-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9QSdXMJEgg6J5w0+Ifbd/GEPoR25tpXOf1kF9YPuyp34h/CasemdnuwU4Qn7G4/ urddGICRAYjiHOZjwVj1xQ== 0000922405-99-000005.txt : 19990402 0000922405-99-000005.hdr.sgml : 19990402 ACCESSION NUMBER: 0000922405-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIANT CEMENT HOLDING INC CENTRAL INDEX KEY: 0000922405 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 570997411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24850 FILM NUMBER: 99580235 BUSINESS ADDRESS: STREET 1: 320-D MIDLAND PKWY STREET 2: HIGHWAY 453 & I-26 CITY: SUMMERVILLE STATE: SC ZIP: 29485 BUSINESS PHONE: 8038519898 MAIL ADDRESS: STREET 1: 320 D MIDLAND PKWY CITY: SUMMERVILLE STATE: SC ZIP: 29485 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] for fiscal year ended December 31, 1998 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 0-24850 GIANT CEMENT HOLDING, INC. (Exact name of registrant as specified in its charter) Delaware 57-0997411 (State or other jurisdiction (I.R.S.Employer Identification No.) of incorporation) 320-D Midland Parkway, Summerville, South Carolina 29485 (Address of principal executive offices Zip Code) Registrant's telephone number, including area code: (843) 851-9898 Name of Each Exchange Securities registered pursuant to Title of Each Class on Which Registered Section 12(b) of the Act: Common Stock, $.01 Nasdaq -- NMS Par Value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 15, 1999, 9,081,167 shares of the Registrant's Common Stock, par value $.01 per share, were outstanding. The aggregate market value of the Registrant's Common Stock held by non-affiliates (based on the closing price on the Nasdaq Stock Market on March 15, 1999) was approximately $168.0 million. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Company's 1998 Annual Report to Stockholders are incorporated by reference into Part II hereof. Specified portions of the Company's definitive Proxy Statement for the May 11, 1999 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. Exhibit Index located at Page 13 herein. TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on 8-K 2 PART I ITEM 1. BUSINESS General Development of Business Giant Cement Holding, Inc. (herein referred to as "the Company" on a consolidated basis or "GCHI" on a separate company basis) was incorporated under the laws of the state of Delaware in April 1994. In September 1994, 10,000,000 shares of common stock of GCHI were sold to the public in an initial public offering. The offering resulted in GCHI and its subsidiaries being spun-off from its predecessor parent. GCHI's primary subsidiaries have been in operation since 1883, 1928 and 1947. The Company, through its subsidiaries, Keystone Cement Company ("Keystone") in Pennsylvania and Giant Cement Company ("Giant") in South Carolina, manufactures and sells a complete line of portland and masonry cements used in residential, commercial and infrastructure construction applications. The Company is the 15th largest producer of cement in the United States. Its two cement manufacturing facilities are fully integrated, from limestone mining through cement production, and serve the growing South-Atlantic and Middle-Atlantic regions of the United States. Its subsidiary, Giant Resource Recovery ("Grr") is a pioneer in the development of innovative, environmentally sound methods for the reuse of waste materials in the manufacturing of cement. Today, Giant Cement Holding is one of the largest users of waste-derived fuels in the cement industry. The Company acquired Solite Corporation and certain of its subsidiaries ("Solite") on April 30, 1998. Solite, a vertically integrated company based in Richmond, Virginia, expands Giant Cement Holding's product lines in both construction products and resource recovery. The Company acquired Solite 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. As a result of the Solite acquisition, Giant Cement Holding is now the largest lightweight aggregate supplier on the East Coast and the largest provider of resource recovery fuel burning services nationwide, as well as the fourth largest cement producer in its East Coast markets. Financial Information About Industry Segments The Company is involved in two business segments comprised of the domestic manufacture and sale of portland and masonry cements and related aggregates (cement) and the domestic manufacture and sale of other construction products, lightweight aggregate and lightweight block (construction products), in the South-Atlantic and Middle-Atlantic regions of the United States. The Company is also involved in waste recycling and resource recovery, utilizing industrial waste as supplemental fuels in its cement and lightweight aggregate kilns. Information concerning the Company's net sales, operating income and assets, by segment, is included in Note 15 of Notes to Consolidated Financial Statements in the 1998 Annual Report To Shareholders, which is incorporated herein by reference. Narrative Description of Business The Company owns and operates two limestone quarries and cement manufacturing facilities through its wholly-owned subsidiaries Giant and Keystone, and three lightweight aggregate manufacturing facilities, five concrete block plants, and a waste treatment and blending facility through its wholly-owned subsidiary Solite. Giant, located in Harleyville, South Carolina, serves the South-Atlantic region of the United States; Keystone, located in Bath, Pennsylvania, serves the Middle-Atlantic region; and Solite, located in Virginia, North Carolina and Alabama, serves both the South-Atlantic and Middle-Atlantic regions. The Company pioneered resource recovery techniques for use in the manufacturing of cement in the late 1970's and is one of the largest users of waste-derived fuels in the cement industry. Operations Cement. Cement is made in a multi-stage process that begins with the crushing, grinding, and mixing of calcium (usually in the form of quarried limestone or "cement rock"), silica, alumina, iron oxide, and other materials. This raw material is then processed in a rotary kiln at extremely high temperatures, causing it to undergo a chemical reaction. The resulting marble-sized, 3 pellet-like material (known as "clinker") is then cooled and ground with a small quantity of gypsum to produce cement. Giant was founded in 1883 and commenced operations in Harleyville, South Carolina in 1947. Giant owns approximately 2,100 acres of land in Harleyville, where its cement production facilities and 230-acre limestone quarry are located. The Company presently estimates that Giant's limestone reserves are adequate to meet its plant requirements for in excess of 50 years. Giant has four wet process kilns with a combined rated annual clinker capacity of approximately 840,000 tons and a manufacturing plant with an annual finish grinding capacity of approximately 950,000 tons. Keystone, founded in 1928, owns approximately 1,000 acres of land in Bath, Pennsylvania, in the Lehigh Valley region approximately 60 miles north of Philadelphia. Keystone obtains the cement rock used in its production from its 200-acre limestone quarry located adjacent to its plant. The Company presently estimates that Keystone's limestone reserves are adequate to meet its plant requirements for in excess of 50 years. The two wet process kilns used in Keystone's operations have a combined rated annual clinker capacity of approximately 600,000 tons and its manufacturing plant has an annual finish grinding capacity of approximately 750,000 tons. Rated annual clinker capacity is based upon the cement kiln manufacturer's specifications. The Company's historical annual clinker production has not exceeded 1.3 million tons. The principal raw materials used in the manufacturing of cement, other than limestone, are silica, alumina, iron oxide, and gypsum, which are purchased from various suppliers. Management believes that the supply of these raw materials will be adequate to permit production at planned capacities for the foreseeable future. Construction Products. Solite, founded in 1947, has lightweight aggregate ("LWA") manufacturing facilities in North Carolina and Virginia, concrete block plants in North Carolina and Virginia, and a waste treatment and blending facility in Alabama. Solite mines shale or slate and processes this raw material in rotary kilns to produce LWA. The LWA facilities are located on 500 to 750 acre sites and each has over a 50 year supply of raw material. The LWA facilities have a combined production capacity of 600,000 tons. The concrete block plants manufacture and sell concrete masonry blocks, including those made with LWA. The concrete block facilities have a combined production capacity of 18 million blocks. The waste facilities provide (acquire, blend and store) waste-derived fuels for the production of LWA and cement. Products Cement. The Company principally manufactures a full line of portland cement, which is the fundamental binding agent in concrete. Giant's cement has a low-alkali content, a characteristic favored for use by federal and state governments on certain projects due to its minimal reaction with soil and other aggregates. Keystone also produces limited quantities of low-alkali cement. The Company believes that Keystone is the only cement manufacturer currently producing a low-alkali cement within a 100 mile radius of the Keystone plant. In addition to portland cement, the Company manufactures masonry cement, which is used in the preparation of mortar used in block and brick masonry. The Company also mines, crushes, screens, and sells various sizes of stone and gravel, to the construction industry for use in paving, road base material, and assorted small volume applications. Additionally, the Company markets cement kiln dust ("CKD") and, occasionally, a customized blend of CKD and cement under the registered trade name "StableSorb." StableSorb is utilized by construction, remediation, and other contractors for the purpose of solidifying soil, wastes, and other materials. Construction Products. The Company produces LWA under the trade name Solite(R). Solite(R) is primarily used in concrete and masonry blocks. The Company's block facilities manufacture and sell various concrete masonry blocks, including those made with Solite(R), along with merchandise such as coatings, mortar mix and reinforcing wire. Marketing and Distribution. The Company markets its products to ready-mix concrete plants, concrete product and block manufacturers, building material dealers, construction contractors, and state and local government agencies through its experienced sales force. Cement. Approximately 85% of the Company's cement is sold in bulk, primarily to ready-mix and concrete products manufacturers, with the remainder sold in individually packed bags, primarily to building materials dealers. 4 South-Atlantic Region. Giant's market area covers most of the South-Atlantic region of the United States, from southern Virginia to southern Georgia. The South-Atlantic region is one of the largest cement markets in the United States in terms of cement consumption. Giant's sales are most heavily concentrated in North and South Carolina, with the remainder of its sales in Georgia and southern Virginia. Middle-Atlantic Region. Keystone's market area, which covers most of the Middle-Atlantic region of the United States, includes eastern Pennsylvania, southeastern New York, New Jersey, western Connecticut, and portions of Delaware and Maryland. Keystone's sales are most heavily concentrated in eastern Pennsylvania, southeastern New York, and New Jersey, with the remainder of its sales in Connecticut, Delaware, and Maryland. Construction Products. LWA is sold in bulk, primarily to block manufacturers and ready-mix concrete companies. The Company's LWA market area covers most the South-Atlantic and Middle-Atlantic regions of the United States from Pennsylvania to Florida. Lightweight block is marketed primarily to masonry and construction contractors, predominantly within a 100 mile radius of the Company's five block plants located in North Carolina and Virginia. Sales Practices and Distribution. The Company has more than 1,000 customers, the majority of which have been doing business with the Company for more than five years. No single customer accounted for 10% or more of the Company's sales during 1998, and the Company believes that the loss of any single customer would not have a material adverse effect on the Company's financial condition or results of operations. The Company, following the sales practices characteristic of its industries, does not provide the right to return nonfaulty product or extended payment terms to customers in the ordinary course of business. As is customary in the industries, the Company does not typically enter into long-term sales contracts, except with respect to major construction projects. Because the needs of its customers are generally short term in nature, backlog orders are not significant in the cement or construction products industries. The production facilities of both Keystone and Giant are located near, and served by, major rail transportation lines, which provide ready access for transporting cement to the Company's customers or terminals. Giant delivers a substantial portion of its product by rail either directly to its customers or to its terminals where the product is picked up by customers. At Keystone, almost all product is shipped via truck, with a substantial amount being picked up by customer-owned trucks. Both Giant and Keystone have good relations with contract carriers which operate fleets of trucks to provide quick delivery, on demand, to the Company's customers requesting truck deliveries. To meet the needs of its customers in the South-Atlantic market area, Giant and its wholly-owned subsidiary, Giant Cement NC, operate one terminal and three distribution warehouses, with annual throughput capacity of approximately 165,000 finished tons, and 25,000 square feet of storage capacity for bagged product. Giant Cement NC upgraded its Durham, N. C. terminal facilities during 1998 to improve efficiency and distribution capabilities. The Company's LWA facilities are readily accessible by highway and railway, and have the capability to ship via navigable waterway. The ability to serve the Company's LWA markets is made possible through a system of strategically located distribution terminals. The terminals can be supplied either by rail, truck or water vessel. As a general rule, plants ship LWA to customers within an approximately 500 mile radius. Due to the cost of transporting block, which is all hauled by truck, plants are located within a one hundred mile radius of the market being served. General and Regional Economic Conditions. Demand for the Company's products is directly related to activity in the construction industry and general economic conditions. Various economic factors beyond the Company's control affect cement and construction products consumption, including the level of new residential, commercial and infrastructure construction activity, which are in turn affected by movements in interest rates, the availability of short and long-term financing and the availability of public funds for infrastructure projects. Accordingly, adverse economic conditions in the Company's markets or a worsening of general or local economic conditions could adversely affect the Company's operating results. Cement demand reached a cyclical low in 1991, and, as a consequence, the Company experienced a decline in sales in 1991. Demand was flat to slightly higher in most regions of the country during 1992 and increased in 1993 through 1997 to record levels for U.S. cement consumption. While U.S. cement consumption was at or near record levels again in 1998 and exceeded U.S. supply, there can be no assurance that increased cement demand will continue or that demand will remain at current levels. 5 Competition. Due to the lack of product differentiation and the commodity nature of cement and construction products, the business is highly competitive. Competition is based largely on price and, to a lesser extent, quality and service. The Company competes with national and regional producers in its markets. Many of the Company's competitors are larger and have significantly greater resources than the Company. The prices that the Company charges its customers are not likely to be materially different from the prices charged by other producers in the same markets. Accordingly, profitability in the cement and construction products industries is generally dependent on the level of demand and on a producer's ability to contain operating costs. Prices are subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Company's control. Prior to 1993, cement prices in the United States, including the Company's markets, had fallen and remained depressed for several years, primarily due to the economic recession and competition from lower priced foreign imports. Although the Company has been able to increase its cement prices in recent years, there can be no assurance that prices will not decline in the future. There are 11 companies in the South-Atlantic region which compete with Giant in some portion of its market, including three direct competitors, two of which compete throughout its market area. There are 15 companies in the Middle-Atlantic region which compete with Keystone in some portion of its market, including five direct primary competitors. The Company believes that Keystone is the only cement plant currently producing low-alkali cement in its immediate market area. Additionally, none of Keystone's direct competitors are currently permitted to utilize waste-derived fuel as an alternative source of fuel. During the latter part of the 1980's, an influx of low-price cement imports caused prices to deteriorate in many domestic markets. A portion of the markets served by the Company may be directly subject to imports of foreign cement which can affect pricing in all of its market areas. Imports declined significantly from 1987 to 1992. The Company believes the decline was the result of increased foreign consumption, increased ocean transportation costs and the imposition of anti-dumping duties, among other things. From 1993 to 1998, imports into the United States increased significantly as a result of the U. S. demand and consumption exceeding the domestic supply. Through 1998, the increase in the cement imports has had little effect on current prices. While the Company does not believe imports had a significant impact on its market areas in 1998, nationally, imports increased significantly and there can be no assurance that importation of lower-priced cement in the future will not increase. LWA for block production, which is the primary market for the Company's LWA, is highly competitive as high performance is secondary to competitive pricing. There is pressure on block makers to utilize low cost, marginal aggregates in order to reduce the cost of the masonry unit. Therefore in the block LWA material market, the Company competes primarily on the basis of price. In the civil and high rise construction markets, product performance drives pricing strategy. High performance job specifications dictate which LWA producers will be able to competitively bid on the project. The higher the level of performance, the less competition is evident. Foreign importation of aggregates has had a negative impact on pricing. Greecian and Italian pumice imports have significantly depressed prices in the eastern coastal areas over the past 5 years. To attempt to reverse this trend, Solite is continuing it's campaign to focus the design community on "quality" block specifications and not allowing inferior aggregates. Resource Recovery. The cost of energy represents a significant percentage of total cement and LWA manufacturing costs. The Company's cement plants utilize the "wet kiln" process. While the "wet kiln" process requires more thermal energy than the alternative "dry kiln" process, the Company has implemented technology which utilizes liquid and solid industrial wastes with high BTU values ("waste-derived fuels") as fuel substitutes ("resource recovery") in the process of manufacturing cement. In the late 1970's, Keystone pioneered resource recovery techniques in the U. S. cement industry. Giant also began the limited use of waste as a fuel substitute in 1987 and has since expanded its use of industrial solvents and other hazardous waste-derived fuels, including waste solids. These resource recovery efforts have significantly reduced the Company's traditional fossil fuel consumption and production costs, while providing it with an additional source of revenue as industrial companies pay the Company to utilize these waste-derived fuels. Waste-derived fuels normally comprise approximately 45-50% of Keystone's total fuel usage and 50-60% of Giant's. Although the Company was among the first in the cement industry to utilize resource recovery as a substitute for fossil fuels, this technique has since been adopted by a number of other U. S. cement producers and is utilized at 18 cement plants. Four of the five largest cement companies in the United States and four of the six publicly traded companies in the U. S. utilize resource recovery at one or more of their production facilities. Keystone is, however, the only Pennsylvania plant presently permitted to commercially burn hazardous waste. Keystone is currently permitted to burn such waste at rates of up to approximately 50% of its fuel requirements. While Giant is one of two 6 plants in its immediate market area that is presently permitted to burn numerous categories of hazardous and non-hazardous liquids and solids, it is the only one in such area that is presently permitted to burn such wastes at rates of up to approximately 100% of its fuel requirements. Additionally, Giant has developed techniques to increase the proportion of higher revenue waste solids used in its resource recovery activities. The Company's cement and LWA subsidiaries utilize a network of generators, brokers, fuel blenders, and treatment, storage, and disposal facilities to obtain waste-derived fuels. The sources for such waste products range from Fortune 500 companies to small independent waste treatment, storage, and disposal facilities. The Company's LWA facilities constitute three of the four LWA facilities nationally that utilize waste fuels as a substitute for fossil fuels and are the only facilities in Virginia and North Carolina permitted to commercially burn hazardous waste. All three facilities are permitted to substitute up to 100% of its fuel requirements with such wastes. The Company's resource recovery operations are dependent on general and regional economic conditions; federal, state and local environmental laws, regulations and policies; and the Company's cement and LWA kiln utilization. The Company competes with numerous other companies for the supply of waste-derived fuels primarily on the basis of service and price. Environmental Matters. The Company's operations and properties are subject to extensive and changing federal, state, and local environmental laws relating to air and water quality, as well as to the handling, treatment, storage and disposal of wastes. In connection with the Company's utilization of hazardous waste-derived fuels, 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. In addition, the Company could be subject to claims by employees or others alleging exposure to toxic or hazardous substances as a result of the failure to observe environmental laws. 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 Company has been performing industrial operations at its properties for many years. Various materials from these operations have been disposed of in on-site landfills and may have been disposed of in off-site landfills and other facilities. As a result, the Company from time to time may be involved in administrative and other proceedings involving compliance matters and alleged violations of environmental laws at its operations and facilities. The Company's annual expenditures for environmental compliance exceed $3.5 million per year, which includes dust collection and control systems and compliance expenditures related to the Company's resource recovery operations. Capital expenditures relative to environmental compliance totaled $2.8 million in 1996, $3.2 million in 1997 and $2.7 million in 1998. In 1997, the Company committed to construct a residual waste landfill at its Pennsylvania plant for the future management of CKD the total capital cost of which is expected to be $2.5 million over the landfill's estimated 15 year life. The Company does not believe compliance expenditures impair its competitive position because its competitors are subject to the same laws and regulations, with the exception of those regulations specifically relating to resource recovery operations for which the Company currently receives revenues that more than offset the related compliance costs. However, the Company has no knowledge of its competitors' environmental compliance costs and such costs could vary depending upon the characteristics of a competitor's facilities. The Company's operations are subject to the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and five delegated state programs, which together provide a comprehensive regulatory framework for the management of hazardous wastes at active facilities. RCRA sets up a "cradle to grave" system for the management of hazardous wastes, imposing upon all parties who generate, transport, treat, store, or dispose of waste above certain minimum quantities, requirements, including permitting requirements, for performance, testing, and record keeping. The boiler and industrial furnaces ("BIF") regulations, promulgated in 1991 under RCRA, also require, among other things, that cement and LWA kilns utilizing waste-derived fuels obtain operating permits. The BIF regulations are extremely complex and certain provisions are subject to different interpretations. Each of the Company's resource recovery operations operate under RCRA Part B Permits for the storage and management of hazardous Waste. In addition, the facilities operate under BIF "interim status" permits, which allow them to substitute various percentages, up to as much as 100%, of their respective fuel requirements with hazardous waste-derived fuels. During this interim status period, the Company's plants must comply with BIF standards regarding emissions 7 of particulate matter and other parameters. The Company's subsidiaries are currently pursuing RCRA Part B permits for the burning of such fuels pursuant to the BIF regulations; which the Company believes may take one or more years to obtain. Pursuant to the BIF regulations, in order to maintain interim status permits for the burning of waste-derived fuels, the Company is required to perform BIF Compliance Tests ("BIF Tests") and submit Certificates of Compliance ("COC's") every three years . The Company performed BIF tests in 1998 at a cost of $760,000. The BIF Tests results and COC's set various operating parameters within which the Company must operate, including volumes of waste-derived fuel, qualitative aspects of waste-derived fuel and various other parameters. The BIF Tests are monitored by the EPA or its representative, and the BIF Tests results and COC's are subsequently reviewed by the EPA for compliance with the BIF regulations. The Company believes its COC's are substantially in compliance with the BIF regulations. However, there can be no assurance that upon EPA's review of the submissions, the EPA will concur with the Company and not require a new BIF Test or levy fines for non-compliance. There can be no assurance that the results of future BIF Tests will be successful or that future COC's will provide favorable operating parameters for burning waste-derived fuels. Should the Company fail a BIF Test, it can continue to utilize waste-derived fuels for a total of 720 hours including hours spent conducting a new BIF Test. Various aspects of the Company's operations are also subject to regulation under the federal Clean Air Act, as amended (the "CAA"). The CAA amendments of 1990 (the "Amendments") resulted in numerous changes to the CAA, including a new federal operating permit (Title V permit) and fee program for virtually all manufacturing operations. The Amendments will likely result in significantly increased capital and operational expenses for all manufacturers in the cement and lightweight aggregate industries in the future, the amounts of which are not presently determinable. In 1996, the Company's plants submitted detailed Title V permit applications for air emissions. In addition, the EPA is developing regulations for certain air pollutants under the Amendments for a broad spectrum of industrial sectors, including portland cement manufacturing and commercial waste combustion facilities. The EPA has indicated that the new maximum available control technology standard ("MACT") for these pollutants under these Amendments could require significant reduction of air pollutants below existing levels prevalent in the industry, which could have a material adverse effect on the Company's financial condition or results of operations. The EPA issued draft regulations for MACT in 1996 for public comment and requested additional public comment on alternative approaches in April 1997, with final promulgation expected in mid 1999. Many of the raw materials, products, by-products, and wastes associated with the Company's facilities and operations contain chemical elements or compounds that are regulated under the environmental laws. Some examples of such materials are CKD and general purpose solvents, which in some instances may contain hazardous constituents including trace metals, organics or exhibit other hazardous waste characteristics. The Company has from time to time transported or delivered certain of these materials to various on-site and off-site disposal sites. Treatment and disposal of hazardous wastes generated from operations at on-site and off-site locations is additionally subject to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA" ). CERCLA imposes joint and several liability (without regard to fault) on certain categories of persons for clean-up costs related to releases of certain materials at facility sites, and for damage to natural resources. The Company has been identified as a potentially responsible party at a site in Southington, Connecticut under CERCLA. According to the EPA, it initially notified over 1,000 parties and subsequently notified hundreds of additional parties including the Company, of their potential liabilities. The final volumetric ranking for the site, dated July 1993, indicates the Company contributed only .03206 percent (3.2 one hundredths of a percent). The agent for the PRP group has estimated the cleanup cost could range from $30 million to $100 million over the course of ten to twelve years. Unless a substantial number of larger PRP's are released from liability, the Company's liability at .03206 percent is not expected to be material. In addition to CERCLA, similar state or other environmental laws may impose the same or even broader liability for the discharge, release, or the mere presence of certain substances into and in the environment. CKD, a by-product of cement manufacturing, is currently excluded from regulation as a hazardous waste under the "Bevill Amendment" to RCRA. However, CKD that comes in contact with water might produce a leachate with an elevated pH. In December 1993, the EPA issued a Report to Congress on CKD in which the EPA concluded that risks associated with CKD management are generally low, but that there is potential under certain circumstances for CKD to pose a danger to human health and the environment, or that it may do so in the future. On January 31, 1995 the EPA issued a Regulatory Determination on CKD. The EPA reported that CKD would retain its status as a "Bevill Waste" and remain exempt from regulation as a hazardous waste until such time as the EPA promulgates new regulatory controls. The EPA intends to take a "common sense" approach in developing a highly tailored set of standards that will "prevent damage to ground and potable water and reduce health risks associated with breathing and ingesting dust from cement kilns." The EPA further made it clear that it has no 8 problems with recycling or reuse of CKD, and that it has not limited beneficial uses of CKD; however, the EPA does not encourage the use of CKD as an agricultural lime additive. Though the EPA originally intended to conduct a typical rule-making process which would involve information gathering, eventually followed by the development of a proposed rule and the promulgation of a final rule, the EPA is now considering two alternatives to the full rule-making process. Under the first alternative, a state with a federally approved hazardous waste program would be able to oversee the management of CKD on a site-by-site basis, either through regulation, permit, or enforceable agreement. The second alternative would be to create federal rules that would set contingent management standards for cement kiln dust to meet before being exempt from Subtitle C of the Resource Conservation and Recovery Act. Key components of management conditions would be based on the design of the waste management unit, dust control practices, and other factors. The EPA is expected to issue a proposed rule sometime in 1999, with a final rule to follow. The cement industry will be vigorously pursuing a range of regulatory, legislative and judicial remedies because the industry continues to believe that CKD is not a hazardous waste, should never be classified as a hazardous waste and, therefore, does not warrant RCRA Subtitle C regulation. The industry believes its voluntary enforceable agreement that was submitted to the Agency in 1995 offers a responsible and valid approach for managing CKD outside the realm of RCRA Subtitle C. These standards address all possible exposure pathways and are fully protective of human health and the environment. The industry is fully committed to avoiding regulation of CKD as a hazardous waste while at the same time acknowledging the need to generally improve CKD management. Accepted industry practice has been to store CKD on-site. The Company collects and stores CKD at its plants and recycles CKD related to its operations. Additionally, the Company markets CKD and, occasionally, a customized blend of CKD and cement under the registered trade name "StableSorb." StableSorb is utilized by construction, remediation, and other contractors for the purpose of solidifying soil, wastes, and other materials. Although the potential costs and impact of repeal of the Bevill Amendment exemption with respect to CKD or adoption of particular EPA or State management standards for CKD in the future cannot be estimated at this time, such costs and impact could have a material adverse effect on the Company's financial condition or results of operations. Another RCRA concern in the cement industry involves the disposal of refractory brick containing chromium. Refractory brick containing chromium was formerly widely used in the cement industry to line cement kilns and has been utilized and disposed of on-site by the Company in the past. The Company's facilities conduct tests on all brick removed from its kilns to determine whether or not it is a hazardous waste, and these tests have confirmed such brick to be non-hazardous under the applicable RCRA standards. The Company conducts these tests in accordance with EPA standards and believes that the EPA would reach the same conclusions. The discussion above regarding CKD and refractory brick applies to the dust collected in pollution control devices, and refractory brick utilized, in the LWA manufacturing process as well. Because of the nature of the product and the dust, Solite is presently able to recycle all of its dust and brick in its lightweight aggregate product. However, there can be no assurance that it will be able to continue to do so should regulations or the nature of the product or dust change in the future. The Company's quarry sites must comply with noise and dust suppression regulations, zoning, and special use permitting requirements, applicable mining regulations and federal health and safety requirements administered by the Mine Safety and Health Administration. The Company is also obligated under certain of its mining permits and certain regulations to engage in reclamation of land within the quarries upon completion of extraction and mining. The burning of hazardous waste-derived fuels is a key factor to the profitability of the Company. A substantial reduction in the Company's ability to substitute hazardous waste-derived fuels for traditional fossil fuels could have a material adverse effect on the Company's financial condition or results of operations. The Company regularly monitors and reviews its operations, procedures, and policies for compliance with these environmental laws and the Company's operating permits. The Company believes that its current procedures and practices in its operations, including those for handling hazardous wastes, are substantially in compliance with all environmental laws and its material operating permits. There can be no assurance, however, that a review of the Company's past, present, or future operations by courts or federal, state, or local regulatory authorities will not result in determinations that could have a material adverse effect on the Company's financial condition or results of operations. In addition, the revocation of any of the Company's operating permits, the denial of any application by the Company for a permit or the failure to renew any interim permit could have a material adverse effect on the Company's financial condition or results of operations. The Company cannot predict what environmental laws will be enacted or adopted in the future or how 9 such future environmental laws will be administered or interpreted. The trend has been toward more stringent environmental standards. Compliance with more stringent environmental laws or more vigorous enforcement policies or stricter interpretation of current environmental laws could have a material adverse effect on the Company's financial condition or results of operation. In December 1997, the resource recovery operation at Keystone experienced a fire at its waste fuel storage tank farm. There were no injuries and no known environmental damage. Keystone negotiated an agreement with the Pennsylvania Department of Environmental ("PADEP") to allow it to resume waste fuel burning effective July 1998. Under the terms of the agreement, Keystone will pay a fine of $488,000 in installments over a ten-year period. The inability to utilize waste fuels for seven months in 1998 resulted in lost revenues and additional fuel costs of approximately $3.5 million. In June 1998, the Company settled its business interruption insurance claim related to the Keystone incident for $1.6 million, which is included in other income at December 31, 1998. See "Legal Proceedings". Safety and Health Matters. The Company's facilities and operations are governed by laws and regulations relating to worker health and workplace safety. The Company believes that appropriate precautions are taken to protect employees and others from harmful exposure to materials handled and managed at its facilities. The Company does not believe that it will be required in the near future to expend amounts that are material in the aggregate to the Company's overall operations by reason of such health and safety laws and regulations. Insurance. The Company maintains property insurance and other insurance such as business interruption and boiler and machinery insurance on all of its plants in types and amounts believed to be customary for companies engaged in similar operations. The Company also maintains environmental liability insurance policies which, under certain circumstances, provide coverage in the event of certain off-site environmental damage resulting from the facilities' on-site operations of $5.0 million per occurrence and $10.0 million annual aggregate at each of its cement and LWA manufacturing facilities. The policies contain a number of exclusions, including liabilities arising under CERCLA, fines and penalties. Employees. As of December 31, 1998, the Company employed approximately 789 people. Approximately 258 of the Company's employees are covered by contracts with labor unions which expire on April 30, 2000 and April 30, 2001. The Company considers relations with employees to be satisfactory. The Company has substantially reduced its work force through voluntary early retirement programs offered to certain groups of employees and other measures during the 1990's. The Company's cement manufacturing, hourly employees are represented by the United Paperworkers International Union ("UPIU"). During 1998, the Company reached a new three-year labor agreement with the hourly employees at Keystone, granting annual wage increases ranging from 3% to 4% per annum, among other changes, the total impact of which is not expected to have a material effect on the Company's results of operations. Trademarks. While the Company has trademarks registered with the United States and with certain states in which its products are sold, the Company believes that its products sold in bulk form are sold primarily on the basis of price, and to a lesser extent, quality and service. Packaged products are sold on the basis of price and trade name, and to a lesser extent, quality and service. Seasonal and Cyclical Business. Regional cement and construction products markets are highly cyclical, experiencing volatility corresponding to regional construction cycles. While the impact on the Company of regional downturns in the construction industry may be mitigated to some degree by the Company's presence in both the Middle-Atlantic and South-Atlantic markets, profitability is significantly affected by such construction cycles. In addition, the construction industry is seasonal in nature primarily due to the effect of weather conditions on construction activity. The Company has historically experienced lower operating income during the months of December, January and February, particularly with respect to its Middle-Atlantic markets where construction activity is more significantly affected by inclement weather. The cement and construction products industries are highly dependent upon the level of demand as a result of the high fixed costs associated with production. The Company's cost per unit of production is directly related to the number of units manufactured; decreases in production increase the Company's fixed cost per unit. Equipment utilization percentages or uptime can vary from year to year based upon demand for the Company's products or as a result of equipment failure. Much of the Company's significant manufacturing equipment requires long lead-times to replace and is very costly to replace or repair. The Company attempts to maintain sufficient spare parts inventories to avoid long 10 periods of shutdown in the event of equipment failure, but there can be no assurance such shutdowns can be avoided. Financial Information About Foreign and Domestic Operations and Export Sales The Company does not export products in the normal course of operations; however, through its subsidiaries, it exports an insignificant amount of products from time to time. Disclosure Regarding Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. Certain information in Items 1, 3 and 7 of this Form 10-K include information that is or could be considered to be forward looking, such as the Company's development of techniques to increase the proportion of higher revenue waste solids used in its resource recovery activities, its exposure to foreign imports, its anticipated liquidity and capital requirements, and the results of regulatory changes and legal proceedings. The matters referred to in forward looking statements could be affected by the risks and uncertainties involved in the Company's business. These risks and uncertainties include, but are not limited to: the effect of national, regional and local economic conditions, changes in the level of housing starts or commercial, industrial and infrastructure construction spending, increases in cement supplies in relation to demand, possible increases in shipping rates or interruptions in shipping service, the level and volatility of interest rates, the impact of current, pending, or future federal, state and local legislation, policies and regulations, interruptions in waste fuel supplies, the loss of any operating permits or other disruptions of the Company's ability to utilize waste fuels, as well as certain other risks described above in this Item under "Competition", "Environmental Matters" and "Seasonal and Cyclical Business", and below in Item 3 in "Legal Proceedings" and in Item 7 in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Form 10-K. Executive Officers of the Registrant Set forth below are the executive officers of the Company, together with their ages, their positions with the Company and the year in which they first became an officer of the Company or its subsidiaries. Gary L. Pechota, 49, has served as Chairman, President, Chief Executive Officer and a director of the Company since its inception in April 1994. Mr. Pechota also has served as President of Giant since January 1993 and as President of Keystone since May 1992. Prior to joining Keystone, Mr. Pechota served as President and Chief Executive Officer of Dacotah Cement Company, a state-owned cement company, from January 1982 to May 1992. Mr. Pechota has been employed in the cement industry for over 16 years. Terry L. Kinder, 40, has served as Vice President, Chief Financial Officer, Secretary, Treasurer and a director of the Company since April 1994. Mr. Kinder has served as Vice President, Secretary and Treasurer of Giant Group, Ltd. ("GROUP"), the Company's former parent, from June 1986 to September 29, 1994. From June 1989 to December 1992, Mr. Kinder also served as President of Giant and from June 1989 to April 1992, he served as President of Keystone. Prior to joining GROUP, Mr. Kinder was a Certified Public Accountant with Coopers & Lybrand from January 1980 to June 1986. Richard A. Familia, 46, has served as Vice President, Environmental Affairs of the Company since April 1994. Mr. Familia has also served as President and Chief Operating Officer of GRR since February 1992. From 1987 to February 1992, he served as Director of Operations for various operating facilities of Laidlaw Environmental Services, Inc., a publicly-held company engaged in various environmental and other businesses. Mr.Familia has been employed in the environmental industry for over 20 years. ITEM 2. PROPERTIES Harleyville, South Carolina Cement Plant. The Company owns approximately 2,100 acres of land near Harleyville, South Carolina, where Giant's plant and the quarry for its primary raw material are located. Giant's manufacturing plant includes crushing, raw grinding, finished cement grinding and other cement processing facilities. The ages of the plant kilns range from 22 to 45 years. 11 Bath, Pennsylvania Cement Plant. The Company owns approximately 1000 acres of land located in the Bath, Pennsylvania area, where Keystone's plant and the quarries for its primary raw material are located. The plant includes crushing, raw grinding, finished cement grinding and other cement processing facilities. One of its cement kilns was installed in 1956 and the other in 1966. The Company's cement manufacturing facilities have an annual rated clinker capacity of approximately 1.4 million tons and an annual rated cement grinding capacity of 1.7 million tons. The Company believes that these facilities are adequately maintained and suitable for its purposes. Arvonia, Virginia LWA Plant. The Company owns approximately 600 acres of land in Buckingham County, Virginia, where a Solite LWA plant and quarry is located. At present, the plant's kilns operate at an annual production rate of approximately 150,000 tons. Cascade, Virginia LWA Plant. The Company owns approximately 500 acres of land in Pittsylvania County, Virginia where a Solite LWA plant and quarry is located. At present, the plant's kilns operate at an annual production rate of approximately 190,000 tons. Acquadale, North Carolina LWA Plant. The Company owns approximately 750 acres in Stanly County, North Carolina, where a Solite LWA plant and quarry is located. At present, the plant's kilns operate at an annual production rate of approximately 130,000 tons. Block Plants. The Company owns and operates five concrete block plants with a combined production capacity of 18 million blocks. The plants are located at: Charlotte, NC; Eden, NC; Lynchburg, VA; South Boston, VA and Lexington, NC. Other Properties. The Company's and Giant's headquarters are located in leased space in Summerville, South Carolina. The Company also operates a distribution facility on its land in Durham, North Carolina, which has storage facilities for approximately 775 tons of cement, and rents warehouse space in Atlanta , Georgia, as well as in Durham and Charlotte, North Carolina. Keystone's offices are located in leased space in Bath, Pennsylvania. Solite's offices are located in leased space in Richmond, VA. The majority of the Company's assets are pledged as collateral under the terms of financing agreements.(See Note 7 of Notes to Consolidated Financial Statements) ITEM 3. LEGAL PROCEEDINGS On December 8, 1997, the resource recovery operation at Keystone Cement Company, a wholly-owned subsidiary of Giant Cement Holding, Inc., experienced a fire at its waste fuel storage tank farm. There were no injuries and no known environmental damage. Immediately after the incident, Keystone ceased utilization of waste fuels and later entered into a negotiated consent agreement with the PADEP to halt the use of waste fuels at its plant pending an investigation of the cause and determination of the appropriate corrective actions to ensure that a similar incident does not occur in the future. A report on the findings and recommended corrective actions was submitted to the PADEP on December 31, 1997. Keystone negotiated an agreement with the PADEP to allow it to resume waste fuel burning effective July 1998. Under the terms of the agreement, Keystone will pay a fine of $488,000 in installments over a ten-year period. In June 1998, the Company settled its business interruption insurance claim related to the Keystone incident for $1.6 million, which is included in other income at December 31, 1998. In April 1995, the PADEP issued Keystone an air quality plan approval with new requirements for emission rates, operating conditions, and a risk assessment. While the new air quality plan approval left Keystone's waste fuel substitution rates intact, Keystone subsequently filed an appeal with the Pennsylvania Environmental Hearing Board (EHB) challenging certain permit conditions as outside the PADEP's authority, among other things. On March 11, 1997 the EHB entered a Partial Consent Adjudication in which Keystone and the PADEP agreed to a process to resolve all outstanding issues. Under the Consent Adjudication, Keystone agreed to perform a multipath risk assessment in accordance with a negotiated protocol and the PADEP agreed to process and publish a permit modification allowing Keystone to increase its hazardous waste fuel usage to 75% of its fuel needs if the risk assessment meets certain risk thresholds. Keystone completed the risk assessment and filed it and the permit modification with the PADEP. The PADEP currently has Keystone's submissions 12 under review and consideration, consistent with the Partial Consent Adjudication. The date of the issuance of the revised permit cannot be estimated at this time. Keystone has been identified as a PRP under CERCLA at a site in Southington, Connecticut. According to the U. S. EPA Volumetric Ranking List, dated July 22, 1993, Keystone's percentage of waste disposed of at the site is .0302 percent (3.2 one-hundredths of a percent) of the total attributable to identifiable parties. Because liability under CERCLA is joint and several, the insolvency or discharge from liability of any other PRP could increase the Company's potential liability. Although no assurances can be given that this percentage represents a limitation on Keystone's liability, the Company believes that the final outcome of this matter will not have a material adverse effect on the Company's financial condition or results of operations. In general, violations of the permit conditions or of the environmental regulations, even if immaterial or unintentional, may result in fines, shutdowns, remedial actions or revocation of the 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. The basis for the Company's estimate as to the probable effect of these proceedings is its current analysis of such proceedings. Should the determination of these proceedings be adverse to the Company, such result could have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information included in the section entitled "Market and Dividend Information" in the 1998 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information included in the section entitled "Five-Year Summary of Consolidated Financial Data" in the 1998 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information included in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, quarterly results of operations, and the Report of Independent Accountants, appearing in the 1998 Annual Report, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by these items, other than information set forth in this Form 10-K under Item I, "Executive Officers of Registrant," is omitted because the Company is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report which includes the required information. The required information contained in the Company's proxy statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents Filed as Part of this Report: (1) The following financial statements of Giant Cement Holding, Inc. required to be filed as part of this Report on Form 10-K are incorporated herein by reference to the 1998 Annual Report, attached hereto as Exhibit 13: Report of Independent Accountants Consolidated Balance Sheets, December 31, 1998 and 1997 Consolidated Statements of Income, for the years 1998, 1997 and 1996 Consolidated Statements of Cash Flows, for the years 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity, for the years 1998, 1997, and 1996 Notes to Consolidated Financial Statements Five-Year Summary of Consolidated Financial Data Quarterly Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations Market and Dividend Information (2) The following financial statement schedule of GIANT CEMENT HOLDING, INC. is attached: Schedule II - Valuation and Qualifying Accounts - Years ended December 31, 1998, 1997 and 1996 Report of Independent Accountants 14 (b) Exhibits Exhibit No. Description of Exhibit 2.1 Form of Agreement and Plan of Merger between the Company and Solite Corporation (Filed as Exhibit 6(a)(2) to the Company's Registration Statement on Form S-4 dated September 30, 1997 and incorporated herein by reference). 2.2 Form of Amendment to the Agreement and Plan of Merger between the Company and Solite Corporation. (Filed as Exhibit 2.2 to the Company's 1997 10-K is incorporated herein by reference). 3.1 Certificate of Incorporation (Exhibit 3.1 to Registration No. 33-78260 is incorporated herein by reference). 3.2 By-Laws (Exhibit 3.2 to Registration No. 33-78260 is incorporated herein by reference). 4 Specimen form of stock certificate for Common Stock (Exhibit 4 to Amendment 3 to Registration No. 33-78260 is incorporated herein by reference). 10.1 Registrant's 1994 Employee Stock Option Plan (Exhibit 10.1 to Registration No. 33-78260 is incorporated herein by reference). 10.2 Registrant's 1994 Outside Director Stock Option Plan (Exhibit 10.2 to Registration No. 33-78260 is incorporated herein by reference). 10.3 Form of Employment Agreement between the Company and Gary L. Pechota, as amended (Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is incorporated herein by reference). 10.4 Form of Employment Agreement between the Company and Terry L. Kinder, as amended (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is incorporated herein by reference). 10.5 Form of Employment Agreement between the Company and Richard A. Familia. (Exhibit 10.5 to the Company's 1997 10-K is incorporated herein by reference). 10.6.1 Loan and Security Agreement, dated November 23, 1993, between Giant and The CIT Group/Equipment Financing, Inc. ("CIT") (Exhibit 10.5.1 to Registration No. 33-78260 is incorporated herein by reference). 10.6.2 Secured Promissory Note, date November 23, 1993, from Giant to CIT (Exhibit 10.5.2 to Registration No. 33-78260 is incorporated herein by reference). 10.6.3 South Carolina Mortgage and Security Agreement, dated November 23, 1993, between Giant and CIT (Exhibit 10.5.3 to Registration No. 33-78260 is incorporated herein by reference). 10.6.4 Continuing Guarantee Agreement, dated November 23, 1993, between Giant and CIT (Exhibit 10.5.4 to Registration No. 33-78260 is incorporated herein by reference). 10.6.5 Collateral Value Maintenance Agreement, dated November 23,1993, between Giant and CIT (Exhibit 10.5.5 to Registration No. 33-78260 is incorporated herein by reference). 10.6.6 Form of First Amendment to Loan and Security Agreement between Giant and CIT (Exhibit 10.5.6 to Amendment 4 to Registration No. 33-78260 is incorporated herein by reference). 10.6.7 Form of Continuing Guaranty Agreement by the Company in favor of CIT (Exhibit 10.5.7 to Amendment 4 to Registration No. 33-78260 is incorporated herein by reference). 10.6.8 Form of Second Amendment to Loan and Security Agreement between Giant and CIT. 10.6.9 Secured Promissory Note, dated August 31, 1995, from Giant to CIT. 15 Exhibit No. Description of Exhibit 10.7 Form of Release and Indemnification Agreement between GROUP, KCC Delaware Company, and the Company (Exhibit 10.7 to Amendment 5 to Registration No. 33-78260 is incorporated herein by reference). 10.8.1 Tax Sharing Agreement, dated November 23, 1993, between the Company and GROUP (Exhibit 10.6.4 to Registration No. 33-78260 is incorporated herein by reference). 10.8.2 Form of Tax Sharing and Indemnification Agreement between the Company and GROUP (Exhibit10.6.5 to Amendment 3 to Registration No. 33-78260 is incorporated herein by reference). 10.9 Credit Agreement, dated December 20, 1996, between GCHI, Giant, Keystone, GRR, GCHI Investments and Giant NC and SouthTrust Bank of Alabama (Exhibit 10.8 to the Company's 1996 10-K is incorporated herein by reference). 10.10 Credit and Security Agreement, dated April 30, 1998 between GCHI and subsidiaries, and SouthTrust Bank, N.A. (Exhibit 10.10 to the Company's Quarterly Report on Form10-Q for the quarter ended June 30, 1998, is incorporated herein by reference). *13 Copy of the Company's Annual Report to Shareholders for the Year ended December 31, 1998. *21 List of Subsidiaries. *23.1(a) Consent of PricewaterhouseCoopers LLP *27 Financial Data Schedule *Filed herewith (c) Reports filed on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1998. (d) Exhibits Required by Item 601 of Regulation S-K: Described in Item 14 (b) of this Annual Report on Form 10-K. (e) Separate Financial Statements and Schedules Not applicable. 16 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Giant Cement Holding, Inc. Registrant Date: March 31, 1999 By: /S/ Gary Pechota ----------------- Gary Pechota Chairman PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Date: March 31, 1999 By: /S/Gary Pechota ------------------- Gary Pechota Chairman of the Board, President and Chief Executive Officer (Director and Principal Executive Officer) Date: March 31, 1999 By: /S/Terry L. Kinder ------------------- Terry L. Kinder Vice President and Chief Financial Officer Secretary and Treasurer (Director and Principal Financial and Accounting Officer) Date: March 31, 1999 By: /S/Dean M. Boylan ------------------ Dean M. Boylan Director Date: March 31, 1999 By: /S/Edward Brodsky Edward Brodsky Director Date: March 31, 1999 By: /S/Robert L. Jones ------------------- Robert L. Jones Director Date: March 31, 1999 By: /S/John W. Roberts ------------------- John W. Roberts Director 17 ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1998 ITEM 14(a)(2) FINANCIAL STATEMENT SCHEDULE GIANT CEMENT HOLDING, INC. GIANT CEMENT HOLDING, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS COL. A COL. B COL. C COL. D COL. E - ------ ------ ------ ------ ------ Additions Charged Balance at to Costs and Balance Beginning Expenses & at End Description of Period Charged to Other Deductions(2) of Period - ----------- --------- ---------------- ---------- --------- Year ended December 31, 1998 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $849,000 $795,000 (1) $256,000(2) $1,388,000 Allowance for cash discounts 476,000 1,654,000 (1) 1,538,000(3) 592,000 ---------- ---------- ---------- ---------- $1,325,000 $2,449,000 $1,794,000 $1,980,000 ========== ========== ========== ========== Year ended December 31, 1997 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $836,000 $238,000 $225,000(1) $849,000 Allowance for cash discounts 287,000 1,820,000 1,631,000(2) 476,000 ---------- ---------- ---------- ---------- $1,123,000 $2,058,000 $1,856,000 $1,325,000 ========== ========== ========== ========== Year ended December 31, 1996 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $750,000 $344,000 $258,000(1) $836,000 Allowance for cash discounts 223,000 2,389,000 2,325,000(2) 287,000 -------- ---------- ---------- ---------- $973,000 $2,733,000 $2,583,000 $1,123,000 ======== ========== ========== ========== Notes: (1) Includes beginning balances from the Solite acquisition of $398,000 and $70,000 for the allowance for doubtful accounts and the allowance for cash discounts, respectively. (2) Uncollectible accounts written off, net of recoveries. (3) The Company's normal payment terms allow a $1 per ton discount for payment by the 10th day of the month following shipment (net 30), which the Company believes is a standard industry practice. The deductions above represent cash discounts allowed for prompt payment and other allowances. REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Giant Cement Holding, Inc.: Our report on the consolidated financial statements of Giant Cement Holding, Inc. has been incorporated by reference in this Form 10-K from the 1998 Annual Report to Shareholders of Giant Cement Holding, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP March 30, 1999 GIANT CEMENT HOLDING, INC. EXHIBITS TO FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1998 EXHIBIT INDEX Exhibit No. Description of Exhibit 13 Copy of the Company's Annual Report to Shareholders for the year ended December 31, 1998 21 List of Subsidiaries 23(a) Consent of PricewaterhouseCoopers LLP 27 Financial Data Schedule EX-13 2 Exhibit 13 GIANT CEMENT HOLDING, INC. 1998 ANNUAL REPORT TO SHAREHOLDERS Company Profile Giant Cement Holding, Inc. (Nasdaq: GCHI), through its subsidiaries, Keystone Cement Company in Pennsylvania and Giant Cement Company in South Carolina, manufactures and sells a complete line of portland and masonry cements used in residential, commercial and infrastructure construction applications. The Company is the 15th largest producer of cement in the United States. Its two cement manufacturing facilities are fully integrated, from limestone mining through cement production, and serve the growing South-Atlantic and Middle-Atlantic regions of the United States. Its subsidiary, Giant Resource Recovery, is a pioneer in the development of innovative, environmentally sound methods for the reuse of waste materials in the manufacturing of cement. Today, Giant Cement Holding is one of the largest users of waste-derived fuels in the cement industry. Building on the synergies that exist between its core cement manufacturing and resource recovery operations, the Company acquired Solite Corporation on April 30, 1998. Solite, a vertically integrated company based in Richmond, Virginia, expands Giant Cement Holding's product lines in both construction products and resource recovery and is also a highly complementary geographical fit. As a result of the Solite acquisition, Giant Cement Holding is now the largest lightweight aggregate supplier on the East Coast and the largest provider of resource recovery fuel burning services nationwide, as well as the fourth largest cement producer in its East Coast markets. The Company's financial objective is to generate superior returns for its shareholders. Its efforts to maximize shareholder value has yielded a five year average return on assets and equity of 13.2% and 21.8%, respectively. Table of Contents Financial Highlights, 1 Letter To Shareholders, 2 Business Review, 4 Consolidated Financial Statements, 7 Notes to Consolidated Financial Statements, 11 Report of Independent Accountants, 24 Management's Discussion and Analysis, 25 Corporate Information, 32 Directors and Officers, 34 FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Amounts in thousands, except per share data) Income statement data: Total revenues $154,109 $116,888 $110,198 $100,185 $ 90,802 Gross profit 39,398 35,132 32,380 27,314 20,443 Operating income 25,382 26,409 24,539 19,767 13,752 Net income 16,819 16,085 15,421 12,715 9,195 Earnings per common share: Basic $ 1.81 $ 1.70 $ 1.57 $ 1.27 $ .92 Diluted $ 1.77 $ 1.69 $ 1.57 $ 1.27 $ .92 Cash dividends - - - - - Weighted average common shares outstanding 9,277 9,459 9,833 9,990 10,000 Balance sheet and other data: Working capital $ 36,351 $ 29,778 $ 26,706 $ 17,539 $ 20,513 Total assets 175,182 128,600 118,616 111,714 90,525 Long-term debt 32,603 10,549 11,751 15,525 8,403 Shareholders' equity 102,294 87,645 77,128 64,614 54,203 Return on beginning of year shareholders' equity 19.2% 20.9% 23.9% 23.5% 21.7% 1 To Our Shareholders: Our 1998 revenue growth of 31.8% to $154.1 million represents another record year of strong top-line performance for Giant Cement Holding, Inc. While we are pleased with this accomplishment and the solid underlying business fundamentals in all of our operations, our bottom-line results for the year were impacted by increased costs, primarily related to reduced waste fuel utilization and increased maintenance costs. As a result, our 1998 net income was $16.8 million, or $1.77 per diluted share, compared to $16.1 million, or $1.69 per diluted share (after special charges of $0.18 per share) in 1997. Clearly, 1998 earnings levels do not reflect the profit potential of Giant Cement Holding. In 1996 and 1997, we held our cost increases to less than 1% on average. This, along with record sales volume, generated margins at the higher end of the range of our industry. While we strongly believe that 1998 was an aberration, we want to assure shareholders that we are entering 1999 with our priorities clearly established. Very simply, our efforts are sharply focused on bringing more of our sales dollars to the bottom line. On April 30, 1998, we saw the consummation of our acquisition of Solite Corporation, which began contributing to our top and bottom line immediately. Solite is an excellent addition to Giant Cement Holding, representing a highly strategic fit from both a construction products and resource recovery perspective. The robust showing of our core business, plus a very solid contribution from Solite of approximately $36 million, pushed revenues up to new record levels. In fact, 1998 represented our sixth consecutive year of record revenues and earnings. We were also pleased with the settlement of the environmental action at Keystone and the amount of insurance recovery under the Company's business interruption policy. In July of 1998, we received notification from the Pennsylvania Department of Environmental Protection that the Company would be allowed to resume the use of alternative fuels at its Keystone cement plant. Of note, the Company had not used resource recovery fuels at Keystone for more than half of 1998. Our resource recovery operations not only represent an additional source of revenue for the Company, but also complement our cement production by providing us with a low-cost source of fuel. Accordingly, the loss of the alternative fuels program at Keystone and the reduction in solid waste fuels processed, due to the installation of Giant's new shredder, increased our production costs. This impacted our profit margins, especially in the first half of the year. While the start-up of our waste fuel operations at Keystone was more gradual than anticipated, we are pleased to say that as of December 1998, this plant had resumed historical utilization levels of resource recovery fuels. This said, we are optimistic that our solid fuel program at Giant will grow 40% in volume in 1999. Our balance sheet remains healthy. At December 31, 1998, our current ratio was 2.4, reflecting working capital of $36.4 million. Shareholders' equity totaled $102.3 million, up 17% from year-end 1997. Even after the Solite acquisition, long-term debt is only 32% of shareholders' equity. In December 1998, we announced that the Company had completed its fourth $5 million share repurchase program and that the Board of Directors has authorized an additional $10 million for the repurchase of the Company's common stock. This action reflects our belief that the Company's shares continue to represent an attractive investment for the Company. Since our initial public offering in September 1994, the Company has repurchased over one million shares, or 10%, of its outstanding common stock. 3 Our primary financial objective is to generate superior returns for our shareholders. To achieve this, our strategy is to capitalize on strong industry fundamentals by adding incremental capacity and making selective complimentary acquisitions. Additionally, we intend to continue to aggressively repurchase the Company's shares and prudently manage our debt levels. Historically, our efforts to maximize shareholder value have yielded a five-year average return on equity of 21.8%. We are very optimistic about the Company's growth potential in 1999 for a number of reasons. Demand for cement in the United States continues to outpace the industry's production capacity. The combination of a strong domestic economy and the passage of the Transportation Equity Act for the 21st Century (TEA 21) should fuel the use of both cement and lightweight aggregate in the residential, commercial and infrastructure construction markets. Due to favorable industry trends and the strength of our markets, the rapidly growing South-Atlantic and Middle-Atlantic regions of the eastern United States, we expect to be sold out at all of our cement and lightweight aggregate manufacturing plants. Moreover, we expect that a $3 per ton price increase we instituted in the Middle-Atlantic region, effective April 1, 1999, will positively impact this year's financial performance. The Solite acquisition should increasingly contribute to the Company's revenues and earnings in 1999 as we continue to add value to this business. As a result of this acquisition, in addition to being the fourth largest cement producer in our East Coast markets, we are now the largest lightweight aggregate supplier on the East Coast and the largest provider of resource recovery fuel burning services nationwide. With the Keystone plant back to historical levels in its utilization of waste fuels, we also expect a strong resource recovery performance in 1999. Moreover, our annual winter maintenance program has effectively addressed the small maintenance problems that negatively impacted the Company in the second half of 1998. Also, we expect that the Company will be able to eliminate its purchases of clinker at its Keystone plant as a result of increased production in 1999. As a result of these factors, our cement costs per ton should return to our normally low levels in 1999, down significantly from the cost per ton registered in 1998. In summary, we continue to have great confidence in the fundamental operating and business strengths of Giant Cement Holding and the growth prospects of our industry. In closing, I want to thank our shareholders, our customers and our employees for their continued support. I look forward to reporting on our progress as we continue to build on our success in 1999. Gary Pechota Chairman, President and Chief Executive Officer March 8, 1999 3 Building on Our Synergies: At Giant Cement Holding, our core operations consist of three key elements - Cement, Construction Products and Resource Recovery. Importantly, the synergies that exist between these operations has historically enabled us to be one of the lowest cost producers in the cement industry. As a result, the Company generates one of the highest operating margins among cement producers. Cement Production Giant Cement Holding, through its subsidiaries, Keystone Cement Company in Pennsylvania and Giant Cement Company in South Carolina, manufactures and sells over 1.5 million tons of high-quality cement annually. The Company's revenues from cement sales rose to $107 million in 1998, up 5.6% from the $101 million reported in 1997. This solid growth in our cement business reflects both higher shipping volume, up 2%, and an increase in average pricing, up 3%. Strong Industry Fundamentals Cement consumption in the United States hit new highs for the eighth consecutive year, reaching an estimated 108 million tons in 1998, up 37% from 79 million tons in 1991. Strong domestic cement consumption is expected to be driven by increased public infrastructure spending and high levels of residential and commercial construction. Significantly, Congress' passage of The Transportation and Efficiency Act (TEA 21) will increase highway spending by 44% nationally through the year 2003. In our key markets this funding increase will be even more substantial. At the same time, U.S. production capacity has remained relatively flat, totaling approximately 88 million tons in 1998, up only slightly in the past 15 years. In fact, U.S. cement demand has exceeded production capacity for the past six years and is expected to continue to do so for the foreseeable future. These capacity constraints include stiff anti-dumping tariffs levied against foreign producers, the government's strict criteria for issuing new permits and the three-to-five year average period for permitting and constructing a new plant. We will see an increase in U.S. capacity over the next five years. However, the TEA 21 bill itself, will offset much of the new capacity, keeping favorable supply/demand drivers in place for the foreseeable future. Strategies for Growth Our business strategies to capitalize on strong fundamentals include the addition of incremental capacity and making selective, low-risk acquisitions. At Giant, we have invested more than $65 million into facility upgrades over the past four years. These investments have increased our capacity by removing production bottlenecks, modernizing and automating our production lines, reducing power and labor costs and increasing the uptime of our systems. In 1999, our annual winter maintenance program focused on upgrading equipment at 4 both of our cement plants. Capital expenditures of $14 million in 1999 are expected to enable the Company to further increase cement production. Going forward, we have earmarked an additional $30 million to be spent over the next two years to make additional upgrades to our plants and equipment. These capital improvements will include further automation of our manufacturing and distribution facilities to improve our efficiency, throughput and process uptime. Since 1992, our cement production has risen 15%, from 1.3 million tons to 1.5 million tons. In addition, our recently announced $3 per ton price increase instituted in our Middle-Atlantic region effective April 1, 1999, is expected to benefit our financial performance. Resource Recovery: Giant Cement Holding began using waste as a fuel substitute in the late 1970's, when the cost of energy exploded because of the Middle East oil embargo. Today's resource recovery program has become an integral part of our operations, while serving as a significant source of revenues in its own right. As such, our resource recovery operations continue to significantly add to our profitability. Reduced Costs and Added Revenues At our cement and lightweight aggregate plants, resource recovery plays a major role in the manufacturing process. As a matter of fact, Keystone pioneered the development of recycling and resource recovery programs in the cement industry, and today Giant Cement Holding is the industry leader in the field of recycling and reuse of waste fuel. Giant is one of only two U.S. cement plants permitted to store and utilize bulk solid waste-derived fuels. As a result, we burn approximately 160,000 tons of high-BTU waste-derived fuels in place of coal, which in turn is used to fuel our cement operations. Of note, we do not burn PCB's, pesticides or medical waste. Our resource recovery operations continue to reduce our cement production costs. Even though our fuel costs rose in 1998 as a result of the temporary curtailment of waste fuel operations at our Keystone facility, our fuel costs remained significantly below the industry average. With Keystone back on line, we expect further cost reduction from our fuel operations in 1999. Whereas the cement industry averages fuel costs of between $3.50-$4.00 per ton of clinker (a key component of cement), in 1997 Giant Cement Holding actually eliminated its fuel cost as a result of our resource recovery business. How is this possible? Not only do we burn waste in place of coal to fuel our cement kilns, but we realize additional revenues from our resource recovery operations, as we are paid for providing our waste-derived fuel suppliers a disposal alternative to incineration. Leading Market Position At present, we are the market leader in the resource recovery field with a 20% share of the U.S. market, and with an even higher market share on the East Coast - - a position we expect to maintain going forward. Importantly, throughout the 5 United States, there are only 22 cement and lightweight aggregate manufacturing facilities that have E.P.A. permits to operate resource recovery operations, of which Giant owns five. Significantly, it is unlikely that any additional permits will be granted in the foreseeable future. This serves as an effective barrier to entry and helps solidify our leading position in the industry. Environmentally, the recycling and reuse of wastes as raw material and fuel in the cement industry is among the best technologies for reducing land disposal and incineration of industrial wastes. Long residence times and extreme temperatures (3,500(Degree) F) completely destroy organic components, while inorganic components bond with the cement molecule. The Solite Acquisition: Our acquisition of Solite Corporation, a leading South-Atlantic lightweight aggregate producer, block producer and resource recovery company, further adds to the synergies in our operations. Solite, with operations in Virginia and North Carolina, brought three lightweight aggregate manufacturing facilities with their associated resource recovery operations, five concrete block plants and a waste treatment and blending facility into the Giant fold. The lightweight aggregate manufacturing facilities have a combined production capacity of 600,000 tons, which is marketed throughout the eastern region of the United States to block producers, construction contractors and road builders. The concrete block facilities have a combined production capacity of 18 million blocks, which are marketed to masonry and construction contractors and building material dealers. The Solite acquisition expands our product lines in existing and new markets and improves upon our already leading-edge resource recovery capabilities. As such, Solite is expected to continue to be accretive to earnings in 1999 and beyond. How We Make Cement: To make cement, raw materials containing calcium, silica, alumina and iron are required in exact proportions. These raw materials - usually limestone, ash and sand - are finely ground and mixed with water to form a substance called "slurry." The slurry is then fed into the upper end of the kiln and slowly passes through three distinct temperature zones ranging from 400(Degree) to 3500(Degree) Fahrenheit. As the slurry is heated in the kilns, the water is vaporized and a series of chemical reactions occur that make a glass crystalline product called cement "clinker." After cooling, this clinker is mixed with about 5% gypsum, which acts as a setting agent and ground to a very fine powder which is portland cement. Masonry cement is composed of approximately 50% clinker, 45% limestone and 5% gypsum. 6 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1998 1997 1996 (In thousands, except per share data) Revenues: Product sales $128,774 $100,988 $ 96,186 Resource recovery services 25,335 15,900 14,012 -------- -------- -------- Total revenues 154,109 116,888 110,198 Costs and expenses: Cost of sales and services 114,711 81,756 77,818 Selling, general and administrative 14,016 7,523 7,841 Acquisition related expenses - 1,200 - -------- -------- -------- Operating income 25,382 26,409 24,539 Other income (expense): Interest expense (1,970) (966) (1,141) Other, net 2,053 (1,031) 298 -------- -------- -------- Income before income taxes 25,465 24,412 23,696 Provision for income taxes 8,646 8,327 8,275 -------- -------- -------- Net income $ 16,819 $ 16,085 $ 15,421 ======== ======== ======== Earnings per common share: Basic $ 1.81 $ 1.70 $ 1.57 Diluted $ 1.77 $ 1.69 $ 1.57 Weighted average common shares outstanding 9,277 9,459 9,833 See accompanying notes to consolidated financial statements. 7 GIANT CEMENT HOLDING, INC. CONSOLIDATED BALANCE SHEETS December 31, 1998 1997 (All amounts in thousands) ASSETS Current assets: Cash and cash equivalents $ 6,623 $ 12,674 Accounts receivable, less allowances of $1,980 in 1998 and $1,325 in 1997 23,772 14,927 Inventories 24,729 19,238 Deferred income taxes 4,428 1,286 Other current assets 3,254 2,366 -------- -------- Total current assets 62,806 50,491 Property, plant and equipment, net 98,366 75,631 Permits, net 8,695 1,977 Deferred charges and other assets 5,315 501 -------- -------- Total assets $175,182 $128,600 ======== ======== LIABILITIES Current liabilities: Accounts payable $ 15,464 $ 11,567 Accrued expenses 7,660 8,258 Current maturities of long-term debt 3,331 888 -------- -------- Total current liabilities 26,455 20,713 Long-term debt, net of current maturities 29,272 9,661 Accrued pension and postretirement benefits 6,081 2,907 Deferred income taxes 11,080 7,674 -------- -------- Total liabilities 72,888 40,955 -------- -------- Contingencies (Note 13) SHAREHOLDERS' EQUITY Preferred stock, $.01 par value; 2.0 million shares authorized, none issued - - Common stock, $.01 par value; 20.0 million shares authorized, 10.0 million shares issued 100 100 Capital in excess of par value 45,076 41,317 Retained earnings 74,939 58,120 -------- -------- 120,115 99,537 Less: Treasury stock, at cost; 809 shares in 1998, 675 shares in 1997 17,099 11,247 Accumulated other comprehensive income: Minimum pension liability 722 645 -------- -------- Total shareholders' equity 102,294 87,645 -------- -------- Total liabilities and shareholders' equity $175,182 $128,600 ======== ======== See accompanying notes to consolidated financial statements. 8 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1998 1997 1996 ---- ---- ---- (All amounts in thousands) OPERATIONS: Net income $ 16,819 $ 16,085 $ 15,421 Depreciation and depletion 12,269 10,189 9,031 Deferred income taxes 560 609 1,023 Amortization of deferred charges and other 660 485 431 Changes in operating assets and liabilities: Receivables (2,839) (30) (2,340) Inventories 297 (1,582) (554) Other current assets and deferred charges (4,089) (2,810) (1,291) Accounts payable (4,634) 1,958 2,110 Accrued expenses (3,819) 656 (1,538) -------- -------- -------- Net cash provided by operations 15,224 25,560 22,293 INVESTING: Purchases of property, plant and equipment (17,085) (15,362) (9,819) Proceeds from sales of property, plant and equipment 845 - - Cash acquired in Solite acquisition 1,347 - - -------- -------- -------- Net cash used by investing (14,893) (15,362) (9,819) -------- -------- -------- FINANCING: Repayment of long-term debt (21,544) (1,202) (12,059) Proceeds from long-term debt 24,446 - 8,285 Proceeds from short-term borrowings 1,000 2,500 3,000 Repayment of short-term borrowings (1,000) (2,500) (5,279) Purchases of treasury shares (9,453) (7,241) (4,091) Other 169 487 - -------- -------- -------- Net cash used by financing (6,382) (7,956) (10,144) -------- -------- -------- Increase (decrease) in cash and cash equivalents (6,051) 2,242 2,330 CASH AND CASH EQUIVALENTS: Beginning of period 12,674 10,432 8,102 -------- -------- -------- End of period $ 6,623 $ 12,674 $ 10,432 ======== ======== ======== SUPPLEMENTAL INFORMATION: Cash paid for: Interest (net of capitalized interest of $0 in 1998 and 1997 and $53 in 1996) $ 1,865 $ 1,003 $ 1,141 Income taxes 9,324 8,540 6,987 Non-cash investing and financing activities: Assets financed by notes and accounts payable 1,906 1,268 2,096 See accompanying notes to consolidated financial statements. 9 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Accumulated Shares Capital in Other Par Excess of Retained Treasury Comprehensive Outstanding Value Par Value Earnings Stock Income Total (All amounts in thousands) Balance, January 1, 1996 9,937 $ 100 $40,985 $26,614 $ (616) $(2,469) $ 64,614 Comprehensive income: Net income for 1996 15,421 Minimum pension liability adjustment, net of $501 deferred income taxes 931 Total comprehensive income 16,352 Issuance of treasury shares 22 37 216 253 Purchase of treasury shares (295) (4,091) (4,091) ----- ----- ------- ------- -------- ------- -------- Balance, December 31, 1996 9,664 100 41,022 42,035 (4,491) (1,538) 77,128 Comprehensive income: Net income for 1997 16,085 Minimum pension liability adjustment, net of $481 deferred income taxes 893 Total comprehensive income 16,978 Exercise of employee stock options 35 130 357 487 Tax benefit of stock options 84 84 Issuance of treasury shares 13 81 128 209 Purchase of treasury shares (387) (7,241) (7,241) ----- ----- ------- ------- -------- ------- -------- Balance, December 31, 1997 9,325 100 41,317 58,120 (11,247) (645) 87,645 Comprehensive income: Net income for 1998 16,819 Minimum pension liability adjustment, net of $42 deferred income taxes (77) Total comprehensive income 16,742 Exercise of employee stock options 12 6 163 169 Tax benefit of stock options 48 48 Issuance of treasury shares for acquisition 250 3,705 3,438 7,143 Purchase of treasury shares (396) (9,453) (9,453) ----- ----- ------- ------- -------- ------- -------- Balance, December 31, 1998 9,191 $ 100 $45,076 $74,939 $(17,099) $ (722) $102,294 ===== ===== ======= ======= ======== ======= ========
See accompanying notes to consolidated financial statements. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND PRINCIPLES OF CONSOLIDATION 1. Basis of Presentation and Principles of Consolidation: The consolidated financial statements include the financial position, results of operations and cash flows of Giant Cement Holding, Inc. and its wholly owned subsidiaries, Giant Cement Company ("Giant"), Keystone Cement Company ("Keystone"), Giant Resource Recovery Company, Inc. ("GRR") for all periods presented and Solite Corporation 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. 2. Significant Accounting Policies: The Company and its subsidiaries are involved in two business segments comprised of the domestic manufacture and sale of portland and masonry cements and related aggregates and the domestic manufacture and sale of other construction products (lightweight aggregate and lightweight block) in the South-Atlantic and Middle-Atlantic regions of the United States. The Company is also involved in waste recycling and resource recovery, utilizing industrial waste as supplemental fuels in its cement and lightweight aggregate kilns. Cash Equivalents: For purposes of the consolidated statements of cash flows, highly liquid securities with an original maturity date of three months or less are considered cash equivalents. Cash equivalents are recorded at market value and consist of short-term U.S. Government obligations and repurchase agreements collateralized by short-term U.S. Government obligations. Inventories: Inventories are carried at the lower of average cost or market. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is computed over the estimated useful lives of depreciable assets using the straight-line method. Useful lives for property and equipment are as follows: Buildings and improvements 10 - 50 years Machinery and equipment 3 - 25 years Office furniture and equipment 5 - 10 years Depletion of the cost of quarry property is based upon the tonnage quarried in relation to the estimated total tonnage available. 11 Permits and Deferred Charges: Permit costs are incurred to obtain multi-year operating permits upon certification of compliance with environmental regulations. Deferred permit certification costs are amortized over the period benefited, presently three to ten years. Hazardous waste storage and burning permits obtained in the Solite acquisition are being amortized over a 40-year period (see Note 3). Deferred charges include debt issuance costs. Debt issuance costs are amortized over the life of the related debt. The loan cost amortization is included in interest expense in the consolidated statements of income. Income Taxes: Income taxes are accounted for using the liability method. Accordingly, deferred tax assets or liabilities are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. Environmental Liabilities: The Company evaluates environmental contingencies and, if appropriate, accrues the estimated cost by charging income for the gross liability for all matters where a future loss is probable and reasonably estimable. If it is probable that the Company will be indemnified and/or recover all or a portion of a probable loss, and the amount of such recovery is reasonably estimable, the Company accrues the related asset on a gross basis. The Company utilizes all of the information available to it to estimate the range or amount of loss and the timing of loss payments. Revenue Recognition: The Company derives revenues from product sales and resource recovery services. Revenues for product sales are recognized in the period in which the product is shipped to customers. Revenues for resource recovery services are recognized in the period in which the service is provided or the waste-derived fuel is utilized. Inventories of waste-derived fuel are immaterial. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include asset lives, environmental contingencies and discount rates and assumptions related to pension and other postretirement obligations. New Accounting Pronouncements: Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130"). Comprehensive income consists of net income and changes in the minimum pension liability and is presented in the Consolidated Statements of Shareholders' Equity. The adoption of SFAS 130 had no impact on total shareholders' equity. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. 12 Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of these plans. In June of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective in fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Based on its operations at December 31, 1998, management does not expect this standard will have a material effect on the Company's consolidated financial statements upon adoption. 3. 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. Under the terms of the purchase agreement, the Company issued 175,000 of its treasury shares, which were valued at $5.0 million, or $28.57 per share, the fair market value on the date of acquisition. The remaining 150,000 shares of common stock were placed in escrow. The conditions for issuance of the first 75,000 shares held in escrow were satisfied in February 1999, based upon an arbitration ruling. Those shares were treated as issued as of December 31, 1998 and the purchase price increased $2.1 million. The remaining 75,000 shares, which are included in the 809,000 treasury shares held at December 31, 1998, will be issued one-half on April 30, 2000 and one-half on April 30, 2001, subject to Solite satisfying the indemnification of certain representations and warranties in the acquisition agreement. In 1997, as a result of significant uncertainty as to its ability to obtain regulatory clearance to consummate the Solite acquisition, the Company expensed $1.2 million of costs incurred in connection with the acquisition. The acquisition has been accounted for as a purchase and, accordingly, the operating results of Solite have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price of $7.4 million is based upon the 250,000 shares of the Company's common stock issued and $300,000 in acquisition costs, which, including $36.7 million of liabilities assumed, was primarily allocated $17.3 million to property, plant and equipment, $17.6 million to current assets and $6.2 million to identifiable intangibles (hazardous waste storage and burning permits), which are being amortized over a 40-period. The purchase price will be increased if any of the remaining escrowed shares are issued. The following unaudited pro forma financial information assumes the acquisition had occurred on January 1 of each period (in thousands, except per share data): 13 1998 1997 ---- ---- Net sales $170,538 $169,058 Net income 13,833 17,888 Earnings per share - basic $ 1.47 $ 1.84 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. The results of Solite for the 12 months ended December 31, 1998, which are included in the pro forma results above for that period, include nonrecurring pretax charges of $4.6 million, or $0.33 per basic common share, to reduce the carrying values of certain assets to fair market value as of the acquisition date. 4. Inventories: At December 31: 1998 1997 ---- ---- (In thousands) Finished goods $ 6,602 $ 4,131 In process 2,773 1,322 Raw materials 2,127 2,178 Supplies, repair parts and coal 13,227 11,607 -------- -------- $ 24,729 $ 19,238 ======== ======== 5. Property, Plant and Equipment: At December 31 (at cost): 1998 1997 ---- ---- (In thousands) Land and quarries $ 5,312 $ 2,335 Buildings 15,972 11,025 Machinery and equipment 176,702 152,736 Projects in process 3,689 1,981 -------- -------- 201,675 168,077 Less accumulated depreciation and depletion 103,309 92,446 -------- -------- $ 98,366 $ 75,631 ======== ======== 6. Accrued Expenses: At December 31: 1998 1997 ---- ---- (In thousands) Compensation $ 2,740 $ 2,429 Pension plan contributions 434 2,394 Other 4,486 3,435 -------- -------- $ 7,660 $ 8,258 ======== ======== 14 7. Debt: Long-term debt consists of the following at December 31: 1998 1997 ---- ---- (In thousands) Credit Facility borrowings $ 31,046 $ 8,159 Term loan 1,333 2,048 Other 224 342 -------- -------- 32,603 10,549 Less current maturities 3,331 888 -------- -------- Long-term debt, net of current maturities $ 29,272 $ 9,661 ======== ========= On April 30, 1998, the Company increased the borrowing limits on its Credit Facility to $46 million, consisting of $30 million of revolving credit, a $12 million term loan and $4 million to provide for letters of credit. The increased Credit Facility was used to refinance the $19.9 million of debt assumed in the Solite acquisition. Advances under the Credit Facility bear interest at the lesser of LIBOR plus 1.50% or the bank's base rate minus 1.25% (6.5% at December 31, 1998). Borrowings under the Credit Facility are collateralized by eligible accounts receivable, inventories and certain equipment, as defined in the agreement. At December 31, 1998, the total outstanding under the revolving credit and the term loan was $20.4 million and $10.6 million, respectively. The Company is required to reduce outstanding revolving credit borrowings to $20.0 million for a period of 30 days annually. At December 31, 1998, amounts outstanding and available under the Credit Facility totaled $31.0 million and $9.7 million, respectively. An additional Term Loan bears interest at 8.4% annually and matures in 2000. Property, plant and equipment having an aggregate net book value of $36.3 million have been pledged as collateral under the Term Loan Agreement. The Company's Credit Facility and Term Loan impose restrictions with respect to the maintenance of financial ratios and net worth of the Company and its subsidiaries. The most restrictive covenants currently require maintaining tangible net worth (as defined) totaling $84.2 million. As of December 31, 1998, the Company was in compliance with these covenants. Aggregate maturities of long-term debt are as follows: 1999 - $3.3 million, 2000 - - $3.2 million, 2001 - $2.4 million, 2002 - $22.9 million, 2003 - $800,000. 8. Stock Option Plans: The Company has an Employee Stock Option Plan (the "Employee Plan"), which authorizes the Stock Option Committee of the Board of Directors to grant incentive or non-qualified stock options for the purchase of up to 1.0 million shares of common stock to key employees. Additionally, the Company has a Directors Stock Option Plan for non-employee directors (the "Director Plan"), which provides for an initial grant of non-qualified options for 10,000 shares of common stock and thereafter an annual grant for 5,000 shares. Options to purchase up to 300,000 shares of Common Stock may be granted under the Director Plan. The exercise price under each stock option plan is equal to the market price at the date of grant, and at December 31, 1998, exercise prices ranged from $11.88 to $28.50. 15 The following table summarizes the changes in the number of shares under option pursuant to the plans described above. Weighted Number Average of Shares Exercise Price Outstanding at January 1, 1996 (207,000 exercisable) 301,000 $13.96 Granted 71,000 12.24 Canceled 5,000 14.00 ----- Outstanding at December 31, 1996 (332,000 exercisable) 367,000 13.63 Granted 126,000 16.30 Exercised 35,000 13.85 Canceled 1,000 11.88 ----- Outstanding at December 31, 1997 (390,000 exercisable) 457,000 14.35 Granted 183,000 23.72 Exercised 12,000 14.73 Canceled 14,000 25.09 ------ Outstanding at December 31, 1998 (516,000 exercisable) 614,000 $16.89 ======= As permitted by Statement of Financial Accounting Standards No. 123, "Accounting For Stock-Based Compensation," ("SFAS 123"), the Company has chosen to apply APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for options granted under the plans. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plans consistent with SFAS 123, the pro forma impact on the Company's net income and basic net income per share would be as follows: (In thousands, except per share data) 1998 1997 1996 ---- ---- ---- Net earnings - as reported $16,819 $16,085 $15,421 Net earnings - pro forma 16,123 15,759 15,304 Basic earnings per share - as reported $ 1.81 $ 1.70 $ 1.57 Basic earnings per share - pro forma $ 1.74 $ 1.67 $ 1.56 The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions: 1998 1997 1996 ---- ---- ---- Expected dividend yield - - - Expected stock price volatility 35% 30% 30% Risk-free interest rate 4.6% 5.5% 5.5% Expected life of options 5 years 5 years 5 years In accordance with SFAS 123, the fair value approach to valuing stock options 16 used for pro forma presentation has not been applied to stock options granted prior to January 1, 1995. The compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. 9. Income Taxes: The provision (credit) for income taxes is comprised of the following: 1998 1997 1996 ---- ---- ---- (In thousands) Current: Federal $ 6,927 $ 7,838 $ 6,951 State 802 317 761 Deferred: Federal 780 107 847 State 137 65 (284) -------- -------- -------- $ 8,646 $ 8,327 $ 8,275 ======== ======== ======== The following is a reconciliation between the federal income tax rate and the Company's effective income tax rate: 1998 1997 1996 ---- ---- ---- Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.3 1.5 1.3 Excess depletion for tax purposes (3.5) (2.9) (2.8) Other, net 0.2 0.5 1.4 ---- ---- ---- Effective rate 34.0% 34.1% 34.9% ==== ==== ==== Cumulative gross deferred tax assets and liabilities relate to the following at December 31: 1998 1997 ---- ---- (In thousands) Tax credit and loss carryforwards $ 2,858 $ - Pension and postretirement benefits 425 1,080 Inventories 2,464 - Allowances for discounts and doubtful accounts and other liabilities 3,236 1,615 Other 313 223 ------- ------- Gross deferred tax assets 9,296 2,918 ------- ------- Depreciation 11,270 7,634 Permits 2,504 - Other 2,174 1,672 ------- ------- Gross deferred tax liabilities 15,948 9,306 ------- ------- Net deferred tax liability 6,652 6,388 Deferred tax asset-current 4,428 1,286 ------- ------- Deferred tax liability-non-current $11,080 $ 7,674 ======= ======= 17 10. Pension Plans and Other Postretirement Benefits: The Company maintains noncontributory, defined benefit pension plans for substantially all employees. The Company also provides postretirement medical and life insurance for certain eligible employee groups. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans at December 31, 1998: Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- (In thousands) Change in benefit obligation: Benefit obligations at beginning of the year $34,815 $33,233 $14,226 $15,342 Obligation assumed - Solite 13,788 - - - Service cost 861 518 315 285 Interest cost 2,936 2,448 1,041 981 Amendments 394 45 26 - Actuarial loss (gain) 1,146 1,964 494 (1,240) Benefits paid (3,639) (3,393) (1,043) (1,142) ------- ------- ------- ------- Benefit obligation at end of year 50,301 34,815 15,059 14,226 ------- ------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 33,795 27,852 - - Plan assets acquired - Solite 16,014 - - - Actual return on plan assets 3,465 6,563 - - Company contribution 2,200 2,773 - - Benefits paid (3,639) (3,393) - - ------- ------- ------- ------- Fair value of plan assets at end of year 51,835 33,795 - - ------- ------- ------- ------- Funded status 1,534 (1,020) (15,059)(14,226) Unrecognized actuarial loss 2,045 631 1,104 1,129 Unrecognized net transition obligation (asset) (300) (355) 8,080 8,657 Unrecognized prior service cost 1,460 1,236 483 - ------- ------- ------- ------- Prepaid (accrued) benefit cost $ 4,739 $ 492 $(5,392)$(4,440) ======= ======= ======= ======= Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ 4,739 $ 492 $ - $ - Accrued benefit liability - - (5,392) (4,440) Intangible asset (625) (303) - - Accumulated other comprehensive income (1,111) (992) - - ------- ------- ------- ------- Prepaid (accrued) benefit cost $ 3,003 $ (803) $(5,392)$(4,440) ======= ======= ======= ======= 18 Assumptions as of December 31: Discount rate 6.75% 7.25% 6.75% 7.25% Expected return on plan assets 9.25% 9.25% Rate of compensation increase 4.25% 4.50% Net periodic pension and other postretirement benefit costs include the following components: Other Postretirement Pension Benefits Benefits ---------------- -------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- (In thousands) Service cost $ 861 $ 518 $ 500 $ 315 $ 285 $ 261 Interest cost 2,936 2,448 2,433 1,041 981 991 Expected return on plan assets (2,754) (6,562) (2,863) - - - Amortization of transition obligation (56) (56) (56) 577 577 577 Amortization of prior service cost 170 145 142 18 - - Recognized actuarial (gain) loss (978) 4,160 631 44 - 8 ------ ------ ------ ------ ------ ------ Net periodic benefit cost $ 179 $ 653 $ 787 $1,995 $1,843 $1,837 ====== ====== ====== ====== ====== ====== Pension: The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $14.1 million, $13.4 million and $11.0 million, respectively, as of December 31, 1998 and $13.4 million, $12.6 million and $10.2 million, respectively, at December 31, 1997. Plan assets consist principally of listed stocks and bonds and mutual funds. The Company also maintains tax deferred profit-sharing plans for certain eligible employee groups. Expenses related to the plans, which are based upon pretax income were $672,000 for 1998, $656,000 for 1997 and $612,000 for 1996. The Company acquired Solite on April 30, 1998, increasing the pension benefit obligation by $13.8 million, including $1.3 million in early retirement benefits, and increasing the related plan assets by $16.0 million. Other Postretirement Benefits: The Company accrues these postretirement medical and life insurance benefits over an employee's employment career. The Company funds these costs as incurred. Benefit payments totaled $1.0 million in 1998 and $1.1 million in both 1997 and 1996. The assumed health care cost trend rate at December 31, 1998 and 1997 was 8% for both years, declining gradually to a rate of 5% in 2001. Increasing the assumed trend rate for health care costs by one percentage point would increase the total APBO $1.7 million and increase the related expense $224,000. Decreasing the assumed trend rate for health care costs by one percentage point would decrease the total APBO $2.4 million and decrease the related expense $223,000. 19 11. Leases: The Company leases office space, warehouse space and equipment under operating leases which have remaining terms in excess of one year. The leases generally include renewal options. Total rental expense for the years 1998, 1997 and 1996 amounted to $4.8 million, $2.4 million and $2.2 million, respectively. Future minimum rental commitments under noncancelable leases with a remaining term in excess of one year as of December 31, 1998 are as follows (in thousands): 1999 $ 3,275 2000 2,644 2001 2,010 2002 1,189 2003 734 Thereafter 2,917 12. Treasury Stock: In December 1998, the Company's Board of Directors approved a plan to expend up to $10.0 million for the repurchase of shares of the Company's outstanding common stock over a 12-month period. During 1996, 1997 and 1998, the Company repurchased 1,078,000 shares of its common stock at a cost of $21.4 million. 13. 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. In December 1997, the resource recovery operation at Keystone experienced a fire at its waste fuel storage tank farm and, as a result, suspended the utilization of waste fuel until July 1998. There were no injuries and no known environmental damage. Under the terms of an agreement with the Pennsylvania Department of Environmental Protection, Keystone will pay a fine of $488,000 in installments 20 over a 10-year period, substantially all of which was accrued in the fourth quarter of 1997 and the remainder of which is included in accrued expenses as of December 31, 1998. 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. 14. Earnings per Share: Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"), establishes standards for computing and presenting earnings per share information. As required, the Company adopted the provisions of SFAS 128 in its year-end 1997 financial statements. Basic earnings per share of common stock are determined by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each year. Diluted earnings per share reflect the potential dilution that could occur assuming exercise of all issued and unexercised stock options. A reconciliation of the net income and numbers of shares used in computing basic and diluted earnings per share is as follows: 1998 1997 1996 ---- ---- ---- (In thousands, except per share data) Basic earnings per share: Net income $16,819 $16,085 $15,421 Weighted average common shares outstanding for the year 9,277 9,459 9,833 ------- ------- ------- Basic earnings per share of common stock $ 1.81 $ 1.70 $ 1.57 ======= ======= ======= Diluted earnings per share: Net income $16,819 $16,085 $15,421 Weighted average common shares outstanding for the year 9,277 9,459 9,833 Increase in shares which would result from: Exercise of stock options * 237 83 - ------- ------- ------- Weighted average common shares, assuming conversion of the above securities 9,514 9,542 9,833 ------- ------- ------- Diluted earnings per share of common stock $ 1.77 $ 1.69 $ 1.57 ======= ======= ======= *Antidilutive in 1996. 15. Segment and Related Information: The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," ("SFAS 131"), effective December 31, 1998. 21 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. Its manufacturing facilities are fully integrated from limestone mining through cement production and serve the South-Atlantic and the Middle-Atlantic regions of the United States. Revenues are derived from the sales of products, primarily cement and, to a much lesser extent, construction aggregates, 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. Due to the nature of the Company's operations, the utilization of waste fuels is inseparable from the manufacture of cement. The Construction Products segment consists of Solite and its wholly owned subsidiaries (see Note 3). The Construction Products segment manufactures and sells construction materials to the residential, commercial and infrastructure construction markets in the South-Atlantic region of the United States. The principal product is "Solite(R)," a lightweight aggregate primarily used in lightweight concrete masonry blocks. Other products and services include sand, gravel, lightweight block and resource recovery services. Resource recovery services provide waste-derived fuels for use in the production of lightweight aggregate as well as recycling, blending and storage services. Due to the nature of the Company's operations, the utilization of waste fuels is inseparable from the manufacture of lightweight aggregate. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. 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. 22 Construction Cement Products Other Total Revenues - external: 1998 $118,518 $35,591 $ $154,109 1997 116,888 - 116,888 1996 110,198 - 110,198 Revenues - intersegment: 1998 2,131 - 2,131 1997 - - - 1996 - - - Operating income: 1998 22,541 3,950 (1,109) 25,382 1997 28,710 - (2,301) 26,409 1996 25,576 - (1,037) 24,539 Depreciation, depletion and amortization: 1998 11,433 1,444 52 12,929 1997 10,622 - 52 10,674 1996 9,458 - 4 9,462 Total assets: 1998 119,403 43,365 12,414 175,182 1997 120,501 - 8,099 128,600 Capital expenditures: 1998 14,570 2,513 2 17,085 1997 15,355 - 7 15,362 1996 9,783 - 36 9,819 23 Report of Independent Accountants February 12, 1999 To the Board of Directors and Shareholders of GIANT CEMENT HOLDING, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Giant Cement Holding, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Charlotte, North Carolina 24 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 3 and 15 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. The Company derives revenues from the sales of products, primarily cement and construction products, as well as from the provision of resource recovery services. Resource recovery services revenue is primarily derived from third parties that pay the Company to utilize their waste as fuel, which additionally reduces the cost of traditional fossil fuels used in the manufacture of cement and lightweight aggregate. Due to the nature of the Company's operations and the fact that the burning of waste-derived fuels is inseparable from the manufacturing processes, it is impractical to disaggregate the costs of sales and services by revenue classification. The Company's resource recovery operations are influenced by general and regional economic conditions; federal, state, and local environmental policies; kiln operations; and competition from other waste disposal alternatives. Cement is a commodity product sold primarily on the basis of price. The price of cement tends to rise in periods of high demand and can fall if supply exceeds demand. The economic recovery that began in 1993 resulted in demand levels for cement in the United States that exceed domestic supply. Import facilities in the United States are largely controlled by companies that also own domestic manufacturing capacity; thus imports of cement to satisfy demand have not been a 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 has announced a $3 per ton price increase in its Middle-Atlantic market effective April 1, 1999. However, there can be no assurance that this price increase will be realized, or that current price levels will be maintained, should cement demand decline in relation to supply, either domestic or import. 25 The Company's cement manufacturing, hourly employees are represented by the United Paperworkers International Union ("UPIU"). During 1998, the Company reached a new three-year labor agreement with the hourly employees at Keystone, granting annual wage increases ranging from 3% to 4% per annum, among other changes, the total impact of which is not expected to have a material effect on the Company's results of operations. Results of Operations 1998 Versus 1997 Total operating revenues increased $37.2 million, or 31.8%, to $154.1 million in 1998, compared with $116.9 million in 1997. Product sales increased $27.8 million, or 27.5%, to $128.8 million in 1998, compared with $101.0 million in 1997. The increase resulted primarily from the addition of $23.3 million in lightweight aggregate and block revenues from Solite, higher average selling prices of cement and increased aggregate sales. Cement shipping volumes increased 2.1% in 1998 compared with 1997 volumes. The Company's average selling price per ton of cement increased 3.0% in 1998, as a result of price increases implemented in April 1997 and 1998. The Company realized a price increase of $3 per ton in April 1998 in its Middle-Atlantic market and $2 per ton in its South-Atlantic market. Resource recovery revenues increased $9.4 million, or 59.3%, to $25.3 million in 1998, compared with $15.9 million in 1997. The increase resulted from the addition of Solite's resource recovery revenues for the eight- month period subsequent to its acquisition, offset by decreases resulting from the Company's suspension of the waste fuels program at Keystone for the first seven months of 1998 and downtime associated with the installation of the new solid waste fuel shredder at Giant in the second quarter of 1998. Gross profit increased 12.1% to $39.4 million in 1998, compared with $35.1 million in 1997, primarily as a result of the addition of Solite's gross profit for the eight months subsequent to its acquisition. The Company's gross margins decreased to 25.6% in 1998 from 30.1% in 1997. In 1998, cost of sales and services excluding the Solite operations increased $9.7 million, or 11.8%, to $91.4 million, compared with $81.8 million in 1997. The increase in cement manufacturing costs was primarily the result of higher fuel costs due to decreased liquid waste fuel utilization at Keystone and decreased solid waste fuel utilization at Giant, higher maintenance costs and increased imported clinker purchases. Clinker and cement manufactured in 1998 decreased 1.0% compared with 1997 production. Both of the Company's cement plants operated at effective capacity throughout 1998. Selling, general and administrative expenses increased $6.5 million to $14.0 million, and increased to 9.1% of operating revenues. Excluding Solite, these expenses increased $277,000, or 3.7%. Operating income decreased $1.0 million to $25.4 million in 1998, compared with $26.4 million in 1997, primarily as the result of the increases in cement manufacturing costs, partially offset by $4.0 million in operating income of Solite and the write-off in 1997 of $1.2 million in acquisition related costs. 26 The 1998 results of operations were impacted by the aforementioned suspension of the utilization of waste fuels at Keystone as a result of a fire at Keystone's waste fuel storage tank farm in December 1997, which resulted in approximately $3.5 million of lost revenues and additional fuel charges. Interest expense increased $1.0 million as a result of higher average borrowings outstanding. The Company assumed and subsequently refinanced approximately $19.9 million of Solite's debt in connection with the Solite acquisition. Other income increased $3.1 million in 1998 as a result of a $1.4 million charge in 1997, and the subsequent business interruption insurance recovery of $1.6 million in 1998, each of which related to the Keystone tank farm incident (see Environmental Matters). The recovery partially offset resource recovery revenues lost and additional fuel expenses incurred between December 1997 and July 1998. Federal and state income tax expenses resulted in an effective tax rate of 34.1% in 1997 and 34.0% in 1998. The Company's effective tax rate of 34.0% in 1998 is not expected to change materially under current tax law. Net income increased $734,000, or 4.6%, to $16.8 million in 1998, compared with $16.1 million in 1997. Net income as a percentage of net sales decreased from 13.8% in 1997 to 10.9% in 1998. Results of Operations 1997 Versus 1996 Total operating revenues increased $6.7 million, or 6.1%, to $116.9 million in 1997, compared with $110.2 million in 1996. Product sales increased $4.8 million, or 5.0%, to $101.0 million in 1997, compared with $96.2 million in 1996. The increase resulted primarily from an increase in the average selling price of cement and increased aggregate sales. Cement shipping volumes increased 0.6% in 1997 compared with 1996 volumes. The Company's average selling price per ton of cement increased 3.4% in 1997, as a result of price increases implemented in April 1996 and 1997. The Company realized a price increase of $4 per ton in April 1997 in its Middle-Atlantic market. Resource recovery revenues increased $1.9 million, or 13.5%, to $15.9 million in 1997, compared with $14.0 million in 1996, as a result of higher volumes and pricing of both liquid and solid fuels. Liquid fuels utilized increased 6.7%, while liquid fuels pricing improved 5.9%. The Company's solid fuels volume increased 17.6%, while solid fuels pricing improved 5.7%. Improved cement pricing and resource recovery revenues resulted in a $2.7 million, or 8.5%, increase in gross profit from $32.4 million in 1996 to $35.1 million in 1997. The Company's gross margin percentage increased from 29.4% in 1996 to 30.1% in 1997. The total cost of sales and services increased $4.0 million to $81.8 million, compared with $77.8 million in 1996. The largest component of the increase in cost was increased depreciation expense from recent capital improvements. Cement costs per ton increased 1.1% in 1997. Clinker and cement manufactured increased 1.2% and 3.3%, respectively, compared with 1996, as a result of capital and operating improvements made in 1996 and 1997. Both of the Company's plants have operated at effective capacity throughout 1997. 27 Selling, general and administrative expenses decreased $318,000 to $7.5 million, and decreased to 6.4% of operating revenues. The expense decrease primarily related to lower administrative costs. Acquisition-related expenses of $1.2 million were charged to expense in 1997 as a result of the uncertainty of the Company's ability to obtain regulatory clearance to consummate the Solite acquisition at that time. Prior to acquisition-related expenses, operating income improved $3.1 million, or 12.5%, to $27.6 million in 1997, compared with $24.5 million in 1996, primarily as the result of the increase in operating revenues. Prior to the acquisition-related expenses, operating income margins improved from 22.3% in 1996 to 23.6% in 1997. The 1997 results of operations were impacted by the Company's suspension of the utilization of waste fuels at Keystone for most of the month of December as a result of a fire at Keystone's waste fuel storage tank farm. Keystone's inability to utilize waste fuels resulted in lost revenues and additional costs of approximately $450,000 in the quarter, or $0.03 per share after tax. Interest expense decreased $175,000 as a result of lower average borrowings outstanding. Other expense in 1997 included pretax charges of $1.4 million relating to Keystone's tank farm fire and its resulting suspension of the utilization of waste fuel. (See Environmental Matters). Federal and state income tax expenses resulted in an effective tax rate of 34.9% in 1996 and 34.1% in 1997. Net income increased $700,000, or 4.3%, to $16.1 million in 1997, compared with $15.4 million in 1996. Net income as a percentage of sales decreased from 14.0% in 1996 to 13.8% in 1997. 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. Cash and cash equivalents totaled $6.6 million at December 31, 1998, compared with $12.7 million at December 31, 1997. At December 31, 1998 and 1997, the Company had net working capital of $36.4 million and $29.8 million, respectively, with a current ratio of 2.4 in both years. Accounts receivable increased $8.9 million to $23.8 million at December 31, 1998, compared with $14.9 million at December 31, 1997, primarily as a result of the Solite acquisition ($7.4 million). Inventories increased $5.5 million to $24.7 million at December 31, 1998, primarily as a result of the addition of Solite inventories ($5.2 million). Total current liabilities increased $5.7 million to $26.5 million at December 31, 1998, primarily as a result of the Solite acquisition ($11.7 million) partially offset by decreased trade accounts payable and accrued expenses at the Company's other operations. 28 Cash provided by operations decreased $10.3 million to $15.2 million, compared with $25.6 million in 1997. The decrease in cash provided by operations, compared with 1997, was primarily the result of reduced trade accounts payable and accrued expenses and increased accounts receivable and other current assets. Net cash used by investing activities decreased from $15.4 million in 1997 to $14.9 million in 1998 as a result of the cash acquired with Solite and proceeds from the sale of equipment at Solite. Capital spending of $14 to $15 million is planned for the year 1999. Net cash used by financing activities decreased from $8.0 million in 1997 to $6.4 million in 1998 as a result of increased net borrowings, partially offset by increased purchases of the Company's common stock. During 1998, the Company repurchased 396,000 shares at a cost of $9.5 million. The Company plans to repurchase an additional $9 to $10 million of its common stock in 1999. On April 30, 1998, the Company acquired Solite. The acquisition, accounted for as a purchase, was financed through the exchange of 325,000 shares of the Company's common stock, 75,000 shares of which are held in escrow (see Note 3). The Company increased the limit on its $32 million Credit Facility to $46 million in order to refinance $19.9 million of Solite's existing indebtedness. The Company believes that its credit facility, together with internally generated funds, will be sufficient to meet its needs for the next 18 months. Environmental Matters 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 the permit conditions or of the regulations, even if immaterial or unintentional, may result in fines, shutdowns, remedial actions or revocation of the permits, the loss of any one of which could have a material adverse effect on the Company's financial condition or results of operations. In 1998, resource recovery services revenues totaled $25.3 million, or 16.4% of consolidated revenues. While the Company endeavors to maintain full compliance with the environmental laws and regulations at all times, violations have occurred in the past and there is no assurance violations will not occur in the future, due to the inherent complexity and differing interpretations of the laws and regulations. The Company maintains environmental liability insurance with limits of $5.0 million per occurrence and $10.0 million annual aggregate. These policies cover certain off-site environmental damage. The policies do not cover liabilities arising under CERCLA, fines or penalties, and thus the Company has no claims for recovery of these items. 29 In December 1997, the resource recovery operation at Keystone experienced a fire at its waste fuel storage tank farm. There were no injuries and no known environmental damage. Keystone negotiated an agreement with the Pennsylvania Department of Environmental Protection ("DEP") to allow it to resume waste fuel burning, effective in July 1998. Under the terms of the agreement, Keystone will pay a fine of $488,000 in installments over a ten-year period. In June 1998, the Company settled its business interruption insurance claim related to the Keystone incident for $1.6 million, which is included in other income at December 31, 1998. 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 end of the third quarter of 1999. Also, the Company is developing a contingency plan that is scheduled to be completed by 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 highly 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. 30 Disclosure Regarding Forward-Looking Statements This report contains certain forward-looking statements, containing the words "believes," "anticipates," "expects" and words of similar import, based upon current expectations that involve a number of known and unknown business risks and uncertainties. The factors that could cause results to differ materially include the following: national and regional economic conditions, changes in the levels of construction spending, changes in supply or pricing of waste fuels, year 2000 computer system problems and other risks as further described in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 1998. 31 GIANT CEMENT HOLDING, INC. CORPORATE INFORMATION Quarterly Results of Operations (Unaudited; amounts in thousands, except per share data) Quarter Ended 1998 March 31 June 30 September 30 December 31 - ---- -------- ------- ------------ ----------- Operating revenues $23,475 $40,733 $47,445 $42,456 Gross profit 3,613 9,895 14,410 11,480 Operating income 1,489 6,318 10,345 7,230 Net income 936 4,872 6,660 4,351 Earnings per common share: Basic $ 0.10 $ 0.52 $ 0.72 $ 0.47 Diluted $ 0.10 $ 0.51 $ 0.70 $ 0.46 1997 Operating revenues $24,358 $32,323 $31,672 $28,535 Gross profit 4,063 10,734 10,957 9,378 Operating income 2,040 8,839 9,112 6,418 Net income 1,238 5,694 5,888 3,265 * Earnings per common share: Basic $ 0.13 $ 0.60 $ 0.63 $ 0.35 Diluted $ 0.13 $ 0.60 $ 0.62 $ 0.34 * Includes special charges of $1.7 million or $0.18 per share. Market and Dividend Information The Company's common stock is traded on The Nasdaq National Market(R) under the symbol: GCHI. On March 5, 1999, the approximate number of registered holders of the Company's common stock was 184 and the approximate number of beneficial shareholders was 2,500. The high and low price of the Company's common stock during the calendar quarters of 1997 and 1998 are set forth below. The closing price on December 31, 1998 was $24.75. The Company expects that earnings will be retained in the business, and no cash dividends will be paid to its common shareholders for the foreseeable future. Calendar Quarter 1998 1997 ---- ---- High Low High Low First $30.00 $18.50 $17.13 $15.25 Second $29.50 $21.25 $18.75 $15.50 Third $31.75 $17.87 $24.63 $18.13 Fourth $25.00 $17.75 $25.75 $22.00 32 Corporate Information Form 10-K and Company Information Corporate Offices A copy of Giant Cement Holding, Inc.'s 320-D Midland Parkway Annual Report on Form 10-K for the year Summerville, South Carolina 29485 ended December 31, 1998, filed with the (843) 851-9898 Securities and Exchange Commission, may be obtained by writing: Terry L. Kinder, Vice President and Chief Financial Officer, at the corporate address, or by requesting from our web site: GCHI.com Independent Accountants Annual Meeting PricewaterhouseCoopers LLP The Annual Meeting of Shareholders for Giant Charlotte, North Carolina Cement Holding, Inc. will be held May 11, 1999, in New York, New York. Transfer Agent Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 33 GIANT CEMENT HOLDING, INC. DIRECTORS AND OFFICERS DIRECTORS Gary Pechota Chairman of the Board, President and Chief Executive Officer of the Company Terry L. Kinder Vice President, Chief Financial Officer, Secretary and Treasurer of the Company Dean M. Boylan Vice Chairman and Director of Boston Sand & Gravel Company, Inc. Edward Brodsky Partner in the law firm of Proskauer Rose LLP Robert L. Jones Chairman of Davidson - Jones - Beers Corporation John Roberts Founder and Past President and Chief Executive Officer of Solite Corporation OFFICERS Gary Pechota Chairman of the Board, President and Chief Executive Officer Terry L. Kinder Vice President, Chief Financial Officer, Secretary and Treasurer Richard A. Familia Vice President, Environmental Affairs 34 EX-21 3 Exhibit 21 SUBSIDIARIES Corporation State of Ownership Incorporation Giant Cement Company, Inc. Delaware 100% Keystone Cement Company, Inc. Pennsylvania 100% Giant Resource Recovery Company, Inc. Delaware 100% GCHI Investments, Inc. Delaware 100% GCHI Acquisition Corp. Delaware 100% Giant Cement NC, Inc. South Carolina 100%(1) Solite Corporation Virginia 100% Eden Machine and Design Corporation Virginia 100%(2)(3) Carolina Solite Corporation North Carolina 100%(2)(3) Solite Lightweight Transportation, Inc. Virginia 100%(2)(3) Oldover Corporation Virginia 100%(2)(3) Oldover Too, Inc. Virginia 100%(2)(3) M&M Chemical & Equipment Co., Inc. Alabama 100%(2) Charlotte Block, Inc. North Carolina 100%(2)(3) Lightweight Block - Eden Corporation Virginia 100%(2)(3) Lightweight Block Company, Incorporated Virginia 100%(2) Boston Concrete Products, Incorporated Virginia 100%(2)(3) Lightweight Block Lexington Corporation Virginia 100%(2)(3) (1) Indirect. Owned 100% by Giant Cement Company, Inc. (2) Indirect. Owned 100% by Solite Corporation. (3) Effective January 1, 1999, pursuant to a corporate reorganization of Solite and its subsidiaries, each of these subsidiaries were merged into other Solite subsidiaries or dissolved. All of the Solite subsidiaries are now indirect subsidiaries of the Company owned 100% by a new Virginia corporation, Solite Holding Company, Inc., which is 100% owned by the Company. EX-23 4 Exhibit 23(a) CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANT We consent to the incorporation by reference into the registration statement of Giant Cement Holding, Inc. on Form S-8 (filed May 16, 1995) of our report dated February 12, 1999 on our audits of the consolidated financial statements and financial statement schedule of Giant Cement Holding, Inc. as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which reports are included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Charlotte, North Carolina March 30, 1999 EX-27 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This Schedule Contains Summary Financial Information extracted from the Company's December 31, 1998 Financial Statements. 1000 year Dec-31-1998 Jan-01-1998 Dec-31-1998 6,623 0 25,752 1,980 24,729 62,806 201,675 103,309 175,812 26,455 0 0 0 100 102,194 175,182 128,774 154,109 114,711 114,711 0 0 1,970 25,465 8,646 16,819 0 0 0 16,819 1.81 1.77
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