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 March 31, 1999
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 March 31, 1999, 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
Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 2
Consolidated Statement of Operations -
Three Months ended March 31, 1999 and 1998 3
Consolidated Statement of Cash Flows -
Three Months ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3 Quantitative and Qualitative Disclosures about Market Risks 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CLARK Material Handling Company
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 8,370 $ 9,661
Restricted cash 185 197
Net trade receivables 78,019 68,903
Net inventories (Note 2) 107,154 102,399
Other current assets 8,568 9,609
------------ ------------
Total current assets 202,296 190,769
Long-term assets
Property, plant and equipment-net 66,290 69,877
Goodwill, net of accumulated amortization of $6,813
at March 31, 1999 and $6,069 at December 31, 1998 111,259 112,781
Other assets 23,973 24,631
------------ ------------
Total assets $ 403,818 $ 398,058
============ ============
Current liabilities
Notes payable $ 43,027 $ 28,922
Current portion of capital lease obligations 3,045 3,313
Trade accounts payable 77,179 75,378
Accrued compensation and benefits 5,603 5,551
Accrued warranties and product liability 15,302 17,384
Other current liabilities 21,015 17,526
------------ ------------
Total current liabilities 165,171 148,074
Non-current liabilities
Senior notes payable 150,000 150,000
Capital lease obligations, less current portion 4,116 4,480
Accrued warranties and product liability 34,778 35,537
Other non-current liabilities 16,466 17,469
------------ ------------
Total liabilities 370,531 355,560
------------ ------------
Commitments and contingencies - -
Redeemable preferred stock 21,879 21,202
------------ ------------
Stockholder's equity
Common stock, par value $1 per share,
1,000 shares authorized, issued and outstanding 1 1
Paid-in-capital 23,940 23,948
Retained earnings (deficit) (6,010) 987
Accumulated other comprehensive income (6,523) (3,640)
------------- -------------
Total stockholder's equity 11,408 21,296
------------ ------------
Total liabilities and stockholder's equity $ 403,818 $ 398,058
============ ============
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
March 31, 1999 March 31, 1998
------------ ------------
<S> <C> <C>
Net sales $ 126,881 $ 129,473
Cost of goods sold 111,904 112,577
------------ ------------
Gross profit 14,977 16,896
Engineering, selling and administrative expenses 17,101 12,586
------------ ------------
Income (loss) from operations (2,124) 4,310
Other income (expense):
Interest income 190 53
Interest expense (4,501) (3,719)
Foreign exchange (loss) gain (5) -
Other (expense) income-net 344 (131)
------------ ------------
Income (loss) before income taxes (6,096) 513
Provision for income taxes 224 220
------------ ------------
Net income (loss) $ (6,320) $ 293
============ ============
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
CLARK Material Handling Company
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
March 31, March 31,
1999 1998
------------ ------------
Operating activities
<S> <C> <C>
Net income(loss) $ (6,320) $ 293
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 4,979 3,363
Gain on sale of fixed assets 539 -
Changes in operating assets and liabilities, excluding
business combinations:
Restricted cash (4) 33
Trade receivables (11,254) (2,230)
Net inventories (6,812) (8,675)
Trade accounts payable 2,986 4,131
Accrued compensation and benefits 286 240
Accrued warranties and product liability (2,735) 97
Other assets and liabilities, net 2,701 2,917
------------ ------------
Net cash (used in) provided by operating activities (15,634) 169
------------ ------------
Investing activities:
Capital expenditures (2,498) (1,900)
Retirements 217 -
------------ ------------
Net cash used in investing activities (2,281) (1,900)
------------ ------------
Financing activities:
Issuance (repayment of) notes payable, net 14,105 (222)
Issuance of other long term debt 3,006 -
------------ ------------
Net cash provided by (used in) financing activities 17,111 (222)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (487) (72)
------------- ------------
Net increase (decrease) in cash and cash equivalents (1,291) (2,025)
Cash and cash equivalents at beginning of period 9,661 6,334
------------ ------------
Cash and cash equivalents at end of period $ 8,370 $ 4,309
============ ============
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, 1998.
2. Inventories consist of the following:
March 31, December 31,
1999 1998
------------ ------------
Finished equipment $ 21,009 $ 22,104
Replacement parts 29,781 29,967
Work-in-process 6,590 9,482
Raw materials and supplies 49,774 40,846
------------ ------------
Net inventories $ 107,154 $ 102,399
============ ============
3. There have been no material changes in the status of the Company's legal
proceedings or its other contingent obligations since December 31, 1998.
4. The Company had a total comprehensive loss of $9,203 and $91 for the three
months ended March 31, 1999 and 1998, respectively. The difference between
the Company's net income and total comprehensive income (loss) relates to
the cumulative translation adjustment of its foreign subsidiaries.
5. The table below presents information about reported segments for the
quarters ended March 31, 1999 and 1998. Reported segments include both
internal and external sales.
<TABLE>
<CAPTION>
The
Americas Europe Asia Eliminations Total
------------ ------------ ------------ ------------ ------------
March 31, 1999
<S> <C> <C> <C> <C> <C>
Net Sales $ 84,506 $ 30,403 $ 20,026 $ (8,054) $ 126,881
Income (loss) before
income taxes $ (5,866) $ 26 $ 712 $ (968) $ (6,096)
March 31, 1998
Net Sales $ 100,841 $ 31,556 $ 326 $ 3,250) $ 129,473
Income (loss) before
income taxes $ 652 $ (4) $ (157) $ 22 $ 513
</TABLE>
<PAGE>
6. Certain reclassifications of prior period 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
Sales of products manufactured and sold by the Company have historically been
subject to cyclical variation based, among other things, on general economic
conditions. Management believes that the Company has improved its ability to
sustain profitability in changing market conditions. There can be no assurance,
however, as to the magnitude or timing of any decline or recovery, or that any
future decline will not have a material adverse effect on the Company's
business.
The Company started implementation of a new Enterprise Resource Planning (ERP)
system in its North American operation in the fourth quarter of 1998. The
transition from that operation's legacy systems has been difficult and adversely
impacted the 1998 fourth quarter and 1999 first quarter results. In November,
1998, the Company engaged a team of consultants from the firm that developed the
software used in the ERP system to assist us in restarting the system. The
restart process is substantially complete but some further work is required to
optimize the system performance and processes.
Results of Operations
Three months ended March 31, 1999, compared to the three months ended March 31,
1998:
Net Sales
- ------------
Net sales were $126.9 million for the three months ended March 31, 1999, a
decrease of $2.6 million or 2.0% from $129.5 million for the same period in
1998. Due to the acquisition of CLARK Asia, sales increased by $17.0 million.
North American machine and other decreased $21.1 million or 25.5% due to a lower
backlog at December 31, 1998, compared to the same period in the prior year and
due to the continuation of problems in our ERP System that was discussed above.
Most of the problems have been resolved and the Company is currently
"optimizing" our ERP processes and procedures. European machine and other sales
increased by 0.6%. Consolidated parts sales increased $2.7 million or 11.2% over
the same time period last year . The newly acquired Asian operation accounted
for $0.9 million of the parts sales increase.
Gross Profit
- ------------
Gross profit decreased $1.9 million to $15.0 million in the first three months
of 1999 compared to $16.9 million in the first three months of 1998. Decreased
sales and unfavorable mix accounted for $1. 3 million of this decline. Parts
distribution expenses were higher by $0.6 million. In the North American
operations, compared to the same period last year the Company was negatively
impacted by about $0.4 million of lower pricing and about $1.6 million lower
absorption of overhead primarily due to continued ERP problems. These items were
somewhat offset by continued favorable product liability expense. As a
percentage of sales, gross profits were 11.8% for the three months ended March
31, 1999 compared to 13.0% for the same period in the prior year.
<PAGE>
Engineering, Selling and Administrative Expense
- -----------------------------------------------
Engineering, selling and administrative expense increased $4.5 million to $17.1
million for the three months ended March 31, 1999 from $12.6 million during the
same period of 1998. Included in these costs are approximately $1.2 million of
consulting cost related to our ERP implementation. As a percent of sales,
engineering, selling and administrative expense was 13.5% and 9.7% for the same
period in 1999 and 1998, respectively. The 1998 acquisition of CLARK Asia and
North American Dealerships accounted for $4.2 million of this increased expense.
Income (Loss) from Operations
- -----------------------------
Loss from operations was ($2.1) million for the three months ended March 31,
1999 compared to income of $4.3 million for the same period in 1998 due to the
reasons discussed above.
Interest and Other Expense
- --------------------------
Net interest and other expense of the Company was $4.0 million during the three
months ended March 31, 1999, compared to $3.8 million during the three months
ended March 31, 1998. Interest on the senior notes issued in July, 1998
accounted for $0.5 million of this increase. Also included in other expenses in
the first quarter of 1999, were gains on sales of assets totaling $0.6 million
compared to no gain or loss on sales of assets in the same period of 1998.
Net Income (Loss)
- -----------------
The Company reported a net loss of ($6.3) million during the three months ended
March 31, 1999 compared to net income of $0.3 million for the same period in
1998.
Backlog
The Company's backlog of orders at March 31, 1999, was $92.4 million, compared
to $77.5 million at December 31, 1998. The backlog at March 31, 1998, and 1997
was $121.2 million and $90.4 million respectively. 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
On March 31, 1999 the Company had cash balances totaling $8.6 million compared
to $9.9 million at December 31, 1998. Working capital, defined as inventory and
accounts receivable less accounts payable increased $12.1 million compared to
the December 31, 1998 levels. Operating activities during the first three months
of 1999 used cash of $15.6 million and provided cash of $0.2 million for the
first three months of 1998. This was primarily due to the increase in working
capital discussed above.
Capital expenditures totaled $2.5 million for the three months ended March 31,
1999.
The Company has a $30.0 million revolving credit facility in the U.S. which is
secured by the accounts receivable and inventory of the Company's domestic
operations, excluding HLT and Blue Giant. CLARK Europe entered into a working
capital credit line of $10.0 million with Deutsche Bank in October, 1998. After
consideration of certain borrowing conditions, the U.S. revolving credit
facility had a borrowing availability of $7.5 million as of March 31, 1999. In
addition, the Company had a combined borrowing availability of $1.5 million
against its lines of credit with Deutsche Bank and the National
<PAGE>
Bank of Canada for total cash and borrowing availability of $17.0 million. As of
May 13, 1999 the Company had total cash and borrowing availability of $19.8
million.
To accommodate additional short-term financing needs and provide further
liquidity, the Company in March 1999 secured a temporary increase of its U.S.
Revolving Credit Facility to $35.0 million until June 30, 1999. Management
believes that it has adequate available borrowing capacity under the Revolving
Credit Facility to cover its foreseeable working capital requirements for fiscal
1999 and that cash flow from operations and its borrowing arrangements will be
adequate to meet other liquidity and capital needs in 1999.
The Company manufactures products in the U.S., Canada, Germany and Korea and
sells products worldwide. A portion of the Company's raw materials are acquired
from foreign suppliers and denominated in foreign currencies. Consequently, the
Company's operating results are subject to fluctuations in foreign currency
exchange rates, as well as, the translation of its foreign operations into U.S.
dollars. The risks associated with operating in foreign countries could
adversely affect the Company's future operating results. In addition, currency
fluctuations could improve the competitive position of the Company's foreign
competitors if the value of the U.S. dollar rises in relation to the local
currencies of such competitors. The Company has not historically hedged its
foreign currency risk. The Company is unable to quantify the potential impact of
future foreign currency movements upon earnings. A decline in the Deutsche mark
caused a change of $(2.8) million in the Company's comprehensive loss during the
three months ended March 31, 1999.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium approaches. The "year 2000" problem
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not recognize such information could
generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources with respect to
its year 2000 issues. With regard to its information technology ("IT") systems,
CLARK is in the process of installing new software to provide improved
operational and financial functionality at each of its worldwide locations. This
new software is year 2000 compliant and "Euro" compliant. The installation was
substantially completed in the North American manufacturing operation during the
first quarter of 1999. The European manufacturing operation is currently running
parallel with their legacy system and is expected to be substantially completed
during the second quarter of 1999. The Company intends to begin software
installation at the HLT and CLARK Asia facilities in the second quarter of 1999
and installation should be completed in the fourth quarter of 1999. The
installation of the new software by CLARK is a result of a strategic plan to
upgrade its company-wide computer systems which pre-dated the Company's efforts
to make its IT systems year 2000 compliant. Therefore, the Company has not
incurred and does not anticipate incurring any material costs, (currently
estimated at less than $0.2 million) specifically related to year 2000 issues
that are in addition to the costs associated with its overall computer system
upgrade.
CLARK does not believe that it has any material year 2000 issues with regard to
its non-IT systems. The Company's products employ chips and microprocessors
which use interval timers as opposed to real-time clocks and therefore should
not be affected by the year 2000 rollover. In addition, CLARK does not utilize
computer controlled machines in its factory production, thereby minimizing
potential year 2000 problem relating to its manufacturing equipment.
<PAGE>
The Company has ongoing business relationships with many suppliers, dealers, and
other parties, each of which may have their own year 2000 issues. CLARK is in
the process of making contact with these third parties with which it has a
material relationship in order to assess whether the Company faces risks
relating to third party year 2000 problems. The Company expects to be in a
position to make this assessment regarding third party risks during the second
quarter of 1999. There can be no assurance at this time that these third parties
are taking appropriate actions to safeguard their computer systems.
Management can not at this time predict with any certainty CLARK's most likely
worst case scenario relating to the year 2000 problem. The Company intends to
perform test-runs at its facilities following installation of its new 2000
compliant software. If a year 2000 problem is identified during these test-runs,
the Company intends to immediately seek correction of the problem from its
software vendor at no cost to the Company and will develop other contingency
plans responsive to the facts and circumstances that exist at that time.
Euro Conversion
The Euro was introduced on January 1, 1999, at which time the eleven
participating European Monetary Union member countries established fixed
conversion rates between their existing currencies (legacy currencies) and the
Euro. During the three-and-a-half year transition period following its
introduction, countries will be allowed to transact business in the Euro and in
their own currencies. On July 1, 2002, the Euro will be the one and only
official currency in European Union countries that are participating in the
conversion.
The Company's European operations have established plans to address the issues
raised by the Euro currency conversion and are cognizant of the potential
business implications of the conversion. CLARK is in the process of installing
new software in each of its worldwide locations that will be able to process
Euro currency transactions. The Company does not expect the conversion costs to
be material. However, due to numerous uncertainties, the Company cannot
reasonably estimate the effect one common currency will have on pricing and the
resulting impact, if any, on its results of operations, financial condition or
cash flow.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
There have been no material changes in this area during the quarter ending
March31, 1999.
<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, 1998 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 March 31, 1999.
<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: ---------------------- By: /s/ Joseph F. Lingg
----------------------
Joseph F. Lingg
Vice President, Finance and Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,555
<SECURITIES> 0
<RECEIVABLES> 83,478
<ALLOWANCES> 5,459
<INVENTORY> 107,154
<CURRENT-ASSETS> 202,296
<PP&E> 85,555
<DEPRECIATION> 19,265
<TOTAL-ASSETS> 403,818
<CURRENT-LIABILITIES> 165,171
<BONDS> 157,161
0
21,879
<COMMON> 1
<OTHER-SE> 23,940
<TOTAL-LIABILITY-AND-EQUITY> 403,818
<SALES> 126,881
<TOTAL-REVENUES> 126,881
<CGS> 111,904
<TOTAL-COSTS> 111,904
<OTHER-EXPENSES> 17,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,501
<INCOME-PRETAX> (6,096)
<INCOME-TAX> 224
<INCOME-CONTINUING> (6,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,320)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
