UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1994
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 1-1274-2
MEDUSA CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0394630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3008 MONTICELLO BLVD., CLEVELAND HTS., OHIO 44118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 371-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares without par value New York Stock Exchange
Securities registered pursuant to Section 12 (G) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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 stock of the registrant as of February
28, 1995 was $401,657,330.
The number of shares outstanding of the issuer's classes of common stock, as of
February 28, 1995:
Common Shares without par value -- 16,228,579
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders for the year ended December
31, 1994 are incorporated by reference into Parts II and IV.
Portions of the proxy statement for the annual shareholders meeting May 8, 1995
are incorporated by reference into Part III.
PART I
Item l. Business
Cement Industry Overview
Portland cement is the essential binding material used in making
concrete, which is widely used in residential and non-residential
construction and in public works and infrastructure projects. Cement
is sold primarily in bulk form to producers of ready-mix concrete and
manufacturers of concrete products.
Cement is made in a multi-stage process that begins with the
crushing, grinding and mixing of calcium (usually in the form of
quarried limestone), sand, alumina, iron oxide and other materials.
This raw materials mixture is then reacted in rotary kilns at
extremely high temperatures. The resulting marble-size pellet
material (called "clinker") is cooled and ground with a small amount
of gypsum to produce cement having the consistency of fine powder.
There are two basic methods of clinker production. The older "wet"
process involves mixing the raw materials with water to form a slurry
that is reacted in the kiln. This process involves the use of a
large amount of fuel, but enables the raw materials to be handled and
mixed easily. In the more fuel-efficient "dry" process, the
slurrying step is eliminated and clinker is produced by reacting only
the dry raw materials. Even more fuel-efficient processes involve
preheater and preheater/precalciner techniques that recycle excess
heat from the kiln to either preheat or to enhance chemical reaction
of the raw materials prior to their introduction into the kiln. The
company estimates that, in general, the energy consumed to produce
cement from a dry process preheater/precalciner kiln is approximately
40% less than a wet process kiln. All the company's kilns use the
dry process.
According to the United States Bureau of Mines' current report, the
average price of a ton of cement in 1992, F.O.B. the point of sale,
was $48.86. Cement markets tend to be regional because of the low
price of cement relative to its weight, making cost of transportation
an important factor in the industry. The company estimates that the
approximate distance that one ton of cement can be transported for
the same relative cost is 500 miles by vessel, 60 miles by rail and
20 miles by truck. As a result, cement plants whose products can be
transported only by truck or rail tend to serve relatively small
geographic markets (typically not in excess of a 200 mile radius of
the plant), while plants with access to water transportation are able
to efficiently serve considerably larger geographic markets. The
market served by a cement plant may be extended through the use of
distribution terminals to which cement is transferred in bulk and
inventoried for sale to customers in surrounding areas.
Demand
Demand for cement is correlated to cyclical construction activity,
which, in turn, is influenced largely by national and regional
economic conditions, including (particularly in the case of
residential construction) prevailing interest rates. In addition,
levels of government spending on infrastructure improvement affect
cement consumption. Demand for cement is also seasonal, particularly
-1-
PART I
Item l. Business (continued)
in northern markets where inclement weather affects construction
activity. According to the Portland Cement Association ("PCA"),
total annual cement consumption in the United States over the past 20
years has ranged from a low of 65.5 million tons in 1982 to a high of
94.2 million tons in 1994, generally corresponding to then prevailing
economic conditions and construction activity. Cement consumption in
the United States in 1994 was 94.2 million tons, of which
approximately 24% was used in residential construction, 29% in non-
residential construction, and the remainder in public construction,
such as infrastructure.
The company believes increased government spending on infrastructure
improvement would have a favorable impact on future cement demand
from the residential construction and non-building construction
sectors (predominantly infrastructure). Enactment of the Intermodal
Surface Transportation Efficiency Act of 1991, which authorized the
appropriation of federal funds primarily for construction and
improvement of highways, bridges and mass transit systems, reflected
Congressional recognition of the need for national infrastructure
repair and replacement. Future demand for cement for infrastructure
improvement will depend on the level of funding made available for
such purpose by federal, state and local governments.
Supply
According to current statistics published by the PCA, United States
clinker production capacity decreased from 91.1 million tons to 82.8
million tons, or by approximately 9%, from 1975 to 1993. Statistics
published by the United States Bureau of Mines and the PCA indicate
that from 1975 to 1993 the number of cement companies operating in
the United States has dropped from 57 to 44, and in 1992 the 10
largest of such companies accounted for approximately 61% of total
United States production capacity for clinker. Because of the extent
of capital investment required and the long lead times associated
with establishing new or re-opening closed facilities, the company
does not expect that significant additional domestic cement
production capacity will be added unless cement prices increase
significantly on a sustained basis over current levels.
Imports of cement and clinker, which have had the most impact on
markets along coastal and southern border areas of the United States,
with ripple effects elsewhere, have declined from a high of 19% of
total United States consumption in 1987 to approximately 14% in 1994,
according to the PCA. Factors influencing this decline have included
the effect of anti-dumping actions brought against several foreign
importers, which resulted in the imposition of substantial duties on
cement and clinker imports from various countries beginning in 1995,
increases in foreign demand, rising ocean shipping rates, and the
decline in the value of the United States dollar relative to other
currencies.
Cement production is capital-intensive and involves high fixed costs.
As a result, plant capacity utilization levels are an important
measure of a plant's profitability, since incremental sales volumes
tend to generate increasing profit margins. The PCA has estimated
that total United States cement plant capacity utilization was 94.6%
for 1994, which is the highest level since the PCA began collecting
such data in 1971.
-2-
PART I
Item l. Business (continued)
Price Trends
Due to the lack of product differentiation, competition in the cement
industry is based largely on price. Service and location of plants
and terminals are also competitive factors. Prices at which cement
has been sold in the United States over the past several years have
remained in a narrow range. Notwithstanding favorable construction
activity during the 1980's, cement prices remained relatively low due
to the impact of lower-priced imported cement. Until 1994, United
States cement prices remained flat due to the downturn in general
economic conditions and consequent declines in construction activity.
However, gradual improvement in the United States economy, coupled
with reduced domestic production capacity and significantly lower
levels of imported cement, have led to supply and demand
relationships more favorable to cement producers, resulting in
increased cement prices. In 1994, due to heavy demand coupled with
limited domestic supply, the company was able to increase prices by
13% over 1993 levels, with price increases of up to $5.00 per ton in
most of our markets on April 1, 1994, and another increase up to
$5.00 per ton on August 1, 1994 in our Southeastern markets. The
company expects these favorable market conditions to continue in 1995
and have announced cement price increases of up to $8.00 per ton,
effective April 1, 1995 in most of its markets.
General
The company produces and sells gray portland cement and masonry
cement; and, through various wholly-owned subsidiaries, mines,
processes and sells coarse aggregates (crushed stone), fine
aggregates (aglime) and high calcium limestone products. The company
also provides construction services for highway safety. The
company's operations are conducted principally in the eastern half of
the United States. During the past five years, cement, aggregates
and limestone, and highway safety operations accounted for
approximately 70% to 79%, 15% to 20%, and generally less than 10%,
respectively, of the company's consolidated net sales. From 1990
through 1994, Medusa's quarterly sales as a percentage of annual
sales have ranged from 12% to 14% during the first quarter and from
32% to 34% during the third quarter.
Construction activity surged ahead throughout 1994, in spite of
concern over rising interest rates, led by the best year in housing
starts since 1988. As indicated, tight supply conditions along with
record demand resulted in upward pricing and record profits. The
company expects the construction recovery to continue in 1995,
highlighted by increases in public works and commercial activity.
Infrastructure construction and, to a lesser extent, commercial
building, appears to be less sensitive to interest rates than
housing, which provides less than a quarter of the company's sales
volume.
In an effort to satisfy the strong product demand, our four cement
plants achieved a 91.2% capacity utilization. The company's focused
business strategy, the principal elements of which are: a
concentration on its core business, a constant drive to lower
operating costs, centralization of pricing decisions and the
-3-
PART I
Item l. Business (continued)
maintenance of a lean management organization, enable the company to
position itself to capitalize upon these favorable market conditions.
In furtherance of that strategy, the company's planned capital
program includes projects designed to incrementally increase plant
production capacity by a total of 6-8% over the next three years.
Cement Operations
The company ranks eighth in capacity among all United States cement
companies and fourth in capacity among those domestically owned. The
company's cement operations serve markets in portions of the Great
Lakes, the Southeast and the Western Pennsylvania/Northeastern Ohio
portions of the United States.
Regional Markets
Great Lakes. The Great Lakes regional market, consisting of portions
of Michigan, Wisconsin, Ohio, Illinois, Indiana and Ontario, is
served by the company's Charlevoix plant and its distribution network
of ten terminals, eight of which are water based. Demand in the
Great Lakes region has been steady, and virtually no new production
capacity has been added in recent years. Sales volume was down
slightly from 1993 levels which benefitted from the additional
business generated when other producers could not meet customer
requirements due to the flooding in the Midwest.
Management believes that the Charlevoix plant is among the lowest
cost cement production facilities in the Great Lakes region. This is
due to its use of a single modern preheater/precalciner kiln which
provides significant energy savings over other dry and wet process
kilns. The layout of the plant also results in an efficient
utilization of manpower. Charlevoix's deep-water shipping location
and water-based terminals enable 95% of cement produced to be shipped
by water, the lowest cost method of long-distance distribution, via
the Medusa Conquest or the Medusa Challenger. These company owned
vessels have a combined capacity of 20,000 tons. The company has
made substantial distribution improvements over the last few years
beginning with the conversion of the company's cement barge, the
Medusa Conquest, in 1987, and its subsequent modification to a more
efficient tug/barge system in 1992. This subsequent modification
increased the utilization of the barge by enabling it to operate in
inclement weather. The company has also expanded its distribution
system with the construction of the Toledo, Ohio terminal in 1985,
the Owen Sound, Ontario terminal in 1991, and the doubling of the
capacity of the Cleveland, Ohio terminal in 1992. Unfortunately, the
harshest winter in 15 years caused plant problems in February, 1994,
which resulted in lost production and a substantial increase in
repair and maintenance costs.
For 1995, Charlevoix is implementing an artificial intelligence kiln
control system and an automated process control instrumentation
system to enhance productivity and reduce operating costs.
Southeast. The company has two plants and nine terminals (excluding
the Orlando, Florida facility closed in February, 1995) in the
Southeast regional market: the Clinchfield, Georgia plant, acquired
-4-
PART I
Item l. Business (continued)
from Penn Dixie Corporation and extensively rebuilt in 1972, and the
Demopolis, Alabama plant, built in 1977 and acquired from Lafarge
Corporation in February 1993. The Demopolis plant serves water-based
terminals in Chattanooga, Tennessee and Decatur, Alabama with up to
six river barges. Together, the two plants also serve seven
rail/truck terminals in Alabama, Florida and Georgia. Since the
plants are located 240 miles apart, a number of marketing and
manufacturing synergies exist, including the ability to alternatively
ship to seven terminals, to specialize in certain cement products and
packaging, and to rationalize distribution in what are the two
plants' overlapping markets. While demand in markets of the
Southeast region is growing, management believes that supply is
declining due to a reduction of imports into neighboring markets.
Largely because both the Demopolis and Clinchfield plants operate
energy-efficient preheater kilns, management believes that they are
among the lowest cost production facilities in the region. In 1994,
the Demopolis plant burned waste derived liquid fuel (WDLF) for 26%
of its current fuel needs. The Clinchfield plant burns waste whole
tires as an alternative kiln fuel and has been able to reduce its
coal usage by 6%. The company improved its water-based distribution
system by leasing two barges that allow for a reduction in "stand by"
tug time costs.
Western Pennsylvania/Northeastern Ohio. The company's Wampum plant
is located between Pittsburgh, Pennsylvania and Youngstown, Ohio,
serving markets as far east in Pennsylvania as State College, as far
south as Wheeling, West Virginia, and as far west in Ohio as
Columbus. While demand in this region continues to grow, supply has
remained relatively constant, with no new plants or major capacity
expansions having occurred in the last five years or expected by
management in the foreseeable future.
Management believes that the Wampum plant's three dry kilns give it
an operating cost advantage over its wet process competitors in the
region. The Wampum plant also had the advantage in 1994 of obtaining
about 32% of its coal needs from its nearby limestone quarry which
contains coal reserves. Since 1985, the Wampum plant has burned
WDLF, supplying 39% of its fuel needs in 1994, up from 26% in 1993.
The improvement over 1993 results from installing large mix tanks
which provide for a more consistent quality and composition of WDLF
entering the kiln. The company erected at the Wampum limestone
quarry a large (40-cubic yard) dragline, replacing two smaller less
efficient units. This $7.0 million capital improvement was placed in
operation in April, 1994.
Energy
Cement manufacturing is an energy intensive process, using fuel to
fire kilns and electricity to grind raw materials into kiln fuel and
clinker into finished cement. The company has been an innovator in
burning alternative fuels, such as WDLF and whole tires at its plants
as a coal replacement. The company has entered into arrangements
with independent contractors (which, in turn, contract with suppliers
of alternative fuel) which allow the company to reduce its energy
costs by receiving WDLF either at a profit through tipping fees or at
-5-
PART I
Item l. Business (continued)
a nominal charge. In 1985, at its Wampum cement plant, the company
became one of the first such facilities to burn WDLF. The company
also burns WDLF at its Demopolis plant. The favorable economics of
burning WDLF are significantly influenced by the tipping fees, which
have been declining, the cost of environmental regulation, which has
been increasing and a small reduction in maximum clinker output when
burning WDLF. The company has burned whole tires at its Clinchfield
plant since 1990. The company also seeks to minimize its energy
costs by running its grinding mills, whenever possible, during off
peak demand periods.
Customers and Marketing
The company's cement operations have over 1500 customers which are
primarily ready-mix concrete dealers. No single customer accounts
for more than 5% of total consolidated sales. The company's
marketing efforts are focused on maximizing profitability, rather
than market share. This sales strategy is facilitated by the
company's policy that pricing decisions (including the decision
whether to meet lower competitive prices) are made only in the
company's Cleveland headquarters. Further, decisions whether to
extend credit are made centrally by financial management. Sales
personnel are critical in developing and maintaining relationships
with, and providing technical assistance to, customers. They also
facilitate production planning by meeting with customers regularly to
discuss future requirements.
Construction Aggregates
Through a wholly-owned subsidiary, Medusa Aggregates Company, the
company operates nine crushed stone plants in Bardstown, Butler,
Bowling Green (two plants) and Hartford, Kentucky; Columbia,
Missouri; Lenoir, North Carolina; and West Pittsburg, Pennsylvania.
The company also operates a sand and gravel plant at Edinburg,
Pennsylvania. These operations mine, crush, screen and sell various
sizes of aggregates to the construction industry, primarily to road
builders for use in asphalt and concrete paving, road and base
material, drainage blankets, erosion control and assorted small-
volume applications. The company is a major supplier of these
products in all of the markets in which it operates. Management
believes the company to be among the low-cost producers in its
primary markets and that it has achieved this result through constant
review of its competitive position and the installation of cost
improving plant modifications. The total capacity of the company's
aggregates plants is approximately 3,400 tons per hour, or in excess
of 5 million tons annually. Approximately 11% of Medusa's total
construction aggregates capacity is covered by mineral reserves of
over 50 years, 20% is covered by reserves of from 25 to 50 years, 62%
is covered by reserves from 10 to 25 years and 7% is covered by
reserves under 10 years. Most aggregates are generally sold within
a radius of 25 miles of the plant and are shipped to customers
primarily by truck.
Industrial Materials
Through a wholly-owned subsidiary, Thomasville Stone and Lime
Company, the company mines and processes high calcium limestone from
-6-
PART I
Item l. Business (continued)
an underground deposit possessing chemical purity and whiteness at
Thomasville, Pennsylvania. Chemical grade limestone is used by
customers to manufacture white cement, supply calcium for livestock
and poultry feeds, and neutralize soil for more efficient crop
production. White stone is pulverized to a fine powder and used in
joint compound, caulk, carpet padding, floor tile and paper.
Chemical stone is packaged for lawn application and white stone is
processed and packaged for use as a decorative mulch by homeowners
and landscaped contractors. Limestone which does not meet chemical
and color specifications is reduced to powder and used as a filler by
manufacturers of asphalt shingles. Industrial minerals are marketed
primarily in the mid-Atlantic states. Thomasville now has 14 product
lines serving over 30 specialized agricultural, white cement, home
improvement, consumer products and environmental markets.
Highway Safety Construction
The James H. Drew Corporation, a wholly-owned subsidiary of the
company, installs highway safety systems such as guardrail, traffic
signals, signs, highway lighting and raised pavement markers.
Although Drew functions primarily as a subcontractor to paving and
bridge contractors, approximately 30% of its work is bid directly to
state highway departments and municipalities.
Competition
Generally, market conditions in the cement and construction
aggregates industry are cyclical and highly price-competitive.
Because there is generally no product differentiation, these products
are marketed as commodities, with price the principal method of
competition. To some extent, factors other than price, such as
service, delivery time and proximity to the customer are
competitively important. The number and size of the company's
competitors differ from market area to market area. The company
estimates that it competes with 28 cement manufacturers in its
overall market areas and between 5 and 10 producers within each sales
region. Competitors include domestic and foreign producers and
importers. Because cement has a low value-to-weight ratio, cement
companies with access to water-based transportation have a
significant advantage in shipping over land-locked plants and
terminals.
Short-Term Borrowings
During 1994, the company had no short-term borrowings. In the years
1993 and 1992, short-term borrowings' weighted average interest rates
were 5.08% and 5.75%, respectively.
Capital Expenditures
In 1994, Medusa's capital expenditures were approximately $12.0
million in its cement operations and $2.1 million in its aggregates
operations. For 1993, Medusa's capital expenditures were
approximately $12.8 million in its cement operations and $1.8 million
in its aggregates operations.
-7-
PART I
Item l. Business (continued)
Backlog
Backlog for Medusa and its subsidiaries totaled approximately $10.5
million as of December 31, 1994, compared with $14.2 million as of
December 31, 1993. Management does not believe that backlog is
material to an understanding of Medusa's business, because long-term
contracts generally comprise only a small portion of total sales.
Raw Materials
The principal raw materials used by the company in the manufacture of
cement are limestone or other calcareous materials, clay or shale,
sand, iron ore, and gypsum. Owned reserves of limestone and clay or
shale are available at or near all of the company's cement plants,
while other raw materials are readily available for local purchase by
the company at all of its plant locations.
Employees
As of December 31, 1994, the company had about 1,100 employees. The
company's business is seasonal and employment therefore declines from
August 31 to December 31 of each year. Most of the company's hourly
employees in its cement operations are represented by different
unions. During 1994, the company entered into new four-year labor
agreements with the local union of the United Cement, Lime, Gypsum
and Allied Workers Division (International Brotherhood of
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers,
AFL-CIO) covering the cement workers at the Clinchfield and
Charlevoix plants, expiring May 1, 1998. Contracts with the local of
the same national unions covering the hourly employees at the Wampum
and Demopolis plants expire on May 1, 1996. The company believes
that relations with its employees are good.
Environmental Matters
Charlevoix Plant
Fuel Release. On June 21, 1991, the Company discovered and
immediately filed a report with the Michigan Department of Natural
Resources ("MDNR") relating to a release of #2 fuel oil which
occurred on the property of the Charlevoix plant. The matter was
investigated both by the MDNR and the U.S. Environmental Protection
Agency, Region 5 ("EPA"), and such investigations have been
completed. Under MDNR supervision, the Company immediately began to
undertake preventive measures to preclude migration of the oil off
the plant property or to surface water. Available data indicate that
these measures are working to preclude such migration. Recently, the
MDNR requested that the Company make a proposal for long-term
remediation of the oil release. The Company has retained
environmental remediation consultants to conduct a study for review
by the MDNR. In December, 1993, the Company established on its books
a contingent liability for $1.4 million, or $.06 per common share,
for environmental remediation of the release of #2 fuel oil. This
charge represents the Company's current estimate of such remediation
costs. As additional information becomes available, changes in the
-8-
PART I
Item l. Business (continued)
estimate of that liability may be required. The Company is
continuing to examine remediation alternatives at the site, none of
which at this time are expected to have any material effect on the
Company's financial condition, results of operations, or liquidity.
Prevention of Significant Deterioration. On September 8, 1994, the
company received a Notice of Violation ("NOV") from the EPA. The NOV
alleged the company's Charlevoix, Michigan cement plant to be in
violation of the Michigan State Implementation Plan and Part C of the
federal Clean Air Act with respect to Prevention of Significant
Deterioration ("PSD"), concerning sulphur dioxide ("SO2") emissions.
The company modified the Charlevoix plant in 1978 without filing for
PSD review in reliance upon a consultant's advice that SO2 emissions
would not increase. Recent emissions tests, disclosed to the
Michigan Department of Natural Resources ("MDNR") and the EPA,
indicate that SO2 emissions did increase. A study by an independent
consultant demonstrates that the current SO2 emissions from the
Charlevoix plant do not violate either the PSD increment or the
National Ambient Air Quality Standard. Therefore, neither the
health, safety and welfare of the community nor the environment are
impaired. The company has filed for a revised air emissions permit
and is cooperating with MDNR and EPA investigations.
Cement Kiln Dust. On February 1, 1995, the EPA announced its
decision to regulate Cement Kiln Dust ("CKD") as a hazardous waste
under Subtitle C of the Resource Conservation and Recovery Act
("RCRA"), using tailored regulations site-specific to each U.S.
cement plant. CKD is a product of cement kilns which is collected in
air emissions control devices (baghouses and electrostatic
precipitators). Previously, CKD had been exempt from regulation as
a hazardous waste under an 1980 amendment to RCRA (the so-called
"Bevill Amendment") as a high volume/low toxicity solid waste. The
cement industry, including the company, are preparing to offer a
contract to EPA (on an individual company and cement plant site
basis) which would be used in lieu of EPA-promulgated regulation to
enforce certain voluntary CKD landfill disposal guidelines previously
developed by the cement industry. Until either the contract or the
regulation becomes enforceable, CKD remains exempt from regulation as
a hazardous waste under the Bevill Amendment. While the disposal
standards contained in the regulation/contract and the effective date
of the regulation/contract remain uncertain, the company nontheless
made a preliminary review to determine whether or not the
regulation/contract is likely to have a material effect on the
company's results of operations, financial condition or liquidity.
The company has preliminarily concluded that the CKD
regulation/contract is unlikely to have a material effect on the
operations of the company's Demopolis, Alabama, Clinchfield, Georgia
and Wampum, Pennsylvania cement plants. However, based upon the
significant volume of CKD currently generated at the company's
Charlevoix, Michigan cement plant and the characteristics of the
local geology, the company cannot conclude, based upon its
preliminary evaluation, whether or not the CKD regulation/contract is
likely to have a material effect on Charlevoix plant operations.
Moreover, due to the size and importance of the Charlevoix plant to
the company's overall operations, the company is currently unable to
determine whether or not the CKD regulation/contract is likely to
-9-
PART I
Item l. Business (continued)
have a material effect on the company's results of operations,
financial condition or liquidity. The company has begun the process
of evaluating raw material replacements at the Charlevoix plant which
could reduce the generation of CKD. The company is also cooperating
with other members of the cement industry to seek a reversal of the
EPA's February 1, 1995 action via judicial or legislative means.
Item 2. Properties
Medusa's principal physical properties are utilized by its cement
manufacturing operations.
These operations consist of four cement plants and a total of 20
distribution terminals (excluding Orlando, Florida terminal closed
February 1995). All four of the company's plants are fully
integrated, from limestone mining through bulk cement production, and
all possess at least 50 years of limestone reserves. The annual
rated cement capacities of Medusa as of February 28, 1995 are shown
in the following table:
<TABLE>
<CAPTION>
Regional Capacity in Tons
Market Plant Location Clinker Cement Kiln Type
<S> <S> <C> <C> <S>
Great Lakes Charlevoix, Michigan 1,365,000 1,450,000 Preheater/precalciner
Southeast Demopolis, Alabama 814,000 858,000 Preheater
Southeast Clinchfield, Georgia 599,000 631,000 Preheater
W. PA/N.E. OH Wampum, Pennsylvania 692,000 715,000 Long-Dry
3,470,000 3,654,000
</TABLE>
"Annual rated capacity" is defined as the annual output of cement
theoretically to be achieved from full operation of a facility after
giving consideration to such factors as down-time for regular
maintenance, location and climatic conditions bearing upon the number
of days per year during which the particular plant may be expected to
operate, and actual historical performance. Actual product mix may
result in full utilization of a plant without realizing production
equal to the "annual rated capacity". Cement plant capacities are
evaluated periodically taking into account actual experience in
producing cement, plant modifications and innovations, and other
factors.
During 1995, the company plans on demolishing its wet process kiln at
its Clinchfield plant. This kiln has not been operated in over 10
years.
Medusa's cement plants, as a group, operated at 91.2% of annual rated
clinker capacity in 1994 (89.9% in 1993).
The Wampum and Clinchfield cement manufacturing plants are equipped
to ship products by either rail or truck. The Charlevoix plant can
ship products by water or truck. The Demopolis plant can ship
products by water, rail or truck. The plants are well maintained and
in good operating condition. There have been no physical changes in
quarrying techniques over the past several years, nor is it
anticipated that there will be any changes which would materially
affect the cost of production. All plants operate their own
quarries, located adjacent to each of the plants.
-10-
PART I
Item 2. Properties (continued)
During 1994, Medusa operated at 37 locations in 13 states and Canada.
Property, including those described above, is as follows:
Number of buildings 284
Square feet of buildings 1,291,543
Total acreage 14,883
Of the total acreage above, approximately 786 acres are leased.
Item 3. Legal Proceedings
See also "Environmental Matters" section under Item 1. Business,
above.
Antitrust Investigation
On March 3, 1994, the Company received a Civil Investigative Demand
("CID") from the Atlanta, Georgia office of the U.S. Department of
Justice, Antitrust Division. The CID is apparently part of a
nationwide investigation of what is believed to be virtually the
entire domestic U.S. cement industry. While the Company is not aware
of the actual basis for the investigation, the notice which the
Company received with the CID states that the investigation is "an
Antitrust Division investigation into possible price fixing and
market allocation by cement producers". Medusa intends to cooperate
fully with the investigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Name Position Business Experience Age
Robert S. Evans Chairman and Chief Chairman & Chief Executive 51
Executive Officer Officer, Medusa Corporation;
Chairman, Chief Executive
Officer and President,
Crane Co. (Diversified
Manufacturer of Engineered
Products).
George E. Uding, President and Chief President and Chief Operating 63
Jr. Operating Officer Officer of the company;
previously President of
the Cement group of Essroc
Corporation and previously
Chief Executive Officer of
Coplay Cement Co., San Juan
Cement Company, and
Louisville Cement Company.
-11-
PART I
Item 4. Submission of Matters to a Vote of Security Holders
(continued)
Robert J. Kane Senior Vice Senior Vice President of the 45
President Company and President of Medusa
Cement group; previously Vice
President of the company and
President of Medusa Aggregates
Group; Vice-President and
Controller of Medusa Aggregates
Company, a subsidiary.
John P. Siegfried Vice President, Vice President, Secretary 56
Secretary and and General Counsel of the
General Counsel company; previously Corporate
Attorney and Assistant Secretary
of the company.
Dennis R. Knight Vice President Vice President of the company; 49
and President of Medusa
Aggregates group; formerly
Regional Vice President -
General Manager Vulcan Materials
(Wisconsin, Indiana, Central
Illinois and Iowa).
R. Breck Denny Vice President- Vice President-Finance and 46
Finance and Treasurer, (Chief Financial
Treasurer Officer) of the company;
previously Director of
Strategic Planning, Medusa
Corporation; formerly Vice
President - Advisory, Mergers
and Acquisitions, J.P. Morgan
Alan E. Redeker Vice President Vice President of the company; 51
and Vice President
Manufacturing, Medusa Cement
Company, a division; formerly
General Manager of Northern
California operations of
Associated Concrete Products
and held various positions at
Kaiser Cement Corporation.
Richard A. Brown Vice President - Vice President - Human 47
Human Resources Resources of the company;
previously Director of
Human Resources
All executive officers serve at the pleasure of the Board of Directors
with no fixed term of office.
-12-
PART II
Item 5. Market for Registrant's Common Shares and Related
Stockholder Matters
Market prices and dividends paid for the company's common shares is
hereby incorporated by reference to page 20 of the 1994 Annual Report
to Shareholders. The number of shareholders is 5,019 as of February
28, 1995. On February 28, 1994 the Board of Directors increased the
company's quarterly dividend 87% to $.125 per common share. Prior to
this action and since the third quarter of 1991 the company had paid
regular quarterly dividends of $.067 per share. There were no cash
dividends prior to the third quarter 1991 since the spin-off in
October, 1988.
Items 6 through 8. Selected Financial Data; Management's Discussion
and Analysis of Results of Operations and Financial
Condition; Financial Statements and Supplementary Data
In addition to the discussion below, the information required by
Items 6 through 8 is hereby incorporated by reference to pages 9
through 20 of the 1994 Annual Report to Shareholders.
Item 9. Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10. (a)Directors of Registrant
The information required by Item 10(a) has been omitted from this
report as the company will file with the Commission a definitive
proxy statement pursuant to Regulation 14A.
(b)Executive Officers of the Registrant
Included pursuant to Instruction 3 to paragraph (b) of Item 401
to Regulation S-K under Part I above.
Item 11. Executive Compensation
The information required by Item 11 has been omitted from this report
as the company will file with the Commission a definitive proxy
statement pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 12 has been omitted from this
report as the company will file with the Commission a definitive
proxy statement pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 has been omitted from this
report as the company will file with the Commission a definitive
proxy statement pursuant to Regulation 14A.
-13-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
Page
a)Financial Statements and Schedules
The consolidated balance sheets of Medusa Corporation and
subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, shareholders' equity and of
cash flows for each of the three years in the period ended
December 31, 1994 and the Independent Auditors' Report relating
thereto, appearing on Pages 9 through 17 of Medusa Corporation's
1994 Annual Report to Shareholders are incorporated herein by
reference.
Independent Auditors' Report on Financial Statement Schedule... 16
Schedule VIII Valuation and Qualifying Accounts................ 17
All other statements and schedules for which provision is made in the
applicable regulations of the Securities and Exchange Commission have
been omitted because they are not required under related instructions
or are inapplicable, or the information is shown in the consolidated
financial statements and related financial review.
(b) No Reports on Form 8-K were filed during last quarter of 1994:
(c) Exhibits to Form 10-K:
Exhibit 11 - Statement Re Computation of Per Share Earnings
Exhibit 13 - Annual Report to Shareholders for the Year Ended
December 31, 1994
Exhibit 21 - Subsidiaries of the Registrant
(d) Financial Statements Required by Regulation S-X which are excluded
from the Annual Report to Shareholders by Rule 14a-3(b):
Not applicable.
-14-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDUSA CORPORATION
(Registrant)
ByRobert S. Evans
Robert S. Evans
Chairman, Chief Executive
Officer and a Director
Date March 27, 1995
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.
-Officers-
By R. Breck Denny By George E. Uding, Jr.
R. Breck Denny George E. Uding, Jr.
Vice President-Finance President, Chief
and Treasurer Operating Officer, and a
Director
Date March 27, 1995 Date March 27, 1995
-DIRECTORS-
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Date 3/27/95 Date 3/27/95 Date 3/27/95
Dorsey R. Gardner Arthur A. Seeligson Dwight C. Minton
Dorsey R. Gardner Arthur A. Seeligson Dwight C. Minton
Date 3/27/95 Date 3/27/95 Date 3/27/95
Charles J. Queenan, Jr. Boris Yavitz
Charles J. Queenan, Jr. Boris Yavitz
Date 3/27/95 Date 3/27/95 Date 3/27/95
-15-
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Medusa Corporation:
We have audited the consolidated financial statements of Medusa
Corporation and subsidiaries as of December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994, and have issued
our report thereon dated January 23, 1995, which report includes an
explanatory paragraph related to a change in accounting for income taxes
in 1993; such financial statements and report are included in your 1994
Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the consolidated financial statement schedule of
Medusa Corporation and subsidiaries, listed in Item 14(a). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Cleveland, Ohio
January 23, 1995
-16-
<TABLE>
<CAPTION>
MEDUSA CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31,
Balance at Additions (deductions) Balance at
beginning charged (credited) to (deductions)- end of
DESCRIPTION of year costs and expenses additions year
1994
Deducted from Asset Accounts:
Allowances for Doubtful
<S> <C> <C> <C> <C>
Accounts $ 221,203 $ 7,300 (A) $ 228,503
(22,883) (B) $ 22,883 (B)
Reserve for Cash Discounts 212,776 (3,206) 209,570
Reserve for Policy
Adjustments 83,438 (2,719) 80,719
TOTAL $ 517,417 $ (21,508) $ 22,883 $ 518,792
1993
Deducted from Asset Accounts:
Allowances for Doubtful
Accounts $ 148,345 $ 72,858 (A) $ 221,203
(101,429) (B) $ 101,429 (B)
Reserve for Cash Discounts 116,126 96,650 212,776
Reserve for Policy
Adjustments 72,068 11,370 83,438
TOTAL $ 336,539 $ 79,449 $ 101,429 $ 517,417
1992
Deducted from Asset Accounts:
Allowances for Doubtful
Accounts $ 151,890 $ 107,528 (C) $ (107,528)(C) $ 148,345
(3,545) (D)
Reserve for Cash Discounts 112,800 3,326 116,126
Reserve for Policy
Adjustments 74,157 (2,089) 72,068
TOTAL $ 338,847 $ 105,220 $ (107,528) $ 336,539
</TABLE>
Note A - Additional reserve based on receivable balance.
Note B - Recoveries net of write-offs.
Note C - Write-offs net of recoveries.
Note D - Portion of reserve no longer considered necessary.
-17-
<TABLE>
<CAPTION>
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 11 to Form 10-K
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
Years Ended December 31
1994 1993 1992
Primary
Earnings
<S> <C> <C> <C>
Income before cumulative effect $29,880 $18,199 $ 9,077
Cumulative effect - 711 -
Net income $29,880 $18,910 $ 9,077
Shares
Weighted average number of
common shares outstanding 16,334 16,268 16,130
Additional shares
assuming conversion of:
stock options 206 * *
Average common shares
outstanding and equivalents 16,540 16,268 16,130
Primary:
Before cumulative effect $ 1.81 $ 1.12 $ .56
Cumulative effect - .04 -
Net income per share $ 1.81 $ 1.16 $ .56
Fully Diluted
Earnings
Income before cumulative effect $29,880 $18,199 $ 9,077
Cumulative effect - 711 -
Interest on convertible
subordinated notes, net of taxes 2,249 * *
Pro forma net income
available to common stock $32,129 $18,910 $ 9,077
Shares
Weighted average number of
common shares outstanding 16,334 16,268 16,130
Additional shares
assuming conversion of:
stock options 221 * *
convertible notes 1,736 * *
Average common shares
outstanding and equivalents 18,291 16,268 16,130
Fully diluted:
Before cumulative effect $ 1.76 $ 1.12 $ .56
Cumulative effect - .04 -
Fully diluted net increase
per share $ 1.76 $ 1.16 $ .56
* Amounts not restated, not dilutive under 3% test.
</TABLE>
-18-
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 21 to Form 10-K
Subsidiaries of the Registrant
December 31, 1994
The following is a list of active subsidiaries of the Registrant and
their jurisdiction of incorporation. All of these subsidiaries are
wholly-owned, directly or indirectly, and are included in the
consolidated financial statements.
Cement Transit Company Delaware
James H. Drew Corporation Indiana
Medusa Aggregates Company Iowa
The Thomasville Stone and Lime Company Maryland
Canadian Medusa Cement Limited Ontario, Canada
-19-
<TABLE>
<CAPTION>
Consolidated Statements of Income
Medusa Corporation and Subsidiaries
________________________________________________________________________
Year Ended December 31 1994 1993 1992
(In Thousands, except per share data)
<S> <C> <C> <C>
Net Sales $ 276,293 $ 248,038 $ 181,777
Costs and Expenses:
Cost of sales 189,028 179,101 136,460
Selling, general and administrative 21,328 21,838 15,700
Depreciation and amortization 13,830 13,958 12,703
224,186 214,897 164,863
Operating Profit 52,107 33,141 16,914
Other Income (Expense):
Interest income 1,262 236 89
Interest expense (7,526) (6,152) (4,078)
Miscellaneous-net (6) (500) 93
(6,270) (6,416) (3,896)
Income Before Taxes 45,837 26,725 13,018
Provision for Income Taxes 15,957 8,526 3,941
Income Before Cumulative Effect
of a Change in Accounting 29,880 18,199 9,077
Cumulative Effect of a Change
in Accounting For Income
Taxes in 1993 (Note A) - 711 -
Net Income $ 29,880 $ 18,910 $ 9,077
________________________________________________________________________
Net Income Per Common Share:
Primary:
Income before cumulative
effect of a change in
accounting $ 1.81 $ 1.12 $ .56
Cumulative effect of a
change in accounting - .04 -
$ 1.81 $ 1.16 $ .56
Fully Diluted:
Income before cumulative
effect of a change in
accounting $ 1.76 $ 1.12 $ .56
Cumulative effect of a
change in accounting - .04 -
$ 1.76 $ 1.16 $ .56
Average Common Shares Outstanding 16,334 16,268 16,130
_______________________________________________________________________
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Medusa Corporation and Subsidiaries
December 31 1994 1993
(In Thousands, except share data)
Assets
Current Assets:
<S> <C> <C>
Cash and short-term investments $ 48,487 $ 31,218
Accounts receivable,less allowances
of $519 ($517 in 1993) 24,036 23,320
Inventories 23,292 25,678
Other current assets 4,339 4,019
Total Current Assets 100,154 84,235
Property, Plant and Equipment 106,116 105,660
Intangible and Other Assets 12,330 14,282
Total Assets $ 218,600 $ 204,177
____________________________________________________________________________
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 35,000 $ -
Accounts payable 15,257 11,097
Accrued compensation and payroll taxes 6,161 6,143
Other accrued liabilities 8,635 7,258
Income taxes payable 1,817 1,887
Total Current Liabilities 66,870 26,385
Long-Term Debt 61,300 96,300
Accrued Postretirement Health Benefit Cost 27,342 26,906
Reserves and Other Liabilities 2,879 2,857
Accrued Pension Liability 236 252
Shareholders' Equity:
Preferred shares, without par value -
3,000,000 shares authorized:
1,000,000 shares each of Class A
Serial Preferred; Class B Serial
Preferred; and Class C Preferred Shares - -
Common shares, without par value:
Authorized - 50,000,000 shares
Outstanding - 16,162,302 shares
(16,651,103 in 1993) 1 1
Paid in capital 19,724 16,377
Retained earnings 62,455 40,839
Unvested restricted common shares (26) (26)
Unearned restricted common shares (3,511) (2,759)
Currency translation adjustment (1,101) (786)
Total Paid In Capital and
Retained Earnings 77,542 53,646
Less Cost of Treasury Shares-771,706 shares
(119,549 shares in 1993) (17,569) (2,169)
Total Shareholders' Equity 59,973 51,477
Total Liabilities and
Shareholders' Equity $ 218,600 $ 204,177
____________________________________________________________________________
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Medusa Corporation and Subsidiaries
____________________________________________________________________________________________
Year Ended December 31 1994 1993 1992
(In Thousands)
Cash Provided From (Used By) Operating Activities:
<S> <C> <C> <C> <C>
Net income $ 29,880 $ 18,910 $ 9,077
Cumulative effect of a change in accounting - (711) -
Income before cumulative effect
of a change in accounting 29,880 18,199 9,077
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 13,830 13,958 12,703
Provision (benefit) for deferred income taxes 1,660 (1,334) (1,302)
Postretirement health benefit cost 491 1,470 1,433
Loss (gain) on sale of capital assets 12 (64) 63
45,873 32,229 21,974
Cash provided from (used by) working capital
components and other:
Accounts receivable (716) (7,845) 270
Inventories and other current assets 1,774 6,469 (2,785)
Accounts payable and other current
liabilities 5,430 6,078 1,395
Other assets 1,986 (1,824) (600)
Accrued pension, reserves and other
liabilities (2,475) 1,479 (164)
Net Cash Provided From Operating Activities 51,872 36,586 20,090
Cash Provided From (Used By) Investing Activities:
Capital expenditures (14,694) (15,372) (11,548)
Payment for business acquired - (50,511) -
Proceeds from sale of capital assets 1,622 64 24
Net Cash Used By Investing Activities (13,072) (65,819) (11,524)
Cash Provided From (Used By) Financing Activities:
Purchase of treasury shares (14,608) (1,747) (490)
Dividends paid (8,264) (4,407) (4,341)
Stock options exercised 1,278 1,521 671
Proceeds from issuance of senior long-term debt
and convertible subordinated notes - 107,500 -
Payments on long-term debt - (50,000) (145)
Issuance of restricted shares 63 - -
Net Cash Provided From (Used By)
Financing Activities (21,531) 52,867 (4,305)
Increase In Cash And Short-Term
Investments 17,269 23,634 4,261
Cash And Short-Term Investments At Beginning
Of Year 31,218 7,584 3,323
Cash And Short-Term Investments At End Of Year $ 48,487 $ 31,218 $ 7,584
____________________________________________________________________________________________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of $153 capitalized in 1993) $ 7,509 $ 5,716 $ 4,085
Income taxes 14,367 8,699 6,225
____________________________________________________________________________________________
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Medusa Corporation and Subsidiaries
__________________________________________________________________________________________________
Unvested Unearned
Restricted Restricted
Common Paid in Retained Common Common
Shares Capital Earnings Shares Shares
(In Thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance At January 1, 1992 $ 1 $ 11,909 $ 21,600 $ (4,323) $ (877)
Net income 9,077
Dividends paid - $.27 per common
share (4,341)
Issuance of 89,685
restricted common shares 1,142 (91) (1,051)
Exercise of 75,435 stock options 671
Purchase of 38,714 treasury shares
Amortization for vesting of
restricted common shares 2,572
Currency translation adjustment
Balance At December 31, 1992 1 13,722 26,336 (1,842) (1,928)
Net income 18,910
Dividends paid - $.27 per common
share (4,407)
Issuance of 117,420
restricted common shares 2,116 (79) (2,037)
Forfeiture of 56,250
restricted common shares (768) 768
Exercise of 510,651 stock options 5,108
Purchase of 280,275 treasury shares
Retirement of 212,897 treasury shares (3,801)
Amortization for vesting of
restricted common shares 1,895 438
Currency translation adjustment
Balance At December 31, 1993 1 16,377 40,839 (26) (2,759)
Net income 29,880
Dividends paid - $.50 per common
share (8,264)
Issuance of 83,070
restricted common shares 2,045 (79) (1,903)
Forfeiture of 51,000
restricted common shares (768) 768
Exercise of 187,536 stock options 2,070
Purchase of 652,157 treasury shares
Amortization for vesting of
restricted common shares 79 383
Currency translation adjustment
Balance At December 31, 1994 $ 1 $ 19,724 $ 62,455 $ (26) $ (3,511)
___________________________________________________________________________________________________
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Medusa Corporation and Subsidiaries
_________________________________________________________________________
Currency Total
Translation Treasury Shareholders'
Adjustment Shares Equity
(In Thousands, except share data)
<S> <C> <C> <C>
Balance At January 1, 1992 $ 5 $ (146) $ 28,169
Net income 9,077
Dividends paid - $.27 per common
share (4,341)
Issuance of 89,685
restricted common shares
Exercise of 75,435 stock options 671
Purchase of 38,714 treasury shares (490) (490)
Amortization for vesting of
restricted common shares 2,572
Currency translation adjustment (684) (684)
Balance At December 31, 1992 (679) (636) 34,974
Net income 18,910
Dividends paid - $.27 per common
share (4,407)
Issuance of 117,420
restricted common shares
Forfeiture of 56,250
restricted common shares
Exercise of 510,651 stock options 5,108
Purchase of 280,275 treasury shares (5,334) (5,334)
Retirement of 212,897 treasury share 3,801
Amortization for vesting of
restricted common shares 2,333
Currency translation adjustment (107) (107)
Balance At December 31, 1993 (786) (2,169) 51,477
Net income 29,880
Dividends paid - $.50 per common
share (8,264)
Issuance of 83,070
restricted common shares 63
Forfeiture of 51,000
restricted common shares
Exercise of 187,536 stock options 2,070
Purchase of 652,157 treasury shares (15,400) (15,400)
Amortization for vesting of
restricted common shares 462
Currency translation adjustment (315) (315)
Balance At December 31, 1994 $ (1,101) $(17,569) $ 59,973
_______________________________________________________________________
See Notes to Consolidated Financial Statements
</TABLE>
MEDUSA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the company and its
wholly-owned subsidiaries. All significant intercompany items have been
eliminated.
The company's vertically integrated line of business includes the
production and sale of cement and aggregates to the construction
industry which constitutes more than ninety percent of sales and net
income.
Reclassification
The 1993 consolidated financial statements were reclassified to conform
with the manner of presentation used in 1994.
Cash and Short-Term Investments
For purposes of the statement of cash flows, the company considers cash
equivalents to be all highly liquid securities with an original maturity
of three months or less. Estimated fair value approximates the carrying
amount.
Inventories
Inventories are valued principally at the lower of cost or market
determined using the last-in, first-out (LIFO) cost method. The average
cost method is used for substantially all supplies.
Property, Plant and Equipment
Depreciation of property, plant and equipment for financial reporting
purposes is provided over the estimated useful lives of the assets
principally by the straight-line method.
Income Taxes
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standard No. 109 (FAS 109), "Accounting for Income Taxes,"
which changed the method of accounting for income taxes from the
deferred method under APB 11 to an asset and liability method. The
cumulative effect from the adoption of FAS 109 added $711,000, or $.04
per common share, to net income in 1993. Had the company adopted FAS
109 effective January 1, 1992, approximately $1,200,000 would have been
added to net income in 1992.
Net Income Per Share
Primary net income per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents (options) outstanding during the period. Fully diluted net
income per share is computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during
the period, as if the convertible subordinated notes were converted into
common stock at the beginning of the period after giving retroactive
effect to the elimination of interest expense, net of income tax effect,
applicable to the subordinated notes.
NOTE B - ACQUISITION
On February 1, 1993, the company acquired the Demopolis, Alabama cement
plant and related assets for $50.5 million which was accounted for by
the purchase method. Accordingly, its results of operations have been
included in the consolidated statements of income from the date of
acquisition.
NOTE C - INVENTORIES
At December 31 (in thousands):
________________________________________________________
1994 1993
Finished goods $ 7,987 $11,309
Work in process 1,756 2,887
Raw materials 2,136 2,109
Supplies 11,413 9,373
$23,292 $25,678
Use of the first-in, first-out (FIFO) cost method would have increased
inventories from the amounts reported at December 31 by $7,089,000 in
1994 and $6,396,000 in 1993.
NOTE D - PROPERTY, PLANT AND EQUIPMENT - AT COST
At December 31 (in thousands):
___________________________________________________________
1994 1993
Land $ 10,159 $ 10,218
Buildings and improvements 20,528 20,513
Machinery and equipment 307,247 296,954
337,934 327,685
Less accumulated depreciation (231,818) (222,025)
$106,116 $105,660
NOTE E - LEASES
The company leases various cement storage facilities, vehicles and
various other equipment under capital and operating leases with terms of
from one to forty years.
Future minimum payments, by year, and in the aggregate, under
capitalized leases and operating leases with initial or remaining terms
of one year or more are as follows at December 31, 1994 (in thousands):
______________________________________________________________
Capital Operating
Leases Leases Total
1995 $ 181 $ 1,159 $ 1,340
1996 181 906 1,087
1997 181 610 791
1998 181 431 612
1999 181 159 340
Thereafter 5,048 1,869 6,917
Total minimum lease payments 5,953 $ 5,134 $ 11,087
Less interest (2,153)
Present value of future minimum
lease payments $ 3,800
The costs of assets capitalized under leases at December 31 are as
follows (in thousands):
______________________________________________________________
1994 1993
Machinery and equipment $ 4,035 $ 4,035
Less accumulated depreciation (1,491) (1,290)
$ 2,544 $ 2,745
The weighted average interest rate for capital leases was
3.4% in 1994.
The capital lease agreements contain certain covenants which, among
other things, require the company to meet certain consolidated financial
tests, including tests relating to minimum net worth, financial
leverage, fixed obligation coverage and cash flow coverage. At December
31, 1994, the minimum required level of net worth under these covenants
was
$25.0 million.
Rental expense was $2,069,000, $1,549,000, and $1,263,000 for 1994, 1993
and 1992, respectively.
NOTE F - SHORT AND LONG-TERM FINANCING
The company has an unsecured $20,000,000 Revolving Credit Agreement
("Revolver") with three banks that expires December 31, 1996. The
Revolver allows borrowings bearing interest at the company's option, at
either the prime rate, as adjusted from time-to-time, or 3/4% per annum
above the reserve-adjusted rate at which Eurodollar deposits are offered
by prime banks in the Eurodollar interbank market ("LIBOR"). The
Revolver bears a commitment fee of 3/8% per annum on the unused portion.
The company also has unsecured bank lines of credit totalling $15.0
million. At December 31, 1994, no amounts were outstanding under any of
these credit facilities.
Long-term debt consists of the following at December 31 (in thousands):
_____________________________________________________________
1994 1993
6% convertible subordinated notes, due
2003, interest payable semi-annually $57,500 $57,500
10% unsecured Senior Notes, due 1995,
interest payable semi-annually 35,000 35,000
Capitalized leases 3,800 3,800
96,300 96,300
Less current portion (35,000) -
$61,300 $96,300
The 6% convertible subordinated notes ("Notes") are convertible at any
time into common shares, without par value, of the company at an initial
conversion price of $33.125 principal amount per common share, subject
to adjustment under certain circumstances. The Notes are redeemable at
any time at the option of the company, in whole or in part, beginning
November 15, 1996 at various redemption prices, plus accrued and unpaid
interest to the redemption date. Upon a change in control, a holder of
the Notes may require the company to redeem such holder's Notes at a
price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date. The Notes are subordinated to
all existing and future senior indebtedness of the company.
The 10% Senior Notes and Revolver contain certain covenants which, among
other things, (1) requires the maintenance of minimum tangible net
worth, which at December 31, 1994 was $42.1 million; (2) limits the
payment of dividends in a sum not to exceed $10.0 million plus, among
other adjustments, eighty percent of net income or minus one hundred
percent of net loss after June 30, 1990; and (3) limits the incurrence
of additional long-term debt.
Average interest rate incurred on all borrowings was 7.3% in 1994, 6.7%
in 1993, and 8.9% in 1992.
The company has available bank stand-by letter of credit facilities of
$10.0 million of which $6.2 million was being utilized at December 31,
1994. These instruments are considered off-balance-sheet risk and
represent conditional commitments issued to guarantee the company's
performance to various third parties.
The fair value of the company's long-term debt of $55,913,000 for the
Notes and $35,680,000 for the Senior Notes is estimated based on the
current rates offered to the company for debt of the same remaining
maturities.
NOTE G - POSTRETIREMENT HEALTH BENEFITS
The company provides substantially all employees with health care and
life insurance benefits through unfunded defined benefit plans upon
retirement.
The net periodic postretirement benefit cost for 1994, 1993 and 1992 was
as follows (in thousands):
_______________________________________________________________
1994 1993 1992
Service cost $ 470 $ 575 $ 499
Interest cost on accumulated
postretirement benefit
obligation 1,511 1,927 1,892
Net amortization (523) - -
Net periodic postretirement
benefit cost $ 1,458 $ 2,502 $ 2,391
The following table sets forth the plans' funded status reconciled with
the amounts shown in the company's balance sheets at December 31, 1994
and 1993 (in thousands):
_______________________________________________________________
1994 1993
Accumulated Postretirement Benefit
Obligation:
Retirees $10,311 $12,868
Eligible active plan participants 4,560 4,681
Other active plan participants 6,300 7,496
21,171 25,045
Unrecognized net gain 7,245 2,880
28,416 27,925
Less current amount in other
accrued liabilities 1,074 1,019
Accrued Postretirement Health
Benefit Cost $27,342 $26,906
In 1994 and 1993, the cost of benefits was assumed to increase 11% for
1994 through 1996, and then decrease gradually to 5% by 2002 (4% by 2010
in 1993), and remain at that level thereafter. In prior years, the cost
of benefits was assumed to increase 12% annually through 1994 and then
decrease gradually to 5% by 2010, and remain at that level thereafter.
An increase in the assumed health care cost trend rate by one percentage
point would increase the accumulated postretirement benefit obligation
as of December 31, 1994 by $2.3 million and the net periodic
postretirement benefit cost by approximately $.3 million for the year.
The discount rate in determining the accumulated postretirement benefit
obligation was 8.5% in 1994 (7.5% in 1993 and 8.5% in 1992).
NOTE H - INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
company's effective income tax rate for 1994, 1993 and 1992 is as
follows:
_____________________________________________________________
1994 1993 1992
Statutory rate 35.0% 35.0% 34.0%
State income tax, net of federal
income tax benefits 4.2 3.7 4.8
Percentage depletion (4.7) (6.5) (9.0)
Goodwill .1 .1 .2
Other .2 (.4) .3
Effective rate 34.8% 31.9% 30.3%
Components of the provision for income taxes for 1994, 1993 and 1992
were as follows (in thousands):
______________________________________________________________
1994 1993 1992
Deferred income tax expense
(benefit) $ 1,660 $(1,334) $(1,302)
Current income tax expense 14,297 9,860 5,243
$15,957 $8,526 $3,941
The income tax provisions include state income tax provisions of
$2,988,000, $1,521,000 and $948,000 for 1994, 1993 and 1992,
respectively.
Components of the net deferred tax asset shown in the company's balance
sheets at December 31, 1994 and 1993 were as follows (in thousands):
_____________________________________________________________
1994 1993
Net book value of fixed assets in
excess of tax basis $(10,535) $(9,344)
Financial reporting accrual for
postretirement health benefits 11,622 11,338
Other financial reporting accruals 2,686 3,235
Other taxable temporary
differences (502) (1,189)
Other deductible temporary
differences 972 1,891
$ 4,243 $ 5,931
Net deferred income tax assets associated with certain current items
included in other current assets were $2,366,000 and $2,658,000 at
December 31, 1994 and 1993, respectively.
Net deferred income tax assets associated with certain non-current items
are included in intangible and other assets.
NOTE I - PENSIONS AND EMPLOYEE BENEFIT PLANS
The company has defined benefit pension plans which cover substantially
all of its employees. The plans generally provide benefit payments
using a formula based on length of service and final average
compensation, except for most hourly employees for whom the benefits are
a fixed amount per year of service. The company's policy is to fund at
least the minimum required by the applicable regulations.
Net periodic pension cost for 1994, 1993 and 1992 was as follows (in
thousands):
_____________________________________________________________
1994 1993 1992
Service cost-benefits earned
during the year $ 1,013 $ 873 $ 717
Interest cost on projected
benefit obligation 1,859 1,734 1,585
Actual return on plan assets 966 (2,805) (1,409)
Net amortization and deferral (2,750) 1,046 (236)
Net periodic pension cost $ 1,088 $ 848 $ 657
The following table sets forth, by funded status, the amounts recognized
in the company's balance sheets at December 31, 1994 and 1993 for its
pension plans (in thousands):
1994 1993
Over- Under- Over- Under-
funded* funded* funded* funded*
Actuarial present value of
benefit obligations:
Vested $ 6,045 $15,408 $19,766 $ 1,497
Nonvested 79 241 218 138
Accumulated benefit
obligation 6,124 15,649 19,984 1,635
Effect of future pay
increases 2,182 - 2,235 -
Projected benefit obligation 8,306 15,649 22,219 1,635
Plan assets at fair value 8,540 15,413 22,311 1,272
Projected benefit obligation
less than (in excess
of) plan assets 234 (236) 92 (363)
Unrecognized net (gain)
loss on assets 107 (169) (267) (152)
Unrecognized net (asset)
obligation (71) 963 910 (27)
Unrecognized prior service cost 194 1,372 648 290
Additional minimum liability - (2,166) - (111)
Net recorded pension asset
(liability) $ 464 $ (236) $ 1,383 $ (363)
*Overfunded plans are those in which plan assets at fair value exceed
the accumulated benefit obligation. Underfunded plans are those in
which the accumulated benefit obligation exceeds plan assets at fair
value.
Prepaid pension cost included in intangible and other assets was
$464,000 and $2,084,000 at December 31, 1994 and 1993, respectively.
The pension intangible asset included in intangible and other assets was
$2,166,000 and $111,000 at December 31, 1994 and 1993, respectively.
A non-cash increase of $2,055,000 to the pension intangible asset and
accrued pension liability was required to record the additional minimum
liability in 1994.
Assumptions used as of December 31 were:
_____________________________________________________________
1994 1993 1992
Discount rate 8.5% 7.50% 8.50%
Rate of increase in
compensation levels 5.0% 4.25% 5.25%
Expected long-term rate of
return on assets 8.5% 8.50% 9.50%
At December 31, 1994 and 1993 all plan assets were primarily invested in
listed stocks and bonds.
Certain company employees are covered under multi-employer union pension
plans. Amounts contributed under these plans were approximately
$113,000, $88,000, and $115,000 for 1994, 1993 and 1992, respectively.
NOTE J - STOCK OPTION AND AWARD PLANS
A summary of stock option transactions follows:
Number of Shares
1994 1993 1992
Outstanding at January 1 542,477 870,053 791,738
Options granted 246,000 174,750 153,750
Options cancelled (36,876) (6,750) -
Options exercised (187,536) (495,576) (75,435)
Outstanding at December 31 564,065 542,477 870,053
At December 31, 1994, options for 211,238 shares were exercisable;
615,688 shares were available for grant. Per share option prices ranged
from $8.71 to $28.31.
The company's 1991 long-term incentive plan provides for awards of
common shares to certain officers. Fifty percent of the shares are
restricted until a measurement date two and one-half years from the date
of grant and the remaining fifty percent is restricted until a
measurement date five years from date of grant. For the shares to vest,
on each measurement date, the cumulative total return from the company's
common shares must exceed a specified return.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Medusa Corporation
and subsidiaries have been prepared by management in conformity with
generally accepted accounting principles and, in the judgment of
management, present fairly and consistently the company's financial
position and results of operations. These statements by necessity
include amounts that are based on management's best estimates and
judgments and give due consideration to materiality.
The accounting systems and internal accounting controls of the company
are designed to provide reasonable assurance that the financial records
are reliable for preparing consolidated financial statements and
maintaining accountability for assets and that, in all material
respects, assets are safeguarded against loss from unauthorized use or
disposition. Qualified personnel throughout the organization maintain
and monitor these internal accounting controls on an ongoing basis.
Management continually monitors the system of internal control for
compliance. In addition, the company's internal auditor systematically
reviews the adequacy and effectiveness of the controls and reports
thereon.
The consolidated financial statements have been audited by Deloitte &
Touche LLP, independent auditors, whose report appears on this page.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with management, with the
company's internal auditor, and with the independent auditors to review
matters relating to the quality of financial reporting and internal
accounting control and the nature, extent and results of their audits.
The company's internal auditor and independent auditors have free access
to the Audit Committee.
Robert S. Evans
Chairman & Chief Executive Officer
R. Breck Denny
Vice President - Finance & Treasurer
Edward A. Doles
Corporate Controller
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Medusa Corporation:
We have audited the accompanying consolidated balance sheets of Medusa
Corporation and subsidiaries (the "Company") as of December 31, 1994 and
1993 and the related consolidated statements of income, shareholders'
equity and of cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at
December 31, 1994 and 1993 and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993.
Cleveland, Ohio
January 23, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDUSA
CORPORATION AND SUBSIDIARIES' STATEMENT OF INCOME AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000064674
<NAME> MEDUSA CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 48487
<SECURITIES> 0
<RECEIVABLES> 24555
<ALLOWANCES> 519
<INVENTORY> 23292
<CURRENT-ASSETS> 100154
<PP&E> 337934
<DEPRECIATION> 231818
<TOTAL-ASSETS> 218600
<CURRENT-LIABILITIES> 66870
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 59973
<TOTAL-LIABILITY-AND-EQUITY> 218600
<SALES> 276293
<TOTAL-REVENUES> 276293
<CGS> 189028
<TOTAL-COSTS> 224186
<OTHER-EXPENSES> (1256)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7526
<INCOME-PRETAX> 45837
<INCOME-TAX> 15957
<INCOME-CONTINUING> 29880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29880
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.76
</TABLE>
