-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KGvpefqjoED1tvGe4xSReXR2SAMJaNGRW7wQXCUZ6gS8L3E/xYRtV/OIoM/7WxXN vbnA2Wezu6ljXA5n+zQ6hw== 0000950152-99-001991.txt : 19990318 0000950152-99-001991.hdr.sgml : 19990318 ACCESSION NUMBER: 0000950152-99-001991 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 ITEM INFORMATION: FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH MACHINE TOOL CO CENTRAL INDEX KEY: 0000067532 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 344307810 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-01997 FILM NUMBER: 99566724 BUSINESS ADDRESS: STREET 1: 615 N OAK ST STREET 2: PO BOX 668 CITY: SIDNEY STATE: OH ZIP: 45365 BUSINESS PHONE: 5134924111 MAIL ADDRESS: STREET 1: 615 N OAK ST STREET 2: PO BOX 668 CITY: SIDNEY STATE: OH ZIP: 45365 8-K/A 1 THE MONARCH MACHINE TOOL COMPANY AMDMT.#1 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 31, 1998 THE MONARCH MACHINE TOOL COMPANY (Exact name of Registrant as specified in its charter) Ohio 1-1997 34-4307810 (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification No.) 2600 Kettering Tower, Dayton, OH 45423 (Address of principal executive offices) (Zip code) 937-910-9300 (Registrant's telephone number including area code) Not applicable (Former name and former address, if changed since last report) 1 2 STATEMENT MONARCH MACHINE TOOL COMPANY (the "Company") filed with the Commission a Current Report on Form 8-K on January 14, 1999. At Item 7 of such Report the Company indicated that it would file audited historical financial statements of the business acquired and pro-forma financial information on or before March 16, 1999. Set forth below is Item 7 of such Report amended to include the audited historical financial statements of the business acquired and pro-forma financial information. ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired (1) Report of Independent Accountants (2) Consolidated Balance Sheets of GFG Corporation at December 31, 1998 and 1997 (3) Consolidated Statements of Earnings of GFG Corporation for the years ended December 31, 1998 and 1997 (4) Consolidated Statements of Changes in Shareholder's Equity of GFG Corporation for the years ended December 31, 1998 and 1997 (5) Consolidated Statements of Cash Flows of GFG Corporation for the years ended December 31, 1998 and 1997 (6) Notes to Consolidated Financial Statements (b) Pro-forma financial information (unaudited) (1) Pro-forma Condensed Consolidated Balance Sheet at December 31, 1998 (2) Pro-forma Condensed Statement of Consolidated Earnings for the year ended December 31, 1998 (3) Notes to the Pro-forma Condensed Consolidated Financial Information 2 3 REPORT OF INDEPENDENT ACCOUNTANTS February 23, 1999 To the Board of Directors of The Monarch Machine Tool Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in shareholder's equity and of cash flows present fairly, in all material respects, the financial position of GFG Corporation and its subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP - -------------------------------- PricewaterhouseCoopers LLP 3 4 GFG CORPORATION CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
1998 1997 ------------ ------------ ASSETS Cash $ 315,504 $ 693,203 Amounts due from Derlan -- 1,860,025 Accounts receivable, net of allowance for doubtful accounts of $101,000 and $77,000 in 1998 and 1997 3,756,709 4,936,787 Inventory 1,526,861 3,781,773 Deferred income taxes 145,246 139,775 Other current assets 207,023 459,661 ------------ ------------ Total current assets 5,951,343 11,871,224 Property and equipment, net 608,125 561,895 Goodwill, less accumulated amortization of $1,129,558 and $930,091 in 1998 and 1997 864,735 1,064,202 Note receivable, officer -- 375,000 Deferred income taxes 388,660 824,883 Other assets 10,000 10,000 ------------ ------------ Total assets $ 7,822,863 $ 14,707,204 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) Accounts payable $ 1,200,783 $ 2,127,810 Accrued liabilities 963,544 1,611,002 Progress billings 1,465,829 2,926,147 ------------ ------------ Total current liabilities 3,630,156 6,664,959 Deferred compensation -- 1,191,000 Note payable - Derlan Industries -- 7,500,000 ------------ ------------ Total liabilities 3,630,156 15,355,959 Common stock; $1.00 par value; 56,000 shares authorized; 1,500 shares issued and outstanding 1,500 1,500 Additional paid-in capital 4,603,274 -- Retained earnings (deficit) (392,367) (630,555) ------------ ------------ 4,212,407 (629,055) Less treasury stock 19,700 19,700 ------------ ------------ Total shareholder's equity (deficit) 4,192,707 (648,755) ------------ ------------ Total liabilities and shareholder's equity (deficit) $ 7,822,863 $ 14,707,204 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 GFG CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ------------ ------------ Sales $ 21,087,439 $ 21,588,290 Cost of sales 16,777,935 15,625,544 ------------ ------------ Gross margin 4,309,504 5,962,746 General and administrative expenses 3,138,337 3,174,310 ------------ ------------ Operating income 1,171,167 2,788,436 Other (income) expense: Interest income (220,900) (185,537) Derlan management fee 250,000 250,000 Interest expense 900,000 71,000 Other (income) expenses, net (37,003) 106,863 ------------ ------------ 892,097 242,326 ------------ ------------ Income before income taxes 279,070 2,546,110 Provision for income taxes 40,882 997,616 ------------ ------------ Net income $ 238,188 $ 1,548,494 ============ ============ Earnings per common share, basic and diluted $ 159 $ 1,032 ============ ============ Average shares outstanding, basic and diluted 1,500 1,500 ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 GFG CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
RETAINED COMMON PAID-IN EARNINGS TREASURY STOCK CAPITAL (DEFICIT) STOCK TOTAL -------- ----------- ----------- ----------- ----------- Balance at December 31, 1996 $ 1,500 $ - $ 4,770,951 $ (19,700) $ 4,752,751 Net income 1,548,494 1,548,494 Dividends declared (6,950,000) (6,950,000) -------- ----------- ----------- ----------- ----------- Balance at December 31, 1997 1,500 - (630,555) (19,700) (648,755) Net income 238,188 238,188 Assumption of deferred compensation agreement, net of note receivable and 598,000 598,000 net of deferred taxes Reduction of note payable to Derlan 7,500,000 7,500,000 Reclassification of amount due from Derlan (3,494,726) (3,494,726) -------- ----------- ----------- ----------- ----------- Balance at December 31, 1998 $ 1,500 $ 4,603,274 $ (392,367) $ (19,700) $ 4,192,707 ======== =========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 6 7 GFG CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 238,188 $ 1,548,494 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 194,986 176,742 Amortization 199,467 199,467 Deferred income taxes 32,752 64,715 Loss on disposal of fixed assets 5,785 27,971 Changes in assets and liabilities: Accounts receivable 1,180,078 498,532 Inventory 2,254,912 (1,665,809) Other current assets 252,638 (499,936) Accounts payable (927,027) 90,972 Progress billings (1,460,318) 594,503 Accrued liabilities (467,458) 918,693 ----------- ----------- Net cash provided by operating activities 1,504,003 1,954,344 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of fixed assets -- 6,800 Capital expenditures (247,001) (218,400) ----------- ----------- Net cash (used in) investing activities (247,001) (211,600) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in amounts due from Derlan (1,634,701) (1,220,799) ----------- ----------- Net cash (used in) financing activities (1,634,701) (1,220,799) ----------- ----------- Net (decrease) increase in cash (377,699) 521,945 Cash at beginning of period 693,203 171,258 ----------- ----------- Cash at end of period $ 315,504 $ 693,203 =========== =========== Cash paid during the year for: Interest $ 900,000 $ 71,558 Income taxes 125,104 230,106
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 7 8 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1. DESCRIPTION OF BUSINESS On December 31, 1998, The Monarch Machine Tool Company (Monarch) purchased all of the outstanding capital stock of GFG Corporation (the Company), from Derlan Industries Inc. (Derlan). The Company designs and assembles roll coating and electrostatic oil application equipment used by steel and aluminum mills and mini-mills, ferrous and non-ferrous supply centers and end users of coiled material. The Company also designs and assembles metal strip processing equipment. Additionally, the Company has a sales and service facility in Surrey, England. All Company products are sold by direct company sales people and independent agents throughout the United States and the world. Approximately 56% and 47% of the Company's consolidated revenues in 1998 and 1997, respectively, were export sales from the United States, primarily to Asia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, GFG-Peabody, Ltd., a foreign sales and service company, and GFG International Corporation, a foreign sales corporation. All significant intercompany balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS The Company handles its cash transactions primarily through one local financial institution. Cash equivalents include those obligations that are readily convertible to cash and have a stated maturity of three months or less. 8 9 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 REVENUE RECOGNITION Revenue is recognized upon shipment of the product to the customer. Progress billings received on contracts are recorded as a liability until the revenue is recognized. Estimated losses on contracts are recorded when identified. INVENTORIES Inventories are valued at the lower of cost or market with cost being determined on the first-in, first-out (FIFO) basis. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Expenditures for additions and improvements are capitalized, and costs for repairs and maintenance are charged to operations as incurred. When assets are retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is recognized. For financial reporting purposes, depreciation is computed using the straight-line method over the following estimated useful lives: Machinery and equipment 10 years Office furniture and equipment 5-10 years Transportation equipment 3 years Leasehold improvements are amortized over the life of the related lease. GOODWILL Goodwill is being amortized on the straight-line method over ten years. The carrying value of the goodwill is periodically reviewed if the facts and circumstances suggest that it may be impaired. If the review indicates that the goodwill will not be recoverable, as determined by the undiscounted cash flow method, the asset will be reduced to its estimated recoverable value. INCOME TAXES For the years ended December 31, 1998 and 1997, the Company was included in the consolidated Federal tax return with Derlan. For financial statement purposes, the tax provision is calculated as if the Company filed its own tax return. Deferred taxes are provided to give recognition to the effect of expected future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of assets and liabilities. 9 10 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 FOREIGN CURRENCY TRANSLATION The GFG-Peabody entity utilizes the local currency as the functional currency. Foreign currency assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Results of operations are translated at average exchange rates during the period for revenues and expenses. Gains and losses resulting from translation of assets and liabilities were immaterial during the periods presented. FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments, which includes cash and cash equivalents, accounts receivable, accounts payable and Derlan related financing, approximates their fair market value at December 31, 1998 and 1997. EARNINGS PER SHARE Basic and diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. 3. RELATED PARTY TRANSACTIONS The Company participates in various cash management activities with Derlan. As such, the Company was allocated interest income of approximately $218,000 and $152,000 for the years ended December 31, 1998 and 1997, respectively. As a condition of the sale of the Company to Monarch, an amount of $3,494,726 due from Derlan at December 31, 1998 for the excess cash deposited with them was eliminated and recorded as a reduction of paid in capital. As of December 31, 1997, the Company had $7,500,000 outstanding under a note payable to Derlan. The repayment terms and interest rate was determined by Derlan. During 1998, monthly interest payments at a rate of 12% were paid to Derlan. As a condition of the sale of the Company to Monarch, this note payable was eliminated and recorded as a contribution to capital as of December 31, 1998. Company employees participate in various employee benefit programs of Derlan. In addition, the Company participates in various insurance programs of Derlan. During the year ended December 31, 1998 and 1997, Derlan charged the Company approximately $227,000 and $166,000, respectively, for the cost of these employee benefit and insurance programs. As of December 31, 1997, accrued expenses included $140,953 due to Derlan for insurance charges. 10 11 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 4. ACCOUNTS RECEIVABLE Included in accounts receivable are approximately $1,124,000 and $3,544,000 of amounts unbilled as of December 31, 1998 and 1997, respectively. All unbilled amounts at December 31, 1998 are expected to be billed in 1999. 5. INVENTORIES As of December 31, 1998 and 1997, inventories are comprised of the following:
1998 1997 ---- ---- Raw materials and spare parts $ 706,276 $ 717,647 Work-in-process 820,585 3,064,126 ---------- ---------- $1,526,861 $3,781,773 ========== ==========
6. PROPERTY AND EQUIPMENT As of December 31, 1998 and 1997, property and equipment is comprised of the following:
1998 1997 ---- ---- Furniture, fixtures and computer $ 900,974 $ 943,626 equipment Machinery and equipment 136,696 132,030 Leasehold improvements 245,459 245,459 Transportation equipment 45,028 45,028 ---------- ---------- 1,328,157 1,366,143 Less accumulated depreciation 720,032 804,248 ---------- ---------- $ 608,125 $ 561,895 ========== ==========
11 12 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 7. INCOME TAXES The income tax provision reflected in the consolidated financial statements is comprised of the following:
1998 1997 ---- ---- Current: Federal $127,327 $861,903 State (53,693) 200,428 Deferred (32,752) (64,715) -------- -------- $ 40,882 $997,616 ======== ========
Differences between the U.S. statutory income tax rate and the effective income tax rate are as follows;
1998 1997 ---- ---- Statutory U.S. income tax rate 34% 34% State income taxes 3 4 Settlement of prior years' audit issues (18) - Other, net (4) 1 --- --- 15% 39% === ===
During 1998, the Company settled an outstanding audit issue with the State of Wisconsin for an amount which was less than expected. As a result, included in the 1998 tax provision is a credit of approximately $70,000 for a reduction is the state tax liability. 12 13 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 The components of deferred taxes included in the consolidated balance sheet are as follows:
1998 1997 ---- ---- Deferred tax assets: Accounts receivable $ 38,380 $ 29,260 Inventory 109,023 129,291 Deferred compensation -- 452,580 Goodwill 151,360 126,085 Other intangibles 255,103 281,961 ----------- ----------- Total deferred tax assets 553,866 1,019,177 Deferred tax liabilities Property and equipment (17,803) (25,201) Accrued expenses (2,157) (29,318) ----------- ----------- Total deferred tax liabilities (19,960) (54,519) Net deferred tax asset $ 533,906 $ 964,658 =========== =========== Net current deferred tax asset $ 145,246 $ 139,775 =========== =========== Net non-current deferred tax asset $ 388,660 $ 824,883 =========== ===========
Generally accepted accounting principles require a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. The Company believes that a valuation allowance is not necessary as the deferred tax assets will be realized as a result of the utilization of deferred tax liabilities and the generation of future taxable income. 8. BENEFIT PLANS The Company's employees participate in the Derlan Industries, Inc. 401(k) Retirement Plan (the Plan). The Plan covers all employees who have completed 12 months of continuous service and have attained age 21. Employees may contribute up to 15% of their salary to the Plan subject to limitations imposed by the Internal Revenue Service. The Company is allowed to make discretionary matching contributions as defined in the Plan and as approved by the Board of Directors. The Company currently matches 100% of the first 2% of employee's contributions and 50% of employee contributions up to the next 4%. Company matching contributions were approximately $100,000 and $67,000 for the years ended December 31, 1998 and 1997, respectively. 13 14 GFG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 In addition, Company employees participate in the Derlan Employee Share Purchase Plan (the Share Purchase Plan) which allows employees to contribute up to 5% of their salary to purchase shares of Derlan Industries Ltd stock. The Company is required to match 50% of the contribution. Company matching contributions were approximately $24,000 and $20,000 for the years ended December 31, 1998 and 1997, respectively. The Company has a deferred compensation incentive arrangement with an executive of the Company. Included in general and administrative expense is compensation expense of $180,000 for both 1998 and 1997 related to this agreement. In years prior to 1997, the Company loaned the executive $375,000 against this incentive arrangement. As a condition of the sale of the Company to Monarch, this obligation and the related note receivable were assumed by Derlan and, accordingly, the net liability and related deferred taxes were transferred to paid in capital as of December 31, 1998. 9. OPERATING LEASES The Company currently leases its facility in Milwaukee, Wisconsin on a month to month basis. Rental expense for this facility was $203,394 in 1998 and 1997. Additionally, the Company has non-cancellable leases for various automobiles and its facility in Surrey, England. Rental expense under these agreements was approximately $45,000 and $50,000 in 1998 and 1997, respectively. Future minimum payments due under these non-cancellable agreements are as follows: 1999 $36,000 2000 29,000 2001 6,000
10. CONTINGENCIES The Company is a defendant in various legal actions arising in the ordinary course of business. The Company believes that the ultimate liability, if any, resulting from these matters will not have a material effect on the Company's consolidated financial position or operating results. 14 15 PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THE MONARCH MACHINE TOOL COMPANY (THE "COMPANY") AND SUBSIDIARIES AND GFG CORP. AND SUBSIDIARIES ("GFG") The pro-forma financial statements included herein reflect the effects of the Company's acquisition of 100% of the common stock of GFG from Derlan Industries, Inc. The pro-forma condensed consolidated balance sheet for the Company reflects the acquisition as occurring at the close of business on December 31, 1998, including a pro-forma adjustment for projected acquisition related costs. The pro-forma condensed statement of consolidated earnings for the year ended December 31, 1998, for the Company and GFG are presented as if the acquisition had occurred on January 1, 1998. The pro-forma information is based on the historical financial statements of the Company and GFG, and gives effect to the acquisition under the purchase method of accounting, utilizing the assumptions and adjustments set-forth in the accompanying notes to the pro-forma condensed consolidated financial statements. The pro-forma statements have been prepared by Company management based on the audited financial statements of the Company for the fiscal year ended December 31, 1998, audited by PricewaterhouseCoopers LLP, and the audited historical financial data of GFG for the same period, also audited by PricewaterhouseCoopers LLP. These pro-forma statements reflect adjustments directly related to the acquisition and do not include potential adjustments that may arise as a result of items to be settled with the seller as a consequence of the Stock Purchase Agreement. Therefore, these pro-forma condensed consolidated statements may not be indicative of the results that would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro-forma financial statements should be read in conjunction with the audited financial statements and notes thereto of GFG, contained elsewhere herein, and the Company's audited financial statements and the notes thereto contained in its Form 10-K for the year ended December 31, 1997. 15 16 Monarch Machine Tool Co. and Subsidiaries GFG Corp. and Subsidiaries PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 (Dollars in thousands)
Monarch Machine GFG Pro-forma Tool Co. Corp. Adjustments(1) Pro-forma ---------------- ------------- -------------- ------------- ASSETS CURRENT ASSETS: Cash $ 1,417 $ 316 $ 0 $ 1,733 Accounts receivable 20,136 3,757 0 23,893 Inventories 8,775 1,527 183 (a) 10,485 Costs and estimated earnings in excess of billings on uncompleted contracts 3,275 0 0 3,275 Prepaid expenses and other current assets 461 207 0 668 Deferred income taxes 1,791 145 (62) (b) 1,874 ------------- ------------- ------------- ------------- Current assets 35,855 5,952 121 41,928 PROPERTY, PLANT, & EQUIPMENT 10,462 608 0 11,070 PREPAID PENSION COSTS 19,051 0 0 19,051 DEFERRED INCOME TAXES 1,242 388 0 1,630 GOODWILL 51 865 9,332 (c) 10,248 OTHER ASSETS 4,668 10 0 4,678 ------------- ------------- ------------- ------------- Total assets $ 71,329 $ 7,823 $ 9,453 $ 88,605 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Short term debt $ 500 $ 0 $ 0 $ 500 Accounts payable 7,729 1,201 0 8,930 Accrued liabilities 9,723 2,429 149 (d) 12,301 Billings in excess of costs and estimated earnings on uncompleted contracts 5,517 0 0 5,517 ------------- ------------- ------------- ------------- Current liabilities 23,469 3,630 149 27,248 ------------- ------------- ------------- ------------- LONG-TERM DEBT 3,000 0 13,497 (e) 16,497 POSTRETIRE. & OTHER ACCRUED LIABILITIES 2,206 0 0 2,206 SHAREHOLDERS' EQUITY: Preferred stock 14 0 0 14 Common stock 5,815 2 (2) (f) 5,815 Unearned compensation, restricted stock (37) 0 0 (37) Additional paid-in capital 0 4,603 (4,603) (f) 0 Retained earnings 37,042 (392) 392 (f) 37,042 Accumulated other comprehensive income (180) 0 0 (180) ------------- ------------- ------------- ------------- 42,654 4,213 (4,213) 42,654 Less treasury stock 0 20 (20) (f) 0 ------------- ------------- ------------- ------------- Total shareholders' equity 42,654 4,193 (4,193) 42,654 ------------- ------------- ------------- ------------- Total liabilities and shareholders' equity $ 71,329 $ 7,823 $ 9,453 $ 88,605 ============= ============= ============= =============
1- SEE NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 16 17 MONARCH MACHINE TOOL CO. AND SUBSIDIARIES GFG CORP. AND SUBSIDIARIES PROFORMA CONDENSED STATEMENT OF CONSOLIDATED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
Monarch Machine GFG Pro-forma Tool Co. Corp. Adjustments(1) Pro-forma ------------ ------------ ------------ ------------ NET SALES $ 79,066 $ 20,737 $ 0 $ 99,803 COST OF SALES 63,113 16,428 183 (g) 79,724 SELLING, GENERAL AND ADMINISTRATIVE 12,625 3,138 (14) (h) 15,749 ------------ ------------ ------------ ------------ TOTAL COSTS AND OPERATING EXPENSES 75,738 19,566 169 95,473 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) 3,328 1,171 (169) 4,330 OTHER INCOME (EXPENSE): INTEREST EXPENSE, NET (207) (679) (266) (i) (1,152) OTHER INCOME (EXPENSE), NET 62 (213) 250 (j) 99 ------------ ------------ ------------ ------------ 3,183 279 (185) 3,277 INCOME TAX PROVISION (BENEFIT) 1,100 41 62 (k) 1,203 ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 2,083 $ 238 $ (247) $ 2,074 ============ ============ ============ ============ EARNINGS PER COMMON SHARE, BASIC AND DILUTED $ 0.55 $ 0.55 ============ ============ AVERAGE SHARES OUTSTANDING: BASIC 3,780,000 3,780,000 DILUTED 3,780,000 3,780,000
1 - SEE NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 18 THE MONARCH MACHINE TOOL COMPANY NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS)
Pro-Forma Adjustments: 1. The following reflects the purchase price, historical book value, and adjustments to book value for the acquisition of GFG on December 31, 1998. Purchase price: Cash to Derlan Industries Inc. $ 13,497 --------- Net debt incurred (2.e.) $ 13,497 ========= Net assets acquired: Historical book value $ 4,193 Write-up of work-in-process inventory 183 Record effect of deferred tax liability (62) Record accrued expenses for cost of acquisition (149) Write-off of existing goodwill (865) --------- Adjusted book value 3,300 Excess purchase price allocated to goodwill 10,197 --------- Total $ 13,497 =========
2. The pro-forma balance sheet and statement of earnings have been adjusted to reflect: a. The write-up of work-in-process inventory at 12/31/98. b. The impact of deferred income taxes on the write-up of work-in-process inventory. c. The recording of the excess of the purchase price over the estimated fair value of assets acquired (goodwill). (See note 1 also). d. The accrual of $149 for acquisition related costs. e. Funds were borrowed under the Company's First Amendment to Second Amended and Restated Credit Agreement, dated December 29, 1998. (The First Amendment was previously filed as exhibit 4.1 to the 8-K). 18 19 THE MONARCH MACHINE TOOL COMPANY NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) f. The elimination of the GFG shareholder's equity. g. The adjustment to cost of sales during the pro-forma year 1998 is related to the write-up of work-in-process inventory and its subsequent charge ($183) to cost of sales as the inventory written-up is sold during the year. h. The adjustments to selling, general and administrative expense during 1998 are related to the impact of goodwill and the elimination of a deferred compensation plan of a GFG officer:
Year Ended 12/31/98 ---------- i. Estimated incremental amortization expense relating to the excess of purchase price resulting from the acquisition (amortized over a 25 year life) $ 166 ii. Elimination of the officer's deferred compensation plan. (180) ----- 1998 Pro-forma adjustment $ (14) ======
i. The borrowing of $13,497 for the acquisition was assumed to have occurred on January 1, 1998. The pro-forma adjustment to interest is based on a rate of 7.00% (estimated LIBOR base rate of 5.625% for the period plus 1.375%). The existing interest related to cash paid to Derlan Industries Inc. by GFG for interest expense on long-term debt to the parent. This long-term debt was assumed by Derlan Industries Inc. prior to the acquisition. The interest income being eliminated is related to the cash balance (assumed by Derlan Industries Inc. prior to the acquisition) that was allocated to GFG by Derlan Industries Inc. 19 20
THE MONARCH MACHINE TOOL COMPANY NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) Year Ended 12/31/98 i. Elimination of the existing interest expense $ 900 ii. Elimination of the existing interest income (221) iii. New interest expense (945) ------- 1998 Pro-forma adjustment $ (266) ========
j. The adjustments to other income (expense) during 1998 consist of the elimination of the corporate fee of $250 paid by GFG to Derlan Industries Inc. k. Adjustments in the 1998 pro-forma year reflect the impact of taxes at an estimated rate of 38% on the pro-forma Profit and Loss adjustments. The tax expense during 1998 is the result of the created goodwill being permanently non-deductible. 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MONARCH MACHINE TOOL COMPANY Date: March 16, 1999 By: /s/ Karl A. Frydryk ---------------- -------------------- KARL A. FRYDRYK Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----