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) October 31, 1997
----------------
CLARK Material Handling Company
(Exact name of registrant as specified in its charter)
Delaware 333-18957 61-1212827
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
172 Trade Street, Lexington, Kentucky 40511
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 288-1200
N/A
================================================================================
(Former name or former address, if changed since last report)
Item 2: Acquisition or Disposition of Assets
On November 7, 1997 CLARK Material Handling Company (the Company) closed its
acquisitions of substantially all of the assets and certain liabilities of Blue
Giant USA Corporation (BGU) and Blue Giant Canada Limited (BGC) (collectively,
the Blue Giant Companies) in two separate purchase business combinations
effective November 1, 1997. Although separate legal entities, BGU and BGC are
under the common control of substantially the same stockholder group. The
primary assets acquired included accounts receivable, inventories and fixed
assets while the primary liabilities assumed included accounts payables and
accrued liabilities related to the ongoing business. The Blue Giant Companies'
bank indebtedness, notes payable to shareholders and income tax obligations were
not assumed by the Company. The purchase price for the acquisitions comprised
$9,365,000 in cash (of which $200,000 was paid to a shareholder of the Blue
Giant Companies under a noncompete agreement), an obligation payable over three
years totaling $1,104,676 under a noncompete agreement with another shareholder
of the Blue Giant Companies and related out-of-pocket expenses of approximately
$300,000. The cash portion of the purchase price was funded from existing cash
of the Company. The purchase price was determined pursuant to arms-length
negotiations between the Company and the Blue Giant Companies.
Other than this transaction, there is no material relationship between the
Company and the Blue Giant Companies or its stockholders.
The assets acquired by the Company from the Blue Giant Companies were engaged in
the manufacture and sale of material handling equipment in the United States,
Canada and for export to foreign countries. The Company intends to continue such
use.
Item 7: Financial Statements and Exhibits
The audited financial statements of BGU and BGC as of and for the year ended
December 31, 1996, and the unaudited interim financial statements of BGU and BGC
as of and for the six month periods ended June 28, 1997 and 1996 required by
this Item are included herein on pages F-1 through F-36 of this Form 8-K.
The Unaudited Pro Forma Financial Information required by this Item is included
on pages F-1 through F-36 of this Form 8-K. The Unaudited Pro Forma Financial
Information assumes that the acquisition of the Blue Giant Companies occurred,
with respect to the June 30, 1997 balance sheet information, on June 30, 1997,
and with respect to the statement of operations information at the beginning of
each respective period. The Company was itself the subject of a purchase
business combination on November 27, 1996. Therefore, the pro forma statement of
operations for the year ended December 31, 1996 illustrates the effects of (a)
the Company's purchase business combination on November 27, 1996 and (b) the
acquisition of the Blue Giant Companies as if it had occurred on January 1,
1996.
The Unaudited Pro Forma Financial Information is not intended to be indicative
of the financial position or results of operations had the acquisitions actually
occurred on the dates indicated.
The Unaudited Pro Forma Balance Sheet reflects the allocation of the Blue Giant
Companies purchase price to the estimated fair value of the assets acquired and
liabilities assumed, with the residual being allocated to goodwill. While the
Company will undertake a full evaluation of the fair value of the net assets
acquired, it is not expected to differ materially from the purchase price
allocation included herein.
The unaudited pro forma statements of operations reflect the effects of the
purchase allocation described above and the resultant amortization, along with
lost interest income or additional interest expense associated with the cash
used to fund the acquisitions and interest expense on the Company's obligation
under a noncompete agreement with one of the Blue Giant Companies' shareholders,
along with other adjustments directly attributable to the transaction.
BLUE GIANT USA CORPORATION
PELL CITY, ALABAMA
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIODS ENDED JUNE 28, 1996 AND 1997
F-1
BLUE GIANT USA CORPORATION
CONTENTS
PAGE
NUMBER
INDEPENDENT AUDITORS' REPORT. . . . . . . . . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS:
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations . . . . . . . . . . . . . . . . . . . . . 3
Statement of Changes in Shareholders' Equity. . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 6-12
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Blue Giant USA Corporation
Pell City, Alabama
We have audited the accompanying balance sheets of Blue Giant USA Corporation as
of December 31, 1996 and the related statements of operation, retained earnings
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blue Giant USA Corporation as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Raughton & Company
Certified Public Accountants
Pell City, Alabama
March 21, 1997
F-3
BLUE GIANT USA CORPORATION
BALANCE SHEET
December 31, June 28, 1997
1996 (Unaudited)
Current Assets:
Cash $ 4,736 $ 7,945
Accounts receivable, net of allowance for
doubtful accounts of $62,000 and $62,000 2,289,631 2,552,076
Other Receivables 18,203 -
Inventory (Note 2) 1,563,403 1,709,548
Prepaid expenses 235,757 231,722
--------- ---------
Total current assets 4,111,730 4,501,291
Property, plant and equipment (Note 3) 1,005,195 1,020,819
Other Assets 114,417 110,449
--------- ---------
Total assets $5,231,342 $5,632,559
========= =========
Current Liabilities:
Bank overdraft $ 15,240 $ 125,305
Line of credit borrowings (Note 7) 842,154 773,298
Accounts payable 1,338,799 1,391,450
Accrued payroll and related liabilities 19,498 26,688
Other accrued expenses 156,510 251,995
Current portion of long-term debt (Note 7) 171,540 127,781
--------- ---------
Total current liabilities 2,543,741 2,696,517
Long-term debt (Note 7) 747,228 747,228
--------- ---------
Total liabilities 3,290,969 3,443,745
--------- ---------
Shareholders' Equity:
Common stock, $1 par value, 1,025 shares
authorized, 1,000 shares issued and
outstanding 1,000 1,000
Additional paid in capital 39,500 39,500
Retained earnings 1,899,873 2,148,314
--------- ---------
Total shareholders' equity 1,940,373 2,188,814
--------- ---------
Total liabilities and shareholders'
equity $5,231,342 $5,632,559
========= =========
The accompany notes are an integral part of these financial statements.
F-4
BLUE GIANT USA CORPORATION
STATEMENT OF OPERATIONS
Year Ended Six Months Ended Six Months Ended
December 31, June 28, 1996 June 28, 1997
1996 (Unaudited) (Unaudited)
----------- ---------------- ----------------
Net sales $13,875,445 $6,314,971 $7,172,227
Cost of sales 10,513,947 4,874,793 5,585,027
---------- --------- ---------
3,361,498 1,440,178 1,587,200
--------- --------- ---------
Operating expenses:
Selling, general and
administrative 2,807,368 1,153,430 1,120,602
Research, development and
engineering 158,371 76,285 65,630
---------- --------- ---------
Total operating expenses 2,965,739 1,229,715 1,186,232
Income (loss) before interest
and other income 395,759 210,463 400,968
Interest expense (141,368) (69,194) (71,506)
Other income, net 31,940 153,001 71,393
---------- --------- ---------
Income (loss) before taxes 286,331 294,270 400,855
Income tax (expense) benefit (106,232) (107,775) (152,414)
---------- --------- ---------
Net income (loss) $ 180,099 $ 186,495 $ 248,441
========== ========= =========
The accompanying notes are an integral part of these financial statements.
F-5
BLUE GIANT USA CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Retained
Common Stock Paid-in Earnings
Shares Value Capital (Deficit)
Balance at December 31, 1995 1,000 $1,000 $39,500 $1,719,774
Net income for the period 180,099
----- ----- ------ ---------
Balance at December 31, 1996 1,000 1,000 39,500 1,899,873
Net income for the period
(unaudited) 248,441
----- ----- ------ ---------
Balance at June 28, 1997
(unaudited) 1,000 $1,000 $39,500 $2,148,314
===== ===== ====== =========
The accompanying notes are an integral part of these financial statements.
F-6
BLUE GIANT USA CORPORATION
STATEMENT OF CASH FLOWS
Year Ended Six Months Ended Six Months Ended
December 31, June 28, 1996 June 28, 1997
1996 (Unaudited) (Unaudited)
Cash Flow From Operating Activities
Net Income 180,099 $ 186,495 $ 248,441
Adjustment to reconcile net income to
net cash flows from operating
activities:
Depreciation and amortization 157,914 64,758 72,306
Gain on Sale of fixed assets (22,535) (16,535) (26)
Deferred income taxes 13,267 - -
Changes in assets and liabilities:
Accounts receivable (243,378) (589,347) (262,445)
Inventory (220,945) (95,006) (146,145)
Prepaid expenses (6,584) 78,338 26,206
Accounts payable 144,976 138,160 52,651
Accrued payroll and related liabilities 2,119 (5,643) 7,190
Other accrued expenses (260,887) (51,087) 205,550
----------- -------- --------
Net cash from operating activities (255,954) (289,867) 203,728
----------- -------- --------
Cash Flows From Investing Activities
Purchase of equipment (204,674) (322,161) (93,501)
Proceeds from sale of fixed assets 35,250 125,526 5,600
----------- -------- --------
Net cash from investing activities (169,424) (196,635) (87,901)
----------- -------- --------
Cash Flows From Financing Activities
Line of credit borrowings 14,261,692 618,321 389,610
Long-term borrowings 164,341 91,400 46,814
Line of credit principal repayments (13,831,177) (132,799) (458,466)
Long-term debt principal repayment (170,436) (89,798) (90,576)
----------- -------- --------
Net cash from financing activities 424,420 487,124 (112,618)
----------- -------- --------
Net change in cash (958) 622 3,209
Cash at beginning of period 5,694 5,694 4,736
----------- -------- --------
Cash at end of period $ 4,736 $ 6,316 $ 7,945
=========== ======== ========
The accompanying notes are an integral part of these financial statements.
F-7
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Blue Giant USA Corporation is principally engaged in the manufacturing and sales
of materials handling equipment. The Company sells its products throughout the
United States and worldwide, primarily to wholesalers and to contractors.
The accounting policies followed by the Company and the methods of applying
those policies which affect the determination of financial position, results of
operations and cash flows are summarized below.
The unaudited financial statements as of June 28, 1997 and for the six month
periods ended June 28, 1997 and 1996 have been prepared in accordance with Rule
10-01 of SEC Regulation S-X. Consequently, they do not include all the
disclosures required under generally accepted accounting principles for complete
financial statements. However, in the opinion of the management, the financial
statements presented herein contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods indicated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Allowance for doubtful accounts
The allowance for doubtful accounts is maintained at a level believed by
management sufficient to absorb potential losses. Management's determination of
the adequacy of the allowance is based on past loss experience, current economic
conditions and other relevant factors. The allowance is increased by the
provision for losses charged to operations and is decreased by the actual net
charge-offs.
F-8
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
Inventories
Inventories are valued at cost (first-in, first-out) or market, whichever is
lower, and consist of raw materials, and purchased finished goods. Manufactured
goods are valued using the average cost method and include raw materials, labor
and allocable overhead.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided at rates intended to distribute the cost of property,
plant and equipment over their estimated service lives as follows:
Description Method Service Life
Buildings and
improvements Straight-Line 21-30 years
Factory Equipment Straight-Line 3-10 years
Tools and dies Straight-line
and accelerated 3 years
Office furniture Straight-line 5-7 years
Automotive Straight-line 3-7 years
Income Taxes
Annual provision for income taxes is based primarily on income before income
taxes adjusted to reflect adjustments to taxable income representing permanent
differences.
Where income and expenses are recognized in different periods for financial
reporting purposes and for purposes of computing income taxes currently payable,
deferred income taxes have been provided.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
December 31 June 28, 1997
1996 (Unaudited)
Raw materials & purchased parts $ 819,261 $ 895,845
Work-in-process 308,493 337,331
Finished goods manufactured 348,635 381,225
Finished goods purchased 87,014 95,147
--------- ---------
Total $1,563,403 $1,709,548
========= =========
F-9
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31
1996
-----------
Autos and trucks $ 239,653
Office Equipment and furnishings 250,340
Factory equipment 294,498
Tools and dies 245,507
Buildings and improvements 1,074,425
Land 11,000
---------
Total property, plant and equipment 2,115,423
Less: Accumulated depreciation 1,110,228
----------
Net property, plant and equipment $1,005,195
==========
NOTE 4 - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
December 31
1996
-----------
Current liability:
Federal $ 82,367
State 10,598
-------
92,965
Deferred liability (benefit): 13,267
13,267
$106,232
The deferred income tax assets and liabilities are as follows:
Deferred income tax assets:
Reserves and accruals not
currently deductible $ 21,080
-------
$ 21,080
Deferred income tax liabilities:
Depreciation $ 17,112
-------
$ 17,112
F-10
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 5 - RELATED PARTY TRANSACTIONS
During the period ended December 31, 1996, the Company transacted business with
Blue Giant Canada, LTD ("B. G. Canada") and Blue Giant - Europe, LTD as follows:
Purchases from B. G. Canada $4,138,145
Sales to B. G. Canada 388,886
Sales to B. G. Europe 5,963
At December 31, 1996, $5,963 was included in trade accounts receivable as a
receivable from Blue Giant Europe.
At December 31, 1996, Blue Giant USA owed Blue Giant Canada $1,001,730 in
accounts payable. This amount is included in current liabilities on the balance
sheet.
All of the above transactions result form normal business activities. The
Company's common stock was formerly owned by B. G. Canada. A majority
shareholder of the Company is also a majority shareholder in B. G. Canada.
Blue Giant USA Corporation owns 25% of the stock of Blue Giant Europe, LTD, but
has no control over this company. During 1995, Blue Giant USA Corporation made a
$33,010 loan to Blue Giant Europe LTD. This note is expected to be collected
during 1998 and is included under other assets on the balance sheet.
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a detail of notes payable and long-term debt at December 31,
1996:
Note Payable - Line of Credit:
Note payable to AmSouth Bank on demand with interest at
AmSouth Bank prime rate, secured by accounts receivable,
inventories, machinery, furniture, equipment and real estate
and guaranteed by the President of the Company.
Line-of-credit on this note is the lesser of $2,000,000 or
the sum of (1) 80% of accounts receivable not delinquent and
(2) 30% of the cost of inventories not past 90 days, less
international receivables that are not supported by letters
of credit 842,154
F-11
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT - CONTINUED
Note Payable AmSouth (Term)
Note payable (term Loan) to AmSouth Bank due in monthly
installments of $8333.33 principal plus interest on the
unpaid amount at the AmSouth Bank floating prime rate. The
Company borrowed $1,000,000 under this loan which will fully
amortize in ten years. The note is secured by accounts
receivable, inventories, machinery, furniture, equipment and
real estate and is guaranteed by the President of the
Company. 750,000
Note Payable to AmSouth Bank in monthly installments of $476,
including principal and interest at 8.25%, with final
payment due August, 1997; secured by automobile. 3,810
Note Payable to AmSouth Bank in monthly installments of $604
principal, plus interest at 9.50%, with final payment due
June 1999; secured by an automobile. 18,125
Note Payable to AmSouth Bank in monthly installments of $417
principal, plus interest at 9.25%, with final payment due
November, 1998; secured by an automobile. 10,016
Note Payable to AmSouth Bank in monthly installments of $1750
principal, plus interest at AmSouth prime rate, 8.25% at
December 31, 1996, with final payment due April 15, 1999;
secured by automobiles. 47,250
Note Payable to AmSouth Bank in monthly installments of $789
principal, plus interest at 0.5% above AmSouth prime rate,
8.75% at December 31, 1996, with final payment due June 21,
1999; secured by equipment. 22,878
Note Payable to AmSouth Bank in monthly installments of $560
principal, plus interest at AmSouth prime rate, 8.25% at
December 31, 1996, with final payment due September 12,
1999; secured by an automobile. 17,913
F-12
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT - CONTINUED
Note Payable to AmSouth Bank in monthly installments of $835
principal, plus interest at AmSouth prime rate, 8.25% at
December 31, 1996, with final payment due September 12,
1999; secured by an automobile. 26,718
Note Payable to AmSouth Bank in monthly installments
of $689, plus interest at AmSouth Bank prime rate,
8.25% at December 31, 1996, with final payment
due September 12, 1999; secured by automobile. 22,058
---------
1,760,922
Less Current portion 1,013,694
Long-term debt $ 747,228
=========
Long-term debt matures as follows:
December 31,
1997 $1,013,694
1998 167,734
1999 129,494
2000 100,000
2001 100,000
Thereafter 250,000
----------
Total $1,760,922
==========
NOTE 7 - CONTINGENT LIABILITIES
The company has been named as defendant or co-defendant in various actions
arising in the ordinary course of business. In the opinion of management, and
legal counsel, all such matters are adequately covered by insurance or involve
such amounts that an unfavorable disposition would not have a material effect on
the financial position of the Company.
NOTE 8 - COMMITMENTS
During 1994, the Corporation entered into two three-year non-cancelable leases
for equipment. These are being accounted for as operating leases. Future lease
payments associated with these leases are as follows:
Year ending December 31, 1997 $ 13,705
-------
Total $ 13,705
=======
The Corporation was required to make deposits on these leases totaling $4,259.
This amount is included in current assets on the balance sheet.
F-13
BLUE GIANT USA CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND JUNE 28, 1997
NOTE 9 - EMPLOYEE BENEFIT PLAN
The company has a deferred compensation plan pursuant to Section 401(k) of the
Internal Revenue Code for all employees who meet certain eligibility
requirements. The Plan calls for the Company to match one-half of participant
voluntary salary deferrals up to but not in excess of 2% of each participant's
compensation. $48,933 was expensed under the Plan for the period ended December
31, 1996.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash was paid during the years ended December 31, 1996 for:
Interest $140,332
Income taxes $116,322
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on current interest
rates. None of the financial instruments are held for trading purposes.
F-14
Financial Statements of
BLUE GIANT CANADA LIMITED
Year ended December 31, 1996
F-15
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheet of Blue Giant Canada Limited as at December
31, 1996 and the statements of earnings and retained earnings and changes in
financial position for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in Canada
which, except as described in note 14 to the financial statements, conform in
all material respects with generally accepted accounting principles in the
United States.
Chartered Accountants
Richmond Hill, Canada
February 20, 1997
F-16
BLUE GIANT CANADA LIMITED
Balance Sheet
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Accounts receivable (note 2) $ 4,880,790 $ 4,911,147
Income taxes receivable - 31,461
Inventories 2,672,620 3,250,218
Prepaid expenses and deposits 86,414 129,136
- -----------------------------------------------------------------------------------------------------------------------------
7,639,824 8,321,962
Due from employee (note 3) 45,000 -
Capital assets (note 4) 2,416,612 2,532,256
- -----------------------------------------------------------------------------------------------------------------------------
$ 10,101,436 $ 10,854,218
=============================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 5) $ 1,435,553 $ 2,206,635
Accounts payable and accrued liabilities 2,869,518 2,842,484
Income taxes payable 77,398 -
Long-term debt payable within
one year (note 6) 120,000 120,000
- -----------------------------------------------------------------------------------------------------------------------------
4,502,469 5,169,119
Long-term debt (note 6) 1,620,565 1,562,999
Payable to shareholders (note 7) 1,188,158 1,150,825
Deferred income taxes 27,496 23,496
Shareholders' equity:
Capital stock (note 8) 100 100
Retained earnings 2,762,648 2,947,679
- -----------------------------------------------------------------------------------------------------------------------------
2,762,748 2,947,779
Commitments (note 10)
Contingencies (note 11)
- -----------------------------------------------------------------------------------------------------------------------------
$ 10,101,436 $ 10,854,218
=============================================================================================================================
See accompanying notes to financial statements.
On behalf of the Board:
_______________________ Director _______________________ Director
F-17
BLUE GIANT CANADA LIMITED
Statement of Earnings and Retained Earnings
=============================================================================================================================
Year ended Six month period Six month period
=============================================================================================================================
December 31, ended June 29, ended June 28,
1996 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales $ 17,097,231 $ 8,393,315 $ 9,897,352
Cost of sales 13,087,119 6,503,910 7,801,369
- -----------------------------------------------------------------------------------------------------------------------------
4,010,112 1,889,405 2,095,983
Expenses:
General and administrative 881,678 441,284 541,230
Marketing 1,006,997 532,433 524,350
Manufacturing support 591,685 300,979 257,160
Service department 492,012 246,324 283,880
Management bonuses 197,968 64,576 81,200
Shipping and receiving 122,111 65,934 53,825
Parts department 130,409 65,577 69,331
- -----------------------------------------------------------------------------------------------------------------------------
3,422,860 1,717,107 1,810,976
- -----------------------------------------------------------------------------------------------------------------------------
Operating income before interest 587,252 172,298 285,007
Interest:
On short-term debt 93,885 57,655 42,600
On long-term debt and shareholder advances 153,048 44,694 98,934
- -----------------------------------------------------------------------------------------------------------------------------
246,933 102,349 141,534
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 340,319 69,949 143,473
Other income 262,269 143,786 133,558
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 602,588 213,735 277,031
Income taxes:
Current 188,500 72,000 96,000
Deferred (recovery) (1,200) (3,000) (4,000)
- -----------------------------------------------------------------------------------------------------------------------------
187,300 69,000 92,000
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings 415,288 144,735 185,031
Retained earnings, beginning of period 2,347,360 2,347,360 2,762,648
- -----------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 2,762,648 $ 2,492,095 $ 2,947,679
=============================================================================================================================
See accompanying notes to financial statements.
F-18
BLUE GIANT CANADA LIMITED
Statement of Changes in Financial Position
=============================================================================================================================
Year ended Six month period Six month period
=============================================================================================================================
December 31, ended June 29, ended June 28,
1996 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by (used in):
Operations:
Net earnings $ 415,288 $ 144,735 $ 185,031
Items not involving cash:
Depreciation and amortization 197,533 82,909 90,922
Gain on sale of capital assets (59,228) (21,220) (18,135)
Deferred income tax recovery (1,200) (3,000) (4,000)
Changes in non-cash operating working capital (54,991) (110,463) (786,570)
- -----------------------------------------------------------------------------------------------------------------------------
497,402 92,961 (532,752)
Financing:
Increase in long-term debt 1,800,000 1,800,000 -
Principal payments on long-term debt (59,435) - (57,566)
Repayment of capital lease obligation (6,399) (6,399) -
Increase (decrease) in payable to shareholders 52,743 8,176 (37,333)
- -----------------------------------------------------------------------------------------------------------------------------
1,786,909 1,801,777 (94,899)
Investments:
Proceeds from sale of capital assets 121,635 44,994 39,649
Purchase of capital assets (2,003,686) (1,924,563) (228,080)
Decrease in due from employee 30,000 30,000 45,000
- -----------------------------------------------------------------------------------------------------------------------------
(1,852,051) (1,849,569) (143,431)
- -----------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in bank indebtedness during
the period (432,260) (45,169) 771,082
Bank indebtedness, beginning of period 1,867,813 1,867,813 1,435,553
- -----------------------------------------------------------------------------------------------------------------------------
Bank indebtedness, end of period $ 1,435,553 $ 1,822,644 $ 2,206,635
=============================================================================================================================
See accompanying notes to financial statements.
F-19
BLUE GIANT CANADA LIMITED
Notes to Financial Statements (continued)
Year ended December 31, 1996
================================================================================
BLUE GIANT CANADA LIMITED
Notes to Financial Statements
Year ended December 31, 1996
================================================================================
Blue Giant Canada Limited is a private Company incorporated under the Canada
Business Corporations Act. The Company manufactures and sells materials handling
equipment.
1. Significant accounting policies:
(a) Basis of presentation:
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada which, except as
described in note 14, conform in all material respects with generally
accepted accounting principles in the United States.
(b) Inventories:
Raw materials are valued at the lower of cost and replacement cost.
Finished goods and manufactured parts are valued at the lower of cost
and net realizable value. Costs are determined on a first-in, first-out
basis.
(c) Foreign currency transactions:
Transactions in foreign currencies are recorded in Canadian dollars at
the rates of exchange in effect at the dates of the transactions. At
year end, monetary assets and liabilities are translated into Canadian
dollars at the rates of exchange prevailing on that date. The resulting
gains and losses are included in net earnings.
(d) Capital assets:
Capital assets are recorded at cost. Depreciation and amortization are
provided using the following methods and annual rates:
================================================================================
Asset Basis Rate
- --------------------------------------------------------------------------------
Building Declining balance 4%
Building improvements Declining balance 4%
Equipment Declining balance 20%
Rental equipment Declining balance 20%
Automotive Declining balance 30%
Leasehold improvements Straight-line 10%
Computer software Declining balance 50%
================================================================================
(e) Revenue recognition:
The Company recognizes revenue upon shipment, except for custom orders,
where revenue is recognized when the manufacturing process is complete.
F-20
1. Significant accounting policies (continued):
(f) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions which affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses for the
period reported. Actual results could differ from these estimates.
(g) Investment in Blue Giant Europe Ltd.:
The Company's 25% investment in Blue Giant Europe Ltd. ("Blue Giant
Europe") is accounted for in the accompanying financial statements by
the equity method under which such investments initially are recorded
at cost. The carrying value of the investment is increased (decreased)
to recognize the Company's proportionate share of the increases
(decreases) in the underlying net book equity of Blue Giant Europe
subsequent to acquisition by the Company and the Company's share of net
earnings (loss) of Blue Giant Europe is included in the determination
of the net earnings of the Company. The Company has recognized net
decreases in the underlying net book equity of Blue Giant Europe to the
extent of their original investment as they are not required to fund
continuing operating losses of Blue Giant Europe.
2. Accounts receivable:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Trade (net of allowance for doubtful accounts) $ 3,120,473 $ 3,229,269
Receivable from related companies (note 12 (c)) 1,742,700 1,658,862
Other 17,617 23,016
- -----------------------------------------------------------------------------------------------------------------------------
$ 4,880,790 $ 4,911,147
=============================================================================================================================
3. Due from employee:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Non-interest bearing promissory note, maturing on March 31,
1998. The balance outstanding on the note shall become
due, prior to the maturity date, if the employee ceases to
be employed by the Company $ 45,000 $ -
=============================================================================================================================
F-21
4. Capital assets:
=============================================================================================================================
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated
depreciation and Net book
Cost amortization value
- -----------------------------------------------------------------------------------------------------------------------------
Land $ 906,000 $ - $ 906,000
Building 1,134,885 209,564 925,321
Building improvements 58,446 1,169 57,277
Equipment 1,499,771 1,132,831 366,940
Rental equipment 209,755 112,800 96,955
Automotive 189,341 125,222 64,119
Computer software 31,483 31,483 -
- -----------------------------------------------------------------------------------------------------------------------------
$ 4,029,681 $ 1,613,069 $ 2,416,612
=============================================================================================================================
=============================================================================================================================
June 28, 1997
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated
depreciation and Net book
Cost amortization value
- -----------------------------------------------------------------------------------------------------------------------------
Land $ 906,000 $ - $ 906,000
Building 1,134,885 231,485 903,400
Building improvements 79,645 2,471 77,174
Equipment 1,615,065 1,130,622 484,443
Rental equipment 196,495 112,980 83,515
Automotive 207,007 133,449 73,558
Computer software 35,803 31,637 4,166
- -----------------------------------------------------------------------------------------------------------------------------
$ 4,174,900 $ 1,642,644 $ 2,532,256
=============================================================================================================================
F-22
5. Bank indebtedness:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Demand loan at prime plus 0.5% per annum $ 1,375,000 $ 1,825,000
Bank overdraft 60,553 381,635
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,435,553 $ 2,206,635
=============================================================================================================================
As security for the bank indebtedness, the Company has pledged accounts
receivable, inventories, assigned proceeds of fire insurance and provided a
general security agreement covering all assets of the Company. The
shareholders have provided a postponement of the amounts payable to them.
6. Long-term debt:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Non-revolving demand loan bearing interest at 7.35% payable
in monthly blended instalments of $10,662, secured by a
collateral mortgage providing a first fixed charge over
the land and building $ 1,335,565 $ 1,322,999
Non-revolving demand loan bearing interest at prime plus 1%
payable in monthly instalments of $7,500 plus interest due
on June 27, 2001, secured under the same provision as the
bank indebtedness (note 5) 405,000 360,000
- -----------------------------------------------------------------------------------------------------------------------------
1,740,565 1,682,999
Less current portion 120,000 120,000
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,620,565 $ 1,562,999
=============================================================================================================================
F-23
6. Long-term debt (continued):
Principal repayments due on long-term debt in each of the next five years
and thereafter are as follows:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
1997 $ 120,000 $ -
1998 124,796 120,000
1999 127,400 126,075
2000 130,200 128,775
2001 88,209 131,677
2002 46,444 44,797
Thereafter 1,103,516 1,131,675
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,740,565 $ 1,682,999
=============================================================================================================================
7. Payable to shareholders:
Amounts payable to shareholders bear interest at 8%, are not secured and
have no set terms of repayment. Interest expense totalled $89,135, $44,568
(unaudited) and $47,528 (unaudited) for the periods ended December 31,
1996, June 29, 1996 and June 28, 1997 respectively.
8. Capital stock:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Authorized:
Unlimited number of common shares Issued:
900 common shares $ 100 $ 100
=============================================================================================================================
F-24
9. Financial instruments:
The carrying values of accounts receivable, bank indebtedness, accounts
payable and accrued liabilities approximate their fair value due to the
relatively short periods to maturity of the instruments. The fair values of
other financial assets and liabilities included in the balance sheet are as
follows:
=============================================================================================================================
December, 31 1996 June 28, 1997
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Carrying Carrying
amount Fair value amount Fair value
- -----------------------------------------------------------------------------------------------------------------------------
Due from employee (note 3) $ 45,000 $ 43,135 $ - $ -
Long-term debt (note 6) 1,740,565 1,880,225 1,682,999 1,794,697
=============================================================================================================================
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
o Due from employee - at the year-end prime rate.
o Long-term debt - at the present value of contractual future payments of
principal and interest, discounted at the current market rates of
interest available to the Company for the same or similar debt
instruments.
The fair value of the payable to shareholder has not been presented due to
the undeterminable nature of the term of repayment of the loan.
The Company does not have a significant exposure to any individual customer
or counterparty.
10. Commitments:
The Company is committed under long-term leases for the rental of
automotive equipment with expiry dates to 1999 and with varying renewal
options. Minimum annual rentals exclusive of insurance and maintenance
costs and for the next five years obligations under these leases are as
follows:
================================================================================
December 31, June 28,
================================================================================
1996 1997
- --------------------------------------------------------------------------------
(Unaudited)
1997 $ 83,494 $ 46,654
1998 46,197 62,130
1999 7,102 23,486
2000 - 3,469
2001 - 1,518
================================================================================
F-25
11. Contingencies:
The Company is contingently liable with respect to litigation and claims
which arise from time to time in the normal course of business. In the
opinion of management, any liability that may arise from such contingencies
would not have a significant adverse effect on the financial statements of
the Company.
12. Related party transactions and economic dependence:
(a) A significant portion of the Company's sales are derived from Blue
Giant USA Corporation, which is related by virtue of common control.
The Company had entered into the following transactions with this
company on normal terms and prices.
======================================================================================
December 31, June 29, June 28,
======================================================================================
1996 1996 1997
--------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales $ 5,515,482 $ 2,813,610 $ 2,976,792
Purchases 505,047 265,878 243,999
======================================================================================
(b) Effective October 1, 1993, the Company acquired 25% of the common
shares of Blue Giant Europe for $1. The Company has recorded sales to
Blue Giant Europe totalling $453,110, $279,052 (unaudited) and $165,114
(unaudited) for the periods ended December 31, 1996, June 29, 1996 and
June 28, 1997 respectively.
(c) Receivables from related companies are comprised of the following:
====================================================================
December 31, June 28,
====================================================================
1996 1997
--------------------------------------------------------------------
(Unaudited)
Blue Giant USA Corporation $ 1,457,724 $ 1,416,679
Blue Giant Europe 284,976 242,183
--------------------------------------------------------------------
$ 1,742,700 $ 1,658,862
====================================================================
13. Refundable dividend tax:
Under the Income Tax Act, certain taxes paid by the Company relating to
investment income are potentially refundable at the rate of $1 for each $3
of taxable dividends paid. Since these taxes are considered advance
distribution to shareholders, they have been charged directly to retained
earnings. As dividends are paid, the applicable refundable tax is credited
to retained earnings. The cumulative amount of potential refundable taxes
was $73,333 for each of the periods reported on.
F-26
14. Reconciliation between Canadian and United States generally accepted
accounting principles (GAAP):
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles (GAAP) in Canada. These
principles conform in all material respects to those in the United States
except for the following:
The application of U.S. GAAP would have the following effect on net income
as reported:
===================================================================================================================
December 31, June 29, June 28,
===================================================================================================================
1996 1996 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net earnings as shown in the financial
statements $ 415,288 $ 144,735 $ 185,031
Description of items having an effect on
reported income:
Revenue recognition (a) (81,076) (36,600) 19,073
Deferred income taxes (b) 1,800 3,300 3,000
- -------------------------------------------------------------------------------------------------------------------
Net income according to generally
accepted accounting principles in the
United States $ 336,012 $ 111,435 $ 207,104
===================================================================================================================
The application of U.S. GAAP would have the following effect on the balance
sheets as reported:
===================================================================================================================
Increase
===================================================================================================================
As reported (decrease) U.S. GAAP
- -------------------------------------------------------------------------------------------------------------------
December 31, 1996:
Assets:
Accounts receivable (a) $ 4,880,790 $ (420,209) $ 4,460,581
Inventory (a) 2,672,620 272,274 2,944,894
- -------------------------------------------------------------------------------------------------------------------
$ (147,935)
===================================================================================================================
Liabilities:
Deferred income taxes (b) $ 27,496 $ (26,496) $ 1,000
Shareholders' equity:
Retained earnings 2,762,648 (121,439) 2,641,209
- -----------------------------------------------------------------------------------------------------------------------------
$ (147,935)
=============================================================================================================================
F-27
14. Reconciliation between Canadian and United States generally accepted
accounting principles (GAAP) (continued):
=============================================================================================================================
Increase
=============================================================================================================================
As reported (decrease) U.S. GAAP
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
June 28, 1997:
Assets:
Accounts receivable (a) $ 4,911,147 $ (380,091) $ 4,531,056
Inventory (a) 3,250,218 262,229 3,512,447
- -----------------------------------------------------------------------------------------------------------------------------
$ (117,862)
=============================================================================================================================
Liabilities:
Deferred income taxes (b) $ 23,496 $ (18,496) $ 5,000
Shareholders' equity:
Retained earnings 2,947,679 (99,366) 2,848,313
- -----------------------------------------------------------------------------------------------------------------------------
$ (117,862)
=============================================================================================================================
(a) Revenue recognition:
Under U.S. GAAP, the Company would not record sales and cost of sales
on custom orders of equipment until the customer has received the
goods. Such amounts included in sales for Canadian GAAP amounted to
$420,209, $227,028 (unaudited) and $380,091 (unaudited) and included in
cost of sales of $272,274, $148,569 (unaudited) and $262,229
(unaudited) for the periods ended December 31, 1996, June 29, 1996 and
June 28, 1997 respectively. The decrease in net earnings after the
above adjustment is $81,076 and $36,600 (unaudited) for the periods
ended December 31, 1996 and June 29, 1996 respectively. The increase in
net earnings resulting from this adjustment for the period ended June
28, 1997 is $19,073 (unaudited).
F-28
14. Reconciliation between Canadian and United States generally accepted
accounting principles (GAAP) (continued):
(b) Accounting for income taxes:
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(FAS 109) requires the use of an asset and liability approach for
financial accounting and reporting for income taxes. Tax allocation is
provided on temporary differences existing at the end of a financial
period. These are differences between the tax basis of an asset or
liability and the amount in the financial statements. It is assumed
that each item in the financial statements will be recovered or settled
at the amounts reported in the statements and that the reversal of the
temporary differences will result in taxable amounts or deductions in
the future years. The effect of the adoption of the statements would be
as follows:
=============================================================================================================================
December 31, June 28,
=============================================================================================================================
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Deferred tax asset:
Accruals not currently deductible $ 10,000 $ 10,000
Accounts receivable 42,400 31,500
Deferred tax liabilities:
Capital assets (48,400) (44,000)
Prepaid expenses (5,000) (2,500)
- -----------------------------------------------------------------------------------------------------------------------------
$ (1,000) $ (5,000)
=============================================================================================================================
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this statement. Based upon the
level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize
the benefits of these deductible differences at December 31, 1996.
F-29
14. Reconciliation between Canadian and United States generally accepted
accounting principles (GAAP) (continued):
(c) Statement of Cash Flows:
Under U.S. GAAP, the net change in bank indebtedness for the periods
ended is reflected as a financing activity and not included in the cash
position in the Statement of Cash Flows resulting in the following
change:
=============================================================================================================================
Year ended Six month period Six month period
=============================================================================================================================
December 31, ended June 29, ended June 28,
=============================================================================================================================
1996 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Financing activities:
(Decrease) increase in bank
indebtedness $ (432,260) $ (45,169) $ 771,082
=============================================================================================================================
The Statement of Cash Flows' major categories for the periods ended
would then be presented as follows:
=============================================================================================================================
Year ended Six month period Six month period
=============================================================================================================================
December 31, ended June 29, ended June 28,
=============================================================================================================================
1996 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Operating activities $ 497,402 $ 92,961 $ (532,752)
Financing activities 1,354,649 1,756,608 676,183
Investing activities (1,852,051) (1,849,569) (143,431)
- -----------------------------------------------------------------------------------------------------------------------------
Change in cash position - - -
Cash position, beginning of period - - -
- -----------------------------------------------------------------------------------------------------------------------------
Cash position, end of period $ - $ - $ -
=============================================================================================================================
F-30
CLARK Material Handling Company
Unaudited Pro Forma Balance Sheet
June 30, 1997(10)
(in thousands)
ADJUSTMENTS: Combined
CLARK BGU BGC US GAAP (1) Pro Forma Pro Forma
Current assets
Cash and cash equivalents $ 16,152 $ 8 $ - $ - $ (9,673)(2) $ 6,487
Cash securing letters of credit 189 - - - - 189
Net trade receivables 37,130 2,552 3,556 (275) (344)(3) 42,619
Net inventories 61,999 1,710 2,354 190 337 (4) 66,590
Other current assets 5,200 232 117 - - 5,549
--------- ------- -------- ---------- ---------- -----------
Total current assets 120,670 4,502 6,027 (85) (9,680) 121,434
Long-term assets
Property, plant and equipment-net 46,736 1,021 1,834 - (599)(5) 48,992
Goodwill, net of accumulated amortization 108,962 - - - 470 (9) 109,432
Other assets 17,355 110 - - 1,305 (6) 18,666
(104)(3)
--------- ------- -------- ---------- ---------- -----------
Total assets $ 293,723 $ 5,633 $ 7,861 $ (85) $ (8,608) $ 298,524
--------- ------- -------- ---------- ---------- -----------
Current liabilities
Short-term debt $ 2,456 $ 1,027 $ 1,686 $ - $ (2,713)(7)$ 2,456
Current portion of capital lease
obligations 2,124 - - - - 2,124
Trade accounts payable and accrued
liabilities 77,769 1,670 2,058 - (36)(3) 81,461
Other current liabilities 8,076 - - - 368 (2) 8,444
--------- ------- -------- ---------- ---------- -----------
Total current liabilities 90,425 2,697 3,744 - (2,381) 94,485
Non-current liabilities
Long-term debt 130,000 747 1,965 - (2,712)(7) 130,000
Capital lease obligations, less current
portion 3,199 - - - - 3,199
Accrued warranties and product liability 35,744 - - - - 35,744
Other non-current liabilities 13,881 - 17 (13) 737 (2) 14,622
--------- ------- -------- ---------- ---------- -----------
Total liabilities 273,249 3,444 5,726 (13) (4,356) 278,050
Commitments and contingencies
Stockholder's equity
Common stock 1 1 1 - (2)(8) 1
Paid-in-capital 24,999 40 - - (40)(8) 24,999
Retained earnings 1,837 2,148 2,134 (72) (4,210)(8) 1,837
Cumulative translation adjustment (6,363) - - - - (6,363)
--------- ------- -------- ---------- ---------- -----------
Total stockholder's equity 20,474 2,189 2,135 (72) (4,252) 20,474
--------- ------- -------- ---------- ---------- -----------
Total liabilities and stockholder's equity $ 293,723 $ 5,633 $ 7,861 $ (85) $ (8,608) $ 298,524
--------- ------- -------- ---------- ---------- -----------
F-31
CLARK Material Handling Company
Notes to Unaudited Pro Forma Balance Sheet
June 30, 1997
(in thousands)
(1) To adjust BGC's financial statements, stated in Canadian generally accepted
accounting principles, to US generally accepted accounting principles. See
Note 14 to BGC's financial statements included in this Form 8-K.
(2) To reflect the use of the Company's cash portion of the purchase price and
out-of-pocket expenses ($9,665), the Company's obligation under an
agreement not to compete ($1,105) and the elimination of cash balances
retained by the sellers' ($8).
(3) To eliminate receivables, investments, income taxes payable/receivable and
notes receivable not acquired by the Company.
(4) To adjust acquired inventories to their estimated fair market value. This
increase in inventories will be reflected in income subsequent to the
acquisition. As a non-recurring item, it is not reflected in the
accompanying pro forma statements of operations.
(5) To reduce property and equipment for BGU's manufacturing facility, which
will be leased by the Company subsequent to the transaction ($540) and
other real estate not acquired by the Company ($59).
(6) To record the value of noncompete agreements entered into with certain of
the sellers' shareholders.
(7) To eliminate BGU's and BGC's short and long-term debt, which are not being
assumed by the Company.
(8) To eliminate the net assets of BGU and BGC.
(9) To allocate the excess of purchase price over net assets acquired to
goodwill. While the Company will undertake a full evaluation of the fair
value of the net assets acquired, it is not expected to differ materially
from the above purchase price allocation.
(10) The unaudited pro forma balance sheet reflects the figures from BGU and
BGC balance hseet as of June 28, 1997.
F-32
CLARK Material Handling Company
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1996
(in thousands)
CLARK The Predecessor
One month Eleven months
Ended Ended Pro Forma CLARK ADJUSTMENTS: Combined
December 31 November 26, Adjustments Pro Forma BGU BGC US GAAP(1) Pro Forma Pro Forma
1996 1996
Net Sales $ 46,763 $ 404,629 $ - 451,392 13,875 $ 12,538 (168) $ (383)(2) 477,254
Cost of Goods Sold 41,817 358,698 2,539 (A) 403,054 10,514 9,597 (110) (321)(2) 422,851
105 (3)
12 (4)
-------- ---------- -------- -------- ------ -------- ----- ------ -------
Gross profit 4,946 45,931 (2,539) 48,338 3,361 2,941 (58) (179) 54,403
Engineering, selling and
administrative expenses 3,011 26,976 1,375 (B) 31,362 2,966 2,511 - 271 (5) 37,110
Parent company management
fees - 5,672 (5,672)(C) - - - - - -
-------- ---------- -------- -------- ------ -------- ----- ------ -------
Income from operations 1,935 13,283 1,758 16,976 395 430 (58) (450) 17,293
Other income (expense):
Interest income 25 220 - 245 - - - - 245
Allocated interest
expense from parent
company - (14,656) 14,656 (D) - - - - - -
Interest expense (1,393) (719) (12,973)(E) (15,085) (141) (181) - (548)(6) (15,955)
Other income
(expense) net (32) (223) - (255) 32 192 - - (31)
-------- ---------- -------- -------- ------ -------- ----- ------ -------
Income (loss) before
income taxes 535 (2,095) 3,441 1,881 286 441 (58) (998) 1,552
Provision for income taxes - - - - 106 137 - (106)(7) 137
-------- ---------- -------- -------- ------ -------- ----- ------ -------
Net Income (loss) $ 535 $ (2,095)$ 3,441 1,881 180 $ 304 (58) $ (892) 1,415
======== ========== ======== ======== ====== ======== ===== ====== =======
F-33
CLARK Material Handling Company
Notes to Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1996
(in thousands)
CLARK PROFORMA ADJUSTMENTS
(A) To eliminate pre-acquisition goodwill ($342) and reflect amortization of
goodwill resulting from the acquisition of the Company ($2,510); eliminate
amortization of deferred gain relating to predecessor's sale-leaseback of
facilities ($727); and eliminate rental and related costs of abandoned
facility ($356).
(B) To reflect estimated costs to be incurred to replace certain legal,
accounting and administrative services previously provided by former parent
company.
(C) To eliminate former parent company management fees.
(D) To eliminate interest expense allocated by former parent company.
(E) To reflect interest expense on long-term debt calculated at 10 3/4% per
annum ($12,810); to eliminate amortization of allocated debt issuance costs
($349) and reflect amortization of debt issuance costs related to long-term
debt over a ten year period ($512).
BLUE GIANT PROFORMA ADJUSTMENTS
(1) To adjust BGC's financial statements, stated in Canadian generally accepted
accounting principles, to US generally accepted accounting principles. See
Note 14 to BGC's financial statements included in this Form 8-K.
(2) To eliminate sales and cost of sales relating to receivables not acquired
by the Company.
(3) To delete depreciation expense relative to BGU's manufacturing facility
($45) and to increase rental expense relative to that facility ($150).
Pursuant to the transaction, CLARK is not acquiring BGU's manufacturing
facility but rather is leasing it over a five year term at $150 per annum.
(4) To reflect amortization of goodwill over an expected useful life of 40
years.
(5) To reflect amortization of noncompete agreements entered into with certain
of the sellers' shareholders.
(6) To reflect increased interest expense arising from the Company's use of
$9,665 in cash to acquire BGU and BGC including out-of-pocket expenses of
the transaction ($870) and to remove the interest expense of BGU and BGC
($322 - as part of the transaction, their short and long-term debt was not
assumed by the Company).
(7) To adjust income taxes to reflect (a) a lack of tax benefit associated with
the pro forma adjustments and (b) elimination of the tax provision relating
to BGU. The Company is in a net NOL position in the United States (where no
provision for taxes currently payable is required) and has not recorded a
deferred tax provision because of the uncertainty surrounding the ultimate
realizability of the Company's net deferred tax assets. The tax provision
for BGC has not been adjusted because BGC operates in a foreign tax
jurisdiction.
F-34
CLARK Material Handling Company
Unaudited Pro Forma Statement of Operations
Six Months Ended June 30, 1997(9)
(in thousands)
ADJUSTMENTS:
CLARK BGU BGC US GAAP (1) Pro Forma Pro Forma
----- --- --- ------- --------- ---------
Net Sales $ 229,733 $ 7,172 $ 7,211 $ 29 $ (165) (2) $ 243,980
Cost of Goods Sold 203,510 5,585 5,684 7 (151) (2) 214,693
52 (3)
6 (4)
------------ ---------- ---------- --------- --------- ----------
Gross profit 26,223 1,587 1,527 22 (72) 29,287
Engineering, selling
and administrative expenses 17,481 1,186 1,319 - 136 (5) 20,122
------------ ---------- ---------- --------- --------- ----------
Income from operations 8,742 401 208 22 (208) 9,165
Other income (expense):
Interest income 509 - - - (155) (6) 354
Interest expense (7,528) (72) (103) - 175 (7) (7,528)
Other income (expense)-net (197) 71 97 - - (29)
------------ ---------- ---------- --------- --------- ----------
Income (loss) before income taxes 1,526 400 202 22 (188) 1,962
Provision for income taxes 224 152 67 6 (152) (8) 297
------------ ---------- ---------- --------- --------- ----------
Net Income (loss) $ 1,302 $ 248 $ 135 $ 16 $ (36) $ 1,665
------------ ---------- ---------- --------- --------- ----------
F-35
CLARK Material Handling Company
Notes to Unaudited Pro Forma Statement of Operations
Six Months Ended June 30, 1997
(in thousands)
(1) To adjust BGC's financial statements, stated in Canadian generally accepted
accounting principles, to US generally accepted accounting principles. See
Note 14 to BGC's financial statements included in this Form 8-K.
(2) To eliminate sales and cost of sales relating to receivables not acquired
by the Company.
(3) To delete depreciation expense relative to BGU's manufacturing facility
($23) and to increase rental expense relative to that facility ($75).
Pursuant to the transaction, CLARK is not acquiring BGU's manufacturing
facility but rather is leasing it over a five year term at $150 per annum.
(4) To reflect amortization of goodwill over an expected useful life of 40
years.
(5) To reflect amortization of noncompete agreements entered into with certain
of the sellers' shareholders.
(6) To reflect a reduction in interest income arising from the Company's use of
$9,665 in cash to acquire BGU and BGC including out-of-pocket expenses of
the transaction.
(7) To remove the interest expense of BGU and BGC ($175 - as part of the
transaction, their short and long-term debt was not assumed by the
Company).
(8) To adjust income taxes to reflect (a) a lack of tax benefit associated with
the pro forma adjustments and (b) elimination of the tax provision relating
to BGU. The Company is in a net NOL position in the United States (where no
provision for taxes currently payable is required) and has not recorded a
deferred tax provision because of the uncertainty surrounding the ultimate
realizability of the Company's net deferred tax assets. The tax provision
for BGC has not been adjusted because BGC operates in a foreign tax
jurisdiction.
(9) The Unaudited Pro Forma Statement of Operations reflects the figures from
the BGU and BGC Financial statements for the six month period ended
June 28, 1997.
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