-----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, L8h65Xu/VRucVpw4MQgqZQX//6xPVQxAF7zwCk0yYCN9XdUzWori6+2StFEOWPf+ n/oo8P2Yjl116ZuER3vVZg== 0000067517-03-000005.txt : 20030317 0000067517-03-000005.hdr.sgml : 20030317 20030314181917 ACCESSION NUMBER: 0000067517-03-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030317 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: 1934 Act SEC FILE NUMBER: 000-02757 FILM NUMBER: 03604916 BUSINESS ADDRESS: STREET 1: P O BOX 1000 CITY: HUMBOLDT STATE: KS ZIP: 66748 BUSINESS PHONE: 6204732225 10-K 1 edg10k02.txt FORM 10-K UNITED STATES 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, 2002, 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 66748-0900 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: 620-473-2222 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 March 6, 2003, was $54,131,868. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask prices of such shares as of the last business day of the registrant's most recently completed second fiscal quarter was $66,833,375. As of March 6, 2003, the registrant had outstanding 2,359,671 shares of Capital Stock, par value $2.50 per share, and 1,667,287 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, 2002 - 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 9, 2003 - - Parts II and III of Form 10-K. PART I Item 1. Business Reference is hereby made to pages 1, 2, 21 and 22 of The Monarch Cement Company's 2002 annual report to stockholders (filed herewith as Exhibit 13) for a description of the Company's business, including information regarding industry segments. Such information is hereby incorporated herein by reference. In addition, we submit the following information: The Company did not introduce any new products nor begin to do business in a new industry segment during 2002. The Company owns and operates quarries located near its Humboldt, Kansas plant. Such quarries contain all essential raw materials presently used by the Company. The Company'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 Company's products are marketed under registered trademarks using the name "MONARCH". The Company's operations are not materially dependent on any trademarks, franchises, patents or on any licenses relating to the use thereof. Portland cement is the basic material used in the production of ready-mixed concrete that is used in highway, bridge and building construction. These construction activities are seasonal in nature. During winter months when the ground is frozen, groundwork preparation cannot be completed. Cold temperatures affect concrete set-time, strength and durability, limiting its use in winter months. Dry ground conditions are also required for construction activities to proceed. During the summer, winds and warmer temperatures tend to dry the ground quicker creating fewer delays in construction projects. Variations in weather conditions from year-to-year significantly affect the demand for our products during any particular quarter; however, our Company's highest revenue and earnings historically occur in its second and third fiscal quarters, April through September. It is necessary for the Company to invest a significant portion of its working capital in inventories. At December 31, 2002 the Company had inventories as follows: Cement . . . . . . . . . . . . . . . $ 1,386,348 Work in process. . . . . . . . . . . 626,130 Fuel, gypsum and other materials . . 5,284,296 Operating and maintenance supplies . 8,059,488 Total. . . . . . . . . . . $15,356,262
The Company 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 Company's consolidated net revenue during 2002, 2001 or 2000. Backlog of customers' orders is not a material factor in the Company's business. The Company 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 Company in its market area. The Company 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 Company and its competitors. Accordingly, competition exists primarily in the areas of price and customer service. The Company did not spend a material amount in the last three fiscal years on Company sponsored research and development. However, the Company is a member of the Portland Cement Association which conducts research for the cement industry. The Company has, during the past several years, made substantial capital expenditures for pollution control equipment. The Company also incurs normal operating and maintenance expenditures in connection with its pollution control equipment. At December 31, 2002, the Company and its subsidiaries employed approximately 700 employees including 325 hourly non-union employees, 235 hourly union employees, and 140 salaried employees, which included plant supervisory personnel, sales and executive staff. The Company has a good working relationship with its employees and has been successful in negotiating multiyear union contracts without work stoppages. All of the Company's operations and sales are in one geographic area consisting primarily of the State of Kansas, the State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and northern Oklahoma. Item 2. Properties The Company'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 Company owns approximately 5,000 acres of land on which the Humboldt plant, offices and all essential raw materials are located. This plant has a present annual capacity of 875,000 tons of cement. The Company 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 Company began updating its equipment to improve efficiency and increase capacity. We have completed the installation of a precalciner and clinker cooler on one of our preheater kilns and have purchase a precalciner and clinker cooler to increase production through our second preheater kiln. We have postponed the installation of this equipment until market projections indicate the need for this additional kiln capacity. The installation of this equipment would allow the Company to produce in excess of one million tons of cement per year. Producing at that level, raw material reserves are estimated to be sufficient to maintain operations at this plant for more than 50 years. Reference is hereby made to pages 3 and 4 of the Company's 2002 annual report to stockholders (filed herewith as Exhibit 13) for a description of the Company's capital resources and expansion plans. Such information is hereby incorporated herein by reference. The Company also owns approximately 250 acres of land in Des Moines, Iowa on which it operates a cement terminal. The Company transfers cement produced in Humboldt, Kansas to this terminal for distribution to Iowa customers. The Company 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 Company 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 Company's overall operations. Item 3. Legal Proceedings The Company was not a party to any material legal proceedings during 2002. Item 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matter to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2002. 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 8 of the Company's 2002 annual report to stockholders. In addition we submit the following: The Company does not have any compensation plans or individual compensation arrangements under which equity securities of the registrant are authorized for issuance to employees or non-employees. 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 Company's 2002 annual report to stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the material responsive to this Item on pages 2 through 8 of the Company's 2002 annual report to stockholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to various market risks, including equity investment prices. The Company has $8,540,000 of equity securities as of December 31, 2002. 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 $510,000 effect on comprehensive income. The Company also has $28,048,076 of bank loans as of December 31, 2002. Interest rates on the Company's advancing term loan and line of credit are variable and are based on the JP Morgan Chase prime rate less 1.25% and ..75%, respectively. 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 9 through 23 of the Company's 2002 annual report to stockholders. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 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 12 and 13 of the Company's definitive proxy statement prepared in connection with its 2003 annual meeting of stockholders pursuant to Regulation 14A and previously filed with the Commission. 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 Company's definitive proxy statement prepared in connection with its 2003 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 Company's definitive proxy statement prepared in connection with its 2003 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 Company's definitive proxy statement prepared in connection with its 2003 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 Company's definitive proxy statement prepared in connection with its 2003 annual meeting of stockholders pursuant to Regulation 14A and previously filed with the Commission. Item 14. Controls and Procedures (a) Based on an evaluation of disclosure controls and procedures for the period ended December 31, 2002 conducted by our President and Chief Financial Officer, we conclude that our disclosure controls and procedures are effective. The President and Chief Financial Officer conducted this evaluation on February 4, 2003. (b) In February 2003, the independent public accountants studied and evaluated the Company's internal control structure in connection with the audit of our annual consolidated financial statements. This was not intended to be a complete audit of all our internal controls. There were no significant changes in our internal control or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation, nor any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken. PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Financial Statements The reports of Independent Public Accountants--BKD, LLP and Arthur Andersen LLP; the Consolidated Balance Sheets--December 31, 2002 and 2001; the Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000; the Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000; the Consolidated Statements of Stockholders' Investment for the Years Ended December 31, 2002, 2001 and 2000; the Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000; and the Notes to Consolidated Financial Statements are incorporated by reference in Item 8 to this report from the Company's 2002 annual report to stockholders on pages 9 through 23. Supporting Schedules Schedule II -- Valuation and Qualifying Accounts Exhibits 3(i) Articles of Incorporation. (Filed with the Company'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 Company's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(ii) and incorporated herein by reference.) 10.1 Loan agreement dated January 1, 2001, between the Bank of Oklahoma N.A. and The Monarch Cement Company. (Filed with the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2001 (File No. 0-2757) as Exhibit 10.1 and incorporated herein by reference.) 10.1(a) First amendment to agreement dated January 1, 2001, between the Bank of Oklahoma N.A. and The Monarch Cement Company. 13 2002 Annual Report to Stockholders. 16(a) Letter re change in certifying public accountant. Filed with the Company's report on Form 8-K, May 15, 2002 (File No. 0-2757) as Exhibit 16 and incorporated herein by reference.) 16(b) Letter re change in certifying public accountant. Filed with the Company's report on Form 8-K, August 12, 2002 (File No. 0-2757) as Exhibit 16 and incorporated herein by reference.) 21 Subsidiaries of the Registrant. Form 8-K There was one Form 8-K report filed during the last quarter of 2002 (October 1, 2002 through December 31, 2002). This report contained the Certification of the Chief Executive Officer and the Certification of the Chief Financial Officer which accompanied the Form 10-Q filed for the quarter ended September 30, 2002. 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 14, 2003 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/ Ronald E. Callaway By: /s/ Byron K. Radcliff Ronald E. Callaway Byron K. Radcliff Director Director Date: March 14, 2003 Date: March 14, 2003 By: /s/ David L. Deffner By: /s/ Walter H. Wulf, Jr. David L. Deffner Walter H. Wulf, Jr. Director President, Principal Executive Officer and Director Date: March 14, 2003 Date: March 14, 2003 By: /s/ Robert M. Kissick By: /s/ Lyndell G. Mosley Robert M. Kissick Lyndell G. Mosley, CPA Director Chief Financial Officer Date: March 14, 2003 Date: March 14, 2003 By: /s/ Gayle C. McMillen By: /s/ Debra P. Roe Gayle C. McMillen Debra P. Roe, CPA Director Principal Accounting Officer Date: March 14, 2003 Date: March 14, 2003 CERTIFICATION I, Walter H. Wulf, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of The Monarch Cement Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 14, 2003 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board I, Lyndell G. Mosley, certify that: 1. I have reviewed this annual report on Form 10-K of The Monarch Cement Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 14, 2003 /s/ Lyndell G. Mosley Lyndell G. Mosley Chief Financial Officer and Assistant Secretary-Treasurer Report of Independent Accountants' on Financial Statement Schedules Board of Directors and Stockholders The Monarch Cement Company Humboldt, Kansas In connection with our audit of the consolidated financial statements of The Monarch Cement Company for the year ended December 31, 2002, we have also audited the following financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit of the basic consolidated financial statements. This schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and is not a required part of the consolidated financial statements. In our opinion, the 2002 financial statement schedule referred to above, when considered in relation to the 2002 basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. The financial statement schedules for the two years ended December 31, 2001, were audited by other accountants who have ceased operations. Their report dated February 22, 2002, expressed an unqualified opinion on such financial statement schedules in relation to the basic consolidated financial statements for the two years ended December 31, 2001, taken as a whole. BKD, LLP Kansas City, Missouri February 14, 2003 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of The Monarch Cement Company We have audited in accordance with auditing standards generally accepted in the United States, 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 22, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule of Valuation and Qualifying Accounts (Schedule II) is the responsibility of the Company's management and is presented for purposes of complying with the Securities Exchange Commission's rules and is not part of the basic consolidated 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. Arthur Andersen LLP Kansas City, Missouri, February 22, 2002 * The report is a copy of the previously issued report. * The predecessor auditor has not reissued the report. THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2002
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, 2002: Reserve for doubtful accounts $493,000 $468,000 $317,000 $644,000 For the Year Ended December 31, 2001: Reserve for doubtful accounts $375,000 $199,000 $ 81,000 $493,000 For the Year Ended December 31, 2000: Reserve for doubtful accounts $409,000 $ 78,000 $112,000 $375,000 (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 Company'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 Company's annual report on Form 10-K for the year ended December 31, 1994 (File No. 0-2757) as Exhibit 3(ii) and incorporated herein by reference.) 10.1 Loan agreement dated January 1, 2001, between the Bank of Oklahoma N.A. and The Monarch Cement Company. (Filed with the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2001 (File No. 0-2757) as Exhibit 10.1 and incorporated herein by reference.) 10.1(a) First amendment to agreement dated January 1, 2001, between the Bank of Oklahoma N.A. and The Monarch Cement Company. 13 2002 Annual Report to Stockholders. 16(a) Letter re change in certifying public accountant. (Filed with the Company's report on Form 8-K, May 15, 2002 (File No. 0-2757) as Exhibit 16 and incorporated herein by reference.) 16(b) Letter re change in certifying public accountant. (Filed with the Company's report on Form 8-K, August 12, 2002 (File No. 0-2757) as Exhibit 16 and incorporated herein by reference.) 21 Subsidiaries of the Registrant. EX-10 2 bokloanamd.txt BANK OF OKLAHOMA N.A. Jane P. Faulkenberry Senior Vice President Bank of Oklahoma Tower 918-588-6272 P 0. Box 2300 FAX: 918-280-3368 Tulsa, Oklahoma 74192 Jfaulkenberry@bokf.com December 31, 2002 Mr. Lyndell G. Mosley Chief Financial Officer The Monarch Cement Company 449 1200 Street Humboldt, KS 66748 RE: First Amendment to Agreement dated January 1, 2001 between The Monarch Cement Company ("Borrower") and Bank of Oklahoma, N.A. ("Lender") in the aggregate amount of $35,000,000 (the "Loan Agreement"). Dear Lyndell: Bank of Oklahoma, N.A. ("Lender") is pleased to renew and modify the Loan Agreement subject to the terms of this letter amendment ("First Amendment"). Subject to the terms of the Loan Agreement as modified by this First Amendment, the Commitment will be: 1) a $25,000,000 Term Loan ("Term Loan") that is a modification and decrease of the $30,000,000 Advancing Term Loan; and 2) a $10,000,000 Revolving Line of Credit ("Revolving Line") that is a renewal and increase of the $5,000,000 Revolving Line. Section 1 of the Loan Agreement is hereby deleted and replaced with the following: 1. The Term Loan. Lender agrees to loan Borrower $25,000,000 as evidenced by a promissory note in the form attached hereto as Exhibit A, maturing on December 31, 2005, (which, together with any extensions, renewals and changes in form thereof, is hereinafter referred to as the "Term Note"). 1.1. The Term Note will be payable in equal quarterly installments of principal and interest in an amount to equate to a seven-year amortization, with such payments calculated using the interest rate in effect on December 31, 2002 (3.00%), provided however, that either Lender or Borrower may elect to recalculate the payment installments on the 12-month anniversary of this First Amendment based on the outstanding principal balance on that date, the current floating interest rate on that date, and the number of quarters remaining in the original seven year amortization. All outstanding principal and interest will be due and payable on December 31, 2005. 1.2. Interest shall accrue and be payable quarterly as set forth in the Term Note at a floating interest rate of the J.P. Morgan Chase prime rate less 1.25%. 1.3. Borrower may prepay the Term Loan in whole or part at any time without penalty. Section 2 of the Loan Agreement is hereby deleted and replaced with the following: 2. The Revolving Line. Lender agrees to loan Borrower up to $10,000,000 as Borrower may from time to time request as evidenced by a promissory note in the form attached as Exhibit B, maturing on December 31, 2003 (which together with any extensions, renewals and changes in form thereof, is hereinafter referred to as the "Line Note"). Advances under the Line Note shall be used for working capital and general corporate purposes, including issuance of letters of credit. 2.1. Provided there is no Event of Default, Borrower may advance, pay down, and re-advance funds on the Line Note. 2.2. Letters of Credit shall be issued pursuant to Lender's standard procedure, upon receipt by Lender of an application; provided that (a) no event of default has occurred and is continuing, and (b) the requested letter of credit will not expire after the maturity date of the Line Note. Borrower shall pay all standard fees and costs charged by Lender in connection with the issuance of Letters of Credit. Lender shall be reimbursed for drawings under the Letters of Credit either by Borrower or by an advance on the Line Note. 2.3. Borrower may prepay the Revolving Line in whole or part at any time without penalty. 2.4. Interest shall accrue and be payable quarterly as set forth in the Line Note at a floating interest rate of J.P. Morgan Chase prime rate less ..75%. The outstanding principal balance plus accrued interest shall be payable at maturity date of December 31, 2003. TERMS AND CONDITIONS: Unless otherwise agreed to in writing by Lender: 1. Financial Statements: Borrower will provide annual audited financial statements within 120 days of the end of each fiscal year and quarterly unaudited financial statements within 60 days after the end of each quarter. 2. Capital Budget: Borrower will provide to Lender, prior to the beginning of Borrower's fiscal year and with quarterly updates thereafter, its capital spending budget in form acceptable to Lender. 3. Minimum Net Worth: Borrower will maintain a minimum tangible net worth (in accordance with generally accepted accounting principles) of $70,000,000 determined on the last day of any fiscal quarter commencing with the quarter ending December 31, 2002. 4. Sale or Merger: Borrower will not sell to, merge or consolidate with any person or entity or permit any such merger or consolidation with the Borrower, except for: a) mergers between Borrower and any of its subsidiaries or between any of its subsidiaries, and b) mergers in which Borrower is the surviving entity. 5. Creation or Existence of Liens: Borrower will not create or permit to exist any mortgage, pledge, lien, or other encumbrance on any of its property, personal or real, tangible or intangible, other than purchase money liens up to $5,000,000 in the aggregate related to the acquisition of assets of Borrower in the ordinary course of business. 6. Limitation on Indebtedness: No limitation, other than Borrower will not create, assume, or incur: i) Secured debt in the aggregate in excess of $1,000,000; and ii) Unsecured debt (other than the Commitment herein) in the aggregate in excess of $2,000,000. 7. Change in Ownership: Borrower will not permit the sale or transfer of capital stock that results in a change in control of Borrower. A change in control (as defined in Borrower's proxy statement) is any merger, consolidation, or disposition of all or substantially all of the assets of Borrower or any acquisition by any person or group of persons acting in concert who after such acquisition would own more than 30% of the Borrower's outstanding voting stock. 8. Reimbursement of Expenses: Borrower will pay all reasonable and customary out-of-pocket expenses incurred as part of the Loan Agreement, including but not limited to reasonable attorney's fees; however, there will be no costs to Borrower for preparation of this First Amendment, absent material modifications or extended negotiations. 9. General Terms: Borrower agrees to maintain its properties, maintain insurance in amounts and against risks customary for Borrower's business, maintain all licenses and permits necessary to conduct Borrower's business, comply with laws including but not limited to environmental laws, and maintain its corporate existence in good standing. EVENTS OF DEFAULT: Borrower shall be in default under this Agreement upon the occurrence of any one or more of the following events or conditions, herein called "Default": 1. Any payment required under any Note or obligation of Borrower to Lender is not made within ten days of the due date. 2. Borrower fails to perform or comply with any covenant, obligation, warranty or provision in this Agreement or in any note or obligation of Borrower to Lender, and such default continues uncured for thirty days or more from date of occurrence. 3. Any warranty, representation, financial information, or statement made or furnished to Lender by or in behalf of Borrower proves to have been false in any material respect when made or furnished. 4. The condemnation, seizure or appropriation of substantially all, or such as in Lender's reasonable opinion constitutes a material portion, of the assets of Borrower. 5. The rendering against Borrower of one or more final judgments, decrees, or orders for payment not covered by insurance, and the continuance of such judgment or order unsatisfied and in effect for any period of thirty consecutive days without a stay of execution. 6. Dissolution or termination of existence of Borrower 7. Appointment of a receiver over any part of the property of Borrower, the assignment of property of Borrower for the benefit of creditors, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against Borrower. Upon the occurrence or the existence of a Default, Lender may, at its option and without notice or demand to Borrower, immediately declare due and payable all liabilities and obligations of Borrower to Lender and exercise all rights and remedies possessed by Lender. GENERAL PROVISIONS: Unless otherwise specified herein, all terms and conditions, representations, and warranties of Borrower in the Loan Agreement remain in full force and effect. In addition to the terms of the Loan Agreement, as modified by this First Amendment, Borrower consents to the provisions of the Term Note and Line Note; provided however, that to the extent any conflict exists between the Loan Agreement and the Notes, then this Loan Agreement shall be controlling. LENDER BORROWER Bank of Oklahoma, N.A. The Monarch Cement Company By: /s/ Jane Faulkenberry By: /s/ Walter H. Wulf, Jr. Name: Jane Faulkenberry Name: Walter H. Wulf, Jr. Title: Senior Vice President Title: President and Chairman 1 EX-21 4 exh2102.txt Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
State of Names Under Which Names of Subsidiaries Incorporation They do Business Capitol Concrete Products Kansas Capitol Concrete Products Company, Inc. Company, Inc. 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 Arrow Concrete Company Tulsa Dynaspan, Inc.
All other subsidiaries considered in the aggregate as a single subsidiary do not constitute a significant subsidiary. EX-13 5 anrpt02.txt 2002 ANNUAL REPORT THE MONARCH CEMENT COMPANY March 17, 2003 ANNUAL REPORT TO STOCKHOLDERS Demand for cement and ready-mixed concrete in 2002 continued to challenge us to maximize production in order to meet the needs of our customers. Record sales of $134 million exceeded last year's record sales by $8 million. Additional sales of ready-mixed concrete and sundry building materials enabled us to more fully utilize the equipment in this segment resulting in improved profit margins. Profit margins in the cement manufacturing segment were adversely affected by the additional depreciation related to the new construction projects completed in the last half of 2001. We did not continue our cement construction projects in 2002 although the equipment has been purchased for the next phase of our expansion and modernization program. We are monitoring both current and long-term market conditions as we consider timing of our future expansion plans. We are also studying the effects of the rising cost of natural gas on the operation of our precalciner kiln to determine the timing of installation of the coal firing system. As we look ahead to 2003, demand within our market area varies by location. The Kansas highway program is currently on target through 2003, although the Kansas legislature has voted to divert money from future highway projects to other areas due to serious budget shortfalls. Other major projects, including schools, detention facilities and waste water treatment plants are also scheduled for 2003. The Portland Cement Association predicts a 1.2% downturn in U.S. cement consumption in 2003; however, the overall five- year forecast for cement sales continues to be strong. As the economy continues to struggle, we recognize and thank our customers for their contribution to our success through promoting the use of our products. Their continued hard work in our market area and their confidence in our products created the demand resulting in the record sales reported for 2002. We want to express our appreciation to our stockholders for their continued confidence in our Company during these times of stock market unrest. Special recognition is also due our employees whose efforts continue to contribute to our success. Most importantly, we thank our Heavenly Father, because without His blessings and support, we would not have achieved the results displayed in this report and could not meet the challenges of the years to come. We wish to invite you, our stockholders, to attend Monarch's annual meeting to be held at 2:00 p.m. on April 9, 2003 in the corporate office, Humboldt, Kansas. Thank you for your support throughout the years and God Bless. WALTER H. WULF, JR. President and Chairman of the Board THE MONARCH CEMENT COMPANY AND SUBSIDIARIES SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 2002 (Dollar amounts in thousands except per share data)
2002 2001 2000 1999 1998 Net sales . . . . . . . . . $134,550 $126,352 $119,362 $111,624 $101,548 Net income. . . . . . . . . $ 5,903 $ 8,151 $ 10,499 $ 9,654 $ 9,653 Net income per share. . . . $1.47 $2.01 $2.55 $2.32 $2.30 Total assets. . . . . . . . $133,506 $ 126,638 $96,102 $ 89,824 $ 84,868 Long-term obligations . . . $ 26,540 $ 19,900 $ - $ - $ - Cash dividends declared per share . . . . . . . . $.80 $.80 $.78 $.74 $.68 Stockholders' investment per share . . . . . . . . $19.70 $19.63 $18.36 $16.75 $15.35
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 that 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 that is used in highway, bridge and building construction where strength and durability are primary requirements. The Monarch Cement Company and Subsidiaries (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. 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 (1) by the manufacture and sale of cement and (2) by the sale of ready-mixed concrete and sundry building materials:
Total Sales December 31, 2002 2001 2000 Cement Manufacturing. . . . . . . 39.8% 41.5% 41.6% Ready-Mixed Concrete and Sundry Building Materials . . . 60.2% 58.5% 58.4% 100.0% 100.0% 100.0%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 information". Except for historical information, the statements made in this report are forward-looking statements that involve risks and uncertainties. You can identify these statements by forward-looking words such as "should", "expect", "anticipate", "believe", "intend", "may", "hope", "forecast" or similar words. In particular, statements with respect to variations in future demand for our products in our market area or the future activity of Kansas highway programs and other major construction projects, the timing, scope, cost and benefits of our proposed and recently completed capital improvements and expansion plans, including the resulting increase in production capacity, our forecasted cement sales, the timing and source of funds for the repayment of our line of credit, and our anticipated increase in solid fuels and electricity required to operate our facilities and equipment are all forward-looking statements. You should be aware that 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; * demand for our Company's products; * cyclical and seasonal nature of our business; * the affect weather has on our business; * the affect of environmental and other government regulations; and * the affect of federal and state funding on demand for our products. Liquidity We are able to meet our cash needs primarily from a combination of operations and bank loans. Cash increased during the year 2002 primarily due to income from operations and bank loans. In December 2002, we renegotiated our unsecured credit commitment with a bank. This revised commitment consists of a $25,000,000 advancing term loan maturing December 31, 2005 and a $10,000,000 line of credit maturing December 31, 2003. These loans bear floating interest rates based on JP Morgan Chase prime rate less 1.25% and .75%, respectively. The loan agreement contains a financial covenant related to net worth which the Company was in compliance with at year-end. As of December 31, 2002, we had borrowed $25,000,000 on the advancing term loan and $3,048,076 on the line of credit leaving a balance available on the line of credit of $6,951,924. The average daily interest rate we paid during 2002 was 3.4%. At year-end, the applicable interest rate was 3.0% on the advancing term loan and 3.5% on the line of credit. We have used these loans to help finance the expansion project at our cement manufacturing facility. We anticipate that the line of credit maturing December 31, 2003 will be paid using funds from operations or replacement bank financing. Our board of directors has given management the authority to borrow an additional $15,000,000 for a maximum of $50,000,000. At this time we do not anticipate borrowing the additional $15,000,000; although an increase in financing may be required on a short-term basis. Contractual obligations at December 31, 2002 consisting of maturities on long-term debt are as follows: 2003 $ 3,255,476 2004 3,583,949 2005 18,633,981 2006 197,318 2007 209,284 Thereafter 660,131 $26,540,139
Financial Condition Total assets as of December 31, 2002 were $133,506,264, an increase of $6,868,601 since December 31, 2001. The increase in receivables is due to slow payments related to long-term contracts and increased sales. The majority of the past due amount relates to cement sold to bonded jobs insuring the collectability of the related receivables. The decrease in inventories is mainly due to a reduction in clinker inventory. This clinker was ground into cement to keep up with cement demand. Other assets increased primarily as a result of an increase in equity investments. Indebtedness increased $4,688,560 during the year 2002 due primarily to capital expenditures. During 2002, we recorded a minimum pension liability resulting in an increase in accrued pension expense of $2,418,375 and a decrease in stockholders' investment of $2,259,000. Stockholders' investment increased .4% during 2002. Basic earnings were $1.47 per share and dividends declared were $.80 per share for the year 2002. Capital Resources During 2002, the Company invested $11,118,444 in property, plant and equipment. The Company regularly has capital expenditures of $10,000,000 to $12,000,000 per year in keeping its equipment and facilities in good operating condition. As of the end of 2001, we had completed the installation of a precalciner and clinker cooler on one of our kilns. We had also started preliminary work on a precalciner and clinker cooler for our second preheater kiln and the design of a new coal firing system to fuel the precalciners on both kilns. By the end of 2002, we had received and paid for this equipment; however, we have postponed its installation until market projections indicate the need for this additional kiln capacity. We will continue to evaluate market conditions, proposed capital expenditures and the Company's cash resources as we finalize the timing of expansion projects and loan requirements. The Company also plans to invest in other miscellaneous equipment and facility improvements in both the cement and ready-mixed concrete segments in 2003. It is expected that the Company's capital expenditures will approximate $10,000,000 during 2003 and will be funded with a mixture of cash from operations and temporary bank loans. Results of Operations
Ready-Mixed Concrete Cement and Sundry Manu- Building facturing Materials Consolidated FOR THE YEAR ENDED DECEMBER 31, 2002: Sales to unaffiliated customers $53,514,889 $81,035,388 $134,550,277 Income from operations 8,211,792 2,089,667 10,301,459 FOR THE YEAR ENDED DECEMBER 31, 2001: Sales to unaffiliated customers $52,484,654 $73,867,012 $126,351,666 Income (loss) from operations 9,745,880 (541,712) 9,204,168 FOR THE YEAR ENDED DECEMBER 31, 2000: Sales to unaffiliated customers $49,601,302 $69,760,428 $119,361,730 Income (loss) from operations 13,019,516 (1,765,148) 11,254,368
General--Cement, ready-mixed concrete and sundry building materials are used in residential, commercial and governmental construction. Although overall demand for our products by each of these segments remained strong during 2002, it varies within our market area. In some areas of our market, residential construction is down while commercial and governmental needs are up. In other areas residential demand is up and commercial and governmental use is down. Looking back at 2002 our success can be attributed to this variety of construction activities; our ability to capitalize on the construction opportunities at each location; and the generally strong economic conditions which was at least partially fueled by low interest rates. Looking ahead to 2003, the Portland Cement Association predicts only a slight downturn in the total U.S. consumption of cement (1.2% decrease). Residential construction, although not as strong as 2002, is still predicted to remain strong due to continued projected low interest rates. Major commercial and governmental construction projects, including parking garages, schools, hospitals, waste water treatment plants, and detention facilities are currently underway in our market area and we are hopeful new projects will follow those currently underway. The Kansas highway program is currently on target through 2003, although Kansas legislature has voted to divert money from future highway projects to other areas due to serious budget shortfalls. For the last five 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, Kansas plant. Plant modifications completed in recent years increased the production capacity of the Humboldt plant. These favorable market conditions and the Company's increased production capacity are the primary factors that have led to the Company's increased cement sales revenues in recent years. Gross profit in the years 2002 and 2001 was adversely affected by the increased depreciation related to facility upgrades completed in 2001. The Company's ready-mixed concrete operations were profitable during 2002 after experiencing operating losses during both 2001 and 2000. Increase sales volume in 2002 as compared to 2001 resulted in another year of improved operating results. Sales volume increases during 2001 resulted in reduced operating losses. During 2000, the segment was adversely affected by volume declines, additional expenses incurred in the process of upgrading facilities and weather delays creating unusual expenses in the production and installation of concrete products. 2002 Compared to 2001--Consolidated net sales for the year ended December 31, 2002 were $134,550,277, an increase of $8,198,611 as compared to the year ended December 31, 2001. Sales of cement were higher by $1,030,235 and sales of ready-mixed concrete and sundry building materials were higher by $7,168,376. Increased construction activity made it possible to increase the sales volume of both cement and ready-mixed concrete and sundry building materials resulting in higher net sales. Our overall gross profit rate for the year 2002 was 16.0% compared to 15.3% for the year 2001 with the decline in gross profit in our cement segment being more than offset by the increase in our ready-mixed concrete and sundry building materials segment. Additional depreciation related to facility upgrades completed in 2001 was the primary factor contributing to the cement segment's lower gross profit rate in 2002 as compared to 2001. Higher sales volume of ready-mixed concrete and sundry building materials during 2002 as compared to 2001 resulted in better utilization of manpower and equipment and an improvement in this segment's gross profit rate. Selling, general and administrative expenses increased 10.6% during the year 2002 compared to the year 2001. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. However during 2002, the Company hired additional selling and administrative personnel, primarily in the ready-mixed concrete and sundry building materials segment. Rising health care costs also contributed to the overall increase in selling, general and administrative expenses. Interest income decreased $286,314 during 2002 as compared to the year 2001. In 2001, the Company received interest on amended state income tax returns. A reduction in short-term investments as the Company utilized these funds for capital improvements also contributed to the decline in interest income. Interest expense, net of amount capitalized ($-0- in 2002 and $927,262 in 2001), increased $993,421 during 2002 as compared to the year 2001 primarily due to the increase in bank loans outstanding. The Company utilized these loans for capital improvements. "Other, net" decreased $2,730,555 for the year 2002 as compared to the year 2001 primarily due to a reduction in the amount of gain realized on the 2001 sale of other equity investments, a reduction in subsidiary losses allocated to minority interest and a 2002 write-off of obsolete equipment. The effective tax rates for years 2002 and 2001 were 32.4% and 30.0%, respectively. The Company's effective tax rate differs from the federal and state statutory income tax rate primarily due to the effects of percentage depletion and minority interest in consolidated income (loss). 2001 Compared to 2000--Consolidated net sales for the year ended December 31, 2001 were $126,351,666, an increase of $6,989,936 as compared to the year ended December 31, 2000. Sales of cement were higher by $2,883,352 and sales of ready-mixed concrete and sundry building materials were higher by $4,106,584. Sales of cement and ready-mixed concrete are significantly affected by weather conditions in our market area. Wet weather in the latter part of 2000 continued into the first part of 2001 slowing construction projects and decreasing sales of both cement and ready-mixed concrete during these periods. Mild, dry weather during the balance of 2001, allowed construction projects to proceed at a rapid pace through year-end. As a result, the Company's net sales for the last half of 2001 were 17.7% greater than net sales for the last half of 2000 resulting in a 5.9% increase in net sales for the year. The gross profit rate for the year 2001 was 15.3% compared to 16.8% for the year 2000. During 2001, the Company continued upgrading and expanding its plant facilities. As projects neared completion, it was necessary to shut down major pieces of equipment to complete the tie-ins from one production process to the next. The resulting decrease in production and corresponding increase in production costs, along with the additional depreciation relating to this equipment, were the primary factors contributing to the decrease in the gross profit rate. Higher sales volume of ready-mixed concrete and sundry building materials during 2001 as compared to 2000 resulted in better utilization of manpower and equipment and an improvement in this segment's gross profit rate. Selling, general, and administrative expenses increased 15.8% during the year 2001 compared to the year 2000. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. However during 2001, the Company hired additional selling and administrative personnel, primarily in the ready-mixed concrete and sundry building materials segment. The resulting increases in payroll and health care costs contributed to the overall increase in selling, general and administrative expenses, although no single factor increased materially. Interest income decreased $229,226 during 2001 as compared to the year 2000 primarily due to the reduction in short-term investments as the Company utilized these funds for capital improvements. "Other, net" decreased $1,068,440 for the year 2001 as compared to the year 2000 primarily due to a reduction in the amount of gain realized on the sale of other equity investments. The effective tax rates for years 2001 and 2000 were 30.0%. The Company's effective tax rate differs from the federal and state statutory income tax rate primarily due to the effects of percentage depletion and minority interest in consolidated income (loss). Accounting Policies--The critical accounting policies with respect to the Company are those related to revenue recognition, inventories, property, plant and equipment, and depreciation. The Company records revenue from the sale of cement, ready-mixed concrete and sundry building materials when the products are delivered to the customer. Long-term construction contract revenues are recognized on the percentage-of- completion method based on the costs incurred relative to total estimated costs. Full provision is made for any anticipated losses. Billings for long- term construction contracts are rendered monthly, including the amount of retainage withheld by the customer until contract completion. Retainages are included in accounts receivable and are generally due within one year. Inventories of finished cement, work in process and building products are recorded at the lower of cost or market on a last-in, first-out (LIFO) basis. Under the average cost method of accounting (which approximates current cost), these inventories would have been $2,340,000, $1,980,000 and $1,362,000 higher than those reported at December 31, 2002, 2001 and 2000, 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. Property, plant and equipment are stated at cost of acquisition or construction. The Company capitalizes the cost of interest on borrowed funds used to finance the construction of property, plant and equipment. During 2002 and 2001, the company capitalized approximately $-0- and $927,000, respectively, of interest expense related to current construction projects. Expenditures for improvements that significantly increase the assets' useful lives are capitalized while maintenance and repairs are charged to expense as incurred. Depreciation of property, plant and equipment is provided by charges to operations over the estimated useful lives of the assets using primarily accelerated methods. Depletion rates for quarry lands are designed to amortize the cost over the estimated recoverable reserves. The Financial Accounting Standards Board (FASB) recently issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," effective for guarantees issued or modified after December 31, 2002, Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," effective for the 2002 calendar year, and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective for the 2002 calendar year which are not expected to have a material effect on the Company's financial position or results of operations. The Company has not yet assessed the impact, if any, of adopting SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for the 2003 calendar year. In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" which is not expected to have a material effect on the Company's financial position or results of operations. In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" and in December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which are not expected to have a material effect on the Company's financial position or results of operations. Market Risks--Market risks relating to the Company's operations result primarily from changes in demand for our products. A significant increase in interest rates could lead to a reduction in construction activities in both the residential and commercial market. Budget shortfalls during economic slowdowns could cause money to be diverted away from highway projects, schools, detention facilities and other governmental construction projects. Reduction in construction activity lowers the demand for cement, ready-mixed concrete and sundry building materials. As demand decreases, competition to retain sales volume could create downward pressure on sales prices. The manufacture of cement requires a significant investment in property, plant and equipment and a trained workforce 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. Interest rates on the Company's advancing term loan and line of credit are variable and are based on the JP Morgan Chase prime rate less 1.25% and ..75%, respectively. Inflation--Inflation directly affects the Company's operating costs. The manufacture of cement requires the use of a significant amount of energy. The Company burns primarily solid fuels, such as coal and petroleum coke, in its preheater kilns. We do not anticipate a significant increase above the rate of inflation in the cost of these solid fuels, or in the electricity required to operate our cement manufacturing equipment. In 2001, the Company added a precalciner to one of its kilns to increase production capacity. This precalciner burns natural gas. Increases in natural gas prices exceeding the rate of inflation create an above average increase in manufacturing costs. The Company has plans to add a coal firing system to its precalciner kiln to reduce dependence on natural gas. 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. STOCK MARKET AND DIVIDEND DATA On March 1, 2003, 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 as reported by Yahoo! at http://finance.yahoo.com/, and dividends declared for each quarter of our two latest fiscal years:
2002 2001 Price Dividends Price Dividends Quarter Low High Declared Low High Declared_ First $18.400 $19.500 $ - $17.500 $17.875 $ - Second $19.350 $21.500 $.20 $17.750 $19.750 $.20 Third $18.750 $21.800 $.20 $18.850 $20.500 $.20 Fourth $17.200 $18.100 $.40* $18.300 $19.200 $.40* *Reflects declaration of two $.20 dividends payable in the first quarter of 2003 and 2002.
Independent Accountants' Report Board of Directors and Stockholders The Monarch Cement Company Humboldt, Kansas We have audited the accompanying consolidated balance sheet of The Monarch Cement Company as of December 31, 2002, and the related consolidated statements of income, stockholders' investment and cash flows for the year then ended. 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 audit. The financial statements of The Monarch Cement Company as of December 31, 2001, and for the two years then ended were audited by other accountants who have ceased operations. Their report dated February 22, 2002, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Monarch Cement Company as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. BKD, LLP Kansas City, Missouri February 14, 2003 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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Kansas City, Missouri, February 22, 2002 * The report is a copy of the previously issued report. * The predecessor auditor has not reissued the report. THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001
ASSETS 2 0 0 2 2 0 0 1 CURRENT ASSETS: Cash and cash equivalents $ 3,909,215 $ 3,224,861 Short-term investments, at cost which approximates market 1,493 164,073 Receivables, less allowances of $644,000 in 2002 and $493,000 in 2001 for doubtful accounts 15,915,121 13,262,283 Inventories, priced at cost which is not in excess of market- Cost determined by last-in, first-out method- Finished cement $ 1,386,348 $ 1,813,898 Work in process 626,130 2,629,984 Building products 1,119,723 1,159,676 Cost determined by first-in, first-out method- Fuel, gypsum, paper sacks and other 4,164,573 4,119,068 Cost determined by average method- Operating and maintenance supplies 8,059,488 7,867,711 Total inventories $ 15,356,262 $ 17,590,337 Refundable federal and state income taxes 562,496 474,867 Deferred income taxes 593,000 505,000 Prepaid expenses 82,304 66,193 Total current assets $ 36,419,891 $ 35,287,614 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $96,128,254 in 2002 and $92,458,417 in 2001 82,331,077 81,441,837 DEFERRED INCOME TAXES 4,038,000 2,305,000 OTHER ASSETS 10,717,296 7,603,212 $133,506,264 $126,637,663 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 5,845,901 $ 6,636,841 Bank loan payable 3,048,076 5,000,000 Current portion of advancing term loan 3,255,476 - Accrued liabilities- Dividends 1,610,783 1,610,783 Compensation and benefits 1,909,149 2,344,263 Miscellaneous taxes 634,831 671,667 Other 857,093 535,644 Total current liabilities $ 17,161,309 $ 16,799,198 LONG-TERM DEBT 23,284,663 19,899,655 ACCRUED POSTRETIREMENT BENEFITS 9,322,377 8,442,462 ACCRUED PENSION EXPENSE 2,418,375 - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,969,101 2,453,827 STOCKHOLDERS' INVESTMENT: Capital Stock, par value $2.50 per share, 1 vote per share-Authorized 10,000,000 shares, Issued 2,344,293 shares at December 31, 2002 and 2,303,362 shares at December 31, 2001 $ 5,860,733 $ 5,758,405 Class B Capital Stock, par value $2.50 per share, 10 votes per share-Authorized 10,000,000 shares, Issued 1,682,665 shares at December 31, 2002 and 1,723,596 shares at December 31, 2001 4,206,662 4,308,990 Retained Earnings 70,582,044 67,900,126 Accumulated other comprehensive income (loss) (1,299,000) 1,075,000 Total stockholders' investment $ 79,350,439 $ 79,042,521 $133,506,264 $126,637,663 See notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2 0 0 2 2 0 0 1 2 0 0 0 NET SALES $134,550,277 $126,351,666 $119,361,730 COST OF SALES 113,040,462 107,009,432 99,352,725 Gross profit from operations $ 21,509,815 $ 19,342,234 $ 20,009,005 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,208,356 10,138,066 8,754,637 Income from operations $ 10,301,459 $ 9,204,168 $ 11,254,368 OTHER INCOME (EXPENSE): Interest income $ 367,574 $ 653,888 $ 883,114 Interest expense (1,055,304) (61,883) (11,373) Other, net (875,244) 1,855,311 2,873,241 $ (1,562,974) $ 2,447,316 $ 3,744,982 INCOME BEFORE PROVISION FOR INCOME TAXES $ 8,738,485 $ 11,651,484 $ 14,999,350 PR0VISION FOR INCOME TAXES 2,835,000 3,500,000 4,500,000 NET INCOME $ 5,903,485 $ 8,151,484 $ 10,499,350 Basic earnings per share $1.47 $2.01 $2.55
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2 0 0 2 2 0 0 1 2 0 0 0 NET INCOME $ 5,903,485 $ 8,151,484 $ 10,499,350 UNREALIZED APPRECIATION (DEPRECIATION) ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax (benefit) expense of $(75,000), $90,000 and $(425,000) for 2002, 2001 and 2000, respectively) (115,000) 135,000 (640,000) MINIMUM PENSION LIABILITY (Net of deferred tax benefit of $(1,500,000) for 2002) (2,259,000) - - COMPREHENSIVE INCOME $ 3,529,485 $ 8,286,484 $ 9,859,350 See notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Accum- Class B lated Other Stock- Capital Capital Retained Treasury Comprehen- holders' Stock Stock Earnings Stock sive Income Investment Balance at 1/1/2000 $5,714,195 $4,617,090 $57,308,627 $ - $ 1,580,000 $69,219,912 Net income - - 10,499,350 - - 10,499,350 Dividends declared ($.78 per share) - - (3,201,569) - - (3,201,569) Transfer of shares 146,218 (146,218) - - - - Purchase of treasury stock - - - (568,259) - (568,259) Retirement of treasury stock (79,045) - (489,214) 568,259 - - Change in unrealized appreciation on available for sale securities - - - - (640,000) (640,000) Balance at 12/31/2000 $5,781,368 $4,470,872 $64,117,194 $ - $ 940,000 $75,309,434 Net income - - 8,151,484 - - 8,151,484 Dividends declared ($.80 per share) - - (3,219,800) - - (3,219,800) Transfer of shares 161,882 (161,882) - - - - Purchase of treasury stock - - - (1,333,597) - (1,333,597) Retirement of treasury stock (184,845) - (1,148,752) 1,333,597 - - Change in unrealized appreciation on available for sale securities - - - - 135,000 135,000 Balance at 12/31/2001 $5,758,405 $4,308,990 $67,900,126 $ - $ 1,075,000 $79,042,521 Net income - - 5,903,485 - - 5,903,485 Dividends declared ($.80 per share) - - (3,221,567) - - (3,221,567) Transfer of shares 102,328 (102,328) - - - - Change in unrealized appreciation on available for sale securities - - - - (115,000) (115,000) Adjustment to recognize minimum pension liability - - - - (2,259,000) (2,259,000) Balance at 12/31/2002 $5,860,733 $4,206,662 $70,582,044 $ - $(1,299,000) $79,350,439 See notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2 0 0 2 2 0 0 1 2 0 0 0 OPERATING ACTIVITIES: Net income $ 5,903,485 $ 8,151,484 $ 10,499,350 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 11,259,163 9,454,167 6,754,783 Minority interest in earnings (losses) of subsidiaries 187,056 (392,965) (408,744) Deferred income taxes (326,000) (270,000) (680,000) (Gain) loss on disposal of assets 502,074 (197,548) (63,379) Realized (gain) on sale of other investments (5,132) (1,085,776) (2,382,261) Change in assets and liabilities: Receivables, net (2,652,838) (4,433,076) 1,419,400 Inventories 2,234,075 4,475,683 (3,635,333) Refundable income taxes (87,629) 596,154 (1,071,021) Prepaid expenses (16,111) 42,639 (28,176) Other assets 23,675 (31,813) 422,326 Accounts payable and accrued liabilities (683,530) (267,649) 373,575 Accrued postretirement expense 351,005 338,752 163,874 Accrued pension expense (159,940) (161,335) (175,159) Net cash provided by operating activities $ 16,529,353 $ 16,218,717 $ 11,189,235 INVESTING ACTIVITIES: Acquisition of property, plant and equipment $(11,118,444) $(43,585,245) $(18,627,165) Proceeds from disposals of property, plant and equipment 375,216 442,057 302,437 Payment for purchases of equity investments (2,900,705) (2,356,088) (1,039,456) Proceeds from disposals of equity investments 145,299 1,401,137 3,263,100 Decrease in short-term investments, net 162,580 2,387,776 13,290,758 Net purchases of subsidiaries' stock (2,421,057) (1,040,400) - Net cash used for investing activities $(15,757,111) $(42,750,763) $ (2,810,326) FINANCING ACTIVITIES: Proceeds from bank loans $ 3,148,421 $ 24,899,655 $ - Cash dividends paid (3,221,567) (3,249,375) (3,131,709) Purchase of treasury stock - (1,333,597) (9,828) Subsidiaries' dividends paid to minority interest (14,742) (11,057) (568,259) Net cash provided by (used for) financing activities $ (87,888) $ 20,305,626 $ (3,709,796) Net increase (decrease) in cash and cash equivalents $ 684,354 $ (6,226,420) $ 4,669,113 Cash and Cash Equivalents, beginning of year 3,224,861 9,451,281 4,782,168 Cash and Cash Equivalents, end of year $ 3,909,215 $ 3,224,861 $ 9,451,281 Additional Cash Flow Information: Interest paid, net of amount capitalized $ 1,101,709 $ 54,657 $ 7,076 Income taxes paid $ 3,247,546 $ 3,253,490 $ 5,935,016 See notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001 AND 2000 (1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Nature of Operations--The Monarch Cement Company (Monarch) is principally engaged 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 marketing area. (b) Principles of Consolidation--Monarch has direct control of certain operating companies that have been deemed to be subsidiaries within the meaning of accounting principles generally accepted in the United States of America 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 (loss) have been recorded as reductions or increases in other income in the accompanying statements of income. The minority interests in net income (loss) were $187,056, $(392,965) and $(408,744) during 2002, 2001 and 2000, respectively. (c) Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. (d) Cash Equivalents--The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2002, 2001 and 2000, cash equivalents consisted primarily of money market investments with various banks. (e) Investments--Equity securities for which the Company has no immediate plan to sell but that may be sold in the future are classified as available for sale and carried at fair value in "Other Assets". Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' investment. Realized gains and losses, based on the specifically identified cost of the security, are included in net income. (f) Receivables--Accounts receivables are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivables are ordinarily due 30 days after the issuance of the invoice. Accounts past due are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. (g) Inventories--Inventories of finished cement, work in process and building products are recorded at the lower of cost or market on a last-in, first-out (LIFO) basis. Under the average cost method of accounting (which approximates current cost), these inventories would have been $2,340,000, $1,980,000 and $1,362,000 higher than those reported at December 31, 2002, 2001 and 2000, 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 recorded using the average cost method. (h) Property, Plant and Equipment--Property, plant and equipment are stated at cost of acquisition or construction. The Company capitalizes the cost of interest on borrowed funds used to finance the construction of property, plant and equipment. During 2002, 2001 and 2000, the Company capitalized approximately $-0-, $927,000 and $-0-, respectively, of interest expense related to current construction projects. Depreciation of property, plant and equipment is provided by charges to operations over the estimated useful lives of the assets using accelerated methods. Depletion rates for quarry lands are designed to amortize the cost over the estimated recoverable reserves. Expenditures for improvements that significantly increase the assets' useful lives are capitalized while maintenance and repairs are charged to expense as incurred. (i) Income Taxes--Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. (j) Revenue Recognition--The Company records revenue from the sale of cement, ready-mixed concrete and sundry building materials when the products are delivered to the customer. Long-term construction contract revenues are recognized on the percentage-of-completion method based on the costs incurred relative to total estimated costs. Full provision is made for any anticipated losses. Billings for long-term construction contracts are rendered monthly, including the amount of retainage withheld by the customer until contract completion. Retainages are included in accounts receivable and are generally due within one year. (k) Earnings per Share--Basic earnings per share is based on the weighted average common shares outstanding during each year. Diluted 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 diluted earnings per share. The weighted average number of shares outstanding was 4,026,958 in 2002, 4,049,165 in 2001 and 4,113,984 in 2000. (l) Self Insurance--The Company has elected to self-insure certain costs related to employee health and accident benefit programs. Costs resulting from noninsured losses are charged to income when incurred. (m) Disclosure about Fair Value of Financial Instruments--Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Cash and cash equivalents, short-term investments, receivables and bank loans payable have carrying values that approximate fair values. Investment fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities. (2) 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, 2002, 2001 and 2000 are as follows:
2002 2001 2000 Fair value of investments $8,540,000 $5,965,000 $3,700,000 Cost of investments 6,940,000 4,175,000 2,135,000 Gross unrealized gains $1,600,000 $1,790,000 $1,565,000 Unrealized gain recorded in equity $ 960,000 $1,075,000 $ 940,000 Deferred income taxes 640,000 715,000 625,000 $1,600,000 $1,790,000 $1,565,000 Proceeds from sale of securities $ 145,299 $1,401,137 $3,263,100 Realized gains $ 5,132 $1,085,776 $2,382,261
(3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 2002 and 2001 consisted of:
Depreciation Lives (Years) 2002 2001 Quarry lands $ 1,470,386 $ 1,220,514 Mill site and buildings 12 - 50 21,632,713 21,038,888 Machinery and equipment 5 - 25 110,607,203 113,600,330 Transportation equipment 3 - 12 28,715,392 26,460,459 Office furniture and fixtures 5 - 20 1,175,842 1,117,183 Office and other buildings 10 - 30 4,470,866 3,315,132 Construction in process 10,386,929 7,147,748 $178,459,331 $173,900,254 Less--Accumulated depreciation and depletion 96,128,254 92,458,417 $ 82,331,077 $ 81,441,837
(4) LINE OF CREDIT AND LONG-TERM DEBT In December 2002, Monarch renegotiated its unsecured credit commitment with a bank. The revised commitment consists of a $25,000,000 advancing term loan maturing December 31, 2005 and a $10,000,000 line of credit maturing December 31, 2003. At December 31, 2002 and 2001, there was $3,048,076 and $5,000,000, respectively, borrowed against this line. The line contains a financial covenant related to net worth which the Company was in compliance with at year-end. Interest on the line of credit varies with the JP Morgan Chase prime rate less .75% which was 3.5% on December 31, 2002 and 2001, and is payable quarterly.
2002 2001 Note payable, bank (a) $25,000,000 $19,999,655 Other 1,540,139 - $26,540,139 $19,899,655 Less current maturities 3,255,476 - $23,284,663 $19,899,655 (a) Due December 31, 2005; payable $995,000 quarterly including interest; interest computed based on JP Morgan Chase prime rate less 1.25%; subject to a financial covenant related to net worth which the Company was in compliance with at year-end.
Aggregate annual maturities of long-term debt as of December 31, 2002 are: 2003 $ 3,255 476 2004 3,583,949 2005 18,633,981 2006 197,318 2007 209,284 Thereafter 660,131 $26,540,139
(5) INCOME TAXES The components of the provision for federal and state income taxes in the accompanying consolidated statements of income are as follows:
2002 2001 2000 Taxes currently payable $3,161,000 $3,860,000 $4,755,000 Deferred income taxes (326,000) (360,000) (255,000) Provision for income taxes $2,835,000 $3,500,000 $4,500,000
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:
2002 2001 2000 Provision for federal taxes at statutory rates $2,971,000 $3,974,000 $5,150,000 Increase (decrease) resulting from: State income taxes, net of federal tax benefit 183,000 153,000 137,000 Percentage depletion (460,000) (505,000) (697,000) Minority interest in consolidated income (loss) 75,000 (157,000) (163,000) Other, net 66,000 35,000 73,000 Provision for income taxes $2,835,000 $3,500,000 $4,500,000
The tax effects of significant temporary differences representing deferred taxes shown on the balance sheets were:
2002 2001 Current: Allowance for doubtful accounts $ 255,000 $ 195,000 Accrued vacation 310,000 280,000 Other 28,000 30,000 Net current deferred tax assets $ 593,000 $ 505,000 Noncurrent: Depreciation $ (405,000) $ (540,000) Postretirement benefits 4,090,000 3,950,000 Minimum pension liability 967,000 (470,000) Unrealized holding gains (640,000) (715,000) Other, net 26,000 80,000 Net long-term deferred tax assets $ 4,038,000 $ 2,305,000
(6) 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, 2002 and 2001. At December 31, 2002 and 2001, the current portion of the accrued benefit cost of $900,000 and $1,428,909, respectively, is recorded in compensation and benefits.
2002 2001 Reconciliation of benefit obligation Accumulated postretirement benefit obligation at beginning of year $ 13,054,462 $ 12,927,454 Service cost 166,935 156,561 Interest cost 916,747 942,509 Actuarial (gain) loss 467,046 (241,538) Benefits and expenses paid (896,483) (730,524) Accumulated postretirement benefit obligation at end of year $ 13,708,707 $ 13,054,462 Funded status $(13,708,707) $(13,054,462) Unrecognized actuarial loss 3,486,330 3,183,091 Accrued benefit cost $(10,222,377) $ (9,871,371)
The assumed annual rate of increase in the per capita cost of covered health care benefits was 6% for 2002 and 7% for 2001 and 2000. This trend rate is assumed to decrease in future years, 1% per year to an ultimate annual rate of 4%. Following are the components of net periodic benefit cost:
2002 2001 2000 Components of net periodic benefit cost Service cost $ 166,935 $ 156,561 $ 108,040 Interest cost 916,747 942,509 895,420 Unrecognized net loss 163,806 137,776 67,136 Net periodic benefit cost $1,247,488 $1,236,846 $1,070,596 Weighted-average assumptions as of December 31 Discount rate as of December 31 6.75% 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 $ 153,994 $ (103,150) Effect on postretirement benefit obligation 1,787,822 (844,892)
(7) 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, 2002 and 2001:
2002 2001 Reconciliation of projected benefit obligation Projected benefit obligation at beginning of year $23,465,121 $21,987,472 Service cost 375,199 315,833 Interest cost 1,637,380 1,621,900 Actuarial loss 824,363 1,246,060 Plan amendment 163,921 - Benefits paid and expenses (1,692,468) (1,706,144) Projected benefit obligation at end of year $24,773,516 $23,465,121 Reconciliation of fair value of plan assets Fair value of plan assets at beginning of year $24,918,291 $24,783,229 Actual return on plan assets (2,197,416) 1,841,206 Benefits paid and expenses (1,692,468) (1,706,144) Fair value of plan assets at end of year $21,028,407 $24,918,291 Funded status $(3,745,109) $ 1,453,170 Unrecognized net actuarial loss 4,566,718 (685,055) Unrecognized prior service cost 518,668 412,570 Prepaid benefit cost $ 1,340,277 $ 1,180,685 Adjustment required to recognize minimum liability (3,758,652) - (Pension liability)/prepaid benefit cost $(2,418,375) $ 1,180,685
The following table presents the components of net periodic pension cost as of December 31, 2002, 2001 and 2000:
2002 2001 2000 Service cost $ 375,199 $ 315,833 $ 293,441 Interest cost 1,637,380 1,621,900 1,617,150 Expected return on plan assets (2,229,994) (2,155,386) (2,095,648) Amortization of transitional obligation - 14,342 9,867 Amortization of prior service cost 57,475 47,412 47,412 Recognized net actuarial gain - (5,436) (47,381) Net periodic pension (income) $ (159,940) $ (161,335) $ (175,159)
The weighted average assumptions used to determine net pension cost and benefit obligations as of December 31 are as follows:
2002 2001 2000 Discount rate 6.75% 7.00% 7.50% Expected return on plan assets 9.00% 9.00% 9.00% Rate of compensation increase (Staff plan only) 4.50% 4.50% 4.50%
The Company has defined contribution plans covering substantially all permanent employees of the ready-mixed concrete and sundry building materials segment. These plans allow the Company, at its discretion, to match the employee's contributions. For the 2002,2001 and 2000 plan years, the Company matched 25% of the first 6% of the employee's compensation up to a maximum match of $2,500. The Company contributed $83,985, $75,570 and $67,240 to these plans for the years 2002,2001 and 2000, respectively. (8) COMMITMENTS AND CONTINGENCIES According to various agreements with certain minority stockholders of subsidiaries, under specified circumstances, the Company is obligated to acquire certain minority shares, if requested to do so, at a value that approximates the minority interest on the Balance Sheet. (9) STOCKHOLDERS' INVESTMENT Capital Stock and Class B Capital Stock have the same rights except as follows: 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; and Capital Stock has only one vote per share and is freely transferable. (10) 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, 2002, 2001 and 2000:
Ready-Mixed Concrete Cement and Sundry Adjustments FOR THE YEAR ENDED Manu- Building and DECEMBER 31, 2002: facturing Materials Eliminations Consolidated Sales to unaffiliated customers $53,514,889 $81,035,388 $ - $134,550,277 Intersegment sales 10,817,807 85,364 (10,903,171) - Total net sales $64,332,696 $81,120,752 $(10,903,171) $134,550,277 Income from operations $ 8,211,792 $ 2,089,667 $ 10,301,459 Other expense, net (1,562,974) Income before income taxes $ 8,738,485 Identifiable assets at December 31, 2002 $76,368,540 $37,316,224 $113,684,764 Corporate assets 19,821,500 Total assets at December 31, 2002 $133,506,264 FOR THE YEAR ENDED DECEMBER 31, 2001: Sales to unaffiliated customers $52,484,654 $73,867,012 $ - $126,351,666 Intersegment sales 9,701,435 66,201 (9,767,636) - Total net sales $62,186,089 $73,933,213 $ (9,767,636) $126,351,666 Income (loss) from operations $ 9,745,880 $ (541,712) $ 9,204,168 Other income, net 2,447,316 Income before income taxes $ 11,651,484 Identifiable assets at December 31, 2001 $79,454,009 $32,905,909 $112,359,918 Corporate assets 14,277,745 Total assets at December 31, 2001 $126,637,663 FOR THE YEAR ENDED DECEMBER 31, 2000: Sales to unaffiliated customers $49,601,302 $69,760,428 $ - $119,361,730 Intersegment sales 9,265,934 5,192 (9,271,126) - Total net sales $58,867,236 $69,765,620 $ (9,271,126) $119,361,730 Income (loss) from operations $13,019,516 $(1,765,148) $ 11,254,368 Other income, net 3,744,982 Income before income taxes $ 14,999,350 Identifiable assets at December 31, 2000 $47,123,981 $28,205,216 $ 75,329,197 Corporate assets 20,773,543 Total assets at December 31, 2000 $ 96,102,740
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. Depreciation and depletion for cement manufacturing and ready-mixed concrete, respectively, was: $5,964,841 and $5,243,343 in 2002; $4,325,197 and $5,128,970 in 2001; and $2,571,183 and $4,183,600 in 2000. Capital expenditures for cement manufacturing and ready-mixed concrete, respectively, were: $3,860,573 and $7,257,871 in 2002; $39,174,379 and $4,410,866 in 2001; and $11,051,905 and $7,575,260 in 2000. Identifiable assets by segment are those assets that are used in the Company's operations in each industry. During 2002, 2001 and 2000, there were no sales to any one customer in excess of 10% of consolidated net sales. (11) Quarterly Financial Information (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter 2002 Net sales $22,871,653 $35,409,167 $41,728,112 $34,541,345 Income (loss) from operations (915,339) 3,288,097 6,114,679 1,814,022 Net income (loss) (800,608) 2,153,077 4,114,094 436,922 Basic earnings (loss) per share $(.20) $.53 $1.02 $.12 2001 Net sales $20,335,027 $33,746,878 $39,618,762 $32,650,999 Income (loss) from operations (592,355) 3,398,416 4,492,050 1,906,057 Net income (loss) (155,649) 2,263,192 3,354,934 2,689,007 Basic earnings (loss) per share $(.04) $.56 $.83 $.66
(12) Other Comprehensive Income Accumulated other comprehensive income included in the balance sheet at December 31 is as follows: 2001 Change 2002 Unrealized appreciation on available for sale securities $1,075,000 $ (115,000) $ 960,000 Minimum pension liability adjustment - (2,259,000) (2,259,000) $1,075,000 $(2,374,000) $(1,299,000) 2000 Change 2001 Unrealized appreciation on available for sale securities $ 940,000 $ 135,000 $ 1,075,000 (13) Future Change in Accounting Principles The Financial Accounting Standards Board (FASB) recently issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," effective for guarantees issued or modified after December 31, 2002, Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," effective for the 2002 calendar year, and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective for the 2002 calendar year which are not expected to have a material effect on the Company's financial position or results of operations. The Company has not yet assessed the impact, if any, of adopting SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for the 2003 calendar year. In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" which is not expected to have a material effect on the Company's financial position or results of operations. In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" and in December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which are not expected to have a material effect on the Company's financial position or results of operations. 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: (620) 473-2222 Fax: (620) 473-2447 Ronald E. Callaway Retired transport truck driver Agricultural Carriers, Inc. AUDITORS BKD 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 Morrison Hecker, LLP The Monarch Cement Company P.O. Box 1000 Byron J. Radcliff Humboldt, KS 66748-0900 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, Jr. Lyndell G. Mosley, Chief Financial President and Chairman of the Board Officer and Assistant Secretary- Treasurer, at the corporate Walter H. Wulf, III address shown above. Area Service Manager, General Motors Corporation FORM 10-K Officers The Company's Annual Report on Walter H. Wulf, Jr. Form 10-K, as filed with the President and Chairman of the Board Securities and Exchange Commission, is available without charge upon *Byron K. Radcliff written request to Lyndell G. Vice Chairman of the Board, Mosley at the above corporate Secretary and Treasurer office address. *Robert M. Kissick The Company's financial Vice President information is also available from the SEC at their EDGAR Rick E. Rush internet address Vice President (http://www.sec.gov). Lyndell G. Mosley Chief Financial Officer and Assistant Secretary-Treasurer Debra P. Roe Principal Accounting Officer and Assistant Secretary-Treasurer Lisa J. Fontaine Assistant Secretary *Not active in the daily affairs of the Company. -----END PRIVACY-ENHANCED MESSAGE-----