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, 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 January 13, 2000
----- -------------------------------
Common stock $.01 par value 44,303,951
<PAGE>2
MARK IV INDUSTRIES, INC.
INDEX
Part I. Financial Information Page No.
- ------------------------------ --------
Consolidated Condensed Balance Sheets as of
November 30, 1999 and February 28, 1999 3
Consolidated Statements of Income
For the Three Month Periods Ended November 30, 1999 and 1998 4
Consolidated Statements of Income
For the Nine Month Periods Ended November 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended November 30, 1999 and 1998 6
Consolidated Statements of Comprehensive Income and
Retained Earnings for the Three and Nine Month Periods
Ended November 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information 22
Signature Page 23
Exhibit Index 24
<PAGE>3
MARK IV INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
November 30, February 28,
1999 1999
---- -----
ASSETS (Unaudited)
Current Assets:
Cash and short-term investments $ 1,700 $ 125,700
Accounts receivable 409,100 406,000
Inventories 355,700 297,600
Other current assets 129,000 133,300
---------- ----------
Total current assets 895,500 962,600
Pension and other non-current assets 193,500 185,500
Property, plant and equipment, net 602,900 562,300
Cost in excess of net assets acquired 353,700 369,300
---------- ----------
TOTAL ASSETS $2,045,600 $2,079,700
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities $ 114,600 $ 57,800
Accounts payable 252,300 219,900
Compensation related liabilities 78,900 79,000
Accrued interest 9,600 23,200
Other current liabilities 104,300 92,100
---------- ----------
Total current liabilities 559,700 472,000
---------- ----------
Long-Term Debt:
Senior debt 131,400 24,700
Subordinated debentures 643,100 772,800
---------- ----------
Total long-term debt 774,500 797,500
---------- ----------
Other non-current liabilities 234,600 213,500
---------- ----------
Stockholders' Equity:
Preferred stock - -
Common stock 400 500
Additional paid-in capital 277,100 440,700
Retained earnings 266,300 203,300
Foreign currency translation adjustment (67,000) (47,800)
---------- ----------
Total stockholders' equity 476,800 596,700
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,045,600 $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 November 30, 1999 and 1998
(Amounts in thousands, except per share data)
1999 1998
---- ----
(As Restated)
Net sales from continuing operations $500,200 $450,900
-------- --------
Operating costs:
Cost of products sold (including
$62.8 million related to repositioning
charge in 1998) 338,800 364,100
Selling and administration 72,000 68,500
Research and development 15,400 11,500
Depreciation and amortization 23,900 20,200
-------- --------
Total operating costs 450,100 464,300
-------- --------
Operating income (loss) 50,100 (13,400)
Interest expense 13,200 13,000
-------- --------
Income (loss) from continuing operations,
before provision for taxes 36,900 (26,400)
Provision for (benefit from) income taxes 13,600 (11,500)
-------- --------
Income (loss) from continuing operations 23,300 (14,900)
Income from discontinued operations,
net of taxes - 1,900
Extraordinary gain from early extinguishment
of debt, net of tax effects 100 -
-------- --------
Net income (loss) $ 23,400 $(13,000)
======== ========
Net income (loss) per share of common stock:
Basic:
Income (loss) from continuing operations $ .51 $ (.27)
Income from discontinued operations - .03
Extraordinary gain - -
-------- --------
Net income (loss) $ .51 $ (.24)
======== ========
Diluted:
Income (loss) from continuing operations $ .46 $ (.27)
Income from discontinued operations - .03
Extraordinary gain - -
-------- --------
Net income (loss) $ .46 $ (.24)
======== ========
Weighted average number of shares
outstanding:
Basic 46,000 54,500
====== ======
Diluted 54,700 63,000
====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>5
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Nine Month Periods Ended November 30, 1999 and 1998
(Amounts in thousands, except per share data)
1999 1998
---- ----
(As Restated)
Net sales from continuing operations $1,501,500 $1,370,400
---------- ----------
Operating costs:
Cost of products sold (including
$62.8 million related to repositioning
charge in 1998) 1,021,400 990,400
Selling and administration 220,000 208,200
Research and development 44,500 36,900
Depreciation and amortization 69,100 58,500
---------- ----------
Total operating costs 1,355,000 1,294,000
---------- ----------
Operating income 146,500 76,400
Interest expense 40,200 36,900
---------- ----------
Income from continuing operations,
before provision for taxes 106,300 39,500
Provision for income taxes 38,900 12,200
---------- ----------
Income from continuing operations 67,400 27,300
Income from discontinued operations,
net of taxes 2,500 7,500
Extraordinary gain (loss) from early
extinguishment of debt, net of tax effects 900 (2,600)
---------- ----------
Net income $ 70,800 $ 32,200
========== ==========
Net income per share of common stock:
Basic:
Income from continuing operations $ 1.39 $ .47
Income from discontinued operations .05 .13
Extraordinary gain (loss) .02 (.04)
--------- ---------
Net income $ 1.46 $ .56
========= =========
Diluted:
Income from continuing operations $ 1.28 $ .47
Income from discontinued operations .04 .11
Extraordinary gain (loss) .02 (.04)
--------- ---------
Net income $ 1.34 $ .54
========= =========
Weighted average number of shares
outstanding:
Basic 48,500 57,900
====== ======
Diluted 57,200 66,500
====== ======
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, 1999 and 1998
(Dollars in thousands)
1999 1998
---- ----
(As Restated)
Cash flows from operating activities:
Income from continuing operations $ 67,400 $ 27,300
Items not affecting cash:
Depreciation and amortization 69,100 58,500
Pension and compensation related items, net (9,500) (18,000)
Deferred income taxes 12,000 8,700
Repositioning charge - 28,500
Changes in assets and liabilities, net of
effects of acquired and divested businesses:
Accounts receivable 12,400 14,700
Inventories (31,800) 12,300
Accounts payable (2,400) 13,900
Compensation related liabilities (2,900) 3,200
Accrued expenses and other items, net (47,800) (37,800)
-------- --------
Net cash provided by continuing
operating activities 66,500 111,300
Net cash provided by discontinued operations 800 20,200
Extraordinary gain (loss) before deferred charges 3,100 (3,300)
-------- --------
Net cash provided by operating activities 70,400 128,200
-------- --------
Cash flows from investing activities:
Acquisitions (62,600) (2,400)
Divestitures and asset sales 181,400 -
Purchase of plant and equipment, net (58,600) (53,700)
-------- --------
Net cash provided by (used in)
investing activities 60,200 (56,100)
-------- --------
Cash flows from financing activities:
Credit agreement borrowings, net 25,100 125,000
Retirement of subordinated debt (130,300) (73,100)
Other changes in long-term debt, net 30,900 14,900
Changes in short-term bank borrowings, net (8,600) (83,800)
Repurchase of common stock, net (163,700) (166,300)
Cash dividends paid (8,000) (8,400)
-------- --------
Net cash used in financing activities (254,600) (191,700)
-------- --------
Net decrease in cash and
short-term investments (124,000) (119,600)
Cash and short-term investments:
Beginning of the period 125,700 120,900
-------- --------
End of the period $ 1,700 $ 1,300
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>7
MARK IV INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS
For the Three and Nine Month Periods Ended November 30, 1999 and 1998
(Dollars in thousands)
(Unaudited)
Comprehensive Income
- --------------------
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) $ 23,400 $(13,000) $ 70,800 $ 32,200
Balance sheet effect of foreign
currency translation adjustments (8,800) 7,500 (19,200) 1,600
-------- -------- -------- -------
Comprehensive net income $ 14,600 $ (5,500) $ 51,600 $ 33,800
======== ======== ======== ========
Retained Earnings
- -----------------
Retained earnings at the beginning
of the period $245,300 $206,600 $203,300 $167,100
Net income (loss) 23,400 (13,000) 70,800 32,200
Cash dividends of $.055, $.05, $.165
and $.15 per share (2,400) (2,700) (7,800) (8,400)
-------- -------- -------- --------
Retained earnings at the end
of the period $266,300 $190,900 $266,300 $190,900
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>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
revenue and expense 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,
1999, and the results of its operations and its cash flows for the
periods ended November 30, 1999 and 1998. Such results are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications of the November 30, 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 $58.3 million and $69.2 million in the nine month periods
ended November 30, 1999 and 1998, respectively. The Company also made
cash income tax payments of approximately $25.9 million and $24.8
million in the nine month periods ended November 30, 1999 and 1998,
respectively.
3. Acquisitions
In April 1999, the Company acquired the net assets of Lombardini FIM
S.p.A. ("Lombardini"), an Italian-based manufacturer of small 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 hp) in power and competes in
various markets, supplying engines to agricultural, marine, automotive,
electrical generation and home and lawn care markets, primarily in
Europe. Subsequent to the Lombardini acquisition, the Company also
acquired Ruggerini, and the CVT business of Piaggio, for total
consideration (including debt assumed)of approximately $23 million.
These acquisitions represented complementary add-ons to Lombardini's
activities, all of which are managed as a part of the Automotive
Business Segment.
<PAGE>9
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. Divestitures
In September 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 of the Industrial Filter Business up
to its disposal date were as follows (dollars in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1999 1998 1999 1998
-------- ------ ------- --------
Sales $ - $39,600 $77,600 $114,000
======== ======= ======= ========
Income from discontinued
operations, net of taxes $ - $ 4,800 $ 2,500 $ 7,300
======== ======= ======= ========
Interest expense allocated to discontinued operations amounted to $1.2
million in the three month period ended November 30, 1998. Corresponding
amounts in the nine month periods ended November 30, 1999 and 1998
amounted to $2.6 million and $3.5 million, respectively.
5. Accounts Receivable and Inventories
Accounts receivable are presented net of allowances for doubtful
accounts of $12.7 million and $9.6 million at November 30, 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):
November 30, February 28,
1999 1999
----------- -----------
Raw materials $ 108,000 $ 76,200
Work-in-process 63,800 51,600
Finished goods 183,900 169,800
--------- ---------
Total $ 355,700 $ 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 based on the Company's perpetual inventory
records. It is management's opinion that this estimate represents a
reasonable approximation of the inventory breakdown as of November 30,
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.
<PAGE>10
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
6. 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,
1999 1999
------------ ------------
Land and land improvements $ 21,400 $ 24,900
Buildings 201,400 174,700
Machinery and equipment 655,900 599,200
-------- --------
Total property, plant and equipment 878,700 798,800
Less accumulated depreciation (275,800) (236,500)
-------- --------
Property, plant and equipment, net $602,900 $562,300
======== ========
The net amount at February 28, 1999 includes $23.2 million related to
the Industrial Filter Business.
<PAGE>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):
November 30, February 28,
1999 1999
------------ ------------
Senior Debt:
Credit Agreement $ - $ -
Other borrowing arrangements 140,100 42,400
--------- ----------
Total 140,100 42,400
Less current maturities (8,700) (17,700)
--------- ----------
Net senior debt 131,400 24,700
--------- ----------
Subordinated Debt:
7-3/4% Senior Notes 119,100 248,900
7-1/2% Senior Notes 249,000 248,900
4-3/4% Convertible Notes 275,000 275,000
--------- ----------
Total subordinated debt 643,100 772,800
--------- ----------
Total long-term debt 774,500 797,500
Total stockholders' equity 476,800 596,700
--------- ----------
Total capitalization $1,251,300 $1,394,200
========== ==========
Long-term debt as a
percentage of total
capitalization 61.9% 57.2%
========== ==========
During the nine month period ended November 30, 1999, the Company
repurchased approximately $130.4 million principal amount of its 7-3/4%
Senior Subordinated Notes, of which $15.1 million principal amount was
repurchased during the three month period ended November 30, 1999. The
Company recognized an extraordinary gain of $100,000 and $900,000 (net
of taxes) in the three and nine month periods ended November 30, 1999,
respectively, from the repurchase of the 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 nine month period
ended November 30, 1998.
<PAGE>12
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
8. Restructuring and Repositioning Charges
The Company has substantially completed the restructuring and
repositioning activities related to the special charges recognized in
fiscal 1997 and fiscal 1999. The expenditure activity for fiscal 2000
consists of the following (dollars in thousands):
Balance Amounts Balance
Remaining at Paid in Remaining at
February 28, Fiscal November 30,
1999 2000 1999
------------ -------- -------------
Facility closing and lease
run-out costs $18,500 $ 7,400 $11,100
Severance and other costs 9,800 4,700 5,100
------- ------- -------
Total $28,300 $12,100 $16,200
======= ======= =======
It is anticipated the majority of the liability remaining at November
30, 1999, related primarily to contractual obligations and on-going
severance payments, will be paid by the end of fiscal 2001.
9. 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 November 30, 1999 were approximately
9.1 million shares, at an average cost of $17.94 per share, or a total
cost of $163.5 million. As of January 13, 2000 approximately 5.2
million shares remain available to be purchased under the Company's
current Board authorization.
<PAGE>13
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
10. Business Segment Information
Information concerning the Company's Business Segments is as follows
(dollars in thousands):
Nine Months Ended November 30,
------------------------------
1999 1998
---- ----
NET SALES TO CUSTOMERS
Automotive $ 907,900 $ 748,500
Industrial 593,600 621,900
---------- ----------
Total related to
continuing operations $1,501,500 $1,370,400
========== ==========
OPERATING INCOME
Automotive $ 89,400 $ 74,900
Industrial 69,000 76,000
---------- ----------
Management's measure of the
segments' operating performance 158,400 150,900
Repositioning charge - (62,800)
General corporate expense (11,900) (11,700)
Interest expense (40,200) (36,900)
Provision for income taxes (38,900) (12,200)
---------- ----------
Income from continuing operations $ 67,400 $ 27,300
========== ==========
November 30, February 28,
1999 1999
----------- ------------
IDENTIFIABLE ASSETS
Automotive $1,204,600 $ 974,500
Industrial 816,500 800,600
---------- ----------
Total identifiable assets
of the segments 2,021,100 1,775,100
General corporate assets 24,500 153,600
---------- ----------
Total assets related to
continuing operations 2,045,600 1,928,700
Discontinued operations - 151,000
---------- ----------
Total consolidated $2,045,600 $2,079,700
========== ==========
The change in the level of identifiable assets of the Automotive segment
is primarily the result of the Lombardini acquisition, further described
in Footnote 3 included elsewhere herein.
<PAGE>14
MARK IV INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
11. 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 Nine Months Ended
November 30, November 30,
------------------ -----------------
Basic Net Income Per Share: 1999 1998 1999 1998
-------------------------- ---- ---- ----- ----
Net income (loss) $23,400 $(13,000) $70,800 $32,200
======= ======== ======= =======
Weighted average number of
common shares outstanding 46,000 54,500 48,500 57,900
======= ======== ======= =======
Basic net income (loss) per share $ .51 $ (.24) $ 1.46 $ .56
======= ======== ======= =======
Diluted Net Income Per Share:
----------------------------
Net income (loss) $23,400 $(13,000) $70,800 $32,200
After-tax equivalent of interest
expense on the 4-3/4% Convertible
Subordinated Notes 2,000 2,000 6,000 6,000
------- -------- ------- -------
Income (loss) for purposes of
computing diluted net
income per share $25,400 $(11,000) $76,800 $38,200
======= ======== ======= =======
Weighted average common
shares outstanding 46,000 54,500 48,500 57,900
Dilutive stock options 300 100 300 200
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 54,700 63,000 57,200 66,500
====== ====== ====== ======
Diluted net income (loss) per share
before adjustment to eliminate
anti-dilutive effect $ .46 $ (.17) $ 1.34 $ .58
Adjustment to eliminate
anti-dilutive effect (a) - (.07) - (.04)
------- -------- ------- -------
Diluted net income (loss) per share $ .46 $ (.24) $ 1.34 $ .54
======= ======== ======= =======
(a) As a result of the restructuring charge in the third quarter of
fiscal 1999, the conversion calculations have the effect of being
anti-dilutive to income from continuing operations. Therefore,
the diluted per share amounts for the three and nine month periods
ended November 30, 1998, have been adjusted to eliminate such
anti-dilutive effects.
<PAGE>15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company's working capital investment decreased by $154.8 million (32%)
during the nine month period ended November 30, 1999, to $335.8 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 $448.7 million at
November 30, 1999. Such amount reflects an increase of $21.9 million (5%)
from the $426.8 investment which existed at February 28, 1999, and is
comparable to the $445.3 million investment which existed at November 30,
1998, on a comparable basis. The increase from February 28, 1999's level
includes a temporary inventory build to address customers' "year 2000"
concerns, and such increase is expected to be worked-down over the next two
fiscal quarters.
Capital expenditures for the nine month period ended November 30, 1999 were
approximately $58.6 million, which was $10.5 million lower than depreciation
and amortization expense of $69.1 million in the same period, and reflects a
consistent level of expenditures in comparison to the nine month period ended
November 30, 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, and into fiscal 2001.
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
November 30, 1999 were approximately 9.1 million shares, at an average cost of
$17.94 per share, or a total cost of $163.5 million. As of January 13, 2000,
approximately 5.2 million shares remain available to be purchased under the
Company's current Board authorization.
During the nine month period ended November 30, 1999, the Company repurchased
approximately $130.4 million principal amount of its 7-3/4% Senior
Subordinated Notes, of which $15.1 million principal amount was repurchased
during the three month period ended November 30, 1999.
In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A.
("Lombardini"), an Italian-based manufacturer of small 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 hp) in power and competes in various markets, supplying engines to
agricultural, marine, automotive, electrical generation and home and lawn care
markets, primarily in Europe.
<PAGE>16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Subsequent to the Lombardini acquisition, the Company also acquired Ruggerini,
and the CVT business of Piaggio, for total consideration (including debt
assusmed) of approximately $23 million. These acquisitions represented
complementary add-ons to Lombardini's activities, all of which are managed as
a part of the Automotive Business Segment.
In September 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. The net proceeds were used initially to pay-down borrowings
outstanding under the Company's revolving credit facility, and subsequently
utilized to fund common stock repurchases, debt extinguishment and
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.
<PAGE>17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 the Lombardini-related acquisitions have been included in the
Company's results of operations from their respective dates 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.
Net sales from continuing operations for the three and nine month periods
ended November 30, 1999 increased by $49.3 million (11%) and $131.1 million
(9.6%), respectively, over the comparable periods last year. In the Company's
Automotive product lines, net sales increased $8.3 million (3.1%) and $49.5
million (6.6%) in the three and nine month periods ended November 30, 1999,
respectively, over the comparable periods last year. Excluding the effects of
the Lombardini-related acquisitions and the foreign currency exchange rate
movements, internal growth in the Company's Automotive product lines amounted
to $15.2 million (5.7%) and $60.0 million (7.9%) in the three and nine month
periods ended November 30, 1999, respectively, over the comparable periods
last year.
The internal growth in the Automotive product lines for the three month period
ended November 30, 1999, as compared to the comparable period in the prior
year was generated by the international Automotive OEM and domestic Automotive
Aftermarket sectors, with internal growth up 11.2% and 21.8%, respectively.
The internal growth in these sectors offset slightly reduced sales year-over-
year in the domestic Automotive OEM and international Aftermarket sectors for
the three month periods ended November 30, 1999. The internal growth in the
Automotive product lines for the nine month period ended November 30, 1999 as
compared to the comparable period in the prior year was generated by the
Automotive OEM sector with internal growth up 10.0%, with domestic growth up
16.6% and international growth up 6.3%. The domestic Aftermarket sector also
contributed to the internal growth, with an increase of 5.8% for the nine
month period, while the international sector showed slightly reduced sales on
a year-over-year basis.
<PAGE>18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the Company's Industrial product lines, net sales increased $41.0 million
(22.2%) and $81.6 million (13.1%) in the three and nine month periods ended
November 30, 1999, respectively, over the comparable periods last year.
Excluding the effects of the Lombardini-related acquisitions and the foreign
currency exchange rate movements, net sales in the Company's Industrial
product lines increased $2.3 million (1.3%) and decreased $12.2 million
(2.1%) in the three and nine month periods ended November 30, 1999,
respectively, in comparison to the corresponding prior year periods. The
relatively flat increase in the three month period and the decrease in the
nine month period were primarily attributable to unfavorable year-over-year
comparisons in the Industrial sector's agricultural and petrochemical markets.
The Industrial product lines also experienced decreases in the Transportation
sector in the three and nine month periods ended November 30, 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.
The cost of products sold (excluding the Company's repositioning charge) as a
percentage of consolidated net sales was 67.7% and 68.0% as compared to 66.8%
and 67.7% for the three and nine month periods ended November 30, 1999 and
1998. This increased level is primarily attributable to start-up costs
related to beginning new air intake manifold production in North America,
which will begin customer shipments in the fourth quarter of fiscal 2000. The
cost relationships in the three and nine month periods were also effected by
reduced pension income resulting from lower earnings assumptions for the
pension trust's assets in fiscal 2000, as well as the effects of the
Lombardini-related acquisitions which had lower margins than the Company's
existing revenue base.
Selling and administration costs as a percentage of consolidated net sales
were 14.4% and 14.7% for the three and nine month periods ended November 30,
1999, as compared to 15.2% and 15.2% for the three and nine month periods
ended November 30, 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-related
acquisitions, which have a lower level of such costs than the Company's
historical experience.
Research and development costs increased by $3.9 million (34%) and $7.6
million (21%), respectively, for the three and nine month periods ended
November 30, 1999 as compared to the three and nine month periods ended
November 30, 1998. As a percentage of consolidated net sales, these expenses
were approximately 3.0% as compared to approximately 2.7% in the comparable
periods last year. The increased level of costs, as a percentage of net
sales, 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 systems initiatives.
<PAGE>19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization expense increased by $3.7 million (18%) and
$10.6 million (18%), respectively, for the three and nine month periods ended
November 30, 1999 as compared to the three and nine month periods ended
November 30, 1998. The increase is attributable to the inclusion of the
results of operations of the Lombardini-related businesses, as well as the
effects of the Company's capital equipment expenditures in the latter half of
fiscal 1999 and first half of fiscal 2000.
Interest expense for the three and nine month periods ended November 30, 1999
increased $200,000 (2%) and $3.3 million (9%) from the level incurred in the
three and nine month periods ended November 30, 1998. The increase is
primarily attributable to debt resulting from the Lombardini-related
acquisitions, and increased indebtedness to fund the Company's stock
repurchase program. These increases were somewhat offset by the repurchase of
a portion of the Company's 7-3/4% Senior Subordinated Notes, as well as the
repayment of the Company's outstanding revolving credit facility with proceeds
from the divestiture of the Company's Industrial Filter business.
The effective tax rate as a percentage of pre-tax accounting income for the
three and nine month periods ended November 30, 1999 increased to
approximately 37.0% and 36.6%, respectively, from 36% for the comparable
periods last year (excluding the effect of tax benefits related to the
Company's repositioning charge). 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, and excluding the effects of the Company's
repositioning charge in 1998, income from continuing operations for the three
and nine month periods ended November 30, 1999 reflects increases of $100,000
and $2.0 million as compared to the comparable periods in the prior year.
Net income for the three month period ended November 30, 1999 was $23.4
million, which included a $100,000 gain from early debt extinguishment. Such
amounts compare to a net loss for the three month period ended November 30,
1998 of $13.0 million, which included a $38.1 million repositioning charge and
$1.9 million of income from discontinued operations.
Net income in the nine month period ended November 30, 1999 increased to $70.8
million, including $2.5 million from discontinued operations and a $900,000
extraordinary gain from early debt extinguishment. Net income in the
comparable period last year was $32.2 million, which included a $38.1 million
repositioning charge and income from discontinued operations of $7.5 million,
and an extraordinary loss from early debt extinguishment of $2.6 million.
<PAGE>20
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 was 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 had date-
sensitive software or embedded chips might have recognized a date using "00"
as the year 1900 rather than the year 2000. This could have resulted 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 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") would be Year 2000 compliant and operational
on a timely basis. The plan addressed all of the Company's locations
throughout the world, and included a review of computer applications that
connect elements of the Company's business directly to its customers and
suppliers. The plan also included an assessment process to determine that the
Company's significant customers and suppliers ("Third-Party Activities") would
also be Year 2000 compliant.
The Company utilized both internal and external resources to reprogram or
replace, test, and implement the required Year 2000 modifications identified
from its assessment process. The Company's total cost to address the Year
2000 Issue for its continuing operations was approximately $6.8 million, with
approximately $800,000 of that amount expended in the nine month period ended
November 30, 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.
Based upon the company's completion of its Year 2000 plans and transition into
calendar year 2000, the Company does not anticipate any substantive problems
related to this issue going forward.
<PAGE>21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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.
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>22
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>23
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 14, 2000 /s/ Sal H. Alfiero
---------------- -----------------------
Sal H. Alfiero
Chairman of the Board
DATE: January 14, 2000 /s/ William P. Montague
---------------- -----------------------
William P. Montague
President
DATE: January 14, 2000 /s/ John J. Byrne
---------------- -----------------------
John J. Byrne
Vice President - Finance
and Chief Financial Officer
DATE: January 14, 2000 /s/ Richard L. Grenolds
---------------- -----------------------
Richard L. Grenolds
Vice President and
Chief Accounting Officer
DATE: January 14, 2000 /s/ Clement R. Arrison
---------------- -----------------------
Clement R. Arrison
Director
<PAGE>24
EXHIBIT INDEX
Description
- ------------
Page No.
-------
* 27 Financial Data Schedule 25
* 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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> NOV-30-1999
<CASH> 1,700
<SECURITIES> 0
<RECEIVABLES> 421,800
<ALLOWANCES> 12,700
<INVENTORY> 355,700
<CURRENT-ASSETS> 895,500
<PP&E> 878,700
<DEPRECIATION> 275,800
<TOTAL-ASSETS> 2,045,600
<CURRENT-LIABILITIES> 559,700
<BONDS> 774,500
0
0
<COMMON> 400
<OTHER-SE> 476,400
<TOTAL-LIABILITY-AND-EQUITY> 2,045,600
<SALES> 1,501,500
<TOTAL-REVENUES> 1,501,500
<CGS> 1,021,400
<TOTAL-COSTS> 1,355,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,200
<INCOME-PRETAX> 106,300
<INCOME-TAX> 38,900
<INCOME-CONTINUING> 67,400
<DISCONTINUED> 2,500
<EXTRAORDINARY> 900
<CHANGES> 0
<NET-INCOME> 70,800
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.34
</TABLE>
