Mark Iv Industries, Inc. Business Information, Profile, and History

Company Perspectives:

Mark IV Industries, Inc. is a leading manufacturer of engineered systems and components primarily for power transmission, fluid transfer and filtration applications. Our products are sold to industrial and automotive customers around the world through our two business segments--Mark IV Industrial and Mark IV Automotive. Within these businesses, we strive to exceed the expectations of our customers by providing them with the highest quality products and services.

Our objectives are to increase the company's cash flow from operations, continuously improve earnings, and enhance shareholder value. Other goals include balancing revenues between our domestic and international operations, growing our businesses internally and through acquisition, and strengthening the balance sheet.

We will strive to reduce the level of invested capital, improve our returns, and to channel our increased cash flow in a way which will improve shareholder value.

History of Mark Iv Industries, Inc.

Mark IV Industries, Inc. is a manufacturing conglomerate with two main operating units. Mark IV Automotive makes automotive systems and components, including power transmission systems, air intake systems, fuel systems, and fluid-handling systems. The automotive unit is also involved in the automotive aftermarket, producing belts, hoses, and accessories. Mark IV Industrial manufactures power transmission, fluid power, and fluid transfer products for various industrial applications; provides mass transit and traffic management systems; and makes specialty filtration products. Mark IV's greatest asset, however, may be chairman and CEO Salvatore H. Alfiero's propensity for finding and acquiring small technical or industrial companies that are undervalued but are leaders in specialized or niche markets. Mark IV owns more than 70 plants in the United States and abroad.

Early Years

Alfiero, with an undergraduate degree in aerospace engineering from Rensselaer Polytechnical Institute and an MBA from Harvard, and Clement R. Arrison (Mark IV's longtime president), a graduate of the University of Michigan with a degree in electrical engineering, met in 1967 when they both worked for Radatron, a Buffalo company manufacturing automatic radar detectors.

After two years, they invested in Glar-Ban International, a small company in Cheektowaga, New York, that manufactured nonglare instrumentation panels for aircraft. Both Alfiero and Arrison took leadership positions with the company. At the same time, Alfiero and a partner started Mark IV Homes, Inc., a mobile-home manufacturer in Pennsylvania. They were planning to call the company Cardinal Homes but they needed an alternate name in case their first choice was taken. Alfiero's associate happened to notice a cigar box on the desk; the name on the box was Mark IV. When they found out that the name Cardinal was, indeed, already in use, Mark IV Homes, Inc. was born.

In 1970 Glar-Ban bought Radatron, Alfiero's and Arrison's former employer, for $400,000. Glar-Ban continued to buy small companies for the next few years: in 1971, T. James Clarke Box & Label Corp., a drug and healthcare packaging manufacturer in Jamestown, New York; in 1972, E.N. Rowell Co., another box and packaging manufacturer in Batavia, New York; in 1974, Metal Awning Components Inc., in Clawson, Michigan; and in 1975, Nuclear Radiation Developments (NRD), a manufacturer of smoke detection and static elimination equipment in Grand Island, New York.

Mark IV Homes grew steadily from 1969 to 1973, building six plants and acquiring Roycroft Industries, Inc., a mobile home manufacturer in Chesaning, Michigan. Then a recession hit and the company's sales dropped from $29 million in 1973 to $19 million the next year. Interest rates were too high for potential buyers to finance housing purchases, and to make matters even worse, consumers were also turning away from mobile and manufactured homes. Mark IV showed a loss of almost $2 million in 1974 and posted losses for the next two years as well. Alfiero knew he had to get out of the mobile home business.

Mark IV Industries Emerged in 1976

In 1976 Alfiero bought out his Mark IV Homes partner. Alfiero and Arrison merged Glar-Ban and Mark IV, moved their headquarters to Williamsville, near Buffalo, and changed the name of the company to Mark IV Industries, Inc. In 1977 Mark IV, now the owner of several small, diverse manufacturing companies, showed a profit of $787,000, its first profit in four years, and sales increased from $18 million to $30 million. Still, it took several years for the company to find its direction. Alfiero and Arrison bought a few more small companies, but as Alfiero told the New York Times, "we were a company looking for what we wanted to be."

In the early 1980s, they knew they wanted to become a miniconglomerate and play the acquisitions game. They sold unprofitable or marginal enterprises, including Rowell, Radatron, and their remaining mobile home plants. They bought polystyrene foam producer Toyad Corporation of Latrobe, Pennsylvania, for more than $5 million and Pacemaker Plastics, Inc. for a quarter of a million dollars.

The two chief officers felt confident about their company because they had a solid base and a healthy balance sheet, but they still did not have a firm sense of where they were going until 1983, when they bought Protective Closures, the nation's top manufacturer of plastic caps, seals, and plugs. Arrison told Western New York magazine, "Over the years, we have become more sure of the areas where we do well and the areas we should avoid. In the beginning, we would try most anything. Today, we are much more selective in the industries where we'll participate and the types of companies we'll let go."

Acquisition of Protective Closures did not come easily. Mark IV finally acquired it for $10 million only after a bidding war with another company. But Protective was a clear moneymaker. With the addition of Protective Closures Mark IV's sales shot up from $21.5 million in 1983 to almost $39 million in 1984, and the company earned close to $2 million, nearly doubling its profits in a year. E. Maclin Roby, Mark IV executive vice-president and former chair of Gulton Industries, told the New York Times that the purchase of Protective Closures "was a pivotal event." He called it the "cash machine that allowed them to go off on a wider acquisition program." Not only was the purchase of Protective Closures a monetary success, but Mark IV finally found its direction: it would buy small undervalued companies that were already the leaders in their own specialized markets.

Alfiero and Arrison called this first phase of the new Mark IV its "build and prune" phase. The company was using debt to buy manufacturing companies in three core areas, and acquired companies had to be leaders in their niche markets. If some operations of the acquired company did not fit the product or profitability objectives of Mark IV, they were sold, enabling Mark IV to buy other companies or buy down its debt.

Following this "build and prune" strategy, in 1985 Mark IV bought LFE Corporation of Clinton, Massachusetts, a manufacturer of hydraulic, process control, and environmental control products. It also happened to be almost twice the size of Mark IV. Mark IV borrowed $37 million to buy LFE, and this acquisition also paid off in a big way. Mark IV's annual sales tripled to $120 million with the purchase of its first diversified company. In 1986 Mark IV purchased Gulton Industries Inc., a New Jersey company making electronics products for defense, audio, graphic display, and industrial uses.

Both LFE and Gulton perfectly fit Mark IV's criteria for acquisition. As Alfiero outlined in the New York Times, Mark IV's strategy was to target companies with a strong market position, a wide array of proprietary products, and less than 25 percent of sales to aerospace or military industries. Perhaps most importantly, company insiders could not be in control of a substantial share of the company's stock.

Acquisition of both LFE and Gulton started as hostile takeovers since neither company probably would have taken Mark IV's acquisition quest seriously because of its relatively small size. But after Mark IV began to purchase a substantial number of shares, it got the attention it wanted. Before long, hostile takeovers turned into friendly acquisitions.

Mark IV allowed a great deal of autonomy to the divisions it bought. Although management remained decentralized and division managers continued to run their own companies without day-to-day interference from Mark IV, the Mark IV corporate staff grew quickly, and in 1986 the company moved from its cramped offices in the Buffalo suburb of Williamsville to the nearby town of Amherst.

Mark IV did not have to worry about not being taken seriously after buying LFE and Gulton. According to Financial World, Mark IV was the fastest-growing company in the United States in 1986. Mark IV continued to follow its "prune and build" strategy, buying Conrac Corp., an electronics displays manufacturer; Eagle Signal Controls, a traffic signal manufacturer; and Cetec and Electronic Counters and Controls, both audio equipment manufacturers. In five years, Mark IV's assets had skyrocketed from $19 million to $612 million. Investors who had paid less than $2,000 each in 1969 owned stock worth more than $2 million in 1987.

Acquired Armtek in 1988

In the fall of 1988 the company paid $625 million for Armtek of Jamestown, New York, a manufacturer of automotive and industrial products, in the biggest acquisition in Mark IV's history. Alfiero told Forbes magazine, "The biggest thing we had going for us was that nobody thought we could pull it off."

With this purchase of another company twice its size, Mark IV's debt was more than $1 billion, and Alfiero and Arrison sought to reduce that debt quickly. Within a year, Mark IV sold two of Armtek's divisions--Copolymer, a chemicals producer, and Blackstone, a manufacturer of original equipment heat exchange systems for cars. Using those net proceeds, Mark IV paid off money borrowed to finance the Armtek purchase and ended up paying only $37 million for Dayco Products, which had been responsible for half of Armtek's sales and profits. Dayco was a definite moneymaker. With sales of $425 million, it was the nation's leading supplier of original equipment automobile accessory drive systems and the second leading supplier of aftermarket accessory drive systems.

Alfiero also began buying Mark IV's junk bonds at a heavily discounted rate when the government began pushing companies to put them on the market. Alfiero eliminated another $250 million in debt this way.

In 1991 Mark IV purchased F-P Electronics, a Canadian manufacturer of electromagnet information display devices; Anchor Swan, maker of garden hoses and flexible hoses for cars; Vapor, the world's largest maker of door systems for trains and buses; and two foreign companies, Dynacord of Germany and Klark-Teknik of the United Kingdom, both adding to Mark IV's audio line.

The company's largest core business in 1992 was Power Transfer and Fluid Handling. Mark IV's Dayco was the leading manufacturer of industrial belts and hoses used in home appliances, diesel engines, snowmobiles, and gardening, and a leading supplier of coolant hoses, power steering hoses, fuel hoses, transmission oil cooler hoses, and belts to the U.S. Big Three automakers. This core business also benefited in the 1990s from increased public concern about the environment since Dayco manufactured gasoline dispensing hoses, including the vapor recovery hose used at gasoline pumps to return gas fumes. This hose was also introduced in Europe in response to the European Clean Air Act.

In 1992 the Mass Transit and Traffic Control division worked with AT&T to develop and distribute an automatic electronic toll collection system that would allow drivers to pay their tolls with their AT&T "Smart Card" without stopping at toll booths. Mark IV also supplied traffic lights, electrical controls, interior lighting, and passenger information systems for buses, trains, and airplanes. The Americans with Disabilities Act also brought new opportunities to Mark IV, which had developed information display systems with enhanced audio and video display. Mark IV also looked forward to increased sales related to more government funding of mass transit systems.

Mark IV's third core area, professional audio equipment, produced recording studio equipment, systems for live performances, and products for permanently installed sound systems. Its products included amplifiers, microphones, mixing consoles, signal processors, and loudspeakers. Consolidation of the audio industry in the early 1990s was a boon to Mark IV because it could acquire companies that were well known and respected. Mark IV's audio equipment was sold under its division names, Electro-Voice, Altec, Vega, Dynacord, Gauss, Klark Teknik, and University Sound. Mark IV sound systems were used in the 1991 "Monsters of Rock" tour in England, Europe, and Russia, as well as at Euro Disneyland, which had the largest computer-controlled sound system in the world when it opened in 1992.

Mark IV retained several companies, particularly instrumentation companies, that did not strictly fit into its core areas but were leaders in niche markets in the aerospace, defense, and plastics industries. It also kept one of its earliest acquisitions, Clarke Container, a maker of child-resistant prescription bottles.

Shifted to Slower Growth in Recessionary Early 1990s

Mark IV had spent $1.25 billion from 1985 to 1991 buying 40 companies, an acquisition spree that increased company revenues from $38 million in fiscal 1985 to more than $1 billion in fiscal 1992. This phenomenal growth also landed Mark IV on the Fortune 500. When the economic climate shifted in the early 1990s into recession, the company shifted as well, focusing on debt reduction, operational improvement, and much more selective acquisition.

During the recession, Mark IV sought companies that could bolster its core businesses rather than establish core businesses. A prime example of this came in June 1993 when Mark IV acquired the European and North American assets of Pirelli S.p.A.'s power transmission belting business for about $105 million. The business fit well with the Dayco unit; it also significantly increased Mark IV's presence in Europe, as the company also aimed for international growth. Dayco's European operations were further bolstered in September 1994 through the purchase of Hevas Tube Systems AB, a Swedish maker of automotive rubber tubing and tube assemblies. Also in 1994 Mark IV purchased Mexico-based Citla, a producer of industrial and automotive tubes and tube assemblies.

The early 1990s also saw Mark IV prune some of its noncore units. In June 1993 the company sold four units--LFE Instruments, Graphic Instruments, Eagle Industrial Products, and the U.K.-based Mark IV Instruments Ltd.&mdashø Washington, D.C.-based Danaher Corporation for $35 million. The divested units were manufacturers of microprocessor and computer-based instruments and controls. Mark IV's traffic management unit, Mark IV IVHS Inc. (for Intelligent Vehicle Highway System), received a significant boost in early 1994 when it won a potentially huge contract for the electronic collection of tolls. Within a few years, IVHS had developed a toll collection system called E-ZPass for an interagency group of 11 transportation authorities in New York, New Jersey, Pennsylvania, Delaware, and Maryland. Through E-ZPass, vehicles could be equipped with electronic devices called tags that the system could read electronically as a vehicle passed through a toll area, with the toll then charged to the motorist's account.

In November 1994 Mark IV completed a $286.3 million acquisition of Purolator Products Inc., a leading manufacturer of automotive and industrial filtration products. This was the second largest acquisition in company history and added to the company's existing product lines in the automotive aftermarket, original equipment, and industrial markets. During fiscal 1996 Mark IV paid $24.4 million for FitzSimons Manufacturing Company, a manufacturer of fuel system components for the North American automobile and truck industries. The company acquired the Imperial Eastman division of Pullman Co. in March 1996 for about $78 million. Imperial Eastman specialized in thermoplastic hydraulic and pneumatic hose assemblies, couplings, adapters, and fittings.

Major Restructuring Began in 1996

Also in 1996 Mark IV began a major reorganization and restructuring. The company reorganized itself into two market-defined operating units: Mark IV Industrial and Mark IV Automotive. Mark IV also took a $112.5 million restructuring charge in fiscal 1997 for the closing of all or parts of 12 manufacturing and distribution facilities in the United States and Europe, and a workforce reduction of about 1,000 employees, or six percent. The company also began divesting a number of noncore units: Vapor, sold in September 1996 to Westinghouse Air Brake Company for $66.4 million; Interstate Highway Sign, sold in October 1996 to a Baton Rouge-based privately held company for about $12 million; Automatic Signal/Eagle Signal, sold to Siemens Energy & Automation Inc., a unit of Germany's Siemens AG, in January 1997 for $16.6 million; the Mark IV professional audio unit, sold to an affiliate of Greenwich Street Capital Partners, Inc. in February 1997 for $156.4 million; Gulton Data Systems, sold to BFGoodrich Co. in March 1997 for about $23 million; and LFE Industrial Systems, sold to U.K.-based Eurotherm PLC also in March 1997 for $12.5 million. When added with other sales, these divestitures generated gross proceeds of about $313 million, some of which was used to fund acquisitions to bolster the company's automotive and industrial units. In October 1997 Mark IV spent about $60 million for LPI Systèmes Moteurs S.A., a French maker of plastic air admission systems, including air intake manifolds and cooling modules, for automotive applications.

In December 1998 Mark IV announced that it planned to reposition its automotive aftermarket business, which accounted for about 20 percent of overall revenue. This business had been hurt by changes in the market, most notably improvements in the quality and performance of automotive OEM components and systems, which lessened the demand for replacement parts. The repositioning effort aimed at consolidating distribution facilities; cutting low-margin, slow-selling product lines; reducing inventory levels; rationalizing the customer base; and reducing the workforce. An aftertax charge for this repositioning of $38.7 million was taken during fiscal 1999, leading to a reduction in net income from $98.6 million in fiscal 1998 to $47.6 million in 1999. Net sales increased from $1.84 billion in 1998 to $1.95 billion in 1999.

During 1999 Mark IV continued to seek ways to strengthen its two core units through divestments and acquisitions. In February 1999 the company sold its Purolator automotive filter business to Arvin Industries, Inc. for $276 million, a move intended to allow Mark IV Automotive to concentrate on power transmission and air intake systems, along with fluid-handling and fuel systems. The sale did not include Purolator's specialty filters operation, which remained part of Mark IV Industrial. In March 1999 Mark IV sold Eaglemotive Corporation, a maker of automotive fan clutches and oil coolers, to Standard Motor Products, Inc. for about $13.4 million. One month later, Mark IV Industries expanded in Europe through the $148 million purchase of Italy-based Lombardini FIM S.p.A., a leading European manufacturer of small diesel engines with manufacturing plants in Italy, France, and Spain and distribution throughout Europe and North America.

Principal Subsidiaries: Dayco Products, Inc.; Purolator Filter Products; Facet International, Inc.; Purolator Products Air Filtration Company; Mark IV Holdings, S.A. (Belgium); Mark IV PLC (U.K.); Pietranera S.r.L. (Italy); F-P Technologies Holding Corp.; Gulton-Statham Transducers, Inc.; F-P Displays, Inc.; Mark IV Holding AG (Switzerland); Mark IV France S.A.S.; Armtek International Holding Company, Inc.; Mark IV Industries GmbH (Germany); Eagle Funding Corporation; Clarke Container Company, Inc.; Glar-Ban Incorporated; Mark IV Holdings Inc.; Aerospace Sub, Inc.; Mark IV Industries Ireland; Mark IV IVHS, Inc.; NRD, LLC; Lum-Eag Holdings (Ireland); Mark IV Automotive do Brasil Ltda. (Brazil); Dayco Argentina; Lombardini FIM S.p.A.

Principal Operating Units: Mark IV Automotive; Mark IV Industrial.