RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 2006 COMPARED TO THE FIRST SIX MONTHS OF 2005

    Consolidated net sales for the six months ended June 30, 2006, increased by $13.0 million when compared to the six months ended June 30, 2005.  Sales in our Cement Business were higher by $6.0 million and sales in our Ready-Mixed Concrete Business were higher by $7.0 million.  Cement Business sales increased $2.5 million due to increased volume sold and $3.5 million due to price increases.  Sales in the Ready-Mixed Concrete Business increased $3.7 million due to increased volume primarily attributed to construction contracts and $3.3 million due to price increases primarily in sales of ready-mixed concrete.

    Consolidated cost of sales for the six months ended June 30, 2006, increased by $6.2 million when compared to the six months ended June 30, 2005.  Cost of sales in our Cement Business was higher by $1.7 million and cost of sales in our Ready-Mixed Concrete Business was higher by $4.5 million. Cement Business cost of sales increased due to the 9.5% increase in volume sold.  Ready-Mixed Concrete Business cost of sales increased due to a combination of raw material price increases and the increased volume sold.  Raw materials, including cement, rock, sand and sundry building materials purchased for resale, increased in price by $1.6 million or an average of 9.0% due in large part to higher energy prices.  The remaining increase of $2.9 million is due to the 10.4% increase in volume.  

    As a result of the above sales and cost of sales factors, our overall gross profit rate for the six months ended June 30, 2006 was 22.0% versus 15.6% for the six months ended June 30, 2005.

    Selling, general, and administrative expenses increased by 12.5% during the first half of 2006 compared to the first half of 2005.  These costs are normally considered fixed costs that do not vary significantly with changes in sales volume.  This increase is primarily due to an increase in management personnel in the first quarter of 2006 as compared to the first quarter of 2005.  Early in the first quarter of 2005, the departure of management personnel responsible for design/build projects reduced our administrative costs.  These personnel have been replaced.  Legal and professional fees also increased during the first half  of 2006 as compared to the first half of  2005 due to pending litigation.

    Other, net decreased approximately $.2 million for the first half of 2006 as compared to the first half of 2005 primarily due to a decrease in the amount of gain realized on the sale of other equity investments.

    The effective tax rates for the six months ended June 30, 2006 and 2005 were 30.9% and 32.9%, respectively.  The Company's effective tax rate differs from the federal and state statutory income tax rate primarily due to the effects of percentage depletion, minority interest in consolidated income and valuation allowance.  Taxes for the current year are estimated based on prior year effective tax rates. 

 LIQUIDITY

    We are able to meet our cash needs primarily from a combination of operations and bank loans.  Cash decreased during the first six months of 2006 primarily due to increases in receivables and inventories, the purchase of equipment and the payment of dividends.   

    In December 2005, we renewed our line of credit with our current lender.  Our current unsecured credit commitment consists of a $25 million advancing term loan maturing December 31, 2009 and a $10 million line of credit maturing December 31, 2006.  The term loan bears a floating interest rate based on JP Morgan Chase prime rate less .75% and the line of credit bears a floating interest rate based on lender's national prime rate less 1.00%.  The loan agreement contains a financial covenant related to net worth which the Company was in compliance with at the end of the first six months of 2006.  As of June 30, 2006, we had borrowed $22.3 million on the advancing term loan and $10 million on the line of credit leaving a balance available on the line of credit of $0. The annual weighted average interest rate we paid on the advancing term loan during the second quarter of 2006 and 2005 was 7.1% and 5.2%, respectively, and for the first six months of 2006 and 2005 was 6.9% and 4.9%, respectively.  The annual weighted average interest rate we paid on the line of credit during the second quarter of 2006 and 2005 was 6.9% and 4.9%, respectively, and for the first six months of 2006 and 2005 was 6.7% and 4.7%, respectively.  As of June 30, 2006, the applicable interest rate was 7.3% on the advancing term loan and 7.0% on the line of credit. The advancing term loan was used to help finance the expansion project at our cement manufacturing facility.  The line of credit was used to cover operating expenses during the first six months of the year when we build inventory due to the seasonality of our business.  We anticipate that the line of credit maturing December 31, 2006 will be paid using funds from operations or replacement bank financing.  Our board of directors has given management the authority to borrow an additional $15 million for a maximum of $50 million.

    The Company completed the conversion of one of its two preheater kilns to a precalciner kiln in 2001 and 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.  Although we had to shut down this kiln for about six weeks during the conversion, we are projecting a 15% increase in total clinker production for the year 2006 as compared to 2005 due to the increased kiln capacity after the conversion.  This kiln was also shut down approximately six weeks during early 2005 for the cooler installation.  We began depreciating the precalciner equipment and related installation costs in the second quarter of 2006. 

    The Company is in the process of expanding its corporate office.  Completion is anticipated in the third quarter of 2006 at a total cost of approximately $3.4 million.  As of the end of the second quarter of 2006, we had spent approximately $2.7 million on this expansion.  We have not started depreciating this addition.

    Other projects, including changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity and increasing our finished cement storage capacity, are currently under consideration.  Although we anticipate an increase in capital expenditures during 2006, we do not anticipate the need for additional bank financing other than that available under existing lines of credit.

    For several years the Company has paid a $.20 per share dividend in January, March, June and September.  At the April 2006 Board of Directors meeting, the Board elected to increase the dividend payable in June 2006 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 June 30, 2006 were $160.0 million, an increase of $16.0 million since December 31, 2005 due to increases in receivables and inventories of approximately $6.8 million and $4.4 million, respectively.  These variations are common during the first six months of the year due to the seasonality of our business (see Seasonality below).  Property, plant and equipment increased $7.8 million primarily due to the installation of the precalciner during the first six months of 2006.  Investments increased approximately $.5 million as a result of an unrealized gain during the first half of 2006.

    Indebtedness increased about $9.0 million during the first six months of 2006 primarily due to capital expenditures of about $14.5 million and funding the increase in inventories and receivables of about $4.4 million and $6.8 million, respectively.

CAPITAL RESOURCES

    The Company regularly invests in miscellaneous equipment and facility improvements in both the Cement Business and Ready-Mixed Concrete Business.  Capital expenditures during the first six months of 2006 included completion of the installation of a precalciner and work towards the expansion and remodeling of our corporate offices.  We also invested in routine equipment purchases during the first half of 2006, primarily in the Ready-Mixed Concrete Business. During the first half of 2006, cash expenditures for property, plant and equipment totaled approximately $14.5 million, excluding the amounts that are included in accounts payable.  Other routine equipment purchases are also planned during the remainder of 2006.

    The Company plans to complete the office addition in the third quarter of 2006.  In addition, preliminary plans under consideration for 2006 include changes to our quarrying and grinding operation to supply the raw materials required by the increased kiln capacity.  We do not anticipate the need for additional bank financing beyond the amount available through our existing line of credit.

MARKET RISK   

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

INFLATION

    Inflation directly affects the Company's operating costs.  The manufacture of cement requires the use of a significant amount of energy.  The Company burns primarily solid fuels, such as coal and petroleum coke, and to a lesser extent natural gas, in its kilns and uses a significant amount of electricity to operate our cement manufacturing equipment.  An increase in such manufacturing components could adversely affect us.  Prices of the specialized replacement parts and equipment the Company must continually purchase tend to increase directly with the rate of inflation causing manufacturing costs to increase.

SEASONALITY

    Portland cement is the basic material used in the production of ready-mixed concrete that is used in highway, bridge and building construction.  These construction activities are seasonal in nature.  During winter months when the ground is frozen, groundwork preparation cannot be completed.  Cold temperatures affect concrete set-time, strength and durability, limiting its use in winter months.  Dry ground conditions are also required for construction activities to proceed.  During the summer, winds and warmer temperatures tend to dry the ground quicker creating fewer delays in construction projects.

    Variations in weather conditions from year-to-year significantly affect the demand for our products during any particular quarter; however, our Company's highest revenue and earnings historically occur in its second and third fiscal quarters, April through September.

FUTURE CHANGE IN ACCOUNTING PRINCIPLES

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

   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.

     The Financial Accounting Standards Board (FASB) issued the Exposure Draft "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)". The most significant proposed change would impact how companies recognize postretirement pension and medical plans on their balance sheets. If adopted as proposed, companies would have to reflect outstanding balances of prior service costs and gain or loss in Other Comprehensive Income. It is expected to be effective for fiscal years ending after December 15, 2006.  The Company has not yet determined the exact amount that this new pronouncement would impact the Company's Consolidated Balance Sheet and Statement of Stockholders' Investment.

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

    The Company owns $14.0 million of equity securities, primarily publicly traded entities, as of June 30, 2006.  These investments are not hedged and are exposed to the risk of changing market prices.  The Company classifies these securities as "available-for-sale" for accounting purposes and marks them to market on the balance sheet at the end of each period.  Management estimates that its investments will generally be consistent with trends and movements of the overall stock market excluding any unusual situations.  An immediate 10% change in the market price of our equity securities would have a $.8 million effect on comprehensive income.

    The Company also has $32.3 million of bank loans as of June 30, 2006.  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.

Item 4.         Controls and Procedures

    The Company maintains disclosure controls and procedures (as defined in Rules 13a-5(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company's management, including its President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

    As of the end of the period covered by this report, an evaluation was carried out by the Company's management, including its President and Chairman of the Board of Directors and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-5(e) under the Securities Exchange Act of 1934).  Based upon that evaluation, the Company's President and Chairman of the Board of Directors and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.

    There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART  II.   OTHER INFORMATION

Item 1.       Legal Proceedings

    The Company and its subsidiary, Tulsa Dynaspan, Inc. ("TDI"), are involved in litigation with David G. Markle ("Markle"), a former director, president and employee of TDI, Richard L. Evilsizer, a former officer and employee of TDI and certain other former employees and companies controlled by one or more of such persons (the "Markle Parties").  Markle and Mr. Evilsizer are also minority shareholders in TDI.  In the litigation TDI is seeking damages based on allegations that one or more of the Markle Parties have (1) breached their fiduciary duty to TDI, (2) violated noncompete agreements, (3) improperly used TDI computers in violation of the Federal Computer Fraud and Abuse Act, (4) improperly used TDI trade secrets and other proprietary information and (5) made defamatory and disparaging statements about TDI.  The Markle Parties have alleged that the Company has defamed them and interfered with contractual relations.  Markle and Mr. Evilsizer have alleged that the Company, as the majority shareholder of TDI, has breached its duty to them as minority shareholders.  Certain of the Markle Parties have made claims against three directors of TDI who are also officers of Monarch, as well as derivative claims against TDI and Monarch.  The litigation also involves a declaratory judgment as to whether TDI or Markle owns an alleged invention for a method for the construction of parking garages.

    Two actions have been filed in this litigation.  One was filed on December 28, 2004, in the District Court for Tulsa County, Oklahoma by Markle against TDI and the Company (the "State Court Action") .  The other was filed by TDI against the Markle Parties on April 27, 2005, in the United States District Court for the Northern District of Oklahoma, but that litigation has been stayed pending judgment in the state court action.  All of the Markle Parties are now parties in the State Court Action.  This litigation is in the discovery stage and no trial date has been set.  The Company and TDI believe that all claims made by the Markle Parties are without merit and intend to vigorously defend such claims.  TDI intends to vigorously pursue its claims against the Markle Parties for damages, as well as its ownership of the alleged invention.  On April 25, 2006, the District Court partially sustained motions to dismiss filed by Monarch and the directors. A motion for reconsideration by the Plaintiffs has been denied. Plaintiffs were given until August 18th to file an amended petition.  No assurances can be given as to the outcome of this litigation.

Item 4.       Submission of Matters to a Vote of Security Holders 

    At the annual meeting of the stockholders of The Monarch Cement Company held on April 13, 2005, the stockholders elected four Class II Directors, namely, Byron J. Radcliff, Michael R. Wachter, Walter H. Wulf, Jr., and Walter H. Wulf, III to serve terms expiring at the annual meeting of stockholders in 2009.   Class I Directors, namely, David L. Deffner, Gayle C. McMillen, and Richard N. Nixon and Class III Directors, namely, Jack R. Callahan, Ronald E. Callaway, Robert M. Kissick and Byron K. Radcliff, continue to serve terms expiring at the annual meetings of stockholders in 2008 and 2007, respectively.

           The following is a summary of votes cast:                  

  Item 6.       Exhibits

31.1  Certificate of the President and Chairman of the Board pursuant to Section 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

31.2  Certificate of the Chief Financial Officer pursuant to Section 13a‑14(a)/15d‑14(a) of the Securities Exchange Act of 1934.

32.1  18 U.S.C. Section 1350 Certificate of the President and Chairman of the Board dated August 14, 2006.

32.2  18 U.S.C. Section 1350 Certificate of the Chief Financial Officer dated August 14, 2006.

S I G N A T U R E S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Monarch Cement Company
                                                                                                (Registrant)

Date      August 14, 2006                                             /s/ Walter H. Wulf, Jr.             

Walter H. Wulf, Jr.
                                                                                President and
                                                                                Chairman of the Board

Date      August 14, 2006                                             /s/ Debra P. Roe                     

Debra P. Roe, CPA
                                                                                Chief Financial Officer and         
                                                                                Assistant Secretary‑Treasurer
 

EXHIBIT INDEX

 Exhibit
 Number                                                        Description                                  

31.1                             Certificate of the President and Chairman of the
                                            Board pursuant to Section 13a-14(a)/15d-14(a)
                                            of the Securities Exchange Act of 1934.

31.2                            Certificate of the Chief Financial Officer pursuant
                                            to Section 13a-14(a)/15d-14(a) of the
                                            Securities Exchange Act of 1934.

32.1                           18 U.S.C. Section 1350 Certificate of the President
                                            and Chairman of the Board dated August 14, 2006.

32.2                           18 U.S.C. Section 1350 Certificate of the
                                            Chief Financial Officer dated August 14, 2006.