-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Tgx8BZK9TYzdx09KyYufw+doZcQ/KltYZVLvIs6+NZ3PKuRP4My77/NJDxspDUFE V/BaZXHaicPl8WCMCfk8Qw== 0000062418-94-000013.txt : 19941111 0000062418-94-000013.hdr.sgml : 19941111 ACCESSION NUMBER: 0000062418-94-000013 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941102 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK IV INDUSTRIES INC CENTRAL INDEX KEY: 0000062418 STANDARD INDUSTRIAL CLASSIFICATION: 3823 IRS NUMBER: 231733979 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08862 FILM NUMBER: 94558444 BUSINESS ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PKWY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14226 BUSINESS PHONE: 7166894972 FORMER COMPANY: FORMER CONFORMED NAME: MARK FOUR HOMES INC DATE OF NAME CHANGE: 19770921 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 2, 1994 ------------------------- MARK IV INDUSTRIES, INC. - ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware - ------------------------------------------------------------------------ (State or other jurisdiction of incorporation) 1-8862 23-1733979 - ------------------------ -------------------------------- (Commission File Number) (IRS Employer Identification No.) 501 John James Audubon Pkwy., Amherst, New York 14226-0810 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 689-4972 ------------------------ ____________________________________________________________________________ (Former name or former address, if changed since last report.) Item 2 - Acquisition and Disposition of Assets On October 3, 1994, Mark IV Industries, Inc. (the "Company"), and its wholly owned subsidiary, Mark IV Acquisition Corp. (the "Purchaser"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Purolator Products Company ("Purolator"). Pursuant to the Merger Agreement, the Purchaser commenced a tender offer (the "Offer") for all outstanding shares of Purolator'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, the Company beneficially owned 520,500 shares of Purolator's common stock (4.69% of Purolator's outstanding common stock), which shares were acquired by the Company in open market transactions. Upon the expiration of the Offer at 12:00 Midnight on November 4, 1994, the Company accepted for payment and thereby purchased approximately 10,236,000 additional shares of Purolator's common stock (including approximately 342,070 shares subject to guarantees of delivery), which, when combined with the shares already owned by the Company, resulted in the Company's ownership of approximately 96.9% of Purolator's outstanding common stock. As a result of the Company acquiring in excess of 90% of Purolator's outstanding common stock, and as provided for in the Merger Agreement, the Company anticipates the Purchaser will be merged into Purolator as soon as practicable pursuant to the short-form merger provision of Delaware law without the vote of the holders of Purolator common stock other than the Purchaser, (the "Merger"). In the Merger, each share of Purolator's common stock (other than shares held by the Company 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. The foregoing is a summary of the Merger Agreement. For additional information concerning the Merger Agreement and the Offer, reference is made to the Merger Agreement and the Offer to Purchase, incorporated by reference as exhibits hereto. The total amount of funds required by the Company to purchase all of Purolator's outstanding shares of common stock (including those acquired by the Company prior to the commencement of the Offer) and to pay related fees and expenses, is estimated to be approximately $286.3 million. The funds required for such purchase was provided from bank borrowings under the definitive credit agreement (the "Credit Agreement") which the Company entered into with Bank of America National Trust and Savings Association and other banks and financial institutions, as discussed in Item 5 of this Form 8-K. The Credit Agreement is incorporated by reference as an exhibit hereto. Purolator's products include a broad range of filters and separation systems used in automotive (principally aftermarket), marine, heating, ventilation, air conditioning, and high-technology liquid-filtration applications, and specialized industrial filters and separation systems. Purolator will be included in the Company's Power and Fluid Transfer business segment. The Company presently intends to cause Purolator to continue to devote its plant, equipment and other physical properties to the same purposes for which they were used by Purolator prior to the consummation of the Offer.Included in Item 7 are Purolator's historical financial statements (Item 7(a) exhibits 13.1 and 13.2) and pro forma financial information (Item 7(b)). Item 5 - Other Events On November 2, 1994, the Company entered into the Credit Agreement referred to in Item 2 of this Form 8-K. The Credit Agreement provides for (i) a five-year term loan in the principal amount of approximately $300 million for the purpose of financing the acquisition of Purolator and to repay certain Purolator debt, and (ii) a five-year revolving credit facility in an amount of up to $350 million to be used to refinance amounts outstanding under the Company's previously existing credit agreement and certain existing Purolator debt, and for working capital and other general corporate purposes. The loans outstanding under the 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 Credit Agreement). The Company is currently paying interest on the loans at LIBOR plus 1.00% per annum. The 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. Reference is made to the definitive Credit Agreement for the actual terms and conditions thereof, which has been incorporated by reference as an exhibit hereto. Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Businesses Acquired The following audited Consolidated Financial Statements of Purolator Products Company and subsidiaries and the report of Independent Public Accountants with respect thereto are set forth in this Form 8-K in Exhibit 13.1: 1. Report of Independent Public Accountants with respect to the Consolidated Financial Statements of Purolator Products Company and subsidiaries as of December 31, 1993. 2. Consolidated Balance Sheets as of December 31, 1993 and 1992. 3. Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and 1991. 4. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991. 5. Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991. 6. Notes to Consolidated Financial Statements. The following unaudited Condensed Consolidated Financial Statements of Purolator Products Company are set forth in this report in exhibit 13.2: 1. Condensed Consolidated Balance Sheet as of September 30, 1994. 2. Condensed Consolidated Statements of Operations for the nine months ended September 30, 1994 and 1993. 3. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and 1993. 4. Notes to Condensed Consolidated Financial Statements. (b) 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 Purolator acquisition in November 1994 and the borrowings under the Credit Agreement in connection therewith; and (ii) the conversion in October 1994 of approximately $76.7 million aggregate principal amount of the Company's 6 1/4% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures") into approximately 5,340,000 shares of Common Stock at a conversion price of $14.3685 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 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 Purolator acquisition in November 1994 and the borrowings under the Credit Agreement in connection therewith; and (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. 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 consolidated condensed balance sheet of Purolator as of that same date. The pro forma (unaudited) 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 Purolator acquisition and the borrowings under the Credit Agreement in connection therewith and the conversion of Convertible Debentures 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 consolidated financial statements of the Company, as well as Purolator's consolidated financial statements identified in Item 7 (a) and included as exhibits 13.1 and 13.2 hereto.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Six Months Ended August 31, 1994 (Unaudited) (Amounts in thousands, except per share data) Pro Forma Mark IV Purolator Adjustments Pro Forma (1) (2) --------- --------- ----------- --------- 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 from continuing operations per share of common stock: Primary $ .79 $ .82 Fully-diluted $ .71 $ .79 Weighted average number of shares outstanding: Primary 42,700 5,400 (7) 48,100 Fully-diluted 51,000 51,000 ___________________ (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 conversions had occurred on March 1, 1994 ($2,400,000). The adjustment excludes a net of tax charge of $1,100,000 ($.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 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.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Fiscal Year Ended February 28, 1994 (Unaudited)
(Amounts in thousands, except per share data) Pro Forma Mark IV Purolator Adjustments Pro Forma (1) (2) -------- --------- ----------- ---------- 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 from continuing operations per share of common stock: 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 _______________________ (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 conversions had occurred on March 1, 1993 ($4,800,000). The adjustment excludes a net of tax charge of $1,100,000 ($.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 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 conversion of the Company's Convertible Debentures in October 1994, as if the conversion had occurred on March 1, 1993.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET August 31, 1994 (Unaudited)
(Amounts in thousands) Pro Forma Mark IV Purolator Adjustments Pro Forma ASSETS (1) (2) ---------- ---------- ----------- ---------- 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 40,700 281,900 (4) 501,500 Subordinated debentures 372,200 (76,700)(5) 295,500 Total long-term debt 551,100 40,700 205,200 797,000 Other non-current liabilities 100,300 80,000 (17,900)(3) 162,400 Stockholders' equity: Common stock 400 100 (5)(6) 500 Additional paid-in capital 262,600 325,300 (248,700)(5)(6) 339,200 Retained earnings 120,000 (137,200) 137,200 (6) 120,000 Other equity adjustments (500) (12,100) 12,100 (6) (500) Total stockholders' equity 382,500 176,100 (99,400) 459,200 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,335,500 $ 384,600 $ 83,900 $1,804,000 _______________________ (Footnotes on following page) (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 Credit Agreement. (5) Represents the conversion of $76.7 million aggregate principle amount of Convertible Debentures which were converted into the Company's Common Stock in October 1994. (6) Represents the elimination of Purolator's stockholders' equity, less the effects of the conversion identified in Note 5 above.
(c) Exhibits 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date. 2.2 Offer to Purchase, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 (Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 10.1 Credit and Guarantee Agreement dated as of November 2, 1994, among Mark IV Industries, Inc., as Borrower, Mark IV Transportation Products Corp., Gulton Industries, Inc., Dayco Products, Inc., Electro-Voice Incorporated, Anchor Swan, Inc. and Mark IV Acquisition Corp., as Guarantors, the banks and other financial institutions which are parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent and Bid Agent, and BA Securities, Inc., as Arranger, incorporated by reference to exhibit (b)(2) to Amendment No. 3 to Schedule 14D-1 (Tender Offer) dated November 2, 1994, as filed with the SEC on such date. 13.1 * Audited Consolidated Financial Statements of Purolator Products Company for the three years in the period ended December 31, 1993. 13.2 * Unaudited Condensed Consolidated Financial Statements of Purolator Products Company for the nine month period ended September 30, 1994. 23.1 * Consent of Independent Public Accountants. 27 * Financial Data Schedule for the Financial Statements of Purolator Products Company for the nine month period ended September 30, 1994. _______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MARK IV INDUSTRIES, INC. BY: /s/ Richard L. Grenolds ----------------------- Richard L. Grenolds Vice President and Chief Accounting Officer Dated: November 9, 1994 ---------------- Exhibit Index Description 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date. 2.2 Offer to Purchase, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 (Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 10.1 Credit and Guarantee Agreement dated as of November 2, 1994, among Mark IV Industries, Inc., as Borrower, Mark IV Transportation Products Corp., Gulton Industries, Inc., Dayco Products, Inc., Electro-Voice Incorporated, Anchor Swan, Inc. and Mark IV Acquisition Corp., as Guarantors, the banks and other financial institutions which are parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent and Bid Agent, and BA Securities, Inc., as Arranger, incorporated by reference to exhibit (b)(2) to Amendment No. 3 to Schedule 14D-1 (Tender Offer) dated November 2, 1994, as filed with the SEC on such date. 13.1 * Audited Consolidated Financial Statements of Purolator Products Company for the three years in the period ended December 31, 1993. 13.2 * Unaudited Condensed Consolidated Financial Statements of Purolator Products Company for the nine month period ended September 30, 1994. 23.1 * Consent of Independent Public Accountants. 27 * Financial Data Schedule for the Financial Statements of Purolator Products Company for the nine month period ended September 30, 1994. _______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. EX-13.1 2 Exhibit 13.1 INDEX TO PUROLATOR PRODUCTS COMPANY AUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Report of Independent Public Accountants with respect to the Consolidated Financial Statements of Purolator Products Company and subsidiaries as of December 31, 1993. 2. Consolidated Balance Sheets as of December 31, 1993 and 1992. 3. Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and 1991 4. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991 5. Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 6. Notes to Consolidated Financial Statements 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 & CO. Tulsa, Oklahoma February 11, 1994 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1993 1992 (Expressed in thousands) 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 The accompanying notes are an integral part of these consolidated financial statements. PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 1993 1992 1991 (Expressed in thousands, except per share amounts) 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 principle - - (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 Principle - - (2.04) Net Income (Loss) $ 1.59 $ 1.29 $ (6.51) Weighted Average Shares Outstanding 11,182 8,550 8,500 The accompanying notes are an integral part of these consolidated financial statements.
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Expressed in thousands, except share amounts) Additional Additional Minimum Cumulative Paid-In Accumulated Pension Translation Shares Amount Capital Deficit Liability Adjustment Total Balance, January 1, 1991 8,500,000 $ 85 $263,831 $(106,994) $ (1,423) $ 1,318 $156,817 Changes in Additional Minimum Pension Liability - - - - 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 Liability - - - - 329 - 329 Issuance of Stock, net 1,612,500 16 22,645 - - - 22,661 Environmental Indemnification by Former Parent - - 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 Liability - - - - (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 ========== ===== ======== ========= ======== ======= ======== The accompanying notes are an integral part of these consolidated financial statements.
PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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 activities: 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 dispositions: (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 assets (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 n noncurrent liabilities (489) (1,773) (1,211) Increase (decrease) in postretirement employee 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 activities 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 activities (21,674) 12,115 (18,734) Increase (decrease) in cash and cash equivalents 2,296 (3,384) 2,209 Cash and cash equivalents, beginning of period 3,411 6,795 4,586 Cash and cash equivalents, end of period $ 5,707 $ 3,411 $ 6,795 Supplemental disclosures of cash flow information: Interest payments $ 3,125 $ 9,112 $ 8,760 Tax payments 4,818 907 369 The accompanying notes are an integral part of these consolidated financial statements. 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: Years Land improvements 10-35 Leasehold improvements 3-30 Buildings and improvements 3-66 Machinery and equipment 3-18 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. 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). 2. DETAILS TO CONSOLIDATED BALANCE SHEETS: December 31, 1993 1992 (Expressed in thousands) 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 December 31, 1993 1992 (Expressed in thousands) 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 Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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 adjustments (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 3. DEBT: December 31, 1993 1992 (Expressed in thousands) Revolving credit facility with a group of banks, interest at 6.1% $10,000 $30,000 Term credit agreement with a group of banks, interest 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 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 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): Aggregate Maturities 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 At December 31, 1993, the Company had available revolving credit facilities aggregating $67.3 million with $10.1 million drawn under these facilities. 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: Year Ended December 31, 1993 1992 1991 (Expressed in thousands) Domestic $15,988 $ 9,352 $(37,005) Foreign (169) (1,022) (575) Total $15,819 $ 8,330 $(37,580) Federal, state and foreign income tax provision (benefit) consists of the following: Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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) A reconciliation of federal statutory and effective income tax rates is shown below: Year Ended December 31, 1993 1992 1991 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 assets (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)% 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: December 31, January 1, 1993 1993 (Expressed in thousands) 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 obligations $ 25,985 $ 26,004 Environmental reserve not currently deductible 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 $ - 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, 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: Number of Price Per Shares Share 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 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. Net periodic pension cost includes the following components: Year Ended December 31, 1993 1992 1991 (Expressed in thousands) Service cost - benefits earned during the period $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 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:
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) ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation $ - $ 53,394 $ 41,914 $ 5,170 Accumulated benefit obligation - $ 55,570 $ 43,538 $ 6,957 Projected benefit obligation - $ 60,299 $ 48,904 $ 7,145 Plan assets at fair value - 42,932 45,947 1,488 Projected benefit obligation (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 adjustment - (13,377) - (2,730) --------- --------- --------- ------- Prepaid pension cost (pension liability) recognized in the consolidated balance sheet $ - $(12,885) $ 3,434 $(5,469) ======== ======== ======== =======
Assumptions used were: Year Ended December 31, 1993 1992 1991 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% 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. 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: Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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 The following table sets forth the plans' combined status reconciled with the amounts included in the consolidated balance sheets: December 31, 1993 1992 (Expressed in thousands) 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 obligation 59,192 52,382 Unrecognized net gain from past experience differences 5,088 12,070 Accrued postretirement benefit cost $64,280 $64,452 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. 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): 1994 $ 6,918 1995 5,325 1996 4,756 1997 2,495 1998 723 Thereafter 752 $20,969 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): Year Ended December 31, 1993 1992 1991 Executive compensation $ - $2,888 $ - Reserve for environmental costs (see Note 8) - - 26,480 Other write-downs and charges - - 13,500 $ - $2,888 $39,980 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 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. Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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 10. DETAILS TO CONSOLIDATED STATEMENTS OF OPERATIONS: Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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 11. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (Unaudited):
1992 First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- (Expressed in thousands, except per share data) 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
1993 First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- (Expressed in thousands, except per share data) 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
12. BUSINESS SEGMENT INFORMATION:
Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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)
FOREIGN AND DOMESTIC OPERATIONS Year Ended December 31, 1993 1992 1991 (Expressed in thousands) 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)
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. At December 31, 1993 and 1992, trade receivables related to these group concentrations were: December 31, 1993 1992 (Expressed in thousands) 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 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. EX-13.2 3 Exhibit 13.2 INDEX TO PUROLATOR PRODUCTS COMPANY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Condensed Consolidated Balance Sheet as of September 30, 1994. 2. Condensed Consolidated Statements of Operations for the nine months ended September 31, 1994 and September 30, 1993. 3. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and 1993. 4. Notes to Condensed Consolidated Financial Statements. PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Expressed in thousands, except per share amounts) Nine Months Ended September 30, 1994 1993 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 affiliates 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 See notes to condensed consolidated financial statements. PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Expressed in thousands) September 30, 1994 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 authorized, 11,095,674 and 11,212,500 shares issued and outstanding 111 Other stockholders' equity 177,571 Total stockholders' equity 177,682 Total liabilities and stockholders' equity $388,806 See notes to condensed consolidated financial statements. PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Expressed in thousands) Nine Months Ended September 30, 1994 1993 Cash flows from operating activities: Net income $ 10,156 $ 13,118 Adjustments to reconcile net income to net cash provided 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 (1,966) 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 See notes to condensed consolidated financial statements. 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) September 30, 1994 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 (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. PUROLATOR PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 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. Nine Months Ended September 30, 1994 1993 Pro forma earnings per share $0.91 $0.67 (6) Subsequent Event - 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 1994, the Purchaser had accepted for payment an additional 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 Company will be merged with the Purchaser 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 Mark IV Acquisition Corp. 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. EX-23.1 4 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Mark IV Industries, Inc. Form 8-K dated November 2, 1994 of our report dated February 11, 1994 on the financial statements of Purolator Products Company as of December 31,1 993 and 1992 and for the years ended December 31, 1993, 1992 and 1991. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1993 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Tulsa, Oklahoma November 4, 1994 EX-27 5
5 This schedule contains summary financial information extracted from the financial statements of Mark IV Industries, Inc. and is qualified in its entirety by reference to such financial statements. 1,000 QTR-3 DEC-31-1994 SEP-30-1994 9,557 0 92,074 9,353 73,145 176,195 130,521 51,756 388,806 88,548 43,647 111 0 0 177,571 388,806 354,624 354,624 270,543 66,289 718 1,051 3,026 15,196 948 16,691 0 0 (6,535) 10,156 .91 0
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