-----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, Q8EB6wkTuMmkbSWKZ1seMI9m+6hJN6PVW/+jn+JCXfOcVnnJyTw0PaFCx+lCJcVi ZgzivP1F4GXuTq8UtwqJ/w== 0000067517-00-000006.txt : 20000313 0000067517-00-000006.hdr.sgml : 20000313 ACCESSION NUMBER: 0000067517-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000310 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: 566388 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-2757 THE MONARCH CEMENT COMPANY (Exact name of registrant, as specified in its charter) Kansas 48-0340590 (State 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 28, 2000, was $60,052,262. As of February 28, 2000, the registrant had outstanding 2,289,908 shares of Capital Stock, par value $2.50 per share, and 1,836,205 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, 1999 - 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 12, 2000 - Part III of Form 10-K. PART I Item 1. Business Reference is hereby made to pages 3 through 5 of registrant's 1999 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 1999. The registrant owns and operates quarries located near its Humboldt, Kansas plant. Such quarries contain all essential raw materials presently used by the registrant. The registrant's total reserves, including these quarries and other property located near the plant, are estimated to be sufficient to maintain operations at the Humboldt plant's present capacity for more than 50 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, 1999 the registrant had inventories as follows: Cement . . . . . . . . . . . . . . . $ 3,224,596 Work in process. . . . . . . . . . . 2,763,016 Fuel, gypsum and other materials . . 3,792,795 Operating and maintenance supplies . 7,609,733 Total. . . . . . . . . . . $17,390,140
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 1999, 1998 or 1997. Backlog of customers' orders is not a material factor in the registrant's business. The registrant has no contracts that 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, 1999, the Company and its subsidiaries employed approximately 520 hourly (production) employees and 120 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 3,300 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 more than 50 years. This plant has a present annual capacity of 725,000 tons of cement. The registrant believes that this plant and equipment are suitable and adequate for its current level of operations; however, due to recent and projected market demands, the registrant has been aggressively updating its equipment to improve efficiency and increase capacity. Reference is hereby made to page 1 of registrant's 1999 annual report to stockholders (filed herewith as Exhibit 13) for a description of the registrant's capital resources and expansion plans. Such information is hereby incorporated herein by reference. The registrant also owns approximately 250 acres of land in Des Moines, Iowa on which it formerly operated a cement plant. Due to its age and condition and other economic factors, the registrant discontinued all production at this facility in 1994 and is dismantling the manufacturing buildings and equipment. The shipping and storage facilities, as well as the administrative offices, continue to be utilized as a cement terminal. The registrant transfers finished cement produced in Humboldt, Kansas to this terminal for distribution to 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 plant's primary market. Various equipment and facility improvements in this segment ensure these plants are suitable and adequate for their current level of operations and provide for increases in market demand. 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 1999. 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 1999. 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 1999 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 1999 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 1999 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 $4,605,000 of equity securities as of December 31, 1999. 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 $275,000 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 1999 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 2000 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 2000 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 2000 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 2000 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, 1999 and 1998; the Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997; the Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997; the Consolidated Statements of Stockholders' Investment for the Years Ended December 31, 1999, 1998 and 1997; the Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997; and the Notes to Consolidated Financial Statements are incorporated by reference in Item 8 to this report from the registrant's 1999 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 1999 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 27 Financial Data Schedule. Form 8-K There were no Form 8-K reports required to be filed during the last quarter of 1999. 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 9, 2000 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 9, 2000 Date: March 9, 2000 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 9, 2000 Date: March 9, 2000 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 9, 2000 Date: March 9, 2000 By: /s/ Byron J. Radcliff By: /s/ Debra P. Roe Byron J. Radcliff Debra P. Roe, CPA Director Principal Accounting Officer Date: March 9, 2000 Date: March 9, 2000 ARTHUR ANDERSEN 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 18, 2000. 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 18, 2000 THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
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, 1999: Reserve for doubtful accounts $412,000 $104,000 $107,000 $409,000 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 (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 1999 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 27 Financial Data Schedule. EX-13 2 THE MONARCH CEMENT COMPANY 1999 ANNUAL REPORT March 10, 2000 ANNUAL REPORT TO STOCKHOLDERS For the first time in the Company's history, consolidated net sales exceeded $109 million. This 10% increase over 1998 net sales was primarily the result of increased sales volume of cement and ready-mixed concrete. Although recent modernization enabled the Company to produce a record level of clinker during 1999, the Company also increased its purchases of clinker from foreign markets to satisfy its customers' needs. This increase in volume sold, as well as the higher costs associated with cement produced from purchased clinker, increased the Company's cost of sales by 12%. These factors, along with an increase in selling, general and administrative expenses, resulted in level net income for 1999 as compared to 1998. The five-year forecast for cement sales continues to be strong. Benefits of the Federal Transportation Equity Act for the 21st Century (TEA-21) which passed in 1998 are yet to be realized. Monarch shipped over 100,000 tons of cement to Kansas highway projects in 1999 under the previous highway bill (ISTEA). Due to a delay in the availability of funds provided by TEA-21, only 66,000 tons of cement are projected to be used on Kansas highway projects in the year 2000. It is expected that the impact of the TEA-21 program will be more significant in the next four years as the program accelerates to offset this year's delay. Although highway cement consumption will be significantly reduced this year, the delay in TEA-21 funding should prove beneficial for Monarch. For the last several years Monarch has basically been in a sold-out position. In recent years, the Company has been modernizing and expanding its cement production capacity. Further expansion is in process with the purchase and installation of a 90 ton-per-hour finish mill and the addition of precalciners to the Company's two preheater kilns. These capital improvements are projected to be completed in 2001 and are expected to allow the Company to produce in excess of one million tons of cement per year. As these improvements come on-line, the Company will be in a position to increase sales and at the same time reduce, or eliminate, its purchases of foreign clinker. Through our aggressive capital expansion program, and our continued commitment to quality and excellence, we are confident in our abilities to efficiently meet future highway needs and other market demands. As we reflect on recent accomplishments and look forward to the challenges ahead, we acknowledge our Heavenly Father for the blessings he has bestowed upon us. We express our appreciation to our employees for their hard work and dedication and to our customers for their loyalty. As always, we wish to thank you, our stockholders, for your continued support and invite you to attend Monarch's annual meeting to be held at 2:00 p.m. on April 12, 2000 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, 1999 (Dollar amounts in thousands except per share data)
1999 1998 1997 1996 1995 Net sales . . . . . . . . . $109,476 $99,495 $91,820 $86,733 $81,667 Net income. . . . . . . . . $ 9,654 $9,653 $10,103 $10,546 $ 7,673 Net income per share. . . . $2.32 $2.30 $2.40 $2.50 $1.81 Total assets. . . . . . . . $ 89,991 $84,882 $76,233 $68,648 $59,783 Long-term obligations . . . $ - $ - $ - $ - $ - Cash dividends declared per share . . . . . . . . $.74 $.68 $.60 $.52 $.46 Stockholders' Investment per share . . . . . . . . $16.75 $15.35 $13.68 $11.73 $9.68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity At December 31, 1999, current assets of The Monarch Cement Company and Subsidiaries (the Company) exceeded current liabilities by $39,835,964 resulting in a current ratio of 5.61 to 1. The Company's cash needs in 1999 were satisfied by cash generated from operations and internal funds. The amount of cash and short-term investments decreased during 1999. The Company does not currently have an established line of credit with a bank; however, the Company believes its internal and external capital resources are adequate to meet its current capital expenditure requirements and liquidity needs. Capital Resources During 1999, the Company invested $10,847,723 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 1999 expenditures exceeded the amount normally spent on capital expenditures. The Company plans to continue its modernization and expansion program during the year 2000 and future years. The Board of Directors has approved the addition of a new 90 ton-per-hour finish mill at an estimated cost of $17 million and the purchase and installation of precalciners and other modifications to the two preheater kilns at an estimated cost of $26 million. It is anticipated that these projects will be completed in 2001 and will allow the Company to produce in excess of one million tons of cement per year. The Company will also invest in other miscellaneous equipment and facility improvements in both the cement and ready-mixed concrete segments in 2000. It is expected that the Company's capital expenditures will approximate $20,000,000 during 2000. The Company has received approval from its Board of Directors and from local authorities to issue Industrial Revenue Bonds to cover the cost of the expansion of its production facilities. Management will continue to evaluate the various financing options available in addition to utilizing internally generated funds for these projects. Results of Operations General--For the last four 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 in recent years. The Company's ready-mixed concrete operations experienced an increase in profitability during 1999 and 1998 primarily as a result of an improvement in ready-mixed concrete prices. Efficiencies realized through increased sales volume also added to 1999's profitability. During 1997, 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. 1999 Compared to 1998--The Company's 1999 net sales increased approximately 10% primarily as a result of an increase in the volume of cement and ready-mixed concrete sold and a moderate increase in the product prices. The increase in volume in the ready-mixed concrete segments resulted in a more favorable contribution to income for that segment. The Company's cost of sales increased 12% for 1999 as compared to 1998 primarily due to the increase in volume sold. Supplies and maintenance costs in the cement manufacturing segment increased as a result of the additional cost of maintaining equipment over long periods of maximized production. Modernization in recent years allowed the Company to produce a record level of clinker during 1999. In addition to this increased production of clinker, the Company also increased its purchases of clinker from foreign markets during 1999 in order to meet the anticipated demands for cement. Higher costs associated with cement produced from purchased clinker contributed to the increase in the Company's cost of sales and the reduction in gross profit margin. 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 Company plans further expansion of its clinker production and cement grinding facilities to more efficiently serve its customer base. Selling, general and administrative expenses increased 10% during 1999. Overall increases in health care costs, sales volume based association dues, legal and professional expenses and payroll contributed to this increase, although no single factor increased materially. The decrease in "Other, net" during 1999 as compared to 1998 was due primarily to the reduction in interest income. Increased capital expenditures during 1999 reduced the amount of funds available for investment in short-term securities. This reduction in investments resulted in a decrease in interest income during 1999 as compared to 1998. 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. Forward-Looking Statements--Certain statements in 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):
1999 1998 1997 (In Thousands) Sales to Unaffiliated Customers- Industry: Segment A $48,995 $43,726 $39,539 Segment B 60,480 55,769 52,281 Intersegment Sales- Industry: Segment A 7,690 8,191 8,868 Segment B 697 408 263 Operating Profit- Industry: Segment A 11,407 12,019 12,943 Segment B 2,954 2,401 1,176 Identifiable Assets- Industry: Segment A 36,252 33,384 28,425 Segment B 25,190 20,064 16,400 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, 1999 1998 1997 Portland Cement . . . . . . . . . 44.8% 43.9% 43.1% Ready-Mixed Concrete and Sundry Building Materials . . . 55.2% 56.1% 56.9% 100.0% 100.0% 100.0%
STOCK MARKET AND DIVIDEND DATA On March 1, 2000, 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:
1999 1998 Price Dividends Price Dividends Quarter Low High Declared Low High Declared First $19.00 $22.50 $ - $20.75 $27.00 $ - Second $19.00 $22.00 $.18 $25.25 $29.00 $.16 Third $20.00 $22.00 $.18 $23.00 $29.00 $.16 Fourth $20.00 $21.00 $.38* $21.00 $25.25 $.36* *Reflects declaration of two $.19 and $.18 dividends payable in the first quarter of 2000 and 1999, respectively.
ARTHUR ANDERSEN 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Kansas City, Missouri, February 18, 2000 THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS 1 9 9 9 1 9 9 8 CURRENT ASSETS: Cash and cash equivalents $ 4,782,168 $ 4,254,795 Short-term investments, at cost which approximates market 15,834,044 19,859,296 Receivables, less allowances of $409,000 in 1999 and $412,000 in 1998 for doubtful accounts 9,850,345 10,525,169 Inventories, priced at cost which is not in excess of market- Cost determined by last-in, first-out method- Finished cement $ 3,224,596 $ 1,634,302 Work in process 2,763,016 1,703,942 Building products 1,226,697 1,184,358 Cost determined by first-in, first-out method- Fuel, gypsum, paper sacks and other 2,566,098 1,899,440 Cost determined by average method- Operating and maintenance supplies 7,609,733 7,082,948 Total inventories $17,390,140 $13,504,990 Refundable federal and state income taxes 166,900 14,051 Deferred income taxes 415,000 410,000 Prepaid expenses 34,855 45,284 Total current assets $48,473,452 $48,613,585 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $78,397,517 in 1999 and $79,239,388 in 1998 34,166,683 29,372,287 DEFERRED INCOME TAXES 1,750,000 1,390,000 OTHER ASSETS 5,601,246 5,506,149 $89,991,381 $84,882,021 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 5,041,988 $ 4,640,205 Accrued liabilities- Federal and state income taxes 275,083 951,809 Dividends 1,570,498 1,503,984 Compensation 885,500 824,709 Miscellaneous taxes 445,377 418,609 Other 419,042 364,811 Total current liabilities $ 8,637,488 $ 8,704,127 ACCRUED POSTRETIREMENT BENEFITS 9,368,746 9,620,253 ACCRUED PENSION EXPENSE - 50,276 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 2,765,235 2,371,601 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT: Capital Stock, par value $2.50 per share- Authorized 10,000,000 shares, Issued 2,285,678 shares at December 31, 1999 and 2,290,049 shares at December 31, 1998 $ 5,714,195 $ 5,725,123 Class B Capital Stock, par value $2.50 per share-Authorized 10,000,000 shares, Issued 1,846,836 shares at December 31, 1999 and 1,887,347 shares at December 31, 1998 4,617,090 4,718,367 Retained Earnings 57,308,627 51,492,274 $67,639,912 $61,935,764 Accumulated other comprehensive income 1,580,000 2,200,000 Total stockholders' investment $69,219,912 $64,135,764 $89,991,381 $84,882,021 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, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7 NET SALES $109,475,532 $99,494,758 $91,819,836 COST OF SALES 87,686,175 78,349,584 70,781,950 Gross profit from operations $ 21,789,357 $21,145,174 $21,037,886 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,428,497 6,725,013 6,919,368 Income from operations $ 14,360,860 $14,420,161 $14,118,518 OTHER INCOME (EXPENSE): Interest income $ 1,028,727 $ 1,222,052 $ 1,057,501 Other, net (435,158) (389,405) 727,446 $ 593,569 $ 832,647 $ 1,784,947 INCOME BEFORE PROVISION FOR INCOME TAXES $ 14,954,429 $15,252,808 $15,903,465 PR0VISION FOR INCOME TAXES 5,300,000 5,600,000 5,800,000 NET INCOME $ 9,654,429 $ 9,652,808 $10,103,465 Basic earnings per share $2.32 $2.30 $2.40 The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7 NET INCOME $ 9,654,429 $ 9,652,808 $10,103,465 UNREALIZED APPRECIATION (DEPRECIATION) ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax (benefit) expense of $(400,000), $350,000 and $450,000 for 1999, 1998 and 1997, respectively) (620,000) 540,000 684,000 COMPREHENSIVE INCOME $ 9,034,429 $10,192,808 $10,787,465 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, 1999, 1998 AND 1997
Accum- Class B lated Other Stock- Capital Capital Retained Treasury Comprehen- holders' Stock Stock Earnings Stock sive Income Investment Balance at 1-1-97 $5,577,340 $4,988,385 $38,039,014 $ - $ 976,000 $49,580,739 Net income - - 10,103,465 - - 10,103,465 Dividends declared ($.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 - - Accumulated other comprehensive income - - - - 684,000 684,000 Balance at 12-31-97 $5,732,227 $4,807,058 $45,486,139 $ - $1,660,000 $57,685,424 Net income - - 9,652,808 - - 9,652,808 Dividends declared ($.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 - - Accumulated other comprehensive income - - - - 540,000 540,000 Balance at 12-31-98 $5,725,123 $4,718,367 $51,492,274 $ - $2,200,000 $64,135,764 Net income - - 9,654,429 - - 9,654,429 Dividends declared ($.74 per share) - - (3,066,148) - - (3,066,148) Transfer of shares 101,277 (101,277) - - - - Purchase of treasury stock - - - (884,133) - (884,133) Retirement of treasury stock (112,205) - (771,928) 884,133 - - Accumulated other comprehensive income - - - - (620,000) (620,000) Balance at 12-31-99 $5,714,195 $4,617,090 $57,308,627 $ - $1,580,000 $69,219,912 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, 1999, 1998 AND 1997
1 9 9 9 1 9 9 8 1 9 9 7 OPERATING ACTIVITIES: Net income $ 9,654,429 $ 9,652,808 $ 10,103,465 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 6,025,901 5,564,672 4,991,992 Gain on disposal of assets (67,332) (119,398) (246,799) Realized gain on sale of other investments - - (840,820) Change in assets and liabilities: Receivables, net 674,824 (2,552,470) 587,538 Inventories (3,885,150) (2,198,752) (581,154) Refundable federal and state income taxes (152,849) 207,021 89,661 Prepaid expenses 10,429 (17,363) (2,479) Deferred income taxes (365,000) 425,000 575,000 Long-term notes receivable - (750) 11,956 Accounts payable, notes payable and accrued liabilities (133,153) 2,166,077 (466,623) Accrued postretirement expense (251,507) (218,652) 25,336 Accrued pension expense (50,276) (270,908) (69,051) Minority interest in earnings of subsidiaries 534,013 558,627 453,039 Net cash provided by operating activities $ 11,994,329 $ 13,195,912 $ 14,631,061 INVESTING ACTIVITIES: Acquisition of property, plant and equipment $(10,847,723) $ (9,519,155) $ (6,494,536) Net purchases of subsidiaries' stock - - (1,029,410) Proceeds from disposals of property, plant and equipment 94,758 219,366 419,956 Payment for purchases of equity investments (733,336) (517,939) - Proceeds from disposals of equity investments - - 1,366,291 (Increase) decrease in other assets 18,239 (508,570) (517,091) (Increase) decrease in short term investments, net 4,025,252 1,070,827 (4,826,402) Net cash used for investing activities $ (7,442,810) $ (9,255,471) $(11,081,192) FINANCING ACTIVITIES: Subsidiaries' dividends paid to minority interest $ (140,379) $ (191,450) $ (173,746) Cash dividends (2,999,634) (2,694,266) (2,362,279) Subsidiaries' purchase of treasury stock - - (9,420) Purchase of treasury stock (884,133) (893,247) (153,352) Net cash used for financing activities $ (4,024,146) $ (3,778,963) $ (2,698,797) Net Increase in Cash and Cash Equivalents $ 527,373 $ 161,478 $ 851,072 Cash and Cash Equivalents, beginning of year 4,254,795 4,093,317 3,242,245 Cash and Cash Equivalents, end of year $ 4,782,168 $ 4,254,795 $ 4,093,317 The accompanying notes are an integral part of these consolidated statements.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (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 generally accepted accounting principles and 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 $534,014, $558,627 and $453,039 during 1999, 1998 and 1997, 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) Reclassifications--Certain reclassifications have been made to the 1998 financial statements to conform with the current year presentation. (d) 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 $2,351,000, $2,061,000 and $1,763,000 higher than those reported at December 31, 1999, 1998 and 1997, 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. (e) 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. (f) 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 4,154,426 in 1999, 4,198,333 in 1998 and 4,215,859 in 1997. (g) Comprehensive Income--Comprehensive income includes charges and credits to equity that are not the result of transactions with shareholders. Comprehensive income is composed of two subsets; net income and other comprehensive income. Included in other comprehensive income for the Company are unrealized holding gains for securities classified as available-for-sale, net of deferred income tax. (h) 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:
1999 1998 1997 Interest paid $ 1,313 $ 1,517 $ 4,279 Income taxes paid $6,094,546 $4,624,633 $6,111,378
(2) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1999 and 1998 consisted of:
Depreciation Lives (Years) 1999 1998 Quarry lands $ 753,769 $ 710,188 Mill site and buildings 12 - 50 17,041,461 13,719,463 Machinery and equipment 5 - 25 68,499,398 69,929,906 Transportation equipment 3 - 12 21,471,094 20,167,701 Office furniture and fixtures 5 - 20 901,002 877,443 Office and other buildings 10 - 30 2,479,774 2,218,438 Construction in process 1,417,702 988,536 $112,564,200 $108,611,675 Less--Accumulated depreciation and depletion 78,397,517 79,239,388 $ 34,166,683 $ 29,372,287
(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, 1999, 1998 and 1997 are as follows:
1999 1998 1997 Fair value of investments $4,605,000 $4,890,000 $3,485,000 Cost of investments 1,975,000 1,240,000 725,000 Fair value in excess of cost $2,630,000 $3,650,000 $2,760,000 Unrealized gain recorded in equity $1,580,000 $2,200,000 $1,660,000 Deferred income taxes 1,050,000 1,450,000 1,100,000 $2,630,000 $3,650,000 $2,760,000 Proceeds from sale of securities $ - $ - $1,366,291 Realized gains $ - $ - $ 840,820
(4) INCOME TAXES The components of the provision for federal and state income taxes in the accompanying consolidated statements of income are as follows:
1999 1998 1997 Current provision for income tax: Federal $4,435,000 $4,480,000 $4,780,000 State 830,000 1,045,000 1,130,000 $5,265,000 $5,525,000 $5,910,000 Deferred provision for income tax: Federal $ 30,000 $ 60,000 $ (85,000) State 5,000 15,000 (25,000) $ 35,000 $ 75,000 $ (110,000) Provision for income tax $5,300,000 $5,600,000 $5,800,000 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:
1999 1998 1997 Provision for federal taxes at statutory rates $5,134,000 $5,238,000 $5,466,000 State income taxes, net of federal tax benefit 543,000 680,000 724,000 Percentage depletion (591,000) (546,000) (568,000) Minority interest in consolidated income 214,000 223,000 181,000 Other, net - 5,000 (3,000) Accrued income tax expense $5,300,000 $5,600,000 $5,800,000
The tax effect of significant temporary differences representing deferred tax assets and (liabilities) are as follows:
1999 1998 Current: Reserve for bad debts $ 165,000 $ 165,000 Vacation 250,000 245,000 Net current deferred tax assets $ 415,000 $ 410,000 Noncurrent: Depreciation $ (620,000) $ (800,000) Postretirement benefits 3,745,000 3,845,000 Pension (335,000) (210,000) Unrealized holding gains (1,050,000) (1,450,000) Other, net 10,000 5,000 Net long-term deferred tax assets $ 1,750,000 $ 1,390,000
(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, 1999 and 1998:
1999 1998 Reconciliation of benefit obligation Accumulated postretirement benefit obligation at beginning of year $ 9,983,477 $ 11,422,549 Service cost 99,410 85,689 Interest cost 697,195 687,667 Actuarial gain (578,176) (1,220,420) Benefits and expenses paid (903,546) (992,008) Accumulated postretirement benefit obligation at end of year $ 9,298,360 $ 9,983,477 Funded status $(9,298,360) $ (9,983,477) Unrecognized actuarial (gain)/loss (70,386) 363,224 Accrued benefit cost $(9,368,746) $ (9,620,253)
The assumed annual rate of increase in the per capita cost of covered health care benefits was 4%, 5% and 6% for 1999, 1998 and 1997, respectively. This rate is assumed to decrease 1% per year to an ultimate rate of 4%.
1999 1998 1997 Components of net periodic benefit cost Service cost $ 99,410 $ 85,689 $ 144,193 Interest cost 697,195 687,667 786,231 Net periodic benefit cost $ 796,605 $ 773,356 $ 930,424 Weighted-average assumptions as of December 31 Discount rate 8.00% 7.00% 7.00%
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 $ 168,531 $ (76,044) Effect on postretirement benefit obligation 894,755 (770,016)
(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, 1999 and 1998:
1999 1998 Reconciliation of projected benefit obligation Projected benefit obligation at beginning of year $22,492,790 $22,544,337 Service cost 342,594 324,782 Interest cost 1,559,670 1,518,426 Actuarial gain (1,819,259) (362,816) Plan amendment 37,715 - Benefits paid and expenses (1,623,646) (1,531,879) Projected benefit obligation at end of year $20,989,864 $22,492,850 Reconciliation of fair value of plan assets Fair value of plan assets at beginning of year $25,761,275 $25,587,691 Actual return on plan assets (40,922) 1,705,463 Benefits paid and expenses (1,623,646) (1,531,879) Fair value of plan assets at end of year $24,096,707 $25,761,275 Funded status $ 3,106,843 $ 3,268,425 Unrecognized net actuarial loss (2,794,255) (3,293,576) Unrecognized transitional obligation 24,209 34,072 Unrecognized prior service cost 507,394 514,809 Prepaid benefit cost $ 844,191 $ 523,730
The following table presents the accumulated benefit obligation, fair value of net assets and prepaid (accrued) pension expense by plan as of December 31, 1999 and 1998:
Humboldt Des Moines Staff Production Production December 31, 1999 Accumulated benefit obligation $11,520,147 $ 6,831,155 $ 2,638,562 Fair value of net assets 12,968,214 8,162,292 2,966,201 Prepaid pension expense 114,031 695,491 34,669 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)
The following table presents the components of net periodic pension cost as of December 31, 1999, 1998 and 1997:
1999 1998 1997 Service cost $ 342,594 $ 324,782 $ 283,370 Interest cost 1,559,670 1,518,426 1,556,225 Expected return on plan assets (2,245,751) (2,229,872) (2,008,078) Amortization of transitional obligation 9,863 9,863 9,863 Amortization of prior service cost 45,130 45,130 45,130 Recognized net actuarial gain (31,967) (104,537) (20,651) Net periodic pension (income) $ (320,461) $ (436,208) $ (134,141)
The weighted average assumptions used to determine net pension cost and benefit obligations as of December 31 are as follows:
1999 1998 1997 Discount rate 8.00% 7.00% 7.00% 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 that 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 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, 1999, 1998 and 1997:
Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 1999: facturing Materials Eliminations Consolidated Sales to unaffiliated customers $48,995,241 $60,480,291 $ - $109,475,532 Intersegment sales 7,690,066 697,177 (8,387,243) - Total net sales $56,685,307 $61,177,468 $ (8,387,243) $109,475,532 Income from operations $11,406,669 $ 2,954,191 $ 14,360,860 Other income, net 593,569 Income before income taxes $ 14,954,429 Identifiable assets at December 31, 1999 $36,252,363 $25,189,660 $ 61,442,023 Corporate assets 28,549,358 Total assets at December 31, 1999 $ 89,991,381 FOR THE YEAR ENDED DECEMBER 31, 1998: 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 $33,384,302 $20,063,428 $53,447,730 Corporate assets 31,434,291 Total assets at December 31, 1998 $84,882,021 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
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: $2,951,294 and $3,074,607 in 1999; $2,924,251 and $2,640,421 in 1998; and $2,666,994 and $2,318,654 in 1997. Capital expenditures for cement manufacturing and ready-mixed concrete, respectively, including capital assets of businesses acquired were: $2,749,880 and $8,097,843 in 1999; $4,966,346 and $4,552,809 in 1998; and $3,245,853 and $3,248,683 in 1997. Identifiable assets by segment are those assets that are used in the Company's operations in each industry. During 1999, 1998 and 1997, 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) 473-2222 Fax: (316) 473-2447 Ronald E. Callaway Retired transport truck driver Agricultural Carriers, Inc. AUDITORS Arthur Andersen LLP David L. Deffner Kansas City, Missouri Professor of Music, American River College ANNUAL MEETING Robert M. Kissick The annual meeting of the Chairman, Hydraulic Power Systems, Inc. stockholders of The Monarch Cement Company is held the Gayle C. McMillen second Wednesday in April of Music Instructor, Salina School each year at the Company's District 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 Byron K. Radcliff* (http://www.sec.gov). Secretary and Treasurer Lyndell G. Mosley Chief Financial Officer and Assistant Secretary-Treasurer *Not active in the daily affairs of the Company. EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONARCH CEMENT COMPANY 1999 ANNUAL REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 DEC-31-1999 4,782,168 15,834,044 10,259,345 409,000 17,390,140 48,473,452 112,564,200 78,397,517 89,991,381 8,637,488 0 0 0 10,331,285 58,888,627 89,991,381 109,475,532 109,475,532 87,686,175 87,686,175 0 0 0 14,954,429 5,300,000 9,654,429 0 0 0 9,654,429 2.32 2.32
EX-21 4 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT State of Names Under Which Names of Subsidiaries Incorporation They do Business City Wide Construction Missouri City Wide Construction Products Co. Products Co. Concrete Materials, Inc. Kansas Concrete Materials, Inc. Kansas Sand and Concrete, Inc. Kansas Kansas Sand and Concrete, Inc. Monarch Cement of Iowa, Inc. Iowa Monarch Cement of Iowa, Inc. Salina Concrete Products, Inc. Kansas Kansas Building Products Salina Concrete Products, Inc. Springfield Ready Mix Co. Missouri Springfield Ready Mix Co. Tulsa Dynaspan, Inc. Oklahoma Tulsa Dynaspan, Inc. -----END PRIVACY-ENHANCED MESSAGE-----