-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N18l1G9v+DedIGtL/UMz/L/rb9Ypk/UGuHmA4a7jftijKm5TJ7gYLfRPmvXnZakQ s0JRFlpWplIeXxap4TKSAg== 0000062418-98-000003.txt : 19980529 0000062418-98-000003.hdr.sgml : 19980529 ACCESSION NUMBER: 0000062418-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980528 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK IV INDUSTRIES INC CENTRAL INDEX KEY: 0000062418 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 231733979 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08862 FILM NUMBER: 98633380 BUSINESS ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PKWY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 BUSINESS PHONE: 7166894972 MAIL ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PARKWAY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 FORMER COMPANY: FORMER CONFORMED NAME: MARK FOUR HOMES INC DATE OF NAME CHANGE: 19770921 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended February 28, 1998 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________________ to ______________________ Commission File No. 1-8862 MARK IV INDUSTRIES, INC. - --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 23-1733979 - ------------------------------- ----------------------------------- (State or other jurisdiction of (IRS employer Identification number) incorporation or organization) 501 John James Audubon Pkwy., P.O. Box 810, Amherst, NY 14226-0810 - ------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 689-4972 Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered -------------- ----------------- Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant based on the closing price of the Common Stock on May 19, 1998 on the New York Stock Exchange was $1,128,332,066. As of May 19, 1998, the number of outstanding shares of Registrant's Common Stock, $.01 par value, was 59,144,317 shares. Documents Incorporated By Reference Portions of the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year are incorporated by reference into Part III. 2 MARK IV INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K PART I Page Item 1: Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Item 2: Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 3: Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19 Item 4: Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . 19 PART II Item 5: Market for the Company's Common Stock and Related Security Holder Matters. . . . . . . . . . . . . . . . 19 Item 6: Selected Financial Data . . . . . . . . . . . . . . . . . . . . 20 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 8: Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Item 9: Disagreement on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 55 PART III Item 10: Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Item 11: Executive Compensation. . . . . . . . . . . . . . . . . . . . . 55 Item 12: Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . 55 Item 13: Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 55 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 55 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 63 3 PART I ITEM 1. BUSINESS - ------ -------- General - ------- Mark IV Industries, Inc. ("Mark IV" or "the Company") is a diversified manufacturer of a broad range of proprietary and other power and fluid transfer products and systems which serve primarily industrial and automotive markets. Many of Mark IV's product groups 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 sold primarily directly, but also 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 71 manufacturing facilities and 45 distribution and sales locations and employs approximately 17,000 people in 20 countries. Mark IV's business strategy is focused on building its worldwide Automotive and Industrial business segments through internal growth and selective strategic acquisitions, and the continuation of cost control and quality improvement programs. The Company's operating strategy emphasizes establishing cooperative programs with customers to engineer, design and develop higher value-added systems in addition to individual products, the introduction of new, more cost effective and durable products and systems, and management for continuous improvement. In furtherance of these strategies, over its last five fiscal years, Mark IV has: (i) enhanced its ability to provide a broader range of products to its existing customers through its $286.3 million acquisition of Purolator Products Inc. ("Purolator"), a leading manufacturer of automotive and industrial filtration products and systems in late- fiscal 1995; (ii) established a joint venture in Brazil and is in the process of establishing manufacturing facilities in Argentina and Brazil; (iii) established distribution centers to serve markets in Latin America and the Pacific Rim, and acquired manufacturing and distribution facilities in Mexico; (iv) increased its industrial hose and couplings production capacity and strengthened its position in the hose and couplings products market through its $78 million acquisition of Imperial Eastman at the beginning of fiscal 1997; (v) emphasized continuous product development, with a portion of its current sales arising from the introduction of new products or products which have been redesigned; (vi) initiated during fiscal 1997 a restructuring of the Company's manufacturing and distribution facilities to make them more focused and cost effective; and (vii) expanded its international presence and capabilities to include air handling systems in its existing automotive fuel and fluid handling business through its $60 million acquisition of LPI Systemes Moteurs S.A. ("LPI") in October 1997. 4 Recent Developments - ------------------- In May 1998, the Company announced the completion of its 7.3 million share repurchase program initiated in March 1997. The stock was purchased at an average price of $22.00 per share, for a total cost of $160.7 million, with 3.8 million shares being repurchased in the first quarter of fiscal 1999 at an average cost of $21.00 per share. Upon completion of the buyback program, the Company's Board of Directors authorized the purchase of an additional ten million shares, representing approximately 17 percent of the Company's current shares outstanding. Under the new authorization, the stock will be purchased in the open market or through privately negotiated transactions, from time to time, at prices the Company considers to be attractive. In October 1997, as a part of its strategy to pursue selective strategic acquisitions and expand its international presence, the Company acquired LPI for a cash purchase price of approximately $60 million. LPI operates three manufacturing facilities in France, and supplies plastic air admission systems, which include air intake manifolds and cooling modules produced by injection, welding and blow molding technologies, for the automotive OEM markets. The LPI acquisition enables the Company's Automotive segment to expand its systems capabilities to include air handling systems in addition to the segment's existing fuel and fluid handling capabilities. In October 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 4-3/4% Notes). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. In August 1997, the company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 7-1/2% Notes) at a purchase price of 99.471% of their face amount. The Company used a portion of the net proceeds from the transactions described above to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003 (the 8- 3/4% Notes). During fiscal 1998, $184.9 million of the 8-3/4% Notes were acquired in open-market purchases and the remaining $73.1 million of the 8- 3/4% Notes were called and redeemed on April 2, 1998. In the third quarter of fiscal 1997, the Company announced a major restructuring program aimed at focusing its businesses into two primary operating units--Industrial and Automotive--with dedicated managements, as well as manufacturing and distribution facilities, while at the same time, capitalizing on common technologies. The restructuring resulted in a pre-tax charge against earnings of $112.5 million in fiscal 1997, with $51.8 million non-cash portion of the charge representing primarily asset write-offs and pension benefits to be paid out of the Company's pension fund. The Company expects to complete the restructuring and to begin to realize net benefits from the restructuring in the third quarter of fiscal 1999--about six months behind the Company's original estimates. 5 During fiscal 1997, as part of the Company's strategy to become more focused within its Industrial business segment, the Company sold its Professional Audio, Vapor Corporation, Interstate Highway Signs, and Eagle Signal businesses and certain other non-operating assets. At the beginning of 1998, the Company also sold its Gulton Data Systems and LFE Industrial Systems businesses. The total of all of these divestitures generated gross proceeds of approximately $313 million. Segment Information - ------------------- The Company classifies its operations into the following two business segments: (i) Mark IV Industrial, which includes the design, manufacture and distribution of power and fluid management systems and components for industrial OEM and distribution markets worldwide; and (ii) Mark IV Automotive, which includes the design, manufacture and distribution of (a) power transmission, fuel, and fluid handling systems and components, and (b) filters and filtration systems, for the global automotive aftermarket and OEM (original equipment manufacturers) market. Financial information regarding the business segments is presented in Note 13 to the Company's audited consolidated financial statements included elsewhere herein. A more detailed discussion concerning the make-up of the Company's two business segments follows. MARK IV INDUSTRIAL Mark IV Industrial provides Power and Fluid Management components and systems, Transportation and Other, and Specialty Filtration products to customers around the world. Representing 45% of Mark IV's total revenue base, Mark IV Industrial's sales were approximately $1.0 billion in fiscal 1998. The Company's focus in this segment includes serving its customers better by expanding product offerings and improving quality and delivery, while at the same time enhancing the utilization of its resources. The Company's efforts in these areas are geared to position it as a significant supplier of industrial products in targeted markets. Combining the strengths of its brands, including Dayco(R), Purolator(R), Swan(R), Imperial Eastman(R), Facet(R), Mark IV IVHS, Luminator, F-P Electronics, Caplugs(R) and Statham, Mark IV Industrial is organized into three primary operating units: Dayco Industrial, Transportation and Other, and Specialty Filtration. Dayco Industrial Dayco Industrial's future growth is focused on two primary areas: Power and Fluid Management. Its Power Management systems and components are used in the transmission of power - either mechanically or through the use of hydraulics or fluid power, while its Fluid Management products are used in the movement containment, processing, treatment or control of fluids. The systems and components in these areas primarily consist of a variety of belts, tensioners and pulleys; and hoses, couplings and assemblies, which are specially designed for a variety of industrial applications. 6 During fiscal 1998, the Company completed its acquisitions of Imperial Eastman Australia, Australian Hose Manufacturing and Rubicon Industrial, adding about $21 million to its annual revenue base. The addition of these companies expanded the Company's industrial products lines, and increased the group's penetration in Australia. In the Power and Fluid Management areas, the Company is focused on developing and supplying its products to the following targeted industrial markets: agriculture, petroleum and mining, chemical, construction, forest products, and manufacturing. In these markets, the Company's products are supplied directly to industrial OEMs, and through established distribution and retail networks Power Management Systems and Components Dayco manufactures specific lines of hydraulic hoses and couplings for use in the mining industry - a global industry encompassing both underground and above-ground processes, with each using different products and standards. Expanding its product offerings this year, Dayco introduced the Day Minemaster hose. The Minemaster hose is designed with thicker, more abrasion-resistant covers, larger diameter wire reinforcement, and thicker tubes to overcome the harsh mining environment. The new Minemaster hose, coupled with Dayco's existing Coalmaster hose, provides Dayco with complete hydraulic coverage in the mining industry. In Dayco's power transmission product line, which supplies synchronous drive belts, advances in rubber compounding, construction and design are responsible for the belt's performance, design flexibility, while saving space, weight, energy and cost. In most instances, RPP Plus synchronous drive belts will replace old-fashioned timing belt, roller chain and gear-driven drives, in addition to providing high-torque, high-efficiency performance. Fluid Management Systems and Components The Dayco Poly-Chem Ultra hose was designed and manufactured especially for the chemical industry. The patented inside tube handles most common industrial chemicals, while the high grade outside cover is abrasion resistant, non-marking, and easy to clean. The Poly-Chem Ultra can handle a wide range of temperatures, comes in a variety of lengths, is extremely flexible, safer and lighter than other chemical hoses in the same class. In the consumer products arena, Dayco Swan introduced the Hoserap - a unique new hands-free garden hose currently being patented. Sold with a sprinkling attachment, this handy water dispensing product has a flexible coil inside of the hose with a "Memory" that allows it to be wrapped around stationary objects, such as posts or lawn furniture, for hands-free sprinkling. Manufacturing Update Dayco Industrial's manufacturing performance - and versatility - were significantly enhanced during the year by the addition of manufacturing space in Alliance, Nebraska; El Paso, Texas; and Manitowoc, Wisconsin. 7 Expanding its rigid mandrel hose capability, approximately 90,000 square feet of manufacturing space was added to Dayco's Alliance plant to produce high-pressure spiral wire hose for agricultural, construction and mining equipment. Now fully operational, Dayco opened a manufacturing facility in El Paso, Texas, to provide hose and belt products to its floor care customers. In Manitowoc, a new kind of hydraulic hose manufacturing process is now on line, which is expected to improve efficiencies and reduce labor costs. Dayco's "hybrid" hoses are manufactured from a newly developed, high-tech process which combines special rubber and plastic materials. Using these space age polymers has enabled Dayco/Eastman to offer new and innovative product differentiations to the mature hose industry. Technology Dayco Direct, a significant new improvement in customer communications in the industry, offers up-to-the-minute information to Dayco customers. Using Dayco Direct, customers have direct access to the unit's order entry system enabling them to place and track orders in real time, via the Internet. Another technological innovation is Dayco Industrial's Automation Link (DIAL) - the division's new technology-enabled selling system. DIAL allows the Company's sales force to access customer information and sales records from a laptop computer, check inventory, and quickly provide pricing information. The DIAL system improves communications, enables Dayco representatives to make calculations without waiting for reports from a central office and, ultimately, increases customers satisfaction by reducing cycle time. TRANSPORTATION AND OTHER The Company's Transportation businesses provide a variety of mass transit and traffic management systems to the transportation and infrastructure industries in North America, Europe and Asia. The group consists of Mark IV IVHS, Luminator Mass Transit, Luminator Aircraft and F-P Electronics in North America, as well as SLE, LLE and F-P Electronics, in Europe. The product lines include intelligent vehicle highway systems, and information display and lighting systems, which are sold to mass transit agencies, transportation authorities, bus, rail and aircraft OEMs, state and local municipalities, and the transportation aftermarket. Intelligent Vehicle Highway Systems Growth in the Company's transportation business was led by Mark IV IVHS, which supplies a variety of products, including transponders, readers and antennas, to the electronic toll market. To date, the largest project in this market is with the Interagency Group, which represents eleven transportation authorities in New York, New Jersey, Pennsylvania, Delaware and Maryland. Successful installations to date include the New York State Thruway, the New York City MTA Bridges and Tunnels, and the Port Authority. With significant growth in the Interagency Group and expansion of the E-ZPass system, more than 50% of travelers on the bridges and tunnels of New York are currently using E- ZPass. 8 Shipments of similar products have commenced to ISHTA, the major toll road authority in Illinois, under the name I-Pass(R), where daily toll transactions are comparable in volume to the very busy New Jersey corridor. In Canada, Highway 407, the first all-electronic toll road, was opened during the year, with Mark IV supplying both transponders and readers. In addition, orders have now been received for readers, transponders, and toll kits for the Massachusetts Turnpike Authority. In South Carolina, electronic toll collection, using Mark IV equipment, began in early March on the Cross-Island Parkway, Hilton Head Island. The Company's growth is driven not only by the success of the E-ZPass system, but also by finding new applications for equipment developed for electronic toll collection systems. Mark IV transponders are now used at both the Ambassador Bridge between Detroit, Michigan and Windsor, Ontario, and at the Peace Bridge near Buffalo, New York, for customs clearance of trucks at these border crossings. A truck's manifest is stored in a transponder, and is then transmitted to the border prior to crossing. This allows the border inspector to review the manifest, and either wave the truck on, or instruct it to pull over for further inspection, expediting the truck traffic at these heavily used border crossings. Also, at Pearson International Airport in Toronto, Ontario, Canada, our transponders are also used to control access to secured areas of the airport. Information Displays Mark IV is a leading worldwide supplier of electronic passenger information displays for public transportation vehicles. F-P Electronics manufactures the Optima(tm) line of hybrid LED magnetic disc displays. These displays are incorporated into bus and rail destination signs by Luminator and LLE. In Europe, Mercedes-Benz has selected LLE's Optima designs for several bus models, including the new Citaro. As a result of this selection, and the acceptance of this product by the market, LLE's manufacturing facilities will soon be doubled in size to accommodate this growth. Traffic Control Products SLE has made a significant addition to its product line with the introduction of traffic preemption products in London, England. These products enable a traffic signal to hold on green for high priority vehicles, such as ambulances and police cars. Mass Transit and Aircraft Products Luminator Mass Transit has been selected to supply internal lighting systems and external signs, over a three-year period, for the New York City Transit Authority's new subway cars. In addition, America's first Amtrak high-speed passenger trains will feature Luminator(R) lighting fixtures in every car. Luminator designed a variety of fixtures to compliment these sleek new cars to be built by Bombardier. Luminator Aircraft has obtained a contract to supply passenger service units on Boeing's 717 aircraft, as part of a joint development project between Luminator, Drager of Germany, Fischer of Austria, and Boeing, Douglas Products Division. The new passenger service units will complement the other products Luminator supplies on the 717, including entry, fluorescent aisle, and seat marker lights, and exit signs. Management believes this group has also realized success in the aftermarket segment of the aircraft industry. 9 In addition, Luminator Aircraft Products has entered into a joint agreement with Ta Yih Industrial Co. Ltd. Of Taiwan to furnish Luminator's night vision compatible interior and exterior lighting for Sikorsky military and police helicopters in Taiwan. Other Industrial Products Also included in this sector of the industrial business segment is the Company's Protective Closures' Caplugs division, which manufactures, plastic, metal, and vinyl caps, plugs, edge liners and protective netting sold to a broad base of industrial and automotive OEM customers, and the Mokon division, which produces circulating oil and water temperature control systems. The Company's Statham unit is a supplier of pressure measurement transducers for use in commercial aviation, aerospace and corrosive process markets. NRD is a leading supplier of ionization elements used in smoke detectors, and also manufactures self-energized, luminous exit signs, and static control devices used mainly in the electronics and printing industries. Kirkhof/Goodrich manufacturers resistance welding products and transformers primarily for the automotive industry. SPECIALTY FILTRATION The Company's Specialty Filtration products include specialized industrial fluid filters; heating and air conditioning filters for residential, commercial and industrial users; and highly technical filters and filtration systems. These products are provided by the Company's Purolator Filter Products, Facet International, and Purolator Products Air Filtration operations. Purolator Filter Products Through Purolator Filter Products, Mark IV Industrial provides specialized industrial fluid filters for the aeropower, fluid processing, and general industrial markets, as well as for government and military applications. This unit has developed a sand control filtration technology for use in the exploration and extraction of crude oil. By controlling formation sand, well life is enhanced and oil rigs can pump more crude oil, faster, and with less downtime caused by clogging - a common problem of current sand control filters. To assure worldwide market penetration, Purolator Filter Products entered into a strategic alliance with Halliburton, the world's leading provider of oilfield products and services. Under this agreement, Halliburton, through its worldwide sales, is marketing PoroPlus(tm) screens, the latest generation of sand control filters used in the oil and gas industry. The companies will share engineering, R&D, and manufacturing resources to strengthen their alliance and develop new products for the future. Facet International Facet International designs, manufactures and sells filters, oil and water separators, and refueling, filtration, anti-pollution, water recycling systems, and bilge separators, for all types of liquids, gases, or liquid gases, for aviation, marine, petrochemical, power generation and general industrial markets. 10 Facet is a worldwide provider of aviation refueling filtration and separation systems with direct operations in ten countries. The company has a significant number of technical approvals throughout the world for its commercial and military aviation products. In addition, Facet International recently developed a new type of bilge water separator to add to its already wide range of marine products. Purolator Products Air Filtration (PPAFC) Through PPAFC, Mark IV Industrial manufactures and distributes a broad range of heating, ventilation and air conditioning (HVAC) filters and filtration products for residential, commercial and industrial uses. These filters range from basic efficiency panel filters used in homes, to medium-and high-efficiency products used in office buildings, hospitals and manufacturing facilities. During fiscal 1998, PPAFC introduced the Purolator Filtration Systems' new line of HVAC housing and equipment for new construction and retrofit projects. The line includes specialized equipment for technical environments, such as contamination control and clean room applications. The addition of these products expands the Company's technical expertise and broadens its product offerings. Also during the year, two new products were added to PPAFC's line of Defiant(R) medial products. The Company has also expanded its high efficiency particulate air (HEPA) filter line to include high temperature modes. The expansion of the two marketing lines of ULTRA-cell(R) and Micro-Air(R) allows Purolator to participate in additional arenas such as the pharmaceutical and semiconductor cleanroom industries. Also added were HEPA & American Society of Heating, Refrigeration, and Air Conditioning Engineers (ASHRAE) filter housings for applications that have been requested by the Company's customers. The ASHRAE filter is a rigid box design engineered to provide medium and high efficiency filtration combined with a prolonged life cycle. Its rugged design and construction makes this filter effective in challenging applications where high humidity, turbulent airflow, intermittent water exposure, and elevated operating temperatures exist. OUTLOOK Mark IV Industrial hopes to achieve growth in the coming decade by developing and supplying products to its targeted markets. Acquisitions and strategic alliances created through collaborative engineering with customers and specific product expertise, will provide additional areas of opportunity. In the global marketplace, demand is increasing for the systems and components that Mark IV Industrial is strategically positioned to provide. By focusing on specific market segments where the Company has leadership positions, and expanding our product offerings within these areas, as well as in the geographic regions in which the Company participates, the Company will continue to generate new growth opportunities. 11 Mark IV Industrial is committed to satisfying the needs of its customers by continuing to design, manufacture, and distribute its products in an efficient and cost effective manner. In addition Mark IV Industrial is committed to expanding its product offerings - through product line extensions, acquisitions and/or joint ventures - in order to expand its array of power and fluid management, transportation systems and components and specialty filtration products. In its targeted markets, growth is aimed primarily at strengthening Mark IV Industrial's position in North America, Europe, Latin America and the Asia/Pacific region. The Company is focused on allowing Mark IV Industrial to become a dominant player in targeted industrial markets, while better serving its customers. MARK IV AUTOMOTIVE Mark IV Automotive designs, manufactures and sells a variety of high quality automotive systems and components to the global automotive industry. Sales in this segment were approximately $1.2 billion in fiscal 1998, representing 55% of Mark IV's total revenue in the year. Approximately 62% of the segment's sales were to OEM/OES customers, while the balance of the Company's automotive products were sold to the aftermarket. Mark IV Automotive is focused on expanding its business to become a more global supplier of safety, environmental and comfort related products to the automotive industry. During fiscal 1998, Mark IV Automotive's sales increased 7%, excluding results from newly acquired businesses, while strategic acquisitions in Europe added approximately $94 million to its annual revenue base. In addition to adding to sales, the acquisitions of Mark IV Systemes Moteurs (previously LPI), Nuova Eletta and M-Filter also provided the Company with new products, technology and capacity. AUTOMOTIVE OEM/OES Mark IV Automotive designs and supplies engineered systems and components for the majority of automotive engine and platform manufacturers in the world today, primarily serving OEMs in North America and Europe, and to a lesser extent, in South America and Asia/Pacific. In the automotive OEM market, the Company's emphasis is on providing complete systems or subsystems to meet the needs of its customers. Management believes Mark IV Automotive is recognized as an innovator in its "systems" orientation, which helps OEM customers to minimize their fixed expenses, and allows the Company to increase its sales dollars per vehicle. The Company's efforts in this area over the past several years have been focused on expanding its technological and engineering capabilities. Today, Mark IV Automotive is one of the world's leading automotive systems manufacturers in the areas of power transmission, air intake, fuel, fluid handling and filtration. 12 Technical Centers Mark IV Automotive has ten technical centers located in the U.S. and Europe, each of which is dedicated to the development of products in its core product areas. Research and development activities and resources are coordinated throughout these centers. As a result, the Company is able to avoid duplication and can capitalize on developments and improvements made in its core technologies. Mark IV Automotive is customer oriented. During fiscal 1998, the company improved its organization structure in order to better serve its customers' needs. The biggest change can be found in the OEM/OES business, where Mark IV Automotive now manufactures and distributes its automotive systems and components through three new divisions: the Engine Division, Platform Division and Filter Division. ENGINE DIVISION The Engine Division includes systems and components which address customers' Power Transmission and Air Intake needs. Power Transmission Systems Mark IV Automotive is a leading manufacturer of accessory drive and camshaft drive systems consisting of components such as belts, pulleys, idlers, tensioners and dampers, as well as starter drives, for the global automotive market. The power transmission group is focused on providing fully designed front end accessory drive systems, which offer customers increased value and improved performance. During fiscal 1998, this group was successful in securing front-end accessory drive business for future model years, from both North American and European customers. In addition, three new starter drive products for use in heavy duty diesel engine applications were released during the year. The Company also received numerous top quality awards from customers, both domestically and abroad. Operationally, all of Mark IV automotive's power transmission manufacturing facilities have received QS-9000 registration, and are working toward receiving ISO-1400 certification for their environmental control processes. Last year, a wholly-owned subsidiary, Dayco Argentina, S.A., was established in Cordoba, Argentina, to provide camshaft and accessory drive systems and components to the South American automotive OEM market and the aftermarket. With construction now complete and production scheduled to commence during the second fiscal quarter of fiscal 1999, the Company will be better positioned to serve its European OEM customers in that region, including Fiat, Volkswagen, Renault and Peugeot. Air Intake Systems New this past fiscal year, and also included in the Engine Division, are air intake systems, which include a variety of high quality air intake manifolds, engine cooling systems and components, ducts, thermostat housings, brake fluid, surge and power steering tanks, and water pumps. 13 Mark IV Automotive entered this market through the October 1997 acquisition of LPI (now known as Mark IV Systemes Moteurs), and the July 1997 acquisition of Nuova Eletta. Mark IV Systemes Moteurs has three manufacturing facilities and a technical center in France, while Nuova Eletta has a production facility in Italy. On a combined basis, these new operations provide plastic air admissions systems, including air intake manifolds and cooling modules produced by patented injection molding, welding, and blow molding processes. The addition of Mark IV Systemes Moteurs significantly improves Mark IV Automotive's competitive position and expands its product offerings. Sold primarily in Europe to leading automotive companies, including Peugeot, Citroen, Renault, Ford, BMW, Porsche and Volkswagen--these new products will now be marketed globally. PLATFORM DIVISION Mark IV Automotive's Platform Division provides systems and components to meet its customers' Fluid Handling and Fuel Systems needs. Fluid Handling Systems Mark IV Automotive is a world leader in the design and manufacture of fluid handling systems. The Company's fluid handling products consist of hoses and hose assemblies for power steering, air conditioning, oil cooler and other high-pressure applications, as well as radiator hose, heater hose and other related hoses, couplings and assemblies. Almost 50% of vehicles produced in Europe today include both air conditioning and power steering, while in the U.S., over 95% of all new vehicles are comparably equipped. The number of European cars which feature these products is growing at a faster rate than the overall market, representing a continuing growth opportunity for Mark IV Automotive in Europe. The Company's fluid handling unit is recognized as one of the few suppliers in North America with vertically integrated hose and metal tubing assembly operations. This integrated capability results in optimal product solutions for customers, enabling them to depend on a single supplier for complete design and manufacturing responsibility. The focus of the fluid handling group is to provide cost effective system solutions that solve a variety of problems. Mark IV Automotive's products are expected to operate in extreme conditions, including a wide range of temperatures, pressures, and corrosive environments, and to be able to handle fluids ranging from gases to liquids. These system requirements drive the need for innovative research and development of new generation materials and components, which are provided by the Company's technical centers in Ocala, Florida, and Torino, Italy. Mark IV Automotive has also been successful in integrating innovative NVH (noise and vibration) solutions into its fluid handling assemblies, generating several new NVH patents each year. 14 Fuel Systems Mark IV Automotive's fuel products include all systems and components required for the safe transport of fuel--from the gas tank inlet into a vehicle's gas tank, and from the tank into the engine. Mark IV Automotive's products vary from completed systems to individual components, including tubes, hoses, couplings, fuel fillers, fuel pumps and other assemblies, fittings, valves, canisters, filters and quick connectors. These products are currently manufactured in North America, Europe and South America, and are sold to major OEM customers around the world. As automotive manufacturers continue to reduce their supply base, they are placing increased responsibility for engineering and testing on their suppliers, and sourcing complete systems rather than components. In response, Mark IV Automotive's fuel unit is focused on gaining competitive advantages by expanding its global presence, remaining market driven, and establishing alliances with customers, as well as other members of the automotive supply community. FILTER DIVISION Mark IV Automotive is a leading manufacturer in a complete line of automotive oil, air and fuel filters manufactured primarily in North America, and distributed in North America, Europe, South America and the Asia/Pacific region. On the OEM side of its business, new filter programs are in place which are strengthening its position with customers. All of the filters the Company manufactures are OEM-approved, and 33% of them are sold to original equipment service (OES) customers. The Company is utilizing its research and development capabilities, and working together with its customers to develop new oil, cabin air, fuel and in-tank fuel filters. Expansion of the Company's filter business in Europe began in fiscal 1998 with the acquisition of M-Filter, a manufacturer of air and oil filters located in Finland. This acquisition provides Mark IV Automotive with its first European filter manufacturing base. In addition, the Company supplies many of the filter needs of Renault, Toyota, Mazda, Subaru and Nissan. New product development is a key factor to ensuring the continued success of Mark IV Automotive, and to meeting the demand for new technology from the rapidly changing automotive market. Mark IV Automotive's new TASO (Take Apart Spin On) environmental oil filter -- with its permanent housing and replaceable filter cartridge -- is "environmentally friendly" since the filter element is designed to be incinerated after use. The TASO is currently being tested on a number of Chrysler leased vehicles. Mark IV Automotive's relationship with Chrysler, combined with its pro-active environmental stance, led to Mark IV Automotive being selected to design and supply a similar product for the Chrysler/BMW joint venture engine, to be manufactured in South America and sold into Europe and North America. 15 AUTOMOTIVE AFTERMARKET In the automotive aftermarket, Mark IV Automotive provides an array of automotive belts, hoses, filters and accessories to automotive warehouse distributors, oil companies, quick lubes, original equipment service centers, retail and auto parts chains, mass merchandisers, farm and fleet stores, and hardware distributors. The belts and hoses manufactured and marketed primarily under the company's Dayco(R) brand name, and the Company's Purolator(R) brand filters, are widely recognized. Through its restructuring activities, these two core product lines have been integrated, streamlining the Company's sales and marketing operations. In fiscal 1998 the Company opened a new, state-of-the-art, distribution center in Fayetteville, North Carolina, to supply aftermarket products to customers in the eastern portion of the U.S. Reflecting a new approach to aftermarket distribution, the 506,000 square foot Fayetteville center consolidated four facilities into a single, more efficient operation that is 130,000 square feet smaller than the older facilities combined. Fayetteville's warehouse system is fully computerized and utilizes paperless radio frequency (RF) equipment and bar coding technology, reducing costs, shortening order turnaround time and improving accuracy. The Company's European aftermarket sales organization was streamlined during fiscal 1998, eliminating costs and improving customer service. During the year, the Company began selling its filter products to the Russian marketplace, and is in the process of introducing belts and other products to the region. The Company also extended its range of timing belt kits -- which include both a belt and a tensioner -- to its European customers. OUTLOOK Mark IV Automotive has experienced significant growth over the past several years. Increased capital spending has resulted in improved productivity and competitiveness, which has helped support this segment's sales growth. Continued growth in the Company's automotive business will be achieved both internally, by increasing product content/dollar value per vehicle in both existing and new markets, and externally, through acquisitions which broaden product offerings in core technology areas and/or expand the company's presence into new or developing geographic regions. In addition, the Company will continue to provide its customers with quality products and service, while improving efficiencies and reducing costs. Mark IV Automotive's strength lies in its focus on the design, development and manufacture of new or improved safety, environmental and comfort related automotive products, predominantly for the OEM market. The company's technological capabilities, combined with increased investments in research and development, will allow it to continue working with its customers to provide solutions to today's automotive problems, and meet the needs of tomorrow. 16 The future of Mark IV Automotive will require an increased focus on the OEM market, and leveraging its strength in this market to provide OEM-approved products to its aftermarket customers. During fiscal 1999, the Company will work on strengthening its aftermarket operations. This concentration, combined with the Company's more streamlined operating structure and ongoing rationalization activities, will help improve its position in today's global automotive marketplace. Marketing and Competition - ------------------------- Mark IV's products are marketed primarily in the United States and Europe, and to a lesser extent in Canada, Latin America and the Far East. The Company uses its own sales engineers and other sales personnel, independent distributors and sales representatives to market its products. A majority of the Company's products have a significant and in many instances the leading market share in their respective markets. Most of the markets for the Company's products are characterized by a limited number of competitors; however, competition in certain of those markets is intense. Some of the Company's competitors are substantially larger than Mark IV and have greater financial resources. The Company competes on the basis of price, quality, technical innovation and its ability to fill orders promptly, with the relative importance of each factor depending on the market for the particular product. Backlog - ------- The Company does not believe that the backlog of orders for any of its products is material to the Company as a whole. Patents and Trademarks - ---------------------- Although a number of patents and trademarks have been issued to the Company and its subsidiaries, the Company believes its competitive position is more dependent on its technical knowledge and processes than on patent or trademark protection. The Company believes, however, that its trademarks and tradenames used in connection with certain products may be significant to its business. Research and Development - ------------------------ The Company is engaged in ongoing research and development in connection with new and existing products and systems. Research and development expenditures are expensed as incurred, and amounted to $48.5 million; $44.5 million and $36.8 million for the Company's continuing operations in fiscal 1998, 1997 and 1996, respectively. It is anticipated that such costs will increase as a percentage of sales in fiscal 1999 as a result of a number of new product and systems initiatives which the Company is pursuing, as well as the introduction of new technology to the North American automotive OEM market from recent acquisitions in Europe. 17 Raw Materials and Supplies - -------------------------- The materials and supplies used to produce the Company's products are generally obtained from a wide variety of suppliers, and the Company has not experienced any shortages. Although certain materials are readily available from only a few suppliers, the Company does not anticipate any significant difficulties in obtaining any of these raw materials in the foreseeable future. Government Regulation - --------------------- Certain of the Company's electrostatic control devices, smoke-detector ionization elements and self-illuminating lights have radioactive components, the production, storage and transportation of which are subject to federal, state and local laws and regulations. Federal and state regulations also limit the amount of exposure the Company's employees may have to such radioactive materials. The Company has obtained the necessary licenses and approvals required for its businesses and believes it is in material compliance with all applicable regulations concerning radioactive materials and employee safety. A small portion of the Company's business is conducted pursuant to U.S. Government contracts or sub-contracts. Generally, government contracts and sub-contracts contain provisions permitting termination at any time at the convenience of the Government upon payment to the Company of costs incurred plus a profit related to the work performed to the date of termination. Substantially all of the Company's government contracts and sub-contracts contain these provisions. The Company, as a government contractor, is subject to various statutes and regulations governing defense contracts. Certain federal and state environmental superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties, regardless of fault. The Company has been designated as a potentially responsible party under these statutes at a number of sites. Based on the facts currently known to the Company, management expects that the costs to the Company of remedial actions at the sites where it has been named a potentially responsible party, will not have a material adverse effect on the Company's results of operations or financial condition. The Company's facilities are also subject to many other federal, state and local requirements relating to the protection of the environment, and the Company has made, and will continue to make, expenditures to comply with such provisions. The Company believes that its facilities are in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse affect on its results of operations or financial condition. The Company's operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the "Occupational Safety and Health Act" and regulations thereunder which, among other requirements, establish noise and dust standards. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse affect on its results of operations or financial condition. 18 Employees - --------- The Company currently employs approximately 17,000 persons, of whom approximately 13,200 are production employees, with the remainder serving in executive, administrative, engineering or sales capacities. The Company currently has approximately 2,500 North American production employees that are covered by 11 collective bargaining agreements which expire at various times through the year 2001. The Company believes its relationship with its employees is good. Other - ----- Mark IV was incorporated in Delaware in 1970 and its executive offices are at 501 John James Audubon Parkway, Amherst, New York 14226-0810. Its telephone number is (716) 689-4972. Information on Mark IV can be obtained on the Company's website at http://www.mark-iv.com. ITEM 2. PROPERTIES - ------- ---------- The table below summarizes the approximate floor space of the Company's corporate office and principal manufacturing facilities by business segment. Approximate Floor Space ----------------------- (In Thousands of Square Feet) Owned Leased Total ----- ------ ----- Corporate Office - 32,400 32,400 Industrial (1) (3) 3,652,100 713,300 4,365,400 Automotive (2) (3) 3,435,000 1,075,000 4,510,000 (1) Consisting of the following forty facilities: North American facilities (approximately 3,594,500 square feet): Springfield, MO; Fort Scott, KS; Alliance, NE; Eldora, IA; McCook, NE; Davenport, IA; Bucyrus, OH; Buffalo, NY; Vero Beach, FL; Stillwell, OK; Tulsa, OK; Henderson, NC; Kenly, NC; Davenport, IA; Sacramento, CA; Newark, NJ; Greensboro, NC; Mexico City, Mexico; Plano, TX; Mississauga, Ontario, Canada (2); Cobourg, Ontario, Canada; Grand Island, NY; Hudsonville, MI; Costa Mesa, CA; Manitowoc, WI (2); Barrie, Ontario, Canada; Red Wing, MN and El Paso, TX. International Facilities (approximately 770,900 square feet): Halesowen, U.K.; Torino, Italy; Barcelona, Spain; Treforest, Wales, UK; Lacoruna, Spain; Rastatt, Germany; and Nice, France; Perth, Australia; Sydney, Australia; and Adelaide, Australia. (2) Consisting of the following thirty-one facilities: North American facilities (approximately 2,836,400 square feet): Walterboro, SC; Williston, SC; Ocala, FL; Ft. Worth, TX; Springdale, AR; Weston, Ontario, Canada; Easley, SC; Lexington, TN; Fayetteville, NC; Salt Lake City, UT; Mississauga, Ontario, Canada; Detroit, MI and Big Rapids, MI. 19 International facilities (approximately 1,673,600 square feet): Torino, Italy (2); Baudour, Belgium; Chieti, Italy; Manopello, Italy; Varberg, Sweden; Ulricehamn, Sweden; Blidsberg, Sweden: Valperga, Italy; Follonica, Italy; Melbourne, Australia; Juatuba, Brazil; Cordoba, Argentinia; Orbey, France; Fraize, France; Chateauroux, France; Scarperio, Italy and Haapavefi, Finland; (3) The Automotive amounts include approximately 350,000 square feet from facilities listed in footnote 1 above. This amount represents a portion of Industrial manufacturing facilities which manufacture products the Company classifies in its Automotive segment. The Company also owns or leases various small production facilities, sales offices, distribution and research centers which are not included in the above list of properties. The Company believes that its existing facilities have sufficient capacity to meet its anticipated needs in each of its industry segments for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- One of the Company's subsidiaries has been named as a defendant in a number of litigation actions related to product supplied to one of the subsidiary's customers. The parties seek damages related to alleged defects in certain hose products manufactured by the subsidiary and included by the customer in its retail gasoline fuel delivery systems. The Company believes it has good and valid defenses against the claims, and has submitted a counter-claim against the customer. The Company is also involved in various other legal 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, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER - ------- ----------------------------------------------------------------- MATTERS ------- The Company's Common Stock is listed on the New York Stock Exchange (Symbol: IV). The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of the Company's Common Stock as reported by the New York Stock Exchange. All amounts have been adjusted for the 5% stock dividend declared in April 1998. Fiscal 1998 Fiscal 1997 ----------------- ----------------- Low High Low High --- ---- --- ---- 1st Quarter $22.143 $25.000 $18.125 $21.125 2nd Quarter $23.250 $25.438 $19.550 $22.375 3rd Quarter $22.000 $28.000 $19.000 $22.625 4th Quarter $20.250 $23.500 $19.875 $22.500 20 As of February 28, 1998, the approximate number of holders of record of the Company's Common Stock was 2,100. The Company declared total cash dividends of $.17 and $.14 per share during fiscal 1998 and 1997, respectively. ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- FIVE YEAR SUMMARY OF OPERATIONS (Amounts in thousands, except per share data) Fiscal Year Ended the Last Day of February, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Income Statement Data: Net sales from continuing operations $2,210,200 $2,076,000 $1,779,200 $1,306,400 $ 958,900 ========== ========== ========== ========== ========== Operating income (a) $ 238,300 $ 223,200 $ 188,300 $ 135,500 $ 104,100 ========== ========== ========== ========== ========== Restructuring charge - $ 112,500 - - - ========== ========== ========== ========== ========== Interest expense $ 61,600 $ 59,000 $ 52,600 $ 46,300 $ 43,100 ========== ========== ========== ========== ========== Income from continuing operations(b): Before restructuring charge $ 109,200 $ 100,200 $ 82,800 $ 55,000 $ 38,200 Restructuring charge - (67,500) - - - ---------- --------- --------- --------- ---------- Total continuing 109,200 32,700 82,800 55,000 38,200 Income from discontinued---------- --------- --------- --------- ---------- operations (b): Before divestitures - 5,900 9,600 12,900 12,900 Gain on divestitures - 17,500 - - - ---------- --------- --------- --------- ---------- Total discontinued - 23,400 9,600 12,900 12,900 ---------- --------- --------- --------- ---------- Extraordinary items (b) (10,600) - - (1,100) (21,700) Cumulative effect of accounting change(b) - - - - (26,000) ---------- --------- --------- --------- ---------- NET INCOME $ 98,600 $ 56,100 $ 92,400 $ 66,800 $ 3,400 ========== ========= ========= ========= ========== Basic earnings per share: Continuing operations: Before restructuring charge $ 1.70 $ 1.51 $ 1.25 $ 1.03 $ .78 Restructuring charge - (1.02) - - - --------- --------- --------- -------- --------- Total continuing 1.70 .49 1.25 1.03 .78 Discontinued operations:--------- --------- --------- -------- --------- Before divestitures - .09 .15 .24 .26 Gain on divestitures - .26 - - - --------- --------- --------- -------- --------- Total discontinued - .35 .15 .24 .26 --------- --------- --------- -------- --------- Extraordinary items (.16) - - (.02) (.44) Accounting change - - - - (.53) --------- --------- --------- -------- --------- NET INCOME $ 1.54 $ .84 $ 1.40 $ 1.25 $ .07 ========= ========= ========= ======== =========
21
Fiscal Year Ended the Last Day of February, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Diluted earnings per share: Continuing operations: Before restructuring charge $ 1.66 $ 1.50 $ 1.24 $ .96 $ .72 Restructuring charge - (1.01) - - - -------- --------- -------- -------- -------- Total continuing 1.66 .49 1.24 .96 .72 -------- --------- -------- -------- -------- Discontinued operations: Before divestitures - .09 .15 .21 .22 Gain on divestitures - .26 - - - -------- -------- -------- -------- -------- Total discontinued - .35 .15 .21 .22 -------- -------- -------- -------- -------- Extraordinary items (.16) - - (.02) (.37) Accounting change - - - - (.44) -------- -------- -------- -------- ------- NET INCOME $ 1.50 $ .84 $ 1.39 $ 1.15 $ .13 ======== ======== ======== ======== ======= Cash dividends paid per share $ .17 $ .14 $ .11 $ .10 $ .08 ======== ======== ======== ======== ======= Weighted average number of shares outstanding: Basic 64,100 66,300 66,200 53,600 49,100 Diluted 67,400 66,700 66,600 60,700 58,700
As of the Last Day of February, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Balance Sheet Data: Working capital $ 458,400 $ 364,600 $ 404,900 $ 379,700 $ 312,800 Total assets $2,420,500 $1,974,600 $2,013,100 $1,846,400 $1,282,300 Long-term debt $ 793,900 $ 528,500 $ 642,500 $ 610,700 $ 567,200 Stockholders' equity $ 752,000 $ 758,400 $ 725,500 $ 635,500 $ 345,400 ____________________________ (a) Income from continuing operations before restructuring charge, interest expense and taxes. (b) Net of related tax effects.
22 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Liquidity and Capital Resources - ------------------------------- The Company's short-term capital needs are met by cash generated through operations, and supplemented by borrowings under various credit facilities to the extent required. During fiscal 1998, net cash provided by earnings (income from continuing operations before restructuring and non-cash items) was $229.5 million, a 22% increase over the $187.6 million generated in fiscal 1997, which in turn represented an increase of $24.8 million (15%) over the $162.8 million generated in fiscal 1996. At February 28, 1998, the Company's working capital investment was $458.4 million, a net increase of $93.8 million (26%) in comparison to $364.6 million at February 28, 1997. Approximately $46.5 million of the increase was caused by the net effects of the purchase of short-term investments with a portion of the proceeds from the Company's issuance of 7-1/2% and 4-3/4% Notes ($119.6 million), partially offset by the reclassification of the 8-3/4% Notes which were called and redeemed on April 2, 1998 ($73.1 million). The remaining $47.3 million (13%) increase in the Company's working capital investment over the prior year is primarily related to operations acquired in fiscal 1998, and temporary working capital requirements to support the transition resulting from the Company's restructuring program. Management anticipates its working capital investment will be significantly reduced during fiscal 1999 as a result of the completion of its restructuring program and the implementation of a new company-wide incentive compensation plan which is focused on cash flow generation. The Company's working capital investment at February 28, 1997 represented a decrease of $40.3 million (10%) in comparison to the total at February 29, 1996. Capital expenditures related to continuing operations in fiscal 1998 were $156.5 million, which exceeded depreciation and amortization expense of $79.9 million for the year, and reflects an increase of $47.3 million over fiscal 1997's capital expenditures. The increased level of expenditures relates primarily to the Company's restructuring efforts, and secondarily to new facilities and equipment required to support new products and markets, including increased business opportunities in Europe and South America. Capital expenditures related to continuing operations in fiscal 1997 were $109.2 million, which exceeded depreciation and amortization expense of $69.0 million for the year, and reflects an increase of $18.7 million over fiscal 1996's expenditures of $90.5 million. The increased level of expenditures in fiscal 1997 relates to the Automotive segment, with new facilities and equipment expenditures required to support new products and increased business opportunities primarily in the U.S. and Italy, and also in its expansion efforts in Brazil, Argentina and Australia. Excluding the effects of Imperial Eastman, capital expenditures in the Industrial segment in fiscal 1997 were up slightly from the level incurred in fiscal 1996. Management anticipates that the Company's capital expenditure requirements will return to more normal levels in fiscal 1999 (approximately $80.0 million) as the Company completes its restructuring plan. Cash provided by earnings in fiscal 1998 was sufficient to fund the Company's capital expenditure investments, as well as the cash expenditure requirements of its restructuring efforts during the fiscal year. Management believes that cash generated from earnings will be more than sufficient to fund such needs for the foreseeable future. Management intends to utilize such excess, plus funds generated as a result of the Company's anticipated reduction in its working capital investment, to help fund the repurchase of its Common Stock, acquisitions and debt reductions. 23 In addition to the capital expenditures identified above, other investment activities of the Company during the past few years include the following: - - In October 1997, the Company acquired the net assets of LPI Systemes Moteurs S.A. (LPI) for a net cash purchase price of approximately $60 million. LPI, based in France, manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection molding, welding and blow molding technologies. LPI is included in the Company's Automotive business segment. The Company also made a number of smaller acquisitions in Europe and Australia during fiscal 1998 for a total cost of approximately $30.2 million. - - In March 1997, the Company announced its intention to acquire up to 7.3 million shares of its Common Stock outstanding. It is expected that such shares would be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through February 28, 1998, the Company acquired approximately 3.5 million of such shares, at an average cost of $23.14 per share, or a total cost of approximately $80.4 million. Subsequent to the end of the fiscal year, the Company acquired an additional 3.8 million of its shares at an average cost of $21.00 per share, or a total cost of approximately $80.3 million. These purchases completed the Company's 7.3 million share repurchase program, at an average cost of $22.00 per share, or a total cost of approximately $160.7 million. - - During fiscal 1997, the Company initiated a restructuring of its manufacturing and distribution facilities which is expected to improve customer service, reduce costs and dedicate its facilities to either the Automotive or Industrial business segments. The restructuring resulted in a pre-tax charge against earnings of $112.5 million, with $51.8 million related to cash expenditures required to be made primarily over a two-year period. The remaining $60.7 million non-cash portion of the charge represents primarily asset write-offs and pension benefits to be paid out of the Company's pension fund. Although the Company has experienced a delay of approximately 6 months from its initial timeline for the completion of its restructuring plan, it has now completed a substantial portion of its restructuring program. The Company expects to realize a net benefit from its restructuring activities beginning in the second half of fiscal 1999. - - During fiscal 1997, as part of the Company's strategy to become more focused within its Industrial business segment, the Company sold its Professional Audio, Vapor Corporation, Interstate Highway Signs and Eagle Signal businesses and certain other non-operating assets. In fiscal 1998, the Company sold its Gulton Data Systems and LFE Industrial Systems businesses. The total of all of these divestitures generated gross proceeds of approximately $313 million. - - At the beginning of fiscal 1997, the Company acquired the net assets of Imperial Eastman for a cash purchase price of approximately $78 million. Imperial Eastman is a manufacturer and marketer of a broad range of thermoplastic hydraulic and pneumatic hose assemblies, and steel and brass couplings, adapters and fittings for both high and low pressure applications. Imperial Eastman is included in the Company's Industrial business segment. 24 - - During fiscal 1997, the Company acquired the net assets of Cinotto Tecnomeccanica S.p.A. (CTM) for a cash purchase price of approximately $17.2 million. Near the end of fiscal 1996, the Company also acquired the net assets of FitzSimons Manufacturing Company (FitzSimons) for a cash purchase price of approximately $24.4 million. Both of these acquisitions are a part of the Automotive business segment, and enabled the segment to extend its systems delivery capability in its fuel systems and power transmission businesses worldwide. The Company's long-term capital needs are met by cash generated from earnings, bank financing, and public debt and equity offerings. Recent long-term financing activities include the following: - - In October 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 4-3/4% Notes). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. - - In August 1997, the Company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 7-1/2% Notes) at a purchase price of 99.471% of their face amount. - - The Company used a portion of the net proceeds from the transactions described above to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003 (the 8-3/4% Notes). During fiscal 1998, $184.9 million of the 8-3/4% Notes were acquired in open-market purchases and the remaining $73.1 million of the 8-3/4% Notes were called and redeemed on April 2, 1998. - - In March 1996, the Company entered into a $500 million, five-year non- amortizing revolving credit facility (the "Credit Agreement") with various financial institutions. The proceeds of the initial borrowings under the Credit Agreement were used to repay amounts outstanding under the Company's previously existing credit agreements. - - In March 1996, the Company also completed the sale of $250 million principal amount of its 7-3/4% Senior Subordinated Notes due 2006 (the 7-3/4% Notes). The net proceeds from the sale of the 7-3/4% Notes were used to reduce outstanding indebtedness under the Credit Agreement. As of February 28, 1998, the Company had borrowing availability under its Credit Agreement of $500 million and availability under its various other domestic and foreign demand lines of credit of approximately $174 million. 25 Foreign Currency - ---------------- The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. The Company's sales from foreign locations and exports are significant; therefore, the Company does enter into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in various foreign currencies. The maximum notional amount of foreign currency forward contracts outstanding at any one time during fiscal 1998 was not significant. Results of Operations - --------------------- The Company classifies its operations into the following two business segments: (i) Automotive, which includes the design, manufacture and distribution of (a) power transmission, fuel, and fluid handling systems and components, and (b) filters and filtration systems, for the global automotive aftermarket and OEM (original equipment manufacturers) market; and (ii) Industrial, which includes the design, manufacture and distribution of power and fluid management systems and components for industrial OEM and distribution markets worldwide. The results of operations of LPI, Imperial Eastman and the smaller acquisitions have been included in the Company's results of operations from their respective dates of acquisition, as reflected in the Company's audited financial statements, including the segment information identified in Note 13 to such financial statements. Results related to the Company's discontinued operations have been excluded from the results of continuing operations for all periods presented and discussed herein. Net sales from continuing operations increased $134.2 million (7%) in fiscal 1998 in comparison to fiscal 1997. Such sales were negatively effected by approximately $60.0 million as a result of unfavorable foreign currency exchange rate movements during fiscal 1998. If exchange rates in fiscal 1998 had remained consistent with the rates in effect in fiscal 1997, net sales from continuing operations in fiscal 1998 would have increased approximately 9% in comparison to fiscal 1997. The increase in fiscal 1998's sales was primarily attributable to internal sales growth, and to a lesser extent to the inclusion of the results of operations of LPI and several smaller acquisitions from their respective dates of acquisition. In the Company's Industrial segment, net sales in fiscal 1998 increased $36.2 million (4%) in comparison to fiscal 1997. Excluding businesses divested in fiscal 1997, net sales in fiscal 1998 increased approximately 8% in comparison to fiscal 1997. This increase was lead by internal growth in the segment's general industrial and transportation sectors in the U.S., while the Industrial segment's operations outside of the U.S. remained relatively flat, year over year. In the Company's Automotive segment, net sales in fiscal 1998 increased $98.0 million (9%) in comparison to fiscal 1997. Excluding LPI and several smaller acquisitions, the Automotive segment's net sales in fiscal 1998 increased approximately 7% in comparison to fiscal 1997. The internal growth in the Automotive segment was primarily generated by the segment's Automotive OEM 26 sector, with OEM growth in the U.S. leading the way. The Company's negative movements in foreign currency exchange rates during fiscal 1998 related primarily to the Automotive segments OEM business. In the Aftermarket sector, internal sales increased nominally in fiscal 1998 in comparison to fiscal 1997, with a slight increase on the maintenance (filters) side offset by a slight decrease in the traditional (belts and hose) side of the sector. Net sales in fiscal 1997 increased approximately $300 million (16.7%) in comparison to fiscal 1996, with approximately $190 million of the increase generated by the Industrial segment (a 24.5% increase) and approximately $110 million generated by the Automotive segment (a 11% increase). Reflecting the effects of acquisitions during the periods, the increase on a pro forma basis was approximately $140 million, with $75 million generated by the Automotive segment and $65 million generated by the Industrial segment, with each segment reflecting an increase of approximately 7% over fiscal 1996. The pro forma sales increase in the Automotive segment for fiscal 1997 was led by growth in markets outside of the U.S. of approximately 13%, with the majority of the increase occurring in both the aftermarket and OEM markets in Europe. The segment's sales in the U.S. were up approximately 4%, with the growth in the OEM market somewhat stronger than in the aftermarket. The pro forma sales increase in the Industrial segment for fiscal 1997 was led by growth in the U.S. markets of approximately 8%, while the segment's sales outside of the U.S. were up approximately 4%. Cost of products sold as a percentage of consolidated net sales were 67.7%, 67.8%, and 67.7% in fiscal 1998, 1997 and 1996, respectively. This consistent level of costs indicates the negative pressures on the margins experienced by both of the Company's business segments have been substantially offset by the positive effects of the Company's cost control and cycle time reduction programs. Benefits anticipated from the Company's restructuring plan have been substantially offset during the current year by operating inefficiencies resulting from the transition of the manufacture of certain products from one facility to another. It is anticipated that the Company's current restructuring program will have a net beneficial effect on the level of such costs beginning in the second half of fiscal 1999. Selling and administration costs as a percentage of consolidated net sales were 15.7%, 16.0% and 16.3% in fiscal 1998, 1997 and 1996, respectively. The reduced level of costs reflects operating efficiencies achieved from the integration of the operations acquired and the reorganization of the Company's business segments. The lower level of costs also indicates the Company's continued emphasis on cost control and cycle time reduction has been successful in offsetting the impact of inflation on such costs. Research and development costs increased by $4.0 million (9%) in fiscal 1998 in comparison to fiscal 1997, which in turn increased by $7.7 million (21%) in comparison to fiscal 1996. As a percentage of consolidated net sales, such costs were approximately 2.2% in each of fiscal 1998, 1997 and 1996. This consistent level of investment reflects the Company's continuing emphasis on new product development. It is anticipated that such costs will increase as a percentage of sales in fiscal 1999 as a result of a number of new product and systems initiatives which the Company is pursuing, as well as the introduction of new technology to the North American Automotive OEM market from recent acquisitions in Europe. 27 Depreciation and amortization expense increased by $10.9 million (16%) in fiscal 1998 in comparison to fiscal 1997, which in turn increased by $9.8 million (17%) in comparison to fiscal 1996. The increases are attributable to increased levels of capital equipment expenditures in the past two years to support the Company's restructuring efforts as well as new facilities and equipment required to support new products and markets and increased business opportunities in Europe and South America. The above mentioned items resulted in the following operating income (before the restructuring charge) for each of the fiscal years presented (dollars in millions): 1998 1997 1996 ---------------- --------------- --------------- % of % of % of Related Related Related Amount Sales Amount Sales Amount Sales ------ ------- ------ ------- ------ ------- OPERATING INCOME Automotive $132.7 11.0% $122.1 11.0% $ 110.6 11.0% Industrial 121.4 12.1% 120.5 12.5% 95.1 12.3% Total operating income before corporate expenses 254.1 11.5% 242.6 11.7% 205.7 11.6% Corporate expenses (15.8) (0.7)% (19.4) (0.9)% (17.4) (1.0)% Operating income $238.3 10.8% $223.2 10.8% $188.3 10.6% ====== ===== ====== ===== ====== ===== The $112.5 million restructuring charge recognized in fiscal 1997 relates to the Company's decision to realign and refocus its operations. The effect of this charge, after taxes, reduced income from continuing operations by $67.5 million, or $1.01 per diluted share of Common Stock. Interest expense in fiscal 1998 increased $2.6 million (4%) over fiscal 1997, which in turn increased $6.4 million (12%) over fiscal 1996. The increase is primarily due to borrowings incurred to finance the Company's stock repurchase program and the acquisition of LPI and several smaller acquisitions, as well as to support higher working capital levels. This increase was substantially offset by the benefits of proceeds from asset divestitures and reduced rates on the Company's domestic debt, primarily related to the issuance of the 7- 1/2% and 4-3/4% Notes to refinance higher rate debt. The increase in fiscal 1997 is primarily the result of increased borrowings required to finance the Imperial Eastman and FitzSimons acquisitions. The effective tax rate as a percentage of pre-tax accounting income for fiscal 1998 reflects an expense of 38.2%, compared to an expense of approximately 36.8% and 39% in fiscal 1997 and 1996, respectively. The reason for the fiscal 1997 rate differing from the other fiscal years is primarily due to the restructuring charge which provided a slightly higher tax benefit than the 39% blended rate on earnings before the restructuring charge. Excluding the effects of the restructuring charge, the Company's provision for income taxes as a percentage of pre-tax accounting income for fiscal 1997 was approximately 39%. The decrease in the effective tax rate in fiscal 1998 is primarily related to the benefit of increased domestic income resulting from internal growth that outpaced income growth in international locations with higher statutory tax rates than in the U.S. The higher rates in comparison to the U.S. statutory tax rate are primarily the result of income in international jurisdictions with higher statutory tax rates than in the U.S., and state and local taxes. 28 Income from continuing operations in fiscal 1998 increased $9.0 million (9%) over the comparable amount for fiscal 1997 (before the restructuring charge), which in turn increased $17.4 million (21%) over fiscal 1996. On a diluted per share basis, such amount for fiscal 1998 represents an increase of $.16 (11%) over the comparable amount for fiscal 1997, which in turn increased $.26 (21%) over fiscal 1996. The unfavorable foreign currency exchange rate movements had the effect of reducing diluted earnings per share by approximately $.07 in fiscal 1998. The Company's income from continuing operations in fiscal 1997 was made up of the following elements (dollars in thousands, except per share amounts): Elements of the Company's income from continuing operations: Income before restructuring charge $100,200 Restructuring charge (67,500) -------- Income from continuing operations $ 32,700 ======== Diluted income per share from continuing operations: Income before restructuring charge $ 1.50 Restructuring charge (1.01) -------- Income from continuing operations $ .49 ======== Year 2000 Issues - ---------------- Mark IV has developed a formal plan, called Project 2000, to ensure that all of its date-sensitive computer systems and other equipment utilized in its various manufacturing, distribution and administration activities will be Year 2000 compliant and operational on a timely basis. The plan addresses every Mark IV location throughout the world. It also includes a review of computer applications that directly connect elements of the Company's business to its customers and suppliers, as well as an assessment process to determine that all of its significant suppliers of materials, components and services also will be Year 2000 compliant. The Company's implementation of its Project 2000 plan involved capital expenditures for computer software and hardware, and, in certain instances, new or modified equipment. In many cases, the investments made for new systems and modifications not only provide for Year 2000 compliance, but also enhance the Company's current processes. The Company does not believe that the costs of achieving Year 2000 compliance will significantly impact the results of its operations or financial position. Impact of Inflation - ------------------- Although the Company has experienced delays in its ability to pass on certain inflation related cost increases, the Company does not expect that such delays or the overall impact of inflation will have a material impact on the Company's operations. 29 Forward-Looking Information - --------------------------- This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The Future Factors that may affect the operations, performance and results of the Company's businesses include the following: a. general economic and competitive conditions in the markets and countries in which the Company operates, and the risks inherent in international operations and joint ventures; b. the Company's ability to continue to control and reduce its costs of production; c. the level of consumer demand for new vehicles equipped with the Company's products; d. the level of consumer demand for the Company's aftermarket products, which varies based on such factors as the severity of winter weather, the age of automobiles in the Company's markets and the impact of improvements or changes in original equipment products; e. the effect of changes in the distribution channels for the Company's aftermarket and industrial products; and, f. the strength of the U.S. dollar against currencies of other countries where the Company operates, as well as cross-currencies between the Company's operations outside of the U.S. and other countries with whom they transact business. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company does not intend to update forward-looking statements. 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------- Index to Financial Statements Page Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1998 31 Consolidated Balance Sheets at February 28, 1998 and 1997 32 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1998 33 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1998 34 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1998 35 Notes to Consolidated Financial Statements 36 31 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, 1998 and 1997, 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, 1998. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 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, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended February 28, 1998, in conformity with generally accepted accounting principles. Coopers and Lybrand, LLP Rochester, New York March 18, 1998 32 MARK IV INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1998 and 1997 (Dollars in Thousands) ASSETS 1998 1997 Current Assets: Cash and short-term investments $ 120,900 $ 1,300 Accounts receivable 466,400 390,100 Inventories 393,400 377,600 Other current assets 105,600 76,500 Total current assets 1,086,300 845,500 Pension and other non-current assets 226,600 214,000 Property, plant and equipment, net 668,400 553,300 Cost in excess of net assets acquired 439,200 361,800 TOTAL ASSETS $2,420,500 $1,974,600 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities $ 133,800 $ 89,300 8-3/4% Notes, called for redemption 73,100 - Accounts payable 222,400 188,400 Compensation related liabilities 75,500 89,300 Accrued interest 28,600 20,400 Other current liabilities 94,500 93,500 Total current liabilities 627,900 480,900 Long-Term Debt: Senior debt 21,400 22,000 Subordinated debt 772,500 506,500 Total long-term debt 793,900 528,500 Other non-current liabilities 246,700 206,800 Stockholders' Equity: Preferred stock - $.01 par value; Authorized 10 million shares; No issued shares - - Common stock - $.01 par value; Authorized 200 million shares; Issued 62.9 million shares in 1998 and 66.3 million shares in 1997 600 700 Additional paid-in capital 617,800 696,500 Retained earnings 167,100 79,300 Foreign currency translation adjustment (33,500) (18,100) Total stockholders' equity 752,000 758,400 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,420,500 $1,974,600 ========== ========== The accompanying notes are an integral part of these financial statements. 33
MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED THE LAST DAY OF FEBRUARY 1998, 1997 and 1996 (Amounts in Thousands, Except Per Share Data) 1998 1997 1996 Net sales from continuing operations $2,210,200 $2,076,000 $1,779,200 Operating costs: Cost of products sold 1,497,000 1,408,100 1,205,100 Selling and administration 346,500 331,200 289,800 Research and development 48,500 44,500 36,800 Depreciation and amortization 79,900 69,000 59,200 Restructuring charge - 112,500 - Total operating costs 1,971,900 1,965,300 1,590,900 Operating income 238,300 110,700 188,300 Interest expense 61,600 59,000 52,600 Income from continuing operations, before provision for taxes 176,700 51,700 135,700 Provision for taxes 67,500 19,000 52,900 Income from continuing operations 109,200 32,700 82,800 Income from discontinued operations: Income from operations, net of taxes - 5,900 9,600 Gain on divestitures, net of taxes - 17,500 - Total income from discontinued operations - 23,400 9,600 Extraordinary loss from early extinguishment of debt, net of tax benefits (10,600) - - NET INCOME $ 98,600 $ 56,100 $ 92,400 Net income per share of common stock: Basic: Income from continuing operations $ 1.70 $ .49 $ 1.25 Income from discontinued operations - .35 .15 Extraordinary loss (.16) - - NET INCOME $ 1.54 $ .84 $ 1.40 Diluted: Income from continuing operations $ 1.66 $ .49 $ 1.24 Income from discontinued operations - .35 .15 Extraordinary loss (.16) - - NET INCOME $ 1.50 $ .84 $ 1.39 Weighted average number of shares outstanding: Basic 64,100 66,300 66,200 Diluted 67,400 66,700 66,600 The accompanying notes are an integral part of these financial statements.
34
MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED THE LAST DAY OF FEBRUARY 1998, 1997 AND 1996 (Dollars in Thousands, Except Per Share Data) Foreign Additional Currency Common Paid-in Retained Translation Stock Capital Earnings Adjustment ----- ------- -------- ---------- Balance at February 28, 1995 $ 600 $550,200 $ 90,800 $ (6,100) Net income for fiscal 1996 92,400 Cash dividends of $.113 per share (7,500) Stock dividend of 5% 66,000 (66,000) Restricted stock amortization 1,300 Stock options activity, including related tax benefits 100 Translation adjustment 3,700 Balance at February 29, 1996 600 617,600 109,700 (2,400) Net income for fiscal 1997 56,100 Cash dividends of $.138 per share (9,100) Stock dividend of 5% 100 77,300 (77,400) Restricted stock amortization 1,300 Stock options activity, including related tax benefits 300 Translation adjustment (15,700) Balance at February 28, 1997 700 696,500 79,300 (18,100) Net income for fiscal 1998 98,600 Cash dividends of $.17 per share (10,800) Purchase and retirement of 3,474,420 shares of Common Stock (average cost of $23.14 per share) (100) (80,300) Restricted stock amortization 1,300 Stock options activity, including related tax benefits 300 Translation adjustment (15,400) Balance at February 28, 1998 $ 600 $617,800 $167,100 $(33,500) The accompanying notes are an integral part of these financial statements.
35 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED THE LAST DAY OF FEBRUARY 1998, 1997 AND 1996 (Dollars in Thousands) 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Income from continuing operations $109,200 $ 32,700 $ 82,800 Items not affecting cash: Depreciation and amortization 79,900 69,000 59,200 Deferred income taxes 54,300 23,200 25,700 Pension income, net of other items (13,900) (4,800) (4,900) Restructuring charge, net of tax - 36,400 - Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable (49,500) (43,200) 5,900 Inventories (15,800) (31,900) (27,800) Other assets (8,000) (20,700) (17,900) Accounts payable and other liabilities (45,800) (1,200) (26,800) Net cash provided by continuing operating activities 110,400 59,500 96,200 Net cash provided by (used in) discontinued operations - 1,400 (2,100) Extraordinary items before deferred charges (11,700) - - Net cash provided by operating activities 98,700 60,900 94,100 Cash flows from investing activities: Acquisitions (90,200) (95,200) (28,200) Divestitures and asset sales 36,700 276,600 1,600 Purchase of plant and equipment, net: Continuing operations (153,500) (106,900) (87,100) Discontinued operations - (4,000) (5,000) Net cash provided by (used in) investing activities (207,000) 70,500 (118,700) Cash flows from financing activities: Credit agreement borrowings, net - (97,300) (242,700) Issuance of subordinated debt, net of fees 515,400 - 243,900 Retirement of subordinated debt (184,900) - - Other changes in long-term debt, net 1,400 (16,700) 3,400 Changes in short-term bank borrowings (13,100) (8,200) 27,500 Common stock transactions (80,100) 300 100 Cash dividends paid (10,800) (9,100) (7,500) Net cash provided by (used in) financing activities 227,900 (131,000) 24,700 Net increase in cash and short-term investments 119,600 400 100 Cash and short-term investments: Beginning of the year 1,300 900 800 End of the year $120,900 $ 1,300 $ 900 The accompanying notes are an integral part of these financial statements.
36 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and its Significant Accounting Policies The Company Mark IV Industries, Inc. and Subsidiaries (the Company) is a diversified manufacturer of proprietary and other products, with operations primarily in automotive and industrial power and fluid transfer and filtration businesses. 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. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported and contingent amounts of assets and liabilities as of the date of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. It should be recognized that the actual results could differ from those estimates. Cash and Short-term Investments Short-term investments consist of temporary bank deposits and money market instruments with various financial institutions that have maturities not exceeding April 2, 1998. At February 28, 1998 these short-term investments amounted to $119.6 million. For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company paid interest of approximately $58 million, $62 million and $64 million in fiscal 1998, 1997 and 1996, respectively. The Company paid income taxes of approximately $27 million, $26 million and $26 million in fiscal 1998, 1997 and 1996, respectively. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of periodic temporary investments of excess cash and trade receivables. The Company places its temporary excess cash and short-term investments in temporary bank deposits and high quality short-term money market instruments through several high credit quality financial institutions. The credit risk associated with trade receivables is minimal due to the Company's large customer base and ongoing control procedures which monitor the credit worthiness of customers. Historically, the Company has not experienced significant losses on trade receivables. Inventories Inventories are stated at the lower of cost or market, with cost determined primarily on the last-in, first-out (LIFO) method. 37 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment The Company provides for depreciation of plant and equipment primarily on the straight-line method over its useful life. 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. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired (goodwill) is amortized on the straight- line method over 40 years. The Company continually evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected, undiscounted net cash flows of the related business. Foreign Currency The assets and liabilities of the Company's international subsidiaries are translated at year-end exchange rates, and resulting gains and losses are accumulated as a separate component of stockholders' equity. Foreign currency transactions are included in income as realized. The Company enters into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in foreign currencies. Gains or losses on contracts related to existing business transactions are deferred and recognized as the related transactions are completed, while those related to anticipated transactions are recognized as of the balance sheet date. The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. Earnings Per Share of Common Stock The Company adopted Statement of Financial Accounting Standards No. 128 - Earnings Per Share (SFAS No. 128) in the fourth quarter of fiscal 1998. SFAS No. 128 is intended to simplify the earnings per share computations and make them more comparable from company to company. All prior year earnings per share amounts have been recalculated in accordance with the earnings per share requirements under SFAS No. 128; however, such recalculation did not result in any change to the Company's previously reported earnings per share for all years presented. Basic earnings per share is calculated on the basis of the weighted average number of shares outstanding, adjusted for subsequent stock distributions. Diluted earnings per share, in addition to the weighted average determined for basic earnings per share, 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 4-3/4% Convertible Subordinated Notes for the period outstanding during fiscal 1998. 38 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation In October 1995, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 123 - Accounting for Stock- Based Compensation (SFAS No. 123), which became effective for the Company's fiscal year ended February 28, 1997. SFAS No. 123 requires companies to recognize compensation expense for grants of stock options, or provide pro forma disclosures relative to what the effect of such accounting recognition would have been. The Company has chosen not to recognize compensation expense for options granted under its Incentive Stock Option Plans, and the related pro forma information has been presented in Note 12 to these consolidated financial statements. Tax benefits received by the Company upon the exercise and subsequent sale of the options by its employees are recognized as an increase in additional paid-in capital as they occur. Reclassifications Certain reclassifications of 1997 and 1996 financial statements and related footnote amounts have been made to conform with the 1998 presentation. 2. Restructuring During fiscal 1997, the Company began to realign and refocus its operations, including the closure of certain facilities with an aggregate of one million square feet of manufacturing and distribution/warehousing space. The realignment will result in the termination of approximately 1,700 employees, with a net reduction of approximately 1,000 employee positions. As a part of this realignment, facilities producing both automotive and industrial products are being dedicated to one or the other of the Company's business segments. The restructuring is expected to be substantially completed by the middle of fiscal 1999. In this regard, the Company recognized a restructuring charge of $112.5 million in fiscal 1997, and such amount has been identified separately in the accompanying consolidated statements of income. The primary elements of the charge are as follows (dollars in thousands): Amounts Expended or Balance Adjusted During Remaining at Initial the Fiscal Year February 28, Charge 1997 1998 1998 ------- ------- ------ --------- Non-cash charges $ 60,700 $(60,700) $ - $ - Facility closing and lease run-out costs 24,700 (5,500) (9,000) 10,200 Employee termination and other costs 27,100 (13,100) (6,100) 7,900 Pre-tax charge 112,500 (79,300) (15,100) 18,100 Tax benefit 45,000 (31,700) (6,100) 7,200 Net of tax charge $ 67,500 $(47,600) $ (9,000) $ 10,900 39 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The non-cash charges included fixed asset impairments and amounts to be paid to employees out of the Company's master defined benefit pension plan, as well as the accelerated recognition of related unamortized pension costs. The employee termination and other costs include amounts to be paid directly by the Company to employees of certain of the Company's manufacturing and distribution facilities in the U.S. and Europe. 3. Acquisitions and Divestitures In October 1997, the Company acquired the net assets of LPI Systemes Moteurs S.A. (LPI) for a net cash purchase price of approximately $60 million. LPI, based in France, manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection molding, welding and blow molding technologies. LPI is included in the Company's Automotive business segment. The Company also made a number of smaller acquisitions in Europe and Australia during fiscal 1998. In fiscal 1997, the Company acquired the net assets of Imperial Eastman for a cash purchase price of approximately $78 million. Imperial Eastman is a manufacturer and marketer of a broad range of thermoplastic hydraulic and pneumatic hose assemblies and steel and brass couplings, adapters and fittings for both high and low pressure applications. Imperial Eastman is included in the Company's Industrial business segment. In fiscal 1996, the Company acquired the net assets of FitzSimons Manufacturing Company (FitzSimons) for a cash purchase price of approximately $24.4 million. FitzSimons is a manufacturer of fuel system components for the North American automobile and truck industries, and is included in the Company's Automotive business segment. In fiscal 1998, the Company sold its Data Systems and LFE Industrial Systems businesses. Such businesses were included in the results of operations of the Company's Industrial segment through their respective disposal dates. In fiscal 1997, the Company sold its Professional Audio business, as well as a number of other non-core businesses. The results of operations for such divested businesses have been presented as discontinued operations in the Company's consolidated statements of income through their respective disposal dates. 40 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Accounts Receivable and Inventories Accounts receivable are reflected net of allowances for doubtful accounts of $13.6 million and $14.7 million at February 28, 1998 and 1997, respectively. Inventories consist of the following at February 28, 1998 and 1997 (dollars in thousands): 1998 1997 ---- ---- Raw materials $ 86,200 $ 87,200 Work-in-process 73,000 68,700 Finished goods 234,200 221,700 Total $393,400 $377,600 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 historical FIFO costs by approximately $38.7 million and $37.2 million at February 28, 1998 and 1997, respectively. 5. Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following at February 28, 1998 and 1997 (dollars in thousands): 1998 1997 ---- ---- Land and land improvements $ 25,900 $ 25,000 Buildings 179,900 146,800 Machinery and equipment 641,800 529,800 Total property, plant and equipment 847,600 701,600 Less accumulated depreciation 179,200 148,300 Property, plant and equipment, net $668,400 $553,300 Depreciation expense related to continuing operations was approximately $65.6 million, $55.7 million and $46.8 million in fiscal 1998, 1997 and 1996, respectively. 6. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is presented net of accumulated amortization of approximately $51.1 million and $41.2 million at February 28, 1998 and 1997, respectively. Cost in excess of net assets acquired at February 28, 1998 reflects an increase of approximately $90 million related to the Company's acquisitions in fiscal 1998, as well as final purchase accounting for the acquisition completed in fiscal 1997. Amortization expense related to continuing operations was approximately $10.8 million, $9.6 million and $8.4 million in fiscal 1998, 1997 and 1996, respectively. 41 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Long-Term Debt Long-term debt consists of the following at February 28, 1998 and 1997 (dollars in thousands): 1998 1997 Senior debt: ---- ---- Credit Agreement $ - $ - Other items 31,200 27,400 Total senior debt 31,200 27,400 Less current maturities (9,800) (5,400) Net senior debt 21,400 22,000 Subordinated debt: 4-3/4% Convertible Subordinated Notes 275,000 - 7-1/2% Senior Subordinated Notes 248,800 - 7-3/4% Senior Subordinated Notes 248,700 248,500 8-3/4% Senior Subordinated Notes 73,100 258,000 Total subordinated debt 845,600 506,500 Less current portion (73,100) - Net subordinated debt 772,500 506,500 Total long-term debt 793,900 528,500 Stockholders' equity 752,000 758,400 Total capitalization $1,545,900 $1,286,900 Long-term debt as a percentage of total capitalization 51.4% 41.1% The Company's primary credit agreement (the Credit Agreement) provides for a non-amortizing revolving credit facility through March 2001, with borrowing availability of $400 million under a domestic facility (the Domestic Credit Facility) and $100 million under a multi-currency facility (the Multi-Currency Credit Facility). The Multi-Currency Credit Facility permits borrowings to be made in U.S. dollars as well as specified foreign currencies. Borrowings under the Domestic Credit Facility bear interest at an annual rate equal to, at the Company's option, either (i) the greater of (a) the reference rate of the agent acting on behalf of the various banks or (b) the Federal Funds Rate plus 0.50% or (ii) LIBOR plus a margin (the Applicable Margin) ranging from 0.225% to 0.35% depending upon the Company's consolidated leverage ratio, as determined on a quarterly basis. Borrowings under the Multi-Currency Credit Facility bear interest at the LIBOR rate for the currency of each loan plus the Applicable Margin. The Company is also required to pay a commitment fee at an annual rate ranging from 0.125% to 0.20% of the total borrowing availability under the Credit Agreement (the Facility Fee Rate), determined on the basis of the same consolidated leverage ratio. Based upon the Company's consolidated leverage ratio as of February 28, 1998, the Applicable Margin and Facility Fee Rate are 0.225% and 0.15%, respectively. 42 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Credit Agreement contains customary covenants, including those requiring the maintenance of specified consolidated interest coverage and leverage ratios and amounts of consolidated net worth. Borrowings under the Credit Agreement are guaranteed by the Company's significant domestic and international subsidiaries and are collateralized by a pledge of the capital stock of each of such subsidiaries. In October 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 4-3/4% Notes). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. The 4-3/4% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness and senior subordinated notes. In August 1997, the Company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 7-1/2% Notes) at a purchase price of 99.471% of their face amount. The 7-1/2% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 7-3/4% Senior Subordinated Notes. The 7-3/4% Notes are due 2006 and are general unsecured obligations of the Company. The 7-3/4% Notes are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 7-1/2% Notes. The Company used a portion of the net proceeds from the transactions described above to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance $184.9 million of its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003 (the 8-3/4% Notes). The Company recognized an extraordinary charge in fiscal 1998 of $10.6 million, net of $6.5 million of tax benefits, for the early extinguishment of debt. The remaining $73.1 million principal amount of the 8-3/4% Notes were called for redemption on April 2, 1998 at 104.375% of principal amount and, as such have been classified as a current liability in the accompanying consolidated balance sheet as of February 28, 1998. Based on market quotes and interest rates currently available to the Company for debt with similar terms and remaining maturities, the aggregate fair value of total long-term debt at February 28, 1998 and 1997 was approximately $794 million and $526 million, respectively. Annual maturities of long-term debt for the next five fiscal years are $82.9 million in fiscal 1999 and approximately $5.0 million in each of the years thereafter. 43 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Leases The Company has operating leases which expire at various dates through 2010 with, in some instances, cost escalation and renewal privileges. Total rental expense under operating leases related to continuing operations was approximately $14.8 million, $16.8 million and $16.5 million in fiscal 1998, 1997 and 1996, respectively. Future minimum rental payments under operating leases are approximately: 1999-$11.7 million; 2000-$10.0 million; 2001-$9.3 million; 2002-$8.5 million; 2003-$7.2 million; and 2004 and thereafter - $16.5 million. 9. Income Taxes Income from continuing operations, before provision for taxes, and the related provision for taxes for fiscal 1998, 1997 and 1996 consists of the following (dollars in thousands): 1998 1997 1996 ---- ---- ---- Income before provision for taxes: United States $109,500 $ 87,700 $ 71,900 International 67,200 76,500 63,800 Restructuring charge - (112,500) - Total $176,700 $ 51,700 $135,700 Provision for taxes: Currently payable: United States $ 1,500 $ 24,600 $ 13,700 International 17,800 16,200 13,500 Restructuring related (6,100) (31,700) - Total currently payable 13,200 9,100 27,200 Deferred: United States 42,000 12,900 14,800 International 6,200 10,300 10,900 Restructuring related 6,100 (13,300) - Total deferred 54,300 9,900 25,700 Total provision for taxes $ 67,500 $ 19,000 $ 52,900 The provision for taxes on income from continuing operations for fiscal 1998, 1997, and 1996 differs from the amount computed using the United States statutory income tax rate as follows (dollars in thousands): 1998 1997 1996 ---- ---- ---- Expected tax at United States statutory income tax rate $61,800 $18,100 $ 47,500 Permanent differences 2,600 2,100 1,400 State and local income taxes 2,300 (1,300) 2,300 Foreign tax rate differences and other items, net 800 100 1,700 Total provision for taxes $67,500 $19,000 $ 52,900 44 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1998 and 1997 (dollars in thousands): 1998 1997 ---- ---- Current: Tax credit carryforwards $ 20,600 $ 12,000 Insurance related liabilities 10,200 6,000 Restructuring liabilities 6,600 8,300 Compensation related liabilities 6,600 6,200 Other current items 4,400 2,900 Net current asset $ 48,400 $ 35,400 Non-current: Fixed and intangible assets $(41,400) $(36,000) Pension and postretirement related items (18,200) (12,000) Other non-current items 3,200 23,100 Net non-current liability $(56,400) $(24,900) Based on the Company's history of prior operating earnings and its expectations for the future, management of the Company has determined that it is more likely than not that operating income will be sufficient to enable it to realize its deferred tax assets, including tax credit carryforwards which begin to expire in 2007. The undistributed earnings of the Company's international subsidiaries have been reinvested in each country, and are not expected to be remitted back to the parent company. 10. Pension and Other Postretirement Benefit Plans The Company has adopted SFAS No. 132 - Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS No. 132). SFAS No. 132 is intended to standardize certain footnote disclosure requirements for pensions and other retiree benefits. Information concerning the Company's defined benefit pension plans consists of the following (dollars in thousands): Defined Benefit Pension Plans ----------------------------- 1998 1997 1996 ---- ---- ---- Change in Plan Assets: Fair value of plan assets at the beginning of the year $ 418,000 $ 366,400 $ 335,400 Acquisitions - 20,800 - Actual return on plan assets 95,000 57,300 67,200 Benefits paid (41,600) (26,500) (36,200) Fair value of plan assets at the end of the year $ 471,400 $ 418,000 $ 366,400 45 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Defined Benefit Pension Plans ----------------------------- 1998 1997 1996 ---- ---- ---- Change in Benefit Obligations: Benefit obligations at the beginning of the year $(337,100) $(303,100) $(273,700) Acquisitions - (24,500) - Service cost (4,800) (5,600) (3,800) Interest cost (23,800) (23,300) (23,100) Curtailment losses (400) (2,400) (1,200) Special termination benefits - (16,000) - Change in the discount rate (17,900) - (35,900) Other actuarial gains (losses) (13,600) 11,300 (1,600) Benefits paid 41,600 26,500 36,200 Benefit obligations at the end of the year $(356,000) $(337,100) $(303,100) Funded Status Reconciliation: Funded status $ 115,400 $ 80,900 $ 63,300 Unrecognized actuarial losses 12,600 30,900 48,800 Unrecognized prior service costs 1,700 1,100 7,500 Prepaid benefit recognized in the consolidated balance sheet at the end of the year $ 129,700 $ 112,900 $ 119,600 Components of Net Benefits Income (Expense): Service cost $ (4,800) $ (5,600) $ (3,800) Interest cost (23,800) (23,300) (23,100) Expected return on plan assets 45,700 42,900 36,900 Curtailment losses (400) (2,400) (1,200) Special termination benefits - (16,000) - Amortization of unrecognized losses - (1,000) (2,300) Net benefits income (expense) for the year $ 16,700 $ (5,400) $ 6,500 46 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan assets include Common Stock of the Company with a total market value of $46.9 million as of February 28, 1998. The special termination benefits of $16.0 million in fiscal 1997 relate to the Company's restructuring plan, as discussed in Note 2. Information concerning the Company's other postretirement benefit plans consists of the following (dollars in thousands): Other Postretirement Benefit Plans ---------------------------------- 1998 1997 1996 ---- ---- ---- Change in Benefit Obligations: Benefit obligations at the beginning of the year $ (88,200) $ (84,100) $ (69,700) Acquisitions - (4,100) (4,600) Service cost (500) (600) (600) Interest cost (6,200) (6,200) (6,000) Curtailment gains - 2,900 - Change in the discount rate (3,500) - (10,600) Other actuarial losses (7,300) (5,100) (1,000) Benefits paid 10,100 9,000 8,400 Benefit obligations at the end of the year $ (95,600) $ (88,200) $ (84,100) Funded Status Reconciliation: Funded status $ (95,600) $ (88,200) $ (84,100) Unrecognized actuarial losses 29,300 18,300 13,800 Unrecognized prior service costs (900) (300) (300) Accrued liability recognized in the consolidated balance sheet at the end of the year $ (67,200) $ (70,200) $ (70,600) Components of Net Benefits Expense: Service cost $ (500) $ (600) $ (600) Interest cost (6,200) (6,200) (6,000) Curtailment gains - 2,900 - Amortization of unrecognized losses (600) (100) (100) Net benefits expense for the year $ (7,300) $ (4,000) $ (6,700) The weighted average actuarial assumptions utilized in determining the above amounts for the defined benefit and other postretirement benefit plans as of the end of the year were as follows: Expected return on plan assets 11.5% 11.5% 11.5% Discount rate 7.0% 7.5% 7.5% Rate of compensation increase 4.0% 4.0% 4.0% 47 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's other postretirement benefit plans identified above provide 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. Relative to the above financial information, the actuarial valuations assume a medical cost trend rate of 7% for fiscal 1999, decreasing by 1% per year to an ultimate level of 4.5% in fiscal 2002. In that regard, the impact of a 1% change in the health care cost trend rate would change the benefit obligations by $1.8 million and change the total service and interest cost components by approximately $100,000. The Company also has defined contribution pension plans for a significant number of its employees in the United States, as well as for certain of its employees outside of the United States. The Company's contributions to these plans are based on various percentages of compensation, and in some instances are based upon the amount of the employees' contributions to the plans. The annual cost of these plans amounted to approximately $15.3 million, $16.9 million and $13.0 million in fiscal 1998, 1997 and 1996, respectively, the substantial part of which was funded currently. 11. Net Income Per Share Following is a reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share: Basic Net Income Per Share 1998 1997 1996 -------------------------- ---- ---- ---- Net income $ 98,600 $56,100 $92,400 Weighted average common shares outstanding 64,100 66,300 66,200 Basic net income per share $ 1.54 $ .84 $ 1.40 Diluted Net Income Per Share ---------------------------- Net income $ 98,600 $56,100 $92,400 After-tax equivalent of interest expense on 4-3/4% convertible subordinated notes 2,700 - - Income for purposes of computing diluted net income per share $101,300 $56,100 $92,400 Weighted average common shares outstanding 64,100 66,300 66,200 Dilutive stock options 500 400 400 Weighted average assumed conversion of 4-3/4% convertible subordinated notes 2,800 - - Weighted average common shares outstanding for purposes of computing diluted net income per share 67,400 66,700 66,600 Diluted net income per share $ 1.50 $ .84 $ 1.39 48 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Stockholders' Equity and Stock Options The Company has a Shareholders' Rights Plan under which Rights were distributed as a dividend at a rate of one Right for each share of Common Stock held. Each Right entitles the holder to buy one one-hundredth of a newly-issued share of the Company's Series A Junior Participating Preferred Stock at an exercise price of $80.00 per share. If an acquiring person beneficially owns 20% or more of the Company's Common Stock or the Company is a party to a business combination which is not approved by the Company's Board of Directors, each Right (other than those held by the acquiring person) will entitle the holder to receive, upon exercise, shares of Common Stock of the Company or of the surviving company with a value equal to two times the exercise price of the Right. In March 1997, the Company announced its intention to acquire up to 7.3 million shares of its Common Stock outstanding. It is expected that such shares would be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through February 28, 1998, the Company had acquired and retired approximately 3.5 million of such shares, at an average cost of $23.14 per share, or a total cost of approximately $80.4 million. The Company is also authorized to issue 10 million shares of Preferred Stock, and there are no shares outstanding at the present time. Under the Company's Restricted Stock Plan, there are approximately 346,000 restricted shares outstanding under various awards as of February 28, 1998. Approximately 276,000 shares remain available for issuance under the Plan as of that date. The fair market value of restricted stock awards as of the date of grant is recognized as it is earned over the restriction period (normally 5 years), with approximately $1.3 million recognized as expense in each of fiscal 1998, 1997 and 1996. The Company's qualified Incentive Stock Option Plans provide for granting options to key employees to allow them 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 ten years. There were approximately 3.2 million and 3.5 million shares reserved for the future granting of options as of February 28, 1998 and 1997, respectively. 49 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the status of all of the Company's stock option transactions for fiscal 1998, 1997 and 1996 (share amounts in thousands): 1998 1997 1996 ------------------ ----------------- --------------- Weighted Weighted Weighted Average Average Average Option Option Option Option Option Option Shares Price Shares Price Shares Price ------ ----- ------ ------ ------ ----- Balance at beginning of year 1,421 $15.11 1,841 $14.08 1,500 $11.90 Activity during the year: Granted 357 $22.26 - - 712 $17.02 Exercised (136) $12.89 (410) $10.45 (338) $10.68 Canceled (4) $16.62 (10) $16.15 (33) $13.35 Balance at end of year: Outstanding 1,638 $16.85 1,421 $15.11 1,841 $14.08 Exercisable 850 $14.80 684 $13.60 649 $10.13 At February 28, 1998, approximately 660,000 of the options outstanding have a weighted average remaining life of approximately 6 years, and are exercisable at prices ranging primarily from $10.25 to $16.75 per share. The remaining 978,000 options outstanding have a weighted average remaining life of approximately 8 years and are exercisable at prices ranging from $16.25 to $22.25 per share. The 357,000 and 712,000 options granted during fiscal 1998 and 1996, respectively, had a weighted average fair value of approximately $11.00 per share for Corporate Officers and $6.00 per share for other employees. For purposes of estimating such fair value, the Company utilized the Black-Scholes option pricing model, and the following valuation assumptions: Options Granted to Options Granted to Corporate Officers Other Employees ------------------- ------------------- 1998 1996 1998 1996 ---- ---- ---- ---- Pricing volatility factor 30.5% 33.3% 24.0% 26.7% Option expiration term 10 years 10 years 4 years 4 years Risk-free interest rate range 6.3% to 6.9% 5.9% to 6.9% 6.6% to 6.9% 5.5% to 6.9% Annual dividend yield .7% .6% .7% .6% 50 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company applies APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost has been recognized for stock options in the accompanying consolidated financial statements. If the Company had recognized compensation expense for the options based upon the values identified above, earnings for fiscal 1998, 1997 and 1996 would have changed as follows (amounts in thousands, except per share data): Pro Forma Earnings (Unaudited) ------------------------------ 1998 1997 1996 ---- ---- ---- Net income, as reported $ 98,600 $ 56,100 $ 92,400 Compensation expense related to options granted (2,200) (1,300) (600) Tax benefit of compensation expense 800 500 200 Net income, as adjusted $ 97,200 $ 55,300 $ 92,000 Basic net income per share, as reported $ 1.54 $ .84 $ 1.40 Basic net income per share, as adjusted $ 1.52 $ .83 $ 1.39 Diluted net income per share, as reported $ 1.50 $ .84 $ 1.39 Diluted net income per share, as adjusted $ 1.48 $ .83 $ 1.38 13. Industry Segments and Geographic Areas The Company classifies its operations into the following two business segments: (i) Automotive, which includes the design, manufacture and distribution of (a) power transmission, fuel and fluid handling systems and components, and (b) filters and filtration systems, for the global automotive aftermarket and OEM (original equipment manufacturers) market; and (ii) Industrial, which includes the design, manufacture and distribution of power and fluid management systems and components for industrial OEM and distribution markets worldwide. Information concerning the Company's business segments for fiscal 1998, 1997 and 1996 is as follows (dollars in thousands): 1998 1997 1996 NET SALES TO CUSTOMERS ---- ---- ---- Automotive $1,209,700 $1,111,700 $1,004,300 Industrial 1,000,500 964,300 774,900 Total related to continuing operations $2,210,200 $2,076,000 $1,779,200 OPERATING INCOME Automotive $ 132,700 $ 122,100 $ 110,600 Industrial 121,400 120,500 95,100 Restructuring charge - (112,500) - Total operating income 254,100 130,100 205,700 General corporate expense (15,800) (19,400) (17,400) Interest expense (61,600) (59,000) (52,600) Income from continuing operations before provision for taxes $ 176,700 $ 51,700 $ 135,700 51 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1998 1997 1996 ---- ---- ---- IDENTIFIABLE ASSETS Automotive $1,377,700 $1,107,900 $1,030,000 Industrial 896,800 833,900 684,100 General corporate 146,000 32,800 29,600 Total related to continuing operations 2,420,500 1,974,600 1,743,700 Discontinued operations - - 269,400 Total identifiable assets $2,420,500 $1,974,600 $2,013,100 DEPRECIATION AND AMORTIZATION Automotive $ 47,200 $ 38,900 $ 33,100 Industrial 29,000 26,400 22,500 General corporate 3,700 3,700 3,600 Total related to continuing operations $ 79,900 $ 69,000 $ 59,200 CAPITAL OUTLAYS Automotive $ 92,600 $ 68,300 $ 57,600 Industrial 63,900 40,900 32,900 Total related to continuing operations $ 156,500 $ 109,200 $ 90,500 The Company's operations outside of the United States are located primarily in Europe, and to a lesser extent in Canada, Latin America and the Far East. Information concerning the Company's operations by geographic area for fiscal 1998, 1997 and 1996 is as follows (dollars in thousands): 1998 1997 1996 NET SALES FROM ---- ---- ---- CONTINUING OPERATIONS United States $1,571,900 $1,496,400 $1,271,300 International 638,300 579,600 507,900 Total related to continuing operations $2,210,200 $2,076,000 $1,779,200 OPERATING INCOME FROM CONTINUING OPERATIONS United States $ 174,100 $ 166,400 $ 138,200 International 80,000 76,200 67,500 Restructuring charge - (112,500) - Total related to continuing operations $ 254,100 $ 130,100 $ 205,700 IDENTIFIABLE ASSETS United States $1,697,700 $1,438,600 $1,259,800 International 722,800 536,000 483,900 Total related to continuing operations 2,420,500 1,974,600 1,743,700 Discontinued operations - - 269,400 Total identifiable assets $2,420,500 $1,974,600 $2,013,100 52 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The net sales to customers reflect the sales of the continuing operating units in each geographic area to unaffiliated customers. Export sales of continuing operating units from the United States to unaffiliated customers were $97.1 million, $95.4 million, and $91.6 million in fiscal 1998, 1997 and 1996, 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. 14. Legal and Environmental Matters One of the Company's subsidiaries has been named as a defendant in a number of litigation actions related to product supplied to one of the subsidiary's customers. The parties seek damages related to alleged defects in certain hose products manufactured by the subsidiary and included by the customer in its retail gasoline fuel delivery systems. The Company believes it has good and valid defenses against the claims, and has submitted a counter-claim against the customer. The Company is also involved in various other legal and environmental-related issues. The Company believes that it has adequately provided for costs to be expended in the future relative to its existing environmental related obligations, the reserves for which have not been discounted to their present value. 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, results of operations or cash flows. 53 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Quarterly Financial Data and Information (Unaudited) The following table sets forth the Company's unaudited results of operations for each of the fiscal quarters in the years ended February 28, 1998 and 1997 (amounts in thousands, except per share data): First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ----- Fiscal 1998 - ----------- Continuing operations: Net sales $560,100 $531,100 $564,100 $554,900 $2,210,200 Gross profit (a) $183,300 $173,500 $182,500 $173,900 $ 713,200 Operating income $ 63,600 $ 60,500 $ 60,800 $ 53,400 $ 238,300 Interest expense (14,300) (15,600) (16,800) (14,900) (61,600) Provision for taxes (19,200) (17,400) (16,700) (14,200) (67,500) Total continuing 30,100 27,500 27,300 24,300 109,200 Extraordinary loss - - (10,600) - (10,600) Net income $ 30,100 $ 27,500 $ 16,700 $ 24,300 $ 98,600 Basic earnings per share: Continuing operations $ .46 $ .43 $ .43 $ .38 $ 1.70 Extraordinary loss - - (.16) - (.16) Net income $ .46 $ .43 $ .27 $ .38 $ 1.54 Diluted earnings per share: (b) Continuing operations $ .46 $ .43 $ .42 $ .36 $ 1.66 Extraordinary loss - - (.16) - (.16) Net income $ .46 $ .43 $ .26 $ .36 $ 1.50 Fiscal 1997 - ----------- Continuing operations: Net sales $540,900 $494,300 $521,600 $519,200 $2,076,000 Gross profit (a) $175,800 $161,100 $170,400 $160,600 $ 667,900 Operating income before restructuring charge $ 59,700 $ 55,100 $ 55,800 $ 52,600 $ 223,200 Restructuring charge - - (112,500) - (112,500) Operating income (loss) 59,700 55,100 (56,700) 52,600 110,700 Interest expense (14,900) (15,400) (14,500) (14,200) (59,000) Provision for taxes (17,500) (15,500) 28,900 (14,900) (19,000) Total continuing 27,300 24,200 (42,300) 23,500 32,700 Discontinued operations 1,200 2,600 13,600 6,000 23,400 Net income (loss) $ 28,500 $ 26,800 $(28,700) $ 29,500 $ 56,100 54 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ----- Fiscal 1997 - ----------- Basic earnings per share: Continuing operations: Before restructuring charge $ .41 $ .37 $ .38 $ .35 $ 1.51 Restructuring charge - - (1.02) - (1.02) Total continuing .41 .37 (.64) .35 .49 Discontinued operations .02 .04 .20 .09 .35 Net income (loss) $ .43 $ .41 $ (.44) $ .44 $ .84 Diluted earnings per share: Continuing operations: Before restructuring charge $ .41 $ .36 $ .38 $ .35 $ 1.50 Restructuring charge - - (1.01) - (1.01) Total continuing .41 .36 (.63) .35 .49 Discontinued operations .02 .04 .20 .09 .35 Net income (loss) $ .43 $ .40 $ (.43) $ .44 $ .84 ___________________________________ (a) Excludes depreciation expense. (b) The sum of quarterly amounts do not equal the fiscal year amount due to the weighted effect of stock repurchases during the year. 55 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------- ---------------------------------------------------- None. PART III Items 10-13 - ----------- The information required for Items 10, 11, 12 and 13 is incorporated herein by reference to the information set forth in the definitive Proxy Statement for the Company's 1998 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission not later than 120 days after February 28, 1998. PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------- --------------------------------------------------------------- Page (a) (1) Financial Statements ---- -------------------- Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1998 31 Consolidated Balance Sheets at February 28, 1998 and 1997 32 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1998 33 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1998 34 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1998 35 Notes to Consolidated Financial Statements 36 (2) Financial Statement Schedule ----------------------------- Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1998 60 II. Valuation and Qualifying Accounts 61 All other schedules and statements have been omitted as the required information is inapplicable or is presented in the financial statements or notes thereto. 56 (b) Reports on Form 8-K ------------------- None (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 (incorporated by reference to the 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 by and among Mark IV Industries, Inc., Mark IV Acquisition corp., and Purolator Products Company, 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. 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the Company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated July 1, 1997). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 4.3 Conformed copy of the Indenture, dated as of March 15, 1993, between Mark IV Industries, Inc. and Citibank, N.A.; including the form of 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). 4.4 Conformed copy of the Indenture, dated as of March 11, 1996, between Mark IV Industries, Inc. and Fleet National Bank as Trustee; including the form of Senior Subordinated Notes due April 1, 2006 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 6, 1996). 4.5 Conformed copy of the Indenture, dated as of August 11, 1997, between Mark IV Industries, Inc, as issuer and Marine Midland Bank, as trustee; including the form of Senior Subordinated Notes due September 1, 2007 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 25, 1997). 4.6 Conformed copy of the Indenture, dated as of October 29, 1997, between Mark IV Industries, Inc., as issuer and The Bank of New York, as trustee; including the form of Convertible Subordinated Notes due November 1, 2004 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 6, 1997). 57 Executive Compensation Plans and Arrangements (10.1 -10.21) ---------------------------------------------------------- 10.1 Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.2 Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes (incorporated by reference to Exhibit 10.3 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.3 Employment Agreement dated March 1, 1995 between the Company and William P. Montague (incorporated by reference to Exhibit 10.4 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.4 Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook (incorporated by reference to Exhibit 10.5 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.5 Employment Agreement dated March 1, 1995 between the Company and John J. Byrne (incorporated by reference to Exhibit 10.6 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.6 Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds (incorporated by reference to Exhibit 10.7 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.7 Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel (incorporated by reference to Exhibit 10.8 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.8 Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco") and Bruce A. McNiel (incorporated by reference to Exhibit 10.9 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.9 Employment Agreement dated January 1, 1995 between the Company, Dayco, Dayco Europe, A.B. and Kurt J. Johansson (incorporated by reference to Exhibit 10.10 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.10 Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert (incorporated by reference to Exhibit 10.11 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.11 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 58 10.12 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.13* Mark IV Industries, Inc. and Subsidiaries 1996 Incentive Stock Option Plan effective April 24, 1996. 10.14 Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.15* Amendment and Restatement of the Mark IV Industries, Inc. Executive Bonus Plan effective March 1, 1995. 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 Third Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective September 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19 First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.20 Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.21 Executive Loan Program (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the Fiscal year ended February 28, 1997). 59 Other Material Contract Exhibits 10.22 Conformed copy of the Credit Agreement, dated as of March 8, 1996, among the Registrant and Dayco PTI S.p.A., as Borrowers, certain other subsidiaries of the Registrant, as Guarantors, various banks and financial institutions, Chemical Bank, as Administrator and Bid Agent, Bank of America National Trust and Savings Association, as Documentation Agent, and BA Securities, Inc. and Chemical Securities, Inc. as Arrangers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated March 6, 1996). 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. ______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. 60 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of Mark IV Industries, Inc. Our report on the consolidated financial statements of Mark IV Industries, Inc. and Subsidiaries as of February 28, 1998 and 1997 and for each of the three fiscal years in the period ended February 28, 1998, is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Rochester, New York March 18, 1998 61
MARK IV INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Charged Deductions Beginning (Credited) Accounts Ending Classifications Balance to Expense Charged Off Other(a) Balance Year ended February 28, 1998 - ---------------------------- Allowance for doubtful accounts $ 14,700,000 $ 3,300,000 $ (4,400,000) $ - $ 13,600,000 Year ended February 28, 1997 - ---------------------------- Allowance for doubtful accounts $ 16,700,000 $ 4,800,000 $ (4,700,000) $ (2,100,000) $ 14,700,000 Year ended February 29, 1996 - ---------------------------- Allowance for doubtful accounts $ 18,600,000 $ 2,700,000 $ (5,400,000) $ 800,000 $ 16,700,000
(a) Represents the following February February February 28, 1998 28, 1997 28, 1996 -------- -------- -------- Reserve at date of acquisition of subsidiary $ 200,000 $ 500,000 $ 100,000 Reclassification from other reserves - 200,000 200,000 Reserves of discontinued operations disposed - (2,400,000) - Foreign currency translation adjustment (200,000) (400,000) 500,000 $ - $(2,100,000 $ 800,000
62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARK IV INDUSTRIES, INC. By: /s/ Sal H. Alfiero ------------------ Sal H. Alfiero, Chairman of the Board and Chief Executive Officer Dated: May 28, 1998 ------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date /s/ Sal H. Alfiero Chairman of the Board May 28, 1998 - ------------------------- and Chief Executive Officer ------------ Sal H. Alfiero /s/ William P. Montague President, Director May 28, 1998 - ------------------------- ------------ William P. Montague /s/ John J. Byrne Vice President and May 28, 1998 - ------------------------- Chief Financial Officer ------------ John J. Byrne /s/ Richard L. Grenolds Vice President and May 28, 1998 - ------------------------- Chief Accounting Officer ------------ Richard L. Grenolds /s/ Gerald S. Lippes Secretary and Director May 28, 1998 - ------------------------- ------------ Gerald S. Lippes /s/ Clement R. Arrison Director May 28, 1998 - ------------------------- ------------ Clement R. Arrison 63 Exhibit Index ------------- 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 (incorporated by reference to the 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 by and among Mark IV Industries, Inc., Mark IV Acquisition corp., and Purolator Products Company, 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. 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the Company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated July 1, 1997). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 4.3 Conformed copy of the Indenture, dated as of March 15, 1993, between Mark IV Industries, Inc. and Citibank, N.A.; including the form of 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). 4.4 Conformed copy of the Indenture, dated as of March 11, 1996, between Mark IV Industries, Inc. and Fleet National Bank as Trustee; including the form of Senior Subordinated Notes due April 1, 2006 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 6, 1996). 4.5 Conformed copy of the Indenture, dated as of August 11, 1997, between Mark IV Industries, Inc, as issuer and Marine Midland Bank, as trustee; including the form of Senior Subordinated Notes due September 1, 2007 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 25, 1997). 4.6 Conformed copy of the Indenture, dated as of October 29, 1997, between Mark IV Industries, Inc., as issuer and The Bank of New York, as trustee; including the form of Convertible Subordinated Notes due November 1, 2004 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 6, 1997). 64 Executive Compensation Plans and Arrangements (10.1 -10.21) ---------------------------------------------------------- 10.1 Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.2 Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes (incorporated by reference to Exhibit 10.3 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.3 Employment Agreement dated March 1, 1995 between the Company and William P. Montague (incorporated by reference to Exhibit 10.4 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.4 Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook (incorporated by reference to Exhibit 10.5 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.5 Employment Agreement dated March 1, 1995 between the Company and John J. Byrne (incorporated by reference to Exhibit 10.6 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.6 Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds (incorporated by reference to Exhibit 10.7 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.7 Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel (incorporated by reference to Exhibit 10.8 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.8 Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco") and Bruce A. McNiel (incorporated by reference to Exhibit 10.9 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.9 Employment Agreement dated January 1, 1995 between the Company, Dayco, Dayco Europe, A.B. and Kurt J. Johansson (incorporated by reference to Exhibit 10.10 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.10 Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert (incorporated by reference to Exhibit 10.11 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.11 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 65 10.12 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.13* Mark IV Industries, Inc. and Subsidiaries 1996 Incentive Stock Option Plan effective April 24, 1996. 10.14 Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.15* Amendment and Restatement of the Mark IV Industries, Inc. Executive Bonus Plan effective March 1, 1995. 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 Third Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective September 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19 First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.20 Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.21 Executive Loan Program (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the Fiscal year ended February 28, 1997). 66 Other Material Contract Exhibits -------------------------------- 10.22 Conformed copy of the Credit Agreement, dated as of March 8, 1996, among the Registrant and Dayco PTI S.p.A., as Borrowers, certain other subsidiaries of the Registrant, as Guarantors, various banks and financial institutions, Chemical Bank, as Administrator and Bid Agent, Bank of America National Trust and Savings Association, as Documentation Agent, and BA Securities, Inc. and Chemical Securities, Inc. as Arrangers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated March 6, 1996). 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. ______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. EX-10.13 2 67 Exhibit 10.13 MARK IV INDUSTRIES, INC. 1996 INCENTIVE STOCK OPTION PLAN 1. Purpose of Plan; Current Status of the Plan. The Mark IV Industries, Inc., 1996 Incentive Stock Option Plan (hereinafter called the "Plan") is intended to provide officers and other key employees of Mark IV Industries, Inc., a Delaware corporation (hereinafter called the "Company") and officers and other key employees of each Subsidiary of the Company as that term is defined in Section 3 below (hereinafter individually referred to as a "Subsidiary" and collectively as "Subsidiaries") with an additional incentive for them to promote the success of the business, to increase their proprietary interest in the success of the Company and its Subsidiaries, and to encourage them to remain in the employ of the Company or its Subsidiaries. The above aims will be effectuated through the granting of certain stock options, as herein provided, which are intended to qualify as Incentive Stock Options (hereinafter called "ISOs") under Section 422 of the Internal Revenue Code of 1986, as the same has been and shall be amended (hereinafter called the "Code"). 2. Administration The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (hereinafter called the "Committee") composed of not less than two (2) directors of the Company, each of whom, shall be a "disinterested person" within the meaning of Rule 16b-3 under the Exchange Act (as defined in Section 7 hereof). The Committee is authorized to adopt such rules and regulations for the administration of the Plan and the conduct of its business as may seem to it proper. Any action taken or interpretation by the Committee under any provision of the Plan or any option granted hereunder shall be in accordance with the provisions of the Code, and the regulations and rulings issued thereunder as such may be amended, promulgated, issued, renumbered or continued from time to time hereafter in order that the options granted hereunder shall constitute "incentive stock options" within the meaning of the Code. All action taken pursuant to this Plan shall be lawful and with a view to obtaining for the Company and the option holder the maximum advantages under the law as then obtaining, and in the event that any dispute shall arise as to any action taken or interpretation by the Committee under any provision of the Plan, then all doubts shall be resolved in favor of such having been done in accordance with the said Code and such revenue laws, amendments, regulations, rulings and provisions as may then be applicable. Any action taken or interpretation by the Committee under any provision of the Plan shall be final. No member of the Committee shall be liable for any action, determination or interpretation under any provision of the Plan or otherwise if done in good faith. 68 3. Participation The Committee shall determine which of the employees of the Company and its Subsidiaries will receive options under the terms of this Plan from among officers and other key employees of the Company and its Subsidiaries (including, subject to the provisions of Section 422(c)(5) of the Code, officers or other key employees possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company). Those individuals to whom options are granted under the terms of this Plan are sometimes hereinafter referred to as "Optionees". The Committee shall determine the terms and provisions of the options granted hereunder (which need not be identical), the time or times at which options shall be granted and the number of shares of common stock of the Company (sometimes hereinafter referred to as "Common Stock") (or such number of shares of stock in which the Common Stock may at any time hereafter be constituted), for which options are granted. Notwithstanding the foregoing, in no event shall the Committee grant any options to the Company's Chief Executive Officer, any of the four (4) most highly compensated officers, or any other employee of the Company if the aggregate number of shares of Common Stock which can be purchased by any such individual through the exercise of all options granted to him or her under the Plan exceeds 300,000 shares of Common Stock, adjusted as provided for in Section 5 hereof. For purposes of this Plan, the term "Subsidiary" shall mean any corporation which satisfies the definition of a "subsidiary corporation" as contained in Section 424(f) of the Code and the term "Subsidiaries" shall mean all corporations which satisfy the definition of a "subsidiary corporation" as contained in Section 424(f) of the Code when, in each case, for purposes of applying such definition, the "employer corporation" is deemed to mean the Company. In selecting Optionees and in determining the number of shares for which options are granted, the Committee may weigh and consider the following factors: the office or position of the Optionee and his/her degree of responsibility for the growth and success of the Company, length of service, remuneration, promotions and potential. The foregoing factors shall not be considered to be exclusive or obligatory upon the Committee, and the Committee may properly consider any other factors which to it seems appropriate. An Optionee who has been granted an option under the Plan may be granted additional options under the Plan if the Committee shall so determine. In no event shall any options be granted under this Plan at any time after the termination date set forth at the end of this Plan. 4. Shares Subject to the Plan Subject to adjustment as provided in Section 5 of this Plan, the aggregate number of reserved shares of Common Stock for which options may be granted hereunder shall not exceed three million (3,000,000) shares, determined as of April 24, 1996, (the effective date of this Plan); provided, however, that as to shares subject to options which expire or terminate pursuant to the provisions of this Plan without having been exercised in full, such shares shall be considered to be available again for placement under options granted thereafter under the Plan. Shares issued pursuant to the exercise of incentive stock options granted under the Plan shall be fully paid and non-assessable. 69 5. Anti-Dilution Provisions The aggregate number of shares and the class of shares as to which options may be granted under the Plan, the number and class of shares subject to each outstanding option, the price per share thereof (but not the total price), and the number of shares as to which an option may be exercised at any one time, shall all be adjusted proportionately in the event of any change, increase or decrease in the outstanding shares of Common Stock or any change in classification of the Company's Common Stock without receipt of consideration by the Company which results either from a split-up, reverse split or consolidation of shares, payment of a stock dividend, recapitalization, reclassification or other like capital adjustment so that upon exercise of the option, the Optionee shall receive the number and class of shares that he would have received had he been the holder of the number of shares of Common Stock for which the option is being exercised immediately preceding such change, increase or decrease in the outstanding shares of Common Stock of the Company. Any such adjustment made by the Committee shall be final and binding upon all Optionees, the Company, and all other interested persons. Any adjustment of an incentive stock option under this paragraph shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. Anything in this Section 5 to the contrary notwithstanding, no fractional shares or scrip representative of fractional shares shall be issued upon the exercise of any option. Any fractional share interest resulting from any change, increase or decrease in the outstanding shares of Common Stock of the Company or resulting from any reorganization, merger, or consolidation for which adjustment is provided in this Section 5 shall disappear and be absorbed into the next lowest number of whole shares, and the Company shall not be liable for any payment for such fractional share interest to the Optionee upon his exercise of the option. 6. Option Price The purchase price for each share of Common Stock which may be acquired upon the exercise of each option issued under the Plan shall be determined by the Committee at the time the option is granted, but in no event shall such purchase price be less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of grant. If the Common Stock of the Company is listed upon an established stock exchange or exchanges on the day the option is granted, such fair market value shall be deemed to be the highest closing price of the Common Stock of the Company on such stock exchange or exchanges on the day the option is granted, or if no sale of the Company's Common Stock shall have been made on any stock exchange on that day, on the next preceding day on which there was a sale of such stock. 70 7. Option Exercise Periods a. The time within which any option granted hereunder may be exercised shall be, by its terms, not earlier than one (1) year from the date such option is granted and not later than ten (10) years from the date such option is granted. Except as otherwise provided for herein, the Optionee must remain in the continuous employment of the Company or any of its Subsidiaries from the date of the grant of the option to and including the date of exercise of option in order to be entitled to exercise his option. Options granted hereunder shall be exercisable in such installments and at such dates as the Committee may specify. Unless the Committee shall specify otherwise, the right of each Optionee to exercise his option to purchase the number of shares to which his option initially related shall accrue on a cumulative basis as follows: (i). the Optionee shall have the right to purchase one- fourth (1/4) of the total number of shares of Common Stock which can be purchased pursuant to the option (subject to adjustment as provided in Section 5 hereof) at the end of the one (1) year period following the date the option is granted; (ii). the Optionee shall have the right to purchase an additional one-fourth (1/4) of the total number of shares of Common Stock which can be purchased pursuant to the option (subject to adjustment as provided in Section 5 hereof) at the end of the two (2) year period following the date the option is granted; (iii). the Optionee shall have the right to purchase an additional one-fourth (1/4) of the total number of shares of Common Stock which can be purchased pursuant to the option (subject to adjustment as provided in Section 5 hereof) at the end of the three (3) year period following the date the option is granted; (iv). the Optionee shall have the right to purchase the remaining one-fourth (1/4) of the total number of shares of Common Stock which can be purchased pursuant to the option (subject to adjustment as provided in Section 5 hereof) at the end of the four (4) year period following the date the option is granted. Continuous employment shall not be deemed to be interrupted by transfers between the Subsidiaries or between the Company and any Subsidiary, whether or not elected by termination from any Subsidiary and re-employment by any other Subsidiary or the Company. Time of employment with the Company shall be considered to be one employment for the purposes of this Plan, provided there is no intervening employment by a third party or no interval between employments which, in the opinion of the Committee, is deemed to break continuity of service. The Committee shall, at its discretion, determine the effect of approved leaves of absence and all other matters having to do with "continuous employment". Where an Optionee dies while employed by the Company or any of its Subsidiaries, his options may be exercised following his death in accordance with the provisions of Section 10 below. 71 b. Notwithstanding the foregoing provisions of Section 7(a), in the event the Company or the shareholders of the Company enter into an agreement to dispose of all or substantially all of the assets or stock of the Company by means of a sale, merger, consolidation, reorganization, liquidation, or otherwise, or in the event a Change of Control (as hereinafter defined) of the Company shall occur, all unexercised options granted hereunder shall become immediately exercisable with respect to the full number of shares subject to that option during the period commencing as of the date of execution of such agreement and ending as of the earlier of (i) ten (10) years from the date such option was granted, or (ii) ninety (90) days following the date on which a Change in Control occurs or the disposition of assets or stock contemplated by this sentence is consummated. In addition, in the event that substantially all the stock of any Subsidiary by whom an Optionee is employed is sold or otherwise disposed of by merger, consolidation, reorganization, liquidation or otherwise, or in the event that substantially all the assets of any division of the Company or any division of any Subsidiary by whom the Optionee is employed are sold or disposed of by means of a sale, merger, consolidation, reorganization, liquidation or otherwise and, in connection with any such asset sale, the Optionee's employment with the Company or the Subsidiary (as the case may be) is terminated, the options of an Optionee employed by such a division or Subsidiary shall, unless the Optionee remains in the employ of the Company or any Subsidiary of the Company immediately following any such sale or other disposition of stock or assets, become immediately exercisable with respect to the full number of shares subject to that option during the period commencing as of the date of execution of the agreement providing for such sale or other disposition and ending as of the earlier of (x) ten (10) years from the date such option was granted and (y) ninety (90) days following the date on which the disposition of the assets or stock contemplated by this sentence is consummated. Ninety (90) days following the consummation of any disposition of assets or stock referred to in the preceding sentence, any unexercised options issued hereunder which have become exercisable pursuant to this paragraph (or any unexercised portion thereof) shall terminate and cease to be effective. In addition, if any disposition of assets or stock referred to in this paragraph occurs with respect to substantially all the assets or stock of the Company or if a Change in Control occurs, ninety (90) days following such disposition of assets or stock or Change in Control, this Plan and any unexercised options issued hereunder which have become exercisable pursuant to this paragraph (or any unexercised portion thereof) shall terminate and cease to be effective, unless provision is made in connection with such transaction for assumption of options previously granted or the substitution for such options of new options covering the securities of a successor corporation or an affiliate thereof, with appropriate adjustments as to the number and kind of securities and prices. c. For purposes of this Plan, a "Change in Control" shall be deemed to have occurred if: 72 (i). any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act) of more than thirty percent (30%) of the then outstanding voting stock of the Company, otherwise than through a transaction arranged by, or consummated with the prior approval of its Board of Directors; or (ii). during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (and any new director whose election to the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) (hereinafter referred to as the "Continuing Directors") cease for any reason to constitute a majority thereof; or (iii). the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation (provided, however, that if prior to the merger or consolidation, the Board of Directors of the Company adopts a resolution that is approved by a majority of the Continuing Directors providing that such merger or consolidation shall not constitute a "change in control" for purposes of the Plan, then such a merger or consolidation shall not constitute a "change in control"); or (iv). the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the assets of the Company. d. Any change or adjustment made pursuant to the terms of this Section 7 shall be made in such a manner so as not to constitute a "modification" as defined in Section 424 of the Code, and so as not to cause any incentive stock option issued under this Plan to fail to continue to qualify as an incentive stock option as defined in Section 422(b) of the Code. Notwithstanding the foregoing, in the event that any such agreement shall be terminated without consummating the disposition of said stock or assets, any unexercised unaccrued portion of any option that had become exercisable solely by reason of the provisions of this paragraph shall again become unaccrued and unexercisable as of said termination of such agreement; subject, however, to such portion of such option accruing pursuant to the normal accrual schedule provided in the terms under which such option was granted. Any exercise of any portion of any option prior to said termination of said agreement shall remain effective despite the fact that such portion became exercisable solely by reason of the Company or its shareholders entering into said agreement to dispose of the stock or assets of the Company or the stock or assets of any Subsidiary of the Company, any division of the Company or any division of any Subsidiary of the Company. 73 8. Exercise of Option Options shall be exercised as follows: a. Notice and Payment. Each option, or any installment thereof, shall be exercised, whether in whole or in part, by giving written notice to the Company at its principal office, (the "Exercise Notice") that the Optionee intends to exercise all or part of any option he has been granted and by paying to the Company the purchase price for the number of shares of Common Stock of the Company which the Optionee desires to purchase at the price per share (as adjusted) set forth in the option which the Optionee desires to exercise. b. The Exercise Notice: (i) shall state the identity of the options being exercised (by reference to the date of the grant of the option); (ii) shall state the number of shares to be purchased and the purchase price to be paid; and (iii) shall contain representations on behalf of the Optionee that he acknowledges that the Company is selling the shares being acquired by him under a claim of exemption from registration under the Securities Act of 1933 as amended (hereinafter referred to as the "Act"), as a transaction not involving any public offering; that he represents and warrants that he is acquiring such shares with a view to "investment" and not with a view to distribution or resale; and that he agrees not to transfer, encumber or dispose of the shares unless: (A) a registration statement with respect to the shares shall be effective under the Act, together with proof satisfactory to the Company that there has been compliance with applicable state law; or (B) the Company shall have received an opinion of counsel in form and content satisfactory to the Company to the effect that the transfer qualifies under Rule 144 or some other disclosure exemption from registration and that no violation of the Act or applicable state laws will be involved in such transfer, and/or such other documentation in connection therewith as the Company's counsel may in its sole discretion require. c. Payment of the purchase price for shares of Common Stock to be acquired in connection with the exercise of any options granted under this Plan shall be made: (i) by delivery to the Company of cash or a certified or bank check payable to the order of the Company in an amount equal to the portion of the purchase price which is payable in connection with the exercise of such option; (ii) by delivery to the Company of previously acquired shares of the Company's Common Stock having an aggregate fair market value equal to the portion of the purchase price which is payable in connection with the exercise of such option, provided that such previously acquired shares of Common Stock have been held by the Optionee for at least six (6) months or such other period of time as may be required by the Committee at the time such shares are delivered to the Company in connection with the Optionee's exercise of his/her option hereunder; or (iii) by the Company's retention of a portion of the shares of the Company's Common Stock to be issued in connection with the exercise of such option, which shares of Common Stock have an aggregate fair market value equal to the total exercise price payable for that number of shares of the Company's Common Stock (including retained shares) which is to be issued upon the exercise by the optionee of the number of options identified by the optionee in the exercise notice. If shares of the Company's 74 Common Stock are delivered (or retained by the Company) as payment of the purchase price for shares of Common Stock to be acquired in connection with the exercise of options granted hereunder, the shares of Common Stock which are delivered (or retained by the Company) in payment of such purchase price shall be equal to the fair market value (determined in accordance with the principles set forth in Section 6 hereof) of the Common Stock on the day immediately preceding the day on which such Common Stock is delivered (or retained by the Company) in payment of the purchase price for shares of Common Stock to be acquired in connection with the exercise of options granted hereunder. d. Issuance of Certificates. Certificates representing the shares purchased by the Optionee shall be issued as soon as practicable after the Optionee has complied with the provisions of Section 8(a) hereof. e. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to the shares purchased until the date of the issuance to him of a Certificate representing such shares. 9. Assignment of Option Subject to the provisions of Section 10, options granted under this Plan may not be assigned voluntarily or involuntarily or by operation of law. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any incentive stock option, or any right thereunder, contrary to the provisions hereof shall be void and ineffective, shall give no right to the purported transferee, and shall, at the sole discretion of the Committee, result in forfeiture of the option with respect to the shares involved in such attempt. 10. Effect of Termination of Employment, Death or Disability a. In the event of the termination of employment of an Optionee during the two (2) year period after the date of issuance of an option to him either by reason of (i) a discharge for cause, or (ii) voluntary separation on the part of the Optionee and without consent of the Company or the Subsidiary for whom the Optionee was employed, any option or options theretofore granted to him under this Plan, to the extent not theretofore exercised by him, shall forthwith terminate. b. In the event of the termination of employment of an Optionee (otherwise than by reason of death or retirement of the Optionee at his Retirement Date) by the Company or by any of the Subsidiaries employing the Optionee at such time, any option or options granted to him under the Plan to the extent not theretofore exercised shall be deemed canceled and terminated forthwith, except that, subject to the provisions of subparagraph (a) of this 75 Section, such Optionee may exercise any options theretofore granted to him, which have not then expired and which are otherwise exercisable within the provisions of Section 7 hereof, within three (3) months after such termination. If the employment of an Optionee shall be terminated by reason of the Optionee's retirement at his Retirement Date from the Company or from any of the Subsidiaries employing the Optionee at such time, the Optionee shall have the right to exercise such option or options held by him to the extent that such options have not expired, at any time within three (3) months after such retirement. The provisions of Section 7 to the contrary notwithstanding, upon retirement, all options held by an Optionee shall be immediately exercisable in full. The transfer of an Optionee from the employ of the Company to a Subsidiary of the Company or vice versa, or from one Subsidiary of the Company to another, shall not be deemed to constitute a termination of employment for purposes of this Plan. c. In the event that an Optionee shall die while employed by the Company or by any of the Subsidiaries or shall die within three (3) months after retirement on his Retirement Date (from the Company or any Subsidiary), any option or options granted to him under this Plan and not theretofore exercised by him or expired shall be exercisable by the estate of the Optionee or by any person who acquired such option by bequest or inheritance from the Optionee in full, notwithstanding Section 7, at any time within one (1) year after the death of the Optionee. References hereinabove to the Optionee shall be deemed to include any person entitled to exercise the option after the death of the Optionee under the terms of this Section. d. In the event of the termination of employment of an Optionee by reason of the Optionees' disability, the Optionee shall have the right, notwithstanding the provisions of Section 7 hereof, to exercise all options held by him, to the extent that options have not previously expired or been exercised, at any time within one (1) year after such termination. The term "disability" shall, for the purposes of this Plan, be defined in the same manner as such term is defined in Section 105(d)(4) of the Internal Revenue Code of 1986. e. For the purposes of this Plan, "Retirement Date" shall mean any date an employee is otherwise entitled to retire under the Company's retirement plans. 11. Amendment and Termination of the Plan The Board of Directors of the Company may at any time suspend, amend or terminate the Plan; provided, however, that except as permitted in Section 13 hereof, no amendment or modification of the Plan which would: a. increase the maximum aggregate number of shares as to which options may be granted hereunder (except as contemplated in Section 5); or b. reduce the option price or change the method of determining the option price; or c. increase the time for exercise of options to be granted or those which are outstanding beyond the terms of ten (10) years; or 76 d. change the designation of the employees or class of employees eligible to receive options under this Plan, may be adopted unless with the approval of the holders of a majority of the outstanding shares of Common Stock represented at a shareholders' meeting of the Company, or with the written consent of the holders of a majority of the outstanding shares of Common Stock. No amendment, suspension or termination of the Plan may, without the consent of the holder of the option, terminate his option or adversely affect his rights in any material respect. 12. Incentive Stock Options Power to Establish Other Provisions. It is intended that the Plan shall conform to and each option shall qualify and be subject to exercise only to the extent that it does qualify as an "incentive stock option" as defined in Section 422 of the Code and as such section may be amended from time to time or be accorded similar tax treatment to that accorded to an incentive stock option by virtue of any new Revenue Laws of the United States. The Board of Directors may make any amendment to the Plan which shall be required so to conform the Plan. Subject to the provisions of the Code, the Committee shall have the power to include such other terms and provisions in options granted under this Plan as the Committee shall deem advisable, provided, however, that no option shall be granted hereunder which does not qualify under the Code. 13. Maximum Annual Value of Options Exercisable. Notwithstanding any provisions of this Plan to the contrary if: (a) the sum of: (i) the fair market value (determined as of the date of the grant) of all options granted to an Optionee under the terms of this Plan which become exercisable for the first time in any one calendar year; and (ii) the fair market value (determined as of the date of the grant) of all options previously granted to such Optionee under the terms of this Plan or any other incentive stock option plan of the Company or its subsidiaries which also become exercisable for the first time in such calendar year; exceeds (b) $100,000; then, (c) those options shall continue to be binding upon the Company in accordance with their terms but, to the extent that the aggregate fair market of all such options which become exercisable for the first time in any one calendar year (determined as of the date of the grant) exceeds $100,000, such options shall not be deemed to be incentive stock options as defined in Section 422 (b) of the Code. Accordingly, no Optionee shall be entitled to exercise options granted under any incentive stock option plan of the Company and any parent or subsidiary of the Company, in any single calendar year, for shares of Common Stock the value of which (determined at the timer of grant of the options) exceeds $100,000 except to the extent such options first become exercisable in previous complete calendar years. For purposes of the foregoing, the determination of which options shall be recharacterized as not being incentive stock options issued under the terms of this Plan shall be made in inverse order of their grant dates and, accordingly, the last options received by the Optionee shall be the first options to be recharacterized as not being incentive stock options granted pursuant to the terms of the Plan. 77 14. General Provisions a. No incentive stock option shall be construed as limiting any right which the Company or any parent or subsidiary of the Company may have to terminate at any time, with or without cause, the employment of an Optionee. b. The Section headings used in this Plan are intended solely for convenience of reference and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any of the provisions hereof. c. The masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the other whenever the content so indicates or requires. d. No options shall be granted under the Plan after ten (10) years from the date the Plan is adopted by the Board of Directors of the Company or approved by the stockholders of the Company, whichever is earlier. 15. Effective Date and Duration of the Plan The Plan will become effective as of April 24, 1996, assuming, as required by Section 422 of the Code, the Plan is approved by the Shareholders of the Company at the 1996 Annual Meeting. The Plan will terminate on April 23, 2006 provided however, that the termination of the Plan shall not be deemed to modify, amend or otherwise affect the term of any options outstanding on the date the Plan terminates. IN WITNESS WHEREOF, the undersigned has executed this Mark IV Industries, Inc. 1996 Incentive Stock Option Plan for and on behalf of Mark IV Industries, Inc. this 25th day of April, 1996. MARK IV INDUSTRIES, INC. By: Richard L. Grenolds ------------------- Vice President and Chief Accounting Officer EX-10.15 3 78 Exhibit 10.15 MARK IV INDUSTRIES, INC. EXECUTIVE BONUS PLAN ____________________________________ Amendment and Restatement Effective March 1, 1995 ____________________________________ WHEREAS, Mark IV Industries, Inc., a Delaware corporation whose corporate headquarters is located at One Towne Centre, 501 John James Audubon Parkway, Amherst, New York (the "Company") adopted an executive bonus plan to enable the Company to reward certain of its key executives for implementing management policies and procedures which substantially improve the profitability of the Company and the Company's value to its stockholders; and WHEREAS, under the terms of Section 162(m) of the Internal Revenue Code of 1986, as amended, the amount of the compensation which is paid by the Company to any of its employees may be limited if the amount of such compensation is not determined by reference to certain performance related goals which are established by a committee of outside directors and approved by the Company's stockholders; and WHEREAS, the Board of Directors of the Company has heretofore authorized the adoption of this amendment and restatement to the Company's executive bonus plan and the submission of this amendment and restatement of the Company's executive bonus plan to the Company's stockholders for their approval in order to insure that the Company will continue to be able to attract, motivate and retain the services of highly qualified individuals as executives of the Company without subjecting the Company to the risk that amounts paid to such executives under this amendment and restatement of the Company's executive bonus plan will not be fully deductible; NOW, THEREFORE, in consideration of the foregoing, the Company hereby adopts the following as the Executive Bonus Plan of Mark IV Industries, Inc. (the "Plan") effective March 1, 1995: 79 ARTICLE 1. Eligibility and Participation 1.01 Eligible Employees. For purposes of this Plan, the term "Eligible Employee" means each employee of the Company whose principal place of employment is at the Company's headquarters at One Towne Centre, 501 John James Audubon Parkway, Amherst, New York (or such other location at which the Company's headquarters may, from time to time, be located) and who, either: (a) by virtue of his position, duties and responsibilities with respect to the operations of the Company, is required, pursuant to the applicable provisions of the Securities Act of 1934, as amended, to report to the U.S. Securities and Exchange Commission the amount of and any changes in his ownership of any common stock or other equity securities of the Company; or (b) is entitled to receive a bonus, to the extent bonuses are otherwise payable under the terms of this Plan, under the terms of a written employment agreement between the Company and such employee. 1.02 Participation. Unless otherwise specifically determined by the Compensation Committee of the Company's Board of Directors (hereinafter the "Committee") as provided for in Section 2.05 hereof, each Eligible Employee as defined in Section 1.01 above shall be entitled to receive an incentive bonus award for each fiscal year of the Company in which this Plan is in effect in an amount determined in accordance with the provisions of Article 2 hereof. ARTICLE 2. Determination and Payment of Incentive Bonus Awards 2.01 Establishment of Performance Goals. On or before May 30 of each fiscal year of the Company in which this Plan is in effect, (or, in the event the Company's fiscal year begins on any date other than March 1 of any calendar year, no later than ninety (90) days following the beginning of such fiscal year), the Committee shall establish a performance goal which must be achieved by the Company for the fiscal year of the Company in which such performance goal is established in order for any incentive bonus to be payable to Eligible Employees under the terms of this Plan with respect to such fiscal year. The performance goal to be established by the Committee as provided for above in this Section 2.01 shall be based on an objective and quantifiable measure of the Company's earnings. On or before the date described in the preceding paragraph, the Committee shall deliver a written statement to the Company's Board of Directors which contains a description of the performance goal established by the Committee and an objective and quantifiable method for determining the amount of the Company's earnings and for determining whether or not the performance goal as established by the Committee has been achieved. 80 2.02 Determination of Incentive Bonus Awards. As soon as practicable following the release of the audited financial statements of the Company for each fiscal year of the Company in which this Plan is in effect, the Committee shall, based on such audited financial statements, determine if the performance goal established by the Committee for such fiscal year (as determined from the written statement filed by the Committee with the Company's Board of Directors pursuant to section 2.01 hereof) has been met or exceeded by the Company. If and to the extent that the earnings of the Company (as determined from the description of such earnings contained in the written statement filed by the Committee with the Company's Board of Directors pursuant to Section 2.01 hereof) exceed the earnings performance goal as established by the Committee pursuant to Section 2.01 hereof, the amount of any such excess (hereinafter referred to as the "Bonus Pool") shall be allocated to Eligible Employees in the manner described in Section 2.03 hereof. 2.03 Allocation of Incentive Bonus Awards. Subject to the provisions of Sections 2.04 and 2.05 hereof, the amount of the Bonus Pool which shall be allocated to each Eligible Employee shall be equal to that portion of the Bonus Pool which: (a) the base salary of the Eligible Employee for the fiscal year of the Company with respect to which the Bonus Pool relates, bears to (b) the sum of the base salaries of all Eligible Employees for such fiscal year. For purposes of this Section 2.03, the base salary of an Eligible Employee and the sum of the base salaries of all Eligible Employees shall be determined: (x) as of the beginning of the fiscal year of the Company with respect to which an incentive bonus award is payable; and (y) using the amount of the base salary which is payable to the Eligible Employee, regardless of whether or not such base salary is actually paid to the Eligible Employee as a result of the deferral of the payment of such base salary made by the Eligible Employee under the terms of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. (the "Deferred Comp. Plan"). Accordingly, the termination of any Eligible Employee's employment for any reason at any time during the fiscal year shall not affect the percentage of the Bonus Pool to be allocated to an Eligible Employee. 2.04 Maximum Amount of Incentive Bonus Award. Notwithstanding the foregoing, in no event shall the amount of the incentive bonus which is payable to any Eligible Employee pursuant to the terms of this Plan exceed two hundred percent (200%) of the actual base salary which is payable to any such Eligible Employee (whether or not deferred pursuant to the Deferred Comp. Plan) as determined for each calendar month for the 12 calendar months of the fiscal year of the Company with respect to which such incentive bonus is payable. In addition, notwithstanding anything to the contrary contained in any other provision of this Plan, in no event shall any Eligible Employee be entitled to payment of an incentive bonus under the terms of this Plan which exceeds $2,000,000 for any fiscal year of the Company. 81 2.05 Discretion to Reduce Incentive Bonus Award. The Committee may, in its discretion, decrease the amount of the incentive bonus awards which would otherwise be payable to all Eligible Employees pursuant to the foregoing provisions of this Plan. Any such reduction in the amount of the incentive bonus awards which are otherwise payable to Eligible Employees shall be made on a pro-rata basis among all the Eligible Employees so that the percentage reduction in the incentive bonus award for each of the Eligible Employees is the same as the percentage reduction in the amount of the incentive bonus award for all other Eligible Employees. In addition, the Committee may, in its discretion, determine that no incentive bonus shall be paid to any of the Eligible Employees even though the Company has achieved its performance goal. The determination of the Committee with respect to the amount of any reduction in the amount of the incentive bonus awards which would otherwise be payable to Eligible Employees pursuant to the foregoing provisions of this Plan shall be conclusive and binding on the Eligible Employees. 2.06 Certification of Achievement of Performance Goals. As soon as practicable following the determination by the Committee of the amount of the incentive bonus awards to be paid to Eligible Employees pursuant to the terms of the Plan, the Committee shall certify to the Board of Directors of the Company, in writing: (a) that the performance goals established by the Company pursuant to Section 2.01 hereof have been achieved; (b) that the amount of the incentive bonus awards to be paid to each Eligible Employee have been determined in accordance with the applicable provisions of this Plan; and (c) the amount of the incentive bonus awards to be paid to each Eligible Employee. 2.07 Payment of Incentive Bonus Awards. Unless an Eligible Employee has elected to defer his receipt of payment of any incentive bonus award payable to such Eligible Employee pursuant to the terms of this Plan (as permitted by the terms of the Deferred Comp. Plan), the Company shall, as soon as practicable following the Committee's delivery to the Board of Directors of the Company of the certification as provided for by Section 2.06 hereof, pay to each Eligible Employee, cash in an amount equal to the incentive bonus award payable to such Eligible Employee as determined pursuant to the preceding provisions of this Plan, minus any applicable withholding taxes. ARTICLE 3. Administration 3.01 Composition of the Committee. The Committee shall be composed of two (2) or more members of the Company's Board of Directors, each of whom shall be an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended and any regulations promulgated thereunder. 82 3.02 General Duties and Responsibilities of the Committee. The Committee shall administer the Plan in accordance with its terms and in such manner as will result in the amount of the incentive bonus awards payable under the terms of this Plan being treated as performance based compensation under the applicable provisions of Section 162(m) of the Internal Revenue Code of 1986 and the regulations issued thereunder. The Committee shall have all powers necessary to carry out the provisions of the Plan. Any interpretation, construction or determination made by the Committee in good faith in connection with its administration of the Plan shall be final, conclusive and binding upon the Participants and their spouses, estates and beneficiaries. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of this Plan. The Committee, may employ attorneys, accountants and such other advisors to advise it with respect to its duties and obligations as it deems appropriate. 3.03 Expenses and Compensation. The expenses necessary to administer the Plan shall be borne by the Company. Expenses include, but are not limited to, expenses involved in retaining any necessary professional assistance. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties. The Committee, with the approval of the Company may receive reasonable compensation for services rendered in administering this Plan, provided the member performing the services is not a full-time employee. 3.04 Information from the Company. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Eligible Employees, their employment, their base salaries, their retirement, death, total and permanent disability or termination of employment, and such other pertinent facts as the Committee may require. The Committee is entitled to rely on such information as is supplied by the Company and shall have no duty or responsibility to verify such information. 3.05 Multiple Signatures. One signature of any member of the Committee may be relied upon by any interested party as conclusive evidence that the Committee has duly authorized the action therein set forth and as representing the will of and binding upon the whole Committee. No person receiving such documents or written instructions and acting in good faith and in reliance thereon shall be obliged to ascertain the validity of such action under the terms of this Plan. The Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. 83 3.06 General Liability. The Company, the Board of Directors of the Company, the Committee, and any other person authorized to act on behalf of the Committee with respect to this Plan shall not be liable for any actions taken or omitted by any of them except for such acts involving gross negligence or willful misconduct of the party to be charged. Nothing contained in this Section 3.06 shall be deemed to release, discharge or otherwise limit the liability of the Company, and any successor in interest to the Company, for payment to Eligible Employees of the amount of any incentive bonus award which has become payable to an Eligible Employee as provided for in the certification provided to the Company's Board of Directors by the Committee pursuant to Section 2.06 hereof. ARTICLE 4. Amendment and Termination 4.01 Amendment. The Board of Directors shall have the right at any time and from time to time, without the consent of any Participant or Beneficiary, to amend, in whole or in part, any or all of the provisions of this Plan. No amendment to the Plan shall be effective to the extent that it has the effect of increasing the maximum amount of the incentive bonus award payable to any Eligible Employee unless the terms of such amendment are approved by the stockholders of the Company in accordance with the applicable provisions of the General Corporation Law of the State of Delaware. In addition, no amendment shall have the effect of decreasing the amount of any incentive bonus award which has become payable to an Eligible Employee pursuant to the terms of the certification to be delivered by the Committee to the Company's Board of Directors pursuant to Section 2.06 hereof. 4.02 Termination. The Company, by action of its Board of Directors, shall have the right at any time, and without notice to Eligible Employees, to terminate this Plan and provided that, no such termination shall affect any Eligible Employee's right to payment of any incentive bonus award after the amount of such incentive bonus award has been certified to the Company's Board of Directors as provided for by Section 2.06 hereof. ARTICLE 5. Miscellaneous 5.01 No Rights Created by Plan - Terms of Employment Not Affected. Neither the establishment of the Plan nor any modification hereof, nor the payment of any incentive bonus award hereunder shall be construed as giving to any Eligible Employee or any other person, any legal or equitable right against the Company or any officer or employee thereof, or the Committee, except as herein provided. Under no circumstances shall participation in this Plan constitute a contract of continuing employment or in any manner obligate the Company to continue the services of an Eligible Employee. 84 5.02 Eligible Employee's Rights Unsecured. This Plan shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company for payment of any distributions hereunder. The rights of an Eligible Employee to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company and Eligible Employees shall not have any rights in or against any specific assets of the Company. 5.03 No Guaranty of Benefits. Nothing contained in this Plan shall be deemed to constitute a guaranty by the Company or any other entity or person that the assets of the Company will be sufficient to pay the benefits hereunder. 5.04 Execution of Receipts and Releases. Any payment to any Eligible Employee in accordance with the provisions of this Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Plan, and the Committee may require such Eligible Employee as a condition precedent to such payment, to execute a receipt and release therefor in such form as it shall determine. 5.05 Benefits Non-Assignable. No incentive bonus which shall be payable to any Eligible Employee under the terms of this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void and no such incentive bonus shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts or any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Committee except to such extent as may be required by law. 5.06 Construed Under Applicable Federal Law and New York Law. This Plan shall be construed according to applicable Federal Law and the laws of the State of New York and all provisions hereof shall be administered according to such laws. 5.07 Masculine Gender to Include Feminine; Singular to Include Plural. Wherever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 5.08 Headings No Part of Plan. Headings of articles, sections and subsections herein are inserted for convenience of reference only. They constitute no part of this Plan and are not to be construed in the construction hereof. 85 5.09 Effective Date and Duration. This Plan shall be effective March 1, 1995 provided that, prior to March 1, 1996, the terms of this Plan are approved by the stockholders of the Company in accordance with the applicable provisions of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Mark IV Industries, Inc. has caused this Plan to be executed as of the 10th day of May, 1995. MARK IV INDUSTRIES, INC. By: /s/ William P. Montague ----------------------- President EX-21 4 86 EXHIBIT 21 SUBSIDIARIES The following is a list of the subsidiaries of Mark IV Industries, Inc. ("the Company") at May 26, 1998. Except as otherwise indicated, the names of indirectly-owned subsidiaries are indented under the names of their immediate parent. Dayco Products, Inc. (Delaware) Controladora Dayco SA de C.V. (Mexico) Dayco Products S.A. de C.V. (Mexico) Industrial de Plasticos Y Elastmeros, S.A. (Mexico) Mark IV Industries Canada Inc. (Canada) (100% owned, in the aggregate, by Dayco Products, Inc.; Purolator Products NA, Inc. and Purolator Products Company) Mark IV Industries Limited (Canada) Dayco Europe S.p.A. (Italy) Dayco SACIC S.A. (Belgium) Prelasti S.A. (Belgium) (50% ownership) Dayco PTI S.A. (Spain) Dayco PTI GmbH (Germany) Lunkoflex Iberica S.A. (Spain) Nuova Eletta S.p.A. (Italy) Mark IV Automotive AB (Sweden) Dayco Sweden AB (Sweden) M-Filter OY (100% owned, in the aggregate, by the Company and Mark IV Automotive AB) Mark IV Automotive Pty Ltd. (Australia) Dayco Products Singapore Pte. Ltd (Singapore) Dayco TSA Singapore Pte Ltd (Singapore) Dayco Ireland Holdings Limited (Ireland) CTM Cinotto Tecnomeccanica S.p.A. (Italy) (99% ownership) Dayco Distributing, Inc. (Kentucky) Imperial Eastman LLC (Delaware) Woods Liquidating Corporation (Delaware) Luminator Holding L.P. (Delaware) (100% owned, in the aggregate, by Lum-Eag Holdings and Woods Liquidating Corporation) Luminator Service, Inc. (New York) Purolator Products Company (Delaware) Cal-Facet, Inc. (Delaware) Facet Advanced Technologies Company (Delaware) Purodenso Company (owned 50% by Facet Advanced Technology Company) Facet Enterprises, Inc. (Delaware) Facet Export Corporation (Delaware) Facet Fuel Systems, Inc. (Delaware) Facet Aerospace Products Company (Delaware) Facet Industrial U.K. Limited (United Kingdom) Facet Iberica, S.A. (Spain) (100% owned, in the aggregate, by Purolator Products Company; Facet Italiana SpA, and Facet Industrial U.K.) Dayco Europe Ltd (United Kingdom) Dayco PTI Ltd (United Kingdom) 87 Caplugs Ltd (United Kingdom) (50% owned by Dayco PTI Ltd.) Facet Industrial B.V. (Netherlands) Purolator Filter GmbH (Germany) (100% owned, in the aggregate, by Facet Industrial B.V. and Purolator Products Company) Facet International, Inc. (Delaware) Facet Italiana S.p.A (Italy) Facet FCE S.A.R.L. (France) (100% owned, in the aggregate, by Facet Italiana SpA and Facet Industrial U.K. Limited) George W. Dahl Company, Inc. (Delaware) Purolator India Limited (India) (39.27% ownership) Purolator Products Air Filtration Company (Delaware) Purolator Products NA, Inc. (Delaware) Mark IV Holdings, S.A. (Belgium) Mark IV PLC (United Kingdom) Mark IV Ventures Ltd (United Kingdom) Pietranera S.r.L. (Italy) (100% owned, in the aggregate, by the Company and Armtek International Holding Company, Inc.) F-P Technologies Holding Corp. (Delaware) (100% owned, in the aggregate, by the Company and Mark IV Industries Ltd.) Gulton-Statham Transducers, Inc. (Delaware) F-P Displays, Inc. (Massachusetts) Mark IV Holding AG (Switzerland) F-P Displays AG (Switzerland) Mark IV France S.A.S. (France) Dayco Europe S.A.R.L. (France) Mark IV Systems Moteurs SA (France) Gulton S.A. (France) SLE S.A.R.L. (France) Kirkhof/Goodrich Corp. (Delaware) Armtek International Holding Company, Inc. (Delaware) Dayco Pacific Pty. Limited (Australia) (100% owned, in the aggregate, by Armtek Int'l Holding Company,Inc. and Dayco Products, Inc.) Rubicon Industrial (Australia) Pty. Ltd (Australia) Adelaide Flexibles PTY Limited (Australia) EN-U Technology PTY Limited (Australia) Inter-Arc Industrial Products PTY Limited (Australia) Novahose Industrial PTY Limited (Australia) Seal-Tite Couplings PTY Limited (Australia) Rubicon Industrial PTY Ltd. (Australia) WA Industrial Rubber PTY Limited (Australia) Imperial Eastman Pty Limited (Australia) Mark IV Industries GmbH (Germany) Mark IV Vertriebs GmbH (Germany) Dayco Europe GmbH (Germany) (100% owned, in the aggregate, by Mark IV Industries GmbH and Mark IV Industries Canada, Inc.) Mark IV Audio Deutschland GmbH (Germany) Eagle Funding Corporation (Delaware) Automatic Signal/Eagle Signal Corp.(Delaware) Clarke Container Company, Inc. (New York) Glar-Ban Incorporated (New York) Mark IV Holdings Inc. (Delaware) Mark IV Industries Overseas, Ltd. (Barbados) Aerospace Sub, Inc. (Delaware) 88 Mark IV Industries Ireland (Ireland) (100% owned, in the aggregate, by the Company and Mark IV Holdings, Inc.) Mark IV IVHS, Inc. (Delaware) NRD, LLC (New York) Lum-Eag Holdings (Ireland) Mark IV Automotive do Brasil Ltda. (Brasil) (100% owned, in the aggregate, by the Company and Dayco Europe SpA) Daytec S.A. (Brazil) (60% ownership) Tecalon Brasileira de Auto Pecas S.A. (Brazil) (24% ownership) Dayco do Brasil Industria E Comercio Ltda. (Brazil) (99.90% ownership) Dayco Argentina (Argentina) (100% owned, in the aggregate, by the Company and Dayco Europe SpA) EX-23 5 89 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the incorporation by reference in the registration statements of Mark IV Industries, Inc. and Subsidiaries on Form S-4 (File No. 333-36013) and Form S-8 (File Nos. 33-55367 and 33-56515) of our report dated March 18, 1998, on our audits of the consolidated financial statements and financial statement schedule of Mark IV Industries, Inc. and Subsidiaries as of February 28, 1998 and February 28, 1997, and for each of the three fiscal years in the period ended February 28, 1998, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Rochester, New York May 27, 1998 EX-27 6
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 12-MOS FEB-28-1998 FEB-28-1998 120,900 0 480,000 13,600 393,400 1,086,300 847,600 179,200 2,420,500 627,900 793,900 0 0 600 751,400 2,420,500 2,210,200 2,210,200 1,497,000 1,971,900 0 0 61,600 176,700 67,500 109,200 0 10,600 0 98,600 1.54 1.50
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