<PAGE> 1
THIS DOCUMENT IS A COPY OF AMENDMENT NO. 1 TO THE CURRENT REPORT ON FORM 8-K
FILED ON SEPTEMBER 13, 1995 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 29, 1995
PAXAR Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
New York 0-5610 13-5670050
----------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction (Commission I.R.S. Employer
of incorporation or File Number) Identification No.)
organization
</TABLE>
<TABLE>
<S> <C>
105 Corporate Park Drive, White Plains, New York 10604
----------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (914) 697-6800
--------------------------------------------------------------------------------
Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On June 29, 1995, Monarch Acquisition Corp. (the "Buyer"), a
corporation in which Paxar Corporation (the "Company") owns a 49.5% interest,
completed the acquisition of Monarch Marking Systems, Inc. and related
companies ("Monarch") from Pitney Bowes Inc. and certain related companies
("Pitney Bowes"). The other owners of the Buyer are Odyssey Partners, L.P.,
which has a 49.5% interest in the Buyer, and Thomas Loemker, a Director of the
Company, who has a 1% interest in the Buyer. The Buyer paid $127 million to
Pitney Bowes in consideration for Monarch. The $127 million used to purchase
Monarch was comprised of: (i) $30 million consisting of $15 million paid by
each of the Company and Odyssey in consideration for their respective interests
in the Buyer; (ii) $303,030 from Mr. Loemker in consideration for his interest;
and (iii) the balance of approximately $97 million of the purchase price plus
approximately $3 million in acquisition costs from a private placement of the
Buyer's debt securities. The holders of the aforementioned debt securities are
without recourse to the Company, Odyssey or Mr. Loemker in the event of default
by Buyer. Immediately following the acquisition of Monarch from Pitney Bowes,
the Buyer was merged into Monarch, which was the surviving entity.
Monarch is the leading manufacturer and marketer of marking equipment
and supplies in the United States. Monarch also sells, directly and through
distributors, marking equipment and supplies in 75 other countries around the
world. Monarch manufactures, markets and distributes (i) tabletop label
dispensers and handheld, mechanical labeling guns which print pressure-
sensitive (i.e., adhesive-backed) price and other identification labels and
affix them onto merchandise for retailers (collectively, "conventional
labelers"), and (ii) electronic bar code printers ("bar code printers"), which
are used in a wide range of retail and industrial applications, including
inventory management and distribution systems. Monarch also manufactures and
markets supplies used in both its conventional labelers and bar code printers
and provides extensive service to its installed base of machines. The breadth
of Monarch's machine, supplies and service offerings allows it to meet most of
its customers' marking needs.
At Closing, the Company and Odyssey executed a Stockholders' Agreement
(the "Stockholders' Agreement"). The Stockholders' Agreement provides that
Monarch's Board of Directors shall be comprised of eight members, three of whom
are designated by the Company ("Company Directors"), three of whom are
designated by Odyssey ("Odyssey Directors"), with the remaining two Directors
selected by a majority of the Company Directors and the Odyssey Directors. It
is anticipated that Mr. Loemker will serve as Chairman of the Board of
Directors and, until a suitable replacement can be obtained, as the initial
chief executive officer of Monarch. The Company and Odyssey have agreed that
Mr. Loemker will not be considered a director designated by either the Company
or Odyssey. Substantially all significant corporate actions of the Buyer will
require the approval of a majority of the Buyer's Board of Directors, including
the affirmative vote of at least two of the
-2-
<PAGE> 3
Directors designated by the Company and at least two of the Directors
designated by Odyssey.
The Stockholders' Agreement provides that during calendar year 1997
the Company and Odyssey shall each have the single right to offer to sell all
but not less than all of their respective shares of Monarch to the other. If
the parties are unable to agree upon the terms of sale for the shares offered,
the offering party may place Monarch up for sale.
At anytime commencing January 1, 1998, independent of the rights set
forth in the previous paragraph, the Company and Odyssey shall have the right,
exercisable on one occasion each, to offer to sell all, but not less than all,
of their respective shares of Monarch to the other. The Stockholders'
Agreement provides that the terms of sale of the shares shall be established by
up to three different appraisers, if necessary. If the parties are unable to
agree upon the terms of the sale of the shares offered, Monarch must be placed
up for sale.
On one occasion on or after July 1, 1999, the Company shall have the
right to purchase all but not less than all of Odyssey's shares of Monarch.
The Stockholders' Agreement provides that the terms of the Company's offer to
buy Odyssey's shares shall be established by up to three different appraisers
if necessary. If the Company does not agree with the final appraised value,
Monarch must be placed up for sale.
Any sale of Monarch pursuant to the aforementioned conditions shall
take place under the direction of the Board of Directors. Neither the Company
nor Odyssey shall have the right to acquire Monarch if it is so placed up for
sale without the consent of the other.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Business Acquired. The historical
financial statements of Monarch required under this item are included herein on
Pages F-1 to F-18.
(b) Pro-forma Financial Information. Pro-forma condensed income
statements of the Company for the year ended December 31, 1994 and the six
months ended June 30, 1995, which give effect to the Company's interest in
Monarch as if the investment occurred at January 1, 1994, are included herein
on pages S-1 to S-3.
(c) Exhibits.
*2.1 Omnibus Purchase and Sale Agreement dated June 6,
1995 by and between Pitney Bowes Inc., Monarch
Marking Systems, Inc., Pitney Bowes Marking Systems
Ltd., Pitney Bowes International Holdings Inc.,
Pitney Bowes France S.A. and Monarch Acquisition
Corp. Exhibits and Schedules to this Agreement have
been omitted, but
-3-
<PAGE> 4
will be furnished supplementally by the Registrant to
the Commission upon request.
*10.1 Stockholders' Agreement dated June 29, 1995 among
Monarch Acquisition Corp., Paxar Corporation and
Odyssey Partners, L.P.
23.1 Consent of Price Waterhouse LLP.
----------------
* Included as part of the initial filing of this Report.
-4-
<PAGE> 5
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.
PAXAR Corporation
Registrant
Dated: September 12, 1995 By: \s\ Jack R. Plaxe
-------------------------
Jack R. Plaxe, Vice
President and Chief
Financial Officer
-5-
<PAGE> 6
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statement of Net Assets to be Sold as of December 31, 1994 and 1993. . . . F-3
Consolidated Statement of Operations to be Sold for the Years Ended December 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows from Operations to be Sold for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Statements of Net Assets and Operations to be Sold . . . . . . . F-6
Consolidated Statement of Net Assets to be Sold as of April 30, 1995 (unaudited)
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Statement of Operations to be Sold for the Four Months Ended April 30,
1995 (unaudited) and April 30, 1994 (unaudited) . . . . . . . . . . . . . . . . . . . F-15
Consolidated Statement of Cash Flows from Operations to be Sold for the Four Months
Ended April 30, 1995 (unaudited) and April 30, 1994 (unaudited) . . . . . . . . . . . F-16
Notes to Consolidated Statements of Net Assets and Operations to be Sold
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
</TABLE>
F-1
<PAGE> 7
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Monarch Marking Systems, Inc.
We have audited the accompanying consolidated statement of net assets to be sold
of Monarch Marking Systems, Inc. as of December 31, 1994 and 1993, and the
related consolidated statements of operations to be sold and of cash flows from
operations to be sold for each of the three years in the period ended December
31, 1994. 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.
As described in Note 1, these financial statements were prepared to present the
net assets of Monarch Marking Systems, Inc. to be sold and the related
operations and cash flows and are not intended to be a complete presentation of
the Company's assets, operations and cash flows.
In our opinion, the accompanying special purpose statements audited by us
present fairly, in all material respects, the net assets to be sold of Monarch
Marking Systems, Inc. as of December 31, 1994 and 1993, and its related
operations and cash flows from operations to be sold for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As described in Note 9, the Company adopted a new accounting standard for
postemployment benefits in 1994 and elected to adopt a new accounting standard
for postretirement benefits other than pensions in 1992.
/s/ Price Waterhouse LLP
Stamford, Connecticut
May 16, 1995
F-2
<PAGE> 8
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF NET ASSETS TO BE SOLD
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowances:
12/94, $2,357; 12/93, $2,169. . . . . . . . . . . . . . . . . . . . $ 39,078 $ 38,465
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,989 36,700
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 6,346 6,019
Other current assets and prepayments. . . . . . . . . . . . . . . . . 2,413 1,901
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 90,826 83,085
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 33,901 34,251
Rental equipment and related inventories, net . . . . . . . . . . . . . 539 707
Property leased under capital leases, net . . . . . . . . . . . . . . . 486 554
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 13,501 11,451
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022 829
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,275 130,877
-------- --------
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . 38,141 37,238
Current portion of capital lease obligations and non-U.S. overdrafts 890 811
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . 5,210 5,105
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 44,241 43,154
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . 33,914 29,307
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,155 72,461
-------- --------
Net assets to be sold . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,120 $ 58,416
======== ========
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-3
<PAGE> 9
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS TO BE SOLD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue from:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $220,287 $213,921 $223,179
Sales to Pitney Bowes Inc. . . . . . . . . . . . . . . . . . . 9,675 10,147 8,138
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755 852 979
Support services . . . . . . . . . . . . . . . . . . . . . . . 17,860 17,105 16,676
-------- -------- --------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 248,577 242,025 248,972
-------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 138,292 129,474 127,452
Cost of rentals . . . . . . . . . . . . . . . . . . . . . . . . 584 397 427
Selling, service and administrative . . . . . . . . . . . . . . 90,765 88,764 85,717
Research and development . . . . . . . . . . . . . . . . . . . 7,380 7,524 6,747
Interest income . . . . . . . . . . . . . . . . . . . . . . . . (956) (963) (1,385)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 39 60 7
-------- -------- --------
Total costs and expenses . . . . . . . . . . . . . . . . . 236,104 225,256 218,965
-------- -------- --------
Income before income taxes and effect of changes in accounting . . 12,473 16,769 30,007
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 4,514 4,933 11,131
-------- -------- --------
Income before effect of changes in accounting . . . . . . . . . . 7,959 11,836 18,876
Effect of changes in accounting . . . . . . . . . . . . . . . . . (3,477) (16,900)
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,482 $ 11,836 $ 1,976
======== ======== ========
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-4
<PAGE> 10
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FROM OPERATIONS TO BE SOLD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,482 $11,836 $ 1,976
Effect of changes in accounting . . . . . . . . . . . . . . . 3,477 16,900
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 7,577 6,971 6,355
Deferred income taxes . . . . . . . . . . . . . . . . . . . (154) (1,213) (1,319)
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . 26 (2,012) (983)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (6,006) 2,378 (1,945)
Other current assets and prepayments . . . . . . . . . . (468) (55) (199)
Accounts payable and accrued liabilities . . . . . . . . 504 1,920 3,340
Advance billings . . . . . . . . . . . . . . . . . . . . 31 411 402
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,226) (618) 737
------- ------- -------
Net cash provided by operating activities . . . . . . . 8,243 19,618 25,264
------- ------- -------
Cash flows from investing activities:
Net investment in fixed assets . . . . . . . . . . . . . . . (6,831) (9,256) (8,348)
------- ------- -------
Net cash used in investing activities . . . . . . . . . (6,831) (9,256) (8,348)
------- ------- -------
Cash flows from financing activities:
Capital lease obligations . . . . . . . . . . . . . . . . . . (87) 396 333
Increase in overdrafts . . . . . . . . . . . . . . . . . . . 74 450 71
------- ------- -------
Net cash (used in) provided by financing activities . . (13) 846 404
------- ------- -------
Effect of exchange rate changes on cash flows . . . . . . . . . (621) 826 3,108
------- ------- -------
Change in cash flows . . . . . . . . . . . . . . . . . . . . . $ 778 $12,034 $20,428
======= ======= =======
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-5
<PAGE> 11
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD
(DOLLARS IN THOUSANDS OR AS OTHERWISE INDICATED)
1. BASIS OF PRESENTATION
In 1994, Pitney Bowes Inc. announced its intent to seek buyers for its Monarch
Marking Systems, Inc. ("Monarch" or "the company") subsidiary.
These consolidated special purpose financial statements reflect the net assets
of Monarch to be sold and their related results of operations and cash flows
("financial statements"). These financial statements exclude the net assets and
related results of operations and cash flows of the base materials business and
certain other assets and liabilities of the company that will be retained by
Pitney Bowes Inc. upon sale of the company. See note 6 "Related Party
Transactions" for further discussion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The financial statements of Monarch, a wholly owned subsidiary
of Pitney Bowes Inc., include operations in the United States, France, Italy,
Sweden, Canada, Germany, Australia, Mexico, Hong Kong and the United Kingdom as
well as a majority-owned joint venture in Singapore. All significant
intercompany transactions have been eliminated among Monarch businesses.
Inventory valuation. Inventories are valued at the lower of cost or market.
Cost is determined on the last-in, first-out (LIFO) basis for U.S. inventories
and the first-in, first-out (FIFO) method for most non-U.S. inventories.
Fixed assets and depreciation. Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the useful lives of the
various assets. Major improvements which add to productive capacity or extend
the life of an asset are capitalized while repairs and maintenance are charged
to expense as incurred. Rental equipment is depreciated on the straight-line
method. Properties leased under capital leases are amortized on a straight-line
basis over the primary lease terms.
Rental arrangements and advance billings. The company rents equipment to its
customers under short-term rental agreements, generally for periods of three
months to three years. Charges for equipment rental and maintenance contracts
are billed in advance; the related revenue is included in advance billings and
taken into income as earned.
Revenue. Sales revenue is primarily recognized when a product is shipped.
Costs and expenses. Operating expenses of field sales and service offices are
included in selling, service and administrative expenses because no meaningful
allocation of such expenses to cost of sales, cost of rentals or support
services is practicable.
Income taxes. The company's U.S. taxable income is included in the consolidated
federal and certain state income tax returns of Pitney Bowes Inc. The company
computes its provision for taxes on a separate company basis.
The deferred tax provision is determined under the liability method. Deferred
tax assets and liabilities are recognized based on differences between the book
and tax bases of assets and liabilities using presently enacted tax rates. The
provision for income taxes is the sum of the amount of income tax paid or
payable to the parent for the year as determined by applying the provisions of
enacted tax laws to the taxable income for that year and the net change during
the year in the company's deferred tax assets and liabilities.
It has not been necessary to provide for income taxes on $45.4 million of
cumulative undistributed earnings of subsidiaries outside the U.S. These
earnings will be either indefinitely reinvested or
F-6
<PAGE> 12
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
remitted substantially free of additional tax. Determination of the liability
that would result in the event all of these earnings were remitted to the U.S.
is not practicable. It is estimated, however, that withholding taxes on such
remittances would approximate $2.4 million.
Deferred income taxes result principally from expenses not currently recognized
for tax purposes and the excess of tax over book depreciation.
Foreign currency translation. Assets and liabilities of operations outside the
U.S. are translated at rates in effect at the end of the period, and revenues
and expenses were translated at average rates during the period. Net cumulative
translation losses were $5.3 million and $7.7 million at December 31, 1994 and
1993, respectively.
The company enters into foreign exchange contracts primarily to hedge certain
firm foreign currency commitments. Gains and losses are deferred and recognized
as part of the cost of the underlying transaction being hedged. Gains and losses
related to changes in the value of speculative contracts are recognized in
income currently. At December 31, 1994 the company had approximately $2.2
million of foreign exchange contracts outstanding with Pitney Bowes Inc. as the
counterparty, maturing through 1995, to buy or sell various currencies.
Foreign currency transaction and translation gains and (losses) were not
significant for the years ended December 31, 1994, 1993 or 1992.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- -------
<S> <C> <C>
Raw materials and work in progress . . . . . . . . . . . . . . . . . . $21,416 $16,353
Supplies and service parts . . . . . . . . . . . . . . . . . . . . . . 6,223 6,241
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,350 14,106
------- -------
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,989 $36,700
======= =======
</TABLE>
Had all inventories valued at LIFO been stated at current costs, inventories
would have been $9.6 million and $10.0 million higher than reported at December
31, 1994 and 1993, respectively.
F-7
<PAGE> 13
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 791 $ 822
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,661 18,860
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . 65,699 63,019
-------- --------
85,151 82,701
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (51,250) (48,450)
-------- --------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . $ 33,901 $ 34,251
======== ========
Rental equipment and related inventories . . . . . . . . . . . . . . . $ 1,062 $ 1,290
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (523) (583)
-------- --------
Rental equipment and related inventories, net . . . . . . . . . . . . . $ 539 $ 707
======== ========
Property leased under capital leases . . . . . . . . . . . . . . . . . $ 486 $ 554
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . .
-------- --------
Property leased under capital leases, net . . . . . . . . . . . . . . . $ 486 $ 554
======== ========
</TABLE>
5. CURRENT LIABILITIES
Accounts payable and accrued liabilities are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Accounts payable -- trade . . . . . . . . . . . . . . . . . . . . . . . $10,103 $ 7,694
Accrued salaries, wages and commissions . . . . . . . . . . . . . . . . 7,179 9,874
Accrued pension benefits . . . . . . . . . . . . . . . . . . . . . . . 13,398 11,658
Miscellaneous accounts payable and accrued liabilities . . . . . . . . 7,461 8,012
------- -------
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $38,141 $37,238
======= =======
</TABLE>
In countries outside the U.S., banks generally lend to subsidiaries of the
company on an overdraft basis. These overdraft arrangements are extended by
banks, and may require commitment fees. For each of the periods presented, no
such fees were incurred.
Unused credit facilities outside the U.S. totaled $4.1 million at December 31,
1994.
6. RELATED PARTY TRANSACTIONS
Monarch is a wholly owned subsidiary of Pitney
Bowes Inc. The company supplies certain inventory and component parts to Pitney
Bowes Inc. and its affiliates. The company eliminates all Monarch intercompany
transactions. The company arranges financing for certain of its products through
Pitney Bowes Credit Corporation (PBCC) in the U.S., and leasing subsidiaries in
Canada, and the U.K., all wholly owned subsidiaries of Pitney Bowes Inc. Sales
to these financing entities were $0.6 million, $0.7 million and $1.6 million for
1994, 1993 and 1992, respectively.
F-8
<PAGE> 14
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Certain assets and liabilities of the company, including the intercompany
account with Pitney Bowes Inc., cash, investments in affiliates, intercompany
loans, and income taxes payable and the base materials business will be
transferred to Pitney Bowes Inc. prior to the sale of the company and, as such,
have been excluded from these financial statements.
The company earns interest income from its investments in and loans to
affiliates of Pitney Bowes Inc. The return yielded from these Pitney Bowes Inc.
affiliates has been excluded from the Consolidated Statement of Operations to be
Sold as the related investments and loans are being retained by Pitney Bowes
Inc. Interest income and expense related to the cash position of the company
during the year has been included in the Consolidated Statement of Operations to
be Sold.
7. TAXES ON INCOME
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . $1,796 $ 3,005 $ 6,607
U.S. state and local . . . . . . . . . . . . . . . . . . . . . 572 399 1,635
Outside the U.S. . . . . . . . . . . . . . . . . . . . . . . . 2,300 2,752 4,137
------ ------- -------
Total current . . . . . . . . . . . . . . . . . . . . . . . . . 4,668 6,156 12,379
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . (154) (1,223) (1,248)
------ ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,514 $ 4,933 $11,131
====== ======= =======
</TABLE>
The deferred tax liabilities and (assets) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,961 $ 2,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,950 1,106
-------- --------
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . 5,911 4,082
-------- --------
Deferred tax assets:
Nonpension postretirement benefits . . . . . . . . . . . . . . . (11,884) (12,720)
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . (4,803) (3,986)
Postemployment benefits . . . . . . . . . . . . . . . . . . . . . (2,223)
Inventory and equipment capitalization . . . . . . . . . . . . . (935) (1,328)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,913) (3,518)
-------- --------
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . (25,758) (21,552)
-------- --------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . $(19,847) $(17,470)
======== ========
</TABLE>
A reconciliation of the U.S. federal statutory rate to the company's effective
tax rate follows:
<TABLE>
<CAPTION> YEARS ENDED DECEMBER 31,
------------------------
PERCENT OF PRETAX INCOME 1994 1993 1992
------------------------ ---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
State and local income taxes . . . . . . . . . . . . . . . . . . 1.1 1.5 2.8
Cumulative impact of statutory rate increase . . . . . . . . . . (2.1)
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . 0.1 (5.0) 0.3
---- ---- ----
Effective income tax rate . . . . . . . . . . . . . . . . . . . . 36.2% 29.4% 37.1%
==== ==== ====
</TABLE>
F-9
<PAGE> 15
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
8. RETIREMENT PLANS
The company has several defined benefit and defined contribution pension plans
covering substantially all employees worldwide. Benefits are primarily based on
employees' compensation and years of service. Company contributions are
determined based on the funding requirements of U.S. federal and other
governmental laws and regulations.
Total pension expense was $3.6 million, $3.1 million and $2.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively. Net pension expense
for defined benefit plans for the years ended December 31, 1994, 1993 and 1992
included the following components:
<TABLE>
<CAPTION> UNITED STATES FOREIGN
-------------------------------------------------------
1994 1993 1992 1994 1993 1992
------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost benefits earned during
period . . . . . . . . . . . . . . $ 2,436 $ 2,077 $ 2,032 $ 199 $ 199 $ 200
Interest cost on projected benefit
obligations . . . . . . . . . . . . 4,480 4,140 3,825 283 276 266
Actual return on assets . . . . . . . 470 (6,352) (2,835) 42 (744) (248)
Net (deferral) and amortization . . . (5,251) 1,921 (1,243) (391) 392 (98)
------- ------- ------- ----- ----- -----
Net periodic defined benefit pension
expense . . . . . . . . . . . . . . $ 2,135 $ 1,786 $ 1,779 $ 133 $ 123 $ 120
======= ======= ======= ===== ===== =====
</TABLE>
The funded status at December 31, 1994 and 1993 for the company's defined
benefit plans was:
<TABLE>
<CAPTION> UNITED STATES FOREIGN
----------------- ----------------
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits . . . . . . . . . . . . . . . . . . $34,188 $35,760 $1,899 $2,201
======= ======= ====== ======
Accumulated benefit obligations . . . . . . . . . . $36,769 $39,300 $1,907 $2,210
======= ======= ====== ======
Projected benefit obligations . . . . . . . . . . . . $54,993 $57,200 $2,903 $3,365
------- ------- ------ ------
Plan assets at fair value, primarily stocks and
bonds, adjusted by: . . . . . . . . . . . . . . . . $47,131 $49,060 $4,087 $4,187
Unrecognized net (gain) . . . . . . . . . . . . . . (2,333) (19) (683) (368)
Unrecognized net asset . . . . . . . . . . . . . . (2,437) (2,843) (418) (473)
Unamortized prior service costs from plan
amendments . . . . . . . . . . . . . . . . . . . . (94) 31 254 284
------- ------- ------ ------
42,267 46,229 3,240 3,630
------- ------- ------ ------
Net pension liability (asset) . . . . . . . . . . . . $12,726 $10,971 $ (337) $ (265)
======= ======= ====== ======
Assumptions for defined benefit plans*:
Discount rate . . . . . . . . . . . . . . . . . . . . 8.75% 7.50% 9.0% 8.5%
Rate of increase in future compensation levels . . . 5.75% 5.00% 6.0% 6.5%
Expected long-term rate of return on plan assets . . 9.50% 9.50% 9.0% 8.5%
</TABLE>
___________
* Pension costs are determined using assumptions as of the beginning of the
year while the funded status of the plans is determined using assumptions
as of the end of the year.
9. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In the fourth quarter of 1992, the company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (FAS 106). This statement requires that the cost of these
benefits be recognized over the period the employee provides credited service to
the company rather than recognized on a cash basis, when incurred. It is the
F-10
<PAGE> 16
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
9. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
company's practice to fund amounts for these nonpension postretirement benefits,
primarily health care, as incurred. Substantially all of the company's U.S. and
Canadian employees become eligible for retiree health care benefits after
reaching age 55 and with the completion of the required service period.
The transition effect of adopting FAS 106 on the immediate recognition basis was
retroactively reflected as of January 1, 1992, as a one-time, after-tax charge
of $16.9 million (net of approximately $10.9 million of income taxes).
Application of this standard resulted in additional 1992 annual expenses, which
totaled $2.5 million on income before income taxes and effect of changes in
accounting and $1.5 million after income taxes. In the first quarter of 1993,
the company announced certain changes to its health care plans, including plan
cost maximums, which should significantly reduce the ongoing incremental impact
of FAS 106 on future earnings.
Net nonpension postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION> YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Service cost-benefits earned during the period . . . . . . . $ 776 $ 716 $1,041
Interest cost on accumulated postretirement benefit
obligations . . . . . . . . . . . . . . . . . . . . . . . . 1,248 1,553 2,345
Net (deferral) and amortization . . . . . . . . . . . . . . . (2,208) (2,093)
------- ------- ------
Net periodic postretirement benefit costs . . . . . . . . . . $ (184) $ 176 $3,386
======= ======= ======
</TABLE>
The company's nonpension postretirement benefit plans are not funded. The status
of the plans was as follows:
<TABLE>
<CAPTION> DECEMBER 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees and dependents . . . . . . . . . . . . . . . . . . . . . . . $10,151 $13,208
Fully eligible active plan participants . . . . . . . . . . . . . . . 1,496 4,033
Other active plan participants . . . . . . . . . . . . . . . . . . . 3,389 2,396
Unrecognized net gain (loss) . . . . . . . . . . . . . . . . . . . . 4,115 (1,546)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . 8,587 10,648
------- -------
Accrued nonpension postretirement benefits . . . . . . . . . . . . . . . $27,738 $28,739
======= =======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 11.75% and 12% in 1994 and 1993,
respectively. This was assumed to gradually decline to 5% and 6% by the year
2000 and remain at that level thereafter for 1994 and 1993, respectively. A
one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the year-end accumulated postretirement benefit
obligations by approximately $1.1 million as of December 31, 1994 and the net
periodic postretirement health care cost by approximately $90 in 1994.
The assumed weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 8.75% and 7.5% for the years ended
December 31, 1994 and 1993, respectively.
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January 1,
1994. FAS 112 required that postemployment benefits be recognized on the accrual
basis of accounting. Postemployment benefits include
F-11
<PAGE> 17
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
9. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
primarily company provided medical benefits to disabled employees and company
provided life insurance as well as other disability- and death-related benefits
to former or inactive employees, their beneficiaries and covered dependents.
The effect of adopting FAS 112 was a one-time non-cash, after-tax charge of $3.5
million (net of approximately $2.2 million of income taxes).
10. COMMITMENTS AND CONTINGENCIES
The company is a defendant in a number of lawsuits, none of which will, in the
opinion of management, have a material adverse effect on the company's financial
position or results of operations.
The company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative or
court proceedings as a participant in various groups of potentially responsible
parties. These proceedings are at various stages of activity, and it is
impossible to estimate with any certainty the total cost of remediation, the
timing and extent of remedial actions which may be required by governmental
authorities, and the amount of the liability, if any, of the company. If and
when it is possible to make a reasonable estimate of the company's liability
with respect to such a matter, a provision would be made as appropriate. Based
on facts presently known to it, the company does not believe that the outcome of
these proceedings will have a material adverse effect on its financial
condition.
11. LEASES
The company leases certain factory and office facilities under lease agreements
extending from three to ten years. In addition to factory and office facilities
leased, the company leases computer and information processing equipment under
lease agreements extending from three to five years.
Future minimum lease payments for capital and operating leases as of December
31, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Years ending December 31:
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195 $ 6,174
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 3,783
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 2,371
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 1,042
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 621
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 455
---- -------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . 686 $14,446
---- -------
Less amount representing interest . . . . . . . . . . . . . . . . . . (91)
----
Present value of minimum lease payments . . . . . . . . . . . . . . . $595
====
</TABLE>
Rental expense under operating leases was $8.0 million, $8.3 million and $7.5
million for the years ended 1994, 1993 and 1992, respectively.
F-12
<PAGE> 18
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Accounts receivable and accounts payable. The carrying amounts approximate fair
value because of the short maturity of these instruments. The company sells and
services price marking and item identification equipment and supplies. As of
December 31, 1994, the company's receivables from customers in the retail
industry were $4.8 million.
Foreign currency exchange contracts. The fair value of foreign currency exchange
contracts is obtained from dealer quotes. These values represent the estimated
amount the company would receive or pay to terminate agreements taking into
consideration the credit worthiness of the counterparties and current foreign
currency exchange rates. The fair value of such contracts was not significant at
December 31, 1994 or 1993.
13. NON-U.S. OPERATIONS
In addition to its U.S. operations, the company maintains operations in France,
Italy, Canada, Sweden, Germany, Australia, Mexico, Hong Kong and the United
Kingdom as well as a majority-owned joint venture in Singapore.
Summary financial statement information for non-U.S. operations at December 31,
1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992 are
presented below.
<TABLE>
<CAPTION> DECEMBER 31,
------------------
1994 1993
------- -------
<S> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $39,714 $38,242
Total liabilities . . . . . . . . . . . . . . . . . . . . . 11,922 11,562
------- -------
Net assets to be sold . . . . . . . . . . . . . . . . . . . $27,792 $26,680
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Total revenue . . . . . . . . . . . . . . . . . . . . . . . $ 82,487 $ 79,553 $ 84,184
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,908 $ 5,537 $ 6,915
</TABLE>
F-13
<PAGE> 19
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF NET ASSETS TO BE SOLD
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1995 1994
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowances:
4/95, $2,469; 12/94, $2,357 . . . . . . . . . . . . . . . . . . $ 40,373 $ 39,078
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 44,010 42,989
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 6,346 6,346
Other current assets and prepayments . . . . . . . . . . . . . 2,466 2,413
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . 93,195 90,826
Property, plant and equipment, net . . . . . . . . . . . . . . . 33,954 33,901
Rental equipment and related inventories, net . . . . . . . . . . 502 539
Property leased under capital leases, net . . . . . . . . . . . . 465 486
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 13,501 13,501
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,069 1,022
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 142,686 140,275
-------- --------
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . 42,917 38,141
Current portion of capital lease obligations and non-U.S.
overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . 976 890
Advance billings . . . . . . . . . . . . . . . . . . . . . . . 5,495 5,210
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . 49,388 44,241
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 33,714 33,914
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 83,102 78,155
-------- --------
Net assets to be sold . . . . . . . . . . . . . . . . . . . . . . $ 59,584 $ 62,120
======== ========
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-14
<PAGE> 20
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS TO BE SOLD
(UNAUDITED)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
APRIL 30,
-----------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revenue from:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $73,753 $65,291
Sales to Pitney Bowes Inc. . . . . . . . . . . . . . . . . . . . . . 2,957 3,018
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 224
Support services . . . . . . . . . . . . . . . . . . . . . . . . . . 6,082 5,845
------- -------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 83,007 74,378
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,466 39,792
Cost of rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 191
Selling, service and administrative . . . . . . . . . . . . . . . . . 29,593 29,313
Research and development . . . . . . . . . . . . . . . . . . . . . . 2,461 2,646
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . (398) (259)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 12 21
------- -------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . 79,266 71,704
------- -------
Income before income taxes and effect of a change in accounting . . . . 3,741 2,674
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . 1,432 732
------- -------
Income before effect of a change in accounting . . . . . . . . . . . . 2,309 1,942
Effect of a change in accounting . . . . . . . . . . . . . . . . . . . (3,477)
------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,309 $(1,535)
======= =======
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-15
<PAGE> 21
MONARCH MARKING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FROM OPERATIONS TO BE SOLD
(UNAUDITED)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
APRIL 30,
-------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,309 $(1,535)
Effect of a change in accounting . . . . . . . . . . . . . . . . . 3,477
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 2,575 2,246
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 6
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (1,026) 2,237
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (947) (4,032)
Other current assets and prepayments . . . . . . . . . . . . . (31) (73)
Accounts payable and accrued liabilities . . . . . . . . . . . 4,602 535
Advance billings . . . . . . . . . . . . . . . . . . . . . . . 239 10
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 (1,432)
------- -------
Net cash provided by operating activities . . . . . . . . . . 8,893 1,439
------- -------
Cash flows from investing activities:
Net investment in fixed assets . . . . . . . . . . . . . . . . . . (2,542) (1,695)
------- -------
Net cash used in investing activities . . . . . . . . . . . . (2,542) (1,695)
------- -------
Cash flows from financing activities:
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . (107) (118)
Increase in overdrafts . . . . . . . . . . . . . . . . . . . . . . 83 27
------- -------
Net cash used in financing activities . . . . . . . . . . . . (24) (91)
------- -------
Effect of exchange rate changes on cash flows . . . . . . . . . . . . (1,482) 1,150
------- -------
Change in cash flows . . . . . . . . . . . . . . . . . . . . . . . . $ 4,845 $ 803
======= =======
</TABLE>
See accompanying notes to Consolidated Statements of
Net Assets and Operations to be Sold.
F-16
<PAGE> 22
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD
(UNAUDITED)
(DOLLARS IN THOUSANDS OR AS OTHERWISE INDICATED)
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated special purpose financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
Monarch Marking Systems, Inc. (the company or Monarch), all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the net assets and operations to be sold of the company as of April 30, 1995 and
the four months ended April 30, 1995 and 1994 have been included. Operating
results for the four months ended April 30, 1995 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1995. These
statements should be read in conjunction with the financial statements and notes
thereto included in the company's Consolidated Statements of Net Assets and
Operations to be Sold for the year ended December 31, 1994.
2. BASIS OF PRESENTATION
In 1994, Pitney Bowes Inc. announced its intent to seek buyers for the business
of its Monarch Marking Systems, Inc. subsidiary.
These consolidated special purpose financial statements reflect the net assets
of the Monarch to be sold and their related results of operations and cash
flows ("financial statements"). These financial statements exclude the net
assets and related results of operations and cash flows of the base materials
business and certain other assets and liabilities of the company that will be
retained by Pitney Bowes Inc. upon sale of the company.
Monarch is a wholly owned subsidiary of Pitney Bowes Inc. The company supplies
certain inventory and component parts to Pitney Bowes Inc. and its affiliates.
The company eliminates all Monarch intercompany transactions. The company
arranges financing for certain of its products through Pitney Bowes Credit
Corporation (PBCC) in the U.S., and leasing subsidiaries in Canada, and the
U.K., all wholly owned subsidiaries of Pitney Bowes Inc. Sales to these
financing entities were $0.2 million for both of the four-month periods ended
April 30, 1995 and 1994.
Certain assets and liabilities of the company, including the intercompany
account with Pitney Bowes Inc., cash, investments in affiliates, intercompany
loans, and income taxes payable and the base materials business will be
transferred to Pitney Bowes Inc. prior to the sale of the company and, as such,
have been excluded from these financial statements.
The company earns interest income from its investments in and loans to
affiliates of Pitney Bowes Inc. The return yielded from these Pitney Bowes
Inc. affiliates has been excluded from the Consolidated Statement of Operations
to be Sold as the related investments and loans are being retained by Pitney
Bowes Inc. Interest income and expense related to the cash position of the
company during the year has been included in the Consolidated Statement of
Operations to be Sold.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Raw materials and work in progress . . . . . . . . . . . . . . . $21,539 $21,416
Supplies and service parts . . . . . . . . . . . . . . . . . . . 6,191 6,223
Finished products . . . . . . . . . . . . . . . . . . . . . . . . 16,280 15,350
------- -------
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . $44,010 $42,989
======= =======
</TABLE>
F-17
<PAGE> 23
MONARCH MARKING SYSTEMS, INC.
NOTES TO CONSOLIDATED STATEMENTS OF NET ASSETS
AND OPERATIONS TO BE SOLD (CONTINUED)
3. INVENTORIES (CONTINUED)
Had all inventories valued at LIFO been stated at current costs, inventories
would have been $10.0 million and $9.6 million higher than reported at April 30,
1995 and December 31, 1994, respectively.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1995 1994
-------- --------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 976 $ 791
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,675 18,661
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . 67,948 65,699
-------- --------
87,599 85,151
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . (53,645) (51,250)
-------- --------
Property, plant and equipment, net . . . . . . . . . . . . . . . $ 33,954 $ 33,901
======== ========
Rental equipment and related inventories . . . . . . . . . . . . $ 1,048 $ 1,062
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . (546) (523)
-------- --------
Rental equipment and related inventories, net . . . . . . . . . . $ 502 $ 539
======== ========
Property leased under capital leases . . . . . . . . . . . . . . $ 533 $ 486
Accumulated amortization . . . . . . . . . . . . . . . . . . . . (68)
-------- --------
Property leased under capital leases, net . . . . . . . . . . . . $ 465 $ 486
======== ========
</TABLE>
5. POSTEMPLOYMENT BENEFITS
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January 1,
1994. FAS 112 required that postemployment benefits be recognized on the accrual
basis of accounting. Postemployment benefits include primarily company provided
medical benefits to disabled employees and company provided life insurance as
well as other disability- and death-related benefits to former or inactive
employees, their beneficiaries and covered dependents.
The effect of adopting FAS 112 was a one-time non-cash, after-tax charge of $3.5
million (net of approximately $2.2 million of income taxes).
6. COMMITMENTS AND CONTINGENCIES
The company is a defendant in a number of lawsuits, none of which will, in the
opinion of management, have a material adverse effect on the company's financial
position or results of operations.
The company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative or
court proceedings as a participant in various groups of potentially responsible
parties. These proceedings are at various stages of activity, and it is
impossible to estimate with any certainty the total cost of remediation, the
timing and extent of remedial actions which may be required by governmental
authorities, and the amount of the liability, if any, of the company. If and
when it is possible to make a reasonable estimate of the company's liability
with respect to such a matter, a provision would be made as appropriate. Based
on facts presently known to it, the company does not believe that the outcome of
these proceedings will have a material adverse effect on its financial
condition.
F-18
<PAGE> 24
Paxar Corporation
Pro Forma Condensed Financial Statements
(Unaudited)
The following pro forma income statement for the year ended December 31, 1994,
gives effect to the Company's 49.5% interest in Monarch Marking Systems, Inc.
("Monarch") as if the investment occurred at January 1, 1994 after giving
effect to the pro forma adjustments described in the accompanying notes. The
pro forma information is based upon respective historical Financial Statements
of Paxar and Monarch and does not purport to be indicative of the results which
would actually have resulted if the investment had been in effect on the date
or for the period indicated or which may result in the future.
<TABLE>
<CAPTION>
Pro Forma Condensed Income Statement
For the Year Ended
December 31, 1994
-----------------
(in thousands, except
per share amounts)
Paxar Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $166,612 $166,612
Cost of sales 107,393 107,393
-------- --------
Gross profit 59,219 59,219
Selling, general and
administrative expenses 41,238 41,238
-------- --------
Operating income 17,981 17,981
Equity in undistributed
earnings of Monarch - (1,479) (a) (1,479)
Interest expense, net 921 720 (b) 1,641
-------- ---- --------
Income before taxes 17,060 759 17,819
Taxes on income 5,459 (10) (c) 5,449
Net income $ 11,601 $ 769 $ 12,370
-------- -------- --------
Weighted average shares
outstanding
17,550 17,550
-------- --------
Earnings per share $0.66 $0.70
----- -----
</TABLE>
S-1
<PAGE> 25
Paxar Corporation
Pro Forma Condensed Financial Statements
(Unaudited)
The following pro forma income statement for the six months ended June 30,
1995, gives effect to the Company's 49.5% interest in Monarch Marking Systems,
Inc. ("Monarch") as if the investment occurred at January 1, 1994 after giving
effect to the pro forma adjustments described in the accompanying notes. The
pro forma information is based upon respective historical Financial Statements
of Paxar and Monarch and does not purport to be indicative of the results which
would actually have resulted if the investment had been in effect on the date
or for the period indicated or which may result in the future.
<TABLE>
<CAPTION>
Pro Forma Condensed Income Statement
For the Six Months Ended
June 30, 1995
-------------
(in thousands, except
per share amounts)
Paxar Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $103,423 $103,423
Cost of sales 65,569 65,569
--------- ---------
Gross profit 37,854 37,854
Selling, general and
administrative expenses 25,004 25,004
--------- ---------
Operating income 12,850 12,850
Equity in undistributed
earnings of Monarch - (803) (a) (803)
Interest expense, net 751 503 (b) 1,254
--------- ---- ---------
Income before taxes 12,099 300 12,399
Taxes on income 3,750 (57) (c) 3,693
--------- ---- ---------
Net income $ 8,349 $ 357 $ 8,706
========= ======== =========
Weighted average shares
outstanding
17,859 17,859
======= =======
Earnings per share $0.47 $0.49
====== ======
</TABLE>
S-2
<PAGE> 26
Paxar Corporation
Notes to Unaudited Pro Forma Consolidated Financial Statements:
On June 29, 1995, the Company invested $15.0 million in a new company, jointly
formed by Paxar Corporation and Odyssey Partners L.P., which simultaneously
acquired Monarch Marking Systems, Inc. and related companies ("Monarch") from
Pitney Bowes, Inc. ("Pitney Bowes"). The Company's investment, which
represents a 49.5% interest, will be accounted for using the equity method.
The accompanying pro forma condensed income statements for the six months ended
June 30, 1995 and for the year ended December 31, 1994 assume the investment
occurred at January 1, 1994. The Monarch net income used in these pro forma
results is preliminary and subject to certain closing audit adjustments and the
final purchase price allocation. No pro forma balance sheet is required
because the Company's investment in Monarch is reflected in the Company's
historical June 30, 1995 consolidated balance sheet.
The following are explanations of the adjustments reflected on the Pro Forma
Condensed Income Statements.
(a) Reflects the pro forma adjustment to record the 49.5% interest in the
pro forma net income of Monarch Marking Systems, Inc.
(b) Reflects the pro forma adjustment for estimated interest expense as a
result of the debt incurred by the Company for its investment in
Monarch Marking Systems, Inc.
(c) Reflects the pro forma adjustment to tax effect adjustments (a),
including dividends received deductions, and (b) at the Company's
statutory income tax rate.
S-3
<PAGE> 27
EXHIBIT INDEX
*2.1 Omnibus Purchase and Sale Agreement dated June 6,
1995 by and between Pitney Bowes Inc., Monarch
Marking Systems, Inc., Pitney Bowes Marking Systems
Ltd., Pitney Bowes International Holdings Inc.,
Pitney Bowes France S.A. and Monarch Acquisition
Corp. Exhibits and Schedules to this Agreement have
been omitted, but will be furnished supplementally
by the Registrant to the Commission upon request.
*10.1 Stockholders' Agreement dated June 29, 1995 among
Monarch Acquisition Corp., Paxar Corporation and
Odyssey Partners, L.P.
23.1 Consent of Price Waterhouse LLP.
* Included as part of the initial filing of this Report.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Paxar Corporation of our report dated May 16, 1995
relating to the consolidated statements of net assets and operations to be sold
of Monarch Marking Systems, Inc., which appears in the Current Report on Form
8-K/A No. 1 of Paxar Corporation dated June 29, 1995.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Stamford, Connecticut
September 11, 1995
