-----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, GLXSpRs7V1ViPH48qRVZfMpwezjGFhCx6CcenOXvThUfEWSjJ7qR3oQLBSPuwu0G u13pLAQquKoGWSGdj3vLjA== 0000893220-02-000623.txt : 20020513 0000893220-02-000623.hdr.sgml : 20020513 ACCESSION NUMBER: 0000893220-02-000623 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YORK INTERNATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000842662 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 133473472 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10863 FILM NUMBER: 02642999 BUSINESS ADDRESS: STREET 1: 631 S RICHLAND AVE CITY: YORK STATE: PA ZIP: 17403 BUSINESS PHONE: 7177717890 MAIL ADDRESS: STREET 1: 631 SOUTH RICHLAND AVENUE CITY: YORK STATE: PA ZIP: 17403 FORMER COMPANY: FORMER CONFORMED NAME: YORK HOLDINGS CORP DATE OF NAME CHANGE: 19910930 10-Q 1 w60550e10-q.txt FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 COMMISSION FILE NUMBER 1-10863 YORK INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3473472 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 631 SOUTH RICHLAND AVENUE, YORK, PA 17403 (717) 771-7890 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at May 7, 2002 ----- -------------------------- Common Stock, par value $.005 39,393,074 shares
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Operations - (Unaudited) Three Months Ended March 31, 2002 and 2001 3 Consolidated Condensed Balance Sheets - March 31, 2002 (Unaudited) and December 31, 2001 4 Consolidated Condensed Statements of Cash Flows - (Unaudited) Three Months Ended March 31, 2002 and 2001 5 Supplemental Notes to Consolidated Condensed Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19
2 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES ITEM 1 FINANCIAL STATEMENTS Consolidated Condensed Statements of Operations (unaudited) (in thousands, except per share data)
Three Months Ended March 31, --------------------------- 2002 2001 --------- --------- Net sales $ 844,382 $ 942,105 Cost of goods sold 691,535 760,781 --------- --------- Gross profit 152,847 181,324 Selling, general and administrative expenses 143,432 148,264 Restructuring and other charges, net 2,730 21,951 --------- --------- Income from operations 6,685 11,109 Interest expense, net 12,713 19,949 Loss on divestiture 10,683 -- Equity in earnings of affiliates (570) (102) --------- --------- Loss before income taxes (16,141) (8,738) (Benefit) provision for income taxes (1,396) 256 --------- --------- Net Loss $ (14,745) $ (8,994) ========= ========= Basic loss per share $ (0.38) $ (0.23) ========= ========= Diluted loss per share $ (0.38) $ (0.23) ========= ========= Cash dividends per share $ 0.15 $ 0.15 ========= ========= Weighted average common shares and common equivalents outstanding: Basic and diluted 39,253 38,388
See accompanying supplemental notes to consolidated condensed financial statements. 3 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (in thousands)
March 31, 2002 December 31, (unaudited) 2001 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 30,433 $ 39,434 Receivables, net 608,963 613,892 Inventories Raw material 136,886 143,148 Work in process 107,261 101,575 Finished goods 270,191 270,537 ---------- ---------- Total inventories 514,338 515,260 Prepayments and other current assets 92,768 81,883 ---------- ---------- Total current assets 1,246,502 1,250,469 Deferred income taxes 44,245 56,149 Investments in affiliates 25,298 24,957 Property, plant and equipment, net 478,206 480,999 Goodwill 651,691 651,673 Intangibles 28,144 28,415 Deferred charges and other assets 75,945 79,847 ---------- ---------- Total assets $2,550,031 $2,572,509 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 37,217 $ 36,604 Accounts payable and accrued expenses 685,521 735,962 Income taxes 21,119 5,073 ---------- ---------- Total current liabilities 743,857 777,639 Long-term warranties 46,212 43,751 Long-term debt 744,972 724,378 Postretirement and postemployment benefits 206,754 208,195 Other long-term liabilities 74,448 79,112 ---------- ---------- Total liabilities 1,816,243 1,833,075 Stockholders' equity 733,788 739,434 ---------- ---------- Total liabilities and stockholders' equity $2,550,031 $2,572,509 ========== ==========
See accompanying supplemental notes to consolidated condensed financial statements. 4 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (unaudited)
(in thousands) Three Months Ended March 31, --------------------------- 2002 2001 --------- --------- Cash flows from operating activities: Net loss $ (14,745) $ (8,994) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization of property, plant and equipment 14,911 17,455 Amortization of deferred charges, intangibles and goodwill 743 7,366 Provision for doubtful receivables 7,604 1,690 Effect of non-cash charges 1,631 6,377 Loss on divestiture 10,683 -- Deferred income taxes 11,759 1,259 Loss (gain) on sale of fixed assets 1,992 (1,266) Other (120) 1,807 Change in assets and liabilities net of effects from acquisitions and divestitures: Receivables, net (8,995) (24,526) Inventories (1,482) (16,669) Prepayments and other current assets (12,651) 14,352 Accounts payable and accrued expenses (47,387) (78,293) Income taxes 15,851 16,701 Other long-term assets and liabilities (633) 8,167 --------- --------- Net cash used by operating activities (20,839) (54,574) --------- --------- Cash flows from investing activities: Purchases of and investments in other companies, net of cash acquired (2,248) -- Proceeds from divestiture, net 12,071 -- Capital expenditures (16,252) (16,742) Proceeds from sale of fixed assets 10 2,790 --------- --------- Net cash used by investing activities (6,419) (13,952) --------- --------- Cash flows from financing activities: Net proceeds (payments) on short-term debt 838 (72) Net proceeds (payments) of commercial paper borrowings 23,355 (102,889) Net (payments) proceeds on other long-term debt (1,946) 168,220 Common stock issued 1,876 898 Treasury stock purchases -- (38) Dividends paid (5,892) (5,764) --------- --------- Net cash provided by financing activities 18,231 60,355 --------- --------- Effect of exchange rate changes on cash 26 95 --------- --------- Net decrease in cash and cash equivalents (9,001) (8,076) Cash and cash equivalents at beginning of period 39,434 26,425 --------- --------- Cash and cash equivalents at end of period $ 30,433 $ 18,349 ========= =========
See accompanying supplemental notes to consolidated condensed financial statements. 5 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES Supplemental Notes To Consolidated Condensed Financial Statements (unaudited) (1) The consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the information presented is not misleading and the disclosures are adequate. In our opinion, the accompanying consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position as of March 31, 2002 and December 31, 2001, the results of operations for the three months ended March 31, 2002 and 2001, and cash flows for the three months ended March 31, 2002 and 2001. The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Certain reclassifications have been made to the 2001 consolidated financial statements to conform to the 2002 presentation. (2) The following table summarizes our indebtedness as of March 31, 2002 and December 31, 2001 (in thousands):
March 31, December 31, 2002 2001 --------- --------- Notes payable and current portion of long-term debt: Bank loans (primarily foreign currency) $ 33,801 $ 32,963 Current portion of long-term debt 3,416 3,641 --------- --------- Total $ 37,217 $ 36,604 ========= ========= Long-term debt: Domestic bank lines at an average rate of 2.32% in 2002 $ 14,900 $ -- Commercial paper, 2.26% interest in 2002 and 2.38% interest in 2001 221,057 197,702 Senior notes, 6.75% interest, due March 2003 100,000 100,000 Senior notes, 6.625% interest, due August 2006 200,000 200,000 Senior notes, 6.70% interest, due June 2008 200,000 200,000 Other (primarily foreign bank loans) at an average rate of 6.44% in 2002 and 6.38% in 2001 12,431 30,317 --------- --------- Total 748,388 728,019 Less current portion (3,416) (3,641) --------- --------- Noncurrent portion $ 744,972 $ 724,378 ========= =========
As of March 31, 2002 and December 31, 2001, our borrowings consisted of senior notes, commercial paper issuances and various other bank and term loans. The commercial paper issuances and certain bank loans are expected to be reborrowed in the ordinary course of business, depending on our financing needs. As of March 31, 2002, it is expected that commercial paper will be issued to redeem the $100 million senior notes due March 2003. In addition, we have available a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $300 million 364-Day Credit Agreement, which expires on May 28, 2002 (collectively, the Agreements). As of March 31, 2002 and December 31, 2001, no amounts were outstanding under the Agreements. The $400 million Five Year Credit Agreement provides for borrowings at the London Interbank Offering Rate (LIBOR) plus 0.75% or 0.875%, and the $300 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.775% or 0.90%, based on the amount of facility utilization. We pay annual fees 6 (continued) of 0.125% on the $400 million facility and 0.10% on the $300 million facility. The Agreements allow for borrowings at specified bid rates. As of March 31, 2002 and December 31, 2001, the three-month LIBOR rate was 2.07% and 1.86%, respectively. The Agreements contain financial covenants requiring us to maintain certain financial ratios and standard provisions limiting leverage and liens. We were in compliance with these financial covenants as of March 31, 2002 and December 31, 2001. We have additional domestic bank lines that provide for total borrowings of $100 million as of March 31, 2002 and December 31, 2001, of which $85.1 million and $100.0 million, respectively, were unused. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provided for available borrowings of $393.1 million and $386.3 million as of March 31, 2002 and December 31, 2001, respectively, of which $313.9 million and $276.1 million, respectively, were unused. (3) The following table summarizes our stockholders' equity as of March 31, 2002 and December 31, 2001 (in thousands):
March 31, December 31, 2002 2001 --------- --------- Common stock $.005 par value; 200,000 shares authorized; issued 45,616 shares at March 31, 2002 and December 31, 2001 $ 228 $ 228 Additional paid-in capital 723,580 723,980 Retained earnings 428,452 449,089 Accumulated other comprehensive losses (183,963) (196,870) Treasury stock, at cost; 6,327 shares at March 31, 2002 and 6,394 shares at December 31, 2001 (234,469) (236,938) Unearned compensation (40) (55) --------- --------- Total stockholders' equity $ 733,788 $ 739,434 ========= =========
(4) Derivative Instruments and Hedging Activities We apply Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment to SFAS No. 133, in accounting for derivatives and hedging activities. These statements require that all derivative instruments be recognized in the balance sheet at fair value and establish criteria for the designation of hedges and the determination of effectiveness of hedging relationships for fair value and cash flow hedges. We are exposed to market risk associated with changes in interest rates, foreign currency exchange rates, and certain commodity prices. To enhance our ability to manage these market risks, we enter into derivative instruments, pursuant to our policies, for periods consistent with the related underlying exposures. Derivative instruments are designated as either fair value hedges, cash flow hedges, net investment hedges, or non-qualifying hedges at inception of the hedge. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in fair value or cash flows of the underlying exposures being hedged. We mitigate the risk that the counter-party to these derivative instruments will fail to perform by only entering into derivative instruments with major financial institutions. We do not typically hedge our market risk exposures beyond three years and do not hold or issue derivative instruments for trading purposes. Recognized gains or losses for the three months ended March 31, 2002 as a result of the discontinuance of cash flow hedges were not significant. During the three months ended March 31, 2002, we had no outstanding derivative instruments relating to hedges of net investments in foreign operations. Certain derivative instruments are not designated as hedging instruments as they hedge immaterial exposures. 7 (continued) Currency Rate Hedging We manufacture and sell our products in a number of countries throughout the world, and therefore, are exposed to movements in various currencies against the United States Dollar and against the currencies in which we manufacture. Through our currency hedging activities, we seek to minimize the risk that cash flows resulting from the sale of products, manufactured in a currency different from the currency used by the selling subsidiary, will be affected by changes in foreign currency exchange rates. We do not, however, hedge foreign exposures that are considered immaterial or in highly correlated currencies. We manage our foreign currency risks by hedging our foreign currency exposures with foreign currency derivative instruments (forward contracts and purchased option contracts). Foreign currency derivative instruments are matched to the underlying foreign currency exposures and are executed to minimize foreign exchange transaction costs. Changes in fair value of foreign currency derivative instruments, qualifying as cash flow hedges, are reported in accumulated other comprehensive income. The gains or losses on these hedges are reclassified in earnings as the underlying hedged items affect earnings. As of March 31, 2002, we forecasted that $0.2 million of net losses in accumulated other comprehensive losses will be reclassified into earnings within the next twelve months. Commodity Price Hedging We purchase raw material commodities and are at risk for fluctuations in the market price of those commodities. In connection with the purchase of major commodities, principally copper for manufacturing requirements, we enter into commodity forward contracts to effectively fix our cost of the commodity. These contracts require each settlement between our counterparty and us to coincide with cash market purchases of the actual commodity. Changes in the fair value of commodity derivative instruments qualifying as cash flow hedges are reported in accumulated other comprehensive income. The gains or losses are reclassified in earnings as the underlying hedged items affect earnings. As of March 31, 2002, we forecasted that $1.6 million of net losses in accumulated other comprehensive losses will be reclassified into earnings within the next twelve months. Interest Rate Hedging We manage our interest rate risk by entering into both fixed and variable rate debt at the lowest possible costs. In addition, we enter into interest rate swap contracts in order to achieve a cost effective mix of fixed and variable rate indebtedness. Under these contracts, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated from an agreed upon referenced notional amount. The notional amounts are not exchanged and no other cash payments are made unless the contract is terminated prior to maturity. We have designated our outstanding interest rate swap contracts as fair value hedges of an underlying fixed rate debt obligation. The fair value of these contracts is recorded in other long-term assets or liabilities with a corresponding increase or decrease in the fixed rate debt obligation. The change in fair values of both the fair value hedge instruments and the underlying debt obligations are recorded as equal and offsetting unrealized gains and losses in the interest expense component of the consolidated statements of operations. All existing fair value hedges are 100% effective. As a result, there is no impact on current earnings resulting from hedge ineffectiveness. 8 (continued) (5) Comprehensive loss is determined as follows (in thousands):
Three Months Ended March 31, ------------------------ 2002 2001 -------- -------- Net loss $(14,745) $ (8,994) Other comprehensive income (loss): Foreign currency translation adjustment 7,963 (31,006) Cash flow hedges: Transition adjustment, net of tax -- (976) Reclassification adjustment, net of tax 1,232 552 Net derivative gains (losses), net of tax 3,712 (2,775) -------- -------- Comprehensive loss $ (1,838) $(43,199) ======== ========
(6) Pursuant to the terms of a revolving facility, we sell our trade receivables to a wholly-owned, consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis, up to $175.0 million undivided ownership interest in the purchased trade receivables to bank conduits. We continue to service the receivables. No servicing asset or liability has been recognized as our cost to service the receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $169.9 million and $175.0 million of undivided interest in trade receivables as of March 31, 2002 and December 31, 2001, respectively. The proceeds from the sale were reflected as a reduction of receivables in the accompanying consolidated balance sheets as of March 31, 2002 and December 31, 2001. The discount rate on the trade receivables sold was 1.89% and 2.00% as of March 31, 2002 and December 31, 2001, respectively. (7) Effective January 1, 2002 we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, we no longer amortize goodwill, but instead test goodwill for impairment at least annually. Intangible assets with definite useful lives are amortized over such lives to their estimated residual values. We are required to assess, in accordance with the provisions of SFAS No. 142, whether there is an indication that any goodwill is impaired no later than June 30, 2002. As soon as possible after a determination that any goodwill may be impaired, but not later than December 31, 2002, we must re-compute the amount of such goodwill in accordance with the provisions of SFAS No. 142. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle. We estimate the adoption of SFAS No. 142 will result in a significant cumulative effect adjustment that may exceed $200 million. 9 (continued) The changes in the carrying amount of goodwill for the three months ended March 31, 2002 by segment, are as follows (in thousands):
Foreign Balance as of Goodwill Currency Balance as of Dec. 31, 2001 Acquired Fluctuation Mar. 31, 2002 --------- --------- --------- --------- Engineered Systems Group $ 83,872 $ 1,068 $ (97) $ 84,843 York Refrigeration Group 371,048 398 (1,351) 370,095 Unitary Products Group 140,440 -- -- 140,440 Bristol Compressors 56,313 -- -- 56,313 --------- --------- --------- --------- $ 651,673 $ 1,466 $ (1,448) $ 651,691 ========= ========= ========= =========
Adjusted net loss for the three months ended March 31, 2001 is as follows (in thousands, except per share data): Reported net loss $ (8,994) Add back: goodwill amortization 6,342 --------- Adjusted net loss $ (2,652) ========= Basic and diluted loss per share: Reported net loss $ (0.23) Add back: goodwill amortization 0.16 --------- Adjusted net loss $ (0.07) =========
The following table summarizes the major intangible asset classes subject to amortization included in the accompanying consolidated condensed balance sheets as of March 31, 2002 and December 31, 2001 (in thousands):
Gross Carrying Accumulated Net Carrying March 31, 2002 Amount Amortization Amount ------- ------- ------- Trade names and trademarks $30,447 $ 2,983 $27,464 Other 1,236 556 680 ------- ------- ------- $31,683 $ 3,539 $28,144 ======= ======= ======= December 31, 2001 Trade names and trademarks $30,439 $ 2,734 $27,705 Other 1,237 527 710 ------- ------- ------- $31,676 $ 3,261 $28,415 ======= ======= =======
Amortization expense for trade names and trademarks and other intangible assets for the three months ended March 31, 2002 and the three months ended March 31, 2001 was $0.3 million. The following table estimates the amount of amortization expense for trade names and trademarks and other intangible assets for the remainder of 2002 and each of the four succeeding years (in thousands): 2002 (April 1 - December 31) $ 857 2003 1,143 2004 1,143 2005 1,143 2006 1,143 2007 and beyond 22,715
10 (continued) (8) Net loss as set forth in the accompanying consolidated condensed statements of operations is used in the computation of basic and diluted loss per share information. Our basic and diluted loss per share is based upon the weighted average common shares outstanding during the period. The computation of diluted earnings per share for the three months ended March 31, 2002 and the three months ended March 31, 2001 excludes incremental shares of 0.6 million and 0.5 million, respectively, related to non-vested restricted shares and stock options. These shares are excluded based on their antidilutive effect as a result of our net loss for the three months ended March 31, 2002 and the three months ended March 31, 2001. (9) In 2002, we reorganized certain portions of our operating segments. Prior year amounts were reclassified to conform to the current presentation. Also in 2002, we allocated certain goodwill, which was previously reflected as a non-allocated asset, to our operating segments in accordance with SFAS No. 142. Prior year total assets were reclassified to conform to the current presentation. The table below represents our operating results by segment (in thousands): 11 (continued)
Three Months Ended March 31, ----------------------------- 2002 2001 --------- --------- Net sales: Engineered Systems Group $ 388,652 $ 441,822 York Refrigeration Group 189,129 212,245 Unitary Products Group 161,185 173,943 Bristol Compressors 155,956 168,050 Eliminations(1) (50,540) (53,955) --------- --------- 844,382 942,105 ========= ========= (1)Eliminations include the following intersegment net sales: Engineered Systems Group 2,141 8,562 York Refrigeration Group 7,085 5,433 Unitary Products Group 14,060 12,503 Bristol Compressors 27,254 27,457 --------- --------- Eliminations 50,540 53,955 ========= ========= Income (loss) from operations: Engineered Systems Group 3,867 17,995 York Refrigeration Group 8,695 10,237 Unitary Products Group (2,440) 12,752 Bristol Compressors 16,335 16,763 Restructuring and other charges, net (2,730) (21,951) Eliminations, general corporate expenses and other non-allocated items (17,042) (24,687) --------- --------- 6,685 11,109 ========= ========= Equity in (earnings) losses of affiliates: Engineered Systems Group (134) (24) York Refrigeration Group (412) (156) Bristol Compressors (24) 78 --------- --------- (570) (102) ========= ========= Earnings (loss) before interest and taxes: Engineered Systems Group 4,001 18,019 York Refrigeration Group 9,107 10,393 Unitary Products Group (2,440) 12,752 Bristol Compressors 16,359 16,685 Restructuring and other charges, net (2,730) (21,951) Eliminations, general corporate expenses and other non-allocated items (17,042) (24,687) Loss on divestiture (10,683) -- --------- --------- (3,428) 11,211 Interest expense, net 12,713 19,949 --------- --------- Loss before income taxes (16,141) (8,738) (Benefit) provision for income taxes (1,396) 256 --------- --------- Net loss $ (14,745) $ (8,994) ========= =========
12 (continued)
March 31, 2002 Dec. 31, 2001 ----------- ----------- Total assets: Engineered Systems Group $ 972,446 $ 1,049,536 York Refrigeration Group 905,695 917,541 Unitary Products Group 454,925 447,359 Bristol Compressors 334,847 270,943 Eliminations and other non-allocated assets (117,882) (112,870) ----------- ----------- $ 2,550,031 $ 2,572,509 =========== ===========
(10) In the three months ended March 31, 2002 and the three months ended March 31, 2001, we recorded charges of $2.8 million and $24.9 million, respectively, including $0.1 million and $2.9 million, respectively, charged to cost of goods sold, relating to plant closings and divestitures, product line and facility rationalizations, selling, general and administrative expense reductions and other one-time costs. The charges included write-downs for the impairment of fixed assets and other assets relating to facilities to be closed or divested and other impaired assets. These actions included the plant closure of the Unitary Products Group factory in Elyria, Ohio, the Engineered Systems Group Airside factory in Portland, Oregon, the York Refrigeration Group facility in San Antonio, Texas, the Bristol Compressor plant in Sparta, North Carolina and factories in Asquith, Australia; Montevideo, Uruguay; and Barlassina, Italy. Severance and other accruals included planned reductions in workforce throughout the Company. Of the approximately 2,350 salary and wage employee reductions planned, approximately 200 remained at March 31, 2002. Detail of the activity in the three months ended March 31, 2002 is as follows:
Additional Non-cash Accrual Accrual Write-downs Established Utilized Reduction in Three in Three in Three in Three Months Remaining Months Months Months Remaining Ended Accruals at Ended Ended Ended Accruals at Mar. 31, Dec. 31 Mar.31, Mar. 31, Mar. 31, Mar. 31, (in thousands) 2002 2001 2002 2002 2002 2002 ------- ------- -------- ------- ------- ------- Fixed asset write-downs $ 1,500 $ -- $ -- $ -- $ -- $ -- Inventory write-downs 44 -- -- -- -- -- Other asset write-downs 87 -- -- -- -- -- Severance -- 10,728 994 5,410 464 5,848 Contractual obligations -- 3,011 5 34 6 2,976 Other -- 2,580 658 831 -- 2,407 ------- ------- -------- ------- ------- ------- $ 1,631 $16,319 $ 1,657 $ 6,275 $ 470 $11,231 ======= ======= ======== ======= ======= =======
(11) In January 2002, we sold our Engineered Systems Group air conditioning operations in Australia for $12.1 million. The sale resulted in a loss of $10.7 million in the three months ended March 31, 2002. 13 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth net sales and earnings (loss) before interest and taxes (EBIT) by segment:
(in thousands) Three Months Ended March 31, ---------------------------- 2002 2001 --------- --------- Net Sales: Engineered Systems Group $ 388,652 $ 441,822 York Refrigeration Group 189,129 212,245 Unitary Products Group 161,185 173,943 Bristol Compressors 155,956 168,050 Eliminations (50,540) (53,955) --------- --------- Net Sales $ 844,382 $ 942,105 ========= ========= EBIT: Engineered Systems Group $ 4,001 $ 18,019 York Refrigeration Group 9,107 10,393 Unitary Products Group (2,440) 12,752 Bristol Compressors 16,359 16,685 Restructuring and other charges, net (2,730) (21,951) Eliminations, general corporate expenses and other non-allocated items (17,042) (24,687) Loss on divestiture (10,683) -- --------- --------- EBIT $ (3,428) $ 11,211 ========= =========
Consolidated Operations Net sales for the three months ended March 31, 2002 decreased 10.4% to $844.4 million from $942.1 million for the same period in 2001. Reduced shipments of chillers, fewer refrigeration contracts, and lower sales of unitary light commercial products were partially offset by service growth. (See further discussion below under Segment Analysis.). Net sales in the United States decreased 7.5% to $427.1 million and international net sales decreased 13.1% to $417.3 million. Order backlog as of March 31, 2002 was $961.5 million compared to $1,082.7 million as of March 31, 2001 and $852.0 million as of December 31, 2001. Gross profit decreased 15.7% to $152.8 million (18.1% of net sales) in the three months ended March 31, 2002 as compared to $181.3 million (19.2% of net sales) in the same period of 2001. In the three months ended March 31, 2002, we recorded $0.1 million of restructuring charges related to inventory write-downs and warranty accruals, $6.8 million of one-time costs related to cost reduction actions and $0.8 million related to a discontinued product line. During the three months ended March 31, 2001, we recorded $2.9 million of restructuring charges, $3.9 million of one-time costs related to cost reduction actions, and $1.7 million related to a discontinued product line. Excluding the charges discussed above, gross profit decreased 15.4% to $160.6 million (19.0% of net sales) in the three months ended March 31, 2002 from $189.9 million (20.2% of net sales) in the same period of 2001. The decrease was primarily due to reduced volume, the impact of competitive margin pressures, changes in product mix, and increased investments relating to our service activities. Selling, general and administrative expense, decreased 3.3% to $143.4 million (17.0% of net sales) in the three months ended March 31, 2002 from $148.3 million (15.7% of net sales) in the three months ended March 31, 2001. 14 (continued) The decrease in dollars was primarily due to staff reductions and other cost reduction efforts, partially offset by the write-off of a $5.9 million receivable related to a Unitary Products Group distributor that became insolvent. In October 2000, we announced the initiation of a cost reduction process, which included plant closures and divestitures, product line and facility rationalizations, selling, general and administrative expense reductions and other one-time costs. In the second quarter of 2001, we expanded the scope of the cost reduction process to include additional plant closings and staff reductions. In the three months ended March 31, 2002 and the three months ended March 31, 2001, we recorded charges to operations of $9.6 million and $28.8 million, respectively, related to these cost reduction actions, including the $6.9 million and $6.8 million, respectively, charged to cost of goods sold as discussed above. The charges in the three months ended March 31, 2002 and the three months ended March 31, 2001 included $1.6 million and $6.4 million, respectively, in write-downs of various assets and $1.2 million and $18.5 million, respectively, in accruals for severance and other costs. As of March 31, 2002, the closing of one facility was still in process. We do not anticipate significant additional costs to be incurred during the remainder of 2002 relating to the announced actions. Equity in earnings of affiliates was $0.6 million during the first three months of 2002 as compared to $0.1 million during the first three months of 2001. The increase was due to an increase in earnings at our joint ventures in Korea and Saudi Arabia. In January 2002, we sold our Engineered Systems Group air conditioning operations in Australia for $12.1 million. The sale resulted in a loss of $10.7 million in the three months ended March 31, 2002. During the first three months ended March 31, 2002, (loss) earnings before interest and taxes (EBIT) decreased to $(3.4) million (-0.4% of net sales) from $11.2 million (1.2% of net sales) during the first three months ended March 31, 2001. Excluding the charges discussed above and the loss on divestiture, EBIT decreased 57.5% to $17.7 million (2.1% of net sales) in the first three months of 2002 compared to $41.7 million (4.4% of net sales) in the same period of 2001. Net interest expense in the first three months of 2002 was $12.7 million compared to $19.9 million in the first three months of 2001. The decrease resulted from lower average debt levels and lower interest rates. The income tax benefit of $1.4 million during the first three months of 2002 relates to both U.S. and non-U.S. operations. The tax rate for ongoing operations was 22.5% for the first three months of 2002 compared to 30.0% for the first three months of 2001. The tax rate improvement for ongoing operations was the result of effective tax planning strategies, tax holidays and the impact of the adoption of Statement of Financial Accounting Standard No. 142. Net loss, as a result of the above factors, was $14.7 million during the first three months of 2002 as compared to a net loss of $9.0 million during the first three months of 2001. Segment Analysis The discussion below of each segment's EBIT relates to ongoing operations and excludes the charges and loss on divestiture discussed above. Engineered Systems Group (ESG) net sales for the three months ended March 31, 2002 decreased 12.0% to $388.7 million from $441.8 million for the same period in 2001, primarily due to declines in shipments of chillers, particularly in North America and Europe. The decline was partially offset by strength in global service business. EBIT for the three months ended March 31, 2002 decreased 77.8% to $4.0 million (1.0 % of net sales) from $18.0 million (4.1% of net sales) for the same period in 2001. The decline resulted from lower volumes and the related absorption effects of fixed costs and investments in product development and service infrastructure. York Refrigeration Group (YRG) net sales for the three months ended March 31, 2002 decreased 10.9% to $189.1 million from $212.2 million for the same period in 2001. The decrease resulted from soft markets for European equipment orders and contracting. Excluding the currency translation impact, net sales declined 8.0%. EBIT for the three months ended March 31, 2002 decreased 12.4% to $9.1 million (4.8% of net sales) from $10.4 million (4.9% of net sales) for the same period in 2001 due to lower volume, reduced absorption and pricing pressures in certain markets. 15 (continued) Unitary Products Group (UPG) net sales for the three months ended March 31, 2002 decreased 7.3% to $161.2 million from $173.9 million for the same period in 2001. The decrease resulted from declines in the North American unitary market and the manufactured housing market. EBIT for the three months ended March 31, 2002 decreased 119.1% to $(2.4) million (-1.5% of net sales) from $12.8 million (7.3% of net sales) for the same period in 2001. In addition to the impact of lower sales volume, EBIT decreased due to an unfavorable product mix, manufacturing inefficiencies and the write-off of a $5.9 million receivable related to a distributor that became insolvent during March 2002. The unfavorable product mix resulted from a shift to lower margin products as light commercial products declined more than residential. In addition, the trend toward high-efficiency product slowed as replacement volume was driven by lower-efficiency units in the three months ended March 31, 2002. While beneficial in the long-term, the UPG residential factory consolidation was more costly and slower than originally anticipated. Although plant efficiency levels are steadily improving, UPG experienced manufacturing inefficiencies and logistics and warehousing costs remained high at the Wichita facility in the three months ended March 31, 2002. Bristol Compressors net sales for the three months ended March 31, 2002 decreased 7.2% to $156.0 million from $168.0 million for the same period in 2001, primarily due to declines in international orders, partially offset by an increase in North American unitary sales. EBIT for the three months ended March 31, 2002 decreased 2.0% to $16.4 million (10.5% of net sales) from $16.7 million (9.9% of net sales) for the same period in 2001. The decline was due to a favorable product mix and improved product designs with lower costs. Liquidity and Capital Resources Working capital requirements are generally met through a combination of internally generated funds, bank lines of credit, commercial paper borrowings, financing of trade receivables and credit terms from suppliers which approximate receivable terms to our customers. Additional sources of working capital include customer deposits and progress payments. Working capital increased $29.8 million to $502.6 million as of March 31, 2002 as compared to $472.8 million as of December 31, 2001. The increase was primarily due to reductions in accounts payable and accrued expenses and increases in prepayments and other current assets, partially offset by increases in income taxes. The current ratio was 1.68 as of March 31, 2002 as compared to 1.61 as of December 31, 2001. Capital expenditures were $16.3 million for the three months ended March 31, 2002 as compared to $16.7 million for the three months ended March 31, 2001. Capital expenditures currently anticipated for expanded capacity, cost reductions and the introduction of new products during 2002 are expected to be in excess of depreciation and amortization. These expenditures will be funded from a combination of operating cash flows, availability under credit agreements and commercial paper borrowings. Cash dividends of $0.15 per share were paid on common stock in the three months ended March 31, 2002. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend upon such factors as our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. Total indebtedness was $782.2 million as of March 31, 2002, primarily consisting of $500.0 million of senior notes and $221.1 million of commercial paper. On June 1, 1998, we issued $200 million of 6.70% fixed rate senior notes having a maturity of ten years from the date of issue. On August 6, 2001, we issued $200 million of 6.625% fixed rate senior notes due August 2006. The remaining $100 million ten-year senior notes bear interest at a 6.75% fixed rate and are due March 2003. As of March 31, 2002, it is expected that commercial paper will be issued to redeem the $100 million senior notes due March 2003. Commercial paper borrowings are expected to be reborrowed in the ordinary course of business. The interest rate on the commercial paper was 2.26% as of March 31, 2002. As of March 31, 2002, we had available a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $300 million 364-Day Credit Agreement, which expires on May 28, 2002 (collectively, the Agreements). As of March 31, 2002, no amounts were outstanding under the Agreements. The $400 million Five Year Credit Agreement provides for borrowings at the London Interbank Offering Rate (LIBOR) plus 0.75% or 0.875%, and the $300 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.775% or 0.90%, based on the amount of facility utilization. We pay annual fees of 0.125% on the $400 16 (continued) million facility and 0.10% on the $300 million facility. The Agreements allow for borrowings at specified bid rates. As of March 31, 2002, the three-month LIBOR rate was 2.07%. The Agreements contain financial covenants requiring us to maintain certain financial ratios and standard provisions limiting leverage and liens. We were in compliance with these financial covenants as of March 31, 2002. We have additional domestic bank lines that provide for total borrowings of $100 million as of March 31, 2002 and December 31, 2001, of which $85.1 million and $100.0 million, respectively, were unused. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provided for available borrowings of $393.1 million and $386.3 million as of March 31, 2002 and December 31, 2001, respectively, of which $313.9 million and $276.1 million, respectively, were unused. Pursuant to the terms of a revolving facility, we sell our trade receivables to a wholly-owned, consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis up to $175.0 million undivided ownership interest in the purchased trade receivables to bank conduits. We continue to service the receivables. No servicing asset or liability has been recognized as our cost to service the receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $169.9 million and $175.0 million of undivided interest in trade receivables as of March 31, 2002 and December 31, 2001, respectively. The proceeds from the sale were reflected as a reduction of receivables in the accompanying consolidated balance sheets as of March 31, 2002 and December 31, 2001. The discount rate on the trade receivables sold was 1.89% and 2.00% as of March 31, 2002 and December 31, 2001, respectively. We believe that we will be able to satisfy our principal and interest payment obligations and our working capital and capital expenditure requirements from operating cash flows together with the availability under the Agreements. The Agreements and commercial paper borrowings support seasonal working capital needs and are available for general corporate purposes. Seasonal working capital needs could increase due to shipment delays or an unusually cool summer season. Our ability to finance operations in the commercial paper market is dependent upon maintaining satisfactory credit ratings. If our credit ratings would be lowered by the rating agencies, we have the ability to borrow under the Agreements as long as we continue to meet the financial covenants or until expiration of the Agreements. The primary financial covenants are the earnings before interest, taxes and depreciation and amortization (EBITDA) interest coverage and the debt to capital ratio, as defined under the Agreements. As of March 31, 2002, our EBITDA interest coverage was 4.8, exceeding the minimum requirement of 3.5. As of March 31, 2002 our debt to capital ratio was 52%, below the maximum allowed of 57%. Our senior notes due in 2003 could be accelerated for payout only in a limited circumstance. The acceleration would occur in the event we repurchased over 20% of our shares in a twelve month period and our credit ratings were lowered by one full ratings letter. Because our obligations under the Agreements and revolving trade receivables purchase facility bear interest at floating rates, our interest costs are sensitive to changes in prevailing interest rates. In the ordinary course of business, we enter into various types of transactions that involve contracts and financial instruments. We enter into these financial instruments to manage financial market risk, including foreign exchange, commodity price and interest rate risk. Outlook We anticipate continued pressure on our business segments in the second quarter of 2002. The commercial air conditioning and refrigeration equipment markets are expected to be at lower levels from the second quarter of 2001. As of March 31, 2002, both ESG and YRG had lower backlog levels than in the prior year. UPG may continue to experience reduced margins due to product mix and a decline in the light commercial market. We also currently anticipate volume and margin pressure during the second half of 2002 due to general equipment market levels. We expect these reductions will be offset by service and parts revenue growth, reduced costs as a result of our cost reduction efforts, and lower interest and tax expenses. In addition, we anticipate continued reductions in working capital during the remainder of 2002. 17 (continued) New Accounting Standards Effective January 1, 2002 we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, we no longer amortize goodwill, but instead test goodwill for impairment at least annually. Intangible assets with definite useful lives are amortized over such lives to their estimated residual values. We are required to assess, in accordance with the provisions of SFAS No. 142, whether there is an indication that any goodwill is impaired no later than June 30, 2002. As soon as possible after a determination that any goodwill may be impaired, but not later than December 31, 2002, we must re-compute the amount of such goodwill in accordance with the provisions of SFAS No. 142. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle. We estimate the adoption of SFAS No. 142 will result in a significant cumulative effect adjustment that may exceed $200 million. Amortization expense related to goodwill was $6.3 million in the three months ended March 31, 2001. Forward-Looking Information - Risk Factors To the extent we have made "forward-looking statements," certain risk factors could cause actual results to differ materially from those anticipated in such forward-looking statements including, but not limited to competition, government regulation, environmental considerations and the successful implementation of our cost reduction actions. Unseasonably cool spring or summer weather could adversely affect our UPG residential air conditioning business and, similarly, the Bristol compressor business. Bristol is also dependent on the successful development and introduction of new products. The ESG air conditioning business could be affected by a slowdown in the large chiller market and by the acceptance of new product introductions. YRG could be adversely affected by the effects of declining European currencies. Both YRG and ESG could be negatively impacted by reductions in commercial construction. In addition, our overall performance could be affected by declining worldwide economic conditions or slowdowns resulting from world events. 18 YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 Legal Proceedings Not Applicable Item 2 Changes in Securities Not Applicable Item 3 Defaults Upon Senior Securities Not Applicable Item 4 Submission of Matters to a Vote of Security Holders Not Applicable Item 5 Other Information Not Applicable Item 6 Exhibits and Reports on Form 8-K (a) None (b) None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned unto duly authorized. YORK INTERNATIONAL CORPORATION Registrant Date May 7, 2002 /S/ C. David Myers C. David Myers Corporate Vice President and Chief Financial Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----