1998, the Company acquired Solite and certain of its
subsidiaries in exchange for 325,000 shares of the Company's common stock.
The Solite transaction included three lightweight aggregates 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.
The following unaudited pro forma financial information assumes the
acquisitions had occurred on January 1 of each period (in thousands, except
per share data):
1999 1998
---- ----
Net sales $135,248 $135,538
Net income 13,621 9,956
Earnings per share - basic $ 1.53 $ 1.05
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been completed as of the beginning of
each of the interim periods presented, nor are they necessarily indicative
of future consolidated results. Certain adjustments made to Solite's April
1998 financial statements resulted in a pro forma loss of $1.2 million for
its year ended December 31, 1998. It was not practical to allocate certain
adjustments to the interim financial statements. Certain components of
Solite's 1998 pro forma income have been reclassified for consistency with
the 1999 presentation.
Prior to completing any acquisition, the Company strives to investigate the
current and contingent liabilities of the company or assets to be acquired,
including potential liabilities arising from the noncompliance with
environmental laws by prior owners for which the Company, as a successor
owner, might become responsible. The Company also seeks to minimize the
impact of potential liabilities by obtaining indemnities and warranties
from the sellers, which may be supported by deferring payment of or by
escrowing a portion of the purchase price.
6. Earnings Per Share
Basic earnings per share of common stock were determined by dividing net
income applicable to common shares by the weighted average number of common
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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 (in thousands, except per share data):
Three Months Ended Nine Months Ended
1999 1998 1999 1998
Basic earnings per share:
Net income $ 5,556 $ 6,660 $12,513 $12,468
------- ------- ------- -------
Weighted average common shares
outstanding for the year 8,664 9,314 8,894 9,306
------- ------- ------- -------
Basic earnings per share of
common stock $ .64 $ .72 $ 1.41 $ 1.34
======= ======= ======= =======
Diluted earnings per share:
Net income $ 5,556 $ 6,660 $12,513 $12,468
------- ------- ------- -------
Weighted average common shares
outstanding for the year 8,664 9,314 8,894 9,306
Increase in shares which would
result from:
Exercise of stock options 208 144 185 141
------- ------- ------- -------
Weighted average common shares,
assuming conversion of the above
securities 8,872 9,458 9,079 9,447
------- ------- ------- -------
Diluted earnings per share of
common stock $ .63 $ .70 $ 1.38 $ 1.32
======= ======= ======= =======
7. Business Segment Data (in thousands):
The Company operates in two business segments: Cement and Construction
Products. The Company's segments are strategic business units that offer
different products and services. They are managed separately based on the
fundamental differences in their operations.
The Cement segment consists of Giant, Keystone and GRR. The Cement segment
manufactures and sells a complete line of portland and masonry cements used
in residential, commercial and infrastructure construction applications.
The Construction Products segment consists of Solite and its wholly owned
subsidiaries. The Construction Products segment manufactures and sells
construction materials to the residential, commercial and infrastructure
construction markets in the South-Atlantic region of the United States.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Company's Annual
Report to Shareholders. All inter-segment sales prices are market based.
The Company evaluates performance based on the operating earnings of the
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respective business units. All of the Company's segments operate solely in
the United States.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes
corporate-related items and income and expense not allocated to reportable
segments. The results for the Construction Products segment in 1998 are for
the five months subsequent to the acquisition of Solite on April 30, 1998.
Additionally, the results for the Construction Products segment in 1999
include the results of Southeastern since its acquisition date on August
31, 1999.
Construction
Cement Products Other Total
Revenues-external:
September 30, 1999 92,704 33,579 - 126,283
September 30, 1998 88,507 20,588 - 109,095
Revenues-intersegment:
September 30, 1999 3,224 - - 3,224
September 30, 1998 1,787 - - 1,787
Operating income:
September 30, 1999 18,200 3,102 (1,055) 20,247
September 30, 1998 16,052 3,000 (900) 18,152
Depreciation, depletion and
amortization:
September 30, 1999 9,149 2,070 40 11,259
September 30, 1998 8,513 806 39 9,358
Total assets:
September 30, 1999 141,659 72,012 481 214,152
September 30, 1998 126,846 43,562 484 170,892
Capital expenditures:
September 30, 1999 11,077 4,502 - 15,579
September 30, 1998 13,566 1,399 2 14,967
8. Comprehensive Income:
There were no items of other comprehensive income in the periods presented.
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9. Debt:
Long-term debt consists of the following (in thousands):
September 30, December 31,
1999 1998 1998
Term loans $22,917 $12,518 $ 1,333
Revolving credit loans 44,121 19,909 31,046
Other 389 260 224
------- ------- -------
67,427 32,687 32,603
Less current maturities
of short-term borrowings 5,115 3,315 3,331
======= ======= =======
Long-term debt, net of current
maturities $62,312 $29,372 $29,272
======= ======= =======
On April 21, 1999 the Company entered into an expanded $70 million credit
facility with SouthTrust Bank, N A., Wachovia Bank, N. A., and Branch
Banking and Trust Company. The credit facility provides the Company with a
term loan of $25 million, revolving credit capacity of $40 million and
capacity for up to $5 million in letters of credit. The increased borrowing
capacity provides the Company additional flexibility for its common stock
repurchase program and other corporate purposes. On September 20, 1999, the
credit facility was amended to increase the revolving credit capacity to
$50 million.
10. Subsequent Event:
On November 4, 1999, the Company entered into a definitive agreement
pursuant to which Cementos Portland, S.A. will acquire all of the
outstanding shares of the Company's common stock for $31 per share in cash.
Giant Cement's Board of Directors has unanimously approved the transaction
and has recommended acceptance by the Giant Cement stockholders. In
accordance with the terms of the merger agreement, Cementos Portland will
promptly commence an all-cash tender offer for all outstanding shares of
Giant Cement common stock. Following the completion of the tender offer,
subject to the terms and conditions of the merger agreement, the parties
will effect a second-step merger in which all shares not purchased in the
tender offer will be converted into the right to receive $31.00 in cash.
The tender offer is conditioned upon, among other things, there being
tendered and not withdrawn prior to the expiration date of the offer at
least a majority of the outstanding Giant Cement shares on a fully diluted
basis, and on the expiration of the waiting period under the Hart
Scott-Rodino Antitrust Improvements Act of 1976. The offer will expire in
early December 1999, unless further extended.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
On April 30, 1998, the Company acquired Solite Corporation. The acquisition
included three lightweight aggregate manufacturing facilities and their
associated resource recovery operations, five lightweight concrete block
manufacturing facilities and a waste-derived fuel processing facility. On August
31, 1999, M&M Chemical & Equipment Company, Inc. (M&M), a wholly owned
subsidiary of Solite, acquired Southeastern Chemical & Solvent Co.
(Southeastern). The Solite operations constitute the Company's construction
products segment. Refer to Notes 5 and 7 of the accompanying financial
statements for a discussion of the acquisitions and the Company's reporting
segments.
The Company's cement and construction products 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 and 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. 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 interim period ended September 30, 1999 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 and
construction products, 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
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
manufacturing processes, it is impractical to disaggregate the costs of sales
and services by revenue classification. The Company's resource recovery
operations are influenced by general and regional economic conditions; federal,
state, and local environmental policies; kiln operations; and competition from
other waste disposal alternatives.
Cement is a commodity product sold primarily on the basis of price. The price of
cement tends to rise in periods of high demand and can fall if supply exceeds
demand. The economic recovery that began in 1993 resulted in demand levels for
cement in the United States that exceed domestic supply. Import facilities in
the United States are largely controlled by companies that also own domestic
manufacturing capacity; thus imports of cement to satisfy demand have not been
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disruptive factor in the marketplace in recent years. Cement prices have
generally increased in one or both of the Company's primary market areas in
every year since 1993 and the Company realized a 5.0% price increase in its
Middle-Atlantic market effective April 1, 1999. The Company's cement
manufacturing facilities are effectively operating at capacity. The Company is
importing cement clinker and purchasing finishing cement to meet demand.
However, there can be no assurance that demand will continue at current levels
or that current price levels will be maintained, should cement demand decline in
relation to supply, either domestic or import.
Results of Operations
Nine-month period ended September 30, 1999 versus nine-month period ended
September 30, 1998
Operating revenues increased 15.8% to $126.3 million in 1999, compared with
$109.1 million in 1998. Revenues for the Cement segment increased $4.2 million,
or 4.7%, to $92.7 million in 1999, compared with $88.5 million in 1998, as a
result of higher cement and resource recovery revenues. Revenues for the
Construction Products segment increased $13.0 million or 63.1% to $33.6 million
in 1999, compared with $20.6 million in 1998, as a result of the inclusion of
Solite for the full period in 1999 versus the five months subsequent to its
acquisition in 1998.
Cement shipping volumes increased 0.7% in 1999 due to increased shipments in the
Company's Middle-Atlantic market, offset by a slight decrease in the
South-Atlantic market due to the effects of Hurricane Floyd and Tropical Storm
Dennis during the third quarter of 1999, which resulted in heavy rains and
flooding throughout portions of the South-Atlantic market.
The Company's average selling price per ton of cement increased 2.0% for the
period ended September 30, 1999, compared with the comparable period in 1998, as
a result of price increases realized in April 1998 and 1999 in the Company's
Middle-Atlantic market. In April 1999, the Company realized a price increase of
$3.00 per ton, or 5%, in its Middle-Atlantic market.
Total resource recovery services revenues increased $9.0 million, or 56.7%, to
$24.8 million in 1999, compared with $15.8 million in 1998. The increase
resulted from an additional $5.6 million in Solite resource recovery revenues
(including Southeastern's resource recovery revenues of $1.5 million), the
reinstatement of liquid fuel utilization at Keystone, which was suspended for
the first seven months of 1998, and increased solid fuel utilization at Giant.
Gross profit increased 15.6% to $32.3 million in 1999, compared with $27.9
million in 1998. The Company's gross margin of 25.6% remained constant between
periods. In 1999, cost of sales and services for the cement segment increased
$3.5 million, or 5.1%, to $72.5 million, compared with $69.0 million in 1998.
Cement production volumes increased 41,000 tons, or 3.8%, in 1999 compared with
1998 volumes. Cement segment operating income increased $2.1 million, or 13.4%,
to $18.2 million, compared with $16.1 million in 1998. The Construction Products
segment operating income increased to $3.1 million in 1999 compared with $3.0
million in 1998.
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Selling, general and administrative expenses increased $2.2 million to $12.0
million in 1999, compared with $9.8 million in 1998, primarily as a result of
the inclusion of Solite for the full period in 1999 versus five months in 1998.
Interest costs increased $0.7 million for the nine month period to $2.1 million
on higher average borrowings outstanding due to the acquisitions of Solite,
Southeastern and the import terminal. While the interest rate on the Company's
Credit Facility borrowings are tied to LIBOR, the recent increase in United
States interest rates could result in higher interest cost for the Company in
the future.
Other income decreased $1.3 million in 1999 as a result of the one-time 1998
recovery under the Company's business interruption insurance policy of $1.5
million of the Company's losses related to the Keystone fire. The recovery
partially offset resource recovery revenues lost and additional fuel expenses
incurred between December 8, 1997 and June 30, 1998.
The income tax provisions recorded for the nine month periods ended September
30, 1999 and 1998, relate to federal and state income taxes and were recorded at
estimated annual effective rates of approximately 34%.
Net income of $12.5 million for the nine month period ended September 30, 1999
was 0.4% higher than the comparable period in 1998. The effect on the Company's
earnings caused by Hurricane Floyd and Tropical Storm Dennis in the 3rd quarter
of 1999, as well as the $1.5 million insurance recovery in 1998, negatively
impacted the comparison of 1999 to 1998 earnings.
Quarter ended September 30, 1999 versus quarter ended September 30, 1998
Tropical Storm Dennis and Hurricane Floyd significantly impacted the Company's
results of operations for the third quarter of 1999. South Carolina and North
Carolina, the Company's primary markets in the South-Atlantic region,
experienced heavy rain and flooding associated with these storm systems.
Additionally, due to the initially projected path of Hurricane Floyd and the
mandatory evacuation of the coastal area, the Company ceased operations at the
Giant Cement facility resulting in the loss of approximately five days of cement
production and resource recovery revenues at this facility. The storms impacted
the Company's cement, lightweight aggregate and resource recovery businesses in
the South-Atlantic region, and to a lesser extent cement shipments in the
Middle-Atlantic region.
Operating revenues decreased 2.4% to $44.7 million in 1999, compared with $45.8
million in 1998. Revenues for the Cement segment decreased $1.4 million, or
4.3%, to $32.3 million in 1999, compared with $33.7 million in 1998. Revenues
for the Construction Products segment increased $0.3 million, or 2.9%, to $12.4
million in 1999, compared with $12.1 million in 1998, as a result of decreased
lightweight aggregate and block shipments, partially offset by increased
resource recovery revenues (including Southeastern's resource recovery revenues
of $1.5 million).
Cement shipping volumes decreased 6.5% which resulted in a decrease in revenues
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of $1.7 million, or 5.6%. The decline in cement shipping volumes was
attributable to the wet weather in the South-Atlantic region, as well as
downtime for repairs of a finishing mill at Giant in 1999.
The average selling price per ton of cement increased 1.6% as a result of
the $3.00 per ton price increase realized in April 1999 in the Middle-Atlantic
market.
Total resource recovery services revenues increased $1.6 million, or 21.3%, to
$9.3 million in the third quarter of 1999, compared with $7.7 million in the
third quarter of 1998 as a result of increased resource recovery revenues in the
Cement segment and the acquisition of Southeastern. Resource recovery revenues
in the cement segment increased 6.3% compared with 1998.
Gross profit decreased 13.2% to $12.5 million in the third quarter of 1999,
compared with $14.4 million in the 1998 period, due to the impact of Hurricane
Floyd and Tropical Storm Dennis, resulting in a decrease in the Company's gross
margins from 31.5% in 1998 to 28.0% in 1999. Cost of sales and services
increased 2.6% in 1999 to $32.2 million, compared with $31.3 million in 1998.
Selling, general and administrative expenses decreased 6.1% to $3.8 million in
1999 from $4.1 million in 1998 due to reduced costs at Solite.
Interest costs increased $158,000 for the 1999 quarter to $811,000 as a result
of higher average borrowings outstanding due to the acquisitions of Southeastern
and the import terminal. Other income increased to $542,000 in the third quarter
of 1999 compared to $397,000 in the 1998 period.
The income tax provisions recorded for the three months ended September 30, 1999
and 1998, related to federal and state income taxes and were recorded at
estimated annual effective rates of approximately 34%.
Net income decreased $1.1 million to $5.6 million in third quarter of 1999,
compared with $6.7 million in the 1998 period primarily as a result of the
impact of Hurricane Floyd and Tropical Storm Dennis and other factors discussed
above.
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 $5.2 million at September 30, 1999, compared
with $6.6 million at December 31, 1998. At September 30, 1999 and December 31,
1998 the Company had net working capital of $41.4 million and $36.4 million,
15
<PAGE>
respectively, with current ratios of 2.6 and 2.4, respectively. Accounts
receivable increased $4.5 million to $28.2 million at September 30, 1999,
compared with December 31, 1998, as a result of the Southeastern acquisition
($2.8 million) and seasonally higher cement sales in the third quarter of 1999
compared with the fourth quarter of 1998. Inventories increased $3.5 million to
$28.2 million at September 30, 1999, as a result of an increase in finished
goods and work in process (clinker) inventories compared with December 31, 1998.
Total current liabilities, excluding Southeastern's current liabilities of $4.4
million, decreased $4.9 million to $21.6 million at September 30, 1999 primarily
as a result of decreased amounts payable to vendors for capital projects
compared with December 31, 1998.
Cash provided by operations for the nine-month period ended September 30, 1999
was $15.9 million, compared with $9.8 million for the 1998 period. The increase
in cash provided by operations as compared with 1998 was primarily the result of
increases in non-cash depreciation expense and other current assets and deferred
charges and a lesser increase in accounts receivable, offset by an increase in
inventories. Net cash used by investing activities increased from $12.9 million
in 1998 to $40.7 million in 1999 as a result of the acquisitions of Southeastern
($12.9 million) and the import terminal ($13.0 million). Net cash provided by
financing activities totaled $23.4 million in 1999 as compared to net cash used
of $4.8 million for the comparable period in 1998. The $28.1 million increase in
net cash provided by financing activities was the result of increased borrowings
for the acquisitions of Southeastern and the import terminal, which were offset
by increased purchases of the Company's common stock. Through September 1999,
the Company has repurchased 536,000 shares of its common stock at a cost of
$11.2 million.
On April 30, 1998, the Company acquired Solite. The acquisition, which was
accounted for as a purchase, was financed through the issuance of 325,000 shares
of the Company's common stock, 75,000 shares of which are held in escrow. The
Company increased the limit on its $32 million Credit Facility to $46 million in
April 1998 in order to refinance approximately $20 million of Solite's existing
indebtedness. On April 21, 1999 the Company increased the limit of its Credit
Facility to $70 million, and on September 20, 1999, the Credit Facility was
amended to increase the capacity to $80 million (see Note 9). The Company
believes that its Credit Facility, together with internally generated funds,
will be sufficient to meet its needs for the foreseeable future.
On August 31, 1999, M&M acquired Southeastern (located in Sumter, South
Carolina) for $12.9 million. Both M&M and Southeastern are waste treatment and
blending facilities and supply waste-derived fuels to Giant's cement and
Solite's lightweight aggregate operations, in addition to supplying other cement
manufacturers. On September 22, 1999, the Company acquired a deepwater import
terminal in Portsmouth, Virginia, for $13 million. The facility has storage
capacity of 50,000 tons and permitted throughput capacity in excess of 450,000
tons. The terminal is expected to be operational in the second quarter of 2000,
following modifications to the material handling system and certain upgrades to
allow for truck load-out. Accordingly, the terminal is included in projects in
process at September 30, 1999, and no depreciation has been recorded. Both
acquisitions, accounted for as a purchase, were financed through borrowings
under the Company's existing Credit Facility.
16
<PAGE>
Prior to completing any acquisition, the Company strives to investigate the
current and contingent liabilities of the company or assets to be acquired,
including potential liabilities arising from the noncompliance with
environmental laws by prior owners for which the Company, as a successor owner,
might become responsible. The Company also seeks to minimize the impact of
potential liabilities by obtaining indemnities and warranties from the sellers,
which may be supported by deferring payment of or by escrowing a portion of the
purchase price.
On November 4, 1999, the Company entered into a definitive agreement pursuant to
which Cementos Portland, S.A. will acquire all of the outstanding shares of the
Company's common stock for $31 per share in cash. Giant Cement's Board of
Directors has unanimously approved the transaction and has recommended
acceptance by the Giant Cement stockholders. In accordance with the terms of the
merger agreement, Cementos Portland will promptly commence an all-cash tender
offer for all outstanding shares of Giant Cement common stock. Following the
completion of the tender offer, subject to the terms and conditions of the
merger agreement, the parties will effect a second-step merger in which all
shares not purchased in the tender offer will be converted into the right to
receive $31.00 in cash. The tender offer is conditioned upon, among other
things, there being tendered and not withdrawn prior to the expiration date of
the offer at least a majority of the outstanding Giant Cement shares on a fully
diluted basis, and on the expiration of the waiting period under the Hart
Scott-Rodino Antitrust Improvements Act of 1976. The offer will expire in early
December 1999, unless further extended.
Year 2000
The Company has completed the year 2000 evaluation of all of its significant
computer systems and applications. Outside specialists have been retained to
assist in the process to the extent considered necessary. The Company evaluated
its information technology (IT) and non-IT systems prioritized the non-compliant
systems. The Company has successfully converted and/or implemented systems at
the majority of its facilities. The Company has installed new administrative
systems at three of its five lightweight block manufacturing facilities without
encountering any unforeseen difficulties. The remaining two systems are expected
to be operational in early December 1999. The Company acquired Southeastern in
August 1999. Prior to the acquisition, Southeastern evaluated its IT and non-IT
systems and prioritized the non-compliant systems. The Company is in the process
of implementing a new system at Southeastern, which is expected to be completely
operational by December 1999. Also, the Company has developed contingency plans
in the event of unforeseen difficulties associated with Year 2000.
To date, expenses associated with year 2000 compliance have been minimal. The
Company's primary financial management systems are essentially year 2000
compliant. Since the Company's manufacturing operations are not highly
automated, the Company believes that the total cost to correct remaining year
2000 non-compliance issues have not and will not have a material adverse effect
on the results of operations or cash flows. Replacements of non-compliant
systems with new systems, including projects previously planned to increase
productivity, such as automated cement kiln control systems, but that also solve
year 2000 problems, will be capitalized and amortized over the life of the new
17
<PAGE>
systems. The cost of reprogramming and correcting existing systems will be
expensed as incurred. The Company expects that total expenditures for new
systems and reprogramming existing systems will be approximately $1.1 million,
including Southeastern, most of which has been incurred.
The Company believes that a material adverse effect of the year 2000 issues is
unlikely. Nevertheless, it is not possible to anticipate all possible future
outcomes or accurately determine the effects upon the Company's operations,
business or financial condition, because the year 2000 issue is far-reaching and
consequences are dependent on many factors, some of which are not completely
within the Company's control. The Company is dependent upon numerous third
parties, including customers, power generators, financial institutions and other
significant suppliers. The Company has surveyed these significant third parties
and is not aware of any that are not becoming year 2000 compliant. The Company
will continue to survey these third parties and will take corrective action if
needed.
The total cost involved and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived using numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated.
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, 1998.
18
<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, 1998.
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, 1999, the Company did
not file any reports on Form 8-K. On November 8, 1999, the
Company filed a report on Form 8-K regarding the definitive
agreement entered into with Cementos Portland, S.A.
Items 2, 3, 4 and 5 are not applicable.
* Filed herewith
19
<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/ Steven M. Diniaco
Steven M. Diniaco
Corporate Controller and Assistant Secretary
Principal Accounting Officer
Dated: November 10, 1999
20
<PAGE>
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