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, 1995
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: 17,101,396 shares of
$7.50 Par Value Common Stock were outstanding at the close of business on
May 9, 1995.
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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 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, 1995.
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 dated January 26, 1995
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 fourth quarter of 1994 and the full year
1994.
2. The Registrant filed a Form 8-K dated February 3, 1995
reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
3. The Registrant filed a Form 8-K dated March 6,1995
reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
4. The Registrant filed a Form 8-K dated March 9,1995
reporting on Item 5, OTHER EVENTS, and Item 7,
FINANCIAL STATEMENTS AND EXHIBITS.
5. The Registrant filed a Form 8-K dated March 13, 1995
reporting on Item 2, ACQUISITION OR DISPOSITION OF
ASSETS, and Item 7, FINANCIAL STATEMENTS AND EXHIBITS.
This Form 8-K included (a) the audited Consolidated
Balance Sheets of Club Car, Inc. as of the fiscal years
ended September 25, 1994 and September 26, 1993; (b)
the audited Consolidated Statements of Income,
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Consolidated Statements of Cash Flows and Consolidated
Statements of Stockholders Equity (Deficit) for Club Car,
Inc. for the fiscal years ended September 25, 1994,
September 26, 1993 and September 27, 1992; (c) the unaudited
condensed Consolidated Balance Sheets, Statements of
Operations and Statements of Cash Flows of Club Car, Inc.
for the three months ended December 25, 1994 and
December 26, 1993; (d) a pro forma Balance Sheet which
combines the Balance Sheet of Club Car, Inc. with the
Balance Sheet of Registrant as of December 31, 1994; and (e)
the pro forma Income Statement which combines the results of
Club Car with the results of Registrant for the year ended
December 31, 1994.
6. The Registrant filed a Form 8-K dated March 29, 1995
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: May 15, 1995 By: /s/ B. D. Henely
B. D. Henely
Vice President, General Counsel
and Secretary
(Duly Authorized Officer)
Date: May 15, 1995 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)
Three months ended March 31,
<CAPTION>
(Amounts in Thousands, except per share data) 1995 1994*
<S> <C> <C>
Net sales ................................................ $ 313,124 $ 205,163
Operating costs and expenses:
Cost of goods sold .................................... 246,692 162,087
Selling, general and administrative expenses .......... 35,110 25,547
281,802 187,634
Operating income ........................................ 31,322 17,529
Other income, net ........................................ 4,466 7,016
Interest expense ........................................ (5,390) (5,570)
Pre-tax income from continuing operations ................ 30,398 18,975
Provision for income taxes ............................... 10,346 6,659
Income from continuing operations ........................ 20,052 12,316
Income from discontinued operations ...................... 20,337 14,588
Net income................................................ 40,389 26,904
Add: Income retained at beginning of period .............. 254,643 92,708
Income retained at end of period ......................... $ 295,032 $ 119,612
Income per share:
From continuing operations........................... $ 1.16 $ .70
From discontinued operations......................... 1.18 .84
Net income .......................................... $ 2.34 $ 1.54
Average number of shares................................ 17,294 17,449
Number of shares outstanding at end of period ......... 17,101 17,411
<FN>
* Restated to reflect the equity in net income of VME Group N.V. as a discontinued
operation.
See Notes to Financial Statements
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET (UNAUDITED)
<CAPTION>
Amounts in Thousands
Mar. 31 Dec. 31,
1995 1994
<S> <C> <C>
Cash, cash equivalents and short-term investments .... $ 47,046 $ 228,604
Accounts and notes receivable ......................... 186,808 108,460
Accounts receivable from associated companies ......... 1,703 1,085
Inventories:
Raw Materials ................................... 52,505 37,070
Work-in-process and finished goods .............. 117,383 86,658
Total inventory ............................. 169,888 123,728
Investment and advances, discontinued operations (VME). 216,280 -
Deferred tax assets ................................... 27,400 24,384
Other current assets .................................. 12,492 8,862
Total current assets ........................ 661,617 495,123
Investment and advances-associated companies .......... 8,957 12,555
Investment and advances,discontinued operations (VME).. - 195,943
Deferred tax assets-net ............................... 96,891 100,402
Property, plant and equipment - at cost ............... 432,513 382,523
Less accumulated depreciation ......................... 220,196 201,384
Net property, plant and equipment ........... 212,317 181,139
Goodwill............................................... 379,095 167,272
Other assets .......................................... 50,517 41,465
$ 1,409,394 $ 1,193,899
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable .........................................$ 97,191 $ 11,944
Accounts payable and accruals ......................... 180,075 127,161
Accrued payrolls, social security and general taxes ... 36,156 29,967
Accrued postretirement benefits - current ............. 19,481 21,132
Taxes on income ....................................... 7,933 1,547
Deferred income taxes ................................. 672 715
Current installments on long-term debt ................ 18,574 12,140
Total current liabilities ....................... 360,082 204,606
Long-term debt ........................................ 225,489 193,294
Other non-current liabilities ......................... 102,067 93,994
Accrued postretirement benefits ....................... 244,876 241,837
Deferred income taxes ................................. 7,533 8,008
Total liabilities ........................... 940,047 741,739
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 at
March 31, 1995 and December 31, 1994 ............ 143,960 143,960
Capital in excess of par value of stock ............... 180,228 180,107
Retained earnings ..................................... 295,032 254,643
Cumulative translation and other adjustments .......... (54,166) (47,211)
565,054 531,499
Less, common stock held in treasury, at cost -
2,093,288 shares and 1,793,709 shares at the
respective dates................................. (69,838) (53,470)
Less, unallocated LESOP shares purchased with debt -
834,494 shares at March 31, 1995 and December 31, 1994 . (25,869) (25,869)
Total stockholders' equity ................... 469,347 452,160
$1,409,394 $1,193,899
<FN>
See Notes to Financial Statements
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CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three months ended March 31
Amounts in Thousands
1995 1994*
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ..................................... $ 40,389 $ 26,904
Less, income from discontinued operations ...... (20,337) (14,588)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................. 9,056 7,499
Amortization of intangibles .............. 1,338 464
Exchange loss ............................ 6,577 171
Employee benefit expense funded
with treasury stock ................ 565 253
Loss of unconsolidated companies ......... 150 -
Increase in receivables and other current
assets.............................. (38,087) (21,806)
Decrease in refundable income taxes ...... - 2,423
Decrease(increase) in inventory .......... (18,162) 1,788
Decrease (increase) in net deferred tax
assets.............................. (147) 484
Increase in payables and accruals ........ 27,287 10,214
Increase in other non-current assets ..... (1,236) (715)
Increase in other long-term liabilities .. 7,454 4,910
Other..................................... 25 (1)
Net cash provided by operating activities ...... 14,872 18,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisition - net of cash acquired ..... (245,173) -
Additions to properties ........................ (16,722) (6,982)
Sales of properties ............................ 139 269
Decrease (increase) in short-term investments .. 180,200 (21,300)
Decrease (increase) in investments and
advances--associated companies ................. 4 (1)
Net cash used in investing activities ...... (81,552) (28,014)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings .............. 83 -
Payments on long-term debt ..................... (494) (417)
Increase in notes payable-current .............. 84,127 1,873
Repurchase of shares and placed in treasury .... (16,933) -
Other........................................... 121 115
Net cash provided in financing activities 66,904 1,571
Effect of exchange rate changes on cash ........ (1,582) (469)
Cash flows from discontinued automotive operations - (2,769)
Decrease in cash and cash equivalents .......... (1,358) (11,681)
Cash and cash equivalents at beginning of year . 48,404 35,228
Cash and cash equivalents at end of period ..... 47,046 23,547
Short-term investments (cost approximates market) - 221,900
Cash, cash equivalents and short-term investments $ 47,046 $245,447
<FN>
* Restated to separately reflect cash flows from discontinued operations.
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
1994 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. 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 three month
periods ended March 31, 1995 and March 31, 1994, were 17,293,583 and
17,449,303, respectively. There were no dividends paid during the three
months ending March 31, 1995 or March 31, 1994.
7,738 shares of common stock were reserved for issuance pursuant to the
exercise of options under the 1985 Stock Option Plan on March 31, 1995.
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. Options for 88,400 shares were outstanding at March 31,
1995 under the LTIP.
In addition to the above options, there were performance units outstanding
at March 31 of 393,966 in 1995 and 464,139 in 1994. These performance
units are equivalent to free-standing stock appreciation rights. When the
performance units are surrendered, the grantee receives a cash payment for
each unit surrendered, equal to the amount by which the price of Clark
stock on the date of surrender exceeds the exercise price.
Organizational Developments
Acquisitions:
In May 1994, the Company acquired the stock of Blaw-Knox Construction
Equipment Corporation ("Blaw-Knox"), a leading manufacturer of asphalt
pavers, for approximately $145 million. If the Company had acquired
Blaw-Knox at January 1, 1994, sales in the first quarter of 1994 would have
increased by approximately $26.3 million and net income would have
increased by approximately $2.2 million.
The Company acquired the stock of Club Car, Inc. ("Club Car"), a leading
manufacturer of golf cars and utility vehicles on March 13, 1995 for
approximately $245 million (net of cash acquired). Included in the first
quarter of 1995 sales are sales of approximately $12 million related to
Club Car. Club Car's operations had an immaterial effect on the 1995 first
quarter income.
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Sale of VME:
On April 13, 1995, the Company sold its interest in VME Group N.V. ("VME"),
its 50 percent owned construction equipment joint venture, to A.B. Volvo
for $573 million. Clark is expected to net approximately $430 million
after expenses and taxes and realize a gain on the transaction of
approximately $270 million. Clark filed a Form 8-K on April 21, 1995
showing the pro forma effects of this transaction on the December 31, 1994
balance sheet (after adjustments for the Club Car acquisition).
The first quarter results of VME are included in Clark's first quarter
results as a discontinued operation. VME's results have been included to
reflect Clark's continued ownership of VME through March 31, 1995. The
remaining gain to be recorded on the sale of VME, after the recognition of
VME's first quarter results, is approximately $250 million.
Tender Offer by Ingersoll-Rand:
On April 9, 1995, Clark and Ingersoll-Rand Company ("IR") entered into a
Merger Agreement. Pursuant to the terms of this Merger Agreement, IR
agreed to increase to $86 per share the purchase price offered under its
tender offer to purchase 100% of the stock of Clark. The tender offer was
originally scheduled to expire on May 5, 1995 but has been extended to May
19, 1995 to allow additional time for completion of review of the
transaction by the Antitrust Division of the Justice Department. If a
change of control occurs under the tender offer, certain additional
liabilities will result under officer and employee benefit plans. The
liabilities resulting from these change of control provisions will be
reflected in the Company's financial statements if and when a change of
control occurs and will be material to future results of operations. The
Company also expects to incur expenses of approximately $18 million in
connection with the IR tender offer and merger if they are consummated.
Statement of Cash Flows
The Statement of Cash Flows for the three months ended March 31, 1995 and
1994 has been prepared based on the continuing operations of the Company.
As such, the discontinued cash flows of Clark Automotive Products
Corporation ("CAPCO") and VME have been reflected separately within 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 63 claims, with respect to which
approximately 47 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, 1995, the Company had accruals of
approximately $19.5 million related to product liability exposures for
known claims and for claims anticipated to have been incurred that have not
yet been reported. The accruals have been determined based upon actuarial
calculations using historical claims experience. The Company has also
recorded a receivable of $5.7 million for expected recoveries from
insurance companies.
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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, and other issues. The ultimate
results of these claims and proceedings at March 31, 1995 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 effect 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, 1995, guarantees are approximately $29 million and
repurchase arrangements relating to product financing by an independent
finance company approximate $108 million. It is not practicable to
determine the additional amount subject to repurchase solely under dealer
distribution agreements.
Under the repurchase arrangements relating to product distribution and
product financing activities, when dealer terminations do occur, a newly
selected dealer generally purchases the assets of the prior dealer and
assumes any related financial obligation. Accordingly, the risk of loss to
Clark is minimal, and historically Clark has incurred only immaterial
losses relating to these arrangements.
The Company enters into forward exchange contracts to protect margins on
projected future sales denominated in foreign currencies. Settlement dates
on executed contracts are generally not more than 18 months in advance of
the original execution date. In the first quarter 1995 results, a pre-tax
reserve of $5.8 million was recorded on foreign exchange contracts.
Maximum risk of loss on these contracts is limited to the amount of the
difference between the spot rate at the date of contract delivery and the
contracted rate. The Company believes that future sales revenue will
generate sufficient foreign currency to meet these commitments.
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 13 - 15 "Management's
Discussion and Analysis of Financial Condition and Results of Operations").
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview:
Organizational Developments
Acquisitions:
In May 1994, the Company acquired the stock of Blaw-Knox Construction
Equipment Corporation ("Blaw-Knox"), a leading manufacturer of asphalt
pavers, for approximately $145 million. If the Company had acquired
Blaw-Knox at January 1, 1994, sales in the first quarter of 1994 would have
increased by approximately $26.3 million and net income would have
increased by approximately $2.2 million.
The Company acquired the stock of Club Car, Inc. ("Club Car"), a leading
manufacturer of golf cars and utility vehicles on March 13, 1995 for
approximately $245 million (net of cash acquired). Included in the first
quarter of 1995 sales are sales of approximately $12 million related to
Club Car. Club Car's operations had an immaterial effect on the 1995 first
quarter income.
Sale of VME:
On April 13, 1995, the Company sold its interest in VME Group N.V. ("VME"),
its 50 percent owned construction equipment joint venture, to A.B. Volvo
for $573 million. Clark is expected to net approximately $430 million
after expenses and taxes and realize a gain on the transaction of
approximately $270 million. Clark filed a Form 8-K on April 21, 1995
showing the pro forma effects of this transaction on the December 31, 1994
balance sheet (after adjustments for the Club Car acquisition).
The first quarter results of VME are included in Clark's first quarter
results as a discontinued operation. VME's results have been included to
reflect Clark's continued ownership of VME through March 31, 1995. The
remaining gain to be recorded on the sale of VME, after the recognition of
VME's first quarter results, is approximately $250 million.
Tender Offer by Ingersoll-Rand:
On April 9, 1995, Clark and Ingersoll-Rand Company ("IR") entered into a
Merger Agreement. Pursuant to the terms of this Merger Agreement, IR
agreed to increase to $86 per share the purchase price offered under its
tender offer to purchase 100% of the stock of Clark. The tender offer was
originally scheduled to expire on May 5, 1995 but has been extended to May
19, 1995 to allow additional time for completion of review of the
transaction by the Antitrust Division of the Justice Department. If a
change of control occurs under the tender offer, certain additional
liabilities will result under officer and employee benefit plans. The
liabilities resulting from these change of control provisions will be
reflected in the Company's financial statements if and when a change of
control occurs and will be material to future results of operations. The
Company also expects to incur expenses of approximately $18 million in
connection with the IR tender offer and merger if they are consummated.
General Discussion of First Quarter Performance
First quarter 1995 sales increased $108.0 million, or 52.6 percent, over
first quarter 1994 sales. The increase was the result of improved sales
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levels at both Clark-Hurth and Melroe and includes incremental sales of
approximately $44.3 million as a result of the acquisition of Blaw-Knox in
May of 1994 and Club Car in mid-March of 1995. Net income for the first
quarter 1995 was $40.4 million, or $2.34 per share, compared to $26.9
million, or $1.54 per share, in the first quarter of the prior year. Net
income from continuing operations increased to $20.1 million, or $1.16 per
share, compared to earnings of $12.3 million, or $0.70 per share, in the
first quarter of 1994. The first quarter of 1995 earnings were negatively
impacted by two unusual factors: first, a pre-tax expense of $6.7 million
from stock appreciation rights due to the increase in the price of Clark
stock, and second, a pre-tax reserve of $5.8 million was recorded on
foreign exchange contracts which should be recovered in future periods.
Two special offsetting, pre-tax items, each approximating $4 million, were
recorded in the first quarter of 1994. These items were 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. Net income from
discontinued operations (principally VME) was $20.3 million, or $1.18 per
share, in the first quarter 1995 and $14.6 million, or $0.84 per share, in
the same period of 1994.
Results of Operations:
Sales in the first quarter of 1995 were $313.1 million compared with $205.2
million in the first quarter of 1994. The sales increase of $108.0 million
relates mostly to volume improvements and includes incremental sales of
$44.3 million as a result of the acquisition of Blaw-Knox in May of 1994
and Club Car in mid-March of 1995. Minor price increases also contributed
to the sales increase. Favorable foreign currency translation impacts
increased sales by about $5.6 million. Excluding Blaw-Knox and Club Car
sales, North American sales increased by $35.5 million, or 25.2 percent, in
the first quarter of 1995 when compared with the first quarter of 1994 and
overseas sales increased $28.2 million, or 44.8 percent, when comparing the
same periods.
Gross margins were $66.4 million, or 21.2 percent of sales in the first
three months of 1995 compared with $43.1 million, or 21.0 percent of sales
in the same period of 1994. The gross margin in 1995 has been negatively
impacted by the recording of $6.6 million of foreign currency translation
and exchange losses compared with losses of $0.2 in the first quarter of
1994. Excluding this impact, the gross margins as a percentage of sales
would have been 23.3 percent in the first quarter of 1995 compared with
21.1 percent in the first quarter of 1994, reflecting improved capacity
utilization.
Selling, general and administrative expenses were $35.1 million, or 11.2
percent of sales, in the first quarter of 1995 compared with $25.5 million,
or 12.5 percent of sales, in the first three months of 1994. The increase
in the expense level was principally related to stock appreciation rights
and the inclusion of Blaw-Knox and Club Car in the 1995 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 operations increased to $31.3 million from
the 1994 first quarter level of $17.5 million. Operating income as a
percentage of sales was 10.0 percent in the first three months of 1995 and
8.5 percent in the same period of 1994. 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.
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Other income decreased by $2.6 million from the first quarter 1994 level to
$4.5 million. This decrease was principally due to 1994 including a gain
of about $4.2 million on the sale of certain overseas bonds. Interest
income in the first quarter of 1995 increased $1.5 million over the
comparable 1994 period due to higher average interest rates.
Interest expense for the first quarter of 1995 decreased $0.2 million when
compared to the same period of 1994, although short-term debt increased by
$85 million as a result of a loan obtained by the Company near the end of
the 1995 quarter for the purchase of Club Car. This loan was repaid with
proceeds from the sale of VME in April 1995.
Pre-tax income from continuing operations in the first three months of 1995
was $30.4 million compared to $19.0 million for the same period of 1994.
The improved results reflect higher sales and improved gross margins,
partially offset by increases in selling, general and administrative
expenses.
Tax provisions of $10.3 million and $6.7 million were recorded in the
respective first three month periods of 1995 and 1994. The effective tax
rate for the period in 1995 was 34.0 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. The 1994
first quarter rate was 35.1 percent which approximated the U.S. statutory
rate.
Discontinued operations, which includes the operations of VME, recorded
income of $20.3 million and $13.2 million for the first three months of
1995 and 1994, respectively. The 1994 first quarter also included $1.4
million of income from Clark Automotive Products Corporation ("CAPCO"), a
Brazilian transmission manufacturer sold in the second quarter of 1994.
Including the discontinued operations, Clark recorded income of $40.4
million, or $2.34 per share, in the first quarter of 1995 and $26.9
million, or $1.54 per share, for the same period of 1994.
Contingencies:
Environmental
The Company is involved in environmental clean-up activities or litigation
in connection with eight former waste disposal sites and four former plant
locations. The Company is also involved in an environmental clean-up
action at one current location. Additionally, the Company is a defendant
in a lawsuit filed by the United States Environmental Protection Agency
(EPA) that seeks civil penalties for alleged violations of the Clean Water
Act, arising out of the discharge of certain metal finishing wastewaters
generated at a current plant operating site.
At each of the eight waste disposal sites, Clark contracted with
independent waste disposal operators to properly handle the disposal of its
waste. The EPA also has identified other parties responsible for clean-up
costs at the waste disposal sites. The Company has and will continue to
accrue for these costs when the liability can be reasonably estimated. As
of March 31, 1995, the Company had reserves of approximately $15.4 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
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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 clean-up costs that 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 the potential
liability for environmental clean-up 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
quarter of 1995 relating to environmental compliance and clean-up
activities approximated $0.6 million.
Sale of Clark Material Handling Company ("CMHC")
The Company sold its forklift truck business, CMHC, to Terex Corporation
("Terex") in 1992. As part of the sale, Terex and CMHC assumed
substantially all of the obligations of the Company relating to 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 was financed. Since the
sale, dealer floor plan and rental inventory obligations have been
liquidating in the normal course of business and stand at
approximately $34.4 million at March 31, 1995. 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 on the underlying obligations and Terex and CMHC default on
-14-<PAGE>
<PAGE>
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 $13.5 million of obligations
of third parties relating to the CMHC operation. Approximately $8.2
million of these guarantees relate to national account rental
arrangements with a number of large, creditworthy customers.
Approximately $5.3 million relate 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 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 accruals relating to existing
product liability claims at the time of the sale. Future accidents
are likely to occur, which could result in increased product liability
exposure over time. The Company could 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 effect the Company's
ability to meet its cash requirements.
In its 1994 annual report on Form 10-K, Terex reported that it earned
income of approximately $.5 million for the year ended December 31, 1994.
Included in this income are pre-tax gains of approximately $31 million from
the sale of non-strategic assets. Further, at December 31, 1994, Terex had
deficit shareholder investment of approximately $56 million. In their
report on the financial statements of Terex, Terex's independent
accountants, Price Waterhouse LLP, indicate that Terex is required to make
significant debt repayments in 1995, which it is seeking to refinance.
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 pages 9 and 10.
-15-<PAGE>
<PAGE>
Liquidity and Capital Resources:
At March 31, 1995, the Company's cash and short-term investments amounted
to $47.0 million compared with $228.6 million at December 31, 1994. The
decrease in cash is principally due to the expenditure of approximately
$245 million (net of cash acquired) for the purchase of Club Car, partially
offset by proceeds from a short-term loan of $85 million in mid-March.
Cash usage from all other activities was approximately $22 million.
In April of 1995, the Company received $573 million related to the sale of
VME to A.B. Volvo and approximately $35 million from the repayment by VME
of a subordinated loan previously made to VME by the Company. This cash
will be partially used to pay taxes and expenses related to the sale
(approximately $143 million). A portion of these proceeds were also used
in April of 1995 to repay the $85 million line of credit borrowing which
was used to partially fund the acquisition of Club Car. It is expected
that the remainder of this cash and the Company's other cash on hand will
be used by Ingersoll-Rand to partially fund its acquisition of Clark's
stock under its tender offer.
Capital Investment:
Capital expenditures were $16.7 million in the first three months of 1995
as compared to $7.0 million in the first three months of 1994. A
comparative breakdown of expenditures is as follows:
In Millions
1995 1994
By Type:
. Capital facilities and equipment $14.1 $ 6.0
. Tooling 2.6 1.0
Total $16.7 $ 7.0
By Location:
. North America $14.1 $ 2.9
. Foreign locations 2.6 4.1
Total $16.7 $ 7.0
Depreciation of fixed assets was $9.1 million in the first three months of
1995 as compared to $7.5 million in the first three months of 1994.
The increase in the 1995 expenditures over the 1994 level is largely due to
the continuing expansion at the Melroe business unit's Gwinner, North
Dakota facilities. The $15.0 million project is slated for completion in
mid-1995.
Capitalization:
At March 31, 1995, debt as a percentage of total capitalization (total debt
and stockholders' equity) was 42.1 percent compared with 32.5 percent at
December 31, 1994. The increase in the ratio relates to increased debt
($85.0 million from the short-term loan plus $39.7 million of Club Car debt
assumed in the acquisition), partially offset by increased stockholders'
equity ($17.2 million). Total debt at March 31, 1995 increased to $341.3
million from the December 31, 1994 level of $217.4 million. Stockholders'
equity per share was $27.44 at March 31, 1995 and $25.98 at December 31,
1994.
-16-<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") was 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.
On April 13, 1995, Clark sold its interest in VME to Volvo A.B. for $573
million. The first quarter results of Clark include in "Discontinued
Operations", the results of VME through March 31, 1995. These results have
been included to reflect Clark's continued ownership of VME through March
31, 1995.
Following are condensed consolidated financial data of VME (amounts in
millions):
Three Month Period ended March 31: 1995 1994
Sales $439.5 $327.6
Income before income taxes 57.9 40.3
Provision for income taxes 16.7 13.5
Net Income $ 41.2 $ 26.8
VME's sales during the first quarter of 1995 were $439.5 million, up $111.9
million from $327.6 million in the first quarter of 1994.
The North American market remained at a high level throughout the first
quarter of 1995 but is expected to decline in the second half of the year.
The market conditions in Europe continued to improve in the beginning of
1995. The market improved substantially in the Scandinavian countries and
Spain, but remained flat for Great Britain compared to the same period in
the preceding year.
VME recorded net income of $41.2 million in the first quarter of 1995
compared to net income of $26.8 in the same period of 1994, an increase of
$14.4 million.
The pre-tax income for the first three months of 1995 was $57.9 million
compared to $40.3 million for the same period in the preceding year.
The improved performance resulted mainly from higher unit volumes, improved
price realization, favorable product mix and the past years' restructuring
activities and cost reduction projects. The improved performance was
partly offset by higher cost for outsourcing, increased cost for direct
material and negative exchange deviations.
Total assets of VME were $1,027.2 at March 31, 1995, an increase of $172.7
million from $854.5 million at March 31, 1994. The increase resulted
mainly from higher trade receivables and inventories resulting from the
higher sales volumes.
-17-
<PAGE>
<PAGE>
EXHIBITS LIST AND INDEX
Filed Herewith Unless
Exhibit Description Otherwise Indicated
(2)(a) Agreement and Plan of Incorporated by reference
Merger dated as of to Exhibit (c)(1) to the
February 3, 1995 by and Registrant's Schedule
among Clark Equipment 14D-1 and Schedule 13D
Company, Clark Acquisition dated February 8, 1995
Sub, Inc. and Club Car,
Inc.
(2)(b) Stock Purchase Agreement Incorporated by reference
dated as of March 5, 1995 to Exhibit (2)(e) to
by and among Aktiebolaget Registrant's Form 10-K
Volvo, Clark Equipment for the year 1994
Company and Clark Hurth
Components Marketing Company
(2)(c) Agreement and Plan of Incorporated by reference
Merger dated as of to Exhibit 8 to Registrant's
April 9, 1995 by and Schedule 14D-9 dated
among Ingersoll-Rand April 12, 1995
Company, CEC Acquisition
Corp. and Clark Equipment
Company
(10)(a) Amendment dated as of Incorporated by reference to
March 28, 1995 to employ- Exhibit 5 to Registrant's
ment contract with Leo J. Schedule 14D-9 dated April 12,
McKernan, Chairman, 1995
President and Chief
Executive Officer dated
November 12, 1992
(10)(b) Employment contract with Incorporated by reference to
Frank M. Sims, Director Exhibit (10)(b) to Registrant's
and Senior Vice President Form 10-K for the year 1994
dated February 15, 1995
(10)(c) Amendment dated as of Incorporated by reference to
March 28, 1995 to employ- Exhibit 5 to Registrant's
ment contract with Frank Schedule 14D-9 dated April 12,
M. Sims, Director and 1995
Senior Vice President
dated February 15, 1995
(10)(d) Amendment dated as of Incorporated by reference to
March 28, 1995 to employ- Exhibit 5 to Registrant's
ment contract with Thomas Schedule 14D-9 dated April 12,
L. Doepker, Vice President 1995
and Treasurer dated
November 12, 1992
-18-<PAGE>
<PAGE>
Filed Herewith Unless
Exhibit Description Otherwise Indicated
(10)(e) Amendment dated as of Incorporated by reference to
March 28, 1995 to employ- Exhibit 5 to Registrant's
ment contract with Bernard Schedule 14D-9 dated April 12,
D. Henely, Vice President, 1995
General Counsel and
Secretary dated November 12,
1992
(10)(f) Amendment dated as of Incorporated by reference to
March 28, 1995 to employ- Exhibit 5 to Registrant's
ment contract with William Schedule 14D-9 dated April 12,
N. Harper, Vice President 1995
and Controller dated
November 12, 1992
(10)(g) Amendment No. 1 to Clark Incorporated by reference to
Equipment Company Supple- Exhibit (10)(s) to Registrant's
mental Retirement Income Form 10-K for the year 1994
Plan for Certain Executives
(10)(h) Amendment No. 2 to Clark Incorporated by reference to
Equipment Company Supple- Exhibit (10)(t) to Registrant's
mental Retirement Income Form 10-K for the year 1994
Plan for Certain Executives
(10)(i) Amendment No. 1 to Clark Incorporated by reference to
Equipment Company Supple- Exhibit (10)(w) to Registrant's
mental Executive Retirement Form 10-K for the year 1994
Plan
(10)(j) Amendment No. 2 to Clark Incorporated by reference to
Equipment Company Supple- Exhibit (10)(x) to Registrant's
mental Executive Retirement Form 10-K for the year 1994
Plan
(10)(k) Form of Participation Agree- Incorporated by reference to
ment for Clark Equipment Exhibit (10)(y) to Registrant's
Company Supplemental Form 10-K for the year 1994
Retirement Income Plan
for Certain Executives
(10)(l) Form of Participation Agree- Incorporated by reference to
ment for Clark Equipment Exhibit (10)(z) to Registrant's
Company Supplemental Form 10-K for the year 1994
Executive Retirement Plan
(10)(m) Form of Grant Letter used --
to award Performance Units
in March 1995
(10)(n) Form of Grant Letter used --
to award Stock Options in
March 1995
(27) Financial Data Schedules --
-19-<PAGE>
<PAGE>
Filed Herewith Unless
Exhibit Description Otherwise Indicated
(99) Computation of Ratio of --
Earnings to Fixed Charges
for the three months ended
March 31, 1995
-20-
Exhibit (10)(m)
March 27, 1995
Name
Address
Dear Mr. _________________:
As a member of the management of Clark Equipment Company, one of your
primary responsibilities is to increase the wealth of the Company's
stockholders.
In order to create an incentive for you to increase stockholder wealth
and to reward you for doing so, the Human Effectiveness Committee of
the Board of Directors has awarded to you ________ performance units
under the Clark Equipment Company 1994 Long-Term Incentive Plan (the
"Plan"). These units, which are subject to all of the terms and
conditions of the Plan and of this letter, will increase in value to
the extent that the value of Company stock increases and, subject to
those terms and conditions, may be exercised by you at a time of your
choosing, for cash.
You may exercise these units for cash as follows:
on or after March 27, 1996, _______ units;
on or after March 27, 1997, an additional _______ units;
on or after March 27, 1998, an additional _______ units;
provided that all performance units then unexercised will expire upon
the earliest to occur of the Expiration Date (as defined in subsection
A-5.5 of the Plan) or at the close of business on March 26, 2005, and
may not be exercised thereafter.
In order to exercise one or more performance units for cash, you must
deliver written notice of exercise to the Secretary of the Company,
signed by you, indicating the number of units to be exercised. Units
will be deemed exercised on the day such notice is received by the
Secretary of the Company.
The amount of cash you will receive upon the exercise of any
performance units shall be an amount for each unit exercised equal to
the excess of the Fair Market Value (as defined in subsection A-5.6 of
the Plan) of a share of Company stock at the time of exercise over
$52.625.
-1-<PAGE>
<PAGE>
This award of performance units is conditioned upon your agreement to
the terms and conditions set forth in this letter and those of the Plan
with respect to the award. To accept this award, please execute the
Acknowledgment, Acceptance and Agreement at the bottom of the enclosed
copy of this letter and return it to the Secretary of the Company.
Very truly yours,
CLARK EQUIPMENT COMPANY
By: /s/ Frank M. Sims
Senior Vice President
enc.
Acknowledgment, Acceptance and Agreement
I hereby acknowledge that I have received and read a copy of the Clark
Equipment Company 1994 Long-Term Incentive Plan (the "Plan"); I accept
the award of performance units described in the foregoing letter; and I
agree to the terms and conditions of such letter and of the Plan with
respect to such award.
Signed: ___________________________________
Dated: ___________________________________
-2-
Exhibit (10)(n)
March 27, 1995
Name
Address
Dear Mr. ______________:
As a member of the management of Clark Equipment Company, one of your
primary responsibilities is to increase the wealth of the Company's
stockholders.
Award
In order to create an incentive for you to increase stockholder wealth
and to reward you for doing so, the Human Effectiveness Committee of
the Board of Directors has awarded to you:
an option to purchase a total of _____________ shares of Stock
(the "Option"); and
tandem limited stock appreciation rights with respect to all of
the shares subject to the Option (the "LSARs").
The "Exercise Price" for a share of Option Stock, and for an LSAR, is
$_________. The awards will increase in value to the extent that the
value of Company Stock increases and, subject to terms and conditions
of the Plan and this letter, may be exercised by you at a time of your
choosing.
The awards described in this letter are made under the Clark Equipment
Company 1994 Long-Term Incentive Plan (the "Plan"), and are subject to
all of the terms and conditions of the Plan and of this letter. The
Option is not intended, and will not be treated, as an incentive stock
option (as that term is used in section 422 of the Internal Revenue
Code).
-1-<PAGE>
<PAGE>
Time of Exercise
You may exercise the Option as follows:
on or after March 27, 1996, the Option may be exercised for _____
shares of Stock;
on or after March 27, 1997, the Option may be exercised for an
additional _____ shares of Stock;
on or after March 27, 1998, the Option may be exercised for an
additional _____ shares of Stock;
provided that any unexercised outstanding portion of the Option and any
unexercised outstanding LSARs will expire on the earlier to occur of
the Expiration Date (as defined in A-5.5 of the Plan) or at the close
of business on March 26, 2005. The Option and the LSARs may not be
exercised after expiration.
Exercise of Option
In order to exercise the Option, you must deliver written notice of
exercise to the Secretary of the Company, signed by you, indicating the
number of shares of Option Stock being purchased. The election to
exercise the Option must be accompanied by payment of the exercise
price for the shares of Stock being purchased. Subject to the
provisions of the following sentence, payment must be by cash or by
check payable to the Company. All or a portion of the required amount
may be paid by delivery of shares of Stock (including shares of Stock
acquired pursuant to the exercise of the Option) having an aggregate
Fair Market Value (valued as of the date of exercise) that is equal to
the amount of cash that would otherwise be required. The Option will
be deemed exercised on the day the required notice is received by the
Secretary of the Company.
Exercise of LSAR
In order to exercise one or more LSARs, you must deliver written notice
of exercise to the Secretary of the Company, signed by you, indicating
the number of LSARs that are being exercised. Upon the exercise of an
LSAR, you will receive a cash payment equal to the excess of the Market
Price (as defined in subsection 2.7 of the Plan) of a share of Company
Stock at the time of exercise over the exercise price.
Tandem Awards
The purchase of a share of Option stock will result in the
cancellation of one LSAR.
The exercise of an LSAR will result in the cancellation of the
right to purchase one share of Option stock.
-2-<PAGE>
<PAGE>
These awards are conditioned upon your agreement to the terms and
conditions set forth in this letter and those of the Plan with respect
to the award. To accept these awards, please execute the
Acknowledgment, Acceptance and Agreement at the bottom of the enclosed
copy of this letter and return it to the Secretary of the Company.
Very truly yours,
CLARK EQUIPMENT COMPANY
By: /s/ Leo J. McKernan
Chairman, President and
Chief Executive Officer
enc.
Acknowledgment, Acceptance and Agreement
I hereby acknowledge that I have received and read a copy of the Clark
Equipment Company 1994 Long-Term Incentive Plan (the "Plan"); I accept
the awards described in the foregoing letter; and I agree to the terms
and conditions of such letter and of the Plan with respect to such
award.
Signed: _______________________
Dated: _____________________
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Clark Equipment Company for the period ended March 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 47,046
<SECURITIES> 0
<RECEIVABLES> 195,551
<ALLOWANCES> 7,040
<INVENTORY> 169,888
<CURRENT-ASSETS> 661,617
<PP&E> 432,513
<DEPRECIATION> 220,196
<TOTAL-ASSETS> 1,409,394
<CURRENT-LIABILITIES> 360,082
<BONDS> 225,489
<COMMON> 324,188
0
0
<OTHER-SE> 145,159
<TOTAL-LIABILITY-AND-EQUITY> 1,409,394
<SALES> 313,015
<TOTAL-REVENUES> 313,124
<CGS> 246,386
<TOTAL-COSTS> 246,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 306
<INTEREST-EXPENSE> 5,390
<INCOME-PRETAX> 30,398
<INCOME-TAX> 10,346
<INCOME-CONTINUING> 20,052
<DISCONTINUED> 20,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,389
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
</TABLE>
EXHIBIT (99)
CLARK EQUIPMENT COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
Three Months
1995
Earnings Before Tax:
From Continuing Operations (1) $30.4
Fixed Charges:
Interest Expense $ 5.4
Interest Portion of Rent Expense .4
Total Fixed Charges (2) $ 5.8
Earnings from Continuing Operations before Taxes
and Fixed Charges (1 Plus 2) $36.2
Ratio of Earnings to Fixed Charges 6.24
=====
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
includes the pre-tax income from Clark's Consolidated Continuing
Operations. Fixed Charges include Interest Expense relating to Clark's
Consolidated Continuing Operations. Fixed charges also includes one-third
of Clark Rentals for Consolidated Continuing Operations. 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.
