<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 June 30, 1999
-------------
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)
N. A.
-------------------------------------------------------------------------------
(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, 1999 was 4,282,817.
<PAGE> 2
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION:
ITEM 1. - Condensed Financial Statements:
Balance Sheets - June 30, 1999 and December 31, 1998 2
Statements of Operations and Comprehensive Income -
Quarter and Two Quarters ended June 30, 1999 and 1998 3
Statements of Cash Flow - Two Quarters 4
ended June 30, 1999 and 1998
Notes to Condensed Financial Statements 5-8
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
ITEM 3. - Quantitative and Qualitative Disclosure
About Market Risk (inapplicable) 11
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3 Inapplicable 12
ITEM 4. Submission of Matters to a vote of
Security Holders 12
ITEM 5. Inapplicable 12
ITEM 6. Exhibits and Reports on Form 8-K 13
1
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 8,804 $ 1,733
Accounts receivable 27,970 23,893
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,642 3,275
Refundable income taxes 1,541
Inventories 20,038 10,486
Prepaid and other expenses 1,754 667
Deferred income taxes 3,465 1,874
----------- -----------
Current assets 70,214 41,928
PROPERTY, PLANT & EQUIPMENT - NET 32,623 11,070
INVESTMENT IN JOINT VENTURES 1,541
PREPAID PENSION COSTS 19,714 19,051
DEFERRED INCOME TAXES 1,160 1,631
GOODWILL 67,437 10,099
OTHER ASSETS 7,636 4,678
----------- -----------
$ 200,325 $ 88,457
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ $ 500
Current portion of long-term debt 4,200
Accounts payable 16,332 8,930
Accrued liabilities 19,071 12,153
Billings in excess of costs and estimated
current earnings on uncompleted contracts 11,958 5,517
----------- -----------
Current liabilities 51,561 27,100
POSTRETIREMENT BENEFITS 3,784 1,450
LONG-TERM DEBT 97,349 16,497
OTHER LONG-TERM LIABILITIES 714 756
SHAREHOLDERS' EQUITY:
Preferred stock 14 14
Common stock 9,495 5,815
Unearned compensation, restricted stock (51) (37)
Retained earnings 37,859 37,042
Accumulated other comprehensive income (400) (180)
----------- -----------
46,917 42,654
----------- -----------
$ 200,325 $ 88,457
========== ===========
</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 June 30 Quarter Ended June 30
-------------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $48,633 $42,259 $25,604 $19,194
Operating costs and expenses:
Cost of sales 38,142 33,853 19,832 14,918
Selling, general and administrative 9,376 6,497 4,692 3,303
------- ------- ------- -------
Operating income 1,115 1,909 1,080 973
Other income (expense):
Interest expense, net (630) (180) (301) (91)
Interest income 80 113 42 56
Other income (expense) 1,327 (115) 154 (46)
------- ------- ------- -------
Income before income taxes 1,892 1,727 975 892
Income tax provision 681 565 352 310
------- ------- ------- -------
Net income 1,211 1,162 623 582
Other comprehensive income,
net of tax - foreign
currency translation
adjustments (145) 52 (86) 36
------- ------- ------- -------
Comprehensive income $ 1,066 $ 1,214 $ 537 $ 618
======= ======= ======= =======
Average common shares outstanding:
Basic 3,781 3,769 3,787 3,769
======= ======= ======= =======
Diluted 3,794 3,769 3,809 3,769
======= ======= ======= =======
Net income per common share,
basic and diluted $ .32 $ .31 $ .16 $ .15
======= ======= ======= =======
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 June 30
--------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,211 $ 1,162
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 1,162 478
Pension income (645) (1,646)
Deferred tax provision (benefit) 681 599
Gain on sale of assets (24)
Changes in operating assets and liabilities
excluding effect of acquisition in 1999:
Accounts receivable 3,415 1,841
Inventories (1,103) 374
Other assets (457)
Cost and estimated earnings in excess of
billings on uncompleted contracts (1,355)
Billings in excess of costs and estimated earnings
on uncompleted contracts (1,382) (1,660)
Accounts payable (1,479) (3,385)
Accrued liabilities 1,223 (3,078)
-------- --------
Net cash provided by (used in) operating activities 1,247 (5,315)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,012) (806)
Acquisition of business, net of cash acquired (73,402)
Proceeds from sale of fixed assets 36
(Increase) decrease in other assets (645) 443
-------- --------
Net cash provided by (used in) investing activities (75,023) (363)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (391) (390)
Stock activity 64
Debt acquisition costs (2,275)
Repayments of short-term borrowings (500)
Proceeds from long-term borrowings 101,709 4,960
Repayments of long-term borrowings (17,545) (3,000)
-------- --------
Net cash provided by (used in) financing activities 81,062 1,570
EFFECT OF EXCHANGE RATES ON CASH (215) (28)
-------- --------
INCREASE (DECREASE) IN CASH 7,071 (4,136)
CASH - BEGINNING OF PERIOD 1,733 5,022
-------- --------
CASH - END OF PERIOD $ 8,804 $ 866
======== ========
</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 JUNE 30, 1999 AND 1998
(all amounts in thousands except shares and per share amounts)
1. FINANCIAL STATEMENTS
--------------------
The balance sheet at December 31, 1998 presents condensed financial
information taken from the audited financial statements. The interim
financial statements are unaudited. In the first quarter of 1999 the
Company recorded an accrual for $350 as the estimated cost to settle
litigation and has also recognized $1,100 of other income as a result
of the reduction of amounts previously accrued for an environmental
liability. In the opinion of management, all other 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 two quarters
of 1999 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
December 31, 1998 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. INVENTORIES
-----------
The Company's inventories consist of the following balances:
June 30 December 31
1999 1998
------- --------
Finished goods $ 2,858 $ 1,285
Work-in process and parts 14,850 12,967
Raw materials 6,826 739
Less LIFO reserve (4,496) (4,505)
------- --------
Net inventories $20,038 $ 10,486
======= ========
4. LONG-TERM DEBT
--------------
The Company has an outstanding credit facility consisting of a term
loan facility in an aggregate principal amount of $70,000 and a
revolving credit facility, which provides for loans and letters of
credit of up to $30,000. The term loan facility consists of two
tranches in principal amounts of $50,000 (the "Term A Loan") and
$20,000 (the "Term B Loan"). The Term A Loan and the revolving credit
facility mature on June 30, 2006 and the Term B Loan matures on
December 31, 2006. Principal payments of the Term A Loan are required
on a quarterly basis beginning September 30, 1999. The amount of the
payment increases each year from a $1,000 quarterly payment during the
first four quarters to a $2,500 quarterly payment during the last four
quarters of the payment term.
5
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 1999 AND
1998 (all amounts in thousands except shares and per share amounts)
Principal payments of the Term B Loan are in quarterly installments of
$50 from September 30, 1999 through June 30, 2005 and in installments
of $9,300 on each of September 30, 2006 and December 31, 2006. The
Company is required to use the net proceeds received from any asset
sales and from the termination of two of its pension plans to repay the
amounts outstanding under these two Term Loans in reverse order of
payment due date. The weighted average interest rate of these loans was
8.40% at June 30, 1999. On June 30, 1999 the Company had $10,930
available under the above lines.
Debt acquisition costs of $2,275 were paid relating to obtaining the
new credit facility and these costs will be amortized over seven years.
The agreement for this credit facility contains certain covenants,
including a maximum senior leverage ratio, minimum interest coverage
ratios, minimum fixed charge coverage, minimum consolidated net worth
and a limitation on the amount of dividends and capital expenditures.
Substantially all the assets of the Company are pledged under the above
credit facility.
The Company also has outstanding subordinated notes consisting of
$15,000 in 12% Senior Subordinated Notes due December 31, 2007 and $840
in 8% Junior Subordinated Notes due June 30, 2002. The Company has also
issued warrants to purchase 100,000 common shares in conjunction with
the Senior Subordinated Notes, at a warrant exercise price of $7.75 per
share, subject to adjustment. The Warrants are not exercisable before
June 30, 2000 and expire on June 30, 2009. In addition, the 12%
Subordinated Note contains provisions that would increase the interest
rate and require the issuance of additional warrants if the Note is not
repaid by June 30, 2000. The fair value of the warrants issued was
estimated at $291 using the Black-Scholes Model and was recorded as a
discount to the $15,000 Senior Subordinated Note which will be
amortized over the term of the note.
5. SEGMENTS
--------
The Company operates in two primary reportable segments, coil
processing and machining centers. Business segment information is as
follows (in thousands):
Two Quarters Ended June 30
--------------------------
1999 1998
-------- --------
Sales:
Coil Processing $ 42,036 $ 25,526
Machining Centers 8,387 16,724
Segment eliminations (1,790) 9
-------- --------
Total $ 48,633 $ 42,259
======== ========
Operating Earnings:
Coil Processing $ 3,550 $ 2,308
Machining Centers (567) 707
Corporate and eliminating (1,868) (1,106)
-------- --------
Total $ 1,115 $ 1,909
======== ========
6
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
TWO QUARTERS ENDED JUNE 30, 1999 AND
1998 (all amounts in thousands except shares and per share amounts)
Included in the coil processing segment results for the two quarters
ended June 30, 1999 were sales of $10,295 and operating earnings of
$396 from GFG Corporation which was acquired by the Company on December
31, 1998.
6. ACQUISITIONS
------------
On June 30, 1999, the Company acquired Precision Industrial Corp. and
Subsidiaries (parent of Herr-Voss) ("Precision"). The acquisition has
been accounted for under the purchase method and, accordingly, the
assets and liabilities of Precision have been included in the
consolidated balance sheet at June 30, 1999.
The purchase price paid by the Company for all of the outstanding
capital stock of Precision consisted of $39,295 cash paid to seller,
$25,340 of cash used to pay seller bank debt and accrued interest, a
$15,000 seller subordinated note, an $840 Junior Subordinated Note
assumed by Precision and 500,000 shares of the Company's Common Stock
(valued at $6.59 a share). The aggregate purchase price was $82,930.
Fees and expenses paid in connection with the purchase totaled
approximately $832 and are being amortized over 25 years using the
straight-line method.
The excess purchase price over the fair value of identifiable net
assets acquired has been allocated to goodwill. Goodwill of $57,733
recorded in the transaction will be amortized over 25 years using the
straight-line method. The purchase price allocation has been completed
on a preliminary basis, subject to adjustments should new or additional
facts become known.
The following unaudited proforma information presents a summary of
consolidated results of operations of the Company as if the acquisition
of Precision had occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
Two Quarters Ended June 30
---------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Net sales $93,158 $81,882
Earnings before taxes $ 2,248 $ 1,257
Income taxes $ 947 $ 773
Net income $ 1,024 $ 484
Earnings per share (basic and diluted) $ .24 $ .11
</TABLE>
These unaudited proforma results have been prepared for comparative
purposes only and include certain adjustments such as elimination of
Precision management costs not expected to be incurred after the
acquisition, additional depreciation as a result of the step-up in the
basis of fixed assets, additional amortization expense as a result of
goodwill and an increase in interest expense as a result of
acquisition debt. They do not purport to be indicative of the results
of operations which would have resulted had the combination occurred
at the beginning of each period presented or of future results of
operations of the combined entities. The disproportionate tax provision
results from the nondeductibility of goodwill.
7. ENVIRONMENTAL LIABILITY
-----------------------
As discussed in the Company's 1998 10K filing, in 1998, a Consent
Decree was entered into among the EPA, several other potentially
responsible parties ("PRP's") and a group of ten other companies
("Defendants") related to the costs of remediation of the Rosen Site, a
former scrap yard in Cortland, New York. During April 1999, the Consent
Decree was approved by the Department of Justice and in June 1999
formally approved by the U.S. District Court in New York. Based on the
fact that this Consent Decree substantially reduced the Company's
future liability for this matter, the accrual recorded at December 31,
1998 was reduced by $1,100. The reduction in the accrual is recorded in
other income, net. The Company believes that the remaining amount
accrued of $200, is adequate to cover its share of costs which may be
incurred in this matter.
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 JUNE 30, 1999 AND 1998
RESULTS OF OPERATIONS
---------------------
Net earnings for the two quarters and quarter ended June 30, 1999 were
$1,211,000 or $.32 per share and $623,000 or $.16 per share,
respectively, compared to $1,162,000 or $.31 per share and $582,000 or
$.15 per share, respectively, for the same periods in 1998. During the
first quarter of 1999, the Company recorded $1.1 million of other
income as a result of a reversal of a previous accrual for an
environmental liability. The Company also recorded $350,000 of expense
related to settlement of litigation at its coil processing segment.
Excluding the aforementioned items, the 1999 net earnings were affected
by higher depreciation as a result of fixed asset additions, including
the new ERP system, higher interest expense due to increased borrowing
related to the GFG acquisition, and lower pension income in 1999 due to
the Company's 1998 decision to terminate two of its pension plans and
related changes in projected investment returns and the cost of
replacement plans. A discussion of results of operations on a segment
basis follows.
Coil Processing
---------------
Sales increased to $42.0 million and $22.6 million in the two quarters
and second quarter of 1999, respectively, compared to $25.5 million and
$11.8 million for the same periods in 1998. Sales of $8.6 million in
1999 from GFG, which was acquired on December 31, 1998, comprised a
large portion of the change, along with an increase in overall sales
volume. Cost of sales as a percentage of sales was 78.8% and 78.6% in
the two quarters and second quarter of 1999 compared to 78.1% and 74.7%
in the respective 1998 periods. The lower cost of sales percentage in
the second quarter of 1998 is due to better margins realized on
contracts which were completed during that period.
Operating earnings improved to $3.6 million and $2.4 million in the two
quarters and second quarter of 1999, respectively, compared to $2.3
million and $1.4 million in the same periods of 1998. This improvement
in the operating earnings is related to the increase in sales, although
at slightly lower margins compared to 1998, and the addition of GFG
which has historically been profitable. This segment was negatively
impacted by the recording of $350,000 in expense related to settlement
of litigation in the first quarter of 1999.
Orders received during the first two quarters of 1999 totaled $29.1
million, including $16.5 million by GFG, compared to $22.1 million for
the same period in 1998. Backlog at June 30, 1999 was $32.8 million,
including $13.8 million for GFG, compared to $25.9 million at June 30,
1998.
Machining Centers
-----------------
Sales declined to $8.4 million and $3.7 million in the first two
quarters and second quarter of 1999, respectively, compared to $16.7
million and $7.4 million in the same periods of 1998, as a slow-down in
domestic capital goods orders and continued selling pressures from
foreign, particularly Asian, competitors negatively affected sales
volume and selling prices for this segment. Cost of sales as a
percentage of sales was 82.0% and 76.6% in the two quarters and second
quarter of 1999, respectively, compared to 83.8% and 82.8% in the same
periods of 1998. This improvement in the cost of sales percentage in a
declining market is a result of management's steps to control
manufacturing costs and to reduce labor force in late 1998 and early
1999 in response to the lower sales volume.
8
<PAGE> 10
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 1999 AND 1998
As a result of the lower sales volume, this segment reported an
operating loss of $567,000 and $225,000 in the first two quarters and
second quarter of 1999, respectively, compared to operating earnings of
$707,000 and $245,000 for the same periods in 1998.
Orders received during the first two quarters of 1999 totaled $8.5
million compared to $15.9 million during the same period last year. The
reduction in the level of orders booked was primarily due to foreign
competition and lower demand for this segments' products. Backlog at
the end of the second quarter of this year was $4.7 million compared to
$8.1 million at June 30, 1998.
9
<PAGE> 11
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 1999 AND 1998
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first two quarters of 1999, exclusive of the Precision
acquisition, the Company's operating activities provided $1.2 million.
Cash was used to reduce accounts payable ($1.5 million) and increase
inventories ($1.1 million). In addition, costs incurred on contracts in
process exceeded advance payments from customers and required $2.7
million in cash. Decreases in accounts receivable provided $3.4 million
and increases in accrued liabilities provided $1.2 million. The cash
provided from operations was used for capital expenditures, other
assets and to pay dividends.
The Company borrowed $101.2 million and repaid $17.5 million of
long-term debt on June 30, 1999, with the cash used primarily to
conclude the purchase of Precision Industrial Corporation and for
repayment of the Company's previous lender. The purchase price paid by
the Company for the outstanding capital stock of Precision consisted of
$39.3 million cash paid to seller, $25.3 million of cash used to pay
seller bank debt and accrued interest, a $15 million seller
subordinated note, and 500,000 shares of Stock (valued at $6.59 a
share). The aggregate purchase price was $82.9 million. Fees and
expenses paid in connection with the purchase totaled approximately
$832,000.
At June 30, 1999, the Company had borrowed $16 million under its $30
million revolving credit facility and utilized $3.1 million of the
facility for letters of credit. The remaining amount of $10.9 million
is available for general corporate purposes.
At an August 1999 meeting, the Board of Directors of the Company
decided to discontinue paying a dividend to the common shareholders of
the Company. A dividend had been paid at the rate of $.05 per share per
quarter. By discontinuing those dividend payments, the Company's cash
flow will benefit by $850,000 per year. Payment of the dividend to the
Company's preferred shareholders, at an annual cash requirement of
$26,000, will be continued.
YEAR 2000
---------
Year 2000 issues arise because of the inability of many existing
computer systems and software, which utilize a two-digit conversion for
recording years, to properly recognize and process information relating
to Year 2000. In early 1998, the Company began a Company-wide program
to replace its internal information processing systems for reasons
unrelated to Year 2000 issues. It expects to complete this program
during the third quarter of 1999, which should result in its internal
information processing systems being Year 2000 compliant. The cost to
the Company to fully implement this new system is estimated at
approximately $2.5 million. Through June, 1999, the Company has spent
$2.4 million on this project. Funds for this program are expected to be
available to the Company from its internal operations and, if
necessary, from its line of credit. GFG Corporation, acquired by the
Company in late 1998, and Precision Industrial Corporation, acquired on
June 30, 1999 are also in the process of replacing their information
processing systems. These processes began in 1998 and are expected to
be substantially completed during the third quarter of 1999. The
Company estimates the remaining cost of these processes to be
approximately $200,000. As part of a comprehensive Year 2000 compliance
project, the Company is also assessing other key aspects of its
operating and administrative processes which, if they would become
inoperable due to Year 2000 issues, would have a material impact on the
Company's ability to continue its normal operations. This program
includes a plan to identify the extent to which key vendors and
consultants are addressing this same issue and an assessment of the
Company's products. The Company will
10
<PAGE> 12
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWO QUARTERS ENDED JUNE 30, 1999 AND 1998
monitor and evaluate the progress of its vendors and consultants on
this matter. The Company is also reviewing its non-information
technology systems to determine the extent of any changes that may be
necessary and presently believes that there will be minimal changes
necessary for compliance. Although the Company cannot assess the result
of this evaluation until it has obtained further information, based
upon the work it has performed to date, it is not presently aware of
any Year 2000 issues which would have a disruptive impact on its
operations or a material adverse impact upon its financial condition or
results of operation.
The Company believes it is diligently addressing Year 2000 issues and
that it will satisfactorily resolve any significant Year 2000 problems.
The Company anticipates completing its Year 2000 projects during 1999,
with major completion milestones completed in the second quarter and
targeted for the third quarter. In the event the Company falls short of
these milestones, additional internal resources will be focused on
completing these projects or implementing contingency plans.
INTEREST RATE RISK
------------------
A change in interest rates could have an impact on the Company's
financial results, as the Company is presently paying a variable
interest rate on the majority of its outstanding debt. The risk to the
Company has increased as a result of the higher level of indebtedness
the Company is carrying as a result of the financing required to
acquire Precision Industrial Corporation. In conjunction with its
lenders, the Company is evaluating the cost and benefits of instituting
an interest rate protection arrangement to address the risk in this
area.
FORWARD LOOKING STATEMENTS
--------------------------
In addition to historical information, this document contains various
forward-looking statements, which are subject to risks, and
uncertainties that 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,
governmental regulatory issues and Year 2000 readiness issues. Words
identifying forward-looking statements include "plan", "believe",
"expect", "anticipate", "project", "intend", "estimate" and other
expressions which are predictions or indications of future events or
trends which do not relate to historical matters.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the
statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Readers are urged to
carefully review and consider the various disclosures made by the
Company in this document and other reports filed with the Securities
and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
11
<PAGE> 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As discussed in the Company's 1998 10K filing, in 1998, a Consent
Decree was entered into among the EPA, several other potentially
responsible parties ("PRP's") and a group of ten other companies
("Defendants") related to the costs of remediation of the Rosen Site, a
former scrap yard in Cortland, New York. During April 1999, the Consent
Decree was approved by the Department of Justice and in June 1999 was
approved by the U.S. District Court in New York. Based on the fact that
this Consent Decree substantially reduced the Company's future
liability for this matter, the accrual recorded at December 31, 1998
was reduced by $1,100,000. The reduction in the accrual is recorded in
other income, net. The Company believes that the remaining amount
accrued of $200,000, is adequate to cover its share of costs, which may
be incurred in this matter.
Item 2 - Changes in Securities
(a) Inapplicable
(b) Inapplicable
(c) On June 30, 1999 the Company issued 500,000 shares of stock to the
shareholders of Precision Industrial Corporation in conjunction
with an acquisition. The shares were issued in reliance on the
exemption from registration under the Securities Act of 1933
contained at Section 4 (2) of such Act.
Item 3 - Inapplicable
Item 4 - Submission of Matters to a vote of Security Holders.
(a.) The Company's Annual Shareholders meeting was held on
May 5, 1999.
(b.) The following Directors were elected to serve a three year
term:
<TABLE>
<CAPTION>
Votes for Votes Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
John A. Bertrand 2,861,290 20,339 0
William R. Graber 2,861,556 20,073 0
Waldemar M. Goulet 2,861,556 20,073 0
</TABLE>
The following continued as Directors:
Richard E. Clemens
Gerald L. Connelly
Joseph M. Rigot
William A. Enouen
David E. Lundeen
(c.) The following summarizes the voting for the Company's
Long-Term Incentive Stock Plan:
<TABLE>
<CAPTION>
Votes for Votes Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
2,740,936 120,716 19,997
</TABLE>
Item 5 - Inapplicable
12
<PAGE> 14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 23 - Consent of Independent Public Accountants
Exhibit 27 - Financial Data Schedule
(b) On July 15, 1999 the Company filed an 8-K in conjunction with its
acquisition of Precision Industrial Corporation, in which it
provided financial statements and exhibits and proforma financial
information related to its acquisition of Precision Industrial
Corporation.
13
<PAGE> 15
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: August 16, 1999 By s/Karl A. Frydryk
--------------------------- -----------------
Karl A. Frydryk
Vice President & Chief Financial Officer
(principal financial officer)
14
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTS
-------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8, relating to The Monarch Machine Tool Company
1984 Employees Stock Option Plan (File No. 2-92311) and the 1994
Employees Stock Option Plan (File No. 33-80332), of our report dated
July 13, 1999, included in Monarch's Current Report on Form 8-K, dated
July 15, 1999.
By s/Arthur Andersen LLP
--------------------------
Pittsburgh, Pennsylvania
July 13, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,804
<SECURITIES> 0
<RECEIVABLES> 29,270
<ALLOWANCES> 1,300
<INVENTORY> 20,038
<CURRENT-ASSETS> 70,214
<PP&E> 51,468
<DEPRECIATION> 18,845
<TOTAL-ASSETS> 200,325
<CURRENT-LIABILITIES> 51,561
<BONDS> 97,562
0
14
<COMMON> 9,495
<OTHER-SE> 37,408
<TOTAL-LIABILITY-AND-EQUITY> 200,325
<SALES> 48,633
<TOTAL-REVENUES> 48,633
<CGS> 38,142
<TOTAL-COSTS> 38,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 1,892
<INCOME-TAX> 681
<INCOME-CONTINUING> 1,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211
<EPS-BASIC> 32
<EPS-DILUTED> 32
</TABLE>
