SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commissions file number: 333-18957
CLARK Material Handling Company
(Exact name of registrant as specified in its charter)
Delaware 61-1312827
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
172 Trade Street
Lexington, Kentucky 40511
(Address of registrant's principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (606) 288-1200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
As of January 1, 1998, there were 1,000 shares of the registrant's common stock
outstanding, all of which were owned by an affiliate of the registrant.
Documents incorporated by reference: None
CLARK Material Handling Company
Index to Annual Report on Form 10-K
PART I....................................................................... 3
Item 1 -- BUSINESS..................................................... 3
Item 2 -- PROPERTIES................................................... 7
Item 3 -- LEGAL PROCEEDINGS............................................ 8
Item 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 8
PART II...................................................................... 8
Item 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 8
Item 6 -- SELECTED FINANCIAL DATA...................................... 8
Item 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 9
Item 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.. 14
Item 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 15
Item 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.................................... 15
PART III..................................................................... 16
Item 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 16
Item 11 -- EXECUTIVE COMPENSATION...................................... 17
Item 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 19
Item 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 20
PART IV.......................................................................21
Item 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................... 21
2
Introduction
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The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
(including notes thereto) included elsewhere in this report. Unless otherwise
indicated or the context otherwise requires, references to the "Company" or
"CLARK" are to CLARK Material Handling Company (including its predecessors) and
the other material handling operations acquired from certain subsidiaries of
Terex Corporation ("the Predecessor's Parent") pursuant to the Acquisition (as
defined) for periods prior to the Acquisition and to CLARK Material Handling
Company and its subsidiaries for periods from and after the Acquisition, after
giving effect thereto.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this filing could be characterized as forward looking statements, such as
statements relating to plans for future expansion, capital spending, financing
sources and effects of regulation and competition. Such forward looking
statements involve important risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward looking
statements.
PART I
Item 1 -- BUSINESS
General
CLARK is a leading international designer, manufacturer, and marketer
of a complete line of forklift trucks including internal combustion trucks,
electric riders, narrow aisle stackers and powered hand trucks. The Company
invented the platform truck in 1917, the tow tractor in 1924, and the forklift
in 1928, and produced the first electric forklift in 1942. As a result of this
innovation and the production of more than one million forklifts in its more
than 80-year history, management believes CLARK(R) is one of the most recognized
brand names of forklift trucks in North America and that it has a large
installed fleet of units in operation worldwide.
This large installed fleet has allowed CLARK to generate significant
ongoing replacement parts sales, which typically generate substantially higher
gross margins and provide a more stable revenue base than new forklift truck
sales. CLARK's North American operations historically account for approximately
70% of its net sales and its European operations account for approximately 25%.
CLARK's recently acquired Asian operations account for approximately 5% of its
1998 net sales. It is anticipated that CLARK Asia will grow to be a higher
percentage in the future. CLARK and its subsidiaries distributes its products to
a diverse customer base through a global network of approximately 700 dealers,
with more than 950 locations worldwide.
For information concerning the Company's backlog orders, see "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Backlog." Information about segments is included in notes 1 and
13, respectively, to the Company's consolidated financial statements included
under "Item 8 -- Financial Statements and Supplementary Data."
The Acquisition
The Company and CMH Holdings Corporation, a Delaware corporation
("Holdings"), were formed by Citicorp Venture Capital Ltd. ("CVC"), and certain
members of management of CLARK (the "Management Investors") to affect the
acquisition (the "Acquisition") of substantially all the assets and certain
liabilities of Clark Material Handling Company, a Kentucky corporation, and all
of the outstanding capital stock of certain of its affiliates, including its
German, Korean, Brazilian and Canadian affiliates. The Acquisition was
consummated on November 27, 1996. The aggregate consideration for the
Acquisition was $139.5 million, which was subject to certain post-closing
adjustments. To finance the Acquisition, the Company issued $130 million of 10
3/4% Senior Notes due 2006 (the "Original Notes"). In addition, the Company
issued all of its common stock to Holdings in exchange for $25 million in cash.
Holdings was capitalized, coincident with the closing of the Acquisition, with
$25 million through the sale of capital stock and junior subordinated debentures
to CVC and certain individuals.
Subsequent Acquisitions
In 1997 the Company acquired substantially all of the assets of Blue
Giant USA Corporation and Blue Giant Limited (collectively "Blue Giant"). In
addition, the Company acquired substantially all of the assets of Hydrolectric
Lift Trucks, Inc. ("HLT"), a supplier of uprights for material handling
equipment.
3
On July 15, 1998, the Company acquired substantially all of the assets
and certain liabilities of the forklift division ("Samsung Forklift") of Samsung
Heavy Industries ("SHI"). The initial purchase price for Samsung Forklift was
$30.4 million, based upon the stated purchase price of 39.1 billion South Korean
Won and is subject to certain adjustments. To finance this acquisition, the
Company sold $20 million of 10 3/4% of Senior Notes due 2006 (the "New Notes",
and along with the Original Notes, the "Notes") and 20,000 shares of Senior
Exchangable Preferred Stock with a liquidation preference of $1,000 a share.
See note 4 to the Company's consolidated financial statements.
Products
CLARK currently offers over 100 truck designs within five major
product lines: light internal combustion ("IC") trucks (with a capacity of 1.0 -
5.0 tons), heavy IC trucks (with a capacity of 5.5 - 18 tons), narrow-aisle
trucks (with a capacity of 1.5 - 2.5 tons), electric counterbalanced riders
(with a capacity of 1.3 - 6.0 tons), and manual and powered hand trucks (with a
capacity of 2.0 - 4.0 tons).
Light IC trucks, used for general warehousing needs, are generally
powered by liquid propane. Such trucks are well suited for manufacturing and
distribution applications that require a high degree of maneuverability. Heavy
IC trucks are specialty products designed for use in more demanding situations
such as heavy manufacturing or container handling applications. Narrow-aisle
trucks provide solutions for high density storage needs and operate in six to
eight foot aisles and reach heights of more than 30 feet. Electric
counterbalanced riders, designed for indoor use in warehousing, manufacturing,
distribution and other applications, are powered by a rechargeable electric
battery. Powered hand trucks are generally used in the transportation and
order-selecting businesses.
Rapid development and introduction of new and redesigned products
incorporating the latest materials handling technology is a key component of
CLARK's strategy.
In 1996, CLARK expanded its Genesis(R) family with the addition of a 4
- - 5.5 ton pneumatic tire IC lift truck, and a 2 - 3.2 ton electric four wheel
sit down rider. CLARK also made significant additions to its narrow aisle
product line, which was expanded to include double reach and straddle models.
During 1997, CLARK added three more trucks to its Genesis(R) family, a
4.0 - 5.0 ton cushion tire IC lift truck, a 6.0 - 7.0 ton cushion tire IC lift
truck, and a 1.2 - 2.5 ton three wheel electric sit down rider. CLARK also
expanded its Genesis(R) heart-of -the-line 2 - 3 ton IC trucks by increasing the
capacity to 3.2 tons and adding a 3.0 liter GM engine option. Additionally,
CLARK purchased Blue Giant and HLT. Blue Giant produces a full line of CLARK
branded manual and powered walkie pallet trucks and stackers and continues to
produce and sell under the Blue Giant name. HLT produces forklift masts mainly
for CLARK's own use.
In 1998 CLARK introduced the "M-Series" trucks in North America from
it's Korean subsidiary ("CLARK Asia"). This product line adds a value priced
series of IC trucks in the 1 - 2 ton, 2-3 ton, 4 - 5 ton and 6 - 7 ton pneumatic
tire class. The 10 -18 ton pneumatic tire IC product is manufactured by CLARK
under license from an Australian company. Significant product improvements were
also made to powered hand trucks. CLARK's European subsidiary ("CLARK Europe")
introduced the Genesis trucks already common in the United States, especially
the 4 - 5.5 ton and 6 - 7 ton models. The Genesis pneumatic range was rounded
off by the new 1- 2 ton gas and diesel-powered trucks, and the 4 - 5 ton Genesis
pneumatic truck received a new "green-diesel engine". At the Hanover Fair in
1998, CLARK presented a forklift truck powered by liquified natural gas (LNG).
Aftermarket Parts
Since the Company's inception, more than one million forklift trucks
have been manufactured by CLARK and its predecessors, which generates a
substantial aftermarket parts business for CLARK. CLARK supplies both original
equipment parts to fit CLARK brand forklifts and Totalift (R) parts to fit other
brands.
CLARK's parts distribution operation undertakes purchasing and
customer services for aftermarket parts. CLARK distributes its aftermarket parts
in North America through a distribution center in Southaven, Mississippi, (the
"Southaven Facility"), in Europe through a warehouse located in Saarn, Germany
and for the international operations of CLARK, through sales and distribution
facilities. CLARK shares the Southaven Facility with the Predecessor's Parent
and, pursuant to the Acquisition, CLARK and the Predecessor's Parent entered
into a Service
4
Agreement providing for the continued use by CLARK of such facility. For
information regarding the Service Agreement, see "Item 13--Certain Relationships
and Related Transactions--Service Agreement."
Manufacturing Operations
CLARK's Lexington, Kentucky facility produces both IC and electric
forklifts with lift capacities ranging from 1 - 18 tons. The Lexington facility
is primarily an assembly operation with welding and painting capabilities. ISO
9001 certification was awarded in August 1997.
CLARK Europe's Mulheim manufacturing facility produces both IC
forklifts (diesel, LP gas and natural gas) with hydrodynamic as well as
electronically controlled hydrostatic drive (MegaStat(TM)) and electric powered
forklifts equipped with D/C as well as frequency-controlled A/C motors
(MegaAC(TM)) in the capacity range of 1 - 5 tons. The manufacturing process
includes pre-production and welding production of frames and uprights. A powder
dry paint system was recently installed to ensure high-quality painting of
frames and uprights. The Mulheim facility has also been awarded ISO-9001
certification.
CLARK Asia's Changwon, Korea manufacturing facility produces both IC
forklifts (1.5 - 7.5 ton diesel, gas, and LPG), and electric forklifts (reach
and sit-down rider) of 1.5 - 3 ton capacity. The factory also has an integrated
upright manufacturing facility and assembly line. The factory became fully
operational in November 1998, and includes manual frame and robotic carriage and
upright welding. CLARK Asia has also been awarded ISO 9001 certification.
Blue Giant has two locations, one in Pell City, Alabama, and one in
Brampton, Ontario, Canada. The Pell City, Alabama facility produces powered hand
trucks, tow tractors, pallet trucks, walkie stacker forklifts and scissor lifts.
The Brampton, Ontario facility produces dock equipment, and walkie stacker
forklifts. The Brampton facility is ISO-9001 certified.
Dealer Network
CLARK and its subsidiaries distributes its product to a diverse
customer base through a global network of approximately 700 dealers with more
than 950 locations. The Company also owns three dealers in Europe and two
dealers in North America. CLARK's dealers and distributors generally market the
full CLARK product line and maintain comprehensive service capabilities. CLARK's
sales organization coordinates sales and promotional activities, provides
ongoing dealer training, and facilitates dealer communications. CLARK sells to a
diversified customer base, with no single customer accounting for more than 5%
of total sales.
Suppliers
The Company strategically relies upon outside suppliers for a vast
majority of the individual components of a lift truck. Management believes that
such outsourcing allows CLARK greater flexibility in varying its cost structure
in response to changing market conditions.
Principal materials used by CLARK in its various manufacturing
processes include steel, castings, engines, tires, electric controls, uprights,
transaxles and motors, and a variety of other fabricated or manufactured items.
While substantially all such materials are typically available from multiple
suppliers, CLARK depends exclusively upon certain suppliers of key parts used in
its lift trucks. From time to time, certain of CLARK's suppliers have
experienced difficulties in meeting CLARK's production schedules. The failure of
a key supplier to meet the Company's requirements on a timely basis or the loss
of a key supplier could lead to delays in the Company's manufacturing operations
and have a material adverse effect on the Company.
Competition
CLARK competes in an industry with over 30 competitors. Major
competitors include NACCO Industries, Inc. in the U.S. and Linde AG in Europe.
In addition, the Company also competes with Toyota Industrial Equipment/U.S.A,
Inc., Mitsubishi Caterpillar Forklift America, Inc., Crown Equipment Corp.,
Raymond Corporation, Daewoo and Jungheinreich AG.
The forklift market in which the Company competes is highly
competitive. The Company encounters significant competition particularly from
lower cost foreign competitors, including manufacturers located in Japan
5
and Korea. The Company competes on the basis of quality, price, on-time
delivery, product line, ease of use, safety, comfort, and customer service. Many
of the Company's competitors have greater financial resources than the Company.
Additionally, certain of the Company's products are subject to changing
technology that could place the Company at a competitive disadvantage relative
to product innovations by competitors. There can be no assurance that the
Company will be able to achieve the technological advances that may be necessary
to remain competitive.
Intellectual Property
The Company relies on a combination of trademarks, service marks,
trade names, patents, licensing arrangements, trade secrets, know-how and
proprietary technology to secure and protect its intellectual property rights.
In particular, the Company's CLARK(R), Clarklift(R), Powrworker(R), Genesis(R),
and Blue Giant(R) trademarks are of particular importance to the Company's
business. The Company is currently undertaking to obtain trademark registrations
for its MegaValve (TM), MegaStat (TM), and MegaAC (TM) marks. The loss of the
Company's rights under one or more of the Company's trademarks could have a
material adverse effect on the Company's business.
There can be no assurance that the Company will be successful in
obtaining approval of any present or future patent or trademark applications;
that any patents, patent applications and patent licenses will adequately cover
the Company's technologies or protect the Company from potential infringements
by third parties; that any nondisclosure and confidentiality agreements will
provide meaningful protection for the Company's trade secrets, know-how or
proprietary technology in the event of any unauthorized use or disclosure of
such information; or that others will not obtain access to, or independently
develop technologies or know-how similar to that of the Company. There also can
be no assurance that future litigation by the Company will not be necessary to
enforce its trademark, patent and other proprietary rights, or to defend the
Company against claimed infringement of the rights of others, adverse
determinations in which could have a material adverse effect on the Company.
Employees
As of December 31, 1998, CLARK's total work force consisted of
approximately 1,776 salaried, hourly and temporary employees. Of these
employees, 881 are in the Company's United States operations, and 895 employees
are in the Europe, Asia, Germany, Canada and Brazil operations.
In Europe, the Mulheim facility is represented by the German Metal
Workers (Industrie Gewerkschaft Metall). The Mulheim facility has a total work
force of approximately 300, of which approximately 200 are members of the German
Metal Workers. There are no contracts between CLARK and the union, but CLARK
follows standard practices by complying with contracts between the unions and
the employer's association.
Management believes that its relationships with its employees and
unions are good.
Environmental Matters
As with other industrial companies, the Company's facilities and
operations are required to comply with and are subject to liability under
federal, state, local and foreign environmental and worker health and safety
laws, regulations and ordinances, including those relating to air emissions,
wastewater discharges and the management and disposal of certain materials,
substances and wastes ("Environmental Laws"). Certain of these Environmental
Laws hold owners or operators of land or businesses liable for their own and for
previous owners' or operators' releases of hazardous or toxic substances,
materials or wastes, pollutants or contaminants, including, in some instances,
petroleum and petroleum products. Compliance with Environmental Laws also may
require the acquisition of permits or other authorizations for certain
activities and compliance with various standards or procedural requirements.
Although the Company believes that its operations are in substantial compliance
with current regulatory requirements under material applicable Environmental
Laws, the nature of the Company's operations and the history of industrial uses
at some of its facilities expose the Company to the risk of liabilities or
claims with respect to environmental and worker health and safety matters. The
Company may also have contingent responsibility for liabilities with respect to
environmental matters arising in connection with the prior operations of the
material handling business of Clark Equipment Company, a predecessor of the
Company ("CEC"). There can be no assurance that material costs or liabilities
will not be incurred in connection with such liabilities or claims.
6
In connection with the Acquisition, the Company agreed to indemnify the
Predecessor's Parent and hold it harmless from and against all losses which are
incurred or suffered by the Predecessor's Parent with respect to or arising out
of the Company's business and assets except for such losses which arise from or
are in connection with any real property, business entities or assets which were
not acquired as part of the Acquisition (which the Predecessor's Parent agreed
to retain responsibility for and indemnified the Company against). No specific
environmental losses were identified by the parties in the Acquisition Agreement
nor are there any known material losses which have been asserted by the
Predecessor's Parent pursuant to the environmental indemnity provisions of the
Acquisition Agreement or incurred by the Company. The environmental indemnities
are subject to certain deductibles, caps, and time limitations depending on the
nature of the environmental claim.
Based upon the Company's experience to date and the indemnities it
obtained in connection with the Acquisition, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental liabilities or claims) should not have a material adverse
effect on the Company's business, financial condition or results of operations.
Compliance with such laws has, and will, require expenditures by the Company on
a continuing basis. Future events, such as changes in existing laws and
regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition or results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material.
Item 2 -- PROPERTIES
The Company's headquarters are located in Lexington, Kentucky. The
Company currently owns or leases 14 facilities in North America, Europe, Brazil
and Korea which are used for manufacturing, distribution, sales, warehousing and
service center activities. The following table outlines the principal facilities
owned or leased by CLARK or its subsidiaries:
Facility Location Type of Facility
----------------- ----------------
Lexington, Kentucky Manufacturing, warehouse and office
Lexington, Kentucky * Sales, training and engineering
Lexington, Kentucky Warehouse
Saarn, Germany Warehouse
Mulheim-Ruhr, Germany ** Manufacturing, engineering, power
generation, maintenance and office
Barcelona, Spain Sales branch
Paris, France Sales branch
Lyon, France Sales branch
State of Sao Paulo, Brazil Parts distribution
Seoul, South Korea Office and Sales Branch
Changwon, South Korea * Manufacturing, warehouse, office and
parts distribution
Wilmington, Ohio Manufacturing, warehouse and office
Pell City, Alabama Manufacturing, warehouse and office
Brampton, Ontario, Canada * Manufacturing, warehouse and office
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* Owned.
** A portion of the facility is owned.
CLARK also owned a manufacturing facility in Banwaal, Korea, which was
closed in the fourth quarter of 1994 and was sold in January 1999. CLARK Europe
also presently leases unoccupied office space in Mulheim-Ruhr, Germany.
Management believes that the Company's facilities are suitable for its
operations and provide sufficient capacity to meet the Company's requirements
for the foreseeable future.
7
Item 3 -- LEGAL PROCEEDINGS
From time to time product liability claims are asserted against the
Company for various injuries alleged to have resulted from defects in the
manufacture and/or design of its products. As of December 31, 1998, the Company
had 66 pending lawsuits relating to claims arising from accidents involving its
products. Most of these lawsuits are in various stages of pretrial completion,
and certain plaintiffs are seeking punitive as well as compensatory damages. The
Company is self-insured, up to certain limits, for these product liability
claims, as well as certain exposures related to general workers' compensation
and automobile liability. The Company has recorded and maintains on its balance
sheet reserves relating to the estimated liability, based in part upon actuarial
determinations, of the Company's aggregate exposure for such self-insured risks.
The Company is involved in various other legal proceedings, which have arisen in
the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the losses is estimable. Although management
believes these reserves are sufficient there can be no assurance that any of the
foregoing reserves are adequate.
Item 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not publicly traded and, accordingly, an
established market does not exist for such common stock. The Company is a wholly
owned subsidiary of Holdings. For certain information concerning the ownership
of the capital stock of Holdings, see "Item 12 -- Security Ownership of Certain
Beneficial Owners and Management."
No dividends have been paid on the Company's common stock. There are
certain limitations on the payment of dividends in the Company's borrowing
arrangements.
Item 6 -- SELECTED FINANCIAL DATA
Through November 26, 1996, the Company operated as wholly owned
subsidiaries of the Predecessor's Parent. On November 27, 1996, the Company was
acquired by Holdings. Accordingly, the selected financial data shown below is
not necessarily comparable as a result of these ownership changes and the
resulting adjustments required for purchase business combinations under
generally accepted accounting principles.
The information contained in this table should be read in conjunction
with "Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's consolidated financial statements
included under "Item 8--Financial Statements and Supplementary Data."
8
Wholly Owned Subsidiaries of the
Predecessor's Parent The Company
--------------------------------- ------------------------------------
Eleven Months One Month
Years Ended Ended Ended Years Ended
December 31, November 26, December 31, December 31,
1994 1995 1996 1996 1997(6) 1998(6)
(in Millions) ---- ---- ---- ---- ------- -------
Operating Data:
Net Sales (1) $ 472.7 $ 528.8 $ 404.6 $ 46.8 $ 489.9 $ 538.9
Gross Profit (1) 42.9 44.2 45.6 4.9 58.8 63.0
Engineering, selling and
administration expenses (1)(2) 50.2 37.6 32.3 3.0 37.7 49.3
Income (loss) from operations (3) (14.0) 3.1 13.3 1.9 21.0 13.7
Income (loss) before
extraordinary items and
cumulative effect of change
in accounting (2) (3) (25.3) (17.4) (2.1) .5 7.9 (6.2)
Balance sheet data (at end of period):
Working capital (4) 41.4 46.4 51.4 45.0 55.8 95.9
Net property, plant and
equipment 60.7 58.2 51.2 51.0 47.8 69.9
Total assets 194.7 192.7 192.7 301.3 313.3 398.1
Long-term obligations (5) 125.9 143.0 151.3 133.6 133.9 154.5
Redeemable preferred stock -- -- -- -- -- 21.2
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(1 ) Certain reclassifications of prior years have been made to conform with
the current year presentation.
(2) Includes corporate charges allocated by the Predecessor's Parent of; (a)
$8.5 million and $7.0 million in the years ended December 31, 1994 and 1995,
respectively; and (b) $5.7 million in the eleven month period ended November 26,
1996.
(3) Includes severance and exit charges of $6.7 million and $3.5 million in the
years ended December 31, 1994 and 1995, respectively.
(4) Calculated as net trade receivables plus net inventories less trade
payables.
(5) The amounts of long-term obligations as of December 31, 1994 and 1995, and
November 26, 1996, include Due to Parent of $68.5 million, $87.6 million and
$96.4 million, respectively; such amounts also include the long-term portion
of capital lease obligations. At December 31, 1996, 1997 and 19987 the amount
of long-term obligations includes the Notes and the long-term portion of capital
lease obligations.
(6) Amounts for the years ended December 31, 1997 and 1998 include entities
acquired in purchase business combinations. See Note 4 to the consolidated
financial statements.
Item 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company manufactures products in the U.S,. Canada, Germany, and
Korea and sells products worldwide. A portion of the Company's raw materials are
acquired from foreign suppliers and denominated in foreign currencies.
Consequently, the Company's operating results are subject to fluctuations in
foreign currency exchange rates, as well as, the translation of its foreign
operations into U.S. dollars. The risks associated with operating in foreign
countries could adversely affect the Company's future operating results. In
addition, currency fluctuations could improve the competitive position of the
Company's foreign competitors if the value of the U.S. dollar rises in relation
to the local currencies of such competitors. The Company has not historically
hedged its foreign currency risk.
Sales of products manufactured and sold by the Company have
historically been subject to cyclical variation based, among other things, on
general economic conditions. Management believes that the Company has improved
its ability to sustain profitability in changing market conditions. There can be
no assurance, however, as to the magnitude or timing of any decline or recovery,
or that any future decline will not have a material adverse effect on the
Company's business.
9
The Company started implementation of a new Enterprise Resource
Planning (ERP) system in its North American operation in the fourth quarter of
1998. The transition from that operation's legacy systems has been difficult and
adversely impacted the fourth quarter results. In November, 1998, the Company
engaged a team of consultants from the firm that developed the software used in
the ERP system. The restart process is substantially complete but some further
work is required to optimize the system performance and processes.
Results of Operations
Wholly Owned Subsidiaries
of the Predecessor's Parent The Company
--------------------------- ------------------------------------------------------------------
Eleven Months Ended One Month Ended Year Ended Year Ended
------------------- --------------- ----------- ----------
November 26, 1996 December 31, 1996 December 31, 1997 December 31, 1998
----------------- ----------------- ----------------- -----------------
($) (%) ($) (%) ($) (%) ($) (%)
(dollars in millions)
Net Sales (1) $ 404.6 100.0% $ 46.8 100.0% $ 489.9 100.0% $ 538.9 100.0%
Gross Profit (1) 45.6 11.3% 4.9 10.5% 58.8 12.0% 63.0 11.7%
Engineering, Selling and 32.3 8.0% 3.0 6.4% 37.7 7.7% 49.3 9.1%
Administrative Expenses (1)(2)
Income from Operations (2) 13.3 3.3% 1.9 4.0% 21.0 4.3% 13.7 2.5%
- ----------
(1) Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
(2) Includes corporate charges allocated by the Predecessor's Parent of $5.7
million in the eleven month period ended November 26, 1996.
Fiscal Year Ended December 31, 1998 compared to fiscal year ended
- -----------------------------------------------------------------
December 31, 1997
- -----------------
Net Sales
- ---------
Net sales were $538.9 million in 1998, an increase of $49.0 million or
10.0% from $489.9 million in 1997. Truck sales increased $42.1 million or 10.6%
and part sales increased $6.9 million or 7.5%.
Most of the increased truck sales were from newly acquired Asian
operations ($18.7 million), and the Blue Giant ($18.5 million) and European
($9.5 million) operations. Parts sales increased mainly in the North America
(including Blue Giant) and Asian operations accounting for $4.8 million and $1.2
million of the increase, respectively.
North American machine sales were negatively impacted by our
conversion to an Enterprise Resource Planning (ERP) system in the fourth quarter
of 1998. The impact of this was made more severe than it would have been because
of lower than anticipated orders attributed to higher than normal dealer
inventories. Market conditions in Mexico and South America in 1998 also had a
negative impact on sales of approximately $6.8 million.
Gross Profit
- ------------
Gross profit increased $4.2 million or 7.1% to $63.0 million in 1998
compared to $58.8 million in 1997. As a percentage of net sales, gross profit
was 11.7% and 12.0% for 1998 and 1997, respectively. Increased sales account for
an additional $5.6 million of gross profit and the Company had favorable results
in the area of product liability in 1998 and this expense decreased $5.1
million. However, offsetting these favorable items were lower absorption of
overhead costs in the North American manufacturing facility in the fourth
quarter, primarily due to problems with the ERP implementation of approximately
$2.3 million, a portion of the new ERP system costs allocated to cost of sales
of $0.2 million and higher parts distribution expense, inventory and royalty
expense for use of the Samsung name on certain trucks manufactured by CLARK
Asia.
Engineering, Selling and Administrative Expenses
- ------------------------------------------------
Engineering, selling and administrative expenses increased by $11.6
million to $49.3 million in 1998 from $37.7 million in 1997. As a percentage of
net sales, engineering, selling and administrative expenses were 9.1% and 7.7%
in 1998 and 1997, respectively. Acquisitions completed in 1998 and late 1997
accounted for $8.0 million of this increase. Implementation of the new ERP
system added $0.7 million of expense and increased North American selling and
engineering expense accounted for $3.1 million of the increased engineering,
selling and administrative expense.
10
Income from Operations
- ----------------------
Income from operations decreased $7.3 million to $13.7 million in 1998
from $21.0 million in 1997. In the start-up operations in Asia, income from
operations was a negative ($1.3 million) primarily due to loss of production and
sales resulting from the move from Samsung Forklift's factory to CLARK Asia's
current manufacturing location. While CLARK Asia generated a positive gross
profit, it was not sufficient to offset its operating expenses. For the
consolidated Company, income from operations as a percentage of net sales was
2.5% and 4.3% for 1998 and 1997, respectively.
Fiscal Year Ended December 31, 1997 compared to the month ended December 31,
- --------------------------------------------------------------------------------
1996, and the eleven months ended November 26, 1996
- ---------------------------------------------------
The acquisition of the Company on November 26, 1996, resulted in a
significant change in the Company's capital structure and a revaluation of the
Company's assets and liabilities in accordance with the provisions of purchase
accounting required by generally accepted accounting principles. Accordingly,
the results of operations for the year ended December 31, 1997, are not
comparable to the results of operations for the month ended December 31, 1996,
and the eleven-month period ended November 26, 1996, or the year ended December
31, 1995.
Net Sales
- ---------
Net sales were $489.9 million in 1997, an increase of $38.5 million or
8.5% from $451.4 million in the twelve month period ended December 31, 1996.
Truck sales increased $39.0 million and parts sales were relatively consistent.
The increase in truck sales was primarily due to improved market conditions in
1997 and the acquisition of Blue Giant USA Corporation and Blue Giant Canada
Limited which increased sales by $4.8 million or 1.2%. A change in the German
Deutsche mark ("DM") annual average currency translation rate from 1.505 DM to
one U.S. dollar for 1996 to 1.734 DM to one U.S. dollar for 1997 had a negative
impact on reported sales (and income) in U.S. dollars from the Company's
European operations.
Gross Profit
- ------------
Gross profit increased $8.3 million, or 16.4%, to $58.8 million in
1997 from $50.5 million in 1996. As a percentage of net sales, gross profit was
12.0% and 11.1% for 1997 and 1996 respectively. Increased sales accounted for
approximately $4.6 million of the increased gross profit and lower costs due to
the Company's cost reduction efforts in the area of materials, labor, and
overhead accounted for the balance of the improvement.
Engineering, Selling and Administrative Expenses
- ------------------------------------------------
Engineering, selling and administrative expenses increased by $2.4
million to $37.7 million for the twelve months period ended December, 1997 from
$35.3 million for the twelve month period ended December 31, 1996. Certain
administrative functions performed by the Predecessor's Parent were replaced,
but at a lower cost than was charged by the parent in 1996. The Company
increased its engineering and selling expenses $5.0 million. This increase was
to support new product and sales initiatives in 1997 and beyond. Engineering,
selling and administrative expenses expressed as a percentage of sales were 7.7%
and 7.8% respectively in 1997 and 1996.
Income from Operations
- ----------------------
Income from operations increased $5.8 million to $21.0 million for the
twelve-month period ended December 31, 1997 from $15.2 million in the
twelve-month period in 1996. Income from operations expressed as a percentage of
net sales was 4.3% and 3.4% for the twelve months ended December 31, 1997 and
December 31, 1996 respectively.
Backlog
The Company's backlog of orders at December 31, 1998, December 31,
1997, and December 31, 1996 were $77.5 million , $114.8 million, and $80.4
million respectively. Substantially all of the Company's backlog of orders are
expected to be filled within one year, although there can be no assurance that
all such orders will be filled within that time period. The cancellation or
delay of certain orders could have a material adverse effect on the Company.
11
Capital Resources, Liquidity and Financial Condition
In 1998 the Company converted its U.S. operations (except Blue Giant)
to a new information system. The transition from that operation's legacy systems
has been difficult, and in the fourth quarter of 1998, the U.S. manufacturing
operations of the Company became aware of material problems associated with lost
visibility to many of the key elements of information needed to administer the
business. As a result, during the fourth quarter the Company was unable to react
on a timely basis, production slowed, sales declined and inventories and
receivables grew substantially. In order to finance the resultant growth in
working capital, the Company increased its borrowing on its U.S. credit
facilities, which began to approach its maximum borrowing capacity subsequent to
December 31, 1998.
During the first quarter of 1999 the Company substantially corrected
its ERP system problems and working capital levels began to decline. To further
enhance liquidity the Company received a short-term expansion of its U.S. credit
facility in the amount of $5 million. Should the need arise, management could
also increase liquidity by further utilizing its foreign credit facilities, and
appreciated real estate and would consider other necessary measures to obtain
additional financing.
The Company's business is capital intensive and requires funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of accounts receivables from customers and dealers. The Company will
continue to have significant debt service requirements. On December 31, 1998,
the Company had $9.7 million of cash, cash equivalents and cash securing letters
of credit, $150.0 million of long-term debt and $7.8 million of capital lease
obligations. At December 31, 1998, working capital, defined as net trade
receivables plus net inventories less trade payables, increased $40.1 million
compared to December 31, 1997 primarily as a result of the acquisition of CLARK
Asia ($26.8 million) and higher inventories due, in most part, to the problems
described above related to the new ERP system. In the first quarter of 1999 the
Company substantially corrected the information systems issues and began working
through the scheduling processes necessary to reduce inventories in future
periods.
Cash provided by operating activities for 1998 was a negative $10.4
million; however, the Company's cash balances were up $3.3 million from December
31, 1997. The Company had $21.6 million of capital expenditures of which $7.7
million was for CLARK Asia for the twelve months ending December 31, 1998. These
expenditures include factory equipment, tooling, new products and systems
modernization expenditures. Capital expenditures for the twelve months ending
December 31, 1997 were $6.3 million. The Company made interest payments of $15.1
million on its Notes. The Company's ability to incur additional indebtedness is
somewhat restricted by the covenants set forth in the Company's borrowing
arrangements.
In connection with the Acquisition, the Company entered into a $30.0
million revolving credit facility (the "Revolving Credit Facility"), which is
secured by the accounts receivable and inventory of the Company's domestic
operations, excluding HLT and Blue Giant. CLARK Europe entered into a working
capital credit line of $10.0 million with Deutsche Bank in October, 1998. After
consideration of certain borrowing conditions, the U.S. revolving credit
facility had a borrowing availability of $11.9 million as of December 31, 1998.
In addition, the Company had a combined borrowing availability of $3.4 million
against its lines of credit with Deutsche Bank and the National Bank of Canada
for total borrowing availability of $15.3 million.
To accommodate additional short-term financing needs and provide
further liquidity, the Company in March 1999 secured a temporary increase of its
U.S. Revolving Credit Facility to $35.0 million until June 30, 1999. Management
believes that it has adequate available borrowing capacity under the Revolving
Credit Facility to cover its foreseeable working capital requirements for fiscal
1999 and that cash flow from operations and its borrowing arrangements will be
adequate to meet other liquidity and capital needs in 1999.
As of the date of this filing, the Company was not in violation of any
covenants or restrictions in the Revolving Credit Facility or the indenture
governing the Notes.
12
Contingencies, Commitments and Uncertainties
From time to time product liability claims are asserted against the
Company for various injuries alleged to have resulted from defects in the
manufacture and/or design of its products. In addition, the Company is involved
in various other legal proceedings, which have arisen in the normal course of
its operations. See "Item 3-Legal Proceedings."
The Company is contingently liable as a guarantor for certain of its
dealers' and customers' financing arrangements with financial institutions. The
guarantees under these financing arrangements aggregated approximately $126.0
million at December 31, 1998, which is consistent with prior years.
Historically, the Company and the Predecessor have incurred only minimal losses
relating to these arrangements.
CLARK is contingently liable for a portion of the related value of
machines sold to and leased by a third party to users for terms generally
ranging from three to five years. CLARK repurchases certain machines leased
under this program and then sells or leases such machines to other users. At
December 31, 1998, the maximum contingent liability under this program was
approximately $4.9 million. CLARK has historically recorded profits on the sale
of repurchased machines.
For additional information on contingencies and uncertainties, see
Note 11 to the Company's consolidated financial statements included under "Item
8--Financial Statements and Supplementary Data."
Year 2000
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources with
respect to its year 2000 issues. With regard to its information technology
("IT") systems, CLARK is in the process of installing new software to provide
improved operational and financial functionality at each of its worldwide
locations. This new software is year 2000 compliant and "Euro" compliant. The
installation was substantially completed in the North American manufacturing
operation during the first quarter of 1999. The European manufacturing operation
is currently running parallel with their legacy system and is expected to be
substantially completed during the second quarter of 1999. The Company intends
to begin software installation at the Blue Giant, HLT and CLARK Asia facilities
in the second quarter of 1999 and should be completed in the fourth quarter of
1999. The installation of the new software by CLARK is a result of a strategic
plan to upgrade its company-wide computer systems which pre-dated the Company's
efforts to make its IT systems year 2000 compliant. Therefore, the Company has
not incurred and does not anticipate incurring any material costs, (currently
estimated at less than $0.2 million) specifically related to year 2000 issues
that are in addition to the costs associated with its overall computer system
upgrade.
CLARK does not believe that it has any material year 2000 issues with
regard to its non-IT systems. The Company's products employ chips and
microprocessors which use interval timers as opposed to real-time clocks and
therefore should not be affected by the year 2000 rollover. In addition, CLARK
does not utilize computer controlled machines in its factory production, thereby
eliminating any potential year 2000 problem relating to its manufacturing
equipment.
The Company has ongoing business relationships with many suppliers,
dealers, and other parties, each of which may have their own year 2000 issues.
CLARK is in the process of making contact with these third parties with which it
has a material relationship in order to assess whether the Company faces risks
relating to third party year 2000 problems. The Company expects to be in a
position to make this assessment regarding third party risks during the second
quarter of 1999. There can be no assurance at this time that these third parties
are taking appropriate actions to safeguard their computer systems.
Management can not at this time predict with any certainty CLARK's
most likely worst case scenario relating to the year 2000 problem. However,
during the fourth quarter of 1998 the Company attempted to convert its U.S.
systems to a new, year 2000 compliant system, and experienced difficulties with
the
13
conversion. As discussed under "Capital Resources, Liquidity and Financial
Condition", the Company encountered significant growth in its inventories and
accounts receivable along with reduced sales and slowdown in production during
that time frame. While these conversion problems have now been substantially
corrected, they serve as evidence that failure to operate with systems that are
not year 2000 compliant could have a material, adverse effect on financial
conditions and results of operations. The Company intends to perform test-runs
at its facilities following installation of its new 2000 compliant software. If
a year 2000 problem is identified during these test-runs, the Company intends to
immediately seek correction of the problem from its software vendor at no cost
to the Company and will develop other contingency plans responsive to the facts
and circumstances that exist at that time.
Euro Conversion
The Euro was introduced on January 1, 1999, at which time the eleven
participating European Monetary Union member countries established fixed
conversion rates between their existing currencies (legacy currencies) and the
Euro. During the three-and-a-half year transition period following its
introduction, countries will be allowed to transact business in the Euro and in
their own currencies. On July 1, 2002, the Euro will be the one and only
official currency in European Union countries that are participating in the
conversion.
The Company's European operations have established plans to address
the issues raised by the Euro currency conversion and are cognizant of the
potential business implications of the conversion. CLARK is in the process of
installing new software in each of its worldwide locations that will be able to
process Euro currency transactions. The Company does not expect the conversion
costs to be material. However, due to numerous uncertainties, the Company can
not reasonably estimate the effect one common currency will have on pricing and
the resulting impact, if any, on its results of operations, financial condition
or cash flow.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for these items and will be effective for fiscal years
beginning after June 15, 1999. Historically, the Company has not entered into
derivative or hedging transactions; therefore, management does not expect that
the adoption of this new standard will have a significant impact on the
Company's financial position or results of operations.
Item 7A - Quantitative and Qualitative Disclosures about Market Risks
The primary market risks facing the Company deal with interest rate
risk and foreign currency risk. Other risks dealing with contingencies are
described in Note 11 to the Company's consolidated financial statements included
under Item 8.
Interest Rate Risk
The Company is exposed to interest rate risk because the Company's
borrowing arrangements, with the exception of the Notes, generally carry
variable rates of interest. The Company has not, to date, engaged in derivative
transactions, such as interest rate swaps, caps or collars, in order to reduce
its risk, nor does it have any plans in the future to do so. A significant
increase in interest rates could have an adverse effect on the Company. For
example, based on the level of the Company's variable rate borrowings at
December 31, 1998, a 1% increase in interest rates would result in an increased
charge against earnings of approximately $0.3 million.
14
Foreign Currency Risk
The Company manufactures products in the U.S., Canada, Germany and
Korea and sells products worldwide. A portion of the Company's raw materials are
acquired from foreign suppliers and denominated in foreign currencies.
Consequently, the Company's operating results are subject to fluctuations in
foreign currency exchange rates, as well as, the translation of its foreign
operations into U.S. dollars. The risks associated with operating in foreign
countries could adversely affect the Company's future operating results. In
addition, currency fluctuations could improve the competitive position of the
Company's foreign competitors if the value of the U.S. dollar rises in relation
to the local currencies of such competitors. The Company has not historically
hedged its foreign currency risk. During 1998, the Company incurred foreign
exhange losses of $1.4 million. The Company is unable to quantify the potential
impact of future foreign currency movements upon earnings.
Item 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, along with the
Report of Independents Accountants, is included on pages F-1 through F-32 of
this Form 10-K.
Supplementary data called for by this item is not presented, as it is
not applicable to the registrant
Item 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
PART III
Item 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
persons who are members of the Board of Directors or executive officers of the
Company. Directors serve for a term of one year or until their successors are
elected and qualified; officers serve at the discretion of the Board of
Directors.
Name Age Position
---- --- --------
Dr. Martin M.Dorio, Jr. 53 President, Chief Executive Officer and Director
Dr. J. Frithjof Timm 56 Managing Director and President, CLARK Europe
Joseph F. Lingg 53 Vice President, Finance and Treasurer
Kevin M. Reardon 54 Managing Director and President, CLARK Asia
Michael J. Grossman 48 Vice President, General Counsel and Secretary
Robert J. O'Brien 49 Vice President, Manufacturing, North America
Thomas J. Snyder 53 Director
Diether Klingelnberg 54 Director
Michael A. Delaney 44 Director
James A. Urry 44 Director
Dr. Martin M. Dorio, Jr., President, Chief Executive Officer and
Director. Dr. Dorio joined the Company in June 1995 as President and Chief
Executive Officer. From 1990 until he joined the Company, Dr. Dorio served in
various positions with Case Corporation, a manufacturer of tractors and
construction equipment, including Vice President, Corporate Planning and
Development. Dr. Dorio has over 20 years of experience in manufacturing
companies, and has served in key management positions of FMC Corp. and General
Electric Co.
Dr. J. Frithjof Timm, Managing Director and President, CLARK Europe.
Dr. Timm joined the Company in May 1995 as Managing Director and President of
CLARK Europe. From 1992 to 1995, he was President of Komatsu Europe and, prior
to that, he was Managing Director of Sales of the Hydraulic Mobile Crane
Division of Krupp A.G.
Joseph F. Lingg, Vice President, Finance, and Treasurer. Mr. Lingg
joined the Company in January 1996 as Vice President, Finance and Treasurer. In
1995, Mr. Lingg served as Vice President and Chief Financial Officer of RBC
Company of America, a manufacturer of bearings, and for more than five years
prior thereto he served as Vice President and Chief Financial Officer of Mosler
Inc., a manufacturer and servicer of security products.
Kevin M. Reardon, Managing Director and President, CLARK Asia. Mr.
Reardon joined the Company in 1984 and has been Managing Director and President
of CLARK Asia since 1998. Previously, Mr. Reardon served as Vice President,
Sales and Marketing, and Director of Marketing and National Sales Manager for
the Company.
Michael J. Grossman, Vice President, General Counsel and Secretary.
Mr. Grossman joined the Company in 1985 as Assistant General Counsel. Since
1991, he has served as Vice President, General Counsel and Assistant Secretary
of the Company.
Robert J. O'Brien, Vice President, Manufacturing, North America. Mr.
O'Brien joined the Company in March of 1995, as Director of Manufacturing. From
1980 until he joined the Company, he served in various key operations positions
with Allied Signal Aerospace. Mr. O'Brien has over 20 years of experience in
manufacturing operations in the Aerospace industry.
Thomas J. Snyder, Director. Mr. Snyder has been President, Chief
Operating Officer and a director of Delco Remy International, Inc. since 1994.
From 1962 to 1994, Mr. Snyder held several executive positions with the Delco
Remy Division of General Motors, most recently as Product Manager, Heavy Duty
Systems. He is also a director of St. John's Health Systems.
16
Diether Klingelnberg, Director. Mr. Klingelnberg served as Chief
Executive Officer of International Knife & Saw, Inc. until March 1996. In
addition, he served as Chairman of the Board and Chief Executive Officer of IKS
Corporation from 1979 until November 1996. Mr. Klingelnberg is currently
Managing Director of Klingelnberg Beteillgungs-GmbH and is a director of Honsel
AG, IKS Corporation, the Alfred H. Schuette Company, and Eickhoff
Maschinenfabrik GmbH, Bochum, and Oerlikon Geartec AG, Zuerich.
Michael A. Delaney, Director. Mr. Delaney has been a Managing Director
of CVC since 1989. Mr. Delaney is a director of Aetna Industries, Inc., Allied
Digital Technologies, Inc., AmeriSource Health Corporation, MSX International,
CORT Business Services Corporation, Delco Remy International, Inc., Enterprise
Media Inc., Great Lakes Dock and Dredge Corporation, GVC Holdings, Fabri-Steel
Products Incorporated, IKS Corporation, JAC Holdings, PalomarTechnologies, Inc.,
SC Processing, Inc., and Triumph Holdings, Inc.
James A. Urry, Director. Mr. Urry has been with Citibank, N.A. since
1981, serving as a Vice President since 1986. He has been a Vice President of
CVC since 1989. He is a director of AmeriSource Health Corporation, CORT
Business Services Corporation, Hancor Holding Corporation, IKS Corporation,
Airxcel, Inc., Palomar Technologies, Inc., York International Corporation and
Brunngr Mond Company.
Director Compensation and Arrangements
The directors of the Company do not receive compensation for their
services as directors. Members of the Board of Directors are elected pursuant to
certain voting agreements among Holdings and its stockholders. See "Item 12 --
Security Ownership of Certain Beneficial Owners and Management--The
Stockholders' Agreement."
Item 11 -- EXECUTIVE COMPENSATION
The compensation of executive officers of the Company will be
determined by the Board of Directors of the Company. The Company adopted a
401(k) retirement plan in 1997. See "-- 401(k) Plan".
The following table sets forth certain information concerning the
compensation received by the Chief Executive Officer and the four most highly
compensated officers of the Company for services rendered in 1998.
17
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards
------------------- ------
Restricted Stock
Other Annual Stock Options All Other
Salary Bonus (1) Compensation (2) Awards (#Shares) Compensation (3)
Dr. Martin M. Dorio Jr. ................... $ 300,000 - $ - - - $ 22,577
President and Chief Executive Officer
Dr. J. Frithjof Timm ...................... 204,730 - - - - 31,719
President and Managing Director CLARK Material
Handling Europe (4)
Joseph F. Lingg ........................... 138,754 - - - - 6,852
Vice President of Finance
Kevin M. Reardon .......................... 128,574 - 7,778 - - 5,395
President and Managing Director CLARK Material
Handling Asia
Michael J. Grossman ....................... 139,193 - - - - 5,597
Vice President, Secretary and General Counsel
(1) Earned bonus amounts were not calculatable as of March 31,1999.
(2) Represents foreign service premium for Mr. Reardon.
(3) Includes Company 401(k) contributions and group term life insurance premiums
respectively as follows: Dr. Dorio, $9,000 and $3,235: Mr. Lingg, $3,813
and $3,039; Mr. Reardon, $2,418 and $2,977; and Mr. Grossman, $3,825 and
$1,772. Includes $10,342 imputed interest for Dr. Dorio and $31,719 pension
and disability for Dr. Timm.
(4) Dr.Timm's salary, bonus, and other compensation are calculated from Deutsche
Marks using a conversion rate of 1.734 DM/$.
Employment Agreements
In 1996, Holdings entered a three-year employment contract with Dr.
Martin M. Dorio, Jr. pursuant to which Dr. Dorio is employed as the President
and Chief Executive Officer of Holdings and the Company. The agreement provides
for an annual base salary of $225,000, which is subject to annual merit
increases, and an annual performance bonus. The Company has agreed that, in the
event that Holdings is unable to pay Dr. Dorio any amounts due to him with
respect to annual bonuses, the Company will pay such amounts. Since November
1996, the Company has paid Dr. Dorio's compensation. In addition, the agreement
provides for the receipt by Dr. Dorio of standard company benefits. The
agreement is terminable by Holdings with or without cause. In the event, the
agreement is terminated without cause or as a result of the total disability of
Dr. Dorio, Dr. Dorio will be entitled to continue to receive his base salary and
certain other benefits for specified periods. Following any termination of Dr.
Dorio's employment, he will be subject to a non-competition covenant for up to
two years.
401(k) Plan
In 1997, the Company adopted a qualified 401(k)-retirement plan.
Subject to certain statutory limitations, eligible employees are able to
contribute a percentage of their compensation to the plan on a pre-tax basis
("elective deferrals"). For 1998, the maximum amount of elective deferrals that
could be made by any employee was $10,000. Employees are fully vested in their
elective deferrals at all times. Generally, employees may not receive a
distribution of their account balances prior to their death, disability,
termination of employment or retirement, and their account balances cannot be
assigned or alienated.
Compensation Committee Interlocks and Insider Participation
Although the Company has no compensation committee, each of Messrs.
Snyder, Klingelnberg, Delaney and Urry participated in deliberations of the
Board of Directors concerning executive compensation.
18
Item 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is currently owned
by Holdings. The following table sets forth certain information with respect to
the beneficial ownership of the preferred stock of Holdings (of the "Holdings
Preferred Stock") and the Class A common stock (the "Holdings Class A Stock")
and the Class B common stock of Holdings (the "Holdings Class B Stock" and
together with the Holdings Class A Stock, the "Holdings Common Stock"), by (i)
each person or entity who owns five percent or more thereof, (ii) each director
of the Company who is a stockholder, (iii) the Chief Executive Officer of the
Company and the other executive officers named in the "Summary Compensation
Table" above who are stockholders, and (iv) the directors and officers of the
Company as a group. Unless otherwise specified, all shares are directly held.
Number and Percent of Shares
----------------------------
Holdings
Preferred Holdings Class A Holdings Class B
Stock Stock(1) Stock(2)
----- ------- -------
Name of Beneficial Owner Number Percent Number Percent Number Percent
------------------------ ------ ------- ------ ------- ------ -------
Citicorp Venture Capital Ltd. 12,207.4 71.89% 102,671.40 37.5% 550,220.04 75.7%
399 Park Avenue
New York, New York 10043
Dr. Martin M. Dorio, Jr. 404.8 2.4% 55,180.7 20.2% -- --
172 Trade Street
Lexington, Kentucky 40511
Dr. J. Frithjof Timm 130.1 0.8% 19,879.5 7.3% -- --
172 Trade Street
Lexington, Kentucky 40511
Kevin M. Reardon 37.1 0.2% 5,391.6 2.0% -- --
Michael J. Grossman 68.4 0.4% 6,566.3 2.4% -- --
Joseph F. Lingg 40.5 0.2% 5,518.1 2.0% -- --
Thomas J. Snyder -- -- 5,000.0 1.8% -- --
Diether Klingelnberg -- -- 42.0 0.02% 8,943.5 1.2%
Michael A. Delaney 101.5 0.6% 855.0 0.3% 4,536.3 0.6%
James A. Urry 101.5 0.6% 855.0 0.3% 4,536.3 0.6%
All directors and executive
officers as a group (10 persons) 966.8 5.7% 106,396.6 38.9% 18,016.1 2.4%
- ----------
(1) Does not include shares of Holdings Class A Stock issueable upon conversion
of Holdings Class B Stock. See "--Holdings Common Stock." Assuming the
conversion of all of a holder's shares of Holdings Class B Stock into
Holdings Class A Stock, but no such conversion by any other holder of
Holdings Class B Stock, the number of shares and the percentage of total
Holdings Class A Stock held by the converting holder would be as follows:
for CVC, 652,065.5 and 79.2%; for Diether Klingelnberg, 8,985.5 and 3.2%;
for Michael A. Delaney, 5,391.3 and 1.9%; for James A. Urry, 5,391.3 and
1.9%; and for all directors and executive officers as a group, 124,412.7 and
42.7%.
(2) Does not include shares of Holdings Class B Stock issuable upon conversion
of Holdings Class A Stock. See "--Holdings Common Stock." Assuming the
conversion of all of a holder's shares of Holdings Class A Stock into
Holdings Class B Stock, but no such conversion by any other holder of
Holdings Class A Stock, the number of shares and the percentage of total
Holdings Class B Stock held by the converting holder would be as follows:
for CVC, 652,065.54 and 78.6%; for Dr. Martin M. Dorio, Jr.., 55,180.7 and
7.1%; for Dr. J. Frithjof Timm, 19,879.5 and 2.7%; for Kevin M. Reardon,
5,391.6 and 0.7%; for Michael J. Grossman, 6,566.3 and 0.9%; for Joseph F.
Lingg, 5,518.1 and 0.7%; for Thomas J. Snyder, 5,000 and 0.7%; for Diether
Klingelnberg, 8,985.5 and 1.2%; for Michael A. Delaney, 5,391.3 and 0.7%;
and for James A. Urry, 5,391.3 and 0.7%; and for all directors and executive
officers as a group, 124,412.7 and 14.9%.
Holdings Common Stock
The Certificate of Incorporation of Holdings provides that Holdings
may issue 2,500,000 shares of Holdings Common Stock, divided into two classes
consisting of 1,250,000 shares of Holdings Class A Stock and 1,250,000 of
Holdings Class B Stock. The holders of Holdings Class A Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
stockholders. Except as required by law, the holders of Holdings Class B Stock
have no voting rights. Under the Certificate of Incorporation of Holdings, a
holder of either class of Holdings Common Stock may convert any or all of his
shares into an equal number of shares of the other class of Holdings Common
Stock; provided that in the case of a conversion from Holdings Class B Stock,
which is nonvoting, into Holdings Class A Stock, which is voting, the holder of
shares to be converted would be permitted under applicable law to hold the total
number of shares of Holdings Class A stock which would be held after giving
effect to the conversion.
The Stockholders' Agreement
Pursuant to the Securities Purchase and Holders Agreement entered into
among the stockholders of Holdings (the "Stockholders' Agreement"), the Board of
Directors of Holdings and the Company shall be composed at all times of five
directors as follows: the President of the Company, Dr. Martin M. Dorio, Jr. (so
long as he continues to serve as President); two individuals designated by CVC;
and two additional directors who shall not be employees of CVC but who shall be
19
designated by CVC, subject to the right of holders of the majority of the
outstanding shares of Holdings Class A Stock to veto the election of either of
such additional directors.
The Stockholders' Agreement contains certain provisions which, with
certain exceptions, restrict the ability of the stockholders from transferring
any Holdings Common Stock, Holdings Preferred Stock or Holdings Debentures
except pursuant to the terms of the Stockholders' Agreement. So long as Holdings
has not consummated a public offering of Holdings Common Stock resulting in
aggregate net proceeds of $30.0 million or more, if holders of at least 50% of
the Holdings Common Stock then outstanding approve the sale of the Company, each
stockholder has agreed to consent to such sale and, if such sale includes the
sale of stock, each stockholder has agreed to sell all of such stockholder's
Holdings Common Stock on the terms and conditions approved by holders of a
majority of the Holdings Common Stock then outstanding. In the event Holdings
proposes to issue and sell (other than in a public offering pursuant to a
registration statement) any shares of Holdings Common Stock and/or Holdings
Preferred Stock or any securities containing options or rights to acquire any
shares of Holdings Common Stock and/or Holdings Preferred Stock or any
securities convertible into Holdings Common Stock and/or Holdings Preferred
Stock to CVC or its corporate affiliates, Holdings must first offer to each of
the other shareholders a pro rata portion of such shares. Such preemptive rights
are not applicable in certain circumstances including the issuance of shares of
Holdings Common Stock and/or Holdings Preferred Stock upon the conversion of
shares of one class of Holdings Common Stock and/or Holdings Preferred Stock
into shares of the other class or upon an initial public offering.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of shares by Management Investors, including the right
of Holdings to repurchase shares upon termination of such stockholder's
employment prior to 2002, at a formula price, and in certain circumstances the
grant of a right of first refusal in favor of Holdings in the event a Management
Investor elects to transfer shares of Holdings Common Stock.
Registration Rights Agreement
In connection with their entry into the Stockholders' Agreement,
Holdings, CVC, Dr. Martin M. Dorio, Jr., Thomas J. Snyder and the other
stockholders of Holdings entered into a Registration Rights Agreement (the
"Holdings Registration Rights Agreement"). Pursuant to the Holdings Registration
Rights Agreement, upon the written request of CVC, Holdings has agreed to
(subject to certain exceptions) prepare and file a registration statement with
the Securities and Exchange Commission concerning the distribution of all or
part of the shares held by CVC and use its best efforts to cause such
registration statement to become effective. If at any time Holdings files a
registration statement for the Holdings Common Stock pursuant to a request by
CVC or otherwise (other than a registration statement on Form S-8, Form S-4 or
any similar form, a registration statement filed in connection with a share
exchange or an offering solely to Holdings' employees or existing stockholders,
or a registration statement registering a unit offering), Holdings will use its
best efforts to allow the other parties to the Holdings Registration Rights
Agreement to have their shares of Holdings Common Stock (or a portion of their
shares under certain circumstances) included in such offering of Holdings Common
Stock if the registration form proposed to be used may be used to register such
shares. Registration expenses of the selling stockholders (other than
underwriting fees, brokerage fees and transfer taxes applicable to the shares
sold by such stockholders or the fees and expenses of any accountants or other
representatives retained by a selling stockholder) are to be paid by Holdings.
Item 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Service Agreement
In connection with the Acquisition, the Company entered into a service
agreement (the "Service Agreement") with the Predecessor's Parent pursuant to
which the Company shares space in the Southaven Facility with another division
of the Predecessor's Parent. In addition, pursuant to such agreement the Company
hired approximately 38 employees who are responsible for aftermarket customer
support and administration. The Company pays an aggregate annual fee under such
Service Agreement of approximately $5.9 million (the "Base Fee"), payable in
monthly installments. In addition to the Base Fee, certain provisions of the
Service Agreement may require each of the Predecessor's Parent and CLARK to
share the responsibility for additional costs and savings resulting from, among
other things, changes or increases in the provision of services or the
implementation of certain cost savings. The term of the agreement is for three
years. Provisions have been made to extend this term as desired. Management
believes that the terms of the Service Agreement are no less favorable to the
Company than those that could have been obtained from non-affiliated parties at
the time the agreement was entered into.
20
Tax Sharing Agreement
Holdings and the Company will be included in the consolidated United
States federal income tax return of Holdings. Holdings and the Company entered
into a tax sharing agreement (the "Tax Sharing Agreement") whereby the Company
will pay Holdings (or Holdings will pay the Company) its pro rata share of the
total tax liability, as set out in the Tax Sharing Agreement. In the event the
Company is included in a joint, combined, consolidated or unitary state or local
income or franchise tax return with Holdings, the Company shall make payments to
Holdings, and Holdings shall make payments to the Company, in a manner
consistent with that described above for federal tax purposes.
License Agreement
In connection with the Acquisition, Holdings acquired certain patents
and patent applications related to the Company's business from the Predecessor's
Parent. Pursuant to a License Agreement dated as of November 27, 1996, Holdings
granted to the Company a perpetual, world-wide, exclusive royalty-free,
fully-paid-up license to practice methods, and to make, use, import, offer for
sale or sell any products, covered by such patents and patent applications.
Other
At the time of the Acquisition, it was contemplated that certain
shares of capital stock of Holdings would be issued to the members of
management. In furtherance of that intent, effective as of as of January 31,
1997, Holdings repurchased certain outstanding shares of Holdings Preferred
Stock and Holdings Class B Stock having an aggregate value of approximately $1.1
million from CVC and, simultaneously therewith, issued and sold shares of
Holdings Preferred Stock and Holdings Common Stock having an equivalent value to
Dr. Martin M. Dorio, Jr., and other members of management. In connection
therewith, the Company loaned Dr. Dorio $200,000 toward the purchase price of
the securities acquired by him. Such loan is evidenced by a demand promissory
note that does not bear interest.
PART IV
Item 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements.
Financial Data Schedule
The following Consolidated Financial Statements of the Company and the
Report of Independent Accountants set forth on pages F-1 through F-32,
respectively, are incorporated by reference into this item 14 of Form 10-K by
item 8 hereof:
See Index to Consolidated Financial Statements on page F-1.
(a) (2) Financial Statement Schedules.
No financial statement schedules have been filed herewith since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
21
(a) (3) Exhibits.
Exhibit
No. Description
- -- -----------
3.1 Certificate of Incorporation, as amended, of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-4, Registration No. 333-18957)
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4, Registration No. 333-18957)
4.1 Indenture dated as of November 27, 1996 between the Company and United
States Trust Company of New York, as Trustee (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
4.2 Registration Rights Agreement dated as of November 27, 1996 among the
Company, Jefferies & Company, Inc. and Bear, Stearns & Co. Inc.
(incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
4.3 Form of 103/4% Senior Notes due 2006 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
4.4 Indenture dated as of July 17, 1998 between the Company and United States
Trust Company of New York, as Trustee (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-4,
Registration No. 333-62845)
4.5 Registration Rights Agreement dated as of July 17, 1998 among the
Company, Jeffries & Company, Inc. and Bear, Stearns & Co. Inc.
(incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-4, Registration No. 333-62845)
4.6 Registration Rights Agreement dated as of July 17, 1998 among the
Company, Jeffries & Company, Inc. and Bear, Stearns & Co. Inc.
(incorporated by reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-4, Registration No. 333-62845)
4.7 Form of 103/4% Senior Notes due 2006 (included in Exhibit 4.4)
(incorporated by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-4, Registration No. 333-62845)
4.8 Indenture dated as of July 17, 1998 between the Company and U.S. Trust
Company of Texas, N.A. (incorporated by reference to Exhibit 4.8 to the
Company's Registration Statement on Form S-4, Registration
No. 333-62845)
4.9 First Supplemental Indenture dated as of August 18, 1998 between the
Company and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.9 to the Company's Registration
Statement on Form S-4, Registration No. 333-62845)
10.1 Purchase Agreement dated November 22, 1996 among the Company, Jefferies
& Company, Inc. and Bear, Stearns & Co. Inc.(incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.2 Loan and Security Agreement dated November 27, 1996 by and between
Congress Financial Corporation and the Company (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.3 Stock and Asset Purchase and Sale Agreement, dated as of November 9, 1996
among the Terex Corporation, and certain of its subsidiaries and the
Company (incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-4, Registration No. 333-18957)
10.4 Service Agreement dated as of November 27, 1996 between the Terex
Corporation and the Company (incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-4, Registration No.
333-18957)
10.5 Indemnity as to Letters of Credit, Performance Bonds, Appeal Bonds,
Guaranties, etc. dated November 27, 1996 by the Company in favor of the
Terex Corporation, for itself and as successor to CMH Acquisition Corp.,
CMH Acquisition International Corp., CLARK Material Handling Company
and CLARK Material Handling International, Inc.(incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.6 Employment Agreement dated as of November 27, 1996 between Holdings and
Dr. Martin M. Dorio, Jr. (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-4, Registration No.
333-18957)
10.7 Tax Sharing Agreement made as of November 27, 1996 between Holdings and
the Company (incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-4, Registration No. 333-18957)
22
10.8 Stock Purchase Agreement, dated as of May 27, 1992, by and between CLARK
Equipment Company and the Terex Corporation (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.9 First Amendment to the Stock Purchase Agreement, dated as of July 31,
1992, by and between CLARK Equipment Company and Terex Corporation
(incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
10.10 Trademark Assignment Agreement, dated as of July 31,1992, by and between
CLARK Equipment Company and CLARK Material Handling Company (incorporated
by reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-4, Registration No. 333-18957)
10.11 Second Amended and Restated General Operating Agreement, dated November
29, 1990, by and between CLARK Material Handling Company and Chase
Manhattan Leasing Company, Inc. (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.12 Second Amendment to the Second Amended and Restated General Operating
Agreement, dated April 15, 1994, by and among CLARK Material Handling
Company, Drexel dated August 1, 1994, by and between CLARK Material
Handling Company and CLARK Credit Corporation (incorporated by reference
to Exhibit 10.13 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.14 Assignment of Second Amended and Restated General Operating Agreement,
dated March 22, 1995, by and between CLARK Material Handling Company,
CLARK Credit Corporation, f/k/a Chase Manhattan Leasing Company, and
Associates Commercial Corporation (incorporated by reference to
Exhibit 10.14 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.15 Master Software License and Service Agreement, dated May 17, 1996,
between CLARK Material Handling Company and SDRC Operations (incorporated
by reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-4, Registration No. 333-18957)
10.16 Letter Agreement, dated October 26, 1995, between CLARK Material Handling
Company, Manufacturers Distribution Services, Inc. and Maine Rubber
International (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-4, Registration No. 333-18957)
10.17 MCI Services Agreement, effective as of July 1, 1995, between MCI
Telecommunications Corporation and CLARK Material Handling Company
(incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
10.18 Agreement for Systems Operations Services, dated as of March 2, 1992,
between CLARK Material Handling Company and Integrated Systems Solutions
Corporation, as amended by Amendments #1 through #5 (incorporated by
reference to Exhibit 10.18 to the Company's Registration Statement on
Form S-4, Registration No. 333-18957)
10.19 Supply Agreement, dated December 14, 1994, between CLARK Material
Handling Company and Funk Manufacturing Company (incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement on
Form S-4, Registration No. 333-18957)
10.20 Supply Agreement, dated July 1, 1995, between CLARK Material Handling
Company and Funk Manufacturing Company (incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.21 Agreement, dated June 1, 1983, between CLARK Equipment Company and
Mitsubishi Corporation, Mitsubishi Heavy Industries, Ltd. and Mitsubishi
Motors Corporation, as amended (incorporated by reference to
Exhibit 10.24 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.22 Master Contract for Purchase and Sale, dated July 17,1995, between CLARK
Material Handling Company and Custom Tool and Manufacturing Company
(incorporated by reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
10.23 Supply Agreement, dated December 20, 1991, between CLARK Material
Handling Company and Dixson, Inc. (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
23
10.24 Lease Agreement, dated as of April 15, 1987, between Vergil D. Kelly and
Kenny Angelucci and CLARK Equipment Company with respect to 172 Trade
Street, Lexington, Kentucky, as amended by Amendment #1 to Lease dated
April 15, 1987 (incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-4, Registration No. 333-18957)
10.25 Standard Form Dealer Sales Agreements between CLARK Material Handling
Company and domestic dealer entities (incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement on Form S-4,
Registration No. 333-18957)
10.26 Agreement, dated as of September 12, 1995, by and between CLARK Material
Handling Company and Nissan Forklift Corporation, North America
(incorporated by reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-4, Registration No. 333-18957)
10.27 License Agreement, dated as of November 27, 1996, between Holdings and
the Company (incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-4, Registration No. 333-18957)
10.28 Asset Purchase Agreement, dated as of November 6, 1997, between Clark
Material Handling of Canada Ltd. and Blue Giant Limited (incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997)
10.29 Asset Purchase Agreement, dated as of October 31, 1997 between Blue Giant
Corporation and Blue Giant USA Corporation (incorporated by reference to
Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997)
10.30 Asset Purchase Agreement, dated as of June 5, 1998, by and between the
Company and Samsung Heavy Industries Co., Ltd. (incorporated by reference
to Exhibit 10.30 to the Company's Registration Statement on Form S-4,
Registration No. 333-62845).
10.31 Purchase Agreement dated as of July 13, 1998 among the Company, Jeffries
& Company, Inc. and Bear, Stearns, & Co. Inc. (incorporated by reference
to Exhibit 10.31 to the Company's Registration Statement on Form S-4,
Registration No. 333-62845).
21.1 Subsidiaries of the Company
24
(b) Reports on Form 8-K.
None
25
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CLARK Material Handling Company
BY: /s/ Martin M. Dorio, Jr.
Dr. Martin M. Dorio, Jr.
President and CEO
March 31, 1999
Pursuant to the requirements of the securities exchange act of 1934,
as amended this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on March 31, 1999.
/s/ Martin M. Dorio, Jr. President, Chief Executive Officer and Director
Martin M. Dorio, Jr. (Principal Executive Officer)
/s/ Joseph F. Lingg Vice President, Finance, and Treasurer
Joseph F. Lingg (Principal Financial and Accounting Officer)
/s/ James A. Urry Director
James A. Urry
/s/ Thomas J. Snyder Director
Thomas J. Snyder
/s/ Michael A. Delaney Director
Michael A. Delaney
/s/ Diether Klingelnberg Director
Diether Klingelnberg
26
CLARK MATERIAL HANDLING COMPANY
AND PREDECESSOR BUSINESSES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Report of independent accountants F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholder's equity and comprehensive income F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
Schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission are not required under the related
instructions or the information is included in the notes to the consolidated
financial statements, or are not applicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of CLARK Material
Handling Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the consolidated financial
position of CLARK Material Handling Company and its predecessor businesses at
December 31, 1998 and December 31, 1997 and the results of their operations and
their cash flows for the years ended December 31, 1998 and 1997, the one month
period ended December 31, 1996 and the eleven month period ended November 26,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of 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 audits 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.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 25, 1999
F-2
CLARK Material Handling Company
Consolidated Balance Sheet (in thousands, except share amounts)
- --------------------------------------------------------------------------------
December 31, December 31,
1997 1998
Current assets ---- ----
Cash and cash equivalents $ 6,334 $ 9,661
Restricted cash 320 197
Accounts receivable (less allowance of $1,906 at
December 31, 1997 and $4,864 at December 31, 1998) 47,018 68,903
Net inventories 70,784 102,399
Other current assets 7,281 9,609
--------- ---------
Total current assets 131,737 190,769
Long term assets
Property, plant and equipment-net 47,836 69,877
Goodwill, net of accumulated amortization of $3,081 at
December 31, 1997 and $6,069 at December 31, 1998 114,887 112,781
Other assets 18,794 24,631
--------- ---------
Total assets $ 313,254 $ 398,058
========= =========
Current liabilities
Notes payable $ 3,184 $ 28,922
Current portion of capital lease obligations 2,732 3,313
Trade accounts payable 62,002 75,378
Accrued compensation and benefits 5,730 5,551
Accrued warranties and product liability 20,774 17,384
Other current liabilities 10,728 17,526
--------- ---------
Total current liabilities 105,150 148,074
Non-current liabilities
Senior notes payable 130,000 150,000
Capital lease obligations, less current portion 3,864 4,480
Accrued warranties and product liability 38,497 35,537
Other non-current liabilities 12,002 17,469
--------- ---------
Total liabilities 289,513 355,560
--------- ---------
Commitments and contingencies (Note 11) - -
Redeemable preferred stock - 21,202
--------- ---------
Stockholder's equity
Common stock, par value $1 per share, 1,000
shares authorized, issued and outstanding 1 1
Paid-in capital 24,999 23,948
Retained earnings 8,406 987
Cumulative translation adjustment (9,665) (3,640)
---------- ----------
Total stockholder's equity 23,741 21,296
---------- ----------
Total liabilities and stockholder's equity $ 313,254 $ 398,058
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
CLARK Material Handling Company
and Predecessor Businesses
Consolidated Statement of Operations
(in thousands)
- --------------------------------------------------------------------------------
Predecessor The Company
--------------- ------------------------------------------
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
Net sales $ 404,629 $ 46,763 $ 489,892 $ 538,881
Cost of goods sold 359,061 41,905 431,127 475,857
---------- --------- --------- ----------
Gross profit 45,568 4,858 58,765 63,024
Engineering, selling and administrative expenses 26,613 2,923 37,731 49,320
Parent company management fees 5,672 - - -
---------- --------- --------- ----------
Income from operations 13,283 1,935 21,034 13,704
Other income (expense):
Interest expense (370) (1,393) (15,086) (16,867)
Allocated interest expense from parent
company (14,656) - - -
Interest income 220 25 809 1,131
Amortization expense from parent company (349) - - -
Other income (expense) - net (223) (32) 1,598 (3,409)
---------- --------- --------- ----------
Income (loss) before income taxes (2,095) 535 8,355 (5,441)
Provision for income taxes - - 484 776
---------- --------- --------- ----------
Net income (loss) $ (2,095) $ 535 $ 7,871 $ (6,217)
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
CLARK Material Handling Company
and Predecessor Businesses
Consolidated Statement of Stockholder's Equity and Comprehensive Income
(in thousands)
- --------------------------------------------------------------------------------
Stockholder's Equity
---------- ----------------------------------------------------
Foreign
Retained Currency
Common Paid-in Earnings Translation
Stock Capital (Deficit) Adjustments
----------- ----------- ----------- -----------
PREDECESSOR
Balance at December 31, 1995 $ (94,873) $ (1,849)
Net loss for the eleven months ended
November 26, 1996 (2,095) -
Translation adjustment - (2,546)
---------- ----------
Balance at November 26, 1996 $ (96,968) $ (4,395)
========== ==========
THE COMPANY
Issuance of common stock 1 $ 24,999 $ - $ -
Net income for the month ended
December 31, 1996 - - 535 -
Translation adjustment - - - (462)
----------- ----------- ---------- ----------
Balance at December 31, 1996 1 24,999 535 (462)
Net income for the year ended
December 31, 1997 - - 7,871 -
Translation adjustment - - - (9,203)
----------- ----------- ---------- ----------
Balance at December 31, 1997 1 24,999 8,406 (9,665)
Preferred stock issuance costs - (1,051) - -
Net loss for the year ended
December 31, 1998 - - (6,217) -
Translation adjustment - - - 6,025
Preferred stock dividends - - (1,202) -
----------- ----------- ---------- ----------
Balance at December 31, 1998 $ 1 $ 23,948 $ 987 $ (3,640)
=========== =========== ========== ==========
Comprehensive Income
---------------------------------------------------------
-------------- -----------------------------------------
Predecessor The Company
-------------- -----------------------------------------
Eleven Months One Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
----------- ----------- ----------- -----------
Net income (loss) $ (2,095) $ 535 $ 7,871 $ (6,217)
Translation adjustment, net of income taxes (2,546) (462) (9,203) 6,025
----------- ----------- ----------- -----------
Comprehensive income (loss) $ (4,641) $ 73 $ (1,332) $ (192)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
CLARK Material Handling Company
and Predecessor Businesses
Consolidated Statement of Cash Flows
(in thousands)
- --------------------------------------------------------------------------------
Predecessor The Company
-------------- ----------------------------------------------
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
---- ---- ---- ----
Operating activities:
Net income (loss) $ (2,095) $ 535 $ 7,871 $ (6,217)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation 9,312 778 8,900 9,475
Amortization 1,099 322 3,350 5,666
Loss (gain) on sale of property, plant and equipment 31 70 24 (8)
Changes in operating assets and liabilities
excluding business combinations:
Restricted cash (220) (136) 638 140
Trade receivables (2,406) 2,800 (8,732) 1,547
Net inventories (2,696) 9,801 (7,015) (16,397)
Trade accounts payable 61 (11,265) 7,866 7,735
Accrued compensation and benefits 409 (609) (156) (325)
Accrued warranties and product liability (2,248) 237 3,581 (6,892)
Due to parent company 8,720 - - -
Other assets and liabilities, net (5,876) 223 (5,218) (5,149)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 4,091 2,756 11,109 (10,425)
----------- ----------- ----------- -----------
Investing activities:
Business combinations - - (14,646) (32,093)
Capital expenditures (3,208) (317) (6,340) (21,629)
Proceeds from sale of assets 139 - - 558
----------- ----------- ----------- -----------
Net cash used in investing activities (3,069) (317) (20,986) (53,164)
----------- ----------- ----------- -----------
Financing activities:
Issuance of current notes payable - - 1,182 27,928
Repayment of current notes payable - - (1,020) (1,868)
Issuance of senior notes payable, net of
issuance costs - - - 19,372
Issuance of preferred stock, net of issuance costs - - - 18,949
Other, net 1,481 293 147 1,618
----------- ----------- ----------- -----------
Net cash provided by financing activities 1,481 293 309 65,999
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and
cash equivalents (1,262) (306) (652) 917
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,241 2,426 (10,220) 3,327
Cash and cash equivalents at beginning of period 819 14,128 16,554 6,334
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,060 $ 16,554 $ 6,334 $ 9,661
=========== =========== =========== ===========
Supplemental disclosures
Cash paid for interest $ 337 $ 86 $ 14,465 $ 16,702
Income taxes paid $ 17 $ - $ - $ 455
The accompanying notes are an integral part of these financial statements.
F-6
CLARK Material Handling Company
and Predecessor Businesses
Notes to Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING ENTITY AND BASIS OF PRESENTATION
CLARK Material Handling Company (the "Company") is a wholly-owned subsidiary of
CMH Holdings Corporation ("Holdings"). Prior to November 27, 1996, Holdings had
no previous business operations and was formed for the purpose of acquiring the
Company and its subsidiaries from Terex Corporation ("Parent Company") in a
purchase business combination. That acquisition was consummated on November 27,
1996. See Note 3 for information regarding the acquisition.
Prior to the acquisition, the Company's predecessor businesses ("Predecessor")
operated as wholly-owned subsidiaries of the Parent Company. Reference to the
Company relates to the period subsequent to November 26, 1996, while reference
to the Predecessor relates to operations on or prior to November 26, 1996. The
Parent Company acquired the Predecessor in 1992 in a purchase business
combination and the Parent Company's basis, including its acquisition debt and
goodwill associated with the 1992 acquisition, was "pushed down" to the
Predecessor's financial statements.
The Predecessor's financial statements include allocations of Parent Company
acquisition debt and related interest expense. Management fees, which include
corporate overhead costs (including legal, treasury and other shared services),
were allocated to the Predecessor based generally on the percentage of
Predecessor revenues to the Parent Company's consolidated revenues. Interest was
charged on the management fee allocated and the due to Parent Company at a rate
of 13% compounded monthly.
The Company and the Predecessor design, manufacture, market, distribute and
support, on a world-wide basis, internal combustion and electric lift trucks and
related components and replacement parts. Segment information is shown in Note
13.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The Company's financial statements include the
accounts of the Company and its subsidiaries. Minority interests are not
material. The Predecessor's financial statements include the U.S, German,
Brazilian and Korean material handling operations of the Parent Company prior to
their acquisition on November 27, 1996, on a combined basis. All material
intercompany balances, transactions and profits have been eliminated.
Cash and cash equivalents. Cash equivalents consist of highly liquid investments
with original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair value.
F-7
Restricted cash. The Company has certain cash and cash equivalents that are not
fully available for use in operations. Certain international operations
collateralize letters of credit and performance bonds with cash deposits.
Inventories. Inventories are stated at the lower of cost or market value. The
Company determines cost on the first-in, first-out ("FIFO") method for all
inventories. The Predecessor determined cost using the last-in, first-out
("LIFO") method for U.S. inventories and by the FIFO method for inventories of
international operations.
Goodwill. Goodwill represents the difference between the purchase price and the
fair value of assets and liabilities (tangible and intangible) acquired at the
date of acquisition. Goodwill related to the Company is being amortized on the
straight-line method over forty years. The Company reviews the carrying value of
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Measurement of any impairment
would include a comparison of discounted estimated future operating cash flows
anticipated to be generated during the remaining amortization period of the
goodwill to the net carrying value of goodwill.
Debt issuance costs. Debt issuance costs of the Company have been capitalized
and are being amortized on the straight-line method over the term of the related
debt. Debt issuance costs are included in other assets and totaled $6,241 and
$6,006 at December 31, 1997 and 1998, respectively. Amortization of these costs
totaled $625 and $863 for the years ended December 31, 1997 and 1998,
respectively.
Property, plant and equipment. Property, plant and equipment are stated at cost.
Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred.
Depreciation is determined for financial reporting purposes using the
straight-line method over the estimated useful asset lives, generally 20 to 35
years for buildings, eight to twelve years for machinery and equipment and two
to eight years for other assets.
Revenue recognition. Revenue and costs are generally recorded when products are
shipped and invoiced to customers. Certain new units may be invoiced prior to
the time customers take physical possession. Revenue is recognized in such cases
only when the customer has a fixed commitment to purchase the units, the units
have been completed, tested and made available to the customer for pickup or
delivery, and the customer has requested that the units be held for pickup or
delivery at a time specified by the customer in the sales documents. In such
cases, the units are invoiced under the customary billing terms, title to the
units and risks of ownership pass to the customer upon invoicing, the units are
segregated from inventories and identified as belonging to the customer and
there are no further obligations under the order.
F-8
Accrued warranties and product liability. Accruals for potential warranty and
product liability claims are recorded based on past claims experience. Warranty
costs are accrued at the time revenue is recognized. Self-insurance accruals are
provided for estimated product liability experience on known claims and for
claims anticipated to have been incurred which have not yet been reported.
Product liability accruals are presented on a gross settlement basis.
Foreign currency translation. Assets and liabilities of international operations
are translated at year-end exchange rates. Income and expenses are translated at
average exchange rates prevailing during the year. Foreign operations utilize
the local currency as the functional currency; translation adjustments are
accumulated in the cumulative translation adjustment account in equity. Gains or
losses resulting from foreign currency transactions are included in other income
(expense) and totaled ($1,055), ($149), $1,536 and ($1,426) for the eleven
months ended November 26, 1996, the one month ended December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
Income taxes. Income taxes are provided using the asset and liability method
required by Statement of Financial Accounting Standards ("SFAS") No. 109.
Pursuant to a tax sharing agreement with Holdings, the Company is included in
the consolidated federal return of Holdings. The tax sharing arrangement does
not differ materially from that which would occur on a separate entity basis.
The Predecessor provided for income taxes on a separate entity basis.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Segment information. In 1998, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. SFAS No. 131 supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise,
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. The adoption of SFAS No. 131 did
not affect results of operations or financial position but did affect the
disclosure of segment information.
Reclassifications. Certain reclassifications of prior year amounts have been
made to conform with the current year presentation.
F-9
NOTE 3 - ACQUISITION
On November 27, 1996 Holdings acquired the Company and the Company's
subsidiaries in a purchase business combination. The aggregate purchase price
for the acquisition was $139,500, which was subject to certain immaterial
post-closing adjustments, and was financed through a $25,000 equity investment
by Holdings in the common stock of the Company and the issuance of $130,000 in
Senior Notes due 2006 by the Company. The purchase price was allocated to the
estimated fair values of the Company's tangible and intangible net assets with
the remainder allocated to goodwill. The excess of purchase price over the net
assets acquired of $116,942 is being amortized on a straight-line basis over
forty years.
The operating results of the Company are included in the consolidated results of
operations since November 27, 1996. Unaudited pro forma consolidated results of
operations for the year ended December 31, 1996, assuming Holdings had completed
the acquisition on January 1, 1996, are as follows:
Net sales $451,392
--------
Income from operations $ 16,976
--------
Net income $ 1,881
--------
NOTE 4 - BUSINESS COMBINATIONS
In July, 1998 the Company, through a newly created, wholly-owned subsidiary,
acquired substantially all of the assets and certain liabilities of the forklift
business of Samsung Heavy Industries ("Samsung Forklift Business") in a purchase
business combination. The purchase price, which is subject to subsequent
adjustments relating to determination of the value of certain of the assets
acquired, totaled $30,400 plus transaction related expenses and was allocated to
the fair value of the net tangible and intangible assets acquired. These fair
values exceeded the Company's purchase price and long-lived assets were reduced
accordingly. The purchase transaction also required the Company to set aside in
a separate bank account $7,800, pending the realization of accounts receivable
of the acquired entity. By agreement with the seller, this cash has been offset
against amounts owed to the seller, and is expected to be resolved at the
conclusion of the accounts receivable collection period in February, 2000.
Additionally, during 1998 the Company acquired two dealerships in North America
in purchase business combinations for an aggregate purchase price of $963. The
purchase price was allocated to the fair value of the net tangible and
intangible assets. Goodwill arising in these transactions was not material.
The results of operations of the entities acquired in 1998 are included in the
consolidated results of operations from their respective acquisition dates.
These acquisitions were not significant and pro forma data is not presented.
F-10
On November 7, 1997 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, "Blue Giant") in two separate
purchase business combinations effective November 1, 1997. Although separate
legal entities, BGU and BGC were under the common control of substantially the
same stockholder group. The purchase price for the acquisitions comprised $9,365
in cash (of which $200 was paid to a shareholder of Blue Giant under a
noncompete agreement), an obligation payable over three years totaling $1,105
under a noncompete agreement with a shareholder of Blue Giant and transaction
related expenses. The purchase price was allocated to the estimated fair value
of the tangible and intangible net assets acquired, with the residual being
allocated to goodwill. The goodwill of $1,026 is being amortized on a
straight-line basis over forty years.
The operating results of Blue Giant are included in the consolidated results of
operations since November 1, 1997. The following unaudited pro forma summary
presents the consolidated results of operations as though the acquisition of the
Company described in Note 3 had been completed and the Company had completed the
acquisition of Blue Giant on January 1 of each period presented.
Year Ended December 31,
-----------------------
1996 1997
---- ----
Net sales $ 477,254 $ 509,187
--------- ---------
Income from operations $ 17,293 $ 21,583
--------- ---------
Net income (loss) $ 1,415 $ 8,320
--------- ---------
On February 28, 1997, the Company purchased substantially all of the assets of
Hydroelectric Lift Trucks, Inc., (HLT) a supplier of upright material handling
equipment, for $4,948. Assets acquired included inventory, equipment and
tooling. The purchase was financed through a short-term note which matured in
the second quarter of 1997. The Company is leasing the former company's facility
and is continuing production of the equipment, primarily for its own use. The
acquisition was not significant and pro forma data is not presented.
F-11
NOTE 5 - INVENTORIES
Inventories consist of the following:
December 31, December 31,
1997 1998
Finished equipment $ 12,000 $ 22,104
Replacement parts 28,302 29,967
Work-in-progress 5,356 9,482
Raw material and supplies 25,126 40,846
--------- ---------
Net inventories $ 70,784 $ 102,399
--------- ---------
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31, December 31,
1997 1998
Property $ 7,005 $ 13,171
Plant 14,574 22,571
Equipment 33,854 50,728
--------- ---------
55,433 86,470
Less: accumulated depreciation (7,597) (16,593)
--------- ---------
Net property, plant and equipment $ 47,836 $ 69,877
--------- ---------
NOTE 7 - BORROWINGS, LINES OF CREDIT, PREFERRED STOCK AND OTHER INDEBTEDNESS
Long-term debt is summarized as follows:
December 31, December 31,
1997 1998
10.75% Senior Notes due 2006 $ 130,000 $ 150,000
Capital lease obligations (Note 8) 6,596 7,793
---------- ---------
Total long-term debt 136,596 157,793
Less: current portion (2,732) (3,313)
---------- ---------
Long-term debt, less current portion $ 133,864 $ 154,480
---------- ---------
F-12
Senior Notes Due 2006
The Senior Notes due 2006 ("Senior Notes") were originally issued in the amount
of $130,000 in connection with the acquisition of the Company; an additional
$20,000 of Senior Notes were issued in July, 1998 in connection with the
acquisition of the Samsung Forklift Business described in Note 4. The 1998 issue
carries terms and conditions equivalent to the original issue. The Senior Notes
are due on November 15, 2006. The Senior Notes are not redeemable at the
Company's option prior to November 15, 2001. Thereafter, the Senior Notes will
be subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to the applicable date of redemption, if
redeemed during the 12 month period beginning on November 15 of the years
indicated below:
Year Percentage
---- ----------
2001 105.375%
2002 102.688%
2003 and thereafter 100.000%
The Senior Notes also contain provision for early redemption upon the occurrence
of certain significant corporate events, including an offering of equity
securities or a change in control of the Company.
Revolving Line of Credit
The Company has three revolving credit facilities (the "Facilities") totaling
$41.6 million, comprising $30 million in the United States, $10 million in
Germany and $1.6 million in Canada. Borrowings under the Facilities are
available for working capital and general corporate purposes, including letters
of credit. The Facilities are secured by first priority liens on all accounts
receivable and inventory of the Company's domestic operations (excluding HLT and
BGU) and the German and Canadian operations, respectively.
These Facilities expire in October - November 1999 and are expected to be
renewed or replaced in the ordinary course of business. Interest rates per annum
applicable to the Facilities generally are the Eurodollar rate, the prime rate,
or the LIBOR rate, as elected by the Company and as announced periodically, plus
50 to 250 basis points, depending on the interest rate selected. The Facilities
permit the Company to prepay loans and to permanently reduce revolving credit
commitments or letters of credit, in whole or in part, at any time in certain
minimum amounts. The Company is required to pay certain fees in connection with
the Facilities, including a commitment fee of 0.25% on the undrawn portion of
the revolving credit commitments.
The Facilities contain customary representations and warranties, and events of
default and certain other covenants. Borrowings on the Facilities are classified
in the consolidated balance sheet as notes payable and were $799 and $24,642 at
December 31, 1997 and 1998, respectively. The average interest rate on
borrowings during 1998 was 8.25%.
F-13
Redeemable Preferred Stock
In July, 1998 the Company issued $20,000 face value Senior Exchangeable
Preferred Stock ("Preferred Stock") in connection with the acquisition of the
Samsung Forklift Business described in Note 4. The Preferred Stock carries an
annual dividend rate of 13.00%, which may be paid with additional shares of
Preferred Stock through July 2003, and in cash thereafter. The Preferred Stock,
and any unpaid dividends thereon, are redeemable on July 15, 2007.
Additionally, the Preferred Stock may be redeemed at any time on or after July
15, 2003, in whole or in part, at the option of the Company, at the redemption
prices (expressed as a percentage of the liquidation preference thereof) set
forth below, plus an amount in cash equal to all accumulated and unpaid
dividends, if redeemed during the 12-month period beginning July 15 of each of
the years set forth below:
Year Percentage
---- ----------
2003 106.500%
2004 104.333%
2005 102.167%
2006 and thereafter 100.000%
The Preferred Stock also contains provisions for early redemption upon the
occurrence of certain significant corporate events, including an offering of
equity securities or a change in control of the Company.
Fair Value Disclosures
The fair value of the Company's Senior Notes and Preferred Stock at December 31,
1998 approximates their carrying values given the recent sale of these
securities to investors. The Company believes that the carrying value of its
other borrowings approximates fair value by virtue of the variable interest
rates associated with these borrowings.
Liquidity
In 1998, the Company converted its U.S. operations (except BGU) to a new
information system. The conversion did not proceed well, and in the fourth
quarter of 1998, the Company lost visibility to many of the key elements of
information needed to administer the business. As a result, production slowed,
sales declined and inventories and receivables grew substantially. In order to
finance the growth in working capital, the Company borrowed heavily on its U.S.
credit facilities and began to approach its maximum borrowing capacity
subsequent to December 31, 1998.
F-14
During the first quarter of 1999, the Company substantially corrected its
information system problems and began to correct working capital levels. To
further enhance liquidity, the Company received a short-term expansion of its
U.S. credit facility in the amount of $5 million. Should the need arise,
management could increase liquidity by further utilizing its foreign credit
facilities, utilizing appreciated real estate to obtain additional financing
and, subject to an early withdrawal penalty of 10%, gain access to the cash
described in Note 4.
NOTE 8 - LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment and vehicles with
varying terms under operating leases. In most leasing arrangements, the Company
pays the property taxes, insurance, maintenance and expenses related to the
leased property.
Most of the Company's operating leases provide the Company with the option to
renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease. Total rental
expense under operating leases was as follows:
Eleven months ended November 26, 1996 $ 1,886
-------
One month ended December 31, 1996 $ 191
-------
Year ended December 31, 1997 $ 2,807
-------
Year ended December 31, 1998 $ 3,162
-------
The Company also routinely enters into sale-leaseback arrangements for certain
equipment, which is similarly sold to third-party customers under sales-type
lease agreements. The Company maintains a net investment in these leases,
represented by the present value of payments receivable under the leases. The
Company's net investment in sales-type leases was $7,901 and $9,265 at December
31, 1997 and 1998, respectively, and is included in other current and
non-current assets on the consolidated balance sheet.
In connection with the original sale-leaseback arrangements underlying the
customer lease program, the Company has an outstanding rental installment
obligation which is recorded based on the present value of minimum payments due
under the leases of $7,793, of which $3,313 is current at December 31, 1998.
F-15
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1998 are as
follows:
Capital Operating
Leases Leases
---------- ----------
1999 $ 3,637 $ 2,635
2000 2,546 1,155
2001 1,637 590
2002 818 46
2003 455 -
Thereafter - -
--------- ---------
Total minimum obligations 9,093 $ 4,426
---------
Less: amount representing interest (1,300)
---------
Present value of net minimum obligations 7,793
Less: current portion (3,313)
---------
Long-term obligations $ 4,480
=========
NOTE 9 - INCOME TAXES
The components of income (loss) before income taxes are as follows:
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
United States $ 2,541 $ 165 $ 4,080 $ (4,106)
Foreign (4,636) 370 4,275 (1,335)
--------- -------- -------- ---------
Income (loss) before income
taxes and extraordinary items $ (2,095) $ 535 $ 8,355 $ (5,441)
--------- -------- -------- ---------
F-16
As a result of the Predecessor's operating losses for book and tax purposes,
there was no provision for income taxes for the eleven months ended November 26,
1996.
The following table summarizes the provision for income taxes for periods
subsequent to November 26, 1996:
One
Month Year Year
Ended Ended Ended
December 31, December 31, December 31,
1996 1997 1998
---- ---- ----
Current
U.S. Federal $ - $ - $ -
Foreign - 55 415
State and local - 429 361
Deferred
U.S. Federal - - -
Foreign - - -
State and local - - -
------ ------ ------
$ - $ 484 $ 776
------ ------ ------
The Company did not provide for U. S. federal or foreign income taxes during any
of the periods shown above as the result of incurring a taxable loss or
utilizing net operating loss carryforwards ("NOL") to offset taxable income,
except for Canadian income taxes where no NOL exists. State and local income
taxes are provided in jurisdictions that do not recognize NOLs.
The provision for income taxes is different from the amount which would be
provided by applying the statutory federal income tax rate to income (loss)
before income taxes. The reasons for the difference are summarized below:
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
---- ---- ---- ----
Expected income tax at U.S. Federal rates $ (712) $ 182 $ 2,841 $ (1,850)
NOL with no current benefit 1,575 - - 1,850
Foreign NOL carryforward benefit - (166) (1,987) -
Benefit of domestic NOL (863) (56) (1,387) -
Foreign tax differential on income/
losses of foreign subsidiaries - 40 533 415
State and local taxes - - 484 361
--------- --------- --------- ---------
Total provision for income taxes $ - $ - $ 484 $ 776
--------- --------- --------- ---------
The tax effects of the basis differences and NOL carryforwards as of December
31, 1997 and December 31, 1998 are summarized below:
1997 1998
---- ----
Property, plant and equipment $ (1,846) $ (1,564)
Goodwill (942) (582)
-------- --------
Total deferred tax liabilities (2,788) (2,146)
-------- --------
Warranties and product liability 21,478 18,829
Net inventories 975 1,192
Receivables 414 211
Other 1,620 1,154
Benefit of net operating loss carryforwards 19,293 20,255
-------- --------
Total deferred tax assets 43,780 41,641
-------- --------
Deferred tax valuation allowance (40,992) (39,495)
-------- --------
Net deferred taxes $ - $ -
-------- --------
Basis differences between the amounts assigned to net assets for financial
reporting purposes and the amounts assigned for tax purposes resulted in a net
deferred tax asset of $39,495. In light of the Company's and Predecessor's
operating history, management provided a valuation allowance in the same amount.
At December 31, 1998, the Company had U.S. federal NOL carryforwards of $10,698
which begin to expire in 2011.
In addition, the Company's foreign subsidiaries have approximately $45,318 of
loss carryforwards, $19,538 in corporate losses for Germany, $22,056 in
municipal losses for Germany and $3,724 in other countries, which are available
F-17
to offset future foreign taxable income. The loss carryforwards in Germany are
available without expiration. The loss carryforwards in other countries expire
in the years 1999 through 2002.
F-18
NOTE 10 - RETIREMENT PLANS
Pension Plans
Certain of the Company's German employees are covered by noncontributory defined
benefit pension plans. The Company also maintains separate pension benefit plans
for German executive employees and for other staff. The executive pension plans
are based on final pay and service, and, in some cases, are dependent on social
security pensions while the other staff plans are based on fixed amounts applied
to the number of years of service rendered. The plans are unfunded.
The components of pension expense relating to defined benefit plans for each of
the reporting periods covered by these financial statements are as follows:
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
---- ---- ---- ----
Current service cost $ 38 $ 2 $ 37 $ 36
Interest cost 840 52 837 827
Net amortization and deferrals 107 7 - -
------ ------ ------- -------
Net pension cost $ 985 $ 61 $ 874 $ 863
------ ------ ------- -------
The accumulated benefit obligations do not differ materially from the projected
benefit obligations, and totaled $11,073 and $12,367 at December 31, 1997 and
1998, respectively.
The following table sets forth the plan's obligations recorded on the
consolidated balance sheet at December 31, 1998:
Benefit obligations, January 1, 1998 $11,073
Service cost 36
Interest cost 827
Actuarial loss 1,015
Benefits paid (584)
-------
Benefit obligations, December 31, 1998 $12,367
-------
A discount rate of 7.5% was used in 1997 and 1998 to determine the projected
benefit obligations.
F-19
Savings Plans
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. Generally,
the Company matches contributions up to a maximum of 3% of compensation. In
connection with the required match, the Company's contribution to the plan was
$237, $30, $512 and $565 for the eleven month period ended November 26, 1996,
the one month period ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively.
Other Postemployment Benefits
The Company does not have any benefit programs which provide retiree health or
life insurance benefits.
NOTE 11 - LITIGATION, COMMITMENTS AND CONTINGENCIES
In the normal course of business, lawsuits have been filed alleging damages for
accidents relating to use of the Company's products. As part of the acquisition
of the Predecessor, the Company assumed both the outstanding and future product
liability exposures related to such operations. As of December 31, 1998, there
were lawsuits outstanding alleging damages for injuries or deaths arising from
accidents involving forklift products. Most of the foregoing suits are in
various stages of pretrial completion, and certain plaintiffs are seeking
punitive as well as compensatory damages. The Company is self-insured, up to
certain limits, for these product liability exposures, as well as for certain
exposures related to general, workers' compensation and automobile liability.
Insurance coverage is obtained for catastrophic losses as well as those risks
required to be insured by law or contract. The Company has recorded and
maintains an estimated liability, based in part upon actuarial determinations,
in the amount of management's estimate of the Company's aggregate exposure for
such self-insured risks.
The Company is involved in various other legal proceedings which have arisen in
the normal course of business. The Company has recorded provisions for estimated
losses in circumstances where a loss is probable and the amount or range of
possible amounts of the loss is estimable.
The Company is contingently liable as a guarantor for certain of its dealers'
financing arrangements with a financial institution. In certain circumstances of
dealer default, the Company is obligated to: a) repurchase new equipment
financed under dealer floor plan obligations and b) purchase dealers' long-term
rental equipment contracts with customers for which financing has been provided
by the financial institution to the dealer. The guarantees
F-20
under these financing arrangements aggregated approximately $30,000 and $96,000,
respectively, at December 31, 1998. When a dealer default does occur, a newly
selected dealer generally assumes the assets of the prior dealer and any related
financial obligations. Historically, the Company and the Predecessor have
incurred only minimal losses relating to these arrangements.
The Company is contingently liable for a portion of the residual value of
machines sold by the Company to an independent company which subsequently leases
those machines to third parties for terms generally ranging from three to five
years. Historically, the Company and the Predecessor have made a profit on the
subsequent resale of repurchased machines. At December 31, 1998, the maximum
contingent liability was approximately $4,900. At December 31, 1997 and December
31, 1998, there were $1,887 and $1,900, respectively, of repurchased machines
included in inventory.
The Company is contingently liable on guarantees given by the Predecessor to
financial institutions relating to loans and other dealer and customer
obligations arising in the ordinary course of its business. Such guarantees
approximated $1,900 at December 31, 1998. Estimated losses, if any, on such
guarantees are accrued as a component of the allowance for doubtful accounts.
Historically, the Company and the Predecessor have not incurred material losses
on these guarantees.
The Company's outstanding letters of credit totaled $1,600 at December 31, 1998.
The letters of credit generally serve as collateral for certain liabilities
included in the balance sheet. Certain of the letters of credit serve as
collateral guaranteeing the Company's performance under contracts.
The Company is a wholly-owned subsidiary of Holdings. Other than its investment
in the Company, Holdings has no other substantive business activities or
operations. Holdings has financed its investment in the Company through the
issuance of $7,000 of Junior Subordinated Debentures, bearing interest at 12%
per annum and maturing 2007, $17,000 of preferred stock with an annual
cumulative dividend of 12% and $1,000 of common stock. Although the Company has
not guaranteed Holdings' debt or preferred stock dividend obligations, or
otherwise assumed such obligations, Holdings will look to the Company's assets
and cash flows to meet its interest, debt and dividend obligations when and if
they are paid.
F-21
NOTE 12 - RELATED PARTY TRANSACTIONS
The following table summarizes related party transactions conducted with the
Parent Company:
Eleven One
Months Month Year Year
Ended Ended Ended Ended
November 26, December 31, December 31, December 31,
1996 1996 1997 1998
---- ---- ---- ----
Distribution and parts warehousing expenses $ 6,100 $ 490 $ 5,580 $ 5,593
Management fee allocation 5,672 - - -
Interest expense 14,656 - - -
Interest income 150 - - -
NOTE 13 - SEGMENT INFORMATION
The Company manages its operations, assesses performance of business entities
and allocates resources on a geographic basis. Thus, the Company's segments
represent its operations in The Americas, Europe and Asia. Each of the segments
is involved in the design, manufacture, marketing, distribution and support of
internal combustion and electric lift trucks and related components and
replacements.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." To reconcile segment information
to the Company's consolidated statement of operations and consolidated balance
sheet, amounts have been eliminated to arrive at the Company's consolidated
totals.
The table below presents information about reported segments for the years ended
December 31, 1998 and 1997, for the one month ended December 31, 1996 and the
eleven months ended November 26, 1996:
F-22
For the year ended December 31, 1998:
The
Americas Europe Asia Eliminations Total
------------- ------------- ------------- ------------- --------------
Net sales $ 393,247 $ 143,153 $ 26,799 $ (24,318) $ 538,881
Interest expense $ 16,064 $ (149) $ 952 $ - $ 16,867
Depreciation and amortization $ 9,789 $ 4,958 $ 394 $ - $ 15,141
Income (loss) before income taxes $ (4,117) $ 1,842 $ (2,781) $ (385) $ (5,441)
Capital expenditures $ 11,840 $ 2,108 $ 7,681 $ - $ 21,629
Total assets $ 388,772 $ 98,087 $ 56,845 $(145,646) $ 398,058
For the year ended December 31, 1997:
The
Americas Europe Asia Eliminations Total
------------- ------------- ------------- ------------- --------------
Net sales $ 367,859 $ 134,436 $ 1,028 $ (13,431) $ 489,892
Interest expense $ 15,156 $ (125) $ 55 $ - $ 15,086
Depreciation and amortization $ 7,733 $ 4,517 $ - $ - $ 12,250
Income (loss) before income taxes $ 3,329 $ 3,983 $ 1,036 $ 7 $ 8,355
Capital expenditures $ 5,014 $ 1,319 $ 7 $ - $ 6,340
Total assets $ 296,588 $ 79,249 $ 4,348 $ (66,931) $ 313,254
For the one month ended December 31, 1996:
The
Americas Europe Asia Eliminations Total
------------- ------------- ------------- ------------- --------------
Net sales $ 31,710 $ 15,789 $ - $ (736) $ 46,763
Interest expense $ 1,400 $ (7) $ - $ - $ 1,393
Depreciation and amortization $ 682 $ 418 $ - $ - $ 1,100
Income (loss) before income taxes $ 125 $ 372 $ 37 $ 1 $ 535
Capital expenditures $ 117 $ 200 $ - $ - $ 317
Total assets $ 266,537 $ 89,859 $ 7,497 $ (62,586) $ 301,307
For the eleven months ended November 26, 1996:
The
Americas Europe Asia Eliminations Total
------------- ------------- ------------- ------------- --------------
Net sales $ 287,077 $ 126,045 $ - $ (8,493) $ 404,629
Interest expense $ 312 $ 58 $ - $ - $ 370
Depreciation and amortization $ 7,218 $ 3,193 $ - $ - $ 10,411
Income (loss) before income taxes $ 2,100 $ (3,558) $ (702) $ 65 $ (2,095)
Capital expenditures $ 2,429 $ 779 $ - $ - $ 3,208
Total assets $ 98,175 $ 96,595 $ 10,417 $ (12,480) $ 192,707
F-23
No customer accounted for more than 10% of revenue for any period presented. The
following table provides additional information with respect to domestic and
foreign operations:
Eleven Months One Month
Ended Ended
November 26, 1996 December 31, 1996
------------------------ ------------------------
U.S. Foreign U.S. Foreign
--------- --------- --------- ---------
Net sales $ 280,450 $ 124,179 $ 30,769 $ 15,994
Long lived assets $ 24,346 $ 47,874 $ 135,776 $ 43,035
Year Ended Year Ended
December 31, 1997 December 31, 1998
U.S. Foreign U.S. Foreign
Net sales $ 359,211 $ 130,681 $ 361,514 $ 177,367
Long lived assets $ 146,335 $ 35,182 $ 152,161 $ 55,128
F-24
NOTE 14 - FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a portion of its business through subsidiaries. The Senior
Notes referred to in Note 7 are unconditionally guaranteed, jointly and
severally, by certain subsidiaries (the "Subsidiary Guarantors") which presently
constitute HLT and BGU. Certain of the Company's subsidiaries do not guarantee
the Senior Notes (the "Non-Guarantor Subsidiaries"), presently the Company's
foreign subsidiaries.
Presented below is condensed financial information for the Company, the
Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 1997
and 1998.
The equity method has been used by the Company with respect to investments in
subsidiaries. Separate financial statements for Subsidiary Guarantors are not
presented based on management's determination that they do not provide
additional information that is material to investors.
F-25
Consolidating Balance Sheet
December 31, 1998
CLARK Material
Handling Company Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Current assets
Cash and cash equivalents $ - $ 2 $ 9,659 $ - $ 9,661
Restricted cash - - 197 - 197
Trade receivables 27,308 1,479 43,438 (3,322) 68,903
Affiliate accounts receivable 34,974 11,916 13,019 (59,909) -
Net inventories 62,949 5,881 33,985 (416) 102,399
Other current assets 1,351 818 7,440 - 9,609
--------- --------- --------- --------- ---------
Total current assets 126,582 20,096 107,738 (63,647) 190,769
Long term assets
Property, plant and equipment-net 23,204 2,192 44,481 - 69,877
Goodwill 110,786 2,295 (300) - 112,781
Investment in affiliates 93,968 - - (93,968) -
Other assets 13,131 63 24,004 (12,567) 24,631
--------- --------- ---------- --------- ---------
Total assets $ 367,671 $ 24,646 $ 175,923 $(170,182) $ 398,058
--------- --------- --------- --------- ---------
Current liabilities
Notes payable $ 16,612 $ - $ 12,864 $ (554) $ 28,922
Current portion of capital lease obligations - - 3,313 - 3,313
Trade accounts payable 44,792 1,369 26,592 2,625 75,378
Affiliate accounts payable 48,065 9,981 8,025 (66,071) -
Accrued compensation and benefits 2,619 439 2,493 - 5,551
Accrued warranties and product liability 15,124 218 2,042 - 17,384
Other current liabilities 3,969 1,150 12,569 (162) 17,526
--------- --------- --------- --------- ---------
Total current liabilities 131,181 13,157 67,898 (64,162) 148,074
Non-current liabilities
Senior notes payable 150,000 - - - 150,000
Capital lease obligations, less current portion - - 4,480 - 4,480
Accrued warranties and product liability 35,537 - - - 35,537
Other non-current liabilities 9,998 170 19,059 (11,758) 17,469
--------- --------- --------- --------- ---------
Total liabilities 326,716 13,327 91,437 (75,920) 355,560
--------- --------- --------- --------- ---------
Commitments and contingencies - - - - -
Redeemable preferred stock 21,202 - - - 21,202
--------- --------- --------- --------- ---------
Stockholder's equity
Common stock 1 - - - 1
Paid-in-capital 23,948 - - - 23,948
Retained earnings (4,196) 2,135 3,342 (294) 987
Subsidiary investment - 9,184 84,784 (93,968) -
Cumulative translation adjustment - - (3,640) - (3,640)
--------- --------- --------- --------- ---------
Total stockholder's equity 19,753 11,319 84,486 (94,262) 21,296
--------- --------- --------- --------- ---------
Total liabilities and stockholder's equity $ 367,671 $ 24,646 $ 175,923 $(170,182) $ 398,058
--------- --------- --------- --------- ---------
F-26
Consolidating Statement of Operations
Year Ended December 31, 1998
CLARK Material
Handling Company Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net sales $ 357,470 $ 42,377 $ 195,414 $ (56,380) $ 538,881
Cost of goods sold 317,613 38,702 175,608 (56,066) 475,857
----------- ----------- ----------- ----------- -----------
Gross profit 39,857 3,675 19,806 (314) 63,024
Engineering, selling and administrative
expenses 30,602 2,641 16,077 - 49,320
----------- ----------- ----------- ----------- -----------
Income from operations 9,255 1,034 3,729 (314) 13,704
Other income (expense):
Interest income 704 - 427 - 1,131
Interest expense (14,429) (673) (1,765) - (16,867)
Other income (expense) - net (184) 83 (3,308) - (3,409)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (4,654) 444 (917) (314) (5,441)
Equity in results of subsidiaries (1,244) - - 1,244 -
Provision for income taxes 319 42 415 - 776
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (6,217) $ 402 $ (1,332) $ 930 $ (6,217)
----------- ----------- ----------- ----------- -----------
F-27
Consolidating Statement of Cash Flows
Year Ended December 31, 1998
CLARK Material
Handling Company Non-
Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Consolidated
--------------- --------------- ------------- --------------
Net cash provided by (used in) operating
activities $ (12,371) $ 890 $ 1,056 $ (10,425)
---------- ---------- ---------- ----------
Investing activities:
Business combinations (32,093) - - (32,093)
Capital expenditures (9,816) (1,447) (10,366) (21,629)
Proceeds from sale of assets - 558 - 558
---------- ---------- ---------- ----------
Net cash used in investing activities (41,909) (889) (10,366) (53,164)
---------- ---------- ---------- ----------
Financing activities:
Issuance of current notes payable 15,889 - 12,039 27,928
Repayment of current notes payable - - (1,868) (1,868)
Issuance of senior notes payable,
net of issuance costs 19,372 - - 19,372
Issuance of preferred stock, net
of issuance costs 18,949 - - 18,949
Other, net - - 1,618 1,618
---------- ---------- ---------- ----------
Net cash provided by financing activities 54,210 - 11,789 65,999
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash and
cash equivalents - - 917 917
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (70) 1 3,396 3,327
Cash and cash equivalents at beginning
of period 70 1 6,263 6,334
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ - $ 2 $ 9,659 $ 9,661
========== ========== ========== ==========
F-28
Consolidating Balance Sheet
December 31, 1997
CLARK Material
Handling Company Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
---------- ---------- ---------- ---------- ----------
Current assets
Cash and cash equivalents $ 70 $ 1 $ 6,263 $ - $ 6,334
Cash securing letters of credit - - 320 - 320
Trade receivables 24,224 3,081 19,713 - 47,018
Affiliate accounts receivable 4,900 11,982 189 (17,071) -
Net inventories 47,331 5,106 18,347 - 70,784
Other current assets 1,614 552 5,115 - 7,281
---------- ---------- ---------- ---------- ----------
Total current assets 78,139 20,722 49,947 (17,071) 131,737
Long term assets
Property, plant and equipment-net 18,275 1,639 27,922 - 47,836
Goodwill 113,861 1,026 - - 114,887
Investment in affiliates 60,844 - - (60,844) -
Other assets 9,638 1,178 7,978 - 18,794
---------- ---------- ---------- ---------- ----------
Total assets $ 280,757 $ 24,565 $ 85,847 $ (77,915) $ 313,254
---------- ---------- ---------- ---------- ----------
Current liabilities
Notes payable $ 1,261 $ - $ 1,923 $ - $ 3,184
Current portion of capital lease obligations - - 2,732 - 2,732
Trade accounts payable 44,437 3,664 13,901 - 62,002
Affiliate accounts payable 12,043 1,680 2,707 (16,430) -
Accrued compensation and benefits 3,051 503 2,176 - 5,730
Accrued warranties and product liability 19,345 196 1,233 - 20,774
Other current liabilities 4,424 303 6,001 - 10,728
---------- ---------- ---------- ---------- ----------
Total current liabilities 84,561 6,346 30,673 (16,430) 105,150
Non-current liabilities
Senior notes payable 130,000 - - - 130,000
Capital lease obligations, less current portion - - 3,864 - 3,864
Accrued warranties and product liability 38,497 - - - 38,497
Other non-current liabilities 730 7,168 4,745 (641) 12,002
---------- ---------- ---------- ---------- ----------
Total liabilities 253,788 13,514 39,282 (17,071) 289,513
---------- ---------- ---------- ---------- ----------
Commitments and contingencies - - - - -
Stockholder's equity
Common stock 1 - - - 1
Paid-in-capital 24,999 - - - 24,999
Retained earnings 1,969 1,741 4,696 - 8,406
Subsidiary investment - 9,310 51,534 (60,844) -
Cumulative translation adjustment - - (9,665) - (9,665)
---------- ---------- ---------- ---------- ----------
Total stockholder's equity 26,969 11,051 46,565 (60,844) 23,741
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholder's equity $ 280,757 $ 24,565 $ 85,847 $ (77,915) $ 313,254
---------- ---------- ---------- ---------- ----------
F-29
Consolidating Statement of Operations
Year Ended December 31, 1997
CLARK Material
Handling Company Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
---------- ---------- ---------- ---------- ----------
Net sales $ 358,701 $ 27,849 $ 140,499 $ (37,157) $ 489,892
Cost of goods sold 316,068 24,579 127,535 (37,055) 431,127
---------- ---------- ---------- ---------- ----------
Gross profit 42,633 3,270 12,964 (102) 58,765
Engineering, selling and administrative
expenses 27,516 1,399 8,816 - 37,731
---------- ---------- ---------- ---------- ----------
Income from operations 15,117 1,871 4,148 (102) 21,034
Other income (expense):
Interest income 699 8 102 - 809
Interest expense (14,480) (48) (558) - (15,086)
Other income - net 907 6 685 - 1,598
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,243 1,837 4,377 (102) 8,355
Equity in results of subsidiaries 5,952 - - (5,952) -
Provision for income taxes 324 105 55 - 484
---------- ---------- ---------- ---------- ----------
Net income $ 7,871 $ 1,732 $ 4,322 $ (6,054) $ 7,871
---------- ---------- ---------- ---------- ----------
F-30
Consolidating Statement of Cash Flows
Year Ended December 31, 1997
CLARK Material
Handling Company Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Consolidated
---------- ---------- ---------- ----------
Net cash provided by operating activities $ 3,347 $ 326 $ 7 ,436 $ 11,109
---------- ---------- ---------- ----------
Investing activities:
Business combinations (14,646) - - (14,646)
Capital expenditures (4,532) (325) (1,483) (6,340)
---------- ---------- ---------- ----------
Net cash used in investing activities (19,178) (325) (1,483) (20,986)
---------- ---------- ---------- ----------
Financing activities:
Issuance of current notes payable 822 - 360 1,182
Repayment of current notes payable - - (1,020) (1,020)
Other, net - - 147 147
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 822 - (513) 309
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash and
cash equivalents - - (652) (652)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (15,009) 1 4,788 (10,220)
Cash and cash equivalents at beginning
of period 15,079 - 1,475 16,554
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 70 $ 1 $ 6,263 $ 6,334
---------- ---------- ---------- ----------
F-31
NOTE 15 - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance
at Balance
Beginning at End
of Period Provision Other (1) Deductions (2) of Period
--------- --------- --------- -------------- ---------
Allowance for Doubtful Accounts
The Predecessor
- ---------------
Eleven months ended November 26, 1996 $ 2,867 $ 59 $ (48) $ (740) $ 2,138
The Company
- -----------
One month ended December 31, 1996 $ 2,063 $ 164 $ (12) $ - $ 2,215
Year ended December 31, 1997 $ 2,215 $ 27 $ (123) $ (213) $ 1,906
Year ended December 31, 1998 $ 1,906 $ 277 $ 3,061 $ (380) $ 4,864
(1) Reflects the effect of exchange rates, except for 1998 which also
includes the impact of business combinations
(2) Utilization of established reserves, net of recoveries
F-32