<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 1-10863
YORK INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3473472
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
631 SOUTH RICHLAND AVENUE, YORK, PA 17403
(717) 771-7890
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
----- --------------------------------
Common Stock, par value $.005 38,971,157 shares
<PAGE>
-2-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Operations - (Unaudited)
Three Months and Nine Months Ended September 30, 1999 and 1998 3
Consolidated Condensed Balance Sheets -
September 30, 1999 (Unaudited) and December 31, 1998 4
Consolidated Condensed Statements of Cash Flows - (Unaudited)
Nine Months Ended September 30, 1999 and 1998 5
Supplemental Notes to Consolidated Condensed
Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE>
-3-
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Operations (Unaudited)
- -----------------------------------------------------------
(thousands except per share data)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 970,360 $ 810,355 $ 2,765,181 $ 2,440,824
Cost of goods sold 781,288 626,574 2,179,113 1,905,172
----------- ----------- ----------- -----------
Gross profit 189,072 183,781 586,068 535,652
Selling, general and administrative expenses 148,661 121,864 425,419 364,885
Acquisition, integration, restructuring
and other charges 22,159 -- 35,117 --
----------- ----------- ----------- -----------
Income from operations 18,252 61,917 125,532 170,767
Gain on sale of business 9,627 -- 9,627 --
Interest expense, net 19,063 10,069 41,735 31,768
Equity in earnings of affiliates 1,132 974 4,174 143
----------- ----------- ----------- -----------
Income before income taxes 9,948 52,822 97,598 139,142
Provision for income taxes 6,172 5,568 35,096 34,917
----------- ----------- ----------- -----------
Income before cumulative effect
of accounting change 3,776 47,254 62,502 104,225
Cumulative effect of accounting change:
Write-off of start-up activities (net of
$442 income tax benefit) -- -- 897 --
----------- ----------- ----------- -----------
Net income $ 3,776 $ 47,254 $ 61,605 $ 104,225
=========== =========== =========== ===========
Basic earnings per share:
Income before cumulative effect
of accounting change $ 0.09 $ 1.17 $ 1.57 $ 2.57
Accounting change -- -- (0.02) --
----------- ----------- ----------- -----------
Net income $ 0.09 $ 1.17 $ 1.55 $ 2.57
=========== =========== =========== ===========
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 0.09 $ 1.16 $ 1.56 $ 2.55
Accounting change -- -- (0.02) --
----------- ----------- ----------- -----------
Net income $ 0.09 $ 1.16 $ 1.54 $ 2.55
=========== =========== =========== ===========
Cash dividends per share $ 0.15 $ 0.12 $ 0.45 $ 0.36
=========== =========== =========== ===========
Weighted average common shares and common
equivalents outstanding:
Basic 39,893 40,548 39,853 40,534
Diluted 40,275 40,738 40,103 40,801
See accompanying supplemental notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-4-
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Condensed Balance Sheets
- -------------------------------------
(thousands of dollars)
Sept. 30, 1999 December 31,
(Unaudited) 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 34,383 $ 22,746
Receivables 690,458 632,768
Inventories:
Raw materials 207,421 177,960
Work in process 136,720 92,712
Finished goods 299,911 266,182
---------- ----------
Total inventories 644,052 536,854
Prepayments and other current assets 104,880 118,165
---------- ----------
Total current assets 1,473,773 1,310,533
Deferred income taxes 6,939 30,805
Unallocated excess of cost
over net assets acquired 770,986 337,353
Investments in affiliates 25,813 20,092
Property, plant and equipment, net 538,726 374,731
Deferred charges and other assets 82,801 33,024
---------- ----------
Total assets $2,899,038 $2,106,538
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion
of long-term debt $ 116,246 $ 52,583
Accounts payable and accrued expenses 822,069 670,797
Income taxes 30,322 66,099
---------- ----------
Total current liabilities 968,637 789,479
Warranties 38,862 36,488
Long-term debt 920,996 362,724
Postretirement benefit liabilities 151,431 140,152
Other long-term liabilities 49,878 46,896
---------- ----------
Total liabilities 2,129,804 1,375,739
Stockholders' equity 769,234 730,799
---------- ----------
Total liabilities and stockholders' equity $2,899,038 $2,106,538
========== ==========
See accompanying supplemental notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-5-
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Cash Flows (Unaudited)
- -----------------------------------------------------------
(thousands of dollars)
Nine Months Ended Sept. 30,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 61,605 $ 104,225
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant & equipment 46,883 43,588
Amortization of goodwill and deferred charges 15,652 12,010
Provision for doubtful accounts receivable 7,862 5,364
Cumulative effect of accounting change 897 --
Gain on sale of business (9,627) --
Effect of non-cash charges 38,503 --
Other 789 3,518
Change in assets and liabilities net of effects from purchase
of other companies and sale of business:
Receivables 2,517 (77,749)
Inventories (33,336) (31,334)
Prepayments and other current assets 21,969 21,618
Deferred income taxes (6,808) (927)
Other assets (15,254) (10,611)
Accounts payable and accrued expenses (88,975) 62,929
Income taxes (40,099) 34,878
Long-term warranties 2,501 7,489
Postretirement benefit liabilities 5,162 3,322
Other long-term liabilities 3,309 (7,890)
--------- ---------
Net cash provided by operating activities 13,550 170,430
--------- ---------
Cash flows from investing activities:
Purchases of and investments in other
companies (net of cash acquired) (405,226) (6,550)
Proceeds from sale of business (net of cash disposed) 35,512 --
Capital expenditures (70,924) (34,721)
Other 393 150
--------- ---------
Net cash used by investing activities (440,245) (41,121)
--------- ---------
Cash flows from financing activities:
Common stock issued 7,873 10,045
Treasury stock purchases (7,610) (23,007)
Long term debt payments (5,091) (122,610)
Proceeds from issuance of senior notes -- 198,310
Net payments on short term debt (24,106) (9,551)
Net (payments on)/proceeds from issuance
of commercial paper 435,113 (167,782)
Proceeds from sale of accounts receivable 50,000 --
Dividends paid (17,956) (14,627)
--------- ---------
Net cash provided/(used) by financing activities 438,223 (129,222)
--------- ---------
Effect of exchange rate changes on cash 109 97
--------- ---------
Net increase in cash and cash equivalents 11,637 184
Cash and cash equivalents at beginning of period 22,746 12,228
--------- ---------
Cash and cash equivalents at end of period $ 34,383 $ 12,412
========= =========
See accompanying supplemental notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-6-
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(1) The consolidated condensed financial statements included herein have
been prepared by the registrant pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to applicable rules and regulations,
although the registrant believes that the disclosures herein are
adequate to make the information presented not misleading. In the
opinion of the Company, the accompanying consolidated condensed
financial statements contain all adjustments necessary to present
fairly the financial position as of September 30, 1999 and December 31,
1998, the results of operations for the three and nine month periods
ended September 30, 1999 and 1998, and cash flows for the nine months
ended September 30, 1999 and 1998. The results of operations for
interim periods are not necessarily indicative of the results expected
for the full year.
(2) The following tables summarize the capitalization of the Company at
September 30, 1999 and at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1999 December 31, 1998
------------------------ ------------------------
Current Long Term Current Long Term
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Indebtedness:
Bank loans $ 63,359 $ -- $ 51,011 $ --
Commercial paper, 6.10% interest -- 435,113 -- --
Bank lines at an average rate of 5.56%
in 1999 and 5.61% in 1998 9,615 64,887 -- 41,003
Senior notes, 6.70% interest, due June 2008 -- 200,000 -- 200,000
Senior notes, 6.75% interest, due March 2003 -- 100,000 -- 100,000
Term loans, 4.05% interest, due July 2004 14,755 59,019 -- --
Other, primarily foreign term debt 28,517 61,977 1,572 21,721
-------- -------- -------- --------
Total notes payable and long-term debt $116,246 $920,996 $ 52,583 $362,724
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Stockholders' equity:
Common Stock $.005 par value;
200,000 shares authorized;
issued 44,856 shares at September 30, 1999
and 44,616 shares at December 31, 1998 $ 224 $ 223
Additional paid in capital 710,412 700,959
Retained earnings 334,114 290,465
Accumulated other comprehensive losses (67,339) (58,209)
Treasury stock, 4,826 shares at September 30, 1999
and 4,621 shares at December 31, 1998, at cost (206,647) (199,037)
Unearned compensation (1,530) (3,602)
--------- ---------
Total stockholders' equity $ 769,234 $ 730,799
========= =========
</TABLE>
(Continued)
<PAGE>
-7-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(Cont'd)
During the second quarter of 1999, the Company established a $400
million 364-day Revolving Credit Agreement (the Revolver) and amended
the $500 million Amended Credit Agreement (the Credit Agreement)
expiring on July 31, 2002. The Revolver and the Credit Agreement
amendment were effective on June 3, 1999 and provide for borrowings
under the facility at LIBOR plus 0.45%. If borrowings greater than 33%
of either facility are utilized, the rate increases to LIBOR plus
0.55%. The Company pays a fee of 0.10% for each facility and the Credit
Agreement allows for borrowings at specified bid rates. At September
30, 1999 and December 31, 1998, the LIBOR rate was 6.13% and 5.06%,
respectively. The Revolver and the Credit Agreement, as amended,
contain financial and operating covenants requiring the Company to
maintain certain financial ratios and standard provisions limiting
leverage, investments and liens. The Company was in compliance with
these financial and operating covenants at September 30, 1999 and
December 31, 1998. No amounts were outstanding under either of these
agreements.
The Company's non-U.S. subsidiaries maintain bank credit facilities in
various currencies that provide for borrowings of up to $405.1 million
and $269.6 million at September 30, 1999 and December 31, 1998,
respectively, of which $317.1 million and $202.9 million, respectively,
were unused at September 30, 1999 and December 31, 1998. In some
instances, borrowings against these credit facilities have been
guaranteed by the Company to assure availability of funds at favorable
rates.
Commercial paper borrowings are expected to be reborrowed in the
ordinary course of business. Commercial paper borrowings were also the
primary source of funds used to finance the acquisition of Sabroe A/S.
The interest rate on the commercial paper was 6.10% as of September 30,
1999.
During the second quarter of 1997, the Company arranged four separate
unsecured bank lines similar to commercial paper. These bank lines
provide for total borrowings of up to $320 million which are expected
to be reborrowed in the ordinary course of business. At September 30,
1999 and December 31, 1998, the Company had $74.5 million and $41.0
million, respectively, outstanding under these bank lines.
The Company also maintains a $73.8 million Danish Kroner term loan, at
a 4.05% fixed rate, that is repayable in semi-annual payments of $7.3
million with a final maturity of July 2004. The Company's non-U.S.
subsidiaries maintain other term debt of $65.9 million at various
interest rates.
The Company established a receivables sales agreement in 1992. Under an
Amended and Restated Receivables Sales Agreement entered into on
September 28, 1999, the maximum amount of the purchasers' investment
increased from $120 million to $150 million and is subject to decrease
based on the level of eligible accounts receivable and restrictions on
concentrations of receivables. The balance of the sold accounts
receivable was $150 million and $100 million at September 30, 1999, and
December 31, 1998, respectively. The sold accounts receivable are
reflected as a reduction of receivables in the accompanying
consolidated balance sheets. The discount rate on the receivables sold
was approximately 5.58% and 5.30% at September 30, 1999 and December
31, 1998, respectively.
In February 1999, the Board of Directors authorized the Company to
purchase an additional 2.5 million shares of its Common Stock over the
four subsequent years which can be used to fund the Company's Employee
Stock Purchase Plan and the Amended and Restated 1992 Omnibus Stock
Plan. The stock purchases are made from time to time on the open
market. Under the program, 150,000 shares were repurchased on the open
market during the first three quarters of 1999 and 1.1 million in the
full year of 1998. In addition, during October 1999, the Company
repurchased 1.1 million shares for approximately $27.1 million.
(3) On February 2, 1998, the Company incurred damage to its Grantley
manufacturing facility in York, PA, when tanks used for testing
ruptured. The accident caused substantial damage to facilities used in
steel cutting and rolling operations and heat exchanger production. The
Company took a number of measures to limit the disruptions and costs
resulting from the accident, including moving production to other
Company facilities, outsourcing or subcontracting production of certain
components, and establishing temporary production elsewhere at the
Grantley location. The Company's rebuilding operations were
substantially completed during the second quarter of 1999, fully
restoring its production capacity.
(Continued)
<PAGE>
-8-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(Cont'd)
The Company maintains insurance for both property damage and business
interruption applicable to its production facilities, including
Grantley. The applicable coverage provides for deductibles of $25,000
for property damage and $25,000 for business interruption.
Pursuant to generally accepted accounting principles, the costs of
reconstructing and replacing property damaged or destroyed in the
accident are recorded in the applicable property accounts, and the
difference between the net book value of the assets damaged or
destroyed and the related insurance recovery will be included in profit
and loss upon settlement. During the first three quarters of 1999 and
the full year of 1998, the Company recorded credits to cost of goods
sold of $6.0 million and $25.5 million, respectively, reflecting
insurance coverage for certain incremental expenses and losses included
in cost of goods sold as a result of the accident. These amounts
represent only a portion of the Company's estimate of the total costs
and expenses resulting from the accident which have been included in
the Company's claim under business interruption coverage.
During the first three quarters of 1999 and the full year of 1998, the
Company received advanced payments of $3.9 million and $19.4 million,
respectively, from the insurance company representing partial payments
under the property damage coverage. During the first three quarters of
1999 and the full year of 1998, the Company received advanced payments
of $20.0 million and $10.0 million, respectively, from the insurance
company representing partial payments under the business interruption
coverage. Additionally, on November 9, 1999, the Company received an
additional property damage advance of $2.3 million and an additional
business interruption advance of $1.7 million. The Company and the
insurance company have settled on a portion of the claim under the
property damage coverage but have not agreed on any settlement under
the remaining property damage or business interruption coverage.
(4) The Company adopted Statement of Financial Accounting Standards No.130
"Reporting Comprehensive Income" in the first quarter of 1998.
Comprehensive income is determined as follows:
<TABLE>
<CAPTION>
Comprehensive Income (in thousands)
-----------------------------------
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 3,776 $ 47,254 $ 61,605 $104,225
Other comprehensive (gains) / loss:
Foreign currency translation adjustment (482) 2,136 9,130 10,818
-------- -------- -------- --------
Comprehensive income $ 4,258 $ 45,118 $ 52,475 $ 93,407
======== ======== ======== ========
</TABLE>
(5) The Company's basic earnings per share are based upon the weighted
average common shares outstanding during the period. The Company's
diluted earnings per share are based upon the weighted average
outstanding common shares and common share equivalents.
(6) Net income as set forth in the statements of operations is used in the
computation of basic and diluted earnings per share information.
Reconciliations of shares used in the computations of earnings per
share are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used in the computation
of basic earnings per share 39,893 40,548 39,853 40,534
Effect of dilutive securities:
Non-vested restricted shares 77 164 77 164
Stock options 305 26 173 103
------ ------ ------ ------
Weighted average common shares
and equivalents used in the computation
of diluted earnings per share 40,275 40,738 40,103 40,801
====== ====== ====== ======
</TABLE>
(Continued)
<PAGE>
-9-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(Cont'd)
(7) The Company adopted Statement of Financial Accounting Standards No.131
"Disclosure about Segments of an Enterprise and Related Information" in
the fourth quarter of 1998. The table below represents the Company's
operating results by segment:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
Unitary Products Group $ 357,998 $ 361,685 $ 1,195,914 $ 1,153,228
Engineered Systems Group 358,262 345,486 1,059,530 1,007,624
Refrigeration Products Group 267,237 113,840 545,305 312,764
Eliminations (13,137) (10,656) (35,568) (32,792)
----------- ----------- ----------- -----------
$ 970,360 $ 810,355 $ 2,765,181 $ 2,440,824
=========== =========== =========== ===========
Eliminations include the following
intersegment sales:
Unitary Products Group $ 4,062 $ 3,152 $ 10,818 $ 8,664
Engineered Systems Group 2,920 2,370 7,311 7,121
Refrigeration Products Group 6,155 5,134 17,439 17,007
----------- ----------- ----------- -----------
$ 13,137 $ 10,656 $ 35,568 $ 32,792
=========== =========== =========== ===========
Income from operations:
Unitary Products Group $ 34,175 $ 39,843 $ 129,807 $ 122,424
Engineered Systems Group 26,780 31,822 76,590 83,545
Refrigeration Products Group 15,391 6,234 27,619 16,606
Eliminations, general corporate expenses
and other non-allocated items (58,094) (15,982) (108,484) (51,808)
----------- ----------- ----------- -----------
18,252 61,917 125,532 170,767
Equity in (earnings) / losses of affiliates:
Unitary Products Group (686) (487) (2,587) 775
Engineered Systems Group (232) (487) (1,127) (918)
Refrigeration Products Group (214) -- (460) --
----------- ----------- ----------- -----------
(1,132) (974) (4,174) (143)
Interest expense, net 19,063 10,069 41,735 31,768
----------- ----------- ----------- -----------
Income before income taxes 9,948 52,822 97,598 139,142
Provision for income taxes 6,172 5,568 35,096 34,917
----------- ----------- ----------- -----------
Net income before cumulative effect
of accounting change $ 3,776 $ 47,254 $ 62,502 $ 104,225
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Total assets:
Unitary Products Group $ 771,962 $ 705,068
Engineered Systems Group 705,367 713,943
Refrigeration Products Group 671,633 272,039
Eliminations and other non-allocated assets 750,076 415,488
---------- ----------
$2,899,038 $2,106,538
========== ==========
</TABLE>
(8) In January 1999, the Company recorded a charge of $0.9 million, net of
$0.4 million in related income taxes, to write-off start-up activities
in accordance with AICPA Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities."
(Continued)
<PAGE>
-10-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(Cont'd)
(9) On June 10, 1999, the Company acquired all of the outstanding capital
stock of Sabroe A/S (Sabroe), a Danish company, for $407.1 million in
cash and assumed debt of $216.0 million. Sabroe is a world leader in
supplying refrigeration systems and products.
The Company is in process of executing the approved plan for
restructuring and integrating Sabroe into the York Refrigeration Group.
The plan included a restructuring charge expensed in the third quarter
of 1999. As Sabroe restructuring actions are implemented, the
allocation of the purchase price may change. In connection with the
acquisition, the following amounts were considered in the allocation of
the purchase price: acquisition expenses of $7.3 million; accruals of
$42.9 million for the anticipated closure of Sabroe facilities and
personnel rationalizations that are expected to be substantially
completed within the first year of operation; and deferred taxes of
$30.4 million.
The acquisition has been accounted for under the purchase method of
accounting and the Sabroe assets, liabilities and results of
operations, since acquisition, have been included in the consolidated
financial statements. The preliminary allocation of the purchase price
and other costs as discussed above resulted in the following components
of intangible assets, based on independent appraisals and other
information, and related straight-line amortization periods:
<TABLE>
<CAPTION>
Amount (thousands) Amortization period
------------------ -------------------
<S> <C> <C>
Unallocated excess of cost over
net assets acquired $437,469 30 years
Trademark and tradenames 35,480 30 years
Proprietary technology and patents 2,050 15 years
--------
Total intangibles $474,999
========
</TABLE>
Acquisition transaction and integration expenses of approximately $13.0
million were recorded in the second quarter primarily relating to the
cost and loss on an option to fix the price of the acquisition.
Integration expenses of $1.2 million were recorded in the third quarter
primarily relating to employee relocation, office integration
activities and product training.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Sabroe as if the acquisition
had occurred at the beginning of 1999 for 1999 information and at the
beginning of 1998 for 1998 information. The pro forma summary includes
adjustments for amortization expense as a result of unallocated excess
of cost over net assets acquired and other intangible assets as
presented above, interest expense on acquisition debt issued to finance
the purchase, adjusted depreciation expense as a result of new fixed
assets bases, and estimated income tax effect of the pro forma
adjustments. The pro forma summary is for informational purposes only
and may not necessarily reflect the results of operations of the
Company had Sabroe operated as part of the Company for the periods
presented.
<TABLE>
<CAPTION>
(thousands, except per share data)
Nine Months Ended Sept. 30, 1999 1998
--------------------------- ---- ----
Historical Proforma Historical Proforma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,765,181 $2,998,753 $2,440,824 $2,876,789
Net income before cumulative
effect of accounting change 62,502 53,534 104,225 91,115
Net income 61,605 52,637 104,225 91,115
Diluted earnings per share:
Before cumulative effect
of accounting change $ 1.56 $ 1.33 $ 2.55 $ 2.23
========== ========== ========== ==========
Net income $ 1.54 $ 1.31 $ 2.55 $ 2.23
========== ========== ========== ==========
</TABLE>
(Continued)
<PAGE>
-11-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
(Cont'd)
(10) In the third quarter of 1999, the Company recorded a charge in cost of
goods sold of $17.5 million to write-down inventory to the lower of
cost or market. Integration of the Refrigeration business, principally
discontinuation of Gram product lines resulted in $6.1 million of the
inventory write-down. Deteriorating economic conditions in Latin
America and Eastern Europe resulted in inventory write-downs of $3.5
million and $4.1 million, respectively. Faulty gas engines in a UPG
unit accounted for additional inventory write-downs of $2.8 million.
The remaining $1.0 million of inventory write-downs related to ESG
operations in the U.S. and Australia.
In the third quarter of 1999, the Company recorded charges of $10.0
million related to the integration of Sabroe into the York
Refrigeration business. The Company also recorded a charge of $12.2
million for restructuring and downsizing other Company operations not
impacted by the Sabroe acquisition. The Refrigeration charge consists
of integration expenses of $1.2 million, $4.5 million for costs
relating to manufacturing facilities, principally the closure of the
Gram manufacturing facility in Denmark, $3.2 million for employee
terminations and $1.1 million for costs related to the closure of
duplicate sales and service offices in Europe and Asia. Other Company
charges consist of $3.4 related to asset write-downs, principally in
Latin America and Eastern Europe due to the current economic conditions
in those regions, $4.9 million of charges primarily warranty, contract
disputes, and closing costs for the Airside factory in Salisbury, North
Carolina, and $3.9 million for employee terminations.
(10) The Company recorded a gain of $9.6 million on the sale of Viron, the
Company's performance contracting business, in the third quarter of
1999.
(11) Reference is made to Registrant's 1998 Annual Report on Form 10-K for
more detailed financial statements and footnotes.
<PAGE>
-12-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
<TABLE>
<CAPTION>
Results of Operations
- ---------------------
Net Sales (in thousands) Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Unitary Products Group $ 357,998 $ 361,685 $ 1,195,914 $ 1,153,228
Engineered Systems Group 358,262 345,486 1,059,530 1,007,624
Refrigeration Products Group 267,237 113,840 545,305 312,764
Eliminations (13,137) (10,656) (35,568) (32,792)
----------- ----------- ----------- -----------
Net Sales $ 970,360 $ 810,355 $ 2,765,181 $ 2,440,824
=========== =========== =========== ===========
U.S 51% 59% 55% 59%
Non-U.S 49% 41% 45% 41%
----------- ----------- ----------- -----------
Total 100% 100% 100% 100%
=========== =========== =========== ===========
</TABLE>
Sales for the three months ended September 30, 1999 increased 19.7% to $970.4
million from $810.4 million for the same period in 1998. Net sales for the nine
months ended September 30, 1999 increased 13.3% to $2,765.2 million as compared
to $2,440.8 million for the nine months ended September 30, 1998. From a
geographic perspective for the three months ended September 30, 1999, U.S. sales
increased 4.5% to $497.0 million and Non-U.S. sales increased 41.4% to $473.4
million. The increase in Non-U.S. sales, is primarily related to Sabroe sales
included subsequent to the acquisition in June 1999.
Order backlog at September 30, 1999 was $1,149.0 million compared to $952.8
million as of September 30, 1998 and $879.5 million as of December 31, 1998.
Unitary Products Group (UPG) sales for the three months ended September 30, 1999
decreased 1.0% to $358.0 million from $361.7 million for the same period in
1998. The reduction is primarily due to lower equipment volume in Latin America.
Year-to-date sales increased 3.7% to $1,195.9 million primarily due to improved
volume in the OEM compressor business and growth in Europe and the Middle East.
The year-to-date increase was partially offset by lower equipment volume in
Latin America.
Engineered Systems Group (ESG) sales for the three months ended September 30,
1999 increased 3.7% to $358.3 million from $345.5 million for the same period in
1998. Year-to-date sales increased 5.2% to $1,059.5 million. The increases were
primarily due to increased volume in domestic aftermarket service and chiller
equipment sales and improvement in Europe. These improvements were partially
offset by decreased volume in the Airside business.
Refrigeration Products Group (RPG) sales for the three months ended September
30, 1999 increased 134.7% to $267.2 million from $113.8 million for the same
period in 1998, due to the inclusion of Sabroe since its acquisition in June.
Excluding the Sabroe sales, RPG sales were down 12.9%. Year-to-date sales
increased 74.4% to $545.3 million. Excluding Sabroe, sales were down 2.0%.
In the third quarter of 1999, the Company recorded a charge in cost of goods
sold of $17.5 million to write-down inventory to the lower of cost or market.
Integration of the Refrigeration business, principally discontinuation of Gram
product lines resulted in $6.1 million of the inventory write-down.
Deteriorating economic conditions in Latin America and Eastern Europe resulted
in inventory write-downs of $3.5 million and $4.1 million, respectively. Faulty
gas engines in a UPG unit accounted for additional inventory write-downs of $2.8
million. The remaining $1.0 million of inventory write-downs related to ESG
operations in the U.S. and Australia.
(Continued)
<PAGE>
-13-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Excluding the write-down of $17.5 million of inventory (discussed above), gross
profit during the third quarter ended September 30, 1999 increased 12.4% to
$206.6 million (21.3% of sales) from $183.8 million (22.7% of sales) during the
same period in 1998. The gross profit dollar increase was due to the impact of
Sabroe. The gross profit percent reduction was due to poor results in Latin
America and the Airside business of ESG. Gross profit for the nine months ended
September 30, 1999 increased 12.7% to $603.6 million (21.8% of sales) from
$535.7 million (21.9% of sales) during the same nine months of 1998. This gross
profit improvement was due to the impact of Sabroe, the higher margin ESG
service business, and the improved factory performance and cost reductions in
UPG. These increases were offset by the poor performance in Latin America and
the Airside business of ESG.
Selling, General and Administrative expenses (SG&A) were higher during the third
quarter ended September 30, 1999 at $148.7 million (15.3% of sales) up from
$121.9 million (15.0% of sales) during the third quarter of 1998. For the nine
months ended September 30, 1999, SG&A expenses increased to $425.4 million
(15.4% of sales) compared to $364.9 million (14.9% of sales) for the nine months
ended September 30, 1998. The increase is due to the Sabroe acquisition and
selective investments in research and development, information technology and
profit improvement initiatives.
In the third quarter of 1999, the Company recorded charges of $10.0 million
related to the integration of Sabroe into the York Refrigeration business. The
Company also recorded a charge of $12.2 million for restructuring and downsizing
other Company operations not impacted by the Sabroe acquisition. The
Refrigeration charge consists of integration expenses of $1.2 million, $4.5
million for costs relating to manufacturing facilities, principally the closure
of the Gram manufacturing facility in Denmark, $3.2 million for employee
terminations and $1.1 million for costs related to the closure of duplicate
sales and service offices in Europe and Asia. Other Company charges consist of
$3.4 related to asset write-downs, principally in Latin America and Eastern
Europe due to the current economic conditions in those regions, $4.9 million of
charges primarily warranty, contract disputes, and closing costs for the Airside
factory in Salisbury, North Carolina, and $3.9 million for employee
terminations.
As a result of the above factors, income from operations for the third quarter
of 1999 was $18.3 million compared to $61.9 million for the third quarter of
1998. Income from operations for the nine months ended September 30, 1999 was
$125.5 million compared to $170.8 million for the same nine months of 1998.
The discussion below of each of the business units' income from operations
excludes all charges as discussed above.
UPG income from operations in the third quarter decreased 14.2% to $34.2 million
(9.5% of sales) from $39.8 million (11.0% of sales) for the same period in 1998.
This decrease is directly related to lower volume and lower margins in Latin
America. Year-to-date income from operations increased 6.0% to $129.8 million.
The increase is primarily due to improved plant performance on higher volume and
effective implementation of cost reduction programs. The year-to-date increase
was somewhat offset by poor performance in Latin America.
ESG income from operations in the third quarter decreased 15.8% to $26.8 million
(7.5% of sales) compared to $31.8 million (9.2% of sales) for the same period in
1998. Income from operations for the nine months ended September 30, 1999 was
$76.6 million compared to $83.5 million for the same period in 1998. Income from
operations decreased due to poor performance in the Airside business. Airside's
poor performance was partially offset by the higher margin service business, the
success of new product introductions and better margins in Asia driven by local
manufacturing.
RPG income from operations in the third quarter increased to $15.4 million (5.8%
of sales) compared to $6.2 million (5.5% of sales) for the same period in 1998
due to the inclusion of Sabroe since its acquisition in June. Income from
operations for the nine months ended September 30, 1999 was $27.6 million
compared to $16.6 million in 1998.
In the third quarter of 1999, the Company recorded a gain on the sale of Viron,
the Company's performance contracting business, of $9.6 million.
(Continued)
<PAGE>
-14-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Net interest expense increased during the third quarter of 1999 to $19.1 million
due to increased debt levels from the Sabroe acquisition. Excluding the Sabroe
financing, lower average debt levels and favorable average interest rates for
foreign and variable debt would have contributed to lower interest expense.
Year-to-date interest expense was $41.7 million compared to $31.8 million for
the same nine months in 1998.
Equity in earnings of affiliates was $1.1 million during the third quarter of
1999 as compared to $1.0 million during the third quarter of 1998. Year-to-date
equity in earnings of affiliates was $4.2 million compared to $0.1 million for
the same nine months in 1998. The increase was primarily the result of improved
performance in the UPG Scroll Technologies operation.
Provision for income taxes of $6.2 million during the third quarter of 1999 and
$35.1 million for year-to-date 1999 relate to both U.S. and non-U.S. operations.
The effective rate was 36% for the first nine months of 1999 compared to 25.1%
(33% excluding export incentives, foreign tax credit planning and other non-U.S.
activities including closures and consolidations) for the same period of 1998.
The increase in the effective tax rate is primarily attributable to integration
and restructuring charges in certain jurisdictions for which no tax benefit was
recorded.
Net income, as a result of the above factors, was $3.8 million ($0.09 per share)
during the third quarter of 1999 as compared to $47.3 million ($1.16 per share)
during the third quarter of 1998. For the nine months ended September 30, 1999,
net income, before cumulative effect of accounting change, decreased to $62.5
million ($1.56 per share) compared to $104.2 million ($2.55 per share) in the
first nine months of 1998. In January of 1999, the Company recorded a $0.9
million charge, net of a $0.4 million tax benefit, to write-off start-up
activities in accordance with AICPA Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." Excluding the gain on the sale of Viron and
all charges discussed above (using the tax rate of 33%), net income for the
quarter was $26.8 million ($0.67 per share).
Liquidity and Capital Resources
Working capital requirements are generally met through a combination of
internally generated funds, bank lines of credit, commercial paper issuances,
financing of trade receivables and credit terms from suppliers which approximate
receivable terms to the Company's customers. The Company believes that these
sources, including its $400 million 364-day Revolver and its $500 million
Amended Credit Agreement described below, will be sufficient to meet working
capital needs during 1999. Additional sources of working capital include
customer deposits and progress payments.
Working capital was $505.1 million and $521.1 million as of September 30, 1999
and December 31, 1998, respectively. The accounts receivable increase at
September 30, 1999 was due to the addition of Sabroe. Inventory levels were
higher at September 30, 1999 as compared to December 31, 1998, primarily due to
the acquisition of Sabroe and ESG operations in Europe. The notes payable and
current portion of long-term debt decreased slightly excluding Sabroe. The
current ratio was 1.52 at September 30, 1999 as compared to 1.66 at December 31,
1998.
Long-term indebtedness was $921.0 million at September 30, 1999, primarily
consisting of borrowings of $435.1 million in commercial paper, $300.0 million
of senior notes, $64.9 in bank lines and $59.0 million in Danish term loans.
At September 30, 1999, the Company had available a $400 million 364-day
Revolving Credit Agreement (the Revolver) and a $500 million Amended Credit
Agreement (the Credit Agreement) expiring on July 31, 2002. The Revolver and the
Credit Agreement amendment were effective on June 3, 1999 and provide for
borrowings under the facility at LIBOR plus 0.45%. If borrowings greater than
33% of either facility are utilized, the rate increases to LIBOR plus 0.55%. The
Company pays a fee of 0.10% for each facility and the Credit Agreement allows
for borrowings at specified bid rates. At September 30, 1999, the LIBOR rate was
6.13%. The Revolver and the Credit Agreement, as amended, contain financial and
operating covenants requiring the Company to maintain certain financial ratios
and standard provisions limiting leverage, investments and liens. The Company
was in compliance with these financial and operating covenants at September 30,
1999. No amounts were outstanding under either of these agreements.
(Continued)
<PAGE>
-15-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
The Company's non-U.S. subsidiaries maintain bank credit facilities in various
currencies that provide for borrowings of up to $405.1 million and $269.6
million at September 30, 1999 and December 31, 1998, respectively, of which
$317.1 million and $202.9 million, respectively, were unused at September 30,
1999 and December 31, 1998. In some instances, borrowings against these credit
facilities have been guaranteed by the Company to assure availability of funds
at favorable rates.
Commercial paper borrowings are expected to be reborrowed in the ordinary course
of business. Commercial paper borrowings were also the primary source of funds
used to finance the acquisition of Sabroe. The interest rate on the commercial
paper was 6.10% as of September 30, 1999.
During the second quarter of 1997, the Company arranged four separate unsecured
bank lines similar to commercial paper. These bank lines provide for total
borrowings of $320 million which are expected to be reborrowed in the ordinary
course of business. At September 30, 1999 and December 31, 1998, the Company had
$74.5 million and $41.0 million, respectively, outstanding under these bank
lines. The average rate on the bank lines was 5.56% and 5.61% at September 30,
1999 and December 31, 1998, respectively.
At September 30, 1999 and December 31, 1998, the Company had $300 million of
Senior Notes outstanding. On June 1, 1998, the Company issued $200 million of
6.70% fixed rate Senior Notes having a maturity of ten years from the date of
issue. The $100 million of Senior Notes issued in March 1993 bear interest at a
6.75% fixed rate and are due March 2003.
The Company also maintains a $73.8 million Danish Kroner term loan, at a 4.05%
fixed rate, that is repayable in semi-annual payments of $7.3 million with a
final maturity of July 2004. The Company's non-U.S. subsidiaries maintain other
term debt of $65.9 million at various interest rates.
The Company sold a fractional ownership interest in a defined pool of trade
accounts receivable. The balance of accounts receivable sold was $150 million at
September 30, 1999 and $100 million at December 31, 1998. Under an Amended and
Restated Receivables Sales Agreement entered into on September 28, 1999, the
maximum amount of the purchasers' investment increased from $120 million to $150
million. At September 30, 1999 and December 31, 1998, the discount rate on the
accounts receivable sold was approximately 5.58% and 5.30%, respectively.
Because the Company's obligations under the Revolver, the Credit Agreement and
Receivables Sales Agreement bear interest at floating rates, the Company's
interest costs are sensitive to changes in prevailing interest rates.
The Company believes that it will be able to satisfy its principal and interest
payment obligations and its working capital and capital expenditure requirements
from operating cash flows, commercial paper borrowings, availability under the
Revolver, the Credit Agreement and advance payments received from the insurance
company for accident claims submitted.
In the ordinary course of business, the Company enters into various types of
transactions that involve contracts and financial instruments with
off-balance-sheet risk. The Company enters into these financial instruments to
manage financial market risk, including foreign exchange, commodity price and
interest rate risk. The Company enters into these financial instruments
utilizing over-the-counter as opposed to exchange traded instruments. The
Company mitigates the risk that counterparties to these over-the-counter
agreements will fail to perform by only entering into agreements with major
international financial institutions.
(Continued)
<PAGE>
-16-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Capital expenditures were $70.9 million for the nine months ended September 30,
1999 compared to $34.7 million for the same period of 1998. The increase was the
result of the Grantley rebuild, planned projects to improve factory performance
and information technology hardware and software. Capital expenditures currently
anticipated for expanded capacity, cost reductions and the introduction of new
products during the next twelve months are expected to be in excess of
depreciation and amortization. These expenditures will be funded from a
combination of operating cash flows, availability under the revolving credit
facility, commercial paper borrowings and advance payments received from the
insurance company for accident claims submitted.
Cash dividends of $0.15 per share were paid on common stock in the third quarter
of 1999. The declaration and payment of future dividends will be at the sole
discretion of the Board of Directors and will depend upon such factors as the
Company's profitability, financial condition, cash requirements and future
prospects.
Acquisition of Sabroe
On June 10, 1999, the Company acquired all of the outstanding capital stock of
Sabroe A/S (Sabroe), a Danish company for $407.1 million in cash and assumed
debt of $216.0 million. Sabroe is a world leader in supplying refrigeration
systems and products. The Company financed the acquisition through issuance of
commercial paper, supported by a $500 million and $400 million revolving credit
facility, both of which are described above.
The Company is in process of executing the approved plan for restructuring and
integrating Sabroe into the York Refrigeration Group. The plan included a
restructuring charge expensed in the third quarter of 1999. As Sabroe
restructuring actions are implemented, the allocation of the purchase price may
change. In connection with the acquisition, the following amounts were
considered in the allocation of the purchase price: acquisition expenses of $7.3
million; accruals of $42.9 million for the anticipated closure of Sabroe
facilities and personnel rationalizations that are expected to be substantially
completed within the first year of operation; and deferred taxes of $30.4
million
Year 2000
General information and state of readiness:
The Company's enterprise-wide Year 2000 (Y2K) Compliance Program (the Program)
was initiated in February 1997. The Company divided the Program into four
dimensions: information systems; York International products and services;
production equipment and facilities; and supplier capabilities.
As of the quarter ended September 30, 1999, the Company was testing, validating,
and implementing internal information systems and external information systems
interfaces that are Y2K compliant. These activities include, but are not limited
to, evaluating existing and new hardware and software and, where necessary,
replacing or modifying these system components to be Y2K compliant. In 1996, the
Company determined that MAPICS would be the enterprise-wide manufacturing
system. Likewise, the Company decided in 1995 to use the Lawson Financial
Systems package at all U.S. locations. During the risk assessment phase of the
Program, it was determined that by accelerating the deployment of these two
system components the Company would remediate a significant percentage of the
Y2K systems issues. Other system components as well as non-manufacturing systems
internationally are being modified or replaced to achieve Y2K compliance.
Testing and validation will continue to the end of the year.
The Company's products verification dimension is complete. The Company has
determined that its residential products are Y2K compliant and will transition
correctly to the year 2000 without manual intervention. In addition, the Company
has verified that the vast majority of its commercial and industrial products
utilizing York-manufactured or York-designed microprocessor control panels or
PLC-based equipment are Y2K compliant.
(Continued)
<PAGE>
-17-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
The Company has conducted an evaluation of its production equipment and process
control capabilities in all manufacturing locations and is remediating those few
components that are not currently Y2K compliant. Similarly, the Company has
evaluated its facilities controls (e.g., elevators, telephone systems, security
systems, etc.) to determine Y2K compliance. In most cases those systems were
found to be Y2K compliant. In isolated situations where the facilities systems
were found to be non-compliant, remediation has occurred as of September 30,
1999.
The Company has required critical suppliers to certify Y2K compliance.
Furthermore, the Company is conducting detailed evaluations with critical
suppliers to verify compliance. The Company will be evaluating the necessary
"Millennium Stock Levels" to be established for parts and materials that are
critical to the manufacturing process. The Company will also be developing plans
and necessary stock levels for single-source items. The Company will continue to
develop further contingency plans throughout 1999 as necessary, including
contingency plans for failures of public systems such as power, water, and
telecommunications.
Cost:
The Company expects to incur internal staff costs as well as consulting and
other expenses related to infrastructure and facilities enhancements necessary
to prepare systems and applications for the year 2000. The cost of testing and
conversion of systems and applications will not have a material effect on the
Company's results of operations or financial position. A significant proportion
of these costs are not likely to be incremental costs to the Company, but rather
will represent the redeployment of existing information technology resources or
be a component of planned system improvements.
Risks:
The Company's failure to correct or develop an adequate contingency plan to
mitigate a material Y2K problem, including problems experienced by suppliers,
could result in an interruption in normal business activities or operations.
However, the Company is confident that the Compliance Program will allow it to
complete a successful transition to the Year 2000. This statement constitutes a
Year 2000 readiness disclosure by York International Corporation, under the Year
2000 Information and Readiness Disclosure Act.
Sabroe:
As part of the Sabroe acquisition process, an investigation into Sabroe's Year
2000 readiness was conducted. While most areas within Sabroe were determined to
be Y2K compliant, or in the process of finalizing changes to become compliant,
the 10 Sabroe offices in the UK, recently acquired by Sabroe were determined to
be operating with non-Y2K compliant accounting and service management systems.
The Company has taken the necessary steps to implement Y2K compliant systems at
these 10 sites and expects this activity to be concluded by the end of November
1999.
Euro Conversion
Management has initiated an internal analysis of and planning for the effect the
Euro will have on the operating and financial condition of the Company. The
effect of the Euro is not expected to be material to the Company's operating
results and the Company's competitive exposure is minimal. The Company's
financial systems are Euro compliant and opportunities will continue to be
investigated for European wide system infrastructures.
(Continued)
<PAGE>
-18-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No.133, "Accounting for Derivative
Instruments and Hedging Activities" (the Standard). The Standard establishes
comprehensive accounting and reporting standards for derivative instruments and
hedging activities that require a Company to record the derivative instrument at
fair value in the balance sheet. Furthermore, the derivative instrument must
meet specific criteria or the change in its fair value is to be recognized in
earnings in the period of change. To achieve hedge accounting treatment the
derivative instrument needs to be part of a well-documented hedging strategy
that describes the exposure to be hedged, the objective of the hedge and a
measurable definition of its effectiveness in hedging the exposure. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS No.
137 delays the Standard effective date to the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. Adoption of this statement is not
expected to have a material effect on the Company's financial statements.
Forward-Looking Information - Risk Factors
To the extent the Registrant has made "forward-looking statements," certain risk
factors could cause actual results to differ materially from those anticipated
in such forward-looking statements including, but not limited to competition,
government regulation, environmental considerations, the Year 2000 Compliance
Program and the successful integration of Sabroe into the RPG. Unseasonably cool
spring or summer weather in the United States or in Europe could adversely
affect the Registrant's UPG residential air conditioning business. The ESG air
conditioning business could be affected by a slowdown in the large chiller
market and by the level of chlorofluorocarbon (CFC) retrofits. The resolution of
the Grantley insurance claim for an amount greater than or less than amounts
recorded could affect the Company's results. Overall performance of the
Registrant in the third quarter of 1999 was affected by less robust economic
conditions in Latin America, and future anticipated performance could be
affected by any serious economic downturns in Latin America and other worldwide
markets.
<PAGE>
-19-
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
Not Applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 4.1 - SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES SALE
AGREEMENT, among the Registrant, as seller and collection agent, Asset
Securitization Cooperative Corporation, as purchaser, and Canadian
Imperial Bank of Commerce, as servicing agent.
Exhibit 4.2 - THIRD AMENDMENT TO AMENDED AND RESTATED RECEIVABLES SALE
AGREEMENT, among the Registrant, as seller and collection agent, Asset
Securitization Cooperative Corporation, as purchaser, and Canadian
Imperial Bank of Commerce, as servicing agent.
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K
On August 23, 1999, the Registrant filed Report on Form 8-K/A amending
item 2 and item 7 of the June 25, 1999, Report on Form 8-K (Items 2 and
7) regarding the Registrant's acquisition of all outstanding capital
stock of Sabroe A/S from J. Lauritzen Holding A/S and other
shareholders of Sabroe A/S. The Share Sale and Purchase Agreement was
attached to this Form 8-K as an exhibit.
On October 14, 1999, the Registrant filed Report on Form 8-K (item 5)
regarding the retirement of Robert N. Pokelwaldt as Chief Executive
Officer and his resignation as Chairman of the Board. The Company also
announced the appointment of John R. Tucker as Chief Executive Officer
and the appointment of Gerald C. McDonough, a director since 1988, as
Chairman of the Board.
<PAGE>
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned unto duly authorized.
YORK INTERNATIONAL CORPORATION
------------------------------
Registrant
Date November 12, 1999 /S/ Robert C. Galvin
----------------- ------------------------------
(Corporate Vice President and
Chief Financial Officer)
<PAGE>
Exhibit 4.1
SECOND AMENDMENT TO
-------------------
AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
-----------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT,
dated as of August ___, 1999 (this "Agreement") is among YORK INTERNATIONAL
CORPORATION, a Delaware corporation (together with its successors and permitted
assigns, "Seller"), ASSET SECURITIZATION COOPERATIVE CORPORATION, a California
cooperative corporation (together with its successors and permitted assigns,
"Purchaser") and CANADIAN IMPERIAL BANK OF COMMERCE, acting through certain
offices in the United States of America as the servicing agent for the Purchaser
hereunder (in such capacity, and together with any replacement therefor, the
"Servicing Agent")
W I T N E S S E T H:
WHEREAS, Seller, Purchaser, and Servicing Agent are parties to that certain
Amended and Restated Receivables Sale Agreement dated as of March 26, 1997 (as
amended from time to time, the "Receivables Sale Agreement"; capitalized terms
not otherwise defined herein shall have the definitions provided therefor in the
Receivables Sale Agreement) and to certain other Sale Documents executed in
connection with the Receivables Sale Agreement;
WHEREAS, Seller has changed the name of one of its Divisions and has also
changed the locations of one of its Divisions;
WHEREAS, the parties wish to amend the Receivables Sale Agreement as
provided herein:
NOW, THEREFORE, the parties agree as follows:
1. Amendments to the Receivables Sale Agreement. The Receivables Sale
--------------------------------------------
Agreement is hereby amended as follows:
(a) The definition of "Applied" in Article I is hereby deleted, in its
entirety, and replaced with the following:
"Applied" means the Engineered Systems Group, a division of the Seller,
-------
formerly known as Applied Systems.
(b) Exhibit I, listing the location where each Division keeps its records
concerning its Receivables, is hereby deleted in its entirety and replaced in
its entirety by a revised Exhibit I attached hereto.
1
<PAGE>
2. Representations and Warranties. To induce Purchaser and Servicing
------------------------------
Agent to enter into this Agreement, Seller represents and warrants to Purchaser
and Servicing Agent that the execution, delivery and performance by Seller of
this Agreement are within its corporate power, have been duly authorized by all
necessary corporate action and do not and will not contravene or conflict with
any provision of law applicable to Seller, the Certificate of Incorporation or
By-laws of Seller, or any order, judgment or decree of any court or other agency
of government or any contractual obligation binding upon Seller; and the
Receivables Sale Agreement as amended as of the date hereof is the legal, valid
and binding obligation of Seller enforceable against Seller in accordance with
its terms.
3. Ratification and Confirmation. Except as otherwise amended pursuant to
-----------------------------
this Agreement, all other provisions of the Receivables Sale Agreement are
hereby ratified and confirmed in all respects and are and shall continue to be
enforceable against the Seller and the Collection Agent.
4. Conditions to Effectiveness. Seller will have satisfied the following
---------------------------
conditions before this Agreement will become effective:
(a) Execution and delivery of this Agreement;
(b) Execution and delivery of a Secretary's Certificate (1) confirming that
the persons set forth in the Secretary's Certificate dated March 26, 1997 (the
"Initial Closing Date"), who were signatories of the Seller as of the Initial
Closing Date remain duly authorized signatories as of the date of execution of
this Agreement, or to the extent that new signatories who have authority to
execute and deliver this Second Amendment have been added, the names, titles and
signatures of such new signatories and (2) confirming that no amendments have
occurred to the Certificate of Incorporation, By-laws or Resolutions of the
Seller since the Secretary's Certificate was delivered on the Initial Closing
Date, or to the extent any such amendments have occurred, attaching such
amendments; and
(c) Execution and delivery of (1) two executed UCC-1 Financing Statement
against Unitary Products Group, a division of York International ("UPG"), in
favor of Purchaser filed in Oklahoma County, Oklahoma, (2) two executed UCC-3
Amendments re: revised Attachment A to the original financing statements against
Seller, (3) three executed UCC-3 Amendments re: the name change of Applied, (4)
three executed UCC-3 Amendments re: the address change of UPG and (5) two
executed UCC-3 Continuation Statement for the original UCC-1 Financing
Statements filed in 1994 against Bristol Compressors, Inc.
5. Miscellaneous.
-------------
(a) Captions. Section captions used in this Agreement are for convenience
--------
only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made under and
-------------
governed by the laws of the State of New York, without regard to conflict of
laws principals. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be
2
<PAGE>
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same Agreement.
(d) Successors and Assigns. This Agreement shall be binding upon Seller,
----------------------
Purchaser and Servicing Agent and their respective successors and assigns, and
shall inure to the sole benefit of Seller, Purchaser, and Servicing Agent and
their respective successors and assigns.
(e) References. Any reference to the Receivables Sale Agreement contained
----------
in any notice, request, certificate, or other document executed concurrently
with or after the execution and delivery of this Agreement shall be deemed to
include this Agreement unless the context shall otherwise require.
(f) Continued Effectiveness. The Receivables Sale Agreement as amended
-----------------------
hereby and each of the other Sale Documents remains in full force and effect.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
3
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
YORK INTERNATIONAL CORPORATION, as Seller
By:____________________________
Name Printed: _________________
Title:_________________________
YORK INTERNATIONAL CORPORATION, as
Collection Agent
By:____________________________
Name Printed: _________________
Title:_________________________
CANADIAN IMPERIAL BANK OF COMMERCE, as
Servicing Agent
By:____________________________
Name Printed: _________________
Title: Authorized Signatory
ASSET SECURITIZATION COOPERATIVE
CORPORATION, as Purchaser
By:____________________________
Name Printed:__________________
Title:_________________________
4
<PAGE>
Exhibit 4.2
THIRD AMENDMENT TO
------------------
AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
-----------------------------------------------
THIS THIRD AMENDMENT TO AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT,
dated as of September 28, 1999 (this "Agreement") is among YORK INTERNATIONAL
CORPORATION, a Delaware corporation (together with its successors and permitted
assigns, "Seller" and "Collection Agent"), ASSET SECURITIZATION COOPERATIVE
CORPORATION, a California cooperative corporation (together with its successors
and permitted assigns, "Purchaser") and CANADIAN IMPERIAL BANK OF COMMERCE,
acting through certain offices in the United States of America as the servicing
agent for the Purchaser hereunder (in such capacity, and together with any
replacement therefor, the "Servicing Agent")
W I T N E S S E T H:
WHEREAS, Seller and Collection Agent, Purchaser, and Servicing Agent are
parties to that certain Amended and Restated Receivables Sale Agreement dated as
of March 26, 1997 (as amended from time to time, the "Original Receivables Sale
Agreement"; capitalized terms not otherwise defined herein shall have the
definitions provided therefor in the Original Receivables Sale Agreement), which
was amended by that certain First Amendment to Amended and Restated Receivables
Sale Letter Agreement dated as of February 25, 1999 (the "First Amendment to
Receivables Sale Agreement")), and was further amended by that certain Second
Amendment to Amended and Restated Receivables Sale Agreement dated as of August
31, 1999 (the "Second Amendment to Receivables Sale Agreement" and together with
the Original Receivables Sale Agreement and the First Amendment to Receivables
Sale Agreement, the "Receivables Sale Agreement") and to certain other Sale
Documents executed in connection with the Receivables Sale Agreement;
WHEREAS, Seller and Collection Agent, Purchaser and Servicing Agent have
agreed to increase the receivables purchase facility of the Receivables Sale
Agreement from one hundred and twenty million dollars ($120,000,000) to one
hundred and fifty million dollars ($150,000,000) and to change the pricing
structure of the receivable purchase facility; and
WHEREAS, the parties wish to further amend the Receivables Sale Agreement
as provided herein:
NOW, THEREFORE, the parties agree as follows:
1. Amendments to the Receivables Sale Agreement. The Receivables Sale
--------------------------------------------
Agreement is hereby amended as follows:
1
<PAGE>
(a) The definition of "Purchase Limit" in Article I of the Receivables Sale
Agreement is hereby deleted, in its entirety, and replaced with the following:
"Purchase Limit" means at any time of determination, for all Divisions
--------------
in the aggregate, not to exceed a total amount of one hundred and fifty
million dollars ($150,000,000), and for each Division individually, the
respective amount set forth below:
Applied $90,000,000
Bristol $50,000,000
UPG $90,000,000
Frick $10,000,000
(b) The definition of "Unutilized Purchase Limit" in Article I of the
Receivables Sale Agreement is hereby deleted, in its entirety, and replaced with
the following:
"Unutilized Purchase Limit" means, at any time of determination, an
-------------------------
amount equal to the positive result of the (x) $150,000,000 minus (y) the
Aggregate Investment at such time of determination.
(c) Section 5.2.2 of the Receivables Sale Agreement is hereby deleted, in
its entirety, and replaced with the following:
"Section 5.2.2 Purchase Premium. A Purchase Premium equal to .25%
----------------
per annum."
(d) Section 5.5 of the Receivables Sale Agreement is hereby deleted, in its
entirety, and replaced with the following:
"Section 5.5 Unutilized Purchase Limit Fee. The Seller shall pay to
-----------------------------
the Purchaser an annual fee (the "Unutilized Purchase Limit Fee") equal to
.15% of the daily average Unutilized Purchase Limit. The Unutilized
Purchase Limit Fee shall be payable in arrears on each Settlement Date and
on the date on which the Ownership Interests are reduced to zero in
accordance with Section 3.1(c)."
2. Representations and Warranties. To induce Purchaser and Servicing
------------------------------
Agent to enter into this Agreement, Seller and Collection Agent represents and
warrants to Purchaser and Servicing Agent that the execution, delivery and
performance by Seller and Collection Agent of this Agreement are within its
corporate power, have been duly authorized by all necessary corporate action and
do not and will not contravene or conflict with any provision of law applicable
to Seller and Collection Agent, the Certificate of Incorporation or By-laws of
Seller
2
<PAGE>
and Collection Agent, or any order, judgment or decree of any court or other
agency of government or any contractual obligation binding upon Seller and
Collection Agent; and the Receivables Sale Agreement as amended as of the date
hereof is the legal, valid and binding obligation of Seller and Collection Agent
enforceable against Seller and Collection Agent in accordance with its terms.
3. Ratification and Confirmation. Except as otherwise amended pursuant to
-----------------------------
this Agreement, all other provisions of the Receivables Sale Agreement are
hereby ratified and confirmed in all respects and are and shall continue to be
enforceable against the Seller and the Collection Agent.
4. Conditions to Effectiveness. Seller and Collection Agent will have
---------------------------
satisfied the following conditions before this Agreement will become effective:
(a) Execution and delivery of this Agreement; and
(b) Execution and delivery of a Secretary's Certificate (1) confirming
that the persons set forth in the Secretary's Certificate dated March 26, 1997
(the "Initial Closing Date"), who were signatories of the Seller as of the
Initial Closing Date remain duly authorized signatories as of the date of
execution of this Agreement, or to the extent that new signatories who have
authority to execute and deliver this Agreement have been added, the names,
titles and signatures of such new signatories and (2) confirming that no
amendments have occurred to the Certificate of Incorporation, By-laws or
Resolutions of the Seller since the Secretary's Certificate was delivered on the
Initial Closing Date, or to the extent any such amendments have occurred,
attaching such amendments.
5. Miscellaneous.
-------------
(a) Captions. Section captions used in this Agreement are for
--------
convenience only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made under and
-------------
governed by the laws of the State of New York, without regard to conflict of
laws principals. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same Agreement.
(d) Successors and Assigns. This Agreement shall be binding upon
----------------------
Seller and Collection Agent, Purchaser and Servicing Agent and their respective
successors and assigns, and shall inure to the sole benefit of Seller and
Collection Agent, Purchaser, and Servicing Agent and their respective successors
and assigns.
3
<PAGE>
(e) References. Any reference to the Receivables Sale Agreement
----------
contained in any notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Agreement shall be
deemed to include this Agreement unless the context shall otherwise require.
(f) Continued Effectiveness. The Receivables Sale Agreement as
-----------------------
amended hereby and each of the other Sale Documents remains in full force and
effect.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
4
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
YORK INTERNATIONAL CORPORATION, as Seller
By:____________________________
Name Printed: _________________
Title:_________________________
YORK INTERNATIONAL CORPORATION, as
Collection Agent
By:____________________________
Name Printed: _________________
Title:_________________________
CANADIAN IMPERIAL BANK OF COMMERCE, as
Servicing Agent
By:____________________________
Name Printed: _________________
Title: Authorized Signatory
ASSET SECURITIZATION COOPERATIVE
CORPORATION, as Purchaser
By:____________________________
Name Printed:__________________
Title:_________________________
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED), THE CONSOLIDATED CONDENSED BALANCE SHEETS AT
SEPTEMBER 30, 1999 (UNAUDITED), AND THE CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 34,343
<SECURITIES> 0
<RECEIVABLES> 640,505
<ALLOWANCES> 35,163
<INVENTORY> 644,052
<CURRENT-ASSETS> 1,473,773
<PP&E> 926,937
<DEPRECIATION> 388,211
<TOTAL-ASSETS> 2,899,038
<CURRENT-LIABILITIES> 968,637
<BONDS> 920,996
0
0
<COMMON> 224
<OTHER-SE> 769,010
<TOTAL-LIABILITY-AND-EQUITY> 2,899,038
<SALES> 2,765,181
<TOTAL-REVENUES> 2,765,181
<CGS> 2,179,113
<TOTAL-COSTS> 2,179,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,862
<INTEREST-EXPENSE> 41,735
<INCOME-PRETAX> 97,598
<INCOME-TAX> 35,096
<INCOME-CONTINUING> 62,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 897
<NET-INCOME> 61,605
<EPS-BASIC> 1.55
<EPS-DILUTED> 1.54
</TABLE>
