Item 1. BUSINESS
(a) General Development of Business
Puerto Rican Cement Company, Inc. (the "Registrant"), a corporation organized under the Laws of the Commonwealth of Puerto Rico in 1938, has been engaged in three principal industry segments, namely, cement and related products, paper and packaging and realty operations since the beginning of the fiscal year for which this report is filed.
Since the beginning of fiscal year 1993, there were no major changes in the industry segments of the Registrant, nor was the Registrant or any of its subsidiaries subject to any significant change in its form or organization.
(b) Financial Information About Industry Segments
Information on industry segments of the Registrant for the last three fiscal years, including the amounts of revenue, operating profit and identifiable assets attributable to each of the Registrant's industry segments is included as part of the Registrant's Annual Report to Stockholders for the year ended December 31, 1993 (the "Annual Report"), page 22 section entitled "Notes to Consolidated Financial Statements, Note 12 /Financial Data by Industries", which includes the financial statements and schedules furnished pursuant to Item 14 and is incorporated herein by reference.
(c) Narrative Description of Business
(i) Principal Products or Services
The principal products or services rendered by the Registrant are:
(A) Cement and related products
1. Portland grey cement, Type I, manufactured under specifications of the American Society for Testing Materials ("A.S.T.M.")
2. Hydrated lime
(B) Paper and packaging
1. Multiwall paper bags
(C) Realty operations
The Registrant's products are sold principally on the island of Puerto Rico.
Portland grey cement is used primarily in the construction of residential, commercial and public buildings and in the construction of highways. During the fiscal year ended December 31, 1993, the Registrant sold 4,550,738 barrels of grey cement. Substantially all of these sales were made to customers in Puerto Rico.
During the fiscal year ended December 31, 1993, approximately 28.7% of the production of hydrated lime was sold to the construction and agricultural industry and the remaining 71.3% was sold to other industries for chemical usage, both locally and in export markets. Approximately 43.7% of total sales of hydrated lime, mostly for chemical water purification, were made to the local Government or its agencies.
Multiwall paper bags produced by the Registrant's St. Regis Paper and Bag Division were marketed almost exclusively in Puerto Rico and were used by the following customers: 38% by the Registrant and its subsidiaries for packing its products; 2% for packing of cement and related products by other producers; 10% by sugar producers; 42% by the grain and animal feed industry; and 8% for coffee, chemical, rice, fertilizers and other miscellaneous uses.
The Registrant and Desarrollos Multiples Insulares, Inc., a wholly-owned subsidiary, own and hold for sale approximately 532 acres of land throughout Puerto Rico.
Total Revenue
Total revenue for each of the last three fiscal years contributed by any class of similar products which accounted for 10% or more of consolidated net sales (in thousands of dollars) in any of those fiscal years is given below:
Methods of Distribution
The Registrant sells and distributes cement (both in bulk and bagged) and related products in Puerto Rico to customers on a direct basis and to independent local distributors, which include ready mix concrete producers, building material dealers, concrete products manufacturers, government agencies, sugar refineries (in the case of lime) and to general and highway contractors.
(ii) New Products
The Registrant made no public announcements and otherwise has not made public information about a new product or industry segment that is material.
(iii) Raw Materials
The Registrant owns in fee properties containing limestone and sand deposits which directly adjoin or are close to its cement and hydrated lime plant sites. The Registrant also owns properties near such plants which contain clay deposits. The Registrant has not conducted a systematic exploratory drilling program ordinarily considered necessary for the establishment of limestone and other raw materials reserves and, accordingly, makes no tonnage estimate of the availability of such raw materials. However, on the basis of scattered drilling results on deposits of substantial depths, and past and present production from the Registrant's properties, the Registrant believes that the availability of limestone and other raw materials presents no foreseeable problem. There have been no recent material mining changes in the exploitation of the principal raw material deposits and none are expected. The Registrant purchases raw gypsum in the open market from sources outside Puerto Rico. Coal for firing the kilns is purchased from Carbones de Colombia, S.A., a Colombian supplier, under a long-term supply contract. Electricity is purchased from the Puerto Rico Electric Power Authority; and water is obtained from wells on the Registrant's properties.
(iv) Patents and Trademarks
St. Regis Paper and Bag Division has the right to use until December 31, 1994 certain trademarks, tradenames and patents of Stone Container Corporation (formerly owned by St. Regis Paper Company of New York, which were acquired by Champion International during 1985, and thereafter sold to Stone Container Corporation). The Registrant is negotiating, on an annual basis, for renewal of this agreement for continued utilization of such trademarks, tradenames and patents. The Registrant believes that failure to renew such agreement will have no material impact on this segment of its business.
(v) Seasonal Effect on Sales
Demand for cement and related products is largely dependent on the requirements of the construction industry. The requirements of the construction industry in Puerto Rico and in the Caribbean area are not necessarily "seasonal" because of the normally favorable climatic conditions of the area; however, the requirements of the construction industry depend to some extent on general economic conditions.
(vi) Credit and Working Capital Practices
As of December 31, 1993, the Registrant had invested approximately 17% of its total assets in inventory, mainly operating supplies and repair parts for its equipment. Due to geographical locations of the Registrant's manufacturing facilities with respect to its major suppliers, this is considered normal by industry standards. No significant amounts of finished goods are required to be maintained in inventory to meet rapid delivery requirements of customers. The Registrant sells its products to customers under normal commercial open account payment terms.
(vii) Customers
During fiscal year 1993, 40% of the Registrant's total dollar sales in the cement and related products segment were made to 10 unrelated customers. One of these customers, Concreto Mixto, Inc., accounted for approximately 10% of the Registrant's Consolidated Sales.
(viii) Backlog
In the opinion of the Registrant, backlog is not a relevant consideration in the type of business in which it is engaged.
(ix) Government Contracts
No material portion of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government.
(x) Competition
The Registrant is the principal producer of cement, hydrated lime and multiwall paper bags in Puerto Rico. During 1993 the other cement manufacturing company in Puerto Rico, San Juan Cement Company, Inc., which began production at the end of May 1970, accounted for approximately 41.2% of the total bags of cement sold in Puerto Rico. There was no import of cement to the Puerto Rico market during 1993. The Registrant competes on the basis of price and quality of its products.
(xi) Research and Development
Other than the conversion of its principal kiln number 6 to the dry process of cement manufacturing, completed in the second half of 1991, and the project of converting two slurry mills to cement grinding, the Registrant has not spent any material amounts in any research and development activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques during the last three fiscal years for itself or any of its customers.
(xii) Environmental Control Expenditures
During 1978, the Registrant completed the installation of air pollution control equipment in its Ponce cement and lime plants at an aggregate approximate cost of $17,000,000 to comply with regulations established by the Environmental Quality Board of Puerto Rico and with the terms of a consent order signed in August 1974 (as amended in July 1976 and February 1978) with the Federal Environmental Protection Agency.
The Registrant financed the cost of the pollution abatement program through a loan obtained in 1975 from the Government Development Bank for Puerto Rico. This loan was extinguished in 1985 as fully described in Form 8-K filed for the month of September 1985.
The Registrant's plants are in compliance with existing environmental regulations. No significant expenditures for pollution control equipment are expected in the near future.
(xiii) Employees
As of December 31, 1993, the Registrant and its subsidiaries had 533 employees.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
None of the Registrant's industry segments depend to any material extent on foreign operations.
(e) Executive Officers of the Registrant
1. Carlos J. Suarez, age 69, Chairman of the Board and Chief Executive Officer of the Registrant since April 1, 1985; President from October 1983 to December 31, 1987; Executive Vice President from June 1982 to October 1983; Senior Vice President from 1980 to June 1982; Vice President of Operations from 1973 to 1980. Mr. Suarez has announced his intention to retire after the completion of the actual project of converting two slurry mills to cement grinding.
2. Hector del Valle, age 56, President of the Registrant since January 1, 1988; Senior Vice President in charge of Finance from October 1983 to December 31 1987; Secretary from January 1984 to December 31, 1987; Vice President of Finance and Treasurer from June 1982 to October 1983; Assistant Vice President of Finance from 1976 to June 1982; Treasurer from 1973 to 1976.
3. Jose J. Suarez, age 58, Executive Vice President in charge of Operations of the Registrant since January 1, 1988; Senior Vice President in charge of Operations from October 1983 to December 31, 1987; Vice President of Operations from June 1982 to October 1983.
4. Jose O. Torres, age 48, Treasurer and Vice President of Finance of the Registrant since January 1, 1988; Vice President and Treasurer from October 1983 to December 31, 1987; Vice President of Sales from 1982 to October 1983; Treasurer from 1976 to 1982.
5. Angel M. Amaral, age 60, Vice President and Controller of the Registrant since June 1982; Controller from 1976 to June 1982.
6. Rene Di Cristina, age 43, Vice President of Sales of the Registrant since October 1983.
7. Juan A. Carbonell, age 72, Vice President and General Manager of St. Regis Paper and Bag Division since January 1984.
8. Benito del Cueto, age 59, Vice President of Desarrollos Multiples Insulares, Inc., a wholly-owned subsidiary, since 1973.
9. Daniel R. Dominguez, age 48, Secretary of the Registrant since June 1992.
All officers are elected to serve for a term of one year and until the election and qualification of their successors.
ITEM 2.
ITEM 2. PROPERTIES
Used in cement and related products segments
The Registrant owns in fee a cement plant located in Ponce, Puerto Rico on a 25-acre site. It also owns in fee a hydrated lime manufacturing plant that is located within the Ponce cement plant premises. During the last fiscal year the Ponce Cement plant was operated under the dry process at 90% of its actual kiln capacity and produced approximately 4,560,600 barrels of cement. The lime plant produced 30,488 tons of lime and was operated at approximately 66% of its capacity.
During 1992 the Registrant purchased a 67-acre tract of land located next to the cement plant and a 149-acre tract of land adjacent to one of the Registrant's quarries for future quarry operations.
During 1993 the Registrant continued the repairs and maintenance program on its plants. The Registrant believes that its plants are presently in good condition and properly maintained.
The Registrant owns in fee properties containing adequate deposits of limestone and other raw materials (See Item 1.1 (c) (iii) and above under this caption) which directly adjoin or are close to the plant sites.
The Registrant leases a parcel of land under a long-term lease with the municipality of Ponce, on which it installed certain facilities for coal receiving and handling. The coal received through said facilities is used as fuel in the Registrant's cement and hydrated lime manufacturing operations.
Used in paper and packaging segment
The manufacturing plant of the St. Regis Paper and Bag Division is located on a site owned by it in fee in Ponce, Puerto Rico. The Registrant believes the plant to be in good condition and properly maintained.
Used in realty operations
The Registrant and one of its subsidiaries own in fee, and hold for future development and sale, approximately 532 acres of land throughout Puerto Rico. (See Item 1.1 (c) (i)).
Used for office facilities
The Registrant and its subsidiaries own a one story building housing its executive offices located in the Amelia Industrial Park, Guaynabo, Puerto Rico.
Information about leased properties is incorporated by reference from the Annual Report, page 22, section entitled "Notes to Consolidated Financial Statements, Note 13 /Lease Commitments".
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are presently pending against the Registrant the legal proceedings described in the Annual Report, page 23, section entitled "Notes to Consolidated Financial Statements, Note 16 /Contingent Liabilities and Other Commitments", furnished pursuant to Item 14, to which reference is hereby made and which is incorporated by reference herein.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report.
PART II
Part II of this report, Items 5 through 8, is omitted as permitted by General Instruction G (2) since the information required herein is contained in the Registrant's Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
(a) Identification of Directors
Information required herein is contained in a definitive Proxy Statement for use in connection with the Registrant's Annual Meeting of Stockholders to be held on May 4, 1994 filed with the Commission pursuant to Regulation 14 A (the "Proxy Statement") pages 2 to 10, section entitled "Information about Nominees, Directors and Principal Stockholders", and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is contained in the Proxy Statement, pages 10 to 17, sections entitled "Executive Compensation", "Executive Separation Policy" and "Certain Transactions with Management", and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is contained in the Proxy Statement, pages 2 to 10, sections entitled "Information about Nominees, Directors and Principal Stockholders" and "Security Ownership of Certain Beneficial Owners" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is contained in the Proxy Statement, pages 16 to 17, sections entitled "Certain Transactions with Management" and "Compensation Comitte Interlocks and Insider Participation", and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements and exhibits filed as part of the Annual Report are as follows:
1. Financial Statements, pages 12 to 23.
2. Financial statement schedules and supplementary data required by Item 8