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, 1997
Commission File Number 1-1274-2
MEDUSA CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0394630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3008 Monticello Boulevard, Cleveland Heights, Ohio 44118
(Address of principal executive offices) (Zip Code)
(216) 371-4000
Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year,
if changed from last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
The number of shares outstanding of the issuer's classes of common
stock as of March 31, 1997:
Common Shares, Without Par Value - 16,974,126 shares
INDEX
MEDUSA CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three months ended March 31,
1997 and 1996
Consolidated Balance Sheets - March 31, 1997, March 31, 1996 and
December 31, 1996
Consolidated Statements of Cash Flows - Three months ended March
31, 1997 and 1996
Notes to consolidated financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 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 (Loss)
(In Thousands, except per share data)
Three Months Ended
March 31, March 31,
1997 1996
(Unaudited)
Net Sales $ 56,839 $ 45,073
Costs and Expenses:
Cost of sales 43,962 33,772
Selling, general and administrative 6,650 5,532
Depreciation and amortization 3,790 3,302
54,402 42,606
Operating Profit 2,437 2,467
Other Income (Expense):
Interest income 67 276
Interest expense (108) (1,041)
Miscellaneous - net 285 63
244 (702)
Income (Loss) Before Taxes 2,681 1,765
Provision (Benefit) For Income Taxes 850 573
Net Income (Loss) $ 1,831 $ 1,192
Primary Average Common Shares Outstanding 16,841 16,253
Net Income Per Common Share:
Primary $ .11 $ .07
Fully Diluted $ .11 (a)
Cash Dividends Declared Per Common Share $ .15 $ .15
(a) Fully diluted net income per share is not presented since
it is anti-dilutive.
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)
March 31, December 31,
1997 1996 1996
(Unaudited)
Assets
Current Assets:
Cash and short-term investments $ - $ 17,631 $ 25,045
Accounts receivable, less allowances of
$1,434, $720 and $1,173 respectively 31,948 20,596 28,708
Inventories, at lower of cost,
principally LIFO, or market:
replacement cost would be higher by
approximately $7,092, $7,265 and
$7,590, respectively
Finished goods 12,377 10,984 13,594
Work in process 6,030 8,009 3,424
Raw materials and supplies 14,728 13,035 14,159
33,135 32,028 31,177
Other current assets 12,089 10,815 4,490
Total Current Assets 77,172 81,070 89,420
Property, Plant and Equipment:
Cost 399,086 365,019 376,186
Less accumulated depreciation 254,000 242,373 250,457
145,086 122,646 125,729
Intangible and Other Assets 13,228 11,861 8,297
Total Assets $ 235,486 $ 215,577 $ 223,446
See notes to consolidated financial statements
-3-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1997 1996 1996
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 10,374 $ - $ -
Current maturities of
long-term debt 41 41 41
Accounts payable 16,659 13,303 15,575
Accrued compensation and
payroll taxes 5,669 3,900 7,014
Other accrued liabilities 11,901 9,770 9,247
Income taxes payable 1,141 1,336 2,728
Total Current Liabilities 45,785 28,350 34,605
Long-Term Debt 4,084 61,624 4,084
Accrued Postretirement Health
Benefit Cost 28,438 27,576 27,760
Accrued Pension, Reserves and
Other Liabilities 2,999 3,080 3,027
Shareholders' Equity:
Preferred shares - - -
Common shares 1 1 1
Paid in capital 58,135 24,653 57,159
Retained earnings 139,411 96,251 140,124
Unvested restricted common shares (10) (10) (39)
Unearned restricted common shares (7,472) (5,465) (7,516)
Currency translation adjustment (987) (867) (930)
Total Paid in Capital and
Retained Earnings 189,078 114,563 188,799
Less Cost of Treasury Shares (34,898) (19,616) (34,829)
Total Shareholders' Equity 154,180 94,947 153,970
Total Liabilities and Shareholders'
Equity $ 235,486 $ 215,577 $ 223,446
See notes to consolidated financial statements
-4-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
Medusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
1997 1996
Cash Flows From Operating Activities:
Net income $ 1,831 $ 1,192
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 3,790 3,302
Provision for deferred income taxes 163 52
Postretirement health benefit cost 105 130
Increase in operating working capital (14,409) (11,430)
Gain on sale of capital assets (129) (33)
Net Cash Used By Operating Activities (8,649) (6,787)
Cash Flows From Investing Activities:
Capital expenditures (6,568) (6,728)
Payments for business acquired (12,750) -
Proceeds from sale of capital assets 129 33
Net Cash Used By Investing Activities (19,189) (6,695)
Cash Flows From Financing Activities:
Payment of long-term borrowing (5,943) -
Dividends paid (2,545) (2,456)
Payments to acquire treasury stock (69) (273)
Options exercised 976 676
Short-term borrowings 10,374 -
Net Cash Provided From (Used By) By Financing
Activities 2,793 (2,053)
Decrease In Cash And Short-Term Investments (25,045) (15,535)
Cash And Short-Term Investments At Beginning
Of Period 25,045 33,166
Cash And Short-Term Investments At End Of Period $ - $ 17,631
See notes to consolidated financial statements
-5-
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, 1997 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1996.
2. On January 13, 1997, the company acquired the stock of Lime
Crest Corporation ("Sparta") for $12.8 million cash, $5.9
million in debt assumed, and other liabilities. The company
paid off this debt concurrent with the purchase. The
acquisition is accounted for as a purchase and accordingly, the
company's financial statements include the operating results
from the date acquired.
3. Use of the percentage depletion method, lower effective state
income tax rates and other permanent tax adjustments reduced the
company's effective income tax rate for the first three months
of 1997 and 1996 to 31.7% and 32.5%, respectively, from the
federal statutory rate of 35%.
4. At both March 31, 1997 and December 31, 1996, 50,000,000 common
shares, without par value were authorized. At March 31, 1997,
16,974,126 shares were outstanding (16,924,006 at December 31,
1996).
- -6-
Part I - Financial Information
Item 1 - Financial Statements (Cont'd)
5. Primary net income per share is computed by dividing net income
by the weighted average number of shares of common stock and
common stock equivalents (options) outstanding during the
period. Fully diluted net income per share is computed based on
the weighted average number of shares of common stock and common
stock equivalents outstanding during the period, as if the
convertible subordinated notes (for 1996) were converted into
common stock at the beginning of the period after giving
retroactive effect to the elimination of interest expense, net
income tax effect, applicable to the subordinated notes.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended March 31, 1997 Compared With Three Months
Ended March 31, 1996
Net sales for the first quarter of 1997 increased 26% to $56.8
million from $45.1 million in 1996. Cement net sales rose 12%
over last years' first quarter. Cement unit volume rose 9%
compared to 1996's first quarter, with price increases
implemented in April 1996 having resulted in the company's
average per ton cement selling prices increasing 3% over that of
the prior year's same period. The improved volume was caused by
the more favorable weather experienced during 1997's first
quarter of operations contrasted with construction efforts being
affected by adverse weather conditions during the prior year's
quarter.
Aggregate's group sales (excluding the Lime Crest Corporation
acquisition on January 13, 1997, renamed Medusa Minerals Co. -
Sparta) increased 29%. Including Sparta, group sales are up
83%. Aggregate quarry volume increased 43% and had a 4% price
decrease versus first quarter 1996. The Medusa Minerals Co. -
Thomasville, formerly known as Thomasville Stone & Lime Co.,
volume increased 19% with a 1% price decline from last year's
first quarter. The James H. Drew operations posted a 59%
increase in sales as work in milder climate states has allowed
- -7-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (Cont'd)
work to proceed earlier than in the prior year's first quarter.
The increase sales from these operations resulted in improved
operating profit compared with last year's first quarter but
reduced corporate margins relative to sales.
Cost of sales as a percent of sales increased to 77% in the
first quarter of 1997 compared to 75% in the same period of 1996
as lower quarterly production volume was experienced at two of
the cement plants. The company's cement plants, as a group.
operated at 66% of annual rated clinker capacity in 1997
compared to 69% in 1996. Overall cement plant cost's per ton
were 6% greater than the prior year's first quarter with three
of the four cement plants experiencing higher manufacturing
costs. Contributing to these higher costs compared to the first
quarter of 1996 are higher repairs and maintenance costs and
less deferral of annual winter maintenance costs. Lower
capacity ratings are historically experienced during the first
quarter because of these annual maintenance programs performed
during the reduced volume periods in the winter months in
preparation for the year's production season.
Depreciation and amortization expense increased $.5 million to
$3.8 million in 1997 from $3.3 million in 1996 with nearly all
of this increase related to the Sparta acquisition.
Selling, general and administrative expense as a percent of
sales fell to 11.7% in 1997 from 12.3% in 1996 principally
because of the increased sales. This expense increased $1.2
million to $6.7 million in 1997 from $5.5 million in 1996. The
major elements of this increase resulted from the addition of
Sparta, continuing training costs related to the implementation
of a new management information system, the timing of certain
seasonal expenses occurring in the first quarter of 1997 versus
second quarter in 1996, higher salaries and wages and other
inflationary pressures.
Operating profit for the first quarter of 1997 of $2.4 million
compares to $2.5 million in 1996 with the resulting cost
increase above contributing to the flat results from last year.
- -8-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Both interest income and expense are lower than the previous
year's first quarter as the redemption of the company's 6%
convertible subordinated notes decreased cash and outstanding
debt. Interest income decreased from the prior year's quarter
by $209,000 to $67,000 primarily due to lower levels of
marketable securities while interest expense decreased by
$933,000 to $108,000 for the same period due to lower
outstanding debt. The cash purchase of Sparta and the payment
of debt assumed on the purchase reduced cash and short-term
investments thereby decreasing interest income generated in the
quarter compared to a year ago's same quarter.
The company's effective income tax rate was 31.7% and 32.5% in
the first quarter of 1997 and 1996, respectively. These rates
were lower than the federal statutory rate of 35% due to the use
of the percentage depletion method and lower effective state
income tax rates.
Net income for the first quarter of $1.8 million, or $.11 income
per common share in 1997 compares to a net income of $1.2
million, or $.07 income per common share, in 1996.
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
The company has available an unsecured $65.0 million five-year
revolving credit facility for general corporate purposes that
that expires December 31, 2001, and unsecured bank lines of
credit totaling $25.0 million. At March 31, 1997, $10.4 million
of the lines of credit were being utilized. Because of the
Sparta acquisition for cash and the assumption of debt, which
was concurrently paid, at March 31, 1997, the company
effectively had no cash on hand. Approximately $1.3 million of
payments in excess of cash deposits ("float") is classified as
accounts payable on the balance sheet.
- -9-
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Working capital at March 31, 1997, was $21.3 million lower than
at March 31, 1996, due principally to decreases in cash and
short-term investments of $17.6 million, increases in short-term
borrowings of $10.4 million, payments in excess of cash deposits
and increased levels of accounts payable of $3.4 million and
increases in other liabilities of $3.9 million which more than
offset increases in accounts receivable ($11.4) and inventory
($1.1 million). The ratio of current assets to current
liabilities was 1.7:1 at March 31, 1997, 2.6:1 at December 31,
1996, and 2.9:1 at March 31, 1996. The increased levels of
receivables and inventory can be attributed to the increased
level of business activity and amounts that pertain to Sparta.
Capital expenditures for the first quarter of 1997 were $6.6
million compared to $6.7 million in the first quarter of 1996.
On January 13, 1997, the company acquired the stock of Lime
Crest Corporation ("Sparta") for $12.8 million cash, $5.9
million in debt assumed, and other liabilities. The company
paid off the debt concurrent with the purchase. The acquisition
is accounted for as a purchase and accordingly, the company's
financial statements include the operating results from the date
acquired.
Between March 31, 1997, and the date of this filing, the company
purchased 102,100 of its common shares for $3.8 million.
On April 1, 1997, cement price increases of up to $4 per ton
became effective in most of the company's markets.
Part II - Other Information
Item 1 Legal Proceedings
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
from exceedances 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 exceeds an opacity policy limit, WDLF burning ceases.
Recently, the state required a COM on the gravel bed filter
- -10-
Part II - Other Information (continued)
Item 1 Legal Proceedings
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 excursion 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 exceedances
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 March 17, 1997, the company
paid a $23,000 civil penalty for the third quarter 1996 opacity
exceedances. As a result of capital improvements made to the
gravel bed filter during the 1996-1997 annual turnaround, the
company does not anticipate material opacity exceedances from
this source in the future.
- -11-
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the first quarter of 1997.
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
March 31
1997 1996
Primary
Earnings-Net income $ 1,831 $ 1,192
Shares
Weighted average number of common
shares outstanding 16,657 16,122
Additional shares
assuming conversion of:
stock options 184 131
Average common shares
outstanding and equivalents 16,841 16,253
Primary income per common share $ .11 $ (.07)
Fully diluted
Earnings-Net Income $ 1,831 *
Shares
Weighted average number of common
shares outstanding 16,657
Additional shares
assuming conversion of:
stock options 185
Average common shares
outstanding and equivalents 16,842
Fully diluted per common share $ .11
*Fully diluted earnings per share amount is not presented since
it is anti-dilutive.
- -12-
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 23, 1997 By/s/George E. Uding, Jr.
George E. Uding, Jr.
President and Chief
Operating Officer
Date April 23, 1997 By/s/R. Breck Denny
R. Breck Denny
Vice President-
Finance and Treasurer
- -13-