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
<PAGE>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
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<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 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.
<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 $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
======== ========
<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):
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.
<PAGE>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
======= =======
<PAGE>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
========== ==========
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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.
<PAGE>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
====== ====== ======
<PAGE>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.
<PAGE>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.
<PAGE>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
<PAGE>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
<PAGE>21
EXHIBIT INDEX
Description
- -----------
Page No.
* 27 Financial Data Schedule 22
* Filed herewith by direct transmission pursuant to the EDGAR
Program
<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> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> MAY-31-1999
<CASH> 22,400
<SECURITIES> 0
<RECEIVABLES> 507,500
<ALLOWANCES> 11,600
<INVENTORY> 347,700
<CURRENT-ASSETS> 989,200
<PP&E> 863,800
<DEPRECIATION> 243,000
<TOTAL-ASSETS> 2,198,000
<CURRENT-LIABILITIES> 617,700
<BONDS> 804,600
0
0
<COMMON> 500
<OTHER-SE> 543,600
<TOTAL-LIABILITY-AND-EQUITY> 2,198,000
<SALES> 559,000
<TOTAL-REVENUES> 559,000
<CGS> 382,800
<TOTAL-COSTS> 503,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,500
<INCOME-PRETAX> 41,100
<INCOME-TAX> 14,800
<INCOME-CONTINUING> 26,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,300
<EPS-BASIC> .52
<EPS-DILUTED> .48
</TABLE>
