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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to _______________.
Commission file number 0-10120
FAFCO, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2159547
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
2690 MIDDLEFIELD ROAD, REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415/363-2690
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.125 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
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Indicate by check mark if the 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. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of
____________________was____________________, based upon the average of the bid
and ask prices reported for such date by the National Quotation Bureau. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
executive officers and directors of the registrant have been excluded in that
such persons may be deemed to be "affiliates" as that term is defined under the
rules and regulations promulgated under the Securities Act of 1933. This
determination is not necessarily conclusive for other purposes.
The number of shares of the registrant's Common Stock outstanding as of
_________________, was _____________.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION FORM 10-K PART
Portions of Exhibit 13.1 (the Company's 1995 Annual Report to Shareholders
(the "Annual Report").......................................................... I, II, IV
The Company's Definitive Proxy Statement (the "Proxy Statement") for the
1996 Annual Meeting to be held on April 27, 1996 (the Proxy Statement is
expected to be filed pursuant to Regulation 14A on or before April 1,
1996) ...................................................................... III
_____________________________
With the exception of the information specifically incorporated by reference in
Parts I, II, III and IV of this Form 10-K, neither the Company's Annual Report
nor the Company's Proxy Statement is to be deemed filed as part of this report.
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PART I
ITEM 1. Business
INTRODUCTION
FAFCO, Inc. ("FAFCO," the "Company" or "Registrant") designs, develops,
manufactures, and markets solar heating systems for swimming pools and thermal
energy storage systems for commercial and industrial cooling. Pool product
sales amounted to 62% of net sales in 1995 compared to 57% of net sales in 1994
and 63% of net sales in 1993. Thermal energy storage sales amounted to 38% of
net sales in 1995 compared to 42% of net sales in 1994 and 34% in 1993; (444
domestic hot water heater sales were discontinued in early 1994 and had
amounted to 2% of net sales in 1993).
The Company manufactures products for the solar heating of water for low and
medium temperature applications. From the inception of the Company's
predecessor as a sole proprietorship in 1969 until 1976, efforts were largely
devoted to the refinement of the Company's initial product, a solar heating
system for swimming pools - a low temperature solar application. Since that
time, the Company has focused on increasing its share of the pool heating
market by extending its network of independent distributors, decreasing its
manufacturing costs, and improving its initial product. In 1983, a passive
domestic hot water heating system, the 444, was introduced (this product was
discontinued in early 1994). In 1987, the Company introduced a thermal energy
storage system based on the same heat exchanger technology as is used in its
swimming pool heating systems. In 1993, the Company introduced a
state-of-the-art control system for swimming pool solar heating systems.
FAFCO, Inc. was incorporated under the laws of the State of California in 1972.
Its principal executive offices are located at 2690 Middlefield Road, Redwood
City, California. Its telephone number at that address is (415) 363-2690.
MARKETS
Swimming Pool Heating
Low temperature solar applications developed because of the cost effectiveness
of solar systems in heating a high volume of water to produce a small
temperature change. The market for swimming pool heating developed for several
reasons. First, pool owners normally use their pools when solar energy is
abundant (during daylight hours and the summer swimming season). Second, pools
already have two elements needed for low temperature water heating: storage
(the pool water) and circulation (the existing pool pump and associated
plumbing). Third, pool owners are an easily identifiable market.
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Thermal Energy Storage
FAFCO also designs, develops, manufactures, and markets a static, glycol ice
builder for the thermal storage market. Since the product's introduction,
FAFCO has sold "ice banks" primarily to the commercial air conditioning market
for use in off-peak air conditioning systems.
Domestic Water Heating
Until early 1994, FAFCO also marketed solar systems for medium temperature
applications, principally domestic water heating. This product line was
discontinued due to lack of demand for such products at current energy price
levels.
PRODUCTS
Swimming Pool Heating
The FAFCO solar pool heating system is composed of six to twelve solar
collectors, a sun sensor, an automatic control, and associated accessories.
The collectors and sensor are typically mounted on the roof of a pool owner's
home and connected to the pool pump and automatic control.
The customer sets the automatic control for the desired water temperature and,
when the sensor detects that there is sufficient solar energy for the system to
function efficiently, the automatic control directs the flow of water from the
pool to the collectors. The water absorbs heat as it passes through the
collectors and then flows back to the pool. When the desired water temperature
is achieved or when there is insufficient solar energy, the automatic control
redirects the flow of pool back to the water and water is drained from the
collectors. When the water temperature drops or there is sufficient solar
energy, the system is reactivated automatically.
In February 1996, the Company introduced a version of its solar pool heating
system specifically designed for above ground swimming pools. This system is
composed of one or two solar collectors optimized for use in heating above
ground swimming pools and designed to lie flat on the ground or to be mounted
on a rack on the ground.
The Company's solar collectors are composed entirely of a polyolefin material
(a high molecular weight polymer compound) and made up of small round tubes
formed side by side in a rectangular shape either one-by-two meter,
four-by-eight feet, four-by-ten feet, or four-by-twelve feet in size, with
submanifolds and header pipes thermoformed on each end. This design provides
for a maximum heating surface and even water flow in order to transfer 75 to 90
percent of the available solar energy to the pool water.
The polyolefin material, which has been specially formulated by the Company, is
black in color (to optimize solar energy absorption) and has the inherent
advantages over other possible materials of lower cost, lighter weight, and
higher resistance to the corrosive effects of pool chemicals and degradation
resulting from ultraviolet radiation, heat, and other environmental effects.
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In May 1993, the Company introduced a proprietary microprocessor-based control
(AutoPool) for its solar pool heating systems. Prior to May 1993, the Company
had a private label arrangement with an automatic control manufacturer.
AutoPool has built-in "intelligence" that allows it to optimize the heating and
filtration time for the swimming pool and can also control non-conventional
solar swimming pool heaters.
Domestic Water Heating
In 1981, the Company began the design and development of an advanced passive
solar domestic water heating system, the 444. In the second quarter of 1983,
the Company began manufacturing and selling the 444 and has sold approximately
13,000 systems to date.
Because of lack of demand for the Company's solar domestic water heating
system, this product has been discontinued, effective the first quarter of
1994. The Company has ongoing obligations to service, and provide spare parts
for, domestic water heaters sold prior to that time.
Thermal Energy Storage
The Company's thermal energy storage ("IceStor") systems utilize nighttime
electrical capacity to create stored cooling energy. This is normally done by
storing inexpensive "off-peak" energy in the form of either chilled water or
ice. The next day, this stored cooling capacity is used in conjunction with
the building's air conditioning equipment to significantly reduce electrical
requirements for cooling during times of high electrical demand and high
electrical cost.
Cool storage systems offer electrical utilities a solution to their
fundamental, long-term problem: increasing peak demand for power during
periods of limited available capacity (i.e. during business hours). IceStor
technology shifts consumption to off-peak periods when there is available
capacity and lower demand.
MARKETING AND SALES
Solar Systems
FAFCO markets its solar systems and controls in the United States through
independent distributors who sell directly to end users. Distributors
generally have sales, installation, and service personnel who are supported by
extensive FAFCO marketing and technical materials, as well as in-depth factory
and field training programs.
The majority of sales personnel employed by the typical distributor are
assigned to retrofit sales, which are sales to existing pool owners. Retrofit
sales are generated through direct mail, customer referrals, canvassing, and,
to a lesser extent, selected media advertising. The balance of the
distributor's sales personnel are generally assigned to contractor accounts
seeking referrals for new construction sales.
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FAFCO usually provides direct mail literature and other advertising materials
to distributors and mails or places these materials with local advertisers on
the distributors' behalf and partially at the distributors' expense. In
certain instances, distributors will also engage in direct mailing and
advertising.
In the past, the Company has canceled several distributor agreements for
reasons of inadequate performance by the distributor, primarily failure to
provide adequate sales, installation and service support for the Company's
products. In such instances, the Company has generally been able to find
qualified replacements.
All work relating to the installation of FAFCO solar systems is covered by a
full one-year warranty provided by the distributor. The Company's solar
collectors used to be covered by a ten-year limited warranty, which was changed
to a ten-year full warranty beginning in 1991. Its automatic controls, pumps,
and drain-down valves are covered by a three-year limited warranty. FAFCO
warranties cover defects in materials and workmanship provided that the related
products are used for their intended purpose.
FAFCO solar systems are designed to require only minimal maintenance, which can
be performed either by the consumer using an owner's manual or by the
distributor's service personnel.
Thermal Energy Storage Systems
The Company markets its IceStorproducts through independent contractors who
design and build heating and cooling systems for commercial and industrial
applications. The Company has also licensed its IceStor products for sale
overseas, including to design-and-build, heating, ventilating, and
air-conditioning companies in Taiwan, Korea, and Japan. These licensing
agreements provide for licensee's assembly and sale of IceStor products in
those countries.
SALES BY GEOGRAPHIC AREA
The Company's net sales during 1995, 1994, and 1993 were geographically
distributed approximately as follows:
1995 1994 1993
---- ---- ----
California 21% 24% 25%
Florida 37% 38% 44%
Oklahoma 7% 10% 3%
Other States 20% 13% 16%
Foreign Countries 15% 15% 12%
100% 100% 100%
---- ---- ----
One of the Company's customers, Kailay International, accounted for 10% of the
Company's fiscal 1995 net sales. During 1995, Kailay International was the
licensee for the Company's IceStor(TM) products in Taiwan and as such purchased
IceStor(TM) products and components for
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assembly into products for resale to end users in Taiwan. No other customer
accounted for 10% or more of the Company's sales in fiscal 1993, 1994 or 1995.
Foreign sales of the Company's products are made through independent foreign
distributors and licensees. Sales to foreign distributors and licensees are
shipped directly from the Company's facilities in California and invoiced in
U.S. dollars. Export sales are subject to certain controls and restrictions,
including tariffs and import duties, and are subject to certain risks,
including changing regulatory requirements of foreign jurisdictions and
transportation delays and interruptions; however, the Company has not
experienced any material difficulties relating to such limitations.
BACKLOG
Sales to solar distributors are made against individual purchase orders rather
than through volume purchase arrangements. The Company typically ships its
products within one to five days of receipt of an order; therefore, the
Company's backlog at any date is usually insignificant and is not a meaningful
indicator of future sales. FAFCO distributors tend to order frequently in
small quantities in order to minimize their inventory levels and match
inventory levels with current installation schedules.
Sales of IceStor products are made against individual purchase orders to
general contractors or Heating, Ventilating, and Air Conditioning (HVAC)
contractors for specific new construction projects or for retrofit in existing
buildings. The Company typically ships these products within six weeks or less
of receipt of an order; therefore, the Company's backlog with respect to
IceStor products at any date is also usually insignificant and not a meaningful
indicator of future sales.
GOVERNMENT TAX INCENTIVES
Although the Company's operations are not directly subject to extensive
governmental regulations, the existence or lack of federal, state, and local
tax incentives for the sale and installation of solar systems has a substantial
impact on the Company's business. There is currently no federal tax credit for
solar heating systems, and state solar tax credits are available only in a few
states. The Company does not anticipate that solar tax credits will become
available for solar heating systems in any additional states, nor does in
anticipate a significant increase in sales due to existing or future tax
credits.
MANUFACTURING
FAFCO's manufacturing activities consist primarily of the production of
polyolefin solar collectors and IceStor heat exchangers, copper solar
collectors, housings for solar collectors, housings for solar collectors,
automatic controls, components for its solar systems, and IceStor containers.
A total system approach is emphasized in order to ensure the effectiveness and
reliability of the Company's products after they have been installed,
eliminating the need for distributors to rely upon materials from other
suppliers.
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The Company's solar pool heating system utilizes collectors produced from
polyolefin resins using a patented extrusion and thermoforming process. The
Company's IceStor system utilizes heat exchangers, which are also made from
polyolefin resins using a patented extrusion and thermoforming process.
Substantially all equipment used in these processes has been designed and built
by the Company's research and development engineers.
The Company's resins are a petroleum by-product. The market price of these
resins has fluctuated over the years with an increase in 1990 and early 1991
due to tensions in the Middle East, followed by a stabilization after the
completion of Desert Storm. It is expected that the price of the Company's
resins will continue to fluctuate as a result of domestic and international
political and economic conditions.
FAFCO has qualified multiple sources of supply for all of its resins,
materials, and subassemblies. However, certain materials and subassemblies are
obtained from single sources. The Company believes these items could be
supplied by the Company's other qualified sources if sufficient lead time were
provided. The Company attempts to maintain additional inventory of such
materials to mitigate the risk of supply shortages; however, any prolonged
inability to obtain such items would have a material adverse effect on the
Company's results of operations. To date, the Company has not experienced any
significant manufacturing problems or delays due to shortages of materials.
Quality assurance is performed by FAFCO at its manufacturing facility. Test
and inspection procedures are a part of substantially all production and
assembly operations. In addition, the Company uses it own diagnostic equipment
and laboratory to continually test and inspect raw materials, work in process,
and finished goods.
COMPETITION
The Company's solar heating products currently compete directly with solar
heating products offered by less than ten other manufacturers of solar heating
systems, and indirectly with conventional heating systems. The Company's
AutoPool product currently competes directly with automatic controls
manufactured by a number of companies in the United States.
The Company believes that the principal competitive factors in the markets for
FAFCO solar products and controls are (i) product performance and reliability;
(ii) marketing and technical support from the manufacturer for distribution
channels; (iii) selling, installation, and service capabilities of distribution
channels; and (iv) price. The Company believes that it competes favorably with
respect to all of these factors. However, certain of its competitors may have
greater financial, marketing, and technological resources than those of the
Company.
A number of companies in the United States manufacture thermal energy storage
systems of various types similar to the Company's IceStor product. The
industry is in the early stages of development and additional competitors are
expected to enter the market over time.
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At the present time, the Company believes that the main competitive factors in
the thermal energy storage market are performance, reliability, and price. The
Company believes that it competes favorably with respect to these factors.
However, several of its competitors have greater financial, marketing, and
technological resources than those of the Company.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1995, 1994, and 1993, the Company's research
and development expenses were $460,100, $484,300, and $479,400, respectively.
The majority of the research and development costs incurred in 1995 related to
research and development of solar heating products for above ground swimming
pools, which the Company introduced in February 1996, and an improved solar
heating product for in-ground pools, which is currently scheduled to be
introduced in April 1996.
The Company currently uses consulting engineers, in addition to staff
engineers, who are responsible for existing product improvement, applications
engineering, and new product research and development. The Company is
exploring other potential revenue-producing uses for its polyolefin extrusions.
PATENTS, TRADEMARKS AND LICENSES
FAFCO currently holds four United States patents and one foreign patent
relating to certain aspects of its products and manufacturing technology.
These patents expire at various times between March 1997 and July 2003.
However, the Company believes that patent protection is secondary to such
factors as ongoing product development and refinement, the knowledge and
experience of its personnel, and their ability to design, manufacture, and
successfully market the Company's products.
From time to time, the Company has registered as trademarks certain product
names and marks in order to preserve its right to those product names and
marks.
The Company has granted licenses to assemble and sell IceStor in Taiwan, Korea,
and Japan to a Taiwanese company, a Korean company, and a Japanese company,
respectively. See "Marketing and Sales" above.
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EMPLOYEES
At December 31, 1995, the Company had a total of forty-eight 48 full-time
employees, including eight (8) in marketing, two (2) in research and
development, thirty (30) in manufacturing, and eight (8) in general management
and administration. The Company also uses temporary employees from agencies to
fill seasonal needs. The Company has never had a work stoppage. No employees
are represented by a labor organization. During 1995, the Company laid off 32%
of its employees in order to bring expenses more in line with reduced sales
levels.
SEASONALITY
Information regarding the seasonality of the Company's business is set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Seasonality" on page 20 of the Annual Report, which information is
incorporated herein by reference.
SEGMENT INFORMATION
Following the sale of the business of the Company's subsidiary, The Gregory
Company, in 1988, the Company has only had continuing operations in the energy
products segment.
ENVIRONMENTAL REGULATIONS
The Company is subject to a number of environmental regulations concerning
potential air and water pollution. However, such regulations have not in the
past had, and are not expected to have, any material adverse effect on the
Company's business. There can be no assurance that compliance with existing or
future regulations will not require the expenditure of funds or the
modification of the Company's manufacturing process, which could have a
material adverse effect on the Company's business or financial condition.
ITEM 2. Properties
The Company's principal executive offices and manufacturing facilities for its
products are located in a single 42,500 square foot facility in Redwood City,
California. This facility is covered by a lease expiring in the year 2000.
See Note 11 of Notes to Consolidated Financial Statements on page 14 of the
Annual Report, which information is incorporated herein by reference.
The Company believe that its current facilities are adequate to meet its
requirements for space in the near future. Manufacturing space is being fully
utilized at the present time. However, additional demand can be accommodated
by adding second and third employee shifts.
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ITEM 3. Legal Proceedings
There are presently no material pending legal proceedings to which the Company
is a party or to which any of its property is subject, except for ordinary
routine legal proceedings incidental to the Company's business.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of security holders during the
fourth quarter of its fiscal year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are set forth below. All officers serve
at the pleasure of the Board of Directors. There are no family relationships
between any executive officers or directors.
Freeman A. Ford, age 55, serves as Chairman of the Board, President, and Chief
Executive Officer. Mr. Ford, a co-founder of the Company, has served as
Chairman of the Board since 1972, as Chief Executive Officer of the Company
since May 1979, and as President since September 1984. Mr. Ford is also a
Director of H.B. Fuller Company.
Alex N. Watt, age 54, serves as Vice President of Finance and Administration,
Chief Financial Officer, and Secretary. Mr. Watt joined the Company as its
Vice President-Finance and Chief Financial Officer in July 1984, and has served
as Secretary since March 1985.
David Harris, age 40, serves as Vice President, Pool Products. Mr. Harris
joined the Company in August 1981 as a sales representative and has held the
positions of Pool Builder Manager, National Sales Manager-Pool Products,
Pacific Northwestern Region Sales Manager, National Sales Manager-Solar
Division, National Sales Manager, Vice President-Sales and Marketing (from June
1988 until April 1993) and President-Pool Products Division (from May 1993
until May 1995).
Michael Anderson, age 50, has served as Vice President, Commercial Products
since May 1995. Mr. Anderson joined the Company in September 1984 as Vice
President, Sales and Marketing and held that position until February 1987. Mr.
Anderson served as President of Marcus Company, a manufacturer's representative
for HVAC and refrigeration products from March 1987 until May 1993, when he
rejoined the Company as President, Commercial Products Division.
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PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information regarding the market for and market prices of the Company's Common
Stock, the number of shareholders of record, and information regarding
dividends is set forth under the heading "Common Stock Data" on page 19 of the
Annual Report, which information is incorporated herein by reference.
ITEM 6. Selected Financial Data
Selected financial data for the Company is set forth in the table entitled
"Five-Year Summary of Operations" on page 18 and in the last sentence of the
text under the table entitled "Common Stock Data" on page 19 of the Annual
Report, which information is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information regarding Management's Discussion and Analysis of Financial
Condition and Results of Operations is set forth under the heading
"Management's Discussion and Analysis", on pages 20 through 22 of the Annual
Report, which information is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company are set forth on pages 4
through 15 of the Annual Report, which information is incorporated herein by
reference. The supplementary financial information of selected quarterly
financial data is not required under Regulation S-K Item 302, because the
Company does not meet the tests set forth therein.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding directors is to be set forth under the heading "Election
of Directors - Nominees" in the Company's Proxy Statement, which information is
incorporated herein by reference.
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Information regarding executive officers is set forth under the caption
"Executive Officers of the Registrant" in Part I of this Form 10-K, which
information is incorporated into this Item 10 by reference.
Information regarding the filing of reports by insiders under Section 16(a) of
the Exchange Act is to be set forth under the heading "Election of Directors -
Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy
Statement, which information is incorporated herein by reference.
ITEM 11. Executive Compensation
Information regarding the Company's remuneration of its executive officers and
directors is to be set forth under the headings "Election of Directors -
Executive Compensation" and "Election of Directors - Director Compensation" in
the Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding the security ownership of certain beneficial owners and
management is to be set forth under the headings "Election of Directors -
Security Ownership" and "Information Concerning Solicitation and Voting -
Record Date and Outstanding Shares" in the Company's Proxy Statement, which
information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is to be
set forth under the headings "Election of Directors - Nominees" and "Election
of Directors - Certain Transactions" in the Company's Proxy Statement, which
information is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated balance sheets for the years ended December 31, 1995 and
1994, the consolidated statements of income, of shareholders' equity, and of
cash flows for each of the three years in the period ended December 31,
1995, and the notes thereto appear on pages 4 through 15 of Exhibit 13.1 to
this Annual Report on Form 10-K.
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2. Financial Statement Schedules
Report of Independent Accountants on Financial Statement Schedule (see page
17 of this Annual Report on Form 10-K).
The following schedule for the years ended December 31, 1995, 1994, and 1993
is included in this report. Such schedule should be read in conjunction
with the consolidated financial statements in the Annual Report.
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Schedules not included in these financial statement schedules have been
omitted because they are not applicable or the required information is shown
in the financial statements or notes thereto.
3. The following exhibits are filed as part of or incorporated by
reference, to the extent indicated herein, in this Annual Report on
Form 10-K.
EXHIBIT NO. DESCRIPTION (FOOTNOTES APPEAR AT THE END OF THE EXHIBIT LIST)
3.1(1) Articles of Incorporation, as amended.
3.1(a)(11) Form of Amended and Restated Articles of Incorporation, to be filed following shareholder approval.
3.2(3) Bylaws, as amended.
4.1(1) Stock Purchase Agreement dated April 14, 1977, between Registrant and certain investors.
4.2(3) 10% Convertible Subordinated Notes Purchase Agreement dated March 27,1984, between Registrant and certain investors.
4.2(a)(2) Amendment to Subordinated Note Purchase Agreement dated March 27, 1990.
4.2(b)(9) Amendment to 10% Subordinated Note Agreement dated March 25, 1991.
4.3(4)* Security and Guaranty Agreement and Common Stock Purchase Warrant between the Registrant and Freeman A. Ford dated
February 16, 1987.
4.3(a)(5)* Amendment to the Security and Guaranty Agreement between the Registrant and Freeman A. Ford dated December 8, 1987.
4.3(b)(6)* Amendment to the Security and Guaranty Agreement between the Registrant and Freeman A. Ford dated February 1, 1988.
4.3(c)(7)* Second Amendment to the Promissory Notes between the Registrant and Freeman A. Ford dated March 26, 1991.
4.3(d)(9)* Form of Common Stock Purchase Warrant issued March 25, 1993 by the Registrant to Freeman A. Ford.
4.3(e)(9) Amendment to the Promissory Notes between the Registrant and Freeman A. Ford dated March 25, 1993.
4.4(10) Common Stock Warrant issued January 19, 1994 to B. Severns.
4.5 Reference Exhibits 3.1 and 3.2.
10.1 Reference Exhibit 4.1.
10.2 Reference Exhibit 4.2, 4.2(a), and 4.2(b).
10.3(7)* 1981 Incentive Stock Option Plan.
10.4(7)* Form of 1981 Incentive Stock Option Agreement.
10.8(1) Standard Form of Distributor Agreement.
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EXHIBIT NO. DESCRIPTION
10.9(7) Lease Agreement and Addenda for 2690 Middlefield Road, Redwood City, California, between Registrant, as Lessee,
and Beals Martin and Associates, as Lessor, dated January 18, 1990.
10.10(3) FAFCO Solar Partners II Certificate of Limited Partnership and Limited Partnership Agreement.
10.11 Reference Exhibits 4.3, 4.3(a), 4.3(b), 4.3(c), 4.3(d), and 4.3(e).
10.12(6) Licensing Agreement between the Registrant, as Licensor, and Enercon Engineering, as Licensee, dated May 20, 1988.
10.13(6)* Form of Director's Warrant issued February 1988 to directors Berry and Selig.
10.14(11)* 1991 Stock Option Plan, as amended.
10.14(a)(8)* Form of Stock Option Agreement used under the 1991 Stock Option Plan.
10.15(8)* 1991 Directors' Stock Option Plan.
10.15(a)(8)* Form of Nonstatutory Stock Option Agreement used under 1991 Director's Stock Option Plan.
10.16(8)* Employee Stock Purchase Plan.
10.16(a)(8)* Form of Subscription Agreement used under Employee Stock Purchase Plan.
10.17(9) Licensing Agreement and Addendum between the Registrant, as Licensor, and Jang-Han Systems Engineering, as
Licensee, ated January 1, 1993.
10.18(10) Export - Import and Technical License Agreement between the Registrant, as Licensor, and Ebara Corporation, as
Licensee, dated October 22, 1993.
10.19(10) Business Loan Agreement between Registrant, as Borrower, and Silicon Valley Bank, as Lender, dated June 10, 1992.
10.19(a)(10) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank, as Lender, dated March 8, 1994.
10.19(b) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated June 5, 1995.
10.19(c) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated August 7, 1995.
10.19(d) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated August 7, 1995.
10.19(e) Loan Modification Agreement between Registrant as Borrower and SiliconValley Bank as Lender dated September
22, 1995.
10.19(f) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated February 8, 1996.
10.20(11) Agency/Distributorship Agreement between Registrant as Manufacturer and Jabria Establishment, as Agent/
Distributorship, dated December 10, 1994.
11.1 Computation of Earnings Per Share (see Note 12 of Notes to Consolidated Financial Statements on pages 14 and 15
of the Annual Report).
13.1 Registrant's 1995 Annual Report to Shareholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants (see page 20)
24.1 Power of Attorney (see page 19).
27.1 Financial Data Schedule.
* Denotes a Management Contract or Compensatory plan or arrangement.
15
16
(1) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form S-1 (File No. 2-72297) filed May 14, 1981.
(2) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
(3) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983.
(4) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1986.
(5) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(6) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988.
(7) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.
(8) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.
(9) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(10) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(11) Incorporated by reference to exhibit filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
(b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the
Company during the fourth quarter of 1995.
(c) Exhibits: See subsection (a) (3) above.
(d) Financial Statement Schedules: See subsection (a) (2) above.
16
17
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of FAFCO, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 27, 1996 appearing on page 17 of the 1995 Annual Report to
Shareholders of FAFCO, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Price Waterhouse LLP
San Francisco, California
March 27, 1996
17
18
FAFCO, INC.
SCHEDULE
VIII
Valuation and Qualifying Accounts and Reserves
Balance at Additions Charged
Beginning of to Costs and Balance at End of
Description Period Expenses Deductions Period
- ----------- ------------ ----------------- ---------- -----------------
1995:
Allowance for doubtful accounts $5,700(1)
current accounts receivable $469,100 $39,600 39,100(4) $463,900
short-term receivable 39,100 39,100
Warranty reserve 247,000 10,500 41,500(2) 216,000
Deferred tax asset valuation
allowance 600,900 782,900 1,383,800
- -------------------------------
1994:
Allowance for doubtful accounts
current accounts receivable $417,400 $52,600 $ 900(1) $469,100
long-term receivable
Warranty reserve 280,300 71,800 105,100(2) 247,000
Deferred tax asset valuation
allowance 893,900 293,000 600,900
1993:
Allowance for doubtful accounts
current accounts receivable $320,200 $98,500 $1,300(1) $417,400
long-term receivable 203,700 23,200 226,900(1)
Warranty reserve 310,900 99,700 130,300(2) 280,300
Deferred tax asset valuation
allowance 717,400(3) 176,500 893,900
- -------------------------------
(1) Write-offs of uncollectible accounts, including allowance on related
party receivable from FAFCO Solar Partners II deemed uncollectible in
1993.
(2) Cost of warranty claims processed.
(3) Beginning balance at adoption of SFAS 190 (Accounting for Income Taxes).
(4) Reclassified to allowance for short-term notes receivable.
18
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1996 FAFCO, Inc.
/s/Freeman A. Ford
--------------------------------
Freeman A. Ford,
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Freeman A.
Ford and Alex N. Watt, or either of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
either of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K 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
Chairman of the Board, President and March 27, 1996
/s/Freeman A. Ford Chief Executive Officer (Principal
- -----------------------
Freeman A. Ford Executive Officer) and Director
Vice President, Finance & Administration March 27, 1996
/s/Alex N. Watt and Chief Financial Officer (Principal
- -----------------------
Alex N. Watt Financial and Accounting Officer)
/s/William A. Berry Director March 27, 1996
- -----------------------
William A. Berry
/s/Robert W. Selig, Jr. Director March 27, 1996
- -----------------------
Robert W. Selig, Jr.
19
20
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-75201, 2-86299, 2-95390 and 33-76220) of FAFCO,
Inc. of our report dated March 27, 1996, appearing on page 17 of the 1995
Annual Report to Shareholders, which is incorporated by reference in this
Annual Report on Form 10-K. We also consent to the incorporation by reference
of our report on the Financial Statement Schedule, which appears on page 18 of
this Form 10-K.
Price Waterhouse LLP
San Francisco, California
March 27, 1996
20
21
ITEMS
EXHIBIT NO. DESCRIPTION
3.1(1) Articles of Incorporation, as amended.
3.1(8) Form of Amended and Restated Articles of Incorporation, to be filed following shareholder
approval.
3.2(3) Bylaws, as amended.
4.1(1) Stock Purchase Agreement dated as of April 14, 1977, between Registrant and certain investors.
4.2(3) 10% Convertible Subordinated Notes Purchase Agreement dated as of March 27, 1984, between
Registrant and certain investors.
4.2(a)(2) Amendment to Subordinated Note Purchase Agreement dated March 27, 1990.
4.2(b)(9) Amendment to 10% Subordinated Note Agreement dated March 25, 1993.
4.3(4) Security and Guaranty Agreement and Common Stock Purchase Warrant between the Registrant and
Freeman A. Ford dated February 16, 1987.
4.3(a)(5) Amendment to the Security and Guaranty Agreement between the Registrant and Freeman A. Ford dated
December 8, 1987.
4.3(b)(6) Amendment to the Security and Guaranty Agreement between the Registrant and Freemen A. Ford dated
February 1, 1988.
4.3(c)(7) Second Amendment to the Promissory Notes between the Registrant and Freeman A. Ford
dated March 26, 1991.
4.3(d)(9) Form of Common Stock Purchase Warrant issued March 25, 1993 by the Registrant to Freeman A. Ford.
4.3(e)(9) Amendment to the Promissory Notes between the Registrant and Freeman A. Ford dated March 25, 1993.
4.4 Common Stock Warrant issued January 19, 1994 to B. Severns.
4.5 Reference Exhibits 3.1 and 3.2.
10.1 Reference Exhibit 4.1.
10.2 Reference Exhibit 4.2, 4.2(a) and 4.2(b).
10.3(7) 1981 Incentive Stock Option Plan.
10.4(7) Form of 1981 Incentive Stock Option Agreement.
10.8(1) Standard form of Distributor Agreement.
10.9(7) Lease Agreement and Addenda for 2690 Middlefield Road, Redwood City, California, between Registrant,
as Lessee, and Beals Martin and Associates, as Lessor, dated January 18, 1990.
10.10(3) FAFCO Solar Partners II Certificate of Limited Partnership and Limited Partnership Agreement.
10.11 Reference Exhibit 4.3, 4.3(a), 4.3(b), 4.3(c), 4.3(d) and 4.3(e).
10.12(6) Licensing Agreement between the Registrant, as Licensor, and Enercon Engineering, as Licensee, dated
May 20, 1988.
10.13(6) For of Director's Warrant issued February 1988 to directors Berry and Selig.
10.14(11) 1991 Stock Option Plan, as amended.
10.14(a)(8) Form of Stock Option Agreement used under the 1991 Stock Option Plan.
10.15(8) 1991 Directors' Stock Option Plan.
10.15(a)(8) Form of Nonstatutory Stock Option Agreement used under 1991 Directors' Stock Option Plan.
10.16(8) Employee Stock Purchase Plan.
10.16(a)(8) Form of Subscription Agreement used under Employee Stock Purchase Plan.
10.17(9) Licensing Agreement and Addendum between the Registrant as Licensor, and Jang-Han Systems Engineering,
as Licensee, dated January 1, 1993.
10.18(10) Export - Import and Technical License Agreement between the Registrant as Licensor and Ebara Corporation
as Licensee, dated October 22, 1993.
10.19(10) Business Loan Agreement between Registrant as Borrower and Silicon Valley Bank as Lender, dated
June 10, 1992.
10.19(a)(10) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank, as Lender, dated
March 8, 1994.
10.19(b) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated
June 5, 1995.
10.19(c) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated
August 7, 1995.
10.19(d) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated
September 22, 1995.
10.19(e) Loan Modification Agreement between Registrant as Borrower and Silicon Valley Bank as Lender dated
February 8, 1996.
10.20 Agency/Distributorship Agreement between Registrant, as Borrower and Silicon Valley Bank, as Lender,
dated 12/10/94.
11.1 Computation of Earnings Per Share (see Note 12 of Notes to Consolidated Financial Statements on pages
14 and 15 of the Annual Report).
13.1 Registrant's 1995 Annual Report to Shareholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accounts (see page 20).
24.1 Power of Attorney (see page 19).
21