FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 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 November 6, 1998 , the Registrant had outstanding 2,288,414 shares
of Capital Stock, par value $2.50 per share and 1,889,657 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
September 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 4,200,003
and 4,215,714 in the third quarter 1998 and 1997, respectively, and
4,205,152 and 4,215,908 in the first nine 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 nine months ending September 30, 1998. Comprehensive income
for the registrant includes net income and unrealized appreciation
(depreciation) on available for sale securities. The following table
presents comprehensive income for the nine months ending September 30,
1998 and 1997:
1998 1997
Net Income $6,575,363 $7,713,946
Unrealized appreciation (depreciation) on
on available for sale securities (net of
deferred tax (benefit)/expense of $(100,000)
and $355,000 for 1998 and 1997, respectively (160,000) 534,000
Total Comprehensive Income $6,415,363 $8,247,946
4. 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--SEPTEMBER 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 $ 3,559,204 $ 4,093,317 Accounts and notes payable $ 4,834,831 $ 3,518,686
Short term investments, at cost Accrued liabilities 3,073,949 2,864,409
which approximates market 17,571,072 20,930,123 Total current liabilities $ 7,908,780 $ 6,383,095
Receivables, less allowances of
$541,000 in 1998 and $447,000 in
1997 for doubtful accounts 14,197,559 7,972,699
Inventories, priced at cost which ACCRUED POSTRETIREMENT BENEFITS 9,752,998 9,838,905
is not in excess of market-
Cost determined by last-in,
first-out method-
Finished cement $ 782,853 $ 1,168,177 ACCRUED PENSION EXPENSE 321,184 321,184
Work in process 990,669 316,370
Building products 1,192,574 1,127,182
Cost determined by first-in,
first-out method- MINORITY INTEREST IN CONSOLIDATED
Fuel, gypsum, paper sacks SUBSIDIARIES 2,411,684 2,004,424
and other 1,870,643 1,318,911
Cost determined by average method-
Operating and maintenance supplies 7,479,137 7,375,598
Total inventories $12,315,876 $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 2,285,564 shares
Prepaid expenses 32,216 27,921 at 9-30-98 and 2,292,891 shares
Total current assets $48,090,927 $44,966,370 at 12-31-97 $ 5,713,910 $ 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 $78,056,964 in 1998 1,893,007 shares at 9-30-98 and
and $74,556,421 in 1997 27,839,735 25,517,772 1,922,823 shares at 12-31-97 4,732,517 4,807,058
Retained earnings 49,941,895 45,486,139
DEFERRED INCOME TAXES 1,910,000 1,810,000 $60,388,322 $56,025,424
Plus: Unrealized holding gain 1,500,000 1,660,000
OTHER ASSETS 4,442,306 3,938,890 Total stockholders' investment $61,888,322 $57,685,424
$82,282,968 $76,233,032 $82,282,968 $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 Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $30,733,881 $27,431,041 $74,311,503 $68,845,578
COST OF SALES 23,865,433 19,264,628 59,431,845 52,824,148
Gross profit from operations $ 6,868,448 $ 8,166,413 $14,879,658 $16,021,430
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,701,540 1,747,263 5,011,153 5,201,461
Income from operations $ 5,166,908 $ 6,419,150 $ 9,868,505 $10,819,969
OTHER INCOME (EXPENSE):
Interest income $ 289,828 $ 281,981 $ 789,259 $ 651,186
Other, net (114,478) 811,255 (332,401) 742,791
$ 175,350 $ 1,093,236 $ 456,858 $ 1,393,977
Income before provision
for taxes on income $ 5,342,258 $ 7,512,386 $10,325,363 $12,213,946
PROVISION FOR TAXES ON INCOME 1,950,000 2,800,000 3,750,000 4,500,000
NET INCOME $ 3,392,258 $ 4,712,386 $ 6,575,363 $ 7,713,946
RETAINED EARNINGS, beg. of period 47,777,526 40,323,462 45,486,139 38,039,014
Less cash dividends 672,618 590,200 1,345,236 1,180,400
Less purchase and retirement
of treasury stock 555,271 - 774,371 126,912
RETAINED EARNINGS, end of period $49,941,895 $44,445,648 $49,941,895 $44,445,648
BASIC EARNINGS PER SHARE $.81 $1.12 $1.56 $1.83
CASH DIVIDENDS PER SHARE $.16 $.14 $.32 $.28
</TABLE>
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended
Sept. 30, Sept. 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,575,363 $ 7,713,946
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion 3,974,630 3,515,267
Gain on disposal of assets (89,696) (633,308)
Realized gain on sale of other investments - (840,797)
Change in assets and liabilities net of
effects from purchase of subsidiaries:
Receivables, net (6,224,860) (4,180,797)
Inventories (1,009,638) (63,802)
Refundable federal and state income taxes 221,072 310,733
Prepaid expenses 141,890 (261,040)
Deferred income taxes, long-term (100,000) 590,000
Long-term notes receivable 1,250 8,706
Accounts payable, notes payable and
accrued liabilities 2,728,529 2,341,524
Accrued postretirement benefits (85,907) (47,587)
Accrued pension expense - (46,619)
Minority interest in earnings of subsidiaries 449,260 381,147
Net cash provided by operating activities $ 6,581,893 $ 8,787,373
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $(6,367,001) $(4,638,275)
Net purchases and sales of subsidiaries' stock - (1,029,410)
Proceeds from disposals of property, plant
and equipment 160,104 795,998
Proceeds from disposals of equity investments - 1,366,267
Increase in other assets (664,666) (409,102)
(Increase) decrease in short term investments, net 3,359,051 (1,923,656)
Net cash used for investing activities $(3,512,512) $(5,838,178)
FINANCING ACTIVITIES:
Cash dividends $(2,694,265) $(2,362,280)
Subsidiaries' dividends paid to minority interest (42,000) (173,746)
Subsidiaries' purchase of treasury stock - (9,419)
Purchase of treasury stock (867,229) (153,351)
Net cash used for financing activities $(3,603,494) $(2,698,796)
Net increase (decrease) in cash and
cash equivalents $ (534,113) $ 250,399
CASH AND CASH EQUIVALENTS, beginning of year 4,093,317 3,242,245
CASH AND CASH EQUIVALENTS, end of period $ 3,559,204 $ 3,492,644
Interest paid $1,517 $3,874
Income taxes paid $2,467,485 $2,875,322
</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 nine months of 1998 primarily due to funding
increased receivables, capital expenditures and dividends.
Results of Operations
Net sales increased 12% during the third quarter of 1998 as compared to
the third quarter of 1997 and 8% during the first nine months of 1998 as
compared to the first nine months of 1997. During the third quarter and the
first nine 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.
While net sales increased 12% and 8%, respectively, cost of sales
increased 24% and 12%, respectively, causing gross profit from operations to
decrease during the third quarter and the first nine months of 1998 as
compared to similar periods in 1997. Modernization of one of the cement
kilns and major maintenance on related equipment reduced the registrant'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 registrant purchased additional clinker from foreign markets. Higher
costs associated with cement produced from purchased clinker increased the
registrant's cost of sales and reduced its gross profit margin to 22% for the
third quarter of 1998 as compared to 30% for the third quarter of 1997 and to
20% for the first nine months of 1998 as compared to 23% for the first nine
months of 1997. Although purchased clinker reduces the registrant's gross
profit margin, additional purchases are intended to allow the registrant to
meet the service demands of its customer base in both the cement and ready-mixed
concrete markets.
Other, net decreased approximately one million dollars during the third
quarter and the first nine months of 1998 as compared to similar periods in
1997 due primarily to gains on the sale of investment securities that occurred
during the third quarter of 1997.
Year 2000
The registrant has completed its assessment of year 2000 issues relative
to information technology (IT) and non-IT computer hardware, software, and
operating systems. The registrant primarily relied upon a qualified and
experienced external resource to inventory, test for year 2000 compliance, and
prepare detailed recommended solutions on any non-compliant hardware or
software systems. The recommended solutions have been presented to and
assessed by the registrant's year 2000 management team and it has been
determined that the costs of addressing the year 2000 compliance issues will
not be material to the registrant's business, operations or financial
condition.
The registrant is dependent upon numerous third parties including
customers, power generators, financial institutions and other significant
suppliers. The registrant has no control over these third parties systems and
potential year 2000 IT and non-IT system problems. The registrant intends to
inquire of third parties and seek guidance as to their state of readiness.
However, there can be no assurance that the registrant can avoid disruptions
of supplies and services from its suppliers or purchases by its major
customers in the event that these entities encounter unforeseen year 2000
problems, any of which could have a material adverse effect on the
registrant's business, operations or financial condition. The registrant is
not aware of any material risks associated with these other entities.
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
September 30, 1998.
(b) There were no reports required to be filed on Form 8-K during
the quarter July 1, 1998 to September 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 November 12, 1998 /s/ Walter H. Wulf, Jr.
Walter H. Wulf, Jr.
President and
Vice Chairman of the Board
Date November 12, 1998 /s/ Lyndell G. Mosley
Lyndell G. Mosley, CPA
Chief Financial Officer and
Assistant Secretary-Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONARCH
CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,559,204
<SECURITIES> 17,571,072
<RECEIVABLES> 14,738,559
<ALLOWANCES> 541,000
<INVENTORY> 12,315,876
<CURRENT-ASSETS> 48,090,927
<PP&E> 105,896,699
<DEPRECIATION> 78,056,964
<TOTAL-ASSETS> 82,282,968
<CURRENT-LIABILITIES> 7,908,780
<BONDS> 0
0
0
<COMMON> 10,446,427
<OTHER-SE> 51,441,895
<TOTAL-LIABILITY-AND-EQUITY> 82,282,968
<SALES> 74,311,503
<TOTAL-REVENUES> 74,311,503
<CGS> 59,431,845
<TOTAL-COSTS> 59,431,845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,325,363
<INCOME-TAX> 3,750,000
<INCOME-CONTINUING> 6,575,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,575,363
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
