<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER: 1-10863
YORK INTERNATIONAL CORPORATION
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3473472
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
631 SOUTH RICHLAND AVENUE, YORK, PA 17403
(717) 771-7890
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $.005 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 26, 1999, there were 39,864,887 shares of the registrant's Common
Stock outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was $1,330,099,897 based on the closing price of the Common
Stock on the New York Stock Exchange Composite Transactions of such date.
(Only officers and directors of the registrant are assumed to be affiliates for
purposes of this calculation.)
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Financial Statements and Review of Operations to
Stockholders for the year ended December 31, 1998 and the Notice of Annual
Meeting of Stockholders and Proxy Statement pertaining to the Annual Meeting are
incorporated herein by reference into Parts II, III and IV.
Exhibit Index is located on pages 22 to 24.
<PAGE>
YORK INTERNATIONAL CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1998
INDEX
PART 1
Item
Number Page
------ ----
1. Business.
2. Properties.
3. Legal Proceedings.
4. Submission of Matters to a Vote of Security Holders.
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters.
6. Selected Financial Data.
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
7a. Quantitative and Qualitative Disclosure about Market Risk.
8. Financial Statements and Supplementary Data.
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
PART III
10. Directors and Executive Officers of the Registrant.
11. Executive Compensation.
12. Security Ownership of Certain Beneficial Owners and Management.
13. Certain Relationships and Related Transactions.
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<PAGE>
PART I
Item 1. Business.
General
- -------
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.
Strategy
- --------
The Company's strategy is to focus on the global air conditioning equipment and
worldwide service, repair and replacement markets and increase its presence in
the worldwide refrigeration and gas compression market. The Company has grown,
and expects to continue to grow, through expansion of its current product lines,
acquisitions of businesses, establishment of joint ventures and licensing of
technology in the HVAC&R industry.
The Company intends to continue its strategy of increasing its market share by
broadening its product range to offer a complete line of environmentally
acceptable and energy efficient products. The Company seeks to take advantage
of regulatory changes by developing products that comply with tightening
environmental and energy efficiency requirements and regulations before they
become effective. The Company has implemented its environmental strategy by
developing product lines that utilize its screw, centrifugal, reciprocating,
hermetic, scroll and inertia compressor technology employing HCFC-123, HCFC-22,
R-407C, R-410A, R-404A, R-507, R-717 (ammonia) and HFC-134a as a refrigerant.
The screw and centrifugal compressor utilize designs which separate the
refrigerant from the motor housing. See "Environmental Matters" below. The
Company has increased the overall efficiency of its product offerings by
employing internally developed advanced heat transfer and compressor
- -----------------------------
* 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.
1
<PAGE>
technology and introducing large air conditioning systems that utilize advanced
thermal storage and absorption technologies.
The Company is also seeking to expand into new markets. The Company intends to
expand sales of its equipment throughout the international markets by broadening
its product line, expanding its distribution capabilities and pursuing
acquisitions.
The Company also focuses on controlling manufacturing and operating expenses and
thus improving its operating margins by redesigning products, acquiring more
efficient manufacturing equipment and processes and reducing costs not directly
associated with the manufacturing process. In addition, the Company has a
continuous planning process to enable it to carefully monitor the amount of
capital used in its business and to reposition its business units in light of
changing conditions throughout the year. The Company believes that its
management stock ownership plans and management incentive compensation plans,
which reward the management team of each operating unit for achieving the
planned objectives of that unit, have been key elements in implementing its
strategies and achieving its financial objectives.
Products and Markets
- --------------------
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 following table sets forth sales by product and geographic market:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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)
---------- ---------- ----------
Total sales $3,289,201 $3,193,657 $3,218,534
========== ========== ==========
U.S. 58% 58% 54%
International 42% 42% 46%
--- --- ---
100% 100% 100%
==== ==== ====
</TABLE>
Additional financial information about the Company's operating segments and
foreign and domestic operations and export sales is incorporated herein by
reference to Note 15 on pages a25 to a27 of the Annual Financial Statements and
Review of Operations. In June 1997, The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards 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 it prospects for future net cash flows and make more informed
judgements about the enterprise as a whole.
2
<PAGE>
Engineered Systems Products. The Company's Engineered Systems Group 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. Engineered Systems Group manufactures and provides certain design
solutions for larger systems used in hospitals, office towers, hotels and
airports. The Engineered Systems Group also supplies specially designed chilled
water systems for use on U.S., British, French and other naval and commercial
marine vessels. The Company is currently the major supplier of water chillers to
the U.S. Navy for both surface vessels and submarines.
The Company markets its Engineered Systems under the "YORK", "MILLER-PICKING",
"TEMPMASTER", "SEVESO" and "PACE" brands. In the United States and Canada,
distribution of Engineered Systems products and services are coordinated by
seven regional offices and approximately 61 district offices. These district
offices market products directly to end users and contractors. The Company has
approximately 123 direct sales representatives and 115 independent sales agents
in the North American market. Internationally, the Engineered Systems products
and services are sold and distributed in conjunction with other York business
groups. See discussion of Non-U.S. Distribution on page 6.
The Engineered Systems Group has a full line of chiller products utilizing the
latest technologies and refrigerants. The Group also has a line of standard
indoor air handling equipment incorporating the technologies for indoor air
quality and a line of customized indoor and outdoor air handling products. In
1997, the Company acquired PACE Gamewell which designs, manufactures and sells
air handling equipment. York manufactures the broadest line of chiller and air
handling equipment of any manufacturer in the industry.
The Engineered Systems Group derives substantial revenues by selling replacement
equipment and parts, and by providing routine maintenance and emergency service
for products manufactured by the Company and its competitors through annual
service contracts. The Company has a corporate and national account sales
program to service customers with multiple locations throughout the world.
The Engineered Systems Group believes its reputation for service and repair is
excellent. The Company employs more than 3,500 service technicians in offices
throughout the world. These technicians generate revenues through the sale of
replacement parts and by providing routine and emergency service for air
conditioning and refrigeration systems manufactured by the Company and its
competitors. The Engineered Systems Group believes that its emphasis on service
and repair, combined with the growth and aging of the installed base of air
conditioning and refrigeration equipment, will be key factors in increasing the
Company's revenues derived from the service, repair and replacement market.
The Company's Engineered Systems products are principally manufactured in York,
Pennsylvania; Albany, Missouri; Hattiesburg, Mississippi; Salisbury, North
Carolina; Portland, Oregon; San Antonio, Texas; Roanoke, Virginia; Basildon,
England; Barlassina, Italy; Carquefou, France; Asquith, Australia; Montevideo,
Uruguay; Wuxi, China; Guanghzou, China; Durango, Mexico; and Monterrey, Mexico.
All of the markets in which the Company's Engineered Systems Group does business
are very competitive. Engineered Systems product manufacturers compete on the
basis of product design, reliability, quality, price, efficiency and post-
installment service. Architects and engineers play an important part in
determining which manufacturer's products will be used in an application. In the
domestic market, the Company competes primarily with two large worldwide
manufacturers, Carrier Corporation, a subsidiary of United Technologies
Corporation, and Trane Company, a division of American Standard Inc. In the
international market, the Company competes primarily with Carrier Corporation,
Trane Company and several Japanese manufacturers, including Matsushita, Hitachi,
Mitsubishi Electric and Toshiba.
Many of the components of the Company's engineered products, such as motors,
control elements and castings, are purchased from outside suppliers. The other
components are custom manufactured by the Company. Using these components and
custom-designed specifications, the engineered products are machined, assembled,
tested, shipped and installed. Following installation, the Company assists in
the start-up of the system, and supplies ongoing maintenance, service and
replacement parts.
3
<PAGE>
Unitary Products. The Company's Unitary Products Group 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 OEM compressors for original equipment
manufacturers and for sale by wholesale distributors.
Unitary products consist of split systems and packaged products. A split system
consists of an outdoor unit containing a compressor and condenser, and a
connected indoor unit containing a heat exchanger, an electric, gas or oil
heating section, an indoor blower system and associated controls. A packaged
product is a single, self-contained unit with compressor, condenser, heat
exchanger, electric, gas or oil heating section, blower and associated controls.
These units are typically installed on rooftops or beside a structure. Ducted
products distribute conditioned air throughout building structures with ductwork
connected to the system's blower, whereas ductless installations provide
conditioned air directly from indoor blowers without the use of ductwork.
A compressor is an integral part of an air conditioning system. The Company's
unitary products use compressors manufactured by the Unitary Products Group's
Bristol Compressors operation (Bristol) as well as those purchased from other
vendors. Revenues from Bristol were approximately $517 million, $504 million
and $530 million during 1996, 1997 and 1998, respectively. Approximately 80% of
Bristol revenues are attributable to sales of products to other air conditioning
equipment manufacturers.
The Company markets its Unitary products under the "YORK", "LUXAIRE", "FRASER-
JOHNSTON", "COLEMAN EVCON", "GUARDIAN", "AIRPRO", "BRISTOL" and "SEVESO" brands.
"YORK" is the Company's full line brand, which is sold through Company-owned
distribution centers and exclusive independent distributors throughout the
world. The "YORK" brand is sold with a high level of customer service and sales
support. The Company's 1995 acquisition of Evcon Holdings expanded UPG's
capabilities and distribution network in the domestic unitary market. The
Company's other brands are sold through more than 200 non-exclusive distributors
primarily for resale to contractors. The Company also sells unitary products
directly to the manufactured housing industry in North America on an OEM basis.
Internationally, the Unitary Product Group products are sold in conjunction with
other York business groups. See discussion of Non-U.S. Distribution on page 6.
In 1998, the Company purchased the remaining 15% of its joint venture,
Aeromaster, and formed the 100% owned company York Industrial (Thailand) Co.,
Ltd. York Industrial (Thailand) Co., Ltd. is a mini-split manufacturer in
Bangkok, Thailand. The mini-split market represents a significant portion of
the unitary business in the Asia Pacific Region and York Industrial Thailand
enables York to compete in this market with a product manufactured within the
Region. York Industrial Thailand supplies mini-split product to York offices
located around the world.
Sales of Unitary products include both new installations and replacement
systems. The Company estimates that more than half of its Unitary products
revenues in North America are attributable to the replacement market. The
replacement market is not affected by levels of new home construction and
therefore trends to be less cyclical. The replacement market is significantly
affected by ambient temperature. Hot spring weather causes existing older units
to fail earlier in the season, leading customers to accelerate replacement of a
unit which might otherwise be deferred in the case of a late season failure.
New residential products cover a wide range of efficiencies and may be able to
qualify for rebates offered by local utility companies for high efficiency
equipment. Bristol markets an INERTIA reciprocating compressor that directly
competes against other technologies in meeting high efficiency requirements.
Bristol has also developed a new compressor design known as TS(TM) Technology.
These new compressors provide higher system efficiencies, greater reliability,
and increased comfort. Scroll Technologies, a joint venture to design and
manufacture scroll compressors, continues to upgrade the scroll compressor
technology and performance.
Unitary and light commercial products are manufactured principally in plants
located in Elyria, Ohio; Norman, Oklahoma; Wichita, Kansas; Barlassina, Italy;
Bogota, Colombia; Monterrey, Mexico; Bangkok, Thailand; Johannesburg, South
Africa; and Guangzhou, China. The Company's manufacturing process relies on the
purchase of certain components (including hermetic compressors, copper tube, fan
motors, fan blades, and control
4
<PAGE>
elements) from outside suppliers, and in-house fabrication of sheet metal
cabinets and refrigerant coils. The various unitary products are then assembled
and tested before shipment. Bristol compressors are manufactured at the
Company's factories in Bristol, Virginia and Sparta, North Carolina, and by
Scroll Technologies in Arkadelphia, Arkansas. As with other Company products,
Bristol compressors are assembled using purchased parts (including motors,
castings, forgings and electronic components) as well as parts manufactured by
the Company.
All of the markets in which the Company's Unitary Products Group does business
are very competitive. Unitary product manufacturers compete on the basis of
price, reliability, delivery, efficiency and maximum market coverage. Price
competition and maximum market coverage are of particular importance in the
residential product lines as there is often relatively little perceived
differentiation. In the domestic market, the Company competes with three large
worldwide manufacturers, Carrier Corporation, Trane Company and Lennox and
numerous national manufacturers such as Goodman, International Comfort Products,
Rheem and Nordyne. In the international market, the Company competes primarily
with Carrier Corporation, Trane Company, Lennox and several Asian manufacturers,
including Hitachi, LG, Matsushita, Mitsubishi Electric, Samsung and Toshiba. In
the compressors market, the Company competes directly with two United States
manufacturers, Copeland Corporation, a subsidiary of Emerson Electric Inc., and
Tecumseh, a division of Tecumseh Corporation.
Refrigeration Products. The Company's Refrigeration Products Group 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.
Screw compressors enable the Company to produce highly reliable, ammonia
refrigeration systems required for commercial and industrial applications in the
food, beverage, chemical and petroleum industries. The Company believes that
screw compressors are the most reliable and energy efficient compressors
available for ammonia refrigeration systems. The Company's Gram Refrigeration
business provides similar manufacturing capabilities in Europe and increased
availability of technologically advanced product. Gram also produces
reciprocating compressors for refrigeration applications. The Company's
refrigeration and gas compression equipment is engineered and manufactured to
customer specifications. Food freezing equipment produced by the Company
includes spiral and tunnel freezers for the poultry, frozen vegetable and
prepared food businesses. Smaller capacity packaged commercial freezing machines
have been downsized to meet the needs of developing new markets.
Refrigeration systems are essential in the textile, electronics, pharmaceutical
and petrochemical industries. Food, beverage and process cooling operations use
refrigeration systems both in product freezing and maintaining these products in
warehouses, distribution centers and retail outlets. Refrigeration Product Group
systems are also in use in sporting venues.
The Company markets its refrigeration and gas compression equipment under the
"YORK", "YORK FOOD SYSTEMS", "FRICK", "FRIGID COIL", "IMECO", "RECO", "RITE
COIL", "RECOLD", "NORTHFIELD", "ACUAIRE" and "GRAM REFRIGERATION" brands. The
products are sold by the Company's sales engineers located in 14 offices and a
national network of more than 50 independent agents in the United States as well
as nine offices, 20 independent distributors and one licensee elsewhere in the
world. In addition, the Company believes that developing countries offer
opportunities for increasing sales of refrigeration equipment. See non-U.S.
distribution below for additional discussion on non-U.S. markets.
Refrigeration equipment is manufactured at Company-owned facilities in Dixon,
Illinois; Polo, Illinois; Waynesboro, Pennsylvania; Northfield, Minnesota;
Smithville, Ohio; San Antonio, Texas; Carquefou, France; and Vojens, Denmark,
and at a leased facility in Santa Fe Springs, California.
All of the markets in which the Company's Refrigeration Products Group does
business are very competitive. Refrigeration product manufacturers compete on
the basis of product design, reliability, quality and price. In the market for
refrigeration equipment, the Company competes primarily with FES, BAC, Evapco
and Krack Corp., Mycom, Sabroe and Frigoscandia (subsidiary of FMC Corporation).
5
<PAGE>
Raw Materials and Purchased Components
- --------------------------------------
The Company purchases compressors, steel, copper, aluminum, electric motors,
castings, forgings, stampings, fabricated copper tubes, electronic starters and
controls, aluminum fin, fan blades, capacitors, transformers, refrigerant gases,
valves, fittings and other components from many outside suppliers. Alternate
sources of supply are available for all raw materials and components for which
the Company uses a single supplier. The Company believes that it has adequate
sources of supplies of raw materials and component parts for its manufacturing
requirements. In order to hedge against certain raw material price increases,
the Company enters into forward contracts for the purchase of certain raw
materials, principally copper and aluminum.
Patents and Trademarks
- ----------------------
The Company holds numerous patents that relate to the design and use of its
products that it considers important, but not essential, to the overall conduct
of its business. It is the Company's policy to obtain patent protection for as
many of its new and developmental products as possible, and to enforce such
patent rights as appropriate. No patents which the Company considers material
will expire within the next five years.
The Company owns several trademarks that it considers important in the marketing
of its products as discussed in each of the business segment sections. The
Company believes that its rights in these trademarks are adequately protected
and of unlimited duration.
Non-U.S. Distribution
- ---------------------
Outside of the United States, the Company markets the majority of its products
and services, for all business groups, through the same sales and service
offices. The Company's worldwide business groups are segregated internally into
North America and the four geographic regions discussed below.
The Company's European region, headquartered in Basildon England, markets its
products and services through offices located in Austria, Belgium, Bulgaria, the
Czech Republic, Denmark, England, France, Germany, Hungary, Italy, Latvia, the
Netherlands, Poland, Romania, Russia, other former Commonwealth of Independent
States countries, Slovakia, Switzerland and the Ukraine. The Company also
considers markets in parts of Africa and South Africa as part of the European
region. Products are also marketed through a joint venture in Greece.
The Company's Asian region, headquartered in Hong Kong (China), markets its
products and services through offices located in Australia, China, Hong Kong,
Indonesia, Korea, New Zealand, Philippines, Singapore, and Thailand. Products
are also marketed through joint ventures in Taiwan (China) and Malaysia and
various independent distributors located throughout the region.
The Company's Latin American region, headquartered in Miami, Florida, markets
its products and services through offices located in Argentina, Brazil, Chile,
Colombia, Ecuador, Mexico, Miami (USA), Peru, Puerto Rico, Uruguay and
Venezuela. Products are also marketed through sales representatives and
independent distributors located throughout Latin America.
The Company's Middle East region, headquartered in Dubai (U.A.E.), markets its
products and services throughout the Middle East, India and parts of Eastern
Africa through offices located in Abu Dhabi, Cairo, Dubai, Egypt, Indonesia,
Istanbul, Karachi, Kuwait, Mumbai and New Delhi. Products are also marketed
through numerous distributors in the region and sales and service joint ventures
in Cyprus and the Kingdom of Saudi Arabia.
6
<PAGE>
Joint Ventures in U.S. and Non-U.S. Markets
- -------------------------------------------
In addition to its wholly-owned production and distribution facilities, the
Company produces, distributes and services Unitary and Engineered Systems
products through its participation in several joint ventures, which are
described in the following table:
<TABLE>
<CAPTION>
Joint Venture
(Percent Owned by Principal
Principal Location Joint Venture Partner the Company) Products/Services Markets Served
- --------------------- ------------------------ ---------------------------- ------------------------- --------------
<S> <C> <C> <C> <C>
Malaysia OYL Industries OYL-Condair Industries Manufacture Unitary Asia Pacific
BHD. SDN.BHD. (49%) and Engineered System Middle East
products
Malaysia OYL Industries York (Malaysia) Service Sales and service of air Malaysia
BHD. SDN.BHD. (30%) conditioning equipment
Peoples Republic Guangzhou Sinro Air York Guangzhou Air Manufacture Unitary and China
of China Conditioning Mechanical Coniditioning and Engineered Systems
and Electrical Equipment Refrigeration Co. Ltd. products
Company Ltd. (97%)
Peoples Republic Wuxi Boiler Group York Wuxi Air Conditioning Manufacture Engineered China
of China and Refrigeration Co. Ltd. Systems products
(80%)
Republic of China Taipei Engineering York Taiwan Inc. Sales and service of air Taiwan
(Taiwan) Development (60%) conditioning equipment
Cyprus Sabinco Ltd. KROY Ltd. (50%) Sales of air conditioning Middle East
equipment and parts
Saudi Arabia Al Salem United Al Salem-York Services Service and repair of Saudi Arabia
Contracting Co. Ltd. (49%) air conditioning
equipment
Greece Individual Greek York Hellas S.A. Service and repair of Greece
shareholders (80%) air conditioning
equipment
Spain Compania Roca Clima Roca-York S.L. Manufacture Unitary Spain
Radiadores S.A. (50%) products
Brazil Mayside Participacues York International Sales of air conditioning Brazil
Administracao e Comercial Ltda. equipment
Comercio Ltda (80%)
U.S. Carrier Corporation Scroll Technologies Manufacture scroll U.S.
(50%) compressors
</TABLE>
Dividends received by the Company from joint ventures were $1.5 million in 1996,
$1.2 million in 1997, and $0.5 million in 1998. Total Company investments in
joint ventures were $22.2 million, $17.7 million and $20.1 million at December
31, 1996, 1997 and 1998, respectively. Total sales by the Company to joint
ventures are less than 1% of the Company's total revenues.
Major Customers
- ---------------
During 1998, no customer, distributor, dealer or licensee accounted for more
than 10% of the Company's revenues. The loss of a few customers, distributors,
dealers or licensees would not have a materially adverse effect on the Company's
business.
7
<PAGE>
Backlog
- -------
The following table sets forth backlog by business segment:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
---- ----
<S> <C> <C>
Engineered Systems Group $504,616 $477,203
Unitary Products Group 234,746 220,601
Refrigeration Products Group 140,111 136,662
-------- --------
Total backlog $879,473 $834,466
======== ========
</TABLE>
Substantially all orders are expected to be fulfilled within the next 12 months.
Government Contracts
- --------------------
In 1998, approximately 2% of the Company's sales were related to ongoing United
States Government projects. The Company expects that substantially all work
will be completed during fiscal year 1999 in connection with all of these
contracts. The Company's existing contracts with the United States Government
may be terminated at any time at the option of the Government and are subject to
continued availability of government appropriations. If these contracts were
terminated, the Company would only be entitled to reimbursement of costs
incurred and to payment of a reasonable allowance for profit on work actually
performed.
Research and Development
- ------------------------
The Company's product development activities include ongoing research and
development programs to redesign existing products to reduce manufacturing costs
and to increase product efficiencies, developing electronic controls for current
product offerings and creating new products encompass a wide range of products.
During the years 1996, 1997 and 1998, the Company spent $28.0 million, $30.6
million, and $31.2 million, respectively, for all product development
activities.
The Engineered System Groups most notable chiller product developments in 1998
were the new air-cooled offerings from 10 to 400 tons and many older regional
product lines are being replaced with low-cost, energy efficient, modular,
global product platforms. The centrifugal chiller line expansion continues with
new environmentally acceptable replacements for CFC's. The product line now
extends from 300 to 2,000 tons for these refrigerants. The Company also
completed development of a new custom air handling product line in the range of
2,000 to 50,000 cubic feet per minute (CFM). The new products include the
latest technologies to insure indoor air quality. The combination of air
handling product development and current product lines give the Company the
broadest line of air handling products of any single manufacturer in the
industry. The HFC-134a centrifugal chillers for Surface and Submarine Vessels
were introduced in the Navy's new construction programs in 1998. Development of
HFC-236fa retrofit kits were also installed into the fleet in 1998. The Company
has also introduced a new line of variable speed drives for centrifugal chillers
to 1,000 tons. This product is compact enough to mount directly on the chiller
and is applicable to the retrofitting of any centrifugal chiller on the market.
The Unitary Products Group continues to redesign its product line for lower
sound ratings, greater efficiency, reliability and manufacturing cost
effectiveness. Bristol has developed a new breakthrough compressor design, TS
Technology, providing higher system efficiencies, greater reliability, and
increased comfort. Scroll compressor technology and capability are continuing to
expand through the joint venture Scroll Technology.
The Refrigeration Products Group continues to redesign certain products for
greater reliability and manufacturing cost effectiveness. The group is
currently developing a new high-pressure screw compressor at the Frick
manufacturing facility in Waynesboro, PA to be used in applications for the gas
compression industry.
8
<PAGE>
Employees
- ---------
As of December 31, 1998, the Company employed approximately 20,600 persons
worldwide. Approximately 12,900 persons are employed in the United States and
7,700 persons are employed in foreign countries. Approximately 4,700 domestic
employees are covered by collective bargaining agreements which expire between
May 1999 and January 2004. The Company considers its relations with its
employees to be satisfactory.
Environmental Matters
- ---------------------
Environmental laws that affect or could affect the Company's domestic operations
include, among others, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Occupational Safety and Health Act, the
National Environmental Policy Act, the Toxic Substances Control Act, any
regulations promulgated under these acts, and various other Federal, state and
local laws and regulations governing environmental matters. The Company
believes it is in substantial compliance with such existing environmental laws
and regulations.
The Company's non-U.S. operations are also subject to various environmental
statutes and regulations. Generally, these requirements tend to be no more
restrictive than those in effect in the United States. The Company believes it
is in substantial compliance with such existing environmental statutes and
regulations. In 1993, the Council of European Communities agreed on EC
regulation number 1836/93 which recommended that each company voluntarily
complete an ECO-Audit. The Company has completed these audits at several of its
European facilities.
In September 1987, the United States became a signatory to an international
agreement titled the Montreal Protocol on Substances that Deplete the Ozone
Layer (the "Montreal Protocol"). The Montreal Protocol requires its signatories
to reduce production and consumption of CFCs and Halons, some of which are
utilized in air conditioning and refrigeration equipment. In 1988, the EPA
issued regulations under the Clean Air Act implementing the Montreal Protocol in
the United States. Many other countries have also become signatories to the
Montreal Protocol. The manner in which these countries implement the Montreal
Protocol and regulate CFCs could differ from the approach taken in the United
States.
The 1990 Clean Air Act amendments implement the Montreal Protocol by
establishing a program for limiting the production, importation and use of
certain ozone depleting chemicals (including those governed by the Montreal
Protocol) some of which are refrigerants currently used by the Company. Under
the Act, the production and consumption of the refrigerants designated as "Class
I substances" including all CFCs must be phased out beginning in 1991 and are to
be banned completely by 2000. Certain other refrigerants, including all HCFCs,
are designated as "Class II substances", and must be phased out between 2015 and
2030.
The Clean Air Act allows the EPA to accelerate the statutory phase-out schedule
for any Class I or Class II substance. In November 1992, the parties to the
Montreal Protocol agreed to amend the Protocol to require the complete phase-out
of CFC production by the beginning of 1996. Further, the parties agreed to a
1996 production cap on HCFCs and a complete phase-out of HCFC production by
2030. The EPA published a final rule requiring accelerated phase-out of the
production of all CFCs by 1996 and of all HCFCs by 2030.
None of the Company's manufactured products contains Class I substances. Class
I substances previously used by the Company have been substituted for by Class
II substances or substances that are currently unregulated. The Company does,
however, believe that revenues from servicing and repairing existing equipment
that uses Class I substances are and will be significant. These activities are
regulated by the EPA which imposes guidelines affecting service and maintenance
of equipment that use Class I and Class II substances. The Company trains and
licenses its service technicians in service and maintenance procedures that
comply with the new regulations. Therefore, the Company believes that the new
regulations will not have a material adverse effect on its operations. The
phase-out of Class I substances will require modifications to existing air
conditioning equipment as availability of recycled Class I substances decreases.
Since the Company's technology enables it to modify existing equipment for use
with Class II substances, it believes that this will continue to generate
additional service revenues. While the Company expects to derive substantial
revenue from the sale of products utilizing Class II substances, it is not
expected that any phase-out will have a significant impact on the sales of such
products until after the turn of the century. Nonetheless, as the supply of
virgin and recycled Class II substances falls, it will be necessary to address
the need to substitute permitted substances for Class II substances.
9
<PAGE>
The Company, in conjunction with major chemical manufacturers, is continually in
the process of reviewing and addressing the impact of refrigerant regulations on
its products. The Company believes that the combination of those products which
presently utilize Class II substances and those products in the field which can
be retrofitted to such refrigerants provides a complete line of commercial and
industrial products. Therefore, the Company does not foresee any material
adverse impact on its business or competitive position as a result of the
Montreal Protocol, the 1990 Clean Air Act amendments or their implementing
regulations. However, the Company believes that the implementation of severe
restrictions on the production, importation or use of refrigerants employed in
larger quantities by the Company could have such an impact. The Company believes
that the Engineered Systems products that it has produced will be well
positioned to utilize the next generation of refrigerants without substantial
modification. If the next generation of refrigerants is incompatible with the
hermetic compressors used by the Company and all of its competitors for Unitary
products, design modifications would be required.
Governmental Regulations
- ------------------------
The Company is subject to regulations promulgated under the National Appliance
Energy Conservation Act of 1987, as amended, and various state regulations
concerning the energy efficiency of its products. The Company has developed and
is developing products which will comply with these regulations, and does not
believe that such regulations will have a material adverse effect on its
business.
10
<PAGE>
Executive Officers
- ------------------
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert N. Pokelwaldt 62 Chairman of the Board of Directors and
Chief Executive Officer
John R. Tucker 51 President and Chief Operating Officer
Stuart Amos 52 Vice President and President of Unitary Products
Group
William G. Cowles, Jr. 53 Vice President and President of Refrigeration
Joseph D. Smith 45 Vice President, Manufacturing
Peter J. Spellar 54 Vice President and President of Applied Systems
Michael R. Young 54 Vice President, President and Chief Executive
Officer of Bristol Compressors
Jane G. Davis 49 Vice President, Secretary and General Counsel
Wayne J. Kennedy 56 Vice President, Human Resources
Helen S. Marsteller 38 Vice President, Investor Relations and Corporate
Communications
Mark V. Stanga 45 Vice President, Government Affairs
Benson K. Woo 44 Vice President and Chief Financial Officer
Charles F. Cargile 34 Controller
James P. Corcoran 53 Treasurer
</TABLE>
Mr. Pokelwaldt has been Chairman of the Company since January 1993. Prior
thereto he was President, Chief Executive Officer and Director of the Company
since June 1991, President and Chief Operating Officer from January 1990 to June
1991, Vice President of the Company and President of Applied Systems from
September 1988 to January 1990 and Chairman and Chief Executive Officer of Frick
Company from June 1983 to September 1988.
Mr. Tucker has been President and Chief Operating Officer of the Company since
October 1997. Prior to joining the Company, he was President of Aerospace
Equipment Systems Sector of Allied Signal, Inc. from January 1996 to October
1997, President and Chief Executive Officer of Motoren und Turbinen Union (Jet
Engine Division) of Daimler-Benz, A.G. from 1994 to 1996 and President of AEG
Transportation Systems, Inc. from 1988 to 1994, and held various positions with
Westinghouse Electric Corporation from 1968 to 1988.
Mr. Amos has been Vice President and President of Unitary Products Group since
March 1998. Prior to joining the Company, he was President and Chief Operating
Officer of Siebe Industrial Equipment Division from January 1996 to August 1997
and President of Compair Division from November 1993 to January 1996, both
divisions of Siebe PLC; President of Astec Standard Power from May 1990 to
November 1993 and President of ENI from November 1987 to May 1990, both
divisions of Emerson Electric.
11
<PAGE>
Mr. Cowles has been Vice President and President of Refrigeration Products Group
since January 1997. Prior thereto, he was President, Northfield Freezing
Systems from September 1985 to January 1997.
Mr. Smith has been Vice President, Manufacturing since December 1997. Prior
thereto, he was President of the Airside Products Group since October 1994.
Prior thereto, he was Vice President of Special Projects of the Company from May
1994 to October 1994. Prior to joining the Company, Mr. Smith was Vice
President and General Manager of Spherical Roller Bearing Division of SKF USA,
Inc. since May 1992. Previous to this, Mr. Smith held various positions with
Harley Davidson and General Motors.
Mr. Spellar has been Vice President of the Company and President, Applied
Systems Worldwide since November 1995. Prior thereto, he was Vice President of
the Company and Vice President, European Operations from August 1992 to November
1995, President, Frick Division from May 1987 to August 1992 and President of
the Frick Company from May 1979 to May 1987.
Mr. Young has been Vice President of the Company, and Chief Executive Officer
and President of Bristol Compressors since October 1996. Prior thereto, he was
President, Chairman and Chief Executive Officer of Evcon Industries, Inc. from
1991 to 1995, President and Chief Operating Officer of York International Inc.
from 1988 to 1989, and Chairman, President and Chief Executive Officer of
Bristol Compressors from 1983 to 1987.
Ms. Davis has been Vice President, Secretary and General Counsel of the Company
since March 1995. Prior thereto, she was Vice President, General Counsel and
Secretary of Joy Technologies Inc. from September 1988 to February 1995.
Mr. Kennedy has been Vice President, Human Resources, of the Company since May
1993. Prior thereto, he was the Vice President of Human Resources for the
Millipore Corporation from 1985 to 1993.
Ms. Marsteller has been Vice President, Investor Relations and Corporate
Communications since September 1997. Prior thereto, she was Director of
Investor Relations from 1992 to September 1997. Prior thereto, she held various
financial positions in the Unitary Products Group from 1986 to 1992.
Mr. Stanga has been Vice President of Government Affairs since February 1997.
Prior thereto, he was Director of Government Affairs from October 1995 to
February 1997. Prior to joining the Company, Mr. Stanga was Environmental
Affairs counsel for Litton Industries from April 1988 to October 1995, Associate
Director of the Office of Ocean and Coastal Resources Management in the U.S.
Commerce Department from April 1986 to April 1988, and Attorney Advisor at the
U.S. Environmental Protection Agency from February 1983 to April 1986.
Mr. Woo has been Vice President and Chief Financial Officer of the Company since
June 1998. Prior to joining the Company he was the Vice President and Treasurer
of Case Corporation, from September 1994 to June 1998. Prior to this, Mr. Woo
held increasingly responsible positions with General Motors (GM) Corporation
from 1981 to 1994.
Mr. Cargile has been Controller since November 1998. Prior to joining the
company, Mr. Cargile was Controller of Flowserve Corporation from July 1997 to
October 1998. Prior thereto, he was the Controller of BW/IP from December 1996
to June 1997; Director Corporate Accounting of BW/IP from March 1996 to December
1996; Manager Operations and Financial Analysis of BW/IP from 1992 to March
1996.
Mr. Corcoran has been Treasurer of the Company since July 1992. Prior thereto,
he was Treasurer of Griffith Laboratories from August 1990 to May 1992,
Treasurer of AM International from March 1987 to August 1990 and Director,
Treasury Operations of Borg-Warner Corporation from February 1977 to March 1987.
12
<PAGE>
Item 2. Properties.
The Company's principal offices are located in York, Pennsylvania on an
approximately 71 acre site owned by the Company. The following table lists the
principal manufacturing facilities owned by the Company:
<TABLE>
<CAPTION>
Approximate
Location Primary Products Enclosed Area (sq. ft.)
- -------- ---------------- -----------------------
<S> <C> <C>
York, PA Engineered products 1,500,000
Wichita, KS Unitary products 835,000
Bristol, VA Unitary products (hermetic compressors) 700,000
Elyria, OH Unitary products 636,000
Norman, OK Unitary products 539,000
Waynesboro, PA Refrigeration products and compressors 459,000
Basildon, England Engineered products 254,000
San Antonio, TX Refrigeration and Engineered products 194,000
Sparta, NC Unitary products (hermetic compressors) 180,000
Bangkok, Thailand Unitary products 123,000
Vojens, Denmark Refrigeration products and compressors 111,000
Guangzhou, China Engineered products 100,000
Dixon, IL Refrigeration products 97,000
Asquith, Australia Engineered products 96,000
Durango, Mexico Engineered products 95,000
Monterrey, Mexico Engineered products, Unitary products 92,000
Wuxi, China Engineered products 87,000
Polo, IL Refrigeration products 78,000
Roanoke, VA Engineered products (screw compressors) 72,000
Smithville, OH Refrigeration products (freezer systems) 51,000
Northfield, MN Refrigeration products (freezer systems) 49,000
Bogota, Colombia Unitary products and Engineered products 40,000
Montevideo, Uruguay Engineered products 38,000
Johannesburg, South Africa Unitary products 34,000
</TABLE>
At the York, Pennsylvania location, approximately 220,000 square feet of
facilities are leased to tenants and approximately 100,000 square feet are
neither currently used by the Company nor leased to third parties. The Company
also leases for its own use a 163,000 square foot facility in Albany, Missouri,
a 360,000 square foot manufacturing facility in Barlassina, Italy, a 30,000
square foot manufacturing facility in Mannheim, Germany, an 82,000 square foot
facility in Santa Fe Springs, California, an 84,000 square foot manufacturing
facility in Hattiesburg, Mississippi, a 200,000 square foot facility in
Salisbury, North Carolina, and a 200,000 square foot facility in Portland,
Oregon.
In addition to the properties described above, the Company leases approximately
100 facilities in the United States and over 50 additional facilities worldwide
for use as sales and service offices and regional warehouses. The Company
believes that its properties are in good condition and adequate for its
requirements. The Company believes that its principal plants are generally
adequate to meet its production plans pursuant to its long-term sales goals.
In the ordinary course of its business, the Company monitors the condition of
its facilities to ensure that they remain adequate to meet its long-term sales
goals and production plans. The Company makes capital expenditures intended to
upgrade existing facilities and equipment to increase production efficiency and,
when appropriate, to adapt them to the requirements of manufacturing new product
lines.
13
<PAGE>
Item 3. Legal Proceedings.
The Company is a party to lawsuits arising in the ordinary course of business.
The Company believes that no pending lawsuit will result in any material adverse
effect to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the Company's security holders during the
fourth quarter of 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock trades on the New York Stock Exchange under the
symbol "YRK". On March 26, 1999, the Company had 5,303 holders of record of its
common stock.
Trading and Dividend Information
- --------------------------------
<TABLE>
<CAPTION>
Dividends
High Low Declared
---------- ---------- ---------
<S> <C> <C> <C>
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 .12
</TABLE>
The declaration and payment of future dividends will be at the sole discretion
of the Board of Directors and will depend upon such factors as the Company's
profitability, financial condition, cash requirements and future prospects and
limitations imposed by the 1997 Amended and Restated Credit Agreement.
Item 6. Selected Financial Data.
Information contained under the caption "Five Year Summary of Selected Financial
Data" on page a5 of the Annual Financial Statements and Review of Operations is
incorporated herein by reference in response to this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages a6 to a12 of the Annual
Financial Statements and Review of Operations is incorporated herein by
reference in response to this item.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations, Market Risk," on pages a10 to a11
of the Annual Financial Statements and Review of Operations is incorporated
herein by reference in response to this item.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial statements for York International Corporation and Subsidiaries are
contained on a13 to a29 of the Annual Financial Statements and Review of
Operations and Summary of Quarterly Results (unaudited) are contained on page
A31 of the Annual Financial Statements and Review of Operations and are
incorporated herein by reference in response to this item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information contained under the caption "Election of Directors" in the
Registrant's definitive 1999 Proxy Statement is incorporated herein by reference
in response to this item. See Item 1 above for information concerning executive
officers.
Item 11. Executive Compensation.
Information contained under the caption "Executive Compensation" in the
Registrant's definitive 1999 Proxy Statement is incorporated herein by reference
in response to this item, other than the information under the subcaptions
"Report of the Compensation Committee" and "Stock Performance Graph" which are
not incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information contained under the captions "Election of Directors" and "Ownership
of Common Stock" in the Registrant's definitive 1999 Proxy Statement is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The following financial statements of York International Corporation
and subsidiaries are incorporated herein by reference to pages a13 to
a29 of the Financial Statements and Review of Operations:
Consolidated Balance Sheets - as of December 31, 1998 and 1997
Consolidated Statements of Operations - years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Cash Flows - years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Comprehensive Income - years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
15
<PAGE>
(2) The following financial statement schedule for York International
Corporation and subsidiaries is included herein:
VIII Valuation and Qualifying Accounts - years ended December 31,
1998, 1997 and 1996; (Page 20 of Form 10-K)
All other schedules are omitted as they are not applicable.
Independent Auditors' Report Covering Financial Statement Schedule;
(Page 19 of Form 10-K)
(3) The exhibits filed in response to Item 601 of Regulation S-K are as
follows:
Exhibit
Number
-------
3.1 Amended and Restated Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3, File No. 33-91292, filed on June
7, 1995)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation dated May 3, 1996 (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, File No. 1-10863)
3.3 By-Laws of Registrant, restated as of December 17, 1996
(Incorporated by reference to Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-10863)
4.1 Receivables Sale Agreement dated as of March 26, 1997, by and among
the Registrant, as seller and collection agent, Asset Securitization
Cooperative Corporation, as purchaser, and Canadian Imperial Bank of
Commerce, as servicing agent along with the supporting exhibits
(Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, File
No. 1-10863)
4.2 Indenture dated as of March 1, 1993 between the Registrant and
Morgan Guaranty Trust Company of New York, as Trustee (Incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement filed on Form S-3, File No. 33-57178, filed on January 19,
1993)
4.3 Share Transfer Agreement dated as of June 19, 1995 between the
Registrant and National Westminster Bank PLC (Incorporated by
reference to Exhibit 4.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 1-10863)
4.4 Dividend Rights Agreement dated as of June 19, 1995 between the
Registrant and National Westminster Bank PLC (Incorporated by
reference to Exhibit 4.4 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 1-10863)
4.5 Amended and Restated Credit Agreement, dated as of July 21, 1995
among the Registrant, the several banks and the other financial
institutions from time to time parties to the Agreement and Canadian
Imperial Bank of Commerce, acting through its New York Agency, as
Agent (Incorporated by reference to Exhibit 10.17 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, File No. 1-10863)
4.6 First Amendment dated as of May 28, 1997 to the Amended and Restated
Credit Agreement among the Registrant, the several banks and the
other financial institutions from time to time parties thereto and
Canadian Imperial Bank of Commerce, acting through its New York
Agency, as agent for the Banks along with supporting exhibits
(Incorporated by reference to Exhibit 4.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, File No. 1-
10863)
4.9 Amendment to Share Transfer Agreement between Registrant and
National Westminster Bank PLC, dated February 11, 1998 (filed
herewith)
16
<PAGE>
4.10 Amendment to Dividend Rights Agreement between Registrant and
National Westminster Bank PLC, dated February 11, 1998 (filed
herewith)
4.11 Indenture effective as of June 1, 1998 between the Registrant and
State Street Bank and Trust Company, a Massachusetts chartered trust
company, as Trustee (Incorporated by reference to Exhibit 4 to the
Registrant's Form 8-K, File No. 1-10863, filed on May 28, 1998)
*10.1 Registrant's 1989 Employee Stock Option Plan (Incorporated by
reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989, File No. 33-25440)
*10.2 Registrant's Amended and Restated 1992 Omnibus Stock Plan
(Incorporated by reference to Exhibit 10.1 to Registrant's Annual
Report on Form 10-Q for the quarter ended March 31, 1997, File
No. 1-10863)
*10.3 Registrant's 1996 Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, File No. 1-10863)
*10.4 Bristol Compressors, Inc. Officers Retirement/Salary Continuation
Plan (Incorporated by reference to Exhibit 10.4 to York
International Corporation's Registration Statement on Form S-1, File
No. 33-30713, filed on August 25, 1989)
*10.5 York International Corporation Supplemental Executive Retirement
Plan (Incorporated by reference to Exhibit 10.12 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-10863)
*10.6 York International Corporation Executive Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, File
No. 1-10863)
*10.7 Form of Restricted Stock Agreement by and between Registrant and
certain of its employees (Incorporated by reference to Exhibit 10.7
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-10863)
*10.8 First Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 2, 1994
(Incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, File
No. 1-10863)
*10.10 Second Amendment to the York International Corporation Executive
Deferred Compensation Plan, dated as of December 17, 1996
(Incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-10863)
*10.11 Form of Severance Agreement entered into between the Registrant and
certain of its Officers and Employees (Incorporated by references to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, File No. 1-10863)
*10.12 Executive Officer Compensation Agreement between York International
Corporation and John R Tucker, dated October 22, 1997 (filed
herewith)
*10.13 Executive Officer Compensation Agreement between York International
Corporation and Stuart R. Amos, dated February 6, 1998 (filed
herewith)
*10.14 Executive Officer Compensation Agreement between York International
Corporation and Benson K. Woo, dated June 5, 1998 (filed herewith)
*10.15 Amendment No. 1 to the York International Corporation 1992 Omnibus
Stock Plan, dated February 16, 1999 (filed herewith)
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
(filed herewith)
13 Annual Financial Statements and Review of Operations with
Accountants' Certificate (filed herewith)
17
<PAGE>
21 Subsidiaries of the Registrant (filed herewith)
23 Accountants' Consent (filed herewith)
27 Financial Data Schedule (filed herewith Edgar Only)
* Required to be Filed as management contracts, compensatory plans or
arrangements required to be identified pursuant to Item 14(c) of the
registrant's report on Form 10-K.
(b) No reports on Form 8-K have been filed during the last quarter of fiscal
1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
YORK INTERNATIONAL CORPORATION
/s/ Robert N. Pokelwaldt
-------------------------
Robert N. Pokelwaldt
Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 26th day of March 1999.
Signature Title
--------- -----
/S/ Robert N. Pokelwaldt Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Robert N. Pokelwaldt
/S/ Benson K. Woo Vice President and Chief Financial Officer
- -------------------- (Principal Financial Officer)
Benson K. Woo
/S/ Charles F. Cargile Controller
- ------------------------- (Principal Accounting Officer)
Charles F. Cargile
Directors
---------
/S/ Robert N. Pokelwaldt
- ---------------------------
Robert N. Pokelwaldt
/S/ Malcolm W. Gambill*
- ------------------------
Malcolm W. Gambill
/S/ Robert F. B. Logan*
- ------------------------
Robert F. B. Logan
/S/ Gerald C. McDonough*
- -------------------------
Gerald C. McDonough
/S/ Donald M. Roberts*
- -----------------------
Donald M. Roberts
/S/ John R. Tucker
- -------------------
John R. Tucker
/S/ John E. Welsh*
- -------------------
John E. Welsh III
/S/ Walter B. Wriston*
- -----------------------
Walter B. Wriston
* Pursuant to powers of attorney.
19
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
York International Corporation:
Under date of February 15, 1999, we reported on the 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, as contained in the 1998 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1998. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
/S/ KPMG LLP
Harrisburg, Pennsylvania
February 15, 1999
20
<PAGE>
SCHEDULE VIII
YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
(thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column C Column D Column E
-------- ---------- --------- ----------- ---------- ----------
Balance at Additions Additions Balance at
Beginning Costs and Other Close of
Description of Period Expenses Accounts(a) Deductions Period
----------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Allowances for Doubtful Accounts $17,839 $ 8,206 $ - $ 6,134 $19,911
Warranties $36,280 $13,492 $ - $13,284 $36,488
1997
Allowances for Doubtful Accounts $20,737 $ 6,139 $ - $ 9,037 $17,839
Warranties $33,135 $12,805 $ - $ 9,660 $36,280
1996
Allowances for Doubtful Accounts $17,229 $ 5,718 $425 $ 2,635 $20,737
Warranties $27,943 $15,649 $ - $10,457 $33,135
</TABLE>
- ----------
(a) Additions Charged to Other Accounts include liabilities of businesses
acquired in 1996.
21
<PAGE>
EXHIBIT INDEX
- -------------
The following exhibits are filed pursuant to Item 601 of Regulation S-K. The
items marked with an asterisk are filed by reference as noted.
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------- ------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of Registrant (Incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3, File No. 33-91292,
filed on June 7, 1995)
3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May
3, 1996 (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, File No. 1-10863)
3.3 By-Laws of Registrant, restated as of December 17, 1996 (Incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-10863)
4.1 Receivables Sale Agreement dated as of March 26, 1997, by and among the Registrant, as
seller and collection agent, Asset Securitization Cooperative Corporation, as purchaser, and
Canadian Imperial Bank of Commerce, as servicing agent along with the supporting exhibits
(Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, File No. 1-10863)
4.2 Indenture dated as of March 1, 1993 between the Registrant and Morgan Guaranty Trust Company
of New York, as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement filed on Form S-3, File No. 33-57178, filed on January 19, 1993)
4.3 Share Transfer Agreement dated as of June 19, 1995 between the Registrant and National
Westminster Bank PLC (Incorporated by reference to Exhibit 4.3 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995, File No. 1-10863)
4.4 Dividend Rights Agreement dated as of June 19, 1995 between the Registrant and National
Westminster Bank PLC (Incorporated by reference to Exhibit 4.4 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995, File No. 1-10863)
4.5 Amended and Restated Credit Agreement, dated as of July 21, 1995 among the Registrant, the
several banks and the other financial institutions from time to time parties to the
Agreement and Canadian Imperial Bank of Commerce, acting through its New York Agency, as
Agent (Incorporated by reference to Exhibit 10.17 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, File No. 1-10863)
4.6 First Amendment dated as of May 28, 1997 to the Amended and Restated Credit Agreement among
the Registrant, the several banks and the other financial institutions from time to time
parties thereto and Canadian Imperial Bank of Commerce, acting through its New York Agency,
as agent for the Banks along with supporting exhibits (Incorporated by reference to Exhibit
4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File
No. 1-10863)
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
4.9 Amendment to Share Transfer Agreement between Registrant and National Westminster Bank PLC,
dated February 11, 1998 (filed herewith)
4.10 Amendment to Dividend Rights Agreement between Registrant and National Westminster Bank PLC,
dated February 11, 1998 (filed herewith)
4.11 Indenture effective as of June 1, 1998 between the Registrant and State Street Bank and
Trust Company, a Massachusetts chartered trust company, as Trustee (Incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K, File No. 1-10863, filed on May 28, 1998)
*10.1 Registrant's 1989 Employee Stock Option Plan (Incorporated by reference to Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1989, File No.
33-25440)
*10.2 Registrant's Amended and Restated 1992 Omnibus Stock Plan (Incorporated by reference to
Exhibit 10.1 to Registrant's Annual Report on Form 10-Q for the quarter ended March 31,
1997, File No. 1-10863)
*10.3 Registrant's 1996 Incentive Compensation Plan (Incorporated by reference to Exhibit 10.3 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No.
1-10863)
*10.4 Bristol Compressors, Inc. Officers Retirement/Salary Continuation Plan (Incorporated by
reference to Exhibit 10.4 to York International Corporation's Registration Statement on Form
S-1, File No. 33-30713, filed on August 25, 1989)
*10.5 York International Corporation Supplemental Executive Retirement Plan (Incorporated by
reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-10863)
*10.6 York International Corporation Executive Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-10863)
*10.7 Form of Restricted Stock Agreement by and between Registrant and certain of its employees
(Incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 1-10863)
*10.8 First Amendment to the York International Corporation Executive Deferred Compensation Plan,
dated as of December 2, 1994 (Incorporated by reference to Exhibit 10.8 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-10863)
*10.10 Second Amendment to the York International Corporation Executive Deferred Compensation Plan,
dated as of December 17, 1996 (Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-10863)
*10.11 Form of Severance Agreement entered into between the Registrant and certain of its Officers
and Employees (Incorporated by references to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, File No. 1-10863.)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
*10.12 Executive Officer Compensation Agreement between York International Corporation
and John R. Tucker, dated October 22, 1997 (filed herewith)
*10.13 Executive Officer Compensation Agreement between York International Corporation
and Stuart R. Amos, dated February 6, 1998 (filed herewith)
*10.14 Executive Officer Compensation Agreement between York International Corporation
and Benson K. Woo, dated June 5, 1998 (filed herewith)
*10.15 Amendment No. 1 to the York International Corporation 1992 Omnibus Stock Plan,
dated February 16, 1999 (filed herewith)
12 Statement re: Computation of Ratio of Earnings to Fixed Charges (filed herewith)
13 Annual Financial Statements and Review of Operations with Accountants' Certificate
(filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 Accountants' Consent (filed herewith)
27 Financial Data Schedule (filed herewith Edgar Only)
* Required to be Filed as management contracts, compensatory plans or arrangements required to
be identified pursuant to Item 14(c) of the registrant's report on Form 10-K.
</TABLE>
(b) No reports on Form 8-K have been filed during the last quarter of fiscal
1998.
24
<PAGE>
Exhibit *10.12
[LETTERHEAD OF YORK/(R)/INTERNATIONAL]
================================================================================
CORPORATION
Robert N. Pokelwaldt
Chairman and
Chief Executive Officer
October 22, 1997
Mr. John R. Tucker
28 Via Porto Grande
Rancho Palos Verdes, CA 90275
Dear John,
On behalf of York International Corporation, I am very pleased to offer to you a
position of President and Chief Operating Officer (C.O.O.) reporting to me,
effective on or before December 1, 1997.
Your starting base salary will be $35,416.67/month ($425,000/annually).
The Incentive Compensation Plan for executives at York International has two
elements; an annual cash bonus which is based on single year results, and a mid-
term Performance Unit Plan (P.U.P.) which is based on three-year results. Your
participation in the 1998 annual portion of the Plan will be a 50% Base Expected
Value level and a 100% Base Over Achievement level. For 1998, you will be
guaranteed a minimum incentive award of $212,500. It will be recommended, and
subject to approval of the Board of Directors, that you receive 6,458 P.U.P.
units at the Expected Value level. These units will be earned on a prorated
basis from the grant date, December 1, 1997, to the end of 1999, the valuation
date. You will be eligible for the next annual P.U.P. grant effective 1/1/98.
You will be paid an allowance of $165,000 as of March 1, 1998, conditional upon
your being employed by York International on that date.
You will be paid a sign-on bonus in the amount of $150,000 within two weeks of
your start date.
You will be paid $50,000, plus tax gross up, to compensate you for the loss of
your company car and country club membership.
It will be recommended to the Board of Directors that you receive 25,000
Restricted Shares, priced at $1.00 per share. These shares will vest 50% upon
the second anniversary of grant, and 25% respectively, at the third and fourth
anniversaries.
It will be recommended to the Board of Directors that you will also receive an
employment grant of 15,000 stock options under the provisions of the Stock
Option Plan priced at Fair Market Value on the date of grant. This option will
fully vest on the first anniversary following the date of grant.
In addition, it will be recommended to the Board of Directors that you receive a
grant of 25,000 performance stock option shares, priced at Fair Market Value on
the date of grant. These shares would vest based on the following York
International stock price performance:
. 50% of the performance stock options vest when the York stock price
averages $57 for a sustained thirty day period within the first two
years of your employment.
. 25% of the performance stock options vest when the York stock price
averages $65.55 for a sustained thirty day period within the first three
years of your employment.
<PAGE>
Mr. John R. Tucker
Page 2
. 25% of the performance stock options vest when the York stock price
averages $75.38 for a sustained thirty day period within the first four
years of your employment.
If any increment does not vest within the time limits described above, the
vesting of the shares of that increment will be deferred to the eighth year of
the ten year performance stock option life period.
It will be recommended to the Board of Directors that you become a participant
in the Supplemental Executive Retirement Plan (S.E.R.P.) effective with your
date of hire. The purpose of this benefit is to provide pension benefits above
the current ERISA salary cap of $160,000 annually and to increase overall
pension entitlement to 2.5% of Final average earnings when combined with the
standard plan.
Effective January 1, 1998, you will be a participant in York's Deferred
Compensation Program.
You will be participating in York's financial planning program with an annual
allowance of $4,500.
You will participate in York's Pension and FlexChoice Group Health and Welfare
Benefits Program. Group benefits, with the exception of LTD will be effective on
your date of hire. LTD coverage will begin on the first day of the month
following your employment date.
You will be provided relocation benefits typically offered to a transferred York
employee. However, the incidental expense allowance will be increased to $20,000
grossed up to cover appropriate taxes.
You will be provided the following severance guarantees:
1. The Company Change of Control agreement.
2. One and one-half year's base and incentive pay and the
immediate vesting of your employment restricted stock grant
should you be involuntarily terminated within the first two
years of your employment (without just cause), not related to
a change of control.
Prior to commencing employment, you will be required to execute a
confidentiality agreement and satisfactorily complete a pre-employment physical
examination which includes a drug screen. In the event you have a disability,
York will make reasonable accommodations for you provided the accommodations
allow you to perform the essential functions of this position and does not
create an undue hardship for the Company.
York adheres to an "employment at will" policy which allows either you or York
to terminate an employment relationship "at will." The employment of each
individual is subject to the normal policies and practices of the Company and
its benefits plans as they will be revised from time to time.
We look forward to you joining York International Corporation, John, and to the
contributions you will make toward our growing organization. Please contact me
at (717) 771-7383 if you have any questions about York or our offer.
<PAGE>
Mr. John R. Tucker
Page 3
. 25% of the performance stock options vest when the York stock price
averages $75.38 for a sustained thirty day period within the first four
years of your employment.
Enclosed is a second original of this offer, upon acceptance, please return one
copy to my attention with your signature for our records by October 30, 1997.
Sincerely,
Robert N. Pokelwaldt
Chairman and Chief Executive Officer
/s/_________________________________________
John R. Tucker
Oct. 24, 1997
--------------------------------------------
Date
<PAGE>
Exhibit *10.13
[letterhead]
John R. Tucker
President and
Chief Operating Officer
February 6, 1998
Mr. Stuart R. Amos
Marlow, Berkshire
United Kingdom
Dear Stuart:
On behalf of York International Corporation, I am very pleased to offer to
you a position of President for the Unitary Products Group reporting to
me, effective on or before March 2, 1998. Your starting base salary will
be $25,000.00/month ($300,000/annually).
The Incentive Compensation Plan for executives at York International has
two elements; an annual cash bonus which is based on single year results,
and a mid-term Performance Unit Plan (P.U.P.) which is based on three-year
results. Your participation in the annual portion of the Plan will be a
45% Base Expected Value level and a 90% Base Over Achievement level. For
1998, you will be guaranteed a minimum incentive award of $100,000.00. It
will be recommended, and subject to approval of the Board of Directors,
that you receive a 1998 grant of P.U.P. units, prorated based on your hire
date. These units will be earned from the grant date to the end of the
year 2000, the valuation date.
It will be recommended to the Board of Directors that you receive 5,000
Restricted Shares, priced at $1.00 per share. These shares will vest 50%
upon the second anniversary of grant, and 25% respectively, at the third
and fourth anniversaries.
It will be recommended to the Board of Directors that you will also
receive 10,000 stock options under the provisions of the Stock Option Plan
priced at Fair Market Value on the date of grant. This option will fully
vest on the first anniversary following the Date of Grant.
You will be paid a sign-on bonus in the amount of $50,000. This bonus
will be paid within two weeks of your start date. In the event you
voluntarily terminate your employment within one (1) year from the date of
your hire, you will be responsible for reimbursing York International
Corporation the full amount of your sign-on bonus.
You will be provided relocation benefits typically offered to a
transferred York employee. However, the incidental expense allowance will
be increased to $25,000 grossed up to cover appropriate taxes.
York will provide you with temporary living accommodations during your
transition to York, Pennsylvania.
You will be eligible for participation in York's Financial Planning
Program with an annual allowance of $4,500. In addition to the Financial
Planning Program, we will also provide two years of tax preparation
assistance.
Effective date of hire, you will be a participate in York's Deferred
Compensation Program.
You will participate in York's FlexChoice Group Health and Welfare
Benefits Program, and will be effective on your date of hire. All
benefits, (including Investment Plan, Retirement Plan, etc.) are explained
by the enclosed information, including the Stock Purchase Plan which you
will also be eligible for participation.
<PAGE>
Mr. Stuart R. Amos
Page 2
February 6, 1998
Prior to commencing employment, you will be required to execute a
confidentiality agreement and satisfactorily complete a pre-employment
physical examination which includes a drug screen. In the event you have
a disability, York will make reasonable accommodations for you provided
the accommodations allow you to perform the essential functions of this
position and does not create an undue hardship for the Company.
York adheres to an "employment at will" policy which allows either you or
York to terminate an employment relationship "at will." The employment of
each individual is subject to the normal policies and practices of the
Company and its benefits plans as they will be revised from time to time.
We look forward to you joining York International Corporation, Stuart, and
to the contributions you will make toward our growing organization.
Please contact me (717) 771-7234 if you have any questions about York or
our offer.
Enclosed is a second original of this offer, upon acceptance, please
return one copy to my attention with your signature for our records by
February 13, 1998.
Sincerely,
John R. Tucker
President and Chief Operating Officer
/s/___________________________________
Stuart R. Amos
11th Feb `98
--------------------------------------
Date
cc: W. Kennedy
D. Glinski
<PAGE>
Exhibit *10.14
[LETTERHEAD OF YORK INTERNATIONAL]
- --------------------------------------------------------------------------------
Robert N. Pokelwaldt
Chairman and
Chief Executive
Officer
June 5, 1998
Mr. Benson K. Woo
374 Basswood Road
Lake Forest, IL 60045
Dear Benson:
On behalf of York International Corporation, I am very pleased to offer to
you a position of Vice President and Chief Financial Officer (C.F.O.)
reporting to me, effective on or before July 1, 1998.
Your starting base salary will be $22,083.33/month ($265,000/annually).
The Incentive Compensation Plan for executives at York International has
two elements; an annual cash bonus which is based on single year results,
and a mid-term Performance Unit Plan (P.U.P.) which is based on three-year
results. Your participation in the 1998 annual portion of the Plan will
be a 45% Base Expected Value level and a 90% Base Over Achievement level.
If the company should achieve its 1998 financial plan, your incentive
opportunity will be calculated at the annual expected value percentage
(adjusted base EV) for the full year January 1, 1998 through December 31,
1998. If the company does not achieve its financial plan, you will be
guaranteed a minimum incentive award of $56,250.
It will be recommended, and subject to approval of the Board of Directors,
that you receive 2,780 P.U.P. units. These units will be earned from your
start date to the end of 2000, the valuation date.
You will be paid a sign-on bonus in the amount of $50,000 plus tax gross
up within two weeks of your start date.
It will be recommended to the Board of Directors that you receive 17,000
Restricted Shares, priced at $1.00 per share. These shares will vest 50%
upon the second anniversary of grant, and 25% respectively, at the third
and fourth anniversaries.
It will be recommended to the Board of Directors that you will also
receive a grant of 18,000 stock options under the provisions of the Stock
Option Plan priced at Fair Market Value on the date of grant. This option
will fully vest on the first anniversary following the date of grant.
You will be a participant in York's Deferred Compensation Program.
You will also be participating in York's financial planning program with
an annual allowance of $4,500.
You will participate in York's Pension and FlexChoice Group Health and
Welfare Benefits Program. Group benefits, with the exception of LTD will
be effective on your date of hire. LTD coverage will begin on the first
day of the month following your employment date.
It will be recommended to the Board of Directors that you become a
participant in the Supplemental Executive Retirement Plan (S.E.R.P.)
effective with your date of hire. The purpose of this benefit is to
provide pension benefits above the current ERISA salary cap of $160,000
annually and to increase overall pension entitlement to 2.5% of Final
average earnings when combined with the standard plan.
<PAGE>
Mr. Benson K. Woo
June 5, 1998
Page 2
You will be provided relocation benefits typically offered to a
transferred York employee. However, the incidental expense allowance will
be increased to $10,000 grossed up to cover appropriate taxes.
You will be covered under the Company Change of Control agreement.
Prior to commencing employment, you will be required to execute a
confidentiality agreement and satisfactorily complete a pre-employment
physical examination which includes a drug screen. In the event you have
a disability, York will make reasonable accommodations for you provided
the accommodations allow you to perform the essential functions of this
position and does not create an undue hardship for the Company.
York adheres to an "employment at will" policy which allows either you or
York to terminate an employment relationship "at will." The employment of
each individual is subject to the normal policies and practices of the
Company and its benefits plans as they will be revised from time to time.
We look forward to you joining York International Corporation, Benson, and
to the contributions you will make toward our growing organization.
Please contact me at my home telephone number of (717) 764-9520 or at the
office (717) 771-7383 if you have any questions about York or our offer.
Enclosed is a second original of this offer, upon acceptance, please
return one copy to my attention with your signature for our records by
June 12, 1998.
Sincerely,
Robert N. Pokelwaldt
Chairman and Chief Executive Officer
/s/ Benson K. Woo
----------------------------
Benson K. Woo
6-6-98
----------------------------
Date
Enclosures (2)
ICP Plan Document
S.E.R.P. Document
<PAGE>
EXHIBIT *10.15
AMENDMENT NO. 1 TO THE
YORK INTERNATIONAL CORPORATION
1992 OMNIBUS STOCK PLAN
On behalf of York International Corporation (the "Company"), the Board
of Directors of the Company (the "Board") at its meeting on February, 16 1999,
pursuant to the authority granted it under Section 15 of the Plan, wishes to
amend the York International Corporation 1992 Omnibus Stock Plan (the "Plan") to
adopt the following amendment, effective January 1, 1999, as follows:
1. Section 4 is hereby amended and restated in its entirety to read
as follows:
"4. SHARES AVAILABLE FOR THE PLAN; ANNUAL LIMIT ON
GRANTS
Subject to adjustments as provided in Section 14, as of any
date the total number of shares of Common Stock with respect to
which awards may be granted under the Plan shall be equal to
7,880,000 shares, provided that (i) any award of incentive stock
options shall only be granted from the 4,380,000 shares as
previously approved by the Company's shareholders and (ii) the
number of restricted shares awarded under the Plan may not exceed
3% of the total number of shares of Common Stock outstanding at
the time of any such award. Subject to adjustments as
contemplated by Section 14, no person may be granted more than
200,000 restricted shares, or options to purchase more than
200,000 shares, during any one calendar year. If any grant under
the Plan expires or terminates unexercised, becomes unexercisable
or is forfeited or otherwise terminated or canceled as to any
shares, the shares subject to such grants shall thereafter be
available for further grants under the Plan unless such shares
would not be deemed available for future grants pursuant to Rule
16b-3 of the Securities Exchange Act of 1934, as from time to
time amended."
2. In all other respects, the Plan is hereby ratified and confirmed.
* * * * *
IN WITNESS WHEREOF, the Board has caused this Amendment No. 1 to be
executed under seal by its duly authorized representative.
<TABLE>
<CAPTION>
WITNESS/ATTEST: YORK INTERNATIONAL CORPORATION
<S> <C> <C>
/s/ Jane G. Davis By: /s/ Robert N. Pokelwaldt
- -------------------------------------------------- ----------------------------------------------------
Print Name: Jane G. Davis Print Name: Robert N. Pokelwaldt
---------------------------------- --------------------------------------------
Title: Chairman and CEO
--------------------------------------------
Date: March 1, 1999
--------------------------------------------
</TABLE>
1
<PAGE>
EXHIBIT 12
YORK INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings(loss) before taxes $144,447 (70,782) 204,463 78,468 187,303
Interest expense 29,188 41,412 34,544 40,876 41,527
Interest component of
rental expense 4,537 5,055 5,590 5,036 5,797
-------- ------- ------- ------- -------
$178,172 (24,315) 244,597 124,380 234,627
======== ======= ======= ======= =======
Interest expense 29,188 41,412 34,544 40,876 41,527
Interest component of
rental expense 4,537 5,055 5,590 5,036 5,797
-------- ------- ------- ------- -------
$ 33,725 46,467 40,134 45,912 47,324
======== ======= ======= ======= =======
Fixed charge coverage ratio 5.3 .0 6.1 2.7 5.0
======== ======= ======= ======= =======
</TABLE>
Note - Earnings (loss) before taxes for 1995 are after a charge for impairment
loss on long-lived assets of $244,473. As a result, fixed charges exceed
earnings (loss) before taxes for 1995, net of such fixed charges by $70,782.
<PAGE>
Exhibit 13
YORK INTERNATIONAL CORPORATION
ANNUAL FINANCIAL STATEMENTS
AND REVIEW OF OPERATIONS
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
<PAGE>
EXHIBIT 21
YORK INTERNATIONAL CORPORATION
Subsidiaries of the Registrant
------------------------------
<TABLE>
<CAPTION>
Name and Jurisdiction
of Incorporation
-------------------
Percent of Ownership
--------------------
<S> <C>
York Air Conditioning and Refrigeration, Inc. (Delaware) 100%
Bristol Compressors, Inc. (Delaware) 100%
Bristol Compressors Purchasing, Inc. (Delaware) 100%
Bristol Compressors Sparta, Inc. (Delaware) 100%
Codorus Acceptance Corp. (Delaware) 100%
Frigid Coil/Frick, Inc. (Delaware) 100%
IMECO, Inc. (Delaware) 100%
Evcon Holdings Inc. (Delaware) 100%
Evcon Industries, Inc. (Delaware) 100%
York-MIAC, Inc. (Delaware) 100%
York International Snow, Inc. (Delaware) 100%
York Food Systems International Limited (Delaware) 100%
Miller-Picking of Mississippi, Inc. (Mississippi) 100%
Viron, Inc. (Missouri) 100%
York International Treasury Services Inc. (Delaware) 100%
York Foreign Sales Corporation (Barbados) 100%
York Int'l Ltd. (Canada) 100%
York International Limited (UK) 100%
York A.C.R. Ltd. (Ireland) 100%
York International BV (Netherlands) 100%
York International S.p.A. (Italy) 100%
York International SAS (France) 100%
York France SAS (France) 100%
York Systems SAS (France) 100%
York Neige SA (France) 100%
Duplan SA (France) 100%
York International Holdings GmbH (Germany) 100%
York International GmbH (Germany) 100%
York International A/S (Denmark) 100%
York International Mexico S.A. de C.V. (Mexico) 100%
York Aire S.A. de C.V. (Mexico) 100%
York International Comercial Limitada (Chile) 100%
York International S.A. (Colombia) 100%
York International S.R. Ltda (Peru) 100%
York International del Ecuador C.A. Intevyork (Ecuador) 100%
York International S.A. (Venezuela) 100%
York International S.A. (Uruguay) 100%
York International Pte. Ltd. (Singapore) 100%
York International Philippines, Inc. (Philippines) 100%
York International (Northern Asia) Limited (Hong Kong) 100%
York Industrial (Thailand) Co. Ltd (Thailand) 100%
York International CH (Korea) 100%
York Australia Pty, Ltd. (Australia) 100%
PT York Aditana Teknik (Indonesia) 100%
York Airconditioning and Refrigeration FZE (U.A.E.) 100%
York Air Conditioning & Refrigeration Ltd (Egypt) 100%
YIC, Limited (Cyprus) 100%
York Guangzhou Air Conditioning and Refrigeration Co. Ltd. (China) 97%
</TABLE>
<PAGE>
EXHIBIT 21 (con't)
YORK INTERNATIONAL CORPORATION
Subsidiaries of the Registrant (con't)
--------------------------------------
<TABLE>
<CAPTION>
Name and Jurisdiction
of Incorporation
-------------------
Percent of Ownership
--------------------
<S> <C>
York-Wuxi Air Conditioning and Refrigeration Co. Ltd. (China) 80%
York International Commercial Ltda. (Brazil) 80%
York Hellas S.A. (Greece) 80%
York Taiwan Inc. (Taiwan) 60%
</TABLE>
<PAGE>
EXHIBIT 23
Accountants' Consent
--------------------
The Board of Directors and Stockholders
York International Corporation:
We consent to incorporation by reference in the Registration Statements on Form
S-8 (File No. 33-25440 1989 Employee Stock Option Plan, File No. 333-2384
Amended and Restated 1992 Omnibus Stock Plan, File No. 33-64684 1992 Omnibus
Stock Plan and 1992 Employee stock Purchase Plan, File No. 333-73077 York
International Corporation Investment Plan, File No. 333-73079 Bristol
Compressors Thrift and Retirement Plan and File No. 333-73081 Yok International
Corporation Investment Plan for Puerto Rico) of York International Corporation
of our reports dated February 15, 1989, relating to the consolidated balance
sheets of York International Corporatino 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 and the related financial
statement schedule, which reports appear in or are incorporated by reference in
the December 31, 1998 annual report on Form 10-K of York International
Corporation.
KPMG LLP
/S/ KPMG LLP
Harrisburg, Pennsylvania
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1998 (AUDITED), THE CONSOLIDATED CONDENSED BALANCE SHEETS AT DECEMBER 31, 1998
(AUDITED), AND THE CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1998 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,746
<SECURITIES> 0
<RECEIVABLES> 567,139
<ALLOWANCES> 19,911
<INVENTORY> 536,854
<CURRENT-ASSETS> 1,310,533
<PP&E> 731,031
<DEPRECIATION> 356,300
<TOTAL-ASSETS> 2,106,538
<CURRENT-LIABILITIES> 789,479
<BONDS> 362,724
0
0
<COMMON> 223
<OTHER-SE> 730,576
<TOTAL-LIABILITY-AND-EQUITY> 2,106,538
<SALES> 3,289,201
<TOTAL-REVENUES> 3,289,201
<CGS> 2,566,265
<TOTAL-COSTS> 2,566,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,206
<INTEREST-EXPENSE> 41,527
<INCOME-PRETAX> 187,303
<INCOME-TAX> 50,810
<INCOME-CONTINUING> 136,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,493
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 3.36
</TABLE>
