FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
Commission File Number 1-1274-2
MEDUSA CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0394630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3008 Monticello Boulevard, Cleveland Heights, Ohio 44118
(Address of principal executive offices) (Zip Code)
(216) 371-4000
Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year,
if changed from last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
The number of shares outstanding of the issuer's classes of common
stock as of September 30, 1996:
Common Shares, Without Par Value - 16,110,189 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended September
30, 1996 and 1995; Nine months ended September 30, 1996 and 1995
Consolidated Balance Sheets - September 30, 1996, September 30,
1995 and December 31, 1995
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1996 and 1995
Notes to consolidated financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
- -1-
Part I - Financial Information
Item 1 - Financial Statements
Medusa Corporation and Subsidiaries
Consolidated Statements of Net Income
(In Thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited)
Net Sales $ 109,295 $ 94,827 $ 240,363 $ 220,612
Costs and Expenses:
Cost of sales 65,657 57,819 151,284 143,356
Selling, general and
administrative 6,477 5,612 18,977 17,119
Depreciation and
amortization 4,379 5,021 12,332 11,881
76,513 68,452 182,593 172,356
Operating Profit 32,782 26,375 57,770 48,256
Other Income (Expense):
Interest income 254 549 721 1,376
Interest expense (1,022) (1,907) (3,015) (5,682)
Miscellaneous - net 104 (20) 132 (32)
(664) (1,378) (2,162) (4,338)
Income Before Taxes 32,118 24,997 55,608 43,918
Provision For Income
Taxes 10,024 8,624 17,353 15,152
Net Income $ 22,094 $ 16,373 $ 38,255 $ 28,766
Average Common Shares
Outstanding 15,946 16,014 16,034 16,005
Net Income Per Common
Share:
Primary $ 1.38 $ 1.01 $ 2.37 $ 1.78
Fully Diluted $ 1.27 $ .95 $ 2.23 $ 1.70
Cash Dividends Declared
Per Common Share $ .150 $ .125 $ .450 $ .375
See notes to consolidated financial statements
-2-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
1996 1995 1995
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ 28,282 $ 50,531 $ 33,166
Accounts receivable, less allowances of
$1,868, $1,260 and $609, respectively 48,952 40,199 21,410
Inventories, at lower of cost,
principally LIFO, or market:
replacement cost would be higher by
approximately $7,366, $6,923 and
$7,238, respectively
Finished goods 8,700 9,264 12,980
Work in process 3,826 2,071 2,993
Raw materials and supplies 14,849 14,671 13,293
27,375 26,006 29,266
Other current assets 6,239 7,636 4,395
Total Current Assets 110,848 124,372 88,237
Property, Plant and Equipment:
Cost 374,264 350,820 358,819
Less accumulated depreciation 250,222 238,137 239,955
124,042 112,683 118,864
Intangible and Other Assets 10,530 10,782 12,477
Total Assets $ 245,420 $ 247,837 $ 219,578
See notes to consolidated financial statements
-3-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
1996 1995 1995
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of
long-term debt $ 41 $ 35,000 $ 41
Accounts payable 13,568 12,279 14,952
Accrued compensation and
payroll taxes 7,049 5,214 5,608
Other accrued liabilities 10,983 13,642 8,589
Income taxes payable 4,430 6,748 2,500
Total Current Liabilities 36,071 72,883 31,690
Long-Term Debt 61,624 61,300 61,624
Accrued Postretirement Health
Benefit Cost 28,062 27,721 27,446
Accrued Pension, Reserves and
Other Liabilities 3,488 3,286 3,270
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 28,539 23,289 23,433
Retained earnings 128,434 85,110 97,515
Unvested restricted common shares (70) (70) (40)
Unearned restricted common shares (7,609) (6,047) (5,672)
Currency translation adjustment (869) (837) (890)
Total Paid in Capital and
Retained Earnings 148,426 101,446 114,347
Less Cost of Treasury Shares (32,251) (18,799) (18,799)
Total Shareholders' Equity 116,175 82,647 95,548
Total Liabilities and Shareholders'
Equity $ 245,420 $ 247,837 $ 219,578
See notes to consolidated financial statements
-4-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
Cash Provided From (Used By) Operating Activities:
Net income $ 38,255 $ 28,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,332 11,881
Provision for deferred income taxes 349 333
Postretirement health benefit cost 616 379
Increase in operating working capital (21,630) (15,033)
Gain on sale of capital assets (144) (46)
Net Cash Provided by Operating Activities 29,778 26,280
Cash Provided From (Used By) Investing Activities:
Capital expenditures (16,381) (17,798)
Proceeds from sale of capital assets 144 46
Net Cash Used By Investing Activities (16,237) (17,752)
Cash Provided From (Used By) Financing Activities:
Purchase of treasury shares (12,409) (1,878)
Dividends paid (7,337) (6,111)
Stock options exercised 1,321 1,505
Net Cash Used By Financing Activities (18,425) (6,484)
Increase (Decrease) In Cash And Short-Term
Investments (4,884) 2,044
Cash And Short-Term Investments At Beginning
Of Period 33,166 48,487
Cash And Short-Term Investments At End Of Period $ 28,282 $ 50,531
See notes to consolidated financial statements
-5-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management all normal recurring adjustments considered necessary
for a fair presentation have been included. Operating results
for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1995.
2. Use of the percentage depletion method in 1996, a lower
effective state tax rate, and other permanent tax adjustments
reduced the company's effective tax rate for the third quarter
of 1996 and 1995 to 31.2% and 34.5%, respectively, and for the
first nine months of 1996 and 1995 to 31.2% and 34.5%,
respectively, from the federal statutory rate of 35%.
3. At both September 30, 1996 and December 31, 1995, 50,000,000
common shares, without par value were authorized. At September
30, 1996, 16,110,189 shares were outstanding (16,329,901 at
December 31, 1995).
4. 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.
- -6-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
All per share amounts are on a fully diluted basis.
Three Months Ended September 30, 1996 Compared With Three Months
Ended September 30, 1995
Net income for the third quarter of 1996 of $22.1 million, or
$1.27 per common share, compares to a net income of $16.4
million, or $.95 per common share, in 1995. The third quarter
1995 results include a $1.3 million pretax charge, or $.05 per
share, related to closure of the Edinburg, Pennsylvania sand
and gravel facility.
Operations
Net sales for the third quarter of 1996 increased to $109.3
million from $94.8 million in 1995. Cement net sales rose 16%
over last year's third quarter on a 12% increase in volume and
a 4% increase in prices, which is directly related to sales
price increases implemented April 1, 1996. The higher volume
was aided by favorable weather during the third quarter of 1996
which improved operations for the company's cement, aggregate
and highway safety construction operations as well as the
related construction industries which they serve.
Aggregate Group sales for the third quarter of 1996 were 7%
higher than 1995 due to an improved sales mix offset by
slightly lower unit volume. In addition, the quarter reflected
a 21% increase in sales for the company's highway and safety
construction operation.
Cost of sales as a percent of sales was 60.1% in the third
quarter of 1996 compared to 61.0% in the same period of 1995
due primarily to higher cement prices and an increase in cement
capacity utilization from 104% in 1995 to 108% in 1996. The
improved capacity utilization offset a 2% increase in cement
manufacturing costs. Cost of sales for 1995 includes $400,000
charge, or 0.4% of sales, related to the Edinburg facility
closure.
Third quarter depreciation and amortization expense for 1996 of
$4.4 million compares to $5.0 million in 1995. The third
quarter of 1995 includes a $900,000 charge related to the
Edinburg facility closure.
- -7-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Three Months Ended September 30, 1996 Compared With Three
Months Ended September 30, 1995
Selling, general and administrative expense for the quarter
increased by $900,000 over 1995 levels. Higher personnel
related costs, incentive compensation, transition costs related
to the implementation of a new management information system
and other inflationary pressures caused this overall increase.
Operating profit for the third quarter of 1996 of $32.8 million
compares to $26.4 million in 1995. The improvement in
operating results are attributable to the above mentioned
reasons.
Nine Months Ended September 30, 1996 Compared With Nine Months
Ended September 30, 1995
Net income for the first nine months of 1996 of $38.3 million,
or $2.23 per common share, compares to a net income of $28.8
million, or $1.70 per common share, in 1995.
The results for 1996 include a second quarter charge of $1.2
million pretax, or $.04 per common share, for the company's
voluntary early retirement incentive program ("VERIP")
negotiated at the Wampum cement plant and quarry. The program
allows the company to effect a workforce reduction of 19 hourly
employees. Additional benefits include, improved flexibility
in quarry operations and future cost savings opportunities
through integration of the Wampum quarry operation with the
company's West Pittsburg aggregate quarry.
The results for 1995 include a third quarter charge of $1.3
million pretax, or $.05 per share, related to closure of the
Edinburg, Pennsylvania sand and gravel facility.
Operations
Net sales for the first nine months of 1996 increased to $240.4
million from $220.6 million in 1995. Cement net sales rose 10%
over last year on a 5% increase in volume and a 5% increase in
prices directly related to increases implemented April 1, 1996.
Aggregate Group sales for the first nine months of 1996 were 2%
higher than 1995 due to an improved sales mix partially offset
by 4% decrease in unit volume. Sales for the company's highway
and safety construction operation improved by 9%.
- -8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Cost of sales as a percent of sales was 62.9% in the first nine
months of 1996 compared to 65.0% in same period of 1995 due
primarily to increased cement prices. The effect of higher
prices was partially offset by the $1.2 million "VERIP" charge
and higher cement plant repair and maintenance costs related to
unplanned outages. The unplanned outages occurred during June
at the Charlevoix and Clinchfield plants resulting in lower
cement capacity utilization of 90% in 1996 compared to 92% in
1995.
Depreciation and amortization expense increased $400,000 to
$12.3 million from $11.9 million in 1995. The increase was due
to the impact from 1995's level of capital expenditures on
1996's depreciation expense and higher restricted share
amortization partially offset by the $900,000 included in 1995
related to the Edinburg facility closure.
Selling, general and administrative expense for the first nine
months increased by $1.9 million over 1995 levels. Higher
personnel related costs, incentive compensation, transition
costs related to the implementation of a new management
information system and other inflationary pressures caused this
overall increase.
Operating profit for the first nine months of 1996 of $57.8
million compares to $48.3 million in 1995. The improvement in
operating results are attributable to the above mentioned
reasons.
Other Income (Expense); Provision for Income Taxes
Interest income decreased by $295,000 for the quarter and
$655,000 for the first nine months 1996 compared to 1995, due
to lower levels of cash and short-term investments. Interest
expense decreased by $885,000 for the quarter and $2.7 million
for the first nine months 1996 compared to 1995, as a result of
the company's repayment of the $35.0 million 10% unsecured
notes on December 15, 1995.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Nine Months Ended September 30, 1996 Compared With Nine Months
Ended September 30, 1995
The company's effective tax rate of 31.2% for the third quarter
and first nine months of 1996 was lower than the federal
statutory rate of 35% principally due to a percentage depletion
deduction partially offset by state income taxes. The
effective tax rate for the third quarter and first nine months
of 1995 was 34.5%. The decrease in 1996 is due to higher
percentage depletion deductions and a lower effective state tax
rate.
The company's business is highly seasonal and particularly
sensitive to weather conditions. Interim results are not
indicative of annual results.
Liquidity and Capital Resources
At September 30, 1996, the company had $28.3 million of cash
and short-term investments. The company has available an
unsecured $45.0 million revolving credit facility for short-
term seasonal working capital needs that expires December 31,
2000, and unsecured bank lines of credit totaling $20.0
million. At September 30, 1996, no amounts were outstanding
under any of these facilities.
Working capital at September 30, 1996, was $23.3 million
greater than at September 30, 1995, due principally to $35.0
million of 10% unsecured Senior Notes which were due and paid
on December 15, 1995 being classified as current at the
September 30, 1995 date. The increase also reflects higher
levels of receivables as a result of increased sales. Income
taxes payable are $2.3 million lower than prior year as higher
levels of income, earlier in the year, caused an increase in
the portion of our tax liability to be paid. The ratio of
current assets to current liabilities was 3.1:1 at September
30, 1996, 1.7:1 at September 30, 1995, and 2.8:1 at December
31, 1995.
The company's use of working capital, as presented on the
Consolidated Statement of Cash Flows, for the first nine months
of 1996 was $21.6 million as compared to $15.0 million in 1995.
This is primarily due to an increase in cash used to support
the company's higher sales activity in 1996 than 1995. Higher
uses of cash in 1996 than 1995 for accounts receivable and
income tax payments offset increased cash generation from
inventories.
-10-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Capital expenditures for the first nine months of 1996 were
$16.4 million compared to $17.8 million for the first nine
months of 1995. This level of capital expenditures relates to
the company's commitment to make capital improvements designed
to maintain and enhance productivity, reduce operating costs
and expand cement capacity.
Through the first nine months of 1996 the company has acquired
417,615 shares of treasury stock for $12.4 million. Almost all
of these shares were open market purchases. The company
purchases its stock when market conditions indicate that
purchases enhance shareholder value when compared with
alternate uses of its resources.
Outlook
The company expects that its cement plants will continue to
operate at practical capacity for the remainder of 1996. The
company anticipates that demand trends evident in the first
nine months will continue, causing its cement shipments for the
year to exceed 1995's levels by roughly 5%. Year end cement
inventories are expected to be lower than last year, reflecting
this strong demand. Should current trends continue, the
company expects the supply/demand fundamentals for cement will
remain favorable in 1997. Reflecting these favorable trends,
the company announced a cement price increase during the
quarter of $4 per ton in all its markets, effective April 1,
1997.
Environmental Matters
The company, in common with other producers engaged in similar
operations, is subject to a wide range of federal, state and
local environmetal laws and regulations pertaining to air and
water quality, as well as the handling, treatment, storage, and
disposal of wastes. Compliance with these increasingly
stringent standards results in higher expenditures for both
capital improvements and operating costs. The company's
policies stress environmental responsibility and compliance with
these regulations. Based on current information, the company
has recorded current and long-term accruals to reflect its
environmental obligations. Also, based on current information,
management does not expect compliance with these regulations to
have a material adverse effect on its financial condition or
results of operations.
- -11-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (cont'd)
Subsequent Event
On October 31, 1996, the company announced a call for the
redemption of its entire $57.5 million issue of 6% Convertible
Subordinated Notes due 2003. The Notes will be redeemed
effective December 2, 1996, at a price of 103.750% of the
principal amount, plus interest accrued to the redemption date.
Interest on the Notes will cease to accrue on December 2, 1996.
Note holders have the right to receive Medusa Corporation Common
Shares at a conversion price of $33.125 per share.
As a result of the redemption, the company will incur a pre-tax
extraordinary charge of up to $3.6 million in the fourth
quarter, ($2.5 million after tax) or $.14 per fully-diluted
share. Approximately $1.4 million of the pre-tax charge is
unamortized Note issuance cost.
The company anticipates that all of the cash needed for Note
redemption will be generated from 1996 operations. (Although
the company had $28.3 million in cash and short-term investments
at September 31, 1996, the company anticipates that cash
generated during the fourth quarter could increase such amount
to approximately $60.0 million.)
Part II - Other Information
Item 1 - Legal Proceedings
Opacity Notification On January 2, 1996, the Company received a
notification from the Pennsylvania Department of Environmental
Protection ("PaDEP"), advising the Company that it should expect
substantial civil penalties for opacity violations at the Wampum
Plant during calendar 1995. On September 27, 1996, the Company
entered into a "Consent Assessment of Civil Penalty" agreement
with PaDEP, which included a provision for the payment of a
$94,000 settlement for opacity violations at the Wampum Plant
during calendar 1995. Because the Company had made a
substantial improvement in its opacity performance, PaDEP
concluded that no capital improvements were required at the
Wampum Plant.
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the third quarter of 1996.
- -12-
Exhibit 4 - Instruments defining the rights of security holders,
including indentures.
MEDUSA CORPORATION
6% CONVERTIBLE SUBORDINATED NOTES DUE 2003
CUSIP NO. 54931TAA5
- ---------------------
NOTICE OF REDEMPTION
- ---------------------
NOTICE IS HEREBY GIVEN that, pursuant to the terms of the Indenture,
dated as of November 15, 1993, between Medusa Corporation (the "Company")
and Mellon Bank, F.S.B., as successor Trustee, the Company will redeem on
December 2, 1996 (the "Redemption Date") all of its outstanding 6%
Convertible Subordinated Notes dues 2003 (the "Notes") at a redemption
price equal to 103.750% of their principal amount, plus accrued interest
from November 15, 1996, to the Redemption Date in the amount of $2.83 per
$1,000 principal amount of Notes, for a total redemption payment of
$1,040.33 per such amount of Notes. When presenting Notes for payment, Note
holders should provide their tax identification number (via Form W-9) to
avoid the withholding of 31% of the principal to be redeemed, as required
by the Interest and Dividend Tax Compliance Act of 1983, as amended.
Unless the Company defaults in making the redemption payment,
interest on the Notes will cease to accrue on and after the Redemption Date
and the only remaining right of the holders thereof will be to receive the
redemption payment upon surrender of the Notes to the Paying Agent, as
follows:
Mail or Hand Delivery:
Mellon Bank, F.S.B.
Attention: Corporate Trust Operations
Room 0335
Two Mellon Bank Center
Pittsburgh, PA 15259-0001
The Notes are convertible into Common Shares of the Company at the
current conversion price of $33.125 per share. The right to convert Notes
into Common Shares will terminate at the close of business on November 27,
1996 (5 calendar days prior to Redemption Date or (if weekend or holiday)
the next business day). Until that time, holders of Notes will have the
right to convert their Notes by contacting Robert Schmidt, Mellon Bank,
F.S.B., at (216) 771-7103.
To convert a Note, a holder must (i) complete and sign the conversion
notice on the back of the Note, (ii) surrender the Note to the Conversion
Agent, (iii) furnish appropriate endorsements and transfer documents if
required by the Conversion Agent, (iv) pay any transfer or similar tax, if
required, and (v) otherwise satisfy the requirements of paragraph 8 of the
- -13-
Exhibit 4 - Instruments defining the rights of security holders,
including indentures (cont'd).
Notes. No fractional shares will be issued upon conversion of Notes.
Instead, an equivalent amount, computed based on the average of the closing
sale prices of the Common Shares as reported by the New York Stock Exchange
for the five trading days prior to the date of conversion, will be paid to
be the holder in cash.
No representation is made as to the correctness or accuracy of the
CUSIP number, either as printed on the Notes or as contained in this Notice
of Redemption.
Questions and requests for assistance in connection with conversion
or redemption of the Notes may be directed to Robert Schmidt, Mellon Bank,
F.S.B., at (216) 771-7103. If forwarding Notes by mail, registered or
certified mail is suggested.
Mellon Bank, F.S.B., as Trustee
November 1, 1996
Exhibit 11 - Statements Re Computation of Per Share Earnings
Computation of Primary and Fully Diluted Income Per Common Share
(In thousands, except per share)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Primary
Earnings-Net income $22,094 $16,373 $38,255 $28,766
Shares
Weighted average number
of common shares
outstanding 15,946 16,014 16,034 16,005
Additional shares
assuming conversion of:
stock options 115 151 123 127
Average common shares
outstanding and
equivalents 16,061 16,165 16,157 16,132
Primary income per
common share $ 1.38 $ 1.01 $ 2.37 $ 1.78
Fully Diluted
Earnings
Net income $22,094 $16,373 $38,255 $28,766
Interest on convertible
subordinated notes,
net of taxes 593 565 1,780 1,695
Net income available
for common
shareholders $22,687 $16,938 $40,035 $30,461
- -14-
Exhibit 11 - Statements Re Computation of Per Share Earnings (cont'd)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Shares
Weighted average number
of common shares
outstanding 15,946 16,014 16,034 16,005
Additional shares
assuming conversion of:
stock options 133 172 146 145
convertible notes 1,736 1,736 1,736 1,736
Average common shares
outstanding and
equivalents 17,815 17,922 17,916 17,886
Fully diluted income
per common share $ 1.27 $ .95 $ 2.23 $ 1.70
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 November 14, 1996 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date November 14, 1996 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -15-