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, 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 June 30, 1997:
Common Shares, Without Par Value - 16,890,034 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended June 30,
1997 and 1996; Six months ended June 30, 1997 and 1996
Consolidated Balance Sheets - June 30, 1997, June 30, 1996 and
December 31, 1996
Consolidated Statements of Cash Flows - Six months ended June
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 103,185 $ 85,995 $ 160,024 $ 131,068
Costs and Expenses:
Cost of sales 60,098 51,855 104,060 85,627
Selling, general and
administrative 9,253 6,968 15,903 12,500
Depreciation and
amortization 6,553 4,651 10,343 7,953
75,904 63,474 130,306 106,080
Operating Profit 27,281 22,521 29,718 24,988
Other Income (Expense):
Interest income 5 191 71 467
Interest expense (301) (952) (409) (1,993)
Miscellaneous - net (49) (35) 237 28
(345) (796) (101) (1,498)
Income Before Taxes 26,936 21,725 29,617 23,490
Provision For Income
Taxes 8,628 6,756 9,477 7,329
Net Income $ 18,308 $ 14,969 $ 20,140 $ 16,161
Average Common Shares
Outstanding 16,590 16,036 16,623 16,079
Net Income Per Common
Share:
Primary $ 1.09 $ .93 $ 1.20 $ 1.00
Fully Diluted $ 1.09 $ .87 $ 1.20 $ .97
Cash Dividends Declared
Per Common Share $ .15 $ .15 $ .30 $ .275
See notes to consolidated financial statements
</TABLE>
-2-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
(Unaudited)
Assets
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 7,198 $ 7,649 $ 25,045
Accounts receivable (Note 3) 44,057 39,776 28,708
Inventories (Note 4) 35,272 35,075 31,177
Other current assets 9,838 9,253 4,490
Total Current Assets 96,365 91,753 89,420
Property, Plant and Equipment:
Cost 406,145 369,900 376,186
Less accumulated depreciation 257,411 246,355 250,457
148,734 123,545 125,729
Intangible and Other Assets 12,583 10,953 8,297
Total Assets $ 257,682 $ 226,251 $ 223,446
</TABLE>
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)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of
<S> <C> <C> <C>
long-term debt $ 606 $ 41 $ 41
Loans payable 18,507 - -
Accounts payable 14,609 12,710 15,575
Accrued compensation and
payroll taxes 6,161 4,446 7,014
Other accrued liabilities 14,290 11,705 9,247
Income taxes payable 3,761 1,792 2,728
Total Current Liabilities 57,934 30,694 34,605
Long-Term Debt 4,149 61,624 4,084
Accrued Postretirement Health
Benefit Cost 28,545 27,756 27,760
Accrued Pension, Reserves and
Other Liabilities 2,959 3,498 3,027
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 63,009 27,883 57,159
Retained earnings 155,167 108,774 140,124
Unvested restricted common shares (85) (99) (39)
Unearned restricted common shares (9,422) (7,702) (7,516)
Currency translation adjustment (965) (882) (930)
Total Paid in Capital and
Retained Earnings 207,705 127,975 188,799
Less Cost of Treasury Shares (43,610) (25,296) (34,829)
Total Shareholders' Equity 164,095 102,679 153,970
Total Liabilities and Shareholders'
Equity $ 257,682 $ 226,251 $ 223,446
See notes to consolidated financial statements
</TABLE>
-4-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1997 1996
Cash Provided From (Used By) Operating Activities:
<S> <C> <C>
Net income $ 20,140 $ 16,161
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 10,343 7,953
Provision for deferred income taxes 423 218
Postretirement health benefit cost 211 310
Increase in operating working capital (22,779) (28,723)
Gain on sale of capital assets (135) (23)
Net Cash Provided From (Used By) Operating
Activities 8,203 (4,104)
Cash Provided From (Used By) Investing Activities:
Capital expenditures (14,224) (11,746)
Payment on business acquired (12,750) -
Proceeds from sale of capital assets 100 23
Net Cash Used By Investing Activities (26,874) (11,723)
Cash Provided From (Used By) Financing Activities:
Increase in short-term borrowings 12,565 -
Purchase of treasury shares (7,551) (5,598)
Dividends paid (5,097) (4,903)
Stock options exercised 907 811
Net Cash Provided From (Used By) Financing
Activities 824 (9,690)
Decrease In Cash And Short-Term Investments (17,847) (25,517)
Cash And Short-Term Investments At Beginning
Of Period 25,045 33,166
Cash And Short-Term Investments At End Of Period $ 7,198 $ 7,649
See notes to consolidated financial statements
</TABLE>
-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, 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 January 13, 1997, the company acquired the stock of Lime
Crest Corporation in New Jersey ("Sparta") for $12.8 million
cash, $5.9 million in debt assumed, and other liabilities. The
company paid off this debt concurrent with the purchase. The
acquisition is accounted for as a purchase and accordingly, the
company's financial statements include the operating results
from the date acquired.
3. Accounts receivable are shown net of allowances of (in
thousands) $1,845, $1,248 and $989 for period ended June 30,
1997 June 30, 1996 and December 31, 1996, respectively.
4. Inventories (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Finished goods 14,774 12,966 13,594
Work in process 5,385 7,302 3,424
Raw materials and supplies 15,113 14,807 14,159
35,272 35,075 31,177
</TABLE>
Inventories are stated at lower of cost, principally LIFO, or
market: replacement cost would be higher by approximately
$7,962, 7,316 and $7,590 for period ended June 30, 1997, June
30, 1996 and December 31, 1996, respectively.
- -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 six months and
second quarter of 1997 to 32.0% and for the six months and
second quarter of 1996 to 31.2% and 31.1%, respectively, from
the federal statutory rate of 35%.
6. At both June 30, 1997 and December 31, 1996, 50,000,000 Common
Shares, without par value, were authorized. At June 30, 1997,
16,890,034 shares were outstanding (16,924,006 at December 31,
1996).
7. In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
128 (FAS 128), Earnings per Share. This Statement establishes
standards for computing and presenting earnings per share (EPS).
It replaces the presentation of primary EPS (net income
applicable to Common Shares divided by average Common Shares
outstanding and, if dilution is 3% or more, Common Stock
equivalents) with a presentation of basic EPS (net income
applicable to Common Shares divided by average Common Shares
outstanding), which the company currently presents. It also
requires dual presentation of basic and diluted EPS on the face
of the income statement and a reconciliation of the numerator
and denominator of both EPS computations.
This statement is effective with the year-end 1997 financial
statements. Earlier application is not permitted; however, the
Statement requires restatement of all prior period EPS data
presented, including interim periods. The basic and diluted EPS
under FAS 128 for the company's first and second quarter of 1997
would not differ materially from the existing primary and fully
diluted EPS under APB 15.
8. 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.
- -7-
Item 1 Legal Proceedings
On May 27, 1997, the company's Wampum, Pennsylvania cement plant
received a Notice of Violation (NOV) from the U.S. Environmental
Protection Agency (EPA), Region III. The NOV alleged violations
of Pennsylvania law, with respect to visible emissions from two
plant air sources, the gravel bed filter and the main kiln
stack. Prior to receiving the NOV from the EPA, the company had
been coordinating its environmental concerns with the
Commonwealth of Pennsylvania Department of Environmental
Protection (PaDEP). For additional background please refer to
the company's prior reports on this subject, on page 23 of the
Annual Report to Shareholders for the year ended December 31,
1996, and on page 10 of the Form 10-Q for the quarter ended
March 31, 1997. Representatives of the company attended a joint
meeting with representatives of EPA and PaDEP on June 13, 1997.
At the meeting, the company explained that, in March of 1997 it
had discovered a solution to its excess visible emissions from
the gravel bed filter and planned, via a significant capital
expenditure, to solve its excess visible emissions from the main
kiln stack in early 1998. The company is awaiting a response
from EPA and PaDEP.
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 June 30, 1997 Compared With Three Months
Ended June 30, 1996
Net sales for the second quarter of 1997 increased 20% to
$103.2 million from $86.0 million in 1996. Cement net sales
rose 8% over last year's second quarter on a 7% increase in
unit volume and a 1% increase in prices. The modest increase
in average cement prices during the quarter reflects sales mix.
Aggregate group's sales, excluding Sparta, increased 24%.
Including Sparta, group sales are up 88%. Aggregate quarry
volume increased 25% and had a 4% price increase versus second
quarter 1996. The Medusa Minerals Co. - Thomasville
("Thomasville") volume increased 12% with a 3% price increase
from last year's second quarter. In addition, sales of James H.
Drew increased 36% for the quarter and were 6% of the
consolidated total net sales.
- -8-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Three Months Ended June 30, 1997 Compared With Three Months
Ended June 30, 1996
Cost of sales as a percent of sales fell to 58% for the quarter
compared to 60% in same period of 1996. Production at the four
cement plants was at or above 1996 levels and lower plant costs
helped reduce cement production costs by 4%. The company's
cement plants as a group, operated at 106% of annual rated
clinker capacity in 1997 compared to a 99% rate in 1996 which
was restrained by unplanned outages. 1996 costs also were
affected by the $1.2 million one-time charge for the company's
voluntary early retirement incentive program negotiated at the
Wampum cement plant.
Selling, general and administrative expense for 1997 of $9.3
million, or 9% of sales, increased from $7.0 million, or 8% of
sales, in 1996. Costs related to the lapse of the restriction
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) was the
principal cause for this increase.
Second quarter depreciation and amortization expense for 1997 of
$6.6 million compares to $4.7 million in 1996 reflecting higher
restricted share amortization and capital spending.
Operating profit for the quarter of $27.3 million compares to
$22.5 million in 1996. The improvement in operating results are
attributable to the above mentioned reasons.
Pretax income of $26.9 million increased 24% from the $21.7
million in 1996 as the company benefited from $651,000 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 to 32.0% and 31.1% for the
second quarter of 1997 and 1996, respectively, from the federal
statutory rate of 35%.
Net income of $18.3 million, $1.09 per Common Share, increased
22% from the $15.0 million, or $.87 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.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Six Months Ended June 30, 1997 Compared With Six Months Ended
June 30, 1996
Net income increased 25% for the first six months of 1997 to
$20.1 million, or $1.20 per Common Share, compared to a net
income of $16.1 million, or $.97 per Common Share, in 1996.
Net sales for the first half of 1997 increased to $160.0
million from $131.1 million in 1996. Cement net sales grew 10%
over last year's first half as unit volumes rose 8% and with 2%
higher cement prices resulting from successfully implementing
April 1, 1997 price increases favorably affecting the period.
Aggregate groups' net sales for the first half of 1997
increased 86% (26% excluding the impact of the Sparta
acquisition) compared to 1996 as unit volumes improved 51% (28%
excluding Sparta). Sparta's net sales represented 7% of
consolidated net sales for the period. Sales for the company's
highway and safety construction operation were up 43%.
Cost of sales as a percent of sales for the first six months
for both periods was 65%. Cement capacity utilization was 86%
in 1997 compared to 83% in 1996.
Selling, general and administrative expense of $15.9 million,
9.9% of sales, increased from $12.5 million, 9.5% 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) was the principal cause for
this increase.
Depreciation and amortization expense increased $2.3 million to
$10.3 million from $8.0 million in 1996 reflecting higher
restricted stock amortization and capital and acquisition
spending.
- -10-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Six Months Ended June 30, 1997 Compared With Six Months Ended
June 30, 1996
Operating profit for the first half of 1997 of $29.7 million
compares to $25.0 million in 1996. The improvement in
operating results is mainly attributable to the volume and
price increases for the various units offset by the increased
depreciation, amortization and selling, general and
administrative expenses as mentioned above.
Both interest income and expense are lower than the previous
year's first six month's as the redemption of the company's 6%
convertible subordinated notes in October, 1996 decreased cash
and outstanding debt. Interest income decreased $396,000 from
the prior year primarily due to lower levels of marketable
securities while interest expense decreased by $1.6 million for
the same period due to lower outstanding debt. The cash
purchase of Sparta and the payment 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.
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 six 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 June 30, 1997, the company had $7.2 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
June 30, 1997, $8.0 million of the revolver and $10.5 million
under the lines of credit were being utilized.
- -11-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Working capital at June 30, 1997, was $22.6 million lower than
at June 30, 1996, as the redemption of the company's 6%
convertible subordinated notes, capital and acquisition
spending have increased current borrowings by $18.5 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 1.7:1 at
June 30, 1996, 3.0:1 at June 30, 1996, and 2.6:1 at December
31, 1997.
Capital expenditures were $14.2 million compared to $11.3
million for the first six 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.
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 has been engaged 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.
- -12-
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 1997.
Exhibit 11 - Statements Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
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
1997 1996 1997 1996
Primary
<S> <C> <C> <C> <C>
Earnings-Net income $18,308 $14,969 $20,140 $16,161
Shares
Weighted average number
of common shares
outstanding 16,590 16,036 16,623 16,079
Additional shares
assuming conversion of:
stock options 183 123 184 127
Average common shares
outstanding and
equivalents 16,773 16,159 16,807 16,206
Primary income per
common share $ 1.09 $ .93 $ 1.20 $ 1.00
Fully Diluted
Earnings
Net income $18,308 $14,969 $20,140 $16,161
Interest on convertible
subordinated notes,
net of taxes - 593 - 1,187
Net income available
for common
shareholders $18,308 $15,562 $20,140 $17,348
Shares
Weighted average number
of common shares
outstanding 16,590 16,036 16,623 16,079
Additional shares
assuming conversion of:
stock options 186 144 185 153
convertible notes - 1,736 - 1,736
Average common shares
outstanding and
equivalents 16,776 17,916 16,808 17,968
Fully diluted income
per common share $ 1.09 $ .87 $ 1.20 $ .97
</TABLE>
- -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 August 13, 1997 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date August 13, 1997 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDUSA
CORPORATION AND SUBSIDIARIES' STATEMENT OF INCOME AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7198
<SECURITIES> 0
<RECEIVABLES> 45902
<ALLOWANCES> 1845
<INVENTORY> 35272
<CURRENT-ASSETS> 96365
<PP&E> 406145
<DEPRECIATION> 257411
<TOTAL-ASSETS> 257682
<CURRENT-LIABILITIES> 57934
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 164094
<TOTAL-LIABILITY-AND-EQUITY> 257682
<SALES> 103185
<TOTAL-REVENUES> 103185
<CGS> 60098
<TOTAL-COSTS> 75904
<OTHER-EXPENSES> 44
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 26936
<INCOME-TAX> 8628
<INCOME-CONTINUING> 18308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18308
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
