-----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, Mwc4u51je5AkRno9uiDYo2MzWtCQDV1G/BFQReFPdykLepORKgv5zmXvcFnP/Q4N NV2bxxmZ9HhX/jM2IpU6ug== 0000062418-99-000009.txt : 19991018 0000062418-99-000009.hdr.sgml : 19991018 ACCESSION NUMBER: 0000062418-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991001 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: 99721491 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 August 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 September 30, 1999 ----- --------------------------------- Common stock $.01 par value 46,567,897 2 MARK IV INDUSTRIES, INC. INDEX Part I. Financial Information Page No. - ------------------------------ -------- Consolidated Condensed Balance Sheets as of August 31, 1999 and February 28, 1999 3 Consolidated Statements of Income For the Three Month Periods Ended August 31, 1999 and 1998 4 Consolidated Statements of Income For the Six Month Periods Ended August 31, 1999 and 1998 5 Consolidated Statements of Cash Flows For the Six Month Periods Ended August 31, 1999 and 1998 6 Consolidated Statements of Comprehensive Income and Retained Earnings for the Three and Six Month Periods Ended August 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II. Other Information 21 - --------------------------- Signature Page 22 Exhibit Index 23 3 MARK IV INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) August 31, February 28, 1999 1999 --------- ----------- ASSETS (Unaudited) Current Assets: Cash and short-term investments $ 2,200 $ 125,700 Accounts receivable 404,700 406,000 Inventories 328,700 297,600 Net assets of discontinued operations 140,200 - Other current assets 126,800 133,300 ---------- ---------- Total current assets 1,002,600 962,600 Pension and other non-current assets 188,400 185,500 Property, plant and equipment, net 600,200 562,300 Cost in excess of net assets acquired 351,200 369,300 ---------- ---------- TOTAL ASSETS $2,142,400 $2,079,700 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities $ 138,400 $ 57,800 Accounts payable 237,300 219,900 Compensation related liabilities 70,500 79,000 Accrued interest 20,100 23,200 Other current liabilities 109,700 92,100 ---------- ---------- Total current liabilities 576,000 472,000 ---------- ---------- Long-Term Debt: Senior debt 136,800 24,700 Subordinated debentures 658,100 772,800 ---------- ---------- Total long-term debt 794,900 797,500 ---------- ---------- Other non-current liabilities 233,300 213,500 ---------- ---------- Stockholders' Equity: Preferred stock - - Common stock 500 500 Additional paid-in capital 350,600 440,700 Retained earnings 245,300 203,300 Foreign currency translation adjustment (58,200) (47,800) ---------- ---------- Total stockholders' equity 538,200 596,700 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,142,400 $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 August 31, 1999 and 1998 (Amounts in thousands, except per share data) 1999 1998 ---- ---- (As Restated) Net sales from continuing operations $479,500 $445,700 -------- -------- Operating costs: Cost of products sold 326,100 304,200 Selling and administration 72,400 68,900 Research and development 14,400 12,300 Depreciation and amortization 23,100 19,400 -------- -------- Total operating costs 436,000 404,800 -------- -------- Operating income 43,500 40,900 Interest expense 13,800 12,400 -------- -------- Income from continuing operations, before provision for taxes 29,700 28,500 Provision for income taxes 11,000 10,300 -------- -------- Income from continuing operations 18,700 18,200 Income from discontinued operations, net of taxes 1,600 2,700 Extraordinary gain from early extinguishment of debt, net of tax effects 800 - -------- -------- Net income $ 21,100 $ 20,900 ======== ======== Net income per share of common stock: Basic: Income from continuing operations $ .39 $ .32 Income from discontinued operations .03 .04 Extraordinary gain .02 - -------- -------- Net income $ .44 $ .36 ======== ======== Diluted: Income from continuing operations $ .36 $ .31 Income from discontinued operations .03 .04 Extraordinary gain .01 - -------- -------- Net income $ .40 $ .35 ======== ======== Weighted average number of shares outstanding: Basic 48,500 57,600 ======== ======== Diluted 57,300 66,200 ======== ======== The accompanying notes are an integral part of these financial statements. 5 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Six Month Periods Ended August 31, 1999 and 1998 (Amounts in thousands, except per share data) 1999 1998 ---- ---- (As Restated) Net sales from continuing operations $1,001,300 $919,500 ---------- -------- Operating costs: Cost of products sold 682,600 626,300 Selling and administration 148,000 139,700 Research and development 29,100 25,400 Depreciation and amortization 45,200 38,300 ---------- -------- Total operating costs 904,900 829,700 ---------- -------- Operating income 96,400 89,800 Interest expense 27,000 23,900 ---------- -------- Income from continuing operations, before provision for taxes 69,400 65,900 Provision for income taxes 25,300 23,700 ---------- -------- Income from continuing operations 44,100 42,200 Income from discontinued operations, net of taxes 2,500 5,600 Extraordinary gain (loss) from early extinguishment of debt, net of tax effects 800 (2,600) ---------- -------- Net income $ 47,400 $ 45,200 ========== ======== Net income per share of common stock: Basic: Income from continuing operations $ .88 $ .71 Income from discontinued operations .05 .09 Extraordinary gain (loss) .02 (.04) ---------- -------- Net income $ .95 $ .76 ========== ======== Diluted: Income from continuing operations $ .82 $ .68 Income from discontinued operations .05 .08 Extraordinary gain (loss) .01 (.04) ---------- -------- Net income $ .88 $ .72 ========== ======== Weighted average number of shares outstanding: Basic 49,800 59,600 ========== ======== Diluted 58,500 68,300 ========== ======== The accompanying notes are an integral part of these financial statements. 6 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Month Periods Ended August 31, 1999 and 1998 (Dollars in thousands) 1999 1998 ---- ---- (As Restated) Cash flows from operating activities: Income from continuing operations $ 44,100 $ 42,200 Items not affecting cash: Depreciation and amortization 45,200 38,300 Pension and compensation related items, net (6,300) (13,100) Deferred income taxes 9,300 11,600 Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable 15,500 2,200 Inventories (11,400) 2,500 Accounts payable (14,300) (8,400) Compensation related liabilities (10,300) (10,600) Accrued expenses and other items, net (19,900) (11,800) --------- --------- Net cash provided by continuing operating activities 51,900 52,900 Net cash provided by discontinued operations 800 15,400 Extraordinary gain (loss) before deferred charges 2,700 (3,300) --------- --------- Net cash provided by operating activities 55,400 65,000 --------- --------- Cash flows from investing activities: Acquisitions (55,700) - Divestitures and asset sales 36,600 (2,400) Purchase of plant and equipment, net (37,400) (35,400) --------- --------- Net cash used in investing activities (56,500) (37,800) --------- --------- Cash flows from financing activities: Credit agreement borrowings, net 65,000 130,000 Retirement of subordinated debt (115,200) (73,100) Other changes in long-term debt, net 39,800 900 Changes in short-term bank borrowings, net (16,300) (48,400) Repurchase of common stock, net (90,100) (150,500) Cash dividends paid (5,600) (5,700) --------- --------- Net cash used in financing activities (122,400) (146,800) --------- --------- Net decrease in cash and short-term investments (123,500) (119,600) Cash and short-term investments: Beginning of the period 125,700 120,900 --------- --------- End of the period $ 2,200 $ 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 Six Month Periods Ended August 31, 1999 and 1998 (Dollars in thousands) (Unaudited) Comprehensive Income - -------------------- Three Months Ended Six Months Ended August 31, August 31, ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 21,100 $ 20,900 $ 47,400 $ 45,200 Balance sheet effect of foreign currency translation adjustments (2,200) (10,100) (10,400) (5,900) -------- -------- -------- -------- Comprehensive net income $ 18,900 $ 10,800 $ 37,000 $ 39,300 ======== ======== ======== ======== Retained Earnings Retained earnings at the beginning of the period $226,900 $188,500 $203,300 $167,100 Net income 21,100 20,900 47,400 45,200 Cash dividends of $.11, $.10, $.055 and $.05 per share (2,700) (2,800) (5,400) (5,700) -------- -------- -------- -------- Retained earnings at the end of the period $245,300 $206,600 $245,300 $206,600 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. 8 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Financial Statements The unaudited consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions have been eliminated. The unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. It should be recognized that the actual results could differ from those estimates. In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at August 31, 1999, and the results of its operations and its cash flows for the periods ended August 31, 1999 and 1998. Such results are not necessarily indicative of the results to be expected for the full year. Certain reclassifications of the August 31, 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 $34.2 million and $38.4 million in the six month periods ended August 31, 1999 and 1998, respectively. The Company also made cash income tax payments of approximately $15.8 million and $21.1 million in the six month periods ended August 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. 9 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Divestitures On September 10, 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 for the Industrial Filter Business were as follows (dollars in thousands): Three Months Ended Six Months Ended August 31, August 31, ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Sales $40,400 $38,500 $77,600 $74,400 ======= ======= ======= ======= Income from discontinued operations, net of taxes $ 1,600 $ 1,400 $ 2,500 $ 2,500 ======= ======= ======= ======= Interest expense allocated to discontinued operations amounted to $1.3 million and $1.2 million in the three month periods ended August 31, 1999 and 1998, respectively. Corresponding amounts in the six month periods ended August 31, 1999 and 1998 amounted to $2.6 million and $2.3 million, respectively. The net assets of the Industrial Filter Business have been excluded from their respective captions and reported as net assets of discontinued operations in the consolidated condensed balance sheet at August 31, 1999. The net assets of the Industrial Filter Business at August 31, 1999 were as follows (dollars in thousands): Cash $ 1,000 Accounts receivable 31,500 Inventory 30,500 Other assets 16,100 Property, plant & equipment, net 23,200 Cost in excess of net assets acquired 60,800 Other liabilities (22,900) -------- Net assets of discontinued operations $140,200 ======== 10 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Accounts Receivable and Inventories Accounts receivable are presented net of allowances for doubtful accounts of $10.1 million and $9.6 million at August 31, 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): August 31, February 28, 1999 1999 --------- ------------ Raw materials $ 98,300 $ 76,200 Work-in-process 63,900 51,600 Finished goods 166,500 169,800 --------- --------- Total $ 328,700 $ 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 August 31, 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. 6. Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following components (dollars in thousands): August 31, February 28, 1999 1999 Land and land improvements $ 21,500 $ 24,900 Buildings 199,700 174,700 Machinery and equipment 636,300 599,200 -------- -------- Total property, plant and equipment 857,500 798,800 Less accumulated depreciation (257,300) (236,500) -------- -------- Property, plant and equipment, net $600,200 $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): August 31, 1999 February 28, -------------------- ----------- Pro Forma Actual 1999 --------- ------ ---- Senior Debt: Credit Agreement $ - $ - $ - Other borrowing arrangements 146,100 146,100 42,400 ---------- ---------- ----------- Total 146,100 146,100 42,400 Less current maturities (9,300) (9,300) (17,700) ---------- ---------- ----------- Net senior debt 136,800 136,800 24,700 ---------- ---------- ----------- Subordinated Debt: 7-3/4% Senior Notes 66,700 134,200 248,900 7-1/2% Senior Notes 248,900 248,900 248,900 4-3/4% Convertible Notes 275,000 275,000 275,000 ---------- ---------- ---------- Total subordinated debt 590,600 658,100 772,800 ---------- ---------- ---------- Total long-term debt 727,400 794,900 797,500 Total stockholders' equity 538,200 538,200 596,700 ---------- ---------- ---------- Total capitalization $1,265,600 $1,333,100 $1,394,200 ========== ========== ========== Long-term debt as a percentage of total capitalization 57.5% 59.6% 57.2% ========== ========== ========== The pro forma amounts in the table above represent the actual long-term debt position as of August 31, 1999, adjusted as if the sale of the Industrial Filter Business had occurred as of that date, and the proceeds were utilized first to eliminate current bank indebtedness in the U.S. ($72.7 million) and the balance utilized to reduce long-term indebtedness ($67.5 million). During the six month period ended August 31, 1999, the Company repurchased approximately $115.3 million principal amount of its 7-3/4% Senior Subordinated Notes, of which $89.7 million principal amount was repurchased during the three month period ended August 31, 1999. The Company recognized an extraordinary gain of $800,000 (net of taxes) in the three and six month periods ended August 31, 1999 from the repurchase of the Notes. Subsequent to August 31, 1999, the Company acquired an additional $15.1 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 six month period ended August 31, 1998. 12 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. 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 August 31, 1999 were approximately 5.4 million shares, at an average cost of $16.70 per share, or a total cost of $90.2 million. Subsequent to August 31, 1999, the Company acquired approximately 1.5 million shares at an average cost of approximately $20.21 per share, or a total cost of $30.3 million. As of September 28, 1999 approximately 7.5 million shares remain available to be purchased under the Company's current Board authorization. 9. Business Segment Information Information concerning the Company's Business Segments is as follows (dollars in thousands): Six Months Ended August 31, --------------------------- 1999 1998 ---- ---- NET SALES TO CUSTOMERS Automotive $ 588,400 $ 482,800 Industrial 412,900 436,700 ---------- ---------- Total related to continuing operations $1,001,300 $ 919,500 ========== ========== OPERATING INCOME Automotive $ 56,200 $ 44,400 Industrial 48,300 53,400 ---------- ---------- Management's measure of the segments' operating performance 104,500 97,800 General corporate expense (8,100) (8,000) Interest expense (27,000) (23,900) Provision for income taxes (25,300) (23,700) ---------- ---------- Income from continuing operations $ 44,100 $ 42,200 ========== ========== August 31, February 28, 1999 1999 --------- ----------- IDENTIFIABLE ASSETS Automotive $1,172,600 $ 974,500 Industrial 799,000 800,600 ---------- ---------- Total identificable assets of the segments 1,971,600 1,775,100 General corporate assets 30,600 153,600 ---------- ---------- Total assets related to continuing operations 2,002,200 1,928,700 Discontinued operations 140,200 151,000 ---------- ---------- Total consolidated $2,142,400 $2,079,700 ========== ========== The change in the level of identifiable assets of the Automotive segment is primarily the result of the Lombardini acquisition. 13 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 10. 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 Six Months Ended August 31, August 31, ------------------ ---------------- Basic Net Income Per Share: 1999 1998 1999 1998 --------------------------- ---- ---- ---- ---- Net income $21,100 $20,900 $47,400 $45,200 ======= ======= ======= ======= Weighted average number of common shares outstanding 48,500 57,600 49,800 59,600 ======= ======= ======= ======= Basic net income per share $ .44 $ .36 $ .95 $ .76 ======= ======= ======= ======= Diluted Net Income Per Share: ---------------------------- Net income $21,100 $20,900 $47,400 $45,200 After-tax equivalent of interest expense on the 4-3/4% Convertible Subordinated Notes 2,000 2,000 4,000 4,000 ------- ------- ------- ------- Income for purposes of computing diluted net income per share $23,100 $22,900 $51,400 $49,200 ======= ======= ======= ======= Weighted average common shares outstanding 48,500 57,600 49,800 59,600 Dilutive stock options 400 200 300 300 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 57,300 66,200 58,500 68,300 ======= ======= ======= ======= Diluted net income per share $ .40 $ .35 $ .88 $ .72 ======= ======= ======= ======= 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company's working capital investment decreased by $64.0 million (13%) during the six month period ended August 31, 1999, to $426.6 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 $422.6 million at August 31, 1999. Such amount reflects a nominal (1%) increase from the $418.5 investment which existed at February 28, 1999 on a comparable basis, and a nominal reduction (2%) from the $429.2 million investment which existed at August 31, 1998 on a comparable basis. Capital expenditures for the six month period ended August 31, 1999 were approximately $37.9 million, which was $7.3 million lower than depreciation and amortization expense of $45.2 million in the same period, and reflects a consistent level of expenditures in comparison to the six month period ended August 31, 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. 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 August 31, 1999 were approximately 5.4 million shares, at an average cost of $16.70 per share, or a total cost of $90.2 million. Subsequent to August 31, 1999, the Company acquired approximately 1.5 million shares at an average cost of approximately $20.21 per share, or a total cost of $30.3 million. As of September 28, 1999, approximately 7.5 million shares remain available to be purchased under the Company's current Board authorization. During the six month period ended August 31, 1999, the Company repurchased approximately $115.3 million principal amount of its 7-3/4% Senior Subordinated Notes, of which $89.7 million principal amount was repurchased during the three month period ended August 31, 1999. The Company recognized an extraordinary gain of $800,000 (net of taxes) from the repurchase of the Notes in the three and six month periods ended August 31, 1999. Subsequent to August 31, 1999, the Company acquired an additional $15.1 million principal amount of such Notes. 15 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 is managed as a part of the Company's Automotive Business Segment. On September 10, 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. A portion of the net proceeds will be used to pay-down borrowings outstanding under the Company's revolving credit facility with the remainder available for common stock repurchases, debt extinguishment and/or future 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. 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 Lombardini have been included in the Company's results of operations from its respective date 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. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales from continuing operations for the three and six month periods ended August 31, 1999 increased by $33.8 million (7.6%) and $81.8 million (8.9%), respectively, over the comparable periods last year. In the Company's Automotive product lines, net sales increased $12.5 million (5.4%) and $39.2 million (8.1%) in the three and six month periods ended August 31, 1999, respectively, over the comparable periods last year. Excluding the effects of the acquisition of Lombardini, internal growth in the Company's Automotive product lines amounted to $7.4 million (3.2%) and $29.8 million (6.2%) in the three and six month periods ended August 31, 1999, respectively, over the comparable periods last year. The internal growth in the Automotive product lines was generated by the domestic Automotive OEM and Aftermarket sectors, with internal growth in the domestic OEM sector up 12.6% and 18.1% and the Aftermarket sector up 2.5% and 10.3%, respectively, for the three and six month periods ended August 31, 1999 as compared to the same periods in the prior year. The internal growth in each of these domestic sectors compared to relatively flat sales in the corresponding international sectors. In the Company's Industrial product lines, net sales increased $21.3 million (10%) and $42.6 million (9.7%) in the three and six month periods ended August 31, 1999, respectively, over the comparable periods last year. Excluding the effects of the acquisition of Lombardini, net sales in the Company's Industrial product lines decreased $13.4 million (6.3%) and $23.8 million (5.4%) in the three and six month periods ended August 31, 1999, respectively, in comparison to the corresponding prior year periods. The decreases were 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 which continued into fiscal 2000. These markets have shown some recent signs of strengthening, which should allow for a more favorable year-over-year comparison in the second half of fiscal 2000. The Industrial product lines also experienced decreases in the Transportation sector in the three and six month periods ended August 31, 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. It is anticipated that sales in the Transportation product lines will show a positive year-over-year comparison for fiscal 2000 on a full year basis. The cost of products sold as a percentage of consolidated net sales remained consistent at approximately 68% for the three and six month periods ended August 31, 1999 and 1998. This consistent level is primarily attributable to somewhat improved operating efficiencies offset by 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 15.1% and 14.8% for the three and six month periods ended August 31, 1999, as compared to 15.5% and 15.2% for the three and six month periods ended August 31, 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 acquisition, which has a lower level of such costs than the Company's historical experience. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Research and development costs increased by $2.1 million (17%) and $3.7 million (15%), respectively, for the three and six month periods ended August 31, 1999 as compared to the three and six month periods ended August 31, 1998. As a percentage of consolidated net sales, these expenses increased to approximately 2.9% as compared to 2.8% in the comparable periods last year. This steady level of costs 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 system initiatives. Depreciation and amortization expense increased by $3.7 million (19%) and $6.9 million (18%), respectively, for the three and six month periods ended August 31, 1999 as compared to the three and six month periods ended August 31, 1998. The increase is attributable to the inclusion of the results of operations of Lombardini, as well as the effects of the Company's capital equipment expenditures in the latter half of fiscal 1999. Interest expense for the three and six month periods ended August 31, 1999 increased $1.4 million (11%) and $3.1 million (13%) from the level incurred in the three and six month periods ended August 31, 1998. The increase is primarily attributable to debt assumed in the acquisition of Lombardini, and increased indebtedness to fund the Company's stock repurchase program. These increases were somewhat offset by the repurchase of 7-3/4% Senior Subordinated Notes with the Company's lower rate revolving credit facility. The effective tax rate as a percentage of pre-tax accounting income for the three and six month periods ended August 31, 1999 increased to 37.0% and 36.5%, respectively, from 36% for the comparable periods last year. 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, income from continuing operations for the three and six month periods ended August 31, 1999 reflects increases of $.5 million (3%) and $1.9 million (5%) as compared to the comparable periods in the prior year. Net income for the three months ended August 31, 1999 was $21.1 million, including $1.6 million from discontinued operations, and an $800,000 gain from early debt extinguishment. Such amounts compare to net income for the three months ended August 31, 1998 of $20.9 million, which included $2.7 million from discontinued operations. Net income in the first half of fiscal 2000 increased to $47.4 million, including $2.5 million from discontinued operations and an $800,000 gain from early debt extinguishment. Net income in the comparable period last year was $45.2 million, which included income from discontinued operations of $5.6 million, and an extraordinary loss from early debt extinguishment of $2.6 million. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Impact of Inflation - ------------------- The competitive environment in which the Company operates makes it extremely difficult to pass on increased costs to its customers. In many instances, the Company is not able to increase its prices at all, and in certain situations is forced to reduce its selling prices. This environment makes it critical for the Company to be able to operate in a continuously more efficient manner. The Company must also work closely with its suppliers to minimize price increases and push for pricing improvements in the same manner that its customers demand of the Company. Impact of the Year 2000 Issue - ----------------------------- The Year 2000 Issue is the result of computer software programs being written using two digits rather than four to define the applicable year. Any of the Company's software programs, computer hardware or equipment that have date- sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, manufacture products or engage in other normal business activities. The Company has developed a formal plan to ensure that all of its significant date-sensitive computer software and hardware systems ("Information Technology") and other equipment utilized in its various manufacturing, distribution and administration activities (utilizing embedded chips or software..."Operating Equipment") will be Year 2000 compliant and operational on a timely basis. The plan addresses all of the Company's locations throughout the world, and includes a review of computer applications that connect elements of the Company's business directly to its customers and suppliers. The plan also includes an assessment process to determine that the Company's significant customers and suppliers ("Third-Party Activities") will also be Year 2000 compliant. The Company's plan to resolve the Year 2000 Issue includes four major phases - assessment, remediation, testing, and implementation. The Company has 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. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For its Information Technology exposures, the Company has substantially completed all remaining phases (remediation, testing and implementation) of its plan for all of its significant systems. The remediation, testing and implementation phases for the Company's Operating Equipment have also been substantially completed. 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 through August 31, 1999, was approximately $6.8 million, with approximately $800,000 of that amount being expended in the six month period ended August 31, 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. The Company presently believes that with its 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 successful, and if the Year 2000 plans of its significant customers and suppliers (and, in turn, their 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. 20 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; f. the successful completion of the Company's Year 2000 plan, as well as the plans of its significant customers and suppliers; and, g. 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. 21 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 22 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: October 1, 1999 /s/ Sal H. Alfiero --------------- ------------------------ Sal H. Alfiero Chairman of the Board DATE: October 1, 1999 /s/ William P. Montague --------------- ------------------------ William P. Montague President DATE: October 1, 1999 /s/ John J. Byrne --------------- ------------------------ John J. Byrne Vice President - Finance and Chief Financial Officer DATE: October 1, 1999 /s/ Richard L. Grenolds --------------- ------------------------ Richard L. Grenolds Vice President and Chief Accounting Officer DATE: October 1, 1999 /s/ Clement R. Arrison --------------- ------------------------ Clement R. Arrison Director 23 EXHIBIT INDEX Description - ----------- Page No. * 27 Financial Data Schedule 24 * 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 6-MOS FEB-29-2000 AUG-31-1999 2,200 0 414,800 10,100 328,700 1,002,600 857,500 257,300 2,142,400 576,000 794,900 0 0 500 537,700 2,142,400 1,001,300 1,001,300 686,600 904,900 0 0 27,000 69,400 25,300 44,100 2,500 800 0 47,400 .95 .88
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