-----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, LKZyp7/ThEF3xP6qszeTqdYLnZ2M0kJ7JobddtBCyMm/Zgls+mUmuhzxCNTLiVmn EX/TWi+7L0oTPDXew+D8TQ== 0000067517-04-000012.txt : 20040811 0000067517-04-000012.hdr.sgml : 20040811 20040811122351 ACCESSION NUMBER: 0000067517-04-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040811 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02757 FILM NUMBER: 04966334 BUSINESS ADDRESS: STREET 1: P O BOX 1000 CITY: HUMBOLDT STATE: KS ZIP: 66748 BUSINESS PHONE: 6204732225 10-Q 1 edg204.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2004, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _________________ to ___________________. Commission file number: 0-2757 THE MONARCH CEMENT COMPANY (Exact name of registrant as specified in its charter) KANSAS 48-0340590___ (state or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) P.O. BOX 1000, HUMBOLDT, KANSAS 66748-0900 (address of principal executive offices) (zip code) Registrant's telephone number, including area code: (620) 473-2222 (former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X} As of August 6, 2004, there were 2,403,197 shares of Capital Stock, par value $2.50 per share outstanding and 1,623,761 shares of Class B Capital Stock, par value $2.50 per share outstanding. PART I - FINANCIAL INFORMATION The condensed consolidated financial statements included in this report have been prepared by our Company without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Our Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods presented. Those adjustments consist only of normal, recurring adjustments. The condensed consolidated balance sheet of the Company as of December 31, 2003 has been derived from the audited consolidated balance sheet of the Company as of that date. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Company's most recent annual report on Form 10-K for 2003 filed with the Securities & Exchange Commission. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Item 1. Financial Statements THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2004 and December 31, 2003
ASSETS 2 0 0 4 2 0 0 3 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 2,853,521 $ 5,438,018 Receivables, less allowances of $610,000 in 2004 and $591,000 in 2003 for doubtful accounts 21,914,256 13,852,596 Inventories, priced at cost which is not in excess of market- Finished cement $ 3,551,061 $ 2,553,258 Work in process 2,535,678 919,646 Building products 1,852,698 1,559,424 Fuel, gypsum, paper sacks and other 4,575,305 4,022,894 Operating and maintenance supplies 7,827,435 7,063,030 Total inventories $ 20,342,177 $ 16,118,252 Deferred income taxes 572,225 573,000 Prepaid expenses 643,204 155,011 Total current assets $ 46,325,383 $ 36,136,877 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $109,219,774 in 2004 and $105,703,279 in 2003 78,975,322 77,884,890 DEFERRED INCOME TAXES 1,607,750 2,447,000 INVESTMENTS 13,979,002 11,502,902 OTHER ASSETS 1,692,260 1,860,762 $142,579,717 $129,832,431 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 10,400,132 $ 6,435,292 Bank loan payable 9,986,803 - Current portion of advancing term loan 3,406,381 3,353,778 Accrued liabilities 3,386,502 5,284,474 Total current liabilities $ 27,179,818 $ 15,073,544 LONG-TERM DEBT 17,831,257 19,694,501 ACCRUED POSTRETIREMENT BENEFITS 9,999,434 9,554,920 ACCRUED PENSION EXPENSE 564,355 385,543 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,872,997 1,915,605 STOCKHOLDERS' INVESTMENT: Capital stock, par value $2.50 per share, One vote per share - Authorized 10,000,000 shares, Issued 2,404,207 shares at 6/30/2004 and 2,389,381 shares at 12/31/2003 $ 6,010,518 $ 5,973,453 Class B capital stock, par value $2.50 per share, supervoting rights of ten votes per share, restricted transferability, convertible at all times into Capital Stock on a share-for-share basis - Authorized 10,000,000 shares, Issued 1,622,751 shares at 6/30/2004 and 1,637,577 shares at 12/31/2003 4,056,877 4,093,942 Retained earnings 71,804,461 71,180,923 Accumulated other comprehensive loss 3,260,000 1,960,000 Total stockholders' investment $ 85,131,856 $ 83,208,318 $142,579,717 $129,832,431 See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Three Months and the Six Months Ended June 30, 2004 and 2003 (Unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 NET SALES $40,730,540 $29,593,928 $68,379,837 $48,563,380 COST OF SALES 36,005,888 24,496,826 60,362,436 42,440,129 Gross profit from operations $ 4,724,652 $ 5,097,102 $ 8,017,401 $ 6,123,251 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,049,664 2,943,906 6,127,037 5,827,183 Income from operations 1,674,988 $ 2,153,196 $ 1,890,364 $ 296,068 OTHER INCOME (EXPENSE): Interest income $ 114,266 $ 120,122 $ 139,867 $ 177,104 Interest expense (221,104) (276,339) (400,668) (530,321) Other, net 77,473 515,785 399,367 731,355 $ (29,365) $ 359,568 $ 138,566 $ 378,138 Income before taxes on income $ 1,645,623 $ 2,512,764 $ 2,028,930 $ 674,206 PROVISION FOR TAXES ON INCOME 485,000 775,000 600,000 200,000 NET INCOME $ 1,160,623 $ 1,737,764 $ 1,428,930 $ 474,206 RETAINED EARNINGS, beg of period 71,449,230 69,318,486 71,180,923 70,582,044 Less cash dividends 805,392 805,392 805,392 805,392 RETAINED EARNINGS, end of period $71,804,461 $70,250,858 $71,804,461 $70,250,858 Basic earnings per share $.29 $.43 $.35 $.12 Cash dividends per share $.20 $.20 $.20 $.20
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months and the Six Months Ended June 30, 2004 and 2003 (Unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 NET INCOME $ 1,160,623 $ 1,737,764 $ 1,428,930 $ 474,206 UNREALIZED APPRECIATION ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax expense of $300,000, $320,000, $800,000 and $280,000, respectively) 500,000 480,000 1,300,000 420,000 COMPREHENSIVE INCOME $ 1,660,623 $ 2,217,764 $ 2,728,930 $ 894,206 See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2004 and 2003 (Unaudited)
2004 2003 OPERATING ACTIVITIES: Net income $ 1,428,930 $ 474,206 Adjustments to reconcile net income to net cash used for operating activities: Depreciation, depletion and amortization 4,851,804 5,406,531 Minority interest in losses of subsidiaries (34,904) (306,091) Deferred income taxes 25 415 Gain on disposal of assets (104,387) (320,235) Realized gain on sale of other investments (22) (393,393) Change in assets and liabilities: Receivables, net (8,061,660) 713,385 Inventories (4,223,925) (5,631,838) Refundable federal and state income taxes - 203,633 Prepaid expenses (488,193) (882,109) Other assets 8,821 7,636 Accounts payable and accrued liabilities 3,677,651 (111,452) Accrued postretirement benefits 444,514 137,167 Accrued pension expense 178,812 186,523 Net cash used for operating activities $ (2,322,534) $ (515,622) INVESTING ACTIVITIES: Acquisition of property, plant and equipment $ (5,874,128) $ (3,164,542) Proceeds from disposals of property, plant and equipment 296,937 367,961 Payment for purchases of equity investments (376,101) (132,493) Proceeds from disposals of equity investments 23 645,697 Net purchases of subsidiaries' stock (68,681) - Net cash used for investing activities $ (6,021,950) $ (2,283,377) FINANCING ACTIVITIES: Proceeds from bank loans $ 8,176,162 $ 4,163,429 Cash dividends paid (2,416,175) (2,416,175) Net cash provided by financing activities $ 5,759,987 $ 1,747,254 Net decrease in cash and cash equivalents $ (2,584,497) $ (1,051,745) CASH AND CASH EQUIVALENTS, beginning of year 5,438,018 3,909,215 CASH AND CASH EQUIVALENTS, end of period $ 2,853,521 $ 2,857,470 Interest paid, net of amount capitalized $429,828 $564,005 Income tax paid, net of refunds $688,063 $ (3,643) See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004 and 2003 (Unaudited), and December 31, 2003 1. For a summary of accounting policies, the reader should refer to Note 1 of the consolidated financial statements included in our Company's most recent annual report on Form 10-K. 2. Basic earnings per share of capital stock has been calculated based on the weighted average shares outstanding during each of the reporting periods. The weighted average number of shares outstanding was 4,026,958 in the second quarter of 2004 and 2003 and in the first six months of 2004 and 2003. The Company has no common stock equivalents and therefore, does not report diluted earnings per share. 3. Our Company groups its operations into two lines of business - Cement Business and Ready-Mixed Concrete Business. The "Cement Business" refers to our manufacture and sale of cement and "Ready-Mix Concrete Business" refers to our ready-mixed concrete, concrete products and sundry building materials business. Following is condensed information for each line for the periods indicated (in thousands):
Three Months Ended Six Months Ended 6/30/04 6/30/03 6/30/04 6/30/03 Sales to Unaffiliated Customers Cement Business $15,802 $10,568 $22,096 $17,859 Ready-Mixed Concrete Business 24,929 19,026 46,284 30,704 Intersegment Sales Cement Business 2,987 3,025 5,030 4,869 Ready-Mixed Concrete Business - - - - Operating Income (Loss) Cement Business 2,325 2,496 3,036 2,220 Ready-Mixed Concrete Business (650) (343) (1,146) (1,924) Capital Expenditures Cement Business 1,588 342 2,664 611 Ready-Mixed Concrete Business 2,535 1,297 3,210 2,554 Balance as of 6/30/04 12/31/03 Identifiable Assets Cement Business $77,596 $70,212 Ready-Mixed Concrete Business 44,279 37,798 Corporate Assets- 20,705 21,822
4. The Company records revenue from the sale of cement, ready-mixed concrete, concrete products and sundry building materials when the products are delivered to the customers. Concrete products are also sold through long- term construction contracts. Revenues for these contracts 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. 5. Capital expenditures for property, plant and equipment were approximately $5,874,000 during the first six months of 2004. These funds were primarily used for the installation of the coal mill in the Cement Business and to upgrade equipment in the Ready-Mixed Concrete Business. 6. The following table presents the components of net periodic costs as of June 30, 2004 and 2003:
Pension Benefits Other Benefits 2004 2003 2004 2003 Service cost $229,978 $144,407 $ 213,039 $ 86,783 Interest cost 819,121 585,449 584,230 446,304 Expected return on plan assets (920,092) (537,615) - - Amortization of prior service costs 37,562 26,171 - - Recognized net actuarial gain 12,242 47,763 - - Unrecognized net loss - - 214,067 90,321 Net periodic pension expense $178,811 $266,175 $1,011,336 $623,408
As previously reported in our financial statements for the year ended December 31, 2003, we do not expect to contribute to the pension plan in 2004. The other benefits consist of postretirement benefits that are self- insured by Monarch and are paid out of Monarch's general assets. As previously disclosed in our financial statements for the year ended December 31, 2003, Monarch expects to contribute $1,000,000 to this plan in 2004. As of June 30, 2004, we have contributed $566,823 and anticipate contributing an additional $575,000 to this plan in 2004 for a total of $1,140,000. \THE MONARCH CEMENT COMPANY AND SUBSIDIARIES Item 2. 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 Form 10-Q report filed with the Securities and Exchange Commission, constitute "forward-looking statements". 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, 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 regulation; and * the affect of federal and state funding on demand for our products. Results of Operations Our products are used in residential, commercial and governmental construction. For several years we experienced continued increases in the demand for our products. The combination of residential, commercial and governmental construction activities resulted in the need for increased production to meet our customers' needs. In response to those needs, we made investments in our plant and equipment to increase production and improve efficiencies. We are confident that we will benefit from these investments as the economy continues to improve. For the first half of 2004, we are encouraged with the level of construction activity in our market area. Although intermittent rains have hampered construction projects and reduced efficiencies in our ready-mixed concrete operations, sales continue to exceed last year's year-to-date levels. For the balance of the year, we anticipate continued strong demand for our products in both the Cement Business and Ready-Mixed Concrete Business. Cement imports are projected to significantly decrease in 2004 due to the limited availability of ships and increased freight rates providing increased demand for domestic cement. The increase in steel prices also adds upward pressure to the demand for cement as concrete construction becomes more competitive with steel construction. These factors and the general improvement in economic conditions are the basis for our projected increase in both sales volume and average price for the year 2004. 2nd Quarter Consolidated net sales for the quarter ended June 30, 2004, increased by $11,136,612 when compared to the quarter ended June 30, 2003. Sales in our Cement Business were higher by $4,196,098, while sales in our Ready-Mixed Concrete Business increased $6,940,514. Improved economic conditions resulted in higher sales volumes in both the Cement and Ready-Mixed Concrete Business. The Cement Business also benefited from modest price increases while billings for construction contracts added to the Ready-Mixed Concrete Business sales. Our overall gross profit rate for the three months ended June 30, 2004 was 11.6% versus 17.2% for the three months ended June 30, 2003 primarily due to increased maintenance costs in the Cement Business during the second quarter of 2004 as compared to the second quarter of 2003. Due to the size and complexity of our equipment, maintenance costs can vary significantly from quarter-to-quarter depending on the timing of projects and type of work performed. Selling, general, and administrative expenses increased by 3.6% during the second quarter of 2004 compared to the second quarter of 2003. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. The increase is primarily due to rising health care costs and professional expenses, although no single factor increased materially. Other, net decreased $438,312 during the second quarter of 2004 as compared to the second quarter of 2003 primarily due to a gain on the sale of equity investments in 2003. The effective tax rates for the second quarter of 2004 and 2003 were 29.5% and 30.8%, 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). Year-to-Date Consolidated net sales for the six months ended June 30, 2004 were $68,379,837, an increase of $19,816,457 as compared to the six months ended June 30, 2003. Sales in our Cement Business were higher by $4,236,826 while sales in our Ready-Mixed Concrete Business increased by $15,579,631. Improved economic conditions resulted in higher sales volumes in both the Cement and Ready-Mixed Concrete Business. The Cement Business also benefited from modest price increases while billings for construction contracts added to the Ready- Mixed Concrete Business sales. Our overall gross profit rate for the six months ended June 30, 2004 was 11.7% versus 12.6% for the six months ended June 30, 2003. Gross profit rate in the Cement Business decreased 1.4% and gross profit rate in the Ready-Mixed Concrete Business increased by .8%. Selling, general, and administrative expenses increased 5.1% for the first six months of 2004 compared to the first six months of 2003. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. The increases are primarily due to rising health care costs and professional expense, although no single factor increased materially. Interest expense decreased $129,653 for the first half of 2004 as compared to the first half of 2003 primarily due to a reduction in the average amount of bank loans outstanding during the first six months of 2004 compared to the first six months of 2003. Slightly lower interest rates also contributed to the reduced costs. Other, net decreased $331,988 during the first six months of 2004 as compared to the first six months of 2003 primarily due to a gain on the sale of equity investments in 2003. The effective tax rates for the six months ended June 30, 2004 and 2003 were 29.6% and 29.7%, 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. LIQUIDITY We are able to meet our cash needs primarily from a combination of operations and bank loans. Cash decreased during the first six months of 2004 primarily due increases in receivables and inventories, the purchase of equipment and the payment of dividends. In December 2003, Monarch renewed our line of credit with a bank for another year. Our current unsecured credit 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, 2004. 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 the end of the first six months of 2004. As of June 30, 2004, we had borrowed $20,028,387 on the advancing term loan and $9,986,803 on the line of credit leaving a balance available on the line of credit of $13,197. The average daily interest rate we paid on the advancing term loan during the second quarter of 2004 and 2003 was 2.75% and 3.0%, respectively, and for the first six months of 2004 and 2003 was 2.75% and 3.0%, respectively. The average daily interest rate we paid on the line of credit during the second quarter of 2004 and 2003 was 3.25% and 3.5%, respectively, and the first six months of 2004 and 2003 was 3.25% and 3.5%, respectively. As of June 30, 2004, the applicable interest rate was 3.0% on the advancing term loan and 3.5% on the line of credit. The advancing term loan was used to help finance the expansion project at our cement manufacturing facility. The line of credit was used to cover operating expenses during the first six months of the year when we build inventory due to the seasonality of our business. We anticipate that the line of credit maturing December 31, 2004 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. FINANCIAL CONDITION Total assets as of June 30, 2004 were $142,579,717, an increase of $12,747,286 since December 31, 2003 due primarily to increases in receivables and inventories. These variations are common during the first half of the year due to the seasonality of our business (see Seasonality below). Investments increased $2,476,100 primarily as a result of unrealized gains on equity investments. Accounts payable increased $3,964,840 as of June 30, 2004 compared to December 31, 2003 primarily due to June expenses related to the increased sales volume in the Ready-Mixed Concrete Business. Indebtedness increased $8,176,162 during the first six months of 2004 primarily due to funding the increase in receivables and inventories. Stockholders' investment increased 2.3% during the first six months of 2004 primarily due to the net income. Basic earnings were $.35 per share. CAPITAL RESOURCES The Company regularly invests in miscellaneous equipment and facility improvements in both the Cement Business and Ready-Mixed Concrete Business. Capital expenditures during the first six months of 2004 included work on the installation of a coal firing system to fuel our precalciner kiln. This installation is projected to be completed by the end of the third quarter of 2004. We also invested in routine equipment purchases during the first six months of 2004, primarily in the Ready-Mixed Concrete Business. For the balance of the year, in addition to completing the installation of the coal firing system, we anticipate continuing our practice of applying a sufficient amount of capital resources to keep our equipment and facilities up-to-date. After completion of the coal firing system, preliminary plans are underway to install a new clinker cooler followed by the installation of a precalciner on our second cement kiln. We will continue to evaluate market conditions, other proposed capital expenditures and the Company's cash resources as we finalize the timing of the clinker cooler and precalciner installations. Additional bank financing may be required if we elect to proceed with these projects. MARKET RISK 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 markets. 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, concrete products 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 kiln. 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 commenced installation of a coal firing system for 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. SEASONALITY 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company has $13,979,002 of equity securities as of June 30, 2004. 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 an $840,000 effect on comprehensive income. The Company also has $30,015,190 of bank loans as of June 30, 2004. 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 4. Controls and Procedures The Company maintains disclosure controls and procedures (as defined in Rules 13a-5(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company's management, including its President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company's management, including its President and Chairman of the Board of Directors and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this Quarterly Report on Form 10-Q. Based on this evaluation, the Company's President and Chairman of the Board of Directors and Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures are effective. There has been no change in the Company's internal control over financial reporting during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of the stockholders of The Monarch Cement Company held on April 14, 2004, the stockholders elected four Class III Directors, namely, Jack R. Callahan, Ronald E. Callaway, Robert M. Kissick, and Byron K. Radcliff, to serve terms expiring at the annual meeting of stockholders in 2007. Class I Directors, namely, David L. Deffner, Gayle C. McMillen, and Richard N. Nixon and Class II Directors, namely, Byron J. Radcliff, Michael R. Wachter, Walter H. Wulf, Jr., and Walter H. Wulf, III continue to serve terms expiring at the annual meetings of stockholders in 2005 and 2006, respectively. The following is a summary of votes cast.
Withhold Abstentions/ Authority/ Broker For Against Non-votes Jack R. Callahan 14,846,725 84,798 N/A Ronald E. Callaway 14,856,076 84,798 N/A Robert M. Kissick 14,852,846 84,798 N/A Byron K. Radcliff 14,842,157 84,798 N/A
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 31.1 Certificate of the President and Chairman of the Board pursuant to Section 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certificate of the Chief Financial Officer pursuant to Section 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 32.1 18 U.S.C. Section 1350 Certificate of the President and Chairman of the Board dated August 11, 2004. 32.2 18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated August 11, 2004. (b) Reports on Form 8-K. There ware no reports required to be filed on Form 8-K during the quarter for which this report is being filed (April 1, 2004 to June 30, 2004, inclusive). S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MONARCH CEMENT COMPANY (Registrant) Date August 11, 2004 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board Date August 11, 2004 /s/ Debra P. Roe Debra P. Roe, CPA Chief Financial Officer and Assistant Secretary-Treasurer EXHIBIT INDEX Exhibit Number Description 31.1 Certificate of the President and Chairman of the Board pursuant to Section 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certificate of the Chief Financial Officer pursuant to Section 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 32.1 18 U.S.C. Section 1350 Certificate of the President and Chairman of the Board dated August 11, 2004. 32.2 18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated August 11, 2004.
EX-31 2 exh311204.txt Exhibit 31.1 THE MONARCH CEMENT COMPANY SECTION 13a-14(a)/15d-14(a) CERTIFICATIONS I, Walter H. Wulf, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of The Monarch Cement Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial information. Date: August 11, 2004 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board EX-31 3 exh312204.txt Exhibit 31.2 THE MONARCH CEMENT COMPANY SECTION 13a-14(a)/15d-14(a) CERTIFICATIONS I, Debra P. Roe, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of The Monarch Cement Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial information. Date: August 11, 2004 /s/ Debra P. Roe Debra P. Roe, CPA Chief Financial Officer and Assistant Secretary-Treasurer EX-32 4 exh321204.txt Exhibit 32.1 THE MONARCH CEMENT COMPANY CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Monarch Cement Company (the "Company") on Form 10-Q for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to The Monarch Cement Company and will be retained by The Monarch Cement Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: August 11, 2004 /S/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board EX-32 5 exh322204.txt Exhibit 32.2 THE MONARCH CEMENT COMPANY CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Monarch Cement Company (the "Company") on Form 10-Q for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to The Monarch Cement Company and will be retained by The Monarch Cement Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: August 11, 2004 /S/ Debra P. Roe Debra P. Roe, CPA Chief Financial Officer and Assistant Secretary-Treasurer
-----END PRIVACY-ENHANCED MESSAGE-----