SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31,1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________.
Commission File Number : 1-4323
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GIANT GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 23-0622690
---------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
Highway 453, P.O. Box 218, Harleyville, South Carolina 29448
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 496-7880
--------------
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 5,180,000 Shares
---------------------------------------------
(Not including 1,786,000 shares held by the Company as treasury shares)
Page 1 of 13
GIANT GROUP, LTD.
INDEX
PART I FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three-Month Periods Ended March 31, 1994 and 1993. . . 3
Condensed Consolidated Balance Sheets - March 31, 1994
and December 31, 1993. . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 1994 and 1993. . . 5
Notes to Consolidated Financial Statements . . . . . . 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 9-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
(a)Exhibits. . . . . . . . . . . . . . . . . . . . . . 12
(b)Report on Form 8-K. . . . . . . . . . . . . . . . . 12
2
GIANT GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three-month periods ended March 31, 1994 and 1993
(Unaudited)
Three Months Ended
------------------
1994 1993
---- ----
Net sales $15,513,000 $14,505,000
Operating costs and expenses:
Cost of sales 12,745,000 12,350,000
Depreciation and depletion 1,889,000 1,839,000
Selling, general and administrative 2,435,000 2,462,000
----------- -----------
Operating loss (1,556,000) (2,146,000)
Other income (expense):
Interest expense (1,428,000) (1,377,000)
Investment income 326,000 431,000
Equity in earnings (loss) of affiliate (850,000) 425,000
Realized gain (loss) on investments (56,000) 375,000
Unrealized loss on investments (558,000) -
Other income (expense), net 139,000 (70,000)
----------- -----------
Loss before income taxes (3,983,000) (2,362,000)
Credit for income taxes (1,354,000) (803,000)
----------- -----------
Net loss $(2,629,000) $(1,559,000)
----------- -----------
----------- -----------
Loss per weighted average common share $ (.51) $ (.30)
----------- -----------
----------- -----------
Weighted average common shares 5,180,000 5,180,000
See accompanying notes to consolidated financial statements.
3
GIANT GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 645,000 $ 4,123,000
Marketable securities 17,126,000 16,945,000
Accounts receivable, less allowance of
$964,000 in 1994 and $1,123,000 in 1993
for discounts and doubtful accounts 11,591,000 11,375,000
Inventories 16,211,000 13,414,000
Other current assets 1,494,000 1,348,000
------------ ------------
Total current assets 47,067,000 47,205,000
------------ ------------
Investment in affiliate 42,856,000 43,706,000
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Property, plant and equipment, at cost 121,900,000 119,961,000
Less accumulated depreciation 69,144,000 67,590,000
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52,756,000 52,371,000
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Deferred charges and other assets 3,319,000 3,463,000
------------ ------------
Total assets $145,998,000 $146,745,000
------------ ------------
------------ ------------
LIABILITIES
Current liabilities:
Accounts payable $ 7,036,000 $ 6,789,000
Short-term borrowings 19,482,000 16,742,000
Accrued expenses 8,043,000 7,825,000
Current maturities of long-term debt 1,851,000 1,797,000
------------ ------------
Total current liabilities 36,412,000 33,153,000
Long-term debt, net of current maturities 51,559,000 52,004,000
Accrued pension plan contributions 10,910,000 10,489,000
Deferred income taxes 2,250,000 3,603,000
Other liabilities 29,000 29,000
------------ ------------
Total liabilities 101,160,000 99,278,000
------------ ------------
Contingent liabilities (Note 6)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized
25,000,000 shares, issued
6,966,000 shares $ 69,000 $ 69,000
Capital in excess of par value 33,508,000 33,508,000
Retained earnings 29,028,000 31,657,000
------------ ------------
62,605,000 65,234,000
Less common stock in treasury; 1,786,000
shares at cost 15,763,000 15,763,000
Reduction for additional pension liability 2,004,000 2,004,000
------------ ------------
Total shareholders' equity 44,838,000 47,467,000
------------ ------------
Total liabilities and
shareholders' equity $145,998,000 $146,745,000
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
4
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three-month periods ended March 31, 1994 and 1993
(Unaudited)
1994 1993
---- ----
Operations:
Net loss . . . . . . . . . . . . . . . . . . . $(2,629,000) $(1,559,000)
Depreciation and depletion . . . . . . . . . . 1,889,000 1,839,000
(Gains) losses on investments, net . . . . . . 614,000 (431,000)
Equity in (earnings) loss of affiliate . . . . 850,000 (425,000)
Amortization of deferred charges and other . . 182,000 158,000
Changes in operating assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . (216,000) 871,000
Inventories. . . . . . . . . . . . . . . . . . (2,797,000) (1,836,000)
Other current assets . . . . . . . . . . . . . (203,000) (419,000)
Accounts payable . . . . . . . . . . . . . . . 854,000 941,000
Accrued expenses . . . . . . . . . . . . . . . (714,000) 1,048,000
----------- -----------
Net cash provided (used) by operations . . (2,170,000) 187,000
----------- -----------
Investing:
Sales (purchases) of marketable securities . . (738,000) 3,976,000
Purchase of property, plant and equipment. . . (2,881,000) (1,851,000)
----------- -----------
Net cash provided (used) by investing. . . (3,619,000) 2,125,000
----------- -----------
Financing:
Proceeds from (repayment of) short-term
borrowings . . . . . . . . . . . . . . . . . 2,740,000 (75,000)
Repayment of long-term debt. . . . . . . . . . (429,000) (417,000)
----------- -----------
Net cash provided (used) by financing. . . . 2,311,000 (492,000)
----------- -----------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . (3,478,000) 1,820,000
Cash and Cash Equivalents:
Beginning of period. . . . . . . . . . . . . . 4,123,000 1,064,000
----------- -----------
End of period. . . . . . . . . . . . . . . . . $ 645,000 $ 2,884,000
----------- -----------
----------- -----------
Supplemental Information:
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . $ 452,000 $ 418,000
Income taxes. . . . . . . . . . . . . . . . 135,000 13,000
See accompanying notes to consolidated financial statements.
5
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying 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, 1994 and for the
interim periods ended March 31, 1994 and 1993 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 period ended March 31, 1994 are not necessarily indicative of the
results that may be expected for the full year.
The financial information as of December 31, 1993 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 1993
Annual Report to Shareholders.
2. MARKETABLE SECURITIES
Marketable securities consist primarily of debt securities carried at the
lower of cost or market in 1993 and market in 1994. The Company adopted
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994,
under which the Company's marketable securities have been designated as
available for sale and unrealized holding gains and losses are recorded as
a separate component of shareholders' equity until realized, unless
considered other than temporary. No adjustment was required to reflect the
new standard. At March 31, 1994 the cost and fair market value of
marketable securities were $17,909,000 and $17,126,000, respectively, as
compared to $17,170,000 and $16,945,000, respectively at December 31, 1993.
Unrealized losses at March 31, 1994 are considered other than temporary and
have been charged against earnings.
3. INVENTORIES
March 31, December 31,
1994 1993
---- ----
Finished goods $ 5,144,000 $ 2,698,000
In process 1,557,000 1,512,000
Raw materials 1,145,000 1,026,000
Supplies, repair parts and fuel 8,365,000 8,178,000
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$16,211,000 $13,414,000
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----------- -----------
6
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENTS IN AFFILIATES
Summarized financial information for Rally's Hamburgers, Inc., the
Company's 38% owned affiliate, follows:
Three Months Three Months
Ended Ended
April 3, 1994 April 4, 1993
------------- -------------
Revenues $42,805,000 $36,874,000
Operating income (loss) (492,000) 2,440,000
Net income (loss) (1,862,000) 1,416,000
Company's share - net of
amortization of excess
purchase cost $ (850,000) $ 425,000
5. ACCRUED EXPENSES
March 31, December 31,
1994 1993
---- ----
Compensation $ 1,272,000 $ 1,500,000
Pension plan contributions 1,805,000 2,069,000
Interest 1,727,000 789,000
Income taxes 409,000 544,000
Other 2,830,000 2,923,000
----------- -----------
$ 8,043,000 $ 7,825,000
----------- -----------
----------- -----------
6. CONTINGENT LIABILITIES
On March 31, 1992, as a result of Keystone's voluntary disclosure to the
Pennsylvania Department of Environmental Resources (DER) of possible
violations of its waste fuel substitution permits, the DER undertook a
preliminary investigation of Keystone's waste fuel substitution rates from
1989 through early 1992. The DER subsequently issued an Order charging
Keystone with numerous violations of its air quality permits, relating to
alleged burning of hazardous waste fuels in quantities in excess of permit
limits and suspending Keystone's permits to burn waste fuels. In addition,
the DER referred the matter to the Pennsylvania Attorney General for
potential criminal prosecution. In August 1993, the Attorney General of the
State of Pennsylvania charged Keystone with one criminal count of altering
computer records and one count of falsifying records relating to the
burning of hazardous wastes in late 1991 and early 1992. The maximum
penalty to Keystone for both counts is a fine of $25,000. Violations of the
terms of the permits are additionally subject to civil penalties under the
Pennsylvania Air Pollution Control Act and related statutes. Keystone has
filed an appeal of the DER Order before the Pennsylvania Environmental
Hearing Board. Keystone also filed, and has been granted, a motion for
supersedeas to stay the DER Order and reinstate the permits until such time
as the appeal can be adjudicated. There were no allegations or charges by
the Attorney General that Keystone violated any environmental laws or that
there was any harm to the environment or to anyone's health. Due to the
pending appeal and the nature of the allegations in the DER Order, the
amount of penalties to which Keystone may be subject cannot presently be
determined.
7
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In view of the inherent difficulty in predicting the outcome of these matters,
management cannot state what the eventual outcome will be. While the final
resolution of these matters may have an adverse effect on the Company's
consolidated financial results for a particular reporting period, and although
liabilities associated with the foregoing matters could be substantial,
management believes, based on current knowledge, that the outcome of these
matters will not have a material adverse effect on the consolidated financial
position of the Company. Estimates of the future cost of these issues, however,
are necessarily imprecise as a result of the numerous uncertainties that exist
at this time.
In January 1994, two class action lawsuits were filed on behalf of the
shareholders of Rally's Hamburgers, Inc. in the United States District Court,
Western District of Kentucky, against Rally's, its controlling shareholders, the
Company and Burt Sugarman, Chairman of the Company and former Chairman of
Rally's, and certain of Rally's officers and directors. The Complaints allege
violations of the Securities Exchange Act of 1934 with respect to Rally's common
stock and seek unspecified damages. Management is unable to predict the outcome
of this matter at the present time or whether or not certain available insurance
coverages will apply. Rally's and the Company are defending themselves
vigorously in this matter.
8
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, however, the Company expenses these
costs as incurred. Accordingly, the Company has historically experienced its
lowest levels of revenue and gross profit during the first quarter.
RESULTS OF OPERATIONS
Net sales for the three-month period ended March 31, 1994 increased 6.9% to
$15,513,000 as compared to $14,505,000 in 1993. The increase resulted primarily
from a 15.1% increase in the average selling price of cement and a .8% increase
in cement selling volumes, offset by decreases of $387,000 in resource recovery
revenues and $273,000 in clinker sales, of which there were none in 1994. Cement
shipping volumes in the Company's South-Atlantic markets increased 14.6% as a
result of particularly strong demand in the region, which has resulted in
shortages of supply. Shipping volumes in the Company's Middle-Atlantic markets
declined as a result of the unusually harsh winter in 1994. Based upon early
second quarter shipments and industry forecasts, the Company believes that
cement shipping volumes in its Middle-Atlantic markets will meet or exceed 1993
levels for the remainder of 1994. Resource recovery revenues declined primarily
as a result of lower quantities of waste fuels utilized at Giant Cement when
comparing 1994 to the record levels processed in the first quarter of 1993,
offset somewhat by slightly higher utilization and pricing at Keystone Cement.
The Company's average net selling prices for cement improved 15.1% for the
quarter, as compared to the first quarter of 1993, as a result of price
increases implemented in the second and third quarter of 1993. The Company
realized pricing improvement of 17.2% in its South-Atlantic markets. Further
price increases of $5 per ton and $3 per ton have been implemented effective
April 1, 1994, in the South-Atlantic and Middle-Atlantic markets, respectively,
and the Company has announced another $5 per ton price increase effective August
1, 1994 in its South-Atlantic markets. There can be no assurance, however, that
these price increases will be realized.
9
Cost of sales increased $395,000 or 3.2% to $12,745,000 in 1994 primarily as a
result of higher repair and maintenance costs incurred during the 1994 winter
overhaul of the Company's plant and equipment. The Company planned the more
extensive winter overhaul in 1994, which it believes will benefit the remainder
of the year and result in improved utilization of existing capacity. The impact
of higher repair and maintenance costs was mitigated somewhat by the cost of
clinker sold included in 1993 cost of sales.
Gross profit increased from $161,000 to $1,076,000 as a result of the improved
cement pricing in both of the Company's market areas. The Company's gross profit
margins increased from 1.1% in 1993 to 6.9% in 1994. Selling, general and
administrative expenses remained level with 1993 but declined as a percentage of
net sales as a result of higher net sales.
Interest costs increased slightly for the quarter to $1,428,000 as a result of
higher average interest rates on borrowings under the Company's term loan and
revolving credit facilities entered into in November 1993. Investment income for
the quarter decreased $105,000 as a result of lower average amounts of funds
invested compared to the same period in 1993.
Declines in the fair market value of the Company's marketable securities in the
first quarter of 1994 resulted in realized and unrealized losses totalling
$614,000. The losses resulted from a general market deterioration in the pricing
of fixed income securities due to an increase in prevailing interest rates.
Equity in earnings of affiliate decreased from earnings of $425,000 in 1993 to a
loss of $850,000 in 1994 as a result of our 38% owned affiliate Rally's
Hamburger's $1,862,000 loss for the quarter.
The income tax benefits recorded for the quarters ended March 31, 1994 and 1993,
relate primarily to federal income taxes and have been recorded at an estimated
effective rate of 34%.
While the Company's operating loss was reduced by $590,000, net loss increased
$1,070,000 to $2,629,000 due to the afforementioned marketable securities losses
and the Company's share of Rally's Hamburgers' losses.
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.
10
Cash and cash equivalents totalled $645,000 at March 31, 1994 compared with
$4,123,000 at December 31, 1993. At March 31, 1994 and December 31, 1993 the
Company had working capital of $10,655,000 and $14,052,000, with current ratios
of 1.3 and 1.4, respectively. Accounts receivable increased $216,000 or 1.9% to
$11,591,000 as a result of higher cement selling prices. Inventories increased
$2,797,000 or 20.9% to $16,211,000 primarily as a result of increased cement and
clinker production at Keystone Cement coupled with a decline in its shipping
volumes related to harsh weather conditions. Total current liabilities increased
$3,259,000 or 9.8% to $36,412,000, primarily as a result of borrowings on
revolving credit facilities of $2,420,000 as well as increased short-term
borrowings from stockbrokers on investment securities.
Cash used by operations in 1994 was $2,170,000 compared to cash provided
$187,000 in the first three months of 1993. The decline in cash flow was
primarily a result of lower earnings, higher inventory increases, increased
accounts receivable and reduced accrued expenses. Net cash provided by investing
activities decreased from $2,125,000 provided to $3,619,000 used, as a result of
the net purchases of marketable securities in 1994 versus net sales in 1993, as
well as higher capital additions in 1994. Net cash provided (used) by financing
activities increased from $492,000 used to $2,311,000 provided, as a result of
short-term borrowings incurred during 1994. Cash and marketable securities at
March 31, 1994 totalled $17,771,000, of which $17,126,000 was pledged, in
addition to a substantial portion of the Company's Rally's common stock, as
collateral for margin loans from stockbrokers of $17,062,000.
The Company believes that its existing credit facilities, together with
internally generated funds will be sufficient to meet its working capital needs
for the foreseeable future.
On April 28, 1994, the Company's indirect wholly-owned subsidiary Giant Cement
Holding, Inc. filed a registration statement with the Securities and Exchange
Commission for an initial public offering of 10,000,000 shares of Giant Cement
Holding Common Stock. Giant Cement Holding was recently formed to hold the
cement facilities and resource recovery operations of the Company and to engage
in the public offering. Of the shares to be offered, 9,500,000 shares,
comprising all of the presently outstanding shares of Giant Cement Holding, will
be sold by KCC Delaware Company, a wholly-owned subsidiary of the Company, and
500,000 shares will be sold by Giant Cement Holding. After the offering, GIANT
GROUP would have no further interest in the cement business. Should the initial
public offering be consummated, the Company intends to utilize a portion of the
net proceeds to prepay its $8,950,000 14.5% Subordinated Notes, due April 15,
1995 and its $34,350,000 7% Convertible Subordinated Debentures, due April 15,
2006.
11
GIANT GROUP, LTD.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For information regarding the settlement of a United States Environmental
Protection Agency Administrative Complaint and Compliance Order, and the
institution of a Civil Investigative Demand by the Antitrust Division of the
U.S. Department of Justice, and other environmental proceedings and legal
matters, see Note 6 of the Notes to Consolidated Financial Statements elsewhere
herein and see Item 3 "Legal Proceedings" as reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
Item 5. OTHER INFORMATION
On April 29, 1994, the Company filed a Form S-1 Registration Statement with the
Securities and Exchange Commission, registering securities for the initial
public offering of 100% of the Company's interest in Giant Cement Holding, Inc.,
a newly-formed wholly owned subsidiary of the Company, which in turn wholly owns
Giant Cement Company, Keystone Cement Company and Giant Resource Recovery
Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended March 31, 1994, the
Company did not file any reports on Form 8-K.
Items 2, 3 and 4 are not applicable.
12
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 GROUP, LTD. - Registrant
By: /s/ Terry L. Kinder
----------------------------------
Terry L. Kinder
Vice President
Secretary-Treasurer
By: /s/ Bratton Fennell
----------------------------------
Bratton Fennell
Principal Accounting Officer
Date: May 13, 1994
13