10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-2757 THE MONARCH CEMENT COMPANY (Exact name of registrant as specified in its charter) KANSAS 48-0340590 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. BOX 1000, HUMBOLDT, KANSAS 66748-1000 (Address of principal executive offices) (Zip Code) (316) 473-2225 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of November 3, 2000 , the Registrant had outstanding 2,306,832 shares of Capital Stock, par value $2.50 per share and 1,795,224 shares of Class B Capital Stock, par value $2.50 per share. PART I. FINANCIAL INFORMATION NOTES TO THE SECURITIES AND EXCHANGE COMMISSION REPORT FORM 10-Q FOR THE QUARTER ENDED September 30, 2000 l. The condensed financial statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the results of operations for the interim periods presented. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the registrant's latest annual report on Form 10-K. 2. For a summary of accounting policies, the reader should refer to Note 1 of the consolidated financial statements included in the registrant's annual report on Form 10-K for the fiscal year ended December 31, 1999. 3. Basic earnings per share of capital stock has been calculated based on the weighted average shares outstanding during each of the reporting periods. The weighted average number of shares outstanding was 4,108,965 and 4,151,205 in the third quarter of 2000 and 1999, respectively, and 4,118,119 and 4,161,512 in the first nine months of 2000 and 1999, respectively. 4. The registrant groups its operations into two business segments - Industry Segment A (cement manufacturing) and Industry Segment B (ready- mixed concrete and sundry building materials). Following is condensed information for each segment for the three months and the nine months ended September 30, 2000 and 1999 (in thousands): Third Quarter Year-to-Date 2000 1999 2000 1999 Sales to Unaffiliated Customers- Industry: Segment A $16,182 $18,254 $37,355 $38,112 Segment B 21,300 17,771 56,773 44,279 Intersegment Sales- Industry: Segment A 2,905 1,989 7,295 5,507 Segment B - 227 - 323 Operating Profit- Industry: Segment A 5,185 4,949 11,747 8,696 Segment B 230 1,403 655 2,102 Identifiable Assets- Industry: Segment A 45,475 39,393 Segment B 33,425 25,820 5. Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may affect the actual results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: general economic and business conditions; competition; raw material and other operating costs; costs of capital equipment; changes in business strategy or expansion plans; and demand for the registrant's products. THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
ASSETS 2 0 0 0 1 9 9 9 CURRENT ASSETS: Cash and cash equivalents $ 6,313,161 $ 4,782,168 Short-term investments, at cost which approximates market 3,995,151 15,834,044 Receivables, less allowances of $452,000 in 2000 and $409,000 in 1999 for doubtful accounts 17,353,284 9,850,345 Inventories, priced at cost which is not in excess of market- Cost determined by last-in, first-out method- Finished cement $ 3,184,066 $ 3,224,596 Work in process 4,765,905 2,763,016 Building products 1,076,540 1,226,697 Cost determined by first-in, first-out method- Fuel, gypsum, paper sacks and other 2,517,440 2,566,098 Cost determined by average method- Operating and maintenance supplies 7,472,452 7,609,733 Total inventories $19,016,403 $17,390,140 Refundable federal and state income taxes - 166,900 Deferred income taxes 415,000 415,000 Prepaid expenses 216,808 34,855 Total current assets $47,309,807 $48,473,452 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $82,354,779 in 2000 and $78,397,517 in 1999 42,313,409 34,166,683 DEFERRED INCOME TAXES 1,425,000 1,750,000 OTHER ASSETS 7,064,211 5,601,246 $98,112,427 $89,991,381 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 7,399,358 $ 5,041,988 Accrued liabilities 2,518,425 3,595,500 Total current liabilities $ 9,917,783 $ 8,637,488 ACCRUED POSTRETIREMENT BENEFITS 9,384,142 9,368,746 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 2,879,588 2,765,235 STOCKHOLDERS' INVESTMENT: Capital stock, par value $2.50 per share- Authorized 10,000,000 shares, Issued 2,305,432 shares at 9/30/00 and 2,285,678 shares at 12/31/99 $ 5,763,580 $ 5,714,195 Class B capital stock, par value $2.50 per share-Authorized 10,000,000 shares, Issued 1,799,744 shares at 9/30/00 and 1,846,836 shares at 12/31/99 4,499,360 4,617,090 Retained Earnings 63,602,974 57,308,627 $73,865,914 $67,639,912 Plus: Unrealized holding gain 2,065,000 1,580,000 Total stockholders' investment $75,930,914 $69,219,912 $98,112,427 $89,991,381
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Three Months and the Nine Months Ended September 30, 2000 and 1999
For the Three Months Ended For the Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2000 1999 2000 1999 NET SALES $37,481,924 $36,025,222 $94,127,664 $82,391,106 COST OF SALES 29,767,201 27,813,936 75,316,524 66,196,714 Gross profit from operations $ 7,714,723 $ 8,211,286 $18,811,140 $16,194,392 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,168,964 1,859,005 6,409,499 5,395,873 Income from operations 5,545,759 $ 6,352,281 $12,401,641 $10,798,519 OTHER INCOME (EXPENSE): Interest income $ 173,964 $ 207,436 $ 525,240 $ 601,234 Other, net 119,563 (123,398) 1,341 (304,323) $ 293,527 $ 84,038 $ 526,581 $ 296,911 Income before taxes on income $ 5,839,286 $ 6,436,319 $12,928,222 $11,095,430 PROVISION FOR TAXES ON INCOME 2,100,000 2,375,000 4,650,000 4,075,000 NET INCOME $ 3,739,286 $ 4,061,319 $ 8,278,222 $ 7,020,430 RETAINED EARNINGS, beg. of period 60,776,764 53,344,524 57,308,627 51,492,274 Less cash dividends 779,984 747,539 1,561,211 1,495,650 Less purchase and retirement of treasury stock 133,092 388,060 422,664 746,810 RETAINED EARNINGS, end of period $63,602,974 $56,270,244 $63,602,974 $56,270,244 BASIC EARNINGS PER SHARE $.91 $.98 $2.01 $1.69 CASH DIVIDENDS PER SHARE $.19 $.18 $.38 $.36
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Nine Months Ended September 30, 2000 and 1999
2000 1999 NET INCOME $ 8,278,222 $ 7,020,430 UNREALIZED APPRECIATION (DEPRECIATION) ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax (benefit) expense of $325,000 and $(340,000), for 2000 and 1999, respectively) 485,000 (530,000) COMPREHENSIVE INCOME $ 8,763,222 $ 6,490,430
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2000 and 1999
2000 1999 OPERATING ACTIVITIES: Net income $ 8,278,222 $ 7,020,430 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 4,811,391 4,258,868 Gain on disposal of assets (102,897) (40,657) Change in assets and liabilities net of effects from purchase of subsidiaries: Receivables, net (7,502,939) (4,255,635) Inventories (1,626,263) (3,465,198) Refundable federal and state income taxes 166,900 1,110 Prepaid expenses (181,953) 17,642 Deferred income taxes, long-term 325,000 (340,000) Accounts payable and accrued liabilities 2,850,793 2,708,853 Accrued postretirement benefits 15,396 (244,672) Minority interest in earnings of subsidiaries 124,181 361,748 Net cash provided by operating activities $ 7,157,831 $ 6,022,489 INVESTING ACTIVITIES: Acquisition of property, plant and equipment $(13,224,474) $(8,109,059) Proceeds from disposals of property, plant and equipment 265,868 65,902 Payment for purchases of equity investments (519,341) - (Increase) decrease in other assets (355,238) 100,160 Decrease in short-term investments, net 11,838,893 5,922,555 Net cash used for investing activities $ (1,994,292) $(2,020,442) FINANCING ACTIVITIES: Cash dividends $ (3,131,709) $(2,999,634) Subsidiaries' dividends paid to minority interest (9,828) (140,379) Purchase of treasury stock (491,009) (855,440) Net cash used for financing activities $ (3,632,546) $(3,995,453) Net increase in cash and cash equivalents $ 1,530,993 $ 6,594 CASH AND CASH EQUIVALENTS, beginning of year 4,782,168 4,254,795 CASH AND CASH EQUIVALENTS, end of period $ 6,313,161 $ 4,261,389 Interest paid $5,849 $1,313 Income taxes paid $3,633,950 $3,352,693
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY The registrant's ability to generate cash adequate to meet its needs has been derived primarily from operations and the maturity of short-term investments. Cash and short-term investments decreased during the first nine months of 2000 primarily due to the increase in receivables and inventories, the purchase of equipment and the payment of dividends. RESULTS OF OPERATIONS Net sales and cost of sales increased 14.2% and 13.8%, respectively, during the first nine months of 2000 as compared to the first nine months of 1999 resulting in a 16.2% improvement in gross profit from operations. Cement sales were excellent during both the first three quarters of 2000 and the first three quarters of 1999. Although this segment did not experience significant changes in net sales between years, increased production and lower production costs combined to substantially reduce the cement segment's cost of sales and increased its gross profit from operations by nearly 40%. During these same periods, the registrant's ready-mixed concrete and sundry building materials segment increased its net sales by approximately 28%. Expansion of this segment's operations to utilize its concrete products in various construction projects provided the majority of the increase in net sales. An increase in the total volume of ready-mixed concrete sold also contributed to the increase in net sales for this segment; however, the registrant experienced decreases in ready-mixed concrete sales in some market areas. As expected, those market areas with declining sales experienced a reduction in gross profit due to fixed costs being spread over fewer units. This, combined with additional expenses incurred in the process of upgrading some of the registrant's ready-mixed concrete facilities and weather delays creating unusual expenses in the production and installation of concrete products, resulted in a decrease in gross profit from operations for this business segment. Despite decreasing cement sales to unaffiliated customers in the third quarter of 2000 as compared to the third quarter of 1999, the registrant's cement segment increased its gross profit from operations by approximately 10%. Increased production, along with lower production costs, were the primary factors contributing to the increase in this segment's gross profit from operations. The ready-mixed concrete and sundry building materials segment experienced an overall increase in net sales during the third quarter of 2000 as compared to the third quarter of 1999, even though net sales decreased in some market areas serviced by this segment. Increases in ready-mixed concrete and sundry building materials segment's cost of sales resulted in a decrease in gross profit from operations for the third quarter of 2000 as compared to the third quarter of 1999. Cost of sales and profit margins were adversely affected by factors similar to those affecting year-to-date operations. On a consolidated basis, the registrant's net sales increased 4.0% for the third quarter of 2000 as compared to the third quarter of 1999. During these same periods, cost of sales increased 7.0% resulting in a 6.0% decrease in gross profit from operations. SEASONALITY The registrant's highest revenue and earnings historically occur in its second and third fiscal quarters, April through September. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) There are no exhibits required to be filed for the quarter ended September 30, 2000. (b) There were no reports required to be filed on Form 8-K during the quarter July 1, 2000 to September 30, 2000, inclusive, for which this Form 10-Q is being filed. S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MONARCH CEMENT COMPANY (Registrant) Date November 13, 2000 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Vice Chairman of the Board Date November 13, 2000 /s/ Lyndell G. Mosley Lyndell G. Mosley, CPA Chief Financial Officer and Assistant Secretary-Treasurer