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
September 30, 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: 17,399,940 shares of
$7.50 Par Value Common Stock were outstanding at the close of business on
November 8, 1994.
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Total Number of Pages: 23
Exhibit Index at Page: 21
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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 Flows
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For 50 Percent Owned Company
Selected Financial Data - VME Group, N.V.
PART II OTHER INFORMATION
Item 5. Other Information
Attached hereto as Exhibit (99) is a Computation of
Registrant's Ratio of Earnings to Fixed Charges for the
nine months ended September 30, 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-KA dated July 27, 1994
reporting on Item 7, FINANCIAL STATEMENTS AND
EXHIBITS. This Form 8-KA contained the following
financial statements and pro forma financial
information: (a) combined audited financial
statements of Blaw-Knox Construction Equipment
Corporation ("Blaw-Knox") for the year ended December
31, 1993 and unaudited combined financial statements
for the first quarters ended March 31, 1994 and 1993,
(b) pro forma balance sheet which combines the
balance sheet of Blaw-Knox with the consolidated
balance sheet of Registrant at March 31, 1994 and (c)
pro forma income statements combining the results of
Registrant and Blaw-Knox for the year ended December
31, 1993 and the quarter ended March 31, 1994.
2. The Registrant filed a Form 8-K dated July 27, 1994
reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
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3. The Registrant filed a Form 8-K dated July 27, 1994
reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS. This Form 8-K
included Registrant's income statement and balance
sheet for the period ended June 30, 1994.
4. The Registrant filed a Form 8-K dated September 8,
1994 reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
5. The Registrant filed a Form 8-K dated September 13,
1994 reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS. This Form 8-K
included the Registrant's financial statements for
the year ended December 31, 1993, restated to reflect
the deconsolidation of Clark Automotive Products
Corporation ("CAPCO"), together with the report of
Price Waterhouse LLP on those financial statements.
6. The Registrant filed a Form 8-K dated September 23,
1994 reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
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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: November 11, 1994 By: /s/ B. D. Henely
B. D. Henely
Vice President, General Counsel
and Secretary
(Duly Authorized Officer)
Date: November 11, 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)
<CAPTION>
For the Period Ended September
(Amounts in Thousands, except per share data) Third Quarter Nine Months
1994 1993* 1994 1993*
<S> <C> <C> <C> <C>
Net sales.....................................$ 249,210 $ 167,126 $ 696,898 $ 517,486
Operating costs and expenses:
Cost of goods sold.......................... 195,944 136,390 548,066 412,651
Selling, general and
administrative expenses.................. 28,683 29,962 83,223 77,283
224,627 166,352 631,289 489,934
Operating income............................... 24,583 774 65,609 27,552
Other income, net.............................. 4,204 4,959 14,065 10,128
Interest expense............................... (4,926) (5,388) (15,157) (15,980)
Pre-tax income from consolidated operations.... 23,861 345 64,517 21,700
Provision (credit) for income taxes............ 7,345 (1,054) 21,421 4,939
Income from consolidated operations............ 16,516 1,399 43,096 16,761
Equity in net income (loss)
of associated companies..................... 15,822 1,787 44,459 (2,547)
Income from continuing operations.............. 32,338 3,186 87,555 14,214
Discontinued operations:
Income from operations...................... 0 6,886 1,275 9,261
Gain on sale................................ 0 0 32,884 0
Income from discontinued operations............ 0 6,886 34,159 9,261
Income before effect of
change in accounting principle.............. 32,338 10,072 121,714 23,475
Effect of accounting change--income taxes...... - - - 6,150
Net income..................................... 32,338 10,072 121,714 29,625
Add: Income retained
at beginning of period................... 182,084 64,346 92,708 44,869
Deduct: Excess cost of treasury shares issued over
the cost of certain employee benefits....... 0 (53) 0 23
Income retained at end of period..............$ 214,422 $ 74,471 $ 214,422 $ 74,471
Income per share:
From continuing operations.................$ 1.86 $ .18 $ 5.03 $ .82
From discontinued operations................ - .40 1.96 .53
From effect of accounting change............ - - - .35
Net income.................................$ 1.86 $ .58 $ 6.99 $ 1.70
Average number of shares....................... 17,399 17,419 17,416 17,418
Number of shares outstanding
at end of period............................ 17,398 17,374 17,398 17,374
<FN>
* Restated to reflect the deconsolidation of the automotive business.
<FN>
See Notes to Financial Statements
</TABLE>
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET (UNAUDITED)
<CAPTION>
Amounts in Thousands
Sep. 30, Dec. 31,
ASSETS 1994 1993
Current Assets:
<S> <C> <C>
Cash, cash equivalents and short-term investments................$ 232,045 $ 235,828
Accounts and notes receivable.................................... 106,426 77,103
Accounts receivable from associated companies.................... 1,371 2,041
Refundable income taxes........................................... 0 3,543
Inventories:
Raw materials................................................. 39,957 32,212
Work-in-process and finished goods............................ 81,065 65,928
Manufacturing supplies........................................ 4,089 10,480
Total inventory........................................ 125,111 108,620
Deferred tax assets.............................................. 28,364 29,202
Other current assets............................................. 4,950 5,434
Total current assets................................... 498,267 461,771
Investments and advances ........................................ 189,230 122,106
Deferred tax assets - net........................................ 105,718 101,018
Property, plant and equipment - at cost.......................... 375,409 487,330
Less accumulated depreciation.................................... 196,627 285,406
Net property, plant and equipment...................... 178,782 201,924
Assets held for sale ............................................ 8,619 6,765
Goodwill......................................................... 169,658 67,461
Other assets..................................................... 34,745 40,890
$1,185,019 $1,001,935
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable....................................................$ 16,160 $ 22,512
Accounts payable and accruals.................................... 127,041 115,333
Accrued payrolls, social security and general taxes.............. 33,087 34,809
Accrued postretirement benefits - current........................ 20,643 19,560
Taxes on income.................................................. 7,250 4,139
Deferred income taxes............................................ 4,353 800
Current installments on long-term debt........................... 13,434 9,612
Total current liabilities.............................. 221,968 206,765
Long-term debt................................................... 194,266 204,770
Other non-current liabilities.................................... 101,800 74,686
Accrued postretirement benefits.................................. 240,398 233,239
Deferred income taxes............................................ 16,040 14,322
Total liabilities...................................... 774,472 733,782
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 19,194,684 shares and 19,194,334 shares
at September 30, 1994 and December 31, 1993, respectively..... 143,960 143,958
Capital in excess of par value of stock.......................... 180,027 179,582
Retained earnings................................................ 214,422 92,708
Cumulative translation and other adjustments..................... (43,007) (67,083)
495,402 349,165
Less, common stock held in treasury, at cost - 1,797,091 shares
and 1,792,431 shares at September 30, 1994 and
December 31, 1993, respectively............................... (53,571) (49,728)
Less, unallocated LESOP shares purchased with debt -
1,009,155 shares at September 30, 1994 and December 31,
1993, respectively............................................ (31,284) (31,284)
Total stockholders' equity............................. 410,547 268,153
$1,185,019 $1,001,935
<FN>
See Notes to Financial Statements
</TABLE>
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine months ended September 30
Amounts in Thousands
1994 1993*
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income......................................................$ 121,714 $ 29,625
Less, income from discontinued automotive operations............. (1,275) (9,261)
Adjustments to reconcile net income to net cash
provided by operating activities:
Effect of accounting changes............................... 0 (6,150)
Depreciation............................................... 23,507 21,681
Amortization of intangibles................................ 2,386 1,578
Net gain on sale of a business............................. (32,884) 0
Exchange (gain) loss....................................... 3,626 (6,799)
Employee benefit expense funded with treasury stock........ 1,448 598
Loss (earnings) of unconsolidated companies................ (44,459) 2,547
Increase in receivables and other current assets........... (17,170) (6,832)
Decrease in refundable income taxes........................ 3,543 0
Increase in inventory...................................... (11,733) (14,254)
Decrease (increase) in net deferred tax assets............. 1,119 (3,896)
Increase in payables and accruals.......................... 18,257 12,332
Increase in postretirement benefit accruals................ 3,906 2,230
Decrease (increase) in other non-current assets............ 7,660 (749)
Increase in other long-term liabilities.................... 14,319 303
Other...................................................... 200 58
Net cash provided by operating activities.................. 94,164 23,011
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business (net of business' cash).......... 103,405 0
Cost of acquisition - net of cash acquired...................... (145,363) 0
Additions to properties......................................... (23,027) (17,072)
Sales of properties............................................. 679 532
Decrease (increase) in short-term investments................... 12,400 (63,000)
Decrease(increase)in investments and advances-associated companies (1,531) 3,960
Net cash used in investing activities...................... (53,437) (75,580)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings............................... 26 91,006
Payments on long-term debt...................................... (6,215) (79,699)
Increase (decrease) in notes payable--current................... (8,864) 5,902
Proceeds from sale of stock under option plans.................. 10 29
Other........................................................... 2,349 156
Net cash provided (used) in financing activities........... (12,694) 17,394
Effect of exchange rate changes on cash......................... (6,301) 5,889
Cash flows from discontinued automotive operations.............. (13,115) 7,797
Increase (decrease) in cash and cash equivalents................ 8,617 (21,489)
Cash and cash equivalents at beginning of year.................. 35,228 71,024
Cash and cash equivalents at end of period...................... 43,845 49,535
Short-term investments (cost approximates market)............... 188,200 183,900
Cash, cash equivalents and short-term investments...............$ 232,045 $ 233,435
* Restated to separately reflect cash flows from discontinued
operations.
<FN>
See Notes to Financial Statements
</TABLE>
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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, and the
restatement of such financial statements for the deconsolidation of
Clark Automotive Products Corporation (see "Organizational
Developments" below) which was filed with a Form 8-K dated September
13, 1994. In the opinion of management, all adjustments necessary for
a fair statement of the results of operations for the interim periods
have been reflected. All adjustments are of a normal and recurring
nature except as otherwise discussed in the Management's Discussion
and Analysis of Financial Condition and Results of Operations.
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 nine month periods ended September 30, 1994 and
September 30, 1993, were 17,415,889 and 17,418,444, respectively.
There were no dividends paid during the nine months ending September
30, 1994 or September 30, 1993.
7,738 shares of common stock were reserved for issuance pursuant to
the exercise of options under the 1985 Stock Option Plan on September
30, 1994. Options for 7,738 shares were outstanding under the 1985
Stock Option Plan on the same date.
On May 10, 1994, the stockholders of the Company approved the 1994
Long Term Incentive Plan ("LTIP") and the Stock Acquisition Plan for
Non-Employee Directors ("Director Stock Plan"). 850,000 shares and
150,000 shares were authorized for issuance under the LTIP and the
Director Stock Plan respectively.
Organizational Developments
In the second quarter of 1994, the Company completed the sale of Clark
Automotive Products Corporation ("CAPCO") to the public through an
initial public offering. CAPCO was a business unit of Clark which
manufactured transmissions, primarily for on-highway applications for
sale in Brazil and North America. Clark sold approximately 91 percent
of its interest in CAPCO and received net proceeds of approximately
$103 million. A gain of approximately $33 million was realized on the
sale. CAPCO has been included in the financial statements as a
discontinued operation for all periods presented.
On May 13, 1994, the Company completed the purchase of Blaw-Knox
Construction Equipment Corporation ("Blaw-Knox") from White
Consolidated Industries ("WCI"). Blaw-Knox is a leading manufacturer
of asphalt pavers which are sold in North America and other world
markets. The purchase price was approximately $145 million. The
balance sheet and the results of operations of Blaw-Knox are included
in the consolidated accounts of Clark subsequent to the acquisition
date. If Blaw-Knox had been consolidated with Clark from January 1,
1993, pro forma year-to-date sales would have been $735.5 million in
1994 and $583.3 million in 1993. Third quarter 1994
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sales were $249.2 million and pro forma 1993 third quarter sales would
have been $187.5 million. The Blaw-Knox acquisition as of an earlier
date would not have materially affected Clark's net income from
continuing operations in either 1994 or 1993. As reported by the
Company on Form 8-KA filed on July 27, 1994, the pro forma impact on
Clark of the acquisition of Blaw-Knox as of January 1, 1993 would have
increased the full year 1993 net income from continuing operations by
$0.19 per share and would have increased the first quarter 1994 net
income from continuing operations by $0.12 per share.
Statement of Cash Flows
The Statement of Cash Flows for the nine months ended September 30,
1994 and 1993 has been prepared based on the continuing operations of
the Company. As such, the cash flows of CAPCO have been included as a
separate line in the Statement of Cash Flows.
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 75 claims, with respect to which
approximately 38 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 September 30, 1994, the Company
had reserves of approximately $14 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
September 30, 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 September 30, 1994, guarantees are
approximately $24 million and repurchase arrangements relating to
product financing by an independent finance company approximate $76
million. It is not practicable to determine the additional amount
subject to repurchase solely under product distribution agreements.
Under the repurchase arrangements relating to product distribution and
product financing activities, when dealer terminations do occur, a
newly selected dealer generally acquires the assets of the prior
dealer and assumes any related financial obligations. Accordingly,
the risk of loss to Clark 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 its forklift truck business,
Clark Material Handling Company ("CMHC"), and environmental issues
(see pages 14 - 16 "Management's Discussion and Analysis of
Operations").
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview:
Organizational Developments
In the second quarter of 1994, the Company completed the sale of Clark
Automotive Products Corporation ("CAPCO") to the public through an
initial public offering. CAPCO was a business unit of Clark which
manufactured transmissions, primarily for on-highway applications for
sale in Brazil and North America. Clark sold approximately 91 percent
of its interest in CAPCO and received net proceeds of approximately
$103 million. A gain of approximately $33 million was realized on the
sale. CAPCO has been included in the financial statements as a
discontinued operation for all periods presented.
On May 13, 1994, the Company completed the purchase of Blaw-Knox
Construction Equipment Corporation ("Blaw-Knox") from White
Consolidated Industries ("WCI"). Blaw-Knox is a leading manufacturer
of asphalt pavers which are sold in North America and other world
markets. The purchase price was approximately $145 million. The
balance sheet and the results of operations of Blaw-Knox are included
in the consolidated accounts of Clark subsequent to the acquisition
date. If Blaw-Knox had been consolidated with Clark from January 1,
1993, pro forma year-to-date sales would have been $735.5 million in
1994 and $583.3 million in 1993. Third quarter 1994 sales were $249.2
million and pro forma 1993 third quarter sales would have been $187.5
million. The Blaw-Knox acquisition as of an earlier date would not
have materially affected Clark's net income from continuing operations
in either 1994 or 1993. As reported by the Company on Form 8-KA filed
on July 27, 1994, the pro forma impact on Clark of the acquisition of
Blaw-Knox as of January 1, 1993 would have increased the full year
1993 net income from continuing operations by $0.19 per share and
would have increased the first quarter 1994 net income from continuing
operations by $0.12 per share.
General Discussion of Third Quarter and Nine Month Results:
Third quarter 1994 sales increased 49.1 percent over third quarter
1993 sales. The increase was the result of improved sales levels at
both Clark-Hurth and Melroe and includes incremental sales of
approximately $26.3 million as a result of the acquisition of Blaw-
Knox in May of 1994. The increased sales resulted in higher income
from consolidated operations which amounted to $16.5 million in the
third quarter of 1994 compared to $1.4 million in the third quarter of
1993. VME, Clark's 50 percent owned construction machinery joint
venture, also reported significantly higher earnings in 1994 as a
result of improved economic conditions, improved operating margins
from past cost reductions and the devaluation of the Swedish Krona.
Clark's share of VME's earnings was $16.0 million in the third quarter
of 1994 compared to $1.8 million in the third quarter of 1993.
Clark's overall results from continuing operations improved to $32.3
million, or $1.86 per share, in the third quarter of 1994 from $3.2
million, or $0.18 per share, in the same period of 1993. The third
quarter of 1993 also reflected income from discontinued operations of
$6.9 million, or $0.40 per share, related to the operations of CAPCO.
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In the first nine months of 1994, Clark earned $87.6 million, or $5.03
per share, from continuing operations compared to $14.2 million, or
$0.82 per share, in the first nine months of 1993. The improvement
resulted from a 34.7 percent growth in sales relating to consolidated
operations and significantly improved VME earnings. Net income,
including continuing and discontinued operations and the impacts of
accounting changes, was $121.7 million, or $6.99 per share, in the
first nine months of 1994 compared to $29.6 million, or $1.70 per
share, in the first nine months of 1993. The 1993 results include a
change in accounting for income taxes at VME which contributed $6.2
million, or $0.35 per share, to Clark's earnings.
Results of Operations:
Third Quarter of 1994 Compared to Third Quarter of 1993:
Sales in the third quarter of 1994 were $249.2 million compared with
$167.1 million in the third quarter of 1993. The consolidated sales
increase of $82.1 million relates mostly to volume improvements and
includes incremental sales of $26.3 million as a result of the
acquisition of Blaw-Knox in May of 1994. Minor price increases also
contributed to the sales improvement. Favorable foreign currency
translation impacts increased sales by about $1.7 million.
Strength in North American construction machinery markets was the
primary cause of the third quarter 1994 sales increase. Selected
European markets also showed some improvement. Excluding Blaw-Knox
sales, North American sales increased by $36.5 million, or 31.9
percent, in the third quarter of 1994 when compared with the third
quarter of 1993 and overseas sales increased $19.3 million, or 36.5
percent, when comparing the same period.
Gross margins were $53.3 million, or 21.4 percent of sales in the
third quarter of 1994 compared with $30.7 million, or 18.4 percent of
sales, in the same period of 1993. The 1993 gross margins were
reduced by restructuring charges of $4.9 million relating to
rationalization actions at Clark-Hurth Components. This impact was
partially offset by a refund of prior year duty drawback claims from
the U.S. Customs Department which resulted in a reduction in cost of
sales of $3.5 million. With these unusual items excluded, gross
margins were 19.2% of sales in the third quarter of 1993. The gross
margin percentage increased in the third quarter of 1994 over the
normalized 1993 margin as a result of improved capacity utilization at
Clark-Hurth Components and as a result of the contribution of Blaw-
Knox to the consolidated margins of Clark. Foreign currency
translation and exchange results included in cost of sales were losses
of $2.0 million in the third quarter of 1994 and gains of $2.7 million
in the third quarter of 1993.
Selling, general and administrative expenses were $28.7 million, or
11.5 percent of sales, in the third quarter of 1994 compared with
$30.0 million, or 17.9 percent of sales, in the third quarter of 1993.
The decrease as a percentage of sales resulted from a reduced level of
expenditures, higher sales levels and the fixed nature of certain of
these expenses. The decrease in the dollar level of expenditures was
principally related to a decrease in 1994 of expense associated with
stock appreciation rights ($3.1 million) partially offset by an
increase in volume/promotional related selling expense ($1.8 million).
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Operating income from continuing consolidated operations increased to
$24.6 million from the 1993 third quarter level of $0.8 million.
Operating income as a percentage of sales was 9.9 percent in the third
quarter of 1994 compared to 0.5 percent in the third quarter of 1993.
Increased operating income is attributable to higher sales and higher
gross margins and decreases in selling, general and administrative
expenses.
Other income of $4.2 million in the third quarter of 1994 reflects a
decrease of $0.8 million over the 1993 level. Other income in 1993
includes $1.7 million of interest income resulting from duty drawback
refunds from the U.S. Customs Department relating to prior years
activities. Higher interest rates on invested cash partially offset
the impact of this item on the 1994 results.
Interest expense decreased approximately $0.5 million in the third
quarter of 1994 when compared to the same period of 1993 due to lower
average debt balances outstanding during the third quarter of 1994.
Pre-tax income from consolidated continuing operations in the third
quarter of 1994 was $23.9 million compared to $0.3 million for the
same period of 1993. The improved results reflect higher sales and
improved gross margins.
A tax provision of $7.3 million and a credit of $1.1 million were
recorded in the respective third quarter periods of 1994 and 1993.
The effective tax rate in the third quarter of 1994 was 30.8 percent
and was lower than the U.S. statutory rate because of the expected
utilization of certain previously unrecognized foreign net operating
loss carryforwards and the existence of certain components of U.S.
income which are not subject to income tax. The tax credit in 1993 is
the result of the passage of the tax act of 1993 which resulted in the
increase in the U.S. statutory tax rate to 35%. The Company reflected
the impact of this one percent tax rate increase on its net deferred
tax asset position by recording a $3.0 million benefit as a credit to
its tax provision. This favorable impact was partially offset by
additional taxes provided in the quarter as a result of an upward
adjustment of the full year effective tax rate.
Clark's share of VME's earnings for the third quarter increased to
$16.0 million, or $0.92 per share, compared to $1.8 million, or $0.10
per share, in the same 1993 period. VME's consolidated sales were
$357.9 million, up 26 percent from third quarter 1993 sales of $283.1
million. VME's earnings improvements were driven by higher sales
volumes, improved price realization, and lower interest costs due to
declining debt levels. VME's North American markets continued to show
strength in all product areas while most European economies continued
their slow progress toward economic recovery.
Results from continuing operations, which includes the results of VME,
were income of $32.3 million and $3.2 million, respectively, in the
third quarters of 1994 and 1993.
The third quarter of 1993 also reflected income from discontinued
operations of $6.9 million, or $0.40 per share, related to the
operations of CAPCO.
In the aggregate, Clark recorded net income of $32.3 million, or $1.86
per share, in the third quarter of 1994 and $10.1 million, or $0.58
per share, in the same period of 1993.
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First Nine Months of 1994 Compared to First Nine Months of 1993:
Sales in the first nine months of 1994 were $696.9 million compared
with $517.5 million in the first nine months of 1993. The
consolidated sales increase of $179.4 million relates mostly to volume
improvements and includes incremental sales of $41.1 million as a
result of the acquisition of Blaw-Knox in May of 1994. Minor price
increases also contributed to the sales improvement. Unfavorable
foreign currency translation impacts decreased sales by about $4.3
million.
Strength in North American construction machinery markets was the
primary cause of the nine month 1994 sales increase. Selected
European markets also showed some improvement. Excluding Blaw-Knox
sales, North American sales increased by $106.1 million, or 31.4
percent, in the first nine months of 1994 when compared with the first
nine months of 1993, and overseas sales increased $32.2 million, or
17.9 percent, when comparing the same period.
Gross margins were $148.8 million, or 21.4 percent of sales in the
first nine months of 1994 compared with $104.8 million, or 20.3
percent of sales in the same period of 1993. The gross margin
percentage increased in the nine months of 1994 over the 1993 margin
as a result of improved capacity utilization at Clark-Hurth Components
and as a result of the contribution of Blaw-Knox to the consolidated
margins of Clark. Foreign currency translation and exchange results
included in cost of sales were losses of $3.6 million in the first
nine months of 1994 and gains of $6.8 million in the first nine months
of 1993.
Selling, general and administrative expenses were $83.2 million, or
11.9 percent of sales, in the first nine months of 1994 compared with
$77.3 million, or 14.9 percent of sales, in the first nine months of
1993. The increase in the expense level was principally related to
stock appreciation rights and volume/promotional related selling
expenses. The decrease as a percentage of sales resulted from higher
sales levels and the fixed nature of certain of these expenses.
Operating income from continuing consolidated operations increased to
$65.6 million from the 1993 first nine month level of $27.6 million.
Operating income as a percentage of sales was 9.4 percent in the first
nine months of 1994 and 5.3 percent in the same period of 1993. The
increased level of operating income is attributable to higher sales
and higher gross margins, partially offset by increases in selling,
general and administrative expenses.
Other income increased by $3.9 million from the first nine month 1993
level to $14.1 million. This resulted from an increase of $0.6
million in interest income and a gain of about $4.2 million on the
sale of certain overseas bonds, partially offset by reduced
miscellaneous revenues.
Interest expense decreased approximately $0.8 million in the first
nine months of 1994 when compared to the same period of 1993 due to
lower average debt balances outstanding during the first three
quarters of 1994.
Pre-tax income from consolidated continuing operations in the first
nine months of 1994 was $64.5 million compared to $21.7 million for
the same period of 1993. The improved results reflect higher sales
and improved gross margins.
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<PAGE>
Tax provisions of $21.4 million and $4.9 million were recorded in the
respective first nine month periods of 1994 and 1993. The effective tax
rate in the first nine months of 1994 was 33.2 percent which is somewhat
less than the U.S. statutory rate as a result of the expected utilization
of certain previously unrecognized foreign net operating loss
carryforwards and the existence of certain components of U.S. income
which are not subject to tax. The 1993 first nine month rate of 22.8
percent was lower than the U.S. statutory rate principally as a result of
a retroactive increase in the U.S. corporate income tax rate which
resulted in a $3.0 million tax benefit as net U.S. deferred tax assets
were revalued at the higher tax rate.
Through September 30, 1994, Clark has recorded equity income in VME of
$44.6 million. This compares to a loss of $2.5 million in the first nine
month period of 1993. VME's consolidated sales for the first nine months
increased by 22.3 percent to $1,091.5 million compared to last year.
Higher unit and spare parts sales 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 include the results of VME,
were income of $87.6 million and $14.2 million, respectively, in the
first nine months of 1994 and 1993.
Income from discontinued operations, which consisted primarily of the
$32.9 million gain on the sale of CAPCO, increased to $34.2 million
compared to $9.3 million in the first nine months of 1993. The income
from discontinued operations in 1993 related to the operations of CAPCO.
Including the discontinued operations, but before the effect of a change
in accounting principles, Clark recorded income of $121.7 million, or
$6.99 per share, in the first nine months of 1994 and $23.5 million, or
$1.35 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 income of $29.6
million, or $1.70 per share, for the first nine months of 1993.
Contingencies:
Environmental
The Company is involved in environmental clean-up activities or
litigation in connection with eight former waste disposal sites and four
former U.S. plant locations. The Company is also involved in an
environmental clean-up action at one current location. The Company is
also a defendant in a lawsuit filed by the United States Environmental
Protection Agency which seeks civil penalties for alleged violations of
the Clean Water Act arising out of the discharge of certain metal
finishing wastewaters generated at the Company's Melroe facility in
Gwinner, North Dakota.
At each of the eight 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 reasonably estimated. As of September 30, 1994, the
Company had
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<PAGE>
reserves of approximately $15.8 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. The Company's estimate of its liability is based upon (1) the
estimated costs of investigating and remediating the environmental
contamination at each site and (2) the Company's estimated share of the
liability at the site. Estimated costs of remediation can change as the
site investigation and remediation progresses and additional information
becomes available. Further, these estimated costs can change if the
selected remedial action at a site is not effective and additional work
is required. In addition, the development of new remediation
technologies could impact these costs. In estimating its share of the
potential liability at a site, the Company takes into account the
contributions to the cleanup costs which will be paid by other
potentially responsible parties. The Company's share of the potential
liability could therefore change if other potentially responsible parties
become financially insolvent or dispute their liability. As a result of
the possibility of changes in remedial cost estimates and in the
Company's share of liability, the Company continually monitors the
adequacy of its reserves and makes adjustments as necessary. Based upon
the information presently available to it, the Company does not believe
that it will incur any material costs in excess of the amount of its
reserves as a result of any such changes.
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 its potential
liability for environmental cleanup costs. 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 expenditures in the first
three quarters of 1994 relating to environmental compliance and clean-up
activities were less than $2 million.
Sale of Clark Material Handling Company ("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 $48 million at September 30, 1994. These obligations
will continue to liquidate in an orderly fashion. The Company will
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<PAGE>
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 $17 million of obligations
of third parties relating to the CMHC operation. Approximately $11
million of these guarantees relate to national account rental
arrangements with a number of large creditworthy customers.
Approximately $6 million relates to capital loans given by a finance
company to independent CMHC dealers, which are secured by a lien on
substantially all of the dealer's assets. These guaranteed
obligations are expected 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 on 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 their latest report on the financial statements that were filed as a
part of Terex's 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. Terex has filed
its report on Form 10-Q for the period ended June 30, 1994 which
indicates that they earned $10 million in the second quarter of 1994,
which included a $19.7 million gain from the sale of certain non-
strategic assets. Management indicates in that report that it believes
tha0t0 its "lending facility and other financing and cash generating
activities will allow the Company to meet its obligations on a timely
basis". Terex also indicated in a press release that it earned
approximately $1 million in the third quarter of 1994. These results
include a gain of $4.2 million from the sale of certain non-strategic
assets.
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.
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<PAGE>
Liquidity and Capital Resources:
At September 30, 1994, the Company's cash and short-term investments
amounted to $232.0 million compared with $235.8 million at December 31,
1993. The decrease in cash is principally due to the expenditure of
approximately $145 million for the acquisition of Blaw-Knox; partially
offset by proceeds from the sale of CAPCO of approximately $103 million
and cash flow from operations of approximately $38 million.
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 September
30, 1994.
In the first quarter of 1993, the Company filed a shelf registration
statement with the Securities and Exchange Commission to register $150
million of medium term notes. To date, $90.2 million of the medium term
notes have been issued, leaving $59.8 million available for future
issuance.
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:
Capital expenditures were $23.0 million in the first nine months of 1994
as compared to $17.1 million in the first nine months of 1993. A
comparative breakdown of expenditures is as follows:
In Millions
1994 1993
By Type:
. Capital facilities and equipment $18.2 $14.1
. Tooling 4.8 3.0
Total $23.0 $17.1
By Location:
. North America $17.7 $13.0
. Foreign locations 5.3 4.1
Total $23.0 $17.1
Depreciation of fixed assets was $23.5 million in the first nine months
of 1994 as compared to $21.7 million in the first nine months of 1993.
Capitalization:
At September 30, 1994, debt as a percentage of total capitalization
(total debt and stockholders' equity) was 35.3 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
$121.7 million and favorability in the cumulative translation adjustment.
Total debt at September 30, 1994 decreased to $223.9 million from the
December 31, 1993, level of $236.9 million. Stockholders' equity per
share was $23.60 at September 30, 1994 and $15.41 at December 31, 1993.
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<PAGE>
Outlook:
The backlog at September 30, 1994 was $202.4 million, up from $122.1
million at September 30, 1993. The backlog amount in the third quarter
of 1994 includes $11.1 million for Blaw-Knox.
The Company believes the level of business activity as demonstrated by
the third quarter results and order rates provide an optimistic picture
of business activity for the balance of the year. Demand remained strong
throughout the third quarter in all Clark businesses. None experienced
typical seasonal declines. Sales and earnings in the fourth quarter of
1994 are expected to show continued strength compared to the prior year,
with production and shipping rates similar to the third quarter.
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<PAGE>
<PAGE>
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):
3rd Quarter Nine Months
Period ended September 30
Sales and Income 1994 1993 1994 1993
Sales $357.9 $283.1 $1,091.5 $892.7
Income Before Interest
& Taxes (EBIT) $ 55.3 $ 18.4 $ 150.4 $ 36.2
Interest Expense 4.7 6.3 15.1 24.9
Income Before Income Taxes &
Changes in Accounting
Principles 50.6 12.1 135.3 11.3
Provision for Income Taxes 18.2 6.7 44.5 12.2
Income (Loss) Before Changes
in Accounting Principles 32.4 5.4 90.8 (0.9)
Effect of Change -
Accounting Principles - - - 12.3
Net Income $ 32.4 $ 5.4 $ 90.8 $ 11.4
0Balance Sheet Sept. 30, '94 Dec. 31, '93
Receivables (Trade Debtors) $203.7 $160.1
Inventories Net $314.1 $270.1
Total Assets $922.8 $789.2
Debt $200.0 $252.5
Equity 267.6 158.4
Total Capital $467.6 $410.9
Debt to Capital 42.8% 61.5%
VME's sales during the first nine months of 1994 were $1,091.5 million,
up $198.8 million from $892.7 million in the first nine months of 1993.
The increase resulted because demand for construction equipment continued
to strengthen in North America and Great Britain and showed improvement
from low levels in other markets, including the Nordic countries, France,
Spain and Australia. The German market was also stronger than
anticipated.
VME recorded net income of $32.4 million in the third quarter of 1994
compared to net income of $5.4 in the same period of 1993, an increase of
$27 million. The net income of $90.8 million in the first nine months of
1994 compares to net income of $11.4 million, including $12.3 million
related to a change in accounting for income taxes, in the same period of
1993, an increase of $79.4 million.
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<PAGE>
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
In the first quarter of 1993, VME adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and FAS No.
109, "Accounting for Income Taxes".
VME elected to recognize its estimated obligations under FAS No. 106 on a
transitional basis over 20 years, and a net charge of $2.1 million was
included in the first nine months of 1994 and 1993. The impact in 1993
of the adoption of FAS 109 was a benefit of $12.3 million.
Total assets of VME were $922.8 million at the end of September 1994, an
increase of $106.7 million from $816.1 million in September 1993. The
increase is mainly from higher receivables resulting from higher sales
volumes, increased goodwill related to the purchase of the remaining
shares in Zettelmeyer Baumaschinen GmbH as of January 1, 1994, and
increased cash reflecting the positive cash flow generated by increased
profitability.
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<PAGE>
<PAGE>
EXHIBITS LIST AND INDEX
Filed Herewith Unless
Exhibit Description Otherwise Indicated
(27) Financial Data Schedule Page 22
(99) Computation of Ratio of Page 23
Earnings to Fixed Charges
for the nine months ended
September 30, 1994
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit (27)
This schedule contains summary financial information extracted from the
financial statements which are filed as part of Clark Equipment Company's 10-Q
for the quarterly period ended September 30, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 43,845
<SECURITIES> 188,200
<RECEIVABLES> 113,452
<ALLOWANCES> 5,655
<INVENTORY> 125,111
<CURRENT-ASSETS> 498,267
<PP&E> 375,409
<DEPRECIATION> 196,627
<TOTAL-ASSETS> 1,185,019
<CURRENT-LIABILITIES> 221,968
<BONDS> 194,266
<COMMON> 323,987
0
0
<OTHER-SE> 86,560
<TOTAL-LIABILITY-AND-EQUITY> 1,185,019
<SALES> 696,587
<TOTAL-REVENUES> 696,898
<CGS> 548,066
<TOTAL-COSTS> 548,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,157
<INCOME-PRETAX> 64,517
<INCOME-TAX> 21,421
<INCOME-CONTINUING> 87,555
<DISCONTINUED> 34,159
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,714
<EPS-PRIMARY> 6.99
<EPS-DILUTED> 6.99
<PAGE>
</TABLE>
EXHIBIT (99)
CLARK EQUIPMENT COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
Nine Months
1994
Earnings Before Tax:
Clark - From Continuing Consolidated Operations $ 64.5
Clark's 50 Percent Share of VME (Net of Clark Goodwill
Amortization and Other VME Related Expenses) 66.7
Total Pre-Tax Earnings (1) $131.2
Fixed Charges:
Clark:
Interest Expense $ 15.2
Interest Portion of Rent Expense 1.3
Clark's Share of VME:
Interest Expense 7.5
Interest Portion of Rent Expense 2.1
Total Fixed Charges (2) $ 26.1
Earnings from Continuing Operations before Taxes
and Fixed Charges (1 Plus 2) $157.3
Ratio of Earnings to Fixed Charges 6.02
======
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 income tax
include the pre-tax income from Clark's consolidated continuing
operations and Clark's 50 percent 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
percent share of VME's interest. Fixed charges also include one-third of
Clark rentals for consolidated continuing operations and Clark's 50
percent 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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