Item 1 - Business - -----------------
The Monarch Machine Tool Company ("Monarch" or the "Company") was incorporated in 1909.
During 1997, the Company sold the business of the Sidney lathe (turning machines) operation and decided to close the operations of its three German businesses. Subsequently, in March 1998, the Company entered into an agreement to sell a majority of the assets of one of the German businesses, with the buyer agreeing to assume certain liabilities of the business. The Company entered into a strategic alliance in 1997 with Spinner Machine Tool Company, a German company, to market, in North America, ultra-precision horizontal turning machines produced by Spinner and to have Spinner market the Company's machining centers in Europe.
Products - --------
The Company operates in three primary industries in which it designs and builds equipment, namely the machine tool, coil processing and coating and laminating industries. The Company's products are primarily used by manufacturers of industrial equipment and, directly or indirectly, consumer products.
All Company products are sold by direct Company salesmen or independent agents throughout the United States and the world.
The following is a description of the primary products built by the Company.
Monarch Machine Tools ---------------------
Machining Centers - A machining center is a multifunction machine that removes metal by milling, drilling, boring, or tapping with a rotating tool on a stationary part. Monarch manufactures vertical spindle machining centers in various sizes and configurations. All are computer numerically controlled and have automatic tool changers that change tools in the spindle without operator assistance. Automatic part loading devices have been developed by Monarch that can be added to most models.
Stamco Coil Processing Equipment --------------------------------
Stamco engineers and manufactures a broad line of coil processing equipment. This equipment, generally sold as complete lines, is used by steel and aluminum mills, ferrous and non-ferrous supply centers, and end users of strip material. Stamco coil processing lines perform various operations, such as slitting, tension leveling, shearing, cleaning, forming, coating, galvanizing, annealing, and heat treating. Individual components are also manufactured for the upgrading of existing lines.
Part I ------
Item 1 - Business, continued - -----------------
Busch Coating and Laminating Equipment --------------------------------------
In 1995, the Company entered a new industry segment with its purchase of certain assets of the coating and laminating equipment business of a German company. In 1997, the Company decided to close the German business and to manufacture this equipment solely in the United States. The equipment, typically sold in complete lines, is used to further process paper, plastics, and foil for use in flexible or medical packaging, pressure sensitives, adhesives products and wall coverings. The products include continuous roll processing with in-line coating, drying, dry or wet laminating, slitting and rewinding. The coatings and adhesives applied are aqueous solvent, solventless, hot melt and wax. Individual components are also available for upgrading existing installations.
Competition - -----------
Monarch actively competes with other equipment manufacturers, both domestic and foreign. The market for the Company's products is subject to normal price, service, and quality competition. Increasingly, foreign machine tool manufacturers aggressively compete in the North American market. Although the prior primary competition was predominantly Japanese, it is now Asian.
Customers - ---------
Monarch has a broad market base. Virtually all manufacturing plants that perform metal cutting operations are potential customers for Monarch machining centers. Producers, suppliers, and users of strip metal generally have application for coil processing equipment. The Company's coating and laminating equipment is used by individual customers in the packaging industry and by producers of commercial or consumer products. The loss of any individual customer would not have a materially adverse effect upon the Company.
Backlog - -------
Monarch's backlog, segregated by industry segment, is as follows (in thousands):
The entire backlog can reasonably be expected to be shipped within twelve months. Seasonal factors are not significant to Monarch.
Part I ------
Purchases of Raw Materials and Supplies - ---------------------------------------
Monarch manufactures substantially all of the components of its machines other than computer numerical controls, large gear boxes, motors, and electrical components. The principal materials purchased are obtained on a competitive basis from many different sources and are commercially available. Monarch's numerically controlled machines are designed to be used with controls made by any one of the major industrial control manufacturers.
Patents, Licenses and Franchises - --------------------------------
Patents, licenses, and franchises are not considered significant to the business. During 1997, Monarch entered into a strategic alliance with Spinner Machine Tool Company GmbH to jointly sell each other's products. In North America, Monarch will sell Spinner's ultra-precision horizontal turning machines.
Engineering and Development - ---------------------------
Monarch's divisional engineering departments, which currently employ 97 persons, are responsible for engineering customer orders, the improvement of existing product lines, and the development of new products. Monarch's current product lines have been engineered and developed by Monarch personnel, with the exception of the new Spinner products. Refer to the Notes to Consolidated Financial Statements, incorporated into this Form 10-K by reference, for the amount of research and development expense in 1997, 1996 and 1995.
Employees - ---------
Monarch had 537 employees at December 31, 1997.
Working Capital - ---------------
Because of the long cycle time required to manufacture certain of its products, Monarch is normally required to finance a substantial volume of work in process.
Domestic and Foreign Operations and Export Sales - ------------------------------------------------
Amounts of revenue, profitability, and identifiable assets attributable to domestic and foreign operations for 1997, 1996, and 1995 are included in Notes to Consolidated Financial Statements incorporated by reference into this Form 10-K.
Part I
Item 2
Item 2 - Properties - -------------------
Domestic - --------
The coating and laminating equipment business is based in Sidney, Ohio, in a plant of over 400,000 square feet, a significant portion of which is being leased to the buyer of the Sidney lathe division. The Company has listed this property for sale in 1998, although it expects to be able to continue using the property for the operations of its laminating and coating businesses for the foreseeable future. Manufacturing operations for the machine tool business are conducted in Cortland, New York in a plant of 135,000 square feet and for the coil processing equipment in New Bremen, Ohio, in a plant of 180,000 square feet. All facilities are owned by Monarch and are in good condition. During 1998, the Company relocated its corporate headquarters from Sidney, Ohio to leased facilities in Dayton, Ohio.
Foreign Subsidiaries - --------------------
Stamco (U.K.), Ltd., engineers and sells coil processing equipment that is produced at leased, general purpose facilities located in England.
During 1997, the Company decided to close or sell the operations of the following three businesses located in Germany. The closings are expected to be completed in 1998.
Monarch Werkzeugmaschinen GmbH, served as a sales and service headquarters for U.S. machine tools in Europe but performed minimal operations in 1997, primarily aftermarket parts sales.
Stamco Depiereux GmbH, engineered and sold coil processing equipment and operates from leased general purpose facilities.
Monarch Busch GmbH, engineered and sold coating and laminating equipment and operates from leased general purpose facilities.
All of the facilities are in good condition.
Item 3
Item 3 - Legal Proceedings - --------------------------
In September 1988, the Company and several other potentially responsible parties, ("PRPs"), were ordered by the Environmental Protection Agency, under the Federal "Superfund" legislation to perform a removal action to dispose of waste materials at the Rosen site, a former scrap yard in Cortland, New York. Thereafter, the Company and certain other PRPs agreed to perform a Remedial Investigation, Risk Assessment, and Feasibility Study at the site. The Remedial Investigation, Risk Assessment, and Feasibility Study have now been completed by an engineering firm and submitted to EPA Region II.
Six PRPs shared in the cost of the Remedial Investigation, Risk Assessment, and Feasibility Study. In 1992, five of these PRPs, including the Company, sued 15 additional companies and individuals that were considered to be potentially liable to share in the costs of the Remedial Investigation, Risk Assessment, and Feasibility Study and ultimate clean-up of the site.
Part I ------
Item 3 - Legal Proceedings, Continued - --------------------------
During 1993, it was preliminarily estimated that the minimum remedial efforts could cost from $6,000,000 to $8,500,000. Accordingly, during 1993, the Company accrued an additional $1,600,000 to cover its share of the estimated costs associated with the ultimate resolution of this matter. Because of financial difficulties experienced by one of the PRPs and because the suit against the potential additional PRPs is not settled, the Company computed its share of the estimated costs on the basis of five PRPs.
During 1994, the estimated minimum costs of the remedial efforts did not materially change. However, because of the many uncertainties surrounding this issue the Company expensed approximately $300,000 of such costs instead of off-setting it against the accrued liabilities. Accordingly, at December 31, 1994 the Company maintained its accrual at $1,715,000 to absorb future costs associated with this matter.
The attorneys for five PRPs have brought on Motions for Summary Judgment against several defendants in order to establish liability for clean-up costs on the part of these defendants. In the case of two of these defendants, the motions have been granted and liability thus established. Additional motions against three defendants have been made and are now pending. It is the opinion of the PRP's attorneys that these motions are also likely to be successful. In the opinion of counsel, this is significant since all defendants against which liability has been established will in all probability be included in the EPA order directing cleanup of the Rosen Site and will thereby be compelled to share in the costs of cleanup.
During 1995, the aforementioned Risk Assessment concluded there was little, if any risk to human health at the site. The Feasibility Study concluded that a cap over a portion of the site, an asphalt cover over the remainder of the site, together with continual ground water monitoring would constitute an adequate remedy.
Since 1995, the estimated minimum costs of the remedial efforts have not materially changed. If the EPA accepts the recommendations described in the Feasibility Study, capital costs would be incurred in the early part of the remedial efforts and annual operating and maintenance costs primarily associated with ground-water monitoring and sampling would be incurred over a 30 year period. However, the EPA has given no indication that the remedy proposed in the Feasibility Study would be an acceptable one so that the final cost of the approved remedy should be considered highly speculative at this time. The ultimate liability of the Company will vary depending on the actual costs which will be incurred, the resolution of the lawsuit against the potential additional PRPs, the allocation of the costs of remediation among the various PRPs, and the financial viability of the existing PRPs.
In prior years, the Company commenced an action against six insurance carriers to secure defense and indemnification coverage for matters associated with defense costs and other costs associated with the clean up of the Rosen Site. In October 1995, the parties agreed to a settlement in which six of the insurance carriers, later amended to five, agreed to make a combined payment of $350,000 to the Company in exchange for a full site release.
During 1997, the EPA published a proposed Record of Decision ("ROD"), which is awaiting final approval. The ROD basically incorporates the proposed remediation program proposed by the PRP's. Following the expected approval of the ROD, the PRPs expect to either negotiate an agreement with non-participating PRPs concerning past and prospective expenses or to commence an action against the non-participants.
Part I ------
Item 3 - Legal Proceedings, Continued - --------------------------
Based upon information presently available, the Company believes that the $1,450,000 it presently has reserved at December 31, 1997 is adequate to provide for its share of the estimated costs for resolution of this issue.
The Company is a defendant in various legal actions, primarily product liability claims, arising in the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from these matters will not have a material effect on the Company's consolidated financial position. The significance of these matters on the Company's future operating results will depend on the Company's level of future earnings as well as the timing and the amount of the ultimate disposition of these matters above the amounts covered by insurance.
Item 4
Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5
Item 5 - Market for the Registrant's Common Equity and Related Shareholders - --------------------------------------------------------------------------- Matters - -------
The information required by this Item 5 is set forth under the headings "Shareholders' Information and Market Price, Dividend and Shareholder Data" in the Annual Report. Such information is incorporated herein by this reference.
Item 6
Item 6 - Selected Financial Data - --------------------------------
The information required by Item 6 is set forth under the heading "Selected Financial Data" on page 9 of the Annual Report and is incorporated herein by this reference.
Item 7
Item 7 - Management's Discussion and Analysis of Financial Conditions and - ------------------------------------------------------------------------- Results of Operations - ---------------------
The information required by this Item 7 is set forth under the heading "Management's Discussion and Analysis" on pages 10 through 11 of the Annual Report and is incorporated herein by this reference.
Item 8
Item 8 - Financial Statements and Supplementary Data - ----------------------------------------------------
The information required by this Item 8 is set forth on pages 12 through 22 of the Annual Report and is incorporated herein by this reference.
PART II
Item 9
Item 9 - Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure - --------------------
None
PART III --------
Item 10
Item 10 - Directors and Executive Officers of the Registrant - ------------------------------------------------------------
Executive Officers of the Registrant - ------------------------------------
The names and ages of all officers, all of whom are appointed for a term of one year and, except as noted, have been officers and employees of the registrant for the last five years, are as follows:
Mr. Clemens became President and Chief Executive Officer of Monarch in March 1997. He was previously the Vice President and General Manager of the Frick Company, a manufacturer of compressors, heat exchangers, and process refrigeration equipment (a subsidiary of York International) from 1995 to 1997. Prior to working for the Frick Company, he was the President and Chief Executive Officer of Clark Material Handling Company, a manufacturer of fork lift trucks, from 1994 to 1995. Before working for Clark Material Handling Company, he was President of BMY Combat Systems, a division of Harsco Corporation, from 1992 to 1994 and held various other management positions with the division from 1985 to 1992.
PART III --------
Item 10 - Directors and Executive Officers of the Registrant, Continued - ------------------------------------------------------------
Executive Officers of the Registrant, Continued - ------------------------------------
Mr. Skodzinsky became President of the Machine Tool Division in March 1998. He had been a Vice President of the Company since 1995, General Manager of the Monarch Cortland division since 1994 and prior to that date was the Director of Marketing at that division. He was previously employed at Hunt Valve Company as President and Chief Operating Officer from 1991 to 1993. Mr. Sharp was named President, Stamco Division in March 1998. Prior to joining the Company he was Vice President, Marketing and Sales for Fairfield Manufacturing Co., Inc., a manufacturer of power transmission components and assemblies, and from 1991 to 1996 he was Director, Combat Artillery Programs for United Defense, LP (formerly BMY Combat Systems) a manufacturer of tracked military vehicles.
Mr. Frydryk, a CPA, became Vice President and Chief Financial Officer on January 5, 1998. He had previously been employed for over 13 years by Nord Resources Corporation, a New York Stock Exchange listed company engaged in mining and mineral and chemical processing. He held various positions with that company, including serving for over 10 years as its Vice President Controller and Secretary.
Mr. Flaherty become Vice President, Operations Improvement on February 16, 1998. Prior to joining the Company, he was a consultant, providing consulting services to the Company for 6 months. From 1995 to 1997 he was Vice President, Operations for Frick Company, a subsidiary of York International, which manufactures compressors, heat exchangers and process refrigeration equipment. From 1994 to 1995 he served as Vice President, Operations and then Vice President, Business Development for Clark Equipment Handling Company, a manufacturer of fork lift trucks, and from 1977 to 1994 served in various capacities with Allied Signal, including Vice President, Airline Services from 1992 to 1994.
Mr. Gibson became Vice President, Human Resources on March 2, 1998. From January 1995 until his employment by the Company he was Vice President, Human Resources for CTG, Inc., a distributor of computer-related equipment. Prior to then he was, for over 5 years, the Senior Director, Human Resources for US Airways Express.
Mr. Maloney has been Vice President and General Manager - Stamco U.S. since 1995 and was the Sales and Marketing manager for Stamco U.S. since 1991.
Mr. Riethman has been Treasurer of the Company for more than five years.
Mr. Hull has been Secretary of the Company for more than five years.
Additional information required by this Item 10 is incorporated herein by reference from the Proxy Statement.
Item 11
Item 11 - Executive Compensation - --------------------------------
The information required by this Item 11 is set forth in the Proxy Statement and is incorporated herein by this reference.
PART III --------
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
The information required by this Item 12 is set forth in the Proxy Statement and is incorporated herein by this reference.
Item 13
Item 13 - Certain Relationships and Related Transactions - --------------------------------------------------------
The information required by this Item 13 is set forth to the extent applicable in the Proxy Statement and is incorporated herein by this reference.
PART IV -------
Item l4 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K - --------------------------------------------------------------------------
(a) List of Documents filed as part of this Report
(1) Financial Statements:
* Incorporated herein by reference from the appropriate portions of the Registrant's Annual Report to security holders for the year ended December 31, 1997
(2) Financial Statement Schedules:
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the reason that they are not applicable, or are not required.
(3) Exhibits: See Index of Exhibits
(b) No reports on Form 8-K have been filed during the fourth quarter of 1997.
(c) See Index of Exhibits for location of filed exhibits
(d) No other financial statements, other than those mentioned above, are required to be filed to comply with Regulation S-X.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE MONARCH MACHINE TOOL COMPANY
By /s/ Richard E. Clemens ----------------------------------------------- March 27, 1998 RICHARD E. CLEMENS Director, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of The Monarch Machine Tool Company and in the capacities and on the dates indicated:
By /s/ Richard E. Clemens ------------------------------------------------ March 27, 1998 RICHARD E. CLEMENS Director, President and Chief Executive Officer
By /s/ John A. Bertrand ------------------------------------------------ March 27, 1998 JOHN A. BERTRAND Director
By /s/ Gerald L. Connelly ------------------------------------------------ March 27, 1998 GERALD L. CONNELLY Director
By /s/ William A. Enouen ------------------------------------------------ March 27, 1998 WILLIAM A. ENOUEN Director
By /s/ Waldemar M. Goulet ------------------------------------------------ March 27, 1998 WALDEMAR M. GOULET Director
By /s/ Kenneth H. Hopkins ------------------------------------------------ March 27, 1998 KENNETH H. HOPKINS Director
By /s/ David E. Lundeen ------------------------------------------------ March 27, 1998 DAVID E. LUNDEEN Director
By /s/ Joseph M. Rigot ------------------------------------------------ March 27, 1998 JOSEPH M. RIGOT Director
By /s/ Karl A. Frydryk ------------------------------------------------ March 27, 1998 KARL A. FRYDRYK Vice President (Principal Financial Officer)
By /s/ Robert B. Riethman ------------------------------------------------ March 27, 1998 ROBERT B. RIETHMAN Treasurer (Principal Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of The Monarch Machine Tool Company
Our report on the consolidated financial statements of The Monarch Machine Tool Company and Subsidiaries has been incorporated by reference in this Form 10-K from page 23 of the 1997 Annual Report to Shareholders of The Monarch Machine Tool Company and Subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dayton, Ohio February 19, 1998, except for Note 2 as to which the date is March 12, 1998
THE MONARCH MACHINE TOOL COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
(a) Write-offs/Collections (b) Disposals/Sales
INDEX OF EXHIBITS
(Filed with the Commission and the New York Stock Exchange)
---------
INDEX OF EXHIBITS
(Filed with the Commission and the New York Stock Exchange)
---------
"Assigned" Exhibit Number * Description --------------
(1) Indicates Exhibit is being filed with this report
(2) Incorporated by reference to the Exhibits with the same number filed with the Company's Form 10-K for the year ended December 31, 1980.
(3) Incorporated by reference to the Exhibit with the same number filed with the Company Form 10-K for the year ended December 31, 1996
(4) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 10-Q for the quarter ended March 31, 1997
(5) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K dated August 13, 1997
(6) This Report, except for the portions incorporated by reference herein, is furnished for the information of the Commission and is not deemed "filed" as part of this Annual Report.