1
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, 1997
GIANT GROUP, LTD.
9000 Sunset Boulevard, 16th Floor, Los Angeles, California 90069
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 13, 1997, the latest practicable date, there were 3,180,655
shares of common stock outstanding.
2
GIANT GROUP, LTD.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited) -
Three and Nine-Month Periods Ended September 30, 1996 and 1997 3
Consolidated Balance Sheets - December 31, 1996
and September 30, 1997 (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) -
Nine-Month Periods Ended September 30, 1996 and 1997 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 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURE 13
2
3
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, 1996 and 1997
(Unaudited)
Three-months ended Nine-months ended
September 30 September 30
---------------------------- -----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
($ in thousands, except per share amounts)
Revenue:
Investment income $ 591 $ 365 $ 2,155 $ 1,713
Gains from sale of investments 2,219 106 4,705 198
Other income 5 238 19 247
----------- ----------- ----------- -----------
Total revenue 2,815 709 6,879 2,158
----------- ----------- ----------- -----------
Costs and expenses:
Co-ownership program - 1,684 - 2,698
General and administrative 1,207 1,152 3,195 3,510
Proxy contest and related legal - - 736 -
Exchange Offer and related expenses - - 518 -
Interest expense 1 75 33 153
Depreciation 105 165 282 382
----------- ----------- ----------- -----------
Total costs and expenses 1,313 3,076 4,764 6,743
----------- ----------- ----------- -----------
Gain on sale of investment in affiliate - - 3,197 -
Equity in income (loss) of affiliate 88 (172) 317 (301)
----------- ----------- ----------- -----------
Income (loss) before expense (benefit)
for income taxes 1,590 (2,539) 5,629 (4,886)
Expense (benefit) for income taxes 51 (3,100) (8,512) (3,100)
----------- ----------- ----------- -----------
Net income (loss) $ 1,539 $ 561 $ 14,141 ($ 1,786)
=========== =========== =========== ===========
Earnings (loss) per common share
and common equivalent share $ 0.33 $ 0.18 $ 2.71 ($ 0.53)
=========== =========== =========== ===========
Weighted average common shares
and common equivalent shares 4,887,000 3,181,000 5,244,000 3,375,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
3
4
GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
($ in thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents $12,644 $ 1,108
Marketable securities 10,583 12,301
Income tax receivables 10,928 42
Note and other receivables 3,825 304
Assets held-for-sale 21,485 25,757
Prepaid expenses 1,013 649
------- -------
Total current assets 60,478 40,161
Property and equipment, net 3,559 5,005
Investment in affiliate 2,926 2,625
Note receivable and other assets 2,084 2,836
------- -------
Total assets $69,047 $50,627
======= =======
LIABILITIES
Current liabilities
Note payable $10,500 $ -
Accounts payable and other liabilities 1,033 1,058
Income taxes payable 3,362 189
Deferred income taxes 164 424
------- -------
Total current liabilities 15,059 1,671
Deferred income taxes 1,173 1,173
------- -------
Total liabilities 16,232 2,844
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,000,000 shares,
none issued - -
Class A Common stock, $.01 par value; authorized 5,000,000 shares,
none issued - -
Common stock, $.01 par value; authorized 12,500,000 shares,
issued 7,266,000 shares at September 30 and December 31 73 73
Capital in excess of par value 36,767 36,767
Unrealized holding gains on marketable securities 246 638
Retained earnings 47,708 45,922
------- -------
84,794 83,400
Less common stock in treasury; 4,085,000 shares at September 30
and 3,626,000 at December 31, at cost 31,979 35,617
------- -------
Total stockholders' equity 52,815 47,783
------- -------
Total liabilities and stockholders' equity $69,047 $50,627
======= =======
See accompanying notes to consolidated financial statements.
4
5
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 1996 and 1997
(Unaudited)
1996 1997
-------- --------
($ in thousands)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 14,141 ($ 1,786)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 282 382
Gain on sale of marketable securities (4,705) (198)
Accretion of discount on investments (226) (406)
Gain on sale of investment in affiliate (3,197) -
Equity in (income) loss of affiliate (317) 301
Changes in operating assets and liabilities:
(Increases) decreases in assets
Income tax receivables (8,512) 10,886
Receivables and other assets 85 (233)
Prepaid expenses 84 364
Increases (decreases) in liabilities
Accounts payable and other liabilities 395 25
Income taxes payable (259) (3,173)
-------- --------
Net cash provided (used) by operating activities (2,229) 6,162
-------- --------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Payment on short-term note - (10,500)
Proceeds from refinancing - 10,000
Payment of refinancing - (10,000)
Purchase of assets held-for-sale - (4,272)
Payments received on debt investment and short-term advance - 1,865
Purchases of marketable securities (10,702) (16,609)
Sales of marketable securities 15,805 19,308
Proceeds from sale of affiliate's debt securities 17,692 -
Purchases of affiliate's debt securities - (2,024)
Proceeds from sale of investment in affiliate 4,751 -
Loan to non-affiliate company (5,000) -
Purchases of property and equipment (677) (1,828)
-------- --------
Net cash provided (used) by investing activities 21,869 (14,060)
-------- --------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,025 -
Repayment of short-term borrowings (1,627) -
Purchase of treasury stock (15,079) (3,638)
-------- --------
Net cash used by financing activities (14,681) (3,638)
-------- --------
Increase (decrease) in cash and cash equivalents 4,959 (11,536)
Cash and cash equivalents:
Beginning of period 16,991 12,644
-------- --------
End of period $ 21,950 $ 1,108
======== ========
Supplemental disclosure of cash received (paid) for:
Income taxes ($ 459) $ 10,813
Interest (33) (153)
See accompanying notes to consolidated financial statements.
5
6
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
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, 1997, the consolidated results of operations for the
three and nine-month periods ended September 30, 1996 and 1997 and
consolidated cash flows for the nine-months ended September 30, 1996 and
1997. 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 1996 Annual Report on
Form 10-K. Certain 1996 amounts have been reclassified to conform to the
1997 presentation. Operating results for the three and nine-month
periods ended September 30, 1997 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 consolidated financial statements and notes in the Company's
1996 Annual Report on Form 10-K.
2. INVESTMENT IN AFFILIATE
GIANT's investment in Rally's of $2,625 and $2,926 at September
30, 1997 and December 31, 1996, respectively, represents approximately
15% of Rally's outstanding common stock. At September 30, 1997, the
Company owned 3,137,000 shares of Rally's, the market value of which was
$10,393.
On September 22, 1997, Rally's announced that it has agreed in
principle to acquire in exchange for Rally's securities, shares of
Checkers common stock held by certain parties including the Company and
certain of the Company's related parties. The Company and its related
parties will continue to hold warrants to purchase Checkers common
stock. Under the agreement, Rally's would issue shares of Rally's common
stock and a new series of Rally's preferred stock in exchange for the
acquired Checkers common stock. This acquisition is subject to
negotiation of definitive agreements, receipt of fairness opinions and
other required approvals and other customary conditions. Due diligence
is proceeding and the transaction is expected to close in the fourth
quarter. Prior to this announcement, Checkers and Rally's announced in
June that they had ended talks for a proposed merger which was
previously announced on March 25, 1997.
During the second quarter of this year, the Company purchased
$2,224 face value of Rally's Senior Notes in the open market, which are
included in marketable securities.
Summarized financial information for Rally's is as follows:
Three-Months Ended Nine-Months Ended
------------------------ ------------------------
9/29/96 9/28/97 9/29/96 9/28/97
--------- --------- --------- ---------
Operating results:
Revenues $ 38,781 $ 38,522 $ 128,050 $ 109,207
Pre-tax income from operations 2,632 543 1,676 3,364
Extraordinary gain, net of income taxes 302 -- 4,824 --
Net income (loss) 414 (1,148) 1,363 (2,008)
GIANT's share of non-cash equity income
(loss) in Rally's net income (loss) 88 (172) 317 (301)
Effective in early November, Rally's entered into an employment
agreement with James J. Gillespie to serve as chief executive officer.
Additionally, William P. Foley, II has been appointed chairman of the
board of Rally's. Mr. Foley is also chairman of Checkers, CKE
and Fidelity.
6
7
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
3. YACHT REFINANCE
On May 16, 1997, the Company signed an agreement to refinance one
of its luxury yachts available for sale under the Co-Ownership Program.
The term of the mortgage was twenty-six months from the date of
advancement of funds, which occurred on May 30, and was subject to
prepayment upon the transfer of an interest in the yacht, which was
collateral for this loan. The interest rate was prime plus one half of
one percent (0.50%). Interest was payable monthly in arrears. In July,
the loan was paid in full.
4. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal proceedings
of a nature considered normal to its business. In addition to these
actions, The Company is also involved in lawsuits as described in the
following paragraphs.
In January and February 1994, two putative class action lawsuits
were filed, purportedly on behalf of the shareholders of Rally's in the
United States District Court for the Western District of Kentucky,
against Rally's, certain Rally's present and former officers and
directors and its auditors and GIANT and Burt Sugarman. The complaints
allege defendants violated the Securities Exchange Act of 1934, as
amended, among other claims, by issuing inaccurate public statements
about Rally's in order to arbitrarily inflate the price of Rally's
common stock, and seek unspecified damages, including punitive damages.
On April 15, 1994, Rally's filed a motion to dismiss and a motion to
strike. On April 5, 1995, the Court struck certain provisions of the
complaint but otherwise denied Rally's motion to dismiss. In addition,
the Court denied plaintiffs' motion for class certification; the
plaintiffs' renewed this motion, and, on April 16, 1996, the Court
certified the class. Two settlement conferences have been conducted but
have been unsuccessful. Discovery is now set to be completed by the end
of 1997. No trial date has been scheduled yet. 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 deny all wrong-doing and intend to defend themselves vigorously
in this matter.
In February 1996, Harbor commenced a derivative action,
purportedly on behalf of Rally's, against certain of Rally's officers
and directors and GIANT, David Gotterer and Burt Sugarman, before the
Delaware Chancery Court. Harbor named Rally's as a nominal defendant.
Harbor claims that the directors and officers of both Rally's and GIANT,
along with GIANT, breached their fiduciary duties to the public
shareholders of Rally's by causing Rally's to repurchase certain Rally's
Senior Notes at an inflated price. The NASDAQ closing price of the
Senior Notes as of November 7, 1997 was $980 per $1,000 principal
amount, 44% higher than the repurchase price. Harbor seeks "millions of
dollars" in damages, along with rescission of the repurchase
transaction. In the fall of 1996, all defendants moved to dismiss this
action. On April 3, 1997, the Chancery Court denied defendants' motion.
GIANT denies all wrongdoing and intends to vigorously defend itself in
this action. It is not possible to predict the outcome of this action at
this time.
In October 1997, the putative class of plaintiffs and the Company
agreed through counsel, to settle the class action amicably, which
settlement provides for (1) the payment of $125,000 in consideration of
the time and effort expended by putative class plaintiff's counsel in
the investigation and promulgation of plaintiff's claims; and (2) the
Company's adoption of two Board of Directors' resolutions establishing
procedures for the Board of Directors to conduct a review of (a) any
bona fide written unsolicited offer to acquire the Company or
substantially all of its outstanding Common Stock, and (b) any
transaction between the Company or its subsidiaries and any officer,
director, or any affiliate of an officer or director. This class action
had commenced in February 1996, when Michael Shores on behalf of himself
and purportedly all other stockholders of the Company commenced a
putative class action against the Company, and certain of the Company's
current and former directors, Terry Christensen, David Gotterer, Burt
Sugarman and Robert Wynn. The complaint, filed before the Los Angeles
County Superior Court, alleged that these directors breached their
fiduciary duties by adopting a stockholder rights plan, by causing GIANT
to sell certain Rally's Senior Notes back to Rally's, by causing GIANT
to repurchase certain amounts of its own Common Stock pursuant to its
stock repurchase program and by agreeing to the Exchange Offer. The
7
8
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
4. COMMITMENTS AND CONTINGENCIES
complaint claimed that these actions were undertaken to entrench
management rather than for the benefit of the Company and its
stockholders. The complaint sought unspecified damages, injunctive
relief and a recovery of attorneys' fees and costs. In February 1997,
defendants filed a motion to dismiss for failure to make a
pre-litigation demand on the Board of Directors to investigate the
plaintiffs' claim. The motion asked the court, in the alternative,
to stay the litigation to permit the Company to address plaintiffs'
claims internally.
On November 13, 1997, KCC, GIANT and Joseph Pike announced the
settlement of their litigation. This litigation had commenced in October
1996 when KCC filed a complaint, in the Los Angeles County Superior
Court, against Joseph Pike, NeoGen Investors, L.P., N.D. Management,
Inc., NeoGen Holdings, L.P., Danco Laboratories, Inc. and NeoGen
Pharmaceutical, Inc. that stated causes of action for fraud, breach of
fiduciary duty, fraudulent concealment, breach of contract, unfair
business practices and permanent and preliminary injunctive relief and
against the licensors of Mifepristone, Population Council Inc. and
Advances in Health Technology, Inc., on a declaratory relief claim. The
complaint sought damages for the breach by Mr. Joseph Pike and related
entities of a July 24, 1996 agreement by which KCC agreed to contribute
$6,000, in return for a 26% equity interest in the entity producing the
abortion inducing drug, Mifepristone, in the United States and other
parts of the world ("NeoGen Agreement"). The licensors of Mifepristone
claimed that their prior approval was necessary for the July 24, 1996
NeoGen Agreement between KCC and Joseph Pike and the other defendants.
On February 19, 1997, the Pike defendants filed an answer to the
complaint, denying its material allegations and raising affirmative
defenses. On that date, certain defendants filed a cross-complaint
against KCC, GIANT, and certain of GIANT's directors, Terry Christensen,
David Malcolm and Burt Sugarman which alleged causes of action for
fraud, breach of contract, intentional interference with prospective
economic advantage, negligent interference with prospective economic
advantage and unfair business practices.
On November 13, 1997, KCC, GIANT and Joseph Pike announced the
settlement of their litigation. This litigation had commenced when in
November 1996 Joseph Pike filed a complaint for defamation against
GIANT, KCC, Terry Christensen, David Malcolm and Burt Sugarman and Does
1 through 50, in the San Diego County Superior Court. The complaint had
sought an unspecified amount of general, special and exemplary damages.
All defendants answered the complaint, denying its material allegations
and raising several affirmative defenses.
Since management does not believe that the previously mentioned
lawsuits and other claims and legal proceedings, in which the Company is
a defendant, contain meritorious claims, management believes that the
ultimate resolution of the lawsuits will not materially and adversely
affect the Company's consolidated financial position or results of
operations.
5. NEW ACCOUNTING PRONOUNCEMENTS
During the current year, the FASB issued SFAS No. 128, "Earnings
per Share" (SFAS 128), SFAS No. 129, "Disclosure of Information about
Capital Structure" (SFAS 129) and SFAS No. 130, "Reporting Comprehensive
Income" (SFAS 130). SFAS 128 revises and simplifies the computation for
earnings per share and requires certain additional disclosures. SFAS 129
requires additional disclosures regarding the Company's capital
structure. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in the Company's consolidated
financial statements. This revision and additional disclosures will be
adopted by the Company as prescribed by these standards.
Management does not expect the adoption of these standards to
have a material effect on the Company's consolidated financial position
or consolidated results of operations.
8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THE
COMPARABLE 1996 PERIOD
Total revenue for the three-month period ended September 30, 1997
decreased by $2,106 to $709 from $2,815 in the prior period. In 1997, the
Company earned income of $234 from yacht charters by the Ocean Group and had
higher income of $166 earned from the Company's higher investment in debt
securities. In 1996, the Company had substantially higher gains of $2,113 on the
sale of the Company's investment in marketable securities and higher interest of
$390 earned on the Company's higher investment in U.S. government obligations.
During the three-month period ended September 30, 1997, The Ocean Group
incurred expenses of $1,684 including amortization of start-up costs of $482, in
operating The Co-Ownership Program, which was launched in February 1997.
Expenses, including start-up costs, consisted primarily of crew and related
expenses of $508, licenses and permits of $333, repairs, maintenance and fuel of
$303, advertising of $146, provisions of $89 and management and professional
fees of $87. During the fourth quarter, the first Co-Ownership interest was
sold.
General and administrative expenses for the three-month ended September
30, 1997 decreased by $55 to $1,152 from $1,207 in 1996. In 1997, the Company
incurred lower consulting fees of $33, travel of $32 and Directors and Officers
insurance of $32, partially offset by higher rent and office expense of $39.
Interest expense for the three-month period ended September 30, 1997
increased by $74 to $75 compared to $1 in 1996 primarily due to the financing of
one of the luxury yachts in the second quarter.
Depreciation for the three-month period ended September 30, 1997
increased by $60 to $165 compared to $105 in 1996 primarily due to higher
expense related primarily to the costs of furniture, equipment and office
improvements incurred during the Company's move into its new office space.
GIANT's investment in Rally's at September 30, 1997 and December 31,
1996, represents approximately 15% of Rally's outstanding common stock. Rally's
reported a net loss of $1,148 and a net income of $414 for the three-months
ended September 28, 1997 and September 29, 1996, respectively. GIANT's non-cash
equity in Rally's for the three-months ended September 30, 1997 and 1996 was a
loss of $172 and income of $88, respectively. Rally's operating results
decreased for the current quarter primarily due to an increase in advertising
expenses of $1,469. Additionally, in 1996, GIANT's non-cash equity in Rally's
was adjusted to reflect the decrease in the Company's ownership percentage in
Rally's due to sale of Rally's common stock to CKE and Fidelity in May 1996.
RESULTS OF OPERATIONS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THE
COMPARABLE 1996 PERIOD
Total revenue for the nine-month period ended September 30, 1997
decreased by $4,721 to $2,158 from $6,879 in the prior period. In 1997, the
Company had higher interest income of $267 earned from the Company's higher
investment in debt securities and income of $234 earned from yacht charters by
the Ocean Group. In 1996, the Company had substantially higher gains of $4,507
on the sale of the Company's investment in marketable securities and higher
interest of $689 earned on the Company's higher investment in U.S. government
obligations in 1996.
During the nine-month period ended September 30, 1997, The Ocean Group
incurred expenses of $2,698 including amortization of start-up costs of $607, in
operating The Co-Ownership Program, which was launched in February 1997.
Expenses, including start-up costs, consisted primarily of crew and related
expenses of $754, repairs, maintenance and fuel of $451, advertising of $432,
licenses and permits of $350, management and professional fees of $162 and
provisions of $151. During the fourth quarter, the first Co-Ownership interest
was sold.
General and administrative expenses for the nine-month period ended
September 30, 1997 increased by $315 to $3,510 from $3,195 in 1996. In 1997, the
Company incurred higher rent and office expenses of $142, travel of $135,
salaries and benefits of $70, partially offset by lower Directors and Officers
insurance of $47.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. (CONT.) (DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THE
COMPARABLE 1996 PERIOD (CONT.)
Interest expense for the nine-month period ended September 30, 1997
increased by $120 to $153 from $33 in 1996 primarily due to interest of $150
associated with the financing of one of the luxury yachts for two months during
the current year. Interest expense for the prior year included $30 related to
the Company's 9.25% Term Note, which was repaid in February, 1996.
Depreciation for the nine-month period ended September 30, 1997
increased by $100 to $382 compared to $282 in 1996 primarily due to higher
expense related primarily to the costs of furniture, equipment and leasehold
improvements incurred during the Company's move into its new office space.
GIANT's investment in Rally's at September 30, 1997 and December 31,
1996, represents approximately 15% of Rally's outstanding common stock. Rally's
reported a net loss of $2,008 compared to a net income of $1,363 for the
nine-months ended September 28, 1997 and September 29, 1996, respectively.
GIANT's non-cash equity in Rally's for the nine-months ended September 30, 1997
was a loss of $301 compared to income of $317 for the comparable 1996 period.
Rally's current year to date operating results include higher pre-tax income
from operations of $1,688 due to lower restaurant expenses. Prior year to date
net income included an extraordinary income item of $4,824, net of tax of
$1,213, related to the early extinguishment of debt. Additionally, in 1996,
GIANT's non-cash equity in Rally's was adjusted to reflect the decrease in the
Company's ownership percentage in Rally's due to sale of Rally's common stock to
CKE and Fidelity in May 1996.
The Company's consolidated financial statements reflect valuation
allowances of $4,916 and $4,796, at September 30, 1997 and December 31, 1996,
respectively, as it is not likely, as defined in SFAS No. 109, that tax
benefits, related to losses recorded which are associated with the Company's
equity investment in Rally's, will be realized in the near future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, marketable securities and income tax and
other receivables totaled $13,755 at September 30, 1997 compared with $37,980 at
December 31, 1996. At September 30, 1997 and December 31, 1996, the Company had
working capital of $38,490 and $45,419, respectively, and current ratios of
approximately 24 and 4 to 1, respectively. In addition, as of September 30, 1997
and December 31, 1996, the Company owned 3,137,000 shares of Rally's common
stock, having a market value of $10,393.
During the quarter ended September 30, 1997, the State of California
Franchise Tax Board ("CFTB") announced their acceptance of the combined report,
as originally filed by the Company, for the tax years 1989 through 1991, with
minor adjustments. The CFTB will determine the final adjustments and inform the
Company at a later date. The Company's consolidated financial statements reflect
a liability associated with these adjustments. As a result of winning this
dispute with the CFTB, the Company recognized a tax benefit of $3,100 in the
third quarter of 1997.
Net cash provided by operating activities for the nine-months ended
September 30, 1997 was $6,162 compared to cash used by operating activities of
$2,229 for the comparable period in 1996. This increase in cash provided by
operating activities was attributable to income tax refunds of $10,813 received
related to the realization of capital losses on the 1996 sales of Rally's common
stock and net operating loss carryback claims, lowered by cash used for the
funding of the Company's operations.
Net cash used by investing activities for the nine-months ended
September 30, 1997 was $14,060 compared to cash provided by investing activities
of $21,869 for the comparable period in 1996. During the first three months of
1997, the Company paid the remaining balance of $10,500 on the short-term note
which financed assets purchased in 1996 for The Co- Ownership Program. On May
16, 1997, the Company signed an agreement to borrow $10,000. This loan was
secured by one of its luxury yachts. The term of the mortgage was twenty-six
months from the date of advancement of funds, which occurred on May 30, and was
subject to prepayment in the event of a transfer of an interest in this yacht.
In July, the loan was paid in full. The Company received principal payments of
$1,865 on its investment in Checkers 13% subordinated debt, including payment in
full of the 1996 short-term advance. Finally, during the current year, the
Company paid $1,828 primarily for furniture, equipment and for leasehold
improvements for its new office space.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. (CONT.) (DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
Net cash used by financing activities for the nine-months ended
September 30, 1997 was $3,638 compared to $14,681 for the comparable period in
1996. In 1997, the Company, with the approval of the Board of Directors,
purchased 459,000 shares of its own Common Stock at a cost of $3,638 compared to
1,674,000 shares at a cost of $15,079 in 1996.
The Company's current liquidity is provided by cash and cash
equivalents, liquidation of marketable securities, cash received from note
receivables and investment income. Management believes that this liquidity, plus
the Company's capital resources and its ability to obtain financing at favorable
rates are sufficient for the Company to properly capitalize its current and
future business operations, as well as fund its on-going operating expenses.
NEW ACCOUNTING PRONOUNCEMENTS
During the current year, the FASB issued SFAS No. 128 which revises and
simplifies the computation for earnings per share and requires certain
additional disclosures. This revision and additional disclosures will be adopted
by the Company as prescribed by this standard.
Management does not expect the adoption of this standard to have a
material effect on the Company's consolidated financial position or consolidated
results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements: Certain information included in this
document (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to the development and implementation of the
Company's new business plan, the acceptance of the Company's Luxury Yacht
Co-Ownership Program, conditions affecting the luxury yacht business generally,
domestic and global economic conditions, activities of competitors, changes in
federal or state tax laws and of the administration of such laws.
11
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal matters, see Note 4 of the Notes to
Consolidated Financial Statements on page 7 of this Form 10-Q and Item 3
"Legal Proceedings" as reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) The Registrant filed no reports on Form 8-K during the third quarterly
period ended September 30, 1997.
ITEMS 2, 3, 4, AND 5 ARE NOT APPLICABLE.
12
13
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
Date: November 13, 1997 By: /s/ William H. Pennington
-----------------------------
William H. Pennington
Chief Financial Officer
13