SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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) (I.R.S. 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 18
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GIANT CEMENT HOLDING, INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Three
and Six-Month Periods Ended June 30, 1999 and 1998 3
Condensed Consolidated Balance Sheets - June 30, 1999
and 1998 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows - Six-Month
Periods Ended June 30, 1999 and 1998 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 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
(a) Exhibits 17
(b) Reports on Form 8-K 17
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS for the three and six-month periods ended
June 30, 1999 and 1998
(Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
1999 1998 1999 1998
Operating revenues $ 46,641 $ 39,861 $ 81,608 $ 63,336
Operating costs and expenses:
Cost of sales and services 32,153 29,966 61,846 49,828
Selling, general and administrative 3,904 3,577 8,206 5,701
-------- -------- -------- --------
Operating income 10,584 6,318 11,556 7,807
Other income (expense):
Interest expense (695) (501) (1,244) (722)
Other, net 111 1,537 229 1,677
--------- -------- -------- --------
Income before taxes 10,000 7,354 10,541 8,762
Provision for income taxes 3,394 2,482 3,584 2,954
-------- -------- -------- ---------
Net income $ 6,606 $ 4,872 $ 6,957 $ 5,808
======== ======== ======== =========
Earnings per common share:
Basic $ .74 $ .52 $ .77 $ .62
======== ======== ======== ========
Diluted $ .73 $ .51 $ .76 $ .61
======== ======== ======== ========
Weighted average common shares:
Basic 8,909 9,342 9,011 9,303
Diluted 9,093 9,495 9,187 9,444
See accompanying notes to consolidated financial statements
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
June 30, June 30, December 31,
1999 1998 1998
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,978 $ 3,150 $ 6,623
Accounts receivable, less allowances of
$2,259, $2,093, and $1,980, respectively 28,110 27,140 23,772
Inventories 26,436 23,070 24,729
Deferred income taxes 4,521 1,536 4,428
Other current assets 1,607 2,612 3,254
-------- -------- --------
Total current assets 65,652 57,508 62,806
-------- -------- --------
Property, plant and equipment, at cost 212,608 195,991 201,675
Less: accumulated depreciation 109,744 97,451 103,309
-------- -------- --------
102,864 98,540 98,366
-------- -------- --------
Permits, net 8,832 4,509 8,695
Deferred charges and other assets 5,367 5,504 5,315
-------- -------- --------
Total assets $182,715 $166,061 $175,182
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 12,179 $ 13,564 $ 15,464
Short-term borrowings - 4,000 -
Accrued expenses 9,729 9,028 7,660
Current maturities of long-term debt 5,098 3,302 3,331
-------- -------- --------
Total current liabilities 27,006 29,894 26,455
Long-term debt, net of current maturities 35,253 26,272 29,272
Accrued pension and postretirement benefits 6,796 5,602 6,081
Deferred income taxes 11,153 9,334 11,080
-------- -------- --------
Total liabilities 80,208 71,102 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 45,078 44,027 45,076
Retained earnings 81,896 63,928 74,939
-------- -------- --------
127,074 108,055 120,115
Less: Treasury stock, at cost: 1,143, 647 and 809
shares, respectively 23,845 12,451 17,099
Accumulated other comprehensive income:
Minimum pension liability 722 645 722
-------- -------- --------
102,507 94,959 102,294
-------- -------- --------
Total liabilities and shareholders'
equity $182,715 $166,061 $175,182
======== ======== ========
See accompanying notes to consolidated financial statements.
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GIANT CEMENT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six-month periods ended June 30, 1999 and 1998
(Unaudited in thousands)
1999 1998
---- ----
Net cash flows from operating activities:
Net income $ 6,957 $ 5,808
Depreciation and depletion 6,986 5,738
Deferred income taxes (20) 294
Amortization of deferred charges and other 625 317
Changes in operating assets and liabilities:
Receivables (4,338) (6,164)
Inventories (1,707) 1,956
Other current assets and deferred charges 597 (945)
Accounts payable (1,507) (5,069)
Accrued expenses 2,784 (851)
------- -------
Net cash provided by operating activities 10,377 1,084
------- -------
Net cash flows from investing activities:
Purchases of property, plant and equipment (13,026) (11,604)
Acquisition, net of cash acquired - 1,347
------- -------
Net cash used by investing activities (13,026) (10,257)
------- -------
Net cash flows from financing activities:
Proceeds of long-term debt 10,899 19,910
Repayments of long-term debt (3,151) (20,766)
Proceeds from short-term borrowings - 4,000
Purchases of treasury stock (6,744) (3,495)
------- -------
Net cash provided (used) by financing activities 1,004 (351)
------- -------
Decrease in cash and cash equivalents (1,645) (9,524)
Cash and Cash Equivalents:
Beginning of period 6,623 12,674
------- -------
End of period $ 4,978 $ 3,150
======= =======
See accompanying notes to 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, Inc. ("GRR") for
all periods presented and Solite Holding Company, 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
which would substantially duplicate those contained in the most recent
Annual Report to Stockholders. The financial statements as of June 30,
1999 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 with 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.
2. Inventories (in thousands):
June 30, June 30, December 31,
1999 1998 1998
Finished goods $ 6,962 $ 6,845 $ 6,602
In process 3,611 2,813 2,773
Raw materials 2,373 1,419 2,127
Supplies, repair parts and coal 13,490 11,993 13,227
------ ------ ------
$26,436 $23,070 $24,729
======= ======= =======
3. Accrued Expenses (in thousands):
June 30, June 30, December 31,
1999 1998 1998
Compensation $ 2,663 $ 2,604 $ 2,740
Pension plan contributions 384 1,100 434
Income taxes 2,352 1,152 -
Other 4,330 4,172 4,486
------- ------- -------
$ 9,729 $ 9,028 $ 7,660
======= ======= =======
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4. Contingencies:
The Company's operations and properties are subject to extensive and
changing federal, state and local laws (including common law),
regulations and ordinances relating to noise and dust suppression, air
and water quality, as well as to the handling, treatment, storage and
disposal of wastes ("Environmental Laws"). In connection with the
Company's 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. Acquisition:
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 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.
The following unaudited pro forma financial information assumes the
acquisition had occurred on January 1, 1998 (in thousands, except per
share data):
1999 1998
---- ----
(actual) (pro forma)
Net sales $ 81,608 $ 79,765
Net income 6,957 3,118
Earnings per share - basic .77 .33
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 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.
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Certain components of Solite's 1998 pro forma income have been
reclassified for consistency with the 1999 presentation.
6. Earnings Per Share:
Basic earnings per share of common stock are determined by dividing net
income applicable to common shares by the weighted average number of
shares outstanding during each year. Diluted earnings per share reflect
the potential dilution that 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:
Three Months Ended Six Months Ended
1999 1998 1999 1998
Basic earnings per share:
Net income $6,606 $4,872 $6,957 $5,808
Weighted average common shares
Outstanding for the year 8,909 9,342 9,011 9,303
------ ------ ------ ------
Basic earnings per share of
common stock $ .74 $ .52 $ .77 $ .62
====== ====== ====== ======
Diluted earnings per share:
Net income $6,606 $4,872 $6,957 $5,808
Weighted average common shares
Outstanding for the year 8,909 9,342 9,011 9,303
Increase in shares which would
result from:
Exercise of stock options 184 153 176 141
------ ------ ------ ------
Weighted average common shares,
assuming conversion of the above
securities 9,093 9,495 9,187 9,444
------ ------ ------ ------
Diluted earnings per share of
common stock $ .73 $ .51 $ .76 $ .61
====== ====== ====== ======
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.
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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 intersegment sales prices are market based.
The Company evaluates performance based on the operating earnings of the
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 two months subsequent to the acquisition of Solite on
April 30, 1998.
Construction
Cement Products Other Total
Revenues-external:
June 30, 1999 60,440 21,168 - 81,608
June 30, 1998 54,810 8,526 - 63,336
Revenues-intersegment:
June 30, 1999 1,990 - - 1,990
June 30, 1998 368 - - 368
Operating income:
June 30, 1999 10,601 1,758 (803) 11,556
June 30, 1998 7,336 1,161 (690) 7,807
Total assets:
June 30, 1999 125,698 45,684 11,333 182,715
June 30, 1998 107,487 38,034 20,540 166,061
Capital expenditures:
June 30, 1999 9,280 3,746 - 13,026
June 30, 1998 11,414 190 - 11,604
Depreciation and amortization:
June 30, 1999 6,074 1,509 28 7,611
June 30, 1998 5,713 315 27 6,055
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:
June 30, June 30, December 31,
1999 1998 1998
Term loans $24,167 $13,300 $ 1,333
Revolving credit loans 16,042 19,967 31,046
Other 142 307 224
------- ------- -------
40,351 33,574 32,603
Less current maturities and
short-term borrowings 5,098 7,302 3,331
------- ------- -------
Long-term debt, net current
maturities $35,253 $26,272 $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.
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GIANT CEMENT HOLDING, INC.
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. The
Solite operations acquired constitute the Company's construction products
segment. Refer to Notes 5 and 7 of the accompanying financial statements for a
discussion of the acquisition 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 June 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
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manufacturing capacity; thus imports of cement to satisfy demand have not been
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 4.0% 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
Six month period ended June 30, 1999 versus six month period ended June 30,
1998.
Operating revenues increased 28.8% to $81.6 million in 1999 compared with $63.3
million in 1998. Revenues from product sales increased $10.9 million or 19.8% to
$66.1 million in 1999, compared with $55.2 million in 1998, as a result of the
addition of Solite's block and lightweight aggregate revenues for the entire
period and higher average selling prices and shipping volumes of cement.
Cement shipping volumes increased 5.1% in 1999 compared with 1998 volumes. The
Company's average selling price per ton of cement increased 2.1% for the period
ended June 30, 1999 compared with 1998, as a result of price increases
implemented in April 1998 and 1999. In April 1999, the Company realized a price
increase of $2.50 per ton in its Middle-Atlantic market. Solite's product sales
increased $8.4 million for the six months of 1999, compared with the two months
subsequent to its acquisition in 1998.
Resource recovery services revenues increased $7.3 million or 90.1% to $15.5
million in 1999, compared with $8.2 million in 1998. The increase resulted from
an additional $4.2 million in Solite resource recovery revenues, 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 46.3% to $19.8 million in 1999, compared with $13.5
million in 1998. The Company's gross margins increased to 24.2% in 1999 from
21.3% in 1998 as a result of increased cement selling prices and increased waste
fuel utilization. In 1999, cost of sales and services excluding the Solite
operations increased $3.7 million or 8.3% to $48.2 million, compared with $44.5
million in 1998. The increase in cement manufacturing costs was primarily the
result of increased clinker and cement production, increased clinker purchases
and increased shipping volumes partially offset by increased waste fuel
utilization. Cement production volumes increased 10.5% in 1999 compared with
1998 volumes.
Selling, general and administrative (SG&A) expenses increased $2.5 million to
$8.2 million, or 10.1% of operating revenues. Excluding Solite, with expenses of
$3.7 million, SG&A expenses were 7.2% of operating revenues in 1999 compared
with 7.3% in 1998.
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Interest costs increased $522,000 for the six month period to $1.2 million on
higher average borrowings outstanding primarily as a result of the Solite
acquisition. 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 $1.4 million in 1999 as a result of the 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 six month periods ended June 30, 1999
and 1998, relate to federal and state income taxes and were recorded at an
estimated annual effective rates of approximately 34%.
Net income increased $1.1 million or 19.8% to $7.0 million in 1999 compared with
$5.8 million in 1998, primarily as a result of increased cement production and
sales, increased resource recovery utilization and the addition of Solite for
the entire period in 1999.
Quarter ended June 30, 1999 versus quarter ended June 30, 1998.
Total operating revenues increased $6.8 million, or 17.0%, to $46.6 million in
1999 compared with $39.9 million in 1998. Product sales increased $3.6 million,
or 10.4%, to $38.1 million in 1999, compared with $34.5 million in 1998. The
increase resulted primarily from an additional $2.2 million in lightweight
aggregate and block revenues from Solite, which is included for the entire
quarter in 1999 compared with two months in 1998, and higher average selling
prices and shipping volumes of cement.
Cement shipping volumes increased 4.8% in 1999 compared with 1998 volumes. The
Company's average selling price per ton of cement increased 1.2% for the quarter
ended June 30, 1999 compared with the second quarter of 1998 as a result of the
price increase implemented in April 1999 in the Middle-Atlantic market.
Resource recovery revenues increased $3.2 million, or 60.0% to $8.5 million in
1999, compared with $5.3 million in 1998. The increase resulted from $895,000 in
additional resource recovery revenues from Solite, 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 46.4% to $14.5 million in 1999, compared with $9.9
million in 1998. The Company's gross margins increased to 31.1% in 1999 from
24.8% in 1998 as a result of increased cement selling prices and increased waste
fuel utilization. In 1999, cost of sales and services excluding the Solite
operations increased $543,000 or 2.2%, to $25.2 million, compared with $24.6
million in 1998. The increase in costs was primarily the result of increased
cement production and shipping volumes, partially offset by increased resource
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recovery revenues. Tons of cement manufactured increased 8.6% in 1999 compared
with production from the second quarter of 1998, due to higher utilization of
finished grinding capacity at Keystone.
Selling, general and administrative (SG&A) expenses increased $327,000 to $3.9
million, but decreased to 8.4% of operating revenues. Excluding Solite with
expenses of $1.9 million, SG&A expenses were 5.6% of operating revenues in 1999
compared with 6.1% in 1998.
Interest expense increased $194,000 as a result of higher average borrowings
outstanding primarily as a result of the Solite acquisition. Other income
decreased $1.4 million in 1999, compared with 1998, as a result of the recovery
in 1998 of $1.5 million of losses related to a fire at Keystone from a business
interruption insurance policy. 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 three month periods ended June 30,
1999 and 1998, related to federal and state income taxes and were recorded at an
estimated annual effective rate of approximately 34%.
Net income increased 35.6% to $6.6 million in 1999 compared with $4.9 million in
1998, primarily as a result of increased cement production and sales, increased
resource recovery utilization and the addition of Solite for the entire quarter
in 1999.
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of capital
expenditures, debt service obligations, the common stock repurchase program 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 totaled $5.0 million at June 30, 1999 compared to $6.6
million at December 31, 1998. At June 30, 1999, and December 31, 1998 the
Company had net working capital of $38.6 million and $36.4 million and a current
ratio of 2.4 for both periods. Accounts receivable increased $4.3 million or
18.2% compared to December 1998, as a result of higher cement sales. Inventories
increased $1.7 million or 6.9% to $26.4 million at June 30, 1999, as a result of
an increase in finished goods and work in process (clinker) inventories as
compared to December 31, 1998. Total current liabilities increased $551,000 or
2.1% to $27.0 million at June 30, 1999, primarily as a result of increased
current maturities of long term debt.
Cash provided by operations for the six month period ended June 30, 1999
was $10.4 million compared to $1.1 million for the comparable period in 1998.
The increase in cash provided by operations, compared with 1998, was primarily
the result of an increase in net income and non-cash depreciation expense and an
increase in current liabilities in 1999 compared with a decrease
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in 1998. Net cash used by investing activities increased from $10.3 million in
1998 to $13.0 million in 1999 as a result of increased capital expenditures in
1999. Net cash provided by financing activities was $1.0 million compared to
$351,000 cash used for the comparable period in 1998, as a result of increased
borrowings, partially offset by increased purchases of the Company's common
stock. Through June 30, 1999, the Company has repurchased 336,000 shares of its
common stock at a cost of $6.7 million. Subsequent to June 30, 1999, the Company
has purchased an additional 200,000 shares of its common stock at a cost of $4.4
million.
On April 30, 1998, the Company acquired Solite. The acquisition, 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 (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 May 6, 1999 the Company announced it had entered into a Letter of Intent with
TBN Holdings, Inc. (TBN) to combine the operations of TBN with M&M Chemical
(M&M), a waste treatment and blending facility in Alabama, which Giant obtained
through its acquisition of Solite. TBN has waste treatment and blending
facilities in Cleveland, Ohio and Sumter, South Carolina. Both TBN and M&M
supply waste-derived fuels to Giant's cement and Solite's lightweight aggregate
operations, in addition to supplying other cement manufacturers.
During the process of negotiating the terms of a definitive agreement, the
parties concluded that it would be preferable to restructure the transaction. A
new Letter of Intent was entered into on August 9, 1999, under the terms of
which the Company's wholly owned subsidiary M&M will acquire all of the
outstanding shares of Southeastern Chemical & Solvent Company (SEC) and it's
related subsidiaries, which comprise TBN's Sumter, SC operations. The Company
anticipates that it will assume approximately $250,000 of SEC's long term debt
in connection with the transaction. The purchase price, expected to approximate
$12.5 million, the final amount of which will be determined at closing depending
upon certain balance sheet variables, will be financed through borrowings on the
Company's Credit Facility. For the year ending December 31, 1998, SEC had
revenues of $17 million. The transaction is expected to be completed in the
third quarter of 1999 and will be accounted for as a purchase.
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. Information technology
(IT) and non-IT systems have been evaluated and the Company has prioritized the
non-compliant systems and expects to substantially complete modifications to all
significant systems by the fourth quarter of 1999. Also, the Company is
15
<PAGE>
developing a contingency plan that is scheduled to be completed by the end of
the third quarter of 1999.
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 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 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 million.
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
"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,
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.
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, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 11, 1999, the Company held its 1999 Annual Meeting of
Shareholders.
(b) Not applicable.
(c) The stockholders approved the following matters:
(1) Gary Pechota, Dean M. Boylan, Edward Brodsky, Robert L. Jones, John
W. Roberts and Terry Kinder werere-elected as directors of the Company
(8,322,635 shares for, 33,425 withheld).
(2) PricewaterhouseCoopers L.L.P.was ratified as the Company's independent
auditor for fiscal 1999 (8,344,123 shares for, 815 shares against).
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 June 30, 1999, the Company did not file
any reports on Form 8-K.
Items 2, 3 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
Date: August 13, 1999
18
<PAGE>
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