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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 1-10863
YORK INTERNATIONAL CORPORATION
(EXACT NAME OF THE 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $.005 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
As of March 23, 1998, there were 40,641,902 shares of the registrant's Common
Stock outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was $1,851,746,659 based on the closing price of the Common Stock
on the New York Stock Exchange Composite Transactions of such date. (Only
officers and directors of the registrant are assumed to be affiliates for
purposes of this calculation.)
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Stockholders for the year ended December 31,
1997 and the Notice of Annual Meeting of Stockholders and Proxy Statement
pertaining to the Annual Meeting are incorporated herein by reference into Parts
II, III and IV.
Exhibit Index is located on pages 21 to 23
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YORK INTERNATIONAL CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX
PART 1
Item
Number Page
- ------ ----
1. Business 1
2. Properties 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Equity 14
and Related Stockholder Matters
6. Selected Financial Data 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with Accountants on Accounting 15
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 15
11. Executive Compensation 15
12. Security Ownership of Certain Beneficial Owners and Management 15
13. Certain Relationships and Related Transactions 15
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
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PART I
Item 1. Business
General
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The Company is a full-line, global designer and manufacturer of heating,
ventilating, air conditioning and refrigeration (HVAC&R) products. The Company
believes it is the third largest manufacturer and marketer of such products in
the United States and one of the leading companies in the HVAC&R industry
internationally. The Company's air conditioning systems range from a one ton
unit for a small residence to the 59,000 ton system installed in the New York
World Trade Center. In 1997 the Company's products were sold in over 100
countries through over 750 sales and distribution facilities and are in use in
such diverse locations as the Kuala Lumpur City Centre in Malaysia, the British
Houses of Parliament, the Tokyo World Trade Center, the Pentagon, NASA's Vehicle
Assembly Building at Cape Canaveral, NASA's Johnson Space Center, the Los
Angeles International Airport, the Jeddah Airport, the Overseas Union Bank
Centre in Singapore, the Sydney Opera House, the National Library Complex in
Beijing, the Atlantic City Convention Center, the English Channel Eurotunnel,
the Hong Kong Exposition Centre and the Lantau Airport Railway System in Hong
Kong.
The Company was founded in 1874 in York, Pennsylvania. From 1956 until 1986 the
Company was a part of Borg-Warner Corporation ("Borg-Warner"). In 1986 it was
spun off to Borg-Warner shareholders and became an independent, publicly held
company. In 1988 the Company was purchased in a leveraged buyout by a
corporation organized by affiliates of Citicorp Investments Inc. ("CII") and two
investors (the "Acquisition"). In October 1991, the Company completed an initial
public offering of its Common Stock and in 1992 CII and the other non-management
investors in the Acquisition sold their remaining shares in a public offering.
Headquartered in York, Pennsylvania, the Company has manufacturing facilities in
13 states and 13 foreign countries. As of December 31, 1997, the Company
employed approximately 20,270 people worldwide.
Unless the context otherwise requires, the terms "Company" and "York" refer to
the Company and its consolidated subsidiaries. The Company's principal executive
offices are located at 631 South Richland Avenue, York, Pennsylvania 17403, and
its telephone number is (717) 771-7890.
Strategy
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The Company's strategy is to focus on the global air conditioning equipment and
worldwide service, repair and replacement markets and increase its presence in
the worldwide refrigeration and gas compression market. The Company has grown,
and expects to continue to grow, through expansion of its current product lines,
acquisitions of businesses, establishment of joint ventures and licensing of
technology in the HVAC&R industry.
The Company intends to continue its strategy of increasing its market share by
broadening its product range to offer a complete line of environmentally
acceptable and energy efficient products. The Company seeks to take advantage
of regulatory changes by developing products that comply with tightening
environmental and energy efficiency requirements and regulations before they
become effective. The Company has implemented its environmental strategy by
developing product lines that utilize its screw, centrifugal, reciprocating,
hermetic, scroll and inertia compressor technology employing HCFC-123, HCFC-22,
R-407C, R-410A, R-404A, R-507, R-717 (ammonia) and HFC-134a as a refrigerant.
The screw and centrifugal compressor utilize designs which separate the
refrigerant from the motor housing. See "Environmental Matters" below. The
Company has increased the
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* The cooling capacity of air conditioning units is measured in tons. One ton of
cooling capacity is equivalent to 12,000 BTUs and is generally adequate to air
condition approximately 500 square feet of residential space.
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overall efficiency of its product offerings by employing internally developed
advanced heat transfer and compressor technology and introducing large air
conditioning systems that utilize advanced thermal storage and absorption
technologies.
The Company is also seeking to expand into new markets. The Company intends to
expand sales of its equipment throughout the international markets by broadening
its product line, expanding its distribution capabilities and pursuing
acquisitions.
The Company also focuses on controlling manufacturing and operating expenses and
thus improving its operating margins by redesigning products, acquiring more
efficient manufacturing equipment and processes and reducing costs not directly
associated with the manufacturing process. In addition, the Company has
implemented a continuous planning process to enable it to carefully monitor the
amount of capital used in its business and to reposition its business units in
light of changing conditions throughout the year. The Company believes that its
management stock ownership plans and management incentive compensation plans,
which reward the management team of each operating unit for achieving the
planned objectives of that unit, have been key elements in implementing its
strategies and achieving its financial objectives.
Products and Markets
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All of the Company's products are in the heating, ventilating, air conditioning
and refrigeration (HVAC&R) industry and the Company operates solely in this
industry. Within HVAC&R, the Company's products fall into three general
categories. The first is Engineered Systems products, consisting of heating,
air conditioning and thermal storage equipment designed for commercial
applications in retail stores, office buildings, shopping malls, manufacturing
facilities, hospitals, universities, airports and marine vessels. The second is
Unitary products, consisting of air conditioning and furnace units and hermetic
and scroll compressors designed for use in residential and light commercial
applications. The third is Refrigeration products, including commercial and
industrial refrigeration and gas compression equipment, designed for the food,
beverage, chemical and petrochemical processing industries. Like engineered
systems products, the Company's refrigeration and gas compression equipment is
designed specifically for the customer's needs and applications.
The following table sets forth revenue by product and geographic market:
(in thousands)
1997 1996 1995
----------- ------------ ---------------
Engineered Systems products $1,370,983 $1,313,587 $ 1,182,624 /(a)/
Unitary products 1,394,142 1,417,007 1,212,620 /(a)/
Refrigeration products 428,532 487,940 534,704 /(a)/
---------- ---------- -----------
Total revenue $3,193,657 $3,218,534 $ 2,929,948
========== ========== ===========
U.S. 58% 54% 55%
International 42% 46% 45%
-- -- --
100% 100% 100%
=== === ===
/(a)/ The 1995 revenue by product is estimated to represent the management
reorganization by product in 1997 and 1996.
Engineered Systems Products. The Company's Engineered Systems products consist
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of heating and air conditioning equipment for buildings ranging from small
office buildings and fast food restaurants to large commercial and industrial
complexes. Engineered Systems air conditioning products include air-cooled and
water-cooled chillers, central air handling units, variable air volume units and
control equipment to monitor and control the entire system. Larger units for
facilities such as hospitals, office towers, hotels, airports district cooling
and manufacturing operations are custom designed and manufactured by the
Company's Applied Systems Business Unit. The Applied Systems Business Unit also
supplies specially designed chilled water systems for use on U.S.,
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British, French and other naval vessels. The Company is currently the major
supplier of water chillers to the U.S. Navy for both surface vessels and
submarines.
The Company has a line of standard indoor air handling equipment incorporating
the latest technologies for indoor air quality and a line of customized indoor
and outdoor air handling products. In 1997, the Company acquired PACE Gamewell
which designs, manufactures and sells air handling equipment. York manufactures
the broadest line of air handling equipment of any manufacturer in the industry.
The Company markets its Engineered Systems products under the "YORK", "MILLER-
PICKING", "TEMPMASTER", "SEVESO" and "PACE" brands. In the United States and
Canada, distribution of Engineered Systems products are coordinated by 8
regional offices and approximately 61 district offices. These district offices
market products directly to end users and contractors. The Company has
approximately 120 direct sales representatives and 115 independent sales agents
in the North American market.
The Company derives substantial revenues by selling replacement equipment and
parts, and by providing routine maintenance and emergency service for products
manufactured by the Company and its competitors through annual service
contracts. The Company has a corporate and national account sales program to
service customers with multiple locations throughout the world.
The Company believes its reputation for service and repair is excellent. The
Company's more than 3,500 service technicians in offices throughout the world
generate substantial revenues through the sale of replacement parts and by
providing routine and emergency service for air conditioning and refrigeration
systems manufactured by the Company and its competitors. In 1997 on a worldwide
basis, the higher margin service, repair and replacement business accounted for
an estimated 41% of the Company's total sales. The Company believes that its
emphasis on service and repair, combined with the growth and aging of the
installed base of air conditioning and refrigeration equipment, will be key
factors in increasing the Company's revenues derived from the service, repair
and replacement market.
The Company's Engineered Systems products are principally manufactured in York,
Pennsylvania; Albany, Missouri; Hattiesburg, Mississippi; Portland, Oregon;
Salisbury, North Carolina; San Antonio, Texas; Basildon, England; Barlassina,
Italy; Carquefou, France; Mannheim, Germany; Asquith, Australia; Montevideo,
Uruguay; Wuxi, China; Guanghzou, China; Durango Mexico; and Monterrey, Mexico.
Many of the components of the Company's engineered products, such as motors,
control elements and castings, are purchased from outside suppliers. The other
components are custom manufactured by the Company. Using these components and
custom-designed specifications, the engineered products are machined, assembled,
tested, shipped and installed. Following installation, the Company assists in
the start-up of the system, and supplies ongoing maintenance, service and
replacement parts.
Unitary Products. The Company's primary unitary products are ducted central air
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conditioning and heating systems, light commercial equipment and ductless mini-
splits manufactured and sold by the Company's Unitary Products Group ("UPG") and
hermetic compressors manufactured and sold by Bristol Compressors. Revenues
from Bristol Compressors were approximately $381 million, $448 million and $504
million during 1995, 1996, and 1997, respectively.
Unitary products consist of split systems and packaged products. A split system
consists of an outdoor unit containing a compressor and condenser, and a
connected indoor unit containing a heat exchanger, an electric, gas or oil
heating section, an indoor blower system and associated controls. A packaged
product is a single, self-contained unit with compressor, condenser, heat
exchanger, electric, gas or oil heating section, blower and associated controls.
These units are typically installed on rooftops or on a slab beside a structure.
Ducted products distribute conditioned air throughout building structures with
ductwork connected to the system's blower, whereas ductless installations
provide conditioned air directly from indoor blowers without the use of
ductwork.
A hermetic compressor is an integral part of an air conditioning system. The
Company's products use compressors manufactured by Bristol as well as those
purchased from other vendors. In 1995, 1996, and 1997, approximately
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83% of Bristol's revenues were attributable to sales of products to other air
conditioning equipment manufacturers. During 1995, Bristol entered into a joint
venture, Scroll Technologies, to design and manufacture scroll compressors.
This allowed Bristol to expand its product offering to include scroll compressor
capabilities.
The Company markets its Unitary products under the "YORK", "LUXAIRE", "FRASER-
JOHNSTON", "COLEMAN EVCON", "GUARDIAN", "AIRPRO" and "SEVESO" brands. "YORK" is
the Company's full line brand, which is sold through Company-owned distribution
centers and exclusive independent distributors throughout the world. The "YORK"
brand is sold with a high level of customer service and sales support. The
Company's 1995 acquisition of Evcon Holdings expanded UPG's capabilities and
distribution network in the domestic unitary market. The Company's other brands
are sold through more than 200 non-exclusive distributors primarily for resale
to contractors. The Company also sells unitary products directly to the
manufactured housing industry in North America on an OEM basis.
In 1995 the Company formed a joint venture, Aeromaster, a mini-split
manufacturer located in Bangkok, Thailand. The mini-split market represents a
significant portion of the unitary business in the Asia Pacific Region and
Aeromaster enables York to compete in this market with a product manufactured
within the Region. Aeromaster supplies mini-split product to York offices
located around the world.
Sales of Unitary products and Bristol compressors include both new installations
and replacement systems. The Company estimates that more than half of its
Unitary products revenues in North America are attributable to the replacement
market. The replacement market is not affected by levels of new home
construction and therefore trends to be less cyclical. The replacement market
is significantly affected by ambient temperature. Hot spring weather causes
existing older units to fail earlier in the season, leading customers to
accelerate replacement of a unit which might otherwise be deferred in the case
of a late season failure.
New residential products cover a wide range of efficiencies and may be able to
qualify for rebates offered by local utility companies for high efficiency
equipment. The Company's commercial products have been redesigned to meet the
five year compliance requirement of the U.S. Energy Policy Act of 1992 (EPACT).
This includes the energy efficiency rating (EER) of the system as well as the
efficiency of certain motors. Bristol markets an INERTIA reciprocating
compressor that directly competes against other technologies in meeting high
efficiency requirements. Bristol has also developed a new compressor design
known as TSTM Technology. These new compressors provide higher system
efficiencies, greater reliability, and increased comfort. Scroll Technologies
continues to upgrade the scroll compressor technology and performance.
Unitary and light commercial products are manufactured principally in plants
located in Elyria, Ohio; Norman, Oklahoma; Wichita, Kansas; Barlassina, Italy;
Bogota, Colombia; Monterrey, Mexico; Perth, Australia; Coffs Harbour, Australia;
Bangkok, Thailand; Johannesburg, South Africa; and Guangzhou, China. The
Company's manufacturing process relies on the purchase of certain components
(including hermetic compressors, copper tube, fan motors, fan blades, and
control elements) from outside suppliers, and in-house fabrication of sheet
metal cabinets and refrigerant coils. The various unitary products are then
assembled and tested before shipment. Bristol compressors are manufactured at
the Company's factories in Bristol, Virginia and Sparta, North Carolina, and by
Scroll Technologies in Arkadelphia, Arkansas. As with other Company products,
Bristol compressors are assembled using purchased parts (including motors,
castings, forgings and electronic components) as well as parts manufactured by
the Company.
Refrigeration Products. The Company has developed a successful line of
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industrial and commercial refrigeration products. The Company manufactures
screw and reciprocating compressors. Screw compressors enable the Company to
produce a highly reliable, ammonia refrigeration system required for commercial
and industrial applications in the food, beverage, chemical and petrochemical
industries. The Company believes that screw compressors are the most reliable
and energy efficient compressors available for ammonia refrigeration systems.
Food processing equipment produced by the Company includes spiral and tunnel
freezers for the poultry, frozen vegetable and prepared food businesses. In
addition, the Company manufactures packaged refrigeration systems to cool
chemical and petrochemical products during their production processes. Gram
Refrigeration and Gram Contractors provide similar manufacturing capabilities in
Europe and increase distribution and availability of
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advanced technology. Gram also makes reciprocating compressors for refrigeration
applications. The Company's refrigeration and gas compression equipment is
engineered and manufactured to customer specifications.
The Company markets its refrigeration and gas compression equipment under the
"YORK", "YORK FOOD SYSTEMS", "FRICK", "FRIGID COIL", "IMECO", "RECO", "RITE
COIL", "RECOLD", "NORTHFIELD", "ACUAIRE" and "GRAM REFRIGERATION" brands. The
products are sold by the Company's sales engineers located in 14 offices and a
national network of more than 40 independent agents in the United States as well
as nine offices, 20 independent distributors and two licensees elsewhere in the
world. In addition, the Company believes that developing countries offer
opportunities for increasing sales of refrigeration equipment.
The Company's Food Systems Group develops commercial food freezing and
processing machinery in the domestic and international markets. Customers of
this group include Tyson Foods, H. J. Heinz, Cargill, Unilever and Nestle. The
Food Systems Group pulls through sales of refrigeration products from the
refrigeration products group.
The Company's new products in this area include smaller capacity packaged
commercial freezing machines down-sized to meet the needs of the developing new
markets, and a growing capability to design and deliver turn-key food processing
lines which include a broad spectrum of York products.
Refrigeration equipment is manufactured at Company-owned facilities in Dixon,
Illinois; Polo, Illinois; Waynesboro, Pennsylvania; Northfield, Minnesota;
Smithville, Ohio; San Antonio, Texas; Carquefou, France; and Vojens, Denmark,
and at a leased facility in Santa Fe Springs, California.
International Distribution
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The Company markets its equipment and service in Europe through companies
located in Austria, Switzerland, Bulgaria, Russia, other former Commonwealth of
Independent States countries, the Czech Republic, Hungary, Poland, Slovakia,
Romania, England, France, Germany, Denmark, Belgium, Netherlands, and Italy.
The Company's European operations have supplied equipment for such locations as
the Kremlin in Moscow, the Pompidou Center in Paris, the La Scala Opera House in
Milan, the English Channel Eurotunnel and the Frankfurt Airport.
The Company markets its equipment and service in the Middle East and India
through offices in Dubai, Abu Dhabi, Kuwait, Istanbul, New Delhi, Mumbai, Cairo,
Karachi, and through numerous distributors throughout the region. The Company
has sales and service joint ventures throughout the Kingdom of Saudi Arabia.
The Company's ability to manufacture large tonnage air-cooled air conditioning
equipment capable of operating under extreme conditions has resulted in winning
a substantial number of large contracts in the water short Middle East. The
Company has installed systems throughout the region, including equipment in the
Jeddah Airport, the Prophet's Mosque in Medina, the U.S. Embassy in New Delhi,
the Cairo Airport, the Abu Dhabi National Oil Company and the stock exchanges in
Kuwait and Istanbul.
The Company markets and services its products in the Pacific Rim region through
offices in Hong Kong, China, Singapore, Korea, Australia, Indonesia, and
Thailand, joint ventures in Taiwan and Malaysia, and various distributors
throughout the region. The Company manufactures products through joint ventures
in China, Thailand, and Malaysia, and wholly owned facilities in Australia. The
Company has installed systems throughout the region, including equipment in the
Shanghai Opera House, Shenzhen Railway Station, Hong Kong Exposition Centre,
Overseas Union Bank Centre in Singapore, Grand Hotel in Taipei, Sydney Opera
House, and the Kuala Lumpur City Centre in Malaysia, the world's tallest
building.
Sales through Latin America are handled through offices in Mexico, Argentina,
Brazil, Chile, Colombia, Miami, (USA), Puerto Rico, Argentina, Ecuador, Peru and
Venezuela, and sales representatives and independent distributors located
throughout Latin America. Installations include the World Trade Centers in
Mexico, Colombia, and Chile, the Sao Market Place in Brazil, the Mexican Stock
Exchange and the Hotel Intercontinental in Argentina.
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Raw Materials and Purchased Components
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The Company purchases compressors, steel, copper, aluminum, electric motors,
castings, forgings, stampings, fabricated copper tubes, electronic starters and
controls, aluminum fin, fan blades, capacitors, transformers, refrigerant gases,
valves, fittings and other components from many outside suppliers. Alternate
sources of supply are available for all raw materials and components for which
the Company uses a single supplier. The Company believes that it has adequate
sources of supplies of raw materials and component parts for its manufacturing
requirements. In order to hedge against certain raw material price increases,
from time to time the Company enters into forward contracts for the purchase of
certain raw materials, principally copper and aluminum.
Joint Ventures in Foreign Markets
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In addition to its wholly-owned production and distribution facilities, the
Company produces, distributes and services Unitary and Engineered Systems
products in foreign markets through its participation in several foreign joint
ventures, which are described in the following table:
<TABLE>
<CAPTION>
Joint Venture
(Percent Owned by Principal
Principal Location Joint Venture Partner the Company) Products/Services Markets Served
- -------------------- ------------------------ ---------------------------- ------------------------- --------------
<S> <C> <C> <C> <C>
Malaysia OYL Industries OYL-Condair Industries Manufacture Unitary Asia Pacific
BHD. SDN.BHD. (49%) and Engineered System Middle East
products
Malaysia OYL Industries York (Malaysia) Service Sales and service of air Malaysia
BHD. SDN.BHD. (30%) conditioning equipment
Thailand Individual Thai Aeromaster Industry Manufacture Unitary Asia Pacific
Shareholders Co. Ltd. (85%) products Europe
Peoples Republic Guangzhou Sinro Air York Ghuangzhou Air Manufacture Unitary and China
of China Conditioning Mechanical Conditioning and Engineered Systems
and Electrical Equipment Refrigeration Co. Ltd. products
Company Ltd. (97%)
Republic of China Taipei Engineering York Taiwan Inc. Sales and service of air Taiwan
(Taiwan) Development (60%) conditioning equipment
Spain Compania Roca Clima Roca-York S.L. Manufacture Unitary Spain
Radiadores S.A. (50%) products
Cyprus Sabinco Ltd. KROY Ltd. (50%) Sales of air conditioning Middle East
equipment and parts
Colombia Inversiones Lopez York International S.A. Manufacture Unitary and Colombia
Imbett y cias en. cia (Colombia) (89%) Engineered Systems
products
Peoples Republic Wuxi Boiler Group York Wuxi Air Conditioning Manufacture Engineered China
of China and Refrigeration Co. Ltd. Systems products
(80%)
Brazil Mayside Participacues York International Sales of air conditioning Brazil
Administracao e Comercial Ltda. equipment
Comercio Ltda (80%)
Saudi Arabia Al Salem United Al Salem-York Services Service and repair of Saudi Arabia
Contracting Co. Ltd. (49%) air conditioning
equipment
</TABLE>
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Dividends received by the Company from foreign joint ventures were $0.6 million
in 1995, $1.5 million in 1996 and $1.2 million in 1997. Total Company
investments in foreign joint ventures were $16.7 million, $22.2 million and
$17.7 million at December 31, 1995, 1996 and 1997, respectively. Total sales by
the Company to foreign joint ventures are less than 1% of the Company's total
revenues.
Research and Development
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The Company's ongoing research and development program involves redesigning
existing products to reduce manufacturing costs and to increase product
efficiencies, developing electronic controls for existing products and creating
new products. During the years 1995, 1996 and 1997, the Company spent $26.9
million, $28.0 million and $30.6 million, respectively, for all product
development activities.
Product development activities in 1996 and 1997 encompassed a wide range of
products. The Company's centrifugal chiller line was expanded for use with
HCFC-22, HCFC-123 and HFC-134a, all considered environmentally acceptable
replacements for CFC's. The Company also offers screw compressors which use R-
717 (ammonia). The product line now extends from 300 to 2,000 tons for these
refrigerants. The Company also completed development of a new custom air
handling product line in the range of 2,000 to 50,000 cubic feet per minute
(CFM). The new products include the latest technologies to insure indoor air
quality. The combination of air handling product development and existing
product lines gives York the broadest line of air handling products of any
single manufacturer in the industry. The Company announced a new line of
centrifugal chillers ranging from 400 to 2,000 tons, incorporating natural gas
engine drives supplied by Caterpillar Inc. The product line boasts the highest
efficiency of any gas-powered air conditioning system on the market. The
development of prototype HFC-134a centrifugal chillers for Surface and Submarine
Vessels continued under various U.S. Navy contracts. These chillers are
targeted for introduction in the Navy's new construction programs in 1998.
Development of HFC-236fa retrofit kits for R-114 systems were also developed in
1997 for fleet demonstration in 1998. In 1995, the Company introduced more
efficient centrifugal chillers utilizing HCFC-123, HCFC-22 and HFC-134a. The
efficiency levels of .50 to .52 kw/ton are expected to be among the best in the
industry. The Company has also introduced a new line of variable speed drives
for centrifugal chillers to 1,000 tons. This product is compact enough to mount
directly on the chiller and is applicable to the retrofitting of any centrifugal
chiller on the market.
Bristol developed its 1.5 - 5 ton "Inertia" reciprocating compressor and put it
into production in 1991. Bristol continues to improve on the efficiency level
of the "Inertia" and a higher efficiency version was developed and put into
production during 1994. The "Inertia" compressor is being sold in the
residential equipment market for high energy efficiency air conditioning and
heat pump applications. Bristol has developed a new breakthrough design, TSTM
Technology, for compressors which provide higher system efficiencies, greater
reliability, and increased comfort. Scroll compressor technology and capability
are expanding through the joint venture established in 1995.
Competition
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All of the markets in which the Company does business are very competitive.
Participants compete on the basis of service and the price, quality, reliability
and efficiency of products. Several of the Company's competitors have greater
financial resources than the Company.
In the domestic market for Engineered Systems air conditioning equipment, the
Company competes primarily with two large United States manufacturers, Carrier
Corporation, a subsidiary of United Technologies Corporation, and Trane Company,
a division of American Standard Inc. Engineered Systems product manufacturers
compete on the basis of product design, reliability and post-installment
service. Architects and engineers play an important part in determining which
manufacturer's products will be used in an application.
In the Unitary products market, the Company competes with numerous national and
regional manufacturers. In this market, price competition and maximum market
coverage are particularly important, as there is relatively little perceived
differentiation among competing product lines.
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In the hermetic compressors market, the Company competes directly with two
United States manufacturers, Copeland Corporation, a subsidiary of Emerson
Electric Inc., and Tecumseh, a division of Tecumseh Corporation. In this
market, the Company competes primarily on the basis of reliability and price as
well as delivery, service and product efficiency.
In the market for refrigeration equipment, the Company competes primarily with
FES, BAC, Evapco and Krack Corp., Stahl, Sabroe and Frigoscandia.
In international markets for air conditioning equipment, the Company competes
primarily with Carrier Corporation, Trane Company and several Japanese
manufacturers, including Matsushita, Hitachi, Mitsubishi Electric and Toshiba.
Patents and Trademarks
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The Company holds numerous patents that relate to the design and use of its
products that it considers important, but not essential, to the overall conduct
of its business. It is the Company's policy to obtain patent protection for as
many of its new and developmental products as possible, and to enforce such
patent rights as appropriate. No patents which the Company considers material
will expire within the next five years.
The Company owns several trademarks that it considers important in the marketing
of its products, including "YORK". "LUXAIRE", "FRASER-JOHNSTON", "RECOLD",
"FRICK", "FRIGID COIL", "BRISTOL", "IMECO", "MILLER PICKING", "RECO",
"COLEMAN(R) EVCON", "AIRPRO", "GUARDIAN", "YORK FOOD SYSTEMS", "RITE COIL",
"NORTHFIELD FREEZING SYSTEMS", "SEVESO", "GRAM", "AEROMASTER", "ACUAIRE" and
"TEMPMASTER". The Company believes that its rights in these trademarks are
adequately protected and of unlimited duration.
Major Customers
- ---------------
During 1997, no customer, distributor, dealer or licensee accounted for more
than 10% of the Company's revenues. The loss of a few customers, distributors,
dealers or licensees would not have a materially adverse effect on the Company's
business.
Backlog
- -------
As of December 31, 1997, the Company's backlog was $834.5 million as compared to
$845.1 million as of December 31, 1996. Substantially all of the orders are
expected to be fulfilled within the next 12 months.
Government Contracts
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In 1997, approximately 2% of the Company's sales were related to ongoing United
States Government projects. The Company expects that substantially all work
will be completed during fiscal year 1998 in connection with all of these
contracts. The Company's existing contracts with the United States Government
may be terminated at any time at the option of the Government and are subject to
continued availability of government appropriations. If these contracts were
terminated, the Company would only be entitled to reimbursement of costs
incurred and to payment of a reasonable allowance for profit on work actually
performed.
Employees
- ---------
As of December 31, 1997, the Company employed approximately 20,270 persons
worldwide. Approximately 12,555 persons are employed in the United States and
7,715 persons are employed in foreign countries. Approximately 3,482 domestic
employees are covered by collective bargaining agreements which expire between
8
<PAGE>
December 31, 1998 and March 31, 2003. The Company considers its relations with
its employees to be satisfactory.
Environmental Matters
- ---------------------
Environmental laws that affect or could affect the Company's domestic operations
include, among others, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Occupational Safety and Health Act, the
National Environmental Policy Act, the Toxic Substances Control Act, any
regulations promulgated under these acts, and various other Federal, state and
local laws and regulations governing environmental matters. The Company
believes it is in substantial compliance with such existing environmental laws
and regulations.
The Company's foreign operations are also subject to various environmental
statutes and regulations. Generally, these requirements tend to be no more
restrictive than those in effect in the United States. The Company believes it
is in substantial compliance with such existing environmental statutes and
regulations. In 1993, the Council of European Communities agreed on EC
regulation number 1836/93 which recommended that each company voluntarily
complete an ECO-Audit. The Company has completed these audits at several of its
European facilities.
In September 1987, the United States became a signatory to an international
agreement titled the Montreal Protocol on Substances that Deplete the Ozone
Layer (the "Montreal Protocol"). The Montreal Protocol requires its signatories
to reduce production and consumption of CFCs and Halons, some of which are
utilized in air conditioning and refrigeration equipment. In 1988, the EPA
issued regulations under the Clean Air Act implementing the Montreal Protocol in
the United States. Many other countries have also become signatories to the
Montreal Protocol. The manner in which these countries implement the Montreal
Protocol and regulate CFCs could differ from the approach taken in the United
States.
The 1990 Clean Air Act amendments implement the Montreal Protocol by
establishing a program for limiting the production, importation and use of
certain ozone depleting chemicals (including those governed by the Montreal
Protocol) some of which are refrigerants currently used by the Company. Under
the Act, the production and consumption of the refrigerants designated as "Class
I substances" including all CFCs must be phased out beginning in 1991 and are to
be banned completely by 2000. Certain other refrigerants, including all HCFCs,
are designated as "Class II substances", and must be phased out between 2015 and
2030.
The Clean Air Act allows the EPA to accelerate the statutory phase-out schedule
for any Class I or Class II substance. In November 1992, the parties to the
Montreal Protocol agreed to amend the Protocol to require the complete phase-out
of CFC production by the beginning of 1996. Further, the parties agreed to a
1996 production cap on HCFCs and a complete phase-out of HCFC production by
2030. The EPA published a final rule requiring accelerated phase-out of the
production of all CFCs by 1996 and of all HCFCs by 2030.
None of the Company's manufactured products contains Class I substances. Class
I substances previously used by the Company have been substituted for by Class
II substances or substances that are currently unregulated. The Company does,
however, believe that revenues from servicing and repairing existing equipment
that uses Class I substances are and will be significant. These activities are
regulated by the EPA which imposes guidelines affecting service and maintenance
of equipment that use Class I and Class II substances. The Company trains and
licenses its service technicians in service and maintenance procedures that
comply with the new regulations. Therefore, the Company believes that the new
regulations will not have a material adverse effect on its operations. The
phase-out of Class I substances will require modifications to existing air
conditioning equipment as availability of recycled Class I substances decreases.
Since the Company's technology enables it to modify existing equipment for use
with Class II substances, it believes that this will continue to generate
additional service revenues. While the Company expects to derive substantial
revenue from the sale of products utilizing Class II substances, it is not
expected that any phase-out will have a significant impact on the sales of such
products prior to the end of the decade. Nonetheless, as the supply of virgin
and recycled Class II substances falls, it will be necessary to address the need
to substitute permitted substances for Class II substances.
The Company, in conjunction with major chemical manufacturers, is continually in
the process of reviewing and addressing the impact of refrigerant regulations on
its products. The Company believes that the combination of
9
<PAGE>
those products which presently utilize Class II substances and those products in
the field which can be retrofitted to such refrigerants provides a complete line
of commercial and industrial products. Therefore, the Company does not foresee
any material adverse impact on its business or competitive position as a result
of the Montreal Protocol, the 1990 Clean Air Act amendments or their
implementing regulations. However, the Company believes that the implementation
of severe restrictions on the production, importation or use of refrigerants
employed in larger quantities by the Company could have such an impact. The
Company believes that the Engineered Systems products that it has produced will
be well positioned to utilize the next generation of refrigerants without
substantial modification. If the next generation of refrigerants is incompatible
with the hermetic compressors used by the Company and all of its competitors for
Unitary products, design modifications would be required.
Governmental Regulations
- ------------------------
The Company is subject to regulations promulgated under the National Appliance
Energy Conservation Act of 1987, as amended, and various state regulations
concerning the energy efficiency of its products. The Company has developed and
is developing products which will comply with these regulations, and does not
believe that such regulations will have a material adverse effect on its
business.
10
<PAGE>
Executive Officers
- ------------------
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Robert N. Pokelwaldt 61 Chairman of the Board of Directors and
Chief Executive Officer
John R. Tucker 50 President and Chief Operating Officer
William G. Cowles, Jr. 52 Vice President and President
of Refrigeration
Joseph D. Smith 44 Vice President, Manufacturing
Peter J. Spellar 53 Vice President and President
of Applied Systems
Michael R. Young 53 Vice President and President
of Bristol Compressors
Jane G. Davis 48 Vice President, Secretary
and General Counsel
Dean T. DuCray 57 Vice President and Chief
Financial Officer
Wayne J. Kennedy 55 Vice President, Human
Resources
Helen S. Marsteller 37 Vice President, Investor Relations
and Corporate Communications
Mark V. Stanga 44 Vice President, Government Affairs
James P. Corcoran 52 Treasurer
C. David Myers 34 Controller
Mr. Pokelwaldt has been Chairman of the Company since January 1993. Prior
thereto he was President, Chief Executive Officer and Director of the Company
since June 1991, President and Chief Operating Officer from January 1990 to June
1991, Vice President of the Company and President of Applied Systems from
September 1988 to January 1990 and Chairman and Chief Executive Officer of Frick
Company from June 1983 to September 1988.
Mr. Tucker has been President and Chief Operating Officer of the Company since
October 1997. Prior to joining the Company, he was President of Aerospace
Equipment Systems Sector of Allied Signal, Inc. from January 1996 to October
1997, President and Chief Executive Officer of Motoren und Turbinen Union (Jet
Engine Division) of Daimler-Benz, A.G. from 1994 to 1996 and President of AEG
Transportation Systems, Inc. from 1988 to 1994, and held various positions with
Westinghouse Electric Corporation from 1968 to 1988.
Mr. Cowles has been Vice President and President of Refrigeration Products Group
since January 1997. Prior thereto, he was President, Northfield Freezing
Systems from September 1985 to January 1997.
11
<PAGE>
Mr. Smith has been Vice President, Manufacturing since December 1997. Prior
thereto he was President of the Airside Products Group since October 1994.
Prior thereto he was Vice President of Special Projects of the Company from May
1994 to October 1994. Prior to joining the Company, Mr. Smith was Vice
President and General Manager of Spherical Roller Bearing Division of SKF USA,
Inc. since May 1992. Previous to this, Mr. Smith held various positions with
Harley Davidson and General Motors.
Mr. Spellar has been Vice President of the Company and President, Applied
Systems Worldwide since November 1995. Prior thereto, he was Vice President of
the Company and Vice President, European Operations from August 1992 to November
1995, President, Frick Division from May 1987 to August 1992 and President of
the Frick Company from May 1979 to May 1987.
Mr. Young has been Vice President of the Company, and Chief Executive Officer
and President of Bristol Compressors since October 1996. Prior thereto, he was
President, Chairman and Chief Executive Officer of Evcon Industries, Inc. from
1991-1995, President and Chief Operating Officer of York International Inc. from
1988 to 1989, and Chairman, President and Chief Executive Officer of Bristol
Compressors from 1983 to 1987.
Ms. Davis has been Vice President, Secretary and General Counsel of the Company
since March 1995. Prior thereto, she was Vice President, General Counsel and
Secretary of Joy Technologies Inc. from September 1988 to February 1995.
Mr. DuCray has been Vice President and Chief Financial Officer of the Company
since January 1987. Prior to joining the Company he was President and Chief
Executive Officer of Technical Oil Tool Corporation, a wholly-owned subsidiary
of Baker International Corporation, from July 1976 to January 1987.
Mr. Kennedy has been Vice President, Human Resources, of the Company since May
1993. Prior thereto he was the Vice President of Human Resources for the
Millipore Corporation from 1985 to 1993.
Ms. Marsteller has been Vice President, Investor Relations and Corporate
Communications since September 1997. Prior thereto, she was Director of
Investor Relations from 1992 to September 1997. Prior thereto, she held various
financial positions in the Unitary Products Group from 1986 to 1992.
Mr. Stanga has been Vice President of Government Affairs since February 1997.
Prior thereto, he was Director of Government Affairs from October 1995 to
February 1997. Prior to joining the Company, Mr. Stanga was Environmental
Affairs counsel for Litton Industries from April 1988 to October 1995, Associate
Director of the Office of Ocean and Coastal Resources Management in the U.S.
Commerce Department from April 1986 to April 1988, and Attorney Advisor at the
U.S. Environmental Protection Agency from February 1983 to April 1986.
Mr. Corcoran has been Treasurer of the Company since July 1992. Prior thereto
he was Treasurer of Griffith Laboratories from August 1990 to May 1992,
Treasurer of AM International from March 1987 to August 1990 and Director,
Treasury Operations of Borg-Warner Corporation from February 1977 to March 1987.
Mr. Myers has been Controller since July 1995. Prior thereto, he was Director
of Finance, Airside Products Group to July 1995 and Director of Financial
Planning and Controls from March 1994 to December 1994. Prior to joining the
Company, he was with KPMG Peat Marwick LLP from August 1986 to March 1994.
12
<PAGE>
Item 2. Properties
The Company's principal offices are located in York, Pennsylvania on an
approximately 71 acre site owned by the Company. The following table lists the
principal manufacturing facilities owned by the Company:
Approximate
Location Primary Products Enclosed Area (sq. ft.)
- -------- ---------------- -----------------------
York, PA Engineered products 1,500,000
Wichita, KS Unitary products 835,000
Elyria, OH Unitary products 636,000
Norman, OK Unitary products 549,000
Bristol, VA Hermetic compressors 520,000
Waynesboro, PA Refrigeration products 400,000
and compressors
Basildon, England Engineered products 370,000
Sparta, NC Hermetic compressors 180,000
San Antonio, TX Refrigeration and 136,000
Engineered products
Durango, Mexico Engineered products 116,000
Vojens, Denmark Refrigeration products 111,000
and compressors
Asquith, Australia Engineered products 102,000
Monterrey, Mexico Engineered products, 102,000
Unitary products
Guangzhou, China Air handling products 100,000
Dixon, IL Refrigeration products 97,000
Bangkok, Thailand Unitary products 94,000
Carquefou, France Engineered products 92,000
Polo, IL Refrigeration products 78,000
Roanoke, VA Screw compressors 72,000
Wuxi, China Engineered products 70,000
Johannesburg, South Africa Unitary products 56,000
Smithville, OH Freezer systems 44,000
Northfield, MN Freezer systems 44,000
Bogota, Colombia Unitary products and 40,000
Engineered products
Montevideo, Uruguay Engineered products 22,000
At the York, Pennsylvania location, approximately 220,000 square feet of
facilities are leased to tenants and approximately 100,000 square feet are
neither currently used by the Company nor leased to third parties. The Company
also leases for its own use a 163,000 square foot facility in Albany, Missouri,
a 230,000 square foot manufacturing facility in Barlassina, Italy, a 60,000
square foot manufacturing facility in Mannheim, Germany, a 126,000 square foot
manufacturing facility in Perth, Australia, an 82,000 square foot facility in
Santa Fe Springs, California, an 84,000 square foot manufacturing facility in
Hattiesburg, Mississippi, a 200,000 square foot facility in Salisbury, North
Carolina, and a 209,000 square foot facility in Portland, Oregon.
In addition to the properties described above, the Company leases approximately
100 facilities in the United States and over 50 additional facilities worldwide
for use as sales and service offices and regional warehouses. The Company
believes that its properties are in good condition and adequate for its
requirements. The Company believes that its principal plants are generally
adequate to meet its production plans pursuant to its long-term sales goals.
In the ordinary course of its business, the Company monitors the condition of
its facilities to ensure that they remain adequate to meet its long-term sales
goals and production plans. The Company makes capital expenditures intended to
upgrade existing facilities and equipment to increase production efficiency and,
when appropriate, to adapt them to the requirements of manufacturing new product
lines.
13
<PAGE>
Item 3. Legal Proceedings
The Company is a party to lawsuits arising from time to time in the ordinary
course of business. The Company believes that no pending lawsuit will result in
any material adverse effect to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the Company's security holders during the
fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the New York Stock Exchange under the
symbol "YRK". On March 23, 1998, the Company had 5,346 holders of record of its
common stock.
Trading and Dividend Information
- --------------------------------
Dividends
High Low Declared
---- --- ---------
1997
----
Fourth quarter $47 3/8 $39 5/16 $ .12
Third quarter 49 7/16 41 3/4 .12
Second quarter 50 5/8 38 5/8 .12
First quarter 54 3/8 42 .12
1996
----
Fourth quarter $56 1/4 $47 3/8 $ .09
Third quarter 51 7/8 44 3/4 .09
Second quarter 53 5/8 46 3/4 .09
First quarter 49 44 .09
The declaration and payment of future dividends will be at the sole discretion
of the Board of Directors and will depend upon such factors as the Company's
profitability, financial condition, cash requirements and future prospects and
limitations imposed by the 1997 Amended and Restated Credit Agreement.
Item 6. Selected Financial Data
Information contained under the caption "Five Year Summary of Selected Financial
Data" on page a4 of the Annual Report is incorporated herein by reference in
response to this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages a6 to a11 of the Annual
Report is incorporated herein by reference in response to this item.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial statements for York International Corporation and Subsidiaries are
contained on pages a12 to a29 of the Annual Report and Summary of Quarterly
Results (unaudited) are contained on page a29 of the Annual Report and are
incorporated herein by reference in response to this item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information contained under the caption "Election of Directors" in the
Registrant's definitive 1998 Proxy Statement is incorporated herein by reference
in response to this item. See Item 1 above for information concerning executive
officers.
Item 11. Executive Compensation
Information contained under the caption "Executive Compensation" in the
Registrant's definitive 1998 Proxy Statement is incorporated herein by reference
in response to this item, other than the information under the subcaptions
"Report of the Compensation Committee" and "Stock Performance Graph" which are
not incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information contained under the captions "Election of Directors" and "Ownership
of Common Stock" in the Registrant's definitive 1998 Proxy Statement is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements of York International
Corporation and subsidiaries are incorporated herein by reference
to pages a12 to a29 of the Annual Report:
Consolidated Balance Sheets - as of December 31, 1997 and 1996
Consolidated Statements of Operations - years ended December 31,
1997, 1996, and 1995
Consolidated Statements of Cash Flows - years ended December 31,
1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity - years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for York International
Corporation and subsidiaries is included herein:
15
<PAGE>
VIII Valuation and Qualifying Accounts - years ended December 31,
1997, 1996 and 1995; (Page 20 of Form 10-K)
All other schedules are omitted as they are not applicable.
Independent Auditors' Report Covering Financial Statement Schedule;
(Page 19 of Form 10-K)
(3) The exhibits filed in response to Item 601 of Regulation S-K are as
follows:
Exhibit
Number
-------
3.1 Amended and Restated Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3, File No. 33-91292, filed on June 7,
1995)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation dated May 3, 1996 (Incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-10863)
3.3 By-Laws of Registrant, restated as of December 17, 1996 (Incorporated
by reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, File No. 1-10863)
4.1 Receivables Sale Agreement dated as of March 26, 1997, by and among
the Registrant, as seller and collection agent, Asset Securitization
Cooperative Corporation, as purchaser, and Canadian Imperial Bank of
Commerce, as servicing agent along with the supporting exhibits
(Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, File No. 1-
10863)
4.2 Indenture dated as of March 1, 1993 between the Registrant and Morgan
Guaranty Trust Company of New York, as Trustee (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement
filed on Form S-3, File No. 33-57178, filed on January 19, 1993)
4.3 Share Transfer Agreement dated as of June 19, 1995 between the
Registrant and National Westminster Bank PLC (Incorporated by reference
to Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 1-10863)
4.4 Dividend Rights Agreement dated as of June 19, 1995 between the
Registrant and National Westminster Bank PLC (Incorporated by reference
to Exhibit 4.4 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 1-10863)
4.5 Amended and Restated Credit Agreement, dated as of July 21, 1995 among
the Registrant, the several banks and the other financial institutions
from time to time parties to the Agreement and Canadian Imperial Bank
of Commerce, acting through its New York Agency, as Agent (Incorporated
by reference to Exhibit 10.17 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, File No. 1-10863)
4.6 First Amendment dated as of May 28, 1997 to the Amended and Restated
Credit Agreement among the Registrant, the several banks and the other
financial institutions from time to time parties thereto and Canadian
Imperial Bank of Commerce, acting through its New York Agency, as agent
for the Banks along with supporting exhibits (Incorporated by reference
to Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 1-10863)
4.9 Amendment to Share Transfer Agreement between Registrant and National
Westminster Bank PLC, dated February 11, 1998 (filed herewith)
16
<PAGE>
4.10 Amendment to Dividend Rights Agreement between Registrant and National
Westminster Bank PLC, dated February 11, 1998 (filed herewith)
*10.1 Registrant's 1989 Employee Stock Option Plan (Incorporated by reference
to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989. File No. 33-25440)
*10.2 Registrant's Amended and Restated 1992 Omnibus Stock Plan
(Incorporated by reference to Exhibit 10.1 to Registrant's Annual
Report on Form 10-Q for the quarter ended March 31, 1997, File No. 1-
10863)
*10.3 Registrant's 1996 Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1996, File No. 1-10863)
*10.4 Bristol Compressors, Inc. Officers Retirement/Salary Continuation
Plan (Incorporated by reference to Exhibit 10.4 to York International
Corporation's Registration Statement on Form S-1, File No. 33-30713,
filed on August 25, 1989)
*10.5 York International Corporation Supplemental Executive Retirement
Plan (Incorporated by reference to Exhibit 10.12 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, File No. 1-
10863)
*10.6 York International Corporation Executive Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, File No. 1-
10863)
*10.7 Form of Restricted Stock Agreement by and between Registrant and
certain of its employees (Incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, File No. 1-10863)
*10.8 First Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 2, 1994 (Incorporated
by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 1-10863)
10.10 Second Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 17, 1996 (Incorporated
by reference to Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, File No. 1-10863)
10.11 Form of Severance Agreement entered into between the Registrant and
certain of its Officers and Employees (Incorporated by references to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, File No. 1-10863.)
11 Statement re: Computation of Per Share Earnings (filed herewith)
12 Statement re: Computation of Ratio of Earnings to Fixed Charges (filed
herewith)
13 Annual Financial Statements and Review of Operations with Accountants'
Certificate (filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 Accountants' Consent (filed herewith)
27 Financial Data Schedule (filed herewith)
27.1 Financial Data Schedule for 1996 Restated for FAS128, Earnings Per
Share (filed herewith)
* Required to be Filed as management contracts, compensatory plans or
arrangements required to be identified pursuant to Item 14(c) of the
registrant's report on Form 10-K.
(b) No reports on Form 8-K have been filed during the last quarter of fiscal
1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
YORK INTERNATIONAL CORPORATION
/s/ Robert N. Pokelwaldt
----------------------------
Robert N. Pokelwaldt
Chief Executive Officer
Date: MARCH 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 23rd day of March 1998.
Signature Title
--------- -----
/s/ Robert N. Pokelwaldt Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Robert N. Pokelwaldt
/s/ Dean T. DuCray Vice President and Chief Financial Officer
- --------------------- (Principal Financial Officer)
Dean T. DuCray
/s/ C. David Myers Controller
- --------------------- (Principal Accounting Officer)
C. David Myers
Directors
---------
/s/ Robert N. Pokelwaldt
- ---------------------------
Robert N. Pokelwaldt
/s/ Malcolm W. Gambill*
- --------------------------
Malcolm W. Gambill
/s/ Robert F. B. Logan*
- -------------------------
Robert F. B. Logan
/s/ Gerald C. McDonough*
- --------------------------
Gerald C. McDonough
/s/ Donald M. Roberts*
- ------------------------
Donald M. Roberts
/s/ John R. Tucker
- -------------------
John R. Tucker
/s/ John E. Welsh*
- --------------------
John E. Welsh III
/s/ Walter B. Wriston*
- ----------------------
Walter B. Wriston
* Pursuant to powers of attorney.
18
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
York International Corporation:
Under date of February 10, 1998, we reported on the consolidated balance sheets
of York International Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 17 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" effective October 1, 1995.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
February 10, 1998
19
<PAGE>
SCHEDULE VIII
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column C Column D Column E
-------- ---------- --------- ----------- ---------- ----------
Balance at Additions Additions Balance at
Beginning Costs and Other Close of
Description of Period Expenses Accounts(a) Deductions Period
----------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
Allowances for Doubtful Accounts $20,737 $ 6,139 $ - $ 9,037 $17,839
Warranties $33,135 $12,805 $ - $ 9,660 $36,280
1996
Allowances for Doubtful Accounts $17,229 $ 5,718 $ 425 $ 2,635 $20,737
Warranties $27,943 $15,649 $ - $10,457 $33,135
1995
Allowance for Doubtful Accounts $13,461 $ 5,774 $1,201 $ 3,207 $17,229
Warranties $21,535 $10,610 $2,875 $ 7,077 $27,943
</TABLE>
- ----------------
(a) Additions Charged to Other Accounts include liabilities of businesses
acquired in 1996 and 1995.
20
<PAGE>
EXHIBIT INDEX
- ------------
The following exhibits are filed pursuant to Item 601 of Regulation S-K. The
items marked with an asterisk are filed by reference as noted.
Exhibit Page
Number Number
- ------- ------
3.1 Amended and Restated Certificate of Incorporation of
Registrant (Incorporated by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-3,
File No. 33-91292, filed on June 7, 1995)
3.2 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation dated May 3, 1996
(Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-10863)
3.3 By-Laws of Registrant, restated as of December 17, 1996
(Incorporated by reference to Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-10863)
4.1 Receivables Sale Agreement dated as of March 26, 1997, by
and among the Registrant, as seller and collection agent,
Asset Securitization Cooperative Corporation, as purchaser,
and Canadian Imperial Bank of Commerce, as servicing agent
along with the supporting exhibits (Incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997,
File No. 1-10863)
4.2 Indenture dated as of March 1, 1993 between the Registrant and
Morgan Guaranty Trust Company of New York, as Trustee
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement filed on Form S-3, File No. 33-57178,
filed on January 19, 1993)
4.3 Share Transfer Agreement dated as of June 19, 1995 between
the Registrant and National Westminster Bank PLC (Incorporated
by reference to Exhibit 4.3 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No.
1-10863)
4.4 Dividend Rights Agreement dated as of June 19, 1995 between
the Registrant and National Westminster Bank PLC (Incorporated
by reference to Exhibit 4.4 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No.
1-10863)
4.5 Amended and Restated Credit Agreement, dated as of July 21, 1995
among the Registrant, the several banks and the other financial
institutions from time to time parties to the Agreement and Canadian
Imperial Bank of Commerce, acting through its New York Agency, as
Agent (Incorporated by reference to Exhibit 10.17 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, File No. 1-10863)
4.6 First Amendment dated as of May 28, 1997 to the Amended and Restated
Credit Agreement among the Registrant, the several banks and the
other financial institutions from time to time parties thereto and
Canadian Imperial Bank of Commerce, acting through its New York
Agency, as Agent for the Banks along with supporting exhibits
(Incorporated by reference to Exhibit 4.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, File No. 1-
10863)
21
<PAGE>
4.9 Amendment to Share Transfer Agreement between Registrant and National
Westminster Bank PLC, dated February 11, 1998 (filed herewith)
4.10 Amendment to Dividend Rights Agreement between Registrant and
National Westminster Bank PLC, dated Febuary 11, 1998 (filed
herewith)
*10.1 Registrant's 1989 Employee Stock Option Plan (Incorporated by
reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989, File No. 33-25440)
*10.2 Registrant's Amended and Restated 1992 Omnibus Stock Plan
(Incorporated by reference to Exhibit 10.1 to Registrant's Annual
Report on Form 10-Q for the quarter ended March 31, 1997, File
No. 1-10863)
*10.3 Registrant's 1996 Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, File No. 1-10863)
10.4 Bristol Compressors, Inc. Officers Retirement/Salary Continuation
Plan (Incorporated by reference to Exhibit 10.4 to York International
Corporation's Registration Statement on Form S-1, File No. 33-30713,
filed on August 25, 1989)
*10.5 York International Corporation Supplemental Executive Retirement Plan
(Incorporated by reference to Exhibit 10.12 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, file
No. 1-10863)
*10.6 York International Corporation Executive Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the year ended Decemebr 31, 1993, File
No. 1-10863)
*10.7 Form of Restricted Stock Agreement by and between Registrant and
certain of its employees (Incorporated by reference to Exhibit 10.7
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-10863)
*10.8 First Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 2, 1994
(Incorporated by reference to Exhibit 10.8 to Registrants Annual
Report on Form 10-K for the year ended Decemeber 31, 1995, File
No. 1-10863)
10.10 Second Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 17, 1996
(Incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-10863)
10.11 Form of Severance Agreement entered into between the Registrant and
certain of its Officers and Employees (Incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, File No. 1-10863.)
11 Statement re: Computation of Per Share Earnings (filed herewith)
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
(filed herewith)
13 Annual Financial Statements and Review of Operations with
Accountants' Certificate (filed herewith)
22
<PAGE>
21 Subsidiaries of the Registrant (filed herewith)
23 Accountants' Consent (filed herewith)
27 Financial Data Schedule (filed herewith)
27.1 Financial Data Schedule for 1996 Restated for FAS128, Earnings
Per Share (filed herewith)
(b) No reports on Form 8-K have been filed during the last quarter of fiscal
1997.
23
<PAGE>
Exhibit 4.9
AMENDMENT AGREEMENT
relating to a
SHARE TRANSFER AGREEMENT
dated 7 June 1995 as amended by an Amendment Agreement dated 10 December 1996
BETWEEN
YORK INTERNATIONAL CORPORATION
and
NATIONAL WESTMINSTER BANK PLC
<PAGE>
THIS AMENDMENT AGREEMENT is made the eleventh day of February 1998
BETWEEN:
(1) YORK INTERNATIONAL CORPORATION ("YIC", which expression shall include its
successors and assigns permitted under the Share Transfer Agreement (as
defined below)), a corporation organised under the laws of Delaware, USA
whose principal office and effective seat of management is at 631, South
Richland Avenue, York, PA 17403, USA, and
(2) NATIONAL WESTMINSTER BANK PLC ("NWB" which expression shall include its
successors and assigns permitted under the Share Transfer Agreement (as
defined below)), a public limited company duly organised under the laws of
England whose registered office is at 41 Lothbury, London EC2P 2BP.
WHEREAS
(A) York International Holding GmbH (registered number HRB 5518 Mannheim), a
German limited company with its registered office at Gottlieb-Daimler-
Strasse 6, 68165 Mannheim, Germany ("YIH GmbH")` is a subsidiary of YIC
with an issued share capital comprising the Ordinary Share, the Class A
Preference Share and the Class B Preference Share;
(B) YIC is the registered owner of the Ordinary Share and the Class A
Preference Share following the conversion of part of the Ordinary Share
into the Class A Preference Share;
(C) By a share transfer agreement dated 7 June 1995 and made between YIC and
NWB (the "Share Transfer Agreement") YIC transferred to NWB the Class B
Preference Share;
(D) By an Amendment Agreement dated 10 December 1996 and made between YIC and
NWB the Share Transfer Agreement was amended on the terms and subject to
the conditions set out therein; and
(E) It has been agreed that the Share Transfer Agreement shall be further
amended on the terms and subject to the conditions hereof.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 Terms defined in the Share Transfer Agreement shall, unless otherwise
defined herein, or unless the context otherwise requires, bear the same
meaning when used in this Agreement.
1.2 In this Agreement, any reference to a "Clause" or "Schedule" shall, subject
to any contrary indication, be construed as a reference to a Clause hereof
or a Schedule hereto.
1.3 Clause and Schedule headings are for ease of reference only.
2. Amendments to the Share Transfer Agreement
<PAGE>
The parties hereto expressly agree that the Share Transfer Agreement shall,
as at the date hereof, be amended so that it shall be read and construed for
all purposes so as to include the amendments set out hereto and each of the
parties hereto shall be bound by the terms and conditions thereof
accordingly:-
2.1 Amendment to sub-clause 5.3(i)(a)
Sub-clause 5.3(i)(a) of the Share Transfer Agreement is hereby amended by
deleting such sub-clause in its entirety and substituting in lieu thereof
the following new sub-clause:
(a) Interest Coverage. Permit the ratio of (i) Consolidated EBIT to (ii)
-----------------
Consolidated Interest Expense for any period of four consecutive
fiscal quarters ending on the last day of any fiscal quarter to be
less than 2.50:1.
2.2 Amendment to sub-chum 5.3(ii)(C)
Sub-clause 5.3(ii)(c) of the Share Transfer Agreement is hereby amended by
deleting such sub-clause in its entirety and substituting in lieu thereof
the following new sub-clause:
(c) Indebtedness for borrowed money of any Domestic Subsidiary, provided
--------
that the aggregate amount of all such Indebtedness (other than
Indebtedness permitted by paragraphs (a) or (d) of this Clause
5.3(ii)) of all such Domestic Subsidiaries shall not exceed
$200,000,000 at any one time outstanding.
2.3 Amendment to sub-clause 5.3(iii)(f)
Sub-clause 5.3(iii)(f) of the Share Transfer Agreement is hereby amended by
deleting such sub-clause in its entirety and substituting in lieu thereof
the following new sub-clause:
(f) Encumbrances on any Capital Stock which is not voting stock, and on
not more than 20% of the voting stock, of any Foreign Subsidiary
securing Indebtedness of YIC or any Foreign Subsidiary in an aggregate
amount at any one time outstanding for YIC and all Foreign
Subsidiaries not to exceed 35% of Consolidated Net Worth.
2.4 Amendment to Schedule 2, Clause 8
Clause 8 of Schedule 2 of the Share Transfer Agreement is hereby amended by
deleting the amount "$5,000,00" contained in clause (b)(i) and substituting
in lieu thereof the amount "$10,000,000".
3. Continuity and Further Assurance
3.1 The provisions of the Share Transfer Agreement shall, save as amended
hereby, continue in full force and effect.
3.2 YIC shall, at its own expense, do all such acts and things and execute all
such documents as shall reasonably be considered necessary or desirable to
give full effect to the amendments effected or to be effected pursuant to
this Agreement.
<PAGE>
4. Counterparts
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered, shall be an original but all the counterparts shall
together constitute but one and the same instrument.
5. Law
This Agreement shall be governed by and construed in accordance with
English Law.
6. Jurisdiction
Clause 22 of the Share Transfer Agreement shall be imported into this
Agreement save that, when read in the context of this Agreement, all
references to "the Transaction Documents" shall be replaced by "this
Agreement" and read accordingly.
7. Waivers of Jury Trial
YIC and NWB hereby irrevocably and unconditionally waive trial by jury in
any legal action or proceeding relating to this Agreement and for any
counterclaim therein.
8. Costs and Expenses
YIC shall pay NWB on demand for all reasonable expenses incurred by NWB in
connection with the negotiation, preparation, execution and delivery of
this Agreement.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
YORK INTERNATIONAL CORPORATION
By: /S/ James P. Corcoran
------------------------------------
Title: Treasurer
---------------------------------
NATIONAL WESTMINSTER BANK PLC
By: /S/ Jon Bramwell
------------------------------------
Title: Corporate Manager North America
---------------------------------
<PAGE>
Exhibit 4.10
AMENDMENT AGREEMENT
relating to a
DIVIDEND RIGHTS AGREEMENT
dated 19 June 1995 as amended by an Amendment Agreement dated 10 December 1996
BETWEEN
YORK INTERNATIONAL CORPORATION
and
NATIONAL WESTMINSTER BANK PLC
<PAGE>
THIS AMENDMENT AGREEMENT is made the eleventh day of February 1998
BETWEEN:
(1) YORK INTERNATIONAL CORPORATION ("YIC", which expression shall include its
successors and assigns permitted under the Dividend Rights Agreement (as
defined below)), a corporation organised under the laws of Delaware, USA
whose principal office and effective seat of management is at 631, South
Richland Avenue, York, PA 17403, USA; and
(2) NATIONAL WESTMINSTER BANK PLC ("NWB" which expression shall include its
successors and assigns permitted under the Dividend Rights Agreement (as
defined below)), a public limited company duly organised under the laws of
England whose registered office is at 41 Lothbury, London EC2P 2BP.
WHEREAS
(A) York International Holding GmbH (registered number FM 5518 Mannheim), a
German limited company with its registered office at Gottlieb-Daimler-
Strasse 6, 68165 Mannheim, Germany ("YIH GmbH") is a subsidiary of YIC with
an issued share capital comprising the Ordinary Share, the Class A
Preference Share and the Class B Preference Share;
(B) YIC is the registered owner of the Ordinary Share and the Class A
Preference Share following the conversion of part of the Ordinary Share
into the Class A Preference Share;
(C) By a dividend rights agreement dated 19 June 1995 and made between YIC and
NWB (the "Dividend Rights Agreement") YIC transferred to NWB the dividend
rights with respect to the Class A Preference Share;
(D) By an Amendment Agreement dated 10 December 1996 and made between YIC and
NWB the Dividend Rights Agreement was amended on the terms and subject to
the conditions set out therein; and
(E) It has been agreed that the Dividend Rights Agreement shall be further
amended on the terms and subject to the conditions hereof.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 Terms defined in the Dividend Rights Agreement shall, unless otherwise
defined herein, or unless the context otherwise requires, bear the same
meaning when used in this Agreement.
1.2 In this Agreement, any reference to a "Clause" or "Schedule" shall, subject
to any contrary indication, be construed as a reference to a Clause hereof
or a Schedule hereto.
1.3 Clause and Schedule headings are for ease of reference only.
2. Amendments to the Dividend Rights Agreement
<PAGE>
The parties hereto expressly agree that the Dividend Rights Agreement
shall, as at the date hereof, be amended so that it shall be read and
construed for all purposes so as to include the amendments set out hereto
and each of the parties hereto shall be bound by the terms and conditions
thereof accordingly:-
2.1 Amendment to sub-clause 5.3(i)(a)
Sub-clause 5.3 (i)(a) of the Dividend Rights Agreement is hereby amended by
deleting such sub-clause in its entirety and substituting in lieu thereof
the following new sub-clause:
(a) Interest Coverage. Permit the ratio of (i) Consolidated EBIT to (ii)
-----------------
Consolidated Interest Expense for any period of four consecutive
fiscal quarters ending on the last day of any fiscal quarter to be
less than 2.50:1.
2.2 Amendment to sub-clause 5.3(ii)(c)
Sub-clause 5.3(ii)(c) of the Dividend Rights Agreement is hereby amended by
deleting such subclause in its entirety and substituting in lieu thereof
the following new sub-clause:
(c) Indebtedness for borrowed money of any Domestic Subsidiary, provided
--------
that the aggregate amount of all such Indebtedness (other than
Indebtedness permitted by paragraphs (a) or (d) of this Clause 5.3(ii))
of all such Domestic Subsidiaries shall not exceed $200,000,000 at any
one time outstanding.
2.3 Amendment to sub-clause 5.3(iii)(f)
Sub-clause 5.3(iii)(f) of the Dividend Rights Agreement is hereby amended
by deleting such sub-clause in its entirety and substituting in lieu
thereof the following new sub-clause:
(f) Encumbrances on any Capital Stock which is not voting stock, and on
not more than 20% of the voting stock, of any Foreign Subsidiary
securing Indebtedness of YIC or any Foreign Subsidiary in an aggregate
amount at any one time outstanding for YIC and all Foreign
Subsidiaries not to exceed 35% of Consolidated Net Worth.
2.4 Amendment to Schedule 2, Clause 8
Clause 8 of Schedule 2 of the Dividend Rights Agreement is hereby amended
by deleting the amount "$5,000,000" contained in clause (b)(i) and
substituting in lieu thereof the amount "$10,000,000".
3. Continuity and Further Assurance
3.1 The provisions of the Dividend Rights Agreement shall, save as amended
hereby, continue in full force and effect.
3.2 YIC shall, at its own expense, do all such acts and things and execute all
such documents as shall reasonably be considered necessary or desirable to
give full effect to the amendments effected or to be effected pursuant to
this Agreement.
<PAGE>
4. Counterparts
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered, shall be an original but all the counterparts shall
together constitute but one and the same instrument.
5. Law
This Agreement shall be governed by and construed in accordance with
English Law.
6. Jurisdiction
Clause 24 of the Dividend Rights Agreement shall be imported into this
Agreement save that, when read in the context of this Agreement, all
references to "the Transaction Documents" shall be replaced by "this
Agreement" and read accordingly.
7. Waivers of Jury Trial
YIC and NWB hereby irrevocably and unconditionally waive trial by jury in
any legal action or proceeding relating to this Agreement and for any
counterclaim therein.
8. Costs and Expenses
YIC shall pay NWB on demand for all reasonable expenses incurred by NWB in
connection with the negotiation, preparation, execution and delivery of
this Agreement.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
YORK INTERNATIONAL CORPORATION
By: /S/ James P. Corcoran
---------------------
Title: Treasurer
---------
NATIONAL WESTMINSTER BANK PLC
By: /S/ Jon Bramwell
----------------
Title: Corporate Manager North America
-------------------------------
<PAGE>
EXHIBIT 11
YORK INTERNATIONAL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Shares used in Computation of per share
earnings:
Basic shares outstanding 40,321,000 43,136,000 42,550,000
Effect of Dilutive Securities:
Non-Vested Restricted Shares - 205,000 167,000
Stock Options - 609,000 323,000
---------- ---------- ----------
Diluted shares outstanding 40,321,000 43,950,000 43,040,000
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 12
YORK INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Earnings(loss) before taxes $127,182 144,447 (70,782) 204,463 78,468
Interest expense 23,495 29,188 41,412 34,544 40,876
Interest component of
rental expense 6,845 4,537 5,055 5,590 5,036
-------- ------- ------- ------- -------
$157,522 178,172 (24,315) 244,597 124,380
======== ======= ======= ======= =======
Interest expense $ 23,495 29,188 41,412 34,544 40,876
Interest component of
rental expense 6,845 4,537 5,055 5,590 5,036
-------- ------- ------- ------- -------
$ 30,340 33,725 46,467 40,134 45,912
======== ======= ======= ======= =======
Fixed charge coverage ratio 5.2 5.3 .0 6.1 2.7
======== ======= ======= ======= =======
Note - Earnings (loss) before taxes for 1995 are after a charge for impairment
loss on long-lived assets of $244,473. As a result, fixed charges exceed
earnings (loss) before taxes for 1995, net of such fixed charges by $70,782.
<PAGE>
EXHIBIT 13
YORK INTERNATIONAL CORPORATION
GENERAL AND FINANCIAL INFORMATION
1997
al
<PAGE>
CONTENTS
DESCRIPTION OF BUSINESS................................................. a3
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA............................ a4
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS............................. a5
AUDITORS' REPORT........................................................ a5
MANAGEMENT'S DISCUSSION AND ANALYSIS.................................... a6
FINANCIAL STATEMENTS.................................................... a12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. a16
SUMMARY OF QUARTERLY RESULTS............................................ a29
TRADING AND DIVIDEND INFORMATION........................................ a29
DIRECTORS AND OFFICERS.................................................. a30
INVESTOR AND STOCKHOLDER INFORMATION.................................... a31
CORPORATE DATA.......................................................... a31
a2
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
The Company is a full-line, global designer and manufacturer of heating,
ventilating, air conditioning and refrigeration (HVAC&R) products. The Company
believes it is the third largest manufacturer and marketer of such products in
the United States and one of the leading companies in the HVAC&R industry
internationally. The Company's air conditioning systems range from a one
ton* unit for a small residence to the 59,000 ton system installed in the New
York World Trade Center. In 1997 the Company's products were sold in over 100
countries through over 750 sales and distribution facilities and are in use in
such diverse locations as the Kuala Lumpur City Centre in Malaysia, the British
Houses of Parliament, the Tokyo World Trade Center, the Pentagon, NASA's Vehicle
Assembly Building at Cape Canaveral, NASA's Johnson Space Center, the Los
Angeles International Airport, the Jeddah Airport, the Overseas Union Bank
Centre in Singapore, the Sydney Opera House, the National Library Complex in
Beijing, the Atlantic City Convention Center, the English Channel Eurotunnel,
the Hong Kong Exposition Centre and the Lantau Airport Railway System in Hong
Kong.
The Company was founded in 1874 in York, Pennsylvania. From 1956 until 1986 the
Company was a part of Borg-Warner Corporation ("Borg-Warner"). In 1986 it was
spun off to Borg-Warner shareholders and became an independent, publicly held
company. In 1988 the Company was purchased in a leveraged buyout by a
corporation organized by affiliates of Citicorp Investments Inc. ("CII") and two
investors (the "Acquisition"). In October 1991, the Company completed an initial
public offering of its Common Stock and in 1992 CII and the other non-management
investors in the Acquisition sold their remaining shares in a public offering.
Headquartered in York, Pennsylvania, the Company has manufacturing facilities in
13 states and 13 foreign countries. As of December 31, 1997, the Company
employed approximately 20,270 people worldwide.
Unless the context otherwise requires, the terms "Company" and "York" refer to
the Company and its consolidated subsidiaries. The Company's principal executive
offices are located at 631 South Richland Avenue, York, Pennsylvania 17403, and
its telephone number is (717) 771-7890.
PRODUCTS AND MARKETS
All of the Company's products are in the heating, ventilating, air conditioning
and refrigeration (HVAC&R) industry and the Company operates solely in this
industry. Within HVAC&R, the Company's products fall into three general
categories. The first is Engineered Systems products, consisting of heating,
air conditioning and thermal storage equipment designed for commercial
applications in retail stores, office buildings, shopping malls, manufacturing
facilities, hospitals, universities, airports and marine vessels. The second is
Unitary products, consisting of air conditioning and furnace units and hermetic
and scroll compressors designed for use in residential and light commercial
applications. The third is Refrigeration products, including commercial and
industrial refrigeration and gas compression equipment, designed for the food,
beverage, chemical and petrochemical processing industries. Like engineered
systems products, the Company's refrigeration and gas compression equipment is
designed specifically for the customer's needs and applications.
__________________
* The cooling capacity of air conditioning units is measured in tons. One ton of
cooling capacity is equivalent to 12,000 BTUs and is generally adequate to air
condition approximately 500 square feet of residential space.
a3
<PAGE>
financial information
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share data and other information) 1997 1996 1995 1994 1993
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $3,193,657 3,218,534 2,929,948 2,421,864 2,031,949
Gross profit 636,226 685,857 629,379 508,660 438,832
Income from operations before
impairment loss on long-lived assets 114,002 238,384 222,803 171,967 149,127
Impairment loss on long-lived assets (b) -- -- 244,473 -- --
Interest expense, net 40,876 34,544 41,412 29,188 23,495
Income (loss) before income taxes
and accounting changes 78,468 204,463 (70,782) 144,447 127,182
Provision for income taxes 31,075 56,554 25,290 54,677 51,720
Income (loss) before accounting changes 47,393 147,909 (96,072) 89,770 75,462
Net income (loss) (a) (b) 47,393 147,909 (96,072) 89,770 5,211
Basic earnings (loss) per share of common stock:
Income (loss) before accounting changes 1.11 3.43 (2.38) 2.43 2.01
Cumulative effect of changes
in accounting methods (a) -- -- -- -- (1.87)
Net income (loss) 1.11 3.43 (2.38) 2.43 0.14
Diluted earnings (loss) per share of common stock:
Income (loss) before accounting changes 1.10 3.37 (2.38) 2.40 2.01
Cumulative effect of changes
in accounting methods (a) -- -- -- -- (1.87)
Net income (loss) 1.10 3.37 (2.38) 2.40 0.14
Cash dividends per share 0.48 0.36 0.24 0.16 0.08
Weighted average common shares outstanding
Basic 42,550 43,136 40,321 36,901 37,529
Diluted 43,040 43,950 40,321 37,397 37,614
Capital expenditures $ 66,854 73,576 66,242 81,625 30,621
Depreciation and amortization 52,776 48,581 42,841 34,030 31,337
Amortization of deferred charges 15,978 18,410 18,643 15,635 12,672
Balance Sheet Data:
Working capital $ 535,123 524,143 393,063 236,443 181,076
Total assets 1,996,298 2,074,771 1,927,002 1,587,980 1,335,181
Long-term debt 452,344 313,641 314,246 280,627 204,105
Stockholders' equity 646,285 780,377 624,814 526,930 456,967
Other Information:
Employees 20,270 20,100 19,000 15,900 13,800
Backlog (in thousands) $ 834,466 845,076 868,640 778,700 696,900
Total debt as a percent of total capital 44.7% 36.2% 39.1% 39.8% 37.7%
Current ratio 1.78 1.68 1.50 1.39 1.35
Book value per share $ 15.91 17.89 14.51 14.03 12.25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective January 1, 1993, the Company changed its method of accounting for
income taxes, postretirement benefits other than pensions and postemployment
benefits resulting in a cumulative effect charge of $70.3 million.
(b) In 1995, the Company adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," resulting in
a charge of $244.5 million to operations.
a4
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
- -------------------------------------------
To the Stockholders of York International Corporation:
The management of York International Corporation is responsible for the
preparation of the accompanying financial statements of the Company. In
management's opinion, the financial statements have been prepared in conformity
with generally accepted accounting principles. The Company believes that the
accounting systems and related controls that it maintains are sufficient to
provide reasonable assurance that financial records are reliable for preparing
financial statements and maintaining accountability for assets. These systems
and controls are tested and evaluated regularly by the Company's internal
auditors as well as by the independent auditors in connection with their annual
audit.
The directors of York International Corporation have established an Audit
Committee currently comprised of three outside directors. The Audit Committee
meets with management, the internal auditors and the independent auditors and
monitors generally the accounting affairs of the Company. The Audit Committee
also recommends to the stockholders the selection of the independent auditors.
/s/ Robert N. Pokelwaldt /s/ Dean T. DuCray
Robert N. Pokelwaldt Dean T. DuCray
Chairman of the Board and Vice President and
Chief Executive Officer Chief Financial Officer
February 10, 1998
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Stockholders, York International Corporation:
We have audited the accompanying consolidated balance sheets of York
International Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of York International
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in note 17 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective October 1, 1995.
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
February 10, 1998
a5
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- ------------------------------------------------------------------------
OPERATIONS
- ----------
The following table sets forth revenue by product and geographic market:
(in thousands) 1997 1996 1995
================================================================================
Engineered Systems products $1,370,983 $1,313,587 $1,182,624(a)
Unitary products 1,394,142 1,417,007 1,212,620(a)
Refrigeration products 428,532 487,940 534,704(a)
- --------------------------------------------------------------------------------
Total revenue $3,193,657 $3,218,534 $2,929,948
- --------------------------------------------------------------------------------
U.S. 58% 54% 55%
International 42% 46% 45%
- --------------------------------------------------------------------------------
Total 100% 100% 100%
- --------------------------------------------------------------------------------
(a) The 1995 revenue by product is estimated to represent the management
reorganization by product in 1997 and 1996.
RESULTS OF OPERATIONS
1997 As Compared With 1996
Net sales for the year ended December 31, 1997, decreased 0.8% to $3,193.7
million from $3,218.5 million for 1996. (See table above which shows revenue by
product and geographic market, and note 15 to the consolidated financial
statements, which gives additional information on geographic distribution.)
Revenues increased in the Company's Engineered Systems product group and
decreased in the Unitary and Refrigeration product groups. Order backlog at
December 31, 1997, was $834.5 million compared to $845.1 million as of December
31, 1996.
Engineered Systems products revenue increased 4.4% primarily due to increased
- ---------------------------
volume in the domestic equipment business; the acquisition of Pace and Gamewell;
continued international expansion in Latin America and the Peoples Republic of
China; and the introduction of new products. The increase was partially offset
by a weak domestic retrofit and replacement chiller market and weakness in the
Southeast Asian markets. Backlog increased $30.1 million, or 6.7%, to $477.2
million as a result of strong domestic orders, partially offset by decreased
backlog in Asia due to poor economic conditions.
Unitary products revenue decreased 1.6% due to lower-than-average temperatures
- ----------------
in North America and Europe and excess inventory levels in the industry at the
beginning of the year. This decrease was partially offset by continued Latin
American growth due to expanded distribution. Backlog decreased $14.8 million,
or 6.3%, to $220.6 million as a result of lower orders for domestic Unitary
products.
Refrigeration products revenue decreased 12.2% due to the sale of the German
- ----------------------
Commercial Refrigeration business in the second quarter of 1997. This decrease
was partially offset due to continued Latin American growth. The year-over-year
revenue performance was consistent in all other areas of the world. Backlog
decreased $25.9 million, or 15.9%, to $136.7 million as a result of the sale of
the German Commercial Refrigeration business and poor economic conditions in
Asia, particularly Southeast Asia.
From a geographic perspective, domestic revenue increased 6.5% to $1,838.9
million and international revenue decreased by 9.3% to $1,354.8 million.
The Company recorded the following non-recurring items during 1997: a charge of
$13.4 million (recorded in the first quarter) for the costs to close the Houston
manufacturing facility and downsize the German operations, a gain of $6.0
million (recorded in the third quarter) on the sale of an investment in an
Egyptian air conditioning company, and a charge of $62.1 million (recorded in
the fourth quarter) for profit improvement initiatives. As part of the Company's
profit improvement initiatives, actions are being taken to rationalize global
capacity by closing and streamlining operations, and also to rationalize global
distribution and products. The Company expects these actions to increase
profitability, strengthen its position in the marketplace and reduce its overall
cost structure. The total of these charges was recorded as $28.1 million to Cost
of Goods Sold, $45.9 million to Selling, General and Administrative expenses and
a gain of $4.5 million to affiliates' earnings.
Gross profit in 1997 decreased 7.2% to $636.2 million (19.9% of sales) from
$685.9 million (21.3% of sales) for 1996. The impact of the non-recurring
charges accounted for over one-half of the reduction in gross profit and gross
profit margin percentage during 1997.
a6
<PAGE>
Engineered Systems products margins decreased due to lower volume of large
- ---------------------------
chiller systems and lower volume of higher margin replacement and retrofit
orders in the U.S. market.
Unitary products margins decreased due to lower-than-expected volume in the
- ----------------
Unitary products OEM factories and lower-than-expected volume in Europe.
Refrigeration products margins increased due to better overall plant performance
- ----------------------
and the impact of the sale of the Commercial Refrigeration business in Germany.
Selling, General and Administrative expenses (SG&A) increased 16.7% to $522.2
million in 1997 (16.4% of sales) from $447.5 million (13.9% of sales) in 1996.
The absolute dollar increase was primarily due to the impact of the
non-recurring charges. Other factors contributing to the increases include the
cost of continued investment in distribution in growing markets, specifically
Asia and Latin America, increased research and development spending, costs
associated with new product introductions and inflation. Lower-than-anticipated
revenues impacted the increases in SG&A as a percent of sales. The Company
intends to continue to expand and strengthen its distribution in areas which
will benefit future growth.
Net interest expense increased to $40.9 million in 1997 from $34.5 million in
1996, due to both higher average interest rates and higher average borrowing
levels.
Provision for income taxes of $31.1 million for the year ended December 31,
1997, relates to both U.S. and non-U.S. operations. The effective rate is 39.6%,
which is a significant increase over 1996 primarily due to the impact of the
$62.1 million fourth quarter charge which included components for which no
deferred tax benefits were recorded. The 1997 effective tax rate excluding the
impact of the $62.1 million non-recurring charge is consistent with expected
rates. If enacted tax rates remain unchanged, the Company's worldwide effective
tax rate for 1998 is expected to be less than the federal statutory rate of 35%.
Net income, as a result of the above factors, was $47.4 million in 1997 as
compared to $147.9 million in 1996.
1996 As Compared With 1995
Net sales for the year ended December 31, 1996, increased 9.8% to $3,218.5
million as compared to $2,929.9 million for the year ended December 31, 1995.
Revenues increased due to increased volume in the Engineered Systems equipment
business, international expansion, favorable market conditions in the
international marketplace, and the introduction of new products which was
partially offset by a flat domestic retrofit and replacement chiller market.
Total domestic revenue increased 8.0% to $1,726 million in 1996 due to the
strength of the Engineered System equipment performance and the domestic
refrigeration market. International revenue increased by 12.1% to $1,493 million
in 1996 as a result of strong markets in Latin America and the Asia-Pacific
region, partially offset by flat year-over-year performance in Europe.
Gross profit in 1996 increased 9.0% to $685.9 million (21.3% of sales) as
compared to $629.4 million (21.5% of sales) for 1995. The gross profit margin
percentage reduction during 1996 was primarily the result of lower-than-expected
performance of the refrigeration manufacturing plants, reduced refrigeration
selling margins in Europe, excess manufacturing costs of absorption chillers in
the Houston facility due to low volumes, inflationary cost increases partially
offset by realized price increases, cost reductions and new products.
SG&A expenses increased to $447.5 million in 1996 (13.9% of sales) from $406.6
million (13.9% of sales) in 1995. The increase was primarily due to the costs of
infrastructure investment in growing markets, specifically Asia (People's
Republic of China) and Latin America (Brazil and Argentina), increased research
and development spending, costs associated with new product introductions and
inflation. These increased costs were partially offset by leveraging expenses
against higher sales.
Income from operations before impairment loss on long-lived assets increased
7.0% to $238.4 million in 1996 as compared to $222.8 million for 1995. During
1995, the Company adopted SFAS 121, resulting in a charge of $244.5 million to
operations.
Net interest expense decreased to $34.5 million in 1996 from $41.4 million in
1995, as a result of both lower average interest rates and decreased borrowings.
a7
<PAGE>
Provision for income taxes of $56.6 million for the year ended December 31,
1996, relates to both U.S. and non-U.S. operations. The 1996 effective tax rate
of 27.7% benefited significantly from increased export incentives and foreign
tax credit refunds which were the result of significant tax planning efforts and
studies of the Company's tax reporting procedures allowing the Company to take
advantage of additional foreign tax credits and incentive opportunities,
resulting in amendments to prior returns.
Net income, as a result of the above factors, was $147.9 million in 1996 as
compared to a loss of $96.1 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally met through a combination of
internally generated funds, bank lines of credit, commercial paper issuances,
financing of trade receivables and credit terms from suppliers which approximate
receivable terms to the Company's customers. The Company believes that these
sources, including its bank lines of credit under the Amended and Restated
Credit Agreement, will be sufficient to meet working capital needs during 1998.
Additional sources of working capital include customer deposits and progress
payments.
The Company had working capital of $535.1 million and $524.1 million as of
December 31, 1997 and 1996, respectively. Accounts receivable decreased in 1997
due to lower fourth quarter sales volume and better collection results.
Inventory levels were lower at December 31, 1997, than at December 31, 1996,
because of efforts to reduce inventory levels in all product groups. The current
ratio was 1.78 at December 31, 1997, as compared to 1.68 for 1996.
Long-term indebtedness was $452.3 million at December 31, 1997, primarily
consisting of borrowings under commercial paper, bank lines and the $100 million
senior notes. As of December 31, 1997, there were no borrowings under the
revolving credit facility.
At December 31, 1997, the Company maintained a $500 million Amended and Restated
Credit Agreement (the Agreement) expiring on July 31, 2002. The Agreement was
amended and restated May 1, 1997. At December 31, 1997, the Company could borrow
$500 million. The Agreement provides for borrowings under the facility at LIBOR
plus .16% or at specified bid rates. At December 31, 1997, the LIBOR rate was
5.75%. A fee of .09% is paid on the facility. The Agreement, as amended,
contains financial and operating covenants requiring the Company to maintain
certain financial ratios and standard provisions limiting leverage, investments
and liens.
The Company's non-U.S. subsidiaries maintain bank credit facilities in various
currencies that provide for borrowings of $245.2 million and $252.5 million at
December 31, 1997 and 1996, respectively, of which $175.5 million and $121.1
million, respectively, were unused. In some instances, borrowings against these
credit facilities have been guaranteed by the Company to assure availability of
funds at favorable rates.
Commercial paper borrowings are expected to be reborrowed in the ordinary course
of business. The interest rate on the commercial paper was 5.84% and 5.43% as of
December 31, 1997 and 1996, respectively.
During the second quarter of 1997, the Company arranged four separate unsecured
bank lines similar to commercial paper. These bank lines provide for total
borrowings of $295 million which are expected to be reborrowed in the ordinary
course of business. At December 31, 1997, the Company had $169.8 million
outstanding under these bank lines. The average rate on the bank lines was 5.92%
at December 31, 1997.
The $100 million of senior notes bear interest at a 6.75% fixed rate and are due
March 2003.
During 1995, the Company arranged two term loans denominated in foreign
currencies. The Company borrowed $26.2 million with a final maturity on November
15, 1998, and an interest rate of 3.98%. The loan is repayable in four annual
installments. On December 21, 1995, the Company borrowed $100 million with an
interest rate of 4.87%. This loan was repaid in total in June 1997. The
remaining term loan agreement contains financial and operating covenants that
are equivalent to the covenants of the Company's Amended and Restated Credit
Agreement.
The Company sold a fractional ownership interest in a defined pool of trade
accounts receivable for $100 million in 1997 and 1996. The discount rate on the
accounts receivable sold at December 31, 1997 and 1996 was approximately 5.78%
and 5.40%, respectively.
a8
<PAGE>
In July 1995, the Company registered $200 million in debt securities with the
Securities and Exchange Commission. Under terms of the registration statement,
the Company may offer and sell up to that amount of such securities from time to
time at prices and terms to be determined at or prior to sale. No amounts of
such debt securities are outstanding at December 31, 1997.
Because the Company's obligations under the Amended and Restated Credit
Agreement and Receivables Sales Agreement bear interest at floating rates, the
Company's interest costs are sensitive to changes in prevailing interest rates.
Based on historical cash flows, the Company believes that it will be able to
satisfy its principal and interest payment obligations and its working capital
and capital expenditure requirements from operating cash flows together with the
availability under the revolving credit facility.
In the ordinary course of business, the Company enters into various types of
transactions that involve contracts and financial instruments with
off-balance-sheet risk. The Company uses these financial instruments to manage
financial market risk, including foreign exchange, commodity price and interest
rate risk. The Company utilizes over-the-counter as opposed to exchange traded
instruments. The Company mitigates the risk that counterparties to these
over-the-counter agreements will fail to perform by only entering into
agreements with major international financial institutions. Financial
instruments are more fully discussed in note 2 to the consolidated financial
statements.
Capital expenditures for expanded capacity, cost reductions and the introduction
of new products during 1997 were $66.9 million as compared to $73.6 million in
1996. Capital expenditures during 1998 are anticipated to be lower than 1997's
expenditures, and they are expected to be in excess of annual depreciation and
amortization. These expenditures will be funded from a combination of operating
cash flows and availability under the revolving credit facility.
Cash dividends of $0.48 per share were paid on common stock in 1997. The
declaration and payment of future dividends will be at the sole discretion of
the Board of Directors and will depend on the Company's profitability, financial
condition, cash requirements, future prospects and other factors deemed relevant
by the Board of Directors.
Employee stock plans include the 1992 Employee Stock Purchase Plan which
authorizes the allocation of 1,500,000 shares of stock for the Plan and the
Amended and Restated 1992 Omnibus Stock Plan which authorizes the issuance of up
to 4,380,000 shares of the Company's common stock as stock options or restricted
share awards. Approximately 884,000 shares remained available for grant at
December 31, 1997, under the Plans.
During 1997, the Board of Directors authorized the Company to purchase up to 6.0
million shares of its common stock. Such stock purchases may be made from time
to time in the open market and by privately negotiated transactions. During
1997, the Company re-purchased 3,413,200 shares for $152.8 million under the
Plan. The share repurchase program is used to offset the dilutive effect of new
options granted and exercised.
Company management believes that these employee stock plans provide valuable
incentives to a broad range of York employees by giving them a direct equity
interest in the Company. Company management further believes that funding the
required shares through share repurchases will mitigate the dilutive impact such
employee plans would otherwise have.
INFLATION
Management does not believe inflation has had a significant impact on the
Company's results of operations for the periods presented. Although the Company
was not able to totally offset the effect of inflation through price increases
in 1997, management believes that, to the extent inflation affects the costs of
the Company in the future, the Company can generally offset the net effect of
inflation and maintain operating margins through increases in the prices of its
products and services and continued cost reductions.
CYCLICALITY
Exposure to cyclicality in the new construction market is mitigated by the
Company's emphasis on the service, repair and replacement market and
participation in the refrigeration market, each of which is less cyclical. As
the installed base of heating, air conditioning and refrigeration equipment has
grown and aged, the Company has begun to derive a significant portion of its
a9
<PAGE>
revenue from the service, repair and replacement market. In 1997, 1996 and 1995,
respectively, on a worldwide basis, service, repair and replacement revenue
accounted for an estimated 41%, 49% and 50% of the Company's total sales, while
new construction sales accounted for the remaining 59%, 51% and 50%. The Company
expects growth in the service, repair and replacement market over the next
several years to outpace growth in the new construction market.
SEASONALITY
Sales of the Company's Unitary products equipment historically have been
seasonal. Demand for residential air conditioning equipment in the new
construction market varies according to the season, with increased demand
generally in the summer months. Demand in the residential replacement market
generally peaks in early summer for air conditioners and in the fall for
furnaces. Demand for hermetic compressors in the original equipment market
generally increases from January through July as manufacturers increase
production to meet anticipated seasonal demand. Requirements for service and
repair parts for Engineered Systems products also increase during summer months.
The Company provides incentives for distributors to purchase products in advance
of seasonal sales. These incentives, together with advance production schedules,
reduce the impact of seasonal fluctuations on the Company's sales of residential
equipment. The overall effect of seasonality is also dampened by the Company's
Engineered Systems and Refrigeration products, for which demand is not as
seasonal.
YEAR 2000
Management has initiated an enterprise-wide program to prepare the Company's
computer systems and applications for the year 2000. The Company expects to
incur internal staff costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare systems and
applications for the year 2000. The cost of testing and conversion of systems
and applications will not have a material affect on the Company's results of
operations or financial position. A significant proportion of these costs are
not likely to be incremental costs to the Company, but rather will represent the
redeployment of existing information technology resources or be a component of
planned system improvements.
MANUFACTURING OPERATIONS
In February 1998, an explosion occurred at the Company's Grantley facility which
primarily manufactures Engineered Systems products. Certain fabrication and
assembly areas were affected and must be rebuilt. The Company is adequately
insured and the net financial impact of the incident will not be material to the
Company's results of operations or financial position.
NEW ACCOUNTING STANDARDS
In January 1997, the Securities and Exchange Commission amended regulations and
forms, including Regulation S-X and S-K, to clarify and expand existing
disclosure requirements about accounting policies for certain derivative
instruments, and to add new disclosure requirements about the risk of loss from
changes in market rates or prices which are inherent in derivatives. The
Company's disclosures in its annual report on Form 10-K conform to the
disclosure requirements set forth in the amended regulations. Adoption by the
Company of the disclosure requirement relating to risk of loss, which
requirements are effective for fiscal years ending after June 15, 1998, are not
expected to have a material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
In January 1998, the FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
These statements establish standards for reporting and display of comprehensive
income and its components and for reporting information about business segments
and products in financial statements and establish new disclosure requirements
relating to pension and other postretirement benefits.
These pronouncements are effective for years beginning after December 15, 1997.
Adoption of these statements is not expected to have a material effect on the
Company's financial statements.
a10
<PAGE>
FORWARD-LOOKING INFORMATION - RISK FACTORS
To the extent the Registrant has made "forward-looking statements," certain risk
factors could cause actual results to differ materially from those anticipated
in such forward-looking statements. Unseasonably cool spring or summer weather
in the northeastern United States or in Europe could adversely affect the
Registrant's residential air conditioning business, as could a failure to reduce
manufacturing costs in its manufacturing facilities. The Engineered Systems air
conditioning business could be affected by a slowdown in the large chiller
market and by the level of CFC retrofits. Overall anticipated performance of the
Registrant could be affected by any serious economic downturns in the United
States, Europe, Latin America or Asia.
a11
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
December 31
(in thousands) 1997 1996
==========================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,228 $ 11,470
Receivables 555,830 563,099
Inventories 541,114 609,342
Prepayments and other current assets 112,448 107,344
- --------------------------------------------------------------------------------------------
Total current assets 1,221,620 1,291,255
- --------------------------------------------------------------------------------------------
Deferred income taxes 21,869 19,265
Unallocated excess of cost over net assets acquired 343,854 350,370
Investments in affiliates 17,660 22,205
Property, plant and equipment, net 368,642 360,432
Deferred charges and other assets 22,653 31,244
- --------------------------------------------------------------------------------------------
Total assets $1,996,298 $2,074,771
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 69,438 $ 128,461
Accounts payable and accrued expenses 601,573 602,359
Income taxes 15,486 36,292
- --------------------------------------------------------------------------------------------
Total current liabilities 686,497 767,112
- --------------------------------------------------------------------------------------------
Warranties 36,280 33,135
Long-term debt 452,344 313,641
Postretirement benefit liabilities 133,294 128,411
Other long-term liabilities 41,598 52,095
Stockholders' equity:
Common stock $.005 par value; 200,000 shares authorized;
Issued 44,057 shares in 1997 and 43,720 shares in 1996 220 219
Additional paid in capital 679,180 667,775
Retained earnings 173,375 146,331
Currency translation adjustment (47,100) (23,478)
Treasury stock, at cost; 3,429 shares in 1997 and
98 shares in 1996 (153,425) (3,875)
Unearned compensation (5,965) (6,595)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 646,285 780,377
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,996,298 $2,074,771
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a12
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
(in thousands, except per share data) 1997 1996 1995
===========================================================================================================
<S> <C> <C> <C>
Net sales $3,193,657 $3,218,534 $2,929,948
Cost of goods sold 2,557,431 2,532,677 2,300,569
- -----------------------------------------------------------------------------------------------------------
Gross profit 636,226 685,857 629,379
Selling, general and administrative expenses 522,224 447,473 406,576
- -----------------------------------------------------------------------------------------------------------
Income from operations before impairment
loss on long-lived assets 114,002 238,384 222,803
Impairment loss on long-lived assets -- -- 244,473
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations 114,002 238,384 (21,670)
Interest expense, net 40,876 34,544 41,412
Equity in (earnings) losses of affiliates (5,342) (623) 7,700
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 78,468 204,463 (70,782)
Provision for income taxes 31,075 56,554 25,290
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ 47,393 $ 147,909 $ (96,072)
- -----------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ 1.11 $ 3.43 $ (2.38)
Diluted earnings (loss) per share 1.10 3.37 (2.38)
- -----------------------------------------------------------------------------------------------------------
Weighted average common shares and common equivalents outstanding:
Basic 42,550 43,136 40,321
Diluted 43,040 43,950 40,321
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
(in thousands) 1997 1996 1995
====================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 47,393 $147,909 $ (96,072)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 52,776 48,581 42,841
Amortization of deferred charges 15,978 18,410 18,643
Provision for doubtful accounts receivable 6,139 5,718 5,774
Other (1,638) 7,154 12,555
Impairment loss on long-lived assets -- -- 244,473
Change in assets and liabilities net
of effects from purchase of other companies:
Receivables 2,074 (8,381) (105,890)
Inventories 48,562 (92,643) (86,843)
Prepayments and other current assets (3,145) (9,220) (48,946)
Deferred income taxes (1,686) 3,390 7,612
Other assets 2,245 (11,117) (9,314)
Accounts payable and accrued expenses (2,422) (69,203) 103,321
Income taxes (13,429) 453 6,457
Long term warranties 2,030 5,316 3,037
Postretirement benefit liabilities 4,883 3,776 3,639
Other long-term liabilities (6,046) (1,469) 10,996
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 153,714 48,674 112,283
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net purchases of and investments
in other companies (net of cash acquired) (8,978) (16,468) (288,173)
Capital expenditures (66,854) (73,576) (66,242)
Other 5,718 1,222 1,061
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (70,114) (88,822) (353,354)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock issued 14,909 20,064 208,152
Treasury stock purchases (157,224) (2,036) (179)
Net proceeds from issuance of bank loans 169,780 -- 277,061
Long-term debt payments (114,223) (40,851) (156,000)
Payments on revolving term loan -- -- (150,000)
Net borrowings (payments) on short-term debt (59,023) 40,965 30,167
Net proceeds from issuance of commercial paper 83,146 40,246 44,790
Dividends paid (20,349) (15,602) (9,960)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (82,984) 42,786 244,031
- --------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 142 (6) (37)
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 758 2,632 2,923
Cash and cash equivalents at beginning of year 11,470 8,838 5,915
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,228 $ 11,470 $ 8,838
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a14
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Issued Additional Currency Treasury Stock
------------------- Paid In Retained Translation -------------- Unearned
(in thousands, except share data) Shares Amount Capital Earnings Adjustment Shares Amount Compensation
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 37,615,782 $ 188 $434,774 $120,056 $(14,216) 70,585 $ (2,530) $(11,342)
Net loss -- -- -- (96,072) -- -- -- --
Issuance of common stock in public
offering 4,945,000 25 199,225 -- -- -- -- --
Issuance of common stock under
executive stock agreements 15,500 -- 700 -- -- (7,000) 251 (932)
Issuance of common stock under
employees stock purchase plan 198,163 1 6,209 -- -- (318) 11 --
Other, primarily exercise of stock
options 351,268 2 2,108 -- -- (9,400) 338 --
Tax effect of options exercised -- -- 1,346 -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- -- -- 2,806
Issuance of treasury stock, at cost -- -- 15 -- -- (5,511) 200 --
Purchase of treasury stock, at cost -- -- -- -- -- 4,150 (179) --
Cash dividends on common stock
($.24 per share) -- -- -- (9,960) -- -- -- --
Currency translation adjustment -- -- -- -- (8,210) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 43,125,713 $ 216 $644,377 $ 14,024 $(22,426) 52,506 $ (1,909) $(9,468)
Net income -- -- -- 147,909 -- -- -- --
Issuance of common stock under
executive stock agreements 2,000 -- 2 -- -- -- -- --
Issuance of common stock under
employees stock purchase plan 188,123 1 7,521 -- -- -- -- --
Other, primarily exercise of stock
options 404,017 2 12,468 -- -- -- -- --
Tax effect of options exercised -- -- 3,393 -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- -- -- 2,873
Issuance of treasury stock, at cost -- -- 14 -- -- (1,928) 70 --
Purchase of treasury stock, at cost -- -- -- -- -- 47,050 (2,036) --
Cash dividends on common stock
($.36 per share) -- -- -- (15,602) -- -- -- --
Currency translation adjustment -- -- -- -- (1,052) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 43,719,853 $ 219 $667,775 $146,331 $(23,478) 97,628 (3,875) $(6,595)
Net income -- -- -- 47,393 -- -- -- --
Issuance of common stock under
executive stock agreements 15,000 -- 898 -- -- (25,000) 1,126 (1,984)
Issuance of common stock under
employees stock purchase plan 165,369 1 5,557 -- -- (744) 34 --
Other, primarily exercise of stock
options 157,067 -- 2,758 -- -- (149,926) 6,495 --
Tax effect of options exercised -- -- 2,187 -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- -- -- 2,614
Issuance of treasury stock, at cost -- -- 5 -- -- (469) 19 --
Purchase of treasury stock, at cost -- -- -- -- -- 3,507,321 (157,224) --
Cash dividends on common stock
($.48 per share) -- -- -- (20,349) -- -- -- --
Currency translation adjustment -- -- -- -- (23,622) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 44,057,289 $ 220 $679,180 $173,375 $(47,100) 3,428,810 $(153,425) (5,965)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
York International Corporation is a full-line, global designer and manufacturer
of heating, ventilating, air conditioning and refrigeration (HVAC&R) equipment
with three major product categories: Engineered Systems, Unitary and
Refrigeration. The Company markets its products and services throughout the
world and its customers range from residential buyers to design builders,
contractors and building owners. Sales and related Cost of Goods Sold are
recognized based upon shipment of products or performance of services.
Use of Estimates in the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All significant intercompany
transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) or first-in, first-out (FIFO) method.
Unallocated Excess of Costs Over Net Assets Acquired
The unallocated excess of costs over net assets acquired is amortized on a
straight-line basis over periods of up to 40 years. Accumulated amortization
related to such excess at December 31, 1997 and 1996, is $79.1 million and $68.3
million, respectively. The Company assesses the recoverability or impairment, if
any, of the elements of this intangible asset by determining whether the
amortization of the balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operations or the
long-lived assets to which the unallocated excess is attributed.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance, repairs and renewals of relatively minor items are
generally charged to earnings as incurred. Renewals of significant items are
capitalized.
Depreciation is computed generally on a straight-line basis over the estimated
useful lives of related assets. For income tax purposes, accelerated methods of
depreciation are generally used.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Earnings of foreign operations are reinvested in the business and no provision
for domestic income tax or foreign withholding tax is made on such earnings
until distributed.
a16
<PAGE>
Earnings per Share
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share" in 1997, which establishes standards for computing
and presenting earnings per share. All prior earnings per share amounts have
been restated to conform to the provisions of SFAS 128.
The Company's basic earnings per share are based upon the weighted average
common shares outstanding during the period. The Company's diluted earnings per
share are based upon the weighted average outstanding common shares and common
share equivalents. Earnings per share information is discussed in note 19 to the
consolidated financial statements.
Postretirement Benefit Plans and Postemployment Benefits
A majority of domestic employees participate in noncontributory pension plans,
and substantially all non-U.S. employees participate in contributory or
noncontributory pension plans. Pension accounting information is disclosed in
note 14 to the consolidated financial statements.
The Company has certain postemployment benefits provided to former or inactive
employees who are not retirees. These benefits include salary continuance,
severance and disability health care. The benefits are accrued over the
employee's service period or as an expense at the date of the event triggering
the benefit.
Foreign Currency Translation
The functional currency for the majority of the Company's foreign operations is
the applicable local currency. The translation of the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using the
exchange rate in effect at the balance sheet date. Revenue and expense accounts
are translated using the weighted average exchange rate experienced during the
period. The gains or losses resulting from such translation are included in
stockholders' equity. Gains or losses resulting from foreign currency
transactions are included in the results of operations.
Accounting for Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized with respect to such plans other than for restricted stock and
performance-based awards. Information related to stock based compensation awards
is presented in note 18 to the consolidated financial statements along with the
disclosures required under Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation."
NOTE 2--FINANCIAL INSTRUMENTS
Financial Instruments with Off-Balance-Sheet Risk
In the ordinary course of business the Company enters into various types of
transactions that involve contracts and financial instruments with
off-balance-sheet risk. The Company uses these financial instruments to manage
financial market risk, including foreign exchange, commodity price and interest
rate risk. The Company utilizes over-the-counter as opposed to exchange traded
instruments. The Company mitigates the risk that counterparties to these
over-the-counter agreements will fail to perform by only entering into
agreements with major international financial institutions.
Foreign Currency Instruments
Since the Company purchases raw materials and sells finished products in various
currencies, the Company is exposed to foreign currency risk. The Company manages
its foreign currency transaction risk by hedging the net external currency
exposures. However, the Company does not hedge certain foreign exchange
transaction exposures that are immaterial or are considered to be in currencies
highly correlated to the manufacturing entity's currency.
The Company primarily uses foreign currency forward contracts and purchased
options. These foreign currency and option contracts are matched to firm
commitments of foreign currency transactions and effectively fix the sales or
purchase price.
a17
<PAGE>
These contracts are settled in cash upon expiration, with settlement proceeds or
payments included in the measurement of the item hedged. The option contracts
are purchased in cash and amortized over the contract term. The Company does not
hedge firm commitments beyond three years.
Commodity Contracts
Since the Company purchases commodities as raw materials, the Company is at risk
for fluctuations in the market price of those commodities. In connection with
the purchase of major commodities, principally copper and aluminum for
anticipated manufacturing requirements, the Company may enter into commodity
forward contracts to effectively fix the cost of the commodity to the Company.
These contracts require cash settlement between the Company and its counterparty
to coincide with cash market purchases of the actual commodity. Settlement
proceeds or payments are recognized as an adjustment to the cost of the
commodity purchased. The Company does not hedge firm commitments beyond three
years.
The notional amount and estimated fair value of the Company's hedging contracts
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
(in thousands) Notional Fair Notional Fair
========================================================================== =========================
<S> <C> <C> <C> <C>
Foreign currency forward contracts $31,995 $32,217 $48,314 $48,781
Commodity forward contracts 39,900 33,616 60,270 58,686
- -------------------------------------------------------------------------- -------------------------
</TABLE>
Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- -------------------------
(in thousands) Carrying Fair Carrying Fair
============================================================================== =========================
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 12,228 $ 12,228 $ 11,470 $ 11,470
Short-term borrowings 69,438 69,438 128,461 128,461
Long-term debt:
Commercial Paper 168,182 168,182 85,036 85,036
Bank lines 169,780 169,780 -- --
Senior notes at 6.75% 100,000 100,890 100,000 99,360
Term loan at 4.87% -- -- 100,000 107,892
Other 14,382 14,382 28,605 28,605
- ------------------------------------------------------------------------------ -------------------------
</TABLE>
The fair values of each of the Company's long-term debt instruments are based on
the amount of future cash flows associated with each instrument discounted using
the Company's current borrowing rate for similar debt instruments of comparable
maturity.
NOTE 3--RECEIVABLES
Receivables are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
================================================================================= =======================
<S> <C> <C>
Customers, trade $509,333 $530,555
Other receivables 64,336 53,281
- --------------------------------------------------------------------------------- -----------------------
573,669 583,836
Less allowance for doubtful accounts receivable 17,839 20,737
- --------------------------------------------------------------------------------- -----------------------
Net receivables $555,830 $563,099
- --------------------------------------------------------------------------------- -----------------------
</TABLE>
At December 31, 1997 and 1996, $100 million was outstanding under an agreement
whereby the Company sold a fractional interest in a defined pool of trade
accounts receivable as discussed in note 9.
a18
<PAGE>
NOTE 4--INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
========================================================= ==========================
<S> <C> <C>
Raw material $163,336 $178,771
Work in progress 110,882 118,847
Finished goods 266,896 311,724
- --------------------------------------------------------- --------------------------
Total inventories $541,114 $609,342
- --------------------------------------------------------- --------------------------
</TABLE>
Inventories valued under the LIFO method comprised approximately 41%, 40% and
33% of the December 31, 1997, 1996 and 1995 totals, respectively. Inventories,
if valued at current cost, would have been greater by $13.8 million at December
31, 1997, $14.1 million at December 31, 1996 and $14.0 million at December 31,
1995.
NOTE 5--PREPAYMENTS AND OTHER CURRENT ASSETS
The components of prepayments and other current assets are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
=========================================================== ==========================
<S> <C> <C>
Deferred income tax assets $ 69,900 $ 69,977
Prepaid insurance 18,972 17,069
Other 23,576 20,298
- ----------------------------------------------------------- --------------------------
Total prepayments and other current assets $112,448 $107,344
- ----------------------------------------------------------- --------------------------
</TABLE>
NOTE 6--INVESTMENTS IN AFFILIATES
The Company owns 50% or less of operations located in Malaysia, Cyprus, Saudi
Arabia, Spain and the United States. Operations more than 20% owned are
accounted for using the equity method of accounting. Dividends received from
affiliates carried at equity were $1.2 million in 1997, $1.5 million in 1996 and
$0.6 million in 1995. Equity in earnings of affiliates for 1997 includes a
one-time gain of approximately $6.0 million resulting from the sale of the
Company's minority interest in an Egyptian air conditioning company.
Equity and cost investments are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
============================================================= =======================
<S> <C> <C>
Investments recorded on equity method $17,660 $21,314
Investments carried at cost -- 891
- ------------------------------------------------------------- -----------------------
Total investments in affiliates $17,660 $22,205
- ------------------------------------------------------------- -----------------------
</TABLE>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
========================================================== ==========================
<S> <C> <C>
Land $ 10,732 $ 11,080
Buildings 114,307 108,901
Machinery and equipment 520,255 479,340
Construction in progress 20,942 22,418
Capital leases 13,553 14,479
- ---------------------------------------------------------- --------------------------
679,789 636,218
Less accumulated depreciation 311,147 275,786
- ---------------------------------------------------------- --------------------------
Net property, plant and equipment $368,642 $360,432
- ---------------------------------------------------------- --------------------------
</TABLE>
a19
<PAGE>
Amortization of capital lease assets has been included in depreciation expense.
Accumulated capital lease amortization was $3.5 million and $3.1 million at
December 31, 1997 and 1996, respectively.
NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
==================================================================== =========================
<S> <C> <C>
Accounts payable, trade and other $358,357 $401,374
Employee compensation, benefits and related accruals 97,989 98,160
Warranties and claims 51,586 38,988
Accrued insurance 22,934 16,811
Other accrued expenses 70,707 47,026
- -------------------------------------------------------------------- -------------------------
Total accounts payable and accrued expenses $601,573 $602,359
- -------------------------------------------------------------------- -------------------------
</TABLE>
NOTE 9--NOTES PAYABLE AND LONG-TERM DEBT
The Company's notes payable and long-term debt are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
==================================================================== =========================
<S> <C> <C>
Notes payable and current portion of long-term debt:
Current portion of long-term debt $ 9,203 $ 6,402
Bank loans 60,235 122,059
- -------------------------------------------------------------------- -------------------------
Total notes payable and current portion of long-term debt $ 69,438 $128,461
- -------------------------------------------------------------------- -------------------------
Long-term debt:
Commercial paper $168,182 $ 85,036
Bank lines 169,780 --
Term loan, 4.87% interest, due December 14, 2000 -- 100,000
Senior notes, 6.75% interest, due March 2003 100,000 100,000
Other, primarily foreign bank loans, at an average rate of 7.16% 14,382 28,605
- -------------------------------------------------------------------- -------------------------
Total long-term debt $452,344 $313,641
- -------------------------------------------------------------------- -------------------------
</TABLE>
The Company maintains a $500 million revolving credit facility pursuant to an
Amended and Restated Credit Agreement (the Agreement) expiring on July 31, 2002.
The Agreement was amended and restated on May 1, 1997. At December 31, 1997, the
Company could borrow $500 million. The Agreement provides for borrowings under
the facility at LIBOR plus .16% or at specified bid rates. At December 31, 1997
and 1996, the LIBOR rate was 5.75% and 5.56%, respectively. A fee of .09% is
paid on the facility. The Agreement, as amended, contains financial and
operating covenants requiring the Company to maintain certain financial ratios
and standard provisions limiting leverage, investments and liens.
The Company's non-U.S. subsidiaries maintain bank credit facilities in various
currencies that provided for available borrowings of $245.2 million and $252.5
million at December 31, 1997 and 1996, respectively, of which $175.5 million and
$121.1 million, respectively, were unused. In some instances, borrowings against
these credit facilities have been guaranteed by the Company to assure
availability of funds at favorable rates.
The Company established a commercial paper facility with two dealers in November
1995. Commercial paper borrowings are expected to be reborrowed in the ordinary
course of business. The interest rate on the commercial paper was 5.84% at
December 31, 1997, and 5.43% at December 31, 1996.
During the second quarter of 1997, the Company arranged four separate unsecured
bank lines similar to commercial paper. These bank lines provide for total
borrowings of $295 million which are expected to be reborrowed in the ordinary
course of
a20
<PAGE>
business. At December 31, 1997, the Company had $169.8 million outstanding under
the bank lines. The average rate under the bank lines was 5.92% at December 31,
1997.
During 1995, the Company arranged two term loans denominated in foreign
currencies. The Company borrowed $26.2 million with a final maturity on November
15, 1998, with an interest rate of 3.98%. The loan is repayable in four annual
installments. On December 21, 1995, the Company borrowed $100 million with an
interest rate of 4.87%. This loan was repaid in June 1997. The remaining term
loan agreement contains financial and operating covenants that are equivalent to
the covenants of the Company's Amended and Restated Credit Agreement.
In July 1995, the Company registered $200 million in debt securities with the
Securities and Exchange Commission. Under terms of the registration statement,
the Company may offer and sell up to that amount of such securities from time to
time at prices and terms to be determined at or prior to sale. No amounts of
such debt securities were outstanding at December 31, 1997 and 1996.
Under a receivables sales agreement entered into in 1992, the Company sold a
fractional ownership interest in a defined pool of trade accounts receivable for
$100 million in 1997 and 1996. The sold accounts receivable are reflected as a
reduction of receivables in the accompanying consolidated balance sheets. Under
an Amended and Restated Receivables Sales Agreement entered into on March 26,
1997, the maximum amount of the purchasers' investment is currently $120 million
and is subject to decrease based on the level of eligible accounts receivable
and restrictions on concentrations of receivables. The discount rate on the
receivables sold at December 31, 1997 and 1996 was approximately 5.78% and
5.40%, respectively.
Annual principal payments on long-term debt are as follows for the fiscal years
indicated:
(in thousands)
======================================================= ========================
1998 $ 9,203
1999 3,770
2000 2,117
2001 2,167
2002 339,902
Thereafter 104,388
- ------------------------------------------------------- ------------------------
Interest expense is net of interest income of $1.8 million in 1997, $5.1 million
in 1996 and $3.3 million in 1995.
NOTE 10--PROVISION FOR INCOME TAXES
Components of earnings and taxes are as follows:
(in thousands) 1997 1996 1995
===================================================== ==========================
Income (loss) before income taxes:
U.S. $75,893 $196,687 $(88,738)
Non-U.S. 2,575 7,776 17,956
- ----------------------------------------------------- --------------------------
$78,468 $204,463 $(70,782)
- ----------------------------------------------------- --------------------------
Income tax expense:
Current:
U.S. Federal $31,383 $ 32,052 $ 53,590
State 1,011 1,762 653
Non-U.S. 7,498 12,732 10,238
- ----------------------------------------------------- --------------------------
Total current 39,892 46,546 64,481
Deferred (8,817) 10,008 (39,191)
- ----------------------------------------------------- --------------------------
Total provision for income taxes $31,075 $ 56,554 $ 25,290
- ----------------------------------------------------- --------------------------
a21
<PAGE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to income (loss) before income taxes as a result
of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
===================================================================================================================
<S> <C> <C> <C>
Tax expense at statutory rate $ 27,464 $ 71,562 $(24,774)
Increase (decrease) resulting from:
Equity in earnings of affiliates/minority interest (540) (1,362) (664)
Taxes on foreign earnings 7,466 (4,189) 4,324
State income taxes--current 657 1,145 425
Purchase accounting adjustments 3,570 (1,839) 56,647
State income taxes--deferred (1,421) 1,600 (6,451)
Export incentives (4,776) (10,378) (3,196)
Other (1,345) 15 (1,021)
- --------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $ 31,075 $ 56,554 $ 25,290
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
====================================================================================================================
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts $ 3,891 $ 4,559
Inventories, including uniform capitalization 17,276 18,550
Compensated absences and benefits, principally
due to accrual for financial reporting purposes 8,983 8,198
Contingencies, due to accrual for financial reporting purposes 11,443 8,605
Warranty reserves, due to accrual for financial reporting purposes 26,995 22,893
Postretirement benefits 52,671 50,786
Other 16,481 19,929
- --------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 137,740 133,520
- --------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, due to purchase accounting
adjustments and differences in depreciation 27,695 25,648
Inventory, due to purchase accounting adjustments 16,150 15,145
Other 2,126 3,485
- --------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 45,971 44,278
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 91,769 $ 89,242
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Based on the Company's historical and current pre-tax earnings, management
believes it is more likely than not that the Company will realize the net
deferred tax assets.
The Internal Revenue Service (IRS) is currently examining the Federal tax
returns for 1993 and 1994. The Company does not anticipate any material effect
to the Company's financial statements as a result of the examinations. For the
Federal income tax returns for 1987 through 1992, the Company has reached a
settlement agreement with the IRS; this settlement did not have a material
effect on the financial statements.
Various state and foreign tax returns are under examination by the applicable
authorities. The Company does not anticipate any material effect to the
Company's financial statements resulting from these examinations.
Domestic income taxes or foreign withholding taxes have not been provided on $81
million and $68 million of undistributed earnings of foreign subsidiaries and
affiliates at December 31, 1997 and 1996, respectively. These earnings are
considered to
a22
<PAGE>
be permanently invested in the businesses and, under the tax laws, are not
subject to such taxes until distributed as dividends. If the earnings were not
considered permanently invested, approximately $3.0 million and $2.9 million of
deferred income taxes, consisting of foreign withholding taxes, would have been
provided at December 31, 1997 and 1996, respectively. Such taxes, if ultimately
paid, may be recoverable as foreign tax credits in the U.S.
NOTE 11--LEASE COMMITMENTS
The Company has non-cancelable leases with terms exceeding one year. At December
31, 1997, rental amounts committed in future years are summarized as follows:
(in thousands) Operating Leases
==============================================================================
1998 $25,687
1999 15,398
2000 10,340
2001 6,357
2002 3,800
Thereafter 13,840
- ------------------------------------------------------------------------------
Total $75,422
- ------------------------------------------------------------------------------
Total rental expense was $35.4 million in 1997, $30.4 million in 1996 and $27.5
million in 1995.
NOTE 12--RESEARCH AND DEVELOPMENT
Total research and development costs charged to expense amounted to $30.6
million in 1997, $28.0 million in 1996 and $26.9 million in 1995.
NOTE 13--CONTINGENT LIABILITIES
It is the opinion of the Company's management and its general counsel that
various claims and litigation in which the Company is currently involved have
been adequately provided for or are covered by insurance and, therefore, the
resolution of such matters will not materially affect the Company's financial
position or future earnings.
At December 31, 1997, $26.8 million in standby letters of credit and $72.7
million of performance guarantees issued for the account of the Company were
outstanding. These items are expected to expire and be replaced with similar
items in the normal course of the Company's business.
NOTE 14--POSTRETIREMENT BENEFIT PLANS AND POSTEMPLOYMENT BENEFITS
The Company has postretirement benefit plans for certain employees including
pension plans and postretirement benefit plans other than pensions, including
health and life insurance plans and other postemployment benefits, as follows:
Pensions
The Company and its subsidiaries have a number of noncontributory pension plans
covering substantially all employees. Plans covering salaried and management
employees provide pension benefits that are based on the employee's compensation
during the several years before retirement. Plans covering hourly employees and
union members generally provide benefits of stated amounts for each year of
service. Contributions to the plans are based upon the projected unit credit
actuarial funding method and are limited to amounts that are currently
deductible for tax reporting purposes.
a23
<PAGE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
Fully Funded Under Funded Fully Funded Under Funded
(in thousands) Plans Plans Plans Plans
=========================================================================================================================
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $(178,783) $ (95,638) $(163,247) $ (93,293)
- -------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $(183,311) $(106,473) $(166,340) $(103,781)
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations for service rendered to date $(238,133) $(112,283) $(213,255) $(109,590)
Plan assets at fair value 303,329 82,919 272,708 68,007
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations less
than (in excess of) plan assets 65,196 (29,364) 59,453 (41,583)
Prior service cost 1,409 11,224 1,693 11,566
Unrecognized net gain (62,905) (12,101) (56,631) (7,563)
- -------------------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost included in liabilities $ 3,700 $ (30,241) $ 4,515 $ (37,580)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
====================================================================================================================
<S> <C> <C> <C>
Service cost-- benefits earned during the period $ 14,772 $ 13,289 $ 9,690
Interest cost on projected benefit obligations 22,964 21,497 19,766
Actual return on plan assets (55,240) (45,390) (57,156)
Net amortization and deferral 27,263 19,043 31,712
- --------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 9,759 $ 8,439 $ 4,012
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate was 7.25% and 7.5% as of December 31, 1997
and 1996, respectively, for substantially all plans. The rate of increase in
future compensation used in determining the actuarial present value of the
projected benefit obligation was 4.75% as of December 31, 1997 and 1996. The
change in the actuarial assumptions for the discount rate had the effect of
increasing the projected benefit obligations by approximately $8.6 million. The
related expected long-term rate of return on plan assets was 9.75% in 1997 and
1996. Unrecognized net gains and losses in excess of the corridor are amortized
over an average of approximately 13 years, the estimated remaining service
period of employees. Net assets of the pension trust consist primarily of stocks
and debt securities.
The Company has an unfunded supplemental benefit plan which was adopted in 1993
to provide certain senior management with supplemental retirement benefits. The
provisions of SFAS 87, "Employers' Accounting for Pensions," require recognition
in the balance sheet of an additional minimum liability and related intangible
asset for pension plans with accumulated benefits in excess of plan assets.
Salaried and eligible hourly employees of the Company may participate in the
York International Corporation Investment Plan by contributing up to 16% of
their earnings as pre-tax contributions. Beginning in 1990, the Company
contributed 25% of the employee contribution up to a maximum Company
contribution of 1% of earnings for all eligible employees. The Company's
contributions were approximately $1.1 million in 1997, $0.9 million in 1996 and
$0.9 million in 1995.
a24
<PAGE>
Postretirement Benefits Other Than Pensions
The Company has several postretirement health and life insurance plans covering
certain employees who were hired before February 1, 1993, who retire under the
normal, early or disability retirement provisions of one of the Company's
domestic defined benefit pension plans and who have at least 10 years of
service. Employees who retired prior to February 1, 1993, contribute to the cost
of the plan, although the Company pays the major cost. Employees retiring after
February 1, 1993, contribute to the cost of the plan based on an indexed
service-related premium. Employees hired after February 1, 1993, are not
eligible for the plan. The plan is not funded.
The net periodic cost of postretirement benefits other than pensions is as
follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
===================================================================================================================
<S> <C> <C> <C>
Service cost $1,984 $2,326 $2,379
Interest cost on accumulated postretirement benefit obligation 6,714 6,708 6,863
Net amortization and deferral (86) (46) (34)
- -------------------------------------------------------------------------------------------------------------------
Net cost $8,612 $8,988 $9,208
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued postretirement benefits other than pensions at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
===================================================================================================================
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ (45,636) $ (41,989)
Active--fully eligible (13,055) (11,891)
Active--other (37,878) (33,969)
- -------------------------------------------------------------------------------------------------------------------
Total obligations (96,569) (87,849)
Unrecognized gain (16,655) (17,518)
Unrecognized prior service cost 4,950 1,445
- -------------------------------------------------------------------------------------------------------------------
Accrued cost of postretirement benefits other than pensions included in liabilities $(108,274) $(103,922)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The discount rate used to present value the future cost of the obligations was
7.25% at December 31, 1997 and 7.5% at December 31, 1996. The change in the
discount rate assumption increased the accumulated postretirement benefit
obligation by $3.5 million. During 1996, the prescription plan was changed from
a base major medical plan to a $15 prescription card plan, increasing the
accumulated post retirement benefit obligation by $1.4 million. For measurement
purposes, an 8% annual rate of increase in the cost of covered health care
benefits was assumed for 1997 and 1998, 6% for 1999 and 2000, and 5.5%
thereafter. A one percentage point increase each year would increase the
accumulated postretirement benefit obligation for health care benefits at
December 31, 1997 by $17.7 million, and the service and interest costs
components of the net cost of postretirement benefits other than pensions for
1997 by approximately $1.7 million.
NOTE 15--DOMESTIC AND FOREIGN OPERATIONS
The Company is engaged in one principal industry--air conditioning and related
equipment. The Company's customers are not concentrated in any specific
geographic region, and no single customer accounts for a significant amount of
the Company's sales. As of December 31, 1997 and 1996, the Company had no
significant concentrations of credit risk. Information related to domestic and
foreign operations is as follows:
a25
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
======================================================================================================
<S> <C> <C> <C>
Sales:
United States $2,155,174 $2,022,581 $1,887,182
Europe 476,159 612,884 592,867
Other Non-United States 562,324 583,069 449,899
- ------------------------------------------------------------------------------------------------------
$3,193,657 $3,218,534 $2,929,948
- ------------------------------------------------------------------------------------------------------
Sales or transfers between geographic areas:
United States $ 236,374 $ 321,168 $ 282,405
Europe 88,543 83,411 63,145
Other Non-United States 120,311 99,550 53,375
- ------------------------------------------------------------------------------------------------------
$ 445,228 $ 504,129 $ 398,925
- ------------------------------------------------------------------------------------------------------
Income (loss) before income taxes:
United States $ 75,893 $ 196,687 $ 155,735
Europe (17,459) 4,412 19,405
Other Non-United States 20,034 3,364 (1,449)
Impairment loss on long-lived assets (see note 17) -- -- (244,473)
- ------------------------------------------------------------------------------------------------------
$ 78,468 $ 204,463 $ (70,782)
- ------------------------------------------------------------------------------------------------------
Identifiable assets at end of year:
United States $1,373,963 $1,345,104 $1,303,975
Europe 340,012 411,450 389,342
Other Non-United States 282,323 318,217 233,685
- ------------------------------------------------------------------------------------------------------
$1,996,298 $2,074,771 $1,927,002
- ------------------------------------------------------------------------------------------------------
</TABLE>
Included in United States sales are export sales of $316.3 million in 1997,
$296.7 million in 1996 and $289.3 million in 1995.
NOTE 16--CHARGES TO OPERATIONS
The Company recorded a one-time charge of $62.1 million during the fourth
quarter of 1997, relating to profit improvement initiatives. Actions are being
taken to rationalize global capacity by closing and streamlining certain
operations, and to rationalize global distribution and products throughout the
world. In the first quarter of 1997, a charge of $13.4 million was recorded to
close the Houston manufacturing facility and downsize the German operations.
NOTE 17--IMPAIRMENT LOSS ON LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," as of October 1, 1995. In connection therewith, for long-lived
assets for which actual operating cash results or forecasted cash flows indicate
that the recoverability of the carrying amount of such assets may be impaired,
the Company compares estimated expected future cash flows (undiscounted and
without interest charges) identified with each long-lived asset or group
thereof, as appropriate, to the carrying amount of such asset or group of
assets. For purposes of such comparison, portions of unallocated excess of cost
over net assets acquired are attributed to related long-lived assets and
identifiable intangible assets, based upon the relative fair values of such
assets at acquisition.
The Company recognized an impairment loss of $244.5 million in 1995 for those
long-lived assets or groups of assets where the sum of such estimated expected
future cash flows (undiscounted and without interest) was less than the carrying
amount of such assets or groups of assets, including attributed portions of
unallocated excess cost over net assets acquired. SFAS 121 requires analysis of
each item on an individual asset-by-asset basis, where applicable, versus the
analysis of the aggregate asset value and aggregate cash flows previously used.
The amount of the impairment loss is the excess of the carrying amount of the
impaired
a26
<PAGE>
asset over the fair value of the asset. Generally, fair value represents the
Company's expected future cash flows from the use of the asset or group of
assets, discounted at a rate commensurate with the risks involved.
NOTE 18--STOCKHOLDERS' EQUITY
The 1992 Employee Stock Purchase Plan authorizes the allocation of 1,500,000
shares of stock for the Plan. The purchase price of the shares under the
Purchase Plan is 85% of the lower of the fair market value of shares at the
beginning of the period or at the end of the period. No compensation expense is
recorded in connection with the Plan. In 1997, 1996 and 1995, there were 165,169
shares, 188,123 shares and 198,481 shares, respectively, purchased by employees
at a price of $33.63 per share, $39.95 per share and $31.39 per share,
respectively.
During May 1997, the Stockholders approved an amendment to the 1992 Omnibus
Stock Plan. The amended and restated 1992 Omnibus Stock Plan authorizes the
issuance of up to 4,380,000 shares of the Company's common stock as stock
options or restricted share awards, of which up to 3% of the total outstanding
shares are available for restricted share awards. The exercise price of stock
options granted under the Plan are not less than the fair market value of the
shares on the date the option is granted. The restricted shares are granted at a
price determined by the Board of Directors. In 1997, 1996 and 1995 under the
1992 Omnibus Stock Plan, key employees were awarded 40,000, 2,000 and 22,500
shares, respectively, of restricted stock generally vesting over four years.
Accordingly, unearned compensation of $2.0 million and $0.9 million was recorded
as a charge to equity in 1997 and 1995, respectively, which is being amortized
over the vesting period.
In 1989, the Company adopted a management equity plan whereby restricted stock
may be awarded under Executive Stock Agreements and stock options may be granted
under the 1989 Stock Option Plan to key employees. This Plan has been terminated
but the options still outstanding are governed by the rules of the Plan.
Changes in the number of shares under the stock option plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1, 2,365,859 $39.97 1,976,778 $35.14 1,463,522 $31.92
Granted 829,143 45.43 818,390 46.91 668,100 38.60
Exercised (306,993) 30.24 (404,017) 29.97 (138,509) 17.69
Canceled (111,642) 44.36 (25,292) 46.68 (16,335) 35.82
- ------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 2,776,367 42.50 2,365,859 39.97 1,976,778 35.14
Exercisable, December 31, 1,952,454 $41.30 1,551,061 $36.45 1,305,878 $33.37
Available, December 31, 884,175 389,416 1,184,514
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The exercise price of options outstanding and those exercised under the stock
option plans is $0.24 per share for 1991 grants, $31.75 to $33.75 per share for
1992 grants, $34.25 to $40.00 per share for 1993 grants, $35.75 to $39.00 per
share for 1994 grants, $38.25 to $46.00 per share for 1995 grants, $46.00 to
$54.88 per share for 1996 grants, and $44.63 to $49.63 per share for 1997
grants.
In 1997, the Board of Directors authorized the Company to purchase up to 6.0
million shares of its Common Stock over the next four years to fund the
Company's Employee Stock Purchase Plan and the Amended and Restated 1992 Omnibus
Stock Plan. The stock purchases will be made from time to time on the open
market. Under the program, 3.4 million shares were repurchased on the open
market in 1997.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock and
performance-based awards. Had compensation cost for the Company's other stock
option 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.
a27
<PAGE>
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996 1995
===============================================================================================
<S> <C> <C> <C>
Net earnings (loss)--as reported $47,393 $147,909 $ (96,072)
Net earnings (loss)--pro forma 38,471 137,765 (102,739)
Diluted earnings (loss) per share--as reported 1.10 3.37 (2.38)
Diluted earnings (loss) per share--pro forma 0.89 3.13 (2.55)
- -----------------------------------------------------------------------------------------------
</TABLE>
The per share weighted average fair value of the options granted during 1997,
1996 and 1995 is estimated as $18.04, $18.30 and $16.07, respectively, on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 1.0%; volatility of 27.2%, 18.6% and 19.2% in 1997,
1996 and 1995, respectively; risk-free interest rate of 6.6%, 6.4% and 7.2% in
1997, 1996 and 1995, respectively; and an expected life of seven years.
Pro forma net income reflects only options granted after 1994. Therefore, the
full impact of calculating compensation costs for stock options granted prior to
January 1, 1995, is not reflected in the pro forma net income amounts presented
above because compensation cost for options granted prior to January 1, 1995, is
not considered. The effects of applying SFAS No. 123 for disclosing compensation
costs under such pronouncement may not be representative of the effects on
reported net income for future years.
NOTE 19--EARNINGS PER SHARE RECONCILIATION OF SHARES OUTSTANDING
Net income (loss) as set forth in the statements of operations is used in the
computation of basic and diluted earnings per share information. Reconciliations
of shares used in the computations of earnings per share are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
==================================================================================================
<S> <C> <C> <C>
Weighted average common shares outstanding used
in the computation of basic earnings (loss) per share 42,550 43,136 40,321
Effect of dilutive securities:
Non-vested restricted shares 167 205 --
Stock options 323 609 --
- --------------------------------------------------------------------------------------------------
Weighted average common shares and equivalents used
in the computation of diluted earnings (loss) per share 43,040 43,950 40,321
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE 20--STATEMENT OF CASH FLOW INFORMATION
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
==================================================================================================
<S> <C> <C> <C>
Cash paid during the year for:
Interest $41,519 $34,454 $44,000
Income taxes 55,587 46,683 47,567
- --------------------------------------------------------------------------------------------------
</TABLE>
a28
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
Acquisitions in which liabilities were assumed are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
====================================================================================================
<S> <C> <C> <C>
Fair value of assets acquired $ 20,447 $ 23,336 $ 362,973
Less cash paid (17,481) (16,468) (288,173)
- ----------------------------------------------------------------------------------------------------
Liabilities assumed $ 2,966 $ 6,868 $ 74,800
- ----------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
- ----------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter
===================================================================================================================
<S> <C> <C> <C> <C>
1997
Net sales $800,767 $884,397 $749,780 $758,713
Gross profit 163,735 189,397 159,795 123,299
Net income (loss) 14,860 42,202 23,785 (33,454)(a)
Earnings (loss) per share:
Basic .34 .98 .56 (.81)(a)
Diluted .34 .97 .55 (.81)(a)
1996
Net sales $728,165 $861,662 $787,303 $841,404
Gross profit 153,222 194,397 168,817 169,421
Net income 23,965 45,853 38,839 39,252
Earnings per common share:
Basic .56 1.07 .90 .91
Diluted .55 1.05 .88 .89
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) During the fourth quarter of 1997, the Company recorded a charge to
operations of $62.1 million related to global manufacturing rationalization,
and rationalization of products and distribution.
TRADING AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
Dividends
High Low Declared
===============================================================================================
<S> <C> <C> <C>
1997
Fourth quarter $47 3/8 $39 5/16 $.12
Third quarter 49 7/16 41 3/4 .12
Second quarter 50 5/8 38 5/8 .12
First quarter 54 3/8 42 .12
1996
Fourth quarter $56 1/4 $47 3/8 $.09
Third quarter 51 7/8 44 3/4 .09
Second quarter 53 5/8 46 3/4 .09
First quarter 49 44 .09
- -----------------------------------------------------------------------------------------------
</TABLE>
a29
<PAGE>
directors and officers
BOARD OF DIRECTORS
- ------------------
Malcolm W. Gambill
Retired Chairman and Chief Executive Officer
of Harsco Corporation
Member of the Compensation Committee
Robert F. B. Logan
Retired Chairman and Chief Executive Officer
of Banc One Arizona Corporation
Member of the Compensation Committee
Gerald C. McDonough
Private Business Consultant
Retired Chairman and Chief Executive Officer
of Leaseway Holdings, Inc.
Chairman of the Audit Committee
Robert N. Pokelwaldt
Chairman of the Board and Chief Executive Officer
Donald M. Roberts
Retired Vice Chairman and Treasurer of United States Trust Company of New York
and its parent, U.S. Trust Corporation
Member of the Audit Committee
John R. Tucker
President and Chief Operating Officer
James A. Urry
Vice President of Citicorp Venture Capital, Ltd.
Member of the Compensation Committee
John E. Welsh, III
Vice Chairman of Mobile Telecommunications
Technologies Corporation
Member of the Audit Committee
Walter B. Wriston
Private Business Consultant
Retired Chairman and Chief Executive Officer of Citicorp
Chairman of the Compensation Committee
OFFICERS
- --------
Robert N. Pokelwaldt
Chairman of the Board and Chief Executive Officer
John R. Tucker
President and Chief Operating Officer
William G. Cowles, Jr.
Vice President and President of Refrigeration Products
Joseph D. Smith
Vice President of Manufacturing Operations
Peter C. Spellar
Vice President and President of Engineered Systems Products
Michael R. Young
Vice President and President of Bristol Compressors
Jane G. Davis
Vice President, Secretary and General Counsel
Dean T. DuCray
Vice President and Chief Financial Officer
Wayne J. Kennedy
Vice President, Human Resources
Helen S. Marsteller
Vice President, Investor Relations and Corporate Communications
Mark V. Stanga
Vice President, Government Affairs
James P. Corcoran
Treasurer
C. David Myers
Controller
a30
<PAGE>
INVESTOR AND STOCKHOLDER INFORMATION
- ------------------------------------
STOCKHOLDER INQUIRIES
Questions concerning your account, dividend payments, address changes,
consolidation of duplicate accounts, lost certificates and related matters
should be addressed to York International Corporation's transfer agent:
Chase Mellon Shareholder Services, L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
http://www.cmssonline.com
DIVIDEND POLICY
The declaration and payment of quarterly dividends is made at the discretion of
York's board of directors. The dividend is reviewed by the board quarterly. York
has paid quarterly dividends on its common shares without interruption since
going public in 1991.
DIRECT DEPOSIT OF DIVIDENDS
Stockholders who would like their dividends directly deposited in a U.S. bank
account should contact the transfer agent at the above address for an enrollment
form.
DIVIDEND REINVESTMENT PROGRAM
An automatic dividend reinvestment plan is available to all stockholders of
record. Dividends can be automatically reinvested in York common stock.
Participants also may add cash for the purchase of additional shares. For more
information, contact Chase Mellon Shareholder Services, L.L.C. at (800)
437-6726.
INVESTOR RELATIONS PROGRAM
York International has an active investor relations program directed to both
individual and institutional investors. The Company's investor relations mission
is to maintain an ongoing awareness of the Company's performance among its
stockholders and the financial community. The Company welcomes inquiries from
its investors, large or small, as well as from members of the financial
community. For further information, contact:
Investor Relations Department
York International Corporation
P.O. Box 1592-364M
York, PA 17405-1592
(717) 771-7409 Telephone
(717) 771-7381 Facsimile
ABOUT YORK'S SHAREHOLDERS
At year-end, the Company had approximately 4,500 registered shareholders.
Approximately 15% of the Company shares were held by individual investors. The
Company shares were also held by about 150 institutions. At year-end, there were
approximately 4,000 employee shareholders participating in the York
International Employee Stock Purchase Plan, for an estimated 25% enrollment of
eligible employees.
CORPORATE DATA
- --------------
CORPORATE OFFICES
Street Address:
York International Corporation
631 South Richland Avenue
York, PA 17403
Mailing Address:
York International Corporation
P.O. Box 1592
York, PA 17405-1592
Telephone: (717) 771-7890
Facsimile: (717) 771-7381
ADDITIONAL INFORMATION
Stockholder, financial and other information about York is available from
several sources. The Company's 10K Report, 10Q and Quarterly Reports to
Stockholders are available through the company's automated telephone system by
dialing: (717) 771-7409. You can also request these publications by writing:
Stockholder Relations
York International Corporation
P.O. Box 1592-364M
York, PA 17405-1592
(717) 771-7381 Facsimile
York news releases, including earnings announcements, are available by fax 24
hours a day through Company News On-Call at (800) 758-5804. The York extension
is 992638. You can access financial and other information, such as quarterly
press releases on earnings and product announcements, through the Internet. To
connect to York's World Wide Web site, set your browser software to:
http://www.york.com
STOCK EXCHANGE LISTING
The New York Stock Exchange
STOCK TRADING SYMBOL
YRK
a31
<PAGE>
EXHIBIT 21
YORK INTERNATIONAL CORPORATION
Subsidiaries of the Registrant
------------------------------
Name and Jurisdiction
of Incorporation
- ---------------------
Percent of Ownership
--------------------
York Air Conditioning and Refrigeration, Inc. (Delaware) 100%
York Foreign Sales Corporation (Barbados) 100%
York Int'l Ltd. (Canada) 100%
York International Limited (UK) 100%
York International BV (Netherlands) 100%
York International S.p.A. (Italy) 100%
York International SA (France) 100%
York International Holdings GmbH (Germany) 100%
York International Mexico S.A. de C.V. (Mexico) 100%
York Aire S.A. de C.V. (Mexico) 100%
York Automatic Snow, Inc. (Delaware) 100%
York Australia Pty, Ltd. (Australia) 100%
York Food Systems International Limited (Delaware) 100%
York International S.A. (Venezuela) 100%
Airchal Industries, S.A. (France) 100%
Bristol Compressors, Inc. (Delaware) 100%
Bristol Compressors Purchasing, Inc. (Delaware) 100%
Bristol Compressors Sparta, Inc. (Delaware) 100%
Codorus Acceptance Corp. (Delaware) 100%
Frigid Coil/Frick, Inc. (Delaware) 100%
IMECO, Inc. (Delaware) 100%
Miller-Picking of Mississippi, Inc. (Mississippi) 100%
Viron, Inc. (Missouri) 100%
Evcon Holdings Inc. (Delaware) 100%
Evcon Industries, Inc. (Delaware) 100%
York-MIAC, Inc. (Delaware) 100%
York International S.A. (Uruguay) 100%
York International A/S (Denmark) 100%
York International Pte. Ltd. (Singapore) 100%
York Airconditioning and Refrigeration FZE (U.A.E.) 100%
York International (Northern Asia) Limited (Hong Kong) 100%
York Ghuangzhou Air Conditioning and
Refrigeration Co. Ltd. (China) 97%
York International S.A. (Colombia) 89%
Aeromaster Industry Co. Ltd. (Thailand) 85%
York-Wuxi Air Conditioning and Refrigeratioon
Co. Ltd. (China) 80%
York International Commercial Ltda. (Brazil) 80%
York Taiwan Company, Inc. (Taiwan) 60%
<PAGE>
EXHIBIT 23
Accountants' Consent
--------------------
The Board of Directors and Stockholders
York International Corporation:
We consent to incorporation by reference in the Registration Statements on Forms
S-3 (File No. 33-94330) and S-8 (File No. 33-25440 1989 Employee Stock Option
Plan, File No. 333-2384 Amended and Restated 1992 Omnibus Stock Plan and File
No. 33-64684 1992 Omnibus Stock Plan and 1992 Employee Stock Purchase Plan) of
York International Corporation of our reports dated February 10, 1998, relating
to the consolidated balance sheets of York International Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
years in the three-year period ended December 31, 1997 and the related financial
statement schedule, which reports appear in or are incorporated by reference in
the December 31, 1997 annual report on Form 10-K of York International
Corporation.
Our reports refer to adoption by the Company in 1995 of the provisions of
Statement of Financial Accounting Standards No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
March 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATION FOR THE YEAR ENDED DECEMBER 31,
1997 (AUDITED), THE CONSOLIDATED CONDENSED BALANCE SHEETS AT DECEMBER 31, 1997
(AUDITED), AND THE CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1997 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,228
<SECURITIES> 0
<RECEIVABLES> 509,333
<ALLOWANCES> 17,839
<INVENTORY> 541,114
<CURRENT-ASSETS> 1,221,620
<PP&E> 679,789
<DEPRECIATION> 311,147
<TOTAL-ASSETS> 1,996,298
<CURRENT-LIABILITIES> 686,497
<BONDS> 452,344
0
0
<COMMON> 220
<OTHER-SE> 646,285
<TOTAL-LIABILITY-AND-EQUITY> 1,996,298
<SALES> 3,193,657
<TOTAL-REVENUES> 3,193,657
<CGS> 2,557,431
<TOTAL-COSTS> 2,557,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,139
<INTEREST-EXPENSE> 40,876
<INCOME-PRETAX> 78,468
<INCOME-TAX> 31,075
<INCOME-CONTINUING> 47,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,393
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996 (AUDITED), THE CONSOLIDATED CONDENSED BALANCE SHEETS AT DECEMBER 31, 1996
(AUDITED), AND THE CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1996 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,470
<SECURITIES> 0
<RECEIVABLES> 530,555
<ALLOWANCES> 20,737
<INVENTORY> 609,342
<CURRENT-ASSETS> 1,291,255
<PP&E> 636,218
<DEPRECIATION> 275,786
<TOTAL-ASSETS> 2,074,771
<CURRENT-LIABILITIES> 767,112
<BONDS> 313,641
0
0
<COMMON> 219
<OTHER-SE> 780,158
<TOTAL-LIABILITY-AND-EQUITY> 2,074,771
<SALES> 3,218,534
<TOTAL-REVENUES> 3,218,534
<CGS> 2,532,677
<TOTAL-COSTS> 2,532,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,718
<INTEREST-EXPENSE> 34,544
<INCOME-PRETAX> 204,463
<INCOME-TAX> 56,554
<INCOME-CONTINUING> 147,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,909
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.37
</TABLE>
