-----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, ERV8hlUja01/Sy3r7nWa8CCO7WgqNAjO+vdPxYnPtdrJSQ1Y+58IiqJC1znutpQ9 G0cQghQWwLgN71EbNVvbvw== 0000067517-99-000004.txt : 19990323 0000067517-99-000004.hdr.sgml : 19990323 ACCESSION NUMBER: 0000067517-99-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 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: 99569509 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, 1998 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, 1999, was $63,549,580. As of February 26, 1999, the registrant had outstanding 2,281,224 shares of Capital Stock, par value $2.50 per share, and 1,886,672 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, 1998 - 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 14, 1999 - Part III of Form 10-K. PART I Item 1. Business Reference is hereby made to pages 4 and 5 of registrant's 1998 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 1998. 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 35 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, 1998 the registrant had inventories as follows: Cement . . . . . . . . . . . . . . . $ 1,634,302 Work in process. . . . . . . . . . . 1,703,942 Fuel, gypsum and other materials . . 3,083,798 Operating and maintenance supplies . 7,082,948 Total. . . . . . . . . . . $13,504,990
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 1998, 1997 or 1996. 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, 1998, the Company and its subsidiaries employed approximately 465 hourly (production) employees and 115 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 3,000 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 35 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 725,000 tons of cement. The registrant also owns approximately 250 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. Approximately 300 acres of this 400 acre tract was previously quarried. 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 1998. 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 1998. 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 5 of the registrant's 1998 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 1 of the registrant's 1998 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 1 through 3 of the registrant's 1998 annual report to stockholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The registrant is exposed to various market risks, including equity investment prices. The registrant has $4,890,000 of equity securities as of December 31, 1998. These investments are not hedged and are exposed to the risk of changing market prices. The Company classifies these securities as "available-for-sale" for accounting purposes and marks them to market on the balance sheet at the end of each period. Management estimates that its investments will generally be consistent with trends and movements of the overall stock market excluding any unusual situations. An immediate 10% change in the market price of our equity securities would have a $300,000 effect on comprehensive income. 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 7 through 17 of the registrant's 1998 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 1999 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 1999 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 1999 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 1999 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, 1998 and 1997; the Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996; the Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996; the Consolidated Statements of Stockholders' Investment for the Years Ended December 31, 1998, 1997 and 1996; the Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996; and the Notes to Consolidated Financial Statements are incorporated by reference in Item 8 to this report from the registrant's 1998 annual report to stockholders on pages 7 through 17. 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.) 13 1998 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. Form 8-K There were no Form 8-K reports required to be filed during the last quarter of 1998. 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 12, 1999 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 12, 1999 Date: March 12, 1999 By: /s/ Robert M. Kissick By: /s/ Walter H. Wulf, Jr. Robert M. Kissick Walter H. Wulf, Jr. Director President, Principal Executive Officer and Director Date: March 12, 1999 Date: March 12, 1999 By: /s/ Richard N. Nixon By: /s/ Lyndell G. Mosley Richard N. Nixon Lyndell G. Mosley, CPA Director Assistant Secretary-Treasurer Chief Financial Officer Date: March 12, 1999 Date: March 12, 1999 By: /s/ Byron J. Radcliff By: /s/ Debra P. Roe Byron J. Radcliff Debra P. Roe, CPA Director Principal Accounting Officer Date: March 12, 1999 Date: March 12, 1999 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 12, 1999. 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 12, 1999 THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998
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, 1998: Reserve for doubtful accounts $477,000 $ 82,000 $147,000 $412,000 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 (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.) 13 1998 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 1998 ANNUAL REPORT March 12, 1999 ANNUAL REPORT TO STOCKHOLDERS Consolidated net sales for 1998 exceeded $99 million, an 8% increase over 1997 net sales. In order to achieve this record level of sales, the Company supplemented its production by purchasing clinker from foreign markets. Higher costs associated with cement produced from purchased clinker increased the Company's cost of sales by 11% and reduced its gross profit margin to 21% of net sales for the year 1998 as compared to 23% for 1997. Passage of the Federal Transportation Equity Act for the 21st Century (TEA-21) creates an opportunity for the Company to further increase sales. This Act establishes a program which, for the first time, guarantees a minimum funding level for highway programs of $167 billion over the next six years. This is a 40% increase over funding levels of the previous transportation bill (ISTEA) passed in 1991. With the potential for increased demand for cement, production capacity becomes an important factor in determining sales volume. In order to increase capacity, it is necessary to invest substantial sums to modernize and improve the efficiency of the specialized machinery and equipment used in the manufacture of cement. Monarch has basically been in a sold-out position for the last five years. In 1994, Monarch began supplementing its production through the purchase of clinker and cement. At the same time, the Company implemented plans to increase production capacity primarily by modifying current equipment to take advantage of new technology. Advanced computerization also allowed the Company to scientifically monitor its production processes thereby increasing efficiency and output. As these improvements came on line, the Company was able to produce enough to satisfy its customers' needs. During 1998, demand increased to the point where the Company once again purchased clinker to supplement production, thus prompting management to further evaluate ways to increase capacity. Additional modernization completed on two of Monarch's cement kilns in 1998 increased annual rated capacity to 725,000 tons. In order to meet the anticipated increase in demand due to the passage of TEA-21, the Company plans to further increase plant capacity through equipment purchases and the addition of precalciners to each of its preheater kilns. It is anticipated that the first of these precalciners will be operational in the year 2001 and the second one by the end of the year 2002. When completed, production capacity will approach one million tons per year. Monarch plans to finance these investments from internally generated funds. We wish to acknowledge our Heavenly Father for the Company's strong balance sheet and financial position which enables us to make these capital investments to meet the future challenges of the industry. We express our appreciation to our employees for their hard work and determination and to our customers for their loyalty. 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 14, 1999 in the corporate office, Humboldt, Kansas. WALTER H. WULF WALTER H. WULF, JR. Chairman of the Board President and Vice Chairman of the Board THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1998 (Dollar amounts in thousands except per share data)
1998 1997 1996 1995 1994 Net sales . . . . . . . . . . $99,495 $91,820 $86,733 $81,667 $73,646 Net income. . . . . . . . . . $ 9,653 $10,103 $10,546 $ 7,673 $ 3,998 Net income per share. . . . . $2.30 $2.40 $2.50 $1.81 $.94 Total assets. . . . . . . . . $84,882 $76,233 $68,648 $59,783 $52,522 Long-term obligations . . . . $ - $ - $ - $ - $ - Cash dividends declared per share . . . . . . . . . $.68 $.60 $.52 $.46 $.44 Stockholders' investment per share . . . . . . . . . $15.35 $13.68 $11.73 $9.68 $8.11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity At December 31, 1998, current assets of The Monarch Cement Company and Subsidiaries (the Company) exceeded current liabilities by $39,909,458 resulting in a current ratio of 5.59 to 1. The Company's cash needs in 1998 were satisfied by cash generated from operations and internal funds. The amount of cash and short term investments decreased during 1998. 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 1998, the Company invested $9,519,155 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. Due to recent and projected market demands, the Company has been aggressively updating its equipment to improve efficiency and increase capacity. As a result, the Company's 1998 expenditures exceeded the amount normally spent on capital expenditures. 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 1999. It is expected that the Company's capital expenditures will approximate $10,000,000 during 1999 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. During 1997 and 1998, the Company purchased 48,894 shares of Monarch stock. 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. Plant modifications completed in recent years increased the production capacity of the Humboldt plant and improved its efficiency. These favorable market conditions and the Company's increased production capacity are the primary factors that have led to the Company's improved profitability over that experienced in 1995 and 1994. The Company's ready-mixed concrete operations experienced an increase in profitability during 1998 primarily as a result of an improvement in ready- mixed concrete prices. During 1997 and 1996, the segment was adversely affected by a slight decline in prices for ready-mixed concrete and by increasing costs of labor and supplies. These factors vary from local market to local market and from year to year, and no one factor or local market accounts for the change in profitability during the three-year period. 1998 Compared to 1997--The Company's 1998 net sales increased approximately 8% primarily as a result of an increase in the volume of cement sold and a slight increase in the product prices. The Company's cost of sales increased 11% for 1998 as compared to 1997. Modernization of one of the cement kilns and major maintenance on related equipment reduced the Company's clinker production during the second quarter of 1998. To help offset the reduction in clinker produced and to meet the anticipated demand for cement, the Company purchased additional clinker from foreign markets. Higher costs associated with cement produced from purchased clinker increased the Company's cost of sales and reduced its gross profit margin to 21% for 1998 as compared to 23% for 1997. Although purchased clinker reduced the Company's gross profit margin, such purchases enabled the Company to meet the service demands of its customer base in both the cement and ready-mixed concrete markets. The decrease in "Other, net" during 1998 as compared to 1997 was due primarily to the sale of investment securities in 1997. 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. Year 2000--As has been widely publicized, there is widespread concern in the U.S. economy and elsewhere that computer systems and applications, including those imbedded in equipment and facilities, that use only two digits to identify years may create problems when the year 2000 arrives. Any of the Company's computer systems or plant equipment systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation, causing a disruption of operations. The Company has completed its assessment of Year 2000 issues relative to information technology (IT) and non-IT computer hardware, software, and operating systems. The Company 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 Company'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 Company's business, operations or financial condition. This assessment was based upon the fact that 93% of the Company's computer hardware is Year 2000 compliant, 86% of its operating systems are compliant and 86% of its computer software is compliant. Through a combination of equipment replacement and periodic software updates required through maintenance agreements, the Company expects to have all significant systems in compliance by the year 2000. Replacements of non- compliant hardware systems with new systems will be capitalized and amortized over the life of the new systems. The cost of annual software maintenance agreements, which include Year 2000 compliant upgrades, will be expensed as incurred. The Company's primary accounting and management information systems were Year 2000 compliant at the end of 1998. The Company does not anticipate any material disruptions in its operations as a result of any failure by the Company to be in compliance. The Company is dependent upon numerous third parties including customers, power generators, financial institutions and other significant suppliers. The Company has no control over these third parties systems and potential Year 2000 IT and non-IT system problems. The Company intends to inquire of third parties and seek guidance as to their state of readiness. However, there can be no assurance that the Company 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 Company's business, operations or financial condition. The Company is not aware of any material risks associated with these other entities. 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):
1998 1997 1996 (In Thousands) Sales to Unaffiliated Customers- Industry: Segment A $43,726 $39,539 $36,838 Segment B 55,769 52,281 49,895 Intersegment Sales- Industry: Segment A 8,191 8,868 10,764 Segment B 408 263 236 Operating Profit- Industry: Segment A 12,019 12,943 13,665 Segment B 2,401 1,176 1,773 Identifiable Assets- Industry: Segment A 33,621 28,425 27,254 Segment B 20,064 16,400 15,656 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, 1998 1997 1996 Portland Cement . . . . . . . . . 43.9% 43.1% 42.5% Ready-Mixed Concrete and Sundry Building Materials . . . 56.1% 56.9% 57.5% 100.0% 100.0% 100.0%
STOCK MARKET AND DIVIDEND DATA On March 1, 1999, 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:
1998 1997 Price Dividends Price Dividends Quarter Low High Declared Low High Declared First $20.75 $27.00 $ - $15.00 $17.50 $ - Second $25.25 $29.00 $.16 $17.50 $20.00 $.14 Third $23.00 $29.00 $.16 $19.75 $22.00 $.14 Fourth $21.00 $25.25 $.36* $20.50 $25.00 $.32* *Reflects declaration of two $.18 and $.16 dividends payable in the first quarter of 1999 and 1998, respectively.
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, 1998 and 1997, and the related consolidated statements of income, comprehensive income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Kansas City, Missouri, February 12, 1999 TABLE THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS 1 9 9 8 1 9 9 7 CURRENT ASSETS: Cash and cash equivalents $ 4,254,795 $ 4,093,317 Short term investments, at cost which approximates market 19,622,255 20,930,123 Receivables, less allowances of $412,000 in 1998 and $447,000 in 1997 for doubtful accounts 10,762,210 7,972,699 Inventories, priced at cost which is not in excess of market- Cost determined by last-in, first-out method- Finished cement $ 1,634,302 $ 1,168,177 Work in process 1,703,942 316,370 Building products 1,184,358 1,127,182 Cost determined by first-in, first-out method- Fuel, gypsum, paper sacks and other 1,899,440 1,318,911 Cost determined by average method- Operating and maintenance supplies 7,082,948 7,375,598 Total inventories $13,504,990 $11,306,238 Refundable federal and state income taxes 14,051 221,072 Deferred income taxes 410,000 415,000 Prepaid expenses 45,284 27,921 Total current assets $48,613,585 $44,966,370 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $79,239,388 in 1998 and $74,556,421 in 1997 29,372,287 25,517,772 DEFERRED INCOME TAXES 1,390,000 1,810,000 OTHER ASSETS 5,506,149 3,938,890 $84,882,021 $76,233,032 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 4,640,205 $ 3,518,686 Accrued liabilities- Federal and state income taxes 951,809 274,450 Dividends 1,503,984 1,349,029 Compensation 824,709 704,425 Miscellaneous taxes 418,609 342,454 Other 364,811 194,051 Total current liabilities $ 8,704,127 $ 6,383,095 ACCRUED POSTRETIREMENT BENEFITS 9,620,253 9,838,905 ACCRUED PENSION EXPENSE 50,276 321,184 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 2,371,601 2,004,424 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT: Capital Stock, par value $2.50 per share- Authorized 10,000,000 shares, Issued 2,290,049 shares at December 31, 1998 and 2,292,891 shares at December 31, 1997 $ 5,725,123 $ 5,732,227 Class B Capital Stock, par value $2.50 per share-Authorized 10,000,000 shares, Issued 1,887,347 shares at December 31, 1998 and 1,922,823 shares at December 31, 1997 4,718,367 4,807,058 Retained Earnings 51,492,274 45,486,139 $61,935,764 $56,025,424 Plus: Unrealized holding gain 2,200,000 1,660,000 Total stockholders' investment $64,135,764 $57,685,424 $84,882,021 $76,233,032 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, 1998, 1997 AND 1996
1 9 9 8 1 9 9 7 1 9 9 6 NET SALES $99,494,758 $91,819,836 $86,732,555 COST OF SALES 78,349,584 70,781,950 64,095,481 Gross profit from operations $21,145,174 $21,037,886 $22,637,074 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,725,013 6,919,368 7,198,992 Income from operations $14,420,161 $14,118,518 $15,438,082 OTHER INCOME (EXPENSE): Interest income $ 1,222,052 $ 1,057,501 $ 792,065 Other, net (389,405) 727,446 295,511 $ 832,647 $ 1,784,947 $ 1,087,576 INCOME BEFORE PROVISION FOR INCOME TAXES $15,252,808 $15,903,465 $16,525,658 PR0VISION FOR INCOME TAXES 5,600,000 5,800,000 5,980,000 NET INCOME $ 9,652,808 $10,103,465 $10,545,658 Basic earnings per share $2.30 $2.40 $2.50 The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1 9 9 8 1 9 9 7 1 9 9 6 NET INCOME $ 9,652,808 $10,103,465 $10,545,658 UNREALIZED APPRECIATION ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax expense of $350,000, $450,000 and $240,000 for 1998, 1997 and 1996, respectively) 540,000 684,000 357,000 COMPREHENSIVE INCOME $10,192,808 $10,787,465 $10,902,658 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, 1998, 1997 AND 1996
Class B Unrealized Stock- Capital Capital Retained Treasury Holding holders' Stock Stock Earnings Stock Gain Investment Balance at 1-1-96 $5,464,672 $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 145,168 (145,168) - - - - Purchase of treasury stock - - - (149,504) - (149,504) Retirement of treasury stock (32,500) - (117,004) 149,504 - - Unrealized holding gain - - - - 357,000 357,000 Balance at 12-31-96 $5,577,340 $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 181,327 (181,327) - - - - Purchase of treasury stock - - - (153,352) - (153,352) Retirement of treasury stock (26,440) - (126,912) 153,352 - - Unrealized holding gain - - - - 684,000 684,000 Balance at 12-31-97 $5,732,227 $4,807,058 $45,486,139 $ - $1,660,000 $57,685,424 Net income - - 9,652,808 - - 9,652,808 Cash dividends ($.68 per share) - - (2,849,221) - - (2,849,221) Transfer of shares 88,691 (88,691) - - - - Purchase of treasury stock - - - (893,247) - (893,247) Retirement of treasury stock (95,795) - (797,452) 893,247 - - Unrealized holding gain - - - - 540,000 540,000 Balance at 12-31-98 $5,725,123 $4,718,367 $51,492,274 $ - $2,200,000 $64,135,764 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, 1998, 1997 AND 1996
1 9 9 8 1 9 9 7 1 9 9 6 OPERATING ACTIVITIES: Net income $ 9,652,808 $ 10,103,465 $ 10,545,658 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 5,564,672 4,991,992 4,702,070 Gain on disposal of assets (119,398) (246,799) (263,133) Realized gain on sale of other investments - (840,820) (314,963) Change in assets and liabilities: Receivables, net (2,789,511) 587,538 (424,468) Inventories (2,198,752) (581,154) 153,103 Refundable federal and state income taxes 207,021 89,661 (193,762) Deferred income taxes, current 5,000 35,000 (30,000) Prepaid expenses (17,363) (2,479) 11,404 Deferred income taxes, long-term 420,000 540,000 60,000 Long-term notes receivable (750) 11,956 31,084 Accounts payable, notes payable and accrued liabilities 2,166,077 (466,623) (121,707) Accrued postretirement expense (218,652) 25,336 98,770 Accrued pension expense (270,908) (69,051) (62,464) Minority interest in earnings of subsidiaries 558,627 453,039 466,758 Net cash provided by operating activities $ 12,958,871 $ 14,631,061 $ 14,658,350 INVESTING ACTIVITIES: Acquisition of property, plant and equipment $ (9,519,155) $ (6,494,536) $ (6,017,716) Net purchases of subsidiaries' stock - (1,029,410) - Proceeds from disposals of property, plant and equipment 219,366 419,956 507,647 Payment for purchases of equity investments (517 939) - (160,762) Proceeds from disposals of equity investments - 1,366,291 877,379 Increase in other assets (508,570) (517,091) (245,265) (Increase) decrease in short term investments, net 1,307,868 (4,826,402) (9,030,275) Net cash used for investing activities $ (9,018,430) $(11,081,192) $(14,068,992) FINANCING ACTIVITIES: Subsidiaries' dividends paid to minority interest $ (191,450) $ (173,746) $ (238,698) Cash dividends (2,694,266) (2,362,279) (2,030,179) Subsidiaries' purchase of treasury stock - (9,420) - Purchase of treasury stock (893,247) (153,352) (149,504) Net cash used for financing activities $ (3,778,963) $ (2,698,797) $ (2,418,381) Net Increase (Decrease) in Cash and Cash Equivalents $ 161,478 $ 851,072 $ (1,829,023) Cash and Cash Equivalents, beginning of year 4,093,317 3,242,245 5,071,268 Cash and Cash Equivalents, end of year $ 4,254,795 $ 4,093,317 $ 3,242,245 The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 (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 $558,627, $453,039 and $466,758 during 1998, 1997 and 1996, 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 $2,061,000, $1,763,000 and $1,472,000 higher than those reported at December 31, 1998, 1997 and 1996, 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) Earnings per Share--The Company reports basic earnings per share in accordance with Statement of Financial Accounting Standard No. 128, (SFAS 128) "Earnings Per Share". Basic earnings per share is based on the weighted average common shares outstanding during each year. Dilutive earnings per share is based on the weighted average common and common equivalent shares outstanding each year. Monarch has no common stock equivalents and therefore, does not report dilutive earnings per share. The weighted average number of shares outstanding was 4,198,333 in 1998, 4,215,859 in 1997 and 4,226,397 in 1996. (f) Comprehensive Income--In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS 130), effective for periods ending after December 15, 1998. SFAS 130 establishes new rules for the reporting of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' investment. Prior years' financial statements have been restated to conform to these requirements. The only component of other comprehensive income is unrealized gain on securities, net of deferred income tax. These securities are classified as available-for-sale. (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:
1998 1997 1996 Interest paid $ 1,517 $ 4,279 $ 13,392 Income taxes paid $4,624,633 $6,111,378 $6,833,624
(2) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1998 and 1997 consisted of:
Depreciation Lives (Years) 1998 1997 Quarry lands $ 710,188 $ 710,188 Mill site and buildings 12 - 50 13,719,463 12,059,599 Machinery and equipment 5 - 25 69,929,906 65,626,862 Transportation equipment 3 - 12 20,167,701 18,289,567 Office furniture and fixtures 5 - 20 877,443 922,607 Office and other buildings 10 - 30 2,218,438 1,869,848 Construction in process 988,536 595,522 $108,611,675 $100,074,193 Less--Accumulated depreciation and depletion 79,239,388 74,556,421 $ 29,372,287 $ 25,517,772
(3) Investments The Company's short term investments consist of corporate commercial paper with maturities of six months or less and have been classified as held- to-maturity. The amortized cost, which approximates market value, is reflected in the balance sheet. Other assets includes equity securities which have been classified as available-for-sale. Realized gains are computed using the specific identification method. The equity investment results for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 Fair value of investments $4,890,000 $3,485,000 $2,876,000 Cost of investments 1,240,000 725,000 1,250,000 Fair value in excess of cost $3,650,000 $2,760,000 $1,626,000 Unrealized gain recorded in equity $2,200,000 $1,660,000 $ 976,000 Deferred income taxes 1,450,000 1,100,000 650,000 $3,650,000 $2,760,000 $1,626,000 Proceeds from sale of securities $ - $1,366,291 $ 877,380 Realized gains $ - $ 840,820 $ 314,963
(4) INCOME TAXES The components of the provision for federal and state income taxes in the accompanying consolidated statements of income are as follows:
1998 1997 1996 Current provision for income tax: Federal $4,480,000 $4,780,000 $5,045,000 State 1,045,000 1,130,000 1,145,000 $5,525,000 $5,910,000 $6,190,000 Deferred provision for income tax: Federal $ 60,000 $ (85,000) $ (170,000) State 15,000 (25,000) (40,000) $ 75,000 $ (110,000) $ (210,000) Provision for income tax $5,600,000 $5,800,000 $5,980,000 The provision for federal and state income taxes in the accompanying consolidated statements of income differs from the amount computed at the federal statutory income tax rate as follows:
1998 1997 1996 Provision for federal taxes at statutory rates $5,238,000 $5,466,000 $5,684,000 State income taxes, net of federal tax benefit 680,000 724,000 718,000 Percentage depletion (546,000) (568,000) (602,000) Minority interest in consolidated income 223,000 181,000 187,000 Other, net 5,000 (3,000) (7,000) Accrued income tax expense $5,600,000 $5,800,000 $5,980,000
The tax effect of significant temporary differences representing deferred tax assets and (liabilities) are as follows:
1998 1997 Current: Reserve for bad debts $ 165,000 $ 190,000 Vacation 245,000 225,000 Net current deferred tax assets $ 410,000 $ 415,000 Noncurrent: Depreciation $ (800,000) $(1,004,000) Postretirement benefits 3,845,000 3,935,000 Pension (210,000) (35,000) Unrealized holding gains (1,450,000) (1,100,000) Other, net 5,000 14,000 Net long-term deferred tax assets $ 1,390,000 $ 1,810,000
(5) POSTRETIREMENT BENEFITS Monarch provides certain postretirement health care, accident and life insurance benefits to all retired employees who, as of their retirement date, have completed ten or more years of credited service under the pension plans. These benefits are self-insured by Monarch and are paid out of Monarch's general assets. Following is a reconciliation of benefit obligations and funded status as of December 31, 1998 and 1997:
1998 1997 Reconciliation of benefit obligation Accumulated postretirement benefit obligation at beginning of year $11,422,549 $ 10,757,921 Service cost 85,689 144,193 Interest cost 687,667 786,231 Actuarial (gain)/loss (1,220,420) 487,201 Benefits and expenses paid (992,008) (752,997) Accumulated postretirement benefit obligation at end of year $ 9,983,477 $ 11,422,549 Funded status $(9,983,477) $(11,422,549) Unrecognized actuarial (gain)/loss 363,224 1,583,644 (Accrued) benefit cost $(9,620,253) $ (9,838,905)
The assumed annual rate of increase in the per capita cost of covered health care benefits was 5%, 6% and 7% for 1998, 1997 and 1996, respectively. This rate is assumed to decrease 1% per year to an ultimate rate of 4%.
1998 1997 1996 Components of net periodic benefit cost Service cost $ 85,689 $ 144,193 $ 133,134 Interest cost 687,667 786,231 765,423 Net periodic benefit cost $ 773,356 $ 930,424 $ 898,557 Weighted-average assumptions as of December 31 Discount rate 7.00% 7.00% 7.50%
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1% Increase 1% Decrease Effect on net periodic benefit cost $ 90,465 $ (66,908) Effect on postretirement benefit obligation 1,040,719 (760,662)
(6) PENSION PLANS Monarch has defined benefit pension plans covering substantially all permanent employees. Plans covering staff (salaried) employees provide pension benefits that are based on years of service and the employee's last sixty calendar months of earnings or the highest five consecutive calendar years of earnings out of the last ten calendar years of service, whichever is greater. Plans covering production (hourly) employees provide benefits of stated amounts for each year of service. Generally, Monarch's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to service to date and for those expected to be earned in the future. The assets of the plans are primarily equities, bonds and government securities. Following is a reconciliation of benefit obligations, plan assets and funded status as of December 31, 1998 and 1997:
1998 1997 Reconciliation of projected benefit obligation Projected benefit obligation at beginning of year $22,544,337 $20,856,066 Service cost 324,782 283,370 Interest cost 1,518,426 1,556,225 Actuarial (gain)/loss (362,816) 1,440,891 Benefits paid and expenses (1,531,879) (1,592,215) Projected benefit obligation at end of year $22,492,850 $22,544,337 Reconciliation of fair value of plan assets Fair value of plan assets at beginning of year $25,587,691 $23,109,411 Actual return on plan assets 1,705,463 4,070,495 Benefits paid and expenses (1,531,879) (1,592,215) Fair value of plan assets at end of year $25,761,275 $25,587,691 Funded status $ 3,268,425 $ 3,043,354 Unrecognized net actuarial loss (3,293,576) (3,559,706) Unrecognized transitional obligation 34,072 43,935 Unrecognized prior service cost 514,809 559,939 Prepaid benefit cost $ 523,730 $ 87,522
The following table presents the accumulated benefit obligation, fair value of net assets and prepaid (accrued) pension expense by plan as of December 31, 1998 and 1997:
Humboldt Des Moines Staff Production Production December 31, 1998 Accumulated benefit obligation $12,221,649 $ 7,392,125 $ 2,879,076 Fair value of net assets 13,755,555 8,760,515 3,245,205 Prepaid (accrued) pension expense 7,527 566,479 (50,276) December 31, 1997 Accumulated benefit obligation $12,166,615 $ 7,428,564 $ 2,949,158 Fair value of net assets 13,543,421 8,749,140 3,295,130 Prepaid (accrued) pension expense (178,378) 408,706 (142,806)
The following table presents the components of net periodic pension cost as of December 31, 1998, 1997 and 1996:
1998 1997 1996 Service cost $ 324,782 $ 283,370 $ 253,229 Interest cost 1,518,426 1,556,225 1,515,004 Expected return on plan assets (2,229,872) (2,008,078) (1,931,827) Amortization of transitional obligation 9,863 9,863 9,863 Amortization of prior service cost 45,130 45,130 34,880 Recognized net actuarial (gain)/loss (104,537) (20,651) (16,862) Net periodic pension (income) $ (436,208) $ (134,141) $ (135,713)
The weighted average assumptions used to determine net pension cost and benefit obligations as of December 31 are as follows:
1998 1997 1996 Discount rate 7.00% 7.00% 8.00% Expected return on plan assets 9.00% 9.00% 9.00% Rate of compensation increase (Staff plan only) 4.50% 4.50% 4.50%
(7) COMMITMENTS AND CONTINGENCIES According to various agreements with certain minority stockholders, 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. (8) STOCKHOLDERS' INVESTMENT Class B Capital Stock has supervoting rights of ten votes per share and restricted transferability. Class B Capital Stock is convertible at all times into Capital Stock on a share-for-share basis. Capital Stock has only one vote per share and is freely transferable. (9) BUSINESS SEGMENTS In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), effective for periods ending after December 15, 1998. SFAS 131 did not significantly change the way the Company previously reported information about its operating segments. The Company groups its operations into two business segments - cement manufacturing and the sale of ready-mixed concrete and sundry building materials. The Company's business segments are separate business units that offer different products. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Following is information for each segment for the years ended December 31, 1998, 1997 and 1996:
Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 1998: facturing Materials Eliminations Consolidated Sales to unaffiliated customers $43,726,111 $55,768,647 $ - $99,494,758 Intersegment sales 8,191,578 407,764 (8,599,342) - Total net sales $51,917,689 $56,176,411 $ (8,599,342) $99,494,758 Income from operations $12,019,185 $ 2,400,976 $14,420,161 Other income, net 832,647 Income before income taxes $15,252,808 Identifiable assets at December 31, 1998 $33,621,343 $20,063,428 $53,684,771 Corporate assets 31,197,250 Total assets at December 31, 1998 $84,882,021 FOR THE YEAR ENDED DECEMBER 31, 1997: 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 Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 1996: facturing Materials Eliminations Consolidated 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
Total sales by segment before adjustments and eliminations includes both sales to unaffiliated customers, as reported in the Company's consolidated statements of income, comprehensive income and stockholders' investment, and intersegment sales. Intersegment sales are accounted for by the same method as sales to unaffiliated customers. Income from operations is total net sales less operating expenses. In computing income from operations, none of the following items have been added or deducted: general corporate income and expenses, interest expense and income taxes. Also, no amounts have been excluded for corporate administrative expense because the amounts which cannot be identified by segment are not significant. Depreciation for cement manufacturing and ready-mixed concrete, respectively, was: $2,924,251 and $2,640,421 in 1998; $2,666,994 and $2,318,654 in 1997; and $2,570,085 and $2,121,550 in 1996. Capital expenditures for cement manufacturing and ready-mixed concrete, respectively, including capital assets of businesses acquired were: $4,966,346 and $4,552,809 in 1998; $3,245,853 and $3,248,683 in 1997; and $2,448,248 and $3,569,468 in 1996. Identifiable assets by segment are those assets that are used in the Company's operations in each industry. During 1998, 1997 and 1996, there were no sales to any one customer in excess of 10% of consolidated net sales. CORPORATE INFORMATION CORPORATE OFFICE DIRECTORS 449 1200 Street Jack R. Callahan P.O. Box 1000 Retired President, The Monarch Humboldt, KS 66748 Cement Company Phone: (316) 473-2225 Fax: (316) 473-2447 Karl Callaway Retired Farmer AUDITORS Ronald E. Callaway Arthur Andersen LLP Retired transport truck driver, Kansas City, Missouri Agricultural Carriers, Inc. David L. Deffner ANNUAL MEETING Professor of Music, American River The annual meeting of the College, Director of Music, Davis stockholders of The Monarch Community Church Cement Company is held the second Wednesday in April of Robert M. Kissick each year at the Company's Chairman, Hydraulic Power Systems, Inc. corporate offices. Richard N. Nixon Shareholder in law firm of Stinson, TRANSFER AGENT AND REGISTRAR Mag & Fizzell, P.C. The Monarch Cement Company P.O. Box 1000 Byron J. Radcliff Humboldt, KS 66748-1000 Rancher Byron K. Radcliff STOCK TRADING INFORMATION Owner/Manager, Radcliff Ranch Trading Symbol: MCEM Over-the-Counter Market Michael R. Wachter Civil Engineer and Director of Operations, Concrete Technology Corp. INVESTOR RELATIONS Inquiries may be directed to Walter H. Wulf Lyndell G. Mosley, Chief Financial Chairman of the Board Officer and Assistant Secretary- Treasurer, at the corporate Walter H. Wulf, Jr. address shown above. President and Vice Chairman of the Board FORM 10-K Officers The Company's Annual Report on Walter H. Wulf Form 10-K, as filed with the Chairman of the Board Securities and Exchange Commission, is available without charge upon Walter H. Wulf, Jr. written request to Lyndell G. President and Vice Chairman Mosley at the corporate office. of the Board The Company's financial Robert M. Kissick information is also available Vice President* from the SEC at their EDGAR internet address Karl Callaway (http://www.sec.gov). Secretary* Byron K. Radcliff Treasurer* Lyndell G. Mosley Chief Financial Officer and Assistant Secretary-Treasurer *Not active in the daily affairs of the Company. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONARCH CEMENT COMPANY AND SUBSIDIAIRIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1998 DEC-31-1998 4,254,795 19,622,255 11,174,210 412,000 13,504,990 48,613,585 108,611,675 79,239,388 84,882,021 8,704,127 0 0 0 10,443,490 53,692,274 84,882,021 99,494,758 99,494,758 78,349,584 78,349,584 0 0 0 15,252,808 5,600,000 9,652,808 0 0 0 9,652,808 2.30 2.30
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