Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
Clark Equipment Company, a Delaware corporation, is the successor to certain corporations the first of which was organized on December 24, 1902. Unless the context otherwise indicates, the terms "Registrant", "Clark" and "Company" when used in this Form 10-K refer to Clark Equipment Company and its consolidated subsidiaries.
Description of Business
Clark's business is the design, manufacture and sale of compact construction machinery, asphalt paving equipment, axles and transmissions for off-highway equipment and golf cars and utility vehicles.
Skid steer loaders, compact excavators and a limited line of agricultural equipment are manufactured by Clark's Melroe Company Business Unit ("Melroe") which is headquartered in Fargo, North Dakota. Off-highway axles and transmissions are manufactured by the Company's Clark Hurth Components Company Business Unit ("Clark Hurth") which is headquartered in Statesville, North Carolina. Asphalt paving equipment is manufactured by the Company's subsidiary Blaw-Knox Construction Equipment Corporation ("Blaw-Knox") which is headquartered in Mattoon, Illinois. Golf cars and utility vehicles are manufactured by the Company's subsidiary, Club Car, Inc. ("Club Car") which is headquartered in Martinez, Georgia.
On March 13, 1995, the Company acquired 9,461,810 shares of Club Car, representing approximately 99% of the outstanding shares, for a cash price of $25 per share pursuant to a tender offer initiated by the Company on February 8, 1995. Club Car is one of the largest manufacturers of golf cars and light utility vehicles in the world and had sales in its fiscal year ending on September 25, 1994 of approximately $186 million. On March 17, 1995, the Company completed a merger of Club Car with another wholly-owned subsidiary of the Company. Upon consummation of the merger, Club Car became a wholly-owned subsidiary of the Company, and the shareholders of Club Car who did not tender their shares became entitled to receive $25 per share. The total purchase price for Club Car was approximately $242.6 million, after taking into account amounts paid with respect to certain outstanding stock options, tax benefits related to these stock options and certain transaction expenses. The financial statements which are included in this Form 10-K do not include Club Car.
The Company acquired Blaw-Knox on May 13, 1994 from White Consolidated Industries, Inc. for a purchase price of approximately $145 million. The Balance Sheet and results of operations of Blaw-Knox are included in the consolidated accounts of the Company subsequent to the acquisition date.
On May 13, 1994, the Company completed the initial public offering of the stock of Clark Automotive Products Corporation ("CAPCO"). CAPCO was engaged in the business of manufacturing transmissions, primarily for on-highway applications, for sale in Brazil and North America. The Company sold approximately 91 percent of its interest in CAPCO and received net proceeds of approximately $103 million, resulting in a gain of approximately $33 million. The results of CAPCO have been deconsolidated to reflect the operations of this segment on a discontinued basis in the Statements of Income contained in this Form 10-K for all periods presented.
VME Group N.V. ("VME") is a joint venture owned 50% by the Company and 50% by A.B. Volvo of Sweden ("Volvo"). It is engaged in the manufacture and sale of construction and earthmoving equipment. On March 5, 1995, the Company entered into an agreement to sell all of its shares of VME to Volvo for a cash purchase price of $560 million. In addition, immediately prior to the sale, VME will pay a cash dividend to the Company of $13 million. The sale of the Company's VME shares to Volvo is expected to close early in April of 1995. VME is reflected as a discontinued operation in the Statements of Income which are included in this Form 10-K for all periods presented.
On July 31, 1992, the Company sold all of the outstanding stock of Clark Material Handling Company ("CMHC"), and certain other subsidiaries which comprised its material handling equipment business, to Terex Corporation ("Terex") for approximately $91 million. A gain of $8.5 million was recognized on the sale which has been included in discontinued operations. CMHC is reflected as a discontinued operation in the Statements of Income which are filed as a part of this Form 10-K. As a part of the sale, Terex and CMHC assumed substantially all of the obligations of the Company relating to the CMHC operation. In the event that Terex and CMHC fail to perform or are unable to discharge any of the assumed obligations, the Company could be required to discharge such obligations. This issue is discussed in more detail in the footnote captioned "Contingencies" in that portion of the Company's Annual Report to Stockholders which is attached hereto as Exhibit 13.
Backlog Orders
The approximate dollar backlog of orders believed to be firm was $221 million (which includes $20 million for Blaw-Knox but does not include Club Car) at December 31, 1994 and $125 million at December 31, 1993. Generally, Clark's customers may cancel their orders without incurring significant cancellation charges, and, therefore, Clark's backlog is essentially a report of the recorded intentions to purchase its products, which could change before the sales are completed. The backlog figures stated above are based on orders to Clark's factories or warehouses from Clark's independent dealers and other customers who buy directly from Clark's factories or warehouses.
Manufacturing
Melroe products are manufactured in the United States for sale throughout the world to a wide variety of users and industries, including the construction and agricultural industries. These products are distributed under the trademarks "Melroe" and "Bobcat". In addition, Melroe products are manufactured by a licensee in Australia.
Clark Hurth products are manufactured in the United States, Belgium and Italy for sale throughout the world primarily to the construction, mining and material handling equipment industries. In addition, Clark Hurth products are manufactured by licensees in South Africa and Brazil.
Blaw-Knox products are manufactured in the United States and England for sale throughout the world primarily to the highway construction and asphalt paving industries.
Club Car products are manufactured in the United States for sale throughout the world in the golf, recreational, commercial and industrial markets.
Distribution
Clark Hurth products are sold directly to customers by employee sales representatives and through manufacturers representatives and independent distributors. Melroe and Blaw-Knox products are sold primarily through independent dealers. Club Car products are sold directly to customers by employee sales representatives and through independent distributors and dealers. Clark maintains a large modern central parts warehouse in Chicago, which, in conjunction with a communications network and electronic data processing equipment, provide expeditious shipment of customers' and dealers' orders for repair and replacement parts for Melroe and VME products. Clark Hurth, Blaw-Knox and Club Car parts are distributed from their respective manufacturing facilities.
Operations Outside the United States
Operations outside the United States are subject to, among other things, the laws and regulations of foreign governments relating to investments, operations and currency restrictions, import and export duties and revaluations and fluctuations of currencies. Operations outside the United States are also subject to changes in governments and economic policies.
License fees from licensees outside the United States and Canada, other than from consolidated subsidiaries, and dividends from associated companies aggregated approximately $0.8 million in 1994, approximately $0.3 million in 1993 and approximately $0.4 million in 1992.
Raw Materials and Components
The principal raw materials and components purchased by the Company are steel; castings; engines and accessories; hydraulic motors, pumps, valves and cylinders; fabricated metal parts; fabricated plastic parts; tires and tubes; electrical equipment; drive train components; brakes and brake components; bearings; forgings; fasteners; bushings; electric motors; gears and gear blanks; screw machine products; seals; clutch plates; torque convertors; synchronizer rings; steering arms; CV joints; cardan shafts; seats; paint; sealants and adhesives; antifreeze; batteries; radiators; oil coolers; springs; shocks; chain; sprockets; glass; filters; fabricated plastic parts; injection molded plastics; control cables; aluminum extrusions; and rotational and vacuum formed plastics.
The items described above are purchased from a number of different suppliers, both on an individual purchase commitment basis and on a one-year blanket order basis. Multiple sources for most items are available, but substitution of engines and accessories, hydraulic motors, electrical equipment, brake assemblies, pumps, and valves, in the event they were to become unavailable from the usual sources, would in some instances require engineering modifications to the product in which they are used.
Energy
Clark's manufacturing operations and those of its suppliers depend to a substantial extent upon the availability of natural gas, fuel oil, propane, electricity, coal, uranium and generating capacity. Clark presently expects that its plants will be able to operate with little or no interruption resulting out of scarcity of energy through 1995.
Engineering and Product Development
An engineering staff is maintained at each of the principal manufacturing facilities of Clark. These staffs are supplemented by laboratories which provide technical support for product testing, materials research and process development. Approximately 225 engineering employees (engineers, designers, draftsmen and technicians) are presently engaged full time in engineering and product development activities. Approximately $15.6 million in 1994, $17.0 million in 1993 and $14.7 million in 1992 was spent on Company-sponsored activities relating to the development of new products and the improvement of existing products for Clark's continuing operations.
Approximately 47 employees of Club Car are presently engaged full time in engineering and product development activities. Club Car spent approximately $2.2 million, $2 million and $1.9 million on Company- sponsored engineering and product development activities during its fiscal years ending on September 25, 1994, September 26, 1993 and September 27, 1992 respectively.
Although Clark owns numerous patents and has patent applications pending, its business is not materially dependent upon patent protection.
Competition
Clark conducts its domestic and foreign operations under highly competitive conditions and its business is subject to cyclical influences and other factors. The customers for most of Clark's products are commercial, industrial or farm users who use the products in business for profit. Product performance and parts and service availability are primary considerations for these customers in the choice among competing products. Availability of rental and financing programs and warranty policies are also important considerations. In making a purchase decision, the above factors, plus the initial selling price, the date on which delivery can be made, and the general product reputation will be considered by the purchaser, and the order will normally be placed with the seller who comes closest to satisfying the purchaser's particular requirements of all of these factors.
Melroe is the leading producer of skid steer loaders in the United States and has approximately 9 significant competitors worldwide. Melroe also has approximately 6 significant competitors in its excavator line and 3 significant competitors in its agricultural spraying equipment product line.
Clark Hurth has approximately 19 significant competitors and is also subject to potential competition from its customers.
Blaw-Knox is the leading producer of asphalt paving equipment in the United States and has approximately 5 significant competitors in North America and 18 significant competitors in the rest of the world.
Club Car is one of the two largest manufacturers of golf cars and utility vehicles in the world and has approximately 5 significant competitors in each product line.
Customers
The Company is not dependent upon a single customer or a few customers, the loss of any one or more of which would have a material adverse effect on its operations.
Seasonality
Although Clark experiences slight seasonal variations in its sales of Melroe, Clark Hurth and Blaw-Knox products, Clark does not consider any material part of those businesses to be seasonal.
Club Car's peak sales of golf cars occur during the months of February through June when units are shipped to golf clubs at the beginning of their golf season. Warm weather states, such as California and Florida, have golf seasons beginning in the fall which stimulate fleet and retail sales during the fall. Sales of Club Car's utility vehicle products occur year-round but are heavier in the spring.
Environmental Compliance
Clark's facilities are subject to environmental regulation by federal, state and local authorities. In 1994, the Company spent approximately $2.1 million in connection with environmental compliance and cleanup activities. Capital expenditures for environmental control activities are not expected to be material for the remainder of 1995 and 1996. Clark is also involved in environmental cleanup activities or litigation in connection with former waste disposal sites and current and former plant locations. The Company has and will continue to make provisions for these cleanup costs as necessary and when the Company's liability can be reasonably estimated. As of December 31, 1994, the Company had reserves of $16 million for potential future environmental cleanup costs. Although the Company cannot determine whether or not a material effect on future operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of its potential liability for environmental cleanup costs. The Company further believes that the additional maximum exposure level in excess of the recorded reserve level would not be material to the financial condition of the Company. Although settlement of the reserves will cause future cash outlays, it is not expected that such outlays will materially impact the Company's liquidity position.
Employees
As of December 31, 1994, Clark employed 2,919 persons in North America and 1,491 persons outside North America. A portion of Clark's production, maintenance and warehouse employees in the United States are represented by local unions affiliated with the International Brotherhood of Teamsters, the United Automobile, Aerospace and Agricultural Implement Workers of America and the United Paperworkers International Union, which are affiliated with the AFL-CIO.
At the end of its fiscal year ending on September 25, 1994, Club Car had 683 full time and 160 temporary employees, none of whom were covered by a collective bargaining agreement.
Industry Segment and Geographic Area Discussion
Incorporated by reference to pages 38 and 39 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 2.



ITEM 2. PROPERTIES
Clark or a subsidiary of Clark owns the following principal facilities in fee, except where a lease is indicated:
Total Floor Space Leased Floor Space Principal Products Approximate Sq.Ft. Approximate Sq. Ft. Manufactured Plant Office Plant Office (in thousands) (in thousands) Melroe Bismarck, ND 375 48 - - Gwinner, ND 420 99 - 54 Fargo, ND - 22 - 22 Lot, Belgium 144 38 - - Other Melroe - 4 - 4 Clark Hurth Bruges, Belgium 312 19 - - Statesville, NC 423 60 18 - Buchanan, MI 52 10 13 - Arco, Italy 199 78 - - Valsugana, Italy 83 7 - - Rovereto, Italy 35 3 35 3 Blaw-Knox Mattoon, IL 347 47 - - Rochester, England 216 47 - - Manchester, England 7 - - - Coatbridge, Scotland 6 - - - Club Car Martinez, GA 273 60 - - Other - 86 - 86 Other Business Locations Corporate Headquarters- - 36 - 36 South Bend, IN Records Retention- - 15 - 15 South Bend, IN Clark Distribution Services- Chicago, IL 507 58 - - Bedford Park, IL 91 2 91 2 3,490 739 157 222
Clark owns the production equipment and machines at its plants, except for an insignificant number of items which are leased. All of Clark's principal plants and warehouse facilities are in good operating condition. In 1994, Clark sold idle facilities in Georgetown, Kentucky, Atlanta, Georgia and South Bend, Indiana.
In 1994 Clark's manufacturing plants (not including Club Car) operated at approximately 91% of capacity.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
In the Matter of Industrial Pretreatment Violations at Melroe Company, Gwinner, North Dakota
On October 5, 1992, the United States Environmental Protection Agency ("EPA") issued a Finding of Violation and Order for Compliance ("Order") which alleges that the Company has failed to comply with the pretreatment regulations promulgated pursuant to Section 306 and 307 of the
Clean Water Act. The Order alleges that certain metal finishing wastewaters generated at the Company's Melroe facility in Gwinner, North Dakota were discharged into the Publicly Owned Treatment Works operated by the City of Gwinner in violation of the applicable pretreatment regulations. The Order also alleges that the Company failed to comply with certain reporting requirements set forth in the pretreatment regulations. The Order requires the Company to comply with the discharge limitations for metal finishing wastewater and all related reporting requirements. The Company has taken all actions required of it under the Order.
On April 29, 1994, the U.S. filed suit against the Company in the United States District Court for the District of North Dakota. The complaint seeks (i) to permanently enjoin the Company to comply fully with all applicable requirements of the Act and Regulations and (ii) civil penalties against the Company of up to $25,000 per day for each violation for (a) alleged discharges of pollutants in violation of the effluent limitations contained in the pretreatment regulations, (b) failure to submit timely and complete reports and (c) a failure to sample and analyze its regulated wastewater prior to discharge into the POTW. This case is now in the discovery phase.
The Company believes that its liability, if any, in connection with this lawsuit is adequately covered by its reserve for environmental liabilities. The Company does not expect that this lawsuit will have a material adverse effect on the Company's financial condition, results of operations or liquidity position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT Name of Officer and Age as of Principal Occupation Positions/Offices March 1, Date First and Employment During Presently Held 1995 Elected Past Five Years
Leo J. McKernan* 57 5/22/86 Chairman, President and Chairman, President Chief Executive Officer of and Chief Executive Clark Equipment Company. Officer
Frank M. Sims* 62 3/17/87 Senior Vice President of Senior Vice President Clark Equipment Company.
Paul R. Bowles 57 9/22/89 Vice President - Corporate Vice President Development of Clark Equipment Company.
Thomas L. Doepker 51 7/13/84 Vice President and Vice President and Treasurer of Clark Treasurer Equipment Company.
William N. Harper 50 12/09/86 Vice President and Vice President and Controller of Clark Controller Equipment Company.
Bernard D. Henely 51 7/13/84 Vice President and Vice President, General Counsel of General Counsel and Clark Equipment Company. Secretary
David D. Hunter 54 10/24/94 President of Blaw-Knox Vice President Construction Equipment Corporation, a Business Unit of Clark Equipment Company. Prior to October 1994, Managing Director of European Operations of Clark Hurth Components Company. Prior to April 1992, Executive Vice President of Talley Industries Inc.
James D. Kertz 58 2/9/93 President of Melroe Company, Vice President a Business Unit of Clark Equipment Company. Prior to September 1992, Executive Vice President of Melroe Company.
John J. Reynolds 61 8/13/91 President of Clark Hurth Vice President Components Company, a Business Unit of Clark Equipment Company. Prior to April 1991, President of Cherry-Burrell Corporation- automatic packaging and processing equipment. * Member of the Board of Directors of the Company. Each officer's term expires at the annual meeting of the Board of Directors on May 9, 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to page 41 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to page 45 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to pages 1 through 11 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to pages 12 through 38, 40 and 41 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
Also see Index to Financial Statements on page 13 of this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Registrant is incorporated by reference to the section in the Company's Proxy Statement which is captioned "Identification of Nominees for Director". Information regarding the executive officers of the Registrant is set forth in Part I of this report under the caption "Executive Officers of the Registrant".
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the sections in the Company's Proxy Statement which are captioned "Executive Compensation", "Stock Option/SAR Tables", "Executive Employment Contracts", "Retirement Program", "Director Compensation Arrangements", and "Stock Acquisition Plan for Non-Employee Directors".
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section in the Company's Proxy Statement which is captioned "Security Ownership of Certain Beneficial Owners and Management".
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Incorporated by reference to pages 12 through 45 of that portion of the Company's Annual Report which is attached hereto as Exhibit 13.
2. Financial Statement Schedule (see index on page 13 of this report).
3. Exhibits:
See Exhibit List and Index attached. Exhibits numbered (10)(a) through (10)(aa) are management contracts and compensatory plans or arrangements.
(b) Reports on Form 8-K:
1. The Registrant filed a Form 8-K dated October 26, 1994 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS AND EXHIBITS.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of March 1995.
CLARK EQUIPMENT COMPANY
By /s/ Leo J. McKernan Leo J. McKernan Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes B. D. Henely and John J. Moran, Jr. and each of them severally, with full power in each to act without the other and with full power of substitution and resubstitution, to execute in the name of each such person, and to file any amendments to this report as the registrant deems appropriate, and appoints such persons as attorneys-in-fact to sign on his behalf individually, and in each capacity stated below, and file all amendments to this report.
SIGNATURE TITLE DATE
/s/ Leo J. McKernan Chairman, President, Chief March 31, 1995 Leo J. McKernan Executive Officer and Director (Principal Executive Officer)
/s/ William N. Harper Vice President and Controller March 31, 1995 William N. Harper (Principal Financial Officer and Principal Accounting Officer)
Directors
/s/ James C. Chapman James C. Chapman Director )
/s/ Donald N. Frey Donald N. Frey Director )
/s/ James A.D. Geier James A.D. Geier Director )
/s/ Gaynor N. Kelley Gaynor N. Kelley Director ) March 31, 1995
/s/ Ray B. Mundt Ray B. Mundt Director )
/s/ Frank M. Sims Frank M. Sims Director )
CLARK EQUIPMENT COMPANY
The financial statements of Clark Equipment Company and its consolidated subsidiaries, together with the report thereon of Price Waterhouse LLP dated March 6, 1995, appearing on pages 12 through 45 of that portion of the Company's 1994 Annual Report which is attached hereto as Exhibit 13, are incorporated by reference in this Form 10-K Annual Report. The following additional financial data should be read in conjunction with such financial statements. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
The consolidated financial statements of VME Group N.V. (VME) and its subsidiaries have been incorporated beginning on page 16 of this report. VME, at December 31, 1994, was a joint venture owned 50 percent each by Clark Equipment Company and A.B. Volvo of Sweden. The Company has agreed to sell its shares of VME to A.B. Volvo and the sale is expected to close in early April 1995.
Financial statements of other unconsolidated majority owned subsidiaries and 50% or less owned persons have been omitted because the proportionate share of the pre-tax income and total assets of each such company is less than 20% of the respective amounts for the registrant and its consolidated subsidiaries, and the investment in and advances to each company is less than 20% of total assets of the registrant and its consolidated subsidiaries.
Additional Information: Page
Report of Independent Accountants on Financial Statement Schedule 14
Clark Equipment Company and Consolidated Subsidiaries- Schedule II 15
VME Group N.V. and its subsidiaries Consolidated Financial Statements and Notes to Consolidated Financial Statements 16 through 43
Report of KPMG Bohlins AB on the Financial Statements of VME Holding Sweden AB 44 AND 45
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors Clark Equipment Company South Bend, Indiana
Our audits of the consolidated financial statements referred to in our report dated March 6, 1995 appearing in the 1994 Annual Report to Stockholders of Clark Equipment Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse
Price Waterhouse South Bend, Indiana March 6, 1995
VME GROUP N.V.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
VME GROUP N.V.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
* Report of Independent Accountants.
* Consolidated Balance Sheet as of December 31, 1994 and 1993.
* Consolidated Statement of Operations for each of the years in the three year period ended December 31, 1994.
* Consolidated Statement of Cash Flows for each of the years in the three year period ended December 31, 1994.
* Notes to Consolidated Financial Statements.
SUPPLEMENTAL SCHEDULE
II Valuation and Qualifying Accounts
SCHEDULES OMITTED
* Other schedules required by Regulation S-X are omitted because of absence of the conditions under which they are required or because information called for is shown in the financial statements and notes thereto.
BP America Building Telephone 216 781 3700 200 Public Square 27th Floor Cleveland, Ohio 44114-2301
Price Waterhouse LLP
Report of Independent Accountants
To the Board of Directors and Shareholders of VME Group N.V.
In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheet and the related consolidated statements of operations and of cash flows present fairly, in all material respects, the financial position of VME Group N.V. and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries, which statements reflect total assets of $489,725,000 and $412,300,000 at December 31, 1994 and 1993, respectively, and total revenues of $648,270,000, $511,000,000 and $586,800,000 for the three years in the period ended December 31, 1994, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiaries, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion expressed above.
As discussed in Notes 3 and 19, the Company changed its method of accounting for income taxes and postretirement benefits effective January 1, 1993.
/s/ Price Waterhouse LLP
Cleveland, Ohio February 27, 1995, except as to Note 24, which is as of March 6, 1995
VME GROUP N.V.
CONSOLIDATED BALANCE SHEET (Amounts in millions, except share and per share amounts)
December 31, 1994 1993 ASSETS Current assets: Cash and cash equivalents $ 58.9 $ 36.2 Receivables 213.0 167.9 Inventories 319.7 271.2 Other assets 68.8 48.0 Total current assets 660.4 523.3
Long-term assets: Property, plant and equipment, net 158.9 152.8 Other assets 13.8 17.9 Goodwill 120.0 84.3 Total assets $ 953.1 $ 778.3 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable $ 142.2 $ 90.3 Short-term debt 16.5 52.2 Current portion of long-term debt 8.3 4.3 Other liabilities 242.1 152.1 Total current liabilities 409.1 298.9
Long-term liabilities: Debt 54.5 127.1 Shareholders' loans 70.0 70.0 Pension liability 58.6 80.9 Other 40.4 23.0 Total liabilities 632.6 599.9
Commitments and contingencies
Minority interests 10.1 20.0
Shareholders' equity: Common stock: $516 par value - 129.0 129.0 authorized 600,000 shares; issued and outstanding 250,000 shares Paid in capital 80.9 80.9 Retained earnings (deficit) 97.9 (34.2) Cumulative translation adjustments 26.1 7.0 Pension adjustments (23.5) (24.3) Total shareholders' equity 310.4 158.4 ________ ________ Total liabilities and shareholders' equity $ 953.1 $ 778.3 ======== ======== The accompanying notes are an integral part of these financial statements.
VME GROUP N.V.
CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in millions, except per share amounts)
Year Ended December 31, 1994 1993 1992
Sales $1,566.0 $1,239.3 $1,357.3 Cost of sales (1,141.8) (958.0) (1,169.3) Gross profit 424.2 281.3 188.0
Selling, general and administrative expense (226.8) (211.3) (237.4) Restructuring cost - - (18.7) Other income (expense) 12.6 (5.3) (6.6) Operating income (loss) 210.0 64.7 (74.7)
Financial income and expense :
Interest income 7.7 5.8 8.4 Interest expense (18.0) (32.2) (47.0)
Interest expense, net (10.3) (26.4) (38.6)
Income (loss) before income taxes, minority interests and effect of change in accounting 199.7 38.3 (113.3)
Benefit (provision) for income taxes (66.5) (17.9) 23.4
Income (loss) before minority interests and effect of change in accounting 133.2 20.4 (89.9)
Minority interests (1.1) (2.7) (3.7)
Income (loss) before effect of change in accounting 132.1 17.7 (93.6)
Effect of change in accounting for income taxes - 12.3 -
Net income (loss) $ 132.1 $ 30.0 $ (93.6) ======== ======== ========
Per share information : Income (loss) before effect of change in accounting $ 528.40 $ 70.95 $(374.47) Effect of change in accounting for income taxes - 49.14 -
Net income (loss) $ 528.40 $120.09 $(374.47) ========= ========= =========
The accompanying notes are an integral part of these financial statements.
VME GROUP N.V. CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in millions) Year Ended December 31, 1994 1993 1992 Cash flows from operating activities: Net income (loss) $ 132.1 $ 30.0 $ (93.6) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 31.0 31.5 42.5 Effect of change in accounting for income taxes - (12.3) - (Gain) loss on sale of fixed assets and subsidiaries (1.1) 0.3 (5.3) Minority interest in net income 1.1 2.7 3.7 Undistributed losses of affiliates - 0.3 0.2 Increase (decrease) in cash flow from changes in: Receivables (12.7) (32.9) 10.0 Inventories (23.3) 21.0 75.8 Accounts payable 16.2 25.6 23.5 Accrued expenses 80.9 16.8 (11.4) Pension liability (27.9) 5.6 9.8 Deferred taxes 5.4 3.7 (36.1) Other (9.5) (6.8) 0.7 Net cash provided by operating activities 192.2 85.5 19.8 Cash flows from investing activities: Proceeds from sale of fixed assets 2.6 14.1 19.2 Capital expenditures (24.7) (21.3) (29.8) Contribution received for joint venture interest 3.2 6.0 - Sale of subsidiaries - - 2.6 Purchase of minority interest in Zettelmeyer (39.9) - - Decrease (increase) in other assets 5.2 7.4 (16.9) Net cash provided by (used in) investing activities (53.6) 6.2 (24.9)
Cash flows from financing activities: Net payments on line of credit borrowings (39.8) (178.7) (21.5) Proceeds from issuance of debt 0.1 73.0 - Debt repayment (80.9) (46.2) (59.5) Proceeds from financing arrangements - - 59.1 Proceeds from shareholders' loans - - 70.0 Capital contribution - - 30.0 Net cash provided by (used in) financing activities (120.6) (151.9) 78.1
Effect of exchange rate changes on cash 4.7 (4.9) (4.9) Net increase (decrease) in cash and cash equivalents 22.7 (65.1) 68.1 Cash and cash equivalents, beginning of year 36.2 101.3 33.2 Cash and cash equivalents, end of year $ 58.9 $ 36.2 $ 101.3 ======= ======= ======= The accompanying notes are an integral part of these financial statements.
VME GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in millions)
Note 1 - Basis of Presentation and Principles of Consolidation
VME Group N.V. (the Company, VME) is a Netherlands holding company formed on March 28, 1985 to hold, together with Clark Equipment Company (Clark) and AB Volvo, the common stock of its two significant operating subsidiaries, VME Americas Inc. (VMEA), a Delaware Corporation, and VME Holding Sweden AB (VMEHS), a Swedish corporation. AB Volvo and Clark until December 22, 1993, held equal cross-ownership positions in VMEA and VMEHS. On December 22, 1993, Clark and AB Volvo contributed their respective ownership interests in VMEA and VMEHS to VME Group N.V., which resulted in VMEA and VMEHS becoming wholly-owned subsidiaries of the Company. Such contributions were accounted for as transactions between entities under common control. Accordingly, financial statements of the Company have been prepared on a historical cost basis and reflect such contributions on a retroactive basis for all periods presented.
Investments and results of operations of companies in which the Company holds more than 50% of the issued capital stock, are included in the consolidated accounts. Companies in which the Company holds investments between 20% and 50% are accounted for utilizing the equity method of accounting and investments below 20% are accounted for at cost. All material balances and transactions between the entities comprising the Company have been eliminated.
Note 2 - Description of Business
The Company is engaged in the design, manufacture and marketing of off-highway construction and earth-moving equipment in most world markets. This equipment is comprised of wheel loaders, articulated and rigid haulers and hydraulic excavators. The majority of sales are made to end users through a worldwide network of affiliated and independent distributors. The Company does not have significant exposure to any individual customer or distributor. The sale of replacement parts is an important component of the Company's business.
Note 3 - Summary of Significant Accounting Policies
Revenue Recognition Revenues are recognized upon shipment of units and service parts. A provision is made for discounts, returns and recourse obligations under dealer financing arrangements.
Inventories Inventories of non-U.S. operations are valued at the lower of cost utilizing the first-in, first-out (FIFO) method or market. Substantially all U.S. owned inventories are valued at the lower of cost utilizing the last-in, first-out (LIFO) method or market.
Note 3 - Summary of Significant Accounting Policies (cont'd)
Properties and Depreciation Property, plant and equipment are carried at cost. Expenditures for maintenance and repairs are charged to income as incurred and expenditures for major renewals and betterments are capitalized. Depreciation is provided over the useful lives of the assets using primarily the straight-line method. Properties retired or sold are removed from the property accounts with gains or losses on disposal included in income. The useful lives of the assets are primarily as follows :
Years Buildings 25 - 50 Machinery and equipment 5 - 10 Motor vehicles 5 Furniture and fixtures 3
Goodwill Goodwill represents the excess of the total costs of businesses acquired over the fair market value of their net assets. Goodwill is being amortized on the straight-line method over a period of 40 years. Accumulated amortization expense was $10.4 in 1994 and $6.3 in 1993.
Management periodically assesses the need to record provisions for the impairment of long-lived assets by comparing their best estimate of undiscounted future cash flows before interest payments to the net book value of significant assets or businesses, including goodwill. Management considers current business plans, the cyclical nature of the global earth-moving and construction equipment industry and other factors. If projected cash flows are less than the assets' recorded value, impairment would be recorded using a fair value concept. Fair value is computed utilizing a discounted cash flow model.
Management also periodically considers the appropriateness of the remaining economic life of goodwill.
Warranties Provision is made currently for estimated future costs that are expected to be incurred under product warranties presently in force.
Pension Plans The Company accrues the cost of pension and retirement plans which cover substantially all employees. Benefits are based on employees' years of service and compensation. Pension costs, for defined benefit plans, are primarily computed using the unit credit method. Non-U.S. plans are funded in accordance with local laws and income tax regulations. The board of directors adopted a plan in 1994 to substantially decrease its underfunded U.S. pension status by 1996. U.S. plans' assets are invested primarily in listed stocks, guaranteed investment contracts and corporate bonds.
Product Liability The Company accrues its best estimate of the most likely amount of settlement or claim liability for all asserted claims. For unasserted claims, the Company records an estimate of liability for incurred but not reported claims based on historical amounts of claims and settlements and reporting lag time.
Note 3 - Summary of Significant Accounting Policies (cont'd)
Income Taxes In January 1993, the Company adopted Statement of Financial Accounting Standard No. 109 (FAS 109) "Accounting for Income Taxes". The adoption of FAS 109 changes the method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously, the Company deferred the past tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences or temporary differences between the carrying amount and the tax bases of assets and liabilities. The adoption resulted in the recognition of a net tax benefit of $12.3. No provision for income taxes is made on $160.4 of undistributed earnings from consolidated subsidiaries, which have been or will be reinvested, and it is not practicable to quantify the amount of such taxes if remitted.
Derivative Financial Instruments The Company attempts to limit its financial exposure to the effects of potential currency exchange rate fluctuations on balance sheet positions and cash flows corresponding to expected cross border transactions. The Company utilizes currency swap contracts to hedge balance sheet positions, and forward exchange and purchased option contracts to hedge future cash flows and avoid speculative positions which may impact expected profitability. The Company limits its use of financial instruments so that it is reasonably assured that the transactions it intends to protect will occur. Because the Company bases its hedging on expected net currency cash flows and does not designate its currency contracts as hedges of specific balance sheet items or firm currency commitments, it does not achieve hedge accounting treatment. Accordingly, all exchange contracts are marked to market each period end and recognized as Other income (expense).
Fair Value of Financial Instruments Pursuant to Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", the carrying amount of cash, trade receivables and payables approximates fair value because of the short maturity of those instruments. The carrying value of the Company's long-term debt is considered to approximate the fair value of these instruments based on the borrowing rates currently available to the Company for loans with similar terms and maturities.
The fair value of derivatives, which is equal to their carrying amount, generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at year end, thereby taking into account the current unrealized gains or losses of open contracts. Market quotes are available for all of the Company's derivative financial instruments.
Note 3 - Summary of Significant Accounting Policies (cont'd)
Foreign Currency Translation Foreign currency translation of substantially all assets and liabilities of non-U.S. affiliates is computed using period end currency exchange rates; equity is translated utilizing historical rates. Income and expenses are tranlated using average exchange rates for the period. For subsidiaries whose business activities are based mainly on the U.S. dollar or who operate in a "highly inflationary economy", the financial statements are remeasured into U.S. dollars using: (1) current exchange rates at the balance sheet date for all liabilities and current assets except inventories and prepaid expenses, (2) exchange rates at the time of acquisition for prepaid expenses, inven- tories and properties, and (3) weighted average monthly exchange rates for the year for income and expense amounts, except depreciation and cost of goods sold. The resulting translation gains and losses are included in income.
The dollar is the functional currency for the U.S., Canadian and Brazilian subsidiaries. For all other subsidiaries, the local currency of the country in which the subsidiary operates and transacts its principal business is the relevant functional currency. Such countries include Sweden, Germany, Great Britain, France and Spain.
Exchange (gains) and losses included in the Consolidated Statement of Operations were $(3.0), $18.8 and $15.9 in 1994, 1993 and 1992, respectively.
Reclassifications Certain reclassifications have been made for all years presented in the Consolidated Financial Statements to conform to the classifications adopted in 1994.
Note 4 - Acquisitions and Dispositions
On January 1, 1994, the Company increased its holding in Zettelmeyer Baumaschinen GmbH (Zettelmeyer) to 100% by acquiring the remaining 30% minority interest for $39.9. The fair value of the assets acquired and obligations assumed approximated their net book values; accordingly, the additional purchase consideration was charged principally to goodwill.
During 1993, the Company contributed stock and the book value of specific assets and liabilities in return for an 80.5% ownership interest in a company established as a joint venture with Hitachi Construction Machinery Company, Ltd (HCMC). HCMC contributed cash equal to 19.5% of the total net assets. The joint venture company, Euclid-Hitachi Heavy Equipment, Inc (Euclid-Hitachi), is consolidated in the Company's financial statements. HCMC will increase its ownership interest in Euclid-Hitachi by purchasing additional shares from the Company and subscribing for new shares of Euclid-Hitachi prior to December 31, 1996. The terms of the joint venture agreement limit HCMC to an ownership interest of less than 50% in Euclid-Hitachi.
Note 5 - Statement of Cash Flows
VME considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The following payments were made for: Year Ended December 31, 1994 1993 1992 Interest $ 18.4 $ 35.2 $ 63.7 Income taxes 9.1 6.3 6.4
Note 6 - Supplementary Information to Statement of Operations
Costs and expenses include : Year Ended December 31, 1994 1993 1992 Research and development $ 49.3 $ 38.5 $ 59.9 Maintenance and repairs 26.3 21.8 28.0
Other Income (expense) includes : 1994 1993 1992 Exchange gains (losses) $ 10.0 $ (0.9) $ (11.3) Gain (loss) on sales of assets 1.1 (0.3) 5.3 Other 1.5 (4.1) (0.6) $ 12.6 $ (5.3) $ (6.6) ====== ====== =======
A charge in 1992 for restructuring costs of $18.7 has been made in costs and expenses relating to the decision to restructure the Group's distribution organization and production facilities in North America, to improve cost efficiency and increase the manufacturing productivity and to relocate the German distribution company. The remaining restructuring reserve relating to these activities was $4.3 and $5.9 at year end 1994 and 1993, respectively. The restructuring reserve relating to Akermans Verkstad AB aggregated $1.3 and $1.4 at year end 1994 and 1993, respectively.
Note 7 - Distributor Financing Arrangements
As a service to distributors in selected geographic areas, the Company has financing agreements with certain financial institutions to assist in the financing of distributor inventory. In general, these agreements require the Company to make monthly interest payments to the financial institutions for a predetermined period or until the inventory is sold by the distributor, whichever occurs first.
Financing expenses incurred in conjunction with the above agreements were $8.7, $5.7 and $5.5 in 1994, 1993 and 1992, respectively, and were reflected in selling expenses. The interest rates charged on the above agreements are adjusted based on changes in the prime rate. The financial institutions' aggregate distributor receivable balances were $182.8 and $142.2 at December 31, 1994 and 1993, respectively. The Company's credit risk with respect to these receivable balances is not significant.
Note 8 - Income Taxes The provision for income taxes is based on separate tax computations for each entity. Income (loss) before income taxes and minority interests is reported below: Year Ended December 31, 1994 1993 1992 Netherlands $ 0.9 $ 0.1 $ 0.7 U.S. 15.4 4.1 (16.0) Other, principally Sweden 183.4 34.1 (98.0) $ 199.7 $ 38.3 $(113.3) ======= ======= =======
The provision (benefit) for income taxes consists of the following:
Year Ended December 31, Current tax expense: 1994 1993 1992 Netherlands - - - U.S. 3.8 7.9 - Other, principally Sweden 56.1 8.2 13.2 59.9 16.1 13.2 Deferred tax expense (benefit): Netherlands - - - U.S. 4.6 (1.5) - Other, principally Sweden 2.0 3.3 (36.6) 6.6 1.8 (36.6) _______ _______ _______
Total income tax expense (benefit) $ 66.5 $ 17.9 $ (23.4) ======= ======= ======= Tax legislation in Sweden and certain other countries allows companies to reduce their current taxable income through allocations to untaxed reserves at which time, deferred tax provisions are recorded. Reversal of such reserves generates current taxable income and a reduction of the deferred tax liabilities. Deferred income taxes apply to temporary differences primarily resulting from allocations to untaxed reserves (principally inventory and fixed assets related) and other differences between income before income taxes for financial reporting and tax purposes. Deferred tax benefits in 1992 are mainly comprised of the reversal of untaxed reserves of $21.6 and sale and lease-back of property in the amount of $13.3.
Following is a reconciliation of income tax expense (benefit) from the U.S. statutory rate to the effective tax rate (the U.S. statutory rate is utilized as the Netherlands holding company does not generate significant taxable income) : Year Ended December 31, 1994 1993 1992 Provision (benefit) for taxes at US statutory rate $ 69.9 $ 13.1 $ (38.5) Effect of permanent differences between tax and financial income (1.6) 2.0 (0.5) Losses with no available tax benefits 1.2 2.0 17.6 Earnings taxed at other than U.S. rate (11.1) 0.1 (6.1) Change in valuation allowance resulting from utilization of net operating loss carryforwards (2.2) (7.5) - Accrual for potential disallowances 11.0 8.3 1.1 Other (0.7) (0.1) 3.0 Provision (benefit) for taxes at effective tax rate $ 66.5 $ 17.9 $ (23.4) ======== ======== =======
Note 8 - Income Taxes (continued)
Deferred tax assets and liabilities are comprised of the following: 1994 1993 Deferred tax assets relating to :
Accounts receivable $ 0.5 $ 0.3 Inventories 6.7 6.0 Fixed assets 8.3 8.0 Pension and postretirement benefits 11.1 14.7 Expense accruals and reserves 13.7 11.5 Net operating loss and credit carryforwards 14.4 17.0 Other 6.1 5.0 Total deferred tax assets before valuation allowance 60.8 62.5 Deferred tax assets valuation allowance (27.2) (31.0) Net tax asset $ 33.6 $ 31.5 ====== ====== Deferred tax liabilties relating to :
Accounts receivable $ 0.1 $ - Inventories 7.7 8.0 Fixed assets 13.0 12.7 Pensions 7.6 5.2 Other 11.9 5.2 Gross deferred tax liabilities $ 40.3 $ 31.1 ====== ======
Euclid-Hitachi's Canadian subsidiary has $16 of loss carryforwards, which expire in 1998, available to reduce future taxable income. In addition, for Canadian income tax purposes, this subsidiary has available certain depreciation allowances aggregating $5.7, which may be utilized to reduce future taxable income in succeeding years. The amount of such depreciation allowance that may be deducted in any one specific year is subject to certain limitations.
The Company's Brazilian subsidiary has $1.9 in tax credits that can be offset against future income up to 1998.
Other subsidiaries in the Company have $6.9 of operating loss carryforwards available to offset future taxable income, most of which expire in the years 1996 through 1998.
Note 9 - Receivables December 31, Receivables consist of the following: 1994 1993
Notes receivable - trade $ 24.5 $ 12.4 Trade receivables 196.2 158.8 Other receivables 6.1 6.9 Less: Allowance for doubtful accounts (13.8) (10.2) $ 213.0 $ 167.9 ======= =======
Note 10 - Inventories December 31, Inventories consist of the following: 1994 1993
Sales products $ 198.9 $ 187.3 Work in process 80.7 57.4 Raw materials 73.0 59.5 Reserves (32.9) (33.0) $ 319.7 $ 271.2 ======= =======
FIFO values of U.S. inventories exceeded LIFO values by $6.8 in 1994 and $6.9 in 1993. Inventories valued using the LIFO method comprised 20% and 17% of consolidated inventories in 1994 and 1993, respectively.
Note 11 - Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, 1994 Accumulated Net Cost Depreciation Book Value Land and land improvements $ 16.1 $ 4.8 $ 11.3 Buildings 120.3 48.5 71.8 Machinery and equipment 260.4 184.6 75.8 $ 396.8 $ 237.9 $ 158.9 ======= ======= =======
December 31, 1993 Accumulated Net Cost Depreciation Book Value Land and land improvements $ 14.6 $ 4.1 $ 10.5 Buildings 110.7 41.2 69.5 Machinery and equipment 234.7 161.9 72.8 $ 360.0 $ 207.2 $ 152.8 ======= ======= =======
Depreciation expense, including amortization on capitalized leases, was $27.8, $29.1 and $39.6 for the years 1994, 1993 and 1992, respectively.
Note 12 - Short-term Debt
Short-term debt consists of the following:
December 31, 1994 Line of Interest Credit Amount Currencies Rate * Available Outstanding
North America - $ 2.5 $ - Europe USD,FRF,ESP,DEM 7.37% 103.3 8.2 Brazil USD 11.88% 28.0 8.3 Australia - 5.5 - $ 139.3 $ 16.5 ======= =======
December 31, 1993 Line of Interest Credit Amount Currencies Rate * Available Outstanding
Europe DEM,USD,ESP,FRF 6.84% $ 83.1 $ 43.6 Brazil USD 8.06% 21.7 5.1 Australia AUD 5.85% 5.5 3.5 $ 110.3 $ 52.2 ======= ======= * Represents weighted average year-end rates.
The line of credit arrangements require payment of variable interest rates and commitment fees ranging from zero to 0.75% per year of the individual line of credit.
Note 13 - Other Current Liabilities
Other current liabilities consist of the December 31, following: 1994 1993
Salaries, wages and other employee costs $ 67.1 $ 50.7 Warranty obligations 35.1 28.7 Dealer discounts 5.8 5.4 Income taxes 71.1 18.1 Accrued expenses and deferred income 40.7 21.9 Other 22.3 27.3 $ 242.1 $ 152.1 ======= =======
Note 14 - Long-Term Debt December 31, The following is a summary of long-term debt: 1994 1993 Swedish Kronor Bank notes with fixed and variable interest rates ranging from 6.8% to 13.2% payable in annual installments over a ten-year period $ 5.0 $ 5.6 Revolving Multi Currency Credit Agreement of $250.0 with variable interest rates ranging from 6.1% to 8.9% and for a term of three years - 44.1 Credit Facility Agreement with a German bank of DEM 45.0 with an interest rate of 10.6% and for a term of three years - 26.0 Capital lease obligations in various currencies with fixed and variable interest rates ranging from 6.8% to 11.8% payable through 2035 14.9 14.4 Financing obligation in Swedish Kronor under sale leaseback transaction to be repaid over 20 years ending August, 2012 bearing interest fixed at 10.05% through 1998 42.9 41.3 Total 62.8 131.4 Less: Current portion of long-term debt (8.3) (4.3)
Total long-term debt $ 54.5 $ 127.1 ======= ======= The Company leases buildings, land and equipment under capital lease and financing arrangements. The related net assets of $27.4 and $26.6 in 1994 and 1993, respectively, are recorded in property, plant and equipment.
Long-term debt at December 31, 1994 matures as follows: 1995 $ 8.3 1996 4.9 1997 5.0 1998 5.0 1999 5.1 Thereafter 34.5 $ 62.8 ======= On December 22, 1994, the Company signed an unsecured $150 multicurrency revolving credit agreement with a group of banks for a term of five years. Borrowings on this facility will bear interest in a range from LIBOR +0.5% to LIBOR +0.9%. The Company is subject to leverage and cash flow covenants under this facility. In addtion, the Company is obligated to pay a commitment fee ranging from 0.25% to 0.45% on the undrawn and uncancelled amount of the facility. Concurrently, the Company cancelled the $250 revolving credit facility signed on February 22, 1993 and received release of assets pledged as security to this agreement.
On December 30, 1994, the Company paid and cancelled the DEM 45 credit facility agreement and thereby obtained release of the pledged shares in Zettelmeyer Baumaschinen GmbH.
Note 15 - Shareholders' loans
Shareholders' loans totalling $70.0 with a term of three years were made by the shareholders to the Company at the end of 1992. The loans were subordinated to the $250.0 Revolving Credit Facility agreement and the DEM 45.0 Credit Facility agreement until 1994, at which time they were no longer subordinated. The loans bear interest of LIBOR plus 1.3% per annum and are due January 31, 1996.
Note 16 - Leases and Commitments
The Company incurred rent expense of $ 20.1, $17.0 and $22.7 in 1994, 1993 and 1992, respectively. Future minimum rental commitments under noncancellable operating leases at December 31, 1994 are as follows:
1995 $ 20.4 1996 16.5 1997 13.0 1998 6.5 1999 5.9 Thereafter 36.8
The Company rents equipment to others under operating lease agreements. In 1994, 1993 and 1992, the Company received rental income of $14.1, $11.9 and $9.5, respectively. The net book value of property leased to others aggregated $17.6 and $15.4 at December 31, 1994 and December 31, 1993, respectively. Future minimum rental income under noncancellable operating leases at December 31, 1994 is as follows:
1995 $ 10.0 1996 1.4 1997 0.8 1998 0.5 1999 0.3 Thereafter 3.3
Note 17 - Derivative Financial Instruments and Risk Management
The Company operates internationally, giving rise to significant exposure to fluctuations in currency exchange rates. Derivative financial instruments are utilized by the Company to reduce those risks. The Company does not hold or issue financial instruments for trading purposes.
Counterparty credit risk
The risk associated with counterparty default on financial instruments is measured as the cost of replacing, at prevailing market prices, those contracts with a fair value in excess of their contractual amount at period end. The counterparties to the financial instruments listed below are major international financial institutions with high credit ratings. Accordingly, the Company believes its credit risk exposure to be insignificant.
Note 17 - Derivative Financial Instruments and Risk Management (cont'd)
Currency risk management
The Company enters into various types of financial instruments in managing its currency exchange risk, as indicated in the following table :
December 31, 1994 December 31, 1993 Contract Fair Contract Fair Amount Value Amount Value
Forward exchange contracts $ 232.6 $ 3.6 $ 205.0 $ 2.0 Currency options 305.5 10.3 56.0 - Currency swap contracts 135.6 (2.0) 53.4 0.9
See Note 3, "Summary of Significant Accounting Policies - Fair Value of Financial Instruments" for definition of fair value. Positive carrying amounts represent assets which are recorded in other current assets. Negative carrying amounts represent liabilities which are recorded in other current liabilities.
There are no deferred gains or losses on the contracts, all of which expire in the next year. The net unrealized currency gain recognized was $1.8 and $2.9 in 1994 and 1993, respectively.
Note 18 - Pensions
The total pension expense charged to operations for 1994, 1993 and 1992 was $38.0, $33.8 and $47.8, respectively.
In Sweden, most of the plans are administered by governmental or quasi-governmental organizations. Such plans are accounted for in accordance with Financial Accounting Standard No. 87 (FAS 87). In Sweden, the Company accrues pension costs, but is only required to fund a portion of these costs. Annual pension costs include an interest factor on the unfunded obligations. Actuarial information, as supplied by the governmental agency for the plans they administer, indicates that the accrued pension costs approximate the actuarially computed value of vested and non-vested plan benefits.
Pension expense for the defined contribution plans, principally Swedish, was $28.1, $24.9 and $37.3 in 1994, 1993 and 1992, respectively. Certain employees are also covered by insured plans which supplement the benefits received from the defined contribution plans.
In the United States, Canada and for certain employee groups in Europe, principally Sweden, employees are covered by defined benefit plans.
Note 18 - Pensions (continued)
U.S. and European (Principally Swedish) Plans Net periodic pension cost on defined benefit plans consists of the following: Year ended December 31, 1994 1993 1992 Europe U.S. Europe U.S. Europe U.S. Service cost - benefits earned during the period $ 1.1 $ 0.9 $ 0.8 $ 1.0 $ 1.1 $ 0.9 Interest cost on projected benefit obligation 4.4 8.1 5.3 8.3 6.6 8.3 Actual return on plan assets - 0.6 - (5.0) - (3.2) Net amortization and deferral (0.7) (4.3) (0.6) (0.1) (0.7) (2.0) $ 4.8 $ 5.3 $ 5.5 $ 4.2 $ 7.0 $ 4.0 ===== ====== ====== ===== ====== ====== Assumptions used to develop the net periodic pension cost at the beginning of each year were as follows: Year ended December 31, 1994 1993 1992 Europe U.S. Europe U.S. Europe U.S. Discount rate 10.0% 7.5% 10.0% 8.5% 10.0% 8.5% Long term rate of return on plan assets - 9.1 - 9.1 - 9.1 Rate of increase in compensation levels 4.5 4.0 4.5 4.0 6.0 5.5
The following table sets forth the discount rates and funded status of these plans at: Year ended December 31, 1994 1993 Europe U.S. Europe U.S. Weighted average discount rate used in determining the benefit obligations below : 8.5% 8.7% 10.0% 7.5% ==== ==== ===== ==== Actuarial present value of accumulated benefit obligation: Vested benefits $ 43.8 $ 94.7 $ 47.0 $ 99.8 Non-vested benefits - 3.7 - 5.3 Accumulated benefit obligation $ 43.8 $ 98.4 $ 47.0 $105.1 ====== ====== ====== ======
Projected benefit obligation $(47.2)$(101.1) $(47.4)$(109.1) Plan assets at fair value - 75.8 - 69.7 Projected benefit obligation in excess of plan assets (47.2) (25.3) (47.4) (39.4) Unrecognized net loss from actuarial experiences - 26.7 - 29.0 Unrecognized prior service cost - 0.1 - 0.1 Unamortized net(asset) liability existing at date of adoption of FAS 87 (5.5) 5.0 (5.5) 5.5 Liabilities for other plans (2.3) - (3.8) - Adjustment required to recognize minimum liability - (29.1) - (30.6) Total pension liability (55.0) (22.6) (56.7) (35.4) Less: current portion - 19.0 - 11.2 Total long-term pension liability $(55.0) $ (3.6) $(56.7) $(24.2) ====== ======= ======= =======
Note 18 - Pensions (continued)
Canadian Plans
Net periodic pension income included the following :
Year ended December 31, 1994 1993 1992 Service cost - benefits earned during the period $ 0.3 $ 0.2 $ 0.3 Interest cost on projected benefit obligation 0.5 0.3 1.0 Actual return on plan assets (0.8) (1.1) (1.5) Net amortization and deferral (0.2) (0.2) (0.3) Net periodic pension income $ (0.2) $ (0.8) $ (0.5) ======= ======= ======= Assumptions used to develop the net periodic pension income at the beginning of each year were as follows :
1994 1993 1992
Discount rate 7.5% 9.5% 9.5%
Long-term rate of return on plan assets 7.5% 9.5% 9.5%
Rate of increase in compensation levels 4.0% 5.5% 5.5%
The following table sets forth the Plans' funded status at:
December 31, Actuarial present value of accumulated 1994 1993 benefit obligation : Vested benefits $ 5.3 $ 4.4 Non-vested benefits 0.4 0.3 Accumulated benefit obligation $ 5.7 $ 4.7 ====== ======
Projected benefit obligation $ (6.0) $ (4.9) Plan assets at fair value 10.7 8.2 Plan assets in excess of projected benefit obligation 4.7 3.3 Unrecognized net gain from actuarial experiences (2.3) (1.7) Unrecognized prior service cost 0.9 0.7 Unamortized net asset existing at date of adoption of FAS 87 (0.9) (0.8) Prepaid pension asset $ 2.4 $ 1.5 ====== ======
Other Plans
Certain subsidiaries' pension plans and postretirement benefits are funded by a government-administered program. Contributions to the defined contribution pension plans are based on payroll costs and have been fully provided for through December 31, 1994.
Note 19 - Postretirement and Postemployment Benefits
The Company adopted Statement of Financial Accounting Standard No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" effective January 1, 1993. This statement requires the Company to recognize, during the working career of those employees who could become eligible for such benefits, the estimated cost of providing certain postretirement benefit costs (other than pensions) for those employees when they retire.
The Company and its subsidiaries provide certain health care and life insurance benefits for its U.S. retired employees. Substantially all of the Company's U.S. employees may become eligible for those benefits if they reach normal retirement age while still working for the Company. Those benefits and similar benefits for active employees are provided through an insurance company whose premiums are based on the benefits paid during the year. The total postretirement health care and life insurance expense charged to income was $11.7, $12.1 and $6.7 in 1994, 1993 and 1992, respectively.
Annual net postretirement benefit costs under the Company's benefit plan are determined on an actuarial basis. The Company's current policy is to pay these benefits as they become due. The Company has elected to recognize the transition obligation of $84.9 over a 20-year period.
Net periodic postretirement benefit cost consists of the following : 1994 1993
Service cost $ 0.7 $ 0.7 Interest cost on projected benefit obligations 6.8 7.1 Amortization of transition obligation 4.2 4.3 Total net periodic pension cost $ 11.7 $ 12.1 ======= =======
The accumulated postretirement benefit obligation is comprised as follows:
Retired participants $ 70.3 $ 79.3 Fully eligible active plan participants 4.9 6.5 Other active plan participants 7.5 11.6
Total accumulated postretirement benefit obligation $ 82.7 $ 97.4
Unrecognized gain (loss) 5.1 (11.2) Unrecognized transition obligation (76.4) (80.6)
Accrued postretirement benefit cost other than pensions $ 11.4 $ 5.6 ====== =======
The discount rate used in determining the accumulated benefit obligation was 8.8%. The assumed health care cost trend rates result in per capita net incurred medical claims increasing 11% under age 65 and 9% over age 65. These rates decrease to 7% for both over and under age 65 by the year 2005. If the assumed health care cost trend rate were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1994, would increase $10.4.
Note 19 - Postretirement and Postemployment Benefits (continued)
In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accouting Standard No. 112 "Employers' Accounting for Postemployment Benefits". This statement establishes accounting standards for employers who provide benefits such as supplemental unemployment compensation, severance benefits, salary continuation and other benefits to former or inactive employees after employment but before retirement.
The Company adopted this statement effective January 1, 1994 and recognized a liability of $0.5 for the year ended December 31, 1994.
Note 20 - Shareholders' Equity
VME Group N.V. acquired from AB Volvo and Clark Equipment Company all outstanding shares in VMEA and VMEHS on December 22, 1993 in exchange for newly issued shares in VME Group N.V. Shares of common stock in the amount of 250,000 were reflected as if outstanding for all periods reported.
Dividends are declared and paid in Dutch guilders. With the approval of the Supervisory Board, the Managing Board may determine that distributions be made payable in another currency.
Note 20 - Shareholders' Equity (continued)
KPMG Bohlins
KPMG Bohlins AB Mail Address Telephone +46(31)614800 Norra Hamngatan 22 P.O. Box 11908 Telefax +46(31)152655 Gothenburg S-404 39 Gothenburg Telex 21762BJGS Sweden Sweden Corporate identity number 556043-4465
Independent Auditor's Report
To the Board of Directors of VME Holding Sweden AB:
We have audited the consolidated balance sheets of VME Holding Sweden AB and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income (loss) and cash flows for each of the years in the three year period ended December 31, 1994 (expressed in U.S. dollars and not presented separately herein). In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule II, (expressed in U.S. dollars and not presented separately herein). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Sweden which are similar in all material respects with auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures included in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The consolidated financial statements and financial statement schedule have been translated in accordance with the standards set forth in Statement of Financial Accounting Standards No. 52 from Swedish Kronor (the currency of the country where VME Holding Sweden AB is incorporated and in which it operates) into U.S. dollars for purposes of inclusion in the consolidated financial statements of VME Group N.V.
In our opinion, for purposes of inclusion in the consolidated financial statements of VME Group N.V., the translated financial statements present fairly, in all material respects, the consolidated financial position of VME Holding Sweden AB and subsidiaries at December 31, 1994 and 1993 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles in the United States. Also,
in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements, presents fairly in all material respects the information shown therein.
Gothenburg, Sweden February 27, 1995
/s/ KPMG Bohlins AB
KPMG Bohlins AB
Head Office Mail address Tel +46+8+7239100 Member Firm of Tegelbacken 4, P.O. Box 16106 Fax +46+8+105258 Klynveld Peat Marwick Stockholm S-103 23 Stockholm Goerdeler Sweden Sweden
EXHIBIT LIST AND INDEX
Filed Herewith Unless Exhibit Description Otherwise Indicated
(2)(a) Underwriting Agreement Incorporated by reference dated May 6, 1994 among to Exhibit (2)(a) to Automotive Products Company, Registrant's Form 8-K Clark Automotive Products filed on May 27, 1994 Corporation, and Clark with respect to Equipment Company and CS Registrant's disposition First Boston Corporation of Clark Automotive and Merrill, Lynch, Pierce, Products Corporation Fenner & Smith Incorporated as representatives of the Underwriters
(2)(b) Subscription Agreement dated Incorporated by reference May 6, 1994 among Automotive to Exhibit (2)(b) to Products Company, Clark Registrant's Form 8-K Automotive Products Corporation, filed on May 27, 1994 Clark Equipment Company, CS with respect to First Boston Limited, Merrill Registrant's disposition Lynch International Limited, ABN of Clark Automotive AMRO Bank N.V., Banque Bruxelles Products Corporation Lambert S.A., Cazenove & Co., Dresdner Bank Aktiengesellschaft and UBS Limited
(2)(c) Agreement of Purchase and Sale Incorporated by reference dated April 20, 1994 between to Exhibit (2) to Clark Equipment Company and Registrant's Form 8-K White Consolidated Industries filed on May 27, 1994 Inc. with respect to Registrant's acquisition of Blaw-Knox Construction Equipment Corporation
(2)(d) Agreement and Plan of Merger Incorporated by reference dated as of February 3, 1995 by and to Exhibit (c)(1) to the among Clark Equipment Company, Clark Registrant's Schedule Acquisition Sub, Inc. and Club Car, 14D-1 and Schedule 13D Inc. dated February 8, 1995
(2)(e) Stock Purchase Agreement dated as --- of March 5, 1995 by and among Aktiebolaget Volvo, Clark Equipment Company and Clark Hurth Components Marketing Company
(3)(a) Restated Certificate of Incorporated by reference Incorporation to Exhibit (3)(a) to Registrant's Form 10-K for the year 1992
Filed Herewith Unless Exhibit Description Otherwise Indicated
(3)(b) By-laws, as amended ---
(3)(c) Amended and Restated Rights Incorporated by reference Agreement, dated as of to Exhibit (3)(c) to August 14, 1990 between Registrant's Form 10-Q Clark Equipment Company and for the period ended Harris Trust and Savings Bank September 30, 1990
(4)(a) Indenture dated as of August 1, Incorporated by reference 1983 between Clark Equipment to Exhibit (4)(a) to Company and Harris Trust and Registrant's Form 10-K Savings Bank as trustee, as to for the year 1992 which Pittsburgh National Bank is successor trustee, as supplemented by a First Supplemental Indenture dated as of February 1, 1991 and a Second Supplemental Indenture dated as of April 1, 1993
(4)(b) Specimen form of 9-3/4% Note Incorporated by reference issued pursuant to Exhibit to Exhibit (4)(b) to (4)(a) Registrant's Form 10-K for the year 1992
(4)(c) Master Credit Agreement with --- Chemical Bank, as Agent, dated as of April 6, 1994
(4)(d) Amendment No. 1 dated --- February 21, 1995 to Master Credit Agreement with Chemical Bank, as Agent, dated as of April 6, 1994
(4)(e) Registrant is a party to several Pursuant to paragraph other long term debt agreements (4)(iii)(A) of Item under which, in each case, the 601(b) of Regulation total amount of securities S-K, Registrant agrees authorized does not exceed 10% to furnish a copy of of the assets of Registrant and these instruments to its consolidated subsidiaries the Securities and Exchange Commission upon request
(10)(a) Employment contract with Leo Incorporated by reference J. McKernan, Chairman, President to Exhibit (10)(a) to and Chief Executive Officer, Registrant's Form 10-K dated November 12, 1992 for the year 1992
(10)(b) Employment contract with Frank --- M. Sims, Director and Senior Vice President, dated February 15, 1995
Filed Herewith Unless Exhibit Description Otherwise Indicated
(10)(c) Employment contract with Thomas Incorporated by reference L. Doepker, Vice President and to Exhibit (10)(d) to Treasurer, dated November 12, Registrant's Form 10-K 1992 for the year 1992
(10)(d) Employment contract with Bernard Incorporated by reference D. Henely, Vice President and to Exhibit (10)(e) to General Counsel, dated Registrant's Form 10-K November 12, 1992 for the year 1992
(10)(e) Employment contract with William Incorporated by reference N. Harper, Vice President and to Exhibit (10)(f) to Controller, dated November 12, Registrant's Form 10-K 1992 for the year 1992
(10)(f) Employment contract with Paul Incorporated by reference R. Bowles, Vice President, to Exhibit (10)(i) to dated March 13, 1992 Registrant's Form 10-K for the year 1991
(10)(g) Employment contract with John Incorporated by reference J. Reynolds, Vice President, to Exhibit 10(i) to dated November 14, 1991 Registrant's Form 10-K for the year 1992
(10)(h) 1985 Stock Option Plan Incorporated by reference to Exhibit 10(j) to Registrant's Form 10-K for the year 1991
(10)(i) Stock Purchase Program (adopted Incorporated by reference as of May 10, 1994) to Exhibit (10)(a) to Registrant's Form 10-Q for the period ended June 30, 1994
(10)(j) Stock Acquisition Plan for Incorporated by reference Non-Employee Directors to Exhibit A to Registrant's Proxy Statement for the Annual Meeting of Stockholders held on May 10, 1994
(10)(k) 1994 Long Term Incentive Plan Incorporated by reference to Exhibit B to Registrant's Proxy Statement for the Annual Meeting of Stockholders held on May 10, 1994
Filed Herewith Unless Exhibit Description Otherwise Indicated
(10)(l) Incentive Compensation Plan --- for Corporate Office Management (amended and restated effective as of January 1, 1994)
(10)(m) Incentive Compensation Plan --- for Business Unit Management (amended and restated effective as of January 1, 1994)
(10)(n) Performance Unit Plan Incorporated by reference (effective November 9, 1992) to Exhibit (10)(s) to Registrant's Form 10-K for the year 1992
(10)(o) Form of Grant Letter used to Incorporated by reference award Performance Units to Exhibit (10)(t) to pursuant to the Performance Registrant's Form 10-K Unit Plan (effective for the year 1992 November 9, 1992)
(10)(p) Form of Grant Letter used to Incorporated by reference award Performance Units in to Exhibit (10)(u) to 1991 Registrant's Form 10-K for the year 1992
(10)(q) Clark Equipment Company --- Deferred Benefit Trust
(10)(r) Clark Equipment Company --- Supplemental Retirement Income Plan for Certain Executives
(10)(s) Amendment No. 1 to Clark --- Equipment Company Supplemental Retirement Income Plan for Certain Executives
(10)(t) Amendment No. 2 to Clark --- Equipment Company Supplemental Retirement Income Plan for Certain Executives
(10)(u) Clark Equipment Company --- Supplemental Executive Retirement Trust
(10)(v) Clark Equipment Company --- Supplemental Executive Retirement Plan
(10)(w) Amendment No. 1 to Clark --- Equipment Company Supplemental Executive Retirement Plan
Filed Herewith Unless Exhibit Description Otherwise Indicated
(10)(x) Amendment No. 2 to Clark --- Equipment Company Supplemental Executive Retirement Plan
(10)(y) Form of Participation Agreement --- for Clark Equipment Company Supplemental Retirement Income Plan for Certain Executives
(10)(z) Form of Participation Agreement --- for Clark Equipment Company Supplemental Executive Retirement Plan
(10)(aa) Retirement Plan for Outside --- Directors
(13) Portions of Clark Equipment --- Company 1994 Annual Report to Stockholders which are incorporated by reference into this Form 10-K
(22) Subsidiaries of Clark Equipment --- Company
(23)(a) Consent of Independent Accountants- --- Price Waterhouse LLP
(23)(b) Consent of Independent Accountants- --- KPMG Bohlins AB
(27) Financial Data Schedules ---
(99) Computation of Ratio of Earnings to --- Fixed Charges for the twelve months ended December 31, 1994