March 15, 2007
ANNUAL REPORT TO STOCKHOLDERS
The economic recovery which accelerated in our market area during 2005, leveled off during the last half of 2006. Demand for both cement and ready-mixed concrete increased during 2005 and early 2006 enabling us to raise sales prices across all product lines and to increase our utilization of the capital investment we have in property, plant and equipment. Mild weather during the early part of 2006 allowed projects to proceed earlier in the year, resulting in increased profits in the first half of the year as sales were shifted from mid-year to the first and second quarter. The decline in the residential housing market in the second half of 2006 had a negative impact on sales volumes, especially in the ready-mixed concrete market. Paving projects helped to offset the impact of the retraction in the housing market and contributed to a slight increase in volume of cement sold. For the year 2006, net sales increased $12.9 million and income from operations increased $5.9 million.
Although the decline in the housing market continues to negatively affect our business, increased demand in the commercial and public sectors is projected to offset this reduction. We anticipate 2007 net sales will continue to benefit from the cumulative increases in volume realized during the past several years; however, we do not anticipate sales volume to continue to increase substantially.
During 2006, we completed the installation of our second precalciner increasing our cement production capacity by about 25%. Other improvements to our production process are currently being considered including changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity, improvements to our fuel handling system and installation of an overland conveyor system to improve efficiencies in moving raw materials; however, we do not anticipate capital expenditures for 2007 to be at the level of 2006. We believe we can finance these expenditures with a mixture of cash from operations and our existing line of credit.
As we complete this year, we are thankful for our many loyal customers who continue to have confidence in the quality of our products and our ability to service their needs. We recognize our employees for their contributions toward the success of our Company. We express our appreciation to our stockholders for their steadfast confidence in our Company. Most importantly, we thank our Heavenly Father for His blessings and support which have enabled us to achieve the results displayed in this report and for His guidance in meeting the challenges ahead.
We wish to invite you, our stockholders, to attend Monarch's annual meeting to be held at 2:00 p.m. on April 11, 2007 in our newly expanded and remodeled corporate office at 449 1200 Street, Humboldt, Kansas. Thank you for your support throughout the years and God Bless.
WALTER H. WULF, JR.
President and Chairman of the Board
The Monarch Cement Company and Subsidiaries | |||||
Selected Financial Data | |||||
For the Five Years Ended December 31, 2006 | |||||
2006 | 2005 | 2004 | 2003 | 2002 | |
Net sales...................................... | $154,213 | $ 141,320 | $ 145,077 | $ 122,028 | $ 134,550 |
Net income ................................. | $ 13,215 | $ 9,658 | $ 2,569 | $ 3,820 | $ 5,903 |
Net income per share................... | $3.28 | $2.40 | $.64 | $.95 | $1.47 |
Total assets.................................. | $162,504 | $ 144,055 | $ 135,200 | $ 129,832 | $ 133,506 |
Long-term obligations................... | $ 22,083 | $ 24,087 | $ 26,141 | $ 23,048 | $ 26,540 |
Cash dividends declared per share | $.84 | $.80 | $.80 | $.80 | $.80 |
Stockholders' investment per share | $22.84 | $22.27 | $20.86 | $20.66 | $19.70 |
DESCRIPTION OF THE BUSINESS
The Monarch Cement Company (Monarch) was organized as a corporation under the laws of the State of Kansas in 1913. Since its inception, Monarch has been engaged in the manufacture and sale of portland cement.
The manufacture of portland cement by Monarch involves the quarrying of clay and limestone and the crushing, drying and blending of these raw materials into the proper chemical ratio. The raw materials are then heated in kilns to 2800o Fahrenheit at which time chemical reactions occur forming a new compound called clinker. After the addition of a small amount of gypsum, the clinker is ground into a very fine powder that is known as portland cement. The term "portland cement" is not a brand name but is a term that distinguishes cement manufactured by this chemical process from natural cement, which is no longer widely used. Portland cement is the basic material used in the production of ready-mixed concrete that is used in highway, bridge and building construction where strength and durability are primary requirements.
Subsidiaries of Monarch (which together with Monarch are referred to herewith as the "Company") are engaged in the ready‑mixed concrete, concrete products and sundry building materials business. Ready‑mixed concrete is manufactured by combining aggregates with portland cement, water and chemical admixtures in batch plants. It is then loaded into mixer trucks and mixed in transit to the construction site where it is delivered to the contractor. Concrete products primarily include pre-formed components produced by the Company that are ready for use in the construction of commercial buildings, institutional facilities and parking garages.
As used herein, the "Cement Business" refers to our manufacture and sale of cement and "Ready-Mixed Concrete Business" refers to our ready-mixed concrete, concrete products and sundry building materials business.
1.
LINES OF BUSINESS
The Company is engaged in two lines of business - Cement Business and Ready-Mixed Concrete Business.
The marketing area for Monarch's products, which is limited by the relatively high cost of transporting cement, consists primarily of the State of Kansas, the State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and northern Oklahoma. Included within this area are the metropolitan markets of Des Moines, Iowa; Kansas City, Missouri; Springfield, Missouri; Wichita, Kansas; Omaha, Nebraska; Lincoln, Nebraska and Tulsa, Oklahoma. Sales of cement are made primarily to contractors, ready-mixed concrete plants, concrete products plants, building materials dealers and governmental agencies. Monarch cement is delivered either in bulk or in paper bags and is sold under the "MONARCH" brand name. The cement is distributed both by truck and rail, either common or private carrier.
Subsidiaries of Monarch sell ready-mixed concrete, concrete products and sundry building materials in Monarch's primary market.
The following table sets forth for the Company's last three fiscal years the percentage of total sales by the (1) Cement Business and (2) Ready-Mixed Concrete Business:
Total Sales | |||||||
December 31, | |||||||
2006 | 2005 | 2004 | |||||
Cement Business | 47.2% | 45.5% | 35.3% | ||||
Ready-Mixed Concrete Business | 52.8% | 54.5% | 64.7% | ||||
100.0% | 100.0% | 100.0% |
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report and Form 10-K report filed with the Securities and Exchange Commission constitute "forward-looking information". Except for historical information, the statements made in this report are forward-looking statements that involve risks and uncertainties. You can identify these statements by forward-looking words such as "should", "expect", "anticipate", "believe", "intend", "may", "hope", "forecast" or similar words. In particular, statements with respect to variations in future demand for our products in our market area or the future activity of Kansas highway programs and other major construction projects, the timing, scope, cost and benefits of our proposed and recently completed capital improvements and expansion plans, including the resulting increase in production capacity, our forecasted cement sales, the timing and source of funds for the repayment of our line of credit, and our anticipated increase in solid fuels and electricity required to operate our facilities and equipment are all forward-looking statements. You should be aware that forward-looking statements involve known and unknown risks, uncertainties and other factors that may affect the actual results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others:
2.
- general economic and business conditions;
- competition;
- raw material and other operating costs;
- costs of capital equipment;
- changes in business strategy or expansion plans;
- demand for our Company's products;
- cyclical and seasonal nature of our business;
- the affect of weather on our business;
- the affect of environmental and other government regulations; and
- the affect of federal and state funding on demand for our products.
Ready-Mixed | |||
Cement Business | Concrete Business | Consolidated | |
For the Year Ended December 31, 2006 Sales to unaffiliated customers Income (loss) from operations | $ 72,858,017 20,952,199 | $ 81,354,611 (1,275,802) | $ 154,212,628 19,676,397 |
For the Year Ended December 31, 2005 | $ 64,299,277 15,920,874 | $ 77,020,651 (2,133,263) | $ 141,319,928 13,787,611 |
For the Year Ended December 31, 2004 Sales to unaffiliated customers Income (loss) from operations | $ 51,408,457 6,790,090 | $ 93,668,097 (4,871,807) | $ 145,076,554 1,918,283 |
See Note 10 in the Notes to Consolidated Financial Statements for further discussion of each of the Company's reportable operating lines of business.
General--Our products are used in residential, commercial and governmental construction. In recent years we experienced increased demand for our products. The combination of residential, commercial and governmental construction activities resulted in the need for increased production to meet our customers' needs. In response to those needs, we have made, and continue to make, investments in our plant and equipment to increase production and improve efficiencies.
During 2006, we realized a substantial increase in net income due primarily to a combination of increases in price in both the Cement Business and Ready-Mixed Concrete Business, volume in the Cement Business and net sales of construction contracts in the Ready-Mixed Concrete Business. The improvements we made in our plant and equipment allowed us to produce more cement to meet demand which resulted in better utilization of our equipment and contributed to the substantial improvements in operating profits. The price increases play a key role in helping us keep pace with increases in the cost of labor, raw materials, and transportation and the expense of maintaining state-of-the-art equipment in our capital intensive industry. During the second half of the year, we began to experience the economic effects of the higher interest rates, oil prices and inflation. The reduction in economic growth caused by these factors resulted in lower overall sales volumes of ready-mixed concrete in the Ready-Mixed Concrete Business and reduced the overall volume increase in the Cement Business.
During 2005, we realized a substantial increase in net income due primarily to a combination of increases in price and volume in both the Cement Business and Ready-Mixed Concrete Business. These price increases play a key role in helping us keep pace with increases in the cost of labor, raw materials, and transportation and the expense of maintaining state-of-the-art equipment in our capital intensive industry. The higher sales volumes resulted in better utilization of our equipment also contributing to the substantial improvement in operating profits. The decrease in net sales in 2005 as compared to 2004 is due to a reduction in construction contracts in the Ready-Mixed Concrete Business, which did not contribute to the Company's overall profitability in 2004.
3.
Although we are still in the construction industry, it is on a smaller scale than in prior years.
2006 Compared to 2005--Consolidated net sales for the year ended December 31, 2006 were approximately $154.2 million, an increase of $12.9 million as compared to the year ended December 31, 2005. Sales in our Cement Business were higher by $8.6 million while sales in our Ready-Mixed Concrete business increased $4.3 million. Cement Business sales increased $1.6 million due to increased volume sold and increased $7.0 million due to price increases. Sales in our Ready-Mixed Concrete Business increased primarily due to a $4.6 million increase in construction contract sales, which was partially offset by a decrease in ready-mixed concrete and other sundry building material sales of $.3 million, of which $5.3 million was due to price increases and $5.6 million was due to decreased volume.
Consolidated cost of sales for the year 2006 were $5.4 million more than cost of sales for the year 2005. Cost of sales in our Cement Business was higher by $2.2 million while cost of sales in our Ready-Mixed Concrete Business was higher by $3.2 million. Cement Business cost of sales increased $1.1 million due to the 2.5% increase in volume sold and about $1.1 million due to increased supply costs related to maintenance performed during 2006 and to an increase in depreciation for new equipment coming online. The increase in cost of sales in our Ready-Mixed Concrete Business was primarily due to a combination of raw material price increases and an increase in construction contracts. Raw materials, including cement, rock, sand and sundry building materials purchased for resale, increased $1.1 million due to increased raw material prices and higher energy prices. The increase in construction contract net sales resulted in a $1.4 million increase in construction related expenses. The remaining $.7 million increase is primarily due to increased production payroll and fringe benefit related expenses.
As a result of the above sales and cost of sales factors, our overall gross profit rate for the year ended December 31, 2006 was 21.9% compared to 18.5% for the year ended December 31, 2005.
Selling, general and administrative expenses increased by 13.3% for the year 2006 as compared to the year 2005. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. This increase is primarily due to expenses related to Sarbanes Oxley compliance efforts. Payroll also increased during 2006 as compared to 2005 due to an increase in management personnel responsible for construction contracts. Early in the first quarter of 2005, the departure of management personnel responsible for construction contracts reduced our administrative costs. These personnel have been replaced. An increase in health and accident expenses as well as other insurance expenses has also contributed to the increase.
Interest expense increased about $.4 million for the year 2006 as compared to the year 2005 due to an increase in interest rates and an increase in borrowings. The Company utilized these loans for capital improvements and temporary operating funds.
"Other, net" increased approximately $.2 million for the year 2006 as compared to the year 2005 primarily due to an increase in net oil property income.
The effective tax rates for years 2006 and 2005 were 31.1% and 29.1%, respectively. The Company's effective tax rate differs from the federal and state statutory income tax rate primarily due to the effects of percentage depletion, domestic production activities deduction, minority interest in consolidated income and valuation allowance. During 2006, percentage depletion decreased the effective tax rate by 6.8%. During 2005, percentage depletion reduced the effective tax rate by 6.7%.
4.
2005 Compared to 2004--Consolidated net sales for the year ended December 31, 2005 decreased $3.8 million when compared to the year ended December 31, 2004. Sales in our Cement Business were higher by $12.9 million while sales in our Ready-Mixed Concrete business decreased $16.7 million. Cement Business sales increased $7.2 million due to increased volume sold and $5.7 million due to price increases. Sales in our Ready-Mixed Concrete Business decreased primarily due to a $27.5 million reduction in construction contract sales as discussed under "General" above, which was partially offset by an increase in ready-mixed concrete and other sundry building material sales of $10.8 million, of which $4.9 million was due to increased volume and $5.9 million was due to price increases.
Consolidated cost of sales for the year 2005 were $15.9 million less than cost of sales for the year 2004. Cost of sales in our Cement Business was higher by $3.2 million while cost of sales in our Ready-Mixed Concrete Business was lower by $19.1 million. Cement Business cost of sales increased $5.5 million due to the 13.9% increase in volume sold and about $2.0 million due to increased supply costs related to maintenance performed in the early part of 2005. These increases were nearly offset by lower fuel costs of approximately $3.7 million due to a reduction in the use of natural gas made possible by our new coal firing system. The decrease in cost of sales in our Ready-Mixed Concrete Business was primarily due to a $26.8 million reduction in construction contract expenses as discussed under "General" above, which was partially offset by an increase in cost of sales of ready-mixed concrete and other sundry building materials of $7.7 million due to the increased volume sold, increased raw material prices and increased fuel prices.
As a result of the above sales and cost of sales factors, our overall gross profit rate for the year ended December 31, 2005 was 18.5% compared to 9.7% for the year ended December 31, 2004.
Selling, general and administrative expenses increased by 1.9% for the year 2005 as compared to the year 2004. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume.
Interest expense increased about $.6 million for the year 2005 as compared to the year 2004 due to an increase in interest rates and an increase in borrowings. The Company utilized these loans for capital improvements and temporary operating funds.
"Other, net" decreased approximately $1.6 million for the year 2005 as compared to the year 2004 primarily due to a decrease in the amount of gain realized on the sale of other equity investments of approximately $.9 million and an increase in subsidiary income allocated to minority interest of approximately $.6 million.
The effective tax rates for years 2005 and 2004 were 29.1% and 34.4%, respectively. The Company's effective tax rate differs from the federal and state statutory income tax rate primarily due to the effects of percentage depletion, domestic production activities deduction, minority interest in consolidated income and valuation allowance. During 2005, percentage depletion reduced the effective tax rate by 6.7%. During 2004, a valuation allowance increased the effective tax rate by 16.9%. This increase was substantially offset by the effects of percentage depletion and minority interest in consolidated income which reduced the effective tax rate by 13.3% and 3.5%, respectively.
LIQUIDITY
We are able to meet our cash needs primarily from a combination of operations and bank loans. Cash decreased during the year 2006 primarily due to utilization of cash to fund capital expenditures.
5.
In December 2006, we renewed and modified our line of credit with our current lender. Our current unsecured credit commitment consists of a $25 million advancing term loan maturing December 31, 2009 and a $15 million line of credit maturing December 31, 2007. The term loan bears a floating interest rate based on JP Morgan Chase prime rate less .75% and the line of credit bears a floating interest rate based on lender's national prime rate less 1.00%. The loan agreement contains a financial covenant related to net worth which the Company was in compliance with at year end. As of December 31, 2006, we had borrowed $21.4 million on the advancing term loan and $6.4 million on the line of credit leaving a balance available on the line of credit of $8.6 million. The annual weighted average interest rate we paid on the advancing term loan during 2006 and 2005 was 7.2% and 5.4%, respectively. The annual weighted average interest rate we paid on the line of credit during 2006 and 2005 was 7.0% and 5.2%, respectively. At year end, the applicable interest rate was 7.50% on the advancing term loan and 7.25% on the line of credit. The advancing term loan was used to help finance the expansion project at our cement manufacturing facility. The line of credit was used to cover operating expenses primarily during the first half of the year when we build inventory due to the seasonality of our business and for capital expenditures. Our board of directors has given management the authority to borrow an additional $10 million for a maximum of $50 million.
Contractual obligations at December 31, 2006, consisting of maturities on long-term debt, line of credit, estimated interest payments on debt, pension, postretirement benefit obligations and open purchase orders are as follows:
2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | |
Long-term debt | $ 2,027,377 | $ 2,335,278 | $ 17,452,131 | $ 249,571 | $ 8,297 | $ 9,733 |
Line of Credit | 6,397,667 | - | - | - | - | - |
Interest payments | 2,070,847 | 1,453,776 | 4,323,088 | 8,188 | - | - |
Pension | 571,000 | - | - | - | - | - |
Postretirement benefit obligations | 1,446,564 | 1,484,225 | 1,569,110 | 1,635,369 | 1,707,221 | 9,216,383 |
Open purchase orders | 5,595,620 | 5,469,055 | 1,046,157 | - | - | - |
The long-term debt obligation is based on current interest rates and assumes that the advancing term loan is paid off at maturity.
The Company has been required to make a pension contribution in two of the past three years. In 2006 and 2005, the Company contributed approximately $.6 million and $.6 million, respectively, to the pension fund. No estimates of required pension payments have been asked for or made beyond 2007.
Each segment of the cement manufacturing process requires significant investment in major pieces of equipment. Once installed, this equipment, if properly maintained, functions for many years. Generally we spend several million dollars each year on preventive maintenance and equipment repairs; however, capital expenditures vary from year to year. A piece of equipment that costs $25 - $30 million may remain in service for fifty years. After a period of time, this equipment may be modified to incorporate the latest technology, increasing its efficiency and production capacity and extending its useful life. In the years Monarch invests in major equipment replacements or enhancements, current operations do not generate enough cash to pay for the improvements, requiring us to use our cash on hand or bank financing. As projects are completed, we reduce the amount needed for major capital expenditures, allowing us to pay off any outstanding bank loans and accumulate cash for the next major plant improvement.
6.
The Company completed the conversion of our remaining preheater kiln to a precalciner kiln during the first quarter of 2006 at a total cost of approximately $17.0 million. The conversion of this kiln should increase our production capacity by approximately 200,000 tons per year. We began depreciating the precalciner equipment and related installation costs in the second quarter of 2006.
The Company completed the expansion of its corporate office in the fourth quarter of 2006 at a total cost of approximately $3.4 million. We began depreciating this addition in the fourth quarter of 2006.
Other projects, including changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity, improvements to our fuel handling system and installation of an overland conveyor system to improve efficiencies in moving raw materials, are currently under consideration. However, we do not anticipate capital expenditures for 2007 to be at the level of 2006 and we do not anticipate the need for additional bank financing other than that available under existing lines of credit.
For several years the Company has paid a $.20 per share dividend in January, March, June and September. Beginning with the April 2006 Board of Directors meeting, the Board elected to increase these dividends to $.21 per share. Although dividends are declared at the Board's discretion, we project future earnings will support the continued payment of dividends at the current level.
FINANCIAL CONDITION
Total assets as of December 31, 2006 were $162.5 million, an increase of $18.4 million since December 31, 2005 due primarily to increases in inventories, investments, property, plant and equipment, and deferred income taxes of approximately $4.5 million, $1.8 million, $9.3 million and $5.6 million, respectively. Cement and work in process inventories were both higher primarily due to greater volumes held in inventory and to the higher cost of those inventories compared to 2005. Operating and maintenance supplies inventory increased due to supplies related to the new construction in the plant. Investments increased due to additional purchases of equity investments as well as an increase in the market price of available-for-sale securities over their market price at the end of 2005. Property, plant and equipment increased as a result of the purchase and installation of new equipment. Deferred income taxes increased primarily due to adoption of the provisions of Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)". Short-term investments decreased by $1.5 million. These investments, the result of excess cash at the end of 2005, were converted to cash and used to help fund increases in inventories and the purchase of equipment.
Accounts payable decreased about $3.4 million as of December 31, 2006 compared to December 31, 2005 primarily due to a $1.9 million decrease in capital equipment additions in accounts payable at the end of 2006 compared to 2005. Maintenance projects and additional construction projects near the end of 2005 that did not occur at the end of 2006 also contributed to the decrease in accounts payable at year end.
Indebtedness increased about $4.4 million during the year 2006 primarily as a result of utilizing the line of credit to fund increases in inventories and the purchase of equipment.
7.
During 2006, we adjusted the pension liability, resulting in an increase in total pension liability of $1.0 million and a decrease in stockholders' investment of $.6 million. We also adjusted the postretirement liability, resulting in an increase in accrued postretirement expense of $13.9 million and a decrease in stockholders' investment of $7.4 million. The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" on December 31, 2006. The most significant change is the requirement for the Company to recognize the entire overfunded or underfunded status of its defined benefit and postretirement plans as assets or liabilities in its statement of financial position and to recognize changes, net of taxes, in that funded status in the year in which the changes occur through comprehensive income.
Stockholders' investment increased 2.5% during 2006 as a result of net income, which was reduced by dividends and the pension and postretirement changes in comprehensive income due to the adoption of FAS 158. Basic earnings were $3.28 per share and dividends declared were $.84 per share for the year 2006.
CAPITAL RESOURCES
The Company historically invests $10 million to $12 million per year on capital expenditures to keep its equipment and facilities in good operating condition. Capital expenditures during 2006 included completion of construction of an addition to our corporate offices and completion of the conversion of our remaining preheater kiln to a precalciner kiln. We also invested in routine equipment purchases in the Ready-Mixed Concrete Business during 2006. Property, plant and equipment expenditures for 2006 totaled approximately $22.4 million excluding the amounts that are included in accounts payable.
Preliminary plans under consideration for 2007 include changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity. The Company also plans to invest in other miscellaneous equipment and facility improvements in both the Cement Business and Ready-Mixed Concrete Business in 2007. It is expected that the Company's capital expenditures will approximate $14 million during 2007 and will be funded with a mixture of cash from operations and temporary bank loans. We anticipate the need for additional bank financing will not exceed the amount available through our existing line of credit.
Accounting Policies--The critical accounting policies with respect to the Company are those related to pension and postretirement benefits.
Monarch has defined benefit pension plans covering substantially all permanent employees in the Cement Business. Plans covering staff (salaried) employees provide pension benefits that are based on years of service and the employee's last sixty calendar months of earnings or the highest five consecutive calendar years of earnings out of the last ten calendar years of service, whichever is greater. Plans covering production (hourly) employees provide benefits of stated amounts for each year of service. Generally, Monarch's funding policy is to contribute annually an amount within the minimum/maximum range of tax deductible contributions computed by the actuaries. Contributions are intended to provide for benefits attributed to service to date and for those expected to be earned in the future. Monarch expects 2007 cash expenditures for these plans to be approximately $.6 million.
Monarch also provides other postretirement employee benefits including health care and life insurance benefits to all retired employees who, as of their retirement date, have completed ten or more years of credited service under the pension plans. These benefits are self‑insured by Monarch and are paid out of Monarch's general assets. Monarch expects 2007 cash expenditures for this plan to be approximately $1.4 million.
8.
We account for our pension plans in accordance with Financial Accounting Standards Board (FASB) Statement No. 87, "Employers' Accounting for Pensions" (FAS 87) and our postretirement benefits in accordance with FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). In addition, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" on December 31, 2006. FAS 87 and FAS 106 require us to make various estimates and assumptions, including discount rates used to value liabilities, expected rates of return on plan assets, salary increases, employee turnover rates, anticipated employee mortality rates and expected future healthcare costs. The estimates we used are based on our historical experience as well as current facts and circumstances and are updated at least annually. We use third-party actuaries to assist us in properly measuring the expense and liability associated with these benefits. SFAS 158 require us to recognize the entire overfunded or underfunded status of our defined benefit and postretirement plans as assets or liabilities in the statement of financial position and to recognize changes, net of taxes, in that funded status in the year in which the changes occur through comprehensive income.
The Financial Accounting Standards Board (FASB) has issued the following new accounting pronouncement.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN48"). FIN 48 clarifies the application of Statement 109 by defining a recognition threshold of "more likely than not" that the position would be sustained upon examination before any part of the benefit of that position be recognized in an enterprise's financial statements. It also provides guidance on the measurement of the tax position. This Interpretation will be effective for fiscal years beginning after December 15, 2006. The Company has not yet determined the impact, if any, that this new pronouncement will have on the Company's consolidated financial statements.
Market Risks--Market risks relating to the Company's operations result primarily from changes in demand for our products. A significant increase in interest rates could lead to a reduction in construction activities in both the residential and commercial market. Budget shortfalls during economic slowdowns could cause money to be diverted away from highway projects, schools, detention facilities and other governmental construction projects. Reduction in construction activity lowers the demand for cement, ready-mixed concrete, concrete products and sundry building materials. As demand decreases, competition to retain sales volume could create downward pressure on sales prices. The manufacture of cement requires a significant investment in property, plant and equipment and a trained workforce to operate and maintain this equipment. These costs do not materially vary with the level of production. As a result, by operating at or near capacity, regardless of demand, companies can reduce per unit production costs. The continual need to control production costs encourages overproduction during periods of reduced demand.
Interest rates on the Company's advancing term loan and line of credit are variable and are based on the JP Morgan Chase prime rate less .75% and lender's national prime rate less 1.00%, respectively.
Inflation--Inflation directly affects the Company's operating costs. The manufacture of cement requires the use of a significant amount of energy. The Company burns primarily solid fuels, such as coal and petroleum coke, and to a lesser extent natural gas, in its kilns. While we do not anticipate a significant increase above the rate of inflation in the cost of these solid fuels, natural gas, or in the electricity required to operate our cement manufacturing equipment, an increase in such manufacturing components could adversely affect us. Prices of the specialized replacement parts and equipment the Company must continually purchase tend to increase directly with the rate of inflation causing manufacturing costs to increase.
9.
STOCK MARKET AND DIVIDEND DATA
On March 1, 2007, Monarch's stock was held by approximately 700 record holders. Monarch is the transfer agent for Monarch's stock which is traded on the over‑the‑counter market. Over-the-counter market quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Following is a schedule of the range of low and high bid quotations as reported by Yahoo! at http://finance.yahoo.com/, and dividends declared for each quarter of our two latest fiscal years:
2006 | 2005 | |||||||||
Price | Dividends | Price | Dividends | |||||||
Quarter | Low | High | Declared | Low | High | Declared | ||||
First | $23.150 | $29.000 | $ - | $22.100 | $23.410 | $ - | ||||
Second | $26.000 | $30.000 | $.21 | $22.100 | $24.250 | $.20 | ||||
Third | $25.100 | $29.500 | $.21 | $21.050 | $26.210 | $.20 | ||||
Fourth | $27.520 | $33.000 | $.42* | $22.550 | $25.000 | $.40* |
*Reflects declaration of two $.21 and $.20 dividends payable in the first quarter of 2007 and 2006, respectively.
In accordance with the Company's loan agreement, it is required to maintain a minimum net worth. See Footnote 4.
The following performance graph and table show a five-year comparison of cumulative total returns for the Company, the S&P 500 composite index and an index of two peer groups of companies selected by the Company.
The cumulative total return on investment for each of the periods for the Company, the S&P 500 and the two peer groups is based on the stock price or composite index at January 1, 2002. The performance graph assumes that the value of an investment in the Company's capital stock and each index was $100 at January 1, 2002 and that all dividends were reinvested. The information presented in the performance graph is historical in nature and is not intended to represent or guarantee future returns.
10.
|
| 12/01 | 12/02 | 12/03 | 12/04 | 12/05 | 12/06 |
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The Monarch Cement Company | 100.00 | 97.99 | 111.07 | 136.28 | 146.43 | 213.20 | |
S & P 500 |
| 100.00 | 77.90 | 100.24 | 111.15 | 116.61 | 135.03 |
New Peer Group |
| 100.00 | 85.32 | 114.49 | 139.88 | 146.71 | 217.64 |
Old Peer Group |
| 100.00 | 92.99 | 138.91 | 225.83 | 296.78 | 311.66 |
The performance graph compares the performance of the Company with that of the S&P 500 composite index and an index of two peer groups of companies in the Company's industry in which the returns are weighted according to each company's market capitalization. The new peer group consists of Cemex SA De CV, Eagle Materials, Inc., Florida Rock Industries, Inc., Lafarge S.A., Ready Mix, Inc. and Texas Industries, Inc. The only difference between the old and new peer groups is that Lafarge S.A. was substituted for Lafarge North America, Inc. in the new peer group because Lafarge North America's shares were acquired by Lafarge S.A.
11.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2006. In making this assessment, management used the framework and criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2006.
Our assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2006 has been audited by BKD, LLP, an independent registered public accounting firm, as stated in their report which is included herein.
THE MONARCH CEMENT COMPANY
12.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEETS | |||
DECEMBER 31, 2006 AND 2005 | |||
ASSETS | 2 0 0 6 | 2 0 0 5 | |
CURRENT ASSETS: | |||
Cash and cash equivalents | $ 2,410,623 | $ 4,895,561 | |
Short-term investment, at cost which approximates market | - | 1,500,000 | |
Receivables, less allowances of $641,000 in 2006 and | |||
$602,000 in 2005 for doubtful accounts | 14,795,481 | 14,186,551 | |
Inventories, priced at cost which is not in excess of market- | |||
Finished cement | $ 3,988,211 | $ 1,868,412 | |
Work in process | 2,753,095 | 1,632,780 | |
Building products | 3,693,636 | 3,457,813 | |
Fuel, gypsum, paper sacks and other | 3,465,194 | 3,317,283 | |
Operating and maintenance supplies | 8,677,942 | 7,850,617 | |
Total inventories | $ 22,578,078 | $ 18,126,905 | |
Refundable federal and state income taxes | 739,574 | - | |
Deferred income taxes | 670,000 | 665,000 | |
Prepaid expenses | 284,599 | 80,843 | |
Total current assets | $ 41,478,355 | $ 39,454,860 | |
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation | |||
and depletion of $131,120,295 in 2006 and $121,060,864 in 2005 | 95,112,389 | 85,815,343 | |
DEFERRED INCOME TAXES | 9,692,000 | 4,111,000 | |
INVESTMENTS | 15,275,669 | 13,454,631 | |
OTHER ASSETS | 945,429 | 1,219,082 | |
$ 162,503,842 | $ 144,054,916 | ||
LIABILITIES AND STOCKHOLDERS' INVESTMENT | |||
CURRENT LIABILITIES: | |||
Accounts payable | $ 5,579,416 | $ 8,971,830 | |
Line of credit payable | 6,397,667 | - | |
Current portion of advancing term loan | 2,027,377 | 1,965,106 | |
Accrued liabilities- | |||
Dividends | 1,691,322 | 1,610,783 | |
Compensation and benefits | 2,622,684 | 3,443,226 | |
Federal and state income taxes | - | 29,776 | |
Miscellaneous taxes | 704,594 | 664,423 | |
Other | 1,083,402 | 751,613 | |
Total current liabilities | $ 20,106,462 | $ 17,436,757 | |
LONG-TERM DEBT | 20,055,010 | 22,121,890 | |
ACCRUED POSTRETIREMENT BENEFITS | 25,322,665 | 11,456,039 | |
ACCRUED PENSION EXPENSE | 4,040,213 | 2,121,155 | |
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES | 1,023,116 | 1,246,317 | |
STOCKHOLDERS' INVESTMENT | |||
Capital Stock, par value $2.50 per share, one vote per share ‑ | |||
Authorized 10,000,000 shares, Issued 2,488,285 shares at | |||
December 31, 2006 and 2,464,926 shares at December 31, 2005 | $ 6,220,713 | $ 6,162,315 | |
Class B Capital Stock, par value $2.50 per share, ten votes per | |||
share - Authorized 10,000,000 shares, Issued 1,538,673 shares at | |||
December 31, 2006 and 1,562,032 shares at December 31, 2005 | 3,846,682 | 3,905,080 | |
Retained earnings | 86,797,943 | 76,965,363 | |
Accumulated other comprehensive income (loss) | (4,908,962) | 2,640,000 | |
Total stockholders' investment | $ 91,956,376 | $ 89,672,758 | |
$ 162,503,842 | $ 144,054,916 | ||
See notes to consolidated financial statements |
16.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES | |||||
CONSOLIDATED STATEMENTS OF INCOME | |||||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||||
2006 | 2005 | 2004 | |||
NET SALES | $ 154,212,628 | $ 141,319,928 | $ 145,076,554 | ||
COST OF SALES | 120,492,566 | 115,137,868 | 130,989,824 | ||
Gross profit from operations | $ 33,720,062 | $ 26,182,060 | $ 14,086,730 | ||
SELLING, GENERAL AND | |||||
ADMINISTRATIVE EXPENSES | 14,043,665 | 12,394,449 | 12,168,447 | ||
Income from operations | $ 19,676,397 | $ 13,787,611 | $ 1,918,283 | ||
OTHER INCOME (EXPENSE) | |||||
Interest income | $ 307,359 | $ 418,290 | $ 379,449 | ||
Interest expense | (1,911,830) | (1,507,267) | (926,363) | ||
Other, net | 1,108,299 | 919,735 | 2,547,834 | ||
$ (496,172) | $ (169,242) | $ 2,000,920 | |||
INCOME BEFORE PROVISION FOR INCOME TAXES | $ 19,180,225 | $ 13,618,369 | $ 3,919,203 | ||
PROVISION FOR INCOME TAXES | 5,965,000 | 3,960,000 | 1,350,000 | ||
NET INCOME | $ 13,215,225 | $ 9,658,369 | $ 2,569,203 | ||
Basic earnings per share | $3.28 | $2.40 | $.64 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||||
2006 | 2005 | 2004 | |||
NET INCOME | $ 13,215,225 | $ 9,658,369 | $ 2,569,203 | ||
UNREALIZED APPRECIATION (DEPRECIATION) ON | |||||
AVAILABLE FOR SALE SECURITIES (Net of deferred | |||||
tax (benefit) expense of $308,000, $395,000, and $1,615,000 | |||||
for 2006, 2005 and 2004, respectively) | 462,000 | 588,205 | 2,470,400 | ||
RECLASSIFICATION ADJUSTMENT FOR | |||||
REALIZED (GAINS) LOSSES INCLUDED IN | |||||
NET INCOME (Net of deferred tax (benefit) expense of $0, | |||||
$155,000 and $515,000 for 2006, 2005 and 2004, respectively) | - | (228,205) | (770,400) | ||
MINIMUM PENSION LIABILITY (Net of deferred tax (benefit) expense of | |||||
$497,000, $(760,000) and $(160,000) for 2006, 2005 and 2004, respectively) | 744,802 | (1,140,000) | (240,000) | ||
ADOPTION OF FAS 158-PENSION LIABILITY (Net of deferred tax | |||||
(benefit) expense of $(872,000), $0 and $0 for 2006, 2005 and | |||||
2004, respectively) | (1,311,444) | - | - | ||
ADOPTION OF FAS 158-POST-RETIREMENT LIABILITY (Net of | |||||
deferred tax (benefit) expense of $(4,960,000), $0 and $0 for 2006, | |||||
2005 and 2004, respectively) | (7,444,320) | - | - | ||
COMPREHENSIVE INCOME | $ 5,666,263 | $ 8,878,369 | $ 4,029,203 | ||
See notes to consolidated financial statements | |||||
17. |
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT | |||||||||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||||||||
Accumulated | |||||||||
Class B | Other | ||||||||
Capital | Capital | Retained | Comprehensive | Stockholders' | |||||
Stock | Stock | Earnings | Income | Investment | |||||
Balance at January 1, 2004 | $ 5,973,453 | $ 4,093,942 | $ 71,180,923 | $ 1,960,000 | $ 83,208,318 | ||||
Net income | - | - | 2,569,203 | - | 2,569,203 | ||||
Dividends declared ($.80 per share) | - | - | (3,221,566) | - | (3,221,566) | ||||
Transfer of shares | 42,040 | (42,040) | - | - | - | ||||
Change in unrealized appreciation | |||||||||
on available for sale securities | - | - | - | 1,700,000 | 1,700,000 | ||||
Adjustment to recognize | |||||||||
minimum pension liability | - | - | - | (240,000) | (240,000) | ||||
Balance at December 31, 2004 | $ 6,015,493 | $ 4,051,902 | $ 70,528,560 | $ 3,420,000 | $ 84,015,955 | ||||
Net income | - | - | 9,658,369 | - | 9,658,369 | ||||
Dividends declared ($.80 per share) | - | - | (3,221,566) | - | (3,221,566) | ||||
Transfer of shares | 146,822 | (146,822) | - | - | - | ||||
Change in unrealized appreciation | |||||||||
on available for sale securities | - | - | - | 360,000 | 360,000 | ||||
Adjustment to recognize | |||||||||
minimum pension liability | - | - | - | (1,140,000) | (1,140,000) | ||||
Balance at December 31, 2005 | $ 6,162,315 | $ 3,905,080 | $ 76,965,363 | $ 2,640,000 | $ 89,672,758 | ||||
Net income | - | - | 13,215,225 | - | 13,215,225 | ||||
Dividends declared ($.84 per share) | - | - | (3,382,645) | - | (3,382,645) | ||||
Transfer of shares | 58,398 | (58,398) | - | - | - | ||||
Change in unrealized appreciation | |||||||||
on available for sale securities | - | - | - | 462,000 | 462,000 | ||||
Adjustment to recognize | |||||||||
minimum pension liability | - | - | - | 744,802 | 744,802 | ||||
Adjustment to initially apply FAS 158- | |||||||||
pension liability | - | - | - | (1,311,444) | (1,311,444) | ||||
Adjustment to initially apply FAS 158- | |||||||||
post-retirement liability | - | - | - | (7,444,320) | (7,444,320) | ||||
Balance at December 31, 2006 | $ 6,220,713 | $ 3,846,682 | $ 86,797,943 | $ (4,908,962) | $ 91,956,376 | ||||
See notes to consolidated financial statements |
18.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||||
2006 | 2005 | 2004 | |||
OPERATING ACTIVITIES: | |||||
Net income | $ 13,215,225 | $ 9,658,369 | $ 2,569,203 | ||
Adjustments to reconcile net income to | |||||
net cash provided by operating activities: | |||||
Depreciation, depletion and amortization | 11,312,741 | 10,923,917 | 10,750,447 | ||
Minority interest in earnings (losses) of subsidiaries | (4,553) | 63,587 | (527,225) | ||
Deferred income taxes | (599,000) | (1,760,000) | (644,000) | ||
Gain on disposal of assets | (217,708) | (226,420) | (264,944) | ||
Realized gain on sale of other investments | - | (384,376) | (1,285,400) | ||
Change in assets and liabilities: | |||||
Receivables, net | (608,930) | (662,735) | 328,780 | ||
Inventories | (4,451,173) | (178,663) | (1,829,990) | ||
Refundable income taxes | (739,574) | 812,807 | (812,807) | ||
Prepaid expenses | (203,756) | 89,393 | (15,225) | ||
Other assets | 60,523 | 41,984 | 36,398 | ||
Accounts payable and accrued liabilities | (1,123,145) | 1,976,883 | (623,472) | ||
Accrued postretirement benefits | 1,501,670 | 1,438,636 | 823,119 | ||
Accrued pension expense | 63,416 | (1,016,872) | 452,484 | ||
Net cash provided by operating activities | $ 18,245,736 | $ 20,776,510 | $ 8,957,368 | ||
INVESTING ACTIVITIES: | |||||
Acquisition of property, plant and equipment | $ (22,405,144) | $ (14,380,650) | $ (12,720,642) | ||
Proceeds from disposals of property, plant and equipment | 353,203 | 505,809 | 654,378 | ||
Payment for purchases of equity investments | (1,051,038) | - | (589,872) | ||
Proceeds from disposals of equity investments | - | 1,150,246 | 2,557,673 | ||
(Increase) decrease in short-term investments, net | 1,500,000 | (1,500,000) | - | ||
Purchases of subsidiaries' stock | (192,914) | (398,752) | (118,999) | ||
Net cash used for investing activities | $ (21,795,893) | $ (14,623,347) | $ (10,217,462) | ||
FINANCING ACTIVITIES: | |||||
Increase (decrease) in line of credit, net | $ 6,397,667 | $ (981,667) | $ 981,667 | ||
Proceeds from bank loans | - | - | 5,805,645 | ||
Payment on bank loans | (1,782,463) | (1,791,944) | (2,527,258) | ||
Payments on other long-term debt | (222,146) | (261,678) | (186,048) | ||
Cash dividends paid | (3,302,106) | (3,221,566) | (3,221,566) | ||
Subsidiaries' dividends paid to minority interest | (25,733) | - | (31,111) | ||
Net cash provided by (used for) financing activities | $ 1,065,219 | $ (6,256,855) | $ 821,329 | ||
Net decrease in cash and cash equivalents | $ (2,484,938) | $ (103,692) | $ (438,765) | ||
Cash and Cash Equivalents, beginning of year | 4,895,561 | 4,999,253 | 5,438,018 | ||
Cash and Cash Equivalents, end of year | $ 2,410,623 | $ 4,895,561 | $ 4,999,253 | ||
Additional Cash Flow Information: | |||||
Interest paid, net of amount capitalized | $ 1,915,473 | $ 1,512,196 | $ 930,675 | ||
Income taxes paid, net of refunds | $ 7,271,924 | $ 4,876,767 | $ 3,141,181 | ||
Capital equipment additions included in accounts payable | $ 164,847 | $ 2,037,838 | $ - | ||
See notes to consolidated financial statements |
19.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations‑‑The Monarch Cement Company (Monarch) is principally engaged in the manufacture and sale of portland cement. The marketing area for Monarch's products consists primarily of the State of Kansas, the State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and northern Oklahoma. Sales are made primarily to contractors, ready-mixed concrete plants, concrete products plants, building materials dealers and governmental agencies. Companies controlled by Monarch sell ready-mixed concrete, concrete products and sundry building materials in metropolitan areas within Monarch's marketing area.
(b) Principles of Consolidation‑‑Monarch has direct control of certain operating companies that have been deemed to be subsidiaries within the meaning of accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission. Accordingly, the financial statements of such companies have been consolidated with Monarch's financial statements. All significant intercompany transactions have been eliminated in consolidation. Minority interests in net income (loss) have been recorded as reductions or increases in other income in the accompanying statements of income. The minority interests in net income (loss) were $(4,553), $63,587 and $(527,225) during 2006, 2005 and 2004, respectively.
(c) Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
(d) Cash Equivalents--The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2006 and 2005, cash equivalents consisted primarily of money market investments and repurchase agreements with various banks. From time to time, the Company's cash accounts exceed federally insured limits.
(e) Investments--Equity securities for which the Company has no immediate plan to sell but that may be sold in the future are classified as available for sale and carried at fair value. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' investment. Realized gains and losses, based on the specifically identified cost of the security, are included in net income.
(f) Receivables--Accounts receivables are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivables are ordinarily due 30 days after the issuance of the invoice. Accounts past due are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
(g) Inventories‑‑Inventories of finished cement and work in process are recorded at the lower of cost or market on a last‑in, first‑out (LIFO) basis. Total inventories reported under LIFO amounted to $6,741,306 and $3,444,767 as of December 31, 2006 and 2005, respectively. Under the average cost method of accounting (which approximates current cost), these inventories would have been $2,084,000, $1,837,000 and $2,000,000 higher than those reported at December 31, 2006, 2005 and 2004, respectively. The cost of manufactured items includes all material, labor, factory overhead and production-related administrative overhead required in their production.
20.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
Other inventories are purchased from outside suppliers. Fuel and other materials are priced by the first‑in, first‑out (FIFO) method while operating and maintenance supplies are recorded using the average cost method.
(h) Property, Plant and Equipment‑‑Property, plant and equipment are stated at cost of acquisition or construction. The Company capitalizes the cost of interest on borrowed funds used to finance the construction of property, plant and equipment. During 2006, 2005 and 2004, the Company capitalized approximately $236,100, $53,700 and $48,000, respectively, of interest expense related to current construction projects.
Depreciation of property, plant and equipment is provided by charges to operations over the estimated useful lives of the assets using accelerated methods. The Company's buildings, machinery and equipment are depreciated using double declining balance depreciation. The Company switches to straight line depreciation once it exceeds the amount computed under the double declining balance method until the asset is fully depreciated. We do not depreciate construction in process. Depletion rates for quarry lands are designed to amortize the cost over the estimated recoverable reserves. Expenditures for improvements that significantly increase the assets' useful lives are capitalized while maintenance and repairs are charged to expense as incurred.
(i) Income Taxes‑‑Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
(j) Revenue Recognition‑‑The Company records revenue from the sale of cement, ready-mixed concrete, concrete products and sundry building materials following delivery of the products to customers. Concrete products are also sold through long-term construction contracts. Revenues for these contracts are recognized on the percentage-of-completion method based on the costs incurred relative to total estimated costs. Full provision is made for any anticipated losses. Billings for long-term construction contracts are rendered monthly, including the amount of retainage withheld by the customer until contract completion. Retainages are included in receivables and are generally due within one year.
(k) Cost of Sales--The Company considers all production and shipping costs, (gain) loss on disposal of assets, inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, and internal transfer costs as cost of sales.
(l) Selling, General and Administrative Expenses--Selling, general and administrative expenses consists of sales personnel salaries and expenses, promotional costs, accounting personnel salaries and expenses, director and administrative officer salaries and expenses, legal and professional expenses, and other expenses related to overall corporate costs.
(m) Earnings per Share‑‑Basic earnings per share is based on the weighted average common shares outstanding during each year. Diluted earnings per share is based on the weighted average common and common equivalent shares outstanding each year. Monarch has no common stock equivalents and therefore does not report diluted earnings per share. The weighted average number of shares outstanding was 4,026,958 in 2006, 2005 and 2004.
21.
(n) Self Insurance‑‑The Company has elected to self-insure certain costs related to employee health and accident benefit programs. Costs resulting from self-insured losses are charged to income when incurred.
(o) Disclosure about Fair Value of Financial Instruments--Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Cash and cash equivalents, receivables, accounts payable, bank loans payable and long-term debt have carrying values that approximate fair values. Investment fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.
(p) Disclosure about Defined Benefit Pension and Other Postretirement Plans--The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" on December 31, 2006. The most significant change is the requirement for the Company to recognize the entire overfunded or underfunded status of its defined benefit and postretirement plans as assets or liabilities in its statement of financial position and to recognize changes, net of taxes, in that funded status in the year in which the changes occur through comprehensive income. The following table presents the incremental effect of applying FASB Statement No. 158 on individual line items in the Statement of Financial Position as of December 31, 2006:
Before Application of | Adjustments | After Application of | |||
Deferred Income Taxes (long-term asset) | $ 3,860,000 | $ 5,832,000 | $ 9,692,000 | ||
Accrued Pension Expense (long-term liability) | 1,856,769 | 2,183,444 | 4,040,213 | ||
Accrued Postretirement Benefits (long-term liability) | 12,918,345 | 12,404,320 | 25,322,665 | ||
Accumulated other comprehensive income | 3,846,802 | (8,755,764) | (4,908,962) | ||
Total stockholders' investment | 100,712,140 | (8,755,764) | 91,956,376 |
(2) INVESTMENTS
Investments include equity securities which have been classified as available-for-sale. Realized gains are computed using the specific identification method. The equity investment results for the years ended December 31, 2006, 2005 and 2004 are as follows:
2006 | 2005 | 2004 | |||
Fair value of investments | $ 15,275,669 | $ 13,454,631 | $ 13,620,501 | ||
Cost of investments | 6,405,669 | 5,354,631 | 6,120,501 | ||
Gross unrealized gains | $ 8,870,000 | $ 8,100,000 | $ 7,500,000 | ||
Unrealized gain recorded in equity | $ 5,322,000 | $ 4,860,000 | $ 4,500,000 | ||
Deferred income taxes | 3,548,000 | 3,240,000 | 3,000,000 | ||
$ 8,870,000 | $ 8,100,000 | $ 7,500,000 | |||
Proceeds from sale of securities | - | $ 1,150,246 | $ 2,557,673 | ||
Realized gains | - | $ 384,376 | $ 1,285,400 |
22.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2006 and 2005 consisted of:: | |||||||
Depreciation Lives (Years) | 2006 | 2005 | |||||
Quarry lands | $ 1,806,742 | $ 1,806,742 | |||||
Mill site and buildings | 12-50 | 23,757,916 | 22,798,168 | ||||
Machinery and equipment | 5-25 | 151,099,289 | 127,303,293 | ||||
Transportation equipment | 3-12 | 34,537,030 | 33,273,660 | ||||
Office furniture and fixtures | 5-20 | 1,997,048 | 1,735,603 | ||||
Office and other buildings | 10-30 | 8,705,396 | 5,055,887 | ||||
Construction in process | 4,329,263 | 14,902,854 | |||||
$ 226,232,684 | $ 206,876,207 | ||||||
Less--Accumulated depreciation and depletion | 131,120,295 | 121,060,864 | |||||
$ 95,112,389 | $ 85,815,343 |
4) LINE OF CREDIT AND LONG-TERM DEBT
In December 2006, Monarch renewed and modified its line of credit with a bank. Monarch's current unsecured credit commitment consists of a $25,000,000 advancing term loan maturing December 31, 2009 and a $15,000,000 line of credit maturing December 31, 2007. At December 31, 2006 and 2005, there was $6,397,667 and $-0-, respectively, borrowed against the line of credit. This line contains a financial covenant related to net worth which the Company was in compliance with at year end. Interest on the line of credit varies with the lender's National Prime rate less 1.00% for 2006 and 2005. The applicable interest rate was 7.25% and 6.25% on December 31, 2006 and 2005, respectively, and is payable quarterly.
2006 | 2005 | |||
Note payable, bank (a) | $ 21,425,593 | $ 23,208,056 | ||
Other | 656,794 | 878,940 | ||
$ 22,082,387 | $ 24,086,996 | |||
Less current maturities | 2,027,377 | 1,965,106 | ||
$ 20,055,010 | $ 22,121,890 | |||
(a) Due December 31, 2009; payable $899,717 quarterly including interest; interest computed based on JP Morgan Chase prime rate less .75% subject to a financial covenant related to net worth which the Company was in compliance with at year end. |
Aggregate annual maturities of long-term debt as of December 31, 2006 are:
2007 | 2,027,377 |
2008 | 2,335,278 |
2009 | 17,452,131 |
2010 | 249,571 |
2011 | 8,297 |
Thereafter | 9,733 |
$22,082,387 |
(5) INCOME TAXES
The components of the provision for federal and state income taxes in the accompanying consolidated statements of income are as follows:
23.
2006 | 2005 | 2004 | |||
Taxes currently payable | $ 6,524,000 | $ 5,720,000 | $ 1,994,000 | ||
Deferred income taxes | (559,000) | (1,760,000) | (644,000) | ||
Income tax expense | $ 5,965,000 | $ 3,960,000 | $ 1,350,000 |
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is as follows: | |||||
2006 | 2005 | 2004 | |||
Computed at statutory rate (34%; over $10 million-35%) | $ 6,613,000 | $ 4,659,000 | $ 1,333,000 | ||
Increase (decrease) resulting from: | |||||
State income taxes, net of federal tax benefit | 412,000 | 149,000 | (47,000) | ||
Percentage depletion | (1,309,000) | (913,000) | (523,000) | ||
Valuation allowance | 530,000 | 220,000 | 661,000 | ||
Domestic production activities deduction | (208,000) | (147,000) | - | ||
Minority interest in consolidated income (loss) | (2,000) | 22,000 | (138,000) | ||
Other | (71,000) | (30,000) | 64,000 | ||
Provision for income taxes | $ 5,965,000 | $ 3,960,000 | $ 1,350,000 |
The tax effects of significant temporary differences relating to deferred taxes shown on the balance sheets were:
2006 | 2005 | |||
Current: | ||||
Allowance for doubtful accounts | $ 256,000 | $ 241,000 | ||
Accrued vacation | 414,000 | 383,000 | ||
Other | - | 41,000 | ||
Net current deferred tax assets | $ 670,000 | $ 665,000 | ||
Noncurrent: | ||||
Depreciation | $ (743,000) | $ (653,000) | ||
Postretirement benefits | 10,687,000 | 5,127,000 | ||
Pension liability (minimum in 2005) | 1,855,000 | 1,480,000 | ||
Unrealized holding gains | (3,548,000) | (3,240,000) | ||
Net operating loss carryforwards | 1,040,000 | 1,038,000 | ||
Other, net | 401,000 | 359,000 | ||
Net long-term deferred tax assets | $ 9,692,000 | $ 4,111,000 |
Some of the Company's subsidiaries file separate federal and/or state income tax returns which have resulted in net operating loss carryforwards. Deferred taxes resulting from net operating loss carryforwards are included in the above table net of valuation allowances. The valuation allowance has been used to reduce the tax benefit associated with the net operating loss carryforwards. The provision for income taxes and income tax liabilities recorded in the financial statements include those separate calculations.
(6) POSTRETIREMENT BENEFITS
Monarch provides certain postretirement health care and life insurance benefits to all retired employees in the Cement Business who, as of their retirement date, meet the eligibility requirements. These benefits are self‑insured by Monarch and are paid out of Monarch's general assets. Monarch expects 2007 cash expenditures for this plan to be approximately $1,400,000.
24.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
Monarch uses a December 31 measurement date for the plans. At December 31, 2006 and 2005, the current portion of the accrued benefit cost of approximately $1,400,000 and $1,360,000 respectively is recorded in compensation and benefits. Information about the plans' funded status and postretirement cost follows:
2006 | 2005 | |||
Change in benefit obligation | ||||
Beginning of year | $ 24,117,734 | $ 18,040,481 | ||
Service cost | 526,652 | 459,788 | ||
Interest cost | 1,495,069 | 1,446,965 | ||
Actuarial loss | 1,989,993 | 7,082,412 | ||
Medicare Part D Subsidy | - | (1,719,696) | ||
Benefits and expenses paid | (1,406,783) | (1,192,216) | ||
End of year | $ 26,722,665 | $ 24,117,734 | ||
Funded status | $ (26,722,665) | $ (24,117,734) | ||
Unrecognized net actuarial loss | - | 11,301,059 | ||
Accrued benefit cost | $ (26,722,665) | $ (12,816,675) |
The assumed annual rate of increase in the per capita cost of covered health care benefits was 10% for 2006, 9% for 2005 and 10% for 2004. This trend rate is assumed to decrease in future years--1% per year to an ultimate annual rate of 5%. Following are the components of net periodic benefit cost:
2006 | 2005 | 2004 | |||
Components of net periodic benefit cost | |||||
Service cost | $ 526,652 | $ 459,788 | $ 426,079 | ||
Interest cost | 1,495,069 | 1,446,965 | 1,168,538 | ||
Unrecognized net loss | 886,732 | 724,099 | 428,134 | ||
Net periodic benefit cost | $ 2,908,453 | $ 2,630,852 | $ 2,022,751 | ||
Weighted-average assumptions as of December 31 | |||||
Discount rate | 5.75% | 5.75% | 6.00% |
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1% Increase | 1% Decrease | |||
Effect on interest and service cost | $ 352,009 | $ (280,907) | ||
Effect on postretirement benefit obligation | 3,798,372 | (3,131,890) |
On December 8, 2003, the Medicare Prescription Drug Improvement Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy of sponsors of retiree health care benefit plans that provide benefits at least actuarially equivalent to Medicare Part D. The Company has concluded that the benefits provided to most of our retirees are actuarially equivalent to Medicare Part D under the Act.
The following benefit payments (net of employee contributions) are expected to be paid as of December 31, 2006:
Gross | Subsidy Receipts | Net | |||
2007 | $ 1,446,564 | $ 57,375 | $ 1,389,189 | ||
2008 | 1,484,225 | 63,800 | 1,420,425 | ||
2009 | 1,569,110 | 67,391 | 1,501,719 | ||
2010 | 1,635,369 | 68,898 | 1,566,471 | ||
2011 | 1,707,221 | 70,651 | 1,636,570 | ||
2012-2016 | 9,216,383 | 399,637 | 8,816,746 |
25.
(7) PENSION PLANS
Monarch has noncontributory defined benefit pension plans covering substantially all employees in the Cement Business who meet the eligibility requirements. Generally, Monarch's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Monarch expects to contribute approximately $571,000 to the plans in 2007.
Monarch uses a December 31 measurement date for the plans. At December 31, 2006 and 2005, the current portion of the pension liability of $-0- and $914,000, respectively, is recorded in compensation and benefits. The accumulated benefit obligation in 2005 was $28,049,029. Information about the plans' funded status and pension cost follows:
2006 | 2005 | ||||
Change in benefit obligation | |||||
Beginning of year | $ 29,708,998 | $ 27,729,906 | |||
Service cost | 550,235 | 512,671 | |||
Interest cost | 1,712,643 | 1,681,656 | |||
Actuarial loss | 513,643 | 1,521,755 | |||
Benefits paid and expenses | (1,786,126) | (1,736,990) | |||
End of year | $ 30,699,393 | $ 29,708,998 | |||
Change in fair value of plan assets | |||||
Beginning of year | $ 24,468,209 | $ 24,368,892 | |||
Actual return on plan assets | 3,368,789 | 1,239,597 | |||
Employer contribution | 608,308 | 596,710 | |||
Benefits paid and expenses | (1,786,126) | (1,736,990) | |||
End of year | $ 26,659,180 | $ 24,468,209 | |||
Funded status | $ (4,040,213) | $ (5,240,789) | |||
Unrecognized net actuarial loss | N/A | 5,358,119 | |||
Unrecognized prior service cost | N/A | 547,515 | |||
Prepaid benefit cost | N/A | $ 664,845 | |||
Adjustment required to recognize minimum liability | N/A | (4,245,666) | |||
Pension liability | $ (4,040,213) | $ (3,580,821) | |||
Other amounts recognized in the balance sheets: | |||||
Accumulated other comprehensive income | $ (2,786,642) | $ (2,220,000) |
The weighted average assumptions used to determine net pension cost and benefit obligations as of December 31 are as follows:
2006 | 2005 | 2004 | |||
Discount rate - benefit obligation | 5.75% | 5.75% | 6.00% | ||
Discount rate - pension cost | 5.75% | 6.00% | 6.00% | ||
Expected return on plan assets | 8.00% | 8.00% | 8.00% | ||
Rate of compensation increase (Staff plan only) | 4.50% | 4.50% | 4.50% |
The following table presents the components of net periodic pension cost as of December 31, 2006, 2005 and 2004:
2006 | 2005 | 2004 | |||
Service cost | $ 550,235 | $ 512,671 | $ 459,956 | ||
Interest cost | 1,712,643 | 1,681,656 | 1,633,103 | ||
Expected return on plan assets | (1,896,034) | (1,873,733) | (1,840,183) | ||
Amortization of transitional obligation | - | - | - | ||
Amortization of prior service cost | 75,123 | 75,123 | 75,123 | ||
Recognized net actuarial gain | 229,757 | 98,121 | 24,485 | ||
Net periodic pension expense | $ 671,724 | $ 493,838 | $ 352,484 |
26.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets as well as current facts and circumstances.
Plan assets are held by a trustee bank. A fund manager has been retained to make all investment decisions within guidelines specified by Monarch. The guidelines permit investment in both equities and fixed income securities including common stocks, corporate bonds and debentures and U.S. Government securities. Asset allocation is primarily based on a strategy to provide stable earnings while still permitting the plan to recognize potentially higher returns through investment in equity securities. The target asset allocation percentages for 2006 and 2005 are as follows:
Equities | 60% |
Fixed Income | 40% |
The Plan allows a 5% fluctuation before assets are re-balanced. At December 31, 2006 and 2005, plan assets by category were as follows:
2006 | 2005 | ||
Equities | 62% | 61% | |
Debt securities | 33% | 37% | |
Other | 5% | 2% |
The following benefit payments are expected to be paid as of December 31, 2006:
2007 | $1,966,983 |
2008 | 2,014,730 |
2009 | 1,990,743 |
2010 | 1,954,285 |
2011 | 2,009,798 |
2012-2016 | 10,645,069 |
The Company has defined contribution plans covering substantially all permanent employees of the Ready‑Mixed Concrete Business. These plans allow the Company, at its discretion, to match the employee's contributions. For the 2006, 2005 and 2004 plan years, the Company matched 25% of the first 6% of the employee's compensation up to a maximum match of $2,500. The Company contributed $58,922, $95,302 and $76,429 to these plans for the years 2006, 2005 and 2004, respectively. The Company expects to contribute $75,000 to these plans in 2007.
(8) SIGNIFICANT ESTIMATES AND CERTAIN CONCENTRATIONS
According to various agreements with certain minority stockholders of subsidiaries, under specified circumstances, the Company is obligated to acquire certain minority shares, if requested to do so, at a value that approximates the minority interest on the Balance Sheet.
A Monarch subsidiary, Monarch and three of its officers are involved in a lawsuit with the former officers of that subsidiary and companies formed by those officers. We believe all claims filed against our subsidiary, Monarch and its officers are without merit and we are pursuing judgment against the former officers and their companies. We plan to vigorously pursue this case and do not anticipate any liability as a result of this lawsuit.
Thirty-nine percent (39%) of the Company's employees are covered by various collective bargaining agreements. One agreement, covering forty-seven percent (47%) of our union employees (eighteen percent (18%) of our total employees), expires in 2007. The Company believes it has a good working relationship with its employees and has been successful in negotiating multiyear union contracts without work stoppages.
27.
(9) STOCKHOLDERS' INVESTMENT
Capital Stock and Class B Capital Stock have the same rights except as follows: Class B Capital Stock has voting rights of ten votes per share and restricted transferability; Class B Capital Stock is convertible at all times into Capital Stock on a share-for-share basis; and Capital Stock has one vote per share and is freely transferable.
(10) LINES OF BUSINESS
The Company groups its operations into two lines of business - Cement Business and Ready-Mixed Concrete Business. The Company's business lines are separate business units that offer different products. The accounting policies for each line are the same as those described in the summary of significant accounting policies.
Following is information for each line for the years ended December 31, 2006, 2005 and 2004:
Cement Business | Ready-Mixed Concrete Business | Adjustments and Eliminations | Consolidated | ||||
For the Year Ended December 31, 2006 | |||||||
Sales to unaffiliated customers | $ 72,858,017 | $ 81,354,611 | $ ‑ | $ 154,212,628 | |||
Intersegment sales | 13,112,128 | 915 | (13,113,043) | ‑ | |||
Total net sales | $ 85,970,145 | $ 81,355,526 | $ (13,113,043) | $ 154,212,628 | |||
Income (loss) from operations | $ 20,952,199 | $ (1,275,802) | $ 19,676,397 | ||||
Other income, net | (496,172) | ||||||
Income before income taxes | $ 19,180,225 | ||||||
Identifiable assets at December 31, 2006 | $ 98,342,645 | $ 34,427,902 | $ 132,770,547 | ||||
Corporate assets | 29,733,295 | ||||||
Total assets at December 31, 2006 | $ 162,503,842 | ||||||
For the Year Ended December 31, 2005 | |||||||
Sales to unaffiliated customers | $ 64,299,277 | $ 77,020,651 | $ ‑ | $ 141,319,928 | |||
Intersegment sales | 13,536,287 | 10,091 | (13,546,378) | ‑ | |||
Total net sales | $ 77,835,564 | $ 77,030,742 | $ (13,546,378) | $ 141,319,928 | |||
Income (loss) from operations | $ 15,920,874 | $ (2,133,263) | $ 13,787,611 | ||||
Other expense, net | (169,242) | ||||||
Income before income taxes | $ 13,618,369 | ||||||
Identifiable assets at December 31, 2005 | $ 82,405,866 | $ 35,803,776 | $ 118,209,642 | ||||
Corporate assets | 25,845,274 | ||||||
Total assets at December 31, 2005 | $ 144,054,916 | ||||||
For the Year Ended December 31, 2004 | |||||||
Sales to unaffiliated customers | $ 51,408,457 | $ 93,668,097 | $ ‑ | $ 145,076,554 | |||
Intersegment sales | 11,048,074 | - | (11,048,074) | ‑ | |||
Total net sales | $ 62,456,531 | $ 93,668,097 | $ (11,048,074) | $ 145,076,554 | |||
Income (loss) from operations | $ 6,790,090 | $ (4,871,807) | $ 1,918,283 | ||||
Other income, net | 2,000,920 | ||||||
Income before income taxes | $ 3,919,203 | ||||||
Identifiable assets at December 31, 2004 | $ 76,018,017 | $ 35,572,519 | $ 111,590,536 | ||||
Corporate assets | 23,609,630 | ||||||
Total assets at December 31, 2004 | $ 135,200,166 | ||||||
28.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 |
Total sales by line of business before adjustments and eliminations includes both sales to unaffiliated customers (as reported in the Company's consolidated statements of income, comprehensive income and stockholders' investment) and intersegment sales. Intersegment sales are accounted for by the same method as sales to unaffiliated customers.
Income from operations is total net sales less operating expenses. In computing income from operations, none of the following items have been added or deducted: general corporate income and expenses; interest expense; and income taxes. Depreciation and depletion for the Cement Business and Ready‑Mixed Concrete Business, respectively, was: $6,390,491 and $4,721,130 in 2006, $5,297,531 and $5,373,466 in 2005 and $5,044,610 and $5,419,696 in 2004. Capital expenditures for the Cement Business and Ready‑Mixed Concrete Business, respectively, were: $16,570,909 and $3,961,244 in 2006, $13,008,188 and $3,410,300 in 2005 and $7,723,336 and $4,997,306 in 2004. Identifiable assets by line of business are those assets that are used in the Company's operations in each industry.
During 2006, 2005 and 2004, there were no sales to any one customer in excess of 10% of consolidated net sales.
(11) QUARTERLY FINANCIAL INFORMATION (Unaudited)
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||
2006 | |||||||
Net sales | $ 31,211,502 | $ 43,570,624 | $ 44,200,862 | $ 35,229,640 | |||
Income from operations | 1,414,000 | 8,146,873 | 7,039,546 | 3,075,978 | |||
Net income | 1,007,268 | 5,491,290 | 4,859,486 | 1,857,181 | |||
Basic earnings per share | $.25 | $1.36 | $1.21 | $.46 | |||
2005 | |||||||
Net sales | $ 24,541,081 | $ 37,272,061 | $ 41,855,661 | $ 37,651,125 | |||
Income (loss) from operations | (118,440) | 3,698,770 | 7,479,681 | 2,727,600 | |||
Net income | 132,461 | 2,278,023 | 4,928,809 | 2,319,076 | |||
Basic earnings per share | $.03 | $.57 | $1.22 | $.58 |
(12) OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income included in the balance sheet at December 31 is as follows:
2005 | Change | 2006 | |||
Unrealized appreciation on available | |||||
for sale securities | $ 4,860,000 | $ 462,000 | $ 5,322,000 | ||
Minimum pension liability | (2,220,000) | 744,802 | |||
Adoption of FAS 158-pension liability | (1,311,444) | (2,786,642) | |||
Adoption of FAS 158-postretirement liability | - | (7,444,320) | (7,444,320) | ||
$ 2,640,000 | $ (7,548,962) | $ 4,908,962 | |||
2004 | Change | 2005 | |||
Unrealized appreciation on available | |||||
for sale securities | $ 4,500,000 | $ 360,000 | $ 4,860,000 | ||
Minimum pension liability adjustment | (1,080,000) | (1,140,000) | (2,220,000) | ||
$ 3,420,000 | $ (780,000) | $ 2,640,000 | |||
29.
(13) FUTURE CHANGE IN ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board (FASB) has issued the following new accounting pronouncement.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN48"). FIN 48 clarifies the application of Statement 109 by defining a recognition threshold of "more likely than not" that the position would be sustained upon examination before any part of the benefit of that position be recognized in an enterprise's financial statements. It also provides guidance on the measurement of the tax position. This Interpretation will be effective for fiscal years beginning after December 15, 2006. The Company has not yet determined the impact, if any, that this new pronouncement will have on the Company's consolidated financial statements.
30.
CORPORATE INFORMATION | |
CORPORATE OFFICE | DIRECTORS |
449 1200 Street | Jack R. Callahan |
P.O. Box 1000 | Retired President, The Monarch Cement Company |
Humboldt, KS 66748 | Ronald E. Callaway |
Phone: (620) 473-2222 | Retired feed yard manager |
Fax: (620) 473-2447 | David L. Deffner |
Director of Music, Davis Community Church | |
AUDITORS | Robert M. Kissick |
BKD, LLP | Chairman, Hydraulic Power Systems, Inc. |
Kansas City, Missouri | Gayle C. McMillen |
Music Coordinator, Trinity United Methodist Church | |
ANNUAL MEETING | Richard N. Nixon |
The annual meeting of the stockholders of | Partner in law firm of Stinson Morrison Hecker LLP |
The Monarch Cement Company is held the | Byron J. Radcliff |
second Wednesday in April of each year at the | Rancher |
Company's corporate offices. | Byron K. Radcliff |
Owner/Manager, Radcliff Ranch | |
TRANSFER AGENT AND REGISTRAR | Michael R. Wachter |
The Monarch Cement Company | Vice President, Civil Engineer and Director of |
P.O. Box 1000 | Operations,Concrete Technology Corp. |
Humboldt, KS 66748-0900 | Walter H. Wulf, Jr. |
shareholder.relations@monarchcement.com | President and Chairman of the Board |
Walter H. Wulf, III | |
STOCK TRADING INFORMATION | District Sales Manager, General Motors Corporation |
Trading Symbol: MCEM | |
Over-the-Counter Market | |
INVESTOR RELATIONS | |
Inquiries may be directed to Debra P. Roe, | OFFICERS |
Chief Financial Officer and Assistant Secretary- | Walter H. Wulf, Jr. |
Treasurer, at the corporate address shown above. | President and Chairman of the Board |
*Byron K. Radcliff | |
FORM 10-K | Vice Chairman of the Board, Secretary and Treasurer |
The Company's Annual Report on Form 10-K, as | *Robert M. Kissick |
filed with the Securities and Exchange Commission, | Vice President |
is available through the SEC Filings link of the | Rick E. Rush |
Company's website, | Vice President |
http://www.monarchcement.com. | Debra P. Roe |
Chief Financial Officer and Assistant Secretary-Treasurer | |
The Company's financial information is also available | Lisa J. Fontaine |
from the SEC at their EDGAR internet address, | Assistant Secretary |
http://www.sec.gov. | Harvey D. Buckley |
Vice President - Cement Manufacturing | |
ETHICS POLICY | N. Joan Perez |
The Company's ethics policy is available on the About | Vice President - Sales |
Us link of the Company's website, | *Not actively involved in the daily affairs of the Company. |
http://www.monarchcement.com. | |