<PAGE> 1
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 JUNE 30, 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 August 9, 2000
Common Stock, par value $.005 38,040,331 shares
<PAGE> 2
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations - (Unaudited)
Three Months and Six Months Ended June 30, 2000 and 1999 3
Consolidated Condensed Balance Sheets -
June 30, 2000 (Unaudited) and December 31, 1999 4
Consolidated Condensed Statements of Cash Flows - (Unaudited)
Six Months Ended June 30, 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 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,063,809 $ 1,012,064 $ 1,958,874 $ 1,794,821
Cost of goods sold 818,452 780,649 1,520,974 1,397,825
----------- ----------- ----------- -----------
Gross profit 245,357 231,415 437,900 396,996
Selling, general and administrative expenses 160,955 147,664 323,951 276,758
Acquisition and integration expense, net (321) 12,958 1,219 12,958
----------- ----------- ----------- -----------
Income from operations 84,723 70,793 112,730 107,280
Loss (gain) on sale of businesses 988 -- (26,902) --
Interest expense, net 20,357 12,955 40,231 22,672
Equity in earnings of affiliates (2,645) (2,538) (4,071) (3,042)
----------- ----------- ----------- -----------
Income before income taxes and cumulative
effect of accounting change 66,023 60,376 103,472 87,650
Provision for income taxes 20,336 19,924 34,690 28,924
----------- ----------- ----------- -----------
Income before cumulative effect
of accounting change 45,687 40,452 68,782 58,726
Cumulative effect of accounting change:
Write-off of start-up costs (net of tax of $442) -- -- -- 897
----------- ----------- ----------- -----------
Net income $ 45,687 $ 40,452 $ 68,782 $ 57,829
=========== =========== =========== ===========
Basic earnings per share:
Income before cumulative effect
of accounting change $ 1.20 $ 1.02 $ 1.81 $ 1.48
Accounting change -- -- -- (0.03)
----------- ----------- ----------- -----------
Net income $ 1.20 $ 1.02 $ 1.81 $ 1.45
=========== =========== =========== ===========
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 1.20 $ 1.01 $ 1.80 $ 1.47
Accounting change -- -- -- (0.03)
----------- ----------- ----------- -----------
Net income $ 1.20 $ 1.01 $ 1.80 $ 1.44
=========== =========== =========== ===========
Cash dividends per share $ 0.15 $ 0.15 $ 0.30 $ 0.30
=========== =========== =========== ===========
Weighted average common shares and common
equivalents outstanding:
Basic 38,030 39,755 38,086 39,777
Diluted 38,181 40,033 38,190 40,041
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(thousands of dollars)
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 59,611 $ 39,514
Receivables 788,517 720,022
Inventories:
Raw materials 166,358 199,171
Work in process 133,238 112,669
Finished goods 330,501 287,206
---------- ----------
Total inventories 630,097 599,046
Prepayments and other current assets 104,572 131,787
---------- ----------
Total current assets 1,582,797 1,490,369
Deferred income taxes 13,491 13,207
Investments in affiliates 23,550 25,425
Property, plant and equipment, net 485,398 499,710
Unallocated excess of cost
over net assets acquired 765,638 768,809
Deferred charges and other assets 69,981 77,019
---------- ----------
Total assets $2,940,855 $2,874,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion
of long-term debt $ 137,302 $ 102,864
Accounts payable and accrued expenses 811,748 860,264
Income taxes 46,267 42,007
---------- ----------
Total current liabilities 995,317 1,005,135
Long-term warranties 43,833 39,607
Long-term debt 895,976 854,494
Postretirement benefit liabilities 151,139 154,066
Other long-term liabilities 82,736 89,307
---------- ----------
Total liabilities 2,169,001 2,142,609
Stockholders' equity 771,854 731,930
---------- ----------
Total liabilities and stockholders' equity $2,940,855 $2,874,539
========== ==========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 68,782 $ 57,829
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization of property,
plant and equipment 31,186 29,942
Amortization of deferred charges and unallocated
excess of cost over net assets acquired 16,491 8,236
Provision for doubtful accounts receivable 4,097 3,477
Deferred income taxes (279) (4,615)
Gain on sale of businesses (26,902) --
Cumulative effect of accounting change -- 897
Gain on sale of fixed assets and other (76) (547)
Change in assets and liabilities net of effects from
purchase of other companies and sale of business:
Receivables (83,068) (77,213)
Inventories (38,027) 2,896
Prepayments and other current assets 16,375 5,944
Other assets 3,259 (10,538)
Accounts payable and accrued expenses (30,331) (59,119)
Income taxes 4,330 (21,248)
Long-term warranties 4,296 1,934
Postretirement benefit liabilities (2,927) 3,842
Other long-term liabilities (5,358) (2,635)
--------- ---------
Net cash used by operating activities (38,152) (60,918)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of businesses, net 41,829 --
Purchases of and investments in other
companies, net of cash acquired -- (402,754)
Capital expenditures (46,193) (46,942)
Proceeds from sale of fixed assets and other 5,414 393
--------- ---------
Net cash provided (used) by investing activities 1,050 (449,303)
--------- ---------
Cash flows from financing activities:
Net borrowings on short-term debt 34,438 73,605
Net proceeds from issuance of bank loans 64,168 --
Net (payments) proceeds of commercial paper borrowings (2,827) 452,868
Long-term debt payments (19,859) (7,483)
Common stock issued 9 3,232
Treasury stock purchases (7,534) (6,782)
Dividends paid (11,401) (11,959)
--------- ---------
Net cash provided by financing activities 56,994 503,481
--------- ---------
Effect of exchange rate changes on cash 205 51
--------- ---------
Net increase (decrease) in cash and cash equivalents 20,097 (6,689)
--------- ---------
Cash and cash equivalents at beginning of period 39,514 22,746
--------- ---------
Cash and cash equivalents at end of period $ 59,611 $ 16,057
========= =========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
5
<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 June
30, 2000 and December 31, 1999, the results of operations for the three and
six month periods ended June 30, 2000 and 1999, and cash flows for the six
months ended June 30, 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 June
30, 2000 and at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31,
------------- ------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Indebtedness:
Bank loans $101,979 $ -- $ 81,145 $ --
Bank lines at an average rate of 6.88%
in 2000 and 5.28% in 1999 15,616 105,980 -- 41,812
Commercial paper, 6.84% interest
in 2000 and 6.08% in 1999 -- 394,020 -- 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 13,130 46,368 14,299 57,196
Other, primarily foreign bank loans, at an
average rate of 5.78% in 2000 and 5.91%
in 1999 6,577 49,608 7,420 58,639
-------- -------- -------- --------
Total notes payable and long-term debt $137,302 $895,976 $102,864 $854,494
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Stockholders' equity:
Common Stock $.005 par value;
200,000 shares authorized;
issued 45,062 shares at June 30, 2000
and at December 31, 1999 $ 225 $ 225
Additional paid in capital 715,331 715,322
Retained earnings 399,910 342,529
Accumulated other comprehensive losses (81,277) (71,146)
Treasury stock, 7,022 shares at June 30, 2000
and 6,700 shares at December 31, 1999, at cost (260,808) (253,274)
Unearned compensation (1,527) (1,726)
--------- ---------
Total stockholders' equity $ 771,854 $ 731,930
========= =========
</TABLE>
(continued)
6
<PAGE> 7
Effective June 1, 2000, the Company amended and renewed the $400 million
364-day Revolving Credit Agreement (the Revolver) expiring on May 31, 2001
and amended the $500 million Amended Credit Agreement (the Credit
Agreement) expiring on July 31, 2002. The Revolver and the Credit Agreement
amendments 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 an annual fee of 0.10% for
each facility, and the Credit Agreement allows for borrowings at specified
bid rates. At June 30, 2000 and December 31, 1999, the three-month LIBOR
rate was 6.78% 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 June 30, 2000 and December
31, 1999. At June 30, 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 June
30, 2000 and December 31, 1999, the Company had $121.6 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.
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 $347.5 million and $385.1 million at June 30, 2000
and December 31, 1999, respectively, of which $246.7 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 $57.3 million and $57.2 million at June 30, 2000 and December 31,
1999, respectively.
(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 June 30, 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
6.69% and 6.22% at June 30, 2000 and December 31, 1999, respectively.
(4) In the first half of 2000, the employment of several senior executives,
including the Company's former chief executive officer and chief financial
officer, was terminated. The Company has negotiated, or is in the process
of negotiating, agreements with these executives, resulting in severance
costs of $6.7 million, of which $3.5 million and $3.2 million were charged
to earnings in the first quarter and second quarter of 2000, respectively.
(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 activities are complete.
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 quarter ended March 31, 1999 and the second
quarter ended June 30, 1999, the Company recorded credits to cost of goods
sold of $4.0 million and $2.0 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 two quarters of 2000.
(continued)
7
<PAGE> 8
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 from the insurance company of $6.2 million representing partial
payments under the property damage coverage and $21.3 million 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 two
quarters 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 45,687 $ 40,452 $ 68,782 $ 57,829
Other comprehensive loss:
Foreign currency translation
adjustment (11,811) (159) (10,131) (9,612)
-------- -------- -------- --------
Comprehensive income $ 33,876 $ 40,293 $ 58,651 $ 48,217
======== ======== ======== ========
</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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used in the computation
of basic earnings per share 38,030 39,755 38,086 39,777
Effect of dilutive securities:
Non-vested restricted shares 22 130 22 130
Stock options 129 148 82 134
------ ------ ------ ------
Weighted average common shares and
equivalents used in the computation
of diluted earnings per share 38,181 40,033 38,190 40,041
====== ====== ====== ======
</TABLE>
(continued)
8
<PAGE> 9
(9) The table below represents the Company's operating results by segment:
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Engineered Systems Group $ 396,608 $ 378,251 $ 735,621 $ 700,520
York Refrigeration Group 263,805 185,792 492,714 290,175
Unitary Products Group 302,657 320,144 521,255 552,176
Bristol Compressors 162,013 178,257 324,128 351,304
Eliminations (61,274) (50,380) (114,844) (99,354)
----------- ----------- ----------- -----------
$ 1,063,809 $ 1,012,064 $ 1,958,874 $ 1,794,821
=========== =========== =========== ===========
Eliminations include the following
intersegment sales:
Engineered Systems Group $ 15,833 $ 8,627 $ 23,624 $ 12,599
York Refrigeration Group 8,857 7,971 19,681 17,663
Unitary Products Group 580 361 1,104 1,133
Bristol Compressors 36,004 33,421 70,435 67,959
----------- ----------- ----------- -----------
Eliminations $ 61,274 $ 50,380 $ 114,844 $ 99,354
=========== =========== =========== ===========
Income from operations:
Engineered Systems Group $ 38,688 $ 33,496 $ 56,257 $ 49,744
York Refrigeration Group 20,493 11,917 28,585 12,205
Unitary Products Group 29,340 38,863 39,443 57,907
Bristol Compressors 19,773 21,465 41,165 40,812
Eliminations, general corporate expenses
and other non-allocated items (23,571) (34,948) (52,720) (53,388)
----------- ----------- ----------- -----------
$ 84,723 $ 70,793 $ 112,730 $ 107,280
Equity in earnings of affiliates:
Engineered Systems Group $ (589) $ (560) $ (1,706) $ (895)
York Refrigeration Group (501) (246) (501) (246)
Unitary Products Group (772) (636) (924) (423)
Bristol Compressors (783) (1,096) (940) (1,478)
----------- ----------- ----------- -----------
$ (2,645) $ (2,538) $ (4,071) $ (3,042)
Earnings before interest and taxes:
Engineered Systems Group $ 39,277 $ 34,056 $ 57,963 $ 50,639
York Refrigeration Group 20,994 12,163 29,086 12,451
Unitary Products Group 30,112 39,499 40,367 58,330
Bristol Compressors 20,556 22,561 42,105 42,290
Eliminations, general corporate expenses
and other non-allocated items (23,571) (34,948) (52,720) (53,388)
----------- ----------- ----------- -----------
$ 87,368 $ 73,331 $ 116,801 $ 110,322
Loss (gain) on sale of businesses 988 -- (26,902) --
Interest expense, net 20,357 12,955 40,231 22,672
----------- ----------- ----------- -----------
Income before income taxes and cumulative
effect of accounting change $ 66,023 $ 60,376 $ 103,472 $ 87,650
Provision for income taxes 20,336 19,924 34,690 28,924
----------- ----------- ----------- -----------
Income before cumulative effect of
accounting change $ 45,687 $ 40,452 $ 68,782 $ 58,726
=========== =========== =========== ===========
</TABLE>
(continued)
9
<PAGE> 10
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Total assets:
Engineered Systems Group $ 751,000 $ 712,119
York Refrigeration Group 655,907 680,453
Unitary Products Group 669,311 560,776
Bristol Compressors 266,307 217,792
Eliminations and other non-allocated assets 598,330 703,399
---------- ----------
$2,940,855 $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
subsequent 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. During the execution of the integration plan,
additional costs were incurred and accrued, resulting in an increase
to the unallocated excess of cost over net assets acquired. These costs
were $5.2 million for fixed asset writedowns, primarily at the
Norrkoping and Retech plants, and additional accruals of $3.2 million
primarily for severance costs for workforce reductions.
The Company has nearly completed executing the plan for integrating Sabroe
into the York Refrigeration Group. The Sabroe portion of the plan included
closing two plants, closing certain duplicate sales and service offices in
Europe and Asia, rationalizing products, reducing salary and wage workforce
and other costs. The Retech and Norrkoping manufacturing plants in Denmark
and Sweden, respectively, are closed and have no remaining production. The
table below details the activities in the first half of 2000.
<TABLE>
<CAPTION>
Additional Accruals
Remaining Established in 2000 Utilized in Remaining
Accruals at to Finalize Six Months Ended Accruals at
(in thousands) December 31, 1999 Integration June 30, 2000 June 30, 2000
----------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Severance costs $5,897 $2,928 $4,884 $3,941
Contractual obligations 1,575 -- 327 1,248
Other 356 241 521 76
------ ------ ------ ------
$7,828 $3,169 $5,732 $5,265
====== ====== ====== ======
</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 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 $451,527 30 years
Trademark and tradenames 35,480 30 years
Proprietary technology and patents 2,050 15 years
--------
Total intangibles $489,057
========
</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
(continued)
10
<PAGE> 11
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>
Six Months Ended June 30, 2000 1999 1999
(thousands, except per share data) Historical Historical Proforma
---------------------------------- ---------- ---------- --------
<S> <C> <C> <C>
Net sales $1,958,874 $1,794,821 $2,028,393
Income before cumulative
effect of accounting change 68,782 58,726 48,831
Net income 68,782 57,829 47,934
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 1.80 $ 1.47 $ 1.22
Net income $ 1.80 $ 1.44 $ 1.20
</TABLE>
(12) In February 2000, the Company sold Northfield Freezing Systems, a
supplier to the food processing industry, to FMC Corporation for $39.4
million. In April 2000, the Company sold another small business for
$2.4 million. The sale of the two businesses resulted in a net pretax
gain of $26.9 million in the first half 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. This portion of the integration plan included
closing York's Gram manufacturing plant in Denmark, closing or
downsizing certain duplicate sales and service offices in Europe,
product rationalizations, and salary and wage workforce reductions.
Other Company charges of $19.5 million, not impacted by the Sabroe
acquisition, related to restructuring, downsizing and other costs.
The tables below detail the activities in the first half of 2000.
YORK REFRIGERATION GROUP CHARGES
<TABLE>
<CAPTION>
Remaining Utilized in Remaining
Accruals at Six Months Ended Accruals at
(In thousands) December 31, 1999 June 30, 2000 June 30, 2000
-------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Severance costs $1,426 $ 811 $ 615
Contractual obligations 554 11 543
Other 50 3 47
------ ------ ------
$2,030 $ 825 $1,205
====== ====== ======
</TABLE>
OTHER COMPANY CHARGES
<TABLE>
<CAPTION>
Remaining Utilized Remaining
Accruals at Six Months Ended Accruals at
(in thousands) December 31, 1999 June 30, 2000 June 30, 2000
-------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Severance costs $4,318 $3,249 $1,069
Contractual obligations 1,535 591 944
------ ------ ------
$5,853 $3,840 $2,013
====== ====== ======
</TABLE>
In the second quarter of 2000, the Company recorded a net credit of
$0.3 million for integration activities. The credit was a result of the
excess of proceeds received for the sale of the building and other
assets at the prior Gram facility in Denmark over the related net book
value and other integration costs for office integration, product
training, and relocation. For the first six months of 2000, the Company
recorded net expenses of $1.2 million for integration activities.
(continued)
11
<PAGE> 12
(14) Reference is made to Registrant's 1999 Annual Report on Form 10-K for
more detailed financial statement and footnotes.
12
<PAGE> 13
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 June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Engineered Systems Group $ 396,608 $ 378,251 $ 735,621 $ 700,520
York Refrigeration Group 263,805 185,792 492,714 290,175
Unitary Products Group 302,657 320,144 521,255 552,176
Bristol Compressors 162,013 178,257 324,128 351,304
Eliminations (61,274) (50,380) (114,844) (99,354)
----------- ----------- ----------- -----------
Net Sales $ 1,063,809 $ 1,012,064 $ 1,958,874 $ 1,794,821
=========== =========== =========== ===========
U.S. 49% 55% 50% 57%
Non-U.S 51% 45% 50% 43%
----------- ----------- ----------- -----------
Total 100% 100% 100% 100%
=========== =========== =========== ===========
</TABLE>
Net sales for the three months ended June 30, 2000 increased 5.1% to $1,063.8
million from $1,012.1 million for the same period in 1999. Net sales for the six
months ended June 30, 2000 increased 9.1% to $1,958.9 million as compared to
$1,794.8 million for the six months ended June 30, 1999. From a geographic
perspective, for the three months ended June 30, 2000, U.S. sales decreased 5.8%
to $525.7 million and non-U.S sales increased 18.5% to $538.2 million.
Order backlog at June 30, 2000 was $1,083.4 million compared to $1,220.6 million
as of June 30, 1999 and $1,065.1 million as of December 31, 1999.
Engineered Systems Group (ESG) sales for the three months ended June 30, 2000
increased 4.9% to $396.6 million from $378.3 million for the same period in
1999. Year-to-date sales increased 5.0% to $735.6 million. The increase in sales
was primarily the result of increased equipment sales in North America, Europe,
and Asia, and due to increases in the North American service business, partially
offset by the effect of the sale of Viron in the third quarter of 1999.
York Refrigeration Group (YRG) sales for the three months ended June 30, 2000
increased 42.0% to $263.8 million from $185.8 million for the same period in
1999. Year-to-date sales increased 69.8% to $492.7 million. The increase was due
to the acquisition of Sabroe. North American revenue decreased due to the
divestiture of Northfield Freezing Systems and continued weakness in the two
main industries the business unit serves - petrochemical and food and beverage.
Unitary Products Group (UPG) sales for the three months ended June 30, 2000
decreased 5.5% to $302.7 million from $320.1 million for the same period in
1999. Year-to-date sales decreased 5.6% to $521.3 million. The sales decrease
was a result of weakness in the manufactured housing business, lower non-U.S.
sales, and the lingering effects of the oversubscribed pre-season sales program
in the fourth quarter of 1999.
Bristol Compressors sales for the three months ended June 30, 2000 decreased
9.1% to $162.0 million from $178.3 million for the same period in 1999.
Year-to-date sales decreased 7.7% to $324.1 million. The decline was due to a
reduction in domestic room air conditioner compressor sales.
(continued)
13
<PAGE> 14
Gross profit during the second quarter ended June 30, 2000 increased 6.0% to
$245.4 million (23.1% of sales) from $231.4 million (22.9% of sales) during the
second quarter ended June 30, 1999. Gross profit for the six months ended June
30, 2000 increased 10.3% to $437.9 million (22.4% of sales) from $397.0 million
(22.1% of sales) during the same six months of 1999. The increase is primarily
due to the impact of the acquisition of Sabroe and better performance in the
Refrigeration Group. In the first and second quarter of 1999, the Company
recorded credits to cost of goods sold of $4 million and $2 million,
respectively, for expected recovery from business interruption insurance
relating to the Grantley accident.
Selling, general and administrative expense (SG&A) increased 9.0% to $161.0
million (15.1% of sales) in the second quarter ended June 30, 2000 from $147.7
million (14.6% of sales) in the second quarter ended June 30, 1999. For the six
months ended June 30, 2000, SG&A expense increased to $324.0 million (16.5% of
sales) compared to $276.8 million (15.4% of sales) for the six months ended June
30, 1999. The increase in dollars and percentage is primarily due to increased
goodwill amortization, the full impact of the Sabroe acquisition, and increased
spending in engineering and marketing at UPG. Also, included in SG&A for the
first two quarters ended June 30, 2000 is $6.7 million of executive severance
costs.
In the second quarter of 2000, the Company recorded a net credit of $0.3 million
for integration activities. The credit was a result of the excess of proceeds
received for the sale of the building and other assets at the prior Gram
facility in Denmark over the related net book value and other integration costs
for office integration, product training, and relocation. For the first six
months of 2000, the Company recorded net expenses of $1.2 million for
integration activities.
Equity in earnings of affiliates was $2.6 million during the second quarter of
2000 as compared to $2.5 million during the second quarter of 1999. Year-to-date
equity in earnings of affiliates was $4.1 million in 2000 compared to $3.0
million in 1999. This improvement is primarily attributable to better
performance of the Company's joint ventures in Spain and Asia.
During the second quarter of 2000, earnings before interest and taxes (EBIT),
excluding integration expenses and the charges for executive severance,
increased to $90.3 million (8.5% of sales) from $86.3 million (8.5% of sales) in
1999. EBIT, excluding integration expenses and the charges for executive
severance, for the six months ended June 30, 2000 was $124.7 million (6.4% of
sales) compared to $123.3 million (6.9% of sales) for the same six months of
1999. The discussion below of each business unit's EBIT excludes the integration
expenses and severance charges as discussed above.
ESG EBIT for the three months ended June 30, 2000 increased 15.3% to $39.3
million (9.9% of sales) from $34.1 million (9.0% of sales) for the same period
in 1999. EBIT for the six months ended June 30, 2000 was $58.0 million compared
to $50.6 million in 1999. The improvement was the result of the successful
introduction of new products, the performance of the service business,
improvement in airside products, the benefits of cost reductions and improved
factory performance.
YRG EBIT for the three months ended June 30, 2000 increased to $21.0 million
(8.0% of sales) from $12.2 million (6.5% of sales) for the same period in 1999.
EBIT for the six months ended June 30, 2000 was $29.1 million compared to $12.5
million in 1999. The improvement was primarily due to the acquisition of Sabroe
and resulting cost synergies.
UPG EBIT for the three months ended June 30, 2000 decreased to $30.1 million
(9.9% of sales) from $39.5 million (12.3% of sales) for the same period in 1999.
EBIT for the six months ended June 30, 2000 was $40.4 million compared to $58.3
million in 1999. EBIT decreased due to lower volume primarily in manufactured
housing, increased investments in engineering, product development and
marketing, and lower margins in the non-U.S. operations.
Bristol Compressors EBIT for the three months ended June 30, 2000 decreased 8.9%
to $20.6 million (12.7% of sales) from $22.6 million (12.7% of sales) for the
same period in 1999. EBIT for the six months ended June 30, 2000 was $42.1
million compared to $42.3 million in 1999. EBIT dollars in the second quarter
and year-to-date were down as a result of negative volume. EBIT as a percent of
sales was flat for the second quarter and up year to date, reflecting negative
volume effects, offset by a more favorable mix to higher margin product sales
and effective cost control.
(continued)
14
<PAGE> 15
In February 2000, the Company sold Northfield Freezing Systems, a supplier to
the food processing industry, to FMC Corporation for $39.4 million. In April
2000, the Company sold another small business for $2.4 million. The sale of the
two businesses resulted in a net pretax gain of $26.9 million in the first half
of 2000.
Net interest expense increased to $20.4 million for the second quarter of 2000.
Year-to-date interest expense was $40.2 million compared to $22.7 million for
the same six months in 1999. 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."
Provisions for income taxes of $20.3 million for the second quarter of 2000 and
$34.7 million for year-to-date 2000 relate to both U.S. and non-U.S. operations.
The effective rate was 33.5% for the first six months of 2000 compared to 33.0%
for the same period 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 31% for year-to-date 2000 results.
Net income, as a result of the above factors, was $45.7 million during the
second quarter of 2000 as compared to $40.5 million during the second quarter of
1999. For the six months ended June 30, 2000, net income increased to $68.8
million compared to $57.8 million in the first six months 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 $400 million 364-day Amended 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 $587.5 million and $485.2 million as of June 30, 2000 and
December 31, 1999, respectively. Accounts receivable and inventory levels were
higher at June 30, 2000, than at December 31, 1999, due to normal seasonal
trends. The current ratio was 1.59 at June 30, 2000, as compared to 1.48 for
December 31, 1999.
Long-term indebtedness was $896.0 million at June 30, 2000, primarily consisting
of borrowings of $394.0 million in commercial paper, $300.0 million of senior
notes, $106.0 million in bank lines and $46.4 million in Danish term loans.
At June 30, 2000, the Company had available a $400 million 364-day Amended
Revolving Credit Agreement (the Revolver) expiring on May 31, 2001 and a $500
million Amended Credit Agreement (the Credit Agreement) expiring on July 31,
2002. The Revolver and the Credit Agreement were amended effective on June 1,
2000 and 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 an annual fee of 0.10% for each facility
and the Credit Agreement allows for borrowings at specified bid rates. At June
30, 2000, the three-month LIBOR rate was 6.78%. 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 June 30, 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 on a long-term
basis. At June 30, 2000 and December 31, 1999, the Company had $121.6 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 6.84% as of June 30, 2000.
(continued)
15
<PAGE> 16
At June 30, 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 June 30, 2000 of $59.5
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 $347.5 million and $385.1 million at June 30, 2000 and December
31, 1999, respectively, of which $246.7 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 $57.3 million and
$57.2 million at June 30, 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 June 30, 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 6.69 % and 6.22% at June 30, 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.
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 $46.2 million for the six months ended June 30, 2000
as compared to $46.9 million for the same period of 1999. 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, and commercial paper borrowings.
Cash dividends of $0.15 per share were paid on common stock in the second
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.
(continued)
16
<PAGE> 17
The Company has nearly completed executing the plan for integrating Sabroe into
the York Refrigeration Group. The Sabroe portion of the plan included closing
two plants, closing certain duplicate sales and service offices in Europe and
Asia, rationalizing products, reducing salary and wage workforce and other
costs. The Retech and Norrkoping manufacturing plants in Denmark and Sweden,
respectively, are closed and have no remaining production.
New Accounting Standards
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" (the Interpretation) which clarified the accounting for certain
stock compensation issues. The Interpretation is effective July 1, 2000 and
generally its effects are applied on a prospective basis. Application of the
provisions of the Interpretation is not expected to have a material effect on
the Company's financial statements.
In June 1998, the 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.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" which amends SFAS No. 133 in certain
respects. Although the Company has not completed its analysis, adoption of these
statements 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,
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.
17
<PAGE> 18
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
(a) The Registrant's Annual Meeting of Stockholders was held on May 25,
2000.
(b) Proxies were solicited for the meeting. All nominees for
Director were elected and item (c) 2 (see below) was approved.
(c) The following votes were cast at the Annual Meeting for the matters
indicated below:
<TABLE>
<CAPTION>
1. Election of Directors Votes For Votes Withheld
--------------------- --------- --------------
<S> <C> <C>
Gerald C. McDonough 31,753,513 3,014,493
Michael R. Young 34,449,436 318,570
W. Michael Clevy 34,440,183 327,823
Malcolm W. Gambill 32,207,961 2,560,045
Robert F. B. Logan 32,645,138 2,122,868
Paul J. Powers 34,339,779 428,227
Donald M. Roberts 32,411,098 2,356,908
James A. Urry 32,704,815 2,063,191
</TABLE>
<TABLE>
<CAPTION>
2. The appointment of KPMG Votes For Votes Against
LLP as independent auditors --------- -------------
<S> <C> <C>
34,214,275 35,693
</TABLE>
Item 5 Other Information
Not Applicable
(continued)
18
<PAGE> 19
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 4.1 - FIRST AMENDMENT, dated as of June 1, 2000, to
the 364-Day Revolving Credit Agreement among YORK
INTERNATIONAL CORPORATION, the several banks and other
financial institutions from time to time parties thereto and
CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New
York Agency, as administrative agent for the Banks thereunder.
Exhibit 4.2 - THIRD AMENDMENT, dated as of June 1, 2000, to
the Amended and Restated Credit Agreement among YORK
INTERNATIONAL CORPORATION, the several banks and other
financial institutions from time to time parties thereto and
CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New
York Agency, as agent for the Banks thereunder.
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) None
19
<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 August 9, 2000 /S/ C. David Myers
---------------------- ------------------------------
C. David Myers
Corporate Vice President and
Chief Financial Officer
20
