<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 1-10863
YORK INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3473472
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
631 SOUTH RICHLAND AVENUE, YORK, PA 17403
(717) 771-7890
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1998
----- ------------------------------
Common Stock, par value $.005 40,872,336 shares
<PAGE>
-2-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Form 10-Q
For the quarterly period ended June 30, 1998
INDEX
-----
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
(Unaudited) - Six Months and Three Months Ended
June 30, 1998 and 1997 3
Consolidated Condensed Balance Sheets - June 30,
1998 (Unaudited) and December 31, 1997 4
Consolidated Condensed Statements of Cash Flows
(Unaudited) - Six Months Ended June 30, 1998 and 1997 5
Supplemental Notes to Consolidated Condensed
Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
-3-
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1
FINANCIAL STATEMENTS
Consolidated Condensed Statements of Operations (Unaudited)
- -----------------------------------------------------------
(thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 888,481 $ 884,397 $ 1,630,469 $ 1,685,164
Cost of goods sold 693,642 695,000 1,278,598 1,332,031
-------- -------- ---------- ----------
Gross profit 194,839 189,397 351,871 353,133
Selling, general and
administrative expenses 120,585 117,135 243,021 249,049
-------- -------- ---------- ----------
Income from operations 74,254 72,262 108,850 104,084
Interest expense, net 10,628 10,981 21,699 20,416
Equity in (earnings)
losses of affiliates (476) (1,109) 831 (868)
-------- -------- ---------- ----------
Income before income
taxes 64,102 62,390 86,320 84,536
Provision for income taxes 21,795 20,188 29,349 27,474
-------- -------- ---------- ----------
Net income $ 42,307 $ 42,202 $ 56,971 $ 57,062
======== ======== ========== ==========
Basic earnings per share $ 1.04 $ 0.98 $ 1.40 $ 1.33
Diluted earnings per share $ 1.03 $ 0.97 $ 1.39 $ 1.31
======== ======== ========== ==========
Cash dividends per share $ 0.12 $ 0.12 $ 0.24 $ 0.24
======== ======== ========== ==========
Weighted average common
shares and common
equivalents outstanding:
Basic 40,582 42,933 40,554 43,004
Diluted 41,044 43,489 40,852 43,717
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
<PAGE>
-4-
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
- -------------------------------------
(thousands of dollars)
<TABLE>
<CAPTION>
ASSETS
June 30, 1998 December 31,
Current Assets: (Unaudited) 1997
-------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 10,671 $ 12,228
Receivables 662,960 555,830
Inventories:
Raw materials 170,866 163,336
Work in process 113,610 110,882
Finished goods 238,461 266,896
---------- ----------
Total inventories 522,937 541,114
---------- ----------
Prepayments and other current assets 109,580 112,448
---------- ----------
Total current assets 1,306,148 1,221,620
Deferred income taxes 24,355 21,869
Unallocated excess of cost
over net assets acquired 337,671 343,854
Investments in affiliates 22,130 17,660
Property, plant and equipment, net 360,161 368,642
Deferred charges and other assets 22,575 22,653
---------- ----------
Total assets $ 2,073,040 $ 1,996,298
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion
of long-term debt $ 81,722 $ 69,438
Accounts payable and accrued expenses 627,048 601,573
Income taxes 42,754 15,486
---------- ----------
Total current liabilities 751,524 686,497
Warranties 42,503 36,280
Long-term debt 409,455 452,344
Postretirement benefit liabilities 135,815 133,294
Other long-term liabilities 42,009 41,598
---------- ----------
Total liabilities 1,381,306 1,350,013
Stockholders' equity 691,734 646,285
---------- ----------
Total liabilities and stockholders' equity $ 2,073,040 $ 1,996,298
========== ==========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
<PAGE>
-5-
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------
(thousands of dollars)
Six Months Ended June 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56,971 $ 57,062
Adjustments to reconcile net income to net
cash provided/(used) by operating activities:
Depreciation and amortization 29,405 25,801
Amortization of deferred charges 8,188 8,609
Provision for doubtful accounts receivable 3,512 3,350
Other 3,514 3,135
Change in assets and liabilities net of
effects from purchase of other companies:
Receivables (143,436) (92,709)
Inventories 23,565 (6,929)
Prepayments and other current assets 3,718 10,181
Deferred income taxes (3,223) 2,649
Other assets (3,362) 3,982
Accounts payable and accrued expenses 33,026 (34,828)
Income taxes 35,350 (1,947)
Warranties 8,067 4,072
Post-retirement benefit liabilities 2,521 1,112
Other long-term liabilities (854) (4,446)
--------- ---------
Net cash provided/(used) by operating activities 56,962 (20,906)
--------- ---------
Cash flows from investing activities:
Payment for purchases of and investments in
other companies (net of cash acquired) (5,000) (14,957)
Capital expenditures (22,326) (32,924)
Other 150 1,981
--------- ---------
Net cash used by investing activities (27,176) (45,900)
--------- ---------
Cash flows from financing activities:
Common stock issued 9,254 2,958
Treasury stock purchased (290) (51,820)
Proceeds from issuance of bank loans - 156,641
Long-term debt payments (88,015) (104,598)
Net borrowings/(payments) on short term debt 12,284 (57,214)
Proceeds from issuance of senior notes 198,310 -
Net (payments on)/proceeds from issuance of
commercial paper (153,184) 132,971
Dividends paid (9,770) (10,334)
--------- ---------
Net cash provided/(used) by financing activities (31,411) 68,604
--------- ---------
Effect of exchange rate changes on cash 68 (48)
--------- ---------
Net increase/(decrease) in cash and cash equivalents (1,557) 1,750
Cash and cash equivalents at beginning of period 12,228 11,470
--------- ---------
Cash and cash equivalents at end of period $ 10,671 $ 13,220
========= =========
</TABLE>
See accompanying supplemental notes to consolidated condensed financial
statements.
<PAGE>
-6-
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
- -----------------------------------------------------------------------------
(1) The consolidated condensed financial statements included herein have been
prepared by the Registrant pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to applicable rules and regulations, although
the Registrant believes that the disclosures herein are adequate to make
the information presented not misleading. In the opinion of the Company,
the accompanying consolidated condensed financial statements contain all
adjustments (consisting of only normally recurring accruals) necessary to
present fairly the financial position as of June 30, 1998 and December 31,
1997, the results of operations for the three and six month periods ended
June 30, 1998 and 1997, and cash flows for the six months ended June 30,
1998 and 1997.
(2) The results of operations for interim periods are not necessarily
indicative of the results expected for the full year.
(3) The following tables summarize the capitalization of the Company at June
30, 1998 and at December 31, 1997 (in thousands):
June 30, 1998 December 31, 1997
---------------------- -----------------------
Current Long Term Current Long Term
-------- --------- -------- ---------
Indebtedness:
Bank loans $ 72,073 $ - $ 60,235 $ -
Commercial paper - 14,998 - 168,182
Bank lines - 81,571 - 169,780
Senior notes - 300,000 - 100,000
Other 9,649 12,886 9,203 14,382
------- -------- -------- --------
Total notes payable
and long-term debt $ 81,722 $ 409,455 $ $69,438 $ 452,344
======= ======== ======== ========
June 30, December 31,
Stockholders' equity: 1998 1997
---- ----
Common Stock $.005 par value;
200,000 shares authorized;
issued 44,293 shares at June
30, 1998 and 44,057 shares
at December 31, 1997 $ 221 $ 220
Additional paid in capital 689,174 679,180
Retained earnings 220,576 173,375
Currency translation adjustment (60,254) (47,100)
Treasury stock, 3,440 shares at
June 30, 1998 and 3,429 shares
at December 31, 1997, at cost (153,715) (153,425)
Unearned compensation (4,268) (5,965)
-------- --------
Total stockholders' equity $ 691,734 $ 646,285
======== =========
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 June
30, 1998, the Company could borrow $500 million. The Agreement provides for
borrowings under the facility at LIBOR plus .16% or at specified bid rates.
At June 30, 1998 and December 31, 1997, the LIBOR rate was 5.69% and 5.75%,
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.
(continued)
<PAGE>
-7-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
- -----------------------------------------------------------------------------
The Company's non-U.S. subsidiaries maintain bank credit facilities in
various currencies that provided for available borrowings of $250.4 million
and $245.2 million at June 30, 1998 and December 31, 1997, respectively, of
which $172.2 million and $175.5 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 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 5.65% at
June 30, 1998 and 5.84% at December 31, 1997.
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 June 30, 1998 and December 31, 1997,
the Company had $81.6 million and $169.8 million, respectively, outstanding
under the bank lines. The average rate under the bank lines was 5.75% and
5.92% at June 30, 1998 and December 31, 1997, respectively.
At June 30, 1998 and December 31, 1997 the Company had $300 million and
$100 million of Senior Notes outstanding, respectively. On June 1, 1998,
the Company issued $200 million of 6.70% fixed rate Senior Notes having a
maturity of ten years from the date of issue (June 2008). The proceeds from
the sale of the notes were used to pay down the Company's commercial paper
borrowings and bank lines. The $100 million of Senior Notes issued in
March 1993 bear interest at a 6.75% fixed rate and are due March 2003.
During 1995, the Company arranged a term loan denominated in a foreign
currency. 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. The term loan agreement contains financial and
operating covenants that are equivalent to the covenants of the Company's
Amended and Restated Credit Agreement.
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 1998 and 1997. 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
June 30, 1998 and December 31, 1997 was approximately 5.57% and 5.78%,
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 is 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 March, 1998, key employees were awarded options to purchase
714,815 shares at an exercise price of $43.6875 per share.
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 are made from time to time on the
open
(continued)
<PAGE>
-8-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Supplemental Notes To Consolidated Condensed Financial Statements (Unaudited)
- -----------------------------------------------------------------------------
market. Under the program, 3.4 million shares were repurchased on the open
market in 1997. During the six months ended June 30, 1998, no shares were
repurchased under the program.
On June 1, 1998, the Company filed a registration statement on Form S-8
with the Securities and Exchange Commission for the purpose of registering
an additional 1,380,000 shares of Common Stock in connection with its
Amended and Restated 1992 Omnibus Stock Plan.
(4) On February 2, 1998, the Company incurred damage to its Grantley
manufacturing facility in York, PA when tanks used for testing ruptured.
The accident occurred on the third-shift and facilities used in the steel
cutting and rolling operations and heat exchanger production sustained
substantial damage. The Company has taken a number of measures to limit
the disruptions and costs resulting from the accident, including moving
production to other York facilities, outsourcing or subcontracting
production of certain components, and establishing temporary production
elsewhere at the Grantley location. The Company is rebuilding the facility
and fully restoring its production capacity.
The Company maintains insurance for both property damage and business
interruption applicable to its production facilities including Grantley.
The applicable coverage provides for deductibles of $25,000 for property
damage and $25,000 for business interruption. During the first and second
quarter of 1998, the Company recorded a credit of $12.5 million and $5.0
million, respectively, to cost of goods sold reflecting insurance coverage
for estimated incremental expenses and losses included in cost of goods
sold as a result of the accident. This amount does not represent the total
business interruption claim or insurance recovery for the first two
quarters nor has the Company recorded any amount for the property damage
impact (including any insurance recoveries). The Company is continuing to
accumulate information required to determine the total amount for property
damage and business interruption related to the accident for which it will
pursue recovery.
(5) The Company adopted Statement of Financial Accounting Standards No.130
"Reporting Comprehensive Income" in the first quarter of 1998.
Comprehensive income is determined as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Comprehensive Income
--------------------
Net income $42,307 $42,202 $56,971 $57,062
Other comprehensive loss, net of tax:
Foreign currency translation adjustment
(net of tax of $3,113, $899, $4,472,
and $2,101, respectively) $ 6,044 $ 1,911 $ 8,682 $ 4,363
------- ------- ------- -------
Comprehensive income $36,263 $40,291 $48,289 $52,699
======= ======= ======= =======
</TABLE>
(6) 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.
(7) Reference is made to Registrant's 1997 Annual Report on Form 10-K for more
detailed financial statements and footnotes.
<PAGE>
-9-
PART I - FINANCIAL INFORMATION
------------------------------
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
- ---------------------
Net Sales for the three months ended June 30, 1998 increased 0.5% to $888.5
million as compared to $884.4 million for the three months ended June 30, 1997.
Income from operations for the second quarter of 1998 was $74.3 million compared
to $72.3 million for the second quarter of 1997. Net sales for the six months
ended June 30, 1998, decreased 3.2% to $1,630.5 million as compared to $1,685.2
million for the six months ended June 30, 1997. Income from operations for the
six months ended June 30, 1998 increased 4.6% to $108.9 million as compared to
$104.1 million for the six months ended June 30, 1997. The primary factors
affecting revenue in the second quarter were increases in the Unitary Products
revenue offset by a decrease in Asian revenues and the impact of the Grantley
Plant accident. Engineered Products revenue decreased 3.8% from the second
quarter of 1997 primarily as a result of disruptions related to the accident at
the Company's Grantley facility and the economic downturn in Asia. The Unitary
Products Group revenue increased by $30.1 million or 7.5% from 1997. The North
American and Latin American businesses are up significantly from the prior year
and are driving the performance improvement for the Unitary Products Group. In
North America, the unitary industry has been robust while the European and Asian
unitary markets have been weak and have not experienced the level of growth
evidenced in the U.S. The Refrigeration Group had a sales decrease of 10.1% or
$12.2 million from 1997. The decrease was the result of the sale of the German
Commercial Refrigeration Contracting business and a revenue decrease in Asia.
Other than Asia, Refrigeration markets were flat year-over-year.
For the second quarter of 1998, aggregate non-U.S. sales decreased 9.4% from the
second quarter of 1997 to $344.3 primarily as a result of weakness in the Asian
economy partially offset by strong performance in Latin America. Domestic
revenue increased 7.9% to $544.2 million. The increase in domestic revenue is
primarily a result of the domestic unitary market.
Order backlog at June 30, 1998 was $971.0 million which is 20.5% greater than at
June 30, 1997. Domestic backlog increased 23.2% to $581.3 million. All three
businesses experienced increases in backlog compared to June 1997. International
backlog increased 16.7% to $389.7 million. International backlog improved even
with a negative effect from the Asian Economy.
The following table sets forth second quarter revenue by product and geographic
market (in thousands):
Three months ended June 30,
---------------------------
1998 1997
---- ----
Engineered products $350,755 $364,637
Unitary products 429,458 399,334
Refrigeration products 108,268 120,426
-------- --------
Total Revenue $888,481 $884,397
======== ========
U.S. 61% 57%
International 39% 43%
-------- --------
Total 100% 100%
======== ========
Gross profit for the quarter was $194.8 million or 21.9% of sales as compared to
$189.4 million or 21.4% of sales for the second quarter of 1997. Gross profit
for the six months ended June 30, 1998, was $351.9 million or 21.6% of sales as
compared to $353.1 million or 21.0% of sales for the six months ended June 30,
1997. Improved performance in manufacturing facilities and cost reduction
initiatives resulted in a favorable impact on gross profit.
(continued)
<PAGE>
-10-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The 1998 second quarter gross profit includes a $5.0 million receivable to
record a portion of the anticipated insurance recovery from the Grantley
accident. This represents a partial claim for business interruption and
excludes any impact for property damage and property insurance.
Selling, General and Administration (SG&A) expenses increased 2.9% to $120.6
million or 13.6% of sales from $117.1 million or 13.2% of sales for the same
quarter of 1997. For the six months ended June 30, 1998, SG&A expenses decreased
2.4% to $243.0 million or 14.9% of sales compared to $249.0 million or 14.8% of
sales for the six months ended June 30, 1997. Factoring in the impact of lost
sales from the Grantley accident in the second quarter verses expected revenues,
SG&A as a percent of sales in 1998 would have been consistent with 1997. The
SG&A spending levels were effectively controlled in Asia where there was a year-
over-year decline in revenue.
Interest expense decreased to $10.6 million in the second quarter 1998 from
$11.0 million in the same quarter of 1997. This was mainly due to lower average
borrowings offset slightly by higher average rates.
Provision for income taxes of $21.8 million in the second quarter of 1998
relates both to U.S. and non-U.S. operations. A reduction in the level of export
incentives is the primary reason for the slightly higher overall effective tax
rate in the second quarter of 1998 compared to 1997.
Net income, as a result of the above factors, was $42.3 million in the second
quarter of 1998 as compared to net income of $42.2 million in the second quarter
of 1997.
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 $554.6 million and $535.1 million as of June
30, 1998 and December 31, 1997, respectively. The current ratio was 1.74 at June
30, 1998, as compared to 1.78 for December 31, 1997.
Long-term indebtedness was $409.5 million at June 30, 1998, primarily consisting
of borrowings of the $300 million senior notes, commercial paper and bank lines.
As of June 30, 1998, there were no borrowings under the revolving credit
facility.
At June 30, 1998, 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. The Agreement provides for borrowings under
the facility at LIBOR plus .16% or at specified bid rates and a fee of .09% is
paid on the facility. At June 30, 1998, the LIBOR rate was 5.69%. 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 $250.4 million and $245.2 million at
June 30, 1998 and December 31, 1997, respectively, of which $172.2 million and
$175.5 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 5.65% and 5.84% as of
June 30, 1998 and December 31, 1997, respectively.
During the second quarter of 1997, the Company arranged four separate unsecured
bank lines similar to commercial
(continued)
<PAGE>
-11-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
paper. These bank lines provide for total borrowings of $295 million which are
expected to be reborrowed in the ordinary course of business. At June 30, 1998
and December 31, 1997, the Company had $81.6 million and $169.8 million,
respectively outstanding under these bank lines. The average rate on the bank
lines was 5.75% and 5.92%, at June 30, 1998 and December 31, 1997, respectively.
At June 30, 1998 and December 31, 1997 the Company had $300 million and $100
million of Senior Notes outstanding, respectively. In July 1995, the Company
registered $200 million in debt securities with the Securities and Exchange
Commission to be offered at a future time. On June 1, 1998 the Company issued
$200 million of 6.70% fixed rate Senior Notes having a maturity of ten years
from the date of issue, June 2008. The proceeds from the sale of the notes were
used to pay down the Company's commercial paper borrowings and bank lines. The
$100 million of Senior Notes issued in March 1993 bear interest at a 6.75% fixed
rate and are due March 2003.
During 1995, the Company arranged a term loan denominated in a foreign currency.
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. The term loan agreement contains financial and operating
covenants that are equivalent to the covenants of the Company's Amended and
Restated Credit Agreement.
In 1992, the Company sold a fractional ownership interest in a defined pool of
trade accounts receivable for $100 million. At June 30, 1998 and December 31,
1997, the discount rate on the accounts receivable sold was approximately 5.57%
and 5.78%, respectively.
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 and commercial paper
borrowings.
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 enters into these financial instruments to manage
financial market risk, including foreign exchange, commodity price and interest
rate risk. The Company enters into these financial instruments utilizing 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.
Capital expenditures currently anticipated for expanded capacity, cost
reductions and the introduction of new products during the next twelve months
will be in excess of depreciation and amortization. These expenditures will be
funded from a combination of operating cash flows and availability under the
revolving credit facility and commercial paper borrowings.
Cash dividends of $0.12 per share were paid on common stock in the second
quarter of 1998. The declaration and payment of future dividends will be at the
sole discretion of the Board of Directors and will depend upon such factors as
the Company's profitability, financial condition, cash requirements and future
prospects.
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
(continued)
<PAGE>
-12-
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
incremental costs to the Company, but rather will represent the redeployment of
existing information technology resources or be a component of planned system
improvements.
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 relating to risk of loss, for 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 Statement
of Financial Accounting Standards 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 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 fiscal
years beginning after December 15, 1997.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No.133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
Adoption of these statements is not expected to have a material effect on the
Company's financial statements.
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 including, but not limited to competition,
government regulation, environmental considerations and year 2000 remediation
plans. Unseasonably cool spring or summer weather in the United States or in
Europe could adversely affect the Registrant's residential air conditioning
business. The Engineered air conditioning business could be affected by a
slowdown in the large chiller market, by the level of CFC retrofits, the
rebuilding of the Grantley Manufacturing facility and resolution of the
insurance recovery. Overall performance of the Registrant was affected by the
economic conditions in Asia and future anticipated performance could be affected
by any serious economic downturns in the United States, Europe, Latin America,
or further issues in Asia.
<PAGE>
-13-
PART II OTHER INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Stockholders was held on May
14, 1998.
(b) Proxies were solicited for the meeting. All nominees for
Director were elected and item (c) 2 (see below) was approved.
(c) The following votes were cast at the Annual Meeting for the
matters indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors Votes For Votes Withheld
----------------------- ---------- --------------
Malcolm W. Gambill 38,905,137 309,454
Robert F. B. Logan 38,906,498 308,093
Gerald C. McDonough 38,904,098 310,493
Robert N. Pokelwaldt 38,880,447 334,144
Donald M. Roberts 38,907,133 307,458
John R. Tucker 38,904,137 310,454
James E. Urry 38,892,125 322,466
John E. Welsh 38,906,148 308,443
Walter B. Wriston 38,848,670 365,921
2. The appointment of Votes For Votes Against
KPMG Peat Marwick LLP ---------- --------------
as independent auditors 39,175,309 10,273
</TABLE>
Item 5 Other Information
(a) On June 25, 1998, York International Corporation announced the
appointment of Benson K. Woo to the position of Corporate Vice
President and Chief Financial Officer.
(b) Date for submission of stockholder proposals
Stockholder proposals to be included in the Company's proxy
materials for the 1999 Annual Meeting of Stockholders must be
received at the Company's principal executive offices not later
than November 30, 1998.
(continued)
<PAGE>
-14-
PART II OTHER INFORMATION
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 5 Other Information (cont'd)
Stockholder proposals not submitted for inclusion in the
Company's proxy materials may be raised at the annual meeting
if notice is provided to the Company in accordance with the
Company's By-Laws. Pursuant to the By-Laws, 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. In order to be presented at the
1999 Annual Meeting, notice of a stockholder proposal must be
received by the Company's Secretary no later than March 15,
1999. 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.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 11 Statement RE: Computation of Per Share Earnings (filed
herewith)
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K.
On May 28, 1998, the Registrant filed Report on Form 8-K (Items 5
and 7) regarding the change of trustee in connection with a new
series of Senior Notes and the Senior Indenture.
On June 1, 1998, the Company issued $200 million of 6.70% fixed
rate Senior Notes having a maturity of ten years from the date of
issue. The proceeds from the sale of the notes were used to pay
down the Company's commercial paper borrowings and bank lines.
<PAGE>
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned unto duly authorized.
YORK INTERNATIONAL CORPORATION
------------------------------
Registrant
Date August 10, 1998 /s/ Benson K. Woo
----------------- ------------------------------------------
Vice President and Chief Financial Officer
<PAGE>
-16-
EXHIBIT INDEX
- -------------
Exhibit No. Description
- ----------- -----------------------------------------------------------------
11 Statement re: Computation of Per Share Earnings (filed herewith)
27 Financial Data Schedule (EDGAR only)
<PAGE>
EXHIBIT 11
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
In thousands of dollars
(except per share data):
Net income for calculation
of basic and diluted
earnings per share $ 42,307 $ 42,202 $ 56,971 $ 57,062
======= ======= ======= =======
Shares used in computation
of per share earnings:
Basic shares outstanding 40,582 42,933 40,554 43,004
Effect of dilutive
securities:
Non-vested restricted
shares 168 209 168 209
Stock options 294 347 130 504
------- ------- ------- -------
Diluted shares outstanding 41,044 43,489 40,852 43,717
======= ======= ======= =======
Basic earnings per share $ 1.04 $ 0.98 $ 1.40 $ 1.33
Diluted earnings per share $ 1.03 $ 0.97 $ 1.39 $ 1.31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1998 (UNAUDITED), THE CONSOLIDATED CONDENSED BALANCE SHEETS AT JUNE 30, 1998
(UNAUDITED), AND THE CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,671
<SECURITIES> 0
<RECEIVABLES> 597,097
<ALLOWANCES> 18,132
<INVENTORY> 522,937
<CURRENT-ASSETS> 1,306,148
<PP&E> 695,456
<DEPRECIATION> 335,295
<TOTAL-ASSETS> 2,073,040
<CURRENT-LIABILITIES> 751,524
<BONDS> 409,455
0
0
<COMMON> 221
<OTHER-SE> 691,513
<TOTAL-LIABILITY-AND-EQUITY> 2,073,040
<SALES> 1,630,469
<TOTAL-REVENUES> 1,630,469
<CGS> 1,278,598
<TOTAL-COSTS> 1,278,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,512
<INTEREST-EXPENSE> 21,699
<INCOME-PRETAX> 86,320
<INCOME-TAX> 29,349
<INCOME-CONTINUING> 56,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,971
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.39
</TABLE>
