<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 June 30, 1998
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: 1-7955
------------------------------
INTERNATIONAL COMFORT PRODUCTS CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada 98-0045209
---------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Corporate Centre Drive, Suite 200,
Franklin, Tennessee 37067
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(615) 771-0200
------------------------------------------------------------
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
---- ----
As of July 29, 1998, there were 41,459,950 shares of International
Comfort Products Corporation Ordinary Shares outstanding.
======================================================================<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS INCLUDED IN THIS
QUARTERLY REPORT ON FORM 10-Q
INTERNATIONAL COMFORT PRODUCTS CORPORATION
AND SUBSIDIARIES
(Unaudited)
Page
----
Consolidated Statements of Income
(Three months ended June 30, 1998 and
June 30, 1997) 3
(Six months ended June 30, 1998 and
June 30, 1997) 4
Consolidated Balance Sheets (As of June 30, 1998, June 30, 1997
and December 31, 1997) 5 - 6
Consolidated Statements of Changes in Financial Position
(Six months ended June 30, 1998 and
June 30, 1997) 7
Notes to Consolidated Financial Statements 8 - 11
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<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Income
For the Three Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 218.5 $ 177.6
Cost of Sales 170.7 139.2
- ----------------------------------------------------------------------------
Gross Profit 47.8 38.4
Selling, General and Administrative Expenses 26.9 22.9
- ----------------------------------------------------------------------------
Operating Profit 20.9 15.5
- ----------------------------------------------------------------------------
Financial Expenses
Interest expense 5.0 4.9
Amortization of debt issuance costs 0.3 0.3
Refinancing costs 5.0 -
- ----------------------------------------------------------------------------
10.3 5.2
- ----------------------------------------------------------------------------
Net Income $ 10.6 $ 10.3
============================================================================
Average number of shares (in millions) 40.4 39.7
============================================================================
Earnings Per Ordinary Share
Basic $ 0.26 $ 0.26
Fully diluted $ 0.25 $ 0.25
============================================================================
</TABLE>
See accompanying notes
-3-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Income
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 351.3 $ 314.2
Cost of Sales 275.0 247.9
- ----------------------------------------------------------------------------
Gross Profit 76.3 66.3
Selling, General and Administrative Expenses 47.1 44.4
- ----------------------------------------------------------------------------
Operating Profit 29.2 21.9
- ----------------------------------------------------------------------------
Financial Expenses
Interest expense 9.5 9.6
Amortization of debt issuance costs 0.6 0.6
Refinancing costs 5.0 -
- ----------------------------------------------------------------------------
15.1 10.2
- ----------------------------------------------------------------------------
Net Income $ 14.1 $ 11.7
============================================================================
Average number of shares (in millions) 40.1 39.5
============================================================================
Earnings Per Ordinary Share
Basic $ 0.35 $ 0.30
Fully diluted $ 0.34 $ 0.28
============================================================================
</TABLE>
See accompanying notes
-4-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Balance Sheets
(In Millions of U.S. Dollars) - Canadian GAAP - UNAUDITED
<TABLE>
<CAPTION>
June 30 December 31
------------------ ------------
1998 1997 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and short-term deposits $ 21.1 $ 17.7 $ 31.0
Accounts receivable 140.5 113.4 96.5
Note receivable - - 7.7
Inventories 116.6 134.4 94.5
Prepaid expenses and other 6.5 5.7 7.6
- -----------------------------------------------------------------------------
284.7 271.2 237.3
- -----------------------------------------------------------------------------
Fixed Assets
Property, plant and equipment 228.7 213.7 214.3
Accumulated depreciation 127.7 119.6 120.7
- -----------------------------------------------------------------------------
101.0 94.1 93.6
- -----------------------------------------------------------------------------
Intangible Assets, net 30.9 9.2 11.0
Other Assets, net 14.2 12.6 10.1
- -----------------------------------------------------------------------------
$ 430.8 $ 387.1 $ 352.0
=============================================================================
</TABLE>
See accompanying notes
-5-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Balance Sheets
(In Millions of U.S. Dollars) - Canadian GAAP - UNAUDITED
<TABLE>
<CAPTION>
June 30 December 31
------------------ ------------
1998 1997 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Short-term borrowings $ 42.5 $ 57.2 $ 19.7
Accounts payable 60.8 50.3 44.8
Accrued liabilities 31.7 28.8 26.5
Product warranty 9.7 8.6 9.5
Current portion of long-term debt 0.2 - 0.2
- -----------------------------------------------------------------------------
144.9 144.9 100.7
Long-Term Debt 175.4 165.0 165.6
Product Warranty 14.8 18.0 16.2
Other Long-Term Liabilities 15.8 17.5 18.0
- -----------------------------------------------------------------------------
350.9 345.4 300.5
- -----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Ordinary Shares 186.1 170.7 171.2
Deficit (102.3) (126.8) (116.4)
Foreign Currency
Translation Adjustment (3.9) (2.2) (3.3)
- -----------------------------------------------------------------------------
79.9 41.7 51.5
- -----------------------------------------------------------------------------
$ 430.8 $ 387.1 $ 352.0
=============================================================================
</TABLE>
See accompanying notes
-6-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Changes In Financial Position
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
Cash Provided By (Used for) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 14.1 $ 11.7
Items not involving current cash flows
Depreciation and amortization 8.7 8.5
Refinancing costs 2.3 -
Changes in working capital
Accounts receivable (29.5) (40.7)
Inventories (10.3) (34.4)
Prepaid expenses and other 1.5 (0.5)
Accounts payable, accrued liabilities,
and product warranty 10.9 17.1
- -----------------------------------------------------------------------------
(2.3) (38.3)
- -----------------------------------------------------------------------------
INVESTING
Property, plant and equipment (6.6) (2.6)
Acquisition of United Electric Company (25.6) -
Acquisition of A-1 Components Corp. (14.3) -
Acquisition of distribution company - (1.8)
Proceeds from sale of Coastline and
factory branches - 23.1
- -----------------------------------------------------------------------------
(46.5) 18.7
- -----------------------------------------------------------------------------
FINANCING
Long-term debt issued 150.0 -
Ordinary shares issued 14.9 1.5
Repayment of long-term debt (140.2) -
Refinancing costs (8.6) -
- -----------------------------------------------------------------------------
16.1 1.5
- -----------------------------------------------------------------------------
Increase in Borrowings (32.7) (18.1)
Net Cash (Borrowings) -
Beginning of the period 11.3 (21.4)
- -----------------------------------------------------------------------------
Net Borrowings - End of the period $ (21.4) $ (39.5)
=============================================================================
Represented by
Short-term borrowings $ (42.5) $ (57.2)
Less: Cash and short-term deposits 21.1 17.7
- -----------------------------------------------------------------------------
$ (21.4) $ (39.5)
=============================================================================
</TABLE>
See accompanying notes
-7-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
1. Reference should be made to the consolidated financial statements for
the year ended December 31, 1997 included in Form 10-K filed on March
31, 1998, for details of significant accounting policies. Certain
comparative figures have been reclassified to conform with current
financial statement presentation.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of June 30, 1998 and 1997, the results of operations
and changes in financial position for the periods then ended. The
interim results are not necessarily indicative of the results to be
expected for the full year.
3. Details of inventories are as follows:
<TABLE>
<CAPTION>
June 30 December 31
---------------- ------------
1998 1997 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Finished goods $ 74.9 $ 98.0 $ 58.8
Raw materials and work in process 17.8 11.4 13.4
Service parts 23.9 25.0 22.3
- ----------------------------------------------------------------------------
$ 116.6 $ 134.4 $ 94.5
============================================================================
</TABLE>
-8-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
4. Significant Differences Between Canadian and U.S. Accounting
Practices
Accounting principles adopted by the Company as reflected in
these consolidated financial statements are generally consistent
with accounting principles accepted in the United States ("U.S.
GAAP"). The following reconciliations reflect the approximate
differences in these accounting principles where applicable to
the Company. If accounting principles generally accepted in the
United States were followed, the effect on the consolidated
financial statements would be:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (as reported) $ 10.6 $ 10.3 $ 14.1 $ 11.7
Accounting for income taxes (.1) (.1) (.3) (.3)
Post-retirement benefits (.4) (.6) (1.1) (1.1)
-------------------- --------------------
Net income under U.S. GAAP $ 10.1 $ 9.6 $ 12.7 $ 10.3
==================== ====================
Weighted average number of
ordinary shares outstanding
during the period under
U.S. GAAP (in millions)
Basic 40.4 39.7 40.1 39.5
Diluted 42.4 41.8 42.1 41.6
Net income per share under
U.S. GAAP (in dollars)
Basic $ 0.25 $ 0.24 $ 0.32 $ 0.26
Diluted $ 0.24 $ 0.23 $ 0.31 $ 0.25
</TABLE>
-9-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
4. Significant Differences Between Canadian and U.S. Accounting
Practices (Continued)
Consolidated Balance Sheets:
- ----------------------------
<TABLE>
<CAPTION>
June 30 December 31
------------------- -------------
1998 1997 1997
----------------------------------
<S> <C> <C> <C>
Total assets (as reported) $ 430.8 $ 387.1 $ 352.0
Items increasing reported total assets
Deferred income taxes 3.7 3.7 3.4
Post-retirement and pension benefits 4.6 4.1 3.9
---------------------------------
Total assets - U.S. GAAP $ 439.1 $ 394.9 $ 359.3
=================================
Shareholders' equity (as reported) $ 79.9 $ 41.7 $ 51.5
Items increasing (decreasing)
reported shareholders' equity
Deferred income taxes 3.7 3.7 3.4
Post-retirement and pension benefits (5.6) (6.1) (5.2)
---------------------------------
Shareholders' equity - U.S. GAAP $ 78.0 $ 39.3 $ 49.7
=================================
</TABLE>
-10-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997 - UNAUDITED
(In Millions of Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
5. Summarized Financial Information
International Comfort Products Holdings, Inc. ("ICP Holdings") is
a wholly-owned subsidiary of the Company. ICP Holdings is the
issuer of certain securities as to which a registration
statement now has been filed under the Securities Act of 1933.
Upon that registration statement being declared effective,
ICP Holdings would be subject to the reporting requirements under
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Because these securities, however, are fully and
unconditionally guaranteed by the Company and management has
determined that such information is not material to the holder of
such securities, the Company and ICP Holdings have filed with the
Commission a request that ICP Holdings be exempted from the reporting
requirements of the Exchange Act. Financial information relating to
ICP Holdings is presented herein in accordance with Staff Accounting
Bulletin No. 53 as an addition to the notes to the financial
statements of the Company. Summarized financial information for
ICP Holdings is as follows:
Condensed Income Statement Information:
- ---------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 206.2 $ 165.9 $ 329.7 $ 292.1
Gross profit 43.6 35.0 69.5 61.4
Net income 11.9 10.5 16.5 13.4
</TABLE>
Condensed Balance Sheet Information:
- ------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 254.6 $ 207.3
Total assets 395.4 316.1
Current liabilities 134.8 94.2
Total liabilities 337.3 289.3
Shareholders' equity 58.1 26.8
============================================================================
</TABLE>
The agreements governing the terms of certain of the Company's debt
contain certain covenants which, among other things, place
limitations on the ability of subsidiaries of ICP Holdings to pay
dividends and make other restricted payments, as defined, to ICP
Holdings. Pursuant to the terms of the most restrictive covenant
regarding restricted payments, as of June 30, 1998, $110 million
of net assets of subsidiaries of ICP Holdings were not available
for payment of dividends to ICP Holdings.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------
Effective May 31, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of Watsco Components, Inc. (now known as A-1
Components Corp. (hereafter "A-1 Components")) for approximately 1,490,000
ordinary shares of the Company. A-1 Components is principally engaged in the
production of parts and components used in the manufacturing and servicing
of heating, ventilation and air conditioning ("HVAC") equipment.
FINANCIAL RESULTS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
For the three months ended June 30, 1998, income before refinancing costs was
$15.6 million or $0.39 per share, compared with $10.3 million or $0.26 per
share for the corresponding period in 1997. During the second quarter of
1998, the Company refinanced its 9.75% senior secured notes due 2000 with an
institutional private placement of $150 million 8.625% Senior Notes due 2008.
Net income and earnings per share after the costs associated with the
refinancing were $10.6 million and $0.26 per share, respectively.
The following table sets forth, for the second quarter ended June 30, 1998
and 1997, certain information relating to the operations of the Company,
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 78.1 78.4
-------------------------------------------------------------
Gross profit 21.9 21.6
Selling, general and administrative expenses 12.3 12.9
-------------------------------------------------------------
Operating profit 9.6 8.7
Interest expense and amortization of debt
issuance costs 2.4 2.9
Refinancing costs 2.3 -
-------------------------------------------------------------
Net income 4.9 5.8
=============================================================
</TABLE>
NET SALES
In the second quarter of 1998, net sales were $218.5 million compared with
$177.6 million for the corresponding quarter of 1997, an increase of $40.9
million or 23.0%. In 1997, the Company sold its distribution outlets in the
U.S. southeast and midwest. Excluding sales from these divested operations
and the 1998 acquisitions of United Electric Company ("United Electric"), a
-12-
<PAGE>
company engaged principally in the manufacture of components for HVAC systems,
and A-1 Components, the Company's net sales increased by $38.4 million or
22.5%, to $209.1 million in 1998 compared to $170.7 million in 1997. The
increase in net sales for the second quarter was attributed to all business
segments of the Company, with the Company's largest business group,
residential products, accounting for approximately $22.3 million of the sales
increase due to higher temperatures across many portions of the United States
beginning in late May.
GROSS PROFIT
For the three months ended June 30, 1998, gross profit was $47.8 million or
21.9% of net sales, compared with $38.4 million or 21.6% in the same period
of 1997, an increase of $9.4 million or 24.5%. The increase in gross profit
percentage was primarily due to continuous cost savings and manufacturing
efficiencies achieved at the Lewisburg, Tennessee manufacturing facility,
partially offset by product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses amounted to $26.9
million in the second quarter of 1998 or 12.3% of net sales, compared with
$22.9 million or 12.9% for the same period in 1997, an increase of $4.0
million or 17.5%. Higher SG&A expenses associated with the acquisitions of
United Electric and A-1 Components in 1998 coupled with 1997 acquisitions
of distribution companies in western Canada and Spain and new parts outlets
in Latin America were partially offset by cost savings from the sale of the
Company's non-core distribution businesses in 1997.
OPERATING PROFIT
Operating profit was $20.9 million or 9.6% of net sales for the three months
ended June 30, 1998, compared with $15.5 million or 8.7% in the corresponding
period in 1997, an increase of $5.4 million, or 34.8%. EBITDA (earnings
before interest, taxes, depreciation and amortization) was $24.9 million for
the second quarter of 1998 compared with $19.5 million in the similar three
month period in 1997.
FINANCIAL EXPENSES
Excluding the refinancing costs in 1998, financial expenses were $5.3 million
for the second quarter of 1998 or 2.4% of net sales, compared with $5.2
million or 2.9% in the corresponding period in 1997. The refinancing costs
of $5.0 million in 1998 include an early prepayment premium of $2.3 million
on the refinanced debt and the write-off of unamortized debt issuance costs
associated with the old senior notes.
INCOME TAXES
The Company is currently not recording income taxes as a result of
accumulated tax losses from prior years. However, the Company anticipates
that its U.S. operations will record a tax provision in or around the beginning
of 1999.
-13-
<PAGE>
NET INCOME
For the second quarter ended June 30, 1998, net income was $10.6 million or
$0.26 per share, compared with $10.3 million or $0.26 per share, in the second
quarter in 1997. Income before refinancing costs was $15.6 million or $0.39
per share, an increase of $5.3 million, or 51.5%, compared to the same period
in 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
For the six months ended June 30, 1998, income before refinancing costs was
$19.1 million or $0.48 per share, compared with $11.7 million or $0.30 per
share for the corresponding period in 1997. After the refinancing costs, net
income and earnings per share were $14.1 million and $0.35 per share,
respectively.
The following table sets forth, for the six months ended June 30, 1998 and
1997, certain information relating to the operations of the Company, expressed
as a percentage of net sales.
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 78.3 78.9
-------------------------------------------------------------
Gross profit 21.7 21.1
Selling, general and administrative expenses 13.4 14.1
-------------------------------------------------------------
Operating profit 8.3 7.0
Interest expense and amortization of debt
issuance costs 2.9 3.3
Refinancing costs 1.4 -
-------------------------------------------------------------
Net income 4.0 3.7
=============================================================
</TABLE>
NET SALES
For the six months ended June 30, 1998, net sales were $351.3 million
compared with $314.2 million for the corresponding quarter of 1997, an
increase of $37.1 million or 11.8%. Excluding sales from the divested
operations and the acquisitions of United Electric and A-1 Components
in 1998, the Company's net sales increased by $41.0 million or 13.8%, to
$337.7 million in 1998 compared to $296.7 million in 1997. The increase
in net sales for the first half of 1998 compared to 1997 were attributed
to all business segments of the Company, with the international group and
residential products contributing $19.3 million and $12.1, respectively, of
incremental sales.
-14-
<PAGE>
GROSS PROFIT
For the six months ended June 30, 1998, gross profit was $76.3 million or
21.7% of net sales, compared with $66.3 million or 21.1% in the same period
of 1997, an increase of $10.0 million or 15.1%. The increase in gross
profit percentage was primarily due to continuous cost savings and
manufacturing efficiencies achieved at the Lewisburg plant, partially
offset by product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses amounted to $47.1 million in the first half of 1998 or 13.4% of
net sales, compared with $44.4 million or 14.1% for the same period in 1997,
an increase of $2.7 million or 6.1%. Higher SG&A expenses associated with
the acquisitions of United Electric and A-1 Components in 1998 coupled with
1997 acquisitions of distribution companies in western Canada and Spain and
new parts outlets in Latin America were partially offset by cost savings from
the sale of the Company's non-core distribution businesses in 1997.
OPERATING PROFIT
Operating profit was $29.2 million or 8.3% of net sales for the six months
ended June 30, 1998, compared with $21.9 million or 7.0% in the corresponding
period in 1997, an increase of $7.3 million, or 33.3%. EBITDA was $37.3
million for the first half of 1998 compared with $29.8 million in the same
prior year period.
FINANCIAL EXPENSES
Excluding refinancing costs in 1998, financial expenses were $10.1 million for
the first half of 1998 or 2.9% of net sales, compared with $10.2 million or
3.3% in the corresponding period in 1997. The refinancing costs of $5.0
million in 1998 include an early prepayment premium of $2.3 million on the
refinanced debt and the write-off of unamortized debt issuance costs
associated with the old senior notes.
INCOME TAXES
The Company is currently not recording income taxes as a result of accumulated
tax losses from prior years. However, the Company anticipates that its U.S.
operations will record a tax provision in or around the beginning of 1999.
NET INCOME
For the six months ended June 30, 1998, net income was $14.1 million or $0.35
per share, compared with $11.7 million or $0.30 per share, in the
corresponding period in 1997. Income before refinancing costs was $19.1
million or $0.48 per share, an increase of $7.4 million or 63.2%, compared to
the corresponding period in 1997.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company uses cash from operations and from financing activities to fund
its working capital needs, fund its capital expenditures and make payments on
outstanding indebtedness.
For the six months ended June 30, 1998, free cash flow (cash from operations
adjusted for cash received from or utilized in investing activities) was
negative $34.5 million compared to negative $19.6 million for the same
period in 1997, a decrease of $14.9 million. In 1998, investing activities
included the acquisition of United Electric for $25.6 million, whereas in the
corresponding period in 1997, investing activities included the proceeds from
sales of Coastline Distribution Inc. and four factory branches totaling $23.1
million. Excluding the acquisition and divestiture, free cash flow was $33.8
million higher in 1998 compared to 1997. As of June 30, 1998, working
capital was $139.8 million compared to $126.3 million a year earlier.
The Company has various credit facilities available to assist it in meeting
its liquidity requirements. These facilities consist of revolving lines of
credit and an accounts receivable securitization. At June 30, 1998, total
commitments under the lines of credit and securitization totaled $105.4
million, of which $42.5 million was outstanding. On May 13, 1998, the
Company completed an institutional private placement of $150 million
aggregate principal amount of 8.625% Senior Notes due 2008, the proceeds
of which were used to redeem the Company's 9.75% senior secured notes. In
addition, a $25 million term bank loan is outstanding which is used
in the long-term financing of the Company. At June 30, 1998, the
outstanding balance under Long-Term Debt (including the current portion)
is $175.6 million.
INTERCOMPANY DIVIDEND RESTRICTION
The Company has no substantial operations of its own and accordingly has no
independent means of generating revenue. As a holding company, the Company's
internal sources of funds to meet its cash needs, including payment of
expenses, are dividends and other permitted payments from its direct and
indirect subsidiaries. Certain of the Company's lending arrangements impose
upon subsidiaries of ICP Holdings financial and operating covenants,
including, among others, requirements that subsidiaries of ICP Holdings
maintain certain financial ratios and satisfy certain financial tests,
limitations on capital expenditures and restrictions on the ability of
such subsidiaries to incur debt, pay dividends or take certain other
corporate actions. Pursuant to the terms of the most restrictive covenant
regarding restricted payments by such subsidiaries, as of June 30, 1998,
$110 million of net assets of subsidiaries of ICP Holdings were not
available for payment of dividends to ICP Holdings. Accordingly,
management does not believe that these restrictions presently impair the
Company's ability to conduct its business through its subsidiaries or to
pursue its development plans.
-16-
<PAGE>
YEAR 200 COMPLIANCE
The Company is completing the installation of new information management
systems in 1998 that are year 2000 compliant. The systems have been
customized to embrace all aspects of the Company's operations from ordering
raw materials to production of finished products, as well as for financial
analysis and disclosure and general management purposes. A management
committee is responsible for ensuring that all interfacing systems of
suppliers and customers will be year 2000 compliant.
The foregoing discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. The forward-looking statements included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") relating to certain matters involve risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar matters, which reflect management's
best judgment based on factors currently known. Actual results and
experience could differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements as a
result of a number of factors, including but not limited to those discussed
in MD&A. Factors that might affect such forward-looking statements include,
among other things, overall economic and business conditions, the demand for
the Company's products, competitive factors in the industry, regulatory
approvals and uncertainty of consummation of future acquisitions.
Forward-looking information provided by the Company pursuant to the safe
harbor established under the Private Securities Litigation Reform Act of 1995
should be evaluated in the context of these factors. In addition, the
Company disclaims any intent or obligation to update these forward-looking
statements.
-17-
<PAGE>
PART II- OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 13, 1998, the Company completed an institutional private
placement of $150 million in principal amount of senior unsecured notes (the
"Notes") through its subsidiary, International Comfort Products Holdings,
Inc. The Notes bear an interest rate of 8.625% and mature on May 15, 2008.
After issuance of the Notes, the Company thereafter redeemed its then
outstanding 9.75% senior secured notes due 2000. The indenture relating
to the Notes (the "Indenture") imposes certain limitations upon the ability
of the Company to pay dividends on or with respect to its ordinary shares
unless certain indebtedness or income levels are met. As of June 30, 1998,
the Company, within the restrictions of the Indenture, could have declared
approximately $11.4 million in dividends on its ordinary shares. See Section
4.04 of the Indenture, a copy of which is incorporated by reference as Exhibit
4.3/10.1 to this Quarterly Report on Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual and special meeting of the Company (the "Annual
Meeting") was held on May 13, 1998. At that time, there were present, in
person or by proxy, 32,520,529 of the Company's ordinary shares.
(b) At the Annual Meeting, one item that was submitted to a vote of
shareholders was the election of directors. Proxies for the Annual Meeting
were solicited pursuant to Regulation 14A under the Securities Exchange Act
of 1934. There was no solicitation in opposition to management's nominees
for director as listed in the proxy statement sent in connection with the
Annual Meeting and all such nominees were elected.
(c) In addition to the election of directors, there were submitted
to a vote of the shareholders: (1) a proposal to reappoint Arthur Andersen &
Co. as auditors of the Company; and (2) a proposal to approve the Company's
1998 Stock Option Plan. The results of the voting on each of these matters
are as follows:
-18-
<PAGE>
Election of Directors:
- ----------------------
<TABLE>
<CAPTION>
Authority Broker
Nominee Votes For Withheld Non-votes
- ---------------------- ------------ ----------- ----------
<S> <C> <C> <C>
Richard C. Barnett 24,614,177 35,664 7,052
Stanley M. Beck 24,619,716 30,125 7,052
W. Michael Clevy 24,628,250 21,591 7,052
William G. Davis 24,623,613 26,228 7,052
John F. Fraser 24,626,513 23,328 7,052
Roy T. Graydon 24,629,011 20,830 7,052
Marvin G. Marshall 24,628,310 21,531 7,052
Ernest C. Mercier 24,629,000 20,841 7,052
David H. Morris 24,628,953 20,888 7,052
David A. Rattee 24,629,178 20,663 7,052
Richard W. Snyder 24,622,074 27,767 7,052
William A. Wilson 24,629,250 20,591 7,052
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Proposal Votes For Withheld Abstentions Non-votes
- --------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reappointment of
Arthur Andersen & Co. 24,609,604 14,739 --- ---
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Proposal Votes For Against Abstentions Non-votes
- --------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Adoption of 1998
Stock Option Plan 23,238,141 399,484 816,789 182,597
</TABLE>
ITEM 5. OTHER INFORMATION.
As stated in Part II, Item 2 of this Report, on May 13, 1998, the
Company completed an institutional private placement of $150 million in
principal amount of Notes through its subsidiary, International Comfort
Products Holdings, Inc. The Notes bear an interest rate of 8.625% and
mature on May 15, 2008. After issuance of the Notes, the Company thereafter
redeemed its then outstanding 9.75% senior secured notes due 2000. A copy
of the Indenture is incorporated by reference as Exhibit 4.3/10.1 to this
Quarterly Report on Form 10-Q.
-19-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) In accordance with the provisions of Item 601 of Regulation
S-K, the following have been furnished as Exhibits to this Quarterly
Report on Form 10-Q:
Exhibit No. Description
----------- ------------
3(i), 4.1 Articles of Incorporation of International Comfort
Products Corporation filed as Exhibit 3(i)/4.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the
Commission on November 14, 1997, and incorporated herein
by this reference.
3(ii), 4.2 Bylaws of International Comfort Products Corporation
filed as Exhibit 1.2 to the Company's Annual Report on
Form 20-F for the year ended December 31, 1993 filed
with the Commission on June 29, 1994, and incorporated
herein by this reference.
4.3, 10.1 Indenture, dated as of May 13, 1998, by and among
International Comfort Products Holdings, Inc.,
International Comfort Products Corporation and United
States Trust Company of New York, as Trustee relating to
the Series A and Series B 8-5/8% senior notes due 2008,
filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-4 (File No. 333-58837) filed with the
Commission on July 10, 1998 and incorporated herein by this
reference.
4.4, 10.2 Purchase Agreement, dated May 8, 1998, by and among
International Comfort Products Holdings, Inc., International
Comfort Products Corporation, Salomon Brothers Inc, Credit
Suisse First Boston Corporation and First Union Capital
Markets, a division of Wheat First Securities, Inc. filed
as Exhibit 4.6 to the Company's Registration Statement on
Form S-4 (File No. 333-58837) filed with the Commission on
July 10, 1998 and incorporated herein by this reference.
4.5, 10.3 Registration Rights Agreement, dated as of May 13, 1998,
by and among International Comfort Products Holdings, Inc.,
International Comfort Products Corporation, Salomon
Brothers Inc, Credit Suisse First Boston Corporation and
First Union Capital Markets, a division of Wheat First
Securities, Inc. filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (File No. 333-58837)
filed with the Commission on July 10, 1998 and incorporated
herein by this reference.
-20-
<PAGE>
4.6 Master Trust Pooling and Service Agreement, dated as of
July 25, 1996 among Inter-City Products Receivables
Company, L.P.("ICP-Receivables"), International Comfort
Products Corporation (USA) ("ICP-USA") and LaSalle
National Bank, as Trustee filed as Exhibit 4.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 filed with the Commission on
November 14, 1997, and incorporated herein by this
reference.
4.7 Series 1996-1 Supplement to Master Trust Pooling and
Service Agreement, dated as of July 25, 1996 among
ICP-Receivables, ICP-USA and LaSalle National Bank, as
Trustee (and correlative form of Class A (Series 1996-1)
Certificate and form of Class B (Series 1996-1)
Certificate, and form of Guaranty from ICP-USA filed as
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 filed with the
Commission on November 14, 1997, and incorporated herein
by this reference.
4.8 Receivables Purchase Agreement dated as of July 25, 1996
among ICP-USA, Inter-City Products Partner Corporation
("ICP-Partner") and ICP-Receivables filed as Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the Commission
on November 14, 1997, and incorporated herein by this
reference.
4.9 Certificate Purchase Agreement (Series 1996-1, Class A)
dated as of July 25, 1996 among ICP-Receivables, ICP-USA,
the Purchasers named therein and The Chicago Corporation,
as Agent filed as Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997 filed with the Commission on November 14, 1997, and
incorporated herein by this reference.
4.10 Certificate Purchase Agreement (Series 1996-1, Class B)
dated as of July 25, 1996 among ICP-Receivables, ICP-USA
and Argos Funding Corp. filed as Exhibit 4.8 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 filed with the Commission on
November 14, 1997, and incorporated herein by this
reference.
4.11 First Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of December 1, 1996 among
ICP-Receivables, ICP-USA, the Purchasers named therein and
The Chicago Corporation, as Agent filed as Exhibit 4.9 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 filed with the Commission on
November 14, 1997, and incorporated herein by this
reference.
-21-
<PAGE>
4.12 First Amendment to Receivables Purchase Agreement and
Second Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of January 27, 1997 among
ICP-USA, ICP-Partner, General Heating and Cooling Company,
Coastline Distribution, Inc., ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 4.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 filed with
the Commission on November 14, 1997, and incorporated
herein by this reference.
4.13 Second Amendment to Receivables Purchase Agreement as of
September 30, 1997 among ICP-USA, ICP-Partner, General
Heating and Cooling Company, ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 4.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 filed with
the Commission on November 14, 1997, and incorporated
herein by this reference.
10.1 International Comfort Products Corporation 1998 Stock
Option Plan, filed as Exhibit 10.30 to the Company's
Registration Statement on Form S-4 (File No. 333-58837)
filed with the Commission on July 10, 1998 and
incorporated herein by this reference.
27 Financial Data Schedule.
(b) During the quarter ended March 31, 1998, there were no
Current Reports on Form 8-K filed by the Company.
-22-
<PAGE>
SIGNATURE
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 both on
behalf of the registrant and in his capacity as principal financial
officer of the registrant.
Date: August 14, 1998 INTERNATIONAL COMFORT PRODUCTS CORPORATION
By:/s/ S. Clanton
---------------------------
Stephen L. Clanton
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
-23-
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page Number
- ---------- ---------------------------------- -----------
3(i), 4.1 Articles of Incorporation of International Comfort
Products Corporation filed as Exhibit 3(i)/4.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the
Commission on November 14, 1997, and incorporated herein
by this reference
3(ii), 4.2 Bylaws of International Comfort Products Corporation
filed as Exhibit 1.2 to the Company's Annual Report on
Form 20-F for the year ended December 31, 1993 filed
with the Commission on June 29, 1994, and incorporated
herein by this reference
4.3, 10.1 Indenture, dated as of May 13, 1998, by and among
International Comfort Products Holdings, Inc.,
International Comfort Products Corporation and United
States Trust Company of New York, as Trustee relating to
the Series A and Series B 8-5/8% senior notes due 2008,
filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-4 (File No. 333-58837) filed with the
Commission on July 10, 1998 and incorporated herein by this
reference.
4.4, 10.2 Purchase Agreement, dated May 8, 1998, by and among
International Comfort Products Holdings, Inc., International
Comfort Products Corporation, Salomon Brothers Inc, Credit
Suisse First Boston Corporation and First Union Capital
Markets, a division of Wheat First Securities, Inc. filed
as Exhibit 4.6 to the Company's Registration Statement on
Form S-4 (File No. 333-58837) filed with the Commission on
July 10, 1998 and incorporated herein by this reference.
4.5, 10.3 Registration Rights Agreement, dated as of May 13, 1998,
by and among International Comfort Products Holdings, Inc.,
International Comfort Products Corporation, Salomon
Brothers Inc, Credit Suisse First Boston Corporation and
First Union Capital Markets, a division of Wheat First
Securities, Inc. filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (File No. 333-58837)
filed with the Commission on July 10, 1998 and incorporated
herein by this reference.
<PAGE>
Sequential
Exhibit No. Description Page Number
- ---------- ---------------------------------- -----------
4.6 Master Trust Pooling and Service Agreement, dated as of
July 25, 1996 among Inter-City Products Receivables
Company, L.P.("ICP-Receivables"), International Comfort
Products Corporation (USA) ("ICP-USA") and LaSalle
National Bank, as Trustee filed as Exhibit 4.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 filed with the Commission on
November 14, 1997, and incorporated herein by this
reference
4.7 Series 1996-1 Supplement to Master Trust Pooling and
Service Agreement, dated as of July 25, 1996 among
ICP-Receivables, ICP-USA and LaSalle National Bank, as
Trustee (and correlative form of Class A (Series 1996-1)
Certificate and form of Class B (Series 1996-1)
Certificate, and form of Guaranty from ICP-USA filed as
Exhibit 4.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 filed
with the Commission on November 14, 1997, and incorporated
herein by this reference
4.8 Receivables Purchase Agreement dated as of July 25, 1996
among ICP-USA, Inter-City Products Partner Corporation
("ICP-Partner") and ICP-Receivables filed as Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the Commission
on November 14, 1997, and incorporated herein by this
reference
4.9 Certificate Purchase Agreement (Series 1996-1, Class A)
dated as of July 25, 1996 among ICP-Receivables, ICP-USA,
the Purchasers named therein and The Chicago Corporation,
as Agent filed as Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997 filed with the Commission on November 14, 1997, and
incorporated herein by this reference
4.10 Certificate Purchase Agreement (Series 1996-1, Class B)
dated as of July 25, 1996 among ICP-Receivables, ICP-USA
and Argos Funding Corp. filed as Exhibit 4.8 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 filed with the Commission on
November 14, 1997, and incorporated herein by this
reference
4.11 First Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of December 1, 1996 among
ICP-Receivables, ICP-USA, the Purchasers named therein
and The Chicago Corporation, as Agent filed as Exhibit 4.9
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the Commission
on November 14, 1997, and incorporated herein by this
reference
<PAGE>
Sequential
Exhibit No. Description Page Number
- ---------- ---------------------------------- -----------
4.12 First Amendment to Receivables Purchase Agreement and
Second Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of January 27, 1997 among
ICP-USA, ICP-Partner, General Heating and Cooling Company,
Coastline Distribution, Inc., ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 4.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 filed with
the Commission on November 14, 1997, and incorporated
herein by this reference
4.13 Second Amendment to Receivables Purchase Agreement as of
September 30, 1997 among ICP-USA, ICP-Partner, General
Heating and Cooling Company, ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 4.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 filed with
the Commission on November 14, 1997, and incorporated
herein by this reference
10.1 International Comfort Products Corporation 1998 Stock
Option Plan, filed as Exhibit 10.30 to the Company's
Registration Statement on Form S-4 (File No. 333-58837)
filed with the Commission on July 10, 1998 and
incorporated herein by this reference.
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL
STATEMENTS OF INTERNATIONAL
COMFORT PRODUCTS CORPORATION
FOR THE PERIOD ENDED JUNE 30,
1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 21,100
<SECURITIES> 0
<RECEIVABLES> 140,500
<ALLOWANCES> 0
<INVENTORY> 116,600
<CURRENT-ASSETS> 284,700
<PP&E> 228,700
<DEPRECIATION> 127,700
<TOTAL-ASSETS> 430,800
<CURRENT-LIABILITIES> 144,900
<BONDS> 175,400
<COMMON> 186,100
0
0
<OTHER-SE> (106,200)
<TOTAL-LIABILITY-AND-EQUITY> 430,800
<SALES> 0
<TOTAL-REVENUES> 351,300
<CGS> 275,000
<TOTAL-COSTS> 47,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,100
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
