-----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, UBwVEO0ojsgAZR+joAejbnoo200UtMOEiXEJGhMfu2xmVQiEgb9JslkP0HmfQm23 WfTrQcElZOez6VvfZgE9MA== 0000062418-99-000008.txt : 19990702 0000062418-99-000008.hdr.sgml : 19990702 ACCESSION NUMBER: 0000062418-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990701 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: 99657884 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 May 31, 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 June 30, 1999 Common stock $.01 par value 49,092,739 2 MARK IV INDUSTRIES, INC. INDEX Part I. Financial Information Page No. Consolidated Condensed Balance Sheets as of May 31, 1999 and February 28, 1999 3 Consolidated Statements of Income For the Three Month Periods Ended May 31, 1999 and 1998 4 Consolidated Statements of Cash Flows For the Three Month Periods Ended May 31, 1999 and 1998 5 Consolidated Statements of Comprehensive Income and Retained Earnings For the Three Month Periods Ended May 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. Other Information 19 Signature Page 20 Exhibit Index 21 3 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) May 31, February 28, 1999 1999 -------- ---------- ASSETS (Unaudited) Current Assets: Cash and short-term investments $ 22,400 $ 125,700 Accounts receivable 495,900 406,000 Inventories 347,700 297,600 Other current assets 123,200 133,300 ---------- ---------- Total current assets 989,200 962,600 Pension and other non-current assets 185,700 185,500 Property, plant and equipment, net 620,800 562,300 Cost in excess of net assets acquired 402,300 369,300 ---------- ---------- TOTAL ASSETS $2,198,000 $2,079,700 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities $ 136,200 $ 57,800 Accounts payable 271,500 219,900 Compensation related liabilities 79,600 79,000 Accrued interest 9,800 23,200 Other current liabilities 120,600 92,100 ---------- ---------- Total current liabilities 617,700 472,000 ---------- ---------- Long-Term Debt: Senior debt 57,300 24,700 Subordinated debentures 747,300 772,800 ---------- ---------- Total long-term debt 804,600 797,500 ---------- ---------- Other non-current liabilities 231,600 213,500 ---------- ---------- Stockholders' Equity: Preferred stock - - Common stock 500 500 Additional paid-in capital 372,700 440,700 Retained earnings 226,900 203,300 Foreign currency translation adjustment (56,000) (47,800) ---------- ---------- Total stockholders' equity 544,100 596,700 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,198,000 $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 May 31, 1999 and 1998 (Amounts in thousands, except per share data) 1999 1998 ---- ---- (As Restated) Net sales from continuing operations $559,000 $509,700 -------- -------- Operating costs: Cost of products sold 382,800 346,400 Selling and administration 82,100 78,000 Research and development 15,200 13,600 Depreciation and amortization 23,300 20,000 -------- -------- Total operating costs 503,400 458,000 -------- -------- Operating income 55,600 51,700 Interest expense 14,500 12,600 -------- -------- Income from continuing operations, before provision for taxes 41,100 39,100 Provision for income taxes 14,800 14,000 -------- -------- Income from continuing operations 26,300 25,100 Income from discontinued operations, net of taxes - 1,800 Extraordinary loss from early extinguishment of debt, net of tax benefit - (2,600) -------- -------- Net income $ 26,300 $ 24,300 ======== ======== Net income per share of common stock: Basic: Income from continuing operations $ .52 $ .41 Income from discontinued operations - .03 Extraordinary loss - (.04) -------- -------- Net income $ .52 $ .40 ======== ======== Diluted: Income from continuing operations $ .48 $ .39 Income from discontinued operations $ - $ .02 Extraordinary loss - (.04) -------- -------- Net income $ .48 $ .37 ======== ======== Weighted average number of shares outstanding: Basic 51,000 61,500 ======== ======== Diluted 59,500 70,300 ======== ======== The accompanying notes are an integral part of these financial statements. 5 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Month Periods Ended May 31, 1999 and 1998 (Dollars in thousands) 1999 1998 ---- ---- (As Restated) Cash flows from operating activities: Income from continuing operations $ 26,300 $ 25,100 Items not affecting cash: Depreciation and amortization 23,300 20,000 Pension and compensation related items, net (2,700) (5,600) Deferred income taxes 5,500 5,600 Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable (43,100) (40,300) Inventories (2,300) 400 Other assets 4,500 (1,600) Accounts payable and other liabilities (4,700) (3,500) --------- --------- Net cash provided by continuing operating activities 6,800 100 Net cash provided by discontinued operations - 4,600 Extraordinary loss before deferred charges 400 (3,500) --------- --------- Net cash provided by operating activities 7,200 1,200 --------- --------- Cash flows from investing activities: Acquisitions (42,000) - Divestitures and asset sales 36,600 - Purchase of plant and equipment, net (16,600) (19,600) --------- --------- Net cash provided by (used in) investing activities (22,000) (19,600) --------- --------- Cash flows from financing activities: Credit agreement borrowings, net - 80,000 Retirement of subordinated debt (25,600) (73,100) Other changes in long-term debt, net (20,000) 24,900 Changes in short-term bank borrowings 28,000 (48,800) Repurchase of common stock, net (68,000) (81,300) Cash dividends paid (2,900) (2,900) --------- --------- Net cash provided by (used in) financing activities (88,500) (101,200) --------- --------- Net decrease in cash and short-term investments (103,300) (119,600) Cash and short-term investments: Beginning of the period 125,700 120,900 --------- -------- End of the period $ 22,400 $ 1,300 ========= ======== The accompanying notes are an integral part of these financial statements. 6 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS For the Three Month Periods Ended May 31, 1999 and 1998 (Dollars in thousands) (Unaudited) Comprehensive Income - -------------------- 1999 1998 ---- ---- Net income $ 26,300 $ 24,300 Balance sheet effect of foreign currency translation adjustments (8,300) 4,200 -------- -------- Comprehensive net income $ 18,000 $ 28,500 ======== ======== Retained Earnings - ----------------- Retained earnings at the beginning of the period $203,300 $167,100 Net income 26,300 24,300 Cash dividends of $.055 and $.05 per share (2,700) (2,900) -------- -------- Retained earnings at the end of the period $226,900 $188,500 ======== ======== 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 May 31, 1999, and the results of its operations and its cash flows for the periods ended May 31, 1999 and 1998. Such results are not necessarily indicative of the results to be expected for the full year. Certain reclassifications of the May 31, 1998 financial statements have been made to reflect the Company's discontinued operations which were divested near the end of fiscal 1999. 2. Cash Flow For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company made cash interest payments of approximately $28.9 million and $33.7 million in the three month periods ended May 31, 1999 and 1998, respectively. The Company also made cash income tax payments of approximately $5.7 million and $8.3 million in the three month periods ended May 31, 1999 and 1998, respectively. 3. Acquisition In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A. ("Lombardini"), an Italian-based manufacturer of small gasoline and 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 horsepower) in power and competes in various markets, supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. It also exports its products to North America, Africa, Latin America and Asia. Lombardini will be managed as a part of 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 $11.6 million and $9.6 million at May 31, 1999 and February 28, 1999, respectively. Inventories consist of the following components (dollars in thousands): May 31, February 28, 1999 1999 --------- ------------ Raw materials $ 109,500 $ 76,200 Work-in-process 59,100 51,600 Finished goods 179,100 169,800 --------- --------- Total $ 347,700 $ 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. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of May 31, 1999. The amounts at February 28, 1999 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): May 31, February 28, 1999 1999 ------ ----------- Land and land improvements $ 23,300 $ 24,900 Buildings 208,000 174,700 Machinery and equipment 632,500 599,200 -------- -------- Total property, plant and equipment 863,800 798,800 Less accumulated depreciation (243,000) (236,500) -------- -------- Property, plant and equipment, net $620,800 $562,300 ======== ======== 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): May 31, February 28, 1999 1999 ------ ------------ Senior Debt: Credit Agreement $ - $ - Other borrowing arrangements 86,100 42,400 ---------- ---------- Total 86,100 42,400 Less current maturities (28,800) (17,700) ---------- ---------- Net senior debt 57,300 24,700 ---------- ---------- Subordinated Debt: 7-3/4% Senior Subordinated Notes 223,400 248,900 7-1/2% Senior Subordinated Notes 248,900 248,900 4-3/4% Convertible Subordinated Notes 275,000 275,000 ---------- ---------- Total subordinated debt 747,300 772,800 ---------- ---------- Total long-term debt 804,600 797,500 Total stockholders' equity 544,100 596,700 ---------- ---------- Total capitalization $1,348,700 $1,394,200 ========== ========== Long-term debt as a percentage of total capitalization 59.7% 57.2% ========== ========== During the quarter ended May 31, 1999, the Company repurchased approximately $25.6 million principal amount of its 7-3/4% Senior Subordinated Notes. The gain resulting from the repurchase of the Notes below their par value was offset by write-offs of deferred charges and discounts related to the issuance of the Notes. Subsequent to May 31, 1999, the Company acquired an additional $33.4 million principal amount of such 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 three month period ended May 31, 1998. 7. Common Stock Repurchase In May 1999, the Company announced completion of its ten million share repurchase program approved by the Board of Directors in May 1998. Approximately 4.3 million shares were repurchased and retired in the three-month period ended May 31, 1999, at an average cost of $15.74 per share, or a total cost of approximately $68.0 million. Upon completion of the May 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. 10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. 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): May 31, May 31, 1999 1998 ------ ------ Basic Net Income Per Share: Net income $26,300 $24,300 ======= ======= Weighted average number of common shares outstanding 51,000 61,500 ======= ======= Basic net income per share $ .52 $ .40 ======= ======= Diluted Net Income Per Share: Net income $26,300 $24,300 After-tax equivalent of interest expense on 4-3/4% convertible subordinated notes 2,000 2,000 ------- ------- Income for purposes of computing diluted net income per share $28,300 $26,300 ======= ======= Weighted average common shares outstanding 51,000 61,500 Dilutive stock options 100 400 Weighted average assumed conversion of 4-3/4% convertible subordinated notes 8,400 8,400 ------- ------- Weighted average number of common shares outstanding for purposes of computing diluted net income per share 59,500 70,300 ======= ======= Diluted net income per share $ .48 $ .37 ======= ======= 11 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. Business Segment Information Information concerning the Company's Business Segments for the three month periods ended May 31, 1999 and 1998 is as follows (dollars in thousands): 1999 1998 ---- ---- NET SALES TO CUSTOMERS Automotive $ 306,800 $ 248,400 Industrial 252,200 261,300 ---------- ---------- Total related to continuing operations $ 559,000 $ 509,700 ========== ========== OPERATING INCOME Automotive $ 31,300 $ 24,900 Industrial 28,200 30,500 ---------- ---------- Management's measure of the segments' operating performance 59,500 55,400 General corporate expense (3,900) (3,700) Interest expense (14,500) (12,600) Provision for income taxes (14,800) (14,000) ---------- ---------- Income from continuing operations $ 26,300 $ 25,100 ========== ========== 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company's working capital was reduced by $119.1 million (24%) during the three month period ended May 31, 1999. Excluding cash and current financial indebtedness, the Company's working capital investment was $485.3 million at May 31, 1999, a net increase of $62.6 million (15%) in comparison to $422.7 million at February 28, 1999. The increase is primarily attributable to approximately $50 million of working capital acquired in the acquisition of Lombardini, as well as the expected seasonal build which occurs in the Automotive Segment's aftermarket business and the Industrial segment's garden hose business, somewhat offset by continued improvement in the Company's management of its working capital investment. Capital expenditures for the three month period ended May 31, 1999 were approximately $16.6 million, which was $6.7 million lower than depreciation and amortization expense of $23.3 million in the same period, and reflects a consistent level of expenditures in comparison to the three month period ended May 31, 1998. This level of activity reflects a return to normal levels of capital expenditure for the Company upon completion of its restructuring plan and its European and South American expansion efforts. 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. The Company used a portion of the net proceeds from the divestitures completed near the end of fiscal 1999 to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines which were primarily used to fund the Company's stock repurchase program during fiscal 1999. The excess proceeds were temporarily invested in short-term bank deposits and money market instruments. These excess proceeds were then used to fund the completion of the Company's May 1998 stock repurchase program, acquire the net assets of Lombardini and repurchase a portion of the Company's outstanding 7- 3/4% Senior Subordinated Notes. In May 1999, the Company announced the completion of its ten million share repurchase program approved by the Board of Directors in May 1998. Approximately 4.3 million shares were repurchased and retired in the three- month period ended May 31, 1999, at an average cost of $15.74 per share, or a total cost of approximately $68.0 million. Upon completion of the May 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. During the quarter ended May 31, 1999, the Company repurchased approximately $25.6 million principal amount of its 7-3/4% Senior Subordinated Notes. Subsequent to May 31, 1999, the Company acquired an additional $33.4 principal amount of such Notes. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A. ("Lombardini"), an Italian-based manufacturer of small gasoline and 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 horsepower) in power and competes in various markets, supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. It also exports its products to North America, Africa, Latin America and Asia. Lombardini will be managed as a part of the Company's Automotive Business Segment. 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. 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. Net sales from continuing operations for the three month period ended May 31, 1999 increased by $49.3 million (10%) over the comparable period last year. Excluding the effects of the acquisition of Lombardini in the current period, net sales reflect an increase of approximately $13.3 million (3%) from internal growth over the comparable period last year. In the Company's Automotive segment, net sales increased $58.4 million (24%) for the three month period ended May 31, 1999 over the comparable period last year. Excluding the effects of the acquisition of Lombardini, internal growth in the Company's Automotive segment amounted to $22.4 million (9%) over the comparable period last year. The internal growth in the Automotive segment was generated by both the Automotive OEM and Aftermarket sectors, with internal growth in the OEM sector up 10% and the Aftermarket sector up 7% for the three month period ended May 31, 1999 as compared to the prior year period. The internal growth in each of these sectors was lead by their domestic operations, which more than offset relatively flat sales in their international operations. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the Company's Industrial segment, net sales decreased $9.1 million (3%) for the three month period ended May 31, 1999 in comparison to the prior year. This decrease was primarily attributable to unfavorable year-over-year comparisons in the industrial sector's agricultural and petrochemical markets, which suffered deep cutbacks in the second half of fiscal 1999. These markets have shown some strengthening in the current quarter in comparison to the last quarter of fiscal 1999. The Industrial segment also experienced a decrease in its transportation sector due to contract delivery requirements. The cost of products sold as a percentage of consolidated net sales increased to 68.5% in the current period as compared to 68.0% in the comparable prior year period. This increase is primarily attributable to reduced pension income resulting from lower earnings assumptions for the pension trust's assets in fiscal 2000. Selling and administration costs as a percentage of consolidated net sales were 14.7% for the three month period ended May 31, 1999, as compared to 15.3% for the three month period ended May 31, 1998. The reduction in the level of costs indicates operating efficiencies achieved and the benefits of the Company's continued emphasis on cost control. Research and development costs increased by $1.6 million (12%) for the three month period ended May 31, 1999 as compared to the three month period ended May 31, 1998. As a percentage of consolidated net sales, these expenses were 2.7% for each of the three month periods ended May 31, 1999 and 1998. This anticipated level of spending is primarily related to the Company's continued emphasis on 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 $3.3 million (17%) for the three month period ended May 31, 1999 as compared to the three month period ended May 31, 1998. The increase is primarily attributable to the inclusion of the results of operations of Lombardini for the three month period ended May 31, 1999. Interest expense for the three month period ended May 31, 1999 increased $1.9 million (15%) from the level incurred in the three month period ended May 31, 1998. The increase is primarily due to debt assumed in the acquisition of Lombardini, and increased indebtedness to fund the Company's stock repurchase program. The effective tax rate as a percentage of pre-tax accounting income was approximately 36.0% for each of the three month periods ended May 31, 1999 and 1998. The consistent level of the effective tax rate in the three month period ended May 31, 1999 as compared to the comparable period last year, is a result of a similar mix of domestic and foreign income in both periods, as well as the benefits of certain tax planning strategies. It is anticipated that the effective tax rate will increase somewhat in the balance of the fiscal year. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As a result of all of the above, income from continuing operations for the three month period ended May 31, 1999 reflects an increase of $1.2 million (5%) as compared to the comparable period in the prior year. On a diluted per share basis, such amount for the three month period ended May 31, 1999 represents an increase of 23% over the comparable prior year period. Net income increased approximately $2.0 million (8%) for the three month period ended May 31, 1999 as compared to the three month period ended May 31, 1998, with the prior year period also including $1.8 million of income from discontinued operations, and a $2.6 million extraordinary loss from the early extinguishment of debt. 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 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. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's plan to resolve the Year 2000 Issue includes four major phases - assessment, remediation, testing, and implementation. The Company has 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 has substantially completed all remaining phases of its plan (remediation, testing and implementation) for all of its significant systems. The remediation phase for the Company's Operating Equipment is substantially complete, and the testing and implementation phases for the affected equipment are targeted to be substantially completed during the second quarter of fiscal 2000. 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. The Company has utilized 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 for its continuing operations is estimated at $6.2 million and is being funded through operating cash flow. The elements of such costs are as follows (amounts in thousands): Incurred Through Costs Yet Total May 31, To Be Estimated 1999 Incurred Cost ------- --------- --------- Capital expenditures related to new systems and equipment $1,400 $ 300 $1,700 Operating expenses related to modifications of existing systems and equipment 4,200 300 4,500 ------ ------ ------ Total costs $5,600 $ 600 $6,200 ====== ====== ====== 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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. 19 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 20 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: July 1, 1999 /s/ Sal H. Alfiero ------------ ------------------------ Sal H. Alfiero Chairman of the Board DATE: July 1, 1999 /s/ William P. Montague ------------ ------------------------ William P. Montague President DATE: July 1, 1999 /s/ John J. Byrne ------------ ------------------------ John J. Byrne Vice President - Finance and Chief Financial Officer DATE: July 1, 1999 /s/ Richard L. Grenolds ------------ ------------------------ Richard L. Grenolds Vice President and Chief Accounting Officer DATE: July 1, 1999 /s/ Clement R. Arrison ------------ ------------------------ Clement R. Arrison Director 21 EXHIBIT INDEX Description - ----------- Page No. * 27 Financial Data Schedule 22 * 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. 1,000 3-MOS FEB-29-2000 MAY-31-1999 22,400 0 507,500 11,600 347,700 989,200 863,800 243,000 2,198,000 617,700 804,600 0 0 500 543,600 2,198,000 559,000 559,000 382,800 503,400 0 0 14,500 41,100 14,800 26,300 0 0 0 26,300 .52 .48
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