-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eC+1obrRSnRaQlGLmxmBfM12lelaDv1Wm/qTsXlnfB6+QCcLXrqvznpNVzeZ89f5 wl3t4YK3LNDB6x+hERvu1A== 0000109710-94-000029.txt : 19940916 0000109710-94-000029.hdr.sgml : 19940916 ACCESSION NUMBER: 0000109710-94-000029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931231 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLARK EQUIPMENT CO /DE/ CENTRAL INDEX KEY: 0000109710 STANDARD INDUSTRIAL CLASSIFICATION: 3537 IRS NUMBER: 380425350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05646 FILM NUMBER: 94548891 BUSINESS ADDRESS: STREET 1: 100 N MICHIGAN ST STREET 2: PO BOX 7008 CITY: SOUTH BEND STATE: IN ZIP: 46634 BUSINESS PHONE: 2192390100 MAIL ADDRESS: STREET 2: 100 N MICHIGAN ST P O BOX 7008 CITY: SOUTH BEND STATE: IN ZIP: 46634 FORMER COMPANY: FORMER CONFORMED NAME: CLARK EQUIPMENT CO DATE OF NAME CHANGE: 19691109 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 13, 1994 CLARK EQUIPMENT COMPANY (Exact name of registrant as specified in its charter) Delaware 1-5646 38-0425350 (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification Number) 100 North Michigan Street P. O. Box 7008 South Bend, Indiana (Address of principal 46634 executive offices) (Zip Code) Registrant's telephone number (219) 239-0100 including area code Total Number of Pages: 35 Exhibit Index at Page: 3 -1- ITEM 5. OTHER EVENTS On May 13, 1994, Registrant completed an initial public offering of 10,000,000 shares of its indirect wholly-owned subsidiary, Clark Automotive Products Corporation. This transaction is described in a Form 8-K filed by Registrant on May 27, 1994. Attached hereto as Exhibit (99) are Registrant's financial statements for the year ended December 31, 1993, restated to reflect the deconsolidation of Clark Automotive Products Corporation, together with the report of Price Waterhouse on those financial statements, which financial statements are incorporated in this Item by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Registrant's financial statements for the year ended December 31, 1993, restated to reflect the deconsolidation of Clark Automotive Products Corporation, together with the report of Price Waterhouse on those financial statements, are attached as Exhibit (99) to this report. (b) See attached Exhibit Index. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CLARK EQUIPMENT COMPANY /s/ John J. Moran, Jr. John J. Moran, Jr. Assistant Secretary Date: September 13, 1994 -2- EXHIBIT INDEX Filed Herewith Unless Exhibit Description Otherwise Indicated (23) Consent of Price Waterhouse Page 4 (27) Financial Data Schedules Page 5 (99) Financial Statements of Page 6 Registrant for the year ended December 31, 1993, restated to reflect the deconsolidation of Clark Automotive Products Corporation, together with the report of Price Waterhouse on those Financial Statements. -3- EX-23 2 EXHIBIT (23) 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 appearing on page 33 of this Form 8-K, which report is dated February 14, 1994, except as to the Subsequent Events Note appearing on page 30, which is dated as of May 13, 1994. /s/ Price Waterhouse Price Waterhouse South Bend, Indiana September 13, 1994 -4- EX-27 3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 EXHIBIT (27) This schedule contains summary financial information extracted from the financial statements of Clark Equipment Company for the year ended December 31,1993, restated to reflect the deconsolidation of Clark Automotive Products Corporation and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1993 DEC-31-1993 35,228 200,600 84,629 5,485 108,620 461,771 487,359 285,435 1,001,935 206,765 204,770 323,540 0 0 (55,387) 1,001,935 691,969 692,022 556,233 556,233 0 905 21,426 25,775 4,196 29,419 12,450 0 6,150 48,019 2.76 2.76 - 5 -
EX-99 4 EXHIBIT (99) F I N A N C I A L H I G H L I G H T S
Dollars in thousands, except per share data 1993 1992 1991 OPERATIONS: Net Sales . . . . . . . . . . . . . . . . . . . . .$ 692,022 $ 658,535 $ 589,186 Income(Loss) from Consolidated Operations. . . . . . 21,579 12,016 (30,460) Net Income(Loss) . . . . . . . . . . . . . . . . . . 48,019 (a) 65,958 (b) (337,520)(c) Income(Loss) Per Share . . . . . . . . . . . . . . . 2.76 3.81 (19.52) Depreciation Charges . . . . . . . . . . . . . . . . 36,379 44,120 45,772 Capital Expenditures . . . . . . . . . . . . . . . . 29,877 37,284 48,602 FINANCIAL POSITION AT YEAR-END: Working Capital . . . . . . . . . . . . . . . . . . $ 255,006 $ 199,608 $ 192,754 Property, Plant and Equipment - Net . . . . . . . . . 201,924 216,196 283,806 Current Ratio . . . . . . . . . . . . . . . . . . . . 2.2 to 1 2.1 to 1 1.6 to 1 Long-Term Debt . . . . . . . . . . . . . . . . . . . 204,770 186,629 216,949 Stockholders' Equity . . . . . . . . . . . . . . . . 268,153 252,587 237,499 Book Value Per Share. . . . . . . . . . . . . . . . . 15.41 14.56 13.72 OTHER YEAR-END DATA: Shares Outstanding . . . . . . . . . . . . . . . . .17,401,903 17,351,139 17,311,492 Number of Stockholders . . . . . . . . . . . . . . . 2,331 2,627 2,721 Number of Employees. . . . . . . . . . . . . . . . . 5,948 6,316 8,033 Common Stock Prices (During Year): High . . . . . . . . . . . . . . . . . . . . . . $53 3/4 $28 7/8 $32 7/8 Low . . . . . . . . . . . . . . . . . . . . . . . 19 5/8 16 1/2 20 1/2 (a) Includes a non-cash benefit of $6.2 million for a change in accounting principle-income taxes at VME Group N.V. (b) Includes a non-cash benefit of $92.0 million for a change in accounting principle-income taxes. (c) Includes a non-cash charge of $244.9 million for a change in accounting principle-postretirement benefits.
- 6 - B A L A N C E S H E E T
Amounts in thousands December 31 1993 1992 ASSETS: Current Assets: Cash, cash equivalents and short-term investments $ 235,828 $ 191,924 Accounts and notes receivable, less allowances of $5.5 million and $4.7 million, respectively . 79,144 67,197 Refundable income taxes . . . . . . . . . . . . . 3,543 -- Inventories . . . . . . . . . . . . . . . . . . . 108,620 100,817 Deferred tax assets - net . . . . . . . . . . . . 29,202 21,341 Other current assets . . . . . . . . . . . . . . 5,434 5,198 Total current assets . . . . . . . . . . . . . 461,771 386,477 Investments and advances -VME Group N.V. . . . . . . 122,106 121,314 Deferred tax assets - net . . . . . . . . . . . . . 101,018 101,831 Property, plant and equipment-net . . . . . . . . . 201,924 216,196 Assets held for sale. . . . . . . . . . . . . . . . 6,765 9,676 Goodwill. . . . . . . . . . . . . . . . . . . . . . 67,461 81,653 Other assets . . . . . . . . . . . . . . . . . . . . 40,890 41,544 Total assets. . . . . . . . . . . . . . . . . $1,001,935 $ 958,691 LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Notes payable . . . . . . . . . . . . . . . . . .$ 22,512 $ 23,821 Accounts payable and accrued liabilities. . . . . 150,142 118,195 Income taxes payable. . . . . . . . . . . . . . . 4,139 3,320 Accrued postretirement benefits. . . . . . . . . 19,560 19,000 Deferred income taxes. . . . . . . . . . . . . . 800 963 Current installments on long-term debt . . . . . 9,612 21,570 Total current liabilities . . . . . . . . . . 206,765 186,869 Long-term borrowings. . . . . . . . . . . . . . . . 204,770 186,629 Other non-current liabilities. . . . . . . . . . . . 74,686 90,508 Accrued postretirement benefits . . . . . . . . . . 233,239 229,903 Deferred income taxes . . . . . . . . . . . . . . . 14,322 12,195 Total liabilities. . . . . . . . . . . . . . . 733,782 706,104 Contingencies (pages 24 - 27) Stockholders' Equity: Capital stock, common . . . . . . . . . . . . . . 143,958 143,938 Capital in excess of par value. . . . . . . . . . 179,582 179,226 Retained earnings. . . . . . . . . . . . . . . . 92,708 44,869 Cumulative translation and other adjustments. . . (67,083) (28,843) 349,165 339,190 Less common stock held in treasury, at cost. . . 49,728 50,951 Less value of LESOP shares. . . . . . . . . . . . 31,284 35,652 Total stockholders' equity . . . . . . . . . . 268,153 252,587 Total liabilities and stockholders' equity . .$1,001,935 $ 958,691 See Notes to Financial Statements
-7- S T A T E M E N T O F I N C O M E
Amounts in thousands, except per share data Years ended December 31 1993 1992 1991 NET SALES . . . . . . . . . . . . . . . . . . . . . $692,022 $658,535 $ 589,186 OPERATING COSTS AND EXPENSES: Cost of goods sold . . . . . . . . . . . . . . . .557,138 544,294 524,740 Selling, general and administrative expenses . . .102,699 87,905 88,249 659,837 632,199 612,989 Operating income (loss). . . . . . . . . . . . . . . 32,185 26,336 (23,803) Other income. . . . . . . . . . . . . . . . . . . . . 15,016 14,934 12,196 Interest expense . . . . . . . . . . . . . . . . . . (21,426) (23,481) (23,841) Pre-tax income (loss) from consolidated operations . 25,775 17,789 (35,448) Provision (credit) for income taxes . . . . . . . . . 4,196 5,773 (4,988) Income (loss) from consolidated operations . . . . . 21,579 12,016 (30,460) Equity in net income (loss) of VME Group N.V. . . . . 7,840 (48,083) (23,129) Income (loss) from continuing operations . . . . . . 29,419 (36,067) (53,589) Discontinued operations: Income (loss) - insurance subsidiaries . . . . . . -- 355 (61) Loss - material handling operations . . . . . . . -- (7,056) (40,723) Gain on sale - material handling operations. . . . -- 8,519 - Income - automotive operations . . . . . . . . . 12,450 8,207 1,035 Income (loss) from discontinued operations . . . . . 12,450 10,025 (39,749) Income (loss) before extraordinary credit and effect of changes in accounting principles . . . . . . . 41,869 (26,042) (93,338) Income tax benefit from loss carryforward. . . . . . -- -- 718 Effect of accounting changes: Postretirement benefits . . . . . . . . . . . . . -- -- (244,900) Income taxes . . . . . . . . . . . . . . . . . . . 6,150 92,000 -- NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 48,019 $ 65,958 $(337,520) INCOME (LOSS) PER SHARE: From continuing operations . . . . . . . . . . . $ (1.69) $ (2.08) $ (3.10) From discontinued operations . . . . . . . . . . . (0.72) 0.58 (2.30) Extraordinary credit . . . . . . . . . . . . . . . -- -- .04 From effect of accounting changes . . . . . . . . (0.35) 5.31 (14.16) Net income (loss) . . . . . . . . . . . . . . . .$ 2.76 $ 3.81 $ (19.52) See Notes to Financial Statements
-8- S T A T E M E N T O F C A S H F L O W S
Amounts in thousands Years ended December 31 1993 1992 1991 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 48,019 $ 65,958 $(337,520) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Effect of accounting changes . . . . . . . . . . . . . (6,150) (92,000) 244,900 Depreciation. . . . . . . . . . . . . . . . . . . . . . 36,379 44,120 45,772 Amortization of intangibles . . . . . . . . . . . . . . 2,083 2,973 3,353 Net gain on sale of a business . . . . . . . . . . . . -- (8,519) -- Exchange (gain) loss. . . .. . . . . . . . . . . . . . (242) 2,947 2,994 Employee benefit expense funded with treasury stock . . . . . . . . . . . . . . . . . . . . . . . 800 908 1,074 Dividends from VME Group N.V. . . . . . . . . . . . . . -- -- 5,005 Loss (earnings) of unconsolidated companies . . . . . . (7,840) 47,546 23,190 Changes in assets and liabilities, net of the effects of business disposition (1992): Increase in receivables and other current assets . . (65,833) (24,546) (10,047) Decrease (increase) in refundable income taxes. . . (3,543) 7,400 482 Decrease in inventory. . .. . . . . . . . . . . . . 4,528 5,966 42,332 Decrease (increase) in net deferred tax assets . . . (1,018) 3,926 1,801 Increase in payables and accruals . . . . . . . . . 77,850 4,519 37,051 Decrease (increase) in other non-current assets . . 2,049 (4,499) (6,814) Increase (decrease) in other long-term liabilities . (17,624) 17,674 6,643 Other. . . . . . . . . . . . . . . . . . . . . . . . 172 78 (3,191) Net cash provided by operating activities . . . . . 69,630 74,451 57,025 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of business (net of business' cash) . . -- 80,454 -- Additions to properties. . . . . . . . . . . . . . . . . . (29,877) (37,284) (48,602) Sales of properties. . . . . . . . . . . . . . . . . . . . 1,122 318 2,161 Increase in short-term investments . . . . . . . . . . . . (79,700) (47,506) (73,394) Decrease (increase) in investments and advances- associated companies . . . . . . . . . . . . . . . . . (2) (49,397) 2,082 Net cash used in investing activities . . . . . . . . . (108,457) (53,415) (117,753) CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term borrowings . . . . . . . . . . . . 91,006 -- 105,855 Payments on long-term debt . . . . . . . . . . . . . . . . (82,290) (25,981) (18,270) Increase (decrease) in notes payable-current . . . . . . . 459 (28,594) 12,694 Proceeds from sale of stock under option plans . . . . . . 330 -- 26 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 129 214 584 Net cash provided (used) in financing activities . . . 9,634 (54,361) 100,889 Effect of exchange rate changes on cash. . . . . . . . . . (6,603) (5,553) (559) Increase (decrease) in cash and cash equivalents. . . . . (35,796) (38,878) 39,602 Cash and cash equivalents at beginning of year. . . . . . 71,024 109,902 70,300 Cash and cash equivalents at end of year. . . . . . . . . 35,228 71,024 109,902 Short-term investments (cost approximates market) . . . . 200,600 120,900 73,394 Cash, cash equivalents, and short-term investments . . . .$ 235,828 $ 191,924 $ 183,296 See Notes to Financial Statements
-9- 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. As outlined in the Subsequent Events note appearing on page 30, the initial public offering of Clark Automotive Products Corporation ("Clark Automotive") was completed in the second quarter of 1994. In the preparation of these financial statements, the results of Clark Automotive have been deconsolidated to reflect the operations of this segment on a discontinued basis in the Statement of Income for all periods presented. The notes pertaining to the Statement of Income do not include the results of Clark Automotive. 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. The notes pertaining to the Statement of Income do not include 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 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 $8.4 million from equity investments), losses of $10.8 million in 1992 (including losses of $9.8 million from equity investments), and losses of $4.3 million in 1991 (including losses of $4.0 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 liability for this program is accrued 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 Clark Automotive for all - 10 - years and 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. - 11 - 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. - 12 - 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 As outlined in the Subsequent Events note appearing on page 30, the initial public offering of Clark Automotive was completed in the second quarter of 1994. In the preparation of these financial statements, the results of Clark Automotive have been deconsolidated to reflect the operations of this segment on a discontinued basis in the Statement of Income for all periods presented. Condensed income statement information related to Clark Automotive for the last three years ended December 31 follows: Amounts in millions 1993 1992 1991 Net sales $184.4 $145.5 $134.9 Pre-tax income from operations 20.7 12.8 5.0 Net income from operations 12.5 8.2 1.0 Included in the pre-tax income from operations is foreign income of $8.4 million for 1993 and $2.0 million for 1992 and losses of $4.2 million for 1991. Net income in 1993 and 1992 benefited from the utilization of operating loss carryforwards in Brazil in the respective amounts of $3.7 million and $1.3 million. 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. - 13 - 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. - 14 - 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 $11.4 $10.6 $ 9.3 Sundry items, net 3.6 4.3 2.9 $15.0 $14.9 $12.2 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. - 15 - Supplementary Income Statement Information Amounts in millions 1993 1992 1991 Maintenance and repairs $16.3 $16.9 $15.1 Taxes, other than payroll and income taxes 7.7 8.4 6.1 Rents 4.8 5.0 5.8 Advertising costs 6.0 6.7 6.6 Research and development costs 17.0 14.7 14.9 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 $27.0 $12.7 $(12.1) Foreign (1.2) 5.1 (23.4) $25.8 $17.8 $(35.5) The elements of the provision (credit) for income taxes are as follows: Amounts in millions 1993 1992 1991 Current income taxes: Federal $ 2.1 $(1.1) $(4.7) Foreign 1.7 2.4 .9 State .3 .6 .4 Total current 4.1 1.9 (3.4) Deferred (prepaid) income taxes: United States - recurring 4.5 4.5 - change in tax rates (3.0) - - Foreign (1.4) (.6) (1.6) Total deferred (prepaid) .1 3.9 (1.6) Provision (credit) for income taxes on consolidated continuing operations $ 4.2 $ 5.8 $(5.0) 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. - 16 - 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. The tax provision in 1992 was reduced by approximately $0.5 million 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 - 17 - 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 which is included in discontinued operations. The valuation allowance at December 31, 1992, of $31 million was $22.3 million less than that originally provided at the time of the adoption of FAS No. 109. Approximately $19.5 million of this 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, including $1.3 million in Brazil which is included in discontinued operations. 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 (11.6) - - Utilization of net operating and capital loss carryforwards and other credits (4.5) (10.9) - Higher foreign taxes 2.7 7.2 20.7 Foreign distributions, net of foreign tax credits - 2.6 4.0 Income not subject to tax (3.1) (2.4) (2.2) Other, net (2.2) 1.9 (2.6) Net effective tax rate 16.3% 32.4% (14.1)% 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. - 18 - 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. - 19 - 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. - 20 - 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: - 21 - 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 - 22 - 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 and Italy. Expense relating to these plans totaled $2.9 million, $4.0 million, and $3.4 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, which will include Clark Automotive. 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 - 23 - 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. - 24 - 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. - 25 - 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. - 26 - 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 continuing operations business is the design, manufacture, and sale of skid-steer loaders, construction machinery, 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 as one industry segment, that being "off- highway" products in the capital goods industry. Melroe and Clark- Hurth Components business units compose 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. - 27 - Sales and operating profit (loss) reflect amounts sourced from the identified geographic area. Identifiable assets are those that are used in the Company's operations in each geographic area. 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. - 28 - G E O G R A P H I C S E G M E N T S
Amounts in millions Sales Operating Profit(Loss) Identifiable Assets 1993 1992 1991 1993 1992 1991 1993 1992 1991 North America . . . . . . $562.3 $501.4 $436.5 $64.9 $55.5 $11.8 $251.5 $228.7 $174.3 Europe . . . . . . . . . 129.7 157.1 152.7 4.2 3.9 (12.1) 200.5 238.4 278.8 Transfers between areas: North America . . . . 16.3 15.0 12.6 Europe . . . . . . . . 12.0 10.9 10.0 Eliminations . . . . . (28.3) (25.9) (22.6) - - - (7.9) (6.8) (4.0) 692.0 658.5 589.2 69.1 59.4 (0.3) 444.1 460.3 449.1 Unallocated corporate and other . . . . . . (21.9) (18.1) (11.4) 339.8 269.4 217.9 Interest expense . . . . (21.4) (23.5) (23.8) Consolidated operations. . . . . . $692.0 $658.5 $589.2 25.8 17.8 (35.5) 783.9 729.7 667.0 Equity investments . . . 7.8 (48.1) (23.1) 122.1 121.3 135.6 Total continuing operations * . . . . . $33.6 ($30.3) ($58.6) 906.0 851.0 802.6 Discontinued operations . 95.9 107.7 317.4 Total . . . . . . . . . . $1,001.9 $958.7 $1,120.0 * Pre-tax income (loss) and assets from continuing operations.
- 29 - Subsequent Events On February 23, 1994, Clark Automotive Products Corporation (which includes its two wholly owned subsidiaries, CAPCO do Brasil Empreendimentos e Participacoes Ltda. and Equipamentos Clark Ltda, which are engaged primarily in the manufacture of on-highway transmissions in Brazil for sale in the Brazilian and U.S. markets) filed a Registration Statement with the Securities and Exchange Commission for an initial public offering of 10,000,000 shares of its common stock. Of these 10,000,000 shares, 9,174,194 were to be sold by the Company, representing 91 percent of its interest in CAPCO, and 825,806 by CAPCO. On May 6, 1994, the Offerings were underwritten by CS First Boston Corporation, Merrill, Lynch, Pierce, Fenner and Smith Incorporated and a syndicate of other investment banks. On May 13, 1994, the Company received net proceeds from its portion of the Offerings of approximately $103 million, resulting in a gain of approximately $33 million. The impact of this transaction has been reflected in the Company's financial statements in the second quarter of 1994 and the prior year results presented in these financial statements have been deconsolidated to reflect this segment as a discontinued operation in the Statement of Income for all periods presented. The notes pertaining to the Statement of Income do not include the results of CAPCO. On May 13, 1994, the Company also completed the purchase of Blaw-Knox Construction Equipment Corporation ("Blaw-Knox") from White Consolidated Industries ("WCI"). Blaw-Knox is a leading manufacturer of asphalt pavers which are sold in North America and into other world markets. The preliminary purchase price was approximately $144 million. The purchase price is subject to final adjustment pursuant to the terms of the Agreement of Purchase and Sale between WCI and Clark. - 30 - C H A N G E S I N S T O C K H O L D E R S ' E Q U I T Y
Amounts in millions, except share data Retained Cumulative Capital in Earnings Value of Translation Capital Excess of (Accumulated LESOP Treasury and Other Stock Par Value Deficit) Shares Stock Adjustments Total Balance, December 31, 1990 . . . . . . . . . . . . .$ 143.9 $ 179.0 $ 316.6 $ (48.8)$ (53.7)$ 43.2 $ 580.2 Net loss . . . . . . . . . . . . . . . . . . . . (337.5) (337.5) LESOP shares allocated to employees. . . . . . . 8.2 8.2 Pension liability in excess of -- unrecognized prior service cost . . . . . . . (6.1) (6.1) Shares issued-treasury (61,196 shares) . . . . . 1.7 1.7 Shares issued on stock options (1,115 shares). . -- Effect of exchange rates and other changes (9.0) (9.0) Balance, December 31, 1991 . . . . . . . . . . . . . 143.9 179.0 (20.9) (40.6) (52.0) 28.1 237.5 Net income. . . . . . . . . . . . . . . . . . . . 66.0 66.0 LESOP shares allocated to employees. . . . . . . 4.9 4.9 Pension liability in excess of unrecognized -- prior service cost, net of tax. . . . . . . . (0.5) (0.5) Shares issued-treasury (39,647 shares) . . . . . (0.2) 1.1 0.9 Amortization of unearned restricted stock . . . . 0.2 0.2 Effect of exchange rates and other changes . . . (56.4) (56.4) Balance, December 31, 1992 . . . . . . . . . . . . . 143.9 179.2 44.9 (35.7) (50.9) (28.8) 252.6 Net income . . . . . . . . . . . . . . . . . . . 48.0 48.0 LESOP shares allocated to employees. . . . . . . 4.4 4.4 Pension liability in excess of unrecognized -- prior service cost, net of tax . . . . . . . . (6.8) (6.8) Shares issued-treasury (48,164 shares) . . . . . 0.1 0.3 (0.2) 1.2 1.4 Amortization of unearned restricted stock . . . 0.1 0.1 Effect of exchange rates and other changes . . . (31.5) (31.5) Balance, December 31, 1993 $ 144.0 $ 179.6 $ 92.7 $ (31.3)$ (49.7)$ (67.1)$ 268.2
-31- 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 )
Amounts in millions, except per share data 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year 1993 1992 1993 1992 1993 1992 1993 1992 1993 1992 Net sales . . . . . . . . . . . . . $163.0 $162.1 $187.4 $175.2 $167.1 $163.6 $174.5 $157.6 $692.0 $658.5 Gross profit . . . . . . . . . . . 33.8 29.6 40.3 30.1 30.7 27.0 30.1 27.5 134.9 114.2 Income (loss) before effect of a change in accounting principles. . . . . . . . . . . 2.5 (9.3) 10.8 (9.9) 10.1 (4.0) 18.4 (2.8) 41.8 (26.0) Effect of accounting changes. . . . 6.2 92.0 - - - - - - 6.2 92.0 Net income (loss). . . . . . . . 8.7 82.7 10.8 (9.9) 10.1 (4.0) 18.4 (2.8) 48.0 66.0 Information per share of Common Stock: Income (loss) before effect of a change in accounting principles. . . . . . . . . . $.15 $(.54) $.62 $(.57) $.58 $(.23) $1.06 $(.16) $2.41 $(1.50) Effect of accounting changes .35 5.31 - - - - - - .35 5.31 Net income (loss). . . . . . . . .50 4.77 .62 (.57) .58 (.23) 1.06 (.16) 2.76 3.81 Common Stock prices: High . . . . . . . . . . . . 24 1/8 27 1/2 34 3/4 28 7/8 48 1/2 26 53 3/4 21 53 3/4 28 7/8 Low . . . . . . . . . . . . . 19 5/8 22 1/4 22 1/2 23 34 1/4 19 45 1/8 16 1/2 19 5/8 16 1/2 The principal market on which the Company's Common Stock is traded is the New York Stock Exchange. The high and low sales prices of the Common Stock shown in the preceding table are prices as reported in the Composite Transaction Reporting System. The approximate number of stockholders totaled 2,331 and 2,627 at December 31, 1993 and 1992, respectively. No cash dividends were paid on the Company's Common Stock during 1993 and 1992.
- 32 - 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 South Bend, Indiana February 14, 1994, except as to the Subsequent Events Note appearing on page 30, which is as of May 13, 1994 - 33 - 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. - 34 - F I N A N C I A L R E V I E W The following are certain selected financial data of Clark Equipment Company and its consolidated subsidiaries for the five years ended December 31, 1993. (Dollars in thousands, except per share data.)
1993 1992 1991 1990 1989 NET SALES . . . . . . . . . . . . . . . . .$ 692,022 $ 658,535 $ 589,186 $ 673,198 $ 671,534 OPERATING COSTS AND EXPENSES: Cost of goods sold . . . . . . . . . . . 557,138 544,294 524,740 555,247 545,152 Selling, general and administrative expenses . . . . . . . 102,699 87,905 88,249 89,931 94,353 659,837 632,199 612,989 645,178 639,505 Operating income (loss). . . . . . . . . . . 32,185 26,336 (23,803) 28,020 32,029 Other income, net . . . . . . . . . . . . . 15,016 14,934 12,196 15,721 23,429 Interest expense . . . . . . . . . . . . . . (21,426) (23,481) (23,841) (18,880) (23,194) Pre-tax income (loss) from consolidated operations . . . . . . . . 25,775 17,789 (35,448) 24,861 32,264 Provision (credit) for income taxes . . . . 4,196 5,773 (4,988) 12,166 26,667 Income (loss) from consolidated operations . . . . . . . . . . . . . . . 21,579 12,016 (30,460) 12,695 5,597 Equity in net income (loss) of associated companies . . . . . . . . . . 7,840 (48,083) (23,129) 21,576 22,411 Income (loss) from continuing operations. . . . . . . . . . . . . . . 29,419 (36,067) (53,589) 34,271 28,008 Discontinued operations: Income (loss) - insurance subsidiaries . -- 355 (61) (62) 116 Income (loss) - material handling operations . . . . . . . . . . . . . . -- (7,056) (40,723) 9,580 14,579 Gain on sale - material handling . . . . -- 8,519 -- -- -- Income - automotive operations . . . . . 12,450 8,207 1,035 5,673 22,153 Income (loss) from discontinued operations . . . . . . . . . . . . . . 12,450 10,025 (39,749) 15,191 36,848 Income (loss) before extraordinary credit and effect of changes in accounting principles . . . . . . . . . . 41,869 (26,042) (93,338) 49,462 64,856 Income tax benefit from loss carryforward . . . . . . . . . . . . . . -- -- 718 10,837 4,057 Effect of accounting changes: Postretirement benefits . . . . . . . . . -- -- (244,900) -- -- Income taxes . . . . . . . . . . . . . . 6,150 92,000 -- -- -- NET INCOME (LOSS) . . . . . . . . . . . . .$ 48,019 $ 65,958 $ (337,520) $ 60,299 $ 68,913 INCOME (LOSS) PER SHARE: From continuing operations . . . . . . .$ 1.69 $ (2.08) $ (3.10) $ 1.99 $ 1.63 From discontinued operations . . . . . 0.72 0.58 (2.30) 0.88 2.15 Extraordinary credit . . . . . . . . . . -- -- 0.04 0.63 0.24 From effect of accounting changes . . 0.35 5.31 (14.16) -- -- Net income (loss) . . . . . . . . . . . $ 2.76 $ 3.81 $ (19.52) $ 3.50 $ 4.02 Cash dividends per share . . . . . . . . . . -- -- -- -- -- Average number of shares used to compute net income(loss) per share . . . . . . 17,421,013 17,333,516 17,292,945 17,237,448 17,161,808 Total assets . . . . . . . . . . . . . . . $ 1,001,935 $ 958,691 $ 1,119,950 $ 1,100,274 $ 1,012,055 Long-term debt . . . . . . . . . . . . . . . 204,770 186,629 216,949 129,562 160,988
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