<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1994
REGISTRATION STATEMENT NO. 33-56397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MARK IV INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1733979
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
501 JOHN JAMES AUDUBON PARKWAY
P.O. BOX 810
AMHERST, NEW YORK 14226-0810
(716) 689-4972
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM P. MONTAGUE
EXECUTIVE VICE PRESIDENT
Mark IV Industries, Inc.
501 John James Audubon Parkway
P.O. Box 810
Amherst, New York 14226-0810
(716) 689-4972
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
DAVID L. FINKELMAN, GERALD S. LIPPES, ESQ. ROGER KIMMEL, ESQ.
ESQ. LIPPES, SILVERSTEIN, LATHAM & WATKINS
STROOCK & STROOCK & LAVAN MATHIAS & WEXLER 855 Third Avenue
Seven Hanover Square 700 Guaranty Building New York, N.Y. 10022
New York, N.Y. 10004- 28 Church Street
2696 Buffalo, N.Y. 14202-3950
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1994
PROSPECTUS
6,000,000 SHARES
MARK IV
INDUSTRIES INC.
COMMON STOCK
All of the 6,000,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Mark IV Industries, Inc. ("Mark IV" or the "Company"). The
Common Stock of the Company is listed on the New York Stock Exchange, Inc.
under the symbol "IV." On November 17, 1994, the last reported sale price of
the Common Stock on the New York Stock Exchange Composite Tape was $21 3/4 per
share. See "Price Range of Common Stock and Dividend Policy."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------------------------------------------
Per Share................................ $ $ $
- -------------------------------------------------------------------------------------------
Total (3)................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) No underwriting discount will apply in respect of up to 275,000 shares of
Common Stock reserved for sale at the public offering price to the
Purolator Products Company Employees' Retirement Savings Plan (the "Savings
Plan"). The Company has agreed to indemnify the several Underwriters
against, and to provide contribution with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 858,750 additional shares of Common Stock solely to cover
over-allotments. If the option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters, and subject to the approval
of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made against payment therefor on or about December ,
1994, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York,
New York 10167.
BEAR, STEARNS & CO. INC.
December , 1994
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Mark IV Industries, Inc. (the "Company" or "Mark IV") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such materials can also be inspected at the New York Stock
Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form S-
3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as part thereof and otherwise incorporated
therein. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. Copies of the Registration
Statement and the exhibits may be inspected, without charge, at the offices of
the Commission, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994, as amended by Amendment No. 1 on Form 10-K/A; the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended May 31,
1994 and August 31, 1994; the Company's Current Report on Form 8-K dated
November 9, 1994; and the description of the Company's Common Stock which is
contained in the Company's Registration Statement on Form 8-A, dated August 28,
1987, including any amendments or reports filed for the purpose of updating
such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modifies, supersedes or replaces such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to any person to whom this
Prospectus is delivered, upon written or oral requests of such person, a copy
of any or all of the documents which have been incorporated by reference in
this Prospectus, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Investor Relations, Mark IV
Industries, Inc., 501 John James Audubon Parkway, P.O. Box 810, Amherst, New
York 14226-0810 (telephone number: (716) 689-4972).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. In addition, except
where otherwise indicated, all information set forth herein assumes that the
Underwriters' over-allotment option will not be exercised. Unless the context
otherwise requires, all references herein to the "Company" or "Mark IV" include
Mark IV Industries, Inc. and its subsidiaries.
THE COMPANY
Mark IV is a diversified manufacturer of a broad range of proprietary and
other power and fluid transfer products and systems which serve four markets:
general industrial; automotive aftermarket; automotive original equipment
manufacturers ("OEMs"); and infrastructure. Power and fluid transfer products
and systems accounted for 90.0% of Mark IV's net sales in fiscal 1994 after
giving pro forma effect to the Company's recent acquisition of Purolator
Products Company ("Purolator"). Mark IV is also a leading manufacturer of
professional audio products.
Many of Mark IV's products have a significant, and in certain instances the
leading, share of their respective markets. Products manufactured by Mark IV
principally serve specialized needs in markets in which relatively few
manufacturers compete. These products are primarily sold directly, and through
independent distributors, to other manufacturers and commercial users in the
United States and Europe and, to a lesser extent, in Canada, Latin America and
the Far East. Mark IV operates 72 manufacturing facilities and 52 distribution
and sales locations and employs approximately 16,500 people in eighteen
countries.
Mark IV's business strategy is focused on building its power and fluid
transfer business through internal growth, continuation of cost control and
quality improvement programs, and selective strategic domestic and foreign
acquisitions. The Company's operating strategy emphasizes management for
continuous improvement, establishing co-operative programs with customers to
engineer, design and develop higher value added systems in addition to
individual products, and the introduction of new, more cost effective and
durable products.
In furtherance of these strategies, over the past five years Mark IV has: (i)
emphasized continuous product development, with over 50.0% of its current sales
worldwide arising from the introduction of new products or products which have
been redesigned; (ii) significantly expanded its presence in Western Europe
through its June 1993 acquisition of Pirelli Trasmissioni Industriali, S.p.A.
("PTI"), a leading Italian-based manufacturer of power transmission products;
(iii) substantially increased its domestic production capacity and strengthened
its market position in the power steering and garden hose markets through its
fiscal 1991 acquisition of Anchor Swan, a leading manufacturer of these and
other products; (iv) established distribution centers to serve markets in
Central and South America and the Pacific Rim, and acquired manufacturing and
distribution facilities in Mexico; and (v) implemented cost savings and
efficiency programs in its Power and Fluid Transfer business segment which have
contributed to the improvement of the segment's operating income margins from
7.0% in fiscal 1989 to 11.7% in fiscal 1994. Mark IV believes that, having
established an efficient global manufacturing and distribution network, it is
well positioned to benefit from a continuation of strength in its domestic
markets and the increasing strength in its European and other foreign markets.
ACQUISITION OF PUROLATOR PRODUCTS COMPANY
As part of the Company's strategic emphasis on its power and fluid transfer
business, in November 1994 Mark IV acquired Purolator which is a leading
manufacturer of filtration products, including automotive oil,
3
<PAGE>
air and fuel filters; residential and commercial heating, ventilating and air-
conditioning ("HVAC") filters; high-technology liquid filtration products; and
specialized industrial filters and filtration systems. The total cost of the
acquisition was $286.3 million. Purolator's filtration business complements the
Company's fluid transfer products since many of Purolator's products serve
customers in the same markets as the Company's other power and fluid transfer
products, such as certain industrial markets, the automotive aftermarket and,
to a much lesser extent, the automotive OEM market. In addition, filters are
generally an integral part of most power and fluid transfer systems produced by
the Company. Accordingly, management believes that, as a result of the
acquisition of Purolator, the Company is better positioned to provide a broader
range of products to customers in these markets. In particular, the acquisition
of Purolator will strengthen Mark IV's presence in the automotive aftermarket
since 61.5% of Purolator's $435.8 million of sales in 1993 were made to
customers in this market. Mark IV also believes that its extensive domestic and
European sales and distribution network will provide opportunities for
increased sales of Purolator's products. It is also anticipated that
significant cost savings will result from the combined distribution of fluid
transfer and filtration products to customers and the consolidation of
Purolator's corporate functions.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered.......... 6,000,000 shares
Common Stock to be Outstanding
After the Offering........... 54,091,383 shares (1)
NYSE Symbol................... "IV"
Use of Proceeds............... Substantially all of the net proceeds of the
Offering, estimated at $ million ($
million if the Underwriters' over-allotment
option is exercised in full), will be used to
repay debt outstanding under the revolving
credit facility provided by the Company's
1994 Credit Agreement, which indebtedness was
incurred primarily to refinance (i) amounts
outstanding under the Company's previous
credit agreement and (ii) certain existing
indebtedness of Purolator. See "Use of
Proceeds."
</TABLE>
- --------
(1) Excludes 2,604,000 shares of Common Stock reserved for issuance upon
conversion of the Company's 6 1/4% Convertible Subordinated Debentures due
2007 (the "Convertible Debentures") at their present conversion price of
$14.3685 per share, which debentures are first callable by the Company at a
price of 104.375% on February 16, 1995. Also excludes 835,931 shares
reserved for possible issuance upon exercise of outstanding employee stock
options and 471,412 shares reserved for possible issuance upon exercise of
stock options which may be assumed by the Company in connection with the
acquisition of Purolator.
4
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth summary consolidated financial data of the
Company for each of the three fiscal years in the period ended February 28,
1994 and for the six month periods ended August 31, 1993 and 1994. Such
financial data is derived from the Company's audited and unaudited consolidated
financial statements included elsewhere herein. The tables also set forth
certain pro forma (unaudited) consolidated income statement data and balance
sheet data for fiscal 1994 and for the six-month period ended August 31, 1994,
after giving effect to the acquisition of Purolator and the other adjustments
described in Notes (2) and (4) below.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
THE LAST DAY OF FEBRUARY, AUGUST 31,
------------------------------------------- ----------------------------
PRO FORMA PRO FORMA
1992 1993 1994(1) 1994(2) 1993(1) 1994 1994(2)
---------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,004,300 $1,085,700 $1,244,200 $1,680,000 $604,500 $721,000 $966,800
========== ========== ========== ========== ======== ======== ========
Operating income before
depreciation and
amortization........... $ 136,900 $ 145,700 $ 173,500 $ 216,500 $ 87,300 $103,500 $129,600
Depreciation and
amortization........... 28,300 32,100 41,700 56,200 19,800 23,200 30,400
---------- ---------- ---------- ---------- -------- -------- --------
Operating income(3)..... $ 108,600 $ 113,600 $ 131,800 $ 160,300 $ 67,500 $ 80,300 $ 99,200
========== ========== ========== ========== ======== ======== ========
Income from continuing
operations............. $ 26,800 $ 39,100 $ 51,100 $ 59,300 $ 26,700 $ 33,800 $ 39,500
========== ========== ========== ========== ======== ======== ========
Fully-diluted income per
share from continuing
operations............. $ 0.74 $ 0.87 $ 1.09 $ 1.19 $ 0.57 $ 0.71 $ 0.79
========== ========== ========== ========== ======== ======== ========
Cash dividends per
share.................. $ 0.066 $ 0.084 $ 0.098 $ 0.098 $ 0.048 $ 0.055 $ 0.055
========== ========== ========== ========== ======== ======== ========
Fully-diluted weighted
average number of
shares outstanding..... 38,400 50,300 50,700 50,700 50,600 51,000 51,000
PRO FORMA, AS
ADJUSTED(4):
Income from continuing
operations............. $ 64,000 $ 42,200
========== ========
Fully-diluted income per
share from continuing
operations............. $ 1.15 $ 0.75
========== ========
Fully-diluted weighted
average number of
shares outstanding..... 56,700 57,000
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA,
AT THE LAST DAY OF FEBRUARY, AT AS ADJUSTED
-------------------------------- AUGUST 31, AT AUGUST
1992 1993 1994 1994 31, 1994(4)
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 285,500 $ 275,400 $ 312,800 $ 310,300 $ 413,100
Total assets............ 1,104,500 1,124,800 1,282,300 1,335,500 1,804,000
Long-term debt.......... 525,400 497,100 567,200 551,100 672,000
Stockholders' equity.... 311,900 345,600 345,400 382,500 584,200
</TABLE>
- --------
(1) Includes the results of operations of the PTI business from its June 1993
acquisition date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(2) Presents pro forma data as if the acquisition of Purolator and the
borrowings under the 1994 Credit Agreement in connection therewith in
November 1994 and the conversion in October 1994 of $76.7 million aggregate
principal amount of Convertible Debentures into 5,340,000 shares of Common
Stock, had occurred on (i) March 1, 1993, the beginning of fiscal 1994,
with respect to the pro forma income statement data for the year ended
February 28, 1994, (ii) March 1, 1994, the beginning of fiscal 1995, with
respect to the pro forma income statement data for the six months ended
August 31, 1994, and (iii) August 31, 1994, with respect to the pro forma
balance sheet data at August 31, 1994. See "Pro Forma Financial
Information."
(3)Represents income from continuing operations before interest expense,
securities transactions and taxes.
(4) Includes amounts as if the transactions in Note (2) above, as well as the
application of the net proceeds from this Offering, assuming a public
offering price of $22.00 per share, had occurred on the dates described
therein.
5
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to be $ million ($ million if the Underwriters' over-
allotment option is exercised in full). Substantially all of such net proceeds
will be used to repay indebtedness outstanding under the five-year revolving
credit facility provided by the Company's 1994 Credit Agreement, of which
approximately $115.0 million was incurred to refinance indebtedness outstanding
under the Company's previous revolving credit facility and approximately $44.0
million principal amount was incurred to refinance existing bank indebtedness
of Purolator bearing interest at November 16, 1994 at the rate of 8.5% per
annum. The Company is currently paying interest on indebtedness under its
revolving credit facility at the rate of 6.6% per annum. Under the terms of the
1994 Credit Agreement, the amount of net proceeds of the Offering used to repay
outstanding indebtedness under the revolving credit facility may be reborrowed
by the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for a
summary of the terms of the 1994 Credit Agreement.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is currently traded on the NYSE. The following table sets
forth, for the fiscal periods indicated, the high and low closing sale prices
per share of Common Stock as reported on the NYSE Composite Tape. All amounts
have been adjusted for the 5% stock dividend paid in April 1994.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
------ ------- ---------
<S> <C> <C> <C>
FISCAL 1993
First Quarter.................................. $ 14 $11 7/8 $0.020
Second Quarter................................. 13 3/8 11 1/2 0.020
Third Quarter.................................. 14 11 1/8 0.020
Fourth Quarter................................. 17 5/8 13 5/8 0.024
FISCAL 1994
First Quarter.................................. 18 3/4 15 5/8 0.024
Second Quarter................................. 22 18 7/8 0.024
Third Quarter.................................. 24 1/2 18 0.024
Fourth Quarter................................. 20 17 1/8 0.026
FISCAL 1995
First Quarter.................................. 19 15 3/4 0.0275
Second Quarter................................. 20 7/8 18 0.0275
Third Quarter (through November 17, 1994)...... 23 20 1/4 --
</TABLE>
On November 17, 1994, the closing sale price of the Common Stock as reported
on the NYSE Composite Tape was $21 3/4. At November 17, 1994, there were
approximately 2,600 holders of record of the Common Stock.
Mark IV intends to continue to pay quarterly cash dividends on its Common
Stock, subject to future results of operations and other relevant factors.
Pursuant to the terms of the 1994 Credit Agreement, the payment of dividends on
Mark IV's Common Stock is subject to certain limitations.
6
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at August 31, 1994 and (i) as adjusted to give effect to the
acquisition of Purolator and the borrowings under the 1994 Credit Agreement in
connection therewith in November 1994 and the conversion in October 1994 of
approximately $76.7 million aggregate principal amount of Convertible
Debentures into 5,340,000 shares of Common Stock at the conversion price of
$14.3685 per share, and (ii) as further adjusted to give effect to the sale of
the Common Stock offered hereby, assuming a public offering price of $22.00 per
share, and the application of the estimated net proceeds therefrom to repay
borrowings under the 1994 Credit Agreement. See "Use of Proceeds."
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
AUGUST 31, 1994
----------------------------------
AS AS FURTHER
ACTUAL ADJUSTED ADJUSTED
-------- ---------- ----------
<S> <C> <C> <C>
Current maturities of long-term debt(1).... $ 6,000 $ 6,400 $ 6,400
======== ========== ==========
Long-term debt, excluding current
maturities(1):
Senior debt:
Credit Agreement(2).................... $120,000 $ 439,900(3) $ 314,900
Other.................................. 58,900 61,600 61,600
-------- ---------- ----------
Total senior debt...................... 178,900 501,500 376,500
-------- ---------- ----------
Subordinated debt:
8 3/4% Senior Subordinated Notes due
April 1, 2003......................... 258,000 258,000 258,000
6 1/4% Convertible Subordinated
Debentures due
February 15, 2007..................... 114,200 37,500(4) 37,500
-------- ---------- ----------
Total subordinated debt................ 372,200 295,500 295,500
-------- ---------- ----------
Total long-term debt................... 551,100 797,000 672,000
-------- ---------- ----------
Stockholders' equity:
Common Stock, $0.01 par value:
100,000,000 shares authorized;
42,751,383 shares issued; 48,091,383
shares issued
as adjusted; and 54,091,383 shares
issued as further
adjusted (5).......................... 400 500 600
Additional paid-in capital............... 262,600 339,200 464,100
Retained earnings........................ 120,000 120,000 120,000
Foreign currency translation adjustment.. (500) (500) (500)
-------- ---------- ----------
Total stockholders' equity............. 382,500 459,200 584,200
-------- ---------- ----------
Total capitalization................. $933,600 $1,256,200 $1,256,200
======== ========== ==========
</TABLE>
- --------
(1) See Note 8 to the Company's audited Consolidated Financial Statements,
appearing elsewhere herein, for interest rates and other information
regarding the Company's outstanding indebtedness.
(2) On November 2, 1994, the Company replaced its existing $300 million
revolving credit facility with the 1994 Credit Agreement which provides for
a revolving credit facility in an amount of up to $350 million over a five-
year period and a $300 million five-year term loan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
(3) Increase reflects borrowings under the 1994 Credit Agreement which were
used to finance the Purolator acquisition and refinance certain existing
debt of Purolator. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(4) Reflects the conversion in October 1994 of approximately $76.7 million
aggregate principal amount of Convertible Debentures into approximately
5,340,000 shares of Common Stock at the conversion price of $14.3685 per
share. The remaining $37.5 million aggregate principal amount of
Convertible Debentures are first callable by the Company at a price of
104.375% on February 16, 1995.
(5) Excludes 2,604,000 shares reserved for issuance upon conversion of the
Convertible Debentures and 835,931 shares reserved for issuance upon
exercise of outstanding employee stock options. Also excludes 471,412
shares reserved for possible issuance upon exercise of stock options which
may be assumed by the Company in connection with the acquisition of
Purolator.
7
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth selected consolidated financial information of
the Company for each of the five fiscal years in the period ended February 28,
1994 derived from the Company's audited consolidated financial statements and
for the six months ended August 31, 1993 and 1994. Information for the six
months ended August 31, 1993 and 1994 is derived from the unaudited
consolidated financial statements of the Company but, in the opinion of
management, includes all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. The results of operations for the
six-month period ended August 31, 1994 are not necessarily indicative of the
results to be expected for the full year. These tables should be read in
conjunction with the Company's Consolidated Financial Statements and Pro Forma
Financial Information appearing elsewhere herein.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE
SIX MONTHS ENDED
FOR THE YEAR ENDED THE LAST DAY OF FEBRUARY, AUGUST 31,
--------------------------------------------------- -----------------
1990 1991 1992 1993 1994(1) 1993(1) 1994
-------- -------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $672,700 $789,700 $1,004,300 $1,085,700 $1,244,200 $604,500 $721,000
-------- -------- ---------- ---------- ---------- -------- --------
Operating costs:
Cost of products sold.. 419,000 492,800 641,900 698,800 803,500 391,600 468,600
Selling and
administration........ 142,000 164,800 200,600 215,100 236,300 110,300 133,300
Research and
development........... 17,000 20,600 24,900 26,100 30,900 15,300 15,600
Depreciation and
amortization.......... 17,000 23,500 28,300 32,100 41,700 19,800 23,200
-------- -------- ---------- ---------- ---------- -------- --------
Total operating costs.. 595,000 701,700 895,700 972,100 1,112,400 537,000 640,700
-------- -------- ---------- ---------- ---------- -------- --------
Operating income....... 77,700 88,000 108,600 113,600 131,800 67,500 80,300
Interest expense........ 51,200 60,600 64,700 51,600 50,100 24,900 25,300
-------- -------- ---------- ---------- ---------- -------- --------
Income before gain
(loss) on securities
transactions and
provision for taxes.... 26,500 27,400 43,900 62,000 81,700 42,600 55,000
Gain (loss) on
securities
transactions........... 5,800 1,000 (2,400) -- -- -- --
-------- -------- ---------- ---------- ---------- -------- --------
Income before provision
for taxes.............. 32,300 28,400 41,500 62,000 81,700 42,600 55,000
Provision for income
taxes.................. 12,400 10,800 14,700 22,900 30,600 15,900 21,200
-------- -------- ---------- ---------- ---------- -------- --------
Income from continuing
operations(2).......... $ 19,900 $ 17,600 $ 26,800 $ 39,100 $ 51,100 $ 26,700 $ 33,800
======== ======== ========== ========== ========== ======== ========
Fully-diluted income per
share from continuing
operations:
Before securities
transactions........... $ 0.52 $ 0.59 $ 0.78 $ 0.87 $ 1.09 $ 0.57 $ 0.71
Gain (loss) on
securities
transactions........... 0.10 0.02 (0.04) -- -- -- --
-------- -------- ---------- ---------- ---------- -------- --------
Total from continuing
operations(2).......... $ 0.62 $ 0.61 $ 0.74 $ 0.87 $ 1.09 $ 0.57 $ 0.71
======== ======== ========== ========== ========== ======== ========
Cash dividends per
share.................. $ -- $ 0.058 $ 0.066 $ 0.084 $ 0.098 $ 0.048 $ 0.055
======== ======== ========== ========== ========== ======== ========
Fully-diluted weighted
average number of
shares outstanding..... 36,300 33,400 38,400 50,300 50,700 50,600 51,000
</TABLE>
<TABLE>
<CAPTION>
AT THE LAST DAY OF FEBRUARY, AT
---------------------------------------------------- AUGUST 31,
1990 1991 1992 1993 1994 1994
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $262,300 $ 345,100 $ 285,500 $ 275,400 $ 312,800 $ 310,300
Total assets............ 872,100 1,100,100 1,104,500 1,124,800 1,282,300 1,335,500
Long-term debt,
excluding current
maturities............. 544,200 717,600 525,400 497,100 567,200 551,100
Stockholders' equity.... 159,700 170,000 311,900 345,600 345,400 382,500
</TABLE>
- --------
(1) Includes the results of operations of the PTI business from its June 1993
acquisition date.
(2) As a result of an extraordinary loss of $21,700,000 related to the early
extinguishment of debt, as well as a charge of $26,000,000 to recognize the
cumulative effect of adopting Statement of Financial Accounting Standards
("SFAS") No. 106 related to post-retirement benefits, the Company's net
income for fiscal 1994 was $3,400,000 (or $0.15 per fully-diluted share).
8
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro forma (unaudited) consolidated statements of income for the six
months ended August 31, 1994 and the fiscal year ended February 28, 1994 set
forth below present the results of operations of the Company for such period
and such year as if the following transactions had occurred on March 1, 1994,
the beginning of fiscal 1995, with respect to the consolidated statement of
income for the six months ended August 31, 1994, and on March 1, 1993, the
beginning of fiscal 1994, with respect to the consolidated statement of income
for the fiscal year ended February 28, 1994: (i) the consummation of the
acquisition of Purolator in November 1994 and the borrowings under the 1994
Credit Agreement in connection therewith; (ii) the conversion in October 1994
of approximately $76.7 million aggregate principal amount of Convertible
Debentures into approximately 5,340,000 shares of Common Stock at a conversion
price of $14.3685 per share; and (iii) the consummation of the Offering and the
application of the estimated net proceeds therefrom, assuming a public offering
price of $22.00 per share. The pro forma statement of income for the six months
ended August 31, 1994 combines, with appropriate adjustments, the Company's
unaudited consolidated results of operations for its six months ended August
31, 1994 and the unaudited condensed consolidated results of operations of
Purolator for the same six month period. The pro forma statement of income for
the fiscal year ended February 28, 1994, combines, with appropriate
adjustments, the Company's audited consolidated results of operations for its
fiscal year ended February 28, 1994 and the audited consolidated results of
operations of Purolator for its fiscal year ended December 31, 1993.
The pro forma (unaudited) consolidated condensed balance sheet as of August
31, 1994 set forth below presents the financial position of the Company as if
the following transactions had occurred on August 31, 1994: (i) the
consummation of the acquisition of Purolator in November 1994 and the
borrowings under the 1994 Credit Agreement in connection therewith; (ii) the
conversion in October 1994 of approximately $76.7 million aggregate principal
amount of Convertible Debentures into approximately 5,340,000 shares of Common
Stock at a conversion price of $14.3685 per share; and (iii) the consummation
of the Offering and the application of the estimated net proceeds therefrom,
assuming a public offering price of $22.00 per share. The pro forma balance
sheet as of August 31, 1994 combines, with appropriate adjustments, the
Company's unaudited consolidated condensed balance sheet as of August 31, 1994
and the unaudited condensed consolidated balance sheet of Purolator as of
August 31, 1994.
The pro forma financial statements have been prepared on the basis of
preliminary assumptions and estimates. The pro forma financial statements may
not be indicative of the results that would have been achieved if the
acquisition of Purolator and the borrowings under the 1994 Credit Agreement in
connection therewith, the conversion of Convertible Debentures and the
application of the net proceeds from the Offering had been effected on the
dates indicated or which may be achieved in the future. The pro forma financial
statements should be read in conjunction with the financial statements of the
Company and Purolator appearing elsewhere herein.
9
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED AUGUST 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................... $721,000 $245,800 $966,800
-------- -------- --------
Costs and expenses:
Cost of products sold....... 468,600 181,400 650,000
Selling and administration.. 133,300 38,700 $(3,500)(3) 168,500
Research and development.... 15,600 3,100 18,700
Depreciation and
amortization............... 23,200 6,800 400 (4) 30,400
-------- -------- ------- --------
Total operating costs..... 640,700 230,000 (3,100) 867,600
-------- -------- ------- --------
Operating income............ 80,300 15,800 3,100 99,200
Interest expense.............. (25,300) (2,100) (7,200)(5) (34,600)
-------- -------- ------- --------
Income before taxes......... 55,000 13,700 (4,100) 64,600
Provision for income taxes.... (21,200) (700) (3,200)(6) (25,100)
-------- -------- ------- --------
Income from continuing
operations................. $ 33,800 $ 13,000 $(7,300) $ 39,500
======== ======== ======= ========
Income per share from
continuing operations:
Primary..................... $ 0.79 $ 0.82
======== ========
Fully-diluted............... $ 0.71 $ 0.79
======== ========
Weighted average number of
shares outstanding:
Primary..................... 42,700 5,400 (7) 48,100
======== ======= ========
Fully-diluted............... 51,000 51,000
======== ========
PRO FORMA, AS ADJUSTED(8):
Income from continuing
operations................... $ 42,200
========
Income per share from
continuing operations:
Primary..................... $ 0.78
========
Fully-diluted............... $ 0.75
========
Weighted average number of
shares outstanding:
Primary..................... 54,100
========
Fully-diluted............... 57,000
========
</TABLE>
- --------
(1) Represents the Company's consolidated results of operations as reported for
its six months ended August 31, 1994.
(2) Represents Purolator's consolidated results of operations for its six
months ended August 31, 1994.
(3) Represents the elimination of duplicate costs, primarily related to
Purolator's corporate headquarters function.
(4) Reflects increased depreciation and amortization expense based upon a
preliminary estimate of values and remaining lives of fixed and intangible
assets acquired.
(5) To adjust interest expense to reflect the amount that might have been paid
on borrowings incurred to finance the acquisition of Purolator as if it had
occurred on March 1, 1994 ($9,600,000), net of the interest reduction
related to the conversion in October 1994 of $76.7 million aggregate
principal amount of Convertible Debentures, as if the conversion had
occurred on March 1, 1994 ($2,400,000). The adjustment excludes a net of
tax charge of $1,100,000 ($0.02 per share) representing the unamortized
balance of deferred charges related to the Company's previously existing
credit agreement. Such amount will be recognized as an extraordinary item
in the Company's historical income statements as of the November 1994
borrowings under the 1994 Credit Agreement.
(6) To adjust the tax provision to reflect the tax expense anticipated in
consolidation with the Company's results of operations.
(7) Represents the increase in weighted average shares outstanding as a result
of the October 1994 conversion of Convertible Debentures, as if the
conversion had occurred on March 1, 1994.
(8) Reflects the pro forma amounts, as adjusted to assume the application of
the estimated net proceeds from this Offering to reduce indebtedness
resulting from the acquisition of Purolator as of March 1, 1994.
10
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales................. $1,244,200 $435,800 $1,680,000
---------- -------- ----------
Costs and expenses:
Cost of products sold... 803,500 321,500 1,125,000
Selling and
administration......... 236,300 72,100 $ (7,000)(3) 301,400
Research and
development............ 30,900 6,200 37,100
Depreciation and
amortization........... 41,700 13,600 900 (4) 56,200
---------- -------- -------- ----------
Total operating costs. 1,112,400 413,400 (6,100) 1,519,700
---------- -------- -------- ----------
Operating income........ 131,800 22,400 6,100 160,300
Interest expense.......... (50,100) (4,100) (10,800)(5) (65,000)
---------- -------- -------- ----------
Income before taxes..... 81,700 18,300 (4,700) 95,300
Provision for income
taxes.................... (30,600) (500) (4,900)(6) (36,000)
---------- -------- -------- ----------
Income from continuing
operations............. $ 51,100 $ 17,800 $ (9,600) $ 59,300
========== ======== ======== ==========
Income per share from
continuing operations:
Primary................. $ 1.20 $ 1.24
========== ==========
Fully-diluted........... $ 1.09 $ 1.19
========== ==========
Weighted average number of
shares outstanding:
Primary................. 42,500 5,400 (7) 47,900
========== ======== ==========
Fully-diluted........... 50,700 50,700
========== ==========
PRO FORMA, AS ADJUSTED(8):
Income from continuing
operations............... $ 64,000
==========
Income per share from
continuing operations:
Primary................. $ 1.19
==========
Fully-diluted........... $ 1.15
==========
Weighted average number of
shares outstanding:
Primary................. 53,900
==========
Fully-diluted........... 56,700
==========
</TABLE>
- --------
(1) Represents the Company's audited consolidated results of operations as
reported for its fiscal year ended February 28, 1994.
(2) Represents Purolator's audited consolidated results of operations as
reported for its fiscal year ended December 31, 1993.
(3) Represents the elimination of duplicate costs, primarily related to
Purolator's corporate headquarters function.
(4) Reflects increased depreciation and amortization expense based upon a
preliminary estimate of values and remaining lives of fixed and intangible
assets acquired.
(5) To adjust interest expense to reflect the amount that might have been paid
on borrowings incurred to finance the acquisition of Purolator had it
occurred on March 1, 1993 ($15,600,000), net of the interest reduction
related to the conversion in October 1994 of $76.7 million aggregate
principal amount of Convertible Debentures, as if the conversion had
occurred on March 1, 1993 ($4,800,000). The adjustment excludes a net of
tax charge of $1,100,000 ($0.02 per share) representing the unamortized
balance of deferred charges related to the Company's previously existing
credit agreement. Such amount will be recognized as an extraordinary item
in the Company's historical income statements as of the November 1994
borrowings under the 1994 Credit Agreement.
(6) To adjust the tax provision to reflect the tax expense anticipated in
consolidation with the Company's results of operations.
(7) Represents the increase in weighted average shares outstanding as a result
of the October 1994 conversion of the Convertible Debentures, as if the
conversion had occurred on March 1, 1993.
(8) Reflects the pro forma amounts, as adjusted to assume the application of
the estimated net proceeds from this Offering to reduce indebtedness
resulting from the acquisition of Purolator as of March 1, 1993.
11
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AUGUST 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 700 $ 7,300 $ 8,000
Accounts receivable... 298,200 78,800 377,000
Inventories........... 265,300 71,700 $ 14,800 (3) 351,800
Other current assets.. 47,700 14,000 61,700
---------- -------- -------- ----------
Total current
assets............. 611,900 171,800 14,800 798,500
Pension related and
other non-current
assets................. 146,200 25,400 4,300 (3) 175,900
Property, plant and
equipment, net......... 369,400 78,900 50,000 (3) 498,300
Cost in excess of net
assets acquired and
deferred charges....... 208,000 108,500 14,800 (3) 331,300
---------- -------- -------- ----------
TOTAL ASSETS........ $1,335,500 $384,600 $ 83,900 $1,804,000
========== ======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current maturities of
debt................. $ 53,000 $ 4,400 $ (4,000)(4) $ 53,400
Accounts payable...... 112,600 39,500 152,100
Compensation related
liabilities.......... 40,500 9,200 49,700
Accrued interest...... 14,800 500 15,300
Accrued expenses and
other liabilities.... 71,900 29,600 101,500
Income taxes payable.. 8,800 4,600 13,400
---------- -------- -------- ----------
Total current
liabilities........ 301,600 87,800 (4,000) 385,400
---------- -------- -------- ----------
Long-term debt:
Senior debt........... 178,900 40,700 156,900 (4)(5) 376,500
Subordinated
debentures........... 372,200 (76,700)(6) 295,500
---------- -------- -------- ----------
Total long-term
debt............... 551,100 40,700 80,200 672,000
---------- -------- -------- ----------
Other non-current
liabilities............ 100,300 80,000 (17,900)(3) 162,400
---------- -------- -------- ----------
Stockholders' equity:
Common stock.......... 400 100 100 (5)(6)(7) 600
Additional paid-in
capital.............. 262,600 325,300 (123,800)(5)(6)(7) 464,100
Retained earnings..... 120,000 (137,200) 137,200 (7) 120,000
Other equity
adjustments.......... (500) (12,100) 12,100 (7) (500)
---------- -------- -------- ----------
Total stockholders'
equity............. 382,500 176,100 25,600 584,200
---------- -------- -------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY........... $1,335,500 $384,600 $ 83,900 $1,804,000
========== ======== ======== ==========
</TABLE>
- --------
(1) Represents the Company's consolidated financial position as reported as of
August 31, 1994.
(2) Represents the consolidated financial position of Purolator as of August
31, 1994.
(3) Preliminary allocations have been made to reflect the possible increased
asset values, and associated tax effects. Such amounts, as well as the
estimated total purchase price, will be adjusted as additional analysis is
performed and additional information is received from various outside
appraisal groups.
(4) Funds used to acquire Purolator, refinance Purolator's credit facility and
to pay certain acquisition related costs are assumed to have been provided
from borrowings under the Company's 1994 Credit Agreement.
(5) Represents the effect of the sale of Common Stock offered hereby, and the
application of the estimated net proceeds to repay borrowings under the
1994 Credit Agreement.
(6) Represents the conversion of $76.7 million aggregate principal amount of
Convertible Debentures which were converted into Common Stock in October
1994.
(7) Represents the elimination of Purolator's stockholders' equity.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Prior to the acquisition of Purolator in November 1994, the Company
classified its operations into three business segments: Power and Fluid
Transfer; Transportation; and Professional Audio. Following the acquisition of
Purolator, management reviewed its existing businesses and determined that its
Transportation business segment should be combined with the Power and Fluid
Transfer business segment in view of the similarity in markets and customers
served. Management also believes that the revised classification will enable
the Company to benefit from a global organizational structure and the
coordination of distribution activities. As a result, the Company now
classifies its operations into two business segments: Power and Fluid Transfer;
and Professional Audio.
The new Power and Fluid Transfer business segment, which represented 86.1% of
the Company's total revenues in fiscal 1994 (90.0% on a pro forma basis giving
effect to the acquisition of Purolator), designs, manufactures and distributes
products in four markets: general industrial; automotive aftermarket;
automotive OEMs; and infrastructure. The infrastructure market of this segment
includes products formerly classified in the Transportation business segment.
Purolator's products serve the general industrial market, automotive
aftermarket and, to a much lesser extent, automotive OEM market. The Company's
Professional Audio business segment represented 13.9% of the Company's total
revenues in fiscal 1994 (10.0% on a pro forma basis giving effect to the
acquisition of Purolator). The following discussion of the Company's historical
results of operations has been adjusted to reflect the Company's new business
segment structure.
In fiscal 1994, Mark IV acquired PTI, a manufacturer of power transmission
products based in Italy with manufacturing and distribution centers in five
other countries in Western Europe and in the United States, for a purchase
price comprised of $65,000,000 in cash and the assumption of PTI bank
indebtedness in the amount of $50,000,000. The results of operations of the
Company for the six month period ended August 31, 1993 and for fiscal 1994
include the results of PTI from its June 2, 1993 acquisition date. In addition,
in fiscal 1994, Mark IV announced the discontinuance of its non-core businesses
and completed the sale of certain of those businesses for approximately
$35,000,000 in cash. The Company's results of operations for fiscal 1992 and
1993 have been restated to exclude the results of the discontinued businesses
and to recognize the effects of the Company's retroactive adoption of SFAS No.
109, Accounting for Income Taxes.
RESULTS OF OPERATIONS
Six Months Ended August 31, 1994, compared to Six Months Ended August 31,
1993.
Net sales for the six month period ended August 31, 1994 increased
approximately $116,500,000 (19.0%) over the six month period ended August 31,
1993. If the sales of PTI in the three month period ended May 31, 1993 had been
included in the results for the six month period ended August 31, 1993, sales
in the current six month period would have been approximately $74,000,000
(11.0%) greater than pro forma results for the prior fiscal year. Sales in the
Company's Professional Audio business segment in the current six month period
were comparable to the sales level for the prior year's six month period.
The cost of products sold as a percentage of consolidated net sales remained
consistent at approximately 65.0% for the six month period ended August 31,
1994 as compared to the six month period ended August 31, 1993. Selling and
administration costs as a percentage of consolidated net sales were
approximately 18.0% for the six month periods ended August 31, 1994 and 1993.
Research and development costs for the six month period ended August 31, 1994
were substantially the same as for the six month period ended August 31, 1993.
As a percentage of consolidated net sales, these expenses remained consistent
at approximately 2.0% in each period. This consistent level of investment
reflects the Company's continuing emphasis on new product development.
13
<PAGE>
For the six month period ended August 31, 1994, depreciation and amortization
expense increased by $3,400,000 (17.0%) as compared to the six month period
ended August 31, 1993. This increase was primarily due to the PTI acquisition
which occurred in the second quarter of fiscal 1994. The increase was also due
to the amortization of restricted stock grants and the increase in depreciation
resulting from fixed asset additions, both of which were made in the second
half of fiscal 1994.
Interest expense for the six month period ended August 31, 1994 increased by
approximately $400,000 (2.0%) as compared to the six month period ended August
31, 1993. This increase was due to increased interest expense related to the
PTI acquisition, offset somewhat by the benefits of reduced debt levels and a
slightly lower weighted average interest rate resulting from decreases in the
interest rates on foreign debt, which decreases were offset somewhat by higher
interest rates on United States debt.
The Company's provision for income taxes as a percentage of pre-tax
accounting income for the six month period ended August 31, 1994 increased as
compared to the comparable period last year, primarily as a result of increased
income in foreign locations with higher statutory tax rates than in the United
States.
As a result of all of the above, the Company's income before special items
for the six month period ended August 31, 1994 increased $7,100,000 (27.0%)
over the comparable period last year.
As a result of debt extinguishment in the first quarter of fiscal 1994, the
Company incurred extraordinary losses, net of related tax benefits, of
$21,700,000. Additionally, the Company's adoption of SFAS No. 106 in the first
quarter of fiscal 1994 resulted in the recognition of a net of tax charge of
$26,000,000 which was recorded as a cumulative effect of a change in accounting
principle. The two special charges resulted in a net loss of $21,000,000 in the
six month period ended August 31, 1993 in comparison to net income of
$33,800,000 earned in the six month period ended August 31, 1994.
Three Years Ended February 28, 1994
The following table sets forth the Company's net sales and operating income
by business segment (as recently reclassified but without giving pro forma
effect to the acquisition of Purolator) for each of the fiscal years presented:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
PERCENT
1992 1993 1994 CHANGE
------------------- ------------------- ------------------- -----------
1993 1994
PERCENT PERCENT PERCENT VS. VS.
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES 1992 1993
---------- -------- ---------- -------- ---------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Power and Fluid
Transfer............. $ 835,100 83.2% $ 908,900 83.7% $1,070,700 86.1% 8.8 % 17.8 %
Professional Audio.... 169,200 16.8 176,800 16.3 173,500 13.9 4.5 (1.9)
---------- ----- ---------- ----- ---------- -----
Total............... $1,004,300 100.0% $1,085,700 100.0% $1,244,200 100.0% 8.1 14.6
========== ===== ========== ===== ========== =====
OPERATING INCOME(1)
Power and Fluid
Transfer............. $ 94,100 11.3% $ 104,100 11.5% $ 124,800 11.7% 10.6 % 19.9 %
Professional Audio.... 23,900 14.1 22,000 12.4 21,900 12.6 (7.9) (0.5)
---------- ---------- ----------
Total............... $ 118,000 11.7 $ 126,100 11.6 $ 146,700 11.8 6.9 16.3
========== ========== ==========
</TABLE>
- --------
(1) Operating income represents income before interest expense, corporate
expenses, securities transactions and taxes.
14
<PAGE>
The $161,800,000 increase in Power and Fluid Transfer sales in fiscal 1994
was the result of internal growth of approximately $54,100,000 (6.0%), and the
inclusion of the operations of PTI. Excluding PTI and the negative effect of
foreign currency movements, the internal growth was approximately $74,800,000
(8.2%), with $45,700,000 (5.0%) of such growth generated from the segment's
operations in the United States and the balance from its foreign based
operations. The sales growth in fiscal 1994 was primarily attributable to
growth of the general industrial, automotive aftermarket and automotive OEM
markets of the Company's Power and Fluid Transfer business segment. In fiscal
1993, the $73,800,000 (8.8%) increase in sales over fiscal 1992 resulted from a
combination of increased unit sales in the general industrial, automotive
aftermarket and automotive OEM markets and the inclusion of the results of
operations for the full fiscal year, of a business acquired in the second half
of fiscal 1992. The effects of foreign currency movements in fiscal 1993 were
not significant in comparison to the amounts reported for fiscal 1992.
Sales in the Professional Audio business segment in fiscal 1994 declined
slightly from sales in fiscal 1993, with a modest increase in United States
sales being more than offset by a decline in the segment's foreign operations.
The $7,600,000 increase in the Professional Audio business segment's fiscal
1993 sales over fiscal 1992 was equally split between its domestic and foreign
operations.
The cost of products sold as a percentage of consolidated net sales was
64.6%, 64.4%, and 64.0% in fiscal 1994, 1993, and 1992, respectively. This
consistent level of costs reflects the positive effects of the Company's cost
control programs, which have helped to substantially offset the negative
pressures on margins experienced in both of the Company's business segments.
The slightly higher costs in fiscal 1994 were also caused by the development
delays discussed above, as well as the economic weaknesses experienced in the
Company's European markets.
Selling and administration costs as a percentage of consolidated net sales
were 19.0%, 19.8%, and 20.0% in fiscal 1994, 1993, and 1992, respectively. The
reduction of such costs in fiscal 1994 was primarily the result of operating
synergies achieved from the combination of PTI with the previously existing
European operations of the Power and Fluid Transfer business segment. The
relatively consistent level of costs indicates that the Company's continued
emphasis on cost control has been successful in substantially offsetting the
impact of inflation on such costs.
Research and development costs increased by $4,800,000 (18.4%) in fiscal 1994
over fiscal 1993, which in turn increased by $1,200,000 (4.8%) over fiscal
1992. The increase in fiscal 1994 was primarily caused by the PTI acquisition.
As a percentage of consolidated net sales, such costs were approximately 2.5%
in each of fiscal 1994, 1993 and 1992. This consistent level of investment
reflects the Company's continuing emphasis on new product development.
Depreciation and amortization expense increased by $9,600,000 (29.9%) in
fiscal 1994 over fiscal 1993, which in turn increased by $3,800,000 (13.4%)
over fiscal 1992. The increase in fiscal 1994 was primarily attributable to the
PTI acquisition. The fiscal 1994 amount also includes $800,000 related to
restricted stock grants made in fiscal 1994. The remaining increases were
primarily the result of increased capital equipment expenditures.
In spite of the increased interest cost resulting from the PTI acquisition,
interest expense from continuing operations in fiscal 1994 decreased $1,500,000
(2.9%) from the amount incurred in fiscal 1993, which in turn decreased
$13,100,000 (20.3%) from fiscal 1992. The reduction in fiscal 1994 was
primarily the result of the Company's repurchase and "in-substance defeasance"
of its 13 3/8% Subordinated Debentures due 2007 (the "Subordinated Debentures")
at the beginning of the fiscal year, which was refinanced with the net proceeds
from the issuance of the Company's 8 3/4% Senior Subordinated Notes due April
1, 2003 (the "Senior Notes"). The reduction in fiscal 1993 was accomplished
primarily as a result of the Company's debt reduction program in fiscal 1993
and 1992, which substantially reduced the outstanding amounts of high interest
rate debt. The
15
<PAGE>
Company's improved financial position at the end of fiscal 1992, as well as the
overall reduction in the economic interest rate as compared to fiscal 1992,
also contributed to lower interest costs in fiscal 1993. The interest expense
amounts reported for continuing operations also reflect the allocation of
$2,200,000, $5,000,000, and $6,400,000 to discontinued operations in fiscal
1994, 1993, and 1992, respectively, since the proceeds from the disposal of
these businesses have been utilized to reduce indebtedness, and therefore
related interest expense as well.
The loss on securities transactions in fiscal 1992 reflects costs of
$2,100,000 related to the Company's conversion of its 7% Convertible
Subordinated Debentures due 2011, as well as the net effects of the Company's
sale of certain other investments and idle assets.
The Company's provision for income tax as a percentage of pre-tax accounting
income was approximately 37.5%, 37.0%, and 35.4% in fiscal 1994, 1993, and
1992, respectively. The higher rates in fiscal 1994 and 1993 were primarily the
result of increased income in foreign locations with higher statutory tax rates
than in the United States. The effective tax rate in fiscal 1994 was not quite
as high as previously anticipated, due primarily to certain one-time tax
credits. However, the rate is expected to increase in fiscal 1995 as a result
of increased foreign income as a percentage of total consolidated income.
As a result of all of the above, the Company's income from continuing
operations in fiscal 1994 increased $12,000,000 (30.7%) over fiscal 1993. In
turn, fiscal 1993 income from continuing operations increased $12,300,000
(45.9%) over fiscal 1992, most notably by the reduction in interest expense
over fiscal 1992.
As a result of the debt extinguishment referred to above, the Company
incurred extraordinary losses, net of related tax benefits, of $21,700,000,
$3,700,000 and $4,500,000 in fiscal 1994, 1993, and 1992, respectively.
Additionally, the Company's adoption of SFAS No. 106 in fiscal 1994 resulted in
the recognition of a net of tax charge of $26,000,000 as the cumulative effect
of the accounting change in fiscal 1994. The above extraordinary items and one-
time charge resulted in significantly reduced net income of $3,400,000 in
fiscal 1994 in comparison to the $39,000,000 earned in fiscal 1993. Since the
discontinued operations and extraordinary charges were comparable in fiscal
1993 and 1992, the net income reported in those years is consistent with the
reported income from continuing operations discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In early fiscal 1992, management stated its intention to significantly reduce
long-term debt levels by the application of cash generated through earnings,
reductions in working capital requirements, and the sale of non-core businesses
and non-operating assets. At the end of fiscal 1993, long-term debt had been
reduced by approximately $220,500,000 (31.0%) from $717,600,000 at February 28,
1991 to $497,100,000 at February 28, 1993. The reduction brought the Company's
level of long-term debt as a percentage of total capitalization from 80.8% at
February 28, 1991 to 59.0% at February 28, 1993.
In May 1993, the Company entered into a revolving credit agreement ("Multi-
Currency Agreement") providing for a five-year multi-currency revolving credit
facility with a group of financial institutions in the United States and
Europe. The Multi-Currency Agreement provides for a revolving loan commitment
for the first two years in an amount equivalent to $100,000,000. The commitment
declines by $12,500,000 at each of six semi-annual dates beginning in June
1995, with the remaining $25,000,000 of the revolving loan commitment expiring
in May 1998. Interest rates on borrowings under the Multi-Currency Agreement
are subject to change based on a specified pricing grid which increases from
the London Interbank Offered Rate ("LIBOR") plus 0.625% per annum to LIBOR plus
1.375% per annum based on the Company's senior debt rating (as defined in the
Multi-Currency Agreement). The Company is currently paying interest at LIBOR
plus 1.25% on borrowings under the Multi-Currency Agreement. The Multi-Currency
Agreement also contains certain affirmative and negative covenants customary in
an agreement of this nature.
16
<PAGE>
In July 1993, the Company entered into a credit agreement providing for a
$300,000,000 five-year revolving credit facility (the "1993 Facility") with a
group of financial institutions. A portion of the 1993 Facility was used to
repay amounts outstanding under the Company's revolving credit facility dated
June 19, 1990, which was then canceled. Borrowings under the 1993 Facility bore
interest based on a pricing grid of either prime per annum or, under a LIBOR
option, LIBOR plus 0.375% per annum to LIBOR plus 1.375% per annum on the
Company's senior unsecured long-term debt ratings (as defined in the 1993
Facility). The 1993 Facility was replaced by the 1994 Credit Agreement
discussed below.
In fiscal 1994, the Company announced the discontinuance of its non-core
businesses and completed the sale of certain of those businesses for cash
proceeds of approximately $35,000,000. In June 1993, the Company completed its
acquisition of PTI for a cash purchase price in the amount of $65,000,000 and
the assumption of PTI bank indebtedness in the amount of $50,000,000. Financing
for the PTI acquisition was provided under the 1993 Facility and the Multi-
Currency Agreement, as well as the proceeds from the sale of the discontinued
businesses.
Net cash provided by earnings was approximately $52,000,000 for the six month
period ended August 31, 1994, an increase of approximately $10,800,000 (26.0%)
over the six month period ended August 31, 1993. Net cash provided by earnings
was $91,200,000 in fiscal 1994, a 46.0% increase over the $62,600,000 provided
by earnings in fiscal 1993. At August 31, 1994, the Company had working capital
of approximately $310,300,000, a decrease of approximately $2,500,000 (1.0%)
from February 28, 1994. At August 31, 1994, the Company had borrowing
availability under its primary credit agreements of $226,800,000 and additional
availability under its various domestic and foreign demand lines of credit of
approximately $69,800,000. Long-term debt at August 31, 1994 decreased
approximately $16,100,000 from $567,200,000 at February 28, 1994 to
$551,100,000 at August 31, 1994. As a result, the Company's long-term debt as a
percentage of total capitalization decreased slightly from 62.1% at February
28, 1994 to 59.0% at August 31, 1994. If the entire $114,200,000 aggregate
principal outstanding under the Convertible Debentures at February 28, 1994
(which are first callable by the Company in February 1995) had been converted
into shares of Common Stock, long-term debt as a percentage of total
capitalization would have been approximately 49.6% at such date. Management
believes that cash generated from operations should be sufficient to support
the Company's working capital requirements and anticipated capital expenditures
for the foreseeable future.
In November 1994, the Company entered into the $650 million 1994 Credit
Agreement with a group of financial institutions, which provides for (i) a
five-year term loan in the principal amount of approximately $300 million used
to finance the acquisition of Purolator and to repay certain existing Purolator
debt, and (ii) a five-year revolving credit facility in an amount of up to $350
million for refinancing the Company's 1993 Facility and certain existing
Purolator debt and for working capital and other general corporate purposes.
Indebtedness outstanding under the revolving credit facility is being repaid
with the net proceeds of the Offering. Under the terms of the 1994 Credit
Agreement, the amount of net proceeds of the Offering used to repay outstanding
indebtedness under the revolving credit facility may be reborrowed by the
Company. See "Use of Proceeds." The loans outstanding under the 1994 Credit
Agreement bear interest, at the Company's option, at (i) the reference rate of
the agent acting on behalf of the financial institutions, or (ii) under a LIBOR
option with borrowing spreads of LIBOR plus 0.55% to LIBOR plus 1.00% depending
on the Company's consolidated leverage ratio (as defined in the 1994 Credit
Agreement). The Company is currently paying interest on the loan at LIBOR plus
0.75% per annum. The 1994 Credit Agreement contains certain affirmative and
negative covenants customary for this type of agreement and is guaranteed by
all of the Company's significant domestic subsidiaries. All of such guarantees
are collateralized by first priority pledges of all outstanding capital stock
of each guarantor subsidiary.
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.
17
<PAGE>
BUSINESS
Mark IV is a diversified manufacturer of a broad range of proprietary and
other power and fluid transfer products and systems which serve four markets:
general industrial; automotive aftermarket; automotive OEMs; and
infrastructure. Power and fluid transfer products and systems accounted for
90.0% of Mark IV's net sales in fiscal 1994 after giving pro forma effect to
the Company's recent acquisition of Purolator. Mark IV is also a leading
manufacturer of professional audio products.
Many of Mark IV's products have a significant, and in certain instances the
leading, share of their respective markets. Products manufactured by Mark IV
principally serve specialized needs in markets in which relatively few
manufacturers compete. These products are primarily sold directly, and through
independent distributors, to other manufacturers and commercial users in the
United States and Europe and, to a lesser extent, in Canada, Latin America and
the Far East. Mark IV operates 72 manufacturing facilities and 52 distribution
and sales locations and employs approximately 16,500 people in eighteen
countries.
Mark IV's business strategy is focused on building its power and fluid
transfer business through internal growth, continuation of cost control and
quality improvement programs, and selective strategic domestic and foreign
acquisitions. The Company's operating strategy emphasizes management for
continuous improvement, establishing co-operative programs with customers to
engineer, design and develop higher value added systems in addition to
individual products, and the introduction of new, more cost effective and
durable products.
In furtherance of these strategies, over the past five years Mark IV has: (i)
emphasized continuous product development, with over 50.0% of its current sales
worldwide arising from the introduction of new products or products which have
been redesigned; (ii) significantly expanded its presence in Western Europe
through its June 1993 acquisition of PTI, a leading Italian-based manufacturer
of power transmission products; (iii) substantially increased its domestic
production capacity and strengthened its market position in the power steering
and garden hose markets through its fiscal 1991 acquisition of Anchor Swan, a
leading manufacturer of these and other products; (iv) established distribution
centers to serve markets in Central and South America and the Pacific Rim, and
acquired manufacturing and distribution facilities in Mexico; and (v)
implemented cost savings and efficiency programs in its Power and Fluid
Transfer business segment which have contributed to the improvement of the
segment's operating income margins from 7.0% in fiscal 1989 to 11.7% in fiscal
1994. Mark IV believes that, having established an efficient global
manufacturing and distribution network, it is well positioned to benefit from a
continuation of strength in its domestic markets and the increasing strength in
its European and other foreign markets.
ACQUISITION OF PUROLATOR PRODUCTS COMPANY
As part of the Company's strategic emphasis on its power and fluid transfer
business, in November 1994 Mark IV acquired Purolator which is a leading
manufacturer of filtration products, including automotive oil, air and fuel
filters; residential and commercial HVAC filters; high-technology liquid
filtration products; and specialized industrial filters and filtration systems.
The total cost of the acquisition was $286.3 million. Purolator's filtration
business complements the Company's fluid transfer products since many of
Purolator's products serve customers in the same markets as the Company's other
power and fluid transfer products, such as certain industrial markets, the
automotive aftermarket and, to a much lesser extent, the automotive OEM market.
In addition, filters are generally an integral part of most power and fluid
transfer systems produced by the Company. Accordingly, management believes
that, as a result of the acquisition of Purolator, the Company is better
positioned to provide a broader range of products to customers in these
markets. In particular, the acquisition of Purolator will strengthen Mark IV's
presence in the automotive aftermarket since 61.5% of Purolator's $435.8
million of sales in 1993 were made to customers in this market. Mark IV also
believes that its extensive domestic and European sales and distribution
network will provide opportunities for increased sales of Purolator's products.
It is also anticipated that significant cost savings
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<PAGE>
will result from the combined distribution of fluid transfer and filtration
products to customers and the consolidation of Purolator's corporate functions.
The acquisition of Purolator was made pursuant to a merger agreement dated as
of October 3, 1994 with Purolator which had been negotiated following a due
diligence review in September 1994 of financial and other information and
documents furnished by Purolator, discussions of business prospects with
Purolator's senior management and visits to certain Purolator plant facilities.
The funds used to finance the acquisition of Purolator were provided from
borrowings under the Company's 1994 Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
SEGMENT INFORMATION
Prior to the acquisition of Purolator in November 1994, the Company
classified its operations into three business segments: Power and Fluid
Transfer; Transportation; and Professional Audio. See Note 15 to the Company's
audited Consolidated Financial Statements included elsewhere herein for
financial information, including sales, operating income and assets, for each
of these segments for the Company's 1992, 1993 and 1994 fiscal years.
Following the acquisition of Purolator, management reviewed its existing
businesses and determined that its Transportation business segment should be
combined with the Power and Fluid Transfer business segment in view of the
similarity in markets and customers served. Management also believes that the
revised classification will enable the Company to benefit from a global
organizational structure and the coordination of distribution activities. As a
result, the Company now classifies its operations into the following two
business segments:
(i) POWER AND FLUID TRANSFER, which includes the design, manufacture and
distribution of products and systems primarily in the general industrial
market, the automotive aftermarket, the OEM market and the infrastructure
market, including the following: industrial belts, hose and fittings,
garden hose, vapor recovery hose and systems and other environmental
products and systems, agricultural belts and hose assemblies, and a wide
variety of filters and filtration systems for jet fuel, marine, commercial
and industrial markets; belts, hose, couplings, oil, air and fuel filters,
accessory drive systems and fluid transfer assemblies for the automotive
aftermarket and OEMs; power transfer mechanisms for door control systems
and complete door control systems used in mass transit vehicles,
information displays used in fluid flow control applications, advanced
traffic control and management systems, and automatic (intelligent) vehicle
identification systems for toll collection and traffic control. Purolator's
products serve the Power and Fluid Transfer business segment's general
industrial market, automotive aftermarket and, to a much lesser extent, the
automotive OEM market.
(ii) PROFESSIONAL AUDIO, which includes the design and manufacture of
products and systems used primarily in the high-performance professional
audio market, such as professional performance microphones, speakers,
mixers and amplifiers; high-fidelity public address and musical instrument
loudspeaker systems; and audio signal processors, sound reinforcement
equipment, and sound enhancement and noise canceling equipment.
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<PAGE>
The following table sets forth, on an unaudited historical basis, the sales
and operating income for the Company's two business segments for each of the
last three fiscal years of the Company, after giving pro forma effect to the
acquisition of Purolator as if it had occurred at March 1, 1991, the beginning
of the Company's 1992 fiscal year.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1992 1993 1994
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
Power and Fluid
Transfer.............. $1,236,800 88.0% $1,326,800 88.0% $1,506,500 90.0%
Professional Audio..... 169,200 12.0 176,800 12.0 173,500 10.0
---------- ----- ---------- ----- ---------- -----
Total................. $1,406,000 100.0% $1,503,600 100.0% $1,680,000 100.0%
========== ===== ========== ===== ========== =====
OPERATING INCOME(1):
Power and Fluid
Transfer.............. $ 116,000 9.4% $ 133,900 10.1% $ 157,800 10.5%
Professional Audio..... 23,900 14.1 22,000 12.4 21,900 12.6
---------- ---------- ----------
Total................. $ 139,900 10.0 $ 155,900 10.4 $ 179,700 10.7
========== ========== ==========
</TABLE>
- --------
(1) Operating income represents income from continuing operations before
interest expense, corporate and non-recurring expenses, securities
transactions and taxes.
The following table sets forth on a historical basis for fiscal 1994, after
giving pro forma effect to the acquisition of Purolator as if it had occurred
on March 1, 1993, the percent of total revenue of the Company provided by each
of the four markets served by the Company's Power and Fluid Transfer business
segment.
<TABLE>
<CAPTION>
MARKET PERCENT OF TOTAL REVENUE
- ------ ------------------------
<S> <C>
General Industrial..................................... 31.0%
Automotive Aftermarket................................. 28.0
Automotive OEM......................................... 18.0
Infrastructure......................................... 13.0
----
Total............................................... 90.0%
====
</TABLE>
POWER AND FLUID TRANSFER
Mark IV entered the power and fluid transfer business through the acquisition
in fiscal 1989 of Armtek Corporation, of which Dayco Products, Inc. ("Dayco")
was a principal component. Dayco produces a wide variety of industrial hoses,
belts and fittings and hoses and belts for the automotive aftermarket and OEMs.
In fiscal 1991, Mark IV acquired Anchor Swan, a domestic manufacturer and
distributor of garden hoses, general purpose air, water and agricultural hoses
and many other products also manufactured by Dayco. Anchor Swan also
manufactures various automotive OEM products, including power steering and fuel
and coolant hose and assemblies. The acquisition of Anchor Swan supplemented
Dayco's broad range of belt and hose products by adding needed hose
manufacturing capacity. The acquisition also enhanced Dayco's leading position
in garden hose and automotive OEM hose and belt systems and assemblies.
The Power and Fluid Transfer business segment expanded into Europe with the
Company's acquisitions during fiscal 1992 of System Stecko Limited, a United
Kingdom-based manufacturer of hose couplings used primarily for high pressure
industrial applications, and Tecaflex International S.p.A. ("Tecaflex"), an
Italian manufacturer primarily of hoses for automotive applications. Mark IV's
acquisition in June 1993 of PTI, the power transmission business of Pirelli
S.p.A., significantly expanded the Company's presence in Europe,
20
<PAGE>
by adding highly automated manufacturing capacity and research and development
centers in Europe, as well as experienced management, a strong market presence,
brand name recognition and a leading position in timing belts in that region.
In North America, the addition of PTI enhanced Dayco's domestic timing belt
product line.
The acquisition in November 1994 of Purolator represents a further
significant expansion of the Power and Fluid Transfer business segment.
Purolator's business is separately described below under "--Purolator Products
Company."
General Industrial
Dayco is a leader in the market for industrial belts and hoses used in
petroleum, lumber, home appliance, diesel engine, longwall mining, agricultural
equipment, marine engine, snowmobile, lawn and garden and floor care
applications and industries. Dayco also supplies the gasoline dispensing market
with the majority of the market's requirements for vapor recovery hose, which
return gasoline fumes released at gas pumps when filling automobiles from
underground storage tanks, and has introduced to this market several products
designed for performance in extreme conditions.
Management believes that increased environmental awareness and growing
regulation in the United States and Europe mandating use of vapor recovery hose
is likely to increase demand for gasoline dispensing products. The Company
believes that its established market presence and its continuous introduction
of new products such as vapor recovery hose capable of chemically withstanding
new gasoline additives, should enable it to take advantage of increased demand
for these products.
Dayco also supplies the inner fuel hose used in underground, double-wall,
flexible fuel delivery systems. This product is designed to reduce the risks of
contamination through leaks in underground storage and delivery systems, and
permits repairs to be made from above ground. Management believes this fuel
hose product has significant growth opportunities.
The acquisition of Anchor Swan added advanced thermoplastic hose technology
and coupled hose capability to the Dayco product lines and provided the Company
with additional hose manufacturing capacity, reduced its need for further
capital investment in Dayco which would otherwise have been required over the
next few years and produced economies of scale in rubber mixing. System Stecko
has helped to position Dayco's hydraulic hose assemblies, filters, adaptors and
valves in the mining business worldwide. The creation of a hose assembly
testing facility in Sydney, Australia serves the Australian longwall mining
market and other Pacific Rim countries, and complements Dayco's ability to
supply longwall mining hose, couplings, filters and systems worldwide. The
acquisition of PTI added a full line of high-torque synchronous belts and
sprockets for the industrial OEM and replacement markets. These belts are used
in situations where timing is critical, such as on large conveyor systems or
copy machines, or to prevent slippage of the belt in a drive system, such as on
a motorcycle or a large-scale industrial fan. The addition of Purolator will
increase the Company's ability to provide more complete systems, such as
filter, hose and couplings, for airport, marine, petroleum and mining
applications worldwide.
The Company's products in the general industrial market are used in a wide
range of products and industries, and no one product or industry is dominant.
In addition, the customer base for these products is large and diverse. Except
with respect to new products serving specialized needs or emerging market
trends, revenue growth in this market is typically based upon the economies of
countries where the Company's products are distributed.
Automotive Aftermarket
Dayco is a leading supplier in the automotive aftermarket in every aspect of
hose and hose assemblies, including coolant hose, power steering hose, fuel
hose, transmission cooler hose, V-belts, poly-rib belts and
21
<PAGE>
timing belts. Dayco also produces a variety of belts, fans, tensioners,
couplings and pulleys. The products in the automotive aftermarket are sold to
automotive warehouse distributors, oil companies, retail and auto parts chains,
mass merchandisers, farm and fleet stores, and hardware distributors.
The Company believes that growth in the automotive aftermarket can be
achieved by increasing the range of products offered and through streamlining
distribution channels. As part of this strategy, Mark IV recently acquired
Purolator with sales of automotive oil, air and fuel filters in the automotive
aftermarket of $268.0 million in 1993 (approximately 61.5% of Purolator's total
sales). See "--Purolator Products Company." In furtherance of this strategy,
Dayco has also introduced new products, such as new heater hose assemblies,
into the automotive aftermarket which were initially developed for its
automotive OEM customers. In addition to offering a broader variety of
products, the Company is focused on bringing its existing products to new
geographical markets, such as Europe, Latin America, South America, Asia and
the Pacific Rim.
Growth in the automotive aftermarket is primarily driven by the number and
age of vehicles on the road. The average age of light vehicles on the road has
increased from 5.8 years in 1970 to 8.2 years in 1993, and total mileage driven
has increased annually along with the number of vehicles in service, resulting
in continued growth opportunities for the Company's automotive aftermarket
products. There is also a trend in the automotive aftermarket for customers in
the traditional distribution channels to consolidate their suppliers. As a
leading manufacturer of a broad range of products which meet OEM
specifications, together with brand name recognition and established
distribution channels, the Company believes that the addition of Purolator
products to its product offerings will enable it to benefit from the long-term
trends of the business.
Within the domestic market which currently represents the majority of the
Company's automotive aftermarket sales, no one product or customer is dominant.
With respect to the Company's European operations, the majority of aftermarket
products are distributed by the major automotive manufacturers as part of the
service to customers at the dealerships. Sales efforts are therefore primarily
focused on relationships with the European OEMs.
Automotive OEM
Dayco is a leading supplier in the automotive OEM market. Dayco supplies
belts, hoses and tensioners to the three major United States auto
manufacturers, and has captured a significant share of the belt and fuel line
assemblies market in Europe, with a growing position in tensioners in this
region.
Management believes that there are opportunities for growth in the supply of
belts, hoses, hose assemblies and synchronous accessory drive systems to
foreign auto manufacturers and transplants (foreign firms' manufacturing
facilities in the United States). Dayco is currently selling products to, or
has active product development programs with, most of the leading foreign-based
OEMs with transplants. Dayco is also concentrating on the development of
environmentally safe products that will reduce noise levels, meet lower fuel
permeability requirements and function with alternative fuels and coolants.
The acquisitions of Tecaflex and PTI provided the Company with a European-
based, full-scale automotive OEM business that makes it the market leader in
timing belts and fuel systems in Europe. In response to an increased preference
in Europe for power steering and air conditioning, European automobile
producers are increasing the number of new vehicles which include these
systems. Management believes this trend presents opportunities for Dayco's
belt, hose and hose assembly business, which manufactures products used in air
conditioning and power steering systems. Fewer than half of the new vehicles
currently produced in Europe have air conditioning and power steering as
compared to over 90.0% of new vehicles produced in the United States. The
number of European manufactured vehicles with these features is growing at a
faster rate than the overall market.
22
<PAGE>
Over the past five years, the Company has established itself as one of the
leading domestic and European suppliers of its products and systems to the
major car manufacturers. As part of its strategy to increase revenues, the
direction has been to focus on systems, such as synchronous and accessory
drive, power steering, air conditioning and fuel, which are developed and
designed in conjunction with the OEM customers. As a result, revenue per
vehicle has been increasing. In addition, the Company's product lines are
positioned to benefit from the trend in the European market to add air
conditioning and power steering systems for an increasing percentage of new
vehicles manufactured.
Management believes that the Company's automotive OEM revenues will continue
to increase at a rate faster than new vehicle unit sales in the United States
and Europe based on: (i) its previous history of delivering higher quality
products to its customers; (ii) its continued emphasis on providing systems
rather than individual parts; and (iii) its continued efforts to develop
cooperative engineering programs with its customers.
Infrastructure
Mark IV is a leading supplier in North America of door systems, electronic
controls and passenger information systems for buses and trains. In addition,
Mark IV has developed new products and market strategies for automatic vehicle
identification used in electronic toll collection and advanced traffic
management systems. Mark IV has recently been selected by the Inter-Agency
Group ("IAG") to provide equipment for electronic toll collection systems on
toll roads in New York, New Jersey and Pennsylvania. The IAG is a group of
seven agencies that manage the toll roads, bridges and tunnels in all three
states. Separate contracts will be signed for each agency and, to date, three
contracts have been executed. The Company's technology has also been selected
by the Ontario, Canada government to supply electronic toll collection
equipment for the new Route 407 in Toronto. Revenue under these contracts will
be generated over the next three to five years.
Mark IV began to serve infrastructure markets in 1986 through the acquisition
of Gulton Industries, Inc. ("Gulton") which, through its Luminator division,
manufactures electronic information display systems for many transit
applications. Mark IV enhanced its international presence in the mass transit
and traffic control business through several strategic acquisitions which
expanded the Company's product lines in this market. In fiscal 1991, the
Company acquired a Canadian-based manufacturer of electromagnetic display
devices for use in destination signs, gasoline pumps and other information
displays. In fiscal 1991, the Company acquired a manufacturer of door systems
and certain electrical controls for buses and rail cars, with operations in
both Canada and the United States. In fiscal 1993, Mark IV acquired a French
company which supplies passenger information, display and automatic bus
location systems to the European market. One of these acquired companies
supplies its advanced door systems to the London Underground Rail transit
system, one of the world's largest subway systems.
Management believes that growth in the infrastructure market is derived from
three primary sources: (i) repair and replacement of mass transit systems as
part of normal maintenance programs; (ii) installation of new systems in mass
transit systems and new road construction as a result of budgeted expenditures
pursuant to the Intermodel Surface Transportation Efficiency Act; and (iii)
development of new technologies such as the automated vehicle identification
system.
PROFESSIONAL AUDIO
Mark IV entered the professional audio business in 1986 through its
acquisition of Gulton, which had two subsidiaries engaged in the audio
business: Electro-Voice, Incorporated and Altec Lansing Corporation. Since that
time, Mark IV has made four additional acquisitions of companies engaged in the
manufacture of audio equipment for commercial and professional use, thereby
giving this segment a manufacturing and distribution presence in many parts of
the world. The Professional Audio business segment ("Mark IV
23
<PAGE>
Audio") accounted for 10.0% of the Company's net sales and 12.2% of the
Company's operating income (before corporate expense) in fiscal 1994, on a pro
forma basis giving effect to the acquisition of Purolator.
Mark IV Audio produces a comprehensive line of high-quality products
available to the professional audio market, including recording studio
equipment, systems for live performance, and permanently installed, engineered
sound systems. These products include microphones, mixing consoles, signal
processors, amplifiers and loudspeakers, as well as a number of accessory
items.
Mark IV Audio holds a large share of the worldwide market for fixed
installations of engineered sound systems under its Electro-Voice, Altec
Lansing and Dynacord product lines. Combined, these lines represent over half
of the engineered sound systems in the developed countries of the world. Mark
IV Audio accounts for a leading share of the wired dynamic and high-end
wireless microphones employed in the broadcast and production segments of the
professional audio market, with products under the Vega and Electro-Voice brand
names, as well as signal processing products under the Klark-Teknik brand name.
Mark IV Audio is a leading supplier of high-speed tape cassette duplication
equipment under its Gauss brand name and mixers under the DDA and Midas brand
names. In addition, Mark IV Audio has developed numerous digital audio signal
processing (DSP) applications under its Dynacord and Klark-Teknik brand names.
Mark IV Audio, under the Dynacord and University Sound brand names, serves
the commercial sound segment of the professional audio market, providing
products for fixed installations with typically less demanding performance
requirements than those of engineered sound systems. Common applications are
factory paging systems, background music and life safety alarm systems. The
concert sound segment, which consists of microphones, speaker systems, signal
processing and mixing consoles used in touring sound systems for live
performances, is served by Mark IV's Electro-Voice, Klark-Teknik, Midas and
Vega product lines. Management believes Mark IV Audio is well positioned in the
theater, broadcast and recording markets.
Management believes that new products are important to the Mark IV Audio
business. As a result, Mark IV Audio was recently reorganized so that general
administration, research and development and manufacturing have been
centralized in order to enhance the rate of technological innovation and reduce
the lead-time on new product development. As part of the reorganization,
marketing, sales and business development have been decentralized into three
global regions in order to meet product and pricing demands in these regions.
PUROLATOR PRODUCTS COMPANY
Purolator's products serve the general industrial market, automotive
aftermarket and, to a much lesser extent, the automotive OEM market of the
Company's Power and Fluid Transfer business segment as discussed in the
foregoing descriptions of those markets. See "--Power and Fluid Transfer." Set
forth below is a more detailed description of Purolator's historical business
operations.
The following table sets forth, on an unaudited historical basis, sales of
Purolator's products in the automotive aftermarket, industrial and automotive
OEM markets and operating income for the years ended December 31, 1991, 1992
and 1993.
<TABLE>
<CAPTION>
1991 1992 1993
----------------- ----------------- -----------------
PERCENT PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Automotive Aftermarket. $232,900 58.0% $246,800 59.0% $268,000 61.5%
Industrial and Non-
Filtration............ 140,400 35.0 141,600 33.9 141,300 32.4
Automotive OEMs........ 28,400 7.0 29,500 7.1 26,500 6.1
-------- ------ -------- ------ -------- ------
Total Sales.......... $401,700 100.0% $417,900 100.0% $435,800 100.0%
======== ====== ======== ====== ======== ======
Operating Income, before
corporate expenses and
non-recurring charges... $ 22,900 5.7% $ 30,800 7.4% $ 34,000 7.8%
======== ====== ======== ====== ======== ======
</TABLE>
24
<PAGE>
Purolator is a leading manufacturer of automotive oil, air and fuel filters
which are used primarily for automobiles and light-duty trucks, and, to a
lesser extent, for heavy-duty trucks, off-road equipment, and marine and farm
equipment. Its complete line of automotive filters includes oil, air and fuel
filters for virtually all automobiles and light-duty trucks currently operated
in North America, including those currently manufactured by North American,
Japanese and European OEMs. In 1993, sales of Purolator's automotive oil, air
and fuel filters in the automotive aftermarket comprised 61.5% of Purolator's
total sales. In the OEM market, Purolator supplies automotive filters to Ford,
Chrysler, Mazda and Renault.
Purolator owns a 39.3% equity interest in Purolator India Limited, a New
Delhi-based manufacturer of automotive air and oil filtration products which
supplies the Indian aftermarket and OEM market and exports products to
Southeast Asia, Europe and the United States. Purolator also has licensing
arrangements with various international distributors throughout the world. In
1989, Purolator formed the Purodenso manufacturing joint venture with a unit of
Nippondenso of Japan (with each joint venturer owning a 50% interest).
Purodenso supplies highly specialized automotive filters and injection molded
filter housings for distribution to domestic OEMs, United States manufacturing
plants of Japanese OEMs and, to a lesser extent, in the automotive aftermarket.
Purolator's air filtration products are used to improve indoor air quality
and protect equipment in residential, commercial and industrial HVAC systems.
These products range from basic efficiency disposable panel filters for homes
to medium- and high-efficiency products, including pleated panel air filters,
extended surface bag filters, cap filters and metal filters.
Purolator manufactures specialized liquid filters and filtration systems,
including: (i) a broad range of high-technology jet fuel cartridges which are
used in commercial and military aviation applications at major airports; (ii)
oil-from-water separation systems, which are used to meet various international
discharge laws; (iii) desalinators for removing salt from sea water; (iv) bilge
separators for tug and barge operations, which separate hydrocarbons from
discharged bilge water; (v) coalescing plate separators for environmental
clean-up and resource recovery; and (vi) a variety of other filters and
filtration systems for marine, aviation, industrial and military applications.
Purolator's filter products are marketed and sold to entities in a variety of
industries, including aerospace, general industrial, military, mobile equipment
and chemical processing. In the aerospace industry, these products are used by
manufacturers of airframes, turbine engines and "Supplemental Type Certificate"
products, which are products specifically approved for use by engine and
airframe manufacturers. General industrial uses include power plants, plant
filtration, machine tools, plant equipment and process filtration. In the
mobile equipment industry, Purolator's filter products are used in tractors and
off-highway trucks, construction equipment, forklifts and farm implements.
Chemical processing applications include polymer film and fiber filtration.
These products are also used in a variety of military applications, including
silencing valves for submarines and filter products for tanks, personnel
carriers and trucks.
25
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES WITH THE COMPANY
---- --- --------------------------------------
<S> <C> <C>
Sal H. Alfiero 57 Chairman of the Board and Chief Executive Officer
Clement R. Arrison 64 President and Director
William P. Montague 48 Executive Vice President and Chief Financial Officer
Gerald S. Lippes 54 Secretary and Director
Frederic L. Cook 47 Senior Vice President--Administration
John J. Byrne 45 Vice President--Finance
Richard L. Grenolds 45 Vice President and Chief Accounting Officer
Joseph G. Donohoo 76 Director
Herbert Roth, Jr. 66 Director
</TABLE>
SAL H. ALFIERO has been Chairman of the Board and Chief Executive Officer of
the Company since its incorporation. Mr. Alfiero serves as a Director of
Phoenix Home Life Mutual Insurance Company and is also a Director of Marine
Midland Bank, N.A., Western Region. He holds a B.S. degree in Aeronautical
Engineering from Rensselaer Polytechnic Institute and holds an M.B.A. degree
from the Harvard Graduate School of Business Administration.
CLEMENT R. ARRISON has been President and a Director of the Company since
November 1976. Mr. Arrison serves as a Director of Camarco, Inc. He holds a
B.S. degree in engineering from the University of Michigan and holds a
professional engineering license.
WILLIAM P. MONTAGUE has been employed by the Company since April 1972 and has
been a Vice President of the Company since May 1974. He was elected Executive
Vice President and Chief Financial Officer in March 1986. He holds a B.S.
degree in accounting and an M.B.A. degree from Wilkes University and is a
certified public accountant. He is a member of the Chase Manhattan Bank N.A.
Regional Advisory Board and a Director of Gibraltar Steel Corporation and
International Imaging Materials, Inc.
GERALD S. LIPPES has been general counsel, Secretary and a Director of the
Company since its incorporation. He has been engaged in the private practice of
law since 1965 and is a partner of the firm of Lippes, Silverstein, Mathias &
Wexler, Buffalo, New York. Mr. Lippes is also a Director of Gibraltar Steel
Corporation.
FREDERIC L. COOK was elected Senior Vice President-Administration in March
1988, and prior thereto, he had been Vice President--Finance of the Company
since May 1986. Prior to joining the Company, Mr. Cook was a tax partner with
the accounting firm of Coopers & Lybrand, where he was employed for 19 years.
He holds a B.S. degree in accounting from the Rochester Institute of Technology
and is a certified public accountant.
JOHN J. BYRNE has been employed by the Company since September 1973 and has
been a Vice President since March 1986. He was elected Vice President--Finance
of the Company in March 1988. He holds a B.S. degree in accounting from
Pennsylvania State University and an M.B.A. degree from Canisius College.
RICHARD L. GRENOLDS was elected Vice President and Chief Accounting Officer
in July 1989. Prior to joining the Company, Mr. Grenolds was a general practice
partner with the accounting firm of Coopers & Lybrand, where he was employed
for 17 years. He holds a B.S. degree in accounting from the Rochester Institute
of Technology and is a certified public accountant.
26
<PAGE>
JOSEPH G. DONOHOO has been a Director of the Company since its incorporation.
He is Chairman of the Board of The Gibson Group, Inc. ("Gibson"), a marketer of
paper board, and Chairman of the Board of Clinch River Corporation ("Clinch
River"). Gibson and Clinch River filed voluntary petitions for reorganization
under Chapter 11 of the federal bankruptcy laws in January 1990 and April 1990,
respectively.
HERBERT ROTH, JR. has been a Director of the Company since September 1985,
having been Chairman of the Board and Chief Executive Officer of LFE
Corporation prior to its acquisition by Mark IV in July 1985. Mr. Roth also
serves as a Director of Boston Edison Company, Phoenix Home Life Mutual
Insurance Company, Landauer, Inc., Tech/Ops Sevcon, Inc. and Phoenix Total
Return Fund, Inc., and is a trustee of Phoenix Series Fund, Phoenix Multi-
Portfolio Fund and The Big Edge Series Fund.
PRINCIPAL SECURITYHOLDERS
The following table sets forth information as of November 7, 1994 (except as
otherwise noted) with respect to all stockholders known by the Company to be
the beneficial owners of more than 5% of its outstanding Common Stock, each
Director, the five most highly compensated executive officers and all executive
officers and Directors as a group. Unless otherwise indicated, the address of
each person named below is 501 John James Audubon Parkway, P.O. Box 810,
Amherst, New York 14226-0810.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME SHARES(1) OF CLASS
---- --------- --------
<S> <C> <C>
Sal H. Alfiero.................................... 4,320,505(2) 9.0%
FMR Corporation................................... 5,292,196(3) 10.7%
Tiger Management Corporation...................... 4,079,864(4) 8.5%
Clement R. Arrison................................ 1,843,813(5) 3.8%
Gerald S. Lippes.................................. 1,701,751(6) 3.5%
Joseph G. Donohoo................................. 39,031(7) *
Herbert Roth, Jr.................................. 24,587 *
William P. Montague............................... 800,206(8) 1.7%
Frederic L. Cook.................................. 56,652(9) *
John J. Byrne..................................... 60,736(10) *
All Executive Officers and Directors as a Group
(9 persons)...................................... 8,889,393(11) 18.5%
</TABLE>
- --------
*Less than 1%
(1) Except as otherwise indicated in the following footnotes, each person
listed in the table has both sole voting and sole investment power with
respect to the number of shares of Common Stock set forth opposite his
name. Messrs. Alfiero, Arrison, Lippes, Montague, Cook and Byrne, each of
whom is an executive officer of the Company, have the right to direct the
Trustee of the Company's defined benefit pension plans (the "Plans") with
respect to the voting of the shares of Common Stock owned by such Plans. As
of November 1, 1994, the Plans owned 892,528 shares of Common Stock (2.1%
of the total outstanding). Such executive officers are not participants in
any of the Plans and disclaim any beneficial ownership in the shares, and
the shares have not been included in the amounts listed in this table. All
share amounts reflect the impact of the 5% stock dividend distributed to
stockholders of record as of April 15, 1994.
(2) Includes 275,625 shares of Common Stock issued to Mr. Alfiero under the
Company's 1992 Restricted Stock Plan (the "Restricted Plan") as well as
13,542 shares of Common Stock allocated to Mr. Alfiero's self-directed
accounts in the Company's tax-qualified retirement plan (the "Retirement
Plan") and the Company's 401(k) Savings Plan (which has no Company-match).
Does not include 13,858 shares of Common Stock owned by the Alfiero Family
Charitable Foundation of which Mr. Alfiero is one of four directors and for
which he disclaims beneficial ownership.
27
<PAGE>
(3) Based on information set forth in a statement on Schedule 13-G filed with
the Commission by FMR Corporation ("FMR") on February 11, 1994, FMR held on
behalf of itself and its subsidiaries, Fidelity Management and Research
Company ("Fidelity"), and Fidelity Management Trust Company ("Fidelity
Trust"), an aggregate of 5,292,196 shares of Common Stock, which amount
includes an aggregate of 1,564,700 shares of Common Stock that FMR and its
subsidiaries have the right to acquire through the conversion into Common
Stock of the Convertible Debentures. FMR and its subsidiaries have the sole
power to vote or direct the voting of 83,470 shares. The power to vote or
direct the voting of the remaining shares represented resides with the
respective Boards of Trustees of the investment funds established and
managed by FMR and its subsidiaries. The stated business address of FMR,
Fidelity and Fidelity Trust is 82 Devonshire Street, Boston, Massachusetts
02109.
(4) Based on information set forth in a statement on Schedule 13-G filed with
the Commission by Tiger Management Corporation ("Tiger") on May 9, 1994,
Tiger, a corporation controlled by majority shareholder Julian H.
Robertson, Jr., beneficially owns an aggregate of 4,079,864 shares of
Common Stock. Excluded from these shares are 315,395 shares held on behalf
of Panther Management Company, L.P., whose sole general partner is Panther
Management Corporation of which Mr. Robertson is Chairman, Director, and
controlling shareholder. The stated business address of Tiger is 101 Park
Avenue, New York, New York 10178.
(5) Includes 27,563 shares of Common Stock issued to Mr. Arrison under the
Restricted Plan, as well as 11,025 shares of Common Stock issuable under
currently exercisable options granted pursuant to the Mark IV Industries,
Inc. and Subsidiaries 1992 Incentive Stock Option Plan (the "1992 Option
Plan"). Does not include 27,835 shares of Common Stock owned by the Arrison
Family Charitable Foundation of which Mr. Arrison is one of four directors
and for which he disclaims beneficial ownership.
(6) Includes 16,538 shares of Common Stock issued to Mr. Lippes under the
Restricted Plan, as well as 6,891 shares of Common Stock issuable under
currently exercisable options granted pursuant to the 1992 Option Plan.
Does not include 48,033 shares of Common Stock owned by the Lippes Family
Charitable Foundation of which Mr. Lippes is one of five directors and for
which he disclaims beneficial ownership.
(7) Includes 7,531 shares of Common Stock held by The Gibson Group, Inc.
Pension Fund, of which Mr. Donohoo is Chairman of the Board.
(8) Includes 19,163 shares of Common Stock issued to Mr. Montague under the
Restricted Plan, as well as 6,891 shares of Common Stock issuable under
currently exercisable options granted pursuant to the Incentive Stock
Option Plans. Also includes 5,169 shares of Common Stock allocated to Mr.
Montague's self-directed accounts in the Company's Retirement Plan and the
Company's 401(k) Savings Plan (which has no Company-match). Does not
include 11,088 shares of Common Stock owned by the Montague Family
Charitable Foundation of which Mr. Montague is one of four directors and
for which he disclaims beneficial ownership.
(9) Includes 2,625 shares of Common Stock issued to Mr. Cook under the
Restricted Plan, as well as 11,507 shares of Common Stock issuable under
currently exercisable options granted pursuant to the Company's Incentive
Stock Option Plans. Also includes 1,198 shares of Common Stock allocated to
Mr. Cook's self-directed account in the Company's Retirement Plan and the
Company's 401(k) Savings Plan (which has no Company-match).
(10) Includes 2,625 shares of Common Stock issued to Mr. Byrne under the
Restricted Plan, as well as 6,761 shares of Common Stock issuable under
currently exercisable options granted pursuant to the Company's Incentive
Stock Option Plans. Also includes 2,808 shares of Common Stock allocated
to Mr. Byrne's self-directed accounts in the Company's Retirement Plan and
the Company's 401(k) Savings Plan (which has no Company-match).
(11) Includes 346,763 shares of Common Stock issued to the group under the
Restricted Plan, as well as 74,682 shares of Common Stock issuable under
currently exercisable options granted pursuant to the Company's Incentive
Stock Option Plans. Also includes 23,505 shares of Common Stock allocated
to the officers' self directed accounts in the Company's Retirement Plan
and the Company's 401(k) Savings Plan (which has no Company-match).
28
<PAGE>
UNDERWRITING
The Underwriters of the Offering of Common Stock named below (the
"Underwriters"), for whom Bear, Stearns & Co. Inc. ("Bear Stearns") is acting
as Representative (the "Representative"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the form of which is filed
as an exhibit to the Company's Registration Statement on Form S-3, of which
this Prospectus is a part), to purchase from the Company the aggregate number
of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C>
Bear, Stearns & Co. Inc.........................................
---------
Total....................................................... 5,725,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by their counsel
and to various other conditions. The nature of the obligations of the
Underwriters is such that they are committed to purchase all of the shares of
Common Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock offered hereby
directly to the public at the public offering price set forth on the cover page
of this Prospectus and may offer such shares to selected dealers at such price
less a concession not in excess of $ per share. Such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Representative.
At the request of the Company, the Underwriters have reserved 275,000 shares
of Common Stock for sale at the public offering price to the Savings Plan. No
underwriting discount will apply in respect of shares sold to the Savings Plan.
Any reserved shares of Common Stock not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered pursuant to this Prospectus.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an additional 858,750
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus less the underwriting discount. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the sale of the shares of Common Stock offered
hereby. To the extent that the Underwriters exercise this option, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment.
The Company has agreed to indemnify the Underwriters against, and to provide
contribution with respect to, certain liabilities, including liabilities under
the Securities Act.
Pursuant to the Underwriting Agreement, the Company has agreed that it will
not, and will cause its Directors and officers to agree not to, issue, sell, or
otherwise dispose of any shares of Common Stock for a period of 90 days from
the date hereof without the prior written consent of the Representative.
29
<PAGE>
Bear Stearns has from time to time in recent years performed various
investment banking and other financial advisory services for the Company, for
which it has received customary compensation. These services have included
acting as a managing underwriter of various public offerings of debt and equity
securities of the Company and as financial advisor in connection with various
acquisitions and divestitures, including, but not limited to, the acquisition
of Purolator.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon for
the Company by Stroock & Stroock & Lavan, New York, New York, special counsel
to the Company. Other legal matters in connection with the offering will be
passed upon by such firm and by Lippes, Silverstein, Mathias & Wexler, Buffalo,
New York, counsel to the Company. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Latham & Watkins, New
York, New York.
Gerald S. Lippes, a partner of Lippes, Silverstein, Mathias & Wexler, is
general counsel to the Company, its Secretary and a Director. See "Management"
and "Principal Securityholders." At November 8, 1994, other members of such
firm beneficially owned approximately 53,000 shares of Common Stock.
EXPERTS
The consolidated balance sheets of Mark IV Industries, Inc. and its
subsidiaries at February 28, 1994 and 1993 and the consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended February 28, 1994, included in this Prospectus or incorporated
herein by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994, as amended, have been included or incorporated by
reference herein in reliance on the report of Coopers & Lybrand, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheets of Purolator Products Company and its
subsidiaries as of December 31, 1993 and 1992 and the consolidated statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1993, included in this Prospectus and elsewhere
in this Registration Statement, to the extent and for the periods indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said report. Reference is made to said report, which
includes an explanatory paragraph with respect to the change in the method of
accounting for postretirement benefit costs other than pensions, effective
January 1, 1991, as discussed in Note 5 to Purolator's audited consolidated
financial statements included elsewhere herein.
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Audited Consolidated Financial Statements of Mark IV as of February
28, 1994
Report of Independent Accountants.................................. F-2
Consolidated Balance Sheets........................................ F-3
Consolidated Statements of Income.................................. F-4
Consolidated Statements of Stockholders' Equity.................... F-5
Consolidated Statements of Cash Flows.............................. F-6
Notes to Consolidated Financial Statements......................... F-7
Unaudited Consolidated Financial Statements of Mark IV as of August
31, 1994
Consolidated Condensed Balance Sheet............................... F-24
Consolidated Statements of Income and Retained Earnings............ F-25
Consolidated Statements of Cash Flows.............................. F-26
Notes to Consolidated Financial Statements......................... F-27
Audited Consolidated Financial Statements of Purolator as of December
31, 1993
Report of Independent Public Accountants........................... F-28
Consolidated Balance Sheets........................................ F-29
Consolidated Statements of Operations.............................. F-30
Consolidated Statements of Stockholders' Equity.................... F-31
Consolidated Statements of Cash Flows.............................. F-32
Notes to Consolidated Financial Statements......................... F-33
Unaudited Condensed Consolidated Financial Statements of Purolator as
of September 30, 1994
Condensed Consolidated Statements of Operations.................... F-51
Condensed Consolidated Balance Sheet............................... F-52
Condensed Consolidated Statements of Cash Flows.................... F-53
Notes to Condensed Consolidated Financial Statements............... F-54
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Mark IV Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mark IV
Industries, Inc. and subsidiaries as of February 28, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three fiscal years in the period ended February 28, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mark IV Industries, Inc. and subsidiaries as of February 28, 1994 and 1993,
and consolidated results of its operations and its cash flows for each of the
three fiscal years in the period ended February 28, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 10 and 12 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions, in accordance with statements of the Financial
Accounting Standards Board.
COOPERS & LYBRAND
Rochester, New York
March 29, 1994, except as
to the information presented
in the first and second
paragraphs of Note 13 and
in the first paragraph of
Note 14, for which the
date is April 8, 1994
F-2
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1994 1993
---------- -------------
(AS RESTATED)
<S> <C> <C>
Current Assets:
Cash............................................... $ 500 $ 2,700
Accounts receivable................................ 275,100 228,100
Inventories........................................ 265,000 243,800
Other current assets............................... 42,100 21,800
---------- ----------
Total current assets............................. 582,700 496,400
Pension related and other non-current assets......... 126,300 114,100
Property, plant and equipment, net................... 365,300 318,300
Cost in excess of net assets acquired and deferred
charges............................................. 208,000 196,000
---------- ----------
TOTAL ASSETS..................................... $1,282,300 $1,124,800
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of debt....... $ 45,000 $ 34,800
Accounts payable................................... 99,700 77,600
Compensation related liabilities................... 43,100 39,600
Accrued interest................................... 13,600 14,200
Accrued expenses and other liabilities............. 67,000 45,100
Income taxes payable............................... 1,500 9,700
---------- ----------
Total current liabilities........................ 269,900 221,000
---------- ----------
Long-Term Debt:
Senior debt........................................ 195,000 194,300
Subordinated debt.................................. 372,200 302,800
---------- ----------
Total long-term debt............................. 567,200 497,100
---------- ----------
Other non-current liabilities........................ 99,800 61,100
---------- ----------
Stockholders' Equity:
Common stock--$.01 par value;
Authorized 100,000,000 shares;
Issued 42,697,864 shares in 1994 and
42,188,178 shares in 1993......................... 400 400
Additional paid-in capital......................... 261,500 219,300
Retained earnings.................................. 88,600 128,300
Foreign currency translation adjustment............ (5,100) (2,400)
---------- ----------
Total stockholders' equity....................... 345,400 345,600
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY........ $1,282,300 $1,124,800
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Net sales.............................. $1,244,200 $1,085,700 $1,004,300
---------- ---------- ----------
Operating costs:
Cost of products sold................ 803,500 698,800 641,900
Selling and administration........... 236,300 215,100 200,600
Research and development............. 30,900 26,100 24,900
Depreciation and amortization........ 41,700 32,100 28,300
---------- ---------- ----------
Total operating costs.............. 1,112,400 972,100 895,700
---------- ---------- ----------
Operating income..................... 131,800 113,600 108,600
Interest expense....................... 50,100 51,600 64,700
Loss on securities transactions........ -- -- 2,400
---------- ---------- ----------
Income from continuing operations be-
fore provision for taxes............ 81,700 62,000 41,500
Provision for taxes.................... 30,600 22,900 14,700
---------- ---------- ----------
Income from continuing operations.... 51,100 39,100 26,800
Income from discontinued operations,
net of tax............................ -- 3,600 2,000
---------- ---------- ----------
Income before extraordinary items and
cumulative effect of accounting
change.............................. 51,100 42,700 28,800
Extraordinary loss from early
extinguishment of debt, net of tax
benefit of $12,300; $2,000; and
$2,500................................ (21,700) (3,700) (4,500)
Cumulative effect of a change in ac-
counting principle.................... (26,000) -- --
---------- ---------- ----------
NET INCOME......................... $ 3,400 $ 39,000 $ 24,300
========== ========== ==========
Net income per share of common stock:
Primary:
Income from continuing operations... $ 1.20 $ .93 $ .81
Income from discontinued operations. -- .09 .06
Extraordinary loss.................. (.51) (.09) (.14)
Cumulative effect of a change in ac-
counting principle................. (.61) -- --
---------- ---------- ----------
NET INCOME......................... $ .08 $ .93 $ .73
========== ========== ==========
Fully-diluted:
Income from continuing operations... $ 1.09 $ .87 $ .74
Income from discontinued operations. -- .07 .05
Extraordinary loss.................. (.43) (.07) (.12)
Cumulative effect of a change in ac-
counting principle................. (.51) -- --
---------- ---------- ----------
NET INCOME......................... $ .15 $ .87 $ .67
========== ========== ==========
Weighted average shares outstanding:
Primary.............................. 42,481 41,993 33,140
========== ========== ==========
Fully-diluted........................ 50,747 50,325 38,358
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RETAINED FOREIGN
ADDITIONAL EARNINGS CURRENCY
COMMON PAID-IN (AS TRANSLATION
STOCK CAPITAL RESTATED) ADJUSTMENT
------ ---------- --------- -----------
<S> <C> <C> <C> <C>
Balance at February 28, 1991........... $ 300 $ 66,400 $134,600 $ 3,600
Net income for fiscal 1992........... 24,300
Cash dividends of $.066 per share.... (2,400)
Retirement of treasury stock......... (100) (34,800)
Public sale of common stock at $7.50
per share........................... 100 60,400
Sale of common stock to Pension Plan
at $9.79 per share.................. 6,800
Conversion of 7% Convertible Deben-
tures............................... 100 55,900
Exercise of stock options............ 100
Translation adjustments.............. (3,400)
----- -------- -------- -------
Balance at February 29, 1992........... 400 154,800 156,500 200
Net income for fiscal 1993........... 39,000
Cash dividends of $.084 per share.... (3,600)
Stock dividend of 5% issued in July
1992................................ 27,900 (27,900)
Stock dividend of 5% issued in May
1993................................ 35,700 (35,700)
Exercise of stock options............ 900
Translation adjustments.............. (2,600)
----- -------- -------- -------
Balance at February 28, 1993........... 400 219,300 128,300 (2,400)
Net income for fiscal 1994........... 3,400
Cash dividends of $.098 per share.... (4,200)
Stock dividend of 5% issued in April
1994................................ 38,900 (38,900)
Restricted stock grants, net......... 800
Conversion of 6 1/4% Convertible De-
bentures............................ 100
Exercise of stock options, including
related tax benefits................ 2,400
Translation adjustments.............. (2,700)
----- -------- -------- -------
Balance at February 28, 1994........... $ 400 $261,500 $ 88,600 $(5,100)
===== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations..... $ 51,100 $ 39,100 $ 26,800
Items not affecting cash:
Depreciation and amortization........ 41,700 32,100 28,300
Pension and compensation related..... (12,400) (12,500) (10,700)
Deferred income taxes................ 10,800 3,900 2,200
--------- -------- ---------
Net cash provided by earnings....... 91,200 62,600 46,600
Changes in assets and liabilities, net
of effects of businesses
acquired and discontinued:
Accounts receivable.................. (27,200) (12,000) 25,600
Inventories.......................... (7,700) 1,300 22,300
Other assets......................... (5,700) 6,000 1,900
Accounts payable..................... (2,600) 3,800 3,800
Other liabilities.................... (8,400) (21,400) (15,400)
--------- -------- ---------
Net cash provided by continuing op-
erations........................... 39,600 40,300 84,800
Discontinued operations, before non-cash
items.................................. 1,100 8,800 7,200
Extraordinary items, before deferred
charges................................ (30,100) (4,900) (6,200)
--------- -------- ---------
Net cash provided by operating ac-
tivities........................... 10,600 44,200 85,800
--------- -------- ---------
Cash flows from investing activities:
Acquisitions.......................... (65,000) (4,000) (9,300)
Divestitures.......................... 35,000 12,200 --
Purchase of plant and equipment, net.. (38,000) (32,900) (19,200)
Proceeds from sale of assets.......... -- 1,300 23,000
--------- -------- ---------
Net cash used in investing activi-
ties............................... (68,000) (23,400) (5,500)
--------- -------- ---------
Cash flows from financing activities:
Credit agreement borrowings, net...... (30,000) 65,000 (116,500)
Multi-currency credit agreement
borrowings, net...................... 48,400 -- --
Purchases of senior and subordinated
debt................................. (190,200) (62,800) (121,700)
Issuance of subordinated debt......... 258,000 -- 114,300
Other changes in long-term debt, net.. (18,900) (33,600) (18,600)
Changes in short-term bank borrowings. (8,300) 11,700 (3,800)
Common stock transactions............. 800 900 67,400
Cash dividends paid................... (4,100) (3,300) (2,400)
--------- -------- ---------
Net cash provided by (used in) fi-
nancing activities................. 55,700 (22,100) (81,300)
--------- -------- ---------
Effect of exchange rate fluctuations.... (500) (600) (300)
--------- -------- ---------
Net decrease in cash................ (2,200) (1,900) (1,300)
Cash and cash equivalents:
Beginning of the year................. 2,700 4,600 5,900
--------- -------- ---------
End of the year....................... $ 500 $ 2,700 $ 4,600
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries. All significant intercompany transactions have been
eliminated.
Foreign Currency
The assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates. Translation gains and losses are not
included in determining net income, but are accumulated in a separate component
of stockholders' equity. Foreign currency transactions are included in income
as realized, and amounted to gains (losses) of $300,000; ($700,000) and
$300,000 in fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, the
Company entered into foreign currency forward contracts, of which the notional
amount outstanding was $27,000,000 at February 28, 1994. The forward contracts
hedge transactions in existing non-U.S. dollar denominated inter-company
receivables and payables.
Net Income Per Share of Common Stock
Primary net income per share is calculated on the basis of the weighted
average number of shares outstanding during each period, adjusted for
subsequent stock distributions. Common stock equivalents which would arise from
the exercise of stock options, using the treasury stock method, were not
significant and have not been included in the calculation.
Fully-diluted net income per share, in addition to the weighted average
determined above, includes common stock equivalents which would arise from the
exercise of stock options using the treasury stock method, and assumes the
conversion of the Company's 6 1/4% and 7% Convertible Subordinated Debentures
(for the periods outstanding), as well as the elimination of related interest
expense, net of income tax effects.
All income per share amounts have been calculated as if the stock split
distributed in April 1992, and the stock dividends distributed in April 1994,
May 1993 and July 1992 had occurred on March 1, 1991, the beginning of fiscal
1992. The weighted average number of shares outstanding have been determined as
if shares issued pursuant to the stock distributions had been issued at that
date and income per share amounts for fiscal 1993 and 1992 have been restated
accordingly.
Changes in Accounting Policies
As discussed in Note 10, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, effective
March 1, 1993, the beginning of fiscal 1994. The Company adopted SFAS No. 109
by restating prior years' financial statements for all years back to and
including fiscal 1986. As discussed in Note 12, the Company also adopted SFAS
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
as of March 1, 1993. The Company adopted SFAS No. 106 by the immediate
recognition of its accumulated benefit obligation.
Statements of Cash Flows
For purposes of cash flows, the Company considers overnight investments as
cash equivalents. Interest and investment earnings are netted against interest
expense and amounted to approximately $400,000; $300,000; and $700,000 in
fiscal 1994, 1993 and 1992, respectively. The Company paid interest of
F-7
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $52,900,000; $58,700,000; and $74,100,000 in fiscal 1994, 1993
and 1992, respectively. Such amounts include $2,200,000; $5,000,000 and
$6,400,000 allocated to the costs of discontinued operations in fiscal 1994,
1993 and 1992, respectively. The Company paid income taxes of approximately
$13,700,000; $11,800,000; and $7,700,000 in fiscal 1994, 1993 and 1992,
respectively. Liabilities recorded in connection with businesses acquired,
excluding bank indebtedness, amounted to approximately $82,000,000; $3,600,000;
and $63,800,000 in fiscal 1994, 1993 and 1992, respectively.
2. ACQUISITION
On June 2, 1993, the Company purchased 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
and Fluid Transfer business segment. The purchase price consisted of
$65,000,000 in cash and the assumption of approximately $50,000,000 of existing
bank indebtedness of PTI and its subsidiaries. The funding for the transaction
was provided substantially by borrowings under the Company's multi-currency
credit agreement.
The acquisition has been accounted for under the purchase method, 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 determination
and allocation of the purchase price as of the acquisition date, consisting of
the following (dollars in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 37,000
Inventories........................................................ 34,600
Other current assets............................................... 6,700
Current notes payable to banks..................................... (18,600)
Accounts payable and other current liabilities..................... (52,800)
Net working capital acquired..................................... 6,900
Fixed assets....................................................... 77,200
Cost in excess of net assets acquired.............................. 33,000
Long-term indebtedness to banks.................................... (32,300)
Other non-current items, net....................................... (19,800)
--------
Cash purchase price paid at closing.............................. $ 65,000
========
</TABLE>
An independent appraisal firm has been retained by the Company to determine
the fair market value of all of the fixed assets included in the PTI
acquisition. The above amounts are based upon the preliminary results of such
appraisal, and are subject to adjustment to the extent the final valuation
differs from the preliminary determination. The financial position of PTI as of
February 28, 1994 has been included in the accompanying consolidated balance
sheet of the Company as of that date based upon the allocation identified
above. The cost in excess of net assets will be amortized over 40 years.
The following table presents the pro-forma consolidated condensed results of
operations for the fiscal years ended February 28, 1994 and 1993. The pro-forma
amounts give effect to the acquisition of PTI as if it had occurred on March 1,
1992, the beginning of fiscal 1993. The pro-forma amounts do not purport to be
F-8
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net Sales............................................. $1,286,700 $1,243,300
========== ==========
Income from continuing operations..................... $ 52,100 $ 42,800
========== ==========
Earnings per share from continuing operations:
Primary............................................. $ 1.23 $ 1.02
========== ==========
Fully-diluted....................................... $ 1.11 $ .94
========== ==========
</TABLE>
3. DISCONTINUED OPERATIONS
Effective May 31, 1993 (the "measurement date") the Company decided to sell
its non-core business units. Such units have been accounted for as discontinued
operations, and their results of operations have been excluded from continuing
operations in the consolidated statement of income for fiscal 1994. The
consolidated statements of income for fiscal 1993 and 1992 have been restated
to exclude the discontinued operations in a similar manner.
In June 1993, the Company sold certain of its non-core instruments businesses
for 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 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 February 28, 1994 amount
to approximately $28,100,000. 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 sale proceeds will equal or exceed the net asset amount, and all
such proceeds will be utilized to offset existing borrowings of the Company.
The results of operations of these discontinued businesses in fiscal 1993 and
1992 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Sales..................................................... $136,300 $141,300
======== ========
Income before provision for taxes......................... $ 5,600 $ 3,100
Provision for taxes....................................... 2,000 1,100
-------- --------
Income from discontinued operations....................... $ 3,600 $ 2,000
======== ========
</TABLE>
Sales of the discontinued operations in fiscal 1994 were $26,800,000 through
the measurement date, and approximately $42,300,000 from the measurement date
through February 28, 1994. The related income from these operations has been
deferred until the ultimate disposition of the businesses, which is expected to
occur in fiscal 1995.
4. ACCOUNTS RECEIVABLE
Accounts receivable are reflected net of allowances for doubtful accounts of
$17,600,000 and $13,000,000 at February 28, 1994 and 1993, respectively. The
amount at February 28, 1993 includes $800,000 related to discontinued
operations.
F-9
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVENTORIES
Inventories include contracts in process, and are stated at the lower of cost
or market. The cost of inventories is determined primarily on the last-in,
first-out (LIFO) method. As a result of the fair value determination of
inventories required by the purchase method of accounting for acquired
companies as of their acquisition date, LIFO costs exceed FIFO costs by
approximately $35,000,000 and $39,800,000 at February 28, 1994 and 1993,
respectively. The excess at February 28, 1993 includes $2,800,000 related to
discontinued operations.
Inventories consist of the following at February 28, 1994 and 1993 (dollars
in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------------
(AS RESTATED)
<S> <C> <C>
Raw materials, parts, and sub-assemblies.............. $ 67,700 $ 70,300
Work-in-process....................................... 43,500 62,400
Finished goods........................................ 157,100 123,500
-------- --------
268,300 256,200
Less progress billings................................ 3,300 12,400
-------- --------
Inventories........................................... $265,000 $243,800
======== ========
</TABLE>
The amount at February 28, 1993 includes $21,100,000 related to discontinued
operations, which is net of related progress billings of $10,900,000.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the following
at February 28, 1994 and 1993 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------------
(AS RESTATED)
<S> <C> <C>
Land and land improvements............................ $ 35,700 $ 31,800
Buildings............................................. 115,700 99,600
Machinery and equipment............................... 324,700 296,700
-------- --------
Total property, plant and equipment................. 476,100 428,100
Less accumulated depreciation......................... 110,800 109,800
-------- --------
Property, plant and equipment, net.................. $365,300 $318,300
======== ========
</TABLE>
The cost of property, plant and equipment retired or otherwise disposed of,
and the accumulated depreciation thereon, are eliminated from the asset and
related accumulated depreciation accounts, and any resulting gain or loss is
reflected in income. The net amount at February 28, 1993 includes $31,000,000
related to discontinued operations.
The Company provides for depreciation of plant and equipment on methods and
rates designed to amortize the cost of such plant and equipment over its useful
life. Depreciation is provided principally on the straight-line method and
amounted to approximately $33,200,000; $29,800,000; and $26,900,000 in fiscal
F-10
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994, 1993 and 1992, respectively. Of such amounts, approximately $4,000,000
and $3,600,000 relates to discontinued operations in fiscal 1993 and 1992,
respectively.
7. COST IN EXCESS OF NET ASSETS ACQUIRED AND DEFERRED CHARGES
Cost in excess of net assets acquired, net of accumulated amortization,
amounted to approximately $196,100,000 and $187,800,000 at February 28, 1994
and 1993 respectively. The change in fiscal 1994 includes approximately
$33,000,000 related to the Company's PTI acquisition, and also reflects the
elimination of approximately $18,200,000 related to the Company's discontinued
operations. The costs related to continuing operations are being amortized on
the straight-line method over 40-year periods from the acquisition dates of the
respective businesses, and resulted in amortization expense of approximately
$5,700,000; $4,700,000 and $3,900,000 in fiscal 1994, 1993 and 1992,
respectively. Accumulated amortization of such costs was approximately
$22,700,000 and $17,000,000 at February 28, 1994 and 1993, respectively.
Deferred charges, net of accumulated amortization, amounted to approximately
$11,900,000 and $8,200,000 at February 28, 1994 and 1993, respectively. Such
amounts include costs incurred in connection with the issuance of the Company's
credit agreements and the sale of subordinated debentures, and are being
amortized over their respective terms.
8. LONG-TERM DEBT
Long-term debt consists of the following at February 28, 1994 and 1993
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Senior debt:
Credit Agreement....................................... $140,000 $170,000
Multi-Currency Agreement............................... 48,400 --
Other items............................................ 40,500 30,200
-------- --------
Total................................................ 228,900 200,200
Less current maturities................................ (5,800) (5,900)
Less amounts allocated to discontinued operations...... (28,100) --
-------- --------
Net senior debt...................................... 195,000 194,300
-------- --------
Subordinated debt:
8 3/4% Senior Subordinated Notes....................... 258,000 --
6 1/4% Convertible Subordinated Debentures............. 114,200 114,300
13 3/8% Subordinated Debentures........................ -- 188,500
-------- --------
Total subordinated debt.............................. 372,200 302,800
-------- --------
Total long-term debt................................. $567,200 $497,100
======== ========
</TABLE>
In July 1993, the Company entered into a 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
F-11
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
paying interest at LIBOR plus 0.75% on borrowings under the Credit Agreement.
The Credit Agreement contains certain affirmative and negative covenants
customary in an agreement of this nature, and is secured by the stock of
certain of the Company's subsidiaries.
In May 1993, the Company entered into a revolving credit agreement ("Multi-
Currency Agreement") providing for a five year multi-currency revolving credit
facility with a group of financial institutions in the U.S. and Europe. The
Multi-Currency 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 in June 1995, with the
remaining $25,000,000 of commitment expiring in May 1998. Interest rates on
borrowings under the Multi-Currency Agreement are subject to change based on a
specified pricing grid which increases from LIBOR plus 0.625% to LIBOR plus
1.375% per annum based on the Company's senior debt rating (as defined in the
Multi-Currency Agreement). The Company is currently paying interest at LIBOR
plus 1.25% on borrowings under the Multi-Currency Agreement. The Multi-Currency
Agreement also contains certain affirmative and negative covenants customary in
an agreement of this nature.
In March 1993, the Company completed a public offering of $258,000,000
principal amount of its 8 3/4% Senior Subordinated Notes due April 2003. A
substantial portion of the net proceeds from the sale of the notes was used to
fund the retirement of the Company's 13 3/8% Subordinated Debentures. There are
no sinking fund requirements on the Senior Subordinated Notes and they may not
be redeemed until April 1998. At such date they are redeemable at 104.375% of
principal amount, and thereafter at an annually declining premium over par
until April 2001 when they are redeemable at par. The Indenture limits the
payment of dividends and the repurchase of capital stock, and includes certain
other restrictions and limitations customary with subordinated indebtedness of
this type.
The 6 1/4% Convertible Subordinated Debentures are convertible into shares of
the Company's common stock at a conversion price of $14.37 per share, subject
to adjustment. The Company is required to make sinking fund payments commencing
February 2002, calculated to retire 50% of the debentures prior to their
February 2007 maturity. The debentures may not be redeemed until February 1995.
At such date they are redeemable at 104.375% of principal amount, and
thereafter at an annually declining premium over par until February 2002, when
they are redeemable at par.
In March 1993, the Company offered to purchase 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 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 the related
interest expense requirements of these debentures. The Company recognized an
extraordinary loss, net of tax, of approximately $21,700,000 as a result of the
extinguishment of this debt in fiscal 1994. The Company also acquired or
defeased approximately $63,000,000 and $122,000,000 of its indebtedness and
recognized an extraordinary loss, net of tax, of $3,700,000 and $4,500,000 in
fiscal 1993 and 1992, respectively.
The fair value of the 6 1/4% Convertible Subordinated Debentures exceeds
their recorded value by approximately $48,000,000 as of February 28, 1994,
based upon the quoted market value of the debentures as of that date. The fair
value of the 8 3/4% Senior Subordinated Notes exceeds their recorded value by
approximately $6,000,000 as of February 28, 1994, based upon the quoted market
value of such notes as of that date. Since the rest of the Company's notes
payable and senior debt are primarily floating rate debt, their recorded
amounts approximate their fair values as of February 28, 1994. The recorded
amounts for other financial instruments, such as cash and accounts receivable,
approximate their fair value.
F-12
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities of the Company's long-term debt for the next five fiscal
years are: 1995-$5,800,000; 1996-$18,200,000; 1997-$4,000,000; 1998-
$26,900,000; and 1999-$138,200,000.
9. LEASES
The Company has operating leases which expire at various dates through 2002
with, in some instances, renewal privileges. Certain leases provide for
escalation of the rentals primarily for increases in maintenance costs and
property taxes. Total rental expense for continuing operations under operating
leases was $15,900,000; $15,900,000; and $15,400,000 in fiscal 1994, 1993 and
1992, respectively.
Minimum rental payments under operating leases of continuing operations and
having an initial or remaining noncancellable term in excess of 12 months are:
1995-$13,200,000; 1996-$11,200,000; 1997-$10,100,000; 1998-$9,100,000; 1999-
$7,400,000; 2000 and thereafter $22,100,000.
10. INCOME TAXES
The company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109), in fiscal 1994. The adoption of
this standard changed the Company's method of accounting for income taxes from
the deferred method to the liability method. The Company adopted SFAS No. 109
retroactively by restating prior years' financial statements for all years back
to and including fiscal 1986.
Income from continuing operations and the related provision for taxes under
SFAS No. 109 for fiscal 1994, 1993 and 1992 consists of the following (dollars
in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- -------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Income from continuing operations be-
fore provision for
taxes:
United States........................ $45,800 $41,400 $27,800
Foreign.............................. 35,900 20,600 13,700
------- ------- -------
Total income from continuing opera-
tions before provision for taxes.. $81,700 $62,000 $41,500
======= ======= =======
Provision for taxes on income from con-
tinuing operations:
Currently payable:
United States....................... $14,500 $10,900 $ 6,900
Foreign............................. 5,300 8,100 5,600
------- ------- -------
Total currently payable.............. 19,800 19,000 12,500
Deferred:
United States...................... 3,600 4,200 2,800
Foreign............................ 7,200 (300) (600)
------- ------- -------
Total deferred......................... 10,800 3,900 2,200
------- ------- -------
Total provision for taxes.............. $30,600 $22,900 $14,700
======= ======= =======
</TABLE>
F-13
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cumulative effect of the January 1993 increase in the U.S. statutory tax
rate was not significant. As a result of the exercise of certain employees'
incentive stock options, the Company realized a tax benefit of $1,700,000 which
has been recognized as a direct increase in additional paid-in capital.
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets (liabilities) consist of the following at
February 28, 1994 and 1993 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Current:
Accounts receivable................................... $ 3,900 $ 3,000
Inventories........................................... (9,500) (9,500)
Compensation related.................................. 3,400 3,100
Tax credit and net operating loss carryforwards....... 9,000 --
Other items........................................... 7,500 800
-------- --------
Total current asset (liability)..................... 14,300 (2,600)
Valuation allowance................................... (4,000) --
-------- --------
Net current asset (liability)....................... $ 10,300 $ (2,600)
======== ========
Non-current:
Fixed and intangible assets........................... $(39,500) $(47,800)
Pension and other benefit plans....................... (21,400) (31,800)
Tax credit and net operating loss carryforwards....... 29,400 35,900
Capital loss carryforwards............................ 11,300 19,300
All other items....................................... 19,600 23,400
-------- --------
Total non-current liability......................... (600) (1,000)
Valuation allowance................................... (16,800) (19,300)
-------- --------
Net non-current liability........................... $(17,400) $(20,300)
======== ========
</TABLE>
The net current amount is included in other current assets at February 28,
1994, and in income taxes payable at February 28, 1993. The net non-current
amount is included in other non-current liabilities at February 28, 1994 and
1993.
The current valuation allowance offsets foreign tax benefits established in
the PTI acquisition which may not be realized. To the extent the benefits are
realized, the valuation allowance will be reversed with a corresponding
reduction in the cost in excess of net assets acquired resulting from the PTI
acquisition. The non-current valuation allowance is primarily attributable to
the capital loss carryforwards, which are available to use primarily through
fiscal 1996. The change in the non-current valuation allowance relates to
capital loss carryforward benefits realized in discontinued operations.
Management of the Company has determined, based on the Company's history of
prior operating earnings and its expectations for the future, that operating
income will more likely than not be sufficient to utilize the tax credit and
net operating loss carryforwards in their carryforward periods, which run
substantially through fiscal 2007. The undistributed earnings of the Company's
foreign subsidiaries have been reinvested in each country, and are not expected
to be remitted back to the parent company. Accordingly, no federal income taxes
have been provided on such earnings as of February 28, 1994. The determination
of the possible tax effect relating to such reinvested income is not
practicable.
F-14
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for taxes on income from continuing operations for fiscal 1994,
1993, and 1992 differs from the amount computed using the United States
statutory income tax rate as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Expected tax at United States statu-
tory income tax rate................. $28,600 $21,100 $14,100
Permanent differences................. 1,200 900 400
State and local income taxes.......... 1,200 600 700
Tax credits........................... (500) (400) (800)
Foreign tax rate differences.......... 100 700 300
------- ------- -------
Total provision for taxes......... $30,600 $22,900 $14,700
======= ======= =======
</TABLE>
As a result of prior acquisitions, the retroactive adoption of SFAS No. 109
resulted in increases in property, plant and equipment of $17,800,000; cost in
excess of net assets acquired of $43,000,000; deferred tax assets of
$19,000,000 and 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, 1991 of $7,800,000, which adjustment included increased tax
expense for preceding years through fiscal 1991 of $800,000. The increase in
property, plant and equipment and cost in excess of net assets acquired
resulted in increased depreciation and amortization in prior years of
approximately $2,500,000 per year, of which $2,000,000 relates to continuing
operations, and $500,000 relates to discontinued operations. The effects of
this accounting change on the results of continuing operations for fiscal 1993
and 1992 are as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Income from continuing operations before provision for
taxes................................................... $(2,000) $(2,000)
Provision for taxes...................................... (600) 300
------- -------
Income from continuing operations...................... $(2,600) $(1,700)
======= =======
Income per share from continuing operations:
Primary................................................ $ (.06) $ (.05)
======= =======
Fully-diluted.......................................... $ (.05) $ (.04)
======= =======
</TABLE>
11. PENSION AND PROFIT SHARING PLANS
The Company has a variety of defined benefit plans covering both union and
non-union employees. Under the union plans, employee benefits are computed
based on a dollar amount multiplied by the number of years of service. Benefits
under the non-union plans are computed in a similar manner for certain plans,
and based on the employees' earnings in other plans.
F-15
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the defined benefit plans
and the amounts recognized in the Company's consolidated balance sheets at
February 28, 1994 and 1993 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- -------------
(AS RESTATED)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................... $(233,300) $(202,900)
========= =========
Accumulated...................................... $(236,100) $(204,800)
========= =========
Projected........................................ $(241,900) $(211,100)
Plan assets at fair value.......................... 314,300 300,100
--------- ---------
Plan assets in excess of projected benefit obliga-
tion.............................................. 72,400 89,000
Unrecognized net loss and differences in assump-
tions............................................. 36,400 6,800
Unrecognized prior service costs................... 3,100 2,600
--------- ---------
Prepaid pension cost recognized in the consolidated
balance sheets.................................... $ 111,900 $ 98,400
========= =========
</TABLE>
The plans' assets consist of corporate and government bonds, guaranteed
investment contracts, listed common stocks and real estate investments.
Included in the plans' assets are common stock of the Company with a market
value of approximately $16,500,000 and the Company's 6 1/4% and 8 3/4%
subordinated debentures with a market value of $11,800,000 at February 28,
1994.
Net pension income for the defined benefit plans in fiscal 1994, 1993, and
1992 includes the following components (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Service cost-benefits earned during
the period.......................... $ (2,900) $ (2,700) $ (2,500)
Interest cost on projected benefit
obligation.......................... (18,200) (17,300) (16,900)
Actual return on assets.............. 32,100 36,600 36,400
Net amortization and deferral........ 2,500 (4,100) (6,300)
-------- -------- --------
Net pension income................. $ 13,500 $ 12,500 $ 10,700
======== ======== ========
</TABLE>
The following assumptions were utilized to measure net pension income for
each of the fiscal years presented, as well as the projected benefit obligation
as of the end of the fiscal years:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Discount rate........................................... 7.75% 9.00% 9.00%
Expected long-term rate of return....................... 12.00% 12.00% 12.00%
Average increase in compensation........................ 5.00% 5.00% 5.00%
</TABLE>
As a result of the change in the discount rate, the projected benefit
obligation as of February 28, 1994 is approximately $25,000,000 more than it
would have been using the previous 9% discount rate. The change had no effect
on net pension income in fiscal 1994, and is expected to reduce pension income
in fiscal 1995 by approximately $500,000.
The Company also has defined contribution pension and profit sharing plans
for a significant number of its salaried and hourly employees. The Company's
contributions to these plans is based on various percentages
F-16
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of compensation, and in some instances is based upon the amount of the
employees' contributions to the plans. The annual cost of these plans amounted
to approximately $6,700,000; $6,600,000; and $6,000,000 in fiscal 1994, 1993
and 1992, respectively.
12. POSTRETIREMENT BENEFITS
The Company currently provides health and life insurance benefits to a
number of existing retirees from certain of its operations under the
provisions of a number of different plans. Contributions currently required to
be paid by the retirees towards the cost of such plans range from zero to
100%. The Company also has a number of active employees who might receive such
benefits upon their retirement. The plans which relate to retirees and active
non-union employees include provisions which allow the Company to increase the
cost to participants, or otherwise modify or terminate them as determined by
management. The plans which relate to active union employees are subject to
modification in the same manner as are all other compensation and benefits
matters in the process of the Company's negotiations of contracts covering its
union employees. The cash cost incurred by the Company for its retirees
amounted to approximately $4,600,000; $3,600,000; and $3,300,000 in fiscal
1994, 1993 and 1992, respectively. Through fiscal 1993, the Company accounted
for the cost of these postretirement benefits on the cash basis as they were
paid.
The Financial Accounting Standards Board (FASB) issued Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions (SFAS No.
106) in December 1990. SFAS No. 106 requires the estimated present-value of
the Company's liability for its commitments to provide health and life
insurance benefits to its retirees to be included in the balance sheet, either
entirely as of the date of adoption, or over a 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
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 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 costs are not expected to
reach the substantial majority of the caps until fiscal 1996, and assume an
annual health-care cost trend rate of 10% until that time.
The Company adopted SFAS No. 106 by recognizing the ABO entirely in fiscal
1994. The ABO was calculated on an actuarial basis using a 9% discount rate,
and amounted to approximately $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 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 $26,000,000 ($.51 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
fiscal 1994. 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.
F-17
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The ABO for fiscal 1994, and the reconciliation to the amount provided in the
consolidated balance sheet, is comprised of the following elements (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL 1994
-----------------------
END BEGINNING
OF THE YEAR OF THE YEAR
----------- -----------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees and beneficiaries receiving benefits..... $34,700 $29,300
Active employees, fully eligible for benefits..... 4,600 4,900
Active employees, not fully eligible for benefits. 6,500 5,800
------- -------
Total accumulated benefit obligation............ 45,800 40,000
Unrecognized net loss............................... (6,600) --
------- -------
Post-retirement benefit liability recognized in
the balance sheet................................ $39,200 $40,000
======= =======
</TABLE>
The Company's postretirement benefit expense for fiscal 1994 on the accrual
method was $3,800,000. The expense is made up of a service cost for active
employees of $400,000 and interest on the ABO of $3,400,000. Such cost was
approximately $800,000 less than the cash-basis expense for the year, or
$500,000 after tax effects ($.01 per share). The unrecognized net loss is
primarily the result of a change in the discount rate from 9% at the beginning
of the year to 7 3/4% at the end of the year, plus the excess of the cash-basis
expense over the accrual basis expense. The change in the discount rate and the
amortization of the unrecognized net loss will not have a significant effect on
the Company's postretirement benefit expense for fiscal 1995. As a result of
the cost caps, a 1% change in the health-care cost trend rate would have a
nominal effect on the Company's ABO and annual cost.
13. LEGAL PROCEEDINGS
A subsidiary of the Company was the defendant in a patent infringement case
which was tried in the latter part of fiscal 1994. The decision of the Court
was reached in April 1994 in favor of the plaintiff, awarding them damages and
issuing an injunction which prohibits the Company from any further use of the
technology at issue. Prior to the court's decision, the Company had stopped
using the technology in question; therefore, the injunction will have no impact
on the Company's future sales and marketing efforts. If the judgement for the
plaintiff is upheld on appeal, the after-tax cost to the Company could be in
the range of $2,300,000. Management of the Company has been advised by its
legal counsel as to the merits of its arguments, and continues to believe it
has not infringed on the plaintiff's patent.
In view of the above, management has directed its legal counsel to pursue the
appeal process as diligently as possible. Management believes the ultimate
conclusions of law will be decided upon by the appeals court in favor of the
Company. However, in view of the trial court's findings, an accrual has been
established to provide for the cost of the resolution of this issue in the
event the Company is not successful. The litigation accrual did not have an
effect on income, since the effects of establishing it have been offset by the
reversal of accrued liabilities related to an acquisition in fiscal 1991 which
management has determined are no longer required.
The Company is involved in various other legal and environmental related
issues. In the opinion of the Company's management, the ultimate cost to
resolve these matters will not have a material adverse effect on the Company's
financial position.
F-18
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Company's Board of Directors declared five percent stock dividends which
were distributed in April 1994, May 1993 and July 1992, and a three-for-two
stock split in fiscal 1992. All earnings per share amounts have been calculated
as if the stock distributions had occurred on March 1, 1991, the beginning of
fiscal 1992. As a result of these stock distributions, the conversion price of
the Company's 6 1/4% Convertible Subordinated Debentures is $14.37 per share
and approximately 7,944,000 shares have been reserved for such conversion.
In December 1993, the Company's Board of Directors authorized the repurchase
of approximately 4,200,000 shares, or approximately 10 percent of the Company's
outstanding common stock. This authorization, in addition to authorizations
remaining from previous years, gives the Company the authority to repurchase a
total of 6,400,000 additional shares, or 15% of its outstanding common stock as
of February 28, 1994. The Company did not acquire any of its common stock in
fiscal 1994 or fiscal 1993.
The Company's Incentive Stock Option Plans provide for granting officers and
other key employees options to purchase the Company's common stock at an
exercise price equal to 100% of the market price on the date of grant. The
options may be exercised in cumulative annual increments of 25% commencing one
year after the date of grant, and have a maximum duration of seven to ten
years. There were 1,449,467 and 1,447,735 shares reserved for the future
granting of options at February 28, 1994 and 1993.
The following table summarizes the Company's stock option transactions for
fiscal 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
----------------- ----------------- ----------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year..................... 737,285 $ 7.65 843,097 $ 4.25 526,175 $2.94
Activity during the year:
Granted................. 13,650 $19.29 233,399 $13.05 342,078 $6.26
Exercised............... (167,314) $ 3.88 (335,738) $ 3.00 (24,941) $2.65
Canceled................ (15,383) $ 9.64 (3,473) $ 6.19 (215) $3.49
-------- -------- -------
Balance at end of year:
Outstanding............. 568,238 $ 8.98 737,285 $ 7.65 843,097 $4.25
======== ======== =======
Exercisable............. 255,050 $ 7.17 258,841 $ 4.12 486,661 $2.90
======== ======== =======
</TABLE>
The Company's Board of Directors established a Restricted Stock Plan in
fiscal 1993. In fiscal 1994, the Company granted certain executives restricted
stock awards with respect to 336,262 shares at $.01 par value per share. As a
result, 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 the grant
date. The restrictions on the stock lapse after a five year period, or sooner
if certain performance measurements of the Company are achieved. Therefore, the
expense will be recognized as it is earned over the restriction period, with
$800,000 recognized as an expense in fiscal 1994. The unearned balance of
$5,800,000 as of February 28, 1994 has been presented as an offset to
additional paid-in capital. Approximately 50,000 shares remain available for
issuance under this plan as of February 28, 1994.
At a special meeting of the company's stockholders in December 1991, the
Company's Certificate of Incorporation was amended to increase the authorized
shares of the Company's common stock, from 25,000,000 to 100,000,000 and to
increase the authorized shares of the Company's preferred stock, from 1,000,000
to 10,000,000. There are no shares of preferred stock outstanding at the
present time.
F-19
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
As a result of the Company's discontinuance and sale of certain of its non-
core businesses in fiscal 1994 and 1993, and its PTI acquisition in June 1993,
it has modified its industry segment definitions and descriptions for fiscal
1994. The Company now classifies its operations into the following three core
business segments:
(i) Power and Fluid Transfer, which includes the design and manufacture
of automotive aftermarket and OEM belts, hose, couplings, accessory drive
systems and fluid transfer assemblies; industrial belts, hose and fittings,
and garden hose.
(ii) Transportation, which includes the design and manufacture of
products and systems for mass transit, such as door systems, lighting, and
informational display devices and applications for bus and rail transit
vehicles; traffic, such as advanced traffic control and management systems,
directional information and warning signs for roads and highways, and
automatic (intelligent) vehicle identification for toll collection and
traffic control; and commercial aviation, such as aircraft interior
lighting and air-diffusion, and aircraft emergency lighting and night
vision compatibility.
(iii) Professional Audio, which includes the design and manufacture of
products and systems used primarily in the high-performance professional
audio market, such as professional performance microphones, speakers,
mixers, and amplifiers; high-fidelity public address and musical instrument
loudspeaker systems; audio signal processors, sound reinforcement
equipment, and sound enhancement and noise canceling equipment.
F-20
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The continuing operations and classifications for fiscal 1993 and 1992 have
been presented in a manner consistent with the information presented for fiscal
1994. All sold or discontinued operations have been excluded from the following
industry segment and geographic information, and included in the Corporate
category where applicable. Information concerning the Company's business
segments for fiscal 1994, 1993 and 1992 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
NET SALES TO CUSTOMERS
Power and Fluid Transfer............. $ 852,100 $ 709,400 $ 635,200
Transportation....................... 218,600 199,500 199,900
Professional Audio................... 173,500 176,800 169,200
---------- ---------- ----------
Total net sales to customers....... $1,244,200 $1,085,700 $1,004,300
========== ========== ==========
OPERATING INCOME
Power and Fluid Transfer............. $ 97,800 $ 79,200 $ 67,000
Transportation....................... 27,000 24,900 27,100
Professional Audio................... 21,900 22,000 23,900
---------- ---------- ----------
Total operating income............. 146,700 126,100 118,000
General corporate.................... (14,900) (12,500) (9,400)
Interest expense and loss on
securities transactions............. (50,100) (51,600) (67,100)
---------- ---------- ----------
Income from continuing operations,
before provision for taxes........ $ 81,700 $ 62,000 $ 41,500
========== ========== ==========
IDENTIFIABLE ASSETS
Power and Fluid Transfer............. $ 826,000 $ 622,500 $ 618,400
Transportation....................... 236,100 220,600 194,900
Professional Audio................... 162,700 158,900 159,400
General corporate.................... 57,500 122,800 131,800
---------- ---------- ----------
Total identifiable assets.......... $1,282,300 $1,124,800 $1,104,500
========== ========== ==========
DEPRECIATION AND AMORTIZATION
Power and Fluid Transfer............. $ 27,500 $ 19,100 $ 16,500
Transportation....................... 7,100 6,700 5,600
Professional Audio................... 4,500 4,400 4,300
General corporate.................... 2,600 1,900 1,900
---------- ---------- ----------
Total depreciation and
amortization...................... $ 41,700 $ 32,100 $ 28,300
========== ========== ==========
CAPITAL OUTLAYS
Power and Fluid Transfer............. $ 31,900 $ 25,800 $ 13,100
Transportation....................... 7,000 6,800 4,300
Professional Audio................... 2,500 1,700 1,600
General corporate.................... -- 1,200 1,700
---------- ---------- ----------
Total capital outlays.............. $ 41,400 $ 35,500 $ 20,700
========== ========== ==========
</TABLE>
Operating income represents total revenues less operating expenses, and
excludes general corporate expenses, interest expense and income taxes.
Litigation costs are considered to be corporate expenses. Identifiable assets
are those assets employed in each segment's operation, including an allocated
value to each segment of cost in excess of net assets acquired. Corporate
assets consist primarily of cash, marketable securities, investments and assets
not employed in production and net assets of discontinued operations.
F-21
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's foreign operations are located primarily in Europe, and to a
lesser extent in Canada and the Far East. Information concerning the Company's
operations by geographic area for fiscal 1994, 1993 and 1992 is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ------------- -------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
NET SALES TO CUSTOMERS
United States.......................... $ 884,500 $ 815,200 $ 798,500
Foreign................................ 359,700 270,500 205,800
---------- ---------- ----------
Total net sales to customers......... $1,244,200 $1,085,700 $1,004,300
========== ========== ==========
OPERATING INCOME
United States.......................... $ 105,700 $ 102,100 $ 99,700
Foreign................................ 41,000 24,000 18,300
---------- ---------- ----------
Total operating income............... $ 146,700 $ 126,100 $ 118,000
========== ========== ==========
IDENTIFIABLE ASSETS
United States.......................... $ 898,700 $ 916,800 $ 873,400
Foreign................................ 383,600 208,000 231,100
---------- ---------- ----------
Total identifiable assets............ $1,282,300 $1,124,800 $1,104,500
========== ========== ==========
</TABLE>
The net sales to customers reflect the sales of the operating units in each
geographic area to unaffiliated customers. Export sales from the United States
to unaffiliated customers were $71,300,000; $67,800,000 and $66,500,000 in
fiscal 1994, 1993, and 1992, respectively. Inter-segment sales are not
material. Sales between geographic areas are accounted for at prices which are
competitive with prices charged to unaffiliated customers.
F-22
<PAGE>
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. QUARTERLY FINANCIAL DATA AND INFORMATION (UNAUDITED)
The following table sets forth the unaudited quarterly results of operations
for each of the fiscal quarters in the years ended February 28, 1994 and 1993.
As a result of the 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 year ended February 28, 1993 have been restated
(dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
FISCAL 1994 QUARTER QUARTER QUARTER QUARTER YEAR
----------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................. $287,800 $316,600 $320,000 $319,800 $1,244,200
Gross profit (a)........... $102,000 $110,800 $113,800 $114,100 $ 440,700
Income from continuing
operations................ $ 13,600 $ 13,100 $ 12,800 $ 11,600 $ 51,100
Extraordinary items........ (21,700) -- -- -- (21,700)
Cumulative effect of
accounting change......... (26,000) -- -- -- (26,000)
-------- -------- -------- -------- ----------
Net income............. $(34,100) $ 13,100 $ 12,800 $ 11,600 $ 3,400
======== ======== ======== ======== ==========
Income per share (b) (c):
Primary:
Continuing operations... $ .32 $ .31 $ .30 $ .27 $ 1.20
Extraordinary items..... (.51) -- -- -- (.51)
Cumulative effect of
accounting change...... (.62) -- -- -- (.61)
-------- -------- -------- -------- ----------
Net income............. $ (.81) $ .31 $ .30 $ .27 $ .08
======== ======== ======== ======== ==========
Fully-diluted:
Continuing operations... $ .29 $ .28 $ .27 $ .25 $ 1.09
Extraordinary items..... (.43) -- -- -- (.43)
Cumulative effect of
accounting change...... (.51) -- -- -- (.51)
-------- -------- -------- -------- ----------
Net income............. $ (.65) $ .28 $ .27 $ .25 $ .15
======== ======== ======== ======== ==========
<CAPTION>
FISCAL 1993
-----------
<S> <C> <C> <C> <C> <C>
Net sales.................. $271,000 $268,600 $270,700 $275,400 $1,085,700
Gross profit (a)........... $ 97,200 $ 95,100 $ 98,000 $ 96,600 $ 386,900
Income from continuing
operations................ $ 10,300 $ 8,900 $ 10,800 $ 9,100 $ 39,100
Income from discontinued
operations................ 1,300 2,400 500 (600) 3,600
Extraordinary items........ -- (400) (1,600) (1,700) (3,700)
-------- -------- -------- -------- ----------
Net income............. $ 11,600 $ 10,900 $ 9,700 $ 6,800 $ 39,000
======== ======== ======== ======== ==========
Income per share (b) (c):
Primary:
Continuing operations... $ .25 $ .21 $ .26 $ .22 $ .93
Discontinued operations. .03 .06 .01 (.02) .09
Extraordinary items..... -- (.01) (.04) (.04) (.09)
-------- -------- -------- -------- ----------
Net income............. $ .28 $ .26 $ .23 $ .16 $ .93
======== ======== ======== ======== ==========
Fully-diluted:
Continuing operations... $ .23 $ .20 $ .24 $ .20 $ .87
Discontinued operations. .02 .05 .01 (.01) .07
Extraordinary items..... -- (.01) (.03) (.03) (.07)
-------- -------- -------- -------- ----------
Net income............. $ .25 $ .24 $ .22 $ .16 $ .87
======== ======== ======== ======== ==========
</TABLE>
- --------
(a) Excluding depreciation expense.
(b) The sum of the quarterly amounts do not equal the total as a result of the
common stock transactions discussed in Note 14. The impact of those
transactions on the determination of the weighted average number of shares
outstanding is different in each quarter, and for the year in total.
(c) Restated to reflect the five percent stock dividend issued in April 1994.
F-23
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
AUGUST 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 700
Accounts receivable............................................... 298,200
Inventories....................................................... 265,300
Other current assets.............................................. 47,700
----------
Total current assets............................................ 611,900
Pension related and other non-current assets........................ 146,200
Property, plant and equipment, net.................................. 369,400
Cost in excess of net assets acquired and deferred charges.......... 208,000
----------
TOTAL ASSETS.................................................... $1,335,500
==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of debt...................... $ 53,000
Accounts payable.................................................. 112,600
Compensation related liabilities.................................. 40,500
Accrued interest.................................................. 14,800
Accrued expenses and other liabilities............................ 71,900
Income taxes payable.............................................. 8,800
----------
Total current liabilities....................................... 301,600
----------
Long-Term Debt:
Senior debt....................................................... 178,900
Subordinated debentures........................................... 372,200
----------
Total long-term debt............................................ 551,100
----------
Other non-current liabilities....................................... 100,300
----------
Stockholders' Equity:
Common stock...................................................... 400
Additional paid-in capital........................................ 262,600
Retained earnings................................................. 120,000
Foreign currency translation adjustment........................... (500)
----------
Total stockholders' equity...................................... 382,500
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY........................ $1,335,500
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED AUGUST 31, 1994 AND 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales.................................................. $721,000 $604,500
-------- --------
Operating costs:
Cost of products sold.................................... 468,600 391,600
Selling and administration............................... 133,300 110,300
Research and development................................. 15,600 15,300
Depreciation and amortization............................ 23,200 19,800
-------- --------
Total operating costs.................................. 640,700 537,000
-------- --------
Operating income......................................... 80,300 67,500
Interest expense........................................... 25,300 24,900
-------- --------
Income before provision for income taxes................. 55,000 42,600
Provision for income taxes................................. 21,200 15,900
-------- --------
Income before extraordinary items and cumulative effect
of accounting change.................................... 33,800 26,700
Extraordinary items, net of tax............................ -- (21,700)
Cumulative effect of accounting change..................... -- (26,000)
-------- --------
Net income (loss)........................................ 33,800 (21,000)
Retained earnings--beginning of the period................. 88,600 128,300
Cash dividends of $.055 and $.048 per share................ (2,400) (2,000)
-------- --------
Retained earnings--end of the period..................... $120,000 $105,300
======== ========
Net income per share of common stock:
Primary:
Income before extraordinary items and accounting change. $ .79 $ .63
Extraordinary items..................................... -- (.51)
Cumulative effect of accounting change.................. -- (.62)
-------- --------
Net income (loss)...................................... $ .79 $ (.50)
======== ========
Fully-diluted:
Income before extraordinary items and accounting change. $ .71 $ .57
Extraordinary items..................................... -- (.43)
Cumulative effect of accounting change.................. -- (.51)
-------- --------
Net income (loss)...................................... $ .71 $ (.37)
======== ========
Weighted average number of shares outstanding:
Primary.................................................. 42,737 42,276
======== ========
Fully-diluted............................................ 51,027 50,589
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED AUGUST 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary items........................ $ 33,800 $ 26,700
Items not affecting cash:
Depreciation and amortization........................... 23,200 19,800
Pensions and other...................................... (5,000) (5,300)
-------- --------
Net cash provided by earnings.......................... 52,000 41,200
Other adjustments to reconcile income to net cash pro-
vided by (used in) operating activities:
Changes in assets and liabilities, net of effects of
businesses acquired:
Accounts receivable.................................... (20,600) 7,300
Inventories............................................ 2,000 (12,100)
Other assets........................................... (5,600) (11,800)
Accounts payable....................................... 11,800 (1,800)
Other liabilities...................................... 6,100 (11,100)
-------- --------
Net cash provided by operations........................ 45,700 11,700
Extraordinary items, before deferred charges............. -- (30,000)
-------- --------
Net cash provided by (used in) operating activities..... 45,700 (18,300)
-------- --------
Cash flows from investing activities:
Acquisitions and divestitures, net....................... (12,700) (31,500)
Purchase of plant and equipment............................ (16,300) (20,400)
-------- --------
Net cash used in investing activities................... (29,000) (51,900)
-------- --------
Cash flows from financing activities:
Credit agreement borrowings, net......................... (15,300) (8,100)
Purchases of subordinated debt........................... -- (190,200)
Issuance of senior subordinated notes.................... -- 258,000
Other changes in debt, net............................... 1,000 11,000
Common stock transactions................................ 300 500
Cash dividends paid...................................... (2,400) (2,000)
-------- --------
Net cash provided by (used in) financing activities..... (16,400) 69,200
-------- --------
Effect of exchange rate fluctuations..................... (100) (200)
-------- --------
Net increase (decrease) in cash......................... 200 (1,200)
Cash and cash equivalents:
Beginning of the year.................................. 500 2,700
-------- --------
End of the period...................................... $ 700 $ 1,500
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
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 August 31, 1994, and the results of its operations and its
cash flows for the six month period ended August 31, 1994 and 1993. Such
results are not necessarily indicative of the results to be expected for the
full year.
2. Accounts receivable are presented net of allowances for doubtful accounts of
$19,800,000 at August 31, 1994.
3. Inventories consist of the following components at August 31, 1994 (dollars
in thousands):
<TABLE>
<S> <C>
Raw materials, parts and sub-assemblies............................ $ 79,400
Work-in-process.................................................... 44,800
Finished goods..................................................... 141,100
--------
Inventories...................................................... $265,300
========
</TABLE>
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
August 31, 1994.
4. Property, plant and equipment is stated at cost and consists of the
following components at August 31, 1994 (dollars in thousands):
<TABLE>
<S> <C>
Land and land improvements......................................... $ 35,800
Buildings.......................................................... 117,900
Machinery and equipment............................................ 348,600
--------
Total property, plant and equipment.............................. 502,300
Less accumulated depreciation...................................... 132,900
--------
Property, plant and equipment, net............................... $369,400
========
</TABLE>
5. For purposes of cash flows, the Company considers overnight investments as
cash equivalents. The Company paid interest of approximately $24,800,000 and
$27,000,000 in the six-month periods ended August 31, 1994 and 1993,
respectively. Such amounts include $700,000 and $1,100,000 allocated to the
costs of discontinued operations in the six month periods ended August 31,
1994 and 1993, respectively. The Company also paid income taxes of
approximately $6,100,000 and $10,300,000 in the six month periods ended
August 31, 1994 and 1993, respectively.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Purolator Products Company:
We have audited the accompanying consolidated balance sheets of Purolator
Products Company (a Delaware corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1993, 1992
and 1991. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Purolator
Products Company and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for the years ended December
31, 1993, 1992, and 1991 in conformity with generally accepted accounting
principles.
As explained in Note 5 to the consolidated financial statements, effective
January 1, 1991, the Company changed its method of accounting for
postretirement benefit costs other than pensions.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
February 11, 1994
F-28
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
------------ ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 5,707 $ 3,411
Trade accounts receivable, net..................... 63,766 63,834
Inventories, net................................... 73,473 87,130
Other current assets............................... 8,610 9,222
------------ ------------
Total Current Assets........................... 151,556 163,597
Land, buildings and equipment, net................. 75,551 72,239
Investments........................................ 11,905 7,767
Intangible assets, net............................. 110,800 116,128
Other assets....................................... 9,255 4,735
------------ ------------
Total Assets................................... $ 359,067 $ 364,466
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 4,243 $ 3,936
Accounts payable................................... 32,387 31,465
Accrued liabilities................................ 36,109 27,224
------------ ------------
Total Current Liabilities...................... 72,739 62,625
Long-term debt, less current maturities............ 38,971 69,039
Other noncurrent liabilities....................... 73,745 74,548
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value per share,
10,000,000 shares authorized, no shares issued or
outstanding...................................... -- --
Common stock, $.01 par value per share,
30,000,000 shares authorized, 11,212,500 and
10,112,500 shares issued and outstanding......... 112 101
Additional paid-in capital......................... 326,944 311,437
Accumulated deficit................................ (140,573) (151,230)
Additional minimum pension liability............... (10,424) (1,002)
Cumulative translation adjustment.................. (2,447) (1,052)
------------ ------------
Total Stockholders' Equity..................... 173,612 158,254
------------ ------------
Total Liabilities and Stockholders' Equity..... $ 359,067 $ 364,466
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales......................................... $435,821 $417,888 $401,690
Cost of sales..................................... 333,488 318,507 310,265
-------- -------- --------
Gross Profit...................................... 102,333 99,381 91,425
Selling, general and administrative expenses...... 84,577 83,349 82,157
Nonrecurring charges.............................. -- 2,888 39,980
-------- -------- --------
Operating Income (Loss)........................... 17,756 13,144 (30,712)
Interest expense.................................. 4,119 8,475 9,059
Other income...................................... 2,182 3,661 2,191
-------- -------- --------
Income (Loss) Before Income Taxes and Equity in
Income (Loss) of Affiliates...................... 15,819 8,330 (37,580)
Income tax provision (benefit).................... 461 (1,966) (1,015)
Equity in income (loss) of affiliates............. 2,475 795 (1,445)
-------- -------- --------
Income (Loss) Before Cumulative Effect of Change
in Accounting
Principle........................................ 17,833 11,091 (38,010)
======== ======== ========
Cumulative effect of change in accounting princi-
ple.............................................. -- -- (17,317)
-------- -------- --------
Net income (loss)................................. $ 17,833 $ 11,091 $(55,327)
Earnings (loss) per share:
Income (Loss) Before Cumulative Effect of Change
in Accounting Principle.......................... $ 1.59 $ 1.29 $ (4.47)
Cumulative Effect of Change in Accounting Princi-
ple.............................................. -- -- (2.04)
-------- -------- --------
Net Income (Loss)................................. $ 1.59 $ 1.29 $ (6.51)
======== ======== ========
Weighted Average Shares Outstanding............... 11,182 8,550 8,500
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
ADDITIONAL MINIMUM CUMULATIVE
PAID-IN ACCUMULATED PENSION TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT LIABILITY ADJUSTMENT TOTAL
---------- ------ ---------- ----------- ---------- ----------- --------
(EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1991................... 8,500,000 $ 85 $263,831 $(106,994) $ (1,423) $ 1,318 $156,817
Changes in Additional
Minimum Pension Liabil-
ity.................... -- -- -- -- 92 -- 92
Translation Adjustment.. -- -- -- -- -- 462 462
Net Loss................ -- -- -- (55,327) -- -- (55,327)
---------- ---- -------- --------- -------- ------- --------
Balance, December 31,
1991................... 8,500,000 85 263,831 (162,321) (1,331) 1,780 102,044
Translation Adjustment.. -- -- -- -- -- (2,832) (2,832)
Changes in Additional
Minimum Pension Liabil-
ity.................... -- -- -- -- 329 -- 329
Issuance of Stock, net.. 1,612,500 16 22,645 -- -- -- 22,661
Environmental Indemnifi-
cation by Former Par-
ent.................... -- -- 17,700 -- -- -- 17,700
Capital Contribution by
Former
Parent................. -- -- 7,261 -- -- -- 7,261
Net Income.............. -- -- -- 11,091 -- -- 11,091
---------- ---- -------- --------- -------- ------- --------
Balance, December 31,
1992................... 10,112,500 101 311,437 (151,230) (1,002) (1,052) 158,254
Translation Adjustment.. -- -- -- -- -- (1,395) (1,395)
Changes in Additional
Minimum Pension Liabil-
ity.................... -- -- -- -- (9,422) -- (9,422)
Issuance of Stock, net.. 1,100,000 11 15,507 -- -- -- 15,518
Dividends Paid ($0.64
per share of Common
Stock)................. -- -- -- (7,176) -- -- (7,176)
Net Income.............. -- -- -- 17,833 -- -- 17,833
---------- ---- -------- --------- -------- ------- --------
Balance, December 31,
1993................... 11,212,500 $112 $326,944 $(140,573) $(10,424) $(2,447) $173,612
========== ==== ======== ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1992 1991
--------- --------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 17,833 $ 11,091 $(55,327)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating ac-
tivities:
Depreciation and amortization................. 13,567 14,651 14,732
Equity in (income) loss of affiliates......... (2,475) (795) 1,445
Provision for losses on receivables........... 1,142 1,604 1,537
Provision for inventory reserves.............. 2,949 3,474 7,811
Interest accretion on postretirement employee
benefits obligations......................... 3,348 4,513 5,927
Amortization of debt origination costs........ 611 -- --
Nonrecurring charges.......................... -- 2,888 39,980
Write-downs of buildings and equipment........ -- 426 4,085
Change in operating assets and liabilities,
net of effects from acquisitions and disposi-
tions:
(Increase) decrease in receivables........... (1,217) (3,888) 12,980
(Increase) decrease in inventories........... 10,708 (16,149) 2,638
(Increase) decrease in other current assets.. 3,483 (2,407) (360)
(Increase) decrease in other noncurrent as-
sets........................................ (4,465) 1,012 1,675
Increase (decrease) in accounts payable...... 922 (4,464) 4,731
Decrease in other current liabilities........ (1,689) (7,166) (25,009)
Decrease in other noncurrent liabilities..... (489) (1,773) (1,211)
Increase (decrease) in postretirement em-
ployee benefits obligations................. (3,520) (3,472) 14,155
Other, net................................... (1,363) (2,539) 1,437
--------- --------- --------
Total adjustments............................ 21,512 (14,085) 86,553
--------- --------- --------
Net cash provided by (used in) operating ac-
tivities.................................... 39,345 (2,994) 31,226
--------- --------- --------
Cash flows from investing activities:
Capital expenditures......................... (13,552) (10,835) (7,905)
Other, net................................... 177 830 122
Investment in Purodenso...................... (2,000) (2,500) (2,500)
--------- --------- --------
Net cash used in investing activities......... (15,375) (12,505) (10,283)
--------- --------- --------
Cash flows from financing activities:
Proceeds from note payable to Former Parent. -- 67,000 46,000
Payments on note payable to Former Parent... -- (142,044) (63,665)
Debt origination costs...................... (272) (2,085) --
Proceeds from stock issuance................ 15,518 21,150 --
Proceeds from long-term debt................ 117,829 71,972 1,842
Payments on long-term debt.................. (147,573) (3,878) (2,911)
Dividends paid.............................. (7,176) -- --
--------- --------- --------
Net cash provided by (used in) financing ac-
tivities................................... (21,674) 12,115 (18,734)
--------- --------- --------
Increase (decrease) in cash and cash equiva-
lents...................................... 2,296 (3,384) 2,209
Cash and cash equivalents, beginning of pe-
riod....................................... 3,411 6,795 4,586
--------- --------- --------
Cash and cash equivalents, end of period.... $ 5,707 $ 3,411 $ 6,795
========= ========= ========
Supplemental disclosures of cash flow informa-
tion:
Interest payments........................... $ 3,125 $ 9,112 $ 8,760
Tax payments................................ 4,818 907 369
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Effective December 21, 1992, Pennzoil Company ("Pennzoil" or the "Former
Parent") together with Purolator Products Company, a Delaware corporation
("Purolator" or the "Company"), sold 10,000,000 shares of common stock of
Purolator in concurrent domestic and international public offerings. Purolator
did not receive any of the proceeds from the sales of shares held by the Former
Parent (8,500,000). As a result of the completion of the offerings, the Former
Parent does not own any shares of capital stock of the Company. On January 11,
1993, the Company sold 1,100,000 shares of common stock pursuant to the partial
exercise of the over-allotment options granted to the underwriters in
connection with the public offerings.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Purolator and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Translation
Foreign currency transactions and financial statements are translated in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
Foreign Currency Translation. Assets and liabilities are translated to U.S.
dollars at the current exchange rate at the end of the period. Income and
expense accounts are translated using the weighted average exchange rate for
the period. Adjustments arising from translation of foreign financial
statements are reflected in the cumulative translation adjustment in the equity
section of the consolidated balance sheet. Transaction gains and losses are
included in net income (loss).
The Company enters into forward foreign exchange contracts to hedge the
effect of fluctuating currency rates on certain liabilities, such as accounts
payable, that are denominated in foreign currencies. The contracts typically
provide for the exchange of different currencies at specified future dates and
rates. The gain or loss due to the difference between the forward exchange
rates of the contracts and current rates offsets in whole or in part the loss
or gain on the liabilities being hedged.
Inventories
Substantially all inventories are reported at cost, using the first-in,
first-out (FIFO) method, which is lower than market.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Depreciation is provided
generally on a straight-line basis over the estimated service lives of the
respective classes of property. Estimated service lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements................................................... 10-35
Leasehold improvements.............................................. 3-30
Buildings and improvements.......................................... 3-66
Machinery and equipment............................................. 3-18
</TABLE>
F-33
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization of leasehold improvements is based upon the terms of the
respective leases. Maintenance, repairs and betterments, including replacement
of minor items of physical properties, are charged to expense; major additions
to physical properties are capitalized. The cost of the assets retired or sold
is credited to the asset accounts and the related accumulated depreciation is
charged to the accumulated depreciation accounts. The gain or loss from sale or
retirement of property, if any, is included in net income (loss).
Investments
Common stock investments in entities in which the Company owns equity
interests ranging from 20 percent to 50 percent are accounted for under the
equity method, pursuant to which the Company's share of the affiliate's
operating results is included in net income (loss).
Intangible Assets
Intangible assets include goodwill which represents the excess of cost over
the amount ascribed to the net assets of ongoing businesses purchased and is
being amortized on a straight-line basis over a 40-year period.
The cost of internally developed patents is charged to expense as incurred.
Purchased patents are amortized over their estimated economic lives.
Interest Rate Swap Agreement
During 1993, the Company entered into an interest rate swap agreement which
involved the exchange of fixed and floating rate interest payments periodically
over the life of the agreement without the exchange of the underlying principal
amounts. The differential to be paid or received is recorded as an adjustment
to interest expense over the life of the agreement.
Federal, State and Foreign Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes, which uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The Company and its United States subsidiaries are included in the Former
Parent's consolidated United States federal income tax returns for the year
ended December 31, 1991 and the period from January 1, 1992 through December
21, 1992. The Company and the Former Parent previously entered into a tax
sharing agreement ("Tax Sharing Agreement") which was intended to put the
Company in the same position with regard to the amount of federal income taxes
that it would pay if it filed a separate tax return. The agreement also
provided that the Company would be reimbursed by the Former Parent for any tax
losses or credits of the Company utilized by the Former Parent consolidated
return group. The Tax Sharing Agreement was terminated effective September 30,
1992. The Company received no benefit for federal income tax losses which were
generated during the period October 1, 1992 through December 21, 1992. The
Company filed a separate federal income tax return for the period from December
22, 1992 through December 31, 1992.
F-34
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized Leases
Assets and related obligations under certain long-term leases are
capitalized. The related depreciation and the imputed interest expense are
charged against income in lieu of lease rental expense.
Earnings (Loss) Per Share
Earnings (loss) per share are calculated by dividing net income (loss) by the
weighted average number of shares of common stock outstanding. Stock options
have been excluded from the calculations as their dilutive effect is not
significant.
Cash Flows Information
For purposes of the consolidated statements of cash flows, all highly liquid
investments purchased with a maturity of three months or less are considered to
be cash equivalents. The effect of changes in foreign exchange rates on cash
balances is immaterial.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-term Investments:
The carrying amount approximates fair value because of the short maturity of
those instruments.
Notes Receivable:
The carrying amount approximates fair value because interest rates are at or
close to a reasonable market rate.
Long-term Debt:
The carrying amount approximates fair value because of the frequent repricing
on revolving facilities.
Forward Foreign Exchange Contracts:
The fair value of forward foreign exchange contracts is estimated by
obtaining a quote from a commercial bank. The carrying amount approximates fair
value.
Interest Rate Swap Agreement:
The fair value of the Company's interest rate swap agreement is the estimated
amount that the Company would receive or pay to terminate the agreement. Based
on a quote from a commercial bank, the carrying amount of the swap agreement
approximates the fair value.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentations. These reclassifications have no impact on net income
(loss).
F-35
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
------------ ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable:
Trade receivables................................. $ 72,304 $ 72,124
Less allowances................................... 8,538 8,290
------------ ------------
Total, net...................................... $ 63,766 $ 63,834
============ ============
Inventories:
Finished goods.................................... $ 41,271 $ 51,442
Work in progress.................................. 7,039 7,375
Raw materials and supplies........................ 27,850 33,124
------------ ------------
Total........................................... 76,160 91,941
Less reserves..................................... 2,687 4,811
------------ ------------
Total, net...................................... $ 73,473 $ 87,130
============ ============
Land, buildings and equipment:
Land and improvements............................. $ 6,278 $ 6,292
Leasehold improvements............................ 5,806 5,644
Buildings and improvements........................ 23,752 23,265
Machinery and equipment........................... 69,120 64,817
Construction in progress.......................... 14,878 9,230
------------ ------------
Total........................................... 119,834 109,248
Less accumulated depreciation and amortization.... 44,283 37,009
------------ ------------
Total, net...................................... $ 75,551 $ 72,239
============ ============
Intangible assets:
Goodwill (Note 4)................................. $ 127,078 $ 130,308
Other............................................. 5,628 4,436
------------ ------------
Total........................................... 132,706 134,744
Less accumulated amortization..................... 21,906 18,616
------------ ------------
Total, net...................................... $ 110,800 $ 116,128
============ ============
Accrued liabilities:
Salaries and wages................................ $ 4,856 $ 4,828
Employee pensions................................. 12,885 5,469
Advertising....................................... 3,100 4,189
Other............................................. 15,268 12,738
------------ ------------
Total........................................... $ 36,109 $ 27,224
============ ============
Other noncurrent liabilities:
Postretirement employee benefits obligations...... $ 64,280 $ 64,452
Other............................................. 9,465 10,096
------------ ------------
Total........................................... $ 73,745 $ 74,548
============ ============
</TABLE>
F-36
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Allowance for accounts receivable:
Balance, beginning of period................ $ 8,290 $ 10,347 $ 13,032
Provision for losses on receivables......... 1,142 1,604 1,537
Receivables written off, net of recoveries.. (894) (3,661) (4,222)
-------- -------- --------
Balance, end of period...................... $ 8,538 $ 8,290 $ 10,347
======== ======== ========
Allowance for inventories:
Balance, beginning of period................ $ 4,811 $ 9,148 $ 7,744
Provision................................... 2,949 3,474 7,811
Inventories written off and other adjust-
ments...................................... (5,073) (7,811) (6,407)
-------- -------- --------
Balance, end of period...................... $ 2,687 $ 4,811 $ 9,148
======== ======== ========
Accumulated amortization of intangible assets:
Balance, beginning of period................ $ 18,616 $ 13,853 $ 10,388
Provision................................... 3,259 3,519 3,599
Retirements and other....................... 31 1,244 (134)
-------- -------- --------
Balance, end of period...................... $ 21,906 $ 18,616 $ 13,853
======== ======== ========
</TABLE>
3. DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
------------ ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Revolving credit facility with a group of banks,
interest at 6.1%................................. $ 10,000 $ 30,000
Term credit agreement with a group of banks, in-
terest at 5.6%................................... 31,000 40,000
Capital building lease obligation, payable in
quarterly installments ranging from $14,600 to
$56,750, including interest, through March 2036.. 2,047 2,129
Other debt and capital lease obligations.......... 167 846
------------ ------------
43,214 72,975
Less--current maturities.......................... 4,243 3,936
------------ ------------
Total long-term amount............................ $ 38,971 $ 69,039
============ ============
</TABLE>
The Company amended its credit facility with a group of banks and Texas
Commerce Bank National Association ("TCB"), as agent, (the "Credit Facility")
during the fourth quarter of 1993. The amended agreement expands the total
funds available under the revolving credit agreement by $20.0 million. The
Credit Facility provides the Company with the ability to make individual
acquisitions up to $20.0 million without the consent of the lenders under the
Credit Facility and up to $45.0 million in the aggregate ("permitted
acquisitions"). At December 31, 1993, the Credit Facility provided for a $65.0
million revolving credit facility (the "Revolving Credit Facility") and a $31.0
million term loan (the "Term Loan"). Up to $7.0 million of the Revolving Credit
Facility is available for the issuance of letters of credit. The aggregate
amount available for borrowing under the Revolving Credit Facility is limited
to an amount equal to a specified borrowing base (generally consisting of 80
percent of certain accounts receivable balances and 45 percent of certain
inventory balances of the Company and certain subsidiaries, with the inventory
portion of the borrowing base not to exceed 50 percent of the borrowing base).
At December 31, 1993, the Credit Facility provided for
F-37
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
quarterly principal payments on the Term Loan of $1.0 million beginning on
March 31, 1994, escalating to $1.44 million on March 31, 1996. The final
maturities of the Revolving Credit Facility and the Term Loan are four years
and seven years, respectively, from the establishment of the original credit
facility ("TCB Credit Facility") on December 14, 1992. Interest on the
Revolving Credit Facility is at a variable rate equal to, at the option of the
Company, LIBOR plus 1.75 percent, or the agent bank's "base rate" plus one
percent. Interest on the Term Loan is at a variable rate equal to, at the
option of the Company, LIBOR plus two percent, or the agent bank's "base rate"
plus one percent. The interest rates for both the Revolving Credit Facility and
the Term Loan are subject to reduction based upon the ratio of the total
committed debt under the Credit Facility to the Company's earnings before
interest, taxes, depreciation, obsolescence and amortization ("EBITDA").
Borrowings under the Credit Facility are collateralized by liens on
substantially all accounts receivable and inventory and certain patents and
trademarks of the Company and certain subsidiaries, together with a pledge of
all the capital stock of such subsidiaries, and are guaranteed by certain of
those subsidiaries. The terms of the Credit Facility require the Company to
meet certain financial covenants. The primary financial covenants require that
the company maintain (i) net worth; as defined, $175.1 million at December 31,
1993; (ii) a current ratio greater than 1.5-to-1.0; and (iii) a fixed charge
coverage ratio greater than 1.25-to-1.0 (1.0-to-1.0 inclusive of dividends).
Additionally, certain covenants contained in the Credit Facility, among other
things, generally (i) restrict the Company's incurrence of additional
indebtedness or contractual contingent obligations to an aggregate of $7.5
million; (ii) prohibit the encumbrance of the Company's assets and the creation
of negative pledges; (iii) restrict the transfer of the Company's assets
(including dispositions of capital stock of certain of the Company's
subsidiaries); (iv) prohibit the Company from engaging in any merger,
consolidation or asset disposition transaction (except for disposition of
previously scheduled non-producing assets); and (v) limit the Company's
investments, other than permitted acquisitions, and extensions of credit in
excess of $3.0 million.
The Company leases certain of its plant facilities and equipment under
capital leases. Lease payments are scheduled to coincide with the liquidation
of the related debt obligations of the lessors.
Future maturities of long-term debt and the minimum future annual obligations
on all capitalized leases in effect as of December 31, 1993 are presented in
the table below (expressed in thousands):
<TABLE>
<CAPTION>
AGGREGATE
MATURITIES
----------
<S> <C>
1994.............................................................. $ 4,358
1995.............................................................. 4,249
1996.............................................................. 15,987
1997.............................................................. 5,987
1998.............................................................. 5,985
Thereafter........................................................ 8,820
-------
Total future maturities and minimum payments...................... 45,386
Less--amount representing interest on capital leases.............. 2,172
-------
Future maturities and present value of net minimum payments....... 43,214
Less--current portion............................................. 4,243
-------
$38,971
=======
</TABLE>
At December 31, 1993, the Company had available revolving credit facilities
aggregating $67.3 million with $10.1 million drawn under these facilities.
F-38
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As required by the Credit Facility, the Company entered into an interest rate
agreement during 1993 to effectively fix or place a limit upon the interest
payable with respect to at least 50% of the principal amount of the Term Loan.
At December 31, 1993, the Company had outstanding an interest rate swap
agreement with a commercial bank. Under the interest rate swap agreement, the
Company pays an effective fixed interest rate of approximately 6.7% on a
notional principal amount of $17.0 million. The agreement expires in 1996.
4. INCOME TAXES:
Income (loss) before income taxes and equity in income (loss) of affiliates
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------- ------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Domestic......................................... $15,988 $ 9,352 $(37,005)
Foreign.......................................... (169) (1,022) (575)
------- ------- --------
Total........................................ $15,819 $ 8,330 $(37,580)
======= ======= ========
</TABLE>
Federal, state and foreign income tax provision (benefit) consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. federal and state...................... $ 7,516 $ (2,555) $ (1,610)
Foreign..................................... 461 589 595
-------- -------- --------
Total current provision (benefit)......... $ 7,977 $ (1,966) $ (1,015)
======== ======== ========
Deferred:
U.S. federal and state...................... $(7,516) -- --
Foreign..................................... -- -- --
-------- -------- --------
Total deferred benefit.................... $ (7,516) -- --
======== ======== ========
Total provision (benefit)..................... $ 461 $ (1,966) $ (1,015)
======== ======== ========
</TABLE>
A reconciliation of federal statutory and effective income tax rates is shown
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
STATUTORY RATE................................. 35.0% 34.0 % (34.0)%
INCREASES (REDUCTIONS) RESULTING FROM:
Nonrecognition of deferred tax assets........ -- (58.7) 25.5
Recognition of previously reserved tax as-
sets........................................ (41.2) -- --
Reimbursed tax losses from Former Parent..... -- (31.0) 3.1
Amortization of goodwill..................... 6.1 12.9 2.1
State income taxes........................... -- 1.9 0.1
Foreign income and losses.................... 0.8 3.9 2.5
Foreign income taxes......................... 2.5 6.5 1.1
Other, net................................... (0.7) 8.9 (2.2)
------- ------- -------
EFFECTIVE RATE................................. 2.5% (21.6)% (1.8)%
======= ======= =======
</TABLE>
F-39
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted SFAS No. 109, Accounting for Income Taxes, effective
January 1, 1993. There was no cumulative effect of adopting SFAS No. 109 on net
income for the year ended December 31, 1993. Deferred income taxes reflect the
net tax effects of (i) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (ii) operating loss and tax credit carryforwards.
The effects of significant items comprising the Company's net deferred tax
asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------- ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Fixed asset basis differences.............. $ (6,235) $ (6,156)
Other...................................... (8,265) (8,260)
------------ ------------
Total deferred tax liabilities........... (14,500) (14,416)
------------ ------------
Deferred tax assets:
Postretirement employee benefits obliga-
tions..................................... $ 25,985 $ 26,004
Environmental reserve not currently deduct-
ible...................................... 3,431 3,644
Inventory capitalization under Section 263A
of the Internal Revenue Code.............. 3,108 3,506
Reserves not currently deductible.......... 9,119 9,887
Additional minimum pension liability....... 4,158 --
Other...................................... 13,362 11,609
------------ ------------
Total deferred tax assets................ 59,163 54,650
Valuation allowance for deferred tax assets.. (37,147) (40,234)
------------ ------------
22,016 14,416
------------ ------------
Net deferred tax asset................... $ 7,516 $ --
============ ============
</TABLE>
Due to its recent history of losses, the Company applied valuation allowances
against all of its net deferred tax assets as of January 1, 1993. The net
change of $3.1 million in the valuation allowance was attributable to (i)
current year temporary differences, (ii) federal and state current income taxes
paid or payable, and (iii) utilization of pre-acquisition net operating loss
carryforwards to reduce goodwill.
At December 31, 1993, the Company had net operating loss carryforwards of
$3.4 million available to offset future federal taxable income. The net
operating loss carryforwards expire as follows: $1.1 million in 2003 and $2.3
million in 2004. The future utilization of these net operating loss
carryforwards will result in a reduction of goodwill. The Company has net state
operating loss carryforwards of $14.5 million available to offset future state
taxable income. The state net loss carryforwards begin to expire in 1999.
5. BENEFIT PLANS:
Stock Option Plans
In November 1992, the Company established the 1992 Stock Option Plan ("1992
Plan"). Awards under the 1992 Plan are to be made to those persons who hold
positions of responsibility and whose performance can have a significant effect
on the success of the Company and its subsidiaries. An award consists of an
option to purchase a specified number of shares of common stock at a specified
price that is not less than the fair market value of the common stock on the
date of grant of the option. All options granted under the 1992 Plan are ten-
year non-qualified options and become exercisable in 33 1/3% increments on each
of the first,
F-40
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
second and third anniversaries of the date of grant. The Company has reserved
387,500 shares of common stock for awards made under the 1992 plan.
In May 1993, the stockholders approved the 1993 Nonemployee Director Stock
Option Plan ("1993 Plan"). The 1993 Plan is intended as an incentive to attract
and retain, as independent directors of the Company, persons of training,
experience and ability, to encourage the sense of proprietorship of such
persons and to stimulate their active interest in the development and financial
success of the Company. Under the 1993 Plan, nonemployee members of the
Company's board of directors receive nondiscretionary automatic grants of non-
qualified options to purchase 500 shares of common stock upon becoming a
director of the Company (persons who were serving as nonemployee directors as
of May 20, 1993, the date of implementation of the plan, were granted their 500
share options as of that date). In addition, beginning in 1994, each person
serving as a nonemployee director on January 1 of each calendar year will
automatically be granted options to purchase an additional 1,000 shares of
common stock, subject to the availability for issuance of such shares under the
1993 Plan. All options granted under the 1993 Plan have an exercise price equal
to the fair market value of the underlying common stock on the date of the
grant and become exercisable in increments of 50% on the first anniversary of
the date of grant and 25% on each of the second and third anniversaries of the
date of grant. The Company has reserved 50,000 shares of common stock for
awards made under the 1993 Plan.
Long-Term Incentive Plan
In February 1994, the Company adopted the 1994 Long-Term Incentive Plan
("1994 Plan"). The 1994 Plan is intended to provide an incentive that will
allow the Company to retain key executives and other selected employees and
reward them for making major contributions to the success of the Company and
its subsidiaries. Awards that can be made under the 1994 Plan include (i) stock
options (both non-qualified stock options and incentive stock options); (ii)
stock appreciation rights; (iii) stock; and (iv) cash. The exercise price of
stock options granted under the 1994 Plan may not be less than the par value of
the underlying common stock on the date of grant of the option. The Company has
reserved 500,000 shares of common stock for awards granted under the 1994 Plan.
All awards made under the 1994 Plan for the year ended December 31, 1993 were
in the form of non-qualified stock options with exercise prices equal to the
fair market value of the underlying stock on the date of grant.
The number and option price of options granted under the Company's stock
option plans and long-term incentive plan were as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1992..................... -- --
Granted.......................................... 287,000 $15.00
Exercised........................................ -- --
Cancelled........................................ -- --
------- --------------
Outstanding at December 31, 1992................... 287,000 $15.00
Granted.......................................... 132,430 $17.75--$19.75
Exercised........................................ -- --
Cancelled........................................ (4,910) $15.00
------- --------------
Outstanding at December 31, 1993................... 414,520 $15.00--$19.75
======= ==============
Exercisable at December 31, 1993................... 94,030 $15.00
======= ==============
</TABLE>
F-41
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Shares of common stock reserved for future grants at December 31, 1993 and
1992 were 522,980 and 100,500, respectively.
Deferred Compensation Plan
In November 1993, the Company adopted the Deferred Compensation Plan (the
"Plan") as an incentive for certain employee directors, officers and other key
employees of the Company or its subsidiaries to encourage them to remain in the
employ of the Company or of its subsidiaries. The Plan, which is treated as an
unfunded non-qualified deferred compensation plan, enables eligible employees
to defer the receipt of a portion of their compensation for a fixed period of
years, until their employment terminates. Participants' account balances are
valued at the greater of the share value or the dollar value, as defined in the
Plan. The share value of a participant's account balance is the market value of
the number of shares of common stock that could have been purchased by the
participant with the deferral amounts, including dividend reinvestment. The
dollar value represents the value of the deferral amounts adjusted for compound
interest that would have been earned on the deferral amounts assuming
allocation of interest at the Applicable Interest Rate established quarterly by
the Internal Revenue Service. The Company accrued no additional compensation
expense related to the Plan for the year ended December 31, 1993.
Retirement Plans
The Company and certain of its subsidiaries maintain three noncontributory
defined benefit pension plans (the Employees' Pension Plan, the Hourly
Employees' Pension Plan, and the Retirement Plan for Employees of UAW Local
604, Elmira, NY, the ("Elmira Plan") covering certain salaried and hourly
employees, former employees and retirees. Under these plans, the Company
contributes an amount equal to or greater than the minimum funding requirements
of the Employee Retirement Income Security Act of 1974 as amended, ("ERISA"),
where applicable, but not in excess of the maximum amount that can be deducted
for federal income tax purposes. Benefits under the Employees' Pension Plan are
generally based on the employees' years of service and compensation during
years of service. Benefits under the Hourly Employees' Pension Plan are
generally based on years of service multiplied by a specified dollar amount.
The Company previously maintained a defined contribution plan, the Hourly
Employees' Target Benefit Plan (the "Target Plan"), and a defined benefit plan,
the Hourly Employees' Supplemental Retirement Plan (the "Supplemental Plan").
The Target Plan covered the current hourly employees of the Motor Components
Division of the Automotive Products Segment and the former hourly employees of
the Motor Components, Filter Products and Fuel Devices Divisions who previously
were covered by a collective bargaining agreement with the United Automotive
Workers Union. The Supplemental Plan covered employees and former employees who
were participants of a defined benefit pension plan (the "Terminated Hourly
Plan") that was terminated by the Company in 1980 under the provisions of
ERISA. The Target Plan and Supplemental Plan were adopted in connection with
the termination of the Terminated Hourly Plan. Under the Target Plan, the
Company was obligated to make periodic contributions to a trust fund based on
each covered employee's credited hours of service to the Company. The
Supplemental Plan provided that the Company make periodic contributions
sufficient to fund benefits equal to the benefits that retirees (or their
spouses) would have received had the Terminated Hourly Plan not been
terminated, less the sum of the amounts paid to such persons (i) by the Pension
Benefit Guaranty Corporation with respect to the Terminated Hourly Plan and
(ii) all amounts paid under the Target Plan. Effective April 15, 1992, the
Supplemental and Target Plans were combined into a single defined benefit plan
which is the Elmira Plan.
F-42
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------- ------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the peri-
od............................................ $ 1,793 $ 1,531 $ 1,364
Interest cost of projected benefit obligations. 4,317 4,079 3,874
Actual return on plan assets................... (4,744) (4,417) (12,044)
Net amortization and deferral.................. 264 167 8,295
------- ------- --------
Net periodic pension cost.................. $ 1,630 $ 1,360 $ 1,489
======= ======= ========
</TABLE>
The funded status of the defined benefit plans as of December 31, 1993 and
1992 is reconciled to prepaid pension cost (pension liability) as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- ---------------------------
PLANS WHERE PLANS WHERE PLANS WHERE PLANS WHERE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS:
Vested benefit obliga-
tion................. $-- $ 53,394 $41,914 $ 5,170
======== ======= =======
Accumulated benefit
obligation........... -- $ 55,570 $43,538 $ 6,957
======== ======= =======
Projected benefit ob-
ligation............. -- $ 60,299 $48,904 $ 7,145
Plan assets at fair
value................ -- 42,932 45,947 1,488
-------- ------- -------
Projected benefit ob-
ligation (in excess
of) less than plan
assets............... -- (17,367) (2,957) (5,657)
Unrecognized prior
service cost......... -- 1,008 (688) 1,843
Unrecognized net loss. -- 16,851 7,079 1,075
Minimum liability ad-
justment............. -- (13,377) -- (2,730)
---- -------- ------- -------
Prepaid pension cost
(pension liability)
recognized in the
consolidated balance
sheet................ $-- $(12,885) $ 3,434 $(5,469)
==== ======== ======= =======
</TABLE>
Assumptions used were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1992 1991
------------------------
<S> <C> <C> <C>
Discount rate...................................... 7.5% 8.5% 8.5%
Expected long-term rate of return on plan assets... 10.0% 10.0% 10.0%
Weighted average rates of increase in compensation
levels............................................ 4.5% 6.0% 4.5%-6.0%
</TABLE>
Savings Plan
The Company has a voluntary savings and investment plan available to
substantially all non-union employees. Employee contributions of not less than
one percent of the employee's salary to not more than eight percent are matched
75 percent by the Company. The cost of the Company's contributions was $1.9
million, $1.8 million and $1.4 million for the years ended December 31, 1993,
1992 and 1991, respectively.
F-43
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postretirement Health Care and Life Insurance Benefits
The Company provides health care and life insurance benefits to certain
retirees. Health care coverage includes medical costs as well as prescription
drugs.
During 1991, the Company changed its method of accounting for postretirement
benefit costs other than pensions by adopting the requirements of SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions,
effective as of January 1, 1991. As a result, the Company recorded a charge of
$17.3 million to reflect the cumulative effect of the change in accounting
principle for periods prior to 1991.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits attributed to service
during the period............................ $ 473 $ 548 $ 469
Interest cost on accumulated postretirement
benefit obligation........................... 3,548 4,773 5,458
Amortization of accumulated gains............. (673) (808) --
-------- -------- --------
Net periodic postretirement benefit cost...... $ 3,348 $ 4,513 $ 5,927
======== ======== ========
</TABLE>
The following table sets forth the plans' combined status reconciled with the
amounts included in the consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
------------ ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................ $ 47,110 $ 45,077
Fully eligible active plan participants......... 5,511 1,161
Other active plan participants.................. 6,571 6,144
------------ ------------
Total accumulated postretirement benefit obliga-
tion........................................... 59,192 52,382
Unrecognized net gain from past experience dif-
ferences....................................... 5,088 12,070
------------ ------------
Accrued postretirement benefit cost............. $ 64,280 $ 64,452
============ ============
</TABLE>
None of the future annual benefits of plan participants is covered by
insurance contracts issued by the Company or a related party.
For measurement purposes, an 11 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1994; the rate was
assumed to decrease gradually to six percent through the year 1999 and to
remain at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amount of the obligation and the periodic cost
reported. An increase in the assumed health care cost trend rates by one
percent in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $6.0 million and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for the year then ended by $0.5 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1993, 1992 and 1991 was
7.5 percent, 8.0 percent and 8.5 percent, respectively.
F-44
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, Employers' Accounting for Postemployment Benefits, which requires accrual
accounting for postemployment benefits, such as disability benefits, instead of
recognizing an expense for those benefits when paid. The Company currently is
accumulating the data necessary to comply with the new rules. Adoption of SFAS
No. 112 using the cumulative effect method is required in the first quarter of
1994. Based on preliminary estimates, the cumulative effect of the accounting
change at January 1, 1994 is expected to range from approximately $5.4 million
to approximately $7.4 million. The Company does not expect 1994 postemployment
expense under the new rules to differ significantly from postemployment expense
that would have been recognized under the pay-as-you-go basis of accounting.
6. OPERATING LEASES:
Certain properties and equipment are leased for varying periods under long-
term, noncancellable agreements which are renewable in many instances. The
total rent expense amounted to $8.17 million, $8.04 million and $8.17 million
for the years ended December 31, 1993, 1992 and 1991, respectively. The
approximate annual minimum rentals under all noncancellable operating leases as
of December 31, 1993 are as follows (expressed in thousands):
<TABLE>
<S> <C>
1994.............................................................. $ 6,918
1995.............................................................. 5,325
1996.............................................................. 4,756
1997.............................................................. 2,495
1998.............................................................. 723
Thereafter........................................................ 752
-------
$20,969
=======
</TABLE>
7. NONRECURRING CHARGES:
During the third quarter of 1991, the Company recorded provisions against
income to reflect losses due to certain identified liabilities and asset
impairments. In the fourth quarter of 1992, the Company recorded a charge
related to compensation of a key executive under the terms of an employment
contract. The following is a summary of the charges provided for (expressed in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992 1991
--------------- ---------
<S> <C> <C> <C>
Executive compensation............................. $-- $ 2,888 $ --
Reserve for environmental costs (see Note 8)....... -- -- 26,480
Other write-downs and charges...................... -- -- 13,500
------ -------- ---------
$-- $ 2,888 $ 39,980
====== ======== =========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
The Company had a remaining reserve of approximately $8.5 million at December
31, 1993 for estimated cleanup and compliance costs at certain waste disposal
areas, including those in which it has been alleged that the Company is a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), as amended, or similar state
legislation. Included in these sites is a plant operated by the Company in
Elmira, New York (the "Elmira Facility") that is the subject
F-45
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of an Environmental Protection Agency ("EPA") Record of Decision dated
September 4, 1992 (the "Elmira ROD") which delineates the actions to be taken
to remediate the contamination specified in the Elmira ROD.
The Company and the Former Parent have entered into an indemnification
agreement, which became effective December 14, 1992, with respect to the Elmira
Facility. Under the agreement, the Former Parent has agreed to reimburse the
Company for costs and expenses of certain remediation required by the Elmira
ROD and indemnify the Company against necessary costs and expenses of certain
remediation activities at one other site located near the Elmira Facility and
at a landfill site in Metamora, Michigan. The indemnification provided by the
Former Parent with respect to the Elmira Facility will apply to all remediation
required by the Company under CERCLA that had been identified as of the date of
the indemnification agreement at the Elmira Facility, but will not extend to
certain additional environmental expenditures relating to the Elmira Facility
or other sites for which the Company is or may be held responsible. In
connection with the indemnification, the Company reduced its accrual for
environmental costs and credited additional paid-in capital for $17.7 million.
Management believes the accrual for environmental costs at December 31, 1993 is
adequate.
The Company is a defendant in certain other litigation arising out of
operations in the normal course of business and is aware of certain litigation
threatened against the Company from time to time. In the opinion of management,
none of the other pending or threatened lawsuits and proceedings should have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
9. INVESTMENT IN PURODENSO:
In 1989, the Automotive Products Segment formed the Purodenso manufacturing
joint venture with a unit of Nippondenso of Japan (with each joint venturer
owning a 50% interest) to exploit the combined engineering and technological
abilities of the two companies. Purodenso supplies highly specialized
automotive filters and injection molded filter housings to the Company for
distribution to domestic Original Equipment Manufacturers ("OEMs"), U.S.
manufacturing plants of Japanese OEM companies and the aftermarket. The
selected financial data presented below as of the dates and for the periods
indicated are derived from the audited financial statements of Purodenso.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Income Statement Data:
Net sales..................................... $ 57,408 $ 41,019 $ 23,554
Cost of sales................................. 51,972 38,143 24,771
-------- -------- --------
Gross profit.................................. $ 5,436 $ 2,876 $ (1,217)
======== ======== ========
Net income.................................... $ 3,672 $ 1,041 $ (2,806)
======== ======== ========
Balance Sheet Data (at end of period):
Current assets................................ $ 10,671 $ 7,037 $ 5,704
Noncurrent assets............................. 22,904 21,117 21,159
Current liabilities........................... 12,602 14,853 19,603
Partners' equity.............................. 20,973 13,301 7,260
</TABLE>
F-46
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DETAILS TO CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Expenses Included in Other Categories:
Maintenance and repairs........................ $ 8,521 $ 7,217 $ 7,518
Depreciation and amortization of land
improvements, buildings and equipment......... 10,308 11,132 11,133
Amortization of goodwill and other intangibles. 3,259 3,519 3,599
Taxes, other than payroll and federal, state
and foreign income taxes:
Real and personal property................... 1,156 1,031 1,103
Miscellaneous................................ 664 468 553
Rents.......................................... 8,173 8,040 8,168
Advertising costs.............................. 12,404 13,408 11,956
Research and development costs................. 745 341 429
</TABLE>
11. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1992
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1992
Net sales.................... $ 102,302 $ 105,284 $ 108,495 $ 101,807 $ 417,888
Cost of sales................ 79,183 79,340 82,693 77,291 318,507
--------- --------- --------- --------- ---------
Gross profit................. $ 23,119 $ 25,944 $ 25,802 $ 24,516 $ 99,381
========= ========= ========= ========= =========
Net income (loss)............ $ 1,725 $ 4,717 $ 4,738 $ (89) $ 11,091
========= ========= ========= ========= =========
Earnings (loss) per share.... $ 0.20 $ 0.55 $ 0.56 $ (0.01) $ 1.29
========= ========= ========= ========= =========
<CAPTION>
1993
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1993
Net sales.................... $ 107,812 $ 109,287 $ 112,993 $ 105,729 $ 435,821
Cost of sales................ 83,065 82,381 87,016 81,026 333,488
--------- --------- --------- --------- ---------
Gross profit................. $ 24,747 $ 26,906 $ 25,977 $ 24,703 $ 102,333
========= ========= ========= ========= =========
Net income................... $ 2,651 $ 5,119 $ 5,348 $ 4,715 $ 17,833
========= ========= ========= ========= =========
Earnings per share........... $ 0.24 $ 0.46 $ 0.48 $ 0.42 $ 1.59
========= ========= ========= ========= =========
</TABLE>
F-47
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Automotive Products............................ $321,271 $301,077 $286,364
Air Filtration Products........................ 57,082 55,055 52,898
Separation Systems............................. 41,416 44,237 43,501
Filter Products................................ 16,052 17,519 18,927
-------- -------- --------
$435,821 $417,888 $401,690
======== ======== ========
Operating Income (Loss):
Automotive Products............................ $ 20,964 $ 18,189 $(21,354)
Air Filtration Products........................ 4,795 4,316 2,989
Separation Systems............................. 2,691 1,448 1,801
Filter Products................................ 906 2,367 3,130
Corporate...................................... (11,600) (13,176) (17,278)
-------- -------- --------
$ 17,756 $ 13,144 $(30,712)
======== ======== ========
Identifiable Assets:
Automotive Products............................ $254,510 $257,784 $244,427
Air Filtration Products........................ 34,503 32,973 32,831
Separation Systems............................. 26,348 28,828 33,295
Filter Products................................ 16,494 17,198 16,586
Corporate...................................... 27,212 27,683 24,211
-------- -------- --------
$359,067 $364,466 $351,350
======== ======== ========
Capital Expenditures:
Automotive Products............................ $ 12,058 $ 8,847 $ 6,158
Air Filtration Products........................ 485 450 343
Separation Systems............................. 587 1,040 964
Filter Products................................ 350 483 397
Corporate...................................... 72 15 43
-------- -------- --------
$ 13,552 $ 10,835 $ 7,905
======== ======== ========
Depreciation and Amortization:
Automotive Products............................ $ 9,942 $ 11,056 $ 11,048
Air Filtration Products........................ 1,370 1,280 1,273
Separation Systems............................. 949 994 1,083
Filter Products................................ 536 506 459
Corporate...................................... 770 815 869
-------- -------- --------
$ 13,567 $ 14,651 $ 14,732
======== ======== ========
Equity in Income (Loss) of Affiliates:
Automotive Products............................ $ 1,893 $ 489 $ (1,428)
Air Filtration Products........................ -- -- --
Separation Systems............................. 19 62 (17)
Filter Products................................ -- -- --
Corporate...................................... 563 244 --
-------- -------- --------
$ 2,475 $ 795 $ (1,445)
======== ======== ========
</TABLE>
F-48
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN AND DOMESTIC OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Domestic........................................ $400,482 $383,058 $359,703
Foreign......................................... 35,339 34,830 41,987
-------- -------- --------
$435,821 $417,888 $401,690
======== ======== ========
Operating Income (Loss):
Domestic........................................ $ 17,530 $ 14,422 $(31,264)
Foreign......................................... 226 (1,278) 552
-------- -------- --------
$ 17,756 $ 13,144 $(30,712)
======== ======== ========
Identifiable Assets:
Domestic........................................ $334,491 $339,857 $315,956
Foreign......................................... 24,576 24,609 35,394
-------- -------- --------
$359,067 $364,466 $351,350
======== ======== ========
Capital Expenditures:
Domestic........................................ $ 13,235 $ 10,612 $ 7,263
Foreign......................................... 317 223 642
-------- -------- --------
$ 13,552 $ 10,835 $ 7,905
======== ======== ========
Depreciation and Amortization:
Domestic........................................ $ 13,168 $ 14,135 $ 13,838
Foreign......................................... 399 516 894
-------- -------- --------
$ 13,567 $ 14,651 $ 14,732
======== ======== ========
Equity in Income (Loss) of Affiliates:
Domestic........................................ $ 2,475 $ 795 $ (1,445)
Foreign......................................... -- -- --
-------- -------- --------
$ 2,475 $ 795 $ (1,445)
======== ======== ========
</TABLE>
One customer accounted for 14 percent of the Company's net sales in the years
ended December 31, 1993, 1992 and 1991. These sales were made from the
Automotive Products Segment.
13. CONCENTRATIONS OF CREDIT RISK:
The Company extends credit to various companies in the retail,
wholesale/distributor, original equipment and export markets in the normal
course of business. Within these markets, certain concentrations of credit risk
exist. These concentrations of credit risk may be similarly affected by changes
in economic or other conditions and may, accordingly, impact the Company's
overall credit risk. However, management believes that consolidated receivables
are well diversified, thereby reducing potential credit risk to the Company,
and that allowances for doubtful accounts are adequate to absorb estimated
losses at December 31, 1993.
F-49
<PAGE>
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
At December 31, 1993 and 1992, trade receivables related to these group
concentrations were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
------------ ------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Retail.......................................... $28,796 $28,326
Wholesalers/Distributors........................ 26,349 23,365
Original Equipment.............................. 8,994 10,962
Export.......................................... 5,865 5,687
Other........................................... 2,300 3,784
------------ ------------
Total........................................... $72,304 $72,124
============ ============
</TABLE>
14. SUBSEQUENT EVENT:
In January 1994, the Company made the decision to shut down the fiberglass
manufacturing process of the Air Filtration Products Segment's Henderson, North
Carolina plant, effective on or about April 15, 1994, in favor of purchasing
fiberglass from outside sources. The Company will reserve approximately
$950,000 in the first quarter of 1994 for the costs associated with shutting
down the process. There are no plans at the present time that would adversely
impact the remaining operations at the Henderson, North Carolina plant.
F-50
<PAGE>
PUROLATOR PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1993
-------- --------
<S> <C> <C>
Net sales................................................... $354,624 $330,092
Cost of sales............................................... 270,543 252,462
-------- --------
Gross profit.............................................. 84,081 77,630
Selling, general and administrative expenses................ 66,289 64,366
Process shutdown charge..................................... 718 --
-------- --------
Operating income.......................................... 17,074 13,264
Interest expense............................................ 3,026 3,167
Other income................................................ 1,148 1,654
-------- --------
Income before income taxes and equity in income of affili-
ates..................................................... 15,196 11,751
Income tax provision........................................ 948 380
Equity in income of affiliates.............................. 2,443 1,747
-------- --------
Income before cumulative effect of change in accounting
principle................................................ 16,691 13,118
Cumulative effect of change in accounting principle......... (6,535) --
-------- --------
Net income.................................................. $ 10,156 $ 13,118
======== ========
Earnings per share:
Income before cumulative effect of change in accounting
principle................................................ $ 1.50 $ 1.17
Cumulative effect of change in accounting principle....... (0.59) --
-------- --------
Net income.............................................. $ 0.91 $ 1.17
======== ========
Dividends per common share.................................. $ 0.48 $ 0.48
======== ========
Weighted average shares outstanding......................... 11,125 11,172
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-51
<PAGE>
PUROLATOR PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 9,557
Trade accounts receivable, net................................. 78,760
Inventories, net............................................... 73,145
Other current assets........................................... 14,733
--------
Total current assets......................................... 176,195
Land, buildings and equipment, net............................... 78,765
Investments...................................................... 14,048
Intangible assets, net........................................... 108,265
Other assets..................................................... 11,533
--------
Total assets................................................. $388,806
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................... $ 4,388
Accounts payable............................................... 41,542
Accrued liabilities............................................ 42,618
--------
Total current liabilities.................................... 88,548
Long-term debt, less current maturities.......................... 43,647
Other noncurrent liabilities..................................... 78,929
Stockholders' equity:
Common stock, $0.01 par value per share, 30,000,000 shares au-
thorized, 11,095,674 and 11,212,500 shares issued and out-
standing...................................................... 111
Other stockholders' equity..................................... 177,571
--------
Total stockholders' equity................................... 177,682
--------
Total liabilities and stockholders' equity................... $388,806
========
</TABLE>
See notes to condensed consolidated financial statements.
F-52
<PAGE>
PUROLATOR PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 10,156 $ 13,118
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization......................... 10,315 10,128
Cumulative effect of change in accounting principle... 6,535 --
Process shutdown charge............................... 718 --
Other noncash charges................................. 4,440 4,507
Change in operating assets and liabilities:
Increase in receivables.............................. (16,045) (10,464)
(Increase) decrease in inventories................... (1,965) 8,879
Increase in accounts payable......................... 9,155 1,749
Other, net............................................ (3,903) (2,839)
--------- ---------
Total adjustments.................................... 9,249 11,960
--------- ---------
Net cash provided by operating activities........... 19,405 25,078
--------- ---------
Cash flows from investing activities:
Capital expenditures................................... (11,368) (9,434)
Investment in Purodenso................................ 250 (2,000)
Other, net............................................. (809) 383
--------- ---------
Net cash used in investing activities............... (11,927) (11,051)
--------- ---------
Cash flows from financing activities:
Proceeds from stock issuance........................... 63 15,475
Proceeds from long-term debt........................... 121,236 89,789
Payments on long-term debt............................. (117,506) (111,438)
Dividends paid......................................... (5,345) (5,382)
Other, net............................................. (2,076) (250)
--------- ---------
Net cash used in financing activities............... (3,628) (11,806)
--------- ---------
Increase in cash and cash equivalents.................. 3,850 2,221
Cash and cash equivalents, beginning of period......... 5,707 3,411
--------- ---------
Cash and cash equivalents, end of period............... $ 9,557 $ 5,632
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-53
<PAGE>
PUROLATOR PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL--
The condensed consolidated financial statements included herein have been
prepared by Purolator Products Company (the "Company") without audit and should
be read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993. The foregoing financial statements include only normal
recurring accruals and all adjustments which the Company considers necessary
for a fair presentation.
(2) DETAIL TO CONDENSED CONSOLIDATED BALANCE SHEETS--(EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Inventories:
Finished goods............................................ $41,306
Work in progress.......................................... 7,506
Raw materials and supplies................................ 28,659
-------
Total................................................... 77,471
Less reserves............................................. 4,326
-------
Total, net.............................................. $73,145
=======
</TABLE>
(3) REPURCHASE OF COMMON STOCK--
On February 25, 1994, the Company was authorized to repurchase as many as
approximately 560,000 common shares, or five percent of its common stock
outstanding as of that date. During the nine months ended September 30, 1994,
the Company repurchased 121,000 common shares.
(4) POSTEMPLOYMENT BENEFITS--
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
112, Employers' Accounting for Postemployment Benefits, effective January 1,
1994. SFAS No. 112 requires accrual accounting for postemployment benefits,
such as disability benefits, instead of recognizing an expense for those items
when paid. The Company recorded a charge of $6.5 million in the first quarter
of 1994 to reflect the cumulative effect of the change in accounting principle
for periods prior to 1994. The Company does not expect 1994 postemployment
expense under the new rules to differ significantly from postemployment expense
that would have been recognized under the pay-as-you-go basis of accounting.
(5) PRO FORMA EARNINGS PER SHARE--
As a result of adopting SFAS No. 109, Accounting for Income Taxes, effective
January 1, 1993, the Company expects to report only foreign income tax expense
through December 31, 1994. Therefore, the effective income tax rates for the
nine months ended September 30, 1994 and 1993 were substantially below the 35%
statutory U.S. income tax rate. Previously unrecognized tax benefits have been
recognized in the balance sheet to the extent of U.S. federal and state income
taxes paid or payable and the utilization of net operating loss carryforwards.
The table below sets forth a pro forma representation of earnings per share
based on the following assumptions and adjustments: (a) a 45 percent combined
federal, state and foreign tax rate; (b) a constant level of shares outstanding
(11,095,674 shares issued and outstanding as of September 30, 1994); (c)
exclusion of the cumulative effect of a change in accounting principle; and (d)
exclusion of the
F-54
<PAGE>
PUROLATOR PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
process shutdown charge recorded in the first quarter of 1994 as the result of
the Company's decision to shut down the fiberglass manufacturing process of the
Air Filtration Products Segment's Henderson, North Carolina plant in favor of
purchasing fiberglass from outside sources.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1994 1993
------ ------
<S> <C> <C>
Pro forma earnings per share............................... $ 0.91 $ 0.67
====== ======
</TABLE>
(6) SUBSEQUENT EVENTS--
On October 3, 1994, Mark IV Industries, Inc. ("Mark IV"), and its wholly
owned subsidiary, Mark IV Acquisition Corp. (the "Purchaser"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") with the Company.
Pursuant to the Merger Agreement, which was unanimously approved by the
Company's Board of Directors, the Purchaser commenced a tender offer (the
"Offer") for all outstanding shares of the Company's common stock (and
associated preferred stock purchase rights), at a price of $25.00 net per share
in cash to the seller. Prior to the commencement of the Offer, Mark IV
beneficially owned 520,500 shares of the Company's common stock (4.69% of the
Company's outstanding common stock), which shares were acquired by Mark IV in
open market transactions. Upon the expiration of the Offer on November 4, 1994,
the Purchaser had accepted for payment 10,236,000 shares of the Company's
common stock, which, when combined with the shares already owned by Mark IV,
resulted in the Purchaser's ownership of approximately 96.9% of the Company's
outstanding common stock.
As a result of the Purchaser acquiring in excess of 90% of the Company's
outstanding common stock, and as provided for in the Merger Agreement, it is
anticipated that the Purchaser will be merged with the Company by November 30,
1994 (the "Merger"). In the Merger, each share of the Company's common stock
(other than shares held by Mark IV and its subsidiaries and those shares held
by stockholders who properly exercise appraisal rights under Delaware law) will
be converted into the right to receive $25.00 per share in cash.
Upon the consummation of the Merger, the holders of outstanding options to
acquire common stock of the Company, which options were granted by the Company
under its non-qualified stock option plans, will be offered the opportunity to
elect either: to have the outstanding Purolator options assumed by Mark IV and
amended to become options to purchase common stock of Mark IV; or to receive a
cash payment in settlement of each Purolator option in an amount equal to
$25.00 minus the exercise price per share of the Purolator option, multiplied
by the number of shares of Purolator common stock subject to such Purolator
option.
As a result of the tender of a majority of the Company's stock to the
Purchaser, effective November 7, 1994, the Company's credit facility with a
group of banks and Texas Commerce Bank National Association ("TCB"), as agent,
was terminated and the outstanding amounts owed thereunder were paid from the
proceeds of a replacement credit facility provided by TCB under a $44,000,000
note due on demand or within 30 days ("Bridge Note"). All collateral securing
the previous credit agreement has been assigned as security for the Bridge
Note.
On November 8, 1994, as a result of the completion of the Offer, the Company
announced that five of its seven directors resigned and were replaced by four
nominees of Mark IV.
F-55
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY STATE TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMA-
TION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Use of Proceeds........................................................... 6
Price Range of Common Stock and Dividend Policy........................... 6
Capitalization............................................................ 7
Selected Financial Information............................................ 8
Pro Forma Financial Information........................................... 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 18
Management................................................................ 26
Principal Securityholders................................................. 27
Underwriting.............................................................. 29
Legal Matters............................................................. 30
Experts................................................................... 30
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,000,000 SHARES
MARK IV
INDUSTRIES INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
BEAR, STEARNS & CO. INC.
DECEMBER , 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The fees and expenses in connection with the issuance and distribution of the
securities being registered hereunder, other than underwriting discounts and
commissions, are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $49,667.16
National Association of Securities Dealers, Inc. filing fee.... 14,903.38
New York Stock Exchange, Inc. listing fee...................... *
Printing and engraving expenses................................ *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Blue Sky fees and expenses..................................... *
Miscellaneous.................................................. *
----------
Total...................................................... $ *
==========
</TABLE>
- --------
* To be supplied by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations are entitled, under certain circumstances, to be indemnified
against all expenses and liabilities (including attorneys' fees) incurred by
them as a result of suits brought against them in their capacity as a director
or officer, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful; provided, that no indemnification may be
made against expenses in respect of any claim, issue or matter as to which they
shall have been adjudged to be liable to the corporation, unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper. Any
such indemnification may be made by the corporation only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Article Ninth of the Company's Certificate of
Incorporation entitles officers, directors and controlling persons of the
Company to indemnification to the full extent permitted by Section 145 of the
DGCL, as the same may be supplemented or amended from time to time.
Article Ninth of the Company's Certificate of Incorporation was amended in
August 1986 to provide that no director shall have any personal liability to
the Company or its stockholders for any monetary damages for breach of
fiduciary duty as a director, provided that such provision does not limit or
eliminate the liability of any director (i) for breach of such director's duty
or loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (involving certain unlawful dividends
or stock repurchases) or (iv) for any transaction from which such director
derived an improper personal benefit. The provisions of such article do not
limit or eliminate the liability of any director for any act or omission
occurring prior to the effective time of such amendment.
Reference is made to Section 7 of the Underwriting Agreement included in
Exhibit 1 hereto which provides certain indemnification rights to the directors
and officers of the Company.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
**1 --Form of Underwriting Agreement between the Company and Bear, Stearns &
Co. Inc.
2 --Agreement and Plan of Merger, dated as of October 3, 1994, among the
Company, Mark IV Acquisition Corp. and Purolator Products Company
(incorporated by reference to Exhibit (c)(1) to the Company's Tender
Offer Statement on Schedule 14D-1 dated October 7, 1994).
4.1 --Indenture dated as of March 15, 1989 between the Company and the First
National Bank of Boston, as Trustee (including the form of 13 3/8%
Subordinated Debentures due March 15, 1999) (incorporated by reference
to Exhibit 4.10 to the Company's Current Report on Form 8-K dated May
23, 1989).
4.2 --Indenture dated as of February 13, 1992 between the Company and Marine
Midland Bank, N.A., as Trustee (including the form of 6 1/4%
Convertible Subordinated Debentures due February 15, 2007)
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 13, 1992).
4.3 --Form of Indenture dated as of March 15, 1993 between the Company and
Citibank, N.A. as Trustee (including the form of 8 3/4% Senior
Subordinated Notes due April 1, 2003) (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 29,
1993).
**5 --Opinion of Stroock & Stroock & Lavan as to the legality of the Shares.
*23.1 --Consent of Coopers & Lybrand LLP.
*23.2 --Consent of Arthur Andersen LLP.
**23.3 --Consent of Stroock & Stroock & Lavan (included in Exhibit 5).
**24 --Powers of attorney.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such
II-2
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE TOWN OF AMHERST, STATE OF NEW YORK, ON NOVEMBER 17,
1994.
Mark IV Industries, Inc.
/s/ Sal H. Alfiero
By___________________________________
Sal H. Alfiero
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Sal H. Alfiero Chairman of the Board and November 17, 1994
____________________________ Chief Executive Officer
Sal H. Alfiero
* President and Director and November 17, 1994
____________________________ Chief Operating Officer
Clement R. Arrison
* Executive Vice President and November 17, 1994
____________________________ Chief Financial Officer
William P. Montague
* Secretary and Director November 17, 1994
____________________________
Gerald S. Lippes
* Senior Vice President-- November 17, 1994
____________________________ Administration
Frederic L. Cook
* Vice President--Finance November 17, 1994
____________________________
John J. Byrne
* Vice President and Chief November 17, 1994
____________________________ Accounting Officer
Richard L. Grenolds
Director
____________________________
Joseph G. Donohoo
Director
____________________________
Herbert Roth, Jr.
</TABLE>
/s/ Sal H. Alfiero
*By_________________
AS ATTORNEY-IN-FACT
PURSUANT TO A
PREVIOUSLY FILED
POWER OF ATTORNEY
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
** 1 --Form of Underwriting Agreement between the Company and Bear,
Stearns & Co. Inc. ...........................................
2 --Agreement and Plan of Merger, dated as of October 3, 1994,
among the Company, Mark IV Acquisition Corp. and Purolator
Products Company (incorporated by reference to Exhibit (c)(1)
to the Company's Tender Offer Statement on Schedule 14D-1
dated October 7, 1994)........................................
4.1 --Indenture dated as of March 15, 1989 between the Company and
the First National Bank of Boston, as Trustee (including the
form of 13 3/8% Subordinated Debentures due March 15, 1999)
(incorporated by reference to Exhibit 4.10 to the Company's
Current Report on Form 8-K dated May 23, 1989)................
4.2 --Indenture dated as of February 13, 1992 between the Company and
Marine Midland Bank, N.A., as Trustee (including the form of 6
1/4% Convertible Subordinated Debentures due February 15,
2007) (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated February 13, 1992).
4.3 --Indenture dated as of March 15, 1993 between the Company and
Citibank, N.A., as Trustee (including the form of 8 3/4%
Senior Subordinated Notes due April 1, 2003) (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated March 29, 1993)................................
** 5 --Opinion of Stroock & Stroock & Lavan as to the legality of the
Shares........................................................
*23.1 --Consent of Coopers & Lybrand LLP...............................
*23.2 --Consent of Arthur Andersen LLP.................................
**23.3 --Consent of Stroock & Stroock & Lavan (included in Exhibit 5)...
**24 --Powers of attorney.............................................
</TABLE>
- --------
*Filed herewith.
**Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 1 to this registration statement
on Form S-3 (File No. 33-56397) of our report dated March 29, 1994, except as
to the information presented in the first and second paragraphs of Note 13 and
in the first paragraph of Note 14, for which the date is April 8, 1994, on our
audits of the consolidated financial statements of Mark IV Industries, Inc. and
the incorporation by reference of our report on the financial statement
schedules, which report dated March 29, 1994 is included in the Company's
Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand LLP
Rochester, New York
November 18, 1994
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Mark IV Industries, Inc. Form S-3 Registration No. 33-56397 of our report dated
February 11, 1994 on the consolidated financial statements of Purolator
Products Company as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991 and to all references to our Firm included in
or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
November 16, 1994
