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FORM 10-K (Mark One) Commission File Number 0-2757 THE MONARCH CEMENT COMPANY Kansas 48-0340590 P.O. Box 1000, Humboldt, Kansas 66748-0900 Registrant's telephone number, including area code: 620-473-2222 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, 2005 - Parts I, II and
IV of Form 10-K and (2) the registrant's definitive proxy statement prepared
in connection with the annual meeting of stockholders to be held on April 12,
2006 - Parts II and III of Form 10-K.
PART I
ITEM 1. BUSINESS
Reference is hereby made to pages 1, 2, 24 and 25 of The Monarch Cement
Company's 2005 annual report to stockholders (filed herewith as Exhibit 13)
for a description of the Company's business, including information regarding
lines of business. Such information is hereby incorporated herein by
reference. In addition, we submit the following information:
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, 2005 the Company had inventories as
follows: $
1,868,412 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
2005, 2004 or 2003. Backlog
of customers' orders is not a material factor in the Company's business. 1. 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, 2005, the Company and its subsidiaries employed approximately 600
employees including 225 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 1A. RISK
FACTORS
Reference is hereby made to page 9 and 10 of The Monarch Cement Company's 2005
annual report to stockholders (filed herewith as Exhibit 13) for a description
of the Company's market risk. Such information is hereby incorporated herein
by reference. 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 925,000 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 previously converted one
of our two preheater kilns to a precalciner kiln. Conversion of our remaining
preheater kiln into a precalciner kiln is currently underway and should be
completed during the first 2. quarter of 2006. The installation of this
equipment should 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 page 8 of the Company's 2005 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 a rock quarry located near
Earlham, Iowa, approximately 30 miles west of Des Moines, Iowa. Approximately
300 acres of this 400 acre tract has been quarried and the Company has
contracted with a third party to quarry and sell the remaining rock. This quarry
operation will not have a material affect on the Company's overall operations. 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 line of business 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 and its subsidiary,
Tulsa Dynaspan, Inc. ("TDI"), are involved in litigation with David G. Markle
("Markle"), a former director, president and employee of TDI, Richard L.
Evilsizer, a former officer and employee of TDI and certain other former
employees and companies controlled by one or more of such persons (the "Markle
Parties"). Markle and Mr. Evilsizer are also minority shareholders in TDI.
In the litigation TDI is seeking damages based on allegations that one or more
of the Markle Parties have (1) breached their fiduciary duty to TDI, (2)
violated noncompete agreements, (3) improperly used TDI computers in violation
of the Federal Computer Fraud and Abuse Act, (4) improperly used TDI trade
secrets and other proprietary information and (5) made defamatory and
disparaging statements about TDI. The Markle Parties have alleged that the
Company has defamed them and interfered with contractual relations. Markle
and Mr. Evilsizer have alleged that the Company, as the majority shareholder
of TDI, has breached its duty to them as minority shareholders. Certain of
the Markle Parties have made claims against the directors of TDI, as well
as derivative claims against TDI and Monarch. The litigation also involves
a declaratory judgment as to whether TDI or Markle owns an alleged
invention for a method for the construction of parking garages. Two actions have been filed in
this litigation. One was filed on December 28, 2004, in the District Court
for Tulsa County, Oklahoma by Markle against TDI and the Company (the "State
Court Action") . The other was filed by TDI against the Markle Parties on
April 27, 2005, in the United States District Court for the Northern District
of Oklahoma, but that litigation has been stayed pending judgment in the state
court action. All of the Markle Parties are now parties in the State Court
Action. This litigation is in the discovery stage and no trial date has been
set. The Company and TDI believe that all claims made by the Markle Parties
are without merit and intend to vigorously defend such claims. TDI intends to
vigorously pursue its claims against the Markle Parties for damages, as well
as its ownership of the alleged invention. No assurances can be given as to
the outcome of this litigation. 3. 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 2005.
PART II
ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED STOCKHOLDER
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 10 of the Company's 2005 annual report to stockholders. In
addition we submit the following information: The
Company's Board of Directors is responsible for determining the amount and
timing of dividend payments. In recent years, the Company has paid four
dividends per year of $.20 per share. All dividends are discretionary and are
based on past financial performance and availability of funds. The Company is
not restricted regarding payment of dividends, but does have a financial
covenant related to net worth. 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. The
Company did not sell any of its equity securities during 2005 and the Company
did not repurchase any of its equity securities during the fourth quarter of
2005. 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 2005 annual report to stockholders. ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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 10 of the Company's 2005 annual report to
stockholders. 4.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The
Company is exposed to various market risks, including equity investment
prices. The Company has $13,454,631 of equity securities as of December 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 an $807,000 effect on
comprehensive income. The Company
also has $24,086,995 of bank loans as of December 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 the lender's national
prime rate less 1.00%, 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 11 through 26 of the Company's 2005 annual report to
stockholders.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING None ITEM 9A. 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 Rule 13a-15(e) under the Securities
Exchange Act of 1934). 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 as of the end of the
period covered by this report. 5.
ITEM
9B. OTHER INFORMATION There
was no information required to be disclosed, but not reported, in a report on
Form 8‑K during the fourth quarter of 2005.
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 4 through 6, 14 and 15 of the Company's definitive proxy
statement prepared in connection with its 2006 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 8 through 12 (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 2006 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 7 and 8 of the Company's definitive proxy statement
prepared in connection with its 2006 annual meeting of stockholders pursuant
to Regulation 14A and previously filed with the Commission. In addition we
submit the following information: 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 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 9 of the Company's definitive proxy statement prepared in
connection with its 2006 annual meeting of stockholders pursuant to Regulation
14A and previously filed with the Commission. ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 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 13 of the Company's definitive proxy statement prepared in connection
with its 2006 annual meeting of stockholders pursuant to Regulation 14A and
previously filed with the Commission. 6.
PART IV ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES The
report of Independent Public Accountants‑‑BKD, LLP; the Consolidated Balance
Sheets‑‑December 31, 2005 and 2004; the Consolidated Statements of Income for
the Years Ended December 31, 2005, 2004 and 2003; the Consolidated Statements
of Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003;
the Consolidated Statements of Stockholders' Investment for the Years Ended
December 31, 2005, 2004 and 2003; the Consolidated Statements of Cash Flows
for the Years Ended December 31, 2005, 2004 and 2003; and the Notes to
Consolidated Financial Statements are incorporated by reference in Item 8 to
this report from the Company's 2005 annual report to stockholders on pages 11
through 26.
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 Quarterly Report on Form
10-Q for the quarter ended March 31, 2004 (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. (Filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 2002
(File No.
10.1(b) Second amendment to agreement dated January 1, 2001, between the
Bank of Oklahoma N.A. and The Monarch Cement Company as amended by first
amendment dated December 31, 2002. (Filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 (File No. 0-2757) as Exhibit
10.1(b) and incorporated herein by reference.) 7.
10.1(c) Third amendment to agreement dated January 1, 2001, between the
Bank of Oklahoma N.A. and The Monarch Cement Company as amended by first
amendment dated December 31, 2002 and second amendment dated December 31, 2003.(Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 (File No. 0-2757) as Exhibit 10.1(c) and incorporated herein
by reference.)
10.1(d) Fourth amendment to agreement dated January 1, 2001, between the
Bank of Oklahoma N.A. and The Monarch Cement Company as amended by first
amendment dated December 31, 2002, second amendment dated December 31, 2003 and third amendment dated
December 31, 2004.
13 2005 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
31.1 Certificate of the President and Chairman of the Board
pursuant to Section
31.2 Certificate of the Chief Financial Officer pursuant to
Section
32.1 18 U.S.C. Section 1350 Certificate of the President and Chairman
of the Board dated March 13, 2006.
32.2 18 U.S.C. Section 1350 Certificate of the Chief Financial Officer
dated March 13, 2006. 8.
SIGNATURES 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
By: /s/ Walter H. Wulf, Jr.
Date:
March 13, 2006
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. 9.
10.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
SCHEDULE II ‑‑ VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2005
Description
FOR THE YEAR ENDED DECEMBER 31, 2005:
(1) Writeoff of uncollectible accounts, net of collections on accounts
previously written off. 11.
EXHIBIT INDEX Exhibit Number
Description
3(ii) By‑laws.
(Filed with the Company's Quarterly Report on Form 10-Q 10.1 Loan agreement
dated January 1, 2001, between the Bank of 10.1(a) First amendment to
agreement dated January 1, 2001, between the 10.1(b) Second amendment to
agreement dated January 1, 2001, between the 10.1(c) Third amendment to
agreement dated January 1, 2001, between the 10.1(d) Fourth amendment to
agreement dated January 1, 2001, between the 13 2005 Annual
Report to Stockholders. 21 Subsidiaries of
the Registrant.
31.1 Certificate of the President and Chairman of the
Board pursuant to
31.2 Certificate of the Chief Financial Officer pursuant
to Section
32.1 18 U.S.C. Section 1350 Certificate of the President
and Chairman
32.2 18 U.S.C. Section 1350 Certificate of the Chief
Financial Officer Exhibit 10.1(d) January 1, 2006 Ms. Debra Roe RE: Fourth Amendment to Agreement dated January 1, 2001 between The Monarch
Cement Company Dear Debbie: Bank of Oklahoma, N.A. ("Lender") is pleased to renew and modify the Loan
Agreement subject to the 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 2.1. Provided there is no Event of Default, Borrower may advance, pay down,
and re-advance funds on 2.2. Letters of Credit shall be issued pursuant to Lender's standard
procedure, upon receipt by Lender 2.3. Borrower may repay 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 GENERAL PROVISIONS: Unless otherwise specified herein, all terms and conditions, representations,
and warranties of Borrower LENDER:
BORROWER: Bank of Oklahoma, N.A. The
Monarch Cement Company By: /s/ Jane Faulkenberry By:
/s/ Walter H. Wulf, Jr. March 13, 2006 ANNUAL REPORT TO STOCKHOLDERS The economic recovery which started in our market area during the final
quarter of 2004 accelerated during 2005. Demand for both cement and ready-mixed
concrete increased during 2005 enabling us to raise sales prices across all
product lines and to increase our utilization of the capital investment we have
in property, plant and equipment. The additional production capacity and more
efficient equipment added in recent years in anticipation of this strong demand
for all of our products made it possible for our production facilities to
economically meet the higher sales requirements. The combination of increased
prices, volume, and improved efficiencies were the primary reasons for an $11.9
million increase in 2005 income from operations. Although reconstruction in the hurricane-damaged Gulf region is not expected
to affect us directly, the increased need for cement along the Coast diverts
cement which might otherwise be shipped into our market area. The recently
passed $286 billion six year Federal highway bill, combined with the Kansas
highway program, will also create demand for cement. Higher oil prices, while
negatively affecting our transportation costs, have a positive impact on
concrete-versus-asphalt cost comparisons for highway construction. These
factors all affect the overall demand for cement and ready-mixed concrete in our
market area and create opportunity for further price and volume increases.
Installation of the Company's second precalciner in the first quarter of 2006
is projected to increase our cement production capacity by approximately 25%
although we will not realize the full increase in production until 2007. This
additional production capacity is instrumental in meeting the projected increase
in demand for our products. As we complete this year, we are thankful for our many loyal customers who
continue to have confidence in the quality of our products and our ability to
service their needs. We recognize our employees for their contributions toward
the success of our Company. We express our appreciation to our stockholders for
their steadfast confidence in our Company. Most importantly, we thank our
Heavenly Father for His blessings and support which have enabled us to achieve
the results displayed in this report and for His guidance in meeting the
challenges ahead. We wish to invite you, our stockholders, to attend Monarch's annual meeting
to be held at 2:00 p.m. on April 12, 2006 in the corporate office at 449 1200
Street, Humboldt, Kansas. Thank you for your support throughout the years and
God Bless. WALTER H. WULF, JR.
The Monarch Cement Company and Subsidiaries
Selected Financial Data For the Five
Years Ended December 31, 2005
DESCRIPTION OF THE BUSINESS The
Monarch Cement Company (Monarch) was organized as a corporation under the laws
of the State of Kansas in 1913. Since its inception, Monarch has been engaged
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.
Subsidiaries of Monarch (which together with Monarch are referred to herewith
as the "Company") are engaged 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 delivered to the contractor. Concrete products
primarily include pre-formed components produced by the Company that are ready
for use in the construction of commercial buildings, institutional facilities
and parking garages. As used
herein, 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. 1.
LINES OF BUSINESS The
Company is engaged in two lines of business - Cement Business and Ready-Mixed
Concrete Business. 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 of
cement are made primarily to contractors, ready-mixed concrete plants,
concrete products plants, building materials dealers and governmental
agencies. Monarch cement is delivered either in bulk or in paper bags and is
sold under the "MONARCH" brand name. The cement is distributed both by truck
and rail, either common or private carrier. Subsidiaries of
Monarch sell ready-mixed concrete, concrete products and sundry building
materials in Monarch's primary market. The
following table sets forth for the Company's last three fiscal years the
percentage of total sales by the (1) Cement Business and (2) Ready-Mixed
Concrete Business:
Total Sales December 31, 2005 2004 2003
MANAGEMENT'S DISCUSSION AND ANALYSIS
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:
2.
- general economic and business conditions; Ready-Mixed
Cement Business Concrete Business Consolidated For the Year Ended December
31, 2005 See Note 10
in the Notes to Consolidated Financial Statements for further discussion of
each of the Company's reportable operating lines of business. General--Our
products are used in residential, commercial and governmental construction.
In 2004, and continuing in 2005, we experienced 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. During 2005, we
realized a substantial increase in net income due primarily to a combination
of increases in price and volume in both the Cement Business and Ready-Mixed
Concrete Business. These price increases play a key role in helping us keep
pace with increases in the cost of labor, raw materials, and transportation
and the expense of maintaining state-of-the-art equipment in our capital
intensive industry. The higher sales volumes resulted in better utilization
of our equipment also contributing to the substantial improvement in operating
profits. The decrease in net sales in 2005 as compared to 2004 is due to a
reduction in construction contracts in the Ready-Mixed Concrete Business,
which did not contribute to the Company's overall profitability in 2004.
Although we are still in the construction industry, it is on a smaller scale
than in prior years.
During 2004, although intermittent rains hampered construction projects and
reduced efficiencies in our ready-mixed concrete operations, sales of both
cement and ready-mixed concrete increased moderately compared to 2003 levels.
However, the increase in sales and the increase in operating losses in 2004
for our Ready-Mixed Concrete Business was primarily the result of our
activities in the construction of five parking 3. garage structures that
were substantially completed by the end of 2004. Prior to 2004, we did
not engage in such activities to any great extent. Costs incurred in connection with these five projects
exceeded those that were estimated when the contracts were entered into. Management personnel involved in these projects are no
longer with the Company. Going forward, we
expect activity in designing/building of construction projects to be at
reduced levels compared to 2004. 2005 Compared to
2004--Consolidated net sales for the year ended December 31, 2005 decreased
$3.8 million when compared to the year ended December 31, 2004. Sales in our
Cement Business were higher by $12.9 million while sales in our Ready-Mixed
Concrete business decreased $16.7 million. Cement Business sales increased
$7.2 million due to increased volume sold and $5.7 million due to price
increases. Sales in our Ready-Mixed Concrete Business decreased primarily due
to a $27.5 million reduction in construction contract sales as discussed under
"General" above, which was partially offset by an increase in ready-mixed
concrete and other sundry building material sales of $10.8 million, of which
$4.9 million was due to increased volume and $5.9 million was due to price
increases. Consolidated cost of
sales for the year 2005 were $15.9 million less than cost of sales for the
year 2004. Cost of sales in our Cement Business was higher by $3.2 million
while cost of sales in our Ready-Mixed Concrete Business was lower by $19.1
million. Cement Business cost of sales increased $5.5 million due to the
13.9% increase in volume sold and about $2.0 million due to increased supply
costs related to maintenance performed in the early part of 2005. These
increases were nearly offset by lower fuel costs of approximately $3.7 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 $26.8 million reduction in construction
contract expenses as discussed under "General" above, which was partially
offset by an increase in cost of sales of ready-mixed concrete and other
sundry building materials of $7.7 million due to the increased volume sold,
increased raw material prices and increased fuel prices. As a result of the
above sales and cost of sales factors, our overall gross profit rate for the
year ended December 31, 2005 was 18.5% compared to 9.7% for the year ended
December 31, 2004.
Selling, general and administrative expenses
increased by 1.9% for the year 2005 as compared to the year 2004. These costs
are normally considered fixed costs that do not vary significantly with
changes in sales volume. Interest expense increased about $.6 million for
the year 2005 as compared to the year 2004 due to an increase in interest
rates and an increase in borrowings. The Company utilized these loans for
capital improvements and temporary operating funds. "Other, net"
decreased approximately $1.6 million for the year 2005 as compared to the year
2004 primarily due to a decrease in the amount of gain realized on the sale of
other equity investments of approximately $.9 million and an increase in
subsidiary income allocated to minority interest of approximately $.6 million. The effective tax
rates for years 2005 and 2004 were 29.1% and 34.4%, 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, domestic
production activities deduction, minority interest in consolidated income and
valuation allowance. During 2005, percentage depletion reduced the effective
tax rate by 6.7%. 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 which
reduced the effective tax rate by 13.3% and 3.5%, respectively.
4. 2004 Compared to
2003--Consolidated net sales for the year ended December 31, 2004 were
approximately $145.1 million, an increase of $23.0 million as compared to the
year ended December 31, 2003. Sales in our Cement Business were higher by $2.8
million due to a combination of a moderate increase in both sales volume and
price attributable to the factors discussed under "General" above. Sales in
our Ready-Mixed Concrete Business were higher by $20.2 million in 2004 as
compared to 2003, again primarily due to higher sales volumes primarily in
construction contracts as discussed under "General" above. Our overall gross
profit rate for the year 2004 was 9.7% compared to 13.7% for the year 2003.
Gross profit rate in the Cement Business increased less than .5%. In late
2004, we began to benefit from our new coal firing system reducing our
dependence on natural gas and reducing our fuel costs by approximately $1.7
million. We also benefited from a reduction in pension expense of
approximately $.2 million due to higher stock market prices at the end of
2003; however, these reductions were offset by slightly higher labor and
health insurance costs of approximately $.6 million and $.9 million,
respectively. Gross profit rate in the Ready-Mixed Concrete Business
decreased 5.4%. This decrease in gross profit rate was primarily due to the
costs associated with the construction contracts as discussed under "General"
above. Gross profit from construction contracts decreased approximately $3.1
million creating a loss on these contracts. Increases in raw material costs
and fuel of approximately $.6 million and $.3 million, respectively, also
contributed to the decrease in gross profit for this line of business. Selling, general and administrative expenses
increased .6% during the year 2004 compared to the year 2003. These costs are
normally considered fixed costs that do not vary significantly with changes in
sales volume. Interest income decreased $.1 million during 2004
as compared to the year 2003 primarily due to modest decreases in
investments. Interest expense decreased $.1 million during
2004 as compared to the year 2003 primarily due to the capitalization of
interest in 2004. "Other, net"
increased approximately $1.3 million for the year 2004 as compared to the year
2003 primarily due to an increase in the amount of gain realized on the sale
of other equity investments of approximately $.7 million and an increase in
subsidiary losses allocated to minority interest of approximately $.5 million. The effective tax
rates for years 2004 and 2003 were 34.4% and 28.9%, 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 and valuation allowance. 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 which reduced the effective tax rate by 13.3%
and 3.5%, respectively. During 2003, percentage depletion reduced the
effective tax rate by 7.2%.
LIQUIDITY We are
able to meet our cash needs primarily from a combination of operations and
bank loans. Cash provided by operations in 2005 exceeded the amount used for
capital expenditures, dividends and the repayment of bank loans. Our cash
balance at the end of 2005 was slightly lower than our balance at the end of
2004 due to placing $1.5 million in a short-term investment. This investment
matures during the first quarter of 2006 and will be used to help cover
operating expenses and capital expenditures.
5. In
December 2005, we renewed our line of credit with our current lender. Our
current unsecured credit commitment consists of a $25 million advancing term
loan maturing December 31, 2009 and a $10 million line of credit maturing
December 31, 2006. The term loan bears a floating interest rate based on
JP Morgan Chase prime rate less .75% and the line of credit bears a floating
interest rate based on lender's national prime rate less 1.00%. 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, 2005, we had borrowed
$23.2 million on the advancing term loan and $-0- on the line of credit
leaving a balance available on the line of credit of $10 million. The annual
weighted average interest rate we paid on the advancing term loan during 2005
and 2004 was 5.43% and 3.09%, respectively. The annual weighted average
interest rate we paid on the line of credit during 2005 and 2004 was 5.18% and
3.00%, respectively. At year end, the applicable interest rate was 6.50% on
the advancing term loan and 6.25% 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 primarily during the first half of the year when we build inventory
due to the seasonality of our business. Our board of directors has given
management the authority to borrow an additional $15 million for a maximum of
$50 million.
Contractual obligations at December 31, 2005, consisting of maturities on
long-term debt, estimated interest payments on debt, pension, postretirement
benefit obligations and open purchase orders are as follows: - - - - - - - - - -
The
long-term debt obligation is based on current interest rates and assumes that
the advancing term loan is paid off at maturity. The
Company has been required to make a pension contribution in two of the past
five years. In 2005 and 2003, the Company contributed approximately $.6
million and $.3 million, respectively, to the pension fund. No estimates of
required pension payments have been asked for or made beyond 2006. Each
segment of the cement manufacturing process requires significant investment in
major pieces of equipment. Once installed, this equipment, if properly
maintained, functions for many years. Generally we spend several million
dollars each year on preventive maintenance and equipment repairs; however,
capital expenditures vary from year to year. A piece of equipment that costs
$25 - $30 million may remain in service for fifty years. After a period of
time, this equipment may be modified to incorporate the latest technology,
increasing its efficiency and production capacity and extending its useful
life. In the years Monarch invests in major equipment replacements or
enhancements, current operations do not generate enough cash to pay for the
improvements, requiring us to use our cash on hand or bank financing. As
projects are completed, we reduce the amount needed for major capital
expenditures, allowing us to pay off any outstanding bank loans and accumulate
cash for the next major plant improvement. The
Company completed the conversion of one of its two preheater kilns to a
precalciner kiln in 2001 and has started the conversion of our remaining
preheater kiln to a precalciner kiln. As of year end, we had spent
6. approximately $10.7 million on equipment and installation costs and expect to
spend an additional $7.5 million on installation, electrical and refractory to
complete the conversion. Installation is expected to be completed in the first
quarter of 2006. The conversion of this kiln should increase our production capacity by
approximately 200,000 tons per year. Although we will have to shut down this kiln for about six weeks during the conversion, we are
projecting a 15% increase in total clinker production for the year 2006 as
compared to 2005 due to the increased kiln capacity after the conversion.
This kiln was also shut down approximately six weeks during early 2005 for the
cooler installation. We have not started depreciating the precalciner
equipment. The
Company is also in the process of expanding its corporate office. Completion
is anticipated in mid-2006 at a total cost of approximately $2.7 million. As
of year end, we had spent approximately $1.7 million on this expansion. We
have not started depreciating this addition. Other
projects, including changes to our quarrying and grinding operation to supply
the raw materials required by the increased kiln capacity and increasing our
finished cement storage capacity, are currently under consideration. Although
we anticipate an increase in capital expenditures during 2006, we do not
anticipate the need for additional bank financing other than that available
under existing lines of credit. 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 December 31, 2005 were $144 million, an increase of $8.9 million
since December 31, 2004 due primarily to increases in property, plant and
equipment, deferred income taxes and short-term investments of approximately
$5.9 million, $2.1 million and $1.5 million, respectively. Property, plant
and equipment increased as a result of the purchase and installation of new
equipment. Deferred income taxes increased primarily due to increases in
minimum pension liability and net operating loss carryforwards. Short-term
investments increased as a result of sales during the latter part of the year
generating cash in excess of the amount needed to finance current operations.
Accounts payable increased about $3.3 million as of December 31, 2005 compared
to December 31, 2004 primarily due to $2.0 million of capital equipment
additions included in accounts payable at the end of 2005. Maintenance
projects and additional construction projects near the end of 2005 also
contributed to the increase in accounts payable at year end.
Indebtedness decreased about $3.0 million during the year 2005 primarily as a
result of utilizing cash provided by operations to reduce our bank loans. During
2005, we adjusted the minimum pension liability, resulting in an increase in
current and long-term accrued pension expense of $.9 million and $.9 million,
respectively, and a decrease in stockholders' investment of $1.1 million. The
change in minimum pension liability was primarily due to reducing the discount
rate for financial disclosure at December 31, 2005 from 6.00% to 5.75% to keep
our plan in line with current trends in market index fund rates.
Stockholders' investment increased 6.7% during 2005 primarily as a result of
net income. Basic earnings were $2.40 per share and dividends declared were
$.80 per share for the year 2005. 7.
CAPITAL RESOURCES The Company historically invests $10 million
to $12 million per year on capital expenditures to keep its equipment and
facilities in good operating condition. Capital expenditures during 2005
included installation of a new clinker cooler, the beginning stages of
construction of an addition to our corporate offices and preliminary work on
the conversion of our remaining preheater kiln to a precalciner kiln. We also
invested in routine equipment purchases in the Ready-Mixed Concrete Business
during 2005. Property, plant and equipment expenditures for the year 2005
totaled approximately $14.4 million. The Company plans to complete the
installation of the precalciner in the first quarter of 2006 and the corporate
office addition in midyear. In addition, preliminary plans under
consideration for 2006 include changes to our quarrying and grinding operation
to supply the raw materials required by the increased kiln capacity and
increasing our finished cement storage capacity. If we elect to proceed with
these and other related projects, additional bank financing may be required.
Additional borrowings during 2006 are not anticipated to exceed the amount
available through our existing line of credit. The Company also plans to invest in other
miscellaneous equipment and facility improvements in both the Cement Business
and Ready-Mixed Concrete Business in 2006. It is expected that the Company's
capital expenditures, including the completion of the office addition and
conversion of the preheater kiln to a precalciner kiln, will approximate $15
million during 2006 and will be funded with a mixture of cash from operations
and temporary bank loans.
Accounting
Policies--The critical accounting policies with respect to the Company are
those related to pension and postretirement benefits. Monarch has defined
benefit pension plans covering substantially all permanent employees in the
Cement Business. 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 an amount within the minimum/maximum range of tax
deductible contributions computed by the actuaries. Contributions are
intended to provide for benefits attributed to service to date and for those
expected to be earned in the future. Monarch expects 2006 cash expenditures
for these plans to be approximately $.9 million. Monarch also
provides other postretirement employee benefits including health care 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. Monarch expects 2006 cash expenditures for this plan to be
approximately $1 million. We account for our
pension plans in accordance with Financial Accounting Standards Board (FASB)
Statement No. 87, "Employers' Accounting for Pensions" (FAS 87) and our
postretirement benefits in accordance with FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). FAS 87
and FAS 106 require us to make various estimates and assumptions, including
discount rates used to value liabilities, expected rates of return on plan
assets, salary increases, employee turnover rates, anticipated employee
mortality rates and expected future healthcare costs. The estimates 8. we used are
based on our historical experience as well as current facts and circumstances and
are updated at least annually. We use third-party actuaries to assist us
in properly measuring the expense and liability associated with these
benefits. 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. Since stock options are not a part of
our employee benefits, this pronouncement should have no affect on our
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 for 2006 and beyond. 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.
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,
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. 9. 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 lender's national prime
rate less 1.00%, 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, 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, natural gas, 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.
STOCK MARKET AND DIVIDEND DATA On March
1, 2006, 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 low and high bid quotations as reported by Yahoo! at
http://finance.yahoo.com/, and dividends declared for each quarter of our
two latest fiscal years: 2005 2004 Price Dividends Price Dividends Low High Declared Low High Declared
*Reflects declaration of two $.20 dividends
payable in the first quarter of 2006 and 2005.
10.
Report of Independent Audit Committee, Board of Directors We have audited the accompanying consolidated balance
sheets of The Monarch Cement Company as of December 31, 2005 and 2004, 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, 2005. 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 the standards
of the Public Company Accounting Oversight Board (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 consolidated financial statements
referred to above present fairly, in all material respects, the financial position of The Monarch Cement
Company as of December 31, 2005 and 2004, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
BKD, LLP Kansas City, Missouri - - - - 12.
14. 15.
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(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
$63,588, $(527,225) and $(16,234) during 2005, 2004 and 2003, 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) Reclassifications--Certain
reclassifications have been made to the 2004 and prior financial statements to
conform to the current year presentation.
(e) Cash
Equivalents--The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents. At December 31,
2005 and 2004, cash equivalents consisted primarily of money market
investments and repurchase agreements with various banks. From time to time,
the Company's cash accounts exceed federally insured limits.
(f) Investments--The
Company's short-term investment consists of a certificate of deposit with a
maturity of six months or less and has been classified as held-to-maturity.
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. 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.
(g) 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.
16.
(h) Inventories‑‑Inventories
of finished cement and work in process are recorded at the lower of cost or
market on a last‑in, first‑out (LIFO) basis. Total inventories reported under
LIFO amounted to $3,444,767 and $4,136,360 as of December 31, 2005 and 2004,
respectively. Under the average cost method of accounting (which approximates
current cost), these inventories would have been $1,837,000, $2,000,000 and
$1,994,000 higher than those reported at December 31, 2005, 2004 and 2003,
respectively. The cost of manufactured items includes all material, labor,
factory overhead and production-related administrative overhead required in
their production.
(i)
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 2005 and 2004, the Company capitalized approximately
$53,700 and $48,000, respectively, of interest expense related to current
construction projects. During 2003 the Company did not capitalize any
interest expense. Depreciation of property, plant and equipment is
provided by charges to operations over the estimated useful lives of the
assets using accelerated methods. 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. 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.
(j)
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. (k)
Revenue Recognition‑‑The Company
records revenue from the sale of cement, ready-mixed concrete, concrete
products and sundry building materials when the products are delivered to
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. (l)
Cost of Sales--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.
(m)
Selling, General and Administrative Expenses--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.
(n)
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 2005, 2004 and 2003.
(o) Self
Insurance‑‑The Company has elected to self-insure certain costs related to
employee health and accident benefit programs. Costs resulting from
self-insured losses are charged to income when incurred.
(p)
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, receivables, accounts payable,
bank loans payable and long-term debt 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
Investments include 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, 2005, 2004 and 2003 are as
follows:
(3) PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment at December 31, 2005 and 2004 consisted of:
18.
4) LINE OF CREDIT AND LONG-TERM DEBT In
December 2005, Monarch renewed and modified its line of credit with a bank.
Monarch's 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, 2006. At December 31, 2005 and 2004, there was
$-0- and $981,667, respectively, borrowed against the line of credit. This
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 lender's National Prime rate less 1.00% for 2006 and 2005 (.75% for
2004). The applicable interest rate was 6.25% and 4.25% on December 31, 2005
and 2004, respectively, and is payable quarterly.
Aggregate annual maturities of long-term debt as of December 31, 2005 are:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 __________
(Exact name of registrant as specified in its charter)
(State of incorporation)
(IRS employer identification no.)
(Address of principal executive offices, including zip
code)
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 if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ____ No X
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ____ No X
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. [ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act).
Yes ____ No X
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer
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 common equity as of the last business day of the
registrant's most recently completed second fiscal quarter was $66,319,500.
As of March 3, 2006, the registrant had outstanding
2,465,996 shares of Capital Stock, par value $2.50 per share, and 1,560,962
shares of Class B Capital Stock, par value $2.50 per share.
The
Company did not introduce any new products nor begin to do business in a new
industry segment during 2005.
Cement
Work in process
1,632,780
Building products
3,457,813
Fuel, gypsum and other materials
3,317,283
Operating and maintenance supplies
7,850,617
Total
$
18,126,905
MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
RESULTS OF OPERATIONS
AND
FINANCIAL DISCLOSURE
FINANCIAL STATEMENTS
0-2757) as Exhibit 10.1(a) and incorporated herein by reference.)
13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
13a‑14(a)/15d-14(a) of the Securities Exchange Act of 1934.
(Registrant)
Walter
H. Wulf, Jr.
President
By: /s/
Jack R. Callahan
Jack R.
Callahan
DirectorBy: /s/ Gayle
C. McMillen
Gayle C. McMillen
Director
Date: March 13, 2006
Date: March 13, 2006
By: /s/
Ronald E. Callaway
Ronald E. Callaway
Director By: /s/ Byron K.
Radcliff
Byron K. Radcliff
Director
Date: March 13, 2006
Date: March 13, 2006
By: /s/
David L. Deffner
David L. Deffner
Director By: /s/ Walter H. Wulf, Jr.
Walter H. Wulf, Jr.
President, Principal Executive Officer
and Director
Date: March 13, 2006
Date: March 13, 2006
By: /s/
Robert M. Kissick
Robert M. Kissick
Director By: /s/ Debra P. Roe
Debra P. Roe, CPA
Chief Financial Officer
Date: March 13, 2006
Date: March 13, 2006
Balance at Beginning of Period
Additions Charged to Costs
and Expenses
Deduction from Reserves
(1)
Balance at End of Period
Reserve for doubtful accounts
$ 727,000
$ (23,000)
$ 102,000
$ 602,000
FOR THE YEAR ENDED DECEMBER 31, 2004:
Reserve for doubtful accounts
$ 591,000
$ 146,000
$ 10,000
$ 727,000
FOR THE YEAR ENDED DECEMBER 31, 2003:
Reserve for doubtful accounts
$ 644,000
$ 26,000
$ 79,000
$ 591,000
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.)
for the
quarter ended March 31, 2004 (File No. 0-2757) as
Exhibit 3(ii)
and incorporated herein by reference.)
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.)
Bank of
Oklahoma N.A. and The Monarch Cement Company.
(Filed with
the Company's Annual Report on Form 10-K for
the year ended
December 31, 2002 (File No. 0-2757) as
Exhibit
10.1(a) and incorporated herein by reference.)
Bank of
Oklahoma N.A. and The Monarch Cement Company, as
amended by
first amendment dated December 31, 2002. (Filed
with the
Company's Annual Report on Form 10-K for the year
ended December
31, 2003 (File No. 0-2757) as Exhibit 10.1(b)
and
incorporated herein by reference.)
Bank of
Oklahoma N.A. and The Monarch Cement Company
as amended by
first amendment dated December 31, 2002 and
second
amendment dated December 31, 2003. (Filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004 (File No. 0-2757) as Exhibit 10.1(c) and
incorporated herein by reference.)
Bank of
Oklahoma N.A. and The Monarch Cement Company
as amended by
first amendment dated December 31, 2002,
second
amendment dated December 31, 2003 and third amendment
dated December
31, 2004.
Section
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
13a‑14(a)/15d-14(a) of the Securities Exchange Act of 1934.
of the Board
dated March 13, 2006.
dated March
13, 2006.
Jane P. Faulkenberry
Senior Vice President
918-588-6272
FAX: 918-280-3368
Jfaulkenberry@bokf.com
Chief Financial Officer
The Monarch Cement Company
449 1200 Street
Humboldt, KS 66748
("Borrower") and Bank of Oklahoma, N.A. ("Lender") in the
aggregate amount of $35,000,000 (the
"Loan Agreement"), as amended by First
Amendment dated December 31, 2002, Second Amendment
dated December 31, 2003 and
Third Amendment dated December 31, 2004.
terms of this letter agreement ("Fourth Amendment').
Subject to the terms of the Loan Agreement, as
amended, and this Fourth
Amendment, the Commitment will be: 1) a $25,000,000 Term Loan ('Term
Loan')
with a balance as of December 27, 2005 of $23,613,405.13 and 2) a $10,000,000
Revolving
Line of Credit ("Revolving Line") that is a renewal of the $10,000,000
Revolving Line subject to the terms
of this letter amendment ('Fourth
Amendment').
to time request as evidenced by a promissory note in the
form attached as Exhibit B, maturing on
December 31, 2006 (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.
the Line Note.
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.
of BOKF National Prime less 1.00%. The
outstanding principal balance plus accrued interest shall be
payable at maturity
date of December 31, 2006.
in the Loan Agreement remain in full force and
effect. In addition to the terms of the Loan Agreement, as
modified by this
Fourth Amendment, Borrower consents to the provisions of the Term Note and the
Line
Note; provided however, that to the extent any conflict exists between the
Loan Agreement and the Notes,
then the Loan Agreement shall be controlling.
Jane Faulkenberry
Walter H. Wulf, Jr.
Senior Vice President
President
President and Chairman of the Board
(Dollar amounts in thousands except per share data)
2005
2004
2003
2002
2001
Net sales......................................
$ 141,320
$ 145,077
$
122,028
$ 134,550
$ 126,352
Net income .................................
$ 9,658
$ 2,569
$ 3,820
$ 5,903
$ 8,151
Net income per share...................
$2.40
$.64
$.95
$1.47
$2.01
Total assets..................................
$ 144,055
$ 135,200
$ 129,832
$ 133,506
$ 126,638
Long-term obligations...................
$ 24,087
$ 26,141
$ 23,048
$ 26,540
$ 19,900
Cash dividends declared per share
$.80
$.80
$.80
$.80
$.80
Stockholders' investment per share
$22.27
$20.86
$20.66
$19.70
$19.63
Cement Business
45.5%
35.3%
39.8%
Ready-Mixed Concrete Business
54.5%
64.7%
60.2%
100.0%
100.0%
100.0%
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- competition;
- raw material and other operating costs;
- costs of capital equipment;
- changes in business strategy or expansion plans;
- demand for our Company's products;
- cyclical and seasonal nature of our business;
- the affect of weather on our business;
- the affect of environmental and other government regulations; and
- the affect of federal and state funding on demand for our products.
RESULTS OF OPERATIONS
Sales to unaffiliated customers
Income (loss) from operations$
64,299,277
15,920,874$
77,020,651
(2,133,263)$ 141,319,928
13,787,611
For the Year Ended December 31, 2004
Sales to unaffiliated customers
Income (loss) from operations$
51,408,457
6,790,090$
93,668,097
(4,871,807)$ 145,076,554
1,918,283
For the Year Ended December 31, 2003
Sales to unaffiliated customers
Income (loss) from operations$
48,571,556
5,854,070$
73,456,755
(1,199,738)$ 122,028,311
4,654,332
2006
2007
2008
2009
2010
Thereafter
Long-term debt
$ 1,965,106
$ 2,240,908
$ 2,457,558
$ 17,146,823
$ 249,571
$
27,030
Interest payments
1,526,450
1,383,604
1,231,316
1,068,960
12,783
Pension
914,000
Postretirement
benefit obligations1,360,636
1,436,691
1,485,083
1,513,838
1,540,569
8,430,680
Open purchase orders
8,455,000
750,000
Quarter
First
$22.100
$23.410
$ -
$18.300
$20.850
$ -
Second
$22.100
$24.250
$.20
$20.000
$22.100
$.20
Third
$21.050
$26.210
$.20
$20.200
$22.500
$.20
Fourth
$22.550
$25.000
$.40*
$20.500
$22.560
$.40*
Registered Public Accounting Firm
and Stockholders
The Monarch Cement Company
Humboldt, Kansas
February 10, 2006
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
ASSETS
2 0 0 5
2 0 0 4
CURRENT ASSETS:
Cash and cash
equivalents
$
4,895,561
$
4,999,253
Short-term
investment, at cost which approximates market
1,500,000
Receivables, less allowances of $602,000 in 2005 and
$727,000 in 2004 for doubtful accounts
14,186,551
13,523,816
Inventories, priced at cost which is not in excess of market-
Finished cement
$
1,868,412
$ 2,679,506
Work in process
1,632,780
1,456,854
Building products
3,457,813
3,391,901
Fuel, gypsum, paper sacks and other
3,317,283
2,919,528
Operating and maintenance supplies
7,850,617
7,500,453
Total inventories
$ 18,126,905
$ 17,948,242
Refundable federal
and state income taxes
812,807
Deferred income
taxes
665,000
686,000
Prepaid expenses
80,843
170,236
Total current assets
$ 39,454,860
$ 38,140,354
PROPERTY, PLANT AND EQUIPMENT, at
cost, less accumulated depreciation
and depletion of $121,060,864 in 2005 and $113,663,839 in 2004
85,815,343
79,948,242
DEFERRED INCOME TAXES
4,111,000
1,965,000
INVESTMENTS
13,454,631
13,620,501
OTHER ASSETS
1,219,082
1,526,069
$ 144,054,916
$ 135,200,166
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable
$
8,971,830
$ 5,686,857
Line of credit payable
981,667
Current portion of advancing
term loan
1,965,106
2,021,503
Accrued liabilities-
Dividends
1,610,783
1,610,783
Compensation
and benefits
3,443,226
2,250,022
Federal and
state income taxes
29,776
Miscellaneous
taxes
664,423
863,591
Other
751,613
935,041
Total current liabilities
$ 17,436,757
$ 14,349,464
LONG-TERM DEBT
22,121,890
24,119,115
ACCRUED POSTRETIREMENT BENEFITS
11,456,039
10,128,039
ACCRUED PENSION EXPENSE
2,121,155
1,238,027
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES
1,246,317
1,349,566
STOCKHOLDERS' INVESTMENT
Capital Stock, par value $2.50 per share, one vote per share ‑
Authorized 10,000,000 shares, Issued 2,464,926 shares at
December 31,
2005 and 2,406,197 shares at December 31, 2004
$
6,162,315
$ 6,015,493
Class B Capital Stock, par value $2.50 per
share, ten votes per
share - Authorized 10,000,000 shares, Issued 1,562,032 shares at
December 31,
2005 and 1,620,761 shares at December 31, 2004
3,905,080
4,051,902
Retained earnings
76,965,363
70,528,560
Accumulated other comprehensive
income
2,640,000
3,420,000
Total stockholders' investment
$ 89,672,758
$ 84,015,955
$ 144,054,916
$ 135,200,166
See notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005
2004
2003
NET SALES
$ 141,319,928
$ 145,076,554
$ 122,028,311
COST OF SALES
115,137,868
130,989,824
105,277,681
Gross profit from
operations
$ 26,182,060
$ 14,086,730
$ 16,750,630
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
12,394,449
12,168,447
12,096,298
Income from operations
$ 13,787,611
$ 1,918,283
$ 4,654,332
OTHER
INCOME (EXPENSE)
Interest income
$ 418,290
$ 379,449
$ 456,216
Interest expense
(1,507,267)
(926,363)
(987,100)
Other, net
919,735
2,547,834
1,246,997
$ (169,242)
$ 2,000,920
$ 716,113
INCOME BEFORE PROVISION FOR INCOME TAXES
$ 13,618,369
$ 3,919,203
$ 5,370,445
PROVISION FOR INCOME TAXES
3,960,000
1,350,000
1,550,000
NET INCOME
$ 9,658,369
$ 2,569,203
$ 3,820,445
Basic earnings per share
$2.40
$.64
$.95
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005
2004
2003
NET INCOME
$ 9,658,369
$ 2,569,203
$ 3,820,445
UNREALIZED APPRECIATION (DEPRECIATION) ON
AVAILABLE FOR SALE SECURITIES (Net of deferred
tax
(benefit) expense of $395,000, $1,615,000 and
$1,510,000 for 2005, 2004 and 2003,
respectively)
588,205
2,470,400
2,221,068
RECLASSIFICATION ADJUSTMENT FOR
REALIZED (GAINS) LOSSES INCLUDED IN
NET
INCOME (Net of
deferred tax (benefit) expense
of
$155,000, $515,000 and $250,000 for 2005,
2004 and 2003, respectively)
(228,205)
(770,400)
(381,068)
MINIMUM
PENSION LIABILITY (Net
of deferred tax
(benefit) expense of $(760,000),
$(160,000) and $940,000
for 2005, 2004 and 2003, respectively)
(1,140,000)
(240,000)
1,419,000
COMPREHENSIVE INCOME
$ 8,878,369
$ 4,029,203
$ 7,079,445
See
notes to consolidated financial statements
13.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Accumulated
Class B
Other
Capital
Capital
Retained
Comprehensive
Stockholders'
Stock
Stock
Earnings
Income
Investment
Balance at January 1, 2003
$ 5,860,733
$ 4,206,662
$ 70,582,044
$ (1,299,000)
$ 79,350,439
Net income
-
-
3,820,445
-
3,820,445
Dividends declared ($.80 per share)
-
-
(3,221,566)
-
(3,221,566)
Transfer of shares
112,720
(112,720)
-
-
-
Change
in unrealized appreciation
on available for sale securities
-
-
-
1,840,000
1,840,000
Adjustment to recognize
minimum pension liability
-
-
-
1,419,000
1,419,000
Balance at December 31, 2003
$ 5,973,453
$ 4,093,942
$ 71,180,923
$ 1,960,000
$ 83,208,318
Net income
-
-
2,569,203
-
2,569,203
Dividends declared ($.80 per share)
-
-
(3,221,566)
-
(3,221,566)
Transfer of shares
42,040
(42,040)
-
-
-
Change
in unrealized appreciation
on available for sale securities
-
-
-
1,700,000
1,700,000
Adjustment to recognize
minimum pension liability
-
-
-
(240,000)
(240,000)
Balance at December 31, 2004
$ 6,015,493
$ 4,051,902
$ 70,528,560
$ 3,420,000
$ 84,015,955
Net income
-
-
9,658,369
-
9,658,369
Dividends declared ($.80 per share)
-
-
(3,221,566)
-
(3,221,566)
Transfer of shares
146,822
(146,822)
-
-
-
Change
in unrealized appreciation
on available for sale securities
-
-
-
360,000
360,000
Adjustment to recognize
minimum pension liability
-
-
-
(1,140,000)
(1,140,000)
Balance at December 31, 2005
$ 6,162,315
$ 3,905,080
$ 76,965,363
$ 2,640,000
$ 89,672,758
See
notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005
2004
2003
OPERATING ACTIVITIES:
Net income
$ 9,658,369
$ 2,569,203
$ 3,820,445
Adjustments to reconcile net income to
net
cash provided by operating activities:
Depreciation,
depletion and amortization
10,923,917
10,750,447
11,198,625
Minority interest
in earnings (losses) of subsidiaries
63,587
(527,225)
(16,234)
Deferred income
taxes
(1,760,000)
(644,000)
(640,000)
Gain on disposal
of assets
(226,420)
(264,944)
(445,079)
Realized gain on
sale of other investments
(384,376)
(1,285,400)
(631,068)
Change in assets and liabilities:
Receivables, net
(662,735)
328,780
2,062,525
Inventories
(178,663)
(1,829,990)
(761,990)
Refundable income taxes
812,807
(812,807)
562,496
Prepaid expenses
89,393
(15,225)
(71,214)
Other assets
41,984
36,398
30,569
Accounts payable and accrued liabilities
1,976,883
(623,472)
762,009
Accrued postretirement benefits
1,438,636
823,119
332,543
Accrued pension
expense
(1,016,872)
452,484
326,168
Net cash provided
by operating activities
$ 20,776,510
$ 8,957,368
$ 16,529,795
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
$ (14,380,650)
$ (12,720,642)
$ (6,418,334)
Proceeds from disposals of property, plant and
equipment
505,809
654,378
543,933
Payment for purchases of equity investments
-
(589,872)
(240,849)
Proceeds from disposals of equity investments
1,150,246
2,557,673
1,004,268
Increase in short-term investments, net
(1,500,000)
-
-
Purchases
of subsidiaries' stock
(398,752)
(118,999)
(128,508)
Net cash used for
investing activities
$ (14,623,347)
$ (10,217,462)
$ (5,239,490)
FINANCING ACTIVITIES:
Increase (decrease) in line of credit, net
$ (981,667)
$ 981,667
$ (3,048,076)
Proceeds from bank loans
-
5,805,645
-
Payment on bank loans
(1,791,944)
(2,527,258)
(3,278,387)
Payments on other long-term debt
(261,678)
(186,048)
(213,473)
Cash dividends paid
(3,221,566)
(3,221,566)
(3,221,566)
Subsidiaries' dividends paid to minority
interest
-
(31,111)
-
Net cash provided
by (used for) financing activities
$ (6,256,855)
$ 821,329
$ (9,761,502)
Net decrease in cash and cash equivalents
$ (103,692)
$ (438,765)
$ 1,528,803
Cash and Cash Equivalents, beginning of year
4,999,253
5,438,018
3,909,215
Cash and Cash Equivalents, end of year
$ 4,895,561
$ 4,999,253
$ 5,438,018
Additional Cash Flow Information:
Interest paid, net of amount capitalized
$ 1,512,196
$ 930,675
$ 992,209
Income taxes paid, net of refunds
$ 4,876,767
$ 3,141,181
$ 1,295,660
Capital equipment additions included in accounts
payable
$ 2,037,838
$
-
$
-
See
notes to consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(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.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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.
17.
2005
2004
2003
Fair value of investments
$ 13,454,631
$ 13,620,501
$ 11,502,902
Cost of investments
5,354,631
6,120,501
6,802,902
Gross unrealized gains
$ 8,100,000
$ 7,500,000
$ 4,700,000
Unrealized gain recorded in equity
$ 4,860,000
$ 4,500,000
$ 2,800,000
Deferred income taxes
3,240,000
3,000,000
1,900,000
$ 8,100,000
$ 7,500,000
$ 4,700,000
Proceeds from sale of securities
$ 1,550,246
$ 2,557,673
$ 1,004,268
Realized gains
$
384,376
$ 1,285,400
$
631,068
Depreciation Lives (Years)
2005
2004
Quarry lands
$
1,806,742
$ 1,470,386
Mill site and buildings
12-50
22,798,168
23,097,131
Machinery and equipment
5-25
127,303,293
118,615,572
Transportation equipment
3-12
33,273,660
31,945,457
Office furniture and fixtures
5-20
1,735,603
1,698,817
Office and other buildings
10-30
5,055,887
5,055,887
Construction in process
14,902,854
11,728,831
$ 206,876,207
$ 193,612,081
Less--Accumulated depreciation and depletion
121,060,864
113,663,839
$ 85,815,343
$ 79,948,242
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005
2004
Note payable, bank (a)
$ 23,208,056
$ 25,000,000
Other
878,940
1,140,618
$ 24,086,996
$ 26,140,618
Less current maturities
1,965,106
2,021,503
$ 22,121,890
$ 24,119,115
(a)
Due December 31, 2009; payable $857,000 quarterly including interest;
interest computed based on JP Morgan Chase prime rate less .75% (1.25% for
2004) subject to a financial covenant related to net worth which the Company
was in compliance with at year end.
2006
1,965,106
2007
2,240,908
2008
2,457,558
2009
17,146,823
2010
249,571
Thereafter
27,030
$ 24,086,996
(5) INCOME TAXES
The components of the provision for federal and state income taxes in the
accompanying consolidated statements of income are as follows:
2005
2004
2003
Taxes currently payable
$ 5,720,000
$ 1,994,000
$ 2,190,000
Deferred income taxes
(1,760,000)
(644,000)
(640,000)
Income tax expense
$ 3,960,000
$ 1,350,000
$ 1,550,000
19.
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is as follows:
2005
2004
2003
Computed at statutory rate (34%)
$ 4,659,000
$ 1,333,000
$ 1,826,000
Increase (decrease) resulting from:
State income taxes, net of federal tax benefit
149,000
(47,000)
52,000
Percentage depletion
(913,000)
(523,000)
(385,000)
Valuation allowance
220,000
661,000
-
Domestic production activities deduction
(147,000)
-
-
Minority interest in consolidated income (loss)
22,000
(138,000)
(6,000)
Other
(30,000)
64,000
63,000
Provision
for income taxes
$ 3,960,000
$ 1,350,000
$ 1,550,000
2005 | 2004 | |||
Current: | ||||
Allowance for doubtful accounts | $ 241,000 | $ 291,000 | ||
Accrued vacation | 383,000 | 351,000 | ||
Other | 41,000 | 44,000 | ||
Net current deferred tax assets | $ 665,000 | $ 686,000 | ||
Noncurrent: | ||||
Depreciation | $ (653,000) | $ (308,000) | ||
Postretirement benefits | 5,127,000 | 4,551,000 | ||
Minimum pension liability | 1,480,000 | 495,000 | ||
Unrealized holding gains | (3,240,000) | (3,000,000) | ||
Net operating loss carryforwards | 1,038,000 | 320,000 | ||
Other, net | 359,000 | (93,000) | ||
Net long-term deferred tax assets | $ 4,111,000 | $ 1,965,000 |
Some of the Company's subsidiaries file separate federal and/or state income tax returns which have resulted in net operating loss carryforwards. Deferred taxes resulting from net operating loss carryforwards are included in the above table net of valuation allowances. The valuation allowance has been used to reduce the tax benefit associated with the net operating loss carryforwards. The provision for income taxes and income tax liabilities recorded in the financial statements include those separate calculations.
(6) POSTRETIREMENT BENEFITS
Monarch provides certain postretirement health care and life insurance benefits to all retired employees in the Cement Business who, as of their retirement date, meet the eligibility requirements. These benefits are self‑insured by Monarch and are paid out of Monarch's general assets. Monarch expects 2006 cash expenditures for this plan to be approximately $1,360,000.
Monarch uses a December 31 measurement date for the plans. At December 31, 2005 and 2004, the current portion of the accrued benefit cost of approximately $1,360,000 in each year is recorded in compensation and benefits. Information about the plans' funded status and postretirement cost follows:
2005 | 2004 | ||||||
Change in benefit obligation | |||||||
Beginning of year | $ 18,040,481 | $ 14,658,970 | |||||
Service cost | 459,788 | 426,079 | |||||
Interest cost | 1,446,965 | 1,168,538 | |||||
Actuarial loss | 7,082,412 | 2,986,526 | |||||
Medicare Part D Subsidy | (1,719,696) | - | |||||
Benefits and expenses paid | (1,192,216) | (1,199,632) | |||||
End of year | $ 24,117,734 | $ 18,040,481 | |||||
Funded status | $ (24,117,734) | $ (18,040,481) | |||||
Unrecognized net actuarial loss | 11,301,059 | 6,662,442 | |||||
Accrued benefit cost | $ (12,816,675) | $ (11,378,039) |
20. |
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 |
The assumed annual rate of increase in the per capita cost of covered health care benefits was 9% for 2005, 10% for 2004 and 7% for 2003. This trend rate is assumed to decrease in future years, 1% per year to an ultimate annual rate of 5%. Following are the components of net periodic benefit cost: |
2005 | 2004 | 2003 | |||
Components of net periodic benefit cost | |||||
Service cost | $ 459,788 | $ 426,079 | $ 179,380 | ||
Interest cost | 1,446,965 | 1,168,538 | 922,514 | ||
Unrecognized net loss | 724,099 | 428,134 | 186,695 | ||
Net periodic benefit cost | $ 2,630,852 | $ 2,022,751 | $ 1,288,589 | ||
Weighted-average assumptions as of December 31 | |||||
Discount rate | 6.00% | 6.00% | 6.25% |
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 interest and service cost | $ 292,443 | $ (239,101) | ||
Effect on postretirement benefit obligation | 3,052,192 | (2,506,808) |
On December 8, 2003, the Medicare Prescription Drug Improvement Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy of sponsors of retiree health care benefit plans that provide benefits at least actuarially equivalent to Medicare Part D. The Company has concluded that the benefits provided to most of our retirees are actuarially equivalent to Medicare Part D under the Act.
The following benefit payments (net of employee contributions) are expected to be paid as of December 31, 2005:
Gross | Subsidy Receipts | Net | |||
2006 | $ 1,353,916 | $ 58,041 | $ 1,295,875 | ||
2007 | 1,427,533 | 63,036 | 1,364,497 | ||
2008 | 1,473,361 | 68,591 | 1,404,770 | ||
2009 | 1,500,951 | 69,496 | 1,431,455 | ||
2010 | 1,525,222 | 70,891 | 1,454,331 | ||
2011-2015 | 8,284,248 | 392,969 | 7,891,279 |
(7) PENSION PLANS
Monarch has
noncontributory defined benefit pension plans covering substantially all
employees in the Cement Business who meet the eligibility requirements.
Generally, Monarch's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Monarch expects
to contribute approximately $914,000 to the plans in 2006.
21.
Monarch uses a December 31 measurement date for the plans. At December 31, 2005 and 2004, the current portion of the pension liability of $914,000 and $-0-, respectively, is recorded in compensation and benefits. Information about the plans' funded status and pension cost follows:
2005 | 2004 | ||||
Change in benefit obligation | |||||
Beginning of year | $ 27,729,906 | $ 26,531,662 | |||
Service cost | 512,671 | 459,956 | |||
Interest cost | 1,681,656 | 1,633,103 | |||
Actuarial loss | 1,521,755 | 782,516 | |||
Benefits paid and expenses | (1,736,990) | (1,677,331) | |||
End of year | $ 29,708,998 | $ 27,729,906 | |||
Change in fair value of plan assets | |||||
Beginning of year | $ 24,368,892 | $ 23,914,705 | |||
Actual return on plan assets | 1,239,597 | 2,131,518 | |||
Employer contribution | 596,710 | - | |||
Benefits paid and expenses | (1,736,990) | (1,677,331) | |||
End of year | $ 24,468,209 | $ 24,368,892 | |||
Accumulated benefit obligation | $ 28,049,029 | $ 26,230,042 | |||
Funded status | $ (5,240,789) | $ (3,361,014) | |||
Unrecognized net actuarial loss | 5,358,119 | 3,300,349 | |||
Unrecognized prior service cost | 547,515 | 622,638 | |||
Prepaid benefit cost | $ 664,845 | $ 561,973 | |||
Adjustment required to recognize minimum liability | (4,245,666) | (2,423,123) | |||
Pension liability | $ (3,580,821) | $ (1,861,150) | |||
Other amounts recognized in the balance sheets: | |||||
Accumulated other comprehensive income | $ (2,220,000) | $ (1,080,000) |
The weighted average assumptions used to determine net pension cost and benefit obligations as of December 31 are as follows:
2005 | 2004 | 2003 | |||
Discount rate | 5.75% | 6.00% | 6.25% | ||
Expected return on plan assets | 8.00% | 8.00% | 8.00% | ||
Rate of compensation increase (Staff plan only) | 4.50% | 4.50% | 4.50% |
The following table presents the components of net periodic pension cost as of December 31, 2005, 2004 and 2003:
2005 | 2004 | 2003 | |||
Service cost | $ 512,671 | $ 459,956 | $ 405,229 | ||
Interest cost | 1,681,656 | 1,633,103 | 1,642,857 | ||
Expected return on plan assets | (1,873,733) | (1,840,183) | (1,508,629) | ||
Amortization of transitional obligation | - | - | - | ||
Amortization of prior service cost | 75,123 | 75,123 | 73,440 | ||
Recognized net actuarial gain | 98,121 | 24,485 | 134,029 | ||
Net periodic pension expense | $ 493,838 | $ 352,484 | $ 746,926 |
22.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 |
The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets as well as current facts and circumstances. |
Plan assets are held by a trustee bank. A fund manager has been retained to make all investment decisions within guidelines specified by Monarch. The guidelines permit investment in both equities and fixed income securities including common stocks, corporate bonds and debentures and U.S. Government securities. Asset allocation is primarily based on a strategy to provide stable earnings while still permitting the plan to recognize potentially higher returns through investment in equity securities. The target asset allocation percentages for 2005 and 2004 are as follows:
Equities |
60% |
Fixed Income |
40% |
The Plan allows a 5% fluctuation
before assets are re-balanced. At December 31, 2005 and 2004, plan assets by
category were as follows:
2005 2004
Equities 61% 61%
Debt
securities 37% 22%
Other 2% 17%
The following benefit payments are expected to be paid as of December 31, 2005:
2006 |
$ 1,888,733 |
2007 | 1,888,470 |
2008 | 1,960,014 |
2009 | 1,935,378 |
2010 | 1,898,958 |
2011-2015 | 10,054,677 |
The Company has defined contribution plans covering substantially all permanent employees of the Ready‑Mixed Concrete Business. These plans allow the Company, at its discretion, to match the employee's contributions. For the 2005, 2004 and 2003 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 $95,302, $76,429 and $73,778 to these plans for the years 2005, 2004 and 2003, respectively. The Company expects to contribute $100,000 to these plans in 2006.
(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.
A Monarch subsidiary,
Monarch and three of its officers are involved in a lawsuit with the former
officers of that subsidiary and companies formed by those officers. We believe
all claims filed against our subsidiary, Monarch and its officers are without
merit and we are pursuing judgment against the former officers and their
companies. We plan to vigorously pursue this case and do not anticipate any
liability as a result of this lawsuit.
23.
(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) LINES OF BUSINESS
The Company groups its operations into two lines of business - Cement Business and Ready-Mixed Concrete Business. The Company's business lines are separate business units that offer different products. The accounting policies for each line are the same as those described in the summary of significant accounting policies.
Following is information for each line for the years ended December 31, 2005, 2004 and 2003:
Cement Business |
Ready-Mixed Concrete Business |
Adjustments and Eliminations |
Consolidated | ||||
For the Year Ended December 31, 2005 | |||||||
Sales to unaffiliated customers | $ 64,299,277 | $ 77,020,651 | $ ‑ | $ 141,319,928 | |||
Intersegment sales | 13,536,287 | 10,091 | (13,546,378) | ‑ | |||
Total net sales | $ 77,835,564 | $ 77,030,742 | $ (13,546,378) | $ 141,319,928 | |||
Income (loss) from operations | $ 15,920,874 | $ (2,133,263) | $ 13,787,611 | ||||
Other expense, net | (169,242) | ||||||
Income before income taxes | $ 13,618,369 | ||||||
Identifiable assets at December 31, 2005 | $ 82,405,866 | $ 35,803,776 | $ 118,209,642 | ||||
Corporate assets | 25,845,274 | ||||||
Total assets at December 31, 2005 | $ 144,054,916 | ||||||
For the Year Ended December 31, 2004 | |||||||
Sales to unaffiliated customers | $ 51,408,457 | $ 93,668,097 | $ ‑ | $ 145,076,554 | |||
Intersegment sales | 11,048,074 | - | (11,048,074) | ‑ | |||
Total net sales | $ 62,456,531 | $ 93,668,097 | $ (11,048,074) | $ 145,076,554 | |||
Income (loss) from operations | $ 6,790,090 | $ (4,871,807) | $ 1,918,283 | ||||
Other income, net | 2,000,920 | ||||||
Income before income taxes | $ 3,919,203 | ||||||
Identifiable assets at December 31, 2004 | $ 76,018,017 | $ 35,572,519 | $ 111,590,536 | ||||
Corporate assets | 23,609,630 | ||||||
Total assets at December 31, 2004 | $ 135,200,166 | ||||||
For the Year Ended December 31, 2003 | |||||||
Sales to unaffiliated customers | $ 48,571,556 | $ 73,456,755 | $ ‑ | $ 122,028,311 | |||
Intersegment sales | 11,007,009 | - | (11,007,009) | ‑ | |||
Total net sales | $ 59,578,565 | $ 73,456,755 | $ (11,007,009) | $ 122,028,311 | |||
Income (loss) from operations | $ 5,854,070 | $ (1,199,738) | $ 4,654,332 | ||||
Other income, net | 716,113 | ||||||
Income before income taxes | $ 5,370,445 | ||||||
Identifiable assets at December 31, 2003 | $ 70,212,426 | $ 37,798,323 | $ 108,010,749 | ||||
Corporate assets | 21,821,682 | ||||||
Total assets at December 31, 2003 | $ 129,832,431 | ||||||
24. |
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 |
Total sales by line of business 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 the Cement Business and Ready‑Mixed Concrete Business, respectively, was: $5,297,531 and $5,373,466 in 2005, $5,044,610 and $5,419,696 in 2004 and $5,293,678 and $5,626,390 in 2003. Capital expenditures for the Cement Business and Ready‑Mixed Concrete Business, respectively, were: $13,008,188 and $3,410,300 in 2005, $7,723,336 and $4,997,306 in 2004 and $1,594,784 and $4,823,550 in 2003. Identifiable assets by line of business are those assets that are used in the Company's operations in each industry.
During 2005, 2004 and 2003, there were no sales to any one customer in excess of 10% of consolidated net sales.
(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||
2005 |
|||||||
Net sales | $ 24,541,081 | $ 37,272,061 | $ 41,855,661 | $ 37,651,125 | |||
Income (loss) from operations | (118,440) | 3,698,770 | 7,479,681 | 2,727,600 | |||
Net income | 132,461 | 2,278,023 | 4,928,809 | 2,319,076 | |||
Basic earnings per share | $.03 | $.57 | $1.22 | $.58 | |||
2004 |
|||||||
Net sales | $ 27,649,297 | $ 40,730,540 | $ 44,365,950 | $ 32,330,767 | |||
Income (loss) from operations | 215,376 | 1,674,988 | 3,235,482 | (3,207,563) | |||
Net income (loss) | 268,307 | 1,160,623 | 2,265,149 | (1,124,876) | |||
Basic earnings (loss) per share | $.07 | $.29 | $.56 | $(.28) |
The loss from operations during the fourth quarter of 2004 is the direct result of the construction activities in the Ready-Mixed Concrete Business. These projects were substantially completed by the end of 2004 allowing us to more accurately project the costs to complete.
(12) OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income included in the balance sheet at December 31 is as follows:
25.
2004 | Change | 2005 | |||
Unrealized appreciation on available | |||||
for sale securities | $ 4,500,000 | $ 360,000 | $ 4,860,000 | ||
Minimum pension liability adjustment | (1,080,000) | (1,140,000) | (2,220,000) | ||
$ 3,420,000 | $ (780,000) | $ 2,640,000 | |||
2003 | Change | 2004 | |||
Unrealized appreciation on available | |||||
for sale securities | $ 2,800,000 | $ 1,700,000 | $ 4,500,000 | ||
Minimum pension liability adjustment | (840,000) | (240,000) | (1,080,000) | ||
$ 1,960,000 | $ 1,460,000 | $ 3,420,000 |
(13) 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. Since stock options are not a part of our employee benefits, this pronouncement should have no affect on our 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 for 2006 and beyond.
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.
26.
CORPORATE INFORMATION | |
CORPORATE OFFICE | DIRECTORS |
449 1200 Street | Jack R. Callahan |
P.O. Box 1000 | Retired President, The Monarch Cement Company |
Humboldt, KS 66748 | Ronald E. Callaway |
Phone: (620) 473-2222 |
Retired transport truck driver, Agricultural Carriers, Inc. |
Fax: (620) 473-2447 | David L. Deffner |
Director of Music, Davis Community Church | |
Robert M. Kissick | |
AUDITORS | Chairman, Hydraulic Power Systems, Inc. |
BKD, LLP | Gayle C. McMillen |
Kansas City, Missouri | Music Coordinator, Trinity United Methodist Church |
Richard N. Nixon | |
Partner in law firm of Stinson Morrison Hecker LLP | |
ANNUAL MEETING | Byron J. Radcliff |
The annual meeting of the stockholders of | Rancher |
The Monarch Cement Company is held the | Byron K. Radcliff |
second Wednesday in April of each year at the | Owner/Manager, Radcliff Ranch |
Company's corporate offices. | Michael R. Wachter |
Vice President, Civil Engineer and Director of | |
Operations,Concrete Technology Corp. | |
TRANSFER AGENT AND REGISTRAR | Walter H. Wulf, Jr. |
The Monarch Cement Company | President and Chairman of the Board |
P.O. Box 1000 | Walter H. Wulf, III |
Humboldt, KS 66748-0900 | Area Sales Manager, General Motors Corporation |
shareholder.relations@monarchcement.com | |
STOCK TRADING INFORMATION | |
Trading Symbol: MCEM | OFFICERS |
Over-the-Counter Market | Walter H. Wulf, Jr. |
President and Chairman of the Board | |
*Byron K. Radcliff | |
INVESTOR RELATIONS | Vice Chairman of the Board, Secretary and Treasurer |
Inquiries may be directed to Debra P. Roe, | *Robert M. Kissick |
Chief Financial Officer and Assistant Secretary- | Vice President |
Treasurer, at the corporate address shown above. | Rick E. Rush |
Vice President | |
Debra P. Roe | |
FORM 10-K |
Chief Financial Officer and Assistant Secretary-Treasurer |
The Company's Annual Report on Form 10-K, as | Lisa J. Fontaine |
filed with the Securities and Exchange Commission, | Assistant Secretary |
is available without charge upon written request to | Roy L. Owens |
Debra P. Roe at the above corporate office address. | Vice President - Operations |
N. Joan Perez | |
Vice President - Sales | |
The Company's financial information is also available | *Not actively involved in the daily affairs of the Company. |
from the SEC at their EDGAR internet address, | |
http://www.sec.gov | |
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiaries | State of Incorporation | Names Under Which They do Business |
Beaver Lake Concrete, Inc. | Arkansas | Beaver Lake Concrete, Inc. |
Capitol Concrete Products Co., Inc. | Kansas | Capitol Concrete Products Co., Inc. |
City Wide Construction Products Co. | Missouri | City Wide Construction Products Co. |
Concrete Enterprises, Inc. | Kansas | Concrete Enterprises, Inc. |
Concrete Materials, Inc. | Kansas | Concrete Materials, Inc. |
Dodge City Concrete, Inc. | Kansas | Dodge City Concrete, Inc. |
Joplin Concrete Company, Inc. | Missouri | Joplin Concrete Company, 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. |
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 Annual Report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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; and
d) 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 functions):
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: March 13, 2006
Walter H. Wulf, Jr.
President and Chairman of the Board
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 Annual Report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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; and
d) 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 functions):
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: March 13, 2006
_______________________
Debra P. Roe, CPA
Chief Financial Officer and
Assistant Secretary-Treasurer
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 Annual Report of The Monarch
Cement Company (the "Company") on Form 10-K
for the year ended December 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: March 13, 2006
Walter H. Wulf, Jr. President and Chairman of the Board |
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 Annual Report of The Monarch Cement Company (the
"Company") on Form 10-K
for the year ended December 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: March 13, 2006
Debra P. Roe, CPA
Chief Financial Officer and
Assistant Secretary-Treasurer
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