Cement Americas: In the grand scheme of the North American cement industry, where does Giant fit in?

Terry Kinder: We're primarily an East Coast construction products company. Obviously, our primary focus is the cement business, but we are vertically integrated in that we own lightweight aggregate manufacturing and lightweight block manufacturing as well. We are also vertically integrated in the fact that we supply the majority of our own fuel requirements through the waste fuel burning operations that we have.

We're the 17th largest clinker producer in the U.S. industry, and that's if you exclude our sister company, Dragon Cement in Maine. If you include them, Cementos Portland, S.A., our parent company's influence in the U.S. market would take us to somewhere around no. 11 in clinker capacity. That doesn't count imports. We also own an import terminal in Norfolk, Va.

We are one of the largest lightweight aggregate suppliers on the East Coast. We do have some competitors about the same size. We are not very significant in the block business, but it's a nice fit with our lightweight aggregate business. We are no. 1 in the United States in terms of the recycling of waste fuels in the cement industry.

CA: Being a foreign-owned company is not unique in this country anymore. In the case of your company, how might you think it's a little different — or is it?

TK: I don't know that it is any different, other than some of the other players are much larger — the Lafarge-Blue Circle combination now, Holcim. Some of them are very large, but I don't know that it's any different. The European companies perhaps look at the cement industry a little differently than the U.S. stock market does. The United States stock market is so heavily focused on next quarter's earnings, sometimes they can't see the forest for the trees. I believe the Europeans have a little bit longer-term perspective: they like the stability of the U.S. currency, they like the stability — or relative stability — of the U.S. market. They have a longer-term vision.

CA: Please explain the ownership structure of your company and Cementos Portland?

TK: It's a little bit complicated. We are owned 100% by Cementos Portland, S.A., which is a public company traded on the Madrid Exchange. They are majority controlled by a Spanish construction company that we'll call F.C.C. for short. (The real name is Fomento de Construcciones y Contractas, S.A.) They, too, are a public company. Previously, there was another public company between us and F.C.C., but it was merged into F.C.C., and that was Portland Valderrivas, S.A., another Spanish public company. F.C.C. is majority owned by the Koplowitz family, who controls 57% through their 51% interest in a partnership called B1998, while the other 49% is owned by Veolia Environment (formerly Vivendi Environment), who's ultimate parent is Vivendi from France.

CA: And where does Dragon Cement fit in?

TK: Cementos Lemona is 50/50 partners with Cementos Portland in the Dragon plant in Thomaston, Maine.

CA: Are you or Giant in any way involved with Dragon in day-to-day operations?

TK: I personally am not. They are a sister company. I see those people several times a year. We exchange ideas sometimes, but right now because Lemona and Cementos Portland are 50/50 owners, and also because there's no marketing synergy between the two companies — our markets just don't quite touch in the Northeast — there's really no significant interchange. Joe Koch III is president of Dragon, has been for years, and does a great job up there. For now at least, the only interaction is from an information-exchange standpoint.

CA: Would it be accurate to say that Giant's marketing territory covers the East coast from Florida up to New England, and Dragon services the New England states?

TK: That's about right. We stretch from Georgia to New York, and Dragon covers New England. They also have a rail terminal in Canada, and I believe they are looking very seriously at putting in a second Canadian terminal.

CA: So, what do you think is the Koplowitz family's interest in the U.S. market? What was their initial interest in getting into this a few years ago?

TK: Let me first say that I have never met any of the family members. I really can't speak on their behalf. I have only met one person from F.C.C. We deal primarily with the Cementos Portland management now, so I can give you my ideas of why they were interested.

They obviously have opportunities to invest anywhere in the world, just like Lafarge or Cemex or Holcim, but they have not ventured outside of Spain significantly, with the exception of the investment in Dragon in Maine many years ago. And so, as they look around the world at investment opportunities in the cement business, they would naturally gravitate to the United States market for the stability of the currency, the relative stability of the market, the potential for long-term growth in this market, and finally, the opportunity for possible synergies at some point many years in the future in terms of being on the East Coast of the United States, if they wanted to export cement into the United States. There's no desire for that right now. The Spanish market is outstanding. They've had excellent growth for numerous years, a significant amount of free-cash flow, so I think this was just a good opportunity for them.

CA: As it now exists, is Giant Cement Holding where you would like it to be?

TK: Yes, in some areas, and ‘no’ in others. We are number one in the U.S. in waste fuel recycling. We have a great product line. However, we have a significant amount of change to undertake in order to get where we need to be in some areas. For example, we have older wet-process manufacturing plants at both Giant [in Harleyville, S.C.] and Keystone [in Bath, Pa.]. We are looking forward to modernization of the plants. There's been a huge benefit to us in terms of Cementos Portland and their support for our company. We are in the process of modernizing the Giant plant right now. We're in the permitting phase at this point. We have the full support of Cementos Portland, and we have the full support of the community. We've worked with Dorchester County, and we've worked with the South Carolina Department of Commerce, both of whom were very helpful. We expect to get our permit within weeks.

We're building a 1 million-tpy, state-of-the-art preheater/precalciner single-line plant. In so doing, we're replacing a plant that's been modernized four times in its history, so we have older equipment. We have four raw mills, four kilns, four finish mills. So, this modernization is going to be a substantial improvement.

In terms of other aspects of the company, we're in the very early stages of evaluating the modernization of the Keystone plant. We hope to complete that in the near future and come to a decision as to how we're going to go about that and over what time frame. Our sister plant, Dragon, is in the process of modernizing right now. So, there's going to be lot of change for us in the near future.

We're fortunate. We were a public company as Giant Cement Holding up until Cementos Portland acquired us in 1999, and one of the things that the board was looking at in that time frame was, how do we — as a single public company in the U.S. with two cement plants — compete with an increasingly globalized industry, and with the capital requirements involved in modernizing cement plants? Cementos Portland is giving us that opportunity and support.

CA: Will you continue to burn waste fuels at both plants, even with the upgrades?

TK: Yes, that is the current intention.

CA: Any problems with permitting that from the community or anywhere else?

TK: The short answer is ‘no.’ The longer answer is that obviously we do a tremendous amount of work in the community with our community relations programs. I believe we have an excellent relationship in both communities. We have had some rough patches in the past in the local community around the Keystone plant, but I think we have worked through those.

We just had our public hearing a month ago for the permit for the Giant plant modernization, and we had virtually no opposition at the public hearing. The two speakers were our state Congressional representative — George Bailey, who spoke on our behalf supporting the modernization project — and a local physician, who spoke on our behalf also in support of the project. We really don't have significant opposition in South Carolina.

In Pennsylvania, there has been concern over the years. It's a little more populated around the plant. There are some schools that are relatively close by, and of course, you have parents and PTA members and community leaders who do express concerns from time to time. But, we're doing our best to communicate better with them and help them understand what we do and how we manage the risk. We have never had a significant incident involving pollution at either facility — or any facility, for that matter. We burn waste fuels at two of our lightweight aggregate plants as well.

CA: What types of waste fuels are you burning primarily?

TK: We're burning the same things that everyone else in the industry is burning. They are primarily ignitable solvents. They are listed as hazardous by the EPA because of the fact that they are ignitable. They have a low flash point. Examples are solvents used for parts washers, paint thinner, cleaners used with printing presses and dye operations, cleaners used in circuit board manufacturing.

Giant also handles bulk, dry, solid-waste fuels. The best example I can give you of that would be dry cleaning filters, the lint that comes from them, rags, Tyvek suits and all sorts of things like that. We run the materials through a shredding process to get the particle size small enough to convey into the kiln.

CA: What are some of your community relations efforts?

TK: We have a really extensive program. We started one this year that I'm very excited about called Charleston's Promise. We are the corporate sponsor for Charleston's Promise, which is run by News 4 here locally and a lady named Helena Fox. Charleston's Promise is an outgrowth of Secretary Colin Powell's America's Promise to Children program. It involves outstanding programs where we go into six or eight schools a year, have an all-day event that includes feeding the kids, doing a lot of mentoring, bringing a lot of attention to the school, different workshops, things to do after school, bringing the parents in, getting them involved — just a really great program for schools.

Most of the work we do is with schools. We have a high-performance partnership with Woodlands High School here in South Carolina. We donate (through a Tri-County Regional Chamber of Commerce program in S. C.) dictionaries to all the local third-graders in the elementary schools in both South Carolina and Pennsylvania. We recently gave thesauruses to Harleyville Ridgeville Elementary School here in South Carolina in connection with the Charleston's Promise event.

We have career-planning workshops. We do mentoring programs. We have what we call “quarry classrooms.” On Sundays, when we're not operating the quarry, we'll bring in whole classes of kids, and sometimes we'll actually bring in groups of teachers and do programs within the quarry relative to the fossils and things they find there.

We are active with local fire departments in all of our communities. We have donated either land or money to set up community parks in both Pennsylvania and South Carolina. So, we're very much involved in the communities.

CA: Does your company put out any kind of newsletter for the community, or internally?

TK: We have an internal newsletter, and we do provide that to the community. We don't have set mailings where we send out 5,000 copies. The communities are a little large for that.

CA: You mentioned imports earlier as a fairly significant portion of your business. How big are we talking about here?

TK: It is important to us in that in 1999 we acquired the deep-water import terminal in Chesapeake, Portsmouth, Va. — it literally straddles the line, just call it Norfolk. We have a 70,000-ton storage silo there. We have approximately 1 million tons of throughput capacity from an equipment standpoint. We don't sell anywhere near that; we're not permitted to do that much, actually.

We primarily acquired the terminal to be able to bridge the gap on the East Coast between the Giant and Keystone markets. We mainly move cement into existing markets. There is a little bit of a local market there, and we do service that. But, we're trying to be good stewards, being careful not to disrupt the marketplace. We basically supplement our existing production capacity. It allows us to satisfy our customers' demands.

CA: Where is the product coming in from?

TK: Originally, we were bringing product in from Indonesia, and we can source from any number of places — Asia, South America. We're now bringing cement in from Colombia.

CA: About how much are you bringing in a year now?

TK: It varies year to year. Last year, we were in the neighborhood of 200,000 tons.

CA: We touched on the Harleyville upgrade earlier. What else should be mentioned with regards to it?

TK: Basically, we are taking the majority of the existing production equipment out of service and installing a new line. We've contracted with Polysius for the equipment. We are in the final stages of initiating a construction contract now. We will essentially install a new cement plant inside the existing plant boundaries. We will continue to use the quarry equipment, some of the transfer equipment, and we intend to utilize two of the existing finish mills, but we're also installing a new, state-of-the-art mill.

CA: Would the same strategy apply to the Keystone facility as well?

TK: We're in the process of doing a feasibility study of that, and we do plan to go to a modern preheater/precalciner dry-process kiln at some point in the future. We will likely modernize Keystone in three phases: quarry and raw materials, finish grinding and pyroprocessing.

CA: Besides the waste fuel component, talk about your other environmental initiatives.

TK: We have a good record from an environmental standpoint. Obviously, we're always trying to improve. Historically, Giant Cement was the first company in the U.S. to install a baghouse on a cement kiln. Today, we are in full compliance with Title V, and we're preparing to comply with MACT standards. From a community-relations standpoint, probably the project I'm most proud of is our work with some external environmental stewards like Beidler Forrest, which is headed up by Norm Brunswig here in Harleyville, S.C. It's owned by the National Audobon Society. We've provided funds for a scholarship for them, and they put on programs for school children there. So, we've basically funded a teaching position, or helped in funding that. That's probably the environmental effort we're most proud of.

We do things like helping the community of Bath, Pa., with their street-sweeping efforts. We do clean-up programs, nesting projects for wood ducks, you name it.

CA: You talked about the different kinds of fuels you burn. Are tires among them? I know sometimes cement plants involve the local community in some type of tire-disposal program.

TK: We do not burn tires.

CA: There's been a big push, especially on the part of the Portland Cement Association, to get “new blood” into the industry — and not just recruit from other cement companies — by implementing a recruitment effort at a level the industry has not seen before. Are you having issues with attracting and retaining people at your company? If so, what are you doing about it?

TK: We're a fairly small company, so we really focus on retention more than recruitment. I can't say that we're having trouble recruiting people. We have hired both from within the industry and outside the industry, both very successfully. We have very little turnover in the cement business. We have a little bit more turnover in the lightweight aggregate business than I'd like, and we're working on retention there. But, in cement, we just have an extremely low turnover.

We have an excellent vice president of human resources, and he's formed focus groups and worked on training programs and changed management. We're trying to stay ahead of the curve in terms of our people and train them well, compensate them well, provide them with excellent benefits packages, and retain them as opposed to having to spend the effort and the time to recruit elsewhere, whether it's within or outside the industry. The other thing that having Cementos Portland as a parent has provided us is additional resources in terms of their people. We have been fortunate to have some extremely good people from Cementos Portland in Spain spend some time with us here.

We have two employees here full time now. We had four at one point in time. Ignacio Machimbarrena is our Vice President of Technical Operations. He is in charge of the Giant modernization project and is doing an outstanding job. An excellent resource, he moved here a couple of years ago and is doing a super job for us.

We've had three other guys helping us in other capacities, such as implementing best practices, for instance, in the maintenance area. The language barrier is a little bit difficult, but most of them speak English very well, some fluently. Unfortunately, we don't speak Spanish. I'm trying to change that, and we're working on learning Spanish and trying to eliminate some of that communication gap.

We also have an individual here now who is working with our MIS people. We are going through a J.D. Edwards implementation in enterprise resource planning software. He's here to bring us ideas on their best practices from an MIS standpoint in Spain and take back ideas from the implementation process of J.D. Edwards here in the United States.

And, we've had exchange going the other way. One of the areas that we have expertise in that we can lend to other companies within the organization is in waste-fuel recycling. We have lent support to other sister companies in that regard.

I have to say that the exchange of employees with Cementos Portland has truly been a benefit to us, to have them involved in all aspects of the business here, so that they understand it. It significantly improves communication between us and the parent company, because if they understand everything that's going on, they can communicate that in Spanish.

CA: What segments of the company do you think are strongest, that you wouldn't like to change?

TK: Our primary focus is our customers, and our mission is to add value for our customers. I think that where we excel is that we have excellent quality products. Bulk cement, bulk Type I cement, Type I/II, Type III — that's basically a commodity. Then you have to differentiate yourself on service. But, masonry cement, your bag products, they're brands and not as much of a commodity, and we have outstanding products. Lightweight aggregate is not as much of a commodity. We have an excellent product there. Our structural lightweight aggregate is second to none in the U.S. Our focus is to provide the best possible quality products and service to our customers that we can provide, and if we can accomplish that mission, everything else comes along with it.

We're very strong in terms of technical training for our sales force, giving them the tools they need to better serve the customers. We are very strong, as I mentioned before, in the recycling business. We have some outstanding people in that regard. We have probably some of the best capabilities of any company in that respect. There's very little I would change in that area. We're a leader in the industry, and we intend to stay that way.

CA: Do you think that you'll hit whatever forecast you have for 2003, or perhaps better it?

TK: Since we've been taken private we don't give out earnings forecasts, but I'll talk a little bit about revenues. Our revenues will come in in line with the industry. We were down in 2002. I expect to be down in 2003 as well, but we should do as well as the industry. I believe the economy has impacted our business and the industry more than anyone expected.

Additionally, the weather in the first quarter significantly impacted our business from the South Atlantic all the way to the Mid-Atlantic. We had a very harsh winter compared to a very mild winter last year in the Mid-Atlantic region. Here in the South Atlantic, we experienced the same thing, except when you get down into South Carolina, it's more rain than snow. But we've had a lot of wet weather, so it has significantly impacted our revenues in the first quarter.

Because of that, I think we probably will not hit our original forecast for this year in terms of revenue. But, I believe that we will do as well as the industry. If you look at our specific markets — Georgia, North Carolina, Virginia, which is pretty much our market in the South Atlantic region, excluding South Carolina — they were off 9% to 10% in 2002. I suspect they will be off this year as well, perhaps not quite that much. The rest of our markets — South Carolina, Pennsylvania, New Jersey, and New York — were off about 5% last year, which is in line with the entire U.S.

I believe we will do as well as the industry in the upturn, which I do expect to occur in the relatively near future. The modernization project that we have under way should allow us to outperform the industry in the coming years in terms of earnings growth.

CA: That area around the Harleyville plant is a fairly competitive marketplace.

TK: It's a very competitive marketplace, absolutely.

CA: In addition to upgrading the two plants, what other strategies or projects are you considering to make Giant a market leader? Are you looking at any other import terminals on the East Coast?

TK: No, we're not looking at additional imports at this time. We're primarily focused on modernizing our facilities, being able to provide our own manufactured cement to meet all of the demand of our customers. Then, we'll have the import terminal as a supplement to that when demand necessitates that we have additional product.

The other big thing that we're going through right now is implementing the J.D. Edwards enterprise resource planning software, and that will involve implementing best practices across the company. Again, we're working with Cementos Portland and exchanging with them and implementing best practices. Our focus is going to be to make our operations the most efficient they can possibly be, both from the standpoint of how we operate as well as having the most modern equipment.

Giant Cement has been through a lot of change, from the 1980s when a Hollywood producer controlled the company, and it was simply Giant Portland & Masonry Cement listed on the N.Y. Exchange. We've gone through the spin-off of Giant Cement Holding back in '94, and more recently being acquired by Cementos Portland in '99. In the past 20 years, we've grown from $20 million to $200 million in revenue. Together with our parent Cementos Portland and F.C.C., we are looking forward to continued growth, and we are open to any opportunities that will help us achieve that objective.

At present, we're focused on modernizing and the J.D. Edwards conversion and implementing best practices. We're excited about the future of the industry. We're excited about the future of our company. Our goal is to earn excellent returns for Cementos Portland and F.C.C., and we're managing and embracing the changes that are necessary to achieve our goals.

Terry L. Kinder is President and Chief Executive Officer of Summerville, S.C.-based Giant Cement Holding, Inc., a division of Spain's Cementos Portland, S.A. Kinder was General Practice Manager for the accounting firm of Coopers & Lybrand, CPAs from 1980 to 1986, when he began his career with Giant as Vice President and Chief Financial Officer, Secretary & Treasurer of Giant Group, Ltd. In 1994, Kinder led the IPO spin-off of Giant Cement Holding, Inc., where he remained vice president and CFO, Treasurer until 2000, when he was named to his current position (effective 2001).