<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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
Notice of [LOGO OF YORK
APPEARS HERE] YORK(R)INTERNATIONAL
1999 -------------------------------------------------
CORPORATION
Annual
Meeting
Proxy
Statement TO THE STOCKHOLDERS:
You are cordially invited to attend the
Annual 1999 Annual Meeting of Stockholders of York
International Corporation (the "Company"). It
Financial will be held at the Yorktowne Hotel, York,
Pennsylvania on Thursday, May 13, 1999 at
Statements 1:30 p.m., EDT, to consider and act on the
following matters:
and
Review of
Operations
1. Election of a Board of Directors to hold office for one year.
2. Amendment of the Company's Employee Stock Purchase Plan.
3. Amendment of the Company's 1996 Incentive Compensation Plan.
4. Ratification of the appointment of KPMG LLP as independent accountants.
5. The transaction of any other business properly brought before the meeting.
Stockholders of record at the close of business on March 24, 1999 will be
entitled to notice of and to vote at the meeting.
If you cannot attend the meeting, please take the time to promptly sign, date
and mail the enclosed proxy in the envelope we have provided. A majority of the
outstanding 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 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.
By Order of the Board of Directors
JANE G. DAVIS
Vice President, Secretary and
General Counsel
March 25, 1999
<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
1999 Annual Meeting of Stockholders to be held on May 13, 1999 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 $5,000 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 1999
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 24, 1999
(the "Record Date") are entitled to notice of and to vote at the 1999 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 24, 1999, the
Company had 39,864,887 shares of Common Stock outstanding and entitled to vote
at the meeting (42,736,126 shares if adjusted to include all stock options
exercisable within sixty days after March 24, 1999).
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
April 2, 1999.
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
<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 (62). . . . . . . . . .Chairman of the Board of Directors 1991
and Chief Executive Officer
Malcolm W. Gambill (68). . . . . . . . . . .Retired Chairman of the Board and Chief 1993
Executive Officer of Harsco Corporation
Robert F. B. Logan (66). . . . . . . . . . .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 (70). . . . . . . . . . Private Business Consultant 1988
Donald M. Roberts (63). . . . . . . . . . . Retired Vice Chairman and Treasurer of 1988
United States Trust Company of New York
and U.S. Trust Corporation
John R. Tucker (51). . . . . . . . . . . . .President and Chief Operating Officer 1998
James A. Urry (45). . . . . . . . . . . . . Vice President of Citicorp Venture 1992
Capital Ltd.
John E. Welsh, III (48). . . . . . . . . . .Vice Chairman of Skytel 1990
Communications, Inc.
Walter B. Wriston (79). . . . . . . . . . . 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., A.O. Smith Corporation, and Carpenter
Technology Corporation.
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 Motoren 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., Airxcel, Inc., and Brunner Mond Holdings Ltd.
Mr. Welsh has been Vice Chairman of Skytel Communications, Inc. 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 Skytel Communications, Inc. 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 three meetings in 1998.
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 two meetings in 1998.
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, including 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 14, 1998 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 become exercisable to
the extent of 25% of the underlying shares on each of the next
5
<PAGE>
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 six meetings in 1998. 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, with the exception of Mr. McDonough, who attended
66 2/3% of such meetings.
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. 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 1998, 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. The 1996 grant expired at the end of 1998 with no
Performance Units having been earned since the Company did not meet either the
target based on the Company's cumulative earnings per share or the target for
total return to stockholders. In March 1999, the Compensation Committee
approved, subject to stockholder approval of the Amendment to the Incentive
Compensation Plan set forth in Proposal Three, the grant of Performance Units to
all Participants, including all of the Company's executive officers, with a
Performance Objective based solely on total return to stockholders as compared
to the Industrial Component of the Standard & Poor's Midcap 400 Index.
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 1998, 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. Beginning in 1999, the Compensation Committee is
implementing a program linking the exercisability of stock options granted to
key employees to the Company's stock price performance.
8
<PAGE>
In 1998, the Compensation Committee granted restricted stock awards to
three executive officers in connection with the start of their employment with
the Company. In August 1994, in order to assure the retention of 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 each of 1997 and 1998. The remaining 20% of the shares will vest in 1999.
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 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 1998 compensation, including base salary, bonus 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 no increase in his base compensation in 1998 but
did receive an increase in the percentage of his salary which he could earn as a
bonus, dependent upon the Company's performance against its earnings per share
target. This reflects the Compensation Committee's desire to link total pay with
performance. During 1998, under Mr. Pokelwaldt's leadership, the Company began a
strategic initiative called the "Premier Performance Process," which includes
elements relating to quality in all aspects of the Company's operations,
improvements in manufacturing processes and a leadership development program. In
part as a result of these actions, the Company's earnings per share for 1998
exceeded the target which had been established and Mr.
Pokelwaldt received a bonus of $947,556.
In 1998, Mr. Pokelwaldt received a grant of 11,676 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 2000. For the 1996 grant, which was measured at
the end of 1998, Mr. Pokelwaldt did not receive any payment, since the Company
did not meet the threshold performance objectives.
In 1998, Mr. Pokelwaldt was also awarded options to purchase 25,000 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
9
<PAGE>
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). In
order to continue such deductibility, the Company is submitting the proposed
Amendment to the Incentive Compensation Plan set forth in Proposal Three for
approval by the stockholders.
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, 1998.
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Annual Securities
Compensation (1)(2) Restricted Underlying
------------------- Stock Options All Other
Name Year Salary Bonus Award (3) Granted (4) Compensation (5)
---- ---- ------ ----- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Pokelwaldt ........... 1998 $700,000 $947,556 0 25,000 $11,776
Chairman of the Board and 1997 688,667 0 0 40,000 11,507
Chief Executive Officer 1996 618,333 543,090 0 40,000 10,159
John R. Tucker ................ 1998 445,833 750,000 0 24,000 2,798
President and Chief 1997 79,003 200,000 $1,129,688 40,000 391
Operating Officer
Michael R. Young .............. 1998 400,000 547,733 0 8,000 8,487
Vice President, President 1997 400,000 0 535,000 30,000 21,794
and Chief Executive Officer,
Bristol Compressors
Stuart R. Amos ................ 1998 250,000 361,390 216,875 10,000 1,954
Vice President and President,
Unitary Products Group
Peter C. Spellar................ 1998 312,500 215,899 0 8,000 2,931
Vice President and President, 1997 291,667 0 0 10,000 2,684
Engineered Systems Group 1996 245,000 234,342 0 12,000 2,324
</TABLE>
(1) No compensation that would be categorized as "Other Annual Compensation"
was paid to officers in any of the years presented.
(2) 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 1998 and shown in the Long-Term
Incentive Plans - Awards in Last Fiscal Year Table.
(3) The restricted stock holdings of the officers and the value of such
holdings as of December 31, 1998, based upon the 1998 year-end closing
price (net of the purchase price paid by the officer) are as follows:
Mr. Pokelwaldt - 5,000 shares ($204,057), Mr. Tucker - 25,000 shares
($995,312), Mr. Young - 10,000 shares ($398,125), Mr. Amos 5,000 -
shares ($199,062), and Mr. Spellar - 2,800 shares ($114,272). Any
dividends payable with respect to Common Stock will be paid with respect
to the restricted stock. Messrs. Pokelwaldt and Spellar received
restricted stock in 1994, which vested 40% on the second anniversary of
the grant and 20% on each of the three subsequent anniversaries. Messrs.
Tucker and Young received 25,000 shares and 10,000 shares, respectively,
of restricted stock in 1997 and Mr. Amos received 5,000 shares in
11
<PAGE>
1998. In each instance, the stock vests 50% on the second anniversary of
the grant and 25% on each of the two subsequent anniversaries.
(4) Excludes options to purchase Common Stock at 85% of fair market value
through automatic payroll deductions acquired in December 1998 under the
1992 Employee Stock Purchase Plan ("Purchase Plan"), in which Messrs.
Pokelwaldt, Tucker, Young, Amos, and Spellar each elected to
participate, and pursuant to which and Messrs. Pokelwaldt and Tucker
each acquired 631 shares, Mr. Young acquired 630 shares, Mr. Amos
acquired 105 shares and Mr. Spellar acquired 570 shares of Common Stock.
(5) 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 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:
Investment Plan Insurance
Contributions Premium
------------- -------
R. N. Pokelwaldt $2,650 $9,126
John R. Tucker 517 2,281
M. R. Young 8,487* 0
Stuart R. Amos 750 1,204
P. C. Spellar 1,419 1,512
* 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 1998 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 (4) to the Summary Compensation Table above).
Option Grants in 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
% of
Number of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted Price Appreciation for Option
Options to All Exercise Term (End of Year Value) (1)
Granted Employees Price Per Expiration ---------------------------------
Name (Shares) (2) in 1998 Share Date 0% 5% (3) 10% (3)
---- ------------ ------- ----- ---- -- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
R. N. Pokelwaldt. . . . . . . 25,000 3.1% $43.6875 03/03/08 $0 $686,813 $1,740,563
J. R. Tucker. . . . . . . . . 24,000 3.0 43.6875 03/03/08 0 659,340 1,670,940
M. R. Young . . . . . . . . . 8,000 1.0 43.6875 03/03/08 0 219,780 556,980
S. R. Amos. . . . . . . . . . 10,000 1.3 43.6875 03/03/08 0 274,725 696,225
P. C. Spellar . . . . . . . . 8,000 1.0 43.6875 03/03/08 0 219,780 556,980
</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
12
<PAGE>
forecast possible future appreciation, if any, of the Common Stock. The
market value of the Common Stock on the March 3, 1998 grant date was
$43.6875; the value of the Common Stock at the end of those options' term
based on a compounded 5% growth rate would be $71.16 per share and based
on a compounded 10% growth rate would be $113.31 per share.
(2) The options are non-qualified, non-transferable other than by will or the
laws of descent and distribution, and 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 1998 Year-End Option Values
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning 1998 year-end stock option
values. None of these individuals exercised any options during 1998.
Aggregated Option Exercises in Last
Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options
Acquired Realized Options at 1998 Year-End at 1998 Year-End (1)
-------- -------- ------------------------ --------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
R. N. Pokelwaldt. . . . . . . . . . 0 0 155,610/ 25,000 $ 347,358/ 0
J. R. Tucker. . . . . . . . . . . . 0 0 15,000/ 49,000 0/ 0
M. R. Young . . . . . . . . . . . . 0 0 30,000/ 8,000 0/ 0
S. R. Amos. . . . . . . . . . . . . 0 0 0/ 10,000 0/ 0
P. C. Spellar . . . . . . . . . . . 0 0 51,700/ 8,000 104,182/ 0
</TABLE>
- -----------
(1) Based upon an assumed fair market value of $40.8125 per share, which was
the closing price on the New York Stock Exchange of the Common Stock on
December 31, 1998.
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 1998 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>
Number of
Shares, Units Performance or
or Other Other Period Until
Name Rights Maturation or Payout
- ---- ------ --------------------
R. N. Pokelwaldt. . . . . . . . . . . 11,676 12/31/00
J. R. Tucker. . . . . . . . . . . . . 7,089 12/31/00
M. R. Young . . . . . . . . . . . . . 5,338 12/31/00
S. R. Amos. . . . . . . . . . . . . . 3,781 12/31/00
P. C. Spellar . . . . . . . . . . . . 4,003 12/31/00
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 1998 the Code limits
to $160,000 the amount of earnings which may be taken into account to calculate
benefits, and to $130,000 the benefits payable. The limits are adjusted annually
for inflation.
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
-------------------- ------- ------- ------- ------- -------
$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
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, 1998, for
each of the officers named in the Summary Compensation Table above were as
follows: Mr. Pokelwaldt - $739,884, 10 years; Mr. Tucker - $610,833, 1 year; Mr.
Spellar - $377,322, 6 years. Mr. Amos was not eligible to participate in 1998
since he had less than one year of service.
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 and Mr. Amos.
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 1998 salaries and bonuses as of December
31, 1998, would be approximately: Mr. Pokelwaldt - $914,338, 20 years; Mr.
Tucker - $670,833, 1 year; Mr. Spellar - $367,806, 20 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, 1993 through December 31,
1998 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, 1993 and that all dividends were reinvested.
COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN
AMONG YOUR INTERNATIONAL, THE S&P MIDCAP 400 INDEX,
THE INDUSTRIAL COMPONENT OF THE S&P MIDCAP 400 INDEX
AND THE S&P ELECTRICAL EQUIPMENT INDEX
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
YORK INTERNATIONAL 100.00 105.05 134.64 161.20 115.42 120.50
S&P ELECTRICAL EQUIPMENT - 500 100.00 101.17 141.97 194.98 274.77 368.77
S&P MIDCAP 400 INDEX 100.00 96.42 126.25 150.49 199.03 237.05
INDUSTRIAL COMPONENT OF THE S&P MIDCAP 400 100.00 101.32 139.40 171.40 228.59 293.91
</TABLE>
16
<PAGE>
OWNERSHIP OF COMMON STOCK
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of February 28, 1999 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). . . . . . . . . . . . . . . . . . . . . . . 412,297 1.0
Malcolm W. Gambill (c). . . . . . . . . . . . . . . . . . . . . . . . 14,148 *
Robert F. B. Logan (d). . . . . . . . . . . . . . . . . . . . . . . . 85,835 *
Gerald C. McDonough (e) . . . . . . . . . . . . . . . . . . . . . . . 69,650 *
Donald M. Roberts (f) . . . . . . . . . . . . . . . . . . . . . . . . 78,400 *
John R. Tucker (g). . . . . . . . . . . . . . . . . . . . . . . . . . 64,631 *
James A. Urry (h) . . . . . . . . . . . . . . . . . . . . . . . . . . 12,429 *
John E. Welsh, III (i). . . . . . . . . . . . . . . . . . . . . . . . 9,400 *
Walter B. Wriston (j) . . . . . . . . . . . . . . . . . . . . . . . . 11,450 *
Michael R. Young (k). . . . . . . . . . . . . . . . . . . . . . . . . 49,077 *
Stuart R. Amos (l). . . . . . . . . . . . . . . . . . . . . . . . . . 15,105 *
Peter C. Spellar (m). . . . . . . . . . . . . . . . . . . . . . . . . 121,054 *
All directors and executive officers of the Company as a group
(21 persons) (n). . . . . . . . . . . . . . . . . . . . . . . . . 1,519,112 3.7 9%
</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 205,610 shares issuable upon exercise of options.
(c) Includes 7,000 shares issuable upon exercise of options, and 4,148 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, 7,000 shares issuable upon exercise of options, and
3,242 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(e) Includes 7,000 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, 7,000 shares issuable upon exercise of options, and
1,007 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(g) Includes 39,000 shares issuable upon exercise of options.
17
<PAGE>
(h) Includes 7,000 shares issuable upon exercise of options, and 4,429 shares
representing Director fees deferred into the York Common Stock Fund of the
Company's Deferred Compensation Plan.
(i) Includes 7,000 shares issuable upon exercise of options.
(j) Includes 7,000 shares issuable upon exercise of options.
(k) Includes 38,000 shares issuable upon exercise of options.
(l) Includes 10,000 shares issuable upon exercise of options.
(m) Includes 30,000 shares held in trust for Mr. Spellar's children, as to which
he disclaims any beneficial ownership, and 59,700 shares issuable upon
exercise of options.
(n) Includes 608,361 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>
Capital Research and
Management Company (1) 0 0 5,567,300 0 5,567,300 13.9%
333 S. Hope St.
Los Angeles, CA 90071
Amvescap PLC (2)
11 Devonshire Square 0 5,162,329 0 5,162,329 5,162,329 12.63%
London EC2 M4YR
England
Brinson Partners, Inc. (3)
209 South Lasalle 0 3,784,283 0 3,784,283 3,784,283 9.4%
Chicago, IL 60604-1295
</TABLE>
(1) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 11, 1999.
(2) Based on a Schedule 13G filed by Amvescap PLC with the Securities and
Exchange Commission on February 11, 1999 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., Invesco Capital
Management, Inc., INVESCO Funds Group, Inc., INVESCO Management & Research,
Inc., INVESCO Realty Advisers, Inc., and INVESCO (NY) Asset Management,
Inc.
(3) Based on a Schedule 13G filed by Brinson Partners, Inc. ("BPI") with the
Securities and Exchange Commission on February 17, 1999 on behalf of itself
and UBS AG.
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.
18
<PAGE>
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE 1992 EMPLOYEE STOCK PURCHASE PLAN
The 1992 Employee Stock Purchase Plan (the "Purchase Plan") provides
eligible employees an added incentive to advance the best interests of the
Company by enabling them to purchase voluntarily the Common Stock of the Company
at a favorable price and on favorable terms. The Purchase Plan was approved by
the stockholders and adopted by the Company in 1993.
Amendment
The Purchase Plan as originally adopted provides that an aggregate of
1,500,000 shares of Common Stock may be sold pursuant to the Purchase Plan,
subject to adjustment as described below. As of March 24, 1999, 1,189,962 shares
had been issued pursuant to the Purchase Plan, leaving only 310,038 shares
available for future purchase. In order to provide for the continued purchase of
Common Stock of the Company by employees pursuant to the Purchase Plan, the
Board of Directors has adopted, subject to stockholder approval, an amendment
(the "Purchase Plan Amendment") to the Purchase Plan that would increase the
number of shares of Common Stock permitted to be sold thereunder by 500,000
shares. A copy of the Purchase Plan Amendment is attached as Exhibit A. The
Board of Directors has authorized a stock repurchase program pursuant to which
shares repurchased may be used for issuance under the Purchase Plan.
Description of the Purchase Plan
The salient features of the Purchase Plan are as follows:
The Purchase Plan is administered by a committee (the "Committee") of
the Board of Directors, none of whom are eligible to participate in the Purchase
Plan. The members of the Committee will serve until resignation, removal by the
Board or death. The Committee will have the power to make, amend and repeal
rules and regulations for the interpretation and administration of the Purchase
Plan. All costs and expenses incurred in administering the Purchase Plan will be
paid by the Company.
From time to time the Committee grants to eligible employees options to
purchase shares of Common Stock under the Purchase Plan through a payroll
deduction program. These options are granted once a year on a date selected by
the Committee, with the exception of newly hired employees who may enroll in the
Purchase Plan on a quarterly basis. The term of each option is a 12-month
period, or for newly hired employees a 9-month, 6-month or 3-month period,
beginning on the day the option is granted. The number of shares of Common Stock
subject to each option is the quotient of the payroll deductions authorized by
the participant extended for the option period divided by 85% of the fair market
value of the Common Stock on the grant date (rounded to yield whole shares).
Under the Purchase Plan, the fair market value of the Common Stock as of any
particular date is the last sales price per share of the Common Stock on the
composite tape prior to such date. Amounts deducted from a participant's pay
will be credited to his stock purchase account.
19
<PAGE>
An option will be exercised automatically on the last day of the option
period (the "exercise date"), at which time the Company will deduct from the
participant's stock purchase account an amount sufficient to purchase up to the
number of shares of the Common Stock subject to the participant's option at the
option exercise price. The exercise price per share will be equal to 85% of the
fair market value of the Common Stock on the grant date or the exercise date,
whichever is less. The balance of the participant's account, if any, will be
refunded to him promptly after the exercise date.
All U.S. and most non-U.S. employees of the Company scheduled to work
at least 20 hours per week or more than five months during the option term are
eligible to purchase shares of the Common Stock under the Purchase Plan through
regular payroll deductions (valued in United States dollars) of not less than
$5.00 nor more than 10% of their eligible compensation (as defined in the
Purchase Plan) per pay period. No options may be granted under the Purchase Plan
to an employee who immediately after the granting of an option would own stock
of the Company possessing more than 5% of the total combined voting power of all
classes of stock of the Company. No participant may be granted an option under
the Purchase Plan which would permit his or her rights to purchase shares of
Common Stock under the Purchase Plan to accrue at a rate which exceeds $25,000
of fair market value of such shares (determined at the time the option is
granted) for each calendar year in which such option is outstanding. On March
24, 1999, the Company and its consolidated subsidiaries had approximately 16,800
employees, including executive officers, who were eligible to participate in the
Purchase Plan.
An employee's participation in the Purchase Plan shall be terminated
when he or she (a) voluntarily withdraws from the Purchase Plan; (b) resigns or
is discharged; or (c) retires or dies. Upon such termination, all funds in a
participant's account will be refunded without interest, except that upon
retirement or death, a participant or his or her legal representative may elect
to exercise any outstanding option of the participant. A participant who
withdraws from the Purchase Plan shall be eligible to participate again in the
Purchase Plan upon expiration of the option period during which he or she
withdrew.
An aggregate of 1,500,000 shares of authorized but unissued Common
Stock of the Company have previously been reserved for issuance under the
Purchase Plan. In the event of a stock dividend or a subdivision, combination or
reclassification of the Common Stock, the Board of Directors may, at its option,
terminate the Purchase Plan, or the Committee may, at its option, appropriately
adjust the maximum number of shares subject to the Purchase Plan. The closing
price of the Common Stock on December 31, 1998 was $40.81 (the "Market Price").
Accordingly, the exercise price of the options to purchase shares granted under
the Purchase Plan in January 1999 will be the lower of 85% of such amount
($34.69 (the "Plan Price")) or 85% of the closing price on December 31, 1999.
The closing price of the Common Stock on March 24, 1999, was $34.375. The
benefits or amounts that will be received by any individual under the Purchase
Plan in 1999 are not determinable at this time because the December 31, 1999
closing price of the Common Stock could affect the exercise price. In the fiscal
year ended December 31, 1998, the aggregate dollar value and number of shares
received by all executive officers as a group were $214,180.69 and 5,462,
respectively; and the aggregate dollar value and number of shares received by
all non-executive officer employees as a group were $8,623,919 and 218,061,
respectively. For information regarding certain executive officers, see the
Summary Compensation Table.
20
<PAGE>
Tax Consequences
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under the provisions of Sections 421 and 423 of the Code. Under the
provisions, no income will be taxable to a participant at the time of grant or
purchase of shares under the Purchase Plan. As summarized below, a participant
may become liable for tax upon disposition of the shares acquired. The character
of any gain or loss upon disposition will depend upon how long the shares have
been held by the participant.
If shares are held by the participant for more than two years after the
grant or if the participant dies at any time while owning the shares, the lesser
of (a) the excess of the fair market value of the shares on the date of such
disposition or death over the purchase price, or (b) 15% of the fair market
value of the shares on the date of grant will be treated as ordinary income to
the participant at the time of any disposition or for the taxable year closing
with his or her death. Any further gain upon such disposition will be deemed a
long-term capital gain.
If the shares are sold or disposed of before the expiration of the
holding period described above, the excess of the fair market value of the
shares on the exercise date over the purchase price will be treated as ordinary
income to the participant at the time of disposition. This excess will
constitute ordinary income in the year of sale or other disposition even if no
gain is realized on the sale or a gratuitous transfer of the shares is made. The
balance of any gain will be treated as capital gain and would be deemed a
long-term gain if the shares have been held more than one year.
There are no federal income tax consequences to the Company by reason
of the grant or exercise of options pursuant to the Purchase Plan. The Company
is not entitled to a deduction for amounts taxed as ordinary income to a
participant, except to the extent that ordinary income is reportable by a
participant upon disposition of shares before the expiration of the holding
period described above.
The Board of Directors recommends a vote FOR approval of the Purchase Plan
Amendment.
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE 1996 INCENTIVE COMPENSATION PLAN
The Company's 1996 Incentive Compensation Plan (the "Incentive
Compensation Plan") provides certain management and key employees who are in a
position with the Company or its subsidiaries to contribute materially to the
success and profitability of the Company an incentive and reward for doing so
and assists the Company in attracting and retaining the highest caliber of
management and key employees. The Incentive Compensation Plan was approved by
the stockholders and adopted by the Company in 1996.
Introduction
The Incentive Compensation Plan consists of an annual cash incentive
program (the "Annual Cash Program") and a mid-term performance unit program (the
"Mid-Term Program") based on rolling three-year periods (each, a "Measurement
Period"). Awards under the Incentive Compensation Plan are based upon the
achievement of certain performance objectives developed
21
<PAGE>
through the Company's business planning process and approved by the Compensation
Committee shortly after the beginning of each fiscal year for the Annual Cash
Program and each Measurement Period for the Mid-Term Program. Awards under the
Mid-Term Program are made in performance units (the "Performance Units") which,
to the extent earned during a Measurement Period, are paid out based on the
average price of the Company's Common Stock at the end of the Measurement
Period. Awards under the Incentive Compensation Plan are intended to qualify as
"performance-based" compensation within the meaning of Section 162(m) of the
Code. Section 162(m) of the Code limits the deductibility of compensation paid
to the Company's Chief Executive Officer (the "CEO") and each of the next four
most highly compensated officers unless such compensation is
"performance-based."
Amendment
The Mid-Term Program of the Incentive Compensation Plan as originally
adopted provides that mid-term performance objectives (the "Mid-Term Performance
Objectives") applicable to the CEO and the next four most highly compensated
officers must be composed of only both cumulative earnings per share over a
----
specified period and total return to shareholders as compared to a relevant
index of publicly traded companies. A number of other objectively measurable
Mid-Term Performance Objectives are permitted for other Participants. In order
to provide the Compensation Committee with greater flexibility in determining
Mid-Term Performance Objectives that are most beneficial to the Company at a
given point, the Board of Directors has adopted, subject to stockholder
approval, an amendment and restatement (the "Incentive Compensation Plan
Amendment") of the Incentive Compensation Plan. Pursuant to the Incentive
Compensation Plan Amendment, the Compensation Committee may select from one or
more of the following Mid-Term Performance Objectives for the CEO and the next
four most highly compensated officers, as well as other key employees:
cumulative earnings per share over a specified period, total return to
shareholders as compared to a relevant index of publicly traded companies, fully
diluted earnings per share, division earnings before interest and taxes (after a
pro-forma charge for the cost of capital), revenue, sales, profit after tax,
gross profit, operating profit, unit volume, return on equity, change in working
capital, return on capital, cashflow and total shareholder return. The Incentive
Compensation Plan permits the Committee to use a different combination of
Mid-Term Performance Objectives for different Participants. Subject to
stockholder approval of the Incentive Compensation Plan Amendment, the
Compensation Committee has established the 1999 Mid-Term Performance Objective
for all Participants, including the CEO and the next four most highly
compensated officers, based on total return to stockholders as compared to the
Industrial Component of the Standard & Poor's Midcap 400 Index. Stockholder
approval of the Incentive Compensation Plan Amendment is necessary to ensure
that awards under the Incentive Compensation Plan continue to qualify as
"performance-based" compensation within the meaning of Section 162(m) of the
Code. A copy of the Incentive Compensation Plan, as amended and restated, is
attached as Exhibit B.
Description of the Incentive Compensation Plan
The salient features of the Incentive Compensation Plan are as follows:
Purpose
The purpose of the Incentive Compensation Plan is to (i) attract, retain
and motivate a high caliber management team, (ii) further the Company's business
strategies and support
22
<PAGE>
effective management decisions, (iii) create a closer link between compensation
and total stockholder returns and (iv) effectively balance short- and mid-term
compensation in order to encourage focus on both short and longer term
objectives.
Under the Company's former incentive compensation plan, awards were
tied directly to the business planning process and driven by the achievement of
budgeted goals based upon objective measures of the financial and operating
performance of the Company and its divisions. The Incentive Compensation Plan
retains these benefits while (i) encouraging the achievement of more aggressive
targets, (ii) creating an appropriate balance between overall Company and
divisional performance, (iii) increasing the linkage between total stockholder
returns and compensation under the Incentive Compensation Plan and (iv) creating
a balance between short- and mid-term objectives by introducing the Mid-Term
Program based on successive three-year plans.
Administration
The Incentive Compensation Plan is administered by the Compensation
Committee composed of two or more directors who are (i) "disinterested persons,"
as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) "outside directors" as defined in the applicable
regulations under Section 162(m) of the Code. Subject to the terms of the
Incentive Compensation Plan, the Compensation Committee has the authority to (i)
approve the selection of the participants in the Incentive Compensation Plan,
(ii) approve the determination of the performance measures for each participant
under the Incentive Compensation Plan, (iii) certify the degree of achievement
of the annual performance objectives (the "Annual Performance Objectives") and
the Mid-Term Performance Objectives and (iv) authorize the payment to each
participant of his or her annual cash award (the "Annual Cash Award") and
mid-term incentive award (the "Mid-Term-Incentive Award"). The Compensation
Committee does not have discretion to modify the terms of the Annual Cash Award
or Performance Units once established.
The Board or the Compensation Committee, without further approval by
the stockholders, may amend or terminate the Incentive Compensation Plan so long
as such termination or amendment does not, without the consent of any
participant, affect a participant's rights with respect to awards previously
granted to him or her. No outstanding award may be amended in a manner
inconsistent with the Incentive Compensation Plan. Moreover, no amendment that
would require stockholder approval under Section 162(m) of the Code may be made
without such approval.
Eligibility
Any individual who is the CEO of the Company, or is acting in such
capacity, or is among the next four highest compensated officers and any other
management or key employee recommended by the Company's management and approved
by the Compensation Committee may participate in the Incentive Compensation Plan
(each, a "Participant" and collectively, the "Participants"). As of March 24,
1999, approximately 414 employees met the criteria for the Annual Cash Program
and approximately 80 employees met the criteria for the Mid-Term Program.
23
<PAGE>
Plan Awards
Annual Cash Program - Annual Cash Awards are determined in accordance
with pre-established Annual Performance Objectives developed through the
Company's business planning process and approved by the Compensation Committee.
The Annual Performance Objectives are composed of one or more of the following:
fully diluted earnings per share, division earnings before interest and taxes
(after a pro-forma charge for the cost of capital), revenue, sales, profit after
tax, gross profit, operating profit, unit volume, return on equity, changes in
working capital, return on capital, cashflow, total stockholder return or, for
Participants other than the CEO and the next four highest compensated officers,
other objectively measurable goals approved by the Compensation Committee. The
Committee may use a different combination of Annual Performance Objectives for
different Participants.
Each Participant's individual potential bonus level will be based on
several factors, including market competitive data, job responsibilities, the
aggressiveness of a financial target relative to prior year performance and
other economic factors. At the end of the Company's fiscal year, the
Compensation Committee will approve the payment to each Participant of his or
her Annual Cash Award, if any, based on the achievement of the Annual
Performance Objectives for the fiscal year. The maximum annual amount payable to
a Participant under the Annual Cash Program is $2 million.
Mid-Term Program - The Mid-Term Program covers successive Measurement
Periods. Assuming the Incentive Compensation Plan Amendment is approved by the
stockholders, the Mid-Term Performance Objectives applicable to each Measurement
Period will be composed of one or more of the following: cumulative earnings per
share over a specified period, fully diluted earnings per share, division
earnings before interest and taxes (after a pro-forma charge for the cost of
capital), revenue, sales, profit after tax, gross profit, operating profit, unit
volume, return on equity, change in working capital, return on capital,
cashflow, total shareholder return, and total return to stockholders as compared
to a relevant index of publicly-traded companies as approved by the Compensation
Committee or, for Participants other than the CEO and the next four highest
compensated officers, other objectively measurable goals approved by the
Compensation Committee. The Committee may use a different combination of
Mid-Term Performance Objectives for different Participants.
The Compensation Committee also approves the number of Performance
Units granted, based on market competitive data and job responsibilities. The
number of Performance Units earned, if any, is based on the degree to which the
pre-determined Mid-Term Performance Objectives for the Measurement Period are
achieved.
At the end of the Measurement Period, the Compensation Committee will
approve the payment to each Participant of the amount of his or her Mid-Term
Incentive Award earned, if any. The maximum amount payable to a Participant
under the Mid-Term Program for any Measurement Period is an amount equivalent to
100,000 Performance Units. 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. The amount of each Participant's award and the maximum
number of Performance Units payable under the Mid-Term Program will be adjusted
to reflect any changes in corporate capitalization through a stock split or
similar event or a corporate transaction such as a merger, spin-off, corporate
split-up, reorganization, consolidation or liquidation, whether
24
<PAGE>
partial or complete, which occurs during the Measurement Period. The payment of
the Mid-Term Award will be in cash or, at the Company's election, in an
equivalent value of shares of the Company's Common Stock, subject to the
stockholder approval of the issuance of such shares, if required.
1999 Awards - On March 16, 1999, the Compensation Committee approved
Annual Performance Objectives for 1999 based on earnings per share for corporate
level Participants, and earnings per share and earnings before interest and
taxes (after a charge for the cost of capital) for divisional Participants, and
directly related threshold, target and maximum bonus levels for the Participants
in the Annual Cash Program. No incentive has yet been earned by any Participant
and the amount of incentive awards that will be paid out, if any, will not be
known until actual achievement of the Annual Performance Objectives is measured
at the end of 1999. The Compensation Committee also established as the
Performance Objective for all participants in the Mid-Term Program the total
return to stockholders as compared to the Industrial Component of the Standard &
Poor's Midcap 400 Index for the three-year period from 1999 through 2001 and
granted Performance Units that can be earned based on the achievement of this
Mid-Term Performance Objective, with the grants to the Company's executive
officers being conditioned on approval of the Incentive Compensation Plan
Amendment.
1998 Awards - On March 3, 1998, the Compensation Committee approved
Annual Performance Objectives for 1998 based on earnings per share for corporate
level Participants and earnings per share and earnings before interest and taxes
(after a charge for the cost of capital) for divisional Participants, and
directly related threshold, target and maximum bonus levels for the Participants
in the Annual Cash Program. On March 3, 1998, the Compensation Committee also
approved Mid-Term Performance Objectives for the three-year period from 1998
through 2000 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 Performance Objectives. The amount of incentive
awards paid out for 1998 pursuant to the Annual Cash Program, the amount of
incentive compensation paid out pursuant to 1996 grants of Performance Units
under the Mid-Term Program measured at the end of 1998 and the number of
Performance Units granted by the Company in 1998 and 1999 to the individuals
named in the Summary Compensation Table, all executive officers as a group, all
directors who are not executive officers as a group and all employees who are
not executive officers as a group are set forth in the table below:
<TABLE>
<CAPTION>
Cash Awards Pursuant
Annual to 1996 Grants 1998 Target 1999 Target
Name Cash Awards of Performance Units Performance Units Performance Units
---- ----------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
R. N. Pokelwaldt $ 947,556 $0 11,676 13,727
J. R. Tucker 750,000 0 7,089 8,824
M. R. Young 547,733 0 5,338 6,275
S. R. Amos 361,390 0 3,781 4,706
P. C. Spellar 215,899 0 4,003 4,942
Executive Group 1,316,991 0 14,982 20,471
Non-Executive 0 0 0 0
Director Group
Non-Executive 12,081,657 0 92,883 52,164
Officer Employee
</TABLE>
25
<PAGE>
Group
The amount of incentive compensation that may be payable under the 1998 and 1999
grants of Performance Units pursuant to the Mid-Term Program of the Incentive
Compensation Plan, if any, cannot be determined at this time since any such
amount will depend on the extent to which the Mid-Term Performance Objectives
are met and the Company's Common Stock price at the end of the Measurement
Period. Depending on the extent of achievement, from 0% to 200% of the
Performance Units granted can be earned.
Transferability
No right under the Incentive Compensation Plan is subject to
anticipation, sale, assignment, encumbrance or transfer other than by will or
the laws of intestate succession.
Termination of Employment
Except as described below, a Participant must remain employed by the
Company until the last day of the fiscal year to receive an Annual Cash Award,
if any, or until the end of an applicable Measurement Period to receive a
Mid-Term Incentive Award, if any. If a Participant voluntarily terminates his or
her employment with the Company or is terminated for Cause (as defined in the
Incentive Compensation Plan) before such dates, all rights to the Annual Cash
Award or Mid-Term Incentive Award will be forfeited.
If a Participant dies, incurs a disability, retires or is terminated
other than for Cause, such Participant will be entitled to a pro-rated Annual
Cash Award or Mid-Term Incentive Award. Pro-rated awards are payable at the same
time as those paid to other Participants receiving full awards.
Change of Control
In the event of a Change of Control (as defined in the Incentive
Compensation Plan) the Incentive Compensation Plan will automatically terminate
and each Participant's achievement of the objectives required to receive an
Annual Cash Award and Mid-Term Incentive Award under the Incentive Compensation
Plan will be measured as of the end of the fiscal month immediately preceding
the date of the Change of Control.
The Board of Directors recommends a vote FOR approval of the Incentive
Compensation Plan Amendment.
PROPOSAL FOUR
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected and recommends the
ratification of the appointment of KPMG LLP as the Company's independent
accountants for the fiscal year ending December 31, 1999.
26
<PAGE>
Representatives of KPMG 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 Employee Stock Purchase Plan), Proposal Three (the Investment Plan
Amendment), and Proposal Four (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 29, 1999.
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
27
<PAGE>
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 1999 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 1999 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 25, 1999
28
<PAGE>
Exhibit A
AMENDMENT NO. 3 TO THE
YORK INTERNATIONAL CORPORATION
1992 EMPLOYEE STOCK PURCHASE Plan
On behalf of York International Corporation (the "Company"), the
Board of Directors of the Company (the "Board") at its meeting on
__________________, 199__, pursuant to the authority granted it under Section 13
of the Plan, wishes to amend the York International Corporation 1992 Employee
Stock Purchase Plan (the "Plan") to adopt the following amendment, subject to
shareholder approval, effective January 1, 1999, as follows:
1. Section 4 is hereby amended and restated in its entirety to read
as follows:
"4. STOCK SUBJECT TO THE PLAN
The stock subject to options under the Plan shall be shares
of the Company's Common Stock and may be authorized but unissued
shares of Common Stock or shares of Common Stock reacquired by
the Company and held as treasury stock. The aggregate amount of
stock for which options may be granted under the Plan shall not
exceed 2,000,000 shares, subject to adjustment in accordance with
Section 12. In the event that an option granted under the Plan to
any Participant is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for
the granting of options under the Plan."
2. In all other respects, the Plan is hereby ratified and confirmed.
* * * * *
IN WITNESS WHEREOF, the Board has caused this Amendment No. 3 to be
executed under seal by its duly authorized representative.
WITNESS/ATTEST: YORK INTERNATIONAL CORPORATION
BOARD OF DIRECTORS
By:
- -------------------------- ----------------------------------
Print Name: Print Name:
--------------- --------------------------
Title:
-------------------------------
Date:
--------------------------------
29
<PAGE>
================================================================================
Exhibit "B"
York International Corporation
1996 Incentive Compensation Plan
(Amended and Restated Effective January 1, 1999)
================================================================================
The purpose of the York International Corporation 1996 Incentive
Compensation Plan (the "Plan") is to give certain management and key employees
who are in a position to contribute materially to the success and profitability
of York International Corporation (the "Company") an incentive and reward for
doing so; and to assist the Company in attracting and retaining the highest
caliber of management and key employees. This will be accomplished through
incentive compensation in the form of annual cash awards and mid-term
performance unit allocations.
The Plan, as amended, is subject to shareholder approval.
Article 1 - Definitions.
- -----------------------
For purposes of the Plan, the following terms shall have the meaning indicated:
1.1. Annual Cash Award - the annual award granted a Participant under the Annual
-----------------
Program.
1.2. Annual Performance Objectives - the performance objectives
-----------------------------
set forth in Section 3.2 used to determine Annual Cash Awards.
1.3. Annual Program - the annual cash program portion of the
--------------
Plan set forth in Article 3.
1.4. Annual EV Amount - the annual expected value amount under
----------------
Article 3 for a Participant for a Fiscal Year.
1.5. Board - The Board of Directors of York International
-----
Corporation.
30
<PAGE>
1.6. Change of Control - any one or more of the following:
-----------------
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not constitute
a Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iv) any acquisition by any corporation pursuant
to a transaction which complies with clauses (A) and (B) of subsection (c) of
this Section 1.6; or
(b) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board') cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person or entity other than the Board; or
(c) consummation of a reorganization, merger or consolidation
involving the Company or any subsidiary of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such
31
<PAGE>
Business Combination, (A) either (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including without limitation, a corporation which as a result of
such transactions owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock or (ii) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or at the time of the action of the Board,
providing for such Business Combination and (B) no person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination; or
(d) a complete liquidation or dissolution of the Company.
1.7. Code - the Internal Revenue Code of 1986, as amended.
----
1.8. Company - York International Corporation and except for purposes of
-------
Sections
32
<PAGE>
1.6 and 1.14, any other company which is a subsidiary within the
meaning of Section 424(f) of the Code with respect to York International
Corporation.
1.9. Compensation Committee - the compensation committee of the Board
----------------------
appointed by the Board that is solely composed of two or more persons who are
"outside directors" in accordance with the meaning of Treasury Regulation (S)
1.162-27(e)(3) and "disinterested persons" in accordance with the meaning set
forth in Rule 16b-3 of the Exchange Act.
1.10. Covered Employee - any individual who is, or is determined by the
----------------
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code, as amended.
1.11. Disability - an inability to perform the duties assigned by the
----------
Company to the Participant by reason of any medically determined physical or
mental impairment which has lasted for a continuous period of more than six
months.
1.12. Effective Date - January 1, 1996.
--------------
1.13. Exchange Act - Securities Exchange Act of 1934, as amended.
------------
1.14. Fiscal Year - the fiscal year of the Company.
-----------
1.15. Measurement Period - three consecutive Fiscal Years or such other
------------------
period selected and established by the Compensation Committee with respect to
any Mid-Term Program.
1.16. Mid-Term EV Amount - the mid-term expected value amount under Article
------------------
4 for a Participant for a Measurement Period expressed in Performance Units.
1.17. Mid-Term Incentive Award - the award earned by a Participant under
------------------------
the Mid-Term Program at the end of a Measurement Period.
33
<PAGE>
1.18. Mid-Term Performance Objectives - the performance objectives set
-------------------------------
forth in Section 4.2 used to determine Mid-Term Incentive Awards.
1.19. Mid-Term Program - the mid-term incentive program portion of the Plan
----------------
set forth in Article 4.
1.20. Participant - an individual eligible to participate in the Plan in
-----------
accordance with Article 2.
1.21. Performance Unit - a compensation unit granted to a Participant under
----------------
the Mid-Term Program at the beginning of the Measurement Period.
1.22. Plan - The York International Corporation 1996 Incentive Compensation
----
Plan.
1.23. Retirement - termination of employment with the Company on or after
----------
the date the employee either attains 62 years of age or attains 55 years of age
and completes 10 years of service.
1.24. Termination of Employment - a termination of employment with the
-------------------------
Company other than by reason of death, incurring a Disability, or Retirement.
1.25. Termination for Cause - a Termination of Employment if the employee
---------------------
was terminated for (i) providing the Company with materially false
representations relied upon by the Company in furnishing information to
shareholders, a stock exchange or the Securities and Exchange Commission, (ii)
maintaining, an undisclosed, unauthorized and material conflict of interest in
the discharge of duties owed to the Company, (iii) misconduct causing a serious
violation by the Company of state or federal laws, (iv) theft of Company funds
or assets, or (v) conviction of a crime involving moral turpitude.
34
<PAGE>
Article 2 - Eligibility.
- -----------------------
(a) An individual shall be eligible for the Annual Program if he is
(i) a Covered Employee or (ii) a management or key employee who is approved
by the Compensation Committee to participate in the Annual Program for the
specified Fiscal Year.
(b) An individual who is hired or has changed position after the
beginning of the Fiscal Year shall be eligible for the Annual Program if he
is a management or key employee who is approved by the Compensation
Committee to participate in the Annual Program for the specified Fiscal
Year. Such a Participant shall be entitled to a pro-rated Annual Cash Award
as described in Section 3.3(c) for that Fiscal Year payable in the same
form and at the same time as Annual Cash Awards are paid to other
Participants.
(c) An individual shall be eligible for the Mid-Term Program if he
is (i) a Covered Employee or (ii) a management or key employee who is
approved by the Compensation Committee to participate in the Mid-Term
Program for the specified Measurement Period. An individual who previously
received an award under the Mid-Term Program, but is not currently eligible
to do so will nonetheless participate in the Mid-Term Program with respect
to Performance Units previously granted until such Mid-Term Incentive Award
is paid out or such Performance Units are forfeited.
(d) An individual who is hired or has changed position after the
beginning of a Measurement Period shall be eligible for the Mid-Term
Program if he is a management or key employee who is approved by the
Compensation Committee to participate in the Mid-Term Program for the
specified Measurement Period. Such a Participant shall be entitled to a
pro-rated Mid-Term Incentive Award as described in Section 4.3(c) for that
Measurement Period payable
35
<PAGE>
in the same form and at the same time as Mid-Term Incentive Awards are paid
to other Participants for that Measurement Period.
Article 3 - Annual Cash Program.
- -------------------------------
3.1. Annual Cash Award Grants
------------------------
(a) Annual Cash Awards shall be determined in accordance with
pre-established Annual Performance Objectives as described in Section 3.2. Once
established, the Compensation Committee shall not have discretion to modify the
terms of the Annual Cash Awards. It is intended that all Annual Cash Awards
under the Plan to Covered Employees will satisfy the requirements for
deductibility under Section 162(m) of the Code.
(b) Not later than 90 days after the beginning of the Fiscal
Year (or, if earlier, the date as of which 25% of the Participant's period of
service for the Fiscal Year has elapsed), the Compensation Committee will
approve the Annual EV Amount for each Participant's Annual Cash Award. The
Annual EV Amount will be based on several factors, including market competitive
date, job responsibilities, and the aggressiveness of the financial budget
relative to prior year performance and other economic factors. The Compensation
Committee shall approve in writing a schedule setting forth the percentage of
Annual EV Amount payable based on the level of performance objectives achieved.
(c) At the end of a Fiscal Year the Compensation Committee
shall approve the payment to each Participant of his Annual Cash Award, if any.
The Annual Cash Award shall be based on the degree to which the predetermined
Annual Performance Objectives for that Fiscal Year are achieved. Prior to the
payment of any annual Cash Awards the Compensation Committee shall certify the
degree of achievement of the applicable Annual Performance
36
<PAGE>
Objective. The maximum amount payable to any individual Participant as an Annual
Cash Award for a Fiscal Year shall be $2,000,000.
3.2. Annual Performance Objectives. Annual Performance Objectives shall
-----------------------------
be developed through the Company's business planning process and shall be
approved by the Compensation Committee in writing not later than 90 days after
the beginning of the Fiscal Year. The Annual Performance Objectives shall be
composed of one or more of the following: fully diluted earnings per share,
division earnings before interest and taxes (after a pro-forma charge for the
cost of capital), revenue, sales, profit after tax, gross profit, operating
profit, unit volume, return on equity, change in working capital, return on
capital, cashflow, total shareholder return or, for Participants other than
Covered Employees, other objectively measurable goals approved by the
Compensation Committee. In establishing the goals, the Compensation Committee
will keep in mind the requirement of Reg. (S) 1.162-27(e)(2) that the outcome
must be substantially uncertain at the time the Annual Performance Objectives
are established. The attainment of Annual Performance Objectives will not be
impacted by extraordinary, unusual, or non-recurring items; or changes in
Generally Accepted Accounting Principles. A different combination of goals may
be used for different Participants or different positions (including differences
between corporate and division positions). The goals used may vary for each
Fiscal Year. However, the specific goals to be used for a Participant or a class
of Participants for a specific Fiscal Year shall be approved in writing by the
Compensation Committee.
3.3. Forfeitability of Annual Cash Award.
-----------------------------------
(a) Except as provided in Section 3.3(b) and Article 5, a
Participant must remain employed by the Company until the last day of the Fiscal
Year to receive his Annual Cash Award, if any. If a Participant has a
termination of Employment which is a Termination for
37
<PAGE>
Cause or which is voluntary prior to the end of the Fiscal Year, all rights to
the Annual Cash Award for that Fiscal Year shall be forfeited.
(b) If a Participant dies, incurs a Disability, has a Retirement or
has a Termination of Employment other than a termination described in 3.3(a)
before the end of the Fiscal Year or takes an unpaid leave of absence of longer
than 30 days during the Fiscal Year, then such Participant shall be entitled to
a pro-rated Annual Cash Award for that Fiscal Year as described in Section
3.3(c), payable at the same time applicable to other Participants.
(c) The amount of the pro-rated Annual Cash Award referred to in
Section 3.3(b) shall be equal to the product of (i) the amount of the Annual
Cash Award for that Participant determined under Section 3.1 and 3.2 and (ii) a
fraction, the numerator of which is the number of completed calendar months of
service performed (in the case of a Disability, the number of completed months
through the date of Disability) by the Participant for the Fiscal Year and the
denominator of which is twelve.
3.4. Payment of Annual Cash Award. A Participant's Annual Cash Award for
----------------------------
a Fiscal Year shall be paid in a single cash payment within 75 days of the end
of that Fiscal Year.
Article 4 - Mid-Term Program.
- ----------------------------
4.1. Performance Units Grants
------------------------
(a) The Mid-Term Incentive Award shall be granted in the form of
Performance Units. Once established, the Compensation Committee shall not have
discretion to modify the terms of the Performance Units except as provided in
section 4.1(d). It is intended that all payments hereunder to Covered Employees
will satisfy the requirements for deductibility under Section 162(m) of the
Code.
38
<PAGE>
(b) The number of each Participant's Performance Units granted as
his Mid-Term EV Amount for the Measurement Period shall be approved by the
Compensation Committee no later than 90 days after the commencement of the
Participant's period of service during the Measurement Period. The Mid-Term
Award shall be based on the degree to which the predetermined Mid-Term
Performance Objectives for that Measurement Period are achieved. The
Compensation Committee shall approve in writing a schedule setting forth the
percentage of Mid-Term EV Amount payable based on the level of performance
objective achieved.
(c) At the end of the Measurement Period, the Compensation
Committee shall approve the payment to each Participant of his Mid-Term
Incentive award, if any. Prior to the payment of any Mid-Term Incentive Awards,
the Compensation Committee shall certify that degree of achievement of the
applicable Mid-Term Performance Objectives. The maximum amount payable to any
individual Participant as a Mid-Term Incentive Award for a given Measurement
Period is 100,000 Performance Units.
(d) The amount of a Participant's Performance Units and the maximum
number of Performance Units payable hereunder, shall be adjusted to reflect
changes in corporate capitalization, such as a stock split or a corporate
transaction such as a merger, spin-off or corporate split-up, reorganization,
consolidation or partial or complete liquidation, which occurs during the
Measurement Period.
4.2. Mid-Term Performance Objectives.
-------------------------------
The Mid-Term Performance Objectives shall be developed through the
Company's business planning process and shall be approved by the Compensation
Committee in writing not later than 90 days after the beginning of the
Measurement Period to which they apply. The Mid-Term Performance Objectives
shall be composed of one or more of the following: cumulative
39
<PAGE>
earnings per share over a specified period, fully diluted earnings per share,
division earnings before interest and taxes (after a pro-forma charge for the
cost of capital), revenue, sales, profit after tax, gross profit, operating
profit, unit volume, return on equity, change in working capital, return on
capital, cashflow, total shareholder return, total return to shareholders as
compared to a relevant index of publicly traded companies as approved by the
Compensation Committee or, for Participants other than Covered Employees, other
objectively measurable goals approved by the Compensation Committee. The
achievement of Mid-Term Performance Objectives shall not be impacted by any
extraordinary, unusual or non-recurring items; or changes in Generally Accepted
accounting Principles. In establishing the goals, the Compensation Committee
will keep in mind the requirements of Reg. (S) 1.162-27(e)(2) that the outcome
must be substantially uncertain at the time the Mid-Term Performance Objectives
are established. A different combination of goals may be used for different
Participants or different positions (including differences between corporate and
division positions). The goals used may vary for each Measurement Period.
However, the specific goals to be used for a Participant or a class of
Participants for a specific measurement Period shall be approved in writing by
the Compensation Committee.
4.3. Forfeitability of the Mid-Term Incentive Award.
----------------------------------------------
(a) Except as provided in Section 4.3(b) and Article 5, a
Participant must remain employed by the Company until the end of the applicable
Measurement Period to receive his Mid-Term Incentive Award. If the Participant
has a Termination of Employment which is a Termination for Cause or which is
voluntary prior to the end of the applicable Measurement Period, all rights to
the Mid-Term Incentive Award shall be forfeited.
40
<PAGE>
(b) If a Participant dies, incurs a Disability, has a Retirement or
has a termination of Employment other than a termination described in Section
4.3(a) before the end of the applicable Measurement Period or takes an unpaid
leave of absence of longer than 30 days during the Measurement Period, or takes
an unpaid leave of absence of longer than 30 days during the Measurement Period,
then such Participant shall be entitled to a pro-rated Mid-Term Incentive Award
for the Measurement Period, as described in Section 4.3(c).
(c) The amount of the pro-rated Mid-Term Incentive Award referred to
in Section 4.3(b) shall be equal to the product of (i) the amount of the Mid-
Term Incentive Award for that Participant determined under Section 4.1 and 4.2
and (ii) a fraction, the numerator of which is the number of completed calendar
months of service performed (in the case of a Disability, the number of
completed months through the date of Disability) by the Participant for the
Measurement Period and the denominator of which is the number of months in the
Measurement Period.
4.4. Payment of Mid-Term Incentive Award. The payment of the Mid-Term
-----------------------------------
Incentive Award, if any, will be made in cash within 75 days after the end of
the Measurement Period. The value of each Performance Unit shall be equal to the
average of the closing sale prices of the Company's common stock during the 120
consecutive trading days immediately preceding the last day of the Measurement
Period. At the Company's election, payment may be made in an equivalent value of
shares of the Company's common stock, subject to shareholder approval of the
issuance of such shares, if required.
41
<PAGE>
Article 5 - Change of Control.
- -----------------------------
5.1. Effect of Change of Control. In the event of a Change of Control,
---------------------------
the Plan shall terminate and the Participants' right to receive an Annual Cash
Award and Mid-Term Incentive Awards under the Annual Program and any Mid-Term
Programs then in effect shall be measured as of the end of the fiscal month
immediately preceding the date of the Change of Control pursuant to Sections 5.2
and 5.3.
5.2. Measurement of Achievement under Annual Program.
-----------------------------------------------
(a) To the extent the percentage of an Annual Performance
Objective that was anticipated to be achieved as of the date for measurement set
forth in Section 5.1 can be ascertained from the financial operating budget on
which the Annual Program was based, achievement of such Annual Performance
Objective shall be measured based on actual achievement as of such time versus
anticipated achievement as of such time.
(b) In the event Section 5.2(a) above shall not apply, if any Annual
Performance Objective is based on a measure which is not subject to proration,
achievement of such Annual Performance Objective shall be measured as of the
date set forth in Section 5.1 above. To the extent any Annual Performance Award
is capable of proration, achievement of such Annual Performance Objective shall
be measured as of the date set forth in Section 5.1 on a prorated basis. The
prorated Annual Performance Objective shall be equal to the product of the (i)
the Annual Performance Objective and (ii) a fraction, the numerator of which is
the number of fiscal months elapsed under the Annual Program and the denominator
of which is twelve.
42
<PAGE>
5.3. Measurement of Achievement under Mid-Term Programs.
--------------------------------------------------
(a) Achievement of that portion of any Mid-Term Incentive Awards
outstanding as of the date of a Change in Control that is based on performance
against an index shall be measured against such index as of the date set forth
in Section 5.1 above.
(b) To the extent the percentage of a Mid-Term Performance Objective that
was anticipated to be achieved as of the date for measurement set forth in
Section 5.1 can be ascertained from the long-term plan on which the Mid-Term
Program was based, achievement of such Mid-Term Performance Objective shall be
measured based on actual achievement as of such time versus anticipated
achievement as of such time.
(c) In the event that Sections 5.3(a) or 5.3(b) shall not be applicable,
if any Mid-Term Performance Objective is based on a measure which is not subject
to proration, achievement of such Mid-Term Performance Objective shall be
measured as of the date set forth in Section 5.1 above. To the extent any such
Mid-Term Performance Objective is capable of proration, achievement of such Mid-
Term Performance Objective shall be measured as of the date set forth in Section
5.1 on a prorated basis. The prorated Mid-Term Performance Objective shall be
equal to the product of (i) the Mid-Term Performance Objective and (ii) a
fraction, the numerator of which is the number of fiscal months elapsed in the
Measurement Period and the denominator of which is the total number of fiscal
months in the Measurement Period.
5.4. Payment of Awards. To the extent any Annual Cash Award or Mid-Term
-----------------
Incentive Award has been earned, based on the methods of measurement set forth
in Sections 5.2 and 5.3 above, respectively, such Annual Cash Award or Mid-Term
Incentive Award shall be payable without any further approval by the
Compensation Committee and without proration based on the amount of time elapsed
under either the Annual Program or any Mid-Term
43
<PAGE>
Program. All payments shall be made as soon as practicable after the Change in
Control, but in no event later than forty-five (45) days after the Change in
Control. For purposes of payment under the Mid-Term Program, the stock price on
which payment is based shall be the price of the Company's common stock on the
date of the Change in Control.
Article 6 - General.
- -------------------
6.1. Nonassignability of Incentive Awards. No right under the Plan shall be
------------------------------------
subject to anticipation, sale, assignment, encumbrance or transfer other than by
will or the law as of intestate succession.
6.2. Unsecured Interest. A Participant shall have no interest in any fund
------------------
or specified asset of the Company. Any amounts which are or may be set aside
under the provisions of this Plan shall continue for all purposes to be a part
of the general funds of the Company, and no person or entity other than the
Company shall, by virtue of the provision of this Plan, have any interest in
such assets. No right to receive payments from the Company pursuant to this
Plan shall be greater than the right of any unsecured creditor of the Company.
6.3. No Right or Obligation of Continued Employment. Nothing contained in
----------------------------------------------
the Plan shall require the Company or a related company to continue to employ a
Participant, nor shall the Participant be required to remain in the employment
of the Company or a related company.
6.4. Withholding. The Company shall withhold all required local, state
-----------
and federal and foreign taxes from the amount of any award. If awards are made
in stock, the employee may deliver shares in satisfaction of the tax.
44
<PAGE>
6.5. Amendment and Termination of the Plan. The Plan may be amended or
-------------------------------------
terminated at any time by the Board or by the Compensation Committee as
delegated by the Board, provided that such termination or amendment shall not,
without the consent of any Participant, affect such Participant's rights with
respect to awards previously awarded to him. With the consent of the
Participant affected, the Board, or by delegation of authority by the Board, the
Committee, may amend outstanding awards in a manner not inconsistent with the
Plan. Further, no amendment which would require shareholder approval under
Section 162(m) of the Internal Revenue Code shall be made without that approval.
6.6. Binding on Successors. The obligations of the Company under the
---------------------
Plan shall be binding upon any organization which shall succeed to all or
substantially all of the assets of the Company, and the term "Company," whenever
used in the Plan, shall mean and include any such organization after the
succession.
6.7. References. Any masculine personal pronoun shall be considered to
----------
mean also the corresponding feminine or neuter personal pronoun, as the context
requires.
6.8. Applicable Law. The Plan shall be governed by and construed in
--------------
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the York International Corporation 1996 Incentive
Compensation Plan, as amended and restated, is, by the authority of the Board of
Directors of the Corporation, executed as of the _______ day of ________ , 1999.
Attest YORK INTERNATIONAL CORPORATION
By:
- ------------------------------ --------------------------------------
Secretary
[Corporate Seal]
45
<PAGE>
Appendix
YORK INTERNATIONAL CORPORATION
GENERAL AND FINANCIAL INFORMATION
1998
<PAGE>
Contents
DESCRIPTION OF BUSINESS ................................................ a3
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS ............................ a4
INDEPENDENT AUDITORS' REPORT ........................................... a4
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA ........................... a5
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... a6
FINANCIAL STATEMENTS ................................................... a13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............................. a17
SUMMARY OF QUARTERLY RESULTS ........................................... a30
TRADING AND DIVIDEND INFORMATION ....................................... a30
INVESTOR AND STOCKHOLDER INFORMATION ................................... a31
CORPORATE DATA ......................................................... a31
DIRECTORS AND OFFICERS ................................................. a32
a2
<PAGE>
Description of Business
York International Corporation (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 1998, 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 12 foreign countries. As of December 31, 1998, the Company
employed approximately 20,600 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. The Company's
engineered systems products and refrigeration and gas compression equipment are
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>
Management's Report on Financial Statements and Independent Auditors' Report
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. 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 and
Finance Committee currently comprised of three outside directors. The Audit and
Finance Committee meets with management, the internal auditors and the
independent auditors and monitors generally the accounting affairs of the
Company. The Audit and Finance Committee also recommends to the stockholders the
selection of the independent auditors.
/s/ Robert N. Pokelwaldt /s/ Benson K. Woo
Robert N. Pokelwaldt Benson K. Woo
Chairman of the Board and Vice President and
Chief Executive Officer Chief Financial Officer
February 15, 1999
Independent Auditors' Report
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, 1998 and 1997, and
the related consolidated statements of operations, comprehensive income, cash
flows and stockholders' equity for each of the years in the three-year period
ended December 31, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Harrisburg, Pennsylvania
February 15, 1999
a4
<PAGE>
Five Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
(in thousands, except per share data
and Other Information) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 3,289,201 $ 3,193,657 $ 3,218,534 $ 2,929,948 $ 2,421,864
Gross profit 722,936 636,226 685,857 629,379 508,660
Income from operations before
impairment loss on long-lived assets 228,704 114,002 238,384 222,803 171,967
Impairment loss on long-lived assets (a) -- -- -- 244,473 --
Interest expense, net 41,527 40,876 34,544 41,412 29,188
Income (loss) before income taxes 187,303 78,468 204,463 (70,782) 144,447
Provision for income taxes 50,810 31,075 56,554 25,290 54,677
Net income (loss) (a) 136,493 47,393 147,909 (96,072) 89,770
Basic earnings (loss) per share of common stock 3.38 1.11 3.43 (2.38) 2.43
Diluted earnings (loss) per share of common stock 3.36 1.10 3.37 (2.38) 2.40
Cash dividends per share 0.48 0.48 0.36 0.24 0.16
Weighted average common shares and
common equivalents outstanding:
Basic 40,402 42,550 43,136 40,321 36,901
Diluted 40,622 43,040 43,950 40,321 37,397
Capital expenditures $ 64,638 $ 66,854 $ 73,576 $ 66,242 $ 81,625
Depreciation and amortization 57,785 52,776 48,581 42,841 34,030
Amortization of deferred charges 17,059 15,978 18,410 18,643 15,635
Balance Sheet Data:
Working capital $ 521,054 $ 535,123 $ 524,143 $ 393,063 $ 236,443
Total assets 2,106,538 1,996,298 2,074,771 1,927,002 1,587,980
Long-term debt 362,724 452,344 313,641 314,246 280,627
Stockholders' equity 730,799 646,285 780,377 624,814 526,930
Other Information:
Employees 20,600 20,300 20,100 19,000 15,900
Backlog (in thousands) $ 879,473 $ 834,466 $ 845,076 $ 868,640 $ 778,700
Total debt as a percent of total capital 36.2% 44.7% 36.2% 39.1% 39.8%
Current ratio 1.66 1.78 1.68 1.50 1.39
Book value per share $ 18.27 $ 15.91 $ 17.89 $ 14.51 $ 14.03
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In 1995, the Company adopted Statement of Financial Accounting Standards
(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.
a5
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth sales by product group and geographic market:
(in thousands) 1998 1997 1996
================================================================================
Engineered Systems Group $ 1,408,091 $ 1,396,436 $ 1,319,306
Unitary Products Group 1,481,760 1,392,378 1,417,782
Refrigeration Products Group 447,499 447,093 510,399
Eliminations (48,149) (42,250) (28,953)
- --------------------------------------------------------------------------------
Sales $ 3,289,201 $ 3,193,657 $ 3,218,534
- --------------------------------------------------------------------------------
U.S. 58% 58% 54%
International 42% 42% 46%
- --------------------------------------------------------------------------------
Total 100% 100% 100%
- --------------------------------------------------------------------------------
In June 1997, The Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information." This
statement requires the Company to report certain financial and other information
about its business segments, products and services, the geographic areas in
which it operates and its major customers. The objective of this statement is to
help users of financial statements better understand the enterprise's
performance, better assess its prospects for future net cash flows and make more
informed judgements about the enterprise as a whole. See note 15 to the
consolidated financial statements for this disclosure.
Management's discussion of results for 1998 as compared to 1997 has been
restated to conform with SFAS No. 131. As discussed in note 15 to the
consolidated financial statements, other than sales, 1996 information has not
been restated to comply with SFAS 131, as the information is not readily
available. Consequently, to maintain consistency, information included in the
section "Results of Operations 1997 as Compared with 1996" has not been
restated.
Results of Operations 1998 as Compared with 1997
Sales for the year ended December 31, 1998 increased 3.0% to $3,289.2 million
from $3,193.7 million for 1997. (See table above which shows sales by business
segment and geographic market, and note 15 to the consolidated financial
statements for additional information.) Sales levels increased for all business
groups. Order backlog at December 31, 1998 was $879.5 million compared to $834.5
million as of December 31, 1997.
Engineered Systems Group sales increased 0.8% to $1,408.1 million primarily due
- ------------------------
to increased volume in the domestic service and equipment business and continued
growth and expansion in Latin America. These increases were offset by a decline
in the Asian market and lost sales as a result of the accident at the Grantley
factory in York, PA. (See additional disclosure in note 17 to the consolidated
financial statements.)
Unitary Products Group sales increased 6.4% to $1,481.8 million primarily due to
- ----------------------
improved volume in the unitary equipment markets in North America and Latin
America and continued growth and expansion in Latin American markets.
Refrigeration Products Group sales were basically flat at $447.5 million
- ----------------------------
primarily due to the sale of the German Commercial Refrigeration business in the
second quarter of 1997. Excluding the sale of this business, refrigeration
product sales improved approximately 6% primarily due to stronger sales levels
in the second half of 1998 in Europe and North America.
From a geographic perspective, domestic sales increased 3.2% to $1,898.6 million
and international sales increased 2.6% to $1,390.6 million.
Gross profit in 1998 increased 13.6% to $722.9 million (22.0% of sales) from
$636.2 million (19.9% of sales) in 1997. Excluding the non-recurring items in
1997, gross profit as a percent of sales increased 120 basis points. This
improvement is due to the performance of the Unitary Products Group; improved
performance in manufacturing operations; product mix; and other cost reduction
measures. During 1998, the Company recorded credits to cost of goods sold of
$25.5 million reflecting expected insurance recovery for certain incremental
expenses and losses included in cost of goods sold as a result of the Grantley
accident.
Selling, General and Administrative expense (SG&A) decreased 5.4% to $494.2
million (15.0% of sales) in 1998 from $522.2 million (16.4% of sales) in 1997.
Excluding the non-recurring items in 1997, SG&A as a percent of sales was flat.
The Company is beginning to see benefits from spending to expand and strengthen
distribution, particularly in Latin America.
a6
<PAGE>
Income from operations in 1998 increased to $228.7 million (7.0% of sales) from
$114.0 million (3.6% of sales) in 1997. Excluding the non-recurring items in
1997, operating income as a percent of sales increased 120 basis points.
Engineered Systems Group income from operations increased 5.8% to $125.2 million
- ------------------------
(8.9% of sales) primarily due to increased volume and performance in the
domestic service and equipment business and continued growth and expansion in
Latin America. These increases were offset by the decline in the Asian market
and profits on lost sales as a result of the accident at the Grantley factory.
Unitary Products Group income from operations increased 36.8% to $140.5 million
- ----------------------
(9.5% of sales) primarily due to increased volume in the unitary equipment
markets in North America and Latin America, improved plant performance,
effective implementation of cost reduction programs and continued growth and
expansion in Latin American markets.
Refrigeration Products Group income from operations increased 20.6% to $27.4
- ----------------------------
million (6.1% of sales), primarily due to stronger performance domestically and
in Europe in both sales and factory performance. SG&A expenditures were reduced
by effective control of spending in all regions and the sale of the German
Commercial Refrigeration business.
Net interest expense increased in 1998 1.6% to $41.5 million due to the impact
of higher average borrowing rates offset by the benefit of reduced working
capital levels.
Equity in earnings of affiliates was $0.1 million in 1998 as compared to $5.3
million in 1997. The 1997 earnings include a net gain of $4.5 million relating
to the gain on the sale of an Egyptian air conditioning company reduced by a
portion of the non-recurring charge in 1997.
Provision for income taxes of $50.8 million for 1998 relates to both U.S. and
non-U.S. operations. The effective rate is 27.1% and reflects a non-recurring
benefit recorded in the third quarter relating to export incentives, foreign tax
credit planning and other activities outside the U.S., including closures and
consolidations. Excluding the non-recurring benefit, the Company's effective tax
rate would have been 33%.
Net income, as a result of the above factors, was $136.5 million in 1998 as
compared to $47.4 million in 1997.
Results of Operations 1997 as Compared with 1996
Sales for the year ended December 31, 1997 decreased 0.8% to $3,193.7 million
from $3,218.5 million for 1996. Revenues increased in the Company's Engineered
Systems product group and decreased in the Unitary and Refrigeration product
groups. As discussed earlier, information in this section is not restated;
comparable 1996 information under the current business segments is not readily
available.
Engineered Systems Group sales 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.
Unitary Products Group sales 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 growth in Latin America due to expanded distribution.
Refrigeration Products Group sales 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 growth in Latin America. The
year-over-year revenue performance was consistent in all other areas of the
world.
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 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 were taken to rationalize global
capacity by closing and streamlining operations, and 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 SG&A 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.
a7
<PAGE>
Engineered Systems Group 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 Group margins decreased due to lower-than-expected volume in
- ----------------------
the Unitary products OEM factories and lower-than-expected volume in Europe.
Refrigeration Products Group margins increased due to better overall plant
- ----------------------------
performance and the impact of the sale of the Commercial Refrigeration business
in Germany.
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
increase 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 increase 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.
Net income, as a result of the above factors, was $47.4 million in 1997 as
compared to $147.9 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally not limited to, attorneys',
consultants' and experts' fees and expenses) of any kind and nature suffered by
or asserted against Tenant as a direct or indirect result of any preexisting
condition prior to the occupancy of said premises by Tenant or as a direct or
indirect result of any condition or violation taking place after the termination
of the lease term or Tenant's occupancy of the property. The foregoing
indemnification shall survive the expiration or termination of the lease term.
Working capital was $521.1 million and $535.1 million as of December 31, 1998
and 1997, respectively. Accounts receivable increased in 1998 due to higher
fourth quarter sales volume and the net receivable to record a portion of the
anticipated insurance recovery. Inventory levels were lower at December 31,
1998, than at December 31, 1997, primarily as a result of higher fourth quarter
sales volume. The current ratio was 1.66 at December 31, 1998, as compared to
1.78 for December 31, 1997.
Long-term indebtedness was $362.7 million at December 31, 1998, primarily
consisting of borrowings of $300 million senior notes and bank lines. As of
December 31, 1998, there were no borrowings under the revolving credit facility.
At December 31, 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 requires a fee of
.09%. At December 31, 1998, the LIBOR rate was 5.06%. 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 is in compliance with these agreements.
The Company's non-U.S. subsidiaries maintain bank credit facilities in various
currencies that provide for borrowings of $269.6 million and $245.2 million at
December 31, 1998 and 1997, respectively, of which $202.9 million and $175.5
million, respectively, were unused at December 31, 1998 and 1997. In some
instances, borrowings against these credit facilities have been guaranteed by
the Company to assure availability of funds at favorable rates.
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, 1998 and 1997, the Company had $41.0 million and $169.8 million,
respectively, outstanding under these bank lines. The average rate on the bank
lines was 5.61% and 5.92% at December 31, 1998 and 1997, respectively. At
December 31, 1998 and 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. 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.
a8
<PAGE>
The Company sold a fractional ownership interest in a defined pool of trade
accounts receivable for $100 million in 1998 and 1997. At December 31, 1998 and
1997, the discount rate on the accounts receivable sold was approximately 5.30%
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.
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. Financial instruments are more fully
discussed in note 2 to the consolidated financial statements and under the
caption Market Risk on page 27.
Capital expenditures were $64.6 million in 1998 as compared to $66.9 million in
1997. These expenditures were made primarily to expand capacity, reduce costs
and introduce new products. Capital expenditures during 1999 are anticipated to
be greater than in 1998 and are expected to exceed annual depreciation and
amortization. The anticipated increase is primarily due to expenditures to
rebuild the Grantley facility. These expenditures will be funded from a
combination of operating cash flows, availability under the revolving credit
facility, and insurance coverage.
Cash dividends of $0.48 per share were paid on common stock in 1998 and 1997.
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, 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 7,880,000 shares of the Company's common stock as stock options or restricted
share awards. At December 31, 1998, approximately 532,000 options remained
available for grant 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 privately negotiated transactions. During 1998,
the Company repurchased 1.1 million shares for $44.0 million.
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 believes inflation has not had a significant impact on the Company's
results of operations for the periods presented. The Company was able to
substantially offset the effect of inflation through cost reduction programs in
1998. Management does not anticipate inflation having a significant impact on
the future results of operations.
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 derives a significant portion of its revenue from
the service, repair and replacement market. In 1998, 1997 and 1996,
respectively, on a worldwide basis, service, repair and replacement revenue
accounted for an estimated 44%, 41% and 49% of the Company's total sales, while
new construction sales accounted for the remaining 56%, 59% and 51%. The Company
expects growth in the service, repair and replacement market over the next
several years to outpace growth in the new construction market.
a9
<PAGE>
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. 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.
Requirements for service and repair parts for Engineered Systems products also
increase during summer months. The overall effect of seasonality is also
dampened by the Company's Engineered Systems and Refrigeration equipment, for
which demand is not as seasonal.
Market Risk
The Company is subject to market risk associated with changes in interest rates,
foreign currency exchange rates and certain commodity prices. To manage the risk
of fluctuations in interest rates the Company's borrowings are a mix of fixed
and floating rate obligations. This includes $100 million of Senior Notes that
bear interest at a 6.75% fixed rate and are due March 2003 as well as $200
million of Senior Notes with a fixed interest rate of 6.70% which are due June
2008. Short-term borrowings are typically bank loans and commercial paper that
is reborrowed in the ordinary course of business. The Company's short-term
borrowings maturity dates support seasonal working capital needs. The Company's
non-U.S. subsidiaries maintain bank credit facilities for borrowings in their
functional currency on a floating rate basis.
The Company has manufacturing facilities in 12 foreign countries and its
products are sold in over 100 countries throughout the world. As a result, the
Company is exposed to foreign currency risk that future cash flows from
transactions in foreign currencies will be negatively impacted by exchange rate
changes. To reduce this risk, the Company hedges its foreign currency
transaction exposure with forward contracts and purchased options, in accordance
with the Company's Treasury Policy and Procedures Manual on hedging (the
Policy). These foreign currency forward and option contracts are matched to
foreign currency transactions that effectively fix the sales price for finished
product or purchase price for raw material components. The Company's local
entities are required to hedge these firm commitments with the Corporate
Treasury Department. The Corporate Treasury Department evaluates the Company's
net position on an overall basis, in accordance with the parameters established
in the Policy, and where necessary, hedges the foreign currency exchange
exposure risk with an external counter-party using the instruments mentioned
previously. The Company mitigates the risk that the counter-party to these
agreements will fail to perform by only entering into agreements with major
international financial institutions. Foreign currency risk associated with
intercompany transactions is mitigated using a multilateral netting process. Any
net exposures are hedged as discussed above and in accordance with the Policy.
The Company purchases raw material commodities and 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 manufacturing
requirements, the Company may enter into commodity forward contracts to
effectively fix the cost of the commodity to the Company. These contracts
require each settlement between the Company and its counter-party 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 Company does not anticipate any material changes in its primary market risk
exposures in 1999 and does not hold or issue derivative instruments for trading
purposes.
The following table provides information about the fair value of the Company's
market-sensitive financial instruments and is a forward-looking statement. All
instruments described in the table are non-trading. The Company's borrowings are
not included in the table since their carrying amount approximates the fair
value of similar debt instruments of comparable maturity and the interest rate
market risk is not significant as a result of the management strategies
described previously. Refer to note 2 to the consolidated financial statements
for additional information. The table presents the Company's market risk
exposure to potential changes in the fair value of its foreign currency hedge
instruments at December 31, 1998. As discussed previously, the hedged instrument
maturity matches the transactional cash flow exposures. These hedged instruments
mature in 1999, 2000 and 2001, respectively. The table also illustrates the
effect of a 10% appreciation and depreciation of the United States Dollar (USD)
on the unhedged position, with the exception of the German Deutsche Mark (DEM)
exposure which is based on a 10% appreciation and depreciation of the British
Pound Sterling (GBP). Furthermore, the table presents the December 31, 1998 fair
value of the Company's total pounds of copper hedged for 1999 and 2000.
a10
<PAGE>
<TABLE>
<CAPTION>
Foreign Currency Exposure
- ---------------------------------------------------------------------------------------------------------------------------
(USD equivalents, in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
(Short Exposure) (Short Exposure) Foreign Currency USD USD
Foreign Currency Hedged as of Exchange Exposure 10% 10%
Currency Exchange Exposure Dec. 31, 1998 Net of Hedging Appreciation Depreciation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUD - Australian Dollar 9,200.00 9,200.00 0.00 0.00 0.00
CLP - Chilean Peso 5,100.00 2,500.00 2,600.00 (260.00) 260.00
DEM - German Deutsche Mark 11,863.00 11,542.00 321.00 (32.10) 32.10
DKK - Danish Krona (789.00) 0.00 (789.00) 78.90 (78.90)
GBP - British Pound Sterling 1,606.00 1,383.00 223.00 (22.30) 22.30
JPY - Japanese Yen 5,227.00 5,253.00 (26.00) 2.60 (2.60)
NZD - New Zealand Dollar 608.37 608.37 0.00 0.00 0.00
SGD - Singapore Dollar 5,900.00 5,900.00 0.00 0.00 0.00
THB - Thailand Baht 1,557.00 1,557.00 0.00 0.00 0.00
ZAR - South African Rands 2,166.80 2,166.80 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Copper Exposure
- ---------------------------------------------------------------------------------------------------------------------------
Pounds Notional Dec. 31, 1998
Year Hedged Amount Fair Value
===========================================================================================================================
<C> <C> <C> <C>
1999 50,000,000 $42,692,000 $34,346,000
2000 20,000,000 $17,150,000 $14,660,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 UPDATE
General information and state of readiness
The Company's enterprise-wide Year 2000 (Y2K) Compliance Program (the Program)
was initiated in February, 1997. The Company divided the Program into four
dimensions: information systems; York International products and services;
production equipment and facilities; and supplier capabilities.
As of the end of 1998, the Company was testing, validating, and implementing
internal information systems and external information systems interfaces that
are Y2K compliant. These activities include, but are not limited to, evaluating
existing and new hardware and software and, where necessary, replacing or
modifying these system components to be Y2K compliant. In 1996, the Company
determined that MAPICS would be the enterprise-wide manufacturing system.
Likewise, the Company decided in 1995 to use the Lawson Financial Systems
package at all U.S. locations. During the risk assessment phase of the Program,
it was determined that by accelerating the deployment of these two system
components, the Company would remediate a significant percentage of the Y2K
systems issues. Other system components as well as non-manufacturing systems
internationally are being modified or replaced to achieve Y2K compliance.
Testing and validation is expected to continue into the third quarter of 1999.
The Company's products verification dimension is complete. The Company has
determined that its residential products are Y2K compliant and will transition
correctly to the year 2000 without manual intervention. In addition, the Company
has verified that the vast majority of its commercial and industrial products
utilizing York-manufactured or York-designed microprocessor control panels or
PLC-based equipment are Y2K compliant.
The Company has conducted an evaluation of its production equipment and process
control capabilities in all manufacturing locations and is remediating those few
components that are not currently Y2K compliant. Similarly, the Company has
evaluated its facilities controls (e.g., elevators, telephone systems, security
systems, etc.) to determine Y2K compliance. In most cases those systems were
found to be Y2K compliant. In isolated situations where the facilities systems
were found to be non-compliant, plans are in place for remediation by the second
quarter of 1999.
The Company has required critical suppliers to certify Y2K compliance.
Furthermore, the Company is establishing plans to conduct detailed evaluations
with critical suppliers to verify compliance. The Company will be evaluating the
necessary "Millennium Stock Levels" to be established for parts and materials
that are critical to the manufacturing process. The Company will also be
developing plans and necessary stock levels for single-source items. The Company
will continue to develop further contingency plans throughout 1999 as necessary.
a11
<PAGE>
Cost
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 effect 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.
Risks
The Company's failure to correct or develop an adequate contingency plan to
mitigate a material Y2K problem, including problems experienced by suppliers,
could result in an interruption in normal business activities or operations.
However, the Company is confident that the Compliance Program will allow it to
complete a successful transition to the Year 2000. This statement constitutes a
Year 2000 readiness disclosure by York International Corporation, under the Year
2000 Information and Readiness Disclosure Act.
Euro Conversion
Management has initiated an internal analysis of and planning for the effect the
Euro will have on the operating and financial condition of the Company. The Euro
is not expected to have a material effect on the Company's operating results or
competitive position. The Company's financial systems are Euro compliant and
opportunities will continue to be investigated for European-wide system
infrastructures.
Manufacturing Operations
On February 2, 1998, the Company incurred damage to its Grantley manufacturing
facility in York, PA, when tanks used for testing ruptured. The accident caused
substantial damage to facilities used in steel cutting and rolling operations
and heat exchanger production. The Company is rebuilding the facility and fully
restoring its production capacity. The Company's rebuilding operations are
expected to continue into the second quarter of 1999. For additional information
relating to the Grantley facility incident, see note 17 to the consolidated
financial statements.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (the Standard). The Standard establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities that require a Company to record the derivative instrument at fair
value in the balance sheet. Furthermore, the derivative instrument must meet
specific criteria or the change in its fair value is to be recognized in
earnings in the period of change. To achieve hedge accounting treatment the
derivative instrument needs to be part of a well-documented hedging strategy
that describes the exposure to be hedged, the objective of the hedge and a
measurable definition of its effectiveness in hedging the exposure. The Standard
is effective as of the beginning of the first quarter of the fiscal year
beginning after June 15, 1999. Adoption of this statement is not expected to
have a material effect on the Company's financial statements.
In 1998, the American Institute of Certified Public Accountants (AICPA) issued
Statements of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and SOP 98-5, "Reporting on the
Cost of Start-Up Activities." These SOPs require that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software and that costs of
start-up activities, including organization costs, be expensed as incurred.
These statements are effective for fiscal years beginning after December 15,
1998. During 1998, the Company developed an internal accounting policy for the
capitalization of certain internal-use software costs as required by SOP 98-1.
The Company has determined that adoption of SOP 98-1 and SOP 98-5 will not 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 the Year 2000 Compliance
Program. Unseasonably cool spring or summer weather in the United States or in
Europe could adversely affect the Registrant's UPG residential air conditioning
business. The ESG air conditioning business could be affected by a slowdown in
the large chiller market and by the level of chlorofluorocarbon (CFC) retrofits.
The resolution of the insurance claim for an amount greater than or less than
amounts recorded could affect the Company's results. 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
other worldwide markets.
<PAGE>
Consolidated Balance Sheets
December 31
-----------
(in thousands) 1998 1997
================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 22,746 $ 12,228
Receivables 632,768 555,830
Inventories 536,854 541,114
Prepayments and other current assets 118,165 112,448
- --------------------------------------------------------------------------------
Total current assets 1,310,533 1,221,620
- --------------------------------------------------------------------------------
Deferred income taxes 30,805 21,869
Unallocated excess of cost over net
assets acquired 337,353 343,854
Investments in affiliates 20,092 17,660
Property, plant and equipment, net 374,731 368,642
Deferred charges and other assets 33,024 2,653
- --------------------------------------------------------------------------------
Total assets $ 2,106,538 $ 1,996,298
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 52,583 $ 69,438
Accounts payable and accrued expenses 670,797 601,573
Income taxes 66,099 15,486
- --------------------------------------------------------------------------------
Total current liabilities 789,479 686,497
- --------------------------------------------------------------------------------
Warranties 36,488 36,280
Long-term debt 362,724 452,344
Postretirement benefit liabilities 140,152 133,294
Other long-term liabilities 46,896 41,598
Stockholders' equity:
Common stock $.005 par value; 200,000
shares authorized;
Issued 44,616 shares in 1998 and 44,057
shares in 1997 223 220
Additional paid in capital 700,959 679,180
Retained earnings 290,465 173,375
Accumulated other comprehensive losses (58,209) (47,100)
Treasury stock, at cost; 4,621 shares in
1998 and 3,429 shares in 1997 (199,037) (153,425)
Unearned compensation (3,602) (5,965)
- --------------------------------------------------------------------------------
Total stockholders' equity 730,799 646,285
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,106,538 $ 1,996,298
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
a13
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
(in thousands, except per share data) 1998 1997 1996
======================================================================================
<S> <C> <C> <C>
Net sales $ 3,289,201 $ 3,193,657 $ 3,218,534
Cost of goods sold 2,566,265 2,557,431 2,532,677
- --------------------------------------------------------------------------------------
Gross profit 722,936 636,226 685,857
Selling, general and administrative
expenses 494,232 522,224 447,473
- --------------------------------------------------------------------------------------
Income from operations 228,704 114,002 238,384
Interest expense, net 41,527 40,876 34,544
Equity in earnings of affiliates (126) (5,342) (623)
- --------------------------------------------------------------------------------------
Income before income taxes 187,303 78,468 204,463
Provision for income taxes 50,810 31,075 56,554
- --------------------------------------------------------------------------------------
Net income $ 136,493 $ 47,393 $ 147,909
- --------------------------------------------------------------------------------------
Basic earnings per share $ 3.38 $ 1.11 $ 3.43
Diluted earnings per share 3.36 1.10 3.37
- --------------------------------------------------------------------------------------
Weighted average common shares and
common equivalents outstanding:
Basic 40,402 42,550 43,136
Diluted 40,622 43,040 43,950
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated Statements of Comprehensive Income
Years Ended December 31
-----------------------
(in thousands) 1998 1997 1996
================================================================================
Net income $ 136,493 $ 47,393 $ 147,909
Other comprehensive losses:
Foreign currency translation
adjustments (10,324) 23,622 (1,052)
Minimum pension liabilities
(net of tax of $386) (785) -- --
- --------------------------------------------------------------------------------
Total other comprehensive losses (11,109) (23,622) (1,052)
- --------------------------------------------------------------------------------
Comprehensive income $ 125,384 $ 23,771 $ 146,857
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 136,493 $ 47,393 $ 147,909
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 57,785 52,776 48,581
Amortization of deferred charges 17,059 15,978 18,410
Provision for doubtful accounts receivable 8,206 6,139 5,718
Other 5,634 (1,638) 7,154
Change in assets and liabilities net of
effects from purchase of other companies:
Receivables (88,430) 2,074 (8,381)
Inventories 4,536 48,562 (92,643)
Prepayments and other current assets (6,025) (3,145) (9,220)
Deferred income taxes (9,417) (1,686) 3,390
Other assets (16,995) 2,245 (11,117)
Accounts payable and accrued expenses 64,050 (2,422) (69,203)
Income taxes 47,889 (13,429) 453
Long term warranties 197 2,030 5,316
Postretirement benefit liabilities 6,858 4,883 3,776
Minimum pension liability (785) -- --
Other long-term liabilities 6,113 (6,046) (1,469)
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 233,168 153,714 48,674
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net purchases of and investments in other
companies (net of cash acquired) (7,794) (8,978) (16,468)
Capital expenditures (64,638) (66,854) (73,576)
Other 1,781 5,718 1,222
- ---------------------------------------------------------------------------------------------
Net cash used by investing activities (70,651) (70,114) (88,822)
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock issued 19,546 14,909 20,064
Treasury stock purchases (45,824) (157,224) (2,036)
Net proceeds from issuance of bank loans -- 169,780 --
Long-term debt payments (119,748) (114,223) (40,851)
Proceeds from issuance of senior bank notes 198,310 -- --
Net (payments) borrowings on short-term debt (16,855) (59,023) 40,965
Net (payments) proceeds of commercial paper
borrowings (168,182) 83,146 40,246
Dividends paid (19,403) (20,349) (15,602)
- ---------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (152,156) (82,984) 42,786
- ---------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 157 142 (6)
- ---------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 10,518 758 2,632
Cash and cash equivalents at beginning of year 12,228 11,470 8,838
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 22,746 $ 12,228 $ 11,470
- ---------------------------------------------------------------------------------------------
Supplemental disclosure of cash paid for:
Interest $ 40,207 $ 41,519 $ 34,454
Income taxes 28,153 55,587 46,683
Non-cash investing activities, acquisition
of business:
Fair value of assets acquired 7,377 20,447 23,336
Cash paid (7,794) (17,481) (16,468)
- ---------------------------------------------------------------------------------------------
Liabilities assumed $ (417) $ 2,966 $ 6,868
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a15
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Issued Additional Accumulated Other Treasury Stock
------------------- Paid In Retained Comprehensive -------------- Unearned
(in thousands, except share data) Shares Amount Capital Earnings Losses Shares Amount Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 43,125,713 $ 216 $ 644,377 $ 14,024 $(22,426) 52,506 $ (1,909) $(9,468)
Net income -- -- -- 147,909 -- -- -- --
Issuance of common stock under
executive stock agreements 2,000 -- 2 -- -- -- -- --
Issuance of common stock under
employee stock purchase plan 188,123 1 7,521 -- -- -- -- --
Other, primarily exercise of
stock options 404,017 2 12,468 -- -- -- -- --
Tax effect of options exercised -- -- 3,393 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- -- -- 2,873
Issuance of treasury stock, at
cost -- -- 14 -- -- (1,928) 70 --
Purchase of treasury stock, at
cost -- -- -- -- -- 47,050 (2,036) --
Cash dividends on common stock
($.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) $(6,595)
Net income -- -- -- 47,393 -- -- -- --
Issuance of common stock under
executive stock agreements 15,000 -- 898 -- -- (25,000) 1,126 (1,984)
Issuance of common stock under
employee stock purchase plan 165,369 1 5,557 -- -- (744) 34 --
Other, primarily exercise of
stock options 157,067 -- 2,758 -- -- (149,926) 6,495 --
Tax effect of options exercised -- -- 2,187 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- -- -- 2,614
Issuance of treasury stock, at
cost -- -- 5 -- -- (469) 19 --
Purchase of treasury stock, at
cost -- -- -- -- -- 3,507,321 (157,224) --
Cash dividends on common stock
($.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) $(5,965)
Net income -- -- -- 136,493 -- -- -- --
Issuance of common stock under
executive stock agreements, net 32,000 -- 1,169 -- -- 1,600 212 (1,137)
Issuance of common stock under
employee stock purchase plan 225,861 1 7,585 -- -- -- -- --
Other, primarily exercise of
stock options 300,625 2 11,715 -- -- -- -- --
Tax effect of options exercised -- -- 1,310 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- -- -- 3,500
Purchase of treasury stock, at
cost -- -- -- -- -- 1,190,640 (45,824) --
Cash dividends on common stock
($.48 per share) -- -- -- (19,403) -- -- -- --
Minimum pension liability -- -- -- -- (785) -- -- --
Currency translation adjustment -- -- -- -- (10,324) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 44,615,775 $ 223 $ 700,959 $290,465 $(58,209) 4,621,050 $(199,037) $(3,602)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a16
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
York International Corporation (The Company) is a full-line, global designer and
manufacturer of heating, ventilating, air conditioning and refrigeration
(HVAC&R) equipment with three major product groups: Engineered Systems, Unitary
and Refrigeration. The Company markets its products and services throughout the
world and its customers range from residential contractors to design builders,
contractors and building owners. Sales and related cost of goods sold are
recognized primarily 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, 1998 and 1997, is $90.3 million and $79.1
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.
Earnings per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 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.
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.
a17
<PAGE>
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. The Company adopted SFAS No.132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" in 1998, which revises employers'
disclosures about pension and other postretirement benefit plans. All prior
disclosures have been restated to conform to the provisions of SFAS 132.
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 differences 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 (APB) 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 SFAS 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 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 counter-parties 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 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 forward and option contracts are matched to firm
commitments of foreign currency transactions and effectively fix the sales or
purchase price. 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 raw material commodities, it 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. These contracts require
cash settlement between the Company and its counter-party 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:
1998 1997
-------------------------------------------------
(in thousands) Notional Fair Notional Fair
================================================================================
Foreign currency forward
contracts $55,245 $54,629 $31,995 $32,217
Commodity forward contracts 59,842 49,006 39,900 33,616
- --------------------------------------------------------------------------------
a18
<PAGE>
Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
1998 1997
--------------------------------------------------
(in thousands) Carrying Fair Carrying Fair
================================================================================
Cash and cash equivalents $022,746 $022,746 $012,228 $012,228
Short-term borrowings 52,583 52,583 69,438 69,438
Long-term debt:
Commercial paper -- -- 168,182 168,182
Bank lines 41,003 41,003 169,780 169,780
Senior notes at 6.75% 100,000 102,622 100,000 100,890
Senior notes at 6.70% 200,000 205,632 -- --
Other 21,721 21,721 14,382 14,382
- --------------------------------------------------------------------------------
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:
(in thousands) 1998 1997
================================================================================
Customers, trade $554,601 $509,333
Affiliate receivables, trade 12,538 15,759
Other receivables 85,540 48,577
- --------------------------------------------------------------------------------
652,679 573,669
Less allowance for doubtful
accounts receivable 19,911 17,839
- --------------------------------------------------------------------------------
Net receivables $632,768 $555,830
- --------------------------------------------------------------------------------
At December 31, 1998 and 1997, $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.
Note 4--Inventories
Inventories are classified as follows:
(in thousands) 1998 1997
================================================================================
Raw material $177,960 $163,336
Work in progress 92,712 110,882
Finished goods 266,182 266,896
- --------------------------------------------------------------------------------
Total inventories $536,854 $541,114
- --------------------------------------------------------------------------------
Inventories valued under the LIFO method comprised approximately 36%, 41% and
40% of the December 31, 1998, 1997 and 1996 totals, respectively. If valued
under the FIFO method, inventories would have been greater by $13.1 million at
December 31, 1998, $13.8 million at December 31, 1997 and $14.1 million at
December 31, 1996.
Note 5--Prepayments and Other Current Assets
The components of prepayments and other current assets are summarized below:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Deferred income tax assets $074,394 $069,900
Prepaid insurance 19,499 18,972
Other 24,272 23,576
- --------------------------------------------------------------------------------
Total prepayments and other current assets $118,165 $112,448
- --------------------------------------------------------------------------------
a19
<PAGE>
An option will be exercised automatically on the last day of the option
period (the "exercise date"), at which time the Company will deduct from the
participant's stock purchase account an amount sufficient to purchase up to the
number of shares of the Common Stock subject to the participant's option at the
option exercise price. The exercise price per share will be equal to 85% of the
fair market value of the Common Stock on the grant date or the exercise date,
whichever is less. The balance of the participant' account, if any, will be
refunded to him promptly after the exercise date.
All U.S. and most non-U.S. employees of the Company scheduled to work at
least 20 hours per week or more than five months during the option term are
eligible to purchase shares of the Common Stock under the Purchase Plan through
regular payroll deductions (valued in United States dollars) of not less than
$5.00 nor more that 10% of their eligible compensation (as defined in the
Purchase Plan) per pay period. No options may be granted under the Purchase Plan
to an employee who immediately after the granting of an option would own stock
of the Company possessing more than 5% of the total combined voting power of all
classes of stock of the Company. No participant may be granted an option under
the Purchase Plan which would permit his or her rights to purchase shares of
Common Stock under the Purchase Plan to accrue at a rate which exceeds $25,000
of fair market value of such shares (determined at the time the option is
granted) for each calendar year in which such option is outstanding. On March
24, 1999, the Company and its consolidated subsidiaries had approximately 16,800
employees, including executive officers, who were eligible to participate in the
Purchase Plan.
An employee's participation in the Purchase Plan shall be terminated when
he or she (a) voluntarily withdraws from the Purchase Plan; (b) resigns or is
discharged; or (c) retires or dies. Upon such termination, all funds in a
participant's account will be refunded without interest, except that upon
retirement or death, a participant or his or her legal representative may elect
to exercise any outstanding option of the participant. A participant who
withdraws from the Purchase Plan shall be eligible to participate again in the
Purchase Plan upon expiration of the option period during which he or she
withdrew.
An aggregate of 1,500,000,000 shares of authorized but unissued Common
Stock of the Company have previously been reserved for issuance under the
Purchase Plan. In the event of a stock dividend or a subdivision, combination
or reclassification of the Common Stock, the Board of Directors may, at its
option, terminate the Purchase Plan, or the Committee may, at its option,
appropriately adjust the maximum number of shares subject to the Purchase Plan.
The closing price of the Common Stock on December 31, 1998 was $40.81 (the
"Market Price"). Accordingly, the exercise price of the options to purchase
shares granted under the Purchase Plan in January 1999 will be the lower of 85%
of such amount ($34.69 (the "Plan Price")) or 85% of the closing price on
December 31, 1999. The closing price of the Common Stock on March 24, 1999, was
$34.375. The benefits or amounts that will be received by any individual under
the Purchase Plan in 1999 are not determinable at this time because the December
31, 1999 closing price of the Common Stock could affect the exercise price. In
the fiscal year ended December 31, 1998, the aggregate dollar value and number
of shares received by all executive officers as a group were $214,180.69 and
5,462, respectively; and the aggregate dollar value and number of shares
received by all non-executive officer employees as a group were $8,623,919 and
218,061, respectively. For information regarding certain executive officers, see
the Summary Compensation Table.
20
<PAGE>
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. The Agreement provides
for borrowings under the facility at LIBOR plus .16% or at specified bid rates
and requires a fee of .09%. At December 31, 1998 and 1997, the LIBOR rate was
5.06% and 5.75%, respectively. 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. At December
31, 1998 and 1997, no amounts were outstanding under the Agreement.
The Company's non-U.S. subsidiaries maintain bank credit facilities in various
currencies that provided for available borrowings of $269.6 million and $245.2
million at December 31, 1998 and 1997, respectively, of which $202.9 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.
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, 1998 and 1997, the Company had $41.0 million
and $169.8 million, respectively, outstanding under these bank lines.
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 December 31, 1998 and 1997 was approximately 5.30% and
5.78%, respectively.
Annual principal payments on long-term debt are as follows for the fiscal years
indicated:
(in thousands)
- --------------------------------------------------------------------------------
1999 $ 1,572
2000 11,984
2001 2,155
2002 42,935
2003 100,000
Thereafter 205,650
- --------------------------------------------------------------------------------
Interest expense is net of interest income of $3.4 million in 1998, $1.8 million
in 1997 and $5.1 million in 1996.
NOTE 10--PROVISION FOR INCOME TAXES
Components of earnings and taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
U.S. $153,469 $ 75,893 $196,687
Non-U.S. 33,834 2,575 7,776
- --------------------------------------------------------------------------------
$187,303 $ 78,468 $204,463
- --------------------------------------------------------------------------------
Income tax expense:
Current:
U.S. Federal $ 47,794 $ 31,383 $ 32,052
State 5,395 1,011 1,762
Non-U.S. 11,893 7,498 12,732
- --------------------------------------------------------------------------------
Total current 65,082 39,892 46,546
Deferred (14,272) (8,817) 10,008
- --------------------------------------------------------------------------------
Total provision for income taxes $ 50,810 $ 31,075 $ 56,554
- --------------------------------------------------------------------------------
</TABLE>
a21
<PAGE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to income before income taxes as a result of the
following:
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Tax expense at statutory rate $ 65,556 $ 27,464 $ 71,562
Increase (decrease) resulting from:
Equity in earnings of
affiliates/minority interest (498) (540) (1,362)
Taxes on foreign earnings (16,389) 7,466 (4,189)
State income taxes--current 3,507 657 1,145
Purchase accounting adjustments 3,511 3,570 (1,839)
State income taxes--deferred 621 (1,421) 1,600
Export incentives (4,122) (4,776) (10,378)
Other (1,376) (1,345) 15
- --------------------------------------------------------------------------------
Total provision for income taxes $ 50,810 $ 31,075 $ 56,554
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts $ 3,625 $ 3,891
Inventories, including uniform capitalization 18,359 17,276
Compensated absences and benefits, principally
due to accrual for financial reporting purposes 12,294 8,983
Contingencies, due to accrual for financial reporting purposes 7,860 11,443
Warranty reserves, due to accrual for financial reporting purposes 23,928 26,995
Postretirement benefits 54,970 52,671
Other 28,556 16,481
- --------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 149,592 137,740
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, due to purchase accounting
adjustments and differences in depreciation 26,337 27,695
Inventory, due to purchase accounting adjustments 15,765 16,150
Other 2,291 2,126
- --------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 44,393 45,971
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets $105,199 $ 91,769
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Based on the Company's historical and current pre-tax earnings, management
believes it is likely the Company will realize the net deferred tax assets.
During 1998, the Internal Revenue Service (IRS) completed its examination of the
Company's Federal income tax returns for 1993 and 1994. The Company reached a
settlement agreement with the IRS for those years; this settlement did not have
a material effect on the Company's financial statements. For the Federal income
tax returns for 1987 through 1992, the Company reached a settlement agreement
with the IRS during 1996; this settlement did not have a material effect on the
Company's 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
$124 million and $81 million of undistributed earnings of foreign subsidiaries
and affiliates at December 31, 1998 and 1997, respectively. These earnings are
considered to 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 $7.3 million and $3.0
million of deferred income taxes, consisting of foreign withholding taxes, would
have been provided at December 31, 1998 and 1997, respectively. Such taxes, if
ultimately paid, may be recoverable as foreign tax credits in the U.S.
a22
<PAGE>
NOTE 11--LEASE COMMITMENTS
The Company has non-cancelable leases with terms exceeding one year. At December
31, 1998, rental amounts committed in future years are summarized as follows:
(in thousands) Operating Leases
- --------------------------------------------------------------------------------
1999 $28,410
2000 17,019
2001 12,868
2002 8,065
2003 5,937
Thereafter 14,978
- --------------------------------------------------------------------------------
Total $87,277
- --------------------------------------------------------------------------------
Total rental expense was $32.8 million in 1998, $35.4 million in 1997 and $30.4
million in 1996.
NOTE 12--RESEARCH AND DEVELOPMENT
Total research and development costs charged to expense amounted to $31.2
million in 1998, $30.6 million in 1997 and $28.0 million in 1996.
NOTE 13--CONTINGENT LIABILITIES
Company management believes that various current claims and litigation have been
adequately provided for or are covered by insurance. Therefore, the resolution
of such matters is not expected to materially affect the Company's financial
position or future earnings.
At December 31, 1998, $19.8 million in standby letters of credit and $159.2
million of performance guarantees issued by the Company were outstanding. These
items are expected to expire and be replaced with similar items in the normal
course of 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.
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. The Company has an unfunded supplemental
benefit plan which was adopted in 1993 to provide certain senior management with
supplemental retirement benefits.
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 any one of the Company's
domestic defined benefit pension plans. Employees who retired prior to February
1, 1993 contribute to the cost of the plans, although the Company pays the
majority of the cost. Employees retiring after February 1, 1993 contribute to
the cost of the plans based on an indexed service-related premium. Employees
hired after February 1, 1993 are not eligible for the plans. The plans are not
funded.
a23
<PAGE>
The following table sets forth the funded status and amounts recognized in the
Company's consolidated balance sheets:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------------------------------
(in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $(350,416) $(322,845) $ (96,569) $ (87,849)
Service cost (16,286) (14,772) (1,971) (1,984)
Interest cost (24,278) (22,964) (6,704) (6,714)
Actuarial gain (23,522) (3,057) (12,366) (799)
Plan assumptions (12,377) (13,274) (4,319) (3,482)
Benefits paid 24,892 19,814 6,070 4,259
Plan amendments (560) (927) -- --
Curtailments 634 726 -- --
Translation (2,061) 6,883 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $(403,974) $(350,416) $(115,859) $ (96,569)
- ----------------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 386,248 $ 340,715 -- --
Actual return on plan assets 62,902 63,535 -- --
Contributions by employer 6,967 7,339 5,781 3,992
Contributions by plan participants -- -- 289 265
Benefits paid (24,892) (19,814) (6,070) (4,257)
Translation 1,659 (5,527) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 432,884 $ 386,248 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Funded status $ 28,910 $ 35,832 $(115,859) $ (96,569)
Unrecognized prior service cost 12,203 12,634 4,421 4,950
Unrecognized (gain) loss (71,473) (75,007) 677 (16,655)
- ----------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (30,360) $ (26,541) $(110,761) $(108,274)
- ----------------------------------------------------------------------------------------------------------------------------
Amounts recognized in consolidated balance sheets
Accrued benefit liability $ (33,390) $ (28,916) $(110,761) $(108,274)
Intangible asset 1,859 2,375 -- --
Accumulated other comprehensive income 1,171 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (30,360) $ (26,541) $(110,761) $(108,274)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pension Benefits Other Benefits
----------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets 9.75% 9.75% -- --
Rate of compensation increase 4.75% 4.75% -- --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes an 8% annual rate of increase in the cost of covered
health care benefits was assumed for 1998, 6% for 1999 and 2000, and 5.5%
thereafter.
a24
<PAGE>
Net periodic benefit costs include the following components:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------------------------------------
(in thousands) 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost--benefits earned
during the period $ 16,286 $ 14,772 $ 13,289 $ 1,971 $ 1,984 $ 2,326
Interest cost on projected benefit obligations 24,278 22,964 21,497 6,704 6,714 6,708
Expected return on plan assets (37,601) (32,256) (26,347)* -- -- --
Amortization of prior service cost 6,851 4,434 -- 528 528 528
Amortization of net (gain) loss (304) (367) -- (646) (614) (574)
(Increase) decrease due to curtailment/window (53) 212 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 9,457 $ 9,759 $ 8,439 $ 8,557 $ 8,612 $ 8,988
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The 1996 data is not restated, as information is not readily available. The
1996 actual return on plan assets, ($45,390), and net amortization and
deferrals, $19,043, are netted on the expected return on plan assets line,
($26,347).
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 projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $113.6 million, $110.5 million and $88.4 million,
respectively, as of December 31, 1998, and $112.3 million, $106.5 million, and
$82.9 million, respectively, as of December 31, 1997.
Assumed health care cost trend rates have an effect on the amounts reported for
the health care plan. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
(in thousands) 1% Increase 1% Decrease
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 1,800 $ (1,400)
Effect on postretirement benefit obligation 21,700 (17,300)
- -------------------------------------------------------------------------------------------
</TABLE>
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 $1.5 million in 1998, $1.1 million in 1997 and
$0.9 million in 1996.
NOTE 15--SEGMENT INFORMATION
In 1997, the Company reorganized its geographically focused operations into
three global business groups. These three global business groups operate in the
Heating, Ventilating, Air Conditioning and Refrigeration industry (HVAC&R) and
are segmented as the Engineered Systems Group, Unitary Products Group and
Refrigeration Products Group.
The Company's Engineered Systems Group (ESG) consists of heating and air
conditioning solutions for buildings ranging from small office buildings and
fast food restaurants to large commercial and industrial complexes. Engineered
Systems air conditioning products include air-cooled and water-cooled chillers,
central air handling units, variable air volume units, control equipment to
monitor and control the entire system, maintenance and service. ESG manufactures
and provides custom design solutions for large systems used in hospitals, office
towers, hotels and airports. ESG also supplies specially designed chilled water
systems for use on naval and commercial marine vessels.
The Company's Unitary Products Group (UPG) consists of heating and air
conditioning solutions for buildings ranging from private homes and apartments
to small commercial buildings. Unitary products include ducted central air
conditioning and heating systems (air conditioners, heat pumps and furnaces),
ductless mini-splits, light commercial heating and cooling equipment, and
reciprocating and scroll compressors for original equipment manufacturers and
for sale by wholesale distributors.
The Company's Refrigeration Products Group (RPG) consists of screw and
reciprocating compressors, condensers, evaporators, heat exchangers, freezers
for commercial food freezing, process refrigeration systems, hygienic air
distribution systems, gas compression systems and automated plant control
systems.
a25
<PAGE>
The Company's reorganization was effective for 1997; comparable 1996 information
is not readily available and therefore only revenue by business unit has been
included. The following table represents the Company's operating results by
segment:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
===========================================================================================================================
<S> <C> <C> <C>
Sales:
Engineered Systems Group $ 1,408,091 $ 1,396,436 $ 1,319,306
Unitary Products Group 1,481,760 1,392,378 1,417,782
Refrigeration Products Group 447,499 447,093 510,399
Eliminations (1) (48,149) (42,250) (28,953)
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,289,201 $ 3,193,657 $ 3,218,534
- ---------------------------------------------------------------------------------------------------------------------------
(1) Eliminations include the following intersegment sales:
Engineered Systems Group $ 12,710 $ 7,236 $ 5,820
Unitary Products Group 10,936 12,609 802
Refrigeration Products Group 24,503 22,405 22,331
- ---------------------------------------------------------------------------------------------------------------------------
Eliminations (1) $ 48,149 $ 42,250 $ 28,953
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations:
Engineered Systems Group $ 125,170 $ 118,278
Unitary Products Group 140,482 102,724
Refrigeration Products Group 27,420 22,734
Eliminations, general corporate expenses
and other non-allocated items (64,368) (129,734)
- ---------------------------------------------------------------------------------------------------------------------------
$ 228,704 $ 114,002
- ---------------------------------------------------------------------------------------------------------------------------
Equity in (earnings) losses of affiliates:
Engineered Systems Group $ (1,260) $ (1,402)
Unitary Products Group 1,103 (3,940)
Refrigeration Products Group 31 --
- ---------------------------------------------------------------------------------------------------------------------------
$ (126) $ (5,342)
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense, net 41,527 40,876
Income before income taxes 187,303 78,468
Provision for income taxes 50,810 31,075
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 136,493 $ 47,393
- ---------------------------------------------------------------------------------------------------------------------------
Total assets:
Engineered Systems Group $ 713,943 $ 703,498
Unitary Products Group 705,068 682,598
Refrigeration Products Group 272,039 237,179
Eliminations and other non-allocated assets 415,488 373,023
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,106,538 $ 1,996,298
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense:
Engineered Systems Group $ 16,871 $ 15,679
Unitary Products Group 26,542 23,363
Refrigeration Products Group 9,502 9,351
Other non-allocated depreciation and amortization 4,870 4,383
- ---------------------------------------------------------------------------------------------------------------------------
$ 57,785 $ 52,776
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Engineered Systems Group $ 28,257 $ 23,413
Unitary Products Group 24,524 25,521
Refrigeration Products Group 9,001 15,095
Other non-allocated capital expenditures 2,856 2,825
- ---------------------------------------------------------------------------------------------------------------------------
$ 64,638 $ 66,854
===========================================================================================================================
</TABLE>
a26
<PAGE>
Other non-allocated costs for management reporting include goodwill
amortization, certain pension costs, Olympic sponsorship costs, other corporate
costs, interest and income taxes. Non-allocated assets primarily consist of
prepaid pension expenses, deferred tax assets, goodwill, LIFO inventory
reserves, and other corporate assets. For management reporting, intersegment
sales are recorded on a cost-plus basis and are recorded at cost by the buying
segment. Management performance is based on earnings before interest and taxes
(EBIT) adjusted by a charge for capital.
The Company's sales are 58% to the United States and 42% to non-U.S. countries
for 1998 and 1997 and 54% to the United States and 46% to non-U.S. countries in
1996. No single non-U.S. country or single customer accounts for greater than
10% of the Company's sales. Information related to United States and non-U.S.
sales to outside customers, based on the location of the assets generating the
sales, is as follows:
(in thousands) 1998 1997 1996
================================================================================
Sales:
United States $2,200,137 $2,155,174 $2,022,581
Other 1,089,064 1,038,483 1,195,953
- --------------------------------------------------------------------------------
$3,289,201 $3,193,657 $3,218,534
- --------------------------------------------------------------------------------
Included in United States sales are export sales of $301.5 million in 1998,
$316.3 million in 1997 and $296.7 million in 1996.
The Company's net property, plant and equipment located in the United States was
76%, 78% and 77% and in non-U.S. countries was 24%, 22% and 23% at December 31,
1998, 1997 and 1996, respectively. No single non-U.S. country had greater than
10% of the Company's consolidated net property, plant and equipment.
NOTE 16--CHARGES TO OPERATIONS
During the first and fourth quarters of 1997, the Company recorded charges of
$13.4 million and $62.1 million, respectively. The first quarter charge related
to the closing of the Houston manufacturing facility and the downsizing of
German operations; the fourth quarter charge related to profit improvement
initiatives, including closing and streamlining certain operations and
rationalization of global distribution and products throughout the world.
NOTE 17--MANUFACTURING OPERATIONS
On February 2, 1998, the Company incurred damage to its Grantley manufacturing
facility in York, PA, when tanks used for testing ruptured. The accident caused
substantial damage to facilities used in steel cutting and rolling operations
and heat exchanger production. The Company has taken a number of measures to
limit the disruptions and costs resulting from the accident, including moving
production to other Company 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's rebuilding operations are expected to
continue into the second quarter of 1999.
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.
Pursuant to generally accepted accounting principles, the costs of
reconstructing and replacing property damaged or destroyed in the accident are
recorded in the applicable property accounts, and the difference between the net
book value of the assets damaged or destroyed and the related insurance recovery
will be included in profit and loss upon settlement. During 1998, the Company
recorded credits to cost of goods sold of $25.5 million reflecting insurance
coverage for certain incremental expenses and losses included in cost of goods
sold as a result of the accident. These amounts represent only a portion of the
Company's estimate of the total costs and expenses resulting from the accident
which will be included in the Company's claim under business interruption
coverage.
During 1998, the Company received payments of $19.4 million and $10.0 million
from the insurance company, representing partial payments under property damage
and business interruption coverage, respectively. The Company and the insurance
company have not agreed on any settlement or partial settlement under the
property damage or business interruption coverage. 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.
a27
<PAGE>
Note 18--Stockholders' Equity
The 1992 Employee Stock Purchase Plan authorizes the allocation of 1,500,000
shares of common 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 end of the period. No compensation expense is
recorded in connection with the Plan. In 1998, 1997 and 1996, there were 225,861
shares, 165,169 shares and 188,123 shares, respectively, purchased by employees
at a price of $33.63 per share, $33.63 per share and $39.95 per share,
respectively.
During May 1997 and February 1999, amendments to the 1992 Omnibus Stock Plan
were approved. The amended and restated 1992 Omnibus Stock Plan authorizes the
issuance of up to 7,880,000 shares of the Company's common stock under stock
option 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 equal to 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 1998, 1997 and 1996 under the 1992
Omnibus Stock Plan, key employees were awarded 32,000, 40,000 and 2,000 shares,
respectively, of restricted common stock generally vesting over four years.
Accordingly, unearned compensation of $1.1 million and $2.0 million was recorded
as a charge to equity in 1998 and 1997, respectively, which is being amortized
over the vesting period.
Changes in the number of shares under the stock options plan are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------------
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, 2,776,367 $ 42.50 2,365,859 $ 39.97 1,976,778 $ 35.14
Granted 797,415 43.11 829,143 45.43 818,390 46.91
Exercised (300,625) 39.05 (306,993) 30.24 (404,017) 29.97
Canceled (175,935) 42.87 (111,642) 44.36 (25,292) 46.68
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 3,097,222 42.97 2,776,367 42.50 2,365,859 39.97
Exercisable, December 31, 2,289,257 $ 42.91 1,952,454 $ 41.30 1,551,061 $ 36.45
Available, December 31, 222,405 884,175 389,416
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The exercise price of options outstanding and those exercised under the stock
option plans is $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,
$44.63 to $49.63 per share for 1997 grants and $33.13 to $49.50 per share for
1998 grants. The weighted average remaining contractual life for options
outstanding at December 31, 1998 is 7.26 years.
In 1997 and 1999, the Board of Directors authorized the Company to purchase up
to 6.0 million and 2.5 million shares, respectively, of its Common Stock over
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, 1.1 million and 3.4 million
shares were repurchased on the open market in 1998 and 1997, respectively.
The Company applies APB 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 SFAS No. 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.
(in thousands, except per share data) 1998 1997 1996
================================================================================
Net earnings--as reported $ 136,493 $ 47,393 $ 147,909
Net earnings--pro forma 126,241 38,471 137,765
Diluted earnings per share--as reported 3.36 1.10 3.37
Diluted earnings per share--pro forma 3.11 0.89 3.13
- --------------------------------------------------------------------------------
a28
<PAGE>
The per share weighted average fair value of the options granted during 1998,
1997, and 1996 is estimated as $16.66, $18.04 and $18.30, respectively, on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 1.1% in 1998 and 1.0% in 1997 and 1996;
volatility of 27.5%, 27.2% and 18.6% in 1998, 1997 and 1996, respectively;
risk-free interest rate of 5.7%, 6.6% and 6.4% in 1998, 1997 and 1996,
respectively, and an expected life of 7.7 years in 1998 and 7.0 years in 1997
and 1996.
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. Because the determination of fair value of all options granted
includes variable factors, including volatility, and because additional option
grants are expected to be made each year, the above proforma disclosures are not
representative of proforma effects of reported net income for future years.
Note 19--Earnings per Share Reconciliation of Shares Outstanding
Net income 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:
(in thousands) 1998 1997 1996
================================================================================
Weighted average common shares outstanding used
in the computation of basic earnings per share 40,402 42,550 43,136
Effect of dilutive securities:
Non-vested restricted shares 132 167 205
Stock options 88 323 609
- --------------------------------------------------------------------------------
Weighted average common shares and equivalents used
in the computation of diluted earnings per share 40,622 43,040 43,950
- --------------------------------------------------------------------------------
a29
<PAGE>
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>
1998
Net sales $ 741,988 $ 888,481 $ 810,355 $ 848,377
Gross profit 157,032 194,839 183,781 187,284
Net income 14,664 42,307 47,254 32,268
Earnings per share:
Basic .36 1.04 1.17 .81
Diluted .36 1.03 1.16 .81
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)
- -------------------------------------------------------------------------------------------------------
</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
Dividends
High Low Declared
================================================================================
1998
Fourth quarter $43 9/16 $27 1/2 $.12
Third quarter 46 11/16 31 5/8 .12
Second quarter 52 3/4 40 3/4 .12
First quarter 46 1/2 34 3/8 .12
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 5/8 .12
- --------------------------------------------------------------------------------
a30
<PAGE>
Investor and Stockholder Information, and Corporate Data
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 1592-364B
York, PA 17405-1592
Telephone: (717) 771-7409
Fax: (717) 771-7381
About York's Shareholders
At year-end, the Company had approximately 5,000 registered shareholders.
Approximately 10% 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 3,800 employee shareholders participating in the York
International Employee Stock Purchase Plan, for an estimated 22% 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
Fax: (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 1592-364B
York, PA 17405-1592
Fax: (717) 771-7381
E-mail: [email protected]
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 website, set your browser software to:
http://www.york.com
Stock Exchange Listing
The New York Stock Exchange
Stock Trading Symbol
YRK
a31
<PAGE>
Board of Directors
ROBERT N. POKELWALDT
Chairman of the Board and
Chief Executive Officer
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 and Finance
Committee
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 and Finance
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 and Finance
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
STUART R. AMOS
Vice President and President of
Unitary Products Group
WILLIAM G. COWLES, JR.
Vice President and President of
Refrigeration Products Group
JOSEPH D. SMITH
Vice President of Manufacturing Operations
PETER C. SPELLAR
Vice President and President of
Engineered Systems Products Group
MICHAEL R. YOUNG
Vice President and President of
Bristol Compressors
JANE G. DAVIS
Vice President, Secretary and
General Counsel
WAYNE J. KENNEDY
Vice President, Human Resources
HELEN S. MARSTELLER
Vice President, Investor Relations and
Corporate Communications
MARK V. STANGA
Vice President, Government Affairs
BENSON K. WOO
Vice President and Chief Financial Officer
CHARLES F. CARGILE
Controller
JAMES P. CORCORAN
Treasurer
The trademarks AIR PRO; BRISTOL; FRASER-JOHNSTON; GUARDIAN; LUXAIRE; ACUAIR;
FRICK; FRIGIDCOIL; IMECO; NORTHFIELD; RECO and YORK are registered in the United
States Patent and Trademark Office by York International Corporation or its
affiliates. AEROMASTER; COLEMAN-EVCON; GRAM REFRIGERATION; RECOLD; RITE COIL;
TWIN SCREW AND YORK FOOD SYSTEMS are trademarks of York International
Corporation or its affiliates.
a32
