-----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, S9AsoXROvv4EYHYPy8l5zPw+F4HsC7P0MhKrntcmx8YEhc1rho139WCKSn7wrlyS xxbxiVFrBLFKS7ElZ1QpUg== 0000067517-05-000011.txt : 20050516 0000067517-05-000011.hdr.sgml : 20050516 20050516125838 ACCESSION NUMBER: 0000067517-05-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050516 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: 05832665 BUSINESS ADDRESS: STREET 1: P O BOX 1000 CITY: HUMBOLDT STATE: KS ZIP: 66748 BUSINESS PHONE: 6204732225 10-Q 1 edg501.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 March 31, 2005, 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 May 10, 2005, there were 2,411,542 shares of Capital Stock, par value $2.50 per share outstanding and 1,615,416 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, 2004 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 2004 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 March 31, 2005 and December 31, 2004
ASSETS 2 0 0 5 2 0 0 4 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 3,123,638 $ 4,999,253 Receivables, less allowances of $741,000 in 2005 and $727,000 in 2004 for doubtful accounts 16,338,621 13,523,816 Inventories, priced at cost which is not in excess of market- Finished cement $ 6,104,046 $ 2,679,506 Work in process 1,380,370 1,456,854 Building products 3,536,541 3,391,901 Fuel, gypsum, paper sacks and other 3,092,301 2,919,528 Operating and maintenance supplies 8,099,518 7,500,453 Total inventories $ 22,212,776 $ 17,948,242 Refundable federal and state income taxes 507,007 812,807 Deferred income taxes 686,000 686,000 Prepaid expenses 105,482 170,236 Total current assets $ 42,973,524 $ 38,140,354 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and depletion of $114,730,638 in 2005 and $113,663,839 in 2004 82,626,863 79,948,242 DEFERRED INCOME TAXES 2,330,000 1,965,000 INVESTMENTS 11,854,631 13,620,501 OTHER ASSETS 1,458,227 1,526,069 $141,243,245 $135,200,166 LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 8,509,920 $ 5,686,857 Line of credit payable 6,773,895 981,667 Current portion of advancing term loan 2,044,245 2,021,503 Accrued liabilities 4,022,489 5,659,437 Total current liabilities $ 21,350,549 $ 14,349,464 LONG-TERM DEBT 23,482,878 24,119,115 ACCRUED POSTRETIREMENT BENEFITS 10,266,393 10,128,039 ACCRUED PENSION EXPENSE 1,361,487 1,238,027 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,233,522 1,349,566 STOCKHOLDERS' INVESTMENT: Capital stock, par value $2.50 per share, one vote per share - Authorized 10,000,000 shares, Issued 2,409,142 shares at 3/31/2005 and 2,406,197 shares at 12/31/2004 $ 6,022,855 $ 6,015,493 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 1,617,816 shares at 3/31/2005 and 1,620,761 shares at 12/31/2004 4,044,540 4,051,902 Retained earnings 70,661,021 70,528,560 Accumulated other comprehensive income 2,820,000 3,420,000 Total stockholders' investment $ 83,548,416 $ 84,015,955 $141,243,245 $135,200,166 See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
2005 2004 NET SALES $24,541,081 $27,649,297 COST OF SALES 21,837,340 24,356,548 Gross profit from operations $ 2,703,741 $ 3,292,749 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,822,181 3,077,373 Income (loss) from operations $ (118,440) $ 215,376 OTHER INCOME (EXPENSE): Interest income $ 87,037 $ 25,601 Interest expense (325,876) (179,564) Other, net 554,740 321,894 $ 315,901 $ 167,931 Income before taxes on income $ 197,461 $ 383,307 PROVISION FOR TAXES ON INCOME 65,000 115,000 NET INCOME $ 132,461 $ 268,307 RETAINED EARNINGS, beginning of period 70,528,560 71,180,923 RETAINED EARNINGS, end of period $70,661,021 $71,449,230 Basic earnings per share $.03 $.07
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
2005 2004 NET INCOME $ 132,461 $ 268,307 UNREALIZED APPRECIATION (DEPRECIATION) ON AVAILABLE FOR SALE SECURITIES (Net of deferred tax expense (benefit) of $(245,000) and $500,000 for 2005 and 2004, respectively) (370,000) 800,000 LESS: RECLASSIFICATION ADJUSTMENT FOR REALIZED GAINS (LOSSES) INCLUDED IN NET INCOME (net of deferred tax (benefit) expense of $155,000 and $-0- for 2005 and 2004, respectively) 230,000 - COMPREHENSIVE INCOME (LOSS) $ (467,539) $ 1,068,307 See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
2005 2004 OPERATING ACTIVITIES: Net income $ 132,461 $ 268,307 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 2,519,656 2,337,267 Minority interest in earnings (losses) of subsidiaries (116,043) 5,379 Deferred income taxes - 25 Gain on disposal of assets (32,507) (39,555) Realized gain on sale of other investments (384,376) (22) Change in assets and liabilities: Receivables, net (2,814,805) (3,780,551) Inventories (4,264,534) (6,282,162) Refundable income taxes 305,800 - Prepaid expenses 64,754 (532,272) Other assets 4,612 4,383 Accounts payable and accrued liabilities 1,440,976 3,207,257 Accrued postretirement benefits 138,354 177,314 Accrued pension expense 123,460 90,490 Net cash used for operating activities $(2,882,192) $(4,544,140) INVESTING ACTIVITIES: Acquisition of property, plant and equipment $(3,758,668) $(1,750,916) Proceeds from disposals of property, plant and equipment 101,450 218,875 Payment for purchases of equity investments - (200,000) Proceeds from disposals of equity investments 1,150,245 23 Decrease in short-term investments, net - (516) Purchases of subsidiaries' stock (54,400) (68,681) Net cash used for investing activities $(2,561,373) $(1,801,215) FINANCING ACTIVITIES: Increase in line of credit, net $ 5,792,228 $ 5,741,095 Payments on bank loans (490,736) (843,680) Payments on other long-term debt (122,759) (58,483) Cash dividends paid (1,610,783) (1,610,783) Net cash provided by financing activities $ 3,567,950 $ 3,228,149 Net decrease in cash and cash equivalents $(1,875,615) $(3,117,206) CASH AND CASH EQUIVALENTS, beginning of year 4,999,253 5,438,018 CASH AND CASH EQUIVALENTS, end of period $ 3,123,638 $ 2,320,812 Interest paid, net of amount capitalized $ 315,384 $ 168,090 Income taxes paid, net of refunds $ (240,800) $ 71,921 Capital equipment additions included in accounts payable $ 1,355,922 $ - See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (Unaudited), and December 31, 2004 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 first quarter of 2005 and 2004. 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-Mixed 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 ended March 31, 2005 and 2004 and December 31, 2004 (in thousands): Three Months Ended 3/31/05 3/31/04 Sales to Unaffiliated Customers Cement Business $ 8,449 $ 6,294 Ready-Mixed Concrete Business 16,092 21,355 Intersegment Sales Cement Business 2,509 2,043 Ready-Mixed Concrete Business - - Operating Income (Loss) Cement Business 796 711 Ready-Mixed Concrete Business (914) (496) Capital Expenditures Cement Business 3,259 1,076 Ready-Mixed Concrete Business 1,856 675 Balance as of 3/31/05 12/31/04 Identifiable Assets Cement Business $83,149 $76,018 Ready-Mixed Concrete Business 38,134 35,572 Corporate Assets 19,960 23,610 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 receivables and are generally due within one year. 5. The Company includes the (gain) loss on disposal of assets in cost of sales. 6. The Company considers all production and shipping costs, (gain) loss on disposal of assets, inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, and internal transfer costs as cost of sales. Selling, general and administrative expenses consists of sales personnel salaries and expenses, promotional costs, accounting personnel salaries and expenses, director and administrative officer salaries and expenses, legal and professional expenses, and other expenses related to overall corporate costs. 7. The Company's buildings, machinery and equipment are depreciated using double declining balance depreciation. The Company switches to straight line depreciation once it exceeds the amount computed under the double declining balance method until the asset is fully depreciated. We do not depreciate construction in process. 8. The following table presents the components of net periodic costs as of March 31, 2005 and 2004:
Pension Benefits Other Benefits 2005 2004 2005 2004 Service cost $ 128,168 $ 49,093 $ 96,685 $ 67,260 Interest cost 420,414 199,032 265,163 345,905 Expected return on plan assets (468,433) (182,770) - - Amortization of prior service costs 18,781 8,897 - - Recognized net actuarial gain 24,530 16,238 - - Unrecognized net loss - - 97,152 70,003 Net periodic expense $ 123,460 $ 90,490 $459,000 $483,168
Monarch expects to contribute approximately $600,000 to the pension fund in the second half of 2005. 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, 2004, Monarch expects to contribute approximately $1,000,000 to this plan in 2005. As of March 31, 2005, we have contributed about $300,000 and anticipate contributing an additional $700,000 to this plan in 2005 for a total of $1,000,000. 9. The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolutions of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company. 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-CRITICAL ACCOUNTING POLICIES Reference is made to the Management's Discussion and Analysis of Financial Condition and Results of Operations - Accounting Policies incorporated herein by reference to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004 for accounting policies which are considered by management to be critical to an understanding of the Company's financial statements. RESULTS OF OPERATIONS-OVERVIEW Our products are used in residential, commercial and governmental construction. In 2004 we experienced the return of increased 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 have made, and continue to make, 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. Operating results for the first quarter vary considerably from year-to- year. Sales and the resulting income (loss) are significantly affected by the length and severity of winter weather and the corresponding slowdown in construction activity. Although cement and ready-mixed concrete sales and profits for the first quarter of 2005 benefited from a shorter period of cold, wet weather and an improvement in economic conditions in our markets, our consolidated net sales and profits decreased. These decreases are attributable to a reduction in the number of design/build construction projects we had in process during the first quarter of 2005 as compared to the first quarter of 2004. Our design/build contracts were substantially complete at the end of 2004 and we have elected not to participate in these activities at the level we did in 2004. As a result of our decision to substantially reduce our participation in design/build projects, our Ready-Mixed Concrete Business net sales for the first quarter of 2005 were less than those reported for the first quarter of 2004 and are projected to continue to lag 2004 sales levels for the remainder of the year. However, these design/build projects also led to a significant decline in income from operations during the latter part of 2004. Except for design/build projects, we anticipate increases in sales in both the Cement Business and Ready-Mixed Concrete Business during the balance of 2005. RESULTS OF OPERATIONS-FIRST QUARTER OF 2005 COMPARED TO FIRST QUARTER OF 2004 Consolidated net sales for the three months ended March 31, 2005, decreased by $3.1 million when compared to the three months ended March 31, 2004. Sales in our Cement Business were higher by $2.2 million while sales in our Ready-Mixed Concrete Business decreased $5.3 million. Cement Business sales increased $1.7 million due to increased volume sold and $.5 million due to price increases. Sales in our Ready-Mixed Concrete Business decreased $5.3 million primarily due to a $7.7 million reduction in construction contract sales as discussed under "Overview" above, which was partially offset by an increase in ready-mixed concrete sales. Ready-mixed concrete sales and other sundry building materials increased $1.1 million due to increased volume and $1.3 million due to price increases. Consolidated cost of sales for the three months ended March 31, 2005, decreased by $2.5 million when compared to the three months ended March 31, 2004. Cost of sales in our Cement Business was higher by $2.1 million while cost of sales in our Ready-Mixed Concrete Business was lower by $4.6 million. In early 2005, we installed a new clinker cooler causing us to shutdown our preheater kiln for about six weeks reducing our clinker production for the quarter and increasing per ton production costs. These increased per ton production costs were the result of ongoing fixed costs and additional maintenance performed on the kiln and related equipment which was expensed. As a result of the shutdown and additional maintenance, labor increased about $.3 million primarily due to overtime worked to minimize production downtime and maintenance supplies increased about $1 million. Fringe benefits also increased about $.3 million primarily due to rising health insurance costs. These increases were partially offset by lower fuel costs of approximately $1.1 million due to a reduction in the use of natural gas made possible by our new coal firing system. The decrease in cost of sales in our Ready-Mixed Concrete Business was primarily due to a $5.9 million reduction in contract expenses as discussed under "Overview" above, which was partially offset by an increase in cost of sales of ready-mixed concrete and other sundry building materials of $1.3 million due to the increased volume sold. As a result of the above sales and cost of sales factors, our overall gross profit rate for the three months ended March 31, 2005 was 11.0% versus 11.9% for the three months ended March 31, 2004. Selling, general, and administrative expenses decreased by 8.3% during the first quarter of 2005 compared to the first quarter of 2004. These costs are normally considered fixed costs that do not vary significantly with changes in sales volume. This decrease is primarily due to the departure of management personnel responsible for the design/build projects and their related expenses. Interest expense increased about $.1 million for the first three months of 2005 as compared to the first three months of 2004 due to an increase in bank loans outstanding and a slight increase in interest rates. The Company utilized these loans for capital improvements and temporary operating funds. Other, net increased about $.2 million during the first quarter of 2005 as compared to the first quarter of 2004 primarily due to an increase in the amount of gain realized on the sale of other equity investments of approximately $.4 million and an increase in subsidiary losses allocated to minority interest of approximately $.1 million which was partially offset by a decrease in dividends received on other equity investments of approximately $.3 million. The effective tax rates for the three months ended March 31, 2005 and 2004 were 32.9% 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, minority interest in consolidated income (loss) and valuation allowance. Taxes for the current year are estimated based on prior year effective tax rates. During 2004, a valuation allowance increased the effective tax rate by 16.9%. This increase was substantially offset by the effects of percentage depletion and minority interest in consolidated income (loss) which reduced the effective tax rate by 13.3% and 3.5%, respectively. LIQUIDITY We are able to meet our cash needs primarily from a combination of operations and bank loans. Cash decreased during the first three months of 2005 primarily due to increases in receivables and inventories, the purchase of equipment and the payment of dividends. In December 2004, we renewed and modified our line of credit and term loan with our current lender. Our current unsecured credit commitment consists of a $25,000,000 advancing term loan maturing December 31, 2009 and a $10,000,000 line of credit maturing December 31, 2005. These loans bear floating interest rates based on JP Morgan Chase prime rate less .75% and 1.00%, 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 quarter of 2005. As of March 31, 2005, we had borrowed $24,509,264 on the advancing term loan and $6,773,895 on the line of credit leaving a balance available on the line of credit of $3,226,105. The average daily interest rate we paid on the advancing term loan during the first quarter of 2005 and 2004 was 4.66% and 2.75%, respectively. The average daily interest rate we paid on the line of credit during the first quarter of 2005 and 2004 was 4.41% and 3.25%, respectively. At the end of the quarter, the applicable interest rate was 4.75% on the advancing term loan and 4.50% 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 quarter of the year when we build inventory due to the seasonality of our business. We anticipate that the line of credit maturing December 31, 2005 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 million for a maximum of $50 million. Construction of an addition to the Company's corporate office is scheduled to begin in the second quarter of 2005 with completion anticipated in early 2006 at a total cost of approximately $2.5 million. The Company has preliminary plans to convert our remaining preheater kiln to a precalciner kiln in 2006. We have previously spent approximately $7.6 million on equipment and expect to spend an additional $10.5 million on installation, electrical and refractory to complete the conversion. Installation could begin in early 2006 and be completed in about two months. The conversion of this kiln should increase our production capacity by approximately 200,000 tons per year. We have not started depreciating this equipment. Other related projects, including changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity, are currently under consideration. For several years the Company has paid a $.20 per share dividend in January, March, June and September. Although dividends are declared at the Board's discretion, we project future earnings will support the continued payment of dividends at the current level. FINANCIAL CONDITION Total assets as of March 31, 2005 were $141 million, an increase of $6.2 million since December 31, 2004 due primarily to increases in receivables and inventories of approximately $2.8 million and $4.3 million, respectively. These variations are common during the first quarter of the year due to the seasonality of our business (see Seasonality below). Investments decreased approximately $1.8 million primarily as a result of the sale of about $1.2 million of equity investments and an unrealized loss of about $.6 million during the first quarter of 2005. Accounts payable increased about $2.8 million as of March 31, 2005 compared to December 31, 2004 primarily due to March expenses related to the capital expenditures in the Cement Business, payments withheld pending completion of construction projects in the Ready-Mixed Concrete Business and March expenses related to the increased sales volume of ready-mixed concrete. Indebtedness increased about $5.2 million during the first three months of 2005 primarily due to capital expenditures of about $5.1 million and funding the increase in inventories and receivables of about $2.8 million and $4.3 million, respectively. 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 quarter of 2005 included installation of a clinker cooler to accommodate the increased material flow when the second precalciner is installed. We also invested in routine equipment purchases during the first quarter of 2005, primarily in the Ready-Mixed Concrete Business. Property, plant and equipment expenditures for the first quarter of 2005 totaled approximately $5.1 million. Construction will soon begin on the expansion and remodeling of our corporate offices, which is projected to be completed by the end of the first quarter of 2006. Other routine equipment purchases are also planned during the remainder of 2005. Preliminary plans for 2006 include the conversion of our remaining preheater kiln to a precalciner kiln and changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity. Some costs related to these projects may be incurred in the latter part of 2005. If we elect to proceed with these projects, additional bank financing may be required. 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 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, 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. 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, and to a lesser extent natural gas, in its kilns. While 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, an increase in such manufacturing components could adversely affect us. 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. FUTURE CHANGE IN ACCOUNTING PRINCIPLES The Financial Accounting Standards Board (FASB) has issued the following new accounting pronouncements. In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment. The Statement generally provides that the cost of Share-Based Payments be recognized over the service period based on the fair value of the option or other instruments at the date of grant. The grant date fair value should be estimated using an option-pricing model adjusted for the unique characteristics of the options or other instruments granted. The Company must use the Black-Scholes option pricing model for outstanding options. With respect to future grants, the Company may elect to use the Black-Scholes option pricing model or may elect to determine the grant date fair value using an alternative method. This Statement will be effective for the Company beginning July 1, 2005. The Company does not expect this pronouncement to have an affect on its financial statements. In November 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This Statement clarifies that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs should be classified as a current-period charge. The Statement also requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company has not yet determined the impact that this new pronouncement will have on the Company's consolidated financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. Statement No. 29 generally provides that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged subject to certain exceptions to the general rule. The Statement amends Opinion No. 29 to eliminate the exception for exchanges involving similar productive assets with a general exception for exchanges that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary asset exchanges in periods beginning after June 15, 2005. The Company has not yet determined the impact that this new pronouncement will have on the Company's consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company owns $11,854,631 of equity securities, primarily publicly traded entities, as of March 31, 2005. 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 $710,000 effect on comprehensive income. The Company also has $31,283,159 of bank loans as of March 31, 2005. 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 .75% and 1.00%, 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. As of the end of the period covered by this report, an evaluation was carried out by the Company's management, including its President and Chairman of the Board of Directors and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-5(e) under the Securities Exchange Act of 1934). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation, the Company's President and Chairman of the Board of Directors and Chief Financial Officer concluded that these disclosure controls and procedures were effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required as of the end of the period covered by this report. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings On April 27, 2005, our subsidiary, Tulsa Dynaspan, Inc. ("TDI"), filed a lawsuit in the United States District Court for the Northern District of Oklahoma against David G. Markle, a former director, President and employee of TDI, Richard L. Evilsizer, a former officer and employee of TDI, certain other former employees of TDI and companies controlled by one or more of such individuals. Some or all of the individual defendants have organized businesses that directly compete with TDI. TDI is claiming the defendants damaged TDI as a result of, among other things (1) the unauthorized use of TDI assets and resources while they were employees of TDI for the benefit of one or more defendants, (2) the improper use of TDI computers in violation of the Federal Computer Fraud and Abuse Act, (3) defamation and disparagement of TDI, (4) violation of fiduciary duties the individual defendants owed to TDI, and (5) improper use by the defendants of trade secrets and other proprietary information of TDI. On December 28, 2004, Mr. Markle filed a lawsuit in the District Court for Tulsa County, Oklahoma against TDI and The Monarch Cement Company seeking a declaratory judgment as to the ownership of an alleged invention of a method for the construction of parking garages. On January 11, 2005, Mr. Markle resigned from TDI. On January 19, 2005, Mr. Markle amended his petition to add a claim, among others, that alleged Monarch and TDI breached their fiduciary duties to Mr. Markle (who is a minority stockholder of TDI) in the management of TDI. Monarch and TDI believe the invention is owned by TDI and that the fiduciary duty and related claims are without merit. Monarch and TDI will vigorously contest any ownership by Mr. Markle in the invention and will vigorously defend the fiduciary duty and related claims. Item 6. 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 May 13, 2005. 32.2 18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated May 13, 2005. 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 May 13, 2005 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board Date May 13, 2005 /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 and Exchange Act of 1934. 31.2 Certificate of the Chief Financial Officer pursuant to Section 13a-14(a)/15d-14(a) of the Securities and Exchange Act of 1934. 32.1 18 U.S.C. Section 1350 Certificate of the President and Chairman of the Board dated May 13, 2005. 32.2 18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated May 13, 2005. EX-31 2 exh311501.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: May 13, 2005 /s/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board EX-31 3 exh312501.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: May 13, 2005 /s/ Debra P. Roe Debra P. Roe, CPA Chief Financial Officer and Assistant Secretary-Treasurer EX-32 4 exh321501.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 March 31, 2005, 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: May 13, 2005 /S/ Walter H. Wulf, Jr. Walter H. Wulf, Jr. President and Chairman of the Board EX-32 5 exh322501.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 March 31, 2005, 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: May 13, 2005 /S/ Debra P. Roe Debra P. Roe, CPA Chief Financial Officer and Assistant Secretary-Treasurer -----END PRIVACY-ENHANCED MESSAGE-----