THE
MONARCH
CEMENT COMPANY
1999 ANNUAL REPORT
March 10, 2000
ANNUAL REPORT TO STOCKHOLDERS
For the first time in the Company's history, consolidated net sales
exceeded $109 million. This 10% increase over 1998 net sales was primarily
the result of increased sales volume of cement and ready-mixed concrete.
Although recent modernization enabled the Company to produce a record level of
clinker during 1999, the Company also increased its purchases of clinker from
foreign markets to satisfy its customers' needs. This increase in volume
sold, as well as the higher costs associated with cement produced from
purchased clinker, increased the Company's cost of sales by 12%. These
factors, along with an increase in selling, general and administrative
expenses, resulted in level net income for 1999 as compared to 1998.
The five-year forecast for cement sales continues to be strong. Benefits
of the Federal Transportation Equity Act for the 21st Century (TEA-21) which
passed in 1998 are yet to be realized. Monarch shipped over 100,000 tons of
cement to Kansas highway projects in 1999 under the previous highway bill
(ISTEA). Due to a delay in the availability of funds provided by TEA-21, only
66,000 tons of cement are projected to be used on Kansas highway projects in
the year 2000. It is expected that the impact of the TEA-21 program will be
more significant in the next four years as the program accelerates to offset
this year's delay.
Although highway cement consumption will be significantly reduced this
year, the delay in TEA-21 funding should prove beneficial for Monarch. For
the last several years Monarch has basically been in a sold-out position. In
recent years, the Company has been modernizing and expanding its cement
production capacity. Further expansion is in process with the purchase and
installation of a 90 ton-per-hour finish mill and the addition of precalciners
to the Company's two preheater kilns. These capital improvements are
projected to be completed in 2001 and are expected to allow the Company to
produce in excess of one million tons of cement per year. As these
improvements come on-line, the Company will be in a position to increase sales
and at the same time reduce, or eliminate, its purchases of foreign clinker.
Through our aggressive capital expansion program, and our continued commitment
to quality and excellence, we are confident in our abilities to efficiently
meet future highway needs and other market demands.
As we reflect on recent accomplishments and look forward to the
challenges ahead, we acknowledge our Heavenly Father for the blessings he has
bestowed upon us. We express our appreciation to our employees for their hard
work and dedication and to our customers for their loyalty. As always, we
wish to thank you, our stockholders, for your continued support and invite you
to attend Monarch's annual meeting to be held at 2:00 p.m. on April 12, 2000
in the corporate office, Humboldt, Kansas.
WALTER H. WULF WALTER H. WULF, JR.
Chairman of the Board President and Vice Chairman of the Board
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
FOR THE FIVE YEARS ENDED DECEMBER 31, 1999
(Dollar amounts in thousands except per share data)
1999 1998 1997 1996 1995
Net sales . . . . . . . . . $109,476 $99,495 $91,820 $86,733 $81,667
Net income. . . . . . . . . $ 9,654 $9,653 $10,103 $10,546 $ 7,673
Net income per share. . . . $2.32 $2.30 $2.40 $2.50 $1.81
Total assets. . . . . . . . $ 89,991 $84,882 $76,233 $68,648 $59,783
Long-term obligations . . . $ - $ - $ - $ - $ -
Cash dividends declared
per share . . . . . . . . $.74 $.68 $.60 $.52 $.46
Stockholders' Investment
per share . . . . . . . . $16.75 $15.35 $13.68 $11.73 $9.68
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
At December 31, 1999, current assets of The Monarch Cement Company and
Subsidiaries (the Company) exceeded current liabilities by $39,835,964
resulting in a current ratio of 5.61 to 1. The Company's cash needs in 1999
were satisfied by cash generated from operations and internal funds. The
amount of cash and short-term investments decreased during 1999. The Company
does not currently have an established line of credit with a bank; however,
the Company believes its internal and external capital resources are adequate
to meet its current capital expenditure requirements and liquidity needs.
Capital Resources
During 1999, the Company invested $10,847,723 in property, plant and
equipment. The Company regularly has capital expenditures of $5,000,000 to
$6,000,000 per year in keeping its equipment and facilities in good operating
condition. Due to recent and projected market demands, the Company has been
aggressively updating its equipment to improve efficiency and increase
capacity. As a result, the Company's 1999 expenditures exceeded the amount
normally spent on capital expenditures. The Company plans to continue its
modernization and expansion program during the year 2000 and future years.
The Board of Directors has approved the addition of a new 90 ton-per-hour
finish mill at an estimated cost of $17 million and the purchase and
installation of precalciners and other modifications to the two preheater
kilns at an estimated cost of $26 million. It is anticipated that these
projects will be completed in 2001 and will allow the Company to produce in
excess of one million tons of cement per year. The Company will also invest
in other miscellaneous equipment and facility improvements in both the cement
and ready-mixed concrete segments in 2000. It is expected that the Company's
capital expenditures will approximate $20,000,000 during 2000. The Company
has received approval from its Board of Directors and from local authorities
to issue Industrial Revenue Bonds to cover the cost of the expansion of its
production facilities. Management will continue to evaluate the various
financing options available in addition to utilizing internally generated
funds for these projects.
Results of Operations
General--For the last four years, demand for cement in the Company's
market has been excellent. During this period, the Company sold the entire
cement production capacity of its Humboldt plant. Plant modifications
completed in recent years increased the production capacity of the Humboldt
plant and improved its efficiency. These favorable market conditions and the
Company's increased production capacity are the primary factors that have led
to the Company's improved profitability in recent years.
The Company's ready-mixed concrete operations experienced an increase in
profitability during 1999 and 1998 primarily as a result of an improvement in
ready-mixed concrete prices. Efficiencies realized through increased sales
volume also added to 1999's profitability. During 1997, the segment was
adversely affected by a slight decline in prices for ready-mixed concrete and
by increasing costs of labor and supplies. These factors vary from local
market to local market and from year to year, and no one factor or local
market accounts for the change in profitability during the three-year period.
1999 Compared to 1998--The Company's 1999 net sales increased
approximately 10% primarily as a result of an increase in the volume of cement
and ready-mixed concrete sold and a moderate increase in the product prices.
The increase in volume in the ready-mixed concrete segments resulted in a more
favorable contribution to income for that segment.
The Company's cost of sales increased 12% for 1999 as compared to 1998
primarily due to the increase in volume sold. Supplies and maintenance costs
in the cement manufacturing segment increased as a result of the additional
cost of maintaining equipment over long periods of maximized production.
Modernization in recent years allowed the Company to produce a record
level of clinker during 1999. In addition to this increased production of
clinker, the Company also increased its purchases of clinker from foreign
markets during 1999 in order to meet the anticipated demands for cement.
Higher costs associated with cement produced from purchased clinker
contributed to the increase in the Company's cost of sales and the reduction
in gross profit margin. Although purchased clinker reduced the Company's
gross profit margin, such purchases enabled the Company to meet the service
demands of its customer base in both the cement and ready-mixed concrete
markets. The Company plans further expansion of its clinker production and
cement grinding facilities to more efficiently serve its customer base.
Selling, general and administrative expenses increased 10% during 1999.
Overall increases in health care costs, sales volume based association dues,
legal and professional expenses and payroll contributed to this increase,
although no single factor increased materially.
The decrease in "Other, net" during 1999 as compared to 1998 was due
primarily to the reduction in interest income. Increased capital expenditures
during 1999 reduced the amount of funds available for investment in short-term
securities. This reduction in investments resulted in a decrease in interest
income during 1999 as compared to 1998.
1998 Compared to 1997--The Company's 1998 net sales increased approximately 8%
primarily as a result of an increase in the volume of cement sold and a slight
increase in the product prices.
The Company's cost of sales increased 11% for 1998 as compared to 1997.
Modernization of one of the cement kilns and major maintenance on related
equipment reduced the Company's clinker production during the second quarter
of 1998. To help offset the reduction in clinker produced and to meet the
anticipated demand for cement, the Company purchased additional clinker from
foreign markets. Higher costs associated with cement produced from purchased
clinker increased the Company's cost of sales and reduced its gross profit
margin to 21% for 1998 as compared to 23% for 1997. Although purchased
clinker reduced the Company's gross profit margin, such purchases enabled the
Company to meet the service demands of its customer base in both the cement
and ready-mixed concrete markets.
The decrease in "Other, net" during 1998 as compared to 1997 was due
primarily to the sale of investment securities in 1997.
Forward-Looking Statements--Certain statements in 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 statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such 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: general economic and business conditions; competition; raw material
and other operating costs; costs of capital equipment; changes in business
strategy or expansion plans; and demand for the Company's products.
Inflation--Inflation directly affects the Company's operating costs. The
manufacture of cement requires the use of a significant amount of energy. The
price of energy, as well as the 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. The
manufacture of cement requires a significant investment in property, plant and
equipment and a trained work force 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.
DESCRIPTION OF THE BUSINESS
The Monarch Cement Company (Monarch) was organized as a corporation under
the laws of the State of Kansas in 1913 and has been principally engaged,
throughout its history, 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 which 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 which is used in highway,
bridge and building construction where strength and durability are primary
requirements.
The Company is also 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 placed by the contractor.
The following table sets forth for the last three fiscal years the dollar
amount of sales to unaffiliated customers, intersegment sales, operating
profit and identifiable assets contributed by Industry Segment A (cement
manufacturing) and Industry Segment B (ready-mixed concrete and sundry
building materials):
1999 1998 1997
(In Thousands)
Sales to Unaffiliated Customers-
Industry: Segment A $48,995 $43,726 $39,539
Segment B 60,480 55,769 52,281
Intersegment Sales-
Industry: Segment A 7,690 8,191 8,868
Segment B 697 408 263
Operating Profit-
Industry: Segment A 11,407 12,019 12,943
Segment B 2,954 2,401 1,176
Identifiable Assets-
Industry: Segment A 36,252 33,384 28,425
Segment B 25,190 20,064 16,400
<FN>
All of the Company's operations and sales are in one geographic area.
LINES OF BUSINESS
The Company is engaged in the manufacture and sale of the principal types
of portland cement and ready-mixed concrete and sundry building materials.
The portland cement products are sold under the "MONARCH" brand name.
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 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
primary market. Monarch cement is delivered either in bulk or in paper bags.
The cement is distributed both by truck and rail, either common or private
carrier.
The following table sets forth for the last three fiscal years of the
Company the percentage of total sales contributed (1) by the manufacture and
sale of portland cement and (2) by the sale of ready-mixed concrete and sundry
building materials:
Total Sales
December 31,
1999 1998 1997
Portland Cement . . . . . . . . . 44.8% 43.9% 43.1%
Ready-Mixed Concrete and
Sundry Building Materials . . . 55.2% 56.1% 56.9%
100.0% 100.0% 100.0%
STOCK MARKET AND DIVIDEND DATA
On March 1, 2000, 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 high and low bid quotations of Monarch's stock as reported by
Fahnestock & Co. Inc. and dividends declared for each quarter of its two
latest fiscal years:
1999 1998
Price Dividends Price Dividends
Quarter Low High Declared Low High Declared
First $19.00 $22.50 $ - $20.75 $27.00 $ -
Second $19.00 $22.00 $.18 $25.25 $29.00 $.16
Third $20.00 $22.00 $.18 $23.00 $29.00 $.16
Fourth $20.00 $21.00 $.38* $21.00 $25.25 $.36*
<FN>
*Reflects declaration of two $.19 and $.18 dividends payable in the
first quarter of 2000 and 1999, respectively.
ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Monarch Cement Company:
We have audited the accompanying consolidated balance sheets of The Monarch
Cement Company (a Kansas Corporation) and Subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, comprehensive
income, stockholders' investment and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Monarch Cement Company
and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
February 18, 2000
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1 9 9 9 1 9 9 8
CURRENT ASSETS:
Cash and cash equivalents $ 4,782,168 $ 4,254,795
Short-term investments, at cost which
approximates market 15,834,044 19,859,296
Receivables, less allowances of $409,000 in 1999
and $412,000 in 1998 for doubtful accounts 9,850,345 10,525,169
Inventories, priced at cost which is not in
excess of market-
Cost determined by last-in, first-out method-
Finished cement $ 3,224,596 $ 1,634,302
Work in process 2,763,016 1,703,942
Building products 1,226,697 1,184,358
Cost determined by first-in, first-out method-
Fuel, gypsum, paper sacks and other 2,566,098 1,899,440
Cost determined by average method-
Operating and maintenance supplies 7,609,733 7,082,948
Total inventories $17,390,140 $13,504,990
Refundable federal and state income taxes 166,900 14,051
Deferred income taxes 415,000 410,000
Prepaid expenses 34,855 45,284
Total current assets $48,473,452 $48,613,585
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and depletion of
$78,397,517 in 1999 and $79,239,388 in 1998 34,166,683 29,372,287
DEFERRED INCOME TAXES 1,750,000 1,390,000
OTHER ASSETS 5,601,246 5,506,149
$89,991,381 $84,882,021
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 5,041,988 $ 4,640,205
Accrued liabilities-
Federal and state income taxes 275,083 951,809
Dividends 1,570,498 1,503,984
Compensation 885,500 824,709
Miscellaneous taxes 445,377 418,609
Other 419,042 364,811
Total current liabilities $ 8,637,488 $ 8,704,127
ACCRUED POSTRETIREMENT BENEFITS 9,368,746 9,620,253
ACCRUED PENSION EXPENSE - 50,276
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 2,765,235 2,371,601
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Capital Stock, par value $2.50 per share-
Authorized 10,000,000 shares, Issued
2,285,678 shares at December 31, 1999
and 2,290,049 shares at December 31, 1998 $ 5,714,195 $ 5,725,123
Class B Capital Stock, par value $2.50 per
share-Authorized 10,000,000 shares, Issued
1,846,836 shares at December 31, 1999 and
1,887,347 shares at December 31, 1998 4,617,090 4,718,367
Retained Earnings 57,308,627 51,492,274
$67,639,912 $61,935,764
Accumulated other comprehensive income 1,580,000 2,200,000
Total stockholders' investment $69,219,912 $64,135,764
$89,991,381 $84,882,021
<FN>
The accompanying notes are an integral part of these consolidated balance sheets.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7
NET SALES $109,475,532 $99,494,758 $91,819,836
COST OF SALES 87,686,175 78,349,584 70,781,950
Gross profit from operations $ 21,789,357 $21,145,174 $21,037,886
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,428,497 6,725,013 6,919,368
Income from operations $ 14,360,860 $14,420,161 $14,118,518
OTHER INCOME (EXPENSE):
Interest income $ 1,028,727 $ 1,222,052 $ 1,057,501
Other, net (435,158) (389,405) 727,446
$ 593,569 $ 832,647 $ 1,784,947
INCOME BEFORE PROVISION FOR INCOME TAXES $ 14,954,429 $15,252,808 $15,903,465
PR0VISION FOR INCOME TAXES 5,300,000 5,600,000 5,800,000
NET INCOME $ 9,654,429 $ 9,652,808 $10,103,465
Basic earnings per share $2.32 $2.30 $2.40
<FN>
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7
NET INCOME $ 9,654,429 $ 9,652,808 $10,103,465
UNREALIZED APPRECIATION (DEPRECIATION)
ON AVAILABLE FOR SALE SECURITIES (Net
of deferred tax (benefit) expense of
$(400,000), $350,000 and $450,000 for
1999, 1998 and 1997, respectively) (620,000) 540,000 684,000
COMPREHENSIVE INCOME $ 9,034,429 $10,192,808 $10,787,465
<FN>
The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Accum-
Class B lated Other Stock-
Capital Capital Retained Treasury Comprehen- holders'
Stock Stock Earnings Stock sive Income Investment
Balance at 1-1-97 $5,577,340 $4,988,385 $38,039,014 $ - $ 976,000 $49,580,739
Net income - - 10,103,465 - - 10,103,465
Dividends declared
($.60 per share) - - (2,529,428) - - (2,529,428)
Transfer of shares 181,327 (181,327) - - - -
Purchase of
treasury stock - - - (153,352) - (153,352)
Retirement of
treasury stock (26,440) - (126,912) 153,352 - -
Accumulated other
comprehensive income - - - - 684,000 684,000
Balance at 12-31-97 $5,732,227 $4,807,058 $45,486,139 $ - $1,660,000 $57,685,424
Net income - - 9,652,808 - - 9,652,808
Dividends declared
($.68 per share) - - (2,849,221) - - (2,849,221)
Transfer of shares 88,691 (88,691) - - - -
Purchase of
treasury stock - - - (893,247) - (893,247)
Retirement of
treasury stock (95,795) - (797,452) 893,247 - -
Accumulated other
comprehensive income - - - - 540,000 540,000
Balance at 12-31-98 $5,725,123 $4,718,367 $51,492,274 $ - $2,200,000 $64,135,764
Net income - - 9,654,429 - - 9,654,429
Dividends declared
($.74 per share) - - (3,066,148) - - (3,066,148)
Transfer of shares 101,277 (101,277) - - - -
Purchase of
treasury stock - - - (884,133) - (884,133)
Retirement of
treasury stock (112,205) - (771,928) 884,133 - -
Accumulated other
comprehensive income - - - - (620,000) (620,000)
Balance at 12-31-99 $5,714,195 $4,617,090 $57,308,627 $ - $1,580,000 $69,219,912
<FN>
The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7
OPERATING ACTIVITIES:
Net income $ 9,654,429 $ 9,652,808 $ 10,103,465
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 6,025,901 5,564,672 4,991,992
Gain on disposal of assets (67,332) (119,398) (246,799)
Realized gain on sale of other investments - - (840,820)
Change in assets and liabilities:
Receivables, net 674,824 (2,552,470) 587,538
Inventories (3,885,150) (2,198,752) (581,154)
Refundable federal and state income taxes (152,849) 207,021 89,661
Prepaid expenses 10,429 (17,363) (2,479)
Deferred income taxes (365,000) 425,000 575,000
Long-term notes receivable - (750) 11,956
Accounts payable, notes payable
and accrued liabilities (133,153) 2,166,077 (466,623)
Accrued postretirement expense (251,507) (218,652) 25,336
Accrued pension expense (50,276) (270,908) (69,051)
Minority interest in earnings of subsidiaries 534,013 558,627 453,039
Net cash provided by operating activities $ 11,994,329 $ 13,195,912 $ 14,631,061
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $(10,847,723) $ (9,519,155) $ (6,494,536)
Net purchases of subsidiaries' stock - - (1,029,410)
Proceeds from disposals of property,
plant and equipment 94,758 219,366 419,956
Payment for purchases of equity investments (733,336) (517,939) -
Proceeds from disposals of equity investments - - 1,366,291
(Increase) decrease in other assets 18,239 (508,570) (517,091)
(Increase) decrease in short term investments, net 4,025,252 1,070,827 (4,826,402)
Net cash used for investing activities $ (7,442,810) $ (9,255,471) $(11,081,192)
FINANCING ACTIVITIES:
Subsidiaries' dividends paid to minority interest $ (140,379) $ (191,450) $ (173,746)
Cash dividends (2,999,634) (2,694,266) (2,362,279)
Subsidiaries' purchase of treasury stock - - (9,420)
Purchase of treasury stock (884,133) (893,247) (153,352)
Net cash used for financing activities $ (4,024,146) $ (3,778,963) $ (2,698,797)
Net Increase in Cash and Cash Equivalents $ 527,373 $ 161,478 $ 851,072
Cash and Cash Equivalents, beginning of year 4,254,795 4,093,317 3,242,245
Cash and Cash Equivalents, end of year $ 4,782,168 $ 4,254,795 $ 4,093,317
<FN>
The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF ACCOUNTING POLICIES
(a) Description of Business--The Monarch Cement Company (Monarch) has been
principally engaged, throughout its history, 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 primary market.
Monarch has direct control of certain operating companies which have been
deemed to be subsidiaries within the meaning of generally accepted accounting
principles 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 have been recorded as reductions in other income in
the accompanying statements of income. The minority interests in net income
were $534,014, $558,627 and $453,039 during 1999, 1998 and 1997, respectively.
(b) Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) Reclassifications--Certain reclassifications have been made to the
1998 financial statements to conform with the current year presentation.
(d) Inventories--Inventories of finished cement, work in process and
building products are priced by the last-in, first-out (LIFO) method. Under
the average cost method of accounting (which approximates current cost), these
inventories would have been $2,351,000, $2,061,000 and $1,763,000 higher than
those reported at December 31, 1999, 1998 and 1997, respectively. The cost of
manufactured items includes all material, labor, factory overhead and
production-related administrative overhead required in their production.
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 priced by the average cost method.
(e) Property, Plant and Equipment--Depreciation of property, plant and
equipment is provided by charges to operations over the estimated useful lives
of the assets using primarily the declining balance method. Depletion rates
for quarry lands are designed to amortize the cost over the estimated
recoverable reserves. Expenditures for improvements which significantly
increase the assets' useful lives are capitalized while maintenance and
repairs are charged to expense as incurred.
(f) Earnings per Share--Basic earnings per share is based on the weighted
average common shares outstanding during each year. Dilutive 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 dilutive earnings per share. The weighted average number of
shares outstanding was 4,154,426 in 1999, 4,198,333 in 1998 and 4,215,859 in
1997.
(g) Comprehensive Income--Comprehensive income includes charges and
credits to equity that are not the result of transactions with shareholders.
Comprehensive income is composed of two subsets; net income and other
comprehensive income. Included in other comprehensive income for the Company
are unrealized holding gains for securities classified as available-for-sale,
net of deferred income tax.
(h) Statements of Cash Flows--The Company considers overnight cash
investments to be cash equivalents. All other highly liquid short-term
investments, generally with an original maturity of six months or less, are
considered short-term investments. Interest and income taxes paid during each
of the three years for the period ended December 31, are as follows:
1999 1998 1997
Interest paid $ 1,313 $ 1,517 $ 4,279
Income taxes paid $6,094,546 $4,624,633 $6,111,378
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consisted of:
Depreciation
Lives (Years) 1999 1998
Quarry lands $ 753,769 $ 710,188
Mill site and buildings 12 - 50 17,041,461 13,719,463
Machinery and equipment 5 - 25 68,499,398 69,929,906
Transportation equipment 3 - 12 21,471,094 20,167,701
Office furniture and fixtures 5 - 20 901,002 877,443
Office and other buildings 10 - 30 2,479,774 2,218,438
Construction in process 1,417,702 988,536
$112,564,200 $108,611,675
Less--Accumulated depreciation and depletion 78,397,517 79,239,388
$ 34,166,683 $ 29,372,287
(3) Investments
The Company's short-term investments consist of corporate commercial
paper with maturities of six months or less and have been classified as held-
to-maturity. The amortized cost, which approximates market value, is
reflected in the balance sheet. Other assets includes 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, 1999, 1998 and 1997 are as follows:
1999 1998 1997
Fair value of investments $4,605,000 $4,890,000 $3,485,000
Cost of investments 1,975,000 1,240,000 725,000
Fair value in excess of cost $2,630,000 $3,650,000 $2,760,000
Unrealized gain recorded in equity $1,580,000 $2,200,000 $1,660,000
Deferred income taxes 1,050,000 1,450,000 1,100,000
$2,630,000 $3,650,000 $2,760,000
Proceeds from sale of securities $ - $ - $1,366,291
Realized gains $ - $ - $ 840,820
(4) INCOME TAXES
The components of the provision for federal and state income taxes in the
accompanying consolidated statements of income are as follows:
1999 1998 1997
Current provision for income tax:
Federal $4,435,000 $4,480,000 $4,780,000
State 830,000 1,045,000 1,130,000
$5,265,000 $5,525,000 $5,910,000
Deferred provision for income tax:
Federal $ 30,000 $ 60,000 $ (85,000)
State 5,000 15,000 (25,000)
$ 35,000 $ 75,000 $ (110,000)
Provision for income tax $5,300,000 $5,600,000 $5,800,000
The provision for federal and state income taxes in the accompanying
consolidated statements of income differs from the amount computed at the
federal statutory income tax rate as follows:
1999 1998 1997
Provision for federal taxes
at statutory rates $5,134,000 $5,238,000 $5,466,000
State income taxes, net of
federal tax benefit 543,000 680,000 724,000
Percentage depletion (591,000) (546,000) (568,000)
Minority interest in
consolidated income 214,000 223,000 181,000
Other, net - 5,000 (3,000)
Accrued income tax expense $5,300,000 $5,600,000 $5,800,000
The tax effect of significant temporary differences representing deferred
tax assets and (liabilities) are as follows:
1999 1998
Current:
Reserve for bad debts $ 165,000 $ 165,000
Vacation 250,000 245,000
Net current deferred tax assets $ 415,000 $ 410,000
Noncurrent:
Depreciation $ (620,000) $ (800,000)
Postretirement benefits 3,745,000 3,845,000
Pension (335,000) (210,000)
Unrealized holding gains (1,050,000) (1,450,000)
Other, net 10,000 5,000
Net long-term deferred tax assets $ 1,750,000 $ 1,390,000
(5) POSTRETIREMENT BENEFITS
Monarch provides certain postretirement health care, accident 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.
Following is a reconciliation of benefit obligations and funded status as
of December 31, 1999 and 1998:
1999 1998
Reconciliation of benefit obligation
Accumulated postretirement benefit
obligation at beginning of year $ 9,983,477 $ 11,422,549
Service cost 99,410 85,689
Interest cost 697,195 687,667
Actuarial gain (578,176) (1,220,420)
Benefits and expenses paid (903,546) (992,008)
Accumulated postretirement benefit
obligation at end of year $ 9,298,360 $ 9,983,477
Funded status $(9,298,360) $ (9,983,477)
Unrecognized actuarial (gain)/loss (70,386) 363,224
Accrued benefit cost $(9,368,746) $ (9,620,253)
The assumed annual rate of increase in the per capita cost of covered
health care benefits was 4%, 5% and 6% for 1999, 1998 and 1997, respectively.
This rate is assumed to decrease 1% per year to an ultimate rate of 4%.
1999 1998 1997
Components of net periodic benefit cost
Service cost $ 99,410 $ 85,689 $ 144,193
Interest cost 697,195 687,667 786,231
Net periodic benefit cost $ 796,605 $ 773,356 $ 930,424
Weighted-average assumptions
as of December 31
Discount rate 8.00% 7.00% 7.00%
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 net periodic benefit cost $ 168,531 $ (76,044)
Effect on postretirement benefit obligation 894,755 (770,016)
(6) PENSION PLANS
Monarch has defined benefit pension plans covering substantially all
permanent employees. 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 the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide for benefits
attributed to service to date and for those expected to be earned in the
future. The assets of the plans are primarily equities, bonds and government
securities.
Following is a reconciliation of benefit obligations, plan assets and
funded status as of December 31, 1999 and 1998:
1999 1998
Reconciliation of projected benefit obligation
Projected benefit obligation at
beginning of year $22,492,790 $22,544,337
Service cost 342,594 324,782
Interest cost 1,559,670 1,518,426
Actuarial gain (1,819,259) (362,816)
Plan amendment 37,715 -
Benefits paid and expenses (1,623,646) (1,531,879)
Projected benefit obligation at end of year $20,989,864 $22,492,850
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year $25,761,275 $25,587,691
Actual return on plan assets (40,922) 1,705,463
Benefits paid and expenses (1,623,646) (1,531,879)
Fair value of plan assets at end of year $24,096,707 $25,761,275
Funded status $ 3,106,843 $ 3,268,425
Unrecognized net actuarial loss (2,794,255) (3,293,576)
Unrecognized transitional obligation 24,209 34,072
Unrecognized prior service cost 507,394 514,809
Prepaid benefit cost $ 844,191 $ 523,730
The following table presents the accumulated benefit obligation, fair
value of net assets and prepaid (accrued) pension expense by plan as of
December 31, 1999 and 1998:
Humboldt Des Moines
Staff Production Production
December 31, 1999
Accumulated benefit obligation $11,520,147 $ 6,831,155 $ 2,638,562
Fair value of net assets 12,968,214 8,162,292 2,966,201
Prepaid pension expense 114,031 695,491 34,669
December 31, 1998
Accumulated benefit obligation $12,221,649 $ 7,392,125 $ 2,879,076
Fair value of net assets 13,755,555 8,760,515 3,245,205
Prepaid (accrued) pension expense 7,527 566,479 (50,276)
The following table presents the components of net periodic pension cost
as of December 31, 1999, 1998 and 1997:
1999 1998 1997
Service cost $ 342,594 $ 324,782 $ 283,370
Interest cost 1,559,670 1,518,426 1,556,225
Expected return on plan assets (2,245,751) (2,229,872) (2,008,078)
Amortization of transitional obligation 9,863 9,863 9,863
Amortization of prior service cost 45,130 45,130 45,130
Recognized net actuarial gain (31,967) (104,537) (20,651)
Net periodic pension (income) $ (320,461) $ (436,208) $ (134,141)
The weighted average assumptions used to determine net pension cost and
benefit obligations as of December 31 are as follows:
1999 1998 1997
Discount rate 8.00% 7.00% 7.00%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase (Staff plan only) 4.50% 4.50% 4.50%
(7) COMMITMENTS AND CONTINGENCIES
According to various agreements with certain minority stockholders, under
specified circumstances, the Company is obligated to acquire such shares, if
requested to do so, at a value that approximates the minority interest on the
Balance Sheet.
(8) STOCKHOLDERS' INVESTMENT
Class B Capital Stock has supervoting 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. Capital Stock has only one
vote per share and is freely transferable.
(9) BUSINESS SEGMENTS
The Company groups its operations into two business segments - cement
manufacturing and the sale of ready-mixed concrete and sundry building
materials. The Company's business segments are separate business units that
offer different products. The accounting policies for each segment are the
same as those described in the summary of significant accounting policies.
Following is information for each segment for the years ended December 31,
1999, 1998 and 1997:
Ready-Mixed
Concrete
Cement and Sundry Adjustments
FOR THE YEAR ENDED Manu- Building and
DECEMBER 31, 1999: facturing Materials Eliminations Consolidated
Sales to unaffiliated
customers $48,995,241 $60,480,291 $ - $109,475,532
Intersegment sales 7,690,066 697,177 (8,387,243) -
Total net sales $56,685,307 $61,177,468 $ (8,387,243) $109,475,532
Income from operations $11,406,669 $ 2,954,191 $ 14,360,860
Other income, net 593,569
Income before income taxes $ 14,954,429
Identifiable assets at
December 31, 1999 $36,252,363 $25,189,660 $ 61,442,023
Corporate assets 28,549,358
Total assets at
December 31, 1999 $ 89,991,381
FOR THE YEAR ENDED
DECEMBER 31, 1998:
Sales to unaffiliated
customers $43,726,111 $55,768,647 $ - $99,494,758
Intersegment sales 8,191,578 407,764 (8,599,342) -
Total net sales $51,917,689 $56,176,411 $ (8,599,342) $99,494,758
Income from operations $12,019,185 $ 2,400,976 $14,420,161
Other income, net 832,647
Income before income taxes $15,252,808
Identifiable assets at
December 31, 1998 $33,384,302 $20,063,428 $53,447,730
Corporate assets 31,434,291
Total assets at
December 31, 1998 $84,882,021
Ready-Mixed
Concrete
Cement and Sundry Adjustments
FOR THE YEAR ENDED Manu- Building and
DECEMBER 31, 1997: facturing Materials Eliminations Consolidated
Sales to unaffiliated
customers $39,538,659 $52,281,177 $ - $91,819,836
Intersegment sales 8,867,866 263,503 (9,131,369) -
Total net sales $48,406,525 $52,544,680 $ (9,131,369) $91,819,836
Income from operations $12,942,513 $ 1,176,005 $14,118,518
Other income, net 1,784,947
Income before income taxes $15,903,465
Identifiable assets at
December 31, 1997 $28,424,449 $16,400,181 $44,824,630
Corporate assets 31,408,402
Total assets at
December 31, 1997 $76,233,032
Total sales by segment 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. Also, no amounts have been excluded for corporate
administrative expense because the amounts which cannot be identified by
segment are not significant. Depreciation for cement manufacturing and
ready-mixed concrete, respectively, was: $2,951,294 and $3,074,607 in 1999;
$2,924,251 and $2,640,421 in 1998; and $2,666,994 and $2,318,654 in 1997.
Capital expenditures for cement manufacturing and ready-mixed concrete,
respectively, including capital assets of businesses acquired were:
$2,749,880 and $8,097,843 in 1999; $4,966,346 and $4,552,809 in 1998; and
$3,245,853 and $3,248,683 in 1997. Identifiable assets by segment are those
assets that are used in the Company's operations in each industry.
During 1999, 1998 and 1997, there were no sales to any one customer in
excess of 10% of consolidated net sales.
CORPORATE INFORMATION
CORPORATE OFFICE DIRECTORS
449 1200 Street Jack R. Callahan
P.O. Box 1000 Retired President, The Monarch
Humboldt, KS 66748 Cement Company
Phone: (316) 473-2222
Fax: (316) 473-2447 Ronald E. Callaway
Retired transport truck driver
Agricultural Carriers, Inc.
AUDITORS
Arthur Andersen LLP David L. Deffner
Kansas City, Missouri Professor of Music, American
River College
ANNUAL MEETING Robert M. Kissick
The annual meeting of the Chairman, Hydraulic Power Systems, Inc.
stockholders of The Monarch
Cement Company is held the Gayle C. McMillen
second Wednesday in April of Music Instructor, Salina School
each year at the Company's District
corporate offices.
Richard N. Nixon
Shareholder in law firm of Stinson,
TRANSFER AGENT AND REGISTRAR Mag & Fizzell, P.C.
The Monarch Cement Company
P.O. Box 1000 Byron J. Radcliff
Humboldt, KS 66748-1000 Rancher
Byron K. Radcliff
STOCK TRADING INFORMATION Owner/Manager, Radcliff Ranch
Trading Symbol: MCEM
Over-the-Counter Market Michael R. Wachter
Civil Engineer and Director of
Operations, Concrete Technology Corp.
INVESTOR RELATIONS
Inquiries may be directed to Walter H. Wulf
Lyndell G. Mosley, Chief Financial Chairman of the Board
Officer and Assistant Secretary-
Treasurer, at the corporate Walter H. Wulf, Jr.
address shown above. President and Vice Chairman
of the Board
FORM 10-K Officers
The Company's Annual Report on Walter H. Wulf
Form 10-K, as filed with the Chairman of the Board
Securities and Exchange Commission,
is available without charge upon Walter H. Wulf, Jr.
written request to Lyndell G. President and Vice Chairman
Mosley at the corporate office. of the Board
The Company's financial Robert M. Kissick*
information is also available Vice President
from the SEC at their EDGAR
internet address Byron K. Radcliff*
(http://www.sec.gov). Secretary and Treasurer
Lyndell G. Mosley
Chief Financial Officer and
Assistant Secretary-Treasurer
*Not active in the daily affairs
of the Company.