Item 1. Description of 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 since the beginning of the fiscal year for which this report is filed in three principal industry segments, namely: (i) cement and related products, (ii) paper and packaging and (iii) realty operations.
During fiscal year 1994, 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 of organization.
(b) Financial Information About Industry Segments
Information on the industry segments in which the Registrant has been engaged 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, 1994 (the "Annual Report"), page 28, 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 produced 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, 1994, the Registrant sold 5,104,038 barrels of grey cement. Substantially all of these sales were made to customers in Puerto Rico.
During the fiscal year ended December 31, 1994, approximately 35.4% of the hydrated lime produced by the Registrant was sold to the construction and agricultural industry and the remaining 64.6% was sold to other industries for chemical usage, both locally and in export markets. Approximately 37.4% (43.7% in 1993) of total sales of hydrated lime, mainly for use in connection with 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: 40% by the Registrant and its subsidiaries for packing its products; 2% for packaging of cement and related products by other producers; 5% by sugar producers; 44% by the grain and animal feed industry; and 9% for coffee, chemical, rice, fertilizers and other miscellaneous uses.
The Registrant and Desarrollos Multiples Insulares, Inc., a wholly-owned subsidiary, own and hold for future development and sale approximately 532 acres of land throughout Puerto Rico.
Total Revenue
Set forth below are the (i) total revenue (in thousands of dollars) for each of the last three fiscal years contributed by any class of similar products which accounted for 10% or more of the Registrant's consolidated net sales in such fiscal year and (ii) the Registrant's consolidated net sales (in thousands of dollars) for each of the last three fiscal years:
Methods of Distribution
The Registrant sells and distributes cement (both in bulk and bagged) and related products in Puerto Rico to (i) customers on a direct basis, (ii) to independent local distributors (which include ready mix concrete producers, building material dealers, concrete products manufacturers, and government agencies), and (iii) to general and highway contractors.
(ii) New Products
The Registrant has not made any public announcements regarding, not has it otherwise made public information about, a new product or industry segment that is material to the Registrant's business.
(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, 1995 certain trademarks, tradenames and patents owned by Stone Container Corporation (which were once owned by St. Regis Paper Company of New York, then 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 would 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, 1994, the Registrant had invested approximately 14% of its total assets in inventory, which consists mainly of operating supplies and repair parts for its equipment. Taking into account the geographical locations of the Registrant's manufacturing facilities as compared to the geographical locations of its major suppliers, such investment in inventory 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 1994, 41% 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 11% 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 1994, 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 40.02% of the total bags of cement sold in Puerto Rico. No cement was imported to the Puerto Rico market during 1994.
The Registrant competes on the basis of the price and quality of its products.
(xi) Research and Development
During the last three fiscal years, other than the conversion of two slurry mills to cement grinding mills which is currently in progress, the Registrant has not spent any material amounts on research and development activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques for itself or for any of its customers.
(xii) Environmental Compliance
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. Such equipment was installed in order to comply with (i) regulations established by the Environmental Quality Board of Puerto Rico and (ii) 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 a Current Report on Form 8-K dated 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.
Regulations issued by the United States Environmental Protection Agency limit the Registrant's annual production capacity. In 1994, such regulations limited the Registrant's capacity to 5,165,000 barrels of clinker. The Registrant complied with these limitations and such limitations did not have a material effect on the capital expenditures, earnings or competitive position of the Registrant.
(xiii) Employees
As of December 31, 1994, the Registrant and its subsidiaries had 552 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 (1), age 70, Director; Chairman of the Board and Chief Executive Officer of the Registrant from April 1, 1985 to December 31, 1994; 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.
2. Antonio Luis Ferre (2), age 61, Director; Vice Chairman of the Board of the Registrant from 1985 through December 1994; Chairman of the Board from 1980 through 1985; President of El Dia, Inc. (newspaper publishing company) since 1969; Director of Metropolitan Life Insurance Company of New York (insurance company) since 1987; Director and Vice Chairman of BanPonce Corporation (bank holding company) since 1984 and Banco de Ponce (commercial bank) from 1959 to 1990; Director and Vice Chairman of Banco Popular de Puerto Rico (commercial bank) since 1991; Director of Pueblo Extra Supermarket (food retailer) since 1993.
3. Alberto M. Paracchini, age 62, Director; Vice Chairman of the Board of the Registrant since 1968; Chairman of the Board and Chief Executive Officer from 1983 to 1990 and President from 1980 to 1990 of Banco de Ponce (commercial bank); President from 1984 to 1990 and Director and Chairman of the Board from 1985 to 1993 of BanPonce Corporation (bank holding company); Chairman of the Board from 1986 to 1993 of Vehicle Equipment Leasing Corporation (automobile leasing company); Director since 1991 and Chairman of the Board from 1991 to 1993 of Banco Popular de Puerto Rico (commercial bank), Popular Leasing & Rental, Inc. and Popular Consumer Services, Inc.; Director of HDA Management Corporation since December 1993, Equus Management Co. since August 1994 and Venture Capital Fund since March 1994.
4. Miguel Nazario (3), age 47, Vice President of the Registrant from August 8, 1994 to December 31, 1994; prior to joining the Registrant, Mr. Nazario held various administrative positions over a ten-year period, most recently as a member of the Corporate Manufacturing Staff of Digital Equipment Corporation.
5. Hector del Valle (4), age 57, Director; President of the Registrant from January 1, 1988 to December 31, 1994; 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.
6. Jose J. Suarez, age 59, Director; 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.
7. Jose O. Torres, age 49, Secretary; 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 Sa1es from 1982 to October 1983; Treasurer from 1976 to 1982.
8. Angel M. Amaral, age 61, Vice President and Controller of the Registrant since June 1982; Controller from 1976 to June 1982.
9. Rene Di Cristina, age 44, Vice President of Sales of the Registrant since October 1983.
10. Juan A. Carbonell, age 73, Vice President and General Manager of St. Regis Paper and Bag Division since January 1984.
11. Benito del Cueto, age 60, Vice President of Desarrollos Multiples Insulares, Inc., a wholly-owned subsidiary of the Registrant, since 1973.
12. Antonio L. Ferre Rangel, age 28, Director; Vice President of Strategic Planning since January 1, 1995. Mr. Ferre joined the Company in 1992.
All officers are elected to serve for a term of one year and until the election and qualification of their respective successors. ____________________
(1) Mr. Suarez retired from his position as Chairman and Chief Executive Officer of the Registrant as of December 31, 1994, but remained as a Director.
(2) Mr. Ferre became Chairman of the Board of the Registrant as of January 1, 1995.
(3) President and Chief Executive Officer of the Registrant since January 1, 1995.
(4) Vice Chairman of the Board of the Registrant since January 1, 1995.
Item 2.
Item 2. Description of Property
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. The Ponce Cement plant operates under the dry process and during the last fiscal year 5,083,800 barrels of cement were produced for an approximate 94% of its effective kiln capacity. The lime plant produced 25,292 tons of lime and was operated at approximately 55% 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 1994 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 (c) (iii)) 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 (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 29, 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 29, section entitled "Notes to Consolidated Financial Statements, Note 15/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
Items 5 through 8 of Part II of this report are omitted as permitted by General Instruction G(2) since the information required by such items is contained in the Registrant's Annual Report which 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 3, 1995 filed with the Commission pursuant to Regulation 14A (the "Proxy Statement") pages 2 to 7, 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, section entitled "Executive Compensation" through and including section entitled "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 9, 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 Committee Interlocks and Insider Participation," and is incorporated herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report on Form 10-K: 1. Financial Statements incorporated by reference to the Annual Report, pages 20 to 29; and
2. Financial statement schedules and supplementary data required by Item 8