<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File No. 1-1997
June 30, 1997
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
An Ohio Corporation Employer Identification
No. 34-4307810
615 North Oak Street, Sidney, Ohio 45365
Telephone 937/492-4111
Securities registered pursuant to Section 12(b) of the act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Shares, without New York Stock Exchange, Inc.
Par value
----------------------------
Indicate by check-mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x . No
--- --
The number of common shares outstanding as of August 12, 1997 was 3,761,967.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(All money amounts stated in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 6-30-97 12-31-96
- ------ ------- --------
Unaudited
<S> <C> <C>
Cash $ 5,608 $ 4,848
Accounts receivable
Customers 25,202 31,338
Earned and unbilled on partially
completed contracts 9,245 13,949
Inventories 18,421 15,528
Other current assets 5,965 6,096
---------- ----------
Current assets 64,441 71,759
Property, plant & equipment - net 14,927 15,939
Prepaid pension costs 14,233 13,277
Other assets 726 1,938
---------- ----------
$ 94,327 $102,913
========== ========
LIABILITIES
Short-term borrowings 90 4,810
Accounts payable 7,353 11,935
Accrued liabilities 12,572 11,558
Advance payments on contracts 9,553 4,669
Accrued taxes 1,970 2,419
---------- ----------
Current liabilities 31,538 35,391
Long-term borrowings 13,135 18,175
Deferred U.S. income taxes 2,401 1,847
Other accrued liabilities 920 920
---------- ----------
47,994 56,333
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock 14 14
Common stock 5,698 5,618
Retained earnings 40,791 40,719
Unearned compensation restricted stock (73)
Translation adjustment (97) 229
---------- ----------
46,333 46,580
---------- ----------
$ 94,327 $102,913
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 3
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended June 30, 1997 and 1996
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
-------- --------
Unaudited Unaudited
<S> <C> <C>
Net sales $ 55,544 $ 52,478
-------- --------
Operating costs and expenses:
Cost of sales 47,053 49,078
Selling and administrative 7,774 6,619
Interest expense 704 738
Other expense (income) (518) (358)
-------- --------
55,013 56,077
-------- --------
531 (3,599)
Gain on sale of foreign property -- 3,528
-------- --------
Income before income taxes
531 (71)
Provision for income taxes 70 339
-------- --------
Net income (loss) $ 461 $ (410)
======== ========
Common share outstanding 3,762 3,745
======== ========
Earnings (loss) per common share: $ .12 $ (.11)
======== ========
Dividends per share:
Preferred $ .90 $ .90
Common $ .10 $ .10
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1997 and 1996
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
-------- --------
Unaudited Unaudited
<S> <C> <C>
Net sales $ 29,556 $ 28,123
-------- --------
Operating costs and expenses:
Cost of sales 25,041 26,517
Selling and administrative 3,835 3,360
Interest expense 340 386
Other expense (income) (363) (172)
-------- --------
28,853 30,091
-------- --------
703 (1,968)
Gain on sale of foreign property -- 3,528
-------- --------
Income before income taxes 703 1,560
Provision for income taxes 194 999
-------- --------
Net income $ 509 $ 561
======== ========
Common shares outstanding 3,762 3,745
======== ========
Earnings per common share: $ .13 $ .15
======== ========
Dividends per share:
Preferred $ .45 $ .45
Common $ .05 $ .05
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
June 30, 1997 and December 31, 1996 and 1995
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Common &
Preferred Retained Unearned Translation
Total Stock Earnings Compensation Adjustments
-------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at 12/31/94 $ 52,676 $ 5,632 $ 46,982 $ 62
Net income 786 786
Cash dividends
Common ($.20/share) (748) (748)
Preferred ($1.80/share) (27) (27)
Translation Adjustments (37) (37)
- -----------------------------------------------------------------------------------------------------------------
Balances at 12/31/95 $ 52,650 $ 5,632 $ 46,993 $ 25
Net loss (5,498) (5,498)
Cash dividends:
Common ($.05/share) (748) (748)
Preferred ($1.80/share) (27) (27)
Translation Adjustments 202 202
- -----------------------------------------------------------------------------------------------------------------
Balances at 12/31/96 $ 46,579 $ 5,632 $ 40,720 $ 227
Net income 461 461
Cash dividends:
Common ($.10)/share) (376) (376)
Preferred ($.90)/share) (13) (13)
Stock issuances:
Restricted stock - net 7 80 (73)
Translation Adjustments (325) (325)
- -----------------------------------------------------------------------------------------------------------------
Balances at 6/30/97 $ 46,333 $ 5,712 $ 40,792 $ (73) $ (98)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(All money amounts stated in thousands of dollars)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
Unaudited Unaudited
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 461 $ (410)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation 815 939
Pension income 879 945
Cash provided by (used for)
current assets and liabilities
Accounts receivable 10,840 11,743
Inventories (2,893) 319
Other assets (492) (1,992)
Accounts payable (4,582) (6,689)
Accrued liabilities 1,295 758
Advance payments on contracts 4,884 (2,370)
Accrued income taxes (176) --
-------- --------
Total adjustments 10,570 3,653
-------- --------
Net cash provided by (used in)
operating activities 11,031 3,243
Cash flows from investing activities:
Capital expenditures 197 (1,135)
-------- --------
Cash flows from financing activities:
Dividends paid (389) (388)
Proceeds from (repayments of) short-term borrowings (9,761) 1,615
Restricted stock issuance 8 --
-------- --------
(10,142) 1,227
Effect of exchange rates on cash (326) 18
-------- --------
Net increase in cash 760 3,353
Cash at
beginning of period 4,848 2,616
-------- --------
Cash at
end of period $ 5,608 $ 5,969
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1997 and 1996
The foregoing consolidated results of operations are unaudited, but in the
opinion of the company all adjustments (consisting of normal recurring accruals
as well as the accounting changes) necessary to present fairly the results for
these periods have been included. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report and any current year's
previously filed Forms 10-Q.
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share, is based upon the weighted average number of
common shares outstanding and common share equivalents, after giving effect to
the preferred share dividend requirement. The impact of adopting FASB 128 is not
expected to be material to the earnings per share calculation.
INVENTORY:
At June 30, 1997 and December 31, 1996, inventories are summarized as follows
(000's):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Finished goods $ 5,531 $ 4,978
Work-in-process and
Parts inventory 26,256 23,940
Raw materials 623 599
---------- ----------
Total first-in, first-out
(FIFO) loss 32,410 29,517
Less allowance to adjust
the carrying value of
inventories to LIFO
basis 13,989 13,989
---------- ----------
$ 18,421 $ 15,528
========== ==========
</TABLE>
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1997 and 1996
SUBSEQUENT EVENT:
The Monarch Machine Tool Company (the "Company") completed on July 31, 1997 the
sale of the business and certain operating assets of its Lathe Division, located
in Sidney, Ohio. The assets sold included machinery and equipment and inventory
of the Lathe Division and all intellectual property rights related to the
manufacture of products of the Lathe Division (the "Assets"). The Lathe Division
was primarily engaged in the design, manufacture and sale of computer
numerically controlled and manual turning machines or lathes and replacement
parts for such lathes (the "Business").
The Business and Assets were purchased by Monarch Lathes, L.P., an Ohio limited
partnership ("MLLP"), with Lucas Precision, Inc., an Ohio corporation, as its
sole general partner. The Business and Assets were purchased pursuant to an
Asset Purchase Agreement dated July 16, 1997, between the Company and MLLP. The
real property located in Sidney, Ohio, used by the Lathe Division of the
Company, was leased to MLLP for a five-year term pursuant to a Lease dated July
31, 1997, between the Company and MLLP. Rentals and other payments under the
Lease cover the Company's depreciation and other operating costs associated with
the Sidney property.
There is no material relationship between MLLP or Lucas Precision, Inc. and the
Company or any affiliate, director or officer of the Company or any associate of
any director or officer of the Company.
For the Lathes Division business, the Company was paid an aggregate of
$7,416,529 in cash, and MLLP assumed specified liabilities of the business.
Also, the Company will be paid an additional $1,800,000 over a five year period.
The purchase price reflects approximately the book value of the Assets sold and
is subject to adjustment based on agreed Inventory Valuation/Verification
Procedures, as more fully set forth in Section 2.4 of the Asset Purchase
Agreement. The Company retained the accounts receivables of the Lathe Division,
which totaled approximately $5,000,000.
<PAGE> 9
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the six months ended June 30, 1997 and 1996
RESULTS OF OPERATIONS
New orders booked during the second quarter of 1997 exceeded those booked during
the same period last year by $ 1.8 million or 7% , largely due to better booking
at our strip processing and paper converting machinery operations. However, new
order bookings for the entire corporation throughout the first six months of
1997 were down approximately 6% relative to the level experienced during the
same period last year. New order bookings were weak compared to the same period
the previous year at our turning operation in Sidney Ohio and at two of our
European operations. However, the new order bookings at our U.S. strip
processing operation increased moderately relative to the first half of last
year. The resulting level of backlogs at the end of the first half of 1997 was
$63 million as compared to $60.8 million at 12/31/96 and $68.5 million at
6/30/96.
Net sales for the first six months of 1997 were $55.5 million as compared to
$52.5 million for the same period in 1996, and for the second quarter of this
year were $29.6 million in contrast to the $28.1 million experienced during
period in 1996. Shipments were up this year relative to the same period last
year at most of our U.S. operations, but were down at all of our European
operations due to lower backlogs at these subsidiaries at the beginning of the
respective periods.
Operations during the first half of 1997 produced net income of $461,000 or $.12
per share as compared to a net loss of $410,000 or $.11 per share posted during
the same period in 1996. Earnings in the second quarter of 1997 were $509,000 or
$.13 per share as compared to earnings of $561,000 or $.15 per share in the
second quarter of 1996. The increase in net sales during the first half of 1997
relative to the same period in 1996 helped to create operating earnings of
$531,000 this year as compared to the operating loss of $3.6 million experienced
last year. However the net loss in the first six months of 1996 were exacerbated
by poor margins at our domestic strip processing operation due to the shipment
of several new products that had not been produced in the past. Furthermore, our
turning operation in Sidney was moderately profitable in the first half of this
year as a result of the shipment of an advantageous product mix as well as the
lower cost base made possible by the product line curtailments and associated
inventory write-downs taken in the fourth quarter of 1996. Earnings at this
division were also enhanced by approximately $150,000 as the result of
cancellation fees with respect to a customer order. Earnings are hampered by the
generally increasing cost of purchased items that we have only had limited
success in passing along to the customer due to severe price competition from
both domestic and foreign builders of similar products. The Company, however,
continues to implement a company-wide effort to control costs particularly with
respect to the largest and fastest growing areas of costs such as health care,
travel and product liability insurance.
<PAGE> 10
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the six months ended June 30, 1997 and 1996
RESULTS OF OPERATIONS (CONTINUED)
Selling and general and administrative expenses expressed as a percentage of
sales were 14% during the first six months of this year as compared to 12.6%
during the same period last year. Sales costs were increased this year by the
start-up of the Busch U.S. operation. Although this ratio is highly dependent
upon sales volume because of the fixed nature of many of these costs, the
Company will intensify its efforts on controlling these costs where possible.
Cost of sales expressed as a percentage of sales went down to 84.7% during the
first half of 1997 as compared to 93.5% during the same period last year. The
lower margins experienced during the first quarter of 1996 were due to the
factors noted above, particularly with respect the margin erosion resulting from
cost over-runs on several customer orders at our domestic strip processing
operation. Earnings continue to be strongest at our strip processing operations
due to reasonable plant capacity utilization, and remain poorest, although
improving, at our machine tool operations because of considerable excess
capacity. The Company is accelerating a program of analyzing all of its
operations to ascertain the optimum organization of its operations in order to
make the best use of the resources available to it in an effort to maximize
shareholder value. The Company continues to retain the services of the
investment banking firm of Lehman Brothers Inc. for the purpose of assisting the
Company in maximizing shareholder value. Management and Lehman Brothers have
been working together over the past months towards achieving this end.
On July 31, 1997, the Company completed the sale of the business and certain
operating assets of our lathe division located in Sidney, Ohio. This transaction
is more fully described in the notes to the Consolidated Financial Statements in
this document.
<PAGE> 11
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the six months ended June 30, 1997 and 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong financial position throughout the past year and
has current assets of $2.04 for each dollar of current liabilities at 6/30/97 as
compared to $2.03 at 12/31/96 and $3.07 at 6/30/96. The Company presently has
long-term debt of $13.1 million as compared to $17 million one year ago. The
Company has unsecured lines of credit aggregating $37 million, including a $20
million committed three year revolving loan with a three year term-out option.
Short-term borrowings against these facilities at 6/30/97 were $.1 million
compared to $3.4 million one year ago. The decrease in the Company's net
borrowing position, net of cash, to $7.6 million at 6/30/97 from $18.1 at
12/31/96 resulted primarily from receivables collections.
Except for historical information, statements in this document are
forward-looking and involve risks and uncertainties including, but not limited
to, continuation of intense price competition in the industries in which the
Company participates, changes in economic conditions, customer preference and
spending patterns, inflation, labor benefit costs, product liability and other
legal claims and government regulatory initiatives.
<PAGE> 12
PART II - OTHER INFORMATION
Item 4 - Submission of matters to a vote of security holders.
During the annul meeting of shareholders held on May 6, 1997, the
following matters were voted upon by the Company's security holders.
The following is a tabulation of the voting results:
1) Election of directors to the class whose term expires in 2000.
<TABLE>
<CAPTION>
Votes Votes
"For" "Withheld"
----- ----------
<S> <C> <C>
William A. Enouen 3,008,443 17,397
David E. Lundeen 3,008,243 17,597
John M. Richardson 3,007,203 18,637
</TABLE>
Directors not voted upon whose term of office continued after the
meeting:
Richard E. Clemens
John A. Bertrand
Waldemar M. Goulet
Kenneth H. Hopkins
Joseph M. Rigot
John F. Torley
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the six month period
ending June 30, 1997.
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE MONARCH MACHINE TOOL COMPANY
Date August 13, 1997 By /s/ Robert Riethman
--------------- ------------------------
Robert Riethman, Treasurer
Date August 13, 1997 By /s/ Earl Hull
--------------- ------------------------
Earl Hull, Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET, CONSOLIDATED INCOME STATEMENT, CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,608
<SECURITIES> 0
<RECEIVABLES> 25,202
<ALLOWANCES> 0
<INVENTORY> 18,421
<CURRENT-ASSETS> 64,441
<PP&E> 50,825
<DEPRECIATION> 35,898
<TOTAL-ASSETS> 94,327
<CURRENT-LIABILITIES> 31,538
<BONDS> 0
<COMMON> 5,625
0
14
<OTHER-SE> 40,694
<TOTAL-LIABILITY-AND-EQUITY> 94,327
<SALES> 55,544
<TOTAL-REVENUES> 55,544
<CGS> 47,053
<TOTAL-COSTS> 55,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 448
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> 531
<INCOME-TAX> 70
<INCOME-CONTINUING> 461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
