<PAGE>
===============================================================================
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
York International Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
York International Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Notice of 2000 Annual Meeting
Proxy Statement
Annual Financial Statements and Review of Operations
[LOGO] YORK (R) INTERNATIONAL
- ------------------------------------------------------------------------------
CORPORATION
TO THE STOCKHOLDERS
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of York International Corporation (the "Company"). It will be held at the
Company's offices at 631 South Richland Avenue, York, Pennsylvania on Thursday,
May 25, 2000, at 1:30 p.m., EDT. At the meeting we will:
1. Elect a Board of Directors to hold office for one year.
2. Ratify the appointment of KPMG LLP as the Company's independent
accountants.
3. Consider any other business properly presented at the meeting.
Stockholders of record at the close of business on April 6, 2000 are
entitled to vote at the meeting.
If you cannot attend the meeting, please take the time to sign, date and
mail the enclosed proxy in the envelope we have provided. A majority of the
outstanding shares of common stock must be represented at the meeting in order
to transact business and, regardless of the number of shares you own, your proxy
is important in fulfilling this requirement. By promptly returning your proxy
you will save the Company the expense involved in further communications. If you
choose to attend the meeting, you may vote in person, even if you have
previously sent us your proxy.
On behalf of the Company's Board of Directors
JANE G. DAVIS
Vice President, Secretary and
General Counsel
April 19, 2000
<PAGE>
PROXY STATEMENT
This proxy statement is being sent to you in connection with the
solicitation by the Company of proxies to be voted at the 2000 Annual Meeting of
Stockholders, which will be held on May 25, 2000, at 1:30 p.m., EDT, at the
Company's offices at 631 South Richland Avenue, York, Pennsylvania, and at any
adjournment or postponement of the meeting. The Company pays the cost of
preparing, printing and mailing this proxy statement. We have retained Chase
Mellon to assist with the solicitation for a fee of up to $4,000 plus out-of-
pocket expenses. In addition to solicitations by mail, regular employees of the
Company, without additional compensation, and employees of Chase Mellon may
solicit proxies in person or by telephone. The Company will reimburse brokerage
houses and other custodians, nominees, and fiduciaries for the costs of sending
proxy materials to stockholders.
You can revoke your proxy at any time before the time of voting at the
Annual Meeting by (1) executing another proxy at a later date, (2) delivering a
written notice to any of the persons named in the proxy, or (3) voting in person
at the Annual Meeting.
If you are a holder of record of the Company's common stock at the close of
business on April 6, 2000, you are entitled to vote at the Annual Meeting. You
are entitled to one vote on each matter presented for each share of stock you
own. The proxy committee will vote your proxy at the meeting in accordance with
your directions or, if you do not mark any selections, in accordance with the
recommendation of the Board of Directors. See "Vote Required to Approve Matters"
for a description of quorum and voting requirements and the effect of
abstentions and "broker non-votes" on such requirements. On April 6, 2000, the
Company had 38,002,570 shares of common stock outstanding and entitled to vote
at the meeting.
If you plan to attend the Annual Meeting, please keep the admission ticket,
which is part of your proxy form. If a broker holds your shares and you would
like to attend, please send a written request to Corporate Secretary, York
International Corporation, 631 South Richland Avenue, York, Pennsylvania 17403.
Please include proof of ownership, such as a brokerage account statement, and we
will send you an admission ticket.
The approximate date on which this proxy statement and form of proxy will
be mailed to stockholders is April 19, 2000.
VOTE REQUIRED TO APPROVE MATTERS
A quorum for the meeting is a majority of the outstanding shares,
represented in person or by proxy. Abstentions, "broker non-votes" (proxies from
brokers or nominees indicating they have not received instructions from the
beneficial owner as to a matter on which the brokers or nominees do not have
discretionary power to vote) and votes withheld will be counted as present for
purposes of determining a quorum. Brokers that do not receive instructions are
entitled to vote on the election of Directors and the ratification of
appointment of auditors.
The election of each Director requires a plurality of the votes cast. The
approval of Proposal Two (the appointment of the auditors) requires a majority
of the votes cast. Abstentions and broker non-votes will not be counted as votes
cast.
2
<PAGE>
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders must submit written proposals by December 15, 2000 in order to
be included in the Company's proxy material for the 2001 Annual Meeting of
Stockholders. No proposals, including a nomination for election as a Director,
received after March 26, 2001 may be brought before the Annual Meeting. Address
proposals to Corporate Secretary, York International Corporation, 631 S.
Richland Avenue, York, PA 17403.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors has fixed the number of Directors to be elected at
eight. All Directors will serve for a one-year term.
The Board of Directors recommends a vote FOR each of the nominees.
The proxy committee will vote in favor of each of the nominees listed below
unless you withhold authority to vote for one or more of them.
We have no reason to believe that any nominee will be unable to serve as a
Director. However, if any nominee should become unable to serve, your proxy will
be voted for a substitute nominee designated by the Board of Directors. In
nominating candidates for the Board of Directors, the Directors take into
account certain considerations. The first is that the Board of Directors should
have a majority of independent Directors. The second is that nominees should
bring experience in a field relevant to the Company's operations, such as
manufacturing, marketing, technology or finance. The third is that candidates of
different ages, races and genders should be considered in order to provide the
Company with the benefits of diversity.
<TABLE>
<CAPTION>
Name and Age Other Positions with the Company Director
on Record Date or Nominee's Principal Occupation Since
-------------- --------------------------------- -----
<S> <C> <C>
Gerald C. McDonough (71)........ Chairman of the Board of Directors; 1988
Chairman of G.M. Management Group
Michael R. Young (55)........... President and Chief Executive Officer 1999
W. Michael Clevy (51)........... President and Chief Executive Officer of -----
DESA International, Inc.
Malcolm W. Gambill (69)......... Retired Chairman of the Board and Chief 1993
Executive Officer of Harsco Corporation
Robert F. B. Logan (67)......... Retired Chairman of the Board and Chief 1988
Executive Officer of Banc One Arizona
Corporation and Banc One Arizona, NA
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Paul J. Powers (65).............. Retired Chairman of the Board and Chief ------
Executive Officer of Commercial Intertech
Corporation
Donald M. Roberts (64)........... Retired Vice Chairman and Treasurer of 1988
United States Trust Company of New York
and U.S. Trust Corporation
James A. Urry (46)............... Vice President of Citicorp Venture 1992
Capital Ltd.
</TABLE>
Mr. McDonough has been Chairman of G.M. Management Group (strategic
advisory services) since 1988. He was Chairman and Chief Executive Officer of
Leaseway Holdings, Inc. from 1987 to July 1988 and Chairman and Chief Executive
Officer of Leaseway Transportation Corp. from 1982 to 1987. Mr. McDonough is a
Director of Associated Estates Realty Corporation and is Chairman of the
Independent Trustees of The Fidelity Funds.
Mr. Young has been President and Chief Executive Officer of the Company
since February, 2000 from November, 1999 to February, 2000 he was President of
the Company's Central Environmental Systems Group. From 1996 to 1999 he was
Chief Executive Officer and President of the Company's Bristol Compressors
subsidiary. He was President, Chairman and Chief Executive Officer of Evcon
Industries, Inc. from 1991 to 1995, President and Chief Operating Officer of the
Company from 1988 to 1989 and Chairman, President and Chief Executive Officer of
Bristol Compressors, Inc. from 1983 to 1987.
Mr. Clevy has been President and Chief Executive Officer of DESA
International, Inc. since November 1999. From 1995 to 1999, Mr. Clevy was
President and Chief Executive Officer of International Comfort Products and was
Chief Operating Officer from 1994 to 1995. From 1971 to 1994 he was with the
Carrier Corporation unit of United Technologies Corporation, serving most
recently as Vice President Manufacturing & Technology, Carrier North American
Operations.
Mr. Gambill was Chairman of the Board of Harsco Corporation from 1991 until
he retired in 1994. Mr. Gambill was Harsco's Chief Executive Officer from 1987
to 1993 and its President from 1987 to 1991.
Mr. Logan was Chairman of the Board and Chief Executive Officer of Banc One
Arizona Corporation and Banc One Arizona, N.A. from April 1995 until his
retirement on March 31, 1996. From April 1993 until April 1995, Mr. Logan was a
private business consultant. He was with Valley National Bank, as President and
Chief Operating Officer from January 1990 until April 1993 and as Senior
Executive Vice President from May 1989 to January 1990. Mr. Logan was President
and Chief Operating Officer of Alexander Hamilton Life Insurance Company of
North America from October 1988 to April 1989, an independent financial advisor
from October 1986 to October 1988, and Group Chief Executive and Deputy Chairman
of Samuel Montagu & Co. (Holdings) Limited from March 1985 to July 1986. Mr.
Logan is a Director of Plantronics, Inc.
Mr. Powers was Chairman of the Board and Chief Executive Officer of
Commercial Intertech Corporation from 1987 until his retirement in April 2000.
Prior to that, he was President and Chief Operating Officer from 1984 to 1987
and Group Vice President, Hydraulics from 1982 to 1984. From 1978 to 1982 he was
President of the Denison Division of Abex Corporation. From 1969 to 1978 he held
various management positions with American Standard Corporation, including Vice
President and
4
<PAGE>
General Manager of the Industrial Products Division. Mr. Powers is a Director of
CUNO, Incorporated, FirstEnergy Corporation, Twin Disc, Inc. and Global Marine,
Inc.
Mr. Roberts was Vice Chairman and Treasurer of the United States Trust
Company of New York and its parent, U.S. Trust Corporation, from February 1990
until his retirement in September 1995. He was Executive Vice President and
Treasurer of both companies from January 1989 to February 1990 and Executive
Vice President of both companies from November 1979 to January 1989. Mr. Roberts
is a Director of Burlington Resources, Inc.
Mr. Urry has been a Vice President of Citicorp Venture Capital Ltd. since
1989 and has been a Vice President of Citibank, N.A. since 1986. He is a
Director of Hancor Holdings, International Knife and Saw Corporation, Palomar
Technologies, Inc., Airxcel, Inc., and Intersil.
Committees of the Board of Directors
The Board of Directors has the following standing Committees:
Audit Committee. The Audit Committee recommends the independent auditors to
the Board, reviews the proposed scope of the audit and the auditors' reports and
approves the audit fees to be paid. The Committee also reviews with the
independent auditors and with the Company's management the Company's financial
statements and the adequacy and effectiveness of the Company's internal auditing
and accounting procedures and its financial controls. The Committee is also
responsible for monitoring compliance with the Company's ethics policies and
applicable laws and regulations. The members of the Audit Committee, who are all
independent directors, are Messrs. Roberts, Gambill, Logan and Urry. The Audit
Committee held five meetings in 1999.
Compensation Committee. The Compensation Committee determines the
compensation of the Company's officers, division and subsidiary presidents and
general managers and certain other highly compensated employees and supervises
the administration of all benefit plans and other matters affecting executive
compensation. It also recommends to the Board of Directors the fees for
Directors. The members of the Compensation Committee, who are all independent
Directors, are Messrs. Wriston, Gambill, Logan and Urry. The Compensation
Committee held two meetings in 1999.
Executive Committee. The Executive Committee has the authority to act on
behalf of the Board when specific actions must be taken between Board meetings.
The members of the Executive Committee, who are all independent directors, are
Messrs. Wriston, Roberts, Gambill, Welsh and Urry. The Executive Committee did
not meet in 1999.
Finance Committee. The Finance Committee was formed in November, 1999 to
perform certain functions previously performed by the Audit and Finance
Committee. The Committee periodically reviews the Company's financial objectives
and capital structure, reviews the funding and investment results of the
Company's pension plans, and reviews acquisitions, divestitures, capital
expenditures and financing transactions. The members of the Finance Committee,
who are all independent directors, are Messrs. Welsh, Logan and McDonough. The
Finance Committee did not meet in 1999.
Nominating and Governance Committee. The Nominating and Governance
Committee was formed in March, 2000 to consider and recommend to the Board
nominees for election as Directors and to make recommendations to the Board on
matters of corporate governance. The members of the Nominating Committee, who
are all independent directors, are Messrs. McDonough, Gambill and Roberts.
5
<PAGE>
Director Compensation
The Company pays Directors who are not employees of the Company an annual
retainer of $24,000, a fee of $1,000 for attendance at each regular and special
meeting of the Board or any Committee and, for Committee chairmen, an annual
retainer of $2,500. The non-employee Chairman of the Board receives an annual
fee of $240,000 for that service. The Company also reimburses Directors for
expenses they incur in attending Board of Directors and Committee meetings.
Directors who are not employees of the Company do not participate in any pension
or health and welfare plans of the Company.
Directors who are not employees of the Company may elect to defer 100% of
their annual retainer and meeting fees under the Company's deferred compensation
plan. Amounts deferred are credited to a reserve fund and are invested in one of
several investment options selected by the Director. The investment options are
the same as those available to employees under the York International Investment
Plan, including an option to invest in the Company's common stock at fair market
value. Dividends payable on the common stock are reinvested in additional common
stock. When a Director's service with the Company ends, the amount in the
Director's reserve fund can be paid to the Director in a lump sum or
installments, with investments in the Company's common stock distributed as
stock.
On May 13, 1999 each of the non-employee Directors received an option to
purchase 2,000 shares of the Company's common stock under the Company's Amended
and Restated 1992 Omnibus Stock Plan. Each person who serves as a Director (and
is not an employee of the Company) as of the annual meeting of stockholders or
who becomes a Director within six months after that meeting is entitled under
the plan to an option to purchase 2,000 shares of common stock at a price equal
to the fair market value of the stock on the date of grant. The options are not
exercisable immediately and become exercisable to the extent of 25% of the
underlying shares on each of the next four anniversaries of the date of grant,
subject to acceleration in the event of certain changes in control of the
Company. The options have a ten-year term but expire sooner if the holder ceases
to be a Director.
Directors and members of Committees who are employees of the Company are
not compensated for their service as Directors. Mr. Young is the only Director
who is an employee of the Company.
The Board of Directors held seven meetings in 1999. Each of the Directors
attended at least 75% of the aggregate of the meetings of the Board and of the
Committees on which he served.
6
<PAGE>
EXECUTIVE COMPENSATION
Report of the Compensation Committee
Relationship of Compensation to Performance
The Compensation Committee believes that the compensation of the Company's
officers should provide a strong incentive to achieve the Company's performance
objectives. The objectives, which are established by the Board of Directors
together with management, are intended to maximize corporate and divisional
performance and, ultimately, deliver strong value to the stockholders.
Consequently, in addition to salary, a significant portion of cash compensation
is in the form of an annual bonus, which is paid only if certain financial
objectives are met and which can be larger if such financial objectives are
exceeded. The more senior an officer, the more his or her total compensation
depends on the bonus payment. The Company's Incentive Compensation Plan also
contains a Mid-Term Program that provides for the grant of Performance Units to
be earned over a longer measurement period. In addition, the Compensation
Committee grants stock options and may grant restricted stock, designed to
provide long-term incentives to key employees and tie their interests directly
to those of the Company's stockholders.
Salaries
The Compensation Committee sets the base salary of the Chief Executive
Officer and of each of the other officers based on a number of factors,
including level of responsibility, tenure with the Company, financial
performance of the Company, prior individual performance, and comparable
salaries for officers at other large industrial corporations. The Committee
believes that base salary levels should be competitive with the base salaries
(excluding bonuses) of companies in comparable industries and that the
opportunity to increase compensation above base salaries should be directly
related to the achievement of objective financial performance targets. The
companies considered by the Committee include a larger number and broader range
of companies than are included in the S & P Electrical Equipment Index, shown in
the Stock Performance Graph below, reflecting the Committee's view that the
employment market for the Company's officers includes a broader range of
companies than those with which the Company should be compared for financial
performance purposes. A prominent executive compensation consulting firm assists
in determining market practice for all forms of executive compensation.
Performance-Based Bonuses
Annual Cash Program - The Company pays annual cash bonuses under the Annual
Cash Program of its Incentive Compensation Plan. Each year, the Company
establishes financial objectives for its various business units for the
succeeding year which are, in turn, used to establish overall targets for the
financial performance of the Company. For 1999, the financial objectives
selected were earnings before interest and taxes ("EBIT"), with a capital charge
for net capital employed and goodwill, for the operating divisions and earnings
per share ("EPS") for the Company. The financial objectives are presented to the
Compensation Committee, which approves threshold, expected and overachievement
targets based on these objectives. Each of the Company's management employees,
including its executive officers, is eligible each year to earn a performance
bonus equal to a percentage of base salary. The applicable percentage depends on
the employee's level of responsibility and on the extent to which targets are
achieved (i.e., the more senior the employee and the greater the level of
performance of the area for which he or she is responsible, the higher the
applicable percentage used to calculate his or her bonus).
Bonuses for each individual are primarily based on the performance of that
individual's business unit. In the case of those individuals with responsibility
at the corporate level, such as the Chief Executive Officer and other corporate
officers, bonuses are based on overall Company performance. A
7
<PAGE>
portion of the bonus of high level individuals in the business units is also
based on overall Company performance. Bonus awards to the executive officers
listed in the Summary Compensation Table are disclosed in that table.
Mid-Term Program - The Mid-Term Program of the Incentive Compensation Plan
is intended to cover successive measurement periods. The objectives for the
measurement period are approved by the Compensation Committee, which also
approves the number of Performance Units granted, based on market competitive
data and job responsibilities. At the end of the measurement period, the number
of Performance Units earned, if any, is based on the extent to which the
established objectives have been met. The value of each Performance Unit earned
will be equal to the average of the closing sale price of the Company's common
stock during the 120 consecutive trading days ending on the last day of the
measurement period.
In 1997, 1998, and 1999 the Compensation Committee approved Mid-Term
Performance Objectives for the three-year periods from 1997 through 1999, 1998
through 2000, and 1999 through 2001, respectively. The 1997 and 1998 grants were
based one-half on cumulative earnings per share and one-half on total return to
stockholders as compared to the Industrial Component of the Standard & Poor's
Midcap 400 Index. In order to better align the program with stockholders'
interests, the 1999 grant was based solely on total return to stockholders as
compared to the Industrial Component of the Standard & Poor's Midcap 400 Index.
The 1997 grant expired at the end of 1999 with no Performance Units having been
earned since the Company did not meet either the target based on the Company's
cumulative earnings per share or the target for total return to stockholders.
Stock Awards
In order to align the interests of management more closely with the long
term interests of the Company's stockholders, the Compensation Committee also
issues stock options and may issue restricted stock, pursuant to the Company's
Amended and Restated 1992 Omnibus Stock Plan. The Committee grants options to
individual employees based on its evaluation of a number of factors, including
level of base salary, level of responsibility, expected level of contribution to
the Company, prior individual performance and prior stock option and restricted
stock grants. The largest grants are awarded to the most senior employees, who,
in the view of the Compensation Committee, have the greatest potential impact on
the Company's profitability and growth. However, the Committee also awards
options to individuals at all levels of the organization in order to focus
employee attention on the performance of the Company's stock. Options under the
plan may be either incentive stock options or non-qualified stock options at the
discretion of the Compensation Committee. In 1999, the Committee granted
performance-accelerated stock options exercisable at fair market value to
certain key employees, including the Company's officers. For these individuals,
the options will not be exercisable for seven years unless the Company's stock
price reaches certain specified levels. Certain options vest when the stock
reaches $35.9375 and other options vest one-half when the stock reaches $43.63
and one-half when the stock reaches $49.30. In each instance, the stock must
remain at that average price for fifteen consecutive trading days. Stock option
awards to the executive officers named in the Summary Compensation Table are
disclosed in that table. The Company has never repriced any stock options.
In 1999, the Compensation Committee granted restricted stock awards to one
executive officer in connection with the start of his employment with the
Company. In August 1994, in order to assure the retention of certain key
employees, the Compensation Committee awarded shares of restricted stock to
them, including to certain of the executive officers listed in the Summary
Compensation Table. Forty percent of these shares vested in 1996 and 20% vested
in each of 1997, 1998 and 1999. Under certain circumstances, the vesting of
shares issued to certain highly-compensated officers will be delayed until the
Company's deduction of compensation expense associated with such vesting would
not be limited by
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<PAGE>
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). If
an award recipient is terminated for cause, voluntarily terminates his or her
employment with the Company, or breaches certain obligations of confidentiality,
he or she will forfeit any unvested shares.
Compensation of Chief Executive Officer
Mr. Pokelwaldt's 1999 compensation, including base salary, bonus and stock
option award, was determined by the Compensation Committee in accordance with
the criteria described above in the "Relationship of Compensation to
Performance," "Salaries," "Performance-Based Bonuses" and "Stock Awards"
sections of this report.
Mr. Pokelwaldt received an increase in his base compensation in 1999 from
$700,000 to $800,000 in order to keep his salary at a competitive level. Because
the Company did not meet its earnings per share target in 1999, Mr. Pokelwaldt
did not receive a bonus for 1999.
In 1999, Mr. Pokelwaldt received a grant of 15,000 Performance Units under
the Mid-Term Program of the Company's Incentive Compensation Plan. Achievement
of the target for these units, the Company's total return to stockholders
compared to a published index, will be measured at the end of 2001. For the 1997
grant, which was measured at the end of 1999, Mr. Pokelwaldt did not receive any
payment, since the Company did not meet the threshold performance objectives.
In 1999, Mr. Pokelwaldt was also awarded performance-accelerated stock
options to purchase 112,500 shares of the Company's common stock (on terms
described above under "Stock Awards") at the market price on the date of grant.
Additional details of Mr. Pokelwaldt's compensation over the past three fiscal
years are disclosed in the Summary Compensation Table and in other sections of
this "Executive Compensation" section.
Upon the retirement of Mr. Pokelwaldt in October 1999, Mr. John R. Tucker
became Chief Executive Officer. At that time, his salary was increased from
$520,000 to $650,000 to reflect his increased responsibilities. Because the
Company did not meet its earnings per share target in 1999, Mr. Tucker did not
receive a bonus for 1999. In 1999, Mr. Tucker received a grant of 10,000
Performance Units under the Mid-Term Program of the Company's Incentive
Compensation Plan and 181,250 performance-accelerated stock options (on terms
described above under "Stock Awards")
Tax Considerations
In making its compensation decisions, the Committee considers the effect of
Section 162(m) of the Code, which limits to $1,000,000 the allowable federal
income tax deduction for compensation paid to the Company's Chief Executive
Officer and next four most highly compensated officers. The limit on
deductibility does not apply to performance-based compensation paid pursuant to
a plan approved by the stockholders. The Company expects that expense associated
with stock option awards made under the Company's Amended and Restated 1992
Omnibus Stock Option Plan will not be limited by Section 162(m) since the
Company obtained stockholder approval of this Plan. The expense associated with
restricted share awards that are not performance-based may be limited under
Section 162(m) and, if that should be the case, the Committee may defer the
vesting of such awards until such time as the associated expense is fully
deductible. The Company has obtained stockholder approval of its Incentive
Compensation Plan and does not anticipate that the expense associated with this
Plan will be limited by Section 162(m).
9
<PAGE>
In the opinion of the Committee, the Company's performance-based cash
compensation system, together with the grant of fair market value options and,
in limited circumstances, restricted stock awards, provides all management
employees, including executive officers, with an incentive to achieve objective
financial targets designed to increase stockholder value.
The foregoing report is hereby submitted by the members of the Compensation
Committee.
Walter B. Wriston, Chairman
Malcolm W. Gambill
Robert F. B. Logan
James A. Urry
10
<PAGE>
Summary Compensation Table
The following table sets forth information concerning cash compensation
paid by the Company to the Chief Executive Officer and each of the next four
most highly compensated officers of the Company for services rendered in all
capacities to the Company and its subsidiaries during the three fiscal years
ended December 31, 1999.
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Annual Securities
Compensation (1) (2) Restricted Underlying All
-------------------
Stock Options Other
Name Year Salary Bonus Award (3) Granted (4) Compensation (5)
---- ---- ------ ----- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Pokelwaldt (6)............. 1999 $650,000 $ 0 $ 0 112,500 $2,575,874
Past Chairman of the Board and....... 1998 700,000 947,556 0 25,000 11,776
Chief Executive Officer.............. 1997 688,667 0 0 40,000 11,507
John R. Tucker (6)................... 1999 540,833 0 0 181,250 6,617
President and Chief.................. 1998 445,833 750,000 0 24,000 2,798
Executive Officer.................... 1997 79,003 200,000 1,129,688 40,000 391
Michael R. Young..................... 1999 426,459 411,469 0 80,000 18,958
Vice President, and President........ 1998 400,000 547,733 0 8,000 8,487
Central Environmental Systems........ 1997 400,000 0 535,000 30,000 21,794
Peter C. Spellar..................... 1999 327,500 217,503 0 53,000 3,244
Vice President Corporate............. 1998 312,500 215,899 0 8,000 2,931
Marketing & Strategic Accounts....... 1997 291,667 0 0 10,000 2,684
Stuart R. Amos (6)................... 1999 340,416 0 0 83,000 2,990
Vice President and President,........ 1998 250,000 361,390 216,875 10,000 1,954
Unitary Products Group
Robert C. Galvin (6) ................ 1999 176,458 173,250 897,500 100,000 183
Vice President and Chief
Financial Officer
</TABLE>
___________
(1) No compensation that would be categorized as "Other Annual Compensation"
was paid to officers in any of the years presented.
(2) Includes amounts deferred at the election of the officer pursuant to the
York International Investment Plan, a plan established under Section 401(k)
of the Code and the York International Corporation Executive Deferred
Compensation Plan, a non-qualified deferred compensation plan. Does not
include any amounts that may ultimately be earned for the Performance Units
awarded during 1999 and shown in the Long-Term Incentive Plans - Awards in
Last Fiscal Year Table.
(3) The restricted stock holdings of the officers and the value of such
holdings as of December 31, 1999, based upon the 1999 year-end closing
price (net of the purchase price paid by the officer) are as follows: Mr.
Tucker - 12,500 shares ($330,468), Mr. Young - 10,000 shares ($264,375),
Mr. Amos - 5,000 shares ($132,188), and Mr. Galvin - 20,000 shares
($528,750). Any dividends payable with respect to common stock will be paid
with respect to the restricted stock. Messrs. Tucker and Young received
25,000 shares and 10,000 shares, respectively, of restricted stock in 1997,
Mr. Amos received 5,000 shares in 1998, and Mr. Galvin received 20,000
shares in 1999. In each instance, with the exception of Mr. Young, the
stock vests 50% on the second anniversary of the grant and 25% on each of
the two subsequent anniversaries. Mr. Young's grant provided for cliff
vesting of 100% of the stock on the third anniversary.
11
<PAGE>
(4) Excludes options to purchase common stock at 85% of fair market value
through automatic payroll deductions acquired in December 1999 under the
1992 Employee Stock Purchase Plan ("Purchase Plan"), in which Messrs.
Pokelwaldt, Tucker, Young, Spellar and Amos each elected to participate.
Messrs. Pokelwaldt and Tucker each acquired 612 shares, Mr. Young acquired
611 shares, Mr. Spellar acquired 570 shares and Mr. Amos acquired 345
shares of common stock.
(5) Comprises payments and accruals of $2,566,635 for Mr. Pokelwaldt under his
Retirement Agreement dated October 14, 1999 and under the Company's
Supplemental Executive Retirement Plan, matching contributions by the
Company under the York International Investment Plan, contributions for Mr.
Young under the Bristol Thrift and Retirement Plan and for Mr. Pokelwaldt
under the York International Deferred Compensation Plan, and term life
insurance premiums for the named individuals for policies with a face
amount equal to the individual's base salary, as follows:
Investment Plan Insurance
Contributions Premium
---------------- ---------
Robert N. Pokelwaldt........................ $ 2,242 $6,997
John R. Tucker.............................. 4,595 2,022
Michael R. Young............................ 14,638* 4,320
P. C. Spellar............................... 1,288 1,956
Stuart R. Amos.............................. 1,780 1,210
Robert C. Galvin............................ 0 183
* Bristol Thrift & Retirement
(6) Mr. Pokelwaldt retired from the Company in October 1999 and Messrs. Tucker,
Amos and Galvin left the Company in February 2000.
Option Grants
The following table shows, as to each person named, the options to purchase
common stock granted by the Company in 1999 under the Amended and Restated 1992
Omnibus Stock Plan. The grants do not include options to purchase Company stock
through automatic payroll deductions under the Purchase Plan (see note (4) to
the Summary Compensation Table above).
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
% of
Number of Total
Securities Options Potential Realizable Value at
Underlying Granted Assumed Annual Rates of Stock
Options to All Exercise Price Appreciation for Option
Granted Employees Price Per Expiration Term (End of Year Value) (1)
--------------------------------
Name (Shares) (2) in 1999 Share Date 0% 5% (3) 10% (3)
---- ------------ --------- --------- ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. N. Pokelwaldt................ 112,500 3.4% $34.6250 03/16/09 $0 $2,449,688 $6,208,313
J. R. Tucker.................... 56,250 1.7% 34.6250 03/16/09 0 1,224,844 3,104,156
125,000 3.8% 22.9375 11/08/09 0 1,802,813 4,569,063
M. R. Young..................... 30,000 .9% 34.6250 03/16/09 0 653,250 1,655,550
50,000 1.5% 22.9375 11/08/09 0 721,125 1,827,625
P. C. Spellar................... 33,000 1.0% 34.6250 03/16/09 0 718,575 1,821,105
20,000 .6% 22.9375 11/08/09 0 288,450 731,050
S. R. Amos...................... 33,000 1.0% 34.6250 03/16/09 0 718,575 1,827,625
50,000 1.5% 22.9375 11/08/09 0 721,125 1,827,625
R. C. Galvin.................... 40,000 1.2% 40.0625 06/22/09 0 1,007,900 2,553,900
60,000 1.8% 22.9375 11/08/09 0 865,350 2,193,150
</TABLE>
12
<PAGE>
___________
(1) Represent arbitrarily assumed rates of appreciation of the common stock
price, mandated by the Securities and Exchange Commission's rules,
compounded annually over the term of the option and are not intended to
forecast possible future appreciation, if any, of the common stock. The
market value of the common stock on the March 16, 1999 grant date was
$34.6250; the value of the common stock at the end of those options' term
based on a compounded 5% growth rate would be $56.40 per share and based on
a compounded 10% growth rate would be $89.81 per share. The market value of
the common stock on the June 22, 1999 grant date was $40.0625; the value of
the common stock at the end of those options' term based on a compounded 5%
growth rate would be $65.26 per share and based on a compounded 10% growth
rate would be $103.91 per share. The market value of the common stock on
the November 8, 1999 grant date was $22.9375; the value of the common stock
at the end of those options' term based on a compounded 5% growth rate
would be $37.36 per share and based on a compounded 10% growth rate would
be $59.49 per share.
(2) The options are non-qualified, non-transferable other than by will or the
laws of descent and distribution, and become exercisable when the price of
the Company's common stock reaches certain pre-determined levels during the
five years following grant and remains at that average price for a period
of 15 consecutive trading days. For the March 16, 1999 grant, 50% of the
grant vests and becomes exercisable at $43.63 and the remaining 50% vests
at $49.30. For the June 22, 1999 grant, 50% vests at $50.48 and the
remaining 50% at $57.04. For the November 8, 1999 grant, 100% vests at
$35.9375. In the event any tranche has not vested within five years from
the date of grant, it vests and becomes exercisable on the seventh
anniversary of the grant and remains exercisable until the tenth
anniversary of the grant unless terminated sooner in the event of death,
disability, retirement or termination of employment.
(3) No gain to the optionees is possible without an increase in stock price
which will benefit all stockholders. A zero percent gain in stock price
will result in zero dollars for the optionee.
Option Exercises and 1999 Year-End Option Values
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock option exercises and 1999
year-end stock option values.
Aggregated Option Exercises in Last
Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options
Acquired Realized Options at 1999 Year-End at 1999 Year-End (1)
-------- -------- ------------------------- --------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- --------------------------
<S> <C> <C> <C> <C>
R. N. Pokelwaldt.................. 23,450 111,388 182,160 / 112,500 $0 / 0
J. R. Tucker...................... 0 0 67,125 / 178,125 0 / 562,500
M. R. Young....................... 0 0 53,00 / 65,000 0 / 225,000
P. C. Spellar..................... 0 0 69,200 / 36,500 0 / 90,000
S. R. Amos........................ 0 0 26,500 / 66,500 0 / 225,000
R. C. Galvin...................... 0 0 20,000 / 80,000 0 / 270,000
</TABLE>
___________
(1) Based upon an assumed fair market value of $27.4375 per share, which was
the closing price on the New York Stock Exchange of the common stock on
December 31, 1999.
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table shows, as to each person named, the Performance Units
granted by the Company in 1999 under the Mid-Term Program of the Incentive
Compensation Plan. At the end of the three-year measurement period, the number
of Performance Units earned, if any, will be based on the extent to
13
<PAGE>
which the established objective of total return to stockholders as compared to
the Industrial Component of the Standard & Poor's Midcap 400 Index has been met.
If the threshold objective is not met, no Performance Units are earned. If the
target objective is exceeded, additional Performance Units can be earned, up to
the number of the original grant. The value of each Performance Unit earned will
be equal to the average of the closing sale price of the Company's common stock
during the 120 consecutive trading days ending on the last day of the
measurement period.
<TABLE>
<CAPTION>
Number of
Shares, Units Performance or
or Other Other Period Until
Name Rights Maturation or Payout
- ---- ------------- --------------------
<S> <C> <C>
R. N. Pokelwaldt..................................... 15,000 12/31/01
J. R. Tucker......................................... 10,000 12/31/01
M. R. Young.......................................... 6,275 12/31/01
P. C. Spellar........................................ 4,942 12/31/01
S. R. Amos........................................... 4,706 12/31/01
R. C. Galvin......................................... 5,033 12/31/01
</TABLE>
Retirement Plans
The Company has a defined benefit retirement plan (the "Retirement Plan")
covering the salaried employees of certain of the Company's business units who
are not subject to collective bargaining agreements. The Retirement Plan covers
each of the officers named in the Summary Compensation Table other than Mr.
Young and Mr. Galvin.
The following table indicates the amount of annual retirement income which
would be payable under the Retirement Plan (but for certain limitations imposed
by the Code) at normal retirement age to participants in specified salary and
bonus levels and years of credited service categories. For 1999 the Code limits
to $160,000 the amount of earnings which may be taken into account to calculate
benefits, and to $130,000 the benefits payable. The limits are adjusted
annually for inflation.
<TABLE>
<CAPTION>
Assumed Average Annual
Earnings for Highest
Five Consecutive
Years in 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Preceding Retirement Service Service Service Service Service
-------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000..................................... $ 36,000 $ 48,000 $ 60,000 $ 72,000 $ 75,750
200,000..................................... 48,000 64,000 80,000 96,000 101,000
250,000..................................... 60,000 80,000 100,000 120,000 126,250
300,000..................................... 72,000 96,000 120,000 144,000 151,500
400,000..................................... 96,000 128,000 160,000 192,000 202,000
500,000..................................... 120,000 160,000 200,000 240,000 252,500
600,000..................................... 144,000 192,000 240,000 288,000 303,000
700,000..................................... 168,000 224,000 280,000 336,000 353,500
800,000..................................... 192,000 256,000 320,000 384,000 404,000
900,000..................................... 216,000 288,000 360,000 432,000 454,500
1,000,000..................................... 240,000 320,000 400,000 480,000 505,000
</TABLE>
14
<PAGE>
The compensation covered by the Retirement Plan consists of base salary and
bonus paid in that year. The covered compensation (excluding the effect of Code
limitations) and credited years of service, as of December 31, 1999, for each of
the officers named in the Summary Compensation Table above were as follows: Mr.
Pokelwaldt - $739,884, 11 years; Mr. Tucker - $796,042, 2 years; Mr. Spellar-
$447,983 7 years; Mr. Amos - $744,936 2 years. Mr. Galvin was not eligible to
participate in 1999 since he had less than one year of service.
The benefits shown in the above table are subject to reduction by an amount
equal to a percentage of Social Security benefits. The benefits are calculated
on a straight-life annuity basis assuming retirement at age 65.
The Company has a defined benefit supplemental retirement plan (the
"Supplemental Retirement Plan") covering certain key executive officers,
including those named in the Summary Compensation Table other than Mr. Young.
The following table indicates the amount of annual retirement income which
would be payable under the Supplemental Retirement Plan at normal retirement age
to participants in specified salary and bonus levels and years of credited
service categories.
<TABLE>
<CAPTION>
Assumed Average Annual
Earnings for Highest
Three Consecutive
Years in 5 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Preceding Retirement Service Service Service Service Service
-------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000.................................... $ 56,250 $ 75,000 $ 75,000 $ 75,000 $ 75,000
200,000.................................... 75,000 100,000 100,000 100,000 100,000
250,000.................................... 93,750 125,000 125,000 125,000 125,000
300,000.................................... 112,500 150,000 150,000 150,000 150,000
400,000.................................... 150,000 200,000 200,000 200,000 200,000
500,000.................................... 187,500 250,000 250,000 250,000 250,000
600,000.................................... 225,000 300,000 300,000 300,000 300,000
700,000.................................... 262,500 350,000 350,000 350,000 350,000
800,000.................................... 300,000 400,000 400,000 400,000 400,000
900,000.................................... 337,500 450,000 450,000 450,000 450,000
1,000,000.................................... 375,000 500,000 500,000 500,000 500,000
</TABLE>
The Supplemental Retirement Plan provides a retirement benefit equal to up
to 50% (based on a maximum of 20 years of credited service (no credit is given
for service beyond 20 years) and final compensation) of the officer's highest
average salary and bonus for three out of the last five years preceding
retirement. The covered compensation and credited years of service under the
Supplemental Retirement Plan based on 1999 salaries and bonuses as of December
31, 1999, would be approximately: Mr. Pokelwaldt - $914,333, 20 years; Mr.
Tucker - $719,583, 2 years; Mr. Spellar - $407,306, 20 years; Mr. Amos -
$531,667, 2 years.
The benefits shown in the above table are subject to reduction by an amount
equal to a percentage of Social Security benefits, benefits under the Retirement
Plan and any other retirement benefits received. The benefits are calculated on
a straight-life annuity basis assuming retirement at age 62.
The following table indicates the amount of annual retirement income which
would be payable under the Bristol Compressors, Inc. Officers Retirement and
Salary Continuation Plan (the "Bristol Plan") at normal retirement age to
participants in specified salary levels and years of credited service
categories. Mr. Young is a participant in this plan.
15
<PAGE>
<TABLE>
<CAPTION>
Assumed Base
Earnings for Year
Preceding 15 Years 20 Years 25 Years 30 Years 35 Years
Retirement Service Service Service Service Service
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
200,000 80,000 80,000 80,000 80,000 80,000
250,000 100,000 100,000 100,000 100,000 100,000
300,000 120,000 120,000 120,000 120,000 120,000
400,000 160,000 160,000 160,000 160,000 160,000
500,000 200,000 200,000 200,000 200,000 200,000
600,000 240,000 240,000 240,000 240,000 240,000
700,000 280,000 280,000 280,000 280,000 280,000
800,000 320,000 320,000 320,000 320,000 320,000
900,000 360,000 360,000 360,000 360,000 360,000
1,000,000 400,000 400,000 400,000 400,000 400,000
</TABLE>
The Bristol Plan provides a retirement benefit equal to 40% of the
employee's base salary for the full calendar year preceding the participant's
actual retirement, without regard to service. The compensation for Mr. Young as
of December 31, 1999 would be approximately $426,458.
The benefits shown in the above table are subject to reduction by 2% per
year for early retirement before age 62. The benefits are calculated payable as
a 15-year certain benefit payable at age 62.
The Evcon Industries, Inc. Retirement Plan for Salaried Employees in which
Mr. Young participated from 1991 until 1995, is intended to provide Mr. Young
with retirement benefits. As of December 31, 1999, upon attaining age 65, he is
eligible to receive an annual retirement benefit of $17,227.
The Frick/Frigid Coil Pension Plan for Salaried Employees (the "Frick
Plan"), in which Mr. Pokelwaldt participated from 1979 until his transfer to the
Retirement Plan in 1988, is intended to provide Mr. Pokelwaldt with retirement
benefits. Upon attaining age 65, Mr. Pokelwaldt is eligible to receive an annual
retirement benefit of $8,900 under the Frick Plan. Mr. Spellar also participated
in the Frick Plan. His participation was from 1979 until his transfer to the
Retirement Plan in 1992. Upon attaining age 65, Mr. Spellar is eligible to
receive an annual retirement benefit of $16,289 from the Frick Plan.
Retirement and Employment Agreements
At the time of his retirement in October 1999, the Company entered into a
Retirement Agreement with Mr. Pokelwaldt. Under the terms of this agreement, Mr.
Pokelwaldt received his salary through the remainder of 1999 and a payment of
$2,400,000. The amounts paid to Mr. Pokelwaldt are included under the heading
"Other Compensation" in the Summary Compensation Table.
In 1999, the Company entered into Employment Agreements with certain key
executives, including Messrs. Tucker, Young, Amos and Galvin. The agreements
have a three-year term and are automatically extended in the absence of notice
to the contrary by either party. The agreements provide for a base salary of
$650,000 for Mr. Tucker, $470,000 for Mr. Young, $425,000 for Mr. Amos, and
$385,000 for Mr. Galvin. The Agreements provide that, in the event the
executive's employment is terminated by the Company other than for cause, the
executive will receive payment of his salary and target bonus for the
16
<PAGE>
remainder of the employment period, health and welfare benefits during that
period, and service credit for that period under the Company's Retirement Plan
and Executive Supplemental Retirement Plan. The Agreements also provide for an
additional payment equal to two years' salary and target bonus in return for an
agreement on the part of the executive not to compete with the Company for a
period of two years.
The Company terminated the employment of Messrs. Tucker, Galvin and Amos in
February 2000. Mr. Tucker remains a Director until his term expires at the
Annual Meeting of Stockholders. The Company is in the process of negotiating
amicable separation arrangements with Messrs. Galvin and Amos. The Company and
Mr. Tucker have filed lawsuits against each other concerning Mr. Tucker's
entitlement to any compensation under his Employment Agreement. Nothing in this
proxy statement should be construed to limit or otherwise affect the Company's
claims against Mr. Tucker.
Change-in-Control Arrangements
The Company maintains severance agreements with certain of its key
employees, including the individuals named in the Summary Compensation Table,
which provide severance benefits in the event the employee's employment
terminates in connection with or for a period following a change in control of
the Company. In such event, the employee would receive a payment equal to three
times his or her annual base salary and target bonus, together with continued
health insurance benefits until the earlier of 36 months or the obtaining of
similar coverage from another employer. Amounts payable under the agreements
will be cut back to the extent they would not be tax deductible under Section
280G of the Internal Revenue Code.
17
<PAGE>
Stock Performance Graph
The following chart compares the cumulative total return on the Company's
common stock for the 5-year period from December 31, 1994 through December 31,
1999 to the cumulative total return for the same period of the Standard & Poor's
Midcap 400 Index, the Industrial Component of the Standard & Poor's Midcap 400
Index, and the Standard & Poor's Electrical Equipment Index. The graph assumes
that the value of the investment in the common stock and each index was $100 on
December 31, 1994 and that all dividends were reinvested.
COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN
AMONG YORK INTERNATIONAL, THE S&P MIDCAP 400 INDEX,
THE INDUSTRIAL COMPONENT OF THE S&P MIDCAP 400 INDEX
AND THE S&P ELECTRICAL EQUIPMENT INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
<S> <C> <C> <C> <C> <C> <C>
YORK INTL 100 128.17 153.44 109.87 114.7 78.46
S&P ELECTRICAL EQUIPMENT - 500 100 140.33 192.73 271.6 364.51 546.57
S&P MIDCAP 400 INDEX 100 130.94 156.08 206.43 245.87 282.06
INDUSTRIAL COMPONENT OF THE S&P MIDCAP 400 100 129.51 155.11 185.39 202.67 245.2
</TABLE>
18
<PAGE>
OWNERSHIP OF COMMON STOCK
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of February 29, 1999 with
respect to beneficial ownership of shares of the Company's common stock,
assuming exercise of options exercisable within 60 days of such date, by each
Director, by each executive officer named in the Summary Compensation Table and
by all Directors and executive officers as a group. Except as otherwise noted,
the beneficial owners have sole voting and investment power as to all such
shares.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percentage of
Name of Beneficial Owner Owned (a) Outstanding
------------------------ ------------ -------------
<S> <C> <C>
Robert N. Pokelwaldt (b)........................................ 392,251 1%
Malcolm W. Gambill (c).......................................... 25,330 *
Robert F. B. Logan (d).......................................... 94,011 *
Gerald C. McDonough (e)......................................... 71,650 *
Donald M. Roberts (f)........................................... 80,434 *
John R. Tucker (g).............................................. 97,368 *
James A. Urry (h)............................................... 44,617 *
John E. Welsh, III (i).......................................... 31,400 *
Walter B. Wriston (j)........................................... 13,450 *
Michael R. Young (k)............................................ 94,077 *
Peter C. Spellar (l)............................................ 130,786 *
Stuart R. Amos (m).............................................. 34,950 *
Robert C. Galvin................................................ 42,000 *
All directors and executive officers of the Company as a group 1,454,509 3.8%
(21 persons) (n).............................................
</TABLE>
___________
* Represents less than 1.0% of the aggregate shares of common stock
outstanding.
(a) Includes shares issuable upon exercise of options that are exercisable
within 60 days.
(b) Includes 182,160 shares issuable upon exercise of options.
(c) Includes 9,000 shares issuable upon exercise of options, and 5,330 shares
representing Director fees deferred into the York Common Stock Fund of the
Company's Deferred Compensation Plan.
(d) Includes 200 shares owned by Mr. Logan's wife as to which he disclaims
beneficial ownership, 9,000 shares issuable upon exercise of options, and
4,418 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(e) Includes 9,000 shares issuable upon exercise of options.
(f) Includes 13,679 shares owned by Mr. Roberts' adult child and 13,678 shares
owned by Mr. Roberts' wife on behalf of their two children as to which Mr.
Roberts has no voting or investment power and as to which he disclaims
beneficial ownership, 9,000 shares issuable upon exercise of options, and
1,041 shares representing Director fees deferred into the York Common Stock
Fund of the Company's Deferred Compensation Plan.
(g) Includes 67,125 shares issuable upon exercise of options.
(h) Includes 9,000 shares issuable upon exercise of options, and 5,617 shares
representing Director fees deferred into the York Common Stock Fund of the
Company's Deferred Compensation Plan.
(i) Includes 9,000 shares issuable upon exercise of options.
(j) Includes 9,000 shares issuable upon exercise of options.
(k) Includes 53,000 shares issuable upon exercise of options.
19
<PAGE>
(l) Includes 30,000 shares held in trust for Mr. Spellar's children, as to
which he disclaims any beneficial ownership, and 69,200 shares issuable
upon exercise of options.
(m) Includes 26,500 shares issuable upon exercise of options.
(n) Includes 672,835 shares issuable upon exercise of options.
OWNERSHIP OF OTHER BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Voting Dispositive Total Amount Percent
Authority Authority of Beneficial Of
Name and Address Sole Shared Sole Shared Ownership Class
- ---------------- ---------- ---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Capital Research and
Management Company (1) 0 0 4,842,300 0 4,842,300 12.4%
333 S. Hope St.
Los Angeles, CA 90071
Amvescap PLC (2)
11 Devonshire Square 0 4,295,285 0 4,295,285 4,295,285 11.02%
London EC2 M4YR
England
Brinson Partners, Inc. (3)
209 South Lasalle 3,856,233 0 0 3,856,233 3,856,233 9.7%
Chicago, IL 60604-1295/
UBS AG
KR Capital Advisors, Inc. (4) 2,137,475 0 2,137,475 0 2,137,475 5.5%
450 Park Avenue
New York, NY 17403/
Edward D. Klein
</TABLE>
___________
(1) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 10, 2000.
(2) Based on a Schedule 13G filed by Amvescap PLC with the Securities and
Exchange Commission on February 3, on behalf of itself and on behalf of
AVZ, Inc., AIM Management Group Inc., AMVESCAP Group Services, Inc.,
Invesco, Inc., Invesco North American Holdings, Inc., Invesco Capital
Management, Inc., INVESCO Funds Group, Inc., INVESCO Management & Research,
Inc., INVESCO Realty Advisers, Inc., and INVESCO (NY) Asset Management,
Inc.
(3) Based on a Schedule 13G filed by Brinson Partners, Inc. ("BPI") and UBS AG,
the ultimate Swiss parent of BPI, with the Securities and Exchange
Commission on February 4, 2000.
(4) Based on a Schedule 13G filed by KR Capital Advisers, Inc. and Edward D.
Klein with the Securities and Exchange Commission on February 4, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of the forms filed with the Securities and Exchange
Commission, we believe that all reports required of officers and directors
concerning their ownership of the Company's stock during 1999 were filed in a
timely manner.
20
<PAGE>
Certain Relationships and Related Transactions
Capital Research and Management Company, Invesco, an affiliate of Amvescap,
and KR Capital Advisers Inc., each of which holds more than 5% of the Company's
stock, manage portions of the Company's pension plan assets. The management
agreements with these holders were entered into on an arm's-length basis.
PROPOSAL TWO
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected and recommends the
ratification of the appointment of KPMG LLP as the Company's independent
accountants for the fiscal year ending December 31, 1999.
Representatives of KPMG LLP are expected to be present at the meeting. They
will be given the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR ratification of the
appointment of the independent accountants.
OTHER BUSINESS
As of the date of this proxy statement, the Company does not intend to
bring any other matters before the 2000 Annual Meeting requiring action of the
stockholders, nor does it have any information that other matters will be
brought before the meeting. However, if any other matters requiring the vote of
the stockholders properly come before the 2000 Annual Meeting, it is the
intention of the proxy committee to vote the proxy in accordance with their best
judgment.
JANE G. DAVIS
Vice President, Secretary and
General Counsel
April 19, 2000
21
<PAGE>
INVITATION
If you wish to attend the York International Corporation 2000 Annual Meeting of
Stockholders in person, please present this invitation at the door. The meeting
will be held on Thursday, May 25, 2000, at 1:30 p.m. EDT, at the Company's
offices at 631 South Richland Avenue, York, PA 17403.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NEW ADDRESS MARK HERE
FOR ADDRESS
- -----------------------------------------
CHANGE AND [_]
- -----------------------------------------
NOTE SUCH CHANGE
- -----------------------------------------
AT LEFT
</TABLE>
PLEASE DO NOT FOLD OR PERFORATE THIS PROXY
Please sign exactly as your name or names appear. Persons acting in a fiduciary
capacity should so indicate. PLEASE NOTE any change of address and supply any
missing Zip Code number.
Signature: Date:
------------------------------- --------------------------
Signature: Date:
------------------------------- --------------------------
<PAGE>
APPENDIX
YORK INTERNATIONAL CORPORATION
ANNUAL FINANCIAL STATEMENTS
AND REVIEW OF OPERATIONS
1999
a1
<PAGE>
Contents
<TABLE>
<S> <C>
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 OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ a6
FINANCIAL STATEMENTS............................................. a13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................... a17
SUMMARY OF QUARTERLY RESULTS..................................... a32
TRADING AND DIVIDEND INFORMATION................................. a32
INVESTOR AND STOCKHOLDER INFORMATION............................. a33
CORPORATE DATA................................................... a33
DIRECTORS AND OFFICERS........................................... a34
</TABLE>
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 1999, the Company's products
were sold in over 100 countries through over 850 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. In October 1991, the Company completed an initial public offering of
its Common Stock, and in 1992, CII and the other non-management investors sold
their remaining shares in a public offering. In 1999, the Company expanded its
Refrigeration business by acquiring all of the outstanding capital stock of
Sabroe A/S, a Danish company. The acquisition establishes the York Refrigeration
Group as the world leader in supplying industrial refrigeration systems and
products.
Headquartered in York, Pennsylvania, the Company has manufacturing facilities in
12 states and 14 foreign countries. As of December 31, 1999, the Company
employed approximately 25,000 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 Unitary products, consisting of air conditioning and
furnace units and hermetic and scroll compressors designed for use in
residential and light commercial applications. The second 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 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 products 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
Committee currently comprised of four outside directors. The Audit Committee
meets with management, the internal auditors and the independent auditors and
monitors generally the accounting affairs of the Company. The Audit Committee
also recommends to the stockholders the selection of the independent auditors.
/s/ Michael R. Young /s/ C. David Myers /s/ Charles F. Cargile
Michael R. Young C. David Myers Charles F. Cargile
President and Vice President and Vice President, Finance and
Chief Executive Officer Chief Financial Officer Corporate Development
February 17, 2000
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Harrisburg, Pennsylvania
February 17, 2000
a4
<PAGE>
Five Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
(in thousands, except per share data and Other Information) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $3,866,615 $3,289,201 $3,193,657 $3,218,534 $2,929,948
Gross profit 812,964 722,936 636,226 685,857 629,379
Acquisition, integration, restructuring and
other charges (a) 54,532 -- -- -- --
Impairment loss on long-lived assets (b) -- -- -- -- 244,473
Income (loss) from operations 163,945 228,704 114,002 238,384 (21,670)
Gain on sale of business 9,627 -- -- -- --
Interest expense, net 61,150 41,527 40,876 34,544 41,412
Income (loss) before income taxes and cumulative
effect of accounting change 118,082 187,303 78,468 204,463 (70,782)
Provision for income taxes 41,303 50,810 31,075 56,554 25,290
Income (loss) before cumulative effect of
accounting change 76,779 136,493 47,393 147,909 (96,072)
Net income (loss) 75,882 136,493 47,393 147,909 (96,072)
Basic earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change 1.93 3.38 1.11 3.43 (2.38)
Accounting change (0.02) -- -- -- --
Net income (loss) 1.91 3.38 1.11 3.43 (2.38)
Diluted earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change 1.93 3.36 1.10 3.37 (2.38)
Accounting change (0.02) -- -- -- --
Net income (loss) 1.91 3.36 1.10 3.37 (2.38)
Cash dividends per share 0.60 0.48 0.48 0.36 0.24
Weighted average common shares and
common equivalents outstanding:
Basic 39,637 40,402 42,550 43,136 40,321
Diluted 39,832 40,622 43,040 43,950 40,321
Capital expenditures $ 104,065 $ 64,638 $ 66,854 $ 73,576 $ 66,242
Depreciation and amortization 64,171 57,785 52,776 48,581 42,841
Amortization of deferred charges and unallocated
excess of cost over net assets acquired 24,119 17,059 15,978 18,410 18,643
Balance Sheet Data:
Working capital $ 485,234 $ 521,054 $ 535,123 $ 524,143 $ 393,063
Total assets 2,874,539 2,106,538 1,996,298 2,074,771 1,927,002
Long-term debt 854,494 362,724 452,344 313,641 314,246
Stockholders' equity 731,930 730,799 646,285 780,377 624,814
Other Information:
Employees 25,000 20,600 20,300 20,100 19,000
Backlog (in thousands) $1,065,096 $ 879,473 $ 834,466 $ 845,076 $ 868,640
Total debt as a percent of total capital 56.7% 36.2% 44.7% 36.2% 39.1%
Current ratio 1.48 1.66 1.78 1.68 1.50
Book value per share $ 19.08 $ 18.27 $ 15.91 $ 17.89 $ 14.51
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In 1999, the Company recorded charges to operations for costs relating to
the acquisition, integration and restructuring of Sabroe and other
Company cost reduction initiatives. See notes 14 and 15 to the financial
statements.
(b) 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:
<TABLE>
<CAPTION>
Net Sales (in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unitary Products Group:
Bristol Compressors $ 579,686 $ 529,809 $ 504,024
Residential and light commercial products 1,098,514 1,055,627 964,648
Intragroup compressor sales (108,721 (103,676 (76,294
---------- ---------- ----------
1,569,479 1,481,760 1,392,378
Engineered Systems Group 1,460,736 1,408,091 1,396,436
York Refrigeration Group 883,609 447,499 447,093
Eliminations (47,209 (48,149 (42,250)
- --------------------------------------------------------------------------------------------
Net Sales $3,866,615 $3,289,201 $3,193,657
- --------------------------------------------------------------------------------------------
U.S. 52% 58% 58%
International 48% 42% 42%
- --------------------------------------------------------------------------------------------
Total 100% 100% 100%
- --------------------------------------------------------------------------------------------
</TABLE>
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 judgments about the enterprise as a whole. See note 17 to the
consolidated financial statements for this disclosure.
Results of Operations 1999 as Compared with 1998
Sales for the year ended December 31, 1999 increased 17.6% to $3,866.6 million
from $3,289.2 million for 1998. (See table above which shows sales by business
segment and geographic market, and note 17 to the consolidated financial
statements for additional information.) Sales levels increased for all business
groups. Order backlog at December 31, 1999 was $1,065.1 million compared to
$879.5 million as of December 31, 1998.
Unitary Products Group (UPG) sales increased 5.9% to $1,569.5 million due to
- ----------------------
improved volume in both the compressor and the equipment businesses. Sales
increases in North America, including a preseason sales incentive program,
Europe and the Middle East offset lower equipment volume in Latin America.
Engineered Systems Group (ESG) sales increased 3.7% to $1,460.7 million,
- ------------------------
primarily due to increased volume in domestic aftermarket service and chiller
equipment sales. The increases were offset somewhat by lower airside equipment
volume and the impact of the sale of Viron, the Company's performance
contracting business.
York Refrigeration Group (YRG) sales increased 97.5% to $883.6 million. The
- ------------------------
increase was due to the acquisition of Sabroe, which added approximately $445
million of sales to the York Refrigeration total. Excluding the impact of
Sabroe, Refrigeration sales were down in Europe and Asia primarily due to lower
capital investments by petrochemical companies.
From a geographic perspective, domestic sales increased 5.5% to $2,002.4 million
and international sales increased 34.1% to $1,864.2 million.
In 1999, the Company recorded charges in cost of goods sold of $22.4 million,
primarily to write-down inventory to the lower of cost or market. Integration of
the Refrigeration business, principally discontinuation of certain Gram product
lines, resulted in $6.9 million of the inventory write-down. Deteriorating
economic conditions in Latin America and Eastern Europe resulted in inventory
write-downs of $3.2 million and $4.2 million, respectively. ESG operations,
primarily in the U.S. and Australia, resulted in inventory writedowns of $1.5
million. The discontinuance of a UPG product line resulted in additional
inventory write-downs of $4.6 million and warranty charges of $2.0 million.
In 1999, gross profit increased 12.5% to $813.0 million (21.0% of sales) from
$722.9 million (22.0% of sales) in 1998. The gross profit dollar improvement was
due to the inclusion of Sabroe for seven months, the higher margin ESG service
business and improved factory performance and cost reductions in UPG. Excluding
the charges identified in the preceding paragraph, gross profit as a percentage
of sales decreased from 22.0% in 1998 to 21.6% in 1999. The decrease resulted
primarily from ESG airside factory inefficiencies and overall weakness in the
airside business and in Latin America. During 1999, the Company recorded $6.0
million of
a6
<PAGE>
credits to cost of goods sold for expected recovery from business interruption
insurance relating to the Grantley accident. Similar credits totaled $25.5
million in 1998.
Selling, General and Administrative expense (SG&A) increased 20.3% to $594.5
million (15.4% of sales) in 1999 from $494.2 million (15.0% of sales) in 1998.
The increase in amount is due to the acquisition of Sabroe and selective
investments, primarily in the first half of the year, in engineering, product
development and information technology.
In 1999, the Company recorded charges to operations of $54.5 million, of which
$35.0 million related to the integration of Sabroe into the York Refrigeration
business and $19.5 million related to restructuring and downsizing other Company
operations not impacted by the Sabroe acquisition.
The York Refrigeration Group charges consist of non-cash write-downs of $8.2
million and other accruals of $8.7 million principally for the closure of the
Gram manufacturing facility in Denmark, the closure of duplicate sales and
service offices in Europe and Asia and workforce reductions. Additionally, the
Company recorded cash expenses of $12.7 million relating to the cost and loss on
a currency option to fix the price of the acquisition and $5.4 million for
integration expenses consisting of employee relocation, office integration
activities, product training and sign and logo changes.
The other Company charges of $19.5 million consist of non-cash write-downs of
$3.6 million and other accruals of $15.9 million. The charges relate to
workforce reductions, asset write-downs, principally in Latin America and
Eastern Europe due to the current economic conditions in those regions, closing
costs for the ESG Airside factory in Salisbury, North Carolina, contractual
obligations and other receivables.
Income from operations in 1999 decreased to $163.9 million (4.2% of sales) from
$228.7 million (7.0% of sales) in 1998. The discussion below of each business
units' income from operations excludes all charges as discussed above.
Unitary Products Group income from operations increased 11.2% to $156.2 million
- ----------------------
(10.0% of sales) due to better performance in the equipment and compressor
businesses. Improved plant performance on higher volume, cost reduction efforts
and strong mini-split product exports from Thailand offset weakness in Latin
America performance.
Engineered Systems Group income from operations decreased 8.4% to $114.7 million
- ------------------------
(7.9% of sales) due to poor performance in the airside business and weakness in
Latin America. These weaknesses were partially offset by strong year-over-year
performance in aftermarket service operations, success in certain new product
introductions and continued strength in Asia.
York Refrigeration Group income from operations increased 62.4% to $44.5 million
- ------------------------
(5.0% of sales) due to including seven months of Sabroe earnings. Excluding
Sabroe, refrigeration earnings were significantly lower on a year-over-year
basis due to factory inefficiencies and overall reduced capital spending by
petrochemical companies.
In 1999, the Company recorded a gain on the sale of Viron, the Company's
performance contracting business, of $9.6 million.
In 1999, net interest expense increased 47.3% to $61.2 million due to the impact
of higher average borrowings. Excluding the Sabroe acquisition financing, lower
average debt levels and favorable average interest rates for foreign and
variable debt would have contributed to lower interest expense.
Equity in earnings of affiliates was $5.7 million in 1999 as compared to $0.1
million in 1998. The improvement was primarily the result of improved
performance in the UPG Scroll Technologies Compressor operation.
Provision for income taxes of $41.3 million for 1999 relates to both U.S. and
non-U.S. operations. The effective rate was 35% for 1999 compared to 27.1% (33%
excluding export incentives, foreign tax credit planning and other non-U.S.
activities including closures and consolidations) for 1998. The increase in the
effective tax rate is primarily attributable to integration and restructuring
charges in certain jurisdictions for which no tax benefit was recorded.
Net income, as a result of the above factors, was $75.9 million in 1999 as
compared to $136.5 million in 1998.
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 17 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.
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.
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 16 to the consolidated
financial statements.)
a7
<PAGE>
York Refrigeration 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.
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.
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.
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.
York Refrigeration 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.
In 1998, net interest expense increased 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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally met through a combination of
internally generated funds, bank lines of credit, commercial paper issuances,
financing of trade receivables and credit terms from suppliers which approximate
receivable terms to the Company's customers. The Company believes that these
sources, including its $400 million 364-day Revolver and its $500 million
Amended Credit Agreement described below, will be sufficient to meet working
capital needs during 2000. Additional sources of working capital include
customer deposits and progress payments.
Working capital was $485.2 million and $521.1 million as of December 31, 1999
and 1998, respectively. Accounts receivable increased in 1999 due to the
addition of Sabroe and the UPG sales incentive program including extended terms.
These increases were slightly offset by decreases in ESG and the additional $75
million of receivable sales. Inventory levels were higher at December 31, 1999,
than at December 31, 1998, due to the acquisition of Sabroe somewhat offset by
lower inventory levels in Unitary Products. The current ratio was 1.48 at
December 31, 1999, as compared to 1.66 for December 31, 1998.
Long-term indebtedness was $854.5 million at December 31, 1999, primarily
consisting of borrowings of $396.8 million in commercial paper, $300.0 million
of senior notes, $41.8 in bank lines and $57.2 million in Danish term loans.
At December 31, 1999, the Company had available a $400 million 364-day Revolving
Credit Agreement (the Revolver) and a $500 million Amended Credit Agreement (the
Credit Agreement) expiring on July 31, 2002. The Revolver and the Credit
Agreement amendment were effective on June 3, 1999 and provide for borrowings
under the facility at LIBOR plus 0.45%. If borrowings greater than 33% of either
facility are utilized, the rate increases to LIBOR plus 0.55%. The Company pays
a fee of 0.10% for each facility and the Credit Agreement allows for borrowings
at specified bid rates. At December 31, 1999, the LIBOR rate was 6.03%. The
Revolver and the Credit Agreement, as amended, contain financial and operating
covenants requiring the Company to maintain
a8
<PAGE>
certain financial ratios and standard provisions limiting leverage, investments
and liens. The Company was in compliance with these financial and operating
covenants at December 31, 1999. No amounts were outstanding under either of
these agreements.
The Company's bank lines provide for total borrowings of $175 million which are
expected to be reborrowed in the ordinary course of business. At December 31,
1999 and 1998, the Company had $41.8 million and $41.0 million, respectively,
outstanding under these bank lines.
Commercial paper borrowings are expected to be reborrowed in the ordinary course
of business. Commercial paper borrowings were also the primary source of funds
used to finance the acquisition of Sabroe A/S. The interest rate on the
commercial paper was 6.08% as of December 31, 1999.
At December 31, 1999 and 1998, the Company had $300 million of Senior Notes
outstanding. 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
remaining $100 million ten-year Senior Notes bear interest at a 6.75% fixed rate
and are due March 2003.
The Company maintains foreign currency term loans at December 31, 1999 of $71.5
million payable in semi-annual payments of $7.15 million. These term loans are
due July 2004 and bear interest at an average rate of 4.12%.
Concerning bank loans and other, the Company's non-U.S. subsidiaries maintain
bank credit facilities in various currencies that provided for available
borrowings of $385.1 million and $269.6 million at December 31, 1999 and 1998,
respectively, of which $295.1 million and $202.9 million, respectively, were
unused. In some instances, borrowings against these credit facilities have been
guaranteed by the Company to assure availability of funds at favorable rates.
The Company also maintains other debt of $57.2 million and $7.6 million at
December 31, 1999 and 1998, respectively.
The Company established a receivables sales agreement in 1992. Under an Amended
and Restated Receivables Sales Agreement entered into on December 22, 1999, the
maximum amount of the purchasers' investment increased from $150 million to $175
million and is subject to decrease based on the level of eligible accounts
receivable and restrictions on concentrations of receivables. The balance of the
sold accounts receivable was $175 million and $100 million at December 31, 1999
and 1998, respectively. The sold accounts receivable are reflected as a
reduction of receivables in the accompanying consolidated balance sheets. The
discount rate on the receivables sold was approximately 6.22% and 5.30% at
December 31, 1999 and 1998, respectively.
In December 1999, the Company sold certain machinery and equipment resulting in
net proceeds of $82.4 million and entered into a five year lease for the use of
the equipment. At the end of the lease term, the Company may purchase the
equipment, return the equipment to the lessor, or extend the lease for up to
five additional years. If the Company chooses to return the equipment at the end
of the initial lease term, the Company is obligated to pay the lessor a maximum
of $33.8 million.
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 a10.
Capital expenditures were $104.1 million in 1999 as compared to $64.6 million in
1998. The increase was the result of seven months of Sabroe capital spending,
the Grantley rebuild, planned projects to improve factory performance and
information technology capital projects. Capital expenditures currently
anticipated for expanded capacity, cost reductions and the introduction of new
products during 2000 are expected to be in excess of depreciation and
amortization. These expenditures will be funded from a combination of operating
cash flows, availability under the revolving credit facility, commercial paper
borrowings and advance payments received from the insurance company for accident
claims submitted.
Cash dividends of $0.60 and $0.48 per share were paid on common stock in 1999
and 1998, respectively. 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 amended 1992 Employee Stock Purchase Plan which
authorizes the allocation of 2,000,000 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, 1999, approximately 756,000 options remained
available for grant under the Plan.
a9
<PAGE>
In February 1999, the Board of Directors authorized the Company to purchase an
additional 2.5 million shares of its Common Stock, increasing the authorization
to 8.5 million shares, over the four subsequent years which can be used to fund
the Company's Employee Stock Purchase Plan and the Amended and Restated 1992
Omnibus Stock Plan. The stock purchases are made from time to time on the open
market. Under the program, 2.0 million shares were repurchased on the open
market during 1999 and 1.1 million shares were repurchased in 1998. In addition,
during the first quarter of 2000, the Company repurchased approximately 300,000
shares.
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.
ACQUISITION OF SABROE AND THE INTEGRATION PLAN
On June 10, 1999, the Company acquired all of the outstanding capital stock of
Sabroe A/S (Sabroe), a Danish company, for $407.1 million in cash and assumed
debt of $216.0 million. Sabroe is a world leader in supplying refrigeration
systems and products. The Company financed the acquisition through issuance of
commercial paper, supported by its credit facilities.
The Company is in the process of executing the plan for integrating Sabroe into
the York Refrigeration Group. The plan includes the closing of Sabroe's Retech
and York's Gram manufacturing plants in Denmark and Sabroe's Norrkoping
manufacturing plant in Sweden. The plan also includes the closure of select
duplicate sales and service offices in Europe and Asia, salary and wage employee
rationalizations, product rationalizations, and other actions related to
reorganizing the York Refrigeration Group. The plan is expected to be
substantially completed within one year from the acquisition date.
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
1999. 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 partially mitigated by
the Company's emphasis on the service, repair and replacement market. 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 1999, 1998 and 1997,
respectively, on a worldwide basis, service, repair and replacement revenue
accounted for an estimated 42%, 44% and 41% of the Company's total sales, while
new construction sales accounted for the remaining 58%, 56% and 59%.
SEASONALITY
Sales of the Company's Unitary products equipment historically have been
seasonal. Demand for residential air conditioning equipment in the new
construction and replacement 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, somewhat reduce the
impact of seasonal fluctuations on the Company's sales of residential equipment.
Requirements for service and repair parts for Engineered Systems products and
the Refrigeration Contracting business also increase during summer months. The
overall effect of seasonality is slightly dampened by the Company's Engineered
Systems and Refrigeration equipment, for which demand is less 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 14 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
a10
<PAGE>
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 2000 and does not hold or issue derivative instruments for trading
purposes.
The following tables provide information about the fair value of the Company's
market-sensitive financial instruments and are forward-looking statements. All
instruments described in the tables are non-trading. The Company's borrowings
are not included in the tables 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 tables present the Company's market risk
exposure to potential changes in the fair value of its foreign currency hedge
instruments at December 31, 1999 and 1998. As discussed previously, the hedged
instrument maturity matches the transactional cash flow exposures. The 1999
hedged instruments mature in 2000, 2001 and 2002, respectively. The 1999 table
also illustrates the effect of a 10% appreciation and depreciation of the United
States Dollar for the Australian Dollar, Danish Krona, New Zealand Dollar, Saudi
Arabia Riyal and Thailand Baht net exposure positions and the effect of a 10%
appreciation and depreciation of the Danish Krona for the Canadian Dollar, Euro,
British Pound Sterling, Japanese Yen, Norwegian Krone and Singapore Dollar net
exposure positions. The 1998 table illustrates the effect of a 10% appreciation
and depreciation of the United States Dollar on the unhedged position, with the
exception of the German Deutsche Mark exposure which is based on a 10%
appreciation and depreciation of the British Pound Sterling. Futhermore, the
tables present the December 31, 1999 and 1998 fair value of the Company's total
pounds of copper hedged.
<TABLE>
<CAPTION>
Foreign Currency Exposure 1999 (USD equivalents, in thousands)
- -------------------------------------------------------------------------------------------------------------------------
(Short Exposure) (Short Exposure) Foreign Currency USD or DKK USD or DKK
Foreign Currency Hedged as of Exchange Exposure 10% 10%
Currency Exchange Exposure Dec. 31, 1999 Net of Hedging Appreciation Depreciation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUD - Australian Dollar 1,613 0 1,613 (161) 161
CAD - Canadian Dollar 728 2,383 (1,655) 166 (166)
DKK - Danish Krona (15,636) (13,750) (1,886) 189 (189)
EUR - EURO 21,679 17,321 4,358 (436) 436
GBP - British Pound Sterling 1,454 10,732 (9,278) 928 (928)
JPY - Japanese Yen 426 8,013 (7,587) 759 (759)
NZD - New Zealand Dollar (138) 0 (138) 14 (14)
NOK - Norwegian Krone 131 4,605 (4,474) 447 (447)
SAR - Saudi Arabia Riyal 2,148 0 2,148 (215) 215
SGD - Singapore Dollar 0 1,502 (1,502) 150 (150)
THB - Thailand Baht (400) (400) 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Foreign Currency Exposure 1998 (USD equivalents, in thousands)
- -------------------------------------------------------------------------------------------------------------------------
(Short Exposure) (Short Exposure) Foreign Currency USD or GBP USD or GBP
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 9,200 0 0 0
CLP - Chilean Peso 5,100 2,500 2,600 (260) 260
DEM - German Deutsche Mark 11,863 11,542 321 (32) 32
DKK - Danish Krona (789) 0 (789) 79 (79)
GBP - British Pound Sterling 1,606 1,383 223 (22) 22
JPY - Japanese Yen 5,227 5,253 (26) 3 (3)
NZD - New Zealand Dollar 608 608 0 0 0
SGD - Singapore Dollar 5,900 5,900 0 0 0
THB - Thailand Baht 1,557 1,557 0 0 0
ZAR - South African Rands 2,167 2,167 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
a11
<PAGE>
<TABLE>
<CAPTION>
Copper Exposure 1999
- -------------------------------------------------------------------------------------------------------------------------
Pounds Notional Dec. 31, 1999
Year Hedged Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 41,300,000 $33,667,000 $35,953,000
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Copper Exposure 1998
- -------------------------------------------------------------------------------------------------------------------------
Pounds Notional Dec. 31, 1999
Year Hedged Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 50,000,000 $42,692,000 $34,346,000
2000 20,000,000 17,150,000 14,660,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
EURO CONVERSION
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.
GRANTLEY ACCIDENT
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 took 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's rebuilding operations were substantially
completed during the second quarter of 1999, fully restoring its production
capacity. For additional information relating to the Grantley facility incident,
see note 16 to the consolidated financial statements.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 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. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS No.
137 delays the Standard effective date to the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. Although the Company has not
completed its analysis, adoption of this statement is not expected to have a
material effect on the Company's financial statements.
FORWARD-LOOKING INFORMATION - RISK FACTORS
To the extent the Company 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 successful
integration of Sabroe into the YRG. Unseasonably cool spring or summer weather
could adversely affect the Company'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 acceptance of new product introductions. The
resolution of the Grantley insurance claim for an amount greater than or less
than amounts recorded could affect the Company's results. Overall performance of
the Company in 1999 was affected by less robust economic conditions in Latin
America and Eastern Europe. Future anticipated performance could be affected by
any serious economic downturns in other worldwide markets or a slower than
expected recovery in Latin America and Eastern Europe.
a12
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,514 $ 22,746
Receivables 720,022 632,768
Inventories 599,046 536,854
Prepayments and other current assets 131,787 118,165
- --------------------------------------------------------------------------------------------
Total current assets 1,490,369 1,310,533
- --------------------------------------------------------------------------------------------
Deferred income taxes 13,207 30,805
Investments in affiliates 25,425 20,092
Property, plant and equipment, net 499,710 374,731
Unallocated excess of cost over net assets acquired 768,809 337,353
Deferred charges and other assets 77,019 33,024
- --------------------------------------------------------------------------------------------
Total assets $2,874,539 $2,106,538
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 102,864 $ 52,583
Accounts payable and accrued expenses 860,264 670,797
Income taxes 42,007 66,099
- --------------------------------------------------------------------------------------------
Total current liabilities 1,005,135 789,479
- --------------------------------------------------------------------------------------------
Long-term warranties 39,607 36,488
Long-term debt 854,494 362,724
Postretirement benefit liabilities 154,066 140,152
Other long-term liabilities 89,307 46,896
- --------------------------------------------------------------------------------------------
Total liabilities 2,142,609 1,375,739
- --------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock $.005 par value; 200,000 shares authorized;
Issued 45,062 shares in 1999 and 44,616 shares in 1998 225 223
Additional paid in capital 715,322 700,959
Retained earnings 342,529 290,465
Accumulated other comprehensive losses (71,146) (58,209)
Treasury stock, at cost; 6,700 shares in 1999 and
4,621 shares in 1998 (253,274) (199,037)
Unearned compensation (1,726) (3,602)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 731,930 730,799
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,874,539 $2,106,538
- --------------------------------------------------------------------------------------------
</TABLE>
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) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,866,615 $3,289,201 $3,193,657
Cost of goods sold 3,053,651 2,566,265 2,557,431
- ---------------------------------------------------------------------------------------------------------------
Gross profit 812,964 722,936 636,226
Selling, general and administrative expenses 594,487 494,232 522,224
Acquisition, integration, restructuring and other charges 54,532 -- --
- ---------------------------------------------------------------------------------------------------------------
Income from operations 163,945 228,704 114,002
Gain on sale of business (9,627) -- --
Interest expense, net 61,150 41,527 40,876
Equity in earnings of affiliates (5,660) (126) (5,342)
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting change 118,082 187,303 78,468
Provision for income taxes 41,303 50,810 31,075
- ---------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 76,779 136,493 47,393
Cumulative effect of accounting change
write-off of start-up costs (net of tax of $442) 897 -- --
- ---------------------------------------------------------------------------------------------------------------
Net income $ 75,882 $ 136,493 $ 47,393
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income before cumulative effect of accounting change $ 1.93 $ 3.38 $ 1.11
Accounting change (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------
Net income 1.91 3.38 1.11
Diluted earnings per share:
Income before cumulative effect of accounting change 1.93 3.36 1.10
Accounting change (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------
Net income 1.91 3.36 1.10
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and common equivalents outstanding:
Basic 39,637 40,402 42,550
Diluted 39,832 40,622 43,040
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 75,882 $136,493 $ 47,393)
Other comprehensive losses:
Foreign currency translation adjustments (13,722) (10,324) (23,622)
Minimum pension liabilities (net of tax of ($386) and $386) 785 (785) --
- ---------------------------------------------------------------------------------------------------------------
Total other comprehensive losses (12,937) (11,109) (23,622)
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income $ 62,945 $125,384 $ 23,771
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a14
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 75,882 $ 136,493 $ 47,393
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property, plant and equipment 64,171 57,785 52,776
Amortization of deferred charges and unallocated
excess of cost over net assets acquired 24,119 17,059 15,978
Provision for doubtful accounts receivable 10,899 8,206 6,139
Effect of non-cash charges 58,807 -- --
Gain on sale of business (9,627) -- --
Cumulative effect of accounting change 897 -- --
Other 2,340 5,634 (1,638)
Change in assets and liabilities net of effects from
purchase of other companies and sale of business:
Receivables (43,215) (88,430) 2,074
Inventories 10,896 4,536 48,562
Prepayments and other current assets (4,042) (6,025) (3,145)
Deferred income taxes (12,755) (9,417) (1,686)
Other assets (10,513) (16,995) 2,245)
Accounts payable and accrued expenses (80,787) 64,050 (2,422)
Income taxes (26,831) 47,889 (13,429)
Long-term warranties 3,362 197 2,030
Postretirement benefit liabilities 7,797 6,073 4,883
Other long-term liabilities 1,344 6,113 (6,046)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 72,744 233,168 153,714
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of and investments
in other companies (net of cash acquired) (407,766) (7,794) (8,978)
Proceeds from sale of business, net 35,512 -- --
Capital expenditures (104,065) (64,638) (66,854)
Other 1,155 1,781 5,718
- -----------------------------------------------------------------------------------------------------
Net cash used by investing activities (475,164) (70,651) (70,114)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net payments on short-term debt (37,488) (16,855) (59,023)
Long-term debt payments (33,327) (119,748) (114,223)
Net (payments) proceeds of commercial paper borrowings 396,847 (168,182) 83,146
Proceeds from sale lease-back 82,397 -- --
Proceeds from sale of accounts receivable 75,000 -- --
Proceeds from issuance of senior bank notes -- 198,310 --
Net proceeds from issuance of bank loans -- -- 169,780
Common stock issued 13,636 19,546 14,909
Treasury stock purchases (54,237) (45,824) (157,224)
Dividends paid (23,818) (19,403) (20,349)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 419,010 (152,156) (82,984)
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 178 157 142
- -----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16,768 10,518 758
Cash and cash equivalents at beginning of year 22,746 12,228 11,470
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 39,514 $ 22,746 $ 12,228
- -----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash paid for:
Interest $ 59,484 $ 40,207 $ 41,519
Income taxes 62,306 28,153 55,587
Non-cash investing activities, acquisition of business:
Fair value of tangible and intangible assets acquired 877,276 7,377 20,447
Cash paid (407,766) (7,794) (17,481)
- -----------------------------------------------------------------------------------------------------
Liabilities assumed $ 469,510 $ (417) $ 2,966
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
a15
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Accumulated Other
Common Stock Issued Paid In Retained Comprehensive Treasury Stock 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, 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) $(3,602)
Net income -- -- -- 75,882 -- -- -- --
Issuance of common stock
under executive stock
agreements, net 23,500 -- 953 -- -- 1,000 -- (919)
Issuance of common stock
under employee stock purchase
plan 205,980 1 4,803 -- -- -- -- --
Other, primarily exercise of
stock options 216,662 1 7,878 -- -- -- -- --
Tax effect of options
exercised -- -- 729 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- -- -- 2,795
Purchase of treasury stock,
at cost -- -- -- -- -- 2,077,838 (54,237) --
Cash dividends on common
stock ($.60 per share) -- -- -- (23,818) -- -- -- --
Minimum pension liability -- -- -- -- 785 -- -- --
Currency translation
adjustment -- -- -- -- (13,722) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 45,061,917 $225 $715,322 $ 342,529 $(71,146) 6,699,888 $(253,274) $(1,726)
- ----------------------------------------------------------------------------------------------------------------------------------
</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: Unitary, Engineered Systems,
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.
Use of Estimates in the Financial Statements
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
The Company considers all highly liquid investments 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.
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. Improvements and 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.
Unallocated Excess of Cost Over Net Assets Acquired
Unallocated excess of cost 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, 1999 and 1998, is $110.4 million and $90.3 million,
respectively. The Company assesses the recoverability or impairment, if any, of
the elements of this intangible asset by determining whether the amortization of
the balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operations or the long-lived assets to
which the unallocated excess is attributed.
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.
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 revised employers' disclosures
about pension and other postretirement benefit plans. All prior disclosures were
restated to conform to the provisions of SFAS 132.
Revenue Recognition
Sales and related cost of goods sold are recognized as title transfers,
generally based upon shipment of products or performance of services.
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.
a17
<PAGE>
Earnings per Share
Earnings per share (EPS) are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No.128, "Earnings per Share". Basic EPS are based
upon the weighted average common shares outstanding during the period. Diluted
EPS are based upon the weighted average outstanding common shares and common
share equivalents.
Foreign Currency Translation
The functional currency for the majority of the Company's foreign operations is
the applicable local currency. Adjustments resulting from translating foreign
functional currency financial statements into U.S. dollars are included in
currency translation adjustments 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 (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
expense has been recognized with respect to such plans other than for restricted
stock and performance-based awards. Information related to stock-based
compensation awards is presented in note 18 to the consolidated financial
statements along with the disclosures required under SFAS 123, "Accounting for
Stock-Based Compensation."
Start-Up Activities
In 1999, the Company adopted AICPA Statement of Position (SOP) 98-5, "Reporting
on the Cost of Start-Up Activities," which requires that costs of start-up
activities, including organization costs, be expensed as incurred. In January
1999, the Company recorded a charge of $0.9 million, net of $0.4 million in
related income taxes, to write-off start-up activities in accordance with the
SOP.
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 anticipated or 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 anticipated or firm commitments beyond three years.
The notional amount and estimated fair value of the Company's hedging contracts
are as follows:
<TABLE>
<CAPTION>
1999 1998
(in thousands) Notional Fair Notional Fair
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign currency forward contracts $73,890 $72,301 $55,245 $54,629
Commodity forward contracts 33,667 35,953 59,842 49,006
- ------------------------------------------------------------------------------
</TABLE>
a18
<PAGE>
Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
(in thousands) Carrying Fair Carrying Fair
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 39,514 $ 39,514 $ 22,746 $ 22,746
Short-term borrowings 102,864 102,864 52,583 52,583
Long-term debt:
Commercial paper 396,847 396,847 -- --
Bank lines 41,812 41,812 41,003 41,003
Senior notes at 6.75% 100,000 95,950 100,000 102,622
Senior notes at 6.70% 200,000 176,825 200,000 205,632
Term loans 57,196 57,196 -- --
Other 58,639 58,639 21,721 21,721
- --------------------------------------------------------------------------------
</TABLE>
The fair values of each of the Company's long-term debt instruments are based on
the amount of future cash flows associated with each instrument discounted using
the Company's current borrowing rate for similar debt instruments of comparable
maturity.
<TABLE>
<CAPTION>
NOTE 3--RECEIVABLES
Receivables consist of:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Customers, trade $657,076 $554,601
Affiliate receivables, trade 19,113 12,538
Other receivables 75,175 85,540
- --------------------------------------------------------------------------------
751,364 652,679
Less allowance for doubtful accounts receivable 31,342 19,911
- --------------------------------------------------------------------------------
Net receivables $720,022 $632,768
- --------------------------------------------------------------------------------
</TABLE>
The Company established a receivables sales agreement in 1992. Under an Amended
and Restated Receivables Sales Agreement entered into on December 22, 1999, the
maximum amount of the purchasers' investment increased from $150 million to $175
million and is subject to decrease based on the level of eligible accounts
receivable and restrictions on concentrations of receivables. The balance of the
sold accounts receivable was $175 million and $100 million at December 31, 1999
and 1998, respectively. The sold accounts receivable are reflected as a
reduction of receivables in the accompanying consolidated balance sheets. The
discount rate on the receivables sold was approximately 6.22% and 5.30% at
December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
NOTE 4--INVENTORIES
Inventories consist of:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw material $199,171 $177,960
Work in progress 112,669 92,712
Finished goods 287,206 266,182
- --------------------------------------------------------------------------------
Total inventories $599,046 $536,854
- --------------------------------------------------------------------------------
</TABLE>
Inventories valued under the LIFO method comprised approximately 30%, 36% and
41% of the December 31, 1999, 1998 and 1997 totals, respectively. If valued
under the FIFO method, inventories would have been greater by $11.7 million at
December 31, 1999, $13.1 million at December 31, 1998 and $13.8 million at
December 31, 1997.
NOTE 5--PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets $ 69,395 $ 74,394
Prepaid insurance 20,870 19,499
Prepaid materials and supplies 11,777 6,939
Deferred employee benefits 11,542 --
Other 18,203 17,333
- --------------------------------------------------------------------------------
Total prepayments and other current assets $131,787 $118,165
- --------------------------------------------------------------------------------
</TABLE>
a19
<PAGE>
NOTE 6--INVESTMENTS IN AFFILIATES
The Company owns 50% or less of affiliate operations located in Malaysia,
Cyprus, Saudi Arabia, Spain, Russia, Denmark, Japan, Korea, Morocco and the
United States. These investments are accounted for using the equity method of
accounting and total $25.4 million in 1999 and $20.1 million in 1998. Dividends
received from affiliates were $1.0 million in 1999, $0.5 million in 1998 and
$1.2 million in 1997. Equity in earnings of affiliates for 1997 includes a one-
time gain of approximately $6.0 million resulting from the sale of the Company's
minority interest in an Egyptian air conditioning company.
<TABLE>
<CAPTION>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 79,380 $ 10,751
Buildings 139,770 123,865
Machinery and equipment 549,672 550,396
Construction in progress 48,997 31,682
Capital leases 12,734 14,337
- --------------------------------------------------------------------------------
830,553 731,031
Less accumulated depreciation 330,843 356,300
- --------------------------------------------------------------------------------
Net property, plant and equipment $499,710 $374,731
- --------------------------------------------------------------------------------
</TABLE>
Amortization of capital lease assets has been included in depreciation expense.
Accumulated capital lease amortization was $4.4 million and $4.3 million at
December 31, 1999 and 1998, respectively.
NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
Accounts payable, trade and other $534,860 $429,646
Employee compensation, benefits and related accruals 168,644 105,300
Warranties and claims 58,413 46,948
Accrued insurance 31,854 28,140
Other accrued expenses 66,493 60,763
- --------------------------------------------------------------------------------
Total accounts payable and accrued expenses $860,264 $670,797
- --------------------------------------------------------------------------------
</TABLE>
NOTE 9--NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and current portion of long-term debt:
Term loans (foreign currency) current portion $ 14,299 $ --
Bank loans 81,145 51,011
Other 7,420 1,572
- --------------------------------------------------------------------------------
Total notes payable and current portion of long-term debt $102,864 $ 52,583
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Long-term debt:
Bank lines at an average rate of 5.28% in 1999 and 5.61% in 1998 $ 41,812 $041,003
Commercial paper, 6.08% interest 396,847 --
Senior notes, 6.75% interest, due March 2003 100,000 100,000
Senior notes, 6.70% interest, due June 2008 200,000 200,000
Term loans (foreign currency) at an average rate of 4.12%, due July 2004 57,196 --
Other, primarily foreign bank loans, at an average rate of 5.91% in 1999
and 5.86% in 1998 58,639 21,721
- -------------------------------------------------------------------------------------------------
Total long-term debt $854,494 $362,724
- -------------------------------------------------------------------------------------------------
</TABLE>
a20
<PAGE>
In June 1999, the Company established a $400 million 364-day Revolving Credit
Agreement (the Revolver) and amended the $500 million Amended Credit Agreement
(the Credit Agreement) expiring on July 31, 2002. The Revolver and the Credit
Agreement amendment provide for borrowings under the facilities at LIBOR plus
0.45%. If borrowings greater than 33% of either facility are utilized, the rate
increases to LIBOR plus 0.55%. The Company pays a fee of 0.10% for each
facility, and the Credit Agreement allows for borrowings at specified bid rates.
At December 31, 1999 and 1998, the LIBOR rate was 6.03% and 5.06%, respectively.
The Revolver and the Credit Agreement, as amended, contain financial and
operating covenants requiring the Company to maintain certain financial ratios
and standard provisions limiting leverage, investments and liens. The Company
was in compliance with these financial and operating covenants at December 31,
1999 and 1998. No amounts were outstanding under either of these agreements.
The Company's bank lines provide for total borrowings of $175 million which are
expected to be reborrowed in the ordinary course of business. At December 31,
1999 and 1998, the Company had $41.8 million and $41.0 million, respectively,
outstanding under these bank lines.
Commercial paper borrowings are expected to be reborrowed in the ordinary course
of business on a long-term basis. Commercial paper borrowings were also the
primary source of funds used to finance the acquisition of Sabroe A/S. The
interest rate on the commercial paper was 6.08% as of December 31, 1999.
Concerning bank loans and other, the Company's non-U.S. subsidiaries maintain
bank credit facilities in various currencies that provided for available
borrowings of $385.1 million and $269.6 million at December 31, 1999 and 1998,
respectively, of which $295.1 million and $202.9 million, respectively, were
unused. In some instances, borrowings against these credit facilities have been
guaranteed by the Company to assure availability of funds at favorable rates.
The Company also maintains other debt of $57.2 million and $7.6 million at
December 31, 1999 and 1998, respectively.
Annual principal payments on long-term debt are as follows for the fiscal years
indicated:
(in thousands)
- --------------------------------------------------------------------------------
2000 $ 21,719
2001 19,658
2002 458,635
2003 119,184
2004 17,732
Thereafter 239,285
- --------------------------------------------------------------------------------
Interest expense is net of interest income of $5.1 million in 1999, $3.4 million
in 1998 and $1.8 million in 1997.
NOTE 10--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.
A majority of domestic employees participate in noncontributory pension plans,
and substantially all non-U.S. employees participate in contributory or
noncontributory pension plans. 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. Former 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.
a21
<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) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $(403,974) $(350,416) $ (115,859) $ (96,569)
Purchase of company (7,148) -- -- --
Service cost (17,995) (16,286) (2,642) (1,971)
Interest cost (25,415) (24,278) (8,131) (6,704)
Actuarial gain (10,032) (23,522) (16,251) (12,366)
Plan assumptions 55,033 (12,377) 14,012 (4,319)
Benefits paid 24,225 24,892 6,078 6,070
Plan amendments (21,057) (560) 5,100 --
Curtailments (250) 634 -- --
Foreign exchange 5,848 (2,061) -- --
- --------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $(400,765) $(403,974) $ (117,693) $ (115,859)
- -------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $,432,884 $ 386,248 $ --$ --
Actual return on plan assets 64,253 62,902 -- --
Contributions by employer 3,997 6,967 5,373 5,781
Contributions by plan participants 923 -- 705 289
Benefits paid (24,225) (24,892) (6,078) (6,070)
Foreign exchange (4,403) 1,659 -- --
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 473,429 $ 432,884 $ -- $ --
- -------------------------------------------------------------------------------------------------------------
Funded status $ 72,664 $ 28,910 $ (117,693) $ (115,859)
Unrecognized prior service cost 30,835 12,203 (1,208) 4,421
Unrecognized (gain) loss (147,195) (71,473) 3,042 677
- -------------------------------------------------------------------------------------------------------------
Net amount recognized $ (43,696) $ (30,360) $ (115,859) $ (110,761)
- -------------------------------------------------------------------------------------------------------------
Amounts recognized in consolidated balance sheets
Net accrued benefit liability $ (45,401) $ (33,390) $ (115,859) $ (110,761)
Intangible asset 1,705 1,859 -- --
Accumulated other comprehensive income -- 1,171 -- --
- -------------------------------------------------------------------------------------------------------------
Net amount recognized $ (43,696) $ (30,360) $ (115,859) $ (110,761)
- -------------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
--------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
Weighted average assumptions as of December 31
Discount rate 8.00% 7.00% 8.00% 7.00%
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 2000. The rate was assumed to decrease
gradually to 5.0% for 2006 and thereafter.
a22
<PAGE>
Net periodic benefit costs include the following components:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(in thousands) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost--benefits earned
during the period $ 17,995 $ 16,286 $ 14,772 $ 2,642 $ 1,971 $ 1,984
Interest cost on projected benefit obligations 25,415 24,278 22,964 8,131 6,704 6,714
Expected return on plan assets (32,238) (37,601) (32,256) -- -- --
Amortization of prior service cost 352 6,851 4,434 529 528 528
Amortization of net gain (347) (304) (367) (127) (646) (614)
Decrease (increase) due to curtailment/window 250) (53) 212 -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 11,427 $ 9,457 $ 9,759 $ 11,175 $ 8,557 $ 8,612
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 $50.8 million, $48.5 million and $20.8 million,
respectively, as of December 31, 1999, and $113.6 million, $110.5 million, and
$88.4 million, respectively, as of December 31, 1998.
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 $02,309 $0(1,813)
Effect on postretirement benefit obligation 22,827 (18,221)
- -------------------------------------------------------------------------------------------------------------
</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 $1.8 million in 1999, $1.5 million in 1998 and
$1.1 million in 1997.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Sale Leaseback
In December 1999, the Company sold certain machinery and equipment resulting in
proceeds of $82.4 million and entered into a five year operating lease for the
use of the equipment. At the end of the lease term, the Company may purchase the
equipment at fair market value, return the equipment to the lessor, or extend
the lease for up to five additional years. If the Company chooses to return the
equipment at the end of the initial lease term, the Company is obligated to pay
the lessor a maximum of $33.8 million. The book value of the equipment sold was
$40.4 million. The excess of the proceeds over the book value was deferred and
is included in other long-term liabilities in the accompanying consolidated
balance sheet. The excess of the deferred gain over the maximum return
obligation will be amortized over the lease term.
Leases
The Company has numerous non-cancelable leases with terms exceeding one year. At
December 31, 1999, lease commitments, including the return obligation on the
sale leaseback, for all of the Company's operating leases are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 36,947
2001 29,221
2002 24,523
2003 17,293
2004 47,681
Thereafter 9,695
- ------------------------------------------------------------------------------------------------------------------------
Total $165,360
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total rental expense was $40.5 million in 1999, $32.8 million in 1998 and
$35.4 million in 1997.
a23
<PAGE>
Subsequent Event
Subsequent to December 31, 1999 the Company terminated three senior officers,
including its former chief executive officer and chief financial officer. The
Company is in litigation with the former chief executive officer and believes it
has no obligation for severance. The Company has negotiated with the other two
former senior officers resulting in anticipated severance costs of approximately
$3.5 million, which will be charged to earnings in the first quarter of 2000.
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, 1999, $20.1 million in standby letters of credit and $197.5
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.
<TABLE>
<CAPTION>
NOTE 12--INCOME TAXES
Components of earnings and taxes consist of:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Income before income taxes:
<S> <C> <C> <C>
U.S. $ 89,971 $153,469 $ 75,893
Non-U.S. 28,111 33,834 2,575
- --------------------------------------------------------------------------------
$118,082 $187,303 $ 78,468
- --------------------------------------------------------------------------------
Income tax expense:
Current:
U.S. Federal $ 30,556 $ 47,794 $ 31,383
State 892 5,395 1,011
Non-U.S. 18,287 11,893 7,498
- ---------------------------------------------------------------------------------
Total current 49,735 65,082 39,892
Deferred (8,432) (14,272) (8,817)
- --------------------------------------------------------------------------------
Total provision for income taxes $ 41,303 $ 50,810 $ 31,075
- --------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at statutory rate $ 41,329 $ 65,556 $ 27,464
Increase (decrease) resulting from:
Equity in earnings of affiliates/minority interest (693) (498) (540)
Taxes on foreign earnings 880 (16,389) 7,466
State income taxes--current 580 3,507 657
Purchase accounting adjustments 6,811 3,511 3,570
State income taxes--deferred (239) 621 (1,421)
Export incentives (5,496) (4,122) (4,776)
Other (1,869) (1,376) (1,345)
- -------------------------------------------------------------------------------------
Total provision for income taxes $ 41,303 $ 50,810 $ 31,075
- -------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below:
a24
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts $ 5,013 $ 3,625
Inventories, including uniform capitalization 19,981 18,359
Compensated absences and benefits, principally
due to accrual for financial reporting purposes 13,222 12,294
Contingencies, due to accrual for financial reporting purposes 8,285 7,860
Warranty reserves, due to accrual for financial reporting purposes 24,480 23,928
Postretirement benefits 57,089 54,970
Other 35,128 28,556
- -------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 163,198 149,592
- -------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant, equipment and intangible assets due to purchase accounting
adjustments and differences in depreciation and amortization 59,449 26,337
Inventory, due to purchase accounting adjustments 15,765 15,765
Other 5,382 2,291
- -------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 80,596 44,393
- -------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 82,602 $105,199
- -------------------------------------------------------------------------------------------------------
</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.
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
$156 million and $124 million of undistributed earnings of foreign subsidiaries
and affiliates at December 31, 1999 and 1998, 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 $9.3 million and $7.3
million of deferred income taxes, consisting of foreign withholding taxes, would
have been provided at December 31, 1999 and 1998, respectively. Such taxes, if
ultimately paid, may be recoverable as foreign tax credits in the U.S.
NOTE 13--RESEARCH AND DEVELOPMENT
Total research and development costs charged to expense amounted to $41.0
million in 1999, $31.2 million in 1998 and $30.6 million in 1997.
NOTE 14--ACQUISITIONS AND DIVESTITURES
On June 10, 1999, the Company acquired all of the outstanding capital stock of
Sabroe A/S (Sabroe), a Danish company, for $407.1 million in cash and assumed
debt of $216.0 million. Sabroe is a world leader in supplying refrigeration
systems and products. In connection with the acquisition and restructuring, the
following were considered in the allocation of the purchase price: acquisition
expenses of $7.3 million; deferred taxes of $30.4 million; non-cash write-downs
of $4.4 million and other accruals of $11.8 million.
The Company is in process of executing the plan for integrating Sabroe into the
York Refrigeration Group. The Sabroe portion of the plan includes closing the
Retech and Norrkoping manufacturing plants in Denmark and Sweden, respectively,
closing certain duplicate sales and service offices in Europe and Asia, product
rationalizations and other costs related to the York Refrigeration Group
restructuring. The plan also includes Sabroe workforce reductions of
approximately 500 salary and wage employees, of which 230 remain at December 31,
1999. The plan is expected to be substantially complete within one year from the
acquisition date. The table below details the restructuring activities discussed
above.
<TABLE>
<CAPTION>
Non-cash Established Utilized Remaining
(in thousands) Write-downs Accruals in 1999 Accruals
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed assets write-downs $ 2,542 -- -- --
Inventory write-downs 1,849 -- -- --
Severance costs -- 9,299 3,402 5,897
Contractual obligations -- 1,911 336 1,575
Other -- 632 276 356
- ----------------------------------------------------------------------------------------
$ 4,391 $ 11,842 $ 4,014 $ 7,828
- ----------------------------------------------------------------------------------------
</TABLE>
a25
<PAGE>
The acquisition has been accounted for under the purchase method of accounting
and the Sabroe assets, liabilities and results of operations, since acquisition,
have been included in the consolidated financial statements. The preliminary
allocation of the purchase price and other costs as discussed above resulted in
the following components of intangible assets, based on independent appraisals
and other information, and related straight-line amortization periods:
<TABLE>
<CAPTION>
(in thousands) Intangible Assets Amortization period
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Unallocated excess of cost over
net assets acquired $ 441,289 30 years
Trademark and tradenames 35,480 30 years
Proprietary technology and patents 2,050 15 years
- -------------------------------------------------------------------------------------------
Total intangibles $ 478,819
- -------------------------------------------------------------------------------------------
</TABLE>
The following unaudited pro forma summary combines the consolidated results of
operations of the Company and Sabroe as if the acquisition had occurred at the
beginning of 1999 for 1999 information and at the beginning of 1998 for 1998
information. The pro forma summary includes adjustments for amortization expense
as a result of unallocated excess of cost over net assets acquired and other
intangible assets as presented above, interest expense on acquisition debt
issued to finance the purchase, adjusted depreciation expense as a result of new
fixed assets bases, and estimated income tax effect of the pro forma
adjustments. The pro forma summary is for informational purposes only and may
not necessarily reflect the results of operations of the Company had Sabroe
operated as part of the Company for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
(thousands, except per share data) Historical Proforma (unaudited) Historical Proforma (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,866,615 $4,100,187 $3,289,201 $3,981,655
Income before cumulative
effect of accounting change 76,779 70,339 136,493 125,487
Net income 75,882 69,442 136,493 125,487
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 1.93 $ 1.76 $ 3.36 $ 3.09
Net income $ 1.91 $ 1.74 $ 3.36 $ 3.09
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Company recorded a gain of $9.6 million on the sale of Viron, the Company's
performance contracting business, in the third quarter of 1999.
NOTE 15--CHARGES TO OPERATIONS
In 1999, the Company recorded charges to operations of $54.5 million in
acquisition, integration, restructuring and other charges. York Refrigeration
Group charges of $35.0 million, not allocated as part of the purchase price,
related to acquisition, integration and restructuring cost for integrating
Sabroe into the York Refrigeration business. Other Company charges of $19.5
million, not impacted by the Sabroe acquisition, related to restructuring,
downsizing and other one time costs.
York Refrigeration Group charges
The York Refrigeration Group charges consist of non-cash write-downs of $8.2
million and other accruals of $8.7 million principally for the closure of the
Gram manufacturing facility in Denmark, the closure of duplicate sales and
service offices in Europe and Asia and workforce reductions. Of the
approximately 450 salary and wage employee reductions planned, approximately 130
remain at December 31, 1999. The costs of these actions are detailed in the
table below.
<TABLE>
<CAPTION>
Non-cash Established Utilized Remaining
(in thousands) Write-downs Accruals in 1999 Accruals
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed asset write-downs $ 8,176 -- -- --
Severance costs -- 5,260 3,834 1,426
Contractual obligations -- 1,095 541 554
Other -- 2,348 2,298 50
- ------------------------------------------------------------------------------------------
$ 8,176 $ 8,703 $ 6,673 $ 2,030
- ------------------------------------------------------------------------------------------
</TABLE>
Additionally, the Company recorded cash expenses of $12.7 million relating to
the cost and loss on a currency option to fix the price of the acquisition and
$5.4 million for integration expenses consisting of employee relocation, office
integration activities, product training and sign and logo changes.
a26
<PAGE>
Other Company charges
The other Company charges of $19.5 million consist of non-cash write-downs of
$3.6 million and other accruals of $15.9 million. The charges relate to
workforce reductions, asset write-downs, principally in Latin America and
Eastern Europe due to the current economic conditions in those regions, closing
costs for the ESG Airside factory in Salisbury, North Carolina, contractual
obligations and other receivables. Of the approximately 530 salary and wage
employees reductions planned, 7 remain at December 31, 1999. These costs are
detailed in the table below.
Non-cash Established Utilized Remaining
(in thousands) Write-downs Accruals in 1999 Accruals
- --------------------------------------------------------------------------------
Fixed asset write-downs $1,851 $ -- $ -- $ --
Receivable write-downs 1,773 -- -- --
Severance costs -- 8,953 4,635 4,318
Contractual obligations -- 6,962 5,427 1,535
- --------------------------------------------------------------------------------
$3,624 $15,915 $10,062 $5,853
- --------------------------------------------------------------------------------
In 1999, the Company also recorded charges in cost of goods sold of $22.4
million, primarily to write-down inventory to the lower of cost or market.
Integration of the Refrigeration business, principally discontinuation of Gram
product lines, resulted in $6.9 million of the inventory write-down.
Deteriorating economic conditions in Latin America and Eastern Europe resulted
in inventory write-downs of $3.2 million and $4.2 million, respectively. ESG
operations, primarily in the U.S. and Australia, resulted in inventory
writedowns of $1.5 million. The discontinuance of a UPG product line resulted in
additional inventory write-downs of $4.6 million and warranty charges of $2.0
million. The related liability for warranty charges represents the Company's
estimate of future costs based on a range of possible outcomes. Additional
charges to operations in future periods may be required if actual costs incurred
exceed amounts recorded at December 31, 1999.
During 1997, the Company recorded charges of $75.5 million. The charges related
to the closing of the Houston manufacturing facility, the downsizing of German
operations and profit improvement initiatives, including closing and
streamlining certain operations and rationalization of global distribution and
products throughout the world. At December 31, 1999, accrual balances of $3.6
million remain relating primarily to product warranty and lease obligations.
NOTE 16--GRANTLEY ACCIDENT
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's rebuilding operations were
substantially completed during the second quarter of 1999, fully restoring its
production capacity.
The Company maintains insurance for both property damage and business
interruption applicable to its production facilities, including Grantley. The
applicable coverage provides for deductibles of $25,000 for property damage and
$25,000 for business interruption.
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 1999 and 1998, the
Company recorded credits to cost of goods sold of $6.0 million and $25.5
million, respectively, 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 is included in the
Company's claim under business interruption coverage.
During 1999 and 1998, the Company received advanced payments of $6.2 million and
$19.4 million, respectively, from the insurance company representing partial
payments under the property damage coverage. During 1999 and 1998, the Company
received advanced payments of $21.3 million and $10.0 million, respectively,
from the insurance company representing partial payments under the business
interruption coverage. The Company and the insurance company have settled on a
portion of the claim under the property damage coverage, but have not agreed on
any settlement under the remaining property damage or business interruption
coverage.
NOTE 17--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 Unitary Products Group, Engineered Systems Group and York
Refrigeration Group.
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, and light commercial heating and cooling equipment.
Bristol
a27
<PAGE>
Compressors, included with UPG, manufactures reciprocating and scroll
compressors for original equipment manufacturers and for sale by wholesale
distributors.
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 York Refrigeration Group (YRG) consists of screw and reciprocating
compressors, condensers, evaporators, heat exchangers, process refrigeration
systems, hygienic air distribution systems, gas compression systems, automated
plant control systems, refrigeration contracting, maintenance and service.
The following table represents the Company's operating results by segment:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Net sales:
<S> <C> <C> <C>
Unitary Products Group:
Bristol Compressors $ 579,686 $ 529,809 $ 504,024
Residential and light commercial products 1,098,514 1,055,627 964,648
Intragroup compressor sales (108,721) (103,676) (76,294)
----------- ---------- ----------
1,569,479 1,481,760 1,392,378
Engineered Systems Group 1,460,736 1,408,091 1,396,436
York Refrigeration Group 883,609 447,499 447,093
Eliminations (1) (47,209) (48,149) (42,250)
- ---------------------------------------------------------------------------------------------------------------
$ 3,866,615 $3,289,201 $3,193,657
- ---------------------------------------------------------------------------------------------------------------
(1) Eliminations include the following intersegment sales:
Unitary Products Group $ 13,330 $ 10,936 $ 12,609
Engineered Systems Group 12,802 12,710 7,236
York Refrigeration Group 21,077 24,503 22,405
- ---------------------------------------------------------------------------------------------------------------
Eliminations (1) $ 47,209 $ 48,149 $ 42,250
- ---------------------------------------------------------------------------------------------------------------
Income from operations:
Unitary Products Group:
Bristol Compressors $ 58,990 $ 53,152 $ 44,860
Residential and light commercial products 97,247 87,330 57,864
----------- ---------- ----------
156,237 140,482 102,724
Engineered Systems Group 114,689 125,170 118,278
York Refrigeration Group 44,527 27,420 22,734
Eliminations, general corporate expenses
and other non-allocated items (151,508) (64,368) (129,734)
- ---------------------------------------------------------------------------------------------------------------
$ 163,945 $ 228,704 $ 114,002
- ---------------------------------------------------------------------------------------------------------------
Equity in (earnings) losses of affiliates:
Unitary Products Group:
Bristol Compressors $ (2,640) $ 785 $ (5,732)
Residential and light commercial products (867) 318 1,792
----------- ---------- ----------
(3,507) 1,103 (3,940)
Engineered Systems Group (1,769) (1,260) (1,402)
York Refrigeration Group (384) 31 --
- ---------------------------------------------------------------------------------------------------------------
$ (5,660) $ (126) $ (5,342)
- ---------------------------------------------------------------------------------------------------------------
Gain on sale of business $ (9,627) $ -- $ --
Interest expense, net 61,150 41,527 40,876
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting change $ 118,082 $ 187,303 $ 78,468
Provision for income taxes 41,303 50,810 31,075
- ---------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change $ 76,779 $ 136,493 $ 47,393
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
a28
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
(continued)
<S> <C> <C> <C>
Total assets:
Unitary Products Group:
Bristol Compressors $ 217,792 $ 207,624 $ 201,863
Residential and light commercial products 569,223 511,669 488,105
Eliminations and other non-allocated assets (14,267) (14,225) (7,370)
---------- ---------- ----------
772,748 705,068 682,598
Engineered Systems Group 714,212 713,943 703,498
York Refrigeration Group 669,317 272,039 237,179
Eliminations and other non-allocated assets 718,262 415,488 373,023
- -------------------------------------------------------------------------------------------------------
$2,874,539 $2,106,538 $1,996,298
- -------------------------------------------------------------------------------------------------------
Depreciation and amortization of property, plant and equipment:
Unitary Products Group:
Bristol Compressors $ 10,536 $ 10,003 $ 9,357
Residential and light commercial products 16,192 16,539 14,006
---------- ---------- ----------
26,728 26,542 23,363
Engineered Systems Group 18,299 16,871 15,679
York Refrigeration Group 15,162 9,502 9,351
Other non-allocated depreciation and amortization 3,982 4,870 4,383
- -------------------------------------------------------------------------------------------------------
$ 64,171 $ 57,785 $ 52,776
- -------------------------------------------------------------------------------------------------------
Capital expenditures:
Unitary Products Group:
Bristol Compressors $ 15,698 $ 11,436 $ 11,558
Residential and light commercial products 19,266 13,088 13,963
---------- ---------- ----------
34,964 24,524 25,521
Engineered Systems Group 37,074 28,257 23,413
Refrigeration Products Group 17,949 9,001 15,095
Other non-allocated capital expenditures 14,078 2,856 2,825
- -------------------------------------------------------------------------------------------------------
$ 104,065 $ 64,638 $ 66,854
- -------------------------------------------------------------------------------------------------------
</TABLE>
Other non-allocated costs for management reporting include goodwill
amortization, certain pension costs, Olympic sponsorship costs, integration
costs, restructuring 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. Business unit management performance
is based on earnings before interest and taxes adjusted by a charge for capital
and, to a lesser extent, earnings per share.
The Company's sales are 52% to the United States and 48% to non-U.S. countries
in 1999 and 58% to the United States and 42% to non-U.S. countries for 1998 and
1997. 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) 1999 1998 1997
- -------------------------------------------------------------------
Net sales:
United States $2,309,364 $2,200,137 $2,155,174
Other 1,557,251 1,089,064 1,038,483
- -------------------------------------------------------------------
$3,866,615 $3,289,201 $3,193,657
- -------------------------------------------------------------------
Included in United States sales are export sales of $307.0 million in 1999,
$301.5 million in 1998 and $316.3 million in 1997.
a29
<PAGE>
The location of the Company's net property, plant and equipment is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Net property, plant and equipment:
United States 53% 76% 78%
Denmark 23% 4% 4%
Other 24% 20% 18%
- --------------------------------------------------------------------------------
100% 100% 100%
- --------------------------------------------------------------------------------
At December 31, 1999, Denmark was the only non-U.S. country with greater than
10% of the Company's consolidated net property, plant and equipment. No single
non-U.S. country had greater than 10% of the Company's consolidated net
property, plant and equipment at December 31, 1998 or 1997.
NOTE 18--STOCKHOLDERS' EQUITY
The 1992 Employee Stock Purchase Plan authorizes the allocation of 1,500,000
shares of common stock for the Plan. An additional 500,000 shares were
authorized in February 1999. 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 1999, 1998 and 1997, there were 205,980 shares,
225,861 shares and 165,169 shares, respectively, purchased by employees at a
price of $23.32 per share, $33.63 per share and $33.63 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 1999, 1998 and 1997 under the 1992
Omnibus Stock Plan, key employees were awarded 23,500, 32,000 and 40,000 shares,
respectively, of restricted common stock generally vesting over four years.
Accordingly, unearned compensation of $0.9 million, $1.1 million and $2.0
million was recorded as a charge to equity in 1999, 1998 and 1997, respectively,
which is being amortized over the vesting period.
Changes in the number of shares under the stock option plan are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
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, 3,097,222 $42.97 2,776,367 $42.50 2,365,859 $39.97
Granted 3,303,924 29.41 797,415 43.11 829,143 45.43
Exercised (216,662) 41.36 (300,625) 39.05 (306,993) 30.24
Canceled (358,063) 41.32 (175,935) 42.87 (111,642) 44.36
- ---------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 5,826,421 35.64 3,097,222 42.97 2,776,367 42.50
Exercisable, December 31, 3,049,766 $42.05 2,289,257 $42.91 1,952,454 $41.30
Available, December 31, 755,794 222,405 884,175
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The exercise price of options outstanding and those exercised 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, $33.13 to $49.50 per share for 1998 grants and $22.94 to $42.50
for 1999 grants. The weighted average remaining contractual life for options
outstanding at December 31, 1999 is 8.11 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, 2.0 million, 1.1 million and 3.4
million shares were repurchased on the open market in 1999, 1998 and 1997,
respectively. In addition, in the first quarter of 2000, the Company repurchased
approximately 300,000 shares.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans other than for restricted stock and performance-based awards.
Had compensation cost for the Company's other stock option and employee stock
purchase plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under 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.
a30
<PAGE>
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net earnings--as reported $75,882 $136,493 $47,393
Net earnings--pro forma 65,462 126,241 38,471
Diluted earnings per share--as reported 1.91 3.36 1.10
Diluted earnings per share--pro forma 1.64 3.11 0.89
- --------------------------------------------------------------------------------
The per share weighted average fair value of the options granted during 1999,
1998, and 1997 is estimated as $10.47, $16.66 and $18.04, respectively, on the
date of grant using the Black-Scholes option-pricing model. The weighted average
assumptions based on the date of grant are as follows: dividend yield of 2.1%,
1.1% and 1.0% in 1999, 1998 and 1997, respectively; volatility of 31.4%, 27.5%
and 27.2% in 1999, 1998 and 1997, respectively; risk-free interest rate of 5.5%,
5.7% and 6.6% in 1999, 1998 and 1997, respectively, and an expected life of 7.6
years, 7.7 years and 7.0 years in 1999, 1998 and 1997, respectively.
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 on 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) 1999 1998 1997
- --------------------------------------------------------------------------------
Weighted average common shares outstanding used
in the computation of basic earnings per share 39,637 40,402 42,550
Effect of dilutive securities:
Non-vested restricted shares 61 132 167
Stock options 134 88 323
- --------------------------------------------------------------------------------
Weighted average common shares and equivalents used
in the computation of diluted earnings per share 39,832 40,622 43,040
- --------------------------------------------------------------------------------
a31
<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>
1999
Net sales $ 782,757 $1,012,064 $ 970,360 $1,101,434
Gross profit 165,581 231,415 189,072 226,896
Net income 17,377 40,452 3,776 14,277
Earnings per share:
Basic .44 1.02 .09 .37
Diluted .44 1.01 .09 .36
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
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Trading and Dividend Information
Dividends
High Low Declared
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Fourth quarter $ 28 1/4 $ 21 $.15
Third quarter 47 1/2 35 1/4 .15
Second quarter 43 3/8 34 3/8 .15
First quarter 41 5/8 33 5/8 .15
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
- -----------------------------------------------------------------------------------------
</TABLE>
a32
<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.
P.O. Box 3315
South Hackensack, NJ 07606-1915
1-800-851-9677
http://www.chasemellon.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 1592-364F
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 3,500 employee shareholders participating in the York
International Employee Stock Purchase Plan, for an estimated 19% 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:
Investor Relations
York International Corporation
P.O. Box 1592-364F
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
a33
<PAGE>
<TABLE>
<CAPTION>
Board of Directors
<S> <C> <C>
GERALD C. MCDONOUGH DONALD M. ROBERTS JAMES A. URRY
Private Business Consultant Retired Vice Chairman and Vice President of Citicorp
Retired Chairman and Chief Treasurer of United States Trust Venture
Executive Officer of Leaseway Company of New York and its Capital, Ltd.
Holdings, Inc. parent, U.S. Trust Corporation Member of the Audit,
Chairman of the Board and Chairman of the Audit Compensation, and Executive
member of the Finance, and Committee and member of the Committees
Nominating and Governance Executive, and Nominating and
Committees Governance Committees JOHN E. WELSH, III
Vice Chairman of Mobile
MALCOLM W. GAMBILL MICHAEL R. YOUNG Telecommunications
Retired Chairman and Chief President and Chief Technologies Corporation
Executive Officer of Harsco Executive Officer Chairman of the Finance
Corporation Committee and member of the
Member of the Audit, JOHN R. TUCKER Executive Committee
Compensation, Executive, and Former Chief Executive Officer
Nominating and Governance and President WALTER B. WRISTON
Committees Private Business Consultant
Retired Chairman and Chief
ROBERT F. B. LOGAN Executive Officer of Citicorp
Retired Chairman and Chief Chairman of the Compensation
Executive Officer of Banc and Executive Committees
One Arizona Corporation
Member of the Audit,
Compensation, and Finance
Committees
Officers
MICHAEL R. YOUNG DALE L. BENNETT JAMES P. CORCORAN
President and Chief Executive Vice President, Human Resources Treasurer
Officer
CHARLES F. CARGILE DAVID R. HECK
OLE ANDERSEN Vice President, Finance and Controller
Vice President and President of Corporate Development
Refrigeration Products Group
JANE G. DAVIS
JAMES F. DAMIANI Vice President, Secretary and
Vice President and President of General Counsel
Unitary Products Group
HELEN S. MARSTELLER
WAYNE J. KENNEDY Vice President, Investor
Vice President and President of Relations
Bristol Compressors
C. DAVID MYERS
PETER C. SPELLAR Vice President and Chief
Vice President and President of Financial Officer
Engineered Systems Group
</TABLE>
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. SABROE; NOVENCO; RETECH; GRAM REFRIGERATION; RECOLD; and RITE COIL
are trademarks of York International Corporation or its affiliates.
a34
<PAGE>
[FRONT]
YORK INTERNATIONAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jane G. Davis and C. David Myers, or either
of them, the proxy or proxies of the undersigned with full powers of
substitution, to vote all shares of Common Stock of York International
Corporation held of record by the undersigned at the close of business on April
6, 2000 at the Annual Meeting of Stockholders of the Company to be held on
Thursday, May 25, 2000, at 1:30 p.m. EDT, and at any adjournment or adjournments
thereof, upon the following matters set forth on the reverse side.
PLEASE MARK YOUR CHOICE IN BLUE OR BLACK INK
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ACCOMPANYING ENVELOPE
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[REVERSE]
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Please mark If properly executed, the shares represented by this proxy will be voted in
[X] votes as in the manner directed herein by the undersigned stockholder, or to the extent
this example directions are not given, such shares will be voted FOR each of the nominees
and each other proposal.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW AND A
VOTE "FOR" PROPOSAL 2.
1. ELECTION OF DIRECTORS.
Nominees: Gerald C. McDonough, Michael R. Young, W. Michael Clevy,
Malcolm W. Gambill, Robert F. B. Logan, Paul J. Powers, Donald
M. Roberts, and James A. Urry
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FOR ALL WITHHOLD
[_] NOMINEES [_] AUTHORITY FOR
LISTED ALL NOMINEES
(EXCEPT AS LISTED
INDICATED)
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To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.
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2. RATIFICATION OF APPOINTMENT OF KPMG LLP AS [_] [_] [_]
INDEPENDENT ACCOUNTANTS
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO [_] [_] [_]
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF
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