<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 MARCH 31, 2000
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 May 10, 2000
----- ---------------------------
Common Stock, par value $.005 38,043,970 shares
<PAGE>
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
-----
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Statements of Operations - (Unaudited)
Three Months Ended March 31, 2000 and 1999 3
Consolidated Condensed Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999 4
Consolidated Condensed Statements of Cash Flows - (Unaudited)
Three Months Ended March 31, 2000 and 1999 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 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1
FINANCIAL STATEMENTS
Consolidated Condensed Statements of Operations (Unaudited)
- -------------------------------------------------------------
(thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales $895,065 $782,757
Cost of goods sold 702,522 617,176
-------- --------
Gross profit 192,543 165,581
Selling, general and administrative expenses 162,996 129,094
Integration expense 1,540 -
-------- --------
Income from operations 28,007 36,487
Gain on sale of business (27,890) -
Interest expense, net 19,874 9,717
Equity in earnings of affiliates (1,426) (504)
-------- --------
Income before income taxes and cumulative
effect of accounting change 37,449 27,274
Provision for income taxes 14,354 9,000
-------- --------
Income before cumulative effect
of accounting change 23,095 18,274
-------- --------
Cumulative effect of accounting change:
Write-off of start-up costs (net of tax of $442) - 897
-------- --------
Net income $ 23,095 $ 17,377
======== ========
Basic earnings per share:
Income before cumulative effect
of accounting change $ 0.61 $ 0.46
Accounting change - (0.02)
-------- --------
Net income $ 0.61 $ 0.44
======== ========
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 0.60 $ 0.46
Accounting change - (0.02)
-------- --------
Net income $ 0.60 $ 0.44
======== ========
Cash dividends per share $ 0.15 $ 0.15
======== ========
Weighted average common shares and
common equivalents outstanding:
Basic 38,113 39,795
Diluted 38,185 39,944
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
- -------------------------------------
(thousands of dollars)
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(Unaudited) 1999
-------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 51,646 $ 39,514
Receivables 714,158 720,022
Inventories:
Raw materials 147,680 199,171
Work in process 122,889 112,669
Finished goods 412,844 287,206
---------- ----------
Total inventories 683,413 599,046
Prepayments and other current assets 124,329 131,787
---------- ----------
Total current assets 1,573,546 1,490,369
Deferred income taxes 18,353 13,207
Investments in affiliates 25,609 25,425
Property, plant and equipment, net 492,246 499,710
Unallocated excess of cost
over net assets acquired 762,761 768,809
Deferred charges and other assets 71,348 77,019
---------- ----------
Total assets $2,943,863 $2,874,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion
of long-term debt $ 143,765 $ 102,864
Accounts payable and accrued expenses 835,770 860,264
Income taxes 40,909 42,007
---------- ----------
Total current liabilities 1,020,444 1,005,135
Long-term warranties 42,609 39,607
Long-term debt 899,428 854,494
Postretirement benefit liabilities 152,950 154,066
Other long-term liabilities 84,869 89,307
---------- ----------
Total liabilities 2,200,300 2,142,609
Stockholders' equity 743,563 731,930
---------- ----------
Total liabilities and stockholders' equity $2,943,863 $2,874,539
========== ==========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
- -------------------------------------------------------------
(thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
<S> <C> <C>
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 23,095 $ 17,377
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization of property,
plant and equipment 16,103 14,368
Amortization of deferred charges and unallocated
excess of cost over net assets acquired 7,452 3,705
Provision for doubtful accounts receivable 1,553 1,502
Deferred income taxes (4,936) (2,407)
Gain on sale of business (27,890) -
Cumulative effect of accounting change - 897
Other 1,256 798
Change in assets and liabilities net of effects from
purchase of other companies and sale of business:
Receivables (6,248) 13,029
Inventories (87,528) (50,394)
Prepayments and other current assets 7,526 2,231
Other assets 4,554 (2,461)
Accounts payable and accrued expenses (9,593) (58,897)
Income taxes (1,053) (22,939)
Long-term warranties 3,125 2,546
Postretirement benefit liabilities (1,116) 2,351
Other long-term liabilities (4,106) (3,432)
-------- --------
Net cash used by operating activities (77,806) (81,726)
-------- --------
Cash flows from investing activities:
Proceeds from sale of business, net 39,438 -
Purchases of and investments in other
companies, net of cash acquired - (3,744)
Capital expenditures (26,886) (23,356)
Other 4,807 22
-------- --------
Net cash provided (used) by investing activities 17,359 (27,078)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) on short-term debt 40,901 (2,847)
Net proceeds from issuance of bank loans 28,532 56,673
Net proceeds from issuance of commercial paper 32,809 64,960
Long-term debt payments (16,407) (9,990)
Common stock issued 6 1,684
Treasury stock purchases (7,504) (6,766)
Dividends paid (5,729) (5,973)
-------- --------
Net cash provided by financing activities 72,608 97,741
-------- --------
Effect of exchange rate changes on cash (29) 54
-------- --------
Net increase (decrease) in cash and cash equivalents 12,132 (11,009)
-------- --------
Cash and cash equivalents at beginning of period 39,514 22,746
-------- --------
Cash and cash equivalents at end of period $ 51,646 $ 11,737
======== ========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
5
<PAGE>
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 March
31, 2000 and December 31, 1999, the results of operations for the three
months ended March 31, 2000 and 1999, and cash flows for the three months
ended March 31, 2000 and 1999. 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 March
31, 2000 and at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------- -----------------------
Current Long-term Current Long-term
-------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Indebtedness:
Bank loans $106,565 $ - $ 81,145 $ -
Bank lines at an average rate of 6.09%
in 2000 and 5.28% in 1999 14,061 70,344 - 41,812
Commercial paper, 6.08% interest
in 2000 and in 1999 - 429,656 - 396,847
Senior notes, 6.75% interest, due March 2003 - 100,000 - 100,000
Senior notes, 6.70% interest, due June 2008 - 200,000 - 200,000
Term loans (foreign currency) at an average
rate of 4.12%, due July 2004 13,735 48,504 14,299 57,196
Other, primarily foreign bank loans, at an
average rate of 5.43% in 2000 and 5.91%
in 1999 9,404 50,924 7,420 58,639
-------- --------- -------- ------------
Total notes payable and long-term debt $143,765 $ 899,428 $102,864 $ 854,494
======== ========= ======== ============
March 31, December 31,
Stockholders' equity: 2000 1999
--------- ------------
Common Stock $.005 par value;
200,000 shares authorized;
issued 45,062 shares at March 31, 2000
and at December 31, 1999 $ 225 $ 225
Additional paid in capital 715,328 715,322
Retained earnings 359,895 342,529
Accumulated other comprehensive losses (69,466) (71,146)
Treasury stock, 6,998 shares at March 31, 2000
and 6,700 shares at December 31, 1999, at cost (260,778) (253,274)
Unearned compensation (1,641) (1,726)
--------- ------------
Total stockholders' equity $ 743,563 $ 731,930
========= ============
</TABLE>
(continued)
6
<PAGE>
In June 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 provide for borrowings under the
facilities 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 March 31, 2000 and December 31, 1999,
the LIBOR rate was 6.32% and 6.03%, 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 March 31, 2000
and December 31, 1999. At March 31, 2000 and December 31, 1999, no amounts
were outstanding under either of these agreements.
The Company's bank lines provide for total borrowings of $175 million which
are expected to be reborrowed in the ordinary course of business. At March
31, 2000 and December 31, 1999, the Company had $84.4 million and $41.8
million, respectively, outstanding under these bank lines.
Commercial paper borrowings are expected to be reborrowed in the ordinary
course of business on a long-term basis. 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 6.08% at March 31, 2000
and at December 31, 1999.
Concerning bank loans and other, the Company's non-U.S. subsidiaries
maintain bank credit facilities in various currencies that provided for
available borrowings of $411.0 million and $385.1 million at March 31, 2000
and December 31, 1999, respectively, of which $303.8 million and $295.1
million, respectively, were unused. In some instances, borrowings against
these credit facilities have been guaranteed by the Company to assure
availability of funds at favorable rates. The Company also maintains other
debt of $59.7 million and $57.2 million at March 31, 2000 and December 31,
1999, respectively.
In February 1999, the Board of Directors authorized the Company to purchase
an additional 2.5 million shares of its Common Stock, increasing the
authorization to 8.5 million shares, 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, 0.3 million shares
and 2.0 million shares were repurchased on the open market during the first
quarter of 2000 and in the full year of 1999, respectively. The Company is
not currently repurchasing shares.
(3) The Company established a receivables sales agreement in 1992. Under an
Amended and Restated Receivables Sales Agreement entered into on December
22, 1999, the maximum amount of the purchasers' investment increased from
$150 million to $175 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 $175 million
at March 31, 2000 and at December 31, 1999. 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 6.07% and 6.22% at March 31, 2000 and December 31, 1999,
respectively.
(4) In the first quarter of 2000, the Company terminated three senior officers,
including its former chief executive officer and chief financial officer.
The Company is in litigation with the former chief executive officer and
believes it has no obligation for severance. The Company has negotiated
agreements with the other two former senior officers and certain other
senior management employees resulting in severance costs of $3.5 million,
which were charged to earnings in the first quarter of 2000.
(5) In February, 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's
rebuilding operations were substantially completed during the second
quarter of 1999, fully restoring its production capacity.
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.
(continued)
7
<PAGE>
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 quarter ended March 31, 1999 and year ended
December 31, 1999, the Company recorded credits to cost of goods sold of
$4.0 million and $6.0 million, respectively, reflecting insurance coverage
for certain incremental expenses and losses included in cost of goods sold
as a result of the accident. No amounts were recorded in the first quarter
of 2000. These amounts represent only a portion of the Company's estimate
of the total costs and expenses resulting from the accident which is
included in the Company's claim under business interruption coverage.
During the year ended December 31, 1999, the Company received advanced
payments of $6.2 million from the insurance company representing partial
payments under the property damage coverage. During the year ended December
31, 1999, the Company received advanced payments of $21.3 million from the
insurance company representing partial payments under the business
interruption coverage. The Company and the insurance company have settled
on a portion of the claim under the property damage coverage. No payments
were received in the first quarter of 2000, and the Company and insurance
company have not agreed on any settlement under the remaining property
damage or business interruption coverage. The Company has filed suit
against the insurance carrier for additional reimbursement.
(6) Comprehensive income is determined as follows:
Comprehensive Income (in thousands)
-----------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
<S> <C> <C>
2000 1999
------- -------
Net income $23,095 $17,377
Other comprehensive income (loss):
Foreign currency translation adjustment 1,680 (9,453)
------- -------
Comprehensive income $24,775 $ 7,924
======= =======
</TABLE>
(7) 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.
(8) 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 March 31,
----------------------------
<S> <C> <C>
2000 1999
------ ------
Weighted average common shares outstanding used
in the computation of basic earnings per share 38,113 39,795
Effect of dilutive securities:
Non-vested restricted shares 51 135
Stock options 21 14
------ ------
Weighted average common shares and equivalents used
in the computation of diluted earnings per share 38,185 39,944
====== ======
</TABLE>
(continued)
8
<PAGE>
(9) The table below represents the Company's operating results by segment:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended March 31,
----------------------------
<S> <C> <C>
2000 1999
-------- --------
Net sales:
Engineered Systems Group $339,013 $322,269
York Refrigeration Group 228,909 104,383
Unitary Products Group 218,598 232,032
Bristol Compressors 162,115 173,047
Eliminations (53,570) (48,974)
-------- --------
$895,065 $782,757
======== ========
Eliminations include the following intersegment sales:
Engineered Systems Group $ 7,791 $ 3,972
York Refrigeration Group 10,824 9,692
Unitary Products Group 524 772
Bristol Compressors 34,431 34,538
-------- --------
Eliminations $ 53,570 $ 48,974
======== ========
Income from operations:
Engineered Systems Group $ 17,569 $ 16,248
York Refrigeration Group 8,092 288
Unitary Products Group 10,103 19,044
Bristol Compressors 21,392 19,347
Eliminations, general corporate expenses
and other non-allocated items (29,149) (18,440)
-------- --------
$ 28,007 $ 36,487
Equity in (earnings) losses of affiliates:
Engineered Systems Group $ (1,117) $ (335)
York Refrigeration Group - -
Unitary Products Group (152) 213
Bristol Compressors (157) (382)
-------- --------
$ (1,426) $ (504)
Earnings before interest and taxes:
Engineered Systems Group $ 18,686 $ 16,583
York Refrigeration Group 8,092 288
Unitary Products Group 10,255 18,831
Bristol Compressors 21,549 19,729
Eliminations, general corporate expenses
and other non-allocated items (29,149) (18,440)
-------- --------
$ 29,433 $ 36,991
Gain on sale of business (27,890) -
Interest expense, net 19,874 9,717
-------- --------
Income before income taxes and cumulative
effect of accounting change $ 37,449 $ 27,274
Provision for income taxes 14,354 9,000
-------- --------
Income before cumulative effect of accounting change $ 23,095 $ 18,274
======== ========
</TABLE>
(continued)
9
<PAGE>
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------- -----------------
<S> <C> <C>
Total assets:
Engineered Systems Group $ 744,567 $ 712,119
York Refrigeration Group 682,964 680,453
Unitary Products Group 620,667 560,776
Bristol Compressors 277,268 217,792
Eliminations and other non-allocated assets 618,397 703,399
---------- ----------
$2,943,863 $2,874,539
========== ==========
</TABLE>
(10) 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."
(11) 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. In connection with the acquisition and
restructuring, the following were considered in the allocation of the
purchase price: acquisition expenses of $7.3 million; deferred taxes of
$30.4 million; non-cash write-downs of $4.4 million and other accruals of
$11.8 million.
The Company is in process of executing the plan for integrating Sabroe into
the York Refrigeration Group. The Sabroe portion of the plan includes
closing the Retech and Norrkoping manufacturing plants in Denmark and
Sweden, respectively, closing certain duplicate sales and service offices
in Europe and Asia, product rationalizations, salary and wage workforce
reductions and other costs related to the York Refrigeration Group
restructuring. The plan is expected to be substantially complete within one
year from the acquisition date. The table below details the activities in
the first quarter of 2000.
<TABLE>
<CAPTION>
Remaining Utilized in Remaining
Accruals at Three Months Ended Accruals at
(in thousands) December 31, 1999 March 31, 2000 March 31, 2000
-------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Severance costs $5,897 $3,683 $2,214
Contractual obligations 1,575 200 1,375
Other 356 67 289
------ ------ ------
$7,828 $3,950 $3,878
====== ====== ======
</TABLE>
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>
(in thousands) Intangible Assets Amortization period
-------------- ----------------- -------------------
<S> <C> <C>
Unallocated excess of cost over
net assets acquired $441,289 30 years
Trademark and tradenames 35,480 30 years
Proprietary technology and patents 2,050 15 years
--------
Total intangibles $478,819
========
</TABLE>
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. 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.
(continued)
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Three Months Ended March 31, 2000 1999 1999
(thousands, except per share data) Historical Historical Proforma
---------------------------------- ---------- ---------- --------
(unaudited)
Net sales $895,065 $782,757 $929,184
Income before cumulative
effect of accounting change 23,095 18,274 10,831
Net income 23,095 17,377 9,934
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 0.60 $ 0.46 $ 0.27
Net income $ 0.60 $ 0.44 $ 0.25
</TABLE>
(12) In February 2000, the Company sold Northfield Freezing Systems, a high
quality supplier to the food processing industry, to FMC Corporation for
$39.4 million. The sale resulted in a pretax gain of $27.9 million in the
first quarter of 2000.
(13) During the last three quarters of 1999, the Company recorded charges to
operations of $54.5 million in acquisition, integration, restructuring and
other charges. York Refrigeration Group charges of $35.0 million related to
acquisition, integration and restructuring cost for integrating Sabroe into
the York Refrigeration business and, in accordance with applicable
accounting rules, were not allocated as part of the purchase price. Other
Company charges of $19.5 million, not impacted by the Sabroe acquisition,
related to restructuring, downsizing and other one time costs.
The tables below detail the activities in the first quarter of 2000.
York Refrigeration Group charges
<TABLE>
<CAPTION>
Remaining Utilized in Remaining
Accruals at Three Months Ended Accruals at
(In thousands) December 31, 1999 March 31, 2000 March 31, 2000
-------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Severance costs $1,426 $ 804 $ 622
Contractual obligations 554 11 543
Other 50 3 47
------ ------ ------
$2,030 $ 818 $1,212
====== ====== ======
Other Company charges
Remaining Utilized in Remaining
Accruals at Three Months Ended Accruals at
(in thousands) December 31, 1999 March 31, 2000 March 31, 2000
-------------- ----------------- ------------------ --------------
Severance costs $4,318 $3,010 $1,308
Contractual obligations 1,535 86 1,449
------ ------ ------
$5,853 $3,096 $2,757
====== ====== ======
</TABLE>
In the first quarter of 2000, the Company recorded expenses of $1.5 million
for integration expenses consisting primarily of office integration
activities, product training and transportation costs for relocating
inventory and equipment.
(14) Reference is made to Registrant's 1999 Annual Report on Form 10-K for more
detailed financial statements and footnotes.
11
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
- --------------------------
<TABLE>
<CAPTION>
Net Sales (in thousands) Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Engineered Systems Group $339,013 $322,269
York Refrigeration Group 228,909 104,383
Unitary Products Group 218,598 232,032
Bristol Compressors 162,115 173,047
Eliminations (53,570) (48,974)
-------- --------
Net Sales $895,065 $782,757
======== ========
U.S. 51% 60%
Non-U.S. 49% 40%
-------- --------
Total 100% 100%
======== ========
</TABLE>
Sales for the first quarter ended March 31, 2000 increased 14.3% to $895.1
million from $782.8 million for the same period in 1999. From a geographic
perspective, U.S. sales decreased 3.7% to $453.8 million and non-U.S. sales
increased 41.8% to $441.3 million.
Order backlog at March 31, 2000 was $1,150.0 million compared to $924.1 million
as of March 31, 1999 and $1,065.1 million as of December 31, 1999.
Engineered Systems Group (ESG) sales increased 5.2% to $339.0 million from
- ------------------------
$322.3 million for the same period in 1999, primarily due to increased chiller
equipment sales in North America and Europe, and strength in the service
business, partially offset by the effect from the sale of Viron in the third
quarter of 1999.
York Refrigeration Group (YRG) sales increased 119.3% to $228.9 million from
- ------------------------
$104.4 million for the same period in 1999. The increase was due to the
acquisition of Sabroe. North American revenue was down due to the divestiture of
Northfield Freezing Systems and continued weakness in the two main industries
the Company serves - petrochemical and food and beverage.
Unitary Products Group (UPG) sales decreased 5.8% to $218.6 million from $232.0
- ----------------------
million for the same period in 1999 due to an oversubscribed pre-season sales
program from the fourth quarter of 1999 and weakness in the manufactured housing
business.
Bristol Compressors sales decreased 6.3% to $162.1 million from $173.0 for the
- -------------------
same period in 1999, due primarily to a reduction in room air conditioner
compressor sales.
Gross profit during the first quarter ended March 31, 2000 increased 16.3% to
$192.5 million (21.5% of sales) from $165.6 million (21.2% of sales) during the
first quarter ended March 31, 1999. The increase is primarily due to the
addition of Sabroe and better performance in ESG and Bristol. In the first
quarter of 1999, the Company recorded a $4 million credit to cost of goods sold
for expected recovery from business interruption insurance relating to the
Grantley accident.
Selling, general and administrative expense (SG&A) increased 26.3% to $163.0
million (18.2% of sales) in the first quarter ended March 31, 2000 from $129.1
million (16.5% of sales) in the first quarter ended March 31, 1999. The
(continued)
12
<PAGE>
increase in dollars and percentage is primarily due to Sabroe expenses and
related goodwill amortization. Also, included in SG&A for the first quarter
ended March 31, 2000 is $3.5 million of executive severance.
During the last three quarters of 1999, the Company recorded charges to
operations of $54.5 million, of which $35.0 million related to the integration
of Sabroe into the York Refrigeration business and $19.5 million related to
restructuring and downsizing other Company operations not impacted by the Sabroe
acquisition.
In the first quarter of 2000, the Company recorded cash expenses of $1.5 million
for integration expenses consisting primarily of office integration activities,
product training and transportation costs for relocating inventory and
equipment.
Equity in earnings of affiliates was $1.4 million during the first quarter of
2000 as compared to $0.5 million during the first quarter of 1999. This
improvement is primarily attributable to better performance of the Company's
joint ventures in Asia.
During the first quarter of 2000, earnings before interest and taxes (EBIT)
excluding integration expenses and the charge for executive severance, decreased
to $34.4 million (3.8% of sales) from $37.0 million (4.7% of sales) during the
first quarter ended March 31, 1999. The discussion below of each business unit's
EBIT excludes the integration expenses and severance charges as discussed above.
ESG EBIT increased 12.7% to $18.7 million (5.5% of sales) from $16.6 million
- ---
(5.1% of sales) for the same period in 1999. The improvement was driven by the
strength in North America and Europe. In addition, airside products showed
improvement from 1999.
YRG EBIT increased to $8.1 million (3.5% of sales) from $0.3 million (0.3% of
- ---
sales) for the same period in 1999 primarily due to the addition of Sabroe.
UPG EBIT decreased to $10.3 million (4.7% of sales) from $18.8 million (8.1% of
- ---
sales) for the same period in 1999 due to lower volume as a result of a pre-
season sales program during the last quarter of 1999 and lower pricing related
to pre-season orders shipped in the first quarter.
Bristol Compressors EBIT increased 9.2% to $21.5 million (13.3% of sales) from
- -------------------
$19.7 million (11.4% of sales) for the same period in 1999. This improvement was
driven by factory efficiency and a more profitable mix of product sales.
In February 2000, the Company recorded a pretax gain on the sale of Northfield
Freezing Systems, the Company's high quality supplier to the food processing
industry, of $27.9 million.
Net interest expense increased to $19.9 million during the first quarter of
2000. The increase is due to increased debt levels from the Sabroe acquisition
and slightly higher rates.
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.
Provision for income taxes of $14.4 million during the first quarter of 2000
relates to both U.S. and non-U.S. operations. The effective rate was 38.3% for
the first quarter of 2000 compared to 33.0% for the first quarter of 1999. The
higher effective tax rate resulted from the tax effect of the gain on the
Northfield sale. The tax rate for normal operations was 32%.
Net income, as a result of the above factors, was $23.1 million during the first
quarter of 2000 as compared to $17.4 million during the first quarter of 1999.
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
(continued)
13
<PAGE>
$400 million 364-day Revolver and its $500 million Amended Credit Agreement
described below, will be sufficient to meet working capital needs during 2000.
Additional sources of working capital include customer deposits and progress
payments.
Working capital was $553.1 million and $485.2 million as of March 31, 2000 and
December 31, 1999, respectively. Accounts receivable decreased slightly during
the first quarter of 2000, and inventory levels were higher at March 31, 2000,
than at December 31, 1999, reflecting normal seasonal inventory builds. The
current ratio was 1.54 at March 31, 2000, as compared to 1.48 for December 31,
1999.
Long-term indebtedness was $899.4 million at March 31, 2000, primarily
consisting of borrowings of $429.7 million in commercial paper, $300.0 million
of senior notes, $70.3 in bank lines and $48.5 million in Danish term loans.
At March 31, 2000, 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 March 31, 2000, the LIBOR rate was 6.32%. 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 March 31, 2000. No
amounts were outstanding under either of these agreements.
The Company's bank lines provide for total borrowings of $175 million which are
expected to be reborrowed in the ordinary course of business. At March 31, 2000
and December 31, 1999, the Company had $84.4 million and $41.8 million,
respectively, outstanding under these bank lines.
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 6.08% as of March 31, 2000.
At March 31, 2000 and December 31, 1999, 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 remaining $100 million ten-year Senior Notes bear interest at a 6.75% fixed
rate and are due March 2003.
The Company maintains foreign currency term loans at March 31, 2000 of $62.2
million payable in semi-annual payments. These term loans are due July 2004 and
bear interest at an average rate of 4.12%.
Concerning bank loans and other, the Company's non-U.S. subsidiaries maintain
bank credit facilities in various currencies that provided for available
borrowings of $411.0 million and $385.1 million at March 31, 2000 and December
31, 1999, respectively, of which $303.8 million and $295.1 million,
respectively, were unused. In some instances, borrowings against these credit
facilities have been guaranteed by the Company to assure availability of funds
at favorable rates. The Company also maintains other debt of $59.7 million and
$57.2 million at March 31, 2000 and December 31, 1999, respectively.
The Company established a receivables sales agreement in 1992. Under an Amended
and Restated Receivables Sales Agreement entered into on December 22, 1999, the
maximum amount of the purchasers' investment increased from $150 million to $175
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 $175 million at March 31, 2000 and at December 31,
1999. 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 6.07% and 6.22% at March 31, 2000 and
December 31, 1999, respectively.
Because the Company's obligations under the Amended and Restated Credit
Agreement and Receivables Sales Agreement bear interest at floating rates, the
Company's interest costs are sensitive to changes in prevailing interest rates.
(continued)
14
<PAGE>
Based on historical cash flows, 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 together with the
availability under the revolving credit facility.
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.
Capital expenditures were $26.9 million for the first quarter of 2000 as
compared to $23.4 million for the first quarter of 1999. Capital expenditures
currently anticipated for expanded capacity, cost reductions and the
introduction of new products during 2000 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 first quarter
of 2000. 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, future
prospects and other factors deemed relevant by the Board of Directors.
Acquisition of Sabroe and the Integration Plan
- ----------------------------------------------
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 its credit facilities.
The Company is in the process of executing the plan for integrating Sabroe into
the York Refrigeration Group. The plan includes the closing of Sabroe's Retech
and York's Gram manufacturing plants in Denmark and Sabroe's Norrkoping
manufacturing plant in Sweden. The plan also includes the closure of select
duplicate sales and service offices in Europe and Asia, salary and wage employee
rationalizations, product rationalizations, and other actions related to
reorganizing the York Refrigeration Group. The plan is expected to be
substantially completed within one year from the acquisition date.
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. Although the Company has not
completed its analysis, 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 Company 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,
(continued)
15
<PAGE>
government regulation, environmental considerations and the successful
integration of Sabroe into the YRG. Unseasonably cool spring or summer weather
could adversely affect the Company'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 acceptance of new product introductions. 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 Company continues to be affected by less robust economic conditions in Latin
America and Eastern Europe. Future anticipated performance could be affected by
any serious economic downturns in other worldwide markets or a slower than
expected recovery in Latin America and Eastern Europe.
16
<PAGE>
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 27 Financial Data Schedule (EDGAR only)
(b) None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned unto duly authorized.
YORK INTERNATIONAL CORPORATION
------------------------------
Registrant
Date May 10, 2000 /S/ C. David Myers
------------------------- ---------------------------------
C. David Myers
Corporate Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Condensed Statements of Operations for the Three Months ended March
31, 2000 (Unaudited), the Consolidated Condensed Balance Sheets at March 31,
2000 (Unaudited) and the Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2000 (Unaudited) and is qualified in its entirety
by reference to such to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 51,646
<SECURITIES> 0
<RECEIVABLES> 678,780
<ALLOWANCES> 31,149
<INVENTORY> 683,413
<CURRENT-ASSETS> 1,573,546
<PP&E> 829,660
<DEPRECIATION> 337,414
<TOTAL-ASSETS> 2,943,863
<CURRENT-LIABILITIES> 1,020,444
<BONDS> 899,428
0
0
<COMMON> 225
<OTHER-SE> 743,338
<TOTAL-LIABILITY-AND-EQUITY> 2,943,863
<SALES> 895,065
<TOTAL-REVENUES> 895,065
<CGS> 702,522
<TOTAL-COSTS> 702,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,553
<INTEREST-EXPENSE> 19,874
<INCOME-PRETAX> 37,449
<INCOME-TAX> 14,354
<INCOME-CONTINUING> 23,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,095
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.60
</TABLE>
