Attached files
file | filename |
---|---|
EX-31 - MONARCH CEMENT CO | exhibit31_1.htm |
EX-31 - MONARCH CEMENT CO | exhibit31_2.htm |
EX-32 - MONARCH CEMENT CO | exhibit32_2.htm |
EX-32 - MONARCH CEMENT CO | exhibit32_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
[X] Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period
ended September 30,
2009, 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
(state
or other jurisdiction of incorporation or organization)
|
48-0340590
(IRS
employer identification no.)
|
P.O.
BOX 1000, HUMBOLDT, KANSAS
(address
of principal executive offices)
|
66748-0900
(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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES
___ NO ___
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
___
|
Accelerated filer |
X
|
|
Non-accelerated filer |
___
|
(Do not check if a smaller reporting company) | Smaller reporting company |
___
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
NO X
As of
October
27,
2009, there were 2,532,463
shares of Capital Stock, par value $2.50 per share outstanding and
1,491,735
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, 2008 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 2008 filed with the Securities and 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 | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
September 30, 2009 and December 31, 2008 | |||||||||
ASSETS
|
2 0
0 9
|
2 0
0 8
|
|||||||
CURRENT
ASSETS:
|
(Unaudited)
|
||||||||
Cash
and cash equivalents
|
$ | 3,155,302 | $ | 3,111,509 | |||||
Short-term
investments, at cost which approximates fair value
|
- | 2,100,000 | |||||||
Receivables,
less allowances of $966,000 in 2009 and
|
|||||||||
$788,000
in 2008 for doubtful accounts
|
21,445,816 | 15,499,638 | |||||||
Inventories,
priced at cost which is not in excess of market-
|
|||||||||
Finished
cement
|
$ | 5,354,644 | $ | 4,507,180 | |||||
Work
in process
|
2,312,898 | 1,681,765 | |||||||
Building
products
|
5,384,679 | 5,069,230 | |||||||
Fuel,
gypsum, paper sacks and other
|
7,130,811 | 6,312,135 | |||||||
Operating
and maintenance supplies
|
11,151,473 | 10,943,746 | |||||||
|
Total
inventories
|
$ | 31,334,505 | $ | 28,514,056 | ||||
Refundable federal and state income taxes
|
- | 27,102 | |||||||
Deferred
income taxes
|
710,000 | 710,000 | |||||||
Prepaid
expenses
|
779,071 | 508,324 | |||||||
Total
current assets
|
$ | 57,424,694 | $ | 50,470,629 | |||||
PROPERTY,
PLANT AND EQUIPMENT, at cost, less
|
|||||||||
accumulated
depreciation and depletion of $159,557,848
|
|||||||||
in
2009 and $151,055,752 in 2008
|
88,903,515 | 90,803,872 | |||||||
DEFERRED
INCOME TAXES
|
18,031,540 | 19,473,540 | |||||||
INVESTMENTS
|
18,633,591 | 12,740,244 | |||||||
OTHER
ASSETS
|
893,527 | 1,276,364 | |||||||
$ | 183,886,867 | $ | 174,764,649 | ||||||
LIABILITIES
AND EQUITY
|
|||||||||
CURRENT
LIABILITIES:
|
|||||||||
Accounts
payable
|
$ | 6,762,473 | $ | 6,308,873 | |||||
Line
of credit payable
|
5,253,788 | - | |||||||
Current
portion of advancing term loan
|
2,715,022 | 2,643,913 | |||||||
Accrued
liabilities
|
7,348,804 | 8,553,694 | |||||||
Total
current liabilities
|
$ | 22,080,087 | $ | 17,506,480 | |||||
LONG-TERM
DEBT
|
12,843,755 | 15,108,016 | |||||||
ACCRUED
POSTRETIREMENT BENEFITS
|
27,408,899 | 26,210,409 | |||||||
ACCRUED
PENSION EXPENSE
|
15,363,826 | 14,720,952 | |||||||
EQUITY:
|
|||||||||
COMPANY
STOCKHOLDERS' EQUITY:
|
|||||||||
Capital
stock, par value $2.50 per share, one vote per share -
|
|||||||||
Authorized
10,000,000 shares, Issued 2,532,463 shares
|
|||||||||
at
9/30/2009 and 2,518,658 shares at 12/31/2008
|
$ | 6,331,158 | $ | 6,296,645 | |||||
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
1,491,735
|
|||||||||
shares
at 9/30/2009 and 1,505,540 shares at 12/31/2008
|
3,729,337 | 3,763,850 | |||||||
Retained
earnings
|
108,418,928 | 104,958,556 | |||||||
Accumulated
other comprehensive loss
|
(12,289,123 | ) | (14,509,123 | ) | |||||
Total
Company stockholders' equity
|
106,190,300 | 100,509,928 | |||||||
NONCONTROLLING
INTEREST
|
- | 708,864 | |||||||
Total
equity
|
$ | 106,190,300 | $ | 101,218,792 | |||||
$ | 183,886,867 | $ | 174,764,649 | ||||||
See
notes to condensed consolidated financial statements
|
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES | ||||||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
|
||||||||||||||||
For the Three Months and the Nine Months Ended September 30, 2009 and 2008 (Unaudited) | ||||||||||||||||
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
Sept.
30,
2009 |
Sept.
30,
2008 |
Sept.
30,
2009 |
Sept.
30,
2008 |
|||||||||||||
NET
SALES
|
$ | 42,410,390 | $ | 48,876,781 | $ | 103,905,194 | $ | 116,962,489 | ||||||||
COST
OF SALES
|
31,761,671 | 36,074,978 | 84,553,938 | 93,876,580 | ||||||||||||
Gross
profit from operations
|
$ | 10,648,719 | $ | 12,801,803 | $ | 19,351,256 | $ | 23,085,909 | ||||||||
SELLING,
GENERAL AND
|
||||||||||||||||
ADMINISTRATIVE
EXPENSES
|
4,015,605 | 3,973,522 | 12,170,135 | 11,867,519 | ||||||||||||
Income
from operations
|
$ | 6,633,114 | $ | 8,828,281 | $ | 7,181,121 | $ | 11,218,390 | ||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
income
|
$ | 52,062 | $ | 53,413 | $ | 139,699 | $ | 191,149 | ||||||||
Interest
expense
|
(157,277 | ) | (236,550 | ) | (487,742 | ) | (771,220 | ) | ||||||||
Gains
on equity investments
|
53,568 | - | 123,133 | - | ||||||||||||
Dividend
income
|
40,021 | 75,869 | 130,780 | 177,382 | ||||||||||||
Other,
net
|
200,645 | 153,925 | 175,713 | 591,359 | ||||||||||||
$ | 189,019 | $ | 46,657 | $ | 81,583 | $ | 188,670 | |||||||||
Income
before taxes on income
|
$ | 6,822,133 | $ | 8,874,938 | $ | 7,262,704 | $ | 11,407,060 | ||||||||
PROVISION
FOR INCOME TAXES
|
1,875,000 | 2,470,000 | 2,000,000 | 3,200,000 | ||||||||||||
NET
INCOME
|
$ | 4,947,133 | $ | 6,404,938 | $ | 5,262,704 | $ | 8,207,060 | ||||||||
Less:
Net Loss attributable to noncontrolling interest
|
- | - | (48,799 | ) | (174 | ) | ||||||||||
NET
INCOME ATTRIB. TO COMPANY
|
$ | 4,947,133 | $ | 6,404,938 | $ | 5,311,503 | $ | 8,207,234 | ||||||||
RETAINED
EARNINGS, beg. of period
|
104,397,360 | 99,364,723 | 104,958,556 | 98,488,627 | ||||||||||||
Less
cash dividends
|
925,565 | 926,201 | 1,851,131 | 1,852,401 | ||||||||||||
RETAINED
EARNINGS, end of period
|
$ | 108,418,928 | $ | 104,843,460 | $ | 108,418,928 | $ | 104,843,460 | ||||||||
Basic
earnings per share
|
$ | 1.23 | $ | 1.59 | $ | 1.32 | $ | 2.04 | ||||||||
Cash
dividends per share
|
$ | 0.23 | $ | 0.23 | $ | 0.46 | $ | 0.46 | ||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
||||||||||||||||
For
the Three Months and the Nine Months Ended September 30, 2009 and 2008
(Unaudited)
|
||||||||||||||||
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
Sept.
30,
2009 |
Sept.
30,
2008 |
Sept.
30,
2009 |
Sept.
30,
2008 |
|||||||||||||
NET
INCOME
|
$ | 4,947,133 | $ | 6,404,938 | $ | 5,262,704 | $ | 8,207,060 | ||||||||
UNREALIZED
APPRECIATION (DEPRECIATION)
|
||||||||||||||||
ON
AVAILABLE FOR SALE SECURITIES
|
||||||||||||||||
(Net
of deferred tax expense (benefit) of $1,276,000,
|
||||||||||||||||
$(524,000),
$1,528,000 and $(2,044,000), respectively)
|
1,917,568 | (786,000 | ) | 2,295,133 | (3,066,000 | ) | ||||||||||
LESS: RECLASSIFICATION
ADJUSTMENT FOR
|
||||||||||||||||
REALIZED
GAINS INCLUDED IN
|
||||||||||||||||
NET
INCOME (net of deferred tax expense
|
||||||||||||||||
of
$20,000, $-0-, $48,000, and $-0-, respectively)
|
33,568 | - | 75,133 | - | ||||||||||||
COMPREHENSIVE
INCOME
|
$ | 6,831,133 | $ | 5,618,938 | $ | 7,482,704 | $ | 5,141,060 | ||||||||
See
notes to condensed consolidated financial statements
|
THE
MONARCH CEMENT COMPANY AND SUBSIDIARIES
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
For the Nine Months Ended September 30, 2009 and 2008 (Unaudited) | ||||||||
2009
|
2008
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income
|
$ | 5,262,704 | $ | 8,207,060 | ||||
Adjustments
to reconcile net income to
|
||||||||
net
cash provided by operating activities:
|
||||||||
Depreciation,
depletion and amortization
|
9,136,307 | 8,830,955 | ||||||
Deferred
income taxes, long-term
|
(38,000 | ) | (42,000 | ) | ||||
Gain
on disposal of assets
|
(66,087 | ) | (216,899 | ) | ||||
Realized
gain on sale of equity investments
|
(123,133 | ) | - | |||||
Change
in assets and liabilities:
|
||||||||
Receivables,
net
|
(5,946,178 | ) | (8,775,717 | ) | ||||
Inventories
|
(2,820,449 | ) | 2,305,770 | |||||
Refundable
income taxes
|
27,102 | - | ||||||
Prepaid
expenses
|
(270,747 | ) | (343,487 | ) | ||||
Other
assets
|
19,697 | 105,413 | ||||||
Accounts
payable and accrued liabilities
|
1,031,913 | 7,069,265 | ||||||
Accrued
postretirement benefits
|
1,198,490 | 1,174,211 | ||||||
Accrued
pension expense
|
642,874 | (420,694 | ) | |||||
Net
cash provided by operating activities
|
$ | 8,054,493 | $ | 17,893,877 | ||||
INVESTING
ACTIVITIES:
|
||||||||
Acquisition
of property, plant and equipment
|
$ | (6,857,737 | ) | $ | (6,899,507 | ) | ||
Proceeds
from disposals of property, plant and equipment
|
118,942 | 232,550 | ||||||
Payment
for acquisition of business
|
- | (2,319,934 | ) | |||||
Payment
for purchases of equity investments
|
(3,530,703 | ) | (4,930,019 | ) | ||||
Proceeds
from disposals of equity investments
|
1,460,489 | - | ||||||
Decrease
in short-term investments, net
|
2,100,000 | - | ||||||
Net
cash used for investing activities
|
$ | (6,709,009 | ) | $ | (13,916,910 | ) | ||
FINANCING
ACTIVITIES:
|
||||||||
Increase
in line of credit, net
|
$ | 5,253,788 | $ | - | ||||
Payments
on bank loans
|
(1,976,177 | ) | (1,532,394 | ) | ||||
Payments
on other long-term debt
|
(216,975 | ) | (241,991 | ) | ||||
Cash
dividends paid
|
(3,702,262 | ) | (3,624,263 | ) | ||||
Purchases
of noncontrolling interests
|
(660,065 | ) | - | |||||
Net
cash used for financing activities
|
$ | (1,301,691 | ) | $ | (5,398,648 | ) | ||
Net
increase (decrease) in cash and cash equivalents
|
$ | 43,793 | $ | (1,421,681 | ) | |||
Cash
and Cash Equivalents, beginning of year
|
3,111,509 | 4,404,116 | ||||||
Cash
and Cash Equivalents, end of period
|
$ | 3,155,302 | $ | 2,982,435 | ||||
Interest
paid, net of amount capitalized
|
$ | 496,676 | $ | 788,714 | ||||
Income
taxes paid, net of refunds
|
$ | (72,660 | ) | $ | 1,790,000 | |||
Capital
equipment additions included in accounts payable
|
$ | 289,842 | $ | 44,680 | ||||
See
notes to condensed consolidated financial statements
|
THE MONARCH CEMENT COMPANY AND SUBSIDIARIES |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
September 30, 2009 (Unaudited), and December 31, 2008 |
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.
|
Certain
reclassifications have been made to the 2008 financial statements to
conform to the current year presentation. These reclassifications had no
effect on net earnings.
|
3.
|
For
the nine months ended September 30, 2009, we restored
the $.1 million temporary LIFO liquidation created by reductions
in finished cement and work in process inventory in the first six
months of 2009. The temporary LIFO liquidation gain had been deferred
as a component of accrued liabilities. We had temporary
LIFO liquidation gains during the nine months ended September 30,
2008 due to reductions in finished cement and work in process inventory of
$.8 million. For the three months ended September 30,
2009, we restored $.1
million of the LIFO liquidation incurred in the first six
months of 2009. We had temporary LIFO liquidation gains for
the three months ended September 30, 2008 due to reductions in finished
cement and work in process inventory of $.8
million.
During
the nine months and the three months ended September 30, 2009 we
did not incur any permanent reductions in the LIFO layers of work in
process or cement inventories. During the nine months ended September
30, 2008 we incurred a $.7 million permanent reduction in LIFO layers
which was recognized as a reduction of cost of sales. During the
three months ended September 30, 2008 we did not incur any permanent
reductions in the LIFO layers of work in process or cement
inventories.
|
4.
|
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 4,024,198
and 4,026,958
in the third quarter of 2009 and 2008, respectively. The weighted
average number of shares outstanding was 4,024,198
and 4,026,958
in the first nine months of 2009 and 2008,
respectively. The Company has no common stock equivalents and
therefore, does not report diluted earnings per
share.
|
5.
|
Our
Company groups its operations into two lines of business - Cement Business
and Ready-Mixed Concrete Business. The "Cement Business" refers to
our manufacture and sale of cement and "Ready-Mixed Concrete Business"
refers to our ready-mixed concrete, concrete products, precast concrete
construction, and sundry building materials business. Corporate
assets for 2009 and 2008 include cash and cash
equivalents, deferred income taxes, investments and other
assets. Following is information for each line for the
periods indicated:
|
Ready-
Mixed |
Adjustments
|
|||||||||||||||
Cement Business |
Concrete
Business |
and
Eliminations |
Consolidated
|
|||||||||||||
For
the Three Months Ended 9/30/09
|
||||||||||||||||
Sales
to unaffiliated customers
|
$ | 17,982,074 | $ | 24,428,316 | $ | - | $ | 42,410,390 | ||||||||
Intersegment
sales
|
3,940,641 | - | (3,940,641 | ) | - | |||||||||||
Total
net sales
|
$ | 21,922,715 | $ | 24,428,316 | $ | (3,940,641 | ) | $ | 42,410,390 | |||||||
Income
from operations
|
$ | 4,980,605 | $ | 1,652,509 | $ | 6,633,114 | ||||||||||
Other
income, net
|
189,019 | |||||||||||||||
Income
before income taxes
|
$ | 6,822,133 | ||||||||||||||
Capital
Expenditures
|
$ | 1,469,980 | $ | 985,253 | $ | 2,455,233 |
For
the Three Months Ended 9/30/08
|
|
|||||||||||||||
Sales
to unaffiliated customers
|
$ | 23,898,613 | $ | 24,978,168 | $ | - | $ | 48,876,781 | ||||||||
Intersegment
sales
|
4,788,475 | 1,079 | (4,789,554 | ) | - | |||||||||||
Total
net sales
|
$ | 28,687,088 | $ | 24,979,247 | $ | (4,789,554 | ) | $ | 48,876,781 | |||||||
Income
from operations
|
$ | 8,220,387 | $ | 607,894 | $ | 8,828,281 | ||||||||||
Other
income, net
|
46,657 | |||||||||||||||
Income
before income taxes
|
$ | 8,874,938 | ||||||||||||||
Capital
Expenditures
|
$ | 1,201,958 | $ | 827,443 | $ | 2,029,401 |
|
Ready-
Mixed |
Adjustments
|
||||||||||||||
Cement Business |
Concrete
Business |
and
Eliminations |
Consolidated
|
|||||||||||||
For
the Nine Months Ended 9/30/09
|
||||||||||||||||
Sales
to unaffiliated customers
|
$ | 43,462,640 | $ | 60,442,554 | $ | - | $ | 103,905,194 | ||||||||
Intersegment
sales
|
9,485,585 | - | (9,485,585 | ) | - | |||||||||||
Total
net sales
|
$ | 52,948,225 | $ | 60,442,554 | $ | (9,485,585 | ) | $ | 103,905,194 | |||||||
Income
from operations
|
$ | 6,509,648 | $ | 671,473 | $ | 7,181,121 | ||||||||||
Other
income, net
|
81,583 | |||||||||||||||
Income
before income taxes
|
$ | 7,262,704 | ||||||||||||||
Capital Expenditures | $ | 4,356,039 | $ | 2,569,626 | $ | 6,925,665 | ||||||||||
For
the Nine Months Ended 9/30/08
|
||||||||||||||||
Sales
to unaffiliated customers
|
$ | 53,060,536 | $ | 63,901,953 | $ | - | $ | 116,962,489 | ||||||||
Intersegment
sales
|
12,006,567 | 1,079 | (12,007,646 | ) | - | |||||||||||
Total
net sales
|
$ | 65,067,103 | $ | 63,903,032 | $ | (12,007,646 | ) | $ | 116,962,489 | |||||||
Income
(loss) from operations
|
$ | 11,539,045 | $ | (320,655 | ) | $ | 11,218,390 | |||||||||
Other
income, net
|
188,670 | |||||||||||||||
Income
before income taxes
|
$ | 11,407,060 | ||||||||||||||
Capital Expenditures | $ | 2,192,725 | $ | 5,743,533 | $ | 7,936,258 |
Balance
as of 9/30/09
|
|||||||||||||||||
Identifiable
Assets
|
$ | 98,596,663 | $ | 43,866,244 | $ | 142,462,907 | |||||||||||
Corporate
Assets
|
41,423,960 | ||||||||||||||||
|
|
$ | 183,886,867 |
Balance
as of 9/30/08
|
|||||||||||||||||
Identifiable
Assets
|
$ | 96,894,209 | $ | 44,097,503 | $ | 140,991,712 | |||||||||||
Corporate
Assets
|
33,560,322 | ||||||||||||||||
|
|
$ | 174,552,034 |
6.
|
The
following table presents the components of net periodic pension and
postretirement benefit costs allocated to Cost of Sales and Selling,
General and Administrative expenses for the nine months
ended September 30, 2009 and
2008:
|
Pension Benefits | Other Benefits | |||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Service
cost
|
$ | 1,265,959 | $ | 589,949 | $ | 402,827 | $ | 367,193 | ||||||||
Interest
cost
|
4,099,310 | 1,831,407 | 1,371,150 | 1,134,506 | ||||||||||||
Expected
return on plan assets
|
(4,356,624 | ) | (2,143,163 | ) | - | - | ||||||||||
Amortization
of prior service cost
|
296,466 | 77,786 | - | - | ||||||||||||
Recognized
net actuarial gain
|
428,325 | 130,938 | - | - | ||||||||||||
Unrecognized
net loss
|
- | - | 598,152 | 723,942 | ||||||||||||
Net periodic expense
|
$ | 1,733,436 | $ | 486,917 | $ | 2,372,129 | $ | 2,225,641 |
The
following table presents the components of net periodic costs for the three
months ended September 30, 2009 and 2008:
Pension Benefits | Other Benefits | |||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Service
cost
|
$ | 421,986 | $ | 248,352 | $ | 135,500 | $ | 109,560 | ||||||||
Interest
cost
|
1,366,437 | 770,969 | 461,217 | 338,506 | ||||||||||||
Expected
return on plan assets
|
(1,452,208 | ) | (902,210 | ) | - | - | ||||||||||
Amortization
of prior service cost
|
98,822 | 32,746 | - | - | ||||||||||||
Recognized
net actuarial gain
|
142,775 | 55,121 | - | - | ||||||||||||
Unrecognized
net loss
|
- | - | 201,202 | 216,004 | ||||||||||||
Net periodic expense
|
$ | 577,812 | $ | 204,978 | $ | 797,919 | $ | 664,070 |
As previously disclosed in
our financial statements for the year ended December 31, 2008, Monarch expected
to contribute approximately $1,880,000 to the pension fund in 2009.
However, final computations increased the expected contributions to $2,100,000.
As of September 30, 2009, we have contributed about $1,100,000 and
anticipate contributing an additional $1,000,000 to this plan in 2009 for a
total of $2,100,000. 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, 2008, Monarch expects expenditures of approximately
$1,560,000 for
this plan in 2009. As of September 30, 2009, we have spent about
$1,175,000 and anticipate spending an
additional $385,000 on this plan in
2009 for a total of $1,560,000.
7.
|
The
Company or one of its subsidiaries files income tax returns in the U.S.
Federal jurisdiction and various state jurisdictions. With few
exceptions, the Company is no longer subject to U.S. Federal or state
income tax examinations by tax authorities for years before
2005.
|
8.
|
As
of September 30, 2009, the amount of accounts payable related to
property, plant and equipment was $289,842 compared to December 31, 2008
which was $221,914.
|
9.
|
The Company adopted
the provisions of Financial Accounting Standards Board (FASB)
ASC Topic 820, "Fair
Value Measurements and Disclosures" effective January 1, 2008 which
defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about
fair value measurements. The Company deferred
until January 1, 2009 the application of FASB ASC Topic 820 “Fair
Value Measurements and Disclosures” to nonfinancial assets and
nonfinancial liabilities not recognized or disclosed at least annually at
fair value.
FASB ASC Topic 820 "Fair Value Measurements and Disclosures" defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes a fair value hierarchy based on three levels of inputs which may be used to measure fair value. Level 1 uses quoted prices in active markets for identical assets or liabilities. Level 2 uses observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 uses unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Cash
and cash equivalents, short-term investments, receivables, accounts
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. If it
is not practicable to estimate the fair value of an investment, the
investment is recorded at cost and evaluated quarterly for events that may
adversely impact its fair
value.
|
The
following table summarizes the bases used to measure certain assets at fair
value on a recurring basis in the balance sheet:
Fair
Value Measurements at Reporting Date Using:
|
||||||||||||||||
|
Quoted
Prices
|
|
||||||||||||||
in
Active
|
Significant
|
|
||||||||||||||
Markets
for
|
Other
|
Significant
|
||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets
|
Inputs
|
Input
|
||||||||||||||
September 30, 2009 | Balance |
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
Assets:
|
|
|
|
|||||||||||||
Available-for-sale
securities
|
$ | 16,609,291 | $ | 16,609,291 | $ | - | $ | - | ||||||||
Total
|
$ | 16,609,291 | $ | 16,609,291 | $ | - | $ | - | ||||||||
December
31,
2008
|
||||||||||||||||
Assets:
|
||||||||||||||||
Available-for-sale
securities
|
$ | 10,939,044 | $ | 10,939,044 | $ | - | $ | - | ||||||||
Total
|
$ | 10,939,044 | $ | 10,939,044 | $ | - | $ | - |
The
Company has no liabilities in either year requiring remeasurement to fair value
on a recurring basis in the balance sheet. The Company has no additional assets
or liabilities in either year requiring remeasurement to fair value on a
non-recurring basis in the balance
sheet.
The
following table shows the gross unrealized losses and fair value of the
Company's investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position at September 30, 2009:
Less
than 12 Months
|
12
Months or Greater
|
Total | ||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
Description
of Securities
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
||||||||||||||||||
|
||||||||||||||||||||||||
Marketable
equity securities
|
$ | 2,231,423 | $ | 472,923 | $ | - | $ | - | $ | 2,231,423 | $ | 472,923 | ||||||||||||
Total
|
$ | 2,231,423 | $ | 472,923 | $ | - | $ | - | $ | 2,231,423 | $ | 472,923 |
Due to the adverse market
conditions, the Company's investments in marketable equity securities carried at
fair value were evaluated for impairment by comparing the specifically
identified cost of each purchase to market price. As a result of these
evaluations, the Company did not identify any other-than-temporary impairments
in investments which would have resulted in a recognized loss in
earnings of equity investments. The Company did identify some specific
purchases of marketable equity securities that were not other-than-temporarily
impaired resulting in the recognition of unrealized losses
(see table above). When the Company
evaluated impairment by comparing the specifically identified cost of each
purchase to market price as of October 26, 2009,
these securities had not
recovered any of their September 30, 2009 temporary impairments.
The Company
evaluated the near-term prospects of all of the issuers in relation to
the severity and duration of the impairments. Based on that evaluation and
the Company's ability and intent to hold these investments for a reasonable
period of time sufficient for a forecasted recovery of the entire cost bases of
the securities, the Company does not consider those investments to be
other-than-temporarily impaired at September 30, 2009.
The
Company owns stock in two privately-owned companies accounted for by the cost
method; one in the brick industry and the other in the ethanol production
industry. Due to continued adverse market conditions, these investments
were evaluated for impairment based on average cost and specific identification,
respectively. Since there is not an active market for the brick industry
investment, the
Company relied on a discounted future net cash flow valuation of the investee
which did not identify any impairments. The aggregate carrying
cost of the Company's cost-method investments totaled $2.0 million
at September 30, 2009 and December 31, 2008. The aggregate
cost after impairments of the Company's cost-method investments totaled $2.0
million at September 30, 2009 and $1.8 million at December 31,
2008.
The
investment results for September 30, 2009 and December 31, 2008 are as
follows:
9/30/2009
|
12/31/2008
|
|||||||
Fair
value of equity securities
|
$ | 18,633,591 | $ | 12,740,244 | ||||
Cost
of equity securities
|
12,953,591 | 10,760,244 | ||||||
Net unrealized gains
|
$ | 5,680,000 | $ | 1,980,000 | ||||
Unrealized
gain (loss) recorded in equity
|
||||||||
Equity securities carried
at fair value
|
$ | 3,408,000 | $ | 1,411,000 | ||||
Equity
securities carried at cost
|
- | (223,000 | ) | |||||
Deferred income taxes
|
2,272,000 | 792,000 | ||||||
$ | 5,680,000 | $ | 1,980,000 | |||||
Proceeds
from sale of equity securities
|
$ | 1,460,489 | $ | - | ||||
Realized
gains on equity securities
|
$ | 123,133 | $ | - | ||||
Realized
losses due to other-than-temporary
impairment of equity securities
|
$ | - | $ | (4,157,612 | ) |
10.
|
Recently
Adopted Accounting Standards
In
June 2009, the FASB issued FASB ASC Topic 105 "Generally Accepted Accounting Principles"
which identifies the
FASB Accounting Standards Codification (ASC)
as the authoritative source of generally accepted accounting principles in
the United States. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under federal securities laws are also sources
of authoritative GAAP for SEC registrants. This standard is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this standard
did not have a material impact on our consolidated financial
statements. References to
authoritative accounting literature contained in our financial statements
will be made in accordance with the ASC commencing with this quarterly
report for the period ending September 30, 2009.
Effective January 1,
2009, the Company adopted FASB ASC Section 810-10-65, "Consolidation:
Overall: Transition and Effective Date Information". Upon adoption,
minority interest previously presented in the mezzanine section of the
balance sheet has been retrospectively reclassified as noncontrolling
interest within equity. In addition, the consolidated
net income and comprehensive income presented in the
statements of income have been retrospectively revised to
include the net loss attributable to the noncontrolling interest.
Beginning January 1, 2009, losses attributable to the noncontrolling
interest have
been allocated to the noncontrolling interest even if the
carrying amount of the noncontrolling interest is reduced below
zero. Any changes in ownership after January 1, 2009,
that did
not result in a loss of control have been
prospectively accounted for as equity transactions in accordance with FASB
ASC 810.
Effective
June 30, 2009, the Company adopted the requirements of FASB
ASC Topic 855, "Subsequent Events", which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are
available to be issued. Adoption of the
standard did not have a material impact on the Company’s consolidated
financial statements. See Note 12 for disclosures required by this
standard.
In March 2008, the
FASB updated FASB ASC Topic 815, "Derivatives and Hedging", which
establishes, among other things, the disclosure requirements
for derivative instruments and for hedging
activities. Since the Company
does not participate in hedging activities and does not use derivative
instruments, the Company's adoption of the standard,
effective January 1, 2009, did not have any impact on our
disclosures or our consolidated financial statements.
In April 2009, the
FASB amended ASC Topic 825 "Financial
Instruments" to expand the disclosure about the fair
value of financial instruments that were previously required only annually
to also be required for interim period reporting. In addition, it requires
certain additional disclosures regarding the methods and significant
assumptions used to estimate the fair value of financial instruments. The
adoption April 1, 2009 of this amendment on a prospective
basis by the Company did not have a
financial impact on the Company's Consolidated Financial Statements. See
Note 9 for disclosures
required by this standard.
In
April 2009, the FASB amended ASC Topic 320, "Investments - Debt and
Equity Securities" to provide guidance
for evaluating and recognizing other-than-temporary impairment
("OTTI") of debt securities. The amendment also expands the
disclosure requirements in interim and annual financial statements
for both debt and equity securities to enable users
to understand the types of securities held, including
information about investments in an unrealized loss position, the
reasons that a portion of an OTTI of a debt security was not
recognized in earnings and the methodology and significant
inputs used to calculate the portion of the total OTTI that was
recognized in earnings. This amendment is effective
for interim or annual periods ending after June 15, 2009 and its
adoption did not impact the
Company’s financial position, results of operations or cash flows.
See Note 9 for disclosures required by this
standard.
Effective January 1,
2009, the Company adopted FASB ASC Topic 805 "Business
Combinations", which revised certain principles, including the
definition of a business combination, the recognition and measurement
of assets acquired and liabilities assumed in a business combination, the
accounting for goodwill, and financial statement
disclosure. FASB ASC 805 to date did not have any impact on our
disclosures or our consolidated financial statements, but will be
applicable to the Company for business combinations that may occur in the
future.
In
August 2009, the FASB issued Accounting Standards Update (ASU) No.
2009-05, "Fair Value Measurements and Disclosures: Measuring Liabilities
at Fair Value". This ASU provides amendments for fair value
measurements of liabilities. It provides clarification that in
circumstances in which a quoted price in an active market for the
identical liability is not available, a reporting entity is required to
measure fair value using one or more techniques. ASU 2009-05
also clarifies that when estimating a fair value of a liability, a
reporting entity is not required to include a separate input or adjustment
to other inputs relating to the existence of a restriction that prevents
the transfer of the liability. ASU 2009-05 is effective for the
first reporting period (including interim periods) beginning after
issuance. There was no impact on the
Company’s financial position, results of operations or cash flows as a
result of adoption of ASU
2009-05.
Recently Issued Accounting
Pronouncements
In
December 2008, the FASB issued an amendment to ASC 715-20,
"Compensation – Retirement Benefits – Defined Benefit Plans – General",
which requires enhanced disclosures regarding Company benefit
plans. Disclosure regarding plan assets should include discussion
about how investment allocation decisions are made, the major categories
of plan assets, the inputs and valuation techniques used to measure plan
assets and significant concentrations of risk within plan
assets. These amendments to ASC 715-20 are effective for fiscal years
ending after December 15, 2009, and earlier application is
permitted. Prior year periods presented for comparative purposes are
not required to comply. The Company does not believe that these
amendments to ASC 715-20 will have a
material impact on its financial position, results of operations or cash
flows.
|
11.
|
Other, net contains miscellaneous nonoperating income
(expense) items other than interest income, interest expense, gains on
equity investments and dividend income. Material items in other, net
included income from oil properties of $68,000 and a $228,000 gain related
to the settlement of a contingent liability related to the acquisition of
subsidiary stock during the first nine months of 2009. The $228,000
gain related to the settlement of a contingent liability was a material
item included in other, net for the three months ending September 30,
2009. Material items in other, net included income from oil properties of
$379,714 and income from scrap
sales of $167,225 for the first nine months of 2008. For the
three months ending September 30, 2008, material items in other, net
included income from oil properties of $172,342.
|
12.
|
Subsequent
events have been evaluated through November 9, 2009, which is
the date the financial statements were issued. During this period,
no material recognizable subsequent events were identified.
|
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 or
the future activity of federal and state 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 revolving line of credit,
our ability to pay dividends at the current level, our anticipated expenditures
for benefit plans, 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 effect of weather on our business;
-
the effect of environmental and other government regulations;
-
the availability of credit at reasonable prices; and
-
the effect of federal and state funding on demand for our
products.
RESULTS
OF OPERATIONS - CRITICAL ACCOUNTING POLICIES
Reference is made to the Management's Discussion and Analysis of Financial
Condition and Results of Operations - Accounting Policies incorporated herein by
reference to Item 7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2008 for accounting policies which are considered by
management to be critical to an understanding of the Company's financial
statements.
RESULTS
OF OPERATIONS - OVERVIEW
Our products are used in residential, commercial and governmental
construction. In recent years, the Company has spent substantial sums on
major plant modifications designed to increase our cement production capacity to
meet our customers' needs and to improve our production processes.
Improvements are planned over the next few years to further improve our
production processes, particularly in the handling and processing of raw
materials.
The residential
construction slowdown which began during 2008 continued in 2009 to suppress the
demand for cement and ready-mixed concrete. A reduction in cement sales,
and accordingly ready-mixed concrete sales, was projected by the Portland Cement
Association (PCA). Prior to the second quarter of 2009, most of our market
had not experienced the reduction as severely as other areas of the country.
However, demand has now become increasingly suppressed in some
areas of our market as well. In addition, sales of
cement and ready-mixed concrete have also been adversely impacted by an
excessive amount of rain. By September 1st we had already reached our
average rainfall total for the year and rains have continued through
September. The amount and timing of these rains has delayed construction
projects resulting in reduced sales of cement and
concrete.
Based on sales forecasts and inventory levels at the beginning of 2008, the
Company elected to reduce cement production in the first quarter of 2008 and use
that opportunity to undertake major plant repairs and maintenance, largely using
our own production personnel. Based on sales forecasts and inventory
levels at the beginning of 2009, the Company elected again to reduce cement
production in the first quarter and early in the second quarter of
2009 and to undertake additional major plant repairs and maintenance,
largely using our own production personnel. The Company normally performs
repairs and maintenance every winter, but the decision to use employees or
outside contractors is determined by anticipated sales demand,
whether we have the internal expertise and our inventory target levels.
These shutdowns
adversely impacted our gross profit margins in 2008
and 2009.
RESULTS
OF OPERATIONS - THIRD QUARTER OF 2009 COMPARED TO THIRD
QUARTER OF 2008
Consolidated net sales for the three months ended September 30, 2009,
decreased by $6.5 million when compared to the three months ended September
30, 2008. Sales in our Cement Business were lower by $5.9 million and
sales in our Ready-Mixed Concrete Business were lower by $.6
million. Cement Business sales decreased
$5.5 million due to a 23.0% decrease in volume sold and $.4 million due to price
decreases. Increases in
construction contract sales of $3.4 million helped offset the declines
in other areas of the Ready-Mixed Concrete Business. Ready-mixed
concrete sales decreased $3.6 million primarily due to a 20.9%
decline in cubic yards sold. Block, brick and other sundry item sales declined
by $.4 million.
Consolidated cost of sales for the three months ended September 30, 2009,
decreased by $4.3 million when compared to the three months ended September
30, 2008. Cost of sales in our Cement Business was lower by $2.7 million
and cost of sales in our Ready-Mixed Concrete Business was lower by $1.6
million. Cement Business cost of sales decreased primarily due to the 23.0%
decrease in volume sold. Ready-Mixed
Concrete Business cost of sales decreased $3.2 million primarily due to the
20.9% decrease in cubic yards of ready-mixed concrete sold and significant
reductions in diesel fuel prices. These decreases were partially offset by
a $1.6 million increase in cost of sales for construction contracts which
resulted from the $3.4 million increase in construction contract sales.
Our overall gross profit rate for the three months ended September 30, 2009
was 25.1% versus 26.2% for the three months ended September 30,
2008. As a result of the above sales and cost of sales factors, the gross
profit rate for the Cement Business declined from 42.3% for the
three months ended September 30, 2008 to 38.3% for the three months
ended September 30, 2009. The gross profit rate for the Ready-Mixed
Concrete Business improved from 10.8% for the three months ended
September 30, 2008 to 15.4% for the three months ended September 30, 2009
primarily due to a 41% improvement in the gross profit rate on construction
contract sales.
Selling, general, and administrative expenses increased by 1.1% for the three
months ended September 30, 2009 compared to the three months
ended September 30, 2008. These costs are normally considered fixed
costs that do not vary significantly with changes in sales
volume.
The effective tax rates for the three months ended September 30, 2009 and
2008 were 27.5% and 27.8%, 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, domestic production activities deduction
and valuation allowance. Taxes for the current year are estimated based on
prior years' effective tax rates.
RESULTS
OF OPERATIONS - FIRST NINE MONTHS OF 2009 COMPARED TO THE
FIRST NINE MONTHS OF 2008
Consolidated net sales for the nine months ended September 30, 2009,
decreased by $13.1 million when compared to the nine months
ended September 30, 2008. Sales in our Cement Business were lower by
$9.6 million and sales in our Ready-Mixed Concrete Business were lower by $3.5
million. Cement Business sales decreased $8.9 million due to a 16.8%
decline in volume sold and decreased $.7 million due to price decreases.
The Ready-Mixed Concrete
Business sales decrease was primarily due to a 18.7% decline in cubic
yards of ready-mixed concrete sold partially offset by a 2.1% increase
in cubic yard prices resulting in a $7.7 million decline in sales. In
addition, block, brick and other sundry item sales declined by $.9 million
and construction contract sales increased by $5.1 million, a 69% increase in
construction contract sales over the same period last year.
Consolidated cost of sales for the nine months ended September 30,
2009, decreased by $9.3 million when compared to the nine months
ended September 30, 2008. Cost of sales in our Cement Business was
lower by $4.9 million and cost of sales in our Ready-Mixed Concrete Business
was lower by $4.4 million.
Cement Business cost of
sales decreased due to the 16.8% decrease in volume sold. Ready-Mixed
Concrete Business cost of sales decreased $6.8 million primarily due to the
18.7% decrease in cubic yards of ready-mixed concrete sold and
significant reductions in diesel fuel prices. These decreases were partially
offset by a $2.4 million increase in cost of sales for construction contracts
which resulted from the 69% increase in construction contract
sales.
Our overall gross profit rate for the nine months ended September 30,
2009 was 18.6% versus 19.7% for the nine months
ended September 30, 2008. As a result of the above sales and cost
of sales factors, the gross profit rate for the Cement Business declined from
32.3% for the nine months ended September 30, 2008 to 28.6%
for the nine months ended September 30, 2009. The gross profit rate
for the Ready-Mixed Concrete Business increased from 9.3% for
the nine months ended September 30, 2008 to 11.5% for the nine months
ended September 30, 2009 primarily due to a 19.1% improvement in the gross
profit rate on construction contract sales.
Selling, general, and administrative expenses increased by 2.5% during the
first nine months of 2009 compared to the first nine
months of 2008. These costs are normally considered fixed costs that do not
vary significantly with changes in sales volume.
The effective tax rates for the nine months ended September 30, 2009 and
2008 were 27.5% and 28.1%, 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 and valuation allowance. Taxes for the current year are
estimated based on prior years' effective tax rates.
LIQUIDITY
The Company considers all liquid investments with original maturities of three
months or less to be cash equivalents. At September 30, 2009 and December
31, 2008, cash equivalents consisted primarily of money market investments and
repurchase agreements with various banks which are not guaranteed by the
FDIC. The financial institutions holding the Company's cash accounts are
participating in the FDIC's Transaction Account Guarantee Program. Under
that program, through December 31, 2009, all non interest-bearing transaction
accounts are fully guaranteed by the FDIC for the entire amount in the
account.
We are able to meet our cash needs primarily from a combination of operations
and bank loans.
Net cash
provided by operating activities totaled $8.1 million and $17.9 million for the
nine months ended September 30, 2009 and September 30, 2008,
respectively. The $9.8 million decrease in the cash provided by
operating activities for the first nine months of 2009 compared to the
first nine months of 2008 is primarily due to changes in net
income, receivables, inventories, accounts payable and accrued
liabilities. Net income decreased $2.9 million from 2008 to 2009
primarily due to the decline in overall sales volume combined with a 3.8%
decline in the gross profit margin in the Cement Business.
Receivables increased more in the first nine months of 2008 than 2009
due primarily to a greater increase in September sales in 2008 over December
sales in 2007 compared to the increase in September sales in 2009 over
December sales in 2008. While the Company reduced production in the first
quarter of 2008 and 2009, inventories increased more in the first nine
months of 2009 than the first nine months of 2008. Finished
cement inventory increased $.9 million; work-in-process increased $.6
million; and fuel, gypsum, paper sacks and other increased $.8
million during the first nine months of 2009 while finished
cement decreased $3.1 million; work-in-process decreased $2.4
million; fuel, gypsum, paper sacks and other increased $1.9
million; and operating and maintenance supplies increased $1 million during
the first nine months of 2008. Less cash was used in the
first nine months of 2008 than 2009 due to the $2.2 million increase
in accrued liabilities related to prepaid cement sales and the $3.9
million increase in accounts payables during the first nine months of 2008
as compared to the $1.7 million decrease in accrued liabilities related
to prepaid cement sales and the $.5 million increase in accounts payables
for 2009.
Net cash used for investing activities totaled $6.7 million in the
first nine months of 2009 while $13.9 million was used in the
first nine months of 2008. The $7.2 million
decrease in net cash used for investing activities for the nine
months of 2009 compared to the first nine months of 2008 is
principally due to using $2.3 million in cash for a
business acquisition in the first nine months of 2008 that did not occur in
the corresponding period of 2009, purchasing $1.4 million less in
equity investments in 2009 compared to the corresponding period in 2008,
disposing of equity investments in 2009 which provided $1.5
million while no investments were disposed of in 2008,
and receiving $2.1 million for short-term investments that matured in
2009 while none matured in the corresponding period of
2008.
Net cash used for financing activities totaled $1.3 million and
$5.4 million for the nine months ending September 30, 2009 and
September 30, 2008, respectively. The $4.1 million
decrease in cash used in 2009 over 2008 was primarily the result of the $5.3
million increase in the line of credit by the end of the third quarter
of 2009 over the same period in 2008. The Company had paid off its line of
credit as of September 30, 2008. In 2009, these loans were used to cover
increases in receivables, inventories, and equity investments plus cash
expenditures on property, plant and equipment.
In December 2008, Monarch renewed and modified the loan agreement with its
current lender, Bank of Oklahoma, N.A., under similar terms as the prior
agreement. Monarch's current unsecured credit commitment consists of a $25.0
million term loan maturing December 31, 2014 and a $15.0 million line of
credit maturing December 31, 2009. The term loan bears a floating interest rate
based on the lender's National Prime rate less .75% with a 3.00% interest rate
minimum or floor. The line of credit bears a floating interest rate based on the
lender's National Prime rate less 1.25% with a 2.50% interest rate minimum or
floor. The loan agreement contains a financial covenant related to net worth
which the Company was in compliance with at the end of the third quarter of
2009. Prior to the renewal, interest on the Company's term loan was
variable and was based on the JP Morgan Chase prime rate less .75%.
Interest on the line of credit varied with the lender's National Prime rate less
1.25% for 2008. As
of September 30, 2009, we had borrowed $15.3 million
on the term loan and $5.3 million on the line of credit leaving a balance
available on the line of credit of $9.7 million. The annual weighted
average interest rate we paid on the term loan during the third quarter of
2009 and 2008 was 3.25% and 4.25%, respectively, and for the first nine
months of 2009 and 2008 was 3.25% and 4.69%, respectively. The annual
weighted average interest rate we paid on the line of credit during the third
quarter of 2009 and 2008 was 2.75% and 3.75%, respectively, and for the first
nine months of 2009 and 2008 was 2.75% and 4.19%, respectively. As
of September 30, 2009, the applicable interest rate was 3.25% on the
term loan and 2.75% on the line of credit. The term loan was
used to help finance the expansion project at our cement manufacturing
facility. The line of credit was used during the year to fund
increases in receivables, capital improvements, increases in purchases of equity
investments and temporary operating expenses. Our Board of Directors
has given management the authority to borrow an additional $10 million, for a
maximum of $50 million. We have not discussed additional financing with
any banks or other financial institutions; therefore, no assurances can be given
that we will be able to obtain this additional borrowing on favorable terms, if
at all.
The Company has projects in the planning and design phases in addition to
projects already in progress. For discussion of these projects, see paragraph
two under "Capital Resources" below. We anticipate capital expenditures for 2009
to be higher than 2008 levels, but we do not anticipate the need for
additional bank financing other than that available under the existing line of
credit.
For several years the Company has paid a $.20 per share dividend in January,
March, June and September. Beginning with the April 2006 Board of Directors
meeting, the Board elected to increase these dividends to $.21 per share; at the
April 2007 Board of Directors meeting, the Board increased the dividend to $.22
per share; and at the April 2008 Board of Directors meeting, the Board increased
the dividend to $.23 per share. Under the terms and conditions of our loan
agreement, the Company is required to maintain a tangible net worth of $90
million and an adjusted tangible net worth, which is tangible net worth before
other comprehensive income, of $95 million. The Company was in compliance
with these requirements at the end of the third quarter of 2009.
Although dividends are declared at the Board's discretion and could be impacted
by the minimum net worth requirements of the Company's loan agreement, we believe earnings
will support the continued payment of dividends at the current
level.
The Company has
been required to make a pension contribution each of the past two years.
In 2008 and 2007, the Company contributed approximately $1.4 million and $.7
million, respectively, to the pension fund. The decline in the bond
and stock markets in 2008 significantly reduced the value of our pension funds
at December 31, 2008. Based on the pension laws currently in effect,
the resulting increase in minimum funding requirements could cause a negative
impact to our liquidity. See Note 6 for disclosures about 2009 pension
contributions.
FINANCIAL
CONDITION
Total assets as of September 30, 2009 were $183.9 million, an increase of
$9.1 million since December 31, 2008. Increases in receivables are common
during the first nine months of the year due to the seasonality of our
business (see "Seasonality" below). Receivables, finished cement inventory,
work-in-process and building products increased approximately $6.0 million,
$.9 million, $.6 million and $.3 million, respectively. Fuel, gypsum,
paper sacks and other inventory increased $.8 million primarily due to purchases
of coal and petroleum coke exceeding amounts consumed in the production process.
Operating and maintenance supplies inventory increased $.2 million due to
purchases of specialized repair supplies related to the recently completed
construction in the production facilities. Management continually
evaluates the lead time to obtain repair parts which are critical to its cement
operations in determining which parts to keep in inventory. Prepaid
expenses increased by $.3 million primarily due to insurance
deposits. Investments increased due to the purchase of $2.1 million
of equity investments, net of
disposals and a $5.7 million increase in fair market value.
Cash dividends liability, which is included in accrued liabilities, decreased by
$1.9 million from December 31, 2008 to September 30, 2009 due to the timing
of when dividends are declared and paid. In addition, accrued liabilities
decreased $1.7 million related to prepaid cement
sales.
Indebtedness increased $3.1 million during the first nine months of 2009
primarily due to funding the increases in receivables, inventories, and equity
investments just discussed plus approximately $6.9 million for cash expenditures
for property, plant and equipment.
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 nine months of
2009 included expenditures on a new fuel handling system. We
also invested in routine equipment purchases during the first nine
months of 2009, primarily in the Ready-Mixed Concrete Business. During the
first nine months of 2009, cash expenditures for property, plant and
equipment totaled approximately $6.9 million, excluding the amounts that
are included in accounts payable.
The Company completed the installation of a fuel handling system in
the third quarter of 2009 at a cost of approximately $4.4 million.
Projects in the planning and design phases include an overland conveyor system
to improve efficiencies in moving raw materials. This conveyor system and
projects related thereto are expected to cost approximately $15.0 million to
$25.0 million depending on the exact components of the project undertaken and
the volatility of certain material costs, particularly steel. Management
has the discretion to postpone components of the project and the discretion to
undertake part or the entire project. The overland conveyor system and projects
related to it are estimated to take twenty-four to thirty-six months to complete
after the first purchase order is issued, which is not
expected to occur until 2010. The Company also plans to invest
in other miscellaneous equipment and facility improvements in both the Cement
Business and Ready-Mixed Concrete Business in 2009. These expenditures are
expected to reach approximately $9.0 million during 2009 and will be funded with
a mixture of cash from operations and temporary bank loans. We do not anticipate
the need for additional bank financing beyond the amount available through our
existing revolving line of credit.
MARKET
RISK
Market risks relating to the Company's operations result primarily from changes
in demand for our products. Construction activity, particularly in the
residential market, has been adversely impacted by the global financial crisis
even though interest rates continue to be at low
levels. A continuation of the financial crisis, including a
scarcity of credit, or a significant increase in interest rates could lead to a
further reduction in construction activities in both the residential and
commercial market. Budget shortfalls during economic slowdowns could cause
money to be diverted away from highway projects, schools, detention facilities
and other governmental construction projects. Reduction in construction
activity lowers the demand for cement, ready-mixed concrete, concrete products
and sundry building materials. As demand decreases, competition to retain
sales volume could create downward pressure on sales prices. The
manufacture of cement requires a significant investment in property, plant and
equipment and a trained workforce to operate and maintain this equipment.
These costs do not materially vary with the level of production. As a
result, by operating at or near capacity, regardless of demand, companies can
reduce per unit production costs. The continual need to control production
costs encourages overproduction during periods of reduced demand.
INFLATION
Inflation directly affects the Company's operating costs. The manufacture
of cement requires the use of a significant amount of energy. The Company
burns primarily solid fuels, such as coal and petroleum coke, and to a lesser
extent natural gas, in its kilns. Increases 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 could adversely affect our operating
profits. 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.
ENVIRONMENTAL
REGULATIONS
The American Clean
Energy and Security Act of 2009 (ACES), a.k.a H.B.2454, a.k.a. Waxman-Markey was
passed by the House of Representatives on June 26, 2009. Since that time,
additional legislation has been introduced. In general these legislative
proposals encourage the limitation and or reduction of carbon
dioxide, using a method of cap and trade. As part of the
chemical process involved in the production of portland cement, carbon dioxide
is driven off of raw materials. Management is studying practices and
technology which may reduce or sequester carbon dioxide emissions. The
effect of environmental regulations, and/or noncompliance thereof, may increase
taxes, penalties, and the cost of production, as well as require additional
capital expenditures for equipment.
On April 21, 2009 the Environmental Protection Agency (EPA) proposed
modifications to National Emission Standard for Hazardous Air Pollutants
(NESHAP) which would set limits for certain emissions from portland cement
kilns. Under the proposal the limits would not be fully implemented until
2013. Management is reviewing this proposal and the best available
technology which may achieve compliance if the final rule is promulgated in its
present form. Additional capital expenditures may be required to attain
the proposed limits.
On September 22, 2009, the
EPA promulgated a final rule for Mandatory Reporting of Greenhouse
Gases. Management's opinion is that this regulation will have no material
economic impact on the Company.
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 invests in equity investments which are subject to market
fluctuations. The Company had $18.6 million of equity securities,
primarily of publicly traded entities, as of September 30, 2009. The
aggregate amount of securities carried at cost, for which the Company has not
elected the fair value option, was $2.0 million as of September 30, 2009.
The remaining $16.6 million in equity investments, which are stated at
fair market value, are not hedged and are exposed to the risk of changing market
prices. The Company classifies all securities as "available-for-sale" for
accounting purposes and marks them to market on the balance sheet at the end of
each period unless they are securities for which the Company has not elected the
fair value option. Securities carried at cost are adjusted for impairment,
if conditions warrant. Management estimates that its publicly traded
investments will generally be consistent with trends and movements of the
overall stock market excluding any unusual situations. An immediate 10%
change in the market price of our equity securities would have a $1.0 million
effect on comprehensive income. At September 30, 2009, the Company
evaluated all of its equity investments for impairment. The results of those
evaluations are discussed in Note 9 of Notes to the Condensed Consolidated
Financial Statements.
The Company also has $20.5 million of bank loans as of September 30,
2009. Interest rates on the Company's term loan and line of credit are
variable, subject to interest rate minimums or floors, and are based on the
lender's National Prime rate less .75% and lender's National Prime rate less
1.25%, 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 Securities Exchange Act of 1934) that are
designed to ensure that information required to be disclosed in the Company's
reports under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to the Company's management, including its President and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives.
As of the end of the period covered by this report, an evaluation was carried
out by the Company's management, including its President and Chairman of the
Board of Directors and Chief Financial Officer, of the effectiveness of its
disclosure controls and procedures (as defined in Rules 13a-5(e) or 15d-15(e)
under the Exchange Act). 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.
There were no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2009 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
The Company and Tulsa Dynaspan, Inc. (TDI) a subsidiary of the Company, were
defendants in a case brought by David Markle, Richard Evilsizer, and five other
named plaintiffs, filed in the District Court of Tulsa County, Oklahoma, on
December 29, 2004 and amended on January 19, 2005, January 6, 2006,
August 18, 2006, and January 12, 2007. Prior to the
August 18, 2006 amendment, Plaintiffs dismissed claims they had previously
asserted for defamation and various business torts, derivative claims brought on
behalf of the Company, and claims to ownership of an invention relating to
parking garage construction. Markle and Evilsizer remained as Plaintiffs;
the five other original Plaintiffs remained in the action only as counterclaim
defendants. Plaintiffs sought an award of actual and exemplary damages
from the Company, one of its directors and four of TDI's directors for alleged
breach of fiduciary duties owed to TDI, based upon derivative and breach of
contract claims. The Company asserted a counterclaim based upon breach of
contract against Markle and TDI asserted counterclaims based upon breach of
fiduciary duty, misappropriation, violations of the Computer Fraud and Abuse Act
and the Oklahoma Trade Secrets Act, unjust enrichment, and various business
torts against all of the original plaintiffs. Plaintiffs also sought an order
from the Court that the Company purchase Plaintiffs' shares of TDI stock for
fair value. On April 10, 2007, the Court heard arguments on various
motions and subsequently entered the following orders: Monarch and the
individual directors' motion for summary judgment dismissing all of Plaintiffs'
claims was granted; Monarch's motion for summary judgment on its pre-termination
competition claim against Markle was granted; TDI's motion for summary judgment
against Plaintiffs for unjust enrichment and breach of fiduciary duty was
granted; Markle's motion for partial summary judgment on the non-compete
agreement executed by the parties was denied. Additional hearings to establish
TDI's and Monarch's damages were necessary; all of Plaintiffs' claims were
dismissed. Because of the failure of certain plaintiffs to participate in
a pretrial conference the proceedings were bifurcated. Markle and
Evilsizer later filed bankruptcy. Complaints to collect damages from
Markle and Evilsizer were filed in the bankruptcy courts. Monarch claims
against Markle in bankruptcy were dismissed as duplicative; TDI's claim against
Markle and Monarch's claim against Evilsizer remained pending. A hearing
on actual and punitive damages against Parking Builders, GBS and ENCO was held
on February 1, 2008. On February 29, 2008, TDI was awarded $3,117,574
in actual damages and an additional $3,117,574 in punitive damages against GBS
and ENCO; TDI was awarded $1,614,720 in actual damages and an additional
$1,614,720 in punitive damages against Parking Builders. No assurances can
be given as to the collectability of these damage awards. TDI has settled
its claims against Martin and Bobbitt. A judgment has been entered against
Markle and in favor of TDI in the amount of $3.0 million. No assurances can be
given as to the collectability of the judgment. TDI has agreed to accept a
lesser amount in full satisfaction provided Markle
pays that amount by a date certain. The action against
Evilsizer remains pending.
By letter dated April 27, 2009, the Company was notified by the Kansas
Department of Health and Environment (KDHE) of allegations by
KDHE that the Company has performed multiple modifications and alterations at
the Company's facility for which the Company did not apply for or obtain the
KDHE construction permits required by the Kansas Air Quality Act and related
regulations. KDHE also alleged that the Company did not apply for or
obtain from KDHE the necessary permits for modifications or alterations to a
facility that are significant for Prevention of Significant Deterioration
(PSD). Based on these allegations, KDHE proposes to assess a civil penalty
of $351,000, and to require the Company to submit a new, complete PSD permit
application, including therein a proposal by the Company for installation of air
emission controls to achieve Best Available Control Technology (BACT) as
provided in applicable regulations. The Company does not agree with
certain of KDHE's factual and legal allegations, and is attempting to resolve
these issues through negotiation and mutual agreement between the Company and
KDHE. The Company reserves
all legal rights in the event such a resolution cannot be reached.
Item
6. Exhibits
31.1
Certificate of the President and Chairman of the Board pursuant to Section
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2
Certificate of the Chief Financial Officer pursuant to Section
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1
18 U.S.C. Section 1350 Certificate of the President and Chairman of the Board
dated November 9, 2009.
32.2
18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated November
9, 2009.
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 November 9, 2009 | /s/ Walter H. Wulf, Jr. | ||||
Walter H. Wulf, Jr. | |||||
President and | |||||
Chairman of the Board | |||||
Date November 9, 2009 | /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 November 9, 2009.
32.2
18 U.S.C. Section 1350 Certificate of the
Chief Financial Officer dated November 9,
2009.