ITEM 1. BUSINESS
Clark Equipment Company, a Delaware corporation, is the successor to certain corporations the first of which was organized on December 24, 1902. Unless the context otherwise indicates, the terms "Registrant", "Clark" and "Company" when used in this Form 10-K refer to Clark Equipment Company and its consolidated subsidiaries.
Description of Business
Clark's business is the design, manufacture and sale of skid steer loaders, construction machinery, transmissions for on-highway trucks and axles and transmissions for off-highway equipment.
Skid steer loaders, compact excavators and a limited line of agricultural equipment are manufactured by Clark's Melroe Company Business Unit ("Melroe"). Off-highway axles and transmissions are manufactured by the Company's Clark-Hurth Components Company Business Unit ("Clark Hurth"). On-highway transmissions and a limited amount of off-highway axles and transmissions are manufactured by the Company's Clark Automotive Products Company Business Unit ("Clark Automotive"). In this Form 10-K, Melroe and Clark Hurth are included in the Off-Highway Segment, and Clark Automotive is included in the On-Highway Segment.
In addition, construction machinery is manufactured by VME Group N.V. ("VME"), a joint venture which is owned 50% by the Company and 50% by A.B. Volvo. The Company's share of the joint venture's earnings is included in the Company's financial statements on an equity basis. The discussion of the Company and its operations in Part I of this Form 10-K is limited to Melroe, Clark Hurth and Clark Automotive and does not include VME, unless expressly stated to the contrary.
On July 31, 1992, the Company sold all of the outstanding stock of Clark Material Handling Company ("CMHC"), and certain other subsidiaries which comprised its material handling equipment business, to Terex Corporation ("Terex") for approximately $91 million. A gain of $8.5 million was recognized on the sale which has been included in discontinued operations. CMHC is reflected as a discontinued operation in the statements of income which are filed as a part of this Form 10-K. As a part of the sale, Terex and CMHC assumed substantially all of the obligations of the Company relating to the CMHC operation. 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. This issue is discussed in more detail in the footnote captioned "Contingencies" in that portion of the Company's Annual Report to Stockholders which is attached hereto as Exhibit 13.
Clark Automotive consists of Clark Automotive Products Corporation, a Michigan corporation ("CAPCO"), and its wholly-owned subsidiaries CAPCO do Brasil Empreendimentos e Participacoes Ltda. and Equipamentos Clark Ltda. On February 23, 1994, CAPCO filed a Registration Statement with the Securities and Exchange Commission for an initial public offering of 10 million shares of its common stock with an estimated price range of $14 to $17 per share. Of the total number of shares, 9,174,194 shares will be sold by the Company and 825,806 will be sold by CAPCO. The Company has also granted the underwriter an option to purchase an additional one million shares of common stock to cover overallotments. If the public offering is completed, and assuming that the overallotment option is fully exercised by the underwriter, the Company will have disposed of its entire interest in Clark Automotive.
Backlog Orders
For the On-Highway Segment, the approximate dollar backlog of orders believed to be firm was $25 million at December 31, 1993 and $21 million at December 31, 1992. For the Off-Highway Segment, the approximate dollar backlog of orders believed to be firm was $124 million at December 31, 1993 and $102 million at December 31, 1992. Generally, Clark's customers may cancel their orders without incurring significant cancellation charges, and, therefore, Clark's backlog is essentially a report of the recorded intentions to purchase its products, which could change before the sales are completed. The backlog figures stated above are based on orders to Clark's factories or warehouses from Clark's independent dealers and other customers who buy directly from Clark's factories or warehouses.
Manufacturing
The products of the On-Highway Segment are manufactured by Clark Automotive in Brazil and are sold primarily to the Brazilian automobile industry and the North and South American medium-duty truck industry. In addition, Clark Automotive sells a limited amount of off-highway axles and transmissions primarily to customers in Brazil.
In the Off-Highway Segment, Melroe products are manufactured in the United States for sale throughout the world to a wide variety of users and industries, including the construction and agricultural industries. These products are distributed under the trademarks "Melroe" and "Bobcat". In addition, Melroe products are manufactured by a licensee in Australia. Clark Hurth products are manufactured in the United States, Belgium and Italy for sale throughout the world primarily to the construction, mining and material handling equipment industries. In addition, Clark Hurth products are manufactured by a licensee in South Africa.
Distribution
The products of the On-Highway Segment are sold by Clark directly to customers by Clark employee sales representatives, and through manufacturers representatives and independent distributors.
In the Off-Highway Segment, Clark Hurth products are also sold directly to customers by employee sales representatives and through manufacturers representatives and independent distributors. Melroe products are sold by Clark primarily through independent dealers. Clark maintains a large modern central parts warehouse in Chicago, which, in
conjunction with a communications network and electronic data processing equipment, provide expeditious shipment of customers' and dealers' orders for repair and replacement parts for Melroe and VME products.
Operations Outside the United States
Operations outside the United States are subject to, among other things, the laws and regulations of foreign governments relating to investments, operations and currency restrictions, import and export duties and revaluations and fluctuations of currencies. Operations outside the United States are also subject to changes in governments and economic policies.
License fees from licensees outside the United States and Canada, other than from consolidated subsidiaries, and dividends from associated companies aggregated approximately $0.3 million in 1993, approximately $0.4 million in 1992 and approximately $5.2 million in 1991.
Raw Materials and Components
The principal raw materials and components purchased by the Off- Highway Segment are steel; castings; engines and accessories; hydraulic motors, pumps, valves and cylinders; fabricated metal parts; fabricated plastic parts; tires and tubes; electrical equipment; drive train components; brakes and brake components; bearings; forgings; fasteners; bushings; electric motors; gears and gear blanks; screw machine products; seals; clutch plates; torque convertors; synchronizer rings; steering arms; CV joints; cardan shafts; seats; paint; sealants and adhesives; antifreeze; batteries; radiators; oil coolers; springs; shocks; chain; sprockets; glass; filters; and rotational and vacuum formed plastics.
The principal raw materials and components purchased by the On- Highway Segment are steel, castings, pumps, valves, fabricated metal parts, bearings, forgings, fasteners, screw machine products, seals, torque converters, synchronizer rings, bushings and fabricated plastic parts.
For both the Off-Highway and On-Highway Segments, the items described above are purchased from a number of different suppliers, both on an individual purchase commitment basis and on a one-year blanket order basis. Multiple sources for most items are available, but substitution of engines and accessories, hydraulic motors, electrical equipment, pumps, and valves, in the event they were to become unavailable from the usual sources, would in some instances require engineering modifications to the product in which they are used.
Energy
Clark's manufacturing operations and those of its suppliers depend to a substantial extent upon the availability of natural gas, fuel oil, propane, electricity, coal, uranium and generating capacity. Clark presently expects that its plants will be able to operate with little or no interruption resulting out of scarcity of energy through 1994.
Engineering and Product Development
An engineering staff is maintained at each of the principal manufacturing facilities of Clark. These staffs are supplemented by laboratories which provide technical support for product testing, materials research and process development. Approximately 277 engineering employees (engineers, designers, draftsmen and technicians) are presently engaged full time in engineering and product development activities. Approximately $19.8 million in 1993, $21.5 million in 1992 and $27.7 million in 1991 was spent on activities relating to the development of new products and the improvement of existing products. These amounts include expenditures by Clark Material Handling Company up to the date of the sale of that company to Terex Corporation on July 31, 1992. Substantially all of these amounts were sponsored by Clark rather than by customers.
Although Clark owns numerous patents and has patent applications pending, its business is not materially dependent upon patent protection.
Competition
Clark conducts its domestic and foreign operations under highly competitive conditions and its business is subject to cyclical influences and other factors. The customers for most of Clark's products are commercial, industrial or farm users who use the products in business for profit. Product performance and parts and service availability are primary considerations for these customers in the choice among competing products. Availability of rental and financing programs and warranty policies are also important considerations. In making a purchase decision, the above factors, plus the initial selling price, the date on which delivery can be made, and the general product reputation will be considered by the purchaser, and the order will normally be placed with the seller who comes closest to satisfying the purchaser's particular requirements of all of these factors.
Clark estimates that it has 19 significant competitors in the On- Highway Segment. In addition, this Segment is subject to potential competition from its customers, some of whom could elect to make for themselves the components now purchased from Clark.
In the Off-Highway Segment, Melroe is the leading producer of skid steer loaders in the United States and has approximately 20 significant competitors. Clark Hurth has approximately 20 significant competitors and is also subject to potential competition from its customers.
Customers
The Off-Highway Segment is not dependent upon a single customer or a few customers, the loss of any one or more of which would have a material adverse effect on its operations.
During 1993, approximately 32% of the consolidated revenues of the On-Highway Segment was derived from sales to its largest customer, and approximately 54% of the Segment's consolidated revenues was derived from sales to its two largest customers. Loss of any one or both of these customers could have a material adverse effect on the operations of this segment.
Seasonality
Although Clark experiences slight seasonal variations in its sales, Clark does not consider any material part of its business to be seasonal.
Environmental Compliance
Clark's facilities are subject to environmental regulation by federal, state and local authorities. In 1993, the Company spent approximately $2.6 million in connection with environmental compliance and cleanup activities. Capital expenditures for environmental control activities are not expected to be material for the remainder of 1994 and 1995. Clark is also involved in environmental cleanup activities or litigation in connection with former waste disposal sites and former plant locations. The Company has and will continue to make provisions for these cleanup costs as necessary and when the Company's liability can be reasonably estimated. As of December 31, 1993, the Company had reserves of $16.4 million for potential future environmental cleanup costs. Although the Company cannot determine whether or not a material effect on future operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of the potential liability. The Company further 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.
Employees
As of December 31, 1993, Clark employed 2,285 persons in North America and 3,663 persons outside North America. A portion of Clark's production, maintenance and warehouse employees in the United States are represented by local unions affiliated with the Allied Industrial Workers and the International Brotherhood of Teamsters, which are affiliated with the AFL-CIO.
Industry Segment and Geographic Area Discussion
Incorporated by reference to pages 27 to 29 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 2.
ITEM 2. PROPERTIES Clark or a subsidiary of Clark owns the following principal facilities in fee, except where a lease is indicated:
Clark owns the production equipment and machines at its plants, except for an insignificant number of items which are leased. All of Clark's principal plants and warehouse facilities are in good operating condition. Clark also owns idle facilities in Georgetown, Kentucky, Atlanta, Georgia and South Bend, Indiana. The Georgetown, Kentucky facility is classified as an asset held for sale in the Company's balance sheet incorporated in this Form 10-K. In 1993 Clark's manufacturing plants operated at approximately 83% of capacity.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the Matter of Industrial Pretreatment Violations at Melroe Company, Gwinner, North Dakota
On October 5, 1992, the United States Environmental Protection Agency ("EPA") issued a Finding of Violation and Order for Compliance ("Order") which alleges that the Company has failed to comply with the pretreatment regulations promulgated pursuant to Section 306 and 307 of
the Clean Water Act. The Order alleges that certain metal finishing wastewaters generated at the Company's Melroe facility in Gwinner, North Dakota were discharged into the Publicly Owned Treatment Works operated by the City of Gwinner in violation of the applicable pretreatment regulations. The Order also alleges that the Company failed to comply with certain reporting requirements set forth in the pretreatment regulations. The Order requires the Company to comply with the discharge limitations for metal finishing wastewater and all related reporting requirements. The Company is in the process of taking all actions required of it under the Order.
On January 31, 1994, the Company received a letter from the U.S. Department of Justice indicating that it would be willing to settle this matter without litigation for a civil penalty of $1.9 million. The Company intends to commence settlement negotiations with the Department of Justice.
Burkeen et al. v Clark Equipment Company
On March 26, 1993, James R. Burkeen, Betty F. Burkeen and Burkeen Manufacturing Company filed a Complaint in the United States District Court for the Northern District of Mississippi. The Complaint alleges fraud, negligent misrepresentation, breach of contract, breach of duty of good faith and fair dealing, breach of warranty and tortious interference with contract and business relations in connection with Registrant's sale of its trencher equipment business to Burkeen Manufacturing Company in December of 1991. Burkeen Manufacturing Company seeks compensatory damages of $40,000,000, James R. Burkeen and Betty F. Burkeen seek compensatory damages of $5,000,000 and all plaintiffs seek punitive damages of $90,000,000.
The Registrant has filed an Answer denying liability and a Counterclaim seeking recovery of certain amounts owed by Burkeen Manufacturing Company in connection with the sale. The lawsuit is in the discovery stage. Based on the information available, the Registrant believes that the lawsuit is without merit and that the ultimate resolution of the suit will not have a material adverse effect on the Registrant's financial condition.
The Company is a party to ordinary routine litigation incidental to its business. The ultimate results of this litigation are subject to a high degree of estimation and are not determinable with complete precision; however, in the opinion of management either adequate provision for anticipated costs has been made through insurance coverage or accruals, or the ultimate costs of such matters will not materially affect the consolidated financial position of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Officer and Age as of Principal Occupation Positions/Offices March 1, Date First and Employment During Presently Held 1994 Elected Past Five Years
Leo J. McKernan* 56 5/22/86 Chairman, President and Chairman, President Chief Executive Officer and Chief Executive Clark Equipment Company. Officer
Frank M. Sims* 61 3/17/87 Senior Vice President of Senior Vice President Clark Equipment Company.
Paul R. Bowles 56 9/22/89 Vice President - Corporate Vice President Development of Clark Equipment Company. Prior to September 1989, President, Edward Lowe Industries, Inc.- clay minerals business.
Thomas L. Doepker 50 7/13/84 Vice President and Vice President and Treasurer of Clark Treasurer Equipment Company.
William N. Harper 49 12/09/86 Vice President and Vice President and Controller of Clark Controller Equipment Company.
Bernard D. Henely 50 7/13/84 Vice President and Vice President and General Counsel of General Counsel Clark Equipment Company.
James D. Kertz 57 2/9/93 President, Melroe Company, Vice President a Business Unit of Clark Equipment Company. Prior to September 1992, Executive Vice President, Melroe Company.
John J. Reynolds 60 8/13/91 President, Clark-Hurth Vice President Components Company, a Business Unit of Clark Equipment Company. Prior to April 1991, President, Cherry-Burrell Corporation- automatic packaging and processing equipment.
* Member of the Board of Directors of the Company.
Each officer's term expires at the annual meeting of the Board of Directors on May 10, 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to page 31 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to page 34 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to pages 1 through 8 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to pages 9 through 26, 30 and 31 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
Also see Index to Financial Statements on page 13 of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Registrant is incorporated by reference to the section in the Company's Proxy Statement which is captioned "Identification of Nominees for Director". Information regarding the executive officers of the Registrant is set forth in Part I of this report under the caption "Executive Officers of the Registrant".
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the sections in the Company's Proxy Statement which are captioned "Executive Compensation", "Stock Option/SAR Tables", "Executive Employment Contracts", "Retirement Program", "Director Compensation Arrangements", and "Stock Purchase and Grant Plans for Non-Employee Directors".
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section in the Company's Proxy Statement which is captioned "Security Ownership of Certain Beneficial Owners and Management".
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Incorporated by reference to pages 9 through 34 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
2. Financial Statement Schedules (see index on page 13 of this report).
3. Exhibits:
See Exhibit List and Index attached. Exhibits numbered (10)(a) through (10)(r) are management contracts and compensatory plans or arrangements.
(b) Reports on Form 8-K:
1. The Registrant filed a Form 8-K dated October 22, 1993 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
2. The Registrant filed a Form 8-K dated November 16, 1993 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 30th day of March 1994.
CLARK EQUIPMENT COMPANY
By /s/ Leo J. McKernan Leo J. McKernan Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes B. D. Henely and John J. Moran, Jr. and each of them severally, with full power in each to act without the other and with full power of substitution and resubstitution, to execute in the name of each such person, and to file any amendments to this report as the registrant deems appropriate, and appoints such persons as attorneys-in-fact to sign on his behalf individually, and in each capacity stated below, and file all amendments to this report.
SIGNATURE TITLE DATE
/s/ Leo J. McKernan Chairman, President, Chief March 30, 1994 Leo J. McKernan Executive Officer and Director (Principal Executive Officer)
/s/ William N. Harper Vice President and Controller March 30, 1994 William N. Harper (Principal Financial Officer and Principal Accounting Officer)
Directors
/s/ James C. Chapman James C. Chapman Director )
/s/ Donald N. Frey Donald N. Frey Director )
/s/ James A.D. Geier James A.D. Geier Director )
/s/ Gaynor N. Kelley Gaynor N. Kelley Director ) March 30, 1994
/s/ Ray B. Mundt Ray B. Mundt Director )
/s/ Frank M. Sims Frank M. Sims Director )
/s/ Dieter H. Stinnes Dieter H. Stinnes Director )
CLARK EQUIPMENT COMPANY
The financial statements of Clark Equipment Company and its consolidated subsidiaries, together with the report thereon of Price Waterhouse dated February 14, 1994, appearing on pages 9 through 34 of that portion of the Company's 1993 Annual Report which is attached hereto as Exhibit 13, are incorporated by reference in this Form 10-K Annual Report. The following additional financial data should be read in conjunction with such financial statements. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the financial 3statements or notes thereto.
The combined financial statements of VME Group N.V. (VME) and its subsidiaries have been incorporated beginning on page 19 of this report. VME is a joint venture owned 50 percent each by Clark Equipment Company and A.B. Volvo of Sweden.
Financial statements of other unconsolidated majority owned subsidiaries and 50% or less owned persons have been omitted because the proportionate share of the pre-tax income and total assets of each such company is less than 20% of the respective amounts for the registrant and its consolidated subsidiaries, and the investment in and advances to each company is less than 20% of total assets of the registrant and its consolidated subsidiaries.
Additional Information:
Page
Report of Independent Accountants on Financial Statement Schedules 14
Clark Equipment Company and Consolidated Subsidiaries- Schedule II 15 Schedules V and VI 16 and 17 Schedule VIII 18
VME Group N.V. and its subsidiaries Combined Financial Statements and Notes to Financial Statements 19 through 44
Report of KPMG Bohlins AB on the Financial Statements of VME Holding Sweden AB 45
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors Clark Equipment Company South Bend, Indiana
Our audits of the consolidated financial statements referred to in our report dated February 14, 1994 appearing on page 42 of the 1993 Annual Report to Stockholders of Clark Equipment Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse
Price Waterhouse South Bend, Indiana February 14, 1994
CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES
VME GROUP N.V.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
VME GROUP N.V.
FINANCIAL STATEMENTS
* Report of Independent Accountants.
* Consolidated Balance Sheet - December 31, 1993 and 1992.
* Consolidated Statement of Operations for the three years ended December 31, 1993.
* Consolidated Statement of Cash Flows for the three years ended December 31, 1993.
* Notes to Consolidated Financial Statements.
SUPPLEMENTAL SCHEDULES
VIII Valuation and Qualifying Accounts
IX Short-Term Borrowings
SCHEDULES OMITTED
* Other schedules required by Regulation S-X are omitted because of absence of the conditions under which they are required or because information called for is shown in the financial statements and notes thereto.
BP America Building Telephone 216 781 3700 200 Public Square 27th Floor Cleveland, Ohio 44114-2301
Price Waterhouse
Report of Independent Accountants
March 4, 1994
To the Board of Directors and Shareholders of VME Group N.V.
In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheet and the related consolidated statements of operations and of cash flows present fairly, in all material respects, the financial position of VME Group N.V. and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles in the United States. Those financial statements are the responsibility of the Group's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries, which statements reflect total assets of $412,297,000 and $497,778,000 at December 31, 1993 and 1992, respectively, and total revenues of $510,999,000, $586,784,000 and $680,736,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiaries, is based solely on the reports of the other auditors. 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 and the report of other auditors provide a reasonable basis for the opinion expressed above.
As discussed in Notes 8 and 19, the Group changed its method of accounting for income taxes and postretirement benefits effective January 1, 1993.
/s/ Price Waterhouse
VME GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands)
Note 1 - Basis of Presentation and Principles of Consolidation
VME Group N.V. (the Company, VME) is a Netherlands holding company formed on March 28, 1985 to hold, together with Clark Equipment Company (Clark) and AB Volvo, the common stock of its two significant operating subsidiaries, VME Americas Inc. (VMEA), a Delaware Corporation, and VME Holding Sweden AB (VMEHS), a Swedish corporation. AB Volvo and Clark until December 22, 1993, held equal cross-ownership positions in VMEA and VMEHS. On December 22, 1993, Clark and AB Volvo contributed their respective ownership interests in VMEA and VMEHS to VME Group N.V., which resulted in VMEA and VMEHS becoming wholly-owned subsidiaries of the Company. Such contributions were accounted for as transactions between entities under common control. Accordingly, financial statements of the Company have been prepared on a historical cost basis and reflect such contributions on a retroactive basis for all periods presented.
The consolidated financial statements have been prepared prior to December 22, 1993, as if the Company and its operating subsidiaries have been consolidated; the consolidation in years prior to 1993 represents a combination of VMEA, VMEHS, their respective subsidiaries and other VME Group N.V. entities.
Investments and results of operations of companies in which the Company holds more than 50% of the issued capital stock, are included in the consolidated accounts. Companies in which the Company holds investments between 20% and 50% are accounted for utilizing the equity method of accounting and investments below 20% are accounted for at cost. All material balances and transactions between the entities comprising the Company have been eliminated.
Note 2 - Description of Business
The Company is engaged in the design, manufacture and marketing of off- highway construction equipment on a worldwide basis. This equipment is primarily wheel loaders, articulated haulers, hydraulic excavators and rigid off-highway haulers. The majority of sales are made to end users through a worldwide network of affiliated and independent distributors. The sale of replacement parts is an important component of the Company's business.
Note 3 - Summary of Significant Accounting Policies
Inventories Inventories of non-U.S. operations are valued at the lower of cost or market on the first-in, first-out (FIFO) method. Substantially all U.S. inventories are valued at the lower of cost or market using the last-in, first-out (LIFO) method.
Properties and Depreciation Property, plant and equipment are carried at cost. Expenditures for maintenance and repairs are charged to income as incurred and expenditures for major renewals and betterments are capitalized. Depreciation is provided over the useful lives of the assets using primarily the straight- line method. Properties retired or sold are removed from the property accounts with gains or losses on disposal included in income. The useful lives of the assets are primarily as follows :
Buildings 25 - 50 years Machinery and equipment 5 - 10 years Motor vehicles 5 years Furniture and fixtures 3 years
Goodwill Goodwill represents the excess of the total costs of businesses acquired in 1991 over the fair market value of their net assets. Goodwill is being amortized on the straight-line method over a period of 40 years. Accumulated amortization expense was $6,298 in 1993 and $4,532 in 1992.
Warranties Provision is made currently for estimated future costs that are expected to be incurred under product warranties presently in force.
Pension Plans The Company accrues the cost of pension and retirement plans which cover substantially all employees. Benefits are based on employees' years of service and compensation. Pension costs, which are primarily computed using the unit credit method, are funded based on the minimum required contribution under the Employee Retirement Income Security Act of 1974 for the U.S. plans, and in accordance with local laws and income tax regulations for the foreign plans. Plans' assets are invested primarily in listed stocks, guaranteed investment contracts and corporate bonds.
Product Liability The Company accrues its best estimate of the most likely amount of settle- ment or claim liability for all asserted claims. For unasserted claims, the Company records an estimate of liability for incurred but not reported claims based on historical amounts of claims and settlements and reporting lag time.
Income Taxes In January 1993, the Company adopted Statement of Financial Accounting Standard No. 109 (SFAS 109) "Accounting for Income Taxes". The adoption of SFAS 109 changes the method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously, the Company deferred the past tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences or temporary differences between the carrying amount and the tax bases of assets and liabilities. The adoption resulted in the recognition of a net tax benefit of $12,286. No provision for income taxes is made on $56.3 million of undistributed earnings from consolidated subsidiaries, which have been or will be reinvested.
Fair Value of Financial Instruments Pursuant to Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", the carrying amount of cash, trade receivables and payables approximates fair value because of the short maturity of those instruments. The carrying value of the Company's long- term debt is considered to approximate the fair value of these instruments based on the borrowing rates currently available to the Company for loans with similar terms and maturities.
Foreign Currency Translation Financial statements of subsidiaries and entities operating outside of the United States are translated into U.S. dollars in accordance with Statement of Financial Accounting Standard No. 52. For subsidiaries whose business activities are based mainly on the U.S. dollar or who operate in a "highly inflationary economy", the financial statements are translated into U.S. dollars using: (1) current exchange rates at the balance sheet date for all liabilities and current assets except inventories, (2) exchange rates at the time of acquisition for inventories and properties, and (3) weighted average monthly exchange rates for the year for income and expense amounts, except depreciation and cost of goods sold. The resulting translation gains and losses are included in income.
Exchange losses included in the Income Statement were $18,754, $15,884 and $1,093 in 1993, 1992 and 1991, respectively.
Reclassifications Certain reclassifications have been made for all years presented in the financial statements to conform to the classifications adopted in 1993.
Note 4 - Acquisitions and Dispositions
During 1993, the Company contributed stock and the book value of specific assets and liabilities in return for an 80.5% ownership interest in a company formed to establish a joint venture with Hitachi Construction Machinery Company, Ltd (HCMC). HCMC contributed cash equal to 19.5% of the total net assets. The joint venture company, Euclid-Hitachi, is fully consolidated in the Company's financial statements. Additionally, HCMC may elect to increase its ownership interest in Euclid-Hitachi by purchasing additional shares from the Company prior to December 31, 1996.
The Company completed in the beginning of 1991 the acquisition of Akermans Verkstad AB (VME Excavators), a Swedish manufacturer of hydraulic excavators. The Company also raised during 1991 its shareholding in Zettelmeyer Baumaschinen GmbH (Zettelmeyer), a German manufacturer of construction machinery, primarily wheel loaders, to a majority holding of 70%. Both of the acquisitions have been accounted for as purchases and included in the income statement from January 1, 1991. The total purchase price for the two acquisitions amounted to $172 million.
In conjunction with the purchase of Akermans Verkstad AB, a decision was made to restructure the company's distribution organization and production facilities to improve cost efficiency and increase the manufacturing productivity. At December 31, 1993 and 1992, the restructuring reserve relating to Akermans Verkstad AB aggregated $1.4 million and $4.1 million, respectively.
The estimated fair values of the Akermans and Zettelmeyer assets acquired and liabilities assumed, as well as the restructuring reserve established are summarized (in millions) as follows :
Current assets (includes cash of $20.1) $ 254.4 Property, plant & equipment 67.9 Long-term assets 6.6 Goodwill 115.4
Current liabilities (134.1) Restructuring liability (46.7) Long-term liabilities assumed (78.1) Minority interest (13.4) $ 172.0 =======
Note 5 - Statement of Cash Flows
VME considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The following payments were made for: Year Ended December 31, 1993 1992 1991 Interest (net of amount capitalized) $ 35,168 $ 63,747 $ 44,703 Income taxes 6,278 6,415 11,520
Note 6 - Costs and Expenses
Costs and expenses include : Year Ended December 31, 1993 1992 1991 Research and development $ 38,521 $ 59,941 $ 65,043 Postretirement insurance & healthcare 12,051 6,670 5,090 Maintenance and repairs 21,758 28,013 31,826 Restructuring costs - 18,712 4,377
A charge in 1992 for restructuring costs of $18,712 has been made in costs and expenses relating to the decision to restructure the Company's distribution organization and production facilities in North America, to improve cost efficiency and increase the manufacturing productivity and to relocate the German distribution company. The remaining restructuring reserve relating to these activities was $7.9 million at year end 1993 and $16.0 million at year end 1992. The 1991 restructuring costs of $4,377 relates to the closing of the Landskrona plant in Sweden and to the relocation of the German distribution company.
Note 7 - Depreciation and Amortization Expense
Depreciation and amortization expense is allocable as follows: Year Ended December 31, 1993 1992 1991 Cost of Sales $ 26,317 $ 37,402 $ 33,276 Selling, general and administrative expense 5,211 5,074 9,318 $ 31,528 $ 42,476 $ 42,594 ======== ======== ========
Note 8 - Income Taxes
The provision for income taxes is based on separate tax computations for each entity. U.S. and non-U.S. income (loss) before income taxes and minority interests is reported below:
Year Ended December 31, 1993 1992 1991 Income (loss) before income taxes and minority interests : U.S. $ 4,109 $ (15,970) $ (12,541) Non-U.S. 34,225 (97,300) (56,994) $ 38,334 $(113,270) $ (69,535) ========= ========= =========
The provision (benefit) for income taxes consists of the following:
Year Ended December 31, Current tax expense: 1993 1992 1991 U.S. $ 7,897 $ - $ - Non-U.S. 8,151 13,257 1,855 16,048 13,257 1,855
Deferred tax expense (benefit): U.S. (1,502) - - Non-U.S. 3,328 (36,610) (28,672) 1,826 (36,610) (28,672) ________ ________ ________
Total income tax expense (benefit) $ 17,874 $ (23,353) $ (26,817) ========= ========= =========
Tax legislation in Sweden and certain other countries allows companies to reduce their current taxable income through allocations to untaxed reserves. Such amounts are taxed when the untaxed reserves are reduced, except when the purpose of the reduction is to cover a loss or to utilize a tax loss carryforward. Deferred income taxes apply to timing differen- ces primarily resulting from allocations to untaxed reserves (principally inventory and fixed assets related) and other differences between income before income taxes for financial reporting and tax purposes. Deferred tax benefits in 1992 and 1991 are mainly comprised of results from the reversal of untaxed reserves, $21,554 and $25,737 in 1992 and 1991, respectively, in 1992 also sale of property in the amount of $13,252.
Following is a reconciliation of income tax expense (benefit) from the U.S. statutory rate to the effective tax rate:
Year Ended December 31, 1993 1992 1991 Provision (benefit) for taxes at US statutory rate $ 13,064 $ (38,512) $ (23,642) Effect of permanent basis differences between tax and financial income 1,978 (449) 788 Losses with no available tax benefits 2,019 17,560 11,974 Earnings taxed at other than U.S. rate and release of untaxed reserves 100 (6,104) (14,968) Other 713 4,152 (969) Provision (benefit) for taxes at effective tax rate $ 17,874 $ (23,353) $ (26,817) ========= ========= =========
Deferred tax assets and liabilities are comprised of the following at December 31, 1993:
Deferred tax assets relating to :
Accounts receivable $ 303 Inventories 6,037 Fixed assets 7,961 Pension and postretirement benefits 14,703 Expense accruals and reserves 11,522 Other 5,014 Net operating loss and credit carryforwards 16,969 Total deferred tax assets before valuation allowance 62,509 Deferred tax assets valuation allowance (31,044) Net tax asset $ 31,465
Deferred tax liabilities relating to :
Accounts receivable $ 32 Inventories 8,002 Fixed assets 12,616 Pensions 5,212 Other 5,190 Gross deferred tax liabilities $ 31,052
Net deferred tax asset $ 413
At December 31, 1993, VMEA has $2,959 of tax operating loss carryforwards in the United States available to reduce future taxable income which expires in decreasing amounts beginning in 2002 through the year 2006. Other subsidiaries in the Company also have $14,256 of operating loss carryforwards available to offset future taxable income, most of which expire in the year 2002 or thereafter. For Canadian income tax purposes, VMEA's Canadian subsidiary has $18,344 of loss carryforwards to reduce future taxable income which expire in 1998. In addition, for Canadian income tax purposes, the Canadian subsidiary has available certain depreciation allowances aggregating $19,801, which may be utilized to reduce future taxable income in succeeding years. The amount of such depreciation allowance that may be deducted in any one specific year is subject to certain limitations. Also available in Canada are investment tax credit carryforwards of $502 which begin to expire in varying amounts from 1994 through 1998.
VMEA's Brazilian subsidiary has $5,050 loss carryforwards available to reduce future taxable income of which $735 will expire in 1997 and the remainder of which has no expiration date. Also available in Brazil is a $3,398 tax credit that can also be offset against future income up to 1998.
Note 9 - Receivables December 31, Receivables consist of the following: 1993 1992
Notes receivable $ 12,365 $ 6,878 Trade receivables 158,812 183,805 Other receivables 6,867 2,946 Less: Allowance for doubtful accounts (10,161) (12,230) $ 167,883 $ 181,399 ========= =========
Note 10 - Inventories December 31, Inventories consist of the following: 1993 1992
Sales products $ 187,355 $ 227,315 Raw materials and work in process 116,863 133,867 Reserves (33,012) (36,036) $ 271,206 $ 325,146 ========= =========
FIFO values of U.S. inventories exceeded LIFO values by $6,910 in 1993 and $6,520 in 1992. The financial statement basis of these inventories exceeds the tax basis by $19,372 in 1993 and $21,330 in 1992.
Note 11 - Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, 1993 Accumulated Net Cost Depreciation Book Value Land and land improvements $ 16,242 $ 5,138 $ 11,104 Machinery and equipment 236,137 163,263 72,874 Buildings 116,770 46,024 70,746 $ 369,149 $ 214,425 $ 154,724 ========= ========= =========
December 31, 1992 Accumulated Net Cost Depreciation Book Value Land and land improvements $ 17,888 $ 5,169 $ 12,719 Machinery and equipment 279,915 181,698 98,217 Buildings 128,912 43,543 85,369 $ 426,715 $ 230,410 $ 196,305 ========= ========= =========
Depreciation expense was $29,098, $39,565 and $40,464 for the three years 1993, 1992 and 1991, respectively.
Note 12 - Other Long-term Assets Other long-term assets consist of December 31, the following : 1993 1992
Investments $ 5,454 $ 8,854 Intangible pension asset 7,109 4,923 Other assets 5,288 13,603 $ 17,851 $ 27,380 ======== ========
Investments consist of interests in affiliated companies, which are accounted for by the equity or cost methods.
Note 13 - Short-term Debt
Loans consist of the following: December 31, 1993 Year End Line of Interest Credit Amount Rate Available Outstanding
Europe 6.84% $ 83,146 $ 43,604 Brazil 8.06% 21,656 5,055 Australia 5.85% 5,531 3,559 $ 110,333 $ 52,218 ========= =========
December 31, 1992 Year End Line of Interest Credit Amount Rate Available Outstanding
North America 5.42% $ 52,500 $ 24,500 Europe 11.56% 297,710 204,455 Brazil 12.49% 22,500 9,688 Australia 6.85% 8,289 8,790 $ 380,999 $ 247,433 ========= =========
The line of credit arrangements require payment of commitment fees ranging from zero to 1.50% of the individual line of credit.
The Company, as a service to distributors in selected geographic areas, has financing agreements with certain financial institutions to assist in the financing of distributor inventory. In general, these agreements require the Company to make monthly interest payments to the financial institutions for a predetermined period or until the inventory is sold by the distributor, whichever occurs first.
Financing expenses incurred in conjunction with the above agreements were $5,734, $5,520, and $5,140 in 1993, 1992 and 1991, respectively, and were reflected in selling expenses. The interest rates charged on the above agreements are adjusted based on changes in the prime rate. The financial institutions' aggregate distributor receivable balances were $142,230 and $105,638 at December 31, 1993 and 1992, respectively.
Note 14 - Other Current Liabilities
Other current liabilities consist of the December 31, following: 1993 1992
Salaries, wages and other employee costs $ 50,729 $ 42,481 Warranty obligations 28,721 26,873 Dealer discounts 5,347 9,540 Income taxes 18,073 13,849 Accrued expenses and deferred income 24,742 26,917 Restructuring liability 9,356 20,145 Other 35,538 30,141 $ 172,506 $ 169,946 ========= =========
Note 15 - Long-Term Debt December 31, The following is a summary of long-term debt: 1993 1992
Bank notes with interest rates ranging from 9.7% to 13.2% payable in annual installments over a ten-year period $ 5,589 $ 47,976
Revolving Credit Facility Agreement of $250.0 million with interest rates ranging from 6.1% to 8.9% and with a term of three years 44,120 -
Credit Facility Agreement with a German bank of DEM 45.0 million with an interest rate of 10.6% and with a term of three years 26,041 -
Capital lease obligations with interest rates ranging from 6.8% to 11.8% payable through 2035 14,411 19,619
Total 90,161 67,595
Less: Current portion of long-term debt (1,519) (4,559)
Total long-term debt $ 88,642 $ 63,036 ========= =========
The Company leases buildings and land under capital lease arrangements. The related net assets of $14,538 are recorded in property, plant and equipment.
Long-term debt at December 31, 1993 matures as follows:
1994 $ 1,519 1995 1,707 1996 71,923 1997 1,824 1998 1,900 Thereafter 11,288 $ 90,161 =========
In conjunction with the $250.0 million revolving credit facility agree- ment, certain current assets of VMEA, excluding the current assets of the Brazilian subsidiary, and certain current assets and production equipment of the Swedish companies included in the financial statements, have been pledged as security. In addition other assets (real estate, receivables, inventories and shares) have been pledged as collateral for outstanding loans, pension liabilities and long-term debt at December 31, 1993.
In 1992 VMEHS entered into a sale-leaseback transaction involving certain property. The transaction represents a long-term financing arrangement due to the continuing involvement VME has in the buyer of the property. Other long-term liabilities as of December 31, 1993 and 1992 include $38 million and $49 million, respectively, associated with this transaction. The initial amount is to be repaid over a 20 year period. The imputed interest rate was 10.05% at year-end 1993.
Note 16 - Subordinated shareholders' loans
Subordinated shareholders' loans totalling $70.0 million with a term of three years have been granted by the shareholders to the Company at the end of 1992. The loans are subordinated to the $250.0 million Revolving Credit Facility agreement signed on February 22, 1993 and the DEM 45.0 million Credit Facility agreement signed on March 12, 1993. See Note 15. The loans bear interest of LIBOR plus 1.3% per annum and are due January 31, 1996.
Note 17 - Leases and Commitments
The Company incurred rent expense of $16,992, $22,734 and $28,884 in 1993, 1992 and 1991, respectively. Future minimum rental commitments under noncancellable operating leases at December 31, 1993 are as follows:
1994 $ 13,951 1995 9,446 1996 7,847 1997 5,545 1998 4,960 Thereafter 35,863
The Company rents equipment to others under operating lease agreements. In 1993, 1992, and 1991, the Company received rental income of $11,882, $9,457, and $7,930, respectively. The net book value of property leased to others aggregated $15,364 and $12,087 at December 31, 1993 and December 31, 1992, respectively. Future minimum rental income under noncancellable operating leases at December 31, 1993 is as follows:
1994 $ 7,115 1995 1,228 1996 485 1997 333 1998 249 Thereafter 2,986
During 1993, the Company significantly increased the utilization of foreign currency exchange contracts, foreign exchange options and currency swap agreements to reduce its exposure to fluctuations in foreign exchange rates. These instruments were selected to hedge currency risk exposure as a result of amounts recognized in the consolidated balance sheet and anticipated cash flows as a result of export and import transactions expected to occur in 1994. There were no deferred gains or losses on these contracts and the net unrealized currency gain recognized in 1993 was $2.7 million.
At December 31, 1993, the Company had foreign exchange contracts maturing during 1994 to purchase approximately $318 million in foreign currency at contract value corresponding to $321 million at market value.
Note 18 - Pensions
The total pension expense charged to operations for 1993, 1992 and 1991 was $34,558, $47,545 and $48,814, respectively.
In Sweden, most of the VMEHS plans are administered by governmental or quasi-governmental organizations and actuarial assumptions and methods may not be influenced by the Company. VMEHS accrues pension costs, but is only required to fund a portion of these costs. Annual pension costs include an interest factor on the unfunded obligations. Actuarial information, as supplied by the governmental agency for the plans they administer, indicates that the accrued pension costs approximate the actuarially-computed value of vested and non-vested plan benefits.
Pension expense for the defined contribution plans was $24,884, $37,278, and $39,633 in 1993, 1992 and 1991, respectively. Certain employees are also covered by insured plans which supplement the benefits received from the defined contribution plans.
U.S. and Swedish Plans Net periodic pension cost consists of the following:
1993 1992 1991 Service cost - benefits earned during the period $ 1,803 $ 2,017 $ 1,966 Interest cost on projected benefit obligation 13,566 15,573 14,766 Actual return on plan assets (5,015) (5,161) (5,161) Net amortization and deferral (680) (2,162) (2,390) $ 9,674 $ 10,267 $ 9,181 ======== ======== ======= Assumptions used to develop the net periodic pension cost were as follows: 1993 1992 1991
Weighted average discount rate 8.3% 9.7% 9.7%
Weighted average long term rate of return on plan assets 9.1% 9.4% 9.4%
Rate of increase in compensation levels 4.6% 5.7% 5.7%
The following table sets forth the funded status of these plans at:
December 31, 1993 1992 Actuarial present value of accumulated benefit obligation: Vested benefits $ 146,797 $ 138,972 Non-vested benefits 5,293 2,991 Accumulated benefit obligation $ 152,090 $ 141,963 ========= =========
Projected benefit obligation $(156,450) $(147,911) Plan assets at fair value 69,715 70,294 Projected benefit obligation in excess of plan assets (86,735) (77,617) Unrecognized net loss from actuarial experiences 28,987 14,421 Unrecognized prior service cost 64 70 Unamortized net asset existing at date of adoption of FAS 87 (18) (1,207) Liability for Swedish early retirement program - (500) Liabilities for other plans (3,859) (6,463) Adjustment required to recognize minimum liability (30,491) (16,293) Total pension liability (92,052) (87,589) Less: current portion 11,216 2,264 Total long-term pension liability $ (80,836) $ (85,325) ========= =========
Canadian Plans
Net periodic pension income included the following :
1993 1992 1991 Service cost - benefits earned during the period $ 176 $ 348 $ 412 Interest cost on projected benefit obligation 315 964 1,014 Actual return on plan assets (1,061) (1,495) (1,557) Net amortization and deferral (192) (322) (347) Net periodic pension income $ (762) $ (505) $ (478) ======= ======= =======
Assumptions used to develop the net periodic pension income were as follows :
1993 1992 1991
Weighted average discount rate 7.5% 9.5% 9.5%
Weighted average long-term rate of 7.5% 9.5% 9.5% return on plan assets
Rate of increase in compensation levels 4.0% 5.5% 5.5%
The following table sets forth the Plans' funded status at:
December 31, Actuarial present value of accumulated 1993 1992 benefit obligation :
Vested benefits $ 4,381 $ 10,086 Non-vested benefits 318 137 Accumulated benefit obligation $ 4,699 $ 10,223 ======== ========
Projected benefit obligation $ (4,908) $(10,906) Plan assets at fair value 8,216 17,020 Plan assets in excess of projected benefit obligation 3,308 6,114 Unrecognized net gain from actuarial experiences (1,662) (2,229) Unrecognized prior service cost 693 1,572 Unamortized net asset existing at date of adoption of FAS 87 (757) (3,703) Prepaid pension asset $ 1,582 $ 1,754 ======== ========
Other Plans
A non-U.S. subsidiary's pension plans and postretirement benefits are funded by a government-administered program. Contributions to the program are based on payroll costs and have been fully provided for through December 31, 1993.
Note 19 - Postretirement and Postemployment Benefits
The Company adopted Statement of Financial Accounting Standard No. 106 (SFAS 106) "Employers Accounting for Postretirement Benefits other than Pensions" effective January 1, 1993. This statement requires the Company to recognize, during the working career of those employees who could become eligible for such benefits, the estimated cost of providing certain postretirement benefit costs (other than pensions) for those employees when they retire.
The Company and its subsidiaries provide certain health care and life insurance benefits for its U.S. retired employees. Substantially all of the Company's U.S. employees may become eligible for those benefits if they reach normal retirement age while still working for the Company. Those benefits and similar benefits for active employees are provided through an insurance company whose premiums are based on the benefits paid during the year. The total postretirement health care and life insurance expense charged to income was $12,051, $6,670 and $5,090 in 1993, 1992 and 1991, respectively.
Annual net postretirement benefit costs under the Company's benefit plan are determined on an actuarial basis. The Company's current policy is to pay these benefits as they become due. The Company has elected to recognize the transition obligation of $84,858 over a 20-year period.
Net periodic postretirement benefit costs are comprised as follows: Service cost $ 664 Interest cost on projected benefit obligations 7,144 Amortization of transition obligation 4,243 Total net periodic pension cost $ 12,051 ======== Accumulated postretirement benefit obligation is comprised as follows:
Retired participants $ 79,349 Fully eligible active plan participants 6,538 Other active plan participants 11,569
Total accumulated postretirement benefit obligation $ 97,456
Less : Unrecognized loss 11,218 Less : Unrecognized transition obligation 80,616
Accrued postretirement benefit cost other than pensions $ 5,622 ========
The discount rate used in determining the accumulated benefit obligation was 7.50%. The assumed health care cost trend rates result in per capita net incurred medical claims increasing 12% under age 65 and 10% over age 65. These rates decrease to 6% for both over and under age 65 by the year 2006. If the assumed health care cost trend rate were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1993, would increase $11,111.
In November 1992, the Financial Accounting Standard Board issued SFAS No. 112 "Employers' Accounting for Postemployment Benefits". This statement establishes accounting standards for employers who provide benefits such as supplemental unemployment compensation, severance benefits, salary continuation and other benefits to former or inactive employees after employment but before retirement.
The Company is not required to adopt this Statement until 1994 and mana- gement has decided not to implement this Statement as of December 31, 1993. Management does not expect the implementation of this Statement to have a material effect upon the Company's financial position.
Note 20 - Shareholders' Equity
VME Group N.V. acquired from AB Volvo and Clark Equipment Company all out- standing shares in VMEA and VMEHS in December 1993 in exchange for newly issued shares in VME Group N.V. Previously 195,000 Class A shares and 195,000 Class B shares of VMEA and VMEHS were authorized and the outstanding Class A shares were fully held by VME Group NV and the Class B shares held equally by Clark and AB Volvo.
As discussed in Note 1, the contributions by AB Volvo and Clark to the Company were accounted for as transactions between entities under common control. Accordingly, financial statements of the Company have been prepared at a historical cost basis and reflect such contributions on a retroactive basis for all periods presented. Shares of common stock in the amount of 250,000 were reflected as if outstanding for all periods reported.
Changes in Shareholders' equity are as follows: (Deficit) Cumulative Common Paid-In Retained Adjustments Stock Capital Earnings To Equity Total
January 1, 1991 $ 25,750 $154,148 $ 83,561 $ 46,624 $310,083 Pension liability in excess of unrecognized prior service cost - - - (3,992) (3,992) Net loss - - (44,664) - (44,664) Dividends paid - - (9,468) - (9,468) Cumulative Translation Adjustment - - - 1,133 1,133 December 31, 1991 $ 25,750 $154,148 $ 29,429 $ 43,765 $253,092
Capital contribution - 30,000 - - 30,000 Pension liability in excess of unrecognized prior service cost - - - (7,384) (7,384) Net loss - - (93,617) - (93,617) Cumulative Translation Adjustment - - - (27,280) (27,280) December 31, 1992 $ 25,750 $184,148 $(64,188) $ 9,101 $154,811
Pension liability in excess of unrecognized prior service cost - - - (12,301) (12,301) Net income - - 30,023 - 30,023 Cumulative Translation Adjustment - - - (14,122) (14,122) December 31, 1993 $ 25,750 $184,148 $(34,165) $(17,322) $158,411 ======== ======== ======== ======== ======== The capital contribution in 1992 of $30,000 was equally contributed by the two shareholders.
Note 21 - Contingencies
The Company has pending claims with respect to which lawsuits have been filed alleging damages which in the aggregate would be material to the Company. Of the foregoing claims and lawsuits, some involve claims for damages for injury, death or property damage arising from alleged defects in products of the Company or products of Clark Equipment Company or its subsidiaries for which the Company assumed responsibility at the time of its formation. Most of the product-related cases are in varying stages of pretrial completion.
The ultimate result of these claims and lawsuits at December 31, 1993 is not determinable, but in the opinion of management, either adequate provision for any anticipated loss has been made by insurance, accruals or otherwise, or the ultimate loss resulting therefrom will not materially affect the financial position or results of operations of the Company.
The Internal Revenue Service (IRS) is in the process of conducting an examination of VMEA's federal income tax returns for the years 1988-1991. At this time no final report, assessment or adjustment letter has been issued by the IRS. Issues which may give rise to examination adjustments include a worthless stock deduction, acquired inventories and imputed interest on advances to subsidiaries. The amounts in question are material for the Company but management continues to believe that VMEA has meritorious defenses to the items being questioned by the IRS. Management is unable to estimate a range of liability at this time, but believes the ultimate loss resulting therefrom will not materially affect the financial position or results of operations of the Company.
The Company has agreements with selected distributors and customers to repurchase a limited volume of parts at pre-established prices and conditions. The Company is also obligated, under certain conditions, to repurchase some dealer or customer inventory and rental assets funded by financial institutions aggregating $14,000 at December 31, 1993. In the opinion of management, adequate provisions have been made for costs which might be incurred in connection with the agreements.
The Company has guaranteed secured obligations of others and discounted notes with recourse in an aggregate amount of $54,920 at December 31, 1993.
Note 22 - Segment Information
The Company operates in primarily one industry segment, the manufacturing and marketing of construction equipment and related parts. Following is financial information by geographic segment:
Year Ended December 31, 1993 1992 1991 Sales North America $ 480,032 $ 404,940 $ 316,109 Europe 725,709 881,927 911,047 Other 280,802 255,210 278,101 Eliminations (247,235) (184,802) (136,782) $1,239,308 $1,357,275 $1,368,475 ========== ========== ==========
Year Ended December 31, 1993 1992 1991 Income before taxes North America $ 8,752 $ (37,025) $ (29,987) Europe 29,470 (68,307) (34,580) Other (2,611) (11,638) (6,914) $ 35,611 $ (116,970) $ (71,481) ========== ========== =========
December 31, 1993 1992 1991 Identifiable assets North America $ 204,473 $ 209,397 $ 230,303 Europe 982,537 1,042,815 1,250,238 Other 50,072 58,389 68,561 Eliminations (447,918) (340,744) (353,590) $ 789,164 $ 969,857 $1,195,512 ========== ========== ==========
Note 23 - Related Party Transactions (in millions)
The following is a summary of related party transactions: AB Volvo and Clark and Subsidiaries Subsidiaries
1993 VME Transactions Sales $ 20 $ - Purchased materials 39 19 Parts distribution service fee - 7 Other expense 10 1 Interest expense 2 2
1993 VME Balances Accounts receivable 6 1 Accounts payable 2 -
1992 VME Transactions Sales $ 18 $ 2 Purchased materials 51 23 Parts distribution service fee - 9 Other expense 13 -
1992 VME Balances Accounts receivable 2 1 Accounts payable 2 2
1991 VME Transactions Sales $ 44 $ 3 Purchased materials 56 25 Parts distribution service fee - 8 Other expense 8 -
1991 VME Balances Accounts receivable 16 - Accounts payable 4 4
Note 24 - Subsequent events
As of January 1, 1994, the Company has increased its majority shareholding in Zettelmeyer from 70% to 100% by acquiring the remaining minority interest for $33 million.
Report of Independent Accountants on Financial Statement Schedules
March 4, 1994
To the Board of Directors and Shareholders of VME Group N.V.
Our audits of the consolidated financial statements referred to in our report dated March 4, 1994 presented in the first section of this document also included an audit of the accompanying Financial Statement Schedules. In our opinion, based upon our audits and the report of other independent accountants referred to in our report on the financial statements, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse
Cleveland, Ohio
KPMG Bohlins KPMG Bohlins AB Mail Address Telephone +46(31)61 48 00 Norra hamngatan 22 P.O. Box 11908 Telefax +46(31)15 26 55 Gothenburg S-404 39 Gothenburg Telex 21762 BJGS Sweden Sweden
Independent Auditors' Report
To the Board of Directors of VME Holding Sweden AB:
We have audited the consolidated balance sheets of VME Holding Sweden AB and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income (loss) and cash flows for each of the years in the three year period ended December 31, 1993 (all expressed in U.S. dollars and not presented separately herein). In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules V, VI, VIII, IX and X (all expressed in U.S. dollars and not presented separately herein). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Sweden which are similar in all material respects with auditing standards in the United States. Those standards 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 included in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The consolidated financial statements and financial statement schedules have been translated in accordance with the standards set forth in Statement of Financial Accounting Standards No. 52 from Swedish Kronor (the currency of the country where VME Holding Sweden AB is incorporated and in which it operates) into U.S. dollars for purposes of inclusion in the consolidated financial statements of VME Group N.V.
In our opinion, for purposes of inclusion in the consolidated financial statements of VME Group N.V., the translated financial statements present fairly, in all material respects, the consolidated financial position of VME Holding Sweden AB and subsidiaries at December 31, 1993 and 1992 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles in the United States. Also, in our opinion, the related consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements, present fairly in all material respects the information shown therein.
Gothenburg, Sweden /s/ KPMG Bohlins AB February 23 1994 KPMG Bohlins AB
Member Firm of Headoffice Mail address Tel +46 8 723 91 00 Klynveld Peat Tegelbacken 4, P.O. Box 16106 Fax +46 8 10 52 58 Marwick Stockholm S-103 23 Stockholm Goerdeler Sweden Sweden
EXHIBIT LIST AND INDEX Filed Herewith Unless Exhibit Description Otherwise Indicated
(3)(a) Restated Certificate of Incorporated by reference Incorporation to Exhibit (3)(a) to Registrant's Form 10-K for the year 1992
(3)(b) By-laws, as amended Incorporated by reference to Exhibit (3)(b) to Registrant's Form 10-K for the year 1989
(3)(c) Amended and Restated Rights Incorporated by reference Agreement, dated as of to Exhibit (3)(c) to August 14, 1990 between Registrant's Form 10-Q Clark Equipment Company and for the period ended Harris Trust and Savings Bank September 30, 1990
(4)(a) Indenture dated as of August 1, Incorporated by reference 1983 between Clark Equipment to Exhibit (4)(a) to Company and Harris Trust and Registrant's Form 10-K Savings Bank as trustee, as to for the year 1992 which Pittsburgh National Bank is successor trustee, as supplemented by a First Supplemental Indenture dated as of February 1, 1991
(4)(b) Specimen form of 9-3/4% Note Incorporated by reference issued pursuant to Exhibit to Exhibit (4)(b) to (4)(a) Registrant's Form 10-K for the year 1992
(4)(c) Registrant is a party to several Pursuant to paragraph other long term debt agreements (4)(iii)(A) of Item under which, in each case, the 601(b) of Regulation total amount of securities S-K, Registrant agrees authorized does not exceed 10% to furnish a copy of of the assets of Registrant and these instruments to its consolidated subsidiaries. the Securities and Exchange Commission upon request.
(10)(a) Employment contract with Leo Incorporated by reference J. McKernan, Chairman, President to Exhibit (10)(a) to and Chief Executive Officer, Registrant's Form 10-K dated November 12, 1992 for the year 1992
(10)(b) Employment contract with Frank Incorporated by reference M. Sims, Director and Senior to Exhibit (10)(b) to Vice President, dated Registrant's Form 10-K November 12, 1992 for the year 1992
Filed Herewith Unless Exhibit Description Otherwise Indicated
(10)(c) Employment contract with Thomas Incorporated by reference L. Doepker, Vice President and to Exhibit (10)(d) to Treasurer, dated November 12, Registrant's Form 10-K 1992 for the year 1992
(10)(d) Employment contract with Bernard Incorporated by reference D. Henely, Vice President and to Exhibit (10)(e) to General Counsel, dated Registrant's Form 10-K November 12, 1992 for the year 1992
(10)(e) Employment contract with William Incorporated by reference N. Harper, Vice President and to Exhibit (10)(f) to Controller, dated November 12, Registrant's Form 10-K 1992 for the year 1992
(10)(f) Employment contract with Paul Incorporated by reference R. Bowles, Vice President, to Exhibit (10)(i) to dated March 13, 1992 Registrant's Form 10-K for the year 1991
(10)(g) Employment contract with John Incorporated by reference J. Reynolds, Vice President, to Exhibit 10(i) to dated November 14, 1991 Registrant's Form 10-K for the year 1992
(10)(h) 1985 Stock Option Plan Incorporated by reference to Exhibit 10(j) to Registrant's Form 10-K for the year 1991
(10)(i) Stock Purchase Plan (amended Incorporated by reference and restated effective as of to Exhibit (10)(r) to August 15, 1991) Registrant's Form 10-K for the year 1991
(10)(j) Stock Purchase Plan for Non- Incorporated by reference Employee Directors to Exhibit (19)(a) to Registrant's Form 10-Q for the period ended September 30, 1991
(10)(k) Stock Grant Plan for Non- Incorporated by reference Employee Directors to Exhibit (19)(b) to Registrant's Form 10-Q for the period ended September 30, 1991
(10)(l) Incentive Compensation Plan Incorporated by reference for Corporate Office Management to Exhibit (10)(u) to (adopted February 18, 1992) Registrant's Form 10-K for the year 1991
(10)(m) Incentive Compensation Plan Incorporated by reference for Business Unit Management to Exhibit (10)(v) to (adopted February 18, 1992) Registrant's Form 10-K for the year 1991
Filed Herewith Unless Exhibit Description Otherwise Indicated
(10)(n) Performance Unit Plan Incorporated by reference (effective November 9, 1992) to Exhibit (10)(s) to Registrant's Form 10-K for the year 1992
(10)(o) Form of Grant Letter used to Incorporated by reference award Performance Units to Exhibit (10)(t) to pursuant to the Performance Registrant's Form 10-K Unit Plan (effective for the year 1992 November 9, 1992)
(10)(p) Form of Grant Letter used to Incorporated by reference award Performance Units in to Exhibit (10)(u) to 1991 Registrant's Form 10-K for the year 1992
(10)(q) Form of Grant Letter used to Incorporated by reference award Performance Units in to Exhibit (10)(v) to 1989 Registrant's Form 10-K for the year 1992
(10)(r) Form of Grant Letter used to Incorporated by reference award Performance Units in to Exhibit (10)(w) to 1988 Registrant's Form 10-K for the year 1992
(13) Portions of Clark Equipment --- Company 1993 Annual Report to Stockholders which are incorporated by reference into this Form 10-K
(22) Subsidiaries of Clark Equipment --- Company
(24)(a) Consent of Independent Accountants- --- Price Waterhouse
(24)(b) Consent of Independent Accountants- --- KPMG Bohlins AB
(99) Computation of Ratio of Earnings to --- Fixed Charges for the twelve months ended December 31, 1993
EXHIBIT (13)
PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS INCORPORATED BY REFERENCE INTO FORM 10-K
Management's Discussion and Analysis
General Overview The Company sold its Clark Material Handling Company (CMHC) business unit to Terex Corporation on July 31, 1992. All prior-year income statements presented reflect CMHC as a discontinued operation.
Clark's net results for consolidated continuing operations, which consist of Melroe, Clark-Hurth Components, and Clark Automotive Products, improved approximately 68.3% in 1993 compared with 1992 results, reflecting increased sales and margins. Sales in 1993 increased 9.0% over 1992 and Clark reported net income from consolidated continuing operations of $34.0 million compared with $20.2 million for 1992. Included in the results for 1993 were several special events that, in the aggregate, lowered net income by $8.7 million, or $.50 per share. They were: 1) Clark-Hurth Components took a $3.3 million after-tax charge for manpower reductions; 2) the increase in the Company's stock price created an after-tax expense of $9.7 million for stock incentive programs; 3) Clark received an after- tax refund of $3.5 million from the U.S. Customs Service as settlement of a disputed duty drawback claim; 4) a $2.2 million after-tax charge to field retrofit one skid-steer loader model with an additional hydraulic lock-out system to prevent potential misuse; and 5) the Company's tax provision was decreased by $3.0 million, reflecting the impact of the increase in U.S. tax rates on recorded deferred tax assets.
The profitability of VME Group N.V. (VME), Clark's 50%-owned construction machinery joint venture, improved from 1992 levels, reflecting higher production, better price realization, and savings from cost-reduction activities. Clark reported equity income in VME operations of $7.8 million in 1993 compared with a loss of $48.1 million in 1992. The 1992 results included an $8.5 million restructuring charge.
In 1992, Clark's consolidated continuing operations reflected better results than those reported for 1991. Improved sales volumes and margins resulted in income of $20.2 million compared with losses of $29.4 million in 1991. This improvement was offset by Clark's share of the losses of VME, which were $48.1 million in 1992 and $23.1 million in 1991. VME was affected by a depression in world construction industry markets and by the cost of restructuring its operations to improve efficiency and reduce capacity.
The Company's 1991 results were adversely impacted by special charges totaling $33.5 million, which consisted of the following:
Amounts in millions Employment reduction costs in North America and Europe $21.3 North American rationalization costs 5.5 Environmental clean-up costs 4.0 Clark's share of rationalization costs at VME, Clark's 50%-owned joint venture 2.7 $33.5
In each of the three years ended December 31, 1993, the Company has reflected accounting changes in its Statement of Income. Effective January 1, 1991, the Company adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," giving immediate recognition to a $244.9 million charge to recognize its postretirement benefit obligations. Effective January 1, 1992, the Company adopted FAS No. 109, "Accounting For Income Taxes." This adoption resulted in the recognition of a cumulative tax benefit of $92 million related to the recognition of additional net deferred tax assets. Effective January 1, 1993, VME adopted FAS No. 109. Clark's share of the cumulative tax benefit resulting from this accounting change was $6.2 million. At the same time, VME also adopted FAS No. 106, and will recognize its estimated obligation on a transitional basis over 20 years. A charge of $1.4 million, which represents Clark's share, is included in 1993 VME results.
Results of Operations Continuing Consolidated Operations:
Sales in 1993 totaled $874.9 million, an increase of 9.0% from the 1992 level of $802.7 million. The 1992 sales level increased 11.3% from the 1991 level of $721.4 million.
The 1993 sales increase of $72.2 million over the 1992 level related to volume and price improvements and offset an unfavorable foreign currency translation impact of about $29 million. The off-highway segment, which consists of the Clark-Hurth Components and Melroe businesses, recorded sales of $690.6 million in 1993 compared with $657.5 million in 1992. In this segment, North American sales increased $88.4 million, or 24.2%, and overseas sales decreased $55.3 million, or 19.0%, when comparing the same periods. The North American increase was mostly volume-related, while about 53% of the overseas decrease was related to changes in foreign currency translation rates. The on-highway segment, which consists of the Brazil-based Clark Automotive Products business, reflected a sales improvement of $39.1 million from the 1992 sales level, about 87.2% of which was volume-related. The improvement relates largely to the light and medium-duty truck transmission business.
In 1992, sales increased $81.4 million compared with 1991. Increases occurred at all of the Company's businesses. About 11% of the increase related to changes in foreign currency translation rates. The remaining increase in sales related to volume and pricing improvements.
Gross margins were 20.0% in 1993 compared with 17.3% and 11.6% in 1992 and 1991, respectively. In 1993 margin levels increased to approximately 20% for both of the Company's business segments. Margins in the off-highway segment were 18.8% in 1992 and 12.5% in 1991 while margins in the on- highway segment were 14.5% in 1992 and 11.8% in 1991. The continued level of improvement in 1992 and 1993 in both of the segments relates to higher capacity utilization as a result of higher operating levels and the realization of benefits of cost containment programs implemented since the current recessionary period began in 1990.
The financial statements of most of Clark's foreign subsidiaries are translated at current and average exchange rates. Any resulting translation adjustment is included in the cumulative translation adjustment account in stockholders' equity. For Brazil's hyperinflationary economy and for foreign operations that are an extension of U.S. manufacturing concerns, financial statements are translated using a combination of current, average, and historic exchange rates, with the resulting
translation impacts included in income. Transactions carried out in different currencies resulting in exchange adjustments are also included in income. The impact of foreign currency and exchange transactions included in cost of goods sold were gains of $0.2 million in 1993 and losses of $2.9 million and $3.0 million in 1992 and 1991, respectively.
The Company exports certain products manufactured in the United States, principally for sale in European countries. In addition, certain products are manufactured in Europe for export sale, primarily in other European countries. These sales are typically invoiced in the currency of the country in which the products are sold and accordingly, the relative strength or weakness of the currency of country in which the products are manufactured can significantly impact the profitability of these sales. Clark periodically hedges these sales to reduce the currency risk, however, fluctuations in profitability will still result with currency movements. Throughout 1993, the Company's results were favorably impacted by currency positions partially secured with hedges.
Research and development expenses of $19.8 million, $16.9 million, and $16.5 million were included in cost of goods sold in 1993, 1992, and 1991, respectively. The level of spending reflects the Company's commitment to develop new products and further enhance the quality of existing products through use of the latest technologies.
There was no LIFO-related income in 1993. However, due to reductions in domestic inventory levels, $1.8 million and $2.1 million of LIFO income was recorded in the fourth quarters of 1992 and 1991, respectively.
Selling, general and administrative expenses were $118.5 million, or 13.5% of sales, in 1993 compared with $99.8 million, or 12.4% of sales, in 1992 and $103.2 million, or 14.3% of sales in 1991. The 1993 increase in expenditures from the 1992 level was related to higher sales volume, retiree health care costs, and compensation-related matters, including stock incentive programs, which accounted for $15.5 million of the overall $18.7 million expense increase. The 1992 decrease from 1991 levels resulted from expense control actions and lower interest rates.
Operating income from continuing operations increased about 42.5% to $56.0 million from the 1992 level of $39.3 million, which compared with a 1991 loss of $19.5 million. The 1993 increase is attributable to the effects of higher sales and higher gross margins, partially offset by increases in selling, general and administrative expenses. The 1992 increase is attributable to higher sales, higher gross margins, and lower expense levels due to cost-reduction actions taken throughout 1991. The 1991 operating loss included $16.9 million of special charges to restructure operations and $4.0 million for environmental clean-up costs.
Other income was $11.9 million in 1993 compared with $16.9 million in 1992 and $14.6 million in 1991. The 1993 decrease of $5.0 million related principally to expenses associated with Brazilian monetary correction procedures. These procedures, which resulted in the reflection of an expense of $5.8 million, require that tax remittances be indexed from the date incurred until paid to offset the impacts of inflation. Partially offsetting this expense was higher interest income, which increased by an aggregate of $1.5 million despite lower investment rates. The increase can be attributed to $1.7 million of interest from a duty drawback refund received from the U.S. Customs Service and an additional $1.8 million of interest resulting from the settlement of U.S. tax audits for 1989 through 1991.
Interest expense was $21.5 million in 1993 compared with $25.6 million in both 1992 and 1991. The 1993 decrease of $4.1 million from the 1992 level is due to lower average rates and debt balances outstanding in 1993. The average rates and debt balances outstanding in 1992 approximated those in 1991.
Pre-tax results from consolidated continuing operations were income of $46.5 million in 1993 and $30.6 million in 1992, and a loss of $30.5 million in 1991. The year-to-year improvement in results for 1993 and 1992 reflect higher sales, improved gross margins, and the impact of expense control actions taken in prior years, principally during 1991.
Tax provisions of $12.4 million and $10.4 million were recorded in 1993 and 1992, respectively, and a tax credit of $1.1 million was recorded in 1991. The effective tax rate in 1993 was 26.8%. The U.S. corporate income tax rate was increased from 34% to 35% retroactive to January 1, 1993. A tax credit of $3.0 million was recorded in the third quarter as net U.S. deferred tax assets were revalued at the higher tax rate. Without this item, the effective tax rate would have been 33.2%. The tax rate on operations in 1993 was lower than the U.S. statutory rate and the 1992 tax provision approximated the U.S. statutory rate. The tax rates in both years have been reduced by the utilization of capital loss carryforwards in the United States and net operating loss carryforwards at certain foreign locations. These impacts reduced the overall tax provisions by approximately $4.7 million in 1993 and $2.5 million in 1992. The 1991 overall tax benefit was approximately $1.1 million or 3.5% of the pre-tax loss. This was lower than the U.S. statutory rate because in different taxing jurisdictions carryback ability was limited by either statute or insufficient prior-year income levels.
Equity in Associated Company
Equity in the net results of VME, Clark's 50%-owned joint venture, was income of $7.8 million in 1993 and losses of $48.1 million in 1992 and $23.1 million in 1991. VME sales were $1,240 million in 1993, compared with $1,357 million in 1992 and $1,368 million in 1991. The 1993 improvement in operating performance over 1992 is the result of higher capacity utilization; improved margins due to better price realization, partially accounted for by the devaluation of the Swedish krona; and savings from cost-reduction activities initiated in 1992. Improvements in the North American market also contributed to the better performance. The 1992 results included the impacts of Swedish currency devaluation of approximately $2.0 million and a special charge of approximately $8.5 million to close VME's St. Thomas, Ontario, plant and restructure its North American production operations. The charge encompassed employee termination costs, the write-down of certain assets, and moving and start- up costs for production transferred to Asheville, North Carolina, from St. Thomas. Included in the 1991 results was a reserve VME established for the permanent shutdown of one of its European operations. This increased Clark's share of VME's loss by $2.7 million.
During 1992, the Company and AB Volvo each invested $15 million of additional capital into VME, along with an additional $35 million in subordinated loans which are repayable in 1996.
On November 17, 1993, VME and Hitachi Construction Machinery Co. Ltd., both worldwide suppliers of construction and mining equipment, signed an agreement to establish a joint venture company in the rigid hauler business. The joint venture company, named Euclid-Hitachi Heavy Equipment Inc., became operational on January 1, 1994. Its headquarters is located in Cleveland, Ohio.
Discontinued Operations
Discontinued operations consist primarily of the operations of CMHC, which reported income of $1.8 million in 1992 and a loss of $40.8 million in 1991. The 1992 results reflect the operating losses of CMHC through June 30, 1992, and include an $8.5 million gain on the sale of that business, which was completed on July 31, 1992. When compared with 1991, the improved operating results in 1992 reflect the manpower reductions made in late 1991 and higher tax benefits available to offset operating losses. The 1991 results included $9.9 million of special charges to restructure operations.
Discontinued operations in 1992 and 1991 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 into other income in 1993. The investment in this operation has been reclassified on the Company's Balance Sheet to "other assets" for both periods presented.
Accounting Changes
Effective January 1, 1991, the Company changed its method of accounting for postretirement benefits by adopting the accrual method of accounting, as prescribed by FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In making this change, the Company immediately recognized a $244.9 million provision to accrue the estimated Accumulated Postretirement Benefit Obligation (APBO). The APBO represents the present value of estimated future benefits payable to current retirees, including those from discontinued operations, and the earned portion of estimated benefits payable to active employees after retirement. Ongoing additional charges for active employees are accrued annually to the date of full eligibility.
In 1991, the APBO was accrued without tax benefit, as required under then- existing accounting pronouncements. With the adoption of FAS No. 109, "Accounting for Income Taxes," in January 1992, Clark recognized a future tax benefit with respect to the APBO.
Effective January 1, 1992, the Company adopted FAS No. 109, "Accounting for Income Taxes." This resulted in the recognition of a cumulative net tax benefit of $92 million related to the recognition of additional net deferred tax assets. In adopting FAS No. 109, the Company considered the cyclicality of its business, the nature of its prior operating losses, and the probable turnaround of temporary book and tax differences. Through this assessment, management has concluded that with the restructuring actions undertaken, including the sale of CMHC, Clark will be sufficiently profitable in the long-term to realize the tax benefits related to its temporary differences. In the adoption, Clark generally did not reflect benefits related to foreign net operating loss carryforwards or to capital loss carryforwards, due to the limited nature of the carryforward periods, limitations on use, and the underlying business conditions surrounding the operations that gave rise to the carryforwards.
Effective January 1, 1993, VME adopted FAS No. 109; Clark's share of the cumulative tax benefit resulting from this accounting change was $6.2 million. VME also adopted FAS No. 106, effective January 1, 1993, and will recognize its estimated obligation on a transitional basis over 20 years. A charge of $1.4 million, which represents Clark's share, is included in the 1993 VME results.
Contingencies
Environmental
The Company is involved in environmental clean-up activities or litigation in connection with nine former waste disposal sites and five former plant locations.
At each of the nine waste disposal sites, Clark contracted with independent waste disposal operators to properly handle the disposal of its waste. The Environmental Protection Agency (EPA) also has identified other parties responsible for clean-up costs at the waste disposal sites. The Company has and will continue to accrue these costs when the liability can be reasonably estimated. As of December 31, 1993, the Company had reserves of approximately $16.4 million for potential future environmental clean-up costs. The environmental reserves represent Clark's current estimate of its liability for environmental clean-up costs and are not reduced by any possible recoveries from insurance companies or other potentially responsible parties not specifically identified by the EPA. Although management cannot determine whether or not a material effect on future operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of the potential liability. Further, management believes that the additional maximum exposure level in excess of the recorded reserve level would not be material to the financial condition of the Company. Although settlement of the reserves will cause future cash outlays, it is not expected that such outlays will materially impact the Company's liquidity position. The Company's 1993 expenditures relating to environmental compliance and clean-up activities approximate $2.6 million.
Sale of CMHC
The Company sold its forklift truck business, CMHC, to Terex on July 31, 1992. As part of the sale, Terex and CMHC assumed substantially all of the obligations of the Company relating to the CMHC operation, 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.
Uncertainty exists as to the ultimate effect on Clark if Terex and CMHC fail to perform these obligations and commitments. While the aggregate losses associated with these obligations could be material, the Company does not believe such an event would materially affect the Company's ability to meet its cash requirements.
In the latest report on file with the Securities and Exchange Commission (SEC), Terex reported that it was continuing to incur operating losses and had a deficit stockholders' investment. In their report on the financial statements that were filed as part of Terex's Form 10-K for 1992, Terex's independent accountants indicated that Terex's recurring losses, its capital deficiency, and its inability to borrow additional funds under a bank lending agreement raised doubts about Terex's ability to continue as a going concern. In December 1993, Terex announced that it had issued $30 million of preferred stock in a private placement arrangement.
Other
Clark has certain other contingent liabilities that have arisen in the normal course of business. These, along with additional details on the sale of CMHC, are discussed further in the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
At December 31, 1993, the Company's cash and short-term investments amounted to $235.8 million compared with $191.9 million at December 31, 1992. At December 31, 1993, the Company's current ratio was 2.2 to 1 compared with 2.1 to 1 at December 31, 1992. The increase in cash is principally due to cash flow from operations and additional debt.
In the first quarter of 1993, the Company filed a shelf registration statement with the SEC to register $150 million of medium-term notes. The Company sold $90.2 million of medium-term notes during the second quarter of 1993. This includes $50 million of 30-year notes at rates of approximately 8.20%. The remaining notes have maturities ranging from June 14, 1995 to July 1, 1998 and rates ranging from a floating LIBOR plus .55% to a fixed 6.25%. Approximately $63 million of the notes' proceeds were used to redeem the Company's 9-5/8% sinking fund debentures and to prepay the LESOP debt.
Cash provided by operations was $69.6 million in 1993, compared with $74.5 million in 1992 and $57 million in 1991. At the end of 1993, working capital increased to $255.0 million from $199.6 million at the end of 1992.
The Company has a line of credit of $66.2 million with seven banks which expires in October 1994. As of December 31, 1993, there were no outstanding borrowings under this agreement. The Company is negotiating a new agreement.
The Company believes that it has adequate liquidity either through cash reserves, its line of credit, or through its access to public and private markets to meet its operating needs and strategic objectives.
Capital Investment
Worldwide capital expenditures - including CMHC through the date of disposition - for facilities, manufacturing equipment, and tooling were as follows: Amounts in millions 1993 1992 1991 By Type Capital facilities and equipment $25.0 $29.4 $40.9 Tooling 4.9 7.9 7.7 Total expenditures $29.9 $37.3 $48.6
By Location North America $19.8 $20.6 $26.5 Foreign locations 10.1 16.7 22.1 Total expenditures $29.9 $37.3 $48.6
Depreciation of fixed assets was $36.4 million in 1993, $44.1 million in 1992, and $45.8 million in 1991.
Capitalization
At December 31, debt as a percent of total capitalization (total debt and stockholders' equity) was 46.9% in 1993, 47.9% in 1992, and 55.4% in 1991. The improvement in the ratio relates principally to increased stockholders' equity, partially offset by the increase in debt from the medium-term notes issued during the second quarter. Total debt increased to $236.9 million from the December 31, 1992, level of $232 million.
Stockholders' equity at year-end was $268.2 million in 1993, $252.6 million in 1992, and $237.5 million in 1991. At December 31, stockholders' equity per share was $15.41 in 1993, $14.56 in 1992, and $13.72 in 1991.
Outlook The backlog at the end of 1993 was $149 million compared with a backlog of $123 million at December 31, 1992.
Looking ahead, the Company is cautiously optimistic about 1994. First quarter 1994 results should improve compared to the prior-year period, with growth coming from an improving North American market. Clark operations should make performance gains in 1994, even if markets remain flat. Results are expected to improve as the Company's businesses continue to benefit from recent cost reduction programs. When the worldwide markets strengthen, particularly in Europe, the Company expects further gains in financial performance.
B A L A N C E S H E E T
S T A T E M E N T O F I N C O M E
S T A T E M E N T O F C A S H F L O W S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Principles of Consolidation - The financial statements of Clark Equipment 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.
The Company sold its Clark Material Handling Company (CMHC) business unit to Terex Corporation on July 31, 1992, and recorded a gain of $8.5 million in the third quarter of 1992. The prior-year Statements of Income have deconsolidated CMHC, reflecting its operations as a discontinued operation for all years presented. Due to the reporting of CMHC on an equity basis, the notes pertaining to the Statement of Income do not reflect the results of CMHC.
Currency Translation - Financial statements of subsidiaries operating outside the United States are translated into U.S. dollar equivalents in accordance with the Statement of Financial Accounting Standards (FAS) No. 52.
Foreign currency exchange results reflected in the Statement of Income were losses of $9.2 million in 1993 (including losses of $9.5 million from equity investments), losses of $10.8 million in 1992 (including losses of $7.9 million from equity investments), and losses of $4.3 million in 1991 (including losses of $1.3 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 a formal parts return program. The estimated cost of this program is reflected in the balance sheet.
Cash, Cash Equivalents, and Short-Term Investments - Cash equivalents and short-term investments include temporary investments of $231.3 million and $180.4 million at December 31, 1993 and 1992, respectively. Temporary investments are recorded at cost plus accrued interest.
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 operating activities (including CMHC for 1992 and 1991) were reduced by cash paid for interest of $18.8 million, $21.1 million, and $20.8 million and income taxes of $13.2 million, $5.0 million, and $8.0 million during 1993, 1992, and 1991, respectively. The 1991 tax payments include $3.3 million of U.S. taxes relating to prior years' tax audit issues.
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, 1993, instead of the historic basis accounting used in the financial statements, long-term debt would exceed the reported level by approximately $20 million, and the value of forward exchange contracts would approximate the amounts reflected in the financial statements.
Inventories - Inventories at December 31, 1993 and 1992, net of valuation reserves of $12.1 million and $15.3 million, respectively, are classified as follows:
Amounts in millions 1993 1992 Raw materials $ 32.2 $ 26.1 Work in process and finished goods 65.9 62.2 Manufacturing supplies 10.5 12.5 $108.6 $100.8
Inventories are valued at the lower of cost or market by the last-in, first-out (LIFO) method for 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 $27.2 million at December 31, 1993, and $26.7 million at December 31, 1992. Inventory subject to LIFO approximates 43% of total inventory at December 31, 1993. During 1992 and 1991, 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 and $2.1 million in the fourth quarters of 1992 and 1991, respectively. There was no LIFO-related effect in 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 1993 1992 Land $ 6.9 $ 7.4 Land improvements 5.5 5.9 Buildings 75.6 77.3 Machinery & equipment 399.3 398.4 487.3 489.0 Accumulated depreciation (285.4) (272.8) $201.9 $216.2 Assets Held for Sale - Assets held for sale, which are net of a $6 million valuation reserve at December 31, 1993, represent one of CMHC's former manufacturing facilities and are reflected in the balance sheet at estimated realizable value.
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 the Company's 1990 acquisition of Hurth Axle S.p.A., an Italy-based company, and is remeasured into U.S. dollars using current exchange rates. The accumulated amortization related to this goodwill approximates $8 million.
Costs and Expenses - Provisions are made currently for estimated future costs under present product warranties. The costs of health and life insurance postretirement benefits were charged against income as paid in years prior to 1991. Effective January 1, 1991, the Company adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and immediately recognized a $244.9 million pre-tax provision to accrue the total of its estimated accumulated postretirement benefit obligation at that date. Upon adoption of this Statement, the costs of providing such benefits are accrued as earned. Annual expense represents 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 Group N.V., the Company's 50%-owned joint venture, 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 additional 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 1992 and 1991 was $0.6 million and $1.4 million in the respective years. There was no cost on 1993 remittances. The Company considers undistributed earnings of its foreign subsidiaries at December 31, 1993, to be permanently invested.
Guarantees and Contingencies - Guarantees and contingencies are accrued for when a loss is considered probable and the amount is measurable.
Income (Loss) Per Share - Income (loss) per share amounts are based on the weighted average number of shares and the dilutive common equivalent shares outstanding during the years.
Pending Accounting Change - In November, 1992, the Financial Accounting Standards Board issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This pronouncement establishes accounting and reporting for the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. For the most part, the Company already accounts for such benefits on an accrual basis. Therefore, the impact of adoption is not anticipated to have a significant effect on the Company's financial position or results of operations.
Discontinued Operations
In July 1992, the Company sold its material handling business (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 for the year ended December 31, 1991, and through July 31, 1992 follows:
Amounts in millions 1992 1991 Net sales $248.5 $498.2
Pre-tax loss from operations $(11.2) $(44.0)
Net loss from operations $ (7.0) $(40.7) Gain on sale 8.5 - Total income (loss) related to CMHC $ 1.5 $(40.7)
Included in the pre-tax loss from operations is foreign income of $2.6 million and losses of $16.0 million for 1992 and 1991, respectively. Included in the gain on the sale of CMHC is a tax benefit of $7.6 million.
Discontinued operations in 1992 and 1991 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. The investment in this operation has been reclassified on the Company's Balance Sheet to "other assets" for both periods presented.
Investments and Advances - VME Group N.V.
The Company's investments in VME were $122.1 million and $121.3 million in 1993 and 1992, 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, 1993 1992 1991 Net sales $1,240 $1,357 $1,368 Gross profit 281 188 258 Net income (loss) 30 (94) (45)
As at December 31, 1993 1992 Current assets $ 531 $ 649 Non-current assets 258 321 Current liabilities 314 515 Non-current liabilities and deferred taxes 247 230 The $7.9 million difference between the Company's investment and its equity in VME net assets at December 31, 1993, relates primarily to additional equity contributions made in prior years, which is 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 are to be repaid in 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 1993 net income. 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.
Accrued Liabilities
Accounts payable and accrued liabilities include the following:
Amounts in millions 1993 1992 Trade payables $ 65.0 $ 56.1 Accrued payrolls and related taxes 34.8 23.4 Accrued warranty 15.5 15.5 Accrued pension 12.5 .6 Other 22.3 22.6 $150.1 $118.2
Other non-current liabilities include the following:
Amounts in millions 1993 1992 Accrued pension $ 2.4 $ 10.0 Accrued product liability 9.8 7.8 Environmental 13.5 17.8 Income taxes payable 15.4 19.3 Discontinued operations reserves 9.6 11.0 Other 24.0 24.6 $ 74.7 $ 90.5
Other Income
Following is a summary of the major elements of other income for the years ended December 31:
Amounts in millions 1993 1992 1991 Interest income $14.3 $12.8 $10.3 Brazilian monetary correction - taxes payable (5.8) - - Sundry items, net 3.4 4.1 4.3 $11.9 $16.9 $14.6
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. The Brazilian monetary correction of $5.8 million relates to a procedure whereby Brazilian tax remittances require indexing for inflation from the date of liability until paid.
Supplementary Income Statement Information Amounts in millions 1993 1992 1991 Maintenance and repairs $26.4 $24.8 $24.3 Taxes, other than payroll and income taxes 8.0 8.7 6.5 Rents 6.0 6.4 6.9 Advertising costs 6.3 6.8 6.7 Research and development costs 19.8 16.9 16.5
Income Taxes
Following is a segregation of pre-tax income (loss) from continuing operations as reported by U.S. and foreign companies (excluding equity earnings of associated companies): Amounts in millions 1993 1992 1991 Pre-tax income (loss) - Consolidated continuing operations: United States $39.3 $23.5 $ (2.9) Foreign 7.2 7.1 (27.6) $46.5 $30.6 $(30.5)
The elements of the provision (credit) for income taxes are as follows:
Amounts in millions 1993 1992 1991 Current income taxes: Federal $ 7.2 $ 2.9 $(1.0) Foreign 5.9 2.8 .9 State .4 .8 .6 Total current 13.5 6.5 .5 Deferred (prepaid) income taxes: United States - recurring 4.5 4.5 - change in tax rates (3.0) - - Foreign (2.6) (.6) (1.6) Total deferred (prepaid) (1.1) 3.9 (1.6) Provision (credit) for income taxes on consolidated continuing operations $12.4 $10.4 $(1.1)
The U.S. corporate income tax rate increased from 34% to 35% retroactive to January 1, 1993. A tax credit of $3.0 million was recorded in the third quarter and net U.S. deferred tax assets were revalued at the higher tax rate.
Deferred tax assets before valuation allowances approximate $163 million as of December 31, 1993, and $154 million as of December 31, 1992. These assets consist of:
Amounts in millions 1993 1992 Expected future tax benefits relating to postretirement benefits $ 94 $ 90 Self-insurance and warranty reserves 11 8 Environmental reserves 6 6 Pension and deferred compensation commitments 15 14 Loss and credit carryforwards 27 25 Other items 10 11 $163 $154
The Company has reduced gross deferred tax assets by valuation reserves that approximate $33 million on December 31, 1993, and $31 million at December 31, 1992. These reserves relate principally to net operating and capital loss carryforwards.
Deferred tax liabilities as of December 31, 1993, of $15 million are comprised of differences in the recorded book and tax basis of assets.
As of December 31, 1993, the Company has foreign net operating loss, U.S. capital loss, and foreign tax credit carryforwards of $9.5 million, $16.0 million and $1.1 million, respectively, for which no financial statement benefit has been recognized. Approximately $3.1 million of the operating losses expire by 1998, while the remainder have an indefinite carryforward period. The capital loss and foreign tax credit carryforwards are limited in use and generally expire by 1997. 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 approximating $3.0 million and $1.8 million, respectively, was earned, favorably impacting the Company's tax provisions.
No net benefit has been 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. Future recognition of these carryforwards will be reflected if the foreign entities have sufficient earnings before the expiration periods of the respective loss carryforwards. Tax provisions in 1993 and 1992 were reduced by approximately $3.7 million and $1.8 million, respectively, as a result of the utilization of net operating loss carryforwards at certain locations.
The deferred tax asset valuation reserve at December 31, 1993, is approximately $33 million, and is $31 million at December 31, 1992. The valuation reserve increased over the 1992 level as a result of the incurrence of additional net operating loss carryforwards at certain locations, a revised estimate of the capital loss carryforward related primarily to the sale of CMHC, and the 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 the Company's Brazilian operation. 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 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 is reflective of 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 consolidated continuing operations to the U.S. statutory federal income tax rate for the three years ended December 31, 1993, is as follows:
Amounts in millions 1993 1992 1991 U.S. federal statutory rate 35.0% 34.0% (34.0)% Increase (decrease) in rate resulting from: Revaluation of deferred tax assets for change in U.S. tax rates (6.5) - - Utilization of net operating and capital loss carryforwards (10.2) (8.0) - Higher foreign taxes 9.7 4.9 28.8 Foreign distributions, net of foreign tax credits (.1) 1.8 4.7 Other, net (1.1) 1.3 (3.0) Net effective tax rate 26.8% 34.0% (3.5)%
Provision has not been made for U.S. or any additional foreign taxes on the undistributed earnings or book-tax basis differentials of foreign subsidiaries. Undistributed earnings and basis differentials approximate $66 million at December 31, 1993. 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 practicable to estimate the amount of additional tax that might be payable on unremitted earnings or basis differentials because it is not known when or on what basis these differences may reverse.
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 1993 1992 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) $ 89.6 $ - LESOP loan (interest rate tied to LIBOR) - 40.4 9-3/4% notes due March 1, 2001 (face amount $100,000,000) 99.7 99.6 9-5/8% sinking fund debentures - 16.7 6% industrial development revenue bonds, payable $400,000 in 1998 and $900,000 annually in 1999-2002 4.0 4.0 Hurth obligations due in periods ranging from 1994 to 2000, at an average rate of 9.3% 11.5 15.7 Present value of Hurth purchase commitment - 6.4 Other long-term notes - 3.8 $204.8 $186.6
Required payments on long-term debt are $9.6 million in 1994, $12.1 million in 1995, $23.0 million in 1996, $1.8 million in 1997, $12.2 million in 1998, and $155.7 million thereafter.
In April, the Company began the sale of certain securities under a $150 million shelf registration statement. Clark issued $90.2 million of medium-term notes during the second quarter of 1993. 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%. Approximately $63 million of the notes proceeds were used to redeem the Company's 9-5/8% sinking fund debentures and to prepay the LESOP loan.
The Company has a $66.2 million line of credit agreement with seven banks, which expires in October 1994. The Agreement carries restrictions on minimum net worth, debt-to-capitalization ratios, stock repurchases, and dividend payments. At December 31, 1993 and 1992, there were no amounts outstanding under the revolving credit facility and the Company was in compliance with the facility requirements. The Company is currently negotiating a new credit agreement.
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 1993 1992 1991 Lines of credit $46.2 $44.3 $79.0 Unused lines of credit 23.7 31.1 36.6 Maximum borrowings during year 22.5 42.7 45.5 Average borrowings 18.2 27.0 44.2 Average rate on foreign borrowings outstanding at December 31 8.2% 9.6% 10.0% Daily weighted average interest rate 11.2% 10.8% 9.9%
Capital Stock
The Company has authorization for 40,000,000 shares of $7.50 par value Common Stock. There were 17,401,903 shares and 17,351,139 shares outstanding at December 31, 1993 and 1992, respectively. These shares include 2,206,741 shares held in the LESOP trust. Shares held as treasury stock were 1,792,431 shares and 1,840,595 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.
Stock Options
Under the 1975 Stock Option Plan, 850 shares and 13,450 shares at December 31, 1993 and 1992, respectively, of authorized but unissued Common Stock were reserved for issue to employees at the market value of the stock on the date the options were granted. Options representing 850 shares were outstanding under the 1975 Plan at December 31, 1993.
Under the 1985 Stock Option Plan, 171,301 shares and 292,580 shares at December 31, 1993 and 1992, respectively, of authorized but unissued Common Stock were reserved for issue to employees at the market value of the stock on the date the options were granted. Options representing 171,301 shares were outstanding under the 1985 Plan at December 31, 1993.
Options under these plans may not be exercised until one year after the date granted. These options expire 10 years after the date granted. No further options may be granted under either the 1975 or 1985 Stock Option Plans.
Options were exercisable for 164,413 shares and 86,449 shares at December 31, 1993 and 1992, respectively. Of the shares for which options have been granted under the plans, 108,795 shares include appreciation rights.
Following is a summary of the changes in options under the plans for each of the last three years:
1993 1992 1991 Outstanding at January 1, at an average price per share of $20.08, $25.05, and $24.95, respectively 306,030 114,662 125,077 Options granted at an average price per share of $18.50 in 1992 - 219,581 - Cancelled or lapsed (40,002) (28,213) (3,600) Exercise of previously granted options at an average grant price per share of $19.71 and $23.80, respectively (29,278) - (1,115) Exercise of options with appreciation rights (64,599 - (5,700) Outstanding at December 31, at an average price per share of $18.57, $20.08, and $25.05, respectively 172,151 306,030 114,662
Pension Costs
The Company has non-contributory defined benefit pension plans covering substantially all 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 1993 pension expense for defined benefit plans was $9.2 million, compared with $6.8 million in 1992 and $5.9 million in 1991. The components of pension expense for each of these years is as follows:
Amounts in millions 1993 1992 1991 Current service cost $ 2.9 $ 3.1 $ 3.2 Interest cost 25.2 24.9 25.1 Return anticipated on plan assets for the year (actual $70.9 million, $10.4 million, and $33.2 million for the respective years) (22.7) (23.6) (24.1) Other components of pension expense, net 2.7 1.4 0.6 U.S. pension expense 8.1 5.8 4.8 Non-U.S. pension expense 1.1 1.0 1.1 $ 9.2 $ 6.8 $ 5.9
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 Active Inactive December 31, 1993 Plans Plan Accumulated benefit obligation, including non-vested benefits of $13.5 million $101.9 $226.0 Projected benefit obligation $121.0 $226.0 Unrecognized past service cost (1.2) - Unrecognized net loss from past experience different from that assumed (37.4) (27.2) Unrecognized transition asset 1.8 - Plan assets at fair value (117.7) (188.6) Adjustment required to recognize minimum liability 3.6 27.2 Accrued (prepaid) pension cost $(29.9) $ 37.4
Amounts in millions Active Inactive December 31, 1992 Plans Plan Accumulated benefit obligation, including non-vested benefits of $10.2 million $ 78.1 $210.4 Projected benefit obligation $ 93.3 $210.4 Unrecognized past service cost (1.3) - Unrecognized net loss from past experience different from that assumed (50.4) (18.3) Unrecognized transition asset 2.1 - Plan assets at fair value (77.4) (174.5) Adjustment required to recognize minimum liability 1.6 18.3 Accrued (prepaid) pension cost $(32.1) $ 35.9
The discount rates used to determine the projected benefit obligation was 7.25% in 1993 and ranged from 8.25% to 8.50% in 1992. The rate of increase in future compensation for determining the projected benefit obligation was 5.4%.
Balance sheet liabilities for worldwide pensions totaled $14.9 million and $10.6 million at December 31, 1993 and 1992, respectively. Of these figures, U.S. plans accounted for $7.5 million and $3.8 million in 1993 and 1992, respectively, while foreign plans accounted for $7.4 million and $6.8 million in 1993 and 1992, respectively.
The Company also has certain defined contribution plans in the United States, Italy, and Brazil. Expense relating to these plans totaled $6.5 million, $6.9 million, and $5.9 million in 1993, 1992, and 1991, 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. 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 APBO to the liability for such costs recognized in the Company's Balance Sheet as of December 31, 1993 and 1992: Amounts in millions 1993 1992 Accumulated Postretirement Benefit Obligation (APBO): Retirees $251.5 $236.6 Fully eligible active participants 12.8 14.3 Other active participants 20.3 18.0 Total APBO 284.6 268.9 Unrecognized past service cost 11.6 12.6 Unrecognized loss from changes in assumptions (43.4) (32.6) Accrued postretirement benefit cost $252.8 $248.9
Net periodic postretirement benefit expense for each of the three years ended December 31 was comprised of the following components:
Amounts in millions 1993 1992 1991 Service cost of benefit earned $ 1.3 $ 1.4 $ 2.0 Interest cost on APBO 21.5 21.2 19.0 Other (.6) (.6) - Net periodic postretirement benefit expense $22.2 $22.0 $21.0
In measuring the projected APBO for 1993, 1992, and 1991, medical inflation trend rates were initially assumed at 13%, 13%, and 13%, with such rates trending downward to 5%, 5%, and 6%, respectively, by 1999. The weighted average discount rates used in each year were 7.5%, 8.25%, and 8%. If the health care cost trend rate were to be increased by 1%, the APBO as of December 31, 1993, would increase by approximately $23.9 million, and the net periodic postretirement expense would increase by approximately $2.0 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, 1993 and 1992, there were 1,730,551 and 1,589,634 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 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 the LIBOR rate plus .25% for the period October 1, 1992, through final maturity. The outstanding balance under the loan as of December 31, 1993, was $42.8 million.
At the time the LESOP was established, the value of shares purchased and not allocated to participants 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 nine former waste disposal sites and five former plant locations.
At each of the nine waste disposal sites, Clark contracted with independent waste disposal operators to properly handle the disposal of its waste. The Environmental Protection Agency (EPA) also has identified other parties responsible for clean-up costs at the waste disposal sites. The Company has and will continue to accrue these costs when the liability can be reasonably estimated. As of December 31, 1993, the Company had reserves of approximately $16.4 million for potential future environmental clean-up costs. The environmental reserves represent Clark's current estimate of its liability for environmental clean-up costs and are not reduced by any possible recoveries from insurance companies or other potentially responsible parties not specifically identified by the EPA. Although management cannot determine whether or not a material effect on future
operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of the potential liability. Further, management believes that the additional maximum exposure level in excess of the recorded reserve level would not be material to the financial condition of the Company. Although settlement of the reserves will cause future cash outlays, it is not expected that such outlays will materially impact the Company's liquidity position. The Company's 1993 expenditures relating to environmental compliance and clean-up activities approximate $2.6 million.
Sale of CMHC
The Company sold its forklift truck business, CMHC, to Terex on July 31, 1992. As part of the sale, Terex and CMHC assumed substantially all of the obligations of the Company relating to the CMHC operation, including: 1) contingent liabilities of the Company with respect to floor plan and rental repurchase agreements, 2) certain guarantees of obligations of third parties, and 3) existing and future product liability claims involving CMHC products. In the event that Terex and CMHC fail to perform or are unable to discharge any of the assumed obligations, the Company could be required to discharge such obligations.
1) Repurchase Agreements At the time of the sale, the Company had agreed with an independent finance company to repurchase approximately $220 million of CMHC dealer floor plan and rental inventory in the event of a default by individual dealers for whom the inventory is financed. Since the sale, dealer floor plan and rental inventory obligations have been liquidating in the normal course of business and stand at approximately $88 million at December 31, 1993. These obligations will continue to liquidate in an orderly fashion. The Company will not be required to perform these repurchase obligations unless the dealer defaults in the underlying obligations and Terex and CMHC default in their repurchase obligations. Should that occur, the collateral value securing the obligations should be sufficient to reduce any loss to an immaterial amount.
2) Third Party Guarantees The Company has guaranteed approximately $27 million of obligations of third parties relating to the CMHC operation. Approximately $18 million of these guarantees relate to national account rental arrangements with a number of large creditworthy customers. Approximately $9 million relate to capital loans given by a finance company to independent CMHC dealers, which are secured by a lien on all of the dealer's assets. These guaranteed obligations are expected to liquidate over time. The Company believes, based on past experience, that the national account customers and dealers, who are the primary obligors, will meet their obligations, resulting in immaterial losses to the Company regardless of whether CMHC and Terex are able to perform their obligations.
3) Product Liability Claims CMHC had approximately $45 million of reserves relating to existing product liability claims at the time of the sale. Future accidents will likely occur, which will result in increased product liability exposure over time. The Company will incur losses relating to these product liability claims if CMHC and Terex fail to perform their obligations. The impact of any such losses would be mitigated by available tax benefits and by insurance coverage that is available for catastrophic losses. Cash settlement of product liability claims are generally made over extended periods of time, thereby significantly reducing the impact on cash flow in any one year.
Uncertainty exists as to the ultimate effect on Clark if Terex and CMHC fail to perform these obligations and commitments. While the aggregate losses associated with these obligations could be material, the Company does not believe such an event would materially affect the Company's ability to meet its cash requirements.
In the latest report on file with the Securities and Exchange Commission, Terex reported that it was continuing to incur operating losses and had a deficit stockholders' investment. In their report on the financial statements that were filed as part of Terex's Form 10-K for 1992, Terex's independent accountants indicated that Terex's recurring losses, its capital deficiency, and its inability to borrow additional funds under a bank lending agreement raised doubts about Terex's ability to continue as a going concern. In December 1993, Terex announced that it had issued $30 million of preferred stock in a private placement arrangement.
Other
The Company is self-insured with respect to product liability risk, although insurance coverage is obtained for catastrophic losses. The Company has pending approximately 65 claims, with respect to which approximately 43 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, 1993, the Company had reserves of approximately $11.6 million related to product liability exposures.
The Company is involved in numerous other lawsuits arising out of the ordinary conduct of its business. These lawsuits pertain to various matters, including warranties, civil rights, safety, antitrust, and other issues. The ultimate results of these claims and proceedings at December 31, 1993, 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, 1993, guarantees are approximately $20 million and repurchase arrangements relating to product financing by an independent finance company approximate $64 million.
It is not practicable to determine the additional amount subject to repurchase solely under dealer distribution agreements. Under the repurchase arrangements, when dealer terminations do occur, a newly selected dealer generally assumes the assets of the prior dealer and any related financial obligation. Accordingly, the risk of loss to the required repurchaser is minimal, and historically Clark has incurred only immaterial losses relating to these arrangements.
The Company 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. At December 31, 1993, forward exchange contracts of approximately $95 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 Company's business is the design, manufacture, and sale of skid-steer loaders, construction machinery, transmissions for on-highway 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 two industry segments, those being "off-highway" and "on-highway" products in the capital goods industry. The Company has included its Melroe and Clark-Hurth Components business units in the off- highway segment. Melroe produces skid-steer loaders, compact excavators, and a limited number of agricultural products. Clark-Hurth Components produces off-highway axles and transmissions used principally in construction, mining, and material handling applications. Clark Automotive Products principally manufactures transmissions for the Brazilian automobile industry and North and South American medium-duty truck industries and comprises the entire on-highway segment. Although the Brazil-based Clark Automotive Products business unit has a limited amount of off-highway business, the Company has included this entire operation in the on-highway segment. This classification was selected because of the insignificance of the off-highway operations to the business unit, the lack of distinction between the segments in the operation of the business, and the different economic characteristics of the Brazilian markets as compared with other off-highway markets.
Intersegment transfers are insignificant. Selling prices on such transfers, to the extent that they occur, are determined as nearly as possible on the basis of normal commercial relationships.
Identifiable assets by industry are those that are used in the Company's operations in each industry. Corporate assets are principally cash, short-term investments, certain assets of previously sold businesses that are held for sale, 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 the "time-value-of-money" costs related to discounted retiree health care liabilities.
There was no single customer from which at least 10% of total revenue was derived during 1991-1993. Export sales of U.S.-manufactured products and parts sold to customers and dealers located outside of the United States were $160.0 million, $178.6 million, and $151.1 million in 1993, 1992, and 1991, respectively.
For geographic segment reporting, sales and operating profit (loss) reflect amounts sourced from the identified geographic area.
I N D U S T R Y S E G M E N T S
G E O G R A P H I C S E G M E N T S
C H A N G E S I N S T O C K H O L D E R S ' E Q U I T Y
Q U A R T E R L Y I N F O R M A T I O N ( U N A U D I T E D )
Report of Independent Accountants Price Waterhouse 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 subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, 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 further discussed in the Notes to the Consolidated Financial Statements, effective January 1, 1992, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards (FAS) No. 109, "Accounting for Income Taxes." Furthermore, effective January 1, 1991, the Company changed its method of accounting for postretirement health care and life insurance benefits by adopting FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." As further discussed in the Notes to the Consolidated Financial Statements, 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 by also adopting the provisions of FAS No. 109 and FAS No. 106.
Price Waterhouse /s/ Price Waterhouse South Bend, Indiana February 14, 1994
Report by Management The preceding financial statements have been prepared by management in conformity with generally accepted accounting principles appropriate in the circumstances. In the preparation of this report, some estimates are necessary and they are made based on currently available information and judgement of current conditions and circumstances. Management is also responsible for all other information contained in this report. Management maintains and depends upon the Company's system of internal controls in meeting its responsibilities for reliable financial statements. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. Judgements are required to assess and balance the relative cost and expected benefits of these controls. The financial statements have been audited by the independent accounting firm, Price Waterhouse. Their role is to render an independent professional opinion on management's financial statements to the extent required by generally accepted auditing standards. In addition to the use of independent accountants, the Company also utilizes an independent professional staff of internal auditors who conduct operational and special audits. The Board of Directors elects an Audit Committee from among its members, no member of which is an employee of the Company. The Audit Committee is responsible to the Board for reviewing the accounting and auditing procedures and financial practices of the Company and for recommending appointment of the independent accountants. The Audit Committee meets periodically with management, professional internal auditors, and the independent accountants to review the work of each and satisfy itself that they are properly discharging their responsibilities. Both the independent accountants and the independent professional internal auditors have free access to the Committee, without the presence of management, to discuss their observations on internal controls and to review the quality of financial reporting.
F I N A N C I A L R E V I E W
EXHIBIT (22)
SUBSIDIARIES OF CLARK EQUIPMENT COMPANY (CLARK)
Except as otherwise indicated below, the following corporations are wholly owned subsidiaries of Clark.
Jurisdiction of Name (1) Incorporation
Clark Information Technologies Corporation Michigan
Celfor Services Corporation Michigan Celfor Insurance Co., Ltd. Bermuda Celfor Insurance Company, Inc. Illinois
Automotive Products Company Delaware Clark Automotive Products Corporation Michigan CAPCO do Brasil Empreendimentos e Participacoes Ltda. Brazil Equipamentos Clark Ltda. Brazil
Clark Business Services Corporation Michigan Clark Distribution Services Inc. Michigan CDS Midwest, Inc. Michigan CDS South, Inc. Michigan Clark Equipment Belgium N.V. Belgium Clark Equipment of Canada Ltd. Canada Clark-Hurth Components S.p.A. (2) Italy Clark-Hurth Components S.A.R.L. (3) France Clark-Hurth Components Marketing Company Delaware Clark-Hurth Components Vertriebs GmbH West Germany Melroe Equipment Limited Canada Melroe Parts Trading GmbH West Germany
(1) Where the name of a subsidiary is indented, it is wholly owned by its immediate parent listed at the margin above it, unless otherwise indicated.
(2) 95.8% owned by Clark Business Services Corporation, 4.2% owned by Antriebstechnick Ets.
(3) 95% owned by Clark-Hurth Components S.p.A. and 5% owned by Clark Business Services Corporation.
EXHIBIT (24)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Clark Equipment Company Registration Statements on Form S-3 (No. 33-60062) and Form S-8 (Nos. 33-44275, 33- 36188, 33-28226, 33-13081, 2-99369, 2-77136, 2-67529, 2-61096, 2-53948, 2- 39610, 2-24730, 2-17758 and 2-16146) of our report dated February 14, 1994 appearing on page 42 of the 1993 Annual Report to Stockholders of Clark Equipment Company which is incorporated by reference in this Annual Report on Form l0-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules of Clark Equipment Company, which appears on page 14 of this Form 10-K. We also consent to the incorporation by reference of our reports on the Combined Financial Statements and the Financial Statement Schedules of VME Group N.V., which appear on pages 21 and 42 of this Form 10-K.
/s/ Price Waterhouse
Price Waterhouse South Bend, Indiana March 30, 1994
EXHIBIT (24)(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the Clark Equipment Company Registration Statements on Form S-3 No. 33-60062 and on Form S-8 (Nos. 33- 28226, 33-13081, 2-99369, 2-77136, 2-67529, 2-61096, 2-53948, 2-39610, 2- 24730, 2-17758, 2-16146, 33-36188 and 33-44275) of our report dated February 23, 1994 relating to the consolidated financial statements of VME Holding Sweden AB and subsidiaries and the related financial statement schedules as of December 31, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1993, which report is included in the 1993 Annual Report on Form 10-K of Clark Equipment Company.
Gothenburg, Sweden March 21, 1994
/s/ KPMG Bohlins AB
KPMG Bohlins AB
EXHIBIT (99)
CLARK EQUIPMENT COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
Twelve Months
Earnings (Loss) Before Tax:
Clark-From Continuing Consolidated Operations $ 46,476
Clark's 50% Share of VME (Net of Clark Goodwill Amortization and Other VME Related Expenses) $ 16,119
Total Pre-Tax Earnings (1) $ 62,595
Fixed Charges:
Clark: Interest Expense $ 21,506
Interest Portion of Rent Expense $ 1,994
Clark's Share of VME: Interest Expense $ 16,095
Interest Portion of Rent Expense $ 2,832
Total Fixed Charges (2) $ 42,427
Earnings from Continuing Operations Before Taxes and Fixed Charges (1 Plus 2) $ 105,022
Ratio of Earnings to Fixed Charges 2.48 =========
NOTE:
Earnings to Fixed Charges have been determined based on Continuing Operations and have been computed by dividing Earnings before Income Taxes and Fixed Charges by Fixed Charges. Earnings before Tax includes the pre- tax income from Clark's Consolidated Continuing Operations and Clark's 50% share of VME's pre-tax income, net of Clark Goodwill Amortization related to its VME investment, and other expenses directly related to VME. Fixed Charges include Interest Expense relating to Clark's Consolidated Continuing Operations and Clark's 50% share of VME's interest. Fixed Charges also includes one-third of Clark Rentals for Consolidated Continuing Operations and Clark's 50% share of one-third of the VME Rentals. The Company believes that one-third of such Rentals constitutes a representative interest factor. Capitalized Interest has been excluded from Fixed Charges as it is immaterial.