-----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, J3q4fTB+8MsYgdwxr6r3dCCsmtkgKH/u9JF9IYg8GaflLiN9UVQoOKKFR39AGj6h p272jz/pF0rGH10s9OO2bg== 0000062418-98-000001.txt : 19980107 0000062418-98-000001.hdr.sgml : 19980107 ACCESSION NUMBER: 0000062418-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980106 SROS: NYSE 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: 98501476 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, 1997. 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 December 31, 1997 ----- -------------------------------- Common stock $.01 par value 63,423,331 2 MARK IV INDUSTRIES, INC. INDEX Part I. Financial Information Page No. Consolidated Condensed Balance Sheets as of November 30, 1997 and February 28, 1997 3 Consolidated Statements of Income and Retained Earnings For the Three Month Periods Ended November 30, 1997 and 1996 4 Consolidated Statements of Income and Retained Earnings For the Nine Month Periods Ended November 30, 1997 and 1996 5 Consolidated Statements of Cash Flows For the Nine Month Periods Ended November 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. Other Information 17 Signature Page 18 Exhibit Index 19 3 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) November 30, February 28, 1997 1997 ------------ ----------- ASSETS (Unaudited) Current Assets: Cash and short-term investments $ 155,100 $ 1,300 Accounts receivable 444,800 390,100 Inventories 397,800 377,600 Other current assets 88,300 76,500 ---------- --------- Total current assets 1,086,000 845,500 Pension and other non-current assets 235,300 214,000 Property, plant and equipment, net 633,300 553,300 Cost in excess of net assets acquired 434,800 361,800 ---------- ---------- TOTAL ASSETS $2,389,400 $1,974,600 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of debt $ 148,200 $ 89,300 Accounts payable 212,500 188,400 Compensation related liabilities 95,500 89,300 Accrued interest 14,000 20,400 Other current liabilities 73,300 93,500 ---------- ---------- Total current liabilities 543,500 480,900 ---------- ---------- Long-Term Debt: Senior debt 13,600 22,000 Subordinated debentures 845,500 506,500 ---------- ---------- Total long-term debt 859,100 528,500 ---------- ---------- Other non-current liabilities 229,900 206,800 ---------- ---------- Stockholders' Equity: Preferred stock - $.01 par value; Authorized 10 millions shares; No issued shares - - Common stock - $.01 par value; Authorized 200 million shares; Issued 63.7 million shares 600 700 Additional paid-in capital 634,000 696,500 Retained earnings 146,000 79,300 Foreign currency translation adjustment (23,700) (18,100) ---------- ---------- Total stockholders' equity 756,900 758,400 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,389,400 $1,974,600 ========== ========== The accompanying notes are an integral part of these financial statements. 4 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) For the Three Month Periods Ended November 30, 1997 and 1996 (Amounts in thousands, except per share data) 1997 1996 ---- ---- (As Restated) Net sales from continuing operations $564,100 $521,600 -------- -------- Operating costs: Cost of products sold 381,600 351,200 Selling and administration 88,300 87,300 Research and development 12,700 10,600 Depreciation and amortization 20,700 16,700 -------- -------- Total operating costs 503,300 465,800 -------- -------- Operating income 60,800 55,800 Restructuring charge - (112,500) Interest expense (16,800) (14,500) -------- -------- Income (loss) from continuing operations before provision for taxes 44,000 (71,200) Provision for (benefit from) income taxes 16,700 (28,900) -------- -------- Income (loss) from continuing operations 27,300 (42,300) Income from discontinued operations: Income from operations, net of taxes - 1,400 Gain on divestitures, net of taxes - 12,200 -------- -------- Total from discontinued operations - 13,600 -------- -------- Extraordinary loss from early extinguishment of debt, net of tax benefits (10,600) - -------- -------- Net Income (Loss) 16,700 (28,700) Retained earnings - beginning of the period 131,900 160,600 Cash dividends of $.04 and $.033 per share (2,600) (2,300) -------- -------- Retained earnings - end of the period $146,000 $129,600 ======== ======== Net income (loss) per share of common stock: Primary: Continuing operations $ .43 $ (.63) Discontinued operations - .20 Extraordinary loss (.17) - -------- -------- Net Income (Loss) $ .26 $ (.43) ======== ======== Fully-diluted: Continuing operations $ .42 $ (.63) Discontinued operations - .20 Extraordinary loss (.16) - -------- -------- Net Income (Loss) $ .26 $ (.43) ======== ======== Weighted average number of shares outstanding: Primary 63,700 66,300 ======== ======== Fully-diluted 67,300 66,700 ======== ======== The accompanying notes are an integral part of these financial statements. 5 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) For the Nine Month Periods Ended November 30, 1997 and 1996 (Amounts in thousands, except per share data) 1997 1996 ---- ---- (As Restated) Net sales from continuing operations $1,655,300 $1,556,800 ---------- --------- Operating costs: Cost of products sold 1,116,000 1,049,500 Selling and administration 260,200 254,500 Research and development 36,500 31,600 Depreciation and amortization 57,700 50,600 ---------- ---------- Total operating costs 1,470,400 1,386,200 ---------- ---------- Operating income 184,900 170,600 Restructuring charge - (112,500) Interest expense (46,700) (44,800) ---------- ---------- Income from continuing operations before provision for taxes 138,200 13,300 Provision for income taxes 53,300 4,100 ---------- ---------- Income from continuing operations 84,900 9,200 Income from discontinued operations: Income from operations, net of taxes - 5,200 Gain on divestitures, net of taxes - 12,200 ---------- ---------- Total from discontinued operations - 17,400 ---------- ---------- Extraordinary loss from early extinguishment of debt, net of tax benefits (10,600) - ---------- ---------- Net Income 74,300 26,600 Retained earnings - beginning of the period 79,300 109,700 Cash dividends of $.12 and $.10 per share (7,600) (6,700) ---------- ---------- Retained earnings - end of the period $146,000 $129,600 ========== ========== Net income per share of common stock: Primary: Continuing operations $ 1.32 $ .14 Discontinued operations - .26 Extraordinary loss (.16) - --------- --------- Net Income $ 1.16 $ .40 ========= ========= Fully-diluted: Continuing operations $ 1.30 $ .14 Discontinued operations - .26 Extraordinary loss (.16) - --------- --------- Net Income $ 1.14 $ .40 ========= ========= Weighted average number of shares outstanding: Primary 64,300 66,300 ======== ========= Fully-diluted 65,800 66,700 ======== ========= 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, 1997 and 1996 (Dollars in thousands) 1997 1996 ---- ---- (As Restated) Cash flows from operating activities: Income from continuing operations before extraordinary item $ 84,900 $ 9,200 Items not affecting cash: Depreciation and amortization 57,700 50,600 Pension and compensation related items (13,900) (10,500) Deferred income taxes 22,400 19,400 Restructuring charge, net of tax - 67,500 Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable (40,300) (25,500) Inventories (23,700) (27,800) Other assets (35,800) (23,400) Accounts payable 6,300 7,800 Other liabilities (38,100) (16,100) -------- -------- Net cash provided by continuing operating activities 19,500 51,200 Net cash provided by discontinued operations - 2,300 Extraordinary item, before deferred charges (11,700) - -------- -------- Net cash provided by operating activities 7,800 53,500 -------- -------- Cash flows from investing activities: Acquisitions and investments (79,200) (104,200) Divestitures and asset sales 36,700 101,600 Purchase of plant and equipment, net Continuing operations (108,600) (67,200) Discontinued operations - (3,500) -------- -------- Net cash used in investing activities (151,100) (73,300) -------- -------- Cash flows from financing activities: Issuance of subordinated notes 523,700 - Repurchase of subordinated notes (184,900) - Credit Agreement borrowings, net - 12,700 Other changes in long-term debt, net (4,700) (13,600) Changes in short-term bank borrowings 34,200 27,900 Common stock transactions (63,600) (300) Cash dividends paid (7,600) (6,700) -------- -------- Net cash provided by financing activities 297,100 20,000 -------- -------- Net increase in cash and cash equivalents 153,800 200 Cash and cash equivalents: Beginning of the period 1,300 900 -------- -------- End of the period $155,100 $ 1,100 ======== ======== The accompanying notes are an integral part of these financial statements. 7 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, 1997, and the results of its operations and its cash flows for the periods ended November 30, 1997 and 1996. Such results are not necessarily indicative of the results to be expected for the full year. 2. Discontinued Operations During the latter half of fiscal 1997, the Company substantially completed a divestiture program aimed at selling its non-core operations. The results of operations for the three and nine month periods ended November 30, 1996 have been restated to reflect the divested businesses as discontinued operations. 3. Acquisitions During the third quarter of fiscal 1998, the Company acquired the net assets of LPI Systemes Moteurs S.A. ("LPI") for a net cash purchase price of approximately $60 million. This French company manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection, welding, and blow molding technologies. LPI is included in the Company's Automotive business segment. 8 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Accounts Receivable and Inventories Accounts receivable are presented net of allowances for doubtful accounts of $14.6 million and $14.7 million at November 30, 1997 and February 28, 1997, respectively. Inventories consist of the following components (dollars in thousands): November 30, February 28, 1997 1997 ---- ---- Raw materials $ 92,700 $ 87,200 Work-in-process 65,600 68,700 Finished goods 239,500 221,700 -------- --------- Total $397,800 $ 377,600 ======== ========= 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. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of November 30, 1997. The amounts at February 28, 1997 are based upon the audited balance sheet at that date. 5. 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, 1997 1997 ---- ---- Land and land improvements $ 25,300 $ 25,000 Buildings 161,500 146,800 Machinery and equipment 625,900 529,800 -------- -------- Total property, plant and equipment 812,700 701,600 Less accumulated depreciation 179,400 148,300 -------- -------- Property, plant and equipment, net $633,300 $553,300 ======== ======== 9 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. Long-term Debt Long-term debt consists of the following (dollars in thousands): November 30, February 28, 1997 1997 ---- ---- Senior Debt: Credit Agreement $ - $ - Other borrowing arrangements 23,600 27,400 ---------- ---------- Total 23,600 27,400 Less Current maturities (10,000) (5,400) ---------- ---------- Net senior debt 13,600 22,000 ---------- ---------- Subordinated Debt: 7-3/4% Senior Subordinated Notes 248,700 248,500 8-3/4% Senior Subordinated Notes 73,100 258,000 7-1/2% Senior Subordinated Notes 248,700 - 4-3/4% Convertible Subordinated Notes 275,000 - ---------- --------- Total subordinated debt 845,500 506,500 ---------- --------- Total long-term debt 859,100 528,500 Total stockholders' equity 756,900 758,400 ---------- --------- Total capitalization $1,616,000 $1,286,900 ========== ========== Long-term debt as a percentage of total capitalization 53.2% 41.1% ========== ========== 7. Issuance of Subordinated Notes On October 29, 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (the "4-3/4% Notes"). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. The 4-3/4% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness and senior subordinated notes. On August 11, 1997, the Company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (the "7-1/2% Notes") at a purchase price of 99.471% of their face amount. The 7-1/2% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 8-3/4% Senior Subordinated Notes due April 2003 and the Company's 7-3/4% Senior Subordinated Notes due April 2006. On December 16, 1997, the Company completed an offer to exchange the 7-1/2% Notes issued and sold on August 11, 1997 in a transaction exempt from registration under the Securities Act of 1933 (as amended) for a new issue of 7-1/2% Notes registered under the Securities Act of 1933 (as amended). The new Notes have substantially the same terms and conditions, except the new Notes are not subject to restrictions on resale or transfer which applied to the unregistered notes. 10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company used a portion of net proceeds from the transactions described above to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance approximately $185 million of its $258 million principal amount of 8- 3/4% Senior Subordinated Notes due April 1, 2003 (the "8-3/4% Notes"). The Company recognized an extraordinary charge in the third quarter of $10.6 million after taxes for the early extinguishment of debt. The remaining $73 million principal amount of the 8-3/4% Notes will be called for redemption on April 1, 1998. 8. Common Stock Repurchase In March 1997, the Company announced its intention to acquire up to 7.3 million shares of its Common Stock outstanding. It is expected that such shares would be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through November 30, 1997, the Company acquired approximately 2.7 million of such shares, at an average cost of $23.71 per share, or a total cost of approximately $63.6 million. The Company acquired additional shares in December resulting in the cumulative acquisition of approximately 3.0 million shares, at an average price of $23.50 per share, or a total cost of approximately $70 million as of December 31, 1997. 9. Cash Flow For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company made cash interest payments of approximately $55.2 million and $55 million in the nine month periods ended November 30, 1997 and 1996, respectively. The Company also made cash income tax payments of approximately $22.9 million and $22.3 million in the nine month periods ended November 30, 1997 and 1996, respectively. 10. Recent Litigation One of the Company's subsidiaries has been named as a defendant in a number of litigation actions related to product supplied to one of the subsidiary's customers. The parties seek damages related to alleged defects in certain hose manufactured by the subsidiary and included by the customer in its retail gasoline fuel delivery systems. The Company believes it has good and valid defenses against the claims, and has submitted a counter-claim against the customer. While it is too early to determine the actual outcome of this litigation, the Company believes the final outcome will not have a material adverse effect on its results of operations or net asset position. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Cash provided by earnings (net income from continuing operations before non- cash items) was $151.1 million for the nine month period ended November 30, 1997, an increase of $14.9 million (11%) over the nine month period ended November 30, 1996. As of November 30, 1997, the Company had a working capital investment of $542.5 million, which reflects an increase of $177.9 million over the amount invested as of February 28, 1997. The increase is primarily the result of the purchase of short-term investments with a portion of the proceeds from the Company's issuance of 7-1/2% and 4-3/4% Notes ($153.8 million). Excluding the effects of non-operating items such as the short-term investments and notes payable activities, as well as the payment of liabilities associated with the restructuring, operating working capital elements at November 30, 1997 reflect an increase of approximately $57.7 million over the amount invested as of February 28, 1997. Such increase is primarily required to support new business opportunities, as well as temporary working capital requirements to support the transitions resulting from the Company's restructuring efforts. Additionally, changes in the Automotive Aftermarket business have made additional working capital investments necessary. Management is focusing its efforts at reducing its working capital requirements. Capital expenditures for the nine month period ended November 30, 1997 were $108.6 million, which reflects an increase in expenditures of $41.4 million over the nine month period ended November 30, 1996. The increased level of expenditures relates primarily to the Company's restructuring efforts, the new facilities and equipment required to support new products and markets, and increased business opportunities in Europe and South America. In March 1997, the Company announced its intention to acquire up to 7.3 million shares of its Common Stock outstanding. It is expected that such shares would be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through December 31, 1997, the Company acquired approximately 3.0 million of such shares, at an average cost of $23.50 per share, or a total cost of approximately $70 million. In March 1997 the Company sold its Data Systems and LFE Industrial Systems businesses for total proceeds of approximately $35 million. Such proceeds were used initially to reduce borrowings outstanding under the Company's Credit Agreement. During the third quarter of fiscal 1998, the Company acquired the net assets of LPI Systemes Moteurs S.A. ("LPI") for a net cash purchase price of approximately $60 million. This French company manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection, welding, and blow molding technologies. LPI is included in the Company's Automotive segment. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On October 29, 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Notes. The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. The 4-3/4% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness and senior subordinated notes. On August 11, 1997, the Company completed the sale of $250 million principal amount of its 7-1/2% Senior Subordinated Notes at a purchase price of 99.471% of their face amount. The 7-1/2% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 8-3/4% Senior Subordinated Notes due April 2003 (the 8-3/4% Notes) and the Company's 7-3/4% Senior Subordinated Notes due April 2006. The Company used a portion of the net proceeds from the issuance of the 7-1/2% and 4-3/4% Notes to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines of credit, and to refinance approximately $185 million of its outstanding $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003. The Company recognized an extraordinary charge in the third quarter of $10.6 million after taxes for the early extinguishment of debt. The remaining $73 million principal amount of the 8-3/4% Notes will be called for redemption on April 1, 1998. The issuance of the 7-1/2% and 4-3/4% Notes increases the Company's financial flexibility, as well as fixes interest rates for a portion of the Company's available long-term debt at interest rates which the Company finds attractive for its long-term capital needs. Long-term debt at November 30, 1997 was $859.1 million, an increase of approximately $330.6 million over the $528.5 million that was outstanding as of February 28, 1997. Offsetting the short-term investments against long-term debt, on a pro forma basis, the increase at November 30, 1997 over amounts outstanding as of February 28, 1997 would be approximately $176.8 million. Such increase was used primarily to fund the Company's common stock repurchases ($63.6 million), capital expenditures in excess of depreciation and amortization ($50.9 million), acquisitions, net of divestitures ($42.5 million) and the extraordinary debt extinguishment ($11.7 million) during the nine-month period ended November 30, 1997. The Company has borrowing availability under its primary credit agreement of approximately $500 million and additional availability under its various domestic and foreign demand lines of credit of approximately $145 million as of November 30, 1997. 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 and restructuring efforts. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company classifies its operations in two business segments: Industrial and Automotive. 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 for the three and nine month periods ended November 30, 1996 have been restated to reflect the businesses divested in fiscal 1997 as discontinued operations. Net sales from continuing operations for the three and nine month periods ended November 30, 1997 increased by $42.5 million (8%) and $98.5 million (6%) over the comparable periods last year. These increases were attributable to internal sales growth, as well as the inclusion of the results of operations of LPI and several smaller acquisitions from their respective dates of acquisition. Excluding the acquisitions, and the divestitures which occurred at the beginning of the fiscal year, net sales from continuing operations for both the three and nine month periods ended November 30, 1997 increased 7% over the comparable periods last year. Net sales were negatively effected by unfavorable foreign currency exchange rate movements during the period. If exchange rates in the current periods had remained consistent with the rates in effect in the comparable periods last year, sales in the current periods would have increased approximately 3% more than discussed above. In the Company's Industrial segment, net sales increased $13.2 million (6%) and $31.5 million (4%) for the three and nine month periods ended November 30, 1997 over the comparable periods last year. Excluding businesses divested in the beginning of the fiscal year, net sales for the three and nine month periods ended November 30, 1997 increased approximately 10% and 8% over the comparable periods last year. This internal growth was lead by growth in the segment's domestic general industrial and transportation sectors. In the Company's Automotive segment, net sales increased $29.3 million (10%) and $66.9 million (8%) for the three and nine month periods ended November 30, 1997 over the comparable periods last year. Excluding LPI and several smaller acquisitions, the Automotive segment's net sales for the three and nine month periods ended November 30, 1997 increased approximately $14.9 million (5%) and $52.5 million (6%), respectively,over the comparable periods last year. The internal growth in the Automotive segment was primarily generated by the segment's Automotive OEM sector, with the domestic OEM growth leading the way. The segment's OEM business was most effected by the exchange rate changes during the current periods. In the Aftermarket sector, internal sales remained relatively flat in both the domestic and foreign components for the three and nine month periods ended November 30, 1997 in comparison to the prior year, with slight increases in the maintenance (filters) side offset by slight decreases in the traditional (belts and hose) side of the sector. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The cost of products sold as a percentage of consolidated net sales has remained relatively consistent in the range of 67.3% to 67.6% throughout the current and prior year periods. Selling and administration costs as a percentage of consolidated net sales were 15.7% for the three and nine month periods ended November 30, 1997, as compared to 16.3% and 16.7%, respectively, for the three and nine month periods ended November 30, 1996. The reduction in the level of costs also indicates the Company's continued emphasis on cost control and cycle time reduction has been successful in substantially offsetting the impact of inflation on such costs. During fiscal 1997, the Company initiated a restructuring of its manufacturing and distribution facilities, which is expected to improve customer service, reduce costs, and dedicate its facilities to either the Automotive or Industrial business segments. The restructuring resulted in a pre-tax charge against earnings of $112.5 million in fiscal 1997. Approximately $51.8 million of the charge related to cash expenditures required to be made primarily over a two-year period. The remaining $60.7 million non-cash portion of the charge represents primarily asset write-offs and pension benefits to be paid out of the Company's pension fund. The Company believes the restructuring will result in an annual pre-tax cost savings of between $40 million and $45 million. While the closing of operations is proceeding as scheduled, the relocation and start-up of product lines and distribution activities is proceeding slower than originally scheduled. The Company is attempting to catch-up as it closes out its current fiscal year and expects to realize net benefits from the restructuring beginning sometime during the first half and increasing into the second half of its next fiscal year ending February 28, 1999. Research and development costs increased by $2.1 million (20%) and $4.9 million (16%) for the three and nine month periods ended November 30, 1997 as compared to the three and nine month periods ended November 30, 1996. As a percentage of consolidated net sales, these expenses remained relatively consistent in the range of 2.0% - 2.3% in each period, which reflects the Company's continuing emphasis on new product development. Depreciation and amortization expense increased by $4.0 million (24%) and $7.1 million (14%) for the three and nine month periods ended November 30, 1997 as compared to the three and nine month periods ended November 30, 1996. The increases are primarily attributable to the Company's increased level of capital equipment expenditures, as well as the effects of the LPI and several smaller acquisitions. Increased amortization expense related to costs associated with the issuance of the Company's 7-1/2% and 4-3/4% Notes also contributed to the increases in the current periods. Interest expense for the three and nine month periods ended November 30, 1997 increased by $2.3 million (16%) and $1.9 million (4%) as compared to the three and nine month periods ended November 30, 1996. The increase is primarily due to borrowings incurred to finance the Company's stock repurchase program and the acquisitions of LPI and several smaller acquisitions, as well as to 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS support higher working capital and capital expenditure levels. This increase was substantially offset by the benefits of proceeds from asset divestitures and reduced rates on the Company's domestic debt, primarily related to the issuance of the 7-1/2% and 4-3/4% Notes to refinance 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, 1997 reflects an expense of 38% and of 38.6%, respectively, compared to a benefit of approximately 40.6% and expense of 30.8% in the prior year periods. The reason for the prior period rates differing from the current year is primarily due to the restructuring charge which provided a slightly higher tax benefit than the 39% blended rate on earnings before the restructuring charge. Excluding the effects of the restructuring charge, the Company's provision for income taxes as a percentage of pre-tax accounting income for the three and nine month periods ended November 30, 1996 was approximately 39%. The decrease in the effective tax rate in the current periods is primarily related to the benefit of increased domestic income resulting from internal growth that outpaced income growth in foreign locations with higher statutory tax rates than in the U.S. The higher rates in comparison to the U.S. statutory tax rate are primarily the result of income in foreign jurisdictions with higher statutory tax rates than in the U.S., and state and local taxes. The Company's income from continuing operations in the prior year periods was made up of the following elements (dollars in thousands, except per share amounts): Three Months Nine Months Ended Ended November 30, 1996 November 30, 1996 ----------------- ----------------- Elements of the Company's income from continuing operations: Income before restructuring charge $ 25,200 $76,700 Restructuring charge (67,500) (67 500) -------- ------- Income (loss) from continuing operations $(42,300) $ 9,200 ======== ======= Fully diluted income per share from continuing operations: Income before restructuring charge $ .38 $ 1.15 Restructuring charge (1.01) (1.01) -------- ------- Income (loss) from continuing operations $ (.63) $ .14 ======== ======= The income from continuing operations for the three and nine month periods ended November 30, 1997 reflects an increase of $2.1 million (8%) and $8.2 million (11%) over the comparable amounts (before the restructuring charge) for the prior year. On a fully diluted per share basis, such amounts for the three and nine month periods ended November 30, 1997 represent an increase of $.04 (11%) and $.15 (13%) over the comparable amounts for the prior year. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The unfavorable foreign currency exchange rate movements referred to above had the effect of reducing fully-diluted earnings per share by approximately $.02 and $.05 per share in the three and nine month periods ended November 30, 1997, respectively. Impact of Inflation Although the Company has experienced delays in its ability to pass on certain inflation related cost increases, the Company does not expect that such delays or the overall impact of inflation will have a material impact on the Company's operations. 17 Part II. OTHER INFORMATION Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted. Item 6(a) - Exhibits Exhibit No. 11 Statement Regarding Computation of Per Share Earnings 27 Financial Data Schedule Item 6(b) Reports on Form 8-K The following report on Form 8-K was filed pertaining to events occurring during the quarter ended November 30, 1997. (1) The current report on Form 8-K dated November 7, 1997, was filed to report under Item 5, pertaining to the Company's issuance of $275,000,000 aggregate principal amount of 4-3/4% Convertible Subordinated Notes due 2004. The Notes were sold in a private transaction pursuant to Rule 144a under the Securities Act of 1933 (as amended). 18 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 6, 1998 /s/ Sal H. Alfiero --------------------- Sal H. Alfiero Chairman of the Board DATE: January 6, 1998 /s/ William P. Montague ----------------------- William P. Montague President DATE: January 6, 1998 /s/ John J. Byrne ----------------------- John J. Byrne Vice President - Finance and Chief Financial Officer DATE: January 6, 1998 /s/ Richard L. Grenolds ----------------------- Richard L. Grenolds Vice President and Chief Accounting Officer DATE: January 6, 1998 /s/ Clement R. Arrison ---------------------- Clement R. Arrison Director 19 EXHIBIT INDEX Description Page No. 11 Statement Regarding Computation of Per Share Earnings 20 27 Financial Data Schedule 22 EX-11 2 EXHIBIT 11 MARK IV INDUSTRIES, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) For the Three and Nine Month Periods Ended November 30, 1997 and 1996 (Amounts in thousands, except per share data) Three Months Nine Months Ended November 30, Ended November 30, 1997 1996 1997 1996 PRIMARY EARNINGS PER SHARE Primary Shares Outstanding: Weighted average number of shares outstanding 63,700 66,300 64,300 66,300 Net effect of dilutive stock options (1) 600 400 500 400 -------- ------- -------- ------- Total 64,300 66,700 64,800 66,700 ======== ======== ======== ======= Income (loss) from continuing operations $ 27,300 $(42,300) $ 84,900 $ 9,200 ======== ======== ======== ======= Income (loss) per share from continuing operations $ .43 $ (.63) $ 1.31 $ .14 ======== ======== ======== ======= Income from discontinued operations $ - $ 13,600 $ - $17,400 ======== ======== ======== ======= Income per share from discontinued operations (2) $ - $ .20 $ - $ .26 ======== ======== ======== ======= Loss from extraordinary item $(10,600) $ - $(10,600) $ - ======== ======== ========= ======= Loss per share from extraordinary item (2) $ (.17) $ - $ (.16) $ - ======== ======== ======== ======= FULLY-DILUTED EARNINGS PER SHARE Fully-diluted Shares Outstanding: Weighted average number of shares outstanding 63,700 66,300 64,300 66,300 Shares issuable upon conversion of the Company's 4-3/4% Convertible Debentures 3,000 - 1,000 - Net effect of dilutive stock options (1) 600 400 500 400 ------- ------- ------- ------ Total 67,300 66,700 65,800 66,700 ======= ======= ======= ====== Income (loss) from continuing operations $ 27,300 $(42,300) $ 84,900 $ 9,200 Interest on the Company's 4-3/4% Convertible Debentures, net of tax effect 700 - 700 - ------- -------- -------- ------ Income (loss) from continuing operations applicable to fully-diluted shares $ 28,000 $(42,300) $ 85,600 $ 9,200 ======== ======== ======== ======= Income (loss) per share from continuing operations $ .42 $ (.63) $ 1.30 $ .14 ======== ======== ======== ======= Income from discontinued operations $ - $ 13,600 $ - $17,400 ======== ======== ======== ======= Income per share from discontinued operations $ - $ .20 $ - $ .26 ======== ======== ======== ======= Loss from extraordinary item $(10,600) $ - $(10,600) $ - ======== ======== ======== ======= Loss per share from extraordinary item $ (.16) $ - $ (.16) $ - ======== ======== ======== ======= - ------------------------------------ (1) The net effects for the three and nine month periods ended November 30, 1997 and 1996 are based upon the treasury stock method using the average market price during the periods for the primary amounts, and the higher of the average market price or the market price at the end of the period for the fully-diluted amounts. (2) Primary earnings per share have been reported in the Company's financial statements based only upon the shares of common stock outstanding, since the dilutive effect of the stock options is not considered to be material. EX-27 3
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-28-1998 NOV-30-1997 155,100 0 456,400 14,600 397,800 1,086,000 812,700 179,400 2,389,400 543,500 859,100 0 0 600 756,300 2,389,400 1,655,300 1,655,300 1,116,000 1,470,400 0 0 46,700 138,200 53,300 84,900 0 10,600 0 74,300 1.16 1.14
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