FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
Commission File Number 1-1274-2
MEDUSA CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0394630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3008 Monticello Boulevard, Cleveland Heights, Ohio 44118
(Address of principal executive offices) (Zip Code)
(216) 371-4000
Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year,
if changed from last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
The number of shares outstanding of the issuer's classes of common
stock as of March 31, 1998:
Common Shares, Without Par Value - 16,686,025 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended March 31,
1998 and 1997
Consolidated Balance Sheets - March 31, 1998, March 31, 1997 and
December 31, 1997
Consolidated Statements of Cash Flows - Three months ended March
31, 1998 and 1997
Notes to consolidated financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
-1-
Part I - Financial Information
Item 1 - Financial Statements
Medusa Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands, except per share data)
Three Months Ended
March 31, March 31,
1998 1997
(Unaudited)
Net Sales $ 69,079 $ 56,839
Costs and Expenses:
Cost of sales 49,405 43,913
Selling and administrative 10,283 6,724
Depreciation and amortization 5,011 3,765
64,699 54,402
Operating Profit 4,380 2,437
Other Income (Expense):
Interest income 20 67
Interest expense (644) (108)
Miscellaneous - net 141 285
(483) 244
Income Before Taxes 3,897 2,681
Provision (Benefit) For Income Taxes 1,263 850
Net Income $ 2,634 $ 1,831
Average Common Shares Outstanding:
Basic 16,372 16,657
Diluted 16,730 16,797
Net Income Per Common Share:
Basic and Diluted $ .16 $ .11
Cash Dividends Declared Per Common Share $ .15 $ .15
See notes to consolidated financial statements
- -2-
Part I - Financial Information
Item 1 - Financial Statements
Medusa Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended
March 31, March 31,
1998 1997
(Unaudited)
Net Income $ 2,634 $ 1,831
Other comprehensive income, net of tax:
Foreign currency translation adjustments 59 (57)
Comprehensive Income $ 2,693 $ 1,774
See notes to consolidated financial statements
- -3-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1998 1997 1997
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ 635 $ - $ 13,813
Accounts receivable, less allowances of
$1,067, $890 and $1,095 respectively 37,620 31,948 32,786
Inventories (Note 5) 36,260 33,135 33,013
Other current assets 14,985 12,089 5,908
Total Current Assets 89,500 77,172 85,520
Property, Plant and Equipment:
Cost 437,287 399,086 419,942
Less accumulated depreciation 262,519 254,000 258,469
174,768 145,086 161,473
Goodwill 45,394 2,747 45,488
Other Assets 14,113 10,481 14,032
Total Assets $ 323,775 $ 235,486 $ 306,513
See notes to consolidated financial statements
- -4-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1998 1997 1997
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 12,395 $ 10,374 $ -
Current maturities of
long-term debt 606 41 12,134
Accounts payable 18,091 16,659 16,348
Accrued compensation and
payroll taxes 6,407 5,669 8,198
Other accrued liabilities 13,570 11,901 14,380
Income taxes payable 2,019 1,141 337
Total Current Liabilities 53,088 45,785 51,397
Long-Term Debt 39,043 4,084 24,108
Accrued Postretirement Health
Benefit Cost 28,429 28,438 28,450
Accrued Pension, Reserves and
Other Liabilities 11,769 2,999 11,882
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 72,861 58,135 72,077
Retained earnings 186,986 139,411 186,921
Unvested restricted common shares - (10) (28)
Unearned restricted common shares (8,809) (7,472) (8,835)
Currency translation adjustment (1,108) (987) (1,167)
249,931 189,078 248,969
Less Cost of Treasury Shares (58,485) (34,898) (58,293)
Total Shareholders' Equity 191,446 154,180 190,676
Total Liabilities and Shareholders'
Equity $ 323,775 $ 235,486 $ 306,513
See notes to consolidated financial statements
-5-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
1998 1997
Cash Flows From Operating Activities:
Net income $ 2,634 $ 1,831
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 5,011 3,765
Non cash selling and administration charges 54 74
Provision for deferred income taxes 131 163
Postretirement health benefit cost (21) 105
Increase in operating working capital (16,664) (14,458)
Loss (Gain) on sale of capital assets 3 (129)
Net Cash Used By Operating Activities (8,852) (8,649)
Cash Flows From Investing Activities:
Capital expenditures (12,416) (6,568)
Payments for businesses acquired (5,500) (12,750)
Proceeds from sale of capital assets 4 129
Net Cash Used By Investing Activities (17,912) (19,189)
Cash Flows From Financing Activities:
Increase in long-term debt 15,000 -
Payment of long-term debt (11,594) (5,943)
Dividends paid (2,569) (2,545)
Acquisition of treasury shares (73) (69)
Stock options exercised 427 976
Short-term borrowings 12,395 10,374
Net Cash Provided From By Financing Activities 13,586 2,793
Decrease In Cash And Short-Term Investments (13,178) (25,045)
Cash And Short-Term Investments At Beginning
Of Period 13,813 25,045
Cash And Short-Term Investments At End Of Period $ 635 $ -
See notes to consolidated financial statements
-6-
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management all normal recurring adjustments considered necessary
for a fair presentation have been included. Operating results
for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1997.
2. The company's effective tax rate of 32.4% and 31.7% for 1998 and
1997, respectively, was lower than the federal statutory rate of
35% principally due to the percentage depletion deduction.
3. At both March 31, 1998 and December 31, 1997, 50,000,000 common
shares, without par value were authorized. At March 31, 1998,
16,686,025 shares were outstanding (16,664,949 at December 31,
1997).
4. The company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). All prior-
period earnings per share data presented has been restated to
conform with the provisions of SFAS 128. Basic net income per
share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted
net income per share is computed based on the weighted average
number of common shares and equivalent common shares outstanding
during the period.
The company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." A separate statement
of comprehensive income follows the company's Consolidated
Statements of Income and disclosure of accumulated other
comprehensive income balances is contained in Note 7 below.
- -7-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
5. Inventories (in thousands):
March 31, December 31,
1998 1997 1997
Finished goods $ 16,324 $ 12,377 $ 16,555
Work in process 5,095 6,030 1,644
Raw materials and supplies 14,841 14,728 14,814
$ 36,260 $ 33,135 $ 33,013
Inventories are stated at lower of cost, principally LIFO, or
market: replacement cost would be higher by approximately
$7,589, 7,361 and $7,595 as of March 31, 1998, March 31, 1997
and December 31, 1997, respectively.
6. Unaudited Business Segment Data (in thousands):
Medusa Corporation has three segments: Cement Group, Aggregates
Group and James H. Drew Corporation ("Drew"). The Cement Group
produces and sells portland and masonry cements. The Aggregates
Group produces and sells construction aggregates, limestone-
related home and garden products and industrial limestone. Drew
provides construction services for highway safety. The segments
are identified based on the separate markets served and the
distinct operations required to service the markets.
Cement Aggregates
Group Group Drew Total
Quarter Ended March 31,
1998
Net Sales $ 44,754 $ 19,902 $ 4,423 $ 69,079
Operating
Profit/(Loss) 5,310 712 (350) 5,672
Segment Assets 192,066 116,343 8,476 316,885
Quarter Ended March 31,
1997
Net Sales $ 41,086 $ 12,793 $ 2,960 $ 56,839
Operating
Profit/(Loss) 2,585 447 (373) 2,659
Segment Assets 174,918 46,967 6,662 228,547
- -8-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
___________________________________________________________
Three Months
Ended March 31,
1998 1997
Profit or Loss
Total operating profit
for reportable segments $ 5,672 $ 2,659
Non-allocated corporate
expenses (1,293) (222)
Non-operating income/(expense)-
primarily interest expense (483) 244
Income before income taxes $ 3,897 $ 2,681
Assets
Total assets for reportable
segments $316,885 $228,547
Unallocated assets (a) 6,889 6,939
Total Assets $323,775 $235,486
___________________________________________________________
(a)Unallocated assets are corporate headquarters assets
7. Disclosure of Accumulated Other Comprehensive Income Balances
Accumulated
Foreign Other
Currency Comprehensive
Items Income
December 31, 1997 $(1,167) $(1,167)
Current-period change 59 59
March 31, 1998 $(1,108) $(1,108)
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended March 31, 1998 Compared With Three Months
Ended March 31, 1997
Net sales, net income, and diluted earnings per share all
reached record levels for the first quarter of 1998. Net sales
for the quarter increased to $69.1 million from $56.8 million in
1997, or about 22%. Operating profit rose to $4.4 million from
$2.4 million in the first quarter of 1997. Net income for the
quarter of $2.6 million, reflects a 44% improvement from $1.8
million in 1997's first quarter. On a diluted basis, earnings
per share were $0.16 compared with $0.11 a year earlier.
Results for the 1998 quarter include the operations of White
Stone Company of Southwest Virginia acquired in August 1997 and
Lee Lime Corporation acquired in October 1997, as further
discussed as part of the Aggregates Group.
Cement Group
Cement Group net sales increased by $3.7 million or about 9%
over last year's first quarter, reflecting about 2% higher
prices and a 7% increase in unit volume. Favorable weather
comparisons for the 1998 quarter were a significant factor in
the increased volumes. The cement segment represented 65% of
consolidated sales in the quarter compared with 72% last year.
Cement segment operating profit rose 105% to $5.3 million for
the quarter, reflecting both strong sales and production volumes
during the quarter. Cement operating margins rose to about 12%
compared with about 6% in the prior year.
As a group, the company's four cement plants operated at 44.7%
of annual rated capacity during the first quarter of 1998
compared with 43.5% for the same period in 1997. Lower capacity
ratings are historically experienced in the first quarter as
annual maintenance programs are performed during the lower
volume winter months in preparation for the year's production
season.
- -10-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Depreciation expense for the Cement Group increased to $3.3
million for the first quarter of 1998 from $2.5 million for
1997, reflecting the high levels of capital spending in 1996 and
1997.
Aggregates Group
The quarter's record results also reflect improved operating
results by the company's Aggregates Group. Aggregates Group
sales, which represented 29% of the consolidated total in the
quarter, increased by $7.1 million or 56% over last year's
level, reflecting the acquisitions of the White Stone and Lee
Lime and increased construction aggregates sales. Aggregates
operating profit increased 59% to $712,000 with operating
margins steady at about 4%.
Depreciation expense for the Aggregates Group increased to $1.2
million for the first quarter of 1998 from $0.6 million for
1997, primarily reflecting the increase in depreciation and
amortization from the three businesses acquired during 1997.
Drew
Sales for the James H. Drew subsidiary increased by $1.5 million
or 49% for the quarter and were 6% of the consolidated total.
Drew's operating loss for the quarter narrowed to $350,000
compared with a $373,000 loss last year. Due to the seasonally
of its business, Drew typically losses money in the first
quarter.
Consolidated
Selling and administrative costs for the first quarter of 1998
were $10.3 million compared with $6.7 million in 1997. The
increase largely reflects the acquisitions made over the past
year and increased headquarters costs.
Interest expense for the first quarter of 1998 was $644,000
compared with $108,000 in 1997. The increase is due to higher
average outstanding debt stemming from the acquisitions made
over the past year and increased levels of capital spending in
1998.
- -11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The company's effective tax rate of 32.4% and 31.7% for the
first quarter of 1998 and 1997, respectively, was lower than the
federal statutory rate of 35% due to the use of percentage
depletion.
The company's business is highly seasonal and particularly
sensitive to weather conditions. Interim results are not
indicative of annual results.
The company believes that its cement plants will continue to
operate at practical capacity for the remainder of 1998. The
company anticipates that the strong growth in its cement
shipments evident in the first quarter, which was helped by
favorable weather, will moderate. Based upon strong first
quarter performance, the company is expecting that its cement
production for the year will exceed record 1997 levels. To help
augment reduced inventories, the company has initiated a pilot
program to import clinker for grinding into cement at its
Demopolis, Alabama plant. Should the pilot program be
successful, the company is optimistic that its cement shipments
for the year will approach 1997 levels.
Liquidity and Capital Resources
At March 31, 1998, the company had $635,000 of cash and short-
term investments. The company has available an unsecured $180.0
million five-year revolving credit facility for short-term
working capital needs that expires December 31, 2002, and
unsecured bank lines of credit totaling $25.0 million. At
March 31, 1998, the company had $35.0 million outstanding on its
revolving credit facility, classified as long-term debt, and
$12.4 million outstanding on its lines of credit, classified as
short-term borrowings.
The company's working capital was $36.4 million at March 31,
1998, $31.4 million at March 31, 1997 and $34.1 million at
December 31, 1997. Higher trade accounts receivable and
inventories resulted from business acquisitions over the past
- -12-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
year, higher cement sales and seasonal inventory build-ups. The
ratio of current assets to current liabilities was 1.7:1 at
March 31, 1998 and 1997 and at December 31, 1997.
Capital expenditures for the first quarter of 1998 were $12.4
million compared to $6.6 million for the first quarter of 1997.
The $5.8 million increase relates primarily to spending on the
$56.0 million modernization and expansion project at the
company's Clinchfield cement plant, which was announced in 1997.
The payment for the business acquired of $5.5 million in 1998
relates to the January 1998 acquisition of Commonwealth Stone.
The $12.8 million in 1997 relates to the January 1997
acquisition of Lime Crest Corporation.
Pending Merger
On March 17, 1998, the company signed a definitive agreement to
merge with Southdown Corporation, Inc. ("Southdown"), a publicly
held corporation with its headquarters located in Houston, Texas
whose primary lines of business are the production and sale of
portland cement and concrete.
The agreement specifies, among other things, that Southdown will
exchange .88 of its common shares for each share of the
company's common shares in an exchange that is expected to be
tax-free for income tax purposes. Based on the closing prices
of Southdown and the company's common stock on Tuesday, March
17, 1998, the transaction results in a implied value for the
company's common stock of $61.22 per share and a 17% premium for
the company's common shares. On that basis, the total value of
the proposed transaction is $1.0 billion. It is expected that
the merger will be accounted for as a pooling of interests.
On April 20, 1998, Southdown announced that the Federal Trade
Commission granted a request for early termination of the
waiting period of the premerger notification rules with respect
to the merger transaction between Southdown and the company.
Completion of the transaction remains subject to required
approvals by shareholders of both companies, registration of
Southdown's stock issuable in the transaction under the
securities laws and other customary closing conditions.
- -13-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Labor Issues
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
Clinchfield and Charlevoix plants expire on April 30, 1998.
Management anticipates orderly negotiations resulting in a new
collective bargaining agreement by the expiration date noted
above.
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE BASED ON
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS CONCERNING THE
GENERAL STATE OF THE ECONOMY AND THE INDUSTRY AND MARKET CONDITIONS
IN CERTAIN GEOGRAPHICAL LOCATIONS IN WHICH THE COMPANY OPERATES.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS WHICH ARE DIFFICULT TO
PREDICT. THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY
FROM WHAT IS EXPRESSED OR FORECASTED IN SUCH FORWARD-LOOKING
STATEMENTS.
Part II - Other Information
Item 1 Legal Proceedings
None.
- -14-
Item 6 - Exhibits and Reports on Form 8-K
A Report on Form 8-K was filed March 24, 1998 for the Agreement and
Plan of Merger dated as of March 17, 1998, between Medusa Corporation,
Bedrock Merger Corp., and Southdown, Inc. and the Press Release dated
March 18, 1998.
Exhibit 11 - Statements Re Computation of Per Share Earnings
Computation of Basic and Diluted Income Per Common Share
(In thousands, except per share)
Three Months Ended
March 31
1998 1997
BASIC EPS
Earnings:
Net Income $ 2,634 $ 1,831
Shares:
Weighted average number of common
shares outstanding 16,372 16,657
Basic EPS $ .16 $ .11
DILUTED EPS
Earnings:
Net income available to
common shareholders $ 2,634 $ 1,831
Shares:
Weighted average number of common
shares outstanding 16,372 16,657
Dilutive Effect of
Potential Common Stock:
Stock options 146 125
Restricted stock 212 15
Weighted average number of
common shares after
dilutive effects 16,730 16,797
Diluted EPS $ .16 $ .11
- -15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed of its behalf
by the undersigned thereunto duly authorized.
MEDUSA CORPORATION
REGISTRANT
Date April 24, 1998 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date April 24, 1998 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -16-
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QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
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