<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1995 Commission File No. 1-1997
THE MONARCH MACHINE TOOL COMPANY
An Ohio Corporation Employer Identification
No. 34-4307810
615 North Oak Street, Sidney, Ohio 45365
Telephone 513/492-4111
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common shares, without par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
-------------------------------
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 .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the common shares held by nonaffiliates of the
registrant as of the close of business on March 1, 1996 was $42,599,000.
The number of common shares outstanding as of March 1, 1996, was 3,744,967.
Documents Incorporated By Reference
(1) Portions of the registrant's annual report to security holders for the
year ended December 31, 1995 (Part II)
(2) Portions of the registrant's definitive proxy statement to be filed in
connection with the annual meeting of shareholders to be held on May
7, 1996. (Parts I & III)
There are a total of 44 pages filed in this document.
An Index of Exhibits is on page 12.
1
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Part I
------
Item 1 - Business
- -----------------
The Monarch Machine Tool Company ("Monarch" or the "Company") was
incorporated in 1909.
Products
--------
The Company operates in three primary industries in which it
designs and builds machinery in the machine tool, coil processing
and paper converting industries. The Company's products are
primarily used by manufacturers of industrial equipment and,
directly or indirectly, consumer products.
All Company products are sold by direct Company salesmen or
independent agents throughout the United States and the world.
The following is a description of the primary products produced by
the Company:
Machine Tools
-------------
Turning Machines - A metal cutting turning machine removes metal by
engaging a stationary tool on the surface of a rotating part.
Monarch manufactures different types of turning machines, including
chuckers for short parts, shaft machines for long cylindrical
parts, and bar machines for parts cut from bar stock. Both two
axis (one cutting tool in the cut) and four axis (two cutting tools
in the cut simultaneously) are available in most configurations.
The machines are operated by computer numerical control. Once
programs are stored in the control, all of the functions of the
machine can be performed without operator assistance. Automatic
part loading devices also built by Monarch can be added for further
unassisted operation. Monarch also manufactures several models of
manually operated conventional lathes.
Machining Centers - A machining center is a multifunction machine
that removes metal by milling, drilling, boring, or tapping with a
rotating tool on a stationary part. Monarch manufactures vertical
spindle machining centers in various sizes and configurations. All
are computer numerically controlled and have automatic toolchangers
that change tools in the spindle without operator assistance.
Automatic part loading devices have been developed by Monarch that
can be added to most models.
Coil Processing Machinery
-------------------------
Monarch engineers and manufactures a broad line of metal coil
processing machinery. This equipment, generally sold as complete
lines, is used by steel and aluminum mills, ferrous and non-ferrous
supply centers, and end users of strip material. Monarch coil
processing lines perform various operations, such as slitting,
tension leveling, shearing, cleaning, forming, coating,
galvanizing, annealing, and heat treating. Individual components
are also manufactured for the upgrading of existing lines.
Paper Converting Machinery
--------------------------
In 1995, the Company entered a new industry segment with its
purchase of certain assets of the paper converting machinery
segment of the Depiereux group of companies. The coating and
laminating equipment, typically sold in complete lines, is used by
paper, plastics and foil converters to further process these
materials for use in flexible or medical packaging, pressure
sensitives, adhesives products and wall coverings. The lines
include continuous roll processing with inline coating, drying, dry
or wet laminating, slitting and rewinding. The
2
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Item 1 - Business, continued
- -----------------
coatings and adhesives applied are aqeous solvent, solventless, hot
melt and wax. Individual components are also available for
upgrading existing installations.
Competition
-----------
Monarch actively competes with other machinery manufacturers, both
domestic and foreign. The market for coil processing equipment,
paper converting machinery and metal cutting machine tools is
subject to normal price, service, and quality competition. Foreign
machine tool manufacturers (primarily Japanese) continue to make
serious inroads into the American market.
Customers
---------
Monarch has a broad market base. Virtually all manufacturing
plants that perform metal cutting operations are potential
customers for Monarch turning machines and machining centers.
Producers, suppliers, and users of strip metal generally have
application for Monarch coil processing machinery. The Company's
paper converting machinery is manufactured for use by potential
customers in the packaging industry and many other producers of
commercial and consumer products. The loss of any one customer
would not have a materially adverse effect upon the Company.
Backlog
-------
Monarch's backlog, segregated by industry segment is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Machine Tools $13,739 $13,958
Coil Processing Machinery 45,879 35,611
Paper Converting Processing
Machinery - -
------- -------
$59,618 $49,569
======= =======
</TABLE>
The entire 1995 backlog can reasonably be expected to be shipped
within twelve months. Seasonal factors are not significant to
Monarch.
Purchases of Raw Materials and Supplies
---------------------------------------
Monarch manufactures substantially all of the parts of its machines
other than numerical controls, large gear boxes, motors, and
electrical components. The principal materials purchased are
obtained on a competitive basis from many different sources and are
readily available. Monarch's numerically controlled machines are
designed to be used with controls made by any one of the major
control manufacturers that supply Monarch.
Patents
-------
Patents, licenses, and franchises are not considered significant to
the business. Since 1989, Monarch has had an exclusive agreement
with Coremu, S.p.A., Rivanazzano, Italy, to manufacture computer
numerically controlled vertical turning and boring machines of
their design in the United States and to market them in the United
States, Canada, and Mexico. This equipment handles larger diameter
work than the horizontal turning machines built by Monarch.
3
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Item 1 - Business, continued
- ------------------
Engineering and Development
---------------------------
Monarch's engineering departments, which currently employ 128
persons, are responsible for engineering customer orders, the
improvement of existing product lines, and the development of new
product lines. Monarch's major product lines have been engineered
and developed by Monarch personnel. Refer to the Notes to
Consolidated Financial Statements, incorporated into this Form 10K
by reference, for the amount of research and development expense in
1995, 1994 and 1993.
Employees
---------
Monarch had 697 employees at December 31, 1995.
Working Capital
---------------
Because of the long manufacturing time required to manufacture its
products, Monarch is normally required to finance a substantial
volume of work in process.
Domestic and Foreign Operations and Export Sales
------------------------------------------------
Amounts of revenue, profitability, and identifiable assets
attributable to domestic and foreign operations for 1995, 1994, and
1993 are included in Notes to Consolidated Financial Statements
incorporated by reference into this Form 10-K.
Item 2 - Properties
-------------------
Domestic
--------
Operations in Sidney, Ohio, corporate headquarters of Monarch, are
conducted in a plant of 441,000 square feet. Manufacturing
operations are also conducted in Cortland, New York, in a plant of
135,000 square feet and in New Bremen, Ohio, in a plant of 180,000
square feet. All facilities are owned by Monarch. Monarch's
manufacturing facilities, both real estate and machinery, are in
good condition.
Foreign Subsidiaries
--------------------
Monarch Werkzeugmaschinen GmbH, in Hemsbach, Germany, serves as a
sales and service headquarters for U.S. machine tools in Europe.
The operations are conducted in owned facilities (10,000 square
feet). As a result of the Company's decision to consolidate their
German operations the Company has decided to place the property and
equipment of the Hemsbach, Germany subsidiary for sale.
Stamco (U.K.), Ltd., engineers and sells strip processing machinery
that is produced in the United Kingdom and operates from leased
general purpose facilities located in Walsall, England.
Stamco Depiereux GmbH, engineers and sells strip processing
machinery and operates from leased general purpose facilities in
Dueren, Germany.
Monarch Busch GmbH, engineers and sells paper converting machinery
and operates from leased general purpose facilities in Dueren,
Germany.
All of the facilities are in good condition.
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Item 3 - Legal Proceedings
- ---------------------------
In September 1988, the Company and several other potentially
responsible parties, ("PRPs"), were ordered by the Environmental
Protection Agency, under the Federal "Superfund" legislation to
perform a removal action to dispose of waste materials at the Rosen
site, a former scrap yard in Cortland, New York. Thereafter, the
Company and certain other PRPs agreed to perform a Remedial
Investigation, Risk Assessment, and Feasibility Study at the site.
The Remedial Investigation, Risk Assessment, and Feasibility Study
have now been completed by an engineering firm and submitted to EPA
Region II.
Six PRPs shared in the cost of the Remedial Investigation, Risk
Assessment, and Feasibility Study. In 1992, five of these PRPs,
including the Company, sued 15 additional companies and individuals
that were considered to be potentially liable to share in the costs
of the Remedial Investigation, Risk Assessment, and Feasibility
Study and ultimate clean-up of the site.
During 1993, it was preliminarily estimated that the minimum
remedial efforts could cost from $6,000,000 to $8,500,000.
Accordingly, during 1993, the Company accrued an additional
$1,600,000 to cover its share of the estimated costs associated
with the ultimate resolution of this matter. Because of financial
difficulties experienced by one of the PRPs and because the suit
against the potential additional PRPs is not settled, the Company
computed its share of the estimated costs on the basis of five
PRPs.
During 1994, the estimated minimum costs of the remedial efforts
did not materially change. However, because of the many
uncertainties surrounding this issue the Company expensed
approximately $300,000 of such costs instead of off-setting it
against the accrued liabilities. Accordingly, at December 31, 1994
the Company maintained its accrual at $1,715,000 to absorb future
costs associated with this matter.
During 1995, the aforementioned Risk Assessment concluded there was
little, if any risk to human health at the site. The Feasibility
Study concluded that a cap over a portion of the site, an asphalt
cover over the remainder of the site, together with continual
ground water monitoring would constitute an adequate remedy. The
EPA however, has informally taken the position that some site
excavation will be required and has not yet formally commented on
the Feasibility Study.
During 1995, the estimated minimum costs of the remedial efforts
did not materially change. If the EPA accepts the recommendations
described in the Feasibility Study, capital costs would be incurred
in the early part of the remedial efforts and annual operating and
maintenance costs primarily associated with ground-water monitoring
and sampling would be incurred over a 30 year period. However, the
EPA has givien no indication that the remedy proposed in the
Feasibility Study would be an acceptable one so that the final cost
of the approved remedy should be considered highly speculative at
this time. The ultimate liability of the Company will vary
depending on the actual costs which will be incurred, the
resolution of the lawsuit against the potential additional PRPs,
the allocation of the costs of remediation among the various PRPs,
and the financial viability of the existing PRPs.
In prior years, the Company commenced an action against six
insurance carrier's to secure defense and indemnification coverage
for matters associated with defense costs and other costs
associated with the clean up of the Rosen Site. In October 1995,
the parties agreed to a settlement in which six of the insurance
carriers, later amended to five, agreed to make a combined payment
of $350,000 to the Company in exchange for a full site release.
The Company has recorded this settlement in December 1995 and is
studying the legal alternatives available against the sixth
insurance carrier.
5
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The Company is a defendant in various legal actions, primarily
product liability claims, arising in the ordinary course of
business. In the opinion of management, the ultimate liability, if
any, resulting from these matters will not have a material effect
on the Company's consolidated financial position. The significance
of these matters on the Company's future operating results will
depend on the Company's level of future earnings as well as the
timing and the amount of the ultimate disposition of these matters
above the amounts covered by insurance.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
-------
Item 5 - Market for the Registrant's Common Equity and Related Shareholders
- ---------------------------------------------------------------------------
Matters
-------
The information required by this Item 5 is set forth under the
heading "Selected Financial Data" on page 7 of the Annual Report.
Such information is incorporated herein by this reference.
Item 6 - Selected Financial Data
- --------------------------------
The information required by Item 6 is set forth under the heading
"Selected Financial Data" on page 7 of the Annual Report and is
incorporated herein by this reference.
Item 7 - Management's Discussion and Analysis of Financial Conditions and
- -------------------------------------------------------------------------
Results of Operations
---------------------
The information required by this Item 7 is set forth under the
heading "Management's Discussion and Analysis" on pages 4 through 6
of the Annual Report and is incorporated herein by this reference.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
The information required by this Item 8 is set forth on pages 8
through 18 of the Annual Report and is incorporated herein by this
reference.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None
6
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PART III
--------
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Executive Officers of the Registrant
------------------------------------
The names and ages of all officers, all of whom are appointed for a
term of one year and, except as noted, have been officers and
employees of the registrant for the last five years, are as
follows:
<TABLE>
<CAPTION>
Office Name Age
------ ---- ---
<S> <C> <C>
President Robert J. Siewert 58
President, Coil Robert J. Kindt 50
Processing and Paper
Converting
Vice President Robert A. Skodzinsky 51
Vice President, Domestic
Coil Processing Paul J. Maloney 58
Treasurer Robert B. Riethman 48
Secretary Earl J. Hull 62
</TABLE>
Mr. Siewert has been President of the Company for more than five
years.
Mr. Kindt became President of the Coil Processing and Paper
Converting Industry segments in November 1995 and was previously
Vice President of The Monarch Machine Tool Company since March
1990. He was previously employed at Natco Incorporated as Vice
President of Operations and Vice President/General Manager Plastics
Group from August 1985 to February 1990. Prior to working for
Natco Incorporated, he was employed at Lodge and Shipley as Vice
President of Manufacturing from June 1984 to August 1985 and was
Plant Manager from 1980 to June 1984.
Mr. Skodzinsky became Vice President of The Monarch Machine Tool
Company in February 1995. He had been General Manager of the
Monarch Cortland division since December 1994 and prior to that
date was the Director of Marketing at the division. He was
previously employed at Hunt Valve Company as President and Chief
Operating Officer from November 1991 to August 1993. Prior to
working for Hunt Valve Company he was employed at Industrial
General Corporation as Vice President of Operations from June 1982
to November 1991. Before working for Industrial General
Corporation he was employed at The Warner and Swasey Company as
Vice President of Manufacturing from October 1977 to June 1982.
Mr. Maloney became Vice President of The Monarch Machine Tool
Company in November 1995. He had been the Sales and Marketing
manager for the Monarch Stamco division since July 1991. He was
previously employed at the Ferguson division of Crane Corporation
as Vice President of Sales from September 1989 to January 1991.
Prior to working for Ferguson he was employed by Process Equipment
Company as Sales Manager from September 1987 to September 1989.
Before working for Process Equipment Company he was employed at
National Machinery Company in various positions including Sales
Engineer and Sales Manager from December 1962 to August 1987.
Mr. Riethman has been Treasurer of the Company for more than five
years.
Mr. Hull has been Secretary of the Company for more than five
years.
Additional information required by this Item 10 is incorporated
herein by reference from the Proxy Statement.
7
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Item 11 - Executive Compensation
- --------------------------------
The information required by this Item 11 is set forth in the Proxy
Statement and is incorporated herein by this reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this Item 12 is set forth in the Proxy
Statement and is incorporated herein by this reference.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this Item 13 is set forth to the extent
applicable in the Proxy Statement and is incorporated herein by
this reference.
PART IV
-------
Item l4 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) List of Documents filed as part of this Report
(1) Financial Statements:
<TABLE>
<CAPTION>
Sequential
Page Numbers
------------
<S> <C>
Report of Independent Accountants *
Consolidated Balance Sheets, December 31,
1995 and 1994 *
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 *
Consolidated Statements of Retained Earnings
for the years ended December 31, 1995, 1994 and 1993 *
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 *
Notes to Consolidated Financial Statements *
<FN>
* Incorporated herein by reference from the appropriate portions of the
Registrant's Annual Report to security holders for the year ended
December 31, 1995.
</TABLE>
(2) Financial Statement Schedules:
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the
reason that they are not applicable, or are not required.
(3) Exhibits: See Index of Exhibits on page 12.
(b) No reports on Form 8-K have been filed during the last quarter of
1995.
(c) See page 12 for location of filed exhibits.
(d) No other financial statements, other than those mentioned
above, are required to be filed to comply with Regulation S-X.
8
<PAGE> 9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MONARCH MACHINE TOOL COMPANY
By /s/ ROBERT J. SIEWERT
------------------------------
March 27, 1996 ROBERT J. SIEWERT
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the date indicated:
ROBERT J. SIEWERT, President and Director; ROBERT B. RIETHMAN, Treasurer and
Principal Accounting and Financial Officer; JOHN A. BERTRAND, Director; WILLIAM
A. ENOUEN, Director; WALDEMAR M. GOULET, Director; KENNETH H. HOPKINS,
Director; DAVID E. LUNDEEN, Director; JOSEPH M. RIGOT, Director; ROBERT B.
MEEKER, Director; JOHN M. RICHARDSON, Director; and JOHN F. TORLEY, Director.
By /s/ WILLIAM A. ENOUEN
------------------------------
March 27, 1996 WILLIAM A. ENOUEN
Attorney-in-Fact
9
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REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders and Board of Directors of
The Monarch Machine Tool Company
Our report on the consolidated financial statements of The Monarch Machine Tool
Company and Subsidiaries has been incorporated by reference in this Form 10-K
from page 19 of the 1995 Annual Report to Shareholders of The Monarch Machine
Tool Company and Subsidiaries. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule
listed in the index on page 8 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio
February 13, 1996
10
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THE MONARCH MACHINE TOOL COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------------------
Additions
----------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful trade
accounts receivable $ 313 $ 44 $ (207)(a) $ 150
Inventory reserves 3,727 757 (399)(b) 4,085
------ ---- ----- ------
Total $4,040 $801 $(606) $4,235
====== ==== ===== ======
Year ended December 31, 1994:
Allowance for doubtful trade
accounts receivable $ 543 $ 140 $ (370)(a) $ 313
Inventory reserves 3,553 748 (574)(b) 3,727
----- ------ ------- ------
$4,096 $ 888 $ (944) $4,040
====== ====== ======= ======
Year ended December 31, 1993:
Allowance for doubtful trade
accounts receivable $ 854 $ 399 $ (710)(a) $ 543
Inventory reserves 4,890 1,378 (2,715)(b) 3,553
------ ------ ------- ------
Total $5,744 $1,777 $(3,425) $4,096
====== ====== ======= ======
</TABLE>
(a) Write-offs/Collections
(b) Disposals/Sales
11
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INDEX OF EXHIBITS
(Filed with the Commission and the New York Stock Exchange)
_______
<TABLE>
<CAPTION>
"Assigned"
Exhibit
Number * Description
- ---------- -----------
<S> <C>
3 Articles of Incorporation and Regulations
11 Statement Re Computation of Income (Loss)
Per Share
13 Annual Report to Security Holders for the
fiscal year ended December 31, 1995 ***
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
* Exhibits 2, 4, 9, 10, 12, 16, 18, 22, 28, and 29 are either
inapplicable to the Company or require no answer.
** Incorporated by reference to the Exhibits with the same number filed
with the Company's Form l0-K for the year ended December 31, 1980.
*** This Report, except for the portions incorporated by reference herein,
is furnished for the information of the Commission and is not deemed
"filed" as part of this Annual Report.
12
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF INCOME (LOSS) PER SHARE
----------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
number of shares
and net income (loss)
applicable to
common stock 3,744,967 786 3,744,967 ($1,463) 3,744,967 ($502)
Stock options granted,
assumed issued since
date of grant 43,800 40,900 20,900
Less shares assumed
to have been
purchased under
the treasury stock
method (43,800) (40,900) (20,900)
-------- ------- --------- -------- --------- -------
3,744,967 786 3,744,967 (1,463) 3,744,967 (502)
Per share, primary $.21 ($.39) ($.13)
==== ====== ======
Conversion of $1.80
convertible
preferred shares 59,028 27 59,028 27 59,028 27
--------- ---- --------- ---- --------- ----
3,803,995 $813 3,803,995 ($1,436) 3,803,995 ($475)
========= ==== ========= ======== ========= ======
Per share, fully
diluted $.21 ($.38)(1) ($.12)(1)
==== ====== =====
</TABLE>
(1) For 1994 and 1993, loss per share, fully diluted is reported as $.39 and
$.13, respectively, in the consolidated financial statements because the
effect of converting preferred shares is antidilutive.
13
<PAGE> 1
The
Monarch
Machine
Tool
Company
[Logo]
Annual
Report
1995
<PAGE> 2
- --------------------------------------------------------------------------------
CORPORATE PROFILE
The Monarch Machine Tool Company has for more than eighty years designed and
built a wide range of metalworking machinery, primarily for shaping metal by
cutting. The Company's principal products are computer numerically controlled
(CNC) turning machines and machining centers and custom-engineered metal coil
processing equipment. Other products of the Company include robotic workpiece
handling devices and manually operated lathes. Each of these products is
essential to the production of industrial and transportation equipment and to
many consumer products.
The Company also produces paper converting machinery at a facility located in
Germany. This equipment is essential to the packaging industry and many other
producers of commercial and consumer products.
From the main office and plant in Sidney, Ohio, the Company directs the work of
its domestic and overseas manufacturing facilities:
o Monarch Sidney designs and produces manual and CNC turning machines.
o Monarch Cortland (Cortland, New York) designs and produces vertical machining
centers.
o Monarch Stamco (New Bremen, Ohio) designs and manufactures custom metal coil
processing equipment.
o Monarch subsidiaries in Europe include Stamco UKLtd., England, and Stamco
Depiereux, Germany, which design and market custom metal coil processing
equipment, as well as Monarch Busch, Germany, which designs and markets paper
converting machinery.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994
(In thousands)
<S> <C> <C>
Net Sales $ 114,991 $ 76,332
Operating Costs and Expenses $ 113,771 $ 79,739
Income (Loss) Before Taxes $ 1,163 $ (3,289)
Income Tax Expense (Benefit) $ 377 $ (1,826)
Net Income (Loss) $ 786 $ (1,463)
Cash Dividends $ 775 $ 775
Shareholders' Equity $ 52,650 $ 52,676
</TABLE>
1
<PAGE> 3
TO MONARCH SHAREHOLDERS
Net sales of $115.0 million was a 51% improvement over 1994 sales of $76.3
million. The net sales figure included sales of $8.3 million from Busch, another
German subsidiary that was acquired in the second quarter of 1995.
Net earnings for the year were $786,000 or $.21 per share which compares to a
net loss of $1.5 million or $.39 per share in 1994. Earnings in the year
benefited from two non-operating income sources. The first being an agreement by
our insurance carriers to settle for defense and certain other costs associated
with our involvement in the EPA "Superfund" site in Cortland, New York. This
settlement amounted to $350,000, pre-tax. Secondly, we were able to sell certain
fixed assets and inventory associated with our discontinued D.S.&G. subsidiary
for more than we had anticipated when we established the accrual for closing
this facility. This amounted to $230,000, pre-tax, of additional income. These
two sources of income are discussed further in the accompanying notes.
New orders in 1995 were $125.5 million, up 25% over orders of $100.2 million in
1994 and backlogs have improved from $49.6 million at the end of 1994 to $59.6
million at the end of 1995.
Orders for Sidney products were extremely depressed through 1994 and into 1995.
The order intake rate improved significantly beginning with the second quarter
but this was not soon enough to have an appreciable effect on shipments. The
resulting low shipments resulted in losses at our Sidney division. We entered
1996 with three successive quarters of good order intake, resulting in a much
stronger backlog than we had at the beginning of 1995. The Sidney operation will
show much improved performance in 1996.
Cortland entered the year with a very strong backlog which led to good shipments
and a profitable year for this division. Orders have softened, however, and the
backlog was considerably less at the end of the year than at the beginning. We
feel that orders will recover as 1996 progresses and I will report our progress
in this regard in my quarterly messages.
Our European sales and service subsidiary, which makes up the third leg of our
machine tool segment, reported a slight loss for the year. Revenues were based
solely on repair parts sales and service as Europe remains depressed and no
machines were sold or shipped in 1995.
[Photo]
The performance of our machine tool segment was dismal with sales of $49 million
generating a pre-tax loss of nearly $2 million. We look for the performance of
this segment to improve in 1996.
Stamco continues to grow. Orders, shipments and earnings all showed improvement
in 1995 and backlogs have stretched to nearly one year. It appears that the
demand for this equipment will continue through 1996 and, hopefully, beyond.
Depiereux, after recording its first full year of operation as a Monarch
subsidiary, exceeded our expectations in bookings and shipments but was unable
to turn a profit due to some residual start-up expenses and inordinately high
selling and administrative expenses. These issues are being addressed in 1996.
Stamco U.K. also reported a good year with an increase in bookings and shipments
over 1994 and a return to profitability in 1995. Backlogs are much stronger than
they were at the beginning of the year and we expect continued improvement from
this subsidiary in 1996.
Stamco, Depiereux and Stamco U.K. represent our coil processing segment. This
segment generated $57.7 million in revenues in 1995 on which it earned a pre-tax
income of
2
<PAGE> 4
- --------------------------------------------------------------------------------
$2.1 million. We are pleased to report the continued growth and profitability of
this segment of our business.
Busch, our newly acquired subsidiary located in Duren, Germany, is our first
venture away from metal cutting and forming. Busch manufactures paper and film
converting equipment and the name is well known in Europe. The subsidiary has
some unique technology in paper converting which has not been marketed in North
America. It is our intent to capitalize on the existing European market and, at
the same time, introduce the Busch technology to North America.
Product development has been and will continue to be emphasized in our machine
tool segment. Machine tool technology is advancing at a very rapid pace and we
must stay at or near the leading edge of this technology if we expect this
segment to grow. It is interesting to note that 75% of the revenue generated
from machine tool sales was for products not in existence just 7 years ago. The
Predator, a lathe that was introduced in late 1994, continues to gain market
share. The Ultra-Center, introduced in 1991, is again picking up momentum. The
style B vertical machining center, introduced in 1989, now represents 87% of
machine tool revenue from our Cortland division. Cortland has just introduced
their new PMC (production machine center). We expect this new product to begin
to add revenues and earnings in 1996.
The EPA Superfund site at Cortland, New York still is unresolved and we are told
that the EPA will reach a decision some time in 1996. We feel that our reserve
of $1.5 million is adequate to cover any liabilities that result from their
decision.
In 1995 the Board and management were focused on returning the Company to
profitability and on developing a strategy for enhancing shareholder value. As
part of that strategy, the Company in February 1996 engaged the investment
banking firm of Lehman Brothers, Inc. to provide financial advisory services to
the Company concerning methods for maximizing shareholder value by rendering
advice as to the strategic development of the Company's business and by giving
consideration to various alternatives, including purchase of additional product
lines, joint ventures, divestiture of particular business units, the sale of the
entire Company or other transactions or programs for maximizing shareholder
value.
The Board of Directors of the Company will consider any and all alternatives and
take any action that it believes to be in the best interest of the shareholders.
/s/ R. J. Siewert
R. J. Siewert
President
March 14, 1996
3
<PAGE> 5
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company's improving operating results for 1995 reflect the effects of
strengthening demand for the Company's traditional products as well as
increasing order levels for several new product offerings. Demand for the
Company's products as well as for general purpose metal cutting capital
equipment was exceedingly weak during the prior two years. New orders booked
this year were $125.5 million as compared to approximately $100.2 million and
$68.4 million during 1994 and 1993, respectively. Demand for all of the
Company's products is highly cyclical. A flat market in the metal working
machinery industry, except in the automotive sector in which the Company plays a
minor role, adversely impacted the order booking rate during the past several
years until the new order rate began increasing in the fourth quarter of 1994.
The stronger order rate continued during this year, being particularly strong in
the first half. This resulted in a backlog of $59.6 million at December 31,
1995. Backlogs increased 20.3% when compared to last year and increased 91.2%
relative to 1993. While the metal working machinery industry tends to lag the
general economy, there can be no assurance that the industry will continue to
recover at the same rate or at the same point in the cycle as in past economic
recoveries. Furthermore, the severe price competition among domestic as well as
foreign machine tool builders has and will continue to exert a depressing effect
upon the gross margins that the Company can expect to achieve on sales of its
products.
The Company incurred a net gain of $.8 million in 1995 as compared to net losses
of $1.5 million and $.5 million in 1994 and 1993, respectively. Pre-tax earnings
were positively impacted by $1.1 million, due to the acquisition of certain
assets of the Busch company located in Duren, Germany. This newly created
subsidiary, namely Monarch Busch, markets and engineers paper converting
equipment worldwide. This subsidiary represents the Company's first
diversification into non-metal working machinery, thereby partially mitigating
our total reliance upon the metal working industries. Although this subsidiary's
products are capital in nature and thereby highly cyclical, its products serve a
completely different industry relative to our other operations. Pre-tax earnings
in 1995 were favorably impacted by $.2 million as the Company was able to
satisfy certain liabilities below the amounts recorded in the financial
statements as well as sell a portion of the inventory above book value recorded
with respect to the closing of the Dean Smith & Grace subsidiary in 1992. This
year's pre-tax earnings were also positively affected by $.3 million for the
settlement of an action against several insurance carriers for reimbursement of
defense costs associated with the clean up of the Rosen site.
Pre-tax earnings in 1994 were negatively impacted by approximately $1 million,
in start-up costs associated with the acquisition of certain assets of the
Depiereux companies in Duren, Germany. The newly created subsidiary, namely,
Stamco Depiereux, markets and engineers coil processing equipment for customers
worldwide. The creation of this operation has enabled Monarch to expand its
product offerings in the strip processing equipment industry. This acquisition
has also enabled the Company to relocate the Monarch Werkzeugmachinen subsidiary
to the Stamco Depiereux operation to achieve certain operating efficiencies and
will allow the Company to market the land and buildings at the previous location
in Hemsbach, Germany. Pre-tax earnings in 1994 were favorably impacted by $.6
million as the Company was able to satisfy certain liabilities below the amounts
recorded in the financial statements as well as sell a portion of the inventory
above book value recorded with respect to the closing of the Dean Smith & Grace
subsidiary in 1992.
Pre-tax earnings for 1993 were impacted by a charge for environmental expenses
of $1.6 million associated with the remediation of a "Superfund" site in
Cortland, New York and a $1.9 million gain on discontinued operations of our
Dean Smith and Grace subsidiary, a manufacturer of machine tools in England.
During 1993, the Company adopted Statements of Financial Accounting Standard No.
106 "Employers' Accounting for Postretirement, Benefits Other Than Pensions" and
No. 109 "Accounting for Income Taxes" which resulted in a net credit to earnings
of $.5 million or $.13 per share for the cumulative effect of these accounting
changes. In addition, the 1993 loss before cumulative effect of accounting
changes includes a benefit of approximately $.8 million or $.20 per share as a
result of these changes.
During 1993, the Company was successful in arranging a management buy-out of The
Dean Smith and Grace repair and service business. This newly created business
provides repair parts, warranty and service work to past customers of this
discontinued subsidiary. In addition, it retained approximately 20 long-term
Dean Smith & Grace employees. This situation saved the Company a considerable
amount of lay-off and associated closure expenses which were provided for at
December 31, 1992. In addition, the Company was able to sell certain fixed
assets of this subsidiary at considerably more than the book values at which
they were carried at December 31, 1992. Because of the above, the Company
recorded the aforementioned pre-tax credit to income of $1.9 million during
1993.
Net sales were $115 million in 1995, $76.3 million in 1994 and $77.5 million in
1993. The increase in shipments for the year when compared to the past two years
was the result of better orders and backlogs at most of our operations.
Cost of sales, expressed as a percentage of sales, was 85.7% this year compared
to 89.3% in 1994 and 88.4% in 1993. The Company was largely unable to offset
cost increases with adequate increases in prices charged to customers because of
continued unrelenting price competition from machine tool builders both domestic
and foreign. Such competition is expected to continue into the immediate future.
The decrease in this ratio relative to the past two years was primarily due to
increasing plant utilization.
Selling, general and administrative expenses were $15.3 million in 1995, $11.6
million in 1994 and $11 million in 1993. SG&A as a percentage of sales decreased
to 13.3% in 1995 from 15.1% in 1994. In 1993 this percentage was 14.1%. The
dollar increase in this expense this year relative to 1994 was principally due
to the first full year of operation of Stamco
4
<PAGE> 6
- --------------------------------------------------------------------------------
Depiereux, the creation of Monarch Busch, and additional sales efforts at our
U.S. divisions. The relative stability of these expenses expressed as a
percentage of sales over the past three years is reflective of the stringent
cost control efforts in all areas of the Company. However, this has been
difficult to accomplish due to the burdensome increases in the cost of
regulatory compliance, health care and certain other areas largely outside the
direct control of the Company.
Research and development costs, which are expensed currently, were $1.7 million
in 1995, $1.2 million in 1994 and $1.4 million in 1993. Total research and
development expenditures during the past year were approximately equal to the
average level of expense incurred during the last five years. As a result of the
research and development efforts, the Company will introduce several new
products during 1996.
During 1993, the Company accrued $1.6 million to cover its estimated share of
the estimated costs associated with the remediation of a "Superfund" site in
Cortland, New York. The extent and nature of the contamination, insurance
coverage available to the Company and participation by additional potentially
responsible parties in the clean up of this site are not fully known at this
time. The Remedial Investigation/Feasibility Study performed at this site
resulted in the conclusion that there is little if any risk to human life at
this site. The Feasibility Study concluded that a cap over a portion of the
site, as asphalt cover over the remainder of the site, together with continual
ground water monitoring would constitute an adequate remedy. However, the EPA
has given no indication that the remedy proposed in the Feasibility Study would
be acceptable, therefore, the final cost of the approved remedy should be
considered highly speculative at this time.
The Company is a defendant in various legal actions, primarily product liability
claims, arising in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, resulting from these matters will
not have a material effect on the Company's consolidated financial position. The
significance of these lawsuits and the remediation of the "Superfund" site on
the Company's future operating results will depend on the Company's level of
future earnings as well as the timing and the amount of the ultimate disposition
of these matters above the amounts covered by insurance.
The Company's retirement plans are substantially overfunded. Due to plan assets
exceeding the benefit obligation, ($14.5 million at December 31, 1995 and $9.8
million at December 31, 1994), minimal contributions were required in 1995, 1994
and 1993. To the extent that the actual rate of return on plan assets continues
to exceed both the assumed rate of return and the actuarily determined increase
in benefit obligations, the employee benefit plans will continue to be
overfunded and will require minimal contributions in the foreseeable future.
This overfunding, therefore, has a positive impact on potential future cash
flows of the Company. There are no time limits relative to the realization of
the large pension asset; however, because of the magnitude of the overfunding
and because of the applicable tax laws, the Company's ability to realize this
prepayment is limited.
The effect of this overfunding on deferred taxes is such that the pension income
recognized for book purposes is not being recognized as income for tax purposes.
This temporary difference, resulting in a deferred tax liability, will not
reverse until such time as the pension plan costs exceed the returns on plan
assets.
In 1995, the Company changed the discount rate to 7.25% from 8% to reflect the
current rates at which the benefit obligation could be effectively settled. This
change had the effect of increasing the projected benefit obligation by
approximately $1.8 million. In 1994, the discount rate was increased to 8% from
7%, thereby decreasing the projected benefit obligation by approximately $1.8
million. In 1993 the discount rate was decreased to 7% from 8.5%. In addition,
during 1993 the Company changed the compensation increase assumption from 6% to
4.5% to reflect the anticipated salary increases in the future. These changes in
assumptions had a net effect of increasing the projected benefit obligation by
approximately $2.2 million.
During 1993, the Company adopted Statement of Financial Accounting Standard No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."As
previously discussed, the Company recorded a charge of $.4 million to earnings
(net of $.2 million of income taxes) or $.11 per share as a cumulative effect of
this accounting change. In addition, for 1993, the loss before the cumulative
effect of accounting changes includes an additional expense of approximately $37
thousand or $.01 per share for the impact of SFAS 106.
During 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."As previously
discussed, the Company recorded a tax credit of $.9 million or $.24 per share as
the cumulative effect of this accounting change and an additional tax benefit of
approximately $.8 million or $.21 per share resulting from the application of
SFAS 109 on 1993.
Exchange adjustments resulting from foreign currency transactions are recognized
in net earnings, whereas adjustments resulting from the translation of financial
statements are reflected as translation adjustments in the shareholders' equity
section of the balance sheet. Currency exchange gains and losses during 1995,
1994 and 1993 were not significant. Translation adjustment balances at December
31, 1995, 1994 and 1993 were $.1 million, $.1 million and $(.4) million,
respectively.
The effective tax rate of 32% in 1995, compares to a tax benefit rate of 55% in
1994 and 80% in 1993. The effective tax rate this year approximates the
statutory rates in effect in the jurisdictions in which our operations are
located. The high effective tax benefit rate in 1994 was caused by foreign
operations which are taxed at a high rate. The primary factor creating the high
effective tax benefit in 1993 was the adoption of SFAS 109.
The Company has taken several steps throughout the past three years designed to
reverse the earnings decline of the
5
<PAGE> 7
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past few years. The decisions in 1992 to dispose of the Dean Smith & Grace
facility as well as the purchase of the Lodge &Shipley assets were designed to
lower the Company's breakeven point and boost capacity utilization. The Company
has also committed a considerable amount of effort and money to research and
development in recent years to develop new product lines. Furthermore, stringent
cost containment efforts have been effectuated for the past several years.
However, even with these efforts the earnings of the Company will be dependent
upon the improvement of the market for capital equipment and the Company's
ability to be effective in a highly competitive environment.
In addition to the above mentioned strategies the Company, in February 1996,
engaged the investment banking firm of Lehman Brothers, Inc. to evaluate various
methods of maximizing shareholder value. Lehman Brothers will render advice as
to the strategic development of the Company's business and give consideration to
various alternatives, such as the purchase of additional product lines, joint
ventures, divestiture of particular business units, the sale of the entire
Company or other transactions or programs for maximizing shareholder value.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong financial position throughout the year and has
current assets of $2.21 for each dollar of current liabilities, as compared to
$2.11 at December 31, 1994 and $2.53 at December 31, 1993. The decrease in the
current ratio during the past two years was in large part due to the increase in
borrowings to finance inventory, accounts receivable and capital expenditures as
well as recording the liability for the remediation of "Superfund" site. The
decrease was offset by the positive impact of the adoption of SFAS 109 on
current deferred tax assets. Cash used in operating activities totaled $6.2
million in 1995. Operations during 1994 provided cash of $2.2 million, while
using $4.3 million in 1993. The use of cash in 1995 was principally due to the
need to finance increases in the level of accounts receivable, inventories and
costs and estimated earnings in excess of billings on uncompleted contracts
needed to support the increased level of business at most of our operations,
offset by an increase in accounts payable and accrued expenses. The favorable
impact on cash flow from operations in 1994 was primarily due to advantageous
progress billing arrangements on several large orders taken late in the year.
The cash used in 1993 was principally the result of increases in accounts
receivable and inventory offset by an income tax refund.
Capital expenditures for plant and equipment totaled $2.1 million in 1995, $2.3
million in 1994 and $.9 million in 1993. These capital expenditures were
incurred to purchase machinery and equipment to enhance the productivity of the
manufacturing plant and support the ability to control costs, as well as the
purchase of the Monarch Busch operation in 1995 and the Stamco Depiereux
operation in 1994. The Company has not increased its dividend payments during
the past three years. Under a revolving credit agreement, the maximum amount
that the Company can pay in dividends is $3.8 million plus the sum of the annual
net income greater than zero since December 31, 1994, less the sum of all excess
dividend distributions since December 31, 1994. At December 31, 1995, the
maximum amount of retained earnings available for dividend distribution under
this formula is approximately $4.5 million.
The Company has $14.3 million of long-term debt this year as compared to none
during the prior two years. The long-term debt in 1995 was incurred largely to
finance an increase in business as stated above. The Company has unsecured lines
of credit with several banks, aggregating $34.0 million. One of these lines is a
three-year revolver which contains a three year term-out option at April 30,
1998. Long-term borrowings against this $20 million line of credit at December
31, 1995 were $14 million. Management has the option to renew this revolving
arrangement, rather than term out the loan. However, if this loan is termed out,
principal repayments on the loan will be required as detailed in Note 6 of the
consolidated financial statements. The remaining two lines of credit expire on
various dates during 1996. It is management's intention to renew these
arrangements.
The Company has several assets which are held for sale as the result of the
consolidation of operations at our German subsidiaries and the discontinuance of
an English operation. The eventual sale of these assets should yield a
considerable amount of cash and result in a substantial gain.
The increase in the net borrowing position to approximately $16 million in 1995
from approximately $7 million during the prior two years will subject the
Company to greater financial risk relative to the direction of interest rate
movements and general economic conditions. This situation is not expected to
create undue hardship given the strong liquidity of the Company, and the fact
that most of the borrowing was incurred to finance current operations.
If the proposed recommendations are approved by the EPA as described in Note 12
to the consolidated financial statements, the major portion of the environmental
liability should be paid during the next several years and the remainder over 30
years. However, as more fully described in the aforementioned Note 12, there are
several factors that could have a positive and/or negative impact on this
liability and the corresponding cash flow to the Company. The Company will
continue to monitor this situation and as more information becomes available the
Company will reflect new data in its financial statements as it becomes known.
ACCOUNTING STANDARDS
In October 1995 the Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (FASB No. 123), Accounting for Stock-Based
Compensation. This statement defines a fair value based method of accounting for
an employee stock option. As allowed by FASBNo. 123 the Company has decided to
remain with the method of accounting prescribed by APB Opinion No. 25 and,
accordingly, FASB No. 123 will not have an impact on the Company's consolidated
financial statements.
6
<PAGE> 8
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $ 114,991 $ 76,332 $ 77,517 (3)$ 77,894 (3)$ 106,057
Net Income (Loss) $ 786 $ (1,463) (1)$ (475) (2)(4)$ (7,250) (4)$ 1,143
Per common share $ .21 $ (.39) (1)$ (.13) (2)(4)$ (1.94) (4)$ .30
Dividends $ .20 $ .20 $ .20 $ .20 $ .20
Total Assets $ 101,348 $ 78,342 $ 78,968 $ 73,982 $ 89,615
Long-Term Debt $ 14,318 0 0 0 0
</TABLE>
(1) The 1993 results reflect an after-tax gain of $1,261 or $.34 per share
representing both the cumulative effect and the current year's impact of
adopting two new accounting standards, as well as a $1,900 pre-tax gain
related to the prior year discontinuance of operations of a foreign
subsidiary, which increased Net Income by $1,254 or $.33 per share and a
$1,600 pre-tax charge related to a "Superfund" site in Cortland, New York,
which reduced Net Income by $1,056, or $.28 per share.
(2) The 1992 results include an $8,478 pre-tax charge related to the
discontinuance of the Dean Smith & Grace Subsidiary, which reduced Net
Income by $5,595 or $1.50 per share.
(3) Net Sales for the years of 1992 and 1991 include the sales of the
discontinued subsidiary, which were $4,532 and $10,207, respectively.
(4) Net Income (loss) for the years of 1992 and 1991 includes the Net Loss of
the discontinued subsidiary, which was $(2,212) and $(2,080), respectively.
Earnings (loss) per share for 1992 and 1991 attributable to this
discontinued subsidiary are $(.59) and $(.56), respectively.
SHAREHOLDERS' INFORMATION
<TABLE>
<CAPTION>
STOCK PRICES HIGH LOW
<S> <C> <C>
1995
FIRST QUARTER 10 9 1/8
SECOND QUARTER 10 1/8 9 1/2
THIRD QUARTER 15 1/4 9 5/8
FOURTH QUARTER 14 1/4 9 7/8
1994
First Quarter 12 1/2 10 3/8
Second Quarter 10 3/4 9 3/8
Third Quarter 10 9 3/8
Fourth Quarter 10 1/4 9
</TABLE>
The number of shareholders of record as of December 31, 1995 was 2,551. Common
shares outstanding as of December 31, 1995 were 3,744,967.
7
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
The Monarch Machine Tool Company and Subsidiaries
December 31, 1995 and 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,616 $ 30
Accounts receivable, net of allowance for doubtful
accounts of approximately $150 and $313
in 1995 and 1994, respectively 31,592 24,530
Inventories (Note 3) 26,149 20,187
Costs and estimated earnings in excess of billings
on uncompleted contracts (Note 4) 7,912 1,314
Other current assets 1,021 752
Deferred income taxes (Note 10) 1,946 2,423
-------- -------
Current assets 71,236 49,236
-------- -------
Property, plant and equipment, net (Note 5) 16,841 16,444
Prepaid pension cost (Note 9) 11,276 11,161
Assets held for sale (Note 1) 1,177 928
Other assets 818 573
-------- -------
Total assets $101,348 $78,342
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings (Note 6) $ 4,417 $ 7,000
Current portion of long-term debt (Note 6) 99 --
Accounts payable 12,400 4,781
Accrued liabilities (Note 12) 10,699 7,797
Billings in excess of costs and estimated earnings
on uncompleted contracts (Note 4) 4,679 3,715
-------- -------
Current liabilities 32,294 23,293
-------- -------
Deferred income taxes (Note 10) 1,134 1,430
Postretirement and other accrued benefits (Note 14) 952 943
Long-term debt, less current portion (Note 6) 14,318 --
-------- -------
48,698 25,666
-------- -------
Contingencies (Note 13)
Preferred stock, no par value, $1 stated value; 500,000
shares authorized; 14 shares issued and outstanding;
(liquidation preference of $590) (Note 7) 14 14
Common stock, no par value, 12,000,000 shares authorized;
3,744,967 shares issued and outstanding (Note 8) 5,618 5,618
Retained earnings (Note 6) 46,993 46,982
Translation adjustments (Note 11) 25 62
-------- -------
52,650 52,676
-------- -------
Total liabilities and shareholders' equity $101,348 $78,342
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales (Note 4) $ 114,991 $ 76,332 $ 77,517
Cost of sales (Note 3) 98,502 68,175 68,501
--------- -------- --------
16,489 8,157 9,016
Selling, general and
administrative expense 15,269 11,564 10,964
--------- -------- --------
Operating income (loss) 1,220 (3,407) (1,948)
Other income (expense):
Interest expense, net (576) (310) (267)
Other (expense) income, net (61) 171 226
Environmental income (expenses) (Note 12) 350 (300) (1,600)
Gain on discontinued operations
of a foreign subsidiary (Note 2) 230 557 1,900
--------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting changes 1,163 (3,289) (1,689)
Income tax provision (benefit) (Note 10) 377 (1,826) (720)
--------- -------- --------
Income (loss) before cumulative
effect of accounting changes 786 (1,463) (969)
--------- -------- --------
Cumulative effect of changes in accounting principles for:
Income taxes (Note 10) -- -- 923
Postretirement benefits other than
pensions (Note 14) -- -- (429)
--------- -------- --------
-- -- 494
--------- -------- --------
Net income (loss) $ 786 $ (1,463) $ (475)
========= ======== ========
Income (loss) per common share before
cumulative effect of accounting change $ .21 $ (.39) $ (.26)
Cumulative effect of changes in accounting
principles per common share
(Notes 10 and 14) -- -- .13
--------- -------- --------
Income (loss) per common share $ .21 $ (.39) $ (.13)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 11
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $46,982 $ 49,220 $ 50,470
Net income (loss) 786 (1,463) (475)
------- -------- --------
47,768 47,757 49,995
Deduct dividends (preferred at $1.80 per
share and common at $.20 per share) 775 775 775
------- -------- --------
Balance, end of year $46,993 $ 46,982 $ 49,220
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 786 $(1,463) $ (475)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,778 1,538 1,534
Pension income (115) (513) (1,425)
Deferred tax provision (benefit) 181 (1,728) (791)
Cumulative effect of accounting change -- -- (494)
Loss on disposal of fixed assets 72 26 16
Provision for inventory write-down 757 748 1,377
Cash provided by (required for) changes in
assets and liabilities:
Accounts receivable (6,766) (1,260) (4,426)
Inventories (6,688) 745 (2,854)
Costs and estimated earnings in excess
of billings on uncompleted contracts (6,528) 2,064 (307)
Billings in excess of costs and estimated
earnings on uncompleted contracts 955 2,329 (13)
Other assets (880) (1,163) 2,204
Accounts payable 7,546 1,559 145
Accrued liabilities 2,747 (651) 1,245
-------- ------- -------
Net cash provided by (used in)
operating activities (6,155) 2,231 (4,264)
-------- ------- -------
Cash flows used in investing activities:
Capital expenditures, net (2,072) (2,260) (938)
-------- ------- -------
Net cash used in investing activities (2,072) (2,260) (938)
-------- ------- -------
Cash flows provided by (used in) financing activities:
Dividends paid (775) (775) (775)
Proceeds from (repayment of)
short-term borrowings, net 2,359 (1,000) 4,870
Proceeds from long-term borrowings 9,405 -- --
-------- ------- -------
Net cash provided by (used in)
financing activities 10,989 (1,775) 4,095
-------- ------- -------
Effect of exchange rates on cash (176) 278 (29)
-------- ------- -------
Net increase (decrease) in cash 2,586 (1,526) (1,136)
Cash, beginning of year 30 1,556 2,692
-------- ------- -------
Cash, end of year $ 2,616 $ 30 $ 1,556
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The following is a summary of the significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Monarch
Machine Tool Company and its subsidiaries (the Company). All intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company handles its cash transactions primarily through three institutions
in the United States, one in the United Kingdom and one in Germany. Cash
equivalents include those obligations which are readily convertible to cash and
have a stated maturity of ninety days or less when purchased.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated principally
under the straight-line method, over their estimated useful lives. Repairs which
do not extend the useful life of the asset are expensed as incurred. Major
renewals or renovations are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and the related accumulated depreciation are
removed from the respective accounts and any resulting gain or loss is
recognized.
ASSETS HELD FOR SALE
The Company has identified certain real estate as being available for sale
because of the discontinuance of Dean Smith and Grace as described in Note 2 and
because of the consolidation of the Company's German operations partly resulting
from the acquisitions described in Note 15. These properties are recorded at the
lower of cost or net realizable value.
REVENUE RECOGNITION
Revenues are recorded at the time products are shipped except for significant
long-term contracts which are recorded on the percentage-of-completion method.
The percentage-of-completion method is used in the production of custom metal
coil processing equipment and paper converting machinery. Revenue and gross
profit are recognized as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Revenue and gross
profit are adjusted prospectively for revisions in estimated total contract
costs. Estimated losses on contracts, if any, are recorded when identified.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, which are expensed as incurred, were
approximately $1,679, $1,225 and $1,411 in 1995, 1994 and 1993, respectively.
INCOME (LOSS) PER SHARE
Income (loss) per common share is based upon net income (loss) after giving
effect to the preferred stock dividend requirements and the weighted average
number of common shares outstanding. Fully diluted income (loss) per share is
not presented because the effect of dilution related to preferred shares does
not have an impact in 1995 and is antidilutive in 1994 and 1993.
SUPPLEMENTAL CASH FLOW INFORMATION
Total interest paid was approximately $604, $386 and $362 in 1995, 1994 and
1993, respectively. Total income taxes paid (received) were approximately $188,
$213 and $(2,577) in 1995, 1994 and 1993, respectively.
ENVIRONMENTAL REMEDIATION COSTS
Costs incurred to investigate and remediate contaminated sites are expensed.
Liabilities for these expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (FASBNo. 123), Accounting for Stock-Based
Compensation. This Statement defines a fair value based method of accounting for
an employee stock option. Although FASB No. 123 encourages all entities to adopt
this method of accounting, it allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stocks Issued to
Employees. The management of the Company has decided to remain with the method
of accounting prescribed by APB Opinion No. 25 and, accordingly, other than
certain pro-forma disclosure requirements, FASBNo. 123 will not have an impact
on the Company's consolidated financial statements.
RECLASSIFICATIONS
Certain 1994 amounts have been reclassified to conform to 1995 presentation.
12
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
2. DISCONTINUED OPERATIONS:
In December of 1992, the Company discontinued the operations of Dean Smith
& Grace (DS&G), a wholly-owned subsidiary located in the United Kingdom, due to
the continuance of poor financial results. As of December 31, 1992, the Company
recognized a loss of $5,595 ($1.50 per share), net of applicable income taxes of
$2,883, due to the write-down of certain assets to their estimated net
realizable value and the accrual of certain costs estimated to be incurred in
connection with the disposition. Subsequent to 1992, the DS&G repair and service
business was sold to members of management. This enabled the Company to reduce
employee termination costs previously provided for and collect accounts
receivable previously reserved due to the uncertain future levels of customer
service. Additionally, the Company has been able to sell certain fixed assets
and inventory at a gain and satisfy certain expenses for less than amounts that
were accrued in the consolidated financial statements. As a result of the above
transactions the Company recognized a gain of $152 ($.04 per share), $368 ($.10
per share) and $1,254 ($.33 per share), net of applicable income taxes of $78,
$189 and $646, respectively, for the years ended December 31, 1995, 1994 and
1993.
3. INVENTORIES:
Inventories, aggregating approximately $20,474 and $15,293 at December 31, 1995
and 1994, respectively were valued at the lower of last-in, first-out (LIFO)
cost or market. The remaining inventories of approximately $5,675 and $4,894 at
December 31, 1995 and 1994, respectively, were valued at the lower of first-in,
first-out (FIFO) cost or market. At December 31, 1995 and 1994, inventories are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 6,696 $ 6,127
Work-in-process 33,232 27,481
Raw materials 1,398 1,203
- --------------------------------------------------------------------------------
Total first-in, first-out
(FIFO) cost 41,326 34,811
Less allowance to adjust the
carrying value of inventories
to LIFO basis 15,177 14,624
- --------------------------------------------------------------------------------
$26,149 $20,187
================================================================================
</TABLE>
The Company provides for potential losses from obsolete and slow-moving
inventory in the period in which they are identified. The charge to earnings in
1995, 1994 and 1993 related to obsolete and slow-moving inventory was $757, $748
and $1,377, respectively.
4. CONTRACTS IN PROCESS:
Contract costs on uncompleted contracts are as follows:
<TABLE>
<CAPTION>
COSTS AND ESTIMATED BILLING IN EXCESS
EARNINGS IN EXCESS OF COSTS AND
OF BILLINGS ESTIMATED EARNINGS TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1995:
COSTS $ 13,924 $ 8,934 $ 22,858
ESTIMATED EARNINGS 2,677 1,665 4,342
- -------------------------------------------------------------------------------
16,601 10,599 27,200
BILLINGS 8,689 15,278 23,967
- -------------------------------------------------------------------------------
$ 7,912 $ (4,679) $ 3,233
===============================================================================
December 31, 1994:
Costs $ 1,707 $ 2,232 $ 3,939
Estimated earnings 348 393 741
- -------------------------------------------------------------------------------
2,055 2,625 4,680
Billings 741 6,340 7,081
- -------------------------------------------------------------------------------
$ 1,314 $ (3,715) $ (2,401)
===============================================================================
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment includes the following:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,318 $ 1,318
Buildings 22,281 22,244
Machinery and equipment 29,479 28,011
- -------------------------------------------------------------------------------
53,078 51,573
Accumulated depreciation (36,237) (35,129)
- -------------------------------------------------------------------------------
$ 16,841 $ 16,444
===============================================================================
</TABLE>
6. DEBT:
SHORT-TERM BORROWINGS
At December 31, 1995, the Company had borrowed the maximum amount under a $2,500
revolving loan agreement which expires April 30, 1996. There were no outstanding
borrowings at December 31, 1994. Interest is payable on outstanding borrowings
at the bank's prime rate minus .50% (effectively 8% at December 31, 1995).
The Company also maintains lines of credit with a bank, which expire August 31,
1996, in the aggregate amount of $4,000 for their German subsidiaries.
Outstanding borrowings bear interest at the bank's overdraft rate plus .75%
(effectively 7.25% at December 31, 1995). The Company had $1,917 outstanding at
December 31, 1995 under these lines of credit. As part of these agreements,
letters of credit will be reserved under the available line of credit. At
December 31, 1995, approximately $2,285 of letters of credit were outstanding.
At December 31, 1994, the Company had outstanding $2,000 under an unsecured
$7,500 revolving loan agreement with a bank. There were no outstanding
borrowings as of December 31, 1995. Interest on any amounts outstanding is based
on the reserve adjusted LIBOR rate plus 1.00% (effectively 8.125% at December
31, 1994). This Agreement expires June 1, 1996. As part of this agreement,
13
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
standby and commercial letters of credit will be reserved under the
line-of-credit. At December 31, 1995 and 1994, approximately $3,805 and $1,367,
respectively, of such letters of credit are outstanding.
At December 31, 1994, the Company had $5,000 outstanding under a $13,000
revolving credit agreement. Interest on any amounts outstanding was based on the
reserve adjusted LIBOR rate plus .75% per annum. In June 1995, the Company
amended and restated this credit agreement (The Credit Facility) and included
another participating bank (See Long-Term Borrowings below).
The weighted average interest rate on all outstanding short-term borrowings at
December 31, 1995 and 1994 was 6.9% and 6.4%, respectively.
LONG-TERM BORROWINGS
As discussed above, in June 1995, the Company entered into the Credit Facility
with two banks. The agreement provides the Company with a revolving credit
facility of $20,000 until April 30, 1998, at which time the Company has the
option to convert any outstanding amounts into a single term loan which would
mature on April 30, 2001.
Interest on any outstanding loans is based on LIBOR plus 3/4% (effectively 7.78%
at December 31, 1995). A commitment fee of 3/8 of 1% per annum must be paid
quarterly on the daily average unused amount of the Credit Facility. At December
31, 1995, the Company has $14,000 outstanding under the Credit Facility.
The Credit Facility requires the Company to comply with various covenants which
include, among others, maintaining certain financial ratios and limiting the
payment of dividends. As of December 31, 1995, the maximum amount of retained
earnings available for dividends is approximately $4,536.
In 1995, a Germany subsidiary entered into two term loans. The aggregate amount
outstanding at December 31, 1995 was $417. The loans bear interest at 5.5% and
6.75% per annum and mature on March 30, 1999 and September 30, 2000,
respectively. Principal payments are due semi-annually with interest payable
quarterly.
Future payments due under all long-term borrowing arrangements are as
follows:
<TABLE>
<S> <C>
1996 $ 99
1997 99
1998 2,962
1999 4,625
2000 4,928
2001 1,704
- --------------------------------------------------------------------------------
14,417
Less current portion 99
- --------------------------------------------------------------------------------
$14,318
================================================================================
</TABLE>
7. CAPITAL STOCK:
The Company's preferred shares are $1.80 cumulative. Each preferred share is
entitled to one vote and is convertible into four common shares.
8. STOCK PLANS:
In 1994, the Board of Directors adopted, and the shareholders approved the 1994
Employees Stock Option Plan ("the 1994 Plan"). The 1994 Plan provides for the
issuance of up to 100,000 shares of common stock in connection with nonqualified
and incentive stock options granted under such plan. The exercise price for the
options may not be less than the market value of the underlying shares on the
date of grant. Outstanding options become exercisable one year from the date of
grant, at 25% per year on a cumulative basis, and expire 10 years from the date
of grant, or upon an employee's separation or retirement. As of December 31,
1995 and 1994, 73,000 and 77,900 shares, respectively, remain available for
issuance under the 1994 Plan.
The Company's Employees Stock Option Plan ("the 1984 Plan") which authorized the
granting of incentive and nonqualified stock options to purchase common stock
expired on December 31, 1993. The 1984 Plan provided for the issuance of up to
50,000 shares of common stock in connection with the exercise of stock options
under such plan. No further grants will be made under the 1984 Plan.
The following summarizes changes in common stock options under the 1984 Plan and
1994 Plan during 1995, 1994 and 1993:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding December 31, 1992 23,700 $12.50 - 13.94
Granted 1,000 11.38
Cancelled (3,800) 13.94
- --------------------------------------------------------------------------------
Outstanding December 31, 1993 20,900 $11.38 - 13.94
Granted 22,100 9.69
Cancelled (2,100) 12.50 - 13.94
- --------------------------------------------------------------------------------
Outstanding December 31, 1994 40,900 $ 9.69 - 13.94
Granted 4,900 10.19
Cancelled (2,000) 9.69
- --------------------------------------------------------------------------------
Outstanding December 31, 1995 43,800 $ 9.69 - 13.94
================================================================================
Options Exercisable at:
December 31, 1995 23,325 $ 9.69 - 13.94
December 31, 1994 17,675 $11.38 - 13.94
</TABLE>
The weighted average exercise price and the weighted average contractual life on
all outstanding options is $11.50 and 6 1/2 years, respectively.
The Company also has a Restricted Stock Bonus Plan, which authorizes the
awarding of up to an aggregate of 50,000 common shares to employees less than
sixty years old. No common shares have been awarded under this Plan.
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
9. RETIREMENT PLANS:
The Company accounts for pension plans covering domestic employees and the
employees of a foreign subsidiary in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions "(SFAS 87).
Those plans which cover salaried employees provide pension benefits that are
based on years of service and compensation before retirement. Plans covering
union members generally provide benefits of stated amounts for each year of
service. The Company contributes such amounts as are necessary on an actuarial
basis to provide the Plan with assets sufficient to meet the benefits to be paid
to Plan members. Due to plan assets exceeding benefit obligations, minimal
contributions were required in 1995, 1994 and 1993. Although there are no time
limits to the realization of the pension asset, because of the magnitude of the
overfunding and because of the applicable tax laws, the opportunities to realize
this prepayment are limited. Net periodic pension expense (income) includes the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 525 $ 505 $ 386
Interest cost on projected
benefit obligation 1,396 1,305 1,340
Actual return on assets (7,829) (204) (2,499)
Net amortization and deferral 5,940 (2,119) (652)
- -------------------------------------------------------------------------------
$ 32 $ (513) $(1,425)
===============================================================================
</TABLE>
The pension plans' funded status and accounting assumptions at December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$15,465 and $15,261
at December 31, 1995 and
1994, respectively $(15,872) $(15,723)
==============================================================================
Projected benefit obligation for services
rendered to date $(19,029) $(17,451)
Plan assets at fair value, primarily common
stocks, pooled investment funds and
U.S. Government securities 33,548 27,257
Plan assets in excess of projected
benefit obligation 14,519 9,806
Unrecognized net (gain) loss (2,224) 2,703
Unrecognized transition asset (1,019) (1,348)
Prepaid pension cost included on the
consolidated balance sheet $ 11,276 $ 11,161
==============================================================================
Assumptions:
Discount rate 7.25% 8.0%
Compensation increases 4.50% 4.5%
Rate of return on assets 8.50% 8.5%
</TABLE>
Unrecognized gains and losses, as of the beginning of the year, are amortized to
income ratably over a period of five years. Assets in the plans include common
stock of the Company with a fair value of $1,248 and $998 at December 31, 1995
and 1994, respectively.
In 1995 and 1994, the Company changed the discount rate to better reflect the
current rates at which the obligation could be effectively settled. In 1995, the
discount rate was decreased from 8% to 7.25%. This decrease had the effect of
increasing the projected benefit obligation by approximately $1,812. In 1994,
the discount rate was increased from 7% to 8%. This change had the effect of
decreasing the projected benefit obligation by approximately $1,790.
The Monarch Machine Tool Company Retirement Savings Plan (the Plan) enables
substantially all full-time domestic employees to participate and contribute up
to 15% of their salary to the Plan upon completion of six months of service.
Company matching and profit-sharing contributions are determined annually at the
discretion of the Board of Directors. During 1995, 1994 and 1993, the Company
made matching contributions of ten percent and no profit-sharing contributions.
Total expense charged to operations was approximately $126, $116 and $112 in
1995, 1994 and 1993, respectively.
10. INCOME TAXES:
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes
"(SFAS 109). SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. As of January 1, 1993, the Company recorded a tax credit of $923 or
$.24 per share, which amount represents the net decrease of the deferred tax
liability as of that date. Such amount has been reflected in the consolidated
statements of operations as the cumulative effect of an accounting change.
For the year 1993, the loss before cumulative effect of accounting changes
includes an additional income tax benefit of approximately $791 or $.21 per
share resulting from the application of SFAS 109.
The income tax provision (benefit) reflected in the consolidated statements of
operations is comprised of the following:
15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 71 $ (68) $ 44
Foreign 125 (30) 27
- -------------------------------------------------------------------------------
196 (98) 71
- -------------------------------------------------------------------------------
Deferred:
Federal 259 421 (892)
Foreign 326 -- --
- -------------------------------------------------------------------------------
585 421 (892)
- -------------------------------------------------------------------------------
Net operating loss
carryforward:
Federal (301) (1,101) (816)
Foreign (103) (1,048) (227)
- -------------------------------------------------------------------------------
(404) (2,149) (1,043)
- -------------------------------------------------------------------------------
$ 377 $(1,826) $(1,864)
===============================================================================
</TABLE>
Income tax provision (benefit) is included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $ 377 $(1,826) $ (720)
Cumulative effect of change
in accounting
principles for:
Postretirement benefits -- -- (221)
Income taxes -- -- (923)
- -------------------------------------------------------------------------------
$ 377 $(1,826) $(1,864)
===============================================================================
</TABLE>
The differences between the statutory U.S. income tax rate and the effective
income tax rate are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. income tax rate 34% (34)% (34)%
Effect of foreign operations (1) (16) (6)
Adoption of SFAS 109 (40)
Other (1) (5)
- ------------------------------------------------------------------------------
32% (55)% (80)%
==============================================================================
</TABLE>
The components of deferred taxes included in the balance sheets are as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets/(liabilities):
Accounts receivable $ 51 $ 106
Inventory 1,156 1,054
Product liability reserve 136 218
Accrued vacation 242 191
Environmental reserve 500 583
Other liabilities and reserves (139) 271
- -------------------------------------------------------------------------------
Net current deferred tax asset $ 1,946 $ 2,423
===============================================================================
Noncurrent deferred tax assets/(liabilities):
Postretirement and other accrued benefits $ 301 $ 301
Net operating loss and tax credit carryforwards 4,177 3,773
Property, plant and equipment (1,826) (1,756)
Prepaid pension cost (3,786) (3,748)
- -------------------------------------------------------------------------------
Net noncurrent deferred tax liability $(1,134) $(1,430)
===============================================================================
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. Management believes that a
valuation allowance is not necessary because the benefits of the deferred tax
assets will be realized as a result of the utilization of the deferred tax
liabilities, the generation of future taxable income, and the existence of
appreciated values over the tax basis of the Company's net assets. However, the
amount of the deferred tax assets considered realizable could be reduced if
estimates of future taxable income are reduced.
At December 31, 1995, the Company has domestic net operating loss carryforwards
of approximately $7,580 which expire in the years 2007 through 2010. The Company
also has foreign net operating loss carryforwards of approximately $3,230 which
can be carried forward indefinitely. The Company also has an alternative minimum
tax credit carryforward of approximately $175, which can be carried forward
indefinitely and a general business credit carryforward of approximately $75
which expires in 2005.
11. FOREIGN CURRENCY:
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at rates of exchange in effect at the close of the year, in accordance
with Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation" (SFAS 52). SFAS 52 requires that the effects of changes in the
value of the U.S. dollar, as compared to the local currency of the foreign
subsidiaries, be shown as translation adjustments in Shareholders' Equity.
Translation adjustments are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 62 $(394) $(111)
- -------------------------------------------------------------------------------
Translation adjustment increase (decrease):
Net long-term assets 82 82 (39)
Working capital (119) 374 (244)
- -------------------------------------------------------------------------------
Total adjustment (37) 456 (283)
- -------------------------------------------------------------------------------
Balance, end of year $ 25 $ 62 $(394)
===============================================================================
</TABLE>
Currency exchange gains and losses during 1995, 1994 and 1993 were not
significant.
The Company enters into forward foreign exchange contracts during the normal
course of business to hedge its foreign currency exposure associated with sales
contracts and purchase orders denominated in foreign currencies. Any gains and
losses in connection with the contracts are included in the consolidated
statements of operations. At December 31, 1995 and 1994 the value of the
outstanding contracts were not significant to the Company's financial position.
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
12. ENVIRONMENTAL LIABILITY:
In September 1988, the Company and several other potentially responsible
parties, ("PRPs"), were ordered by the Environmental Protection Agency, under
the Federal "Superfund" legislation to perform a removal action to dispose of
waste materials at the Rosen site, a former scrap yard in Cortland, New York.
Thereafter, the Company and certain other PRPs agreed to perform a Remedial
Investigation, Risk Assessment, and Feasibility Study at the site. The Remedial
Investigation, Risk Assessment, and Feasibility Study have now been completed by
an engineering firm and submitted to EPA Region II.
Six PRPs shared in the cost of the Remedial Investigation, Risk Assessment, and
Feasibility Study. In 1992, five of these PRPs, including the Company, sued 15
additional companies and individuals that were considered to be potentially
liable to share in the costs of the Remedial Investigation, Risk Assessment, and
Feasibility Study and ultimate clean-up of the site.
During 1993, it was preliminarily estimated that the minimum remedial efforts
could cost from $6,000 to $8,500. Accordingly, during 1993, the Company accrued
an additional $1,600 to cover its share of the estimated costs associated with
the ultimate resolution of this matter. Because of financial difficulties
experienced by one of the PRPs and because the suit against the potential
additional PRPs is not settled, the Company computed its share of the estimated
costs on the basis of five PRPs.
During 1994, the estimated minimum costs of the remedial efforts did not
materially change. However, because of the many uncertainties surrounding this
issue the Company expensed approximately $300 of such costs instead of
offsetting it against the accrued liabilities. Accordingly, at December 31, 1994
the Company maintained its accrual at $1,715 to absorb future costs associated
with this matter.
During 1995, the aforementioned Risk Assessment concluded there was little, if
any, risk to human health at the site. The Feasibility Study concluded that a
cap over a portion of the site, an asphalt cover over the remainder of the site,
together with continual ground water monitoring would constitute an adequate
remedy. The EPA however, has informally taken the position that some site
excavation will be required and has not yet formally commented on the
Feasibility Study.
During 1995, the estimated minimum costs of the remedial efforts did not
materially change. If the EPA accepts the recommendations described in the
Feasibility Study, capital costs would be incurred in the early part of the
remedial efforts and annual operating and maintenance costs primarily associated
with ground-water monitoring and sampling would be incurred over a 30 year
period. However, the EPA has given no indication that the remedy proposed in the
Feasibility Study would be an acceptable one so that the final cost of the
approved remedy should be considered highly speculative at this time. The
ultimate liability of the Company will vary depending on the actual costs which
will be incurred, the resolution of the lawsuit against the potential additional
PRPs, the allocation of the costs of remediation among the various PRPs, and the
financial viability of the existing PRPs.
In prior years, the Company commenced an action against six insurance carriers
to secure defense and indemnification coverage for matters associated with
defense costs and other costs associated with the clean up of the Rosen Site. In
October 1995, the parties agreed to a settlement in which six of the insurance
carriers, later amended to five, agreed to make a combined payment of $350 to
the Company in exchange for a full site release. The Company has recorded this
settlement in December 1995 and is studying the legal alternatives available
against the sixth insurance carrier.
13. CONTINGENCIES:
The Company is a defendant in various legal actions, primarily product liability
claims, arising in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, resulting from these matters will
not have a material effect on the Company's consolidated financial position. The
significance of these matters on the Company's future operating results will
depend on the Company's level of future earnings as well as the timing and the
amount of the ultimate disposition of these matters above the amounts covered by
insurance.
The Company maintains a self-insurance program for that portion of health care
costs not covered by insurance. The Company is liable for aggregate claims up to
$3,100 annually. The Company is also self-insured for workers' compensation for
those U.S. divisions located in Ohio. The Company is liable for individual
claims up to $350 per occurrence. Self-insurance costs are accrued based upon
the aggregate of the liability for reported claims and an estimated liability
for claims incurred but not reported.
14. POSTRETIREMENT BENEFITS:
The Company provides certain life insurance benefits and certain health benefits
for eligible retired employees through a participating contract with an
insurance company. The liability and expense recorded is not material to the
Company's financial position as of December 31, 1995 and 1994 or results of
operations for each of the three years in the period ended December 31, 1995.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106). SFAS 106 requires the accrual of the
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands, except per share data)
cost of providing postretirement benefits for life and medical insurance
coverage over the active service period of the employee. As of January 1, 1993,
the Company recognized the full amount of its estimated accumulated
postretirement benefit obligation of $429 (net of $221 of income taxes) or $.11
per share as a cumulative effect of an accounting change in the consolidated
statements of operations. This amount represents the present value of the
estimated future benefits payable to current retirees and a pro-rata portion of
estimated benefits payable to active employees after retirement. Prior to 1993,
these costs were expensed when paid. These benefits continue to be funded by the
Company only as incurred.
15. OPERATIONS, BUSINESS SEGMENT AND
GEOGRAPHIC INFORMATION:
The Company operates in three primary industries in which it designs and builds
machinery in the machine tool, coil processing and paper converting industries.
The Company's principal products are computer numerically controlled turning
machines and machining centers, customer engineered metal coil processing
equipment and paper converting equipment. Demand for all of the Company's
products is highly cyclical. While the metal working machinery industry tends to
lag the general economy, there can be no assurance that the industry will
emulate the economy. All Company products are sold by direct Company sales
people and independent agents throughout the United States and the world.
Approximately 16%, 10% and 16% of the Company' consolidated revenues for 1995,
1994 and 1993, respectively, were export sales from the United States primarily
to Mexico, Canada, China and the Far East. Intercompany and intersegment sales
are priced at market but are not material. The foreign subsidiaries are located
in England and Germany.
In June 1995, the Company purchased, for approximately $500, certain assets of
the paper converting machinery segment (Busch Gmbh) of the Depiereux group of
companies. In June 1994, the Company purchased certain assets of the coil
processing machinery segment (Depiereux) of the Depiereux group of companies for
approximately $1,260. During 1994, the Company incurred primarily start-up costs
associated with this acquisition.
Business segment information is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Machine tools $ 49,534 $ 43,195 $ 40,806
Coil processing 57,651 33,354 36,782
Paper converting 8,313 -- --
Adjustments and eliminations (507) (217) (71)
- --------------------------------------------------------------------------------
$ 114,991 $ 76,332 $ 77,517
================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income (loss):
Machine tools $ (1,980) $ (2,973) $ (2,184)
Coil processing 2,122 13 1,316
Paper converting 1,182 -- --
Corporate (104) (447) (1,080)
- -------------------------------------------------------------------------------
$ 1,220 $ (3,407) $ (1,948)
===============================================================================
Total assets:
Machine tools $ 57,930 $ 51,055 $ 52,635
Coil processing 41,403 28,301 28,044
Paper converting 8,560 -- --
Corporate 3,233 2,763 1,564
Adjustments and eliminations (9,778) (3,777) (2,615)
- -------------------------------------------------------------------------------
$ 101,348 $ 78,342 $ 79,628
===============================================================================
Depreciation and amortization:
Machine tools $ 1,013 $ 1,060 $ 1,123
Coil processing 647 478 411
Paper converting 118 -- --
- -------------------------------------------------------------------------------
$ 1,778 $ 1,538 $ 1,534
===============================================================================
Capital expenditures:
Machine tools $ 564 $ 1,099 $ 194
Coil processing 869 1,232 744
Paper converting 725 -- --
- -------------------------------------------------------------------------------
$ 2,158 $ 2,331 $ 938
===============================================================================
</TABLE>
Geographic information is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 88,439 $ 71,001 $ 68,405
Europe 27,059 5,548 9,183
Adjustments and eliminations (507) (217) (71)
- -------------------------------------------------------------------------------
$ 114,991 $ 76,332 $ 77,517
===============================================================================
Operating income (loss):
United States $ 540 $ (1,005) $ (596)
Europe 784 (1,955) (272)
Corporate (104) (447) (1,080)
- -------------------------------------------------------------------------------
$ 1,220 $ (3,407) $ (1,948)
===============================================================================
Total assets:
United States $ 84,207 $ 71,443 $ 75,077
Europe 23,686 7,913 5,602
Corporate 3,233 2,763 1,564
Adjustments and eliminations (9,778) (3,777) (2,615)
- -------------------------------------------------------------------------------
$ 101,348 $ 78,342 $ 79,628
===============================================================================
</TABLE>
In February 1996, the Company approved the engagement of an investment banking
firm to evaluate the strategic development of the Company's business and give
consideration to various alternatives, such as the purchase of additional
product lines, joint ventures, divestiture of particular business units, the
sale of the entire Company or other transactions or programs.
18
<PAGE> 20
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The Monarch Machine Tool Company
We have audited the accompanying consolidated balance sheets of The Monarch
Machine Tool Company and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, retained earnings, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Monarch
Machine Tool Company and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes 10 and 14 to the consolidated financial statements, in
1993 the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio
February 13, 1996
19
<PAGE> 21
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN A. BERTRAND, President, A.O. Smith Electrical
Products Company, Tipp City, Ohio
WILLIAM A. ENOUEN, Senior Vice President and Chief
Financial Officer-Retired, Mead Corporation, Dayton, Ohio
DR. WALDEMAR M. GOULET, Ph.D., Professor of Finance,
Wright State University, Dayton, Ohio
KENNETH H. HOPKINS, Chairman and Director,
Field Abrasives Incorporated, Dayton, Ohio
DAVID E. LUNDEEN, Vice President-Retired,
The Monarch Machine Tool Company
ROBERT B. MEEKER, President, Robert B. Meeker
Consultants, Troy, Ohio
JOHN M. RICHARDSON, Senior Vice President-Retired,
A. O. Smith Corporation, Tipp City, Ohio
JOSEPH M. RIGOT, Partner-in-Charge, Thompson, Hine and
Flory, Dayton, Ohio
ROBERT J. SIEWERT, President,
The Monarch Machine Tool Company
JOHN F. TORLEY, President, Miami Valley Research
Foundation, Dayton, Ohio
OFFICERS
ROBERT J. SIEWERT, President
ROBERT J. KINDT, President-Monarch Stamco/Busch Divisions and Subsidiaries
ROBERT A. SKODZINSKY, Vice President-Vertical Machining Centers
and General Manager, Monarch Cortland
PAUL J. MALONEY, Vice President and General Manager, Monarch Stamco U.S.
ROBERT B. RIETHMAN, Treasurer
EARL J. HULL, Secretary
DIVISIONS AND SUBSIDIARIES
CORPORATE OFFICE
The Monarch Machine Tool Company
615 North Oak Avenue
Sidney, Ohio 45365
Telephone: 513/492-4111
DIVISIONS
Monarch Sidney, Sidney, Ohio
MANUFACTURING DIVISION
Monarch Cortland, Cortland, New York
MANUFACTURING DIVISION
Monarch Stamco, New Bremen, Ohio
MANUFACTURING DIVISION
SUBSIDIARIES
Monarch Werkzeugmaschinen GmbH Hemsbach, Germany
SALES AND SERVICE SUBSIDIARY
Stamco UK Ltd. Walsall, West Midlands, England
SALES AND ENGINEERING SUBSIDIARY
Stamco Depiereux GmbH Duren, Germany
SALES AND ENGINEERING SUBSIDIARY
Monarch Busch GmbH Duren, Germany
SALES AND ENGINEERING SUBSIDIARY
Monarch Machine Tool International Ltd. Bridgetown, Barbados, W.I.
FOREIGN SALES CORPORATION
COMMON STOCK TRANSFER AGENT AND REGISTRAR
Keycorp Shareholder Services, Inc.,
127 Public Square, 15th Floor, Cleveland, Ohio 44114-1306
1-800-542-7792
Shares traded New York Stock Exchange. Symbol MMO.
Principal newspaper listing.
20
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
-------
Monarch has five consolidated subsidiaries, each of which is wholly-owned, as
follows:
<TABLE>
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
Monarch Werkzeugmaschinen
GmbH Germany
Stamco Depiereux GmbH Germany
Monarch Busch GmbH Germany
Stamco (U.K.), Ltd. United Kingdom
Monarch Machine Tool
International, Inc. (FSC) Barbados, West Indies
</TABLE>
38
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
The Monarch Machine Tool Company and Subsidiaries on Form S-8 (File No.
2-92311) of our report dated February 13, 1996, on our audits of the
consolidated financial statements and financial statement schedule of The
Monarch Machine Tool Company and Subsidiaries as of December 31, 1995 and 1994,
and for the years ended December 31, 1995, 1994, and 1993, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio
March 27, 1996
39
<PAGE> 1
EXHIBIT 24
Securities and Exchange Commission
Washington, D.C. 20549
Re:
Commission File No.
1934 Act Filings on Form 10-K
Authorized Representatives
Gentlemen:
The above Company is the issuer of securities registered under Section 12
of the Securities Exchange Act of 1934 (The "Act"). Each of the persons
signing his name below confirms, as of the date appearing opposite his
signature, that each of the "Authorized Representatives" named below is
authorized on his behalf to sign and to submit to the Securities and Exchange
Commission such filings on Form 10-K as are required by the Act. Each person
so signing also confirms the authority of each of the Authorized
Representatives to do and perform, on his behalf, any and all acts and things
requisite or necessary to assure compliance by the signing person with the Form
10-K filing requirements. the authority confirmed herein shall remain in
effect as to each person signing his name below until such time as the
Commission shall receive from that person a written communication terminating
or modifying the authority.
Authorized Representative
-------------------------
W. A. Enouen
J. A. Bertrand W. M. Goulet
K. H. Hopkins J. F. Torley
Date Date
---- ----
/s/ John M. Richards 2/14/95 /s/ David E. Lundeen 2/14/95
- ---------------------------- -------- ---------------------------- --------
/s/ Kenneth H. Hopkins 2/14/95 /s/ Robert J. Siewert 2/14/95
- ---------------------------- -------- ---------------------------- --------
/s/ Joseph M. Rigot 2/14/95 /s/ Robert B. Meeker 3/03/95
- ---------------------------- -------- ---------------------------- --------
/s/ J. F. Torley 2/14/95 /s/ Robert B. Riethman 3/08/95
- ---------------------------- -------- ---------------------------- --------
/s/ W. A. Enouen 2/14/95
- ---------------------------- --------
/s/ Waldemar M. Goulet 2/14/95
- ---------------------------- --------
/s/ John A. Bertrand 2/14/95
- ---------------------------- --------
40
<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
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,616
<SECURITIES> 0
<RECEIVABLES> 31,592
<ALLOWANCES> 0
<INVENTORY> 26,149
<CURRENT-ASSETS> 71,236
<PP&E> 53,078
<DEPRECIATION> 36,237
<TOTAL-ASSETS> 101,348
<CURRENT-LIABILITIES> 48,698
<BONDS> 0
<COMMON> 5,618
0
14
<OTHER-SE> 47,018
<TOTAL-LIABILITY-AND-EQUITY> 101,348
<SALES> 114,991
<TOTAL-REVENUES> 114,991
<CGS> 98,502
<TOTAL-COSTS> 113,771
<OTHER-EXPENSES> 57
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 576
<INCOME-PRETAX> 1,163
<INCOME-TAX> 377
<INCOME-CONTINUING> 933
<DISCONTINUED> 230
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
