<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 30, 1993
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Commission File Number 1-8862
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MARK IV INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 23-1733979
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810
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(Address of principal executive offices) (Zip Code)
(716) 689-4972
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's class of
common stock as of the latest practicable date.
Class Outstanding at January 12, 1994
----- -------------------------------
Common stock $.01 par value 40,662,450
<PAGE>2
MARK IV INDUSTRIES, INC.
INDEX
Part I. Financial Information Page No.
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Consolidated Condensed Balance Sheets as of
November 30, 1993 and February 28, 1993 3
Consolidated Statements of Income and Retained Earnings
For the Three Month Periods Ended November 30, 1993 and 1992 4
Consolidated Statements of Income and Retained Earnings
For the Nine Month Periods Ended November 30, 1993 and 1992 5
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended November 30, 1993 and 1992 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Part II. Other Information 22
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Signature Page 23
Exhibit Index 24
Exhibit 11 - Statement Regarding Computation of
Per Share Earnings 25
<PAGE>3
MARK IV INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
November 30, February 28,
1993 1993
---- ----
ASSETS (Unaudited) (As Restated)
Current Assets:
Cash $ 1,938 $ 2,665
Accounts receivable 241,570 228,061
Inventories 277,849 243,871
Other current assets 32,184 21,767
Total current assets 553,541 496,364
Pension related and other
non-current assets 131,718 114,121
Property, plant and equipment, net 352,126 318,323
Cost in excess of net assets acquired and
deferred charges 211,424 195,953
TOTAL ASSETS $1,248,809 $1,124,761
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current
maturities of debt $ 52,504 $ 34,786
Accounts payable 91,774 77,609
Compensation related liabilities 43,412 39,580
Accrued interest 9,351 14,225
Accrued expenses and other liabilities 48,272 47,663
Income taxes payable 2,548 7,097
Total current liabilities 247,861 220,960
Long-Term Debt:
Senior debt 187,628 194,265
Subordinated debentures 372,150 302,771
Total long-term debt 559,778 497,036
Other non-current liabilities 98,639 61,157
Stockholders' Equity:
Common stock 406 402
Additional paid-in capital 226,607 219,280
Retained earnings 117,071 128,331
Foreign currency translation adjustment (1,553) (2,405)
Total stockholders' equity 342,531 345,608
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,248,809 $1,124,761
The accompanying notes are an integral part of these financial statements.
<PAGE>4
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
For the Three Month Periods Ended November 30, 1993 and 1992
(Amounts in thousands, except per share data)
1993 1992
---- ----
(As Restated)
Net sales $319,953 $270,676
Operating costs:
Cost of products sold 206,166 172,692
Selling and administration 60,757 54,174
Research and development 7,954 6,422
Depreciation and amortization 11,382 7,588
Total operating costs 286,259 240,876
Operating income 33,694 29,800
Interest expense, net 12,834 12,703
Income from continuing operations
before provision for income taxes 20,860 17,097
Provision for income taxes 8,045 6,307
Income from continuing operations 12,815 10,790
Income from discontinued operations, net of tax - 532
Income before extraordinary items 12,815 11,322
Extraordinary items, net of tax - (1,620)
Net income 12,815 9,702
Retained earnings - beginning of the period 105,274 149,438
Less: Cash dividends of $.025 and
$.021 per share (1,018) (858)
Retained earnings - end of the period $117,071 $158,282
Net income per share of common stock:
Primary:
Income from continuing operations $ .31 $ .27
Income from discontinued operations - .01
Extraordinary items - (.04)
Net income $ .31 $ .24
Fully-diluted:
Income from continuing operations $ .29 $ .25
Income from discontinued operations - .01
Extraordinary items - (.03)
Net income $ .29 $ .23
The accompanying notes are an integral part of these financial statements.
<PAGE>5
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
For the Nine Month Periods Ended November 30, 1993 and 1992
(Amounts in thousands, except per share data)
1993 1992
---- ----
(As Restated)
Net sales $924,418 $810,336
Operating costs:
Cost of products sold 597,701 520,056
Selling and administration 171,036 160,089
Research and development 23,288 19,752
Depreciation and amortization 31,171 23,387
Total operating costs 823,196 723,284
Operating income 101,222 87,052
Interest expense, net 37,717 39,389
Income from continuing operations
before provision for income taxes 63,505 47,663
Provision for income taxes 24,037 17,583
Income from continuing operations 39,468 30,080
Income from discontinued operations, net of tax 52 4,142
Income before extraordinary items and
cumulative effect of accounting change 39,520 34,222
Extraordinary items, net of tax (21,739) (2,017)
Cumulative effect of a change in accounting
principle (26,000) -
Net income (loss) (8,219) 32,205
Retained earnings - beginning of the period 128,331 156,492
Less: 5% Stock dividend - (27,846)
Cash dividends of $.075 and
$.063 per share (3,041) (2,569)
Retained earnings - end of the period $117,071 $158,282
Net income per share of common stock:
Primary:
Income from continuing operations $ .98 $ .75
Income from discontinued operations - .10
Extraordinary items (.54) (.05)
Cumulative effect of a change in
accounting principle (.64) -
Net income (loss) $ (.20) $ .80
Fully-diluted:
Income from continuing operations $ .89 $ .70
Income from discontinued operations - .09
Extraordinary items (.45) (.04)
Cumulative effect of a change in
accounting principle (.54) -
Net income (loss) $ (.10) $ .75
The accompanying notes are an integral part of these financial statements.
<PAGE>6
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended November 30, 1993 and 1992
(Dollars in thousands)
1993 1992
(As Restated)
Cash flows from operating activities:
Income from continuing operations $ 39,468 $ 30,080
Items not affecting cash:
Depreciation and amortization 31,171 23,387
Pensions and other (1,059) (1,395)
Net cash provided by earnings
from continuing operations 69,580 52,072
Other adjustments to reconcile income to
net cash provided by (used in) operating
activities:
Changes in assets and liabilities,
net of effects of businesses acquired:
Accounts receivable 9,380 10,237
Inventories (16,527) (19,036)
Other assets (12,192) 5,297
Accounts payable (1,270) 956
Other liabilities (18,652) (22,716)
Net cash provided by continuing
operations 30,319 26,810
Income from discontinued operations 52 4,142
Extraordinary items before deferred charges (30,060) (2,376)
Net cash provided by (used in)
operating activities 311 28,576
Cash flows from investing activities:
Investments (1,500) -
Acquisitions and divestitures, net (30,000) 3,375
Proceeds from sale of assets - 1,328
Purchase of plant and equipment (28,109) (24,480)
Net cash used in investing activities (59,609) (19,777)
Cash flows from financing activities:
Purchases of subordinated debt (190,248) (30,580)
Issuance of senior subordinated notes 258,000 -
Other changes in long-term debt, net (5,774) (376)
Changes in short-term bank borrowings (870) 22,279
Common stock transactions 731 522
Cash dividends paid (2,971) (2,434)
Effect of exchange rate fluctuations (297) (387)
Net cash provided by (used in)
financing activities 58,571 (10,976)
Net decrease in cash (727) (2,177)
Cash and cash equivalents:
Beginning of the year 2,665 4,642
End of the period $ 1,938 $ 2,465
The accompanying notes are an integral part of these financial statements.
<PAGE>7
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of the Company's management, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
of the Company at November 30, 1993, and the results of its operations
and its cash flows for the three and nine month periods ended November
30, 1993 and 1992. Such results are not necessarily indicative of the
results to be expected for the full year.
As a result of the decision by management of the Company to discontinue
certain operations, the financial statements for the three and nine
month periods ended November 30, 1992 have been restated. Also, the
balance sheet at February 28, 1993 has been restated for the Company's
subsequent adoption of Statement of Financial Accounting Standards No.
109 - Accounting for Income Taxes (SFAS No. 109), on a retroactive
basis, as discussed in Note 11.
2. On June 2, 1993, the Company completed the purchase of the stock and
assets comprising Pirelli Trasmissioni Industriali S.p.A. ("PTI"), the
power transmission business of Pirelli S.p.A., for approximately
$115,000,000. PTI is a manufacturer of a variety of timing belts,
v-belts, v-ribbed belts and hydraulic hose sold to customers in
automotive and industrial markets. PTI has manufacturing, distribution,
engineering and marketing operations in six Western European countries
and the United States, and employs approximately 1,500 people worldwide.
PTI is a significant addition to the Company's Power Transfer and Fluid
Handling core business. The purchase price consisted of $65,000,000 in
cash and the assumption of approximately $50,000,000 of existing
indebtedness of PTI and its subsidiaries. The funding for the
transaction was provided substantially by borrowings under the Company's
new multi-currency credit agreement.
The acquisition has been accounted for under the purchase method of
accounting, and the results of operations of PTI are included in the
Company's results of operations from the date of acquisition. The
Company has made a preliminary determination and allocation of the
purchase price as of the acquisition date, consisting of the following
(dollars in thousands):
Accounts receivable $40,100
Inventories 38,700
Other current assets 4,000
Current notes payable (18,500)
Accounts payable and other
current liabilities (37,500)
Net working capital acquired 26,800
Fixed assets 62,000
Cost in excess of net assets acquired 35,000
Long-term indebtedness (32,000)
Other non-current items, net (26,800)
Cash purchase price paid at closing $65,000
<PAGE>8
The financial position of PTI as of November 30, 1993 has been included
in the accompanying consolidated balance sheet of the Company as of that
date. Such amounts, as well as the estimated net purchase price, are
subject to adjustment based upon additional analysis as well as
additional asset valuation determinations to be made by the Company and
various outside appraisal firms.
The following table presents the proforma consolidated condensed results
of operations for the nine month period ended November 30, 1993 and the
three and nine month periods ended November 30, 1992. The Company's
consolidated results of operations for the three month period ended
November 30, 1993 include the results of operations of PTI for the full
period, and the condensed amounts are presented here for comparison
purposes. The proforma amounts give effect to the acquisition of PTI as
if it had occurred on March 1, 1992, the beginning of fiscal 1993. The
proforma amounts do not purport to be indicative of the results that
actually would have been obtained had the acquisition taken place on
March 1, 1992, nor are they intended to be a projection of future
results (dollars in thousands, except per share data):
Three Months Nine Months
Ended November 30, Ended November 30,
1993 1992 1993 1992
---- ---- ---- ----
Net Sales $320,000 $310,400 $968,400 $931,200
Income from continuing
operations $ 12,800 $ 11,700 $ 41,000 $ 33,000
Earnings per share from
continuing operations:
Primary $ .31 $ .29 $ 1.02 $ .83
Fully-diluted $ .29 $ .27 $ .92 $ .76
3. Effective May 31, 1993 (the "measurement date") the company decided to
sell its non-core business units which comprised its Instrumentation and
Other segment. These units have been accounted for as discontinued
operations, and their results of operations have been excluded from
continuing operations in the consolidated statements of income and
retained earnings for the periods ended November 30, 1993. The
financial statements for the three and nine month periods ended November
30, 1992 have been restated to exclude the discontinued operations in a
similar manner.
On June 9, 1993, the Company completed the sale of certain of its non-
core instruments businesses for total cash consideration of
approximately $35,000,000. The businesses sold had sales of
approximately $54 million for the Company's fiscal year ended February
28, 1993. The Company did not recognize a gain or loss as a result of
this sale. The proceeds from the sale were used to repay a portion of
the debt incurred to finance the acquisition of PTI, as discussed in
Note 2. The remaining net assets of discontinued operations as of
November 30, 1993 amount to approximately $31,700,000. Such amounts have
been segregated in the balance sheet and offset by a corresponding
amount of long-term debt, on the assumption that the net proceeds will
equal or exceed the net asset amount, and all such proceeds will be
utilized to offset existing borrowings of the Company.
<PAGE>9
4. Accounts receivable are presented net of allowances for doubtful
accounts of $16,400,000 and $13,300,000 at November 30, 1993 and
February 28, 1993, respectively.
5. Inventories consist of the following components (dollars in thousands):
November 30, February 28,
1993 1993
Raw materials, parts and sub-assemblies $ 80,887 $ 70,332
Work-in-process 49,334 62,434
Finished goods 147,628 123,560
277,849 256,326
Less progress billings - 12,455
Inventories $277,849 $243,871
Since physical inventories taken during the year do not necessarily
coincide with the end of a quarter, management has estimated the
composition of inventories with respect to raw materials, work-in-
process and finished goods. It is management's opinion that this
estimate represents a reasonable approximation of the inventory
breakdown as of November 30, 1993. The amounts at February 28, 1993 are
based upon the audited balance sheet at that date.
6. Property, plant and equipment is stated at cost and consists of the
following components (dollars in thousands):
November 30, February 28,
1993 1993
Land and land improvements $ 33,176 $ 31,831
Buildings 114,597 99,547
Machinery and equipment 328,391 296,711
Total property, plant and equipment 476,164 428,089
Less accumulated depreciation 124,038 109,766
Property, plant and equipment, net $352,126 $318,323
The amounts at February 28, 1993 are based upon the audited balance
sheet at that date, restated to reflect the adoption of SFAS No. 109.
7. For purposes of cash flows, the Company considers overnight investments
as cash equivalents. The Company paid interest of approximately
$44,200,000 and $47,900,000 in the nine month periods ended November
30, 1993 and 1992, respectively. Such amounts include $1,600,000 and
$3,800,000 allocated to the costs of discontinued operations in the nine
month periods ended November 30, 1993 and 1992, respectively. The
Company also paid income taxes of approximately $12,700,000 and
$9,600,000 in the nine month periods ended November 30, 1993 and 1992,
respectively.
<PAGE>10
8. In December 1993, the Company's Board of Directors approved the
repurchase of up to four million shares, or approximately 10 percent of
the Company's outstanding common stock, from time to time, in the open
market or through privately negotiated transactions, at prices it
considers attractive. As of January 12, 1994 the company had not
repurchased any of its common stock. In addition, the Company's Board
of Directors also declared its regular quarterly cash dividend of $.025
per share for the quarter ended November 30, 1993. The dividend was
paid on January 3, 1994, to shareholders of record at the close of
business on December 20, 1993.
In September 1993, the Company's Board of Directors declared its regular
quarterly cash dividend of $.025 per share for the quarter ended August
31, 1993. The dividend was paid on October 1, 1993 to shareholders of
record on September 17, 1993.
In August 1993, the Company's shareholders approved the Company's 1992
Incentive Stock Option Plan. The plan was established in September 1992
by the Company's Board of Directors, subject to shareholder approval.
The Board allocated 1,575,000 shares of the Company's authorized common
stock to be used for such plan. The Company has granted options under
the new plan to certain of its executive officers and key operating
personnel to enable them to acquire 200,760 shares of the Company's
common stock at an average exercise price of $13.73 per share. The
exercise price of the stock is equal to the market value of the stock as
of the date of grant.
The Company's 1992 Restricted Stock Plan was established in December
1992 by the Company's Board of Directors, subject to shareholder
approval. The Board reserved for issuance 367,500 shares of the
Company's authorized common stock to be used for such plan. In March
1993, also subject to shareholder approval, the Company granted certain
executives restricted stock awards with respect to 320,250 shares at
$.01 par value per share. As a result of the shareholders' approval of
the plan and related grants in August 1993, common stock and additional
paid-in capital have been increased by a total of $6,600,000 based upon
the market value of the stock as of that date. The offset to this
capital transaction was to recognize a corresponding deferred charge in
the balance sheet, which will be amortized to expense over the five year
vesting period, or sooner if certain performance measurements of the
Company are achieved.
In April 1993, the Company's Board of Directors declared a five percent
stock dividend and increased the Company's quarterly cash dividend for
the quarter ended May 31, 1993 to $.025 per share from $.021 per share
paid for the quarter ended February 28, 1993. The stock dividend was
distributed on May 20, 1993 to shareholders of record on May 10, 1993.
The cash dividend was paid on July 1, 1993, to shareholders of record on
June 18, 1993. The distribution increased the Company's issued common
stock by approximately 1,900,000 shares, and has been accounted for as
if it had occurred on March 1, 1992 (the beginning of fiscal 1993) and
the shares related to such distribution had been issued at that time.
Earnings per share amounts for the three and nine month periods ended
November 30, 1992 have been restated to reflect this stock distribution.
<PAGE>11
For purposes of calculating net income per share of common stock, the
weighted average number of shares outstanding for the applicable periods
was determined to be as follows (in thousands):
For the three months For the nine months
Ended November 30, Ended November 30,
1993 1992 1993 1992
Primary 40,651 39,993 40,391 39,944
Fully-diluted 48,548 47,956 48,270 47,907
9. In July 1993, the Company entered into a Credit Agreement ("Credit
Agreement") providing for a $300,000,000 five year revolving credit
facility with a group of financial institutions. A portion of the
credit facility was used to repay amounts outstanding under the
Company's revolving credit facility dated June 19, 1990, which was then
canceled. Interest on the Credit Agreement is based on a pricing grid
which is either prime per annum or, under a LIBOR option, LIBOR plus
0.375% to LIBOR plus 1.375% per annum based on the Company's senior
unsecured long-term debt ratings (as defined in the Credit Agreement).
The Company is currently borrowing at prime, or LIBOR plus .75% under
the Credit Agreement. LIBOR borrowing rates are subject to change based
on changes in the Company's credit rating by Moody's or Standard &
Poors. The Credit Agreement is secured by a pledge of the stock of
certain of the Company's subsidiaries. The Credit Agreement also
contains certain affirmative and negative covenants customary in an
agreement of this nature.
In May 1993, the Company entered into a revolving credit agreement
("Multi-Currency Credit Agreement") providing for a five year multi-
currency revolving credit facility with a syndication of commercial
banks in the U.S. and Europe. The Multi-Currency Credit Agreement
provides for a revolving loan commitment for the first two years of the
equivalent of $100,000,000. The commitment declines by $12,500,000 at
each of six semi-annual dates beginning June 1, 1995, with the remaining
$25,000,000 of commitment expiring on May 31, 1998. Interest rates on
borrowings under the Multi-Currency Credit Agreement are subject to
change quarterly based on a specified pricing grid which increases from
LIBOR plus .0625% to LIBOR plus 1.375% per annum based on the Company's
senior debt rating as listed by Standard & Poors and Moody's. The
Company is currently paying interest at LIBOR plus 1.25% on borrowings
under the Multi-Currency Credit Agreement. The Multi-Currency Credit
Agreement also contains certain affirmative and negative covenants
customary in an agreement of this nature.
<PAGE>12
10. The Financial Accounting Standards Board issued Statement No. 106 -
Employers Accounting for Post-retirement Benefits Other Than Pensions
(SFAS No. 106) in December 1990. SFAS No. 106 requires that the
estimated present-value of the Company's liability for its commitments
to provide health and life insurance benefits to its retirees be
included in the balance sheet, either entirely as of the date of
adoption, or over a 20-year transition period. Such liability is
referred to as the Accumulated Benefit Obligation (ABO). The related
expense is required to be recognized on the accrual method over the
remaining years of the employees' active service, up to the dates of
individual eligibility to retire and begin receiving the benefit. The
Company has adopted this new accounting rule as of March 1, 1993, the
beginning of fiscal 1994. Prior to its adoption of SFAS No. 106, the
Company advised the participants of certain plan design changes,
including the establishment of caps on the amount of annual expense to
be incurred by the Company. The participants are now required to pay
100% of the excess of actual costs incurred over the established annual
caps, in addition to whatever contribution percent is required of the
retirees for amounts incurred up to the amount of the caps. Actuarial
calculations indicate the Company's actual cash costs are not expected
to reach the substantial majority of the caps until fiscal 1996, and
assume an annual increase in health-care costs at the rate of 11% until
that time.
The Company has adopted SFAS No. 106 by recognizing the ABO entirely in
fiscal 1994. The ABO has been calculated on an actuarial basis to
approximate $40,000,000 as of the March 1, 1993 adoption date. Since
the Company also adopted SFAS No. 109 - Accounting for Income Taxes at
the same date, the Company has recognized a deferred tax asset of
$14,000,000 representing the future tax benefits to be received related
to the ABO. The resulting net charge of $26,000,000 ($.54 per fully
diluted share) from the adoption of SFAS No. 106 has been included as
the cumulative effect of a change in accounting principle in the
consolidated statement of income for the nine month period ended
November 30, 1993. The Company continues to fund such costs on the
cash-basis, and such cash costs for these plans in fiscal 1994 have been
charged against the ABO. Excluding the cumulative effect of adoption,
SFAS No. 106 is expected to have a nominal after-tax impact on net
income, and earnings per share.
11. On March 1, 1993 the Company changed its method of accounting for income
taxes to comply with the provisions of Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes, issued in February 1992
(SFAS No. 109). This standard requires, among other things, recognition
of future tax benefits, measured by enacted tax rates, attributable to
deductible temporary differences between the financial statement and
income tax basis of assets and liabilities, and net operating loss
carryforwards to the extent that realization of such benefits is more
likely than not.
<PAGE>13
The provision for income taxes for the nine month periods ended
November 30, 1993 and 1992 consists of the following (dollars in
thousands):
November 30, November 30,
1993 1992
(As Restated)
Currently payable $ 12,700 $ 9,600
Deferred 11,337 7,983
Total $ 24,037 $ 17,583
The cumulative effect of the January 1, 1993 increase in the U.S.
statutory tax rate resulting from the Omnibus Budget Reconciliation Act
of 1993, signed into law in August 1993, was not significant.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and (liabilities) as of February 28, 1993
are related to the following (dollars in thousands):
Deferred
Tax Amount
Current:
Inventory $(9,504)
Accrued expenses 6,051
Foreign 826
Net current liabilities (2,627)
Non-current:
Fixed assets (51,600)
Pension and benefit plans (31,798)
Net operating loss carryforward 19,712
Capital losses carryforward 19,335
Alternative minimum tax 12,659
All other 30,663
(1,029)
Valuation allowance (19,335)
Net non-current liabilities (20,364)
The consolidated provision for income taxes for fiscal 1993 and 1992 was
different than the amount computed using the United States statutory
income tax rate for the reasons set forth in the following table
(dollars in thousands):
February 28, February 29,
1993 1992
Expected tax at U.S.
statutory income tax rate $21,092 $14,928
State and local income taxes 594 660
Business tax credits (400) (800)
Foreign rate differences 744 347
Other adjustments 855 434
Consolidated provision for income tax $22,885 $15,569
<PAGE>14
The change in accounting method has been applied retroactively by
restating prior years' financial results since the Company's fiscal year
ended February 28, 1986, resulting in an increase at the date of
adoption or as of the date of subsequent acquisitions, in property,
plant and equipment of $17,800,000 and an increase in cost in excess of
net assets acquired of $43,000,000 and an increase in deferred tax
assets of $19,000,000 and an increase in deferred tax liabilities of
$79,800,000. The adoption of SFAS No. 109 also resulted in a cumulative
decrease in stockholders' equity as of February 28, 1993 of $13,100,000.
As a result of the increase in property, plant and equipment and cost in
excess of net assets acquired, depreciation and amortization has been
increased in prior years by approximately $2,500,000 per year, of which
$2,000,000 relates to continuing operations, and $500,000 relates to
discontinued operations.
The effect of this accounting change on an ongoing basis is a reduction
of approximately $.02 per share per quarter in income from continuing
operations. The effects of this accounting change on results of
operations for the years ended February 28, 1993 and February 29, 1992
and the three and nine month periods ended November 30, 1992 is as
follows (dollars in thousands, except per share data):
Three Nine
Months Months
Year Ended Ended Ended
February 28, February 29, November 30,November 30,
1993 1992 1992 1992
Income from continuing
operations before
provision for income taxes $(2,000) $(2,000) $ (500) $(1,500)
Provisions for income taxes (600) 300 (200) (600)
Income from continuing
operations (2,600) (1,700) (700) (2,100)
Discontinued operations,
net of tax (600) (400) (100) (300)
Extraordinary items, net
of tax - - - -
Net Income $(3,200) $(2,100) $ (800) $(2,400)
Income Per Share:
Primary:
Continuing operations $ (.07) $ (.06) $ (.02) $ (.05)
Discontinued operations (.01) (.01) - (.01)
Net Income $ (.08) $ (.07) $ (.02) $ (.06)
Fully Diluted:
Continuing operations $ (.06) $ (.05) $ (.02) $ (.05)
Discontinued operations (.01) (.01) - (.01)
Net Income $ (.07) $ (.06) $ (.02) $ (.06)
<PAGE>15
12. As a result of Management's decision to discontinue the Company's non-
core businesses and the adoption of SFAS No. 109, the Company's results
of operations for each of its fiscal quarters in the years ended
February 28, 1993 and February 29, 1992 have been restated and are
presented in the following table (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Fiscal 1993
Net sales $271,023 $268,637 $270,676 $275,389 $1,085,725
Gross profit (a) $ 97,172 $ 95,124 $ 97,984 $ 96,592 $ 386,872
Income from continuing
operations $ 10,270 $ 9,020 $ 10,790 $ 9,071 $ 39,151
Income from discontinued
operations 1,304 2,306 532 (564) 3,578
Income before
extraordinary items $ 11,574 $ 11,326 $ 11,322 $ 8,507 $ 42,729
Extraordinary items - (397) (1,620) (1,726) (3,743)
Net income $ 11,574 $ 10,929 $ 9,702 $ 6,781 $ 38,986
Income per share (b):
Primary:
Continuing operations $ .26 $ .22 $ .27 $ .23 $ .98
Discontinued operations .03 .06 .01 (.02) .09
Extraordinary items - (.01) (.04) (.04) (.10)
Net income $ .29 $ .27 $ .24 $ .17 $ .97
Fully-diluted:
Continuing operations $ .24 $ .21 $ .25 $ .21 $ .92
Discontinued operations .03 .05 .01 (.01) .07
Extraordinary items - (.01) (.03) (.03) (.08)
Net income $ .27 $ .25 $ .23 $ .17 $ .91
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Fiscal 1992
Net sales $247,939 $249,693 $255,767 $250,910 $1,004,309
Gross profit (a) $ 89,232 $ 90,931 $ 93,760 $ 88,438 $ 362,361
Income from continuing
operations $ 6,337 $ 6,746 $ 7,106 $ 6,611 $ 26,800
Income from discontinued
operations 728 408 911 (26) 2,021
Income before
extraordinary items 7,065 7,154 $ 8,017 $ 6,585 $ 28,821
Extraordinary items - (513) (332) (3,663) (4,508)
Net income $ 7,065 $ 6,641 $ 7,685 $ 2,922 $ 24,313
Income per share (b) (c):
Primary:
Continuing operations $ .27 $ .25 $ .20 $ .17 $ .85
Discontinued operations .03 .02 .02 - .06
Extraordinary items - (.02) (.01) (.10) (.14)
Net income $ .30 $ .25 $ .21 $ .07 $ .77
Fully-diluted:
Continuing operations $ .22 $ .22 $ .18 $ .16 $ .77
Discontinued operations .02 .01 .02 - .05
Extraordinary items - (.01) (.01) (.10) (.12)
Net income $ .24 $ .22 $ .19 $ .06 $ .70
<FN>
__________________________________
(a) Excluding depreciation expense.
(b) The sum of the quarterly amounts do not equal the total as a result of
common stock transactions during each fiscal year.
(c) Restated to reflect the five percent stock dividends issued in July 1992
and May 1993.
</TABLE>
<PAGE>17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Net cash provided from earnings was approximately $69,600,000 in the nine
month period ended November 30, 1993, an increase of approximately $17,500,000
(34%) over the nine month period ended November 30, 1992. As of November 30,
1993, the Company had working capital of approximately $305,700,000 and
availability under its credit agreements and demand lines of credit of
approximately $233,000,000.
In March 1993, the Company commenced a tender offer to purchase any and all of
its 13-3/8% Subordinated Debentures for a cash price of $1,137.50 per $1,000
principal amount, plus accrued interest. As a result of the tender offer and
certain open-market purchases, the Company acquired approximately $138,000,000
principal amount of these debentures. The Company then completed an "in-
substance defeasance" in which approximately $60,400,000 was deposited in an
irrevocable trust to cover both the remaining outstanding principal amount
($52,000,000) and related interest expense requirements of these debentures.
In March 1993, the Company also completed a public offering of $258,000,000
principal amount of its 8-3/4% Senior Subordinated Notes due April 1, 2003. A
substantial portion of the net proceeds from the sale of the notes were used
to fund the retirement of the Company's outstanding 13-3/8% Subordinated
Debentures through such tender offer, open market purchases and defeasance.
In April 1993, the Company announced that it had signed an agreement to
acquire Pirelli Trasmissioni Industriali, S.p.A (PTI), the power transmission
business of Italian-based Pirelli, S.p.A. The transaction was completed on
June 2, 1993 for a cost of $115,000,000. The purchase price consisted of
$65,000,000 in cash and the assumption of approximately $50,000,000 of
existing indebtedness of PTI and its subsidiaries. The funding for the PTI
transaction was provided substantially by borrowings under the Company's
Multi-Currency Credit Agreement (discussed below). Subsequent to the date of
the acquisition, the Company sold its instruments businesses and used the
proceeds of approximately $35,000,000 to reduce its indebtedness.
In May 1993, the Company entered into a revolving credit agreement ("Multi-
Currency Credit Agreement") providing for a five year multi-currency revolving
credit facility with a syndication of commercial banks in the U.S. and Europe
(see Notes 2 and 9). The Multi-Currency Credit Agreement provides for a
revolving loan commitment for the first two years of the equivalent of
$100,000,000. The commitment declines by $12,500,000 at each of six semi-
annual dates beginning June 1, 1995, with the remaining $25,000,000 of
commitment expiring on May 31, 1998. Interest rates on borrowings under the
Multi-Currency Credit Agreement are subject to change quarterly based on a
specified pricing grid which increases from LIBOR plus .0625% to LIBOR plus
1.375% per annum based on the Company's senior debt rating as listed by
Standard & Poors and Moody's. The Company is currently paying interest at
LIBOR plus 1.25% on borrowings under the Multi-Currency Credit Agreement. The
Multi-Currency Credit Agreement also contains certain affirmative and negative
covenants customary in an agreement of this nature.
<PAGE>18
In July 1993, the Company entered into a Credit Agreement ("Credit Agreement")
providing for a $300,000,000 five year revolving credit facility with a group
of financial institutions. A portion of the credit facility was used to repay
amounts outstanding under the Company's revolving credit facility dated June
19, 1990, which was then canceled. Interest on the Credit Agreement is based
on a pricing grid which is either prime per annum or, under a LIBOR option,
LIBOR plus 0.375% to LIBOR plus 1.375% per annum based on the Company's senior
unsecured long-term debt ratings (as defined in the Credit Agreement). The
Company is currently borrowing at prime, or LIBOR plus .75% under the Credit
Agreement. LIBOR borrowing rates are subject to change based on changes in
the Company's credit rating by Moody's or Standard & Poors. The Credit
Agreement is secured by a pledge of the stock of certain of the Company's
subsidiaries. The Credit Agreement also contains certain affirmative and
negative covenants customary in an agreement of this nature.
Despite the recent increase in long-term debt due to the Company's PTI
acquisition, management will continue to emphasize the reduction of long-term
debt as a percentage of its total capital. It is anticipated that debt
reductions will continue to be achieved through a combination of the
application of cash generated from operations and reduced working capital
requirements in the Company's existing businesses. Management believes that
cash generated from operations should be sufficient to support working capital
requirements and anticipated capital expenditures for the foreseeable future.
Results of Operations
- ---------------------
Management of the Company announced its intention to sell the businesses that
comprised its Instrumentation and Other segment in order to focus on the
enhancement of its three core business segments: Power Transfer and Fluid
Handling, Mass Transit and Traffic Control and Professional Audio. The
Company's current business strategy is focused upon enhancement of the three
core business segments through internal growth, cost control and quality
improvement programs and selective, strategic acquisitions, with an emphasis
on expanding the Company's international presence.
The results of operations of PTI have been included in the Company's results
of operations from its June 2, 1993 acquisition date. The results of
operations for the three and nine month periods ended November 30, 1992 have
been restated to exclude the results of operations of the Company's
discontinued businesses and to recognize the effects of the Company's
retroactive adoption of SFAS No. 109.
Net sales for the three and nine month periods ended November 30, 1993
increased by approximately $49,300,000 (18%) and $114,100,000 (14%) over the
comparable periods in the prior year. Excluding the sales of PTI and the
negative effects of foreign currency movements, net sales for the three and
nine month periods ended November 30, 1993 increased approximately $13,600,000
(5%) and $56,900,000 (7%) over the comparable periods in the prior year. Net
sales in the Company's Power Transfer and Fluids Handling business for the
three and nine month periods ended November 30, 1993, excluding the results of
PTI and the negative effect of foreign currency movements, increased
approximately $18,400,000 (11%) and $39,600,000 (8%) over the comparable
periods in the prior year.
<PAGE>19
Net sales in the Company's Mass Transit and Traffic Control business,
excluding the effects of foreign currency movements, were down slightly in the
three month period ended November 30, 1993, and increased by approximately
$19,000,000 (13%) in the nine month period ended November 30, 1993 over
comparable periods in the prior year. Net sales were negatively impacted in
the three month period by bus contract delays and slower than expected
development in the IVHS (Intelligent Vehicle Highway Systems) toll collection
and traffic control markets.
Net sales in the Company's Professional Audio business for the three and nine
month periods ended November 30, 1993, excluding the effects of foreign
currency movements, were down approximately $3,300,000 (7%) and $1,700,000
(1%) from the comparable periods in the prior year. Increased unit sales in
this segment's domestic business were more than offset by economic weakness in
their European operations.
The Company's gross margin (excluding depreciation expense) was approximately
35.5% for the three and nine month periods ended November 30, 1993, down
slightly from approximately 36% in the comparable periods of the prior year.
This slightly lower margin is attributed primarily to the contract delays and
the economic weakness in Europe referred to above.
Selling and administration expense decreased to approximately 19% of net sales
for the respective three and nine month periods ended November 30, 1993, as
compared to 20% for the three and nine month periods ended November 30, 1992.
This decreased level of selling and administrative expense is primarily the
result of operating synergies achieved from the combination of the PTI
business with the previously existing European operations in the Power
Transfer and Fluids Handling business segment, as well as the Company's
continued emphasis on cost control.
Research and development expense for the three and nine month periods ended
November 30, 1993 and 1992 was approximately 2.5% of net sales. This
consistent level of research and development expense reflects the Company's
continuing emphasis on new product development.
Depreciation and amortization expense for the three and nine month periods
ended November 30, 1993, increased by approximately $3,800,000 (50%) and
$7,800,000 (33%), respectively, over the comparable 1992 periods. The
increases are due mainly to the inclusion of the results of operations of PTI
beginning in the second quarter of fiscal 1994.
Interest expense for the three month period ended November 30, 1993 remained
relatively constant as compared to the three month period ended November 30,
1992. The increase related to the acquisition of PTI was offset by the
favorable effects of the Company's debt reduction and refinancing programs.
The debt reduction and refinancing programs have reduced the outstanding
amounts of subordinated and senior debt, and replaced higher interest rate
indebtedness with lower interest rate indebtedness.
Interest expense for the nine month period ended November 30, 1993 was reduced
by approximately $1,700,000 (4%) as compared to the nine month period ended
November 30, 1992. This reduction was accomplished as a result of the
Company's debt reduction and refinancing program, as discussed above. The
favorable interest expense reduction was partially offset by the increased
interest expense related to the Company's acquisition of PTI in the second
quarter of fiscal 1994.
<PAGE>20
Operating income from continuing operations, net of interest expense (income
before taxes) for the three and nine month periods ended November 30, 1993
increased by approximately $3,800,000 (22%) and $15,800,000 (33%) over
comparable 1992 periods. The increases were due primarily to the inclusion of
the results of operations of PTI in the second quarter of fiscal 1994, and the
reduced interest costs as a result of the Company's debt reduction and
refinancing programs.
Income from discontinued operations decreased by approximately $500,000 and
$4,100,000 for the three and nine month periods ended November 30, 1993 as
compared to November 30, 1992. The decreases were due in part to the sale of
certain of the businesses during the latter half of fiscal 1993 and the first
quarter of fiscal 1994. As a result of the Company's decision to discontinue
the businesses as of May 31, 1993, the results of operations of the
discontinued businesses for the period subsequent to that date will be
included in the net gain or loss on the final disposition of all such
businesses. The Company currently anticipates that it will not incur a loss
on the ultimate disposal of these businesses.
As a result of the Company's adoption of SFAS No. 106 on March 1, 1993, the
Company recognized a one-time net of tax charge of $26,000,000 in the nine
month period ended November 30, 1993.
As a result of the Company's debt reduction program discussed above, the
Company recorded an extraordinary loss of approximately $21,700,000, net of a
tax benefit of approximately $12,200,000 in the nine month period ended
November 30, 1993. The Company did not incur any extraordinary losses in the
three month period ended November 30, 1993. The corresponding extraordinary
losses in the three and nine month periods ended November 30, 1992 were
approximately $1,600,000 and $2,000,000 respectively, which also resulted from
the early extinguishment of certain of the Company's subordinated debentures.
Net income increased by approximately $3,100,000 (32%) in the three month
period ended November 30, 1993 as compared to the comparable 1992 period.
Excluding extraordinary items and the Company's discontinued operations, the
Company's income from continuing operations increased approximately $2,000,000
(19%) over the three month period ended November 30, 1992. Such increase was
primarily due to the inclusion of the results of operations of PTI, and the
Company's debt reduction and refinancing programs.
The Company recognized a net loss of approximately $8,200,000 in the nine
month period ended November 30, 1993 as compared to net income of
approximately $32,200,000 in the nine month period ended November 30, 1992.
The net loss for the nine month period ended November 30, 1993 is due to the
one time charge of $26,000,000 for the recognition of the post retirement
benefits obligation as prescribed by SFAS No. 106, and the $21,700,000
extraordinary loss recognized as a result of the Company's debt reduction and
refinancing programs. Excluding such special charges and the Company's
discontinued operations, the Company's income from continuing operations
increased approximately $9,400,000 (31%) over the nine month period ended
November 30, 1992. Such increase was primarily the result of the inclusion of
the results of operations of PTI, and the Company's debt reduction and
refinancing programs.
<PAGE>21
Impact of Inflation
- -------------------
Generally, the Company has been able to pass on inflation-related cost
increases; consequently, inflation has had no material impact on income from
operations.
<PAGE>22
Part II. OTHER INFORMATION
- ---------------------------
Items 1, 2, 3 and 5 are inapplicable and have been omitted.
Item 4 - Results of Votes of Security Holders
- ---------------------------------------------
On August 17, 1993 an Annual Meeting of Stockholders of the Company was
held at which the stockholders voted on the following matters:
(1) To consider and take action upon the proposed Mark IV Industries,
Inc. and Subsidiaries 1992 Incentive Stock Option Plan. The plan
was passed with 30,284,738 shares voting for the proposal;
2,351,017 shares voting against the proposal; and 502,738 shares
withholding authority.
(2) To consider and take action upon the proposed Mark IV Industries,
Inc. 1992 Restricted Stock Plan. The plan was passed with
30,241,556 shares voting for the proposal; 2,372,252 shares voting
against the proposal; and 524,795 shares withholding authority.
Item 6(a) - Exhibits
- -------------------
Exhibit No.
11 - Statement Regarding Computation of Per Share Earnings
<PAGE>23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARK IV INDUSTRIES, INC.
Registrant
DATE: January 14, 1994 /s/ Sal H. Alfiero
----------------------------
Sal H. Alfiero
Chairman of the Board
DATE: January 14, 1994 /s/ Clement R. Arrison
----------------------------
Clement R. Arrison
President
DATE: January 14, 1994 /s/ William P. Montague
----------------------------
William P. Montague
Executive Vice President
and Chief Financial Officer
DATE: January 14, 1994 /s/ John J. Byrne
-----------------------------
John J. Byrne
Vice President-Finance
DATE: January 14, 1994 /s/ Richard L. Grenolds
------------------------------
Richard L. Grenolds
Vice President and
Chief Accounting Officer
<PAGE>24
EXHIBIT INDEX
Description
11** Statement Regarding Computation of Per Share Earnings
_______________
** Filed herewith
<PAGE>1
EXHIBIT 11
MARK IV INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
For the Three and Nine Month Periods Ended November 30, 1993 and 1992
(Amounts in thousands, except per share data)
Three Months Nine Months
Ended November 30, Ended November 30,
_____________________________________
1993 1992 1993 1992
____ ____ ____ ____
(As Restated)
[S] [C] [C] [C] [C]
PRIMARY
Shares outstanding:
Weighted average number of
shares outstanding 40,651 39,993 40,391 39,944
Net effect of dilutive stock
options (1) 327 363 307 374
Total 40,978 40,356 40,698 40,318
Income from continuing operations $12,815 $10,790 $ 39,468 $30,080
Income per share from continuing
operations (2) $ .31 $ .27 $ .97 $ .75
Income from discontinued operations $ - $ 532 $ 52 $ 4,142
Income per share from discontinued
operations (2) $ - $ .01 $ - $ .10
Extraordinary item $ - $(1,620) $(21,739) $(2,017)
Income per share of extraordinary
item (2) $ - $ (.04) $ (.53) $ (.05)
Cumulative effect of a change in
accounting principle $ - $ - $(26,000) $ -
Income per share of cumulative
effect of a change in accounting
principle (2) $ - $ - $ (.64) $ -
Net Income (loss) $12,815 $ 9,702 $ (8,219) $32,205
Income per share of net
income (loss) (2) $ .31 $ .24 $ (.20) $ .80
<PAGE>2
Three Months Nine Months
Ended November 30, Ended November 30,
______________________________________
1993 1992 1993 1992
____ ____ ____ ____
[S] [C] [C] [C] [C]
FULLY-DILUTED
Shares outstanding:
Weighted average number of
shares outstanding 40,651 39,993 40,391 39,944
Shares issuable upon conversion of
the Company's 6-1/4% Convertible
Subordinated Debentures 7,570 7,573 7,572 7,573
Net effect of dilutive stock
options (1) 327 390 307 390
Total 48,548 47,956 48,270 47,907
Income from continuing operations $12,815 $10,790 $ 39,468 $30,080
Interest on Convertible Subordinated
Debentures, less tax effect $ 1,185 $ 1,185 $ 3,555 $ 3,555
Income applicable to fully-diluted
shares $14,000 $11,975 $ 43,023 $33,635
Income per share from continuing
operations $ .29 $ .25 $ .89 $ .70
Income from discontinued operations $ - $ 532 $ 52 $ 4,142
Income per share from discontinued
operations $ - $ .01 $ - $ .09
Extraordinary item $ - $(1,620) $(21,739) $(2,017)
Income per share of extraordinary item $ - $ (.03) $ (.45) $ (.04)
Cumulative effect of a change in
accounting principle $ - $ - $(26,000) $ -
Income per share of cumulative
effect of a change in accounting
principle $ - $ - $ (.54) $ -
Net Income (loss) $14,000 $10,887 $ (4,664) $35,760
Income per share of net income (loss) $ .29 $ .23 $ (.10) $ .75
[FN]
- ------------------------------------
(1) The net effects for the three and nine month periods ended November 30,
1993 and 1992 are based upon the treasury stock method using the average
market price during the periods for the primary amounts, and the higher
of the average market price or the market price at the end of the period
for the fully-diluted amounts.
(2) Primary earnings per share have been reported in the Company's
financial statements based only upon the shares of common stock
outstanding, since the dilutive effect of the stock options
is not considered to be material.
