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
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MARK IV INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 23-1733979
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(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
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(Address of principal executive offices) (Zip Code)
(716) 689-4972
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(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
<PAGE>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
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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
======== ========
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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
<PAGE>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.
<PAGE>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.
<PAGE>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).
<PAGE>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
<PAGE>19
EXHIBIT INDEX
Description
Page No.
11 Statement Regarding Computation of Per Share Earnings 20
27 Financial Data Schedule 22
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 155,100
<SECURITIES> 0
<RECEIVABLES> 456,400
<ALLOWANCES> 14,600
<INVENTORY> 397,800
<CURRENT-ASSETS> 1,086,000
<PP&E> 812,700
<DEPRECIATION> 179,400
<TOTAL-ASSETS> 2,389,400
<CURRENT-LIABILITIES> 543,500
<BONDS> 859,100
0
0
<COMMON> 600
<OTHER-SE> 756,300
<TOTAL-LIABILITY-AND-EQUITY> 2,389,400
<SALES> 1,655,300
<TOTAL-REVENUES> 1,655,300
<CGS> 1,116,000
<TOTAL-COSTS> 1,470,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,700
<INCOME-PRETAX> 138,200
<INCOME-TAX> 53,300
<INCOME-CONTINUING> 84,900
<DISCONTINUED> 0
<EXTRAORDINARY> 10,600
<CHANGES> 0
<NET-INCOME> 74,300
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.14
</TABLE>
