Mark IV Reports Fiscal Year; Fourth Quarter Results
23 March 1999
Mark IV Reports Fiscal Year; Fourth Quarter Results
AMHERST, N.Y.--March 22, 1999--Mark IV Industries, Inc. today reported results for its fiscal year and fourth quarter ended February 28, 1999.Fiscal 1999 Operating Results
Fiscal 1999 diluted earnings per share from continuing operations before special items increased to $1.51 from $1.49 last year, while income from continuing operations before special items decreased to $91.1 million from $97.8 million in fiscal 1998. On a pro forma basis, applying the net proceeds from divestitures to reduce indebtedness as of the beginning of the periods, earnings per share would be $1.56 and $1.55 for the fiscal years 1999 and 1998, respectively. Unless otherwise noted, all share and share-related amounts are diluted. The increase in per share amounts resulted from fewer shares outstanding this year due to the company's share repurchase program. Weighted average shares outstanding decreased three percent in the year, to 65.5 million from 67.4 million in fiscal 1998, and 14 percent in the fourth quarter to 62.2 million from 72.1 million. Since March 1997 to date, Mark IV has repurchased 22 percent of its outstanding common stock, or an aggregate of 14.8 million shares, including 9.5 million shares bought during fiscal 1999. There are 2.5 million shares remaining under the company's current buyback authorization.
Sales from continuing operations in the year increased six percent, to $1.95 billion from $1.84 billion last year. Fiscal 1999 operating income from continuing operations (income before special items, interest expense and taxes) was $196.2 million versus $207.9 million last year. All fiscal 1998 results have been restated to reflect discontinued operations due to this year's disposition of the Purolator automotive filtration unit (FY99 sales $340 million), and two other small units, Kirkhof-Goodrich and Eaglemotive (FY99 sales $6.0 million and $18.0 million, respectively). Aggregate net proceeds from the sales amounted to approximately $292 million, most of which was received by the end of the fiscal year, resulting in a significantly improved balance sheet.
Net income for the year, after special items, was $47.6 million (85 cents per share). Special items in fiscal 1999 were the automotive aftermarket repositioning charge of $38.7 million (59 cents per share), a loss from discontinued operations of $2.2 million (three cents per share), and an extraordinary loss due to early debt extinguishment of $2.6 million (four cents per share). In fiscal 1998, net income was $98.6 million ($1.50 per share), including income of $11.4 million (17 cents per share) from discontinued operations, and a loss of $10.6 million (16 cents per share) from early debt extinguishment.
During the fourth quarter, earnings per share from continuing operations were 36 cents, a 13 percent increase from 32 cents for the last quarter of fiscal 1998. On a pro forma basis, applying the net proceeds from the divestitures to reduce indebtedness as of the beginning of the periods, earnings per share would be 37 cents and 33 cents for the three-month periods ended February 28, 1999 and 1998, respectively. Sales from continuing operations were $464.2 million, compared to $463.4 million last year. Operating income was up slightly in the period, to $45.6 million from $44.9 million in fiscal 1998, while income from continuing operations was $20.6 million, down from $21.2 million last year. Net income in the quarter was $15.4 million (28 cents per share) this year, after a $5.2 million (eight cents per share) charge for discontinued operations, compared to net income of $24.3 million (36 cents per share) last year after recognition of $3.1 million (four cents per share) of income from discontinued operations.
Commenting on the quarter and the year, Mark IV's chairman and chief executive officer, Sal H. Alfiero, said, "Fiscal 1999 has seen significant change at Mark IV. The restructuring program, started in fiscal 1997, was completed, clearing the way for resumption of earnings growth by establishing world class manufacturing facilities, and enabling renewed focus on customer service and product development. In addition, cash flow from operations improved significantly during the year. Operating working capital was reduced by $45 million, capital spending returned to normal levels of $80 million (down from $157 million last year reflecting significant restructuring capital expenditures), and earnings per share from continuing operations returned to double digit growth rates in the fourth quarter. Year-over-year, cash flow from operations improved by approximately $200 million in fiscal 1999 due to stringent operating measures followed during the year. These actions, which are on-going, combined with the sale of non-core businesses, have put the balance sheet in a much stronger position, allowing the financial flexibility for the company to pay down debt, repurchase shares of our common stock, and grow our core businesses through acquisitions, such as the $148 million purchase of Lombardini F.I.M. S.p.A., which was announced two weeks ago.
"Lombardini, with annual revenue of $201 million, is a widely known and highly regarded European market leader in the manufacture of small diesel engines. This addition to Mark IV affords us an opportunity to expand our industrial business, particulary in Europe. But of equal, if not greater importance, it is also the cornerstone of our entree into the faster growing "city car/city van" segment of the European vehicle market. Our product offerings will be power packages consisting of engine and continuous variable transmission combinations."
Reflecting on the year, Mr. Alfiero indicated that pro forma revenue growth (adjusting for some smaller acquisitions made in fiscal 1998 and eliminating the effects of discontinued operations) was 2.4 percent overall, with six percent growth in the company's Automotive business segment, and a one percent decline in its Industrial segment. The Automotive growth was driven by both European and North American car markets, coupled with the start-up of operations in Brazil and Argentina. While domestic revenue growth was hampered by the G.M. strike earlier in the fiscal year, new products, such as the company's new line of air intake manifolds acquired with the October 1997 purchase of LPI, were helpful in driving growth over the full year.
In the Industrial segment, revenue growth in the power transmission and fluid transfer sectors was hampered by a swift and significant decline in global agricultural equipment markets in the last half of the fiscal year, along with weak petroleum and petrochemical markets experienced throughout the year. Fourth quarter revenue was affected by much of the same dynamics as the year, and although Automotive OEM enjoyed a 2.3 percent increase in the quarter, it was not enough to offset a 6.2 percent decline in the Industrial segment. The precipitous drop in these markets is the major reason for flat year-over-year revenue comparisons in the fourth quarter. These markets have begun to recover at this writing, and a resumption of revenue growth is under way from the fourth quarter. Additionally, the transportation products sector of the Industrial segment enjoyed its seventh consecutive record year, and is on its way to an eighth, with increasing shipments in almost every product category including the Inter-agency group's widely recognized "E-ZPasssm" automatic toll collection system which utilizes Mark IV's technology throughout the entire system.
Other Fiscal 1999 Developments
In October, Mark IV announced plans to open a new, state-of-the-art manufacturing facility/technical center in Montreal, Canada, to provide injection molded/welded nylon air intake manifolds for automotive OEM customers in North America. The facility, which is expected to start up in the second half of the current fiscal year, is approximately 175,000 square feet and will employ 150 to 200 people initially, gradually increasing to 300 employees at full production. Use of this air intake technology, acquired with the October 1997 purchase of LPI Systemes Moteurs, of France, will result in lower costs and a lighter weight product, with more efficient airflow, leading to improved engine performance and, most importantly, lower emissions.
While the new technology has been in use in Europe for the past decade -- where it has achieved a 50 percent penetration of the new vehicle market -- it is an emerging technology in North America. The potential for this product in North America affords Mark IV an opportunity to add $80-$100 million to its revenue base over the next two to three years, as new engine designs increasingly incorporate these new types of manifolds. To date, the company has been awarded contracts for application of the new technology commencing with the 2000 model year vehicles.
In the latter half of fiscal 1999, Mark IV instituted a plan to reposition its automotive aftermarket business, which accounts for approximately 10 percent of the company's total revenue. This sector of the company's business has been negatively impacted by fundamental changes taking place in the automotive replacement market. Mark IV is repositioning its aftermarket business in order to better align its investment with the company's business base in this sector. In that context, Mr. Alfiero said, "As adjusted for the sale of the automotive filter business, a pre-tax charge of $63.8 million, or $38.7 million after taxes, has been reflected in fiscal 1999's continuing operating results. Nearly half of the pre-tax charge consists of non-cash items, primarily related to inventory and fixed asset write-offs. The balance of the charge includes employee-related transition and other costs incurred in fiscal 1999, which were needed to complete the restructuring program, and employee-related and other cash costs associated with the aftermarket repositioning.
"Our aftermarket plan includes consolidation of distribution facilities, elimination of low margin, slow-moving product lines, a reduction of inventory levels, rationalization of our customer base, and employee reductions. As a result of these actions, we expect to realize improved margins and reduced capital employed, while providing our customers with a high level quality of products and service.
Outlook
"We believe that certain depressed market and geographic conditions that have followed us throughout fiscal 1999, particularly in our South American automotive business and certain of our worldwide industrial businesses, are temporary in nature, and that there will be a recovery in these markets over time. Our strategy with regard to markets and products is to stay the course, and our actions will be flexible enough so as to take advantage of any mitigation of these conditions.
"Management's view of the company's future prospects is reflected by the fact that, since March 1997 to date, Mark IV has repurchased 22 percent of its outstanding common stock, or an aggregate of 14.8 million shares. In addition, in February, we announced a ten percent increase in the company's cash dividend, our 9th consecutive yearly increase."
Mr. Alfiero added, "The continuing improvement in cash flow, completion of our restructuring program, and implementation of the aftermarket repositioning, coupled with the sale of non-core businesses and the strategic acquisition recently announced, bodes well for future earnings expectations. The capital being invested in the company, and the research and development programs being pursued, will help Mark IV to maintain leadership positions in the market segments we serve, and add new market segments to our pool of leadership positions."
This press release contains forward-looking statements that involve risk and uncertainties as detailed from time to time in the company's SEC reports, including its report on Form 10-K for its fiscal year ended February 28, 1998. These risks and uncertainties could affect the company's actual results and cause them to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the company.
Mark IV Industries, Inc. is a $2.0 billion global manufacturing company headquartered in the Buffalo suburb of Amherst, New York, employing 16,000 people worldwide. The company's core technologies include power transmission, fluid transfer and specialty filtration systems and components for global industrial and automotive markets. For more information on Mark IV, visit the company's web site at http://www.mark-iv.com.
MARK IV INDUSTRIES, INC.
(Amounts in thousands, except per share data)
Three Months Ended Fiscal Year Ended
February 28, February 28,
------------------ -----------------
1999 1998(A) 1999 1998(A)
---- ------ ---- ------
Sales from continuing
operations $ 464,200 $ 463,40 $1,948,600 $1,844,300
Operating
income (B) $ 45,600 $ 44,900 $ 196,200 $ 207,900
Interest
expense (C) $ 13,500 $ 11,400 $ 53,900 $ 49,700
Operating income
(before repositioning
charge), net of
interest expense $ 32,100 $ 33,500 $ 142,300 $ 158,200
Income from continuing
operations (D):
Before
repositioning
charge $ 20,600 $ 21,200 $ 91,100 $ 97,800
Repositioning
charge (E) - - (38,700) -
-------- -------- --------- ---------
Total
continuing 20,600 21,200 52,400 97,800
-------- -------- --------- ---------
Discontinued operations (D):
Before divestitures 1,100 3,100 4,100 11,400
Loss on divestitures (6,300) - (6,300) -
-------- -------- --------- ---------
Total
discontinued (5,200) 3,100 (2,200) 11,400
-------- -------- --------- ---------
Extraordinary loss (D) - - (2,600) (10,600)
-------- -------- --------- ---------
Net income $ 15,400 $ 24,300 $ 47,600 $ 98,600
-------- -------- --------- ---------
-------- -------- --------- ---------
Basic earnings per
share:
Continuing
operations:
Before
repositioning
charge $ 0.38 $ 0.33 $ 1.60 $ 1.52
Repositioning
charge - - (0.68) -
-------- -------- --------- ---------
Total
continuing 0.38 0.33 0.92 1.52
-------- -------- --------- ---------
Discontinued
operations:
Before
divestitures 0.02 0.05 0.07 0.18
Loss on
divestitures (0.12) - (0.11) -
-------- -------- --------- ---------
Total
discontinued (0.10) 0.05 (0.04) 0.18
-------- -------- --------- ---------
Extraordinary loss - - (0.04) (0.16)
-------- -------- --------- ---------
Net income $ 0.28 $ 0.38 $ 0 .84 $ 1.54
-------- -------- --------- ---------
-------- -------- --------- ---------
Diluted earnings per
share:
Continuing
operations:
Before
repositioning
charge (F) $ 0.36 $ 0.32 $ 1.51 $ 1.49
Repositioning
charge - - (0.59) -
-------- -------- --------- ---------
Total
continuing 0.36 0.32 0.92 1.49
-------- -------- --------- ---------
Discontinued
operations:
Before
divestitures 0.02 0.04 0.06 0.17
Loss on
divestitures (0.10) - (0.09) -
-------- -------- --------- ---------
Total
discontinued (0.08) 0.04 (0.03) 0.17
-------- -------- --------- ---------
Extraordinary loss - - (0.04) (0.16)
-------- -------- --------- ---------
Net income $ 0.28 $ 0.36 $ 0.85 $ 1.50
-------- -------- --------- ---------
-------- -------- --------- ---------
Weighted average number
of shares outstanding:
Basic 53,700 63,200 56,900 64,100
-------- -------- --------- ---------
-------- -------- --------- ---------
Diluted 62,200 72,100 65,500 67,400
-------- -------- --------- ---------
-------- -------- --------- ---------
(A) Restated to reflect the effects of discontinued operations.(B) Income from continuing operations before interest expense and
taxes, and the repositioning charge in fiscal 1999.
(C) Applying the net proceeds from the divestitures to reduce
indebtedness on a pro forma basis as of the beginning of fiscal
1999, the full year's interest expense would have been reduced by
an additional $4.9 million in comparison to the allocation
required under historical accounting guidelines.
(D) Net of related tax effects.
(E) Represents the pre-tax charge of $63.8 million recognized in the
third quarter of fiscal 1999. An additional $2.2 million
repositioning charge ($1.3 million net of taxes) is included in
discontinued operations.
(F) On a pro forma basis, applying the net proceeds from the
divestitures to reduce indebtedness as of the beginning of the
periods, earnings per share would be $1.56 and $1.55 for the
fiscal years and $.37 and $.33 for the three-month periods
ended February 28, 1999 and 1998, respectively.