SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number: 1-5646
March 31, 1994
CLARK EQUIPMENT COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 38-0425350
incorporation or organization) (IRS Employer Identification No.)
100 North Michigan Street 46634
P.O. Box 7008 (Zip Code)
South Bend, Indiana
(Address of Principal
Executive Offices)
Registrant's telephone number,
including area code: (219) 239-0100
Indicate by a 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____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 17,413,984 shares of
$7.50 Par Value Common Stock were outstanding at the close of business on
May 9, 1994.
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Total Number of Pages: 19
Exhibit Index at Page: 18
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PART I FINANCIAL INFORMATION
The following items are attached to this report:
For Clark Equipment Company and Consolidated Subsidiaries:
Statement of Income and Retained Earnings
Balance Sheet
Statement of Cash Flow
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For 50% Owned Company
Selected Financial Data - VME Group, N.V.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the Matter of Industrial Pretreatment Violations at
Melroe Company, Gwinner, North Dakota
On October 5, 1992, the United States Environmental
Protection Agency ("EPA") issued a Finding of Violation and
Order for Compliance ("Order") which alleges that the
Company has failed to comply with Section 306 and 307 of
the Clean Water Act ("Act") and the regulations promulgated
thereunder ("Regulations"). The Order alleges that certain
metal finishing wastewaters generated at the Company's
Melroe facility in Gwinner, North Dakota were discharged
into the Publicly Owned Treatment Works ("POTW") operated
by the City of Gwinner in violation of the applicable
Regulations. The Order also alleges that the Company
failed to comply with certain reporting requirements set
forth in the Regulations. The Order requires the Company
to comply with the discharge limitations for metal
finishing wastewater and all related reporting
requirements. The Company has taken all actions required
of it under the Order.
On January 31, 1994, the Company received a letter
from the U.S. Department of Justice indicating that it
would be willing to settle its claim for civil penalties
without litigation for $1.9 million. Settlement
negotiations commenced with the government, but an
agreement has not yet been reached.
On April 29, 1994, the U.S. filed suit against the
Company in the United States District Court for the
District of North Dakota. The complaint seeks (i) to
permanently enjoin the Company to comply fully with all
applicable requirements of the Act and Regulations and (ii)
civil penalties against the Company of up to $25,000 per
day for each violation for (a) alleged discharges of
pollutants in
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violation of the effluent limitations contained in the
pretreatment regulations, (b) failure to submit timely and
complete reports and (c) a failure to sample and analyze
its regulated wastewater prior to discharge into the POTW.
Item 5. Other Information
Attached hereto as Exhibit (99) is a Computation of
Registrant's Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(See attached Exhibit List and Index)
(b) Reports on Form 8-K:
1. The Registrant filed a Form 8-K and a Form 8-KA, each
dated January 26, 1994 reporting on Item 5, OTHER
EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS. This Form 8-K and
8-KA included Registrant's income statement and
balance sheet for the fourth quarter of 1993 and the
full year 1993.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1994 By: /s/ B. D. Henely
B. D. Henely
Vice President and General Counsel
(Duly Authorized Officer)
Date: May 13, 1994 By: /s/ W. N. Harper
W. N. Harper
Vice President and Controller
(Principal Accounting Officer)
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME AND RETAINED EARNINGS (UNAUDITED)
For the Period Ended
(Amounts in Thousands, except per share data) March 31
1994 1993*
Net sales....................................$ 205,163 $ 163,027
Operating costs and expenses:
Cost of goods sold......................... 162,087 129,223
Selling, general and
administrative expenses................. 25,547 22,210
187,634 151,433
Operating income.............................. 17,529 11,594
Other income, net............................. 7,016 2,421
Interest expense.............................. (5,570) (4,899)
Pre-tax income from consolidated operations... 18,975 9,116
Provision for income taxes.................... 6,659 2,107
Income from consolidated operations........... 12,316 7,009
Equity in net income (loss)
of associated company...................... 13,149 (5,222)
Income from continuing operations............. 25,465 1,787
Income from discontinued operations........... 1,439 817
Income before effect of
change in accounting principle............. 26,904 2,604
Effect of accounting change--income taxes..... - 6,150
Net income.................................... 26,904 8,754
Add: Income retained
at beginning of period.................. 92,708 44,869
Deduct: Excess cost of treasury shares issued
over the cost of certain employee benefits.. 0 72
Income retained at end of period.............$ 119,612 $ 53,551
Income per share:
From continuing operations................$ 1.46 $ .10
From discontinued operations............... .08 .05
From effect of accounting change........... - .35
Net income................................$ 1.54 $ .50
Average number of shares...................... 17,449 17,359
Number of shares outstanding
at end of period........................... 17,411 17,362
* Restated to reflect the deconsolidation of the automotive business.
See Notes to Financial Statements
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<PAGE>CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
Amounts in Thousands
Mar. 31, Dec. 31,
1994 1993
ASSETS Unaudited Audited
Current Assets:
Cash, cash equivalents and short-term investments.....$ 245,447 $ 235,828
Accounts and notes receivable........................ 83,377 77,103
Accounts receivable from associated companies........ 1,932 3,543
Refundable income taxes.............................. 1,120 2,041
Inventories:
Raw materials..................................... 25,672 32,212
Work-in-process and finished goods................ 50,574 65,928
Manufacturing supplies............................ 3,923 10,480
Total inventory............................ 80,169 108,620
Investment in discontinued operations-automotive .... 65,936 0
Deferred tax assets.................................. 27,865 29,202
Other current assets................................. 5,801 5,434
Total current assets....................... 511,647 461,771
Investments and advances - VME Group N.V............. 135,235 122,106
Deferred tax assets - net............................ 101,018 101,018
Property, plant and equipment - at cost.............. 348,056 487,330
Less accumulated depreciation........................ 186,110 285,406
Net property, plant and equipment.......... 161,946 201,924
Assets held for sale ................................ 8,644 6,765
Goodwill............................................. 68,830 67,461
Other assets......................................... 41,671 40,890
$1,028,991 $1,001,935
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable........................................$ 27,710 $ 22,512
Accounts payable and accruals...................... 97,402 115,333
Accrued payrolls, social security and general taxes. 37,257 34,809
Accrued postretirement benefits - current........... 20,412 19,560
Taxes on income..................................... 5,256 4,139
Deferred income taxes............................... 992 800
Current installments on long-term debt.............. 9,802 9,612
Total current liabilities................. 198,831 206,765
Long-term debt...................................... 204,581 204,770
Other non-current liabilities....................... 78,446 74,686
Accrued postretirement benefits..................... 234,695 233,239
Deferred income taxes............................... 14,469 14,322
Total liabilities......................... 731,022 733,782
Stockholders' Equity:
Preferred stock - authorized 3,000,000 shares at
$1.00 par value - none issued....................... - -
Capital stock common - authorized 40,000,000 shares
at $7.50 par value - issued 19,194,334 shares at
March 31, 1994 and December 31, 1993,respectively. 143,958 143,958
Capital in excess of par value of stock............ 179,697 179,582
Retained earnings.................................. 119,612 92,708
Cumulative translation and other adjustments....... (64,539) (67,083)
378,728 349,165
Less, common stock held in treasury, at cost
1,783,318 shares and 1,792,431 shares at March 31,
1994 and December 31, 1993,respectively......... (49,475) (49,728)
Less, unallocated LESOP shares purchased with debt -
1,009,155 shares at March 31, 1994 and December 31,
1993, respectively.............................. (31,284) (31,284)
Total stockholders' equity............... 297,969 268,153
$1,028,991 $1,001,935
See Notes to Financial Statements - 6 -<PAGE>
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Three months ended March 31
Amounts in Thousands
1994 1993
Unaudited Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 26,904 $ 8,754
Adjustments to reconcile net income to net cash
provided by operating activities:
Effect of accounting changes........................ 0 (6,150)
Depreciation........................................ 9,256 9,387
Amortization of intangibles......................... 464 527
Exchange gain....................................... (1,462) (1,825)
Employee benefit expense funded with treasury stock. 253 243
Loss(earnings) of unconsolidated companies.......... (13,149) 5,222
Increase in receivables and other current assets.... (36,441) (31,473)
Decrease in refundable income taxes................. 2,423 0
Decrease in inventory............................... 6,445 580
Decrease in net deferred tax assets................. 267 203
Increase in payables and accruals................... 19,492 6,971
Increase in other non-current assets................ (715) (592)
Increase(decrease) in other long-term liabilities... 4,910 (5,751)
Other............................................... (1) (41)
Net cash provided(used) by operating activities..... 18,646 (13,945)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties.................................. (9,930) (4,586)
Sales of properties...................................... 288 90
Increase in short-term investments....................... (21,300) (8,500)
Decrease(increase) in investments and advances
--associated companies................. (1) 4,014
Net cash used in investing activities............... (30,943) (8,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings........................ 0 173
Payments on long-term debt............................... (417) (7,800)
Increase in notes payable--current....................... 4,566 3,369
Other.................................................... 115 13
Net cash provided(used) in financing activities..... 4,264 (4,245)
Effect of exchange rate changes on cash.................. (3,648) (91)
Decrease in cash and cash equivalents.................... (11,681) (27,263)
Cash and cash equivalents at beginning of year........... 35,228 71,024
Cash and cash equivalents at end of period............... 23,547 43,761
Short-term investments (cost approximates market)........ 221,900 129,400
Cash, cash equivalents and short-term investments........ $245,447 $ 173,161
See Notes to Financial Statements
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
General Information
These financial statements have been prepared from the unaudited financial
records of the Registrant (also referred to herein as the "Company" or
"Clark"). The statements should be read in conjunction with the Company's
1993 Annual Report filed on Form 10-K. In the opinion of management, all
adjustments necessary for a fair statement of the results of operations
for the interim periods have been reflected.
Net income per share amounts are in dollars, based on the average number
of shares outstanding for the period, taking into account the dilutive
effect of common stock equivalents under the Registrant's stock option
plans. The number of shares used to compute net income per share for the
three month period ended March 31, 1994 and March 31, 1993, were
17,449,303 and 17,359,071, respectively. There were no dividends paid
during the three months ending March 31, 1994, or March 31, 1993.
850 shares of common stock were reserved for issuance pursuant to the
exercise of outstanding options under the 1975 Stock Option Plan at March
31, 1994. Options for 850 shares were outstanding under the 1975 Stock
Option Plan on the same date. 171,301 shares of common stock were
reserved for issuance pursuant to the exercise of options under the 1985
Stock Option Plan on the same date. Options for 171,301 shares were
outstanding under the 1985 Stock Option Plan on March 31, 1994.
Recent Developments
On February 23, 1994, Clark Automotive Products Corporation (CAPCO), a
wholly-owned subsidiary of the Company, which manufactures on-highway
transmissions in Brazil for sale in Brazilian and U.S. markets, filed a
Registration Statement with the Securities and Exchange Commission for an
initial public offering of 10,000,000 shares of its common stock. Of
these 10,000,000 shares, 9,174,194 were to be sold by the Company and
825,806 by CAPCO. In addition, the Company granted the underwriters an
option to purchase up to an additional 1,000,000 shares of stock,
exercisable no later than June 6, 1994, to cover over-allotments. On May
6, 1994, the Offerings were underwritten by First Boston, Merrill Lynch
and a syndicate of other investment banks. The impact of the sale will be
reflected in the Company's financial statements in the second quarter of
1994. If the underwriters do not exercise their over-allotment option,
the Company will retain an ownership interest in CAPCO of approximately
9%.
CAPCO has been deconsolidated in the Statements of Income and has been
reflected as a discontinued operation for the three months ended March 31
for both 1994 and 1993. The net assets of CAPCO have been deconsolidated
as of March 31, 1994 and are included in the Balance Sheet as of that date
in the caption entitled "Investment in Discontinued Operations-
Automotive."
On April 20, 1994, Clark signed a definitive agreement to purchase Blaw-
Knox Construction Equipment Corporation, a leading producer of asphalt
road-paving equipment, from White Consolidated Industries, a wholly-owned
subsidiary of AB Electrolux of Sweden. The aggregate purchase price will
be approximately $144 million. Blaw-Knox's sales in 1993 were
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approximately $87 million. It is expected that the transaction will be
completed in the second quarter of 1994. The results of Blaw-Knox will be
included in Clark's consolidated financial statements subsequent to the
completion of the purchase.
Contingencies
The Company is self-insured with respect to product liability risk,
although insurance coverage is obtained for catastrophic losses. The
Company has pending approximately 69 claims, with respect to which
approximately 42 suits have been filed alleging damages for injuries or
deaths arising from accidents involving products manufactured by the
Company's continuing operations. In the aggregate, these claims could be
material to the Company. At March 31, 1994, the Company had reserves of
approximately $11 million related to product liability exposures.
The Company is involved in numerous other lawsuits arising out of the
ordinary conduct of its business. These lawsuits pertain to various
matters, including warranties, civil rights, safety, anti-trust, and other
issues. The ultimate results of these claims and proceedings at March 31,
1994 are subject to a high degree of estimation and cannot be determined
with complete precision. However, in the opinion of management, either
adequate provision for anticipated costs has been made through insurance
coverage or accruals, or the ultimate costs will not materially affect the
consolidated financial position of the Company.
The Company has given certain guarantees to third parties and has entered
into certain repurchase arrangements relating to product distribution and
product financing activities involving the Company's continuing
operations. As of March 31, 1994, guarantees are approximately $21
million and repurchase arrangements relating to product financing by an
independent finance company approximate $72 million.
It is not practicable to determine the additional amount subject to
repurchase solely under dealer distribution agreements. Under the
repurchase arrangements, when dealer terminations do occur, a newly
selected dealer generally assumes the assets of the prior dealer and any
related financial obligations. Accordingly, the risk of loss to the
required repurchaser is minimal, and historically Clark has incurred only
immaterial losses relating to these arrangements.
The Company is or may be liable for other matters, including contingencies
related to the sale of CMHC and environmental issues (see pages 12 - 14
"Management's Discussion and Analysis of Operations").
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
General Overview:
Recent Developments
On February 23, 1994, Clark Automotive Products Corporation (CAPCO), a
wholly-owned subsidiary of the Company, which manufactures on-highway
transmissions in Brazil for sale in Brazilian and U.S. markets, filed a
Registration Statement with the Securities and Exchange Commission for an
initial public offering of 10,000,000 shares of its common stock. Of
these 10,000,000 shares, 9,174,194 were to be sold by the Company and
825,806 by CAPCO. In addition, the Company granted the underwriters an
option to purchase up to an additional 1,000,000 shares of stock,
exercisable no later than June 6, 1994, to cover over-allotments. On May
6, 1994, the Offerings were underwritten by First Boston, Merrill Lynch
and a syndicate of other investment banks. The impact of the sale will be
reflected in the Company's financial statements in the second quarter of
1994. If the underwriters do not exercise their over-allotment option,
the Company will retain an ownership interest in CAPCO of approximately
9%.
CAPCO has been deconsolidated in the Statements of Income and has been
reflected as a discontinued operation for the three months ended March 31
for both 1994 and 1993. The net assets of CAPCO have been deconsolidated
as of March 31, 1994 and are included in the Balance Sheet as of that date
in the caption entitled "Investment in Discontinued Operations-
Automotive."
On April 20, 1994, Clark signed a definitive agreement to purchase Blaw-
Knox Construction Equipment Corporation, a leading producer of asphalt
road-paving equipment, from White Consolidated Industries, a wholly-owned
subsidiary of AB Electrolux of Sweden. The aggregate purchase price will
be approximately $144 million. Blaw-Knox's sales in 1993 were
approximately $87 million. It is expected that the transaction will be
completed in the second quarter of 1994. The results of Blaw-Knox will be
included in Clark's consolidated financial statements subsequent to the
completion of the purchase.
Summarized Discussion of First Quarter Performance
Clark Equipment Company recorded significantly improved profits in the
first quarter of 1994. Net earnings increased to $26.9 million, or $1.54
per share, compared with net income of $8.8 million, or $0.50 per share
recorded in the first quarter of 1993. Included in the 1993 results was
income of $6.2 million, or $0.35 per share, related to a change in
accounting for income taxes from the Company's investment in VME Group
N.V. Two special off-setting, pre-tax items, each approximating $4.0
million, were recorded in the first quarter of 1994. These included an
expense related to stock appreciation rights, and a gain on the sale of
certain overseas bonds whose value had been written down in previous
years.
Clark's net income for consolidated continuing operations, which consist
of Melroe and Clark-Hurth Components, improved approximately 75.7 percent
in the first quarter of 1994 compared with 1993 results, reflecting
increased sales and margins. Sales in 1994 increased 25.9 percent over
1993 and Clark reported net income from consolidated continuing operations
of $12.3 million compared with $7.0 million for the first quarter of 1993.
VME,
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Clark's 50-percent-owned joint venture, improved substantially. Clark's
share of VME's net operating income increased to $13.1 million compared to
a first quarter 1993 loss of $5.2 million. Higher unit and spare parts
sales and increased manufacturing capacity utilization contributed to the
gain. For the three months of 1994, Clark reported income from continuing
operations of $25.5 million, or $1.46 per share, compared to income of
$1.8 million, or $0.10 per share, in the comparable period of 1993.
Discontinued operations, which represents the operations of CAPCO,
reflected first quarter net income of $1.4 million, or $0.08 per share, in
1994 and $0.8 million, or $0.05 per share, in 1993.
Results of Operations:
Sales in the first quarter of 1994 were $205.2 million compared with
$163.0 million in the first quarter of 1993. The consolidated sales
increase of $42.2 million relates mostly to volume improvements. Minor
price increases also contributed to the sales improvement. Unfavorable
foreign currency translation impacts decreased sales by about $3.2
million.
Strength in North American construction machinery markets was the primary
cause of the first quarter 1994 sales increase. Selected European markets
also showed some improvement. North American sales increased by $37.7
million, or 36.6 percent in the first quarter of 1994 when compared with
the first quarter of 1993 and overseas sales increased $4.5 million, or
7.5 percent when comparing the same period.
Gross margins were $43.1 million, or 21.0 percent of sales in the first
quarter of 1994 compared with $33.8 million, or 20.7 percent of sales in
the same period of 1993. The $9.3 million margin increase was principally
the result of higher sales. Foreign currency translation and exchange
results included in cost of sales were losses of $0.2 million in 1994 and
gains of $2.5 million in 1993.
Selling, general and administrative expenses were $25.5 million or 12.5
percent of sales in the first quarter of 1994 compared with $22.2 million
or 13.6 percent of sales in the first three months of 1993. The increase
in expenditures was principally related to expense associated with stock
appreciation rights.
Operating income from continuing consolidated operations increased about
51 percent to $17.5 million from the 1993 first quarter level of $11.6
million. This increase is attributable to the above mentioned effects of
higher sales and higher gross margins, partially offset by increases in
selling, general and administrative expenses.
Other income increased by $4.6 million from the first quarter 1993 level
to $7.0 million. This resulted from an increase of $0.5 million in
interest income and a gain of about $4.1 million on the sale of certain
overseas bonds whose value had been written down in previous years.
Interest expense increased approximately $0.7 million in the first quarter
of 1994 when compared to the same period of 1993 due to higher average
debt balances outstanding in 1994.
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Pre-tax income from consolidated continuing operations in the first
quarter of 1994 was $19.0 million compared to $9.1 million for the same
period of 1993. The improved results reflect higher sales and improved
gross margins.
Tax provisions of $6.7 million and $2.1 million were recorded in the
respective first three month periods of 1994 and 1993. The effective tax
rate in the first quarter of 1994 was 35.1 percent which approximates the
statutory rate. The 1993 rate of 23.1 percent was lower than the U.S.
statutory rate because of expected utilization of certain foreign net
operating loss carryforwards and U.S. capital loss carryforwards.
Through March 31, 1994, Clark has recorded equity income in VME of $13.1
million. This compares to a loss of $5.2 million in the first quarter
period of 1993. VME's consolidated sales for the first quarter increased
by 16 percent to $327.6 million compared to last year. Higher unit and
spare parts sales and increased manufacturing capacity utilization drove
the gain. Market conditions in North America continued to strengthen in
all product lines and selected markets in Western Europe, such as Great
Britain and Scandinavia, also improved. The German market, though down,
has been above expectations.
Results from continuing operations, which includes the results of VME,
were income of $25.5 million and $1.8 million, respectively, in the first
quarter of 1994 and 1993.
Discontinued operations, which represents the operations of CAPCO,
reflected first quarter net income of $1.4 million in 1994 and $0.8
million in 1993.
Including the discontinued operations, but before the effect of a change
in accounting principles, Clark recorded income of $26.9 million, or $1.54
per share, in the first quarter of 1994 and $2.6 million or $0.15 per
share, for the same period of 1993. Also, effective January 1, 1993, VME
adopted FAS No. 109, "Accounting for Income Taxes" and Clark's 50 percent
share of the impact of the accounting change was $6.2 million, or $0.35
per share. In the aggregate, Clark recorded net results of $8.8 million,
or $0.50 per share, for the first quarter of 1993.
Contingencies:
Environmental
The Company is involved in environmental clean-up activities or litigation
in connection with nine former waste disposal sites and four U.S. former
plant locations. The Company is also involved in an environmental clean-
up action at one current overseas location.
At each of the nine waste disposal sites, Clark contracted with
independent waste disposal operators to properly handle the disposal of
its waste. The Environmental Protection Agency (EPA) also has identified
other parties responsible for clean-up costs at the waste disposal sites.
The Company has and will continue to accrue these costs when the liability
can be
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reasonably estimated. As of March 31, 1994, the Company had reserves of
approximately $16.2 million for potential future environmental clean-up
costs. The environmental reserves represent Clark's current estimate of
its liability for environmental clean-up costs and are not reduced by any
possible recoveries from insurance companies or other potentially
responsible parties not specifically identified by the EPA. Although
management cannot determine whether or not a material effect on future
operations is reasonably likely to occur, it believes that the recorded
reserve levels are appropriate estimates of the potential liability.
Further, management believes that the additional maximum exposure level in
excess of the recorded reserve level would not be material to the
financial condition of the Company. Although settlement of the reserves
will cause future cash outlays, it is not expected that such outlays will
materially impact the Company's liquidity position. The Company's 1994
expenditures relating to environmental compliance and clean-up activities
are insignificant.
Sale of CMHC
The Company sold its forklift truck business, CMHC, to Terex on July 31,
1992. As part of the sale, Terex and CMHC assumed substantially all of
the obligations of the Company relating to the CMHC operations, including:
1) contingent liabilities of the Company with respect to floor plan and
rental repurchase agreements, 2) certain guarantees of obligations of
third parties, and 3) existing and future product liability claims
involving CMHC products. In the event that Terex and CMHC fail to perform
or are unable to discharge any of the assumed obligations, the Company
could be required to discharge such obligations.
1) Repurchase Agreements
At the time of the sale, the Company had agreed with an independent
finance company to repurchase approximately $220 million of CMHC
dealer floor plan and rental inventory in the event of a default by
individual dealers for whom the inventory is financed. Since the
sale, dealer floor plan and rental inventory obligations have been
liquidating in the normal course of business and stand at
approximately $70 million at March 31, 1994. These obligations will
continue to liquidate in an orderly fashion. The Company will not be
required to perform these repurchase obligations unless the dealer
defaults in the underlying obligations and Terex and CMHC default in
their repurchase obligations. Should that occur, the collateral
value securing the obligations should be sufficient to reduce any
loss to an immaterial amount.
2) Third Party Guarantees
The Company has guaranteed approximately $23 million of obligations
of third parties relating to the CMHC operation. Approximately $15
million of these guarantees relate to national account rental
arrangements with a number of large creditworthy customers.
Approximately $8 million relates to capital loans given by a finance
company to independent CMHC dealers, which are secured by a lien on
all of the dealer's assets. These guaranteed obligations are
expected
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to liquidate over time. The Company believes, based on past
experience, that the national account customers and dealers, who are
the primary obligors, will meet their obligations, resulting in
immaterial losses to the Company regardless of whether CMHC and Terex
are able to perform their obligations.
3) Product Liability Claims
CMHC had approximately $45 million of reserves relating to existing
product liability claims at the time of the sale. Future accidents
will likely occur, which will result in increased product liability
exposure over time. The Company will incur losses relating to these
product liability claims if CMHC and Terex fail to perform their
obligations. The impact of any such losses would be mitigated by
available tax benefits and by insurance coverage that is available
for catastrophic losses. Cash settlement of product liability claims
are generally made over extended periods of time, thereby
significantly reducing the impact of cash flow in any one year.
Uncertainty exists as to the ultimate effect on Clark if Terex and CMHC
fail to perform these obligations and commitments. While the aggregate
losses associated with these obligations could be material, the Company
does not believe such an event would materially affect the Company's
ability to meet its cash requirements.
In the latest report on file with the Securities and Exchange Commission,
Terex reported that it was continuing to incur operating losses and had a
deficit stockholders' investment. In their report on the financial
statements that were filed as part of Terex's Form 10-K for 1992, Terex's
independent accountants indicated that Terex's recurring losses, its
capital deficiency, and its inability to borrow additional funds under a
bank lending agreement raised doubts about Terex's ability to continue as
a going concern. In December 1993, Terex announced that it had issued $30
million of preferred stock in a private placement arrangement.
Other:
Clark has certain other contingent liabilities which have arisen in the
normal course of business. These are discussed further in the Notes to
the Financial Statements on page 9.
Liquidity and Capital Resources:
At March 31, 1994, the Company's cash and short-term investments amounted
to $245.4 million compared with $235.8 million at December 31, 1993. The
increase in cash is principally due to cash flow from operations in the
first quarter of 1994. The Company expects to spend $144 million of cash
in the second quarter to fund the acquisition of Blaw-Knox and expects net
proceeds of $98 million will be received from the sale of CAPCO.
On April 6, 1994, the Company entered into a $100 million Master Credit
Agreement with nine banks. The new agreement has a term of three years
and replaces a previous agreement of $66.2 million. There were no
outstanding borrowings under the Company's line of credit as of March 31,
1994. On May 6, 1994, the Company borrowed $40 million for a two week
term under the
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$100 million Master Credit Agreement. This amount will be used to
temporarily fund a portion of the purchase price of the Blaw-Knox
acquisition until maturity of certain of the Company's short term
investments.
The Company believes that it has adequate liquidity either through cash
reserves, its line of credit, or through its access to public and private
markets to meet its operating needs and strategic objectives.
Capital Investment (Including Clark Automotive Products Corporation):
Capital expenditures were $9.9 million in the first quarter of 1994 as
compared to $4.6 million in the first three months of 1993. A comparative
breakdown of expenditures is as follows:
In Millions
1994 1993
By Type:
. Capital facilities and equipment $8.7 $3.7
. Tooling 1.2 0.9
Total $9.9 $4.6
By Location:
. North America $2.9 $3.2
. Foreign locations 7.0 1.4
Total $9.9 $4.6
Depreciation of fixed assets was $9.3 million in the first quarter of 1994
as compared to $9.4 million in the first quarter of 1993.
Capitalization:
At March 31, 1994, debt as a percentage of total capitalization (total
debt and stockholders' equity) was 44.8 percent compared with 46.9 percent
at December 31, 1993. The improvement in the ratio relates to increased
stockholders' equity, principally, the current year income of $26.9
million. Total debt at March 31, 1994 increased to $242.1 million from
the December 31, 1993, level of $236.9 million. Stockholders' equity per
share was $17.11 at March 31, 1994 and $15.41 at December 31, 1993.
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SELECTED FINANCIAL DATA - VME GROUP N.V.
In 1985 a joint venture was formed combining the construction machinery
businesses of Clark Equipment Company and AB Volvo of Sweden. VME Group
N.V. (VME) is owned 50 percent each by Clark and Volvo as a result of
their contribution of ownership in their construction machinery
subsidiaries VME Americas Inc. (then Clark Michigan Company) and VME
Holding Sweden AB (then Volvo BM AB), respectively.
Following are condensed consolidated financial data of VME Group N.V.
(amounts in millions):
Three Month Period ended March 31: 1994 1993
Sales $327.6 $282.5
Income (loss) before income taxes
and changes in accounting principle 40.3 (11.3)
Provision (credit) for income taxes 13.5 (1.3)
Income (loss) before change in
accounting principle 26.8 (10.0)
Effect of change in accounting principle - 12.3
Net income $ 26.8 $ 2.3
VME's sales during the first quarter of 1994 were $327.6 million, an
increase of $45.1 million from the $282.5 million recorded in the first
quarter of 1993. The market demand for construction equipment continued to
strengthen in North America and Great Britain and the German market was
also stronger. Other major markets for VME were stable.
The net income of $26.8 million in the first quarter of 1994 compares to a
net income of $2.3 million in the same period of 1993, a change of $24.5
million.
Comparing the first quarter of 1994 and 1993, the improvement in operating
results is mainly due to the following:
- Higher production and sales volumes
- Improved price realization
- Reduced overhead expenses in both distribution and manufacturing
- Gains on forward exchange contracts
In the first quarter of 1993, VME Group adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and FAS No.
109, "Accounting for Income Taxes".
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VME elected to recognize its estimated obligations under FAS No. 106 on a
transitional basis over 20 years. A net charge of $0.7 million is
included in each of the first quarter results of 1994 and 1993.
The impact in 1993 of the change in accounting principle relating to FAS
No. 109 was $12.3 million.
Total assets of VME were $854.5 million at the end of March 1994, a slight
reduction from $868.7 million in March 1993.
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EXHIBITS LIST AND INDEX
Filed Herewith Unless
Exhibit Description Otherwise Indicated
(4)(a) $100,000,000 Master Credit Pursuant to paragraph (4)(iii)(A)
Agreement with Chemical of Item 601(b) of Regulation S-K,
Bank, as Agent dated as of Registrant agrees to furnish a
April 6, 1994 copy of this agreement to the
Securities and Exchange Commission
upon request
(10)(a) Clark Equipment Company Incorporated by reference to
Stock Acquisition Plan for Exhibit A to Registrant's Proxy
Non-Employee Directors Statement for the Annual Meeting
of Stockholders held on May 10,
1994
(10)(b) Clark Equipment Company Incorporated by reference to
1994 Long Term Incentive Exhibit B to Registrant's Proxy
Plan Statement for the Annual Meeting
of Stockholders held on May 10,
1994
(99) Page 19 Computation of Ratio of Earnings
to Fixed Charges for the three
months ended March 31, 1994
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EXHIBIT (99)
CLARK EQUIPMENT COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
Three Months
1994
Earnings Before Tax:
Clark - From Continuing Consolidated Operations $19.0
Clark's 50% Share of VME (Net of Clark Goodwill
Amortization and Other VME Related Expenses) 19.8
Total Pre-Tax Earnings (1) $38.8
Fixed Charges:
Clark:
Interest Expense $ 5.6
Interest Portion of Rent Expense 0.5
Clark's Share of VME:
Interest Expense 2.7
Interest Portion of Rent Expense 0.7
Total Fixed Charges (2) $ 9.5
Earnings from Continuing Operations before Taxes
and Fixed Charges (1 Plus 2) $48.3
Ratio of Earnings to Fixed Charges 5.08
=======
Note:
Earnings to fixed charges have been determined based on continuing
operations and have been computed by dividing earnings before income taxes
and fixed charges by fixed charges. Earnings before tax include the pre-
tax income from Clark's consolidated continuing operations and Clark's 50%
share of VME's pre-tax income, net of Clark goodwill amortization related
to its VME investment, and other expenses directly related to VME. Fixed
charges include interest expense relating to Clark's consolidated
continuing operations and Clark's 50% share of VME's interest. Fixed
charges also include one-third of Clark rentals for consolidated
continuing operations and Clark's 50% share of one-third of the VME
rentals. The Company believes that one-third of such rentals constitutes
a representative interest factor. Capitalized interest has been excluded
from fixed charges as it is immaterial.
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