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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8831
FEDDERS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 22-2572390
(State of Incorporation) (I.R.S. Employer Identification No.)
505 Martinsville Road, Liberty Corner, NJ 07938-0813
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (908) 604-8686
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $1 par value New York Stock Exchange, Inc.
Class A Stock, $1 par value New York Stock Exchange, Inc.
Securities registered pursuant to section 12 (g) of the Act:
Title of Each Class
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
As of the close of business on November 30, 1995, there were outstanding
18,988,898 shares of the Registrant's Common Stock, 18,937,508 shares of
Class A Stock and 2,267,606 shares of its Class B Stock. The
approximate aggregate market value (based upon the closing price on the
New York Stock Exchange) of these shares held by non-affiliates of the
Registrant as of November 30, 1995 was $182,050,793. (The value of a
share of Common Stock is used as the value for a share of Class B Stock
as there is no established market for Class B Stock and it is
convertible into Common Stock on a share-for-share basis.)
FEDDERS CORPORATION
FORM 10-K ANNUAL REPORT
SEPTEMBER 1, 1994 TO AUGUST 31, 1995
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the
Registrant 11
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related
Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 20
1
PART I
ITEM 1. Business
(a) General Development of Business
Fedders Corporation (the "Company" or the "Registrant") is a holding
company which, through its wholly owned operating subsidiaries, is
engaged in the manufacture and sale of a complete line of room air
conditioners and dehumidifiers, principally for the residential market.
Based upon industry statistics compiled by a trade association, the
Company believes it is the largest manufacturer of room air conditioners
in North America. Unless otherwise indicated, all references herein to
the "Company" or the "Registrant" include Fedders Corporation and its
principal operating subsidiaries, Fedders North America, Inc. ("Fedders
NA"), Emerson Quiet Kool Corporation ("EQK"), Columbia Specialties, Inc.
("CSI"), Fedders, Inc. and Fedders International, Inc. ("FI"). EQK, CSI
and Fedders, Inc. are wholly owned subsidiaries of Fedders NA. In 1994,
Fedders NA also established a Mexican sales subsidiary, Fedders de
Mexico S.A. de C.V. and FI established a Singapore subsidiary, Fedders
Asia Pte. Ltd. ("Fedders Asia").
In July 1995, the Company signed a contract with the Ningbo General Air
Conditioner Factory of Ningbo, China to form a joint venture, Fedders
Xinle Co. Ltd.("Fedders Xinle"), to manufacture and market ductless
split room air conditioners as well as window type air conditioners.
The joint venture was capitalized on November 7, 1995. The Company
owns 60% of the joint venture which and through Fedders International,
will export approximately 50% of its product to markets outside of
China. See note 12 of the Notes to Consolidated Financial statements on
page F19 herein for a description of the terms of the transaction.
On November 30, 1995, the Company announced that it had reached a
definitive agreement to merge with NYCOR, Inc. ("NYCOR"). See note 13
of the Notes to the Consolidated Financial Statements on page F19 for
description of the merger. The Company has purchased compressors since
1992 from NYCOR, under a ten year supply agreement, and continues to
rely upon NYCOR for a significant portion of its requirements for rotary
compressors, one of the most important components of the air
conditioners manufactured by the Company. The merger will provide the
Company with a guaranteed supply of compressors to support international
growth of room air conditioners.
(b) Financial Information About Industry Segments
The Company operates in one industry segment. See Note 8 of the Notes
to Consolidated Financial Statements at page F18 herein.
2
(c) Narrative Description of Business
Products and Markets
The Company manufactures and sells a complete line of window and
through-the-wall room air conditioners, principally for the residential
market in models ranging in capacity from 5,000 BTU (British Thermal
Units) per hour to 32,000 BTU per hour. Fedders also manufactures
through Fedders Xinle joint venture, split ductless room air
conditioners for international markets from 7,000 to 40,000 BTU. These
models comprise product lines marketed by the Company under the brands
FEDDERS, EMERSON QUIET KOOL and AIRTEMP. The Company also manufactures
products under various private labels.
The Company manufactures and markets, under the EMERSON QUIET KOOL
brand, a line of household dehumidifiers ranging in capacity from 30 to
50 pints per 24 hours.
In North America, the Company markets its products to retail chains,
retail buying groups and others representing over 10,000 retail outlets.
The distribution of appliances and electronics in North America has
changed significantly in the last several years. Most of the Company's
sales are now made directly to retailers, in contrast to the early 1980s
when distributors accounted for the majority of the Company's business.
In addition, in recent years the Company's customers have changed their
purchasing patterns to minimize inventories. In response, the Company
has increased its manufacturing flexibility, thereby improving its
capabilities, especially in the area of just-in-time delivery.
All Fedders NA sales, marketing, and service management are located in
a Whitehouse, New Jersey headquarters location. Fedders North America
serves many of its customers through regional sales offices and
distribution centers.
To support and service its customers and the ultimate consumer, the
Company has a network of third-party service centers throughout the
United States and regional parts depots to expedite repairs by local
service companies during peak demand periods.
The Company promotes its EMERSON QUIET KOOL and FEDDERS brands of air
conditioners through advertising, primarily in trade publications.
The Company's future business development activities are focused
primarily outside of North America. The Company believes that the
market for room air conditioners outside of North America is
approximately four times the size of the North American market. Demand
for air conditioners outside of North America accelerated in the 1980s
and continues to grow rapidly with the increase in disposable income of
populous nations in hot weather climates. The Company has participated
in international markets for more than 30 years and has licensees in
several countries.
3
The Company expects to increase its participation overseas through the
Fedders Xinle joint venture established in November 1995, and through
additional strategic alliances primarily under production and joint
venture agreements, with participation based in part on its expertise,
technological capability and well established global sourcing program.
The Company also has production agreements in Taiwan, India and the
People's Republic of China and is accelerating development activities to
further penetrate international markets. This activity should establish
greater growth potential than is afforded by the mature U.S. market
while reducing its dependence on summer weather in North America. In
1994, Fedders International created a new subsidiary, Fedders Asia, Pte.
Ltd. in Singapore for research, development, testing and coordination
of production of the Company's product at facilities where production
agreements are in place. The Company also has consolidated its
international headquarters with its executive offices in a single
facility in Liberty Corner, New Jersey. Fedders International has sales
offices in Singapore, Miami and the United Kingdom. The Company
believes it can compete cost-effectively abroad based on its global
sourcing network that currently delivers components from around the
world to two U.S. plants and, in the future, to the Fedders Xinle joint
venture.
Sources and Availability of Raw Materials
The most important materials purchased by the Company are steel, copper
and aluminum, which are obtained from domestic and foreign suppliers.
The Company also purchases from other domestic and foreign manufacturers
certain components, including thermostats, compressors, motors and
electrical controls, used in its products. The Company endeavors to
obtain the lowest possible cost in its purchases of raw materials and
components, which must meet specified quality standards, through an
active global sourcing program. The Company is not dependent upon any
one source for major components of its manufactured products, except
that it purchases compressors primarily from NYCOR. The Company
presently has a supply agreement with NYCOR through the year 2003 which
provides the Company a dependable source of up to 800,000 rotary
compressors annually. The Company's compressor requirements for fiscal
1996 are in excess of 1,400,000. The Company has additional suppliers
of compressors. In the event that NYCOR were unable to deliver the
Company's requirements, the Company might have difficulty obtaining
substitute sources of supply. To guarantee its supply of compressors,
the Company announced that it has reached an agreement to merge with
NYCOR. See note 13 of the Notes to the Consolidated Financial
Statements on page F19.
Patents, Trademarks, Licenses and Concessions Held
The Company owns a number of trademarks. While the Company believes
that its trademarks, such as, FEDDERS, EMERSON QUIET KOOL and AIRTEMP,
are well known and enhance the marketing of its products, the Company
4
does not consider the successful conduct of its business to be dependent
upon such trademarks. The Company aggressively protects its trademark
and intellectual property rights worldwide.
Seasonality of Business
The Company's results of operations and financial condition are entirely
dependent on the manufacture and sale of room air conditioners and
dehumidifiers, the demand for which is highly seasonal. Seasonally low
volume sales are not sufficient to offset fixed costs, resulting in
seasonal operating losses at certain times of the year. In addition,
the Company's working capital needs are seasonal, with the Company's
greatest utilization of its lines of credit occurring early in the
calendar year. See "Management`s Discussion and Analysis of Results of
Operations and Financial Condition," at pages F1 through F3 herein.
See also the discussion under "Working Capital Practices."
Working Capital Practices
The Company regularly reviews working capital components with a view to
maintaining the lowest level consistent with requirements of anticipated
levels of operations. The Company's sales are predominantly made
directly to retailers, who typically require just-in-time delivery,
primarily in April through July. Production is weighted towards the
retail selling season to minimize borrowing earlier in the fiscal year,
although room air conditioners may be produced throughout much of the
rest of the year at a lower rate of production.
Information with respect to the Company's warranty and return policy is
provided in Note 1 of the Notes to Consolidated Financial Statements at
page F11 herein.
See also the information entitled "Management's Discussion and Analysis
of Results of Operations and Financial Condition" at pages F1 through F3
herein.
Backlog
The Company's fiscal year end (August 31) coincides with the end of the
seasonal room air conditioner sales cycle. Accordingly, backlog at this
time of the year is insignificant.
Competition
The Company's competitors include a number of domestic and foreign
manufacturers of air conditioners and appliances, including Frigidaire
Company, Whirlpool Corporation, Matsushita Electric Industrial Company,
Ltd. and Sharp Electronics Corporation. Many of the Company's
competitors are substantially
5
larger and have greater resources than the Company. The Company
competes principally on the basis of price, quality and its ability to
deliver product and service to its customers on a just-in-time basis.
Competitive factors could require price reductions or increased spending
on product development, marketing and sales that could adversely affect
the Company's profit margins.
Research and Development
Information with respect to amounts spent on research and development is
provided in Note 1 of the Notes to Consolidated Financial Statements at
page F13 herein.
Environmental Protection
It is the Company's policy to take all practical measures to minimize
air and water pollution resulting from its operations. The Company did
not make capital expenditures on environmental protection-related items
during the year ended August 31, 1995 that are material to its total
capital expenditures, earnings and competitive position and does not
anticipate making material capital expenditures on such items in the
fiscal year ending August 31, 1996.
Employees
The Company has approximately 2,000 employees, not including 500 joint
venture employees. The current contracts with two unions representing
employees of the Effingham, Illinois plant are scheduled to expire in
October 1998. The Company considers its relations with its employees to
be generally satisfactory.
International Sales
For information with respect to international sales of the Company's
products, see Note 8 of the Notes to Consolidated Financial Statements
at page F17 herein. Future sales are subject to the risks inherent in
such activities, such as foreign regulations, unsettled political
conditions and exchange rate fluctuations.
6
Item 2. Properties
The Company owns or leases the following primary facilities:
Approximate Square
Location Principal Function Feet of Floor Area
Liberty Corner, Corporate and 25,000
New Jersey International
(Leased) Headquarters
Effingham, Illinois Manufacturing 650,000
(Owned)
Columbia, Tennessee Manufacturing 232,000
(Owned)
Dover, New Jersey (1) 50,000
(Owned)
Orangeville, (1) 106,000
Ontario (Owned)
Whitehouse, Fedders NA 17,000
New Jersey (Leased) Headquarters
Singapore Research and Design 14,600
(Leased) Center
(1) Facility available for sale or lease
The Effingham, Illinois facility is subject to a mortgage securing a
$4.5 million, 1% promissory note payable over the next 13 years to the
State of Illinois. The Company believes that productive capacity at its
major manufacturing facilities is adequate to meet production needs in
the foreseeable future.
7
Item 3. Legal Proceedings
Not applicable.
8
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
9
Executive Officers of the Registrant
First Became an
Name and Age Position Held Executive Officer
Salvatore Giordano, 85 Chairman of the Board 1945
Sal Giordano, Jr., Vice Chairman, President 1965
57 (1) and Chief Executive Officer
Robert L. Laurent, Jr., Executive Vice President, 1989
40 Finance and Administration
and Chief Financial Officer
S. A. Muscarnera, Senior Vice President and 1988
55 (2) Secretary
Gordon Newman, 50 Senior Vice President, 1995
Supply Chain
Gary J. Nahai, 44 Vice President and 1993
President, Fedders
International, Inc.
Thomas Kroll, 40 Controller 1995
________________________
(1) Son of Salvatore Giordano
(2) Nephew of Salvatore Giordano
Business Experience During Last Five Years
Messrs. Salvatore Giordano, Sal Giordano, Jr., Robert L. Laurent, Jr.
and Mr. Muscarnera have been associated in executive capacities with the
Company for more than five years.
Mr. Newman was elected to his position in April 1995. He joined Fedders
Corporation in 1991 as Vice President, Corporate Quality. Prior thereto
Mr. Newman was Corporate Director of Quality for Welbilt Corporation.
Mr. Nahai was elected to his position in March 1993. Previously he was
Vice President of Sales - New York Metro Region and, prior thereto, was
Manager of International Sales and Licenses. Mr. Nahai has been with
the Company for more than five years.
Mr. Kroll was elected to his position in April 1995. Previously he was
Controller of Fedders North America since 1992. Prior thereto he was
Controller of Emerson Quiet Kool.
10
PART II
Item 5. Market for Registrant`s Common Equity and
Related Matters
The Company's Common and Class A Stock are listed on the New York Stock
Exchange. There is no established public trading market for the
Company's Class B Stock, as there are restrictions on its transfer. As
of November 30, 1995, there were 4,956 holders of Common Stock, 5,065
holders of Class A Stock and 28 holders of Class B Stock. For
information with respect to the Company's Common Stock, Class A Stock
and Class B Stock, see Notes 9 and 10 on pages F17 through F18, which
Notes are incorporated herein by reference.
Item 6. Selected Financial Data
See the table entitled "Selected Financial Data" at page F4, herein.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
See the information entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition" at pages F1 through F3,
herein.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the Company at August 31, 1995
and 1994, and for the years ended August 31, 1995, 1994 and 1993, the
notes thereto and the report of the Company's independent auditors
thereon are included at pages F7 through F20, herein.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
In May 1995, the Company dismissed Ernst & Young LLP ("E & Y") as its
independent accountants. The Company has engaged BDO Seidman, LLP as
its new independent accountants.
The reports of E & Y on the Company's financial statements for the years
ended August 31, 1994 and 1993 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. During the last two
fiscal years, the Company has not had any disagreements with E & Y on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
11
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth opposite the name of each director is his age, principal
occupation for the past five years, the name and principal business of
any corporation or other organization in which such employment is
carried on and other business directorships held by the nominee or
director. The Company is not presently aware of any circumstance which
would prevent any nominee from fulfilling his duties as a director of
the Company. For additional information with respect to the Company's
executive officers, see Page 9 herein.
Director
Name Principal Occupation and Age Since
NOMINEES - THREE YEAR TERM
Salvatore Giordano Chairman of the Board of the Company 1945
(1)(2); 85
Howard S. Modlin Partner, Weisman, Celler, Spett & Modlin 1977
(3); 64
William J. Brennan Financial Consultant(1)(4); 67 1980
DIRECTORS - TWO YEARS REMAINING TERM
Joseph Giordano President, NYCOR, Inc. (1)(5); 62 1961
Clarence Russel Moll President Emeritus, Widener University 1967
(6); 82
Anthony E. Puleo President, Puleo Tree Co. (7); 60 1994
DIRECTORS - ONE YEAR REMAINING TERM
Sal Giordano, Jr. Vice Chairman, President and Chief 1965
Executive Officer of the Company
(1)(2); 57
S. A. Muscarnera Senior Vice President and Secretary of 1982
the Company (1)(2); 55
(1) Messrs. Sal Giordano, Jr. and Joseph Giordano are sons, and Mr.
Muscarnera is the nephew, of Mr. Salvatore Giordano. Messrs. Salvatore
Giordano, and Sal Giordano, Jr., are also executive officers and (along
with Joseph Giordano, William J. Brennan and S. A. Muscarnera)
directors of NYCOR, Inc.
12
(2) Messrs. Salvatore Giordano, Sal Giordano, Jr. and S.A. Muscarnera,
have been associated in executive capacities with the Company for more
than five years.
(3) Principal occupation during the past five years. The law firm of
Weisman, Celler Spett & Modlin renders legal services to the Company.
Mr. Modlin is also a director of General DataComm Industries, Inc. and
Trans-Lux Corporation.
(4) Principal occupation during the past five years. Mr. Brennan
served as a director of the Company from 1980 to 1987, and was again
elected a director in 1989. He is also Chairman of the Board of CSM
Environmental Systems, Inc.
(5) Principal occupation during the past two years. NYCOR, Inc. is a
holding company currently comprising two operating companies, one
manufacturing rotary compressors and the other thermoelectric heating
and cooling modules. Mr. Giordano was a Senior Vice President of the
Company for more than five years prior to his retirement August 31,
1992.
(6) Principal occupation during the past five years. Dr. Moll is also
a director of Ironworkers Savings Bank.
(7) Principal occupation during the past two and one half years. Puleo
Tree Co. is an importer of Christmas items and garden furniture. Prior
to that Mr. Puleo was President of Boulderwood Corporation.
Item 11. Executive Compensation
The following information is furnished as to all cash compensation paid
by the Company and its subsidiaries during the Fiscal Year to each of
the five highest paid executive officers of the Company whose aggregate
direct compensation exceeded $100,000.
13
Long-Term
Compensation
Summary Compensation Table Annual Compensation Awards
(a) (b) (c) (d) (g) (i)
All Other
Name and Principal Fiscal Salary Bonus Options Compensation(1)
Position Year $ # $
Salvatore Giordano 1993 237,133 - 120,000 7,114
Chairman of the Board 1994 252,150 282,045 150,000 15,753
of Directors 1995 245,354 520,365 77,314 3,097,691 (2)
Sal Giordano, Jr. 1993 307,800 - 590,000 9,234
Vice Chairman, President 1994 335,375 282,045 180,000 17,548
and Chief Executive 1995 352,902 520,365 139,066 32,424
Officer
Robert L. Laurent, Jr. 1993 186,101 - 85,000 5,583
Executive Vice President, 1994 209,725 141,023 95,000 8,425
Finance and 1995 226,489 260,183 50,590 15,281
Administration
Chief Financial Officer
S. A. Muscarnera 1993 173,633 - 120,000 5,209
Senior Vice President 1994 181,875 141,023 15,000 7,641
and Secretary 1995 191,144 260,183 18,750 16,726
Gordon Newman 1993 61,990 - 14,063 1,860
Senior Vice President, 1994 100,016 21,456 - 3,205
Supply Chain 1995 122,498 48,072 22,782 5,123
(1) Includes the Company contribution to savings and investment
retirement plans up to the 3% offered to all employees of the Company in
1995, the dollar value of the benefit of premiums paid for split-dollar
life insurance policies projected on an actuarial basis which cost is
recovered by the Company from the proceeds of such policies (Mr. Sal
Giordano, Jr. $6,226; Mr. Robert L. Laurent, Jr. $681; Mr. S. A.
Muscarnera $3,186).
(2) Includes a special award grated to Mr. Giordano in recognition of
over fifty years of extraordinary and exemplary service to the Company
as its President or Chairman, overseeing the growth of the Company from
a $7,000,000 radiator manufacturer to the leading manufacturer of room
air conditioners in North America.
Options/SAR Grant Tables
The following table sets forth information concerning the grant of stock
options and/or stock appreciation rights (SAR's) during the Fiscal Year
to the individual executive officers named in the Summary Compensation
Table.
The table shows the number of options granted to each named executive
officer, the number of options granted as a percentage of options
granted to all employees during the Fiscal Year, the exercise price of
each option, the expiration date for each option, and a presentation of
the potential realizable value for each option assuming annual rates of
stock appreciation of 5% and 10% over each option term.
14
Options/SAR Grants Last Fiscal Year
% of Total
Options
Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted # Fiscal Year ($/SH) Date 5% ($) 10% ($)
Salvatore 37,500 $ 3.30 12/31/99 $ 34,190 $299,009
Giordano 39,814 4.50 8/31/00 49,499 109,381
77,314 19.2%
Sal 37,500 3.30 12/31/99 34,190 75,551
Giordano, Jr. 101,566 4.50 8/31/00 126,274 279,032
139,066 34.5%
Robert L. 25,000 3.30 12/31/99 22,793 50,367
Laurent, Jr. 25,590 4.50 8/31/00 31,815 70,303
50,590 12.6%
S. A. 18,750 4.7% 3.30 12/31/99 17,095 37,945
Muscarnera
Gordon Newman 22,782 5.7% 4.50 8/31/00 28,324 62,589
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table
The following table sets forth the number of shares exercised during the
Fiscal Year, the value realized upon exercise, the number of unexercised
options at the end of the Fiscal Year, and the value of unexercised in-
the-money options at the end of the Fiscal Year.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Value of Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options at FY-end Options at FY-end
Name Exercise Realized (#) Exercisable/ ($) (1) Exercisable/
(#) ($) Unexercisable Unexercisable
Salvatore - - 450,000 E $ 440,257 E
Giordano - - 77,314 U 54,278 U
Sal - - 459,000 E 447,761 E
Giordano, Jr. - - 1,076,066 U 1,892,024 U
Robert L. - - 300,000 E 312,877 E
Laurent, Jr. - - 50,590 U 36,071 U
S. A. Muscarnera - - 225,000 E 233,246 E
- - 18,750 U 24,750 U
Gordon Newman - - 14,063 E 24,432 E
- - 22,782 U 2,734 U
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of three directors who are not
officers or employees of the Company (Howard S. Modlin, William J.
Brennan and Anthony E. Puleo). The Committee submitted a plan to the
Company's Board of Directors (the "Board") for the Fiscal Year 1996
which was approved by the Board on October 25, 1994.
15
Report of the Compensation Committee on Executive Compensation
In determining the total compensation package for the chief executive
officer and all other executive officers for the Fiscal Year, the
Committee considered several factors including: the performance of the
Company; the individual contribution of each executive officer; the need
to attract and retain highly qualified executives in the air
conditioning industry necessary to build long-term stockholder value;
and the need to link a portion of each executive officer's long-term
capital accumulation to the growth in the market value of the Company's
Stock. Executive compensation was broken down into three major
components (i) cash compensation, (ii) incentive bonuses, and (iii)
stock options.
Cash compensation for the Fiscal Year is shown on the Summary
Compensation Table. For the Fiscal Year, the Committee recommended and
the Board adopted the same incentive plan used for the Company's
executive officers for the past three fiscal years. The awards under
the plan are based heavily upon the performance of the Company (the
"Executive Plan"). In accordance with the terms of the Executive Plan,
the executive officers designated by the Board may receive incentive
awards based upon a prescribed formula. The amount of the award ranges
from 0.5% to 1.5% of an amount equal to consolidated pre-tax income of
the Company minus $1,000,000 ("Adjusted Pre-Tax Income"). With respect
to the individuals named in the Summary Compensation Table, the
following percentages of fiscal 1995 Adjusted Pre-Tax Income have been
designated:
Mr. Salvatore Giordano 1.5%; Mr. Sal Giordano, Jr. 1.5%; Mr. Robert L.
Laurent, Jr. .75%; and Mr. S. A. Muscarnera .75%. Under the Executive
Plan, the following awards were made for Fiscal Year performance: Mr.
Salvatore Giordano $520,365, Mr. Sal Giordano, Jr. $520,365, Mr. Robert
L. Laurent, Jr. $260,183, Mr. S.A. Muscarnera $260,183. Mr. Gordon
Newman, as Vice President, Supply Chain qualifies for incentive
remuneration under a separate plan. Applying the formula, Mr. Newman
earned an incentive award of $48,072.
Respectfully submitted,
Compensation Committee
Howard S. Modlin - Chairman
William J. Brennan
Anthony E. Puleo
16
Employment Contract
Mr. Salvatore Giordano has an Employment Agreement with the Company,
which became effective on March 23, 1993. The material provisions of
the Agreement include: (1) an annual base salary of at least $238,000,
payable in equal semi-monthly installments; (2) annual participation in
all compensatory plans and arrangements of the Company no less favorable
than the current fiscal year plans including, but not limited to, a
bonus not less than the amount of the latest fiscal year bonus (none was
paid), and continuing eligibility to be awarded stock options; (3)
reimbursement for all expenses incurred while on Company related
business; and (4) annual consideration for base salary and plan
participation increases, if deemed justified by the Company. the
Agreement has a stated expiration date of March 23, 2003, but the term
of the Agreement automatically extends and has a remaining term of ten
years from any point in time, until the term is finally fixed at a
period of ten years from an intervening event, as provided in the
Agreement, such as permanent disability or death. During the Fiscal
Year, the Company amortized the estimated present value of future non-
salary benefits payable under the Agreement based upon certain
assumptions, in the amount of $468,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1995, each director of the Company and all directors
and executive officers of the Company owned beneficially the number of
shares of the Company's equity securities set forth in the following
table. Shares subject to acquisition within 60 days pursuant to stock
options are shown separately. Unless otherwise indicated, the owners
listed have sole voting and investment power. Class A Stock has no
voting rights except as provided under Delaware Law.
17
Amount and Shares Subject
Nature of to Acquisition Percent
Name of Individual Beneficial Within of Class
Title of Class or Persons in Group Ownership 60 days (15) Owned (16)
Common Stock Salvatore Giordano 1,100 (1) 0 Less than 1%
Sal Giordano, Jr. 1,100 (1) 0 Less than 1%
Joseph Giordano 13,910 (1) 0 Less than 1%
Howard S. Modlin 256,800 (2) 0 1.35%
Clarence Russel Moll 61,400 (3) 0 Less than 1%
William J. Brennan 5,000 0 Less than 1%
Anthony E. Puleo 2,000 (4) 0 Less than 1%
Robert L. Laurent, Jr. 115,000 0 Less than 1%
S. A. Muscarnera 55,000 0 Less than 1%
All directors and executive
officers as a group 514,610 0 2.71%
Class A Stock Salvatore Giordano 2,378,740 (5)(6) 487,500 14.76%
Sal Giordano, Jr. 1,521,509(5)(7)(8) 487,500 10.34%
Joseph Giordano 1,710,170 (5)(8) 234,375 10.14%
Howard S. Modlin 224,701 (9) 164,064 2.04%
Clarence Russel Moll 34,725 (10) 96,563 Less than 1%
William J. Brennan 4,375 121,876 Less than 1%
Anthony E. Puleo 0 9,375 Less than 1%
Robert L. Laurent, Jr. 100,625 325,000 2.21%
S. A. Muscarnera 48,125 243,750 1.52%
Gordon Newman 0 (11) 14,063 Less than 1%
All directors and executive
officers as a group 2,008,142 2,225,317 20.0%
Class B Stock Salvatore Giordano 1,866,476 (12) 0 82.31%
(15)
Sal Giordano, Jr. 2,153,746(12)(13)(14) 0 94.98%
Joseph Giordano 2,150,296 (12)(14) 0 94.83%
All directors and executive
officers as a group 2,262,566 0 99.78%
Ownership of Common Stock,
Class A Stock and Class B
Stock combined, by all
directors and executive
officers as a group 4,785,318 2,225,317 16.53%
18
(1) The amount shown includes 1,100 shares as to which Messrs Salvatore
Giordano, Sal Giordano, Jr. and Joseph Giordano share voting and
investment power.
(2) Includes 3,100 shares owned by members of Mr. Modlin's family as to
which Mr. Modlin disclaims beneficial ownership.
(3) Includes 15,000 shares owned by Dr. Moll's wife, as to which Dr.
Moll disclaims beneficial ownership.
(4) Through inadvertence, Mr. Puleo reported, in an untimely manner,
one transaction on Form 4 covering the purchase of shares of the Common
Stock of the Company during the Fiscal Year. The Company is not aware
of any failure of Mr. Puleo to file any required Form.
(5) Includes 825 shares as to which Messrs. Salvatore Giordano, Sal
Giordano, Jr. and Joseph Giordano share voting and investment power;
502,025 shares as to which the same individuals also share voting and
investment power; 102,150 are shares held by the Salvatore Giordano
Foundation; and 35,817 are shares held by the Giordano Foundation, for
both of which foundations these individuals are officers, directors and
stockholders.
(6) Includes 117,548 shares held of record by Mr. Giordano's wife, and
170,170 shares held of record by Mr. Giordano's wife in trust for their
grandchildren, as to which Mr. Giordano disclaims beneficial ownership.
(7) Includes 9,197 shares held of record by Mr. Giordano's wife, as to
which Mr. Giordano disclaims beneficial ownership.
(8) Includes 153,125 shares held in trust, as to which Messrs. Sal
Giordano, Jr. and Joseph Giordano share voting and investment power.
(9) Includes 2,713 shares owned by members of Mr. Modlin's family as to
which Mr. Modlin disclaims beneficial ownership.
(10) Includes 13,125 shares owned by Dr. Moll's wife as to which Dr.
Moll disclaims beneficial ownership.
(11) Through inadvertence, Mr. Newman reported, in an untimely manner,
two transactions on Form 4 for the month of August, 1995 covering the
sale of the Company's Common Stock and Class A Stock during the Fiscal
Year. The Company is not aware of any failure of Mr. Newman to file any
required Form.
(12) The amount shown includes 1,810,186 shares as to which Messrs.
Salvatore Giordano, Sal Giordano, Jr. and Joseph Giordano share voting
and investment power; 52,500 are shares held by the Salvatore Giordano
Foundation, and 3,790 are shares held by the Giordano Foundation, for
both of which they are officers, directors and stockholders.
19
(13) The amount shown includes 1,150 shares held of record by Mr.
Giordano's wife, as to which Mr. Giordano disclaims beneficial
ownership.
(14) The amount shown includes 175,000 shares held in trust, as to
which Messrs. Sal Giordano, Jr. and Joseph Giordano share voting and
investment power.
(15) The amounts shown are the number of shares held under options
exercisable within 60 days.
(16) The Class B Stock is convertible into Common Stock at any time on
a share-for-share basis. In the event that the individuals named as
owning Class B Stock converted their shares into Common Stock, less than
5% of the class would remain outstanding, and pursuant to the terms of
the Company's Certificate of Incorporation as amended, all remaining
Class B Stock and all outstanding Class A Stock would automatically be
converted into Common Stock. If such conversion took place, and the
named individuals exercised all of the options indicated, such
individuals and the group would beneficially own the following number of
shares constituting the indicated percentage of Common Stock
outstanding: Mr. Salvatore Giordano, 4,733,816 shares (of which
2,314,136 are shares as to which Mr. Giordano shares voting and
investment power with Messrs. Joseph Giordano and Sal Giordano, Jr.;
154,650 are shares held by the Salvatore Giordano Foundation, and 39,607
are shares held by the Giordano Foundation, for both of which he is an
officer, director and shareholder) constituting 11.64%; Mr. Sal
Giordano, Jr., 4,163,855 shares (of which 2,314,136 are shares as to
which Mr. Giordano shares voting and investment power with Messrs.
Salvatore Giordano and Joseph Giordano; 154,650 are shares held by the
Salvatore Giordano Foundation, and 39,607 are shares held by the
Giordano Foundation, for both of which he is an officer, director and
shareholder) constituting 10.24%; Mr. Joseph Giordano, 4,108,751 shares
(of which 2,214,136 are shares as to which Mr. Giordano shares voting
and investment power with Messrs. Salvatore Giordano and Sal Giordano,
Jr.; 154,650 are shares held by the Salvatore Giordano Foundation, and
39,607 are shares held by the Giordano Foundation, for both of which he
is an officer, director and shareholder) constituting 10.16%; and all
directors and executive officers as a group 7,010,635 shares
constituting 16.53%.
20
PRINCIPAL STOCKHOLDERS
The following table sets forth information at November 1, 1995 with
respect to the beneficial ownership of the Company's voting securities
by all persons known by the Company to own more than 5% of the Company's
outstanding voting securities. Unless otherwise indicated, the owners
listed have sole voting and investment power.
Name and Address Amount Beneficially Percent
Title of Class of Beneficial Owner (1) Owned of Class
Class B Stock Salvatore Giordano 2,262,566 99.78%
Joseph Giordano and
Sal Giordano, Jr.
c/o Fedders Corporation
Liberty Corner, NJ 07938
(1) In the event that the named individuals converted their shares of Class B
Stock into Common Stock, less than 5% of the class would remain outstanding,
and pursuant to the terms of the Company's Certificate of Incorporation as
amended, all remaining Class B Stock and all outstanding Class A Stock would
automatically be converted into Common Stock. If such conversion took place,
and the named individuals exercised all of their currently exercisable stock
options, they would own 5,076,629 shares of Common Stock constituting 12.26%
of Common Stock outstanding.
See the previous table and the notes thereto for more detailed information
with respect to the security ownership of the named individuals.
Item 13. Certain Relationships and Related Transactions
See the information included under Part III. Item 10 herein.
21
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Index to Financial Statements and Financial Statement Schedules
(a) 1. Financial Statements
The following Consolidated Financial Statements of the Company and its
subsidiaries are included:
Page #
Report of Independent Certified Public Accountants F5
Report of Independent Auditors F6
Consolidated Statements of Operations F7
Consolidated Balance Sheets at August 31, 1995 and 1994 F8
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994 and 1993 F9
Stockholders' Equity for the years ended
August 31, 1995, 1994 and 1993 F10
Notes to Consolidated Financial Statements F11-F20
(a) 2. Financial Statement Schedule
Consolidated Schedule as of and for the years ended August 31, 1995,
1994 and 1993
Report of Independent Certified Public Accountants S-1
II. Valuation and Qualifying Accounts S-2
All other schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included in the Consolidated Financial Statements or the
Notes thereto.
22
(a) 3. Exhibits
(Note: With respect to incorporation by reference to exhibits filed by
RTXX Corporation (formerly Rotorex Corporation), reference is hereby
made to Commission File No. 1-2150)
(3) (i) Restated Certificate of Incorporation, filed as Exhibit 3.1 to
the Company's Annual Report on Form 10-K for 1984 and incorporated
herein by reference.
(ii) Amendment to Restated Certificate of Incorporation, filed as
Exhibit 4a to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1985 and incorporated herein by reference.
(iii) Correction of Restated Certificate of Incorporation, filed as
Exhibit 4b to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1985 and incorporated herein by reference.
(iv) Amendment of Certificate of Incorporation, filed as Exhibit (3)
(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1987 and incorporated herein by reference.
(v) Amendment of Certificate of Incorporation, filed as Exhibit (3)
(ii) to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1987 and incorporated herein by reference.
(vi) Amendment to Certificate of Incorporation, filed as Exhibit (3)
(vi) to the Company's Annual Report on Form 10-K for the year ended
August 31, 1992 and incorporated herein by reference.
(vii) By-Laws, amended through January 16, 1988, filed as Exhibit (3)
(vii) to the Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
(10) (i) Stock Option Plan II, filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1984 and incorporated herein by
reference.
(ii) Stock Option Plan III, filed as Exhibit 10 (iv) to the
Company's Annual Report on Form 10-K for 1985 and incorporated herein by
reference.
(iii) Stock Option Plan IV, filed as Exhibit 10 (iv) to the
Company's Annual Report on Form 10-K for 1987 and incorporated herein by
reference.
(iv) Stock Option Plan V, filed as Exhibit 10 (v) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein by
reference.
23
(v) Stock Option Plan VI, filed as Exhibit 10 (vi) to the
Company's Annual Report on Form 10-K for 1989 and incorporated herein by
reference.
(vi) Stock Option Plan VII, filed as Exhibit 10 (vi) to the
Company's Annual Report on Form 10-K for 1990 and incorporated herein by
reference.
(vii) Employment Contract between The Corporation and Salvatore
Giordano dated March 23, 1993 filed as Exhibit 10 (viii) to the
Company's Annual Report on Form 10-K 1993 and incorporated herein by
reference.
(viii) Joint Venture Contract between Ningbo General Air Conditioner
Factory and Fedders Investment Corporation for the establishment of
Fedders Xinle Co. Ltd., dated July 31, 1995.
(11) Statement re computation of per share earnings.
(16) Letter reference change in certifying accountants.
(21) Subsidiaries.
(23) Consents of BDO Seidman, LLP.
(27) Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31,
1995.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
FEDDERS CORPORATION
By/s/Robert L. Laurent, Jr.
Robert L. Laurent, Jr.
Executive Vice President,
Finance and Administration and
Chief Financial Officer
December 13, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Salvatore Giordano
Salvatore Giordano Chairman of the Board December 13, 1995
/s/Salvatore Giordano, Jr.
Salvatore Giordano, Jr. Vice Chairman, President December 13, 1995
and Chief Executive Officer
and a Director (Principal
Executive Officer)
/s/Joseph Giordano
Joseph Giordano Director December 13, 1995
/s/Howard S. Modlin
Howard S. Modlin Director December 13, 1995
/s/Clarence Russel Moll
Clarence Russel Moll Director December 13, 1995
/s/William J. Brennan
William J. Brennan Director December 13, 1995
/s/Anthony Puleo
Anthony Puleo Director December 13, 1995
/s/S.A. Muscarnera
S.A. Muscarnera Director December 13, 1995
/s/Robert L. Laurent, Jr.
Robert L. Laurent, Jr. Executive Vice President, December 13, 1995
Finance and Administration
(Principal Financial and
Accounting Officer)
F1
Fedders Corporation
Management's Discussion and Analysis of Results of Operations and
Financial Condition
The past three years for Fedders Corporation, have shown significant
growth in revenues and profits. The growth in sales reflects the
Company's concentration on flexible manufacturing to accommodate
customers' increasingly seasonal delivery requirements while holding
fixed costs at a lower level than in the early 1990s. The Company has
also reallocated certain of its resources to the international
marketplace which is four times larger than the U.S. market and still
growing.
The Company's business is affected by summer weather in major markets,
with product shipped primarily in the second half of the fiscal year.
Just-in-time delivery is a requirement of new retail leaders in the room
air conditioner industry. Favorable weather for the third consecutive
year has depleted industry inventories at manufacturers and retailers
entering fiscal 1996. This follows a period of abnormally cool summer
weather in 1992 and 1990 - compounded by retailers' credit constraints
and industry consolidation that reduced room air conditioner
manufacturer sales and created significant excess inventories
industrywide from 1990 into the 1993 season. Manufacturers' shipments of
room air conditioners in the U.S., during Fedders' fiscal periods
totaled 4.1 million units in 1995, 3.8 million units in 1994 and 3.0
million units in 1993. The room air conditioner market outside of the
U.S. is over 12.0 million units.
Results of Operations
With Fedders and U.S. industry inventories at minimal levels entering
both of the last two fiscal years, Fedders increased its sales by 37%
and 46% in 1995 and 1994, respectively. Reported industry unit shipments
during 1995 in the U.S., excluding Fedders, increased only 12% while
Fedders' U.S. unit shipments increased by 30% as a result of its
flexible manufacturing and proven ability to meet customers'
just-in-time requirements. The Company also increased international
sales in fiscal 1995 by 56.3% over fiscal 1994 to $12.9 million. Fiscal
1994 sales increased due to increased orders from new accounts,
including heat-generated orders that were produced and shipped during
the retailers' selling season. Excess industry inventories from earlier
cold weather negatively affected 1993 sales.
The gross profit margin changed little in 1995. However, there was a
favorable $3.5 million reduction in warranty provisions, an outgrowth of
continuing improvements in quality offset, in part, by a $2.8 million
write down of idle equipment and inflationary pressure, primarily
related to copper. The gross profit margin increased in fiscal 1994 due
to efficiencies in plant utilization
F2
due to higher sales and continuous cost reduction. The 1993 gross profit
margin, though lower than 1995 and 1994, reflects a significant
improvement over prior years as a result of a 1992 restructuring that
lowered costs.
Selling, general and administrative expense decreased to 9.3% as a
percent of net sales in fiscal 1995 from 11.0% in fiscal 1994 due to
higher sales volume, that was offset, in part, by a $2.0 million
provision for the implementation of an early retirement program.
Selling, general and administrative expense decreased to 11.0% as a
percent of net sales in fiscal 1994 from 16.3% in fiscal 1993 due to
higher sales volume and consolidation of the Fedders North America sales
and marketing function near the end of fiscal 1993. In fiscal 1993,
selling, general and administrative expense decreased as a percent of
sales, despite lower sales, as a result of expense reduction associated
with a 1992 restructuring.
Interest expense decreased, as a percent of sales, by 1.2% from fiscal
1994 and 2.1% from fiscal 1993 as long-term debt was prepaid, and
accurate-response manufacturing minimized borrowing under the revolving
credit facility.
In 1995, the Company's income before taxes was only partially offset by
net operating loss carryforwards from 1994, and as a result, the
effective income tax rate increased to 17.3%. In fiscal 1994, the tax
rate was 3% with a provision of $594,000 and in fiscal 1993 the Company
had a net tax benefit of $565,000. During fiscal 1994, the Company
adopted Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" which resulted in a one-time cumulative effect of an
accounting change amounting to $1.8 million. The tax rate will increase
to the full taxable rate in fiscal 1996.
Prior-year earnings per share information was restated to reflect a 25%
Class A Stock dividend distributed to holders of Common, Class A and
Class B Stock in June 1995.
Liquidity and Capital Resources
Working capital requirements of the Company historically have been
seasonal with cash balances peaking in August and the greatest
utilization of its lines of credit occurring early in the calendar year.
The Company's cash flow in 1995 continued strong with cash increasing to
$57.7 million at August 31 from $34.9 million a year earlier even after
prepaying debt.
Accounts receivable decreased by $4.0 million as a result of lower
fourth quarter sales in fiscal 1995. Ending inventories increased by
$11.0 million, primarily as a result of raw materials purchases in
August 1995 to support earlier production for fiscal 1996, and
additional finished goods inventories to support international
F3
sales. Accrued expenses increased in fiscal 1995 as a result of higher
sales and marketing accruals related to higher sales offset, in part, by
lower warranty accruals due to continued improvements in quality
resulting in lower claims experience.
Investing activities during 1995 were limited primarily to capital
expenditures of $9.0 million. On July 31, 1995, the Company signed a
contract to enter into a joint venture to manufacture room air
conditioners in Ningbo, China with the Ningbo General Air Conditioner
Factory at an existing manufacturing facility. Fedders has a 60%
interest in Fedders Xinle Co., Ltd. which was initially capitalized on
November 7, 1996. Fedders' cash contribution to the venture was
approximately $8.4 million. The factory's present capacity is 200,000
units and is planned to be increased to 500,000 units in fiscal 1999.
The venture is expected to sell 50% of its product in China and export
50%.
In November 1995, the Company announced that a definitive agreement has
been reached to merge with NYCOR, Inc. ("NYCOR"), a manufacturer of
rotary compressors for use in room air conditioners and thermoelectrical
modules (note 13). NYCOR has five Asian compressor licensees. The
Company has a supply agreement with NYCOR for the supply of up to
800,000 compressors annually, through the year 2003 (note 2). The
Company anticipates rotary compressor requirements of 1.4 million in
fiscal 1996. The merger will provide a guaranteed supply of compressors
to support the international growth of room air conditioners. The
Company's expansion in the international market mitigates the dependency
on weather in the North American market.
Fedders' cash flow during fiscal 1995 was strong. As a result, the
Company fully redeemed at par $13.2 million of principal, plus accrued
interest outstanding, of its 5% convertible subordinated debentures due
in May 1996. The Company also used $3.0 million for the early buy-out of
an equipment lease. Remaining debt of $5.1 million has an average rate
of interest of 1.9%. The Company also declared a cash dividend of
$797,000 in fiscal 1995, the first cash dividend since 1991.
The Company's revolving credit facility of $40.0 million is renewable in
December 1997. The credit facility is collateralized by substantially
all of the Company's assets. Management believes that the Company's
cash, earnings and borrowing capacity are adequate to meet the needs of
its operations and long-term credit requirements, including capital
expenditures and its debt maturities.
F4
Fedders Corporation
Selected Financial Data (a)
(Amounts in thousands,
except share data) 1995 1994 1993 1992 1991(e)
Net sales $316,494 $231,572 $158,602 $192,365 $191,423
Gross profit 67,125 49,263 27,744 25,607 27,750
Percent of net
sales 21.2 21.3 17.5 13.3 14.5
Operating income
(loss) 37,653 23,905 1,907 (9,392) (1,883)
Percent of net
sales 11.9 10.3 1.2 (4.9) (.01)
Pre-tax income
(loss) 35,691 19,803 (2,340) (24,965) (13,666)
Percent of net
sales 11.3 8.6 (1.5) (12.7) (7.1)
Net income (loss) $ 29,504 $ 20,989(c) $ (1,775) $(24,931)(d)$(11,178)(f)
Per share $ 0.72 $ 0.53(c) $ (0.05) $ (0.67) $ (0.32)
Cash dividends declared per share:
Common $ 0.020 - - - $ 0.360
Class A 0.020 - - - -
Class B 0.018 - - - 0.324
Cash $ 57,707 $ 34,869 $ 8,553 $ 8,738 $ 2,908
Total assets 136,775 100,653 81,285 179,249 197,243
Total debt 5,106 17,943 25,590 89,588 94,973
Stockholders'
equity 82,542 49,317 24,229 19,039 44,181
Capital
expenditures 9,041(b) 2,634 2,379 3,599 3,607
Depreciation and
amortization 7,519 9,374 5,646 14,876 10,580
Earnings before
interest, taxes,
depreciation and
amortization 44,143 32,252 6,317 2,675 6,269
(a) The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition and
the consolidated financial statements and the notes thereto.
(b) Includes buyout of $1,750,000 of equipment under lease.
(c) In 1994, the Company adopted SFAS 109, Accounting for Income Taxes, which
resulted in income of $1,780,000 or $0.04 per share from the cumulative
effect of an accounting change.
(d) Includes a net restructuring charge of $3,300,000 for costs associated
with the shutdown of the Company's New Jersey production facilities offset,
in part, by the benefit from the sale of its compressor business.
(e) Information presented is for the eight months ended August 31, 1991.
(f) Includes a pre-tax provision of $5,000,000 for a product recall.
F5
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of Fedders Corporation
We have audited the accompanying consolidated balance sheet of Fedders
Corporation as of August 31, 1995, and the related consolidated
statements of operations, cash flows and stockholders' equity for the
year ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Fedders Corporation as of August 31, 1995, and the consolidated
results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/BDO Siedman, LLP
Woodbridge, New Jersey
October 2, 1995
except for Note 13, which is as of November 30, 1995
F6
Report of Independent Auditors
To the Board of Directors and Stockholders of Fedders Corporation
We have audited the accompanying consolidated balance sheet of Fedders
Corporation as of August 31, 1994, and the related consolidated
statements of operations, cash flows and stockholders' equity for each
of the two years in the period ended August 31, 1994. Our audits also
included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these 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 the 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Fedders Corporation as of August 31, 1994 and the consolidated
results of its operations and its cash flow for each of the two years
in the period ended August 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in notes 1 and 7 to the consolidated financial
statements, in 1994 the Company changed its method of accounting for
income taxes.
/s/ Ernst and Young LLP
MetroPark, New Jersey
October 6, 1994
F7
Fedders Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Years Ended August 31, 1995 1994 1993
Net sales $316,494 $231,572 $158,602
Costs and expenses:
Cost of sales 249,369 182,309 130,858
Selling, general and
administrative 29,472 25,358 25,837
278,841 207,667 156,695
Operating income 37,653 23,905 1,907
Interest expense (net of interest
income of $751, $223 and $161 in
1995, 1994 and 1993, respectively (1,962) (4,102) (4,247)
Income (loss) before income taxes 35,691 19,803 (2,340)
Federal, state and foreign income
tax (benefit) (note 7) 6,187 594 (565)
Income (loss) before cumulative
effect of an accounting change 29,504 19,209 (1,775)
Cumulative effect of an accounting
change (note 7) - 1,780 -
Net income (loss) $29,504 $20,989 $(1,775)
Earnings per share:
Income (loss) before cumulative
effect of an accounting change $ 0.72 $ 0.49 $ (0.05)
Cumulative effect of an accounting
change - 0.04 -
Net income (loss) per share $ 0.72 $ 0.53 $ (0.05)
See accompanying notes
F8
Fedders Corporation
Consolidated Balance Sheets
(Amounts in thousands, except share data)
August 31, 1995 1994
Assets
Current assets:
Cash and cash equivalents $57,707 $34,869
Accounts receivable (less allowances of
$872 in 1995 and $744 in 1994) 8,847 12,840
Inventories 29,020 18,048
Deferred income taxes (note 7) 2,954 -
Other current assets 893 674
Total current assets 99,421 66,431
Net property, plant and equipment 29,803 27,372
Deferred income taxes (note 7) 1,277 -
Other assets 6,274 6,850
$136,775 $100,653
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt (note 5) $ 590 $ 616
Accounts payable 5,591 5,315
Income taxes payable (note 7) 9,131 758
Accrued expenses 27,986 21,369
Total current liabilities 43,298 28,058
Long-term debt (note 5) 4,516 17,327
Deferred income taxes (note 7) - 1,175
Other long-term liabilities:
Warranty 3,962 2,852
Other 2,457 1,924
Commitments and contingencies
(notes 3, 4, 6, 11, 12 and 13)
Stockholders' equity (notes 9 and 10):
Common Stock, $1 par value, 60,000,000
shares authorized, 18,988,598 and
19,641,659 issued at August 31, 1995
and 1994, respectively 18,989 19,642
Class A Stock, $1 par value, 30,000,000
shares authorized, 18,831,376 and
10,625,029 shares issued at August 31,
1995 and September 9, 1994, respectively 18,831 10,625
Class B Stock, $1 par value, 7,500,000
shares authorized, 2,267,206 and
2,268,206 issued and outstanding at
August 31, 1995 and 1994, respectively 2,267 2,268
Additional paid-in capital (note 7) 46,481 51,423
Accumulated deficit (4,041) (24,764)
Cumulative translation adjustment 15 (169)
Notes due on Common Stock purchases (note 10) - (742)
82,542 58,283
Less treasury stock, at cost, 654,410
shares of Common Stock at August 31, 1994 - (8,966)
Total stockholders' equity 82,542 49,317
$136,775 $100,653
See accompanying notes
F9
Fedders Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended August 31, 1995 1994 1993
Operating activities:
Net income (loss) $29,504 $20,989 $(1,775)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 7,519 9,374 5,646
Tax benefit related to stock
options exercised 2,900 - -
Deferred income taxes (5,406) (962) 566
Changes in operating assets and
liabilities:
Accounts receivable, net 3,993 (3,939) 5,574
Inventories (10,972) 1,222 25,864
Other current assets (219) 243 (832)
Other assets 175 (59) (1,156)
Accounts payable (521) 141 (23,051)
Accrued expenses 6,617 4,370 (15,439)
Income taxes payable 8,373 573 -
Other long-term liabilities 1,643 1,687 272
Other 184 (39) (778)
Net cash provided by (used in)
operations 43,790 33,600 (5,109)
Investing activities:
Additions to property, plant and
equipment (9,041) (2,634) (2,379)
Disposal of property, plant and
equipment 521 441 89
Net cash used in investing activities (8,520) (2,193) (2,290)
Financing activities:
Repayments of long-term debt (13,866) (9,229) (529)
Proceeds from stock options
exercised 692 4,138 7,743
Proceeds from notes due on
common stock purchases 742 - -
Net cash (used in) provided by
financing activities (12,432) (5,091) 7,214
Net increase (decrease) in cash and
cash equivalents 22,838 26,316 (185)
Cash and cash equivalents at
beginning of year 34,869 8,553 8,738
Cash and cash equivalents at end
of year $57,707 $34,869 $8,553
Supplemental disclosure:
Interest paid $ 1,904 $ 3,766 $3,248
Net income taxes paid (refunded) 492 (1,196) (1,155)
See accompanying notes
F10
Fedders Corporation
Consolidated Statements of Stockholders' Equity
(Amounts in thousands)
Cumula-
tive Notes
Addi- Trans- Due on
tional Retained lation Common
Common Class A Class B Paid-in Earnings Adjust- Stock Treasury
Stock Stock Stock Capital (Deficit) ments Purchases Stock
August 31,
1992 $16,838 - $2,268 $41,583 $(33,353) $648 - $(8,945)
Net loss - - - - (1,775) - - -
Stock options
exercised 1,776 - - 5,988 - - - (21)
Foreign currency
translation - - - - - (778) - -
August 31,
1993 $18,614 - $2,268 $47,571 $(35,128)$(130) - $(8,966)
Net income - - - - 20,989 - - -
Stock dividend - $10,625 - - (10,625)
Stock options
exercised 1,028 - - 3,852 - - $(742) -
Foreign currency
translation - - - - - (39) - -
August 31,
1994 $19,642 $10,625 $2,268 $51,423 $(24,764)$(169) $(742) $(8,966)
Net income - - - - 29,504 - - -
Stock dividend - 7,984 - - (7,984) - - -
Conversion of
Class B to
Common Stock 1 - (1) - - - - -
Dividends
declared - - - - (797) - - -
Stock options
exercised - 222 - 470 - - - -
Tax benefit related
to stock options
exercised - - - 2,900 - - - -
Repayment of common
stock notes - - - - - - 742 -
Retirement of
treasury
stock (654) - - (8,312) - - - 8,966
Foreign currency
translation - - - - - 184 - -
August 31,
1995 $18,989 $18,831 $2,267 $46,481 $(4,041) $ 15 $ - $ -
See accompanying notes
F11
Fedders Corporation
Notes to Consolidated Financial Statements
(Years ended August 31, 1995, 1994 and 1993; dollar amounts in tables,
except per share, stock option and market data, are in thousands)
1. Summary of Significant Accounting Policies
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions are eliminated in
consolidation.
Net sales
Sales are recorded, at time of shipment, net of provisions for sales
allowances, warranty and similar items.
Warranty and return policy
The Company's warranty policy generally provides five-year coverage
for sealed systems including compressors, two-year coverage on motors
and one-year coverage on all other parts and labor related to air
conditioners sold in North America. The Company's policy is to accrue
the estimated cost of warranty coverage and returns at the time the
sale is recorded. The policy with respect to sales returns generally
provides that a customer may not return inventory except at the
Company's option.
Foreign currency translation
Assets and liabilities of the Company's foreign subsidiaries are
translated at the rate of exchange in effect at the end of the period.
Net sales and expenses are translated at the average rate of exchange
for the period. Translation adjustments are reflected as a separate
component of stockholders' equity.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of the first-in, first-out (FIFO)
cost or market. The Company reviews inventory periodically for
slow-moving and obsolete items. Write downs, which have historically
been insignificant, are recorded in the period in which they are
identified. Inventories consist of the following at August 31:
1995 1994
Finished goods $14,592 $9,596
Work in process 2,540 1,242
Raw materials and supplies 11,888 7,210
$29,020 $18,048
F12
Property, plant and equipment
Replacements, betterments and additions to property, plant and
equipment are capitalized at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Upon sale or retirement
of property, plant and equipment, the cost and related accumulated
depreciation are removed from the respective accounts and any gain or
loss is reflected in income. Property, plant and equipment at cost
consist of the following at August 31:
Estimated Useful Life 1995 1994
Land and improvements $1,369 $1,363
Buildings 20 to 30 years 12,888 12,005
Machinery and equipment 5 to 12 years 53,302 47,146
Property, plant and equipment 67,559 60,514
Accumulated depreciation 37,756 33,142
$29,803 $27,372
Depreciation is provided on the straight-line basis over the estimated
useful life of each asset as noted above. Depreciation expense
includes a write down of certain idle fixed assets to estimated
realizable value amounting to $2,860,000 and $3,902,000 in 1995 and
1994, respectively.
Other assets
Other assets consist primarily of intangible assets which, other than
goodwill, are amortized over periods from one to eight years using the
straight-line method. Goodwill is amortized over 40 years using the
straight-line method and recoverability is evaluated periodically. In
1994, long-term receivables included receivables from employees,
including an officer, that were repaid in 1995. Other assets are net
of accumulated amortization of $8,473,000 and $8,072,000 at August 31,
1995 and 1994, respectively, and consist of the following at August
31:
1995 1994
Goodwill $5,517 $5,669
Other 757 754
Intangible assets 6,274 6,423
Long-term receivables - 427
$6,274 $6,850
The Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," establishes accounting standards for, among
other things, the impairment of long-lived assets and certain
identifiable intangibles. SFAS No.121 will be effective for financial
statements for fiscal years beginning after December 15, 1995. It is
not expected to have a material effect on the Company's consolidated
financial statements.
F13
Accrued expenses
Accrued expenses consist of the following at August 31:
1995 1994
Warranty $3,442 $6,393
Marketing programs 10,685 4,368
Salaries and benefits 7,143 3,082
Other 6,716 7,526
$27,986 $21,369
Income taxes
During the first quarter of fiscal 1994, the Company adopted Statement
of Financial Accounting Standard ("SFAS") No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting the new standard as
of September 1, 1993 resulted in a tax benefit of $1,780,000. Prior
years' financial statements were not restated to apply the provisions
of SFAS No. 109. Deferred income taxes are provided to reflect the tax
effects of "temporary differences" between assets and liabilities for
financial reporting purposes and income tax purposes. Provisions are
also made for U.S. income taxes on undistributed earnings of foreign
subsidiaries not considered to be indefinitely reinvested (note 7).
Research and development costs
All research and development costs are charged to expense as incurred
and amount to $2,742,000, $2,233,000 and $2,164,000 in 1995, 1994 and
1993, respectively.
Amounts per share
Earnings per share are computed by dividing net income by the weighted
average number of shares of Common, Class A and Class B Stock and
other common stock equivalents outstanding during the year:
41,001,000, 39,386,000, and 37,297,000 in 1995, 1994, and 1993,
respectively. Prior-period earnings per share have been restated to
reflect the Class A Stock dividend distributed in June 1995 (notes 9
and 10).
Reclassifications
Certain items in the 1994 financial statements have been reclassified
to conform to the 1995 presentation.
2. Transactions With NYCOR
The Company has an agreement with NYCOR, Inc. ("NYCOR") for the supply
of up to 800,000 compressors annually through 2003 with two renewable
options. Purchases from NYCOR at negotiated market prices, amounted
to $52,381,000, $52,108,000 and $28,801,000 in 1995, 1994 and 1993,
respectively. Certain officers and directors of the Company are also
officers and/or directors of NYCOR and have significant stockholdings
in both companies. In November 1995, the Company announced that a
definitive agreement was reached to merge with NYCOR (note 13).
F14
3. Litigation
The Company is involved in litigation, both as plaintiff and
defendant, incidental to the conduct of its business. It is the
opinion of management, after consultation with counsel, that the
outcome of such litigation will not have a material adverse effect on
the accompanying financial statements.
4. Short-term Borrowing
At August 31, 1995 and 1994, the Company had no short-term borrowing
under its $40,000,000 revolving credit facility with a commercial
finance company. Availability under the facility is based on accounts
receivable and inventory and requires maintenance of certain financial
covenants. The maximum amount outstanding under the credit facility
was $21,512,000 and $28,404,000 during fiscal 1995 and fiscal 1994,
respectively. The average amount outstanding and average rate of
interest charged on outstanding borrowings under the credit facility
were $4,602,000 at 11% in fiscal 1995 and $11,425,000 at 8.7% in
fiscal 1994. The credit facility is collateralized by substantially
all of the Company's assets and is in effect until December 1997. The
rate of interest on the facility is at the prime rate plus 2.0%.
5. Long-term Debt
Long-term debt consists of the following at August 31:
1995 1994
Promissory note payable to the State of
Illinois, interest at 1% $4,527 $4,856
Capital lease obligations and other 579 712
5% convertible subordinated debentures
due in 1996: $13,211 principal amount
less unamortized discount of $1,029
at August 31, 1994 - 12,182
Promissory note payable to the State of
Tennessee and Maury County, Tennessee,
interest at 8% - 193
5,106 17,943
Less current maturities 590 616
$4,516 $17,327
Aggregate amounts of long-term debt, excluding capital leases and
other of $579,000 maturing in each of the five years after August 31
are: 1996-$332,000, 1997-$335,000, 1998-$338,000, 1999-$342,000 and
2000-$346,000.
The loan from the State of Illinois has an interest rate of 1%, is to
be paid over the next 13 years, and is collateralized by a mortgage
on the Illinois facility.
The 5% convertible subordinated debentures due in May 1996 were fully
redeemed by the Company in May 1995 at 100% of principal. The loan
from the State of Tennessee and Maury County, Tennessee was prepaid
by the Company in June 1995.
F15
The Company has equipment which are under capital leases. The
aggregate future minimum lease payments for the years ending August
31 are as follows: $251,000 in 1996, $253,000 in 1997 and $75,000
thereafter. The present value of minimum lease payments is $579,000,
excluding $32,000 of interest.
6. Operating Leases
The Company leases certain property and equipment under operating
leases which expire over the next twelve years. Most of these
operating leases contain one of the following options: (a) the Company
may, at the end of the initial lease term, purchase the property at
the then fair market value or (b) the Company may renew its lease at
the then fair rental value for a period of one month to four years.
Minimum payments for operating leases having initial or remaining
non-cancelable terms are as follows: $1,526,000, $1,398,000, $959,000,
$957,000 and $914,000 in 1996, 1997, 1998, 1999 and 2000,
respectively. Minimum lease payments total $5,754,000. Total rent
expense for all operating leases amounted to $2,083,000, $3,559,000
and $3,783,000 in 1995, 1994 and 1993, respectively. In 1995, an
equipment lease expiring in February 1996 was bought out by the
Company for $3,000,000, of which $1,250,000 related to the prepayment
of rental and interest expense.
7. Income Taxes
The provision for income tax (benefit) consists of the following
components:
1995 1994 1993
Current:
Federal $6,258 $396 -
State 2,378 198 -
Foreign 57 - $(870)
8,693 594 (870)
Charge in lieu of income taxes 2,900 - -
Deferred:
Federal (4,392) - -
State (1,014) - -
Foreign - - 305
(5,406) - 305
$6,187 $594 $(565)
In 1995 and prior years, the exercise of stock options to acquire
shares of the Company's Common and Class A Stock resulted in a
compensation deduction for income tax purposes for which no
corresponding expense was required for financial reporting purposes.
The tax benefits related to these deductions, which were realized in
1995, are reflected as a charge in lieu of income taxes and a credit
to additional paid-in capital.
F16
Deferred income taxes result from "temporary differences" between
assets and liabilities for financial reporting purposes and income tax
purposes. These temporary differences are determined in accordance
with SFAS No. 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting
principles.
The principal temporary differences and carryforwards giving rise to
deferred tax assets and liabilities at August 31 are as follows:
1995 1994
Warranty $2,822 $3,100
Depreciation (1,826) (4,400)
Employee benefit programs 1,550 1,111
Inventory 854 1,196
Net operating loss carryforwards 1,500 9,826
Other 1,556 792
6,456 11,625
Valuation allowance (2,225) (12,800)
$4,231 $(1,175)
The decrease in the deferred tax asset valuation allowance in 1995
resulted from the utilization of net operating loss carryforwards and
a change in the Company's estimate of the utilization of temporary
differences based primarily on improved operating results.
The difference between the United States statutory income tax rate and
the consolidated effective income tax rate is due to the following
items:
1995 1994 1993
Expected tax (benefit) at
statutory rate $12,492 $6,733 $(796)
Effect of Canadian operations - - (123)
Valuation allowance reflected
in current income (7,851) (6,799) -
Alternative minimum tax - 396 -
State taxes, less federal income
tax benefit 887 198 -
Losses for which no benefits
can be provided - - 295
Other 659 66 59
$6,187 $594 $(565)
At August 31, 1995, the Company has Canadian net operating loss
carryforwards of approximately $3,500,000 that expire in the years
2002 through 2003. At August 31, 1994, the Company had U.S. net
operating loss carryforwards of approximately $21,200,000, investment
tax credit carryforwards of approximately $370,000 and alternative
F17
minimum tax credit carryforwards of approximately $1,400,000. All U.S.
net operating losses and credit carryforwards were utilized at August
31, 1995.
8. Industry Segment
The Company operates in one industry segment and sells its room air
conditioners primarily direct to retailers and also through private
label arrangements and distributors. One customer accounted for 26%
of net sales in 1995 and 28% in 1994 and 1993. Two other customers
accounted for 10% and 11% of net sales in 1995 and 1994, respectively.
International sales were approximately $12,892,000 in 1995, $8,250,000
in 1994, and $5,769,000 in 1993, and were made principally to Canada,
Japan and Spain.
9. Capital Stock
Common Stock: Shares of Common Stock are reserved for the conversion
of Class A Stock and Class B Stock as indicated herein. At August 31,
1995, 1,050,000 shares of Common Stock are reserved under the
Company's stock option plans. During fiscal year 1995, the Company
canceled 654,410 shares of Common Stock held in treasury.
Class A Stock: On June 14, 1995, 7,984,000 shares of Class A Stock
were issued to stockholders through a stock dividend of one share of
Class A Stock for each four shares of either Common, Class A or Class
B Stock held. On September 9, 1994, 10,625,029 shares of Class A Stock
were issued to stockholders through a stock dividend of one share of
Class A Stock for each two shares of either Common or Class B Stock
held. At August 31, 1995, 6,253,000 shares of Class A Stock are
reserved under the Company's stock option plans. Class A Stock has
rights, including dividend rights, substantially identical to the
Common Stock, except that the Class A Stock will not be entitled to
vote except to the extent provided under Delaware law.
Class A Stock is immediately convertible into Common Stock on a
share-for-share basis upon conversion of all of the Class B Stock and
accordingly, at August 31, 1995, 25,084,000 shares of Common Stock are
reserved for such conversion.
Class B Stock: Class B Stock is immediately convertible into Common
Stock on a share-for-share basis and accordingly, at August 31, 1995,
2,267,206 shares of Common Stock are reserved for such conversion.
Class B Stock has greater voting power, in certain circumstances,
ten-to-one, in the election of directors but receives a lower
dividend, 90%, if declared, than Common Stock and has limited
transferability. Class B Stock also votes separately, as a class, on
certain significant issues.
10. Stock Option Plans
All stock option plans, as approved by the stockholders, provide for
the granting to employees and officers of incentive stock options (as
defined under current tax laws) and non-qualified stock options. All
of the plans provide for the granting of non-qualified stock options
to directors who are not employees. Stock options are exercisable one
year after the date of grant and, if not exercised, will expire five
years from the date of grant. Certain options are only exercisable at
the end of five years.
F18
For options exercised during a six-week period in early 1994,
optionees were given the opportunity to pay two-thirds of the exercise
price upon exercise and to defer the remaining balance until the
earlier of July 31, 1995 or upon the sale of such stock. Such
optionees executed non-recourse interest bearing notes, which were
repaid in 1995. The stock option plan summary is as follows:
(000's) 1995 1994 1993
Options outstanding beginning
of year 3,903 2,987 3,200
Granted 403 752 2,299
Canceled (300) (109) (736)
Exercised (218) (1,028) (1,776)
Options outstanding prior to
dividend-related adjustments 3,788 2,602 2,987
Dividend-related adjustments (a) 927 1,301 -
Options outstanding at end
of year 4,715 3,903 2,987
Options exercisable at end
of year 3,336 1,862 688
Exercise price $2.33 $2.90 $4.36
per share to 4.70 to 5.66 to 7.63
(a) In connection with the stock dividend distributed on June 14, 1995
and September 9, 1994, all Class A options were adjusted to reflect
a 25% and 50% increase, respectively, with a corresponding reduction
in exercise price to 80% and 67%, respectively, of the previously
existing price, in order to maintain the equivalent economic position
of the optionee.
11. Pension Plans and Other Retirement Benefits
The Company maintains a 401(k) defined contribution plan covering all
U.S. employees. Company matching contributions under the plan are
based on the level of individual participant contributions and
amounted to $756,000 in 1995, $726,000 in 1994 and $754,000 in
1993.The Company has maintained defined benefit pension plans, which
were curtailed in 1993, covering its union employees, which plans paid
benefits to retirees based upon the length of continuous service. As
of August 31, 1995, the Company has terminated its defined benefit
pension plans with no material gain or loss resulting from such
terminations.
Net periodic pension expense (benefit) as of July 31 was $6,000,
$(301,000), and $15,000 in 1995, 1994 and 1993, respectively. At July
31, 1994, the market value of plan assets of $11,354,000 exceeded the
actuarial present value of the accumulated vested benefit obligation
by $1,454,000. Of this excess, $215,000 was recorded as a prepaid
pension benefit on the balance sheet and the remainder represented an
unrecognized gain.
The Company has an agreement with an officer that has a term of ten
years from any point in time and provides for salary during the
F19
employment period, a disability program, postretirement benefits and
a death benefit in an amount equal to ten times the prior year's
compensation, payable by the Company over ten years. The estimated
present value of future non-salary benefits payable under the
agreement has been determined based upon certain assumptions and is
being amortized over the expected remaining years of service to the
Company.
The Company provides a portion of health care and life insurance
benefits for retired employees who elect to participate in the
Company's plan. During fiscal 1994, the Company adopted SFAS No. 106,
which requires accrual accounting for all postretirement benefits
other than pension. At August 31, 1995 and 1994 postretirement
benefits were fully accrued. The effect of adoption in 1994 of SFAS
No. 106 was not material.
12. Joint Venture
On July 31, 1995, the Company announced that it signed a contract to
enter into a joint venture with the Ningbo General Air Conditioner
Factory ("Ningbo"), Ningbo City, Zheijang Province, People's Republic
of China ("P.R.C.") to manufacture room air conditioners in China. The
joint venture, Fedders Xinle Co., Ltd., was capitalized during the
first fiscal quarter of 1996, at which time the Company contributed
approximately $8,400,000 of cash plus know-how for a 60% interest in
the joint venture. Ningbo contributed the factory, equipment and other
assets valued at $5,600,000 for a 40% interest. The equivalent of
approximately $10,400,000 in long-term financing was provided by a
P.R.C. bank for the joint venture.
13. Subsequent Event
In November 1995, the Company announced that a definitive agreement
was reached to merge with NYCOR. Under the terms of the agreement, if
Fedders Class A Stock is trading for less than $6.25 per share on the
date preceding the merger, stockholders of NYCOR will receive shares
of Fedders Preferred Stock, convertible into Fedders Class A Stock at
$6.25, for each of the 7,565,000 shares of NYCOR Common, Class A and
Class B Stock outstanding. If Fedders Class A Stock is trading for
$6.25 or greater on the date preceding the merger, NYCOR stockholders
will receive $6.25 worth of Fedders Class A Stock, with fractional
shares being paid in cash. The agreement is subject to the approval
of the stockholders and lenders of both companies in addition to any
required governmental approvals.
F20
14. Quarterly Financial Data (unaudited)
(000's, except per share and market price data)
First Second Third Fourth Fiscal Year
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
$ $ $ $ $ $ $ $ $ $
Net sales
20,125 10,527 72,357 36,959 145,869 95,812 78,143 88,274 316,494 231,572
Gross profit
4,306 2,074 13,686 7,710 30,489 19,869 18,644 19,610 67,125 49,263
(c)
Income (loss) before
cumulative effect
of accounting change
(1,217)(3,891) 5,567 1,128 17,806 11,640 7,348 10,332 29,504 19,209
Cumulative effect of
accounting change
- 1,780 - - - - - - - 1,780
Net income (loss)
(1,217)(2,111) 5,567 1,128 17,806 11,640 7,348 10,332 29,504 20,989
Net income (loss) per
share (a, b)
(0.03) (0.05) 0.13 0.03 0.44 0.29 0.18 0.26 0.72 0.53
Market price
per share (a):
Conmon Stock (FJC)
High 6 1/4 3 5/16 6 1/8 4 1/8 6 1/8 4 3/4 7 7/8 4 3/8 7 7/8 4 3/4
Low 3 7/8 2 1/2 5 3 1/8 5 1/4 3 1/2 5 3/8 3 1/2 3 7/8 2 1/2
Class A Stock (FJA)
High 4 3/8 - 4 3/4 - 4 3/4 - 6 5/8 - 6 5/8 -
Low 3 1/4 - 3 5/8 - 4 - 4 1/8 - 4 -
(a) Restated to reflect a 25% stock dividend distributed on June 14, 1995.
(b) Quarterly earnings per share may not add to earnings per share for the
year due to rounding and changes in the number of weighted average shares
outstanding.
(c) Includes a $3.5 million reduction in warranty provisions and a $2.8
million write down of idle equipment.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Directors
Fedders Corporation
The audit referred to in our report dated October 2, 1995, except for
Note 13, which is as of November 30, 1995, relating to the
consolidated financial statements of Fedders Corporation, which is
contained in item 8 of this Form 10-K, included the audit of the
financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audit.
In our option, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
/s/BDO Seidman, LLP
Woodbridge, New Jersey
October 2, 1995, except for Note 13,
which is as of November 30, 1995
S-1
FEDDERS CORPORATION
VALUATION & QUALIFYING ACCOUNTS
SCHEDULE II
For The Years Ended August 31, 1995, 1994 and 1993
(Amounts in Thousands)
Balance at Additions Balance
Allowance for beginning charged to at end
Doubtful Accounts: of period expense Deductions of
period
Year ended:
August 31, 1995 $ 744 $ 286 $ 158 $ 872
August 31, 1994 $ 1,078 $ 666 $ 1,000 $ 744
August 31, 1993 $ 3,356 $ 63 $ 2,341 (1) $ 1,078
(1) Deductions include $474 related to the sale of the compressor
operations.
S-2
EXHIBIT INDEX
PAGE
(3) (i) Restated Certificate of Incorporation, filed
as Exhibit 3.1 to the Company's Annual Report on Form
10-K for 1984 and incorporated herein by reference.
(ii) Amendment to Restated Certificate of
Incorporation, filed as Exhibit 4a to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985 and incorporated herein by reference.
(iii) Correction of Restated Certificate of
Incorporation, filed as Exhibit 4b to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985 and incorporated herein by reference.
(iv) Amendment of Certificate of Incorporation, filed
as Exhibit (3) (i) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1987 and incorporated
herein by reference.
(v) Amendment of Certificate of Incorporation, filed as
Exhibit (3) (ii) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1987 and incorporated
herein by reference.
(vi) Amendment to Certificate of Incorporation, filed as
Exhibit (3) (vi) to the Company's Annual Report on Form 10-K
for the year ended August 31, 1992 and incorporated herein by
reference.
(vii) By-Laws, amended through January 16, 1988, filed as
Exhibit (3) (vii) to the Company's Annual Report on Form 10-K
for 1987 and incorporated herein by reference.
(10) (i) Stock Option Plan II, filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for 1984 and incorporated
herein by reference.
(ii) Stock Option Plan III, filed as Exhibit 10 (iv) to
the Company's Annual Report on Form 10-K for 1985 and
incorporated herein by reference.
(iii) Stock Option Plan IV, filed as Exhibit 10 (iv) to
the Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
(iv) Stock Option Plan V, filed as Exhibit 10 (v) to the
Company's Annual Report on Form 10-K for 1988 and incorporated
herein by reference.
Page
(v) Stock Option Plan VI, filed as Exhibit 10 (vi) to
the Company's Annual Report on Form 10-K for 1989 and
incorporated herein by reference.
(vi) Stock Option Plan VII, filed as Exhibit 10 (vi) to
the Company's Annual Report on Form 10-K for 1990 and
incorporated herein by reference.
(vii) Employment Contract between The Corporation and
Salvatore Giordano dated March 23, 1993 filed as Exhibit 10
(viii) to the Company's Annual Report on Form 10-K 1993 and
incorporated herein by reference.
(viii) Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995.
(11) Statement re computation of per share earnings.
(16) Letter reference change in certifying accountants.
(21) Subsidiaries.
(23) Consents of BDO Seidman, LLP.
(27) Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31,
1995.