FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2004, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _________________ to ___________________.
Commission file number: 0-2757
THE MONARCH CEMENT COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-0340590___
(state or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
P.O. BOX 1000, HUMBOLDT, KANSAS 66748-0900
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (620) 473-2222
(former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X}
As of August 6, 2004, there were 2,403,197 shares of Capital Stock, par value
$2.50 per share outstanding and 1,623,761 shares of Class B Capital Stock,
par value $2.50 per share outstanding.
PART I - FINANCIAL INFORMATION
The condensed consolidated financial statements included in this report have
been prepared by our Company without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Our Company believes that the disclosures are adequate to make the information
presented not misleading. The accompanying consolidated financial statements
reflect all adjustments that are, in the opinion of management, necessary for
a fair statement of the results of operations for the interim periods
presented. Those adjustments consist only of normal, recurring adjustments.
The condensed consolidated balance sheet of the Company as of December 31,
2003 has been derived from the audited consolidated balance sheet of the
Company as of that date. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in our Company's most recent annual report on Form 10-K
for 2003 filed with the Securities & Exchange Commission. The results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
Item 1. Financial Statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2004 and December 31, 2003
ASSETS 2 0 0 4 2 0 0 3
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,853,521 $ 5,438,018
Receivables, less allowances of $610,000 in 2004
and $591,000 in 2003 for doubtful accounts 21,914,256 13,852,596
Inventories, priced at cost which is not in
excess of market-
Finished cement $ 3,551,061 $ 2,553,258
Work in process 2,535,678 919,646
Building products 1,852,698 1,559,424
Fuel, gypsum, paper sacks and other 4,575,305 4,022,894
Operating and maintenance supplies 7,827,435 7,063,030
Total inventories $ 20,342,177 $ 16,118,252
Deferred income taxes 572,225 573,000
Prepaid expenses 643,204 155,011
Total current assets $ 46,325,383 $ 36,136,877
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and depletion of
$109,219,774 in 2004 and $105,703,279 in 2003 78,975,322 77,884,890
DEFERRED INCOME TAXES 1,607,750 2,447,000
INVESTMENTS 13,979,002 11,502,902
OTHER ASSETS 1,692,260 1,860,762
$142,579,717 $129,832,431
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 10,400,132 $ 6,435,292
Bank loan payable 9,986,803 -
Current portion of advancing term loan 3,406,381 3,353,778
Accrued liabilities 3,386,502 5,284,474
Total current liabilities $ 27,179,818 $ 15,073,544
LONG-TERM DEBT 17,831,257 19,694,501
ACCRUED POSTRETIREMENT BENEFITS 9,999,434 9,554,920
ACCRUED PENSION EXPENSE 564,355 385,543
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,872,997 1,915,605
STOCKHOLDERS' INVESTMENT:
Capital stock, par value $2.50 per share,
One vote per share - Authorized 10,000,000
shares, Issued 2,404,207 shares at 6/30/2004
and 2,389,381 shares at 12/31/2003 $ 6,010,518 $ 5,973,453
Class B capital stock, par value $2.50 per share,
supervoting rights of ten votes per share,
restricted transferability, convertible at all
times into Capital Stock on a share-for-share
basis - Authorized 10,000,000 shares, Issued
1,622,751 shares at 6/30/2004 and 1,637,577
shares at 12/31/2003 4,056,877 4,093,942
Retained earnings 71,804,461 71,180,923
Accumulated other comprehensive loss 3,260,000 1,960,000
Total stockholders' investment $ 85,131,856 $ 83,208,318
$142,579,717 $129,832,431
See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Three Months and the Six Months Ended June 30, 2004 and 2003
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
NET SALES $40,730,540 $29,593,928 $68,379,837 $48,563,380
COST OF SALES 36,005,888 24,496,826 60,362,436 42,440,129
Gross profit from operations $ 4,724,652 $ 5,097,102 $ 8,017,401 $ 6,123,251
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,049,664 2,943,906 6,127,037 5,827,183
Income from operations 1,674,988 $ 2,153,196 $ 1,890,364 $ 296,068
OTHER INCOME (EXPENSE):
Interest income $ 114,266 $ 120,122 $ 139,867 $ 177,104
Interest expense (221,104) (276,339) (400,668) (530,321)
Other, net 77,473 515,785 399,367 731,355
$ (29,365) $ 359,568 $ 138,566 $ 378,138
Income before taxes on income $ 1,645,623 $ 2,512,764 $ 2,028,930 $ 674,206
PROVISION FOR TAXES ON INCOME 485,000 775,000 600,000 200,000
NET INCOME $ 1,160,623 $ 1,737,764 $ 1,428,930 $ 474,206
RETAINED EARNINGS, beg of period 71,449,230 69,318,486 71,180,923 70,582,044
Less cash dividends 805,392 805,392 805,392 805,392
RETAINED EARNINGS, end of period $71,804,461 $70,250,858 $71,804,461 $70,250,858
Basic earnings per share $.29 $.43 $.35 $.12
Cash dividends per share $.20 $.20 $.20 $.20
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months and the Six Months Ended June 30, 2004 and 2003 (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
NET INCOME $ 1,160,623 $ 1,737,764 $ 1,428,930 $ 474,206
UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE
SECURITIES (Net of deferred
tax expense of $300,000,
$320,000, $800,000 and
$280,000, respectively) 500,000 480,000 1,300,000 420,000
COMPREHENSIVE INCOME $ 1,660,623 $ 2,217,764 $ 2,728,930 $ 894,206
See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003 (Unaudited)
2004 2003
OPERATING ACTIVITIES:
Net income $ 1,428,930 $ 474,206
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation, depletion and amortization 4,851,804 5,406,531
Minority interest in losses of subsidiaries (34,904) (306,091)
Deferred income taxes 25 415
Gain on disposal of assets (104,387) (320,235)
Realized gain on sale of other investments (22) (393,393)
Change in assets and liabilities:
Receivables, net (8,061,660) 713,385
Inventories (4,223,925) (5,631,838)
Refundable federal and state income taxes - 203,633
Prepaid expenses (488,193) (882,109)
Other assets 8,821 7,636
Accounts payable and accrued liabilities 3,677,651 (111,452)
Accrued postretirement benefits 444,514 137,167
Accrued pension expense 178,812 186,523
Net cash used for operating activities $ (2,322,534) $ (515,622)
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $ (5,874,128) $ (3,164,542)
Proceeds from disposals of property, plant
and equipment 296,937 367,961
Payment for purchases of equity investments (376,101) (132,493)
Proceeds from disposals of equity investments 23 645,697
Net purchases of subsidiaries' stock (68,681) -
Net cash used for investing activities $ (6,021,950) $ (2,283,377)
FINANCING ACTIVITIES:
Proceeds from bank loans $ 8,176,162 $ 4,163,429
Cash dividends paid (2,416,175) (2,416,175)
Net cash provided by financing activities $ 5,759,987 $ 1,747,254
Net decrease in cash and cash equivalents $ (2,584,497) $ (1,051,745)
CASH AND CASH EQUIVALENTS, beginning of year 5,438,018 3,909,215
CASH AND CASH EQUIVALENTS, end of period $ 2,853,521 $ 2,857,470
Interest paid, net of amount capitalized $429,828 $564,005
Income tax paid, net of refunds $688,063 $ (3,643)
See notes to condensed consolidated financial statements
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 (Unaudited), and December 31, 2003
1. For a summary of accounting policies, the reader should refer to Note 1 of
the consolidated financial statements included in our Company's most recent
annual report on Form 10-K.
2. Basic earnings per share of capital stock has been calculated based on the
weighted average shares outstanding during each of the reporting periods.
The weighted average number of shares outstanding was 4,026,958 in the
second quarter of 2004 and 2003 and in the first six months of 2004 and
2003. The Company has no common stock equivalents and therefore, does not
report diluted earnings per share.
3. Our Company groups its operations into two lines of business - Cement
Business and Ready-Mixed Concrete Business. The "Cement Business" refers
to our manufacture and sale of cement and "Ready-Mix Concrete Business"
refers to our ready-mixed concrete, concrete products and sundry building
materials business. Following is condensed information for each line for
the periods indicated (in thousands):
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
Sales to Unaffiliated Customers
Cement Business $15,802 $10,568 $22,096 $17,859
Ready-Mixed Concrete Business 24,929 19,026 46,284 30,704
Intersegment Sales
Cement Business 2,987 3,025 5,030 4,869
Ready-Mixed Concrete Business - - - -
Operating Income (Loss)
Cement Business 2,325 2,496 3,036 2,220
Ready-Mixed Concrete Business (650) (343) (1,146) (1,924)
Capital Expenditures
Cement Business 1,588 342 2,664 611
Ready-Mixed Concrete Business 2,535 1,297 3,210 2,554
Balance as of
6/30/04 12/31/03
Identifiable Assets
Cement Business $77,596 $70,212
Ready-Mixed Concrete Business 44,279 37,798
Corporate Assets- 20,705 21,822
4. The Company records revenue from the sale of cement, ready-mixed concrete,
concrete products and sundry building materials when the products are
delivered to the customers. Concrete products are also sold through long-
term construction contracts. Revenues for these contracts are recognized
on the percentage-of-completion method based on the costs incurred relative
to total estimated costs. Full provision is made for any anticipated
losses. Billings for long-term construction contracts are rendered monthly,
including the amount of retainage withheld by the customer until contract
completion. Retainages are included in accounts receivable and are
generally due within one year.
5. Capital expenditures for property, plant and equipment were approximately
$5,874,000 during the first six months of 2004. These funds were primarily
used for the installation of the coal mill in the Cement Business and to
upgrade equipment in the Ready-Mixed Concrete Business.
6. The following table presents the components of net periodic costs as of
June 30, 2004 and 2003:
Pension Benefits Other Benefits
2004 2003 2004 2003
Service cost $229,978 $144,407 $ 213,039 $ 86,783
Interest cost 819,121 585,449 584,230 446,304
Expected return on plan assets (920,092) (537,615) - -
Amortization of prior
service costs 37,562 26,171 - -
Recognized net actuarial gain 12,242 47,763 - -
Unrecognized net loss - - 214,067 90,321
Net periodic pension expense $178,811 $266,175 $1,011,336 $623,408
As previously reported in our financial statements for the year ended
December 31, 2003, we do not expect to contribute to the pension plan
in 2004. The other benefits consist of postretirement benefits that are self-
insured by Monarch and are paid out of Monarch's general assets. As
previously disclosed in our financial statements for the year ended December
31, 2003, Monarch expects to contribute $1,000,000 to this plan in 2004. As
of June 30, 2004, we have contributed $566,823 and anticipate contributing an
additional $575,000 to this plan in 2004 for a total of $1,140,000.
\THE MONARCH CEMENT COMPANY AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q report filed with the Securities and Exchange Commission,
constitute "forward-looking statements". Except for historical information,
the statements made in this report are forward-looking statements that involve
risks and uncertainties. You can identify these statements by forward-looking
words such as "should", "expect", "anticipate", "believe", "intend", "may",
"hope", "forecast" or similar words. In particular, statements with respect
to variations in future demand for our products in our market area, the
timing, scope, cost and benefits of our proposed and recently completed
capital improvements and expansion plans, including the resulting increase in
production capacity, our forecasted cement sales, the timing and source of
funds for the repayment of our line of credit, and our anticipated increase in
solid fuels and electricity required to operate our facilities and equipment
are all forward-looking statements. You should be aware that forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may affect the actual results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others:
* general economic and business conditions;
* competition;
* raw material and other operating costs;
* costs of capital equipment;
* changes in business strategy or expansion plans;
* demand for our Company's products;
* cyclical and seasonal nature of our business;
* the affect weather has on our business;
* the affect of environmental and other government regulation; and
* the affect of federal and state funding on demand for our products.
Results of Operations
Our products are used in residential, commercial and governmental
construction. For several years we experienced continued increases in the
demand for our products. The combination of residential, commercial and
governmental construction activities resulted in the need for increased
production to meet our customers' needs. In response to those needs, we made
investments in our plant and equipment to increase production and improve
efficiencies. We are confident that we will benefit from these investments as
the economy continues to improve.
For the first half of 2004, we are encouraged with the level of
construction activity in our market area. Although intermittent rains have
hampered construction projects and reduced efficiencies in our ready-mixed
concrete operations, sales continue to exceed last year's year-to-date levels.
For the balance of the year, we anticipate continued strong demand for our
products in both the Cement Business and Ready-Mixed Concrete Business.
Cement imports are projected to significantly decrease in 2004 due to the
limited availability of ships and increased freight rates providing increased
demand for domestic cement. The increase in steel prices also adds upward
pressure to the demand for cement as concrete construction becomes more
competitive with steel construction. These factors and the general
improvement in economic conditions are the basis for our projected increase in
both sales volume and average price for the year 2004.
2nd Quarter
Consolidated net sales for the quarter ended June 30, 2004, increased by
$11,136,612 when compared to the quarter ended June 30, 2003. Sales in our
Cement Business were higher by $4,196,098, while sales in our Ready-Mixed
Concrete Business increased $6,940,514. Improved economic conditions resulted
in higher sales volumes in both the Cement and Ready-Mixed Concrete Business.
The Cement Business also benefited from modest price increases while billings
for construction contracts added to the Ready-Mixed Concrete Business sales.
Our overall gross profit rate for the three months ended June 30, 2004
was 11.6% versus 17.2% for the three months ended June 30, 2003 primarily due
to increased maintenance costs in the Cement Business during the second
quarter of 2004 as compared to the second quarter of 2003. Due to the size
and complexity of our equipment, maintenance costs can vary significantly from
quarter-to-quarter depending on the timing of projects and type of work
performed.
Selling, general, and administrative expenses increased by 3.6% during
the second quarter of 2004 compared to the second quarter of 2003. These
costs are normally considered fixed costs that do not vary significantly with
changes in sales volume. The increase is primarily due to rising health care
costs and professional expenses, although no single factor increased
materially.
Other, net decreased $438,312 during the second quarter of 2004 as
compared to the second quarter of 2003 primarily due to a gain on the sale of
equity investments in 2003.
The effective tax rates for the second quarter of 2004 and 2003 were
29.5% and 30.8%, respectively. The Company's effective tax rate differs from
the federal and state statutory income tax rate primarily due to the effects
of percentage depletion and minority interest in consolidated income (loss).
Year-to-Date
Consolidated net sales for the six months ended June 30, 2004 were
$68,379,837, an increase of $19,816,457 as compared to the six months ended
June 30, 2003. Sales in our Cement Business were higher by $4,236,826 while
sales in our Ready-Mixed Concrete Business increased by $15,579,631. Improved
economic conditions resulted in higher sales volumes in both the Cement and
Ready-Mixed Concrete Business. The Cement Business also benefited from modest
price increases while billings for construction contracts added to the Ready-
Mixed Concrete Business sales.
Our overall gross profit rate for the six months ended June 30, 2004 was
11.7% versus 12.6% for the six months ended June 30, 2003. Gross profit rate
in the Cement Business decreased 1.4% and gross profit rate in the Ready-Mixed
Concrete Business increased by .8%.
Selling, general, and administrative expenses increased 5.1% for the
first six months of 2004 compared to the first six months of 2003. These
costs are normally considered fixed costs that do not vary significantly with
changes in sales volume. The increases are primarily due to rising health
care costs and professional expense, although no single factor increased
materially.
Interest expense decreased $129,653 for the first half of 2004 as
compared to the first half of 2003 primarily due to a reduction in the average
amount of bank loans outstanding during the first six months of 2004 compared
to the first six months of 2003. Slightly lower interest rates also
contributed to the reduced costs.
Other, net decreased $331,988 during the first six months of 2004 as
compared to the first six months of 2003 primarily due to a gain on the sale
of equity investments in 2003.
The effective tax rates for the six months ended June 30, 2004 and 2003
were 29.6% and 29.7%, respectively. The Company's effective tax rate differs
from the federal and state statutory income tax rate primarily due to the
effects of percentage depletion and minority interest in consolidated income.
LIQUIDITY
We are able to meet our cash needs primarily from a combination of
operations and bank loans. Cash decreased during the first six months of 2004
primarily due increases in receivables and inventories, the purchase of
equipment and the payment of dividends.
In December 2003, Monarch renewed our line of credit with a bank for
another year. Our current unsecured credit commitment consists of a
$25,000,000 advancing term loan maturing December 31, 2005 and a $10,000,000
line of credit maturing December 31, 2004. These loans bear floating interest
rates based on JP Morgan Chase prime rate less 1.25% and .75%, respectively.
The loan agreement contains a financial covenant related to net worth which
the Company was in compliance with at the end of the first six months of 2004.
As of June 30, 2004, we had borrowed $20,028,387 on the advancing term loan
and $9,986,803 on the line of credit leaving a balance available on the line
of credit of $13,197. The average daily interest rate we paid on the
advancing term loan during the second quarter of 2004 and 2003 was 2.75% and
3.0%, respectively, and for the first six months of 2004 and 2003 was 2.75%
and 3.0%, respectively. The average daily interest rate we paid on the line
of credit during the second quarter of 2004 and 2003 was 3.25% and 3.5%,
respectively, and the first six months of 2004 and 2003 was 3.25% and 3.5%,
respectively. As of June 30, 2004, the applicable interest rate was 3.0% on
the advancing term loan and 3.5% on the line of credit. The advancing term
loan was used to help finance the expansion project at our cement
manufacturing facility. The line of credit was used to cover operating
expenses during the first six months of the year when we build inventory due
to the seasonality of our business. We anticipate that the line of credit
maturing December 31, 2004 will be paid using funds from operations or
replacement bank financing. Our board of directors has given management the
authority to borrow an additional $15,000,000 for a maximum of $50,000,000.
FINANCIAL CONDITION
Total assets as of June 30, 2004 were $142,579,717, an increase of
$12,747,286 since December 31, 2003 due primarily to increases in receivables
and inventories. These variations are common during the first half of the
year due to the seasonality of our business (see Seasonality below).
Investments increased $2,476,100 primarily as a result of unrealized gains on
equity investments.
Accounts payable increased $3,964,840 as of June 30, 2004 compared to
December 31, 2003 primarily due to June expenses related to the increased
sales volume in the Ready-Mixed Concrete Business.
Indebtedness increased $8,176,162 during the first six months of 2004
primarily due to funding the increase in receivables and inventories.
Stockholders' investment increased 2.3% during the first six months of
2004 primarily due to the net income. Basic earnings were $.35 per share.
CAPITAL RESOURCES
The Company regularly invests in miscellaneous equipment and facility
improvements in both the Cement Business and Ready-Mixed Concrete Business.
Capital expenditures during the first six months of 2004 included work on the
installation of a coal firing system to fuel our precalciner kiln. This
installation is projected to be completed by the end of the third quarter of
2004. We also invested in routine equipment purchases during the first six
months of 2004, primarily in the Ready-Mixed Concrete Business. For the
balance of the year, in addition to completing the installation of the coal
firing system, we anticipate continuing our practice of applying a sufficient
amount of capital resources to keep our equipment and facilities up-to-date.
After completion of the coal firing system, preliminary plans are
underway to install a new clinker cooler followed by the installation of a
precalciner on our second cement kiln. We will continue to evaluate market
conditions, other proposed capital expenditures and the Company's cash
resources as we finalize the timing of the clinker cooler and precalciner
installations. Additional bank financing may be required if we elect to
proceed with these projects.
MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in demand for our products. A significant increase in interest rates
could lead to a reduction in construction activities in both the residential
and commercial markets. Budget shortfalls during economic slowdowns could
cause money to be diverted away from highway projects, schools, detention
facilities and other governmental construction projects. Reduction in
construction activity lowers the demand for cement, ready-mixed concrete,
concrete products and sundry building materials. As demand decreases,
competition to retain sales volume could create downward pressure on sales
prices. The manufacture of cement requires a significant investment in
property, plant and equipment and a trained workforce to operate and maintain
this equipment. These costs do not materially vary with the level of
production. As a result, by operating at or near capacity, regardless of
demand, companies can reduce per unit production costs. The continual need to
control production costs encourages overproduction during periods of reduced
demand.
Interest rates on the company's advancing term loan and line of credit
are variable and are based on the JP Morgan Chase prime rate less 1.25% and
..75%, respectively.
INFLATION
Inflation directly affects the Company's operating costs. The
manufacture of cement requires the use of a significant amount of energy. The
Company burns primarily solid fuels, such as coal and petroleum coke, in its
preheater kiln. We do not anticipate a significant increase above the rate of
inflation in the cost of these solid fuels, or in the electricity required to
operate our cement manufacturing equipment. In 2001, the Company added a
precalciner to one of its kilns to increase production capacity. This
precalciner burns natural gas. Increases in natural gas prices exceeding the
rate of inflation create an above average increase in manufacturing costs.
The Company has commenced installation of a coal firing system for its
precalciner kiln to reduce dependence on natural gas. Prices of the
specialized replacement parts and equipment the Company must continually
purchase tend to increase directly with the rate of inflation causing
manufacturing costs to increase.
SEASONALITY
Portland cement is the basic material used in the production of ready-
mixed concrete that is used in highway, bridge and building construction.
These construction activities are seasonal in nature. During winter months
when the ground is frozen, groundwork preparation cannot be completed. Cold
temperatures affect concrete set-time, strength and durability, limiting its
use in winter months. Dry ground conditions are also required for
construction activities to proceed. During the summer, winds and warmer
temperatures tend to dry the ground quicker creating fewer delays in
construction projects.
Variations in weather conditions from year-to-year significantly affect
the demand for our products during any particular quarter; however, our
Company's highest revenue and earnings historically occur in its second and
third fiscal quarters, April through September.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has $13,979,002 of equity securities as of June 30, 2004.
These investments are not hedged and are exposed to the risk of changing
market prices. The Company classifies these securities as "available-for-
sale" for accounting purposes and marks them to market on the balance sheet at
the end of each period. Management estimates that its investments will
generally be consistent with trends and movements of the overall stock market
excluding any unusual situations. An immediate 10% change in the market price
of our equity securities would have an $840,000 effect on comprehensive
income.
The Company also has $30,015,190 of bank loans as of June 30, 2004.
Interest rates on the Company's advancing term loan and line of credit are
variable and are based on the JP Morgan Chase prime rate less 1.25% and .75%,
respectively.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in
Rules 13a-5(e) and 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in the Company's reports
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and
Exchange Commission, and that such information is accumulated and communicated
to the Company's management, including its President and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives.
The Company's management, including its President and Chairman of the
Board of Directors and Chief Financial Officer, evaluated the effectiveness of
the design and operation of its disclosure controls and procedures within 90
days of the filing date of this Quarterly Report on Form 10-Q. Based on this
evaluation, the Company's President and Chairman of the Board of Directors and
Chief Financial Officer have concluded that the design and operation of these
disclosure controls and procedures are effective. There has been no change in
the Company's internal control over financial reporting during the quarter
ended June 30, 2004 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the stockholders of The Monarch Cement Company
held on April 14, 2004, the stockholders elected four Class III Directors,
namely, Jack R. Callahan, Ronald E. Callaway, Robert M. Kissick, and Byron K.
Radcliff, to serve terms expiring at the annual meeting of stockholders in
2007. Class I Directors, namely, David L. Deffner, Gayle C. McMillen, and
Richard N. Nixon and Class II Directors, namely, Byron J. Radcliff, Michael R.
Wachter, Walter H. Wulf, Jr., and Walter H. Wulf, III continue to serve terms
expiring at the annual meetings of stockholders in 2005 and 2006,
respectively.
The following is a summary of votes cast.
Withhold Abstentions/
Authority/ Broker
For Against Non-votes
Jack R. Callahan 14,846,725 84,798 N/A
Ronald E. Callaway 14,856,076 84,798 N/A
Robert M. Kissick 14,852,846 84,798 N/A
Byron K. Radcliff 14,842,157 84,798 N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
31.1 Certificate of the President and Chairman of the Board
pursuant to Section 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934.
31.2 Certificate of the Chief Financial Officer pursuant
to Section 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934.
32.1 18 U.S.C. Section 1350 Certificate of the President
and Chairman of the Board dated August 11, 2004.
32.2 18 U.S.C. Section 1350 Certificate of the Chief
Financial Officer dated August 11, 2004.
(b) Reports on Form 8-K. There ware no reports required to be filed
on Form 8-K during the quarter for which this report is being
filed (April 1, 2004 to June 30, 2004, inclusive).
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MONARCH CEMENT COMPANY
(Registrant)
Date August 11, 2004 /s/ Walter H. Wulf, Jr.
Walter H. Wulf, Jr.
President and
Chairman of the Board
Date August 11, 2004 /s/ Debra P. Roe
Debra P. Roe, CPA
Chief Financial Officer and
Assistant Secretary-Treasurer
EXHIBIT INDEX
Exhibit
Number Description
31.1 Certificate of the President and Chairman of the
Board pursuant to Section 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
31.2 Certificate of the Chief Financial Officer
pursuant to Section 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
32.1 18 U.S.C. Section 1350 Certificate of the
President and Chairman of the Board
dated August 11, 2004.
32.2 18 U.S.C. Section 1350 Certificate of the
Chief Financial Officer dated August 11,
2004.