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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the third quarterly period ended September 30, 1995
GIANT GROUP, LTD.
150 El Camino Drive, Suite 303, Beverly Hills, California 90212
Registrant's telephone number: (310) 273-5678
Commission File Number: 1-4323
I.R.S. Employer Identification Number: 23-0622690
State of Incorporation: Delaware
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
---
On November 8, 1995, the latest practicable date, there were 5,057,735 shares of
Common stock outstanding.
Page 1 of 13
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GIANT GROUP, LTD.
INDEX
PART I FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Operations -
Three and Nine-Month Periods Ended September 30, 1995
and 1994.................................................. 3
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994..................................... 4
Consolidated Statements of Cash Flows -
Nine-Month Periods Ended September 30, 1995 and 1994...... 5
Notes to Consolidated Financial Statements................ 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
(a) Exhibits
(b) Reports on Form 8-K
Signature ............................................................... 12
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 1995 and 1994
(Unaudited)
Three-months ended Nine-months ended
----------------------- ------------------------
1995 1994(1) 1995 1994(1)
------- ------- -------- -------
($ in thousands)
Revenue:
Investment income $853 $9 $2,866 $470
Other income 6 4 18 12
------- ------- -------- -------
Total revenue 859 13 2,884 482
------- ------- -------- -------
Costs and expenses:
General and administrative 885 1,074 2,837 2,972
Interest expense 23 1,042 107 3,442
Loss on sale of investments -- -- -- 1,062
Depreciation 93 129 275 327
------- ------- -------- -------
Total costs and expenses 1,001 2,245 3,219 7,803
------- ------- -------- -------
Equity in loss of affiliate (8,207) (1,845) (10,489) (3,185)
------- ------- -------- -------
Loss from continuing operations
before income taxes (8,349) (4,077) (10,824) (10,506)
Income tax credit -- (1,386) -- (3,572)
------- ------- -------- -------
Loss from continuing operations (8,349) (2,691) (10,824) (6,934)
Income from discontinued operations,
net of income taxes -- 3,538 -- 6,597
------- ------- -------- -------
Net income (loss) ($8,349) $847 ($10,824) ($337)
======= ======= ======== =======
Primary earnings per common share:
Loss from continuing operations ($1.64) ($0.40) ($2.11) ($1.34)
Income from discontinued operations, net -- 0.55 -- 1.27
------- ------- -------- -------
Net income (loss) ($1.64) $0.15 ($2.11) ($0.07)
======= ======= ======== =======
Fully diluted earnings per common share:
Loss from continuing operations ($1.64) ($0.31) ($2.11) ($1.34)
Income from discontinued operations, net -- 0.46 -- 1.27
------- ------- -------- -------
Net income (loss) ($1.64) $0.15 ($2.11) ($0.07)
======= ======= ======== =======
(Shares in thousands)
Weighted average common shares:
Primary 5,104 6,483 5,119 5,180
Fully diluted 5,104 8,691 5,119 5,180
(1) Reclassified to conform with the 1995 presentation.
See accompanying notes to consolidated financial statements.
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GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
-------- --------
(Unaudited)
($ in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 28,260 $ 23,472
Short-term investments available for sale 17,478 47,501
Prepaid expenses and other current assets 1,228 690
-------- --------
Total current assets 46,966 71,663
Investment in affiliate 15,008 25,497
Property, plant and equipment, net 3,356 3,570
Other assets -- 165
-------- --------
Total assets $ 65,330 $100,895
======== ========
LIABILITIES
Current liabilities
Short-term borrowings $ -- $ 1,917
Accounts payable and accrued expenses 621 1,251
Income taxes payable 3,469 25,435
Current maturities of long-term debt 198 193
-------- --------
Total current liabilities 4,288 28,796
Long-term debt, net of current maturities 1,523 1,623
Deferred income taxes 758 534
-------- --------
Total liabilities 6,569 30,953
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 12,500,000 shares, issued 6,966,000 shares 69 69
Capital in excess of par value 33,508 33,508
Unrealized holding gains on short-term investments 337 --
Retained earnings 41,304 52,128
-------- --------
75,218 85,705
Less common stock in treasury; 1,895,000 shares at September 30
and 1,786,000 at December 31, at cost 16,457 15,763
-------- --------
Total shareholders' equity 58,761 69,942
-------- --------
Total liabilities and shareholders' equity $ 65,330 $100,895
======== ========
See accompanying notes to consolidated financial statements.
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GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 1995 and 1994
(Unaudited)
1995 1994
-------- -------
($ in thousands)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss ($10,824) ($337)
Adjustments to reconcile net loss to net cash used
by continuing operations:
Income from discontinued operations -- (6,597)
Depreciation 275 327
Loss on sale of investments -- 1,062
Equity in loss of affiliate 10,489 3,185
Amortization of deferred charges and other -- 150
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (538) 589
Other assets 165 --
Accounts payable and accrued expenses (630) 73
Income tax payable 272 --
-------- -------
Net cash used by continuing operations (791) (1,548)
Net cash provided by discontinued operations -- 9,726
-------- -------
Net cash provided (used) by operating activities (791) 8,178
-------- -------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Sales and maturities of short-term investments, net of purchases 30,584 15,577
Tax payments relating to discontinued operations (22,238) --
Purchase of property, plant and equipment:
Continuing operations (61) (648)
Discontinued operations -- (5,845)
Investment in affiliate -- (1,000)
Restricted investments - discontinued operations -- (1,951)
-------- -------
Net cash provided by investing activities 8,285 6,133
-------- -------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Repayment of short-term borrowings (1,917) (14,859)
Purchase of treasury stock (694) --
Repayment of long-term debt:
Continuing operations (95) (130)
Discontinued operations -- (1,230)
-------- -------
Net cash used by financing activities (2,706) (16,219)
-------- -------
Increase (decrease) in cash and cash equivalents 4,788 (1,908)
Cash and cash equivalents:
Beginning of period 23,472 4,123
-------- -------
End of period $28,260 $2,215
======== =======
See accompanying notes to consolidated financial statements.
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GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September
30, 1995 and the results of operations and the cash flows for the three and
nine-month periods ended September 30, 1995 and 1994. These results have
been determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 1994 Annual Report on Form 10- K. Certain 1994 amounts have been
reclassified to conform to the 1995 presentation. Operating results for the
nine-month period ended September 30, 1995 are not necessarily indicative of
the results that may be expected for the full year. It is suggested that the
accompanying consolidated financial statements be read in conjunction with
the financial statements and notes in the Company's 1994 Annual Report on
Form 10-K.
The results of operations and related cash flows for the three and
nine-month periods ended September 30, 1994 have been restated to reflect
the sale of the Company's wholly owned subsidiary as described in Note 3.
2. Investment in Affiliate
Summarized unaudited financial information for Rally's Hamburgers, Inc.,
the Company's 48% (1995) and 38% (1994) owned affiliate, is as follows:
Three-months Three-months Nine-months Nine-months
ended ended ended ended
($ in thousands) October 1, 1995 October 2, 1994 October 1, 1995 October 2, 1994
--------------- --------------- --------------- ---------------
Revenues $ 49,851 $ 48,959 $ 142,164 $ 140,228
Operating loss (14,803) (4,124) (14,591) (3,717)
Net loss (17,316) (4,495) (22,069) (7,288)
Company's non-cash share
of net loss $ (8,207) $ (1,845) $ (10,489) $ (3,185)
In 1994, the Company's non-cash share of the net loss included the
amortization of excess purchase cost.
On August 24, 1994, the Company entered into a subscription agreement for
the purchase of 2,500,000 shares of Rally's common stock at $4.00 per share
for $10,000,000 of which $1,000,000 was paid upon signing the agreement and
$9,000,000 was paid on October 25, 1994. This transaction increased the
Company's ownership percentage in Rally's to 48%.
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GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Discontinued Operations
On October 6, 1994, KCC Delaware, a wholly owned subsidiary of the
Company, sold 100% of the stock of its wholly owned subsidiary Giant
Cement Holding, Inc. (GCHI) through an initial public offering. The net
proceeds of this transaction were $125,822,000 (net of $2,000,000
contributed to GCHI on the date of sale), resulting in a gain of
$76,990,000 before income taxes of $28,767,000.
GCHI was engaged in the manufacture and sale of portland and masonry
cements and construction aggregates, and its operating results for the
three and nine-month periods ended September 30, 1994 have been
included as discontinued operations in the accompanying consolidated
statements of operations and cash flows.
At September 30, 1995 and December 31, 1994, a receivable of $4,000 and
$200,000, respectively, related to income tax liabilities of GCHI,
payable to the Company pursuant to their Tax Sharing Agreement, is
included in other current assets.
Selected financial information for discontinued operations is as
follows:
Three-months ended Nine-months ended
September 30, 1994 September 30, 1994
------------------ ------------------
($ in thousands)
Revenues $ 26,575 $ 69,352
Costs and expenses 21,214 59,355
-------- --------
5,361 9,997
Provisions for income taxes 1,823 3,400
-------- --------
Income from discontinued
operations $ 3,538 $ 6,597
======== ========
4. Earnings per Share
Primary and fully diluted earnings per common share are based upon the
weighted average common shares outstanding during the respective periods,
adjusted for the dilutive effect of outstanding common stock options and
in 1994, the Company's convertible debt. Except for the three-month
period ended September 30, 1994, no adjustments for the dilutive effect
of the common stock options and convertible debt were required.
5. Statement of Cash Flow Information
Supplemental disclosures of cash flow information for the nine-month
periods ended September 30:
($ in thousands) 1995 1994
---- ----
Cash paid during the periods for:
Interest $ 133 $2,516
Income taxes 22,364 85
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GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Statement of Cash Flow Information (cont.)
Supplemental schedule of non-cash investing activity for the nine-month
period ended September 30, 1995:
The net appreciation of the Company's short-term investments resulted
in the recording of the following non-cash transactions:
($ in thousands)
Short-term investments $561
====
Deferred taxes $224
Unrealized holding gains 337
----
$561
====
6. Related Party Transactions
In February 1995, the Company purchased $10,400,000 principal amount of
Rally's 9.875% Senior Notes Due 2000 (Senior Notes) at an aggregate
purchase price of $4,796,000. Investment income for the three and
nine-month periods ended September 30, 1995 includes $386,000 and
$996,000, respectively, relating to the Senior Notes. These Senior Notes
are classified as short-term investments available for sale in the
Company's Consolidated Balance Sheet.
In October 1995, the Company purchased an additional $2,413,000
principal amount of Senior Notes at an aggregate purchase price of
$1,334,000. The Company may from time to time purchase additional Senior
Notes depending on market conditions and other factors.
7. Contingent Liabilities
In January 1994, 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, Burt Sugarman and
the Company, and certain of Rally's other officers and directors. The
Complaints allege violations of the Securities Exchange Act of 1934,
among other claims with respect to Rally's common stock and seek
unspecified damages. On April 15, 1994, Rally's filed a Motion to
Dismiss and Motion to Strike. On April 5, 1995, the Court struck certain
provisions of the Complaint but denied Rally's Motion to Dismiss. In
addition, the Court denied plaintiffs' motion for class certification;
the plaintiffs' have renewed this motion, and defendants intend to
oppose class certification. 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 intend to defend
themselves vigorously in this matter.
8. Subsequent Events
In October 1995, the Company acquired 14,000 shares of its common stock
for an aggregate price of $101,000.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Revenues for the three and nine-month periods ended September 30,
1995 and 1994 increased to $859,000 from $13,000 and $2,884,000 from
$482,000, respectively. The increase resulted from a higher level of
investments in cash equivalents and short-term investments in 1995
due to the investment of the proceeds from the sale of the Company's
cement operations in October 1994.
For the three and nine-month periods ended September 30, 1995 and
1994, interest costs decreased to $23,000 from $1,042,000 and to
$107,000 from $3,442,000, respectively, primarily as the result of
the prepayment in November 1994 of the Company's 7% Convertible
Subordinated Debentures and 14.5% Subordinated Notes.
For the three and nine-month periods ended September 30, non-cash
equity in losses in Rally's, the Company's owned affiliate (1995 -
48% and 1994 - 38%), increased to $8,207,000 and $10,489,000 in 1995
from $1,845,000 and $3,185,000 in 1994 as a result of the increase
in Rally's losses.
The Company has not recorded a tax benefit in the first nine months
of 1995 due to the non-cash equity in the loss of its affiliate.
These losses would have to be realized through the sale of Rally's
common stock or future Rally's earnings in order for the Company to
realize a tax benefit. The federal income tax benefits for the three
and nine-month periods ended September 30, 1994 were recorded at an
estimated annual rate of 34%.
Liquidity and Capital Resources
At September 30, 1995, the Company had cash and short-term
investments of $45,738,000 compared to $70,973,000 at December 31,
1994. At September 30, 1995 and December 31, 1994, the Company had
working capital of $42,678,000 and $42,867,000 with current ratios
of 11.0 to 1 and 2.5 to 1, respectively. The primary source of the
Company's capital resources have historically been generated from
operations of the Company's cement business. Since the sale of the
Company's cement operations in October 1994, capital resources have
been provided by the liquidation of short-term U.S. Government
obligations and income from cash equivalents and short-term
investments. Management believes that the Company's liquidity and
capital resources are sufficient to cover both on a short and
long-term basis, the day-to-day cash requirements, including debt
service and the purchase of equipment.
Net cash used by operations for the nine-month period ended
September 30, 1995 was $791,000 compared to cash provided by
operations of $8,178,000 in the nine months of 1994, which included
$9,726,000 provided by discontinued operations. The cash used in the
first nine months of 1995 was primarily to fund the daily cash
operations of the Company and pay expenses which were accrued from
the 1994 sale of the cement operations.
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Liquidity and Capital Resources (cont.)
Cash provided by investing activities was $8,285,000 for the
nine-month period ended September 30, 1995 compared to cash
provided by investing activities in 1994 of $6,133,000. The cash
provided by investing activities in 1995 was due to the sales and
maturities, net of purchases, of short-term investments offset by
the payment of income taxes in the amount of $22,238,000 relating
to the profit on the sale of the Company's cement business. The
remaining proceeds were used to purchase equipment.
Net cash used by financing activities was $2,706,000 for the
nine-month period ended September 30, 1995 compared to $16,219,000
for the comparable period in 1994. The cash used in 1995 by
financing activities was primarily for the repayment of short-term
borrowings and the purchase of treasury stock.
The Company's investment in Rally's Hamburgers, Inc. continues to be
disappointing. Rally's reported a net loss of $17,316,000 and
$22,069,000 for the three and nine-month periods ended October 1,
1995. Results for the third quarter included charges of $12,900,000
related principally to the planned closing of 25 poor performing
restaurants and the planned divestment of excess real estate and
modular buildings. These charges represent estimates by Rally's
management and does not include the impact of recent authoritative
literature on the accounting for impairment of long-lived assets.
Rally's management is focusing on a plan to stem these losses. The
Company's non-cash equity share in Rally's losses, although
significant, will not affect the Company's liquidity.
The Company continues to investigate and research investment
opportunities to redeploy the cash generated by the sale of the
cement operations. The Company's desire is to acquire or invest in a
company that will provide growth with a stability of earnings and
cash flow. Numerous investment opportunities have been reviewed and
analyzed by the Company's management. It is the Company's intent to
structure any investment in a manner that would provide sufficient
ongoing liquidity to meet working capital needs through cash
generated by appropriate financing, cash generated thru the
investment and the liquidation of short-term securities.
.
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GIANT GROUP, LTD.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal matters, see Note 7 of the Notes to
Consolidated Financial Statements on page 8 of this Form 10-Q and see
Item 3 Legal Proceedings as reported in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Earnings per share.
27. Financial Data Schedules.
(b) Reports on Form 8-K
During the quarter ended September 30, 1995, the Company did not
file any reports on Form 8-K.
Items 2,3,4 and 5 are not applicable.
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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\ Cathy L. Wood
---------------------------------
Cathy L. Wood
Vice President, Treasurer
and Chief Financial Officer
Date: November 10, 1995
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