<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
York International Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
York International Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
Notice of [LOGO OF YORK (R) INTERNATIONAL APPEARS HERE]
---------------------------------------------------------
CORPORATION
1998
Annual TO THE STOCKHOLDERS:
Meeting You are cordially invited to attend the 1998 Annual
Meeting of Stockholders of York International Corporation
(the "Company"). It will be held at the Yorktowne Hotel,
York, Pennsylvania on Thursday, May 14, 1998 at 1:30
p.m., EDT, to consider and act on the following matters:
1. Election of a Board of Directors to hold office for
one year.
2. Ratification of the appointment of KPMG Peat
Proxy Marwick LLP as independent accountants.
3. The transaction of any other business properly
Statement brought before the meeting.
Stockholders of record at the close of business on
March 23, 1998 will be entitled to notice of and to vote at
the meeting.
If you cannot attend the meeting, PLEASE TAKE THE TIME
Annual TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
ENVELOPE WE HAVE PROVIDED. A majority of the outstanding
Financial shares of Common Stock must be represented at the meeting in
order to transact business, and regardless of the number of
shares you own, your proxy is important in fulfilling this
Statements requirement. THE PROMPT RETURN OF YOUR PROXY WILL SAVE THE
EXPENSE INVOLVED IN FURTHER COMMUNICATIONS. If you choose to
attend the meeting, you may vote in person, even if you have
previously sent us your proxy.
and By Order of the Board of Directors
Review of JANE G. DAVIS
Vice President, Secretary and
General Counsel
Operations
March 31, 1998
<PAGE>
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by York
International Corporation (the "Company") of proxies to be voted at the 1998
Annual Meeting of Stockholders to be held on May 14, 1998 at 1:30 p.m., EDT, at
the Yorktowne Hotel, York, Pennsylvania, and at any adjournment or postponement
thereof. The expense of preparing, printing and mailing this proxy statement
and the proxy materials will be borne by the Company. The Company has engaged
Chase Mellon Shareholder Services, L.L.C. to assist in the solicitation of
proxies from stockholders for a fee of up to $4,500 plus reimbursement of its
out-of-pocket expenses. In addition to solicitations by mail, regular employees
of the Company without additional compensation, as well as employees of Chase
Mellon Shareholder Services, L.L.C., may solicit proxies in person or by
telephone. The Company will reimburse brokerage houses and other custodians,
nominees, and fiduciaries for the costs of sending this proxy statement and the
proxy materials to their principals.
Any proxy may be revoked by a stockholder at any time prior to its use by (i)
executing another proxy at a later date, (ii) delivering a written notice to any
of the persons named in the proxy, or (iii) voting in person at the 1998 Annual
Meeting.
Holders of record of outstanding common stock of the Company, $.005 par value
per share ("Common Stock"), at the close of business on March 23, 1998 (the
"Record Date") are entitled to notice of and to vote at the 1998 Annual Meeting.
Each share of Common Stock is entitled to one vote. There is no provision for
cumulative voting. Shares represented by any proxy properly executed and
received by the Company will be voted at the meeting in accordance with the
proxy or, if the proxy does not specify, in accordance with the recommendation
of the Board of Directors. See "Vote Required to Approve Matters" for a
description of quorum and voting requirements and the effect of abstentions and
"broker non-votes" on such requirements. On March 23, 1998, the Company had
40,641,902 shares of Common Stock outstanding and entitled to vote at the
meeting 43,288,017 shares if adjusted to include all stock options exercisable
within sixty days after March 23, 1998).
The principal executive offices of the Company are located at 631 South
Richland Avenue, York, Pennsylvania 17403. The approximate date on which this
proxy statement and enclosed form of proxy will be mailed to stockholders is
March 31, 1998.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of Directors to be elected at
nine. All Directors now in office are standing for re-election. Proxies
solicited hereby cannot be voted for a greater number of persons than the number
of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
Unless contrary instructions are given in a proxy, the persons named as proxy
voters will vote in favor of the nominees listed below to serve for the coming
year and until their successors are elected and qualified.
The Company has no reason to believe that any nominee will be unable to serve
as a Director. However, if any nominee should become unable to serve, the
shares represented by a proxy will be voted
2
<PAGE>
for a substitute nominee designated by the Board of Directors. In nominating
candidates for the Board of Directors, the Directors take into account certain
considerations. The first is that the Board of Directors should be composed of a
majority of independent Directors. The second is that nominees should bring to
the Board experience in a field relevant to the Company's operations, such as
manufacturing, marketing, technology or finance. The third is that candidates of
different ages, races and genders should be considered in order to provide the
Company with the benefits of diversity. Should a Board vacancy occur, the Board
will take every reasonable step to ensure that candidates meeting the above
criteria are in the pool from which nominees are chosen.
<TABLE>
<CAPTION>
Name and Age Other Positions with the Company Director
on Record Date or Nominee's Principal Occupation Since
-------------- --------------------------------- -----
<S> <C> <C>
Robert N. Pokelwaldt (61).................. Chairman of the Board of Directors 1991
and Chief Executive Officer
Malcolm W. Gambill (67).................... Retired Chairman of the Board and Chief 1993
Executive Officer of Harsco Corporation
Robert F. B. Logan (65).................... Retired Chairman of the Board and Chief 1988
Executive Officer of Banc One Arizona
Corporation and Senior Executive of
Banc One Corporation's Western
Region
Gerald C. McDonough (69)................... Private Business Consultant 1988
Donald M. Roberts (62)..................... Retired Vice Chairman and Treasurer of 1988
United States Trust Company of New York
and U.S. Trust Corporation
John R. Tucker (50)........................ President and Chief Operating Officer 1997
James A. Urry (44)......................... Vice President of Citicorp Venture 1992
Capital Ltd.
John E. Welsh, III (47).................... Vice Chairman of Mobile 1990
Telecommunications Technologies
Corporation
Walter B. Wriston (78)..................... Private Business Consultant 1992
</TABLE>
Mr. Pokelwaldt has been Chairman of the Board of Directors since January 1993
and Chief Executive Officer and a Director of the Company since June 1991.
Prior thereto he was President and Chief Operating Officer from January 1990 to
June 1991, Vice President of the Company and President of Applied Systems
Worldwide from September 1988 to January 1990 and Chairman and Chief Executive
Officer of Frick Company from June 1983 to September 1988. Mr. Pokelwaldt is a
Director of Mohawk Industries, Inc.
3
<PAGE>
Mr. Gambill was Chairman of the Board of Harsco Corporation from 1991 until
he retired in 1994. Mr. Gambill was Harsco's Chief Executive Officer from 1987
to 1993 and its President from 1987 to 1991.
Mr. Logan was Chairman of the Board and Chief Executive Officer of Banc One
Arizona Corporation and Bank One Arizona, N.A. and Senior Executive of Banc One
Corporation's Western Region from April 1995 until his retirement on March 31,
1996. From April 1993 until April 1995, Mr. Logan was a private business
consultant. Prior thereto he was with Valley National Bank, as President and
Chief Operating Officer from January 1990 until April 1993 and as Senior
Executive Vice President from May 1989 to January 1990. Mr. Logan was President
and Chief Operating Officer of Alexander Hamilton Life Insurance Company of
North America from October 1988 to April 1989, an independent financial advisor
from October 1986 to October 1988, and Group Chief Executive and Deputy Chairman
of Samuel Montagu & Co. (Holdings) Limited from March 1985 to July 1986.
Mr. McDonough has been a private business consultant since 1988. Prior
thereto he was Chairman and Chief Executive Officer of Leaseway Holdings, Inc.
from 1987 to July 1988 and Chairman and Chief Executive Officer of Leaseway
Transportation Corp. from 1982 to 1987. Mr. McDonough is a Director of
Commercial Intertech Corporation, Associated Estates Realty Corporation, and
CUNO, Inc. and is a Trustee of The Fidelity Funds.
Mr. Roberts was Vice Chairman and Treasurer of the United States Trust
Company of New York and its parent, U.S. Trust Corporation, from February 1990
until his retirement in September 1995. Prior thereto Mr. Roberts was Executive
Vice President and Treasurer of both companies from January 1989 to February
1990 and Executive Vice President of both companies from November 1979 to
January 1989. Mr. Roberts is a Director of Burlington Resources, Inc.
Mr. Tucker has been President and Chief Operating Officer of the Company
since October 1997 and a Director since December 1997. Prior to joining the
Company, he was President of the Aerospace Equipment Systems Sector of Allied
Signal, Inc. from January 1996 to October 1997, President and Chief Executive
Officer of Moteren und Turbinen Union (Jet Engine Division) of Daimler-Benz,
A.G. from 1994 to 1996 and President of AEG Transportation Systems from 1988 to
1994. Mr. Tucker held various positions with Westinghouse Electric Corporation
from 1968 to 1988.
Mr. Urry has been a Vice President of Citicorp Venture Capital Ltd. since
1989 and has been a Vice President of Citibank, N.A. since 1986. He is a
Director of CORT Business Services Corporation, AmeriSource Health Corporation,
Hancor Holdings, CLARK Material Handling Corporation, IKS Corporation, Palomar
Products, Inc. and Airxcel, Inc.
Mr. Welsh has been Vice Chairman of Mobile Telecommunications Technologies
Corporation since May 1995 and its Managing Director since 1992. From 1990 to
1992, Mr. Welsh was a Managing Director of Prudential-Bache Interfunding Inc.
Prior thereto he was a Managing Director of Prudential Bache Securities, Inc.
from 1985 to 1990 and Co-Head of its Mergers and Acquisitions Department from
1988 to 1990. Mr. Welsh is a Director of Mobile Telecommunications Technologies
Corporation and General Cable Corp.
Mr. Wriston has been a private business consultant since he retired as the
Chairman and Chief Executive Officer of Citicorp in 1984. Mr. Wriston is a
Director of ICOS Corporation, Cygnus, Inc., and Vion Pharmaceuticals, Inc.
4
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit and Finance Committee, a Compensation Committee and
no standing Nominating Committee. Set forth below is a description of the
functions of the Company's committees and the members of the Board of Directors
who serve on these committees.
Audit and Finance Committee. The Audit and Finance Committee, which is
composed exclusively of outside Directors, recommends to the Board of Directors
the independent auditors, reviews the proposed scope of the audit and the
auditors' reports and approves the audit fees to be paid. The Committee also
reviews with the independent auditors and with the Company's financial and
accounting officers the adequacy and effectiveness of the Company's internal
auditing and accounting procedures and its financial controls. The Committee is
also responsible for monitoring compliance with the Company's ethics policies
and applicable laws and regulations. The members of the Audit and Finance
Committee are Messrs. McDonough, Roberts and Welsh. The Audit and Finance
Committee held two meetings in 1997.
Compensation Committee. The Compensation Committee, which is composed
exclusively of outside Directors, recommends to the Board of Directors the
salaries of all corporate officers of the Company, all division and subsidiary
presidents and general managers and certain other highly compensated employees.
It also determines, subject to further approval of the Board of Directors, the
fees for Directors and supervises the administration of all benefit plans and
other matters affecting executive compensation. The members of the Compensation
Committee are Messrs. Wriston, Gambill, Logan and Urry. The Compensation
Committee held three meetings in 1997.
DIRECTOR COMPENSATION
The Company pays Directors who are not employees of the Company an annual
retainer of $24,000, a fee of $1,000 for attendance at each regular and special
meeting of the Board or any Committee and, for Committee chairmen, an annual
retainer of $2,500. Directors are reimbursed for expenses incurred in attending
Board of Directors and Committee meetings. Directors who are not employees of
the Company do not participate in any pension or health and welfare plans of the
Company.
Directors who are not employees of the Company may elect to defer 100% of
their annual retainer and meeting fees pursuant to the Company's deferred
compensation plan. Amounts deferred are credited to a reserve fund and are
invested in one of several investment options selected by the Director. The
investment options available are those in which employees may invest funds under
the York International Investment Plan, together with an option to invest in
Common Stock of the Company at fair market value. Dividends payable upon such
Common Stock are reinvested in Common Stock of the Company. Upon termination of
the Director's services with the Company, the amounts allocated to each Director
in the reserve fund will be paid to the Director in a lump sum or installments,
with investments in Common Stock of the Company distributed as stock.
On May 1, 1997 each of the non-employee Directors received an option to
purchase 2,000 shares of the Company's Common Stock pursuant to the Company's
Amended and Restated 1992 Omnibus Stock Plan. Each person who serves as a
Director (and is not an employee of the Company) as of the annual meeting of
stockholders or who becomes a Director within six months after such meeting is
entitled under such plan to an option to purchase 2,000 shares of Common Stock
exercisable at a price equal to the fair market value of the stock on the date
of grant. The options are not exercisable immediately and
5
<PAGE>
become exercisable to the extent of 25% of the underlying shares on each of the
next four anniversaries of the date of grant, subject to acceleration in the
event of certain changes in control of the Company. The options have a ten-year
term but expire sooner if the holder ceases to be a Director.
Directors and members of Committees of the Board of Directors who are
employees of the Company are not compensated for their service as Directors.
Messrs. Pokelwaldt and Tucker are the only Directors who are employees of the
Company.
The Board of Directors held ten meetings in 1997. Each of the Directors
attended at least 75% of the aggregate of the meetings of the Board and of the
Committee on which he served.
6
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
Relationship of Compensation to Performance
The Compensation Committee believes that the compensation of the Company's
officers should provide a strong incentive to achieve the Company's performance
objectives. The objectives, which are established by the Board of Directors in
tandem with management, are intended to maximize corporate and divisional
performance and, ultimately, deliver strong value to the stockholders.
Consequently, in addition to salary, a significant portion of cash compensation
is in the form of an annual bonus, which is paid only if certain financial
objectives are met and which can be larger if such financial objectives are
exceeded. The more senior an officer, the more his or her total compensation
depends on the bonus payment. The Company's Incentive Compensation Plan also
contains a Mid-Term Program that provides for the grant of Performance Units to
be earned over a longer measurement period based on the Company's cumulative
earnings per share and total return to stockholders. In addition, the
Compensation Committee grants stock options or may grant restricted stock,
designed to provide long-term incentives to key employees and tie their
interests directly to those of the Company's stockholders.
Salaries
The Compensation Committee sets the base salary of the Chief Executive
Officer and of each of the other officers based on a number of factors,
including level of responsibility, tenure with the Company, financial
performance of the Company, prior individual performance, and comparable
salaries for officers at other large industrial corporations. The Committee
believes that base salary levels should be competitive with the base salaries
(excluding bonuses) of companies in comparable industries and that the
opportunity to increase compensation above base salaries should be directly
related to the achievement of objective financial performance targets. The
companies considered by the Committee include a larger number and broader range
of companies than are included in the S & P Electrical Equipment Index, shown in
the Stock Performance Graph below, reflecting the Committee's view that the
employment market for the Company's officers includes a broader range of
companies than that within which the Company should be compared for financial
performance purposes. The services of a prominent executive compensation
consulting firm are used in determining market practice for all forms of
executive compensation.
Performance-Based Bonuses
Annual Cash Program - The Company pays annual cash bonuses under the Annual
Cash Program of its Incentive Compensation Plan. Each year, the Company
establishes financial objectives for its various business units for the
succeeding year which are, in turn, used to establish overall targets for the
financial performance of the Company. For 1997, the financial objectives
selected were earnings before interest and taxes ("EBIT"), with a capital charge
for net capital employed and goodwill, for the operating divisions and earnings
per share ("EPS") for the Company. The financial objectives are presented to
the Compensation Committee, which approves threshold, expected and
overachievement targets based on these objectives. Each of the Company's
management employees, including its executive officers, is eligible each year to
earn a performance bonus equal to a percentage of base salary. The applicable
percentage depends on the employee's level of responsibility and on the extent
to which targets are achieved (i. e., the more senior the employee and the
greater the level of performance of the area for which he or she is responsible,
the higher the applicable percentage used to calculate his or her bonus).
7
<PAGE>
Bonuses for each individual are primarily based upon the performance of that
individual's business unit. In the case of those individuals with
responsibility at the corporate level, such as the Chief Executive Officer and
other corporate officers, bonuses are based on overall Company performance. A
portion of the bonus of high level individuals in the business units is also
based on overall Company performance. Bonus awards to the executive officers
listed in the Summary Compensation Table are disclosed in that table.
Mid-Term Program - The Mid-Term Program of the Incentive Compensation Plan is
intended to cover successive Measurement Periods. The objectives for the
Measurement Period are approved by the Compensation Committee, which also
approves the number of Performance Units granted, based on market competitive
data and job responsibilities. At the end of the Measurement Period, the number
of Performance Units earned, if any, is based on the extent to which the
established objectives have been met. The value of each Performance Unit earned
will be equal to the average of the closing sale price of the Company's Common
Stock during the 120 consecutive trading days ending on the last day of the
Measurement Period.
In March 1996, February 1997 and February 1998, the Compensation Committee
approved Mid-Term Performance Objectives for the three-year periods from 1996
through 1998, 1997 through 1999, and 1998 through 2000 respectively, based on
cumulative earnings per share and total return to stockholders as compared to
the Industrial Component of the Standard & Poor's Midcap 400 Index and granted
Performance Units that can be earned based on the achievement of these Mid-Term
Objectives.
Stock Awards
In order to align the interests of management more closely with the long term
interests of the Company's stockholders, the Compensation Committee also issues
stock options and may issue restricted stock, pursuant to the Company's Amended
and Restated 1992 Omnibus Stock Plan. The Committee grants options to
individual employees based on its evaluation of a number of factors, including
level of base salary, level of responsibility, expected level of contribution to
the Company, prior individual performance and prior stock option and restricted
stock grants. The largest grants are awarded to the most senior employees, who,
in the view of the Compensation Committee, have the greatest potential impact on
the Company's profitability and growth. However, the Committee also awards
options to individuals at all levels of the organization in order to focus
employee attention on the performance of the Company's stock. Options under the
plan may be either incentive stock options or non-qualified stock options at the
discretion of the Compensation Committee. In 1997, the Committee granted stock
options exercisable at fair market value to certain key employees, including the
Company's officers. Stock option awards to the executive officers named in the
Summary Compensation Table are disclosed in that table. The Company has never
repriced any stock options. In 1997, the Compensation Committee granted a
restricted stock award to one executive officer, as shown in the Summary
Compensation Table, in connection with the start of his employment with the
Company.
In August 1994, in order to more effectively retain certain key employees,
the Compensation Committee awarded shares of restricted stock to them, including
to certain of the executive officers listed in the Summary Compensation Table.
Forty percent of these shares vested in 1996 and 20% vested in 1997. Unless
vesting is accelerated in certain unusual events such as death, disability, or
termination of employment as a result of certain changes in control, 20% of the
shares will vest in each of the two years thereafter. Under certain
circumstances, the vesting of shares issued to certain highly-compensated
officers will be delayed until such time as the Company's deduction of
compensation expense associated
8
<PAGE>
with such vesting would not be limited by Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") (see below). If an award recipient is
terminated for cause, voluntarily terminates his or her employment with the
Company, or breaches certain obligations of confidentiality, he or she will
forfeit any unvested shares.
Compensation of Chief Executive Officer
Mr. Pokelwaldt's compensation, including base salary and stock option award,
was determined by the Compensation Committee in accordance with the criteria
described above in the "Relationship of Compensation to Performance,"
"Salaries," "Performance-Based Bonuses" and "Stock Awards" sections of this
report.
Mr. Pokelwaldt received an increase in his base compensation to $700,000 per
annum effective March 1, 1997, which reflects the Compensation Committee's
assessment of his performance during the prior year. During 1996, under Mr.
Pokelwaldt's leadership, the Company began a strategic initiative to realign its
operating structure based on global business units in order to more effectively
manage and maximize the benefits of its worldwide growth. Strategic
acquisitions and joint ventures were concluded which expanded the Company's
service business in the United States and its Engineered Systems business in the
Peoples' Republic of China. The Committee also wanted to align Mr. Pokelwaldt's
salary with that of chief executive officers in comparable companies.
In 1997, Mr. Pokelwaldt's bonus was based on EPS for the Company. He did not
receive a bonus for the year since the Company did not achieve its 1997 EPS
target. In 1997, Mr. Pokelwaldt received a grant of 9,604 Performance Units
under the Mid-Term Program of the Company's Incentive Compensation Plan.
Achievement of the targets on which the earning of these units will be based,
cumulative EPS and the Company's total return to stockholders compared to a
published index, will be measured at the end of 1999. Mr. Pokelwaldt was also
awarded options to purchase 40,000 shares of the Company's Common Stock (on
terms described above under "Stock Awards") at the market price on the date of
grant, reflecting the view of the Compensation Committee and the Board of
Directors of Mr. Pokelwaldt's expected substantial contribution to the future
progress and growth of the Company's business.
Additional details of Mr. Pokelwaldt's compensation over the past three
fiscal years are disclosed in the Summary Compensation Table and in other
sections of this "Executive Compensation" section.
In making its compensation decisions, the Committee considers the effect of
Section 162(m) of the Code, which limits to $1,000,000 the allowable federal
income tax deduction for compensation paid to the Company's Chief Executive
Officer and next four most highly compensated officers. The limit on
deductibility does not apply to performance-based compensation paid pursuant to
a plan approved by the stockholders. The Company expects that expense
associated with stock option awards made under the Company's Amended and
Restated 1992 Omnibus Stock Option Plan will not be limited by Section 162(m)
since the Company obtained stockholder approval of this Plan in 1997. The
expense associated with restricted share awards that are not performance-based
may be limited under Section 162(m) and, if that should be the case, the
Committee may defer the vesting of such awards until such time as the associated
expense is fully deductible. In 1996, the Company obtained stockholder approval
of its Incentive Compensation Plan and does not anticipate that the expense
associated with this Plan will be limited by Section 162(m).
9
<PAGE>
In the opinion of the Committee, the Company's performance-based cash
compensation system, together with the grant of fair market value options and,
in limited circumstances, restricted stock awards, provides all management
employees, including executive officers, with an incentive to achieve objective
financial targets designed to increase stockholder value.
The foregoing report is hereby submitted by the members of the Compensation
Committee.
Walter B. Wriston, Chairman
Malcolm W. Gambill
Robert F. B. Logan
James A. Urry
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning cash compensation paid
by the Company to the Chief Executive Officer and each of the next four most
highly compensated officers of the Company for services rendered in all
capacities to the Company and its subsidiaries during the three fiscal years
ended December 31, 1997.
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Annual Securities
Compensation (3) (4) Restricted Underlying
--------------------
Stock Options All Other
Name Year Salary Bonus Award (5) Granted (6) Compensation(7)
- ---- ---- ------ ----- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Pokelwaldt................. 1997 $688,667 0 0 40,000 11,507
Chairman of the Board and............ 1996 618,333 $543,090 0 40,000 10,159
Chief Executive Officer.............. 1995 541,667 666,731 0 25,000 2,952
Michael R. Young..................... 1997 400,000 0 535,000 30,000 21,794
Vice President, President and Chief
Executive Officer of Bristol
Compressors
Scott J. Boxer (1)................... 1997 318,015 0 0 10,000 2,334
Vice President and President of...... 1996 286,667 78,735 0 12,000 1,557
Unitary Products Group............... 1995 261,167 147,256 0 14,000 1,329
Peter C. Spellar..................... 1997 291,667 0 0 10,000 2,684
Vice President and President of...... 1996 245,000 234,342 0 12,000 2,324
Applied Systems Group................ 1995 191,911 218,643 0 10,000 1,957
Dean T. DuCray (2)................... 1997 262,500 0 0 8,500 3,413
Vice President and................... 1996 247,500 193,944 0 10,000 3,278
Chief Financial Officer.............. 1995 232,283 256,389 0 9,400 2,057
</TABLE>
(1) Mr. Boxer left the Company effective December 31, 1997.
(2) Mr. DuCray has announced his retirement from the Company effective April 1,
1998.
(3) No compensation that would be categorized as "Other Annual Compensation" was
paid to officers in any of the years presented.
(4) Includes amounts deferred at the election of the officer pursuant to the
York International Investment Plan, a plan established under Section 401 (k)
of the Code and the York International Corporation Executive Deferred
Compensation Plan, a non-qualified deferred compensation plan. Does not
include any amounts that may ultimately be earned for the Performance Units
awarded during 1997 and shown in the Long-Term Incentive Plans - Awards in
Last Fiscal Year Table.
(5) The restricted stock holdings of the officers other than Mr. Young and the
value of such holdings as of December 31, 1997, based upon the 1997 year-end
closing price (net of the purchase price paid by the officer) are as
follows: Mr. Pokelwaldt 10,000 shares ($395,615), Mr. Boxer 7,400 shares
($292,755), Mr. Spellar 5,600 shares ($221,544), and Mr. DuCray 6,000
shares ($237,369). Any dividends payable with respect to Common Stock will
be paid with respect to the restricted stock.
(6) Excludes options to purchase Common Stock at 85% of fair market value
through automatic payroll deductions acquired in December 1997 under the
1992 Employee Stock Purchase Plan ("Purchase Plan"), in
11
<PAGE>
which Messrs. Pokelwaldt, Young, Spellar, and DuCray each elected to
participate, and pursuant to which Mr. Spellar acquired 393 shares, and
Messrs. Pokelwaldt, Young and DuCray each acquired 447 shares of Common
Stock.
(7) Comprises matching contributions by the Company under the York International
Investment Plan, contributions for Mr. Young under the Bristol Thrift and
Retirement Plan, and for Mr. Pokelwaldt and Mr. Boxer under the York
International Deferred Compensation Plan, and term life insurance premiums
for the named individuals for policies with a face amount equal to the
individual's base salary, as follows:
<TABLE>
<CAPTION>
Investment Plan Insurance
Contributions Premium
------------- -------
<S> <C> <C>
R. N. Pokelwaldt $ 2,536 $8,971
M. R. Young 14,882* 6,912
S. J. Boxer 1,470 864
P. C. Spellar 1,291 1,393
D. T. DuCray 1,500 1,913
</TABLE>
* Bristol Thrift & Retirement
OPTION GRANTS
The following table shows, as to each person named, the options to purchase
Common Stock granted by the Company in 1997 under the Amended and Restated 1992
Omnibus Stock Plan. The grants do not include options to purchase Company stock
through automatic payroll deductions under the Purchase Plan (see note (6) to
the Summary Compensation Table above).
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
% of
Number of Total
Securities Options Potential Realizable Value at
Underlying Granted Assumed Annual Rates of Stock
Options to All Exercise Price Appreciation for Option Term
Granted Employees Price Per Expiration (End of Year Value) (1)
-----------------------------------------
Name (Shares) (2) in 1997 Share Date 0% 5% (3) 10% (3)
- -------------------------------- ----------- --------- --------- ---------- -- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
R. N. Pokelwaldt................ 40,000 4.8% $45.38 03/12/07 $0 1,141,570 2,892,961
M. R. Young..................... 20,000 2.4 54.50 01/06/07 0 685,495 1,737,179
30,000 1.2 45.38 03/12/07 0 285,392 723,240
S. J. Boxer..................... 10,000 1.2 45.38 03/12/07 0 285,392 723,240
P. C. Spellar................... 10,000 1.2 45.38 03/12/07 0 285,392 723,240
D. T. DuCray.................... 8,500 1.0 45.38 03/12/07 0 242,584 614,754
</TABLE>
___________
(1) Represent arbitrarily assumed rates of appreciation of the Common Stock
price, mandated by the Securities and Exchange Commission's rules,
compounded annually over the term of the option and are not intended to
forecast possible future appreciation, if any, of the Common Stock. The
market value of the Common Stock on the March 12, 1997 grant date was
$45.38; the value of the Common Stock at the end of those options' term
based on a compounded 5% growth rate would be $73.92 per share, and based on
a compounded 10% growth rate would be $117.70 per share. The market value of
the Common Stock on the January 6, 1997 grant
12
<PAGE>
date was $54.50; the value of the Common Stock at the end of those options'
term based on a compounded 5% growth rate would be $88.77 per share, and
based on a compounded 10% growth rate would be $141.36 per share.
(2) The options are non-qualified, non-transferable other than by will or the
laws of descent and distribution, become exercisable in full one year from
the date of grant and are exercisable for nine years thereafter, unless
terminated sooner in the event of death, disability, retirement or
termination of employment.
(3) No gain to the optionees is possible without an increase in stock price
which will benefit all stockholders commensurately. A zero percent gain in
stock price will result in zero dollars for the optionee.
OPTION EXERCISES AND 1997 YEAR-END OPTION VALUES
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning 1997 year-end stock option
values. Only Messrs. Pokelwaldt and Boxer exercised any options during 1997.
AGGREGATED OPTION EXERCISES IN LAST
Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Number of Options at 1997 Year-End at 1997 Year-End (1)
Shares Value ------------------------- ----------------------
Name Acquired Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
R. N. Pokelwaldt.................. 22,087 $930,636 140,610 / 40,000 231,991 / $0
M. R. Young....................... 0 0 0 / 30,000 0 / 0
S. J. Boxer....................... 6,218 291,531 49,165 / 10,000 65,016 / 0
P. C. Spellar..................... 0 0 41,700 / 10,000 70,513 / 0
D. T. DuCray...................... 0 0 46,150 / 8,500 99,656 / 0
</TABLE>
___________
(1) Based upon an assumed fair market value of $39.5625 per share, which was the
closing price on the New York Stock Exchange of the Common Stock on December
31, 1997.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
The following table shows, as to each person named, the Performance Units
granted by the Company in 1997 under the Mid-Term Program of the Incentive
Compensation Plan. At the end of the three-year measurement period, the number
of Performance Units earned, if any, will be based on the extent to which the
established objectives of cumulative earnings per share and total return to
stockholders as compared to the Industrial Component of the Standard & Poor's
Midcap 400 Index have been met. If the threshold objective is not met, no
Performance Units are earned. If the target objective is exceeded, additional
Performance Units can be earned, up to the number of the original grant. The
value of each Performance Unit earned will be equal to the average of the
closing sale price of the Company's Common Stock during the 120 consecutive
trading days ending on the last day of the measurement period.
13
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares, Units Performance or
or Other Other Period Until
Name Rights Maturation or Payout
- ---- ------ --------------------
<S> <C> <C>
R. N. Pokelwaldt.......................................................... 9,604 12/31/99
M. R. Young............................................................... 4,863 12/31/99
S. J. Boxer............................................................... 3,525 12/31/99
P. C. Spellar............................................................. 3,039 12/31/99
D. T. DuCray.............................................................. 3,039 12/31/99
</TABLE>
RETIREMENT PLANS
The Company has a defined benefit retirement plan (the "Retirement Plan")
covering the salaried employees who are not subject to collective bargaining
agreements of certain of the Company's business units. The Retirement Plan
covers each of the officers named in the Summary Compensation Table other than
Mr. Young.
The following table indicates the amount of annual retirement income which
would be payable under the Retirement Plan (but for certain limitations imposed
by the Code) at normal retirement age to participants in specified salary and
bonus levels and years of credited service categories. For 1997 the Code limits
to $160,000 the amount of earnings which may be taken into account to calculate
benefits, and to $125,000 the benefits payable. The limits are adjusted
annually for inflation.
<TABLE>
<CAPTION>
Assumed Average Annual
Earnings for Highest
Five Consecutive
Years in 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Preceding Retirement Service Service Service Service Service
-------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$150,000.................................... $ 36,000 $ 48,000 $ 60,000 $ 72,000 $ 75,750
200,000..................................... 48,000 64,000 80,000 96,000 101,000
250,000..................................... 60,000 80,000 100,000 120,000 126,250
300,000..................................... 72,000 96,000 120,000 144,000 151,500
400,000..................................... 96,000 128,000 160,000 192,000 202,000
500,000..................................... 120,000 160,000 200,000 240,000 252,500
600,000..................................... 144,000 192,000 240,000 288,000 303,000
700,000..................................... 168,000 224,000 280,000 336,000 353,500
800,000..................................... 192,000 256,000 320,000 384,000 404,000
900,000..................................... 216,000 288,000 360,000 432,000 454,500
1,000,000................................... 240,000 320,000 400,000 480,000 505,000
</TABLE>
The compensation covered by the Retirement Plan consists of base salary and
bonus paid in that year. The covered compensation (excluding the effect of Code
limitations) and credited years of service, as of December 31, 1997, for each of
the officers named in the Summary Compensation Table above were as follows: Mr.
Pokelwaldt $739,884, 9 years; Mr. Boxer $356,138, 26 years; Mr. Spellar
$363,504, 5 years; Mr. DuCray $427,431, 11 years.
14
<PAGE>
The benefits shown in the above table are subject to reduction by an amount
equal to a percentage of Social Security benefits. The benefits are calculated
on a straight-life annuity basis assuming retirement at age 65.
The Company has a defined benefit supplemental retirement plan (the
"Supplemental Retirement Plan") covering certain key executive officers,
including those named in the Summary Compensation Table other than Mr. Young.
The following table indicates the amount of annual retirement income which
would be payable under the Supplemental Retirement Plan at normal retirement age
to participants in specified salary and bonus levels and years of credited
service categories.
<TABLE>
<CAPTION>
Assumed Average
Annual Earnings for
Highest Three Consecutive
Years in 5 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Preceding Retirement Service Service Service Service Service
-------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$150,000........................................... $ 56,250 $ 75,000 $ 75,000 $ 75,000 $ 75,000
200,000............................................ 75,000 100,000 100,000 100,000 100,000
250,000............................................ 93,750 125,000 125,000 125,000 125,000
300,000............................................ 112,500 150,000 150,000 150,000 150,000
400,000............................................ 150,000 200,000 200,000 200,000 200,000
500,000............................................ 187,500 250,000 250,000 250,000 250,000
600,000............................................ 225,000 300,000 300,000 300,000 300,000
700,000............................................ 262,500 350,000 350,000 350,000 350,000
800,000............................................ 300,000 400,000 400,000 400,000 400,000
900,000............................................ 337,500 450,000 450,000 450,000 450,000
1,000,000.......................................... 375,000 500,000 500,000 500,000 500,000
</TABLE>
The Supplemental Retirement Plan provides a retirement benefit equal to up to
50% (based on a maximum of 20 years of credited service (no credit is given for
service beyond 20 years) and final compensation) of the officer's highest
average salary and bonus for three out of the last five years preceding
retirement. The covered compensation and credited years of service under the
Supplemental Retirement Plan based on 1997 salaries and bonuses as of December
31, 1997, would be approximately: Mr. Pokelwaldt $929,889, 19 years; Mr.
Boxer $393,801, 26 years; Mr. Spellar $351,026, 19 years; Mr. DuCray
$359,928, 11 years.
The benefits shown in the above table are subject to reduction by an amount
equal to a percentage of Social Security benefits, benefits under the Retirement
Plan and any other retirement benefits received. The benefits are calculated on
a straight-life annuity basis assuming retirement at age 62.
The Frick/Frigid Coil Pension Plan for Salaried Employees (the "Frick Plan"),
in which Mr. Pokelwaldt participated from 1979 until his transfer to the
Retirement Plan in 1988, is intended to provide Mr. Pokelwaldt with retirement
benefits. Upon attaining age 65, Mr. Pokelwaldt is eligible to receive an
annual retirement benefit of $8,900 under the Frick Plan. Mr. Spellar also
participated in the Frick Plan. His participation was from 1979 until his
transfer to the Retirement Plan in 1992. Upon attaining age 65, Mr. Spellar is
eligible to receive an annual retirement benefit of $16,289 from the Frick Plan.
15
<PAGE>
CHANGE-IN-CONTROL ARRANGEMENTS
The Company maintains severance agreements with certain of its key employees,
including the individuals named in the Summary Compensation Table, which provide
severance benefits in the event the employee's employment terminates in
connection with or for a period following a change in control of the Company.
In such event, the employee would receive a payment equal to three times his or
her annual base salary and target bonus, together with continued health
insurance benefits until the earlier of 36 months or the obtaining of similar
coverage from another employer. Amounts payable under the agreements will be
cut back to the extent they would not be tax deductible under Section 280G of
the Internal Revenue Code.
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total return on the Company's
Common Stock for the 5-year period from December 31, 1992 through December 31,
1997 to the cumulative total return for the same period of the Standard & Poor's
Midcap 400 Index, the Industrial Component of the Standard & Poor's Midcap 400
Index, and the Standard & Poor's Electrical Equipment Index. The graph assumes
that the value of the investment in the Common Stock and each index was $100 on
December 31, 1992 and that all dividends were reinvested.
COMPARISON OF 60 MONT CUMULATIVE TOTAL RETURN
AMONG YORK INTERNATIONAL, THE S&P MIDCAP 400 INDEX,
THE INDUSTRIAL COMPONENT OF THE S&P MIDCAP 400 INDEX
AND THE S&P ELECTRICAL EQUIPMENT INDEX
[GRAPH APPEARS HERE]
Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97
York Intl. 100 108.7 114.19 146.35 175.22 125.45
S&P Electrical Equip. 500 100 120.65 122.06 171.29 235.24 331.52
S&P MIDCAP 400 Index 100 113.95 109.87 143.86 171.49 226.8
Industrial Components of
the S&P MIDCAP 400 100 116.21 114.92 144.34 172.01 215.84
16
<PAGE>
OWNERSHIP OF COMMON STOCK
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of February 28, 1998 with
respect to beneficial ownership of shares of the Company's Common Stock,
assuming exercise of options exercisable within 60 days of such date, by each
Director, by each executive officer named in the Summary Compensation Table and
by all Directors and executive officers as a group. Except as otherwise noted,
the beneficial owners have sole voting and investment power as to all such
shares.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percentage of
Name of Beneficial Owner Owned (a) Outstanding
------------------------ --------- -----------
<S> <C> <C>
Robert N. Pokelwaldt (b)........................................................... 394,109 *
Malcolm W. Gambill (c)............................................................. 11,286 *
Robert F. B. Logan (d)............................................................. 78,016 *
Gerald C. McDonough (e)............................................................ 70,300 *
Donald M. Roberts (f).............................................................. 76,388 *
John R. Tucker..................................................................... 25,000 *
James A. Urry (g).................................................................. 9,527 *
John E. Welsh, III (h)............................................................. 7,400 *
Walter B. Wriston (i).............................................................. 9,450 *
Michael R. Young (j)............................................................... 40,447 *
Scott J. Boxer (k)................................................................. 155,403 *
Peter C. Spellar (l)............................................................... 113,695 *
Dean T. DuCray (m)................................................................. 217,028 *
All directors and executive officers of the Company as a group
(20 persons) (n)............................................................... 1,476,112 3.63%
</TABLE>
___________
* Represents less than 1.0% of the aggregate shares of Common Stock
outstanding.
(a) Includes shares issuable upon exercise of options that are exercisable
within 60 days.
(b) Includes 180,610 shares issuable upon exercise of options.
(c) Includes 5,000 shares issuable upon exercise of options, and 3,286 shares
representing Director fees deferred into the York Common Stock Fund of the
Company's Deferred Compensation Plan.
(d) Includes 200 shares owned by Mr. Logan's wife as to which he disclaims
beneficial ownership, 5,000 shares issuable upon exercise of options, and
2,423 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(e) Includes 5,000 shares issuable upon exercise of options.
(f) Includes 13,679 shares owned by Mr. Roberts' adult child and 13,678 shares
owned by Mr. Roberts' wife on behalf of their two children as to which Mr.
Roberts has no voting or investment power and as to which he disclaims
beneficial ownership, 5,000 shares issuable upon exercise of options, and
995 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(g) Includes 5,000 shares issuable upon exercise of options, and 3,527 shares
representing Director fees deferred into the York Common Stock Fund of the
Company's Deferred Compensation Plan.
(h) Includes 5,000 shares issuable upon exercise of options.
17
<PAGE>
(i) Includes 5,000 shares issuable upon exercise of options.
(j) Includes 30,000 shares issuable upon exercise of options.
(k) Includes 12,000 shares owned by Mr. Boxer's wife and 692 shares owned by his
daughter as to which he disclaims any beneficial ownership, and 59,165
shares issuable upon exercise of options.
(l) Includes 30,000 shares held in trust for Mr. Spellar's children, as to which
he disclaims any beneficial ownership, and 51,700 shares issuable upon
exercise of options.
(m) Includes 1,000 shares held in trust for the children of Mr. DuCray and
54,650 shares issuable upon exercise of options.
(n) Includes 604,430 shares issuable upon exercise of options.
OWNERSHIP OF OTHER BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Voting Dispositive Total Amount Percent
Authority Authority of Beneficial of
Name and Address Sole Shared Sole Shared Ownership Class
- ---------------- ---- ------ ---- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
The Capital Group
Companies, Inc. (1) 2,276,660 0 6,156,460 0 6,156,460 14.9%
333 S. Hope St.
Los Angeles, CA 90071
Invesco PLC (2)
11 Devonshire Square 0 4,330,445 0 4,330,445 4,330,445 10.5%
London EC2 M4YR
England
Brinson Partners, Inc. (3)
209 South Lasalle 0 3,706,147 0 3,706,147 3,706,147 9.0%
Chicago, IL 60604-1295
Loomis, Sayles & Company,
L.P. (4) 1,153,950 650 0 2,369,514 2,369,514 5.72%
One Financial Center
Boston, MA 02111
</TABLE>
(1) Based on a Schedule 13G filed with the Securities and Exchange Commission on
February 10, 1998 by the Capital Group Companies, Inc. and Capital Research
and Management Company, a wholly-owned subsidiary of the Capital Group
Companies, Inc., on behalf of themselves and on behalf of Capital Guardian
Trust Company, Capital International Limited, and Capital International
S.A., wholly-owned subsidiaries of the Capital Group Companies, Inc. The
Schedule 13G indicates that Capital Research and Management Company has no
voting power but has sole dispositive power with respect to 3,496,600
shares, 8.5% of the class; none of the other subsidiaries beneficially owns
more than 5% of the class.
(2) Based on a Schedule 13G filed by Invesco PLC with the Securities and
Exchange Commission on February 12, 1998 on behalf of itself and on behalf
of AVZ, Inc., AIM Management Group Inc., AMVESCAP Group Services, Inc.,
Invesco, Inc., Invesco North American Holdings, Inc., and Invesco Capital
Management, Inc.
(3) Based on a Schedule 13G filed by Brinson Partners, Inc. ("BPI") with the
Securities and Exchange Commission on February 15, 1998 on behalf of itself
and on behalf of Brinson Holdings, Inc., SBC Holding (USA), Inc., and Swiss
Bank Corporation. The Schedule 13G indicates that BPI and Brinson Holdings,
Inc. have shared voting and dispositive power with respect to 3,681,647
shares, 8.9% of the class.
(4) Based on a Schedule 13G filed by Loomis, Sayles & Company, L.P. with the
Securities and Exchange Commission on February 12, 1998.
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of Forms 3, 4 and 5 furnished to the Company with respect
to its most recent fiscal year, the Company is not aware of any person subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the Company that failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act.
PROPOSAL TWO
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected and recommends the
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
meeting. They will be given the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT ACCOUNTANTS.
VOTE REQUIRED TO APPROVE MATTERS
A quorum for the meeting requires the presence in person or by proxy of
holders of a majority of the outstanding shares of the Common Stock of the
Company. Votes cast by proxy or in person at the meeting will be tabulated by
the inspectors of election appointed for the meeting in accordance with Delaware
law. Abstentions, "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares as to a matter with respect to
which the brokers or nominees do not have discretionary power to vote) and votes
withheld will be treated as present for purposes of determining the presence of
a quorum. Brokers that do not receive instructions are entitled to vote on the
election of Directors and the ratification of appointment of auditors.
The election of each Director requires a plurality of the votes cast. Votes
withheld will be deemed not to have been cast. The approval of Proposal Two
(the appointment of the auditors) requires the affirmative vote of a majority of
the shares present in person or represented by proxy and voting at the Annual
Meeting. Abstentions will not be deemed votes cast and broker non-votes will be
deemed not entitled to vote and disregarded with respect to matters to be voted
upon at the Annual Meeting other than the election of Directors and the
ratification of appointment of auditors.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the Company's proxy material for the
1999 Annual Meeting of Stockholders must be received at the Company's principal
executive offices not later than November 30, 1998.
19
<PAGE>
Pursuant to a Company By-Law, no business, including a nomination for
election as a Director, may be brought before an annual or special meeting of
stockholders by any stockholder unless the stockholder is a stockholder of
record and has given written notice of the business to the Company's Secretary
not earlier than 90 days nor later than 60 days in advance of the anniversary of
the date of the immediately preceding annual meeting or if the date of the
annual meeting occurs more than 30 days before or 60 days after the anniversary
of such immediately preceding annual meeting, not later than the close of
business on the later of (i) the sixtieth day prior to such annual meeting and
(ii) the tenth day following the date on which public announcement of the date
of such meeting is first made. The notice must include certain information
concerning the stockholder, the business the stockholder proposes to bring
before the meeting and, in the case of a nomination for Director, the nominee.
A copy of the By-Laws may be obtained by any stockholder from the Secretary of
the Company at the address set forth in the accompanying notice.
OTHER BUSINESS
As of the date of this proxy statement, the Company does not intend to bring
any other matters before the 1998 Annual Meeting requiring action of the
stockholders, nor does it have any information that other matters will be
brought before the meeting. However, if any other matters requiring the vote of
the stockholders properly come before the 1998 Annual Meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the proxy
in accordance with their best judgment.
JANE G. DAVIS
Vice President, Secretary and
General Counsel
March 31, 1998
20
<PAGE>
APPENDIX
YORK INTERNATIONAL CORPORATION
GENERAL AND FINANCIAL INFORMATION
1997
A1
<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 Applied Systems
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
