-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KkMba589xGgQcLiU4y++Kyaw/U8/io7z0VlLXMPG/UAqyaj5msWuLCoZYqgzrZlj eCnufAixP20PUbgY22LlxA== 0000950152-98-008801.txt : 19981113 0000950152-98-008801.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950152-98-008801 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH MACHINE TOOL CO CENTRAL INDEX KEY: 0000067532 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 344307810 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01997 FILM NUMBER: 98745198 BUSINESS ADDRESS: STREET 1: 615 N OAK ST STREET 2: PO BOX 668 CITY: SIDNEY STATE: OH ZIP: 45365 BUSINESS PHONE: 5134924111 MAIL ADDRESS: STREET 1: 615 N OAK ST STREET 2: PO BOX 668 CITY: SIDNEY STATE: OH ZIP: 45365 10-Q 1 THE MONARCH MACHINE TOOL COMPANY 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 September 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 October 23, 1998 was 3,769,427. 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 - 30 September 1998 and 31 December 1997 2 Statements of Operations and Comprehensive Income - Three Quarters and Quarter ended 30 September 1998 and 1997 3 Statements of Cash Flow - Three Quarters ended 30 September 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 9 ITEM 6 Exhibits and Reports on Form 8-K 9
1 3 PART 1 - FINANCIAL INFORMATION THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES CONDENSED BALANCE SHEETS (In thousands)
30 September 31 December 1998 1997 ---- ---- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash $ 2,149 $ 5,022 Accounts receivable 23,462 26,762 Costs and estimated earnings in excess of billings on uncompleted contracts 736 337 Inventories 8,942 11,142 Prepaid expenses 36 540 Deferred income taxes 2,312 3,102 ---------- ---------- Current assets 37,637 46,905 PROPERTY, PLANT & EQUIPMENT - NET 9,772 8,649 PREPAID PENSION COSTS 18,281 15,723 DEFERRED INCOME TAXES 1,153 1,153 OTHER ASSETS 3,150 3,439 ---------- ---------- $ 69,993 $ 75,869 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 6,119 $ 10,138 Accrued liabilities 11,190 16,016 Billings in excess of costs and estimated earnings on uncompleted contracts 5,052 5,096 Current maturities of long-term debt 46 577 ---------- ---------- Current liabilities 22,407 31,827 LONG-TERM DEBT 4,101 1,598 OTHER ACCRUED LIABILITIES 1,212 1,175 SHAREHOLDERS' EQUITY: Preferred stock 14 14 Common stock 5,815 5,741 Unearned compensation, restricted stock (68) (77) Retained earnings 36,754 35,739 Translation adjustment (242) (148) ---------- ---------- 42,273 41,269 ---------- ---------- $ 69,993 $ 75,869 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 2 4 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share amounts) (Unaudited)
Three Quarters Ended 30 September Quarter Ended 30 September --------------------------------- -------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $ 60,427 $ 81,066 $ 18,168 $ 25,523 Operating costs and expenses: Cost of sales 48,335 68,370 14,441 21,317 Selling, general and administrative 9,471 11,275 3,015 3,502 ---------- ---------- ---------- ---------- Operating income 2,621 1,421 712 704 Other income (expense): Interest expense (252) (891) (72) (187) Interest income 125 212 12 96 Other income (expense) (102) (530) 13 (932) ---------- ---------- ---------- ---------- Income (loss) before income taxes 2,392 212 665 (319) Income tax provision (benefit) 791 (73) 226 (143) ---------- ---------- ---------- ---------- Net income (loss) 1,601 285 439 (176) Other comprehensive (income), loss net of tax - foreign currency translation adjustments (62) (265) 52 (51) ---------- ---------- ---------- ---------- Comprehensive income $ 1,539 $ 20 $ 491 $ (227) ========== ========== ========== ========== Average common shares outstanding 3,768 3,762 3,769 3,762 ========== ========== ========== ========== Net income per common share, $ .42 $ .08 $ .12 $ (.05) basic and diluted ========== ========== ========== ========== Dividends per share: Preferred $ 1.35 $ 1.35 $ .45 $ .45 Common $ .15 $ .15 $ .05 $ .05
The accompanying notes are an integral part of the consolidated financial statements. 3 5 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Quarters Ended 30 September --------------------------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,601 $ 285 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 716 1,170 Pension income (2,420) (1,318) Deferred tax provision 791 Changes in assets and liabilities: Accounts receivable 2,901 14,336 Inventories 2,200 4,483 Other assets 793 (457) Accounts payable (4,018) (5,664) Accrued liabilities (4,789) (80) Advance payments on contracts (44) 4,471 Accrued income taxes (176) ---------- ---------- Net cash provided by (used in) operating activities (2,269) 17,050 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,877) (356) Proceeds from sale of fixed assets 1,996 ---------- ---------- Net cash provided by (used in) investing activities (1,877) 1,640 CASH FLOWS FROM FINANCING ACTIVITIES: Dividends (585) (584) Repayments of short-term borrowings, net (15,766) Proceeds from long-term borrowings 6,971 Repayments of long-term borrowings (5,000) Issuance of restricted stock 19 ---------- ---------- Net cash provided by (used in) financing activities 1,386 (16,331) EFFECT OF EXCHANGE RATES ON CASH (113) (404) ---------- ---------- INCREASE (DECREASE) IN CASH (2,873) 1,955 CASH - BEGINNING OF PERIOD 5,022 4,848 ---------- ---------- CASH - END OF PERIOD $ 2,149 $ 6,803 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements 4 6 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTERS ENDED 30 SEPTEMBER 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. The Accounting Standards Executive Committee ("AcSEC") of the AICPA has issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use. The Company has chosen earlier application of SOP 98-1, effective for 1998, in conjunction with the Company's implementation of its Enterprise Resource Planning system. The Company has adopted SFAS No. 129 "Disclosure of Information about Capital Structure", which was effective for financial statements for periods ending after December 15, 1997 and established standards for disclosing information about an entity's capital structure. The adoption of SFAS No. 129 had no significant effect on the Company's disclosures about its capital structure. The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which was effective for financial statements for periods beginning after December 15, 1997 and established standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The only non-owner source of change in equity in 1997 and 1998 is the Company's translation adjustment related to its investment in foreign subsidiaries. The Company has adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", which was effective for fiscal years beginning after December 15, 1997 and established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's adoption of FASB No. 131 has not had a material impact on its financial statement presentation or related disclosures. In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company does not expect the effect of SFAS No. 133 on its financial statements to be significant. 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. 5 7 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTERS ENDED 30 SEPTEMBER 1998 AND 1997 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 (in thousands):
30 September 31 December 1998 1997 Finished goods $ 1,915 $ 2,729 Work-in process and parts $ 10,495 12,381 Raw materials 874 320 Less LIFO reserve (4,342) (4,288) ---------- ---------- Net inventories $ 8,942 $ 11,142 ========== ==========
4. INDEBTEDNESS ------------ In May 1998, the Company executed a $15 million revolving credit facility. The amount available under the credit facility is based on eligible accounts receivable and inventory. The Company had $14.2 million available under the revolving credit facility of which $4 million was borrowed at 30 September 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. 5. OPTION TO SELL REAL ESTATE -------------------------- In August, the Company executed on option to sell 39 acres of land. The option price is $1.56 million and the option requires various conditions to be satisfied and stipulates closing of the sale by February 15, 1999. A six month extension beyond February 15, 1999 is available to the buyer at a revised purchase price of $1.6 million. The Company's carrying value of the land is $82,000. 6 8 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE QUARTERS ENDED 30 SEPTEMBER 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 three quarters and quarter ended 30 September 1998 were $1,601,000, or $.42 per share, and $439,000, or $.12 per share, respectively compared to net earnings of $638,000, or $.17 per share, and a loss of $13,000 or ($.03) per share, respectively, from ongoing operations for the same periods of 1997. The increase in earnings was principally the result of a strong first three quarters at the coil processing operation and improved profit margins on contracts in process. A reduction in interest expense associated with lower borrowing levels during the first three 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 has been negatively impacted by increased competition and a lower demand for its products. This situation has affected this division's selling prices and gross margins and has resulted in lower income in 1998 compared to 1997. Backlog at 30 September 1998 for the Company was $32.9 million compared to $49.9 million at 30 September 1997. Net sales for the three quarters and quarter ended 30 September 1998 were $60.4 and $18.2 million, respectively, compared to $67.2 and $22.2 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 as well as increased competition in the machine tool segment, particularly from Japan, along with lower demand for its products. Cost of sales as a percentage of sales was 80% and 79.5% for the three quarters and quarter ended 30 September 1998 compared to 83.7% and 82.6% 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 $9.5 million and $3.0 million for the three quarters and quarter ended 30 September 1998, respectively, compared to $8.2 million and $2.8 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. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- During the first three quarters of 1998, the Company's operating activities required $2.3 million of cash, which was used to reduce accounts payable ($4.0 million) and accrued liabilities ($4.8 million). A reduction in accounts receivable and inventories provided $5.1 million of cash in 1998. Capital expenditures required $1.9 million in cash while dividends paid were $585,000 in the first nine months of 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 three 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. 7 9 THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS THREE QUARTERS ENDED 30 SEPTEMBER 1998 AND 1997 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 $4 million was borrowed at 30 September 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. 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 a year that begins with "20" instead of "19". 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. Funds for this program are expected to be available to the Company from its internal operations and, if necessary, from its lines of credit. 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 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 substantially all of its Year 2000 projects during 1999, with major completion milestones being targeted for the first, second and third quarters. In the event the Company falls short of these milestones, additional internal resources will be focused on completing these projects or implementing contingency plans. 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. 8 10 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 September 1998. 9 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: 6 November 1998 By /s/ Karl A. Frydryk --------------------------- ------------------------------ Karl A. Frydryk Vice President & Chief Financial Officer 10 EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 2,149 0 24,830 1,368 8,942 37,637 34,453 24,681 69,993 22,407 4,101 0 14 5,815 36,444 69,993 60,427 60,427 48,335 57,806 102 225 252 2,392 791 1,601 0 0 0 1,601 .42 .42
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