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.
Deloitte & Touche
Cleveland Ohio
January 22, 1996
Management's Discussion and Analysis
Results of Operations
Year 1995 Compared With 1994
Net sales for the year ended December 31, 1995, increased to $293.3 million
from $276.3 million in 1994. Cement net sales rose 7% over last year. While
cement unit volume for the period decreased by 3.5%, price increases
implemented April 1, 1995, August 1, 1994, and April 1, 1994, resulted in 12%
higher cement prices over 1994. U.S. demand in 1995 approximated the record
levels of 1994. Wampum, Charlevoix and Demopolis volume fell 5.5%, 4.6% and
4.9%, respectively, while Clinchfield rose 2.8%. These declines are chiefly
attributed to competition from higher levels of cement imports, heavy mid-
season rains and early winter conditions in the fourth quarter, low year end
1994 inventory levels restricting sales particularly early in the year, and
the company's maintenance of prices in lieu of volume.
Aggregate's sales from comparable operations for the year rose 1% over 1994
on 1% higher selling prices and flat unit volume. Sales from a closed
operation were $.4 million in 1995 and $1.6 million in 1994. In addition,
the period reflected 9% higher sales for the company's highway and safety
construction operation.
In August 1995, the company closed its Edinburg, Pennsylvania sand and gravel
facility which was experiencing continued operating losses. The facility
contributed less than one-half of one percent to 1994 consolidated sales. A
charge of $1.3 million, or $.05 per fully diluted share, was incurred to
reflect the cost of the closing. The net book value of the facility, less
proceeds anticipated from asset sales, is recorded as additional depreciation
expense of $.9 million. Other closing costs are recorded as additional cost
of sales of $.4 million.
Cost of sales as a percent of sales fell to 63.1% in 1995 compared with 68.4%
in 1994. The reduction was due primarily to increased cement prices and
improved cement capacity utilization of 95% in 1995 from 91% in 1994. The
fourth quarter 1995 settlement of insurance claims reduced cost of sales by
$1.5 million. Fourth quarter 1995 cost of sales were also reduced by
favorable physical inventory adjustments of $1.5 million, principally from
higher than estimated production realized at Charlevoix, and favorable
adjustments for lower than estimated maintenance and stripping costs at the
aggregates quarries. Increased kiln fuel cost and inflationary pressure on
labor and fringes partially offset the favorable impacts on cost of sales.
Depreciation and amortization expense increased $1.6 million from $13.8
million in 1994. The increase was due to the Edinburg closure as well as
higher levels of capital expenditures in 1995 and 1994.
Selling, general and administrative expense as a percent of sales increased
to 8.0% in 1995 from 7.7% in 1994. Higher salaries, wages, related personnel
costs, outside service costs and other inflationary pressures caused this
overall increase.
Operating profit for 1995 of $69.4 million compares with $52.1 million in
1994. The improvement in operating results can be attributed to the reasons
discussed above.
Interest income increased by $963,000 for 1995 compared with 1994, due to
higher levels of cash and short-term investments. Interest expense was
approximately the same for both periods.
The company's effective tax rate of 32.3% for 1995 was lower than the federal
statutory rate of 35% and the 34.8% in 1994 principally due to a higher
percentage depletion deduction and lower effective state tax rates.
Per share amounts are all presented on a fully diluted basis. Net income for
1995 of $43.2 million, or $2.55 per common share, compares with a net income
of $29.9 million, or $1.76 per common share, in 1994.
Year 1994 Compared With 1993
Net sales increased 11.4% to $276.3 million in 1994 from $248.0 million in
1993. Cement sales rose 12.8% as price increases implemented during 1993
coupled with those of April 1 and August 1, 1994, resulted in 13% higher
cement prices over 1993 on flat volume. Charlevoix and Clinchfield volume
fell 3.0% and 5.9%, respectively, while Wampum and Demopolis rose 8.4% and
1.9%, respectively. Strong construction demand during the year forced up
prices as cement supply was tight in most markets. However, low beginning
inventory levels precipitated by a strong 1993 volume year and the 1994
production problems experienced coming out of a difficult winter shutdown
period, especially at Charlevoix, curtailed early production and precluded
the company from achieving volume increases. Sales volume of construction
aggregates increased 13.0% but average selling price was down 3.5% from 1993.
Net sales from Thomasville rose 3.0% on a 3.8% increase in volume and a 2.0%
increase in prices. Sales for the company's highway and safety construction
operation rose 2.5%.
Cost of sales as a percent of sales fell to 68.4% in 1994 compared with 72.2%
in 1993 due to increases in cement prices. Cement capacity utilization was
91.2% in 1994 compared with 89.9% in 1993. Cement production costs were 7%
higher than 1993 because of the aforementioned winter shutdown related costs
and the company's efforts to maximize production.
Depreciation and amortization was $13.8 million in 1994 compared with $14.0
million in 1993. Lower amortization costs related to restricted stock and
intangible assets were offset by increased depreciation related to the
Demopolis acquisition.
Selling, general and administrative expenses declined as a percent of sales
to 7.7% in 1994 from 8.8% in 1993, and 2.3% compared with the prior year.
Reductions in stock appreciation rights and related expenses were offset by
increases in incentive compensation, selling expenses and inflationary
increases in salary, wages and related benefits.
Operating profit rose 57.2% to $52.1 million in 1994 from $33.1 million in
1993. The improvement was due primarily to higher cement selling prices and
greater aggregates group sales.
Interest expense of $7.5 million in 1994 increased from $6.2 million in 1993.
The increase is due to a full year's expense under the 6% Convertible
Debentures versus 1993 under term loan borrowings averaging 4.5%.
The company's effective tax rate of 34.8% for 1994 was lower than the federal
statutory rate of 35% principally because of our percentage depletion
deduction, but was higher than the 31.9% effective rate in 1993. Lower
percentage depletion deductions and higher effective state tax rates for 1994
account for the increase in the effective rate compared to 1993.
Per share amounts are all presented on a fully diluted basis. Net income
increased 64.2% to $29.9 million, or $1.76 per common share, from $18.2
million, or $1.12 per common share before cumulative effect of a change in
accounting.
Liquidity and Capital Resources
At December 31, 1995, the company had $33.2 million of cash and short-term
investments. The company has available an unsecured $45.0 million five-year
revolving credit facility for short-term seasonal working capital needs that
expires December 31, 2000, and unsecured bank lines of credit totalling $20.0
million. At December 31, 1995, no amounts were outstanding under any of
these facilities.
Working capital at December 31, 1995, was $23.3 million more than at December
31, 1994, due principally to the payment of $35.0 million of 10% unsecured
Senior Notes on December 15, 1995. The increase is also due to higher
inventories offset by lower cash and short-term investments. The ratio of
current assets to current liabilities was 2.8:1 at December 31, 1995, and
1.5:1 at December 31, 1994.
In returning the company's level of inventories to their more normalized
levels and with lower accounts receivable at year's end, the company's
operating working capital increased by $5.2 million.
Capital expenditures for 1995 were $25.3 million compared with $14.7 million
for 1994. The higher expenditures relate primarily to capital improvements
to maintain our facilities current capacities, enhance productivity and
reduce operating costs.
Continued strong construction in the U.S. maintained cement consumption at
approximately the record levels of 1994. Cement imports, which rose
significantly in 1995, are expected to fall off in 1996. The company expects
its cement plants will continue to run full out in 1996 to meet the strong
demand. The company continues to be optimistic about future cement demand and
pricing and has announced price increases in its markets averaging 6%
effective April 1, 1996.
QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly financial results for 1995 and 1994 appear in the table
below (in thousands, except per share amounts):
Net
Net Gross Income Earnings Per Share
Sales Profit (Loss) Primary Fully Dilluted
______________________________________________________________________
1995
1st $ 45,620 $ 6,811 $ (303) $ (.02) $ (a)
2nd 80,165 26,768 12,696 .79 .74
3rd 94,827 32,074 16,373 1.01 .95
4th 72,715 27,922 14,446 .89 .84
$293,327 $ 93,575 $ 43,212 $ 2.68 $ 2.55
______________________________________________________________________
Net
Net Gross Income Earnings Per Share
Sales Profit (Loss) Primary Fully Dilluted
______________________________________________________________________
1994
1st $ 37,380 $ 3,630 $ (1,789) $ (.11) $ (.11)
2nd 76,534 22,153 10,309 .63 .63
3rd 88,327 26,354 12,798 .77 .73
4th 74,052 22,201 8,562 .53 .51
$276,293 $ 74,338 $ 29,880 $ 1.81 $ 1.76
______________________________________________________________________
(a) Anti-dilutive
MARKET AND DIVIDEND INFORMATION-COMMON SHARES
New York Stock Exchange Composite Price Per Share Dividends Per Share
__________________________________________________ ____________________________
1995 1994 1995 1994
______________________________________________________________________________
High Low High Low
1st 26 213/8 361/2 271/8 $ .125 $ .125
2nd 257/8 221/4 281/2 201/2 .125 .125
3rd 285/8 245/8 291/8 231/2 .125 .125
4th 281/4 231/8 265/8 183/8 .125 .125
$ .500 $ .500
______________________________________________________________________________
At December 31, 1995 there were approximately 4,744 holders of record of Medusa
common shares.
SIGNATURES
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-
By /s/ Edward A. Doles
Edward A. Doles
Corporate Controller and
Chief Accounting Officer
