-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RUXD96CfsgQrKPJKxFqDOQ8FDFvvZZkGO7nsb6xQFAulOdMcg3dK251Frrc0rZDQ //WcnvRuL6Ps6BsG03pfzw== 0001068800-00-000125.txt : 20000331 0001068800-00-000125.hdr.sgml : 20000331 ACCESSION NUMBER: 0001068800-00-000125 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUSSMANN INTERNATIONAL INC CENTRAL INDEX KEY: 0001046128 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 431791715 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13407 FILM NUMBER: 587128 BUSINESS ADDRESS: STREET 1: 12999 ST CHARLES ROCK RD CITY: BRIDGETON STATE: MO ZIP: 63044-2483 BUSINESS PHONE: 3142912000 MAIL ADDRESS: STREET 1: 12999 ST CHARLES ROCK ROAD CITY: BRIDGETON STATE: M0 ZIP: 63044-2483 10-K405 1 HUSSMANN INTERNATIONAL, INC. 10-K405 =========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ____________________ /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 01-13407 HUSSMANN INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-1791715 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12999 ST. CHARLES ROCK ROAD, BRIDGETON, MISSOURI 63044-2483 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 291-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, par value $.001 NEW YORK STOCK EXCHANGE Preferred Stock Purchase Rights NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ As of February 29, 2000, the aggregate market value of the Registrant's voting and non-voting common equity held by non-affiliates was $733.6 million (based on the closing price of such date, as reported for the New York Stock Exchange-Composite Transactions). The number of shares of the Registrant's Common Stock, $.001 par value per share, outstanding as of February 29, 2000 was 50,753,000. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Hussmann International, Inc.'s Annual Report to Shareholders for the year ended December 31, 1999 (Part I, Part II, and Part IV of Form 10-K). 2. Portions of Hussmann International, Inc.'s Notice of 2000 Annual Meeting of the Stockholders and Proxy Statement (Part III of Form 10-K). =========================================================================== TABLE OF CONTENTS
PAGE ---- PART I Item: 1. Business 1 2. Properties 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 PART II Item: 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 7A. Quantitative and Qualitative Disclosures about Market Risk 9 8. Financial Statements and Supplementary Data 9 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 PART III Item: 10. Directors and Executive Officers of the Registrant 9 11. Executive Compensation 9 12. Security Ownership of Certain Beneficial Owners and Management 9 13. Certain Relationships and Related Transactions 9 PART IV Item: 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10 Signatures 10 PART I ITEM 1. BUSINESS BACKGROUND Hussmann International, Inc. ("Hussmann" or the "Company") was incorporated under the laws of the State of Delaware on August 29, 1997. At the time of its incorporation, the Company was a wholly-owned subsidiary of Whitman Corporation, a Delaware Corporation ("Whitman"). On January 30, 1998, (the "Distribution Date") Whitman distributed (the "Distribution") all the issued and outstanding shares of common stock, par value $.001 per share, of the Company ("Hussmann Common Stock") to the shareholders of record of Whitman's common stock as of January 16, 1998. The Distribution was made pursuant to the terms of a Distribution and Indemnity Agreement (the "Distribution Agreement") dated as of December 31, 1997, by and among Whitman, the Company and Hussmann Corporation, a Missouri corporation ("Hussmann Corporation") and wholly-owned subsidiary of the Company. Pursuant to the Distribution Agreement and prior to the Distribution Date, the Company and Whitman executed a series of steps in order to separate from Whitman any assets related to the business of Hussmann. Such steps involved, among other things, the transfer to Hussmann from Whitman of Hussmann Corporation and all of the businesses managed by Hussmann Corporation including its foreign operations, which were previously held by a Netherlands company owned by Whitman. As a result of the Distribution, Hussmann, including its wholly and majority-owned subsidiaries, is now an independent public company. Hussmann Corporation is the successor to the business started by Harry L. Hussmann in 1906 which sold butchers supplies. Hussmann Corporation introduced the first meat display case in 1917 and the first frozen food case for Clarence Birdseye in 1933. Since 1933, Hussmann has grown to be the market leader in the manufacture and sale of refrigerated display merchandisers and refrigeration systems in the U.S., Canada, Spain, the U.K., Mexico, Brazil and the Asia-Pacific region. Hussmann Corporation was incorporated in Missouri in 1929. Hussmann's principal executive offices are located at 12999 St. Charles Rock Road, Bridgeton, Missouri, 63044. The Company's telephone number is (314) 291-2000. OVERVIEW Hussmann manufactures, sells, installs and services merchandising and refrigeration systems for the commercial food industry throughout the world. Products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann's commitment to research and development provides for the creation of energy efficient products designed to provide low life- cycle cost. Hussmann's wide product line features high quality products designed to meet the needs of a broad range of customers. Hussmann operates in three geographic segments: U.S. and Canada, Europe, and Other International which includes Mexico, Latin America and Asia- Pacific. Hussmann's 1999 revenues of $1.3 billion included $937.2 million from the U.S. and Canada segment, $203.2 million from the European segment and $174.6 million from the Other International segment. For further information related to Hussmann's geographic segments, see note 19 of the notes to consolidated financial statements included as part of Hussmann's Annual Report to Shareholders for the year ended December 31, 1999 (the "1999 Annual Report"), incorporated herein by reference. MARKET OVERVIEW In the U.S. and Canada, Hussmann sells its products primarily to supermarkets and convenience stores, including global and national chains, as well as local retailers. Since 1995, supermarkets and convenience stores have accelerated their expansion by remodeling their facilities and modernizing their equipment, partly in response to increased competition from new store formats. In addition, consolidation in the supermarket industry has led to reformatting and remodeling as chains integrate their newly acquired stores. Refrigerated display cases are being installed to address growing consumer demand for fresh, prepared and ready-to-eat foods. Finally, federal and state environmental regulations pertaining to energy, core product temperatures and sanitation are also driving expansion and remodeling. 1 In addition to expansion by supermarkets and convenience stores, with the popularity of the home meal replacement trend, the food service market is now one of the fastest growing parts of the commercial food industry in the U.S. This growth is attributable to the same factors driving supermarkets and convenience stores to sell more prepared foods. Another growing market within the commercial food industry is commercial/industrial refrigeration, including the emerging Home Delivered/Internet Grocery segment. The international market represents a significant long-term growth opportunity as countries develop their infrastructure, as well as their food distribution and preservation needs. Many countries are also experiencing economic growth, creating demand for more technologically advanced products. Retailers in Mexico and Latin America are expanding and remodeling their stores as a result of competition from U.S. and European chains entering these markets. STRATEGY Hussmann's business strategy is to maintain and improve its position as a leader in the mature markets in which it competes while expanding its presence in the food service and food warehouse markets, and in evolving international markets. Domestic Revenue Growth. In the U.S. and Canada, Hussmann seeks to increase its sales to those customers which it has historically served in the commercial food industry while also increasing sales to higher growth areas of the food service and food warehouse markets. Hussmann plans to achieve these goals by (i) continuing to develop proprietary products such as the Impact(R) line and the Protocol(R) refrigeration system (described below) in order to differentiate Hussmann from its competitors, (ii) expanding into the food service and food warehouse markets by leveraging its existing technological and manufacturing expertise, and (iii) pursuing strategic acquisitions to broaden its service and distribution network and manufacturing capabilities. International Expansion. Hussmann seeks to participate in the growth of developing regions throughout the world by further strengthening its manufacturing and distribution presence in these regions. Hussmann is investing in manufacturing facilities that have the technology to produce specific products tailored to local customer demand. Hussmann expects to increase its global competitiveness by locating manufacturing facilities in various regions throughout the world. Management believes the Company's global manufacturing platform provides a key advantage in serving major retailers who are making international expansion an integral part of their growth plans. Approximately, 29%, 26% and 22% of Hussmann's 1999, 1998 and 1997 revenues, respectively, were derived from its operations located outside of the U.S and Canada. To further the Company's strategy for international expansion, in March 1999, Hussmann completed its acquisition of Koxka C.E., S.A. ("Koxka"), the leading commercial refrigeration company in Spain. Koxka manufactures a complete line of commercial and industrial refrigeration products including standard and customized merchandising display cases for supermarkets, beverage coolers, ice cream merchandisers and an array of other self- contained food merchandisers. In 1999, Koxka contributed approximately $90 million to Hussmann's consolidated revenues. In August 1998, Hussmann acquired a 65% interest in McAlpine Investments, Ltd. ("MIL"). MIL consists of two separate operating companies engaged in the sale, installation, manufacture and service of commercial refrigeration products for the retail food industries in New Zealand, Australia and various island nations throughout the South Pacific. MIL had combined revenues in 1999 and 1998 of approximately $67.3 million and $29.2 million, respectively. For further information regarding the Company's recent acquisitions, see note 4 of the notes to consolidated financial statements included in the 1999 Annual Report, incorporated herein by reference. Increased Capacity. The commercial food industry in the U.S. has experienced significant growth since the beginning of 1995. As a result, the majority of Hussmann's plants operated at full capacity during the third and fourth quarters of 1995 through 1999. In order to capitalize on the industry's growth while providing timely delivery to existing customers, Hussmann completed its plan to expand by 20%, the production capacity of refrigerated display cases at its Bridgeton, Missouri plant. The Company also consolidated the production of refrigeration systems from five plants to two, which are located near Atlanta, Georgia and in Chino, California. For further information regarding the Company's capacity expansion see Management's Discussion and Analysis of Financial Condition and Results of Operations: Liquidity, Financial Condition and Capital Resources included in the 1999 Annual Report, incorporated herein by reference. Cost Reduction. Hussmann has implemented aggressive cost and expense containment programs including rationalizing similar manufacturing operations, instituting centralized purchasing of frequently used components, consolidating engineering efforts and targeting selling, general and administrative and fixed costs to remain constant through the year 2001. 2 PRODUCTS Hussmann products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann's wide product line features high quality products designed to meet the needs of a broad range of customers. All of Hussmann's products are certified to relevant national or international industry standards, as appropriate, by independent laboratories. Merchandisers. Refrigerated display merchandisers preserve perishable food products while allowing products to be attractively displayed and easily accessed by the consumer. Display merchandisers are used to display refrigerated and frozen products in supermarkets, convenience stores, food service outlets and delicatessens. These merchandisers are either self- contained or linked to a remote refrigeration system. Hussmann's display merchandisers can be customized to display a variety of items. Hussmann's standard product line of merchandisers, the Impact line, was introduced in 1995. Hussmann has positioned Impact as a global merchandising platform. Before the introduction of the Impact line, Hussmann's operating units offered region-specific merchandising product lines. Hussmann's operations in the U.S., Mexico, Latin America, the U.K. and China have completed the transition to the Impact line. Hussmann does not anticipate significant changes to Koxka's product line due to Koxka's unique European product design and existing customer base. Additionally, Koxka's products have had strong acceptance in Hussmann's distribution channels, especially in Asia-Pacific and Latin America. The Impact platform was designed with new technological features, manufacturing efficiencies, and global markets in mind. Impact products utilize many common parts and each merchandiser is designed to be dismantled and shipped in pieces so as to more economically and efficiently address export shipment costs as well as remote case assembly opportunities. The Impact line of merchandisers also includes cases that are not product specific, enabling stores to display fresh meat, bulk produce, and other products in the same merchandiser by changing display accessories. Impact merchandisers offer lower energy, maintenance and refrigeration costs, while featuring advanced styling and merchandising capabilities. Hussmann is also a leader in providing customized display merchandisers and accessories which complement its standard lines. The demand for these merchandisers has increased with the growth of specialty sections in supermarkets that require attractive, custom designed merchandisers highlighting displayed products. These higher margin, specialized merchandisers represent an expanding market where Hussmann can capitalize on its leadership position and extensive branch network for selling, installing and servicing products. Hussmann merchandisers can be refrigerated, non-refrigerated, heated and color coordinated to store specifications. Hussmann's Chino, California and Brantford, Ontario plants are the largest custom merchandiser manufacturers in North America. Refrigeration Systems. Hussmann is a technological leader in centralized refrigeration systems. These systems, which include multi-compressors, automatic flow control systems and electronic controls, are generally located in a store's back room, away from the display and merchandising areas. They are built to customer specifications and vary by number of compressors, refrigerant type and need for satellite units. In 1993, Hussmann introduced the Protocol refrigeration system. The Protocol system utilizes compact, multiple scroll compressor refrigeration units enclosed in attractive housings. Unlike back room systems, individual Protocol units are located either in or very near the sales areas, close to the refrigerated display cases. Protocol units use minimal floor space and eliminate the need for back room refrigeration and the related construction costs. Protocol is a chlorofluorocarbon (CFC) and hydrochlorofluorocarbon (HCFC) free system, which uses up to 50% less refrigerant and reduces the amount of piping and the likelihood of refrigerant leaks. Other Products. Hussmann manufactures numerous other products for use in the commercial food industry. These products include a line of coolers for the beverage industry sold primarily in Mexico and Latin America. In addition, Hussmann manufactures air handlers, evaporative condensers and heat exchange coils for the commercial/industrial refrigeration market. Hussmann also manufactures and installs walk-in storage coolers and freezers used for bulk storage and storage for non-display items. These units are typically found in the back rooms of supermarkets and convenience stores and other commercial sites, such as hotel and cafeteria kitchens. Hussmann's other products include self-contained refrigeration equipment utilized in convenience stores, ice cream merchandisers and other specialty refrigerated equipment used in a variety of food-related businesses. 3 PRODUCT DEVELOPMENT AND PROPRIETARY INFORMATION Hussmann strives to be the technology leader in food merchandising equipment and commercial refrigeration. Hussmann believes technological development is an important factor in its ability to maintain its market leadership position. Hussmann's research and product development strategy is to centralize the development of new products for global application. Two global design centers have responsibility for creating new products with a focus on global design for specific technologies and product lines. The goal of the design centers is to achieve more commonality of components and modularity in Hussmann's product lines. The centers share technologies and product designs. The Impact merchandiser platform is a product of Hussmann's global design approach. The corporate design center, located in Bridgeton, is responsible for technological development, new supermarket display case platform development and global manufacturing support. The Mexico City design center is responsible for entry level products such as beverage coolers and spot merchandisers. In addition to the global design centers, Hussmann conducts refrigeration systems development primarily at its Bridgeton and Atlanta facilities, and custom merchandiser development is performed at its Chino, California facility. The corporate design center, which Hussmann believes to be unique in the industry, includes eleven ambient-controlled display case test rooms, two ambient-controlled psychrometric test rooms, one ambient-controlled test chamber, all with dedicated computer based data acquisition systems, a "mini-factory" model shop, materials testing lab, reverberate sound test room, transit and vibration test area, rain test chamber and solid modeling design workstations. The corporate design center allows Hussmann to work closely with chemical companies and compressor, valve and controls manufacturers to create new generations of cases and systems. Hussmann's research and development efforts are staffed by approximately 145 engineers, designers, laboratory technicians and model makers including approximately 55 at the corporate design center. Hussmann has spent approximately $6.3 million, $6.4 million and $5.6 million on research and development during the years ended 1999, 1998 and 1997, respectively. Research and development expenditures in future years are expected to approximate $6.0 million a year. Hussmann holds patents registered in the U.S. and foreign countries for various products. Hussmann believes that although its patents relating to the Impact platform and Protocol refrigeration system are important in maintaining its competitive and marketing advantage, no individual patent is material to its financial condition or results of operations. Hussmann also holds various trademarks, tradenames and copyrights, none of which, other than the Hussmann and Koxka names, are considered by Hussmann to be material to its financial condition or results of operations. MANUFACTURING OPERATIONS U.S. and Canada. Hussmann has eight manufacturing plants in the U.S. and two manufacturing plants in Canada, each of which is devoted to the manufacture of certain lines of Hussmann products. Hussmann believes efficiency and quality are improved by concentrating the manufacture of its different product lines at separate plants. For further information, refer to "Properties" appearing elsewhere in this Form 10-K. Europe. Hussmann reconfigured its manufacturing plant in Milton Keynes, England which makes refrigerated display merchandisers and closed its manufacturing plant in Glasgow, Scotland during 1998. Hussmann sells the products manufactured at the Milton Keynes plant primarily in the U.K. In addition, Koxka, Hussmann's most recent acquisition and the leading commercial and industrial refrigeration manufacturer in Spain, has five manufacturing locations producing standard and customized merchandising display cases, beverage coolers, ice cream merchandisers and other self- contained food merchandisers. The Company is in the process of rationalizing and consolidating all of its European operations subsequent to the Koxka acquisition. Koxka will complement the Company's existing business in the U.K. and provide numerous integrated synergies. Other International. In Mexico, Hussmann has manufacturing plants in Mexico City and Monterrey, primarily serving the supermarket and beverage industries. In January 1997, Hussmann expanded its operations in Latin America by acquiring a 70% interest in Fast Frio do Brasil, Ltda. ("Fast Frio"), a Brazilian supermarket equipment manufacturer. In July 1999, the Company acquired the remaining interest in Fast Frio and renamed it Hussmann do Brasil, Ltda. In November 1997, Hussmann acquired 100% of Industrias Gilvert in Mexico City, a manufacturer of commercial and industrial refrigeration products. 4 Hussmann has a 55% interest in Luoyang Hussmann Refrigeration Co., Ltd., a leading producer of refrigeration systems and display merchandisers in China. The joint venture produces Hussmann-designed products including the Impact line of merchandisers. As previously stated, Hussmann acquired a 65% interest in MIL with operations in New Zealand and Australia. MIL has three manufacturing locations producing refrigeration systems, custom display merchandisers and cool room panels. Most of Hussmann's component purchases are for standard, readily available materials such as carbon steel, compressors and electrical components. Hussmann generally does not enter into long-term supply contracts. Hussmann also purchases custom components produced to its specifications. Although an interruption in the supply of a custom component may cause a short-term disruption of operations, Hussmann has alternative supply arrangements to mitigate any long-term effects. During 1999, Hussmann launched a global purchasing initiative designed to reduce the cost of raw materials. As part of this initiative, global sourcing teams have been assembled, representing each manufacturing facility. Initially, these teams will implement procedures to consolidate orders for high-volume materials and concentrate the Company's purchasing activities with a few "best-in-class" companies. In addition, Hussmann expects it will be able to improve inventory management through the implementation of an integrated company-wide information system (ERP), which will link the Company's manufacturing sites worldwide, providing the necessary information to enhance vendor transactions globally. SALES AND MARKETING In the U.S., Canada, Mexico and the U.K., Hussmann sells, installs and services its products primarily through its network of approximately 39 branch facilities. In addition to these company-operated facilities, Hussmann works with independent distributors throughout the world. Through this network and the Hussmann Total Service Program ("TSP"), Hussmann seeks to promote strong customer loyalty and strengthen its reputation for quality and reliability. The Hussmann TSP encompasses Hussmann's ability to provide store design, engineer a broad range of standard and customized equipment, and provide installation and service capabilities to its customers. A newly established sales force will target opportunities to sell custom- designed hot and cold food cases for casual dining, carry-out and similar types of food service establishments. In addition, Hussmann has also entered into agreements throughout the U.S. with manufacturers' representatives specializing in the food service market. Hussmann believes these relationships will enable it to more effectively increase its sales in this growing market. Koxka has a network of eight company-owned distributors, three sales offices and 129 independent distributors in 19 countries. In addition, Koxka products can be distributed through any Hussmann location. In Latin America, Hussmann sells through a network of approximately 20 independent distributors in those countries where it has no direct investment. Hussmann has distribution agreements in Colombia, El Salvador, Venezuela, Ecuador, Guatemala, Honduras, Costa Rica and Puerto Rico. Hussmann has its own distribution network in Chile, Argentina, Brazil and Peru. In Southeast Asia, Hussmann has a 50% ownership position in a joint venture that sells, services and installs Hussmann products in Singapore, Malaysia, the Philippines, and Hong Kong. MIL sells, services and installs Hussmann products in Australia, New Zealand and the South Pacific Islands. Hussmann has company-owned sales offices in Seoul, Korea and Guangzhou, China. Hussmann also has agreements with distributors and/or licensees, in Taiwan, Thailand, Indonesia, French Polynesia and Guam. Hussmann's pricing is usually on a competitive bid basis. Hussmann submits individual store bids, multi-store package bids and annual contract bids. There is standard pricing for some items such as service parts and also for wholesale sales. COMPETITION In general, the markets in which Hussmann participates are highly competitive with competition primarily based on features, quality, technology, energy conservation and price. Hussmann believes it is competitive on these bases. Hussmann's competitors vary according to product and geographic area, and include companies that manufacture a variety of products for the commercial food industry and those that specialize in the manufacture of a particular product. Hussmann faces competition from a limited number of large competitors who sell their products to supermarkets and convenience stores in the U.S. and Canada. These competitors include Kysor-Warren (Berisford, plc), Tyler Refrigeration Corporation (United Technologies Corporation) and Hill Phoenix, 5 Inc. (Dover Corporation) in supermarkets and Universal Nolin/Kelvinator (United Technologies Corporation), Master-Bilt Products, and Federal (Standex International Corporation) in convenience stores. Competition in the U.S. and Canada in refrigeration systems, walk-in storage coolers and freezers, specialty cases and other Hussmann products is more fragmented, with Hussmann facing competition from a number of regional manufacturers. In Mexico, Latin America and Europe, Hussmann faces competition from large European manufacturers, such as Costan and Bonnet (EL. FI Elettrofinanziara S.P.A.), and Linde AG as well as smaller local manufacturers. In Asia- Pacific, Hussmann is in competition with local manufacturers, large European manufacturers and Japanese manufacturers, such as Sanyo, Hitachi and Nakano. CUSTOMERS No single customer accounted for more than 10% of Hussmann's revenues during any of the last three fiscal years. Hussmann's largest customers are supermarkets in the U.S. and include 19 of the top 20 supermarket chains. The U.S. customer base is composed of approximately 11,000 independent and 19,000 chain-owned supermarkets, plus over 96,000 other grocery stores. In recent years, approximately 4,000 stores purchased refrigeration equipment annually for either new stores or remodeling existing stores. Historically, Hussmann's supermarket business has been divided almost equally between outfitting new stores and remodeling existing stores. In Mexico, Hussmann sells to all of the top ten chains, while in Brazil, Hussmann sells to seven of the top ten chains. In Europe, Hussmann's customer base consists of approximately 20,000 chain-owned and independent supermarkets. The Company serves seven of the top ten European chains. BACKLOG AND SEASONALITY The dollar amount of firm backlog at December 31, 1999 was $206.0 million, compared with $201.5 million at December 31, 1998. Substantially all such backlog was shipped by March 1, 2000. Hussmann experiences the greatest demand for its products in the third and fourth quarters of the year, with greater than 55% of annual sales and revenues occurring during that period in 1999, 1998 and 1997. This demand results from customers' seasonal construction cycles and desire to complete stores prior to the year-end holiday season. On average, during the five- year period ending December 31, 1999, 67% of operating income was generated in the third and fourth quarters. REGULATORY COMPLIANCE Hussmann is subject to numerous federal, state and local laws and regulations designed to protect the environment. In addition to environmental laws, Hussmann is subject to the Federal Occupational Safety and Health Act and other laws regulating safety and health. Hussmann maintains a program to facilitate compliance with these laws, the capital costs of which are not material to its financial condition or results of operations. Hussmann is contractually obligated through 2004 to indemnify the current owners of a previously sold operation for the costs to perform certain remedial and monitoring activities. These activities are identified and outlined in a Consent Order signed by Hussmann and the Missouri Department of Natural Resources. Hussmann believes it has sufficient reserves to meet these obligations. Hussmann has been named as a potentially responsible party under superfund legislation at three sites. One site is a community landfill and the other two sites are treatment, storage and disposal facilities used by Hussmann to handle industrial waste. Hussmann is not currently utilizing any of these sites and believes any liability it may ultimately incur at such sites would not have a material adverse effect on its consolidated financial condition, results of operations, or cash flows. EMPLOYEES At December 31, 1999, Hussmann had approximately 9,100 employees including approximately 5,200 covered by collective bargaining agreements. Labor contracts with respect to approximately 3,200, 2,300 and 1,700 employees expire in 2000, 2001 and 2002, respectively. Hussmann considers its relationships with employees to be generally satisfactory. 6 ITEM 2. PROPERTIES Hussmann's world headquarters, corporate design center and principal manufacturing facility are located at a company-owned facility in Bridgeton, Missouri. In the U.S. and Canada, Hussmann has seven additional manufacturing facilities located in seven different states and two manufacturing facilities in Canada. Five of these additional U.S. facilities are leased and two are owned by the Company. Both facilities in Canada are company-owned. In Europe, Hussmann has two manufacturing facilities in the U.K. and five in Spain, all of which are owned by the Company. In countries comprising Other International, Hussmann has three manufacturing facilities in Mexico, (one of which includes a design center), one manufacturing facility in Brazil, one in China, one in Australia and two in New Zealand. The manufacturing facility in China is owned by a joint venture subsidiary of the Company. The manufacturing facilities in Australia and New Zealand, and one of the facilities in Mexico are leased. The two other facilities in Mexico and the facility in Brazil are company-owned. Management believes these facilities are adequate for the Company's business needs. ITEM 3. LEGAL PROCEEDINGS Hussmann is involved in certain claims and legal proceedings arising in the normal course of business. Although it is impossible to predict the ultimate outcome of these matters, in the opinion of Management, after appropriate consultation with legal counsel, the outcome of any such proceedings individually or in the aggregate will not have a material adverse effect on Hussmann's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1999. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and experience of the executive officers of the Company as of March 2000, are set forth below: J. Larry Vowell (59) President and Chief Executive Officer, Director since January 29, 1998 Mr. Vowell has spent his entire professional career with Hussmann. After holding a variety of management positions, Mr. Vowell became President and Chief Operating Officer-Hussmann U.S.A. in 1990 and President and Chief Executive Officer later that year. John S. Gleason (58) Executive Vice President-North American Operations Mr. Gleason joined Hussmann in 1988 as President-International Group. He served as Executive Vice President-Sales and Marketing for North America from 1991 to 1995. Michael D. Newman (43) Senior Vice President-Chief Financial Officer Mr. Newman joined Hussmann in 1996. Prior to that, he spent 17 years with General Electric Company in various financial positions, most recently as Manager, America's Finance. John Schlee (57) Senior Vice President-Europe and Middle East Mr. Schlee joined Hussmann in 1988 as Group Vice President- Manufacturing. He became Senior Vice President-Manufacturing in 1989, was Senior Vice President-International from 1995 to 1996 and was Senior Vice President-Global Development from 1996 to November 1997. 7 Lawrence R. Rauzon (50) Vice President-Asia-Pacific Mr. Rauzon served as Vice President-Western United States from 1989- 1994 when he was appointed Vice President and Region Manager, Western United States. He was appointed to his present position in 1996. He has been with Hussmann since 1978. Mark C. Schaefer (42) Vice President-Mexico and Latin America Mr. Schaefer joined Hussmann in 1981. He became President-Hussmann Mexico in 1992, and was appointed to his present position in 1995. Dennis G. Gipson (46) Vice President-Global Development Mr. Gipson joined Hussmann in 1972. From 1989 to 1991 he was Vice President Sales-North Central Zone. He served as Vice President for Product Development and Research from 1992 to 1996 and as Vice President-Refrigeration, North America from 1996 to November 1997. Burton Halpern (58) Vice President, General Counsel and Secretary Mr. Halpern has served in various legal capacities with Hussmann since 1970. He became General Counsel in 1985. Joseph R. Pinkston III (45) Vice President-Human Resources Mr. Pinkston joined Hussmann in 1995. From 1992-1995 he served as Group Director of Human Resources for the Bowman Distribution Division of the Barnes Group. Prior to that, he served in various human resource positions with units of AlliedSignal Inc. Thomas G. Korte (36) Vice President-Corporate Controller Mr. Korte joined Hussmann in 1998. From 1986-1998 he was employed by KPMG LLP with his last position being Senior Manager. There are no family relationships among any of the executive officers. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Hussmann Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "HSM". As of March 6, 2000, there were 9,788 holders of record of Hussmann Common Stock. "When issued" trading of Hussmann Common Stock commenced on the NYSE on January 20, 1998. Prior to that date, Hussmann Common Stock was not listed or quoted on any securities exchange or quotation system. Information regarding the Company's reported high and low sales prices as reported for NYSE Composite Transactions for Hussmann Common Stock and the dividends declared for each quarterly period ending after January 20, 1998, is incorporated herein by reference to note 20 of the notes to consolidated financial statements in the 1999 Annual Report. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth in "Five Year Summary of Selected Financial Data" which appears in the 1999 Annual Report, incorporated herein by reference. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" which appears in the 1999 Annual Report, incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations: Financial Risks and Non-U.S. Operations" which appears in the 1999 Annual Report, incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The 1999 financial statements and supplemental data required by this item are incorporated herein by reference to the consolidated financial statements and notes thereto, and Independent Auditors' Report which appear in the 1999 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required for Executive Officers is reported in Part I of this report. Other information required by this item is incorporated herein by reference to the information contained under "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in Hussmann's 2000 Proxy Statement dated April 4, 2000, filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "2000 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the information contained under "Compensation of Directors" and "Executive Compensation and Other Information" in the 2000 Proxy Statement (other than "Report of Management Resources and Compensation Committee" and "Performance Graph"). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the information contained under "Beneficial Ownership of Common Stock" in the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the past fiscal year, neither Hussmann nor its subsidiaries was a party to any transaction or proposed transaction in which any director, executive officer or any member of his or her immediate family had a material direct or indirect interest. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The consolidated financial statements of Hussmann and its subsidiaries and the Independent Auditors' Report thereon are incorporated herein by reference to the 1999 Annual Report. 2. FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not required, are not applicable or the information is given in the consolidated financial statements or notes thereto contained in the 1999 Annual Report. 3. EXHIBITS See the accompanying Exhibit Index for a list of Exhibits which are filed as a part of this Form 10-K. (B) REPORTS ON FORM 8-K Hussmann filed a Current Report on Form 8-K dated January 12, 2000, to report that Hussmann and Richard G. Cline, Chairman of the Board of Hussmann, had signed an agreement pursuant to which Mr. Cline agreed, pending his re-election to the Board of Directors of Hussmann, to extend his term as Chairman of the Board for a period of twelve months expiring January 31, 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 23rd day of March, 2000. HUSSMANN INTERNATIONAL, INC. By: /s/ MICHAEL D. NEWMAN --------------------------------------------- Michael D. Newman Senior Vice President-Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on behalf of the registrant, this 23rd day of March, 2000. SIGNATURE TITLE --------- ----- /s/ J. LARRY VOWELL President and Chief Executive - ---------------------------------------- Officer and Director (principal J. Larry Vowell executive officer) /s/ MICHAEL D. NEWMAN Senior Vice President-Chief - ---------------------------------------- Financial Officer (principal Michael D. Newman financial officer) /s/ RICHARD G. CLINE Chairman of the Board and - ---------------------------------------- Director Richard G. Cline 10 /s/ VICTORIA B. JACKSON Director - ---------------------------------------- Victoria B. Jackson /s/ LAWERANCE A. DEL SANTO Director - ---------------------------------------- Lawrence A. Del Santo /s/ R. RANDOLPH DEVENING Director - ---------------------------------------- R. Randolph Devening /s/ J. JOE ADORJAN Director - ---------------------------------------- J. Joe Adorjan /s/ ARCHIE R. DYKES Director - ---------------------------------------- Archie R. Dykes /s/ THOMAS G. KORTE Vice President-Corporate - ---------------------------------------- Controller (principal accounting Thomas G. Korte officer) 11
EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 2.1 Agreement Relating to Hussmann McAlpine Limited dated August 17, 1998 between Hussmann Netherlands B.V. and Barry Edward Brill and Allan Francis Cotter, Phillip Joseph Miller, Howard James Small, and Robert Charles Todd and Kevin Stainer (incorporated by reference to Exhibit 2 to Hussmann International, Inc.'s Form 8-K dated August 17, 1998). 2.2 Share Purchase Agreement dated January 6, 1999 between Hussmann International, Inc. and Vicente Guibert Azcue, Ramon Guibert Encio, Inigo Guibert Encio, Jose Iriondo Murua, Juan Felix Iriondo Altuna, Maria Elena Iriondo Altuna, Maria Teresa Iriondo Altuna, and Florita Iriondo Altuna (the definitive agreement to acquire Koxka) (incorporated by reference to Exhibit 2.2 to Hussmann International, Inc.'s Form 10-K for the fiscal year ended December 31, 1998 (the "1998 Form 10-K")). 3(i) Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to Hussmann International, Inc.'s Registration Statement on Form 10/A No. 3 (Post-Effective Amendment No. 1) (Commission File No. 1-13407)). 3(ii) Amended and Restated By-Laws (incorporated by reference to Exhibit 3 to Hussmann International Inc.'s Form 10-Q for the quarter ended June 30, 1999). 4.1 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.2 to Hussmann International, Inc.'s Registration Statement on Form S-8 relating to its Retirement Savings Plans (Registration No. 333-44623). 4.2 Amended and Restated Rights Agreement dated as of July 15, 1999 between Hussmann International, Inc. and First Chicago Trust Company of New York (incorporated by reference to Exhibit 4 to Hussmann International Inc.'s Form 10-Q for the quarter ended June 30, 1999). 4.3 Indenture dated as of May 22, 1998 by and between Hussmann International, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.6 to Hussmann International, Inc.'s 1998 Form 10-K) 10.1 Distribution and Indemnity Agreement dated as of December 31, 1997 among Hussmann International, Inc., Hussmann Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.1 to Hussmann International, Inc.'s Form 8-K dated January 30, 1998). 10.2 Tax Sharing Agreement dated as of December 31, 1997 among Hussmann International, Inc., Hussmann Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.2 to Hussmann International, Inc.'s Form 8-K dated January 30, 1998). 10.3 Credit Agreement dated as of January 23, 1998 among Hussmann International, Inc., various financial institutions and Bank of America National Trust and Savings Association, as administrative agent (the "Credit Agreement") (incorporated by reference to Exhibit 4 to Hussmann International, Inc.'s Form 8-K dated May 15, 1998). 10.4 First Amendment dated as of May 29, 1998 to the Credit Agreement (incorporated by reference to Exhibit 4 to Hussmann International, Inc.'s Form 8-K dated May 15, 1998). 10.5 Second Amendment dated as of January 15, 1999 to the Credit Agreement (incorporated by reference to Exhibit 4.3 of the 1998 Form 10-K). 10.6 Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Hussmann International, Inc.'s Form 10-Q for the quarter ended March 31, 1998). 10.7 Form of Option Agreement (incorporated by reference to Exhibit 10.4 to Hussmann International, Inc.'s Form 10-K for the quarter ended March 31, 1998). 12 10.8 Form of Restricted Stock Award (incorporated by reference to Exhibit 10.4 to Hussmann International, Inc.'s Form 10-K for the fiscal year ended December 31, 1997). 10.9 Change in Control Agreement (incorporated by reference to Exhibit 10.5 to Hussmann International, Inc.'s Registration Statement on Form 10/A No. 1 (Commission File No. 1-13407)). 10.10 Agreement between the Registrant and Richard G. Cline (incorporated by reference to Hussmann International Inc.'s Form 8-K dated January 12, 2000). 10.11 Stock Option Agreement dated as of February 1, 2000 between Hussmann International, Inc. and Richard G. Cline. 10.12 Employment Agreement dated as of April 9, 1998 between Hussmann International, Inc. and J. Larry Vowell (incorporated by reference to Exhibit 10.9 to Hussmann International, Inc.'s Form 10-Q for the quarter ended March 31, 1998). 10.13 Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.9 to Hussmann International, Inc.'s 1998 Form 10-K). 10.14 Form of Deferred Compensation and Payment Agreement for Directors (incorporated by reference to Exhibit 10.9 to Hussmann International, Inc.'s 1998 Form 10-K). 13 1999 Annual Report to Shareholders (pages 17-42). 21 Subsidiaries of Hussmann International, Inc. 23 Consent of KPMG LLP. 27 Financial Data Schedule. - -------------- Filed herewith. Management compensation plan or agreement.
13 EX-10.11 2 STOCK OPTION AGREEMENT Exhibit 10.11 NONQUALIFIED STOCK OPTION NONQUALIFIED STOCK OPTION AGREEMENT dated as of February 1, 2000, between HUSSMANN INTERNATIONAL, INC., a Delaware corporation (the "Corporation"), and Richard G. Cline, Chairman of the Board of the Corporation (the "Holder"). WHEREAS, the Corporation and Holder have entered into that certain letter agreement dated January 12, 2000 (the "January 12 Agreement") which agreement confirms the arrangement and terms under which Holder shall serve as Chairman of the Board of the Corporation; and WHEREAS, the January 12 Agreement includes as part of the compensation to Holder the grant of a 10-year nonqualified option to purchase 100,000 shares of the Corporation's common stock at the closing price per share on the New York Stock Exchange on February 1, 2000 (the "Closing Price"); and WHEREAS, the Board of Directors of the Corporation has duly made all determinations necessary or appropriate to the grant hereof; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto have agreed, and do hereby agree, as follows: 1. The Corporation hereby irrevocably grants to the Holder, the right and option (the "Option"), to purchase 100,000 shares of Common Stock of the Corporation on the terms and conditions herein set forth. 2. For each of said shares purchased, the Holder shall pay to the Corporation $14.0625 per share (the "Option Price") being the Closing -------- Price on February 1, 2000. 3. Subject to the provisions of paragraph 6 hereof, this Option shall expire at 5:00 p.m., St. Louis time, on February 1, 2010 (the "Expiration Date") and shall become exercisable as to 100,000 shares on February 1, 2001. The Corporation shall not be required to issue any fractional shares upon exercise of this Option. 4. This Option may be exercised only by one or more notices in writing of the Holder's intent to exercise this Option, accompanied by payment by check to the Corporation in an amount equal to the aggregate Option Price of the total number of whole shares then being purchased. Unless otherwise specified by the Corporation, each such notice and check shall be delivered to the Treasurer of the Corporation, at the principal office of the Corporation or, at the risk of the Holder, mailed to the Treasurer at said office. 5. This Option is not transferable by the Holder otherwise than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Corporation and may be exercised, during the lifetime of the Holder, only by the Holder. 6. In the event of the termination of service of the Holder as Chairman of the Board of the Corporation for Cause (as defined in the January 12 Agreement) or the voluntary resignation by Holder from the position of Chairman without the written consent of the Corporation prior to February 1, 2001, then this Option shall be exercisable only to the extent it is exercisable on the effective date of the Holder's termination of service and may thereafter be exercised by the Holder, his personal representatives or distributees as the case may be until the Expiration Date. 7. In the event of the termination of service of the Holder while serving as Chairman of the Board of the Corporation for any reason other than for Cause or the voluntary resignation by Holder from the position of Chairman without the written consent of the Corporation prior to February 1, 2001, then this Option shall become fully exercisable as of the effective date of the Holder's termination of service and may thereafter be exercised by the Holder, his personal representatives or distributees as the case may be until the Expiration Date. 8. Prior to the termination of this Option, in the event of a stock split, stock dividend, reverse stock split, spin-off, split-up, recapitalization, merger, consolidation, combination, exchange of shares, or the like, then the aggregate number and class of shares thereafter subject to this Option and the Option Price thereof, and the number and class of shares reserved for issuance pursuant to exercise hereof, shall be appropriately adjusted in such manner as the Management Resources and Compensation Committee of the Board of Directors shall determine to be equitable and consistent with the purposes of the Agreement and this Option, subject to resolution of any dispute pursuant to the provisions of paragraph 9 of the January 12 Agreement. Such determination shall be conclusive for all purposes of this Option. 9. This Option and each and every obligation of the Corporation hereunder are subject to the requirement that if at any time the Corporation shall determine, upon advice of counsel, that the listing, registration, or qualification of the shares covered hereby upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of this Option or the purchase of shares hereunder, this Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors of the Corporation. 10. In the event of a "change in control" or a "Pooling Transaction", as those terms are defined in the Corporation's Stock Incentive Plan ("Plan"), this Option shall become immediately exercisable in full and the Holder shall have all of the rights specified in Paragraph 10(B) and, if applicable, Paragraph 10(D) of the Plan. 11. Nothing herein contained shall confer on the Holder any of the rights of a shareholder with respect to any of the shares subject to this Option until such shares shall be issued upon the exercise of this Option. IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been duly executed by the Corporation and the Holder as of the day and year first above written. HUSSMANN INTERNATIONAL, INC. By: /s/ Burton Halpern ---------------------------------- Vice President /s/ Richard G. Cline ---------------------------------- Richard G. Cline 2 EX-13 3 PORTIONS OF ANNUAL REPORT FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA The following table presents selected historical consolidated and combined financial information of Hussmann International, Inc. and its subsidiaries ("Hussmann" or the "Company") or the group of companies that became wholly and majority-owned subsidiaries of Hussmann on January 30, 1998, which for all periods prior to December 31, 1998, was composed of wholly-owned subsidiaries of Whitman Corporation ("Whitman"), including Hussmann Corporation and its wholly and majority- owned subsidiaries and other Hussmann companies owned by Whitman but directly managed by Hussmann Corporation. Prior to Hussmann becoming an independent, publicly held company on January 30, 1998, the historical financial statements were combined for financial reporting purposes. For all periods presented herein, the financial statements and financial information will be referred to as consolidated. The consolidated historical financial information for the years ended December 31, 1995 through 1997 may not necessarily reflect future results of operations or financial position of Hussmann or what the results of operations or financial position of Hussmann would actually have been had Hussmann operated as an independent, publicly held company during those periods.
AS OF & FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING RESULTS DATA DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA - -------------------------------------------------------------------------------------------------------------------------------- Revenues $1,315.0 $1,221.2 $1,096.2 $1,005.7 $921.7 - -------------------------------------------------------------------------------------------------------------------------------- Gross profit 279.7 257.2 206.7 203.9 179.3 - -------------------------------------------------------------------------------------------------------------------------------- Gross profit percent 21.3% 21.1% 18.9% 20.3% 19.5% ================================================================================================================================ Depreciation and amortization 28.9 23.0 22.4 20.2 19.6 - -------------------------------------------------------------------------------------------------------------------------------- Non-recurring charges -- 1.4 47.8 -- -- - -------------------------------------------------------------------------------------------------------------------------------- Operating income 126.3 119.9 43.0 93.8 78.7 - -------------------------------------------------------------------------------------------------------------------------------- Operating income percent 9.6% 9.8% 3.9% 9.3% 8.5% ================================================================================================================================ Whitman charges -- 1.5 28.4 26.7 28.6 - -------------------------------------------------------------------------------------------------------------------------------- Interest expense 22.5 18.8 18.9 18.0 16.8 - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 60.2 $ 57.5 $ (12.8) $ 34.1 $ 23.9 ================================================================================================================================ Diluted earnings per share $ 1.16 $ 1.11 -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Dividends paid per share .08 .08 -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET DATA - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 250.2 $ 193.6 $ 179.5 $ 233.6 $194.2 - -------------------------------------------------------------------------------------------------------------------------------- Property and equipment, net 199.5 168.4 159.9 138.4 127.3 - -------------------------------------------------------------------------------------------------------------------------------- Total assets 816.4 653.7 614.0 611.4 547.4 - -------------------------------------------------------------------------------------------------------------------------------- Loans and advances - Whitman -- -- 173.8 211.4 186.9 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt (including current portion) 301.0 204.8 3.2 2.2 1.2 - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity $ 235.6 $ 185.5 $ 186.6 $ 192.6 $161.1 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED CASH FLOWS DATA - -------------------------------------------------------------------------------------------------------------------------------- Provided by (used in): Operating activities $ 95.0 $ 44.7 $ 76.3 $ 26.1 $ (4.0) - -------------------------------------------------------------------------------------------------------------------------------- Investing activities (162.7) (33.4) (63.0) (27.3) (36.7) - -------------------------------------------------------------------------------------------------------------------------------- Financing activities $ 77.9 $ (22.5) $ (21.5) $ 14.3 $ 32.9 - -------------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1999, Hussmann recognized a non- recurring pretax loss of $10.3 on foreign exchange contracts used to hedge the Koxka acquisition purchase price. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further information. Hussmann was a wholly-owned subsidiary of Whitman until January 30, 1998. Accordingly, financial information for prior periods includes allocations of certain general and administrative expenses and interest costs, and does not include costs associated with being an independent, publicly held company. Included in the years ended December 31, 1998 and 1997, are non- recurring restructuring charges of $2.4 ($2.0 after-tax) and $56.3 ($47.0 after-tax), respectively. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further information.
H u s s m a n n I n t e r n a t i o n a l , I n c . /17/ 1 9 9 9 A n n u a l R e p o r t MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION All dollar amounts are presented in millions Hussmann International, Inc. ("Hussmann" or the "Company") manufactures, sells, installs and services merchandising and refrigeration systems for the commercial food industry throughout the world. Products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann operates in three geographic segments: U.S. and Canada, Europe, and Other International which includes Mexico, Latin America and Asia-Pacific. During 1999, 1998 and 1997, approximately 71%, 74% and 78%, respectively, of consolidated revenues were derived from the U.S. and Canada. In general, the markets in which Hussmann participates are highly competitive, focusing primarily on quality, technology, energy conservation and price. Hussmann's competitors vary according to product and geographic area, and include companies that manufacture a variety of products for the commercial food industry, and those that specialize in a particular product. Hussmann sells its products primarily to supermarkets and convenience stores, including international, national and local retailers. Hussmann's revenues are historically seasonal, with the greatest demand for its products occurring in the third and fourth quarters. This seasonality is the result of retailers' construction cycles and the desire to complete stores prior to the year-end holiday season. As previously stated, on January 30, 1998, Hussmann was spun off from Whitman Corporation ("Whitman") and became an independent, publicly held company (the "Spin-off"). The year ended December 31, 1999, represents the first full year of Hussmann's operations reported on a stand-alone basis. RESULTS OF OPERATIONS: 1999 COMPARED TO 1998 REVENUES Revenues for the year ended December 31, 1999, of $1,315.0 were $93.8 over the same period 1998 revenues of $1,221.2. Revenue increases in the U.S. and Canada, and Europe drove the overall 8% increase.
- ------------------------------------------------------------------------------------------------------ 1999 REVENUES CHANGE FROM 1998 INCREASE (DECREASE) - ------------------------------------------------------------------------------------------------------ U.S. and Canada $ 937.2 $ 35.5 4% - ------------------------------------------------------------------------------------------------------ Europe 203.2 58.4 40 - ------------------------------------------------------------------------------------------------------ Other International 174.6 (0.1) -- ====================================================================================================== Total $1,315.0 $ 93.8 8% ======================================================================================================
U.S. AND CANADA The 4% increase in revenues in the U.S. and Canada was principally the result of continued strong U.S. supermarket case demand and an improvement in refrigeration systems sales. Revenues from refrigeration systems increased over prior years as the Company completed the consolidation of its refrigeration manufacturing facilities. The Company's revenue growth in the U.S. and Canada was partially mitigated by flat sales in the fourth quarter due to certain customers delaying major capital expenditure programs. Given our current backlogs and continuing discussions with major customers, Management expects sales growth of 5% - 7% in 2000. EUROPE The 40% increase in revenues in Europe was due to the acquisition of Koxka C.E., S.A. ("Koxka"; see note 4 of the notes to consolidated financial statements) in March 1999. This increase was partially offset by lower sales to major U.K. food retailers. Wal- Mart's entrance into the U.K. market through the acquisition of Asda Group plc. caused U.K. retailers to curtail 1999 capital expenditures. During the fourth quarter of 1999, the Company made the decision to concentrate its U.K. operations on higher-margin equipment sales and to integrate its U.K. operations with those of Koxka. Koxka is quickly becoming the centerpiece of Hussmann's European strategy on the strength of its products, efficient manufacturing operations and the quality of its management team. Management expects improved equipment sales in the U.K. in 2000. OTHER INTERNATIONAL Revenues in Other International were flat compared to 1998. Increased revenues in China and the impact of the third quarter 1998 acquisition of McAlpine Investments Ltd. ("MIL"; see note 4 of the notes to consolidated financial statements) were offset by significantly lower beverage cooler export sales from Hussmann Mexico which posted record setting revenues during 1998. In addition, despite a nearly 40% volume increase, 1999 revenues in Brazil were down due to the substantial devaluation of the Brazilian Real which occurred during the first quarter of 1999. H u s s m a n n I n t e r n a t i o n a l , I n c . /18/ 1 9 9 9 A n n u a l R e p o r t GROSS PROFIT Gross profit increased mainly due to the 8% increase in revenue. Gross profit as a percent of revenue was up slightly to 21.3%, reflecting improvements in the U.S. and Canada, and the addition of higher-margin sales from Koxka. These improvements were partially offset by significantly lower margins in Mexico due to decreased beverage cooler demand and an increased mix of lower-margin revenues in the U.K. and at MIL. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Total selling, general and administrative ("SG&A") expenses increased 13% to $153.4 in 1999, from $135.9 in 1998. The increase in SG&A expenses relates to the acquisitions of Koxka and MIL, as well as an increase in the Company's information technology costs. Corporate administrative expenses increased $7.7 or 29% to $34.7. This increase is largely the result of additional costs related to information technology systems, including costs associated with Hussmann's conversion to a company-wide, fully integrated information system ("ERP") and Year 2000 ("Y2K") costs. As the Company migrates to the new ERP system, operating costs may remain at these levels until all legacy systems have been completely replaced. In addition, corporate expenses increased over prior year due to increases in certain costs accounted for at corporate including pension, postretirement and medical expenses. OPERATING INCOME Operating income of $126.3 in 1999 was 5% or $6.4 greater than the comparable period in 1998. This was mainly attributable to the 11% increase in operating income in the U.S. and Canada, and the increase in Europe related to the Koxka acquisition. The following table summarizes the fluctuations in operating income by segment:
- -------------------------------------------------------------------------------------------------------- 1999 OPERATING INCOME CHANGE FROM 1998 INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------------- U.S. and Canada $151.1 $15.5 11% - -------------------------------------------------------------------------------------------------------- Europe 8.9 7.7 Fav - -------------------------------------------------------------------------------------------------------- Other International 1.0 (9.1) (90) - -------------------------------------------------------------------------------------------------------- Corporate (34.7) (7.7) (29) ======================================================================================================== Total $126.3 $ 6.4 5% ========================================================================================================
The increase in the U.S. and Canada was due to increased volume, improved productivity and efficiencies, continued favorable markets for material prices and completion of the consolidation of its refrigeration operations. The significant improvement in Europe related to the acquisition of Koxka, offset by lower revenues and lower-margin revenues in the U.K. Operating income for Other International decreased $9.1 from the $10.1 operating income recorded during 1998. This decrease is mainly due to lower 1999 volume in Mexico caused by decreased demand for beverage coolers, and a difficult comparison to a record setting 1998 performance. Although revenues increased significantly in Asia-Pacific, the majority of the increase occurred at MIL, a distribution company, which typically has lower operating margins. See discussion of corporate administrative expenses under selling, general and administrative expenses above. INTEREST EXPENSE Interest expense of $22.5 increased $3.7 or 20% from 1998 as a result of financing the Koxka acquisition. Excluding interest expense attributable to the purchase of Koxka, interest expense for the comparable period would have decreased by approximately 15% as a result of strong cash flows from operations and better management of international debt. Interest expense for 1998 includes $1.0 of interest expense allocated by Whitman. OTHER INCOME/OTHER EXPENSE The Company recognized a non-recurring pretax loss of $10.3 on foreign exchange contracts used to hedge the Koxka acquisition purchase price. Since Koxka was a publicly traded company in Spain, the purchase price was denominated in Spanish Pesetas. In order to avoid foreign currency exposure over the extended period involved in completing the acquisition, Management hedged the Company's Peseta exposure. The realized loss of $10.3 from settling the financial instruments has been reflected in the consolidated statements of operations as foreign exchange loss on purchase price hedge. EFFECTIVE INCOME TAX RATE Hussmann's effective income tax rate of 36.0% for the year ended December 31, 1999, was 4.6 percentage points lower than 1998's effective rate of 40.6%. This lower effective rate is the result of tax strategies relating to both domestic and international operations, a lower statutory rate in Spain than in the U.S. and the unfavorable impact of hyper-inflationary accounting in Mexico during 1998. In addition, 1998's income tax expense included a $2.0 adjustment related to estimated tax benefits associated with the restructuring in the U.K. H u s s m a n n I n t e r n a t i o n a l , I n c . /19/ 1 9 9 9 A n n u a l R e p o r t RESULTS OF OPERATIONS: 1998 COMPARED TO 1997 REVENUES Revenues of $1,221.2 in 1998 were $125.0 or 11% over 1997 revenues of $1,096.2. The U.S. and Mexico had record years, with solid volume growth particularly in the production and sale of supermarket cases, and the U.K. experienced a significant turnaround following 1997's extensive restructuring. Acquisitions in Other International also contributed to sales growth in 1998. The following is a summarized analysis of the increase in revenues.
- -------------------------------------------------------------------------------------------------------- 1998 REVENUES CHANGE FROM 1997 INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------------- U.S. and Canada $ 901.7 $ 49.0 6% - -------------------------------------------------------------------------------------------------------- Europe 144.8 21.2 17 - -------------------------------------------------------------------------------------------------------- Other International 174.7 54.8 46 ======================================================================================================== Total $1,221.2 $125.0 11% ========================================================================================================
U.S. AND CANADA Revenues in the U.S. and Canada grew 6% during the year, to a record $901.7. The majority of this growth was in supermarket cases produced at the Company's largest manufacturing facility located in Bridgeton, Missouri. The Company's revenue growth in the U.S. and Canada was partially mitigated by flat sales in refrigeration systems as the Company implemented its planned manufacturing consolidation of refrigeration systems during 1998. EUROPE The 17% increase in revenues in the Company's U.K. operations came on the heels of the substantial restructuring efforts announced in the last half of 1997. Additionally in 1998, volume improvement was driven by increased equipment orders (which typically have higher margins than service and contracting) from the Company's newly reconfigured U.K. plant, which resumed production in March 1998. OTHER INTERNATIONAL Revenues improved $54.8 or 46% during the year, driven by record-setting sales in Mexico and recent acquisitions in this segment. Revenue increases from the acquisitions of Industrias Gilvert in Mexico and MIL were partially offset by a decline in sales at Hussmann Chile. Revenues in Asia-Pacific, excluding acquisitions, increased 9% during 1998, despite the economic turmoil in that region. NON-RECURRING AND RESTRUCTURING CHARGES The 1998 non-recurring charge relates to the recognition of employee termination costs and the write-down of certain assets at the Company's operation in Chile. The 1997 non-recurring charge includes the recognition of goodwill impairment, the closure of certain sales and service branches in the U.K., the restructuring of the U.K. operations and the consolidation of certain operations in the U.S. and Canada. During the fourth quarter of 1998, due to an increasingly weakening economy in Chile and the pending acquisition of Koxka, Management decided to restructure its operations in Chile. A substantial number of employees located in Chile were terminated, a small manufacturing operation was closed and certain assets were written down to their estimated fair market value. Hussmann recorded a non- recurring charge of $2.4 ($2.0 after-tax) related to the restructuring in Chile. The $2.4 charge consisted of an inventory write-down of $1.0, and the remaining portion related to employee termination costs and the write-down of certain other assets. In addition to this non-recurring charge in Chile, Hussmann adjusted its estimates of the tax benefits to be realized from the U.K. restructuring. The approximate $2.0 adjustment was reflected in the 1998 tax provision. During the third quarter of 1997, Hussmann recorded non-recurring charges of $30.7 ($29.6 after-tax) consisting of approximately $26.0 relating to the recognition of goodwill impairment and $4.7 related to the closure of sales and service branches in the U.K. Also, during the fourth quarter of 1997, Management decided to restructure the U.K. operations and consolidate certain operations in the U.S. and Canada. The restructuring plan included closing a manufacturing facility in Scotland and consolidating two manufacturing facilities in Milton Keynes, England. These actions resulted in the elimination of approximately 320 jobs, primarily in the U.K. Total costs were approximately $25.6 ($17.4 after-tax) which included $8.5 for the write-down of inventory, $4.1 for the write-down of equipment, $10.9 in severance and termination benefits and $2.1 for lease termination and other closing costs. Other than severance cost, the majority of the charges recorded for the restructuring were non-cash. GROSS PROFIT Gross profit increased 24% or $50.5 in 1998. This increase was partly related to the 11% overall improvement in revenues. In addition, excluding the restructuring charge for inventory write-downs, gross profit margins improved 1.5 percentage points, driven mainly by leverage over fixed manufacturing costs, gains from other operating efficiencies and a favorable market for purchased raw materials. H u s s m a n n I n t e r n a t i o n a l , I n c . /20/ 1 9 9 9 A n n u a l R e p o r t SG&A EXPENSES SG&A expenses increased $20.0 to $135.9 or 17% over the comparable 1997 period. The increase primarily related to acquisitions, increased bonuses and commissions for the record setting year in 1998, compensation costs related to a restricted stock program and costs associated with the implementation of the ERP system. OPERATING INCOME Operating income of $119.9 in 1998 was $76.9 or 179% over 1997 operating income of $43.0. Increases in the U.S., the U.K. and Mexico drove the overall improvement. Excluding the 1997 restructuring costs, operating income would have increased $20.6 or 21% in 1998. The following table summarizes the fluctuations in operating income by segment:
- -------------------------------------------------------------------------------------------------------- 1998 OPERATING INCOME CHANGE FROM 1997 INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------------- U.S. and Canada $135.6 $32.8 32% - -------------------------------------------------------------------------------------------------------- Europe 1.2 56.6 Fav - -------------------------------------------------------------------------------------------------------- Other International 10.1 (7.1) (41) - -------------------------------------------------------------------------------------------------------- Corporate (27.0) (5.4) (25) ======================================================================================================== Total $119.9 $76.9 179% ========================================================================================================
Operating income in the U.S. and Canada increased 32% during the year to $135.6. Substantially higher volume in supermarket cases and improved margins in supermarket and specialty cases drove this improvement. Excluding restructuring charges recorded in the U.S. and Canada in 1997, operating income would have increased $27.8 or 26% during 1998. Europe recorded operating income in three of four quarters in 1998 and was profitable for the full year in 1998. Restructuring efforts announced in the last half of 1997, as well as increased volume helped the segment attain operating income of $1.2 in 1998, compared to an operating loss of $6.2 in 1997, excluding restructuring charges. Volume improvements at the Company's reconfigured manufacturing facility in Milton Keynes, England were driven by increased equipment orders from a major retail customer. Operating income in Other International was down $7.1 or 41% to $10.1 for the year. Operating income was negatively impacted by hyper- inflationary accounting in Mexico and an overall operating decline in the Company's Chilean operation. Despite the effects of dollar functional accounting on its results, Hussmann Mexico still recorded in excess of a 20% improvement in operating income for the full year on the strength of improved sales of supermarket cases and refrigerated bottle coolers. Losses in Chile were heavily weighted in the final half of 1998, in particular the fourth quarter, as a deteriorating Chilean economy accounted for a $6.6 decrease in revenues from 1997. Additionally, operating income in Other International was reduced by start-up losses in Brazil relating to the required spending to introduce Hussmann technology and products into the Brazilian market. Hussmann invested aggressively to establish its market position in Brazil. INTEREST EXPENSE Interest expense of $18.8 in 1998 was flat with that recorded during 1997. Interest expense includes amounts allocated to Hussmann from Whitman of $1.0 and $17.3 for 1998 and 1997, respectively. EFFECTIVE INCOME TAX RATE Hussmann's effective income tax rate was 40.6% in 1998. This higher effective rate is the result of higher levels of taxable income in the U.S., (which typically has a higher effective tax rate), the effects of hyper-inflationary accounting in Mexico, lower taxable income or net losses in countries having lower effective tax rates, and the $2.0 adjustment to the estimated tax benefits related to the restructuring in the U.K. LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS Hussmann generated net cash from operations of $95.0, $44.7, and $76.3 during the years ended December 31, 1999, 1998 and 1997, respectively. Improved working capital management and the collection of accounts receivable associated with the late fourth quarter 1998 sales drove the overall improvement in cash flows from operations when compared with prior periods. The decrease in 1998 cash flows from operations when compared to 1997, was attributable to the use of cash to fund additional working capital (inventory, receivables and payables) requirements during 1998 due to record setting volumes in the U.S. and Mexico. CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities was $162.7, $33.4 and $63.0 during the years ended December 31, 1999, 1998 and 1997, respectively. The main components of 1999 cash usage from investing activities were the purchase of Koxka and capital investments. The increase in capital investments relates primarily to spending on the ERP H u s s m a n n I n t e r n a t i o n a l , I n c . /21/ 1 9 9 9 A n n u a l R e p o r t project and productivity and efficiency programs in the U.S. and Canada. Included in other cash flows from investing activities were cash proceeds from the sale of the Company's interest in an airplane and the sale of two manufacturing facilities located in Scotland and Chile. These facilities were part of the respective restructuring programs in those countries. In 1998 and 1997, Hussmann paid $3.3 and $26.4, respectively, for several acquisitions. Excluding acquisitions, Management expects capital investments to approximate $40.0 per year during 2000 and 2001. Management will continue to evaluate potential acquisitions that fit its strategies for growth. During 1999 and 1998, approximately 8% and 29%, respectively, of capital investments were associated with the ERP project. CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by (used in) financing activities was $77.9, $(22.5) and $(21.5) for the years ended December 31, 1999, 1998 and 1997, respectively. The significant increase in 1999's reported balance represents borrowings incurred to finance the acquisition of Koxka. The significant activity during 1998 related to the settlement of the Company's intercompany obligations with Whitman. At the time of the Spin-off, Hussmann repaid the Whitman obligations with $240.0 borrowed from its $350.0 Credit Facility (defined below). In addition, in June 1998, the Company issued $125.0 of Senior Notes (defined below) under its $250.0 Shelf Registration (defined below). Prior to the Spin-off, Whitman served as the primary source of financing for Hussmann. Under Whitman's cash management system, Hussmann advanced cash not needed for current operations to Whitman at the then current commercial bank prime lending rate and Whitman advanced cash to Hussmann on the same basis. AVAILABLE CASH AND BORROWINGS Hussmann's cash and cash equivalents were $34.9 and $26.1 as of December 31, 1999 and 1998, respectively. In January 1998, Hussmann entered into a committed credit facility with a syndicate of commercial banks and financial institutions, which enables Hussmann to borrow funds at variable interest rates on a revolving credit basis up to an aggregate principal amount of $350.0 (the "Credit Facility"). The Company borrowed $270.0 under the Credit Facility in January 1998, the majority of which was used to settle the Company's obligations with Whitman. In June 1998, Hussmann issued $125.0 Senior Notes due June 2008 bearing interest at 6 3/4% (the "Senior Notes"). The $125.0 Senior Notes were part of the $250.0 Shelf Registration filed by Hussmann with the Securities and Exchange Commission (the "SEC") on May 29, 1998 (the "Shelf Registration"). Proceeds from the Senior Notes were used to repay borrowings incurred under the Credit Facility. On March 22, 1999, Hussmann borrowed approximately $145.0 under the Credit Facility to fund the acquisition of Koxka and pay related expenses. At December 31, 1999, $110.0 was outstanding under the Credit Facility. In addition, at December 31, 1999, Hussmann had $86.2 and $22.5 of uncommitted domestic lines-of-credit available and outstanding, respectively, and $32.0 and $4.6 of uncommitted international lines-of- credit available and outstanding, respectively. On June 2, 1999, the Company borrowed $46.0 in the form of a seven-year amortizing note. The interest rate is established semi- annually based on LIBOR (London Interbank Offer Rate). The current interest rate is approximately 6.9%. The Company used the proceeds of the note to repay amounts borrowed under the Credit Facility. Management believes cash flows from operations, unused amounts available under the Credit Facility and the Shelf Registration, and access to capital markets will be sufficient to satisfy Hussmann's future working capital, capital investment, acquisitions, share repurchase program and other financing requirements for the foreseeable future. Management also believes Hussmann will be able to access capital markets on satisfactory terms, although there can be no assurance this will be the case. OTHER In January 2000, Hussmann's Board of Directors authorized a stock repurchase program for up to 2.5 million of the Company's common shares outstanding. Under the authorization, which was effective immediately, the Company may repurchase shares from time to time in the open market or in private transactions, depending on market price and other considerations. As of February 29, 2000, the Company had purchased approximately 248,000 shares at an average purchase price of $13.39 per share. FINANCIAL RISKS AND NON-U.S. OPERATIONS Hussmann has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage the more significant foreign currency and commodity price risks. FOREIGN CURRENCY RISK Hussmann's most significant non-U.S. operations are located in Canada, Mexico, Spain, and the U.K., with smaller operations located in, among other countries, New Zealand, Australia, Brazil and China. Because the majority of Hussmann's non-U.S. entities conduct business in their respective local currencies, Hussmann is subject to foreign currency risk when translating its non-U.S. entity financial statements into U.S. Dollars for financial reporting purposes. H u s s m a n n I n t e r n a t i o n a l , I n c . /22/ 1 9 9 9 A n n u a l R e p o r t Hussmann uses foreign currency risk management instruments to manage its more significant exposures to changes in foreign currency exchange rates with respect to certain foreign currency transactions. Management continually monitors its use of foreign currency risk management instruments in order to mitigate the Company's exposures. In January 1999, the Company announced it had entered into a definitive agreement to purchase Koxka. The purchase price established in the agreement, (approximately $145.0) was denominated in Spanish Pesetas. Hussmann hedged the Peseta exposure to lock in a U.S. Dollar purchase price of $145.0 using forward currency exchange contracts. Realized gains or losses from settling forward currency exchange contracts must be reflected in the consolidated statements of operations for the corresponding period. As such, Hussmann recognized a non- recurring pretax loss of approximately $10.3 in the first quarter of 1999. INTEREST RATE RISK As of December 31, 1999, Hussmann had $301.0 in long-term debt outstanding, $125.0 of which represented senior note obligations with a fixed rate of 6 3/4%. The majority of the remaining balance represents amounts outstanding on the Company's Credit Facility and the amortizing note, both with interest based on LIBOR. Given the current mix of the Company's outstanding indebtedness, the Company does not believe its exposure to short-term interest rate changes would be material. COMMODITY RISK Hussmann uses copper wiring and tubing in the manufacture of its products. As a result, the Company's operating results are subject to fluctuations in the price of copper. Hussmann uses various hedging instruments to mitigate a portion of these risks. Overall, this hedging activity is not considered to be material to the Company's consolidated results of operations, financial condition or cash flows. OTHER RISKS In addition to foreign currency translation and transaction risks, the Company faces other risks associated with its non-U.S. operations including the potential for restrictive actions taken by host country governments, risks relating to non-U.S. economic and political conditions, and risks relating to limits on the transfer of funds from non-U.S. entities to Hussmann. Management believes it has sufficient insurance coverage to protect it from significant losses associated with these risks. YEAR 2000 Hussmann completed the necessary work to ensure its global information technology systems were Y2K compliant prior to the end of 1999. The Company has not experienced any major disruptions of its business due to Y2K issues. The Company will continue to monitor its critical systems over the next several months, but it does not anticipate any significant issues arising from such systems. As of December 31, 1999, the Company incurred approximately $4.0 related to Y2K work and does not anticipate additional Y2K costs to be significant. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, SFAS 133 was amended whereby the effective date was deferred one year, to fiscal years beginning after June 15, 2000. Management is continuing to assess the effects of this statement on the Company's consolidated financial statements and notes thereto. Management does not believe SFAS 133 will have a significant impact on the Company's consolidated results of operations, financial condition or cash flows. SAFE HARBOR STATEMENT Management has made and will make certain forward-looking statements in its reports filed with the SEC, reports to shareholders and in certain other contexts relating to future revenues, costs, expenses, production schedules, profitability and financial resources among others. These statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on Management's beliefs and assumptions using information currently available. Accordingly, Hussmann's actual results may differ materially from those projected, expressed or implied in such forward-looking statements due to known and unknown risks and uncertainties that exist in Hussmann's operations and business environment, including among other factors: 1) failure of the Company to produce anticipated cost savings or improve productivity; 2) timing and magnitude of capital investments; 3) economic and market conditions in the U.S. and worldwide; 4) currency exchange rates; 5) changes in customer spending levels and demand for new products; 6) cost and availability of raw materials; 7) continuation of growth in significant developing markets such as Latin America and Asia-Pacific; 8) overall competitive activities; 9) and other risks described in the Company's filings with the SEC. H u s s m a n n I n t e r n a t i o n a l , I n c . /23/ 1 9 9 9 A n n u a l R e p o r t CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31 (in millions, except share data) - --------------------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- Revenues $1,315.0 $1,221.2 $1,096.2 - --------------------------------------------------------------------------------------------------------- Cost of goods sold 1,035.3 964.0 889.5 ========================================================================================================= Gross profit 279.7 257.2 206.7 - --------------------------------------------------------------------------------------------------------- Selling, general and administrative expenses 153.4 135.9 115.9 - --------------------------------------------------------------------------------------------------------- Non-recurring charges -- 1.4 47.8 ========================================================================================================= Operating income 126.3 119.9 43.0 - --------------------------------------------------------------------------------------------------------- Whitman charges -- 1.5 28.4 - --------------------------------------------------------------------------------------------------------- Interest expense: Whitman -- 1.0 17.3 - --------------------------------------------------------------------------------------------------------- Other 22.5 17.8 1.6 ========================================================================================================= Total interest expense 22.5 18.8 18.9 - --------------------------------------------------------------------------------------------------------- Foreign exchange loss on purchase price hedge (10.3) -- -- - --------------------------------------------------------------------------------------------------------- Other income (expense), net 1.9 (3.4) 1.2 ========================================================================================================= Total other income (expense), net (8.4) (3.4) 1.2 - --------------------------------------------------------------------------------------------------------- Income (loss) before income tax expense and minority interests 95.4 96.2 (3.1) - --------------------------------------------------------------------------------------------------------- Income tax expense 34.4 39.0 9.4 ========================================================================================================= Income (loss) before minority interests 61.0 57.2 (12.5) - --------------------------------------------------------------------------------------------------------- Minority interests (0.8) 0.3 (0.3) ========================================================================================================= Net income (loss) $ 60.2 $ 57.5 $ (12.8) ========================================================================================================= Weighted average shares - Basic (in thousands) 50,859 50,841 -- - --------------------------------------------------------------------------------------------------------- Basic - EPS $ 1.18 $ 1.13 -- - --------------------------------------------------------------------------------------------------------- Weighted average shares - Diluted (in thousands) 51,867 52,006 -- - --------------------------------------------------------------------------------------------------------- Diluted - EPS $ 1.16 $ 1.11 -- - --------------------------------------------------------------------------------------------------------- Discussion regarding the computation of 1998 earnings per share is contained in note 2 of the notes to consolidated financial statements. See accompanying note to consolidated financial statements.
H u s s m a n n I n t e r n a t i o n a l , I n c . /24/ 1 9 9 9 A n n u a l R e p o r t CONSOLIDATED BALANCE SHEETS
As of December 31 (in millions, except share data) - ----------------------------------------------------------------------------------------------------------------------------- ASSETS 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 34.9 $ 26.1 - ----------------------------------------------------------------------------------------------------------------------------- Receivables, net of allowance for doubtful accounts of $4.3 and $2.7, respectively 290.5 285.3 - ----------------------------------------------------------------------------------------------------------------------------- Inventories 139.3 106.9 - ----------------------------------------------------------------------------------------------------------------------------- Other current assets 19.8 11.5 ============================================================================================================================= Total current assets 484.5 429.8 - ----------------------------------------------------------------------------------------------------------------------------- Property and equipment, net 199.5 168.4 - ----------------------------------------------------------------------------------------------------------------------------- Intangible assets, net 109.1 29.4 - ----------------------------------------------------------------------------------------------------------------------------- Other assets 23.3 26.1 ============================================================================================================================= Total assets $816.4 $653.7 ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------- Current liabilities: Short-term debt and current maturities long-term debt $ 18.4 $ 16.9 - ----------------------------------------------------------------------------------------------------------------------------- Accounts payable 149.5 137.5 - ----------------------------------------------------------------------------------------------------------------------------- Income taxes payable 1.7 9.1 - ----------------------------------------------------------------------------------------------------------------------------- Accrued expenses 64.7 72.7 ============================================================================================================================= Total current liabilities 234.3 236.2 - ----------------------------------------------------------------------------------------------------------------------------- Long-term debt 294.6 200.7 - ----------------------------------------------------------------------------------------------------------------------------- Other liabilities 51.9 31.3 ============================================================================================================================= Total liabilities 580.8 468.2 - ----------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, none issued or outstanding -- -- - ----------------------------------------------------------------------------------------------------------------------------- Common stock, $.001 par value,150,000,000 shares authorized, 51,166,000 and 51,006,000 issued; 50,909,000 and 50,763,000 shares outstanding, respectively 0.1 0.1 - ----------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital 92.8 90.6 - ----------------------------------------------------------------------------------------------------------------------------- Retained earnings 217.1 161.0 - ----------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive loss (70.2) (62.2) - ----------------------------------------------------------------------------------------------------------------------------- Treasury stock, at cost: 257,000 and 243,000 shares, respectively (4.2) (4.0) ============================================================================================================================= Total shareholders' equity 235.6 185.5 ============================================================================================================================= Total liabilities and shareholders' equity $816.4 $653.7 ============================================================================================================================= See accompanying notes to consolidated financial statements.
H u s s m a n n I n t e r n a t i o n a l , I n c . /25/ 1 9 9 9 A n n u a l R e p o r t CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (in millions, except share data) - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 60.2 $ 57.5 $(12.8) - ----------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 28.9 23.0 22.4 - ----------------------------------------------------------------------------------------------------------------------------- Non-recurring charges -- 1.4 47.8 - ----------------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities, exclusive of acquisitions: Receivables, net 31.0 (68.1) (3.6) - ----------------------------------------------------------------------------------------------------------------------------- Inventories (6.0) 40.9 11.6 - ----------------------------------------------------------------------------------------------------------------------------- Accounts payable (8.5) (0.3) 10.0 - ----------------------------------------------------------------------------------------------------------------------------- Income taxes payable (15.2) (5.1) 3.8 - ----------------------------------------------------------------------------------------------------------------------------- Other assets and liabilities 4.6 (4.6) (2.9) ============================================================================================================================= Net cash provided by operating activities 95.0 44.7 76.3 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital investments (40.0) (30.6) (38.6) - ----------------------------------------------------------------------------------------------------------------------------- Companies acquired, net of cash (133.6) (3.3) (26.4) - ----------------------------------------------------------------------------------------------------------------------------- Other 10.9 0.5 2.0 ============================================================================================================================= Net cash used in investing activities (162.7) (33.4) (63.0) - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in short-term debt (14.1) 6.7 4.3 - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in loans and advances from Whitman -- -- (37.6) - ----------------------------------------------------------------------------------------------------------------------------- Settlement of Whitman obligations, net -- (221.7) -- - ----------------------------------------------------------------------------------------------------------------------------- Net borrowings on revolving credit facility and lines-of-credit 53.3 75.4 -- - ----------------------------------------------------------------------------------------------------------------------------- Proceeds from issuance of long-term debt 46.0 124.1 -- - ----------------------------------------------------------------------------------------------------------------------------- Principal payments on long-term debt (3.0) -- -- - ----------------------------------------------------------------------------------------------------------------------------- Acquisition of treasury stock (0.2) (4.0) -- - ----------------------------------------------------------------------------------------------------------------------------- Capital contribution from Whitman -- -- 14.0 - ----------------------------------------------------------------------------------------------------------------------------- Dividends paid (4.1) (3.0) (2.2) ============================================================================================================================= Net cash provided by (used in) financing activities 77.9 (22.5) (21.5) - ----------------------------------------------------------------------------------------------------------------------------- Effects of foreign exchange rate changes on cash and cash equivalents (1.4) (1.1) (0.5) ============================================================================================================================= Net change in cash and cash equivalents 8.8 (12.3) (8.7) - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year 26.1 38.4 47.1 ============================================================================================================================= Cash and cash equivalents, end of year $ 34.9 $ 26.1 $ 38.4 ============================================================================================================================= See accompanying notes to consolidated financial statements.
H u s s m a n n I n t e r n a t i o n a l , I n c . /26/ 1 9 9 9 A n n u a l R e p o r t CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the years ended December 31 (in millions, except share data) - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE LOSS ----------------------- COMMON MINIMUM STOCK NO. ADDITIONAL CUMULATIVE PENSION TREASURY OF SHARES COMMON PAID-IN RETAINED TRANSLATION LIABILITY, STOCK, (IN THOUSANDS) STOCK CAPITAL EARNINGS ADJUSTMENT NET AT COST TOTAL ================================================================================================================================= BALANCE AT DECEMBER 31, 1996 -- $ -- $38.3 $202.8 $(48.5) $ -- $ -- $192.6 ================================================================================================================================= Comprehensive income: Net loss (12.8) (12.8) - --------------------------------------------------------------------------------------------------------------------------------- Cumulative translation adjustment (5.3) (5.3) ================================================================================================================================= Total comprehensive loss -- -- -- (12.8) (5.3) -- -- (18.1) - --------------------------------------------------------------------------------------------------------------------------------- Dividends paid to Whitman (2.2) (2.2) - --------------------------------------------------------------------------------------------------------------------------------- Capital contribution from Whitman 14.0 14.0 - --------------------------------------------------------------------------------------------------------------------------------- Stock plans, net 0.3 0.3 ================================================================================================================================= BALANCE AT DECEMBER 31, 1997 -- -- 52.3 188.1 (53.8) -- -- 186.6 ================================================================================================================================= Comprehensive income: Net income 57.5 57.5 - --------------------------------------------------------------------------------------------------------------------------------- Cumulative translation adjustment (5.5) (5.5) - --------------------------------------------------------------------------------------------------------------------------------- Minimum pension liability adjustment, net (2.9) (2.9) ================================================================================================================================= Total comprehensive income -- -- -- 57.5 (5.5) (2.9) -- 49.1 - --------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock 50,731 0.1 0.1 - --------------------------------------------------------------------------------------------------------------------------------- Dividends declared ($.08 per share) (4.0) (4.0) - --------------------------------------------------------------------------------------------------------------------------------- Settlement with Whitman 34.5 (80.6) (46.1) - --------------------------------------------------------------------------------------------------------------------------------- Repurchase of common stock (243) (4.0) (4.0) - --------------------------------------------------------------------------------------------------------------------------------- Stock plans, net 275 3.8 3.8 ================================================================================================================================= BALANCE AT DECEMBER 31, 1998 50,763 0.1 90.6 161.0 (59.3) (2.9) (4.0) 185.5 ================================================================================================================================= Comprehensive income: Net income 60.2 60.2 - --------------------------------------------------------------------------------------------------------------------------------- Cumulative translation adjustment (10.9) (10.9) - --------------------------------------------------------------------------------------------------------------------------------- Minimum pension liability adjustment, net 2.9 2.9 ================================================================================================================================= Total comprehensive income -- -- -- 60.2 (10.9) 2.9 -- 52.2 - --------------------------------------------------------------------------------------------------------------------------------- Dividends declared ($.08 per share) (4.1) (4.1) - --------------------------------------------------------------------------------------------------------------------------------- Repurchase of common stock (14) (0.2) (0.2) - --------------------------------------------------------------------------------------------------------------------------------- Stock plans, net 160 2.2 2.2 ================================================================================================================================= BALANCE AT DECEMBER 31, 1999 50,909 $0.1 $92.8 $217.1 $(70.2) $ -- $(4.2) $235.6 ================================================================================================================================= See accompanying notes to consolidated financial statements.
H u s s m a n n I n t e r n a t i o n a l , I n c . /27/ 1 9 9 9 A n n u a l R e p o r t NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In millions, except share data 1. NATURE OF BUSINESS Hussmann International, Inc. manufactures, sells, installs and services merchandising and refrigeration systems for the commercial food industry throughout the world. Hussmann operates manufacturing facilities in the U.S., Canada, Spain, Mexico, the U.K., Brazil, China, New Zealand and Australia. On January 30, 1998, Whitman Corporation ("Whitman") distributed 50,731,000 shares of common stock of Hussmann ("Hussmann Common Stock") to Whitman's shareholders (the "Spin-off"). As a result of the Spin- off, Hussmann became an independent, publicly held company. These financial statements present the operations of Hussmann and its subsidiaries (as required by the context, "Hussmann" or the "Company" refers to Hussmann International, Inc. or to the group of companies that became wholly and majority-owned subsidiaries of Hussmann International, Inc. on January 30, 1998), which for all periods prior to December 31, 1998, was composed of wholly-owned subsidiaries of Whitman, including Hussmann Corporation and its wholly-owned subsidiaries and other Hussmann companies owned by Whitman but directly managed by Hussmann Corporation. Prior to the Spin-off, the historical financial statements were combined for financial reporting purposes. For all periods presented herein, the financial statements will be referred to as consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The carrying amount of the Company's financial instruments approximates their respective fair values. Certain prior year amounts have been reclassified to conform to current year presentation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include accounts of Hussmann and its wholly and majority-owned subsidiaries. Investments of 50% or less in joint ventures are accounted for using the equity method. All significant intercompany transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of deposits with banks and financial institutions which are unrestricted as to withdrawal or use, and which have original maturities of three months or less. INVENTORIES Inventories are valued at the lower of cost (principally determined on the first-in, first-out or average method) or net realizable value. Inventories include the cost of materials, direct labor and applicable manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is computed using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. The approximate ranges of annual depreciation rates are 2% to 5% for buildings and improvements and 8% to 33% for machinery and equipment. Accumulated costs associated with the Company's conversion to a company-wide, fully integrated information system ("ERP") are being expensed at an annual depreciation rate of 10%. Gains or losses from the sale of property and equipment are reported in Other income (expense), net, in the consolidated statements of operations. INTANGIBLE ASSETS, NET Intangible assets consist of goodwill and the Koxka trademark. Goodwill represents the excess of cost over fair market value of the net assets of businesses acquired. Such amounts are amortized on a straight-line basis over the periods estimated to be benefited. Amortization periods range from 3 to 40 years. Goodwill is stated net of accumulated amortization of $12.5 and $10.0 as of December 31, 1999 and 1998, respectively. Trademark represents the cost allocated to the Koxka tradename. See note 4 of the notes to consolidated financial statements. Trademark is stated net of accumulated amortization of $0.6 and $0.0 as of December 31, 1999 and 1998, respectively. CARRYING VALUES OF LONG-LIVED ASSETS Hussmann evaluates the carrying values of long-lived assets and identifiable intangibles whenever events and circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of an asset is measured by a comparison of the carrying amount of such asset to the future net cash flows expected to be generated. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less disposal costs. H u s s m a n n I n t e r n a t i o n a l , I n c . /28/ 1 9 9 9 A n n u a l R e p o r t FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Assets and liabilities of non-U.S. operations whose functional currency is other than the U.S. Dollar are translated to U.S. Dollars using exchange rates in effect at the balance sheet date. Results from operations are translated using average exchange rates during the period. The resulting translation adjustments are recorded as a component of shareholders' equity. For those non-U.S. entities of Hussmann operating in countries where economies are considered to be highly inflationary, foreign currency translation gains and losses are reported in Other income (expense), net, in the consolidated statements of operations. REVENUE RECOGNITION Revenue is recognized when products are shipped or when services are performed. Revenue for installation projects is generally recognized upon the completion of the project and acceptance by the customer. Generally, products sold carry a one-year warranty while installation projects carry a three-month warranty. Hussmann estimates and records provisions for warranties in the period the sale is reported, based on historical experience. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. These costs amounted to $6.3, $6.4 and $5.6 in 1999, 1998 and 1997, respectively. INCOME TAXES Hussmann's U.S. operations have been included in the consolidated U.S. Federal and certain state unitary income tax returns of Whitman for the period ended January 30, 1998 and the year ended December 31, 1997. For those periods in which Hussmann was part of Whitman, Hussmann's income tax expense was allocated to Hussmann as if Hussmann had filed separate income tax returns. No U.S. income tax provision has been made on the undistributed earnings of non-U.S. subsidiaries (approximately $77.2 at December 31, 1999) which currently is not intended to be remitted to the U.S. primarily because retention of a significant portion of these earnings is considered essential for continuing operations, and the additional taxes are considered to be immaterial based on the ability to claim foreign tax credits. No deferred tax liability has been recognized with regard to the potential remittance of such undistributed income. EARNINGS PER SHARE Hussmann adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), effective January 1, 1998. In accordance with SFAS 128, basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding during the period, plus shares issuable upon the assumed exercise of dilutive common stock options using the treasury stock method. Although the Spin-off did not occur until January 30, 1998, for purposes of 1998's presentation, Hussmann has calculated earnings per share assuming the Spin-off occurred January 1, 1998, for both basic and diluted earnings per share. The number of shares of Hussmann Common Stock used in the calculation of earnings per share for the years ended December 31, is as follows (in thousands):
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 50,859 50,841 - ---------------------------------------------------------------------------------------------- Dilutive effect of stock options 1,008 1,165 ============================================================================================== Weighted average shares outstanding - Diluted 51,867 52,006 ==============================================================================================
Options to purchase 545,000 shares of Hussmann Common Stock at prices ranging from $16.28 to $17.94 per share were outstanding during the year ended December 31, 1999, but were not included in the computation of diluted earnings per share due to the exercise price of these options being greater than the average market price of Hussmann Common Stock. These options begin to expire in 2008. Options to purchase 482,000 shares of Hussmann Common Stock at $17.94 per share were outstanding during the year ended December 31, 1998, but were not included in the computation of diluted earnings per share due to the exercise price of these options being greater than the average market price of Hussmann Common Stock. These options expire in 2008. STOCK-BASED COMPENSATION Hussmann measures the compensation cost of equity instruments issued under employee compensation plans under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations, in accounting for its fixed stock option plans. Compensation expense related to restricted stock awards is recognized straight-line over the applicable vesting periods. COMPREHENSIVE INCOME On January 1, 1998, Hussmann adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. This statement requires Hussmann to report separately, the translation adjustments of SFAS No. 52, "Foreign Currency Translation" and changes to the minimum pension liability adjustment as components of comprehensive income. Management has chosen to disclose the requirements of this statement within the consolidated statements of shareholders' equity and comprehensive income. H u s s m a n n I n t e r n a t i o n a l , I n c . /29/ 1 9 9 9 A n n u a l R e p o r t DERIVATIVE FINANCIAL INFORMATION The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage the more significant foreign currency and commodity price risks. The Company uses copper wiring and tubing in the manufacture of its products. The Company utilizes various commodity hedging instruments to protect itself against fluctuations in market prices for a portion of its purchases. Realized gains and losses on the hedges are recognized as components of cost of goods sold when the related finished products are sold. The Company also uses certain foreign currency hedging instruments to hedge its more significant exposures to changes in foreign currency exchange rates with respect to foreign currency transactions. Realized gains or losses from the settlement of hedged items are recorded in Other income (expense), net, in the consolidated statements of operations. 3. TRANSACTIONS WITH WHITMAN CASH MANAGEMENT AND ADVANCES Prior to Spin-off, Whitman managed all excess cash for Hussmann. Cash balances owed to Whitman were advanced at the then current commercial bank prime lending rate. Interest expense on such advances is included in Interest expense: Whitman in the consolidated statements of operations. CAPITAL TRANSACTIONS AND WHITMAN CHARGES For the years ended December 31, 1998 and 1997, capital transactions with Whitman are summarized in the consolidated statements of shareholders' equity and comprehensive income. Whitman allocated portions of its general and administrative expenses to its subsidiaries. Hussmann's share of such costs was $1.5 and $28.4 in 1998 and 1997, respectively. Such charges represent an allocation of Whitman's estimated total expenses, and were charged to Whitman's subsidiaries based on budgeted revenues. Whitman considered this method to be a reasonable basis for allocation. These amounts are included as Whitman charges in the consolidated statements of operations. 4. ACQUISITIONS Hussmann completed its acquisition of Koxka C.E., S.A. ("Koxka") on March 23, 1999. Hussmann acquired virtually 100% of the outstanding stock of Koxka through a cash tender offer. Koxka manufactures a complete line of commercial and industrial refrigeration products at five manufacturing facilities located throughout Spain. Hussmann paid approximately $135.0 in cash for the acquisition. This excludes the $10.3 loss related to the purchase price hedge used by the Company to lock-in the U.S. Dollar purchase price of $145.0. The purchase price was principally funded with borrowings under Hussmann's 5-year unsecured revolving credit facility (the "Credit Facility"). The acquisition of Koxka was accounted for using the purchase method of accounting, and accordingly, the results of operations are reflected in the consolidated statements of operations since the date of acquisition. The purchase price was allocated to the assets acquired and the liabilities assumed based upon their estimated fair market values. Goodwill and the trademark associated with the Koxka acquisition of approximately $53.5 and $33.3, respectively, are being amortized over the period to be benefited, (40 years). The purchase price allocation has not yet been finalized, although Management does not expect amounts to differ materially. In July 1999, Hussmann acquired the remaining interest in its Brazilian operation for approximately $2.5. In August 1998, Hussmann acquired a 65% interest in McAlpine Investments, Ltd. ("MIL") for approximately $3.5. MIL consists of two separate operating companies engaged in the sale, installation, manufacture and service of commercial refrigeration products for the retail food industries in New Zealand, Australia and various island nations throughout the South Pacific. MIL was an independent distributor and licensee of the Company for several years prior to the acquisition. The acquisition of MIL was accounted for using the purchase method of accounting, and accordingly, the results of operations are reflected in the consolidated statements of operations since the date of acquisition. The purchase price was allocated to the assets acquired and the liabilities assumed of MIL based upon their estimated fair market value. Goodwill associated with this acquisition (approximately $5.9) is being amortized over ten years. The following unaudited pro forma information presents the consolidated results of operations of the Company as if Koxka had been acquired on January 1, 1999 and 1998, respectively, and as if MIL had been acquired on January 1, 1998. The 1999 pro forma information below excludes the $10.3 hedge loss described above. H u s s m a n n I n t e r n a t i o n a l , I n c . /30/ 1 9 9 9 A n n u a l R e p o r t
YEARS ENDED DECEMBER 31 - ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Revenues $1,344.6 $1,398.0 - ---------------------------------------------------------------------------------------------- Net income 66.5 60.0 - ---------------------------------------------------------------------------------------------- Net income per share: Basic $1.30 $ 1.17 - ---------------------------------------------------------------------------------------------- Diluted $1.28 $ 1.15 - ----------------------------------------------------------------------------------------------
5. INVENTORIES Inventories consist of the following at December 31:
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Raw materials and work in process $102.7 $ 81.2 - ---------------------------------------------------------------------------------------------- Finished goods 36.6 25.7 ============================================================================================== $139.3 $ 106.9 ==============================================================================================
6. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following at December 31:
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Land $ 12.0 $ 5.3 - ---------------------------------------------------------------------------------------------- Buildings and improvements 84.4 81.8 - ---------------------------------------------------------------------------------------------- Machinery and equipment 267.3 212.3 ============================================================================================== Total property and equipment 363.7 299.4 - ---------------------------------------------------------------------------------------------- Accumulated depreciation (168.2) (157.6) - ---------------------------------------------------------------------------------------------- Construction in progress 4.0 26.6 ============================================================================================== $ 199.5 $ 168.4 ==============================================================================================
7. ACCRUED EXPENSES Accrued expenses consist of the following at December 31:
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Salaries and wages $22.6 $25.0 - ---------------------------------------------------------------------------------------------- Restructuring 0.8 10.4 - ---------------------------------------------------------------------------------------------- Other 41.3 37.3 ============================================================================================== $64.7 $72.7 ==============================================================================================
8. SHORT-TERM BORROWINGS AND LINES-OF-CREDIT Short-term borrowings at December 31 consist primarily of various short-term international bank borrowings as follows:
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Short-term borrowings $12.0 $12.8 - ---------------------------------------------------------------------------------------------- Weighted average interest rate at December 31 5.9% 7.7% - ----------------------------------------------------------------------------------------------
Short-term borrowings generally represent foreign currency denominated borrowings of non-U.S. subsidiaries. Hussmann also has additional unsecured, uncommitted lines-of-credit available under agreements with various commercial banks and financial institutions for short-term borrowings up to $32.0 internationally, of which $4.6 was outstanding at December 31, 1999. 9. LONG-TERM DEBT Long-term debt consists of the following at December 31:
- ---------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- 6 3/4% senior notes, due 2008 $125.0 $125.0 - ---------------------------------------------------------------------------------------------- Revolving credit facility, due 2003 110.0 70.0 - ---------------------------------------------------------------------------------------------- Amortizing note, due 2006 42.9 -- - ---------------------------------------------------------------------------------------------- Other 23.1 9.8 - ---------------------------------------------------------------------------------------------- Less current maturities (6.4) (4.1) ============================================================================================== $294.6 $200.7 ==============================================================================================
H u s s m a n n I n t e r n a t i o n a l , I n c . /31/ 1 9 9 9 A n n u a l R e p o r t 6 3/4% SENIOR NOTES In June 1998, Hussmann issued $125.0 aggregate principal amount 6 3/4% Senior Notes (the "Senior Notes"). This issuance represents one-half of the $250.0 Shelf Registration (the "Shelf Registration") filed by Hussmann with the Securities and Exchange Commission (the "SEC") on May 29, 1998. The Senior Notes are senior unsecured obligations of Hussmann. The Senior Notes are redeemable at Hussmann's option at amounts equal to the greater of 100% of the principal amount of the Senior Notes or the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the date of redemption on a semi-annual basis, plus any accrued but unpaid interest to the date of redemption. Interest is paid semi- annually on June 1 and December 1 until maturity in June 2008. REVOLVING CREDIT FACILITY In January 1998, Hussmann entered into a five-year, unsecured revolving credit facility with a syndicate of commercial banks and financial institutions for borrowings up to $350.0. The debt bears interest at variable rates, which ranged from 6.1% to 6.9% during 1999. An annual commitment fee of 0.1125% is payable quarterly on the entire amount of the facility. Hussmann paid approximately $0.4 in commitment fees under the Credit Facility during 1999 and 1998. Borrowings under the Credit Facility are subject to certain financial and non-financial covenants and restrictions, including leverage, interest coverage, limitations on subsidiary indebtedness and certain other general business restrictions. On March 22, 1999, Hussmann borrowed approximately $145.0 under the Credit Facility to fund the acquisition of Koxka and pay related expenses. At December 31, 1999, $110.0 was outstanding under the Credit Facility with $240.0 available for additional borrowings. In addition, at December 31, 1999, Hussmann had $86.2 and $22.5 of uncommitted, domestic lines-of-credit available and outstanding, respectively. AMORTIZING NOTE In June 1999, the Company borrowed $46.0 in the form of a seven-year amortizing note. The interest rate is established semi- annually based on LIBOR (London Interbank Offer Rate). The current interest rate is approximately 6.9%. The Company used the proceeds of the note to repay amounts borrowed under the Credit Facility. Based on the amount of long-term debt outstanding at December 31, 1999, aggregate future principal payments for each of the five years subsequent to December 31, 1999, are as follows: 2000, $6.4; 2001, $5.9; 2002, $6.3; 2003, $6.8; 2004, $7.2. 10. OPERATING LEASES Hussmann leases certain facilities and equipment under non-cancelable operating leases. Rent expense incurred under such leases during 1999, 1998 and 1997 was $14.5, $11.9 and $9.5, respectively. Future minimum lease obligations under operating leases having original and remaining terms of one year or more at December 31, 1999, are as follows: - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- 2000 $11.1 - ----------------------------------------------------------------------- 2001 9.8 - ----------------------------------------------------------------------- 2002 8.9 - ----------------------------------------------------------------------- 2003 7.5 - ----------------------------------------------------------------------- 2004 7.0 - ----------------------------------------------------------------------- Thereafter 45.3 ======================================================================= $89.6 =======================================================================
11. SHAREHOLDERS' EQUITY PREFERRED STOCK Hussmann has 20,000,000 authorized shares of $.001 per share par value preferred stock. There are no shares of preferred stock issued or outstanding. The Board of Directors may authorize the issuance of preferred stock in one or more series, without further action by the shareholders. COMMON STOCK Effective January 29, 1998, Hussmann's Board of Directors authorized 150,000,000 shares of Hussmann common stock with a par value of $.001 per share. As previously discussed, on January 30, 1998, Hussmann was spun off from Whitman and 50,731,000 shares of Hussmann Common Stock were distributed to Whitman shareholders. As of December 31, 1999, there were 51,166,000 and 50,909,000 shares of Hussmann Common Stock issued and outstanding, respectively. Holders of Hussmann Common Stock are entitled to one vote for each share held on all matters submitted to a vote of the shareholders. Subject to the rights of any holder of preferred stock, holders of Hussmann Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of liquidation, H u s s m a n n I n t e r n a t i o n a l , I n c . /32/ 1 9 9 9 A n n u a l R e p o r t dissolution or wind-up of the Company, holders of Hussmann Common Stock are entitled to share ratably in the distribution of all assets remaining after payment of liabilities, subject to the rights of the holders of preferred stock. During the second quarter of 1998, the Company's Board of Directors authorized the repurchase of shares of Hussmann Common Stock at a level sufficient to offset any dilution caused by the exercise of stock options. As of December 31, 1999, 257,000 shares of Hussmann Common Stock had been repurchased into the treasury. See additional information regarding the Company's stock repurchase program at note 21 of the notes to consolidated financial statements. 12. STOCK-BASED COMPENSATION STOCK OPTIONS AND RESTRICTED STOCK The Hussmann International Stock Incentive Plan (the "Hussmann Plan") authorizes the issuance of up to 7,187,000 shares of Hussmann Common Stock pursuant to the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards and performance awards. Awards granted under the Hussmann Plan include those used to replace outstanding stock options and restricted stock granted under the Whitman Stock Incentive Plan (the "Whitman Plan"), as of the Spin-off date. On January 30, 1998, outstanding stock options and restricted stock granted under the Whitman Plan were replaced with new non- qualified Hussmann stock options and restricted stock of equivalent value, with necessary adjustments made to the number and exercise price of the Hussmann options to preserve the economic value of the Whitman options and restricted stock as of the Spin-off. Option grants under the Hussmann Plan are at the market price on the date of grant. The options granted to replace those granted under the Whitman Plan are generally exercisable over a period of three years. The majority of options issued under the Hussmann Plan during 1999 and 1998 are exercisable at the end of a seven-year period, or sooner if certain shareholder return targets are met. The earliest these options may fully vest is three years, and only if total shareholder return meets or exceeds 15% for the three-year period (as defined within the option agreement). Once vested, the options are exercisable over a period of ten years from the grant date. As of December 31, 1999 and 1998, there were approximately 17,000 and 55,000 shares, respectively, of restricted stock on which the restrictions had not lapsed. The restricted share awards vest over a three-year period from the date of grant. No further shares of restricted stock have been awarded under the Plan. As stated in note 2, Hussmann applies APB 25 in accounting for its stock based incentive plan. Had compensation costs for the stock options issued under the Hussmann Plan during 1999 and 1998 been determined based upon the fair value methodology prescribed under SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), Hussmann's net income for the years ended December 31, would have been impacted as follows:
- ---------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------- Reported net income $60.2 $57.5 - ---------------------------------------------------------------------------------- Pro forma net income 57.5 54.9 - ---------------------------------------------------------------------------------- Reported earnings per share - Diluted $ 1.16 $ 1.11 - ---------------------------------------------------------------------------------- Pro forma earnings per share - Diluted $ 1.11 $ 1.06 - ----------------------------------------------------------------------------------
The weighted average fair value of options granted (which is amortized to expense over the estimated option vesting period) was estimated on the date of grant using the Black-Scholes option-pricing model for a peer group of companies. Hussmann used data from a peer group of companies because of a lack of historical information for Hussmann Common Stock. The following assumptions were used:
- ---------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------- Risk-free interest rate 6.5% 5.5% - ---------------------------------------------------------------------------------- Expected life of option 6 Yrs. 6 Yrs. - ---------------------------------------------------------------------------------- Expected volatility 41.6% 26.5% - ---------------------------------------------------------------------------------- Expected dividend yield 1.0% 1.0% - ---------------------------------------------------------------------------------- Weighted average fair market value of options granted $ 7.92 $ 5.87 - ----------------------------------------------------------------------------------
In accordance with SFAS 123, the weighted-average fair value of stock options granted is required to be based on a theoretical statistical model using the assumptions noted above. Because stock options do not trade on a secondary market, employees receive no benefit and derive no value from holding stock options without an increase in the market price of Hussmann Common Stock. H u s s m a n n I n t e r n a t i o n a l , I n c . /33/ 1 9 9 9 A n n u a l R e p o r t The following table summarizes stock option activity under the Hussmann Plan for the years ended December 31:
- --------------------------------------------------------------------------------------------------------- SHARES (IN THOUSANDS) WEIGHTED-AVG EXERCISE PRICE - --------------------------------------------------------------------------------------------------------- OUTSTANDING, JANUARY 30, 1998 3,056 $11.40 - --------------------------------------------------------------------------------------------------------- Granted 3,205 15.12 - --------------------------------------------------------------------------------------------------------- Exercised (178) 10.02 - --------------------------------------------------------------------------------------------------------- Canceled (46) 13.34 ========================================================================================================= OUTSTANDING, DECEMBER 31, 1998 6,037 $13.40 - --------------------------------------------------------------------------------------------------------- Granted 149 17.12 - --------------------------------------------------------------------------------------------------------- Exercised (192) 8.61 - --------------------------------------------------------------------------------------------------------- Canceled (131) 16.28 ========================================================================================================= OUTSTANDING, DECEMBER 31, 1999 5,863 $13.58 =========================================================================================================
OPTIONS OUTSTANDING 1999
- -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- RANGE OF NUMBER WEIGHTED-AVG WEIGHTED-AVG EXERCISABLE WEIGHTED-AVG EXERCISE OF SHARES REMAINING LIFE EXERCISE SHARES (IN EXERCISE PRICES (IN THOUSANDS) (IN YEARS) PRICE THOUSANDS) PRICE ================================================================================================================================ $6.07 - $7.68 340 2.6 $ 6.98 340 $ 6.98 - -------------------------------------------------------------------------------------------------------------------------------- $8.49 - $9.87 456 5.0 9.38 456 9.38 - -------------------------------------------------------------------------------------------------------------------------------- $12.48 - $13.69 2,684 7.2 13.27 1,776 13.27 - -------------------------------------------------------------------------------------------------------------------------------- $15.06 - $17.94 2,383 8.3 15.69 83 15.58 ================================================================================================================================ 5,863 7.2 $13.58 2,655 $11.87 ================================================================================================================================
SHAREHOLDER RIGHTS AGREEMENT AND SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Hussmann has adopted a Rights Agreement providing for the issuance of one Preferred Stock Purchase Right (a "Right") with each share of Hussmann Common Stock. The Rights Agreement was amended on July 15, 1999. As amended, the Rights Agreement provides that the registered holder of each Right is entitled to purchase from Hussmann, one one-hundredth of a share of Series A Junior Preferred Stock (a "Preferred Share") at a price of $150 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights will become exercisable on the Rights Distribution Date, which is the earlier of the close of business on the tenth day following a public announcement that a person or group has acquired beneficial ownership of 15% or more of the outstanding shares of Hussmann Common Stock (an "Acquiring Person"), or the close of business on the tenth business day after the commencement of a tender offer or exchange offer that would, if consummated, result in a person or group becoming an Acquiring Person. If a person becomes an Acquiring Person, each Right holder (other than the Acquiring Person) will be entitled to receive, upon exercise of the Right, a number of shares of Hussmann Common Stock having a market value of two times the exercise price of the Right. If Hussmann is acquired in a merger or other business combination, each Right holder (other than the Acquiring Person) will be entitled to receive, upon exercise of a Right, a number of the acquiring company's common shares having a market value at that time of two times the exercise price of the Right. In general, Hussmann can redeem all Rights for one cent per Right at any time until a person or group has become an Acquiring Person. The Hussmann Board of Directors, without the consent of the Rights holders, is also authorized to reduce the stock ownership thresholds to 10% or increase them to not more than 20%. The Rights will expire on December 31, 2007. Until a Right is exercised, the holder of a Right (merely by being a Right holder) will not have rights as a shareholder of Hussmann including voting or dividend rights. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of at least $1.00 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared per share of Hussmann Common Stock. Each Preferred Share will have 100 votes, to be voted together with the Hussmann Common Stock. In the event of a merger or other transaction in which shares of Hussmann Common Stock are exchanged, each Preferred Share will be entitled to receive 100 times the amount received per share of Hussmann Common Stock. H u s s m a n n I n t e r n a t i o n a l , I n c . /34/ 1 9 9 9 A n n u a l R e p o r t 13. INCOME TAXES Income tax expense (benefit) for the years ended December 31 consists of the following:
- --------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------- Current: U.S. Federal $20.9 $24.8 $ 12.2 - --------------------------------------------------------------------------------------------- Non-U.S. 5.6 9.4 5.5 - --------------------------------------------------------------------------------------------- U.S. state and local 4.6 4.0 1.8 ============================================================================================= Total current 31.1 38.2 19.5 - --------------------------------------------------------------------------------------------- Deferred: U.S. Federal 4.2 0.4 (2.2) - --------------------------------------------------------------------------------------------- Non-U.S. (1.1) 0.3 (7.5) - --------------------------------------------------------------------------------------------- U.S. state and local 0.2 0.1 (0.4) ============================================================================================= Total deferred 3.3 0.8 (10.1) ============================================================================================= $34.4 $39.0 $ 9.4 =============================================================================================
The items which give rise to differences between the income tax expense in the consolidated statements of operations and income taxes computed at the U.S. statutory rate are summarized as follows:
- --------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------- Income tax expense computed at U.S. statutory rate $33.4 $33.7 $(1.2) - --------------------------------------------------------------------------------------------- State and local taxes, net of U.S. benefit 2.6 2.7 0.9 - --------------------------------------------------------------------------------------------- Higher (lower) non-U.S. effective tax rates (1.6) 2.3 (0.3) - --------------------------------------------------------------------------------------------- Non-deductible non-recurring charges -- -- 9.7 - --------------------------------------------------------------------------------------------- Other items, net -- 0.3 0.3 ============================================================================================= $34.4 $39.0 $ 9.4 =============================================================================================
Pretax income (loss) from non-U.S. operations amounted to $10.9, $11.5 and $(30.3) for the years ended December 31, 1999, 1998 and 1997, respectively. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:
- --------------------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------------------------- Deferred tax assets attributable to: Postretirement benefit accruals $ 5.6 $ 6.3 - --------------------------------------------------------------------------------------------- Restructuring and other accruals 11.7 15.2 - --------------------------------------------------------------------------------------------- Net operating loss carry-forwards 10.8 6.3 - --------------------------------------------------------------------------------------------- Other 4.5 4.5 ============================================================================================= Total deferred tax assets 32.6 32.3 - --------------------------------------------------------------------------------------------- Deferred tax liabilities attributable to: Property and equipment, principally depreciation method differences (14.2) (8.5) - --------------------------------------------------------------------------------------------- Basis difference - intangible assets (11.4) -- - --------------------------------------------------------------------------------------------- Pension benefit plans (5.0) (5.1) - --------------------------------------------------------------------------------------------- Inventories (6.1) (7.8) - --------------------------------------------------------------------------------------------- Other (3.1) (0.7) ============================================================================================= Total deferred tax liabilities (39.8) (22.1) ============================================================================================= Net deferred tax assets (liabilities) $ (7.2) $ 10.2 ============================================================================================= Net deferred tax assets (liabilities) included in: Other current assets $ 8.9 $ 3.9 - --------------------------------------------------------------------------------------------- Other assets -- 6.3 - --------------------------------------------------------------------------------------------- Other liabilities (16.1) -- ============================================================================================= Net deferred tax assets (liabilities) $ (7.2) $ 10.2 =============================================================================================
Management believes it is more likely than not that all deferred tax assets will be realized and accordingly, no valuation allowance has been recorded. H u s s m a n n I n t e r n a t i o n a l , I n c . /35/ 1 9 9 9 A n n u a l R e p o r t 14. DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS HUSSMANN-SPONSORED DEFINED BENEFIT PENSION PLANS Substantially all of Hussmann's U.S. employees and employees at certain of its international locations are covered under various defined benefit pension plans sponsored and primarily funded by Hussmann. Plans covering salaried employees provide a normal retirement benefit (usually a percentage of covered compensation) for each year of credited service (excluding the years 1989 - 1991 for U.S. plans) up to a stated maximum amount. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Plan assets are invested primarily in common stocks, corporate bonds and government securities. The Company utilizes information available at September 30 to measure its pension obligation and the funded status of its pension plans. The following tables detail the change in the projected pension benefit obligation, the change in plan assets, and the funded status of the pension plans at December 31:
- ---------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION 1999 1998 - ---------------------------------------------------------------------------------------------- Benefit obligation, beginning of year $171.8 $151.3 - ---------------------------------------------------------------------------------------------- Effect of foreign currency exchange rates (0.7) (1.1) - ---------------------------------------------------------------------------------------------- Service cost 5.4 5.2 - ---------------------------------------------------------------------------------------------- Interest cost 12.0 11.0 - ---------------------------------------------------------------------------------------------- Plan participants' contributions 0.7 0.9 - ---------------------------------------------------------------------------------------------- Plan amendments and spin-off -- 1.1 - ---------------------------------------------------------------------------------------------- Actuarial (gain) loss (16.0) 14.0 - ---------------------------------------------------------------------------------------------- Benefits paid (10.2) (10.6) ============================================================================================== Benefit obligation, end of year $163.0 $171.8 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS 1999 1998 - ---------------------------------------------------------------------------------------------- Fair value of plan assets, beginning of year $170.5 $172.0 - ---------------------------------------------------------------------------------------------- Effect of foreign currency exchange rates (0.7) (0.9) - ---------------------------------------------------------------------------------------------- Actual return on plan assets 27.0 6.8 - ---------------------------------------------------------------------------------------------- Plan spin-off -- (0.2) - ---------------------------------------------------------------------------------------------- Company contribution 2.0 2.5 - ---------------------------------------------------------------------------------------------- Plan participants' contributions 0.7 0.9 - ---------------------------------------------------------------------------------------------- Benefits paid (10.2) (10.6) ============================================================================================== Fair value of plan assets, end of year 189.3 170.5 - ---------------------------------------------------------------------------------------------- Funded status 26.3 (1.3) - ---------------------------------------------------------------------------------------------- Unrecognized transition asset (0.1) (0.1) - ---------------------------------------------------------------------------------------------- Unrecognized net actuarial (gain) loss (26.1) 2.0 - ---------------------------------------------------------------------------------------------- Unrecognized prior service cost 10.6 11.9 ============================================================================================== Prepaid benefit cost $ 10.7 $ 12.5 ============================================================================================== Net amount recognized in the balance sheet consists of: Prepaid pension cost $ 13.4 $ 14.9 - ---------------------------------------------------------------------------------------------- Accrued pension liability (2.7) (14.0) - ---------------------------------------------------------------------------------------------- Intangible asset -- 6.9 - ---------------------------------------------------------------------------------------------- Minimum pension liability -- 4.7 ============================================================================================== $ 10.7 $ 12.5 ==============================================================================================
H u s s m a n n I n t e r n a t i o n a l , I n c . /36/ 1 9 9 9 A n n u a l R e p o r t The following tables provide the actuarial assumptions used in the determination of net periodic pension cost for Hussmann-sponsored pension plans for the years ended December 31:
- ---------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS 1999 1998 1997 - ---------------------------------------------------------------------------------------------- U.S. PLANS Discount rate 7.5% 6.5% 7.0% - ---------------------------------------------------------------------------------------------- Expected return on plan assets 9.5 9.5 9.5 - ---------------------------------------------------------------------------------------------- Rate of compensation increase 5.0% 4.0% 4.5% - ---------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- NON-U.S. PLANS CANADA U.K. MEXICO CANADA U.K. MEXICO CANADA U.K. MEXICO ============================================================================================================== Discount rate 7.0% 8.5% 16.1% 6.3% 8.5% 19.2% 6.5% 9.5% 18.7% - -------------------------------------------------------------------------------------------------------------- Expected return on plan assets 9.0 8.5 17.2 9.0 8.5 20.4 9.0 9.5 20.4 - -------------------------------------------------------------------------------------------------------------- Rate of compensation increase -- 6.0% 11.7% 4.0% 4.0% 14.7% 4.0% 4.5% 14.7% - --------------------------------------------------------------------------------------------------------------
The following table details the components of net periodic pension cost for the years ended December 31:
- -------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC PENSION COST 1999 1998 1997 - -------------------------------------------------------------------------------------------- Service cost $ 5.4 $ 5.2 $ 4.8 - -------------------------------------------------------------------------------------------- Interest cost 12.0 11.0 11.2 - -------------------------------------------------------------------------------------------- Expected return on plan assets (14.5) (13.5) (12.8) - -------------------------------------------------------------------------------------------- Amortization of transition asset (0.1) (0.1) (0.1) - -------------------------------------------------------------------------------------------- Amortization of prior service cost 1.3 1.3 1.3 - -------------------------------------------------------------------------------------------- Amortization of actuarial loss (0.4) (0.8) (0.1) - -------------------------------------------------------------------------------------------- Plan spin-off -- (0.2) -- ============================================================================================ $ 3.7 $ 2.9 $ 4.3 ============================================================================================
The aggregate benefit obligation, and aggregate fair value of plan assets for Hussmann-sponsored pension plans with accumulated benefit obligations in excess of plan assets at December 31 are as follows:
- ---------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------- Projected benefit obligation $2.6 $49.5 - ---------------------------------------------------------------------------- Accumulated benefit obligation 2.1 49.0 - ---------------------------------------------------------------------------- Fair value of plan assets $ -- $38.2 - ----------------------------------------------------------------------------
MULTI-EMPLOYER PENSION PLANS Hussmann participates in a number of multi- employer pension plans which provide benefits to certain union employees. Benefits are determined and funded annually based on terms of the plans or as stipulated in collective bargaining agreements. Amounts contributed to these plans totaled $3.9, $3.6 and $3.7 in 1999, 1998 and 1997, respectively. HUSSMANN-SPONSORED DEFINED CONTRIBUTION PLANS Substantially all U.S. salaried employees, certain U.S. hourly employees and certain Canadian employees who meet certain eligibility requirements may elect to participate in voluntary, contributory defined contribution plans to which Hussmann makes full or partial matching contributions. The Company's matching contributions to these plans amounted to $4.0, $3.6 and $3.7 during 1999, 1998 and 1997, respectively. 15. POSTRETIREMENT PLANS Hussmann provides substantially all former U.S. salaried employees who retired prior to July 1, 1989, and selected other employees in the U.S. and Canada with certain life and health care benefits. U.S. salaried employees retiring after July 1, 1989, are generally required to pay the full cost of these benefits. Eligibility for these benefits varies with the employee's classification prior to retirement. The postretirement benefit plans are unfunded plans, and as such, there are no plan assets. Benefits paid under Hussmann's postretirement benefit plans are independent of participant compensation levels. Therefore the projected benefit obligation is equivalent to the accumulated benefit obligation. H u s s m a n n I n t e r n a t i o n a l , I n c . /37/ 1 9 9 9 A n n u a l R e p o r t The following table details the change in the accumulated postretirement benefit obligation at December 31:
- ---------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION 1999 1998 - ---------------------------------------------------------------------------- Benefit obligation, beginning of year $15.1 $15.3 - ---------------------------------------------------------------------------- Service cost 0.2 0.1 - ---------------------------------------------------------------------------- Interest cost 1.1 1.0 - ---------------------------------------------------------------------------- Participant contributions 0.2 0.4 - ---------------------------------------------------------------------------- Actuarial gain (0.9) (0.4) - ---------------------------------------------------------------------------- Benefits paid (1.0) (1.3) ============================================================================ Benefit obligation, end of year 14.7 15.1 - ---------------------------------------------------------------------------- Unamortized prior service cost 0.1 0.1 - ---------------------------------------------------------------------------- Unrecognized net actuarial (gain) loss 0.3 (0.8) ============================================================================ Accrued benefit cost $15.1 $14.4 ============================================================================
The discount rates used in the determination of net periodic benefit cost for Hussmann-sponsored postretirement benefit plans for the years ended December 31, 1999, 1998 and 1997 were 7.5%, 7.0% and 7.0%, respectively. For 1999 measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for U.S. non- Medicare eligible plan participants, a 6.5% rate of increase was assumed for Medicare eligible U.S. plan participants and an 8.3% rate of increase was assumed for all other plan participants. The rates used for non- Medicare eligible and Medicare eligible plan participants were assumed to decrease gradually until reaching 6.0% and 4.5%, respectively, in 2003, and remain at those levels thereafter. The rates used for all other plan participants were assumed to decrease gradually until reaching 5.5% in 2006, and remain at that level thereafter.
- ------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1997 - ------------------------------------------------------------------------------------------- Service cost $0.2 $ 0.1 $ 0.1 - ------------------------------------------------------------------------------------------- Interest cost 1.1 1.0 1.0 =========================================================================================== $1.3 $ 1.1 $ 1.1 ===========================================================================================
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefits plan. A one-percentage point change in assumed health care cost trend rates would have had the following effects at December 31, 1999:
- ----------------------------------------------------------------------------------------------------------- 1-PERCENTAGE POINT INCREASE 1-PERCENTAGE POINT DECREASE - ----------------------------------------------------------------------------------------------------------- Effect on service and interest cost components $0.1 $(0.1) - ----------------------------------------------------------------------------------------------------------- Effect on postretirement benefit obligation $0.4 $(0.5) - -----------------------------------------------------------------------------------------------------------
MULTI-EMPLOYER POSTRETIREMENT MEDICAL AND LIFE INSURANCE Hussmann also participates ina number of multi-employer postretirement plans designed to provide health care and survivor benefits to union employees during their working lives and after retirement. Amounts contributed to these plans totaled $5.8, $4.6 and $5.2 during 1999, 1998 and 1997, respectively. 16. NON-RECURRING CHARGES The 1998 non-recurring charge relates to the recognition of employee termination costs and the write-down of certain assets at the Company's operation in Chile. The 1997 non-recurring charge includes the recognition of goodwill impairment, the closure of certain sales and service branches in the U.K., the restructuring of the U.K. operations and the consolidation of certain operations in the U.S. and Canada. During the fourth quarter of 1998, due to an increasingly weakening economy in Chile and the pending acquisition of Koxka, Management decided to restructure its operations in Chile. A substantial number of employees located in Chile were terminated, a small manufacturing operation was closed and certain assets were written down to their estimated fair market value. Hussmann recorded a non-recurring charge of $2.4 ($2.0 after-tax) related to the restructuring in Chile. The $2.4 charge consisted of an inventory write-down of $1.0, and the remaining portion related to employee termination costs and the write-down of certain other assets. In addition to this non-recurring charge in Chile, Hussmann adjusted its estimates of the tax benefits to be realized from the U.K. restructuring. The approximate $2.0 adjustment was reflected in the 1998 tax provision. During the third quarter of 1997, Hussmann recorded non-recurring charges of $30.7 ($29.6 after-tax) consisting of approximately $26.0 relating to the recognition of goodwill impairment and $4.7 related to the closure of sales and service branches in the U.K. H u s s m a n n I n t e r n a t i o n a l , I n c . /38/ 1 9 9 9 A n n u a l R e p o r t Also, during the fourth quarter of 1997, Management decided to restructure the U.K. operations and consolidate certain operations in the U.S. and Canada. The restructuring plan included closing a manufacturing facility in Scotland and consolidating two manufacturing facilities in Milton Keynes, England. These actions resulted in the elimination of approximately 320 jobs, primarily in the U.K. Total costs were approximately $25.6 ($17.4 after-tax) which included $8.5 for the write- down of inventory, $4.1 for the write-down of equipment, $10.9 in severance and termination benefits and $2.1 for lease termination and other closing costs. Other than severance cost, the majority of the charges recorded for the restructuring were non-cash. 17. OTHER FINANCIAL INFORMATION Other financial information at December 31 is as follows:
- ------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------- Interest paid $ 22.8 $17.7 $18.3 - ------------------------------------------------------------------------------------------- Income taxes paid 43.9 41.6 15.7 - ------------------------------------------------------------------------------------------- Capitalized interest 0.6 0.8 -- - ------------------------------------------------------------------------------------------- Interest income 3.4 2.1 1.8 - ------------------------------------------------------------------------------------------- Foreign exchange gain (loss) $(13.5) $(4.3) $ 0.4 - -------------------------------------------------------------------------------------------
18. CONTINGENCIES Hussmann is involved in certain claims and legal proceedings arising in the normal course of business. Although it is impossible to predict the ultimate outcome of these matters, in the opinion of Management, after appropriate consultation with legal counsel, the outcome of any such proceedings individually or in the aggregate will not have a material adverse effect on Hussmann's results of operations, financial condition or cash flows. 19. BUSINESS SEGMENT INFORMATION The Company is organized and managed on a geographical basis with three operating segments: the U.S. and Canada, Europe and Other International. The Corporate segment includes certain financing and employee benefit costs, certain information systems costs including ERP and Y2K costs, and other general corporate income and expense items. Corporate assets consist primarily of property and equipment, unallocated goodwill, cash and certain assets associated with employee retirement plans. Revenues are attributed to the location from which products are shipped or services are provided. The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies. Summarized information about Hussmann's operations in each of its business segments for the years ended December 31 is as follows:
- ------------------------------------------------------------------------------------------------------------------------- REVENUES OPERATING INCOME - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 ========================================================================================================================= U.S. and Canada $ 937.2 $ 901.7 $ 852.7 $151.1 $135.6 $102.8 - ------------------------------------------------------------------------------------------------------------------------- Europe 203.2 144.8 123.6 8.9 1.2 (55.4) - ------------------------------------------------------------------------------------------------------------------------- Other International 174.6 174.7 119.9 1.0 10.1 17.2 ========================================================================================================================= Total before corporate and other expenses $1,315.0 $1,221.2 $1,096.2 161.0 146.9 64.6 - ------------------------------------------------------------------------------------------------------------------------- Corporate (34.7) (27.0) (21.6) ========================================================================================================================= Total operating income 126.3 119.9 43.0 - ------------------------------------------------------------------------------------------------------------------------- Whitman charges -- (1.5) (28.4) - ------------------------------------------------------------------------------------------------------------------------- Interest expense (22.5) (18.8) (18.9) - ------------------------------------------------------------------------------------------------------------------------- Other income (expense), net (8.4) (3.4) 1.2 ========================================================================================================================= Income (loss) before income tax expense and minority interests $ 95.4 $ 96.2 $ (3.1) =========================================================================================================================
H u s s m a n n I n t e r n a t i o n a l , I n c . /39/ 1 9 9 9 A n n u a l R e p o r t
- ---------------------------------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION CAPITAL INVESTMENTS - ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 1997 1999 1998 1997 ============================================================================================================================ U.S. and Canada $356.9 $358.3 $13.8 $13.6 $13.8 $20.8 $14.9 $16.3 - ---------------------------------------------------------------------------------------------------------------------------- Europe 234.4 79.4 5.7 1.6 2.7 2.9 2.7 1.1 - ---------------------------------------------------------------------------------------------------------------------------- Other International 148.7 160.9 5.1 4.3 2.8 7.5 4.8 9.5 - ---------------------------------------------------------------------------------------------------------------------------- Corporate 76.4 55.1 4.3 3.5 3.1 8.8 8.2 11.7 ============================================================================================================================ $816.4 $653.7 $28.9 $23.0 $22.4 $40.0 $30.6 $38.6 ============================================================================================================================
During the years presented, no individual customer accounted for more than 10% of Hussmann's consolidated revenues. Revenues and long- lived assets related to Hussmann operations located in the United States consist of the following:
- ------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------- Revenues $864.5 $829.9 $779.8 - ------------------------------------------------------------------------------------------- Long-lived assets $128.0 $118.1 $109.8 - -------------------------------------------------------------------------------------------
Revenues and long-lived assets related to Hussmann operations located outside the United States consist of the following:
- ------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------- Revenues $450.5 $391.3 $316.4 - ------------------------------------------------------------------------------------------- Long-lived assets $180.6 $ 79.7 $ 75.2 - -------------------------------------------------------------------------------------------
20. SELECTED QUARTERLY FINANCIAL DATA Unaudited FINANCIAL RESULTS The following table presents Hussmann's revenues, gross profit and net income (loss) on a quarterly basis:
- ------------------------------------------------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR - ------------------------------------------------------------------------------------------------------------------------- 1999 Revenues $271.1 $324.0 $362.5 $357.4 $1,315.0 - ------------------------------------------------------------------------------------------------------------------------- Gross profit 45.0 71.9 82.4 80.4 279.7 - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (0.8) $ 17.2 $ 22.6 $ 21.2 $ 60.2 - ------------------------------------------------------------------------------------------------------------------------- 1998 Revenues $245.9 $292.9 $333.2 $349.2 $1,221.2 - ------------------------------------------------------------------------------------------------------------------------- Gross profit 40.8 63.6 75.3 77.5 257.2 - ------------------------------------------------------------------------------------------------------------------------- Net income $ 4.2 $ 15.7 $ 20.2 $ 17.4 $ 57.5 - ------------------------------------------------------------------------------------------------------------------------- 1997 Revenues $198.6 $250.8 $283.8 $363.0 $1,096.2 - ------------------------------------------------------------------------------------------------------------------------- Gross profit 34.9 48.4 62.6 60.8 206.7 - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (0.7) $ 5.7 $(15.9) $ (1.9) $ (12.8) - -------------------------------------------------------------------------------------------------------------------------
H u s s m a n n I n t e r n a t i o n a l , I n c . /40/ 1 9 9 9 A n n u a l R e p o r t COMMON STOCK AND DIVIDEND INFORMATION Hussmann's stock is traded on the New York Stock Exchange (the "NYSE") under the ticker symbol "HSM". Hussmann Common Stock began trading on the NYSE on January 30, 1998, following the Spin-off. The following table presents the high and low market closing prices for Hussmann Common Stock and cash dividend information for each quarter of 1999 and 1998.
- -------------------------------------------------------------------------------------------------- HIGH LOW DIVIDENDS DECLARED - -------------------------------------------------------------------------------------------------- 1999 First quarter $18.13 $13.75 $0.02 - -------------------------------------------------------------------------------------------------- Second quarter 17.44 14.63 0.02 - -------------------------------------------------------------------------------------------------- Third quarter 18.31 16.56 0.02 - -------------------------------------------------------------------------------------------------- Fourth quarter $18.44 $12.88 $0.02 - -------------------------------------------------------------------------------------------------- 1998 First quarter $18.75 $13.63 $0.02 - -------------------------------------------------------------------------------------------------- Second quarter 19.50 17.00 0.02 - -------------------------------------------------------------------------------------------------- Third quarter 18.94 12.63 0.02 - -------------------------------------------------------------------------------------------------- Fourth quarter $19.38 $12.00 $0.02 - --------------------------------------------------------------------------------------------------
21. SUBSEQUENT EVENT In January 2000, Hussmann's Board of Directors authorized a stock repurchase program for up to 2.5 million of the Company's common shares outstanding. Under the authorization, which was effective immediately, the Company may repurchase shares from time to time in the open market or in private transactions, depending on market price and other considerations. As of February 29, 2000, the Company had purchased approximately 248,000 shares at an average purchase price of $13.39 per share. H u s s m a n n I n t e r n a t i o n a l , I n c . /41/ 1 9 9 9 A n n u a l R e p o r t MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The integrity and objectivity of the consolidated financial statements included herein are the responsibility of Management. The financial statements have been prepared in conformity with generally accepted accounting principles and, where appropriate, include certain estimates based on the informed judgment of Management. Financial information appearing elsewhere in this annual report is consistent with the consolidated financial statements. In meeting its responsibility for the reliability of the consolidated financial statements, Management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with Management's authorization and recorded properly to permit the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The design of this system recognizes errors and irregularities may occur and estimates and judgments are required to assess the relative cost and expected benefits of such controls. Management believes the accounting controls provide reasonable assurance that errors and irregularities which could be material to the consolidated financial statements are prevented or would be detected within a reasonable period of time. As an independent, publicly held company, Hussmann's Board of Directors and Audit Committee have responsibility for determining that Management fulfills its duties in connection with the preparation of the consolidated financial statements. While under Whitman ownership, the Board of Directors of Whitman, acting through its Audit Committee had those responsibilities. Hussmann's independent auditors, KPMG LLP, were engaged to audit the consolidated financial statements of Hussmann and to issue their report thereon. To express their opinion on the consolidated financial statements and issue their report in conformity with generally accepted auditing standards, the independent auditors review Hussmann's internal accounting controls and conduct such tests and other procedures as they deem necessary. KPMG's report appears below. INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS' HUSSMANN INTERNATIONAL, INC.: We have audited the accompanying consolidated balance sheets of Hussmann International, Inc. (Hussmann) as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and comprehensive income and cash flows for the year ended December 31, 1999, and the related combined statements of operations, shareholders' equity and comprehensive income and cash flows for the years ended December 31, 1998 and 1997. These financial statements are the responsibility of Hussmann's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Hussmann as of December 31, 1999 and 1998, respectively, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP KPMG LLP January 27, 2000 St. Louis, Missouri H u s s m a n n I n t e r n a t i o n a l , I n c . /42/ 1 9 9 9 A n n u a l R e p o r t EX-21 4 SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF HUSSMANN INTERNATIONAL, INC.
Name Place of Incorporation Hussmann Corporation Missouri Krack Corporation Illinois Hussmann International Sales Corporation Barbados Luoyang Hussmann Refrigeration Co., Ltd. China Guangzhou Hussmann Refrigeration Co., Ltd. China Hussmann Tempcool Holdings PTE LTD Singapore Hussmann Holdings, Inc. Delaware Hussmann Netherlands B.V. Netherlands Hussmann-Mexico, S. de R.L. de C.V. Mexico Hussmann American, S. de R.L. de C.V. Mexico Industrias Frigorificas, S.A. de C.V. Mexico Industrias Gilvert, S.A. de C.V. Mexico Hussmann Canada Holdings, Ltd. Canada Hussmann Canada Inc. Canada Hussmann Holdings, Ltd. England Hussmann (Europe) Limited England Hussmann Refrigeration (Hungary) KFT Hungary Hussmann do Brasil Ltda. Brazil Fastecnica Instalacoes e Assistencia Tecnica Ltda. Brazil Hussmann Region Andina SRL Chile Hussmann Australasia Limited New Zealand McAlpine Hussmann Limited New Zealand McAlpine Hussmann (Australia) Pty Ltd. Australia McAlpine Hussmann Pty Ltd. Australia McAlpine Australia Pty Ltd. Australia Hussmann Iberica S.L. Spain Koxka C.E., S.A. Spain Compania de Refrigeracion Vedereca, S.A. Spain Kobol, S.A. Spain Baes Industria Del Frio, S.A. Spain Each of the above subsidiaries is 100% owned or controlled except as follows: Hussmann Tempcool Holdings PTE LTD (50%), Hussmann Refrigeration (Hungary) Ltd. (60%), Luoyang Hussmann Refrigeration Co., Ltd. (55%) and Hussmann Australasia Limited (65%).
EX-23 5 CONSENT OF EXPERT Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Hussmann International, Inc.: We consent to incorporation by reference in the registration statement Nos. 333-44623, 333-44799, and 333-58359 on Form S-8 and registration statement No. 333-52987 on Form S-3 of Hussmann International, Inc. of our report dated January 27, 2000, relating to the consolidated balance sheets as of December 31, 1999 and 1998 of Hussmann International, Inc., and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for the year ended December 31, 1999, and the related combined statements of operations, shareholders' equity and comprehensive income and cash flows for the years ended December 31, 1998 and 1997, which report appears in the December 31, 1999 annual report on Form 10-K of Hussmann International, Inc. /s/ KPMG LLP St. Louis, Missouri March 30, 2000 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM HUSSMANN INTERNATIONAL'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 35 0 295 4 139 485 368 168 816 234 295 0 0 0 236 816 1,315 1,315 1,035 1,035 0 0 23 95 34 60 0 0 0 60 1.18 1.16 For purposes of this exhibit, primary means basic.
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