UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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 BLVD., CLEVELAND HTS., OHIO 44118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 371-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares without par value New York Stock Exchange
Securities registered pursuant to Section 12 (G) of the Act:
None
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant as of
February 28, 1997, was $676,519,489.
The number of shares outstanding of the issuer's classes of common stock, as
of February 28, 1997:
Common Shares without par value -- 16,966,006
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders for the year ended
December 31, 1996, are incorporated by reference into Parts I, II and
IV.
Portions of the proxy statement for the annual shareholders meeting
April 21, 1997, are incorporated by reference into Part III.
Part I
Item 1. Business
Cement Industry Overview
Portland cement is the essential binding material used in making
concrete, which is widely used in residential and non-residential
construction and in public works and infrastructure projects. Cement
is sold primarily in bulk form to producers of ready-mix concrete and
manufacturers of concrete products.
Cement is made in a multi-stage process that begins with the crushing,
grinding and mixing of calcium carbonate (usually in the form of
quarried limestone), sand, alumina, iron oxide and other materials.
This raw materials mixture is then reacted in rotary kilns at
extremely high temperatures. The resulting marble-size pellet
material (called "clinker") is cooled and ground with a small amount
of gypsum to produce cement having the consistency of fine powder.
There are two basic methods of clinker production. The older "wet"
process involves mixing the raw materials with water to form a slurry
that is reacted in the kiln. This process involves the use of a large
amount of fuel, but enables the raw materials to be handled and mixed
easily. In the more fuel-efficient "dry" process, the slurrying step is
eliminated and clinker is produced by reacting only the dry raw
materials. Even more fuel-efficient processes involve preheater and
preheater/precalciner techniques that recycle excess heat from the kiln
to either preheat or to enhance chemical reaction of the raw materials
prior to their introduction into the kiln. The company estimates that,
in general, the energy consumed to produce cement from a dry process
preheater/precalciner kiln is approximately 40% less than a wet process
kiln. All the company's kilns use the dry process.
According to the U. S. Geological Survey Deptartment current report, the
average price of a ton of portland cement in 1996, F.O.B. the point of
sale, was $57.90. Cement markets tend to be regional because of the low
price of cement relative to its weight, making cost of transportation an
important factor in the industry. The company estimates that the
approximate distance that one ton of cement can be transported for the
same relative cost is 500 miles by water vessel, 60 miles by rail and 20
miles by truck. As a result, cement plants whose products can be
transported only by truck or rail tend to serve relatively small
geographic markets (typically not in excess of a 200 mile radius of the
plant), while plants with access to water transportation are able to
efficiently serve considerably larger geographic markets. The market
served by a cement plant may be extended through the use of distribution
terminals to which cement is transferred in bulk and inventoried for
sale to customers in surrounding areas.
PART I
Item l. Business (continued)
Demand
Demand for cement is correlated to cyclical construction activity,
which, in turn, is influenced largely by national and regional economic
conditions, including (particularly in the case of residential
construction) prevailing interest rates. In addition, levels of
government spending on infrastructure improvement affect cement
consumption. Demand for cement is also seasonal, particularly in
northern markets where inclement weather affects construction activity.
According to the Portland Cement Association ("PCA"), total annual
cement consumption (i.e.: the total demand for both portland and masonry
cements) in the United States over the past 20 years has ranged from a
low of 65.5 million tons in 1982 to a high of 100.3 million tons in
1996, generally corresponding to the prevailing economic conditions and
construction activity. Portland cement consumption in the United States
in 1996 was estimated at 96.6 million tons, of which approximately 21%
was used in residential construction, 24% in non-residential
construction, and the remainder in public construction, such as
infrastructure.
The company believes increased government spending on infrastructure
improvement should have a favorable impact on future cement demand.
Enactment of the Intermodal Surface Transportation Efficiency Act of
1991, which authorized the appropriation of federal funds primarily for
construction and improvement of highways, bridges and mass transit
systems, reflected Congressional recognition of the need for national
infrastructure repair and replacement. Future demand for cement for
infrastructure improvement will depend on the level of funding made
available for such purpose by federal, state and local governments.
Please refer to pages 9 and 10 of the company's Annual Report to
Shareholders for a more detailed discussion of this subject.
Supply
According to current statistics published by the PCA, United States
clinker production capacity decreased from 91.1 million tons to 83.1
million tons, or by approximately 8%, from 1975 to 1995. Statistics
published by the U. S. Geological Survey Deptartment and the PCA
indicate that from 1975 to 1995 the number of cement companies operating
in the United States has dropped from 57 to 46, and in 1995 the 10
largest of such companies accounted for approximately 59% of total
United States production capacity for clinker. The company believes
that domestic production will remain inadequate to meet demand going
into the next century. With an approximate 11.0 million ton shortfall
between supply and demand, imports will continue to be needed to
supplement domestic demand. That shortfall, the company believes, is
due principally to the unfair dumping of imports into the United States
during the 1980's, when the domestic industry was forced to dives
PART I
Item l. Business (continued)
itself of a significant portion of its capacity. Presently, with the
dumping duties imposed against offenders by the International Trade
Commission in 1990 and 1991, the United States industry is becoming
healthier and is beginning to be able to afford to reinvest in itself.
However, because of the extent of capital investment required and the
long lead times associated with establishing new or re-opening closed
facilities, the company only expects about 5 million tons of incremental
domestic cement production capacity will be added over the next three to
five years unless cement prices increase significantly on a sustained
basis over current levels.
Imports of cement and clinker, which have had the most impact on markets
along coastal and southern border areas of the United States, with
ripple effects elsewhere, have varied from a high of 19% of total United
States consumption in 1987 to a low of 8% in 1992, to an estimated 15%
in 1996, according to the latest U. S. Geological Survey Department
figures. Factors influencing imports have included the effect of anti-
dumping actions brought against several foreign importers, which
resulted in the imposition of substantial duties on cement and clinker
imports from various countries beginning in 1990, changes in domestic
and foreign demand, rising ocean shipping rates, and the decline in the
value of the United States dollar relative to other currencies.
Increased ownership of import facilities by domestic producers has also
contributed to a more orderly flow of imports into the United States.
Cement production is capital-intensive and involves high fixed costs.
As a result, plant capacity utilization levels are an important measure
of a plant's profitability, since incremental sales volumes tend to
generate increasing profit margins. The PCA has estimated that total
United States cement plant capacity utilization was 93.0% for 1996.
Price Trends
Due to the lack of product differentiation, competition in the cement
industry is based largely on price. Service and location of plants and
terminals are also competitive factors. Notwithstanding favorable
construction activity during the 1980's, cement prices remained
relatively low due to the impact of lower-priced imported cement. Until
1993, United States portland cement prices remained flat due to the
downturn in general economic conditions and consequent declines in
construction activity. However, gradual improvement in the United
States economy, coupled with reduced domestic production capacity and
lower levels of imported cement, have led to supply and demand
relationships more favorable to cement producers, resulting in increased
cement prices. In 1995, heavy demand coupled with limited domestic
supply enabled the company to increase prices by 12% over 1994 levels.
Then in 1996, with continued strong demand in our markets, price
PART I
Item l. Business (continued)
increases that were effective April 1, 1996, and April 1, 1995, allowed
the company's average price of cement to rise 5% over 1995. The company
expects these favorable market conditions to continue in 1997 and have
announced cement price increases of up to $4.00 per ton, effective April
1, 1997, in most of its markets.
General
The company produces and sells gray portland cement and masonry cement;
and, through various wholly-owned subsidiaries, mines, processes and
sells coarse aggregates (crushed stone), fine aggregates (aglime), high
calcium limestone products, home and garden and industrial limestone
products. The company also provides construction services for highway
safety. The company's operations are conducted principally in the
eastern half of the United States. During the past five years, cement,
aggregates and limestone, and highway safety operations accounted for
approximately 69% to 80%, 14% to 20%, and generally less than 10%,
respectively, of the company's consolidated net sales. From 1992
through 1996, Medusa's quarterly sales as a percentage of annual sales
have ranged from 12% to 16% during the first quarter and from 32% to 34%
during the third quarter.
Continued economic expansion fueled by moderate growth and low inflation
favorably impacted the construction sector in 1996. The housing sector
rebounded from a lower 1995 pace as increased consumer confidence
(attributable to increases in income and employment) and the
availability of affordable mortgage loans spurred construction. The
nonresidential building (retail, industrial and office building) and
public construction sectors remained at high levels in 1996. Increases
in all three sectors resulted in the third consecutive year of record-
setting cement consumption in the United States. The company expects
the construction cycle to flatten or continue a slightly upward trend in
1997 as the $38 billion Federal transportation bill contains the highest
funding level ever for highways at $20.3 billion in fiscal 1997. Office
building and institutional construction could increase given the low
vacancy rates and favorable demographic patterns currently being
experienced. Housing however could experience a modest decline,
reflecting a slight slowdown in the economy and some abatement of pent-
up demand. The company believes cement consumption should remain close
to record levels. Cement industry fundamentals suggest high levels of
demand, inadequate domestic production, flat imports and an environment
which has not reached its full pricing and profit potential. The
housing sector provides about one quarter of the company's cement sales
volume.
Part I
Item l. Business (continued)
In an effort to satisfy the strong product demand, our four cement
plants achieved a 94.4% capacity utilization in 1996. The company's
focused business strategy, the principal elements of which are: a
concentration on its core business, a constant drive to lower operating
costs, centralization of pricing decisions and the maintenance of a lean
management organization, enable the company to position itself to
capitalize upon favorable market conditions. In furtherance of that
strategy, the company realized the benefits from the completion in 1996
of over half of the several projects designed to incrementally increase
cement capacity as both its Clinchfield and Demopolis plants had record
production years. In 1996 ,the company replaced its College Park
(Atlanta) terminal with a terminal located in Forest Park, Georgia
(southern Atlanta market). Completion of this terminal with its lower
cost loading and unloading capabilities and more convenient market
location further advances the company's low cost and customer focus
strategies.
Cement Operations
The company ranks eighth in capacity among all United States cement
companies and fourth in capacity among those domestically owned. The
company's cement operations serve markets in portions of the Great
Lakes, the Southeast and the Western Pennsylvania/Northeastern Ohio
portions of the United States.
Regional Markets
Great Lakes. The Great Lakes regional market, consisting of portions of
Michigan, Wisconsin, Ohio, Illinois, Indiana and Ontario, is served by
the company's Charlevoix plant and its distribution network of nine
terminals, eight of which are water-based. The water-based terminals
provide a very low cost alternative versus rail and/or trucking costs.
Demand in the Great Lakes region has been steady, with very little new
production capacity added in recent years. In 1996, the company closed
its Rhinelander, Wisconsin land-based cement distribution terminal.
Management believes that the Charlevoix plant is among the lowest cost
cement production facilities in the Great Lakes region. This is due to
its use of a single modern preheater/precalciner kiln which provides
significant energy savings over other dry and wet process kilns. In
1995, Charlevoix implemented an artificial intelligence kiln control
system and an automated process control instrumentation system to
enhance productivity and reduce operating costs. The layout of the
plant also results in an efficient utilization of manpower.
Charlevoix's deep-water shipping location and water-based terminals
enable 95% of cement produced to be shipped by water, the lowest cost
method of long-distance distribution, via the Medusa Conquest or the
PART I
Item l. Business (continued)
Medusa Challenger. These company owned vessels have a combined capacity
of 20,000 tons per load.
Southeast. The company has two plants and nine terminals in the
Southeast regional market: the Clinchfield, Georgia plant, acquired from
Penn Dixie Corporation and extensively rebuilt in 1972, and the
Demopolis, Alabama plant, built in 1977 and acquired from Lafarge
Corporation in 1993. The Demopolis plant serves water-based terminals
in Chattanooga, Tennessee and Decatur, Alabama with up to six river
barges. Together, the two plants also serve seven rail/truck terminals
in Alabama, Florida and Georgia. The two plants will benefit from the
newly completed cement terminal in Forest Park, Georgia. This new
facility has increased storage capacity and more efficient rail
unloading capabilities that will lower handling costs. Since the plants
are located 240 miles apart, a number of marketing and manufacturing
synergies exist, including the ability to alternatively ship to seven
terminals, to specialize in certain cement products and packaging, and
to rationalize distribution in what are the two plants' overlapping
markets.
Largely because both the Demopolis and Clinchfield plants operate
energy-efficient preheater kilns, management believes that they are
among the lowest cost production facilities in the region. In 1996, the
Demopolis plant burned waste derived liquid fuel (WDLF) for 23% of its
current fuel needs. The Clinchfield plant burns waste whole tires as an
alternative kiln fuel and has been able to reduce its coal usage by 16%.
Western Pennsylvania/Northeastern Ohio. Significant steps were taken in
1996 to improve the long-term profitability of the company's Wampum
plant, located between Pittsburgh, Pennsylvania and Youngstown, Ohio,
serving markets as far east in Pennsylvania as State College, as far
south as Wheeling, West Virginia, and as far west in Ohio as Columbus.
A new three-year labor agreement that contained a reduction-in-force
agreement will allow for lower cost quarry stripping and stone hauling.
The quarry operation was combined with the company's West Pittsburg
aggregate operation allowing for further work force reductions, reduced
capital spending, quarry development costs and better utilization of the
dragline. This 40-cubic yard dragline was placed in service in April
1994 and replaced two smaller less efficient units at a capital
investment of $7.0 million. Improved efficiencies of the dragline's
operation has provided significantly increased stone harvesting at a
much lower cost/ton stone. Demand in this region continues to grow
slowly. Supply has remained relatively constant, with no new plants or
major capacity expansions having occurred in the last six years or
expected by management in the foreseeable future.
PART I
Item l. Business (continued)
Management believes that the Wampum plant's three dry kilns give it an
operating cost advantage over its wet process competitors in the region.
The Wampum plant also had the advantage in 1996 of obtaining about 15%
of its coal needs from its nearby limestone quarry which contains coal
reserves. Since 1985, the Wampum plant has burned WDLF, supplying about
32% of its fuel needs in 1996.
Energy
Cement manufacturing is an energy intensive process, using fuel to fire
kilns and electricity to grind raw materials into kiln fuel and clinker
into finished cement. The company has been an innovator in burning
alternative fuels, such as WDLF and whole tires at its plants as a coal
replacement. The company has burned whole tires at its Clinchfield
plant since 1990. The company has entered into arrangements with
independent contractors (which, in turn, contract with suppliers of
alternative fuel) which allow the company to reduce its energy costs by
receiving WDLF either at a profit through tipping fees or at a nominal
charge. In 1985, at its Wampum cement plant, the company became one of
the first such facilities to burn WDLF. The company also burns WDLF at
its Demopolis plant. The favorable economics of burning WDLF are
significantly influenced by the tipping fees, which have been declining,
the cost of environmental regulation, which has been increasing and a
small reduction in maximum clinker output when burning WDLF. The company
is constantly evaluating the potential for and use of alternative
fuels in its ongoing effort to help conserve scarce natural resources,
utilize waste in a productive manner and reduce materials that might
otherwise take up valuable space in landfills. The company will use
alternative fuels where it is environmentally and economically prudent
and provided it continues to permit the company to maintain the safe
and profitable operation of its facilities. The company also seeks to
minimize its energy costs by running its grinding mills, whenever
possible, during off-peak demand periods.
Customers and Marketing
The company's cement operations have over 1,400 customers which are
primarily ready-mix concrete dealers. No single customer accounts for
more than 4% of total consolidated sales. The company's marketing
efforts are focused on maximizing profitability, rather than market
share. This sales strategy is facilitated by the company's policy that
pricing decisions (including the decision whether to meet lower
competitive prices) are made only in the company's Cleveland
headquarters. Further, decisions whether to extend credit are made
centrally by financial management. Sales personnel are critical in
developing and maintaining relationships with, and providing technical
Part I
Item l. Business (continued)
assistance to, customers. They also facilitate production planning by
meeting with customers regularly to discuss future requirements.
Construction Aggregates
Through a wholly-owned subsidiary, Medusa Aggregates Company, the
company operates nine crushed stone plants in Bardstown, Butler, Bowling
Green (two plants) and Hartford, Kentucky; Columbia, Missouri; Lenoir,
North Carolina; and West Pittsburg, Pennsylvania. These operations
mine, crush, screen and sell various sizes of aggregates to the
construction industry, primarily to road builders for use in asphalt and
concrete paving, road and base material, drainage blankets, erosion
control and assorted small-volume applications. The company is a major
supplier of these products in all of the markets in which it operates.
Management believes the company to be among the low-cost producers in
its primary markets and that it has achieved this result through
constant review of its competitive position and the installation of cost
improving plant modifications. The total capacity of the company's
aggregate plants is approximately 3,800 tons per hour, or in excess of 6
million tons annually. Approximately 13% of the company's total
construction aggregate capacity is covered by mineral reserves of over
50 years, 18% is covered by reserves of from 25 to 50 years, 46% is
covered by reserves from 10 to 25 years and 23% is covered by reserves
under 10 years. Most aggregates are generally sold within a radius of
25 miles of the plant and are shipped to customers primarily by truck.
During the second quarter of 1996, the company completed its rebuild of
the Bardstown, Kentucky plant providing among other things better
operating efficiencies and locating the major operating components of
the plant closer to the stone reserves.
Industrial Materials
Through a wholly-owned subsidiary, Medusa Minerals Company (formerly The
Thomasville Stone and Lime Company) ("Minerals"), the company mines and
processes high calcium limestone from an underground deposit possessing
chemical purity and whiteness at Thomasville, Pennsylvania. Chemical
grade limestone is used by customers to manufacture white cement, supply
calcium for livestock and poultry feeds, and neutralize soil for more
efficient crop production. White stone is pulverized to a fine powder
and used in joint compound, caulk, carpet padding, floor tile and paper.
Chemical stone is packaged for lawn application and white stone is
processed and packaged for use as a decorative mulch by homeowners and
landscaped contractors. Limestone which does not meet chemical and
color specifications is reduced to powder and used as a filler by
PART I
Item l. Business (continued)
manufacturers of asphalt shingles. Industrial minerals are marketed
primarily in the mid-Atlantic states. Thomasville now has 14 products
serving over 30 specialized agricultural, white cement, home
improvement, consumer products and environmental markets.
In January 1997, the company acquired Lime Crest Corporation located in
a Sparta, New Jersey. The operation consists of a 400 acre quarry
located in Sparta, New Jersey and a 200 acre quarry located in Franklin,
New Jersey. The Sparta location also contains a limestone pelletizing
plant. Products include construction aggregates, bulk and packaged
aglime, decorative stone, washed sand, water conditioning products and
industrial fillers. A major portion of its home and garden products are
sold through specialty retailers. The combined operations provide the
company with a major presence in home and garden and industrial
limestone products in the eastern half of the United States.
Highway Safety Construction
The James H. Drew Corporation ("Drew"), a wholly-owned subsidiary of the
company, operates generally in the mid-western states installing highway
safety systems such as guardrail, traffic signals, signs, and highway
lighting. Although Drew functions primarily as a subcontractor to
paving and bridge contractors, approximately 30% of its work is bid
directly to state highway departments and municipalities.
Competition
Generally, market conditions in the cement and construction aggregate
industry are cyclical and highly price-competitive. Because there is
generally no product differentiation, these products are marketed as
commodities, with price as the principal method of competition. To some
extent, factors other than price, such as service, delivery time and
proximity to the customer are competitively important. The number and
size of the company's competitors differ from market area to market
area. The company estimates that it competes with 28 cement
manufacturers in its overall market areas and between 5 and 10 producers
within each sales region. Competitors include domestic and foreign
producers and importers. Because cement has a low value-to-weight
ratio, cement companies with access to water-based transportation have a
significant advantage in shipping over land-locked plants and terminals.
Short-Term Borrowings
During 1996 and 1995, the company had no short-term borrowings.
PART I
Item l. Business (continued)
Capital Expenditures
In 1996, Medusa's capital expenditures were approximately $13.3 million
in its cement operations and $3.7 million in its aggregates operations.
For 1995, Medusa's capital expenditures were approximately $21.2 million
in its cement operations and $3.9 million in its aggregates operations.
Backlog
Backlog for Medusa and its subsidiaries totaled approximately $15.8
million as of December 31, 1996, compared with $12.2 million as of
December 31, 1995. Management does not believe that backlog is material
to an understanding of Medusa's business, because long-term contracts
generally comprise only a small portion of total sales.
Raw Materials
The principal raw materials used by the company in the manufacture of
cement are limestone or other calcareous materials, clay or shale, sand,
iron ore, and gypsum. Owned reserves of limestone and clay or shale are
available at or near all of the company's cement plants, while other raw
materials are readily available for local purchase by the company at all
of its plant locations.
Employees
As of December 31, 1996, the company had about 1,100 employees. The
company's business is seasonal and employment therefore declines from
August 31 to December 31 of each year. Most of the company's hourly
employees in its cement operations are represented by labor unions.
During 1996, the company entered into a labor agreements with the local
union of the United Cement, Lime, Gypsum and Allied Workers Division
(International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers, AFL-CIO) covering the hourly workers
at the Wampum and Demopolis plants. Wampum's agreement is a three-year
agreement expiring April 30, 1999. A four-year agreement expiring April
30, 2000 was negotiated for the Demopolis plant. A new four-year
contract with the United Steel Workers of America Local #13051-7
covering the Minerals (formerly Thomasville) hourly employees expires on
April 30, 2000.
PART I
Item l. Business (continued)
Environmental Matters
The information contained in the company's 1996 Annual Report to
Shareholders, Management's Discussion and Analysis, under "Environmental
Matters" pages 22 and 23 is hereby incorporated by reference.
Item 2. Properties
Medusa's principal physical properties are utilized by its cement
manufacturing operations.
These operations consist of four cement plants and a total of 20
distribution terminals (excluding Orlando, Florida terminal closed
February 1995). All four of the company's plants are fully integrated,
from limestone mining through bulk cement production, and all possess at
least 50 years of limestone reserves. The annual rated cement and
clinker capacities of Medusa as of February 28, 1997, are shown in the
following table:
Regional Capacity in Tons
Market Plant Location Clinker Cement Kiln Type
Great Lakes Charlevoix, Michigan 1,395,000 1,465,000 Preheater/precalciner
Southeast Demopolis, Alabama 824,000 868,000 Preheater
Southeast Clinchfield, Georgia 620,000 809,000 Preheater
W. PA/N.E. OH Wampum, Pennsylvania 722,000 750,000 Long-Dry
3,561,000 3,892,000
"Annual rated capacity" is defined as the annual output of cement or
clinker theoretically to be achieved from full operation of a facility
after giving consideration to such factors as down-time for regular
maintenance, location and climatic conditions bearing upon the number of
days per year during which the particular plant may be expected to
operate, and actual historical performance. Cement plant capacities are
evaluated periodically taking into account actual experience in
producing cement, plant modifications and innovations, and other
factors.
During 1996, the company continued to demolish its wet process kiln at
Clinchfield. This kiln has not been operated in over 10 years.
The company's cement plants, as a group, operated at 94.4% of annual
rated clinker capacity in 1996 (95.0% in 1995).
Part I
Properties (continued)
The Wampum and Clinchfield cement manufacturing plants are equipped to
ship products by either rail or truck. The Charlevoix plant can ship
products by water or truck. The Demopolis plant can ship products by
water, rail or truck, The plants are well maintained and in good
operating condition. There have been no physical changes in quarrying
techniques over the past several years, nor is it anticipated that there
will be any changes which would materially affect the cost of
production. All plants operate their own quarries, located adjacent to
each of the plants.
During 1996, The company operated at 37 locations in 13 states and
Canada. Property, including those described above, is as follows:
Number of buildings 291
Square feet of buildings 1,297,183
Total acreage 14,100
Of the total acreage above, approximately 791 acres are leased.
Item 3. Legal Proceedings
See "Environmental Matters" section under Item 1. Business, above.
PART I
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Robert S. Evans Chairman and Chief Chairman & Chief Executive 53
Executive Officer Officer, Medusa Corporation:
Chairman and Chief Executive
Officer, Crane Co. (Diversified
Manufacturer of Engineered
Products).
George E. Uding, President and Chief President and Chief Operating 65
Jr. Operating Officer Officer of the company;
formerly Senior Vice President,
Essroc Corporation.
Robert J. Kane Senior Vice Senior Vice President of the 47
President Company and President of Medusa
Cement Group; previously Vice
President of the company and
President of Medusa Aggregates
Group; Vice-President and
Controller of Medusa Aggregates
Company, a subsidiary.
John P. Siegfried Vice President Vice President, Secretary 58
Secretary and and General Counsel of the
General Counsel company; previously Corporate
Attorney and Assistant Secretary
of the company.
Dennis R. Knight Vice President Vice President of the company; 51
and President of Medusa
Aggregates group; formerly
Regional Vice President -
General Manager Vulcan Materials
(Wisconsin, Indiana, Central
Illinois and Iowa).
PART I
Item 4. Submission of Matters to a Vote of Security Holders
(continued)
R. Breck Denny Vice President Vice President-Finance and 48
Finance and Treasurer, (Chief Financial
Treasurer Officer) of the company;
previously Director of
Strategic Planning, Medusa
Corporation; formerly Vice
President - Advisory, Mergers
and Acquisitions, J.P. Morgan
Alan E. Redeker Vice President Vice President of the company 53
and Vice President
Manufacturing, Medusa Cement
Company, a division; formerly
General Manager of Northern
California operations of
Associated Concrete Products
and held various positions at
Kaiser Cement Corporation.
Richard A. Brown Vice President Vice President - Human 49
Resources of the company;
previously Director of
Human Resources
All executive officers serve at the pleasure of the Board of Directors with
no fixed term of office.
PART II
Item 5. Market for Registrant's Common Shares and Related
Stockholder Matters
Market prices and dividends paid for the company's common shares are
hereby incorporated by reference to page 24 of the 1996 Annual Report to
Shareholders. The number of shareholders is 4,457 as of February 28,
1997. On February 26, 1996, the Board of Directors increased the
company's quarterly dividend 25% to $.15 per common share.
Items 6 through 8. Selected Financial Data; Management's Discussion
and Analysis of Results of Operations and Financial
Condition; Financial Statements and Supplementary Data
The information required by Items 6 through 8 is hereby incorporated by
reference to pages 11 through 24 of the 1996 Annual Report to
Shareholders.
Item 9. Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10. (a)Directors of Registrant
The information required by Item 10(a) has been omitted from this report
as the company will file with the Commission a definitive proxy
statement pursuant to Regulation 14A.
(b)Executive Officers of the Registrant
Included pursuant to Instruction 3 to paragraph (b) of Item 401 to
Regulation S-K under Part I above.
Item 11. Executive Compensation
The information required by Item 11 has been omitted from this report as
the company will file with the Commission a definitive proxy statement
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 12 has been omitted from this report as
the company will file with the Commission a definitive proxy statement
pursuant to Regulation 14A.
PART III
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 has been omitted from this
report as the company will file with the Commission a definitive proxy
statement pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
Page
a)Financial Statements and Schedules
The consolidated balance sheets of Medusa Corporation and
subsidiaries as of December 31, 1996 and 1995 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 and the Independent Auditors' Report relating
thereto, appearing on Pages 11 through 20 of Medusa Corporation's
1996 Annual Report to Shareholders are incorporated herein by
reference.
Independent Auditors' Report on Financial Statement Schedule... 18
Schedule VIII Valuation and Qualifying Accounts................ 19
All other statements and schedules for which provision is made in the
applicable regulations of the Securities and Exchange Commission have
been omitted because they are not required under related instructions or
are inapplicable, or the information is shown in the consolidated
financial statements and related financial review.
(b) No Reports on Form 8-K were filed during last quarter of 1996:
(c) Exhibits to Form 10-K:
Exhibit 11 - Statement Re Computation of Per Share Earnings
Exhibit 13 - Annual Report to Shareholders for the Year Ended
December 31, 1996
Exhibit 21 - Subsidiaries of the Registrant
PART IV
(d) Financial Statements Required by Regulation S-X which are excluded from the
Annual Report to Shareholders by Rule 14a-3(b):
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MEDUSA CORPORATION
(Registrant)
Robert S. Evans
Robert S. Evans
Chairman, Chief Executive
Officer and a Director
Date March 21, 1997
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-
R. Breck Denny George E. Uding, Jr. Edward A. Doles
R. Breck Denny George E. Uding, Jr. Edward A. Doles
Vice President-Finance President, and Chief Corporate Controller
and Treasurer Operating Officer and a
Director
Date March 25, 1997 Date March 25, 1997 Date March 25, 1997
- -DIRECTORS-
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Mone Anathan, III E. Thayer Bigelow, Jr. Richard S. Forte'
Date March 21, 1997 Date March 21, 1997 Date March 24, 1997
Dorsey R. Gardner Jean Gaulin Dwight C. Minton
Dorsey R. Gardner Jean Gaulin Dwight C. Minton
Date March 24, 1997 Date March 25, 1997 Date March 21, 1997
Charles J. Queenan, Jr. Boris Yavitz
Charles J. Queenan, Jr. Boris Yavitz
Date March 24, 1997 Date March 24, 1997
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Medusa Corporation:
We have audited the consolidated financial statements of Medusa
Corporation and subsidiaries as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated January 27, 1997; such financial
statements and report are included in your 1996 Annual Report to
Shareholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of Medusa
Corporation and subsidiaries, listed in Item 14(a). This financial
statement schedule is the responsibility of the company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Deloitte & Touche LLP
Cleveland, Ohio
January 27, 1997
<TABLE>
<CAPTION>
MEDUSA CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31,
Balance at Additions (deductions) Balance at
beginning charged (credited) to (deductions)- end of
DESCRIPTION of year costs and expenses additions year
1996
Deducted from Asset Accounts:
Allowances for Doubtful
<S> <C> <C> <C> <C>
Accounts $ 351,257 $ 141,090 (A) $ (141,707)(C) $ 350,640
Reserve for Cash Discounts 185,408 (185,408)(B)
Reserve for Policy
Adjustments 72,033 750,591 822,624
TOTAL $ 608,698 $ 891,681 $ (327,115) $1,173,264
1995
Deducted from Asset Accounts:
Allowances for Doubtful
Accounts $ 228,503 $ 122,754 (A) $ $ 351,257
Reserve for Cash Discounts 209,570 (24,162) 185,408
Reserve for Policy
Adjustments 80,719 (8,686) 72,033
TOTAL $ 518,792 $ 89,906 $ 0 $ 608,698
1994
Deducted from Asset Accounts:
Allowances for Doubtful
Accounts $ 221,203 $ 7,300 (A) $ $ 228,503
Reserve for Cash Discounts 212,776 (3,206) 209,570
Reserve for Policy
Adjustments 83,438 (2,719) 80,719
TOTAL $ 517,417 $ 1,375 $ 0 $ 518,792
</TABLE>
Note A - Additional reserve based on receivable balance.
Note B - Adjust company receivables to net vs gross.
Note C - Portion of reserve no longer considered necessary.
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 11 to Form 10-K
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
Years Ended December 31
1996 1995 1994
Primary
Earnings
Income before extraordinary item $54,260 $43,212 $29,880
Extraordinary item (1,770) - -
Net income $52,490 $43,212 $29,880
Shares
Weighted average number of
common shares outstanding 16,054 16,018 16,334
Additional shares
assuming conversion of:
stock options 127 121 206
Average common shares
outstanding and equivalents 16,181 16,139 16,540
Primary:
Before extraordinary item $ 3.35 $ 2.68 $ 1.81
Extraordinary item (.11) - -
Net income per share $ 3.24 $ 2.68 $ 1.81
Fully Diluted
Earnings
Income before extraordinary item $54,260 $43,212 $29,880
Extraordinary item (1,770) - -
Interest on convertible
subordinated notes, net of taxes 2,137 2,336 2,249
Pro forma net income
available to common stock $54,627 $45,548 $32,129
Shares
Weighted average number of
common shares outstanding 16,054 16,018 16,334
Additional shares
assuming conversion of:
stock options 151 139 221
convertible notes 1,587 1,736 1,736
Average common shares
outstanding and equivalents 17,792 17,893 18,291
Fully diluted:
Before extraordinary item $ 3.17 $ 2.55 $ 1.76
Extraordinary item (.10) - -
Fully diluted net increase
per share $ 3.07 $ 2.55 $ 1.76
MEDUSA CORPORATION AND SUBSIDIARIES
Exhibit 21 to Form 10-K
Subsidiaries of the Registrant
December 31, 1996
The following is a list of active subsidiaries of the Registrant and
their jurisdiction of incorporation. All of these subsidiaries are wholly-
owned, directly or indirectly, and are included in the consolidated financial
statements.
Cement Transit Company Delaware
James H. Drew Corporation Indiana
Medusa Aggregates Company Iowa
Medusa Minerals Company Maryland
Canadian Medusa Cement Limited Ontario, Canada
Medusa-Citadel, Inc. Alabama
Medusa-Crescent, Inc. Pennsylvania
Medusa Aggregates LLC Pennsylvania
Medusa Portland Cement Company Michigan
21
<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>
<CIK> 0000064674
<NAME> MEDUSA CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25045
<SECURITIES> 0
<RECEIVABLES> 29881
<ALLOWANCES> 1173
<INVENTORY> 31177
<CURRENT-ASSETS> 89420
<PP&E> 376186
<DEPRECIATION> 250457
<TOTAL-ASSETS> 223446
<CURRENT-LIABILITIES> 34605
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 153969
<TOTAL-LIABILITY-AND-EQUITY> 223446
<SALES> 323377
<TOTAL-REVENUES> 323377
<CGS> 200999
<TOTAL-COSTS> 241798
<OTHER-EXPENSES> (1300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3674
<INCOME-PRETAX> 79205
<INCOME-TAX> 24945
<INCOME-CONTINUING> 54260
<DISCONTINUED> 0
<EXTRAORDINARY> (1770)
<CHANGES> 0
<NET-INCOME> 52490
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.07
</TABLE>
consolidated statements of income Medusa Corporation and
Subsidiaries
Year Ended December 31 1996 1995 1994
(In Thousands, except per share data)
Net Sales $323,377 $293,327 $276,293
Costs and Expenses:
Cost of sales 200,999 184,997 189,028
Selling, general and administrative 26,546 23,492 21,328
Depreciation and amortization 14,253 15,448 13,830
241,798 223,937 224,186
Operating Profit 81,579 69,390 52,107
Other Income (Expense):
Interest income 1,155 2,225 1,262
Interest expense (3,674) (7,575) (7,526)
Miscellaneous-net 145 (193) (6)
(2,374) (5,543) (6,270)
Income Before Taxes and Extraordinary
Item 79,205 63,847 45,837
Provision for Income Taxes 24,945 20,635 15,957
Income Before Extraordinary Item 54,260 43,212 29,880
Extraordinary Item, less applicable
income tax reduction (Note E) (1,770) - -
Net Income $ 52,490 $ 43,212 $ 29,880
______________________________________________________________________________
Net Income Per Common Share:
Primary:
Income before extraordinary item $ 3.35 $ 2.68 $ 1.81
Extraordinary item (.11) - -
$ 3.24 $ 2.68 $ 1.81
Fully Diluted:
Income before extraordinary item $ 3.17 $ 2.55 $ 1.76
Extraordinary item (.10) - -
$ 3.07 $ 2.55 $ 1.76
Primary Average Common Shares
Outstanding 16,181 16,139 16,540
______________________________________________________________________________
See Notes to Consolidated Financial Statements
consolidated balance sheets Medusa Corporation and Subsidiaries
December 31 1996 1995
(In Thousands, except share data)
ASSETS
Current Assets:
Cash and short-term investments $ 25,045 $ 33,166
Accounts receivable, less allowances
of $1,173 ($609 in 1995) 28,708 21,410
Inventories 31,177 29,266
Other current assets 4,490 4,395
Total Current Assets 89,420 88,237
Property, Plant and Equipment 125,729 118,864
Intangible and Other Assets 8,297 12,477
Total Assets $223,446 $219,578
______________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 41 $ 41
Accounts payable 15,575 14,952
Accrued compensation and payroll taxes 7,014 5,608
Other accrued liabilities 9,247 8,589
Income taxes payable 2,728 2,500
Total Current Liabilities 34,605 31,690
Long-Term Debt 4,084 61,624
Accrued Postretirement Health Benefit Cost 27,760 27,446
Reserves and Other Liabilities 2,745 2,611
Accrued Pension Liability 282 659
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 shares
Outstanding-16,924,006 shares
(16,329,901 in 1995) 1 1
Paid in capital 57,159 23,433
Retained earnings 140,124 97,515
Unvested restricted common shares (39) (40)
Unearned restricted common shares (7,516) (5,672)
Currency translation adjustment (930) (890)
Total Paid in Capital and Retained
Earnings 188,799 114,347
Less Cost of Treasury Shares-1,367,440 shares
(836,267 shares in 1995) (34,829) (18,799)
Total Shareholders' Equity 153,970 95,548
Total Liabilities and Shareholders'
Equity $223,446 $219,578
______________________________________________________________________________
See Notes to Consolidated Financial Statements
consolidated statements of cash flows Medusa Corporation and Subsidiaries
Year Ended December 31 1996 1995 1994
(In Thousands)
Cash Flows From Operating Activities:
Net income $ 52,490 $ 43,212 $ 29,880
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 14,253 15,448 13,830
Provision (benefit) for deferred income
taxes 10 (944) 1,660
Postretirement health benefit cost 232 222 491
(Gain) loss on sale of capital assets (181) (33) 12
Accounts receivable 7,298 2,626 (716)
Inventories and other current assets (1,800) (7,793) 1,774
Accounts payable and other current
liabilities 2,998 220 5,430
Other assets 1,840 (231) 1,986
Accrued pension, reserves and other
liabilities 1,368 (46) (2,475)
Net Cash Provided From Operating
Activities 63,912 52,681 51,872
Cash Flows From Investing Activities:
Capital expenditures (19,806) (25,345) (14,694)
Proceeds from sale of capital asset 239 359 1,622
Net Cash Used By Investing Activities: (19,567) (24,986) (13,072)
Cash Flows From Financing Activities:
Purchase of treasury shares (13,599) (1,878) (14,608)
Dividends paid (9,881) (8,152) (8,264)
Stock options exercised 1,882 1,649 1,278
Proceeds from issuance of long-term debt - 365 -
Payments on long-term debt (30,868) (35,000) -
Issuance of restricted shares - - 63
Net Cash Provided From (Used By)
Financing Activities (52,466) (43,016) (21,531)
Increase (Decrease)In Cash And Short-Term
Investments (8,121) (15,321) 17,269
Cash And Short-Term Investments At
Beginning Of Year 33,166 48,487 31,218
Cash And Short-Term Investments At End Of Year $ 25,045 $ 33,166 $ 48,487
______________________________________________________________________________
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (net of $26 capitalized
in 1995) $ 4,064 $ 7,566 $ 7,509
Income taxes 24,707 20,896 14,367
______________________________________________________________________________
See Notes to Consolidated Financial Statements
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, 1994 $ 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)
Net income 52,490
Dividends paid-$.60 per
common share (9,881)
Issuance of 95,080 restricted
common shares 2,741 (119)
Exercise of 225,537 stock options 4,313
Purchase of 441,206 treasury shares
Conversion of subordinated notes
to 805,161 common shares 26,672
Amortization for vesting of
restricted common shares 120
Currency translation adjustment
Balance At December 31, 1996 $ 1 $57,159 $140,124 $ (39)
_______________________________________________________________________
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, 1994 $(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-$.50 per
common share (8,152)
Issuance of 117,940 restricted
common shares (2,731)
Exercise of 149,417 stock options (494) 1,506
Purchase of 82,402 treasury shares (1,878) (1,878)
Retirement of 35,697 treasury shares 1,142
Amortization for vesting of
restricted common shares 570 676
Currency translation adjustment 211 211
Balance At December 31, 1995 (5,672) (890) (18,799) 95,548
Net income 52,490
Dividends paid-$.60 per
common share (9,881)
Issuance of 95,080 restricted
common shares (2,622)
Exercise of 225,537 stock options (2,431) 1,882
Purchase of 441,206 treasury shares (13,599) (13,599)
Conversion of subordinated notes
to 805,161 common shares 26,672
Amortization for vesting of
restricted common shares 778 898
Currency translation adjustment (40) (40)
Balance At December 31, 1996 $(7,516) $ (930) $(34,829) $153,970
________________________________________________________________________
See Notes to Consolidated Financial Statements.
notes to consolidated financial statements
Medusa Corporation and Subsidiaries
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
States. 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.
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.
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.
The company estimates its quarry's end-of-life-cycle closing costs and
amortizes them based on actual annual stone production over the quarries
total estimated stone reserves.
NOTE B-INVENTORIES
At December 31 (in thousands):
1996 1995
Finished goods $13,594 $12,980
Work in process 3,424 2,993
Raw materials 1,124 2,015
Supplies 13,035 11,278
$31,177 $29,266
________________________________________________
Use of the first-in, first-out (FIFO) cost method would have increased
inventories from the amounts reported at December 31 by $7,590,000 in
1996 and $7,238,000 in 1995.
NOTE C-PROPERTY, PLANT AND EQUIPMENT-AT COST
At December 31 (in thousands):
1996 1995
Land $ 10,989 $ 10,831
Buildings and improvements 22,169 20,465
Machinery and equipment 343,028 327,523
376,186 358,819
Less accumulated
depreciation (250,457) (239,955)
$125,729 $118,864
________________________________________________
NOTE D-LEASES
The company leases various cement storage facilities, vehicles and
various other equipment under capital and operating leases with terms
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, 1996 (in thousands):
Capital Operating
Leases Leases
1997 $ 181 $ 1,329
1998 181 1,097
1999 181 537
2000 181 123
2001 181 92
Thereafter 4,686 1,728
Total minimum
lease payments 5,591 $ 4,906
Less interest (1,791)
Present value of
future minimum
lease payments $ 3,800
_________________________________________________
The costs of assets capitalized under leases at December 31 are as
follows (in thousands):
1996 1995
Machinery and equipment $ 4,035 $ 4,035
Less accumulated
depreciation (1,880) (1,693)
$ 2,155 $ 2,342
________________________________________________
The weighted average interest rate for capital leases was 3.7% in 1996.
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, 1996, the minimum required level of net worth under these covenants
was $25.0 million.
Rental expense was $1,942,000, $1,828,000, and $2,069,000 for 1996, 1995
and 1994, respectively.
NOTE E-SHORT AND LONG-TERM FINANCING
The company has an unsecured $65.0 million Revolving Credit Agreement
("Revolver") with four banks that expires December 31, 2001. 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, 1996, no amounts were outstanding under any of these credit
facilities.
Long-term debt consists of the following at December 31 (in thousands):
1996 1995
6% convertible subordinated
notes, due 2003, interest
payable semi-annually $ - $57,500
Capitalized leases 3,800 3,800
Other 325 365
4,125 61,665
Less current portion (41) (41)
$ 4,084 $61,624
________________________________________________
The 6% convertible subordinated notes ("Notes") were redeemed effective
December 2,1996. Note holders representing $26.7 million in Notes
converted into 805,161 common shares, with the balance of the holdings
receiving cash of $30.8 million. This redemption, including the write-
off of unamortized debt issuance costs, was $1,770,000 net of income tax
benefit of $787,000 and is reflected as an extraordinary item.
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, 1996 the company was in
compliance with all covenants.
The average interest rate incurred on all borrowings was 6.7% in 1996,
7.5% in 1995, and 7.3% in 1994.
The company has available bank stand-by letter of credit facilities of
$10.0 million of which $6.0 million was being utilized at December 31,
1996. 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 convertible subordinated notes was $56.2 million
in 1995 and was estimated based on the current rates offered to the
company for debt of the same remaining maturities.
NOTE F-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):
1996 1995 1994
Service cost $ 539 $ 422 $ 470
Interest cost on
accumulated
postretirement benefit
obligation 1,495 1,583 1,511
Net amortization (521) (702) (523)
Net periodic postretire-
ment benefit cost $1,513 $1,303 $1,458
_________________________________________________
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):
1996 1995
Accumulated Postretirement
Benefit Obligation:
Retirees $10,670 $10,474
Eligible active plan
participants 4,229 4,826
Other active plan
participants 6,795 7,596
21,694 22,896
Unrecognized net gain 7,176 5,742
28,870 28,638
Less current amount in other
accrued liabilities (1,110) (1,192)
Accrued Postretirement Health
Benefit Cost $27,760 $27,446
________________________________________________
In 1996, the cost of benefits was assumed to increase by 9.50%
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 10.25% 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, 1996 by approximately $2.6 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 1996 (7.25% in 1995 and 8.5% in 1994).
NOTE G-INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
company's effective income tax rate is as follows:
1996 1995 1994
Statutory rate 35.0% 35.0% 35.0%
State income tax, net of
federal income tax
benefits 2.6 3.7 4.2
Percentage depletion (5.8) (5.6) (4.7)
Tax exempt interest (.1) (.2) -
Other (.2) (.6) .3
Effective rate 31.5% 32.3% 34.8%
_________________________________________________
Components of the provision for income taxes were as follows (in
thousands):
1996 1995 1994
Deferred income tax
expense (benefit) $ 10 $ (944) $ 1,660
Current income tax
expense 24,935 21,579 14,297
$24,945 $20,635 $15,957
________________________________________________________
The income tax provisions include state income tax provisions of
$3,260,000, $3,720,000 and $2,988,000 for 1996, 1995 and 1994,
respectively.
Components of the net deferred tax assets shown in the company's
balance sheets at December 31 were as follows (in thousands):
1996 1995
Net book value of fixed assets
in excess of tax basis $(11,484) $(10,727)
Financial reporting accrual
for postretirement health
benefits 11,707 11,713
Other financial reporting
accruals 4,010 3,805
Other taxable temporary
differences (636) (611)
Other deductible temporary
differences 1,608 1,035
$ 5,205 $ 5,215
________________________________________________
Net deferred income tax assets associated with certain current items
included in other current assets were
$2,815,000, and $2,609,000 at December 31, 1996 and 1995, respectively.
Net deferred income tax assets associated with certain non-current items
are included in intangible and other assets.
NOTE H-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):
1996 1995 1994
Service cost-benefits
earned during the year $ 1,193 $ 929 $ 1,013
Interest cost on projected
benefit obligation 2,287 2,059 1,859
Actual return on plan
assets (4,792) (4,983) 966
Curtailment effect of early
retirement incentive 339 - -
Net amortization and
deferral 2,699 3,225 (2,750)
Net periodic pension cost $ 1,726 $ 1,230 $ 1,088
________________________________________________________
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):
1996 1995
Over- Under- Over- Under-
funded* funded* funded* funded*
Actuarial present value
of benefit obligations:
Vested $10,239 $14,987 $9,139 $17,338
Nonvested 686 4,048 269 148
Accumulated benefit
obligation 10,925 19,035 9,408 17,486
Effect of future pay
increases 3,440 - 3,000 -
Projected benefit
obligation 14,365 19,035 12,408 17,486
Plan assets at fair
value 13,862 18,754 11,975 16,827
Projected benefit
obligation less than
(in excess of) plan
assets (503) (281) (433) (659)
Unrecognized net (gain)
loss on assets 531 (1,146) 235 1,193
Unrecognized net (asset)
obligation (65) 622 894 323
Unrecognized prior service
cost 331 1,427 (81) 746
Additional minimum
liability - (903) - (2,262)
Net recorded pension
asset (liability) $ 294 $ (281) $ 615 $ (659)
____________________________________
*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
$294,000 and $615,000 at December 31, 1996 and 1995, respectively.
The pension intangible asset included in intangible and other assets was
$903,000 and $2,262,000 at December 31, 1996 and 1995, respectively.
A non-cash decrease of $1,359,000 and increase of $96,000 to the pension
intangible asset and accrued pension liability was required to record
the additional minimum liability in 1996 and 1995, respectively.
Assumptions used as of December 31 were:
1996 1995 1994
Discount rate 7.25% 7.25% 8.50%
Rate of increase in
compensation levels 5.00% 5.00% 5.00%
Expected long-term rate
of return on assets 8.50% 8.50% 8.50%
_________________________________________________
At December 31, 1996 and 1995, 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
$102,000, $105,000, and $113,000 for 1996, 1995 and 1994, respectively.
NOTE I-STOCK-BASED COMPENSATION PLANS
The company has two stock-based compensation plans: the 1991 Long-Term
Incentive Plan which includes the facility to award both stock options
and restricted stock and the Non-Employee Director Restricted Stock
Plan. In accounting for its employee compensation plans, the company
applies APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations. Accordingly, no compensation expense is
recognized for the company's stock options. Compensation expense
recognized for its employee restricted stock awards was $484,000 in
1996. The pro forma net income and earnings per share listed below
reflect the impact of measuring compensation expense for options granted
in 1995 and 1996 in accordance with the fair-value-based method
prescribed by Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." These amounts may not be representative of
the effects on reported net income for future years as options vest over
a three-year period and generally additional awards are made each year.
1996 1995
Net income As reported $52,490 $43,212
Pro forma 51,453 42,735
Primary net income per As reported $ 3.24 $ 2.68
share Proforma 3.18 2.65
Fully diluted net As reported $ 3.07 $ 2.55
income per share Proforma 3.01 2.52
_______________________________________________________
The weighted-average fair value of options granted was $7.90 per share
in 1996 and $6.58 in 1995. This estimate was based on using the Black-
Scholes multiple option-pricing model with the following weighted-
average assumptions:
1996 1995
Dividend yield 2.36% 2.46%
Volatility 31.79% 31.79%
Risk-free interest rates 6.43% 6.35%
Expected lives in years 3.75 3.73
_________________________________________________
Options are granted to officers and other key employees at an exercise
price equal to the fair market value of the shares on the date of grant.
Options become exercisable at a rate of 50% one year, 75% two years and
100% three years after grant, and expire ten years after the date of
grant (five years for options prior to 1995). A summary of stock option
activity follows:
_____________ 1996_______ 1995______________1994
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Shares Price Shares Price Shares Price
(000) (000) (000)
Outstanding at
January 1 615 $21.69 549 $18.15 527 $12.79
Granted 263 28.81 247 24.38 246 24.48
Exercised (225) 19.14 (149) 13.39 (187) 11.04
Canceled (28) 23.20 (32) 20.40 (37) 20.00
Outstanding at
December 31 625 $25.54 615 $21.69 549 18.15
Options
exercisable
at December 31 206 $22.20 240 $18.42 216 $12.99
___________________________________
A summary of information regarding stock options outstanding December
31, 1996 follows:
___________ Options Outstanding Options
Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Exercise Shares Contractual Exercise Shares Exercise
Prices (000) Life Price (000) Price
$24.25-$28.81 576 7.67 $26.40 157 $24.32
$12.67-$16.08 49 1.12 $15.35 49 $15.35
___________________________________
The restricted stock award plan provides for awards of common stock to
executive officers subject to resale restrictions. The restrictions on
outstanding awards are scheduled to lapse upon the achievement of
certain performance objectives. The company awarded 91,000 and 88,000
shares in 1996 and 1995, respectively. For both
the stock options and restricted stock, as of December 31, 1996, 766,244
shares were available for future awards.
Under the Non-Employee Director Restricted Stock Plan, directors who are
not full-time employees of the company receive annual retainers
equivalent to $15,000 in shares of common stock with any fractioned
portion paid in cash. The shares are issued each year after the
company's annual meeting, are forfeitable if the director ceases to
remain a director until the company's next annual meeting, and may not
be sold for a period of five years, or until the director leaves the
board. As a group, non-employee directors received 4,080 shares in
1996.
Note J-SUBSEQUENT EVENT
On January 13, 1997 the company acquired Lime Crest Corporation. The
total purchase price for the stock was $12.8 million. The acquisition
will be accounted for as a purchase and, accordingly, the company's
consolidated financial statements will include the operating results
from the date acquired.
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 of the Board
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, 1996 and
1995 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, 1996. 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, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
Deloitte & Touche, LLP
Cleveland Ohio
January 27, 1997
five-year summary of financial data Medusa Corporation and
Subsidiaries
As of and for the Year Ended December 31 1996 1995 1994 1993 1992
________________________________________________________________________
(In Thousands, except per
share data, percents and ratios)
Net sales $323,377 $293,327 $276,293 $248,038 $181,777
Operating profit 81,579 69,390 52,107 33,141 16,914
Net interest expense (2,519) (5,350) (6,264) (5,916) (3,989)
Miscellaneous 145 (193) (6) (500) 93
Income before provision for
taxes 79,205 63,847 45,837 26,725 13,018
Income taxes 24,945 20,635 15,957 8,526 3,941
Income before cumulative effect
of a change in accounting 54,260 43,212 29,880 18,199 9,077
Extraordinary item (1996),
Cumulative effect of a change
in accounting (1993) (1,770) - - 711 -
Net income $ 52,490 $ 43,212 $ 29,880 $ 18,910 $ 9,077
________________________________________________________________________
Income per common share:
Primary $3.35(A) $2.68 $1.81 $1.12(B) $.56
Fully diluted $3.17(A) $2.55 $1.76 $1.12(B) $.56
________________________________________________________________________
Average number of shares
outstanding 16,054 16,018 16,334 16,268 16,130
________________________________________________________________________
Other Financial Information
Capital expenditures $ 19,806 $ 25,345 $ 14,694 $ 15,372 $ 11,548
Payments for businesses
acquired - - - 50,511 -
Depreciation and amortization 14,253 15,448 13,830 13,958 12,703
Total assets 223,446 219,578 218,600 204,177 118,565
Interest-bearing debt 4,125 61,665 96,300 96,300 38,800
Shareholders' equity 153,970 95,548 59,973 51,477 34,974
Capital employed 158,095 157,213 156,273 147,777 73,774
Return on average capital
employed 33% 28% 20% 16%(C) 13%
Current ratio 2.6 2.8 1.5 3.2 2.5
Cash flow(D) $ 66,804$ 57,905 $ 45,873 $ 32,229 $ 21,974
%Cash flow to net sales 21% 20% 17% 13% 12%
________________________________________________________________________
(A)Excluding ($.11) primary, ($.10) fully diluted for extraordinary
charge from redemption of convertible subordinated notes.
(B)Excluding non-cash credit of $.04 per common share for cumulative
effect of a change in accounting for income taxes.
(C)Calculated on income after extraordinary item (1996) and before
cumulative effect of a change in accounting (1993).
(D)Income after extraordinary charge (1996) and before cumulative effect
of a change in accounting (1993) plus depreciation and amortization,
deferred income taxes, other non-cash charges or credits, and
incremental charge for postretirement health benefit costs.
management's discussion and analysis
RESULTS OF OPERATIONS
Year 1996 Compared With 1995
Net sales for the year ended December 31, 1996, increased to $323.4
million from $293.3 million in 1995. Cement net sales rose 11% over
last year as 6% unit volume increases and price increases implemented
April 1, 1996 and April 1, 1995, resulted in 5% higher cement prices
over 1995. U.S. cement demand in 1996 exceeded 1995's record levels.
Charlevoix, Clinchfield and Demopolis volume rose 7.9%, 7.3% and 6.5%,
respectively, while Wampum's volume was flat. These increases are
chiefly attributed to the record U.S. demand as it affected the
company's markets.
Aggregate's net sales for the year rose 6% over 1995 on 4% higher unit
volume and 2% price increases. Net sales at the company's highway and
safety construction operation rose 16% over 1995.
Cost of sales as a percent of sales fell to 62.2% in 1996 compared with
63.1% in 1995. The reduction was due primarily to increased cement
volumes and prices and continued high cement capacity utilization of
94% in 1996 compared to 95% in 1995. Fourth quarter 1996 cost of sales
were also reduced by favorable physical inventory adjustments of $1.4
million, principally from higher than estimated production realized at
three of four cement plants. However, a second quarter $1.2 million
one-time pretax charge, $.8 million after-tax, or $.04 per common
share, for the company's voluntary early retirement incentive program
negotiated at the Wampum plant and higher annual worker's compensation
costs partially offset the favorable impacts on cost of sales.
Depreciation and amortization expense decreased $1.1 million to $14.3
million from $15.4 million in 1995. Lower levels of capital
expenditures and the closure of Edinburg in 1995 which added $.9
million of depreciation that year account for the decrease.
Selling, general and administrative expense as a percent of sales
increased to 8.2% in 1996 from 8.0% in 1995. Higher salaries, wages,
related personnel costs, outside service costs, increased bad debt
expenses and other inflationary pressures caused this overall increase.
Operating profit for 1996 of $81.6 million compares with $69.4 million
in 1995. The improvement in operating results can be attributed to the
reasons discussed above.
Interest expense of $3.7 million decreased $3.9 million from $7.6
million in 1995 resulting from both the payment of $35.0 million of
10% unsecured Senior Notes on December 15, 1995 and the conversion of
the 6% convertible subordinated notes on December 2, 1996. Interest
income decreased $1.1 million resulting from lower average cash and
short-term investment balances as well as lower overall interest rates.
The company's effective tax rate of 31.5% for 1996 was lower than the
federal statutory rate of 35% and the 32.3% in 1995 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, and for
1996, after the extraordinary charge. Net income for 1996 of $52.5
million, or $3.07 per common share, compares with a net income of $43.2
million, or $2.55 per common share, in 1995.
Environmental Matters
In common with other producers engaged in similar operations, the
company is subject to a wide range of federal, state and local
environmental laws and regulations pertaining to air and water quality,
as well as the handling, treatment, storage, and disposal of waste
materials. Compliance with increasingly stringent standards has
resulted in higher expenditures for both capital improvements and
operating costs. The company's policies stress environmental
responsibility and regulatory compliance. The company has recorded
current and long-term accruals to reflect its environmental obligations,
based on current information. Subject to the three specific matters
discussed below, management does not anticipate that regulatory
compliance will have a material adverse effect on its results of
operations, financial condition or liquidity.
The U.S. Environmental Protection Agency ("EPA") held a public meeting
on April 26, 1996 concerning regulation of Cement Kiln Dust ("CKD").
Collected in air pollution control devices, CKD is a by-product of
cement manufacturing and is usually stored at plant sites. A 1980
amendment to the Resource Conservation and Recovery Act ("RCRA")
exempted CKD from regulation as a hazardous waste (the so-called "Bevill
Amendment"). Until new regulations become enforceable and "Tailored
Management Standards" are set, CKD will remain exempt under the Bevill
Amendment as a low toxicity/high volume waste. Notice of new proposed
rulemaking is expected from the EPA in November, 1997. The proposal is
expected to provide a "Conditional Exclusion" under the Tailored
Management Standards for CKD, in lieu of more stringent "Management
Standards" under Subtitle C of RCRA. Under the Tailored Management
Standards, CKD would retain its Bevill status, while CKD not so managed
would be classed a hazardous waste subject to Subtitle C requirements of
RCRA. Through trade associations, Medusa and others in the industry,
are urging EPA to allow the states to continue to regulate CKD. The
company has concluded preliminarily that CKD regulation is unlikely to
have a material effect on the operations of the Demopolis, Alabama,
Clinchfield, Georgia or the Wampum, Pennsylvania plants. With respect
to the Charlevoix, Michigan plant, the company is presently working with
a consultant and the Michigan Department of Environmental Quality
("MDEQ") on the design and licensing of an on-site CKD monofill and
evaluating use of alternate raw materials to reduce CKD generation. Due
to the size and importance of the Charlevoix plant to the company's
overall operations and the uncertainty of final CKD rulemaking,
management is currently unable to conclude whether or not new CKD
regulation is likely to have a material effect on the company's
operations, financial condition or liquidity.
On June 21, 1991, a release of #2 fuel oil occurred at the Charlevoix
plant. The company immediately filed a report with MDEQ. The matter
was thoroughly investigated by MDEQ. Under the supervision of MDEQ, the
company immediately took measures, to preclude migration of the oil to
surface water and beyond plant boundaries. Data now available indicates
such measures are effectively precluding migration. The company
regularly submits detailed reports to MDEQ concerning the status of
affected areas. The company has retained an environmental consultant to
assist in remediation of the oil release. In December, 1993 the company
established a $1.4 million contingent liability on its books. The
charge represents management's current estimate of remediation costs.
As additional information becomes available, changes in the estimate of
the liability may be required. The company will continue to examine
remediation alternative at the site, none of which are now expected to
have a material effect on the company's results of operations, financial
condition or liquidity.
At the company's Wampum plant, kiln stack opacity is measured by
continuous opacity monitors ("COM's"). Because the plant burns waste-
derived liquid fuel ("WDLF"), the Pennsylvania Department of
Environmental Protection ("PaDEP") requires penalty payments for
exceedences from main stack opacity standards. Data recorded by the
COM's is sent to PaDEP quarterly and a penalty obligation is incurred
according to PaDEP policy. Whenever a COM reading exceeds an opacity
policy limit, WDLF burning ceases. Recently, the state required a COM
on the gravel bed filter stack (a device which removes dust from clinker
cooler vent gas). Such COM addition increased the company's opacity
penalties. On January 11, 1996, the company met with PaDEP to discuss
the causes of opacity excursions from the main stack and the gravel bed
stack. The company indicated that modifications would be made to
clinker coolers #1 & #2 during the annual maintenance shut down. The
company expects such will result in a reduction in clinker cooler vent
volume and opacity exceedances from the gravel bed filter. By
agreement, penalties were held in abeyance pending results of the
modifications. After the modifications, the second quarter, 1996
exceedences dropped significantly. Although, for a 12-month period of
1995 - 1996, the penalties were greater than $175,000, such penalties
were compromised at $94,000. On January 7, 1997 PaDEP notified the
company that third quarter, 1996 penalties were $23,000, but stated that
it was unable to accept any penalty payment due to EPA oversight.
Management is currently unable to conclude whether PaDEP or EPA
regulation of opacity from Wampum plant emission sources is likely to
have a material effect on the company's results of operations, financial
condition or liquidity.
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.
Liquidity and Capital Resources
At December 31, 1996, the company had $25.0 million of cash and short-
term investments. The company has available an unsecured $65.0 million
five-year revolving credit facility for short-term working capital
needs that expires December 31, 2001, and unsecured bank lines of
credit totaling $20.0 million. At December 31, 1996, no amounts were
outstanding under any of these facilities.
Working capital at December 31, 1996, decreased $1.7 million from
December 31, 1995, due principally higher levels of accrued incentive
compensation, accrued insurance and accounts payable. Increases in
receivable and inventory balances were nearly offset by $8.1 million
less in cash balances which is directly related to the $30.9 million
payment on redemption of the convertible notes in December 1996. The
increases in the asset and liability accounts are related to the
increases in profits and general business activities of the business.
The ratio of current assets to current liabilities was 2.6:1 at
December 31, 1996, and 2.8:1 at December 31, 1995.
Capital expenditures for 1996 were $19.8 million compared with $25.3
million for 1995. The continued high level of expenditures relate
primarily to capital improvements to maintain our facilities current
capacities, enhance productivity and reduce operating costs and are
only limited by our ability to complete the work in a productive and
efficient manner.
Due to a strong balance sheet and cash flow from operations, strength
of the company's markets and a commitment to enhancing ongoing
shareholder value, the company raised the quarterly dividend from 12
cents to 15 cents, effective with the first quarter 1996. This
represents a 25% increase and was the second increase in dividend rates
in just over two years.
The company's Board of Directors has authorized the purchase of
outstanding shares, under which the company, in its discretion makes
open market purchases from time-to-time. The company purchased 441,000
shares for $13.6 million during 1996. The company intends to continue
this program in 1997 as conditions warrant.
U.S. cement consumption hit record levels for the third consecutive year
in 1996 as the construction sector posted moderate gains during the
year. Cement imports were down modestly in 1996 from 1995 levels and
are expected to drop again in 1997. The company expects its plants will
continue to run full out in 1997 to meet continued strong demand.
Reflecting these favorable trends the company has announced up to a
$4.00 per ton price increase in all its markets effective April 1, 1997.
QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly financial results for 1996 and 1995 appear in the
table below (in thousands, except per share amounts):
Net
Net Gross Income Earnings Per Share
Sales Profit (Loss) Primary Fully Dilluted
1996
1st $ 45,073 $ 7,999 $ 1,192 $ .07 $ (a)
2nd 85,995 29,489 14,969 .93 .87
3rd 109,295 39,259 22,094 1.38 1.27
4th 83,014 31,378 14,235(b) .87(b) .84(b)
$323,377 $108,125 $ 52,490(b) $ 3.24(b) $ 3.07(b)
_________________________________________________________________
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
_________________________________________________________________
(a) Anti-dilutive
(b) After an extraordinary charge, net of income taxes, of $1,770
or, $(.11) and $(.10) primary and fully dilluted per share,
respectively.
MARKET AND DIVIDEND INFORMATION-COMMON SHARES
New York Stock Exchange Composite Price Per Share Dividends Per Share
1996 1995 1996 1995
High Low High Low
1st 311/4 251/4 26 213/8 $ .15 $ .125
2nd 311/4 281/4 257/8 221/4 .15 .125
3rd 325/8 271/4 285/8 245/8 .15 .125
4th 351/8 305/8 281/4 231/8 .15 .125
$ .60 $ .500
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At December 31, 1996 there were approximately 4,486 holders of record of Medusa
common shares.
