-----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, ArOP8QM+zP+c45n+tBi9GptvKOA/TLk8LKaQc0HKpwN/J6jwOrN8HiY/x26ClKvY 6RKU6WtiC5xxdD8f6UBx/A== 0000950144-00-004110.txt : 20000331 0000950144-00-004110.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950144-00-004110 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUERTO RICAN CEMENT CO INC CENTRAL INDEX KEY: 0000081076 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 516601895 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04753 FILM NUMBER: 585137 BUSINESS ADDRESS: STREET 1: P.O.BOX 364487 CITY: SAN JUAN STATE: PR ZIP: 00936-4487 BUSINESS PHONE: 8097833000 MAIL ADDRESS: STREET 2: POST OFFICE BOX 364487 CITY: SAN JUAN STATE: PR ZIP: 09336-4487 10-K 1 PUERTO RICAN CEMENT COMPANY, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER I-4753 PUERTO RICAN CEMENT COMPANY, INC. (Exact Name of Registrant as Specified in Its Charter) COMMONWEALTH OF PUERTO RICO 51-A-66-0189525 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) PO BOX 364487 - SAN JUAN, PUERTO RICO 00936-4487 (Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code): (787) 783-3000 Securities registered pursuant to Section l2(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------- ----------------------- COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section l2(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 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 [ ] [Cover page 1 of 2 pages] 2 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 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. [ ] The aggregate market value of the voting common stock held by non-affiliates of the Registrant is $155,264,078. This market value was computed by reference to the closing price of the common stock on The New York Stock Exchange on March 16, 2000. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the close of the period covered by this report: COMMON STOCK, $1.00 PAR VALUE 5,186,274 SHARES DOCUMENTS INCORPORATED BY REFERENCE l. Portions of the Company's Annual Report to Security Holders for the fiscal year ended December 3l, l999, are incorporated by reference into Parts I and II. 2. Portions of the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference into Part III. [Cover page 2 of 2 pages] 3 CROSS REFERENCE SHEET AND TABLE OF CONTENTS
Page ITEM Number Reference ---- ------ --------- PART I 1. Business.................................................................................. 6 (1) General Development of Business....................................................... 6 Financial Information About Industry Segments......................................... 6 (2) Narrative Description of Business..................................................... 7 Financial Information About Geographic Areas.......................................... 13 Executive Officers of the Company..................................................... 13 (3) 2. Properties................................................................................ 15 3. Legal Proceedings......................................................................... 16 (4) 4. Submission of Matters to a Vote of Security Holders....................................... 16 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................................... 16 (5) 6. Selected Financial Data................................................................... 16 (6) 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 17 (7) 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 17 8. Financial Statements and Supplementary Data............................................... 17 (8) 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................................................... 17
4
PART III l0. Directors and Executive Officers of the Registrant....................................... 18 (9) 11. Executive Compensation................................................................... 18 (10) l2. Security Ownership of Certain Beneficial Owners and Management......................................................................... 18 (11) 13. Certain Relationships and Related Transactions........................................... 18 (12) PART IV l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................................................. 19
- --------- (l) Information incorporated by reference to the Company's Annual Report to Stockholders for the year ended December 31, l999 ("Annual Report") and the Board of Directors' Proxy Statement for use in connection with the Company's Annual Meeting of Stockholders to be held on May 3, 2000 ("Proxy Statement"). (2) Annual Report, page 30, section entitled "Notes to Consolidated Financial Statements, Note 12/Segment Information." (3) Annual Report, page 25, section entitled "Notes to Consolidated Financial Statements, Note 4/Property, Plant and Equipment" and page 30, section entitled "Notes to Consolidated Financial Statements, Note 13/Lease Commitments." (4) Annual Report, page 31, section entitled "Notes to Consolidated Financial Statements, Note 15/Contingent Liabilities and Other Commitments," and page 31, section entitled "Notes to Consolidated Financial Statements, Note 16/Legal Proceedings." (5) Annual Report, page 17, section entitled "Common Share Prices and Dividends Per Share," page 33, section entitled "Five-Year Statistical Comparison" and pages 26 to 27, section entitled "Notes to Consolidated Financial Statements, Note 9/Long-term Debt." 5 (6) Annual Report, page 17, section entitled "Selected Financial Data." (7) Annual Report, pages 14 to 16, section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." (8) Annual Report, pages 18 to 33, sections entitled "Report of Independent Accountants," "Consolidated Statement of Income," "Consolidated Balance Sheet," "Consolidated Statement of Comprehensive Income," "Consolidated Statement of Changes in Stockholders' Equity," "Consolidated Statement of Cash Flows," "Notes to Consolidated Financial Statements," "Consolidated Fourth Quarter Results," "Financial Results by Quarter," and "Five-Year Statistical Comparison." (9) Proxy Statement, pages 3 to 9, section entitled "Information about Directors, Nominees and Principal Stockholders." (l0) Proxy Statement, pages 12 to 21, sections entitled "Executive Compensation" through and including section entitled "Certain Transactions with Management." (11) Proxy Statement, pages 3 to 11, sections entitled "Information about Directors, Nominees and Principal Stockholders" and "Security Ownership of Certain Beneficial Owners." (12) Proxy Statement, pages 20 to 21, sections entitled "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions with Management." 6 PART I Item l. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Organization Puerto Rican Cement Company, Inc. ("PRCC" or the "Company") was organized under the laws of the Commonwealth of Puerto Rico in l938. The Company is engaged in the production and sale of cement, ready mix concrete and lime; the Company is also engaged in the packaging business, in the financing business and in realty operations. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company's financial information is disclosed for the following segments: (1) cement operations, (2) ready mix concrete operations, and (3) all others segment. The "all others segment" category is comprised of the Company's packaging, lime, financing and realty operations. The cement operations include the manufacture and sale of cement. The ready mix concrete operations include the sale and distribution of ready mix concrete. The packaging operations include the manufacture and sale of multi-wall paper and polypropylene bags. The lime operations include the manufacture and sale of lime. The realty operations include the development, sale and rental of real property owned by the Company. The financing operations mostly involve providing equipment financing to customers in construction related industries. Information on the industry segments in which the Company has been engaged for the last three fiscal years, including the amounts of revenue, operating profit and identifiable assets attributable to each of the Company's industry segments, is included as part of PRCC's Annual Report, page 30, section entitled "Notes to Consolidated Financial Statements, Note 12/Segment Information," which includes the financial statements and schedules furnished pursuant to Item 14 and is incorporated herein by reference. 6 7 (c) NARRATIVE DESCRIPTION OF BUSINESS CEMENT OPERATIONS SEGMENT Principal product. PRCC produces Portland grey cement, Type I, manufactured under specifications of the American Society for Testing Materials. Portland grey cement is used primarily in the construction of residential, commercial and public buildings and highways. PRCC's cement plant is located in Ponce, on the southern coast of Puerto Rico. The cement manufacturing process generally involves the extracting, crushing, grinding and blending of limestone, clay and other raw materials. These raw materials are proportioned automatically according to chemical analysis and blended to obtain a stable quality. The Company manufactures cement using the dry process technology, which is more efficient in fuel consumption than other technologies. Pursuant to the dry process technology raw materials are first processed through a preheating tower, where heat is supplied from hot gases originated in a rotary kiln, to effect partial calcination of the materials before they enter the rotary kiln. Once in the rotary kiln, the raw materials are exposed to extremely high temperatures which create a chemical reaction that converts them into clinker. The clinker drops from the kiln and is cooled with air. At the same time, this air serves to recapture the kiln's heat for use in the preheating process. Finally, gypsum is added to the clinker and both materials are ground to form finished cement. The Company sells and distributes cement (both in bulk and bagged) in Puerto Rico. Sales are made on a direct basis to independent local distributors, including ready mix concrete producers, building material dealers, concrete product manufacturers, government agencies, and general and highway contractors. During the fiscal year ended December 3l, l999, the Company sold 1,255,000 tons of Portland grey cement to customers in Puerto Rico. Approximately 28.6% of the cement sold by PRCC in 1999 was sold to its ready mix concrete subsidiary, Ready Mix Concrete, Inc. ("RMC"). Raw Materials. PRCC owns, in fee, properties containing limestone and sand deposits which directly adjoin or are close to its cement plant site. The Company also owns properties near such plants that contain clay deposits. The Company has not conducted a systematic exploratory drilling program ordinarily considered necessary for the establishment of limestone and other raw material reserves and, accordingly, makes no tonnage estimate of the availability of such raw materials. However, based on the results of scattered drilling on deposits of substantial depths, and past and present production from PRCC's properties, the Company believes that the availability of limestone and other raw materials presents no foreseeable problem. There have been no recent material changes in the exploitation of the principal raw material deposits, and no material changes are expected. 7 8 PRCC 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 located on the Company's properties. Competition. PRCC is the principal producer of cement in Puerto Rico. During l999, the other cement manufacturing company in Puerto Rico, Essroc San Juan, Inc. (formerly known as San Juan Cement Company, Inc.) produced approximately 34.8% of the total bags of cement sold in Puerto Rico. The amount of cement imported to the Puerto Rico market during 1999 totaled 2,941,000 tons, or 6.5% of the total cement market of Puerto Rico for this year. Competition in the cement market is based on the price and quality of the products. Seasonal Effect on Sales. Demand for cement and related products is largely dependent on the requirements of the construction industry, which in Puerto Rico and the Caribbean are not necessarily seasonal because of year-round favorable climatic conditions. However, from time to time the construction industry is affected by major hurricanes. The requirements of the construction industry depend to some extent on Puerto Rico's general economic conditions. READY MIX CONCRETE OPERATIONS SEGMENT Principal product. Ready mix concrete is produced in batching plants by mixing controlled portions of cement, aggregates, water and chemical additives. The product is delivered to construction sites by concrete-mixer trucks owned by RMC, the Company's ready mix concrete subsidiary. The Company sells this product to contractors on public construction projects and to private residential and industrial builders. Net sales totaled $94,522,000 in 1999. The Company's annual ready mix concrete production capacity is over 1.6 million cubic yards, which is distributed among 19 batching plants, with delivery accomplished by a fleet of 270 concrete-mixer trucks. Four batching plants are located on land owned by the Company and the remaining plants are located on parcels of land leased to the Company pursuant to operating leases with terms ranging from one to ten years. Raw materials. RMC purchases its cement from PRCC. Aggregates, mainly sand and gravel, and chemical additives used to produce concrete are purchased from various outside suppliers. Competition. The Company is the largest producer of ready mix concrete in Puerto Rico. The Company competes with various large ready mix concrete companies and several small ready mix concrete operators. Competition is considered to be strong and is based primarily on price, although product quality, consistency and customer service are also important. 8 9 Seasonal Effect on Sales. Demand for cement products, including ready mix concrete, is largely dependent on the requirements of the construction industry, which in Puerto Rico and the Caribbean are not necessarily seasonal because of year-round favorable climatic conditions. However, from time to time the construction industry is affected by major hurricanes. The requirements of the construction industry depend to some extent on Puerto Rico's general economic conditions. ALL OTHERS SEGMENT PACKAGING OPERATIONS Principal Product. Multi-wall paper bags are produced by the Company's St. Regis Paper and Bag Division ("St. Regis"). Polypropylene bags are produced by the Company's wholly-owned subsidiary, Poly Bags and Packaging, Inc. ("Polybags"), which commenced production during 1997. Both types of bags are marketed almost exclusively in Puerto Rico. During 1999, paper bag sales were made to the following customers: 55% to PRCC and its subsidiaries; 35% to the grain and animal feed industry; 7% to sugar and flour producers; and 3% for miscellaneous uses. Polypropylene bag sales during the year were made to the following customers: 40% to PRCC and its subsidiaries; 18% to fertilizer and animal feed producers; and 42% for miscellaneous uses. Raw Materials. The Company purchases paper, polypropylene and other related raw materials from various sources outside of Puerto Rico. Competition. The Company is the principal producer of multi-wall paper bags and the only producer of polypropylene bags in Puerto Rico. The Company competes based on the price and quality of its products principally against imported products. LIME OPERATIONS Principal product. The Company manufactures and sells hydrated lime, types Q and S (both in bulk and bagged), and pebble lime (in bulk only) through its subsidiary, Florida Lime Corporation ("FLC"). During the fiscal year ended December 3l, 1999, approximately 27% of the lime produced by the Company was sold to the local construction and agricultural industries. The remaining 73% were sold to other industries for chemical use, both in Puerto Rico and in export markets. Export sales for the year ended December 31, 1999 represented 45% of total lime sales. A significant portion of exported lime is used in the alumina refining industry, and thus demand may vary depending upon the market conditions of that industry. Raw Materials. Limestone with a high level of calcium carbonate is the only raw material used in the production of lime. The Company currently purchases limestone from various sources close to the plant. 9 10 Competition. The Company is the only producer of lime in Puerto Rico. No material amount of lime was imported to the Puerto Rico market during 1999. Seasonal Effect on Sales. Due to the year-round favorable weather conditions of Puerto Rico and the Caribbean area, sales of lime are not necessarily seasonal. FINANCING OPERATIONS The Company, through one of its wholly-owned subsidiaries, Ponce Capital Corporation ("PCC"), provides equipment financing mostly to block manufacturers, hardware stores and ready mix concrete businesses. REALTY OPERATIONS The Company, through one of its wholly-owned subsidiaries, owns and holds for future development and sale approximately 592 acres of land throughout Puerto Rico. The Company intends to develop a 300-unit, low-cost housing project on 80 of these acres located in Vega Alta. AGGREGATES OPERATIONS Principal product. The Company expects to commence an operation to extract limestone from the earth's crust in the municipality of Guanica, Puerto Rico in the second half of 2000, as legal proceedings with respect to the required permits for this site concluded favorably to the Company. This operation is located on property leased from the Commonwealth of Puerto Rico. The limestone material extracted from this property will be sold principally to the Company's subsidiary, FLC. Additionally, in order to develop the 300-unit housing project mentioned above, the land upon which the housing units will be built has to be leveled and prepared, with excess material to be used in the production of aggregates (principally sand and crushed limestone) in a separate location. These aggregates will be used primarily to supply the Company's ready mix concrete operations. PRC owns, in fee, the property located in Vega Alta upon which it intends to develop the housing project. Raw materials. Guanica - The Company signed a five-year lease contract, renewable for three additional five-year periods. The lease period will commence with the beginning of the extraction operation. The lease provides for a maximum extraction of 500,000 cubic meters of raw material per year. The fees for extraction are $1.00 per cubic meter for the first two years, $1.05 for the next three years, $1.10 for the second and third five-year periods and $1.13 for the fourth five-year period. The contract also provides for an annual fee of $15,000 for the first five-year period, $20,000 for the second and third five-year periods and $25,000 for the fourth five-year period. 10 11 The Guanica facility will provide the Company with high-quality limestone material necessary to the production of lime. Competition. The Guanica site is expected to be the principal supplier of limestone to the Company's lime subsidiary. Total Revenue Set forth below are (i) the total revenue (in thousands of dollars), net of intercompany sales, for each of the last three fiscal years contributed by any class of similar products that accounted for l0% or more of the Company's consolidated net sales in such fiscal years and (ii) the Company's consolidated net sales (in thousands of dollars) for each of the last three fiscal years:
Ready mix Portland Consolidated concrete grey cement net sales --------- ----------- ------------ 1999 $94,522 $70,660 $173,195 1998 77,369 59,587 148,275 1997 81,501 64,790 156,675
New Products and Services On March 19, 1998, the Company organized PCC as a wholly-owned subsidiary under the laws of the Commonwealth of Puerto Rico. PCC was established for the purpose of providing equipment financing to block manufacturers, hardware stores and ready mix concrete businesses. PCC began operations during September 1998, after obtaining its license from the Commonwealth's Commissioner of Financial Institutions. Patents and Trademarks St. Regis had the right to use, until December 31, l999, certain trademarks, trade names and patents owned by Stone Container Corporation (which trademarks, trade names and patents were once owned by St. Regis Paper Company of New York, which was acquired by Champion International during l985, and thereafter sold to Stone Container Corporation). This agreement was not renewed. The Company believes that the non-renewal of the agreement would have no material impact on this business segment. 11 12 Credit and Working Capital Practices As of December 31, 1999, the Company had invested 11.9% 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 Company'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. PRCC sells its products to customers pursuant to normal commercial open-account payment terms. Customers During fiscal year l999, 12.6% of the Company's total sales revenue in the cement operations segment were made to five (5) unrelated customers. The Company had no unrelated customer that individually accounted for 10% or more of the Company's consolidated sales. Backlog The Company believes that backlog is not a relevant consideration in the types of businesses in which it is engaged. Government Contracts No material portion of the Company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Research and Development During the last three fiscal years, the Company has not spent any material amount of money 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. 12 13 Environmental Compliance During l978, PRCC completed the installation of air pollution control equipment in its cement and lime plants located in Ponce at an aggregate approximate cost of $l7,000,000. Such equipment was installed in order to comply with regulations established by the Puerto Rico Environmental Quality Board ("EQB") and the terms of a consent order signed in August l974 (as amended in July l976 and February l978) with the United States Environmental Protection Agency ("EPA"). The Company financed the cost of the pollution abatement program through a loan obtained in l975 from the Government Development Bank for Puerto Rico. This loan was defeased in l985 as fully described in a Current Report on Form 8-K dated September l985. PRCC'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 EPA limit PRCC's annual clinker production capacity. Until November 1998, such regulations limited the Company's capacity to 971,000 tons. The Company has complied with these limitations and such limitations have not had a material effect on the capital expenditures, earnings or competitive position of PRCC. During 1997, the EPA authorized an increase in the Company's annual clinker production capacity limit to 1,238,100 tons. In November 1998, the Company obtained final approval from the local EQB for this increase in its clinker production capacity. During 1998, the Company performed all plant modifications necessary to increase its plant capacity to comply with the newly approved limits. Employees As of December 31, l999, the Company and its subsidiaries had 1,053 employees. (d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS In the last three fiscal years, except for Florida Lime Corporation, none of PRCC's industry segments depended to any material extent on foreign operations, foreign long-lived assets or foreign customers. A significant portion of FLC's sales volume depends on export sales. (e) EXECUTIVE OFFICERS OF THE REGISTRANT 1. Miguel Nazario, age 52, President and Chief Executive Officer of the Company since January 1995; Vice President from August l994 to December 1994. Prior to joining PRCC, Mr. Nazario held various administrative positions over a ten-year period, the latest as a member of the Corporate Manufacturing Staff of Digital Equipment Corporation. 13 14 2. Jose O. Torres, age 54, Assistant Secretary, Vice-President of Finance and Chief Financial Officer since February 1999; Assistant Secretary, Treasurer and Vice-President of Finance from January 1988 to January 1999; Acting Vice-President of Sales from August 1996 to August 1997; Vice-President and Treasurer from October l983 to December 1987; Vice- President of Sales from l982 to October l983; Treasurer from l976 to l982. 3. Antonio L. Ferre Rangel, age 33, Senior Corporate Vice-President since February 1999; Executive Vice-President from February 1998 to January 1999; Vice-President of Operations and Strategic Planning from January 1996 to February 1998; Vice-President of Strategic Planning from January 1995 to December 1996. Mr. Ferre joined the Company in 1992. 4. Eufemio Toucet, age 57, Executive Vice-President of Ready Mix Concrete since October 1999, Vice-President and General Manager of St. Regis Paper and Bag Division from January 1996 to September 1999; Consultant to the Company from May 1995 to December 1995. Prior to joining the Company, Mr. Toucet was President and owner of Reliable Packaging, Inc. and prior to that worked with Digital Equipment Corporation as Business Operations Manager. 5. Juan R. Taraza, age 61, Vice-President of Sales and Marketing since August 1997; Assistant Vice-President Technical Services, Sales and Marketing department from August 1983 to July 1997; Special Project Engineer from March 1983 to July 1983; Project Engineer from September 1981 to February 1983. Mr. Taraza joined the Company in June 1961. 6. Pedro M. Mena, age 43, Treasurer since February 1999; Assistant Treasurer from February 1987 to January 1999; Manager Treasury department from September 1984 to January 1987. Mr. Mena joined the Company in August 1978. 7. Fernando L. Vargas, age 39, Controller since February 1999; Plant Administrator from July 1997 to January 1999; Accounting Manager from April 1991 to January 1999. Prior to joining the Company, Mr. Vargas was a senior auditor in the international audit firm Price Waterhouse. All officers are elected to serve for a term of one year and until the election and qualification of their respective successors. 14 15 Item 2. PROPERTIES Used in cement operations segment PRCC owns, in fee, a cement plant located in Ponce, Puerto Rico, on a 25-acre site. The Ponce cement plant operates under the dry process technology. During 1999, the Company produced 1,258,000 tons of cement. During that same period, the Company produced 978,000 tons of clinker utilizing approximate 77.7% (70.7% in 1998) of its effective kiln's clinker production capacity. The Company owns, in fee, properties containing adequate deposits of limestone and other raw materials, used in the production of Portland grey cement, which directly adjoin or are near the plant sites. PRCC leases, under a long-term lease expiring in year 2004 with the municipality of Ponce, a parcel of land on which it has installed certain facilities for receiving and handling coal. The coal received through this facility is used to fuel the Company's cement and hydrated lime manufacturing operations. Used in ready mix concrete operations segment PRCC owns, in fee, 19 batching plants, located in Puerto Rico, used in the production of ready mix concrete. Four of these batching plants are located on sites owned, in fee, by the Company. The remaining plants are located on leased properties with lease terms ranging from one to ten years. The Company does not expect any problem relating to the renewal of these contracts. The Company also owns a fleet of 270 concrete-mixer trucks. During l999, PRCC continued its repair and maintenance program on its plants. The Company believes that its plants are currently in good condition and properly maintained. Used in others segment Packaging. The manufacturing plant of St. Regis is located on a site owned, in fee, by the Company in Ponce, Puerto Rico. The Company believes that the plant is currently in good condition and properly maintained. Lime. PRCC owns, in fee, a lime manufacturing plant that is located within the Ponce cement plant premises. During 1999, the lime plant produced 29,800 tons of lime and was operated at approximately 60.2% of its capacity. The Company believes that the plant is currently in good condition and properly maintained. Realty. PRCC and one of its subsidiaries own, in fee, and hold for future development and sale, approximately 592 acres of land throughout Puerto Rico. 15 16 Used for office facilities The Company and its subsidiaries own a one story building, which houses its executive offices, located at the Amelia Industrial Park, in Guaynabo, Puerto Rico. RMC's administrative offices are located on leased property in Carolina, Puerto Rico. Information about leased properties is incorporated by reference from the Annual Report, page 30, section entitled "Notes to Consolidated Financial Statements, Note 13/Lease Commitments." Item 3. LEGAL PROCEEDINGS There are presently pending against the Company the legal proceedings described in the Annual Report, page 31 section entitled "Notes to Consolidated Financial Statements, Note 15/Contingent Liabilities and Other Commitments," and page 31, section entitled "Notes to Consolidated Financial Statements, Note 16/Legal Proceedings," furnished pursuant to Item 14, to which reference is hereby made and which is incorporated by reference herein. 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 Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by Item 5 is contained in the Company's Annual Report, page 17, section entitled "Market Prices and Dividends on Common Stock," and is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA Information required by Item 6 is contained in the Company's Annual Report, page 17, section entitled "Selected Financial Data," and is incorporated herein by reference. 16 17 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by Item 7 is contained in the Company's Annual Report, pages 14 to 16, section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by Item 7A is contained in the Company's Annual Report, page 23, section entitled "Notes to Consolidated Financial Statements, Note 1/Reporting Entity and Summary of Accounting Policies," and pages 25 to 26 section entitled "Notes to Consolidated Financial Statements, Note 5/Investments," and is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by Item 8 is contained in the Company's Annual Report as follows and is incorporated herein by reference:
Annual Report Page Number ------------- Report of Independent Accountants 18 Consolidated Statement of Income 19 Consolidated Balance Sheet 20 Consolidated Statement of Comprehensive Income 21 Consolidated Statement of Changes in Stockholders' Equity 21 Consolidated Statement of Cash Flows 22 Notes to Consolidated Financial Statements 23 Consolidated Fourth Quarter Results 32 Financial Results by Quarter 32 Five-Year Statistical Comparison 33
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 18 PART III Item l0. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except as provided in Item 1(e) of this Form 10-K, all information required herein is contained in a definitive Proxy Statement for use in connection with the Company's Annual Meeting of Stockholders to be held on May 3, 2000, filed with the Commission pursuant to Section l6(a). This information is contained on pages 3 to 9, section entitled "Information about Directors, Nominees and Principal Stockholders" and pages 12 to 18, section entitled "Executive Officers of the Company." This information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION Information required by Item 11 is contained in the Proxy Statement, pages 12 to 21, section entitled "Executive Compensation" through and including the 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 l2 is contained in the Proxy Statement, pages 3 to 11, sections entitled "Information about Directors, Nominees 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 20 to 21, sections entitled "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions with Management" and is incorporated herein by reference. 18 19 PART IV 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. Consolidated Financial Statements incorporated by reference to the Annual Report, pages 19 to 31; and 2. Financial statement schedules and supplementary data required by Item 8 of this Form 10-K are incorporated by reference to the Annual Report, pages 32 to 33. The financial statement schedules required by Item 14(d) of Form 10-K are excluded since the Company is primarily an operating company. All subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have any minority equity interest and/or indebtedness to any person other than the Company or the consolidated subsidiaries in amounts which together exceed l0% of the Company's total consolidated assets at December 3l, l999. (b) Reports on Form 8-K: None. (c) Exhibits required by Item 601 of Regulation S-K: 3. Certificate of Incorporation and By-laws Exhibit Number ------- 3.1 Each of the following is filed herewith and attached hereto as an exhibit: certificate of Incorporation and amendment thereto originally filed as an exhibit to Form S-l on March 25, 1963, with (i) composite copy of the Certificate of Incorporation dated May l6, l983 originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1983, (ii) amendment dated May 6, 1987 originally filed as an exhibit to Form 10-Q for the fiscal quarter ended June 30, 1987 and (iii) amendment dated May 5, 1993 (increasing the number of authorized shares of common stock from 10 million to 20 million) originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1993. 3.2 Each of the following is filed herewith and attached hereto as an exhibit: By-Laws of the Company, as amended, originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1987, with (i) amendment dated January 1993 originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1993, (ii) amendment dated December 22, 1994, originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1994, and (iii) amendment dated February 24, 1999 originally filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1998. 19 20 l0. Material contracts 10.1 Commercial Contract between PRCC and Carbones de Colombia, S.A. dated as of April 17, 1998 filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1998. 10.2 (a) Consolidated and restated loan agreement dated as of September 27, 1985 among PRCC, PRCC's Guarantors and the Government Development Bank for Puerto Rico for approximately $18.3 million encompassing all outstanding debt of the Company to the bank as of that date. (b) Indenture trust agreement dated September 27, l985 between PRCC as grantor and Banco de Ponce as trustee for the benefit of the Government Development Bank for Puerto Rico. (Both documents listed above in this paragraph l0.2 were filed as exhibits to a Current Report on Form 8-K dated September l985 and are related to the early extinguishment of the debt transaction described therein.) 10.3 Form of Severance Compensation Agreement executed by the Company during the third quarter of 1998 with certain of the Company's executives, filed as an exhibit to Form 10-Q for the fiscal quarter ended June 30, 1998.* 10.4 Amendment to the Consulting Agreement between PRCC and Antonio Luis Ferre dated January 1, 1995, filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1994.* 10.5 Note Purchase Agreement dated January 27, 1997, with respect to $50,000,000 of Series A and $20,000,000 of Series B Senior Secured Notes due January 27, 2017 (used to refinance the outstanding principal balances of various long-term debt), filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1996. 13. Annual Report to security holders for the year ended December 31, l999. 21. Subsidiaries of the Company are included as part of the Annual Report to security holders, page 35, section entitled "Subsidiaries." All of the Company's subsidiaries are incorporated under the laws of the Commonwealth of Puerto Rico. 23. Consent of PricewaterhouseCoopers LLP, independent public accountants. 20 21 27. Financial Data Schedule. - --------- ALL OF THE ABOVE DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE. * Exhibit constitutes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 601 (b) (10) (iii). S I G N A T U R E S Pursuant to the requirements of Section l3 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUERTO RICAN CEMENT COMPANY, INC. (REGISTRANT) Date: March 22, 2000 By: /s/ Miguel Nazario -------------------------------------- Miguel Nazario President and Chief Executive Officer and Director 21 22 Pursuant to the requirements of the Securities Exchange Act of l934, 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 22, 2000 By: /s/ Miguel Nazario --------------------------------------- Miguel Nazario President, Chief Executive Officer and Director Date: March 22, 2000 By: /s/ Antonio Luis Ferre --------------------------------------- Antonio Luis Ferre Director and Chairman of the Board Date: March 22, 2000 By: /s/ Alberto M. Paracchini --------------------------------------- Alberto M. Paracchini Director and Vice Chairman of the Board Date: March 22, 2000 By: /s/ Hector del Valle --------------------------------------- Hector del Valle Director and Vice Chairman of the Board Date: March 22, 2000 By: /s/ Antonio L. Ferre Rangel --------------------------------------- Antonio L. Ferre Rangel Senior Corporate Vice President and Director Date: March 22, 2000 By: /s/ Jose O. Torres --------------------------------------- Jose O. Torres Assistant Secretary, Vice-President of Finance and Chief Financial Officer 22 23 Date: March 22, 2000 By: /s/ Pedro M. Mena --------------------------------------- Pedro M. Mena Treasurer Date: March 22, 2000 By: /s/ Fernando L. Vargas --------------------------------------- Fernando L. Vargas Controller Date: March 22, 2000 By: /s/ Jose J. Suarez --------------------------------------- Jose J. Suarez Director Date: By: --------------------------------------- Angel Torres Director Date: March 22, 2000 By: /s/ Oscar A. Blasini --------------------------------------- Oscar A. Blasini Director Date: March 22, 2000 By: /s/ Rosario J. Ferre --------------------------------------- Rosario J. Ferre Director Date: March 22, 2000 By: /s/ Federico F. Sanchez --------------------------------------- Federico F. Sanchez Director Date: March 22, 2000 By: /s/ Jorge L. Fuentes --------------------------------------- Jorge L. Fuentes Director Date: March 22, 2000 By: /s/ Luis A. Ferre Rangel --------------------------------------- Luis A. Ferre Rangel Director 23 24 Date: By: --------------------------------------- Juan A. Albors Director Date: March 22, 2000 By: /s/ Waldemar del Valle Armstrong --------------------------------------- Waldemar del Valle Armstrong Director Date: March 22, 2000 By: /s/ Emilio M. Venegas Vilaro --------------------------------------- Emilio M. Venegas Vilaro Director 24 25 PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES INDEX
Page Schedule VIII - Valuation and Qualifying accounts for the years ended December 31, 1999, 1998 and 1997..................................................................... 26 Report of independent accountants....................................................................... 27 Financial Data Schedule................................................................................. 28
25 26 SCHEDULE VIII PUERTO RICAN CEMENT COMPANY, INC. AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------------------------------------------------------------------------------------------- Additions Deductions from Balance at Charged to Additions Reserves Write-off Balance at Beginning Cost and Charged to of Uncollectible End of DESCRIPTION Of Year Expenses Other Accounts Year - ---------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts 1999 $1,296,157 $420,230 $0 $615,428 $1,100,959 1998 1,451,969 145,424 0 301,236 1,296,157 1997 1,538,585 233,135 0 319,751 1,451,969
26 EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION (COMPOSITE COPY) OF PUERTO RICAN CEMENT COMPANY, INC. We, the undersigned, for the purpose of associating to establish a corporation for the transaction of the business hereinafter stated, under the provisions and subject to the requirements of the laws of the Commonwealth of Puerto Rico, and particularly an act entitled the "General Corporation Law for the Commonwealth of Puerto Rico", approved January 9, 1956, as the same may be amended from time to time, do make and file this certificate of incorporation in writing and do hereby certify: FIRST: The name of the corporation (hereinafter called the "Corporation") is PUERTO RICAN CEMENT COMPANY, INC. SECOND: The principal office of the Corporation in the Commonwealth of Puerto Rico is located at Amelia Industrial Park, Guaynabo, Puerto Rico. The name of the resident agent of the Corporation is Hector del Valle. THIRD: The objects for which the Corporation is formed are the establishment, maintenance and operation of a mercantile and industrial enterprise for the manufacture, transportation and sale of cement, which enterprise shall be operated and developed under all forms and within all licit combinations which human intelligence and activity may suggest or permit, without any other limitation than those imposed by the statutes of the United States and the laws of Puerto Rico. In addition to the general powers conferred upon this Corporation by the laws of Puerto Rico, all of which are hereby claimed, the Corporation shall possess and exercise, subject to the restrictions and liabilities contained in an act entitled the "General Corporation Law for the Commonwealth of Puerto Rico", approved January 9, 1956, as amended, and in this Certificate of Incorporation, all such powers as are necessary or convenient to the attainment of the objects of this Corporation hereinabove set forth, including, but without limitation of the generality of the foregoing, the following: (a) To manufacture, store, transport, sell and deal in, export and import, purchase for its own use or for resale, or to aid financially or otherwise in the manufacture, storage, transportation, sale and dealing in, exportation and importation of cement, Portland cement and all other types and kinds of natural and artificial cement, by-products of cement manufacture, and allied materials, such as masonry cement, cement tile, cement block, bricks, lime, highgraded lime, limestone, artificial stone, calcined gypsum, calcined and other plasters of artificial stone, plaster of Paris, dry ice, chemicals, drugs, any of the raw materials necessary for the manufacture of the various types and kinds of cement, by-products thereof, allied materials and building materials hereinabove enumerated, and such other goods, wares and merchandise of a like nature or as are usually manufactured and dealt in by those engaged in a similar line of business. (b) To design, construct, assemble, make, manufacture, produce, market, distribute and sell paper bags, sacks, cartons, packages, packaging and any and all other types or kinds of paper and paper products whatsoever. (c) To engage in research in, and to obtain patents on, and grant licenses for, new and modified types of cement, by-products, allied materials and building materials. (d) Subject to the limitations contained in the Constitution of Puerto Rico to hold, to acquire by purchase, lease, or otherwise, any real property, improved or unimproved, and any and all personal property, necessary, 1 2 suitable, proper, or convenient for, in connection with, or incidental to, the accomplishment of any one or more of the objects, purposes, or powers herein enumerated or described and to improve, develop, maintain and operate the same, including, but without limitation of the generality of the foregoing, the following real and personal property: land containing or capable of producing any of the raw materials needed for the manufacture of the products of the Corporation; factories, kilns, warehouses, plants, depots, power plants for the generation of steam or electric power, railroads and other roads, oil, air, water and gas pipe lines, electric, telephone and transmission lines, trucks, steamboats, steam tugs, barges and other boats, and any and all equipment and machinery necessary, for its plants and other buildings or otherwise. (e) To sell, mortgage, lease, assign, pledge or otherwise transfer or dispose of any and all real property, improved or unimproved, and any and all personal property which it may now hold or may hereafter acquire. (f) To borrow or raise monies for any of the purposes of the Corporation, and, from time to time, to draw, make, execute, and issue bonds, debentures, promissory notes, drafts, bills of exchange, and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon, or pledge, or conveyance, or assignment in trust of the whole or any part of the property of the Corporation, real or personal, whether at the time owned or thereafter acquired, and to sell, pledge, or otherwise dispose of such bonds or other obligations of the Corporation for its corporate purposes. (g) To enter into, make and perform contracts and agreements of every kind and description with any person, firm, association, corporation, municipality, body politic, government or any agency or agencies thereof, pertaining to the objects, purposes and powers of this Corporation, or necessary or convenient thereof or incidental thereto. (h) To do any and all things necessary, suitable, proper, or convenient for, in connection with, or incidental to, the accomplishment of any one or more of the objects, purposes or powers herein enumerated or described, or which shall appear at any time conducive or expedient for the protection or benefit of the Corporation, provided that the same are not inappropriate to or inconsistent with this Certificate of Incorporation, or with the provisions of an act entitled the "General Corporation Law for the Commonwealth of Puerto Rico", approved January 9, 1956, as amended. (i) The foregoing clauses of this Article THIRD shall be construed as objects, purposes, and powers and the matters expressed in each clause shall not be limited in any way, except as otherwise expressly provided by reference to or inference from the terms of any other clause (or any other matter within the same clause), but shall be regarded as independent objects, purposes and powers. The enumeration of specified objects, purposes and power shall not be considered to exclude, limit or restrict in any manner any power, right or privilege given to the Corporation by law or to limit or restrict the meanings of the general terms of the general powers of the Corporation, nor shall the expression of one thing be deemed to exclude another, although it be of like nature, not expressed. FOURTH: The minimum amount of capital with which the Corporation will commence business is $1,000.00, and the total number of shares for all classes of stock which the corporation is authorized to issue is Twenty Two Million (22,000,000) shares, divided in two classes, namely, Twenty Million (20,000,000) shares of Common Stock of the par value of one dollar ($1.00) each and Two Million (2,000,000) shares of Preferred Stock of the par value of five dollars ($5.00) each. FIFTH: Voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions granted to or imposed upon the respective classes of shares or the holders thereof are as follows: (a) The holders of shares of Common Stock shall be entitled to receive dividends, when and as declared by the Board of Directors, out of any funds legally available therefor and, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, all the assets of the Corporation remaining after 2 3 payment or provision for payment of all debts and liabilities shall be distributed to the holders of Common Stock pro rata according to the number of shares held, subject to the provisions hereinafter set forth in paragraph (b) of this Article FIFTH. The holders of the shares of Common Stock shall be entitled to one vote, in person or by proxy, for each share held, and except as otherwise specifically provided in the resolution or resolutions adopted by the Board of Directors pursuant to the authority expressly vested in it by this Article FIFTH with respect to any series of Preferred Stock, or as otherwise provided by the laws of the Commonwealth of Puerto Rico, the holders of the shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. (b) The authority to determine the voting powers of the Preferred Stock, the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions granted to or imposed upon the Preferred Stock, the time or times and prices at which the Preferred Stock is subject to redemption or conversion and the classification or reclassification of any unissued shares of the Preferred Stock into one or more series is expressly vested in the Board of Directors, and any such determination by the Board of Directors shall be set forth in resolutions providing for the issuance of such Preferred Stock duly adopted in accordance with the Puerto Rico General Corporation Law. Each such resolution shall be preceded by a determination by the Board of Directors that the preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the Preferred Stock to be issued are under the circumstances prevailing at the time of adopting such resolution fair and equitable to all the existing stockholders. The Preferred Stock shall rank prior to Common Stock with respect to payment of dividends and with respect to distribution of the assets of the Corporation in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Neither the consolidation nor the merger of the Corporation with or into any other corporation or corporations, nor a reorganization of the Corporation alone, nor the sale, transfer or lease by the Corporation of all or any parts of its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for the purpose of this paragraph. (c) The amount of Common Stock or Preferred Stock authorized may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, and no consent or affirmative vote of the stockholders shall be required in connection with a resolution by the Board of Directors fixing the terms of any series of Preferred Stock and authorizing the issuance of such Preferred Stock as permitted by paragraph (b) of this Article FIFTH. SIXTH: No holder of stock of the Corporation shall be entitled, as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of the Corporation of any class whatsoever, or of warrants or rights of the Corporation, or of securities convertible into, or carrying warrants or rights to subscribe for or purchase, stock of the Corporation of any class whatsoever, whether now or hereafter authorized, or whether issued for cash, property or services. SEVENTH: The names and addresses of each of the incorporators are as follows: Blanton Winship La Fortaleza, San Juan, P.R. Jose Enrique Colom Intendencia Building, San Juan, P.R. Antonio Lucchetti Guayama, P.R. EIGHTH: The Corporation is to have perpetual existence. NINTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further creation, definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders, it is further provided: 1. Subject to any special right of the holders of any capital stock of any class or series, the number of directors of the Corporation shall be not less than three nor more than eighteen. The Directors need not be stockholders. The Board of Directors shall, in the manner provided in the By-Laws, determine from time to time the number of directors who shall constitute the entire Board of Directors. Any such determination made by the Board of 3 4 Directors shall continue in effect unless and until changed by the Board of Directors, but no such change shall affect the term of any director then in office. Election of directors need not be by ballot unless the By-Laws so require. Meetings of the Board of Directors may be held either within or without the Commonwealth of Puerto Rico. Commencing at the annual meeting of stockholders held in 1987, the terms of office of the Board of Directors shall be divided into three classes, Class I, Class II and Class III, as shall be determined by the Board of Directors. All classes shall be as nearly equal in number as possible, and no class shall include less than one nor more than six directors. Any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy on the Board of Directors may be filled only by the Board of Directors, provided that a quorum is then present, or only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Directors elected to fill a newly created directorship or other vacancies shall be classified and hold office as provided by statute. The terms of office and the directors initially classified shall be as follows: (1) that of Class I shall expire at the annual meeting of stockholders to be held in 1988, (2) that of Class II shall expire at the annual meeting of stockholders to be held in 1989, and (3) that of Class III shall expire at the annual meeting of stockholders to be held in 1990. At each annual meeting of stockholders after the aforementioned initial classification, the successors to directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third annual meeting following election and until a successor shall have been elected and shall have qualified. Subject to any special right of the holders of any capital stock of any class or series, the directors of any class of directors of the Corporation may be removed without cause only by an affirmative vote of the holders of at least eighty (80) per cent of the outstanding shares of Voting Stock of the Corporation, at the annual meeting of stockholders, or at any special meeting of stockholders called for this purpose. In addition to any requirements of law and any other provisions of this Certificate of Incorporation, any By-Law or any resolution or resolutions of the Board of Directors adopted pursuant to this Certificate of Incorporation, the affirmative vote of the holders of at least eighty (80) per cent of the outstanding shares of Voting Stock shall be required to amend, alter or repeal, or adopt any provision inconsistent with, the requirements of this Section of this Article, unless such amendment, alteration or repeal, or adoption shall have been approved by a majority of the Disinterested Directors, then the affirmative vote of a majority of the outstanding shares of Voting Stock shall be required. Notwithstanding the foregoing, whenever the holders of any capital stock of any class or series shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation or resolution or resolutions of the Board of Directors adopted pursuant to this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section of this Article unless expressly provided by such terms. 2. In furtherance and not in limitation of the powers conferred by the laws of the Commonwealth of Puerto Rico, and subject at all times to the provisions thereof, the Board of Directors is expressly authorized and empowered: (a) To make, alter, and repeal By-Laws of the Corporation, subject to the power of the stock-holders to alter or repeal the By-Laws made by the Board of Directors. (b) To determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the account and books and documents of the Corporation (other than the stock ledger) or any of them, shall be open to inspection by the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the Commonwealth of Puerto Rico, unless and until duly authorized to do so by resolution of the Board of Directors. 4 5 (c) To authorize and issue obligations of the Corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors in its sole discretion may determine, and to authorize the mortgaging or pledging of, and to authorize and cause to be executed mortgages and liens upon, any property of the Corporation, real or personal, including after-acquired property. (d) To determine whether any, and, if any, what part of, the net assets of the Corporation in excess of its capital shall be declared in dividends and paid to the stockholders entitled thereto, and to direct and determine the use and disposition thereof. (e) To set apart, out of any funds of the Corporation available for dividends, a reserve or reserves, and to abolish any such reserve or reserves, or to make such other provisions, if any, as the Board of Directors may deem necessary or advisable for working capital, for additions, improvements and betterments to plant and equipment, for expansion of the business of the Corporation (including the acquisition of real and personal property for that purpose) and for any other purpose of the Corporation. (f) To establish bonus, profit-sharing, pension, thrift, and other types of incentive, compensation or retirement plans for the officers and employees (including officers and employees who are also directors) of the Corporation, and to fix the amounts of profits to be distributed or shared or contributed and the amounts of the Corporation's funds otherwise to be devoted thereto and to determine the persons to participate in any such plans and the amounts of their respective participations. (g) To issue, or grant options for the purchase of, shares of stock of the Corporation to officers and employees (including officers and employees who are also directors) of the Corporation and its subsidiaries for such consideration and on such terms and conditions as the Board of Directors may from time to time determine. (h) By resolution or resolutions passed by a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the directors of the Corporation, which to the extent provided in such resolution or resolutions or in the By-Laws, shall have and may exercise the powers of the Board of Directors (other than the power to remove or elect officers) in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it, such committee or committees to have such name or names as may be stated in the By-Laws or as may be determined from time to time by resolution adopted by the Board of Directors. (i) To exercise all the powers of the Corporation, except such as are conferred by law, or by this Certificate of Incorporation or by the By-Laws of the Corporation, upon the stockholders. 3. No contract or other transaction between the Corporation and any other corporation, whether or not such other corporation is related to the Corporation through the direct or indirect ownership by such other corporation of a majority of the shares of the capital stock of the Corporation or by the Corporation of a majority of the shares of the capital stock of such other corporation, and no other act of the Corporation shall, in the absence of fraud, in any way be affected or invalidated by the fact that any of the directors of the Corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation or by the fact that such other corporation is so related to the Corporation. Any director of the Corporation individually, or any firm or association of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Corporation, provided that the fact that he individually, or such firm or association, is so interested shall be disclosed or shall have been known to the Board of Directors or to a majority of such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such contract or transaction shall be taken. Any director of the Corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so 5 6 interested. 4. The Corporation shall indemnify each person who served or has served as a director, officer or agent of the Corporation, and each person who, at the request of the Corporation, serves as a director or officer of another corporation in which the Corporation owns shares of capital stock or of which it is a creditor, and the legal representatives of each such person, against all liabilities, expenses, counsel fees and costs incurred by such person, or the estate of such person in connection with or arising out of any action, suit, proceeding or claim, whether civil or criminal, to which such person is made a party by reason of being, or having been, such director, officer, or agent. In no case shall the Corporation indemnify any such person, or the legal representatives of such person, with respect to any matters as to which such person shall be finally adjudged in any such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties; provided, however, that an entry of judgment by consent as part of a settlement shall not be deemed a final adjudication of liability for negligence or misconduct in the performance of duty; and provided, further, that in the event of a settlement (whether by agreement, entry of a judgment of consent, or otherwise), indemnification shall be provided only in connection with such matters covered by the settlement as to which the Corporation is advised by counsel that such person was not negligent or guilty of misconduct in the performance of his duties. The foregoing right of indemnification shall not be exclusive of any of other rights to which any such person may be entitled under law, by-law, agreement, vote of stockholders or otherwise. TENTH: The vote of the stockholders of the Corporation required to approve any Business Combination shall be as set forth in this Article TENTH. The term "Business Combination" shall have the meaning ascribed to it in paragraph 1.(B) of this Article TENTH. Each other capitalized term shall have the meaning ascribed to it in paragraph 3 of this Article TENTH. 1.(A) In addition to any affirmative vote required by law or this Certificate of Incorporation and except as otherwise expressly provided in paragraph 2 of this Article TENTH: (1) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other person (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $1,000,000 or more; or (3) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate) from the Corporation or a Subsidiary; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (5) any transaction involving the Corporation or any Subsidiary (whether or not with or into or otherwise involving an Interested Stockholder), and including, without limitation, any reclassification of securities (including any reverse stock split), or recapitalization or reorganization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or 6 7 any self tender offer for or repurchase of securities of the Corporation by the Corporation or any Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder), which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the greater of (i) the affirmative vote of the holders of at least eighty (80) percent of the combined voting power of the then outstanding shares of the Voting Stock, in each case voting together as a single class (it being understood that for purposes of this Article TENTH each share of the Voting Stock shall have the number of votes granted to it pursuant to Article FIFTH of this Certificate of Incorporation or any resolution setting forth the rights, powers and preferences of any class or series of Preferred Stock made pursuant to said Article FIFTH (a "Preferred Stock Resolution"), or (ii) the affirmative vote of the sum of (a) the number of shares of voting power of Voting Stock then beneficially owned by the Interested Stockholder, plus (b) a majority of the combined voting power of the outstanding shares of Voting Stock held by stockholders other than the Interested Stockholder. Such affirmative vote shall be required not withstanding any provision of law or any other provision of this Certificate of Incorporation or any agreement with any national securities exchange or otherwise which might permit a lesser vote or no vote and in addition to any affirmative vote required of the holders of any class or series of Voting Stock pursuant to law, this Certificate of Incorporation or any Preferred Stock Resolution. (B) The term "Business Combination" as used in this Article TENTH shall mean any transaction that is referred to in any one or more clauses (1) through (5) of paragraph 1.(A) of this Article TENTH. 2. The provisions of paragraph 1.(A) of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as may be required by law, any other provision of this Certificate of Incorporation, any Preferred Stock Resolution and any agreement with any national securities exchange, if, in the case of a Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation, solely in their respective capacities as stockholders of the Corporation, the condition specified in the following paragraph (A) is met, or, in the case of any other Business Combination, the conditions specified in the following paragraph (A) or the conditions specified in the following paragraph (B) are met: (A) such Business Combination shall have been approved by a majority of the Disinterested Directors; or (B) Each of the five conditions specified in the following clauses (1) through (5) shall have been met: (1) the aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B) (1) shall be required to be met with respect to all shares of Common Stock outstanding whether or not the Interested Stockholder has acquired any shares of the Common Stock): (i) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; or 7 8 (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher; or (iii) the amount which bears the same percentage relationship to the Fair Market Value of the Common Stock on the Announcement Date as the highest per share price determined in (B) (1) (i) above bears to the Fair Market Value of the Common Stock on the date of the commencement of the acquisition of the Common Stock by such Interested Stockholder; and (2) the aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any class or series of Voting Stock (other than Common Stock) shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B) (2) shall be required to be met with respect to every class and series of such outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class or series of Voting Stock): (i) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of each such class or series of Voting Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; or (ii) if applicable, the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or (iii) The Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or the Determination Date, whichever is higher; or (iv) the amount which bears the same percentage to the Fair Market Value of such class or series of Voting Stock of the Announcement Date as the highest per share price in (B) (2) (i) above bears to the Fair Market Value of such Voting Stock on the date of the commencement of the acquisition of such Voting Stock by such Interested Stockholder; and (3) the consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Stockholder and, if the Interested Stockholder beneficially owns shares of any class or series of Voting Stock that were acquired with varying forms of consideration, the form of consideration to be received by each holder of such class or series of Voting Stock shall be, at the option of such holder, either cash or the form used by the Interested Stockholder to acquire beneficially the largest number of shares of such class or series of Voting Stock beneficially acquired by it prior to the Announcement Date; and 8 9 (4) after such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock of the Corporation, except as part of the transaction in which it becomes an Interested Stockholder or upon conversion of convertible securities acquired by it prior to becoming an Interested Stockholder or as result of a pro rata stock dividend or stock split; and (ii) such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the Corporation or any Subsidiary, whether in anticipation of or in connection with such Business Combination or otherwise; and (iii) such Interested Stockholder shall not have caused any material change in the Corporation's business or capital structure, including, without limitation, the issuance of shares of capital stock of the Corporation to any third party; and (iv) there shall have been (x) no failure to declare and pay at the regular date there of the full amount of dividends (whether or not cumulative) on any outstanding Preferred Stock except as approved by a majority of the Disinterested Directors, (y) no reduction in the annual rate of dividends paid on Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors and (z) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split), recapitalization, reorganization, self tender offer or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate was approved by a majority of the Disinterested Directors; and (5) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules and regulations), whether or not the Corporation is then subject to such requirements, shall be mailed by and at the expense of the Interested Stockholder at least thirty days prior to the Consummation Date of such Business Combination to the public stockholders of the Corporation (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions), and shall contain at the front thereof in a prominent place (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which the Disinterested Directors, if any, may choose to state, and (ii) the opinion of a reputable national investment banking firm as to the fairness (or not) of such Business Combination from the point of view of the remaining public stockholders of the Corporation (such investment banking firm to be engaged solely on behalf of the remaining public stockholders, to be paid a reasonable fee for their services by the Corporation upon receipt of such opinion, to be unaffiliated with such Interested Stockholder, and, if there are at the time any Disinterested Directors, to be selected by a majority of the Disinterested Directors). 9 10 3. For purposes of this Article TENTH: (A) A "person" shall include, without limitation, any individual, firm, corporation, group (as such term is used in Regulation 13D-5 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1987) or other entity. (B) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary or any employee benefit plan of the Corporation or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly, of more than 20 percent of the combined voting power of the then outstanding shares of Voting Stock; or (2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 20 percent or more of the combined voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (C) A person shall be a "beneficial owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (D) For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph 3.(B) of this Article TENTH, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such Interested Stockholder through application of paragraph 3.(C) of this Article TENTH but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to the term "Affiliate" in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act 10 11 of 1934, as in effect on January 1, 1987. (F) "Subsidiary" shall mean any Corporation more than 50 percent of whose outstanding equity securities having ordinary voting power in the election of directors is owned, directly or indirectly, by the Corporation or by a Subsidiary or by the Corporation and one or more Subsidiaries. (G) "Disinterested Director" shall mean any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors. (H) "Fair Market Value" shall mean: (1) in the case of stock, the highest closing sale price during the 30-day period commencing on the 40th day preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stock, or, if such stock is not quoted on the New York Stock Exchange-Composite Tape, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sale price or bid quotation with respect to a share of such stock during the 30-day period commencing on the 40th day preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations Systems or any systems then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (2) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (1) In the event of any Business Combination in which the Corporation survives, the phrase "any consideration other than cash to be received" as used in paragraphs 2.(B)(1) and (2) of this Article TENTH shall include the shares of Common Stock and/or the shares of any other class or series of outstanding Voting Stock retained by the holders of such shares. (J) "Announcement Date" shall mean the date of first public announcement of the proposed Business Combination. (K) "Determination Date" shall mean the date on which the Interested Stockholder became an Interested Stockholder. (L) "Consummation Date" shall mean the date of the consummation of the Business Combination. (M) The term "Voting Stock" shall mean all outstanding shares of capital stock of all classes and series of the Corporation entitled to vote generally in the election of directors of the Corporation, in each case voting together as a single class. The definition of "Voting Stock" in this paragraph 3 shall apply to the term "Voting Stock" as used in Article NINTH, Section 1 of this Certificate of Incorporation. 4. A majority of the Disinterested Directors shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this 11 12 Article TENTH including, without limitation: (A) whether a person is an Interested Stockholder; (B) the number of shares of Voting Stock beneficially owned by any person; (C) whether a person is an Affiliate or Associate of another person; (D) whether the requirements of paragraph 2.(B) of this Article TENTH have been met with respect to any Business Combination; (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more; and (F) such other matters with respect to which a determination is required under this Article TENTH. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article TENTH. 5. Nothing contained in this Article TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 6. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least eighty (80) percent of the combined voting power of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article TENTH or to adopt any provision inconsistent therewith; provided, however, that if there is an Interested Stockholder on the record date for the meeting at which such action is submitted to the stockholders for their consideration, there shall be required the greater of (i) the affirmative vote of the holders of at least 80 percent of the combined voting power of such aforementioned Voting Stock, or (ii) the affirmative vote of the sum of (a) the number of shares of such Voting Stock then beneficially owned by the Interested Stockholder, plus (b) a majority of the combined voting power of the outstanding shares of Voting Stock held by stockholders other than the Interested Stockholder. ELEVENTH: The Corporation reserves the right to amend, alter or repeal any of the provisions of this Certificate of Incorporation and to add other provisions authorized by the laws of the Commonwealth of Puerto Rico at the time in force, in the manner and at the time prescribed by said laws, and all rights, powers and privileges at any time conferred upon the Board of Directors and the stockholders are granted subject to the provisions of this Article ELEVENTH. IN WITNESS WHEREOF, We the subscribers, being all the incorporators named in the foregoing Certificate of Incorporation have hereunto set our hands this 19th day of February, 1938. Blanton Winship (Sgd.) J. E. Colom (Sgd.) A. Lucchetti (Sgd.) 12 13 ACKNOWLEDGMENT THE PEOPLE OF PUERTO RICO} MUNICIPALITY OF SAN JUAN} SS.: Be It Remembered that on this 19th day of February, A.D. 1938, before me a Notary Public personally appeared Blanton Winship, Jose Enrique Colom and Antonio Lucchetti, who I am satisfied are the persons named in and who executed the foregoing Articles of Incorporation and I having first made known to them the contents thereof, they, being severally duly sworn, on their oath did each acknowledge that they executed and signed the same as their voluntary act and deed. Subscribed and sworn to before me this 19th day of February, A.D. 1938. Luis Venegas Cortes (Sgd.) Notary Public [Notarial Seal] 13 14 PUERTO RICAN CEMENT COMPANY, INC. ------------- CERTIFICATE OF INCORPORATION AMENDMENTS UP TO DECEMBER 31, 1999 ---------- - ------------------------------------------------------------------------------- EX-3.2 3 BY-LAWS OF THE COMPANY 1 EXHIBIT 3.2 PUERTO RICAN CEMENT COMPANY, INC. B Y - L A W S I. OFFICES 1. The principal office of the Corporation in the Commonwealth of Puerto Rico is located at Amelia Industrial Park, Guaynabo, Puerto Rico. 2. The Corporation may also have such other offices at such other places, either within or without the Commonwealth of Puerto Rico, as the Board of Directors may from time to time determine or the business of the corporation may require. II. STOCKHOLDERS' MEETINGS 1. All meetings of the stockholders for the election of directors shall be held at the office of the corporation, Amelia Industrial Park, Guaynabo, Puerto Rico, or at such other place in said city as may be fixed by the Board of Directors. 2. The annual meeting of stockholders, commencing with the year 1979, shall be held on the first Wednesday in May in each year, if not a legal holiday, and if a legal holiday, then on the first business day following that is not a legal holiday, at 10:00 o'clock A.M., at which meeting the stockholders shall elect a Board of Directors, and transact such other business as may be properly brought before the meeting. 3. Annual Meetings. A proposal from a stockholder of the Corporation to be presented at an annual meeting must be received by the Secretary of the Corporation at its principal executive offices not less than 120 days in advance of the date the proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous years' proxy statement, a proposal shall so be received by the Corporation a reasonable time before the solicitation is made. In the case of such a proposal that includes nominations for election to the Board of Directors, the notice must include, as to each nominee, the information required to be included in a proxy statement under the Securities and Exchange Commission's proxy rules, as in effect from time to time. Proposals must be sent by registered mail return receipt requested. 4. Written notice of the annual meeting shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, at least ten days prior to the meeting. 5. At least ten days before every election of directors, a complete list of the stockholders entitled to vote as said election, arranged in alphabetical order, with the residence of each and the number of voting shares held by each, shall be prepared by the Secretary. Such list shall be open during the usual hours of business at the place where the election is to be held for said ten days, to the examination of any stockholders, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. 6. Special meeting of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board of Directors, the Vice-Chairman of the Board of Director or the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. 1 2 7. Written notice of a special meeting of stockholders stating the time and place and object thereof, shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, at least ten days before such meeting. 8. Business transacted at all special meetings shall be confined to the objects stated in the call. 9. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the Certificate of Incorporation or by these By-Laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting of which the notice was given originally. 10. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these By-Laws, a different vote is required in which case such express provision shall govern and control the decision of such question. 11. At any meeting of the stockholders each stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than one year prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation, and except where the transfer books of the Corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election of directors which shall have been transferred on the books of the Corporation within twenty days next preceding such election of directors. 12. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, if all the stockholders who would have been entitled to vote upon the action if such meeting were held, shall consent in writing to such corporate action being taken. III. DIRECTORS 1. The number of directors which will constitute the board shall be sixteen (16). The number of directors may be changed from time to time by affirmative vote of a majority of the Board of Directors within the limits provided by the Certificate of Incorporation, but no such change shall affect the term of any director then in office. The Board of Directors shall from time to time make such determinations pursuant to this section as shall be necessary or appropriate in order to ensure that, under any circumstances, the holders of capital stock of any class or series of capital stock having voting rights established under Article FIFTH, Section 1 of the Certificate of Incorporation shall be able, after giving effect to all applicable provisions of the Certificate of Incorporation and of these By-Laws, duly and effectively to exercise any special right conferred upon them by the Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant thereto to elect directors of the Corporation. Except as otherwise provided by law or in the Certificate of Incorporation or any resolution or resolutions of the Board of Directors thereto, the term of office of each director heretofore or hereafter elected shall be from time of his election and qualification until the third annual meeting next following his election and until his successor shall have been duly elected and shall have qualified. 2. The directors may hold their meetings and keep the books of the Corporation, except the original or duplicate stock ledger, outside the Commonwealth of Puerto Rico at such places as they may from time to time determine. 2 3 3. If any vacancies occur in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any directors or otherwise, or any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, may choose a successor or successors, or fill the newly created directorship, and the directors so chosen shall hold office until the next annual election of directors and until their successors shall be elected and qualified, unless sooner displaced in accordance with the terms of these By-Laws, the Certificate of Incorporation and applicable law. IV. EXECUTIVE COMMITTEE 1. The Board of Directors of the Corporation may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of three or more members, to serve during the pleasure of the Board to consist of such directors as the Board of Directors of the Corporation may from time to time designate. The Chairman of the Board shall be Chairman of the Executive Committee. 2. Meetings of the Executive Committee may be held from time to time as called by the Chairman of the Executive Committee or by any two members thereof by notice to the other members. Notice of such meeting shall be given by oral, telegraphic or written notice not less than twenty-four (24) hours before such meeting. The presence of three members of the Executive Committee, one of whom shall be Chairman of the Executive Committee, shall be requisite and shall constitute a quorum for the transaction of business. 3. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors of the Corporation (other than the power to remove or elect officers) in the management and direction of the business, affairs and properties of the corporation and all action by the Executive Committee shall be deemed to be the action of the Board of Directors of the Corporation. 4. The Executive Committee shall keep regular minutes of its proceedings, and action by the Executive Committee shall be reported to the Board of Directors of the Corporation from time to time at the request of the Board. V. FINANCE COMMITTEE 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint a Finance Committee of three or more members, to serve during the pleasure of the Board, to consist of such directors as the Board of Directors may from time to time designate. 2. Regular meetings of the Finance Committee shall be held monthly and special meetings may be held from time to time as called by the Chairman of the Finance Committee or any two members thereof by notice to the other members of the Finance Committee. Notice of such meetings shall be given by oral, telegraphic or written notice not less than 24 hours before such meeting. The presence of a majority of the total number of members of the Finance Committee shall be requisite and shall constitute a quorum for the transaction of business. 3. The Finance Committee, subject to any limitations prescribed by the Board of Directors, shall have charge of all financial and accounting affairs of the Corporation, including budgetary, accounting, statistical methods and extensions of credit. It shall also make recommendations to the board of Directors with respect to: dividend and financing policies; financial policy regarding annual budgets for expenditures for physical assets and other expenditures for physical assets of unusual import; and such other financial matters as may be assigned from time to time by the Board of Directors. 4. The Finance Committee shall keep regular minutes of its proceedings, and action taken by the Finance Committee shall be reported to the Board of Directors of the Corporation from time to time at the request of the Board. 3 4 VI. AUDIT COMMITTEE 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Audit Committee of three or more members, to serve during the pleasure of the Board to consist of such outside directors as the Board may from time to time designate. 2. The Audit Committee shall establish a meeting schedule and procedures for the fulfillment of its functions. Meetings may be called by the Chairman of the Audit Committee or any two members thereof by notice to the other members of the Committee. Notice of such meetings shall be given by oral, facsimile, or written notice not less than 24 hours before such meeting. The presence of a majority of the total number of members of the Audit Committee shall be requisite and shall constitute a quorum for the transaction of business. 3. The Audit Committee, subject to any limitations prescribed by the Board of Directors, shall have charge of all audit functions of the Corporation, including review of the Corporation's principal policies for internal control and financial reporting and, in coordination with the independent auditors, review with management any significant changes in the accounting policies and reporting standards applicable to the preparation of the Corporation's annual financial statements and the effect such changes in accounting policies and reporting standards shall have upon the Corporation's accounting policies and financial reports. 4. The Audit Committee shall keep regular minutes of its proceedings, an action taken by the Audit Committee shall be reported to the Board of Directors of the Corporation from time to time at the request of the Board. VII. COMPENSATION COMMITTEE 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint a Compensation Committee of three or more members, to serve during the pleasure of the Board, to consist of such directors as the Board of Directors may from time to time designate. 2. Meetings of the Compensation Committee may be held from time to time as called by the Chairman of the Compensation Committee or by any two members thereof by notice to the other members. Notice of such meeting shall be given by oral, facsimile or written notice not less than 24 hours before such meeting. The presence of a majority of the total number of members of the Compensation Committee shall be requisite and shall constitute quorum for the transaction of business. 3. The Compensation Committee, subject to any limitations prescribed by the Board of Directors, shall establish and periodically review policies for the compensation of directors and officers and shall make recommendations to the Board regarding levels and form of compensation to said directors and officers. 4. The Compensation Committee shall review management's recommendations regarding compensation to all other salaried employees. 5. The Compensation Committee shall keep regular minutes of its proceedings, and action taken by the Committee shall be reported to the Board of Directors from time to time at the request of the Board. VIII. PENSION PLAN COMMITTEE 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint a Pension Plan Committee of three or more members, to serve during the pleasure of the Board, to consist of such directors as the Board of Directors may from time to time designate. 2. Meetings of the Pension Plan Committee may be held from time to time as called by the Chairman of the Pension Plan Committee or by any two members thereof by notice to the other members. Notice of such meeting shall be given by oral, facsimile or written notice not less than 24 hours before such meeting,. The presence of a majority of the total number of members of the Pension Plan Committee shall be requisite and shall constitute quorum for the transaction of business. 4 5 3. The Pension Plan Committee, subject to any limitations prescribed by the Board of Directors, shall establish and periodically review actuarial policies and objectives of the pension plan, review the investment performance, management's administration of the pension plan and the Company's compliance with laws and regulations governing the pension plan. 4. The Pension Plan Committee shall keep regular minutes of its proceedings, and action by the Committee shall be reported to the Board of Directors from time to time at the request of the Board. 5. The Secretary of the Corporation shall act as Secretary of the Pension Plan Committee. IX. NOMINATING COMMITTEE 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint a Nominating Committee of three or more members, to serve during the pleasure of the Board, to consist of such directors as the Board of Directors may from time to time designate. 2. Meetings of the Nominating Committee may be held from time to time as called by the Chairman of the nominating Committee or by any two members thereof by notice to the other members. Notice of such meeting shall be given by oral, facsimile or written notice not less than 24 hours before such meeting. The presence of a majority of the total number of members of the Nominating Committee shall be requisite and shall constitute quorum for the transaction of business. 3. The Nominating Committee, subject to any limitations prescribed by the Board of Directors shall make recommendations on nominees for election as directors and shall recommend to the Board criteria for Board membership, review qualifications of incumbent directors in determining whether to recommend them for reelection for the Board and recommend to the Board the removal of a director where appropriate. 4. The Nominating Committee shall also review external developments in corporate governance matters and recommend action to the Board where appropriate. 5. The Nominating Committee shall keep regular minutes of its proceedings, and action taken by the Nominating Committee shall be reported to the Board of Directors of the Corporation from time to time at the request of the Board. X. ADDITIONAL COMMITTEES OF DIRECTORS 1. The Board of Directors may, by resolution or resolutions passed by majority of the whole Board designate one or more committees in addition to the Executive, Finance, Audit, Compensation, Pension Plan, and Nominating Committees as herein provided, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors (other than the power to remove or elect officers) in the management and direction of the business, affairs and properties of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. 2. The committees shall keep regular minutes of their proceedings and report the same to the Board when required. XI. COMPENSATION OF DIRECTORS 1. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed 5 6 sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 2. Members of special or standing committees may be allowed like compensation for attending committee meetings. XII. MEETINGS OF THE BOARD 1. Immediately following each annual meeting of stockholders, the Board of Directors shall hold a regular meeting for the purpose of organization, election of officers, and the transaction of other business and no notice of such meeting shall be necessary to the newly elected directors in order to legally to constitute the meeting provided a quorum shall be present, or they may meet at such place and time as shall be fixed by consent in writing of all the directors. 2. Regular meetings of the Board of Directors shall also be held without notice at the principal office of the Corporation on the fourth Wednesday of each month, if such day is not a legal holiday; otherwise, on the next business day, at 2:30 p.m., or at such other time and place as the Board may previously determine, for the purpose of considering any business that may lawfully come before the meetings. 3. Meetings may be held at any time and place without notice if all the directors are present. 4. Special meetings of the Board may be called by either the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors or the President, on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors. 5. Except as otherwise specifically provided by law or by the Certificate of Incorporation, 7 directors shall be requisite and shall constitute a quorum for the transaction of business, except in the case of the designation of one or more committees, when the resolution or resolutions must be passed by a majority of the whole Board. If at any meeting of the Board of Directors of the Corporation there shall be less than a quorum present, a majority of those present or any director solely present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting pursuant to the original notice. 6. Any action taken or permitted to be taken at any meeting of the Board of Directors of the Corporation or of any committee thereof may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the Board of Directors of the Corporation or of such committee as the case may be, and such written consent is filed with the minutes of the proceedings of the Board or committee. XIII. NOTICES 1. Whenever under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail or telegram, addressed to such director or stockholder at such address as appears on the books of the Corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed or delivered to the telegraph company. 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 6 7 XIV. OFFICERS 1. The Board of Directors, as soon as may be after the election of directors in each year, shall elect a Chairman of the Board, one or more Vice-Chairman of the Board, and a President from its members and shall also elect one or more Vice-Presidents, a Secretary, a Treasurer and a Comptroller, none of whom need be a member of the Board. 2. Any two offices (but not more than two), other than the offices of President and Secretary, may be held by the same person. 3. The Board may from time to time elect such other officers as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 4. The salaries of all officers shall be fixed by the Board. 5. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD OF DIRECTORS 6. The Chairman shall preside over the meetings of the Board of Directors. THE VICE-CHAIRMAN OF THE BOARD OF DIRECTORS 7. The Vice-Chairman or Vice-Chairmen of the Board of Directors shall assist the Chairman in matters relative to the general affairs of the Board and will preside over the board meeting in the absence of the Chairman. The Board shall designate the Vice-Chairman who will preside over a board meeting in the event that there is more than one Vice-Chairman present at a meeting of the Board from which the Chairman is absent. THE CHIEF EXECUTIVE OFFICER 8. The Chief Executive Officer shall be responsible for establishing the general and financial policies; execute bonds, deeds, and contracts in the name and on behalf of Corporation and shall also have such other powers and perform such other duties as from time may be conferred upon him by the Board of Directors. THE PRESIDENT 9. The President shall be the administrative officer of the Corporation and the Executive Officer in charge of the operations of the Corporation, and shall report directly to the Chairman of the Board of Directors. He shall be responsible for the administration of the business and operations of the Corporation, and shall see that all orders and resolutions of the Board are carried into effect. He shall have general authority to execute bonds, deeds, and contracts in the name and on behalf of the Corporation, shall have the authority to cause the employment or appointment of such employees and agents of the Corporation (other than officers) as the conduct of the Corporation may require, to remove or suspend any employee or agent who shall not have been appointed by the Board of Directors or the Executive Committee, and in general may exercise all the powers generally vested in the administrative and operations officer of a corporation. In the absence of the Chairman and the Vice-Chairman of the Board of Directors he may exercise all of the powers and shall perform all of the duties of the Chairman of the Board of Directors. THE VICE-PRESIDENTS 10. The Vice-Presidents shall perform such duties and exercise such powers as the Board of Directors shall 7 8 prescribe. THE SECRETARY AND ASSISTANT SECRETARIES 11. (a) The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the Corporation, and affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. (b) The Assistant Secretaries in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe. THE TREASURER AND THE ASSISTANT TREASURERS 12. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board of Directors, or the President and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. (c) If required by the Board of Directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board to the faithful performance of the duties of his office and for the restoration to the Corporation, in the case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. (d) The Assistant Treasurers in the order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe. THE COMPTROLLER AND THE ASSISTANT COMPTROLLERs 13. (a) The Comptroller shall maintain adequate records of all assets, liabilities and transactions of the Corporation and shall audit, or cause to be audited, such records, currently and regularly. He shall, in conjunction with other officers and employees of the Corporation, and subject to the Board of Directors, initiate and enforce measures and procedures for the maximum safety, efficiency and economy of the business of the Corporation. (b) The Assistant Comptrollers in the order of their seniority shall, in the absence or disability of the Comptroller, perform the duties and exercise the powers of the Comptroller and shall perform such other duties as the Board of Directors shall prescribe. XV. DELEGATION OF DUTIES 1. In the absence or disability of an officer of the Corporation or in any other case that the Board of Directors may deem sufficient reason therefor, the Board of Directors may delegate for the time being any or all of the powers or duties 8 9 of any officer to any other officer or to any director or to any other person. XVI. CERTIFICATE OF STOCK 1. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman, or the President, or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. If any stock certificate is signed (1) by a transfer agent or an assistant transfer agent or (2) by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such officer may be facsimile. XVII. TRANSFERS OF STOCK 1. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. XVIII. CLOSING OF TRANSFER BOOKS 1. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of stock shall go into effect or for a period of not exceeding fifty days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment or rights, or to exercise the rights in respect of any such change, conversion or exchange of stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. XIX. REGISTERED STOCKHOLDERS 1. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the Commonwealth of Puerto Rico. XX. LOST CERTIFICATE 1. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum at it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or 9 10 destroyed. XXI. DIVIDENDS 1. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. XXII. SEAL 1. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization (1938) and the works "Corporate Seal, Puerto Rico". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. XXIII. FISCAL YEAR 1. The fiscal year of the Corporation shall be the calendar year. XXIV. VOTING SHARES IN OTHER CORPORATIONS 1. The Corporation may vote any and all shares of stock and/or other certificates of interest held by it in any other corporation or corporations by such officer, agent or proxy as the Board of Directors may appoint or, in default of such appointment, by the President or any Vice-President. XXV. AMENDMENTS 1. These By-Laws may be amended, altered, changed or repealed and new By-Laws adopted by the holders of a majority of the stock of the Corporation having voting power or by affirmative vote of a majority of the Board of Directors of the Corporation at any meeting the notice of which includes this purpose; provided, however, that any action with respect thereto taken by the Board of Directors of the Corporation shall be subject to the power of the holders of a majority of the stock of the Corporation having voting power to alter, amend or repeal By-Laws made by the Board of Directors; provided, however, that no change in the time or place for the election of directors shall be made within sixty days next before the day on which such election is to be held and that in case of any change in such time or place, notice thereof shall be given to each stockholder twenty days before such election is held, in person or by letter mailed to his address as shown on the books of the Corporation. PUERTO RICAN CEMENT COMPANY, INC. 10 11 --------- By-Laws ADOPTED MARCH 14, 1963 WITH AMENDMENTS UP TO DECEMBER 31, 1999 --------- - ------------------------------------------------------------------------------- EX-13 4 ANNUAL REPORT 1 EXHIBIT 13 Puerto Rican Cement Company, Inc. Annual Report Financial Information CONTENTS 14 Management's Discussion and Analysis 17 Selected Financial Data 17 Common Share Prices and Dividends Per Share 18 Report of Independent Accountants 19 Consolidated Statement of Income 20 Consolidated Balance Sheet 21 Consolidated Statement of Comprehensive Income 21 Consolidated Statement of Changes in Stockholders' Equity 22 Consolidated Statement of Cash Flows 23 Notes to Consolidated Financial Statements 32 Consolidated Fourth Quarter Results 32 Financial Results by Quarters 33 Five-Year Statistical Comparison 34 Directors and Officers
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________________________________________________________________________________ [PUERTO RICAN CEMENT COMPANY, INC. LOGO] This section represents Management's discussion and analysis of the Company's consolidated financial condition and results of operations. It should be read in conjunction with the accompanying financial statements. RESULTS OF OPERATIONS 1999 COMPARED WITH 1998 Consolidated sales of $173.3 million for 1999 were $24.9 million higher than sales of $148.4 million in 1998. Sales in 1999 were 17% higher than in previous year due to increases in cement and ready mix sales. Vigorous construction activity throughout the year resulted in a 21% increase in gross cement sales and a 22% increase in sales of ready mix concrete. This increase was offset by a sales decline in both the lime and paper and bags operations. Consolidated gross margin improved from $39.7 million in 1998 to $46.6 million in 1999. This was a result of higher net sales, although it remained at approximately 27% as a percentage of sales for both years. This increase is partly due to a lower level of consolidated gross margin in 1998 caused by interruption in clinker production schedules associated with the passage of Hurricane Georges and scheduled plant shut down to complete and upgrade project. Consolidated gross margin was affected by an increase in the cost of aggregates used in the manufacturing of ready mix concrete which went up as alternate sources of this material had to be found due to the increased demand for this product. In addition, higher unit production costs in the paper and bags operations caused by lower utilization of the plant production capacity, as sales in that segment decreased, also affected gross margins. Selling, general and administrative expenses in 1999 increased $3.3 million from 1998 to $27.5 million, although they declined from 16.3% of net sales in 1998 to 15.9% in 1999. Most of this increase was associated with higher sales volumes, but it also included approximately a $450,000 increase in legal expense related to the now concluded case against local government agencies. Interest expenses for 1999 increased $944,000 or 18% when compared to the prior year. Approximately $244,000 of this increase was related to financial charges on loans attributable to the operations of PCC, which began operations in September of 1998. Also, as disclosed in the 1998 financial statements, the Company was audited by the Puerto Rico tax authority. This audit, which concluded in 1999, resulted in a settlement where the Company paid over $300,000 in interest. Interest income for 1999 increased $258,000, principally reflecting the revenues from the Company's new financing operations, PCC. During 1998, the Company reported a gain on sale of investments of approximately $1.2 million. Also, included in income before taxes for that year was a $240,000 gain on the expropriation of a piece of land owned by one of the Company's subsidiaries. Excluding the effect of these two non-recurring gains in the 1998 results, income before taxes for 1999 increased by over $3.8 million, or 27%, over the adjusted 1998 figure. Legal expenses, mostly related to the now concluded case against the local government, totaled $4.8 million in 1999 and $4.3 million in 1998. As indicated previously, the case was resolved on terms favorable to the Company and, the related work to commence the aggregates business is well in progress. The Company expects legal expenses to decrease significantly during the next year. The effective tax rate for 1999 increased to 26% compared to 19.6% in 1998. The increase resulted from a higher proportion of capital gains in 1998, which are taxed at lower rates than ordinary income, and a proportionately higher tax-free income during 1998. CEMENT SEGMENT Cement operations. Reflecting a year of strong construction activity, the Company finished 1999 with an increase of 21% in cement sales deliveries, with volumes for the year rising from 1,037,000 tons in 1998 to 1,255,000 tons in 1999. This increase was also partly a result of a decrease in sales deliveries in 1998 caused by the passage of Hurricane Georges, as discussed above. Cement selling prices for 1999 were almost at the same level as in the prior year. Gross margin in 1999 was 33.5% compared with 33.1% in 1998, remaining essentially the same. This happened despite increases of 88,000 tons, or 9.9%, in clinker production and 225,000 tons, or 21.8%, in cement production and was due principally to higher power and maintenance costs. Due to the high volume of sales during 1999, the Company had to buy clinker from external sources at a slightly higher cost than purchases made in 1998, affecting also average cost of sales for 1999. At the beginning of 2000, the Department of Consumer Affairs of Puerto Rico abolished its regulations relating to quality standards for cement. This abolition may have the effect of increasing competition in the cement market in Puerto Rico, since competitors of the Company that have a cement product not satisfying the quality standards of the Department may now attempt to enter the Puerto Rico market. Notwithstanding, all cement sold on the Island has to comply with the U.S. Uniform Building Code, which will be enforced through requirements established by the Regulations and Permits Administration. Management believes that these requirements, in addition to market conditions for cement on the Island, may be a deterrent for the imports of low quality cement. The House of Representative and the Senate of Puerto Rico are currently considering reversing this abolition, but is unclear what the outcome of the consideration will be. The Company is not certain what effect the abolition will have, but, it may materially affect competition on the cement market. READY MIX CONCRETE SEGMENT Ready mix concrete operations. Ready mix concrete sales for the year were up 22%. Revenues increased $17.1 million from $77.4 million in 1998 to $94.5 million in 1999. The rise in sales resulted from increases in sales volumes and average selling prices. Operating margins in 1999 were hurt, however, by an increase of 2.6% in the average cost per unit produced. This was the result of higher aggregate costs and labor expenses. Cost of aggregate increased, as this material became scarce with the expanded level of construction experienced in 1999. The level of construction drove higher labor costs, as well as required extended delivery schedules, thus ________________________________________________________________________________ 14 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) _______________________________________________________________________________ [PUERTO RICAN CEMENT COMPANY, INC. LOGO] affecting delivery expenses. Finally, the last quarter of the year was affected by an unusual and extended rainy season which also impacted labor costs. ALL OTHERS SEGMENT Lime operations. Operating income for the lime operation decreased 31% to $258,000 in 1999 compared with $373,000 in 1998. This change can be attributed to a reduction of 48% in export sales, partially offset by a smaller increase in sales to local market. Multi-wall paper bags operations. In 1999, there was a marked decrease in sales volume on the small (pockets) bags division due to lower sales to a large customer. This decline affected the average cost per unit, as less production was required to meet actual sales. As a result, gross margin for the year decline from 21% in 1998 to 18% for the year 1999. Financing operations. On March 19, 1998, the Company incorporated a new subsidiary, PCC, under the laws of the Commonwealth of Puerto Rico. PCC was established for the purpose of providing equipment financing, primarily to existing or prospective customers in construction and related industries. As mentioned earlier, PCC began operations during September 1998 after obtaining its license from the Commonwealth's Commissioner of Financial Institutions. In 1999, its first full year of operations, the PCC contributed $136,000 to income before taxes. 1999 COMPARED WITH 1997 During 1998, consolidated sales decreased by $8.4 million, or 5%, to $148.4 million from $156.8 million during 1997. This was principally a result of decreases of 8.0% in cement dollar sales, and 5.1% in ready mix concrete sales, slightly offset by an increase in lime sales. Consolidated gross margin, reported at 26.7% for 1998, had decreased from a gross margin of 29.8% for 1997. The principal reason for this decrease was the interruptions in the clinker production schedules associated with the passage of Hurricane Georges and scheduled plant shutdowns to complete the upgrade project during 1998. These interruptions resulted in higher production costs. Consolidated selling, general and administrative expenses increased by $2.3 million, or 10.6%, to $24.2 million in 1998 from $21.9 million in 1997. This increase was principally attributable to higher professional fees for legal services associated mainly with then ongoing legal proceedings against local Government agencies in the federal and local courts. As explained above, these expenses continued to impact general and administrative expenses during 1999. Interest and financial charges decreased $550,000, or 9.5%, to $5.2 million in 1998 compared with $5.8 million for 1997. This decrease was due to the capitalization of $712,000 in interest expense associated with the upgrade of the cement production facilities. Interest income decreased by $200,000, or 5.6%, to $3.4 million in 1998 compared with $3.6 million in 1997. This decrease resulted from a reduction in the Company's investment portfolio due to the sale and redemption of investments during 1998 to supplement cash flow. The provision for income taxes as a proportion of income decreased to 19.6% for 1998 from 29.8% for 1997. This decrease resulted from the acquisition at a discount of tax credits derived from investments in governmental incentive programs, the taxation of gains on the sale of investments at capital gain rates instead of higher corporate tax rates, and a proportionately higher tax-free income during 1998. CEMENT SEGMENT Cement operations. During 1998, cement dollar sales decreased by 6.9%. This was principally due to a decrease in sales volume of 60,000 tons, or 5.5%, to 1,037,000 tons in 1998 from 1,097,000 tons in 1997. This decrease was attributable mainly to unfavorable weather during 1998, particularly the passage of Hurricane Georges during September. The cement production costs were adversely affected by several interruptions in the clinker production schedules during 1998. Hurricane Georges disrupted clinker production schedules during 1998 due to frequents power outages. In addition, the Company shut down its clinker production for 33 days during the months of January and February to perform work on its kiln as part of a plant upgrade project. The Company purchased higher-cost clinker to continue the production of cement during the shutdown. READY MIX CONCRETE SEGMENT Ready mix concrete operations. Sales by Ready Mix Concrete, decreased by $4.1 million, or 5.1%, to $77.4 million in 1998 from $81.5 million in 1997. This was the result of a 5.9% decrease in sales volume attributable mainly to unfavorable weather conditions during 1998 as mentioned above, and to labor shortages in the construction industry during the fourth quarter of 1998. ALL OTHERS SEGMENT Lime operations. Total lime sales increased during 1998 by 5,000 tons, or 15.1%, as a result of an increase in export sales, slightly offset by a decrease in local sales. This increase contributed to better capacity utilization of the hydrated lime plant, thereby resulting in lower production cost per ton. Multi-wall paper bags operations. During 1998, sales of multi-wall paper bags remained at levels similar to those in 1997. There was a reduction in the pasted bag division sales, entirely offset by increases in the sewn bag and pocket bag division sales. Reductions in pasted bag sales are associated with lower packed cement sales. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company had $1.6 million in cash and cash equivalents compared with $7.5 million at December 31, 1998. Working capital decreased from $68.9 million in 1998 to $57.1 million in 1999. The current ratio at December 31, 1999 decreased to 3.08 to 1 from 4.06 to 1 at December 31, 1998. These decreases were principally due to a reduction of $15.9 million in cash and cash equivalents and short-term investments combined with an increase in current liabilities, principally caused by higher income taxes payable. The Company's operating activities generated $17.3 million in cash during 1999 compared to $17.2 million in 1998. This cash, in addition to net proceeds of $9.2 million from the redemption of investments held- _______________________________________________________________________________ 15 4 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) _______________________________________________________________________________ ]Puerto Rican Cement Company, Inc. LOGO] to-maturity, and $5.2 million in proceeds from new loans, was used to finance capital expenditures of $20.7 million, pay $4.0 million in dividends and repurchase capital stocks of the Company for $6.4 million. In Management's opinion, future cash flows provided by operating activities, actual cash and cash equivalent balances and short-term borrowing facilities available to the Company, will be sufficient to satisfy its cash requirements in the future. Notes and accounts receivable increased by $6.2 million to $34.9 million at December 31, 1999 due to higher sales and an increase of $1.5 million in notes receivable related to new loans issued by the Company's new financing subsidiary. Inventories increased $2.4 million to $36.3 million at December 31, 1999 due to comparable higher stocks of clinker, cement, coal and spare parts inventory. Capital expenditures for 1999 totaled $20.7 million of which $7.3 million was invested in the cement segment, $12.4 million in the ready mix concrete segment and $1.0 million in other segments. Cement segment additions consisted principally of improvements to equipment and machinery related to the production capacity of the plant. Expenditures in the ready mix concrete segment included $7.6 million for the acquisition of new trucks, mixers and related vehicles, plants modernization of $2.1 million and acquisition of land for $1.9 million. Long-term notes receivable increased $2.3 million to $6.2 million at December 31, 1999 due to new loans granted by the Company's financing subsidiary. Total current liabilities grew $4.9 million to $27.4 million at December 31, 1999 from $22.5 million at December 31, 1998. The increase was principally due to a $2.6 million increase in income taxes payable caused by the reversing for tax purposes of temporary differences recorded in previous years as deferred income taxes. During 1999, the Company obtained new loans totaling $5.2 million and paid $3.1 million in principal on its outstanding debt. The new loans were principally used to finance the operations of the Company's financing subsidiary, PCC. Significant events - ------------------ Year 2000 Status - ---------------- The Year 2000 problem is the result of certain computers being unable to distinguish between the years 1900 and 2000. If not addressed, these systems may not have properly interpreted dates beyond the year 1999 which, could have led to business disruptions. Accordingly, the Company identified and performed all needed material modifications and testing of significant systems, including migrating its computerized applications to a new processing architecture commonly known as an Enterprises Resources Planning System. Although the Company does not depend heavily on third parties, it communicated with customers, suppliers, bank and others with whom it does significant business to determine their Year 2000 readiness and the extent to which the Company was vulnerable to any other organization's Year 2000 issues. The Company considers the transition into the Year 2000 successful from the perspective of its systems. In addition to the changeover to January 1, 2000, it has been shows that certain other dates may also present similar problems for some systems. The Company continues to monitor the situation. To date, the Company has not experienced any material Year 2000 issues with respect to its systems, customers or suppliers. End of legal case against local government - ------------------------------------------ In May 1999, the Company and various local Government agencies, agreed to dismiss with prejudice a civil rights suit filed in December 1997 by the Company under the Federal civil rights law. In a joint stipulation filed by all parties and approved by the United States District Court for Puerto Rico all proceedings were terminated. With the conclusion of this case, the Company could proceed with the development of its projects in Vega Alto and Guanica, plus the operation of an aggregates processing plant in Carolina, Puerto Rico (see notes 16 to the Consolidated Financial Statements for further information). Forward-Looking Statements - -------------------------- Certain statements contained in this document, including in this Management's Discussion and Analysis of Financial Condition and Results of Operations, that are not historical facts, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause at the actual results or performance of the company and its businesses to be materially different from that expressed or implied by such forward-looking statements. Such factors include, among others, the following general economic and business conditions; political and social conditions; government regulations and compliance therewith; demographic changes; sales mix; pricing levels; changes in sales to, or the identity of, significant customers; changes in technology, including the technology of cement production; capacity constraints; availability of raw materials and adequate labor; availability of liquidity sufficient to meet the Company's needs; the ability to adapt to changes resulting from acquisitions; and various other factors referred to in this Management's and Discussion Analysis. The Company could be particularly affected by weather in Puerto Rico, changes in the Puerto Rico economy, and changes in the Government of Puerto Rico or the manner in which it regulates the Company. The Company assumes no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements. Realty/Limestone Extraction - --------------------------- The Company is preparing to begin its operations at Vega Alta and Guanica. The Vega Alta project consists of the development of a 300-unit, low-cost housing project on 80 acres of real estate owned by the Company. The Guanica project consists of the extraction of limestone from a leased facility. Stock Repurchase - ---------------- The Company repurchased 192,800 shares of its common stock for $6.4 million during June 1999 on the open market. _______________________________________________________________________________ 16 5 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 6 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Puerto Rican Cement Company, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Puerto Rican Cement Company, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. February 18, 2000 18 7 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 Net sales $ 173,195,360 $ 148,275,297 $ 156,675,080 Revenue from realty operations, net 104,456 101,908 99,012 ------------- ------------- ------------- 173,299,816 148,377,205 156,774,092 ------------- ------------- ------------- Cost and expenses, including depreciation, depletion and amortization of $14,049,348 (1998 - $13,331,479 ; 1997 - $12,383,769): Cost of sales 126,738,540 108,706,775 110,010,997 Selling, general and administrative expenses 22,741,247 20,216,093 20,441,365 Legal expenses 4,766,761 3,989,820 1,438,234 ------------- ------------- ------------- 154,246,548 132,912,688 131,890,596 ------------- ------------- ------------- Income from operations 19,053,268 15,464,517 24,883,496 ------------- ------------- ------------- Other expense (income): Interest and financial charges, net of interest charged to construction 6,160,542 5,216,096 5,765,894 Interest income (3,655,997) (3,398,485) (3,601,063) Gain on sale of investments -- (1,174,705) (50,451) Other 280,788 675,205 (36,356) ------------- ------------- ------------- 2,785,333 1,318,111 2,078,024 ------------- ------------- ------------- Income before income taxes 16,267,935 14,146,406 22,805,472 ------------- ------------- ------------- Provision for income taxes: Current 5,795,819 6,080,332 4,265,955 Deferred (1,570,708) (3,315,110) 2,536,306 ------------- ------------- ------------- 4,225,111 2,765,222 6,802,261 ------------- ------------- ------------- Net income $ 12,042,824 $ 11,381,184 $ 16,003,211 ============= ============= ============= Earnings per share: Basic and diluted net income per share $ 2.29 $ 2.11 $ 2.91 ============= ============= =============
The accompanying notes are an integral part of these financial statements. 19 8 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 AND 1998
1999 1998 ASSETS Cash and cash equivalents $ 1,630,750 $ 7,480,900 Short-term investments 6,001,346 16,066,648 Notes and accounts receivable, net 34,968,168 28,799,150 Inventories 36,301,359 33,945,940 Prepaid expenses 5,579,699 5,087,218 ------------ ------------ Total current assets 84,481,322 91,379,856 Property, plant and equipment, net 168,650,305 162,278,187 Long-term investments 39,711,592 36,587,498 Long-term notes receivable 6,225,351 3,973,232 Other assets 5,520,256 4,550,784 ------------ ------------ Total assets $304,588,826 $298,769,557 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 654,157 $ 550,773 Current portion of long-term debt 3,805,714 2,452,649 Accounts payable 8,679,411 8,820,074 Accrued liabilities 9,233,146 8,224,974 Dividends payable 985,392 1,022,024 Income taxes payable 4,075,291 1,458,038 ------------ ------------ Total current liabilities 27,433,111 22,528,532 ------------ ------------ Long-term liabilities: Long-term debt, less current portion 81,365,209 80,541,666 Deferred income taxes 30,787,824 32,358,532 Other long-term liabilities 3,104,981 3,082,449 ------------ ------------ Total long-term liabilities 115,258,014 115,982,647 ------------ ------------ Total liabilities 142,691,125 138,511,179 ------------ ------------ Stockholders' equity: Preferred stock, authorized 2,000,000 shares of $5.00 par value each; none issued Common stock, authorized 20,000,000 shares of $1.00 par value each; 6,000,000 shares issued 6,000,000 6,000,000 Additional paid-in capital 14,702,914 14,702,914 Retained earnings 164,221,041 156,170,341 ------------ ------------ 184,923,955 176,873,255 Less - 813,726 (1998 - 620,926) shares of common stock in treasury, at cost 23,026,254 16,614,877 ------------ ------------ Total stockholders' equity 161,897,701 160,258,378 ------------ ------------ Commitments and contingent liabilities ------------ ------------ Total liabilities and stockholders' equity $304,588,826 $298,769,557 ============ ============
The accompanying notes are an integral part of these financial statements. -20- 9 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 Net income $ 12,042,824 $ 11,381,184 $ 16,003,211 ------------- ------------- ------------- Other comprehensive income, before tax: Unrealized gain on available-for-sale securities: Unrealized gain arising during the period -- 420,945 660,296 Reclassification of realized gain included in net -- (1,174,705) (50,451) income ------------- ------------- ------------- -- (753,760) 609,845 Income taxes related to items of other comprehensive income -- 186,015 (152,461) ------------- ------------- ------------- -- (567,745) 457,384 ------------- ------------- ------------- Comprehensive income $ 12,042,824 $ 10,813,439 $ 16,460,595 ============= ============= =============
The accompanying notes are an integral part of these financial statements. 10 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 Common stock: Balance at beginning and end of year $ 6,000,000 $ 6,000,000 $ 6,000,000 ------------- ------------- ------------- Additional paid-in capital: Balance at beginning and end of year 14,702,914 14,702,914 14,702,914 ------------- ------------- ------------- Accumulated other comprehensive income: Balance at January 1 -- 567,745 110,361 Other comprehensive income -- (567,745) 457,384 ------------- ------------- ------------- Balance at December 31 -- -- 567,745 ------------- ------------- ------------- Retained earnings: Balance at January 1 156,170,341 148,878,203 137,047,068 Net income 12,042,824 11,381,184 16,003,211 Dividends declared (3,992,124) (4,089,046) (4,172,076) ------------- ------------- ------------- Balance at December 31 164,221,041 156,170,341 148,878,203 ------------- ------------- ------------- Treasury stock: Balance at January 1 (16,614,877) (13,084,547) (10,439,297) Treasury shares acquired (6,411,377) (3,530,330) (2,645,250) ------------- ------------- ------------- Balance at December 31 (23,026,254) (16,614,877) (13,084,547) ------------- ------------- ------------- Total stockholders' equity $ 161,897,701 $ 160,258,378 $ 157,064,315 ============= ============= =============
The accompanying notes are an integral part of these financial statements. -21- 11 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 Cash flows from operating activities: Net income $ 12,042,824 $ 11,381,184 $ 16,003,211 ------------ ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 13,994,135 13,276,268 12,328,558 Amortization of goodwill 55,211 55,211 55,211 Provision for doubtful accounts 420,230 145,424 233,135 Accretion of discounts on investments (2,306,657) (2,627,384) (2,859,626) Provision for deferred income taxes (1,570,708) (3,315,110) 2,536,306 Loss (gain) on sale of property, plant and equipment 106,855 (225,804) (30,976) Gain on sale of investments (1,174,705) (50,451) Changes in assets and liabilities: Increase in accounts receivable (5,037,764) (844,922) (1,586,506) (Increase) decrease in inventories (2,355,419) (1,060,197) 557,547 (Increase) decrease in prepaid expenses (492,481) (554,148) 91,621 Increase in other assets (1,024,683) (258,649) (68,154) (Decrease) increase in accounts payable (140,663) 1,976,818 (955,339) Increase in accrued liabilities 1,008,172 1,149,814 1,774,976 Increase (decrease) in income taxes payable 2,617,253 (733,271) 1,259,981 Increase in long-term liabilities 22,532 59,221 68,618 ------------ ------------ ------------ Total adjustments 5,296,013 5,868,566 13,354,901 ------------ ------------ ------------ Net cash provided by operating activities 17,338,837 17,249,750 29,358,112 ------------ ------------ ------------ Cash flows from investing activities: Issuance of notes receivable (5,150,492) (3,849,309) Collections on notes receivable 1,346,889 540,108 Capital expenditures (20,703,609) (17,699,254) (28,028,571) Proceeds from sale of property, plant and equipment 230,501 981,236 208,600 Proceeds from sale of investments available-for-sale 13,248,180 1,102,609 Proceeds from sale of short-term investments 1,711,408 Purchase of investments available-for-sale (1,130,294) Redemptions and maturities of investments 19,108,000 10,710,000 1,974,000 Purchase of investments held-to-maturity (9,860,135) (16,360,398) (4,000,000) ------------ ------------ ------------ Net cash used in investing activities (15,028,846) (10,718,029) (29,873,656) ------------ ------------ ------------ Cash flows from financing activities: Purchase of treasury stock (6,411,377) (3,530,330) (2,645,250) Increase (decrease) in notes payable 103,384 (117,951) 668,724 Proceeds from loans 5,249,000 7,000,000 70,800,000 Payment of principal on long-term debt (3,072,392) (1,295,258) (75,934,679) Dividends paid (4,028,756) (4,102,916) (4,186,326) ------------ ------------ ------------ Net cash used in financing activities (8,160,141) (2,046,455) (11,297,531) ------------ ------------ ------------ (Decrease) increase in cash and cash equivalents (5,850,150) 4,485,266 (11,813,075) Cash and cash equivalents at beginning of year 7,480,900 2,995,634 14,808,709 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 1,630,750 $ 7,480,900 $ 2,995,634 ============ ============ ============ Supplemental cash flow disclosure: Interest paid (net of amount capitalized) $ 6,135,000 $ 5,611,000 $ 3,833,000 ============ ============ ============ Income taxes paid $ 3,488,000 $ 6,197,000 $ 3,535,000 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 22 12 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 1. REPORTING ENTITY AND SUMMARY OF ACCOUNTING POLICIES The Company was organized in 1938 under the laws of the Commonwealth of Puerto Rico. It is engaged primarily in the production and sale of cement and related products principally within the island of Puerto Rico. Ponce Capital Corporation ("PCC"), a subsidiary organized under the laws of the Commonwealth of Puerto Rico in 1998, provides financing for purchases of equipment to businesses, primarily in the construction and related industries. PCC began operations on August 11, 1998, after obtaining its license from the Puerto Rico Commissioner of Financial Institutions. Use of Estimates in Preparation of Financial Statements 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 and 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. Summary of Accounting Policies The following summarizes the most significant accounting policies judged by management to be the most appropriate in the circumstances to present the Company's consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries: Florida Lime Corporation ("FLC"), Ready Mix Concrete, Inc. ("RMC"), Desarrollos Multiples Insulares, Inc. ("DMI"), Poly Bags and Packaging, Inc. ("PBPI"), and Ponce Capital Corporation ("PCC"). All material intercompany accounts and transactions have been eliminated in consolidation. Statement of Cash Flows For purposes of the statement of cash flows, interest-bearing deposits and other investments with maturities of less than three months at the time of acquisition are considered cash equivalents. Revenue Recognition Revenue is recognized when the product is shipped in accordance with billing terms which are generally FOB shipping point. 13 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 Investments Investments in equity securities that have readily determinable fair values and all investments in debt securities are accounted for as follows: - Debt securities which the Company has the positive intent and ability to hold to maturity are classified as investments held-to-maturity and reported at cost, adjusted for amortization of premiums or accretion of discounts. Such debt securities are reported as short-term or long-term investments, depending on whether the remaining term to maturity is shorter or longer than one year. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity or trading securities are classified as investments available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, in a separate component of stockholders' equity. At December 31, 1999 and 1998, all investment securities held by the Company were classified as held-to-maturity. Inventories Inventories are stated at the lower of average cost or market. Inventory cost includes the related material, labor and overhead cost. Land for sale includes the original cost of land and all development costs incurred to bring land to a salable condition. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and depletion. Depreciation is provided on the straight-line basis over the estimated useful life of each type of asset. Depletion of quarries is calculated on the units-of-production method. Maintenance and repair costs which do not extend the life or improve productive capacity of the respective assets are expensed as incurred. Cost of renewals and betterments is capitalized. When assets are sold, retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. Interest Charged to Construction The Company capitalizes interest as a component of the cost of construction. Capitalized interest totaled $406,000 and $712,000 in 1999 and 1998, respectively. 23 14 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 Goodwill Goodwill, included in other assets, is amortized on a straight-line basis over the estimated period of benefit not to exceed 30 years. Income Taxes Income taxes are accounted for following an asset and liability approach. Under this approach, deferred taxes are recognized for temporary differences between the tax and financial reporting bases of assets and liabilities, using enacted tax laws and rates. Employee Benefit Plans The Company has non-contributory defined benefit pension plans covering substantially all of its non-union employees and those of its wholly-owned subsidiaries. The pension benefits are based on years of service and the employees' average compensation as defined in the respective plans. Pension costs are computed on the basis of accepted actuarial methods. The Projected Unit Credit method is used to determine pension expense. Pension expense includes service cost for benefits earned during the period, interest cost and amortization of unrecognized prior service cost, of gains and losses on plan assets and of the transition amount over a 15-year period. The Company's funding policy is to contribute annually the maximum amount deductible for income tax. The Company also offers postretirement medical and life insurance benefits to certain retired employees under an unfunded plan. The expected cost of providing postretirement health care and other benefits to an employee or its beneficiaries is recognized over their service period, is computed based on accepted actuarial methods, and includes service costs for benefits earned during the period, interest costs and amortization of actuarial gains and losses. Earnings Per Share Earnings per share ("EPS") are computed based on the weighted average number of shares of common stock outstanding during the year. The weighted average number of shares outstanding was 5,266,607 in 1999, 5,392,491 in 1998 and 5,502,074 in 1997. The Company has no dilutive or potentially dilutive securities outstanding. Accordingly, there is no difference between basic and diluted EPS. Profit Recognition on Sales of Real Estate Land and development costs are allocated proportionately to lots sold based on area and total project cost. Income on sale of land is recognized at the time of sale except where the collection of such income is not reasonably assured and revenue therefore is not measurable. Treasury Stock Treasury stock is carried at cost. 15 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 Reclassifications Certain reclassifications have been made to the 1998 and 1997 financial statements to conform with the 1999 presentation. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative financial instruments and for hedging activities. It requires that an entity recognize all derivative instruments as either assets or liabilities on the balance sheet and measure those instruments at fair value. The Company adopted SFAS 133 effective July 1, 1998. As permitted by this Statement, upon its adoption the Company reclassified to available-for-sale investments that were previously classified as held-to-maturity. These investments had a book value of $7,842,000 and a market value of $8,033,000. At December 31, 1999 and 1998, the Company did not carry derivative financial instruments. NOTE 2. NOTES AND ACCOUNTS RECEIVABLE Notes and accounts receivable at December 31, consist of:
1999 1998 Notes receivable: Trade $ 242,529 $ 115,934 Other 3,302,907 857,027 ------------ ------------ 3,545,436 972,961 ------------ ------------ Accounts receivable: Trade 29,975,647 27,422,419 Employees and affiliated companies 489,134 517,578 Other 2,058,910 1,182,349 ------------ ------------ 32,523,691 29,122,346 Less - Allowance for doubtful accounts 1,100,959 1,296,157 ------------ ------------ 31,422,732 27,826,189 ------------ ------------ $ 34,968,168 $ 28,799,150 ============ ============
24 16 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 3. INVENTORIES Inventories at December 31, consist of:
1999 1998 Finished products $ 2,434,617 $ 1,802,707 Work-in-process 7,026,102 6,467,063 Raw materials 3,894,011 3,787,700 Coal and fuel oil 2,011,451 1,649,393 Maintenance and operating supplies 20,011,973 19,315,872 Land for sale 923,205 923,205 ------------ ------------ $ 36,301,359 $ 33,945,940 ============ ============
NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, consist of:
USEFUL LIFE IN YEARS 1999 1998 Land and quarries $ 16,126,838 $ 13,443,523 Buildings and structures 50 47,901,085 44,914,069 Machinery and equipment 5-20 128,578,361 124,752,869 Pollution control equipment 25 32,745,736 32,580,450 Automobiles and trucks 3-10 29,482,127 23,752,085 Rental property 10 653,524 653,524 Construction in progress 6,493,533 5,298,909 ------------ ------------ 261,981,204 245,395,429 Less - Accumulated depreciation and depletion 93,330,899 83,117,242 ------------ ------------ $168,650,305 $162,278,187 ============ ============
17 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 5. INVESTMENTS The carrying and market values, and scheduled maturities of investments at December 31, are as follows:
1999 1998 AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ------------ ------------ ------------ ------------ Short-term investments held-to-maturity, at amortized cost: Municipal and other U.S. Government agency securities $ 1,361,693 $ 1,352,941 $ 11,461,513 $ 11,460,713 U.S. Treasury securities 4,639,653 4,592,494 4,605,135 4,611,456 ------------ ------------ ------------ ------------ $ 6,001,346 $ 5,945,435 $ 16,066,648 $ 16,072,169 ============ ============ ============ ============ Long-term investments held-to-maturity, at amortized cost: U.S. Treasury securities Due from 1 to 5 years $ 3,545,342 $ 3,469,750 $ 7,790,692 $ 7,830,134 Due after 10 years 21,687,760 21,853,300 20,254,637 25,900,000 ------------ ------------ ------------ ------------ 25,233,102 25,323,050 28,045,329 33,730,134 Municipal and other U.S. Government agency securities Due from 1 to 5 years 14,478,490 14,267,056 8,542,169 8,511,897 ------------ ------------ ------------ ------------ $ 39,711,592 $ 39,590,106 $ 36,587,498 $ 42,242,031 ============ ============ ============ ============
-25- 18 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 The scheduled maturities of investments, based on their carrying values, at December 31, 1999, are summarized below: Due within one year $ 6,001,346 Due within 1 to 5 years 18,023,832 Due after 10 years 21,687,760 ----------- $45,712,938 -----------
Gross and net unrealized gains and losses at December 31, amounted to:
1999 1998 Gross unrealized gains $ 826,782 $ 5,693,793 Gross unrealized losses (1,004,179) (33,739) ------------ ------------ Net unrealized (loss) gain $ (177,397) $ 5,660,054 ============ ============
No sales of available-for-sale investments occurred during 1999. Gross proceeds from the sale of available-for-sale investments in 1998 and 1997 amounted to $13,248,000 and $1,103,000, respectively. Gross realized gains on the sale of these investments amounted to $1,175,000 and $50,000 in 1998 and 1997, respectively. During 1998, gross proceeds from the sale of short-term investments held-to- maturity amounted to $1,711,000. These securities were sold near their maturity. As discussed in Note 1, during 1998 the Company reclassified securities with an amortized cost of $7,842,000 and a market value of $8,033,000 from held-to- maturity to available-for-sale upon adoption of SFAS 133. These securities were subsequently sold. NOTE 6. OTHER ASSETS Other assets at December 31, consist of:
1999 1998 Investment in real estate $ 94,533 $ 94,533 Goodwill, net of accumulated amortization of $222,635 (1998 - $167,423) 1,430,898 1,486,110 Other long-term assets 3,994,825 2,970,141 ------------ ------------ $ 5,520,256 $ 4,550,784 ============ ============
19 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 7. ACCRUED LIABILITIES Accrued liabilities at December 31, consist of:
1999 1998 Accrued taxes other than on income $ 1,466,892 $ 1,290,245 Accrued payroll expenses 3,592,073 3,428,063 Accrued interest payable 2,302,510 2,277,055 Other accrued liabilities 1,871,671 1,229,611 ------------ ------------ $ 9,233,146 8,224,974 ============ ============
NOTE 8. SHORT-TERM BORROWING The Company has lines of credit available for short-term borrowing and for discount of trade notes receivable in the aggregate amount of $42,000,000. However, under other loan agreements with financial institutions, the Company may discount trade notes receivable up to $10,000,000 through 2000. No commitment fees are paid on these credit facilities. The maximum aggregate short-term borrowing outstanding at any month-end was $2,500,000 in 1999 and $3,100,000 in 1998. The approximate average aggregate short-term borrowing outstanding during the year was $56,389 in 1999 and $919,361 in 1998. The weighted average interest rate of such borrowings computed annually was 5.94% during 1999 and 6.06% during 1998. There were no borrowings outstanding under these facilities at December 31, 1999 and 1998. 20 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 9. LONG-TERM DEBT Long-term debt at December 31, consists of:
1999 1998 7.29% Series A Senior Secured Notes, payable in full on January 27, 2017, interest payable semiannually $ 50,000,000 $ 50,000,000 7.34% Series B Senior Secured Notes, payable in full on January 27, 2017, interest payable semiannually 20,000,000 20,000,000 6.32% note, payable in quarterly installments of $200,000 from 1996 to 2000, followed by quarterly installments of $500,000 in 2001 and 2002; interest payable monthly 4,800,000 5,600,000 Drawings on $12 million revolving credit facility due in sixty equal monthly installments of $75,000 commencing in December 1998, through August 1999; and of $141,667 from September 1999, interest payable monthly ranging from 5.85% to 7.00% 7,258,333 4,425,000 Drawing on $2.5 million revolving credit facility due in sixty equal monthly installments of $41,667 commencing in November 1998, interest payable monthly at 5.34% 1,916,662 2,416,666 7.00% notes payable, due in installments until July 2001 347,772 552,649 Other, interest ranging from 3.75% to 5.75% due in monthly installments from May 1999 to July 2001 848,156 ------------ ------------ Total 85,170,923 82,994,315 Less - Current portion 3,805,714 2,452,649 ------------ ------------ Total long-term debt $ 81,365,209 $ 80,541,666 ============ ============
The Series A and Series B Senior Secured Notes are secured by a $70 million zero-coupon U. S. Treasury bond pledged as collateral. The bond was purchased for $17.6 million in December 1996 and will accrue to $70 million shortly after the maturity of the Notes. This bond is included in long-term investments held-to-maturity. 26 21 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 In October 1998, RMC obtained a $2,500,000 revolving credit facility to finance the purchase of concrete-mixer trucks. Drawings on this facility are guaranteed by the Company and bear interest at a variable rate equal to 90-day LIBOR plus 0.75%, adjusted quarterly, or at a fixed rate equal to the prevailing rate for similar debt at the date of the drawing. In November 1998, PCC obtained a $12,000,000 revolving credit facility to finance its operations. Drawings on this facility are secured by the notes issued by PCC, and are also guaranteed by the Company. Drawings on this facility bear interest at a variable rate equal to 90-day LIBOR plus 0.75%, adjusted quarterly, or at a fixed rate equal to 0.75% plus the LIBOR-Ask rate for the loan term on the date of the drawing. Aggregate maturities of long-term debt at December 31, 1999, are as follows:
Years Amount 2000 $ 3,805,714 2001 4,542,438 2002 4,247,771 2003 2,041,667 2004 533,333 2005 and thereafter 70,000,000 ------------ $ 85,170,923 ============
In September 1985, the Company restructured the terms of its outstanding debt with the Government Development Bank for Puerto Rico ("GDB"). The maturity date on the loans from GDB was extended to September 2002, and the annual interest rate was fixed with no interest or principal payments required before maturity. Simultaneously, the Company placed U.S. Government securities, with a cost of $8 million and a maturity value of $49.8 million, in an irrevocable trust. The principal and interest of these securities will be sufficient to fund the scheduled principal and interest payments on the Company's debt with the GDB. Accordingly, such debt was considered extinguished in 1985 and is not included as a liability in the consolidated balance sheet. The total balance of debt with GDB, not included in the consolidated balance sheet, consisting of principal plus accumulated interest, amounted to $43.7 million at December 31, 1999 (1998 - $42.0 million). The Series A and Series B Senior Secured Notes and other loan agreements impose certain restrictions on the Company. The most important restrictions are limitations on unsecured short-term borrowing and on discounting with recourse of trade paper from customers (See Note 8), maintaining working capital in excess of certain defined minimums and limitations on funded debt and other indebtedness. Other restrictions under such loan agreements relate to investments in and advances to subsidiaries and other persons, disposition of fixed assets, and payment of dividends. At December 31, 1999, the Company was in compliance with the provisions of the loan agreements. 22 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 10. INCOME TAXES Consolidated tax returns are not permitted under the 1994 Puerto Rico Internal Revenue Code (the "Code"); therefore, losses, if any, of subsidiaries cannot be used to offset taxable income of other members of the consolidated group. However, the Code provides a 100% deduction for dividends from controlled Puerto Rico corporations. The Code allows an accelerated flexible depreciation method for certain property purchased prior to 1996, by which a taxpayer may claim depreciation at any rate without reference to useful lives. The depreciation claimed is limited to an amount not greater than income before taxes (determined without taking into consideration the depreciation deduction). Deferred income taxes have been accumulated primarily from using the flexible depreciation method for tax purposes only. The benefits of the accelerated depreciation methods are limited by the alternative minimum tax ("AMT") provisions of the income tax law. The AMT is based on 22% of regular taxable income with certain adjustments for preference items, one of which relates to the accelerated depreciation methods. Any AMT paid may be used to reduce the regular tax liability of future years, to the extent that the regular tax exceeds the AMT. 27 23 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 The reconciliation of the difference between the Puerto Rico statutory tax rate on income before taxes and the consolidated effective tax rate follows:
1999 1998 1997 ----------------------- ----------------------- ----------------------- % of % of % of pre-tax pre-tax pre-tax Amount income Amount income Amount income ------------ -------- ------------ -------- ------------ -------- Computed tax provision $ 6,344,495 39.0 $ 5,517,098 39.0 $ 8,894,134 39.0 Increase (decrease) in taxes Resulting from: Exempt interest earned (1,177,897) (7.2) (1,229,030) (8.7) (1,317,225) (5.8) Interest deducted for tax but not for financial statements (698,223) (4.3) (698,223) (4.9) (698,223) (3.1) Discount on income tax credits (122,150) (.8) (712,000) (5.0) (200,000) (0.9) Valuation allowance on carryforward losses of subsidiary 280,000 2.0 Effect of capital gain preferential rate (196,071) (1.4) Other items (121,114) (.7) (196,552) (1.4) 123,575 0.6 ------------ ------ ------------ ------ ------------ ---- $ 4,225,111 26.0 $ 2,765,222 19.6 $ 6,802,261 29.8 ============ ====== ============ ====== ============ ====
The deferred tax assets and liabilities at December 31, are as follows:
1999 1998 DEFERRED DEFERRED DEFERRED DEFERRED TAX ASSETS TAX LIABILITIES TAX ASSETS TAX LIABILITIES Current: -------- Prepaid pension cost $ 1,325,329 $ 1,279,230 Tax credits applicable to future years $ 2,000,000 AMT credit $ 155,487 Allowance for doubtful accounts 263,602 256,831 Non-current: ------------ Post-retirement benefit liability 1,210,943 1,202,155 Property, plant and equipment 31,240,323 34,126,981 Other 174,739 26,943 411,307 ------------ ------------ ------------ ------------ Total deferred tax asset/liability $ 1,804,771 32,592,595 $ 3,458,986 35,817,518 ============ ============ ============ ============ Net deferred tax liability $ 30,787,824 $ 32,358,532 ============ ============
One of the consolidated subsidiaries enjoys a tax exemption granted under the provisions of the Puerto Rico Tax Incentives Act of 1987. Under this grant, the exemption rates applicable to income, property and municipal taxes range from 50% to 90% through year 2008. One of the Company's subsidiaries has net operating losses available to reduce future taxable income amounting to $893,000 which expire between 2004 and 2006, respectively. The subsidiaries' aggregate retained earnings amounted to $27,702,000 at December 31, 1999, (1998 - $25,921,000) and arose substantially from partially tax exempt operations. The subsidiaries' retained earnings are substantially exempt upon distribution to the Company; therefore, no income taxes have been provided on such earnings. 28 24 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 11. EMPLOYEE BENEFIT PLANS The following table sets forth the Company's pension and post-retirement benefit obligations and amounts recognized in the Company's consolidated balance sheet at December 31:
Pension Benefits Other Benefits 1999 1998 1999 1998 Change in benefit obligation: Benefit obligation at beginning of year $ 31,476,642 $ 28,820,939 $ 2,924,705 $ 2,837,886 Service cost 798,783 745,360 59,001 58,821 Interest cost 2,068,008 1,998,007 190,327 190,161 Actuarial (gain) loss (3,814,678) 1,423,841 (301,269) 63,229 Benefits paid (1,643,186) (1,511,505) (240,081) (225,392) ------------ ------------ ------------ ------------ Benefit obligation at end of year 28,885,569 31,476,642 2,632,683 2,924,705 ------------ ------------ ------------ ------------ Change in plan assets: Fair value of plan assets at beginning of year 34,959,475 36,062,458 Actual return on plan assets 103,283 408,522 Benefits paid (1,643,186) (1,511,505) ------------ ------------ ------------ ------------ Fair value of plan assets at end of year 33,419,572 34,959,475 -- -- ------------ ------------ ------------ ------------ Funded status - Fair value of plan assets greater (less) than benefit obligation 4,534,003 3,482,833 (2,632,683) (2,924,705) Unrecognized net actuarial (gain) loss (2,038,376) (1,142,035) (174,660) 126,609 Unrecognized prior service cost 633,281 783,362 Unrecognized portion of transition asset at January 1, 1987, being recognized over 15 years (152,759) (245,724) ------------ ------------ ------------ ------------ Prepaid (accrued) benefit cost $ 2,976,149 $ 2,878,436 $ (2,807,343) $ (2,798,096) ============ ============ ============ ============
25 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of benefit obligation and the projected benefit obligation were as follows:
PENSION BENEFITS OTHER BENEFITS 1999 1998 1999 1998 Weighted average assumptions as of December 31: Discount rate 8.00% 6.75% 8.00% 6.75% Expected return on plan assets 9.00% 9.00% -- -- Rate of compensation increase 5.50% 5.25% 5.25% 5.25%
In measuring the post-retirement healthcare and life insurance benefit obligation for 1999, the Company assumed a 9.5% annual rate of increase in the per capita cost of covered healthcare benefits. The rate was assumed to decrease gradually to 5.5% through the year 2019 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
1999 1998 1 % 1 % 1 % 1 % INCREASE DECREASE INCREASE DECREASE Effect on total of service and interest cost components $ 18,551 $ (16,623) $ 15,329 $ (15,320) Effect on post-retirement benefit obligation $ 128,831 $ (121,245) $ 133,285 $ (132,422)
The components of net periodic benefit cost are as follows:
PENSION BENEFITS OTHER BENEFITS 1999 1998 1997 1999 1998 1997 Service cost $ 798,783 $ 745,360 $ 626,142 $ 59,001 $ 58,821 $ 57,237 Interest cost 2,068,008 1,998,007 1,903,451 190,327 190,161 190,010 Expected return on plan assets (3,021,620) (3,167,252) (2,576,676) Amortization of transition asset (92,965) (92,965) (92,965) Amortization of prior service cost 150,081 150,081 150,081 (415) Recognized net actuarial gain (110,733) (4,877) ------------ ------------ ------------ ------------ ------------ ------------ Net periodic benefit (credit) cost $ 97,713 $ (477,502) $ 5,156 $ 249,328 $ 248,982 $ 246,832 ============ ============ ============ ============ ============ ============
29 26 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 12. SEGMENT INFORMATION The Company operates in the cement and related products, paper and packaging industries, and in realty operations mainly within the island of Puerto Rico. Operations in the cement and related products industry involve production and sale of cement, ready mix concrete, and lime. Operations in the paper and packaging industry involve production and sale of paper and polypropylene bags. Realty operations involve the development, sale and lease of real property. The cement and ready mix concrete operations are the two reportable segments. The remaining operations have been combined in the "All Others" column in the table that follows. The accounting policies of the segments are the same as those described in Note 1. The Company's management evaluates the performance of its segments and allocates resources to them based on operating profit. Operating profit is total revenue less operating expenses. Interest income and expense, other income and expenses, and income tax expense are not deducted in computing operating profit. The following table presents the required segment information (in thousands):
(ALL AMOUNTS IN THOUSANDS) CEMENT OPERATIONS READY MIX OPERATIONS 1999 1998 1997 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Revenue from customers $ 70,660 $ 59,587 $ 64,789 $ 94,522 $ 77,369 81,501 Intersegment revenues 35,324 28,709 30,003 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- 105,984 88,296 94,792 94,522 77,369 81,501 Depreciation, depletion and amortization 8,918 8,685 7,770 4,558 4,241 4,202 Other operating expenses 81,436 68,029 66,429 87,663 70,625 74,617 ---------- ---------- ---------- ---------- ---------- ---------- Operating profit $ 15,630 $ 11,582 $ 20,593 $ 2,301 $ 2,503 $ 2,682 ========== ========== ========== ========== ========== ========== Other charges Income tax provision Net income Capital expenditures $ 7,315 $ 10,295 $ 13,944 $ 12,418 $ 5,640 $ 3,280 ========== ========== ========== ========== ========== ========== Identifiable assets: Segment assets $ 204,771 $ 212,919 $ 209,861 $ 61,723 $ 49,371 $ 49,393 ========== ========== ========== ========== ========== ========== (ALL AMOUNTS IN THOUSANDS) ALL OTHERS SEGMENT INTERSEGMENT ELIMINATIONS TOTAL 1999 1998 1997 1999 1998 1997 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenue from customers $ 8,118 $ 11,421 $ 10,484 $ 173,300 $ 148,377 Intersegment revenues 4,818 3,946 4,267 $ (40,142) $ (32,655) $ (34,270) ---------- ---------- ---------- ---------- ---------- 12,936 15,367 14,751 173,300 148,377 Depreciation, depletion and amortization 573 405 412 14,049 13,331 Other operating expenses 11,240 13,588 12,709 (40,141) (32,660) (34,248) 140,198 119,582 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit $ 1,123 $ 1,374 $ 1,630 $ (1) $ 5 $ (22) 19,053 15,464 ========== ========== ========== ========== ========== ========== Other charges 2,451 1,318 Income tax provision 4,559 2,765 ---------- ---------- Net income $ 12,043 $ 11,381 ========== ========== Capital expenditures $ 971 $ 1,764 $ 10,805 $ 20,704 $ 17,699 ========== ========== ========== ========== ========== Identifiable assets: Segment assets $ 50,877 $ 38,119 $ 16,739 $ 62,122 $ (62,861) $ (46,063) $ 255,249 $ 237,548 ========== ========== ========== ========== ========== ========== Corporate assets 49,340 61,222 ---------- ---------- Total assets $ 304,589 $ 298,770 ========== ========== 1997 ---------- Revenue from customers $ 156,774 Intersegment revenues ---------- 156,774 Depreciation, depletion and amortization 12,384 Other operating expenses 119,507 ---------- Operating profit $ 24,883 ========== Other charges 2,078 Income tax provision 6,802 Net income $ 16,003 ========== Capital expenditures $ 28,029 ========== Identifiable assets: Segment assets $ 229,930 ========== Corporate assets 61,221 ---------- Total assets $ 291,051 ==========
27 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 13. LEASE COMMITMENTS The Company and its subsidiaries lease certain facilities and equipment under operating lease agreements. Rental expense under such agreements amounted to $817,000 in 1999, $928,000 in 1998 and $898,000 in 1997. At December 31, 1999, the approximate future minimum lease payments under noncancellable operating leases were as follows:
YEAR AMOUNT 2000 $ 531,811 2001 368,511 2002 356,511 2003 331,511 2004 and thereafter 801,104 ---------- $2,389,447 ==========
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and Cash Equivalents The carrying amount of these assets approximates fair value because of the short period of time to maturity of the instruments. Investments The fair values of investments are estimated based on their quoted market prices or those of similar investments. Other Current Financial Instruments The carrying amount of notes and accounts receivable, notes payable, accounts payable and other current liabilities approximate fair value due to their short-term to maturity. 30 28 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 Long-term Debt The fair value of the Company's long-term debt is estimated using discounted cash flow techniques based on the current rates offered to the Company for debt of the same remaining maturities. The carrying amount and estimated fair values of these financial instruments at December 31, are as follows (in thousands):
1999 1998 CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------------ ------------ ------------ ------------ Cash and cash equivalents $ 1,631 $ 1,631 $ 7,481 $ 7,481 Short-term investments 6,001 5,945 16,067 16,072 Notes and accounts receivable 34,968 34,968 28,799 28,799 Long-term investments 39,712 39,590 36,587 42,242 Long-term notes receivable 6,225 6,036 3,973 3,973 Notes payable 654 654 551 551 Accounts payable and other liabilities 22,973 22,973 19,524 19,524 Long-term debt 85,171 79,912 82,995 88,228
NOTE 15. CONTINGENT LIABILITIES AND OTHER COMMITMENTS The Company is obligated to purchase, under a long-term supply contract, a minimum of 100,000 metric tons of coal annually through the year 2005. The purchase price is calculated using an agreed-upon formula based on market prices. Purchases under the contract amounted to $5,747,000 in 1999, $6,884,000 in 1998 and $6,729,000 in 1997 and exceeded the minimum amount required by the contract. NOTE 16. LEGAL PROCEEDINGS On May 10, 1999, the Company entered into a comprehensive settlement with the Government of Puerto Rico and various other parties relating to disputes involving its Vega Alta and Guanica projects. Under the terms of the settlement agreement and related order, the Company was granted all Puerto Rico permits necessary to develop and operate its limestone quarry at Guanica, and develop the 300-unit real estate project at Vega Alta. Included were the permits necessary to remove aggregates from the Vega Alta site and process them at a new facility in Carolina. In its order, the Court ruled that the Company "has complied with all laws and regulations concerning the issuance of permits and authorizations" for the Guanica, Vega Alta and Carolina projects, and that all permits for the projects have been validly issued as a matter of law. As part of the settlement, the Company terminated its civil rights suit against the Governor of Puerto Rico and various other individual government officials. The settlement and order also resulted in the termination of all other pending agency and court actions relating to the Guanica and Vega Alta projects. The Company is a defendant in a number of legal proceedings arising in the normal course of business. Management believes, based on the advice of its legal counsel, that the outcome of these legal matters will not significantly affect the Company's financial position or results of operations. 29 PUERTO RICAN CEMENT COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE 17. STOCKHOLDERS' EQUITY In 1999 and 1998 the Company purchased 192,800 shares and 73,000 shares, respectively, of its outstanding stock for $6,411,377 and $3,530,330, respectively. The Company purchased these shares for future corporate purposes and does not intend to retire or cancel them. 31 30 CONSOLIDATED FOURTH QUARTER RESULTS (000's Omitted Except Per Share Amounts)
----------------------- -------------------------- Three months ended Twelve months ended December 31 December 31 ----------------------- -------------------------- 1999 1998 1999 1998 ----------------------- -------------------------- Operating revenues $ 37,112 $ 35,984 $ 173,300 $ 148,377 Cost of sales 28,444 27,350 126,739 108,707 -------- -------- --------- --------- Gross margin 8,668 8,634 46,561 39,670 Selling, general and administrative expenses 7,029 6,486 27,508 24,206 -------- -------- --------- --------- Income from operations 1,639 2,148 19,053 15,464 -------- -------- --------- --------- Other charges (credits): Interest and financial charges 1,743 1,359 6,160 5,216 Interest income (964) (896) (3,656) (3,398) Other expenses (income) (123) (274) 281 (500) -------- -------- --------- --------- 656 189 2,785 1,318 -------- -------- --------- --------- Income before income taxes 983 1,959 16,268 14,146 Tax provision (222) (69) 4,225 2,765 -------- -------- --------- --------- Net income $ 1,205 $ 2,028 $ 12,043 $ 11,381 ======== ======== ========= ========= Earnings per share of common stock * $ 0.26 $ 0.38 $ 2.29 $ 2.11 ======== ======== ========= =========
* Based on weighted average of outstanding shares of 5,266,607 in 1999 and 5,392,491 in 1998. FINANCIAL RESULTS BY QUARTERS (000's Omitted Except Per Share Amounts)
THREE MONTHS ENDED MAR. 31 JUN. 30 SEPT. 30 DEC. 31 1999 ------- ------- ------- -------- -------- Operating revenues $44,664 $48,080 $43,444 $ 37,112 $173,300 ======= ======= ======= ======== ======== Gross profit 13,189 14,678 10,026 8,668 46,561 ======= ======= ======= ======== ======== Income before income tax 5,742 5,976 3,567 983 16,268 Tax provision 1,595 1,844 1,008 (222) 4,225 ------- ------- ------- -------- -------- Net income $ 4,147 $ 4,132 $ 2,559 $ 1,205 $ 12,043 ======= ======= ======= ======== ======== Per share * $ 0.77 $ 0.78 $ 0.48 $ 0.26 $ 2.29 ======= ======= ======= ======== ======== THREE MONTHS ENDED MAR. 31 JUN. 30 SEPT. 30 DEC. 31 1998 ------- ------- ------- -------- -------- Operating revenues $36,484 $39,359 $36,550 $ 35,984 $148,377 ======= ======= ======= ======== ======== Gross profit 8,807 12,134 10,095 8,634 39,670 ======= ======= ======= ======== ======== Income before income tax 3,879 5,005 3,303 1,959 14,146 Tax provision 565 1,385 884 (69) 2,765 ------- ------- ------- -------- -------- Net income $ 3,314 $ 3,620 $ 2,419 $ 2,028 $ 11,381 ======= ======= ======= ======== ======== Per share * $ 0.61 $ 0.67 $ 0.45 $ 0.38 $ 2.11 ======= ======= ======= ======== ========
* Based on weighted average of outstanding shares of 5,266,607 in 1999 and 5,392,491 in 1998. 32 31 FIVE YEAR STATISTICAL COMPARISON
Years ended December 31, ------------------------ 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ BALANCE SHEET SUMMARY Cash and cash equivalents $ 1,630,750 $ 7,480,900 $ 2,995,634 $ 14,808,709 $ 11,599,636 Investments available-for-sale - - 5,580,202 4,595,908 4,473,536 Short-term Investments 6,001,346 16,066,648 6,967,225 1,917,616 974,073 Accounts receivable-net 34,968,168 28,799,150 28,763,683 27,410,312 24,526,385 Inventories 36,301,359 33,945,940 32,885,743 33,443,290 32,222,415 Prepaid expenses 5,579,699 5,087,218 4,533,070 4,624,691 4,752,187 ------------ ------------ ------------ ------------ ------------ Current assets-total 84,481,322 91,379,856 81,725,557 86,800,526 78,548,232 Property, plant and equipment-net 168,650,305 162,278,187 158,610,632 143,088,242 142,567,213 Other long-term assets 11,745,607 8,524,016 4,347,346 4,334,404 2,670,882 Long-term investments 39,711,592 36,587,498 46,367,581 46,960,338 31,228,541 ------------ ------------ ------------ ------------ ------------ $304,588,826 $298,769,557 $291,051,116 $281,203,510 $255,014,868 ============ ============ ============ ============ ============ Notes payable (include current portion of long-term debt and short-term borrowing) $ 4,459,871 $ 3,003,422 $ 1,778,505 $ 15,401,050 $ 11,749,853 Accounts payable and accrued liabilities 22,973,240 19,525,110 17,145,619 15,080,253 16,227,533 ------------ ------------ ------------ ----------- ----------- Current liabilities-total 27,433,111 22,528,532 18,924,124 30,481,303 27,977,386 Long-term debt (exclusive of current portion) 81,365,209 80,541,666 76,179,792 67,023,200 57,549,475 Deferred income taxes 30,787,824 32,358,532 35,859,657 33,323,351 30,808,654 Other long-term liabilities 3,104,981 3,082,449 3,023,228 2,954,610 2,873,430 Stockholders' equity 161,897,701 160,258,378 157,064,315 147,421,046 135,805,923 ------------ ------------ ------------ ----------- ----------- $304,588,826 $298,769,557 $291,051,116 $281,203,510 $255,014,868 ============ ============ ============ ============ ============ STATISTICAL DATA Book value per share $ 31.22 $ 29.79 $ 28.81 $ 26.67 $ 24.67 Shares outstanding at year-end 5,186,274 5,379,074 5,452,074 5,527,074 5,504,722 Number of stockholders 543 568 597 622 655 Average number of employees 1,053 1,008 1,015 969 939 Capital expenditures (including expenditures in mill conversion in 1995) $ 20,703,609 $ 17,699,254 $ 28,028,571 $ 11,662,959 $ 10,249,840 ============ ============ ============ ============ ============
33 32 DIRECTORS ANTONIO LUIS FERRE Chairman of the Board of the Company and President of El Dia, Inc. (Newspaper Publishing Group) ALBERTO M. PARACCHINI Vice Chairman of the Board of the Company and Director of Banco Popular de Puerto Rico (Commercial Bank) HECTOR DEL VALLE Vice Chairman of the Board of the Company MIGUEL A. NAZARIO President and Chief Executive Officer of the Company ANTONIO LUIS FERRE RANGEL Senior Corporate Vice President of the Company WALDEMAR DEL VALLE ARMSTRONG Attorney-at-Law, Partner of Parra, Del Valle, Frau & Limeres JOSE J. SUAREZ Consultant to the Company ANGEL O. TORRES President of Bacardi Corporation OSCAR A. BLASINI President of G.B. Investments, Inc. (Real Estate Development and Investments) ROSARIO J. FERRE Second Vice President of Luis A. Ferre Foundation, Inc. EMILIO J. VENEGAS VILARO President of Venegas Construction Corporation (General Contractors) FEDERICO F. SANCHEZ President of Federico F. Sanchez and Company and Interlink Group, Inc. (Real Estate Consultants, Brokers and Developers) JORGE L. FUENTES Chairman of the Board and Chief Executive Officer of Gabriel Fuentes, Jr. Construction Company, Inc. and Chairman of the Board and Chief Executive Officer of Fuentes Concrete Pile, Inc. (Concrete Pile Foundations). JUAN A. ALBORS President and General Partner of Albors Development Corp. (Real Estate Developers and Investors) LUIS ALBERTO FERRE RANGEL Co Director, El Dia, Inc. (Newspaper Publishing Group) OFFICERS MIGUEL A. NAZARIO President and Chief Executive Officer ANTONIO LUIS FERRE RANGEL Senior Corporate Vice President EUFEMIO TOUCET Executive Vice President, Ready Mix Concrete, Inc. JOSE O. TORRES Assistant Secretary, Vice President of Finance and Chief Financial Officer JUAN R. TARAZA Vice President - Sales PEDRO M. MENA Treasurer FERNANDO L. VARGAS Controller ETIENNE TOTTI DEL VALLE Secretary 34 33 STOCKHOLDER INFORMATION STATUTORY OFFICES Ponce, Puerto Rico EXECUTIVE OFFICES Guaynabo, Puerto Rico SUBSIDIARIES* Florida Lime Corporation Ready Mix Concrete, Inc. Poly Bags & Packaging, Inc. Desarrollos Multiples Insulares, Inc. Limestone Materials, Inc. Ponce Capital Corporation * All Subsidiaries are 100% owned REGISTRAR AND TRANSFER AGENT ChaseMellon Shareholder Services New York, New York INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers, LLP San Juan, Puerto Rico PUBLIC RELATIONS Citigate Dewe Rogerson New York, New York LEGAL COUNSEL Totti & Rodriguez Diaz San Juan, Puerto Rico FORM 10-K A copy of the Annual Report as filed with the Securities and Exchange Commission on Form 10-K will be mailed upon request made to Mr. Jose O. Torres, Vice President of Finance and Chief Financial Officer, Puerto Rican Cement Company, Inc., PO Box 364487, San Juan, Puerto Rico 00936-4487. PUERTO RICAN CEMENT COMPANY, INC. ANNUAL MEETING The Annual Meeting of Stockholders of Puerto Rican Cement Company, Inc. will be held at the office of the Company in Amelia Industrial Park, Guaynabo, Puerto Rico, Wednesday, May 3, 2000 at 10:00 a.m. Member: ------------------- PRN Listed NYSE ------------------- EX-23 5 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 [PRICEWATERHOUSECOOPERS LETTERHEAD] Report of Independent Accountants On Financial Statement Schedules To the Board of Directors of Puerto Rican Cement Company, Inc. Our audits of the consolidated financial statements referred to in our report dated February 18, 2000 appearing on page 18, of the 1999 Annual Report to Shareholders of Puerto Rican Cement Company, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - ---------------------------------- PRICEWATERHOUSECOOPERS LLP San Juan, Puerto Rico February 18, 2000 EX-27 6 FINANCIAL DATA SCHEDULE
5 1 US DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 1,630,750 6,001,346 30,218,176 1,100,959 36,301,359 84,481,322 261,981,204 93,330,899 304,588,826 27,433,111 81,365,209 0 0 6,000,000 155,897,701 304,588,826 173,195,360 173,299,816 126,738,540 154,246,548 2,785,333 0 0 16,267,935 4,225,111 12,042,824 0 0 0 12,042,824 2.29 2.29
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