-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YLIHXmH2rjFc1C9D0sK6gwcP4N3PWFLWnQWW3S6PLhVn7eKHuLe0zeSJlX727BRU ZFUZ5e+npWcx/5IzkSpypw== 0000950130-94-001591.txt : 19941111 0000950130-94-001591.hdr.sgml : 19941111 ACCESSION NUMBER: 0000950130-94-001591 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19941110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK IV INDUSTRIES INC CENTRAL INDEX KEY: 0000062418 STANDARD INDUSTRIAL CLASSIFICATION: 3823 IRS NUMBER: 231733979 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-56397 FILM NUMBER: 94558453 BUSINESS ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PKWY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14226 BUSINESS PHONE: 7166894972 FORMER COMPANY: FORMER CONFORMED NAME: MARK FOUR HOMES INC DATE OF NAME CHANGE: 19770921 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1994 REGISTRATION STATEMENT NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- MARK IV INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 23-1733979 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 501 JOHN JAMES AUDUBON PARKWAY P.O. BOX 810 AMHERST, NEW YORK 14226-0810 (716) 689-4972 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) WILLIAM P. MONTAGUE EXECUTIVE VICE PRESIDENT Mark IV Industries, Inc. 501 John James Audubon Parkway P.O. Box 810 Amherst, New York 14226-0810 (716) 689-4972 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: DAVID L. FINKELMAN, GERALD S. LIPPES, ESQ. ROGER KIMMEL, ESQ. ESQ. LIPPES, SILVERSTEIN, LATHAM & WATKINS STROOCK & STROOCK & LAVAN MATHIAS & WEXLER 855 Third Avenue Seven Hanover Square 700 Guaranty Building New York, N.Y. 10022 New York, N.Y. 10004- 28 Church Street 2696 Buffalo, N.Y. 14202-3950 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AGGREGATE AMOUNT TO BE PRICE PER UNIT OFFERING AMOUNT OF TITLE OF SHARES TO BE REGISTERED REGISTERED (1) PRICE (1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------- Common Stock $.01 par value.................. 6,858,750(2) $21.00 $144,033,750.00 $49,667.16 - --------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) on the basis of the price of the Common Stock on the New York Stock Exchange Composite Tape on November 7, 1994. (2) Includes 858,750 shares of Common Stock which may be issued upon exercise of the Underwriters' over-allotment option. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE On November 4, 1994, the Registrant, through a wholly owned subsidiary, consummated a tender offer to acquire all outstanding shares of common stock of Purolator Products Company, a Delaware corporation ("Purolator"). As a result of the tender offer, the Registrant beneficially owns more than 90% of the outstanding shares of Purolator common stock and will effect the merger of the Registrant's wholly owned subsidiary with and into Purolator pursuant to the short-form merger provisions under Delaware corporate law. It is anticipated that this Merger will occur on or about November 15, 1994. The information contained in the Prospectus which forms a part of this Registration Statement assumes that the merger of Purolator with the Registrant's subsidiary has been effected. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1994 PROSPECTUS 6,000,000 SHARES MARK IV INDUSTRIES INC. COMMON STOCK All of the 6,000,000 shares of Common Stock offered hereby (the "Offering") are being sold by Mark IV Industries, Inc. ("Mark IV" or the "Company"). The Common Stock of the Company is listed on the New York Stock Exchange, Inc. under the symbol "IV." On November 9, 1994, the last reported sale price of the Common Stock on the New York Stock Exchange Composite Tape was $20 5/8 per share. See "Price Range of Common Stock and Dividend Policy." ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=========================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) - ------------------------------------------------------------------------------------------- Per Share................................ $ $ $ - ------------------------------------------------------------------------------------------- Total (3)................................ $ $ $ ===========================================================================================
(1) No underwriting discount will apply in respect of up to 275,000 shares of Common Stock reserved for sale at the public offering price to the Purolator Products Company Employees' Retirement Savings Plan (the "Savings Plan"). The Company has agreed to indemnify the several Underwriters against, and to provide contribution with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $ . (3) The Company has granted the Underwriters a 30-day option to purchase up to an aggregate of 858,750 additional shares of Common Stock solely to cover over-allotments. If the option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The shares of Common Stock are offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to the approval of certain legal matters by counsel and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made against payment therefor on or about December , 1994, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167. BEAR, STEARNS & CO. INC. December , 1994 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION Mark IV Industries, Inc. (the "Company" or "Mark IV") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Seven World Trade Center, New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials can also be inspected at the New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S- 3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits filed as part thereof and otherwise incorporated therein. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits may be inspected, without charge, at the offices of the Commission, or obtained at prescribed rates from the Public Reference Section of the Commission at the address set forth above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Commission by the Company pursuant to the Exchange Act are incorporated by reference in this Prospectus and made a part hereof: the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994, as amended by Amendment No. 1 on Form 10-K/A; the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended May 31, 1994 and August 31, 1994; the Company's Current Report on Form 8-K dated November 9, 1994; and the description of the Company's Common Stock which is contained in the Company's Registration Statement on Form 8-A, dated August 28, 1987, including any amendments or reports filed for the purpose of updating such description. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the Offering shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which is also incorporated or deemed to be incorporated by reference herein modifies, supersedes or replaces such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to any person to whom this Prospectus is delivered, upon written or oral requests of such person, a copy of any or all of the documents which have been incorporated by reference in this Prospectus, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the documents so incorporated. Requests for such copies should be directed to Investor Relations, Mark IV Industries, Inc., 501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810 (telephone number: (716) 689-4972). 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere or incorporated by reference in this Prospectus. In addition, except where otherwise indicated, all information set forth herein assumes that the Underwriters' over-allotment option will not be exercised. Unless the context otherwise requires, all references herein to the "Company" or "Mark IV" include Mark IV Industries, Inc. and its subsidiaries. THE COMPANY Mark IV is a diversified manufacturer of a broad range of proprietary and other power and fluid transfer products and systems which serve four markets: general industrial; automotive aftermarket; automotive original equipment manufacturers ("OEMs"); and infrastructure. Power and fluid transfer products and systems accounted for 90.0% of Mark IV's net sales in fiscal 1994 after giving pro forma effect to the Company's recent acquisition of Purolator Products Company ("Purolator"). Mark IV is also a leading manufacturer of professional audio products. Many of Mark IV's products have a significant, and in certain instances the leading, share of their respective markets. Products manufactured by Mark IV principally serve specialized needs in markets in which relatively few manufacturers compete. These products are primarily sold directly, and through independent distributors, to other manufacturers and commercial users in the United States and Europe and, to a lesser extent, in Canada, Latin America and the Far East. Mark IV operates 72 manufacturing facilities and 52 distribution and sales locations and employs approximately 16,500 people in eighteen countries. Mark IV's business strategy is focused on building its power and fluid transfer business through internal growth, continuation of cost control and quality improvement programs, and selective strategic domestic and foreign acquisitions. The Company's operating strategy emphasizes management for continuous improvement, establishing co-operative programs with customers to engineer, design and develop higher value added systems in addition to individual products, and the introduction of new, more cost effective and durable products. In furtherance of these strategies, over the past five years Mark IV has: (i) emphasized continuous product development, with over 50.0% of its current sales worldwide arising from the introduction of new products or products which have been redesigned; (ii) significantly expanded its presence in Western Europe through its June 1993 acquisition of Pirelli Trasmissioni Industriali, S.p.A. ("PTI"), a leading Italian-based manufacturer of power transmission products; (iii) substantially increased its domestic production capacity and strengthened its market position in the power steering and garden hose markets through its fiscal 1991 acquisition of Anchor Swan, a leading manufacturer of these and other products; (iv) established distribution centers to serve markets in Central and South America and the Pacific Rim, and acquired manufacturing and distribution facilities in Mexico; and (v) implemented cost savings and efficiency programs in its Power and Fluid Transfer business segment which have contributed to the improvement of the segment's operating income margins from 7.0% in fiscal 1989 to 11.7% in fiscal 1994. Mark IV believes that, having established an efficient global manufacturing and distribution network, it is well positioned to benefit from a continuation of strength in its domestic markets and the increasing strength in its European and other foreign markets. ACQUISITION OF PUROLATOR PRODUCTS COMPANY As part of the Company's strategic emphasis on its power and fluid transfer business, in November 1994 Mark IV acquired Purolator which is a leading manufacturer of filtration products, including automotive oil, 3 air and fuel filters; residential and commercial heating, ventilating and air- conditioning ("HVAC") filters; high-technology liquid filtration products; and specialized industrial filters and filtration systems. The total cost of the acquisition was $286.3 million. Purolator's filtration business complements the Company's fluid transfer products since many of Purolator's products serve customers in the same markets as the Company's other power and fluid transfer products, such as certain industrial markets, the automotive aftermarket and, to a much lesser extent, the automotive OEM market. In addition, filters are generally an integral part of most power and fluid transfer systems produced by the Company. Accordingly, management believes that, as a result of the acquisition of Purolator, the Company is better positioned to provide a broader range of products to customers in these markets. In particular, the acquisition of Purolator will strengthen Mark IV's presence in the automotive aftermarket since 61.5% of Purolator's $435.8 million of sales in 1993 were made to customers in this market. Mark IV also believes that its extensive domestic and European sales and distribution network will provide opportunities for increased sales of Purolator's products. It is also anticipated that significant cost savings will result from the combined distribution of fluid transfer and filtration products to customers and the consolidation of Purolator's corporate functions. THE OFFERING Common Stock Offered.......... 6,000,000 shares Common Stock to be Outstanding After the Offering........... 54,091,383 shares (1) NYSE Symbol................... "IV" Use of Proceeds............... Substantially all of the net proceeds of the Offering, estimated at $ million ($ million if the Underwriters' over-allotment option is exercised in full), will be used to repay debt outstanding under the revolving credit facility provided by the Company's 1994 Credit Agreement, which indebtedness was incurred primarily to refinance (i) amounts outstanding under the Company's previous credit agreement and (ii) certain existing indebtedness of Purolator. See "Use of Proceeds."
- -------- (1) Excludes 2,604,000 shares of Common Stock reserved for issuance upon conversion of the Company's 6 1/4% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures") at their present conversion price of $14.3685 per share, which debentures are first callable by the Company at a price of 104.375% on February 16, 1995. Also excludes 835,931 shares reserved for possible issuance upon exercise of outstanding employee stock options and approximately shares reserved for possible issuance upon exercise of stock options which may be assumed by the Company in connection with the acquisition of Purolator. 4 SUMMARY FINANCIAL DATA The following tables set forth summary consolidated financial data of the Company for each of the three fiscal years in the period ended February 28, 1994 and for the six month periods ended August 31, 1993 and 1994. Such financial data is derived from the Company's audited and unaudited consolidated financial statements included elsewhere herein. The tables also set forth certain pro forma (unaudited) consolidated income statement data and balance sheet data for fiscal 1994 and for the six-month period ended August 31, 1994, after giving effect to the acquisition of Purolator and the other adjustments described in Notes (2) and (4) below.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED THE LAST DAY OF FEBRUARY, AUGUST 31, ------------------------------------------- ---------------------------- PRO FORMA PRO FORMA 1992 1993 1994(1) 1994(2) 1993(1) 1994 1994(2) ---------- ---------- ---------- ---------- -------- -------- -------- INCOME STATEMENT DATA: Net sales............... $1,004,300 $1,085,700 $1,244,200 $1,680,000 $604,500 $721,000 $966,800 ========== ========== ========== ========== ======== ======== ======== Operating income before depreciation and amortization........... $ 136,900 $ 145,700 $ 173,500 $ 216,500 $ 87,300 $103,500 $129,600 Depreciation and amortization........... 28,300 32,100 41,700 56,200 19,800 23,200 30,400 ---------- ---------- ---------- ---------- -------- -------- -------- Operating income(3)..... $ 108,600 $ 113,600 $ 131,800 $ 160,300 $ 67,500 $ 80,300 $ 99,200 ========== ========== ========== ========== ======== ======== ======== Income from continuing operations............. $ 26,800 $ 39,100 $ 51,100 $ 59,300 $ 26,700 $ 33,800 $ 39,500 ========== ========== ========== ========== ======== ======== ======== Fully-diluted income per share from continuing operations............. $ 0.74 $ 0.87 $ 1.09 $ 1.19 $ 0.57 $ 0.71 $ 0.79 ========== ========== ========== ========== ======== ======== ======== Cash dividends per share.................. $ 0.066 $ 0.084 $ 0.098 $ 0.098 $ 0.048 $ 0.055 $ 0.055 ========== ========== ========== ========== ======== ======== ======== Fully-diluted weighted average number of shares outstanding..... 38,400 50,300 50,700 50,700 50,600 51,000 51,000 PRO FORMA, AS ADJUSTED(4): Income from continuing operations............. $ 64,000 $ 42,200 ========== ======== Fully-diluted income per share from continuing operations............. $ 1.15 $ 0.75 ========== ======== Fully-diluted weighted average number of shares outstanding..... 56,700 57,000
PRO FORMA, AT THE LAST DAY OF FEBRUARY, AT AS ADJUSTED -------------------------------- AUGUST 31, AT AUGUST 1992 1993 1994 1994 31, 1994(4) ---------- ---------- ---------- ---------- ----------- BALANCE SHEET DATA: Working capital......... $ 285,500 $ 275,400 $ 312,800 $ 310,300 $ 413,100 Total assets............ 1,104,500 1,124,800 1,282,300 1,335,500 1,804,000 Long-term debt.......... 525,400 497,100 567,200 551,100 672,000 Stockholders' equity.... 311,900 345,600 345,400 382,500 584,200
- -------- (1) Includes the results of operations of the PTI business from its June 1993 acquisition date. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." (2) Presents pro forma data as if the acquisition of Purolator and the borrowings under the 1994 Credit Agreement in connection therewith in November 1994 and the conversion in October 1994 of $76.7 million aggregate principal amount of Convertible Debentures into 5,340,000 shares of Common Stock, had occurred on (i) March 1, 1993, the beginning of fiscal 1994, with respect to the pro forma income statement data for the year ended February 28, 1994, (ii) March 1, 1994, the beginning of fiscal 1995, with respect to the pro forma income statement data for the six months ended August 31, 1994, and (iii) August 31, 1994, with respect to the pro forma balance sheet data at August 31, 1994. See "Pro Forma Financial Information." (3)Represents income from continuing operations before interest expense, securities transactions and taxes. (4) Includes amounts as if the transactions in Note (2) above, as well as the application of the net proceeds from this Offering, assuming a public offering price of $22.00 per share, had occurred on the dates described therein. 5 USE OF PROCEEDS The net proceeds from the sale of the Common Stock offered hereby are estimated to be $ million ($ million if the Underwriters' over- allotment option is exercised in full). Substantially all of such net proceeds will be used to repay indebtedness outstanding under the five-year revolving credit facility provided by the Company's 1994 Credit Agreement, of which approximately $115.0 million was incurred to refinance indebtedness outstanding under the Company's previous revolving credit facility and approximately $ million principal amount was incurred to refinance existing bank indebtedness of Purolator bearing interest at November , 1994 at the rate of % per annum. The Company is currently paying interest on indebtedness under its revolving credit facility at the rate of % per annum. Under the terms of the 1994 Credit Agreement, the amount of net proceeds of the Offering used to repay outstanding indebtedness under the revolving credit facility may be reborrowed by the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for a summary of the terms of the 1994 Credit Agreement. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is currently traded on the NYSE. The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of Common Stock as reported on the NYSE Composite Tape. All amounts have been adjusted for the 5% stock dividend paid in April 1994.
DIVIDENDS HIGH LOW PER SHARE ------ ------- --------- FISCAL 1993 First Quarter.................................. $14 $11 7/8 $0.020 Second Quarter................................. 13 3/8 11 1/2 0.020 Third Quarter.................................. 14 11 1/8 0.020 Fourth Quarter................................. 17 5/8 13 5/8 0.024 FISCAL 1994 First Quarter.................................. 18 3/4 15 5/8 0.024 Second Quarter................................. 22 18 7/8 0.024 Third Quarter.................................. 24 1/2 18 0.024 Fourth Quarter................................. 20 17 1/8 0.026 FISCAL 1995 First Quarter.................................. 19 15 3/4 0.0275 Second Quarter................................. 20 7/8 18 0.0275 Third Quarter (through November 9, 1994)....... 23 20 1/4 --
On November 9, 1994, the closing sale price of the Common Stock as reported on the NYSE Composite Tape was $20 5/8. At November 3, 1994, there were approximately 2,600 holders of record of the Common Stock. Mark IV intends to continue to pay quarterly cash dividends on its Common Stock, subject to future results of operations and other relevant factors. Pursuant to the terms of the 1994 Credit Agreement, the payment of dividends on Mark IV's Common Stock is subject to certain limitations. 6 CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of the Company at August 31, 1994 and (i) as adjusted to give effect to the acquisition of Purolator and the borrowings under the 1994 Credit Agreement in connection therewith in November 1994 and the conversion in October 1994 of approximately $76.7 million aggregate principal amount of Convertible Debentures into 5,340,000 shares of Common Stock at the conversion price of $14.3685 per share, and (ii) as further adjusted to give effect to the sale of the Common Stock offered hereby, assuming a public offering price of $22.00 per share, and the application of the estimated net proceeds therefrom to repay borrowings under the 1994 Credit Agreement. See "Use of Proceeds."
(DOLLARS IN THOUSANDS) AUGUST 31, 1994 ---------------------------------- AS AS FURTHER ACTUAL ADJUSTED ADJUSTED -------- ---------- ---------- Current maturities of long-term debt(1).... $ 6,000 $ 6,400 $ 6,400 ======== ========== ========== Long-term debt, excluding current maturities(1): Senior debt: Credit Agreement(2).................... $120,000 $ 439,900(3) $ 314,900 Other.................................. 58,900 61,600 61,600 -------- ---------- ---------- Total senior debt...................... 178,900 501,500 376,500 -------- ---------- ---------- Subordinated debt: 8 3/4% Senior Subordinated Notes due April 1, 2003......................... 258,000 258,000 258,000 6 1/4% Convertible Subordinated Debentures due February 15, 2007..................... 114,200 37,500(4) 37,500 -------- ---------- ---------- Total subordinated debt................ 372,200 295,500 295,500 -------- ---------- ---------- Total long-term debt................... 551,100 797,000 672,000 -------- ---------- ---------- Stockholders' equity: Common Stock, $0.01 par value: 100,000,000 shares authorized; 42,751,383 shares issued; 48,091,383 shares issued as adjusted; and 54,091,383 shares issued as further adjusted (5).......................... 400 500 600 Additional paid-in capital............... 262,600 339,200 464,100 Retained earnings........................ 120,000 120,000 120,000 Foreign currency translation adjustment.. (500) (500) (500) -------- ---------- ---------- Total stockholders' equity............. 382,500 459,200 584,200 -------- ---------- ---------- Total capitalization................. $933,600 $1,256,200 $1,256,200 ======== ========== ==========
- -------- (1) See Note 8 to the Company's audited Consolidated Financial Statements, appearing elsewhere herein, for interest rates and other information regarding the Company's outstanding indebtedness. (2) On November 2, 1994, the Company replaced its existing $300 million revolving credit facility with the 1994 Credit Agreement which provides for a revolving credit facility in an amount of up to $350 million over a five- year period and a $300 million five-year term loan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." (3) Increase reflects borrowings under the 1994 Credit Agreement which were used to finance the Purolator acquisition and refinance certain existing debt of Purolator. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." (4) Reflects the conversion in October 1994 of approximately $76.7 million aggregate principal amount of Convertible Debentures into approximately 5,340,000 shares of Common Stock at the conversion price of $14.3685 per share. The remaining $37.5 million aggregate principal amount of Convertible Debentures are first callable by the Company at a price of 104.375% on February 16, 1995. (5) Excludes 2,604,000 shares reserved for issuance upon conversion of the Convertible Debentures and 835,931 shares reserved for issuance upon exercise of outstanding employee stock options. Also excludes approximately shares reserved for possible issuance upon exercise of stock options which may be assumed by the Company in connection with the acquisition of Purolator. 7 SELECTED FINANCIAL INFORMATION The following tables set forth selected consolidated financial information of the Company for each of the five fiscal years in the period ended February 28, 1994 derived from the Company's audited consolidated financial statements and for the six months ended August 31, 1993 and 1994. Information for the six months ended August 31, 1993 and 1994 is derived from the unaudited consolidated financial statements of the Company but, in the opinion of management, includes all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. The results of operations for the six-month period ended August 31, 1994 are not necessarily indicative of the results to be expected for the full year. These tables should be read in conjunction with the Company's Consolidated Financial Statements and Pro Forma Financial Information appearing elsewhere herein.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED THE LAST DAY OF FEBRUARY, AUGUST 31, --------------------------------------------------- ----------------- 1990 1991 1992 1993 1994(1) 1993(1) 1994 -------- -------- ---------- ---------- ---------- -------- -------- INCOME STATEMENT DATA: Net sales............... $672,700 $789,700 $1,004,300 $1,085,700 $1,244,200 $604,500 $721,000 -------- -------- ---------- ---------- ---------- -------- -------- Operating costs: Cost of products sold.. 419,000 492,800 641,900 698,800 803,500 391,600 468,600 Selling and administration........ 142,000 164,800 200,600 215,100 236,300 110,300 133,300 Research and development........... 17,000 20,600 24,900 26,100 30,900 15,300 15,600 Depreciation and amortization.......... 17,000 23,500 28,300 32,100 41,700 19,800 23,200 -------- -------- ---------- ---------- ---------- -------- -------- Total operating costs.. 595,000 701,700 895,700 972,100 1,112,400 537,000 640,700 -------- -------- ---------- ---------- ---------- -------- -------- Operating income....... 77,700 88,000 108,600 113,600 131,800 67,500 80,300 Interest expense........ 51,200 60,600 64,700 51,600 50,100 24,900 25,300 -------- -------- ---------- ---------- ---------- -------- -------- Income before gain (loss) on securities transactions and provision for taxes.... 26,500 27,400 43,900 62,000 81,700 42,600 55,000 Gain (loss) on securities transactions........... 5,800 1,000 (2,400) -- -- -- -- -------- -------- ---------- ---------- ---------- -------- -------- Income before provision for taxes.............. 32,300 28,400 41,500 62,000 81,700 42,600 55,000 Provision for income taxes.................. 12,400 10,800 14,700 22,900 30,600 15,900 21,200 -------- -------- ---------- ---------- ---------- -------- -------- Income from continuing operations(2).......... $ 19,900 $ 17,600 $ 26,800 $ 39,100 $ 51,100 $ 26,700 $ 33,800 ======== ======== ========== ========== ========== ======== ======== Fully-diluted income per share from continuing operations: Before securities transactions........... $ 0.52 $ 0.59 $ 0.78 $ 0.87 $ 1.09 $ 0.57 $ 0.71 Gain (loss) on securities transactions........... 0.10 0.02 (0.04) -- -- -- -- -------- -------- ---------- ---------- ---------- -------- -------- Total from continuing operations(2).......... $ 0.62 $ 0.61 $ 0.74 $ 0.87 $ 1.09 $ 0.57 $ 0.71 ======== ======== ========== ========== ========== ======== ======== Cash dividends per share.................. $ -- $ 0.058 $ 0.066 $ 0.084 $ 0.098 $ 0.048 $ 0.055 ======== ======== ========== ========== ========== ======== ======== Fully-diluted weighted average number of shares outstanding..... 36,300 33,400 38,400 50,300 50,700 50,600 51,000
AT THE LAST DAY OF FEBRUARY, AT ---------------------------------------------------- AUGUST 31, 1990 1991 1992 1993 1994 1994 -------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Working capital......... $262,300 $ 345,100 $ 285,500 $ 275,400 $ 312,800 $ 310,300 Total assets............ 872,100 1,100,100 1,104,500 1,124,800 1,282,300 1,335,500 Long-term debt, excluding current maturities............. 544,200 717,600 525,400 497,100 567,200 551,100 Stockholders' equity.... 159,700 170,000 311,900 345,600 345,400 382,500
- -------- (1) Includes the results of operations of the PTI business from its June 1993 acquisition date. (2) As a result of an extraordinary loss of $21,700,000 related to the early extinguishment of debt, as well as a charge of $26,000,000 to recognize the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 106 related to post-retirement benefits, the Company's net income for fiscal 1994 was $3,400,000 (or $0.15 per fully-diluted share). 8 PRO FORMA FINANCIAL INFORMATION The pro forma (unaudited) consolidated statements of income for the six months ended August 31, 1994 and the fiscal year ended February 28, 1994 set forth below present the results of operations of the Company for such period and such year as if the following transactions had occurred on March 1, 1994, the beginning of fiscal 1995, with respect to the consolidated statement of income for the six months ended August 31, 1994, and on March 1, 1993, the beginning of fiscal 1994, with respect to the consolidated statement of income for the fiscal year ended February 28, 1994: (i) the consummation of the acquisition of Purolator in November 1994 and the borrowings under the 1994 Credit Agreement in connection therewith; (ii) the conversion in October 1994 of approximately $76.7 million aggregate principal amount of Convertible Debentures into approximately 5,340,000 shares of Common Stock at a conversion price of $14.3685 per share; and (iii) the consummation of the Offering and the application of the estimated net proceeds therefrom, assuming a public offering price of $22.00 per share. The pro forma statement of income for the six months ended August 31, 1994 combines, with appropriate adjustments, the Company's unaudited consolidated results of operations for its six months ended August 31, 1994 and the unaudited condensed consolidated results of operations of Purolator for the same six month period. The pro forma statement of income for the fiscal year ended February 28, 1994, combines, with appropriate adjustments, the Company's audited consolidated results of operations for its fiscal year ended February 28, 1994 and the audited consolidated results of operations of Purolator for its fiscal year ended December 31, 1993. The pro forma (unaudited) consolidated condensed balance sheet as of August 31, 1994 set forth below presents the financial position of the Company as if the following transactions had occurred on August 31, 1994: (i) the consummation of the acquisition of Purolator in November 1994 and the borrowings under the 1994 Credit Agreement in connection therewith; (ii) the conversion in October 1994 of approximately $76.7 million aggregate principal amount of Convertible Debentures into approximately 5,340,000 shares of Common Stock at a conversion price of $14.3685 per share; and (iii) the consummation of the Offering and the application of the estimated net proceeds therefrom, assuming a public offering price of $22.00 per share. The pro forma balance sheet as of August 31, 1994 combines, with appropriate adjustments, the Company's unaudited consolidated condensed balance sheet as of August 31, 1994 and the unaudited condensed consolidated balance sheet of Purolator as of August 31, 1994. The pro forma financial statements have been prepared on the basis of preliminary assumptions and estimates. The pro forma financial statements may not be indicative of the results that would have been achieved if the acquisition of Purolator and the borrowings under the 1994 Credit Agreement in connection therewith, the conversion of Convertible Debentures and the application of the net proceeds from the Offering had been effected on the dates indicated or which may be achieved in the future. The pro forma financial statements should be read in conjunction with the financial statements of the Company and Purolator appearing elsewhere herein. 9 PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED AUGUST 31, 1994 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA ---------- ------------ ----------- --------- Net sales..................... $721,000 $245,800 $966,800 -------- -------- -------- Costs and expenses: Cost of products sold....... 468,600 181,400 650,000 Selling and administration.. 133,300 38,700 $(3,500)(3) 168,500 Research and development.... 15,600 3,100 18,700 Depreciation and amortization............... 23,200 6,800 400 (4) 30,400 -------- -------- ------- -------- Total operating costs..... 640,700 230,000 (3,100) 867,600 -------- -------- ------- -------- Operating income............ 80,300 15,800 3,100 99,200 Interest expense.............. (25,300) (2,100) (7,200)(5) (34,600) -------- -------- ------- -------- Income before taxes......... 55,000 13,700 (4,100) 64,600 Provision for income taxes.... (21,200) (700) (3,200)(6) (25,100) -------- -------- ------- -------- Income from continuing operations................. $ 33,800 $ 13,000 $(7,300) $ 39,500 ======== ======== ======= ======== Income per share from continuing operations: Primary..................... $ 0.79 $ 0.82 ======== ======== Fully-diluted............... $ 0.71 $ 0.79 ======== ======== Weighted average number of shares outstanding: Primary..................... 42,700 5,400 (7) 48,100 ======== ======= ======== Fully-diluted............... 51,000 51,000 ======== ======== PRO FORMA, AS ADJUSTED(8): Income from continuing operations................... $ 42,200 ======== Income per share from continuing operations: Primary..................... $ 0.78 ======== Fully-diluted............... $ 0.75 ======== Weighted average number of shares outstanding: Primary..................... 54,100 ======== Fully-diluted............... 57,000 ========
- -------- (1) Represents the Company's consolidated results of operations as reported for its six months ended August 31, 1994. (2) Represents Purolator's consolidated results of operations for its six months ended August 31, 1994. (3) Represents the elimination of duplicate costs, primarily related to Purolator's corporate headquarters function. (4) Reflects increased depreciation and amortization expense based upon a preliminary estimate of values and remaining lives of fixed and intangible assets acquired. (5) To adjust interest expense to reflect the amount that might have been paid on borrowings incurred to finance the acquisition of Purolator as if it had occurred on March 1, 1994 ($9,600,000), net of the interest reduction related to the conversion in October 1994 of $76.7 million aggregate principal amount of Convertible Debentures, as if the conversion had occurred on March 1, 1994 ($2,400,000). The adjustment excludes a net of tax charge of $1,100,000 ($0.02 per share) representing the unamortized balance of deferred charges related to the Company's previously existing credit agreement. Such amount will be recognized as an extraordinary item in the Company's historical income statements as of the November 1994 borrowings under the 1994 Credit Agreement. (6) To adjust the tax provision to reflect the tax expense anticipated in consolidation with the Company's results of operations. (7) Represents the increase in weighted average shares outstanding as a result of the October 1994 conversion of Convertible Debentures, as if the conversion had occurred on March 1, 1994. (8) Reflects the pro forma amounts, as adjusted to assume the application of the estimated net proceeds from this Offering to reduce indebtedness resulting from the acquisition of Purolator as of March 1, 1994. 10 PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA ---------- ------------ ----------- ---------- Net sales................. $1,244,200 $435,800 $1,680,000 ---------- -------- ---------- Costs and expenses: Cost of products sold... 803,500 321,500 1,125,000 Selling and administration......... 236,300 72,100 $ (7,000)(3) 301,400 Research and development............ 30,900 6,200 37,100 Depreciation and amortization........... 41,700 13,600 900 (4) 56,200 ---------- -------- -------- ---------- Total operating costs. 1,112,400 413,400 (6,100) 1,519,700 ---------- -------- -------- ---------- Operating income........ 131,800 22,400 6,100 160,300 Interest expense.......... (50,100) (4,100) (10,800)(5) (65,000) ---------- -------- -------- ---------- Income before taxes..... 81,700 18,300 (4,700) 95,300 Provision for income taxes.................... (30,600) (500) (4,900)(6) (36,000) ---------- -------- -------- ---------- Income from continuing operations............. $ 51,100 $ 17,800 $ (9,600) $ 59,300 ========== ======== ======== ========== Income per share from continuing operations: Primary................. $ 1.20 $ 1.24 ========== ========== Fully-diluted........... $ 1.09 $ 1.19 ========== ========== Weighted average number of shares outstanding: Primary................. 42,500 5,400 (7) 47,900 ========== ======== ========== Fully-diluted........... 50,700 50,700 ========== ========== PRO FORMA, AS ADJUSTED(8): Income from continuing operations............... $ 64,000 ========== Income per share from continuing operations: Primary................. $ 1.19 ========== Fully-diluted........... $ 1.15 ========== Weighted average number of shares outstanding: Primary................. 53,900 ========== Fully-diluted........... 56,700 ==========
- -------- (1) Represents the Company's audited consolidated results of operations as reported for its fiscal year ended February 28, 1994. (2) Represents Purolator's audited consolidated results of operations as reported for its fiscal year ended December 31, 1993. (3) Represents the elimination of duplicate costs, primarily related to Purolator's corporate headquarters function. (4) Reflects increased depreciation and amortization expense based upon a preliminary estimate of values and remaining lives of fixed and intangible assets acquired. (5) To adjust interest expense to reflect the amount that might have been paid on borrowings incurred to finance the acquisition of Purolator had it occurred on March 1, 1993 ($15,600,000), net of the interest reduction related to the conversion in October 1994 of $76.7 million aggregate principal amount of Convertible Debentures, as if the conversion had occurred on March 1, 1993 ($4,800,000). The adjustment excludes a net of tax charge of $1,100,000 ($0.02 per share) representing the unamortized balance of deferred charges related to the Company's previously existing credit agreement. Such amount will be recognized as an extraordinary item in the Company's historical income statements as of the November 1994 borrowings under the 1994 Credit Agreement. (6) To adjust the tax provision to reflect the tax expense anticipated in consolidation with the Company's results of operations. (7) Represents the increase in weighted average shares outstanding as a result of the October 1994 conversion of the Convertible Debentures, as if the conversion had occurred on March 1, 1993. (8) Reflects the pro forma amounts, as adjusted to assume the application of the estimated net proceeds from this Offering to reduce indebtedness resulting from the acquisition of Purolator as of March 1, 1993. 11 PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AUGUST 31, 1994 (AMOUNTS IN THOUSANDS)
PRO FORMA MARK IV(1) PUROLATOR(2) ADJUSTMENTS PRO FORMA ---------- ------------ ----------- ---------- ASSETS Current assets: Cash.................. $ 700 $ 7,300 $ 8,000 Accounts receivable... 298,200 78,800 377,000 Inventories........... 265,300 71,700 $ 14,800 (3) 351,800 Other current assets.. 47,700 14,000 61,700 ---------- -------- -------- ---------- Total current assets............. 611,900 171,800 14,800 798,500 Pension related and other non-current assets................. 146,200 25,400 4,300 (3) 175,900 Property, plant and equipment, net......... 369,400 78,900 50,000 (3) 498,300 Cost in excess of net assets acquired and deferred charges....... 208,000 108,500 14,800 (3) 331,300 ---------- -------- -------- ---------- TOTAL ASSETS........ $1,335,500 $384,600 $ 83,900 $1,804,000 ========== ======== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of debt................. $ 53,000 $ 4,400 $ (4,000)(4) $ 53,400 Accounts payable...... 112,600 39,500 152,100 Compensation related liabilities.......... 40,500 9,200 49,700 Accrued interest...... 14,800 500 15,300 Accrued expenses and other liabilities.... 71,900 29,600 101,500 Income taxes payable.. 8,800 4,600 13,400 ---------- -------- -------- ---------- Total current liabilities........ 301,600 87,800 (4,000) 385,400 ---------- -------- -------- ---------- Long-term debt: Senior debt........... 178,900 40,700 156,900 (4)(5) 376,500 Subordinated debentures........... 372,200 (76,700)(6) 295,500 ---------- -------- -------- ---------- Total long-term debt............... 551,100 40,700 80,200 672,000 ---------- -------- -------- ---------- Other non-current liabilities............ 100,300 80,000 (17,900)(3) 162,400 ---------- -------- -------- ---------- Stockholders' equity: Common stock.......... 400 100 100 (5)(6)(7) 600 Additional paid-in capital.............. 262,600 325,300 (123,800)(5)(6)(7) 464,100 Retained earnings..... 120,000 (137,200) 137,200 (7) 120,000 Other equity adjustments.......... (500) (12,100) 12,100 (7) (500) ---------- -------- -------- ---------- Total stockholders' equity............. 382,500 176,100 25,600 584,200 ---------- -------- -------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $1,335,500 $384,600 $ 83,900 $1,804,000 ========== ======== ======== ==========
- -------- (1) Represents the Company's consolidated financial position as reported as of August 31, 1994. (2) Represents the consolidated financial position of Purolator as of August 31, 1994. (3) Preliminary allocations have been made to reflect the possible increased asset values, and associated tax effects. Such amounts, as well as the estimated total purchase price, will be adjusted as additional analysis is performed and additional information is received from various outside appraisal groups. (4) Funds used to acquire Purolator, refinance Purolator's credit facility and to pay certain acquisition related costs are assumed to have been provided from borrowings under the Company's 1994 Credit Agreement. (5) Represents the effect of the sale of Common Stock offered hereby, and the application of the estimated net proceeds to repay borrowings under the 1994 Credit Agreement. (6) Represents the conversion of $76.7 million aggregate principal amount of Convertible Debentures which were converted into Common Stock in October 1994. (7) Represents the elimination of Purolator's stockholders' equity. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Prior to the acquisition of Purolator in November 1994, the Company classified its operations into three business segments: Power and Fluid Transfer; Transportation; and Professional Audio. Following the acquisition of Purolator, management reviewed its existing businesses and determined that its Transportation business segment should be combined with the Power and Fluid Transfer business segment in view of the similarity in markets and customers served. Management also believes that the revised classification will enable the Company to benefit from a global organizational structure and the coordination of distribution activities. As a result, the Company now classifies its operations into two business segments: Power and Fluid Transfer; and Professional Audio. The new Power and Fluid Transfer business segment, which represented 86.1% of the Company's total revenues in fiscal 1994 (90.0% on a pro forma basis giving effect to the acquisition of Purolator), designs, manufactures and distributes products in four markets: general industrial; automotive aftermarket; automotive OEMs; and infrastructure. The infrastructure market of this segment includes products formerly classified in the Transportation business segment. Purolator's products serve the general industrial market, automotive aftermarket and, to a much lesser extent, automotive OEM market. The Company's Professional Audio business segment represented 13.9% of the Company's total revenues in fiscal 1994 (10.0% on a pro forma basis giving effect to the acquisition of Purolator). The following discussion of the Company's historical results of operations has been adjusted to reflect the Company's new business segment structure. In fiscal 1994, Mark IV acquired PTI, a manufacturer of power transmission products based in Italy with manufacturing and distribution centers in five other countries in Western Europe and in the United States, for a purchase price comprised of $65,000,000 in cash and the assumption of PTI bank indebtedness in the amount of $50,000,000. The results of operations of the Company for the six month period ended August 31, 1993 and for fiscal 1994 include the results of PTI from its June 2, 1993 acquisition date. In addition, in fiscal 1994, Mark IV announced the discontinuance of its non-core businesses and completed the sale of certain of those businesses for approximately $35,000,000 in cash. The Company's results of operations for fiscal 1992 and 1993 have been restated to exclude the results of the discontinued businesses and to recognize the effects of the Company's retroactive adoption of SFAS No. 109, Accounting for Income Taxes. RESULTS OF OPERATIONS Six Months Ended August 31, 1994, compared to Six Months Ended August 31, 1993. Net sales for the six month period ended August 31, 1994 increased approximately $116,500,000 (19.0%) over the six month period ended August 31, 1993. If the sales of PTI in the three month period ended May 31, 1993 had been included in the results for the six month period ended August 31, 1993, sales in the current six month period would have been approximately $74,000,000 (11.0%) greater than pro forma results for the prior fiscal year. Sales in the Company's Professional Audio business segment in the current six month period were comparable to the sales level for the prior year's six month period. The cost of products sold as a percentage of consolidated net sales remained consistent at approximately 65.0% for the six month period ended August 31, 1994 as compared to the six month period ended August 31, 1993. Selling and administration costs as a percentage of consolidated net sales were approximately 18.0% for the six month periods ended August 31, 1994 and 1993. Research and development costs for the six month period ended August 31, 1994 were substantially the same as for the six month period ended August 31, 1993. As a percentage of consolidated net sales, these expenses remained consistent at approximately 2.0% in each period. This consistent level of investment reflects the Company's continuing emphasis on new product development. 13 For the six month period ended August 31, 1994, depreciation and amortization expense increased by $3,400,000 (17.0%) as compared to the six month period ended August 31, 1993. This increase was primarily due to the PTI acquisition which occurred in the second quarter of fiscal 1994. The increase was also due to the amortization of restricted stock grants and the increase in depreciation resulting from fixed asset additions, both of which were made in the second half of fiscal 1994. Interest expense for the six month period ended August 31, 1994 increased by approximately $400,000 (2.0%) as compared to the six month period ended August 31, 1993. This increase was due to increased interest expense related to the PTI acquisition, offset somewhat by the benefits of reduced debt levels and a slightly lower weighted average interest rate resulting from decreases in the interest rates on foreign debt, which decreases were offset somewhat by higher interest rates on United States debt. The Company's provision for income taxes as a percentage of pre-tax accounting income for the six month period ended August 31, 1994 increased as compared to the comparable period last year, primarily as a result of increased income in foreign locations with higher statutory tax rates than in the United States. As a result of all of the above, the Company's income before special items for the six month period ended August 31, 1994 increased $7,100,000 (27.0%) over the comparable period last year. As a result of debt extinguishment in the first quarter of fiscal 1994, the Company incurred extraordinary losses, net of related tax benefits, of $21,700,000. Additionally, the Company's adoption of SFAS No. 106 in the first quarter of fiscal 1994 resulted in the recognition of a net of tax charge of $26,000,000 which was recorded as a cumulative effect of a change in accounting principle. The two special charges resulted in a net loss of $21,000,000 in the six month period ended August 31, 1993 in comparison to net income of $33,800,000 earned in the six month period ended August 31, 1994. Three Years Ended February 28, 1994 The following table sets forth the Company's net sales and operating income by business segment (as recently reclassified but without giving pro forma effect to the acquisition of Purolator) for each of the fiscal years presented:
(DOLLARS IN THOUSANDS) PERCENT 1992 1993 1994 CHANGE ------------------- ------------------- ------------------- ----------- 1993 1994 PERCENT PERCENT PERCENT VS. VS. AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES 1992 1993 ---------- -------- ---------- -------- ---------- -------- ---- ---- NET SALES Power and Fluid Transfer............. $ 835,100 83.2% $ 908,900 83.7% $1,070,700 86.1% 8.8 % 17.8 % Professional Audio.... 169,200 16.8 176,800 16.3 173,500 13.9 4.5 (1.9) ---------- ----- ---------- ----- ---------- ----- Total............... $1,004,300 100.0% $1,085,700 100.0% $1,244,200 100.0% 8.1 14.6 ========== ===== ========== ===== ========== ===== OPERATING INCOME(1) Power and Fluid Transfer............. $ 94,100 11.3% $ 104,100 11.5% $ 124,800 11.7% 10.6 % 19.9 % Professional Audio.... 23,900 14.1 22,000 12.4 21,900 12.6 (7.9) (0.5) ---------- ---------- ---------- Total............... $ 118,000 11.7 $ 126,100 11.6 $ 146,700 11.8 6.9 16.3 ========== ========== ==========
- -------- (1) Operating income represents income before interest expense, corporate expenses, securities transactions and taxes. 14 The $161,800,000 increase in Power and Fluid Transfer sales in fiscal 1994 was the result of internal growth of approximately $54,100,000 (6.0%), and the inclusion of the operations of PTI. Excluding PTI and the negative effect of foreign currency movements, the internal growth was approximately $74,800,000 (8.2%), with $45,700,000 (5.0%) of such growth generated from the segment's operations in the United States and the balance from its foreign based operations. The sales growth in fiscal 1994 was primarily attributable to growth of the general industrial, automotive aftermarket and automotive OEM markets of the Company's Power and Fluid Transfer business segment. In fiscal 1993, the $73,800,000 (8.8%) increase in sales over fiscal 1992 resulted from a combination of increased unit sales in the general industrial, automotive aftermarket and automotive OEM markets and the inclusion of the results of operations for the full fiscal year, of a business acquired in the second half of fiscal 1992. The effects of foreign currency movements in fiscal 1993 were not significant in comparison to the amounts reported for fiscal 1992. Sales in the Professional Audio business segment in fiscal 1994 declined slightly from sales in fiscal 1993, with a modest increase in United States sales being more than offset by a decline in the segment's foreign operations. The $7,600,000 increase in the Professional Audio business segment's fiscal 1993 sales over fiscal 1992 was equally split between its domestic and foreign operations. The cost of products sold as a percentage of consolidated net sales was 64.6%, 64.4%, and 64.0% in fiscal 1994, 1993, and 1992, respectively. This consistent level of costs reflects the positive effects of the Company's cost control programs, which have helped to substantially offset the negative pressures on margins experienced in both of the Company's business segments. The slightly higher costs in fiscal 1994 were also caused by the development delays discussed above, as well as the economic weaknesses experienced in the Company's European markets. Selling and administration costs as a percentage of consolidated net sales were 19.0%, 19.8%, and 20.0% in fiscal 1994, 1993, and 1992, respectively. The reduction of such costs in fiscal 1994 was primarily the result of operating synergies achieved from the combination of PTI with the previously existing European operations of the Power and Fluid Transfer business segment. The relatively consistent level of costs indicates that the Company's continued emphasis on cost control has been successful in substantially offsetting the impact of inflation on such costs. Research and development costs increased by $4,800,000 (18.4%) in fiscal 1994 over fiscal 1993, which in turn increased by $1,200,000 (4.8%) over fiscal 1992. The increase in fiscal 1994 was primarily caused by the PTI acquisition. As a percentage of consolidated net sales, such costs were approximately 2.5% in each of fiscal 1994, 1993 and 1992. This consistent level of investment reflects the Company's continuing emphasis on new product development. Depreciation and amortization expense increased by $9,600,000 (29.9%) in fiscal 1994 over fiscal 1993, which in turn increased by $3,800,000 (13.4%) over fiscal 1992. The increase in fiscal 1994 was primarily attributable to the PTI acquisition. The fiscal 1994 amount also includes $800,000 related to restricted stock grants made in fiscal 1994. The remaining increases were primarily the result of increased capital equipment expenditures. In spite of the increased interest cost resulting from the PTI acquisition, interest expense from continuing operations in fiscal 1994 decreased $1,500,000 (2.9%) from the amount incurred in fiscal 1993, which in turn decreased $13,100,000 (20.3%) from fiscal 1992. The reduction in fiscal 1994 was primarily the result of the Company's repurchase and "in-substance defeasance" of its 13 3/8% Subordinated Debentures due 2007 (the "Subordinated Debentures") at the beginning of the fiscal year, which was refinanced with the net proceeds from the issuance of the Company's 8 3/4% Senior Subordinated Notes due April 1, 2003 (the "Senior Notes"). The reduction in fiscal 1993 was accomplished primarily as a result of the Company's debt reduction program in fiscal 1993 and 1992, which substantially reduced the outstanding amounts of high interest rate debt. The 15 Company's improved financial position at the end of fiscal 1992, as well as the overall reduction in the economic interest rate as compared to fiscal 1992, also contributed to lower interest costs in fiscal 1993. The interest expense amounts reported for continuing operations also reflect the allocation of $2,200,000, $5,000,000, and $6,400,000 to discontinued operations in fiscal 1994, 1993, and 1992, respectively, since the proceeds from the disposal of these businesses have been utilized to reduce indebtedness, and therefore related interest expense as well. The loss on securities transactions in fiscal 1992 reflects costs of $2,100,000 related to the Company's conversion of its 7% Convertible Subordinated Debentures due 2011, as well as the net effects of the Company's sale of certain other investments and idle assets. The Company's provision for income tax as a percentage of pre-tax accounting income was approximately 37.5%, 37.0%, and 35.4% in fiscal 1994, 1993, and 1992, respectively. The higher rates in fiscal 1994 and 1993 were primarily the result of increased income in foreign locations with higher statutory tax rates than in the United States. The effective tax rate in fiscal 1994 was not quite as high as previously anticipated, due primarily to certain one-time tax credits. However, the rate is expected to increase in fiscal 1995 as a result of increased foreign income as a percentage of total consolidated income. As a result of all of the above, the Company's income from continuing operations in fiscal 1994 increased $12,000,000 (30.7%) over fiscal 1993. In turn, fiscal 1993 income from continuing operations increased $12,300,000 (45.9%) over fiscal 1992, most notably by the reduction in interest expense over fiscal 1992. As a result of the debt extinguishment referred to above, the Company incurred extraordinary losses, net of related tax benefits, of $21,700,000, $3,700,000 and $4,500,000 in fiscal 1994, 1993, and 1992, respectively. Additionally, the Company's adoption of SFAS No. 106 in fiscal 1994 resulted in the recognition of a net of tax charge of $26,000,000 as the cumulative effect of the accounting change in fiscal 1994. The above extraordinary items and one- time charge resulted in significantly reduced net income of $3,400,000 in fiscal 1994 in comparison to the $39,000,000 earned in fiscal 1993. Since the discontinued operations and extraordinary charges were comparable in fiscal 1993 and 1992, the net income reported in those years is consistent with the reported income from continuing operations discussed above. LIQUIDITY AND CAPITAL RESOURCES In early fiscal 1992, management stated its intention to significantly reduce long-term debt levels by the application of cash generated through earnings, reductions in working capital requirements, and the sale of non-core businesses and non-operating assets. At the end of fiscal 1993, long-term debt had been reduced by approximately $220,500,000 (31.0%) from $717,600,000 at February 28, 1991 to $497,100,000 at February 28, 1993. The reduction brought the Company's level of long-term debt as a percentage of total capitalization from 80.8% at February 28, 1991 to 59.0% at February 28, 1993. In May 1993, the Company entered into a revolving credit agreement ("Multi- Currency Agreement") providing for a five-year multi-currency revolving credit facility with a group of financial institutions in the United States and Europe. The Multi-Currency Agreement provides for a revolving loan commitment for the first two years in an amount equivalent to $100,000,000. The commitment declines by $12,500,000 at each of six semi-annual dates beginning in June 1995, with the remaining $25,000,000 of the revolving loan commitment expiring in May 1998. Interest rates on borrowings under the Multi-Currency Agreement are subject to change based on a specified pricing grid which increases from the London Interbank Offered Rate ("LIBOR") plus 0.625% per annum to LIBOR plus 1.375% per annum based on the Company's senior debt rating (as defined in the Multi-Currency Agreement). The Company is currently paying interest at LIBOR plus 1.25% on borrowings under the Multi-Currency Agreement. The Multi-Currency Agreement also contains certain affirmative and negative covenants customary in an agreement of this nature. 16 In July 1993, the Company entered into a credit agreement providing for a $300,000,000 five-year revolving credit facility (the "1993 Facility") with a group of financial institutions. A portion of the 1993 Facility was used to repay amounts outstanding under the Company's revolving credit facility dated June 19, 1990, which was then canceled. Borrowings under the 1993 Facility bore interest based on a pricing grid of either prime per annum or, under a LIBOR option, LIBOR plus 0.375% per annum to LIBOR plus 1.375% per annum on the Company's senior unsecured long-term debt ratings (as defined in the 1993 Facility). The 1993 Facility was replaced by the 1994 Credit Agreement discussed below. In fiscal 1994, the Company announced the discontinuance of its non-core businesses and completed the sale of certain of those businesses for cash proceeds of approximately $35,000,000. In June 1993, the Company completed its acquisition of PTI for a cash purchase price in the amount of $65,000,000 and the assumption of PTI bank indebtedness in the amount of $50,000,000. Financing for the PTI acquisition was provided under the 1993 Facility and the Multi- Currency Agreement, as well as the proceeds from the sale of the discontinued businesses. Net cash provided by earnings was approximately $52,000,000 for the six month period ended August 31, 1994, an increase of approximately $10,800,000 (26.0%) over the six month period ended August 31, 1993. Net cash provided by earnings was $91,200,000 in fiscal 1994, a 46.0% increase over the $62,600,000 provided by earnings in fiscal 1993. At August 31, 1994, the Company had working capital of approximately $310,300,000, a decrease of approximately $2,500,000 (1.0%) from February 28, 1994. At August 31, 1994, the Company had borrowing availability under its primary credit agreements of $226,800,000 and additional availability under its various domestic and foreign demand lines of credit of approximately $69,800,000. Long-term debt at August 31, 1994 decreased approximately $16,100,000 from $567,200,000 at February 28, 1994 to $551,100,000 at August 31, 1994. As a result, the Company's long-term debt as a percentage of total capitalization decreased slightly from 62.1% at February 28, 1994 to 59.0% at August 31, 1994. If the entire $114,200,000 aggregate principal outstanding under the Convertible Debentures at February 28, 1994 (which are first callable by the Company in February 1995) had been converted into shares of Common Stock, long-term debt as a percentage of total capitalization would have been approximately 49.6% at such date. Management believes that cash generated from operations should be sufficient to support the Company's working capital requirements and anticipated capital expenditures for the foreseeable future. In November 1994, the Company entered into the $650 million 1994 Credit Agreement with a syndicate of banks and other financial institutions, which provides for (i) a five-year term loan in the principal amount of approximately $300 million used to finance the acquisition of Purolator and to repay certain existing Purolator debt, and (ii) a five-year revolving credit facility in an amount of up to $350 million for refinancing the Company's 1993 Facility and certain existing Purolator debt and for working capital and other general corporate purposes. Indebtedness outstanding under the revolving credit facility is being repaid with the net proceeds of the Offering. Under the terms of the 1994 Credit Agreement, the amount of net proceeds of the Offering used to repay outstanding indebtedness under the revolving credit facility may be reborrowed by the Company. See "Use of Proceeds." The loans outstanding under the 1994 Credit Agreement bear interest, at the Company's option, at (i) the reference rate of the agent acting on behalf of the financial institutions, or (ii) under a LIBOR option with borrowing spreads of LIBOR plus 0.55% to LIBOR plus 1.00% depending on the Company's consolidated leverage ratio (as defined in the 1994 Credit Agreement). The Company is currently paying interest on the loan at LIBOR plus 1.00% per annum. The 1994 Credit Agreement contains certain affirmative and negative covenants customary for this type of agreement and is guaranteed by all of the Company's significant domestic subsidiaries. All of such guarantees are collateralized by first priority pledges of all outstanding capital stock of each guarantor subsidiary. IMPACT OF INFLATION Generally, the Company has been able to pass on inflation-related cost increases; consequently, inflation has had no material impact on income from operations. 17 BUSINESS Mark IV is a diversified manufacturer of a broad range of proprietary and other power and fluid transfer products and systems which serve four markets: general industrial; automotive aftermarket; automotive OEMs; and infrastructure. Power and fluid transfer products and systems accounted for 90.0% of Mark IV's net sales in fiscal 1994 after giving pro forma effect to the Company's recent acquisition of Purolator. Mark IV is also a leading manufacturer of professional audio products. Many of Mark IV's products have a significant, and in certain instances the leading, share of their respective markets. Products manufactured by Mark IV principally serve specialized needs in markets in which relatively few manufacturers compete. These products are primarily sold directly, and through independent distributors, to other manufacturers and commercial users in the United States and Europe and, to a lesser extent, in Canada, Latin America and the Far East. Mark IV operates 72 manufacturing facilities and 52 distribution and sales locations and employs approximately 16,500 people in eighteen countries. Mark IV's business strategy is focused on building its power and fluid transfer business through internal growth, continuation of cost control and quality improvement programs, and selective strategic domestic and foreign acquisitions. The Company's operating strategy emphasizes management for continuous improvement, establishing co-operative programs with customers to engineer, design and develop higher value added systems in addition to individual products, and the introduction of new, more cost effective and durable products. In furtherance of these strategies, over the past five years Mark IV has: (i) emphasized continuous product development, with over 50.0% of its current sales worldwide arising from the introduction of new products or products which have been redesigned; (ii) significantly expanded its presence in Western Europe through its June 1993 acquisition of PTI, a leading Italian-based manufacturer of power transmission products; (iii) substantially increased its domestic production capacity and strengthened its market position in the power steering and garden hose markets through its fiscal 1991 acquisition of Anchor Swan, a leading manufacturer of these and other products; (iv) established distribution centers to serve markets in Central and South America and the Pacific Rim, and acquired manufacturing and distribution facilities in Mexico; and (v) implemented cost savings and efficiency programs in its Power and Fluid Transfer business segment which have contributed to the improvement of the segment's operating income margins from 7.0% in fiscal 1989 to 11.7% in fiscal 1994. Mark IV believes that, having established an efficient global manufacturing and distribution network, it is well positioned to benefit from a continuation of strength in its domestic markets and the increasing strength in its European and other foreign markets. ACQUISITION OF PUROLATOR PRODUCTS COMPANY As part of the Company's strategic emphasis on its power and fluid transfer business, in November 1994 Mark IV acquired Purolator which is a leading manufacturer of filtration products, including automotive oil, air and fuel filters; residential and commercial HVAC filters; high-technology liquid filtration products; and specialized industrial filters and filtration systems. The total cost of the acquisition was $286.3 million. Purolator's filtration business complements the Company's fluid transfer products since many of Purolator's products serve customers in the same markets as the Company's other power and fluid transfer products, such as certain industrial markets, the automotive aftermarket and, to a much lesser extent, the automotive OEM market. In addition, filters are generally an integral part of most power and fluid transfer systems produced by the Company. Accordingly, management believes that, as a result of the acquisition of Purolator, the Company is better positioned to provide a broader range of products to customers in these markets. In particular, the acquisition of Purolator will strengthen Mark IV's presence in the automotive aftermarket since 61.5% of Purolator's $435.8 million of sales in 1993 were made to customers in this market. Mark IV also believes that its extensive domestic and European sales and distribution network will provide opportunities for increased sales of Purolator's products. It is also anticipated that significant cost savings 18 will result from the combined distribution of fluid transfer and filtration products to customers and the consolidation of Purolator's corporate functions. The acquisition of Purolator was made pursuant to a merger agreement dated as of October 3, 1994 with Purolator which had been negotiated following a due diligence review in September 1994 of financial and other information and documents furnished by Purolator, discussions of business prospects with Purolator's senior management and visits to certain Purolator plant facilities. The funds used to finance the acquisition of Purolator were provided from borrowings under the Company's 1994 Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." SEGMENT INFORMATION Prior to the acquisition of Purolator in November 1994, the Company classified its operations into three business segments: Power and Fluid Transfer; Transportation; and Professional Audio. See Note 15 to the Company's audited Consolidated Financial Statements included elsewhere herein for financial information, including sales, operating income and assets, for each of these segments for the Company's 1992, 1993 and 1994 fiscal years. Following the acquisition of Purolator, management reviewed its existing businesses and determined that its Transportation business segment should be combined with the Power and Fluid Transfer business segment in view of the similarity in markets and customers served. Management also believes that the revised classification will enable the Company to benefit from a global organizational structure and the coordination of distribution activities. As a result, the Company now classifies its operations into the following two business segments: (i) POWER AND FLUID TRANSFER, which includes the design, manufacture and distribution of products and systems primarily in the general industrial market, the automotive aftermarket, the OEM market and the infrastructure market, including the following: industrial belts, hose and fittings, garden hose, vapor recovery hose and systems and other environmental products and systems, agricultural belts and hose assemblies, and a wide variety of filters and filtration systems for jet fuel, marine, commercial and industrial markets; belts, hose, couplings, oil, air and fuel filters, accessory drive systems and fluid transfer assemblies for the automotive aftermarket and OEMs; power transfer mechanisms for door control systems and complete door control systems used in mass transit vehicles, information displays used in fluid flow control applications, advanced traffic control and management systems, and automatic (intelligent) vehicle identification systems for toll collection and traffic control. Purolator's products serve the Power and Fluid Transfer business segment's general industrial market, automotive aftermarket and, to a much lesser extent, the automotive OEM market. (ii) PROFESSIONAL AUDIO, which includes the design and manufacture of products and systems used primarily in the high-performance professional audio market, such as professional performance microphones, speakers, mixers and amplifiers; high-fidelity public address and musical instrument loudspeaker systems; and audio signal processors, sound reinforcement equipment, and sound enhancement and noise canceling equipment. 19 The following table sets forth, on an unaudited historical basis, the sales and operating income for the Company's two business segments for each of the last three fiscal years of the Company, after giving pro forma effect to the acquisition of Purolator as if it had occurred at March 1, 1991, the beginning of the Company's 1992 fiscal year.
(DOLLARS IN THOUSANDS) 1992 1993 1994 ------------------- ------------------- ------------------- PERCENT PERCENT PERCENT AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES ---------- -------- ---------- -------- ---------- -------- NET SALES: Power and Fluid Transfer.............. $1,236,800 88.0% $1,326,800 88.0% $1,506,500 90.0% Professional Audio..... 169,200 12.0 176,800 12.0 173,500 10.0 ---------- ----- ---------- ----- ---------- ----- Total................. $1,406,000 100.0% $1,503,600 100.0% $1,680,000 100.0% ========== ===== ========== ===== ========== ===== OPERATING INCOME(1): Power and Fluid Transfer.............. $ 116,000 9.4% $ 133,900 10.1% $ 157,800 10.5% Professional Audio..... 23,900 14.1 22,000 12.4 21,900 12.6 ---------- ---------- ---------- Total................. $ 139,900 10.0 $ 155,900 10.4 $ 179,700 10.7 ========== ========== ==========
- -------- (1) Operating income represents income from continuing operations before interest expense, corporate and non-recurring expenses, securities transactions and taxes. The following table sets forth on a historical basis for fiscal 1994, after giving pro forma effect to the acquisition of Purolator as if it had occurred on March 1, 1993, the percent of total revenue of the Company provided by each of the four markets served by the Company's Power and Fluid Transfer business segment.
MARKET PERCENT OF TOTAL REVENUE - ------ ------------------------ General Industrial..................................... 31.0% Automotive Aftermarket................................. 28.0 Automotive OEM......................................... 18.0 Infrastructure......................................... 13.0 ---- Total............................................... 90.0% ====
POWER AND FLUID TRANSFER Mark IV entered the power and fluid transfer business through the acquisition in fiscal 1989 of Armtek Corporation, of which Dayco Products, Inc. ("Dayco") was a principal component. Dayco produces a wide variety of industrial hoses, belts and fittings and hoses and belts for the automotive aftermarket and OEMs. In fiscal 1991, Mark IV acquired Anchor Swan, a domestic manufacturer and distributor of garden hoses, general purpose air, water and agricultural hoses and many other products also manufactured by Dayco. Anchor Swan also manufactures various automotive OEM products, including power steering and fuel and coolant hose and assemblies. The acquisition of Anchor Swan supplemented Dayco's broad range of belt and hose products by adding needed hose manufacturing capacity. The acquisition also enhanced Dayco's leading position in garden hose and automotive OEM hose and belt systems and assemblies. The Power and Fluid Transfer business segment expanded into Europe with the Company's acquisitions during fiscal 1992 of System Stecko Limited, a United Kingdom-based manufacturer of hose couplings used primarily for high pressure industrial applications, and Tecaflex International S.p.A. ("Tecaflex"), an Italian manufacturer primarily of hoses for automotive applications. Mark IV's acquisition in June 1993 of PTI, the power transmission business of Pirelli S.p.A., significantly expanded the Company's presence in Europe, 20 by adding highly automated manufacturing capacity and research and development centers in Europe, as well as experienced management, a strong market presence, brand name recognition and a leading position in timing belts in that region. In North America, the addition of PTI enhanced Dayco's domestic timing belt product line. The acquisition in November 1994 of Purolator represents a further significant expansion of the Power and Fluid Transfer business segment. Purolator's business is separately described below under "--Purolator Products Company." General Industrial Dayco is a leader in the market for industrial belts and hoses used in petroleum, lumber, home appliance, diesel engine, longwall mining, agricultural equipment, marine engine, snowmobile, lawn and garden and floor care applications and industries. Dayco also supplies the gasoline dispensing market with the majority of the market's requirements for vapor recovery hose, which return gasoline fumes released at gas pumps when filling automobiles from underground storage tanks, and has introduced to this market several products designed for performance in extreme conditions. Management believes that increased environmental awareness and growing regulation in the United States and Europe mandating use of vapor recovery hose is likely to increase demand for gasoline dispensing products. The Company believes that its established market presence and its continuous introduction of new products such as vapor recovery hose capable of chemically withstanding new gasoline additives, should enable it to take advantage of increased demand for these products. Dayco also supplies the inner fuel hose used in underground, double-wall, flexible fuel delivery systems. This product is designed to reduce the risks of contamination through leaks in underground storage and delivery systems, and permits repairs to be made from above ground. Management believes this fuel hose product has significant growth opportunities. The acquisition of Anchor Swan added advanced thermoplastic hose technology and coupled hose capability to the Dayco product lines and provided the Company with additional hose manufacturing capacity, reduced its need for further capital investment in Dayco which would otherwise have been required over the next few years and produced economies of scale in rubber mixing. System Stecko has helped to position Dayco's hydraulic hose assemblies, filters, adaptors and valves in the mining business worldwide. The creation of a hose assembly testing facility in Sydney, Australia serves the Australian longwall mining market and other Pacific Rim countries, and complements Dayco's ability to supply longwall mining hose, couplings, filters and systems worldwide. The acquisition of PTI added a full line of high-torque synchronous belts and sprockets for the industrial OEM and replacement markets. These belts are used in situations where timing is critical, such as on large conveyor systems or copy machines, or to prevent slippage of the belt in a drive system, such as on a motorcycle or a large-scale industrial fan. The addition of Purolator will increase the Company's ability to provide more complete systems, such as filter, hose and couplings, for airport, marine, petroleum and mining applications worldwide. The Company's products in the general industrial market are used in a wide range of products and industries, and no one product or industry is dominant. In addition, the customer base for these products is large and diverse. Except with respect to new products serving specialized needs or emerging market trends, revenue growth in this market is typically based upon the economies of countries where the Company's products are distributed. Automotive Aftermarket Dayco is a leading supplier in the automotive aftermarket in every aspect of hose and hose assemblies, including coolant hose, power steering hose, fuel hose, transmission cooler hose, V-belts, poly-rib belts and 21 timing belts. Dayco also produces a variety of belts, fans, tensioners, couplings and pulleys. The products in the automotive aftermarket are sold to automotive warehouse distributors, oil companies, retail and auto parts chains, mass merchandisers, farm and fleet stores, and hardware distributors. The Company believes that growth in the automotive aftermarket can be achieved by increasing the range of products offered and through streamlining distribution channels. As part of this strategy, Mark IV recently acquired Purolator with sales of automotive oil, air and fuel filters in the automotive aftermarket of $268.0 million in 1993 (approximately 61.5% of Purolator's total sales). See "--Purolator Products Company." In furtherance of this strategy, Dayco has also introduced new products, such as new heater hose assemblies, into the automotive aftermarket which were initially developed for its automotive OEM customers. In addition to offering a broader variety of products, the Company is focused on bringing its existing products to new geographical markets, such as Europe, Latin America, South America, Asia and the Pacific Rim. Growth in the automotive aftermarket is primarily driven by the number and age of vehicles on the road. The average age of light vehicles on the road has increased from 5.8 years in 1970 to 8.2 years in 1993, and total mileage driven has increased annually along with the number of vehicles in service, resulting in continued growth opportunities for the Company's automotive aftermarket products. There is also a trend in the automotive aftermarket for customers in the traditional distribution channels to consolidate their suppliers. As a leading manufacturer of a broad range of products which meet OEM specifications, together with brand name recognition and established distribution channels, the Company believes that the addition of Purolator products to its product offerings will enable it to benefit from the long-term trends of the business. Within the domestic market which currently represents the majority of the Company's automotive aftermarket sales, no one product or customer is dominant. With respect to the Company's European operations, the majority of aftermarket products are distributed by the major automotive manufacturers as part of the service to customers at the dealerships. Sales efforts are therefore primarily focused on relationships with the European OEMs. Automotive OEM Dayco is a leading supplier in the automotive OEM market. Dayco supplies belts, hoses and tensioners to the three major United States auto manufacturers, and has captured a significant share of the belt and fuel line assemblies market in Europe, with a growing position in tensioners in this region. Management believes that there are opportunities for growth in the supply of belts, hoses, hose assemblies and synchronous accessory drive systems to foreign auto manufacturers and transplants (foreign firms' manufacturing facilities in the United States). Dayco is currently selling products to, or has active product development programs with, most of the leading foreign-based OEMs with transplants. Dayco is also concentrating on the development of environmentally safe products that will reduce noise levels, meet lower fuel permeability requirements and function with alternative fuels and coolants. The acquisitions of Tecaflex and PTI provided the Company with a European- based, full-scale automotive OEM business that makes it the market leader in timing belts and fuel systems in Europe. In response to an increased preference in Europe for power steering and air conditioning, European automobile producers are increasing the number of new vehicles which include these systems. Management believes this trend presents opportunities for Dayco's belt, hose and hose assembly business, which manufactures products used in air conditioning and power steering systems. Fewer than half of the new vehicles currently produced in Europe have air conditioning and power steering as compared to over 90.0% of new vehicles produced in the United States. The number of European manufactured vehicles with these features is growing at a faster rate than the overall market. 22 Over the past five years, the Company has established itself as one of the leading domestic and European suppliers of its products and systems to the major car manufacturers. As part of its strategy to increase revenues, the direction has been to focus on systems, such as synchronous and accessory drive, power steering, air conditioning and fuel, which are developed and designed in conjunction with the OEM customers. As a result, revenue per vehicle has been increasing. In addition, the Company's product lines are positioned to benefit from the trend in the European market to add air conditioning and power steering systems for an increasing percentage of new vehicles manufactured. Management believes that the Company's automotive OEM revenues will continue to increase at a rate faster than new vehicle unit sales in the United States and Europe based on: (i) its previous history of delivering higher quality products to its customers; (ii) its continued emphasis on providing systems rather than individual parts; and (iii) its continued efforts to develop cooperative engineering programs with its customers. Infrastructure Mark IV is a leading supplier in North America of door systems, electronic controls and passenger information systems for buses and trains. In addition, Mark IV has developed new products and market strategies for automatic vehicle identification used in electronic toll collection and advanced traffic management systems. Mark IV has recently been selected by the Inter-Agency Group ("IAG") to provide equipment for electronic toll collection systems on toll roads in New York, New Jersey and Pennsylvania. The IAG is a group of seven agencies that manage the toll roads, bridges and tunnels in all three states. Separate contracts will be signed for each agency and, to date, three contracts have been executed. The Company's technology has also been selected by the Ontario, Canada government to supply electronic toll collection equipment for the new Route 407 in Toronto. Revenue under these contracts will be generated over the next three to five years. Mark IV began to serve infrastructure markets in 1986 through the acquisition of Gulton Industries, Inc. ("Gulton") which, through its Luminator division, manufactures electronic information display systems for many transit applications. Mark IV enhanced its international presence in the mass transit and traffic control business through several strategic acquisitions which expanded the Company's product lines in this market. In fiscal 1991, the Company acquired a Canadian-based manufacturer of electromagnetic display devices for use in destination signs, gasoline pumps and other information displays. In fiscal 1991, the Company acquired a manufacturer of door systems and certain electrical controls for buses and rail cars, with operations in both Canada and the United States. In fiscal 1993, Mark IV acquired a French company which supplies passenger information, display and automatic bus location systems to the European market. One of these acquired companies supplies its advanced door systems to the London Underground Rail transit system, one of the world's largest subway systems. Management believes that growth in the infrastructure market is derived from three primary sources: (i) repair and replacement of mass transit systems as part of normal maintenance programs; (ii) installation of new systems in mass transit systems and new road construction as a result of budgeted expenditures pursuant to the Intermodel Surface Transportation Efficiency Act; and (iii) development of new technologies such as the automated vehicle identification system. PROFESSIONAL AUDIO Mark IV entered the professional audio business in 1986 through its acquisition of Gulton, which had two subsidiaries engaged in the audio business: Electro-Voice, Incorporated and Altec Lansing Corporation. Since that time, Mark IV has made four additional acquisitions of companies engaged in the manufacture of audio equipment for commercial and professional use, thereby giving this segment a manufacturing and distribution presence in many parts of the world. The Professional Audio business segment ("Mark IV 23 Audio") accounted for 10.0% of the Company's net sales and 12.2% of the Company's operating income (before corporate expense) in fiscal 1994, on a pro forma basis giving effect to the acquisition of Purolator. Mark IV Audio produces a comprehensive line of high-quality products available to the professional audio market, including recording studio equipment, systems for live performance, and permanently installed, engineered sound systems. These products include microphones, mixing consoles, signal processors, amplifiers and loudspeakers, as well as a number of accessory items. Mark IV Audio holds a large share of the worldwide market for fixed installations of engineered sound systems under its Electro-Voice, Altec Lansing and Dynacord product lines. Combined, these lines represent over half of the engineered sound systems in the developed countries of the world. Mark IV Audio accounts for a leading share of the wired dynamic and high-end wireless microphones employed in the broadcast and production segments of the professional audio market, with products under the Vega and Electro-Voice brand names, as well as signal processing products under the Klark-Teknik brand name. Mark IV Audio is a leading supplier of high-speed tape cassette duplication equipment under its Gauss brand name and mixers under the DDA and Midas brand names. In addition, Mark IV Audio has developed numerous digital audio signal processing (DSP) applications under its Dynacord and Klark-Teknik brand names. Mark IV Audio, under the Dynacord and University Sound brand names, serves the commercial sound segment of the professional audio market, providing products for fixed installations with typically less demanding performance requirements than those of engineered sound systems. Common applications are factory paging systems, background music and life safety alarm systems. The concert sound segment, which consists of microphones, speaker systems, signal processing and mixing consoles used in touring sound systems for live performances, is served by Mark IV's Electro-Voice, Klark-Teknik, Midas and Vega product lines. Management believes Mark IV Audio is well positioned in the theater, broadcast and recording markets. Management believes that new products are important to the Mark IV Audio business. As a result, Mark IV Audio was recently reorganized so that general administration, research and development and manufacturing have been centralized in order to enhance the rate of technological innovation and reduce the lead-time on new product development. As part of the reorganization, marketing, sales and business development have been decentralized into three global regions in order to meet product and pricing demands in these regions. PUROLATOR PRODUCTS COMPANY Purolator's products serve the general industrial market, automotive aftermarket and, to a much lesser extent, the automotive OEM market of the Company's Power and Fluid Transfer business segment as discussed in the foregoing descriptions of those markets. See "--Power and Fluid Transfer." Set forth below is a more detailed description of Purolator's historical business operations. The following table sets forth, on an unaudited historical basis, sales of Purolator's products in the automotive aftermarket, industrial and automotive OEM markets and operating income for the years ended December 31, 1991, 1992 and 1993.
1991 1992 1993 ----------------- ----------------- ----------------- PERCENT PERCENT PERCENT AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Sales: Automotive Aftermarket. $232,900 58.0% $246,800 59.0% $268,000 61.5% Industrial and Non- Filtration............ 140,400 35.0 141,600 33.9 141,300 32.4 Automotive OEMs........ 28,400 7.0 29,500 7.1 26,500 6.1 -------- ------ -------- ------ -------- ------ Total Sales.......... $401,700 100.0% $417,900 100.0% $435,800 100.0% ======== ====== ======== ====== ======== ====== Operating Income, before corporate expenses and non-recurring charges... $ 22,900 5.7% $ 30,800 7.4% $ 34,000 7.8% ======== ====== ======== ====== ======== ======
24 Purolator is a leading manufacturer of automotive oil, air and fuel filters which are used primarily for automobiles and light-duty trucks, and, to a lesser extent, for heavy-duty trucks, off-road equipment, and marine and farm equipment. Its complete line of automotive filters includes oil, air and fuel filters for virtually all automobiles and light-duty trucks currently operated in North America, including those currently manufactured by North American, Japanese and European OEMs. In 1993, sales of Purolator's automotive oil, air and fuel filters in the automotive aftermarket comprised 61.5% of Purolator's total sales. In the OEM market, Purolator supplies automotive filters to Ford, Chrysler, Mazda and Renault. Purolator owns a 39.3% equity interest in Purolator India Limited, a New Delhi-based manufacturer of automotive air and oil filtration products which supplies the Indian aftermarket and OEM market and exports products to Southeast Asia, Europe and the United States. Purolator also has licensing arrangements with various international distributors throughout the world. In 1989, Purolator formed the Purodenso manufacturing joint venture with a unit of Nippondenso of Japan (with each joint venturer owning a 50% interest). Purodenso supplies highly specialized automotive filters and injection molded filter housings for distribution to domestic OEMs, United States manufacturing plants of Japanese OEMs and, to a lesser extent, in the automotive aftermarket. Purolator's air filtration products are used to improve indoor air quality and protect equipment in residential, commercial and industrial HVAC systems. These products range from basic efficiency disposable panel filters for homes to medium- and high-efficiency products, including pleated panel air filters, extended surface bag filters, cap filters and metal filters. Purolator manufactures specialized liquid filters and filtration systems, including: (i) a broad range of high-technology jet fuel cartridges which are used in commercial and military aviation applications at major airports; (ii) oil-from-water separation systems, which are used to meet various international discharge laws; (iii) desalinators for removing salt from sea water; (iv) bilge separators for tug and barge operations, which separate hydrocarbons from discharged bilge water; (v) coalescing plate separators for environmental clean-up and resource recovery; and (vi) a variety of other filters and filtration systems for marine, aviation, industrial and military applications. Purolator's filter products are marketed and sold to entities in a variety of industries, including aerospace, general industrial, military, mobile equipment and chemical processing. In the aerospace industry, these products are used by manufacturers of airframes, turbine engines and "Supplemental Type Certificate" products, which are products specifically approved for use by engine and airframe manufacturers. General industrial uses include power plants, plant filtration, machine tools, plant equipment and process filtration. In the mobile equipment industry, Purolator's filter products are used in tractors and off-highway trucks, construction equipment, forklifts and farm implements. Chemical processing applications include polymer film and fiber filtration. These products are also used in a variety of military applications, including silencing valves for submarines and filter products for tanks, personnel carriers and trucks. 25 MANAGEMENT The following table sets forth certain information regarding the Directors and executive officers of the Company.
NAME AGE POSITIONS AND OFFICES WITH THE COMPANY ---- --- -------------------------------------- Sal H. Alfiero 57 Chairman of the Board and Chief Executive Officer Clement R. Arrison 64 President and Director William P. Montague 48 Executive Vice President and Chief Financial Officer Gerald S. Lippes 54 Secretary and Director Frederic L. Cook 47 Senior Vice President--Administration John J. Byrne 45 Vice President--Finance Richard L. Grenolds 45 Vice President and Chief Accounting Officer Joseph G. Donohoo 76 Director Herbert Roth, Jr. 66 Director
SAL H. ALFIERO has been Chairman of the Board and Chief Executive Officer of the Company since its incorporation. Mr. Alfiero serves as a Director of Phoenix Home Life Mutual Insurance Company and is also a Director of Marine Midland Bank, N.A., Western Region. He holds a B.S. degree in Aeronautical Engineering from Rensselaer Polytechnic Institute and holds an M.B.A. degree from the Harvard Graduate School of Business Administration. CLEMENT R. ARRISON has been President and a Director of the Company since November 1976. Mr. Arrison serves as a Director of Camarco, Inc. He holds a B.S. degree in engineering from the University of Michigan and holds a professional engineering license. WILLIAM P. MONTAGUE has been employed by the Company since April 1972 and has been a Vice President of the Company since May 1974. He was elected Executive Vice President and Chief Financial Officer in March 1986. He holds a B.S. degree in accounting and an M.B.A. degree from Wilkes University and is a certified public accountant. He is a member of the Chase Manhattan Bank N.A. Regional Advisory Board and a Director of Gibraltar Steel Corporation and International Imaging Materials, Inc. GERALD S. LIPPES has been general counsel, Secretary and a Director of the Company since its incorporation. He has been engaged in the private practice of law since 1965 and is a partner of the firm of Lippes, Silverstein, Mathias & Wexler, Buffalo, New York. Mr. Lippes is also a Director of Gibraltar Steel Corporation. FREDERIC L. COOK was elected Senior Vice President-Administration in March 1988, and prior thereto, he had been Vice President--Finance of the Company since May 1986. Prior to joining the Company, Mr. Cook was a tax partner with the accounting firm of Coopers & Lybrand, where he was employed for 19 years. He holds a B.S. degree in accounting from the Rochester Institute of Technology and is a certified public accountant. JOHN J. BYRNE has been employed by the Company since September 1973 and has been a Vice President since March 1986. He was elected Vice President--Finance of the Company in March 1988. He holds a B.S. degree in accounting from Pennsylvania State University and an M.B.A. degree from Canisius College. RICHARD L. GRENOLDS was elected Vice President and Chief Accounting Officer in July 1989. Prior to joining the Company, Mr. Grenolds was a general practice partner with the accounting firm of Coopers & Lybrand, where he was employed for 17 years. He holds a B.S. degree in accounting from the Rochester Institute of Technology and is a certified public accountant. 26 JOSEPH G. DONOHOO has been a Director of the Company since its incorporation. He is Chairman of the Board of The Gibson Group, Inc. ("Gibson"), a marketer of paper board, and Chairman of the Board of Clinch River Corporation ("Clinch River"). Gibson and Clinch River filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws in January 1990 and April 1990, respectively. HERBERT ROTH, JR. has been a Director of the Company since September 1985, having been Chairman of the Board and Chief Executive Officer of LFE Corporation prior to its acquisition by Mark IV in July 1985. Mr. Roth also serves as a Director of Boston Edison Company, Phoenix Home Life Mutual Insurance Company, Landauer, Inc., Tech/Ops Sevcon, Inc. and Phoenix Total Return Fund, Inc., and is a trustee of Phoenix Series Fund, Phoenix Multi- Portfolio Fund and The Big Edge Series Fund. PRINCIPAL SECURITYHOLDERS The following table sets forth information as of November 7, 1994 (except as otherwise noted) with respect to all stockholders known by the Company to be the beneficial owners of more than 5% of its outstanding Common Stock, each Director, the five most highly compensated executive officers and all executive officers and Directors as a group. Unless otherwise indicated, the address of each person named below is 501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810.
NUMBER OF PERCENT NAME SHARES(1) OF CLASS ---- --------- -------- Sal H. Alfiero.................................... 4,320,505(2) 9.0% FMR Corporation................................... 5,292,196(3) 10.7% Tiger Management Corporation...................... 4,079,864(4) 8.5% Clement R. Arrison................................ 1,843,813(5) 3.8% Gerald S. Lippes.................................. 1,701,751(6) 3.5% Joseph G. Donohoo................................. 39,031(7) * Herbert Roth, Jr.................................. 24,587 * William P. Montague............................... 800,206(8) 1.7% Frederic L. Cook.................................. 56,652(9) * John J. Byrne..................................... 60,736(10) * All Executive Officers and Directors as a Group (9 persons)...................................... 8,889,393(11) 18.5%
- -------- *Less than 1% (1) Except as otherwise indicated in the following footnotes, each person listed in the table has both sole voting and sole investment power with respect to the number of shares of Common Stock set forth opposite his name. Messrs. Alfiero, Arrison, Lippes, Montague, Cook and Byrne, each of whom is an executive officer of the Company, have the right to direct the Trustee of the Company's defined benefit pension plans (the "Plans") with respect to the voting of the shares of Common Stock owned by such Plans. As of November 1, 1994, the Plans owned 892,528 shares of Common Stock (2.1% of the total outstanding). Such executive officers are not participants in any of the Plans and disclaim any beneficial ownership in the shares, and the shares have not been included in the amounts listed in this table. All share amounts reflect the impact of the 5% stock dividend distributed to stockholders of record as of April 15, 1994. (2) Includes 275,625 shares of Common Stock issued to Mr. Alfiero under the Company's 1992 Restricted Stock Plan (the "Restricted Plan") as well as 13,542 shares of Common Stock allocated to Mr. Alfiero's self-directed accounts in the Company's tax-qualified retirement plan (the "Retirement Plan") and the Company's 401(k) Savings Plan (which has no Company-match). Does not include 13,858 shares of Common Stock owned by the Alfiero Family Charitable Foundation of which Mr. Alfiero is one of four directors and for which he disclaims beneficial ownership. 27 (3) Based on information set forth in a statement on Schedule 13-G filed with the Commission by FMR Corporation ("FMR") on February 11, 1994, FMR held on behalf of itself and its subsidiaries, Fidelity Management and Research Company ("Fidelity"), and Fidelity Management Trust Company ("Fidelity Trust"), an aggregate of 5,292,196 shares of Common Stock, which amount includes an aggregate of 1,564,700 shares of Common Stock that FMR and its subsidiaries have the right to acquire through the conversion into Common Stock of the Convertible Debentures. FMR and its subsidiaries have the sole power to vote or direct the voting of 83,470 shares. The power to vote or direct the voting of the remaining shares represented resides with the respective Boards of Trustees of the investment funds established and managed by FMR and its subsidiaries. The stated business address of FMR, Fidelity and Fidelity Trust is 82 Devonshire Street, Boston, Massachusetts 02109. (4) Based on information set forth in a statement on Schedule 13-G filed with the Commission by Tiger Management Corporation ("Tiger") on May 9, 1994, Tiger, a corporation controlled by majority shareholder Julian H. Robertson, Jr., beneficially owns an aggregate of 4,079,864 shares of Common Stock. Excluded from these shares are 315,395 shares held on behalf of Panther Management Company, L.P., whose sole general partner is Panther Management Corporation of which Mr. Robertson is Chairman, Director, and controlling shareholder. The stated business address of Tiger is 101 Park Avenue, New York, New York 10178. (5) Includes 27,563 shares of Common Stock issued to Mr. Arrison under the Restricted Plan, as well as 11,025 shares of Common Stock issuable under currently exercisable options granted pursuant to the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan (the "1992 Option Plan"). Does not include 27,835 shares of Common Stock owned by the Arrison Family Charitable Foundation of which Mr. Arrison is one of four directors and for which he disclaims beneficial ownership. (6) Includes 16,538 shares of Common Stock issued to Mr. Lippes under the Restricted Plan, as well as 6,891 shares of Common Stock issuable under currently exercisable options granted pursuant to the 1992 Option Plan. Does not include 48,033 shares of Common Stock owned by the Lippes Family Charitable Foundation of which Mr. Lippes is one of five directors and for which he disclaims beneficial ownership. (7) Includes 7,531 shares of Common Stock held by The Gibson Group, Inc. Pension Fund, of which Mr. Donohoo is Chairman of the Board. (8) Includes 19,163 shares of Common Stock issued to Mr. Montague under the Restricted Plan, as well as 6,891 shares of Common Stock issuable under currently exercisable options granted pursuant to the Incentive Stock Option Plans. Also includes 5,169 shares of Common Stock allocated to Mr. Montague's self-directed accounts in the Company's Retirement Plan and the Company's 401(k) Savings Plan (which has no Company-match). Does not include 11,088 shares of Common Stock owned by the Montague Family Charitable Foundation of which Mr. Montague is one of four directors and for which he disclaims beneficial ownership. (9) Includes 2,625 shares of Common Stock issued to Mr. Cook under the Restricted Plan, as well as 11,507 shares of Common Stock issuable under currently exercisable options granted pursuant to the Company's Incentive Stock Option Plans. Also includes 1,198 shares of Common Stock allocated to Mr. Cook's self-directed account in the Company's Retirement Plan and the Company's 401(k) Savings Plan (which has no Company-match). (10) Includes 2,625 shares of Common Stock issued to Mr. Byrne under the Restricted Plan, as well as 6,761 shares of Common Stock issuable under currently exercisable options granted pursuant to the Company's Incentive Stock Option Plans. Also includes 2,808 shares of Common Stock allocated to Mr. Byrne's self-directed accounts in the Company's Retirement Plan and the Company's 401(k) Savings Plan (which has no Company-match). (11) Includes 346,763 shares of Common Stock issued to the group under the Restricted Plan, as well as 74,682 shares of Common Stock issuable under currently exercisable options granted pursuant to the Company's Incentive Stock Option Plans. Also includes 23,505 shares of Common Stock allocated to the officers' self directed accounts in the Company's Retirement Plan and the Company's 401(k) Savings Plan (which has no Company-match). 28 UNDERWRITING The Underwriters of the Offering of Common Stock named below (the "Underwriters"), for whom Bear, Stearns & Co. Inc. ("Bear Stearns") is acting as Representative (the "Representative"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the form of which is filed as an exhibit to the Company's Registration Statement on Form S-3, of which this Prospectus is a part), to purchase from the Company the aggregate number of shares of Common Stock set forth opposite their names below:
NUMBER OF SHARES --------- Bear, Stearns & Co. Inc......................................... --------- Total....................................................... 5,725,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters thereunder are subject to approval of certain legal matters by their counsel and to various other conditions. The nature of the obligations of the Underwriters is such that they are committed to purchase all of the shares of Common Stock offered hereby if any are purchased. The Underwriters propose to offer the shares of Common Stock offered hereby directly to the public at the public offering price set forth on the cover page of this Prospectus and may offer such shares to selected dealers at such price less a concession not in excess of $ per share. Such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the initial public offering, the public offering price and other selling terms may be changed by the Representative. At the request of the Company, the Underwriters have reserved 275,000 shares of Common Stock for sale at the public offering price to the Savings Plan. No underwriting discount will apply in respect of shares sold to the Savings Plan. Any reserved shares of Common Stock not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered pursuant to this Prospectus. The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an additional 858,750 shares of Common Stock at the public offering price set forth on the cover page of this Prospectus less the underwriting discount. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the sale of the shares of Common Stock offered hereby. To the extent that the Underwriters exercise this option, each Underwriter will be committed, subject to certain conditions, to purchase a number of the additional shares of Common Stock proportionate to such Underwriter's initial commitment. The Company has agreed to indemnify the Underwriters against, and to provide contribution with respect to, certain liabilities, including liabilities under the Securities Act. Pursuant to the Underwriting Agreement, the Company has agreed that it will not, and will cause its Directors and officers to agree not to, issue, sell, or otherwise dispose of any shares of Common Stock for a period of 90 days from the date hereof without the prior written consent of the Representative. 29 Bear Stearns has from time to time in recent years performed various investment banking and other financial advisory services for the Company, for which it has received customary compensation. These services have included acting as a managing underwriter of various public offerings of debt and equity securities of the Company and as financial advisor in connection with various acquisitions and divestitures, including, but not limited to, the acquisition of Purolator. LEGAL MATTERS The legality of the securities being offered hereby will be passed upon for the Company by Stroock & Stroock & Lavan, New York, New York, special counsel to the Company. Other legal matters in connection with the offering will be passed upon by such firm and by Lippes, Silverstein, Mathias & Wexler, Buffalo, New York, counsel to the Company. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Latham & Watkins, New York, New York. Gerald S. Lippes, a partner of Lippes, Silverstein, Mathias & Wexler, is general counsel to the Company, its Secretary and a Director. See "Management" and "Principal Securityholders." At November 8, 1994, other members of such firm beneficially owned approximately 53,000 shares of Common Stock. EXPERTS The consolidated balance sheets of Mark IV Industries, Inc. and its subsidiaries at February 28, 1994 and 1993 and the consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1994, included in this Prospectus or incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994, as amended, have been included or incorporated by reference herein in reliance on the report of Coopers & Lybrand, independent accountants, given on the authority of that firm as experts in accounting and auditing. The consolidated balance sheets of Purolator Products Company and its subsidiaries as of December 31, 1993 and 1992 and the consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993, included in this Prospectus and elsewhere in this Registration Statement, to the extent and for the periods indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said report. Reference is made to said report, which includes an explanatory paragraph with respect to the change in the method of accounting for postretirement benefit costs other than pensions, effective January 1, 1991, as discussed in Note 5 to Purolator's audited consolidated financial statements included elsewhere herein. 30 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO. -------- Audited Consolidated Financial Statements of Mark IV as of February 28, 1994 Report of Independent Accountants.................................. F-2 Consolidated Balance Sheets........................................ F-3 Consolidated Statements of Income.................................. F-4 Consolidated Statements of Stockholders' Equity.................... F-5 Consolidated Statements of Cash Flows.............................. F-6 Notes to Consolidated Financial Statements......................... F-7 Unaudited Consolidated Financial Statements of Mark IV as of August 31, 1994 Consolidated Condensed Balance Sheet............................... F-24 Consolidated Statements of Income and Retained Earnings............ F-25 Consolidated Statements of Cash Flows.............................. F-26 Notes to Consolidated Financial Statements......................... F-27 Audited Consolidated Financial Statements of Purolator as of December 31, 1993 Report of Independent Public Accountants........................... F-28 Consolidated Balance Sheets........................................ F-29 Consolidated Statements of Operations.............................. F-30 Consolidated Statements of Stockholders' Equity.................... F-31 Consolidated Statements of Cash Flows.............................. F-32 Notes to Consolidated Financial Statements......................... F-33 Unaudited Condensed Consolidated Financial Statements of Purolator as of September 30, 1994 Condensed Consolidated Statements of Operations..................... F-51 Condensed Consolidated Balance Sheet................................ F-52 Condensed Consolidated Statements of Cash Flows..................... F-53 Notes to Condensed Consolidated Financial Statements................ F-54
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Mark IV Industries, Inc. We have audited the accompanying consolidated balance sheets of Mark IV Industries, Inc. and subsidiaries as of February 28, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended February 28, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mark IV Industries, Inc. and subsidiaries as of February 28, 1994 and 1993, and consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 28, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 10 and 12 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits other than pensions, in accordance with statements of the Financial Accounting Standards Board. COOPERS & LYBRAND Rochester, New York March 29, 1994, except as to the information presented in the first and second paragraphs of Note 13 and in the first paragraph of Note 14, for which the date is April 8, 1994 F-2 MARK IV INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1994 AND 1993 (DOLLARS IN THOUSANDS)
ASSETS 1994 1993 ---------- ------------- (AS RESTATED) Current Assets: Cash............................................... $ 500 $ 2,700 Accounts receivable................................ 275,100 228,100 Inventories........................................ 265,000 243,800 Other current assets............................... 42,100 21,800 ---------- ---------- Total current assets............................. 582,700 496,400 Pension related and other non-current assets......... 126,300 114,100 Property, plant and equipment, net................... 365,300 318,300 Cost in excess of net assets acquired and deferred charges............................................. 208,000 196,000 ---------- ---------- TOTAL ASSETS..................................... $1,282,300 $1,124,800 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of debt....... $ 45,000 $ 34,800 Accounts payable................................... 99,700 77,600 Compensation related liabilities................... 43,100 39,600 Accrued interest................................... 13,600 14,200 Accrued expenses and other liabilities............. 67,000 45,100 Income taxes payable............................... 1,500 9,700 ---------- ---------- Total current liabilities........................ 269,900 221,000 ---------- ---------- Long-Term Debt: Senior debt........................................ 195,000 194,300 Subordinated debt.................................. 372,200 302,800 ---------- ---------- Total long-term debt............................. 567,200 497,100 ---------- ---------- Other non-current liabilities........................ 99,800 61,100 ---------- ---------- Stockholders' Equity: Common stock--$.01 par value; Authorized 100,000,000 shares; Issued 42,697,864 shares in 1994 and 42,188,178 shares in 1993......................... 400 400 Additional paid-in capital......................... 261,500 219,300 Retained earnings.................................. 88,600 128,300 Foreign currency translation adjustment............ (5,100) (2,400) ---------- ---------- Total stockholders' equity....................... 345,400 345,600 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY........ $1,282,300 $1,124,800 ========== ==========
The accompanying notes are an integral part of these financial statements. F-3 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993 1992 ---------- ------------- ------------- (AS RESTATED) (AS RESTATED) Net sales.............................. $1,244,200 $1,085,700 $1,004,300 ---------- ---------- ---------- Operating costs: Cost of products sold................ 803,500 698,800 641,900 Selling and administration........... 236,300 215,100 200,600 Research and development............. 30,900 26,100 24,900 Depreciation and amortization........ 41,700 32,100 28,300 ---------- ---------- ---------- Total operating costs.............. 1,112,400 972,100 895,700 ---------- ---------- ---------- Operating income..................... 131,800 113,600 108,600 Interest expense....................... 50,100 51,600 64,700 Loss on securities transactions........ -- -- 2,400 ---------- ---------- ---------- Income from continuing operations be- fore provision for taxes............ 81,700 62,000 41,500 Provision for taxes.................... 30,600 22,900 14,700 ---------- ---------- ---------- Income from continuing operations.... 51,100 39,100 26,800 Income from discontinued operations, net of tax............................ -- 3,600 2,000 ---------- ---------- ---------- Income before extraordinary items and cumulative effect of accounting change.............................. 51,100 42,700 28,800 Extraordinary loss from early extinguishment of debt, net of tax benefit of $12,300; $2,000; and $2,500................................ (21,700) (3,700) (4,500) Cumulative effect of a change in ac- counting principle.................... (26,000) -- -- ---------- ---------- ---------- NET INCOME......................... $ 3,400 $ 39,000 $ 24,300 ========== ========== ========== Net income per share of common stock: Primary: Income from continuing operations... $ 1.20 $ .93 $ .81 Income from discontinued operations. -- .09 .06 Extraordinary loss.................. (.51) (.09) (.14) Cumulative effect of a change in ac- counting principle................. (.61) -- -- ---------- ---------- ---------- NET INCOME......................... $ .08 $ .93 $ .73 ========== ========== ========== Fully-diluted: Income from continuing operations... $ 1.09 $ .87 $ .74 Income from discontinued operations. -- .07 .05 Extraordinary loss.................. (.43) (.07) (.12) Cumulative effect of a change in ac- counting principle................. (.51) -- -- ---------- ---------- ---------- NET INCOME......................... $ .15 $ .87 $ .67 ========== ========== ========== Weighted average shares outstanding: Primary.............................. 42,481 41,993 33,140 ========== ========== ========== Fully-diluted........................ 50,747 50,325 38,358 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
RETAINED FOREIGN ADDITIONAL EARNINGS CURRENCY COMMON PAID-IN (AS TRANSLATION STOCK CAPITAL RESTATED) ADJUSTMENT ------ ---------- --------- ----------- Balance at February 28, 1991........... $ 300 $ 66,400 $134,600 $ 3,600 Net income for fiscal 1992........... 24,300 Cash dividends of $.066 per share.... (2,400) Retirement of treasury stock......... (100) (34,800) Public sale of common stock at $7.50 per share........................... 100 60,400 Sale of common stock to Pension Plan at $9.79 per share.................. 6,800 Conversion of 7% Convertible Deben- tures............................... 100 55,900 Exercise of stock options............ 100 Translation adjustments.............. (3,400) ----- -------- -------- ------- Balance at February 29, 1992........... 400 154,800 156,500 200 Net income for fiscal 1993........... 39,000 Cash dividends of $.084 per share.... (3,600) Stock dividend of 5% issued in July 1992................................ 27,900 (27,900) Stock dividend of 5% issued in May 1993................................ 35,700 (35,700) Exercise of stock options............ 900 Translation adjustments.............. (2,600) ----- -------- -------- ------- Balance at February 28, 1993........... 400 219,300 128,300 (2,400) Net income for fiscal 1994........... 3,400 Cash dividends of $.098 per share.... (4,200) Stock dividend of 5% issued in April 1994................................ 38,900 (38,900) Restricted stock grants, net......... 800 Conversion of 6 1/4% Convertible De- bentures............................ 100 Exercise of stock options, including related tax benefits................ 2,400 Translation adjustments.............. (2,700) ----- -------- -------- ------- Balance at February 28, 1994........... $ 400 $261,500 $ 88,600 $(5,100) ===== ======== ======== =======
The accompanying notes are an integral part of these financial statements. F-5 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS)
1994 1993 1992 --------- ------------- ------------- (AS RESTATED) (AS RESTATED) Cash flows from operating activities: Income from continuing operations..... $ 51,100 $ 39,100 $ 26,800 Items not affecting cash: Depreciation and amortization........ 41,700 32,100 28,300 Pension and compensation related..... (12,400) (12,500) (10,700) Deferred income taxes................ 10,800 3,900 2,200 --------- -------- --------- Net cash provided by earnings....... 91,200 62,600 46,600 Changes in assets and liabilities, net of effects of businesses acquired and discontinued: Accounts receivable.................. (27,200) (12,000) 25,600 Inventories.......................... (7,700) 1,300 22,300 Other assets......................... (5,700) 6,000 1,900 Accounts payable..................... (2,600) 3,800 3,800 Other liabilities.................... (8,400) (21,400) (15,400) --------- -------- --------- Net cash provided by continuing op- erations........................... 39,600 40,300 84,800 Discontinued operations, before non-cash items.................................. 1,100 8,800 7,200 Extraordinary items, before deferred charges................................ (30,100) (4,900) (6,200) --------- -------- --------- Net cash provided by operating ac- tivities........................... 10,600 44,200 85,800 --------- -------- --------- Cash flows from investing activities: Acquisitions.......................... (65,000) (4,000) (9,300) Divestitures.......................... 35,000 12,200 -- Purchase of plant and equipment, net.. (38,000) (32,900) (19,200) Proceeds from sale of assets.......... -- 1,300 23,000 --------- -------- --------- Net cash used in investing activi- ties............................... (68,000) (23,400) (5,500) --------- -------- --------- Cash flows from financing activities: Credit agreement borrowings, net...... (30,000) 65,000 (116,500) Multi-currency credit agreement borrowings, net...................... 48,400 -- -- Purchases of senior and subordinated debt................................. (190,200) (62,800) (121,700) Issuance of subordinated debt......... 258,000 -- 114,300 Other changes in long-term debt, net.. (18,900) (33,600) (18,600) Changes in short-term bank borrowings. (8,300) 11,700 (3,800) Common stock transactions............. 800 900 67,400 Cash dividends paid................... (4,100) (3,300) (2,400) --------- -------- --------- Net cash provided by (used in) fi- nancing activities................. 55,700 (22,100) (81,300) --------- -------- --------- Effect of exchange rate fluctuations.... (500) (600) (300) --------- -------- --------- Net decrease in cash................ (2,200) (1,900) (1,300) Cash and cash equivalents: Beginning of the year................. 2,700 4,600 5,900 --------- -------- --------- End of the year....................... $ 500 $ 2,700 $ 4,600 ========= ======== =========
The accompanying notes are an integral part of these financial statements. F-6 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions have been eliminated. Foreign Currency The assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates. Translation gains and losses are not included in determining net income, but are accumulated in a separate component of stockholders' equity. Foreign currency transactions are included in income as realized, and amounted to gains (losses) of $300,000; ($700,000) and $300,000 in fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, the Company entered into foreign currency forward contracts, of which the notional amount outstanding was $27,000,000 at February 28, 1994. The forward contracts hedge transactions in existing non-U.S. dollar denominated inter-company receivables and payables. Net Income Per Share of Common Stock Primary net income per share is calculated on the basis of the weighted average number of shares outstanding during each period, adjusted for subsequent stock distributions. Common stock equivalents which would arise from the exercise of stock options, using the treasury stock method, were not significant and have not been included in the calculation. Fully-diluted net income per share, in addition to the weighted average determined above, includes common stock equivalents which would arise from the exercise of stock options using the treasury stock method, and assumes the conversion of the Company's 6 1/4% and 7% Convertible Subordinated Debentures (for the periods outstanding), as well as the elimination of related interest expense, net of income tax effects. All income per share amounts have been calculated as if the stock split distributed in April 1992, and the stock dividends distributed in April 1994, May 1993 and July 1992 had occurred on March 1, 1991, the beginning of fiscal 1992. The weighted average number of shares outstanding have been determined as if shares issued pursuant to the stock distributions had been issued at that date and income per share amounts for fiscal 1993 and 1992 have been restated accordingly. Changes in Accounting Policies As discussed in Note 10, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, effective March 1, 1993, the beginning of fiscal 1994. The Company adopted SFAS No. 109 by restating prior years' financial statements for all years back to and including fiscal 1986. As discussed in Note 12, the Company also adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, as of March 1, 1993. The Company adopted SFAS No. 106 by the immediate recognition of its accumulated benefit obligation. Statements of Cash Flows For purposes of cash flows, the Company considers overnight investments as cash equivalents. Interest and investment earnings are netted against interest expense and amounted to approximately $400,000; $300,000; and $700,000 in fiscal 1994, 1993 and 1992, respectively. The Company paid interest of F-7 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) approximately $52,900,000; $58,700,000; and $74,100,000 in fiscal 1994, 1993 and 1992, respectively. Such amounts include $2,200,000; $5,000,000 and $6,400,000 allocated to the costs of discontinued operations in fiscal 1994, 1993 and 1992, respectively. The Company paid income taxes of approximately $13,700,000; $11,800,000; and $7,700,000 in fiscal 1994, 1993 and 1992, respectively. Liabilities recorded in connection with businesses acquired, excluding bank indebtedness, amounted to approximately $82,000,000; $3,600,000; and $63,800,000 in fiscal 1994, 1993 and 1992, respectively. 2. ACQUISITION On June 2, 1993, the Company purchased the stock and assets comprising Pirelli Trasmissioni Industriali S.p.A. ("PTI"), the power transmission business of Pirelli S.p.A., for approximately $115,000,000. PTI is a manufacturer of a variety of timing belts, v-belts, v-ribbed belts and hydraulic hose sold to customers in automotive and industrial markets. PTI has manufacturing, distribution, engineering and marketing operations in six Western European countries and the United States, and employs approximately 1,500 people worldwide. PTI is a significant addition to the Company's Power and Fluid Transfer business segment. The purchase price consisted of $65,000,000 in cash and the assumption of approximately $50,000,000 of existing bank indebtedness of PTI and its subsidiaries. The funding for the transaction was provided substantially by borrowings under the Company's multi-currency credit agreement. The acquisition has been accounted for under the purchase method, and the results of operations of PTI are included in the Company's results of operations from the date of acquisition. The Company has made a determination and allocation of the purchase price as of the acquisition date, consisting of the following (dollars in thousands): Accounts receivable................................................ $ 37,000 Inventories........................................................ 34,600 Other current assets............................................... 6,700 Current notes payable to banks..................................... (18,600) Accounts payable and other current liabilities..................... (52,800) Net working capital acquired..................................... 6,900 Fixed assets....................................................... 77,200 Cost in excess of net assets acquired.............................. 33,000 Long-term indebtedness to banks.................................... (32,300) Other non-current items, net....................................... (19,800) -------- Cash purchase price paid at closing.............................. $ 65,000 ========
An independent appraisal firm has been retained by the Company to determine the fair market value of all of the fixed assets included in the PTI acquisition. The above amounts are based upon the preliminary results of such appraisal, and are subject to adjustment to the extent the final valuation differs from the preliminary determination. The financial position of PTI as of February 28, 1994 has been included in the accompanying consolidated balance sheet of the Company as of that date based upon the allocation identified above. The cost in excess of net assets will be amortized over 40 years. The following table presents the pro-forma consolidated condensed results of operations for the fiscal years ended February 28, 1994 and 1993. The pro-forma amounts give effect to the acquisition of PTI as if it had occurred on March 1, 1992, the beginning of fiscal 1993. The pro-forma amounts do not purport to be F-8 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) indicative of the results that actually would have been obtained had the acquisition taken place on March 1, 1992, nor are they intended to be a projection of future results (dollars in thousands, except per share data):
1994 1993 ---------- ---------- (UNAUDITED) Net Sales............................................. $1,286,700 $1,243,300 ========== ========== Income from continuing operations..................... $ 52,100 $ 42,800 ========== ========== Earnings per share from continuing operations: Primary............................................. $ 1.23 $ 1.02 ========== ========== Fully-diluted....................................... $ 1.11 $ .94 ========== ==========
3. DISCONTINUED OPERATIONS Effective May 31, 1993 (the "measurement date") the Company decided to sell its non-core business units. Such units have been accounted for as discontinued operations, and their results of operations have been excluded from continuing operations in the consolidated statement of income for fiscal 1994. The consolidated statements of income for fiscal 1993 and 1992 have been restated to exclude the discontinued operations in a similar manner. In June 1993, the Company sold certain of its non-core instruments businesses for cash consideration of approximately $35,000,000. The businesses sold had sales of approximately $54 million for the Company's fiscal year ended February 28, 1993. The proceeds from the sale were used to repay a portion of the debt incurred to finance the acquisition of PTI, as discussed in Note 2. The remaining net assets of discontinued operations as of February 28, 1994 amount to approximately $28,100,000. Such amounts have been segregated in the balance sheet and offset by a corresponding amount of long-term debt, on the assumption that the net sale proceeds will equal or exceed the net asset amount, and all such proceeds will be utilized to offset existing borrowings of the Company. The results of operations of these discontinued businesses in fiscal 1993 and 1992 were as follows (dollars in thousands):
1993 1992 -------- -------- Sales..................................................... $136,300 $141,300 ======== ======== Income before provision for taxes......................... $ 5,600 $ 3,100 Provision for taxes....................................... 2,000 1,100 -------- -------- Income from discontinued operations....................... $ 3,600 $ 2,000 ======== ========
Sales of the discontinued operations in fiscal 1994 were $26,800,000 through the measurement date, and approximately $42,300,000 from the measurement date through February 28, 1994. The related income from these operations has been deferred until the ultimate disposition of the businesses, which is expected to occur in fiscal 1995. 4. ACCOUNTS RECEIVABLE Accounts receivable are reflected net of allowances for doubtful accounts of $17,600,000 and $13,000,000 at February 28, 1994 and 1993, respectively. The amount at February 28, 1993 includes $800,000 related to discontinued operations. F-9 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INVENTORIES Inventories include contracts in process, and are stated at the lower of cost or market. The cost of inventories is determined primarily on the last-in, first-out (LIFO) method. As a result of the fair value determination of inventories required by the purchase method of accounting for acquired companies as of their acquisition date, LIFO costs exceed FIFO costs by approximately $35,000,000 and $39,800,000 at February 28, 1994 and 1993, respectively. The excess at February 28, 1993 includes $2,800,000 related to discontinued operations. Inventories consist of the following at February 28, 1994 and 1993 (dollars in thousands):
1994 1993 -------- ------------- (AS RESTATED) Raw materials, parts, and sub-assemblies.............. $ 67,700 $ 70,300 Work-in-process....................................... 43,500 62,400 Finished goods........................................ 157,100 123,500 -------- -------- 268,300 256,200 Less progress billings................................ 3,300 12,400 -------- -------- Inventories........................................... $265,000 $243,800 ======== ========
The amount at February 28, 1993 includes $21,100,000 related to discontinued operations, which is net of related progress billings of $10,900,000. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost and consists of the following at February 28, 1994 and 1993 (dollars in thousands):
1994 1993 -------- ------------- (AS RESTATED) Land and land improvements............................ $ 35,700 $ 31,800 Buildings............................................. 115,700 99,600 Machinery and equipment............................... 324,700 296,700 -------- -------- Total property, plant and equipment................. 476,100 428,100 Less accumulated depreciation......................... 110,800 109,800 -------- -------- Property, plant and equipment, net.................. $365,300 $318,300 ======== ========
The cost of property, plant and equipment retired or otherwise disposed of, and the accumulated depreciation thereon, are eliminated from the asset and related accumulated depreciation accounts, and any resulting gain or loss is reflected in income. The net amount at February 28, 1993 includes $31,000,000 related to discontinued operations. The Company provides for depreciation of plant and equipment on methods and rates designed to amortize the cost of such plant and equipment over its useful life. Depreciation is provided principally on the straight-line method and amounted to approximately $33,200,000; $29,800,000; and $26,900,000 in fiscal F-10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1994, 1993 and 1992, respectively. Of such amounts, approximately $4,000,000 and $3,600,000 relates to discontinued operations in fiscal 1993 and 1992, respectively. 7. COST IN EXCESS OF NET ASSETS ACQUIRED AND DEFERRED CHARGES Cost in excess of net assets acquired, net of accumulated amortization, amounted to approximately $196,100,000 and $187,800,000 at February 28, 1994 and 1993 respectively. The change in fiscal 1994 includes approximately $33,000,000 related to the Company's PTI acquisition, and also reflects the elimination of approximately $18,200,000 related to the Company's discontinued operations. The costs related to continuing operations are being amortized on the straight-line method over 40-year periods from the acquisition dates of the respective businesses, and resulted in amortization expense of approximately $5,700,000; $4,700,000 and $3,900,000 in fiscal 1994, 1993 and 1992, respectively. Accumulated amortization of such costs was approximately $22,700,000 and $17,000,000 at February 28, 1994 and 1993, respectively. Deferred charges, net of accumulated amortization, amounted to approximately $11,900,000 and $8,200,000 at February 28, 1994 and 1993, respectively. Such amounts include costs incurred in connection with the issuance of the Company's credit agreements and the sale of subordinated debentures, and are being amortized over their respective terms. 8. LONG-TERM DEBT Long-term debt consists of the following at February 28, 1994 and 1993 (dollars in thousands):
1994 1993 -------- -------- Senior debt: Credit Agreement....................................... $140,000 $170,000 Multi-Currency Agreement............................... 48,400 -- Other items............................................ 40,500 30,200 -------- -------- Total................................................ 228,900 200,200 Less current maturities................................ (5,800) (5,900) Less amounts allocated to discontinued operations...... (28,100) -- -------- -------- Net senior debt...................................... 195,000 194,300 -------- -------- Subordinated debt: 8 3/4% Senior Subordinated Notes....................... 258,000 -- 6 1/4% Convertible Subordinated Debentures............. 114,200 114,300 13 3/8% Subordinated Debentures........................ -- 188,500 -------- -------- Total subordinated debt.............................. 372,200 302,800 -------- -------- Total long-term debt................................. $567,200 $497,100 ======== ========
In July 1993, the Company entered into a Credit Agreement providing for a $300,000,000 five-year revolving credit facility with a group of financial institutions. A portion of the credit facility was used to repay amounts outstanding under the Company's revolving credit facility dated June 19, 1990, which was then canceled. Interest on the Credit Agreement is based on a pricing grid which is either prime per annum or, under a LIBOR option, LIBOR plus 0.375% to LIBOR plus 1.375% per annum based on the Company's senior unsecured long-term debt ratings (as defined in the Credit Agreement). The Company is currently F-11 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) paying interest at LIBOR plus 0.75% on borrowings under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants customary in an agreement of this nature, and is secured by the stock of certain of the Company's subsidiaries. In May 1993, the Company entered into a revolving credit agreement ("Multi- Currency Agreement") providing for a five year multi-currency revolving credit facility with a group of financial institutions in the U.S. and Europe. The Multi-Currency Agreement provides for a revolving loan commitment for the first two years of the equivalent of $100,000,000. The commitment declines by $12,500,000 at each of six semi-annual dates beginning in June 1995, with the remaining $25,000,000 of commitment expiring in May 1998. Interest rates on borrowings under the Multi-Currency Agreement are subject to change based on a specified pricing grid which increases from LIBOR plus 0.625% to LIBOR plus 1.375% per annum based on the Company's senior debt rating (as defined in the Multi-Currency Agreement). The Company is currently paying interest at LIBOR plus 1.25% on borrowings under the Multi-Currency Agreement. The Multi-Currency Agreement also contains certain affirmative and negative covenants customary in an agreement of this nature. In March 1993, the Company completed a public offering of $258,000,000 principal amount of its 8 3/4% Senior Subordinated Notes due April 2003. A substantial portion of the net proceeds from the sale of the notes was used to fund the retirement of the Company's 13 3/8% Subordinated Debentures. There are no sinking fund requirements on the Senior Subordinated Notes and they may not be redeemed until April 1998. At such date they are redeemable at 104.375% of principal amount, and thereafter at an annually declining premium over par until April 2001 when they are redeemable at par. The Indenture limits the payment of dividends and the repurchase of capital stock, and includes certain other restrictions and limitations customary with subordinated indebtedness of this type. The 6 1/4% Convertible Subordinated Debentures are convertible into shares of the Company's common stock at a conversion price of $14.37 per share, subject to adjustment. The Company is required to make sinking fund payments commencing February 2002, calculated to retire 50% of the debentures prior to their February 2007 maturity. The debentures may not be redeemed until February 1995. At such date they are redeemable at 104.375% of principal amount, and thereafter at an annually declining premium over par until February 2002, when they are redeemable at par. In March 1993, the Company offered to purchase its 13 3/8% Subordinated Debentures for a cash price of $1,137.50 per $1,000 principal amount, plus accrued interest. As a result of the offer, and certain open-market purchases, the Company acquired approximately $138,000,000 principal amount of these debentures. The Company then completed an "in-substance defeasance" in which approximately $60,400,000 was deposited in an irrevocable trust to cover both the remaining outstanding principal amount ($52,000,000) and the related interest expense requirements of these debentures. The Company recognized an extraordinary loss, net of tax, of approximately $21,700,000 as a result of the extinguishment of this debt in fiscal 1994. The Company also acquired or defeased approximately $63,000,000 and $122,000,000 of its indebtedness and recognized an extraordinary loss, net of tax, of $3,700,000 and $4,500,000 in fiscal 1993 and 1992, respectively. The fair value of the 6 1/4% Convertible Subordinated Debentures exceeds their recorded value by approximately $48,000,000 as of February 28, 1994, based upon the quoted market value of the debentures as of that date. The fair value of the 8 3/4% Senior Subordinated Notes exceeds their recorded value by approximately $6,000,000 as of February 28, 1994, based upon the quoted market value of such notes as of that date. Since the rest of the Company's notes payable and senior debt are primarily floating rate debt, their recorded amounts approximate their fair values as of February 28, 1994. The recorded amounts for other financial instruments, such as cash and accounts receivable, approximate their fair value. F-12 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Annual maturities of the Company's long-term debt for the next five fiscal years are: 1995-$5,800,000; 1996-$18,200,000; 1997-$4,000,000; 1998- $26,900,000; and 1999-$138,200,000. 9. LEASES The Company has operating leases which expire at various dates through 2002 with, in some instances, renewal privileges. Certain leases provide for escalation of the rentals primarily for increases in maintenance costs and property taxes. Total rental expense for continuing operations under operating leases was $15,900,000; $15,900,000; and $15,400,000 in fiscal 1994, 1993 and 1992, respectively. Minimum rental payments under operating leases of continuing operations and having an initial or remaining noncancellable term in excess of 12 months are: 1995-$13,200,000; 1996-$11,200,000; 1997-$10,100,000; 1998-$9,100,000; 1999- $7,400,000; 2000 and thereafter $22,100,000. 10. INCOME TAXES The company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109), in fiscal 1994. The adoption of this standard changed the Company's method of accounting for income taxes from the deferred method to the liability method. The Company adopted SFAS No. 109 retroactively by restating prior years' financial statements for all years back to and including fiscal 1986. Income from continuing operations and the related provision for taxes under SFAS No. 109 for fiscal 1994, 1993 and 1992 consists of the following (dollars in thousands):
1994 1993 1992 ------- -------------- ------------- (AS RESTATED) (AS RESTATED) Income from continuing operations be- fore provision for taxes: United States........................ $45,800 $41,400 $27,800 Foreign.............................. 35,900 20,600 13,700 ------- ------- ------- Total income from continuing opera- tions before provision for taxes.. $81,700 $62,000 $41,500 ======= ======= ======= Provision for taxes on income from con- tinuing operations: Currently payable: United States....................... $14,500 $10,900 $ 6,900 Foreign............................. 5,300 8,100 5,600 ------- ------- ------- Total currently payable.............. 19,800 19,000 12,500 Deferred: United States...................... 3,600 4,200 2,800 Foreign............................ 7,200 (300) (600) ------- ------- ------- Total deferred......................... 10,800 3,900 2,200 ------- ------- ------- Total provision for taxes.............. $30,600 $22,900 $14,700 ======= ======= =======
F-13 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The cumulative effect of the January 1993 increase in the U.S. statutory tax rate was not significant. As a result of the exercise of certain employees' incentive stock options, the Company realized a tax benefit of $1,700,000 which has been recognized as a direct increase in additional paid-in capital. The tax effects of temporary differences which give rise to a significant portion of deferred tax assets (liabilities) consist of the following at February 28, 1994 and 1993 (dollars in thousands):
1994 1993 -------- -------- Current: Accounts receivable................................... $ 3,900 $ 3,000 Inventories........................................... (9,500) (9,500) Compensation related.................................. 3,400 3,100 Tax credit and net operating loss carryforwards....... 9,000 -- Other items........................................... 7,500 800 -------- -------- Total current asset (liability)..................... 14,300 (2,600) Valuation allowance................................... (4,000) -- -------- -------- Net current asset (liability)....................... $ 10,300 $ (2,600) ======== ======== Non-current: Fixed and intangible assets........................... $(39,500) $(47,800) Pension and other benefit plans....................... (21,400) (31,800) Tax credit and net operating loss carryforwards....... 29,400 35,900 Capital loss carryforwards............................ 11,300 19,300 All other items....................................... 19,600 23,400 -------- -------- Total non-current liability......................... (600) (1,000) Valuation allowance................................... (16,800) (19,300) -------- -------- Net non-current liability........................... $(17,400) $(20,300) ======== ========
The net current amount is included in other current assets at February 28, 1994, and in income taxes payable at February 28, 1993. The net non-current amount is included in other non-current liabilities at February 28, 1994 and 1993. The current valuation allowance offsets foreign tax benefits established in the PTI acquisition which may not be realized. To the extent the benefits are realized, the valuation allowance will be reversed with a corresponding reduction in the cost in excess of net assets acquired resulting from the PTI acquisition. The non-current valuation allowance is primarily attributable to the capital loss carryforwards, which are available to use primarily through fiscal 1996. The change in the non-current valuation allowance relates to capital loss carryforward benefits realized in discontinued operations. Management of the Company has determined, based on the Company's history of prior operating earnings and its expectations for the future, that operating income will more likely than not be sufficient to utilize the tax credit and net operating loss carryforwards in their carryforward periods, which run substantially through fiscal 2007. The undistributed earnings of the Company's foreign subsidiaries have been reinvested in each country, and are not expected to be remitted back to the parent company. Accordingly, no federal income taxes have been provided on such earnings as of February 28, 1994. The determination of the possible tax effect relating to such reinvested income is not practicable. F-14 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The provision for taxes on income from continuing operations for fiscal 1994, 1993, and 1992 differs from the amount computed using the United States statutory income tax rate as follows (dollars in thousands):
1994 1993 1992 ------- ------------- ------------- (AS RESTATED) (AS RESTATED) Expected tax at United States statu- tory income tax rate................. $28,600 $21,100 $14,100 Permanent differences................. 1,200 900 400 State and local income taxes.......... 1,200 600 700 Tax credits........................... (500) (400) (800) Foreign tax rate differences.......... 100 700 300 ------- ------- ------- Total provision for taxes......... $30,600 $22,900 $14,700 ======= ======= =======
As a result of prior acquisitions, the retroactive adoption of SFAS No. 109 resulted in increases in property, plant and equipment of $17,800,000; cost in excess of net assets acquired of $43,000,000; deferred tax assets of $19,000,000 and deferred tax liabilities of $79,800,000. The adoption of SFAS No. 109 also resulted in a cumulative decrease in stockholders' equity as of February 28, 1991 of $7,800,000, which adjustment included increased tax expense for preceding years through fiscal 1991 of $800,000. The increase in property, plant and equipment and cost in excess of net assets acquired resulted in increased depreciation and amortization in prior years of approximately $2,500,000 per year, of which $2,000,000 relates to continuing operations, and $500,000 relates to discontinued operations. The effects of this accounting change on the results of continuing operations for fiscal 1993 and 1992 are as follows (dollars in thousands, except per share data):
1993 1992 ------- ------- Income from continuing operations before provision for taxes................................................... $(2,000) $(2,000) Provision for taxes...................................... (600) 300 ------- ------- Income from continuing operations...................... $(2,600) $(1,700) ======= ======= Income per share from continuing operations: Primary................................................ $ (.06) $ (.05) ======= ======= Fully-diluted.......................................... $ (.05) $ (.04) ======= =======
11. PENSION AND PROFIT SHARING PLANS The Company has a variety of defined benefit plans covering both union and non-union employees. Under the union plans, employee benefits are computed based on a dollar amount multiplied by the number of years of service. Benefits under the non-union plans are computed in a similar manner for certain plans, and based on the employees' earnings in other plans. F-15 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the funded status of the defined benefit plans and the amounts recognized in the Company's consolidated balance sheets at February 28, 1994 and 1993 (dollars in thousands):
1994 1993 --------- ------------- (AS RESTATED) Actuarial present value of benefit obligations: Vested........................................... $(233,300) $(202,900) ========= ========= Accumulated...................................... $(236,100) $(204,800) ========= ========= Projected........................................ $(241,900) $(211,100) Plan assets at fair value.......................... 314,300 300,100 --------- --------- Plan assets in excess of projected benefit obliga- tion.............................................. 72,400 89,000 Unrecognized net loss and differences in assump- tions............................................. 36,400 6,800 Unrecognized prior service costs................... 3,100 2,600 --------- --------- Prepaid pension cost recognized in the consolidated balance sheets.................................... $ 111,900 $ 98,400 ========= =========
The plans' assets consist of corporate and government bonds, guaranteed investment contracts, listed common stocks and real estate investments. Included in the plans' assets are common stock of the Company with a market value of approximately $16,500,000 and the Company's 6 1/4% and 8 3/4% subordinated debentures with a market value of $11,800,000 at February 28, 1994. Net pension income for the defined benefit plans in fiscal 1994, 1993, and 1992 includes the following components (dollars in thousands):
1994 1993 1992 -------- ------------- ------------- (AS RESTATED) (AS RESTATED) Service cost-benefits earned during the period.......................... $ (2,900) $ (2,700) $ (2,500) Interest cost on projected benefit obligation.......................... (18,200) (17,300) (16,900) Actual return on assets.............. 32,100 36,600 36,400 Net amortization and deferral........ 2,500 (4,100) (6,300) -------- -------- -------- Net pension income................. $ 13,500 $ 12,500 $ 10,700 ======== ======== ========
The following assumptions were utilized to measure net pension income for each of the fiscal years presented, as well as the projected benefit obligation as of the end of the fiscal years:
1994 1993 1992 ------ ------ ------ Discount rate........................................... 7.75% 9.00% 9.00% Expected long-term rate of return....................... 12.00% 12.00% 12.00% Average increase in compensation........................ 5.00% 5.00% 5.00%
As a result of the change in the discount rate, the projected benefit obligation as of February 28, 1994 is approximately $25,000,000 more than it would have been using the previous 9% discount rate. The change had no effect on net pension income in fiscal 1994, and is expected to reduce pension income in fiscal 1995 by approximately $500,000. The Company also has defined contribution pension and profit sharing plans for a significant number of its salaried and hourly employees. The Company's contributions to these plans is based on various percentages F-16 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of compensation, and in some instances is based upon the amount of the employees' contributions to the plans. The annual cost of these plans amounted to approximately $6,700,000; $6,600,000; and $6,000,000 in fiscal 1994, 1993 and 1992, respectively. 12. POSTRETIREMENT BENEFITS The Company currently provides health and life insurance benefits to a number of existing retirees from certain of its operations under the provisions of a number of different plans. Contributions currently required to be paid by the retirees towards the cost of such plans range from zero to 100%. The Company also has a number of active employees who might receive such benefits upon their retirement. The plans which relate to retirees and active non-union employees include provisions which allow the Company to increase the cost to participants, or otherwise modify or terminate them as determined by management. The plans which relate to active union employees are subject to modification in the same manner as are all other compensation and benefits matters in the process of the Company's negotiations of contracts covering its union employees. The cash cost incurred by the Company for its retirees amounted to approximately $4,600,000; $3,600,000; and $3,300,000 in fiscal 1994, 1993 and 1992, respectively. Through fiscal 1993, the Company accounted for the cost of these postretirement benefits on the cash basis as they were paid. The Financial Accounting Standards Board (FASB) issued Statement No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions (SFAS No. 106) in December 1990. SFAS No. 106 requires the estimated present-value of the Company's liability for its commitments to provide health and life insurance benefits to its retirees to be included in the balance sheet, either entirely as of the date of adoption, or over a transition period. Such liability is referred to as the Accumulated Benefit Obligation (ABO). The related expense is required to be recognized on the accrual method over the remaining years of the employees' active service, up to the dates of individual eligibility to retire and begin receiving the benefit. The Company adopted this new accounting rule as of March 1, 1993, the beginning of fiscal 1994. Prior to its adoption of SFAS No. 106, the Company advised the participants of certain plan design changes, including the establishment of caps on the amount of annual expense to be incurred by the Company. The participants are now required to pay 100% of the excess of costs incurred over the established annual caps, in addition to whatever contribution percent is required of the retirees for amounts incurred up to the amount of the caps. Actuarial calculations indicate the Company's actual costs are not expected to reach the substantial majority of the caps until fiscal 1996, and assume an annual health-care cost trend rate of 10% until that time. The Company adopted SFAS No. 106 by recognizing the ABO entirely in fiscal 1994. The ABO was calculated on an actuarial basis using a 9% discount rate, and amounted to approximately $40,000,000 as of the March 1, 1993 adoption date. Since the Company also adopted SFAS No. 109--Accounting for Income Taxes at the same date, the Company recognized a deferred tax asset of $14,000,000 representing the future tax benefits to be received related to the ABO. The resulting net charge of $26,000,000 ($.51 per fully diluted share) from the adoption of SFAS No. 106 has been included as the cumulative effect of a change in accounting principle in the consolidated statement of income for fiscal 1994. The company continues to fund such costs on the cash-basis, and such cash costs for these plans in fiscal 1994 have been charged against the ABO. F-17 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The ABO for fiscal 1994, and the reconciliation to the amount provided in the consolidated balance sheet, is comprised of the following elements (dollars in thousands):
FISCAL 1994 ----------------------- END BEGINNING OF THE YEAR OF THE YEAR ----------- ----------- Accumulated post-retirement benefit obligation: Retirees and beneficiaries receiving benefits..... $34,700 $29,300 Active employees, fully eligible for benefits..... 4,600 4,900 Active employees, not fully eligible for benefits. 6,500 5,800 ------- ------- Total accumulated benefit obligation............ 45,800 40,000 Unrecognized net loss............................... (6,600) -- ------- ------- Post-retirement benefit liability recognized in the balance sheet................................ $39,200 $40,000 ======= =======
The Company's postretirement benefit expense for fiscal 1994 on the accrual method was $3,800,000. The expense is made up of a service cost for active employees of $400,000 and interest on the ABO of $3,400,000. Such cost was approximately $800,000 less than the cash-basis expense for the year, or $500,000 after tax effects ($.01 per share). The unrecognized net loss is primarily the result of a change in the discount rate from 9% at the beginning of the year to 7 3/4% at the end of the year, plus the excess of the cash-basis expense over the accrual basis expense. The change in the discount rate and the amortization of the unrecognized net loss will not have a significant effect on the Company's postretirement benefit expense for fiscal 1995. As a result of the cost caps, a 1% change in the health-care cost trend rate would have a nominal effect on the Company's ABO and annual cost. 13. LEGAL PROCEEDINGS A subsidiary of the Company was the defendant in a patent infringement case which was tried in the latter part of fiscal 1994. The decision of the Court was reached in April 1994 in favor of the plaintiff, awarding them damages and issuing an injunction which prohibits the Company from any further use of the technology at issue. Prior to the court's decision, the Company had stopped using the technology in question; therefore, the injunction will have no impact on the Company's future sales and marketing efforts. If the judgement for the plaintiff is upheld on appeal, the after-tax cost to the Company could be in the range of $2,300,000. Management of the Company has been advised by its legal counsel as to the merits of its arguments, and continues to believe it has not infringed on the plaintiff's patent. In view of the above, management has directed its legal counsel to pursue the appeal process as diligently as possible. Management believes the ultimate conclusions of law will be decided upon by the appeals court in favor of the Company. However, in view of the trial court's findings, an accrual has been established to provide for the cost of the resolution of this issue in the event the Company is not successful. The litigation accrual did not have an effect on income, since the effects of establishing it have been offset by the reversal of accrued liabilities related to an acquisition in fiscal 1991 which management has determined are no longer required. The Company is involved in various other legal and environmental related issues. In the opinion of the Company's management, the ultimate cost to resolve these matters will not have a material adverse effect on the Company's financial position. F-18 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. STOCKHOLDERS' EQUITY AND STOCK OPTIONS The Company's Board of Directors declared five percent stock dividends which were distributed in April 1994, May 1993 and July 1992, and a three-for-two stock split in fiscal 1992. All earnings per share amounts have been calculated as if the stock distributions had occurred on March 1, 1991, the beginning of fiscal 1992. As a result of these stock distributions, the conversion price of the Company's 6 1/4% Convertible Subordinated Debentures is $14.37 per share and approximately 7,944,000 shares have been reserved for such conversion. In December 1993, the Company's Board of Directors authorized the repurchase of approximately 4,200,000 shares, or approximately 10 percent of the Company's outstanding common stock. This authorization, in addition to authorizations remaining from previous years, gives the Company the authority to repurchase a total of 6,400,000 additional shares, or 15% of its outstanding common stock as of February 28, 1994. The Company did not acquire any of its common stock in fiscal 1994 or fiscal 1993. The Company's Incentive Stock Option Plans provide for granting officers and other key employees options to purchase the Company's common stock at an exercise price equal to 100% of the market price on the date of grant. The options may be exercised in cumulative annual increments of 25% commencing one year after the date of grant, and have a maximum duration of seven to ten years. There were 1,449,467 and 1,447,735 shares reserved for the future granting of options at February 28, 1994 and 1993. The following table summarizes the Company's stock option transactions for fiscal 1994, 1993 and 1992:
1994 1993 1992 ----------------- ----------------- ---------------- AVERAGE AVERAGE AVERAGE OPTION OPTION OPTION OPTION OPTION OPTION SHARES PRICE SHARES PRICE SHARES PRICE -------- ------- -------- ------- ------- ------- Balance at beginning of year..................... 737,285 $ 7.65 843,097 $ 4.25 526,175 $2.94 Activity during the year: Granted................. 13,650 $19.29 233,399 $13.05 342,078 $6.26 Exercised............... (167,314) $ 3.88 (335,738) $ 3.00 (24,941) $2.65 Canceled................ (15,383) $ 9.64 (3,473) $ 6.19 (215) $3.49 -------- -------- ------- Balance at end of year: Outstanding............. 568,238 $ 8.98 737,285 $ 7.65 843,097 $4.25 ======== ======== ======= Exercisable............. 255,050 $ 7.17 258,841 $ 4.12 486,661 $2.90 ======== ======== =======
The Company's Board of Directors established a Restricted Stock Plan in fiscal 1993. In fiscal 1994, the Company granted certain executives restricted stock awards with respect to 336,262 shares at $.01 par value per share. As a result, common stock and additional paid-in capital have been increased by a total of $6,600,000 based upon the market value of the stock as of the grant date. The restrictions on the stock lapse after a five year period, or sooner if certain performance measurements of the Company are achieved. Therefore, the expense will be recognized as it is earned over the restriction period, with $800,000 recognized as an expense in fiscal 1994. The unearned balance of $5,800,000 as of February 28, 1994 has been presented as an offset to additional paid-in capital. Approximately 50,000 shares remain available for issuance under this plan as of February 28, 1994. At a special meeting of the company's stockholders in December 1991, the Company's Certificate of Incorporation was amended to increase the authorized shares of the Company's common stock, from 25,000,000 to 100,000,000 and to increase the authorized shares of the Company's preferred stock, from 1,000,000 to 10,000,000. There are no shares of preferred stock outstanding at the present time. F-19 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 15. INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS As a result of the Company's discontinuance and sale of certain of its non- core businesses in fiscal 1994 and 1993, and its PTI acquisition in June 1993, it has modified its industry segment definitions and descriptions for fiscal 1994. The Company now classifies its operations into the following three core business segments: (i) Power and Fluid Transfer, which includes the design and manufacture of automotive aftermarket and OEM belts, hose, couplings, accessory drive systems and fluid transfer assemblies; industrial belts, hose and fittings, and garden hose. (ii) Transportation, which includes the design and manufacture of products and systems for mass transit, such as door systems, lighting, and informational display devices and applications for bus and rail transit vehicles; traffic, such as advanced traffic control and management systems, directional information and warning signs for roads and highways, and automatic (intelligent) vehicle identification for toll collection and traffic control; and commercial aviation, such as aircraft interior lighting and air-diffusion, and aircraft emergency lighting and night vision compatibility. (iii) Professional Audio, which includes the design and manufacture of products and systems used primarily in the high-performance professional audio market, such as professional performance microphones, speakers, mixers, and amplifiers; high-fidelity public address and musical instrument loudspeaker systems; audio signal processors, sound reinforcement equipment, and sound enhancement and noise canceling equipment. F-20 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The continuing operations and classifications for fiscal 1993 and 1992 have been presented in a manner consistent with the information presented for fiscal 1994. All sold or discontinued operations have been excluded from the following industry segment and geographic information, and included in the Corporate category where applicable. Information concerning the Company's business segments for fiscal 1994, 1993 and 1992 is as follows (dollars in thousands):
1994 1993 1992 ---------- ------------- ------------- (AS RESTATED) (AS RESTATED) NET SALES TO CUSTOMERS Power and Fluid Transfer............. $ 852,100 $ 709,400 $ 635,200 Transportation....................... 218,600 199,500 199,900 Professional Audio................... 173,500 176,800 169,200 ---------- ---------- ---------- Total net sales to customers....... $1,244,200 $1,085,700 $1,004,300 ========== ========== ========== OPERATING INCOME Power and Fluid Transfer............. $ 97,800 $ 79,200 $ 67,000 Transportation....................... 27,000 24,900 27,100 Professional Audio................... 21,900 22,000 23,900 ---------- ---------- ---------- Total operating income............. 146,700 126,100 118,000 General corporate.................... (14,900) (12,500) (9,400) Interest expense and loss on securities transactions............. (50,100) (51,600) (67,100) ---------- ---------- ---------- Income from continuing operations, before provision for taxes........ $ 81,700 $ 62,000 $ 41,500 ========== ========== ========== IDENTIFIABLE ASSETS Power and Fluid Transfer............. $ 826,000 $ 622,500 $ 618,400 Transportation....................... 236,100 220,600 194,900 Professional Audio................... 162,700 158,900 159,400 General corporate.................... 57,500 122,800 131,800 ---------- ---------- ---------- Total identifiable assets.......... $1,282,300 $1,124,800 $1,104,500 ========== ========== ========== DEPRECIATION AND AMORTIZATION Power and Fluid Transfer............. $ 27,500 $ 19,100 $ 16,500 Transportation....................... 7,100 6,700 5,600 Professional Audio................... 4,500 4,400 4,300 General corporate.................... 2,600 1,900 1,900 ---------- ---------- ---------- Total depreciation and amortization...................... $ 41,700 $ 32,100 $ 28,300 ========== ========== ========== CAPITAL OUTLAYS Power and Fluid Transfer............. $ 31,900 $ 25,800 $ 13,100 Transportation....................... 7,000 6,800 4,300 Professional Audio................... 2,500 1,700 1,600 General corporate.................... -- 1,200 1,700 ---------- ---------- ---------- Total capital outlays.............. $ 41,400 $ 35,500 $ 20,700 ========== ========== ==========
Operating income represents total revenues less operating expenses, and excludes general corporate expenses, interest expense and income taxes. Litigation costs are considered to be corporate expenses. Identifiable assets are those assets employed in each segment's operation, including an allocated value to each segment of cost in excess of net assets acquired. Corporate assets consist primarily of cash, marketable securities, investments and assets not employed in production and net assets of discontinued operations. F-21 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's foreign operations are located primarily in Europe, and to a lesser extent in Canada and the Far East. Information concerning the Company's operations by geographic area for fiscal 1994, 1993 and 1992 is as follows (dollars in thousands):
1994 1993 1992 ---------- ------------- ------------- (AS RESTATED) (AS RESTATED) NET SALES TO CUSTOMERS United States.......................... $ 884,500 $ 815,200 $ 798,500 Foreign................................ 359,700 270,500 205,800 ---------- ---------- ---------- Total net sales to customers......... $1,244,200 $1,085,700 $1,004,300 ========== ========== ========== OPERATING INCOME United States.......................... $ 105,700 $ 102,100 $ 99,700 Foreign................................ 41,000 24,000 18,300 ---------- ---------- ---------- Total operating income............... $ 146,700 $ 126,100 $ 118,000 ========== ========== ========== IDENTIFIABLE ASSETS United States.......................... $ 898,700 $ 916,800 $ 873,400 Foreign................................ 383,600 208,000 231,100 ---------- ---------- ---------- Total identifiable assets............ $1,282,300 $1,124,800 $1,104,500 ========== ========== ==========
The net sales to customers reflect the sales of the operating units in each geographic area to unaffiliated customers. Export sales from the United States to unaffiliated customers were $71,300,000; $67,800,000 and $66,500,000 in fiscal 1994, 1993, and 1992, respectively. Inter-segment sales are not material. Sales between geographic areas are accounted for at prices which are competitive with prices charged to unaffiliated customers. F-22 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 16. QUARTERLY FINANCIAL DATA AND INFORMATION (UNAUDITED) The following table sets forth the unaudited quarterly results of operations for each of the fiscal quarters in the years ended February 28, 1994 and 1993. As a result of the decision to discontinue the Company's non-core businesses and the adoption of SFAS No. 109, the Company's results of operations for each of its fiscal quarters in the year ended February 28, 1993 have been restated (dollars in thousands, except per share data):
FIRST SECOND THIRD FOURTH TOTAL FISCAL 1994 QUARTER QUARTER QUARTER QUARTER YEAR ----------- -------- -------- -------- -------- ---------- Net sales.................. $287,800 $316,600 $320,000 $319,800 $1,244,200 Gross profit (a)........... $102,000 $110,800 $113,800 $114,100 $ 440,700 Income from continuing operations................ $ 13,600 $ 13,100 $ 12,800 $ 11,600 $ 51,100 Extraordinary items........ (21,700) -- -- -- (21,700) Cumulative effect of accounting change......... (26,000) -- -- -- (26,000) -------- -------- -------- -------- ---------- Net income............. $(34,100) $ 13,100 $ 12,800 $ 11,600 $ 3,400 ======== ======== ======== ======== ========== Income per share (b) (c): Primary: Continuing operations... $ .32 $ .31 $ .30 $ .27 $ 1.20 Extraordinary items..... (.51) -- -- -- (.51) Cumulative effect of accounting change...... (.62) -- -- -- (.61) -------- -------- -------- -------- ---------- Net income............. $ (.81) $ .31 $ .30 $ .27 $ .08 ======== ======== ======== ======== ========== Fully-diluted: Continuing operations... $ .29 $ .28 $ .27 $ .25 $ 1.09 Extraordinary items..... (.43) -- -- -- (.43) Cumulative effect of accounting change...... (.51) -- -- -- (.51) -------- -------- -------- -------- ---------- Net income............. $ (.65) $ .28 $ .27 $ .25 $ .15 ======== ======== ======== ======== ========== FISCAL 1993 ----------- Net sales.................. $271,000 $268,600 $270,700 $275,400 $1,085,700 Gross profit (a)........... $ 97,200 $ 95,100 $ 98,000 $ 96,600 $ 386,900 Income from continuing operations................ $ 10,300 $ 8,900 $ 10,800 $ 9,100 $ 39,100 Income from discontinued operations................ 1,300 2,400 500 (600) 3,600 Extraordinary items........ -- (400) (1,600) (1,700) (3,700) -------- -------- -------- -------- ---------- Net income............. $ 11,600 $ 10,900 $ 9,700 $ 6,800 $ 39,000 ======== ======== ======== ======== ========== Income per share (b) (c): Primary: Continuing operations... $ .25 $ .21 $ .26 $ .22 $ .93 Discontinued operations. .03 .06 .01 (.02) .09 Extraordinary items..... -- (.01) (.04) (.04) (.09) -------- -------- -------- -------- ---------- Net income............. $ .28 $ .26 $ .23 $ .16 $ .93 ======== ======== ======== ======== ========== Fully-diluted: Continuing operations... $ .23 $ .20 $ .24 $ .20 $ .87 Discontinued operations. .02 .05 .01 (.01) .07 Extraordinary items..... -- (.01) (.03) (.03) (.07) -------- -------- -------- -------- ---------- Net income............. $ .25 $ .24 $ .22 $ .16 $ .87 ======== ======== ======== ======== ==========
- -------- (a) Excluding depreciation expense. (b) The sum of the quarterly amounts do not equal the total as a result of the common stock transactions discussed in Note 14. The impact of those transactions on the determination of the weighted average number of shares outstanding is different in each quarter, and for the year in total. (c) Restated to reflect the five percent stock dividend issued in April 1994. F-23 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) AUGUST 31, 1994 (DOLLARS IN THOUSANDS) ASSETS Current Assets: Cash.............................................................. $ 700 Accounts receivable............................................... 298,200 Inventories....................................................... 265,300 Other current assets.............................................. 47,700 ---------- Total current assets............................................ 611,900 Pension related and other non-current assets........................ 146,200 Property, plant and equipment, net.................................. 369,400 Cost in excess of net assets acquired and deferred charges.......... 208,000 ---------- TOTAL ASSETS.................................................... $1,335,500 ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of debt...................... $ 53,000 Accounts payable.................................................. 112,600 Compensation related liabilities.................................. 40,500 Accrued interest.................................................. 14,800 Accrued expenses and other liabilities............................ 71,900 Income taxes payable.............................................. 8,800 ---------- Total current liabilities....................................... 301,600 ---------- Long-Term Debt: Senior debt....................................................... 178,900 Subordinated debentures........................................... 372,200 ---------- Total long-term debt............................................ 551,100 ---------- Other non-current liabilities....................................... 100,300 ---------- Stockholders' Equity: Common stock...................................................... 400 Additional paid-in capital........................................ 262,600 Retained earnings................................................. 120,000 Foreign currency translation adjustment........................... (500) ---------- Total stockholders' equity...................................... 382,500 ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY........................ $1,335,500 ==========
The accompanying notes are an integral part of these financial statements. F-24 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) FOR THE SIX MONTH PERIODS ENDED AUGUST 31, 1994 AND 1993 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993 -------- -------- Net sales.................................................. $721,000 $604,500 -------- -------- Operating costs: Cost of products sold.................................... 468,600 391,600 Selling and administration............................... 133,300 110,300 Research and development................................. 15,600 15,300 Depreciation and amortization............................ 23,200 19,800 -------- -------- Total operating costs.................................. 640,700 537,000 -------- -------- Operating income......................................... 80,300 67,500 Interest expense........................................... 25,300 24,900 -------- -------- Income before provision for income taxes................. 55,000 42,600 Provision for income taxes................................. 21,200 15,900 -------- -------- Income before extraordinary items and cumulative effect of accounting change.................................... 33,800 26,700 Extraordinary items, net of tax............................ -- (21,700) Cumulative effect of accounting change..................... -- (26,000) -------- -------- Net income (loss)........................................ 33,800 (21,000) Retained earnings--beginning of the period................. 88,600 128,300 Cash dividends of $.055 and $.048 per share................ (2,400) (2,000) -------- -------- Retained earnings--end of the period..................... $120,000 $105,300 ======== ======== Net income per share of common stock: Primary: Income before extraordinary items and accounting change. $ .79 $ .63 Extraordinary items..................................... -- (.51) Cumulative effect of accounting change.................. -- (.62) -------- -------- Net income (loss)...................................... $ .79 $ (.50) ======== ======== Fully-diluted: Income before extraordinary items and accounting change. $ .71 $ .57 Extraordinary items..................................... -- (.43) Cumulative effect of accounting change.................. -- (.51) -------- -------- Net income (loss)...................................... $ .71 $ (.37) ======== ======== Weighted average number of shares outstanding: Primary.................................................. 42,737 42,276 ======== ======== Fully-diluted............................................ 51,027 50,589 ======== ========
The accompanying notes are an integral part of these financial statements. F-25 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTH PERIODS ENDED AUGUST 31, 1994 AND 1993 (DOLLARS IN THOUSANDS)
1994 1993 -------- -------- Cash flows from operating activities: Income before extraordinary items........................ $ 33,800 $ 26,700 Items not affecting cash: Depreciation and amortization........................... 23,200 19,800 Pensions and other...................................... (5,000) (5,300) -------- -------- Net cash provided by earnings.......................... 52,000 41,200 Other adjustments to reconcile income to net cash pro- vided by (used in) operating activities: Changes in assets and liabilities, net of effects of businesses acquired: Accounts receivable.................................... (20,600) 7,300 Inventories............................................ 2,000 (12,100) Other assets........................................... (5,600) (11,800) Accounts payable....................................... 11,800 (1,800) Other liabilities...................................... 6,100 (11,100) -------- -------- Net cash provided by operations........................ 45,700 11,700 Extraordinary items, before deferred charges............. -- (30,000) -------- -------- Net cash provided by (used in) operating activities..... 45,700 (18,300) -------- -------- Cash flows from investing activities: Acquisitions and divestitures, net....................... (12,700) (31,500) Purchase of plant and equipment............................ (16,300) (20,400) -------- -------- Net cash used in investing activities................... (29,000) (51,900) -------- -------- Cash flows from financing activities: Credit agreement borrowings, net......................... (15,300) (8,100) Purchases of subordinated debt........................... -- (190,200) Issuance of senior subordinated notes.................... -- 258,000 Other changes in debt, net............................... 1,000 11,000 Common stock transactions................................ 300 500 Cash dividends paid...................................... (2,400) (2,000) -------- -------- Net cash provided by (used in) financing activities..... (16,400) 69,200 -------- -------- Effect of exchange rate fluctuations..................... (100) (200) -------- -------- Net increase (decrease) in cash......................... 200 (1,200) Cash and cash equivalents: Beginning of the year.................................. 500 2,700 -------- -------- End of the period...................................... $ 700 $ 1,500 ======== ========
The accompanying notes are an integral part of these financial statements. F-26 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company at August 31, 1994, and the results of its operations and its cash flows for the six month period ended August 31, 1994 and 1993. Such results are not necessarily indicative of the results to be expected for the full year. 2. Accounts receivable are presented net of allowances for doubtful accounts of $19,800,000 at August 31, 1994. 3. Inventories consist of the following components at August 31, 1994 (dollars in thousands): Raw materials, parts and sub-assemblies............................ $ 79,400 Work-in-process.................................................... 44,800 Finished goods..................................................... 141,100 -------- Inventories...................................................... $265,300 ========
Since physical inventories taken during the year do not necessarily coincide with the end of a quarter, management has estimated the composition of inventories with respect to raw materials, work-in- process and finished goods. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of August 31, 1994. 4. Property, plant and equipment is stated at cost and consists of the following components at August 31, 1994 (dollars in thousands): Land and land improvements......................................... $ 35,800 Buildings.......................................................... 117,900 Machinery and equipment............................................ 348,600 -------- Total property, plant and equipment.............................. 502,300 Less accumulated depreciation...................................... 132,900 -------- Property, plant and equipment, net............................... $369,400 ========
5. For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company paid interest of approximately $24,800,000 and $27,000,000 in the six-month periods ended August 31, 1994 and 1993, respectively. Such amounts include $700,000 and $1,100,000 allocated to the costs of discontinued operations in the six month periods ended August 31, 1994 and 1993, respectively. The Company also paid income taxes of approximately $6,100,000 and $10,300,000 in the six month periods ended August 31, 1994 and 1993, respectively. F-27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Purolator Products Company: We have audited the accompanying consolidated balance sheets of Purolator Products Company (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1993, 1992 and 1991. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Purolator Products Company and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for the years ended December 31, 1993, 1992, and 1991 in conformity with generally accepted accounting principles. As explained in Note 5 to the consolidated financial statements, effective January 1, 1991, the Company changed its method of accounting for postretirement benefit costs other than pensions. ARTHUR ANDERSEN LLP Tulsa, Oklahoma February 11, 1994 F-28 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1993 1992 ------------ ------------ (EXPRESSED IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.......................... $ 5,707 $ 3,411 Trade accounts receivable, net..................... 63,766 63,834 Inventories, net................................... 73,473 87,130 Other current assets............................... 8,610 9,222 ------------ ------------ Total Current Assets........................... 151,556 163,597 Land, buildings and equipment, net................. 75,551 72,239 Investments........................................ 11,905 7,767 Intangible assets, net............................. 110,800 116,128 Other assets....................................... 9,255 4,735 ------------ ------------ Total Assets................................... $ 359,067 $ 364,466 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt............... $ 4,243 $ 3,936 Accounts payable................................... 32,387 31,465 Accrued liabilities................................ 36,109 27,224 ------------ ------------ Total Current Liabilities...................... 72,739 62,625 Long-term debt, less current maturities............ 38,971 69,039 Other noncurrent liabilities....................... 73,745 74,548 Commitments and contingencies Stockholders' equity: Preferred stock, $1.00 par value per share, 10,000,000 shares authorized, no shares issued or outstanding...................................... -- -- Common stock, $.01 par value per share, 30,000,000 shares authorized, 11,212,500 and 10,112,500 shares issued and outstanding......... 112 101 Additional paid-in capital......................... 326,944 311,437 Accumulated deficit................................ (140,573) (151,230) Additional minimum pension liability............... (10,424) (1,002) Cumulative translation adjustment.................. (2,447) (1,052) ------------ ------------ Total Stockholders' Equity..................... 173,612 158,254 ------------ ------------ Total Liabilities and Stockholders' Equity..... $ 359,067 $ 364,466 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-29 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales......................................... $435,821 $417,888 $401,690 Cost of sales..................................... 333,488 318,507 310,265 -------- -------- -------- Gross Profit...................................... 102,333 99,381 91,425 Selling, general and administrative expenses...... 84,577 83,349 82,157 Nonrecurring charges.............................. -- 2,888 39,980 -------- -------- -------- Operating Income (Loss)........................... 17,756 13,144 (30,712) Interest expense.................................. 4,119 8,475 9,059 Other income...................................... 2,182 3,661 2,191 -------- -------- -------- Income (Loss) Before Income Taxes and Equity in Income (Loss) of Affiliates...................... 15,819 8,330 (37,580) Income tax provision (benefit).................... 461 (1,966) (1,015) Equity in income (loss) of affiliates............. 2,475 795 (1,445) -------- -------- -------- Income (Loss) Before Cumulative Effect of Change in Accounting Principle........................................ 17,833 11,091 (38,010) ======== ======== ======== Cumulative effect of change in accounting princi- ple.............................................. -- -- (17,317) -------- -------- -------- Net income (loss)................................. $ 17,833 $ 11,091 $(55,327) Earnings (loss) per share: Income (Loss) Before Cumulative Effect of Change in Accounting Principle.......................... $ 1.59 $ 1.29 $ (4.47) Cumulative Effect of Change in Accounting Princi- ple.............................................. -- -- (2.04) -------- -------- -------- Net Income (Loss)................................. $ 1.59 $ 1.29 $ (6.51) ======== ======== ======== Weighted Average Shares Outstanding............... 11,182 8,550 8,500 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-30 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL ADDITIONAL MINIMUM CUMULATIVE PAID-IN ACCUMULATED PENSION TRANSLATION SHARES AMOUNT CAPITAL DEFICIT LIABILITY ADJUSTMENT TOTAL ---------- ------ ---------- ----------- ---------- ----------- -------- (EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS) Balance, January 1, 1991................... 8,500,000 $ 85 $263,831 $(106,994) $ (1,423) $ 1,318 $156,817 Changes in Additional Minimum Pension Liabil- ity.................... -- -- -- -- 92 -- 92 Translation Adjustment.. -- -- -- -- -- 462 462 Net Loss................ -- -- -- (55,327) -- -- (55,327) ---------- ---- -------- --------- -------- ------- -------- Balance, December 31, 1991................... 8,500,000 85 263,831 (162,321) (1,331) 1,780 102,044 Translation Adjustment.. -- -- -- -- -- (2,832) (2,832) Changes in Additional Minimum Pension Liabil- ity.................... -- -- -- -- 329 -- 329 Issuance of Stock, net.. 1,612,500 16 22,645 -- -- -- 22,661 Environmental Indemnifi- cation by Former Par- ent.................... -- -- 17,700 -- -- -- 17,700 Capital Contribution by Former Parent................. -- -- 7,261 -- -- -- 7,261 Net Income.............. -- -- -- 11,091 -- -- 11,091 ---------- ---- -------- --------- -------- ------- -------- Balance, December 31, 1992................... 10,112,500 101 311,437 (151,230) (1,002) (1,052) 158,254 Translation Adjustment.. -- -- -- -- -- (1,395) (1,395) Changes in Additional Minimum Pension Liabil- ity.................... -- -- -- -- (9,422) -- (9,422) Issuance of Stock, net.. 1,100,000 11 15,507 -- -- -- 15,518 Dividends Paid ($0.64 per share of Common Stock)................. -- -- -- (7,176) -- -- (7,176) Net Income.............. -- -- -- 17,833 -- -- 17,833 ---------- ---- -------- --------- -------- ------- -------- Balance, December 31, 1993................... 11,212,500 $112 $326,944 $(140,573) $(10,424) $(2,447) $173,612 ========== ==== ======== ========= ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-31 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 --------- --------- -------- (EXPRESSED IN THOUSANDS) Cash flows from operating activities: Net income (loss)........................... $ 17,833 $ 11,091 $(55,327) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating ac- tivities: Depreciation and amortization................. 13,567 14,651 14,732 Equity in (income) loss of affiliates......... (2,475) (795) 1,445 Provision for losses on receivables........... 1,142 1,604 1,537 Provision for inventory reserves.............. 2,949 3,474 7,811 Interest accretion on postretirement employee benefits obligations......................... 3,348 4,513 5,927 Amortization of debt origination costs........ 611 -- -- Nonrecurring charges.......................... -- 2,888 39,980 Write-downs of buildings and equipment........ -- 426 4,085 Change in operating assets and liabilities, net of effects from acquisitions and disposi- tions: (Increase) decrease in receivables........... (1,217) (3,888) 12,980 (Increase) decrease in inventories........... 10,708 (16,149) 2,638 (Increase) decrease in other current assets.. 3,483 (2,407) (360) (Increase) decrease in other noncurrent as- sets........................................ (4,465) 1,012 1,675 Increase (decrease) in accounts payable...... 922 (4,464) 4,731 Decrease in other current liabilities........ (1,689) (7,166) (25,009) Decrease in other noncurrent liabilities..... (489) (1,773) (1,211) Increase (decrease) in postretirement em- ployee benefits obligations................. (3,520) (3,472) 14,155 Other, net................................... (1,363) (2,539) 1,437 --------- --------- -------- Total adjustments............................ 21,512 (14,085) 86,553 --------- --------- -------- Net cash provided by (used in) operating ac- tivities.................................... 39,345 (2,994) 31,226 --------- --------- -------- Cash flows from investing activities: Capital expenditures......................... (13,552) (10,835) (7,905) Other, net................................... 177 830 122 Investment in Purodenso...................... (2,000) (2,500) (2,500) --------- --------- -------- Net cash used in investing activities......... (15,375) (12,505) (10,283) --------- --------- -------- Cash flows from financing activities: Proceeds from note payable to Former Parent. -- 67,000 46,000 Payments on note payable to Former Parent... -- (142,044) (63,665) Debt origination costs...................... (272) (2,085) -- Proceeds from stock issuance................ 15,518 21,150 -- Proceeds from long-term debt................ 117,829 71,972 1,842 Payments on long-term debt.................. (147,573) (3,878) (2,911) Dividends paid.............................. (7,176) -- -- --------- --------- -------- Net cash provided by (used in) financing ac- tivities................................... (21,674) 12,115 (18,734) --------- --------- -------- Increase (decrease) in cash and cash equiva- lents...................................... 2,296 (3,384) 2,209 Cash and cash equivalents, beginning of pe- riod....................................... 3,411 6,795 4,586 --------- --------- -------- Cash and cash equivalents, end of period.... $ 5,707 $ 3,411 $ 6,795 ========= ========= ======== Supplemental disclosures of cash flow informa- tion: Interest payments........................... $ 3,125 $ 9,112 $ 8,760 Tax payments................................ 4,818 907 369
The accompanying notes are an integral part of these consolidated financial statements. F-32 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation Effective December 21, 1992, Pennzoil Company ("Pennzoil" or the "Former Parent") together with Purolator Products Company, a Delaware corporation ("Purolator" or the "Company"), sold 10,000,000 shares of common stock of Purolator in concurrent domestic and international public offerings. Purolator did not receive any of the proceeds from the sales of shares held by the Former Parent (8,500,000). As a result of the completion of the offerings, the Former Parent does not own any shares of capital stock of the Company. On January 11, 1993, the Company sold 1,100,000 shares of common stock pursuant to the partial exercise of the over-allotment options granted to the underwriters in connection with the public offerings. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Purolator and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Foreign Currency Translation Foreign currency transactions and financial statements are translated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. Assets and liabilities are translated to U.S. dollars at the current exchange rate at the end of the period. Income and expense accounts are translated using the weighted average exchange rate for the period. Adjustments arising from translation of foreign financial statements are reflected in the cumulative translation adjustment in the equity section of the consolidated balance sheet. Transaction gains and losses are included in net income (loss). The Company enters into forward foreign exchange contracts to hedge the effect of fluctuating currency rates on certain liabilities, such as accounts payable, that are denominated in foreign currencies. The contracts typically provide for the exchange of different currencies at specified future dates and rates. The gain or loss due to the difference between the forward exchange rates of the contracts and current rates offsets in whole or in part the loss or gain on the liabilities being hedged. Inventories Substantially all inventories are reported at cost, using the first-in, first-out (FIFO) method, which is lower than market. Land, Buildings and Equipment Land, buildings and equipment are stated at cost. Depreciation is provided generally on a straight-line basis over the estimated service lives of the respective classes of property. Estimated service lives are as follows:
YEARS ----- Land improvements................................................... 10-35 Leasehold improvements.............................................. 3-30 Buildings and improvements.......................................... 3-66 Machinery and equipment............................................. 3-18
F-33 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Amortization of leasehold improvements is based upon the terms of the respective leases. Maintenance, repairs and betterments, including replacement of minor items of physical properties, are charged to expense; major additions to physical properties are capitalized. The cost of the assets retired or sold is credited to the asset accounts and the related accumulated depreciation is charged to the accumulated depreciation accounts. The gain or loss from sale or retirement of property, if any, is included in net income (loss). Investments Common stock investments in entities in which the Company owns equity interests ranging from 20 percent to 50 percent are accounted for under the equity method, pursuant to which the Company's share of the affiliate's operating results is included in net income (loss). Intangible Assets Intangible assets include goodwill which represents the excess of cost over the amount ascribed to the net assets of ongoing businesses purchased and is being amortized on a straight-line basis over a 40-year period. The cost of internally developed patents is charged to expense as incurred. Purchased patents are amortized over their estimated economic lives. Interest Rate Swap Agreement During 1993, the Company entered into an interest rate swap agreement which involved the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is recorded as an adjustment to interest expense over the life of the agreement. Federal, State and Foreign Income Taxes Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes, which uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its United States subsidiaries are included in the Former Parent's consolidated United States federal income tax returns for the year ended December 31, 1991 and the period from January 1, 1992 through December 21, 1992. The Company and the Former Parent previously entered into a tax sharing agreement ("Tax Sharing Agreement") which was intended to put the Company in the same position with regard to the amount of federal income taxes that it would pay if it filed a separate tax return. The agreement also provided that the Company would be reimbursed by the Former Parent for any tax losses or credits of the Company utilized by the Former Parent consolidated return group. The Tax Sharing Agreement was terminated effective September 30, 1992. The Company received no benefit for federal income tax losses which were generated during the period October 1, 1992 through December 21, 1992. The Company filed a separate federal income tax return for the period from December 22, 1992 through December 31, 1992. F-34 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Capitalized Leases Assets and related obligations under certain long-term leases are capitalized. The related depreciation and the imputed interest expense are charged against income in lieu of lease rental expense. Earnings (Loss) Per Share Earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Stock options have been excluded from the calculations as their dilutive effect is not significant. Cash Flows Information For purposes of the consolidated statements of cash flows, all highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. The effect of changes in foreign exchange rates on cash balances is immaterial. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Short-term Investments: The carrying amount approximates fair value because of the short maturity of those instruments. Notes Receivable: The carrying amount approximates fair value because interest rates are at or close to a reasonable market rate. Long-term Debt: The carrying amount approximates fair value because of the frequent repricing on revolving facilities. Forward Foreign Exchange Contracts: The fair value of forward foreign exchange contracts is estimated by obtaining a quote from a commercial bank. The carrying amount approximates fair value. Interest Rate Swap Agreement: The fair value of the Company's interest rate swap agreement is the estimated amount that the Company would receive or pay to terminate the agreement. Based on a quote from a commercial bank, the carrying amount of the swap agreement approximates the fair value. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentations. These reclassifications have no impact on net income (loss). F-35 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
DECEMBER 31, ------------------------- 1993 1992 ------------ ------------ (EXPRESSED IN THOUSANDS) Trade accounts receivable: Trade receivables................................. $ 72,304 $ 72,124 Less allowances................................... 8,538 8,290 ------------ ------------ Total, net...................................... $ 63,766 $ 63,834 ============ ============ Inventories: Finished goods.................................... $ 41,271 $ 51,442 Work in progress.................................. 7,039 7,375 Raw materials and supplies........................ 27,850 33,124 ------------ ------------ Total........................................... 76,160 91,941 Less reserves..................................... 2,687 4,811 ------------ ------------ Total, net...................................... $ 73,473 $ 87,130 ============ ============ Land, buildings and equipment: Land and improvements............................. $ 6,278 $ 6,292 Leasehold improvements............................ 5,806 5,644 Buildings and improvements........................ 23,752 23,265 Machinery and equipment........................... 69,120 64,817 Construction in progress.......................... 14,878 9,230 ------------ ------------ Total........................................... 119,834 109,248 Less accumulated depreciation and amortization.... 44,283 37,009 ------------ ------------ Total, net...................................... $ 75,551 $ 72,239 ============ ============ Intangible assets: Goodwill (Note 4)................................. $ 127,078 $ 130,308 Other............................................. 5,628 4,436 ------------ ------------ Total........................................... 132,706 134,744 Less accumulated amortization..................... 21,906 18,616 ------------ ------------ Total, net...................................... $ 110,800 $ 116,128 ============ ============ Accrued liabilities: Salaries and wages................................ $ 4,856 $ 4,828 Employee pensions................................. 12,885 5,469 Advertising....................................... 3,100 4,189 Other............................................. 15,268 12,738 ------------ ------------ Total........................................... $ 36,109 $ 27,224 ============ ============ Other noncurrent liabilities: Postretirement employee benefits obligations...... $ 64,280 $ 64,452 Other............................................. 9,465 10,096 ------------ ------------ Total........................................... $ 73,745 $ 74,548 ============ ============
F-36 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Allowance for accounts receivable: Balance, beginning of period................ $ 8,290 $ 10,347 $ 13,032 Provision for losses on receivables......... 1,142 1,604 1,537 Receivables written off, net of recoveries.. (894) (3,661) (4,222) -------- -------- -------- Balance, end of period...................... $ 8,538 $ 8,290 $ 10,347 ======== ======== ======== Allowance for inventories: Balance, beginning of period................ $ 4,811 $ 9,148 $ 7,744 Provision................................... 2,949 3,474 7,811 Inventories written off and other adjust- ments...................................... (5,073) (7,811) (6,407) -------- -------- -------- Balance, end of period...................... $ 2,687 $ 4,811 $ 9,148 ======== ======== ======== Accumulated amortization of intangible assets: Balance, beginning of period................ $ 18,616 $ 13,853 $ 10,388 Provision................................... 3,259 3,519 3,599 Retirements and other....................... 31 1,244 (134) -------- -------- -------- Balance, end of period...................... $ 21,906 $ 18,616 $ 13,853 ======== ======== ========
3. DEBT:
DECEMBER 31, ------------------------- 1993 1992 ------------ ------------ (EXPRESSED IN THOUSANDS) Revolving credit facility with a group of banks, interest at 6.1%................................. $ 10,000 $ 30,000 Term credit agreement with a group of banks, in- terest at 5.6%................................... 31,000 40,000 Capital building lease obligation, payable in quarterly installments ranging from $14,600 to $56,750, including interest, through March 2036.. 2,047 2,129 Other debt and capital lease obligations.......... 167 846 ------------ ------------ 43,214 72,975 Less--current maturities.......................... 4,243 3,936 ------------ ------------ Total long-term amount............................ $ 38,971 $ 69,039 ============ ============
The Company amended its credit facility with a group of banks and Texas Commerce Bank National Association ("TCB"), as agent, (the "Credit Facility") during the fourth quarter of 1993. The amended agreement expands the total funds available under the revolving credit agreement by $20.0 million. The Credit Facility provides the Company with the ability to make individual acquisitions up to $20.0 million without the consent of the lenders under the Credit Facility and up to $45.0 million in the aggregate ("permitted acquisitions"). At December 31, 1993, the Credit Facility provided for a $65.0 million revolving credit facility (the "Revolving Credit Facility") and a $31.0 million term loan (the "Term Loan"). Up to $7.0 million of the Revolving Credit Facility is available for the issuance of letters of credit. The aggregate amount available for borrowing under the Revolving Credit Facility is limited to an amount equal to a specified borrowing base (generally consisting of 80 percent of certain accounts receivable balances and 45 percent of certain inventory balances of the Company and certain subsidiaries, with the inventory portion of the borrowing base not to exceed 50 percent of the borrowing base). At December 31, 1993, the Credit Facility provided for F-37 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) quarterly principal payments on the Term Loan of $1.0 million beginning on March 31, 1994, escalating to $1.44 million on March 31, 1996. The final maturities of the Revolving Credit Facility and the Term Loan are four years and seven years, respectively, from the establishment of the original credit facility ("TCB Credit Facility") on December 14, 1992. Interest on the Revolving Credit Facility is at a variable rate equal to, at the option of the Company, LIBOR plus 1.75 percent, or the agent bank's "base rate" plus one percent. Interest on the Term Loan is at a variable rate equal to, at the option of the Company, LIBOR plus two percent, or the agent bank's "base rate" plus one percent. The interest rates for both the Revolving Credit Facility and the Term Loan are subject to reduction based upon the ratio of the total committed debt under the Credit Facility to the Company's earnings before interest, taxes, depreciation, obsolescence and amortization ("EBITDA"). Borrowings under the Credit Facility are collateralized by liens on substantially all accounts receivable and inventory and certain patents and trademarks of the Company and certain subsidiaries, together with a pledge of all the capital stock of such subsidiaries, and are guaranteed by certain of those subsidiaries. The terms of the Credit Facility require the Company to meet certain financial covenants. The primary financial covenants require that the company maintain (i) net worth; as defined, $175.1 million at December 31, 1993; (ii) a current ratio greater than 1.5-to-1.0; and (iii) a fixed charge coverage ratio greater than 1.25-to-1.0 (1.0-to-1.0 inclusive of dividends). Additionally, certain covenants contained in the Credit Facility, among other things, generally (i) restrict the Company's incurrence of additional indebtedness or contractual contingent obligations to an aggregate of $7.5 million; (ii) prohibit the encumbrance of the Company's assets and the creation of negative pledges; (iii) restrict the transfer of the Company's assets (including dispositions of capital stock of certain of the Company's subsidiaries); (iv) prohibit the Company from engaging in any merger, consolidation or asset disposition transaction (except for disposition of previously scheduled non-producing assets); and (v) limit the Company's investments, other than permitted acquisitions, and extensions of credit in excess of $3.0 million. The Company leases certain of its plant facilities and equipment under capital leases. Lease payments are scheduled to coincide with the liquidation of the related debt obligations of the lessors. Future maturities of long-term debt and the minimum future annual obligations on all capitalized leases in effect as of December 31, 1993 are presented in the table below (expressed in thousands):
AGGREGATE MATURITIES ---------- 1994.............................................................. $ 4,358 1995.............................................................. 4,249 1996.............................................................. 15,987 1997.............................................................. 5,987 1998.............................................................. 5,985 Thereafter........................................................ 8,820 ------- Total future maturities and minimum payments...................... 45,386 Less--amount representing interest on capital leases.............. 2,172 ------- Future maturities and present value of net minimum payments....... 43,214 Less--current portion............................................. 4,243 ------- $38,971 =======
At December 31, 1993, the Company had available revolving credit facilities aggregating $67.3 million with $10.1 million drawn under these facilities. F-38 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As required by the Credit Facility, the Company entered into an interest rate agreement during 1993 to effectively fix or place a limit upon the interest payable with respect to at least 50% of the principal amount of the Term Loan. At December 31, 1993, the Company had outstanding an interest rate swap agreement with a commercial bank. Under the interest rate swap agreement, the Company pays an effective fixed interest rate of approximately 6.7% on a notional principal amount of $17.0 million. The agreement expires in 1996. 4. INCOME TAXES: Income (loss) before income taxes and equity in income (loss) of affiliates consists of the following:
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 ------- ------- -------- (EXPRESSED IN THOUSANDS) Domestic......................................... $15,988 $ 9,352 $(37,005) Foreign.......................................... (169) (1,022) (575) ------- ------- -------- Total........................................ $15,819 $ 8,330 $(37,580) ======= ======= ========
Federal, state and foreign income tax provision (benefit) consists of the following:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Current: U.S. federal and state...................... $ 7,516 $ (2,555) $ (1,610) Foreign..................................... 461 589 595 -------- -------- -------- Total current provision (benefit)......... $ 7,977 $ (1,966) $ (1,015) ======== ======== ======== Deferred: U.S. federal and state...................... $(7,516) -- -- Foreign..................................... -- -- -- -------- -------- -------- Total deferred benefit.................... $ (7,516) -- -- ======== ======== ======== Total provision (benefit)..................... $ 461 $ (1,966) $ (1,015) ======== ======== ========
A reconciliation of federal statutory and effective income tax rates is shown below:
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 ------- ------- ------- STATUTORY RATE................................. 35.0% 34.0 % (34.0)% INCREASES (REDUCTIONS) RESULTING FROM: Nonrecognition of deferred tax assets........ -- (58.7) 25.5 Recognition of previously reserved tax as- sets........................................ (41.2) -- -- Reimbursed tax losses from Former Parent..... -- (31.0) 3.1 Amortization of goodwill..................... 6.1 12.9 2.1 State income taxes........................... -- 1.9 0.1 Foreign income and losses.................... 0.8 3.9 2.5 Foreign income taxes......................... 2.5 6.5 1.1 Other, net................................... (0.7) 8.9 (2.2) ------- ------- ------- EFFECTIVE RATE................................. 2.5% (21.6)% (1.8)% ======= ======= =======
F-39 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company adopted SFAS No. 109, Accounting for Income Taxes, effective January 1, 1993. There was no cumulative effect of adopting SFAS No. 109 on net income for the year ended December 31, 1993. Deferred income taxes reflect the net tax effects of (i) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (ii) operating loss and tax credit carryforwards. The effects of significant items comprising the Company's net deferred tax asset are as follows:
DECEMBER 31, JANUARY 1, 1993 1993 ------------- ------------ (EXPRESSED IN THOUSANDS) Deferred tax liabilities: Fixed asset basis differences.............. $ (6,235) $ (6,156) Other...................................... (8,265) (8,260) ------------ ------------ Total deferred tax liabilities........... (14,500) (14,416) ------------ ------------ Deferred tax assets: Postretirement employee benefits obliga- tions..................................... $ 25,985 $ 26,004 Environmental reserve not currently deduct- ible...................................... 3,431 3,644 Inventory capitalization under Section 263A of the Internal Revenue Code.............. 3,108 3,506 Reserves not currently deductible.......... 9,119 9,887 Additional minimum pension liability....... 4,158 -- Other...................................... 13,362 11,609 ------------ ------------ Total deferred tax assets................ 59,163 54,650 Valuation allowance for deferred tax assets.. (37,147) (40,234) ------------ ------------ 22,016 14,416 ------------ ------------ Net deferred tax asset................... $ 7,516 $ -- ============ ============
Due to its recent history of losses, the Company applied valuation allowances against all of its net deferred tax assets as of January 1, 1993. The net change of $3.1 million in the valuation allowance was attributable to (i) current year temporary differences, (ii) federal and state current income taxes paid or payable, and (iii) utilization of pre-acquisition net operating loss carryforwards to reduce goodwill. At December 31, 1993, the Company had net operating loss carryforwards of $3.4 million available to offset future federal taxable income. The net operating loss carryforwards expire as follows: $1.1 million in 2003 and $2.3 million in 2004. The future utilization of these net operating loss carryforwards will result in a reduction of goodwill. The Company has net state operating loss carryforwards of $14.5 million available to offset future state taxable income. The state net loss carryforwards begin to expire in 1999. 5. BENEFIT PLANS: Stock Option Plans In November 1992, the Company established the 1992 Stock Option Plan ("1992 Plan"). Awards under the 1992 Plan are to be made to those persons who hold positions of responsibility and whose performance can have a significant effect on the success of the Company and its subsidiaries. An award consists of an option to purchase a specified number of shares of common stock at a specified price that is not less than the fair market value of the common stock on the date of grant of the option. All options granted under the 1992 Plan are ten- year non-qualified options and become exercisable in 33 1/3% increments on each of the first, F-40 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) second and third anniversaries of the date of grant. The Company has reserved 387,500 shares of common stock for awards made under the 1992 plan. In May 1993, the stockholders approved the 1993 Nonemployee Director Stock Option Plan ("1993 Plan"). The 1993 Plan is intended as an incentive to attract and retain, as independent directors of the Company, persons of training, experience and ability, to encourage the sense of proprietorship of such persons and to stimulate their active interest in the development and financial success of the Company. Under the 1993 Plan, nonemployee members of the Company's board of directors receive nondiscretionary automatic grants of non- qualified options to purchase 500 shares of common stock upon becoming a director of the Company (persons who were serving as nonemployee directors as of May 20, 1993, the date of implementation of the plan, were granted their 500 share options as of that date). In addition, beginning in 1994, each person serving as a nonemployee director on January 1 of each calendar year will automatically be granted options to purchase an additional 1,000 shares of common stock, subject to the availability for issuance of such shares under the 1993 Plan. All options granted under the 1993 Plan have an exercise price equal to the fair market value of the underlying common stock on the date of the grant and become exercisable in increments of 50% on the first anniversary of the date of grant and 25% on each of the second and third anniversaries of the date of grant. The Company has reserved 50,000 shares of common stock for awards made under the 1993 Plan. Long-Term Incentive Plan In February 1994, the Company adopted the 1994 Long-Term Incentive Plan ("1994 Plan"). The 1994 Plan is intended to provide an incentive that will allow the Company to retain key executives and other selected employees and reward them for making major contributions to the success of the Company and its subsidiaries. Awards that can be made under the 1994 Plan include (i) stock options (both non-qualified stock options and incentive stock options); (ii) stock appreciation rights; (iii) stock; and (iv) cash. The exercise price of stock options granted under the 1994 Plan may not be less than the par value of the underlying common stock on the date of grant of the option. The Company has reserved 500,000 shares of common stock for awards granted under the 1994 Plan. All awards made under the 1994 Plan for the year ended December 31, 1993 were in the form of non-qualified stock options with exercise prices equal to the fair market value of the underlying stock on the date of grant. The number and option price of options granted under the Company's stock option plans and long-term incentive plan were as follows:
NUMBER OF PRICE PER SHARES SHARE --------- --------- Outstanding at January 1, 1992..................... -- -- Granted.......................................... 287,000 $15.00 Exercised........................................ -- -- Cancelled........................................ -- -- ------- -------------- Outstanding at December 31, 1992................... 287,000 $15.00 Granted.......................................... 132,430 $17.75--$19.75 Exercised........................................ -- -- Cancelled........................................ (4,910) $15.00 ------- -------------- Outstanding at December 31, 1993................... 414,520 $15.00--$19.75 ======= ============== Exercisable at December 31, 1993................... 94,030 $15.00 ======= ==============
F-41 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Shares of common stock reserved for future grants at December 31, 1993 and 1992 were 522,980 and 100,500, respectively. Deferred Compensation Plan In November 1993, the Company adopted the Deferred Compensation Plan (the "Plan") as an incentive for certain employee directors, officers and other key employees of the Company or its subsidiaries to encourage them to remain in the employ of the Company or of its subsidiaries. The Plan, which is treated as an unfunded non-qualified deferred compensation plan, enables eligible employees to defer the receipt of a portion of their compensation for a fixed period of years, until their employment terminates. Participants' account balances are valued at the greater of the share value or the dollar value, as defined in the Plan. The share value of a participant's account balance is the market value of the number of shares of common stock that could have been purchased by the participant with the deferral amounts, including dividend reinvestment. The dollar value represents the value of the deferral amounts adjusted for compound interest that would have been earned on the deferral amounts assuming allocation of interest at the Applicable Interest Rate established quarterly by the Internal Revenue Service. The Company accrued no additional compensation expense related to the Plan for the year ended December 31, 1993. Retirement Plans The Company and certain of its subsidiaries maintain three noncontributory defined benefit pension plans (the Employees' Pension Plan, the Hourly Employees' Pension Plan, and the Retirement Plan for Employees of UAW Local 604, Elmira, NY, the ("Elmira Plan") covering certain salaried and hourly employees, former employees and retirees. Under these plans, the Company contributes an amount equal to or greater than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 as amended, ("ERISA"), where applicable, but not in excess of the maximum amount that can be deducted for federal income tax purposes. Benefits under the Employees' Pension Plan are generally based on the employees' years of service and compensation during years of service. Benefits under the Hourly Employees' Pension Plan are generally based on years of service multiplied by a specified dollar amount. The Company previously maintained a defined contribution plan, the Hourly Employees' Target Benefit Plan (the "Target Plan"), and a defined benefit plan, the Hourly Employees' Supplemental Retirement Plan (the "Supplemental Plan"). The Target Plan covered the current hourly employees of the Motor Components Division of the Automotive Products Segment and the former hourly employees of the Motor Components, Filter Products and Fuel Devices Divisions who previously were covered by a collective bargaining agreement with the United Automotive Workers Union. The Supplemental Plan covered employees and former employees who were participants of a defined benefit pension plan (the "Terminated Hourly Plan") that was terminated by the Company in 1980 under the provisions of ERISA. The Target Plan and Supplemental Plan were adopted in connection with the termination of the Terminated Hourly Plan. Under the Target Plan, the Company was obligated to make periodic contributions to a trust fund based on each covered employee's credited hours of service to the Company. The Supplemental Plan provided that the Company make periodic contributions sufficient to fund benefits equal to the benefits that retirees (or their spouses) would have received had the Terminated Hourly Plan not been terminated, less the sum of the amounts paid to such persons (i) by the Pension Benefit Guaranty Corporation with respect to the Terminated Hourly Plan and (ii) all amounts paid under the Target Plan. Effective April 15, 1992, the Supplemental and Target Plans were combined into a single defined benefit plan which is the Elmira Plan. F-42 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net periodic pension cost includes the following components:
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 ------- ------- -------- (EXPRESSED IN THOUSANDS) Service cost--benefits earned during the peri- od............................................ $ 1,793 $ 1,531 $ 1,364 Interest cost of projected benefit obligations. 4,317 4,079 3,874 Actual return on plan assets................... (4,744) (4,417) (12,044) Net amortization and deferral.................. 264 167 8,295 ------- ------- -------- Net periodic pension cost.................. $ 1,630 $ 1,360 $ 1,489 ======= ======= ========
The funded status of the defined benefit plans as of December 31, 1993 and 1992 is reconciled to prepaid pension cost (pension liability) as follows:
DECEMBER 31, 1993 DECEMBER 31, 1992 --------------------------- --------------------------- PLANS WHERE PLANS WHERE PLANS WHERE PLANS WHERE ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ------------- ------------- ------------- ------------- (EXPRESSED IN THOUSANDS) ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obliga- tion................. $-- $ 53,394 $41,914 $ 5,170 ======== ======= ======= Accumulated benefit obligation........... -- $ 55,570 $43,538 $ 6,957 ======== ======= ======= Projected benefit ob- ligation............. -- $ 60,299 $48,904 $ 7,145 Plan assets at fair value................ -- 42,932 45,947 1,488 -------- ------- ------- Projected benefit ob- ligation (in excess of) less than plan assets............... -- (17,367) (2,957) (5,657) Unrecognized prior service cost......... -- 1,008 (688) 1,843 Unrecognized net loss. -- 16,851 7,079 1,075 Minimum liability ad- justment............. -- (13,377) -- (2,730) ---- -------- ------- ------- Prepaid pension cost (pension liability) recognized in the consolidated balance sheet................ $-- $(12,885) $ 3,434 $(5,469) ==== ======== ======= =======
Assumptions used were:
YEAR ENDED DECEMBER 31, ------------------------ 1993 1992 1991 ------------------------ Discount rate...................................... 7.5% 8.5% 8.5% Expected long-term rate of return on plan assets... 10.0% 10.0% 10.0% Weighted average rates of increase in compensation levels............................................ 4.5% 6.0% 4.5%-6.0%
Savings Plan The Company has a voluntary savings and investment plan available to substantially all non-union employees. Employee contributions of not less than one percent of the employee's salary to not more than eight percent are matched 75 percent by the Company. The cost of the Company's contributions was $1.9 million, $1.8 million and $1.4 million for the years ended December 31, 1993, 1992 and 1991, respectively. F-43 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Postretirement Health Care and Life Insurance Benefits The Company provides health care and life insurance benefits to certain retirees. Health care coverage includes medical costs as well as prescription drugs. During 1991, the Company changed its method of accounting for postretirement benefit costs other than pensions by adopting the requirements of SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective as of January 1, 1991. As a result, the Company recorded a charge of $17.3 million to reflect the cumulative effect of the change in accounting principle for periods prior to 1991. Net periodic postretirement benefit cost includes the following components:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Service cost--benefits attributed to service during the period............................ $ 473 $ 548 $ 469 Interest cost on accumulated postretirement benefit obligation........................... 3,548 4,773 5,458 Amortization of accumulated gains............. (673) (808) -- -------- -------- -------- Net periodic postretirement benefit cost...... $ 3,348 $ 4,513 $ 5,927 ======== ======== ========
The following table sets forth the plans' combined status reconciled with the amounts included in the consolidated balance sheets:
DECEMBER 31, ------------------------- 1993 1992 ------------ ------------ (EXPRESSED IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees........................................ $ 47,110 $ 45,077 Fully eligible active plan participants......... 5,511 1,161 Other active plan participants.................. 6,571 6,144 ------------ ------------ Total accumulated postretirement benefit obliga- tion........................................... 59,192 52,382 Unrecognized net gain from past experience dif- ferences....................................... 5,088 12,070 ------------ ------------ Accrued postretirement benefit cost............. $ 64,280 $ 64,452 ============ ============
None of the future annual benefits of plan participants is covered by insurance contracts issued by the Company or a related party. For measurement purposes, an 11 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994; the rate was assumed to decrease gradually to six percent through the year 1999 and to remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amount of the obligation and the periodic cost reported. An increase in the assumed health care cost trend rates by one percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993 by $6.0 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $0.5 million. The weighted average discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1993, 1992 and 1991 was 7.5 percent, 8.0 percent and 8.5 percent, respectively. F-44 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Postemployment Benefits In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, Employers' Accounting for Postemployment Benefits, which requires accrual accounting for postemployment benefits, such as disability benefits, instead of recognizing an expense for those benefits when paid. The Company currently is accumulating the data necessary to comply with the new rules. Adoption of SFAS No. 112 using the cumulative effect method is required in the first quarter of 1994. Based on preliminary estimates, the cumulative effect of the accounting change at January 1, 1994 is expected to range from approximately $5.4 million to approximately $7.4 million. The Company does not expect 1994 postemployment expense under the new rules to differ significantly from postemployment expense that would have been recognized under the pay-as-you-go basis of accounting. 6. OPERATING LEASES: Certain properties and equipment are leased for varying periods under long- term, noncancellable agreements which are renewable in many instances. The total rent expense amounted to $8.17 million, $8.04 million and $8.17 million for the years ended December 31, 1993, 1992 and 1991, respectively. The approximate annual minimum rentals under all noncancellable operating leases as of December 31, 1993 are as follows (expressed in thousands): 1994.............................................................. $ 6,918 1995.............................................................. 5,325 1996.............................................................. 4,756 1997.............................................................. 2,495 1998.............................................................. 723 Thereafter........................................................ 752 ------- $20,969 =======
7. NONRECURRING CHARGES: During the third quarter of 1991, the Company recorded provisions against income to reflect losses due to certain identified liabilities and asset impairments. In the fourth quarter of 1992, the Company recorded a charge related to compensation of a key executive under the terms of an employment contract. The following is a summary of the charges provided for (expressed in thousands):
YEAR ENDED DECEMBER 31, ------------------------- 1993 1992 1991 --------------- --------- Executive compensation............................. $-- $ 2,888 $ -- Reserve for environmental costs (see Note 8)....... -- -- 26,480 Other write-downs and charges...................... -- -- 13,500 ------ -------- --------- $-- $ 2,888 $ 39,980 ====== ======== =========
8. COMMITMENTS AND CONTINGENCIES: The Company had a remaining reserve of approximately $8.5 million at December 31, 1993 for estimated cleanup and compliance costs at certain waste disposal areas, including those in which it has been alleged that the Company is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, or similar state legislation. Included in these sites is a plant operated by the Company in Elmira, New York (the "Elmira Facility") that is the subject F-45 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of an Environmental Protection Agency ("EPA") Record of Decision dated September 4, 1992 (the "Elmira ROD") which delineates the actions to be taken to remediate the contamination specified in the Elmira ROD. The Company and the Former Parent have entered into an indemnification agreement, which became effective December 14, 1992, with respect to the Elmira Facility. Under the agreement, the Former Parent has agreed to reimburse the Company for costs and expenses of certain remediation required by the Elmira ROD and indemnify the Company against necessary costs and expenses of certain remediation activities at one other site located near the Elmira Facility and at a landfill site in Metamora, Michigan. The indemnification provided by the Former Parent with respect to the Elmira Facility will apply to all remediation required by the Company under CERCLA that had been identified as of the date of the indemnification agreement at the Elmira Facility, but will not extend to certain additional environmental expenditures relating to the Elmira Facility or other sites for which the Company is or may be held responsible. In connection with the indemnification, the Company reduced its accrual for environmental costs and credited additional paid-in capital for $17.7 million. Management believes the accrual for environmental costs at December 31, 1993 is adequate. The Company is a defendant in certain other litigation arising out of operations in the normal course of business and is aware of certain litigation threatened against the Company from time to time. In the opinion of management, none of the other pending or threatened lawsuits and proceedings should have a material adverse effect on the consolidated financial position or results of operations of the Company. 9. INVESTMENT IN PURODENSO: In 1989, the Automotive Products Segment formed the Purodenso manufacturing joint venture with a unit of Nippondenso of Japan (with each joint venturer owning a 50% interest) to exploit the combined engineering and technological abilities of the two companies. Purodenso supplies highly specialized automotive filters and injection molded filter housings to the Company for distribution to domestic Original Equipment Manufacturers ("OEMs"), U.S. manufacturing plants of Japanese OEM companies and the aftermarket. The selected financial data presented below as of the dates and for the periods indicated are derived from the audited financial statements of Purodenso.
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Income Statement Data: Net sales..................................... $ 57,408 $ 41,019 $ 23,554 Cost of sales................................. 51,972 38,143 24,771 -------- -------- -------- Gross profit.................................. $ 5,436 $ 2,876 $ (1,217) ======== ======== ======== Net income.................................... $ 3,672 $ 1,041 $ (2,806) ======== ======== ======== Balance Sheet Data (at end of period): Current assets................................ $ 10,671 $ 7,037 $ 5,704 Noncurrent assets............................. 22,904 21,117 21,159 Current liabilities........................... 12,602 14,853 19,603 Partners' equity.............................. 20,973 13,301 7,260
F-46 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. DETAILS TO CONSOLIDATED STATEMENTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Expenses Included in Other Categories: Maintenance and repairs........................ $ 8,521 $ 7,217 $ 7,518 Depreciation and amortization of land improvements, buildings and equipment......... 10,308 11,132 11,133 Amortization of goodwill and other intangibles. 3,259 3,519 3,599 Taxes, other than payroll and federal, state and foreign income taxes: Real and personal property................... 1,156 1,031 1,103 Miscellaneous................................ 664 468 553 Rents.......................................... 8,173 8,040 8,168 Advertising costs.............................. 12,404 13,408 11,956 Research and development costs................. 745 341 429
11. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
1992 -------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) 1992 Net sales.................... $ 102,302 $ 105,284 $ 108,495 $ 101,807 $ 417,888 Cost of sales................ 79,183 79,340 82,693 77,291 318,507 --------- --------- --------- --------- --------- Gross profit................. $ 23,119 $ 25,944 $ 25,802 $ 24,516 $ 99,381 ========= ========= ========= ========= ========= Net income (loss)............ $ 1,725 $ 4,717 $ 4,738 $ (89) $ 11,091 ========= ========= ========= ========= ========= Earnings (loss) per share.... $ 0.20 $ 0.55 $ 0.56 $ (0.01) $ 1.29 ========= ========= ========= ========= ========= 1993 -------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 Net sales.................... $ 107,812 $ 109,287 $ 112,993 $ 105,729 $ 435,821 Cost of sales................ 83,065 82,381 87,016 81,026 333,488 --------- --------- --------- --------- --------- Gross profit................. $ 24,747 $ 26,906 $ 25,977 $ 24,703 $ 102,333 ========= ========= ========= ========= ========= Net income................... $ 2,651 $ 5,119 $ 5,348 $ 4,715 $ 17,833 ========= ========= ========= ========= ========= Earnings per share........... $ 0.24 $ 0.46 $ 0.48 $ 0.42 $ 1.59 ========= ========= ========= ========= =========
F-47 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. BUSINESS SEGMENT INFORMATION:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Net Sales: Automotive Products............................ $321,271 $301,077 $286,364 Air Filtration Products........................ 57,082 55,055 52,898 Separation Systems............................. 41,416 44,237 43,501 Filter Products................................ 16,052 17,519 18,927 -------- -------- -------- $435,821 $417,888 $401,690 ======== ======== ======== Operating Income (Loss): Automotive Products............................ $ 20,964 $ 18,189 $(21,354) Air Filtration Products........................ 4,795 4,316 2,989 Separation Systems............................. 2,691 1,448 1,801 Filter Products................................ 906 2,367 3,130 Corporate...................................... (11,600) (13,176) (17,278) -------- -------- -------- $ 17,756 $ 13,144 $(30,712) ======== ======== ======== Identifiable Assets: Automotive Products............................ $254,510 $257,784 $244,427 Air Filtration Products........................ 34,503 32,973 32,831 Separation Systems............................. 26,348 28,828 33,295 Filter Products................................ 16,494 17,198 16,586 Corporate...................................... 27,212 27,683 24,211 -------- -------- -------- $359,067 $364,466 $351,350 ======== ======== ======== Capital Expenditures: Automotive Products............................ $ 12,058 $ 8,847 $ 6,158 Air Filtration Products........................ 485 450 343 Separation Systems............................. 587 1,040 964 Filter Products................................ 350 483 397 Corporate...................................... 72 15 43 -------- -------- -------- $ 13,552 $ 10,835 $ 7,905 ======== ======== ======== Depreciation and Amortization: Automotive Products............................ $ 9,942 $ 11,056 $ 11,048 Air Filtration Products........................ 1,370 1,280 1,273 Separation Systems............................. 949 994 1,083 Filter Products................................ 536 506 459 Corporate...................................... 770 815 869 -------- -------- -------- $ 13,567 $ 14,651 $ 14,732 ======== ======== ======== Equity in Income (Loss) of Affiliates: Automotive Products............................ $ 1,893 $ 489 $ (1,428) Air Filtration Products........................ -- -- -- Separation Systems............................. 19 62 (17) Filter Products................................ -- -- -- Corporate...................................... 563 244 -- -------- -------- -------- $ 2,475 $ 795 $ (1,445) ======== ======== ========
F-48 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOREIGN AND DOMESTIC OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------- 1993 1992 1991 -------- -------- -------- (EXPRESSED IN THOUSANDS) Net Sales: Domestic........................................ $400,482 $383,058 $359,703 Foreign......................................... 35,339 34,830 41,987 -------- -------- -------- $435,821 $417,888 $401,690 ======== ======== ======== Operating Income (Loss): Domestic........................................ $ 17,530 $ 14,422 $(31,264) Foreign......................................... 226 (1,278) 552 -------- -------- -------- $ 17,756 $ 13,144 $(30,712) ======== ======== ======== Identifiable Assets: Domestic........................................ $334,491 $339,857 $315,956 Foreign......................................... 24,576 24,609 35,394 -------- -------- -------- $359,067 $364,466 $351,350 ======== ======== ======== Capital Expenditures: Domestic........................................ $ 13,235 $ 10,612 $ 7,263 Foreign......................................... 317 223 642 -------- -------- -------- $ 13,552 $ 10,835 $ 7,905 ======== ======== ======== Depreciation and Amortization: Domestic........................................ $ 13,168 $ 14,135 $ 13,838 Foreign......................................... 399 516 894 -------- -------- -------- $ 13,567 $ 14,651 $ 14,732 ======== ======== ======== Equity in Income (Loss) of Affiliates: Domestic........................................ $ 2,475 $ 795 $ (1,445) Foreign......................................... -- -- -- -------- -------- -------- $ 2,475 $ 795 $ (1,445) ======== ======== ========
One customer accounted for 14 percent of the Company's net sales in the years ended December 31, 1993, 1992 and 1991. These sales were made from the Automotive Products Segment. 13. CONCENTRATIONS OF CREDIT RISK: The Company extends credit to various companies in the retail, wholesale/distributor, original equipment and export markets in the normal course of business. Within these markets, certain concentrations of credit risk exist. These concentrations of credit risk may be similarly affected by changes in economic or other conditions and may, accordingly, impact the Company's overall credit risk. However, management believes that consolidated receivables are well diversified, thereby reducing potential credit risk to the Company, and that allowances for doubtful accounts are adequate to absorb estimated losses at December 31, 1993. F-49 PUROLATOR PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) At December 31, 1993 and 1992, trade receivables related to these group concentrations were:
DECEMBER 31, ------------------------- 1993 1992 ------------ ------------ (EXPRESSED IN THOUSANDS) Retail.......................................... $28,796 $28,326 Wholesalers/Distributors........................ 26,349 23,365 Original Equipment.............................. 8,994 10,962 Export.......................................... 5,865 5,687 Other........................................... 2,300 3,784 ------------ ------------ Total........................................... $72,304 $72,124 ============ ============
14. SUBSEQUENT EVENT: In January 1994, the Company made the decision to shut down the fiberglass manufacturing process of the Air Filtration Products Segment's Henderson, North Carolina plant, effective on or about April 15, 1994, in favor of purchasing fiberglass from outside sources. The Company will reserve approximately $950,000 in the first quarter of 1994 for the costs associated with shutting down the process. There are no plans at the present time that would adversely impact the remaining operations at the Henderson, North Carolina plant. F-50 PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1994 1993 -------- -------- Net sales................................................... $354,624 $330,092 Cost of sales............................................... 270,543 252,462 -------- -------- Gross profit.............................................. 84,081 77,630 Selling, general and administrative expenses................ 66,289 64,366 Process shutdown charge..................................... 718 -- -------- -------- Operating income.......................................... 17,074 13,264 Interest expense............................................ 3,026 3,167 Other income................................................ 1,148 1,654 -------- -------- Income before income taxes and equity in income of affili- ates..................................................... 15,196 11,751 Income tax provision........................................ 948 380 Equity in income of affiliates.............................. 2,443 1,747 -------- -------- Income before cumulative effect of change in accounting principle................................................ 16,691 13,118 Cumulative effect of change in accounting principle......... (6,535) -- -------- -------- Net income.................................................. $ 10,156 $ 13,118 ======== ======== Earnings per share: Income before cumulative effect of change in accounting principle................................................ $ 1.50 $ 1.17 Cumulative effect of change in accounting principle....... (0.59) -- -------- -------- Net income.............................................. $ 0.91 $ 1.17 ======== ======== Dividends per common share.................................. $ 0.48 $ 0.48 ======== ======== Weighted average shares outstanding......................... 11,125 11,172 ======== ========
See notes to condensed consolidated financial statements. F-51 PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (EXPRESSED IN THOUSANDS)
SEPTEMBER 30, 1994 ------------- ASSETS Current assets: Cash and cash equivalents...................................... $ 9,557 Trade accounts receivable, net................................. 78,760 Inventories, net............................................... 73,145 Other current assets........................................... 14,733 -------- Total current assets......................................... 176,195 Land, buildings and equipment, net............................... 78,765 Investments...................................................... 14,048 Intangible assets, net........................................... 108,265 Other assets..................................................... 11,533 -------- Total assets................................................. $388,806 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt........................... $ 4,388 Accounts payable............................................... 41,542 Accrued liabilities............................................ 42,618 -------- Total current liabilities.................................... 88,548 Long-term debt, less current maturities.......................... 43,647 Other noncurrent liabilities..................................... 78,929 Stockholders' equity: Common stock, $0.01 par value per share, 30,000,000 shares au- thorized, 11,095,674 and 11,212,500 shares issued and out- standing...................................................... 111 Other stockholders' equity..................................... 177,571 -------- Total stockholders' equity................................... 177,682 -------- Total liabilities and stockholders' equity................... $388,806 ========
See notes to condensed consolidated financial statements. F-52 PUROLATOR PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (EXPRESSED IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1994 1993 --------- --------- Cash flows from operating activities: Net income............................................. $ 10,156 $ 13,118 Adjustments to reconcile net income to net cash pro- vided by operating activities: Depreciation and amortization......................... 10,315 10,128 Cumulative effect of change in accounting principle... 6,535 -- Process shutdown charge............................... 718 -- Other noncash charges................................. 4,440 4,507 Change in operating assets and liabilities: Increase in receivables.............................. (16,045) (10,464) (Increase) decrease in inventories................... (1,965) 8,879 Increase in accounts payable......................... 9,155 1,749 Other, net............................................ (3,903) (2,839) --------- --------- Total adjustments.................................... 9,249 11,960 --------- --------- Net cash provided by operating activities........... 19,405 25,078 --------- --------- Cash flows from investing activities: Capital expenditures................................... (11,368) (9,434) Investment in Purodenso................................ 250 (2,000) Other, net............................................. (809) 383 --------- --------- Net cash used in investing activities............... (11,927) (11,051) --------- --------- Cash flows from financing activities: Proceeds from stock issuance........................... 63 15,475 Proceeds from long-term debt........................... 121,236 89,789 Payments on long-term debt............................. (117,506) (111,438) Dividends paid......................................... (5,345) (5,382) Other, net............................................. (2,076) (250) --------- --------- Net cash used in financing activities............... (3,628) (11,806) --------- --------- Increase in cash and cash equivalents.................. 3,850 2,221 Cash and cash equivalents, beginning of period......... 5,707 3,411 --------- --------- Cash and cash equivalents, end of period............... $ 9,557 $ 5,632 ========= =========
See notes to condensed consolidated financial statements. F-53 PUROLATOR PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) GENERAL-- The condensed consolidated financial statements included herein have been prepared by Purolator Products Company (the "Company") without audit and should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. The foregoing financial statements include only normal recurring accruals and all adjustments which the Company considers necessary for a fair presentation. (2) DETAIL TO CONDENSED CONSOLIDATED BALANCE SHEETS--(EXPRESSED IN THOUSANDS)
SEPTEMBER 30, 1994 ------------- Inventories: Finished goods............................................ $41,306 Work in progress.......................................... 7,506 Raw materials and supplies................................ 28,659 ------- Total................................................... 77,471 Less reserves............................................. 4,326 ------- Total, net.............................................. $73,145 =======
(3) REPURCHASE OF COMMON STOCK-- On February 25, 1994, the Company was authorized to repurchase as many as approximately 560,000 common shares, or five percent of its common stock outstanding as of that date. During the nine months ended September 30, 1994, the Company repurchased 121,000 common shares. (4) POSTEMPLOYMENT BENEFITS-- The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. SFAS No. 112 requires accrual accounting for postemployment benefits, such as disability benefits, instead of recognizing an expense for those items when paid. The Company recorded a charge of $6.5 million in the first quarter of 1994 to reflect the cumulative effect of the change in accounting principle for periods prior to 1994. The Company does not expect 1994 postemployment expense under the new rules to differ significantly from postemployment expense that would have been recognized under the pay-as-you-go basis of accounting. (5) PRO FORMA EARNINGS PER SHARE-- As a result of adopting SFAS No. 109, Accounting for Income Taxes, effective January 1, 1993, the Company expects to report only foreign income tax expense through December 31, 1994. Therefore, the effective income tax rates for the nine months ended September 30, 1994 and 1993 were substantially below the 35% statutory U.S. income tax rate. Previously unrecognized tax benefits have been recognized in the balance sheet to the extent of U.S. federal and state income taxes paid or payable and the utilization of net operating loss carryforwards. The table below sets forth a pro forma representation of earnings per share based on the following assumptions and adjustments: (a) a 45 percent combined federal, state and foreign tax rate; (b) a constant level of shares outstanding (11,095,674 shares issued and outstanding as of September 30, 1994); (c) exclusion of the cumulative effect of a change in accounting principle; and (d) exclusion of the F-54 PUROLATOR PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) process shutdown charge recorded in the first quarter of 1994 as the result of the Company's decision to shut down the fiberglass manufacturing process of the Air Filtration Products Segment's Henderson, North Carolina plant in favor of purchasing fiberglass from outside sources.
NINE MONTHS ENDED SEPTEMBER 30, ------------- 1994 1993 ------ ------ Pro forma earnings per share............................... $ 0.91 $ 0.67 ====== ======
(6) SUBSEQUENT EVENTS-- On October 3, 1994, Mark IV Industries, Inc. ("Mark IV"), and its wholly owned subsidiary, Mark IV Acquisition Corp. (the "Purchaser"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with the Company. Pursuant to the Merger Agreement, which was unanimously approved by the Company's Board of Directors, the Purchaser commenced a tender offer (the "Offer") for all outstanding shares of the Company's common stock (and associated preferred stock purchase rights), at a price of $25.00 net per share in cash to the seller. Prior to the commencement of the Offer, Mark IV beneficially owned 520,500 shares of the Company's common stock (4.69% of the Company's outstanding common stock), which shares were acquired by Mark IV in open market transactions. Upon the expiration of the Offer on November 4, 1994, the Purchaser had accepted for payment 10,236,000 shares of the Company's common stock, which, when combined with the shares already owned by Mark IV, resulted in the Purchaser's ownership of approximately 96.9% of the Company's outstanding common stock. As a result of the Purchaser acquiring in excess of 90% of the Company's outstanding common stock, and as provided for in the Merger Agreement, it is anticipated that the Purchaser will be merged with the Company by November 30, 1994 (the "Merger"). In the Merger, each share of the Company's common stock (other than shares held by Mark IV and its subsidiaries and those shares held by stockholders who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $25.00 per share in cash. Upon the consummation of the Merger, the holders of outstanding options to acquire common stock of the Company, which options were granted by the Company under its non-qualified stock option plans, will be offered the opportunity to elect either: to have the outstanding Purolator options assumed by Mark IV and amended to become options to purchase common stock of Mark IV; or to receive a cash payment in settlement of each Purolator option in an amount equal to $25.00 minus the exercise price per share of the Purolator option, multiplied by the number of shares of Purolator common stock subject to such Purolator option. As a result of the tender of a majority of the Company's stock to the Purchaser, effective November 7, 1994, the Company's credit facility with a group of banks and Texas Commerce Bank National Association ("TCB"), as agent, was terminated and the outstanding amounts owed thereunder were paid from the proceeds of a replacement credit facility provided by TCB under a $44,000,000 note due on demand or within 30 days ("Bridge Note"). All collateral securing the previous credit agreement has been assigned as security for the Bridge Note. On November 8, 1994, as a result of the completion of the Offer, the Company announced that five of its seven directors resigned and were replaced by four nominees of Mark IV. F-55 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM- PANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMA- TION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------- TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 2 Prospectus Summary........................................................ 3 Use of Proceeds........................................................... 6 Price Range of Common Stock and Dividend Policy........................... 6 Capitalization............................................................ 7 Selected Financial Information............................................ 8 Pro Forma Financial Information........................................... 9 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 13 Business.................................................................. 18 Management................................................................ 26 Principal Securityholders................................................. 27 Underwriting.............................................................. 29 Legal Matters............................................................. 30 Experts................................................................... 30 Index to Consolidated Financial Statements................................ F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6,000,000 SHARES MARK IV INDUSTRIES INC COMMON STOCK --------------- PROSPECTUS --------------- BEAR, STEARNS & CO. INC. DECEMBER , 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The fees and expenses in connection with the issuance and distribution of the securities being registered hereunder, other than underwriting discounts and commissions, are estimated as follows: Securities and Exchange Commission registration fee............ $49,667.16 National Association of Securities Dealers, Inc. filing fee.... 14,903.38 New York Stock Exchange, Inc. listing fee...................... * Printing and engraving expenses................................ * Legal fees and expenses........................................ * Accounting fees and expenses................................... * Blue Sky fees and expenses..................................... * Miscellaneous.................................................. * ---------- Total...................................................... $ * ==========
- -------- * To be supplied by Amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") provides, in summary, that directors and officers of Delaware corporations are entitled, under certain circumstances, to be indemnified against all expenses and liabilities (including attorneys' fees) incurred by them as a result of suits brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful; provided, that no indemnification may be made against expenses in respect of any claim, issue or matter as to which they shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, they are fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Any such indemnification may be made by the corporation only as authorized in each specific case upon a determination by the stockholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. Article Ninth of the Company's Certificate of Incorporation entitles officers, directors and controlling persons of the Company to indemnification to the full extent permitted by Section 145 of the DGCL, as the same may be supplemented or amended from time to time. Article Ninth of the Company's Certificate of Incorporation was amended in August 1986 to provide that no director shall have any personal liability to the Company or its stockholders for any monetary damages for breach of fiduciary duty as a director, provided that such provision does not limit or eliminate the liability of any director (i) for breach of such director's duty or loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (involving certain unlawful dividends or stock repurchases) or (iv) for any transaction from which such director derived an improper personal benefit. The provisions of such article do not limit or eliminate the liability of any director for any act or omission occurring prior to the effective time of such amendment. Reference is made to Section 7 of the Underwriting Agreement included in Exhibit 1 hereto which provides certain indemnification rights to the directors and officers of the Company. II-1 ITEM 16. EXHIBITS. * 1 --Form of Underwriting Agreement between the Company and Bear, Stearns & Co. Inc. 2 --Agreement and Plan of Merger, dated as of October 3, 1994, among the Company, Mark IV Acquisition Corp. and Purolator Products Company (incorporated by reference to Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated October 7, 1994). 4.1 --Indenture dated as of March 15, 1989 between the Company and the First National Bank of Boston, as Trustee (including the form of 13 3/8% Subordinated Debentures due March 15, 1999) (incorporated by reference to Exhibit 4.10 to the Company's Current Report on Form 8-K dated May 23, 1989). 4.2 --Indenture dated as of February 13, 1992 between the Company and Marine Midland Bank, N.A., as Trustee (including the form of 6 1/4% Convertible Subordinated Debentures due February 15, 2007) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 13, 1992). 4.3 --Form of Indenture dated as of March 15, 1993 between the Company and Citibank, N.A. as Trustee (including the form of 8 3/4% Senior Subordinated Notes due April 1, 2003) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 29, 1993). * 5 --Opinion of Stroock & Stroock & Lavan as to the legality of the Shares. *23.1 --Consent of Coopers & Lybrand LLP. *23.2 --Consent of Arthur Andersen LLP. *23.3 --Consent of Stroock & Stroock & Lavan (included in Exhibit 5). 25 --Powers of attorney (included on p. II-4 of the Registration Statement).
- -------- *Filed herewith. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such II-2 indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF AMHERST, STATE OF NEW YORK, ON NOVEMBER 10, 1994. Mark IV Industries, Inc. /s/ William P. Montague By___________________________________ William P. Montague Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sal H. Alfiero, Clement R. Arrison, William P. Montague, Gerald S. Lippes, John J. Byrne and Richard L. Grenolds, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) of and supplements to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying and confirming all that such attorneys- in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Sal H. Alfiero Chairman of the Board and November 10, 1994 ____________________________ Chief Executive Officer Sal H. Alfiero /s/ Clement R. Arrison President and Director and November 10, 1994 ____________________________ Chief Operating Officer Clement R. Arrison /s/ William P. Montague Executive Vice President and November 10, 1994 ____________________________ Chief Financial Officer William P. Montague /s/ Gerald S. Lippes Secretary and Director November 10, 1994 ____________________________ Gerald S. Lippes /s/ Frederic L. Cook Senior Vice President-- November 10, 1994 ____________________________ Administration Frederic L. Cook /s/ John J. Byrne Vice President--Finance November 10, 1994 ____________________________ John J. Byrne /s/ Richard L. Grenolds Vice President and Chief November 10, 1994 ____________________________ Accounting Officer Richard L. Grenolds Director ____________________________ Joseph G. Donohoo Director ____________________________ Herbert Roth, Jr.
II-4 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. ------- ----------- ---- * 1 --Form of Underwriting Agreement between the Company and Bear, Stearns & Co. Inc.. 2 --Agreement and Plan of Merger, dated as of October 3, 1994, among the Company, Mark IV Acquisition Corp. and Purolator Products Company (incorporated by reference to Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated October 7, 1994)........................................ 4.1 --Indenture dated as of March 15, 1989 between the Company and the First National Bank of Boston, as Trustee (including the form of 13 3/8% Subordinated Debentures due March 15, 1999) (incorporated by reference to Exhibit 4.10 to the Company's Current Report on Form 8-K dated May 23, 1989)................ 4.2 --Indenture dated as of February 13, 1992 between the Company and Marine Midland Bank, N.A., as Trustee (including the form of 6 1/4% Convertible Subordinated Debentures due February 15, 2007) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 13, 1992). 4.3 --Indenture dated as of March 15, 1993 between the Company and Citibank, N.A., as Trustee (including the form of 8 3/4% Senior Subordinated Notes due April 1, 2003) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 29, 1993)..................................... * 5 --Opinion of Stroock & Stroock & Lavan as to the legality of the Shares........................................................ *23.1 --Consent of Coopers & Lybrand LLP............................... *23.2 --Consent of Arthur Andersen LLP................................. *23.3 --Consent of Stroock & Stroock & Lavan (included in Exhibit 5)... 25 --Powers of attorney (included on p. II-4 of the Registration Statement)....................................................
- -------- *Filed herewith. EX-1 2 UNDERWRITING AGREEMENT EXHIBIT 1 [ ] SHARES MARK IV INDUSTRIES, INC. COMMON STOCK UNDERWRITING AGREEMENT ---------------------- Bear, Stearns & Co. Inc. December __, 1994 NOVEMBER __, 1994 [__________] Shares of Common Stock MARK IV INDUSTRIES UNDERWRITING AGREEMENT ---------------------- November __, 1994 BEAR, STEARNS & CO. INC. [ ] as Representative[s] of the several Underwriters named in Schedule I attached hereto c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, N.Y. 10167 Dear Sirs: Mark IV Industries, a corporation organized and existing under the laws of Delaware (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") an aggregate of _______ shares (the "Firm Shares") of its common stock, par value $.01 per share (the "Common Stock") and, for the sole purpose of covering over-allotments in connection with the sale of the Firm Shares, at the option of the Underwriters, up to an additional ______ shares (the "Additional Shares") of Common Stock. The Firm Shares and any Additional Shares purchased by the Underwriters are referred to herein as the "Shares". The Shares are more fully described in the Registration Statement referred to below. 1. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed an amendment or amendments thereto, on Form S-3 (No. 33- ), for the registration of the Shares under the ---------- Securities Act of 1933, as amended (the "Act"). Such registration statement, including the prospectus, financial statements and schedules, exhibits and all other documents filed as a part thereof, as amended at the time of effectiveness of the registration statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A of the Rules and Regulations of the Commission under the Act (the "Regulations"), is herein called the "Registration Statement" and the prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, is herein called the "Prospectus". The term "preliminary prospectus" as used herein means a preliminary prospectus as described in Rule 430 of the Regulations. Any reference herein to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") on or before the effective date of the Registration Statement, the date of such preliminary prospectus or the date of the Prospectus, as the case may be, and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include (i) the filing of any document under the Exchange Act after the effective date of the Registration Statement, the date of such preliminary prospectus or the date of the Prospectus, as the case may be, which is incorporated therein by reference and (ii) any such document so filed. (b) At the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) of the Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission, when any document filed under the Exchange Act is filed and at the Closing Date and the Additional Closing Date, if any, (as hereinafter respectively defined), the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Act and the Regulations and the Exchange Act and the respective rules and regulations thereunder and does not or will not contain an untrue statement of a material fact and does not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in light of the circumstances under which they were made, not misleading. When any related preliminary prospectus was first filed with the Commission (whether filed as part of the registration statement for the registration of the Shares or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such preliminary prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and the Exchange Act and the respective rules and regulations thereunder and did not contain an untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related preliminary prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof. 2 (c) Coopers & Lybrand and _________________ whose reports are filed with the Commission as part of the Registration Statement, are each independent public accountants with regard to the Company as required by the Act and the Regulations. (d) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which were incurred or undertaken in the ordinary course of business or are reflected in the Registration Statement and the Prospectus. (e) This Agreement has been duly and validly authorized by the Company and this Agreement has been duly and validly executed and delivered by the Company and is a valid and binding obligation of the Company. (f) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) or require consent under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to the terms of any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound (other than those as to which requisite waivers or consents have been obtained by the Company) or (ii) violate or conflict with any provision of the certificate of incorporation, by-laws, or equivalent instruments of the Company or any of its subsidiaries or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, including the issuance, sale and delivery of the Shares to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities (or "Blue Sky") laws in connection with the purchase and distribution of the Shares by the Underwriters. (g) All of the outstanding shares of Common Stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued and are not now in violation of or subject to any preemptive rights. The Shares, when issued, delivered and sold in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights. The Company had, at August 31, 1994, an authorized and outstanding capitalization as set forth in the Registration Statement and 3 the Prospectus. The Common Stock, the Firm Shares and the Additional Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. (h) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction that is not adequately disclosed in the Registration Statement and the Prospectus. (i) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is subject or which is pending or, to the knowledge of the Company, contemplated against the Company or any of its subsidiaries which might result in any material adverse change or any development involving a material adverse change in the business, prospects, properties, operations, condition (financial or other) or, results of operations of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Registration Statement and the Prospectus. (j) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (k) The financial statements, including the notes thereto, and supporting schedules included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, the financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. (l) Except as described in the Prospectus, no holder of securities of the Company has any rights to the registration of securities of the Company because of the filing of the Registration Statement or otherwise in connection with the sale of the Shares contemplated hereby. (m) The Company is not, and upon consummation of the transactions contemplated hereby will not be, subject to registration as an "investment company" under the Investment Company Act of 1940. 4 (n) The Company meets all conditions for use of a Form S-3 registration statement pursuant to the Act and the Regulations. (o) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission under the Exchange Act, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective and at the Closing Date, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Purchase, Sale and Delivery of the Shares. ----------------------------------------- (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters and the Underwriters, severally and not jointly, agree to purchase from the Company, at a purchase price per share of $__________, the number of Firm Shares set forth opposite the respective names of the Underwriters in Schedule I hereto plus any additional number of Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 9. (b) Delivery of the Firm Shares and payment therefor shall be made at the office of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, or at such other place as may be mutually acceptable. Such delivery and payment shall be made at 10:00 A.M. on the fifth business day (unless postponed in accordance with the provisions of Section 9) following the date of the effectiveness of the Registration Statement (or, if the Company has elected to rely upon Rule 430A of the Regulations, the fifth business day after the determination of the initial public offering price of the Shares), or such other time as shall be agreed upon by you and the Company. The time and date of such delivery and payment are herein called the "Closing Date". Delivery of the Firm Shares shall be made to you against payment by you of the purchase price therefor by certified or official bank check or checks drawn in New York Clearing House funds to the order of the Company. Certificates for the Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (c) The Company hereby grants to the Underwriters an option (the "Option") to purchase from the Company, for the sole purpose of covering over- allotments in the sale of Firm Shares by the Underwriters, up to [________] Additional Shares at the same purchase price per share to be paid by the Underwriters to the Company for the Firm Shares as set forth in this Section 2. The Option shall be exercisable by the Underwriters on one occasion only, on or before the thirtieth day following the date of the Prospectus, for the purchase of all or any part of the Additional Shares, such exercise to be made by notice, given by you to the Company in the manner provided by Section 12, setting forth the aggregate number of Additional Shares as to which the option is being exercised and the date and time of delivery of such Additional Shares, which date may be at or subsequent to the Closing Date and shall not be fewer than two or more than ten days after such notice. Delivery of the Additional Shares and payment of the purchase price therefor shall be made at [Bear, Stearns & Co. Inc. at 245 Park Avenue, New York, New York 10167, or such other location as may be mutually acceptable. Such delivery and payment shall be made at the time and on the date designated 5 in such notice, unless some other time and date is mutually agreed upon (such time and date being herein called the "Additional Closing Date"). Delivery of the Additional Shares shall be made to you against payment by you of the purchase price therefor by certified or official bank check or checks drawn in New York Clearing House funds to the order of the Company. Certificates for the Additional Shares shall be registered in such name or names and in such authorized denominations as you shall have requested in such notice. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Additional Closing Date. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same ratio to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 9 hereof) bears to number of Firm Shares, subject, however, to such adjustments to eliminate any fractional shares as you in your sole discretion shall make. 3. Offering. It is understood that after the Registration Statement -------- becomes effective, the Underwriters propose to offer the Shares for sale to the public upon the terms set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees with the ------------------------ Underwriters that: (a) If the Registration Statement and any amendments thereto is not already effective, the Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as possible. If the Registration Statement has become or becomes effective pursuant to Rule 430A of the Regulations, or filing of the Prospectus is otherwise required under Rule 424(b) of the Regulations, the Company will file the Prospectus, properly completed, pursuant to Rule 424(b) of the Regulations, within the time period prescribed therein and will provide evidence satisfactory to you of such timely filing. The Company will promptly advise you, and confirm such advice in writing, (1) when the Registration Statement or any post-effective amendment thereto has become effective, (2) of the initiation or threatening of any proceedings for, or receipt by the Company of any notice with respect to, the suspension of the qualification of the Shares for sale in any jurisdiction or the issuance of any order suspending the effectiveness of the Registration Statement, and (3) of receipt by the Company or any representative or attorney of the Company of any other communications from the Commission relating to the Company, the Registration Statement, any preliminary prospectus, the Prospectus or the transactions contemplated by this Agreement. The Company will make every reasonable effort to prevent the issuance of an order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto and if any such order is issued to obtain its lifting as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus (including without limitation in each case any document under the Exchange Act if such document would be deemed to be incorporated by reference into the Prospectus) to which you shall reasonably object in writing after being timely furnished in advance a copy thereof. (b) If at any time when a prospectus relating to the Shares is required to be delivered under the Act any event shall have occurred as a result of which the Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to 6 amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to you two signed copies of the Registration Statement, including exhibits and all documents incorporated by reference therein and all amendments thereto, and the Company will promptly deliver to those persons including yourself whom you identify to the Company, such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, and all documents incorporated by reference including all documents incorporated by reference in any amendment of the Registration Statement or supplement to the Prospectus, without exhibits, as you may reasonably request. The Company consents to the respective use of any preliminary prospectus or the Prospectus or any amendment or supplement thereto by you and by all dealers to whom the Shares may be sold, in connection with the offering or sale of the Shares, as appropriate, and as to the Prospectus or any amendment or supplement thereto during such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of the Registration Statement becomes effective, to qualify the Shares for offering and sale under the securities (or "Blue Sky") laws of such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof, except that in no event shall the Company be obligated to qualify as a foreign corporation or to execute a general consent to service of process. (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earnings statement (in form complying with the provisions of Rule 158 of the Regulations, an earnings statement (which need not be audited but which shall satisfy the provisions of Section 11(a) of the Act) covering a period of at least twelve consecutive months beginning on the first day of the first full calendar month after the effective date of the Registration Statement. (f) During the period of ninety (90) days from the date of the Prospectus, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Common Stock (or any securities convertible into, exercisable for or exchangeable for Common Stock) other than the Shares to be issued and sold pursuant hereto and shares of Common Stock issuable upon the exercise of currently outstanding stock options. The Company will obtain and deliver to you on or prior to the Closing Date a similar undertaking from each of its directors and officers. (g) During a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports to its shareholders; and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange. 7 (h) The Company will apply the proceeds from the sale of the Shares as set forth under "Use of Proceeds" in the Prospectus. 5. Payment of Expenses. Whether or not the transactions contemplated in ------------------- this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with (i) preparing, printing, duplicating, filing and distributing the Registration Statement, as originally filed and all amendments thereof (including all exhibits thereto), any preliminary prospectus, the Prospectus and any amendments thereof or supplements thereto (including without limitation, fees and expenses of the Company's accountants and counsel) the underwriting documents (including this Agreement, the Agreement among Underwriters and the Selling Agreement), and all other documents related to the public offering of the Shares (including those supplied to you and to others designated by you), (ii) the issuance, transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the qualification of the Shares under state or foreign securities or Blue Sky laws, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and the fees and disbursements of counsel for the Underwriters in relation thereto, (iv) the review of the terms of the public offering of the Shares by the National Association of Securities Dealers, Inc. and the fees and disbursements of counsel for the Underwriters in relation thereto; [(v)] the cost of printing certificates representing the Shares; [(vi)] filing fees of the Commission and the National Association of Securities Dealers, Inc. and [(vii)] the cost and charges of any transfer agent or registrar. 6. Conditions of Underwriters' Obligations. The obligations of the --------------------------------------- Underwriters provided herein to purchase and pay for the Firm Shares and, if and to the extent you exercise the Option under Section 2, the Additional Shares, as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date and, as to Additional Shares, as of the Additional Closing Date, to the absence from any certificates, opinions, written statements or letters furnished pursuant to this Section 6 to you or to Latham & Watkins ("Underwriters' Counsel") of any misstatement or omission, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York time, on the date of this Agreement, or at such later time and date as shall have been consented to in writing by you, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date) you shall have received the opinion of Lippes, Silverstein, Mathias & Wexler, general counsel for the Company, dated the Closing Date addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) Each of the Company and its material subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its material subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its 8 subsidiaries taken as a whole. Each of the Company and its material subsidiaries has all requisite corporate authority to own, lease and license its respective properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. [Except as set forth in the Registration Statement,] [A]ll of the issued and outstanding capital stock of each subsidiary of the Company has been duly and validly issued and is fully paid and nonassessable and free of preemptive rights and, to the best knowledge of such counsel, is owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, shareholders' agreement, voting trust or other defect of title whatsoever. (ii) The Company has authorized capital stock as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of Common Stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights. The Shares to be delivered on the Closing Date have been duly and validly authorized and, when delivered by the Company in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, and will not have been issued in violation of or subject to any preemptive rights. The Common Stock, the Firm Shares and the Additional Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. (iii) The Common Stock currently outstanding is listed, and the Shares to be sold under this Agreement to the Underwriters are duly authorized for listing, on the New York Stock Exchange. (iv) This Agreement has been duly and validly authorized, executed and delivered by the Company. (v) To such counsel's knowledge (without any investigation other than inquiries of officers of the Company), there is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or threatened against, or involving the properties or business of, the Company or any of its subsidiaries, which, if resolved against the Company or such subsidiary, individually or, to the extent involving related claims or issues, in the aggregate, is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been properly disclosed therein; and to such counsel's knowledge (without any investigation other than inquiries of officers of the Company), there is no contract or document concerning the Company or any of its subsidiaries of a character required to be described in the Registration Statement and the Prospectus or to be filed as an exhibit to the Registration Statement, which is not so described or filed. (vi) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) or require consent under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, the terms of any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (B) violate or conflict 9 with any provision of the certificate of incorporation, by-laws or equivalent instruments of the Company or any of its subsidiaries, or, to the best knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. To the best of such counsel's knowledge, no consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except for (1) such as may be required under state and foreign securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act. (vii) To such counsel's knowledge, no order directed to any document incorporated by reference in the Prospectus has been issued by the Commission and no challenge has been made by the Commission to the accuracy or adequacy of any such document. (viii) Such counsel has received no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto and to the best knowledge of such counsel no proceedings therefor have been initiated or threatened by the Commission. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent certified public accountants of the Company and the Underwriters at which the contents of the Registration Statement, the Prospectus and any amendment thereof or supplement thereto and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or any amendment thereof or supplement thereto, on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company) such counsel has no reason to believe that either the Registration Statement at the time it became effective (or any amendment thereof made prior to the Closing Date as of the date of such amendment) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of the date thereof (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial and statistical data included therein and the exhibits to the Registration Statement). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the 10 Company, certificates of public officials, and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (c) At the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date) you shall have received the opinion of Stroock & Stroock & Lavan, special counsel for the Company, dated the date of its delivery, addressed to you and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) The Registration Statement and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements and the notes thereto and the other financial and accounting data included or incorporated by reference therein and the exhibits to the Registration Statement, as to which no opinion need be expressed) comply as to form in all material respects with the requirements of the Act and the Regulations thereunder. The documents filed under the Exchange Act and incorporated by reference in the Registration Statement and the Prospectus or any amendment thereof or supplement thereto (other than the financial statements and the notes thereto and the other financial and accounting data included or incorporated by reference therein, as to which no opinion need be expressed) comply as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder. (ii) The Registration Statement is effective under the Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission. (iii) The Common Stock conforms to the description thereof contained in the Registration Statement and the Prospectus. Also, you shall have received the opinion of such counsel to the effect set forth in clauses (ii) (other than the second sentence thereof), (iv) and (v) of Section 6(b) hereof. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent certified public accountants of the Company and yourselves at which the contents of the Registration Statement, the Prospectus and any amendment thereof or supplement thereto and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or any amendment thereof or supplement thereto, (except as to matters referred to in clause (iv)), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company) such counsel has no reason to believe that either the Registration Statement at the time it became effective (or any amendment thereof made prior to the Closing Date as of the date of such amendment) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of the date thereof (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which 11 they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial and statistical data included therein and the exhibits to the Registration Statement). In rendering such opinion, such counsel may state that their opinion is limited to matters of Federal, Delaware corporate and New York State law and such counsel may rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company or upon certificates of public officials, provided that copies of any such certificates shall be delivered to Underwriters' Counsel. (d) At the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date) you shall have received a certificate of the Chairman or the President and a Vice President of the Company, dated the date of its delivery, to the effect that the conditions set forth in subsection (a) of this Section 6 have been satisfied, that as of the date hereof and as of the date of such certificate the representations and warranties of the Company set forth in Section 1 hereof are accurate, and that as of the date of such certificate the obligations of the Company to be performed hereunder on or prior thereto have been duly performed. (e) At the time this Agreement is executed and at the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date), you shall have received a letter, from Coopers & Lybrand, independent public accountants for the Company, dated as of the date of this Agreement or as of the date of its delivery, as the case may be, addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) in their opinion, the financial statements and schedules of the Company in the Registration Statement and the prospectus included therein (and on the Closing Date and the Additional Closing Date, the Prospectus) and covered by their opinion therein comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations and the Exchange Act and the applicable published rules and regulations of the Commission thereunder; (iii) on the basis of procedures [(but not an examination made in accordance with generally accepted accounting principles)] consisting of a reading of the latest available unaudited interim consolidated financial statements of the Company, and its subsidiaries, a reading of the minutes of meetings and consents of the shareholders and boards of directors of the Company and its subsidiaries and the committees of such boards subsequent to February 28, 1994, inquiries of officers and other employees who have responsibility for financial and accounting matters of the Company and its subsidiaries of the Company and its subsidiaries with respect to transactions and events subsequent to February 28, 1994 and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) the unaudited consolidated financial statements and schedules of the Company contained in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations and the Exchange Act and the applicable published rules and regulations of the Commission thereunder or that such unaudited consolidated financial statements are not fairly presented in conformity with generally accepted accounting principles, except to the extent certain footnote disclosures have been omitted in accordance with applicable rules of the Commission under the Exchange Act, applied on a basis substantially consistent with that of the audited consolidated financial statements included and incorporated by reference in the Registration Statement and the Prospectus; (B) the unaudited pro forma consolidated financial statements contained in the Registration Statement and the Prospectus do 12 not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements, (C) with respect to the period subsequent to September 30, 1994 there were, as of the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet in the Registration Statement and the Prospectus except for changes or decreases which the Registration Statement and the Prospectus disclose, have occurred or may occur or which are set forth in such letter, or (D) that during the period from October 1, 1994 to the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; and (iv) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and its subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and its subsidiaries or from schedules derived therefrom furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by (which procedures do standards) set forth in such letter, and found them to be in agreement. [PUROLATOR COMFORT] (f) All proceedings taken in connection with the sale of the Shares as herein contemplated shall be satisfactory in form and substance to you and to Underwriters' Counsel, and you shall have received from Underwriters' Counsel a favorable opinion, dated as of the Closing Date with respect to the issuance and sale of the Firm Shares (and, with respect to the Additional Shares, the Additional Closing Date), as you may reasonably require, and the Company shall have furnished to Underwriters' Counsel such documents as they request for the purpose of enabling them to pass upon such matters. (g) Prior to the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date) the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be cancelled by you at, or at any time prior to, the Closing Date and, with respect to the Additional Shares, the Additional Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, telefacsimile, telex or telegraph, confirmed in writing. 13 7. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the - -------- ------- extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; and provided, -------- further, that the Company shall not be liable to any Underwriter (or any person - ------- controlling any Underwriter) under the indemnity agreement in this Section 7(a) with respect to any preliminary prospectus or Prospectus, to the extent that any such loss, liability, claim, damage or expense of any Underwriter (or any person controlling any Underwriter) results from the fact such Underwriter sold Shares to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (excluding documents incorporated by reference) or of the Prospectus as then amended or supplemented (excluding documents incorporated by reference) in any case where such delivery is required by the Act if the Company has previously furnished copies thereof to such Underwriter and the loss, liability, claim, damage or expense of such Underwriter (or such person controlling such Underwriter) results from an untrue statement, alleged untrue statement, omission or alleged omission of a material fact contained in the preliminary prospectus as amended or supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have, including without limitation, under this Agreement. (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), jointly or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein 14 not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; provided, however, that in no case shall any -------- ------- Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the last paragraph of the cover page and in the ________ paragraph[s] under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the registration statement relating to the Shares as originally filed or in any amendment thereof, any related preliminary prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent that is has been prejudiced in any material respect by such failure. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to take charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. The indemnifying party under subsection (a) or (b) above shall only be liable for the legal expenses of one counsel for all indemnified parties in each jurisdiction in which any claim or action is brought; provided, however, that -------- ------- the indemnifying party shall be liable for separate counsel for any indemnified party in a jurisdiction, if counsel to the indemnified parties shall have reasonably concluded that there may be defenses available to such indemnified party that are different from or additional to those available to one or more of the other indemnified parties and that separate counsel for such indemnified party is prudent under the circumstances. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. - -------- ------- 8. Contribution. In order to provide for contribution in circumstances in ------------ which the indemnification provided for in Section 7 is for any reason held to be unavailable, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and 15 other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter be required to contribute any amount in excess of the amount by which the underwriting discount applicable to the Shares purchased by such Underwriter hereunder exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 8, notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its written consent; provided, however, that such written consent was not unreasonably -------- ------- withheld. 16 9. Default by an Underwriter. ------------------------- (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Shares or Additional Shares hereunder, and if the Firm Shares or Additional Shares with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares or Additional Shares, to which the default relates such shares shall be purchased by the non-defaulting Underwriters in proportion to the respective proportions which the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite the names of the non-defaulting Underwriters. (b) In the event that such default relates to more than 10% of the Firm Shares or Additional Shares, as the case may be, you may in your discretion arrange for yourself or for another party or parties (including any non- defaulting Underwriter or Underwriters who so agree) to purchase such Firm Shares or Additional Shares, as the case may be, to which such default relates on the terms contained herein. In the event that within 5 calendar days after such a default you do not arrange for the purchase of the Firm Shares or Additional Shares, as the case may be, to which such default relates as provided in this Section 9, this Agreement or, in the case of a default with respect to the Additional Shares, the obligations of the Underwriters to purchase and of the Company to sell the Additional Shares shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder. (c) In the event that the Firm Shares or Additional Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Additional Closing Date, as the case may be for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares and Additional Shares. 10. Survival of Representations and Agreements. All representations and ------------------------------------------ warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including the agreements contained in Section 5 and 12(d), the indemnity agreements contained in Section 7 and the contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Shares to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 5, 7, 8 and 12(d) shall survive the termination of this Agreement, including termination pursuant to Section 9 or 11. 17 11. Effective Date of Agreement; Termination. ---------------------------------------- (a) This Agreement shall become effective when you and the Company shall have received notification of the effectiveness of the Registration Statement. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you by notifying the Company. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8 shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date (and, with respect to the Additional Shares, the Additional Closing Date) by notice to the Company from you, without liability (other than with respect to Sections 7 and 8) on your part to the Company if, on or prior to such date, (i) the Company shall have failed, refused or been unable to perform in any material respect any agreement on its part to be performed hereunder, (ii) any other condition of your obligations hereunder as provided in Section 6 is not fulfilled when and as required in any material respect, (iii) trading in securities generally on the New York Stock Exchange shall have been suspended or materially limited, or minimum prices shall have been established on such exchange by the Commission, or by such exchange or other regulatory body or governmental authority having jurisdiction, (iv) a general banking moratorium shall have been declared by Federal or New York State authorities, (v) there is an outbreak or escalation of armed hostilities involving the United States on or after the date hereof, or if there has been a declaration by the United States of a national emergency or war, the effect of which shall be, in your judgment, to make it inadvisable or impracticable to proceed with the public offering or delivery of the Shares on the terms and in the manner contemplated in the Prospectus, (vi) in your reasonable opinion any material adverse change shall have occurred since the respective dates as of which information is given in the Registration Statement or the Prospectus in the condition (financial or other) of the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business other than as set forth in the Prospectus, or (vii) there shall have been such a material adverse change in general economic, political or financial conditions or if the effect of international conditions on the financial markets in the United States shall be such as, in your judgment, makes it inadvisable or impracticable to proceed with the delivery of the Shares as contemplated hereby. (c) Any notice of termination pursuant to this Section 11 shall be by telephone, telefacsimile, telex, or telegraph, confirmed in writing by letter. (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 12(a) or (ii) Section 12(b)), or if the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by the Underwriters, reimburse the Underwriters for all out-of-pocket expenses (including the fees and expenses of Underwriters' Counsel), incurred by the Underwriters in connection herewith. 12. Notice. All communications hereunder, except as may be otherwise ------ specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, physically delivered, telefaxed, telexed or telegraphed, and confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Corporate Finance Department; and if sent to the Company, shall be mailed, physically delivered, telefaxed, telexed or 18 telegraphed, and confirmed in writing, to Mark IV Industries, Inc., 501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810, Attention: President. 13. Parties. This Agreement shall inure solely to the benefit of, and ------- shall be binding upon, the Underwriters and the Company and the controlling persons, directors, officers, employees and agents referred to in Sections 7 and 8, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Shares from you. 14. Construction. This Agreement shall be construed in accordance with ------------ the laws of the State of New York. 19 If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, MARK IV INDUSTRIES, INC. By ------------------------------------- Accepted as of the date first above written BEAR, STEARNS & CO. INC. [ ] By --------------------------------- On behalf of themselves and the other Underwriters named in Schedule I hereto. 20 SCHEDULE I
Number of [Firm] Name of Underwriter Shares to be Purchased - ------------------- ---------------------- Bear, Stearns & Co. Inc Total ....... ------------ ------------
21 SCHEDULE II [Names of shareholders subject to the lock-up provision] 22 EX-5 3 OPINION OF STROOCK & STROOCK & LAVAN EXHIBIT 5 STROOCK & STROOCK & LAVAN SEVEN HANOVER SQUARE NEW YORK, NEW YORK 10004-2696 November 10, 1994 Mark IV Industries, Inc. 501 John James Audubon Parkway P.O. Box 810 Amherst, New York 14226-0810 Gentlemen: We have acted as counsel to Mark IV Industries, Inc., a Delaware corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), of a Registration Statement on Form S-3 (the "Registration Statement") relating to the proposed public offering (the "Offering") of 6,000,000 shares (the "Firm Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), and up to an additional 858,750 shares of Common Stock (together with the Firm Shares, the "Shares") which may be sold in the event the underwriters for the Offering elect to exercise their over-allotment option. As such counsel, we have examined copies of the Certificate of Incorporation and By-Laws of the Company, each as amended to the date hereof, the Registration Statement, and originals or copies of such other corporate minutes, records, agreements and other instruments of the Company, certificates of public officials and other documents and have made such examinations of law, as we have deemed necessary to form the basis for the opinion hereinafter expressed. In our examination of such materials, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of all copies submitted to us. As to various questions of fact material to such opinion, we have relied, to the extent we deemed appropriate, upon representations, statements and certificates of officers and representatives of the Company and others. Mark IV Industries, Inc. November 10, 1994 Page 2 Attorneys involved in the preparation of this opinion are admitted to practice law in the State of New York only and we do not purport to be experts on, or to express any opinion herein concerning, any law other than the laws of the State of New York, the federal laws of the United States of America and the Delaware General Corporation Law. Based upon and subject to the foregoing, we are of the opinion that the Shares, when issued and sold under the circumstances contemplated in the Registration Statement, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this firm under the caption "Legal Matters" in the Prospectus which forms a part of the Registration Statement. In giving such consent, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Act or the Rules and Regulations of the Commission thereunder. Very truly yours, STROOCK & STROOCK & LAVAN EX-23.1 4 CONSENT OF COOPERS AND LYBRAND EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-3 of our report dated March 29, 1994, except as to the information presented in the first and second paragraphs of Note 13 and in the first paragraph of Note 14, for which the date is April 8, 1994, on our audits of the consolidated financial statements of Mark IV Industries, Inc. and the incorporation by reference of our report on the financial statement schedules, which report dated March 29, 1994 is included in the Company's Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A. We also consent to the reference to our firm under the caption "Experts." Coopers & Lybrand LLP Rochester, New York November 10, 1994 EX-23.2 5 CONSENT OF ARTHUR ANDERSON EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Mark IV Industries, Inc. Form S-3 dated November 10, 1994 of our report dated February 11, 1994 on the consolidated financial statements of Purolator Products Company as of December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and 1991 and to all references to our Firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Tulsa, Oklahoma November 9, 1994 -----END PRIVACY-ENHANCED MESSAGE-----