<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File No. 1-1997
THE MONARCH MACHINE TOOL COMPANY
An Ohio Corporation Employer Identification No. 34-4307810
2600 Kettering Tower, Dayton, Ohio 45423
Telephone 937/910-9300
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 9, 1998 was $28,504,000.
The number of common shares outstanding as of March 9, 1998, was 3,768,967.
Documents Incorporated By Reference
(1) Portions of the registrant's annual report to security holders for the
year ended December 31, 1997 (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 5, 1998. (Parts I & III)
<PAGE> 2
Part I
------
Item 1 - Business
- -----------------
The Monarch Machine Tool Company ("Monarch" or the "Company") was incorporated
in 1909.
During 1997, the Company sold the business of the Sidney lathe (turning
machines) operation and decided to close the operations of its three German
businesses. Subsequently, in March 1998, the Company entered into an agreement
to sell a majority of the assets of one of the German businesses, with the buyer
agreeing to assume certain liabilities of the business. The Company entered into
a strategic alliance in 1997 with Spinner Machine Tool Company, a German
company, to market, in North America, ultra-precision horizontal turning
machines produced by Spinner and to have Spinner market the Company's machining
centers in Europe.
Products
- --------
The Company operates in three primary industries in which it designs and builds
equipment, namely the machine tool, coil processing and coating and laminating
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 built by the Company.
Monarch Machine Tools
---------------------
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 tool changers 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.
Stamco Coil Processing Equipment
--------------------------------
Stamco engineers and manufactures a broad line of coil processing equipment.
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.
Stamco 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.
<PAGE> 3
Part I
------
Item 1 - Business, continued
- -----------------
Busch Coating and Laminating Equipment
--------------------------------------
In 1995, the Company entered a new industry segment with its purchase of certain
assets of the coating and laminating equipment business of a German company. In
1997, the Company decided to close the German business and to manufacture this
equipment solely in the United States. The equipment, typically sold in complete
lines, is used to further process paper, plastics, and foil for use in flexible
or medical packaging, pressure sensitives, adhesives products and wall
coverings. The products include continuous roll processing with in-line coating,
drying, dry or wet laminating, slitting and rewinding. The coatings and
adhesives applied are aqueous solvent, solventless, hot melt and wax. Individual
components are also available for upgrading existing installations.
Competition
- -----------
Monarch actively competes with other equipment manufacturers, both domestic and
foreign. The market for the Company's products is subject to normal price,
service, and quality competition. Increasingly, foreign machine tool
manufacturers aggressively compete in the North American market. Although the
prior primary competition was predominantly Japanese, it is now Asian.
Customers
- ---------
Monarch has a broad market base. Virtually all manufacturing plants that perform
metal cutting operations are potential customers for Monarch machining centers.
Producers, suppliers, and users of strip metal generally have application for
coil processing equipment. The Company's coating and laminating equipment is
used by individual customers in the packaging industry and by producers of
commercial or consumer products. The loss of any individual 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,
1997 1996
------------ ------------
<S> <C> <C>
Machine Tools $10,275 $18,914
Coil Processing Equipment 30,352 41,901
Coating and Laminating Equipment 1,584 -
------- -------
$42,211 $60,815
======= =======
</TABLE>
The entire backlog can reasonably be expected to be shipped within twelve
months. Seasonal factors are not significant to Monarch.
<PAGE> 4
Part I
------
Purchases of Raw Materials and Supplies
- ---------------------------------------
Monarch manufactures substantially all of the components of its machines other
than computer 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 commercially available. Monarch's
numerically controlled machines are designed to be used with controls made by
any one of the major industrial control manufacturers.
Patents, Licenses and Franchises
- --------------------------------
Patents, licenses, and franchises are not considered significant to the
business. During 1997, Monarch entered into a strategic alliance with Spinner
Machine Tool Company GmbH to jointly sell each other's products. In North
America, Monarch will sell Spinner's ultra-precision horizontal turning
machines.
Engineering and Development
- ---------------------------
Monarch's divisional engineering departments, which currently employ 97 persons,
are responsible for engineering customer orders, the improvement of existing
product lines, and the development of new products. Monarch's current product
lines have been engineered and developed by Monarch personnel, with the
exception of the new Spinner products. Refer to the Notes to Consolidated
Financial Statements, incorporated into this Form 10-K by reference, for the
amount of research and development expense in 1997, 1996 and 1995.
Employees
- ---------
Monarch had 537 employees at December 31, 1997.
Working Capital
- ---------------
Because of the long cycle time required to manufacture certain of 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 1997, 1996, and 1995 are included in Notes
to Consolidated Financial Statements incorporated by reference into this Form
10-K.
<PAGE> 5
Part I
Item 2 - Properties
- -------------------
Domestic
- --------
The coating and laminating equipment business is based in Sidney, Ohio, in a
plant of over 400,000 square feet, a significant portion of which is being
leased to the buyer of the Sidney lathe division. The Company has listed this
property for sale in 1998, although it expects to be able to continue using the
property for the operations of its laminating and coating businesses for the
foreseeable future. Manufacturing operations for the machine tool business are
conducted in Cortland, New York in a plant of 135,000 square feet and for the
coil processing equipment in New Bremen, Ohio, in a plant of 180,000 square
feet. All facilities are owned by Monarch and are in good condition. During
1998, the Company relocated its corporate headquarters from Sidney, Ohio to
leased facilities in Dayton, Ohio.
Foreign Subsidiaries
- --------------------
Stamco (U.K.), Ltd., engineers and sells coil processing equipment that is
produced at leased, general purpose facilities located in England.
During 1997, the Company decided to close or sell the operations of the
following three businesses located in Germany. The closings are expected to be
completed in 1998.
Monarch Werkzeugmaschinen GmbH, served as a sales and service headquarters for
U.S. machine tools in Europe but performed minimal operations in 1997, primarily
aftermarket parts sales.
Stamco Depiereux GmbH, engineered and sold coil processing equipment and
operates from leased general purpose facilities.
Monarch Busch GmbH, engineered and sold coating and laminating equipment and
operates from leased general purpose facilities.
All of the facilities are in good condition.
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.
<PAGE> 6
Part I
------
Item 3 - Legal Proceedings, Continued
- --------------------------
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.
The attorneys for five PRPs have brought on Motions for Summary Judgment against
several defendants in order to establish liability for clean-up costs on the
part of these defendants. In the case of two of these defendants, the motions
have been granted and liability thus established. Additional motions against
three defendants have been made and are now pending. It is the opinion of the
PRP's attorneys that these motions are also likely to be successful. In the
opinion of counsel, this is significant since all defendants against which
liability has been established will in all probability be included in the EPA
order directing cleanup of the Rosen Site and will thereby be compelled to share
in the costs of cleanup.
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.
Since 1995, the estimated minimum costs of the remedial efforts have not
materially changed. 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 $350,000
to the Company in exchange for a full site release.
During 1997, the EPA published a proposed Record of Decision ("ROD"), which is
awaiting final approval. The ROD basically incorporates the proposed remediation
program proposed by the PRP's. Following the expected approval of the ROD, the
PRPs expect to either negotiate an agreement with non-participating PRPs
concerning past and prospective expenses or to commence an action against the
non-participants.
<PAGE> 7
Part I
------
Item 3 - Legal Proceedings, Continued
- --------------------------
Based upon information presently available, the Company believes that the
$1,450,000 it presently has reserved at December 31, 1997 is adequate to provide
for its share of the estimated costs for resolution of this issue.
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 headings
"Shareholders' Information and Market Price, Dividend and Shareholder Data" in
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 9 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 10 through 11 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 12 through 22 of
the Annual Report and is incorporated herein by this reference.
<PAGE> 8
PART II
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None
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 and Chief Executive Officer Richard E. Clemens 48
President, Machine Tool Division Robert A. Skodzinsky 53
President, Stamco Division Frederick G. Sharp 44
Vice President and Chief Financial Officer Karl A. Frydryk 43
Vice President, Operations Improvement Patrick M. Flaherty 48
Vice President, Human Resources Timothy P. Gibson 40
Vice President and General Manager -
Stamco US Paul J. Maloney 60
Treasurer Robert B. Riethman 50
Secretary Earl J. Hull 64
</TABLE>
Mr. Clemens became President and Chief Executive Officer of Monarch in March
1997. He was previously the Vice President and General Manager of the Frick
Company, a manufacturer of compressors, heat exchangers, and process
refrigeration equipment (a subsidiary of York International) from 1995 to 1997.
Prior to working for the Frick Company, he was the President and Chief Executive
Officer of Clark Material Handling Company, a manufacturer of fork lift trucks,
from 1994 to 1995. Before working for Clark Material Handling Company, he was
President of BMY Combat Systems, a division of Harsco Corporation, from 1992 to
1994 and held various other management positions with the division from 1985 to
1992.
<PAGE> 9
PART III
--------
Item 10 - Directors and Executive Officers of the Registrant, Continued
- ------------------------------------------------------------
Executive Officers of the Registrant, Continued
- ------------------------------------
Mr. Skodzinsky became President of the Machine Tool Division in March 1998. He
had been a Vice President of the Company since 1995, General Manager of the
Monarch Cortland division since 1994 and prior to that date was the Director of
Marketing at that division. He was previously employed at Hunt Valve Company as
President and Chief Operating Officer from 1991 to 1993. Mr. Sharp was named
President, Stamco Division in March 1998. Prior to joining the Company he was
Vice President, Marketing and Sales for Fairfield Manufacturing Co., Inc., a
manufacturer of power transmission components and assemblies, and from 1991 to
1996 he was Director, Combat Artillery Programs for United Defense, LP (formerly
BMY Combat Systems) a manufacturer of tracked military vehicles.
Mr. Frydryk, a CPA, became Vice President and Chief Financial Officer on January
5, 1998. He had previously been employed for over 13 years by Nord Resources
Corporation, a New York Stock Exchange listed company engaged in mining and
mineral and chemical processing. He held various positions with that company,
including serving for over 10 years as its Vice President Controller and
Secretary.
Mr. Flaherty become Vice President, Operations Improvement on February 16, 1998.
Prior to joining the Company, he was a consultant, providing consulting services
to the Company for 6 months. From 1995 to 1997 he was Vice President, Operations
for Frick Company, a subsidiary of York International, which manufactures
compressors, heat exchangers and process refrigeration equipment. From 1994 to
1995 he served as Vice President, Operations and then Vice President, Business
Development for Clark Equipment Handling Company, a manufacturer of fork lift
trucks, and from 1977 to 1994 served in various capacities with Allied Signal,
including Vice President, Airline Services from 1992 to 1994.
Mr. Gibson became Vice President, Human Resources on March 2, 1998. From January
1995 until his employment by the Company he was Vice President, Human Resources
for CTG, Inc., a distributor of computer-related equipment. Prior to then he
was, for over 5 years, the Senior Director, Human Resources for US Airways
Express.
Mr. Maloney has been Vice President and General Manager - Stamco U.S. since 1995
and was the Sales and Marketing manager for Stamco U.S. since 1991.
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.
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.
<PAGE> 10
PART III
--------
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.
<PAGE> 11
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>
<S> <C>
Report of Independent Accountants *
Consolidated Balance Sheets, December 31, 1997 and 1996 *
Consolidated Statements of Operations and Retained Earnings for
the years ended December 31, 1997, 1996 and 1995 *
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
</TABLE>
* Incorporated herein by reference from the appropriate portions of the
Registrant's Annual Report to security holders for the year ended
December 31, 1997
(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
(b) No reports on Form 8-K have been filed during the fourth quarter of
1997.
(c) See Index of Exhibits 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.
<PAGE> 12
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/ Richard E. Clemens
-----------------------------------------------
March 27, 1998 RICHARD E. CLEMENS
Director, President and Chief Executive Officer
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 Monarch Machine
Tool Company and in the capacities and on the dates indicated:
By /s/ Richard E. Clemens
------------------------------------------------
March 27, 1998 RICHARD E. CLEMENS
Director, President and Chief Executive Officer
By /s/ John A. Bertrand
------------------------------------------------
March 27, 1998 JOHN A. BERTRAND
Director
By /s/ Gerald L. Connelly
------------------------------------------------
March 27, 1998 GERALD L. CONNELLY
Director
By /s/ William A. Enouen
------------------------------------------------
March 27, 1998 WILLIAM A. ENOUEN
Director
By /s/ Waldemar M. Goulet
------------------------------------------------
March 27, 1998 WALDEMAR M. GOULET
Director
By /s/ Kenneth H. Hopkins
------------------------------------------------
March 27, 1998 KENNETH H. HOPKINS
Director
<PAGE> 13
By /s/ David E. Lundeen
------------------------------------------------
March 27, 1998 DAVID E. LUNDEEN
Director
By /s/ Joseph M. Rigot
------------------------------------------------
March 27, 1998 JOSEPH M. RIGOT
Director
By /s/ Karl A. Frydryk
------------------------------------------------
March 27, 1998 KARL A. FRYDRYK
Vice President (Principal Financial Officer)
By /s/ Robert B. Riethman
------------------------------------------------
March 27, 1998 ROBERT B. RIETHMAN
Treasurer (Principal Accounting Officer)
<PAGE> 14
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 23 of the 1997 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 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 19, 1998, except for Note 2 as
to which the date is March 12, 1998
<PAGE> 15
THE MONARCH MACHINE TOOL COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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, 1997:
Allowance for doubtful trade accounts
receivable $ 469 $ 1,097 $ (59)(a) $ 1,507
Inventory reserves 13,516 751 (13,236)(b) 1,031
Valuation allowance against
deferred tax assets - 1,243 - 1,243
-------------- -------------- ------------- -------------
Total $ 13,985 $ 3,091 $ (13,295) $ 3,781
============== ============== ============= =============
Year ended December 31, 1996:
Allowance for doubtful trade accounts
receivable $ 150 $ 463 $ (144)(a) $ 469
Inventory reserves 4,085 9,690 (259)(b) 13,516
-------------- -------------- ------------- -------------
Total $ 4,235 $ 10,153 $ (403) $ 13,985
============== ============== ============= =============
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
============== ============== ============= =============
</TABLE>
(a) Write-offs/Collections
(b) Disposals/Sales
<PAGE> 16
INDEX OF EXHIBITS
(Filed with the Commission and the New York Stock Exchange)
---------
<TABLE>
<CAPTION>
"Assigned"
Exhibit
Number * Description
-------- -----------
<S> <C> <C>
3 Articles of Incorporation and Regulations (2)
10 Material Contracts
10.1 1994 Employees Stock Option Plan (3)
10.2 Letter Agreement, dated February 13, 1997, between The
Monarch Machine Tool Company and Richard E. Clemens (3)
10.3 Letter Agreement, dated May 7, 1996 between The
Monarch Machine Tool Company and Robert J. Siewert (3)
10.4 Amended and Restated Credit Agreement dated as of
June 9, 1995 by and among the Company, NBD Bank,
Star Bank,
N.A and NBD Bank, as agent (4)
10.5 Asset Purchase Agreement by and between Monarch Lathes,
L.P. and the Company, dated July 16, 1997 (5)
10.6 First Amendment to Amended and Restated Credit
Agreement dated as of July 11, 1995 (1)
10.7 Second Amendment to Amended and Restated Credit
Agreement dated as of July 31, 1996 (1)
10.8 Third Amendment to Amended and Restated Credit
Agreement dated as of March 19, 1997 (1)
10.9 Fourth Amended to Amended and Restated Credit
Agreement dated as of November 10, 1997 (1)
11 Statement Re: Computation of Income (Loss) Per Share (1)
13 Annual Report to Security Holders for the fiscal year ended (6)
December 31, 1997
21 Subsidiaries of the Registrant (1)
23 Consent of Independent Accountants (1)
27 Financial Data Schedule (1)
<FN>
* Exhibits 2, 4, 9, 12, 16, 18, 22, 24, 28, and 29 are either
inapplicable to the Company or require no answer.
</TABLE>
<PAGE> 17
INDEX OF EXHIBITS
(Filed with the Commission and the New York Stock Exchange)
---------
"Assigned"
Exhibit
Number * Description
--------------
(1) Indicates Exhibit is being filed with this report
(2) Incorporated by reference to the Exhibits with the same
number filed with the Company's Form 10-K for the year
ended December 31, 1980.
(3) Incorporated by reference to the Exhibit with the same
number filed with the Company Form 10-K for the year ended
December 31, 1996
(4) Incorporated by reference to Exhibit 10.1 filed with the
Company's Form 10-Q for the quarter ended March 31, 1997
(5) Incorporated by reference to Exhibit 10.1 filed with the
Company's Form 8-K dated August 13, 1997
(6) 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.
<PAGE> 1
Exhibit 10.6
FIRST AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
-----------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of July 11, 1995 (this "Amendment"), is by and among MONARCH MACHINE TOOL
COMPANY, an Ohio corporation (the "Company"), the BANKS identified on the
signature pages hereof (collectively the "Banks" and individually a "Bank") and
NBD BANK, a Michigan banking corporation, as agent (in such capacity, the
"Agent") for the Banks.
INTRODUCTION
------------
The Company, the Banks and the Agent have entered into the Amended and
Restated Credit Agreement, dated as of June 9, 1995 (the "Credit Agreement").
The parties now desire to amend the Credit Agreement on the terms and conditions
herein set forth.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
-----------------------------------------
1.1 The definition of the term "Borrowing Base" in Section 1.1 of the
Credit Agreement is amended to read in full as follows:
"BORROWING BASE" shall mean, as of any date, the sum of (a an
amount equal to 80% of the Eligible Accounts Receivable plus
(b) an amount equal to 50% of the Eligible Inventory minus (c)
the Fifth Third Borrowings.
1.2 The following definition of the term "Fifth Third Borrowings" is
added to Section 1.1 of the Credit Agreement in its alphabetical location:
"Fifth Third Borrowings" shall mean, as of any date, the aggregate
outstanding principal amount Indebtedness of the Company to The Fifth
Third Bank.
1.3 Subpart (vi) of Section 5.1(d) of the Credit Agreement is relabeled
as subpart (vii) and a new subpart (vi) of Section 5.1 is inserted reading as
follows:
<PAGE> 2
(vi) On the same day, telephonic notice, followed immediately
by written confirmation, of all borrowings from time to time by the
Company from The Fifth Third Bank and all repayments thereof from time
to time.
1.4 Section 5.2(m) of the Credit Agreement is amended to read in full
as follows:
(m) NEGATIVE PLEDGE LIMITATION. Enter into any agreement,
with any person other than the Banks pursuant hereto, which prohibits
or limits the ability of the Company or any Subsidiary to create,
incur, assume or suffer to exist any Lien upon any of its assets,
rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired; PROVIDED that this
Section 5.2(m) shall not prohibit the Company from entering into such
an agreement with The Fifth Third Bank, so long as the aggregate
principal amount of Indebtedness of the Company to The Fifth Third Bank
does not at any time exceed $7,500,000.
1.5 AMENDMENT OF EXHIBIT E. Exhibit E annexed to the Credit Agreement
is deleted in its entirety and Exhibit E annexed to this Amendment shall be
deemed substituted in place thereof.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce the Banks and the Agent to enter into this
Amendment, the Company represents and warrants that:
2.1 The execution, delivery and performance by the Company of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Company's
charter or by-laws, or of any contract or undertaking to which the Company is a
party or by which the Company or its property is or may be bound or affected.
2.2 This Amendment is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
2.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
-2-
[First Amendment to Amended and Restated Credit Agreement]
<PAGE> 3
2.4 After giving effect to the amendments contained in Article 1 of
this Amendment, the representations and warranties contained in Article IV of
the Credit Agreement are true on and as of the date hereof with the same force
and effect as if made on and as of the date hereof.
ARTICLE 3. MISCELLANEOUS
------------------------
3.1 If the Company shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Company in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default.
3.2 All references to the Credit Agreement in any other document,
instrument or certificate referred to in the Credit Agreement or delivered in
connection with or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
3.3 Subject to the amendments herein provided, the Credit Agreement
shall in all respects continue in full force and effect.
3.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
3.5 This Amendment shall be governed by and construed in accordance
with the laws of the State of Michigan.
3.6 The Company agrees to pay the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Agent, in
connection with the negotiation and preparation of this Amendment and the
consummation of the transactions contemplated hereby, and in connection with
advising the Agent as to its rights and responsibilities with respect thereto.
3.7 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-3-
[First Amendment to Amended and Restated Credit Agreement]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered on the 11th day of July, 1995, notwithstanding the
day and year first-above written.
THE MONARCH MACHINE TOOL COMPANY
By: /s/ Robert B. Riethman
------------------------
Its: Treasurer
--------------------
NBD BANK, as a Bank and as the Agent
By: /s/ Victoria L. Decker
------------------------
Its: Vice President
--------------------
STAR BANK, N.A.
By: Thomas D. Gill
------------------------
Its: Vice President
--------------------
-4-
[First Amendment to Amended and Restated Credit Agreement]
<PAGE> 5
[EXHIBITS A THROUGH D TO THE FIRST AMENDMENT INTENTIONALLY OMITTED.]
<PAGE> 6
EXHIBIT E
BORROWING BASE CERTIFICATE
[Date]
NBD Bank, as Agent
611 Woodward Avenue
Detroit MI 48226
Attention: Midwest Banking Division
Reference is made to the Amended and Restated Credit Agreement dated as
of June 9, 1995, as amended by the First Amendment to Amended and Restated
Credit Agreement dated as of July 11, 1995, and as further amended,
supplemented, extended or otherwise modified from time to time (the "Credit
Agreement"), among The Monarch Machine Tool Company, an Ohio corporation (the
"Company"), the banks parties thereto (the "Banks") and you as agent for the
Banks (the "Agent"). Capitalized terms used but not defined herein shall have
the respective meanings assigned to them in the Credit Agreement.
The Company hereby represents and warrants to the Agent and the Banks
that the following computations of the Borrowing Base, and the related
supporting schedules attached hereto, and of the mandatory prepayment required
pursuant to Section 3.1(d) of the Credit Agreement are true and correct as of
the close of business on __________ , 19___ and are in conformity with the terms
and conditions of the Credit Agreement:
Borrowing Base
--------------
1. Accounts Receivable:
(a) Aggregate Accounts Receivable $________
(b) Less: Ineligible Accounts Receivable $________
(c) Eligible Accounts Receivable $________
(d) 80% of Eligible Accounts Receivable $________
<PAGE> 7
<TABLE>
<CAPTION>
2. Inventory:
<S> <C>
(a) Aggregate Inventory $________
(b) Less: Ineligible Inventory $________
(c) Eligible Inventory $________
(d) 50% of Eligible Inventory $________
3. Aggregate principal amount of Indebtedness
of the Company to The Fifth Third Bank $________
4. Borrowing Base (item 1(d) plus item 2(d) minus item 3) $
========
Determination of Mandatory Prepayment
-------------------------------------
1. Aggregate Borrowing Base (item 4 above) $________
2. Less: Dollar Equivalent of aggregate principal
amount of Loans outstanding $________
3. Excess (or deficiency) in Borrowing Base
(if deficiency, prepayment required in amount
of deficiency) $
========
</TABLE>
The Company hereby further represents and warrants to the Banks that as
of the close of business on ___________ 19___:
A. The representations and warranties contained in Article IV of the
Credit Agreement are true and correct on and as of such date, as if such
representations and warranties were made on and as of such date. For purposes of
this certificate the representations and warranties contained in Section 4.6 of
the Credit Agreement shall be deemed made with respect to both the financial
statements referred to therein and the most recent financial statements
delivered pursuant to Sections 5.1(d)(ii) and (iii) of the Credit Agreement.
B. No Event of Default and no Default has occurred and is continuing.
THE MONARCH MACHINE TOOL COMPANY
By: ______________________________
Its: ___________________________
BORROWING BASE CERTIFICATE
-2-
<PAGE> 8
Amended and Restated Credit Agreement
dated as of June 9, 1995
by and among
The Monarch Machine Tool Company,
NBD Bank, Star Bank, N.A.,
and
NBD Bank, as Agent
Closing Item List
-----------------
1. Amended and Restated Credit Agreement, with Exhibits A through E and
Schedules 4.4, 4.5, 5.2(d) and 5.2(k) attached
2. Revolving Credit Notes
3. Closing Certificate of the Company with respect to charter documents
and resolutions
4. Environmental Certificate (1992; referenced in Section 4.13 of the
Amended and Restated Credit Agreement)
5. Legal Opinion
<PAGE> 1
Exhibit 10.7
SECOND AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
-----------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of July 31, 1996 (this "Amendment"), is by and among MONARCH MACHINE TOOL
COMPANY, an Ohio corporation (the "Company"), the BANKS identified on the
signature pages hereof (collectively the "Banks" and individually a "Bank"), and
NBD BANK, a Michigan banking corporation, as agent (in such capacity, the
"Agent") for the Banks.
INTRODUCTION
------------
The Company, the Banks and the Agent are parties to the Amended and
Restated Credit Agreement, dated as of June 9, 1995, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 11, 1995
(the "Credit Agreement"). The parties now desire to amend the Credit Agreement
on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
-----------------------------------------
Effective upon the date that the conditions precedent set forth in
Article 2 of this Amendment are satisfied, which date (the "Amendment Date")
shall be determined by the Agent in its sole discretion, the Credit Agreement
hereby is amended retroactively as of June 30, 1996, as follows:
1.1 Clause (a) of the definition of the term "Eurodollar Rate" in
Section 1.1 is amended to read in full as follows:
(a) the Applicable Eurodollar Rate Margin, plus
1.2 The following definition of the term "Applicable Eurodollar Rate
Margin" is added to Section 1.1 in alphabetical order:
"APPLICABLE EURODOLLAR RATE MARGIN" shall be, for purposes of
determining the Eurodollar Rate applicable to any Eurodollar Rate
Loan, whether a Revolving Credit Loan or the Term Loan, outstanding
at any time during any calendar month (the "Application Month"), the
percent set forth under the heading "Applicable Eurodollar Rate
Margin for Revolving Credit Loans" and "Applicable Eurodollar Rate
Margin for the Term Loan", respectively, below in the row
corresponding to the range into
<PAGE> 2
which falls the ratio (the "Ratio") of the Consolidated Total
Liabilities of the Company and its Subsidiaries to the Consolidated
Tangible Net Worth of the Company and its Subsidiaries as of the end
of the last fiscal quarter (the "Determination Quarter") preceding
such Application Month for which financial statements have been
delivered to the Banks under Section 5.l(d)(ii):
<TABLE>
<CAPTION>
Applicable Eurodollar Applicable Eurodollar
Rate Margin for Rate Margin for
Ratio Revolving Credit Loans the Term Loan
----- ---------------------- -------------
<S> <C> <C>
Less than or equal
to 0.75 to 1.00 0.75% 1.00%
Greater than
0.75 to 1.00 1.00% 1.25%
</TABLE>
Each change in the Applicable Eurodollar Rate Margin in accordance with
this definition, as finally determined upon the Bank's receipt of the
Company's financial statements for any Determination Quarter pursuant to
Section 5.l(d)(ii), shall be effective as of the first day of the corresponding
Application Month following such Determination Quarter.
1.3 The definition of the term "Tangible Net Worth" in Section 1.1 is
amended to read in full as follows:
"TANGIBLE NET WORTH" of any person shall mean, as of any date, (a)
the amount of any capital stock, paid in capital and similar equity
accounts plus (or minus in the case of a deficit) the capital
surplus and retained earnings of such person and the amount of any
foreign currency translation adjustment account shown as a capital
account of such person, less (b) the net book value of all items of
the following character which are included in the assets of such
person: (i) goodwill, including without limitation, the excess of
cost over book value of any asset, (ii) organization or experimental
expenses, (iii) unamortized debt discount and expense, (iv) patents,
trademarks, trade names and copyrights, (v) treasury stock (to the
extent not
-2-
[Second Amendment to Amended and Restated Credit Agreement]
<PAGE> 3
already deducted in such equity accounts), (vi) franchises, licenses
and permits, and (vii) other assets which are deemed intangible
assets under generally accepted accounting principles.
1.4 Section 5.2(c) is amended to read in full as follows:
(c) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit or suffer the
ratio of Consolidated Total Liabilities of the Company and its
Subsidiaries to Consolidated Tangible Net Worth of the Company and
its Subsidiaries to be greater than 1.15 to 1.00 at any time.
ARTICLE 2. CONDITIONS PRECEDENT TO AMENDMENTS
---------------------------------------------
As conditions precedent to the effectiveness of the amendments to the
Credit Agreement set forth in Article 1 of this Amendment, the Agent and the
Banks shall receive the following documents and the following matters shall be
completed, all in form and substance satisfactory to the Agent and the Banks:
2.1 An incumbency certificate of the Company and a certified copy of the
resolutions of the board of directors of the Company authorizing the Company's
execution, delivery and performance of this Amendment and the transactions
contemplated hereby.
2.2 Payment by the Company to the Agent of an amendment fee in the
amount of $10,000 for the pro rata account of the Banks.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce the Agent and the Banks to enter into this Amendment,
the Company represents and warrants that:
3.1 The execution, delivery and performance by the Company of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Company's
charter or by-laws, or of any contract or undertaking to which the Company is a
party or by which the Company or its property is or may be bound or affected.
3.2 This Amendment is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
-3-
[Second Amendment to Amended and Restated Credit Agreement]
<PAGE> 4
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
3.4 After giving effect to the amendments contained in Article 1 of this
Amendment, the representations and warranties contained in Article IV of the
Credit Agreement are true on and as of the date hereof with the same force and
effect as if made on and as of the date hereof.
ARTICLE 4. WAIVER OF CERTAIN DEFAULTS
-------------------------------------
4.1 The Company has advised the Agent and the Banks that prior to, and
as of, March 31, 1996, the Company failed to comply with certain covenants set
forth in Sections 5.1 and 5.2 of the Credit Agreement, and the Company has asked
the Banks to waive any Event of Default caused by such failure. Based upon such
request, the Banks hereby waive any such Event of Default; PROVIDED that (a)
such waiver shall be limited to those Events of Default caused by such
covenant compliance failures occurring on or before March 31, 1996 that are
known to the Banks as of the date of this Amendment, and (b) such waiver shall
not be deemed to (i) be a waiver of or consent or agreement to any other action
or omission in violation of the Credit Agreement or any other instrument,
agreement or document referred to therein or executed in connection therewith,
(ii) be a waiver or modification of any provision of the Credit Agreement or of
any instrument, agreement or document referred to therein or executed in
connection therewith, or (iii) prejudice any other right or rights which the
Banks may now have or have in the future under or in connection with the Credit
Agreement or any instrument, agreement or document referred to therein or
executed in connection therewith.
ARTICLE 5. MISCELLANEOUS
------------------------
5.1 If the Company shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Company in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default.
5.2 All references to the Credit Agreement in any other document,
instrument or certificate referred to in the Credit Agreement or delivered in
connection with or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
5.3 Subject to the amendments herein provided, the Credit Agreement
shall in all respects continue in full force and effect.
-4-
[Second Amendment to Amended and Restated Credit Agreement]
<PAGE> 5
5.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
5.5 This Amendment shall be governed by and construed in accordance with
the laws of the State of Michigan.
5.6 The Company agrees to pay the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Agent, in
connection with the negotiation and preparation of this Amendment and the
consummation of the transactions contemplated hereby, and in connection with
advising the Agent as to its rights and responsibilities with respect thereto.
5.7 The Company and the Banks hereby consent (which consent shall be
deemed to satisfy the consent requirements of Section 8.6 of the Credit
Agreement) to the assignment by NBD Bank, a Michigan banking corporation
("NBD-Detroit"), at any time, of all of its rights and obligations, individually
and as Agent, under the Credit Agreement and the Notes to NBD Bank, N.A., a
national banking association of Indianapolis, Indiana ("NBD-Indiana"), the
assumption by NBD-Indiana of all such rights and obligations, and the release of
NBD-Detroit from all such obligations. Each of the Company and the Banks further
hereby agrees to execute and deliver such documents as NBD-Detroit or
NBD-Indiana may consider to be necessary or desirable in order to reflect or
take into account such assignment and assumption.
5.8 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-5-
[Second Amendment to Amended and Restated Credit Agreement]
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
THE MONARCH MACHINE TOOL COMPANY
By /s/ Robert B. Riethman
-----------------------------------------
Its: Treasurer
-------------------------------------
NBD BANK, as a Bank and as the Agent
By: /s/ Edward C. Hathaway
-----------------------------------------
Its: First Vice President
-------------------------------------
STAR BANK, N.A.
By: /s/ Thomas D. Gill
-----------------------------------------
Its: Vice President
-------------------------------------
-6-
[Second Amendment to Amended and Restated Credit Agreement]
<PAGE> 7
CLOSING CERTIFICATE
OF THE MONARCH MACHINE TOOL COMPANY
NBD Bank, as Agent
611 Woodward Avenue
Detroit, Michigan 48226
Ladies and Gentlemen:
I hereby certify that I am the Secretary of The Monarch Machine Tool
Company, an Ohio corporation (the "Company"), and as such have access to the
Company's corporate records and am familiar with the matters therein contained
and herein certified, and that:
1. The Company is a corporation with a perpetual charter duly organized
and validly existing and in good standing under the laws of the State of Ohio.
2. Attached hereto as Annex 1 is a true and correct copy of resolutions,
and the preamble thereto, adopted at a meeting of the Board of Directors of the
Company duly called and held in Sidney, Ohio, on August 6, 1996, at which
meeting a quorum was present and acting throughout, and such resolutions and
preamble were duly adopted by said Board of Directors and are in full force and
effect on and as of the date hereof, not having been in any way amended, altered
or repealed.
3. No proceedings looking toward the dissolution or liquidation of the
Company have been commenced and no such proceedings are contemplated.
4. The following persons are now, and at all times subsequent to May
13, 1996, have been, duly qualified and acting officers of the Company, duly
elected to the offices set forth opposite their respective names, and the
signature appearing opposite the name of each such officer is his authentic
signature:
Name Office Signature
---- ------ ---------
Acting
David E. Lundeen President /s/ David E. Lundeen
---------------------
Earl J. Hull Secretary /s/ Earl J. Hull
---------------------
Robert B. Riethman Treasurer /s/ Robert B. Riethman
---------------------
<PAGE> 8
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 9th day of August, 1996.
/s/ Earl J. Hull
---------------------
Earl J Hull, Secretary
-2-
<PAGE> 9
ANNEX 1
ADOPTED ON AUGUST 6, 1996
BY
THE BOARD OF DIRECTORS
OF
THE MONARCH MACHINE TOOL COMPANY
RESOLUTION, COMMITTED CREDIT LINE AMENDMENT
It was moved and seconded that the President and Treasurer be authorized in the
name of the Company to execute an amendment to the Company's committed credit
line with First Chicago/NBD Bank. Motion passed.
<PAGE> 1
Exhibit 10.8
THIRD AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
-----------------------------
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of March 19, 1997 (this "Amendment"), is by and among MONARCH MACHINE TOOL
COMPANY, an Ohio corporation (the "Company"), the BANKS identified on the
signature pages hereof (collectively the "Banks" and individually a "Bank"), and
NBD BANK, N.A., a national banking association, as successor by assignment to
NBD Bank, a Michigan banking corporation, as agent (in such capacity, the
"Agent") for the Banks.
INTRODUCTION
------------
The Company, the Banks and the Agent are parties to the Amended and
Restated Credit Agreement, dated as of June 9, 1995, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 11, 1995,
and the Second Amendment to Amended and Restated Credit Agreement, dated as of
July 31, 1996 (the "Credit Agreement"). NBD Bank, N.A. purchased and assumed all
of NBD Bank's rights and obligations under the Credit Agreement, including NBD
Bank's rights and obligations as a Bank and as the Agent, pursuant to the
Assignment and Assumption Agreement dated February 20, 1997 between them (the
"Assignment"). The Company and the Banks previously consented to the Assignment
under Section 5.7 of the above-referenced Second Amendment. The parties now
desire to amend the Credit Agreement on the terms and conditions herein set
forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
-----------------------------------------
Effective upon the date that the conditions precedent set forth in
Article 2 of this Amendment are satisfied, which date (the "Amendment Date")
shall be determined by the Agent in its sole discretion, the Credit Agreement
hereby is amended as follows:
1.1 The definition of the term "Applicable Eurodollar Rate Margin" set
forth in Section 1.1 is amended to read in full as follows:
"APPLICABLE EURODOLLAR RATE MARGIN" shall be, for purposes of
determining the Eurodollar Rate applicable to any Eurodollar Rate Loan,
whether a Revolving Credit Loan or the Term Loan, outstanding at any
time during any calendar month (the "Application Month"), the percent
set forth under the heading "Applicable Eurodollar Rate Margin for
Revolving Credit Loans" and "Applicable Eurodollar Rate Margin for the
Term Loan", respectively, below in the row corresponding to the range
into which falls the ratio (the "Ratio") of the Consolidated Total
Liabilities of the Company and its Subsidiaries to the Consolidated
Tangible Net Worth of the Company and its Subsidiaries as of the end of
the last fiscal quarter (the "Determination Quarter") preceding such
<PAGE> 2
Application Month for which financial statements have been delivered to
the Banks under Section 5.1(d)(ii):
<TABLE>
<CAPTION>
Applicable Eurodollar Applicable Eurodollar
Rate Margin for Rate Margin for
Ratio Revolving Credit Loans the Term Loan
- ----- ---------------------- -------------
<S> <C> <C>
Less than or equal
to 0.75 to 1.00 0.75% 1.00%
Greater than
0.75 to 1.0
but less than or
equal to 1.15
to 1.00 1.00% 1.25%
Greater than
1.15 to 1.00 1.50% 1.75%
</TABLE>
Each change in the Applicable Eurodollar Rate Margin in accordance
with this definition, as finally determined upon the Bank's receipt
of the Company's financial statements for any Determination Quarter
pursuant to Section 5.1 (d)(ii), shall be effective as of the first
day of the corresponding Application Month following such
Determination Quarter.
1.2 Subpart (vi) of Section 5.1(d) is relabeled as subpart (vii), and a
new subpart (vi) is added to Section 5.1(d) as follows:
(vi) As soon as available and in any event within 30 days after the
end of each month (other than those months which correspond to
fiscal quarter ends of the Company, which are covered by subpart
(ii) above), the consolidated balance sheet of the Company and its
Subsidiaries as of the end of such month, and the related
consolidated statements of income, retained earnings and cash flow
of the Company and its Subsidiaries for the period commencing at the
end of the previous fiscal year and ending with the end of such
month, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the
preceding fiscal year, all in reasonable detail; and
1.3 Subpart (iv) of Section 5.1(d) is amended to read in full as
follows:
-2-
[Third Amendment to Amended and Restated Credit Agreement]
<PAGE> 3
(iv) No later than the 30th calendar day following the end of each
month, a Borrowing Base Certificate prepared as of the close of
business on the last day of each such month, together with
supporting schedules, in form and detail satisfactory to the Agent,
setting forth such information as the Agent may request with respect
to the aging, value, location and other information relating to the
computation of the Borrowing Base and the eligibility of any
property or assets included in such computation, certified as true
and correct by the chief financial officer of the Company;
1.4 Section 5.2(b) is amended to read in full as follows:
(b) TANGIBLE NET WORTH. Permit or suffer (i) the sum of (A)
Consolidated Tangible Net Worth of the Company and its Subsidiaries
plus (B) unrealized foreign currency losses of the Company and its
Subsidiaries that do not exceed $5,000,000 in the aggregate plus (C)
the Aggregate Change LIFO Reserve Adjustment to be less than (ii)
the sum of (A) $44,000,000 plus (B) 50% of Consolidated Cumulative
Net Income of the Company and its Subsidiaries after December 31,
1996 plus (C) for each fiscal year end of the Company, the amount if
any by which $500,000 exceeds the aggregate amount added pursuant to
the foregoing clause (B) attributable to each such fiscal year; such
covenant to be tested as of the end of each fiscal quarter of the
Company.
1.5 Section 5.2(c) is amended to read in full as follows:
(c) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit or suffer the
ratio of Consolidated Total Liabilities of the Company and its
Subsidiaries to Consolidated Tangible Net Worth of the Company and
its Subsidiaries to be greater than 1.25 to 1.00 at any time.
1.6 In recognition of the Assignment, (a) all references to the "Agent",
or to NBD Bank in its capacity as the Agent, in the Credit Agreement and all
other related instruments, agreements and documents (collectively, the "Loan
Documents") shall be deemed to refer to NBD Bank, N.A. in its capacity as the
Agent, and (b) all references in the Loan Documents to NBD Bank in its capacity
as a Bank shall be deemed to refer to NBD Bank, N.A. in its capacity as a Bank.
1.7 All references in the Loan Documents to any address for notices to
NBD Bank or the Agent shall be amended to read: One Indiana Square, Suite 308,
Indianapolis, Indiana 46266, Attn: Edward C. Hathaway, Facsimile: (317)
266-6042."
-3-
[Third Amendment to Amended and Restated Credit Agreement]
<PAGE> 4
ARTICLE 2. CONDITIONS PRECEDENT TO AMENDMENTS
---------------------------------------------
As conditions precedent to the effectiveness of the amendments to the
Credit Agreement set forth in Article 1 of this Amendment, the Agent and the
Banks shall receive the following documents and the following matters shall be
completed, all in form and substance satisfactory to the Agent and the Banks:
2.1 An incumbency certificate of the Company.
2.2 Payment by the Company to the Agent of an amendment fee in the
amount of $25,000 for the pro rata account of the Banks.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce the Agent and the Banks to enter into this Amendment,
the Company represents and warrants that:
3.1 The execution, delivery and performance by the Company of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Company's
charter or by-laws, or of any contract or undertaking to which the Company is a
party or by which the Company or its property is or may be bound or affected.
3.2 This Amendment is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
3.4 After giving effect to the amendments contained in Article 1 of this
Amendment, the representations and warranties contained in Article IV of the
Credit Agreement are true on and as of the date hereof with the same force and
effect as if made on and as of the date hereof.
ARTICLE 4. WAIVER OF CERTAIN DEFAULTS
-------------------------------------
4.1 The Company has advised the Agent and the Banks that for the period
from and including December 31, 1996 through the date of this Amendment the
Company failed to comply with the covenants set forth in Sections 5.2(b) and (c)
of the Credit Agreement, and the Company has asked the Banks to waive the Events
of Default caused by such failure. Based upon such request, the Banks hereby
waive each such Event of Default, including, without limitation, any such Event
of Default pursuant to Section 6.1(e) of the Credit Agreement caused by the
occurrence of an event of default under the Company's credit facilities with The
Fifth Third Bank due to the
-4-
[Third Amendment to Amended and Restated Credit Agreement]
<PAGE> 5
Company's failure to so comply with Sections 5.2(b) and (c) of the Credit
Agreement (the "Fifth Third Cross Default"); PROVIDED that (a) such waiver shall
be limited to those Events of Default, including, without limitation, the Fifth
Third Cross Default, caused by such covenant compliance failures occurring
during the period from and including December 31, 1996 through the date of this
Amendment that are known to the Banks as of the date of this Amendment, and (b)
such waiver shall not be deemed to (i) be a waiver of or consent or agreement to
any other action or omission in violation of the Credit Agreement or any other
instrument, agreement or document referred to therein or executed in connection
therewith, (ii) be a waiver or modification of any provision of the Credit
Agreement or of any instrument, agreement or document referred to therein or
executed in connection therewith, or (iii) prejudice any other right or rights
which the Banks may now have or have in the future under or in connection with
the Credit Agreement or any instrument, agreement or document referred to
therein or executed in connection therewith.
ARTICLE 5. MISCELLANEOUS
5.1 If the Company shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Company in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default.
5.2 All references to the Credit Agreement in any other document,
instrument or certificate referred to in the Credit Agreement or delivered in
connection with or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
5.3 Subject to the amendments herein provided, the Credit Agreement
shall in all respects continue in full force and effect.
5.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
5.5 This Amendment shall be governed by and construed in accordance with
the laws of the State of Michigan.
5.6 The Company agrees to pay the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Agent, in
connection with the negotiation and preparation of this Amendment and the
consummation of the transactions contemplated hereby, and in connection with
advising the Agent as to its rights and responsibilities with respect thereto.
5.6 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-5-
[Third Amendment to Amended and Restated Credit Agreement]
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
THE MONARCH MACHINE TOOL COMPANY
By /s/ Richard E. Clemens
----------------------------------------
Its: President
--------------------------------
NBD BANK, N.A., as a Bank and as the Agent
By: /s/ Edward C Hathaway
----------------------------------------
Its: First Vice President
---------------------------------
STAR BANK, N.A., as a Bank
By: /s/ Thomas D. Gill
----------------------------------------
Its: Vice President
--------------------------------
-6-
[Third Amendment to Amended and Restated Credit Agreement]
<PAGE> 7
CLOSING CERTIFICATE
OF MONARCH MACHINE TOOL COMPANY
-------------------------------
NBD Bank, as Agent
611 Woodward Avenue
Detroit, Michigan 48226
Ladies and Gentlemen:
I hereby certify that I am the Secretary of Monarch Machine Tool
Company, an Ohio corporation (the "Company"), and as such have access to the
Company's corporate records and am familiar with the matters therein contained
and herein certified, and that:
1. The Company is a corporation with a perpetual charter duly organized
and validly existing and in good standing under the laws of the State of Ohio.
2. No proceedings looking toward the dissolution or liquidation of the
Company have been commenced and no such proceedings are contemplated.
3. Each person who, as an officer of the Company, signed, by facsimile
or otherwise, and delivered the Third Amendment to Amended and Restated Credit
Agreement dated as of March 19, 1997 was duly appointed, qualified and acting as
an officer of the Company at the respective times of such signing and delivery.
Such execution and delivery was duly authorized by all necessary corporate
action of the Company.
4. The following persons are now, and at all times subsequent to March
10, 1997 have been, duly qualified and acting officers of the Company, duly
elected to the offices set forth opposite their respective names, and the
signature appearing opposite the name of each such officer is his authentic
signature:
Name Office Signature
- ---- ------ ---------
Richard E. Clemens President and /s/ Richard E. Clemens
Chief Executive -----------------------------
Officer
Earl J. Hull Secretary /s/ Earl J. Hull
-----------------------------
Robert B. Riethman Treasurer /s/ Robert B. Riethman
and Chief -----------------------------
Financial Officer
<PAGE> 8
IN WITNESS WHEREOF, I have hereunto set my hand as of the 19th day of March,
1997.
/s/ Earl J. Hull
-----------------------------
Earl J. Hull, Secretary
<PAGE> 1
Exhibit 10.9
FOURTH AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
-----------------------------
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of November 10, 1997 (this "Amendment"), is by and among MONARCH MACHINE TOOL
COMPANY, an Ohio corporation (the "Company"), the BANKS identified on the
signature pages hereof (collectively the "Banks" and individually a "Bank"), and
NBD BANK, N.A., a national banking association, as successor by assignment to
NBD Bank, a Michigan banking corporation, as agent (in such capacity, the
"Agent") for the Banks.
INTRODUCTION
------------
The Company, the Banks and the Agent are parties to the Amended and
Restated Credit Agreement, dated as of June 9, 1995, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 11, 1995,
the Second Amendment to Amended and Restated Credit Agreement, dated as of July
31, 1996, and the Third Amendment to Amended and Restated Credit Agreement,
dated as of March 19, 1997 (the "Credit Agreement"). The parties now desire to
further amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENT TO CREDIT AGREEMENT
----------------------------------------
The Credit Agreement hereby is amended, retroactively effective as of
September 30, 1997. as follows:
1.1 Section 5.2(b) is amended to read in full as follows:
(b) TANGIBLE NET WORTH. Permit or suffer (i) Consolidated Tangible
Net Worth of the Company and its Subsidiaries to be less than (ii)
the sum of (A) $44,000,000 plus (B) 50% of Consolidated Cumulative
Net Income of the Company and its Subsidiaries after December 31,
1996 plus (C) for each fiscal year end of the Company, the amount if
any by which $500,000 exceeds the aggregate amount added pursuant to
the foregoing clause (B) attributable to each such fiscal year; such
covenant to be tested as of the end of each fiscal quarter of the
Company.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce the Agent and the Banks to enter into this Amendment,
the Company represents and warrants that:
2.1 The execution, delivery and performance by the Company of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order
<PAGE> 2
or award of any arbitrator, court or governmental authority, or of the terms of
the Company's charter or by-laws, or of any contract or undertaking to which the
Company is a party or by which the Company or its property is or may be bound or
affected.
2.2 This Amendment is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
2.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
2.4 After giving effect to the amendments contained in Article 1 of this
Amendment, the representations and warranties contained in Article IV of the
Credit Agreement are true on and as of the date hereof with the same force and
effect as if made on and as of the date hereof.
ARTICLE 3. WAIVER OF CERTAIN DEFAULTS
-------------------------------------
3.1 The Company has advised the Agent and the Banks that for the period
from and including July 31, 1997 through the date of this Amendment the Company
failed to comply with the covenant set forth in Section 5.2(b) of the Credit
Agreement, and the Company has asked the Banks to waive the Events of Default
caused by such failure. Based upon such request, the Banks hereby waive each
such Event of Default, including, without limitation, any such Event of Default
pursuant to Section 6.1(e) of the Credit Agreement caused by the occurrence of
an event of default under the Company's credit facilities with The Fifth Third
Bank due to the Company's failure to so comply with Section 5.2(b) of the Credit
Agreement (the "Fifth Third Cross Default"); PROVIDED that (a) such waiver shall
be limited to those Events of Default, including, without limitation, the Fifth
Third Cross Default, caused by such covenant compliance failure occurring during
the period from and including July 31, 1997 through the date of this Amendment
that are known to the Banks as of the date of this Amendment, and (b) such
waiver shall not be deemed to (i) be a waiver of or consent or agreement to any
other action or omission in violation of the Credit Agreement or any other
instrument, agreement or document referred to therein or executed in connection
therewith, (ii) be a waiver or modification of any provision of the Credit
Agreement or of any instrument, agreement or document referred to therein or
executed in connection therewith, or (iii) prejudice any other right or rights
which the Banks may now have or have in the future under or in connection with
the Credit Agreement or any instrument, agreement or document referred to
therein or executed in connection therewith.
ARTICLE 4. MISCELLANEOUS
------------------------
4.1 If the Company shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Company in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default.
4.2 All references to the Credit Agreement in any other document,
instrument or
-2-
[Fourth Amendment to Amended and Restated Credit Agreement]
<PAGE> 3
certificate referred to in the Credit Agreement or delivered in connection with
or pursuant thereto, hereafter shall be deemed references to the Credit
Agreement, as amended hereby.
4.3 Subject to the amendments herein provided, the Credit Agreement
shall in all respects continue in full force and effect.
4.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be governed by and construed in accordance with
the laws of the State of Michigan.
4.6 The Company agrees to pay the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Agent, in
connection with the negotiation and preparation of this Amendment and the
consummation of the transactions contemplated hereby, and in connection with
advising the Agent as to its rights and responsibilities with respect thereto.
4.7 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-3-
[Fourth Amendment to Amended and Restated Credit Agreement]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
THE MONARCH MACHINE TOOL COMPANY
By: /s/ Robert B. Riethman
------------------------------------
Its: Chief Financial Officer
----------------------------
NBD BANK, N.A., as a Bank and as the Agent
By: /s/ Edward C. Hathaway
------------------------------------
Its: First Vice President
----------------------------
STAR BANK, N.A., as a Bank
By: /s/ Mark Whitson
------------------------------------
Its: Vice President
----------------------------
-4-
[Fourth Amendment to Amended and Restated Credit Agreement]
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
Income (loss) Shares
(Numerator) (Denominator) Per-Share Amount
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Basic Earnings per share $ (4,202) 3,757,717 $ (1.12)
Effect of Dilutive Securities (b):
Stock option awards (a) - -
----------------- ----------------- ---------------------
Diluted Earnings per share $ (4,202) 3,757,717 $ (1.12)
================= ================= =====================
1996
----------------------------------------------------------------
Income (loss) Shares
(Numerator) (Denominator) Per-Share Amount
----------------- ----------------- ---------------------
Basic Earnings Per Share $ (5,498) 3,744,967 $ (1.47)
Effect of Dilutive Securities (b):
Stock option awards (a) -
----------------- ----------------- ---------------------
Diluted Earnings per share $ (5,498) 3,744,967 $ (1.47)
================= ================= =====================
1995
----------------------------------------------------------------
Income (loss) Shares
(Numerator) (Denominator) Per-Share Amount
----------------- ----------------- ---------------------
Basic Earnings Per Share $ 786 3,744,967 $ .21
Effect of Dilutive Securities (b):
Stock option awards (a) 27,000
----------------- ----------------- ---------------------
Diluted Earnings per share $ 786 3,771,967 $ .21
================= ================= =====================
</TABLE>
(a) Stock option awards are not considered exercise in 1997 or 1996, since
the impact would have an antidilutive effect on earnings per share
(b) The effect of the convertible preferred stock is not included since
they would have antidilutive effect on earnings per share
<PAGE> 1
[MONARCH LOGO]
The Monarch Machine Tool Company
2600 Kettering Tower
Dayton, Ohio 45423
<PAGE> 2
THE
MONARCH
MACHINE TOOL COMPANY
"PROVIDING
[MONARCH LOGO] MANUFACTURING
SOLUTIONS TO
INDUSTRIES
WORLDWIDE"
1997
ANNUAL REPORT
<PAGE> 3
TABLE OF CONTENTS
Company Profile and Current Year's Events.....................................1
Letter to Monarch Shareholders................................................2
Monarch Machine Tools.........................................................4
Stamco Coil Processing Equipment .............................................6
Busch Coating and Laminating Equipment........................................8
Financial Results:
Selected Financial Data..............................................9
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................10
Consolidated Balance Sheets.........................................12
Consolidated Statements of Operations and Retained Earnings.........13
Consolidated Statements of Cash Flows...............................14
Notes to Consolidated Financial Statements..........................15
Report of Independent Accountants...................................23
Board of Directors and Executive Officers....................................24
<PAGE> 4
SHAREHOLDER INFORMATION
<TABLE>
<S> <C>
ANNUAL MEETING EXECUTIVE OFFICES
May 5, 1998 The Monarch Machine Tool Company
1:00 p.m. 2600 Kettering Tower
Kettering Tower, 12th Floor Dayton, Ohio 45423
40 N. Main Street (937) 910-9300
Dayton, Ohio
LEGAL COUNSEL
INDEPENDENT ACCOUNTANTS Thompson Hine & Flory LLP
Coopers & Lybrand L.L.P. 2000 Courthouse Plaza NE
2080 Kettering Tower Dayton, Ohio 45402
Dayton, Ohio 45423-2080
INVESTOR RELATIONS
REGISTRAR AND TRANSFER AGENT Request for a copy of Monarch's Annual Report on
The Fifth Third Bank Form 10-K, news releases and any other information
38 Fountain Square Plaza MD-1090F5 should be directed to:
Cincinnati, Ohio 45263
(800) 837-2755 Investor Relations
c/o Executive Offices
</TABLE>
MARKET PRICE, DIVIDEND AND SHAREHOLDER DATA
The following table sets forth the high and low price of the Company's Common
Stock on the New York Stock Exchange Composite Tape and the dividend per share
paid on the Common Stock (ticker symbol is MMO):
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ---------------------------------------
DIVIDEND DIVIDEND
QUARTER ENDED HIGH LOW PAID HIGH LOW PAID
- ----------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 $9 1/8 $7 3/8 5(cent) $13 $9 7/8 5(cent)
June 30 9 7 5(cent) 12 10 3/8 5(cent)
September 30 9 3/4 7 3/16 5(cent) 11 3/4 9 1/2 5(cent)
December 31 9 15/16 7 11/16 5(cent) 10 1/2 7 3/4 5(cent)
</TABLE>
At December 31, 1997, the number of holders of record for the Company's Common
Stock was 2,325 and the number of shares outstanding was 3,761,967.
<PAGE> 5
COMPANY PROFILE
For almost 90 years, the Monarch Machine Tool Company has produced a wide-range
of quality metalworking machinery for customers in a variety of industries, both
domestically and internationally. Throughout its history, Monarch has been at
the forefront in designing and engineering unique equipment to satisfy the
varying needs of its broad customer base. The Company's principal products are
custom coil processing equipment (Stamco located in New Bremen, Ohio and in West
Midland, England), computer numerically controlled vertical machining centers
(Monarch Machine Tools located in Cortland, New York) and its newer coating and
laminating equipment business (Busch located in Sidney, Ohio).
Custom coil processing equipment is used by metal processors and product
manufacturers to flatten, cut, slit, clean and polish coils of any type of
metal, including steel, aluminum or brass. High performance computer numerically
controlled vertical machining centers are sold to manufacturers of components
made of high density (for instance titanium) metals, in industries such as
aerospace, automotive and oil drilling and are used in rugged applications
requiring high horsepower, special tooling, high tolerances or other special
production requirements. To complement its machining center business, the
Company entered into a strategic alliance in 1997 with Spinner Machine Tool
Company (located near Munich, Germany) to provide a quality source of
ultra-precision computer numerically controlled turning machines to North
American customers. Custom coating and laminating equipment is used to further
process paper, plastic or foil for use in flexible or medical packaging,
adhesive products and wall coverings.
While much of Monarch's history was in its lathe business located in Sidney,
Ohio, this business was sold in 1997. The Company is now focused on increasing
the market share of its two remaining core businesses and in the growth
opportunities available in the coating and laminating equipment business.
CURRENT YEAR'S EVENTS
CLOSING NON-PROFITABLE OPERATIONS
During 1997, the Company disposed of a majority of the assets and the business
of its Sidney lathe operation and decided to sell or close its German
facilities, which manufacture coil processing and coating and laminating
equipment, primarily sold in Europe. The Company's financial results in 1997
include $6.2 million of losses from operations, asset impairment and closure
reserves related to the Sidney lathe and German businesses. These decisions had
a negative impact on the Company's financial results in 1997, but will enable
the Company to focus on increasing the profitability of its core businesses in
1998.
IMPROVEMENT IN CORE BUSINESSES
The Company's ongoing core businesses contributed earnings before income tax of
$843,000 in 1997 compared to a loss before income tax of $478,000 in 1996. Sales
at these core businesses increased to $91.4 million in 1997 from $78.4 million
in 1996.
STRENGTHENING FINANCIAL POSITION
Proceeds from the sale of the Sidney lathe operation contributed to the Company
being able to repay a majority of its bank indebtedness in 1997. The Company's
beginning 1998 financial position shows a very low debt to equity ratio, which
allows the Company necessary leverage when evaluating opportunities to expand
its businesses through acquisition or strategic alliance.
1
<PAGE> 6
LETTER TO MONARCH SHAREHOLDERS
Your Company completed a year of significant change in 1997. During the second
half of the year, decisions were made to divest or discontinue operations in
four businesses. After an intense evaluation process which included operational
and market analysis, product line assessment and customer surveys, we could not
project an acceptable level of success in those businesses. This process
resulted in the sale of two and the closure of two other business units.
We believe the repositioning and realignment of our business units is now
complete. The 1997 scorecard reads: two businesses sold, two businesses closed,
one business moved, one business gained significant cost reductions through
negotiations with the state government and a local utility and relocation of the
corporate headquarters to better serve the business units. In 1998, management's
energies are directed to improving the profitability of the remaining core
businesses, coil processing equipment and vertical machining centers, and to
capitalize on the growth opportunities related to these businesses.
The Company incurred a loss of $4.2 million ($1.12 per share) in 1997 compared
to a 1996 loss of $5.5 million ($1.47 per share). The Company's loss before
income tax in 1997 includes $6.2 million ($1.64 per share) of losses from
operations, asset impairment and closure reserves related to the Sidney lathe
and German businesses, which were sold or closed in 1997. The Company's ongoing
operations contributed earnings before income tax of $843,000 ($.22 per share)
in 1997 compared to a loss before income tax of $478,000 ($.13 per share) in
1996.
Sales for the year were $107.1 million compared to sales of $115.5 million for
1996. Sales in 1997 were affected by the July 1997 sale of the Company's Sidney
lathe business, which contributed $10.6 million to sales in 1997 compared to
$23.8 million in 1996. In addition, lower sales were realized from the Company's
German businesses in 1997 ($5.1 million) compared to 1996 ($13.3 million). This
decline in sales was due in part to the Company's decision in 1997 to sell or
close these businesses. Sales from the Company's ongoing operations in the
United States and in the United Kingdom increased to $91.4 million in 1997 from
$78.4 million in 1996.
The Company's backlog at the beginning of 1998 was $40 million compared to a
beginning of 1997 backlog of $49 million (excluding the Sidney lathe and German
businesses). The Company recorded $82 million of orders for its ongoing
businesses during 1997. The recent financial instability in Southeast Asia had a
negative impact on orders during the last quarter of 1997 and into early 1998,
primarily at the Company's coil processing equipment division.
[PHOTO]
So where do we go from here? Our actions taken in 1997 have eliminated those
businesses where we could no longer reasonably compete or be financially viable.
Our remaining coil processing equipment and vertical machining center businesses
have historically been profitable and we now expect the paper coating and
laminating equipment business to turn the corner during 1998. We believe our
actions have provided a solid foundation upon which to begin rebuilding the
Company. This is easier said than done. What will we actually do in 1998?
During 1998 we will focus our energy on the business basics of increasing market
share, improving margins and addressing the cost structure of our remaining core
businesses. This will insure our long-term competitiveness. Some may view our
1997 actions as tactical in nature. Certain actions were, but others were
strategic. The Company is now positioned for success in many ways; a profitable
historical performance of our core business, reduced levels of debt and focused
management armed with a new aggressive strategy. Rest assured that we will
attack our 1998 objectives with the same energy and commitment that was evident
in our restructuring efforts of 1997.
We are in the initial stages of implementing a corporate-wide business planning,
or Enterprise Resource Planning (ERP), system. The new system will enable us to
more effectively utilize Company resources, reduce material and labor variances
by better planning and allocating resources and will, of course, be Year 2000
compliant. The implementation of this system will cause us to complete a
comprehensive internal operational analysis, thereby enabling us to streamline
processes, reduce waste and
2
<PAGE> 7
ultimately to improve performance at our business units. A new ERP system is an
"enabler." It will enable us to modernize and optimize our existing businesses
while preparing for future additions.
Not all of our efforts in 1998 were devoted to restructuring. Comprehensive
market studies were completed for our core businesses, which will enable us to
formulate and execute the appropriate business strategies. These studies also
identified challenges for improvement and opportunities for growth. During 1998,
management will develop a road map for that growth.
Based on this new foundation, we will be positioned to focus on growth at our
profitable business units. Revenue growth will come from both the continued
internal development of new products, joint ventures or marketing agreements and
the external pursuit of appropriate acquisition opportunities. We are in a
position to capitalize on those opportunities because during 1997, the Company
repaid a majority of its indebtedness in part from the proceeds of the sale of
the Sidney lathe business. As a result, we enter 1998 in a strong financial
position.
During various times in 1997, I have advised our shareholders that "Actions
speak louder than words." The wisdom of that adage has certainly been proven
during 1997. The return of Monarch to profitability, along with the expected
benefits to be derived by our shareholders, remains management's top priority .
. . we believe there can be no more important objective.
In order to meet the objectives of our shareholders, certain changes are
obligatory and decisions must be promptly finalized. As a result, changes in
management have been made. We are in the process of building a new management
team. Several key positions have been filled in early 1998. Additional changes
will undoubtedly occur as we increase performance expectations.
In January, 1998 Karl A. Frydryk joined the company as Vice President and Chief
Financial Officer. Karl's primary focus will be making us a more numbers-based
management team and improving our financial communications. In February and
March, 1998 Patrick M. Flaherty, Vice President-Operations Improvement and
Timothy P. Gibson, Vice President-Human Resources joined Monarch. Pat will lead
our cost reduction efforts and will establish efforts in manufacturing and
engineering excellence, along with assuming the role of Corporate Project Leader
for the new ERP system. Tim is responsible for developing programs and
initiatives to better engage our employees in the future direction and
performance of the business.
Robert A. Skodzinsky assumed the new position of President--Machine Tool
Division in March, 1998. Bob will be responsible for all of Monarch's machine
tool business as we drop the Cortland and Sidney designations. Also in March,
Frederick G. Sharp joined the company as President--Stamco Division. Fred will
lead a more strategic Stamco business now focused on its U.S. and U.K.
operations. Both divisions' management is charged with improved bottom-line
performance.
Obviously, my expectations for the new management team are high. It is important
that Monarch's management and employees are challenged to perform at a much
higher level in 1998. For 1998, the salaries of our top corporate officers and
general managers were frozen. A new interim management incentive plan has been
implemented, focused on measurable, absolute objectives, not intangibles. The
1998 objectives include pre-tax earnings, earnings per share and share price
appreciation. In future years the objectives will have a longer-term focus. A
significant percentage of the payout for achieving these objectives will be in
the form of the Company's stock which, if earned, will vest over a three-year
period. Implementation of this plan will build an even stronger link between
management and shareholder interests. Success, when attained, will therefore be
mutual.
In summary, 1997 was a transitional year with multiple divestitures and the
closure of non-strategic, unprofitable businesses. We have positioned the
Company for future success and are laying the foundation during 1998 from which
we expect to rebuild the Company. We have a strong balance sheet accompanied by
a growing group of dedicated and focused employees.
Most important is the emerging confidence I see in our new strategic direction.
Employees now believe we will be a different business. Your management team is
focused, committed and confident of our imminent success in 1998 and beyond.
I regret to report that in early 1998, John F. Torley, a retired Director of
Monarch with over 25 years of experience, passed away. During his many years of
service Mr. Torley was a key contributor to the success of the Company. He
chaired many committees during the good times at Monarch. His dedication to the
Company will be remembered and appreciated for years to come.
/S/ Richard E. Clemens
Richard E. Clemens
President & Chief Executive Officer
March 20, 1998
3
<PAGE> 8
MONARCH MACHINE TOOLS--EXPANDING OPPORTUNITIES
Monarch's machine tool business experienced a year of strategic repositioning in
1997. The sale of the Sidney-based lathe business in July allowed for the
pursuit of development and expansion opportunities with a focused and
experienced management team. A modern facility in Cortland, New York remains the
division headquarters. The decision to sell Sidney eliminated over-capacity,
under-utilization and redundancy caused by two very similar operating units. At
the same time, any dual market image issues with regard to customers,
distributors, technology and the products were eliminated. The sale also created
the opportunity to develop a set of strategic development initiatives under
which the machine tool business has become unified.
Monarch's high performance machining centers provide excellent value in helping
customers increase productivity or to meet stringent manufacturing requirements.
Our historic market niche has been in heavy-duty, high-accuracy, large-envelope
vertical machining centers. During 1996, with a new product, the production
machining center (PMC), we entered into the high-volume production segment of
the market. With the announcement in late 1997 of the Company's first strategic
alliance with a German machine tool builder, Spinner Machine Tool Company GmbH,
we entered into another market segment, ultra-precision horizontal turning
machines.
While attacking new market segments, we have continued to add key accounts with
many well-known machine tool users who have discovered a reinvigorated Monarch
Machine Tool Division. We have expanded our customer application sales
capability to provide customers with both packaged machining solutions and
unique custom-engineered special applications. Our strategic initiative remains
to develop a steady stream of innovative new products that provide superior
features and benefits. This is being pursued both internally by product
development teams and externally via strategic alliances or acquisition
candidates.
[PHOTO]
Monarch's new PMC-V750 offers unsurpassed production
performance with "three-machines-in-one" flexibility.
4
<PAGE> 9
Internally, our design teams finalized the next model in our new line of
machining centers. The PMC V-1200, which will begin shipment in March 1998,
incorporates many first-time features never before seen in a high-performance
machining center. Two new versions of our successful VMC-RT (rotary table)
machines--an X-axis version and a tilting table version--were also introduced in
1997. These new products have been well received by jet engine manufacturers,
specialty bearing producers and construction equipment companies. Our control
and software engineers have launched two new control platforms, while
standardizing and miniaturizing many components of electronic hardware.
Spinner, with its five product families, will provide a continuous source of
ultra-precision computer numerically controlled (CNC) turning and milling
products. Early in 1998, the truly unique TM series (turning-mill center)was
introduced to North American customers. Later in 1998 certain models of the TC
Series (compact slant-bed machines) will be introduced. The complete line of
Monarch-Spinner products will be exhibited in September 1998 at the
International Manufacturing Technology Show (IMTS) in Chicago, Illinois. Monarch
expects to present a re-energized image at this biennial conference.
New distributors in six major territories during the past year further
strengthened Monarch's North American distribution. By expanding the market
segments served and products offered, we have significantly increased our
distributors' sales opportunities and resultant earnings potential. Continuous
dialog with the distributors has strengthened our understanding of market and
customer needs. The Spinner strategic alliance brings us a European
Community-based, state-of-the-art factory and product showroom in Sauerlach,
Germany along with a group of Spinner-Monarch distributors with sales offices
throughout Europe. Development of the Far East market also took shape in 1997.
This included the first time participation in the Beijing Machine Tool Show and
the capture of a major order for equipment to be used for aircraft component
manufacturing in Shenyang, China.
A reputation for outstanding customer service doesn't come quickly or easily; it
has to be built one service call, one satisfied customer at a time. With
increased customer demands for 100% machine availability, when our products
require spare parts, factory service or even on-line information and assistance,
Monarch is there. Beyond machine tool product service, we provide hotline
assistance, customer training and engineering and applications services.
Focusing on these services will undoubtedly lead to enhanced business
opportunities as customers continue their search for improved levels of
technical support.
By aggressively pursuing market opportunities along with a strong commitment to
further educate its workforce in material resource planning, financial
performance measurement and continuous improvement initiatives, the success of
the Monarch Machine Tool Division is secure.
5
<PAGE> 10
STAMCO COIL PROCESSING EQUIPMENT--OPERATIONAL EXCELLENCE
The Stamco coil processing division enjoys a 113-year history and a
well-deserved reputation for quality and innovation in the metal working
industry. Its principal manufacturing facility, located in New Bremen, Ohio, is
complemented by the operations of its subsidiary located in West Midland,
England (Stamco UK).
Stamco provides high performance applications to many industrial segments,
including primary steel, brass and aluminum mills, metal service and
distribution centers and metal product manufacturers, such as the automotive,
metal furniture, building products and appliance sectors. Stamco designs, builds
and installs custom slitting lines that can operate at speeds in excess of 2,000
feet per minute or cut-to-length lines that can process a steel coil over 8 feet
wide and 3/4 of an inch thick. A Stamco tension leveling line can pull the shape
defects out of a 1/4 inch thick, 6-foot wide coil of aluminum running at a speed
of 1,500 feet per minute.
During 1997 Stamco achieved record sales and increased profitability, which was
due, in part, to a successful target marketing strategy. Specifically, the
aluminum industry is an important target market
[PHOTO]
Stamco's quick-change removable roll module in this multi-roll leveler enhances
user productivity.
6
<PAGE> 11
segment for Stamco. In the past, we have supplied two lines for processing
aluminum can stock measuring .012 inch thick and 7 feet wide and running at
5,000 feet per minute, a feat which remains unchallenged in the industry. In
1997, we again "raised the bar" in aluminum processing by manufacturing a dual
carousel rewind reel for aluminum can stock that not only runs at 2,500 feet per
minute, but shears and re-threads at that speed, without stopping. This
significant achievement will now become standard equipment in a major aluminum
producer's new micro mill expansion program.
Increasing productivity is a constant challenge in the coil processing business.
Steel mills are processing ever-larger coils to increase their efficiency.
During 1997, we designed and built unwinders and rewinders to handle coils of
steel weighing up to 60 tons each, which is almost twice the weight of the
previous standard. Also in 1997, Stamco designed and constructed turret
unwinders and rewinders for heavy gauge (1/2 inch thick) slitting lines to
improve their productivity by allowing virtually continuous operation from one
coil to the next. In Europe, Stamco UK shared its innovation of the rapid change
tooling capstan, which has enjoyed great success in the United States since its
introduction. Our customers immediately recognized the benefits of incorporating
this timesaving feature, resulting in 8 installations and a backlog of 2 units
in progress. With just these innovations alone, customers can increase
productivity 45%.
Stamco shipped a newly designed trapezoidal shearing line to a major
international automobile builder in 1997 and partnered with Andritz/Sundwig to
build two push-pull pickle lines, which will be the most productive lines in the
world.
As the only ISO-9001 certified company in the industry, Stamco enjoys an
international reputation for performance and quality. Stamco expects to continue
on its path of continuous improvement in 1998 by focusing on operational
excellence. In order to improve profitability, competitive position and customer
service, Stamco will implement a strategic program of standardization,
simplification and value engineering of products. Combined with its past
successes, the above focus will further enhance Stamco's leadership role in the
design and manufacturing of coil processing equipment.
7
<PAGE> 12
BUSCH COATING AND LAMINATING EQUIPMENT--MANY FIRSTS
Busch achieved many "firsts" during its third year of operation in 1997, notably
receiving its first U.S. and South American orders and sale of its first U.S.
designed and manufactured equipment.
Achieving firsts for a company which has been in existence since 1913 is no easy
task. The German company Busch was purchased by Monarch in May 1995. Although it
was very active in Europe and Asia, its success in North and South America was
limited. The Monarch strategy has been to establish a new Busch entity by
introducing it as an U.S. company with historic German roots in the equipment
manufacturing industry. The Busch mission is to provide value, innovation and
quality products to the paper and plastics coating and laminating industries.
Working under the philosophy to "Think Globally, Act Locally," Busch was
successful in capturing orders in 1997 from Ohio-based customers who recognized
the value of a local equipment supplier. These orders covered a broad spectrum,
from system components to complete converting lines in the pressure sensitive
market, and included a custom-engineered laminating machine for the industry's
largest converter. Busch equipment was also successfully introduced into the
South American market, with a silicone coating line sold to Columbia's largest
pressure sensitive adhesive (PSA) converter. This line incorporates the latest
in coating technology, using a 5-roll, multi-purpose coating head, capable of
applying water, solvent and 100% solids silicones to various mediums.
During 1997 Busch established an U.S. based capable and experienced engineering
and manufacturing workforce with the addition of personnel with pertinent
industry experience. We also benefited from the availability of experienced
manufacturing and customer service personnel previously employed by Monarch's
Sidney lathe business.
A team of sales engineers and agents strategically located to serve the global
market will implement Busch's 1998 sales and marketing strategy. With
manufacturing and engineering now centralized in its Ohio facilities, Busch will
ensure a worldwide commonality to its product line of custom-engineered coating
and laminating equipment. Our focus on achieving quality product performance and
growth in market share during 1998 will be well served by our new location and
staff.
[PHOTO] Busch's PVDC coating line with two
coating stations is used for
production of packaging material.
8
<PAGE> 13
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
The selected financial data set forth below for the Company for the five years
ended December 31, 1997 has been derived from the audited financial statements
of the Company. Such information should be read in conjunction with the
financial statements.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net Sales $ 107,116 $ 115,528 $ 114,991 $ 76,332 $ 77,517
Operating Income (Loss) $ (4,850) (1) $ (11,220) (2) $ 1,220 $ (3,407) $ (1,948)
Net Income (Loss) $ (4,202) $ (5,498) $ 786 $ (1,463) $ (475)
Earnings per Common Share $ (1.12) $ (1.47) $ .21 $ (.39) $ (.13)
BALANCE SHEET DATA:
Working Capital $ 15,078 $ 36,368 $ 38,942 $ 25,943 $ 31,265
Total Assets $ 75,869 $ 102,912 $ 101,348 $ 78,342 $ 79,628
Long-term Debt $ 1,598 $ 18,175 $ 14,318
Shareholders' Equity $ 41,269 $ 46,579 $ 52,650 $ 52,676 $ 54,459
OTHER DATA:
Cash From (Used in)
Operating Activities $ 14,797 $ (4,069) $ (6,155) $ 2,231 $ (4,264)
Payments of Indebtedness $ 20,586 $ 120 $ 1,000
Additional Indebtedness $ 4,129 $ 11,764 $ 4,870
Ending Backlog $ 42,200 $ 60,800 $ 59,600 $ 49,600 $ 25,900
Cash Dividend per
Common Share $ .20 $ .20 $ .20 $ .20 $ .20
</TABLE>
(1) Includes reserves for asset impairment, closure costs and inventory
write-down of $3,030 ($.81 per share, before tax) related to sale of the
Sidney lathe business and $1,383 ($.37 per share, before tax) related to the
sale and closure of the German businesses.
(2) Includes a reserve of $7,463 ($1.99 per share, before tax) resulting from an
inventory write-down at the Sidney lathe business and a gain of $2,518 ($.67
per share, before tax) related to LIFO liquidations.
PROFORMA HISTORICAL OPERATING DATA
(Dollars in thousands)
The following proforma historical operating data are for the businesses which
will comprise the ongoing operations of the Company in 1998. The data are based
upon the amounts included in the above "Summary of Operations" and "Other Data"
less the applicable amounts related to the businesses which were closed in 1997
or are expected to be closed or sold in 1998.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 91,370 $ 78,427 $ 81,475 $ 56,809 $ 60,514
Operating Income (Loss) $ 2,002 $ (92) $ 3,564 $ 356 $ 1,336
Earnings (Loss) Before
Income Tax $ 843 $ (478) $ 3,568 $ 276 $ 1,790
Ending Backlog $ 39,600 $ 49,000 $ 46,400 $ 44,600 $ 15,600
</TABLE>
9
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss of $4.2 million in 1997 compared to a net loss
of $5.5 million in 1996 and net income of $786,000 in 1995. During 1997, the
Company sold the operating assets of the Sidney lathe business and decided to
close or dispose of the operations of its three German businesses. These
businesses had sustained operating losses during the past few years and the
Company could not project an acceptable level of success in these businesses.
Results in 1997 include a reserve of $3.0 million for asset impairment and other
disposal costs related to these businesses, while cost of sales includes $1.4
million for the write-down of inventory at these businesses. Included in the
1996 loss is a $7.5 million write-down of inventory, a gain of $3.9 million from
the sale of properties in Germany and income of $2.5 million from LIFO
liquidations, each related primarily to the businesses being sold or closed. The
Company's ongoing businesses realized income before tax of $843,000 in 1997, a
loss before tax of $478,000 in 1996 and income before tax of $3.6 million in
1995.
Net sales were $107.1 million, $115.5 million and $115.0 million in 1997, 1996,
and 1995, respectively. The decline in 1997 sales was due to the July 1997 sale
of the Sidney lathe business and lower sales from the Company's German
businesses, due to the decision in 1997 to sell or close these businesses. Sales
from the Company's ongoing businesses were $91.4 million in 1997, $78.4 million
in 1996 and $81.5 million in 1995. The increase in 1997 was primarily realized
in the coil processing segment.
Cost of sales as a percentage of sales was 86.0% in 1997 compared to 95.3% in
1996 and 85.7% in 1995. The percentage was higher in 1996 due to the above noted
$7.5 million inventory write-down and lower margins achieved on certain coil
processing lines of equipment shipped in 1996. The cost of sales percentage at
the Company's ongoing businesses was 83.5%, 87.0% and 84.1% in 1997, 1996 and
1995, respectively, with the higher percentage in 1996 resulting from the
aforementioned shipment of lower margin coil processing lines. The Company's
ongoing machine tool business realized improved margins in 1997 due to a more
profitable sales mix.
Selling, general and administrative expense remained relatively constant in 1997
compared to 1996. Expenses decreased in 1997 as a result of lower sales at the
German businesses and the July sale of the Sidney lathe business, but this
decrease was partially offset by additional selling expenses related to efforts
to increase market penetration by the Company's ongoing operations. The increase
from 1995 to 1996 was due, in part, to costs related to the start-up of the
coating and laminating business in the U.S. and increased selling efforts.
Interest expense declined in 1997, as a significant portion of the Company's
indebtedness was repaid in the second half of 1997, using proceeds from the sale
of the Sidney lathe business and from collection of accounts receivable.
Interest expense increased in 1996 due to higher levels of borrowings in late
1995 and in 1996 to fund operating losses. Included in other income in 1996 was
the aforementioned gain of $3.9 million from the sale of properties in Germany.
The Company's income tax provision (benefit) generally reflects the statutory
rates in the jurisdictions in which the Company operates, except during 1997. A
lower income tax benefit rate was recorded in 1997 as the Company is limited in
the tax benefit it expects to realize from losses incurred by its German
businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that operating cash flow and amounts available under
existing credit arrangements will be adequate to fund its operations in 1998.
The Company does not anticipate making any significant capital expenditures
during 1998, other than a projected $1.5 million for the acquisition of new
computer software and associated hardware in conjunction with implementation of
a corporate-wide business planning (Enterprise Resource Planning) system and
associated consulting services. Additional costs for this project will be
incurred during 1999 for completion of the system implementation. During 1998
the Company also expects to expend $350,000 to acquire new equipment and upgrade
the CAD/CAM systems at its machine tool operation.
The Company has up to $39.0 million of various credit facilities in place,
although the amount available to the Company at any time is limited based on
levels of the Company's inventory and accounts receivable and by letters of
credit issued under the lines of credit. During 1997, the Company was able to
reduce its
10
<PAGE> 15
indebtedness by $20.6 million, by using the $7.2 million of proceeds received
from the sale of the Sidney lathe business and from operating cash flow of $14.8
million, generated primarily from collection of accounts receivable. At December
31, 1997 the Company had $2 million outstanding and $17.1 million available
under its credit facilities. One credit facility requires the Company to comply
with various covenants which include, among others, maintaining certain
financial ratios and limiting the amount available for payment of dividends. As
of December 31, 1997, the maximum amount of retained earnings available for
dividends was $2.2 million.
The amount outstanding under a revolving credit facility of $20 million from two
domestic banks can be converted to a term loan at April 30, 1998. The Company
intends to request the banks for an extension of the revolving credit facility
prior to its conversion to a term loan.
The Company is a defendant in various legal actions arising in the normal course
of its business, primarily product liability claims. It is self-insured for
payment of limited amounts of product liability, group health and workers'
compensation claims. In addition, the Company is one of currently five
potentially responsible parties (PRP's) ordered by the Environmental Protection
Agency to remove certain waste materials at a site in New York. The Company
believes that the ultimate settlement and payment of amounts resulting from the
above situations will not have a materially adverse impact on the financial
condition of the Company.
The fair value of the assets contained in the Company's various pension plans
exceeds the projected benefit obligations by $24 million at December 31, 1997,
of which $15.7 million is recorded in the Company's accounts at that date. The
Company projects that the prepaid pension asset will increase by $3 million in
1998, based on current assumptions. The ability of the Company to realize the
full value of this asset in the ordinary course of business is limited under
present tax laws, although there is no time limitation for that realization.
The Company has a net deferred tax asset of $4.3 million at December 31, 1997.
The Company has determined that it is not necessary to provide a valuation
allowance against this asset, as it expects to realize the asset through the
implementation of certain tax-planning strategies and the generation of future
taxable income.
BACKLOG
The Company's backlog for its ongoing businesses at December 31, 1997 was $40
million compared to a beginning of year backlog of $49 million. The Company
recorded $82 million of orders for its ongoing businesses during 1997. The
recent financial instability in Southeast Asia had a negative impact on orders
during the fourth quarter of 1997 and into early 1998, primarily at the
Company's coil processing equipment division.
YEAR 2000 COMPLIANCE
The Company anticipates that the implementation of the new Enterprise Resource
Planning system software and hardware, which began in 1998, will adequately
address any significant Year 2000 compliance issues.
INFLATION AND INTEREST RATES
The Company has not been significantly affected by inflation in recent years and
anticipates that it will not be significantly affected by inflation in 1998. A
change in interest rates would likely not have a significant impact on the
Company's financial results due to the low level of indebtedness presently
outstanding.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income, and Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. These standards are required
to be adopted by the Company in 1998, but are not expected to have a material
impact on the overall financial statements of the Company.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains various
forward-looking statements, involving risks and uncertainties, which could cause
actual results to differ materially from these statements. These risks include,
but are not limited to, changes in economic conditions, product price
competition, customer purchasing patterns, labor costs, product liability issues
and other legal claims and governmental regulatory issues.
11
<PAGE> 16
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Cash $ 5,022 $ 4,848
Accounts receivable, net of allowance for doubtful
accounts of $1,507 and $469
in 1997 and 1996, respectively 26,762 42,046
Inventories 11,142 15,528
Costs and estimated earnings in excess of billings
on uncompleted contracts 337 3,307
Prepaid expenses 540 754
Deferred income taxes 3,102 5,276
---------- ---------
Current assets 46,905 71,759
Property, plant and equipment, net 8,649 15,938
Prepaid pension cost 15,723 13,277
Deferred income taxes 1,153 -
Other assets 3,439 1,938
---------- ---------
Total assets $ 75,869 $ 102,912
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ - $ 4,500
Current portion of long-term debt 577 122
Accounts payable 10,138 12,124
Accrued liabilities 16,016 13,976
Billings in excess of costs and estimated earnings
on uncompleted contracts 5,096 4,669
---------- ---------
Current liabilities 31,827 35,391
Deferred income taxes - 1,847
Postretirement and other accrued benefits 1,175 920
Long-term debt, less current portion 1,598 18,175
---------- ---------
Total liabilities 34,600 56,333
---------- ---------
Contingencies
Preferred stock, no par value, $1.80 cumulative convertible,
$1 stated value; 500,000 shares authorized; 14,757 shares
issued and outstanding; (liquidation preference of $590) 14 14
Common stock, no par value, 12,000,000 shares authorized;
3,761,967 and 3,744,967 shares issued and outstanding
in 1997 and 1996, respectively 5,741 5,618
Unearned compensation, restricted stock (77) -
Retained earnings 35,739 40,720
Translation adjustments (148) 227
---------- ---------
Total shareholders' equity 41,269 46,579
---------- ---------
Total liabilities and shareholders' equity $ 75,869 $ 102,912
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE> 17
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
for the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 107,116 $ 115,528 $ 114,991
----------- ----------- -----------
Cost of sales 92,152 110,076 98,502
Selling, general and administrative 16,824 16,672 15,269
Impairment and other disposal costs 2,990 - -
Total costs and operating expenses 111,966 126,748 113,771
----------- ----------- -----------
Operating income (loss) (4,850) (11,220) 1,220
Other income (expense):
Interest expense, net (424) (1,065) (576)
Other income (expense), net (31) 4,394 519
----------- ----------- -----------
Income (loss) before income taxes (5,305) (7,891) 1,163
Income tax provision (benefit) (1,103) (2,393) 377
----------- ----------- -----------
Net income (loss) (4,202) (5,498) 786
Retained earnings, beginning of year 40,720 46,993 46,982
Less dividends (preferred at $1.80 per share
and common at $.20 per share) (779) (775) (775)
----------- ----------- -----------
Retained earnings, end of year $ 35,739 $ 40,720 $ 46,993
=========== =========== ===========
Earnings per common share, basic and diluted $ (1.12) $ (1.47) $ .21
=========== =========== ===========
Average shares outstanding:
Basic 3,757,717 3,744,967 3,744,967
Diluted 3,757,717 3,744,967 3,771,967
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE> 18
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997,
1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,202) $ (5,498) $ 786
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 1,565 1,955 1,778
Pension income (2,014) (2,001) (115)
Deferred tax provision (benefit) (719) (2,400) 181
(Gain) loss on sale of fixed assets (79) (3,400) 72
Provision for inventory write-down 751 9,690 757
Loss on sale of Sidney division 1,507 0 0
Impairment of assets 1,914 0 0
Changes in operating assets and liabilities, net
of the sale of the Sidney Division in 1997:
Accounts receivable 14,679 (9,479) (6,766)
Inventories (3,162) 397 (6,688)
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,852 4,546 (6,528)
Billings in excess of costs and estimated
earnings on uncompleted contracts 427 (21) 955
Other assets (149) (117) (880)
Accounts payable 3,281 (448) 7,546
Accrued liabilities (1,854) 2,707 2,747
-------- -------- --------
Net cash provided by (used in)
operating activities 14,797 (4,069) (6,155)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (665) (1,101) (2,072)
Proceeds from sale of fixed assets 416 3,969 -
Proceeds from sale of Sidney division 7,167 - -
-------- -------- --------
Net cash provided by (used in)
investing activities 6,918 2,868 (2,072)
-------- -------- --------
Cash flows from financing activities:
Dividends paid (779) (775) (775)
Proceeds from (repayment of)
short-term borrowings, net (4,586) 129 2,359
Proceeds from long-term borrowings - 4,000 9,405
Repayment of long-term borrowings (16,000) (120) -
-------- -------- --------
Net cash provided by (used in)
financing activities (21,365) 3,234 10,989
-------- -------- --------
Effect of exchange rates on cash (176) 199 (176)
-------- -------- --------
Net increase in cash 174 2,232 2,586
Cash, beginning of year 4,848 2,616 30
-------- -------- --------
Cash, end of year $ 5,022 $ 4,848 $ 2,616
======== ======== ========
Cash paid during the year for:
Interest $ 1,102 $ 1,380 $ 604
Income Taxes $ - $ 469 $ 188
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE> 19
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
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. Certain 1995 and 1996 amounts
have been reclassified to conform to the 1997 presentation.
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 three months 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.
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 coating and laminating equipment. 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 $1,474, $1,415, and $1,679 in 1997, 1996 and 1995, respectively.
EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income (loss), after
adjustment for the preferred stock dividend requirement, by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by adding the dilutive effect of common stock equivalents,
such as the convertible preferred shares and any stock options outstanding, to
the weighted average number of common shares outstanding. The convertible
preferred shares and stock options were antidilutive for all periods presented
except for stock options during 1995 which resulted in 27,000 common stock
equivalents. Earnings per share amounts for 1996 and 1995 did not change as a
result of implementation of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
ENVIRONMENTAL REMEDIATION COSTS
Costs incurred to investigate and remediate contaminated sites are expensed.
Liabilities for these expenditures are recorded, on an undiscounted basis, when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.
STOCK OPTIONS
The Company measures compensation cost for their stock option plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
Accounting for Stocks Issued to Employees.
POSTRETIREMENT BENEFITS
The Company accrues the cost of providing postretirement benefits for medical
and life insurance coverage over the active service period of the employee.
These benefits are funded by the Company when paid
2. SALE AND DISPOSAL OF BUSINESSES
SALE OF SIDNEY DIVISION
In July 1997, the Company sold the business of the Sidney division and
essentially all of its operating assets, including inventory and machinery and
equipment carried at $7,641 and $1,540, respectively. The buyer paid $7,167 in
cash, assumed specified liabilities of $564 and agreed to pay the remaining
amount over a five year period.
In March 1998, the Company agreed to certain adjustments related to various
inventory valuation claims made by the buyer. As a result, the Company and buyer
agreed to reduce
15
<PAGE> 20
the remaining payment due under the agreement to $250 which will be received
over a two year period beginning August 2000. The Company recorded disposal
costs of $391 ($.07 per share after applicable income taxes of $133) in 1997
related to this transaction, net of a $318 benefit from a pension plan
curtailment. In addition, cost of sales includes charges of $1,139 ($.20 per
share after applicable income taxes of $387) related to the write-down of
inventory and to costs related to the settlement of claims made by the buyer.
The following is unaudited historical information relating to the Sidney
division (including in 1997 the disposal costs and charges noted above and
$1,500 ($.26 per share after applicable income taxes of $510) related to an
impairment of a property held for sale described in Note 9):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 10,613 $ 23,848 $ 16,793
Operating loss (3,302) (9,569) (2,723)
</TABLE>
DISPOSITION OF GERMAN BUSINESSES
During 1997, the Company decided to close the operations of its three businesses
located in Germany and recorded a reserve of $1,100 ($.19 per share after
applicable income taxes of $374) for estimated costs related to the closure. In
addition, included in cost of sales is $283 ($.05 per share after applicable
income taxes of $96) related to the write-off of inventory related to these
businesses. On March 12, 1998, the Company entered into an agreement to sell a
majority of the assets of one of the businesses, with the buyer also agreeing to
assume certain liabilities of the business. The expected loss on the sale of
these assets is included in the reserve amount recorded in 1997 noted above.
The Company has provided a full valuation allowance against the deferred tax
assets of these subsidiaries in the amount of $1,243, in the fourth quarter of
1997.
The following is unaudited historical information, including the reserves and
charges noted above, relating to all three German businesses:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 5,133 $ 13,253 $ 17,419
Operating income
(loss) (3,550) (1,559) 379
</TABLE>
3. ACCOUNTS RECEIVABLE
Included in accounts receivable are $5,740 and $10,068 of amounts unbilled as of
December 31, 1997 and 1996, respectively. All unbilled amounts at December 31,
1997 are expected to be billed in 1998 including $3,507 to one customer, which
amount was also unbilled at December 31, 1996. The Company anticipates billing
$2,405 of that amount in April 1998, upon shipment of a machine presently being
stored in a warehouse, and the balance, representing retainage, in late 1998.
4. INVENTORIES
At December 31, 1997 and 1996, inventories aggregating $9,558 and $10,309,
respectively, were valued at the lower of last-in, first-out (LIFO) cost or
market, with the remaining inventories of $1,584 and $5,219, respectively,
valued at the lower of first-in, first-out (FIFO) cost or market. As discussed
in Note 2, the sale of the Sidney division in 1997 resulted in a reduction in
inventory.
At December 31, 1997 and 1996, inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Finished goods $ 2,729 $ 4,978
Work-in-process and
parts inventory 12,381 23,940
Raw materials 320 599
------------------------
Total first-in, first-out
(FIFO) cost 15,430 29,517
Less allowance to adjust the
carrying value of inventories
to LIFO basis 4,288 13,989
------------------------
$ 11,142 $ 15,528
========================
</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,
before giving effect to LIFO liquidations, in 1997, 1996 and 1995 relating to
obsolete and slow-moving inventory was $751, $9,690 and $757, respectively.
During 1996, the Company decided to discontinue the manufacture of certain
product lines of the Sidney division, except for certain special orders and,
accordingly, revalued its parts inventory relating to those product lines. As a
result of this revaluation, before giving effect to LIFO liquidations, $7,463
($1.32 per share after applicable income taxes of $2,537) is included in the
1996 provision for obsolete and slow-moving inventory. Because of the above and
because of reductions in inventory in the normal course of business, prior year
LIFO inventory quantities were reduced. In 1996, this resulted in an increase in
income before taxes of $2,518 ($.44 per share after applicable income taxes of
$856).
16
<PAGE> 21
5. CONTRACTS IN PROCESS
Amounts included in the consolidated financial statements related to uncompleted
contracts are as follows:
<TABLE>
<CAPTION>
Costs and Billing in
Estimated Excess of
Earnings Costs and
in Excess Estimated
of Billings Earnings Total
- -----------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997:
Costs $ 396 $ 7,263 $ 7,659
Estimated earnings 69 1,354 1,423
----------------------------------
465 8,617 9,082
Less amounts
billed (128) (13,713) (13,841)
----------------------------------
$ 337 $ (5,096) $ (4,759)
==================================
December 31, 1996:
Costs $ 11,472 $ 1,371 $ 12,843
Estimated earnings 2,472 293 2,765
----------------------------------
13,944 1,664 15,608
Less amounts
billed (10,637) (6,333) (16,970)
----------------------------------
$ 3,307 $ (4,669) $ (1,362)
==================================
</TABLE>
6. INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The income (loss) before income taxes reflected in the consolidated statements
of operations and retained earnings is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
United States $ (2,395) $ (9,695) $ 376
Europe (2,910) 1,804) 787
-------------------------------------
$ (5,305) $ (7,891) $ 1,163
=====================================
</TABLE>
The income tax provision (benefit) reflected in the consolidated statements of
operations and retained earnings is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ (110) $ 71
Foreign (277) 100 125
------------------------------------
(277) (10) 196
------------------------------------
Deferred:
Federal 1,856 (2,501) 259
Foreign - - 326
------------------------------------
1,856 (2,501) 585
------------------------------------
Net operating loss
carryforward:
Federal (2,905) (778) (301)
Foreign 223 896 (103)
------------------------------------
(2,682) 118 (404)
------------------------------------
$ (1,103) $ (2,393) $ 377
====================================
</TABLE>
The differences between the statutory U.S. income tax rate and effective income
tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
U.S. income tax rate (34)% (34)% 34%
Effect of foreign operations 13 4 (1)
Other - - (1)
----------------------------
(21)% (30)% 32%
============================
</TABLE>
The effect of the foreign operations in 1997 is primarily due to a valuation
allowance provided against the deferred tax assets of the German subsidiaries.
The components of deferred taxes included in the consolidated balance sheets are
as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 483 $ 46
Inventory 236 3,743
Intangibles 141 -
Product liability reserve 204 173
Accrued vacation 202 254
Environmental reserve 493 510
Other liabilities and reserves 1,212 550
Postretirement and other
accrued benefits 272 272
Net operating loss and tax credit
carryforwards 7,913 4,059
----------------------------
Total deferred tax assets 11,156 9,607
Less valuation allowance (1,243) -
----------------------------
Net deferred tax assets 9,913 9,607
----------------------------
Deferred tax liabilities:
Property, plant and equipment (457) (1,713)
Prepaid pension cost (5,201) (4,465)
----------------------------
Total deferred tax liabilities: (5,658) (6,178)
----------------------------
Net deferred tax asset $ 4,255 $ 3,429
============================
Net current deferred asset $ 3,102 $ 5,276
============================
Net non-current deferred
asset (liability) $ 1,153 $ (1,847)
============================
</TABLE>
17
<PAGE> 22
Generally accepted accounting principles require 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. The Company believes that a valuation allowance is not necessary,
other than a valuation allowance of $1,243 recorded in the fourth quarter of
1997 relating to the net operating loss carryforwards of the German
subsidiaries. The Company anticipates that the deferred tax assets will be
realized as a result of the utilization of 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, a valuation allowance
against the deferred tax assets could be required if estimates of future taxable
income are reduced.
At December 31, 1997, the Company has domestic net operating loss carryforwards
of $18,063 available to offset future taxable income. These carryforwards expire
as follows:
<TABLE>
<S> <C>
2007 $ 1,546
2008 2,068
2009 3,012
2010 624
2011 2,268
2012 8,545
--------
$ 18,063
========
</TABLE>
The Company also has foreign net operating loss carryforwards for its subsidiary
in England and its subsidiaries in Germany of $954 and $2,763 respectively,
which can be carried forward indefinitely.
The Company also has an alternative minimum tax credit carryforward of $172,
which can be carried forward indefinitely, and a general business credit
carryforward of $75 which expires in the year 2005, for its domestic operations.
7. PROPERTY, PLANT AND EQUIPMENT
The reduction in the cost and accumulated depreciation in 1997 resulted from the
sale of certain machinery and equipment in the Sidney division and
reclassification of $4,445 (prior to the write-down described in Note 9) at
December 31, 1997 of land and building which are being held for sale.
Property, plant and equipment includes the following:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Land $ 307 $ 1,328
Buildings 10,975 22,366
Machinery and equipment 15,418 30,297
-------------------------
26,700 53,991
Accumulated depreciation (18,051) (38,053)
-------------------------
$ 8,649 $ 15,938
=========================
</TABLE>
8. BENEFIT PLANS
Under the Company's pension plans (Plans), all domestic salaried employees are
provided monthly retirement benefits based on an employee's compensation and
years of service at date of retirement. In addition, bargaining hourly employees
are paid monthly retirement benefits of specified amounts for each year of
service. The Company annually contributes amounts to provide the Plans with
sufficient assets to fund payment of the benefits based on actuarial assumptions
as noted in the following tables. Minimal contributions were required in 1997,
1996 and 1995 as Plan assets exceeded projected benefit obligations. At December
31, 1997, Plan assets exceeded projected benefit obligations by $24,040. Under
present tax laws, the Company's ability to realize the full value of this asset
is limited.
Due to the sale of the Sidney division (described in Note 2), employment of
essentially all Sidney division and certain corporate employees was terminated.
As a result, the Company realized a Plan curtailment gain of $318, which reduced
the loss on the sale of the Sidney division in 1997.
Net periodic pension expense (income) includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during
the period $ 636 $ 455 $ 525
Interest cost on
projected benefit
obligation 1,481 1,380 1,396
Actual return on assets (8,668) (5,310) (7,829)
Net amortization
and deferral 4,639 1,587 5,940
----------------------------------
$ (1,912) $ (1,888) $ 32
==================================
</TABLE>
The Plans funded status and accounting assumptions at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit
obligation, including vested
benefits of $17,797 and
$18,022 at December 31,
1997 and 1996, respectively $(18,197) $(18,562)
============================
Projected benefit obligation for
services rendered to date $(20,048) $(20,703)
Plan assets at fair value, primarily
common stocks, pooled
investment funds and U.S.
Government securities 44,088 37,742
----------------------------
Plan assets in excess of
projected benefit obligation 24,040 17,039
Unrecognized net (gain) loss (7,955) (3,071)
Unrecognized transition asset (362) (691)
----------------------------
Prepaid pension cost $ 15,723 $(13,277
============================
Assumptions:
Discount rate 7.25% 7.25%
Compensation increases 4.50% 4.50%
Rate of return on assets 8.50% 8.50%
</TABLE>
18
<PAGE> 23
Unrecognized gains and losses are amortized ratably over five years. Assets in
the plans include common stock of the Company with a fair value of $792 and $823
at December 31, 1997 and 1996, respectively.
The Monarch Machine Tool Company Retirement Savings Plan (the Savings Plan)
enables substantially all full-time domestic employees to participate and
contribute up to 15% of their salary to the Savings Plan upon completion of six
months of service. Company matching and profit-sharing contributions are
determined annually by the Board of Directors. During 1997, 1996 and 1995, the
Company made matching contributions of 10% and no profit-sharing contributions.
Total expense was $145, $142, and $126 in 1997, 1996 and 1995, respectively.
9. OTHER ASSETS
Included in other assets at December 31, 1997 is land and buildings carried at
$2,945 which are held for sale or are not an integral part of the Company's
operations. A significant portion of the land and buildings is being leased to
the buyer of the Sidney division at an annual rate of $160 through July 2002.
Under this lease agreement, the lessee is responsible to pay for essentially all
costs of operating the leased assets (including taxes and utilities) while the
Company is required to only pay for maintenance and repair costs which exceed
$18 per year and property and casualty insurance. The Company may terminate the
lease with six months notice at any time after July 31, 1998.
During the fourth quarter of 1997, the Company reviewed the recoverability of
the net book value of the land and building which housed the former Sidney
division, due to the sale of the business. The Company has determined that the
carrying amount exceeds the estimated fair value of the property and accordingly
recorded an impairment of $1,500 ($.26 per share after applicable income taxes
of $510) which is included in the impairment and other disposal costs line item
in the consolidated statements of operations and retained earnings. This
determination is based on the estimated cash flow to be received from the lease
and the estimated fair market value of the property if it were to be sold.
During 1996, the Company realized a gain of $3,863 ($.68 per share after
applicable income taxes of $1,313) from the sale of properties which were
available for sale as a result of the discontinuance of a business in 1992 and
the consolidation of certain of the Company's German business operations.
10. ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Accrued start-up and
warranty costs $ 7,266 $ 2,111
Self-insurance reserves 1,482 1,159
Environmental reserve 1,450 1,500
Wages and benefits 1,238 1,577
Accrued taxes 817 1,985
Accrued commissions 547 1,279
Customer deposits 434 1,232
Other 2,782 3,133
-------------------------
$ 16,016 $ 13,976
=========================
</TABLE>
11. DEBT
SHORT-TERM BORROWINGS
The Company has various domestic and foreign lines of credit and revolving
credit facilities available for up to $19,000, at interest rates ranging from
7.25% to 8.00%, with terms expiring during 1998. The Company had not borrowed
any amounts under these facilities at December 31, 1997 ($1,500 borrowed at
December 31, 1996), but had $5,838 of the available amount reserved against the
issuance of letters of credit ($6,548 at December 31, 1996).
The weighted average interest rate on all outstanding short-term borrowing at
December 31, 1996 was 6.6%.
LONG-TERM BORROWINGS
The Company has a revolving credit facility of $20,000 (Credit Facility) with
two banks until April 30, 1998, at which time the Company has the option to
convert any outstanding amounts into a term loan payable in equal quarterly
installments from June 1998 through April 2001. Interest on any outstanding
loans is based on LIBOR plus between .75% and 1.5% dependent upon a certain
financial ratio (effectively 6.22% at December 31, 1997). A commitment fee of
3/8% per annum must be paid quarterly on the daily average unused amount of the
Credit Facility. At December 31, 1997 and 1996, the Company has $2,000 and
$18,000, respectively, outstanding under the Credit Facility.
The amount available to the Company under the Credit Facility is limited based
on levels of inventory and accounts receivable, which limit is further reduced
by any amount borrowed under a $7.5 million line of credit included in the above
short-term borrowings. At December 31, 1997, the company has $15 million
available to borrow under this Credit Facility.
The Credit Facility requires the Company to comply with various covenants which
include, among others, maintaining certain financial ratios and limiting the
amount available for payment of dividends. As of December 31, 1997, the maximum
amount of retained earnings available for dividends is $2,196.
19
<PAGE> 24
A German subsidiary has two term loans outstanding with a balance of $175 and
$297 at December 31, 1997 and 1996, respectively. The loans bear interest at
5.5% and 6.75% per annum and mature on March 30, 1999 and September 30, 2000,
respectively. However, due to the planned disposition of this subsidiary, as
described in Note 2, the Company intends to re-pay the outstanding balances in
1998. Accordingly, the debt is classified as current at December 31, 1997.
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>
1998 $ 577
1999 646
2000 704
2001 248
--------
2,175
Less current
portion (577)
--------
$ 1,598
========
</TABLE>
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 was completed by an
engineering firm and submitted to EPS Region II in 1995.
The 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. During 1997, the EPA
published a proposed Record of Decision ("ROD"), which is awaiting final
approval. The ROD basically incorporates the remediation program proposed by the
PRPs based on the Feasibility Study. Following the expected approval of the ROD,
the PRPs expect to either negotiate an agreement with the non-participating PRPs
concerning past and prospective expenses or to commence an action against the
non-participants.
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. The attorneys for the PRPs
have brought on Motions for Summary Judgment against several defendants in order
to establish liability for clean-up costs on the part of these defendants. In
the case of two of these defendants, the motions have been granted and liability
thus established. Additional motions against three defendants have been made and
are now pending. It is the opinion of the PRPs attorneys that these motions are
also likely to be successful. In the opinion of counsel, this is significant
since all defendants against which liability has been established will in all
probability be included in the EPA order directing cleanup of the Rosen Site and
will thereby be compelled to share in the costs of cleanup.
The Company accrued $1,600 in 1993 for its share of the estimated costs
associated with the ultimate resolution of this matter. In 1995, the Company
received a settlement of $350 from six insurance carriers in exchange for
releasing the carriers from the claims which were asserted by the Company in
this matter. Based upon information presently available, the Company believes
that the $1,450 it has reserved at December 31, 1997 is adequate to provide for
its share of the estimated costs for resolution of this issue. However, 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.
13. CONTINGENCIES
The Company is self-insured for a portion of the cost of the health care
benefits it provides its employees with an aggregate annual self-insured claim
limit of $3,300. The Company is also self-insured for workers' compensation for
those divisions located in Ohio and 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.
The Company is a defendant in various legal actions, primarily product liability
claims, arising in the ordinary course of business. The Company believes that
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.
14. 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.
15. STOCK-BASED COMPENSATION PLANS
The 1994 Employees Stock Option Plan ("the 1994 Plan") provides for the issuance
of up to 100,000 shares of com-
20
<PAGE> 25
mon stock in connection with non-qualified 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. As of December 31,
1997, options for 73,000 shares remain available for grant under the 1994 Plan.
In 1997, the Company granted 75,000 non-qualified stock options to an officer.
The options granted during 1997 have a term of 10 years and vest on the sixth
anniversary of the date of grant, or earlier if certain stock prices are
achieved.
A summary of the status of the Company's stock options as of December 31, 1997,
1996, 1995 and the changes during the years ending on those dates is presented
below.
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
- ------------------------------------------------------------
<S> <C> <C>
Outstanding December 31, 1994 40,900 $11.65
Granted 4,900 $10.19
Cancelled (2,000) $ 9.69
--------------------
Outstanding December 31, 1995 43,800 $11.49
Granted - -
Cancelled or expired (500) $10.19
--------------------
Outstanding December 31, 1996 43,300 $11.50
Granted 75,000 $ 8.44
Cancelled or expired (6,000) $11.95
--------------------
Outstanding December 31, 1997 112,300 $09.43
====================
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" in accounting for option grants. Accordingly, no
compensation expense has been recognized for the stock options granted in 1997
or 1995. Had the compensation cost for the Company's stock-based compensation
plans been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" the related
compensation expenses charged to operations, on a pre-tax basis, would have been
$59 in 1997, $3 in 1996 and $1 in 1995. SFAS 123 does not apply to options
granted prior to 1995.
The weighted average fair value of options granted during 1997 and 1995 was
$2.55 and $2.69, respectively. The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions.
<TABLE>
<CAPTION>
Assumption: 1997 1995
- -----------------------------------------------------------
<S> <C> <C>
Expected Term 7 years 5 years
Expected Volatility 24.5% 24.5%
Expected Dividend Yield 2.37% 1.96%
Risk-Free Interest Rate 5.72% 6.22%
</TABLE>
The following table summarizes information about stock options at December 31,
1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contract Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 8.44-$10.19 96,600 8.57 $ 8.74 9,900 $ 9.73
$11.38-$13.94 15,700 1.96 $13.71 15,450 $13.75
- ---------------------------------------------------------------------
$ 8.44-$13.94 112,300 7.64 $ 9.43 25,350 $12.18
</TABLE>
During 1997, the Company issued 17,000 shares of restricted stock which vest
over a two year period from date of grant. During 1997, the Company recorded
$30,000 as compensation expense associated with shares of restricted stock.
The Company also has a Restricted Stock Bonus Plan which authorizes the awarding
of up to 50,000 common shares to employees. No common shares have been awarded
under this Plan.
16. 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>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 227 $ 25 $ 62
----------------------------
Translation adjustment increase (decrease):
Net long-term assets (124) (67) 82
Net current assets (251) 269 (119)
----------------------------
Total adjustment (375) 202 (37)
----------------------------
Balance, end of year $ (148) $ 227 $ 25
============================
</TABLE>
Currency exchange losses during 1997 and 1996 were approximately $456 and $293,
respectively, relating primarily to the Company's German operations and were not
significant in 1995.
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 or
losses in connection with the contract are included in the consolidated
statements of operations and retained earnings. There were no outstanding
contracts at December 31, 1997 and the value of the outstanding contracts at
December 31, 1996 were not significant to the Company's financial position.
21
<PAGE> 26
17. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in three primary industries in which it designs and builds
machine tool, coil processing and coating and laminating equipment. All Company
products are sold by direct Company sales people and independent agents
throughout the United States and the world.
Approximately 11%, 17%, and 16% of the Company's consolidated revenues for 1997,
1996 and 1995, 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.
Business segment information is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Sales:
Machine tools $ 41,561 $ 55,328 $ 49,534
Coil processing 62,221 57,383 57,651
Coating and
laminating 3,618 3,623 8,313
Adjustments and
eliminations (284) (806) (507)
----------------------------------
$ 107,116 $ 115,528 $ 114,991
==================================
Operating income (loss):
Machine tools $ (2,887)$ (9,258) $ (1,980)
Coil processing 591 (789) 2,122
Coating and
laminating (1,875) (902) 1,182
Corporate (679) (271) (104)
----------------------------------
$ (4,850)$ (11,220) $ 1,220
==================================
Total assets:
Machine tools $ 34,161 $ 56,122 $ 57,930
Coil processing 31,017 40,288 41,403
Coating and
laminating 3,271 1,787 8,560
Corporate 13,063 8,871 3,233
Adjustments and
eliminations (5,643) (4,156) (9,778)
----------------------------------
$ 75,869 $ 102,912 $ 101,348
==================================
Depreciation and amortization:
Machine tools $ 797 $ 955 $ 1,013
Coil processing 643 803 647
Coating and
laminating 125 197 118
----------------------------------
$ 1,565 $ 1,955 $ 1,778
==================================
Capital expenditures:
Machine tools $ 212 $ 589 $ 478
Coil processing 223 434 869
Coating and
laminating 69 78 725
Corporate 161 - -
----------------------------------
$ 665 $ 1,101 $ 2,072
==================================
</TABLE>
Geographic information is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Sales:
United States $ 92,374 $ 97,088 $ 88,439
Europe 15,026 19,246 27,059
Adjustments and
eliminations (284) (806) (507)
----------------------------------
$ 107,116 $ 115,528 $ 114,991
==================================
Operating income (loss):
United States $ (1,133)$ (8,691) $ 540
Europe (3,038) (2,258) 784
Corporate (679) (271) (104)
----------------------------------
$ (4,850)$ (11,220) $ 1,220
==================================
Total assets:
United States $ 54,331 $ 83,318 $ 84,207
Europe 14,118 14,879 23,686
Corporate 13,063 8,871 3,233
Adjustments and
eliminations (5,643) (4,156) (9,778)
----------------------------------
$ 75,869 $ 102,912 $ 101,348
==================================
</TABLE>
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company and its subsidiaries consist mainly of
cash, long term investments, current and non-current accounts receivables,
short-term bank credit, accounts payable, accrued liabilities and long-term
liabilities.
In view of their nature, the fair value of the financial instruments included in
working capital of the Company is usually identical or close to their carrying
value. The fair value of non-current receivables and long-term liabilities also
approximates their carrying value, because they bear interest at rates close to
the prevailing market rates.
22
<PAGE> 27
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, 1997 and 1996, and the
related consolidated statements of operations and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio
February 19, 1998 except for Note 2
for which the date is March 12, 1998
23
<PAGE> 28
BOARD OF DIRECTORS
[PHOTO]
Hopkins Bertrand Richardson Lundeen
Enouen Rigot Clemens Connelly Goulet
<TABLE>
<S> <C> <C>
JOHN A. BERTRAND WILLIAM A. ENOUEN DAVID E. LUNDEEN
President Senior Vice President & President & Chief Executive
A. O. Smith Electrical Products Chief Financial Officer - Retired Officer - Retired
Company The Mead Corporation The Monarch Machine Tool
Company
RICHARD E. CLEMENS DR. WALDEMAR M. GOULET, PH.D
President & Chief Executive Professor of Finance JOHN M. RICHARDSON
Officer Wright State University Senior Vice President - Retired
The Monarch Machine Tool A. O. Smith Corporation
Company KENNETH H. HOPKINS
Chairman & Chief Executive JOSEPH M. RIGOT
GERALD L. CONNELLY Officer Partner
Executive Vice President & Field Abrasive Incorporated Thompson Hine & Flory LLP
Chief Operating Officer
Robbins & Myers, Inc.
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
RICHARD E. CLEMENS KARL A. FRYDRYK PAUL J. MALONEY
President & Vice President & Vice President &
Chief Executive Officer Chief Financial Officer General Manager - Stamco U.S.
ROBERT A. SKODZINSKY PATRICK M. FLAHERTY ROBERT B. RIETHMAN
President - Machine Tool Division Vice President - Treasurer
Operations Improvement
FREDERICK G. SHARP EARL J. HULL
President - Stamco Division TIMOTHY P. GIBSON Secretary
Vice President - Human Resources
</TABLE>
24
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Monarch has five consolidated subsidiaries, each of which is wholly-owned, as
follows (During 1998, the Company intends to finalize the closing of each of
the subsidiaries in Germany.):
Name Jurisdiction
---- ------------
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
<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 19, 1998, except for Note 2 as to which the date is
March 12, 1998, on our audits of the consolidated financial statements and
financial statement schedule of The Monarch Machine Tool Company and
Subsidiaries as of December 31, 1997 and 1996, and for the years ended December
31, 1997, 1996, and 1995, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET, CONSOLIDATED INCOME STATEMENTS AND CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,022
<SECURITIES> 0
<RECEIVABLES> 26,762
<ALLOWANCES> 0
<INVENTORY> 11,142
<CURRENT-ASSETS> 46,905
<PP&E> 38,720
<DEPRECIATION> 30,071
<TOTAL-ASSETS> 75,869
<CURRENT-LIABILITIES> 31,827
<BONDS> 0
0
14
<COMMON> 5,664
<OTHER-SE> 35,591
<TOTAL-LIABILITY-AND-EQUITY> 75,869
<SALES> 107,116
<TOTAL-REVENUES> 107,116
<CGS> 92,151
<TOTAL-COSTS> 111,966
<OTHER-EXPENSES> 455
<LOSS-PROVISION> 1,507
<INTEREST-EXPENSE> 424
<INCOME-PRETAX> (5,305)
<INCOME-TAX> (1,103)
<INCOME-CONTINUING> (5,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,202)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
