SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 333-18957
CLARK Material Handling Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 61-1312827
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
172 Trade Street, Lexington, Kentucky 40511
(Address of Principal Executive Offices) (Zip Code)
(606) 288-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
As of July 31, 1998, there were 1,000 shares of the registrant's common stock,
par value $1.00 per share, outstanding, all of which were owned by an affiliate
of the registrant.
<PAGE>
CLARK MATERIAL HANDLING COMPANY
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 2
Consolidated Balance Sheet -
June 30, 1998 and December 31, 1997 2
Consolidated Statement of Operations -
Three Months ended June 30, 1998 and 1997 3
Consolidated Statement of Operations -
Six Months ended June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Six Months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CLARK Material Handling Company
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 6,873 $ 6,334
Cash securing letters of credit 182 320
Net trade receivables 47,675 47,018
Net inventories (Note 2) 76,705 70,784
Other current assets 6,829 7,281
---------- -----------
Total current assets 138,264 131,737
Long-term assets
Property, plant and equipment-net 49,390 47,836
Goodwill, net of accumulated amortization of $4,599
at June 30, 1998 and $3,081 at December 31, 1997 114,062 114,887
Other assets 19,942 18,794
--------- ------
Total assets $ 321,658 $ 313,254
========== ===========
Current liabilities
Notes payable $ 10,544 $ 3,184
Current portion of capital lease obligations 2,918 2,732
Trade accounts payable 60,562 62,002
Accrued compensation and benefits 6,313 5,730
Accrued warranties and product liability 18,936 20,774
Other current liabilities 10,212 10,728
----------- -----------
Total current liabilities 109,485 105,150
Non-current liabilities
Senior notes payable 130,000 130,000
Capital lease obligations, less current portion 4,391 3,864
Accrued warranties and product liability 39,377 38,497
Other non-current liabilities 12,688 12,002
---------- -----------
Total liabilities 295,941 289,513
---------- -----------
Commitments and contingencies (Note 3) - -
Stockholder's equity
Common stock, par value $1 per share,
1,000 shares authorized, issued and outstanding 1 1
Paid-in-capital 24,999 24,999
Retained earnings 9,920 8,406
Cumulative translation adjustment (9,203) (9,665)
---------- -----------
Total stockholder's equity 25,717 23,741
---------- -----------
Total liabilities and stockholder's equity $ 321,658 $ 313,254
========== ===========
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
CLARK Material Handling Company
Consolidated Statement of Operations
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, June 30,
1998 1997
---------- -----------
<S> <C> <C>
Net sales $ 139,442 $ 119,101
Cost of goods sold 121,554 105,318
---------- -----------
Gross profit 17,888 13,783
Engineering, selling and administrative expenses 11,255 8,910
------------ -----------
Income from operations 6,633 4,873
Other income (expense):
Interest income 75 252
Interest expense (3,871) (3,590)
Foreign exchange (loss) gain (193) 134
Other (expense) income-net (1,082) (406)
----------- ------------
Income before income taxes 1,562 1,263
Provision for income taxes 341 187
---------- -----------
Net income $ 1,221 $ 1,076
========= =========
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
CLARK Material Handling Company
Consolidated Statement of Operations
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 269,037 $ 229,924
Cost of goods sold 235,604 203,510
---------- -----------
Gross profit 33,433 26,414
Engineering, selling and administrative expenses 22,491 17,672
---------- -----------
Income from operations 10,942 8,742
Other income (expense):
Interest income 128 509
Interest expense (7,590) (7,528)
Foreign exchange (loss) gain (541) 182
Other (expense) income-net (864) (379)
-------------- --------
Income before income taxes 2,075 1,526
Provision for income taxes 561 224
---------- -----------
Net income $ l,514 $ 1,302
========= =========
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
CLARK Material Handling Company
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
----------- ------------
<S> <C> <C>
Operating activities:
Net income $ 1,514 $ 1,302
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 6,892 6,456
Changes in operating assets and liabilities:
Restricted cash 136 802
Trade receivables (186) (1,817)
Net inventories (5,891) 241
Trade accounts payable (1,380) 805
Accrued compensation and benefits 591 78
Accrued warranties and product liability (952) 1,435
Other assets and liabilities, net (2,539) (1,277)
----------- ------------
Net cash (used in) provided by
operating activities (1,815) 8,025
---------- ------------
Investing activities - capital expenditures (5,639) (2,603)
----------- ------------
Financing activities:
Issuance (repayment of) note payable, net 7,284 (5,129)
Issuance of other long-term debt 8,126 (5,129)
---------- ----------
Issuance of other long term debt 842 -
---------- ----------
Net cash provided by
(used in) financing activities 8,126 (5,129)
---------- ------------
Effect of exchange rate changes on cash
and cash equivalents (133) (695)
----------- ------------
Net (decrease) increase in cash and cash equivalents 539 (402)
Cash and cash equivalents at beginning of period 6,334 16,554
Cash and cash equivalents at end of period $ 6,873 $ 16,152
========== ============
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
CLARK Material Handling Company
Notes to Unaudited Financial Statements (in thousands)
1. The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with Rule 10-01 of SEC Regulation S-X.
Consequently, they do not include all the disclosures required under
generally accepted accounting principles for complete financial statements.
However, in the opinion of the management of CLARK Material Handling
Company (the "Company"), the consolidated financial statements presented
herein contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows of the Company and its consolidated subsidiaries.
For further information regarding the Company's accounting policies and the
basis of presentation of the financial statements, refer to the
consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Finished equipment $ 16,397 $ 12,000
Replacement parts 28,272 28,302
Work-in-process 8,298 5,356
Raw materials and supplies 23,738 25,126
-------- --------
Net inventories $ 76,705 $ 70,784
======== ========
</TABLE>
3. There have been no material changes in the status of the Company's legal
proceedings or its other contingent obligations since December 31, 1997.
4. On February 28, 1997, the Company purchased substantially all the assets of
Hydroelectric Lift Trucks ("HLT") a supplier of upright material handling
equipment, for $4,948. Assets acquired included inventory, equipment and
tooling. The purchase was financed through a short-term note which matured
in the second quarter of 1997. The Company is leasing the former company's
facility and is continuing production, primarily for its own use. The
acquisition was not significant and pro forma data is not presented.
5. On November 7, 1997 the Company closed its acquisition of substantially all
of the assets and certain liabilities of Blue Giant USA Corporation ("BGU")
and Blue Giant Canada Limited ("BGC"), (collectively, "Blue Giant") in two
separate purchase business combinations effective November 1, 1997.
Although separate legal entities, BGU and BGC were under the common control
of substantially the same stockholder group. The purchase price for the
acquisition comprised $9,365 in cash (of which $200 was paid to a
shareholder of Blue Giant under a noncompetition agreement), an obligation
payable over three years totaling $1,105 under a noncompetition agreement
and consulting agreement with a shareholder of Blue Giant and related
out-of-pocket expenses of approximately $333. The purchase price was
allocated to the estimated fair value of the tangible and intangible net
assets acquired, with the residual being allocated to goodwill. The
goodwill is being amortized on a straight-line basis over forty years.
<PAGE>
The following unaudited pro forma summary presents the consolidated results
of operations as though the acquisition of Blue Giant had been completed on
January 1, 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------ -------------
<S> <C> <C>
Net Sales $128,049 $243,980
-------- ---------
Income from operations $5,420 $9,165
------ ------
Net Income $1,600 $1,665
------ ------
</TABLE>
6. The Company had a total comprehensive income (loss) of $2,067 and ($705)
for the three months ended June 30, 1998 and 1997, respectively and $1,976
and ($4,599) for the six months ended June 30, 1998 and 1997, respectively.
The difference between the Company's net income and total comprehensive
income (loss) relates to the cumulative translation adjustment of its
foreign subsidiaries.
7. On July 15, 1998, the Company purchased substantially all the assets and
certain liabilities of Samsung Forklift for approximately $30,400 (subject
to certain post-closing adjustments). The Company estimates that it will
make approximately $5,000 of capital expenditures for upgrading and new
equipment in the manufacturing facilities. To finance this acquisition, the
Company sold $20,000 aggregate principle amounts of 10 3/4% Senior Notes
due 2006 and 20,000 shares of 13% Senior Exchangeable Preferred Stock due
2007 with a liquidation preference of $1,000.00 per share. The Company may,
at its option, pay dividends in additional fully paid and non-assessable
shares of Senior Exchangeable Preferred Stock until July 15, 2003. After
July 15, 2003 dividends are to be paid in cash. The acquisition is not
significant and pro forma financial information is not provided.
8. Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The Company is a leading international designer, manufacturer and marketer of a
complete line of forklift trucks, which it markets through a global network of
approximately 300 dealers. In addition, the Company's Blue Giant subsidiaries
distribute their products through a network of over 390 dealers and agents
worldwide. The Company's large installed base, which management estimates to be
approximately 350,000 units in operation worldwide, provides for substantial
ongoing replacement part sales, which typically generate significantly higher
gross margins than new product sales.
<PAGE>
Results of Operations
Three months ended June 30, 1998, compared to the three months ended June 30,
1997:
Net Sales
- ---------
Net sales were $139.4 million for the three months ended June 30, 1998, an
increase of $20.3 million or 17.0% from $119.1 million for the same period in
1997. Machine and other sales increased 19.3% mainly due to stronger markets and
the acquisition of Blue Giant, which contributed $6.4 million toward the
Company's increased sales for the period. Parts sales increased 7.6% over the
same time period last year.
Gross Profit
- ------------
Gross profit increased 29.7% or $4.1 million to $17.9 million in the second
quarter of 1998 compared to $13.8 million in the second quarter of 1997.
Increased sales and mix contributed $1.2 million of additional gross profit
while the acquisition of Blue Giant added $1.6 million of gross profit. Cost
reduction programs, lower product liability expense and higher production levels
absorbing more fixed costs contributed to the balance of the increase. As a
percentage of sales, gross profits were 12.8% for the second quarter of 1998
compared to 11.6% for the same period in the prior year.
Engineering, Selling and Administrative Expense
- -----------------------------------------------
Engineering, selling and administrative expense increased $2.4 million to $11.3
million for the second quarter of 1998 from $8.9 million during the same period
of 1997. As a percent of sales engineering, selling and administrative expense
was 8.1% and 7.5% for the same period in 1998 and 1997, respectively. The 1997
acquisition of Blue Giant accounted for $1.0 million of this increased expense
while investments in engineering and selling expenses, to support programs for
growth, accounted for the balance.
Income from Operations
- ----------------------
Income from operations increased 34.7% or $1.7 million to $6.6 million for the
three months ended June 30, 1998, compared to $4.9 million for the same period
in 1997 due to the reasons discussed above.
Interest and Other Expense
- --------------------------
Net interest and other expense of the Company was $5.1 million during the three
months ended June 30, 1998, compared to $3.6 million during the three months
ended June 30, 1997 due, in part, to increases in net interest expense and
exchange losses of foreign subsidiaries.
Income Taxes
- ------------
The provision for income taxes was $0.3 million during the three months ended
June 30, 1998 compared to $0.2 million during the three months ended June 30,
1997. The increase in income taxes is primarily due to foreign income taxes
recorded for Blue Giant Canada, which was acquired in November 1997.
<PAGE>
Net Income
- ----------
The Company reported net income of $1.2 million during the three months ended
June 30, 1998 compared to $1.1 million for the same period in 1997.
Results of Operations
Six months ended June 30, 1998, compared to the six months ended June 30, 1997:
Net Sales
- ---------
Net sales were $269.0 million for the six months ended June 30, 1998, an
increase of $39.1 million or 17.0% from $229.9 million for the same period in
1997. Machine and other sales increased 20.0% mainly due to stronger markets,
while parts sales increased 4.9% over the same time period last year. The
acquisition of Blue Giant contributed $13.0 million toward the Company's
increased sales for the period.
Gross Profit
- ------------
Gross profit increased 26.5% or $7.0 million to $33.4 million in the first six
months of 1998 compared to $26.4 million in the first six months of 1997.
Increased sales and mix contributed $2.0 million of additional gross profit and
the acquisition of Blue Giant added $2.8 million of gross profit. Cost reduction
programs, lower product liability and higher production levels absorbing more
fixed costs contributed to the balance of the increase. As a percentage of
sales, gross profits were 12.4% for the six months ended June 30, 1998 compared
to 11.5% for the same period in the prior year.
Engineering, Selling and Administrative Expense
- -----------------------------------------------
Engineering, selling and administrative expense increased $4.8 million to $22.5
million for the six months ended June 30, 1998 from $17.7 million during the
same period of 1997. As a percent of sales, engineering, selling and
administrative expense was 8.4% and 7.7% for the same period in 1998 and 1997,
respectively. The 1997 acquisitions, HLT (February 1997) and Blue Giant
accounted for $1.7 million of this increased expense while investments in
engineering and selling expense, to support programs for growth, accounted for
the balance.
Income from Operations
- ----------------------
Income from operations increased 25.3% or $2.2 million to $10.9 million for the
six months ended June 30, 1998, compared to $8.7 million for the same period in
1997 due to the reasons discussed above.
Interest and Other Expense
- --------------------------
Net interest and other expense of the Company was $8.9 million during the six
months ended June 30, 1998, compared to $7.2 million during the six months ended
June 30, 1997. This was due, in part, to increases in net interest expense and
exchange loss in foreign subsidiaries.
<PAGE>
Income Taxes
- ------------
The provision for income taxes was $0.6 million during the six months ended June
30, 1998 compared to $0.2 million during the six months ended June 30, 1997. The
increase in income taxes is primarily due to foreign income taxes recorded for
Blue Giant Canada, which was acquired in November 1997.
Net Income
- ----------
The Company reported net income of $1.5 million during the six months ended June
30, 1998 compared to $1.3 million for the same period in 1997.
Backlog
The Company's backlog of orders at June 30, 1998 was $108.0 million, up 10.9%
from June 30, 1997, when the backlog of orders was $97.4 million, and is due to
stronger market conditions and the acquisition of Blue Giant, which added $5.1
million to the backlog. Substantially all of the Company's backlog of orders are
expected to be filled within one year, although there can be no assurance that
all such orders will be filled within that time period. The cancellation or
delay of certain orders could have a material adverse effect on the Company.
Capital Resources, Liquidity and Financial Condition
The Company's overall financial condition did not change significantly at June
30, 1998 from December 31, 1997. However, working capital, defined as inventory
and accounts receivable less accounts payable, increased $8.0 million primarily
due to higher inventories and lower accounts payable. Cash used in operating
activities through the first six months of 1998 was $1.8 million primarily due
to the increase in working capital discussed previously. Capital expenditures
totaled $5.6 million for the six months ended June 30, 1998. The Company, at
June 30, 1998, had $20.6 million undrawn from its $30.0 million revolving credit
facility. The Company's ability to incur additional indebtedness is somewhat
restricted by the covenants set forth in the Company's borrowing arrangements.
Management believes that existing cash levels and the revolving credit facility
will be sufficient to meet the Company's ordinary operating needs for the next
twelve months.
The Company's operating results are subject to fluctuations in foreign currency
exchange rates as well as the currency translation of its foreign operations
into U.S. dollars. The Company manufactures products in the U.S., Canada and
Germany and exports products to more than 80 countries worldwide. The Company's
foreign sales, the majority of which occur in Germany, are subject to exchange
rate volatility. The Company has not historically hedged its foreign currency
risk.
<PAGE>
Subsequent Events
On July 15, 1998, the Company purchased substantially all the assets and certain
liabilities of Samsung Forklift for approximately $30.4 million (subject to
certain post-closing adjustments). The Company estimates that it will make
approximately $5.0 million of capital expenditures for upgrading and new
equipment in the manufacturing facilities. To finance this acquisition, the
Company sold $20.0 million aggregate principle amounts of 10 3/4% Senior Notes
due 2006 and 20,000 shares of 13% Senior Exchangeable Preferred Stock due 2007
with a liquidation preference of $1,000.00 per share. The Company may, at its
option, pay dividends in additional fully paid and non-assessable shares of
Senior Preferred Exchangeable Stock until July 15, 2003. After July 15, 2003
dividends are to be paid in cash.
On July 27, 1998, the Company received from the National Labor Relations Board a
petition by the United Steelworkers for an election at the Blue Giant facility
in Pell City, Alabama. In addition, the United Steelworkers are presently
attempting to organize the employees at the Company's Lexington, Kentucky
facility. However, to date, efforts to unionize the Company's Kentucky plant
have been unsuccessful. The Company plans to actively continue its efforts to
maintain and promote a non-union workforce in its facilities. Since moving to
Kentucky ten years ago, there has not been a union at any of CLARK's North
American manufacturing operations.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for these items and will be effective for fiscal years beginning after
June 15, 1999. Historically, the Company has not entered into derivative or
hedging transactions; therefore, management does not expect that the adoption of
this new standard will have a significant impact on the Company's financial
position or results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Except for the legal proceedings reported in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 for which there have since been
no material developments, the Company believes there is no outstanding
litigation which could have a material impact on its financial position or
results of operations.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1998.
<PAGE>
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.
CLARK MATERIAL HANDLING COMPANY
Date: August 14, 1998 By: /s/ Joseph F. Lingg
-----------------------
Joseph F. Lingg
Vice President, Finance, Human
Resources and Treasurer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,873
<SECURITIES> 0
<RECEIVABLES> 49,676
<ALLOWANCES> (2,001)
<INVENTORY> 76,705
<CURRENT-ASSETS> 138,264
<PP&E> 60,895
<DEPRECIATION> (11,505)
<TOTAL-ASSETS> 321,658
<CURRENT-LIABILITIES> 109,485
<BONDS> 137,309
0
0
<COMMON> 1
<OTHER-SE> 24,999
<TOTAL-LIABILITY-AND-EQUITY> 321,658
<SALES> 269,037
<TOTAL-REVENUES> 269,037
<CGS> 235,604
<TOTAL-COSTS> 235,604
<OTHER-EXPENSES> 22,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,590
<INCOME-PRETAX> 2,075
<INCOME-TAX> 561
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
