FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
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 Boulevard, Cleveland Heights, Ohio 44118
(Address of principal executive offices) (Zip Code)
(216) 371-4000
Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year,
if changed from last report.)
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
The number of shares outstanding of the issuer's classes of common
stock as of June 30, 1996:
Common Shares, Without Par Value - 16,315,547 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended June 30,
1996 and 1995; Six months ended June 30, 1996 and 1995
Consolidated Balance Sheets - June 30, 1996, June 30, 1995 and
December 31, 1995
Consolidated Statements of Cash Flows - Six months ended June
30, 1996 and 1995
Notes to consolidated financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
- -1-
Part I - Financial Information
Item 1 - Financial Statements
Medusa Corporation and Subsidiaries
Consolidated Statements of Net Income
(In Thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited)
Net Sales $ 85,995 $ 80,165 $ 131,068 $ 125,785
Costs and Expenses:
Cost of sales 51,855 49,462 85,627 85,537
Selling, general and
administrative 6,968 5,735 12,500 11,507
Depreciation and
amortization 4,651 4,034 7,953 6,860
63,474 59,231 106,080 103,904
Operating Profit 22,521 20,934 24,988 21,881
Other Income (Expense):
Interest income 191 355 467 827
Interest expense (952) (1,894) (1,993) (3,775)
Miscellaneous - net (35) (11) 28 (12)
(796) (1,550) (1,498) (2,960)
Income Before Taxes 21,725 19,384 23,490 18,921
Provision For Income
Taxes 6,756 6,688 7,329 6,528
Net Income $ 14,969 $ 12,696 $ 16,161 $ 12,393
Average Common Shares
Outstanding 16,036 15,990 16,079 16,003
Net Income Per Common
Share:
Primary $ .93 $ .79 $ 1.00 $ .77
Fully Diluted $ .87 $ .74 $ .97 $ .76
Cash Dividends Declared
Per Common Share $ .15 $ .125 $ .275 $ .250
See notes to consolidated financial statements
-2-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
June 30, December 31,
1996 1995 1995
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ 7,649 $ 27,897 $ 33,166
Accounts receivable, less allowances of
$1,248 , $989 and $517, respectively 39,776 37,819 21,410
Inventories, at lower of cost,
principally LIFO, or market:
replacement cost would be higher by
approximately $7,316, $7,007 and
$6,509, respectively
Finished goods 12,966 9,981 12,980
Work in process 7,305 4,028 2,993
Raw materials and supplies 14,807 14,200 13,293
35,075 28,209 29,266
Other current assets 9,253 11,542 4,395
Total Current Assets 91,753 105,467 88,237
Property, Plant and Equipment:
Cost 369,900 346,734 358,819
Less accumulated depreciation 246,355 235,704 239,955
123,545 111,030 118,864
Intangible and Other Assets 10,953 10,704 12,477
Total Assets $ 226,251 $ 227,201 $ 219,578
See notes to consolidated financial statements
-3-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
June 30, December 31,
1996 1995 1995
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of
long-term debt $ 41 $ 35,000 $ 41
Accounts payable 12,710 12,654 14,952
Accrued compensation and
payroll taxes 4,446 4,502 5,608
Other accrued liabilities 11,705 9,637 8,589
Income taxes payable 1,792 5,580 2,500
Total Current Liabilities 30,694 67,373 31,690
Long-Term Debt 61,624 61,300 61,624
Accrued Postretirement Health
Benefit Cost 27,756 27,595 27,446
Accrued Pension, Reserves and
Other Liabilities 3,498 3,366 3,270
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 27,883 23,427 23,433
Retained earnings 108,774 70,777 97,515
Unvested restricted common shares (99) (100) (40)
Unearned restricted common shares (7,702) (6,120) (5,672)
Currency translation adjustment (882) (971) (890)
Total Paid in Capital and
Retained Earnings 127,975 87,014 114,347
Less Cost of Treasury Shares (25,296) (19,447) (18,799)
Total Shareholders' Equity 102,679 67,567 95,548
Total Liabilities and Shareholders'
Equity $ 226,251 $ 227,201 $ 219,578
See notes to consolidated financial statements
-4-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1996 1995
Cash Provided From (Used By) Operating Activities:
Net income $ 16,161 $ 12,393
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 7,953 6,860
Provision for deferred income taxes 218 519
Postretirement health benefit cost 310 253
Increase in operating working capital (28,723) (24,173)
Gain on sale of capital assets (23) (28)
Net Cash (Used By) Operating Activities (4,104) (4,176)
Cash Provided From (Used By) Investing Activities:
Capital expenditures (11,746) (11,345)
Proceeds from sale of capital assets 23 28
Net Cash (Used By) Investing Activities (11,723) (11,317)
Cash Provided From (Used By) Financing Activities:
Purchase of treasury shares (5,598) (1,878)
Dividends paid (4,903) (4,071)
Stock options exercised 811 852
Net Cash (Used By) Financing Activities (9,690) (5,097)
Decrease In Cash And Short-Term Investments (25,517) (20,590)
Cash And Short-Term Investments At Beginning
Of Period 33,166 48,487
Cash And Short-Term Investments At End Of Period $ 7,649 $ 27,897
See notes to consolidated financial statements
-5-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management all normal recurring adjustments considered necessary
for a fair presentation have been included. Operating results
for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1995.
2. Use of the percentage depletion method in 1996, a lower
effective state tax rate, and other permanent tax adjustments
reduced the company's effective tax rate for the second quarter
of 1996 and 1995 to 31.1% and 34.5%, respectively, and for the
first six months of 1996 and 1995 to 31.2% and 34.5%,
respectively, from the federal statutory rate of 35%.
3. At both June 30, 1996 and December 31, 1995, 50,000,000 common
shares, without par value were authorized. At June 30, 1996,
16,315,547 shares were outstanding (16,329,901 at December 31,
1995).
4. 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.
- -6-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
All per share amounts are on a fully diluted basis.
Three Months Ended June 30, 1996 Compared With Three Months
Ended June 30, 1995
Net income for the second quarter of 1996 of $15.0 million, or
$.87 per common share, compares to a net income of $12.7
million, or $.74 per common share, in 1995.
Net sales for the second quarter of 1996 increased to $86.0
million from $80.2 million in 1995. Cement net sales rose 8%
over last year's second quarter on a 3% increase in volume and
a 5% increase in prices, which is directly related to announced
increases of April 1, 1996. These increases were achieved
despite adverse weather during the second quarter of 1996 which
hampered each of the cement, aggregate and highway safety
construction operations as well as the related construction
industries which they serve.
A 5% increase in unit sales volume for Aggregate operations
resulted in a 7% increase in sales for the second quarter of
1996 compared to 1995. In addition, the quarter reflected a 2%
increase in sales for the company's highway and safety
construction operation.
Cost of sales as a percent of sales fell to 60.3% in the second
quarter of 1996 compared to 61.7% in same period of 1995 due
primarily to increased company sales. The effect of higher
volumes and prices were partially offset by a 5% increase in
clinker production costs as a result of increased repair and
maintenance charges (related to unplanned outages), and to a
$1.2 million one-time pre-tax charge ($.8 million after-tax, or
$.04 per common share) for the company's voluntary early
retirement incentive program ("VERIP") negotiated at the Wampum
cement plant. Unplanned outages occurred during June at both
the Charlevoix and Clinchfield plants resulting in clinker
production volume losses aggregating about 35,000 tons.
Consequently, cement capacity utilization for the quarter was
99% in 1996 compared to 102% in 1995.
- -7-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Three Months Ended June 30, 1996 Compared With Three Months
Ended June 30, 1995
The $1.2 million one-time charge, or $.04 per common share, for
the VERIP allows the company to effect a workforce reduction of
19 hourly employees at the Wampum cement plant and quarry.
This allows for increased flexibility in plant quarrying
operations and greater integration of operations with the
company's West Pittsburg aggregates quarry located adjacent to
the cement quarry. This quarry integration will provide future
cost saving opportunities.
Second quarter depreciation and amortization expense for 1996
of $4.7 million compares to $4.0 million in 1995. Increases in
restricted share amortization and 1995's level of capital
expenditures impact on 1996's depreciation expense.
Selling, general and administrative expense as a percent of
sales increased to 8.1% in 1996 from 7.2% in 1995. Higher
personnel related costs and increased incentive compensation
were the principle causes of this overall increase.
Operating profit for the second quarter of 1996 of $22.1
million compares to $20.9 million in 1995. The improvement in
operating results are attributable to the above mentioned
reasons.
Pretax and net income improved from 12.1%, and 17.9%, to $21.7
million and $14.7 million, respectively, over the prior year's
second quarter. A $1.0 million reduction in interest expense
resulting from the payoff of the company's $35.0 million 10%
notes on December 15, 1995 and the improved operating profit
account for the improved pretax income. These reasons coupled
with a lower effective tax rate account for the net income
improvement.
- -8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Six Months Ended June 30, 1996 Compared With Six Months Ended
June 30, 1995
Net income for the first six months of 1996 of $16.2 million,
or $.97 per common share, compares to a net income of $12.4
million, or $.76 per common share, in 1995.
Net sales for the first half of 1996 increased to $131.1
million from $125.8 million in 1995. Cement net sales rose 6%
over last year's first half. Cement unit volume for the period
was flat due primarily to inclement weather conditions.
Successful implementation of April 1, 1996 price increases
resulted in 6% higher cement prices over 1995.
Aggregates' group sales for the first half of 1996 fell 2%
compared to 1995. Unit sales of the aggregates group were 7%
less than 1995, as a result of poor weather. Sales for the
company's highway and safety construction operation were off
4%.
Cost of sales as a percent of sales fell to 65.3% in the first
half of 1996 compared to 68.0% in same period of 1995 due
primarily to increased cement prices. The effect of higher
prices was partially offset by the $1.2 million one-time charge
for the VERIP at the Wampum plant and higher cement plant
repair and maintenance costs. Cement capacity utilization was
83% in 1996 compared to 86% in 1995. See discussion above
regarding cost of sales for the quarter related to capacity
utilization.
Depreciation and amortization expense increased $1.1 million to
$8.0 million from $6.9 million in 1995. The increase was due
to increased restricted share amortization and the impact from
1995's level of capital expenditures on 1996's depreciation
expense.
Selling, general and administrative expense as a percent of
sales increased to 9.5% in 1996 from 9.1% in 1995. Higher
personnel related costs, incentive compensation and other
inflationary pressures caused this overall increase.
Operating profit for the first half of 1996 of $25.0 million
compares to $21.9 million in 1995. The improvement in
operating results is mainly attributable to the increases in
cement prices as offset by the above mentioned reasons.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Six Months Ended June 30, 1996 Compared With Six Months Ended
June 30, 1995
From the prior year, interest income fell $360,000 while
interest expense was down $1.8 million. Both of these result
from the company's payment of $35.0 million 10% unsecured notes
on December 15, 1995, effectively reducing outstanding debt and
invested cash.
Use of the percentage depletion method and other permanent tax
adjustments reduced the company's federal effective tax rate
for the first six month's of 1996 and 1995 to 31.2% and 34.5%,
respectively, from the federal statutory rate of 35%. A lower
effective state tax rate further reduced the 1996 federal
effective rate in 1996.
The company's business is highly seasonal and particularly
sensitive to weather conditions. Interim results are not
indicative of annual results.
Liquidity and Capital Resources
At June 30, 1996, the company had $7.6 million of cash and
short-term investments. The company has available an unsecured
$20.0 million five-year revolving credit facility for short-
term seasonal working capital needs that expires December 31,
1996, and unsecured bank lines of credit totaling $15.0
million. At June 30, 1996, no amounts were outstanding under
any of these facilities.
Working capital at June 30, 1996, was $23.9 million greater
than at June 30, 1995, due principally to $35.0 million of 10%
unsecured Senior Notes which were due and paid on December 15,
1995 being classified as current at the June 30, 1995 date.
The increase also reflects both higher levels of receivables as
a result of increased sales and inventories and, the company
having begun the 1996 year with higher inventory levels than
was the case in 1995. Income taxes payable reflects a $3.8
million decrease from prior year as a required federal
estimated quarterly tax payment was made in June 1996, whereas
no June payment was required in June, 1995. The ratio of
current assets to current liabilities was 3.0:1 at June 30,
1996, 1.6:1 at June 30, 1995, and 2.8:1 at December 31, 1995.
-10-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Capital expenditures for the first six months of 1996 were
$11.7 million compared to $11.3 million for the first six
months of 1995. This level of capital expenditures relates to
the company's commitment to make capital improvements designed
to enhance productivity, reduce operating costs and expand
clinker capacity,.
The company expects that its cement plants will continue to
operate at practical capacity for the remainder of 1996. The
company anticipates that demand trends evident in the second
quarter will continue, causing its cement shipments for the
year to exceed 1995's levels by around 4%. Cement imports,
which rose significantly in 1995 have declined about as
expected so far this year. Should current trends continue, the
company expects the supply/demand for cement will remain
favorable into 1997.
On April 1, 1996 cement price increases of up to $5 per ton
became effective in most of the company's southern markets and
up to $4 per ton in its northern markets.
- -11-
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the second quarter of 1996.
Exhibit 11 - Statements Re Computation of Per Share Earnings
Computation of Primary and Fully Diluted Income Per Common Share
(In thousands, except per share)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Primary
Earnings-Net income $14,969 $12,696 $16,161 $12,393
Shares
Weighted average number
of common shares
outstanding 16,036 15,990 16,079 16,003
Additional shares
assuming conversion of:
stock options 123 107 127 115
Average common shares
outstanding and
equivalents 16,159 16,097 16,206 16,118
Primary income per
common share $ .93 $ .79 $ 1.00 $ .77
Fully Diluted
Earnings
Net income $14,969 $12,696 $16,161 $12,393
Interest on convertible
subordinated notes,
net of taxes 593 565 1,187 1,130
Net income available
for common
shareholders $15,562 $13,261 $17,348 $13,523
Shares
Weighted average number
of common shares
outstanding 16,036 15,990 16,079 16,003
Additional shares
assuming conversion of:
stock options 144 128 153 130
convertible notes 1,736 1,736 1,736 1,736
Average common shares
outstanding and
equivalents 17,916 17,854 17,968 17,869
Fully diluted income
per common share $ .87 $ .74 $ .97 $ .76
- -12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed of its behalf
by the undersigned thereunto duly authorized.
MEDUSA CORPORATION
REGISTRANT
Date August 6, 1996 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date August 6, 1996 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -13-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDUSA
CORPORATION AND SUBSIDIARIES'STATEMENT OF INCOME AND BALANCE SHEET AND IS
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