<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 31 March 1998
-------------
or
( ) TRANSITION REPORT PURSUANT OT SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1 - 1997
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THE MONARCH MACHINE TOOL COMPANY
--------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-43407810
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2600 Kettering Tower, Dayton, Ohio 45423
----------------------------------------
(Address of principal executive offices, zip code)
(937) 910-9300
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(Registrant's telephone number including area code)
615 North Oak Street, Sidney, Ohio 45365
----------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of common shares outstanding as of May 8, 1998 was 3,768,967.
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THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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PART 1. FINANCIAL INFORMATION:
<S> <C>
ITEM 1. - Condensed Financial Statements:
Balance Sheets - 31 March 1998 and 31 December 1997 2
Statements of Operations and Comprehensive Income -
Quarter ended 31 March 1998 and 1997 3
Statements of Cash Flow - Quarter ended 31 March 1998 and 1997 4
Notes to Condensed Financial Statements 5-6
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-8
PART II. OTHER INFORMATION:
ITEM 1. Inapplicable 9
ITEM 2. Changes in Securities 9
ITEM 3-5 Inapplicable 9
ITEM 6 Exhibits and Reports on Form 8-K 9
</TABLE>
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
31 March 31 December
1998 1997
---- ----
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,506 $ 5,022
Accounts receivable:
Customers 26,001 26,222
Other 1,082 540
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,437 337
Inventories 9,832 11,142
Prepaid expenses 300 540
Deferred income taxes 3,102 3,102
-------- --------
Current assets 45,260 46,905
PROPERTY, PLANT & EQUIPMENT - NET 8,520 8,649
PREPAID PENSION COSTS 16,605 15,723
DEFERRED INCOME TAXES 898 1,153
OTHER ASSETS 3,368 3,439
-------- --------
$ 74,651 $ 75,869
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,549 $ 10,138
Accrued liabilities 14,991 16,016
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,088 5,096
Current maturities of long-term debt 2,504 577
-------- --------
Current liabilities 27,132 31,827
LONG-TERM DEBT 4,667 1,598
OTHER ACCRUED LIABILITIES 1,207 1,175
SHAREHOLDERS' EQUITY:
Preferred stock 14 14
Common stock 5,815 5,741
Unearned compensation, restricted stock (134) (77)
Retained earnings 36,123 35,739
Translation adjustment (173) (148)
-------- --------
41,645 41,269
-------- --------
$ 74,651 $ 75,869
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 4
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended 31 March
----------------------
1998 1997
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<S> <C> <C>
Net sales $ 23,064 $ 25,988
Operating costs and expenses:
Cost of sales 18,933 22,012
Selling, general and administrative 3,195 3,939
-------- --------
Operating income 936 37
Other income (expense):
Interest expense, net (32) (323)
Other income (expense) (69) 114
-------- --------
Income (loss) before income taxes 835 (172)
Income tax provision (benefit) 255 (124)
-------- --------
Net income (loss) 580 (48)
Other comprehensive income,
net of tax - foreign
currency translation
adjustments (16) (201)
-------- --------
Comprehensive income (loss) $ 564 $ (249)
======== ========
Average common shares outstanding 3,766 3,762
======== ========
Net income (loss) per common share, $ .15 $ (.01)
basic and diluted ======= ======
Dividends per share:
Preferred $ .45 $ .45
Common $ .05 $ .05
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended 31 March
----------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 580 $ (48)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 240 406
Pension income (882) (439)
Deferred tax provision (benefit) 255 (124)
Changes in assets and liabilities:
Accounts receivable (1,421) 6,706
Inventories 1,310 (1,641)
Other assets 311 953
Accounts payable (3,589) (6,805)
Accrued liabilities (993) 2,242
Advance payments on contracts (2,008) 2,339
Accrued income taxes -- (175)
------ ------
Net cash provided by (used in) operating activities (6,197) 3,414
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (111)
Proceeds from sale of fixed assets -- 182
------ ------
Net cash provided by (used in) investing activities (111) 182
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (195) (195)
Repayments of short-term borrowings, net (3,712)
Proceeds from long-term borrowings 5,000
Repayments of long-term borrowings (4) --
------ ------
Net cash provided by (used in) financing activities 4,801 (3,907)
EFFECT OF EXCHANGE RATES ON CASH (9) (303)
------ ------
INCREASE (DECREASE) IN CASH (1,516) (614)
CASH - BEGINNING OF PERIOD 5,022 4,848
------ ------
CASH - END OF PERIOD $ 3,506 $ 4,234
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 6
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED 31 MARCH 1998 AND 1997
1. FINANCIAL STATEMENTS
--------------------
The balance sheet at 31 December 1997 presents condensed financial
information taken from the audited financial statements. The interim
financial statements are unaudited. In the opinion of management, all
adjustments, which consist of normal recurring adjustments necessary to
present fairly the financial position and results of operations for the
interim periods presented, have been made. The results shown for the
first quarter of 1998 are not necessarily indicative of the results
that may be expected for the entire year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 31
December 1997 annual report to shareholders.
2. EARNINGS PER SHARE
------------------
Basic earnings per common share is computed by dividing net income
(loss), after adjustment for the preferred stock dividend requirement,
by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by adding the dilutive
effect of common stock equivalents, such as the convertible preferred
shares and any stock options outstanding, to the weighted average
number of common shares outstanding.
3. COMPREHENSIVE INCOME
--------------------
The Company's statement of operations and comprehensive income for the
first quarter of 1998 and 1997 reflects the disclosures required by
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". The only non-owner source of changes in equity
during those periods is the change in the Company's translation
adjustment related to its investment in foreign subsidiaries.
4. INVENTORIES
-----------
The Company's inventories consist of the following balances (in
thousands):
<TABLE>
<CAPTION>
31 March 31 December
1998 1997
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<S> <C> <C>
Finished goods $ 2,475 $ 2,729
Work-in process and parts 11,363 12,381
Raw materials 307 320
Less LIFO reserve (4,313) (4,288)
-------- --------
Net inventories $ 9,832 $ 11,142
======== ========
</TABLE>
5
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED 31 MARCH 1998 AND 1997
5. INDEBTEDNESS
------------
The $20,000,000 revolving credit facility provided to the Company by
two banks has been extended to 29 May 1998 when it will convert to a
term loan. The Company has entered into discussions with the banks to
restructure the present credit facility, including establishing a new
revolving credit period. The Company anticipates that prior to the end
of May, it will be able to successfully negotiate a new credit facility
with the banks, containing terms and conditions satisfactory to the
Company.
6
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUARTER ENDED 31 MARCH 1998 AND 1997
RESULTS OF OPERATIONS
---------------------
During the last half of 1997 the Company sold or decided to close its
Sidney and German operations. To facilitate comparison to the first
quarter of this year, all references in the following discussion to the
first quarter of 1997 are adjusted to eliminate the impact of these
operations.
Net earnings for the first quarter of this year were $580,000 or $.15
per share compared to net earnings of $30,000 or $.01 per share from
ongoing operations in the first quarter of 1997. The increase in
earnings was principally the result of increased sales and a reduction
in interest expense associated with lower borrowing levels during the
first quarter of 1998. Earnings continue to be strongest at the coil
processing operations due to plant capacity utilization and improved
profit margins on contracts in process, while the machine tool division
remains profitable. However, the coating and laminating operation in
the U.S., which was started-up in mid-1996, has yet to achieve
operating earnings.
New order bookings during the first quarter of 1998 totaled $18.9
million compared to $27.5 million during the same period last year. The
reduction in the level of orders booked was primarily in the coil
processing operations, both domestic and foreign, although bookings at
the machine tool and coating and laminating operations were down
slightly as well. Backlog at the end of the first quarter of this year
was $35.4 million compared to $56.2 million at 31 March 1997.
Net sales for the first quarter of 1998 were $23.1 million compared to
$20.2 million for the same period in 1997. The increase was primarily
at the machine tool operations, which began 1998 in a better backlog
position than in which it entered 1997. Cost of sales as a percentage
of sales was 82.1% in 1998 compared to 84.4% in the same period last
year. The improvement occurred mainly in the coil processing
operations, as a result of better margins anticipated on equipment
presently being produced.
Selling, general and administrative expenses were $3.2 million in the
first quarter of 1998 compared to $2.8 million during the same period
in 1997. As a percentage of sales, these expenses were 13.9% in 1998
compared to 13.8% in the first quarter last year. The Company has
incurred higher expenses in 1998 due to increased sales and marketing
activities and to position itself for future growth.
7
<PAGE> 9
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUARTER ENDED 31 MARCH 1998 AND 1997
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first quarter of 1998, the Company's operating activities
required $6.2 million of cash, which was used to reduce accounts
payable ($3.6 million) and accrued liabilities ($1.0 million). In
addition, advance payments from customers on contracts in process
decreased by $2.0 million as certain contracts were completed during
1998. The cash requirement was funded from the Company's cash balances
and from additional borrowings of $5.0 under the Company's revolving
credit facility. The requirement for cash during the first quarter of
1998 was primarily due to the Company's ability to collect advance
payments from customers of its coil processing operation in 1997, while
cash was used to pay manufacturing costs during 1998. The Company
forecasts that its operating activities will provide cash during the
remainder of 1998.
The Company has entered into discussions with the banks to restructure
the present credit facility, including establishing a new revolving
credit period. The Company anticipates that prior to the end of May, it
will be able to successfully negotiate a new credit facility with the
banks containing satisfactory terms and conditions satisfactory to the
Company.
FORWARD LOOKING STATEMENTS
--------------------------
In addition to historical information, this document contains various
forward-looking statements, involving risks and uncertainties, which
could cause actual results to differ materially from these statements.
These risks include, but are not limited to, changes in economic
conditions, interest rates, product price competition, customer
purchasing patterns, labor costs, product liability issues and other
legal claims and governmental regulatory issues.
8
<PAGE> 10
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
(a) Inapplicable
(b) Inapplicable
(c) Mr. Richard E. Clemens, President and Chief Executive Officer of
the Company, was issued 7,000 restricted common shares of the
Company on 10 February 1998. The shares were granted in reliance
on the exemption from registration under the Securities Act of
1933 contained at Section 4 (2) of such Act.
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended 31 March
1998.
9
<PAGE> 11
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
(Registrant)
DATE: 11 May 1998 By /s/Karl A. Frydryk
----------------------- ----------------------
Karl A. Frydryk
Vice President & Chief Financial Officer
(principal financial officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,506
<SECURITIES> 0
<RECEIVABLES> 16,509
<ALLOWANCES> 0
<INVENTORY> 9,832
<CURRENT-ASSETS> 45,948
<PP&E> 26,314
<DEPRECIATION> 17,794
<TOTAL-ASSETS> 74,651
<CURRENT-LIABILITIES> 27,132
<BONDS> 0
0
14
<COMMON> 5,815
<OTHER-SE> 35,816
<TOTAL-LIABILITY-AND-EQUITY> 74,651
<SALES> 23,064
<TOTAL-REVENUES> 23,064
<CGS> 18,933
<TOTAL-COSTS> 22,128
<OTHER-EXPENSES> 101
<LOSS-PROVISION> 1,362
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 835
<INCOME-TAX> 255
<INCOME-CONTINUING> 580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
