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Mark IV Industries Inc – ‘10-K’ for 2/28/95

As of:  Thursday, 5/25/95   ·   For:  2/28/95   ·   Accession #:  62418-95-4   ·   File #:  1-08862

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  As Of                Filer                Filing    For·On·As Docs:Size

 5/25/95  Mark IV Industries Inc            10-K        2/28/95   19:1.1M

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         55±   236K 
 2: EX-10.1     Material Contract                                     23±    94K 
11: EX-10.10    Material Contract                                     17±    76K 
12: EX-10.11    Material Contract                                     20±    90K 
13: EX-10.14    Material Contract                                      8±    40K 
14: EX-10.19    Material Contract                                     37±   150K 
 3: EX-10.2     Material Contract                                     23±    94K 
15: EX-10.20    Material Contract                                      6±    28K 
 4: EX-10.3     Material Contract                                     23±    94K 
 5: EX-10.4     Material Contract                                     23±    94K 
 6: EX-10.5     Material Contract                                     23±    94K 
 7: EX-10.6     Material Contract                                     23±    94K 
 8: EX-10.7     Material Contract                                     23±    94K 
 9: EX-10.8     Material Contract                                     20±    89K 
10: EX-10.9     Material Contract                                     20±    87K 
16: EX-11       Statement re: Computation of Earnings Per Share        2±    10K 
17: EX-21       Subsidiaries of the Registrant                         3±    17K 
18: EX-23       Consent of Experts or Counsel                          1      8K 
19: EX-27       Financial Data Schedule (Pre-XBRL)                     1      9K 


10-K   —   Annual Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Item 1. Business
"Item 2. Properties
"Item 3. Legal Proceedings
"Item 4. Submission of Matters to A Vote of Security Holders
"Item 5. Market for the Company's Common Stock and Related Security Holder Matters
"Item 6. Selected Financial Data
"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 8. Financial Statements and Supplementary Data
"Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1995
"Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1995
"Notes to Consolidated Financial Statements
"The Company
"Item 9. Disagreements on Accounting and Financial Disclosure
"Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
"Consolidated Balance Sheets at February 28, 1995 and 1994
"Signatures
"Exhibit Index


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended February 28, 1995 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________________ to _______________________ Commission File No. 1-8862 MARK IV INDUSTRIES, INC. --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 23-1733979 ------------------------------- ----------------------------------- (State or other jurisdiction of (IRS employer Identification number) incorporation or organization) 501 John James Audubon Pkwy., P.O. Box 810, Amherst, NY 14226-0810 ------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 689-4972 Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered ---------------------------- ---------------------- Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ---- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant based on the closing price of the Common Stock on May 19, 1995 on the New York Stock Exchange was $938,481,594. As of May 19, 1995, the number of outstanding shares of Registrant's Common Stock, $.01 par value, was 60,138,070 shares. Documents Incorporated By Reference Portions of the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year are incorporated by reference into Part III. MARK IV INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K PART I Page Item 1: Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2: Properties . . . . . . . . . . . . . . . . . . . . . . . . .14 Item 3: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .15 Item 4: Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . .15 PART II Item 5: Market for the Company's Common Stock and Related Security Holder Matters . . . . . . . . . . . . . .16 Item 6: Selected Financial Data. . . . . . . . . . . . . . . . . . .17 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . .19 Item 8: Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Item 9: Disagreement on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .54 PART III Item 10: Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . . .54 Item 11: Executive Compensation . . . . . . . . . . . . . . . . . . .54 Item 12: Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . .54 Item 13: Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . . . .54 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . .55 Signatures . . . . . . . . . . . . . . . . . . . . . . . . .62 Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . 63 PART I ITEM 1. BUSINESS General Mark IV Industries, Inc. ("Mark IV" or "the company") is a diversified manufacturer of a broad range of proprietary and other power and fluid transfer products and systems which serve four markets: general industrial; automotive aftermarket; automotive original equipment manufacturers ("OEMs"); and infrastructure. Power and fluid transfer products and systems accounted for approximately 90% of Mark IV's net sales in fiscal 1995 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 71 manufacturing facilities and 52 distribution and sales locations and employs approximately 16,200 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% 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 Sweden; 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. 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 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. In particular, the acquisition of Purolator will strengthen Mark IV's presence in the automotive aftermarket since more than 60% of Purolator's sales are made to customers in this market. Mark IV also believes that its extensive sales and distribution network will provide opportunities for increased sales of Purolator's products. Segment Information Prior to the acquisition of Purolator, 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. 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 automotive OEM market and the infrastructure market. Such products and systems include those related to rubber and plastic belts, hose, fittings and related assemblies; filters; power transfer mechanisms for door control systems used in mass transit vehicles; information displays; and advanced traffic control and management systems; and (ii) Professional Audio, which includes the design and manufacture of products and systems used primarily in the high-performance professional audio market, such as microphones, speakers, public address and musical instrument loudspeaker systems, audio signal processors, and sound enhancement and noise canceling equipment. The results of operations of Purolator have been included in the company's results of operations for fiscal 1995 from its November 1994 acquisition date. The results of operations of PTI have been included in the company's results of operations from its June 1993 acquisition date. Selected summary information has been presented below to facilitate the review of the company's business segment discussion. The summary information has been derived from the more detailed information regarding industry segments in accordance with generally accepted accounting principles as presented in Note 14 to the company's audited consolidated financial statements included elsewhere herein. Such summary information is as follows (dollars in thousands): 1995 Pro Forma (1) 1995 1994 (Unaudited) Net Sales to Customers: Power and Fluid Transfer $1,728,000 $1,418,000 $1,070,700 Professional Audio 185,300 185,300 173,500 Total $1,913,300 $1,603,300 $1,244,200 Operating Income (2): Power and Fluid Transfer $ 184,500 $ 158,400 $ 124,800 Professional Audio 21,800 21,800 21,900 Total $ 206,300 $ 180,200 $ 146,700 (1) To reflect acquisition and equity transactions as if they had occurred at the beginning of the year, as described in Note 2 to the audited financial statements referred to above. (2) Represents income before corporate expenses, interest expense and taxes. POWER AND FLUID TRANSFER Dayco Products Inc. ("Dayco"), a subsidiary of the company, and Purolator produce a variety of belts, hose, filters, and related assemblies and systems, for industrial, automotive aftermarket and automotive OEM customers, primarily in North America and Europe. The acquisition of Purolator significantly increased the size and scope of the Power and Fluid Transfer segment. The complementary nature of the product lines, particularly in the automotive aftermarket, Original Equipment Service (OES) market and industrial markets integrates the segments's systems and distribution approach to product offerings. The acquisition of Purolator roughly balances the power and fluid transfer product lines, and increases the pro forma revenue of these core products to about $1.5 billion. The balance of this segment serves the infrastructure market, generating about $228 million of revenue. The Power and Fluid Transfer segment was expanded and reorganized during fiscal 1995. Added to the segment's three markets -- General Industrial, Automotive Aftermarket and Automotive OEM -- were products for the Infrastructure market, which are produced by the operating units that previously comprised the company's Transportation business segment. In the Infrastructure market, sales improved and backlogs continued at record levels. Also included in this business segment is Protective Closures, which manufactures plastic and metal caps, plugs, seals and protective netting sold to a broad base of industrial and automotive OEM customers, and Mokon, which produces circulating oil and water temperature control systems. General Industrial Approximately 30% of fiscal 1995's pro forma sales were to industrial customers, making General Industrial the largest market in this segment. General Industrial products include a variety of belts, hose, filters, tensioners, pulleys, couplings, assemblies and systems for a number of markets, including agricultural, oil field, mining, lawn and garden, food and beverage handling, construction, environmental, chemical, lumber and specialty applications. Many of the General Industrial products are sold directly to industrial OEMs for use in agricultural, manufacturing, office, mining, environmental, fuel dispensing and fuel flow equipment, as well as in products such as snowmobiles, washing machines, golf carts, vacuum cleaners, outboard motors and lawn mowers. The balance of sales in this market are to distributors of industrial replacement belts and hose, and lawn and garden product distributors and retailers, such as hardware chains, home centers and mass merchandisers. The segment's product offerings were expanded in fiscal 1995 to include the industrial filters and filtration systems which Purolator supplies to the industrial, aviation and marine markets, broadening the company's product offerings and customer base in the industrial marketplace. Facet International, Inc. ("Facet") a Purolator subsidiary, has also expanded the segment's General Industrial product lines and markets. Facet is a manufacturer of high performance filtration and separation products and systems for commercial and military aviation applications. Facet's products, which have been approved by numerous governmental and industry-related organizations around the world, are sold to oil companies, airlines and defense ministries. Facet also produces bilge separators for the commercial and military marine markets, as well as an environmental protection product which removes oil pollution from water. The May 1994 acquisition of the U.S. Rubber Hose Co. ("U.S. Rubber") in Vero Beach, Florida, is enabling Dayco to enter new areas in the industrial hose market. U.S. Rubber provides the capability of manufacturing rigid mandrel hose up to 200 feet in length, in a variety of bore sizes. This new capability allows Dayco to better serve customers in the paper, oil drilling and refining, water pumping, natural gas production, manufacturing, cement/construction, chemical and trucking industries. Areas of concentration in the General Industrial business include: strengthening product lines and continuing to integrate the products of Dayco, Purolator, PTI, U.S. Rubber and Citla, S.A. de C.V. ("Citla"); centralizing distribution of these products to provide better, more efficient customer service; expanding the markets and distribution channels for many products by partnering with customers, as well as by finding new markets for existing product lines; and increasing manufacturing capacity in certain product areas, including couplings and hydraulic hose. Automotive Aftermarket The Automotive Aftermarket accounted for roughly 28% of fiscal 1995's pro forma sales. The products in this market include a vast array of automotive belts, hose, filters and accessories sold to automotive warehouse distributors, oil companies, original equipment service centers, retail and auto parts chains, mass merchandisers, farm and fleet stores, and hardware distributors. Products include V-ribbed belts, V-belts, and timing belts; radiator, automotive service, fuel line and heater hose and assemblies; as well as fan clutches, transmission oil coolers, fan blades, electric fans, couplings and pulleys. With the addition of Purolator, product offerings were expanded to include a complete line of automotive oil, air and fuel filters for virtually all automobiles and light duty trucks currently operated in North America, including those manufactured by North American, Japanese and European OEMs. The combined Dayco/Purolator distribution system and complementary customer base provide opportunities for revenue growth, margin improvement and increased market penetration. Dayco's strategy of expansion into new geographic markets was evident in fiscal 1995 in a number of areas. Purolator's equity interest with Anand Corporation in Purolator India Limited provides access to the Indian marketplace. In Australia, a new distribution center was established in Melbourne to support automotive aftermarket growth in the Asia Pacific region. Automotive OEM The segment's Automotive OEM business accounted for 20% of fiscal 1995's proforma sales. Dayco designs, develops and manufactures automotive accessory drive, camshaft drive, fuel, air conditioning, and power steering systems for the global automotive OEM market, as well as radiator, heater, fuel, engine and transmission oil cooler assemblies, consisting of various hose, belts, filters, tensioners, brackets, pulleys, canisters and sprockets. In response to the increased global nature of the automotive OEM industry, Dayco's Automotive OEM business is now organized into a single global unit, to better meet the needs of its worldwide customers, and to maximize the use of its resources on a global basis. In keeping with the company's long-term growth strategy to expand its geographic presence, several strategic acquisitions were made in fiscal 1995. Citla, a manufacturer of industrial and automotive belts and hose products with headquarters in Mexico City, Mexico, was acquired in June 1994. Citla provides support to the company's existing OEM customers in Mexico, as well as access to the Mexican automotive aftermarket and industrial marketplace. Acquired in September 1994, Dayco Hevas ("Hevas") of Varberg, Sweden, manufactures automotive tubes and tube assemblies. Hevas' products complement existing power steering and air conditioning components for the European automobile industry, further enhancing the company's market position in Europe. The acquisition of Purolator also provided increased market opportunities with the company's global OEM customers. Purolator's products will be incorporated into Dayco's systems, and the distribution of Purolator's products will be enhanced by Dayco's global OEM programs. Purolator's equity interest in Purolator India Limited expands the company's manufacturing capabilities and OEM markets in Southeast Asia, while the company's 50% ownership in Purodenso Corp. provides access to the OEM transplant market in the U.S. Dayco also has multiple development programs with the Detroit "Big Three," U.S. foreign-based OEMs, and most of the major European automotive manufacturers. Fiscal 1995 saw improvements in the truck OEM market with new orders from Iveco, Mercedes and Scania, and increased volume with Mack, Navistar, and Cummins. Dayco also continues to benefit from the increasing demand in Europe for automobiles equipped with power steering and air conditioning. Emphasis on vertical integration as a hose and assembly producer has helped Dayco gain market share in the power steering hose assembly market, while the increase in the number of motor vehicles and the climate in Asia are expected to create a strong demand for Dayco's air conditioning hose assemblies. Infrastructure Mark IV designs and manufactures products and systems serving two principal components of the Infrastructure market. Mark IV produces information displays, door systems, interior hardware, lighting and other systems, primarily for mass transit buses and railcars. In addition the company produces electronic vehicle identification products for the electronic toll and traffic management markets, as well as information signs and signals. These products, which are manufactured and sold in North America and throughout Europe, accounted for 12% of fiscal 1995's pro forma sales. Customers include OEMs of mass transit bus and rail vehicles, and commercial aircraft, as well as state and local highway and transportation agencies. Some of the Infrastructure products are also sold to the aftermarket. The Infrastructure market is predominantly contract-driven, with many of the contracts spanning one or more years. At times, there are delays in the completion of contracts which may cause fluctuations in the timing of revenues, allowing inventories to build. Backlogs in the Infrastructure market have been growing steadily over the past several years, and are at record levels today. Luminator Mass Transit, together with LLE in Germany and SLE in France, design, market, and produce electronic vehicle information and passenger information display systems and components for mass transit buses and railcars throughout the world. These systems are also sold throughout Europe and Asia. While most of these products are sold directly to vehicle manufacturers, there is also a large market for replacement parts used to repair or upgrade mass transit vehicles. The marketing efforts of these companies are directed primarily at transit agencies, who can specify that Mark IV products be included in their mass transit systems, as well as to the OEMs. F-P Electronics is a producer of digital electromagnetic display components, supplying product to all of the major manufacturers of mass transit information display systems in North America and Europe -- including the company's Luminator, LLE and SLE operations. These products are also used in gasoline pump displays, variable message signs for highways, time and temperature displays, and scoreboards. This market was enhanced by a new line of high intensity fiber optic displays designed to dramatically improve visibility. Vapor supplies complete bus door systems, as well as basic components, to the transit industry. Vapor also supplies the railroad industry with various electronic products. Vapor introduced three new door systems during the year. These unique systems, which include microprocessor-based controls, were developed to meet the changing needs of domestic customers, and to position Vapor for entry into the Asian market. Mark IV's Luminator Aircraft Products unit supplies interior lighting and other passenger comfort systems for commercial aircraft, including the MD-11 and the new MD-90, and every other McDonnell Douglas aircraft produced since the DC-3. In addition, Luminator provides components for several Boeing aircraft models, as well as aircraft panel, navigation, landing and emergency lighting for general aviation customers. The company also makes a comprehensive line of night vision-compatible interior and exterior lighting used in military applications. Luminator supplies its airline customers with aftermarket replacement and spare parts through its Product Support Center in Texas. Mark IV's Automatic Signal/Eagle Signal and Interstate Highway Sign operations manufacture products sold to state and local governments, as well as transportation agencies, primarily in the U.S. and Canada. Automatic Signal/Eagle Signal is a leading, full-line supplier of traffic control equipment and systems in the U.S., including traffic and pedestrian signals, signal control devices and complete traffic management systems. Some of these products are also sold to the U.S. Government and to foreign municipalities. Interstate Highway Sign is a leading manufacturer of reflective directional, informational, regulatory and warning signs for the nation's highways and other roadways. Interstate's products include a newer line of signs, using exterior light, that provide better visibility and are easier to maintain. NRD, a leading supplier of ionization elements used in smoke detectors, also manufactures self-energized, luminous exit signs, as well as static control devices used mainly in the electronics and printing industries. Mark IV's Intelligent Vehicle Highway Systems (IVHS) products and their markets have been in development for a number of years. In March 1994, Mark IV IVHS equipment was selected by a group representing eight toll authorities in New Jersey, New York, Pennsylvania and Delaware for use in the new E-ZPass(SM) electronic toll collection system. Mark IV IVHS will provide the tag and reader equipment for the E-ZPass system, which is designed to eliminate the need for motorists to exchange cash, tokens, or tickets at toll booths. Tolls will be paid electronically, as vehicles pass through the booths, reducing congestion and pollution, increasing accuracy in toll collection, and improving driver convenience on toll roads, bridges and tunnels. PROFESSIONAL AUDIO The Professional Audio business segment accounted for approximately 10% of total pro forma sales, and 11% of pro forma operating income in fiscal 1995. This group of companies, known in the marketplace as Mark IV Audio, provides a comprehensive range of high quality, high performance audio products to the professional audio market, including recording studio equipment, systems for live performance, and permanently installed engineered sound systems. Products include microphones, mixing consoles, signal processors, amplifiers and loudspeakers, and accessory items for use in a wide variety of installations, such as arenas, stadiums, theaters, amusement parks, airports, churches and factories, and in concert sound applications. In fiscal 1995, Mark IV Audio took significant steps forward in realizing the objectives of its recent organizational restructuring, including a better focus on its diversified technologies, brand recognition, and geographic distribution and manufacturing. General administration, research and development, and manufacturing responsibilities are now centralized for all Mark IV Audio companies, for more effective coordination and utilization of resources. Marketing, sales and other business development activities are divided into three regions -- the Americas, Europe and the Pacific. Each region is structured with a business development team whose mission is to identify and aggressively pursue growth opportunities within its territory. This new strategy enables Mark IV Audio to provide products, pricing and programs tailored to the specific needs of the customers in each area, with an understanding of the cultures, conditions and business practices of the given region. Mark IV Audio has a full-line strategy for the production of all components required in sound systems, which allows it to serve its customers as a single-source audio supplier. The Mark IV Audio group is a leader in many segments of the professional audio market, and is diversified globally, with over 58% of the group's fiscal 1995 revenue coming from outside the U.S. 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. The group also 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. Mark IV Audio is also a leading supplier of high-speed tape cassette duplication equipment under its Gauss and Electro Sound brands, and mixers under the DDA and Midas labels. In addition, Mark IV Audio has developed numerous digital audio signal processing (DSP) applications under its Dynacord and Klark Teknik brand names. Under the Dynacord and University Sound brand names, Mark IV Audio 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. The concert sound market, which consists of audio equipment used in touring sound systems for live performances, is served by the company's Electro-Voice, Klark Teknik, Midas and Vega product lines. In fiscal 1995, Electro-Voice introduced the RE 2000, a true condenser studio microphone that delivers exceptional sound quality and other superior performance specifications that exceed those of much more expensively priced microphones. The RE 2000 is used primarily in high-end professional recording studios, and also has some applications in the broadcast market in areas where flawless performance is required. University Sound commercial speaker products were used in all of the security systems and nearly all of the paging systems at the 1994 World Cup Soccer events held in the United States, and viewed by billions throughout the world. The new Duplex Technology Systems (DTS) speakers from Altec Lansing were used in the main sound system of the 1994 tour of Ice Capades. These DTS speakers have also received an enthusiastic response in churches and other houses of worship, with sales growing rapidly. The introduction of the Midas XL 200 and XL 4 mixing consoles is expected to add to the success already experienced by the Midas XL 3 console. The XL 200 offers quality and performance in a mid-priced touring console. The Midas XL 4 is a world-class mixing console combining state-of-the-art analog circuitry with a digital automation control system. Digital Signal Processing (DSP) is the latest trend in the professional audio market. Recognizing the trend in its early stages, Mark IV Audio offered its first digital products in 1987. With DSP technology, sound system users in airports, sports facilities, convention centers, churches and concert halls throughout the world, will have access to operation, reconfiguration and system status information that is flexible and easy to use. Musicians can now purchase a single "black box" that can be programmed to provide effects such as reverberation and echo, and tailor the effects through software. The group's structural reorganization in fiscal 1995 brings increased effectiveness in the area of customer service within the three geographic regions defined for business development. The centralization of manufacturing and engineering is helping Mark IV Audio to achieve a worldwide unity of effort, bring a tighter focus on key developments, share intellectual and physical resources, and concentrate investment in process and design technologies. Marketing and Competition Mark IV's products are marketed primarily in the United States and Europe, and to a lesser extent in Canada and the Far East. The company uses its own sales engineers and other sales personnel, independent distributors and sales representatives to market its products. A majority of the company's products have a significant and in many instances the leading market share in their respective markets. Most of the markets for the company's products are characterized by a limited number of competitors. However, competition in certain of those markets is intense. Some of the company's competitors are substantially larger than Mark IV and have greater financial resources. The company competes on the basis of price, quality, technical innovation and its ability to fill orders promptly, with the relative importance of each factor depending on the market for the particular product. Backlog The company does not believe that the backlog of orders for any of its products is material to the company as a whole. However, backlogs are a significant factor in the Infrastructure market of the Power and Fluid Transfer segment. Patents and Trademarks Although a number of patents and trademarks have been issued to the company and its subsidiaries, the company believes its competitive position is more dependent on its technical knowledge and processes than on patent or trademark protection. The company believes, however, that its trademarks and tradenames used in connection with certain products may be significant to its business. Research and Development The company is engaged in ongoing research and development in connection with new and existing products. Research and development expenditures are expensed as incurred, and amounted to $34,800,000; $30,900,000; and $26,100,000 in the company's operations in fiscal 1995, 1994 and 1993, respectively. Raw Materials and Supplies The materials and supplies used to produce the company's products are generally obtained from a wide variety of suppliers, and the company has not experienced any shortages. Although certain materials used in the manufacture of flip-dots, electrostatic control equipment, self-illuminating lights and smoke-detector ionization elements are readily available from only a few suppliers, the company does not anticipate any significant difficulties in obtaining any of these raw materials in the foreseeable future. Government Regulation Certain of the company's process control systems, electrostatic control devices, smoke-detector ionization elements and self-illuminating lights have radioactive components, the production, storage and transportation of which are subject to federal, state and local laws and regulations. Federal and state regulations also limit the amount of exposure the company's employees may have to such radioactive materials. The company has obtained the necessary licenses and approvals required for its businesses and believes it is in material compliance with all applicable regulations concerning radioactive materials and employee safety. A portion of the company's business is conducted pursuant to U.S. Government contracts or sub-contracts. Generally, government contracts and sub-contracts contain provisions permitting termination at any time at the convenience of the Government upon payment to the company of costs incurred plus a profit related to the work performed to the date of termination. Substantially all of the company's government contracts and sub-contracts contain these provisions. The company, as a government contractor, is subject to various statutes and regulations governing defense contracts. Other than as described above with respect to radioactive components, the company is not subject to any particular environmental laws or regulations which are not generally applicable to all manufacturing companies. The company believes that it is in material compliance with all applicable environmental laws and regulations. Mark IV does not anticipate having to incur material capital expenditures for environmental compliance in fiscal 1996 or fiscal 1997. Employees The company currently employs approximately 16,200 persons, of whom approximately 11,300 are production employees, with the remainder serving in executive, administrative, engineering or sales capacities. Approximately 3,300 production employees are covered by seventeen collective bargaining agreements which expire at various times through the year 2000. The company believes its relationship with its employees is good. Other Mark IV was incorporated in Delaware in 1970 and its executive offices are at 501 John James Audubon Parkway, Amherst, New York 14226-0810. Its telephone number is (716) 689-4972. ITEM 2. PROPERTIES The table below summarizes the approximate floor space of the company's corporate office and principal manufacturing facilities by business segment. Approximate Floor Space (In Thousands of Square Feet) Owned Leased Total Corporate Office - 23 23 Power and Fluid Transfer (1) 6,994 2,472 9,466 Professional Audio (2) 506 188 694 (1) Consisting of the following fifty-eight facilities: North American facilities (approximately 8,055,000 square feet): Waynesville, NC; Springfield, MO; Walterboro, SC; Williston, SC; Ocala, FL; Fort Scott, KS; Fort Worth, TX; Alliance, NE; Eldora, IA; McCook, NE; Fayetteville, AR; Red Wing, MN; Weston, Ontario, Canada; Walnut, CA; Rock Island, IL; Easley, SC; Bucyrus, OH; Lexington, TN; Buffalo, NY; Vero Beach, FL; Stillwell, OK; Tulsa, OK; Henderson, NC; Kenly, NC; Davenport, IA; Sacramento, CA; Newark, NJ; Dexter, MO; Fayettville, NC; Salt Lake City, UT; Greensboro, NC; Mexico City, Mexico; Pasteje, Mexico; Plano, TX; Montreal, Quebec, Canada; Niles, IL; Mississauga, Ontario, Canada (3); Cobourg, Ontario, Canada; Little Rock, AR; Austin, TX; Grand Island, NY; Clinton, MA; Hudsonville, MI. European Facilities (approximately 1,411,000 square feet): Halesowen, U.K.; Torino, Italy (2); Barcelona, Spain; Baudour, Belgium; Chieti, Italy; Manopello, Italy (2); Treforest, Wales, UK; Lacoruna, Spain; Varberg, Sweden; Rastatt, Germany and Nice, France. (2) Consisting of the following thirteen facilities: North American facilities (approximately 518,000 square feet): Buchanan, MI; Newport, TN; Sevierville, TN; Mishawaka, IN; Oklahoma City, OK(2); Sun Valley, CA; El Monte, CA; Gananoque, Ontario, Canada. European facilities (approximately 176,000 square feet): Straubing, West Germany; Hohenwarth, West Germany; Kidderminster, Worchester, U.K.; Hounslow, Middlesex, U.K. The company also owns or leases various small production facilities, sales offices, distribution and research centers which are not included in the above list of properties. The company believes that its existing facilities have sufficient capacity to meet its anticipated needs in each of its industry segments for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The company is involved in various legal and environmental related claims or disputes in the ordinary course of business. In the opinion of management, the ultimate cost to resolve these matters will not have a material adverse effect on the company's financial position, results of operations, or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The company's Common Stock is listed on the New York Stock Exchange (Symbol: IV). The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of the company's Common Stock as reported by the New York Stock Exchange. All amounts have been adjusted for the 5% stock dividend issued in April 1995. Fiscal 1995 Fiscal 1994 Low High Low High 1st Quarter $15.000 $18.125 $14.875 $17.875 2nd Quarter $17.125 $19.875 $18.000 $21.000 3rd Quarter $19.250 $21.875 $17.125 $23.375 4th Quarter $17.625 $19.375 $16.250 $19.000 As of February 28, 1995, the approximate number of holders of record of the company's Common Stock was 2,600. The company declared total cash dividends of $.107 and $.093 per share during fiscal 1995 and 1994, respectively. ITEM 6. SELECTED FINANCIAL DATA [Enlarge/Download Table] The following table sets forth selected consolidated financial information of the company for each of the five fiscal years in the period ended February 28, 1995. This table should be read in conjunction with the audited consolidated financial statements for the company and the related notes thereto included elsewhere herein. FIVE YEAR SUMMARY OF OPERATIONS (Amounts in thousands, except per share data) Fiscal Year Ended the Last Day of February, 1995 Pro Forma (1) 1995 (2) 1994 1993 1992 1991 (unaudited) Income Statement Data: Net sales $1,913,300 $1,603,300 $1,244,200 $1,085,700 $1,004,300 $ 789,700 Operating income (3) $ 190,400 $ 164,300 $ 131,800 $ 113,600 $ 108,600 $ 88,000 Interest expense 63,400 53,900 50,100 51,600 64,700 60,600 Operating income, net of interest expense $ 127,000 $ 110,400 $ 81,700 $ 62,000 $ 43,900 $ 27,400 Income from continuing operations: Before securities transactions $ 78,300 $ 67,900 $ 51,100 $ 39,100 $ 28,400 $ 17,000 Securities transactions - - - - (1,600) 600 Income from continuing operations 78,300 67,900 51,100 39,100 26,800 17,600 Income from discontinued operations - - - 3,600 2,000 4,700 Extraordinary items (1,100) (1,100) (21,700) (3,700) (4,500) 700 Cumulative effect of accounting change - - (26,000) - - - NET INCOME $ 77,200 $ 66,800 $ 3,400 $ 39,000 $ 24,300 $ 23,000 Primary income per share (4): Continuing operations: Before securities transactions $ 1.46 $ 1.40 $ 1.15 $ .89 $ .82 $ .64 Securities transactions - - - - (.05) .02 Continuing operations 1.46 1.40 1.15 .89 .77 .66 Discontinued operations - - - .08 .06 .18 Extraordinary items (.02) (.02) (.49) (.08) (.13) .03 Cumulative effect of accounting change - - (.58) - - - NET INCOME $ 1.44 $ 1.38 $ .08 $ .89 $ .70 $ .87 Fiscal Year Ended the Last Day of February, 1995 Pro Forma(1) 1995 (2) 1994 1993 1992 1991 (unaudited) Fully-diluted income per share (4): Continuing operations: Before securities transactions $ 1.35 $ 1.29 $ 1.04 $ .83 $ .75 $ .56 Securities transactions - - - - (.04) .02 Continuing operations 1.35 1.29 1.04 .83 .71 .58 Discontinued operations - - - .07 .05 .13 Extraordinary items (.02) (.02) (.41) (.07) (.12) .02 Cumulative effect of accounting change - - (.48) - - - NET INCOME $ 1.33 $ 1.27 $ .15 $ .83 $ .64 $ .73 Weighted average number of shares outstanding (4): Primary 53,700 48,600 44,600 44,100 34,800 26,600 Fully-diluted 60,100 55,000 53,300 52,800 40,300 35,100 Balance Sheet Data: Working capital $ 379,700 $ 379,700 $ 312,800 $ 275,400 $ 285,500 $ 345,100 Total assets $1,846,400 $1,846,400 $1,282,300 $1,124,800 $1,104,500 $1,100,100 Long-term debt $ 610,700 $ 610,700 $ 567,200 $ 497,100 $ 525,400 $ 717,600 Stockholders' equity (5) $ 635,500 $ 635,500 $ 345,400 $ 345,600 $ 311,900 $ 170,000 ____________________________ (1) Presents the proforma consolidated condensed results of operations as if the following transactions had occurred at the beginning of fiscal 1995: (i) the acquisition of Purolator in November 1994 and the related borrowings under the credit agreement; and (ii) the sale of the company's common stock in December 1994. (2) Includes the results of operations of the Purolator business from its November 1994 acquisition date. (3) Represents income from continuing operations before interest expense, securities transactions and taxes. (4) Adjusted to reflect the 5% stock dividend issued in April 1995. (5) The company declared cash dividends of approximately $.107; $.093; $.08; $.063 and $.055 per share in fiscal 1995, 1994, 1993, 1992 and 1991, respectively. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The company's short-term capital needs are met by cash generated through operations, and supplemented by its various credit facilities to the extent required. During fiscal 1995, net cash provided by earnings was $126.5 million, a 39% increase over the $91.2 million generated in fiscal 1994, which in turn represented a 46% increase over fiscal 1993. At February 28, 1995, the company's working capital investment was $379.7 million, a net increase of $66.9 million in comparison to February 28, 1994. Excluding the effects of the Purolator acquisition, net working capital was actually reduced by approximately $5.6 million in fiscal 1995. Management believes that cash generated from operations should be sufficient to support working capital requirements and anticipated capital expenditures for the foreseeable future. The company's long-term capital needs are met by cash generated from operations, bank financing, and a combination of public debt and equity offerings. Recent financing activities of a longer term nature include the following: - In October 1994, the company entered into agreements with certain holders of its 6-1/4% Convertible Debentures due February 15, 2011 to convert approximately $76.7 million of the debentures into approximately 5.6 million shares of the company's common stock. In January 1995, the company called for redemption the $37.5 million remaining principal amount of these debentures. As a result of the call for redemption, substantially all of the remaining debentures were converted into 2.7 million shares of the company's common stock. - In November 1994, the company entered into a $650 million credit agreement (the "1994 Credit Agreement") with a group of financial institutions which provides for (i) a five-year term loan in the principal amount of approximately $300 million used to finance the acquisition of Purolator and to repay certain existing Purolator debt, and (ii) a five-year revolving credit facility in an amount of up to $350 million used for refinancing the company's previously existing credit facility (the "1993 Credit Facility") and certain existing Purolator debt, and for working capital and other general corporate purposes. The loans outstanding under the 1994 Credit Agreement bear interest, at the company's option, at (i) the reference rate of the agent acting on behalf of the financial institutions, or (ii) under a LIBOR option with borrowing spreads of LIBOR plus 0.55% to LIBOR plus 1.00%, depending on the company's consolidated leverage ratio (as defined in the 1994 Credit Agreement). The company is currently paying interest on the loan at LIBOR plus 0.55% 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 secured by all of the outstanding capital stock of each guarantor subsidiary. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - In November 1994, the company acquired all of the stock of Purolator Products Company ("Purolator") for a total cash purchase price, including expenses, of approximately $286.3 million. Funding for the acquisition was provided by borrowings under the company's 1994 Credit Agreement. Purolator is a significant addition to the company's Power and Fluid Transfer business segment. The company also completed a number of smaller acquisitions during fiscal 1995 for a total purchase price of approximately $14.5 million. - In December 1994, the company completed an underwritten public offering of 6.5 million shares of its common stock, at a public offering price of $18.10 per share (the "Offering"). The net proceeds from the Offering of approximately $113 million were used to repay a portion of the company's outstanding indebtedness under the 1994 Credit Agreement. Under the terms of the 1994 Credit Agreement, the amount of net proceeds from the Offering used to repay outstanding indebtedness under the revolving credit facility may be reborrowed by the company. As a result of all of the activities discussed above, long-term debt at February 28, 1995 increased $43.5 million from the total amount outstanding at February 28, 1994. Absent the effects of the company's acquisitions and divestitures, as well as the effects of the equity offerings and debt conversion in fiscal 1995, long-term debt was actually reduced by approximately $17 million from the levels at February 28, 1994. The company's long-term debt as a percentage of total capitalization at February 28, 1995 is 49%, versus the 62.2% relationship which existed at February 28, 1994. In addition to the financing mentioned above, the company also has a revolving credit agreement (the "Multi-Currency Agreement") which it entered into in May 1993 and amended during fiscal 1995. The Multi-Currency Agreement provides 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 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 0.55% to LIBOR plus 1.00% 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 .55% 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company has borrowing availability under its primary credit agreements, including the Multi-Currency Agreement, of $411.7 million and additional availability under its various domestic and foreign demand lines of credit of approximately $87.0 million as of February 28, 1995. 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 and that availability under existing credit agreements is adequate to support operations and to provide flexibility in the balance sheet. Foreign Currency The company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. The company's sales from foreign locations and exports are about $580 million and as a result, the company does enter into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in various foreign currencies. Foreign currency transactions included in income amounted to gains (losses) of approximately $100,000; $300,000 and ($700,000) in fiscal 1995, 1994 and 1993, respectively. Unrealized gains and losses related to foreign currency forward contracts were not significant at February 28, 1995 or February 28, 1994. The maximum notional amount of foreign currency forward contracts outstanding at any one time during fiscal 1995 amounted to approximately $31.3 million and the approximate notional amounts of such contracts outstanding were $12,700,000 and $27,700,000 at the end of fiscal 1995 and 1994, respectively. At February 28, 1995, the company also had an interest rate swap outstanding on debt of approximately $17 million, which effectively converts variable rate debt to a fixed annual interest rate of approximately 4.75% through September 1996. From time to time, the company may enter into such arrangements to balance the mix of fixed and variable rate debt. Results of Operations Prior to the acquisition of Purolator, 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 original equipment manufacturers ("OEM") market and the infrastructure market. Such products and systems include those related to rubber and plastic belts, hose, fittings and related assemblies; filters; power transfer mechanisms for door control systems used in mass transit vehicles; information displays; and advanced traffic control and management systems; and (ii) Professional Audio, which includes the design and manufacture of products and systems used primarily in the high-performance professional audio market, such as microphones, speakers, public address and musical instrument loudspeaker systems, audio signal processors, and sound enhancement and noise canceling equipment. The results of operations of Purolator have been included in the company's results of operations for fiscal 1995 from its November 1994 acquisition date. The results of operations of Pirelli Trasmissioni SpA ("PTI"), a significant acquisition in fiscal 1994, have been included in the company's results of operations from its June 1993 acquisition date. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In reviewing the company's sales performance, the following results by segment should be considered for each of the fiscal years presented (dollars in thousands): 1995 1994 ------------------ ----------- % Increase % Increase Over Prior Over Prior Amount Year Amount Year 1993 ---- Net Sales to Customers: Power and Fluid Transfer $1,418,000 32.4% $1,070,700 17.8% $ 908,900 Professional Audio 185,300 6.8% 173,500 (1.9%) 176,800 Total $1,603,300 28.9% $1,244,200 14.6% $1,085,700 The increase in the Power and Fluid Transfer sales in fiscal 1995 is primarily the result of the Purolator acquisition and other smaller acquisitions, as well as the inclusion of PTI (acquired in June 1993), for all of fiscal 1995 and only nine months in fiscal 1994. Excluding the acquisitions, sales increased approximately $201.1 million (21.1%) over fiscal 1994, with $105.3 million of the increase in the U.S., and the $95.8 million balance of the increase primarily in Europe. Foreign currency exchange rate movements did not significantly effect fiscal 1995 sales in comparison to fiscal 1994. The increase in fiscal 1994 in comparison to fiscal 1993 is the result of internal growth of approximately $54.1 million (6.0%), and the inclusion of the PTI operations. Excluding PTI and the negative effect of foreign currency movements, the internal growth in fiscal 1994 was approximately $74.8 million (8.2%), with $45.7 million (5.0%) of such growth generated from the segment's U.S. operations and the balance from its foreign based operations. The $11.8 million increase in Professional Audio sales in fiscal 1995 was generated equally by the segment's U.S. and Pacific Rim operations. Sales in the segment's European operations remained comparable to the prior year's, with relative strengthening beginning in the latter part of fiscal 1995. Sales in the Professional Audio segment in fiscal 1994 remained comparable to fiscal 1993, with a slight increase in U.S. sales being offset by a decline in the segment's foreign operations, primarily in Europe. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cost of products sold as a percentage of consolidated net sales were 66.1%, 64.6%, and 64.4% in fiscal 1995, 1994 and 1993, respectively. The increase in the percentage of costs in fiscal 1995 is primarily the result of the Purolator acquisition, due to its historically lower gross margin, with its last four months tending to be the lowest margin months. This level of costs also reflects the positive effects of the company's cost control programs, which have helped to substantially offset the negative pressures on the margins experienced by both of the company's business segments. Selling and administration costs as a percentage of consolidated net sales were 18.3%, 19.0%, and 19.8% in fiscal 1995, 1994 and 1993, respectively. The reductions in fiscal 1995 and 1994 are primarily the result of operating synergies achieved from the combination of the PTI business with the previously existing European operations of the Power and Fluid Transfer business segment. The relatively consistent level of costs also indicates 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 $3.9 million (12.6%) in fiscal 1995 over fiscal 1994, which in turn increased by $4.8 million (18.4%) over fiscal 1993. The increases in fiscal 1995 and 1994 are primarily caused by the Purolator and PTI acquisitions. As a percentage of consolidated net sales, such costs were in the range of 2.2% to 2.5% in each of fiscal 1995, 1994 and 1993. This consistent level of investment reflects the company's continuing emphasis on new product development. Depreciation and amortization expense increased by $9.8 million (23.5%) in fiscal 1995 over fiscal 1994, which in turn increased by $9.6 million (29.9%) over fiscal 1993. The increases in fiscal 1995 and 1994 are primarily attributable to the Purolator and PTI acquisitions. The fiscal 1995 amount also includes $1.6 million related to the restricted stock grants made primarily in fiscal 1994, compared to $800,000 in fiscal 1994. The remaining increases are primarily the result of increased capital equipment expenditures. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The above mentioned items resulted in the following operating income for each of the fiscal years presented (dollars in thousands): [Download Table] 1995 1994 1993 % of % of % of Related Related Related Amount Sales Amount Sales Amount Sales OPERATING INCOME Power and Fluid Transfer $158,400 11.2% $124,800 11.7% $104,100 11.5% Professional Audio 21,800 11.8% 21,900 12.6% 22,000 12.4% Total operating income 180,200 11.2% 146,700 11.8% 126,100 11.6% Corporate expenses (15,900) (1.0) (14,900) (1.2)% (12,500) (1.1)% Continuing operations, before interest and taxes $164,300 10.2% $131,800 10.6% $113,600 10.5% In spite of the increased interest cost resulting from the Purolator and PTI acquisitions, as well as the increase in the overall interest rate environment, interest expense was up only $3.8 million (7.6%) in fiscal 1995 in comparison to fiscal 1994. The relatively slight increase in fiscal 1995's expense was achieved as a result of the financing transactions referred to in the Liquidity and Capital Resources section, as well as the new 1994 Credit Agreement which provided for lower interest rates as a result of the company's improved debt to total capitalization position. Fiscal 1994's interest expense was actually down $1.5 million (2.9%) from fiscal 1993's expense. 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 at the beginning of fiscal 1994, which was refinanced with the issuance of the company's 8-3/4% Senior Subordinated Notes. The interest expense amounts reported for continuing operations also reflect the allocation of $1.4 million, $2.2 million, and $5 million to discontinued operations in fiscal 1995, 1994 and 1993, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company's provision for income tax as a percentage of pre-tax accounting income was 38.5%, 37.5%, and 36.9% in fiscal 1995, 1994 and 1993, respectively. The higher rates in fiscal 1995 and 1994 are primarily the result of increased income in foreign jurisdictions with higher statutory tax rates than in the U.S. As a result of all of the above, the company's income from continuing operations in fiscal 1995 increased $16.8 million (32.9%) over fiscal 1994. In turn, fiscal 1994's income from continuing operations increased $12 million (30.7%) over fiscal 1992. As a result of replacing the prior credit agreement with the 1994 Credit Agreement and the other debt extinguishment referred to above, the company incurred extraordinary losses, net of related tax benefits, of $1.1 million, $21.7 million and $3.7 million in fiscal 1995, 1994 and 1993, 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 million as the cumulative effect of the accounting change in fiscal 1994. The above extraordinary items and cumulative effect of the accounting change in fiscal 1994 resulted in significantly reduced net income of $3.4 million in fiscal 1994 in comparison to the $66.8 million earned in fiscal 1995 and the $39 million earned in fiscal 1993. Impact of Inflation Generally, the company has been able to pass on or offset inflation-related cost increases; consequently, inflation has had no material impact on income from operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Page Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1995. . . . . . . . . . . . . . . . . . . . .28 Financial Statements: Consolidated Balance Sheets at February 28, 1995 and 1994 . . . . . . . .29 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1995. . . . . . . . . . . . . . . . . . . . . . . . .31 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1995 . . . . . . . . . . . . . . . . . . .32 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . .33 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1995. 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 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1995, in conformity with generally accepted accounting principles. As discussed in Note 11 to the consolidated financial statements, in 1994 the company changed its method of accounting for postretirement benefits other than pensions. COOPERS & LYBRAND L.L.P. Rochester, New York March 30, 1995 MARK IV INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1995 AND 1994 (Dollars in Thousands) ASSETS 1995 1994 Current Assets: Cash $ 800 $ 500 Accounts receivable 383,700 275,100 Inventories 361,900 265,000 Other current assets 58,600 42,100 Total current assets 805,000 582,700 Pension and other non-current assets 197,100 138,200 Property, plant and equipment, net 487,900 365,300 Cost in excess of net assets acquired 356,400 196,100 TOTAL ASSETS $1,846,400 $1,282,300 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of debt $ 67,300 $ 45,000 Accounts payable 174,000 99,700 Compensation related liabilities 70,400 43,100 Accrued interest 13,800 13,600 Other current liabilities 99,800 68,500 Total current liabilities 425,300 269,900 Long-Term Debt: Senior debt 352,700 195,000 Subordinated debt 258,000 372,200 Total long-term debt 610,700 567,200 Other non-current liabilities 174,900 99,800 Stockholders' Equity: Common stock - $.01 par value; Authorized 100,000,000 shares; Issued 59,900,000 shares in 1995 and 44,800,000 shares in 1994 600 400 Additional paid-in capital 550,200 261,500 Retained earnings 90,800 88,600 Foreign currency translation adjustment (6,100) (5,100) Total stockholders' equity 635,500 345,400 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,846,400 $1,282,300 The accompanying notes are an integral part of these financial statements. MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED THE LAST DAY OF FEBRUARY 1995, 1994 and 1993 (Amounts in Thousands, Except Per Share Data) [Enlarge/Download Table] Pro Forma 1995* 1995 1994 1993 (Unaudited) Net sales $1,913,300 $1,603,300 $1,244,200 $1,085,700 Operating costs: Cost of products sold 1,285,200 1,060,000 803,500 698,800 Selling and administration 338,200 292,700 236,300 215,100 Research and development 38,900 34,800 30,900 26,100 Depreciation and amortization 60,600 51,500 41,700 32,100 Total operating costs 1,722,900 1,439,000 1,112,400 972,100 Operating income 190,400 164,300 131,800 113,600 Interest expense 63,400 53,900 50,100 51,600 Income from continuing operations, before provision for taxes 127,000 110,400 81,700 62,000 Provision for taxes 48,700 42,500 30,600 22,900 Income from continuing operations 78,300 67,900 51,100 39,100 Income from discontinued operations, net - - - 3,600 Income before extraordinary items and accounting change 78,300 67,900 51,100 42,700 Extraordinary loss from early extinguishment of debt, net of tax benefit of $700; $12,300; and $2,000 (1,100) (1,100) (21,700) (3,700) Cumulative effect of a change in accounting principle - - (26,000) - NET INCOME $ 77,200 $ 66,800 $ 3,400 $ 39,000 Net income per share of common stock: Primary: Income from continuing operations $ 1.46 $ 1.40 $ 1.15 $ .89 Income from discontinued operations - - - .08 Extraordinary loss (.02) (.02) (.49) (.08) Cumulative effect of a change in accounting principle - - (.58) - NET INCOME $ 1.44 $ 1.38 $ .08 $ .89 Fully-diluted: Income from continuing operations $ 1.35 $ 1.29 $ 1.04 $ .83 Income from discontinued operations - - - .07 Extraordinary loss (.02) (.02) (.41) (.07) Cumulative effect of a change in accounting principle - - (.48) - NET INCOME $ 1.33 $ 1.27 $ .15 $ .83 Weighted average shares outstanding: Primary 53,700 48,600 44,600 44,100 Fully-diluted 60,100 55,000 53,300 52,800 The accompanying notes are an integral part of these financial statements. * To reflect acquisition and equity transactions occurring as of the beginning of the year, as discussed further in Note 2. MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED THE LAST DAY OF FEBRUARY 1995, 1994 AND 1993 (Dollars in Thousands, Except Per Share Data) [Download Table] Foreign Additional Currency Common Paid-in Retained Translation Stock Capital Earnings Adjustment Balance at February 29, 1992 $ 400 $154,800 $156,500 $ 200 Net income for fiscal 1993 39,000 Cash dividends of $.08 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 $.093 per share (4,200) Stock dividend of 5% issued in April 1994 38,900 (38,900) Conversion of 6-1/4% Convertible Debentures 100 Restricted stock grants, net 800 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) Net income for fiscal 1995 66,800 Cash dividends of $.107 per share (5,600) Stock dividend of 5% issued in April 1995 59,000 (59,000) Public sale of common stock at $18.10 per share,net of expenses 100 112,400 Sale of common stock to employee benefits plans at $18.10 per share 2,000 Conversion of 6-1/4% Convertible Debentures, net of expenses 100 111,100 Restricted stock grants, net 1,600 Stock options activity, including related tax benefits 2,600 Translation adjustments ( 1,000) Balance at February 28, 1995 $ 600 $550,200 $ 90,800 ($ 6,100) The accompanying notes are an integral part of these financial statements. MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED THE LAST DAY OF FEBRUARY 1995, 1994 AND 1993 (Dollars in Thousands) [Download Table] 1995 1994 1993 Cash flows from operating activities: Income from continuing operations $ 67,900 $ 51,100 $ 39,100 Items not affecting cash: Depreciation and amortization 51,500 41,700 32,100 Deferred income taxes 18,200 10,800 3,900 Pension income, net of other items (11,100) (12,400) (12,500) Net cash provided by earnings 126,500 91,200 62,600 Changes in assets and liabilities, net of effects of acquired and discontinued businesses: Accounts receivable (20,900) (27,200) (12,000) Inventories (23,100) (7,700) 1,300 Other assets (3,000) (5,700) 6,000 Accounts payable 33,700 (2,600) 3,800 Other liabilities (16,100) (8,400) (21,400) Net cash provided by continuing operations 97,100 39,600 40,300 Discontinued operations, before non-cash items - 1,100 8,800 Extraordinary items, before deferred charges - (30,100) (4,900) Net cash provided by operating activities 97,100 10,600 44,200 Cash flows from investing activities: Acquisitions (300,900) (65,000) (4,000) Divestitures and asset sales 12,100 35,000 13,500 Purchase of plant and equipment, net (49,600) (38,000) (32,900) Net cash used in investing activities (338,400) (68,000) (23,400) Cash flows from financing activities: Credit agreement borrowings, net 121,400 (30,000) 65,000 Multi-currency credit agreement borrowings, net (10,200) 48,400 - Purchases of senior and subordinated debt - (190,200) (62,800) Issuance of subordinated debt - 258,000 - Other changes in long-term debt, net 900 (18,900) (33,600) Changes in short-term bank borrowings 19,500 (8,300) 11,700 Common stock transactions 114,800 800 900 Cash dividends paid (5,100) (4,100) (3,300) Net cash provided by (used in) financing activities 241,300 55,700 (22,100) Effect of exchange rate fluctuations 300 (500) (600) Net increase (decrease) in cash 300 (2,200) (1,900) Cash and cash equivalents: Beginning of the year 500 2,700 4,600 End of the year $ 800 $ 500 $ 2,700 The accompanying notes are an integral part of these financial statements. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and its Significant Accounting Policies The Company The company is a diversified manufacturer of proprietary and other products, with operations in Power and Fluid Transfer and Professional Audio businesses. Principles of Consolidation The consolidated financial statements include the accounts of the company and all of its subsidiaries. All significant intercompany transactions have been eliminated. Inventories Inventories are stated at the lower of cost or market, with cost determined primarily on the last-in, first-out (LIFO) method. Property, Plant and Equipment Property, plant and equipment are presented at cost, net of accumulated depreciation. 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 company provides for depreciation of plant and equipment primarily on the straight-line method to amortize the cost of such plant and equipment over its useful life. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired ("goodwill") is presented net of accumulated amortization. The company continually evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected, undiscounted net cash flows of the related business unit. Goodwill is amortized on the straight-line method over 40 year periods from the acquisition dates of the respective businesses acquired. 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. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Postretirement Benefits Through fiscal 1993, the company accounted for the cost of postretirement benefits on the cash basis as they were paid. In fiscal 1994, the company adopted Statement of Financial Accounting Standards No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions (SFAS No. 106). SFAS No. 106 required 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. 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. Foreign Currency The assets and liabilities of the company's foreign subsidiaries are translated at year-end exchange rates, and resulting gains and losses are accumulated in a separate component of stockholders' equity. Foreign currency transactions are included in income as realized. The company enters into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in various foreign currencies. Gains or losses on contracts related to existing business transactions are deferred and recognized as the related transaction is completed. Gains or losses on contracts related to anticipated transactions are recognized as of the balance sheet date. 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 year, 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% Convertible Debentures (for the periods outstanding), as well as the elimination of related interest expense, net of income tax effects. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows For purposes of cash flows, the company considers overnight investments as cash equivalents. The company paid interest of approximately $56,000,000; $52,900,000; and $58,700,000 in fiscal 1995, 1994 and 1993, respectively. Such amounts include $1,400,000; $2,200,000 and $5,000,000 allocated to the costs of discontinued operations in fiscal 1995, 1994 and 1993, respectively. The company paid income taxes of approximately $21,900,000; $13,700,000; and $11,800,000 in fiscal 1995, 1994 and 1993, respectively. 2. Acquisitions and Divestitures In November 1994, the company acquired substantially all of the stock of Purolator Products Company ("Purolator") for a total cash purchase price, including expenses, of approximately $286,300,000. Funding for the acquisition was provided by borrowings under the company's 1994 Credit Agreement. Purolator is a manufacturer of a broad range of filters used principally in the automotive aftermarket, and specialized separation systems for marine, high-technology and industrial applications. Purolator is a significant addition to the company's Power and Fluid Transfer business segment. The acquisition has been accounted for under the purchase method, and Purolator's results of operations have been consolidated with the company's results of operations effective as of the acquisition date. The company has made a preliminary determination and allocation of the purchase price as of the acquisition date, consisting of the following (dollars in thousands): Accounts receivable $ 83,300 Inventories 69,900 Other current assets 22,000 Accounts payable and other current liabilities (102,700) Net working capital acquired 72,500 Fixed assets 106,900 Cost in excess of net assets acquired 154,200 Long-term bank indebtedness (38,600) Other non-current items, net (8,700) Total purchase price, including expenses $286,300 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The financial position of Purolator has been included in the consolidated balance sheet of the company as of February 28, 1995 based upon the above preliminary determination and allocation. Such amounts will be finalized upon additional analysis and asset valuation determinations to be made by the company with the assistance of various outside firms. The final changes will be recorded in fiscal 1996, and are not expected to have a significant impact on the company's results of operations as reported herein. The pro forma 1995 information presented in the consolidated statements of income is based upon the following information, which presents the pro forma consolidated condensed results of operations as if the acquisition of Purolator in November 1994 and the sale of the company's common stock in December 1994 had occurred at the beginning of each of the years presented. The pro forma amounts do not purport to be indicative of the results that actually would have been obtained had the transactions identified above actually taken place at the beginning of each of the years, nor are they intended to be a projection of future results (dollars in thousands, except per share amounts): 1995 1994 (Unaudited) Net sales $1,913,300 $1,654,500 Income before interest and taxes $ 190,400 $ 160,400 Income before extraordinary items and accounting changes $ 78,300 $ 60,800 Income per share, before extraordinary items and accounting changes: Primary $ 1.46 $ 1.19 Fully-diluted $ 1.35 $ 1.09 The company made several other small acquisitions during fiscal 1995 for a total purchase price of approximately $14,500,000. During fiscal 1994, the company decided to sell its non-core business units, and accounted for them as discontinued operations. The sale of certain of the company's assets held for sale generated proceeds of $12,100,000 in fiscal 1995 and $35,000,000 in fiscal 1994. At February 28, 1995, the company's net assets of its remaining discontinued operations amounted to approximately $19,500,000. 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. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Accounts Receivable Accounts receivable are reflected net of allowances for doubtful accounts of $18,600,000 and $12,000,000 at February 28, 1995 and 1994, respectively. 4. Inventories Inventories consist of the following at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Raw materials, parts, and sub-assemblies $ 103,500 $ 67,700 Work-in-process 60,200 43,500 Finished goods 198,200 153,800 Total $361,900 $265,000 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 $39,300,000 and $35,000,000 at February 28, 1995 and 1994, respectively. 5. Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Land and land improvements $ 41,500 $ 35,700 Buildings 145,300 115,700 Machinery and equipment 451,600 324,700 Total property, plant and equipment 638,400 476,100 Less accumulated depreciation 150,500 110,800 Property, plant and equipment, net $487,900 $365,300 Depreciation expense was approximately $40,900,000; $33,200,000; and $29,800,000 in fiscal 1995, 1994 and 1993, respectively. 6. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is presented net of accumulated amortization of approximately $29,700,000 and $22,700,000 at February 28, 1995 and 1994, respectively. Amortization expense was approximately $7,000,000; $5,700,000 and $4,700,000 in fiscal 1995, 1994 and 1993, respectively. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Long-Term Debt Long-term debt consists of the following at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Senior debt: Credit Agreement $ 300,000 $140,000 Multi-Currency Agreement 38,300 48,400 Other items 42,500 40,500 Total 380,800 228,900 Less current maturities (8,600) (5,800) Less amounts allocated to discontinued operations (19,500) (28,100) Net senior debt 352,700 195,000 Subordinated debt: 8-3/4% Senior Subordinated Notes 258,000 258,000 6-1/4% Convertible Debentures - 114,200 Total subordinated debt 258,000 372,200 Total long-term debt 610,700 567,200 Total stockholders' equity 635,500 345,400 Total capitalization $1,246,200 $912,600 Long-term debt as a percentage of total capitalization 49.0% 62.2% In November 1994, the company entered into a new $650,000,000 credit agreement (the "1994 Credit Agreement") with a group of financial institutions which provides for (i) a five-year term loan in the principal amount of approximately $300,000,000 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 $350,000,000 used for refinancing the company's previously existing credit facility (the "1993 Credit Facility") and certain existing Purolator debt, and for working capital and other general corporate purposes. The loans outstanding under the 1994 Credit Agreement bear interest, at the company's option, at (i) the reference rate of the agent acting on behalf of the financial institutions, or (ii) under a LIBOR option, with borrowing spreads of LIBOR plus 0.55% to LIBOR plus 1.00% depending on the company's consolidated leverage ratio (as defined in the 1994 Credit Agreement). The company is currently paying interest on the loan at LIBOR plus 0.55% 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 such guarantees are collateralized by first priority pledges of all outstanding capital stock of each guarantor subsidiary. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In October 1994, the company entered into agreements with certain holders of its 6-1/4% Convertible Debentures due February 15, 2011 to convert approximately $76,700,000 of the debentures into approximately 5,600,000 shares of the company's common stock. In January 1995, the company called for redemption the $37,500,000 remaining principal amount of these debentures. As a result of the call for redemption, substantially all of the debentures were voluntarily converted into 2,700,000 shares of the company's common stock. The principal amount of converted debt, as well as related unamortized deferred charges, have been reclassified to common stock and additional paid in capital. In May 1993, the company entered into a revolving credit agreement (as amended in January 1995, the "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 0.55% to LIBOR plus 1.00% 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 .55% 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. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 of its indebtedness and recognized an extraordinary loss, net of tax, of $3,700,000 in fiscal 1993. The fair value of the 8-3/4% Senior Subordinated Notes is less than their recorded value by approximately $9,000,000 as of February 28, 1995, 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, 1995. The recorded amounts for other financial instruments, such as cash and accounts receivable, approximate their fair value. Annual maturities of the company's long-term debt for the next five fiscal years are approximately: 1996-$8,600,000; 1997-$4,200,000; 1998-$17,100,000; 1999-$27,000,000; and 2000-$312,700,000. The amounts for fiscal 1996 through 1999 exclude maturities related to the term loan portion of the 1994 Credit Agreement as it is anticipated that such amounts will be offset with availability under the revolving credit facility portion of such agreement until maturity in 2000, by which date it is anticipated that the agreement will have been extended, or replaced. 8. Leases The company has operating leases which expire at various dates through 2010 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 under operating leases was approximately $18,300,000; $15,900,000; and $15,900,000 in fiscal 1995, 1994 and 1993, respectively. Minimum rental payments under operating leases having an initial or remaining noncancellable term in excess of 12 months are approximately: 1996-$18,500,000; 1997-$15,300,000; 1998-$13,300,000; 1999- $11,400,000; 2000-$8,400,000; 2001 and thereafter $19,300,000. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes Income from continuing operations and the related provision for taxes for fiscal 1995, 1994 and 1993 consists of the following (dollars in thousands): 1995 1994 1993 Income from continuing operations, before provision for taxes: United States $ 69,500 $45,800 $41,400 Foreign 40,900 35,900 20,600 Total $110,400 $81,700 $62,000 Provision for taxes on income from continuing operations: Currently payable: United States $ 12,500 $14,500 $10,900 Foreign 11,800 5,300 8,100 Total currently payable 24,300 19,800 19,000 Deferred: United States 7,600 3,600 4,200 Foreign 10,600 7,200 (300) Total deferred 18,200 10,800 3,900 Total provision for taxes $ 42,500 $30,600 $22,900 The provision for taxes on income for fiscal 1995, 1994, and 1993 differs from the amount computed using the United States statutory income tax rate as follows (dollars in thousands): 1995 1994 1993 Expected tax at United States statutory income tax rate $ 38,600 $28,600 $21,100 Permanent differences 2,100 1,200 900 State and local income taxes 1,900 1,200 600 Tax credits (700) (500) (400) Foreign tax rate differences 600 100 700 Total provision for taxes $ 42,500 $30,600 $22,900 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences which give rise to a significant portion of deferred tax assets (liabilities) consist of the following at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Current: Accounts receivable $ 7,300 $ 3,900 Inventories (5,000) (9,500) Compensation related 8,000 3,400 Tax credit and net operating loss carryforwards - 9,000 Other items 7,000 7,500 Total current asset 17,300 14,300 Valuation allowance (5,600) (4,000) Net current asset $ 11,700 $ 10,300 Non-current: Fixed and intangible assets $(52,100) $(39,500) Pension and other benefit plans (5,500) (21,400) Tax credits 23,000 29,400 Capital loss carryforwards 11,000 11,300 All other items 26,800 19,600 Total non-current liability 3,200 (600) Valuation allowance (14,100) (16,800) Net non-current liability $(10,900) $(17,400) The current valuation allowance primarily offsets foreign tax benefits established in a previous acquisition which may not be realized. The non- current valuation allowance is primarily attributable to the capital loss carryforwards which are available to use substantially through fiscal 1996. Based on the company's history of prior operating earnings and its expectations for the future, management of the company has determined that it is more likely than not that operating income will be sufficient to utilize the tax credits 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. The determination of the possible tax effect relating to such reinvested income is not practicable. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Pension and Profit Sharing Plans The company has a variety of defined benefit pension 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. The following table sets forth the funded status of the company's defined benefit plans and the net asset amount included in the consolidated balance sheets at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Actuarial present value of benefit obligations: Vested $(259,400) $(233,300) Accumulated $(264,500) $(236,100) Projected $(273,700) $(241,900) Plan assets at fair value 335,400 314,300 Plan assets in excess of projected benefit obligation 61,700 72,400 Unrecognized net loss and differences in assumptions 49,100 36,400 Unrecognized prior service costs 2,700 3,100 Prepaid pension cost recognized in the consolidated balance sheets $ 113,500 $ 111,900 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 $28,800,000 and the company's 8-3/4% subordinated debentures with a market value of $6,700,000 at February 28, 1995. The funded status of Purolator's defined benefit plans as of the acquisition date consisted of plan assets of approximately $42,500,000 and a projected benefit obligation of approximately $53,500,000. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net pension income for the defined benefit pension plans in fiscal 1995, 1994, and 1993 includes the following components (dollars in thousands): 1995 1994 1993 Service cost-benefits earned during the period $ (3,600) $ (2,900) $ (2,700) Interest cost on projected benefit obligation (19,500) (18,200) (17,300) Actual return on assets 4,300 32,100 36,600 Net amortization and deferral 31,300 2,500 (4,100) Net pension income $ 12,500 $ 13,500 $ 12,500 The assumptions utilized to measure net pension income and the projected benefit obligations are as follows: 1995 1994 1993 Discount rate 8.75% 7.75% 9.00% Expected long-term rate of return 11.50% 12.00% 12.00% Average increase in compensation 4.00% 5.00% 5.00% The changes in the expected long-term rate of return and the rate of compensation increase did not have a significant effect on fiscal 1995's income, nor are they expected to have a significant effect on fiscal 1996's income. 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 are based on various percentages of compensation, and in some instances are based upon the amount of the employees' contributions to the plans. The annual cost of these plans, the substantial part of which is funded currently, amounted to approximately $8,100,000; $6,700,000; and $6,600,000 in fiscal 1995, 1994 and 1993, respectively. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Post-retirement 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. A number of 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 company recognized a $40,000,000 liability for the cost of these plans, referred to as the accumulated post-retirement benefit obligation (APBO), entirely in fiscal 1994 in accordance with SFAS No. 106. Since the company also adopted SFAS No. 109 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 APBO. The resulting net charge of $26,000,000 ($.48 per fully diluted share) was 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, which amounted to approximately $4,700,000; $4,600,000; and $3,600,000 in fiscal 1995, 1994 and 1993, respectively. The following table sets forth the amount included with other non-current liabilities in the consolidated balance sheets at February 28, 1995 and 1994 (dollars in thousands): 1995 1994 Accumulated post-retirement benefit obligation: Retirees and beneficiaries receiving benefits $64,100 $34,700 Active employees, fully eligible for benefits 6,100 4,600 Active employees, not fully eligible for benefits 10,300 6,500 Total accumulated benefit obligation 80,500 45,800 Unrecognized net loss (2,900) (6,600) Post-retirement benefit liability recognized in the consolidated balance sheets $77,600 $39,200 The company's post-retirement benefit expense on the accrual method for fiscal 1995 and 1994 includes the following components (dollars in thousands): 1995 1994 Service cost-benefits earned during the period $ 500 $ 400 Interest cost on the APBO 4,600 3,400 Total expense $5,100 $3,800 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The APBO for Purolator's various plans was approximately $38,200,000 as of the acquisition date, and such amount is the primary cause of the increase in the APBO from the end of fiscal 1994. The APBO was calculated using a discount rate of 8.75% at February 28, 1995, and 7.75% at February 28, 1994. The change in the discount rate did not have a significant effect on the expense determination for fiscal 1995 and 1994, and is not expected to have a significant effect for fiscal 1996. The APBO determinations assume an initial health care cost trend rate of approximately 10%, trending down rateably to an ultimate rate of 5%, which is expected to be reached in five years. The impact of a one-percentage-point increase in such trend rate would be to increase the APBO at February 28, 1995 by approximately $3,000,000 and increase annual expense by approximately $500,000. 12. Legal Proceedings The company is involved in various 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, results of operations or cash flows. 13. Stockholders' Equity and Stock Options In December 1994, the company completed an underwritten public offering of approximately 6,500,000 shares of its common stock, at a public offering price of $18.10 per share (the "Offering"). The net proceeds from the Offering of approximately $113,000,000 were used to repay a portion of the indebtedness outstanding under the company's 1994 Credit Agreement. The company also sold approximately 110,000 shares of its common stock to one of its pension plans in December 1994 at a price of $18.10 per share, or a total cost of approximately $2,000,000. The company granted certain executives restricted stock awards with respect to 22,000 shares in fiscal 1995 and 353,075 shares in fiscal 1994, at $.01 par value per share. In certain situations the restrictions on the stock lapse after a five year period. Therefore, the expense is being recognized as it is earned over the restriction period, with $1,600,000 and $800,000 recognized as an expense in fiscal 1995 and 1994, respectively. The unearned balance as of February 28, 1995 is approximately $4,500,000. As of February 28, 1995, approximately 250,500 shares remain available for issuance under the company's Restricted Stock Plan. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The company's qualified 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 approximately 952,419 and 1,486,791 shares reserved for the future granting of qualified incentive stock options at February 28, 1995 and 1994. As a result of the company's acquisition of Purolator, holders of Purolator non-qualified stock options were entitled to receive an immediate cash payment equal to their built-in gain in such options as of the acquisition date. In lieu of the cash payment, holders of Purolator options were given the opportunity to convert their options into options to acquire company stock at an exercise price that would give them the same built-in gain as they had in the Purolator options. As a result, certain of the Purolator options were converted into non-qualified options to acquire approximately 334,600 shares of the company's common stock at an average exercise price of $12.80 per share. The company's common stock and additional paid in capital were increased by approximately $2,000,000 to recognize the issuance of these "in- the-money" company stock options. The holders of such options are 100% vested in their exercise rights, and all such options have a duration of 10 years from the date they were originally granted by Purolator. The following table summarizes the status of all of the company's stock option transactions for fiscal 1995, 1994 and 1993 (dollars in thousands, except per share amounts): 1995 1994 1993 Average Average Average Option Option Option Option Option Option Shares Price Shares Price Shares Price Balance at beginning of year 596,650 $ 8.55 774,149 $ 7.29 885,252 $ 4.05 Activity during the year: Granted 870,946 $15.45 14,333 $18.37 245,069 $12.43 Exercised (100,583) $ 5.98 (175,680) $ 3.70 (352,525) $ 2.86 Canceled (6,421) $11.49 (16,152) $ 9.18 (3,647) $ 5.90 Balance at end of year: Outstanding 1,360,592 $13.12 596,650 $ 8.55 774,149 $ 7.29 Exercisable 644,348 $10.50 267,803 $ 6.83 271,783 $ 3.92 As a result of the exercise of certain employees' incentive stock options, the company realized a tax benefit of $200,000 and $1,700,000 in fiscal 1995 and 1994, respectively, and such amounts have been recognized as a direct increase in additional paid-in capital. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The company's Board of Directors declared five percent stock dividends which were distributed in April 1995 (declared March 30, 1995), April 1994, and May 1993. All share amounts have been presented as if the stock distributions had occurred on March 1, 1992, the beginning of fiscal 1993. The company continues to be authorized by its Board of Directors to repurchase approximately 6,700,000 shares, or approximately 11%, of the company's outstanding common stock as of February 28, 1995. The company is authorized to issue 10,000,000 shares of preferred stock, and there are no shares outstanding at the present time. 14. Industry Segments, Geographic Areas and Currency Transactions Prior to the acquisition of Purolator, 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. 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 original equipment manufacturers ("OEM") market and the infrastructure market. Such products and systems include those related to rubber and plastic belts, hose, fittings and related assemblies; filters; power transfer mechanisms for door control systems used in mass transit vehicles; information displays; and advanced traffic control and management systems; and (ii) Professional Audio, which includes the design and manufacture of products and systems used primarily in the high-performance professional audio market, such as microphones, speakers, public address and musical instrument loudspeaker systems, audio signal processors, and sound enhancement and noise canceling equipment. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information concerning the company's business segments for fiscal 1995, 1994 and 1993 is as follows (dollars in thousands): Proforma 1995 * 1995 1994 1993 (Unaudited) NET SALES TO CUSTOMERS Power and Fluid Transfer $1,728,000 $1,418,000 $1,070,700 $ 908,900 Professional Audio 185,300 185,300 173,500 176,800 Total net sales to customers $1,913,300 $1,603,300 $1,244,200 $1,085,700 OPERATING INCOME Power and Fluid Transfer $ 184,500 $ 158,400 $ 124,800 $ 104,100 Professional Audio 21,800 21,800 21,900 22,000 Total operating income 206,300 180,200 146,700 126,100 General corporate (15,900) (15,900) (14,900) (12,500) Interest expense (63,400) (53,900) (50,100) (51,600) Income from continuing operations, before provision for taxes $ 127,000 $ 110,400 $ 81,700 $ 62,000 IDENTIFIABLE ASSETS Power and Fluid Transfer $1,614,600 $1,614,600 $1,062,100 $ 843,100 Professional Audio 177,800 177,800 162,700 158,900 General corporate 54,000 54,000 57,500 122,800 Total identifiable assets $1,846,400 $1,846,400 $1,282,300 $1,124,800 DEPRECIATION AND AMORTIZATION Power and Fluid Transfer $ 52,400 $ 43,300 $ 34,600 $ 25,800 Professional Audio 4,500 4,500 4,500 4,400 General corporate 3,700 3,700 2,600 1,900 Total depreciation and amortization $ 60,600 $ 51,500 $ 41,700 $ 32,100 CAPITAL OUTLAYS Power and Fluid Transfer $ 55,900 $ 46,900 $ 38,900 $ 32,600 Professional Audio 3,900 3,900 2,500 1,700 General corporate - - - 1,200 Total capital outlays $ 59,800 $ 50,800 $ 41,400 $ 35,500 * To reflect acquisition and equity transactions occurring as of the beginning of the year, as discussed further in Note 2. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Operating income represents net sales 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 operations, including an allocated value to each segment of cost in excess of net assets acquired. Corporate assets consist primarily of cash, investments and assets not employed in production. 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 1995, 1994 and 1993 is as follows (dollars in thousands): Pro Forma 1995 * 1995 1994 1993 (Unaudited) NET SALES TO CUSTOMERS United States $1,385,200 $1,115,600 $ 884,500 $ 815,200 Foreign 528,100 487,700 359,700 270,500 Total net sales to customers $1,913,300 $1,603,300 $1,244,200 $1,085,700 OPERATING INCOME United States $ 151,200 $ 126,400 $ 105,700 $ 102,100 Foreign 55,100 53,800 41,000 24,000 Total operating income $ 206,300 $ 180,200 $ 146,700 $ 126,100 IDENTIFIABLE ASSETS United States $1,350,100 $1,350,100 $ 898,700 $ 916,800 Foreign 496,300 496,300 383,600 208,000 Total identifiable assets $1,846,400 $1,846,400 $1,282,300 $1,124,800 * To reflect acquisition and equity transactions occurring as of the beginning of the year, as discussed further in Note 2. 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 $92,900,000; $71,300,000; and $67,800,000 in fiscal 1995, 1994, and 1993, 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. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign currency transactions included in income amounted to gains (losses) of approximately $100,000; $300,000 and ($700,000) in fiscal 1995, 1994 and 1993, respectively. Unrealized gains and losses related to foreign currency forward contracts were not significant at February 28, 1995 or February 28, 1994. The maximum notional amount of foreign currency forward contracts outstanding at any one time during fiscal 1995 amounted to approximately $31,300,000 and the approximate notional amounts of such contracts outstanding at the end of fiscal 1995 was approximately $12,700,000. At February 28, 1995, the company also had an interest rate swap outstanding on debt of approximately $17,000,000 which effectively converts variable rate debt to a fixed rate of approximately 4.75% through September 1996. The company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Quarterly Financial Data and Information (Unaudited) [Download Table] The following table sets forth the unaudited quarterly results of operations for each of the fiscal quarters in the years ended February 28, 1995 and 1994 (dollars in thousands, except per share data): First Second Third Fourth Total Fiscal 1995 Quarter Quarter Quarter(a) Quarter(a) Year Net sales $363,800 $357,200 $397,300 $485,000 $1,603,300 Gross profit (b) $127,700 $124,700 $135,600 $155,300 $ 543,300 Income from continuing operations $ 17,100 $ 16,700 $ 16,500 $ 17,600 $ 67,900 Extraordinary items - - (1,100) - ( 1,100) Net income $ 17,100 $ 16,700 $ 15,400 $ 17,600 $ 66,800 Income per share (d): Primary: Continuing operations $ .38 $ .37 $ .34 $ .31 $ 1.40 Extraordinary items - - (.02) - (.02) Net income $ .38 $ .37 $ .32 $ .31 $ 1.38 Fully-diluted: Continuing operations $ .34 $ .33 $ .32 $ .30 $ 1.29 Extraordinary items - - (.02) - (.02) Net income $ .34 $ .33 $ .30 $ .30 $ 1.27 Fiscal 1994 Net sales $287,800 $316,600 $320,000 $319,800 $1,244,200 Gross profit (b) $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 (c) (d): Primary: Continuing operations $ .31 $ .29 $ .29 $ .26 $ 1.15 Extraordinary items (.49) - - - (.49) Cumulative effect of accounting change (.59) - - - (.58) Net income $ (.77) $ .29 $ .29 $ .26 $ .08 Fully-diluted: Continuing operations $ .28 $ .27 $ .26 $ .24 $ 1.04 Extraordinary items (.41) - - - (.41) Cumulative effect of accounting change (.49) - - - (.48) Net income $ (.62) $ .27 $ .26 $ .24 $ .15 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________________________________ (a) Includes the results of operations of Purolator from its acquisition date of November 4, 1994. (b) Excluding depreciation expense. (c) The sum of the quarterly amounts do not equal the total as a result of common stock transactions during the year. 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. (d) Restated to reflect the five percent stock dividend issued in April 1995. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Items 10-13 The information required for Items 10, 11, 12 and 13 is incorporated herein by reference to the information set forth in the definitive Proxy Statement for the company's 1995 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission not later than 120 days after February 28, 1995. PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Page (a) (1) Financial Statements Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1995 . . . . . . . . . . . . . . .28 Consolidated Balance Sheets at February 28, 1995 and 1994. . .29 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1995. . . . . . . . . . . . . . . . . . . . . .30 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1995. . . . . . . . . . . . . . . . . . .31 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1995 . . . . . . . . . . . . .32 Notes to Consolidated Financial Statements . . . . . . . . . .33 (2) Financial Statement Schedule Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1995 . . . . . . . . . . . . . . .60 II. Valuation and qualifying accounts . . . . . . . . . . . .61 All other schedules and statements have been omitted as the required information is inapplicable or is presented in the financial statements or notes thereto. (b) Reports on Form 8-K The following reports on Form 8-K were filed pertaining to events occurring during the quarter ended February 28, 1995. 1. A current report on Form 8-K dated December 21, 1994 was filed to report under Item 5 that the company completed an underwritten public offering of 6,483,750 shares of its common stock at a public offering price of $18.10 per share. 2. A current report on Form 8-K dated February 17, 1995 was filed to report under Item 5 that the company completed a redemption of the $37,478,000 outstanding aggregate principal amount of its 6-1/4% Convertible Subordinated Debentures due February 15, 2007. As a result of the call for redemption, substantially all of the debentures were voluntarily converted into approximately 2.7 million shares of common stock. (c) Exhibits 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date (incorporated by reference to the exhibit (c)(1) to Schedule 14D - (Tender Offer) dated October 7, 1994, as filed with the SEC on such date). 2.2 Offer to Purchase, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 2.3 Share Purchase Agreement dated April 29, 1993 among Mark IV Industries, Inc., a Delaware Corporation, and its indirect wholly-owned subsidiary, Dayco Italy, S.p.A., an Italian Corporation, and Pirelli S.p.A., an Italian Corporation (incorporated by reference to exhibit 2.1 to the company's Current Report on Form 8-K dated May 27, 1993, as filed on June 17, 1993). All schedules and other attachments to this exhibit, as identified on the last page of the exhibit, have been omitted. 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.11 to Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3 dated August 6, 1991). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 4.3 Conformed copy of the Indenture, dated as of March 15, 1993, between Mark IV Industries, Inc. and Citibank, N.A.; including the form of Senior Subordinated Notes due April 1, 2003 (incorporated by reference to Exhibit 4.1 to the company's Current Report on Form 8-K dated March 29, 1993). Executive Compensation Plans and Arrangements (10.1 -10.20) 10.1* Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero. 10.2* Employment Agreement dated March 1, 1995 between the Company and Clement R. Arrison. 10.3* Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes. 10.4* Employment Agreement dated March 1, 1995 between the Company and William P. Montague. 10.5* Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook. 10.6* Employment Agreement dated March 1, 1995 between the Company and John J. Byrne. 10.7* Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds. 10.8* Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel. 10.9* Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco") and Bruce A. McNiel. 10.10* Employment Agreement dated January 1, 1995 between the Company, Dayco, Dayco Europe, A.B. and Kurt J. Johansson. 10.11* Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert. 10.12 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 10.13 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.14* Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995. 10.15 Mark IV Industries, Inc. Executive Bonus Plan (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1991). 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 Third Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective September 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19* First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993. 10.20* Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994. Other Material Contract Exhibits 10.21 Credit and Guarantee Agreement dated as of November 2, 1994, among Mark IV Industries, Inc., as Borrower, Mark IV Transportation Products Corp., Gulton Industries, Inc., Dayco Products, Inc. Electro-Voice Incorporated, Anchor Swan, Inc. and Mark IV Acquisition Corp., as Guarantors, the banks and other financial institutions which are parties thereto, Bank of American National Trust and Savings Association, as Administrative Agent and BID Agent, and BA Securities, Inc. as Arranger (incorporated by reference to exhibit (b)(2) to Amendment No. 3 to Schedule 14D-1 (Tender Offer) dated November 2, 1994, as filed on that date). 10.22 Revolving Credit Facility Agreement dated May 27, 1993, among Mark IV Industries, Inc., a Delaware Corporation, Dayco Italy S.p.A., an Italian Corporation, Bank of America National Trust and Savings Association, Chemical Investment Bank Limited, and Citibank, N.A. and Chase Manhattan Bank N.A., as co-agents for various financial institutions that are signatories thereto (incorporated by reference to the Company's Current Report on Form 8-K dated May 27, 1993 as filed on June 17, 1993). All schedules and other attachments to this exhibit, as identified on page v of the exhibit, have been omitted. 11* Statement regarding computation of per share earnings. 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. ______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Mark IV Industries, Inc. Our report on the consolidated financial statements of Mark IV Industries, Inc. is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Rochester, New York March 30, 1995 [Enlarge/Download Table] MARK IV INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Charged Deductions Beginning (Credited) Accounts Ending Classifications Balance to Expense Charged Off Other(a) Balance Year ended February 28, 1995 Allowance for doubtful accounts $ 12,000,000 $ 3,300,000 $ (3,100,000) $ 6,400,000 $ 18,600,000 Year ended February 28, 1994 Allowance for doubtful accounts $ 10,300,000 $ 2,400,000 $ (3,100,000) $ 2,400,000 $ 12,000,000 Year ended February 29, 1993 Allowance for doubtful accounts $ 10,900,000 $ 2,700,000 $ (3,600,000) $ 300,000 $ 10,300,000 (a) Represents the following February February February 28, 1995 28, 1994 28, 1993 Reserve at date of acquisition of subsidiary $5,500,000 $3,700,000 $ - Reclassification from other reserves 400,000 100,000 500,000 Reserves of discontinued operations at February 28, 1993 - (900,000) - Foreign currency translation adjustment 500,000 (500,000) (200,000) $6,400,000 $2,400,000 $ 300,000 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARK IV INDUSTRIES, INC. By: /s/ Sal H. Alfiero Sal H. Alfiero, Chairman of the Board and Chief Executive Officer Dated: May 25, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date /s/ Sal H. Alfiero Chairman of the Board May 25, 1995 Sal H. Alfiero and Chief Executive Officer /s/ Clement R. Arrison President, Director May 25, 1995 Clement R. Arrison /s/ William P. Montague Executive Vice President May 25, 1995 William P. Montague and Chief Financial Officer /s/ Frederic L. Cook Senior Vice President - May 25, 1995 Frederic L. Cook Administration /s/ John J. Byrne Vice President-Finance May 25, 1995 John J. Byrne /s/ Richard L. Grenolds Vice President - May 25, 1995 Richard L. Grenolds Chief Accounting Officer /s/ Gerald S. Lippes Secretary and Director May 25, 1995 Gerald S. Lippes /s/ Joseph G. Donohoo Director May 25, 1995 Joseph G. Donohoo /s/ Herb Roth, Jr. Director May 25, 1995 Herb Roth, Jr. Exhibit Index 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date (incorporated by reference to the exhibit (c)(1) to Schedule 14D - (Tender Offer) dated October 7, 1994, as filed wiht the SEC on such date). 2.2 Offer to Purchase, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 2.3 Share Purchase Agreement dated April 29, 1993 among Mark IV Industries, Inc., a Delaware Corporation, and its indirect wholly- owned subsidiary, Dayco Italy, S.p.A., an Italian Corporation, and Pirelli S.p.A., an Italian Corporation (incorporated by reference to exhibit 2.1 to the Company's Current Report on Form 8-K dated May 27, 1993, as filed on June 17, 1993). All schedules and other attachments to this exhibit, as identified on the last page of the exhibit, have been omitted. 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the Company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.11 to Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3 dated August 6, 1991). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 4.3 Conformed copy of the Indenture, dated as of March 15, 1993, between Mark IV Industries, Inc. and Citibank, N.A.; including the form of Senior Subordinated Notes due April 1, 2003 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 29, 1993). Executive Compensation Plans and Arrangements (10.1 -10.20) 10.1* Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero. 10.2* Employment Agreement dated March 1, 1995 between the Company and Clement R. Arrison. 10.3* Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes. 10.4* Employment Agreement dated March 1, 1995 between the Company and William P. Montague. 10.5* Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook. 10.6* Employment Agreement dated March 1, 1995 between the Company and John J. Byrne. 10.7* Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds. 10.8* Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel. 10.9* Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco") and Bruce A. McNiel. 10.10* Employment Agreement dated January 1, 1995 between the Company, Dayco, Dayco Europe, A.B. and Kurt J. Johansson. 10.11* Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert. 10.12 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 10.13 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.14* Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995. 10.15 Mark IV Industries, Inc. Executive Bonus Plan (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1991). 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 Third Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective September 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19* First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993. 10.20* Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994. Other Material Contract Exhibits 10.21 Credit and Guarantee Agreement dated as of November 2, 1994, among Mark IV Industries, Inc., as Borrower, Mark IV Transportation Products Corp., Gulton Industries, Inc., Dayco Products, Inc. Electro-Voice Incorporated, Anchor Swan, Inc. and Mark IV Acquisition Corp., as Guarantors, the banks and other financial institutions which are parties thereto, Bank of American National Trust and Savings Association, as Administrative Agent and BID Agent, and BA Securities, Inc. as Arranger (incorporated by reference to exhibit (b)(2) to Amendment No. 3 to Schedule 14D-1 (Tender Offer) dated November 2, 1994, as filed on that date). 10.22 Revolving Credit Facility Agreement dated May 27, 1993, among Mark IV Industries, Inc., a Delaware Corporation, Dayco Italy S.p.A., an Italian Corporation, Bank of America National Trust and Savings Association, Chemical Investment Bank Limited, and Citibank, N.A. and Chase Manhattan Bank N.A., as co-agents for various financial institutions that are signatories thereto (incorporated by reference to the Company's Current Report on Form 8-K dated May 27, 1993 as filed on June 17, 1993). All schedules and other attachments to this exhibit, as identified on page v of the exhibit, have been omitted. 11* Statement regarding computation of per share earnings. 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. ______________________ * Filed herewith by direct transmission pursuant to the EDGAR program.

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2/15/11
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Filed on:5/25/958-A12B,  8-K
5/19/95
3/30/95
3/1/95
For Period End:2/28/95DEF 14A
2/17/958-K,  POS AM
1/1/95
12/21/948-K
11/4/94
11/2/948-K
10/11/94
10/7/94
10/3/94
3/30/94
2/28/9410-K,  10-K/A,  DEF 14A,  PRE 14A
12/1/93
11/30/9310-Q
9/1/93
6/17/93
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4/29/93
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3/15/93
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