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, 1995
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
1934 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 January
31, 1996, was $455,512,372.
The number of shares outstanding of the issuer's classes of common stock, as
of January 31, 1996:
Common Shares without par value -- 16,341,251
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders for the year ended
December 31, 1995, are incorporated by reference into Parts II and IV.
Portions of the proxy statement for the annual shareholders meeting
May 6, 1996, are incorporated by reference into Part III.
Part I
Item 1. 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 portland cement in 1994, F.O.B. the point of
sale, was $55.40. 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.
PART I
Item l. Business (continued)
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 in
northern markets where inclement weather affects construction activity.
According to the Portland Cement Association ("PCA"), total annual
cement consumption (i.e.: the total demand for both portland and masonry
cements) 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 95.0 million tons in 1995,
generally corresponding to the prevailing economic conditions and
construction activity. Portland cement consumption in the United States
in 1995 was estimated at 91.7 million tons, of which approximately 21%
was used in residential construction, 24% in non-residential
construction, and the remainder in public construction, such as
infrastructure.
The company believes increased government spending on infrastructure
improvement should have a favorable impact on future cement demand.
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 83.1
million tons, or by approximately 9%, from 1975 to 1994. Statistics
published by the United States Bureau of Mines and the PCA indicate that
from 1975 to 1994 the number of cement companies operating in the United
States has dropped from 57 to 47, and in 1994 the 10 largest of such
companies accounted for approximately 59% of total United States
production capacity for clinker. The company believes that domestic
production will remain inadequate to meet demand going into the next
century. With an approximate 7.7 million ton shortfall between supply
and demand, imports will continue to be needed to supplement domestic
demand. That shortfall, the company believes, is due principally to the
unfair dumping of imports into the United States during the 1980's, when
the domestic industry was forced to divest itself of a significant
portion of its capacity. Presently, with the dumping duties imposed
PART I
Item l. Business (continued)
against offenders by the International Trade Commission in 1990 and
1991, the United States industry is becoming healthier and is beginning
to be able to afford to reinvest in itself. However, 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 varied from a high of 19% of total United
States consumption in 1987 to a low of 8% in 1992, to an estimated 16%
in 1995, according to the latest Bureau of Mining figures. Factors
influencing imports 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 1990, changes in domestic and foreign
demand, rising ocean shipping rates, and the decline in the value of the
United States dollar relative to other currencies. Increased ownership
of import facilities by domestic producers has also contributed to a
more orderly flow of imports into the United States.
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 90.0% for 1995.
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. Notwithstanding favorable
construction activity during the 1980's, cement prices remained
relatively low due to the impact of lower-priced imported cement. Until
1993, United States portland 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
lower levels of imported cement, have led to supply and demand
relationships more favorable to cement producers, resulting in increased
cement prices. In 1995, due to heavy demand coupled with limited
domestic supply, the company was able to increase prices by 12% over
1994 levels, with price increases of up to $5.00 per ton in most of our
markets on April 1, 1994, increases up to $5.00 per ton on August 1,
1994 in our Southeastern markets and another increase of $5.00 to $8.00
per ton on April 1, 1995, in most of our markets. The company expects
PART I
Item l. Business (continued)
these favorable market conditions to continue in 1996 and have announced
cement price increases of up to $5.00 per ton, effective April 1, 1996,
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 69% to 80%, 14% to 20%, and
generally less than 10%, respectively, of the company's consolidated net
sales. From 1991 through 1995, Medusa's quarterly sales as a percentage
of annual sales have ranged from 12% to 16% during the first quarter and
from 32% to 34% during the third quarter.
Construction activity increased modestly in 1995, in spite of concern
over high interest rates, which led to a slowdown in the housing sector.
As indicated, tight supply conditions along with record demand resulted
in upward pricing and record profits. The company expects the
construction cycle to continue its upward trend in 1996, highlighted by
a modest housing recovery and slight increases in infrastructure and
commercial activity. Infrastructure construction and, to a lesser
extent, commercial building, appears to be less sensitive to interest
rates than housing. The housing sector provides about one quarter of
the company's sales volume.
In an effort to satisfy the strong product demand, our four cement
plants achieved a 95.0% 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 maintenance of a lean
management organization, enable the company to position itself to
capitalize upon favorable market conditions. In furtherance of that
strategy, the company expects to realize more of the benefits from the
completion in 1996 of about half of the several projects designed to
incrementally increase cement capacity by 6-8%.
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
Part I
Item l. Business (continued)
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, with very little new production capacity added
in recent years.
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. In
1995, Charlevoix implemented an artificial intelligence kiln control
system and an automated process control instrumentation system to
enhance productivity and reduce operating costs. 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 that include 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.
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 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. The two plants should benefit from the
completion in mid-1996 of a new cement terminal in Atlanta, Georgia.
This new facility will replace the current terminal and will have
increased storage capacity and more efficient rail unloading
capabilities that will lower handling costs. Since the plants are
PART I
Item l. Business (continued)
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.
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 1995, the
Demopolis plant burned waste derived liquid fuel (WDLF) for 27% 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 10%.
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 slowly, 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 1995 of obtaining about 21%
of its coal needs from its nearby limestone quarry which contains coal
reserves. Since 1985, the Wampum plant has burned WDLF, supplying 31%
of its fuel needs in 1995. 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 burned whole tires at its Clinchfield
plant since 1990. 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 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,
PART I
Item l. Business (continued)
the cost of environmental regulation, which has been increasing and a
small reduction in maximum clinker output when burning WDLF. The company
is constantly evaluating the potential for and use of alternative
fuels in its ongoing effort to help conserve scarce natural resources,
utilize waste in a productive capacity and reduce materials that might
otherwise take up valuable space in landfills. The company will use
alternative fuels where it is environmentally and economically prudent
and provided it continues to permit the company to maintain the safe
and profitable operation of its facilities. 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 1,350 customers which are
primarily ready-mix concrete dealers. No single customer accounts for
more than 6% 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. 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
aggregate plants is approximately 3,400 tons per hour, or in excess of 5
million tons annually. Approximately 15% of the company's total
construction aggregate capacity is covered by mineral reserves of over
Part I
Item l. Business (continued)
50 years, 32% is covered by reserves of from 25 to 50 years, 27% is
covered by reserves from 10 to 25 years and 26% 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.
In 1995, the company closed its sand and gravel plant at Edinburg,
Pennsylvania, which was experiencing continued operating losses.
Industrial Materials
Through a wholly-owned subsidiary, Thomasville Stone and Lime Company
("Thomasville"), the company mines and processes high calcium limestone
from 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 products serving over 30
specialized agricultural, white cement, home improvement, consumer
products and environmental markets.
Highway Safety Construction
The James H. Drew Corporation ("Drew"), a wholly-owned subsidiary of the
company, operates generally in the mid-western states installing 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 aggregate
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
PART I
Item l. Business (continued)
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 1995 and 1994, the company had no short-term borrowings. In
1993, short-term borrowings' weighted average interest rate was 5.08%.
Capital Expenditures
In 1995, Medusa's capital expenditures were approximately $21.2 million
in its cement operations and $3.9 million in its aggregates operations.
For 1994, Medusa's capital expenditures were approximately $12.0 million
in its cement operations and $2.1 million in its aggregates operations.
Backlog
Backlog for Medusa and its subsidiaries totaled approximately $12.2
million as of December 31, 1995, compared with $10.5 million as of
December 31, 1994. 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, 1995, 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 labor 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
PART I
Item l. Business (continued)
Builders, Blacksmiths, Forgers and Helpers, AFL-CIO) covering the hourly
workers at the Clinchfield and Charlevoix plants, expiring April 30,
1998. Contracts with the locals of the same national union covering the
hourly employees at the Wampum and Demopolis plants expire on April 30,
1996. The contract with the United Steel Workers of America Local
#13051-7 covering Thomasville hourly employees expires on March 31,
1996.
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. The MDNR has 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
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
Part I
Item l. Business (continued)
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, have offered 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 nonetheless 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 now 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 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.
Opacity Notification. On January 2, 1996, the company received a
notification from the Pennsylvania Department of Environmental
PART I
Item l. Business (continued)
Protection ("PaDEP"), advising the company that it should expect
substantial civil penalties for opacity violations at the Wampum Plant
during calendar 1995. Although fourth quarter 1995 penalties are not
yet available, calendar 1995 penalties are estimated to be between
$100,000 and $200,000. "Opacity" is a somewhat subjective assessment of
air emissions, generally used by regulatory officials as an indicator of
particulate (dust) emissions. Officials of the company have conferred
with officials of PaDEP. The company is closely monitoring its
manufacturing procedures and conducting a higher level of preventive
equipment maintenance. Currently, it is premature to conclude whether
any material capital improvements will be necessary to attain compliance
with PaDEP's opacity requirements.
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 and
clinker capacities of Medusa as of February 28, 1996, are shown in the
following table:
Regional Capacity in Tons
Market Plant Location Clinker Cement Kiln Type
Great Lakes Charlevoix, Michigan 1,395,000 1,465,000 Preheater/precalciner
Southeast Demopolis, Alabama 814,000 858,000 Preheater
Southeast Clinchfield, Georgia 603,000 809,000 Preheater
W. PA/N.E. OH Wampum, Pennsylvania 722,000 750,000 Long-Dry
3,534,000 3,882,000
"Annual rated capacity" is defined as the annual output of cement or
clinker 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. Cement plant capacities are
evaluated periodically taking into account actual experience in
producing cement, plant modifications and innovations, and other
factors.
During 1996, the company plans to continue demolishing its wet process
kiln at Clinchfield. This kiln has not been operated in over 10 years.
The company's cement plants, as a group, operated at 95.0% of annual
rated clinker capacity in 1995 (91.2% in 1994).
Part I
Properties (continued)
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.
During 1995, The company 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 14,993
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 ("USDOJ"). The CID was apparently part of a
nationwide investigation of what is believed to be virtually the entire
domestic U.S. cement industry. On November 9, 1995, the company
received notice from the USDOJ of the termination of its investigation.
PART I
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 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Robert S. Evans Chairman and Chief Chairman & Chief Executive 52
Executive Officer Officer, Medusa Corporation:
Chairman and Chief Executive
Officer, Crane Co. (Diversified
Manufacturer of Engineered
Products).
George E. Uding, President and Chief President and Chief Operating 64
Jr. Operating Officer Officer of the company;
formerly Senior Vice President,
Essroc Corporation.
Robert J. Kane Senior Vice Senior Vice President of the 46
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 57
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; 50
and President of Medusa
Aggregates group; formerly
Regional Vice President -
General Manager Vulcan Materials
(Wisconsin, Indiana, Central
Illinois and Iowa).
PART I
Item 4. Submission of Matters to a Vote of Security Holders
(continued)
R. Breck Denny Vice President Vice President-Finance and 47
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 52
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 48
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.
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 are
hereby incorporated by reference to page 20 of the 1995 Annual Report to
Shareholders. The number of shareholders is 5,638 as of January 31,
1996. On February 26, 1996, the Board of Directors increased the
company's quarterly dividend 20% to $.15 per common share. Prior to
this action the dividend was $.125 per common share since February 26,
1994 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 1995 Annual Report to Shareholders.
The company has assessed that a work stoppage could occur at any one or
all of the three locations currently involved in labor negotiations as
indicated under Part 1, Item 1. Business, "Employees," pages 9 and 10 of
this report. Collectively, the three operations accounted for
approximately 40% and 43% of consolidated 1995 net sales and operating
profit, respectively. The company in not now able to quantify whether a
work stoppage at any facility would have a material effect on the
company's future financial results. Clearly, if all three facilities
are affected, the effect would be the greatest. The company has
developed contingency plans to continue operations at each of the three
locations in the event of a work stoppage at any one of them.
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.
PART III
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.
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, 1995 and 1994 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, 1995 and the Independent Auditors' Report relating
thereto, appearing on Pages 9 through 17 of Medusa Corporation's
1995 Annual Report to Shareholders are incorporated herein by
reference.
Independent Auditors' Report on Financial Statement Schedule... 19
Schedule VIII Valuation and Qualifying Accounts................ 20
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 1995:
(c) Exhibits to Form 10-K:
Exhibit 11 - Statement Re Computation of Per Share Earnings
PART IV
Exhibit 13 - Annual Report to Shareholders for the Year Ended
December 31, 1995
Exhibit 21 - Subsidiaries of the Registrant
PART IV
(d) Financial Statements Required by Regulation S-X which are excluded from the
Annual Report to Shareholders by Rule 14a-3(b):
Not applicable.
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)
Robert S. Evans
Robert S. Evans
Chairman, Chief Executive
Officer and a Director
Date March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, 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-
R. Breck Denny George E. Uding, Jr. Edward A. Doles
R. Breck Denny George E. Uding, Jr. Edward A. Doles
Vice President-Finance President, and Chief Corporate Controller
and Treasurer Operating Officer and a
Director
Date March 25, 1996 Date March 25,1996 Date March 25, 1996
- -DIRECTORS-
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Date March 25, 1996 Date March 25, 1996 Date March 25, 1996
Dorsey R. Gardner Jean Gaulin Dwight C. Minton
Dorsey R. Gardner Jean Gaulin Dwight C. Minton
Date March 25, 1996 Date March 25, 1996 Date March 25, 1996
Charles J. Queenan, Jr. Boris Yavitz
Charles J. Queenan, Jr. Boris Yavitz
Date March 20 ,1996 Date
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, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995, and have
issued our report thereon dated January 22, 1996, 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
1995 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 22, 1996
MEDUSA CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Balance at Additions (deductions) Balance at
beginning charged (credited) to (deductions)- end of
DESCRIPTION of year costs and expenses additions year
1995
Deducted from Asset Accounts:
Allowances for Doubtful
<S> <C> <C> <C> <C>
Accounts $ 228,503 $ 145,000 (E) $ (48,672)(C) $ 351,257
(22,246) (D)
48,672 (C)
Reserve for Cash Discounts 209,570 (24,162) 185,408
Reserve for Policy
Adjustments 80,719 (8,686) 72,033
TOTAL $ 518,792 $ 138,578 $ (48,672) $ 608,698
1994
Deducted from Asset Accounts:
Allowances for Doubtful
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
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.
Note E - Specific account reserve.
</TABLE>
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 11 to Form 10-K
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
Primary
Earnings
<S> <C> <C> <C>
Income before cumulative effect $43,212 $29,880 $18,199
Cumulative effect - - 711
Net income $43,212 $29,880 $18,910
Shares
Weighted average number of
common shares outstanding 16,018 16,334 16,268
Additional shares
assuming conversion of:
stock options 121 206 *
Average common shares
outstanding and equivalents 16,139 16,540 16,268
Primary:
Before cumulative effect $ 2.68 $ 1.81 $ 1.12
Cumulative effect - - .04
Net income per share $ 2.68 $ 1.81 $ 1.16
Fully Diluted
Earnings
Income before cumulative effect $43,212 $29,880 $18,199
Cumulative effect - - 711
Interest on convertible
subordinated notes, net of taxes 2,336 2,249 *
Pro forma net income
available to common stock $45,548 $32,129 $18,910
Shares
Weighted average number of
common shares outstanding 16,018 16,334 16,268
Additional shares
assuming conversion of:
stock options 139 221 *
convertible notes 1,736 1,736 *
Average common shares
outstanding and equivalents 17,893 18,291 16,268
Fully diluted:
Before cumulative effect $ 2.55 $ 1.76 $ 1.12
Cumulative effect - - .04
Fully diluted net increase
per share $ 2.55 $ 1.76 $ 1.16
</TABLE>
* Amounts not restated, not dilutive under 3% test.
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 21 to Form 10-K
Subsidiaries of the Registrant
December 31, 1995
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
Medusa-Citadel, Inc. Alabama
Medusa-Crescent, Inc. Ohio
CONSOLIDATED STATEMENTS OF INCOME
Medusa Corporation and Subsidiaries
Year Ended December 31 1995 1994 1993
(In Thousands, except per share data)
Net Sales $293,327 $276,293 $248,038
Costs and Expenses:
Cost of sales 184,997 189,028 179,101
Selling, general and administrative 23,492 21,328 21,838
Depreciation and amortization 15,448 13,830 13,958
223,937 224,186 214,897
Operating Profit 69,390 52,107 33,141
Other Income (Expense):
Interest income 2,225 1,262 236
Interest expense (7,575) (7,526) (6,152)
Miscellaneous-net (193) (6) (500)
(5,543) (6,270) (6,416)
Income Before Taxes 63,847 45,837 26,725
Provision for Income Taxes 20,635 15,957 8,526
Income Before Cumulative Effect
of a Change in Accounting 43,212 29,880 18,199
Cumulative Effect of a Change in Accounting
For Income Taxes in 1993 (Note A) - - 711
Net Income $ 43,212 $ 29,880 $ 18,910
__________________________________________________________________________
Net Income Per Common Share:
Primary:
Income before cumulative
effect of a change in accounting $ 2.68 $ 1.81 $ 1.12
Cumulative effect of a
change in accounting - - .04
$ 2.68 $ 1.81 $ 1.16
Fully Diluted:
Income before cumulative
effect of a change in accounting $ 2.55 $ 1.76 $ 1.12
Cumulative effect of a
change in accounting - - .04
$ 2.55 $ 1.76 $ 1.16
Average Common Shares Outstanding 16,018 16,334 16,268
______________________________________________________________________________
See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
Medusa Corporation and Subsidiaries
December 31 1995 1994
(In Thousands, except share data)
Assets
Current Assets:
Cash and short-term investments $ 33,166 $ 48,487
Accounts receivable less allowances of $609
($519 in 1994) 21,410 24,036
Inventories 29,266 23,292
Other current assets 4,395 4,339
Total Current Assets 88,237 100,154
Property, Plant and Equipment 118,864 106,116
Intangible and Other Assets 12,477 12,330
Total Assets $219,578 $218,600
______________________________________________________________________________
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 41 $ 35,000
Accounts payable 14,952 15,257
Accrued compensation and payroll taxes 5,608 6,161
Other accrued liabilities 8,589 8,635
Income taxes payable 2,500 1,817
Total Current Liabilities 31,690 66,870
Long-Term Debt 61,624 61,300
Accrued Postretirement Health Benefit Cost 27,446 27,342
Reserves and Other Liabilities 2,611 2,879
Accrued Pension Liability 659 236
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
Outstanding-16,329,901 shares
(16,162,302 in 1994) 1 1
Paid in capital 23,433 19,724
Retained earnings 97,515 62,455
Unvested restricted common shares (40) (26)
Unearned restricted common shares (5,672) (3,511)
Currency translation adjustment (890) (1,101)
Total Paid in Capital and Retained Earnings 114,347 77,542
Less Cost of Treasury Shares-836,267 shares
(771,706 shares in 1994) (18,799) (17,569)
Total Shareholders' Equity 95,548 59,973
Total Liabilities and Shareholders' Equity $219,578 $218,600
______________________________________________________________________________
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Medusa Corporation and Subsidiaries
Year Ended December 31 1995 1994 1993
(In Thousands)
Cash Provided From (Used By) Operating Activities:
Net income $ 43,212 $ 29,880 $ 18,910
Cumulative effect of a change in
accounting - - (711)
Income before cumulative effect
of a change in accounting 43,212 29,880 18,199
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 15,448 13,830 13,958
(Benefit) provision for deferred income
taxes (944) 1,660 (1,334)
Postretirement health benefit cost 222 491 1,470
(Gain) loss on sale of capital assets (33) 12 (64)
57,905 45,873 32,229
Cash provided from (used by) working capital
components and other:
Accounts receivable 2,626 (716) (7,845)
Inventories and other current
assets (7,793) 1,774 6,469
Accounts payable and other current
liabilities 220 5,430 6,078
Other assets (231) 1,986 (1,824)
Accrued pension, reserves and other
liabilities (46) (2,475) 1,479
Net Cash Provided From Operating
Activities 52,681 51,872 36,586
Cash Provided From (Used By) Investing Activities:
Capital expenditures (25,345) (14,694) (15,372)
Payments for business acquired - - (50,511)
Proceeds from sale of capital assets 359 1,622 64
Net Cash Used By Investing
Activities: (24,986) (13,072) (65,819)
Cash Provided From (Used By)
Financing Activities:
Purchase of treasury shares (1,878) (14,608) (1,747)
Dividends paid (8,152) (8,264) (4,407)
Stock options exercised 1,649 1,278 1,521
Proceeds from issuance of long-term debt 365 - 107,500
Payments on long-term debt (35,000) - (50,000)
Issuance of restricted shares - 63 -
Net Cash Provided From (Used By)
Financing Activities (43,016) (21,531) 52,867
Increase (Decrease)In Cash And Short-Term
Investments (15,321) 17,269 23,634
Cash And Short-Term Investments At
Beginning Of Year 48,487 31,218 7,584
Cash And Short-Term Investments At
End Of Year $ 33,166 $ 48,487 $ 31,218
_____________________________________________________________________________
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (net of $26 and $153
capitalized in 1995 and 1993,
respectively) $ 7,566 $ 7,509 $ 5,716
Income taxes 20,896 14,367 8,699
______________________________________________________________________________
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Medusa Corporation and Subsidiaries
Unvested
Restricted
Common Paid in Retained Common
Shares Capital Earnings Shares
______________________________________________________________________________
(In Thousands, except share data)
Balance At January 1, 1993 $ 1 $13,722 $26,336 $(1,842)
Net income 18,910
Dividends paid-$.27 per
common share (4,407)
Issuance of 117,420 restricted
common shares 2,116 (79)
Forfeiture of 56,250 restricted
common shares (768)
Exercise of 510,651 stock options 5,108
Purchase of 280,275 treasury shares
Retirement of 212,897 treasury
shares (3,801)
Amortization of vesting of
restricted common shares 1,895
Currency translation adjustment
Balance At December 31, 1993 1 16,377 40,839 (26)
Net income 29,880
Dividends paid-$.50 per
common share (8,264)
Issuance of 83,070 restricted
common shares 2,045 (79)
Forfeiture of 51,000 restricted
common shares (768)
Exercise of 187,536 stock options 2,070
Purchase of 652,157 treasury shares
Amortization for vesting of
restricted common shares 79
Currency translation adjustment
Balance at December 31, 1994 $ 1 $19,724 $62,455 $ (26)
Net income 43,212
Dividends paid-$.50 per
common share (8,152)
Issuance of 117,940 restricted
common shares 2,851 (120)
Exercise of 149,417 stock options 2,000
Purchase of 82,402 treasury shares
Retirement of 35,697 treasury shares (1,142)
Amortization for vesting of
restricted common shares 106
Currency translation adjustment
Balance at December 31, 1995 $ 1 $23,433 $97,515 $ (40)
______________________________________________________________________________
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Medusa Corporation and Subsidiaries
Unearned
Restricted Currency Total
Common Translation Treasury Shareholders'
Shares Adjustment Shares Equity
______________________________________________________________________________
(In Thousands, except share data)
Balance At January 1, 1993 $(1,928) $ (679) $ (636) $34,974
Net income 18,910
Dividends paid-$.27 per
common share (4,407)
Issuance of 117,420 restricted
common shares (2,037)
Forfeiture of 56,250 restricted
common shares 768
Exercise of 510,651 stock options 5,108
Purchase of 280,275 treasury share (5,334) (5,334)
Retirement of 212,897 treasury
shares 3,801
Amortization of vesting of
restricted common shares 438 2,333
Currency translation adjustment (107) (107)
Balance At December 31, 1993 (2,759) (786) (2,169) 51,477
Net income 29,880
Dividends paid-$.50 per
common share (8,264)
Issuance of 83,070 restricted
common shares (1,903) 63
Forfeiture of 51,000 restricted
common shares 768
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 383 462
Currency translation adjustment (315) (315)
Balance at December 31, 1994 $(3,511) $(1,101) $(17,569) $59,973
Net income 43,212
Dividends paid-$.50 per
common share (8,152)
Issuance of 117,940 restricted
common shares (2,731)
Exercise of 149,417 stock options (494) 1,506
Purchase of 82,402 treasury shares (1,878) (1,878)
Retirement of 35,697 treasury shares 1,142
Amortization for vesting of
restricted common shares 570 676
Currency translation adjustment 211 211
Balance at December 31, 1995 $(5,672) $ (890) $(18,799) $95,548
______________________________________________________________________________
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Medusa Corporation and Subsidiaries
Note A-Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the company and its wholly-owned
subsidiaries. All significant intercompany items have been eliminated.
The company processes mineral deposits, principally limestone, by converting
these material resources through physical and chemical methods to intermediate
products (cement and aggregates) sold to the construction industry principally
in the Eastern half of the United Sates. Sales of such products constitute
more than 90% of consolidated net sales and net income.
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 (SFAS 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 SFAS 109 added $711,000, or $.04 per common share, to net income
in 1993.
Net Income Per Share
Primary net income per share is computed by dividing net income by the
weighted average number of common shares and common share equivalents
(options) outstanding during the period. Fully diluted net income per share
is computed based on the weighted average number of common shares and common
share equivalents outstanding during the period, as if the convertible
subordinated notes were converted into common shares 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.
Recently Issued Accounting Standards
During 1995, Statements of Financial Accounting Standards Nos. 121 and 123
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" and "Accounting for Stock-Based Compensation",
respectively, were issued. Both are effective for financial statements for
fiscal years beginning after December 15, 1995.
The company has not completed its process of evaluating the impact that will
result from adopting either standard and therefore is unable to disclose the
impact that adopting them will have on its financial position and results of
operations when such statements are adopted.
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):
________________________________________________
1995 1994
________________________________________________
Finished goods $12,980 $ 7,987
Work in process 2,993 1,756
Raw Materials 2,015 2,136
Supplies 11,278 11,413
$29,266 $23,292
________________________________________________
Use of the, first-in, first-out (FIFO) cost method would have increased
inventories from the amounts reported at December 31 by $7,238,328 in 1995 and
$7,089,000 in 1994.
Note D-Property, Plant and Equipment-at Cost
At December 31 (in thousands):
________________________________________________
1995 1994
________________________________________________
Land $ 10,831 $ 10,159
Buildings and improvements 20,465 20,528
Machinery and equipment 327,523 307,247
358,819 337,934
Less accumulated
depreciation (239,955) (231,818)
$118,864 $106,116
________________________________________________
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, 1995 (in thousands):
_________________________________________________
Capital Operating
Leases Leases
_________________________________________________
1996 $ 181 $ 1,066
1997 181 865
1998 181 541
1999 181 174
2000 181 121
Thereafter 4,867 1,756
Total minimum
lease payments 5,772 $ 4,523
Less interest (1,972)
Present value of
future minimum
lease payments $ 3,800
_________________________________________________
The costs of assets capitalized under leases at December 31 are as follows (in
thousands):
________________________________________________
1995 1994
________________________________________________
Machinery and equipment $ 4,035 $ 4,035
Less accumulated
depreciation (1,693) (1,491)
$ 2,342 $ 2,544
________________________________________________
The weighted average interest rate for capital leases was 4.6% in 1995.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, 1995, the minimum required
level of net worth under these covenants was $25.0 million.
Rental expense was $1,828,000, $2,069,000, and $1,549,000 for 1995, 1994 and
1993, respectively.
Note F-Short and Long-term Financing
The company has an unsecured $45.0 million Revolving Credit Agreement
("Revolver") with four banks that expires December 31, 2000. The Revolver
allows borrowings bearing interest at .35% to .75% 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 .2% to .35% per annum on the unused portion. The interest rate and
commitment fee vary based on the company's ratio of consolidated liabilities
to net worth. The company also has unsecured bank lines of credit totalling
$20.0 million. At December 31, 1995, no amounts were outstanding under any of
these credit facilities.
Long-term debt consists of the following at December 31 (in thousands):
________________________________________________
1995 1994
________________________________________________
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
Capitalized leases 3,800 3,800
Other 365 -
61,665 96,300
Less current portion (41) (35,000)
$61,624 $61,300
________________________________________________
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 holders' 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 Revolver contains certain convenants which, among other things, require
maintenance of certain levels of net worth and certain specified ratios of
current assets to liabilities, interest coverage and liabilities to net worth.
At December 31, 1995 the company was in compliance with all covenants.
The average interest rate incurred on all borrowings was 7.5% in 1995, 7.3% in
1994, and 6.7% in 1993.
The company has available bank stand-by letter of credit facilities of $10.0
million of which $6.4 million was being utilized at December 31, 1995. These
facilities bear a commitment fee of .5% per annum on the used portion. These
instruments, the fair value of which approximates market, 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 $56.2 million ($55.9 million
in 1994) for the 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 was as follows (in thousands):
_________________________________________________
1995 1994 1993
_________________________________________________
Service cost $ 422 $ 470 $ 575
Interest cost on
accumulated
postretirement benefit
obligation 1,583 1,511 1,927
Net amortization (702) (523) -
Net periodic postretire-
ment benefit cost $1,303 $1,458 $2,502
_________________________________________________
The following table sets forth the plans' funded status reconciled with the
amounts shown in the company's balance sheets at December 31 (in thousands):
________________________________________________
1995 1994
________________________________________________
Accumulated Postretirement
Benefit Obligation:
Retirees $10,474 $10,311
Eligible active plan
participants 4,826 4,560
Other active plan
participants 7,596 6,300
22,896 21,171
Unrecognized net gain 5,742 7,245
28,638 28,416
Less current amount in other
accrued liabilities (1,192) (1,074)
Accrued Postretirement Health
Benefit Cost $27,446 $27,342
________________________________________________
In 1995, the cost of benefits was assumed to increase by 10.25% initially and
then decrease gradually to 5% by 2002 and remain at that level thereafter. In
prior years, the cost of benefits was assumed to increase 11% annually through
1996 and then decrease gradually to 5% by 2002, 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, 1995 by approximately $2.8 million and the net
periodic postretirement benefit cost by $0.3 million for the year. The
discount rate in determining the accumulated postretirement benefit obligation
was 7.25% in 1995 (8.5% in 1994 and 7.5% in 1993).
Note H-Income Taxes
A reconciliation between the statutory federal income tax rate and the
company's effective income tax rate is as follows:
_________________________________________________
1995 1994 1993
_________________________________________________
Statutory rate 35.0% 35.0% 35.0%
State income tax, net of
federal income tax
benefits 3.7 4.2 3.7
Percentage depletion (5.6) (4.7) (6.5)
Tax exempt interest (.2) - -
Other (.6) .3 (.3)
Effective rate 32.3% 34.8% 31.9%
_________________________________________________
Components of the provision for income taxes were as follows (in thousands):
_________________________________________________
1995 1994 1993
_________________________________________________
Deferred income tax
expense (benefit) $ (944) $ 1,660 $(1,334)
Current income tax
expense 21,579 14,297 9,860
$20,635 $15,957 $ 8,526
________________________________________________________
The income tax provisions include state income tax provisions of $3,720,000,
$2,988,000 and $1,521,000 for 1995, 1994 and 1993, respectively.
Components of the net deferred tax assets shown in the company's balance
sheets at December 31 were as follows (in thousands):
________________________________________________
1995 1994
________________________________________________
Net book value of fixed assets
in excess of tax basis $(10,727) $(10,535)
Financial reporting accrual
for postretirement health
benefits 11,713 11,622
Other financial reporting
accruals 3,805 2,686
Other taxable temporary
differences (611) (502)
Other deductible temporary
differences 1,035 972
$ 5,215 $ 4,243
________________________________________________
Net deferred income tax assets associated with certain current items included
in other current assets were$2,609,000, and $2,366,000 at December 31, 1995
and 1994, 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 applicable
regulations.
Net periodic pension cost was as follows (in thousands):
________________________________________________________
1995 1994 1993
________________________________________________________
Service cost-benefits
earned during the year $ 929 $ 1,013 $ 873
Interest cost on projected
benefit obligation 2,059 1,859 1,734
Actual return on plan
assets (4,983) 966 (2,805)
Net amortization and
deferral 3,225 (2,750) 1,046
Net periodic pension cost $ 1,230 $ 1,088 $ 848
________________________________________________________
The following table sets forth, by funded status, the amounts recognized in
the company's balance sheets at December 31 for its pension plans (in
thousands):
_______________________________________
1995 1994
_______________________________________
Over- Under- Over- Under-
funded* funded* funded* funded*
_______________________________________
Actuarial present value
of benefit obligations:
Vested $ 9,139 $17,338 $6,045 $15,408
Nonvested 269 148 79 241
Accumulated benefit
obligation 9,408 17,486 6,124 15,649
Effect of future pay
increases 3,000 - 2,182 -
Projected benefit
obligation 12,408 17,486 8,306 15,649
Plan assets at fair
value 11,975 16,827 8,540 15,413
Projected benefit
obligation less than
(in excess of) plan
assets (433) (659) 234 (236)
Unrecognized net (gain)
loss on assets 235 1,193 107 (169)
Unrecognized net (asset)
obligation 894 323 (71) 963
Unrecognized prior service
cost (81) 746 194 1,372
Additional minimum
liability (2,262) - (2,166)
Net recorded pension
asset (liability) $ 615 $ (659) $ 464 $ (236)
____________________________________
*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$615,000 and
$464,000 at December 31, 1995 and 1994, respectively.
The pension intangible asset included in intangible and other assets
was$2,262,000 and $2,166,000 at December 31, 1995 and 1994, respectively.
A non-cash increase of $96,000 and $2,055,000 to the pension intangible asset
and accrued pension liability was required to record the additional minimum
liability in 1995 and 1994, respectively.
Assumptions used as of December 31 were:
_________________________________________________
1995 1994 1993
_________________________________________________
Discount rate 7.25% 8.50% 7.50%
Rate of increase in
compensation levels 5.00% 5.00% 4.25%
Expected long-term rate
of return on assets 8.50% 8.50% 8.50%
_________________________________________________
At December 31, 1995 and 1994, 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 $105,000,
$113,000, and $88,000 for 1995, 1994 and 1993, respectively.
Note J-Stock Option and Award Plans
A summary of stock option transactions follows:
_________________________________________________
Number of Shares
_________________________________________________
1995 1994 1993
_________________________________________________
Outstanding at January 1 564,065 542,477 870,053
Options granted 247,000 246,000 174,750
Options cancelled (31,626) (36,876) (6,750)
Options exercised (149,417) (187,536) (495,576)
Outstanding at December 31 630,022 564,065 542,477
________________________________________________________
At December 31, 1995, options for 222,132 shares were exercisable; 287,494
shares were available for grant. Per share option prices ranged from $8.71 to
$28.31.
Since 1991, the Organization and Compensation Committee has awarded
Performance Restricted Shares (the "Shares") to executive officers, which
restrictions do not lapse unless certain performance goals are achieved on
certain test dates. The Committee has amended the performance goals and the
test dates from time-to-time. For the 1995 awards, a 20% portion is tested
annually, and retested, as applicable, until both of the following are
achieved: (a) the Share growth percentage must meet or exceed 110% of a cement
industry peer group stock growth percentage and (b) the Shares (reflecting
distributions, but not dividends) may not decline in value, with forfeiture of
the Shares five years from the award date if the performance goals are not
fully achieved.
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, 1995 and 1994
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, 1995.
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, 1995
and 1994 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 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 22, 1996
<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
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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