<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
September 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 November 12, 1997 was 3,761,967.
<PAGE> 2
PART 1 -- FINANCIAL INFORMATION
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(All money amounts stated in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 9-30-97 12-31-96
--------- --------
Unaudited
<S> <C> <C>
Cash $ 6,803 $ 4,848
Accounts receivable
Customers 21,996 31,338
Earned and unbilled on partially
completed contracts 8,955 13,949
Inventories 11,045 15,528
Other current assets 5,985 6,096
--------- --------
Current assets 54,784 71,759
Property, plant & equipment -- net 13,129 15,939
Prepaid pension costs 14,492 13,277
Other assets 2,609 1,938
--------- --------
$ 85,014 $102,913
========= ========
LIABILITIES
Short term borrowings 85 4,810
Accounts payable 6,271 11,935
Accrued liabilities 11,824 11,558
Advance payments on contracts 9,140 4,669
Accrued taxes 1,482 2,419
--------- --------
Current liabilities 28,802 35,391
Long-term borrowings 7,134 18,175
Deferred U.S. income taxes 2,263 1,847
Other accrued liabilities 920 920
--------- --------
39,119 56,333
--------- --------
SHAREHOLDERS' EQUITY
Preferred stock 14 14
Common stock 5,698 5,618
Retained earnings 40,419 40,719
Unearned compensation restricted stock (61)
Translation adjustment (175) 229
--------- --------
45,895 46,580
--------- --------
$ 85,014 $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 nine months ended September 30, 1997 and 1996
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
Unaudited Unaudited
<S> <C> <C>
Net sales $ 81,066 $ 76,897
Operating costs and expenses:
Cost of sales 68,370 70,906
Selling and administrative 11,275 10,319
Interest expense 891 1,052
Other expense (income) (648) (713)
-------- --------
79,888 81,564
1,178 (4,667)
Gain (loss) on discontinuance of operations of
foreign subsidiaries (200) 365
Gain (loss) on sale of certain assets of domestic
division (766)
Gain on sale of foreign property 3,528
Income (loss) before income taxes 212 (774)
Provision (credit) for income taxes (73) 48
-------- --------
Net income (loss) $ 285 $ (822)
======== ========
Common shares outstanding 3,762 3,745
======== ========
Earnings (loss) per common share: $ .08 $ (.22)
======== ========
Dividends per share:
Preferred $ 1.35 $ 1.35
Common $ .15 $ .15
</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 September 30, 1997 and 1996
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
Unaudited Unaudited
<S> <C> <C>
Net sales $ 25,523 $ 24,419
Operating costs and expenses:
Cost of sales 21,317 21,828
Selling and administrative 3,502 3,700
Interest expense 187 314
Other expense (income) (130) (355)
-------- --------
24,876 25,487
647 (1,068)
Gain (loss) on discontinuance of operations of
foreign subsidiaries (200) 365
Gain (loss) on sale of certain assets of domestic
division (766)
Income (loss) before income taxes (319) (703)
Provision (credit) for income taxes (143) (291)
-------- --------
Net income (loss) $ (176) $ (412)
======== ========
Common shares outstanding 3,762 3,745
Earnings (loss) per common share: $ (.04) $ (.11)
======== ========
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
September 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> <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 ($.20/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 285 285
Cash dividends:
Common ($.15/share) (566) (566)
Preferred($1.35/share) (20) (20)
Stock issuances:
Restricted stock -- net 19 80 (61)
Translation Adjustments (402) (402)
- ---------------------------------------------------------------------------------------------------------
Balances at 9/30/97 $ 45,895 $ 5,712 $ 40,419 $ (61) $(175)
</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 nine months ended September 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) $ 285 $ (822)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation 1,170 1,406
Pension income (1,318) (1,417)
Cash provided by (used for)
current assets and liabilities
Accounts receivable 14,336 12,223
Inventories 4,483 1,499
Other assets (457) (1,525)
Accounts payable (5,664) (5,555)
Accrued liabilities (80) (435)
Advance payments on contracts 4,471 (1,958)
Accrued income taxes (176) 332
-------- --------
Total adjustments 16,765 4,570
-------- --------
Net cash provided by (used in)
operating activities 17,050 3,748
Cash flows from investing activities:
Proceeds from sale of Fixed Assets 1,996
Capital expenditures (356) (685)
-------- --------
Cash flows from financing activities:
Dividends paid (584) (582)
Proceeds from (repayments of) short-term borrowings (15,766) 612
Restricted stock issuance 19 --
-------- --------
(16,331) 30
Effect of exchange rates on cash (404) (13)
-------- --------
Net increase in cash 1,955 3,080
Cash and cash equivalents at
beginning of period 4,848 2,616
-------- --------
Cash and cash equivalents at
end of period $ 6,803 $ 5,696
======== ========
</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 nine months ended September 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 PER COMMON SHARE:
Net income 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 September 30, 1997 and December 31, 1996, inventories are summarized as
follows (000's omitted):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Finished goods $ 3,120 $ 4,978
Work-in-process and
Parts inventory 11,798 23,940
Raw materials 290 599
------- -------
Total first-in, first-out
(FIFO) inventory 15,208 29,517
Less allowance to adjust
the carrying value of
inventories to LIFO
basis 4,163 13,989
------- -------
$11,045 $15,528
======= =======
</TABLE>
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the nine months ended September 30, 1997 and 1996
RESULTS OF OPERATIONS
New orders booked during the third quarter of 1997 decreased relative to the
level of orders booked during the same period last year by $ 3.7 million or
18.2% . The decrease in bookings in the quarter was primarily due to the sale of
our U.S. lathe manufacturing operation in July. New order bookings for the
entire corporation throughout the first nine months of 1997 were down
approximately 9% relative to the level experienced during the same period last
year. New order bookings, year-to-date, 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. and U.K. strip
processing operations increased moderately relative to the first nine months of
last year. The resulting level of backlogs at 9/30/97 was $54 million as
compared to $60.8 million at 12/31/96 and $64.2 million at 9/30/96. After
adjustment for the sale of the lathe business the comparable backlogs for
12/31/96 and 9/30/96 were $50.8 million and $50.2 million respectively.
Net sales for the first nine months of 1997 were $81 million as compared to
$76.9 million for the same period in 1996, and for the third quarter of this
year were $25.5 million in contrast to the $24.4 million experienced during the
same 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 most of our European
operations due to lower backlogs at these subsidiaries at the beginning of the
respective periods and poor order rates at these subsidiaries this year.
The Company incurred a net loss of $176 thousand or 4 cents per share in the
third quarter of 1997 as compared to a net loss of $412 thousand or 11 cents per
share during the same period last year. The net loss in the third quarter of
this year resulted from a pre-tax charge of $966 thousand related to the sale of
our Sidney lathe manufacturing business and the consolidation of our Busch GmbH
paper converting machinery operation into our Busch U.S. operation. The
resulting pre-tax operating earnings of $647 thousand in the third quarter of
1997 reflect a significant improvement over the pre-tax operating loss of $1.1
million experienced in the same period last year. Operating earnings last year
were hampered by a large loss in the Sidney lathe operation which was eliminated
by the sale of this operation in July of this year. In addition, operations at
our Stamco U.S. and Stamco U.K. operations have improved significantly relative
to last year.
The Sidney lathe business was sold because this operation had been plagued by a
chronically poor operating capacity ratio and was therefore an unprofitable
operation on average. The company has signed a joint representation agreement
with the "Spinner" Company in Germany to allow the Company to sell their lathe
products in the North America. Spinner will also sell Monarch's Vertical
Machining Centers in the European market, thereby replacing the previous Monarch
dealership network in Europe.
<PAGE> 9
RESULTS OF OPERATIONS (CONTINUED)
As described more fully in the Company's "8K" filing on August 14, 1997, the
Sidney lathe business was sold to an unrelated business, namely, Monarch Lathes
L.P. on July 31,1997. The Company sold the business and certain operating assets
for approximately the book value of the assets sold, subject to potential
adjustment based upon certain Inventory Valuation/Verification Procedures.
The Busch GmbH operation is being consolidated into our U.S. operation due to
recent losses at this subsidiary. This subsidiary will be wound-down as a
separate entity, which will allow the Paper Converting Machinery segment of our
business to gain certain operating efficiencies.
Operations during the first nine months of 1997 produced net income of $285
thousand or $.08 per share as compared to a net loss of $822 thousand or $.22
per share posted during the same period in 1996. The increase in net sales
during the first nine months of 1997 relative to the same period in 1996 helped
to create operating earnings of $1.2 million this year as compared to the
operating loss of $4.7 million experienced last year. The net operating loss in
the first nine months of 1996 was severely impacted 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 continue to be 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 nine months ended September 30, 1997 and 1996
RESULTS OF OPERATIONS (CONTINUED)
Selling and general & administrative expenses expressed as a percentage of sales
were 13.9% during the first nine months of this year as compared to 13.4% 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 84.3% during the first nine
months of 1997 as compared to 92.2% during the same period last year. The lower
margins experienced during the first nine months 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. Margins remain poorest, although
improving, at our machine tool operations because of the considerable excess
capacity that existed in this segment of our business prior to the sale of the
Sidney business. The Company is continuing 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 towards achieving this end.
<PAGE> 11
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the nine months ended September 30, 1997 and 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong financial position throughout the past year and
has current assets of $1.90 for each dollar of current liabilities at 9/30/97 as
compared to $2.03 at 12/31/96 and $2.54 at 9/30/96. The Company presently has
long-term debt of $7.1 million as compared to $15 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 9/30/97 were $.1 million
compared to $4.3 million one year ago. The decrease in the Company's net
borrowing position to $.4 million at 9/30/97 from $18.1 million at 12/31/96
resulted primarily from receivables collections and the sale of certain assets
of the Sidney Division.
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 6 -- Exhibits and Reports on Form 8-K
One report on Form 8-K was filed during the nine month period ending
September 30, 1997, Which was dated July 31, 1997, describing the
disposition of the business and certain operating assets of the lathe
division located in Sidney, Ohio.
<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 November 12, 1997 By /s/ Robert Riethman
-------------------------------------
Robert Riethman, Treasurer
Date November 12, 1997 By /s/ Earl Hull
-------------------------------------
Earl Hull, Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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 (B).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,803
<SECURITIES> 0
<RECEIVABLES> 21,996
<ALLOWANCES> 0
<INVENTORY> 11,045
<CURRENT-ASSETS> 54,784
<PP&E> 38,167
<DEPRECIATION> 25,038
<TOTAL-ASSETS> 85,014
<CURRENT-LIABILITIES> 28,802
<BONDS> 0
0
14
<COMMON> 5,637
<OTHER-SE> 40,244
<TOTAL-LIABILITY-AND-EQUITY> 85,014
<SALES> 81,066
<TOTAL-REVENUES> 81,066
<CGS> 68,370
<TOTAL-COSTS> 79,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 547
<INTEREST-EXPENSE> 891
<INCOME-PRETAX> 212
<INCOME-TAX> (73)
<INCOME-CONTINUING> 285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
