10-Q 1 w96872e10vq.txt FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 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, 2004 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 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 6, 2004 ----- -------------------------- Common Stock, par value $.005 41,330,025 shares
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Operations - (unaudited) Three Months Ended March 31, 2004 and 2003 3 Consolidated Condensed Balance Sheets - March 31, 2004 (unaudited) and December 31, 2003 4 Consolidated Condensed Statements of Cash Flows - (unaudited) Three Months Ended March 31, 2004 and 2003 5 Supplemental Notes to Consolidated Condensed Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings 24 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24
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, 2004 2003 --------- --------- Net sales: Products $ 833,718 $ 769,042 Services 105,649 99,315 --------- --------- Net sales 939,367 868,357 Cost of goods sold: Products (678,584) (627,205) Services (89,727) (81,052) --------- --------- Cost of goods sold (768,311) (708,257) --------- --------- Gross profit 171,056 160,100 Selling, general, and administrative expenses (166,181) (149,032) Restructuring and other charges, net -- (16,094) --------- --------- Income (loss) from operations 4,875 (5,026) Interest expense, net (10,861) (12,016) Equity in earnings of affiliates 492 1,088 --------- --------- Loss before income taxes (5,494) (15,954) Benefit from income taxes 1,291 2,318 --------- --------- Net loss $ (4,203) $ (13,636) ========= ========= Basic and diluted net loss per share $ (0.10) $ (0.34) ========= ========= Cash dividends per share $ 0.20 $ 0.15 ========= ========= Basic and diluted weighted average common shares and common equivalents outstanding 40,607 39,623
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, 2004 DECEMBER 31, (UNAUDITED) 2003 -------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 52,931 $ 49,650 Receivables, net 614,894 638,510 Inventories: Raw material 140,680 138,108 Work in progress 159,217 147,094 Finished goods 258,482 227,512 -------------- ------------ Total inventories 558,379 512,714 Prepayments and other current assets 133,959 129,921 -------------- ------------ Total current assets 1,360,163 1,330,795 Deferred income taxes 101,058 107,566 Investments in affiliates 28,335 28,200 Property, plant and equipment, net 535,625 541,118 Goodwill 526,278 529,182 Intangibles, net 35,587 36,744 Deferred charges and other assets 101,963 99,530 -------------- ------------ Total assets $ 2,689,009 $ 2,673,135 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 15,070 $ 30,755 Accounts payable and accrued expenses 891,976 899,093 Income taxes 27,639 38,453 -------------- ------------ Total current liabilities 934,685 968,301 Long-term warranties 48,288 46,888 Long-term debt 646,147 582,027 Postretirement and postemployment benefits 243,045 249,912 Other long-term liabilities 49,854 49,607 -------------- ------------ Total liabilities 1,922,019 1,896,735 Stockholders' equity 766,990 776,400 -------------- ------------ Total liabilities and stockholders' equity $ 2,689,009 $ 2,673,135 ============== ============
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, 2004 2003 --------- --------- Cash flows from operating activities: Net loss $ (4,203) $ (13,636) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation and amortization of property, plant and equipment 17,435 16,326 Amortization of deferred charges and intangibles 790 882 Provision for doubtful receivables 3,673 2,859 Effect of non-cash charges -- 15,234 Deferred income taxes 2,145 6,829 Loss on sale of fixed assets 420 262 Other 1,866 (869) Change in assets and liabilities net of effects from acquisitions and divestitures: Receivables, net 20,997 18,951 Inventories (48,163) (31,764) Prepayments and other current assets (1,053) (18,180) Accounts payable and accrued expenses (1,058) 16,069 Income taxes (10,715) (5,461) Other long-term assets and liabilities (444) 2,250 --------- --------- Net cash (used) provided by operating activities (18,310) 9,752 --------- --------- Cash flows from investing activities: Purchases of other companies, net of cash acquired (728) (325) Capital expenditures (17,780) (15,191) Proceeds from sale of fixed assets 865 95 --------- --------- Net cash used by investing activities (17,643) (15,421) --------- --------- Cash flows from financing activities: Net (payments of) proceeds from short-term debt (12,714) 990 Proceeds from credit agreement -- 95,000 Payment of senior notes -- (100,000) Net proceeds from other long-term debt 59,470 3,394 Reduction in sale of receivables (5,000) (31,000) Common stock issued 5,843 94 Treasury stock purchases -- (5) Dividends paid (8,206) (5,948) --------- --------- Net cash provided (used) by financing activities 39,393 (37,475) --------- --------- Effect of exchange rate changes on cash and cash equivalents (159) (91) --------- --------- Net increase (decrease) in cash and cash equivalents 3,281 (43,235) Cash and cash equivalents at beginning of period 49,650 92,940 --------- --------- Cash and cash equivalents at end of period $ 52,931 $ 49,705 ========= =========
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) FINANCIAL STATEMENTS The consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. We believe that the information presented is not misleading and the disclosures are adequate. In our opinion, the consolidated condensed financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2004 and December 31, 2003 and results of operations and cash flows for the three months ended March 31, 2004 and 2003. Our results of operations for interim periods are not necessarily indicative of results expected for the full year. Certain reclassifications have been made to the 2003 consolidated condensed financial statements to conform to the 2004 presentation. (2) STOCK-BASED COMPENSATION We apply the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our stock-based compensation plans. Accordingly, no compensation expense has been recognized for our stock-based compensation plans other than for restricted stock and performance-based awards. Had compensation expense for all stock and employee stock purchase plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended, our net loss and loss per share would have been adjusted to the pro forma amounts as follows (in thousands, except per share data):
THREE MONTHS ENDED MARCH 31, 2004 2003 -------- -------- Net loss - as reported $ (4,203) $(13,636) Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects 306 22 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,100) (2,190) -------- -------- Pro forma net loss $ (4,997) $(15,804) ======== ======== Basic and diluted loss per share: As reported $ (0.10) $ (0.34) Pro forma (0.12) (0.40)
Since the determination of fair value of all stock options granted includes variable factors, including volatility, and additional stock option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects on reported net income and earnings per share for future years. (3) RECEIVABLES, NET Pursuant to the terms of an annually renewable revolving facility, we sell certain of our trade receivables to a wholly-owned, consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis, an undivided ownership interest in the purchased trade receivables to bank-administered asset-backed commercial paper vehicles. In April 2003, we amended the facility, reducing it from $175 million to $150 million. 6 We continue to service sold trade receivables. No servicing asset or liability has been recognized as our cost to service sold trade receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $145 million and $150 million of an undivided interest in trade receivables as of March 31, 2004 and December 31, 2003, respectively. The proceeds from the sale were reflected as a reduction of net receivables in our consolidated condensed balance sheets as of March 31, 2004 and December 31, 2003. The discount rate on trade receivables sold was 1.04% and 1.12% as of March 31, 2004 and December 31, 2003, respectively. (4) GOODWILL The changes in the carrying amount of goodwill for the three months ended March 31, 2004 by segment are as follows (in thousands):
NET FOREIGN BALANCE AS OF GOODWILL CURRENCY BALANCE AS OF DEC. 31, 2003 ACQUIRED FLUCTUATION MARCH 31, 2004 ------------- -------- ----------- -------------- Global Applied: Americas $ 92,949 $ -- $ (32) $ 92,917 Europe, Middle East and Africa 130,166 403 (3,348) 127,221 Asia 109,314 -- 73 109,387 ------------- -------- ----------- -------------- 332,429 403 (3,307) 329,525 Unitary Products Group 140,440 -- -- 140,440 Bristol Compressors 56,313 -- -- 56,313 ------------- -------- ----------- -------------- $ 529,182 $ 403 $ (3,307) $ 526,278 ============= ======== =========== ==============
(5) INTANGIBLES, NET The following table summarizes the major intangible asset classes subject to amortization included in our consolidated condensed balance sheets as of March 31, 2004 and December 31, 2003 (in thousands):
GROSS CARRYING ACCUMULATED NET CARRYING March 31, 2004 AMOUNT AMORTIZATION AMOUNT -------------- ------------ ------------ Trade names and trademarks $ 40,965 $ 6,908 $ 34,057 Other 2,567 1,037 1,530 -------------- ------------ ------------ $ 43,532 $ 7,945 $ 35,587 ============== ============ ============ December 31, 2003 Trade names and trademarks $ 42,028 $ 6,723 $ 35,305 Other 2,536 1,097 1,439 -------------- ------------ ------------ $ 44,564 $ 7,820 $ 36,744 ============== ============ ============
Amortization expense for trade names and trademarks and other intangible assets for the three months ended March 31, 2004 and 2003 was $0.4 million and $0.5 million, respectively. 7 The following table estimates the amount of amortization expense for trade names and trademarks and other intangible assets for the remainder of 2004 and each of the fiscal years indicated (in thousands): 2004 (April 1 - December 31) $ 1,156 2005 1,583 2006 1,583 2007 1,483 2008 1,483 Thereafter 28,299 ------------ $ 35,587 ============
(6) NOTES PAYABLE AND LONG-TERM DEBT As of March 31, 2004 and December 31, 2003, our indebtedness consisted of senior notes and various other bank and term loans. In March 2003 and 2004, we amended our Five Year Credit Agreement and renewed our 364-Day Credit Agreement, respectively. We have a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $200 million 364-Day Credit Agreement, which expires on March 11, 2005 (collectively, the Agreements). No amounts were outstanding under the Agreements as of March 31, 2004 and December 31, 2003. The $400 million Five Year Credit Agreement provides for borrowings at the London InterBank Offering Rate (LIBOR) plus 1.175% and the $200 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.85%. We pay annual fees of 0.2% on the $400 million facility and 0.15% on the $200 million facility. The Agreements allow for borrowings at specified bid rates. As of March 31, 2004 and December 31, 2003, the three-month LIBOR rate was 1.1% and 1.14%, 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, 2004 and December 31, 2003. We have domestic bank lines that provide for total borrowings of up to $150 million and $135 million as of March 31, 2004 and December 31, 2003, respectively. As of March 31, 2004 and December 31, 2003, $91.5 million and $25 million, respectively, were outstanding under the domestic bank lines. In October and December 2003, we issued Danish denominated retail notes of DKK 200 million and DKK 50 million, respectively. These notes are due in October 2004 and have a coupon rate of 2%. Both the domestic bank lines and the Danish retail notes are classified as long-term as they are supported by our $400 million Five Year Credit Agreement. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provide for total borrowings of $390.8 million and $355.2 million as of March 31, 2004 and December 31, 2003, respectively. As of March 31, 2004 and December 31, 2003, $11.7 million and $27.8 million, respectively, were outstanding under the non-U.S. facilities, with remaining availability of $264.1 million and $246.3 million, respectively, after bank guarantees and letters of credit usage. 8 Notes payable and long-term debt consist of (in thousands):
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Notes payable and current portion of long-term debt: Bank loans (primarily foreign currency) $ 11,730 $ 27,784 Current portion of long-term debt 3,340 2,971 --------- ------------ Total $ 15,070 $ 30,755 ========= ============ Long-term debt: Domestic bank lines at an average rate of 1.78% in 2004 and 1.58% in 2003 $ 91,500 $ 25,000 Danish retail notes, 2% interest, due October 2004 40,675 41,844 Senior notes, 6.625% interest, due August 2006 200,000 200,000 Senior notes, 6.7% interest, due June 2008 200,000 200,000 Senior notes, 5.8% interest, due November 2012 100,000 100,000 Other (primarily foreign bank loans) at an average rate of 6.17% in 2004 and 6.3% in 2003 17,312 18,154 --------- ------------ Total 649,487 584,998 Less current portion (3,340) (2,971) --------- ------------ Noncurrent portion $ 646,147 $ 582,027 ========= ============
(7) POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PENSION PLANS Effective January 1, 2004, we replaced our defined benefit pension plans for U.S. salaried non-bargaining and certain U.S. salaried bargaining employees with a new defined contribution plan. Net periodic benefit cost includes the following components (in thousands):
THREE MONTHS ENDED MARCH 31, 2004 2003 --------- ---------- Components of net periodic benefit cost: Service cost $ 3,226 $ 5,805 Interest cost 8,452 9,154 Expected return on plan assets, income (10,262) (10,279) Amortization of prior service cost 572 969 Amortization of net loss 668 475 Settlement 1,049 -- --------- ---------- Net periodic benefit cost $ 3,705 $ 6,124 ========= ==========
We previously disclosed in our consolidated financial statements for the year ended December 31, 2003 that we expected to contribute $14.3 million to our pension plans in 2004. As of March 31, 2004, $7.5 million of contributions have been made. We currently anticipate contributing an additional $6.4 million to fund our plans in 2004 for a total of $13.9 million. 9 DEFINED CONTRIBUTION PLANS Effective January 1, 2004, certain U.S. employees participate in our new defined contribution plan. We contribute a cash amount to the plan on an annual basis, based on employees' eligible earnings, vesting service, and age. We recorded expense of approximately $2.8 million related to the plan in the three months ended March 31, 2004. Certain employees participate in various other investment plans. Under the plans, the employees may voluntarily contribute a percentage of their compensation. We contribute a cash amount based on the participants' contributions. Our contributions to plans were approximately $0.8 million and $0.3 million in the three months ended March 31, 2004 and 2003, respectively. We recorded expense of approximately $1.0 million and $0.4 million related to the plans in the three months ended March 31, 2004 and 2003, respectively. POSTRETIREMENT HEALTH AND LIFE INSURANCE PLANS Net periodic benefit cost includes the following components (in thousands):
THREE MONTHS ENDED MARCH 31, 2004 2003 --------- ---------- Components of net periodic benefit cost: Service cost $ 354 $ 414 Interest cost 2,061 1,919 Amortization of prior service cost (1,360) (562) Amortization of net loss 1,100 745 --------- ---------- Net periodic benefit cost $ 2,155 $ 2,516 ========= ==========
We previously disclosed in our consolidated financial statements for the year ended December 31, 2003 that we expected to contribute $7.4 million to our postretirement health and life insurance plans in 2004. As of March 31, 2004, $2.3 million of contributions have been made. We currently anticipate contributing an additional $5.4 million to fund our plans in 2004 for a total of $7.7 million. (8) GUARANTEES We issue various types of guarantees in the normal course of business. As of March 31, 2004, we have the following guarantees outstanding (in thousands): Standby letters of credit and surety bonds $ 108,380 Performance guarantees 171,976 Commercial letters of credit 8,043 Guarantee of affiliate debt 30,000
Changes in our warranty liabilities for the three months ended March 31, 2004 are as follows (in thousands):
BALANCE PAYMENTS ACCRUALS FOR BALANCE AS OF MADE UNDER WARRANTIES AS OF DEC. 31, 2003 WARRANTIES ISSUED MARCH 31, 2004 ------------- ---------- ------------ -------------- $ 101,675 $ 17,592 $ 18,600 $ 102,683
Warranties include standard warranties and extended warranty contracts sold to customers to increase the warranty period beyond the standard period. Extended warranty contracts sold are reflected as accruals for warranties issued and amortized revenue is reflected as payments made under warranties. 10 (9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 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 for periods consistent with the related underlying hedged exposures. 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 hedged exposures. 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 loses in cost of goods sold due to the discontinuance of ineffective currency and commodity cash flow hedges for the three months ended March 31, 2004 and 2003 were immaterial. 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 U.S. 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. Foreign currency derivative instruments (forward contracts) are matched to the underlying foreign currency exposures and are executed to minimize foreign exchange transaction costs. As of March 31, 2004, we forecasted that $0.4 million of net losses in accumulated other comprehensive losses will be reclassified into earnings within the next twelve months. Hedges of Net Investment We issued Danish denominated, retail notes as a hedge to protect the value of a portion of our net investment in a Danish subsidiary. Hedges of a net investment are accounted for under SFAS No. 52, "Foreign Currency Translation." Under SFAS No. 52, the gains or losses on a foreign-denominated, nonderivative financial instrument designated as a hedge of a net investment are recorded in foreign currency translation adjustments within accumulated other comprehensive losses. The gains and losses are accounted for in a similar manner as the foreign denominated net assets, offsetting a portion of the change in net assets due to foreign currency fluctuations. As of March 31, 2004, we have designated $40.7 million in Danish retail notes as a hedge of a net investment. 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 swap contracts to effectively fix our cost of the commodity. These contracts require each settlement between us and our counterparty to coincide with cash market purchases of the actual commodity. As of March 31, 2004, we forecasted that $15.5 million of net gains 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. In addition, we enter into interest rate swap contracts in order to achieve a balanced mix of fixed and variable rate indebtedness. As of March 31, 2004, we had interest rate swap contracts to pay variable interest, based on the six-month LIBOR rate, and receive a fixed rate of interest of 6.625% on a notional amount of $100 million. As of March 31, 2004, the fair value of these swap contracts was an unrealized gain of $8.3 million. 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 condensed statements of operations. All existing fair value hedges are determined to be 100% effective under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. As a result, there is no impact on current earnings resulting from hedge ineffectiveness. 11 (10) COMPREHENSIVE LOSS Comprehensive loss is determined as follows (in thousands):
THREE MONTHS ENDED MARCH 31, 2004 2003 --------- ---------- Net loss $ (4,203) $ (13,636) Other comprehensive (loss) income: Foreign currency translation adjustment (9,200) 7,731 Cash flow hedges: Reclassification adjustment, net of tax 1,290 (611) Net derivative income, net of tax 3,695 848 Available for sale securities 37 -- --------- ---------- Comprehensive loss $ (8,381) $ (5,668) ========= ==========
(11) STOCKHOLDERS' EQUITY The following table summarizes our stockholders' equity as of March 31, 2004 and December 31, 2003 (in thousands, except per share data):
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Common stock $.005 par value; 200,000 shares authorized; issued 46,249 shares at March 31, 2004 and 46,248 shares at December 31, 2003 $ 231 $ 231 Additional paid-in capital 732,566 732,339 Retained earnings 286,786 299,195 Accumulated other comprehensive losses (55,775) (51,597) Treasury stock, at cost; 5,245 shares at March 31, 2004 and 5,420 shares at December 31, 2003 (194,352) (200,856) Unearned compensation (2,466) (2,912) --------- ------------ Total stockholders' equity $ 766,990 $ 776,400 ========= ============
(12) LOSS PER SHARE Net loss as set forth in the consolidated condensed statements of operations is used in the computation of basic and diluted loss per share. Our basic and diluted loss per share is based upon the weighted average common shares outstanding during the period. The computation of diluted loss per share excludes non-vested restricted shares and stock options of 5.6 million and 6 million for the three months ended March 31, 2004 and 2003, respectively, as their effect would have been anti-dilutive. (13) SEGMENT INFORMATION Our global business operates in the heating, ventilating, air conditioning, and refrigeration (HVAC&R) industry. Our organization consists of Global Applied, Unitary Products Group, and Bristol Compressors. The Global Applied business is comprised of three geographic regions: Americas; Europe, Middle East and Africa (EMEA); and Asia. Global Applied's three geographic regions, Unitary Products Group, and Bristol Compressors represent our reportable segments. Global Applied designs, produces, markets, and sells HVAC&R equipment and solutions and provides maintenance and service of equipment manufactured by us and by others. Types of equipment include air-cooled and water-cooled 12 chillers, central air handling units, variable air volume units, screw and reciprocating compressors, condensers, evaporators, heat exchangers, ductless minisplits, process refrigeration systems, hygienic air distribution systems, gas compression systems, and control equipment to monitor and control the entire system. Heating and air conditioning solutions are provided for buildings ranging from small office buildings and fast food restaurants to large commercial and industrial complexes. Refrigeration systems are provided for industrial applications in the food, beverage, chemical and petroleum industries. Cooling and refrigeration systems are also supplied for use on naval, commercial and passenger vessels. Unitary Products Group (UPG) produces heating and air conditioning solutions for buildings ranging from private homes and apartments to small commercial buildings. UPG products include ducted central air conditioning and heating systems (air conditioners, heat pumps, and furnaces), and light commercial heating and cooling equipment. Bristol Compressors (Bristol) manufactures reciprocating and scroll compressors for our use and for sale to original equipment manufacturers and wholesale distributors. Bristol purchases an essential component from one vendor. Due to consolidation in the vendor's industry, there are limited alternate sources of supply. We believe an alternate source of supply is attainable in the event the current vendor is unable to supply the component. However, a change in vendors would cause a delay in manufacturing and loss of sales, which would adversely impact the results of operations of Bristol and our consolidated results of operations. General corporate expenses and charges and other expenses are not allocated to the individual segments for management reporting purposes. General corporate expenses include certain incentive compensation, pension, medical and insurance costs; corporate administrative costs; development costs for information technology applications and infrastructure; and other corporate costs. Charges and other expenses in 2003 include restructuring and other charges. Non-allocated assets primarily consist of prepaid pension benefit cost, net deferred tax assets, LIFO inventory reserves, and other corporate assets. For management reporting purposes, intersegment sales are recorded on a cost-plus or market price basis. Business segment management performance is based on earnings before interest and taxes, net capital employed, and earnings per share. 13 The table below represents our operating results and assets by segment (in thousands):
THREE MONTHS ENDED MARCH 31, 2004 2003 --------- ---------- Net sales: Global Applied: Americas $ 332,799 $ 297,413 EMEA 298,421 262,052 Asia 102,784 90,119 Intragroup sales (44,991) (40,366) --------- ---------- 689,013 609,218 Unitary Products Group 180,391 163,542 Bristol Compressors 113,478 137,562 Eliminations(1) (43,515) (41,965) --------- ---------- $ 939,367 $ 868,357 ========= ========== (1)Eliminations include the following intersegment sales: Global Applied $ 731 $ 586 Unitary Products Group 13,734 12,689 Bristol Compressors 29,050 28,690 --------- ---------- Eliminations $ 43,515 $ 41,965 ========= ========== Income (loss) from operations: Global Applied: Americas $ 1,686 $ (2,756) EMEA (9) 589 Asia 9,574 9,693 --------- ---------- 11,251 7,526 Unitary Products Group 12,026 8,220 Bristol Compressors 4,078 11,329 General corporate expenses, eliminations, and other non-allocated items (22,480) (14,115) Charges and other expenses -- (17,986) --------- ---------- 4,875 (5,026) --------- ---------- Interest expense, net (10,861) (12,016) --------- ---------- Equity in earnings (loss) of affiliates: Global Applied: EMEA 384 415 Asia 116 196 --------- ---------- 500 611 Bristol Compressors (8) 477 --------- ---------- 492 1,088 --------- ---------- Loss before income taxes (5,494) (15,954) Benefit from income taxes 1,291 2,318 --------- ---------- Net loss $ (4,203) $ (13,636) ========= ==========
14
MARCH 31, 2004 DEC. 31, 2003 -------------- ------------- Total assets: Global Applied: Americas $ 732,909 $ 711,103 EMEA 888,780 937,981 Asia 396,218 389,456 Eliminations and other non-allocated assets (94,604) (111,789) -------------- ------------- 1,923,303 1,926,751 Unitary Products Group 426,241 384,355 Bristol Compressors 289,558 242,375 Eliminations and other non-allocated assets 49,907 119,654 -------------- ------------- $ 2,689,009 $ 2,673,135 ============== =============
(14) CHARGES TO OPERATIONS In 2003, we initiated actions to further reduce our overall cost structure and support the implementation of our new geographic organization. In addition to cost reductions associated with the consolidation of our former Engineered Systems Group and York Refrigeration Group segments, additional actions included the further reduction of manufacturing capacity, the elimination of certain product lines, and the exiting of several small, non-core businesses. All actions were substantially completed by December 31, 2003. In the three months ended March 31, 2003, we incurred costs by segment as follows (in thousands): Global Applied: Americas $ 3,571 EMEA 12,345 Asia 2,070 ------------- Total charges to operations, net 17,986 Charges reflected in cost of goods sold 1,892 ------------- Restructuring and other charges, net $ 16,094 =============
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. Severance and other accruals included planned reductions in workforce throughout the Company. Substantially all of the severance accrual will be utilized in 2004. Detail of activity relating to the 2003 initiatives in the three months ended March 31, 2004 is as follows (in thousands):
ACCRUALS ESTABLISHED UTILIZED IN THREE IN THREE MONTHS MONTHS REMAINING ACCRUALS AT ENDED ENDED ACCRUALS AT DEC. 31, MARCH 31, MARCH 31, MARCH 31, 2003 2004 2004 2004 ----------- ----------- --------- ----------- Severance $ 16,537 $ -- $ 6,613 $ 9,924 Contractual obligations 6,156 -- 374 5,782 Other 1,220 -- 1,002 218 ----------- ----------- --------- ----------- $ 23,913 $ -- $ 7,989 $ 15,924 =========== =========== ========= ===========
15 (15) PROPOSED ACCOUNTING STANDARDS In March 2004, the Financial Accounting Standards Board issued Proposed Statement of Financial Accounting Standards "Share-Based Payment," an amendment of FASB Statements No. 123 and 95. This proposed statement addresses the accounting for share-based compensation in which we exchange employee services for (a) our equity instruments or (b) liabilities that are based on the fair value of our equity instruments or that may be settled by the issuance of our equity instruments. Under the proposed statement, we will recognize compensation cost for share-based compensation issued to or purchased by employees under our stock-based compensation plans using a fair-value-based method effective January 1, 2005. The impact the proposed statement will have on our consolidated condensed financial statements is not known at this time, however, we expect the proposed statement to reduce net income and earnings per share similarly to the amounts disclosed in supplemental note 2 to our consolidated condensed financial statements and note 1 to our consolidated financial statements contained in the Annual Financial Statements and Review of Operations filed as Exhibit 13 to our Form 10-K/A for the year ended December 31, 2003. 16 PART I - FINANCIAL INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED OPERATIONS Net sales grew $71 million or 8.2% to $939.4 million in the first quarter of 2004 compared to 2003. Our revenue growth is mainly attributable to the favorable impact of net strengthening foreign currencies of $41.9 million; increased equipment volume in Americas, Asia and Unitary Products Group; and overall growth in Global Applied service business sales (consisting of services, parts and replacement equipment). Currency, volume and service business improvements were partially offset by lower equipment volume at Bristol Compressors. (See further discussion below under Segment Analysis.) For the three months ended March 31, 2004, net sales in the United States increased 3.6% to $425.8 million and international net sales increased 12.3% to $513.6 million. Order backlog as of March 31, 2004 was $1,241.6 million compared to $1,075.7 million as of March 31, 2003 and $1,026.6 million as of December 31, 2003. Gross profit grew $11 million or 6.8% to $171.1 million (18.2% of net sales) in the first quarter of 2004 as compared to $160.1 million (18.4% of net sales) in 2003. Overall, gross profit increased due to the net strengthening of foreign currencies of $7.4 million and higher equipment volume in Americas, Asia and Unitary Products Group. Gross profit also benefited from our improved cost structure as a result of the 2003 restructuring initiatives. These improvements were partially offset by higher raw material (principally steel and copper) and component costs; reduced equipment volume levels at Bristol Compressors; and increased service business costs related to infrastructure and labor. While we hedge a portion of our copper and aluminum purchases and have contracts for steel purchases, we experienced cost increases for unhedged portions, components containing these commodities, as well as surcharges on our steel purchases. We expect raw material and component cost increases to be partially mitigated by raising our product prices beginning in the second quarter of 2004. In 2003, we recorded $1.9 million of costs related to our 2003 restructuring initiatives in cost of goods sold. Selling, general, and administrative (SG&A) expenses increased $17.1 million or 11.5% to $166.2 million (17.7% of net sales) in the first quarter of 2004 from $149 million (17.2% of net sales) in 2003. Our SG&A expenses increased by $7.2 million due to net strengthening of foreign currencies. The remaining increase in SG&A reflects the cost of our initiatives to improve our information technology capabilities and develop and market new products. We expect to benefit from these projects in 2005 and beyond. In 2003, we initiated actions to further reduce our overall cost structure and support the implementation of our new geographic organization. In addition to cost reductions associated with the consolidation of our former Engineered Systems Group and York Refrigeration Group segments, additional actions included the further reduction of manufacturing capacity, elimination of certain product lines, and exiting of several small, non-core businesses. In the first quarter of 2003, we recorded restructuring charges of $18 million related to these actions, including $1.9 million charged to cost of goods sold. The charges included $15.2 million in write-downs of various assets and $2.8 million in accruals for severance and other costs. Income from operations increased $9.9 million to $4.9 million (0.5% of net sales) in the first quarter of 2004 compared to a loss of $5 million (-0.6% of net sales) in 2003. (See further discussion below under Segment Analysis.) Net interest expense declined $1.2 million to $10.9 million in the first quarter of 2004 compared to 2003. The decline resulted from lower average debt levels partially offset by higher interest rates in international markets. Equity in earnings of affiliates declined $0.6 million to $0.5 million in the first quarter of 2004 compared to 2003. The reduction was primarily the result of reduced earnings at Scroll Technologies. The income tax benefit of $1.3 million for the first quarter of 2004 and $2.3 million in 2003 relates to both U.S. and non-U.S. operations. The 2004 and 2003 income tax benefits were lower than the U.S. statutory rate of 35% primarily due to pre-tax earnings and losses in non-U.S. jurisdictions where statutory rates are less than 35%. The effective tax rate was a benefit of 17 23.5% in the first quarter of 2004 as compared to 14.5% in 2003. The change in the effective tax rate is attributable to restructuring charges recorded in 2003, for which the tax benefits were recorded at a lower effective tax rate. Net loss, as a result of the above factors, was $4.2 million (-0.4% of net sales) in the first quarter of 2004 compared to $13.6 million (-1.6% of net sales) in 2003. SEGMENT ANALYSIS The following table sets forth net sales and income (loss) from operations by segment (in thousands):
THREE MONTHS ENDED MARCH 31, 2004 2003 --------- ---------- Net sales: Global Applied: Americas $ 332,799 $ 297,413 Europe, Middle East and Africa 298,421 262,052 Asia 102,784 90,119 Intragroup sales (44,991) (40,366) --------- ---------- 689,013 609,218 Unitary Products Group 180,391 163,542 Bristol Compressors 113,478 137,562 Eliminations (43,515) (41,965) --------- ---------- Net sales $ 939,367 $ 868,357 ========= ========== Income (loss) from operations: Global Applied: Americas $ 1,686 $ (2,756) Europe, Middle East and Africa (9) 589 Asia 9,574 9,693 --------- ---------- 11,251 7,526 Unitary Products Group 12,026 8,220 Bristol Compressors 4,078 11,329 General corporate expenses, eliminations, and other non-allocated items (22,480) (14,115) Charges and other expenses -- (17,986) --------- ---------- Income (loss) from operations $ 4,875 $ (5,026) ========= ==========
Global Applied Global Applied net sales grew $79.8 million or 13.1% to $689 million in the first quarter of 2004 compared to 2003. Net sales benefited $40.9 million or 6.7% from the net strengthening of currencies mainly in Europe, Middle East and Africa (EMEA). Improved revenue in Americas is attributable to increased equipment volume and service business growth. Asia equipment revenue continued to grow principally due to the economic expansion of China. Global Applied service business revenue increased $28.7 million or 12.7% to $254.3 million in the first quarter of 2004, of which 6.8% is due to the net strengthening of foreign currencies. Global Applied service business continued to grow on repair and replacement opportunities, as we continued to expand our multi-site commercial service activities, mainly in the Americas. Global Applied income from operations increased to $11.3 million (1.6% of net sales) in the first quarter of 2004 from $7.5 million (1.2% of net sales) in 2003. Benefits from improved equipment volume and realized savings from the 2003 restructuring initiatives in the Americas accounted for most of the increase. Asia remained relatively consistent despite increasing net sales due to unfavorable global minisplit pricing. EMEA declined due to margin-pricing pressure in Europe, as some markets remained weak, partially offset by benefits from the 2003 restructuring initiatives. Overall, Global Applied was negatively impacted by an increase in raw material costs and continued investments in service business infrastructure, information technology capabilities, and product development. 18 Unitary Products Group (UPG) UPG net sales grew $16.8 million or 10.3% to $180.4 million in the first quarter of 2004 compared to 2003. Equipment volume increased driven by market share gains as well as growth in the overall North American unitary air conditioning and heating market. In the first quarter of 2004, UPG introduced the new, more efficient "Affinity" line of products. We expect new products and improvements in construction markets to increase sales for the 2004 year above 2003 levels. UPG income from operations grew to $12 million (6.7% of net sales) in the first quarter of 2004 from $8.2 million (5% of net sales) in 2003. Improved results are mainly attributable to increased equipment volume, production efficiencies, and a favorable product mix partially offset by higher raw material costs. Bristol Compressors (Bristol) Bristol net sales declined $24.1 million or 17.5% to $113.5 million in the first quarter of 2004 compared to 2003. The decrease primarily relates to lower shipments to domestic and international unitary customers. Domestic shipments were negatively impacted by the loss of a customer in the fourth quarter of 2003 partially offset by higher equipment volumes to other domestic customers. During the first quarter of 2004, Bristol introduced the Benchmark compressor. This compressor is designed to meet future industry energy standards while reducing noise levels. Bristol income from operations decreased to $4.1 million (3.6% of net sales) in the first quarter of 2004 from $11.3 million (8.2% of net sales) in 2003. The impact of reduced volume and higher raw material costs negatively impacted income from operations. The successful introduction and market acceptance of the Benchmark compressor is expected to improve Bristol's results beyond 2004. Other General corporate expenses, eliminations, and other non-allocated items grew $8.4 million to $22.5 million in the first quarter of 2004 as compared to $14.1 million in 2003. The increase was primarily due to increased costs of $4.5 million related to improving our technology capabilities in both applications and infrastructure and $3.9 million related to other non-allocated costs. The year-over-year cost increases are expected to continue for the second quarter and, to a lesser extent, the remainder of 2004. Charges and other expenses are as follows (in thousands):
THREE MONTHS ENDED MARCH 31, 2003 By segment -------------- Global Applied: Americas $ 3,571 EMEA 12,345 Asia 2,070 -------------- $ 17,986 ============== By type Restructuring and other charges, net $ 16,094 Restructuring and other charges reflected in cost of goods sold 1,892 -------------- $ 17,986 ==============
No charges and other expenses were recorded in the first quarter of 2004 as the 2003 restructuring initiatives were initiated and substantially completed during 2003. LIQUIDITY AND CAPITAL RESOURCES Our significant liquidity and capital funding needs are working capital, operating expenses, capital expenditures, debt repayments, restructuring costs, dividends to our shareholders, contractual obligations, and commercial commitments. Liquidity and capital resource needs are met through cash flows from operations, borrowings under our credit agreements and 19 bank lines of credit, financing of trade receivables, and credit terms from suppliers, which approximate receivable terms to our customers. Additional sources of cash include customer deposits and progress payments. 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 uncommitted credit lines and committed bank lines of credit. Uncommitted credit lines and committed bank lines of credit support seasonal working capital needs and are available for general corporate purposes. Since certain of our long-term debt obligations and our revolving trade receivables purchase facility bear interest at floating rates, our interest costs are sensitive to changes in prevailing interest rates. WORKING CAPITAL Our working capital is mainly comprised of inventories, net receivables, and accounts payable and accrued expenses. Working capital increased $63 million to $425.5 million as of March 31, 2004 compared to $362.5 million as of December 31, 2003. The increase resulted from higher inventories and reduced current liabilities partially offset by a decline in net receivables. Net Receivables Net receivables decreased $23.6 million due to improved collection efforts in all businesses. Overall, days sales outstanding decreased to 48 days in the first quarter of 2004 from 50 days at December 31, 2003. Inventories Inventories increased $45.7 million mainly due to increases in work-in-progress and finished goods. The increase in our work-in-progress inventory is the result of increased demand for longer lead time equipment in our Global Applied business. Our work-in-progress and finished goods increase as we manufacture inventory during the first half of the year to support demand in the second half of the year. Notes Payable and Current Portion of Long-Term Debt Notes payable and current portion of long-term debt decreased $15.7 million due to less borrowing under non-U.S. bank credit facilities, mainly in Brazil. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses declined $7.1 million primarily due to payment of year-end incentive compensation and restructuring accruals and net weakening of foreign currencies since December 31, 2003. These increases were partially offset by higher accruals for customer deposits, insurance, and interest. Income Taxes Income taxes decreased $10.8 million primarily due to U.S. tax benefits recorded in the first quarter of 2004, as well as foreign tax payments. CASH FLOWS Operating Activities We used $18.3 million of cash for operating activities in the first quarter of 2004. Net cash flows of $40.4 million were used by the change in assets and liabilities net of effects from acquisitions and divestitures, mainly due to the increase in inventory as discussed above. Remaining cash flows of $22.1 million were generated from operations. Investing Activities Cash used in investing activities of $17.6 million was mainly comprised of capital expenditures for manufacturing equipment and information technology systems. Financing Activities Cash provided by financing activities of $39.4 million included proceeds of $41.8 million from net borrowings and $5.8 million from issuance of common stock partially offset by common stock dividend payments of $8.2 million. Net borrowings are consistent with the typical seasonality of our businesses to finance increasing working capital needs during the first half of the year. Proceeds from issuance of common stock represent cash received from employee stock purchases and exercise of stock options under our employee stock plans. We paid a cash dividend of $0.20 per share in the first quarter of 2004 representing a 33% increase compared to 2003. 20 BORROWINGS AND AVAILABILITY Total indebtedness was $661.2 million as of March 31, 2004, primarily consisting of $500 million of senior notes, $91.5 million outstanding under domestic bank lines, and $40.7 million of Danish retail notes. The senior notes mature at dates ranging from 2006 to 2012 and carry fixed rates ranging from 5.8% to 6.7%. We have a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $200 million 364-Day Credit Agreement, which expires on March 11, 2005 (collectively, the Agreements). As of March 31, 2004 and December 31, 2003, no amounts were outstanding under our Agreements. We renewed our $200 million 364-Day Credit Agreement in March 2004. The $400 million Five Year Credit Agreement provides for borrowings at the London InterBank Offering Rate (LIBOR) plus 1.175%, and the $200 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.85%. We pay annual fees of 0.2% on the $400 million facility and 0.15% on the $200 million facility. The Agreements allow for borrowings at specified bid rates. As of March 31, 2004 and December 31, 2003, the three-month LIBOR rate was 1.1% and 1.14%, 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, 2004 and December 31, 2003. In October and December 2003, we issued Danish denominated retail notes of DKK 200 million and DKK 50 million, respectively. These notes are due in October 2004 and have a coupon rate of 2%. We have domestic bank lines that provide for total borrowings of up to $150 million and $135 million as of March 31, 2004 and December 31, 2003, respectively. The domestic bank lines are uncommitted and may be unavailable for renewal at maturity. As of March 31, 2004 and December 31, 2003, $91.5 million and $25 million, respectively, were outstanding under the domestic bank lines. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provide for total borrowings of $390.8 million and $355.2 million as of March 31, 2004 and December 31, 2003, respectively. As of March 31, 2004 and December 31, 2003, $11.7 million and $27.8 million, respectively, were outstanding under the non-U.S. facilities, with remaining availability of $264.1 million and $246.3 million, respectively, after bank guarantees and letters of credit usage. We have access to bank lines of credit and 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, depreciation, and amortization (EBITDA) interest coverage and the debt to capital ratio, as defined under the Agreements. As of March 31, 2004, our EBITDA interest coverage was 4.7 times, exceeding the minimum requirement of 3.5 times. As of March 31, 2004, our debt to capital ratio, as defined in the agreement, was 44%, below the maximum allowed of 50%. Our ability to issue commercial paper is limited due to our credit ratings. We also maintain an annually renewable revolving facility under which we sell certain trade receivables - see "Off-Balance Sheet Arrangements" section below. OFF-BALANCE SHEET ARRANGEMENTS Our off-balance sheet arrangements are comprised of a trade receivable revolving facility and operating leases. Trade Receivable Revolving Facility Pursuant to the terms of an annually renewable revolving facility, we sell certain of our trade receivables to a wholly owned consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis, an undivided ownership interest in the trade receivables to bank-administered asset-backed commercial paper vehicles. In April 2003, we amended the facility, reducing it from $175 million to $150 million. The facility is expected to be renewed in 2004 at a level equal to or greater than $150 million. We continue to service sold trade receivables. No servicing asset or liability has been recognized as our cost to service sold trade receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $145 million and $150 million of an undivided interest in trade receivables as of March 31, 2004 and December 31, 2003, respectively, resulting in a reduction of net receivables reflected in our consolidated condensed balance sheets. The discount rate on trade receivables sold was 1.04% and 1.12% as of March 31, 2004 and December 31, 2003, respectively. The program fee on trade receivables sold was 0.5% as of March 31, 2004 and December 31, 2003. 21 Operating Leases Operating leases provide us with the flexibility to use property, plant and equipment without assuming ownership and related debt. Operating leases reduce our risk associated with disposal and residual fair value of property, plant and equipment at the end of the lease. OUTLOOK Overall, we expect improved net sales and net income in fiscal year 2004 as compared to 2003. We anticipate continued strength in our service businesses' (services, parts, and replacement equipment) sales within Global Applied; growth in our UPG equipment business; and increased sales of large commercial equipment in our Asian business. Further savings from our 2003 cost reduction actions are expected to be realized throughout 2004. Overall growth and savings are expected to be partially offset by declines in large commercial equipment in EMEA; a decline in Bristol sales; increased costs for pension, healthcare, insurance, copper, steel, and components containing copper and steel; and continued investments in new products and information technology projects. PROPOSED ACCOUNTING STANDARDS In March 2004, the Financial Accounting Standards Board issued Proposed Statement of Financial Accounting Standards "Share-Based Payment," an amendment of FASB Statements No. 123 and 95. This proposed statement addresses the accounting for share-based compensation in which we exchange employee services for (a) our equity instruments or (b) liabilities that are based on the fair value of our equity instruments or that may be settled by the issuance of our equity instruments. Under the proposed statement, we will recognize compensation cost for share-based compensation issued to or purchased by employees under our stock-based compensation plans using a fair-value-based method effective January 1, 2005. The impact the proposed statement will have on our consolidated condensed financial statements is not known at this time, however, we expect the proposed statement to reduce net income and earnings per share similarly to the amounts disclosed in supplemental note 2 to our consolidated condensed financial statements and note 1 to our consolidated financial statements contained in the Annual Financial Statements and Review of Operations filed as Exhibit 13 to our Form 10-K/A for the year ended December 31, 2003. FORWARD-LOOKING INFORMATION - RISK FACTORS This document contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These forward-looking statements are intended to provide our current expectations or plans for future operating and financial performance based on assumptions currently believed to be valid. 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: - Changes in competition within specific markets or geographies - Introduction of new competitive products - Changes in government regulation, including environmental and tax laws - Legal actions, including pending and unasserted claims - Loss of patented technology - Events that create a negative image for our trademarks - Work stoppages - Price and availability of raw materials and components - Realization of benefits from our cost reduction initiatives - Changes in individual country economics, including but not limited to: Argentina; Brazil; China; Mexico; Saudi Arabia; United Arab Emirates; and Venezuela 22 - Acts of war or terrorism - Changes in commercial and residential construction markets - Significant changes in customer orders - Significant product defects or failures Unseasonably cool weather in various parts of the world could adversely affect our UPG and Global Applied air conditioning businesses and, similarly, the Bristol compressor business. Bristol and UPG are also impacted by the successful development, introduction, and customer acceptance of new products. The Global Applied air conditioning business could also be affected by a further slowdown in the large chiller market and by the acceptance of new product introductions. Global Applied could be negatively impacted by reductions in commercial construction. Our ability to effectively implement price increases to offset higher costs is dependent on market conditions and the competitive environment. The financial position and financial results of our foreign locations could be negatively impacted by the translation effect of currency fluctuations and by political changes including nationalization or expropriation of assets. In addition, our overall performance could be affected by declining worldwide economic conditions or slowdowns resulting from world events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information responsive to this item as of December 31, 2003 appears under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations, Market Risk," on pages 14 to 16 of the Annual Financial Statements and Review of Operations filed as Exhibit 13 to our Form 10-K/A for the year ended December 31, 2003. There was no material change in such information as of March 31, 2004. ITEM 4. CONTROLS AND PROCEDURES As of March 31, 2004, we carried out an evaluation, under the supervision and with the participation of company management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 23 PART II - OTHER INFORMATION YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY 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) Exhibits Exhibit 4.1 - 364-DAY CREDIT AGREEMENT, dated as of March 12, 2004, among YORK INTERNATIONAL CORPORATION, as borrower, the initial lenders named therein, as initial lenders, CITIBANK, N.A., as administrative agent, JPMORGAN CHASE BANK, as syndication agent, BANK OF TOKYO-MITSUBISHI TRUST COMPANY, FLEET NATIONAL BANK, NORDEA BANK FINLAND PLC and BNP PARIBAS, as documentation agents, and CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES, INC., as joint lead arrangers and joint book managers Exhibit 10.1 - Employment Agreement between York International Corporation and David Kornblatt, dated March 24, 2004 Exhibit 10.2 - Employment Agreement between York International Corporation and Iain A. Campbell, dated March 24, 2004 Exhibit 10.3 - Employment Agreement between York International Corporation and Jeffrey D. Gard, dated March 24, 2004 Exhibit 31.1 - Certification of the Chief Executive Officer of York International Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 - Certification of the Chief Financial Officer of York International Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 24 Exhibit 32.1 - Certification of the Chief Executive Officer and Chief Financial Officer of York International Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K Current report on Form 8-K dated February 13, 2004, containing a press release, dated February 13, 2004, announcing that C. David Myers had assumed the position of Chief Executive Officer upon the retirement of Michael R. Young Current report on Form 8-K dated February 18, 2004, containing a press release, dated February 18, 2004, concerning dividend payments in 2004 Current report on Form 8-K dated February 19, 2004, containing a press release, dated February 19, 2004, setting forth our fourth quarter and full year 2003 results (Such press release is not incorporated by reference herein or deemed "filed" within the meaning of Section 18 of the Securities Act of 1933.) 25 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 6, 2004 /s/ M. David Kornblatt ---------------------------------------- M. David Kornblatt Vice President and Chief Financial Officer 26