2000
ANNUAL REPORT
THE
MONARCH
CEMENT COMPANY
March 12, 2001
ANNUAL REPORT TO STOCKHOLDERS
The year 2000 was a challenging year for Monarch and its subsidiaries.
The Company established a new record for clinker production made possible
through equipment upgrades completed in recent years. Production records
should continue to grow as the Company completes other phases of its
modernization and expansion program. The increased clinker production,
coupled with a reduction in the utilization of foreign clinker, resulted in an
increase in operating profit for the cement segment. During 2000, the Company
also continued upgrading facilities in the ready-mixed concrete and sundry
building materials segment. Expansion of this segment's operations to utilize
its concrete products in various construction projects resulted in an increase
in net sales; however, unusual expenses in these construction projects
resulted in higher production costs as a percent of sales. Additional
expenses incurred in the installation and start-up of the upgraded facilities
further reduced operating profits. On a consolidated basis, the Company's net
sales and cost of sales increased approximately 7% and 11%, respectively,
resulting in an 8% decrease in gross profit from operations.
As we look ahead to 2001, we see signs of weakening in the commercial and
residential markets. Since these are the primary markets for the Company's
ready-mixed concrete and sundry building materials segment, we foresee a
slight downturn in volume of sales for this segment. However, early
indicators show that demand for cement in the public market is projected to
increase in 2001. Utilizing funding available through the Federal
Transportation Equity Act for the 21st Century (TEA-21), Kansas is actively
upgrading its highways and bridges. Overall, the five-year forecast for cement
sales continues to be strong.
For the last several years Monarch has basically been in a sold-out
position. The Company has depended on clinker purchased from foreign markets
to supplement its production in order to fulfill its customers' cement
requirements. Monarch's expansion project is in full swing and on schedule and
should allow the Company to replace higher priced foreign clinker with
internally produced clinker. The new 90 ton-per-hour finish mill and one of
the precalciners and clinker coolers should be operational by early fall 2001.
The second precalciner and clinker cooler are scheduled for completion by the
summer of 2002. Although there is a learning curve associated with operating
new equipment and attendant start-up costs involved, efforts are underway to
bring this equipment on line as efficiently as possible. Monarch employees
are already participating in specialized training to operate and maintain this
new equipment. We look forward to having these facilities fully operational
and realizing the benefits that can be achieved through both the additional
production capacity and this new technology.
Through a joint effort of our employees and the numerous contractors on
site, we continue to strive to maximize production and minimize downtime. We
wish to take this opportunity to express our appreciation to our employees for
their extra efforts and cooperation during these busy times. We thank our
customers for their continued confidence in the quality of our product and our
ability to service their needs. Most importantly, we thank our Heavenly
Father, because without his blessings and support, we would not have achieved
the results displayed in this report and could not meet the challenges of the
years to come.
We wish to invite you, our stockholders, to attend Monarch's annual
meeting to be held at 2:00 p.m. on April 11, 2001 in the corporate office,
Humboldt, Kansas. Thank you for your support throughout the years and
God Bless.
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, 2000
(Dollar amounts in thousands except per share data)
2000 1999 1998 1997 1996
Net sales . . . . . . . . . $117,050 $109,476 $99,495 $91,820 $86,733
Net income. . . . . . . . . $ 10,499 $9,654 $9,653 $10,103 $10,546
Net income per share. . . . $2.55 $2.32 $2.30 $2.40 $2.50
Total assets. . . . . . . . $ 96,232 $89,991 $84,882 $76,233 $68,648
Long-term obligations . . . $ - $ - $ - $ - $ -
Cash dividends declared
per share . . . . . . . . $.78 $.74 $.68 $.60 $.52
Stockholders' investment
per shar . . . . . . . . $18.36 $16.75 $15.35 $13.68 $11.73
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
At December 31, 2000, current assets of The Monarch Cement Company and
Subsidiaries (the Company) exceeded current liabilities by $32,951,014
resulting in a current ratio of 4.24 to 1. The Company's cash needs in 2000
were satisfied by cash generated from operations and utilization of cash and
short-term investments of approximately $8,600,000. In January 2001, the
Company entered into an unsecured credit commitment with the Bank of Oklahoma
N.A. This commitment consists of a $30,000,000 advancing term loan maturing
December 31, 2005 and a $5,000,000 line of credit maturing December 31, 2002
with floating interest rates based on Chase Manhattan Bank prime rate less
1.25%. The Company believes its internal and external capital resources are
adequate to meet its foreseeable capital expenditure requirements and
liquidity needs.
Capital Resources
During 2000, the Company invested $18,627,165 in property, plant and
equipment. The Company regularly has capital expenditures of $8,000,000 to
$10,000,000 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 2000 expenditures exceeded the amount
normally spent on capital expenditures. The Company plans to continue its
modernization and expansion program during the year 2001 and future years.
Construction of a new 90 ton-per-hour finish mill at an estimated cost of
$17 million is underway and expected to be completed by late summer.
Contracts have been let for the installation of the two precalciners and
clinker coolers at an estimated cost of $26 million. It is anticipated that
one precalciner and clinker cooler will be operational by the summer of 2001
and the second by the summer of 2002. Upon completion, it is projected that
this expansion 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 2001. It is expected that the Company's capital
expenditures will approximate $35,000,000 during 2001.
Results of Operations
General--For the last five 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 a decrease in
profitability during 2000 after increasing profitability during both 1999 and
1998. During 2000, the segment was adversely affected by volume declines in
some market areas, additional expenses incurred in the process of upgrading
facilities and weather delays creating unusual expenses in the production and
installation of concrete products. The increased profitability in 1999 and
1998 were primarily due to improvements in ready-mixed concrete prices.
Efficiencies realized through increased sales volume also added to 1999's
profitability. These factors vary from local market to local market and from
year to year, and no one factor or local market accounts for a significant
portion of the change in profitability during the three-year period.
2000 Compared to 1999--The Company's 2000 net sales and cost of sales
increased approximately 7% and 11%, respectively; however, gross profit from
operations decreased 8%.
Cement sales were excellent during both 2000 and 1999. Although this
segment experienced a decrease in net sales to unaffiliated companies,
increased production and lower production costs combined to substantially
reduce the cement segment cost of sales and increase its income from
operations by approximately 14%. During 2000, the Company once again
increased its level of clinker production, exceeding the previous record set
in 1999. In addition, the Company reduced its purchases of clinker from
foreign markets during 2000 as compared to 1999, further reducing the
segment's cost of sales and increasing its gross profit margin. Supplies and
maintenance costs also decreased compared to 1999 when costs were up due to
additional maintenance on equipment that had produced at maximum levels over
extended periods.
During these same periods, the Company's ready-mixed concrete and sundry
building materials segment increased its net sales by approximately 15%.
Expansion of this segment's operations to utilize its concrete products in
various construction projects provided the majority of the increase in net
sales. Expenses related to these construction projects also increased
production costs as a percent of sales. The net sales increase generated by
sales of additional concrete products was partially offset by decreases in
ready-mixed concrete sales volume in several market areas. As expected, those
market areas with declining sales experienced a reduction in gross profit due
to fixed costs being spread over fewer units. These factors, combined with
additional expenses incurred in the process of upgrading some of the Company's
ready-mixed concrete facilities and weather delays creating unusual expenses
in the production and installation of concrete products, resulted in a loss
from operations compared to income from operations in 1999.
Selling, general and administrative expenses increased 18% during 2000.
Overall increases in health care costs, liability insurance, legal and
professional expenses and payroll contributed to this increase.
The increase in "Other, net" during 2000 as compared to 1999 was due
primarily to the sale of investment securities and the allocation of net
losses of subsidiaries to minority interest.
Income taxes for the year 2000 decreased compared to 1999 due to an
increase in depletion as a percent of consolidated taxable income and a
reduction in state income taxes.
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 increase clinker
production during 1999. 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.
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.
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.
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
Company burns primarily solid fuels, such as coal and petroleum coke, in its
kilns. The Company does not anticipate a significant increase above the rate
of inflation in the cost of these solid fuels, or in the electricity required
to operate its cement manufacturing equipment. The Company also uses natural
gas. In recent months, the increase in natural gas prices has exceeded the
rate of inflation creating an above average increase in manufacturing costs.
The Company continues to explore methods to minimize its dependence on natural
gas. 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
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.
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 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.
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.
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 to unaffiliated customers (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,
2000 1999 1998
Portland Cement . . . . . . . . . 40.4% 44.8% 43.9%
Ready-Mixed Concrete and
Sundry Building Materials . . . 59.6% 55.2% 56.1%
100.0% 100.0% 100.0%
STOCK MARKET AND DIVIDEND DATA
On March 1, 2001, 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:
2000 1999
Price Dividends Price Dividends
Quarter Low High Declared Low High Declared
First $17.625 $20.625 $ - $19.00 $22.50 $ -
Second $16.500 $19.750 $.19 $19.00 $22.00 $.18
Third $17.125 $19.000 $.19 $20.00 $22.00 $.18
Fourth $17.500 $18.500 $.40* $20.00 $21.00 $.38*
<FN>
*Reflects declaration of two $.20 and $.19 dividends payable in the
first quarter of 2001 and 2000, 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, 2000
and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
February 16, 2001
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS 2 0 0 0 1 9 9 9
CURRENT ASSETS:
Cash and cash equivalents $ 9,451,281 $ 4,782,168
Short-term investments, at cost which
approximates market 2,543,286 15,834,044
Receivables, less allowances of $375,000 in 2000
and $409,000 in 1999 for doubtful accounts 8,430,945 9,850,345
Inventories, priced at cost which is not in
excess of market-
Cost determined by last-in, first-out method-
Finished cement $ 3,675,351 $ 3,224,596
Work in process 4,373,014 2,763,016
Building products 1,250,120 1,226,697
Cost determined by first-in, first-out method-
Fuel, gypsum, paper sacks and other 2,268,434 2,566,098
Cost determined by average method-
Operating and maintenance supplies 9,458,554 7,609,733
Total inventories $21,025,473 $17,390,140
Refundable federal and state income taxes 1,200,000 166,900
Deferred income taxes 415,000 415,000
Prepaid expenses 63,031 34,855
Total current assets $43,129,016 $48,473,452
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and depletion of
$83,666,552 in 2000 and $78,397,517 in 1999 45,809,748 34,166,683
DEFERRED INCOME TAXES 2,430,000 1,750,000
OTHER ASSETS 4,862,955 5,601,246
$96,231,719 $89,991,381
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 5,452,004 $ 5,041,988
Accrued liabilities-
Federal and state income taxes 128,979 275,083
Dividends 1,640,358 1,570,498
Compensation and benefits 2,007,394 885,500
Miscellaneous taxes 500,334 445,377
Other 448,933 419,042
Total current liabilities $10,178,002 $ 8,637,488
ACCRUED POSTRETIREMENT BENEFITS 8,397,620 9,368,746
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 2,346,663 2,765,235
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Capital Stock, par value $2.50 per share-
Authorized 10,000,000 shares, Issued
2,312,547 shares at December 31, 2000
and 2,285,678 shares at December 31, 1999 $ 5,781,368 $ 5,714,195
Class B Capital Stock, par value $2.50 per
share-Authorized 10,000,000 shares, Issued
1,788,349 shares at December 31, 2000 and
1,846,836 shares at December 31, 1999 4,470,872 4,617,090
Retained Earnings 64,117,194 57,308,627
Accumulated other comprehensive income 940,000 1,580,000
Total stockholders' investment $75,309,434 $69,219,912
$96,231,719 $89,991,381
<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, 2000, 1999 AND 1998
2 0 0 0 1 9 9 9 1 9 9 8
NET SALES $117,049,788 $109,475,532 $99,494,758
COST OF SALES 97,040,783 87,686,175 78,349,584
Gross profit from operations $ 20,009,005 $ 21,789,357 $21,145,174
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,754,637 7,428,497 6,725,013
Income from operations $ 11,254,368 $ 14,360,860 $14,420,161
OTHER INCOME (EXPENSE):
Interest income $ 883,114 $ 1,028,727 $ 1,222,052
Other, net 2,861,868 (435,158) (389,405)
$ 3,744,982 $ 593,569 $ 832,647
INCOME BEFORE PROVISION FOR INCOME TAXES $ 14,999,350 $ 14,954,429 $15,252,808
PR0VISION FOR INCOME TAXES 4,500,000 5,300,000 5,600,000
NET INCOME $ 10,499,350 $ 9,654,429 $ 9,652,808
Basic earnings per share $2.55 $2.32 $2.30
<FN>
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2 0 0 0 1 9 9 9 1 9 9 8
NET INCOME $ 10,499,350 $ 9,654,429 $ 9,652,808
UNREALIZED APPRECIATION (DEPRECIATION)
ON AVAILABLE FOR SALE SECURITIES (Net
of deferred tax (benefit) expense of
$(425,000), $(400,000) and $350,000 for
2000, 1999 and 1998, respectively) (640,000) (620,000) 540,000
COMPREHENSIVE INCOME $ 9,859,350 $ 9,034,429 $10,192,808
<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, 2000, 1999 AND 1998
Accum-
Class B lated Other Stock-
Capital Capital Retained Treasury Comprehen- holders'
Stock Stock Earnings Stock sive Income Investment
Balance at 1/1/1998 $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 12/31/1998 $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 12/31/1999 $5,714,195 $4,617,090 $57,308,627 $ - $1,580,000 $69,219,912
Net income - - 10,499,350 - - 10,499,350
Dividends declared
($.78 per share) - - (3,201,569) - - (3,201,569)
Transfer of shares 146,218 (146,218) - - - -
Purchase of
treasury stock - - - (568,259) - (568,259)
Retirement of
treasury stock (79,045) - (489,214) 568,259 - -
Accumulated other
comprehensive income - - - - (640,000) (640,000)
Balance at 12/31/2000 $5,781,368 $4,470,872 $64,117,194 $ - $ 940,000 $75,309,434
<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, 2000, 1999 AND 1998
2 0 0 0 1 9 9 9 1 9 9 8
OPERATING ACTIVITIES:
Net income $ 10,499,350 $ 9,654,429 $ 9,652,808
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 6,754,783 6,025,901 5,564,672
Gain on disposal of assets (63,379) (67,332) (119,398)
Realized gain on sale of other investments (2,382,261) - -
Change in assets and liabilities:
Receivables, net 1,419,400 674,824 (2,552,470)
Inventories (3,635,333) (3,885,150) (2,198,752)
Refundable federal and state income taxes (1,033,100) (152,849) 207,021
Prepaid expenses (28,176) 10,429 (17,363)
Deferred income taxes (680,000) (365,000) 425,000
Other assets 422,326 18,239 (508,570)
Long-term notes receivable - - (750)
Accounts payable and accrued liabilities 335,654 (133,153) 2,166,077
Accrued postretirement expense 163,874 (251,507) (218,652)
Accrued pension expense (175,159) (50,276) (270,908)
Minority interest in earnings of subsidiaries (408,744) 534,013 558,627
Net cash provided by operating activities $ 11,189,235 $ 12,012,568 $ 12,687,342
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $(18,627,165) $(10,847,723) $ (9,519,155)
Proceeds from disposals of property,
plant and equipment 302,437 94,758 219,366
Payment for purchases of equity investments (1,039,456) (733,336) (517,939)
Proceeds from disposals of equity investments 3,263,100 - -
Decrease in short-term investments, net 13,290,758 4,025,252 1,070,827
Net cash used for investing activities $ (2,810,326) $ (7,461,049) $ (8,746,901)
FINANCING ACTIVITIES:
Subsidiaries' dividends paid to minority interest $ (9,828) $ (140,379) $ (191,450)
Cash dividends (3,131,709) (2,999,634) (2,694,266)
Purchase of treasury stock (568,259) (884,133) (893,247)
Net cash used for financing activities $ (3,709,796) $ (4,024,146) $ (3,778,963)
Net Increase in Cash and Cash Equivalents $ 4,669,113 $ 527,373 $ 161,478
Cash and Cash Equivalents, beginning of year 4,782,168 4,254,795 4,093,317
Cash and Cash Equivalents, end of year $ 9,451,281 $ 4,782,168 $ 4,254,795
<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, 2000, 1999 AND 1998
(1) SUMMARY OF ACCOUNTING POLICIES
(a) Description of Business--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.
Monarch has direct control of certain operating companies that 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 (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 $(408,744), $534,014 and $558,627 during
2000, 1999 and 1998, 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) 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 $1,362,000, $2,351,000 and $2,061,000 higher than
those reported at December 31, 2000, 1999 and 1998, 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.
(d) 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 that significantly
increase the assets' useful lives are capitalized while maintenance and
repairs are charged to expense as incurred.
(e) 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 4,113,984 in 2000, 4,154,426 in 1999 and 4,198,333 in
1998.
(f) Comprehensive Income--Comprehensive income is composed of two subsets;
net income and other comprehensive income. Included in other comprehensive
income for the Company is unrealized appreciation (depreciation) for
securities classified as available-for-sale, net of deferred income tax.
(g) 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:
2000 1999 1998
Interest paid $ 7,076 $ 1,313 $ 1,517
Income taxes paid $5,935,016 $6,094,546 $4,624,633
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2000 and 1999 consisted of:
Depreciation
Lives (Years) 2000 1999
Quarry lands $ 1,220,514 $ 753,769
Mill site and buildings 12 - 50 18,922,096 17,041,461
Machinery and equipment 5 - 25 70,561,855 68,499,398
Transportation equipment 3 - 12 24,261,907 21,471,094
Office furniture and fixtures 5 - 20 925,516 901,002
Office and other buildings 10 - 30 2,751,097 2,479,774
Construction in process 10,833,315 1,417,702
$129,476,300 $112,564,200
Less--Accumulated depreciation and depletion 83,666,552 78,397,517
$ 45,809,748 $ 34,166,683
(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, 2000, 1999 and 1998 are as follows:
2000 1999 1998
Fair value of investments $3,700,000 $4,605,000 $4,890,000
Cost of investments 2,135,000 1,975,000 1,240,000
Fair value in excess of cost $1,565,000 $2,630,000 $3,650,000
Unrealized gain recorded in equity $ 940,000 $1,580,000 $2,200,000
Deferred income taxes 625,000 1,050,000 1,450,000
$1,565,000 $2,630,000 $3,650,000
Proceeds from sale of securities $3,263,100 $ - $ -
Realized gains $2,382,261 $ - $ -
(4) INCOME TAXES
The components of the provision for federal and state income taxes in the
accompanying consolidated statements of income are as follows:
2000 1999 1998
Current provision for income tax:
Federal $4,425,000 $4,435,000 $4,480,000
State 330,000 830,000 1,045,000
$4,755,000 $5,265,000 $5,525,000
Deferred provision for income tax:
Federal $ (135,000) $ 30,000 $ 60,000
State (120,000) 5,000 15,000
$ (255,000) $ 35,000 $ 75,000
Provision for income taxes $4,500,000 $5,300,000 $5,600,000
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:
2000 1999 1998
Provision for federal taxes
at statutory rates $5,150,000 $5,134,000 $5,238,000
State income taxes, net of
federal tax benefit 137,000 543,000 680,000
Percentage depletion (697,000) (591,000) (546,000)
Minority interest in
consolidated income (loss) (163,000) 214,000 223,000
Other, net 73,000 - 5,000
Provision for income taxes $4,500,000 $5,300,000 $5,600,000
The tax effect of significant temporary differences representing deferred
tax assets and (liabilities) are as follows:
2000 1999
Current:
Reserve for bad debts $ 150,000 $ 165,000
Vacation 265,000 250,000
Net current deferred tax assets $ 415,000 $ 415,000
Noncurrent:
Depreciation $ (450,000) $ (620,000)
Postretirement benefits 3,815,000 3,745,000
Pension (405,000) (335,000)
Unrealized holding gains (625,000) (1,050,000)
Other, net 95,000 10,000
Net long-term deferred tax assets $ 2,430,000 $ 1,750,000
(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, 2000 and 1999:
2000 1999
Reconciliation of benefit obligation
Accumulated postretirement benefit
obligation at beginning of year $ 9,298,360 $ 9,983,477
Service cost 108,040 99,410
Interest cost 895,420 697,195
Actuarial (gain) loss 3,532,357 (578,176)
Benefits and expenses paid (906,723) (903,546)
Accumulated postretirement benefit
obligation at end of year $ 12,927,454 $ 9,298,360
Funded status $(12,927,454) $ (9,298,360)
Unrecognized actuarial (gain) loss 3,394,834 (70,386)
Accrued benefit cost $ (9,532,620) $ (9,368,746)
The assumed annual rate of increase in the per capita cost of covered
health care benefits was 7% for 2000, 4% for 1999 and 5% for 1998. This rate
is assumed to decrease 1% per year to an ultimate rate of 4%.
2000 1999 1998
Components of net periodic benefit cost
Service cost $ 108,040 $ 99,410 $ 85,689
Interest cost 895,420 697,195 687,667
Unrecognized net (gain) loss 67,136 - -
Net periodic benefit cost $1,070,596 $ 796,605 $ 773,356
Weighted-average assumptions
as of December 31
Discount rate 7.50% 8.00% 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 $ 218,282 $ (98,492)
Effect on postretirement benefit obligation 1,374,189 (1,113,274)
(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, 2000 and 1999:
2000 1999
Reconciliation of projected benefit obligation
Projected benefit obligation at
beginning of year $20,989,864 $22,492,790
Service cost 293,441 342,594
Interest cost 1,617,150 1,559,670
Actuarial (gain) loss 734,549 (1,819,259)
Plan amendment - 37,715
Benefits paid and expenses (1,647,532) (1,623,646)
Projected benefit obligation at end of year $21,987,472 $20,989,864
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year $24,096,707 $25,761,275
Actual return on plan assets 2,334,054 (40,922)
Benefits paid and expenses (1,647,532) (1,623,646)
Fair value of plan assets at end of year $24,783,229 $24,096,707
Funded status $ 2,795,757 $ 3,106,843
Unrecognized net actuarial loss (2,250,731) (2,794,255)
Unrecognized transitional obligation 14,342 24,209
Unrecognized prior service cost 459,982 507,394
Prepaid benefit cost $ 1,019,350 $ 844,191
The following table presents the components of net periodic pension cost
as of December 31, 2000, 1999 and 1998:
2000 1999 1998
Service cost $ 293,441 $ 342,594 $ 324,782
Interest cost 1,617,150 1,559,670 1,518,426
Expected return on plan assets (2,095,648) (2,245,751) (2,229,872)
Amortization of transitional obligation 9,867 9,863 9,863
Amortization of prior service cost 47,412 45,130 45,130
Recognized net actuarial gain (47,381) (31,967) (104,537)
Net periodic pension (income) $ (175,159) $ (320,461) $ (436,208)
The weighted average assumptions used to determine net pension cost and
benefit obligations as of December 31 are as follows:
2000 1999 1998
Discount rate 7.50% 8.00% 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 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.
(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,
2000, 1999 and 1998:
Ready-Mixed
Concrete
Cement and Sundry Adjustments
FOR THE YEAR ENDED Manu- Building and
DECEMBER 31, 2000: facturing Materials Eliminations Consolidated
Sales to unaffiliated
customers $47,289,360 $69,760,428 $ - $117,049,788
Intersegment sales 9,265,934 5,192 (9,271,126) -
Total net sales $56,555,294 $69,765,620 $ (9,271,126) $117,049,788
Income (loss) from operations $13,019,516 $(1,765,148) $ 11,254,368
Other income, net 3,744,982
Income before income taxes $ 14,999,350
Identifiable assets at
December 31, 2000 $47,123,981 $28,205,216 $ 75,329,197
Corporate assets 20,902,522
Total assets at
December 31, 2000 $ 96,231,719
FOR THE YEAR ENDED
DECEMBER 31, 1999:
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
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. Depreciation for cement manufacturing and ready-mixed concrete,
respectively, was: $2,571,183 and $4,183,600 in 2000; $2,951,294 and
$3,074,607 in 1999; and $2,924,251 and $2,640,421 in 1998. Capital
expenditures for cement manufacturing and ready-mixed concrete, respectively,
including capital assets of businesses acquired were: $11,051,905 and
$7,575,260 in 2000; $2,749,880 and $8,097,843 in 1999; and $4,966,346 and
$4,552,809 in 1998. Identifiable assets by segment are those assets that are
used in the Company's operations in each industry.
During 2000, 1999 and 1998, there were no sales to any one customer in
excess of 10% of consolidated net sales.
(10) Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000
Net sales $22,388,688 $34,257,052 $37,481,924 $22,922,124
Income from operations 1,575,353 5,280,529 5,545,759 (1,147,273)
Net income 1,066,777 3,472,159 3,739,286 2,221,128
Basic earnings per share $.26 $.84 $.91 $.54
1999
Net sales $18,271,807 $28,094,077 $36,025,222 $27,084,426
Income from operations 828 851 3,617,387 6,352,281 3,562,341
Net income 578,473 2,380,638 4,061,319 2,633,999
Basic earnings per share $.14 $.57 $.98 $.63
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: (620) 473-2222
Fax: (620) 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
Debra P. Roe
Principal Accounting Officer and
Assistant Secretary-Treasurer
*Not active in the daily affairs
of the Company.