<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 30 June 1998
------------
or
( ) TRANSITION REPORT PURSUANT OT SECTION 13 OR 15 (d) OF
THE SECRUITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1 - 1997
--------
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
--------------
(Registrant's telephone number including area code)
- -------------------------------------------------------------------------------
(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 July 29, 1998 was 3,769,427.
<PAGE> 2
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION:
<S> <C>
ITEM 1. - Condensed Financial Statements:
Balance Sheets - 30 June 1998 and 31 December 1997 2
Statements of Operations and Comprehensive Income -
Two Quarters and Quarter ended 30 June 1998 and 1997 3
Statements of Cash Flow - Two Quarters ended 30 June 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:
ITEMS 1- 5 Inapplicable 8
ITEM 6 Exhibits and Reports on Form 8-K 8
</TABLE>
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
30 June 31 December
1998 1997
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 886 $ 5,022
Accounts receivable 24,800 26,762
Costs and estimated earnings in excess of
billings on uncompleted contracts 522 337
Inventories 10,768 11,142
Prepaid expenses 162 540
Deferred income taxes 2,504 3,102
-------- --------
Current assets 39,642 46,905
PROPERTY, PLANT & EQUIPMENT - NET 8,976 8,649
PREPAID PENSION COSTS 17,434 15,723
DEFERRED INCOME TAXES 1,153 1,153
OTHER ASSETS 3,375 3,439
-------- --------
$ 70,580 $ 75,869
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,753 $ 10,138
Accrued liabilities 12,911 16,016
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,436 5,096
Current maturities of long-term debt 41 577
-------- --------
Current liabilities 23,141 31,827
LONG-TERM DEBT 4,093 1,598
OTHER ACCRUED LIABILITIES 1,203 1,175
SHAREHOLDERS' EQUITY:
Preferred stock 14 14
Common stock 5,815 5,741
Unearned compensation, restricted stock (101) (77)
Retained earnings 36,509 35,739
Translation adjustment (94) (148)
-------- --------
42,143 41,269
-------- --------
$ 70,580 $ 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>
Two Quarters Ended 30 June Quarter Ended 30 June
-------------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 42,259 $ 55,544 $ 19,194 $ 29,556
Operating costs and expenses:
Cost of sales 33,853 47,053 14,918 25,041
Selling, general and administrative 6,497 7,774 3,303 3,835
-------- -------- -------- --------
Operating income 1,909 717 973 680
Other income (expense):
Interest expense, net (180) (704) (91) (340)
Interest income 113 116 56 75
Other income (expense) (115) 402 (46) 288
-------- -------- -------- --------
Income before income taxes 1,727 531 892 703
Income tax provision 565 70 310 194
-------- -------- -------- --------
Net income 1,162 461 582 509
Other comprehensive income,
net of tax - foreign
currency translation
adjustments 52 (215) 36 (14)
-------- -------- -------- --------
Comprehensive income $ 1,214 $ 246 $ 618 $ 495
======== ======== ======== ========
Average common shares outstanding 3,769 3,762 3,769 3,762
======== ======== ======== ========
Net income per common share, $ .31 $ .12 $ .15 $ .13
basic and diluted ======= ====== ====== =======
Dividends per share:
Preferred $ .90 $ .90 $ .45 $ .45
Common $ .10 $ .10 $ .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>
Two Quarters Ended 30 June
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,162 $ 461
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 478 815
Pension income (1,646) 879
Deferred tax provision 599
Changes in assets and liabilities:
Accounts receivable 1,841 10,840
Inventories 374 (2,893)
Other assets 443 (492)
Accounts payable (3,385) (4,582)
Accrued liabilities (3,078) 1,295
Advance payments on contracts (1,660) 4,884
Accrued income taxes (176)
---------- ----------
Net cash provided by (used in) operating activities (4,872) 11,031
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (806)
Proceeds from sale of fixed assets 197
---------- ----------
Net cash provided by (used in) investing activities (806) 197
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (390) (389)
Repayments of short-term borrowings, net (9,761)
Proceeds from long-term borrowings 4,960
Repayments of long-term borrowings (3,000)
Issuance of restricted stock 8
---------- ----------
Net cash provided by (used in) financing activities 1,570 (10,142)
EFFECT OF EXCHANGE RATES ON CASH (28) (326)
---------- ----------
INCREASE (DECREASE) IN CASH (4,136) 760
CASH - BEGINNING OF PERIOD 5,022 4,848
---------- ----------
CASH - END OF PERIOD $ 886 $ 5,608
========== ==========
</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
TWO QUARTERS ENDED 30 JUNE 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
periods presented in 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 statements of operations and comprehensive income reflect 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>
30 June 31 December
1998 1997
-------- --------
<S> <C> <C>
Finished goods $ 3,106 $ 2,729
Work-in process and parts 9,495 12,381
Raw materials 2,455 320
Less LIFO reserve (4,288) (4,288)
-------- --------
Net inventories $ 10,768 $ 11,142
======== ========
</TABLE>
5
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED 30 JUNE 1998 AND 1997
5. INDEBTEDNESS
------------
In May 1998, the Company executed a $15,000,000 revolving credit
facility. The amount available under the credit facility is based on
eligible accounts receivable and inventory. The Company had $15 million
available under the revolving credit facility of which $3 million was
borrowed at 30 June 1998.
This facility can be converted to a term loan on May 29, 2001 and is
payable in eight quarterly installments beginning June 30, 2001.
6
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED 30 JUNE 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 periods
presented for this year, all references in the following discussion to
the periods in 1997 are adjusted to eliminate the impact of these
operations.
Net earnings for the two quarters and quarter ended 30 June 1998 were
$1,162,000, or $.31 per share, and $582,000, or $.15 per share,
respectively compared to net earnings of $650,000, or $.17 per share,
and $620,000, or $.16 per share, respectively, from ongoing operations
for the same periods of 1997. The increase in earnings was principally
the result of a strong first two quarters at the coil processing
operation due to plant capacity utilization and improved profit margins
on contracts in process. A reduction in interest expense associated
with lower borrowing levels during the first two quarters of 1998 also
contributed to increased earnings. The coating and laminating operation
has operated at a loss in 1998 due to limited sales during its start up
phase. The machine tool division continues to be profitable although
lower sales volume in the second quarter of 1998 has resulted in lower
income in 1998 compared to 1997. Backlog at 30 June 1998 was $36.9
million compared to $53.2 million at 30 June 1997.
Net sales for the two quarters and quarter ended 30 June 1998 were
$42.3 and $19.2 million, respectively, compared to $44.9 and $24.7
million for the same periods in 1997. The decrease was primarily due to
the Company entering 1998 with a lower backlog than it had in the
beginning of 1997. Cost of sales as a percentage of sales was 80.3% and
78.2% for the two quarters and quarter ended 30 June 1998 compared to
84.3% and 84.2% for the same periods in 1997. The improvement occurred
mainly in the coil processing operations, as a result of better margins
on equipment presently being produced.
Selling, general and administrative expenses were $6.5 million and $3.3
million for the two quarters and quarter ended 30 June 1998,
respectively, compared to $5.5 million and $2.7 million during the same
periods in 1997. 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
TWO QUARTERS ENDED 30 JUNE 1998 AND 1997
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first two quarters of 1998, the Company's operating
activities required $4.9 million of cash, which was used to reduce
accounts payable ($3.4 million) and accrued liabilities ($3.1 million).
In addition, advance payments from customers on contracts in process
decreased by $1.7 million as certain contracts were completed during
1998. A reduction in accounts receivable and inventories provided $2.2
million of cash in 1998. The remaining cash requirement was funded from
the Company's cash balances and from additional net borrowings of $2.0
million under the Company's revolving credit facility. The requirement
for cash during the first two quarters 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.
In May 1998, the Company executed a $15,000,000 revolving credit
facility, with the amount available under the credit facility based on
eligible accounts receivable and inventory. The Company had $15 million
available under the revolving credit facility, of which $3 million was
borrowed at 30 June 1998. This facility can be converted to a term loan
on May 29, 2001 and is payable in eight quarterly installments
beginning June 30, 2001.
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, price and product offering competition from
domestic and foreign entities, customer purchasing patterns, labor
costs, product liability issues and other legal claims and governmental
regulatory issues.
PART II - OTHER INFORMATION
Items 1-5 - Inapplicable
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended 30
June 1998.
8
<PAGE> 10
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: 7 August 1998 By /s/Karl A. Frydryk
---------------------- ------------------------------------
Karl A. Frydryk
Vice President & Chief Financial Officer
9
<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 IT ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 886
<SECURITIES> 0
<RECEIVABLES> 26,345
<ALLOWANCES> 1,546
<INVENTORY> 10,768
<CURRENT-ASSETS> 39,642
<PP&E> 33,094
<DEPRECIATION> 24,445
<TOTAL-ASSETS> 70,580
<CURRENT-LIABILITIES> 23,141
<BONDS> 0
0
14
<COMMON> 5,815
<OTHER-SE> 36,314
<TOTAL-LIABILITY-AND-EQUITY> 70,580
<SALES> 42,259
<TOTAL-REVENUES> 42,259
<CGS> 33,853
<TOTAL-COSTS> 40,350
<OTHER-EXPENSES> 115
<LOSS-PROVISION> 249
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 1,727
<INCOME-TAX> 565
<INCOME-CONTINUING> 1,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,162
<EPS-PRIMARY> .31
<EPS-DILUTED> 0
</TABLE>
