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 March 31, 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 March 31, 1996:
Common Shares, Without Par Value - 16,379,980 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended March 31,
1996 and 1995
Consolidated Balance Sheets - March 31, 1996, March 31, 1995 and
December 31, 1995
Consolidated Statements of Cash Flows - Three months ended March
31, 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 1 - Legal Proceedings
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 (Loss)
(In Thousands, except per share data)
Three Months Ended
March 31, March 31,
1996 1995
(Unaudited)
Net Sales $ 45,073 $ 45,620
Costs and Expenses:
Cost of sales 33,772 36,075
Selling, general and administrative 5,532 5,772
Depreciation and amortization 3,302 2,826
42,606 44,673
Operating Profit 2,467 947
Other Income (Expense):
Interest income 276 472
Interest expense (1,041) (1,881)
Miscellaneous - net 63 (1)
(702) (1,410)
Income (Loss) Before Taxes 1,765 (463)
Provision (Benefit) For Income Taxes 573 (160)
Net Income (Loss) $ 1,192 $ (303)
Average Common Shares Outstanding 16,122 16,016
Net Income Per Common Share:
Primary $ .07 $ (.02)
Fully Diluted (a) (a)
Cash Dividends Declared Per Common Share $ .15 $ .125
(a) Fully diluted earnings per share amounts are not presented since
it is anti-dilutive.
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)
March 31, December 31,
1996 1995 1995
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ 17,631 $ 29,559 $ 33,166
Accounts receivable, less allowances of
$720, $546 and $609, respectively 20,596 23,374 21,410
Refundable income taxes - 405 -
Inventories, at lower of cost,
principally LIFO, or market:
replacement cost would be higher by
approximately $7,265, $7,057 and
$7,238, respectively
Finished goods 10,984 7,541 12,980
Work in process 8,009 4,686 2,993
Raw materials and supplies 13,035 13,046 13,278
32,028 25,273 29,266
Other current assets 10,815 13,016 4,395
Total Current Assets 81,070 91,627 88,237
Property, Plant and Equipment:
Cost 365,019 343,206 358,819
Less accumulated depreciation 242,373 234,057 239,955
122,646 109,149 118,864
Intangible and Other Assets 11,861 11,339 12,477
Total Assets $ 215,577 $ 212,115 $ 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)
March 31, December 31,
1996 1995 1995
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of
long-term debt $ 41 $ 35,000 $ 41
Accounts payable 13,303 11,967 14,952
Accrued compensation and
payroll taxes 3,900 4,422 5,608
Other accrued liabilities 9,770 9,755 8,589
Income taxes payable 1,336 466 2,500
Total Current Liabilities 28,350 61,610 31,690
Long-Term Debt 61,624 61,300 61,624
Accrued Postretirement Health
Benefit Cost 27,576 27,468 27,446
Accrued Pension, Reserves and
Other Liabilities 3,080 3,520 3,270
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 24,653 20,804 23,433
Retained earnings 96,251 60,123 97,515
Unvested restricted common shares (10) (7) (40)
Unearned restricted common shares (5,465) (4,049) (5,672)
Currency translation adjustment (867) (1,087) (870)
Total Paid in Capital and
Retained Earnings 114,563 75,785 114,347
Less Cost of Treasury Shares (19,616) (17,568) (18,799)
Total Shareholders' Equity 94,947 58,217 95,548
Total Liabilities and Shareholders'
Equity $ 215,577 $ 212,115 $ 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)
Three Months Ended
March 31, March 31,
1996 1995
Cash Provided From (Used By) Operating Activities:
Net income (loss) $ 1,192 $ (303)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 3,302 2,826
Provision for deferred income taxes 52 415
Postretirement health benefit cost 130 126
Increase in operating working capital (11,430) (14,808)
Gain on sale of capital assets (33) (23)
Net Cash Used By Operating Activities (6,787) (11,767)
Cash Provided From (Used By) Investing Activities:
Capital expenditures (6,728) (5,649)
Proceeds from sale of capital assets 33 23
Net Cash Used By Investing Activities (6,695) (5,626)
Cash Provided From (Used By) Financing Activities:
Dividends paid (2,456) (2,028)
Stock options exercised 676 493
Payments to acquire treasury stock (273) -
Net Cash Used By Financing Activities (2,053) (1,535)
Decrease In Cash And Short-Term Investments (15,535) (18,928)
Cash And Short-Term Investments At Beginning
Of Period 33,166 48,487
Cash And Short-Term Investments At End Of Period $ 17,631 $ 29,559
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 three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1995. 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. Under Statement No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS
No. 121) the company is not aware of any events or changes in
circumstances that would result in a material effect on its
financial statements. Under Statement No. 123 "Accounting for
Stock-Based Compensation" (SFAS No. 123) the company has elected
to continue to utilize the accounting for stock issued to
employees prescribed by APB No. 25, consequently the required
adoption of SFAS No. 123 has no impact on the financial position
or results of operations of the company.
3. Use of the percentage depletion method and other permanent tax
adjustments reduced the company's effective tax rate for the
first three months of 1996 and 1995 to 32.5% and 34.6%,
respectively, from the federal statutory rate of 35%. The
provision for income taxes in 1995 reflects a credit due
principally to pretax losses.
4. At both March 31, 1996 and December 31, 1995, 50,000,000 common
shares, without par value were authorized. At March 31, 1996,
16,379,980 shares were outstanding (16,329,901 at December 31,
1995).
- -6-
Item 1 - Financial Statements (Cont'd)
5. Primary net income per share is computed by dividing net income
by the weighted average number of shares of common stock and
common stock equivalents (options) outstanding during the
period. Fully diluted net income per share is computed based on
the weighted average number of shares of common stock and common
stock equivalents outstanding during the period, as if the
convertible subordinated notes were converted into common stock
at the beginning of the period after giving retroactive effect
to the elimination of interest expense, net income tax effect,
applicable to the subordinated notes.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended March 31, 1996 Compared With Three Months
Ended March 31, 1995
Net sales for the first quarter of 1996 decreased 1% to $45.1
million from $45.6 million in 1995. Cement net sales rose 3%
over last years' first quarter. Cement unit volume fell 5%
compared to 1995's first quarter, but price increases
implemented in April 1995 have resulted in the company's average
per ton cement selling prices increasing nearly 8% over that of
the prior year's same period. The poor volume was caused by
construction efforts being affected by adverse weather
conditions during the current quarter as contrasted to the more
favorable weather experienced during 1995's first quarter of
operations.
Both the Aggregate group and James H. Drew operations' net sales
fell 14% as adverse weather conditions hampered construction
activity in their respective markets.
Cost of sales as a percent of sales fell to 74.9% in the first
quarter of 1996 compared to 79.1% in the same period of 1994 as
three of the company's four cement plants experienced lower
production costs during the quarter. The company's cement
plants, as a group. operated at 69.0% of annual rated clinker
capacity in 1996 compared to 70.2% in 1995. Lower capacity
- -7-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (Cont'd)
ratings are historically experienced during the first quarter
because of the annual maintenance programs performed during the
reduced volume periods in the winter months in preparation for
the year's production season.
Depreciation and amortization expense increased $.5 million to
$3.3 million in 1996 from $2.8 million in 1995. The increase
was due to the high levels of capital expenditures in both 1996
and 1995.
Selling, general and administrative expense as a percent of
sales fell to 12.3% in 1996 from 12.7% in 1995. Lower costs,
principally in the salaries, wages, and related areas
contributed to this reduction.
Operating profit for the first quarter of 1996 of $2.5 million
compares to $1.0 million in 1995. The improvement in operating
results are attributable to the above mentioned reasons.
Both interest income and expense are lower than the pervious
year's first quarter as the company paid off its $35.0 million
of 10% unsecured notes on December 15, 1995 thereby decreasing
cash and outstanding debt. Interest income decreased from the
prior year's quarter by $196,000 to $276,000 primarily due to
lower levels of marketable securities while interest expense
decreased by $840,000 to $1,041,000 for the same period due to
lower outstanding debt.
The company's effective tax rate was 32.5% and 34.6% in the
first quarter of 1996 and 1995, respectively. These rates were
lower than the federal statutory rate of 35% due to a higher
percentage depletion deduction and lower effective state tax
rates. The provision for income taxes for the first quarter
1995 reflects a credit due to pretax losses during the quarter.
Net income for the first quarter of $1.2 million, or $.07 income
per common share in 1996 compares to a net loss of $303,000, or
$.02 loss per common share, in 1995.
- -8-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The company's business is highly seasonal and particularly
sensitive to weather conditions. Interim results are not
indicative of annual results.
Employees at the company's Thomasville Stone and Lime subsidiary
and its Demopolis and Wampum plants ratified new multi year
contracts. The four-year Thomasville and Demopolis contracts
became effective April 1, and May 1, 1996, respectively. The
three-year Wampum contract became effective May 1, 1996.
The new labor contract at the Wampum plant includes a one-time
early retirement incentive package as part of a reduction-in-
force agreement. The company estimates that this will result in
a one-time after-tax charge to earnings of up to ($1.4 million)
or about ($.08) per fully diluted share. For the above and
other reasons the company expects to realize a significant
improvement in labor productivity at the Wampum plant as a
result of the new agreement.
Liquidity and Capital Resources
At March 31, 1995, the company had $17.6 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 totaling $20.0 million. At
March 31, 1996, no amounts were outstanding under any of these
facilities.
Working capital at March 31, 1996, was $22.7 million greater
than at March 31, 1995, due principally to $35.0 million of 10%
unsecured Senior Notes that were paid on December 15, 1995, $6.8
million higher inventory levels, but partially offset by higher
accounts payable and accrued income tax balances. The ratio of
current assets to current liabilities was 2.9:1 at March 31,
1996, 2.8:1 at December 31, 1995, and 1.5:1 at March 31, 1995.
Capital expenditures for the first quarter of 1996 were $6.7
million compared to $5.6 million in the first quarter of 1995.
The higher expenditures relate to capital improvements to
enhance productivity, reduce operating costs and expand clinker
capacity.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Between March 31, 1996 and the date of this filing, the company
has purchased 177,900 of its common shares for $5.3 million.
On April 1, 1996 cement price increases of up to $5 per ton
became effective in most of the company's southern markets and
of up to $4.00 per ton in the company's northern markets.
Part II - Other Information
Item 1 Legal Proceedings
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 decrease.
Subsequent emissions tests essentially showed to the Department
of Environmental Quality ("MDEQ") and the EPA, that SO2
emissions did not change. A study by an independent consultant
demonstrated that the SO2 emissions from the Charlevoix plant
did 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 were impaired. The
EPA delegated the NOV settlement procedure to the MDEQ. On
April 17, 1996, a Consent Judgment was entered satisfying the
NOV, (which included a revised air emissions permit). The
material terms of the Consent Judgment include: a) Medusa's
obligation to limit SO2 emissions to 1978 levels; b) Medusa's
installation of an SO2 Continuous Emissions Rate Monitoring
System; and c) Medusa's payment to MDEQ of a civil penalty of
$230,000 and liquidated damages of $10,000.
- -10-
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the first 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
March 31
1996 1995
Primary
Earnings-Net income $ 1,192 $ (303)
Shares
Weighted average number of common
shares outstanding 16,122 16,016
Additional shares
assuming conversion of:
stock options 131 124
Average common shares
outstanding and equivalents 16,253 16,140
Primary income per
common share $ .07 $ (.02)
Fully diluted earnings per share amounts are not presented since
they are anti-dilutive.
- -11-
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 May 6, 1996 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date May 6, 1996 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -12-
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