<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
Date of Report (Date of earliest event reported): December 31, 1998
THE MONARCH MACHINE TOOL COMPANY
(Exact name of Registrant as specified in its charter)
Ohio 1-1997 34-4307810
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
2600 Kettering Tower, Dayton, OH 45423
(Address of principal executive offices) (Zip code)
937-910-9300
(Registrant's telephone number including area code)
Not applicable
(Former name and former address, if changed since last report)
1
<PAGE> 2
STATEMENT
MONARCH MACHINE TOOL COMPANY (the "Company") filed with the Commission a Current
Report on Form 8-K on January 14, 1999. At Item 7 of such Report the Company
indicated that it would file audited historical financial statements of the
business acquired and pro-forma financial information on or before March 16,
1999. Set forth below is Item 7 of such Report amended to include the audited
historical financial statements of the business acquired and pro-forma financial
information.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
(1) Report of Independent Accountants
(2) Consolidated Balance Sheets of GFG Corporation at December
31, 1998 and 1997
(3) Consolidated Statements of Earnings of GFG Corporation for
the years ended December 31, 1998 and 1997
(4) Consolidated Statements of Changes in Shareholder's Equity
of GFG Corporation for the years ended December 31, 1998 and
1997
(5) Consolidated Statements of Cash Flows of GFG Corporation for
the years ended December 31, 1998 and 1997
(6) Notes to Consolidated Financial Statements
(b) Pro-forma financial information (unaudited)
(1) Pro-forma Condensed Consolidated Balance Sheet at December
31, 1998
(2) Pro-forma Condensed Statement of Consolidated Earnings for
the year ended December 31, 1998
(3) Notes to the Pro-forma Condensed Consolidated Financial
Information
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
February 23, 1999
To the Board of Directors of
The Monarch Machine Tool Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, changes in shareholder's equity and of cash
flows present fairly, in all material respects, the financial position of GFG
Corporation and its subsidiaries at December 31, 1998 and 1997 and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
3
<PAGE> 4
GFG CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 315,504 $ 693,203
Amounts due from Derlan -- 1,860,025
Accounts receivable, net of allowance for doubtful
accounts of $101,000 and $77,000 in 1998 and 1997 3,756,709 4,936,787
Inventory 1,526,861 3,781,773
Deferred income taxes 145,246 139,775
Other current assets 207,023 459,661
------------ ------------
Total current assets 5,951,343 11,871,224
Property and equipment, net 608,125 561,895
Goodwill, less accumulated amortization of
$1,129,558 and $930,091 in 1998 and 1997 864,735 1,064,202
Note receivable, officer -- 375,000
Deferred income taxes 388,660 824,883
Other assets 10,000 10,000
------------ ------------
Total assets $ 7,822,863 $ 14,707,204
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Accounts payable $ 1,200,783 $ 2,127,810
Accrued liabilities 963,544 1,611,002
Progress billings 1,465,829 2,926,147
------------ ------------
Total current liabilities 3,630,156 6,664,959
Deferred compensation -- 1,191,000
Note payable - Derlan Industries -- 7,500,000
------------ ------------
Total liabilities 3,630,156 15,355,959
Common stock; $1.00 par value; 56,000 shares authorized;
1,500 shares issued and outstanding 1,500 1,500
Additional paid-in capital 4,603,274 --
Retained earnings (deficit) (392,367) (630,555)
------------ ------------
4,212,407 (629,055)
Less treasury stock 19,700 19,700
------------ ------------
Total shareholder's equity (deficit) 4,192,707 (648,755)
------------ ------------
Total liabilities and shareholder's equity (deficit) $ 7,822,863 $ 14,707,204
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE> 5
GFG CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 21,087,439 $ 21,588,290
Cost of sales 16,777,935 15,625,544
------------ ------------
Gross margin 4,309,504 5,962,746
General and administrative expenses 3,138,337 3,174,310
------------ ------------
Operating income 1,171,167 2,788,436
Other (income) expense:
Interest income (220,900) (185,537)
Derlan management fee 250,000 250,000
Interest expense 900,000 71,000
Other (income) expenses, net (37,003) 106,863
------------ ------------
892,097 242,326
------------ ------------
Income before income taxes 279,070 2,546,110
Provision for income taxes 40,882 997,616
------------ ------------
Net income $ 238,188 $ 1,548,494
============ ============
Earnings per common share, basic and diluted $ 159 $ 1,032
============ ============
Average shares outstanding, basic and diluted 1,500 1,500
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE> 6
GFG CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
-------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1,500 $ - $ 4,770,951 $ (19,700) $ 4,752,751
Net income 1,548,494 1,548,494
Dividends declared (6,950,000) (6,950,000)
-------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 1,500 - (630,555) (19,700) (648,755)
Net income 238,188 238,188
Assumption of deferred compensation
agreement, net of note receivable and 598,000 598,000
net of deferred taxes
Reduction of note payable to Derlan 7,500,000 7,500,000
Reclassification of amount due
from Derlan (3,494,726) (3,494,726)
-------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 $ 1,500 $ 4,603,274 $ (392,367) $ (19,700) $ 4,192,707
======== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE> 7
GFG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 238,188 $ 1,548,494
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 194,986 176,742
Amortization 199,467 199,467
Deferred income taxes 32,752 64,715
Loss on disposal of fixed assets 5,785 27,971
Changes in assets and liabilities:
Accounts receivable 1,180,078 498,532
Inventory 2,254,912 (1,665,809)
Other current assets 252,638 (499,936)
Accounts payable (927,027) 90,972
Progress billings (1,460,318) 594,503
Accrued liabilities (467,458) 918,693
----------- -----------
Net cash provided by operating activities 1,504,003 1,954,344
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets -- 6,800
Capital expenditures (247,001) (218,400)
----------- -----------
Net cash (used in) investing activities (247,001) (211,600)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amounts due from Derlan (1,634,701) (1,220,799)
----------- -----------
Net cash (used in) financing activities (1,634,701) (1,220,799)
----------- -----------
Net (decrease) increase in cash (377,699) 521,945
Cash at beginning of period 693,203 171,258
----------- -----------
Cash at end of period $ 315,504 $ 693,203
=========== ===========
Cash paid during the year for:
Interest $ 900,000 $ 71,558
Income taxes 125,104 230,106
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<PAGE> 8
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. DESCRIPTION OF BUSINESS
On December 31, 1998, The Monarch Machine Tool Company (Monarch) purchased
all of the outstanding capital stock of GFG Corporation (the Company), from
Derlan Industries Inc. (Derlan). The Company designs and assembles roll
coating and electrostatic oil application equipment used by steel and
aluminum mills and mini-mills, ferrous and non-ferrous supply centers and
end users of coiled material. The Company also designs and assembles metal
strip processing equipment. Additionally, the Company has a sales and
service facility in Surrey, England. All Company products are sold by direct
company sales people and independent agents throughout the United States and
the world. Approximately 56% and 47% of the Company's consolidated
revenues in 1998 and 1997, respectively, were export sales from the
United States, primarily to Asia.
2. 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The following is a summary of the significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, GFG-Peabody, Ltd., a foreign sales and
service company, and GFG International Corporation, a foreign sales
corporation. All significant intercompany balances and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
The Company handles its cash transactions primarily through one local
financial institution. Cash equivalents include those obligations that are
readily convertible to cash and have a stated maturity of three months or
less.
8
<PAGE> 9
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product to the customer. Progress
billings received on contracts are recorded as a liability until the revenue
is recognized. Estimated losses on contracts are recorded when identified.
INVENTORIES
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for additions and
improvements are capitalized, and costs for repairs and maintenance are
charged to operations as incurred. 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. For financial reporting purposes, depreciation is computed using
the straight-line method over the following estimated useful lives:
Machinery and equipment 10 years
Office furniture and equipment 5-10 years
Transportation equipment 3 years
Leasehold improvements are amortized over the life of the related lease.
GOODWILL
Goodwill is being amortized on the straight-line method over ten years.
The carrying value of the goodwill is periodically reviewed if the
facts and circumstances suggest that it may be impaired. If the review
indicates that the goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be reduced to its estimated
recoverable value.
INCOME TAXES
For the years ended December 31, 1998 and 1997, the Company was included in
the consolidated Federal tax return with Derlan. For financial statement
purposes, the tax provision is calculated as if the Company filed its own
tax return. Deferred taxes are provided to give recognition to the effect of
expected future tax consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax basis of
assets and liabilities.
9
<PAGE> 10
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
FOREIGN CURRENCY TRANSLATION
The GFG-Peabody entity utilizes the local currency as the functional
currency. Foreign currency assets and liabilities are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date. Results
of operations are translated at average exchange rates during the period for
revenues and expenses. Gains and losses resulting from translation of assets
and liabilities were immaterial during the periods presented.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which includes
cash and cash equivalents, accounts receivable, accounts payable and Derlan
related financing, approximates their fair market value at December 31, 1998
and 1997.
EARNINGS PER SHARE
Basic and diluted earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
3. RELATED PARTY TRANSACTIONS
The Company participates in various cash management activities with Derlan.
As such, the Company was allocated interest income of approximately
$218,000 and $152,000 for the years ended December 31, 1998 and 1997,
respectively. As a condition of the sale of the Company to Monarch, an
amount of $3,494,726 due from Derlan at December 31, 1998 for the excess
cash deposited with them was eliminated and recorded as a reduction of paid
in capital.
As of December 31, 1997, the Company had $7,500,000 outstanding under a
note payable to Derlan. The repayment terms and interest rate was
determined by Derlan. During 1998, monthly interest payments at a
rate of 12% were paid to Derlan. As a condition of the sale of the Company
to Monarch, this note payable was eliminated and recorded as a contribution
to capital as of December 31, 1998.
Company employees participate in various employee benefit programs of
Derlan. In addition, the Company participates in various insurance programs
of Derlan. During the year ended December 31, 1998 and 1997, Derlan charged
the Company approximately $227,000 and $166,000, respectively, for the cost
of these employee benefit and insurance programs. As of December 31, 1997,
accrued expenses included $140,953 due to Derlan for insurance charges.
10
<PAGE> 11
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
4. ACCOUNTS RECEIVABLE
Included in accounts receivable are approximately $1,124,000 and $3,544,000
of amounts unbilled as of December 31, 1998 and 1997, respectively. All
unbilled amounts at December 31, 1998 are expected to be billed in 1999.
5. INVENTORIES
As of December 31, 1998 and 1997, inventories are comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials and spare parts $ 706,276 $ 717,647
Work-in-process 820,585 3,064,126
---------- ----------
$1,526,861 $3,781,773
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT
As of December 31, 1998 and 1997, property and equipment is comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Furniture, fixtures and computer $ 900,974 $ 943,626
equipment
Machinery and equipment 136,696 132,030
Leasehold improvements 245,459 245,459
Transportation equipment 45,028 45,028
---------- ----------
1,328,157 1,366,143
Less accumulated depreciation 720,032 804,248
---------- ----------
$ 608,125 $ 561,895
========== ==========
</TABLE>
11
<PAGE> 12
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
7. INCOME TAXES
The income tax provision reflected in the consolidated financial statements
is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current:
Federal $127,327 $861,903
State (53,693) 200,428
Deferred (32,752) (64,715)
-------- --------
$ 40,882 $997,616
======== ========
</TABLE>
Differences between the U.S. statutory income tax rate and the effective
income tax rate are as follows;
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Statutory U.S. income tax rate 34% 34%
State income taxes 3 4
Settlement of prior years' audit
issues (18) -
Other, net (4) 1
--- ---
15% 39%
=== ===
</TABLE>
During 1998, the Company settled an outstanding audit issue with the State
of Wisconsin for an amount which was less than expected. As a result,
included in the 1998 tax provision is a credit of approximately $70,000 for
a reduction is the state tax liability.
12
<PAGE> 13
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
The components of deferred taxes included in the consolidated balance sheet
are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 38,380 $ 29,260
Inventory 109,023 129,291
Deferred compensation -- 452,580
Goodwill 151,360 126,085
Other intangibles 255,103 281,961
----------- -----------
Total deferred tax assets 553,866 1,019,177
Deferred tax liabilities
Property and equipment (17,803) (25,201)
Accrued expenses (2,157) (29,318)
----------- -----------
Total deferred tax liabilities (19,960) (54,519)
Net deferred tax asset $ 533,906 $ 964,658
=========== ===========
Net current deferred tax asset $ 145,246 $ 139,775
=========== ===========
Net non-current deferred tax asset $ 388,660 $ 824,883
=========== ===========
</TABLE>
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 asset will
not be realized. The Company believes that a valuation allowance is not
necessary as the deferred tax assets will be realized as a result of the
utilization of deferred tax liabilities and the generation of future taxable
income.
8. BENEFIT PLANS
The Company's employees participate in the Derlan Industries, Inc. 401(k)
Retirement Plan (the Plan). The Plan covers all employees who have completed
12 months of continuous service and have attained age 21. Employees may
contribute up to 15% of their salary to the Plan subject to limitations
imposed by the Internal Revenue Service. The Company is allowed to make
discretionary matching contributions as defined in the Plan and as approved
by the Board of Directors. The Company currently matches 100% of the first
2% of employee's contributions and 50% of employee contributions up to the
next 4%. Company matching contributions were approximately $100,000 and
$67,000 for the years ended December 31, 1998 and 1997, respectively.
13
<PAGE> 14
GFG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
In addition, Company employees participate in the Derlan Employee Share
Purchase Plan (the Share Purchase Plan) which allows employees to
contribute up to 5% of their salary to purchase shares of Derlan
Industries Ltd stock. The Company is required to match 50% of the
contribution. Company matching contributions were approximately $24,000 and
$20,000 for the years ended December 31, 1998 and 1997, respectively.
The Company has a deferred compensation incentive arrangement with an
executive of the Company. Included in general and administrative expense is
compensation expense of $180,000 for both 1998 and 1997 related to this
agreement. In years prior to 1997, the Company loaned the executive $375,000
against this incentive arrangement. As a condition of the sale of the
Company to Monarch, this obligation and the related note receivable were
assumed by Derlan and, accordingly, the net liability and related deferred
taxes were transferred to paid in capital as of December 31, 1998.
9. OPERATING LEASES
The Company currently leases its facility in Milwaukee, Wisconsin on a month
to month basis. Rental expense for this facility was $203,394 in 1998 and
1997. Additionally, the Company has non-cancellable leases for various
automobiles and its facility in Surrey, England. Rental expense under these
agreements was approximately $45,000 and $50,000 in 1998 and 1997,
respectively. Future minimum payments due under these non-cancellable
agreements are as follows:
<TABLE>
<S> <C>
1999 $36,000
2000 29,000
2001 6,000
</TABLE>
10. CONTINGENCIES
The Company is a defendant in various legal actions 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 or operating results.
14
<PAGE> 15
PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THE MONARCH MACHINE TOOL COMPANY (THE "COMPANY") AND SUBSIDIARIES
AND GFG CORP. AND SUBSIDIARIES ("GFG")
The pro-forma financial statements included herein reflect the effects of the
Company's acquisition of 100% of the common stock of GFG from Derlan
Industries, Inc. The pro-forma condensed consolidated balance sheet for the
Company reflects the acquisition as occurring at the close of business on
December 31, 1998, including a pro-forma adjustment for projected acquisition
related costs. The pro-forma condensed statement of consolidated earnings for
the year ended December 31, 1998, for the Company and GFG are presented as if
the acquisition had occurred on January 1, 1998. The pro-forma information is
based on the historical financial statements of the Company and GFG, and gives
effect to the acquisition under the purchase method of accounting,
utilizing the assumptions and adjustments set-forth in the accompanying notes to
the pro-forma condensed consolidated financial statements.
The pro-forma statements have been prepared by Company management based on the
audited financial statements of the Company for the fiscal year ended
December 31, 1998, audited by PricewaterhouseCoopers LLP, and the audited
historical financial data of GFG for the same period, also audited by
PricewaterhouseCoopers LLP.
These pro-forma statements reflect adjustments directly related to the
acquisition and do not include potential adjustments that may arise as a result
of items to be settled with the seller as a consequence of the Stock Purchase
Agreement. Therefore, these pro-forma condensed consolidated statements may not
be indicative of the results that would have occurred if the combination had
been in effect on the dates indicated or which may be obtained in the future.
The pro-forma financial statements should be read in conjunction with the
audited financial statements and notes thereto of GFG, contained elsewhere
herein, and the Company's audited financial statements and the notes thereto
contained in its Form 10-K for the year ended December 31, 1997.
15
<PAGE> 16
Monarch Machine Tool Co. and Subsidiaries
GFG Corp. and Subsidiaries
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Monarch Machine GFG Pro-forma
Tool Co. Corp. Adjustments(1) Pro-forma
---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,417 $ 316 $ 0 $ 1,733
Accounts receivable 20,136 3,757 0 23,893
Inventories 8,775 1,527 183 (a) 10,485
Costs and estimated earnings in
excess of billings on uncompleted
contracts 3,275 0 0 3,275
Prepaid expenses and other current assets 461 207 0 668
Deferred income taxes 1,791 145 (62) (b) 1,874
------------- ------------- ------------- -------------
Current assets 35,855 5,952 121 41,928
PROPERTY, PLANT, & EQUIPMENT 10,462 608 0 11,070
PREPAID PENSION COSTS 19,051 0 0 19,051
DEFERRED INCOME TAXES 1,242 388 0 1,630
GOODWILL 51 865 9,332 (c) 10,248
OTHER ASSETS 4,668 10 0 4,678
------------- ------------- ------------- -------------
Total assets $ 71,329 $ 7,823 $ 9,453 $ 88,605
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short term debt $ 500 $ 0 $ 0 $ 500
Accounts payable 7,729 1,201 0 8,930
Accrued liabilities 9,723 2,429 149 (d) 12,301
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,517 0 0 5,517
------------- ------------- ------------- -------------
Current liabilities 23,469 3,630 149 27,248
------------- ------------- ------------- -------------
LONG-TERM DEBT 3,000 0 13,497 (e) 16,497
POSTRETIRE. & OTHER ACCRUED LIABILITIES 2,206 0 0 2,206
SHAREHOLDERS' EQUITY:
Preferred stock 14 0 0 14
Common stock 5,815 2 (2) (f) 5,815
Unearned compensation, restricted stock (37) 0 0 (37)
Additional paid-in capital 0 4,603 (4,603) (f) 0
Retained earnings 37,042 (392) 392 (f) 37,042
Accumulated other comprehensive income (180) 0 0 (180)
------------- ------------- ------------- -------------
42,654 4,213 (4,213) 42,654
Less treasury stock 0 20 (20) (f) 0
------------- ------------- ------------- -------------
Total shareholders' equity 42,654 4,193 (4,193) 42,654
------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 71,329 $ 7,823 $ 9,453 $ 88,605
============= ============= ============= =============
</TABLE>
1- SEE NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16
<PAGE> 17
<TABLE>
MONARCH MACHINE TOOL CO. AND SUBSIDIARIES
GFG CORP. AND SUBSIDIARIES
PROFORMA CONDENSED STATEMENT OF CONSOLIDATED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<CAPTION>
Monarch Machine GFG Pro-forma
Tool Co. Corp. Adjustments(1) Pro-forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 79,066 $ 20,737 $ 0 $ 99,803
COST OF SALES 63,113 16,428 183 (g) 79,724
SELLING, GENERAL AND ADMINISTRATIVE 12,625 3,138 (14) (h) 15,749
------------ ------------ ------------ ------------
TOTAL COSTS AND OPERATING EXPENSES 75,738 19,566 169 95,473
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 3,328 1,171 (169) 4,330
OTHER INCOME (EXPENSE):
INTEREST EXPENSE, NET (207) (679) (266) (i) (1,152)
OTHER INCOME (EXPENSE), NET 62 (213) 250 (j) 99
------------ ------------ ------------ ------------
3,183 279 (185) 3,277
INCOME TAX PROVISION (BENEFIT) 1,100 41 62 (k) 1,203
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 2,083 $ 238 $ (247) $ 2,074
============ ============ ============ ============
EARNINGS PER COMMON SHARE, BASIC AND DILUTED $ 0.55 $ 0.55
============ ============
AVERAGE SHARES OUTSTANDING:
BASIC 3,780,000 3,780,000
DILUTED 3,780,000 3,780,000
</TABLE>
1 - SEE NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 18
THE MONARCH MACHINE TOOL COMPANY
NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro-Forma Adjustments:
1. The following reflects the purchase price, historical book value, and
adjustments to book value for the acquisition of GFG on December 31,
1998.
Purchase price:
<S> <C>
Cash to Derlan Industries Inc. $ 13,497
---------
Net debt incurred (2.e.) $ 13,497
=========
Net assets acquired:
Historical book value $ 4,193
Write-up of work-in-process inventory 183
Record effect of deferred tax liability (62)
Record accrued expenses for cost of acquisition (149)
Write-off of existing goodwill (865)
---------
Adjusted book value 3,300
Excess purchase price allocated to goodwill 10,197
---------
Total $ 13,497
=========
</TABLE>
2. The pro-forma balance sheet and statement of earnings have been adjusted to
reflect:
a. The write-up of work-in-process inventory at 12/31/98.
b. The impact of deferred income taxes on the write-up of
work-in-process inventory.
c. The recording of the excess of the purchase price over the
estimated fair value of assets acquired (goodwill). (See
note 1 also).
d. The accrual of $149 for acquisition related costs.
e. Funds were borrowed under the Company's First Amendment to
Second Amended and Restated Credit Agreement, dated December
29, 1998. (The First Amendment was previously filed as
exhibit 4.1 to the 8-K).
18
<PAGE> 19
THE MONARCH MACHINE TOOL COMPANY
NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
f. The elimination of the GFG shareholder's equity.
g. The adjustment to cost of sales during the pro-forma year
1998 is related to the write-up of work-in-process inventory
and its subsequent charge ($183) to cost of sales as the
inventory written-up is sold during the year.
h. The adjustments to selling, general and administrative
expense during 1998 are related to the impact of goodwill
and the elimination of a deferred compensation plan of a GFG
officer:
<TABLE>
<CAPTION>
Year Ended
12/31/98
----------
<S> <C> <C>
i. Estimated incremental amortization expense relating to
the excess of purchase price resulting from the
acquisition (amortized over a 25 year life) $ 166
ii. Elimination of the officer's deferred
compensation plan. (180)
-----
1998 Pro-forma adjustment $ (14)
======
</TABLE>
i. The borrowing of $13,497 for the acquisition was assumed to have
occurred on January 1, 1998. The pro-forma adjustment to
interest is based on a rate of 7.00% (estimated LIBOR base rate
of 5.625% for the period plus 1.375%). The existing interest
related to cash paid to Derlan Industries Inc. by GFG for
interest expense on long-term debt to the parent. This long-term
debt was assumed by Derlan Industries Inc. prior to the
acquisition. The interest income being eliminated is related to
the cash balance (assumed by Derlan Industries Inc. prior to the
acquisition) that was allocated to GFG by Derlan Industries Inc.
19
<PAGE> 20
<TABLE>
<CAPTION>
THE MONARCH MACHINE TOOL COMPANY
NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
Year Ended
12/31/98
<S> <C>
i. Elimination of the existing interest expense $ 900
ii. Elimination of the existing interest income (221)
iii. New interest expense (945)
-------
1998 Pro-forma adjustment $ (266)
========
</TABLE>
j. The adjustments to other income (expense) during 1998 consist of
the elimination of the corporate fee of $250 paid by GFG to
Derlan Industries Inc.
k. Adjustments in the 1998 pro-forma year reflect the impact of
taxes at an estimated rate of 38% on the pro-forma Profit and
Loss adjustments. The tax expense during 1998 is the result of
the created goodwill being permanently non-deductible.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements 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.
MONARCH MACHINE TOOL COMPANY
Date: March 16, 1999 By: /s/ Karl A. Frydryk
---------------- --------------------
KARL A. FRYDRYK
Chief Financial Officer
21
