<PAGE>
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 March 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: 01-13407
Hussmann International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1791715
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12999 St. Charles Rock Road, Bridgeton, Missouri 63044-2483
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 291-2000
- ------------------------------------------------------------------------------
(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
--- ---
Common Stock outstanding at March 31, 1999: 50,804,000 shares
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HUSSMANN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Revenues $ 271.1 $ 245.9
Cost of goods sold 226.1 205.1
-------------------- --------------------
Gross profit 45.0 40.8
Selling, general and administrative expenses 33.0 29.6
-------------------- --------------------
Operating income 12.0 11.2
Whitman charges - 1.5
Interest expense:
Whitman - 1.0
Other 4.3 3.4
-------------------- --------------------
Total interest expense 4.3 4.4
Foreign exchange (loss) on purchase price hedge (10.3) -
Other income, net 0.5 0.9
-------------------- --------------------
Income (loss) before income tax expense
(benefit) and minority interests (2.1) 6.2
Income tax expense (benefit) (0.8) 2.3
-------------------- --------------------
Net income (loss) before minority interests (1.3) 3.9
Minority interests 0.5 0.3
-------------------- --------------------
Net income (loss) $ (0.8) $ 4.2
==================== ====================
Basic and diluted earnings (loss) per share $ (0.02) $ 0.08
Weighted average shares used in computing 50.8 50.9
basic earnings per share (in millions)
Weighted average shares used in computing 50.8 51.8
diluted earnings per share (in millions)
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HUSSMANN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
-------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49.9 $ 26.1
Receivables, net of allowance for doubtful
accounts of $5.4 and $2.7, respectively 261.6 285.3
Inventories 137.9 106.9
Other current assets 11.8 11.5
-------------------- ---------------------
Total current assets 461.2 429.8
Property and equipment, net 183.1 168.4
Goodwill, net 106.3 29.4
Other assets 23.9 26.1
-------------------- ---------------------
Total assets $ 774.5 $ 653.7
==================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities
of long-term debt $ 26.3 $ 16.9
Accounts payable 132.1 137.5
Income taxes payable 3.9 9.1
Accrued expenses 49.6 72.7
-------------------- ---------------------
Total current liabilities 211.9 236.2
Long-term debt 354.3 200.7
Other liabilities 34.1 31.3
-------------------- ---------------------
Total liabilities 600.3 468.2
-------------------- ---------------------
Shareholders' equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized, none
issued or outstanding - -
Common stock, $.001 par value, 150,000,000
shares authorized, 51,047,000 shares
issued, 50,804,000 shares outstanding 0.1 0.1
Additional paid-in capital 91.0 90.6
Retained earnings 159.2 161.0
Cumulative translation adjustment (69.2) (59.3)
Minimum pension liability adjustment, net (2.9) (2.9)
Treasury stock, at cost, 243,000 shares (4.0) (4.0)
-------------------- ---------------------
Total shareholders' equity 174.2 185.5
-------------------- ---------------------
Total liabilities and shareholders'
equity $ 774.5 $ 653.7
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HUSSMANN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (0.8) $ 4.2
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 6.2 6.0
Changes in assets and liabilities,
exclusive of acquisitions:
(Increase) decrease in receivables 60.0 (24.2)
(Increase) decrease in inventories (4.6) 36.0
Decrease in accounts payable (25.9) (24.2)
Decrease in income taxes payable (9.2) (10.5)
Decrease in accrued expenses (23.3) (15.1)
Net change in other assets and liabilities 9.2 (3.1)
---------------- ----------------
Net cash provided by (used in) operating activities 11.6 (30.9)
Cash flows from investing activities:
Capital investments (8.2) (6.8)
Business acquired, net of cash (128.7) -
Other 6.3 0.2
---------------- ----------------
Net cash used in investing activities (130.6) (6.6)
Cash flows from financing activities:
Net increase (decrease) in short-term debt (5.0) 12.3
Settlement of Whitman obligations, net - (221.7)
Proceeds from issuance of long-term debt 154.6 270.0
Principal payments on long-term debt - (23.4)
Dividends paid (1.0) -
---------------- ----------------
Net cash provided by financing activities 148.6 37.2
Effects of exchange rate changes on cash and cash
equivalents (5.8) (0.2)
---------------- ----------------
Net change in cash and cash equivalents 23.8 (0.5)
Cash and cash equivalents, beginning of period 26.1 38.4
---------------- ----------------
Cash and cash equivalents, end of period $ 49.9 $ 37.9
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HUSSMANN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in millions)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements present the operations of
Hussmann International, Inc. and subsidiaries ("Hussmann" or the "Company") for
the three months ended March 31, 1999 and 1998. On January 30, 1998, Whitman
Corporation ("Whitman") distributed to its shareholders, all of the outstanding
stock of Hussmann (the "Distribution"). Prior to the Distribution, all of
Hussmann's subsidiaries, including Hussmann Corporation, and its wholly-owned
subsidiaries and other Hussmann companies owned by Whitman but directly managed
by Hussmann, were subsidiaries of Whitman. Hussmann became an independent,
publicly traded company on January 30, 1998.
Prior to the Distribution, the historical financial statements were combined for
financial reporting purposes. For all periods presented herein, the financial
statements will be referred to as consolidated financial statements.
The accompanying unaudited consolidated financial statements, in the opinion of
Management, include all adjustments (consisting of normal, recurring items)
necessary to present fairly Hussmann's consolidated financial position and
results of its operations and cash flows for the periods presented. The
unaudited consolidated financial statements are presented in accordance with
requirements of Regulation S-X and consequently do not include all disclosures
required by generally accepted accounting principles. The interim results are
not necessarily indicative of the results that may be expected for a full year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. EARNINGS PER SHARE
Although the Distribution did not occur until January 30, 1998, for purposes of
1998's presentation, Hussmann has calculated earnings per share on a pro forma
basis assuming the Distribution occurred at January 1, 1998, for both basic and
diluted earnings per share.
The number of shares of Hussmann Common Stock used in the calculation of
earnings per share for the three months ended March 31, is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Weighted average shares outstanding - basic 50,791 50,851
Dilutive effect of stock options - 958
-------- --------
Weighted average shares outstanding - diluted 50,791 51,809
======== ========
</TABLE>
Since Hussmann recorded a net loss for the three months ended March 31, 1999,
all options to purchase shares of Hussmann Common Stock outstanding during the
first quarter of 1999 were excluded from the calculation of diluted EPS.
For 1998 all outstanding Hussmann stock options were included in the computation
of diluted earnings per share.
5
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials and work in process $ 92.0 $ 81.2
Finished goods 45.9 25.7
--------- ---------
Total $ 137.9 $ 106.9
========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -------------
<S> <C> <C>
Land $ 6.5 $ 5.3
Buildings and improvements 92.2 81.8
Machinery and equipment 208.0 212.3
---------- -------------
Total property and equipment 306.7 299.4
Accumulated depreciation (153.3) (157.6)
Construction in progress 29.7 26.6
---------- -------------
$ 183.1 $ 168.4
========== =============
</TABLE>
5. BUSINESS SEGMENT INFORMATION
As the products and services sold by Hussmann are similar throughout the world,
Hussmann manages its business with separate senior management teams responsible
for geographic regions. The following segments correspond to these geographic
regions.
The following tables present financial information for each of these business
segments as of and for the three months ended March 31:
<TABLE>
<CAPTION>
Operating
Revenues Income
------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. and Canada $204.0 $196.7 $24.8 $18.9
Europe (U.K. and Spain) 35.6 22.7 (2.5) (2.4)
Other International 31.5 26.5 (3.5) 1.4
----------- ----------- ------------ -------------
Total $271.1 $245.9 18.8 17.9
=========== ===========
Corporate administrative
expenses (6.8) (6.7)
------------ -------------
Total operating income $12.0 $11.2
============ =============
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
U.S. and Canada $ 332.6 $ 358.3
Europe 227.1 79.4
Other International 137.1 160.9
Corporate 77.7 55.1
--------- ---------
$ 774.5 $ 653.7
========= =========
</TABLE>
6
<PAGE>
6. COMPREHENSIVE INCOME
Comprehensive income (loss) for the three months ended March 31, consists of the
following:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Net income (loss) $ (0.8) $ 4.2
Foreign currency translation adjustment (9.9) (1.5)
------- ------
Comprehensive income (loss) $ (10.7) $ 2.7
======= ======
</TABLE>
7. BUSINESS COMBINATION
On March 23, 1999, Hussmann completed its acquisition of Koxka C.E., S.A.
("Koxka"). Hussmann acquired virtually 100% of the outstanding stock of
Koxka through a cash tender offer. Koxka manufactures a complete line of
commercial and industrial refrigeration products at five manufacturing
facilities located throughout Spain.
Hussmann paid approximately $135.0 in cash for the acquisition. This excludes
the $10.3 loss related to the purchase price hedge, used by the Company to
lock-in the U.S. Dollar purchase price of $145.0. Since only direct costs of an
acquisition can be capitalized in determining the purchase price of an
acquisition, the loss on the hedging instruments was expensed during the first
quarter of 1999. The purchase price was principally funded with proceeds
available under Hussmann's 5-year unsecured revolving credit facility (the
"Credit Facility"). The acquisition of Koxka will be accounted for using the
purchase method of accounting, and accordingly, the purchase price will be
allocated to the assets acquired and the liabilities assumed based upon their
estimated fair market value. This allocation process will be substantially
completed during the second quarter of 1999. The amounts reflected in the March
31, 1999, consolidated balance sheet represent the amounts reported for Koxka
prior to application of purchase accounting. Hussmann is reporting goodwill
associated with the acquisition of approximately $80.0, which will be amortized
over the period to be benefited, 40 years. The ultimate amount of goodwill to be
recorded for the acquisition may differ materially from the amount currently
reflected, once all purchase accounting entries are recorded.
Since the acquisition closed on March 23, 1999, there was no significant impact
to the Company's consolidated statement of operations for the 1999 period
presented. Koxka will be managed and accounted for in the Company's European
business segment.
7
<PAGE>
Hussmann International, Inc. and Subsidiaries
(Dollars in millions)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
Hussmann manufactures, sells, installs and services merchandising and
refrigeration systems for the world's commercial food industry. Products include
refrigerated and non-refrigerated display merchandisers, refrigeration systems
and controls, beverage coolers, air handlers, evaporative condensers, heat
exchange coils and walk-in storage coolers and freezers. Hussmann operates in
three geographic segments: U.S. and Canada, Europe (U.K. and Spain) and Other
International, which includes Mexico, Latin America, Asia-Pacific, New Zealand,
and Australia.
As previously stated, on January 30, 1998, Hussmann was spun off from Whitman
and became an independent, publicly traded company. The following table provides
a reconciliation of what Management believes the 1998 operating results would
have been had Hussmann been an independent, publicly traded company, excluding
the impact of the Whitman intercompany charges, and including the impact of
borrowings under the five-year unsecured revolving credit facility, entered into
by the Company in January 1998 (the "Credit Facility"). Management believes the
unaudited pro forma consolidated operating results for 1998 provide a more
meaningful presentation for purposes of analyzing the Company's financial
performance.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-------------------------------------------
Pro Forma
Actual Adjustments Pro Forma
----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $245.9 - $245.9
Operating income 11.2 - 11.2
Whitman charges 1.5 (1.5) -
Total interest expense 4.4 0.2 4.6
Pretax income 6.2 1.3 7.5
Income tax expense 2.3 0.5 2.8
Net income 4.2 0.8 5.0
----------------------------------------------------------------------------
Diluted EPS $ 0.08 $ 0.02 $ 0.10
----------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH PRO
FORMA THREE MONTHS ENDED MARCH 31, 1998.
REVENUES
Revenues for the three months ended March 31, 1999, of $271.1 were $25.2 or 10%
over the same period 1998 revenues of $245.9. Revenues increased in all three
geographic segments. The following table provides a summarized analysis:
<TABLE>
<CAPTION>
% Increase
1999 $ Change (decrease)
Revenues 1998 1998
-----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. and Canada $ 204.0 $ 7.3 4%
Europe 35.6 12.9 57
Other International 31.5 5.0 19
-----------------------------------------------------------------------
Total $ 271.1 $ 25.2 10%
-----------------------------------------------------------------------
</TABLE>
8
<PAGE>
The 4% increase in revenues in the U.S. and Canada was principally driven by
continued strong U.S. supermarket and specialty case demand. The increase in
revenues in Europe of 57% was due to strong demand from the U.K.'s service and
contracting business. The 19% increase in revenues or $5.0 in Other
International was principally due to the third quarter 1998 acquisition of
McAlpine Investments Limited ("MIL"). Excluding MIL, revenues would have
decreased nearly 30%. This decrease relates to revenues in Mexico and Brazil. As
we reported last year, revenues in Mexico were record setting for the first half
of 1998. Revenues in Brazil were negatively impacted by the substantial
devaluation of the Brazilian Real during the first quarter of 1999.
GROSS PROFIT
Gross profit increased comparably to the 10% increase in revenue. Gross profit
as a percent of revenue was flat at 16.6% compared to 1998. Significant
improvements in the U.S. and Canada were offset by a lower margin mix of revenue
in the U.K. and at the Company's new distribution acquisition, MIL. Gross profit
in Mexico was also down from the record setting performance in 1998, mainly due
to volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE.
Total selling, general and administrative ("SG&A") expenses increased 11% to
$33.0 in 1999 from $29.6 in 1998. The increase in SG&A expenses relates to the
MIL acquisition, the BaaN Global Information System Project ("ERP"), costs
associated with the Year 2000 issue and the timing of costs in the U.K.
OPERATING INCOME
Operating income in 1999 of $12.0 was 7% or $0.8 greater than that reported for
the comparable period in 1998. This increase was solely attributable to the 31%
increase in operating income in the U.S. and Canada. The following table
summarizes the fluctuations in operating income by segment:
<TABLE>
<CAPTION>
1999 % Increase
Operating $ Change (decrease)
Income 1998 1998
-----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. and Canada $ 24.8 $ 5.9 31%
Europe (2.5) (0.1) (4)
Other International (3.5) (4.9) Unfav
-----------------------------------------------------------------------
18.8 0.9 5
Corporate admin. expenses (6.8) (0.1) 1
-----------------------------------------------------------------------
Total operating income $ 12.0 $ 0.8 7%
-----------------------------------------------------------------------
</TABLE>
The increase in the U.S. and Canada was due to increased volume, productivity
and efficiency improvements, the continued soft markets for commodity prices,
and enhancements in materials management. The operating loss in Europe was
essentially flat against the prior year operating loss of $2.4. Although
revenues in the U.K. improved 57% over 1998, the majority of the U.K.'s revenues
in the first quarter of 1999 were derived from lower margin service and
contracting revenues. Operating income for Other International operations
decreased $4.9 from the $1.4 operating income recorded during the first quarter
of 1998, to an operating loss of $3.5 reported in 1999. This decrease is mainly
due to lower 1999 volume in Mexico and the negative operating income margins at
MIL in the first quarter of 1999. The negative operating margins at MIL are
typical for this time of year.
9
<PAGE>
OTHER INCOME/OTHER EXPENSE
The Company recognized a one-time $10.3 pretax loss associated with the hedge of
the Koxka purchase price, which is included in other expense. Since Koxka was a
publicly traded company, the purchase price was denominated in Spanish Pesetas.
In order to avoid foreign currency exposure over the extended period involved in
completing the acquisition, Management hedged the Company's Peseta exposure to
lock-in a U.S. Dollar purchase price of $145.0. The $10.3 loss associated with
the financial instruments used to hedge the Koxka purchase price (the "Koxka
Charge") has been reflected in the consolidated statement of operations as
foreign exchange loss on purchase price hedge.
INTEREST EXPENSE
Interest expense of $4.3 decreased $0.3 or 7% from 1998 to 1999, primarily due
to better management of international debt and positive cash flow from working
capital. Long-term debt increased $154.6 primarily due to the acquisition of
Koxka. The acquisition was consummated on March 23, 1999, and therefore, the
consolidated statement of operations includes only one week of interest expense
for debt associated with the acquisition. For 1998's pro forma financial
statement presentation, it was assumed that $240.0 in borrowings were
outstanding for the period January 1, 1998 through the Distribution.
EFFECTIVE INCOME TAX RATE
Hussmann's effective income tax rate was 38.0% for the three months ended March
31, 1999, or 1.0 points higher than the 1998 pro forma effective rate of 37.0%.
This higher effective tax rate is principally due to the anticipated increase in
earnings from Hussmann's U.S. operations in 1999, which typically have a higher
effective tax rate than Hussmann's international operations.
NET INCOME AND EARNINGS PER SHARE
Net income, excluding the previously announced Koxka Charge, increased 12% to
$5.6 from $5.0 for the same period of 1998, reported on a pro forma basis.
Earnings per diluted share increased 10% to 11 cents from 10 cents per diluted
share for the same period of 1998. The after-tax impact of the Koxka Charge was
$6.4, or 13 cents per diluted share.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
As anticipated, Hussmann collected late fourth quarter 1998 sales during the
first quarter of 1999, which drove the substantial improvements in cash flows
from operations when compared with the same period of 1998. During the first
quarter of 1999, the Company provided cash from operations of $11.6 compared to
a use of cash of $30.9 in the same period of 1998. This significant improvement
in cash flow from operations was principally driven by the approximate $42.0
improvement in working capital.
10
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities was $130.6 and $6.6 for the three months
ended March 31, 1999 and 1998, respectively. The main component in 1999 cash
flows used in investing activities is attributable to the purchase price of
Koxka, excluding cash acquired. The increase in capital investments relates to
the timing of spending on Hussmann's ERP project and productivity and efficiency
programs in the U.S. and Canada. Included in other cash flows from investing
activities, are the cash proceeds from the sale of the Company's interest in an
airplane and the sale of the U.K.'s Glasgow manufacturing facility located in
Scotland. The Glasgow facility was the main focus of the 1997 U.K. restructuring
previously reported by the Company.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities was $148.6 and 37.2 for the three
months ended March 31, 1999 and 1998, respectively. The significant increase in
1999's reported balance represents the proceeds from long-term debt to finance
the acquisition of Koxka. For 1998, the net proceeds from long-term debt of
$270.0 were primarily used to settle the Company's obligations to Whitman and to
fund working capital. In January 1998, Hussmann paid Whitman approximately
$240.0 to extinguish its intercompany notes and to pay a cash dividend to
Whitman of approximately $80.0.
In January 1998, Hussmann entered into the Credit Facility with a syndicate of
commercial banks and financial institutions, which enables Hussmann to borrow
funds at variable interest rates on a revolving credit basis up to an aggregate
principal amount of $350.0. The Company borrowed $270.0 under the Credit
Facility in January 1998, the majority of which was used to settle the Company's
obligations with Whitman.
Additionally, on June 2, 1998, Hussmann issued $125.0 of its $250.0 shelf
registration of 6.75% senior notes due 2008 (the "Shelf Registration"). The net
proceeds from the issuance were used to pay down amounts previously borrowed
under the Credit Facility.
On March 22, 1999, Hussmann borrowed approximately $145.0 under the Credit
Facility to fund the acquisition of Koxka and to pay related expenses. At March
31, 1999, $125.0 was outstanding under the Credit Facility. In addition, at
March 31, 1999, Hussmann had $66.2 of uncommitted lines-of-credit available in
the U.S. There were no advances under the uncommitted lines-of-credit
outstanding at March 31, 1999.
Management believes cash flows from operations, unused amounts available under
the Credit Facility and the Shelf Registration, and access to capital markets
will be sufficient to satisfy Hussmann's future working capital, capital
investment, acquisition and other financing requirements for the foreseeable
future. Management also believes Hussmann will be able to access capital markets
on satisfactory terms, although there can be no assurance that will be the case.
11
<PAGE>
NON-U.S. OPERATIONS
The most significant non-U.S. operations are located in Canada, Mexico, the U.K.
and Spain, with smaller operations located in, among other countries, Brazil,
New Zealand, Australia, and China. Because the majority of Hussmann's non-U.S.
entities conduct business in their respective local currencies, Hussmann is
subject to foreign currency risks when translating its non-U.S. entity financial
statements into U.S. Dollars for financial reporting purposes. In addition to
foreign currency translation risks faced by Hussmann, other risks associated
with non-U.S. operations include the potential for restrictive actions taken by
host country governments, risks relating to non-U.S. economic and political
conditions, and risks relating to limits on the transfer of funds from non-U.S.
entities to Hussmann. Hussmann does not currently use foreign currency risk
management instruments to manage its financial statement exposures to changes in
foreign currency exchange rates, however, due to the growth in Hussmann's
foreign operations, Management is reassessing this policy to determine the
appropriateness of using foreign currency risk management instruments.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued its Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management is currently
assessing the effects of this statement on the Company's consolidated financial
statements and notes thereto. However, given the Company's current policy
regarding foreign currency risk management instruments and other hedging
activities, Management does not believe SFAS 133 will have a significant impact
on Hussmann's consolidated results of operations, financial condition or cash
flows.
YEAR 2000
The Company has assessed the Year 2000 ("Y2K") issue as it relates to
information technology ("IT") and has determined it must modify or upgrade
certain portions of the hardware and software in its information systems. The
Company is utilizing both internal and external resources to complete the
reprogramming, upgrades and testing necessary to complete this modification and
replacement process. The Company's Y2K efforts are being carried out by the
Company's Y2K Team which has created a plan to complete Y2K reprogramming and
testing of the Company's information systems ("the Plan") by June 30, 1999.
Progress against the Plan is monitored and reported to Management and to the
Audit and Finance Committee of the Board of Directors on a regular basis. The
Y2K Team believes it remains on schedule, according to the Plan. As of March 31,
1999, the Company has incurred approximately $2.5 related to Y2K work and
anticipates the cost of its remaining Y2K work (which will be incurred over the
next 9 to 15 months) to total about $2.5. Management does not expect these costs
to not have a material adverse effect on Hussmann's results of operations,
financial condition or cash flows.
The Company is continuing to address its non-IT Y2K issues. The Company's Y2K
Team is reviewing equipment embedded with microprocessors, products sold and
service contracts entered into, to determine what exposure, if any, the Company
has in this area. Given the far reaching implications of these non-IT Y2K
issues, some of which cannot be predicted or anticipated, the Company is unable
to estimate the ultimate costs related to its non-IT Y2K issues, however, based
upon results of reviews performed to date, Management does not believe such
costs will be material.
12
<PAGE>
Also as part of the non-IT Y2K Plan, the Company is assessing the Y2K compliance
status of third parties with which it does business. The Company has contacted
its key suppliers and customers to evaluate their Y2K readiness. Contingency
plans to help protect the Company's business from Y2K related interruptions have
been developed. The Company will continue to reassess its contingency plans as
it completes this review process.
The expected costs of the projects and the date on which Hussmann plans to
complete all of the Y2K work are based on Management's best estimates, which are
derived from numerous assumptions about future events, including the
availability of certain resources, third-party modification plans, and other
factors. However, there can be no guarantee these estimates will be achieved and
actual results could differ materially from those plans. As previously stated,
certain of the non-IT Y2K issues have far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. Specific
factors that might cause material differences include, but are not limited to,
the availability and cost of personnel trained in this area, and the ability to
identify and correct all relevant computer codes. In addition, there can be no
assurances the systems or products of third parties on which the Company relies
will be timely converted or that a failure by a third party, or a conversion
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
OTHER
The reconfiguration of the Bridgeton plant and the plant consolidation of the
production of refrigeration systems, discussed in previous filings with the
Securities and Exchange Commission (the "SEC"), remain essentially on schedule.
The new Atlanta plant opened during the third quarter of 1998 and the Bridgeton
refrigeration production is scheduled to close in the second quarter of 1999.
The new Bridgeton case line is scheduled to begin production during the third
quarter of 1999.
Due to the initial construction problems encountered in Mexico, and a
reassessment of its Mexican operations and the Mexican economy, Hussmann has put
the development of the leased facility in Toluca, Mexico on hold.
Hussmann may continue to repurchase Hussmann Common Stock from time to time, to
offset dilution resulting from the exercise of stock options in accordance with
the common stock repurchase plan approved by the Board of Directors.
SAFE HARBOR STATEMENT
In addition to the historical information presented in this quarterly report,
the Company has made and will make certain forward-looking statements in this
report, other reports filed by the Company with the SEC, reports to shareholders
and in certain other contexts relating to future revenues, costs, expenses,
production schedules, profitability, financial resources, and the Y2K issue,
among others. Statements relating to the foregoing or that predict or indicate
future events and trends and which do not relate solely to historical matters
identify forward-looking statements. Forward-looking statements are made
pursuant to the safe harbor provisions of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and are based on
Management's beliefs as well as assumptions made using information currently
available to Management. Accordingly, Hussmann's actual results may differ
materially from those projected, expressed or implied in such forward-looking
statements due to known and unknown risks and uncertainties that exist in
Hussmann's operations and business environment, including, among other factors:
1) the failure by Hussmann to produce anticipated cost savings, improve
productivity, or create efficiencies; 2) the timing and magnitude of capital
investments; 3) economic and market conditions in the U.S. and worldwide; 4)
currency exchange rates; 5) changes in customer spending levels and demand for
new products; 6) cost and availability of raw materials; 7) the continuation of
growth in significant developing markets such as in Mexico, South America and
Asia-Pacific; 8) overall competitive activities; 9) failure of the Company, its
suppliers or vendors to achieve Y2K compliance in a timely manner; 10) the
ability of Hussmann to successfully integrate the Koxka operations into its
business; and 11) other risks associated with the Company's operations. Although
the Company believes that its forward-looking statements are based on reasonable
assumptions, there can be no assurance that actual results, performance or
achievements will not differ materially from any future results, performance or
achievements projected, expressed or implied by such forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
FOREIGN CURRENCY RISK
Hussmann's non-U.S. entities conduct the majority of their business in their
respective local currencies. Therefore Hussmann is subject to foreign currency
risks when translating its non-U.S. entity financial statements into U.S.
Dollars for financial reporting purposes. However, the Company is not
significantly exposed to foreign currency translation. Hussmann currently does
not use foreign currency risk management instruments to manage its exposure to
changes in currency exchange rates. However, as the significance of Hussmann's
foreign operations grows, Management will continue to monitor whether it would
be appropriate to use foreign currency risk management instruments to mitigate
its larger exposures.
Management will utilize foreign currency instruments to manage exposures it may
have on known individually significant foreign currency transactions and
balances. There were no significant balances outstanding as of March 31, 1999.
As previously announced, Hussmann hedged the purchase price established in the
agreement to purchase Koxka which was denominated in Spanish Pesetas. Hussmann
hedged the Peseta exposure to lock-in a U.S. Dollar purchase price of $145.0
using forward currency exchange contracts. The realized loss of $10.3 from
settling these forward contracts is reflected in the consolidated statement of
operations as foreign exchange loss on purchase price hedge.
INTEREST RATE RISK
As of March 31, 1999, Hussmann had $359.5 in long-term debt outstanding, $125.0
of which represented senior note obligations with a fixed rate of 6.75%. The
majority of the remaining balance represents amounts outstanding on the
Company's Credit Facility, with interest based on LIBOR (London Interbank Offer
Rate). Given the current mix of the Company's outstanding indebtedness, the
Company does not believe its exposure to short-term interest rate changes would
be material.
COMMODITY RISK
Hussmann's products use copper wiring and tubing. As a result, Hussmann's
results are subject to fluctuations in the price of copper. Hussmann uses
hedging instruments to mitigate a portion of these risks. Overall, this hedging
activity is not considered to be material to Hussmann's consolidated results of
operations, financial position or cash flows.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibit
Number Exhibit
- ------- -------
27 Financial Data Schedule
(filed electronically with the SEC only)
(b) Reports on Form 8-K
1. On January 8, 1999, Hussmann filed a Current Report on Form 8-K dated
January 6, 1999, which reported the following item:
Item 5 (Other Events) to report that Hussmann had signed a definitive
agreement to acquire Koxka C.E., S.A. ("Koxka") by means of a public
tender offer.
2. On April 7, 1999, Hussmann filed a Current Report on Form 8-K dated March
23, 1999, which reported the following items:
Item 2 (Acquisition or Disposition of Assets) to report that Hussmann had
completed the acquisition of Koxka by means of a public tender offer.
Item 7 (Financial Statements and Exhibits) to report that the audited
financial statements and unaudited pro forma financial information
required by this item with respect to the Koxka acquisition will be filed
by amendment to the Form 8-K no later than June 7, 1999.
15
<PAGE>
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.
HUSSMANN INTERNATIONAL, INC.
/s/ Thomas G. Korte
---------------------------
Thomas G. Korte
Vice President
and Corporate Controller
(as duly authorized officer
and principal accounting
Dated: May 14, 1999 officer of the registrant)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED (MARCH 31, 1999) AND COMBINED
(MARCH 31, 1998) FINANCIAL INFORMATION EXTRACTED FROM HUSSMANN
INTERNATIONAL'S CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 50 38
<SECURITIES> 0 0
<RECEIVABLES> 267 235
<ALLOWANCES> 5 2
<INVENTORY> 138 111
<CURRENT-ASSETS> 461 387
<PP&E> 336 309
<DEPRECIATION> 153 148
<TOTAL-ASSETS> 775 603
<CURRENT-LIABILITIES> 212 185
<BONDS> 354 247
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 174 142
<TOTAL-LIABILITY-AND-EQUITY> 775 603
<SALES> 271 246
<TOTAL-REVENUES> 271 246
<CGS> 226 205
<TOTAL-COSTS> 226 205
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4 4<F1>
<INCOME-PRETAX> (2) 6
<INCOME-TAX> (1) 2
<INCOME-CONTINUING> (1) 4
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1) 4
<EPS-PRIMARY> (0.02)<F2> 0.08<F2>
<EPS-DILUTED> (0.02) 0.08
<FN>
<F1>Interest expense for the period ended March 31, 1998, includes $1.0
million of interest paid to Whitman, Hussmann's former parent.
<F2>For purposes of this exhibit, primary means basic.
</FN>
</TABLE>
