-----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, O4jWqwHuTzg1BP7wQrQCAJAiUbDVQfyIwv6aUIjIguBZ1LvTur1qTRcIqG50rsuN 9ROSemWFewl52mAVQUUUJw== 0000062418-00-000001.txt : 20000202 0000062418-00-000001.hdr.sgml : 20000202 ACCESSION NUMBER: 0000062418-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 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: 507906 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, 1999. 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 13, 2000 ----- ------------------------------- Common stock $.01 par value 44,303,951 2 MARK IV INDUSTRIES, INC. INDEX Part I. Financial Information Page No. - ------------------------------ -------- Consolidated Condensed Balance Sheets as of November 30, 1999 and February 28, 1999 3 Consolidated Statements of Income For the Three Month Periods Ended November 30, 1999 and 1998 4 Consolidated Statements of Income For the Nine Month Periods Ended November 30, 1999 and 1998 5 Consolidated Statements of Cash Flows For the Nine Month Periods Ended November 30, 1999 and 1998 6 Consolidated Statements of Comprehensive Income and Retained Earnings for the Three and Nine Month Periods Ended November 30, 1999 and 1998 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Part II. Other Information 22 Signature Page 23 Exhibit Index 24 3 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) November 30, February 28, 1999 1999 ---- ----- ASSETS (Unaudited) Current Assets: Cash and short-term investments $ 1,700 $ 125,700 Accounts receivable 409,100 406,000 Inventories 355,700 297,600 Other current assets 129,000 133,300 ---------- ---------- Total current assets 895,500 962,600 Pension and other non-current assets 193,500 185,500 Property, plant and equipment, net 602,900 562,300 Cost in excess of net assets acquired 353,700 369,300 ---------- ---------- TOTAL ASSETS $2,045,600 $2,079,700 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities $ 114,600 $ 57,800 Accounts payable 252,300 219,900 Compensation related liabilities 78,900 79,000 Accrued interest 9,600 23,200 Other current liabilities 104,300 92,100 ---------- ---------- Total current liabilities 559,700 472,000 ---------- ---------- Long-Term Debt: Senior debt 131,400 24,700 Subordinated debentures 643,100 772,800 ---------- ---------- Total long-term debt 774,500 797,500 ---------- ---------- Other non-current liabilities 234,600 213,500 ---------- ---------- Stockholders' Equity: Preferred stock - - Common stock 400 500 Additional paid-in capital 277,100 440,700 Retained earnings 266,300 203,300 Foreign currency translation adjustment (67,000) (47,800) ---------- ---------- Total stockholders' equity 476,800 596,700 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,045,600 $2,079,700 ========== ========== 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, 1999 and 1998 (Amounts in thousands, except per share data) 1999 1998 ---- ---- (As Restated) Net sales from continuing operations $500,200 $450,900 -------- -------- Operating costs: Cost of products sold (including $62.8 million related to repositioning charge in 1998) 338,800 364,100 Selling and administration 72,000 68,500 Research and development 15,400 11,500 Depreciation and amortization 23,900 20,200 -------- -------- Total operating costs 450,100 464,300 -------- -------- Operating income (loss) 50,100 (13,400) Interest expense 13,200 13,000 -------- -------- Income (loss) from continuing operations, before provision for taxes 36,900 (26,400) Provision for (benefit from) income taxes 13,600 (11,500) -------- -------- Income (loss) from continuing operations 23,300 (14,900) Income from discontinued operations, net of taxes - 1,900 Extraordinary gain from early extinguishment of debt, net of tax effects 100 - -------- -------- Net income (loss) $ 23,400 $(13,000) ======== ======== Net income (loss) per share of common stock: Basic: Income (loss) from continuing operations $ .51 $ (.27) Income from discontinued operations - .03 Extraordinary gain - - -------- -------- Net income (loss) $ .51 $ (.24) ======== ======== Diluted: Income (loss) from continuing operations $ .46 $ (.27) Income from discontinued operations - .03 Extraordinary gain - - -------- -------- Net income (loss) $ .46 $ (.24) ======== ======== Weighted average number of shares outstanding: Basic 46,000 54,500 ====== ====== Diluted 54,700 63,000 ====== ====== 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, 1999 and 1998 (Amounts in thousands, except per share data) 1999 1998 ---- ---- (As Restated) Net sales from continuing operations $1,501,500 $1,370,400 ---------- ---------- Operating costs: Cost of products sold (including $62.8 million related to repositioning charge in 1998) 1,021,400 990,400 Selling and administration 220,000 208,200 Research and development 44,500 36,900 Depreciation and amortization 69,100 58,500 ---------- ---------- Total operating costs 1,355,000 1,294,000 ---------- ---------- Operating income 146,500 76,400 Interest expense 40,200 36,900 ---------- ---------- Income from continuing operations, before provision for taxes 106,300 39,500 Provision for income taxes 38,900 12,200 ---------- ---------- Income from continuing operations 67,400 27,300 Income from discontinued operations, net of taxes 2,500 7,500 Extraordinary gain (loss) from early extinguishment of debt, net of tax effects 900 (2,600) ---------- ---------- Net income $ 70,800 $ 32,200 ========== ========== Net income per share of common stock: Basic: Income from continuing operations $ 1.39 $ .47 Income from discontinued operations .05 .13 Extraordinary gain (loss) .02 (.04) --------- --------- Net income $ 1.46 $ .56 ========= ========= Diluted: Income from continuing operations $ 1.28 $ .47 Income from discontinued operations .04 .11 Extraordinary gain (loss) .02 (.04) --------- --------- Net income $ 1.34 $ .54 ========= ========= Weighted average number of shares outstanding: Basic 48,500 57,900 ====== ====== Diluted 57,200 66,500 ====== ====== 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, 1999 and 1998 (Dollars in thousands) 1999 1998 ---- ---- (As Restated) Cash flows from operating activities: Income from continuing operations $ 67,400 $ 27,300 Items not affecting cash: Depreciation and amortization 69,100 58,500 Pension and compensation related items, net (9,500) (18,000) Deferred income taxes 12,000 8,700 Repositioning charge - 28,500 Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable 12,400 14,700 Inventories (31,800) 12,300 Accounts payable (2,400) 13,900 Compensation related liabilities (2,900) 3,200 Accrued expenses and other items, net (47,800) (37,800) -------- -------- Net cash provided by continuing operating activities 66,500 111,300 Net cash provided by discontinued operations 800 20,200 Extraordinary gain (loss) before deferred charges 3,100 (3,300) -------- -------- Net cash provided by operating activities 70,400 128,200 -------- -------- Cash flows from investing activities: Acquisitions (62,600) (2,400) Divestitures and asset sales 181,400 - Purchase of plant and equipment, net (58,600) (53,700) -------- -------- Net cash provided by (used in) investing activities 60,200 (56,100) -------- -------- Cash flows from financing activities: Credit agreement borrowings, net 25,100 125,000 Retirement of subordinated debt (130,300) (73,100) Other changes in long-term debt, net 30,900 14,900 Changes in short-term bank borrowings, net (8,600) (83,800) Repurchase of common stock, net (163,700) (166,300) Cash dividends paid (8,000) (8,400) -------- -------- Net cash used in financing activities (254,600) (191,700) -------- -------- Net decrease in cash and short-term investments (124,000) (119,600) Cash and short-term investments: Beginning of the period 125,700 120,900 -------- -------- End of the period $ 1,700 $ 1,300 ======== ======== The accompanying notes are an integral part of these financial statements. 7 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS For the Three and Nine Month Periods Ended November 30, 1999 and 1998 (Dollars in thousands) (Unaudited) Comprehensive Income - -------------------- Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income (loss) $ 23,400 $(13,000) $ 70,800 $ 32,200 Balance sheet effect of foreign currency translation adjustments (8,800) 7,500 (19,200) 1,600 -------- -------- -------- ------- Comprehensive net income $ 14,600 $ (5,500) $ 51,600 $ 33,800 ======== ======== ======== ======== Retained Earnings - ----------------- Retained earnings at the beginning of the period $245,300 $206,600 $203,300 $167,100 Net income (loss) 23,400 (13,000) 70,800 32,200 Cash dividends of $.055, $.05, $.165 and $.15 per share (2,400) (2,700) (7,800) (8,400) -------- -------- -------- -------- Retained earnings at the end of the period $266,300 $190,900 $266,300 $190,900 ======== ======== ======== ======== 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 revenue and expense 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, 1999, and the results of its operations and its cash flows for the periods ended November 30, 1999 and 1998. Such results are not necessarily indicative of the results to be expected for the full year. Certain reclassifications of the November 30, 1998 financial statements have been made to reflect the Company's fiscal 1999 discontinued operations which were divested near the end of fiscal 1999, as well as the discontinued operations which were divested in the current fiscal year. 2. Cash Flow For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company made cash interest payments of approximately $58.3 million and $69.2 million in the nine month periods ended November 30, 1999 and 1998, respectively. The Company also made cash income tax payments of approximately $25.9 million and $24.8 million in the nine month periods ended November 30, 1999 and 1998, respectively. 3. Acquisitions In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A. ("Lombardini"), an Italian-based manufacturer of small diesel engines, for $148 million, consisting of a cash payment of $42 million and the assumption of $106 million of existing debt. Lombardini produces small engines of up to 50kw (65 hp) in power and competes in various markets, supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. Subsequent to the Lombardini acquisition, the Company also acquired Ruggerini, and the CVT business of Piaggio, for total consideration (including debt assumed)of approximately $23 million. These acquisitions represented complementary add-ons to Lombardini's activities, all of which are managed as a part of the Automotive Business Segment. 9 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Divestitures In September 1999, the Company completed the sale of its Industrial Filter Business for approximately $144.8 million in cash. The Company's Industrial Filter Business was part of its Industrial Business Segment. The results of operations of this business have been segregated from the Company's continuing operations and accounted for as a discontinued operation in the accompanying consolidated statements of income and cash flows. The results of operations of the Industrial Filter Business up to its disposal date were as follows (dollars in thousands): Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1999 1998 1999 1998 -------- ------ ------- -------- Sales $ - $39,600 $77,600 $114,000 ======== ======= ======= ======== Income from discontinued operations, net of taxes $ - $ 4,800 $ 2,500 $ 7,300 ======== ======= ======= ======== Interest expense allocated to discontinued operations amounted to $1.2 million in the three month period ended November 30, 1998. Corresponding amounts in the nine month periods ended November 30, 1999 and 1998 amounted to $2.6 million and $3.5 million, respectively. 5. Accounts Receivable and Inventories Accounts receivable are presented net of allowances for doubtful accounts of $12.7 million and $9.6 million at November 30, 1999 and February 28, 1999, respectively. The amount at February 28, 1999 includes approximately $1.2 million related to the Industrial Filter Business. Inventories consist of the following components (dollars in thousands): November 30, February 28, 1999 1999 ----------- ----------- Raw materials $ 108,000 $ 76,200 Work-in-process 63,800 51,600 Finished goods 183,900 169,800 --------- --------- Total $ 355,700 $ 297,600 ========= ========= 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 based on the Company's perpetual inventory records. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of November 30, 1999. The amounts at February 28, 1999 are based upon the audited balance sheet at that date, and include $30.5 million related to the Industrial Filter Business. 10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. 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, 1999 1999 ------------ ------------ Land and land improvements $ 21,400 $ 24,900 Buildings 201,400 174,700 Machinery and equipment 655,900 599,200 -------- -------- Total property, plant and equipment 878,700 798,800 Less accumulated depreciation (275,800) (236,500) -------- -------- Property, plant and equipment, net $602,900 $562,300 ======== ======== The net amount at February 28, 1999 includes $23.2 million related to the Industrial Filter Business. 11 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. Long-term debt Long-term debt consists of the following (dollars in thousands): November 30, February 28, 1999 1999 ------------ ------------ Senior Debt: Credit Agreement $ - $ - Other borrowing arrangements 140,100 42,400 --------- ---------- Total 140,100 42,400 Less current maturities (8,700) (17,700) --------- ---------- Net senior debt 131,400 24,700 --------- ---------- Subordinated Debt: 7-3/4% Senior Notes 119,100 248,900 7-1/2% Senior Notes 249,000 248,900 4-3/4% Convertible Notes 275,000 275,000 --------- ---------- Total subordinated debt 643,100 772,800 --------- ---------- Total long-term debt 774,500 797,500 Total stockholders' equity 476,800 596,700 --------- ---------- Total capitalization $1,251,300 $1,394,200 ========== ========== Long-term debt as a percentage of total capitalization 61.9% 57.2% ========== ========== During the nine month period ended November 30, 1999, the Company repurchased approximately $130.4 million principal amount of its 7-3/4% Senior Subordinated Notes, of which $15.1 million principal amount was repurchased during the three month period ended November 30, 1999. The Company recognized an extraordinary gain of $100,000 and $900,000 (net of taxes) in the three and nine month periods ended November 30, 1999, respectively, from the repurchase of the Notes. 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 redemption resulted in a one-time charge for early debt extinguishment of $2.6 million (net of tax) in the nine month period ended November 30, 1998. 12 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Restructuring and Repositioning Charges The Company has substantially completed the restructuring and repositioning activities related to the special charges recognized in fiscal 1997 and fiscal 1999. The expenditure activity for fiscal 2000 consists of the following (dollars in thousands): Balance Amounts Balance Remaining at Paid in Remaining at February 28, Fiscal November 30, 1999 2000 1999 ------------ -------- ------------- Facility closing and lease run-out costs $18,500 $ 7,400 $11,100 Severance and other costs 9,800 4,700 5,100 ------- ------- ------- Total $28,300 $12,100 $16,200 ======= ======= ======= It is anticipated the majority of the liability remaining at November 30, 1999, related primarily to contractual obligations and on-going severance payments, will be paid by the end of fiscal 2001. 9. Common Stock Repurchases In May 1999, the Company announced completion of its ten million share repurchase program approved by the Board of Directors in May 1998. Upon completion of the 1998 program, the Company's 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. Total purchases under both authorizations in the current fiscal year through November 30, 1999 were approximately 9.1 million shares, at an average cost of $17.94 per share, or a total cost of $163.5 million. As of January 13, 2000 approximately 5.2 million shares remain available to be purchased under the Company's current Board authorization. 13 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 10. Business Segment Information Information concerning the Company's Business Segments is as follows (dollars in thousands): Nine Months Ended November 30, ------------------------------ 1999 1998 ---- ---- NET SALES TO CUSTOMERS Automotive $ 907,900 $ 748,500 Industrial 593,600 621,900 ---------- ---------- Total related to continuing operations $1,501,500 $1,370,400 ========== ========== OPERATING INCOME Automotive $ 89,400 $ 74,900 Industrial 69,000 76,000 ---------- ---------- Management's measure of the segments' operating performance 158,400 150,900 Repositioning charge - (62,800) General corporate expense (11,900) (11,700) Interest expense (40,200) (36,900) Provision for income taxes (38,900) (12,200) ---------- ---------- Income from continuing operations $ 67,400 $ 27,300 ========== ========== November 30, February 28, 1999 1999 ----------- ------------ IDENTIFIABLE ASSETS Automotive $1,204,600 $ 974,500 Industrial 816,500 800,600 ---------- ---------- Total identifiable assets of the segments 2,021,100 1,775,100 General corporate assets 24,500 153,600 ---------- ---------- Total assets related to continuing operations 2,045,600 1,928,700 Discontinued operations - 151,000 ---------- ---------- Total consolidated $2,045,600 $2,079,700 ========== ========== The change in the level of identifiable assets of the Automotive segment is primarily the result of the Lombardini acquisition, further described in Footnote 3 included elsewhere herein. 14 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, ------------------ ----------------- Basic Net Income Per Share: 1999 1998 1999 1998 -------------------------- ---- ---- ----- ---- Net income (loss) $23,400 $(13,000) $70,800 $32,200 ======= ======== ======= ======= Weighted average number of common shares outstanding 46,000 54,500 48,500 57,900 ======= ======== ======= ======= Basic net income (loss) per share $ .51 $ (.24) $ 1.46 $ .56 ======= ======== ======= ======= Diluted Net Income Per Share: ---------------------------- Net income (loss) $23,400 $(13,000) $70,800 $32,200 After-tax equivalent of interest expense on the 4-3/4% Convertible Subordinated Notes 2,000 2,000 6,000 6,000 ------- -------- ------- ------- Income (loss) for purposes of computing diluted net income per share $25,400 $(11,000) $76,800 $38,200 ======= ======== ======= ======= Weighted average common shares outstanding 46,000 54,500 48,500 57,900 Dilutive stock options 300 100 300 200 Weighted average effect of the assumed conversion of the 4-3/4% Convertible Subordinated Notes 8,400 8,400 8,400 8,400 ------ ------ ------ ------ Weighted average number of common shares outstanding for purposes of computing diluted net income per share 54,700 63,000 57,200 66,500 ====== ====== ====== ====== Diluted net income (loss) per share before adjustment to eliminate anti-dilutive effect $ .46 $ (.17) $ 1.34 $ .58 Adjustment to eliminate anti-dilutive effect (a) - (.07) - (.04) ------- -------- ------- ------- Diluted net income (loss) per share $ .46 $ (.24) $ 1.34 $ .54 ======= ======== ======= ======= (a) As a result of the restructuring charge in the third quarter of fiscal 1999, the conversion calculations have the effect of being anti-dilutive to income from continuing operations. Therefore, the diluted per share amounts for the three and nine month periods ended November 30, 1998, have been adjusted to eliminate such anti-dilutive effects. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company's working capital investment decreased by $154.8 million (32%) during the nine month period ended November 30, 1999, to $335.8 million from $490.6 million at February 28, 1999. Eliminating the effects of acquisitions and divestitures, as well as cash and current financial indebtedness, the Company's working capital investment was approximately $448.7 million at November 30, 1999. Such amount reflects an increase of $21.9 million (5%) from the $426.8 investment which existed at February 28, 1999, and is comparable to the $445.3 million investment which existed at November 30, 1998, on a comparable basis. The increase from February 28, 1999's level includes a temporary inventory build to address customers' "year 2000" concerns, and such increase is expected to be worked-down over the next two fiscal quarters. Capital expenditures for the nine month period ended November 30, 1999 were approximately $58.6 million, which was $10.5 million lower than depreciation and amortization expense of $69.1 million in the same period, and reflects a consistent level of expenditures in comparison to the nine month period ended November 30, 1998. Management anticipates that the Company's capital expenditure requirements will continue to be less than its depreciation and amortization expense for the remainder of fiscal 2000, and into fiscal 2001. In May 1999, the Company announced completion of its ten million share repurchase program approved by the Board of Directors in May 1998. Upon completion of the 1998 program, the Company's 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. Total purchases under both authorizations in the current fiscal year through November 30, 1999 were approximately 9.1 million shares, at an average cost of $17.94 per share, or a total cost of $163.5 million. As of January 13, 2000, approximately 5.2 million shares remain available to be purchased under the Company's current Board authorization. During the nine month period ended November 30, 1999, the Company repurchased approximately $130.4 million principal amount of its 7-3/4% Senior Subordinated Notes, of which $15.1 million principal amount was repurchased during the three month period ended November 30, 1999. In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A. ("Lombardini"), an Italian-based manufacturer of small diesel engines for $148 million, consisting of a cash payment of $42 million and the assumption of $106 million of existing debt. Lombardini produces small engines of up to 50kw (65 hp) in power and competes in various markets, supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Subsequent to the Lombardini acquisition, the Company also acquired Ruggerini, and the CVT business of Piaggio, for total consideration (including debt assusmed) of approximately $23 million. These acquisitions represented complementary add-ons to Lombardini's activities, all of which are managed as a part of the Automotive Business Segment. In September 1999, the Company completed the sale of its Industrial Filter Business, part of its Industrial business segment, for approximately $144.8 million in cash. The results of operations of this business have been segregated from the Company's continuing operations and accounted for as discontinued operations in the accompanying consolidated statements of income and cash flows. The net proceeds were used initially to pay-down borrowings outstanding under the Company's revolving credit facility, and subsequently utilized to fund common stock repurchases, debt extinguishment and acquisitions. Management believes cash generated from operations, as temporarily supplemented by existing credit availability, should be sufficient to support the Company's stock repurchase program, working capital requirements and anticipated capital expenditure needs for the foreseeable future. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 results of operations of the Lombardini-related acquisitions have been included in the Company's results of operations from their respective dates of acquisition. The results of operations of the Company's Industrial Filter Business have been segregated from the results of the Company's continuing operations and reported as discontinued operations for all periods presented. The results of operations in fiscal 1999 have also been restated to exclude the results related to the operations divested at the end of fiscal 1999, consisting primarily of the Company's former Purolator Automotive Filter Business. Net sales from continuing operations for the three and nine month periods ended November 30, 1999 increased by $49.3 million (11%) and $131.1 million (9.6%), respectively, over the comparable periods last year. In the Company's Automotive product lines, net sales increased $8.3 million (3.1%) and $49.5 million (6.6%) in the three and nine month periods ended November 30, 1999, respectively, over the comparable periods last year. Excluding the effects of the Lombardini-related acquisitions and the foreign currency exchange rate movements, internal growth in the Company's Automotive product lines amounted to $15.2 million (5.7%) and $60.0 million (7.9%) in the three and nine month periods ended November 30, 1999, respectively, over the comparable periods last year. The internal growth in the Automotive product lines for the three month period ended November 30, 1999, as compared to the comparable period in the prior year was generated by the international Automotive OEM and domestic Automotive Aftermarket sectors, with internal growth up 11.2% and 21.8%, respectively. The internal growth in these sectors offset slightly reduced sales year-over- year in the domestic Automotive OEM and international Aftermarket sectors for the three month periods ended November 30, 1999. The internal growth in the Automotive product lines for the nine month period ended November 30, 1999 as compared to the comparable period in the prior year was generated by the Automotive OEM sector with internal growth up 10.0%, with domestic growth up 16.6% and international growth up 6.3%. The domestic Aftermarket sector also contributed to the internal growth, with an increase of 5.8% for the nine month period, while the international sector showed slightly reduced sales on a year-over-year basis. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the Company's Industrial product lines, net sales increased $41.0 million (22.2%) and $81.6 million (13.1%) in the three and nine month periods ended November 30, 1999, respectively, over the comparable periods last year. Excluding the effects of the Lombardini-related acquisitions and the foreign currency exchange rate movements, net sales in the Company's Industrial product lines increased $2.3 million (1.3%) and decreased $12.2 million (2.1%) in the three and nine month periods ended November 30, 1999, respectively, in comparison to the corresponding prior year periods. The relatively flat increase in the three month period and the decrease in the nine month period were primarily attributable to unfavorable year-over-year comparisons in the Industrial sector's agricultural and petrochemical markets. The Industrial product lines also experienced decreases in the Transportation sector in the three and nine month periods ended November 30, 1999 in comparison to the same periods in the prior year. Such decreases were due to the contract nature of this business which can result in an uneven shipment schedule and related revenue recognition over the short-term. The cost of products sold (excluding the Company's repositioning charge) as a percentage of consolidated net sales was 67.7% and 68.0% as compared to 66.8% and 67.7% for the three and nine month periods ended November 30, 1999 and 1998. This increased level is primarily attributable to start-up costs related to beginning new air intake manifold production in North America, which will begin customer shipments in the fourth quarter of fiscal 2000. The cost relationships in the three and nine month periods were also effected by reduced pension income resulting from lower earnings assumptions for the pension trust's assets in fiscal 2000, as well as the effects of the Lombardini-related acquisitions which had lower margins than the Company's existing revenue base. Selling and administration costs as a percentage of consolidated net sales were 14.4% and 14.7% for the three and nine month periods ended November 30, 1999, as compared to 15.2% and 15.2% for the three and nine month periods ended November 30, 1998. The reduction in the level of costs indicates operating efficiencies achieved and the benefits of continued emphasis on cost control. The lower rates also reflect the effects of the Lombardini-related acquisitions, which have a lower level of such costs than the Company's historical experience. Research and development costs increased by $3.9 million (34%) and $7.6 million (21%), respectively, for the three and nine month periods ended November 30, 1999 as compared to the three and nine month periods ended November 30, 1998. As a percentage of consolidated net sales, these expenses were approximately 3.0% as compared to approximately 2.7% in the comparable periods last year. The increased level of costs, as a percentage of net sales, is primarily related to bringing new technology to the North American Automotive OEM market from acquisitions made in Europe, and the launching of a number of new products and systems initiatives. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Depreciation and amortization expense increased by $3.7 million (18%) and $10.6 million (18%), respectively, for the three and nine month periods ended November 30, 1999 as compared to the three and nine month periods ended November 30, 1998. The increase is attributable to the inclusion of the results of operations of the Lombardini-related businesses, as well as the effects of the Company's capital equipment expenditures in the latter half of fiscal 1999 and first half of fiscal 2000. Interest expense for the three and nine month periods ended November 30, 1999 increased $200,000 (2%) and $3.3 million (9%) from the level incurred in the three and nine month periods ended November 30, 1998. The increase is primarily attributable to debt resulting from the Lombardini-related acquisitions, and increased indebtedness to fund the Company's stock repurchase program. These increases were somewhat offset by the repurchase of a portion of the Company's 7-3/4% Senior Subordinated Notes, as well as the repayment of the Company's outstanding revolving credit facility with proceeds from the divestiture of the Company's Industrial Filter business. The effective tax rate as a percentage of pre-tax accounting income for the three and nine month periods ended November 30, 1999 increased to approximately 37.0% and 36.6%, respectively, from 36% for the comparable periods last year (excluding the effect of tax benefits related to the Company's repositioning charge). The increase in the effective tax rate is primarily the result of an increased income mix in higher taxed European countries. As a result of all of the above, and excluding the effects of the Company's repositioning charge in 1998, income from continuing operations for the three and nine month periods ended November 30, 1999 reflects increases of $100,000 and $2.0 million as compared to the comparable periods in the prior year. Net income for the three month period ended November 30, 1999 was $23.4 million, which included a $100,000 gain from early debt extinguishment. Such amounts compare to a net loss for the three month period ended November 30, 1998 of $13.0 million, which included a $38.1 million repositioning charge and $1.9 million of income from discontinued operations. Net income in the nine month period ended November 30, 1999 increased to $70.8 million, including $2.5 million from discontinued operations and a $900,000 extraordinary gain from early debt extinguishment. Net income in the comparable period last year was $32.2 million, which included a $38.1 million repositioning charge and income from discontinued operations of $7.5 million, and an extraordinary loss from early debt extinguishment of $2.6 million. 20 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 the Year 2000 Issue - ----------------------------- The Year 2000 Issue was 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 had date- sensitive software or embedded chips might have recognized a date using "00" as the year 1900 rather than the year 2000. This could have resulted 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 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") would be Year 2000 compliant and operational on a timely basis. The plan addressed all of the Company's locations throughout the world, and included a review of computer applications that connect elements of the Company's business directly to its customers and suppliers. The plan also included an assessment process to determine that the Company's significant customers and suppliers ("Third-Party Activities") would also be Year 2000 compliant. The Company utilized both internal and external resources to reprogram or replace, test, and implement the required Year 2000 modifications identified from its assessment process. The Company's total cost to address the Year 2000 Issue for its continuing operations was approximately $6.8 million, with approximately $800,000 of that amount expended in the nine month period ended November 30, 1999. Such total costs included $1.9 million for capital expenditures related to new systems and equipment, and $4.9 million for operating expenses related to modifications of existing systems and equipment. Based upon the company's completion of its Year 2000 plans and transition into calendar year 2000, the Company does not anticipate any substantive problems related to this issue going forward. 21 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; b. the Company's ability to continue to control and reduce its costs of production; c. the level of consumer demand for new vehicles equipped with the Company's products; d. the level of consumer demand for the Company's aftermarket products, which varies based on such factors as the severity of winter weather, the age of automobiles in the Company's markets and the impact of improvements or changes in original equipment products; e. the effect of changes in the distribution channels for the Company's aftermarket and industrial products; and, f. the strength of the U.S. dollar against currencies of other countries where the Company operates, as well as cross-currencies between the Company's operations outside of the U.S. and other countries with whom they transact business. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company does not intend to update forward-looking statements. 22 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 - ----------------------------- None 23 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, 2000 /s/ Sal H. Alfiero ---------------- ----------------------- Sal H. Alfiero Chairman of the Board DATE: January 14, 2000 /s/ William P. Montague ---------------- ----------------------- William P. Montague President DATE: January 14, 2000 /s/ John J. Byrne ---------------- ----------------------- John J. Byrne Vice President - Finance and Chief Financial Officer DATE: January 14, 2000 /s/ Richard L. Grenolds ---------------- ----------------------- Richard L. Grenolds Vice President and Chief Accounting Officer DATE: January 14, 2000 /s/ Clement R. Arrison ---------------- ----------------------- Clement R. Arrison Director 24 EXHIBIT INDEX Description - ------------ Page No. ------- * 27 Financial Data Schedule 25 * Filed herewith by direct transmission pursuant to the EDGAR Program 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. 1000 9-MOS FEB-29-2000 NOV-30-1999 1,700 0 421,800 12,700 355,700 895,500 878,700 275,800 2,045,600 559,700 774,500 0 0 400 476,400 2,045,600 1,501,500 1,501,500 1,021,400 1,355,000 0 0 40,200 106,300 38,900 67,400 2,500 900 0 70,800 1.46 1.34
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