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 March 31, 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 May 8, 1998 , the Registrant had outstanding 2,287,287 shares
of Capital Stock, par value $2.50 per share and 1,916,577 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
March 31, 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 4,211,158
and 4,216,302 in the first three 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 three months ending March 31, 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 three months ending March 31, 1998 and 1997:
1998 1997
Net Loss $(62,888) $(396,811)
Unrealized appreciation on available
for sale securities (net of deferred
tax expense of $250,000 and $25,000
for 1998 and 1997, respectively) 430,000 40,000
Total Comprehensive Income (Loss) $367,112 $(356,811)
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--MARCH 31, 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 $ 4,585,283 $ 4,093,317 Accounts and notes payable $ 3,376,889 $ 3,518,686
Short term investments, at cost Accrued liabilities 1,703,046 2,864,409
which approximates market 16,038,329 20,930,123 Total current liabilities $ 5,079,935 $ 6,383,095
Receivables, less allowances of
$505,000 in 1998 and $447,000 in
1997 for doubtful accounts 7,560,249 7,972,699 ACCRUED POSTRETIREMENT BENEFITS 9,833,566 9,838,905
Inventories, priced at cost which
is not in excess of market-
Cost determined by last-in,
first-out method- ACCRUED PENSION EXPENSE 321,184 321,184
Finished cement $ 4,334,243 $ 1,168,177
Work in process 572,533 316,370
Building products 1,211,607 1,127,182
Cost determined by first-in, MINORITY INTEREST IN CONSOLIDATED
first-out method- SUBSIDIARIES 2,040,469 2,004,424
Fuel, gypsum, paper sacks
and other 1,256,731 1,318,911
Cost determined by average method-
Operating and maintenance supplies 6,432,710 7,375,598 STOCKHOLDERS' INVESTMENT:
Total inventories $13,807,824 $11,306,238 Capital stock, par value $2.50
Refundable federal and state per share-Authorized 10,000,000
income taxes 209,508 221,072 shares, Issued 2,288,661 shares
Deferred income taxes 415,000 415,000 at 3-31-98 and 2,292,891 shares
Prepaid expenses 166,605 27,921 at 12-31-97 $ 5,721,652 $ 5,732,227
Total current assets $42,782,798 $44,966,370 Class B capital stock, par value
$2.50 per share-Authorized
PROPERTY, PLANT AND EQUIPMENT, at 10,000,000 shares, Issued
cost, less accumulated depreciation 1,917,053 shares at 3-31-98 and
and depletion of $75,600,957 in 1998 1,922,823 shares at 12-31-97 4,792,633 4,807,058
and $74,556,421 in 1997 26,054,614 25,517,772 Retained Earnings 45,244,851 45,486,139
$55,759,136 $56,025,424
DEFERRED INCOME TAXES 1,530,000 1,810,000 Plus: Unrealized holding gain 2,065,000 1,660,000
OTHER ASSETS 4,731,878 3,938,890 Total stockholders' investment $57,824,136 $57,685,424
$75,099,290 $76,233,032 $75,099,290 $76,233,032
</TABLE>
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
NET SALES $15,098,857 $15,890,007
COST OF SALES 13,766,503 14,951,282
Gross profit from operations $ 1,332,354 $ 938,725
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,671,896 1,698,241
Loss from operations $ (339,542) $ (759,516)
OTHER INCOME (EXPENSE):
Interest income $ 240,472 $ 184,318
Other, net 1,182 (46,613)
$ 241,654 $ 137,705
Loss before benefit from taxes on income $ (97,888) $ (621,811)
BENEFIT FROM TAXES ON INCOME (35,000) (225,000)
NET LOSS (Basic loss per share-$(.01) in
1998 and $(.09) in 1997) $ (62,888) $ (396,811)
RETAINED EARNINGS, beg. of period 45,486,139 38,039,014
Less purchase and retirement of treasury stock 178,400 126,912
RETAINED EARNINGS, end of period $45,244,851 $37,515,291
</TABLE>
<PAGE>
<TABLE>
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (62,888) $ (396,811)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and depletion 1,227,463 1,105,419
Gain on disposal of assets (19,536) (438,254)
Change in assets and liabilities, net of
effects from purchase of subsidiaries:
Receivables, net 412,450 (1,340,262)
Inventories (2,501,586) (2,075,913)
Refundable federal and state income taxes 11,564 (225,000)
Prepaid expenses (138,684) (199,547)
Deferred income taxes, long-term 280,000 260,000
Long-term notes receivable 1,250 6,206
Accounts payable, notes payable and
accrued liabilities 45,869 1,141,714
Accrued postretirement benefits (5,339) 11,989
Minority interest in earnings of subsidiaries 36,045 102,179
Net cash used for operating activities $ (713,392) $(2,048,280)
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $(1,769,469) $(1,973,103)
Net purchases of subsidiaries' stock - (1,029,410)
Proceeds from disposals of property, plant
and equipment 24,700 509,896
Increase in other assets (389,238) (25,000)
Decrease in short term investments, net 4,891,794 4,430,787
Net cash provided by investing activities $ 2,757,787 $ 1,913,170
FINANCING ACTIVITIES:
Cash dividends $(1,349,029) $(1,181,880)
Purchase of treasury stock (203,400) (153,352)
Net cash used for financing activities $(1,552,429) $(1,335,232)
Net increase (decrease) in cash and
cash equivalents $ 491,966 $(1,470,342)
CASH AND CASH EQUIVALENTS, beginning of year 4,093,317 3,242,245
CASH AND CASH EQUIVALENTS, end of period $ 4,585,283 $ 1,771,903
Interest paid $510 $62
Income taxes paid $74,698 $111,289
</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 and the maturity of short term
investments. Cash and short term investments decreased during the first
quarter of 1998 primarily due to funding increased inventories, maintenance
and capital expenditures. The registrant generally produces additional
inventory during this quarter in anticipation of sales volume in excess of
production capabilities during the summer and early fall.
Results of Operations
Net sales for the first quarter of 1998 decreased 5% as compared to the
first quarter of 1997 as a result of decreases in the volume of cement and
ready-mixed concrete sold due to wet weather interrupting construction
projects. Demand for cement and ready-mixed concrete in the registrant's
market area was excellent during both the first quarter of 1998 and the first
quarter of 1997 and is expected to continue during the balance of 1998.
The registrant incurred significant maintenance costs during the first
quarter of 1998. However, unlike the first quarter of 1997 when the registrant
worked on each of its three kilns, the registrant was able to sustain a
higher volume of production during much of the 1998 maintenance program. This
allowed the registrant to produce 32% more clinker and 20% more cement during
the first quarter of 1998 as compared to the first quarter of 1997. The
increased level of production resulted in a significantly higher inventory at
March 31, 1998 and a significant reduction in the cost of sales for the
quarter.
The registrant anticipates a reduction in clinker production during the
second quarter of 1998 as it continues its capital expenditure program by
further modernizing and increasing the capacity of one of its kilns. Even
though the registrant entered the second quarter with higher levels of
inventories, to meet anticipated demand for cement during the coming peak
construction season, the registrant has negotiated the purchase of additional
clinker from foreign markets. 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
March 31, 1998.
(b) There were no reports required to be filed on Form 8-K during
the quarter January 1, 1998 to March 31, 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 May 13, 1998 /s/ Walter H. Wulf, Jr.
Walter H. Wulf, Jr.
President and
Vice Chairman of the Board
Date May 13, 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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,585,283
<SECURITIES> 16,038,329
<RECEIVABLES> 8,065,249
<ALLOWANCES> 505,000
<INVENTORY> 13,807,824
<CURRENT-ASSETS> 42,782,798
<PP&E> 101,655,571
<DEPRECIATION> 75,600,957
<TOTAL-ASSETS> 75,099,290
<CURRENT-LIABILITIES> 5,079,935
<BONDS> 0
0
0
<COMMON> 10,514,285
<OTHER-SE> 47,309,851
<TOTAL-LIABILITY-AND-EQUITY> 75,099,290
<SALES> 15,098,857
<TOTAL-REVENUES> 15,098,857
<CGS> 13,766,503
<TOTAL-COSTS> 13,766,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (97,888)
<INCOME-TAX> (35,000)
<INCOME-CONTINUING> (62,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,888)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
