FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2757
THE MONARCH CEMENT COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-0340590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 1000, HUMBOLDT, KANSAS 66748-1000
(Address of principal executive offices)
(Zip Code)
(316) 473-2225
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of August 4, 1998 , the Registrant had outstanding 2,293,087 shares
of Capital Stock, par value $2.50 per share and 1,910,777 shares of Class B
Capital Stock, par value $2.50 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
NOTES TO THE SECURITIES AND EXCHANGE COMMISSION
REPORT FORM 10-Q FOR THE QUARTER ENDED
June 30, 1998
l. The condensed financial statements included herein have been prepared by
the registrant, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
registrant believes that the disclosures are adequate to make the
information presented not misleading. The accompanying financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of operations
for the interim periods presented. It is suggested that these condensed
financial statements be read in conjunction with the financial statements
and notes thereto included in the registrant's latest annual report on
Form 10-K.
2. For a summary of accounting policies, the reader should refer to Note 1
of the consolidated financial statements included in the registrant's
annual report on Form 10-K for the fiscal year ended December 31, 1997.
3. Basic earnings per share of capital stock has been calculated based on
the weighted average shares outstanding during each of the reporting
periods. The weighted average number of shares outstanding was 4,204,332
and 4,215,714 in the second quarter of 1998 and 1997, respectively, and
4,207,726 and 4,216,006 in the first six months of 1998 and 1997,
respectively.
4. In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", effective for periods beginning after December 15,
1997. SFAS 130 requires the display of comprehensive income and its
components in the financial statements. The registrant has adopted SFAS
130 for the six months ending June 30, 1998. Comprehensive income for
the registrant includes net income and unrealized appreciation on
available for sale securities. The following table presents
comprehensive income for the six months ending June 30, 1998 and 1997:
1998 1997
Net Income $3,183,105 $3,001,560
Unrealized appreciation on available
for sale securities (net of deferred
tax expense of $300,000 and $250,000
for 1998 and 1997, respectively) 455,000 380,000
Total Comprehensive Income $3,638,105 $3,381,560
5. Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere
in this Form 10-Q, 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 registrant's products.
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--JUNE 30, 1998 AND DECEMBER 31, 1997
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' INVESTMENT
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
<S> <C> <C> <S> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 5,305,230 $ 4,093,317 Accounts and notes payable $ 4,657,987 $ 3,518,686
Short term investments, at cost Accrued liabilities 2,943,116 2,864,409
which approximates market 12,673,132 20,930,123 Total current liabilities $ 7,601,103 $ 6,383,095
Receivables, less allowances of
$524,000 in 1998 and $447,000 in
1997 for doubtful accounts 12,512,127 7,972,699
Inventories, priced at cost which ACCRUED POSTRETIREMENT BENEFITS 9,835,993 9,838,905
is not in excess of market-
Cost determined by last-in,
first-out method-
Finished cement $ 1,602,202 $ 1,168,177 ACCRUED PENSION EXPENSE 321,184 321,184
Work in process 3,321,401 316,370
Building products 1,227,760 1,127,182
Cost determined by first-in,
first-out method- MINORITY INTEREST IN CONSOLIDATED
Fuel, gypsum, paper sacks SUBSIDIARIES 2,233,178 2,004,424
and other 1,544,772 1,318,911
Cost determined by average method-
Operating and maintenance supplies 7,043,922 7,375,598
Total inventories $14,740,057 $11,306,238 STOCKHOLDERS' INVESTMENT:
Refundable federal and state Capital stock, par value $2.50
income taxes - 221,072 per share-Authorized 10,000,000
Deferred income taxes 415,000 415,000 shares, Issued 2,289,987 shares
Prepaid expenses 156,879 27,921 at 6-30-98 and 2,292,891 shares
Total current assets $45,802,425 $44,966,370 at 12-31-97 $ 5,724,967 $ 5,732,227
Class B capital stock, par value
PROPERTY, PLANT AND EQUIPMENT, at $2.50 per share-Authorized
cost, less accumulated depreciation 10,000,000 shares, Issued
and depletion of $76,778,071 in 1998 1,913,877 shares at 6-30-98 and
and $74,556,421 in 1997 27,951,627 25,517,772 1,922,823 shares at 12-31-97 4,784,693 4,807,058
Retained earnings 47,777,526 45,486,139
DEFERRED INCOME TAXES 1,510,000 1,810,000 $58,287,186 $56,025,424
Plus: Unrealized holding gain 2,115,000 1,660,000
OTHER ASSETS 5,129,592 3,938,890 Total stockholders' investment $60,402,186 $57,685,424
$80,393,644 $76,233,032 $80,393,644 $76,233,032
</TABLE>
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $28,478,765 $25,524,530 $43,577,622 $41,414,537
COST OF SALES 21,799,909 18,608,238 35,566,412 33,559,520
Gross profit from operations $ 6,678,856 $ 6,916,292 $ 8,011,210 $ 7,855,017
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,637,717 1,755,957 3,309,613 3,454,198
Income from operations 5,041,139 $ 5,160,335 $ 4,701,597 $ 4,400,819
OTHER INCOME (EXPENSE):
Interest income $ 258,959 $ 184,887 $ 499,431 $ 369,205
Other, net (219,105) (21,851) (217,923) (68,464)
$ 39,854 $ 163,036 $ 281,508 $ 300,741
Income before provision
for taxes on income $ 5,080,993 $ 5,323,371 $ 4,983,105 $ 4,701,560
PROVISION FOR TAXES ON INCOME 1,835,000 1,925,000 1,800,000 1,700,000
NET INCOME $ 3,245,993 $ 3,398,371 $ 3,183,105 $ 3,001,560
RETAINED EARNINGS, beg. of period 45,244,851 37,515,291 45,486,139 38,039,014
Less cash dividends 672,618 590,200 672,618 590,200
Less purchase and retirement
of treasury stock 40,700 - 219,100 126,912
RETAINED EARNINGS, end of period $47,777,526 $40,323,462 $47,777,526 $40,323,462
BASIC EARNINGS PER SHARE $.77 $.81 $.76 $.71
CASH DIVIDENDS PER SHARE $.16 $.14 $.16 $.14
</TABLE>
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months Ended
June 30, June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,183,105 $ 3,001,560
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion 2,550,519 2,252,351
Gain on disposal of assets (34,603) (581,893)
Change in assets and liabilities net of
effects from purchase of subsidiaries:
Receivables, net (4,539,428) (3,516,491)
Inventories (3,433,819) (1,469,617)
Refundable federal and state income taxes 221,072 310,733
Prepaid expenses (128,958) (126,708)
Deferred income taxes, long-term 300,000 485,000
Long-term notes receivable 1,250 7,456
Accounts payable, notes payable and
accrued liabilities 2,567,037 2,111,824
Accrued postretirement benefits (2,912) (27,249)
Accrued pension expense - (67,301)
Minority interest in earnings of subsidiaries 270,754 339,014
Net cash provided by operating activities $ 954,017 $ 2,718,679
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $(5,029,397) $(3,635,904)
Net purchases and sales of subsidiaries' stock - (1,029,410)
Proceeds from disposals of property, plant
and equipment 79,626 692,932
Increase in other assets (736,952) (250,000)
Decrease in short term investments, net 8,256,991 2,961,644
Net cash provided by (used for)
investing activities $ 2,570,268 $(1,260,738)
FINANCING ACTIVITIES:
Cash dividends $(2,021,647) $(1,772,080)
Subsidiaries' dividends paid to minority interest (42,000) (173,746)
Subsidiaries' purchase of treasury stock, net - (9,419)
Purchase of treasury stock (248,725) (153,352)
Net cash used for financing activities $(2,312,372) $(2,108,597)
Net increase (decrease) in cash and cash equivalents $ 1,211,913 $ (650,656)
CASH AND CASH EQUIVALENTS, beginning of year 4,093,317 3,242,245
CASH AND CASH EQUIVALENTS, end of period $ 5,305,230 $ 2,591,589
Interest paid $1,517 $4,556
Income taxes paid $170,670 $396,582
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
The registrant's ability to generate cash adequate to meet its needs has
been derived primarily from operations. Cash and short term investments
decreased during the first half of 1998 primarily due to funding increased
receivables and inventories, maintenance, capital expenditures and dividends.
The registrant generally produces additional inventory during the early part
of the year in anticipation of sales volume in excess of production
capabilities during the summer and early fall.
Results of Operations
Net sales increased 11% during the second quarter of 1998 as compared to
the second quarter of 1997 resulting in a 5% increase in net sales and a 6%
increase in cost of sales for the first half of 1998 as compared to the first
half of 1997. During the second quarter and the first six months of 1998, the
registrant realized increases in both volume of cement sold and sales prices
of cement and ready-mixed concrete as compared to similar periods in 1997.
Demand for cement and ready-mixed concrete in the registrant's market area was
excellent during these periods and is expected to continue at high levels for
the balance of 1998.
During the second quarter of 1998, the registrant continued its capital
expenditure program by further modernizing and increasing the capacity of one
of its kilns. The registrant also utilized this downtime to perform major
maintenance on related equipment. As a result, clinker production decreased
22% during the second quarter of 1998 as compared to the second quarter of
1997. This reduction in clinker production, along with the cost of the
additional maintenance, resulted in a 17% increase in cost of sales during the
second quarter of 1998 as compared to the second quarter of 1997.
To help offset the reduction in clinker produced and to meet the
anticipated demand for cement during the coming peak construction season, the
registrant purchased additional clinker from foreign markets during the second
quarter of 1998. Although this will increase the cement segment's cost of
sales, it will allow the registrant to maintain its customer base in both the
cement and ready-mixed concrete markets.
Seasonality
The registrant's highest revenue and earnings historically occur in its
second and third fiscal quarters, April through September.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits required to be filed for the quarter ended
June 30, 1998.
(b) There were no reports required to be filed on Form 8-K during
the quarter April 1, 1998 to June 30, 1998, inclusive, for which
this Form 10-Q is being filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MONARCH CEMENT COMPANY
(Registrant)
Date August 13, 1998 /s/ Walter H. Wulf, Jr.
Walter H. Wulf, Jr.
President and
Vice Chairman of the Board
Date August 13, 1998 /s/ Lyndell G. Mosley
Lyndell G. Mosley, CPA
Chief Financial Officer and
Assistant Secretary-Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONARCH
CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5305230
<SECURITIES> 12673132
<RECEIVABLES> 13036127
<ALLOWANCES> 524000
<INVENTORY> 14740057
<CURRENT-ASSETS> 45802425
<PP&E> 104729698
<DEPRECIATION> 76778071
<TOTAL-ASSETS> 80393644
<CURRENT-LIABILITIES> 7601103
<BONDS> 0
0
0
<COMMON> 10509660
<OTHER-SE> 49892526
<TOTAL-LIABILITY-AND-EQUITY> 80393644
<SALES> 43577622
<TOTAL-REVENUES> 43577622
<CGS> 35566412
<TOTAL-COSTS> 35566412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4983105
<INCOME-TAX> 1800000
<INCOME-CONTINUING> 3183105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3183105
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
