UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 25, 1995
INGERSOLL-RAND COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 1-985 13-5156640
(State of incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
Woodcliff Lake, New Jersey 07675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 573-0123
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned
subsidiary of Ingersoll-Rand Company (the company), acquired 16,553,617
shares of Clark Equipment Company (Clark), which together with shares
already owned by the company represented approximately 98.4% of the
outstanding shares, for a cash price of $86 per share pursuant to an April
12, 1995 amended tender offer. Clark's business is the design, manufacture
and sale of compact construction machinery, asphalt paving equipment, axles
and transmissions for off-highway equipment, and golf car and utility
vehicles. On May 31, 1995, the company completed the merger of CEC with
Clark. Upon consummation of the merger, Clark became a wholly-owned
subsidiary of the company and the shareholders of Clark who did not tender
their shares became entitled to receive $86 per share. The total purchase
price for Clark was approximately $1.5 billion after taking into account
amounts paid in respect of outstanding stock options and certain
transaction expenses.
Included among the assets acquired by the company (indirectly through
the acquisition of the shares of Clark) are as follows:
1.) Melroe: Melroe products, consisting of skid steer loaders, compact
excavators and a limited line of agricultural equipment, are
manufactured at two plants (Bismarck, ND and Gwinner, ND) for sale
throughout the world. Each plant has machinery, equipment, tools,
dies and fixtures used in the manufacture of Melroe products. Both
plants have finished goods, raw materials, work-in-process and other
inventory. Finished goods inventory and parts are also warehoused at
a facility in Lot, Belgium. Melroe has trademarks, such as "Melroe"
and "Bobcat", patents and other intellectual property. In addition,
Melroe products are manufactured by a licensee in Australia. The
license agreement was indirectly acquired by the company. It is the
company's intention to continue to use these assets of Melroe in the
manufacture of skid steer loaders, compact excavators and a limited
line of agricultural equipment.
2.) Blaw-Knox: Blaw-Knox is one of the leading producers of asphalt
paving equipment in the world. Blaw-Knox products are manufactured at
one plant (Mattoon, IL) in the United States and one plant (Rochester,
England) in the United Kingdom. Products are sold primarily to the
highway construction and asphalt paving industries. Each plant has
machinery, equipment, tools, dies and fixtures used in the manufacture
of asphalt paving equipment. Blaw-Knox has certain trademarks,
patents and other intellectual property. Each plant has finished
goods, raw materials, work-in-process and other inventory. It is the
company's current intention to continue to use these assets in the
manufacture of asphalt paving equipment.
2
3.) Clark Hurth: The products of the Clark Hurth business, which consist
of axles and transmissions for off-highway equipment, are manufactured
in the United States at a plant in Statesville, North Carolina, at
three plants (Arco, Valsugana and Rovereto) in Italy and at a plant in
Brugge, Belgium. Each plant has machinery, equipment, tools, dies and
fixtures used in the manufacture of Clark Hurth products. The Clark
Hurth plants all have finished goods, raw materials, work-in-process
and other inventory. Clark Hurth has trademarks, patents and other
intellectual property relating to its products. In addition, Clark
Hurth products are manufactured by licensees in South Africa and
Brazil. The license agreements were acquired indirectly by the
company. It is the company's intention to continue to use these
assets in the manufacture of axles and transmissions for off-highway
equipment.
4.) Club Car: Club Car products, golf cars and utility vehicles, are
manufactured at a plant in Martinez, Georgia. Machinery, equipment,
tools, dies and fixtures at the plant are used in the manufacture of
golf cars and utility vehicles. Club Car inventory includes finished
goods, raw materials, work-in-process and other inventory. Club Car
has certain trademarks, patents and other intellectual property
relating to its products. It is the company's current intention to
continue to use these assets in the manufacture of golf cars and
utility vehicles.
In addition, all receivables and contract rights of Clark and its
subsidiaries are included indirectly in the purchase.
The funds used to consummate the acquisition came from borrowings of
the company from a Credit Agreement, dated May 5, 1995. The banks
participating in the Credit Agreement and the amount committed by each bank
were $150 million from The Chase Manhattan Bank (N.A.), $75 million from
Commerzbank Aktiengesellschaft, $50 million from Norwest Bank Minnesota,
$150 million from Morgan Guaranty Trust Co. of New York, $120 million from
The Bank of Nova Scotia, $75 million from Deutsche Bank AG, $75 million
from The Bank of Tokyo Trust Co., $120 million from The Bank of New York,
$120 million from Citibank, N.A., $120 million from Union Bank of
Switzerland, $120 million from Wachovia Bank of Georgia, N.A., $75 million
from The Fuji Bank, Limited, $50 million from Corestates Bank, N.A., $50
million from Mellon Bank, $50 million from NBD Bank, $50 million from
Standard Chartered Bank and $50 million from United Jersey Bank, totalling
$1.5 billion.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and pro forma information are
hereby filed as part of this report:
1.) Audited consolidated balance sheets of Clark at December 31, 1994 and
1993 and the audited Consolidated Statements of Income, Cash Flows and
Stockholders' Equity for the years ended December 31, 1994, 1993 and
1992 are attached as pages 5 through 36.
2.) An introduction to the pro forma financial statements is attached as
page 37.
3.) A pro forma balance sheet at December 31, 1994, which combines the
balance sheet of Ingersoll-Rand Company (I-R) and the balance sheet of
Clark, along with a description of all pro forma adjustments, are
attached as pages 38 through 41.
4.) A pro forma income statement which combines the results of I-R and the
results of Clark for the year ended December 31, 1994, along with a
description of all pro forma adjustments, are attached as pages 42 and
43.
5.) A pro forma balance sheet at March 31, 1995, which combines the
balance sheet of I-R and the balance sheet of Clark, along with a
description of all pro forma adjustments, are attached as pages 44
through 46.
6.) A pro forma income statement which combines the results of I-R and the
results of Clark for the three months ended March 31, 1995, along with
a description of all pro forma adjustments, are attached as pages 47
and 48.
EXHIBITS
See attached Exhibit Index on page 49.
4
FINANCIAL STATEMENTS
of
CLARK EQUIPMENT COMPANY
5
<TABLE>
CLARK EQUIPMENT COMPANY BALANCE SHEET
<CAPTION>
Amounts in thousands
December 31 1994 1993
ASSETS:
Current Assets:
<S> <C> <C>
Cash, cash equivalents and short-term investments $ 228,604 $ 235,828
Accounts and notes receivable, less allowances of
$6.0 million and $5.5 million, respectively 109,545 79,144
Refundable income taxes - 3,543
Inventories 123,728 104,841
Deferred tax assets-net 24,384 29,202
Other current assets 8,862 9,213
TOTAL CURRENT ASSETS 495,123 461,771
Investments and advances-associated companies 12,555 122,106
Investments and advances-discontinued operations
VME Group N.V 195,943 -
Deferred tax assets-net 100,402 97,357
Property, plant and equipment-net 181,139 201,924
Assets held for sale - 6,765
Goodwill 167,272 67,461
Other assets 41,465 45,890
TOTAL ASSETS $1,193,899 $1,003,274
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable $ 11,944 $ 22,512
Accounts payable and accrued liabilities 157,128 150,142
Income taxes payable 1,547 4,139
Accrued postretirement benefits 21,132 19,560
Deferred income taxes 715 800
Current installments on long-term debt 12,140 9,612
TOTAL CURRENT LIABILITIES 204,606 206,765
Long-term borrowings 193,294 204,770
Other non-current liabilities 93,994 79,686
Accrued postretirement benefits 241,837 233,239
Deferred income taxes 8,008 10,661
TOTAL LIABILITIES 741,739 735,121
Contingencies (pages 28 to 32)
Stockholders' Equity:
Capital stock, common 143,960 143,958
Capital in excess of par value 180,107 179,582
Retained earnings 254,643 92,708
Cumulative translation and other adjustments (47,211) (67,083)
531,499 349,165
Less common stock held in treasury, at cost 53,470 49,728
Less value of LESOP shares 25,869 31,284
TOTAL STOCKHOLDERS' EQUITY 452,160 268,153
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,193,899 $1,003,274
<FN>
See Notes to Financial Statements
6
</TABLE>
<TABLE>
CLARK EQUIPMENT COMPANY STATEMENT OF INCOME
<CAPTION>
Amounts in thousands,
except per share data
Years ended December 31 1994 1993* 1992*
<S> <C> <C> <C>
NET SALES $946,599 $ 692,022 $658,535
OPERATING COSTS AND EXPENSES:
Cost of goods sold 747,492 557,138 544,294
Selling, general and
administrative expenses 107,668 102,699 87,905
855,160 659,837 632,199
Operating income 91,439 32,185 26,336
Other income 20,671 15,016 14,934
Interest expense (19,966) (21,426) (23,481)
Pre-tax income from continuing operations 92,144 25,775 17,789
Provision for income taxes 29,329 4,196 5,773
Income from continuing operations 62,815 21,579 12,016
Discontinued operations:
Income (loss) from operations 66,236 20,290 (46,577)
Gain on sales 32,884 - 8,519
Income (loss) from discontinued operations 99,120 20,290 (38,058)
Income (loss) before effect of changes in
accounting principles 161,935 41,869 (26,042)
Effect of accounting changes-income taxes - 6,150 92,000
NET INCOME $161,935 $ 48,019 $ 65,958
INCOME(LOSS) PER SHARE:
From continuing operations $ 3.61 $ 1.24 $ .69
From discontinued operations 5.69 1.17 (2.19)
From effect of accounting changes - .35 5.31
Net income $ 9.30 $ 2.76 $ 3.81
<FN>
See Notes to Financial Statements
*Restated to reflect the deconsolidation of the automotive business and reflect the
equity in net income of VME Group N.V. as a discontinued operation.
7
</TABLE>
<TABLE>
CLARK EQUIPMENT COMPANY STATEMENT OF CASH FLOWS
<CAPTION>
Amounts in thousands
Years ended December 31 1994 1993* 1992*
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $161,935 $ 48,019 $ 65,958
Less (income) loss from discontinued operations (66,236) (20,290) 46,577
Adjustments to reconcile net income to net cash
provided by operating activities:
Effect of accounting changes - (6,150) (92,000)
Depreciation 31,444 28,532 29,836
Amortization of intangibles 3,514 2,083 2,482
Net gain on sale of a business (32,884) - (8,519)
Exchange (gain) loss (608) 796 981
Employee benefit expense funded
with treasury stock 1,549 800 908
Loss of unconsolidated company 500 - -
Changes in assets and liabilities, net of the
effects of business dispositions and acquisition:
Decrease (increase) in receivables
and other current assets (19,604) (7,828) 11,643
Decrease (increase) in refundable
income taxes 3,543 (3,543) 7,400
Increase in inventory (14,889) (11,580) (1,921)
Decrease in net deferred tax assets 1,474 174 4,066
Increase (decrease) in payables and accruals 11,756 27,467 (25,432)
Decrease (increase) in other
non-current assets 6,868 2,059 (3,612)
Increase (decrease) in other
long-term liabilities 3,480 (17,624) 10,584
Other 193 172 78
Net cash provided by operating activities 92,035 43,087 49,029
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses
(net of businesses' cash) 103,405 - 80,454
Cost of acquisition-net of cash acquired (145,363) - -
Additions to properties (35,571) (25,469) (31,438)
Sales of properties 10,309 1,040 556
Decrease (increase) in short-term investments 20,400 (79,700) (47,506)
Decrease (increase) in investments and
advances-associated companies (1,938) (2) 45
Net cash provided (used) in investing activities (48,758) (104,131) 2,111
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings - 91,006 -
Payments on long-term debt (8,062) (82,290) (21,929)
Increase (decrease) in notes payable-current (12,888) 9,708 (21,442)
Proceeds from sale of stock under option plans 11 330 -
Other 2,454 129 311
Net cash provided (used) in financing activities (18,485) 18,883 (43,060)
Effect of exchange rate changes on cash 1,499 (2,162) (2,990)
Cash flows from discontinued operations (13,115) 8,527 (43,968)
Increase (decrease) in cash and cash equivalents 13,176 (35,796) (38,878)
Cash and cash equivalents at beginning of year 35,228 71,024 109,902
Cash and cash equivalents at end of year 48,404 35,228 71,024
Short-term investments (cost approximates market) 180,200 200,600 120,900
Cash, cash equivalents, and short-term investments $228,604 $235,828 $191,924
<FN>
See Notes to Financial Statements
*Restated to reflect the deconsolidation of previously owned businesses and
reflect VME Group N.V. as a discontinued operation.
</TABLE>
8
CLARK EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The financial statements of Clark
Equipment Company (Clark or the Company) include the accounts of
all majority-owned subsidiaries. All material intercompany balances
and transactions are eliminated. The Company's investments in
associated companies owned 20% or more are accounted for using the
equity method. Investments in companies owned less than 20% are
carried at cost.
Changes in Reporting Entity - In the second quarter of 1994, the
Company completed the sale of Clark Automotive Products Corporation
(CAPCO) through an initial public offering. CAPCO was a business
unit of Clark that manufactured transmissions, primarily for
on-highway applications, for sale in Brazil and North America.
Clark sold approximately 91% of its interest in CAPCO and received
net proceeds of approximately $103 million. A gain of approximately
$33 million was realized on the sale. The results of CAPCO have
been deconsolidated to reflect the operations of this segment on a
discontinued basis in the Statement of Income for all periods
presented. The notes pertaining to the Statement of
Income do not include amounts related to CAPCO.
On May 13, 1994, the Company purchased Blaw-Knox Construction
Equipment Corporation (Blaw-Knox). Blaw-Knox is a leading
manufacturer of asphalt pavers 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 sales (unaudited) would have been
$984.6 million in 1994 and $780.0 million in 1993. As reported by
the Company on a Form 8-KA filed on July 27, 1994, the pro forma
impact (unaudited) on Clark of the acquisition of Blaw-Knox as of
January 1, 1993, would have increased full-year 1993 net income
from continuing operations by $0.19 per share, and would have
increased first quarter 1994 net income from continuing operations
by $0.12 per share.
VME Group N.V. (VME) is a joint venture owned 50% by the Company
and 50% by AB Volvo of Sweden that manufactures and sells
construction and earth-moving equipment. On March 5, 1995, Clark
agreed to sell its shares in VME to Volvo for $573 million. VME is
reflected as a discontinued operation in the Statement of Income for
all periods presented.
The Company sold its Clark Material Handling Company (CMHC)
business unit to Terex Corporation (Terex) on July 31, 1992, and
recorded a gain of $8.5 million in the third quarter of 1992. The
Statement of Income for 1992 has deconsolidated CMHC, reflecting
its operations as a discontinued operation. Due to the reporting of
9
CMHC on a discontinued basis, the notes pertaining to the Statement
of Income do not include amounts related to CMHC.
Currency Translation - Financial statements of subsidiaries operating
outside of the United States are translated into U.S. dollar
equivalents in accordance with Statement of Financial Accounting
Standards (FAS) No. 52.
Foreign currency exchange results reflected in the Statement of
Income were gains of $3.7 million in 1994 (including gains of $3.1
million from equity investments), losses of $9.2 million in 1993
(including losses of $8.4 million from equity investments), and
losses of $10.8 million in 1992 (including losses of $9.8 million
from equity investments).
Revenue Recognition - The Company's policy is to recognize sales at
the time of shipment. The Company allows dealers to return a
certain level of parts under formal parts return programs. The
estimated liability for these programs approximated $1.2 million in
1994 and $0.9 million in 1993, and is accrued in the Balance Sheet.
Cash, Cash Equivalents, and Short-Term Investments - Cash equivalents
and short-term investments include temporary investments of $208.1
million and $231.3 million at December 31, 1994 and 1993,
respectively. Temporary investments are recorded at cost plus
accrued interest, which approximates market value.
Statement of Cash Flows - For purposes of the Statement of Cash
Flows, the Company considers all highly liquid investments with a
maturity of three months or less from the purchase date to be cash
equivalents. The Company's cash flows from continuing operations
were reduced by cash paid for interest of $19.4 million, $18.8
million, and $19.2 million and income taxes of $28.1 million, $10.8
million, and $5.0 million during 1994, 1993, and 1992,
respectively.
The Statement of Cash Flows for all years presented has been
prepared based on the continuing operations of the Company. As
such, the discontinued cash flows of CAPCO, VME, and CMHC have been
reflected separately within the Statement of Cash Flows.
Fair Value of Financial Instruments - The Company estimates the fair
value of all financial instruments where the face value differs
from the fair value, primarily long-term debt and forward exchange
contracts, based upon quoted amounts or the current rates available
for similar financial instruments. If fair value accounting had
been used at December 31, 1994 and 1993, instead of the historic
basis of accounting used in the financial statements, long-term
debt would exceed the reported level by approximately $4 million
and $20 million, respectively, and the value of forward exchange
contracts would approximate the amounts reflected in the financial
statements.
10
Inventories - Inventories at December 31, 1994 and 1993, net of
valuation allowances of $13.3 million and $12.1 million,
respectively, are classified as follows:
Amounts in millions
1994 1993
Raw materials $ 37.1 $ 38.9
Work in process and finished goods 86.6 65.9
$123.7 $104.8
Inventories are valued at the lower of cost or market by the
last-in, first-out (LIFO) method for substantially all domestic
inventories and by the first-in, first-out (FIFO) method for all
foreign inventories.
If the FIFO method of inventory accounting had been used worldwide,
inventories would have increased by $28.4 million at December 31,
1994, and $27.2 million at December 31, 1993. Inventory subject to
LIFO approximates 65% of total inventory at December 31, 1994.
During 1992, certain domestic inventory quantities were reduced.
These reductions resulted in the liquidation of LIFO inventory
quantities carried at lower costs prevailing in prior years. The
effect decreased cost of goods sold related to continuing
operations by approximately $1.8 million in the fourth quarter of
1992. LIFO adjustments were not material in 1994 or 1993.
Properties and Depreciation - Property, plant and equipment are
carried at cost. Expenditures for maintenance and repairs are
charged to expense as incurred. Expenditures for major renewals and
betterments are capitalized. The Company generally uses the
straight-line method of depreciation. Depreciation lives generally
range from eight to 50 years for land improvements, eight to 50
years for buildings, and three to 25 years for machinery and
equipment. Properties retired or sold are removed from the property
accounts, with gains or losses on disposal included in income.
The year-end property, plant and equipment balances for the past
two years are classified as follows:
Amounts in millions
1994 1993
Land $ 10.5 $ 6.9
Land improvements 4.9 5.5
Buildings 76.0 75.6
Machinery and equipment 291.0 399.3
382.4 487.3
Accumulated depreciation (201.3) (285.4)
$181.1 $201.9
Assets Held for Sale - Assets held for sale at December 31, 1993,
represented one of CMHC's former manufacturing facilities. This
facility was sold in 1994 for an amount approximating the value
reflected in the 1993 balance sheet.
11
Goodwill Amortization - The Company is generally amortizing
goodwill on a straight-line method over a 40-year period. Goodwill
shown in the consolidated financial statements relates to: 1) the
Company's 1990 acquisition of Hurth Axle S.p.A., an Italy-based
company, which is remeasured into U.S. dollars using current
exchange rates (current balance: $68.9 million); and 2) the
Company's 1994 acquisition of Blaw-Knox (current balance: $98.4
million). The amortization recorded for 1994, 1993, and 1992 was
$3.5 million, $2.1 million, and $2.5 million, respectively.
Accumulated amortization at December 31, 1994 and 1993, was $11.4
million and $7.9 million, respectively.
The Company periodically reviews the value of its goodwill to
determine if an impairment has occurred. The Company measures the
potential impairment of recorded goodwill by the undiscounted value
of expected future operating cash flows in relation to its net
capital investment in the subsidiary. Based on its review, the
Company does not believe that an impairment of its goodwill has
occurred.
Costs and Expenses - Provisions are made currently for estimated
future costs under present product warranties. The costs of health
and life insurance postretirement benefits are accrued and charged
against income as earned in accordance with the provisions of FAS
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." Annual expenses under the provisions of this
Statement represent a combination of the interest and service cost
provisions of the annual accrual, along with the actual benefits
provided and paid for active employees. Benefits provided and paid
on behalf of retirees are charged directly against the established
reserve. The accounting for health care benefits anticipates future
cost-sharing changes that are consistent with the Company's
expressed intent. Effective January 1, 1993, VME adopted FAS No.
106 and will recognize its estimated obligation on a transitional
basis over 20 years.
Income Taxes - Prior to 1992, the Company accounted for income
taxes using Accounting Principles Board Opinion No. 11. Effective
January 1, 1992, the Company adopted FAS No. 109, "Accounting for
Income Taxes." This adoption resulted in the recognition of a
cumulative net tax benefit of $92 million related to the
recognition of previously unrecognized net deferred tax assets.
Effective January 1, 1993, VME also adopted FAS No. 109, and
Clark's share of the cumulative tax benefit resulting from this
accounting change was $6.2 million.
The tax cost on foreign earnings remitted to the United States in
1994 and 1992 was $1.0 million and $0.6 million in the respective
years. There was no cost on 1993 remittances. The Company considers
undistributed earnings of its foreign subsidiaries at December 31,
1994, to be permanently invested.
12
Guarantees and Contingencies - Guarantees and contingencies are
accrued when a loss is considered probable and the amount is
measurable.
Income Per Share - Income per share amounts are based on the
weighted average number of shares and the dilutive common
equivalent shares outstanding during the years.
Derivative Instruments - The Company uses forward exchange
contracts to reduce some of the uncertainty related to the currency
impacts surrounding certain cross-border sales transactions.
Through use of these forward exchange contracts, the Company is
able to predetermine the value it will receive for these sales in
terms of the currency where the product is manufactured. This
enables the Company to better estimate its gross margins relating
to these sales and to take appropriate steps in advance to improve
margins through overall cost-reduction or pricing actions.
The Company limits its use of forward exchange contracts so that it
is reasonably assured that the transactions it intends to protect
will occur. The Company has adopted a policy of reflecting these
contracts at their market value to the extent that significant
unrealized gains or losses exist. In accordance with this policy, a
loss of approximately $0.8 million was recorded at December 31,
1994. Prior to the adoption of this policy, the Company followed a
practice of recognizing significant losses currently and reflecting
market value gains as derivative transactions closed.
At December 31, 1994 and 1993, the Company had forward exchange
contracts of $82 million and $95 million, respectively. The 1994
contracts mature periodically over the next 12 months, and
foreign-denominated sales transactions are expected to occur
coincidental with the expiration of these instruments. The fair
value of these contracts approximated the adjusted face value at
each of the reporting periods. The Company believes that it has
entered forward exchange contracts covering about half of its
anticipated 1995 cross-border sales. Cross-border sales
transactions not effectively covered by forward exchange contracts
are subject to currency fluctuations, which could have an effect on
future profit levels.
The Company also has entered into an interest rate swap contract to
convert $10 million of fixed rate debt to a floating rate
instrument. The differential impact of this swap contract is
settled routinely with the corresponding financial institution, and
the interest costs included in the Financial Statements reflect the
floating rate implicit in the swap contract.
DISCONTINUED OPERATIONS
As previously mentioned on page 9, on March 5, 1995, Clark agreed
to sell its shares in VME to AB Volvo of Sweden. In the preparation
of these financial statements, the operations of VME have been
reflected on a discontinued basis in the Statement of Income for all
years presented.
13
VME Group N.V.
The Company's investments in VME were $195.9 million and $122.1
million in 1994 and 1993, respectively. VME is a joint venture
owned 50% each by the Company and AB Volvo of Sweden. Following are
condensed financial data of VME:
Amounts in millions
Year ended December 31, 1994 1993 1992
Net sales $1,566 $1,240 $1,357
Gross profit 424 281 188
Net income (loss) 132 30 (94)
As at December 31, 1994 1993
Current assets $ 660 $ 531
Non-current assets 293 258
Current liabilities 409 314
Non-current liabilities
and deferred taxes 164 247
The $6.8 million difference between the Company's investment and
its equity in VME net assets at December 31, 1994, relates
primarily to additional equity contributions made in prior years,
which are treated as goodwill. Goodwill amortization approximated
$1.1 million in each year presented. During the second half of
1992, the Company and AB Volvo each invested $15 million in VME's
capital, and each made subordinated loans of an additional $35
million. The subordinated loans bear interest of 1.3% over LIBOR
and mature in January 1996.
Effective January 1, 1993, VME adopted FAS No. 109, "Accounting for
Income Taxes," and recorded a benefit of $12.3 million. VME also
adopted FAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective January 1, 1993, and will
recognize its estimated obligation on a transitional basis over 20
years. A charge of $2.8 million is included in VME's 1994 and 1993
net income related to this change in accounting. Clark's share of
each of these accounting changes is consistent with its 50%
ownership position in VME.
Transactions with VME are conducted on the basis of normal
commercial relationships, at prevailing market prices, and are
considered immaterial.
CAPCO
As previously mentioned on page 9, the initial public offering of
CAPCO was completed in the second quarter of 1994. In the
preparation of these financial statements, the results of CAPCO
have been deconsolidated to reflect the operations of this segment
on a discontinued basis in the Statement of Income
for all years presented.
14
Condensed income statement information related to CAPCO for the
first four months of 1994 and the two years ended December 31, 1993
and 1992, follows:
Amounts in millions
1994 1993 1992
Net sales $54.2 $184.4 $145.5
Pre-tax income from operations 2.3 20.7 12.8
Net income from operations 1.3 12.5 8.2
Gain on sale 32.9
Included in CAPCO's pre-tax income from operations is a foreign
loss of $3.3 million in 1994 and income of $8.4 million and $2.0
million in 1993 and 1992, respectively. Net income in 1993 and 1992
benefited from the utilization of operating loss carryforwards in
Brazil in the respective amounts of $3.7 million and $1.3 million.
Included in the gain on the sale of this business is a tax
provision of $3.0 million.
CMHC
In July 1992, the Company sold its material handling business,
Clark Material Handling Company (CMHC). This business has been
classified in the Statement of Income as a discontinued operation
for all years presented. Condensed income statement information
related to CMHC through July 31, 1992, follows:
Amounts in millions
1992
Net sales $248.5
Pre-tax loss from operations (11.2)
Net loss from operations (7.0)
Gain on sale 8.5
Included in the pre-tax loss from operations is foreign income of
$2.6 million. Included in the gain on the sale of CMHC is a tax
benefit of $7.6 million.
Other
Discontinued operations in 1992 include the results of an insurance
subsidiary which had been held for sale. The subsidiary continues
to be liquidated, and due to immateriality, these results have been
reclassified to other income in 1993 and 1994. The investment in
this operation has been reclassified on the Company's Balance Sheet
to "other assets" for both periods presented.
15
INVESTMENTS AND ADVANCES
ASSOCIATED COMPANIES
Marubeni Bobcat Sales Company
In August 1994, Melroe Company, a business unit of Clark, and
Marubeni Corporation, a Japanese firm, completed a joint venture
agreement to export Bobcat skid-steer loaders and attachments
manufactured in North Dakota and market them in Japan. The new
company, which is owned equally by Melroe and Marubeni, is
headquartered in Yokohama, Japan. The Company's investment at
December 31, 1994, was $1.1 million and is accounted for by the
equity method. Clark has recorded an equity loss of $0.5 million
for its share of the 1994 losses and has classified this loss in
other income.
Investment in CAPCO
In the second quarter of 1994, the Company sold approximately 91%
of its interest in CAPCO to the public through an initial public
offering. The Company's remaining 9% investment, which is classified
as available for sale, is valued at $11.4 million at December 31,
1994, and includes an adjustment of $4.6 million to increase the
cost basis of the investment to fair market value in accordance
with FAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
ACCRUED LIABILITIES
Accounts payable and accrued liabilities include
the following:
Amounts in millions
1994 1993
Trade payables $ 87.1 $ 65.0
Accrued payrolls
and related taxes 30.3 34.8
Accrued warranty 12.1 15.5
Accrued pension 4.6 12.5
Other 23.0 22.3
$157.1 $150.1
Other non-current liabilities include the following:
Amounts in millions
1994 1993
Accrued pension $16.5 $ 2.4
Accrued product liability 17.1 14.8
Environmental 13.7 13.5
Income taxes payable 15.2 15.4
Discontinued operations reserves 8.5 9.6
Other 23.0 24.0
$94.0 $79.7
16
OTHER INCOME
Following is a summary of the major elements of other income for
the years ended December 31:
Amounts in millions
1994 1993 1992
Interest income $11.0 $11.4 $10.6
Gain on sale of assets 7.0 - -
Sundry items, net 2.7 3.6 4.3
$20.7 $15.0 $14.9
The 1994 gain on sale of assets relates to the sale of certain
overseas bonds of $4.2 million and the sale of a parts facility in
Atlanta, Georgia, for $2.8 million.
The 1993 interest income includes income of $1.7 million from a
duty drawback refund received from the U.S. Customs Service, and
interest of $1.8 million due from the settlement of U.S. tax audits
for 1989 through 1991. Interest income received on the subordinated
loan to VME amounted to $2.0 million in 1994 and $1.6 million in
1993.
SUPPLEMENTARY INCOME STATEMENT
INFORMATION
Amounts in millions
1994 1993 1992
Maintenance and repairs $18.0 $16.3 $16.9
Taxes, other than payroll
and income taxes 9.7 7.7 8.4
Rents 4.4 4.8 5.0
Advertising costs 6.3 6.0 6.7
Research and
development costs 15.6 17.0 14.7
INCOME TAXES
Following is a segregation of pre-tax income from continuing operations
as reported by U.S. and foreign companies:
Amounts in millions
1994 1993 1992
Pre-tax income (loss)
Continuing operations:
United States $78.0 $27.0 $12.7
Foreign 14.1 (1.2) 5.1
$92.1 $25.8 $17.8
17
The elements of the provision for income taxes are as follows:
Amounts in millions
1994 1993 1992
Current income taxes:
Federal $19.9 $2.1 $(1.1)
Foreign 2.1 1.7 2.4
State 2.5 .3 .6
Total current 24.5 4.1 1.9
Deferred (prepaid)
income taxes:
United States
recurring 4.1 4.5 4.5
change in tax rates - (3.0) -
Foreign .7 (1.4) (.6)
Total deferred 4.8 .1 3.9
Provision for income
taxes on continuing operations $29.3 $4.2 $ 5.8
The U.S. corporate income tax rate increased from 34% to 35% in
1993. A tax credit of $3.0 million was recorded in 1993 as net U.S.
deferred tax assets were revalued at the higher tax rate.
Deferred tax assets before valuation allowances approximate $148
million as of December 31, 1994, and $160 million as of December
31, 1993. These assets consist of:
Amounts in millions
1994 1993
Expected future tax
benefits relating to
postretirement benefits $ 97 $ 94
Self-insurance and
warranty reserves 10 11
Environmental reserves 6 6
Pension and deferred
compensation commitments 15 15
Loss and credit carryforwards 17 27
Other items 3 7
Gross deferred tax assets 148 160
Valuation allowances (23) (33)
Net deferred tax assets $125 $127
Valuation allowances relate largely to net operating foreign tax
credit and capital loss carryforwards. A valuation allowance of
approximately $6 million also has been established related to
certain temporary differences for which deferred tax assets have
been provided but for which the ultimate realization of tax
benefits is not certain.
Deferred tax liabilities as of December 31, 1994 and 1993, of $8.7
million and $11.5 million, respectively, are comprised of
differences in the recorded book and tax basis of assets.
18
As of December 31, 1994, the Company has foreign net operating
loss, U.S. capital loss, and foreign tax credit carryforwards, the
tax benefits of which approximate $7 million, $8 million, and $2
million, respectively, for which no financial statement benefit has
been recognized. Approximately $1.6 million of these operating loss
benefits expire by 1998, while the remainder have an indefinite
carryforward period. The capital loss expires in 1997. The foreign
tax credit carryforward expires in 1996. Benefit relating to these
carryforwards has not been reflected because of the limited
carryforward periods and the limitations on their use. Future
benefit may occur to the extent capital gains or foreign-sourced
income are recognized prior to the expiration of the carryforwards.
During 1993 and 1992, pre-tax capital gain income relating to
continuing operations of approximately $3.0 million and $1.8
million, respectively, was earned, favorably impacting the
Company's tax provision.
At the time of the adoption of FAS No. 109, no net benefit was
given to the foreign operating loss carryforwards because of the
limited carryforward periods and/or the uncertain business
conditions relating to the operations giving rise to such
carryforwards. With respect to these carryforwards, the Company at
December 31, 1994, has continued to follow the policy that the
benefit of these carryforwards will be recognized when realized. As
such, future recognition of these carryforwards will be reflected
if the foreign entities have sufficient earnings before the
expiration periods of the respective loss carryforwards. The 1994
tax provision has been reduced by $3.3 million as a result of the
utilization of such carryforwards. Future tax benefits of these
carryforwards could aggregate $7 million if all such carryforwards
become realizable.
The deferred tax asset valuation reserve was approximately $23
million at December 31, 1994, compared with $33 million at December
31, 1993 and $31 million at December 31, 1992. The reduction in the
1994 balance resulted principally from the utilization of net
operating and capital loss carryforwards. A tax benefit of
approximately $8 million was realized as a result of the
utilization of capital loss carryforwards in conjunction with the
sale of CAPCO in May 1994.
The increase in the 1993 valuation allowance compared with the
level at December 31, 1992, was the result of additional net
operating loss carryforwards at certain locations, a revised
estimate of the capital loss carryforward, and a revision of
foreign tax credit carryforwards resulting from an Internal Revenue
Service audit. The reserve was reduced by $3.7 million as a result
of the realization of net operating loss carryforwards at CAPCO's
Brazilian operations.
The valuation allowance at December 31, 1992, of $31 million was
$22.3 million less than that originally provided at the time of the
adoption of FAS No. 109. Approximately $19.5 million of this
19
difference relates to the temporary differences of CMHC, net of the
unrealized capital loss benefit. Valuation reserves for future tax
benefits of CMHC were provided at the time of the adoption of FAS
No. 109 because it was expected that such benefits would accrue to
the purchaser. The remaining difference reflects the domestic
utilization of capital loss carryforward benefits and the
utilization of operating loss carryforwards at certain foreign
locations in 1992.
A reconciliation of the net effective tax rate for continuing
operations to the U.S. statutory federal income tax rate for the
three years ended December 31, 1994, is as follows:
Amounts in millions
1994 1993 1992
U.S. federal statutory rate 35.0% 35.0% 34.0%
Increase (decrease) in rate
resulting from:
Revaluation of deferred
tax assets for change
in U.S. tax rates - (11.6) -
Utilization of net
operating and capital
loss carryforwards
and other credits (3.6) (4.5) (10.9)
Higher foreign taxes 2.0 2.7 7.2
Change in reserve for
potential disallowances (2.3) - -
Foreign distributions, net
of foreign tax credits 1.1 - 2.6
Income not subject to tax (2.0) (3.1) (2.4)
Other, net 1.6 (2.2) 1.9
Net effective tax rate 31.8% 16.3% 32.4%
Undistributed earnings and basis differentials approximate $45.3
million at December 31, 1994. Any future dividends declared and
remitted are expected to be solely from the current earnings of the
respective operations. Undistributed earnings and existing basis
differentials will become subject to tax in the event that they are
remitted or if the Company should sell such operations. It is not
expected that the additional tax that would be required if earnings
were to be distributed would be material.
20
LONG-TERM AND SHORT-TERM DEBT
Following is a summary of long-term debt of the Company and its
consolidated subsidiaries due after one year, as of December 31:
Amounts in millions
1994 1993
Medium-term notes having
maturities ranging from
June 14, 1995, to May 15, 2023,
and interest rates ranging
from a floating LIBOR plus
.55% to a fixed 8.35%
(face amount $90,250,000) $ 79.7 $ 89.6
9 3/4% notes due March 1, 2001
(face amount $100,000,000) 99.7 99.7
6% industrial development
revenue bonds, payable
$400,000 in 1998 and $900,000
annually in 1999 to 2002 4.0 4.0
Hurth obligations due in periods
ranging from 1995 to 2000,
at an average rate of 9.5% 9.9 11.5
$193.3 $204.8
Required payments on long-term debt are $12.1 million in 1995,
$23.2 million in 1996, $1.9 million in 1997, $12.3 million in 1998,
$2.8 million in 1999, and $153.1 million thereafter.
In the second quarter of 1993, the Company issued approximately $90
million of medium-term notes under a $150 million shelf
registration statement. These include $50 million of 30-year notes
at an average rate of approximately 8.20%. The remaining notes have
maturities ranging from June 14, 1995, to July 1, 1998, at rates
ranging from a floating LIBOR plus .55% to a fixed 6.25%.
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. The
Agreement carries restrictions on minimum net worth and
debt-to-capitalization ratios. At December 31, 1994 and 1993, there
were no amounts outstanding under the respective credit facilities
and the Company was in compliance with the facility requirements.
On February 21, 1995, the Company extended the term of this
Agreement to April 6, 1998, and increased the amount available
thereunder to $200 million through February 20, 1996, at which time
it will revert to $100 million.
21
At December 31, worldwide short-term bank lines of credit, subject
to cancellation upon notice by the bank or the Company, were:
Amounts in millions
1994 1993 1992
Lines of credit $56.2 $46.2 $44.3
Unused lines of credit 44.3 23.7 31.1
Maximum borrowings
during year 26.7 22.5 42.7
Average borrowings 16.0 18.2 27.0
Average rate on foreign
borrowings outstanding
at December 31 5.9% 8.2% 9.6%
Daily weighted average
interest rate 7.4% 11.2% 10.8%
CAPITAL STOCK
The Company has authorization for 40,000,000 shares of $7.50 par
value Common Stock. There were 17,400,975 shares and 17,401,903
shares outstanding at December 31, 1994 and 1993, respectively.
These shares include 2,053,996 shares held in the LESOP trust.
Shares held as treasury stock were 1,793,709 shares and 1,792,431
shares at the respective year-ends. The Company also has
authorization for 3,000,000 shares of $1.00 par value Preferred
Stock, none of which have been issued.
In 1987, the Board of Directors adopted a Rights Plan, which was
amended in 1990 and will expire in 1997. The Rights Plan may become
operative in the event that certain change of control conditions
occur.
22
STOCK OPTIONS
Following is a summary of the changes in options under the 1975 and
1985 stock option plans for each of the last three years:
1994 1993 1992
Outstanding at
January 1, at
an average price per
share of $18.57,
$20.08, and $25.05,
respectively 172,151 306,030 114,662
Options granted
at an average price
per share of
$18.50 in 1992 - - 219,581
Canceled or lapsed (500) (40,002) (28,213)
Exercise of
previously granted
options at an
average grant price
per share of
$18.58 and $19.71,
respectively (59,632) (29,278) -
Exercise of
options with
appreciation rights (104,281) (64,599) -
Outstanding at
December 31, at an
average price per
share of $18.50,
$18.57, and $20.08,
respectively 7,738 172,151 306,030
In addition to the above options, there were performance units
outstanding at December 31 of 259,951 in 1994, 492,840 in 1993, and
568,776 in 1992, which had average exercise prices of $20.57,
$19.58, and $21.88 in the respective years. 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. The accrued liability of the options with stock appreciation
rights and the performance units at December 31 was $6.7 million in
1994, $11.9 million in 1993, and less than $0.1 million in 1992.
The related expense was $11.1 million, $15.5 million, and less than
$0.1 million in each of the respective years.
23
On May 10, 1994, the stockholders of the Company approved the 1994
Long-Term Incentive Plan (LTIP), which provides for certain
stock-based compensation plans, including stock options and stock
appreciation rights. The stockholders authorized 850,000 shares for
issuance under the LTIP. As of December 31, 1994, no options have
been granted under the LTIP.
PENSION COSTS
The Company has non-contributory defined benefit pension plans
covering certain of its U.S. employees and certain employees and
retirees of previously owned businesses. The plans covering
salaried employees provide benefits based upon years of service and
final average compensation. The plans covering hourly employees
provide monthly benefits based upon a flat rate and years of
service.
Assets of the U.S. plans are invested primarily in U.S. government
and agency bonds, equities, fixed income securities, and insurance
contracts. The Company's funding policy for its qualified plans
generally is to contribute no less than the minimum amount required
by law and no more than the maximum amount that can be deducted for
federal income tax purposes.
Some of the Company's foreign subsidiaries also have defined
benefit pension arrangements. These plans are not required to
report to governmental agencies pursuant to ERISA, and do not
otherwise determine the actuarial value of accumulated benefits or
net assets available for benefits.
Consolidated worldwide 1994 pension expense for defined benefit
plans was $11.5 million, compared with $9.2 million in 1993 and
$6.8 million in 1992. The components of pension expense for each of
these years is as follows:
Amounts in millions
1994 1993 1992
Current service cost $ 3.6 $ 2.9 $ 3.1
Interest cost 25.6 25.2 24.9
Return anticipated on
plan assets for the year
(actual $2.8 million,
$70.9 million, and
$10.4 million for the
respective years) (23.8) (22.7) (23.6)
Other components of
pension expense, net 4.8 2.7 1.4
U.S. pension expense 10.2 8.1 5.8
Non-U.S. pension expense 1.3 1.1 1.0
$11.5 $ 9.2 $ 6.8
24
The following tables reconcile the funded status of the Company's
U.S. pension plans and the amounts recognized on the Company's
Balance Sheet:
Amounts in millions
Assets Accumulated
Exceed Benefits
Accumulated Exceed
December 31, 1994 Benefits Assets
Accumulated benefit obligation, including
non-vested benefits of $11.3 million. . . . . $ 81.5 $229.9
Projected benefit obligation. . . . . . . . . $ 96.8 $232.4
Unrecognized past service cost. . . . . . . . .7 (5.7)
Unrecognized net loss from past experience
different from that assumed. . . . . . . . . (16.5) (34.6)
Unrecognized transition asset. . . . . . . . . 1.1 .3
Plan assets at fair value (121.2) (178.9)
Adjustment required to recognize
minimum liability. . . . . . . . . . . . . . 37.8
Accrued (prepaid) pension cost . . . . . . . $(39.1) $ 51.3
December 31, 1993
Accumulated benefit obligation, including
non-vested benefits of $13.5 million. . . . . $ 90.9 $237.0
Projected benefit obligation. . . . . . . . . $110.0 $237.0
Unrecognized past service cost. . . . . . . . - (1.2)
Unrecognized net loss from past experience
different from that assumed . . . . . . . . . (34.6) (30.0)
Unrecognized transition asset . . . . . . . . 1.4 .4
Plan assets at fair value . . . . . . . . . . (111.5) (194.8)
Adjustment required to recognize
minimum liability . . . . . . . . . . . . 30.8
Accrued (prepaid) pension cost . . . . . . . . $(34.7) $ 42.2
The discount rates used to determine the projected benefit
obligation were 8.25% in 1994 and 7.25% in 1993. The rate of
increase in future compensation for determining the projected
benefit obligation was 5.4%. The expected rate of return on plan
assets ranged from 8.25% to 8.5% in 1994 and from 8.75% to 8.85% in
1993.
25
Balance sheet liabilities for worldwide pensions totaled $21.1
million and $14.9 million at December 31, 1994 and 1993,
respectively. Of these figures, U.S. plans accounted for $12.2
million and $7.5 million in 1994 and 1993, respectively, while
foreign plans accounted for $8.9 million and $7.4 million in 1994
and 1993, respectively.
The Company also has certain defined contribution plans in the
United States and Italy. Expense relating to these plans totaled
$4.4 million, $2.9 million, and $4.0 million in 1994, 1993, and
1992, respectively.
POSTRETIREMENT HEALTH CARE AND LIFE
INSURANCE BENEFITS
The Company provides certain health care and life insurance
benefits for retired employees, including certain retirees of
previously owned businesses, including CAPCO. Substantially all of
the Company's U.S. employees may become eligible for these benefits
upon retirement. The coverage is provided on a non-contributory
basis for most retirees who retired prior to August 1986, and on a
contributory basis for post-August 1986 retirees and all active
employees.
The Company does not fund its postretirement benefit plans. The
following table presents a reconciliation of the Accumulated
Postretirement Benefit Obligation (APBO) to the liability for such
costs recognized on the Company's Balance Sheet as of December 31,
1994 and 1993:
Amounts in millions
1994 1993
Accumulated Postretirement
Benefit Obligation (APBO):
Retirees $229.8 $251.5
Fully eligible active
participants 15.4 12.8
Other active participants 23.5 20.3
Total APBO 268.7 284.6
Unrecognized past
service cost 10.3 11.6
Unrecognized loss from
changes in assumptions (16.0) (43.4)
Accrued postretirement
benefit cost $263.0 $252.8
26
Net periodic postretirement benefit expense for each of the three years
ended December 31 was comprised of the following components:
Amounts in millions
1994 1993 1992
Service cost of benefit earned $ 1.9 $ 1.3 $ 1.4
Interest cost on APBO 21.0 21.5 21.2
Other (.6) (.6)
Net periodic postretirement
benefit expense $22.9 $22.2 $22.0
In measuring the projected APBO for 1994, 1993, and 1992, medical
inflation trend rates were initially assumed at 13%, 13%, and 13%,
with such rates trending downward to 5%, 5%, and 5%, respectively,
by 2000. The weighted average discount rates used in each year were
8.5%, 7.5%, and 8.25%. If the health care cost trend rate were to
be increased by 1%, the APBO as of December 31, 1994, would
increase by approximately $24.9 million, and the net periodic
postretirement expense would increase by approximately $2.3
million.
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN
The Company has a Leveraged Employee Stock Ownership Plan (LESOP)
for eligible U.S. employees. The Company loaned the LESOP $85
million, which the LESOP used to purchase 2,741,936 shares of Clark
Common Stock from the Company. Clark has agreed to make future
contributions to the LESOP to service this debt. The related
obligation offsets the note due from the LESOP in Clark's Balance
Sheet.
The Clark Common Stock purchased with the loan proceeds is held by
the LESOP trustee as collateral for the loan owed to Clark. Each
year, the Company makes contributions to the LESOP which in turn
are used to make loan principal and interest payments. With each
principal and interest payment, the LESOP allocates a portion of
the Common Stock to participating employees. As of December 31,
1994 and 1993, there were 1,905,212 and 1,730,551 shares,
respectively, allocated to participants.
The LESOP is designed to fund the Company's contributions to the
Clark Savings and Investment Plan and the Clark Retirement Program
for Salaried Employees. Currently, the Plan is only being used to
fund the salaried retirement program.
The benefits of the LESOP are integrated with those of the Clark
Retirement Program for Salaried Employees, a defined benefit
pension plan. Benefits accrued by each participant under the
pension plan after 1984 are offset by the value (converted to a
pension equivalent basis) of his or her account in the LESOP, so
that the LESOP satisfies part or all of the benefit obligation and
reduces the funding requirements of the pension plan. In the event
that a participant's LESOP account exceeds the pension benefit after
1984, the participant is entitled to the full LESOP benefit.
27
The outstanding balance of the loan from Clark to the LESOP is
repayable in semi-annual installments of $2.6 million, with the
aggregate amount then remaining unpaid to be paid on July 1, 2001.
Interest is payable quarterly at a rate equal to LIBOR plus .25%
for the period October 1, 1992, through final maturity. The
outstanding balance under the loan as of December 31, 1994, was
$35.2 million.
At the time the LESOP was established, the value of shares
purchased was established as an offset to Clark's equity. This
offset is reduced as shares are allocated to participants in
conjunction with Clark's annual contributions to the LESOP.
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 also is 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 December 31, 1994 and
1993, the Company had reserves of approximately $16.0 million and
$16.4 million, respectively, 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 clean-up costs
that will be paid by other potentially responsible parties. The
Company's share of the potential liability could therefore change
28
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 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 1994 and 1993 relating to
environmental compliance and clean-up activities approximated $2.1
million and $2.6 million, respectively.
Sale of CMHC
The Company sold its forklift truck business, CMHC, to 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 $42 million at December 31, 1994. These obligations
will continue to liquidate in an orderly fashion. The Company will
not be required to perform these repurchase obligations unless the
dealer defaults on the underlying obligations and Terex and CMHC
default on their repurchase obligations. Should that occur, the
collateral value securing the obligations should be sufficient to
reduce any loss to an immaterial amount.
29
2) Third-Party Guarantees
The Company has guaranteed approximately $16 million of obligations
of third parties relating to the CMHC operation. Approximately $10
million of these guarantees relate to national account rental
arrangements with a number of large, creditworthy customers.
Approximately $6 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 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
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 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
third quarter of 1994 which indicates that it has reported net
income for the three and nine month periods ended September 30,
1994, of $1.0 million and $.2 million, respectively. This compares
with losses of $15 million and $45 million for the three and nine
month periods ended September 30, 1993. The third quarter and nine
month 1994 results include $4.3 million and $29.1 million,
respectively, of gains related to sales of non-strategic assets.
According to this Form 10-Q, cost-reduction actions have been
implemented during 1994 and additional asset sales are expected to
30
be completed in the fourth quarter of 1994. In its 10-Q, Terex
indicates that with its existing credit facilities and through its
other financing and cash-generating activities, it expects to be
able to meet its obligations on a timely basis.
Other
The Company is self-insured with respect to product liability risk,
although insurance coverage is obtained for catastrophic losses.
The Company has pending approximately 57 claims, with respect to
which approximately 30 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
December 31, 1994 and 1993, the Company had reserves of
approximately $19.1 and $16.6 million, respectively, related to
product liability exposures for known claims and for claims
anticipated to have been incurred that have not yet been reported.
The reserves, which have been determined based upon actuarial
calculations using historical claims experience, have been grossed
up by expected recoveries from insurance companies of $5.7 million
and $5.0 million, respectively.
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
December 31, 1994, are subject to a high degree of estimation and
cannot be determined with complete precision. However, in the
opinion of management, either adequate provision for anticipated
costs have 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 December 31, 1994,
guarantees are approximately $25 million and repurchase
arrangements relating to product financing by an independent
finance company approximate $82 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 acquires 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.
31
At December 31, 1994, forward exchange contracts of approximately
$82 million were outstanding. 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.
BUSINESS SEGMENT INFORMATION
The business conducted by the Company's continuing operations is
the design, manufacture, and sale of skid-steer loaders, highway
paving and construction equipment, and axles and transmissions for
off-highway equipment. Sales to the U.S. government account for
less than 1% of total sales.
The Company operates in one industry segment, that being
"off-highway" products in the capital goods industry. Melroe
produces skid-steer loaders, compact excavators, and a limited
number of agricultural products. Blaw-Knox manufactures asphalt
pavers. Clark-Hurth Components produces off-highway axles and
transmissions used principally in construction, mining, and
material handling applications.
Sales and operating profit reflect amounts sourced from the
identified geographic areas.
Identifiable assets are those that are used in the Company's
operations in each geographic area. Corporate assets are
principally cash, short-term investments, equity investments,
deferred tax assets, and fixed assets maintained for general
corporate purposes.
Unallocated corporate and other expenses include certain continuing
costs related to previously disposed businesses. These are
principally "interest" costs related to discounted pension and
retiree health care liabilities.
There was no single customer from which at least 10% of total
revenue was derived during 1992-1994. In addition to the European
sales reflected on page 33 that are manufactured and sourced from
European locations, Clark manufactures in the United States and
exports to Europe and other foreign locations. These amounts are as
follows:
Amounts in millions
1994 1993 1992
Canada $ 31.5 $ 23.2 $ 19.2
Europe 125.1 108.1 136.2
South America 18.0 11.5 9.5
Asia/Pacific 27.3 17.2 13.7
$201.9 $160.0 $178.6
32
<TABLE>
GEOGRAPHIC SEGMENTS
Amounts in millions
<CAPTION>
Sales Operating Profit Identifiable Assets
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCE:
North America $763.3 $562.3 $501.4 $116.5 $64.9 $55.5 $436.7 $251.5 $228.7
Europe 183.3 129.7 157.1 15.9 4.2 3.9 244.2 200.5 238.4
Transfers between areas:
North America 26.5 16.3 15.0
Europe 26.8 12.0 10.9
Eliminations (53.3) (28.3) (25.9) (10.6) (7.9) (6.8)
946.6 692.0 658.5 132.4 69.1 59.4 670.3 444.1 460.3
Unallocated corporate
and other (20.3) (21.9) (18.1) 327.7 341.2 269.4
Interest expense (20.0) (21.4) (23.5)
Continuing
operations* $946.6 $692.0 $658.5 $ 92.1 $25.8 $17.8 998.0 785.3 729.7
Discontinued
operations 195.9 218.0 229.0
Total $1,193.9 $1,003.3 $958.7
<FN>
*Pre-tax income and assets from continuing operations.
</TABLE>
33
<TABLE>
CLARK EQUIPMENT COMPANY CHANGES IN STOCKHOLDERS' EQUITY
Amounts in millions, except share data
<CAPTION>
Retained Fair Market
Capital in Earnings Value of Cumulative Value
Capital Excess of (Accumulated LESOP Treasury Translation Pension Adjustment-
Stock Par Value Deficit) Shares Stock Adjustment Adjustment CAPCO Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, DECEMBER 31, 1991 $143.9 $179.0 $(20.9) $(40.6) $(52.0) $41.5 $(13.4) $ - $237.5
Net income 66.0 66.0
LESOP shares allocated
to employees 4.9 4.9
Pension liability in excess of
unrecognized prior service
cost, net of tax-Clark (.5) (.5)
Pension liability in excess of
unrecognized prior service
cost, net of tax-VME. (4.0) (4.0)
Shares issued-treasury
(39,647 shares) (.2) 1.1 .9
Amortization of unearned
restricted stock .2 .2
Effect of exchange rates (52.4) (52.4)
Balance, DECEMBER 31, 1992 143.9 179.2 44.9 (35.7) (50.9) (10.9) (17.9) - 252.6
Net income 48.0 48.0
LESOP shares allocated
to employees 4.4 4.4
Pension liability in excess of
unrecognized prior service
cost, net of tax-Clark (6.8) (6.8)
Pension liability in excess of
unrecognized prior service
cost, net of tax-VME (6.3) (6.3)
Shares issued-treasury
(48,164 shares) .1 .3 (.2) 1.2 1.4
Amortization of unearned
restricted stock .1 .1
Effect of exchange rates (25.2) (25.2)
Balance, DECEMBER 31, 1993 144.0 179.6 92.7 (31.3) (49.7) (36.1) (31.0) - 268.2
Net income 161.9 161.9
LESOP shares allocated
to employees 5.4 5.4
Pension liability in excess of
unrecognized prior service
cost, net of tax-Clark (3.1) (3.1)
Reclassification of
pension liability in excess of
unrecognized prior service
cost, net of tax-VME 12.3 12.3
Shares issued-treasury
(78,744 shares) .7 1.5 2.2
Stock purchase
plan awards (.2) (.2)
LESOP forfeiture
(80,022 shares) (5.3) (5.3)
Effect of exchange rates 6.2 6.2
Unrecognized gain on invest-
ment available for sale 4.6 4.6
Balance, DECEMBER 31,1994 $144.0 $180.1 $254.6 $(25.9) $(53.5) $(29.9) $(21.8) $ 4.6 $452.2
34
</TABLE>
SUBSEQUENT EVENTS
On February 3, 1995, the Company announced that it will make a tender offer
to purchase for cash all of the outstanding shares of Club Car, Inc., a
leading manufacturer of golf cars and light utility vehicles. The purchase
price is expected to aggregate approximately $237 million,plus transaction
costs. For the year ended September 30, 1994, Club Car reported sales of
approximately $186 million, and at September 30, 1994, had tangible net
worth of about $17 million. The Company expects to fund this acquisition
with its available cash, through use of its revolving credit facility, and
eventually through use of net proceeds from the sale of VME, which should
amount to about $430 million after payment of taxes and costs of the
transactions.
The Company also announced on February 3, 1995, that its Board of Directors
has authorized the repurchase of as many as 3 million shares of its common
stock. It is expected that proceeds from the VME sale will be partially
used to fund this repurchase program.
35
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Stockholders and Board of Directors
Clark Equipment Company
South Bend, Indiana
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and of cash flows present fairly,
in all material respects, the financial position of Clark Equipment Company
and its consolidated subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the Notes to the Consolidated Financial Statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes and effective January 1, 1993, the Company's 50%-owned joint
venture, VME Group, N.V., changed its methods of accounting for income
taxes and postretirement health care and life insurance benefits.
/S/ Price Waterhouse LLP
Price Waterhouse LLP
South Bend, Indiana
March 6, 1995
36
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned subsidiary of
Ingersoll-Rand Company (I-R), acquired 16,553,617 shares of Clark Equipment
Company (Clark), which together with shares already owned by I-R
represented approximately 98.4% of the outstanding shares pursuant to an
April 12, 1995 amended tender offer. On May 31, 1995, I-R completed the
merger of CEC with Clark. Upon consummation of the merger, Clark became a
wholly-owned subsidiary of I-R and the shareholders of Clark who did not
tender their shares became entitled to receive $86 per share. The total
purchase price for Clark was approximately $1.5 billion after taking into
account amounts paid in respect of outstanding stock options and certain
transaction expenses. Prior to I-R's acquisition of Clark, Clark was
involved with three noteworthy transactions:
(i) On March 13, 1995, Clark acquired approximately 99% of the
outstanding shares of Club Car, Inc. (Club Car), pursuant to a
tender offer initiated by Clark on February 8, 1995, for a cash
price of $25 per share. The total purchase price for Club Car was
$242.6 million, including transaction expenses.
(ii) On April 13, 1995, Clark sold its 50% interest in the VME Group N.V.
(VME) joint venture to its joint venture partner, AB Volvo of Sweden
(Volvo), for approximately $560 million. In addition, the agreement
also required the payment by VME to Clark, prior to the closing, of
a $13 million dividend and the repayment of a $35 million loan due
Clark.
(iii) On May 13, 1994, Clark purchased Blaw-Knox Construction Equipment
Corporation (Blaw-Knox) for a cash price of approximately $145
million.
For purposes of pro forma presentation, the Clark historical financial
statements have been adjusted to reflect these transactions at the
beginning of the respective periods.
The $1,482.9 million purchase price for the common stock of Clark has
been preliminarily allocated to tangible and identifiable intangible assets
and liabilities of Clark based upon estimates of their respective values.
These allocations will be subsequently adjusted based upon appraisals,
valuations and other studies which will be conducted over the next several
months; such values may differ substantially from those shown herein.
Clark's $242.6 million acquisition of Club Car has been allocated on a
similar basis.
The pro forma combined financial statements should be read in
conjunction with the I-R, Clark and Club Car historical financial
statements. The pro forma information presented is for informational
purposes only and it is not necessarily indicative of future earnings or
financial position or of what the earnings and financial position would
have been had I-R's acquisition of Clark and Clark's acquisitions of Blaw-
Knox and Club Car and its disposition of VME been consummated at the
beginning of the respective periods or as of the date for which such pro
forma financial information is presented.
37
<TABLE>
INGERSOLL-RAND COMPANY Page 1 of 2
PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
(In millions of dollars)
<CAPTION>
Total
Clark Clark I-R I-R
Club Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Car Debit Credit forma Debit Credit forma
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 207.0 $ 228.6 $ 10.6 $365.6 (4) $142.6 (1) $ 462.2 $ 107.7 (9) $ 556.5 (5+7) $ 220.4
Marketable securities 4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.2
Accounts and notes rec. 949.4 109.5 26.7 0.0 0.0 136.2 0.0 0.0 1,085.6
Inventories 679.3 123.7 20.6 0.7 (2) 0.0 145.0 33.6 (6) 0.0 857.9
Prepaid expenses 43.7 8.9 2.1 0.0 0.0 11.0 0.0 0.0 54.7
Deferred income taxes 119.2 24.4 0.0 0.0 0.0 24.4 3.5 (6) 0.0 147.1
Current assets 2,002.8 495.1 60.0 366.3 142.6 778.8 144.8 556.5 2,369.9
Investments in:
Dresser-Rand 90.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 90.7
Partially-owned equity cos. 173.9 12.6 0.0 0.0 0.0 12.6 0.0 0.0 186.5
Discont. operations-VME 0.0 195.9 0.0 0.0 195.9 (4) 0.0 0.0 0.0 0.0
Club Car, Inc. 0.0 0.0 0.0 242.6 (1) 242.6 (3) 0.0 0.0 0.0 0.0
Clark Equipment Co. 0.0 0.0 0.0 0.0 0.0 0.0 1,482.9 (5) 1,482.9 (8) 0.0
Net property, plant & equip. 959.3 181.1 20.2 7.4 (2) 0.0 208.7 47.2 (6) 0.0 1,215.2
Intangible assets, net 124.5 167.3 38.3 181.4 (2) 0.0 387.0 772.7 (6) 0.0 1,284.2
Deferred income taxes 74.5 100.4 0.0 0.0 0.0 100.4 0.0 8.7 (6) 166.2
Other assets 171.2 41.5 2.7 0.0 0.2 (2) 44.0 0.0 33.8 (6+7) 181.4
Total assets $3,596.9 $1,193.9 $121.2 $797.7 $581.3 $1,531.5 $2,447.6 $2,081.9 $5,494.1
</TABLE>
38
<TABLE>
INGERSOLL-RAND COMPANY Page 2 of 2
PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
(In millions of dollars)
<CAPTION>
Total
Clark Clark I-R I-R
Club Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Car Debit Credit forma Debit Credit forma
LIABILITIES AND EQUITY
Current liabilities:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts payable & accruals $ 883.8 $ 178.3 $ 20.1 $ 0.0 $ 0.0 $ 198.4 $ 68.3 (7) $ 126.5 (5+6) $1,140.4
Loans payable 117.2 24.1 5.6 0.0 0.0 29.7 500.0 (7) 500.0 (5) 146.9
Customers' advances 16.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16.9
Income taxes 22.1 2.3 0.0 0.0 0.3 (2) 2.6 0.0 0.0 24.7
Current liabilities 1,040.0 204.7 25.7 0.0 0.3 230.7 568.3 626.5 1,328.9
Long-term debt 315.8 193.3 34.5 100.0 (4) 100.0 (1) 227.8 0.0 947.1 (5) 1,490.7
Postemployment liabilities 518.3 241.8 0.0 0.0 0.0 241.8 0.0 54.0 (6) 814.1
IDP minority interest 154.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 154.1
Other liabilities 37.3 94.0 4.9 0.0 0.0 98.9 7.7 (6) 0.0 128.5
Deferred income taxes 0.0 8.0 0.0 0.0 2.5 (2) 10.5 0.0 0.0 10.5
Total liabilities 2,065.5 741.8 65.1 100.0 102.8 809.7 576.0 1,627.6 3,926.8
Shareowners' equity:
Common stock 218.3 144.0 0.1 0.1 (3) 0.0 144.0 144.0 (8) 0.0 218.3
Capital in excess of par 42.4 180.1 64.4 250.9 (3) 186.5 (2) 180.1 915.3 (8) 799.7 (6+9) 106.9
Retained earnings 1,403.7 254.6 3.4 3.4 (3) 269.7 (4) 524.3 524.3 (8) 0.0 1,403.7
1,664.4 578.7 67.9 254.4 456.2 848.4 1,583.6 799.7 1,728.9
Less - Treasury stock (53.0) (53.5) 0.0 0.0 0.0 (53.5) 0.0 96.7 (8+9) (9.8)
- LESOP 0.0 (25.9) 0.0 0.0 0.0 (25.9) 45.9 (6) 0.0 (71.8)
- Foreign currency and
other equity adjs. (80.0) (47.2) (11.8) 0.0 11.8 (3) (47.2) 0.0 47.2 (8) (80.0)
Shareowners' equity 1,531.4 452.1 56.1 254.4 468.0 721.8 1,629.5 943.6 1,567.3
Total liabilities
and equity $3,596.9 $1,193.9 $121.2 $354.4 $570.8 $1,531.5 $2,205.5 $2,571.2 $5,494.1
</TABLE>
39
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
NOTES TO PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
NOTES:
CLARK PRO FORMA ADJUSTMENTS
(1) Reflects the acquisition of Club Car by Clark for $242.6 million,
including transaction costs. To help finance such acquisition,
Clark used $100 million of debt under its master credit agreement.
This loan was later repaid with proceeds from the VME transaction
referred to in the introduction to the pro forma financial
statements.
(2) Reflects the write-up of Club Car assets to fair market value, the
related tax effects of the write-ups, and the allocation of the
remaining purchase price to goodwill.
(3) Reflects the elimination entry by Clark for its investment in Club
Car.
(4) Reflects the net cash gain on the sale of Clark's equity interest in
VME to Volvo and the repayment of debt issued by Clark in connection
with its purchase of Club Car. The sale to Volvo was for
approximately $560 million. In addition, immediately prior to the
sale, VME paid Clark a cash dividend of $13 million and repaid a $35
million loan, plus accrued interest. This entry has been recorded
net of the taxes related to the sale of Clark's equity interest in
VME ($129.8 million) and net of the expenses incurred in connection
with the sale ($12 million).
I-R PRO FORMA ADJUSTMENTS
(5) Reflects I-R's investment in Clark.
(6) Reflects the following acquisition adjustments to:
a) Write-up inventory to fair market value ($33.6 million)
b) Write-up fixed assets to fair market value ($45.0 million)
c) Write off tooling ($4.9 million) and to reclassify rental fleet
($7.1 million) to conform to I-R's policies
d) Record the fair market value of patents, lists, etc. ($2.5
million)
e) Record the acquisition related executive compensation, change
in control, and stock option payments, etc., net of existing
recorded liabilities ($55.4 million), Clark's transaction fees
($18.0 million), facility closing costs, principally for
Clark's headquarters ($19.5 million), and other liabilities
($5.0 million)
f) Record the unfunded liability for pension obligations ($54.0
million)
g) Record the sale of the unallocated Clark shares in the Clark
Leveraged Employee Stock Ownership Plan (LESOP) to I-R for $86
per share. These funds are assumed to be reinvested in I-R
common stock. (See Note 9)
h) Record the goodwill associated with the acquisition and the tax
effects of the above I-R pro forma adjustments.
40
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
NOTES TO PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
(Continued)
(7) Reflects the payment of obligations under executive compensation
agreements and the repayment of $500 million of the debt incurred by
I-R in connection with the acquisition, from the excess cash in both
companies.
(8) Reflects the elimination entry by I-R for its investment in Clark.
(9) Records the assumed sale of 2,993,129 of I-R treasury stock to the
LESOP at an assumed price of $36 per share, for total proceeds to
I-R of $107.7 million. In addition, 1,993,513 of these shares (or
$71.8 million) remain as unallocated shares within the LESOP and
accordingly, are reflected as a reduction of I-R's equity in the pro
forma balance sheet.
41
<TABLE>
INGERSOLL-RAND COMPANY
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(In millions of dollars except share data)
<CAPTION>
Total
(*) (**) Clark Clark I-R I-R
Blaw- Club Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Knox Car Debit Credit forma Debit Credit forma
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $4,507.5 $946.6 $43.6 $191.8 $ 0.0 $0.0 $1,182.0 $ 0.0 $ 0.0 $5,689.5
Cost of goods sold 3,377.0 747.5 33.7 141.2 5.5 (1) 0.0 927.9 30.3 (6) 0.0 4,335.2
Administrative, selling
and service engineering
expenses 753.4 107.7 2.4 30.0 0.0 0.0 140.1 0.0 0.0 893.5
Operating income 377.1 91.4 7.5 20.6 5.5 0.0 114.0 30.3 0.0 460.8
Interest expense (43.8) (20.0) (1.5) (3.2) 4.5 (2) 0.0 (29.2) 66.5 (7) 0.0 (139.5)
Other income (expense), net (14.8) 20.7 (1.2) 0.0 4.6 (3) 0.0 14.9 9.0 (8) 0.0 (8.9)
Dresser-Rand income 24.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 24.6
IDP minority interest (13.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (13.2)
Earnings before taxes 329.9 92.1 4.8 17.4 14.6 0.0 99.7 105.8 0.0 323.8
Provision for income taxes 118.8 29.3 2.8 7.0 0.0 2.6 (4) 36.5 0.0 30.3 (9) 125.0
Earnings from continuing
operations $ 211.1 $ 62.8 $ 2.0 $ 10.4 $14.6 $2.6 $ 63.2 $105.8 $30.3 $ 198.8
Earnings per common
share from continuing
operations $2.00 $1.87
Average number of
common shares
outstanding (10) 105,458,116 106,457,732
(*) Represents the Blaw-Knox pro forma income statement for the period January 1, 1994 through May 12, 1994,
which was prior to the acquisition by Clark.
(**) Represents the Club Car 1994 income statement.
</TABLE>
42
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
NOTES TO PRO FORMA INCOME STATEMENT
DECEMBER 31, 1994
NOTES:
CLARK PRO FORMA ADJUSTMENTS
(1) Reflects the additional depreciation on the write-up of Club Car's
fixed assets by Clark ($1.1 million) and the amortization of the
acquisition goodwill by Clark, based on the straight line method,
over 40 years ($4.4 million).
(2) Reflects the interest expense on the borrowings used by Clark to
acquire Club Car.
(3) Reflects the lost interest income on the cash used by Clark in their
acquisition of Club Car.
(4) Reflects the tax effects of Clark's pro forma acquisition entries.
(5) Earnings of VME were recorded as discontinued operations in Clark's
1994 income statement, and therefore have been excluded in the pro
forma income statement, which only presents pro forma earnings from
continuing operations.
I-R PRO FORMA ADJUSTMENTS
(6) Reflects I-R's pro forma acquisition adjustments, as follows:
a) Additional depreciation for the write-up to fair market value
of Clark's fixed assets, plus the additional depreciation
required to change Clark's depreciation method from straight
line to accelerated to be consistent with I-R's method ($10.7
million).
b) Amortization of the acquired intangible assets (patents, lists,
etc.) on straight line bases, over an 8 year life.
c) Amortization of the goodwill created by the acquisition,
computed on a straight line basis over a 40 year life.
(7) Reflects the interest expense on the acquisition debt incurred by
I-R for the Clark acquisition at an assumed floating rate of
interest of approximately 7.0% per annum, on an outstanding
principal of approximately $950 million.
(8) Reflects the lost interest income on funds used by I-R for the Clark
acquisition.
(9) Reflects the anticipated net tax benefits associated with the above
I-R pro forma adjustments.
(10) Shares used to compute pro forma earnings per share reflect the
assumed sale of 2,993,129 I-R treasury shares to the former Clark
LESOP of which 999,616 shares are assumed to be allocated to
participants.
43
<TABLE>
INGERSOLL-RAND COMPANY Page 1 of 2
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(In millions of dollars)
<CAPTION>
Total
Clark Clark I-R I-R
Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Debit Credit forma Debit Credit forma
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 245.2 $ 47.0 $365.6 (1) $ 0.0 $ 412.6 $ 107.7 (6) $ 556.5 (2+4) $ 209.0
Marketable securities 4.5 0.0 0.0 0.0 0.0 0.0 0.0 4.5
Accounts and notes rec. 986.0 188.5 0.0 0.0 188.5 0.0 0.0 1,174.5
Inventories 755.8 169.9 0.0 0.0 169.9 33.6 (3) 0.0 959.3
Prepaid expenses 49.9 12.5 0.0 0.0 12.5 0.0 0.0 62.4
Deferred income taxes 119.2 27.4 0.0 0.0 27.4 2.1 (3) 0.0 148.7
Current assets 2,160.6 445.3 365.6 0.0 810.9 143.4 556.5 2,558.4
Investments in:
Dresser-Rand 75.1 0.0 0.0 0.0 0.0 0.0 0.0 75.1
Partially-owned equity cos. 193.8 9.0 0.0 0.0 9.0 0.0 0.0 202.8
Discont. operations-VME 0.0 216.3 0.0 216.3 (1) 0.0 0.0 0.0 0.0
Club Car, Inc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Clark Equipment Co. 0.0 0.0 0.0 0.0 0.0 1,482.9 (2) 1,482.9 (5) 0.0
Net property plant & equip. 980.6 212.3 0.0 0.0 212.3 47.2 (3) 0.0 1,240.1
Intangible assets, net 130.4 379.1 0.0 0.0 379.1 773.1 (3) 0.0 1,282.6
Deferred income taxes 72.6 96.9 0.0 0.0 96.9 0.0 8.8 (3) 160.7
Other assets 185.5 50.5 0.0 0.0 50.5 0.0 33.9 (3+4) 202.1
Total assets $3,798.6 $1,409.4 $365.6 $216.3 $1,558.7 $2,446.6 $2,082.1 $5,721.8
</TABLE>
44
<TABLE>
INGERSOLL-RAND COMPANY Page 2 of 2
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(In millions of dollars)
<CAPTION>
Total
Clark Clark I-R I-R
Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Debit Credit forma Debit Credit forma
LIABILITIES AND EQUITY
Current liabilities:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts payable & accruals $ 893.8 $ 235.7 $ 0.0 $ 0.0 $ 235.7 $ 68.3 (4) $ 122.3 (2+3) $1,183.5
Loans payable 214.4 115.8 0.0 0.0 115.8 500.0 (4) 500.0 (2) 330.2
Customers' advances 16.2 0.0 0.0 0.0 0.0 0.0 0.0 16.2
Income taxes 20.8 8.6 0.0 0.0 8.6 0.0 0.0 29.4
Current liabilities 1,145.2 360.1 0.0 0.0 360.1 568.3 622.3 1,559.3
Long-term debt 318.2 225.5 100.0 (1) 0.0 125.5 0.0 947.1 (2) 1,390.8
Postemployment liabilities 519.3 244.9 0.0 0.0 244.9 0.0 54.0 (3) 818.2
IDP minority interest 159.6 0.0 0.0 0.0 0.0 0.0 0.0 159.6
Other liabilities 51.6 102.1 0.0 0.0 102.1 7.9 (3) 0.0 145.8
Deferred income taxes 0.0 7.5 0.0 0.0 7.5 0.0 0.0 7.5
Total liabilities 2,193.9 940.1 100.0 0.0 840.1 576.2 1,623.4 4,081.2
Shareowners' equity:
Common stock 218.5 144.0 0.0 0.0 144.0 144.0 (5) 0.0 218.5
Capital in excess of par 45.2 180.2 0.0 0.0 180.2 918.6 (5) 802.9 (3+6) 109.7
Retained earnings 1,430.4 295.0 0.0 249.3 (1) 544.3 544.3 (5) 0.0 1,430.4
1,694.1 619.2 0.0 249.3 868.5 1,606.9 802.9 1,758.6
Less - Treasury stock (53.0) (69.8) 0.0 0.0 (69.8) 0.0 113.0 (5+6) (9.8)
- LESOP 0.0 (25.9) 0.0 0.0 (25.9) 45.9 (3) 0.0 (71.8)
- Foreign currency and
other equity adjs. (36.4) (54.2) 0.0 0.0 (54.2) 0.0 54.2 (5) (36.4)
Shareowners' equity 1,604.7 469.3 0.0 249.3 718.6 1,652.8 970.1 1,640.6
Total liabilities and
and equity $3,798.6 $1,409.4 $100.0 $249.3 $1,558.7 $2,229.0 $2,593.5 $5,721.8
</TABLE>
45
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
NOTES TO PRO FORMA BALANCE SHEET
MARCH 31, 1995
NOTES:
CLARK PRO FORMA ADJUSTMENTS
(1) Reflects the net cash gain on the sale of Clark's equity interest in
VME to Volvo and the repayment of debt issued by Clark in connection
with its purchase of Club Car. The sale to Volvo was for
approximately $560 million. In addition, immediately prior to the
sale, VME paid Clark a cash dividend of $13 million and repaid a $35
million loan, plus accrued interest. This entry has been recorded net
of the taxes related to the sale of Clark's equity interest in VME
($129.8 million) and net of the expenses incurred in connection with
the sale ($12 million).
I-R PRO FORMA ADJUSTMENTS
(2) Reflects I-R's investment in Clark.
(3) Reflects the following acquisition adjustments to:
a) Write-up inventory to fair market value ($33.6 million)
b) Write-up fixed assets to fair market value ($45.0 million)
c) Write off tooling ($4.9 million) and to reclassify rental fleet
($7.1 million) to conform to I-R's policies
d) Record the fair market value of patents, lists, etc. ($2.5
million)
e) Record the acquisition related executive compensation, change
in control, and stock option payments, etc., net of existing
recorded liabilities ($51.0 million), Clark's transaction fees
($18.0 million), facility closing costs, principally for
Clark's headquarters ($19.5 million), and other liabilities
($5.0 million)
f) Record the unfunded liability for pension obligations ($54.0
million)
g) Record the sale of the unallocated Clark shares in the Clark
LESOP to I-R for $86 per share. These funds are assumed to be
reinvested in I-R common stock. (See Note 6)
h) Record the goodwill associated with the acquisition and the tax
effects of the above I-R pro forma adjustments.
(4) Reflects the payment of obligations under executive compensation
agreements and the repayment of $500 million of the debt incurred by
I-R in connection with the acquisition, from the excess cash in both
companies.
(5) Reflects the elimination entry by I-R for its investment in Clark.
(6) Records the assumed sale of 2,993,129 of I-R treasury stock to the
LESOP at an assumed price of $36 per share, for total proceeds to
I-R of $107.7 million. In addition, 1,993,513 of these shares (or
$71.8 million) remain as unallocated shares within the LESOP and
accordingly, are reflected as a reduction of I-R's equity in the pro
forma balance sheet.
46
<TABLE>
INGERSOLL-RAND COMPANY
PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(In millions of dollars except share data)
<CAPTION>
Total
(*) Clark Clark I-R I-R
Club Pro forma Adj. Pro Pro forma Adj. Pro
I-R Clark Car Debit Credit forma Debit Credit forma
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,185.6 $313.1 $48.8 $0.0 $0.0 $361.9 $ 0.0 $0.0 $1,547.5
Cost of goods sold 893.1 246.7 37.4 1.2 (1) 0.0 285.3 7.6 (6) 0.0 1,186.0
Administrative, selling
and service engineering
expenses 203.3 35.1 5.5 0.0 0.0 40.6 0.0 0.0 243.9
Operating income 89.2 31.3 5.9 1.2 0.0 36.0 7.6 0.0 117.6
Interest expense (9.0) (5.4) (0.6) 0.9 (2) 0.0 (6.9) 16.8 (7) 0.0 (32.7)
Other income (expense), net (6.0) 4.5 0.0 1.0 (3) 0.0 3.5 0.8 (8) 0.0 (3.3)
Dresser-Rand income 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3
IDP minority interest (2.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (2.2)
Earnings before taxes 72.3 30.4 5.3 3.1 0.0 32.6 25.2 0.0 79.7
Provision for income taxes 26.0 10.3 2.1 0.0 0.5 (4) 11.9 0.0 7.2 (9) 30.7
Earnings from continuing
operations $ 46.3 $ 20.1 $ 3.2 $3.1 $0.5 $ 20.7 $25.2 $7.2 $ 49.0
Earnings per common
share from continuing
operations $0.44 $0.46
Average number of
common shares
outstanding (10) 105,566,461 106,566,077
(*) Represents the Club Car income statement for the period January 1, 1995 through March 12, 1995,
which was prior to the acquisition by Clark.
</TABLE>
47
INGERSOLL-RAND COMPANY
CLARK EQUIPMENT COMPANY
NOTES TO PRO FORMA FIRST QUARTER INCOME STATEMENT
MARCH 31, 1995
NOTES:
CLARK PRO FORMA ADJUSTMENTS
(1) Reflects the additional depreciation on the write-up of Club Car's
fixed assets by Clark and the amortization of the acquisition
goodwill by Clark, based on the straight line method, over 40 years
for the first 10 weeks of 1995.
(2) Reflects the interest expense on the borrowings used by Clark to
acquire Club Car for the first 10 weeks of 1995.
(3) Reflects the lost interest income on the cash used by Clark in their
acquisition of Club Car for the first 10 weeks of 1995.
(4) Reflects the tax effects of Clark's pro forma acquisition entries
for the first 10 weeks of 1995.
(5) Earnings of VME were recorded as discontinued operations in Clark's
first quarter income statement, and therefore have been excluded in
the pro forma income statement, which only presents pro forma
earnings from continuing operations.
I-R PRO FORMA ADJUSTMENTS
(6) Reflects I-R's pro forma acquisition adjustments, for the first
quarter of 1995, as follows:
a) Additional depreciation for the write-up to fair market value
of Clark's fixed assets, plus the additional depreciation
required to change Clark's depreciation method from straight
line to accelerated to be consistent with I-R's method ($2.7
million).
b) Amortization of the acquired intangible assets (patents, lists,
etc.) on straight line bases, over an 8 year life.
c) Amortization of the goodwill created by the acquisition,
computed on a straight line basis over a 40 year life.
(7) Reflects the interest expense on the acquisition debt incurred by
I-R for the Clark acquisition for the first quarter of 1995 at an
assumed floating rate of interest of approximately 7.0% per annum.
(8) Reflects the lost interest income on the funds used by I-R for the
Clark acquisition.
(9) Reflects the anticipated net tax benefits associated with the
above I-R pro forma adjustments for the first quarter of 1995.
(10) Shares used to compute pro forma earnings per share reflect the
assumed sale of 2,993,129 I-R treasury shares to the former Clark
LESOP of which 999,616 shares are assumed to be allocated to
participants.
48
INGERSOLL-RAND COMPANY
INDEX TO EXHIBITS
Description Page
(2)(a) Agreement and Plan of Merger, dated as of April 9, 1995,
by and among Ingersoll-Rand Company, CEC Acquisition
Corp. and Clark Equipment Company (Incorporated by
reference from Amendment No. 2 to Schedule 14D-1
with respect to the tender offer by CEC Acquisition
Corp., a wholly-owned subsidiary of Ingersoll-Rand
Company, for shares of Clark Equipment Company.) --
(b) Schedule 14D-1, dated April 3, 1995, with respect to
the tender offer by CEC Acquisition Corp., a wholly
owned subsidiary of Ingersoll-Rand Company, for shares
of Clark Equipment Company, together with all exhibits
and amendments thereto. (Incorporated herein by
reference.) --
(12) Computations of Ratios of Earnings to Fixed Charges 51
(23) Consent of Price Waterhouse LLP 52
49
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date June 5, 1995 /S/ T.F. McBride
T.F. McBride, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
Date June 5, 1995 /S/ R.A. Spohn
R.A. Spohn, Controller -
Accounting and Reporting
Principal Accounting Officer
50
<TABLE>
INGERSOLL-RAND COMPANY EXHIBIT 12
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
<CAPTION>
For the
For the Year Ended Three Months Ended
December 31, 1994 March 31, 1995
Historical Pro forma* Historical Pro forma*
Fixed charges:
<S> <C> <C> <C> <C>
Interest expense........................... $ 46.9 $142.6 $ 9.8 $ 33.3
Amortization of debt discount and expense.. 0.4 0.4 0.1 0.1
Rentals (one-third of rentals)............. 18.8 21.4 5.2 5.8
Capitalized interest....................... 3.2 3.2 0.6 0.6
Total fixed charges.......................... $ 69.3 $167.6 $15.7 $ 39.8
Earnings from continuing operations.......... $211.1 $198.8 $46.3 $ 49.0
Add: Minority income (loss) of majority-
owned subsidiaries.................. 15.1 15.1 2.5 2.5
Taxes on income....................... 118.8 125.0 26.0 30.7
Fixed charges......................... 69.3 167.6 15.7 39.8
Less: Capitalized interest.................. 3.2 3.2 0.6 0.6
Undistributed earnings (losses) from
less than 50% owned affiliates...... 33.3 33.3 3.0 3.0
Earnings available for fixed charges ........ $377.8 $470.0 $86.9 $118.4
Ratio of earnings to fixed charges .......... 5.45 2.80 5.54 2.97
Undistributed earnings (losses) from less
than 50% owned affiliates:
Equity in earnings (losses)................ $ 36.6 $ 36.6 $ 3.0 $ 3.0
Less: Dividends paid ................... 3.3 3.3 0.0 0.0
Undistributed earnings (losses) from
less-than 50% owned affiliates........... $ 33.3 $ 33.3 $ 3.0 $ 3.0
* The pro forma ratios of earnings to fixed charges for the year ended December 31,
1994 and for the three months ended March 31, 1995 are based on the pro forma income
statements filed in Item 7 of Form 8K, which this exhibit is filed with. The pro
forma ratio presented is for informational purposes only and it is not necessarily
indicative of what would have been, had Ingersoll-Rand Company's acquisition of
Clark Equipment Company and Clark Equipment Company's acquisition of Blaw-Knox
Construction Equipment Corporation and Club Car, Inc. and Clark Equipment Company's
disposition of VME Group N.V. been consummated at the beginning of the respective periods.
</TABLE>
51
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on
Form S-3 (No. 33-53811) and Form S-8 (Post-Effective Amendment
No. 4 to No. 2-64708, No. 2-67834, No. 2-98258 and No. 33-35229)
of Ingersoll-Rand Company of our report dated March 6, 1995
relating to the consolidated financial statements of Clark
Equipment Company, which appears in the Current Report on Form
8-K of Ingersoll-Rand Company dated June 5, 1995.
Price Waterhouse LLP
South Bend, Indiana
June 5, 1995
52
