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 September 30, 1997
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 September 30, 1997:
Common Shares, Without Par Value - 16,882,779 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended September
30, 1997 and 1996; Nine months ended September 30, 1997 and 1996
Consolidated Balance Sheets - September 30, 1997, September 30,
1996 and December 31, 1996
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1997 and 1996
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Unaudited)
Net Sales $ 117,068 $ 109,295 $ 277,092 $ 240,363
Costs and Expenses:
Cost of sales 69,759 65,657 173,723 151,284
Selling, general and
administrative 7,073 6,477 22,976 18,977
Depreciation and
amortization 4,935 4,379 15,374 12,332
81,767 76,513 212,073 182,593
Operating Profit 35,301 32,782 65,019 57,770
Other Income (Expense):
Interest income 16 254 87 721
Interest expense (399) (1,022) (809) (3,015)
Miscellaneous - net 2 104 240 132
(381) (664) (482) (2,162)
Income Before Taxes 34,920 32,118 64,537 55,608
Provision For Income
Taxes 11,174 10,024 20,652 17,353
Net Income $ 23,746 $ 22,094 $ 43,885 $ 38,255
Average Common Shares
Outstanding 16,545 15,946 16,597 16,034
Net Income Per Common
Share:
Primary $ 1.41 $ 1.38 $ 2.61 $ 2.37
Fully Diluted $ 1.41 $ 1.27 $ 2.61 $ 2.23
Cash Dividends Declared
Per Common Share $ .15 $ .15 $ .45 $ .45
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)
September 30, December 31,
1997 1996 1996
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ 4,698 $ 28,282 $ 25,045
Accounts receivable (Note 3) 54,262 48,952 28,708
Inventories (Note 4) 30,631 27,375 31,177
Other current assets 8,004 6,239 4,490
Total Current Assets 97,595 110,848 89,420
Property, Plant and Equipment:
Cost 424,938 374,264 376,186
Less accumulated depreciation 261,567 250,222 250,457
163,371 124,042 125,729
Intangible and Other Assets 37,258 10,530 8,297
Total Assets $ 298,224 $ 245,420 $ 223,446
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)
September 30, December 31,
1997 1996 1996
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of
long-term debt $ 606 $ 41 $ 41
Accounts payable 16,397 13,568 15,575
Accrued compensation and
payroll taxes 7,449 7,049 7,014
Other accrued liabilities 13,816 10,983 9,247
Income taxes payable 4,440 4,430 2,728
Total Current Liabilities 42,708 36,071 34,605
Long-Term Debt 35,676 61,624 4,084
Accrued Postretirement Health
Benefit Cost 28,623 28,062 27,760
Accrued Pension, Reserves and
Other Liabilities 9,042 3,488 3,027
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 66,682 28,539 57,159
Retained earnings 176,349 128,434 140,124
Unvested restricted common shares (57) (70) (39)
Unearned restricted common shares (9,385) (7,609) (7,516)
Currency translation adjustment (938) (869) (930)
Total Paid in Capital and
Retained Earnings 232,652 148,426 188,799
Less Cost of Treasury Shares (50,477) (32,251) (34,829)
Total Shareholders' Equity 182,175 116,175 153,970
Total Liabilities and Shareholders'
Equity $ 298,224 $ 245,420 $ 223,446
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)
Nine Months Ended
September 30,
1997 1996
Cash Provided From (Used By) Operating Activities:
Net income $ 43,885 $ 38,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,374 12,332
Provision for deferred income taxes 648 349
Postretirement health benefit cost 290 616
Increase in working capital (26,689) (21,630)
Gain on sale of capital assets (152) (144)
Net Cash Provided From Operating Activities 33,356 29,778
Cash Provided From (Used By) Investing Activities:
Capital expenditures (19,149) (16,381)
Payments for businesses acquired (42,750) -
Proceeds from sale of capital assets 110 144
Net Cash Used By Investing Activities (61,789) (16,237)
Cash Provided From (Used By) Financing Activities:
Issuance of long-term debt 31,528 -
Payments on long-term debt (5,942) -
Purchase of treasury shares (11,417) (12,409)
Dividends paid (7,661) (7,337)
Stock options exercised 1,578 1,321
Net Cash Provided From (Used By)
Financing Activities 8,086 (18,425)
Increase (Decrease) In Cash And Short-Term
Investments (20,347) (4,884)
Cash And Short-Term Investments At Beginning
Of Period 25,045 33,166
Cash And Short-Term Investments At End Of Period $ 4,698 $ 28,282
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 nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
2. On August 28, 1997, the company acquired the stock of White
Stone Company of Southwest Virginia ("Castlewood") located in
Castlewood, Virginia for approximately $30.0 million in notes
and other liabilities.
3. Accounts receivable are shown net of allowances of (in
thousands) $2,348, $1,868 and $989 for period ended September
30, 1997, September 30, 1996 and December 31, 1996,
respectively.
4. Inventories (in thousands):
September 30, December 31,
1997 1996 1996
Finished goods $ 12,835 $ 8,700 $ 13,594
Work in process 2,372 3,826 3,424
Raw materials and supplies 15,424 14,849 14,159
$ 30,631 $ 27,375 $ 31,177
Inventories are stated at lower of cost, principally LIFO, or
market: replacement cost would be higher by approximately
$7,969, 7,366 and $7,590 as of September 30, 1997, September 30,
1996 and December 31, 1996, respectively. The $4.1 million
finished goods increase is attributable to the Lime Crest
Corporation ("Sparta") and Castlewood acquisitions.
- -6-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
5. Use of the percentage depletion method, lower effective state
income tax rates, and other permanent tax adjustments reduced
the company's effective tax rate for both the nine months and
third quarter of 1997 and 1996 to 32.0% and 31.2%, respectively,
from the federal statutory rate of 35%.
6. At both September 30, 1997 and December 31, 1996, 50,000,000
Common Shares, without par value, were authorized. At September
30, 1997, 16,882,779 shares were outstanding (16,924,006 at
December 31, 1996).
7. 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.
8. In June 1997, the FASB issued FAS 130, Reporting Comprehensive
Income and FAS 131, Disclosures about Segments of a Enterprise
and Related Information. FAS 130 establishes standards for
reporting and displaying comprehensive income and its components
in the financial statements. It requires that a company
classify items of other comprehensive income, as defined by
accounting standards, by their nature (e.g., unrealized gains or
losses on securities, currency translation adjustment) in a
financial statement. The company is in the process of
determining its preferred format. FAS 131 requires that a
public business enterprise report financial and descriptive
information about its reportable operating segments on the basis
that is used internally for evaluating segment performance and
deciding how to allocate resources segments. Both statements
are effective for the year-end 1998 audited financial
statements, however, under FAS 130 a total for comprehensive
income is required in the financial statements of interim
periods beginning with the first quarter of 1998.
- -7-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
All per share amounts are on a fully diluted basis.
Three Months Ended September 30, 1997 Compared With Three Months
Ended September 30, 1996
Net sales for the third quarter of 1997 increased 7% to $117.1
million from $109.3 million in 1996. Cement net sales rose 1%
over last year's third quarter reflecting 2% higher prices on a
1% decline in unit volume.
Aggregate group sales increased 51% for the third quarter and
represented 18% of consolidated net sales in the third quarter,
up from 13% last year. Nearly 83% of the company's quarterly
sales increase reflects the acquisition of Lime Crest
Corporation ("Sparta") in January 1997 and Castlewood in late
August 1997. Excluding these acquisitions, consolidated net
sales increased 1% and Aggregates group sales increased 4% over
last year's third quarter. James H. Drew sales fell 2% for the
quarter and were 7% of the consolidated net sales.
Cost of sales as a percent of sales was 59.6 and 60.1%,
respectively, for the 1997 and 1996 third quarter. Aggregate
group's cost of sales as a percent of sales is higher than
that of cement. The increased growth in Aggregates at this
higher cost of sales offset Cement's 1% improvement in quarter
over quarter cost of sales percentage. Production at the four
cement plants was at or above 1996 levels and lower plant costs
helped reduce cement production costs by 4%. Three of the four
cement plants were at or above clinker production levels
compared to the prior year. These plants as a group, operated
at 111% of annual rated clinker capacity in 1997 compared to a
108% rate in 1996.
Selling, general and administrative expense for 1997 of $7.1
million, or 6.0% of sales, increased from $6.5 million, 5.9% of
sales, in 1996. Substantially all of the $.6 million increase
from prior year's quarter is related to the Sparta and
Castlewood acquisitions.
Third quarter depreciation and amortization expense for 1997 of
$4.9 million compares to $4.4 million in 1996 reflecting higher
restricted share and goodwill amortization and capital spending.
- -8-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Three Months Ended September 30, 1997 Compared With Three
Months Ended September 30, 1996
Operating profit for the quarter of $35.3 million compares to
$22.8 million in 1996. The improvement in operating results are
attributable to the above mentioned reasons.
Pretax income of $34.9 million increased 8.7% from the $32.1
million in 1996 as the company benefited from $623,000 in lower
interest expense due to lower outstanding debt.
Use of the percentage depletion method, lower effective state
income tax rates, and other permanent tax adjustments reduced
the company's effective tax rate for both the nine months and
third quarter of 1997 and 1996 to 32.0% and 31.2%, respectively,
from the federal statutory rate of 35%.
Net income of $23.7 million, $1.41 per Common Share, increased
7.5% from the $22.1 million, or $1.27 per Common Share, in 1996
for the above mentioned reasons but was minimally offset because
the effective tax rate for the period of 32.0% was marginally
greater than the 31.1% in 1996.
Nine Months Ended September 30, 1997 Compared With Nine Months
Ended September 30, 1996
Net income increased 14.7% for the first nine months of 1997 to
$43.9 million, or $2.61 per Common Share, compared to a net
income of $38.3 million, or $2.23 per Common Share, in 1996.
Net sales for the first nine month's of 1997 increased to
$277.1 million from $240.4 million in 1996. Cement net sales
increased 5.7% over last year as unit volumes rose 4.3% and
1.4% higher cement prices.
Aggregate groups' net sales for the first nine month's of 1997
increased 70.9% (16.6% excluding the impact of the Sparta and
Castlewood acquisitions) compared to 1996 as unit volumes
improved 36.2% (18.1% excluding acquisitions). The net sales
of the acquisitions' represented 6.4% of consolidated net sales
for the period. Sales for the company's highway and safety
construction operation were up 17.9% and represented 6.0% of
consolidated net sales.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Nine Months Ended September 30, 1997 Compared With Nine Months
Ended September 30, 1996
Cost of sales as a percent of sales for the first nine months
of 1997 and 1996 were 62.7% and 62.9%, respectively. Cement
capacity utilization was 93.4% in 1997 compared to 90.7% in
1996.
Selling, general and administrative expense of $23.0 million,
8.3% of sales, increased from $19.0 million, 7.9% of sales, in
1996. Costs related to the lapse of the restrictions on certain
performance restricted share awards (reflecting the relatively
stronger market performance over time of the company's Common
Shares compared with its peer group) and the increases related
to the acquisitions are the principal causes for this $4.0
million increase.
Depreciation and amortization expense increased $3.0 million to
$15.4 million from $12.3 million in 1996 reflecting higher
restricted stock and goodwill amortization and increased
depreciation related to levels of capital and acquisition
spending.
Operating profit for the first nine month's of 1997 of $65.0
million compares to $57.8 million in 1996. The improvement in
operating results is mainly attributable to the increased sales
revenue for the various units while maintaining overall cost
margins for those sales but offset by the costs associated with
the lapse of the performance restricted shares, increased
depreciation and acquisition related increases in selling,
general and administrative expenses as mentioned above.
Both interest income and expense are lower than the previous
year's first nine month's as the redemption of the company's 6%
convertible subordinated notes in October, 1996 decreased cash
and outstanding debt. Interest income decreased $634,000 from
the prior year primarily due to lower levels of marketable
securities while interest expense decreased by $2.2 million for
the same period due to lower outstanding debt. In addition,
the cash purchase of Sparta and the repayment of debt assumed
on the purchase reduced cash and short-term investments thereby
decreasing interest income generated in the period compared to
last year's same period.
- -10-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Nine Months Ended September 30, 1997 Compared With Nine Months
Ended September 30, 1996
Use of the percentage depletion method, lower effective state
income tax rates, and other permanent tax adjustments reduced
the company's effective tax rate to 32.0% and 31.2% for the
first nine month's of 1997 and 1996, respectively, from the
federal statutory rate of 35%.
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 September 30, 1997, the company had $4.7 million of cash and
short-term investments. The company has available an unsecured
$65.0 million five-year revolving credit facility ("revolver")
for general corporate purposes that expires December 31, 2001,
and unsecured bank lines of credit totaling $25.0 million. At
September 30, 1997, no amounts were outstanding under any of
these facilities.
Working capital at September 30, 1997, was $19.9 million lower
than at September 30, 1996, as the redemption of the company's
6% convertible subordinated notes, capital spending and the
cash acquisition of Sparta have decreased current cash balances
by $23.6 million. Increases in accounts payable and other
accrued liabilities account for much of the remaining reduction
in working capital. The ratio of current assets to current
liabilities was 2.3:1 at September 30, 1997, 3.1:1 at September
30, 1996, and 2.6:1 at December 31, 1996.
Capital expenditures were $19.1 million compared to $16.4
million for the first nine months of 1997 and 1996,
respectively. 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. Additionally, the company has acquired
assets via cash and debt totaling $42.8 million in 1997
reflecting the company's strategy to grow in the home & garden
and industrial limestone markets.
- -11-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
During the third quarter the company announced that its Board
of Directors had approved a major modernization and expansion
project at its Clinchfield, Georgia cement plant and related
facilities. The company anticipates that the $56 million
project will significantly reduce cash costs of the Clinchfield
complex and increase clinker output about 175,000 tons per year
to about 760,000 annual tons. Financing for the project will
be through cash provided from operations supplemented by either
short and/or long-term borrowings as needed.
The company remains optimistic that its cement plants will
continue to operate at practical capacity for the remainder of
1997 and that its shipments for the year will exceed 1996
levels.
The company is continuing on an ongoing basis to bring all of
its business critical and ancillary information processing
systems year 2000 compliant. The company currently expects the
former to be completed by year's end with the ancillary systems
to follow in 1998. Operations and costs of these efforts are
not expected to be significant as the company implemented a new
database and operating system in 1996 in anticipation of this
issue.
Subsequent Event
On October 2, 1997, the company acquired the stock of Lee Lime
Corporation based in Lee, Massachusetts for $17.5 million, net
of cash acquired. This acquisition combined with the company's
Thomasville, Sparta and Castlewood operations give the company a
significant added presence in home & garden and industrial
limestone products in the Eastern half of the United States.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the third quarter of 1997.
- -12-
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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Primary
Earnings-Net income $23,746 $22,094 $43,885 $38,255
Shares
Weighted average number
of common shares
outstanding 16,545 15,946 16,597 16,034
Additional shares
assuming conversion of:
stock options 240 115 202 123
Average common shares
outstanding and
equivalents 16,785 16,061 16,799 16,157
Primary income per
common share $ 1.41 $ 1.38 $ 2.61 $ 2.37
Fully Diluted
Earnings
Net income $23,746 $22,094 $43,885 $38,255
Interest on convertible
subordinated notes,
net of taxes - 593 - 1,780
Net income available
for common
shareholders $23,746 $22,687 $43,885 $40,035
Shares
Weighted average number
of common shares
outstanding 16,545 15,946 16,597 16,034
Additional shares
assuming conversion of:
stock options 273 133 214 146
convertible notes - 1,736 - 1,736
Average common shares
outstanding and
equivalents 16,818 17,815 16,811 17,916
Fully diluted income
per common share $ 1.41 $ 1.27 $ 2.61 $ 2.23
- -13-
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 11/14/97 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date 11/14/97 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -14-
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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.
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