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                                                                                                                                March 15,2007

ANNUAL REPORT TO STOCKHOLDERS        

The economic recovery which accelerated in our  market area during 2005, leveled off during the last half of 2006.  Demand for  both cement and ready-mixed concrete increased during 2005 and early 2006  enabling us to raise sales prices across all product lines and to increase our  utilization of the capital investment we have in property, plant and  equipment.  Mild weather during the early part of 2006 allowed projects to  proceed earlier in the year, resulting in increased profits in the first half  of the year as sales were shifted from mid-year to the first and second  quarter.  The decline in the residential housing market in the second half of  2006 had a negative impact on sales volumes, especially in the ready-mixed  concrete market.  Paving projects helped to offset the impact of the  retraction in the housing market and contributed to a slight increase in  volume of cement sold.  For the year 2006, net sales increased $12.9 million  and income from operations increased $5.9 million.   

Although the  decline in the housing market continues to negatively affect our business,  increased demand in the commercial and public sectors is projected to offset  this reduction.  We anticipate 2007 net sales will continue to benefit from  the cumulative increases in volume realized during the past several years;  however, we do not anticipate sales volume to continue to increase  substantially. 

During 2006, we completed the installation of our  second precalciner increasing our cement production capacity by about 25%.   Other improvements to our production process are currently being considered  including changes to our quarrying and grinding operation to supply the raw  materials required by the increased kiln capacity, improvements to our fuel  handling system and installation of an overland conveyor system to improve  efficiencies in moving raw materials; however, we do not anticipate capital  expenditures for 2007 to be at the level of 2006.  We believe we can finance  these expenditures with a mixture of cash from operations and our existing  line of credit. 

As we complete this year, we are thankful for our  many loyal customers who continue to have confidence in the quality of our  products and our ability to service their needs.  We recognize our employees  for their contributions toward the success of our Company.  We express our  appreciation to our stockholders for their steadfast confidence in our  Company.  Most importantly, we thank our Heavenly Father for His blessings and  support which have enabled us to achieve the results displayed in this report  and for His guidance in meeting the challenges ahead. 

We wish to  invite you, our stockholders, to attend Monarch's annual meeting to be held at  2:00 p.m. on April 11, 2007 in our newly expanded and remodeled corporate  office at 449 1200 Street, Humboldt, Kansas.  Thank you for your support  throughout the years and God Bless.

                                                                                                            WALTER H. WULF, JR.                                                                                                        President and Chairman of the Board

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              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| **The Monarch Cement Company and Subsidiaries**
**Selected Financial Data**
**For the Five  Years Ended December 31, 2006**(Dollar amounts in thousands except per share data) 
       2006      2005      2004      2003      2002Net sales......................................      $154,213      $   141,320      $   145,077       $   122,028      $   134,550Net income .................................      $  13,215      $       9,658      $       2,569      $       3,820      $       5,903Net income per share...................      $3.28      $2.40      $.64      $.95      $1.47Total assets..................................      $162,504      $   144,055      $   135,200      $   129,832      $   133,506Long-term obligations...................      $ 22,083      $     24,087      $     26,141      $     23,048      $     26,540Cash dividends declared per share       $.84      $.80      $.80       $.80      $.80Stockholders' investment per share      $22.84      $22.27      $20.86      $20.66       $19.70
                     

**DESCRIPTION OF THE BUSINESS**

The  Monarch Cement Company (Monarch) was organized as a corporation under the laws  of the State of Kansas in 1913.  Since its inception, Monarch has been engaged  in the manufacture and sale of portland cement.

The  manufacture of portland cement by Monarch involves the quarrying of clay and  limestone and the crushing, drying and blending of these raw materials into  the proper chemical ratio.  The raw materials are then heated in kilns to  2800o Fahrenheit at which time chemical reactions occur forming a new compound  called clinker.  After the addition of a small amount of gypsum, the clinker  is ground into a very fine powder that is known as portland cement.  The term  "portland cement" is not a brand name but is a term that distinguishes cement  manufactured by this chemical process from natural cement, which is no longer  widely used.  Portland cement is the basic material used in the production of  ready-mixed concrete that is used in highway, bridge and building construction  where strength and durability are primary requirements.

    Subsidiaries of Monarch (which together with Monarch are referred to    herewith as the "Company") are engaged in the ready‐mixed concrete, concrete    products and sundry building materials business.  Ready‐mixed concrete is    manufactured by combining aggregates with portland cement, water and    chemical admixtures in batch plants.  It is then loaded into mixer trucks    and mixed in transit to the construction site where it is delivered to the    contractor.  Concrete products primarily include pre-formed components    produced by the Company that are ready for use in the construction of    commercial buildings, institutional facilities and parking garages.

As    used herein, the "Cement Business" refers to our manufacture and sale of    cement and "Ready-Mixed Concrete Business" refers to our ready-mixed    concrete, concrete products and sundry building materials business. 

1.

**LINES OF BUSINESS**

The  Company is engaged in two lines of business - Cement Business and Ready-Mixed  Concrete Business. 

The  marketing area for Monarch's products, which is limited by the relatively high  cost of transporting cement, consists primarily of the State of Kansas, the  State of Iowa, southeast Nebraska, western Missouri, northwest Arkansas and  northern Oklahoma.  Included within this area are the metropolitan markets of  Des Moines, Iowa; Kansas City, Missouri; Springfield, Missouri; Wichita,  Kansas; Omaha, Nebraska; Lincoln, Nebraska and Tulsa, Oklahoma.  Sales of  cement are made primarily to contractors, ready-mixed concrete plants,  concrete products plants, building materials dealers and governmental  agencies.  Monarch cement is delivered either in bulk or in paper bags and is  sold under the "MONARCH" brand name.  The cement is distributed both by truck  and rail, either common or private carrier.

          Subsidiaries of  Monarch sell ready-mixed concrete, concrete products and sundry building  materials in Monarch's primary market.  

The  following table sets forth for the Company's last three fiscal years the  percentage of total sales by the (1) Cement Business and (2) Ready-Mixed  Concrete Business:
 
Total    Sales 
December 31, 2006           2005            
2004 Cement Business           47.2%         45.5%         35.3% Ready-Mixed Concrete Business                    52.8%         54.5%64.7% 100.0%         100.0%100.0%       
**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 Annual Report and Form 10-K  report filed with the Securities and Exchange Commission constitute  "forward-looking information".  Except for historical information, the  statements made in this report are forward-looking statements that involve  risks and uncertainties.  You can identify these statements by forward-looking  words such as "should", "expect", "anticipate", "believe", "intend", "may", "hope",  "forecast" or similar words.  In particular, statements with respect  to variations in future demand for our products in our market area or the  future activity of Kansas highway programs and other major construction  projects, the timing, scope, cost and benefits of our proposed and recently  completed capital improvements and expansion plans, including the resulting  increase in production capacity, our forecasted cement sales, the timing and  source of funds for the repayment of our line of credit, and our anticipated  increase in solid fuels and electricity required to operate our facilities and  equipment are all forward-looking statements. You should be aware that  forward-looking statements involve known and unknown risks, uncertainties and  other factors that may affect the actual results, performance or achievements  expressed or implied by such forward-looking statements.  Such factors  include, among others:

  2.

-  general economic and business conditions;-  competition;-  raw material and other operating costs;-  costs of capital equipment;-  changes in business strategy or expansion plans;  -  demand for our Company's products;-  cyclical and seasonal nature of our business;-  the affect of weather on our business;-  the affect of environmental and other government regulations; and-  the affect of federal and state funding on demand for our products.  
**RESULTS OF OPERATIONS**
Ready-Mixed 
Cement Business
   Concrete Business
    Consolidated**For the Year Ended December      31, 2006 **Sales to unaffiliated customers  Income (loss) from operations$         72,858,017      20,952,199$       81,354,611        (1,275,802)$       154,212,628      19,676,397
**For the Year Ended December  31, 2005 **Sales to unaffiliated customers  Income (loss) from operations
$         64,299,277      15,920,874$         77,020,651        (2,133,263)$  141,319,928      13,787,611**For the Year Ended December 31, 2004 **Sales to unaffiliated customers  Income (loss) from operations$         51,408,457      6,790,090$         93,668,097        (4,871,807)$  145,076,554      1,918,283
See Note 10  in the Notes to Consolidated Financial Statements for further discussion of  each of the Company's reportable operating lines of business.

**General**--Our    products are used in residential, commercial and governmental construction.     In recent years we experienced increased demand for our products.  The    combination of residential, commercial and governmental construction    activities resulted in the need for increased production to meet our    customers' needs.  In response to those needs, we have made, and continue to    make, investments in our plant and equipment to increase production and    improve efficiencies.  

During 2006, we    realized a substantial increase in net income due primarily to a combination    of increases in price in both the Cement Business and Ready-Mixed Concrete    Business, volume in the Cement Business and net sales of construction    contracts in the Ready-Mixed Concrete Business.  The improvements we made in    our plant and equipment allowed us to produce more cement to meet demand    which resulted in better utilization of our equipment and contributed to the    substantial improvements in operating profits. The price increases play a    key role in helping us keep pace with increases in the cost of labor, raw    materials, and transportation and the expense of maintaining    state-of-the-art equipment in our capital intensive industry. During the    second half of the year, we began to experience the economic effects of the    higher interest rates, oil prices and inflation.  The reduction in economic    growth caused by these factors resulted in lower overall sales volumes of    ready-mixed concrete in the Ready-Mixed Concrete Business and reduced the    overall volume increase in the Cement Business. 

During 2005, we    realized a substantial increase in net income due primarily to a combination    of increases in price and volume in both the Cement Business and Ready-Mixed    Concrete Business.  These price increases play a key role in helping us keep    pace with increases in the cost of labor, raw materials, and transportation    and the expense of maintaining state-of-the-art equipment in our capital    intensive industry.  The higher sales volumes resulted in better utilization    of our equipment also contributing to the substantial improvement in    operating profits.  The decrease in net sales in 2005 as compared to 2004 is    due to a reduction in construction contracts in the Ready-Mixed Concrete    Business, which did not contribute to the Company's overall profitability in    2004. 

3.

Although we are still in the construction industry, it is on a smaller    scale than in prior years. 

**2006 Compared    to 2005-**-Consolidated net sales for the year ended December 31, 2006    were approximately $154.2 million, an increase of $12.9 million as compared    to the year ended December 31, 2005. Sales in our Cement Business were    higher by $8.6 million while sales in our Ready-Mixed Concrete business    increased $4.3 million.  Cement Business sales increased $1.6 million due to    increased volume sold and increased $7.0 million due to price increases.     Sales in our Ready-Mixed Concrete Business increased primarily due to a $4.6    million increase in construction contract sales, which was partially offset    by a decrease in ready-mixed concrete and other sundry building material    sales of $.3 million, of which $5.3 million was due to price increases and    $5.6 million was due to decreased volume. 

Consolidated cost    of sales for the year 2006 were $5.4 million more than cost of sales for the    year 2005. Cost of sales in our Cement Business was higher by $2.2 million    while cost of sales in our Ready-Mixed Concrete Business was higher by $3.2    million.  Cement Business cost of sales increased $1.1 million due to the    2.5% increase in volume sold and about $1.1 million due to increased supply    costs related to maintenance performed during 2006 and to an increase in    depreciation for new equipment coming online. The increase in cost of sales    in our Ready-Mixed Concrete Business was primarily due to a combination of    raw material price increases and an increase in construction contracts.  Raw    materials, including cement, rock, sand and sundry building materials    purchased for resale, increased $1.1 million due to increased raw material    prices and higher energy prices. The increase in construction contract net    sales resulted in a $1.4 million increase in construction related expenses.    The remaining $.7 million increase is primarily due to increased production    payroll and fringe benefit related expenses.

As a result of the    above sales and cost of sales factors, our overall gross profit rate for the    year ended December 31, 2006 was 21.9% compared to 18.5% for the year ended    December 31, 2005.  

Selling, general and administrative expenses    increased by 13.3% for the year 2006 as compared to the year 2005.  These    costs are normally considered fixed costs that do not vary significantly    with changes in sales volume. This increase is primarily due to expenses    related to Sarbanes Oxley compliance efforts. Payroll also increased during    2006 as compared to 2005 due to an increase in management personnel    responsible for construction contracts.  Early in the first quarter of 2005,    the departure of management personnel responsible for construction contracts    reduced our administrative costs.  These personnel have been replaced. An    increase in health and accident expenses as well as other insurance expenses    has also contributed to the increase.

Interest expense increased about $.4 million    for the year 2006 as compared to the year 2005 due to an increase in    interest rates and an increase in borrowings.  The Company utilized these    loans for capital improvements and temporary operating funds.

"Other, net"    increased approximately $.2 million for the year 2006 as compared to the    year 2005 primarily due to an increase in net oil property income.

The effective tax    rates for years 2006 and 2005 were 31.1% and 29.1%, 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, minority interest in consolidated    income and valuation allowance.  During 2006, percentage depletion    decreased the effective tax rate by 6.8%.  During 2005, percentage    depletion reduced the effective tax rate by 6.7%.

4.

**2005 Compared    to 2004**--Consolidated net sales for the year ended December 31, 2005    decreased $3.8 million when compared to the year ended December 31, 2004.     Sales in our Cement Business were higher by $12.9 million while sales in our    Ready-Mixed Concrete business decreased $16.7 million.  Cement Business    sales increased $7.2 million due to increased volume sold and $5.7 million    due to price increases.  Sales in our Ready-Mixed Concrete Business    decreased primarily due to a $27.5 million reduction in construction    contract sales as discussed under "General" above, which was partially    offset by an increase in ready-mixed concrete and other sundry building    material sales of $10.8 million, of which $4.9 million was due to increased    volume and $5.9 million was due to price increases. 

Consolidated cost    of sales for the year 2005 were $15.9 million less than cost of sales for    the year 2004. Cost of sales in our Cement Business was higher by $3.2    million while cost of sales in our Ready-Mixed Concrete Business was lower    by $19.1 million.  Cement Business cost of sales increased $5.5 million due    to the 13.9% increase in volume sold and about $2.0 million due to increased    supply costs related to maintenance performed in the early part of 2005.     These increases were nearly offset by lower fuel costs of approximately $3.7    million due to a reduction in the use of natural gas made possible by our    new coal firing system.  The decrease in cost of sales in our Ready-Mixed    Concrete Business was primarily due to a $26.8 million reduction in    construction contract expenses as discussed under "General" above, which was    partially offset by an increase in cost of sales of ready-mixed concrete and    other sundry building materials of $7.7 million due to the increased volume    sold, increased raw material prices and increased fuel prices.  

As a result of the    above sales and cost of sales factors, our overall gross profit rate for the    year ended December 31, 2005 was 18.5% compared to 9.7% for the year ended    December 31, 2004.  

Selling, general and administrative expenses    increased by 1.9% for the year 2005 as compared to the year 2004.  These    costs are normally considered fixed costs that do not vary significantly    with changes in sales volume.

Interest expense increased about $.6 million    for the year 2005 as compared to the year 2004 due to an increase in    interest rates and an increase in borrowings.  The Company utilized these    loans for capital improvements and temporary operating funds.

"Other, net"    decreased approximately $1.6 million for the year 2005 as compared to the    year 2004 primarily due to a decrease in the amount of gain realized on the    sale of other equity investments of approximately $.9 million and an    increase in subsidiary income allocated to minority interest of    approximately $.6 million.

The effective tax    rates for years 2005 and 2004 were 29.1% and 34.4%, respectively.  The    Company's effective tax rate differs from the federal and state statutory    income tax rate primarily due to the effects of percentage depletion,    domestic production activities deduction, minority interest in consolidated    income and valuation allowance.  During 2005, percentage depletion reduced    the effective tax rate by 6.7%.  During 2004, a valuation allowance    increased the effective tax rate by 16.9%.  This increase was substantially    offset by the effects of percentage depletion and minority interest in    consolidated income which reduced the effective tax rate by 13.3% and 3.5%,    respectively.  ** **

**LIQUIDITY**

We    are able to meet our cash needs primarily from a combination of operations    and bank loans.  Cash decreased during the year 2006 primarily due to    utilization of cash to fund capital expenditures.

5.

    In December 2006, we renewed and modified our line of credit with our    current lender. Our current unsecured credit commitment consists of a $25    million advancing term loan maturing December 31, 2009 and a $15 million    line of credit maturing December 31, 2007.  The term loan bears a floating    interest rate based on JP Morgan Chase prime rate less .75% and the line of    credit bears a floating interest rate based on lender's national prime rate    less 1.00%.  The loan agreement contains a financial covenant related to net    worth which the Company was in compliance with at year end.  As of    December 31, 2006, we had borrowed $21.4 million on the advancing term loan    and $6.4 million on the line of credit leaving a balance available on the    line of credit of $8.6 million.  The annual weighted average interest rate    we paid on the advancing term loan during 2006 and 2005 was 7.2% and 5.4%,    respectively. The annual weighted average interest rate we paid on the line    of credit during 2006 and 2005 was 7.0% and 5.2%, respectively.  At year    end, the applicable interest rate was 7.50% on the advancing term loan and    7.25% on the line of credit.  The advancing term loan was used to help    finance the expansion project at our cement manufacturing facility.  The    line of credit was used to cover operating expenses primarily during the    first half of the year when we build inventory due to the seasonality of our    business and for capital expenditures.  Our board of directors has given    management the authority to borrow an additional $10 million for a maximum    of $50 million. 

    Contractual obligations at December 31, 2006, consisting of maturities on    long-term debt, line of credit, estimated interest payments on debt,    pension, postretirement benefit obligations and open purchase orders are as    follows:
2007 2008200920102011ThereafterLong-term debt$ 2,027,377 $         2,335,278$         17,452,131$          249,571$            8,297$              9,733Line of Credit6,397,667-       -       -       -               -       Interest payments2,070,8471,453,7764,323,0888,188-                -         Pension 571,000-         
-         
-         
-         -         Postretirement   benefit obligations1,446,5641,484,2251,569,1101,635,3691,707,2219,216,383Open purchase orders5,595,6205,469,055
1,046,157
-         
-         
-         
The    long-term debt obligation is based on current interest rates and assumes    that the advancing term loan is paid off at maturity.

The    Company has been required to make a pension contribution in two of the past    three years.  In 2006 and 2005, the Company contributed approximately $.6    million and $.6 million, respectively, to the pension fund.  No estimates of    required pension payments have been asked for or made beyond 2007.

Each    segment of the cement manufacturing process requires significant investment    in major pieces of equipment.  Once installed, this equipment, if properly    maintained, functions for many years.  Generally we spend several    million dollars each year on preventive maintenance and equipment repairs;    however, capital expenditures vary from year to year.  A piece of    equipment that costs $25 - $30 million may remain in service for fifty    years.  After a period of time, this equipment may be modified to    incorporate the latest technology, increasing its efficiency and production    capacity and extending its useful life.  In the years Monarch invests    in major equipment replacements or enhancements, current operations do not    generate enough cash to pay for the improvements, requiring us to use our    cash on hand or bank financing.  As projects are completed, we reduce    the amount needed for major capital expenditures, allowing us to pay off any    outstanding bank loans and accumulate cash for the next major plant    improvement.

6. 

    The Company completed the conversion of    our remaining preheater kiln to a precalciner kiln during the first quarter    of 2006 at a total cost of approximately $17.0 million.  The conversion of    this kiln should increase our production capacity by approximately 200,000    tons per year. We began depreciating the precalciner equipment and related    installation costs in the second quarter of 2006.  

    The Company completed the expansion of    its corporate office in the fourth quarter of 2006 at a total cost of    approximately $3.4 million. We began depreciating this addition in the    fourth quarter of 2006.

    Other projects, including changes to    our quarrying and grinding operation to supply the raw materials required by    the increased kiln capacity, improvements to our fuel handling system and    installation of an overland conveyor system to improve efficiencies in    moving raw materials, are currently under consideration.  However, we do not    anticipate capital expenditures for 2007 to be at the level of 2006 and we    do not anticipate the need for additional bank financing other than that    available under existing lines of credit.

    For several years the Company has paid    a $.20 per share dividend in January, March, June and September.  Beginning    with the April 2006 Board of Directors meeting, the Board elected to    increase these dividends to $.21 per share.  Although dividends are declared    at the Board's discretion, we project future earnings will support the    continued payment of dividends at the current level. 

**FINANCIAL CONDITION**

Total    assets as of December 31, 2006 were $162.5 million, an increase of $18.4    million since December 31, 2005 due primarily to increases in inventories,    investments, property, plant and equipment, and deferred income taxes of    approximately $4.5 million, $1.8 million, $9.3 million and $5.6 million,    respectively.  Cement and work in process inventories were both higher    primarily due to greater volumes held in inventory and to the higher cost of    those inventories compared to 2005. Operating and maintenance supplies    inventory increased due to supplies related to the new construction in the    plant. Investments increased due to additional purchases of equity    investments as well as an increase in the market price of available-for-sale    securities over their market price at the end of 2005. Property, plant and    equipment increased as a result of the purchase and installation of new    equipment.  Deferred income taxes increased primarily due to adoption of the    provisions of Statement of Financial Accounting Standards ("SFAS") No. 158,    *"Employers' Accounting for Defined Benefit Pension and Other    Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and    132(R)"*.  Short-term investments decreased by $1.5 million.  These    investments, the result of excess cash at the end of 2005, were converted to    cash and used to help fund increases in inventories and the purchase of    equipment. 

    Accounts payable decreased about $3.4 million as of December 31, 2006    compared to December 31, 2005 primarily due to a $1.9 million decrease in    capital equipment additions in accounts payable at the end of 2006 compared    to 2005. Maintenance projects and additional construction projects near the    end of 2005 that did not occur at the end of 2006 also contributed to the    decrease in accounts payable at year end.

    Indebtedness increased about $4.4 million during the year 2006 primarily as    a result of utilizing the line of credit to fund increases in inventories    and the purchase of equipment. 

7.

    During 2006, we adjusted the pension liability, resulting in an increase in    total pension liability of $1.0 million and a decrease in stockholders'    investment of $.6 million. We also adjusted the postretirement liability,    resulting in an increase in accrued postretirement expense of $13.9 million    and a decrease in stockholders' investment of $7.4 million. The Company    adopted the provisions of Statement of Financial Accounting Standards    ("SFAS") No. 158, *"Employers' Accounting for Defined Benefit Pension and    Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,    and 132(R)"* on December 31, 2006. The most significant change is the    requirement for the Company to recognize the entire overfunded or    underfunded status of its defined benefit and postretirement plans as assets    or liabilities in its statement of financial position and to recognize    changes, net of taxes, in that funded status in the year in which the    changes occur through comprehensive income.

    Stockholders' investment increased 2.5% during 2006 as a result of net    income, which was reduced by dividends and the pension and postretirement    changes in comprehensive income due to the adoption of FAS 158. Basic    earnings were $3.28 per share and dividends declared were $.84 per share for    the year 2006.

**CAPITAL RESOURCES**

          The Company historically invests $10    million to $12 million per year on capital expenditures to keep its    equipment and facilities in good operating condition.  Capital expenditures    during 2006 included completion of construction of an addition to our    corporate offices and completion of the conversion of our remaining    preheater kiln to a precalciner kiln.  We also invested in routine equipment    purchases in the Ready-Mixed Concrete Business during 2006.  Property, plant    and equipment expenditures for 2006 totaled approximately $22.4 million    excluding the amounts that are included in accounts payable.  

          Preliminary plans under consideration for    2007 include changes to our quarrying and grinding operation to supply the    raw materials required by the increased kiln capacity. The Company also    plans to invest in other miscellaneous equipment and facility improvements    in both the Cement Business and Ready-Mixed Concrete Business in 2007. It is    expected that the Company's capital expenditures will approximate $14    million during 2007 and will be    funded with a mixture of cash from operations and temporary bank loans. We    anticipate the need for additional bank financing will not exceed the    amount available through our existing line of credit.

          **Accounting    Policies**--The critical accounting policies with respect to the Company    are those related to pension and postretirement benefits.

          Monarch has    defined benefit pension plans covering substantially all permanent employees    in the Cement Business.  Plans covering staff (salaried) employees provide    pension benefits that are based on years of service and the employee's last    sixty calendar months of earnings or the highest five consecutive calendar    years of earnings out of the last ten calendar years of service, whichever    is greater.  Plans covering production (hourly) employees provide benefits    of stated amounts for each year of service.  Generally, Monarch's funding    policy is to contribute annually an amount within the minimum/maximum range    of tax deductible contributions computed by the actuaries.  Contributions    are intended to provide for benefits attributed to service to date and for    those expected to be earned in the future. Monarch expects 2007 cash    expenditures for these plans to be approximately $.6 million.

          Monarch also    provides other postretirement employee benefits including health care and    life insurance benefits to all retired employees who, as of their retirement    date, have completed ten or more years of credited service under the pension    plans.  These benefits are self‐insured by Monarch and are paid out of    Monarch's general assets.  Monarch expects 2007 cash expenditures for this    plan to be approximately $1.4 million.

 

8.

We    account for our pension plans in accordance with Financial Accounting    Standards Board (FASB) Statement No. 87, "Employers' Accounting for    Pensions" (FAS 87) and our postretirement benefits in accordance with FASB    Statement No. 106, "Employers' Accounting for Postretirement Benefits Other    Than Pensions" (FAS 106).  In addition, the Company adopted the provisions    of Statement of Financial Accounting Standards ("SFAS") No. 158, *"Employers' Accounting for Defined Benefit Pension and Other Postretirement    Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)"* on    December 31, 2006. FAS 87 and FAS 106 require us to make various estimates    and assumptions, including discount rates used to value liabilities,    expected rates of return on plan assets, salary increases, employee    turnover rates, anticipated employee mortality rates and expected future    healthcare costs.  The estimates we used are based on our historical    experience as well as current facts and circumstances and are updated at    least annually.  We use third-party actuaries to assist us in properly    measuring the expense and liability associated with these benefits. SFAS 158    require us to recognize the entire overfunded or underfunded status of our    defined benefit and postretirement plans as assets or liabilities in the    statement of financial position and to recognize changes, net of taxes, in    that funded status in the year in which the changes occur through    comprehensive income. 

          The Financial    Accounting Standards Board (FASB) has issued the following new accounting    pronouncement. 

In June 2006, the Financial    Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting    for Uncertainty in Income Taxes, an interpretation of FASB Statement No.    109" ("FIN48").  FIN 48 clarifies the application of Statement 109 by    defining a recognition threshold of "more likely than not" that the position    would be sustained upon examination before any part of the benefit of that    position be recognized in an enterprise's financial statements. It also    provides guidance on the measurement of the tax position. This    Interpretation will be effective for fiscal years beginning after December    15, 2006.  The Company has not yet determined the impact, if any, that this    new pronouncement will have on the Company's consolidated financial    statements.    

 

**Market Risks**--Market    risks relating to the Company's operations result primarily from changes in    demand for our products.  A significant increase in interest rates could    lead to a reduction in construction activities in both the residential and    commercial market.  Budget shortfalls during economic slowdowns could cause    money to be diverted away from highway projects, schools, detention    facilities and other governmental construction projects. Reduction in    construction activity lowers the demand for cement, ready-mixed concrete,    concrete products and sundry building materials.  As demand decreases,    competition to retain sales volume could create downward pressure on sales    prices.  The manufacture of cement requires a significant investment in    property, plant and equipment and a trained workforce to operate and    maintain this equipment.  These costs do not materially vary with the level    of production.  As a result, by operating at or near capacity, regardless of    demand, companies can reduce per unit production costs.  The continual need    to control production costs encourages overproduction during periods of    reduced demand.

    Interest rates on the Company's advancing term loan and line of credit are    variable and are based on the JP Morgan Chase prime rate less .75% and    lender's national prime rate less 1.00%, respectively.

**Inflation**--Inflation directly affects the Company's operating costs.     The manufacture of cement requires the use of a significant amount of    energy.  The Company burns primarily solid fuels, such as coal and petroleum    coke, and to a lesser extent natural gas, in its kilns.  While we do not    anticipate a significant increase above the rate of inflation in the cost of    these solid fuels, natural gas, or in the electricity required to operate    our cement manufacturing equipment, an increase in such manufacturing    components could adversely affect us.  Prices of the specialized replacement    parts and equipment the Company must continually purchase tend to increase    directly with the rate of inflation causing manufacturing costs to increase.

9.

**STOCK MARKET AND DIVIDEND DATA**

On    March 1, 2007, Monarch's stock was held by approximately 700 record    holders.  Monarch is the transfer agent for Monarch's stock which is traded    on the over‐the‐counter market.  Over-the-counter market quotations reflect    interdealer prices, without retail mark-up, mark-down or commission and may    not necessarily represent actual transactions.  Following is a schedule of    the range of low and high bid quotations as reported by Yahoo! at    http://finance.yahoo.com/, and dividends declared for each    quarter of our two latest fiscal years:

 

2006
2005
Price
Dividends
Price
DividendsQuarter         
Low  
High  
Declared 
Low  
High  
DeclaredFirst         $23.150$29.000 $  -      $22.100$23.410 $  -     Second $26.000$30.000 $.21           $22.100$24.250 $.20           Third $25.100$29.500 $.21            $21.050$26.210 $.20           Fourth$27.520$33.000$.42*$22.550$25.000$.40*
                    *Reflects declaration of two     $.21 and $.20 dividends payable in the first  quarter of 2007 and 2006, respectively.    
In    accordance with the Company's loan agreement, it is required to maintain a    minimum net worth. See Footnote 4. 

The    following performance graph and table show a five-year comparison of    cumulative total returns for the Company, the S&P 500 composite index and an    index of two peer groups of companies selected by the Company.

The    cumulative total return on investment for each of the periods for the    Company, the S&P 500 and the two peer groups is based on the stock price or    composite index at January 1, 2002.  The performance graph assumes that the    value of an investment in the Company's capital stock and each index was    $100 at January 1, 2002 and that all dividends were reinvested.  The    information presented in the performance graph is historical in nature and    is not intended to represent or guarantee future returns.

 

10.
** **
** **
**12/01**
**12/02**
**12/03**
**12/04**
**12/05**
**12/06**
** **
** **
** **
** **
** **
** **
** **
** **
**The Monarch Cement Company**
100.00
97.99
111.07
136.28
146.43
213.20
**S & P 500**
** **
100.00
77.90
100.24
111.15
116.61
135.03
**New Peer Group**
** **
100.00
85.32
114.49
139.88
146.71
217.64
**Old Peer Group
** **
100.00
92.99
138.91
225.83
296.78
311.66
    The performance graph compares the performance of the Company with that of    the S&P 500 composite index and an index of two peer groups of companies in    the Company's industry in which the returns are weighted according to each    company's market capitalization.  The new peer group consists of    Cemex SA De CV, Eagle Materials, Inc., Florida Rock Industries, Inc.,    Lafarge S.A., Ready Mix, Inc. and Texas Industries, Inc.  The only    difference between the old and new peer groups is that Lafarge S.A. was    substituted for Lafarge North America, Inc. in the new peer group because    Lafarge North America's shares were acquired by Lafarge S.A. 

11.

     **MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

    Management of the Company is responsible for establishing and maintaining    adequate internal control over financial reporting as defined in Rules    13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  The    Company's internal control over financial reporting is designed to provide    reasonable assurance regarding the reliability of financial reporting and    the preparation of financial statements for external purposes in accordance    with accounting principles generally accepted in the United States of    America ("GAAP").  Internal control over financial reporting includes those    policies and procedures that (1) pertain to the maintenance of records that,    in reasonable detail, accurately and fairly reflect the transactions and    dispositions of our assets; (2) provide reasonable assurance that    transactions are recorded as necessary to permit preparation of financial    statements in accordance with GAAP, and that our receipts and expenditures    are being made only in accordance with authorizations of our management and    directors; and (3) provide reasonable assurance regarding prevention or    timely detection of unauthorized acquisition, use or disposition of our    assets that could have a material effect on the financial statements.

    Because of its inherent limitations, internal control over financial    reporting may not prevent or detect misstatements.  A control system, no    matter how well conceived and operated, can provide only reasonable, not    absolute, assurance that the objectives of the control system are met.  No    evaluation of controls can provide absolute assurance that all control    issues and instances of fraud, if any, have been detected.  Also,    projections of any evaluation of effectiveness to future periods are subject    to the risk that controls may become inadequate because of changes in    conditions, or that the degree of compliance with the policies or procedures    may deteriorate.

As    required by Section 404 of the Sarbanes-Oxley Act of 2002, management    assessed the effectiveness of the Company's internal control over financial    reporting as of December 31, 2006.  In making this assessment, management    used the framework and criteria set forth by the Committee of Sponsoring    Organizations of the Treadway Commission (COSO) in *Internal    Control-Integrated Framework*.  

Based    on our assessment and those criteria, management believes that the Company    maintained effective internal control over financial reporting as of    December 31, 2006.

Our    assessment of the effectiveness of the Company's internal control over    financial reporting as of December 31, 2006 has been audited by BKD, LLP, an    independent registered public accounting firm, as stated in their report    which is included herein.

 

                                                                                                 THE MONARCH CEMENT COMPANY

12.
 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2006 AND 2005**ASSETS**2 0 0 6    2 0 0 5   CURRENT ASSETS:     Cash and cash    equivalents $        2,410,623 $        4,895,561     Short-term    investment, at cost which approximates market-           1,500,000     Receivables, less allowances of    $641,000 in 2006  and                  $602,000 in 2005 for doubtful accounts14,795,481 14,186,551     Inventories, priced at cost which is not in excess of market-              Finished cement$        3,988,211 $        1,868,412           Work in process2,753,095 1,632,780           Building products3,693,636 3,457,813           Fuel, gypsum, paper sacks and other3,465,194 3,317,283           Operating and maintenance supplies8,677,942 7,850,617           Total inventories$   22,578,078 $   18,126,905     Refundable federal    and state income taxes 739,574  -      Deferred income    taxes670,000 665,000     Prepaid expenses284,599 80,843**                      Total current assets****$   41,478,355****$   39,454,860**PROPERTY, PLANT AND EQUIPMENT, at    cost, less accumulated depreciation            and depletion of $131,120,295 in 2006 and $121,060,864 in 200595,112,389 85,815,343DEFERRED INCOME TAXES9,692,000 4,111,000INVESTMENTS15,275,669 13,454,631OTHER ASSETS945,429 1,219,082**$ 162,503,842****$ 144,054,916****LIABILITIES AND STOCKHOLDERS' INVESTMENT**   CURRENT LIABILITIES:      Accounts payable$        5,579,416 $        8,971,830   Line of credit payable6,397,667 -   Current portion of advancing    term loan2,027,377 1,965,106   Accrued liabilities-         Dividends1,691,322 1,610,783      Compensation    and benefits 2,622,684 3,443,226      Federal and    state income taxes-           29,776      Miscellaneous    taxes704,594 664,423      Other1,083,402 751,613                  **   Total current liabilities****$   20,106,462****$   17,436,757**LONG-TERM DEBT20,055,010  22,121,890ACCRUED POSTRETIREMENT BENEFITS25,322,665 11,456,039ACCRUED PENSION EXPENSE4,040,213 2,121,155MINORITY INTEREST IN CONSOLIDATED    SUBSIDIARIES1,023,116 1,246,317STOCKHOLDERS' INVESTMENT      Capital Stock, par value $2.50 per share, one vote per share ‐              Authorized 10,000,000 shares, Issued 2,488,285 shares at             December 31,    2006 and 2,464,926 shares at December 31, 2005$        6,220,713 $        6,162,315Class B Capital Stock, par value $2.50 per    share, ten votes per          share - Authorized 10,000,000 shares, Issued    1,538,673 shares at                December 31, 2006 and 1,562,032 shares at December 31, 20053,846,682 3,905,080   Retained earnings86,797,943 76,965,363   Accumulated other comprehensive    income (loss)  (4,908,962)2,640,000**                     Total stockholders' investment****$   91,956,376****$   89,672,758****$ 162,503,842****$ 144,054,916**    *See notes to consolidated financial statements*  
16.

 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                       2006     2005     2004     NET SALES$  154,212,628  $  141,319,928  $ 145,076,554        COST OF SALES 120,492,566  115,137,868  130,989,824  **          Gross profit from    operations****$    33,720,062 ****$    26,182,060 ****$   14,086,730 **      SELLING, GENERAL AND      ADMINISTRATIVE EXPENSES14,043,665   12,394,449   12,168,447         **      Income from operations****$    19,676,397 ****$    13,787,611 ****$     1,918,283 **OTHERINCOME (EXPENSE)      Interest income$            307,359  $         418,290  $        379,449        Interest expense(1,911,830)(1,507,267)(926,363)      Other, net1,108,299  919,735  2,547,834  $       (496,172)$       (169,242)$     2,000,920  **INCOME BEFORE PROVISION FOR INCOME TAXES****$    19,180,225 ****$    13,618,369 ****$     3,919,203 **PROVISION FOR INCOME TAXES5,965,000  3,960,000  1,350,000  **NET INCOME****$      13,215,225 ****$      9,658,369 ****$     2,569,203 ****Basic earnings per share****$3.28 ****$2.40 ****$.64 **      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004    2006     2005     2004     **NET INCOME****$     13,215,225 ****$     9,658,369 ****$     2,569,203 **UNREALIZED APPRECIATION (DEPRECIATION) ON    AVAILABLE FOR SALE SECURITIES (Net of deferred     tax(benefit) expense of $308,000, $395,000, and $1,615,000    for 2006, 2005 and 2004,    respectively) 462,000  588,205  2,470,400  RECLASSIFICATION ADJUSTMENT FOR   REALIZED (GAINS) LOSSES INCLUDED IN    NET INCOME (Net of deferred tax (benefit)    expense of $0,   $155,000 and $515,000 for 2006, 2005 and 2004, respectively)-           (228,205)(770,400)MINIMUM PENSION LIABILITY (Net of deferred tax (benefit)    expense of     $497,000, $(760,000) and $(160,000)    for 2006, 2005 and 2004, respectively)744,802  (1,140,000)(240,000)ADOPTION OF FAS 158-PENSION LIABILITY (Netof deferred tax    (benefit) expense of $(872,000),    $0 and $0 for 2006, 2005 and     2004, respectively)(1,311,444)  -            -            ADOPTION OF FAS 158-POST-RETIREMENT LIABILITY    (Netof       deferred tax (benefit) expense of $(4,960,000),    $0 and $0 for 2006,     2005 and 2004, respectively)(7,444,320) -            -            **COMPREHENSIVE INCOME****$     5,666,263 ****$     8,878,369 ****$     4,029,203 ***Seenotes to consolidated financial statements*17.     THE MONARCH CEMENT COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENTFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                      AccumulatedClass B Other Capital Capital RetainedComprehensive Stockholders'StockStockEarningsIncomeInvestment**Balance at January 1, 2004****$  5,973,453 ****$  4,093,942 ****$  71,180,923 ****$  1,960,000 ****$   83,208,318 **Net income--  2,569,203  -  2,569,203  Dividends declared ($.80 per share)--  (3,221,566)-  (3,221,566)Transfer of shares42,040  (42,040)-  -  -  Changein unrealized appreciation   on available for sale securities - -  -  1,700,000  1,700,000  Adjustment to recognize   minimum pension liability-  -   -  (240,000)(240,000)**Balance at December 31, 2004****$  6,015,493 ****$  4,051,902 ****$  70,528,560 ****$  3,420,000 ****$   84,015,955 **Net income**- ****- **9,658,369  **- **9,658,369  Dividends declared ($.80 per share)**- ****- **(3,221,566)**- **(3,221,566)Transfer of shares146,822  (146,822)-  **- **-  Changein unrealized appreciation   on available for sale securities-  -  -  360,000  360,000  Adjustment to recognize   minimum pension liability-  -  -  (1,140,000)(1,140,000)**Balance at December 31, 2005****$  6,162,315 ****$  3,905,080 ****$  76,965,363 ****$  2,640,000 ****$   89,672,758 **          Net income-  -  13,215,225  -  13,215,225  Dividends declared ($.84 per share)-       -   (3,382,645) -       (3,382,645)Transfer of shares58,398  (58,398)-  -  -  Changein unrealized appreciation   on available for sale securities-  -  -  462,000  462,000  Adjustment to recognize   minimum pension liability-  -  -  744,802  744,802  Adjustment to initially apply FAS 158-   pension liability-  -  -  (1,311,444)(1,311,444)Adjustment to initially apply FAS 158-   post-retirement liability-  -  -  (7,444,320)(7,444,320)**Balance at December 31, 2006****$  6,220,713 ****$  3,846,682 ****$  86,797,943 ****$  (4,908,962)****$   91,956,376 ***Seenotes to consolidated financial statements*
 

                                   

18.

 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                       2006   2005   2004   **OPERATING ACTIVITIES:**Net income$   13,215,225   $     9,658,369   $     2,569,203  Adjustments to reconcile net income to   netcash provided by operating activities:      Depreciation,    depletion and amortization11,312,741   10,923,917   10,750,447        Minority interest    in earnings (losses) of subsidiaries(4,553)63,587  (527,225)      Deferred income    taxes(599,000) (1,760,000) (644,000)      Gain on disposal    of assets(217,708)(226,420)(264,944)      Realized gain on    sale of other investments-            (384,376)(1,285,400)     Change in assets and liabilities:            Receivables, net  (608,930)(662,735)  328,780                 Inventories(4,451,173)(178,663) (1,829,990)                Refundable income taxes(739,574)   812,807   (812,807)               Prepaid expenses(203,756)89,393   (15,225)               Other assets 60,523   41,984   36,398                 Accounts payable and accrued liabilities(1,123,145)  1,976,883  (623,472)               Accrued postretirement benefits1,501,670  1,438,636  823,119              Accrued pension    expense63,416  (1,016,872)452,484        Net cash provided    by operating activities$   18,245,736  $   20,776,510  $     8,957,368  **INVESTING ACTIVITIES:**Acquisition of property, plant and equipment$  (22,405,144)$  (14,380,650)$  (12,720,642)Proceeds from disposals of property, plant and    equipment 353,203   505,809  654,378  Payment for purchases of equity investments(1,051,038)-        (589,872)Proceeds from disposals of equity investments-            1,150,246  2,557,673  (Increase) decrease in short-term investments, net1,500,000  (1,500,000)-        Purchasesof subsidiaries' stock(192,914)(398,752)(118,999)      Net cash used for    investing activities$  (21,795,893)$  (14,623,347)$  (10,217,462)**FINANCING ACTIVITIES:**Increase (decrease) in line of credit, net$      6,397,667  $      (981,667)$        981,667  Proceeds from bank loans-        -          5,805,645  Payment on bank loans(1,782,463)(1,791,944) (2,527,258)Payments on other long-term debt(222,146)(261,678)(186,048)Cash dividends paid (3,302,106)(3,221,566)(3,221,566)Subsidiaries' dividends paid to minority    interest(25,733)-         (31,111)      Net cash provided    by (used for) financing activities$    1,065,219   $    (6,256,855)$        821,329  **Net decrease in cash and cash equivalents****$   (2,484,938)****$      (103,692)****$      (438,765)****Cash and Cash Equivalents, beginning of year****4,895,561 ****4,999,253 ****5,438,018 ****Cash and Cash Equivalents, end of year****$     2,410,623 ****$     4,895,561 ****$     4,999,253 ****Additional Cash Flow Information:**Interest paid, net of amount capitalized $     1,915,473  $     1,512,196  $        930,675  Income taxes paid, net of refunds$     7,271,924  $     4,876,767  $     3,141,181  Capital equipment additions included in accounts    payable$       164,847  $     2,037,838  $                      -   *Seenotes to consolidated financial statements*
19.

 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                      
  (1)     **NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES**           (a)     **Nature of  Operations**‐‐The Monarch Cement Company (Monarch) is principally engaged in  the manufacture and sale of portland cement.  The marketing area for Monarch's  products consists primarily of the State of Kansas, the State of Iowa,  southeast Nebraska, western Missouri, northwest Arkansas and northern  Oklahoma.  Sales are made primarily to contractors, ready-mixed concrete  plants, concrete products plants, building materials dealers and governmental  agencies.  Companies controlled by Monarch sell ready-mixed concrete, concrete  products and sundry building materials in metropolitan areas within Monarch's  marketing area.             

    (b)     **Principles of Consolidation**‐‐Monarch has direct control of    certain operating companies that have been deemed to be subsidiaries within    the meaning of accounting principles generally accepted in the United States    of America and the rules and regulations of the Securities and Exchange    Commission.  Accordingly, the financial statements of such companies have    been consolidated with Monarch's financial statements.  All significant    intercompany transactions have been eliminated in consolidation. Minority    interests in net income (loss) have been recorded as reductions or increases    in other income in the accompanying statements of income.  The minority    interests in net income (loss) were $(4,553), $63,587 and $(527,225) during    2006, 2005 and 2004, respectively. 

(c)        **Use of Estimates**--The preparation of financial statements in    conformity with accounting principles generally accepted in the United    States of America requires management to make estimates and assumptions that    affect the reported amounts of assets and liabilities and disclosure of    contingent assets and liabilities at the date of the financial statements    and the reported amounts of revenues and expenses during the reporting    period.  Actual results could differ from those estimates. 

     (d)     **Cash Equivalents**--The Company considers all liquid    investments with original maturities of three months or less to be cash    equivalents.  At December 31, 2006 and 2005, cash equivalents consisted    primarily of money market investments and repurchase agreements with various    banks.  From time to time, the Company's cash accounts exceed federally    insured limits.

 (e)        **Investments**--Equity securities for which the Company has no immediate    plan to sell but that may be sold in the future are classified as available    for sale and carried at fair value.  Unrealized gains and losses are    recorded, net of related income tax effects, in stockholders' investment.     Realized gains and losses, based on the specifically identified cost of the    security, are included in net income.

     (f)     **Receivables**--Accounts receivables are stated at the amount    billed to customers.  The Company provides an allowance for doubtful    accounts, which is based upon a review of outstanding receivables,    historical collection information and existing economic conditions.     Accounts receivables are ordinarily due 30 days after the issuance of the    invoice.  Accounts past due are considered delinquent.  Delinquent    receivables are written off based on individual credit evaluation and    specific circumstances of the customer. 

    (g)        **Inventories**‐‐Inventories of finished cement and work in process are    recorded at the lower of cost or market on a last‐in, first‐out (LIFO)    basis.  Total inventories reported under LIFO amounted to $6,741,306 and    $3,444,767 as of December 31, 2006 and 2005, respectively.  Under the    average cost method of accounting (which approximates current cost), these    inventories would have been $2,084,000, $1,837,000 and $2,000,000 higher    than those reported at December 31, 2006, 2005 and 2004, respectively.  The    cost of manufactured items includes all material, labor, factory overhead    and production-related administrative overhead required in their production.

20. THE MONARCH CEMENT COMPANY AND SUBSIDIARIES    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
              Other    inventories are purchased from outside suppliers.  Fuel and other materials    are priced by the first‐in, first‐out (FIFO) method while operating and    maintenance supplies are recorded using the average cost method.

              (h)     **Property, Plant and Equipment**‐‐Property, plant and equipment are stated    at cost of acquisition or construction.  The Company capitalizes the cost of    interest on borrowed funds used to finance the construction of property,    plant and equipment.  During 2006, 2005 and 2004, the Company capitalized    approximately $236,100, $53,700 and $48,000, respectively, of interest    expense related to current construction projects.  

              Depreciation of property, plant and equipment    is provided by charges to operations over the estimated useful lives of the    assets using accelerated methods.  The Company's buildings, machinery and    equipment are depreciated using double declining balance depreciation.  The    Company switches to straight line depreciation once it exceeds the amount    computed under the double declining balance method until the asset is fully    depreciated.  We do not depreciate construction in process.  Depletion rates    for quarry lands are designed to amortize the cost over the estimated    recoverable reserves.  Expenditures for improvements that significantly    increase the assets' useful lives are capitalized while maintenance and    repairs are charged to expense as incurred.

              (i)     **   Income Taxes**‐‐Deferred    tax assets and liabilities are recognized for the tax effects of differences    between the financial statement and tax bases of assets and liabilities.  A    valuation allowance is established to reduce deferred tax assets if it is    more likely than not that a deferred tax asset will not be realized. 

**         **(j)**     Revenue Recognition**‐‐The Company    records revenue from the sale of cement, ready-mixed concrete, concrete    products and sundry building materials following delivery of the products to    customers. Concrete products are also sold through long-term construction    contracts.  Revenues for these contracts are recognized on the    percentage-of-completion method based on the costs incurred relative to    total estimated costs. Full provision is made for any anticipated losses.     Billings for long-term construction contracts are rendered monthly,    including the amount of retainage withheld by the customer until contract    completion.  Retainages are included in receivables and are generally due    within one year.

              (k)     **Cost of Sales**--The Company considers all production and shipping costs,    (gain) loss on disposal of assets, inbound freight charges, purchasing and    receiving costs, inspection costs, warehousing costs, and internal transfer    costs as cost of sales.

              (l)     **Selling, General and Administrative Expenses**--Selling, general and    administrative expenses consists of sales personnel salaries and expenses,    promotional costs, accounting personnel salaries and expenses, director and    administrative officer salaries and expenses, legal and professional    expenses, and other expenses related to overall corporate costs.

               (m)    ** Earnings per Share**‐‐Basic earnings per share is based on the weighted    average common shares outstanding during each year.  Diluted earnings per    share is based on the weighted average common and common equivalent shares    outstanding each year.  Monarch has no common stock equivalents and    therefore does not report diluted earnings per share.  The weighted average    number of shares outstanding was 4,026,958 in 2006, 2005 and 2004.    

21.
 
                 (n)     **Self    Insurance**‐‐The Company has elected to self-insure certain costs related    to employee health and accident benefit programs.  Costs resulting from    self-insured losses are charged to income when incurred.

              (o)        **Disclosure about Fair Value of Financial Instruments**--Fair value is the    estimated amount at which financial assets or liabilities could be exchanged    in a current transaction between willing parties, other than in a forced or    liquidation sale.  Cash and cash equivalents, receivables, accounts payable,    bank loans payable and long-term debt have carrying values that approximate    fair values.  Investment fair values equal quoted market prices, if    available.  If quoted market prices are not available, fair value is    estimated based on quoted market prices of similar securities. 
    (p)**     Disclosure****about Defined Benefit    Pension and Other Postretirement Plans--**The    Company adopted the provisions of Statement of Financial Accounting    Standards ("SFAS") No. 158, *"Employers' Accounting for Defined Benefit    Pension and Other Postretirement Plans, an amendment of FASB Statements No.    87, 88, 106, and 132(R)"* on December 31, 2006. The most significant    change is the requirement for the Company to recognize the entire overfunded    or underfunded status of its defined benefit and postretirement plans as    assets or liabilities in its statement of financial position and to    recognize changes, net of taxes, in that funded status in the year in which    the changes occur through comprehensive income.  The following table    presents the incremental effect of applying FASB Statement No. 158 on    individual line items in the Statement of Financial Position as of December    31, 2006:                                               
 
 Before    Application of    Statement 158             
Adjustments       
After          Application of                Statement        158            Deferred Income Taxes    (long-term asset)$             3,860,000 $             5,832,000       $       9,692,000     Accrued Pension Expense    (long-term liability) 1,856,769  2,183,444      4,040,213     Accrued Postretirement Benefits    (long-term liability)12,918,345 12,404,320      25,322,665     Accumulated other comprehensive income3,846,802  (8,755,764)     (4,908,962)    Total stockholders' investment 100,712,140 (8,755,764)     91,956,376     
(2)     **INVESTMENTS**

                 Investments include equity securities which have been classified as          available-for-sale.  Realized gains are computed using the          specific identification method.  The equity investment results          for the years ended December 31, 2006, 2005 and 2004 are as follows:
2006   2005   2004   Fair value of investments  $              15,275,669   $              13,454,631 $   13,620,501Cost of investments 6,405,669 5,354,6316,120,501   Gross unrealized gains$                8,870,000$                8,100,000$                7,500,000Unrealized gain recorded in equity$                5,322,000$                4,860,000$                4,500,000Deferred income taxes  3,548,000  3,240,000  3,000,000$                8,870,000$                8,100,000$                7,500,000Proceeds from sale of securities-                    $                1,150,246$                2,557,673Realized gains -                    $                   384,376$                1,285,400
22.

 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                          
(3)     **PROPERTY, PLANT AND EQUIPMENT**

          Property, plant and  equipment at December 31, 2006 and 2005 consisted of::Depreciation Lives (Years)   20062005      Quarry lands     $                  1,806,742 $                  1,806,742Mill site and buildings12-5023,757,91622,798,168Machinery and equipment 5-25151,099,289127,303,293Transportation equipment 3-1234,537,03033,273,660Office furniture and fixtures 5-201,997,0481,735,603Office and other buildings10-308,705,3965,055,887Construction in process 4,329,26314,902,854$     226,232,684$     206,876,207Less--Accumulated depreciation and depletion131,120,295121,060,864$       95,112,389$       85,815,343
4)     **LINE OF CREDIT AND LONG-TERM DEBT**

In December 2006, Monarch renewed and modified its line of credit with a    bank.  Monarch's current unsecured credit commitment consists of a    $25,000,000 advancing term loan maturing December 31, 2009 and a $15,000,000    line of credit maturing December 31, 2007.  At December 31, 2006 and 2005,    there was $6,397,667 and $-0-, respectively, borrowed against the line of    credit.  This line contains a financial covenant related to net worth which    the Company was in compliance with at year end.  Interest on the line of    credit varies with the lender's National Prime rate less 1.00% for 2006 and    2005.  The applicable interest rate was 7.25% and 6.25% on December 31, 2006    and 2005, respectively, and is payable quarterly.
     2006      2005     Note payable, bank (a)     $   21,425,593 $   23,208,056Other     656,794 878,940              $     22,082,387     $  24,086,996Less current maturities      2,027,377     1,965,106          $   20,055,010       $   22,121,890     (a)   Due December 31, 2009; payable $899,717 quarterly including interest; interest computed based on JP Morgan Chase prime rate less .75% subject to a financial covenant related to net worth which the    Company was in compliance with at year end.
Aggregate annual maturities of long-term debt as of December 31, 2006 are:            
20072,027,37720082,335,278200917,452,1312010249,5712011 8,297Thereafter9,733 $22,082,387  
(5)     **INCOME TAXES**

          The components of    the provision for federal and state income taxes in the accompanying    consolidated statements of income are as follows:

23.
 2006  2005   2004   Taxes currently payable$     6,524,000 $     5,720,000 $     1,994,000Deferred income taxes(559,000)(1,760,000)(644,000)        Income tax expense    $     5,965,000$     3,960,000$     1,350,000          A  reconciliation of income tax expense at the statutory rate to the Company's  actual income tax expense is as follows:2006  20052004   Computed at statutory rate (34%; over $10 million-35%)$     6,613,000 $     4,659,000 $     1,333,000Increase (decrease) resulting from:   State income taxes, net of federal tax benefit    412,000149,000(47,000)   Percentage depletion (1,309,000) (913,000)(523,000)   Valuation allowance530,000220,000661,000   Domestic production activities deduction(208,000)(147,000)-      Minority interest in consolidated income (loss)(2,000)22,000(138,000)   Other(71,000)(30,000)64,000            Provision    for income taxes$     5,965,000$     3,960,000$     1,350,000
                  The tax effects of significant temporary differences relating to deferred    taxes shown on the balance sheets were:    
     2006      2005      Current:   Allowance for doubtful accounts     $        256,000   $        241,000     Accrued vacation     414,000   383,000     Other     -              41,000        Net current deferred tax    assets     $        670,000       $        665,000                           Noncurrent:                       Depreciation     $      (743,000)     $      (653,000)      Postretirement benefits     10,687,000       5,127,000     Pension liability (minimum in 2005)     1,855,000       1,480,000     Unrealized holding gains     (3,548,000)     (3,240,000)   Net  operating loss carryforwards     1,040,000       1,038,000     Other, net     401,000       359,000        Net long-term deferred tax    assets     $     9,692,000       $     4,111,000  
          Some of the Company's    subsidiaries file separate federal and/or state income tax returns which    have resulted in net operating loss carryforwards.  Deferred taxes resulting    from net operating loss carryforwards are included in the above table net of    valuation allowances.  The valuation allowance has been used to reduce the    tax benefit associated with the net operating loss carryforwards.  The    provision for income taxes and income tax liabilities recorded in the    financial statements include those separate calculations. 

(6)     **POSTRETIREMENT BENEFITS**

    Monarch provides certain postretirement health care and life insurance    benefits to all retired employees in the Cement Business who, as of their    retirement date, meet the eligibility requirements.  These benefits are    self‐insured by Monarch and are paid out of Monarch's general assets.     Monarch expects 2007 cash expenditures for this plan to be approximately    $1,400,000.

24.

 
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                          
    Monarch uses a    December 31 measurement date for the plans.  At December 31, 2006 and 2005,    the current portion of the accrued benefit cost of approximately $1,400,000    and $1,360,000 respectively is recorded in compensation and benefits.     Information about the plans' funded status and postretirement cost follows:
  2006      2005      Change in benefit obligation        Beginning of year  $     24,117,734    $     18,040,481        Service cost 526,652    459,788         Interest cost 1,495,069    1,446,965         Actuarial loss 1,989,993    7,082,412         Medicare Part D Subsidy -          (1,719,696)      Benefits and expenses paid (1,406,783) (1,192,216)          End of year $     26,722,665    $     24,117,734   Funded status $   (26,722,665) $   (24,117,734)Unrecognized net actuarial loss -                  11,301,059   Accrued benefit cost $   (26,722,665) $   (12,816,675)
The assumed annual    rate of increase in the per capita cost of covered health care benefits was    10% for 2006, 9% for 2005 and 10% for 2004.  This trend rate is assumed to    decrease in future years--1% per year to an ultimate annual rate of 5%.     Following are the components of net periodic benefit cost:
2006   2005   2004    Components of net periodic benefit cost                       Service cost$     526,652 $     459,788 $     426,079      Interest cost1,495,069 1,446,965 1,168,538      Unrecognized net loss886,732 724,099 428,134          Net    periodic benefit cost$  2,908,453 $  2,630,852 $  2,022,751Weighted-average assumptions as of December 31                       Discount rate5.75% 5.75% 6.00%
    Assumed health care    cost trend rates have a significant effect on the amounts reported for the    health care plans.  A one-percentage-point change in assumed health care    cost trend rates would have the following effects:
      1% Increase     1% DecreaseEffect on interest and service cost$         352,009$        (280,907)Effect on postretirement benefit obligation3,798,372 (3,131,890)
    On December 8, 2003,    the Medicare Prescription Drug Improvement Modernization Act of 2003 (the    Act) was signed into law.   The Act introduces a prescription drug benefit    under Medicare Part D, as well as a federal subsidy of sponsors of retiree    health care benefit plans that provide benefits at least actuarially    equivalent to Medicare Part D.  The Company has concluded that the benefits    provided to most of our retirees are actuarially equivalent to Medicare Part    D under the Act.  

    The following benefit payments (net of employee    contributions) are expected to be paid as of    December 31, 2006:
      Gross     Subsidy Receipts        Net       2007$  1,446,564$     57,375$  1,389,18920081,484,225 63,800 1,420,42520091,569,110 67,391 1,501,71920101,635,369 68,898 1,566,47120111,707,22170,6511,636,5702012-20169,216,383 399,637 8,816,746
25.
 
(7)     **PENSION PLANS**

    Monarch has    noncontributory defined benefit pension plans covering substantially all    employees in the Cement Business who meet the eligibility requirements.     Generally, Monarch's funding policy is to contribute annually the maximum    amount that can be deducted for federal income tax purposes.  Monarch    expects to contribute approximately $571,000 to the plans in 2007. 

    Monarch uses a    December 31 measurement date for the plans.  At December 31, 2006 and 2005,    the current portion of the pension liability of $-0- and $914,000,    respectively, is recorded in compensation and benefits. The accumulated    benefit obligation in 2005 was $28,049,029.     Information about the plans' funded status and pension cost follows:20062005           Change in    benefit obligation                            Beginning of year $   29,708,998 $   27,729,906                      Service cost  550,235   512,671                   Interest cost  1,712,643   1,681,656                      Actuarial loss  513,643   1,521,755                      Benefits paid and expenses (1,786,126) (1,736,990)                        End of year $   30,699,393   $   29,708,998           Change in fair value of plan assets                            Beginning of year $   24,468,209   $   24,368,892                      Actual return on plan assets 3,368,789   1,239,597                      Employer contribution 608,308   596,710                      Benefits paid and expenses (1,786,126) (1,736,990)                        End of year  $   26,659,180    $   24,468,209                            Funded    status $    (4,040,213) $    (5,240,789)         Unrecognized    net actuarial loss N/A     5,358,119           Unrecognized    prior service cost N/A     547,515                      Prepaid benefit cost N/A     $        664,845           Adjustment    required to recognize minimum liability N/A     (4,245,666)                    Pension liability $    (4,040,213) $    (3,580,821)        Other amounts recognized in the balance    sheets:                            Accumulated other comprehensive income $    (2,786,642) $    (2,220,000)
          The weighted average  assumptions used to determine net pension cost and benefit obligations as of  December 31 are as follows:
2006  2005   2004   Discount rate - benefit obligation5.75%5.75%6.00%Discount rate - pension cost5.75%6.00%6.00%Expected return on plan assets8.00%8.00%8.00%Rate of compensation increase (Staff plan only)4.50%4.50%4.50%
The following table presents the components of net periodic  pension cost as of December 31, 2006, 2005 and 2004: 2006       2005        2004  Service cost $             550,235        $             512,671       $         459,956  Interest cost 1,712,643       1,681,656       1,633,103  Expected return on plan assets(1,896,034)     (1,873,733)     (1,840,183)Amortization of transitional obligation     -                  -            -         Amortization of prior service cost75,123       75,123       75,123  Recognized net actuarial gain229,757       98,121       24,485  Net periodic pension expense$             671,724  $             493,838  $         352,484  
26.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                      
  The Company has    estimated the long-term rate of return on plan assets based primarily on    historical returns on plan assets as well as current facts and    circumstances. 

  Plan assets    are held by a trustee bank.  A fund manager has been retained to make all    investment decisions within guidelines specified by Monarch.  The guidelines    permit investment in both equities and fixed income securities including    common stocks, corporate bonds and debentures and U.S. Government    securities.  Asset allocation is primarily based on a strategy to provide    stable earnings while still permitting the plan to recognize potentially    higher returns through investment in equity securities.  The target asset    allocation percentages for 2006 and 2005 are as follows:
Equities 
60%Fixed Income          
40%
  The Plan allows a 5% fluctuation    before assets are re-balanced.  At December 31, 2006 and 2005, plan assets    by category were as follows:
 2006         2005Equities62%         61%Debt securities33%         37%Other5%         2%
  The following benefit payments are expected to be paid as of    December 31,    2006:
2007
$1,966,983  2008 2,014,73020091,990,74320101,954,28520112,009,7982012-2016                             10,645,069
  The Company has    defined contribution plans covering substantially all permanent employees of    the Ready‐Mixed Concrete Business.  These plans allow the Company, at its    discretion, to match the employee's contributions.  For the 2006, 2005 and    2004 plan years, the Company matched 25% of the first 6% of the employee's    compensation up to a maximum match of $2,500.  The Company contributed    $58,922, $95,302 and $76,429 to these plans for the years 2006, 2005 and    2004, respectively.  The Company expects to contribute $75,000 to these    plans in 2007.

(8)     **SIGNIFICANT ESTIMATES AND CERTAINCONCENTRATIONS**

  According to various  agreements with certain minority stockholders of subsidiaries, under specified  circumstances, the Company is obligated to acquire certain minority shares, if  requested to do so, at a value that approximates the minority interest on the  Balance Sheet. 

  A Monarch subsidiary,  Monarch and three of its officers are involved in a lawsuit with the former  officers of that subsidiary and companies formed by those officers.  We  believe all claims filed against our subsidiary, Monarch and its officers are  without merit and we are pursuing judgment against the former officers and  their companies.  We plan to vigorously pursue this case and do not anticipate  any liability as a result of this lawsuit. 

**         **Thirty-nine percent  (39%) of the Company's employees are covered by various collective bargaining  agreements.  One agreement, covering forty-seven percent (47%) of our union  employees (eighteen percent (18%) of our total employees), expires in 2007.  The Company believes it has a good working relationship with its employees and  has been successful in negotiating multiyear union contracts without work  stoppages. 

27.
 
(9)     **STOCKHOLDERS' INVESTMENT**

  Capital Stock and Class  B Capital Stock have the same rights except as follows:  Class B Capital Stock  has voting rights of ten votes per share and restricted transferability; Class  B Capital Stock is convertible at all times into Capital Stock on a  share-for-share basis; and Capital Stock has one vote per share and is freely  transferable. 

  (10)   **LINES OF BUSINESS**

  The Company groups its  operations into two lines of business - Cement Business and Ready-Mixed  Concrete Business.  The Company's business lines are separate business units  that offer different products. The accounting policies for each line are the  same as those described in the summary of significant accounting policies. 

    Following is information  for each line for the years ended December 31, 2006, 2005 and 2004:
 
Cement    Business Ready-Mixed    Concrete    Business Adjustments    and    Eliminations Consolidated**For the Year Ended December    31, 200****6**  Sales to unaffiliated    customers$        72,858,017 $        81,354,611   $                  ‐           $      154,212,628    Intersegment sales 13,112,128 915    (13,113,043)  ‐                    Total net sales $        85,970,145     $     81,355,526       $    (13,113,043)     $   154,212,628    Income (loss) from    operations $      20,952,199  $        (1,275,802)   $         19,676,397    Other income, net      (496,172)             Income before income taxes          $      19,180,225    Identifiable assets at    December 31, 2006$        98,342,645     $     34,427,902     $      132,770,547    Corporate assets      29,733,295             Total assets at December 31, 2006          $   162,503,842  **For the Year Ended December    31, 2005**         Sales to unaffiliated    customers$        64,299,277 $        77,020,651   $                         ‐   $      141,319,928    Intersegment sales 13,536,287 10,091   (13,546,378) ‐  ** **      Total net sales$        77,835,564 $        77,030,742   $       (13,546,378)  $      141,319,928    Income (loss) from    operations $        15,920,874 $        (2,133,263)   $        13,787,611    Other expense, net      (169,242)           Income before income taxes      $        13,618,369    Identifiable assets at    December 31, 2005$        82,405,866 $        35,803,776     $      118,209,642    Corporate assets      25,845,274             Total assets at December 31, 2005      $      144,054,916  **For the Year Ended December    31, 2004**         Sales to unaffiliated    customers$        51,408,457 $        93,668,097   $                        ‐    $      145,076,554    Intersegment sales11,048,074  -   (11,048,074) ‐             Total net sales $        62,456,531 $        93,668,097   $       (11,048,074)  $      145,076,554    Income (loss) from    operations $          6,790,090 $        (4,871,807)   $          1,918,283    Other income, net       2,000,920             Income before income taxes      $          3,919,203    Identifiable assets at    December 31, 2004 $        76,018,017 $        35,572,519     $      111,590,536    Corporate assets      23,609,630             Total assets at December 31, 2004       $      135,200,166  
28.
THE MONARCH CEMENT COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004                                                      
  Total sales by line of  business before adjustments and eliminations includes both sales to  unaffiliated customers (as reported in the Company's consolidated statements  of income, comprehensive income and stockholders' investment) and intersegment  sales.  Intersegment sales are accounted for by the same method as sales to  unaffiliated customers.

  Income from operations  is total net sales less operating expenses.  In computing income from  operations, none of the following items have been added or deducted:  general  corporate income and expenses; interest expense; and income taxes.   Depreciation and depletion for the Cement Business and Ready‐Mixed Concrete  Business, respectively, was:  $6,390,491 and $4,721,130 in 2006, $5,297,531  and $5,373,466 in 2005 and $5,044,610 and $5,419,696 in 2004.  Capital  expenditures for the Cement Business and Ready‐Mixed Concrete Business,  respectively, were:  $16,570,909 and $3,961,244 in 2006, $13,008,188 and  $3,410,300 in 2005 and $7,723,336 and $4,997,306 in 2004.  Identifiable assets  by line of business are those assets that are used in the Company's operations  in each industry. 

  During 2006, 2005 and  2004, there were no sales to any one customer in excess of 10% of consolidated  net sales.

  (11)   **QUARTERLY FINANCIAL INFORMATION (**Unaudited)
 First Quarter Second Quarter Third Quarter Fourth Quarter
**200****6**       Net sales $        31,211,502   $        43,570,624   $        44,200,862   $    35,229,640  Income from operations1,414,000   8,146,873   7,039,546   3,075,978Net income 1,007,268   5,491,290   4,859,486   1,857,181Basic earnings per share$.25   $1.36   $1.21   $.46        
**2005**       Net sales $        24,541,081   $        37,272,061   $        41,855,661   $        37,651,125  Income (loss) from operations(118,440) 3,698,770   7,479,681   2,727,600  Net income132,461   2,278,023   4,928,809   2,319,076  Basic earnings per share$.03   $.57   $1.22   $.58  
  (12)   **OTHER COMPREHENSIVE INCOME**

  Accumulated other  comprehensive income included in the balance sheet at December 31 is as  follows:
     
2005     
Change        
2006Unrealized appreciation on available                             for sale securities$    4,860,000       $       462,000       $    5,322,000  Minimum pension liability
(2,220,000)     
744,802            Adoption of FAS 158-pension liability          (1,311,444)     (2,786,642)Adoption of FAS 158-postretirement liability    -            (7,444,320)     (7,444,320)     $    2,640,000       $    (7,548,962)       $    4,908,962                                       2004           Change        2005   Unrealized appreciation on available                             for sale securities$    4,500,000       $       360,000       $    4,860,000  Minimum pension liability adjustment (1,080,000)     (1,140,000)      (2,220,000)     $    3,420,000       $     (780,000)     $    2,640,000                                
29.
 
  (13)   **FUTURE CHANGE IN ACCOUNTING PRINCIPLES**

            The Financial  Accounting Standards Board (FASB) has issued the following new accounting  pronouncement. 

In  June 2006, the Financial Accounting Standards Board (FASB) issued  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an  interpretation of FASB Statement No. 109" ("FIN48").  FIN 48 clarifies the  application of Statement 109 by defining a recognition threshold of "more  likely than not" that the position would be sustained upon examination before  any part of the benefit of that position be recognized in an enterprise's  financial statements. It also provides guidance on the measurement of the tax  position. This Interpretation will be effective for fiscal years beginning  after December 15, 2006.  The Company has not yet determined the impact, if  any, that this new pronouncement will have on the Company's consolidated  financial statements.

 

 

30.

 
**CORPORATE INFORMATION**          **CORPORATE OFFICE****DIRECTORS**449 1200 StreetJack R. CallahanP.O. Box 1000          Retired President, The Monarch Cement CompanyHumboldt, KS 66748Ronald E. CallawayPhone: (620) 473-2222          Retired    feed yard managerFax: (620) 473-2447David L. Deffner           Director of Music, Davis Community Church**AUDITORS**Robert M. KissickBKD, LLP          Chairman, Hydraulic Power Systems, Inc.Kansas City, MissouriGayle C. McMillen               Music Coordinator, Trinity United Methodist    Church**ANNUAL MEETING**Richard N. NixonThe annual meeting of the stockholders of          Partner in law firm of Stinson Morrison Hecker    LLPThe Monarch Cement Company is held theByron J. Radcliffsecond Wednesday in April of each year at the          RancherCompany's corporate offices.Byron K. Radcliff               Owner/Manager, Radcliff Ranch**TRANSFER AGENT AND REGISTRAR**Michael R. WachterThe Monarch Cement Company             Vice President, Civil Engineer and Director ofP.O. Box 1000             Operations,Concrete Technology Corp.Humboldt, KS 66748-0900Walter H. Wulf, Jr.shareholder.relations@monarchcement.com          President and Chairman of the Board     Walter H. Wulf, III**STOCK TRADING INFORMATION**             District Sales Manager, General Motors CorporationTrading Symbol: MCEM     Over-the-Counter Market               **INVESTOR RELATIONS**     Inquiries may be directed to Debra P. Roe,    **OFFICERS**Chief Financial Officer and Assistant Secretary-Walter H. Wulf, Jr.Treasurer, at the corporate address shown above.          President and Chairman of the Board     *Byron K. Radcliff**FORM 10-K**          Vice Chairman of the Board, Secretary and    Treasurer**The Company's Annual Report on Form 10-K, as***Robert M. Kissick**filed with the Securities and Exchange    Commission,**          Vice President**is available through the SEC Filings link of    the**Rick E. Rush**Company's website,**          Vice President**http://www.monarchcement.com.**Debra P. Roe               Chief Financial Officer and Assistant             Secretary-TreasurerThe Company's financial information is also    available Lisa J. Fontainefrom the SEC at their EDGAR internet address,         Assistant Secretaryhttp://www.sec.gov.Harvey D. Buckley               Vice President -    Cement Manufacturing**ETHICS POLICY**N. Joan PerezThe Company's ethics policy is available on the    About          Vice President - SalesUs link of the Company's website,*Not actively involved in the daily affairs of    the Company.http://www.monarchcement.com.                     ** |