-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GVFQrUGfNnSQRHPez7Y65g26z5sNBntAyAojFUWKrZLlCe8rms/EU7Z0CTt7RyJA T/B7XCVx6yXOxyB1V5cfBQ== 0000067517-98-000004.txt : 19980319 0000067517-98-000004.hdr.sgml : 19980319 ACCESSION NUMBER: 0000067517-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH CEMENT CO CENTRAL INDEX KEY: 0000067517 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 480340590 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02757 FILM NUMBER: 98567958 BUSINESS ADDRESS: STREET 1: P O BOX 1000 CITY: HUMBOLDT STATE: KS ZIP: 66748 BUSINESS PHONE: 3164732225 10-K 1 FORM 10-K Securities and Exchange Commission Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 12 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 of incorporation) (IRS employer identification) P.O. Box 1000, Humboldt, Kansas 66748-1000 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: 316-473-2225 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class: Capital Stock, par value $2.50 per share Class B Capital Stock, par value $2.50 per share 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______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the average bid and ask prices of such shares on February 26, 1998, was $66,659,911. As of February 26, 1998, the registrant had outstanding 2,287,611 shares of Capital Stock, par value $2.50 per share, and 1,918,103 shares of Class B Capital Stock, par value $2.50 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated parts of this report: (1) the registrant's annual report to stockholders for the year ended December 31, 1997 - Parts I, II and IV of Form 10-K and (2) the registrant's definitive proxy statement prepared in connection with the annual meeting of stockholders to be held on April 8, 1998 - - Part III of Form 10-K. PART I Item 1. Business. Reference is hereby made to pages 4 and 5 of registrant's 1997 annual report to stockholders (filed herewith as Exhibit 13) for a description of registrant's business, including information regarding industry segments. Such information is hereby incorporated herein by reference. In addition, registrant submits the following information: The registrant did not introduce any new products nor begin to do business in a new industry segment during 1997. The registrant owns and operates a quarry located adjacent to the Humboldt, Kansas plant which contains all essential raw materials presently used by the registrant. The registrant's total reserves, including this quarry and other property located near the plant, are estimated to be sufficient to maintain operations at the Humboldt plant's present capacity for approximately 30 years. The registrant's products are marketed under registered trademarks using the name "MONARCH". The registrant's operations are not materially dependent on any trademarks, franchises, patents or on any licenses relating to the use thereof. Due to inclement construction weather in the registrant's market area during January, February and March, normally about 85% of the registrant's sales occur in April through December. It is necessary for the registrant to invest a significant portion of its working capital in inventories. At December 31, 1997 the registrant had inventories as follows: Cement . . . . . . . . . . . . . . . $ 1,168,177 Work in process. . . . . . . . . . . 316,370 Fuel, gypsum and other materials . . 2,446,093 Operating and maintenance supplies . 7,375,598 Total. . . . . . . . . . . $11,306,238
The registrant is heavily dependent upon the construction industry and is directly affected by the level of activity in that industry. However, no customer accounted for 10% or more of the registrant's consolidated net revenue during 1997, 1996 or 1995. Backlog of customers' orders is not a material factor in the registrant's business. The registrant has no contracts which are subject to renegotiation of profits or termination thereof at the election of the government. The manufacture and sale of cement and ready-mixed concrete are extremely competitive enterprises. A number of producers, including several nationwide manufacturers, compete for business with the registrant in its market area. The registrant is not a significant factor in the nationwide portland cement or ready-mixed concrete business but does constitute a significant market factor for cement in its market area. Cement generally is produced to meet standard specifications and there is little differentiation between the products sold by the registrant and its competitors. Accordingly, competition exists primarily in the areas of price and customer service. The registrant did not spend a material amount in the last three fiscal years on registrant sponsored research and development. However, the registrant is a member of the Portland Cement Association which conducts research for the cement industry. Registrant has, during the past several years, made substantial capital expenditures for pollution control equipment. The registrant also incurs normal operating and maintenance expenditures in connection with its pollution control equipment. At December 31, 1997, the Company and its subsidiaries employed approximately 470 hourly (production) employees and 110 salaried employees, which included plant supervisory personnel, sales and executive staff. All of the registrant's operations and sales are in one geographic area. Item 2. Properties. The registrant's corporate offices and cement plant, including equipment and raw materials are located at Humboldt, Kansas, approximately 110 miles southwest of Kansas City, Missouri. The registrant owns approximately 2,000 acres of land on which the Humboldt plant, offices and all essential raw materials are located. Raw material reserves are estimated to be sufficient to maintain operations at this plant's present capacity for approximately 30 years. The registrant believes that this plant and equipment are suitable and adequate for its current level of operations. This plant has a present annual capacity of 700,000 tons of cement. The registrant also owns approximately 690 acres of land in Des Moines, Iowa on which a formerly operated cement plant is located. Due to its age and condition and other economic factors, the registrant discontinued full-line production of cement at this plant in 1986 and began transferring clinker produced in Humboldt, Kansas to the Des Moines site for grinding into finished cement. During 1994, the registrant ceased the grinding operations and converted this facility into a cement terminal. The registrant is currently transferring finished cement produced in Humboldt, Kansas to this terminal for distribution to its Iowa customers. The registrant also owns, but is not currently operating, a rock quarry located near Earlham, Iowa, approximately 30 miles west of Des Moines, Iowa. The registrant owns various companies which sell ready-mixed concrete, concrete products and sundry building materials in metropolitan areas within the Humboldt cement production facility's primary market. In management's opinion, these ready-mix facilities and equipment are suitable and adequate for their current level of operations. Individual locations do not have a material affect on the registrant's overall operations. Item 3. Legal Proceedings. The registrant was not a party to any material legal proceedings during 1997. Item 4. Submission of Matters to a Vote of Security Holders. The registrant did not submit any matter to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1997. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on page 7 of the registrant's 1997 annual report to stockholders. Item 6. Selected Financial Data. Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on page 2 of the registrant's 1997 annual report to stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 2 through 4 of the registrant's 1997 annual report to stockholders. Item 8. Financial Statements and Supplementary Data. Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 8 through 19 of the registrant's 1997 annual report to stockholders. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None PART III Item 10. Directors and Executive Officers of the Registrant. Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 3 through 5 of the registrant's definitive proxy statement prepared in connection with its 1998 annual meeting of stockholders pursuant to Regulation 14A and previously filed with the Commission. Item 11. Executive Compensation. Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 7 through 10 (except for the information set forth under the heading "Board of Directors' Report on Executive Compensation" which is expressly excluded from such incorporation) of the registrant's definitive proxy statement prepared in connection with its 1998 annual meeting of stockholders pursuant to regulation 14A and previously filed with the Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management. Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 6 and 7 of the registrant's definitive proxy statement prepared in connection with its 1998 annual meeting of stockholders pursuant to Regulation 14A and previously filed with the Commission. Item 13. Certain Relationships and Related Transactions. Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on page 8 of the registrant's definitive proxy statement prepared in connection with its 1998 annual meeting of stockholders pursuant to Regulation 14A and previously filed with the Commission. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Financial Statements The report of Independent Public Accountants; the Consolidated Balance Sheets--December 31, 1997 and 1996; the Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995; the Consolidated Statements of Stockholders' Investment for the Years Ended December 31, 1997, 1996 and 1995; the Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995; and the Notes to Consolidated Financial Statements are incorporated by reference in Item 8 to this report from the registrant's 1997 annual report to stockholders on pages 8 through 19. Supporting Schedules Schedule II -- Valuation and Qualifying Accounts All other schedules have been omitted because the required information is shown in management's discussion and analysis of the financial statements or notes thereto, because the amounts involved are not significant or because the required subject matter is not present. Exhibits 3(i) Articles of Incorporation. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(i) and incorporated herein by reference.) 3(ii) By-laws. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(ii) and incorporated herein by reference.) 10 Severance Pay Plan for Salaried Employees.* (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1985 (File No. 0-2757) as Exhibit 10(f) and incorporated herein by reference.) 13 1997 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 21 and incorporated herein by reference.) 27 Financial Data Schedule. *Management contracts or compensatory plans or arrangements required to be identified by Item 14(a)(3). Form 8-K There were no Form 8-K reports required to be filed during the last quarter of 1997. S I G N A T U R E S Pursuant to the requirements of Section 13 or 15(d) 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) By: /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President Date: March 13, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Jack R. Callahan By: /s/ Byron K. Radcliff Jack R. Callahan Byron K. Radcliff Director Director Date: March 13, 1998 Date: March 13, 1998 By: /s/ Karl Callaway By: /s/ Walter H. Wulf, Jr. Karl Callaway Walter H. Wulf, Jr. Director President, Principal Executive Officer and Director Date: March 13, 1998 Date: March 13, 1998 By: /s/ Robert M. Kissick By: /s/ Lyndell G. Mosley Robert M. Kissick Lyndell G. Mosley, CPA Director Assistant Secretary-Treasurer (Principal Financial Officer) Date: March 13, 1998 Date: March 13, 1998 By: /s/ Richard N. Nixon By: /s/ Debra P. Roe Richard N. Nixon Debra P. Roe, CPA Director Principal Accounting Officer Date: March 13, 1998 Date: March 13, 1998 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in The Monarch Cement Company's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 13, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Kansas City, Missouri, February 13, 1998 THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Additions Balance at Charged to Deduction Balance Beginning Costs and from at End Description of Period Expenses Reserves of Period (1) For the Year Ended December 31, 1997: Reserve for doubtful accounts $616,000 $148,000 $287,000 $477,000 For the Year Ended December 31, 1996: Reserve for doubtful accounts $538,000 $278,000 $200,000 $616,000 For the Year Ended December 31, 1995: Reserve for doubtful accounts $429,000 $204,000 $ 95,000 $538,000 (1) Writeoff of uncollectible accounts, net of collections on accounts previously written off.
EXHIBIT INDEX Exhibit Number Description 3(i) Articles of Incorporation. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(i) and incorporated herein by reference.) 3(ii) By-laws. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(ii) and incorporated herein by reference.) 10 Severance Pay Plan for Salaried Employees. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1985 (File No. 0-2757) as Exhibit 10(f) and incorporated herein by reference.) 13 1997 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. (Filed with the registrant's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 21 and incorporated herein by reference.) 27 Financial Data Schedule. EX-13 2 THE MONARCH CEMENT COMPANY HUMBOLDT, KANSAS 1997 ANNUAL REPORT March 13, 1998 ANNUAL REPORT TO STOCKHOLDERS Consolidated net income for 1997 topped $10,000,000 for the second time in Monarch's history. Sales increased 6% during 1997 primarily as a result of a minor increase in sales prices. The Company performed significant major maintenance on its three cement kilns, as well as other major pieces of equipment during 1997. These maintenance costs, which were not completely offset by the increase in sales price, caused gross margin to decrease from 26% in 1996 to 23% in 1997. Additional modifications to two of the Company's cement kilns and expanded computerization of its cement manufacturing processes are scheduled during 1998. These capital expenditures, as well as other facility improvements and equipment purchases in both the cement and ready-mixed concrete segments, are designed to increase the efficiency of the overall organization. The market outlook for 1998 is once again favorable. Although some forecasts indicate a slight decrease in sales of cement to the private sector, these decreases are expected to be offset by sales to the public sector. As a result, the Company anticipates demand during the heaviest shipping months of 1998 will equal or exceed the supply of cement. We wish to acknowledge our Heavenly Father for the blessings bestowed on us in achieving the outstanding results as presented in this report. We credit our success to our employees who continue to expend the additional effort necessary to operate at full capacity over extended periods of time. We express our appreciation to our customers for their loyalty and patronage. We also wish to thank you, our stockholders, for your continued support and invite you to attend your corporation's annual meeting to be held at 2:00 p.m. on April 8, 1998 in the corporate office, Humboldt, Kansas. WALTER H. WULF WALTER H. WULF, JR. Chairman of the Board President, Vice Chairman of the Board THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1997 (Dollar amounts in thousands except per share data)
1997 1996 1995 1994 1993 Net sales . . . . . . . . . . $91,820 $86,733 $81,667 $73,646 $66,118 Net income before cumulative effect of accounting changes. . . . . $10,103 $10,546 $ 7,673 $ 3,998 $ 4,992 Net income per share before cumulative effect of accounting changes. . . . . $2.40 $2.50 $1.81 $.94 $1.18 Net income (loss) . . . . . . $10,103 $10,546 $ 7,673 $ 3,998 $ (88) Net income (loss) per share . $2.40 $2.50 $1.81 $.94 $(.02) Total assets. . . . . . . . . $76,233 $68,648 $59,783 $52,522 $49,863 Long-term obligations . . . . $ - $ - $ - $ - $ - Cash dividends declared per share . . . . . . . . . $.60 $.52 $.46 $.44 $.40 Stockholders' investment per share . . . . . . . . . $13.68 $11.73 $9.68 $8.11 $7.68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity At December 31, 1997, current assets of The Monarch Cement Company and Subsidiaries (the Company) exceeded current liabilities by $38,583,275 resulting in a current ratio of 7.04 to 1. The Company's cash needs in 1997 were satisfied by cash generated from operations and internal funds. The amount of cash and short term investments increased during 1997. The Company does not currently have an established line of credit with a bank; however, the Company believes its capital resources are adequate to meet its current capital expenditure requirements and liquidity needs. Capital Resources During 1997, the Company invested $6,494,536 in property, plant and equipment. The Company regularly has capital expenditures of $5,000,000 to $6,000,000 per year in keeping its equipment and facilities in good operating condition. The Company plans further improvements to two of its cement kilns, additional computerization of its cement manufacturing processes and miscellaneous equipment purchases and facility improvements in both the cement and ready-mixed concrete segments in 1998. It is expected that the Company's capital expenditures will approximate $10,000,000 during 1998 and that the funds for these projects will be provided from internal sources. At the regular meeting of the Board of Directors held on December 13, 1996, the Board authorized management from time to time to purchase shares of Monarch stock, up to a maximum amount of 400,000 shares. These purchases may be either Capital Stock or Class B Capital Stock and are to be acquired on such terms and at such times as management considers appropriate. Funds for these purchases would be provided from internal sources. Results of Operations General. For the last three 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. In the past, it has been necessary for the Company to purchase cement and clinker from third parties to supplement its supply and meet customer demand. By early 1995, however, the Company completed plant modifications that increased the production capacity of the Humboldt plant and improved its efficiency. The increased capacity allowed the Company to meet the needs of its customers without significant purchases of cement and clinker from third parties. These favorable market conditions and the Company's increased production capacity are the primary factors that have led to the Company's improved profitability. The increased profitability of the Company's cement segment has been offset somewhat by a decline in overall profitability of the Company's ready- mixed concrete operations during the last three years. This segment has been adversely affected by a slight decline in prices for ready-mixed concrete and by increasing costs, including the cost of cement. These factors vary from local market to local market and from year to year, and no one facotr or local market accounts for the decline in profitability during the three-year period. 1997 Compared to 1996. The Company's 1997 net sales increased approximately 6% as compared to 1996 due primarily to increased prices for cement. The 10% increase in cost of sales for 1997 as compared to 1996 is primarily due to a significant increase in maintenance costs at the cement plant in Humboldt. During the first quarter of 1997, the Company performed significant preventive maintenance on each of its three cement kilns, as well as other major pieces of equipment. Cost of sales also increased because of increased volume and costs in the ready-mixed concrete and sundry building materials segment, as mentioned above. As a result of these factors, the Company's gross profit from operations for the year 1997 declined to 23% of net sales as compared to 26% for 1996. The increase in "Other, net" during 1997 as compared to 1996 was due primarily to the sale of investment securities. 1996 Compared to 1995. Net sales of $86,732,555 for the year 1996 represents a 6% increase over 1995 net sales. This increase is primarily a result of an increase in the volume of cement sold (as discussed above) and a slight increase in the product prices. As mentioned above, during 1996, the Company generated cost savings by purchasing lesser amounts of clinker and cement from third parties, by improving production efficiency through plant improvements and by fully utilizing its expanded capacity. As a result, the Company experienced a 3% increase in 1996 cost of sales as compared to the 6% increase in net sales. Gross profit from operations for the year 1996 improved to 26% of net sales as compared to 24% for 1995. Year 2000. As has been widely publicized, there is widespread concern in the U.S. economy and elsewhere that computer systems using only two digits to identify years may create problems when the year 2000 arrives. The Company has assessed the key financial, informational and operational systems regarding this concern. Management believes that the Company will not encounter significant operational issues related to the year 2000 problem. Furthermore, the financial impact of making required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. Forward-Looking Statements. Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report and Form 10-K report filed with the Securities and Exchange Commission, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may affect the actual results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: general economic and business conditions; competition; raw material and other operating costs; costs of capital equipment; changes in business strategy or expansion plans; and demand for the Company's products. Inflation. Inflation directly affects the Company's operating costs. The manufacture of cement requires the use of a significant amount of energy. The price of energy, as well as the prices of the specialized replacement parts and equipment the Company must continually purchase, tend to increase directly with the rate of inflation causing manufacturing costs to increase. The manufacture of cement requires a significant investment in property, plant and equipment and a trained work force to operate and maintain this equipment. These costs do not materially vary with the level of production. As a result, by operating at or near capacity, regardless of demand, companies can reduce per unit production costs. The continual need to control production costs encourages overproduction during periods of reduced demand. DESCRIPTION OF THE BUSINESS The Monarch Cement Company (Monarch) was organized as a corporation under the laws of the State of Kansas in 1913 and has been principally engaged, throughout its history, in the manufacture and sale of portland cement. The manufacture of portland cement by Monarch involves the quarrying of clay and limestone and the crushing, drying and blending of these raw materials into the proper chemical ratio. The raw materials are then heated in kilns to 2800o Fahrenheit at which time chemical reactions occur forming a new compound called clinker. After the addition of a small amount of gypsum, the clinker is ground into a very fine powder which is known as portland cement. The term "portland cement" is not a brand name but is a term that distinguishes cement manufactured by this chemical process from natural cement, which is no longer widely used. Portland cement is the basic material used in the production of ready-mixed concrete which is used in highway, bridge and building construction where strength and durability are primary requirements. The Company is also in the ready-mixed concrete, concrete products and sundry building materials business. Ready-mixed concrete is manufactured by combining aggregates with portland cement, water and chemical admixtures in batch plants. It is then loaded into mixer trucks and mixed in transit to the construction site where it is placed by the contractor. The following table sets forth for the last three fiscal years the dollar amount of sales to unaffiliated customers, intersegment sales, operating profit and identifiable assets contributed by Industry Segment A (cement manufacturing) and Industry Segment B (ready-mixed concrete and sundry building materials):
1997 1996 1995 (In Thousands) Sales to Unaffiliated Customers- Industry: Segment A $39,539 $36,838 $33,081 Segment B 52,281 49,895 48,586 Intersegment Sales- Industry: Segment A 8,868 10,764 10,038 Segment B 263 236 231 Operating Profit- Industry: Segment A 12,943 13,665 9,870 Segment B 1,176 1,773 2,422 Identifiable Assets- Industry: Segment A 28,425 27,254 27,373 Segment B 16,400 15,656 14,196 All of the Company's operations and sales are in one geographic area.
LINES OF BUSINESS The Company is engaged in the manufacture and sale of the principal types of portland cement and ready-mixed concrete and sundry building materials. The portland cement products are sold under the "MONARCH" brand name. The marketing area for Monarch's products, which is limited by the relatively high cost of transporting cement, consists primarily of the State of Kansas, the State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and northern Oklahoma. Included within this area are the metropolitan markets of Des Moines, Iowa; Kansas City, Missouri; Springfield, Missouri; Wichita, Kansas; Omaha, Nebraska; Lincoln, Nebraska and Tulsa, Oklahoma. Sales are made primarily to contractors, ready-mixed concrete plants, concrete products plants, building materials dealers and governmental agencies. Companies controlled by Monarch sell ready-mixed concrete, concrete products and sundry building materials in metropolitan areas within Monarch's primary market. Monarch cement is delivered either in bulk or in paper bags. The cement is distributed both by truck and rail, either common or private carrier. The following table sets forth for the last three fiscal years of the Company the percentage of total sales contributed (1) by the manufacture and sale of portland cement and (2) by the sale of ready-mixed concrete and sundry building materials:
Total Sales December 31, 1997 1996 1995 Portland Cement . . . . . . . . . 43.1% 42.5% 40.5% Ready-Mixed Concrete and sundry building materials . . . 56.9% 57.5% 59.5% 100.0% 100.0% 100.0%
DIRECTORS AND OFFICERS
Present position Name with Company Principal occupation Walter H. Wulf Chairman of the Board Position with Company and Director Walter H. Wulf, Jr. President, Vice Position with Company Chairman of the Board and Director Robert M. Kissick Vice President Chairman, Hydraulic Power and Director Systems, Inc. (manufacturer of construction equipment) Karl Callaway Secretary Retired Farmer and Director Byron K. Radcliff Treasurer Manager, Radcliff Ranch and Director Jack R. Callahan Director Retired President, The Monarch Cement Company Ronald E. Callaway Director Transport truck driver, Agricultural Carriers, Inc. David L. Deffner Director Professor of Music, American River College, Director of Music, Davis Community Church Richard N. Nixon Director Shareholder in law firm of Stinson, Mag & Fizzell, P.C., Kansas City, Missouri Byron J. Radcliff Director Rancher Michael R. Wachter Director Civil Engineer and Project Manager, Concrete Technology Corp. (a precast/prestressed concrete producer) Lyndell G. Mosley Assistant Secretary- Position with Company Treasurer
STOCK MARKET AND DIVIDEND DATA On March 2, 1998, 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:
Quarter Stock Bid Quotation Dividends Ending Low High Declared 3-31-96 11.25 16.25 - 6-30-96 14.50 16.75 .12 9-30-96 14.62 15.62 .12 12-31-96 14.87 16.00 .28* 3-31-97 15.00 17.50 - 6-30-97 17.50 20.00 .14 9-30-97 19.75 22.00 .14 12-31-97 20.50 25.00 .32* *Reflects declaration of two $.14 and two $.16 dividends payable in the first quarter of 1997 and 1998, respectively.
SECURITIES AND EXCHANGE FORM 10-K Section 13 of the Securities and Exchange Act of 1934 requires the Company to file an Annual Report on Form 10-K with the Securities and Exchange Commission, presenting financial information concerning the operation of the business for its latest fiscal years in greater detail than contained herein. A COPY OF FORM 10-K WILL BE MAILED TO ANY STOCKHOLDER UPON RECEIPT OF WRITTEN REQUEST ADDRESSED TO LYNDELL G. MOSLEY, ASSISTANT SECRETARY-TREASURER, THE MONARCH CEMENT COMPANY, P.O. BOX 1000, HUMBOLDT, KANSAS 66748-1000. ARTHUR ANDERSEN LLP 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, 1997 and 1996, and the related consolidated statements of income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Monarch Cement Company and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Kansas City, Missouri, February 13, 1998 TABLE THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1997 AND 1996 ASSETS LIABILITIES AND STOCKHOLDERS' INVESTMENT 1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6 CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 4,093,317 $ 3,242,245 Accounts payable $ 3,518,686 $ 3,454,088 Short term investments, at cost Accrued liabilities- which approximates market 20,930,123 16,103,721 Federal and state income taxes 274,450 565,489 Receivables, less allowances of Dividends 1,349,029 1,181,880 $447,000 in 1997 and $616,000 in Compensation 704,425 693,349 1996 for doubtful accounts 7,972,699 8,560,237 Miscellaneous taxes 342,454 403,960 Inventories, priced at cost which Other 194,051 383,803 is not in excess of market- Total current liabilities $ 6,383,095 $ 6,682,569 Cost determined by last-in, first-out method- ACCRUED POSTRETIREMENT BENEFITS 9,838,905 9,813,569 Finished cement $ 1,168,177 $ 1,274,235 Work in process 316,370 174,807 ACCRUED PENSION EXPENSE 321,184 390,235 Building products 1,127,182 1,168,402 Cost determined by first-in, MINORITY INTEREST IN CONSOLIDATED first-out method- SUBSIDIARIES 2,004,424 2,181,297 Fuel, gypsum, paper sacks and other 1,318,911 1,481,926 CONTINGENT LIABILITIES Cost determined by average method- Operating and maintenance supplies 7,375,598 6,625,714 STOCKHOLDERS' INVESTMENT: Total inventories $11,306,238 $10,725,084 Capital Stock, par value $2.50 Refundable federal and state per share-Authorized 10,000,000 income taxes 221,072 310,733 shares, Issued 2,292,891 shares Deferred income taxes 415,000 450,000 at December 31, 1997 and 2,230,936 Prepaid expenses 27,921 25,442 shares at December 31, 1996 $ 5,732,227 $ 5,577,340 Total current assets $44,966,370 $39,417,462 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 1,922,823 shares at December 31, and depletion of $74,556,421 in 1997 1997 and 1,995,354 shares at and $71,678,195 in 1996 25,517,772 23,599,377 December 31, 1996 4,807,058 4,988,385 Retained Earnings 45,486,139 38,039,014 DEFERRED INCOME TAXES 1,810,000 2,350,000 $56,025,424 $48,604,739 Plus: Unrealized holding gain 1,660,000 976,000 OTHER ASSETS 3,938,890 3,281,570 Total stockholders' investment $57,685,424 $49,580,739 $76,233,032 $68,648,409 $76,233,032 $68,648,409 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, 1997, 1996 AND 1995
1 9 9 7 1 9 9 6 1 9 9 5 Net Sales $91,819,836 $86,732,555 $81,666,838 Cost of Sales 70,781,950 64,095,481 62,159,712 Gross profit from operations $21,037,886 $22,637,074 $19,507,126 Selling, General and Administrative Expenses 6,919,368 7,198,992 7,215,052 Income from operations $14,118,518 $15,438,082 $12,292,074 Other Income (Expense): Interest income $ 1,057,501 $ 792,065 $ 460,930 Other, net 727,446 295,511 (679,554) $ 1,784,947 $ 1,087,576 $ (218,624) Income before Provision for Income Taxes $15,903,465 $16,525,658 $12,073,450 Provision for Income Taxes 5,800,000 5,980,000 4,400,000 Net Income (Basic earnings per share-$2.40 in 1997, $2.50 in 1996 and $1.81 in 1995) $10,103,465 $10,545,658 $ 7,673,450 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, 1997, 1996 AND 1995
Unrealized Excess Stock- Capital Stock Class B Capital Stock Retained Treasury Stock Holding Pension holders' Shares Amount Shares Amount Earnings Shares Amount Gain Liability Investment Balance at 1-1-95 2,156,026 $5,390,065 2,083,264 $5,208,160 $24,081,613 - $ - $ 111,800 $(393,214) $34,398,424 Net income - - - - 7,673,450 - - - - 7,673,450 Cash dividends ($.46 per share) - - - - (1,948,513) - - - - (1,948,513) Transfer of shares 29,843 74,607 (29,843) (74,607) - - - - - - Unrealized holding gain - - - - - - - 507,200 - 507,200 Excess pension liability - - - - - - - - 393,214 393,214 Balance at 12-31-95 2,185,869 $5,464,672 2,053,421 $5,133,553 $29,806,550 - $ - $ 619,000 $ - $41,023,775 Net income - - - - 10,545,658 - - - - 10,545,658 Cash dividends ($.52 per share) - - - - (2,196,190) - - - - (2,196,190) Transfer of shares 58,067 145,168 (58,067) (145,168) - - - - - - Purchase of treasury stock - - - - - (13,000) (149,504) - - (149,504) Retirement of treasury stock (13,000) (32,500) - - (117,004) 13,000 149,504 - - - Unrealized holding gain - - - - - - - 357,000 - 357,000 Balance at 12-31-96 2,230,936 $5,577,340 1,995,354 $4,988,385 $38,039,014 - $ - $ 976,000 $ - $49,580,739 Net income - - - - 10,103,465 - - - - 10,103,465 Cash dividends ($.60 per share) - - - - (2,529,428) - - - - (2,529,428) Transfer of shares 72,531 181,327 (72,531) (181,327) - - - - - - Purchase of treasury stock - - - - - (10,576) (153,352) - - (153,352) Retirement of treasury stock (10,576) (26,440) - - (126,912) 10,576 153,352 - - - Unrealized holding gain - - - - - - - 684,000 - 684,000 Balance at 12-31-97 2,292,891 $5,732,227 1,922,823 $4,807,058 $45,486,139 - $ - $1,660,000 $ - $57,685,424 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, 1997, 1996 AND 1995
1 9 9 7 1 9 9 6 1 9 9 5 Operating Activities: Net income $10,103,465 $10,545,658 $ 7,673,450 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 4,991,992 4,702,070 4,241,360 Gain on disposal of assets (246,799) (263,133) (162,220) Realized gain on sale of other investments (840,820) (314,963) (110,089) Change in assets and liabilities, net of effects from purchase of subsidiaries: Receivables, net 587,538 (424,468) (978,667) Inventories (581,154) 153,103 (2,013,408) Refundable federal and state income taxes 89,661 (193,762) 956,887 Deferred income taxes, current 35,000 (30,000) (50,000) Prepaid expenses (2,479) 11,404 (7,075) Deferred income taxes, long-term 540,000 60,000 10,000 Long-term notes receivable 11,956 31,084 (42,290) Accounts payable, notes payable and accrued liabilities (466,623) (121,707) (148,797) Accrued postretirement expense 25,336 98,770 112,560 Accrued pension expense (69,051) (62,464) 402,255 Minority interest in earnings of subsidiaries 453,039 466,758 556,153 Net cash provided by operating activities $14,631,061 $ 14,658,350 $10,440,119 Investing Activities: Acquisition of property, plant and equipment $(6,494,536) $ (6,017,716) $(5,863,148) Net purchases of subsidiaries' stock (1,029,410) - 226,573 Proceeds from disposals of property, plant and equipment 419,956 507,647 264,835 Payment for purchases of equity investments - (160,762) (90,947) Proceeds from disposals of equity investments 1,366,291 877,379 721,428 Increase in other assets (517,091) (245,265) (513,073) (Increase) decrease in short term investments, net (4,826,402) (9,030,275) (1,714,695) Net cash used for investing activities $(11,081,192) $(14,068,992) $(6,969,027) Financing Activities: Subsidiaries' dividends paid to minority interest $ (173,746) $ (238,698) $ (98,118) Cash dividends (2,362,279) (2,030,179) (1,865,288) Subsidiaries' purchase of treasury stock (9,420) - (105,200) Purchase of treasury stock (153,352) (149,504) - Net cash used for financing activities $ (2,698,797) $(2,418,381) $(2,068,606) Net Increase (Decrease) in Cash and Cash Equivalents $ 851,072 $(1,829,023) $ 1,402,486 Cash and Cash Equivalents, beginning of year 3,242,245 5,071,268 3,668,782 Cash and Cash Equivalents, end of year $ 4,093,317 $ 3,242,245 $ 5,071,268 The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF ACCOUNTING POLICIES: (a) Description of Business--The Monarch Cement Company (Monarch) has been principally engaged, throughout its history, in the manufacture and sale of portland cement. The marketing area for Monarch's products consists primarily of the State of Kansas, the State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and northern Oklahoma. Sales are made primarily to contractors, ready-mixed concrete plants, concrete products plants, building materials dealers and governmental agencies. Companies controlled by Monarch sell ready-mixed concrete, concrete products and sundry building materials in metropolitan areas within Monarch's primary market. Monarch has direct control of certain operating companies which have been deemed to be subsidiaries within the meaning of the rules and regulations of the Securities and Exchange Commission. Accordingly, the financial statements of such companies have been consolidated with Monarch's financial statements. All significant intercompany transactions have been eliminated in consolidation. Minority interests in net income have been recorded as reductions in other income in the accompanying statements of income. The minority interests in net income were $453,039, $466,758 and $556,153 during 1997, 1996 and 1995, 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 $1,763,000, $1,472,000 and $1,396,000 higher than those reported at December 31, 1997, 1996 and 1995, 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 which significantly increase the assets' useful lives are capitalized while maintenance and repairs are charged to expense as incurred. (e) Net Income per Capital Share--Net income per share of capital stock has been calculated based on the weighted average shares outstanding during each of the three years. The weighted average number of shares outstanding was 4,215,859 in 1997, 4,226,397 in 1996 and 4,239,290 in 1995. (f) 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, 1997, 1996 and 1995 are as follows:
1997 1996 1995 Fair value of investments $3,485,000 $2,876,000 $2,680,200 Cost of investments 725,000 1,250,000 1,651,200 Fair value in excess of cost $2,760,000 $1,626,000 $1,029,000 Unrealized gain recorded in equity $1,660,000 $ 976,000 $ 619,000 Deferred income taxes 1,100,000 650,000 410,000 $2,760,000 $1,626,000 $1,029,000 Proceeds from sale of securities $1,366,291 $ 877,380 $ 721,428 Realized gains $ 840,820 $ 314,963 $ 110,089
(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:
1997 1996 1995 Interest paid $ 4,279 $ 13,392 $ 4,115 Income taxes paid $6,111,378 $6,833,624 $3,316,543
(h) Reclassifications--Minor reclassifications have been made to the 1996 and 1995 Statements of Cash Flows to conform with the 1997 classifications. (2) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment at December 31, 1997 and 1996 consisted of:
Depreciation Lives (Years) 1997 1996 Quarry lands $ 710,188 $ 710,188 Mill site and buildings 12 - 50 12,059,599 11,448,381 Machinery and equipment 5 - 25 65,626,862 63,239,341 Transportation equipment 3 - 12 18,289,567 17,046,844 Office furniture and fixtures 5 - 20 922,607 867,811 Office and other buildings 10 - 30 1,869,848 1,644,162 Construction in process 595,522 320,845 $100,074,193 $95,277,572 Less--Accumulated depreciation and depletion 74,556,421 71,678,195 $ 25,517,772 $23,599,377
(3) INCOME TAXES: 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:
1997 1996 1995 Provision for (benefit from) federal taxes at statutory rates- Currently payable $5,551,000 $5,854,000 $4,405,000 Deferred (85,000) (170,000) (300,000) State income taxes, net of federal tax benefit 724,000 718,000 550,000 Percentage depletion (568,000) (602,000) (487,000) Minority interest in consolidated income 181,000 187,000 222,000 Other, net (3,000) (7,000) 10,000 $5,800,000 $5,980,000 $4,400,000
The tax effect of significant temporary differences representing deferred tax assets and (liabilities) are as follows:
1997 1996 Current: Reserve for bad debts $ 190,000 $ 245,000 Vacation 225,000 205,000 Net current deferred tax assets $ 415,000 $ 450,000 Noncurrent: Depreciation $(1,004,000) $ (953,000) Postretirement benefits 3,935,000 3,925,000 Pension (35,000) 19,000 Unrealized holding gains (1,100,000) (650,000) Other, net 14,000 9,000 Net long-term deferred tax assets $ 1,810,000 $ 2,350,000
(4) 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. The following table sets forth the plans' combined funded status reconciled with the amount shown in the Company's balance sheets as of December 31, 1997 and 1996:
1997 1996 Accumulated postretirement benefit obligation: Retirees $ 7,974,000 $ 7,837,000 Other fully-eligible participants 438,000 447,000 Other active participants 3,011,000 2,474,000 Total benefit obligation $11,423,000 $10,758,000 Unrecognized net loss from differences between past experience and that assumed (1,584,000) (944,000) Accrued postretirement liability $ 9,839,000 $ 9,814,000 Net periodic postretirement benefit cost included the following components: Service cost $ 144,000 $ 133,000 Interest cost 786,000 766,000 Net periodic postretirement benefit cost $ 930,000 $ 899,000
The assumed annual rate of increase in the per capita cost of covered health care benefits was 6%, 7% and 8% for 1997, 1996 and 1995, respectively. This rate is assumed to decrease 1% per year to an ultimate rate of 4%. Increasing the assumed health care cost trend rates by one percentage point each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $1,087,000 and would result in an increase in net periodic postretirement benefit cost of $103,000. A weighted average discount rate of 7% and 7.5% at December 31, 1997 and 1996, respectively, was used to determine the accumulated postretirement benefit obligation. (5) 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 following tables set forth the plans' funded status and amounts recognized in the Company's balance sheets at December 31, 1997, 1996 and 1995:
Humboldt Des Moines FOR THE YEAR ENDED DECEMBER 31, 1997: Staff Production Production Actuarial present value of benefit obligation: Vested benefit obligation $ 10,966,810 $ 7,165,451 $ 2,931,473 Nonvested benefit obligation 263,504 263,113 17,685 Accumulated benefit obligation $ 11,230,314 $ 7,428,564 $ 2,949,158 Projected benefit obligation $(12,166,615) $(7,428,564) $(2,949,158) Plan assets at fair value, primarily listed stocks and U.S. government obligations 13,543,421 8,749,140 3,295,130 Plan assets in excess of projected benefit obligation $ 1,376,806 $ 1,320,576 $ 345,972 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (1,676,177) (1,391,123) (492,406) Prior service cost 67,244 492,695 - Unrecognized net obligation (asset) at December 31, 1997 due to initial application of FAS Statement No. 87 53,749 (13,442) 3,628 (Accrued) prepaid pension expense $ (178,378) $ 408,706 $ (142,806) Net pension cost (income) for 1997 included the following components: Service cost-benefits earned during the period $ 181,552 $ 91,800 $ 10,018 Interest cost on projected benefit obligation 835,217 513,874 207,134 Actual return on plan assets (2,138,110) (1,398,880) (533,505) Net amortization and deferral 1,099,231 728,116 269,412 Net pension income $ (22,110) $ (65,090) $ (46,941) Humboldt Des Moines FOR THE YEAR ENDED DECEMBER 31, 1996: Staff Production Production Actuarial present value of benefit obligation: Vested benefit obligation $ 10,219,295 $ 6,642,953 $ 2,804,797 Nonvested benefit obligation 200,965 182,824 14,925 Accumulated benefit obligation $ 10,420,260 $ 6,825,777 $ 2,819,722 Projected benefit obligation $(11,210,567) $(6,825,777) $(2,819,722) Plan assets at fair value, primarily listed stocks and U.S. government obligations 12,122,237 7,950,431 3,036,743 Plan assets in excess of projected benefit obligation $ 911,670 $ 1,124,654 $ 217,021 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (1,253,122) (1,131,621) (411,303) Prior service cost 73,777 368,507 - Unrecognized net obligation (asset) at December 31, 1996 due to initial application of FAS Statement No. 87 67,187 (17,924) 4,535 (Accrued) prepaid pension expense $ (200,488) $ 343,616 $ (189,747) Net pension cost (income) for 1996 included the following components: Service cost-benefits earned during the period $ 159,101 $ 81,993 $ 12,135 Interest cost on projected benefit obligation 811,393 497,588 206,023 Actual return on plan assets (1,309,979) (861,379) (329,657) Net amortization and deferral 319,322 208,549 69,198 Net pension income $ (20,163) $ (73,249) $ (42,301) FOR THE YEAR ENDED DECEMBER 31, 1995: Actuarial present value of benefit obligation: Vested benefit obligation $ 10,025,749 $ 6,785,340 $ 2,821,089 Nonvested benefit obligation 137,186 196,304 20,978 Accumulated benefit obligation $ 10,162,935 $ 6,981,644 $ 2,842,067 Projected benefit obligation $(10,882,232) $(6,981,644) $(2,842,067) Plan assets at fair value, primarily listed stocks and U.S. government obligations 11,580,708 7,697,191 2,972,667 Plan assets in excess of projected benefit obligation $ 698,476 $ 715,547 $ 130,600 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (999,752) (819,628) (368,090) Prior service cost - 396,854 - Unrecognized net obligation (asset) at December 31, 1995 due to initial application of FAS Statement No. 87 80,625 (22,406) 5,442 (Accrued) prepaid pension expense $ (220,651) $ 270,367 $ (232,048) Net pension cost (income) for 1995 included the following components: Service cost-benefits earned during the period $ 129,060 $ 73,788 $ 15,613 Interest cost on projected benefit obligation 795,516 517,675 211,160 Actual return on plan assets (2,441,742) (1,636,137) (633,241) Net amortization and deferral 1,600,739 1,087,222 412,235 Net pension expense $ 83,573 $ 42,548 $ 5,767
In determining the actuarial present value of the projected benefit obligation, the assumed discount rate was 7.0%, 8.0% and 7.5% at the end of 1997, 1996 and 1995, respectively. The assumed rate of increase in future compensation levels was 4.5% in 1997, 1996 and 1995. The expected long-term rate of return on assets was 9% for 1997, 1996 and 1995. (6) CONTINGENT LIABILITIES: According to various agreements with certain minority stockholders, under specified circumstances, the Company is obligated to acquire such shares, if requested to do so, at a value which approximates the minority interest on the Balance Sheet. Various claims and legal actions are pending against the Company. In management's opinion, the resolution of these matters will not materially impact the Company's financial condition or results of operations. (7) 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. (8) SEGMENTS OF BUSINESS:
Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 1997: facturing Materials Eliminations Consolidated Sales to unaffiliated customers $39,538,659 $52,281,177 $ - $91,819,836 Intersegment sales 8,867,866 263,503 (9,131,369) - Total net sales $48,406,525 $52,544,680 $ (9,131,369) $91,819,836 Income from operations $12,942,513 $ 1,176,005 $14,118,518 Other income, net 1,784,947 Income before income taxes $15,903,465 Identifiable assets at December 31, 1997 $28,424,449 $16,400,181 $44,824,630 Corporate assets 31,408,402 Total assets at December 31, 1997 $76,233,032 FOR THE YEAR ENDED DECEMBER 31, 1996: Sales to unaffiliated customers $36,838,233 $49,894,323 $ - $86,732,555 Intersegment sales 10,764,176 235,795 (10,999,971) - Total net sales $47,602,409 $50,130,118 $(10,999,971) $86,732,555 Income from operations $13,665,251 $ 1,772,831 $15,438,082 Other income, net 1,087,576 Income before income taxes $16,525,658 Identifiable assets at December 31, 1996 $27,253,943 $15,656,197 $42,910,140 Corporate assets 25,738,269 Total assets at December 31, 1996 $68,648,409 Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 1995: facturing Materials Eliminations Consolidated Sales to unaffiliated customers $33,080,508 $48,586,330 $ - $81,666,838 Intersegment sales 10,037,591 231,041 (10,268,632) - Total net sales $43,118,099 $48,817,371 $(10,268,632) $81,666,838 Income from operations $ 9,870,468 $ 2,421,606 $12,292,074 Other income, net (218,624) Income before income taxes $12,073,450 Identifiable assets at December 31, 1995 $27,372,332 $14,196,280 $41,568,612 Corporate assets 18,214,163 Total assets at December 31, 1995 $59,782,775
The Company operates principally in two industries, the manufacture of portland cement and the sale of ready-mixed concrete and sundry building materials. Total sales by industry before adjustments and eliminations includes both sales to unaffiliated customers, as reported in the Company's consolidated statements of income and stockholders' investment, and intersegment sales which are accounted for by the same method as all other sales. Sales by industry are made primarily to ready-mixed concrete plants and contractors for use in highways, airports, dams, housing, commercial buildings and other construction. Receivables are generally collected within thirty to sixty days of the sale, but are occasionally delayed until completion of the project. The Company's bad debt write-offs are generally less than .5% of net sales. Income from operations is total net sales less operating expenses. In computing income from operations, none of the following items have been added or deducted: general corporate income and expenses, interest expense and income taxes. Also, no amounts have been excluded for corporate administrative expense because the amounts which cannot be identified by industry are not significant. Depreciation for cement manufacturing and ready-mixed concrete, respectively, was $2,666,994 and $2,318,654 in 1997; $2,570,085 and $2,121,550 in 1996 and $2,081,196 and $2,149,729 in 1995. Capital expenditures for cement manufacturing and ready-mixed concrete, respectively, including capital assets of businesses acquired were $3,245,853 and $3,248,683 in 1997; $2,448,248 and $3,569,468 in 1996 and $3,754,435 and $2,108,713 in 1995. Identifiable assets by industry are those assets that are used in the Company's operations in each industry. During 1997, 1996 and 1995, there were no sales to any one customer in excess of 10% of consolidated net sales. (9) EARNINGS PER SHARE: In February, 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, (SFAS 128) "Earnings Per Share", effective for periods ending after December 15, 1997, requiring presentation of basic and diluted earnings per share. SFAS 128 supersedes Accounting Principles Board Opinion (APB) No. 15 and related pronouncements and replaces the computations of primary and fully diluted earnings per share (EPS) with basic and diluted EPS respectively. Basic earnings per share is based upon the weighted average common shares outstanding during each year. Dilutive earnings per share is based upon the weighted average common and common equivalent shares outstanding during each year. Monarch has no common stock equivalents. There is no effect of this accounting change on previously reported earnings per share. EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 DEC-31-1997 4,093,317 20,930,123 8,419,699 447,000 11,306,238 44,966,370 100,074,193 74,556,421 76,233,032 6,383,095 0 0 0 10,539,285 47,146,139 76,233,032 91,819,836 91,819,836 70,781,950 70,781,950 0 0 0 15,903,465 5,800,000 10,103,465 0 0 0 10,103,465 2.40 2.40
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