-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQJA6n9AN2aWb69/87YLFQKBOWgUMiz6wXZ81ihMd1teSSitUmM4d55V+3h5JT0a mzR39+hWL2/mAjXhwXG80g== 0000062418-99-000001.txt : 19990115 0000062418-99-000001.hdr.sgml : 19990115 ACCESSION NUMBER: 0000062418-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK IV INDUSTRIES INC CENTRAL INDEX KEY: 0000062418 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 231733979 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08862 FILM NUMBER: 99506300 BUSINESS ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PKWY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 BUSINESS PHONE: 7166894972 MAIL ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PARKWAY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 FORMER COMPANY: FORMER CONFORMED NAME: MARK FOUR HOMES INC DATE OF NAME CHANGE: 19770921 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended November 30, 1998. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _______ to _____. Commission File Number 1-8862 MARK IV INDUSTRIES, INC. - --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 23-1733979 - --------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (716) 689-4972 - ----------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- Number of shares outstanding of each class of the Registrant's common stock, as of the latest practicable date: Class Outstanding at January 11, 1999 ----- ------------------------------- Common stock $.01 par value 53,450,820 2 MARK IV INDUSTRIES, INC. INDEX Part I. Financial Information Page No. Consolidated Condensed Balance Sheets as of November 30, 1998 and February 28, 1998 3 Consolidated Statements of Income For the Three Month Periods Ended November 30, 1998 and 1997 4 Consolidated Statements of Income For the Nine Month Periods Ended November 30, 1998 and 1997 5 Consolidated Statements of Cash Flows For the Nine Month Periods Ended November 30, 1998 and 1997 6 Consolidated Statements of Comprehensive Income and Retained Earnings for the Three and Nine Month Periods Ended November 30, 1998 and 1997 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II. Other Information 23 Signature Page 24 Exhibit Index 25 3 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) November 30, February 28, 1998 1998 ----------- ----------- ASSETS (Unaudited) Current Assets: Cash and short-term investments $ 1,300 $ 120,900 Accounts receivable 460,300 466,400 Inventories 364,300 393,400 Other current assets 144,700 105,600 ---------- ---------- Total current assets 970,600 1,086,300 ========== ========== Pension and other non-current assets 239,300 226,600 Property, plant and equipment, net 664,900 668,400 Cost in excess of net assets acquired 431,300 439,200 ---------- ---------- TOTAL ASSETS $2,306,100 $2,420,500 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of debt $ 66,200 $ 133,800 8-3/4% Notes, called for redemption - 73,100 Accounts payable 232,000 222,400 Compensation related liabilities 78,600 75,500 Accrued interest 11,700 28,600 Other current liabilities 107,400 94,500 ---------- ---------- Total current liabilities 495,900 627,900 ---------- ---------- Long-Term Debt: Senior debt 161,900 21,400 Subordinated debentures 772,700 772,500 ---------- ---------- Total long-term debt 934,600 793,900 ---------- ---------- Other non-current liabilities 263,800 246,700 ---------- ---------- Stockholders' Equity: Preferred stock - - Common stock 500 600 Additional paid-in capital 452,300 617,800 Retained earnings 190,900 167,100 Foreign currency translation adjustment (31,900) (33,500) ---------- ---------- Total stockholders' equity 611,800 752,000 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,306,100 $2,420,500 ========== ========== The accompanying notes are an integral part of these financial statements. 4 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Month Periods Ended November 30, 1998 and 1997 (Amounts in thousands, except per share data) 1998 1997 ---- ---- Net sales $580,200 $564,100 -------- -------- Operating costs: Cost of products sold (including repositioning charge of $66,000 in 1998) 458,700 381,600 Selling and administration 88,400 88,300 Research and development 13,700 12,700 Depreciation and amortization 25,400 20,700 -------- -------- Total operating costs 586,200 503,300 -------- -------- Operating income (loss) (6,000) 60,800 Interest expense 17,700 16,800 -------- -------- Income (loss) before provision for taxes (23,700) 44,000 Provision for (benefit from) income taxes (10,700) 16,700 -------- -------- Income (loss) before extraordinary items (13,000) 27,300 Extraordinary loss from early extinguishment of debt, net of tax benefits - (10,600) -------- -------- Net Income (Loss) $(13,000) $ 16,700 ======== ======== Net income (loss) per share of common stock: Basic: Income (loss) before extraordinary item $ (.24) $ .43 Extraordinary loss - (.17) -------- -------- Net Income (Loss) $ (.24) $ .26 ======== ======== Diluted: Income (loss) before extraordinary item $ (.17) $ .42 Extraordinary loss - (.16) -------- -------- Net Income (Loss) $ (.17) $ .26 ======== ======== Weighted average number of shares outstanding: Basic 54,500 63,700 ======== ======== Diluted 63,000 67,300 ======== ======== The accompanying notes are an integral part of these financial statements. 5 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Nine Month Periods Ended November 30, 1998 and 1997 (Amounts in thousands, except per share data) 1998 1997 ---- ---- Net sales $1,763,200 $1,655,300 ---------- ---------- Operating costs: Cost of products sold (including repositioning charge of $66,000 in 1998) 1,275,700 1,116,000 Selling and administration 270,500 260,200 Research and development 42,500 36,500 Depreciation and amortization 73,600 57,700 ---------- ---------- Total operating costs 1,662,300 1,470,400 ---------- ---------- Operating income 100,900 184,900 Interest expense 50,100 46,700 ---------- ---------- Income before provision for taxes 50,800 138,200 Provision for income taxes 16,000 53,300 ---------- ---------- Income before extraordinary item 34,800 84,900 Extraordinary loss from early extinguishment of debt, net of tax benefits (2,600) (10,600) ---------- ---------- Net Income $ 32,200 $ 74,300 ========== ========== Net income per share of common stock: Basic: Income before extraordinary item $ .60 $ 1.32 Extraordinary loss (.04) (.16) ---------- ---------- Net Income $ .56 $ 1.16 ========== ========== Diluted: Income before extraordinary item $ .62 $ 1.30 Extraordinary loss (.04) (.16) ---------- ---------- Net Income $ .58 $ 1.14 ========== ========== Weighted average number of shares outstanding: Basic 57,900 64,300 ========== ========== Diluted 66,500 65,800 ========== ========== The accompanying notes are an integral part of these financial statements. 6 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Month Periods Ended November 30, 1998 and 1997 (Dollars in thousands) 1998 1997 ---- ---- Cash flows from operating activities: Income before extraordinary loss $ 34,800 $ 84,900 Items not affecting cash: Depreciation and amortization 73,600 57,700 Pension and compensation related items, net (18,000) (13,900) Deferred income taxes 8,000 22,400 Repositioning charge 29,500 - Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable 18,000 (40,300) Inventories 17,200 (23,700) Other assets (17,700) (35,800) Accounts payable 11,800 6,300 Other liabilities (18,000) (38,100) -------- -------- Net cash provided by operating activities 139,200 19,500 Extraordinary item, before deferred charges (3,300) (11,700) -------- -------- Net cash provided by operating activities 135,900 7,800 -------- -------- Cash flows from investing activities: Acquisitions and investments (5,200) (79,200) Divestitures and asset sales - 36,700 Purchase of plant and equipment, net (58,600) (108,600) -------- -------- Net cash used in investing activities (63,800) (151,100) -------- -------- Cash flows from financing activities: Issuance of subordinated notes - 523,700 Repurchase of subordinated notes (73,100) (184,900) Credit Agreement borrowings, net 125,000 - Other changes in long-term debt, net 14,900 (4,700) Changes in short-term bank borrowings (83,800) 34,200 Common stock transactions (166,300) (63,600) Cash dividends paid (8,400) (7,600) -------- -------- Net cash provided by (used in) financing activities (191,700) 297,100 -------- -------- Net increase (decrease) in cash and short-term investments (119,600) 153,800 Cash and short-term investments: Beginning of the period 120,900 1,300 -------- -------- End of the period $ 1,300 $155,100 ======== ======== The accompanying notes are an integral part of these financial statements. 7 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS (UNAUDITED) For the Three and Nine Month Periods Ended November 30, 1998 and 1997 (Dollars in thousands) Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Comprehensive Income Net income (loss) $(13,000) $ 16,700 $ 32,200 $ 74,300 Balance sheet effect of foreign currency translation adjustments 7,500 1,200 1,600 (5,600) -------- -------- -------- -------- Comprehensive net income (loss) $ (5,500) $ 17,900 $ 33,800 $ 68,700 ======== ======== ======== ======== Retained Earnings Retained earnings at the beginning of the period $206,600 $131,900 $167,100 $ 79,300 Net income (loss) (13,000) 16,700 32,200 74,300 Cash dividends of $.05, $.04, $.15 and $.12 per share, respectively (2,700) (2,600) (8,400) (7,600) -------- -------- -------- -------- Retained earnings at the end of the period $190,900 $146,000 $190,900 $146,000 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. 8 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Financial Statements The unaudited consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions have been eliminated. The unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. It should be recognized that the actual results could differ from those estimates. In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at November 30, 1998, and the results of its operations and its cash flows for the periods ended November 30, 1998 and 1997. Such results are not necessarily indicative of the results to be expected for the full year. 2. Accounts Receivable and Inventories Accounts receivable are presented net of allowances for doubtful accounts of $11.4 million and $13.6 million at November 30, 1998 and February 28, 1998, respectively. Inventories consist of the following components (dollars in thousands): November 30, February 28, 1998 1998 ---- ---- Raw materials $ 88,300 $ 86,200 Work-in-process 64,700 73,000 Finished goods 211,300 234,200 --------- --------- Total $ 364,300 $ 393,400 ========= ========= Since physical inventories taken during the year do not necessarily coincide with the end of a quarter, management has estimated the composition of inventories with respect to raw materials, work-in- process and finished goods. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of November 30, 1998. The amounts at February 28, 1998 are based upon the audited balance sheet at that date. 9 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following components (dollars in thousands): November 30, February 28, 1998 1998 ---- ---- Land and land improvements $ 26,300 $ 25,900 Buildings 184,700 179,900 Machinery and equipment 689,600 641,800 -------- -------- Total property, plant and equipment 900,600 847,600 Less accumulated depreciation 235,700 179,200 -------- -------- Property, plant and equipment, net $664,900 $668,400 ======== ======== 4. Long-term debt Long-term debt consists of the following (dollars in thousands): November 30, February 28, 1998 1998 ---- ---- Senior Debt: Credit Agreement $ 125,000 $ - Other borrowing arrangements 46,900 31,200 ---------- ---------- Total 171,900 31,200 Less Current maturities (10,000) (9,800) ---------- ---------- Net senior debt 161,900 21,400 ---------- ---------- Subordinated Debt: 7-3/4% Senior Subordinated Notes 248,800 248,700 7-1/2% Senior Subordinated Notes 248,900 248,800 4-3/4% Convertible Subordinated Notes 275,000 275,000 ---------- ---------- Total subordinated debt 772,700 772,500 ---------- ---------- Total long-term debt 934,600 793,900 Total stockholders' equity 611,800 752,000 ---------- ---------- Total capitalization $1,546,400 $1,545,900 ========== ========== Long-term debt as a percentage of total capitalization 60.4% 51.4% ========== ========== 10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Cash Flow For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company made cash interest payments of approximately $69.2 million and $55.2 million in the nine month periods ended November 30, 1998 and 1997, respectively. The Company also made cash income tax payments of approximately $24.8 million and $22.9 million in the nine month periods ended November 30, 1998 and 1997, respectively. 6. Common Stock Repurchase Programs In May 1998, the Company announced completion of its 7.3 million share repurchase program approved by the Board of Directors in March 1997. The stock was purchased at an average price of $22.03 per share, for a total cost of $160.8 million, with approximately 3.8 million shares repurchased from March 1, 1998 at an average cost of $21.02 per share, or approximately $80.4 million. Upon completion of that program, the Board of Directors approved the purchase of an additional ten million shares. It is expected that such shares will be purchased in the open- market, or through privately negotiated transactions at prices which the Company considers to be attractive. Through November 30, 1998 the Company acquired approximately 4.7 million shares under the new repurchase program, at an average cost of $18.17 per share, or a total cost of approximately $85.7 million. Total purchases under both authorizations in the current fiscal year through November 30, 1998 were approximately 8.5 million shares, at an average cost of $19.45 per share, or a total cost of approximately $166.2 million. Subsequent to November 30, 1998, the Company acquired approximately 1.0 million additional shares, at an average cost of $12.31 per share, or a total cost of approximately $12.0 million. 7. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes standards for reporting and measuring of all changes in equity that result from recognized transactions and other economic events of the period. The Company has reported the change in foreign currency translation items as a component of comprehensive income in the Consolidated Statements of Comprehensive Income and Retained Earnings for the periods ended November 30, 1998 and 1997. The accumulated effect of foreign currency translation items at November 30, 1998 and February 28, 1998, is reported in the Stockholder's Equity section of the Company's Consolidated Condensed Balance Sheets. 8. Senior Subordinated Notes Redemption In April 1998, the Company redeemed the remaining $73.1 million principal balance of its 8-3/4% Senior Subordinated Notes due April 1, 2003. The Notes were redeemed at a price of $1,043.75 per $1,000 principal amounts of Notes plus accrued interest. The redemption resulted in a charge for early debt extinguishment of $2.6 million (net of tax) for the nine month period ended November 30, 1998. 11 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. Repositioning Charge During the three-month period ended November 30, 1998, the Company finalized its plans to reposition its automotive aftermarket business, and made certain other strategic decisions relative to its personnel requirements, inventory management practices, facility utilization and non-core lines of business. During this period the Company also completed the remaining facility and product relocations related to its restructuring plan announced in fiscal 1997. As a result of these developments, the Company recognized a charge in its current income statement in the amount of $66.0 million. Such amount has been included in the total cost of products sold, and is primarily made up of the following elements (amounts in thousands): Cash Non-Cash Total Expenditures Charges Expense ------------ -------- ------- Costs to complete the fiscal 1997 restructuring plan $20,800 - $20,800 Inventory related costs - $15,200 15,200 Asset write-offs - 14,300 14,300 Facility closing and lease run-out costs 9,700 - 9,700 Severance and other costs 6,000 - 6,000 ------- ------- ------- Total costs $36,500 $29,500 $66,000 ======= ======= ======= The after-tax effect of the above charge reduced net income by $40.0 million and diluted net income per share by $.63 and $.60 per share, respectively, in the three and nine month periods ended November 30, 1998. 10. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 133 ("FAS 133"). FAS 133 standardized the accounting for derivative instruments by requiring them to be recognized as balance sheet assets or liabilities, measured at their fair market value. Certain criteria have been established by FAS 133 to determine if a derivative is designated and qualifies as a hedge. Changes in the fair value of derivatives that do not meet hedge accounting criteria in FAS 133 are required to be reported in earnings. The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. The Company's exports and sales from international locations are significant; therefore, the Company does enter into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in various foreign currencies. FAS 133 is effective for the Company's fiscal year ending February 29, 2000. Management is in the process of assessing the impact of its FAS 133 adoption; however, it anticipates the effect on its financial statements will not be significant. 12 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 11. Net Income Per Share Following is a reconciliation of net income and weighted average common shares outstanding for purposes of computing basic and diluted net income per share (amounts in thousands, except per share data): Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- BASIC CALCULATIONS: ------------------ Income before repositioning charge and extraordinary loss $ 27,000 $27,300 $74,800 $84,900 Repositioning charge, net of tax (40,000) - (40,000) - -------- ------- ------- ------- Income (loss) before extraordinary loss (13,000) 27,300 34,800 84,900 Extraordinary loss, net of tax - (10,600) (2,600) (10,600) -------- ------- ------- ------- Net income (loss) $(13,000) $16,700 $32,200 $74,300 ======== ======= ======= ======= Weighted average number of common shares outstanding 54,500 63,700 57,900 64,300 ======== ======= ======= ======= Basic Earnings Per Share: ------------------------ Income before repositioning charge and extraordinary loss $ .50 $ .43 $ 1.29 $ 1.32 Repositioning charge (.74) - (.69) - -------- ------- ------- ------- Income (loss) before extraordinary loss (.24) .43 .60 1.32 Extraordinary loss - (.17) (.04) (.16) -------- ------- ------- ------- Net Income (loss) per share $ (.24) $ .26 $ .56 $ 1.16 ======== ======= ======= ======= 13 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) DILUTED CALCULATIONS: -------------------- Income before repositioning charge and extraordinary loss $ 27,000 $27,300 $74,800 $84,900 After-tax equivalent of interest expense on 4-3/4% convertible subordinated notes 2,000 700 6,000 700 -------- ------- ------- ------- Income for purposes of computing income before repositioning charge and extraordinary loss 29,000 28,000 80,800 85,600 Repositioning charge (40,000) - (40,000) - Extraordinary loss - (10,600) (2,600) (10,600) -------- ------- ------- ------- Income (loss) for purposes of computing net income (loss) $(11,000) $17,400 $38,200 $75,000 ======== ======= ======= ======= Weighted average common shares outstanding 54,500 63,700 57,900 64,300 Dilutive stock options 100 600 200 500 Weighted average assumed conversion of 4-3/4% convertible subordinated notes 8,400 3,000 8,400 1,000 -------- ------- ------- ------- Weighted average number of common shares outstanding for purposes of computing diluted net income per share 63,000 67,300 66,500 65,800 ======== ======= ======= ======= Diluted Earnings Per Share: Income before repositioning charge and extraordinary loss $ .46 $ .42 $ 1.22 $ 1.30 Repositioning charge (.63) - (.60) - -------- ------- ------- ------- Income before extraordinary loss (.17) .42 .62 1.30 Extraordinary loss - (.16) (.04) (.16) -------- ------- ------- ------- Net income (loss) per share $ (.17) $ .26 $ .58 $ 1.14 ======== ======= ======= ======= 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company's operating performance (earnings before the repositioning charge and non-cash items, plus operating working capital changes) for the nine month period ended November 30, 1998 generated cash of $198.4 million, which compares to $93.4 million in the corresponding period last year. The significant improvement reflects the Company's success in reducing its working capital position as a result of its increased emphasis on cash flow. The cash generated from operating activities was sufficient to fund the Company's capital expenditure requirements in the period, as well as the completion of its restructuring efforts which began in fiscal 1997. The cash generated in the current period also contributed to the cost of funding the Company's stock repurchase program. Management anticipates that its working capital investment will be reduced further during the remainder of fiscal 1999 as a result of the continuing positive effects of its corporate-wide emphasis on increasing cash flow and improving the Company's return on assets employed. Capital expenditures for the nine month period ended November 30, 1998 were approximately $58.6 million, which was lower than depreciation and amortization expense of $73.6 million for the same period. Such expenditures reflect a decrease of approximately $50.0 million in comparison to the $108.6 million expended in the nine month period ended November 30, 1997. The reduced level of expenditures relates primarily to the Company's anticipated return to more normal levels of capital expenditure requirements as the Company completes its restructuring plan and its European and South American expansion efforts. Such activities resulted in above normal capital expenditure requirements in the prior year. Management anticipates the Company's capital expenditure requirements will continue at the current level for the remainder of the fiscal year. In May 1998, the Company announced completion of its 7.3 million share repurchase program approved by the Board of Directors in March 1997. The stock was purchased at an average price of $22.03 per share, for a total cost of $160.8 million, with approximately 3.8 million shares repurchased from March 1, 1998 at an average cost of $21.02 per share, or approximately $80.4 million. Upon completion of that program, the Board of Directors approved the purchase of an additional ten million shares. It is expected that such shares will be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through November 30, 1998 the Company acquired approximately 4.7 million shares under the new program at an average cost of $18.17 per share, or a total cost of approximately $85.7 million. Total purchases under both authorizations in the current fiscal year through November 30, 1998 were approximately 8.5 million shares at an average cost of $19.45 per share, or a total cost of approximately $166.2 million. Subsequent to November 30, 1998, the Company acquired approximately 1.0 million additional shares, at an average cost of $12.31 per share, or a total cost of approximately $12.0 million. In April 1998, the Company redeemed the remaining $73.1 million principal balance of its 8-3/4% Senior Subordinated Notes due April 1, 2003. The Notes were redeemed at a price of $1,043.75 per $1,000 principal amounts of Notes plus accrued interest through April 1, 1998. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has borrowing availability under its primary credit agreements of approximately $375.0 million, subject to certain covenants, and additional availability under its various domestic and foreign demand lines of credit of approximately $170.0 million as of November 30, 1998. Long-term debt at November 30, 1998 was $934.6 million, an increase of $140.7 million over the $793.9 million that was outstanding as of February 28, 1998. The change reflects increased borrowings to fund a portion of the Company's stock repurchase program and reduce short-term bank borrowings. Management believes cash generated from operations, as temporarily supplemented by existing credit availability, should be sufficient to support the Company's working capital requirements and anticipated capital expenditure needs for the foreseeable future, including the costs associated with its stock repurchase program, as well as its repositioning efforts. Results of Operations - --------------------- The Company classifies its operations in two business segments: Automotive and Industrial. The Company's current business strategy is focused upon the enhancement of its business segments through internal growth, cost control and quality improvement programs and selective, strategic acquisitions with an emphasis on expanding each segment's international presence. The following discussion of the Company's results of operations is based on the table below, which presents the Company's results of operations separate from the repositioning charge (000's): Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $580,200 $564,100 $1,763,200 $1,655,300 -------- -------- ---------- ---------- Operating costs: Cost of products sold * 392,700 381,600 1,209,700 1,116,000 Selling and administration 88,400 88,300 270,500 260,200 Research and development 13,700 12,700 42,500 36,500 Depreciation and amortization 25,400 20,700 73,600 57,700 -------- -------- ---------- ---------- Total operating costs * 520,200 503,300 1,596,300 1,470,400 -------- -------- ---------- ---------- Operating income * 60,000 60,800 166,900 184,900 Interest expense 17,700 16,800 50,100 46,700 -------- -------- ---------- ---------- Income before taxes and special items 42,300 44,000 116,800 138,200 Provision for income taxes 15,300 16,700 42,000 53,300 -------- -------- ---------- ---------- Income before special items 27,000 27,300 74,800 84,900 Repositioning charge ** (40,000) - (40,000) - -------- -------- ---------- ---------- Income (loss) before extraordinary item (13,000) 27,300 34,800 84,900 Extraordinary loss from debt extinguishment ** - (10,600) (2,600) (10,600) -------- -------- ---------- ---------- NET INCOME (LOSS) $(13,000) $ 16,700 $ 32,200 $ 74,300 ======== ======== ========== ========== * Before repositioning charge of $66.0 in 1998. ** Net of tax benefits. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the three and nine month periods ended November 30, 1998 increased by $16.1 million (3%) and $107.9 million (7%), respectively, over the comparable periods last year. In the Company's Automotive segment, net sales increased $30.6 million (10%) for the three month period ended November 30, 1998 and $92.0 million (10%) for the nine month period ended November 30, 1998 over the comparable periods last year. The growth in the Automotive segment was primarily generated by the segment's Automotive OEM sector, which offset the negative effect of a weakening Automotive Aftermarket sector. The Automotive OEM sector showed significant growth in its international markets for the three and nine month periods ended November 30, 1998 over the comparable periods last year. In the domestic Automotive OEM market, sales were up for the three and nine month periods ended November 30, 1998 over the comparable period last year, although the effect of the General Motors strike in the Company's second quarter offset a portion of such increase. In the Automotive Aftermarket sector, sales in the domestic market for the three and nine month periods ended November 30, 1998 were 3% to 4% lower than in the comparable periods last year. In the international automotive aftermarket, sales for the three and nine month periods ended November 30, 1998 remained flat over the comparable periods last year. In the Company's Industrial segment, net sales decreased $14.5 million (6%) for the three month period ended November 30, 1998 over the comparable period last year. For the nine month period ended November 30, 1998, net sales in the Company's Industrial segment increased $15.9 million (2%) over the comparable period last year. The decrease in net sales for the three month period ended November 30, 1998 was primarily attributed to the segment's Industrial Rubber Products sector. This sector was significantly effected by the weakening of the international and domestic Agricultural and Petrochemical markets served by the Company's customers during the three month period ended November 30, 1998. For the nine month period ended November 30, 1998, the increase in net sales was primarily attributable to growth in the segment's Transportation and Industrial Filters sectors, which helped offset slightly lower sales for the segment's Industrial Rubber Products sector in the comparable period last year. The cost of products sold as a percentage of consolidated net sales was 67.7% and 68.6% for the three and nine month periods ended November 30, 1998, as compared to 67.6% and 67.4% in the prior year periods. The increase for the nine month period ended November 30, 1998 is primarily attributable to the effects in the first half of fiscal 1999 of duplicative costs and inefficiencies incurred due to additional time required to complete the Company's restructuring program, as well as the negative effect of the General Motors strike on the Company's cost of products sold relationship. Selling and administration costs as a percentage of consolidated net sales were 15.2% and 15.3% for the three and nine month periods ended November 30, 1998, as compared to 15.7% for the three and nine month periods ended November 30, 1997. The slight reduction in the level of costs indicates operating efficiencies achieved from the integration of operations acquired, as well as the reorganization of the Company's business segments. The lower level of costs also indicates the benefits of the Company's continued emphasis on cost control. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Research and development costs increased by $1.0 million (8%) and $6.0 million (16%), respectively, for the three and nine month periods ended November 30, 1998 as compared to the three and nine month periods ended November 30, 1997. As a percentage of consolidated net sales, these expenses increased to 2.4% as compared to 2.3% and 2.2% in the comparable periods last year. The increase is primarily related to the launching of a number of new product and systems initiatives, as well as bringing new technology to the North American Automotive OEM market from acquisitions made in Europe in the latter part of fiscal 1998. Depreciation and amortization expense increased by $4.7 million (23%) and $15.9 million (28%) respectively, for the three and nine month periods ended November 30, 1998 as compared to the three and nine month periods ended November 30, 1997. The increase is primarily attributable to the Company's increased level of capital equipment expenditures in fiscal 1998 to support the Company's restructuring efforts, as well as new facilities and equipment required to support new products and markets in Europe and South America. To a lesser extent, additional goodwill amortization related to acquisitions in the latter part of fiscal 1998 also contributed to the increase. Interest expense for the three and nine month periods ended November 30, 1998 increased $0.9 million (5%) and $3.4 million (7%) from the level incurred in the three and nine month periods ended November 30, 1997. The increase is primarily due to borrowings incurred to finance the Company's stock repurchase program and the acquisitions in the latter part of fiscal 1998. The increase was substantially offset by the benefits of reduced rates on the Company's domestic debt, primarily related to the issuance in the latter part of fiscal 1998 of the 7-1/2% and 4-3/4% Notes, which refinanced higher rate debt. The effective tax rate as a percentage of pre-tax accounting income for the three and nine month periods ended November 30, 1998 decreased to approximately 36% from approximately 38% in the comparable periods last year. The decrease in the effective tax rate in the current year as compared to the comparable periods last year, is primarily the result of a more favorable mix of foreign income, as well as the benefits of certain tax planning opportunities. As a result of all of the above, income before the repositioning charge and extraordinary items for the three and nine month periods ended November 30, 1998 reflect decreases of $.3 million (1%) and $10.1 million (12%) as compared to the corresponding periods in the prior year. Net income decreased approximately $29.7 million and $42.1 million for the three and nine month periods ended November 30, 1998 as compared to the three and nine month periods ended November 30, 1997. For the three month periods ended November 30, net income in the current year includes a $40.0 million repositioning charge, while the prior year includes a $10.6 million extraordinary loss from the early extinguishment of debt. For the nine month periods ended November 30, net income in the current year includes a $40.0 million repositioning charge and a $2.6 million extraordinary loss from early debt extinguishment, while the prior year nine month period includes a $10.6 million extraordinary loss from early debt extinguishment. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Impact of Inflation - ------------------- The competitive environment in which the Company operates makes it extremely difficult to pass on increased costs to its customers. In many instances, the Company is not able to increase its prices at all, and in certain situations is forced to reduce its selling prices. This environment makes it critical for the Company to be able to operate in a continuously more efficient manner. The Company must also work closely with its suppliers to minimize price increases and push for pricing improvements in the same manner that its customers demand of the Company. Impact of Repositioning Charge - ------------------------------ During the three month period ended November 30, 1998, the Company instituted a plan to reposition its automotive aftermarket business, which accounts for approximately 20% of the Company's total revenue. This sector of the Company's business has been negatively impacted by fundamental changes taking place in the aftermarket, resulting in declining revenue growth rates and margins. Such trends are caused, in part, from improvements in the quality and performance of components and systems being supplied to the automotive OEM market. The effect has been to defer, or in some cases eliminate, the need for replacement parts. In addition, significant consolidation within the sector's distribution channels has increased pricing pressures, reduced margins and affected terms of sale, which required increased working capital. These factors have led the Company to reposition its aftermarket business in order to better align its assets with the Company's business base in this sector. The repositioning of the Company's aftermarket business includes consolidation of distribution facilities, the elimination of low margin, slow- moving product lines, a reduction of inventory levels, rationalization of its customer base, and employee reductions. The Company expects that the results of these actions will enable the Company to realize improved margins and reduced capital employed in its business. A pre-tax charge of $66.0 million, or $40.0 million after taxes, has been reflected in the results of operations for the three and nine month periods ended November 30, 1998. The charge provides for the costs associated with the automotive aftermarket discussed above, as well as costs associated with certain other strategic decisions of the Company relative to its personnel requirements, inventory management practices, facility utilization and non- core lines of businesses. The charge also provides for costs incurred in the current period related to the Company's completion of its restructuring plan announced in fiscal 1997. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Impact of the Year 2000 Issue - ----------------------------- The Year 2000 Issue is the result of computer software programs being written using two digits rather than four to define the applicable year. Any of the Company's software programs, computer hardware or equipment that have date- sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, manufacture products or engage in other normal business activities. The Company has developed a formal plan to ensure that all of its significant date-sensitive computer software and hardware systems ("Information Technology") and other equipment utilized in its various manufacturing, distribution and administration activities (utilizing embedded chips or software..."Operating Equipment") will be Year 2000 compliant and operational on a timely basis. The plan addresses all of the Company's locations throughout the world, and includes a review of computer applications that connect elements of the Company's business directly to its customers and suppliers. The plan also includes an assessment process to determine that the Company's significant customers and suppliers ("Third-Party Activities") will also be Year 2000 compliant. The Company's plan to resolve the Year 2000 Issue includes four major phases - assessment, remediation, testing, and implementation. The Company has substantially completed the assessment phase of its plan for all of its significant Information Technology and Operating Equipment that it believes could be affected by the Year 2000 Issue. Based upon its assessment, the Company concluded that it would be necessary to reprogram and/or replace certain of its Information Technology. The Company also determined that certain of its Operating Equipment would also require modifications to make sure they remain operational. For its Information Technology exposures, the Company is approximately 90% complete on the remediation phase for all of its significant systems, and estimates that it will complete software reprogramming and/or replacement by the end of its current fiscal year. To date, the Company has completed approximately 80% of its testing and has implemented approximately 75% of the required remediation for such systems. The testing and implementation phases are targeted to be substantially completed during the second quarter of next year. The remediation of Operating Equipment is approximately 30% complete,and the Company is targeting completion of its related remediation efforts by the first quarter of next year. Testing and implementation of the affected equipment is targeted to be substantially completed during the second quarter of next year. With respect to Third-Party Activities, the Company has made inquiries of its significant customers and suppliers and, at the present time, is not aware of problems that would materially impact the Company's operations. However, the Company has no means of ensuring that these customers and suppliers (and in turn their customers and suppliers) will be Year 2000 compliant in a timely manner. The inability of these parties to successfully resolve their Year 2000 issues could have a material adverse effect on the Company. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is utilizing both internal and external resources to reprogram or replace, test, and implement the required Year 2000 modifications. The Company's total cost to address the Year 2000 Issue is estimated at $9.1 million and is being funded through operating cash flow. The elements of such costs are as follows ( amounts in thousands of dollars): Incurred Through Costs Yet Total November 30, to be Estimated 1998 Incurred Cost ------------ --------- --------- Capital expenditures related to new systems and equipment $ 400 $1,900 $2,300 Operating expenses related to modifications of existing systems and equipment 3,600 3,200 6,800 ------ ------ ------ Total capital and expense $4,000 $5,100 $9,100 ====== ====== ====== The Company's plan to complete its Year 2000 modifications is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, and other factors. Management does not believe that the cost of achieving Year 2000 compliance will significantly impact the results of the Company's operations or its financial position. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability of the Company's significant customers and suppliers (and, in turn, their significant customers and suppliers) to also achieve Year 2000 compliance, and similar uncertainties. The Company presently believes that with modifications and replacement of existing hardware and software, and continued contact with its significant customers and suppliers, problems related to the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not successfully completed, and if the Year 2000 plans of its significant customers and suppliers are not completed on a timely basis, the Year 2000 Issue could have a material adverse effect on the Company's results of operations, cash flows and financial condition. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Euro Conversion - --------------- On January 1, 1999, the euro became the common currency of eleven of the fifteen member states of the European Union. After the introduction of the euro, the national currencies will remain legal tender in the participating countries until mid-calendar-year 2002. During the dual currency phase, businesses must be capable of conducting commercial transactions in either the euro or the national currency. After the dual currency phase, all businesses in participating countries must conduct all transactions in the euro and must convert their financial records and reports to be euro-based. The Company expects that all its facilities will be capable of complying with the euro conversion timetable and with customer requirements for quoting and billing in euro dollars. The Company believes its information technology systems are capable of meeting the dual currency phase requirements. The Company's preliminary indication in assessing the risk to its businesses, is that the dual currency phase and the final phase of the euro conversion will not have an effect on the Company. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Information - --------------------------- This Management's Discussion and Analysis and other sections of this Quarterly Report contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The Future Factors that may affect the operations, performance and results of the Company's businesses include the following: a. general economic and competitive conditions in the markets and countries in which the Company operates, and the risks inherent in international operations and joint ventures; b. the Company's ability to continue to control and reduce its costs of production; c. the level of consumer demand for new vehicles equipped with the Company's products; d. the level of consumer demand for the Company's aftermarket products, which varies based on such factors as the severity of winter weather, the age of automobiles in the Company's markets and the impact of improvements or changes in original equipment products; e. the effect of changes in the distribution channels for the Company's aftermarket and industrial products; f. the strength of the U.S. dollar against currencies of other countries where the Company operates, as well as cross-currencies between the Company's operations outside of the U.S. and other countries with whom they transact business; and g. the successful completion of the Company's Year 2000 plan, as well as the plans of its significant customers and suppliers. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company does not intend to update forward-looking statements. 23 Part II. OTHER INFORMATION - --------------------------- Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted. Item 6(a) - Exhibits - -------------------- Exhibit No. * 27 Financial Data Schedule * Filed herewith by direct transmission pursuant to the EDGAR Program Item 6(b) Reports on Form 8-K - ----------------------------- The following report was filed pertaining to events occurring during the quarter ended November 30, 1998. (1) A current report on Form 8-K dated December 31, 1998, was filed to report under Item 5, pertaining to the Company's distribution to it's shareholders of record at the close of business on December 18, 1998, its fiscal 1999 Third Quarter Report. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MARK IV INDUSTRIES, INC. Registrant DATE: January 14, 1999 /s/ Sal H. Alfiero - ---------------------- ----------------------- Sal H. Alfiero Chairman of the Board DATE: January 14, 1999 /s/ William P. Montague - ---------------------- ----------------------- William P. Montague President DATE: January 14, 1999 /s/ John J. Byrne - ---------------------- ----------------------- John J. Byrne Vice President - Finance and Chief Financial Officer DATE: January 14, 1999 /s/ Richard L. Grenolds - ---------------------- ----------------------- Richard L. Grenolds Vice President and Chief Accounting Officer DATE: January 14, 1999 /s/ Clement R. Arrison - ---------------------- ----------------------- Clement R. Arrison Director 25 EXHIBIT INDEX Description - ----------- Page No. 27 Financial Data Schedule 26 26 EX-27 2
5 This schedule contains summary financial information extracted from the financial statements of Mark IV Industries, Inc. and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS FEB-28-1999 NOV-30-1998 1,300 0 471,700 11,400 364,300 970,600 900,600 235,700 2,306,100 495,900 934,600 0 0 500 611,300 2,306,100 1,763,200 1,763,200 1,275,700 1,662,300 0 0 50,100 50,800 16,000 34,800 0 2,600 0 32,200 .56 .58
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