<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT 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): March 3, 1997
PAXAR CORPORATION
(Exact name of registrant as specified in its charter)
New York 0-5610 13-5670050
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Ident. No.)
105 Corporate Park Drive, White Plains, New York 10604
(Address of Principal Executive Offices) (Zip Code)
(914) 697-6800
Registrant's telephone number, including area code
<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K
("Form 8-K") for March 3, 1997 of PAXAR Corporation, a New York corporation
("the Company"), is submitted in order to provide the Financial Statements
called for under Item 7 of Form 8-K. Therefore, the Company hereby amends its
Form 8-K in accordance with Rule 12b-15 under the Securities Exchange Act of
1934.
<PAGE> 3
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. Audited financial
statements for Monarch Marking Systems, Inc. and Subsidiaries for the years
ended December 31, 1996 and December 31, 1995 are set forth below.
<PAGE> 4
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 1996 AND 1995
TOGETHER WITH
AUDITORS' REPORT
<PAGE> 5
Report of Independent Public Accountants
To the Stockholders of Monarch Marking Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Monarch
Marking Systems, Inc. (a Delaware Corporation) and Subsidiaries as of December
31, 1996 and 1995, the related consolidated statements of operations and cash
flows for the twelve months ended December 31, 1996, the six months ended
December 31, 1995 and June 29, 1995 and the twelve months ended December 31,
1994, and the related statements of stockholders' equity for the twelve months
ended December 31, 1996 and the six months ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Monarch Marking
Systems, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the twelve months ended December
31, 1996, the six months ended December 31, 1995 and June 29, 1995, and the
twelve months ended December 31, 1994, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Dayton, Ohio,
April 30, 1997.
<PAGE> 6
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
AS OF DECEMBER 31, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 2, 5, and 11) $ 18,170 $ 17,889
Accounts receivable, net of allowance for doubtful
accounts of $3,631 and $3,945 at December 31, 1996
and 1995, respectively (Notes 3, 5, and 11) 41,532 40,164
Inventories (Notes 2 and 5)-
Raw materials and work in process 20,198 22,984
Supplies and service parts 6,244 6,425
Finished goods 14,323 13,990
Prepaid income taxes 736 2,737
Prepayments and other current assets 2,798 3,015
-------- --------
Total current assets 104,001 107,204
-------- --------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
Land and land improvements 3,380 3,353
Buildings and building improvements 18,282 18,157
Machinery and equipment 63,935 61,007
Furniture and fixtures 6,015 5,517
Leasehold improvements 2,825 2,477
Rental equipment 729 917
Assets held under capital leases 713 348
Construction in progress 934 1,696
-------- --------
96,813 93,472
Accumulated depreciation (53,356) (49,817)
-------- --------
Property, plant and equipment, net 43,457 43,655
-------- --------
GOODWILL (Note 2) 27,891 28,153
FINANCING AND ACQUISITION FEES (Note 2) 7,856 7,938
OTHER INTANGIBLE ASSETS (Note 2) 3,600 3,866
OTHER NON-CURRENT ASSETS 3,549 3,030
-------- --------
Total assets $190,354 $193,846
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE> 7
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
AS OF DECEMBER 31, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Notes 5 and 11) $ -- $ 6,734
Current portion of capital lease obligations (Note 10) 129 117
Accounts payable and overdrafts (Note 11) 9,871 10,712
Advance billings (Note 2) 5,876 6,070
Deferred income tax liabilities (Notes 2 and 7) 1,554 2,550
Other current liabilities -
Accrued interest 6,250 6,319
Accrued salaries, wages, vacation pay, commissions and bonus
9,526 8,976
Income and other taxes (Note 2) 4,377 4,070
Reorganization 1,110 4,600
Other 7,151 7,730
-------- --------
Total current liabilities 45,844 57,878
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Notes 5, 10 and 11) 100,258 100,352
POSTEMPLOYMENT BENEFITS LIABILITY (Note 2) 5,075 5,662
-------- --------
Total liabilities 151,177 163,892
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, $.01 par value; 1,000 shares authorized,
1,000 shares issued and outstanding -- --
Paid-in capital 30,606 30,303
Cumulative translation adjustment (Note 2) (1,070) (1,558)
Retained earnings 9,641 1,209
-------- --------
Total stockholders' equity 39,177 29,954
-------- --------
Total liabilities and stockholders' equity $190,354 $193,846
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 8
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996,
THE SIX MONTHS ENDED DECEMBER 31, 1995 AND JUNE 29, 1995,
AND THE TWELVE MONTHS ENDED DECEMBER 31, 1994
(In Thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 29, DECEMBER 31,
1996 1995 1995 1994
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET SALES (Note 2, 3, and 4) $259,245 $128,123 $126,410 $246,874
COST OF GOODS SOLD 147,273 79,008 78,048 138,065
-------- -------- -------- --------
Gross Profit 111,972 49,115 48,362 108,809
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 76,700 36,793 39,903 89,836
RESEARCH AND DEVELOPMENT EXPENSES 9,967 4,171 3,416 7,380
NONRECURRING CHARGES FOR ADJUSTMENTS TO OPERATING ITEMS -- -- 6,123 --
-------- -------- -------- --------
Operating income (loss) 25,305 8,151 (1,080) 11,593
INTEREST (INCOME)/EXPENSE, NET 13,164 6,830 (713) (908)
OTHER NONOPERATING INCOME, NET (904) (628) -- --
-------- -------- -------- --------
Income (loss) before provision for (benefit from)
income taxes and cumulative effect of
accounting change 13,045 1,949 (367) 12,501
PROVISION FOR (BENEFIT FROM) INCOME TAXES (Notes 2 and 7) 4,525 4,613 740 (133)
-------- -------- -------- --------
Net income (loss) before cumulative effect of
accounting change 8,432 1,209 (234) 7,976
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NET OF TAX
PROVISION OF $2,223) (Note 2) -- -- -- 3,477
-------- -------- -------- --------
NET INCOME (LOSS) $ 8,432 $ 1,209 $ (234) $ 4,499
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES (Notes 2 and 6) 1,048 1,000 N/A N/A
======== ======== ======== ========
EARNINGS PER SHARE (Notes 2 and 6) $ 8,046 $ 1,209 N/A N/A
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE> 9
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 1 )
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON PAID-IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY at June 30, 1995 $ -- $30,303 $ -- $ -- $30,303
Net income -- -- -- 1,209 1,209
Translation adjustment -- -- (1,558) -- (1,558)
---- ------- ------- ------ -------
STOCKHOLDERS' EQUITY at December 31, 1995 -- 30,303 (1,558) 1,209 29,954
Net income -- -- -- 8,432 8,432
Issuance of common stock -- 303 -- -- 303
Translation adjustment -- -- 488 -- 488
---- ------- ------- ------ -------
STOCKHOLDERS' EQUITY at December 31, 1996 $ -- $30,606 $(1,070) $9,641 $39,177
==== ======= ======= ====== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE> 10
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996,
THE SIX MONTHS ENDED DECEMBER 31, 1995 AND JUNE 29, 1995,
AND THE TWELVE MONTHS ENDED DECEMBER 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
TWELVE SIX MONTHS SIX MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 29, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,432 $ 1,209 $ (234) $ 4,499
Nonrecurring charges for adjustments to operating items -- -- 6,123 --
Effect of change in accounting principle -- -- -- 3,477
Adjustments to reconcile net income (loss) to net cash provided
by operating activities-
Depreciation and amortization 12,121 5,449 3,859 7,564
Deferred income tax provision (982) 2,828 (2,154) (1,309)
Other, net (3,014) 879 (178) (582)
Changes in components of working capital-
Decrease (increase) in receivables (1,368) (2,131) (1,420) 538
Decrease (increase) in prepaid income taxes 2,001 (2,737) -- --
Decrease (increase) in inventories 2,634 10,025 3,324 (6,233)
Decrease (increase) in prepayments and other current assets 217 15 (508) (294)
Increase (decrease) in accounts payable and overdrafts (841) (1,963) (631) 2,321
Increase (decrease) in advance billings (194) 806 80 105
Increase (decrease) in other current liabilities (3,281) 3,246 6,725 (1,568)
Net impact of eliminating assets not sold/liabilities not acquired -- -- (5,066) 5,127
------- ------- ------- -------
Net cash provided by operating activities 15,725 17,626 9,920 13,645
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (8,868) (2,969) (3,657) (6,944)
------- ------- ------- -------
Net cash used in investing activities (8,868) (2,969) (3,657) (6,944)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed by stockholders 303 3,493 -- --
Transfers to parent -- -- (4,953) (6,614)
Repayments on revolving credit facility (6,734) (1,277) -- --
Repayments of capital lease obligations (82) (16) (110) (87)
------- ------- ------- -------
Net cash (used in) provided by financing activities (6,513) 2,200 (5,063) (6,701)
------- ------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (63) (168) -- --
------- ------- ------- -------
Net increase in cash and cash equivalents 281 16,689 1,200 --
CASH AND CASH EQUIVALENTS, beginning of period 17,889 1,200 -- --
------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $18,170 $17,889 $ 1,200 --
======= ======= ======= =======
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $13,051 $ 310 $ 38 $ 39
======= ======= ======= =======
Cash paid for income taxes $ 3,214 $ 925 $ 4,280 $ 5,184
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE> 11
MONARCH MARKING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands, except as otherwise indicated)
(1) The Company-
(a) Description of Business--Monarch Marking Systems, Inc. (the
"Company") operates in the United States, Australia, Canada,
France, Germany, Hong Kong, Mexico, Singapore and the United
Kingdom. The Company is a manufacturer and marketer of marking
equipment and supplies. The Company also sells, directly and
through distributors, marking equipment and supplies in 75 other
countries around the world. The Company manufactures, markets and
distributes (i) tabletop label dispensers and handheld, mechanical
labeling guns which print pressure-sensitive price and other
identification labels and affix them onto merchandise for
retailers and (ii) electronic bar code printers which are used in
a wide range of retail and industrial applications, including
inventory management and distribution systems. The Company 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 Company's products are
utilized in both retail and industrial applications.
(b) Change in Control--On March 3, 1997, PAXAR Corporation, formerly
an indirect 49% shareholder of the Company, acquired 100% of the
Company's remaining shares indirectly owned by other
shareholders. The purchase price consisted of $94,100 in cash,
$5,900 in notes, $25,700 in warrants and options and $4,700 in
stock of PAXAR Corporation. Effective with this transaction,
Monarch Marking Systems, Inc. became a wholly-owned subsidiary of
PAXAR Corporation.
(c) Acquisition from Pitney Bowes, Inc.--On June 29, 1995, Monarch
Holdings, Inc., ("Holdings") the parent of the Company
was acquired by and merged with Monarch Acquisition Corp. (the
"Acquisition"). Prior to this date, the Company was operated as a
wholly owned subsidiary of Pitney Bowes Inc. ("Pitney Bowes").
Certain assets and liabilities not integral to the business,
including certain real property, intercompany accounts with Pitney
Bowes and its subsidiaries, certain cash accounts, investments in
affiliates, intercompany loans, certain income taxes payable, the
base material business and the Company's operations in Italy and
Sweden were retained by Pitney Bowes upon sale of the Company.
Pitney Bowes also retained the Company's U.S. pension liability
and postretirement benefits
<PAGE> 12
-2-
liabilities. All assets and liabilities retained by Pitney Bowes,
along with the associated tax benefits, have been excluded from
these financial statements.
The aggregate purchase price for the Company, including related
fees and expense, was approximately $138,300. The purchase price
and such fees and expenses were funded with (i) an initial
borrowing by the Company of approximately $8,000 under a
revolving credit agreement ("Revolving Credit Facility"), (ii)
the net proceeds from the offering by the Company of senior
notes of $100,000 ("Senior Notes"), (iii) $30,000 of common
equity contributed in equal portions by Odyssey Partners, L.P.
and PAXAR Corporation and (iv) $300 of common equity contributed
by the Company's Chairman of the Board.
The Omnibus Purchase Agreement between the Company and Pitney
Bowes relating to the Acquisition (the "Omnibus Purchase
Agreement") provided for an adjustment to the purchase price under
certain circumstances. The Company advised Pitney Bowes that it
believed it was entitled to a purchase price adjustment in its
favor and Pitney Bowes similarly advised the Company that it
believed it was entitled to a purchase price adjustment in its
favor. This dispute was referred to an arbitrator for settlement.
The arbitrator concluded that a decrease in the purchase price of
$11.2 million was warranted. Pitney Bowes has commenced legal
action to overturn this award. In January 1997, the court
confirmed the arbitrator's award. Pitney Bowes has appealed this
decision. The Company intends to vigorously pursue its right to
this purchase price adjustment.
The following table summarizes the allocation of the purchase
price to the assets and liabilities acquired. Due to the
litigation described above, the Company has not yet revised the
allocation of the purchase price to reflect the arbitration
settlement.
<TABLE>
<S> <C>
Allocation of purchase price:
Current assets $101,231
Property, plant and equipment, net 41,960
Goodwill, financing fees & other intangible assets 43,322
Other non-current assets 2,315
Severance and other organization costs (9,181)
Liabilities assumed (41,347)
--------
Total purchase price $138,300
========
</TABLE>
(d) Pre-Acquisition Financial Statements--The Consolidated Statements
of Operations for the six months ended June 29, 1995 and twelve
months ended December 31, 1994 ("Pre-Acquisition Financial
Statements") present the pre-acquisition operations of the Company
as a wholly-owned subsidiary of
<PAGE> 13
-3-
Pitney Bowes. Operations retained by Pitney Bowes, including the
Company's operations in Italy and Sweden, are excluded from the
Pre-Acquisition Financial Statements. The Consolidated Statement
of Operations for the six months ended June 29, 1995 also includes
$6,123 of nonrecurring adjustments to operating reserves including
adjustments for excess and obsolete inventory, warranty, sales
returns and workers' compensation, among others.
The Consolidated Statements of Stockholders' Equity have been
presented for periods subsequent to the Acquisition. Prior to the
Acquisition, the Company was operated as a wholly-owned subsidiary
of Pitney Bowes and had no equity transactions other than changes
in the cumulative translation adjustment and transfers to/from
Pitney Bowes of $4,953 for the six months ended June 29, 1995 and
$6,614 for the twelve months ended December 31, 1994. Changes in
cumulative translation adjustments prior to the Acquisition were
not material.
(2) Summary of Significant Accounting Policies-
(a) Consolidation--The accompanying consolidated financial statements
include the accounts of Monarch Marking Systems, Inc. and its
wholly owned subsidiaries ("the Company"). All significant
intercompany transactions have been eliminated.
(b) Use of Estimates--In preparing the consolidated financial
statements in conformity with generally accepted accounting
principles, management has made, where necessary, estimates and
judgments based on currently available information that affect
certain of the amounts reflected in the consolidated financial
statements. Actual results could differ from those estimates.
Reserves which require the use of estimates consist of the
following: sales returns and allowances, inventory obsolescence,
self-funded workers' compensation and medical claims and warranty
obligations, among others.
(c) Cash and Cash Equivalents--Cash and cash equivalents include cash
on hand, demand deposits and highly liquid investments with an
initial maturity of three months or less.
(d) 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 included
in the Company's operating results as earned.
<PAGE> 14
-4-
(e) Fixed Assets and Depreciation--Property, plant and equipment are
stated at historical cost. For assets acquired at the Acquisition
date, historical cost represents the allocated purchase accounting
values at such date. The Company's property, plant and equipment
are depreciated using the straight-line method over the useful
lives of the various assets. Estimated useful lives of the
Company's property, plant and equipment are as follows:
<TABLE>
<S> <C>
Land improvements 10 years
Buildings 5-25 years
Building improvements 10 years
Machinery and equipment 3-10 years
Tooling 3-10 years
Data processing equipment 3-5 years
Furniture and fixtures 3-10 years
</TABLE>
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. Properties leased under capital
leases are amortized on a straight-line basis over the primary
lease terms.
(f) Inventories--Effective with the Acquisition, the Company adopted
the LIFO inventory valuation method for its U.S. inventories only
with all non-U.S. inventories valued at FIFO. Approximately 79% of
the Company's inventories were valued at LIFO at December 31, 1996
and 1995.
At December 31, 1996, the Company had a LIFO reserve of $476. If
the FIFO method of inventory accounting had been utilized to value
all inventories the Company's operating income (loss) would have
been impacted as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
<S> <C>
Twelve months ended December 31, 1996 $476
Six months ended December 31, 1995 0
</TABLE>
Inventories are stated at the lower of cost or market. At December
31, 1996 and 1995, inventory cost also includes approximately
$11,825 and $12,600 related to the purchase price adjustment to
record inventories at their fair value at the Acquisition date. In
addition, reserves have been recorded to reduce inventory carrying
costs to net realizable value. At December 31, 1996 and 1995, the
value of these reserves was $3,622 and $7,500, respectively.
<PAGE> 15
-5-
(g) Revenue Recognition and Product Warranty--Sales revenue is
recognized when a product is shipped. Service revenue is
recognized over the life of service agreements. Anticipated
warranty costs are provided for when the associated product is
shipped.
(h) Advertising Costs--The Company expenses the costs of advertising
as incurred except for direct-response advertising, which is
capitalized and amortized over its expected period of future
benefits. Direct-response advertising consists of catalogs which
are published semi-annually. At December 31, 1996 and 1995, the
Company reported $153 and $236, respectively, of advertising costs
as capitalized assets. These capitalized costs are amortized over
the six month period following the catalog's publication.
Advertising costs expensed were $2,062 for the twelve months ended
December 31, 1996 and $800 for the six months ended December 31,
1995.
(i) Foreign Exchange Contracts--The Company periodically enters into
contracts to buy certain foreign currencies to hedge against
losses on U.S. dollar denominated inventory purchases by its
foreign subsidiaries. These transactions are firmly committed
transactions. Accordingly, the gains and losses associated with
these instruments are deferred until the underlying transactions
are recognized. At December 31, 1996, the Company had forward
contracts outstanding to sell French francs and pounds sterling
for an equivalent U.S. dollar value of $900 and $1,887,
respectively. These forward contracts mature through December
1997.
(j) Income Taxes--Prior to the Acquisition, the Company's U.S. taxable
income was included in the consolidated federal and certain state
income tax returns of Pitney Bowes. Effective with the
Acquisition, the Company began computing its tax provision 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 Company's
deferred income taxes result principally from expenses not
currently recognized for tax purposes, additional inventory
deductions for tax purposes not recognized for book purposes and
the excess of tax over book depreciation. Deferred tax assets and
liabilities are classified as current or noncurrent based on the
classification of the related asset or liability for financial
reporting purposes.
It has not been necessary to provide for income taxes on
approximately $6,000 of cumulative undistributed earnings of
subsidiaries outside the U.S. These earnings will be either
indefinitely reinvested or remitted substantially free of
additional tax. Determination of the liability that would result
in the
<PAGE> 16
-6-
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 $300 as of December 31,
1996.
(k) Foreign Currency Translation--The Company complies with Statement
of Financial Accounting Standards No. 52, "Foreign Currency
Translation" for translating foreign currency denominated
financial statements in reporting its consolidated financial
position. The functional currency of the Company's non-U.S.
operations are their respective local currencies. Accordingly,
assets and liabilities of operations outside the U.S. are
translated at current rates in effect at the end of the period,
and revenues and expenses are translated at average currency rates
during the period. Net cumulative translation adjustments are
recorded as a separate component of stockholders' equity in the
accompanying consolidated balance sheets.
(l) Goodwill, Financing and Acquisition Fees, and Other Intangible
Assets--The Company amortizes goodwill on a straight-line basis
over forty years, financing fees on a straight-line basis over the
life of the related debt (three to eight years) and other
intangible assets (primarily customer lists) on a straight-line
basis over approximately seven years. Accumulated amortization of
goodwill and other capitalized costs (including intangible assets)
was $3,975 and $1,175 at December 31, 1996 and 1995, respectively.
(m) Postemployment Benefits--The Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" as of January 1, 1994 which required
accrual of postemployment benefits as these benefits are earned.
The cumulative effect of this change in accounting principle was a
provision of $3,477 (net of tax). Postemployment benefits include
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. In 1996, an 11% increase in
cost of health care benefits was assumed. This rate was assumed to
decrease to 5% for 2002 and remain at that level thereafter. The
weighted average discount rate used was 7% at December 31, 1996.
(n) Earnings Per Share--Prior to the Acquisition, the Company was a
wholly-owned subsidiary of Pitney Bowes and did not have its own
common stock. Accordingly, the Company has not presented an
earnings per share disclosure prior to Acquisition. Effective with
the Acquisition, the Company issued 1,000 shares of common stock.
Earnings per share are based upon the weighted average number of
common shares outstanding during the year and include the dilutive
effect of stock options. Primary and fully diluted earnings per
share are the same.
<PAGE> 17
-7-
(o) SFAS 121 - "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of"--In January 1996, the
Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 ("SFAS 121"). SFAS 121 establishes
standards which require the Company to compare the undiscounted
future cash flows from the use and ultimate disposition of its
long-lived tangible and intangible assets to their carrying
amounts in order to determine whether an impairment exists. The
adoption of SFAS 121 did not have a material impact on the
Company's consolidated financial statements.
(p) SFAS 123 - "Accounting for Stock-Based Compensation"--The Company
has elected to account for the cost of its stock options utilizing
the intrinsic value method prescribed in APB Opinion No. 25 as
allowed by Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation".
Accordingly, no compensation cost has been recognized for stock
options as all stock options were granted at prices which reflect
fair market value, as defined in the Plan, at the grant date. The
pro forma disclosures required by SFAS 123 are presented in Note
6.
(q) Noncash Transactions--On December 8, 1995, the Company redeemed
$100 million of privately-held borrowings and issued $100 million
of publicly-traded debt pursuant to its Form S-4 registration
statement previously filed with the Securities and Exchange
Commission.
(3) Concentrations of Credit Risk-
A significant portion of the Company's sales are to customers in the
retail industry. The Company generally extends credit to these customers
and, therefore, collection of these receivables is affected by conditions
or occurrences within the retail industry. No single customer accounted
for greater than 10% of the Company's receivables as of December 31, 1996
or 1995 or the Company's net sales during 1996, 1995 or 1994.
(4) Related Party Transactions-
Prior to the Acquisition, Monarch was operated principally as a
wholly-owned subsidiary of Pitney Bowes. The Company supplied certain
inventory and component parts to Pitney Bowes and its subsidiaries. The
Company also arranged financing for certain of its products through
either Pitney Bowes Credit Corporation (PBCC) in the U.S. or leasing
subsidiaries in Canada and U.K., all of which are wholly-owned
subsidiaries of Pitney Bowes. Sales to Pitney Bowes which have been
recognized in the accompanying financial statements were not material in
any reporting period.
<PAGE> 18
-8-
In connection with the Acquisition, the Company and Pitney Bowes entered
into certain agreements which require, among other things, for Pitney
Bowes to provide certain administrative services to the Company for a
period of time following the Acquisition, the continued purchase by
Pitney Bowes of bar code printers from the Company, and the purchase by
the Company of ink and ink rollers from Pitney Bowes. The purchase
commitments have a minimum term of five years and automatically renew
for twelve month periods unless six months notice is given by either
party.
At December 31, 1996, the Company held notes receivable totaling $550
from the President of the Company. These notes bear interest at rates of
5.9% and 7.5% and will mature on December 31, 1997 and June 14, 1998. At
December 31, 1996, the Company also held a note receivable of $200 from
another member of management. This note bears interest at a rate of 7.05%
and will mature in equal installments on February 15, 1997 and February
15, 1998. The notes related primarily to relocating managements'
residences to Ohio. The current portion of these notes have been
classified in accounts receivable and the long-term portion have been
classified in other non-current assets in the accompanying Consolidated
Balance Sheets.
(5) Debt-
To finance the Acquisition, the Company borrowed $100,000 on unsecured
Senior Notes and obtained a Revolving Credit Facility. The
Revolving Credit Facility permits borrowings in an amount not to exceed
the lesser of $25,000 or the "Borrowing Base", as defined in the
Revolving Credit Facility to include a stated percentage of certain of
the Company's inventories and accounts receivable. Borrowings under the
revolving credit agreement bear interest at a rate equal to Bankers Trust
Company's U.S. or Canadian prime rate plus 1.5%. In 1996, the maximum and
average borrowings were $6,051 and $4,495, respectively. The weighted
average interest rate on these borrowings was 9.37% in 1996 and 8.0% in
1995. The revolving credit agreement expires on June 30, 1998. At
December 31, 1996, the Company had no borrowings outstanding under this
agreement.
The Company's long-term debt consists of $100,000 of unsecured Senior
Notes which bear interest at a fixed rate of 12.5%. Repayment of these
Senior Notes is due in 2003. The notes may be prepaid by the Company at
106.25% of their principal amount.
Subsequent to yearend, Paxar Corporation acquired 100% of the Company's
stock. In connection with this acquisition, the Company's revolving
credit facility was terminated, and the Company's Senior Notes were
retired pursuant to a tender offer for them by the Company. Payment of
the tender offer price for the Senior Notes was financed by a loan from
PAXAR Corporation. The loss related to this early extinguishment of debt
will be recognized in 1997.
<PAGE> 19
-9-
(6) Stock Based Compensation Plans-
During 1996, the Company adopted a stock option plan (Option Plan) which
retroactively granted stock options to certain executives in 1995. The
Company accounts for the Option Plan under APB Opinion No. 25, and no
compensation cost has been recognized as all stock options have an
exercise price which equal or exceeded fair market value at their date of
grant. Fair market value of the company's stock is defined in the Option
Plan as 6.5 times earnings before interest, taxes, depreciation and
amortization (EBITDA) less net borrowings.
Had compensation cost for the Option Plan been determined consistent with
FASB Statement No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
TWELVE MONTHS
(In thousands, except ENDED SIX MONTHS ENDED
per share data) DECEMBER 31, 1996 DECEMBER 31, 1995
--------------- ----------------- -----------------
<S> <C> <C> <C>
Net income As reported $8,432 $1,209
Pro forma 8,135 1,147
Earnings Per Share As reported 8,042 1,209
Pro forma 7,762 1,147
</TABLE>
The Company has reserved 87.5 shares of common stock for issuance under
the Option Plan. At December 31, 1996, options have been granted which
are convertible into 80 shares of common stock. The options vest over a
five year period and expire after ten years.
Following is a summary of the Company's stock options at December 31,
1996 and 1995, and the changes during the periods then ended:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
(Options in thousands) OPTIONS PRICE OPTIONS PRICE
---------------------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of 400 $ 3.29 0 $ --
year
Granted 475 12.06 400 3.29
Exercised 0 -- 0 --
------ ------ ---- ------
Forfeited/Expired 0 -- 0 --
------ ------ ---- ------
Outstanding at end of year 875 8.05 400 3.29
====== ====== ==== ======
Exercisable at end of year 239 4.29 100 3.29
====== ====== ==== ======
Weighted average fair value of
options granted $ 2.18
======
</TABLE>
<PAGE> 20
-10-
At December 31, 1996, 425 of the outstanding options have an exercise
price of $3.29 with a remaining contractual life of approximately 9
years. Approximately 208 of these options are exercisable. The
remaining 450 options have exercise prices between $9.00 and $16.00,
with a weighted average exercise price of $12.55 and a weighted average
remaining contractual life of 9.7 years. Only 31 of these options are
exercisable; their weighted average exercise price is $10.97.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
Dividend yield 0%
Risk-free interest rates 6.07 - 7.11%
Expected lives 10 years
On March 3, 1997, PAXAR Corporation, which had previously indirectly
owned 49% of the Company, purchased all of the Company's common stock
indirectly owned by the other shareholders. Effective with this
transaction, the Company's outstanding stock options were converted to
Paxar stock options.
(7) Taxes on Income-
The Company provision for (benefit from) income taxes consists of the
following:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 29 DECEMBER 31,
1996 1995 1995 1994
------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Currently payable:
U.S. federal $ 3,474 $(2,192) $ 1,361 $ 4,122
U.S. state and local 130 (545) 194 312
Outside the U.S. 1,991 649 466 1,400
------- ------- ------- -------
Total current 5,595 (2,088) 2,021 5,834
------- ------- ------- -------
Deferred:
U.S. federal (70) 2,342 (1,590) (1,056)
U.S. state and local (4) 348 (272) (151)
Outside the U.S. (908) 138 (292) (102)
------- ------- ------- -------
Total deferred (982) 2,828 (2,154) (1,309)
------- ------- ------- -------
Total provision for (benefit
from) income taxes $ 4,613 $ 740 $ (133) $ 4,525
======= ======= ======= =======
</TABLE>
<PAGE> 21
-11-
Net deferred tax assets (liabilities) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current deferred taxes:
Inventory step-up $(4,780) $(5,068)
Severance (2,797) (1,849)
Vacation and other employee benefits 1,739 1,623
Sales returns & allowances and warranty 1,119 1,138
Inventory cost capitalization 377 457
Foreign 1,487 739
Other 1,301 410
------- -------
Net current deferred income tax liabilities (1,554) (2,550)
------- -------
Non-current deferred taxes:
Depreciation (305) 312
Post employment benefits other than pensions 9 106
AMT credit carryforwards 700 --
------- -------
Net non-current deferred tax assets 404 418
------- -------
Net deferred income tax liabilities $(1,150) $(2,132)
======= =======
</TABLE>
A reconciliation of the U.S. federal statutory tax rate to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 29, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Provision for income taxes at federal
statutory rate 35.0% 35.0% (35.0)% 35.0%
Increase (decrease) in taxes resulting
from-
State and local income taxes, net of
federal benefit 1.8 5.0 (5.2) 1.1
Other (1.4) (2.0) 4.0 0.1
---- ---- ---- ----
Effective income tax rate 35.4% 38.0% (36.2)% 36.2%
==== ==== ==== ====
</TABLE>
(8) Retirement Plans-
The Company provides retirement benefits to eligible employees in the
U.S. through a defined contribution plan. The Company matches
contributions at a rate ranging from 1.0% to 4.5% percent of such
contributions depending on the
<PAGE> 22
-12-
level of the participant's contribution and age. The Company's matching
contributions under such plan were:
<TABLE>
<S> <C>
Twelve months ended December 31, 1996 $1,713
Six months ended December 31, 1995 585
Six months ended June 29, 1995 492
Twelve months ended December 31, 1994 943
</TABLE>
Effective with the Acquisition, Pitney Bowes retained the Company's U.S.
retirement plan. The Company also has several defined benefit pension
plans covering its employees in Canada, Mexico and Germany. Benefits are
primarily based on employees' compensation and years of service. Company
contributions are determined based on the funding requirements of each
country's governmental laws and regulations.
Net pension expense for the Company's non-U.S. defined benefit plans
included the following components:
<TABLE>
<CAPTION>
TWELVE SIX MONTHS
MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Service cost - benefits earned during period $ 158 $ 106
Interest cost on projected benefit obligations 270 200
Actual return on assets (887) (155)
Net amortization 461 15
----- -----
Net periodic defined benefit pension expense $ 2 $ 166
===== =====
</TABLE>
Prior to the Acquisition, the Company's pension expense was determined by
Pitney Bowes, and the components of this expense are not available. Total
expense related to the Company's defined benefit plans during these
periods was:
<TABLE>
<S> <C>
Six months ended June 29, 1995 $1,762
Twelve months ended December 31, 1994 3,551
</TABLE>
<PAGE> 23
-13-
The funded status for the Company's non-U.S. defined benefit plans follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 4,495 $ 2,097
======= =======
Accumulated benefit obligations $ 4,495 $ 2,104
======= =======
Projected benefit obligations $(4,960) $(3,364)
Plan assets at fair value, primarily stocks and
bonds 5,478 4,791
Unrecognized net loss (gain) 213 (102)
Unrecognized net asset -- (265)
------- -------
Net pension asset $ 731 $ 1,060
======= =======
</TABLE>
The actuarial assumptions used for these defined benefit plans were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Discount rate 8.25% 9%
Rate of increase in future compensation levels 6-7% 6-7%
Expected long-term rate of return on plan
assets 9-11% 9%
</TABLE>
(9) 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.
Pursuant to the Omnibus Purchase Agreement, Pitney Bowes has agreed to
indemnify the Company against certain scheduled environmental
liabilities, including liabilities relating to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA
sites) discussed below, and claims arising from environmental conditions
described in written environmental assessments and audits conducted since
January 1, 1985, without any time limitations. Pitney Bowes has also
agreed to indemnify the Company against additional liabilities arising
from environmental claims or conditions resulting from the activities of
or existing on properties of the Company or Pitney Bowes prior to the
closing date of the Acquisition, provided that the Company must notify
Pitney Bowes of any such liabilities within five years of such closing
date.
The Company's operations are subject to federal, state, local and
international environmental laws and regulations that impose
limitations on the discharge of, and establish standards for the
handling, generation, emission, release, discharge,
<PAGE> 24
-14-
treatment, storage and disposal of, certain materials, substances and
wastes. To the best of the Company's knowledge, the Company's
operations are in material compliance with the terms of all applicable
environmental laws and regulations as currently interpreted. The
Company is currently investigating soil and ground water contamination
at its Pickering, Ontario facility. The investigation is being
performed subsequent to notification of, and will be conducted in
accordance with the requirements of the Ontario Ministry of Environment
and Energy. The Company has removed contaminated soils and installed
ground water monitoring wells at the facility and is preparing for
potential additional investigation or remedial actions. The Company
believes that, in connection with the Acquisition, it is indemnified by
Pitney Bowes for the costs of the investigation and any necessary
remediation at the Pickering, Ontario facility. Because discussions
with the Ministry of Environment and Energy concerning future remedial
options have not yet commenced, the Company cannot at this time
estimate the potential costs of cleanup, but based on currently
available information and taking into consideration the indemnity from
Pitney Bowes, the Company believes that its liability with respect to
the cleanup is unlikely to have a material adverse effect on the
Company's financial position, results of operations or its consolidated
financial statements taken as a whole.
The Company has been advised of potential liability under "CERCLA" at six
off-site disposal sites. The Company has entered into settlement
agreements at three of such sites. Although the Company is contesting its
liability at the three remaining sites, the Company is unable to
determine its ultimate liability at this time. Based on currently
available information and taking into consideration the indemnity from
Pitney Bowes, the Company does not believe its aggregate CERCLA
liabilities for these sites will have a material effect on the Company's
financial position, results of operations or its consolidated financial
statements taken as a whole.
To the best of the Company's knowledge, there are no other existing or
potential environmental claims against the Company that are likely to
have a material adverse effect on the Company's financial position,
results of operations or its consolidated financial statements taken as a
whole.
(10) 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.
<PAGE> 25
-15-
Future minimum lease payments for capital and operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
- ------------------------- ------ ------
<S> <C> <C>
1997 $129 $3,724
1998 129 2,268
1999 129 1,427
2000 28 497
2001 - 232
Later years - 246
---- ------
Total minimum lease payments 415 $8,394
======
Less amount representing interest (38)
----
Present value of minimum lease payments $377
====
</TABLE>
Rental expense under operating leases was as follows:
<TABLE>
<S> <C>
Twelve months ended December 31, 1996 $5,577
Six months ended December 31, 1995 3,296
Six months ended June 29, 1995 3,654
Twelve months ended December 31, 1994 7,960
</TABLE>
(11) Fair Value of Financial Instruments-
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalent $ 18,170 $ 18,170 $ 17,889 $ 17,889
Accounts receivable 41,532 41,532 40,164 40,164
Accounts payable 9,871 9,871 10,712 10,712
Short-term borrowings -- -- 6,734 6,734
Long-term debt 100,000 109,559 100,000 108,642
Forward exchange contracts -- (160) -- --
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
(a) Cash and Cash Equivalents--The carrying value amount of cash and
cash equivalents approximates its fair value.
<PAGE> 26
-16-
(b) Accounts Receivable and Accounts Payable--The carrying value
amounts approximate fair value based on the short-term maturities
of these instruments.
(c) Short-Term Borrowings--The carrying value amounts of these
borrowings approximates fair value due to the short-term
maturities of these instruments. The Company's short term
borrowings were repaid prior to December 31, 1996.
(d) Long-Term Debt--The fair values of the Company's debt are
estimated by discounting the future cash flows based on the
Company's estimate of current borrowing rates for debt with
similar maturities.
(e) Forward Exchange Contracts--The fair values of the Company's
foreign exchange contracts represent the amount the Company would
pay to terminate the specific agreements. The fair values were
derived based on quoted market prices for similar instruments,
adjusted for maturity differences.
(12) Quarterly Financial Data (Unaudited)-
Effective with the Acquisition, the Company became subject to the
Securities and Exchange Commission's rules on quarterly reporting.
Summarized quarterly financial data for the applicable reporting periods
in 1996 and 1995 are shown below:
<TABLE>
<CAPTION>
1996 QUARTER
- ------------------------- --------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Net sales $62,295 $65,056 $65,259 $66,635 $259,245
Gross profit 26,218 28,061 28,519 29,174 111,972
Net income 1,126 2,071 2,410 2,825 8,432
Earnings per share 1,126 2,071 2,410 2,435 8,046
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTER
- ------------------------- -----------------------
THIRD FOURTH TOTAL
----- ------ -----
<S> <C> <C> <C>
Net sales $65,531 $62,592 $128,123
Gross profit 23,551 25,564 49,115
Net income 400 809 1,209
Earnings per share 400 809 1,209
</TABLE>
No quarterly results were reported prior to June 29, 1995.
<PAGE> 27
-17-
(13) Pro forma Disclosures-
As discussed in Note 1c, the ownership of the Company changed effective
June 29, 1995. The following table reflects the 1995 and 1994 unaudited
pro forma consolidated operating results of the Company assuming that the
Acquisition had occurred on January 1, 1994:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TWELVE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net Sales $254,533 $246,874
Net income before cumulative effect of
change in accounting 1,100 6,200
Net income 1,100 2,700
</TABLE>
Pro forma adjustments consist principally of additional interest expense
on the revolving line of credit and the unsecured senior notes, cost
savings from the Company's reduction of headcount and changes to benefit
plans pursuant to the restructuring plan, incremental depreciation on
property, plant and equipment due to the write-up to fair value of these
assets, incremental management fees and incremental amortization of
goodwill, financing fees and other intangibles recorded in accordance
with the purchase method of accounting.
These pro forma results have been prepared for comparative purposes only
and do not purport to represent the results of operations which would
have resulted had the Acquisition occurred on January 1, 1994.
(14) Non U.S. Operations-
The Company has a significant amount of sales to countries outside the
U.S. with a significant concentration in the European market. Total net
sales and operating income in countries outside the United States and in
Europe were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 29, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Foreign -
Net sales $84,022 $41,100 $39,370 $80,786
Operating income 8,111 4,341 453 6,120
Europe -
Net sales 49,541 24,125 22,648 42,040
Operating income 5,287 1,921 1,212 4,853
</TABLE>
<PAGE> 28
-18-
Identifiable assets of the Company's international operations were
approximately $48,798 and $54,841 at December 31, 1996 and 1995,
respectively. Identifiable assets of the Company's European operations
were approximately $26,553 and $35,008 at December 31, 1996 and 1995,
respectively.
<PAGE> 29
(b) Pro-forma Financial Information. Set forth below are pro-forma
income statements of the Company and Monarch Marking Systems, Inc. for the
quarter ended March 31, 1997, and for the year ended December 31, 1996.
PAXAR Corporation
Pro-Forma Condensed
Financial Statement
(Unaudited)
The following pro-forma income statement for the three months ended March 31,
1997 gives effect to the acquisition by PAXAR corporation ("PAXAR") of Monarch
Marking Systems, Inc. ("Monarch") on March 3, 1997, as if the acquisition had
occurred at January 1, 1996, 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 combination had been in effect on the dates or for the periods indicated or
which may result in the future. The following proforma results reflects the
addition of Monarch's income statement for the period January 1, 1997 to March
3, 1997.
Pro-Forma Condensed Income Statements
For the Three Months Ended March 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION> 1/1-3/3/97
Paxar Monarch Pro-Forma Pro-Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
Sales $ 80,455 $ 39,679 $ 120,134
Cost of Sales 48,272 23,134 71,406
-------- -------- ---------
Gross Profit 32,183 16,545 48,728
580 (a)
Selling, general and (83)(b)
administrative 22,356 14,806 (54)(c) 37,605
-------- -------- -------- ---------
Operating income 9,827 1,739 (443) 11,123
Interest expense, net (1,713) (1,987) (1,000)(d) (4,700)
-------- -------- -------- ---------
Income before taxes 8,114 (248) (1,443) 6,423
Taxes on income 2,412 (137) (106)(e) 2,169
-------- -------- -------- ---------
Net income $ 5,702 $ (111) $ (1,337) $ 4,254
======== ======== ======== =========
Weighted average shares
outstanding 28,948 29,439
======== =========
Earnings per share $ 0.20 $ 0.15
======== =========
</TABLE>
<PAGE> 30
PAXAR Corporation
Pro-Forma Condensed
Financial Statement
(Unaudited)
The following pro-forma income statement for the year ended December 31, 1996,
gives effect to the acquisition by PAXAR of Monarch on March 3, 1997, as if the
acquisition had occurred at January 1, 1996, 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 combination had been in effect on the dates or for
the periods indicated or which may result in the future.
Pro-Forma Condensed Income Statements
For the Year Ended December 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Paxar Monarch Pro-Forma Pro-Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Sales $ 219,828 $ 259,245 $ 479,073
Cost of Sales 138,333 147,273 285,606
--------- --------- ---------
Gross Profit 81,495 111,972 193,467
Selling, general and -- -- 3,250(a)
administrative 55,126 85,763 (500)(b) 143,639
--------- --------- -------- ---------
Operating income 26,369 26,209 (2,750) 49,828
Equity in net income of
affiliate 4,132 -- (4,132)(c) --
Interest expense, net (1,365) (13,164) (6,000)(d) (20,529)
--------- --------- -------- ---------
Income before taxes 29,136 13,045 (12,882) 29,299
Taxes on income 7,332 4,613 (2,338)(e) 9,607
--------- --------- -------- ---------
Net income $ 21,804 $ 8,432 $(10,544) $ 19,692
========= ========= ======== =========
Weighted average shares
outstanding 28,414 29,389
========= =========
Earnings per share $ 0.77 $ 0.67
========= =========
</TABLE>
<PAGE> 31
Notes to Pro-Forma Consolidated Financial Statements
On March 3, 1997, PAXAR Corporation ("PAXAR") acquired the 51% of Monarch
Holdings, Inc. ("Holdings"),that it did not own for a total purchase price of
approximately $130,000. PAXAR acquired the 49% equity interest of Odyssey
Partners, L.P. in Holdings for $94,100 in cash, a promissory note in the amount
of $5,900 at an annual interest rate of 4.88% payable on January 2, 1998, and
five year warrants to purchase (a) 1,000,000 shares of the PAXAR's common
stock, par value $0.10, at an exercise price of $17.50 per share and (b)
200,000 shares of the PAXAR's common stock at an exercise price of $21.875 per
share. The warrants have been recorded at a fair value of approximately $9.7
million at the date of acquisition. Immediately following the closing of the
acquisition, PAXAR caused Holdings to merge with and into the Company. Upon
completion of such merger, the Chairman of Holdings and the President and Chief
Executive Officer of Holdings each received 125,229 shares of the PAXAR's
common stock valued at $19.00 per share, in exchange for the shares of Holdings
common stock owned by each of them. In the merger, employees of Holdings
received incentive stock options to purchase an aggregate of 995,575 shares of
the PAXAR's Common Stock pursuant to the Company's 1990 Employee Stock Option
Plan in exchange for outstanding options to purchase Holdings common stock. The
options have been recorded at a fair value of approximately $16 million at the
date of acquisition.
The acquisition is being accounted for as a purchase with assets acquired and
liabilities assumed recorded at their estimated fair values at the date of
acquisition. The excess of the purchase price and transaction costs over the
fair value of net assets acquired is recorded as goodwill. The purchase price
allocation related to certain accruals and reserves is not complete and
adjustments to goodwill may be necessary. No pro-forma Balance Sheet has been
filed for March 31,1997. PAXAR's unaudited Balance Sheet reflecting the
acquisition of Monarch has been filed in Part I Item 1 of its report on Form
10-Q for the Quarterly Period Ended March 31,1997. The following are
explanations of the adjustments reflected on the Pro-Forma financial
statements.
(a) Reflects the pro-forma adjustment to record goodwill amortization expense,
acquired as part of this acquisition. Goodwill is being amortized on a
straight-line basis over a forty-year period.
(b) Reflects the pro-forma adjustment to record the reversal of the management
fee expense recorded by Monarch to Odyssey Partners L.P.
(c) Reflects the pro-forma adjustment to record the reversal of the equity in
net income of affiliate.
(d) Reflects the pro-forma adjustment for estimated interest expense as a result
of the debt incurred from the acquisition of the remaining 51% of Monarch
not owned by the Company.
(e) Reflects the pro-forma adjustment to tax effect adjustments (b), (c) and
(d).
<PAGE> 32
SIGNATURE
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
Dated: May 19, 1997 By: /s/ George Mitchell
-------------------
George Mitchell
Treasurer
