-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rIGRmIlBtNzjs+ZGTZgQuuxS+QytyJIPrVGy84Oj/PAJ//S8JZu3T+0rUtXL+jzl LK+v394Zc4FZLz2dHCVgTA== 0000950130-94-001604.txt : 19941116 0000950130-94-001604.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950130-94-001604 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941110 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDDERS CORP /DE CENTRAL INDEX KEY: 0000744106 STANDARD INDUSTRIAL CLASSIFICATION: 3585 IRS NUMBER: 222572390 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08831 FILM NUMBER: 94558849 BUSINESS ADDRESS: STREET 1: 158 HWY 206 STREET 2: PO BOX 265 CITY: PEAPACK STATE: NJ ZIP: 07977 BUSINESS PHONE: 9082342100 MAIL ADDRESS: STREET 1: 158 HWY 206 STREET 2: P O BOX 265 CITY: PEAPACK STATE: NJ ZIP: 07977 10-K 1 FORM 10-K ================================================================================ 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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 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. Philadelphia 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 October 31, 1994, there were outstanding 18,988,099 shares of the Registrant's Common Stock, 10,627,879 shares of Class A Stock and 2,267,906 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 October 31, 1994 was $148,190,144. (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, 1993 TO AUGUST 31, 1994 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 11 Item 12. Security Ownership of Certain Beneficial Owners and Management 11 Item 13. Certain Relationships and Related Transactions 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
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., RTXX Corporation ("RTXX") and Fedders International, Inc. ("FI"). EQK, CSI, RTXX and Fedders, Inc. are wholly owned subsidiaries of Fedders NA. In 1994, Fedders NA also established a Mexican sales subsidiary, Fedders de Mexico and FI established a Singapore subsidiary, Fedders Asia Pte. Ltd. ("Fedders Asia"). In August 1992, the Company discontinued production in New Jersey and agreed to sell its compressor business to NYCOR Acquisition Corp. ("NYCOR") see Notes 2 and 12 of the Notes to Consolidated Financial Statements on pages 11 and 14 of the Annual Report, which notes are incorporated herein by reference. The Company, under a ten year supply agreement, 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. (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 13 of the Annual Report, which Note is incorporated herein by reference. (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, and also markets split ductless room air conditioners for international markets. The Company's air conditioners are manufactured in models ranging in capacity from 5,000 BTU (British Thermal Units) per hour to 32,000 BTU per hour. 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 60 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 periods 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 areas of just-in-time delivery. In fiscal 1993, the Company consolidated all Fedders NA marketing, service and accounting management into a Whitehouse, New Jersey headquarters location. FNA 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 and also on radio and television. The Company offers an advertising allowance to assist retailers in advertising locally. 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 1980's 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. The Company expects to participate in overseas production through strategic alliances primarily under production and joint venture agreements, with participation based on its expertise, technological capability and well established global sourcing program. The Company currently has production agreements in Taiwan, India and the People's Republic of China. Financing, if required, is expected to be obtained locally. The Company is accelerating development activities to penetrate the international markets in order to realize greater growth potential than is afforded by the mature U.S. market and to moderate its dependence -2- 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. 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. 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 rotary compressors. The Company has additional suppliers of compressors. However, in the event that NYCOR were unable to deliver the Company's requirements, the Company might have difficulty obtaining substitute sources of supply. 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 does not consider the successful conduct of its business to be dependent upon such trademarks. 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 in North American markets. 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 4 and 5 of the Annual Report, which is incorporated herein by reference. -3- 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 10 of the Annual Report, which Note is incorporated herein by reference. See also the information entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" at pages 4 and 5 of the Annual Report, which is incorporated herein by reference. 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 and Matsushita Electric Industrial Company, Ltd. Many of the Company's competitors are substantially larger and have greater resources than the Company. The Company competes principally on the basis of price and quality. 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 11 of the Annual Report, which Note is incorporated herein by reference. -4- 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 period September 1, 1993 through August 31, 1994 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, 1995. EMPLOYEES The Company has approximately 1,800 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 13 of the Annual Report, which Note is incorporated herein by reference. Future sales are subject to the risks inherent in such activities, such as foreign regulations, unsettled political conditions and exchange rate fluctuations. -5- ITEM 2. PROPERTIES The Company owns or leases the following facilities:
Approximate Square Location Principal Function Feet of Floor Area - - -------- ------------------ ------------------ Liberty Corner, Corporate and 25,000 New Jersey International (leased) Headquarters Effingham, Illinois Manufacturing of 650,000 (Owned) Room Air Conditioners Columbia, Tennessee Manufacturing of 232,000 (Owned) Plastic Components and Room Air Conditioners Dover, New Jersey Storage 50,000 (Owned) Orangeville, (1) 106,000 Ontario (Owned) Whitehouse, Fedders NA Headquarters 17,000 New Jersey (Leased)
(1) Facility available for sale or lease The Effingham, Illinois facility is subject to a mortgage securing a $4.9 million, 1% promissory note payable to the State of Illinois. -6- ITEM 3. LEGAL PROCEEDINGS Not applicable. -7- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -8- EXECUTIVE OFFICERS OF THE REGISTRANT
First Became an Name and Age Position Held Executive Officer - - ------------ ------------- ----------------- Salvatore Giordano, 84 Chairman of the Board 1945 Sal Giordano, Jr., Vice Chairman, President 1965 56 (1) and Chief Executive Officer Robert L. Laurent, Jr., Executive Vice President, 1989 39 Finance and Administration and Chief Financial Officer S. A. Muscarnera, Senior Vice President and 1988 54 (2) Secretary Norman W. Swartz, 55 Senior Vice President and 1992 President, Fedders North America Gary J. Nahai, 43 Vice President and 1993 President, Fedders International, Inc.
________ (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. Swartz was elected to his position in January 1992. Previously he was Senior Vice President of Fedders North America and joined Fedders in 1989 as Vice President of Private Label Products. 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. -9- PART II ITEM 5. MARKET FOR REGISTRANT`S COMMON EQUITY AND RELATED MATTERS The Company's Common Stock is listed on the New York Stock Exchange and the Philadelphia Stock Exchange. The Company's Class A Stock is 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 October 31, 1994, there were 5,369 holders of Common Stock, 5,422 holders of Class A Stock and 50 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 page 13 of the Annual Report, which Notes are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA See the table entitled "Selected Financial Data" at page 5 of the Annual Report, which table is incorporated herein by reference. 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 4 and 5 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 at August 31, 1994 and 1993, and for the years ended August 31, 1994, 1993 and 1992, the notes thereto and the report of the Company's independent auditors thereon are included at pages 6 through 15 of the Annual Report, which pages are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable -10- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the Company's directors, see the section entitled "Election of Directors" in the Company's Proxy Statement to be filed in connection with the Annual Meeting of Stockholders of the Company to be held on December 20, 1994, which section is incorporated herein by reference. For additional information with respect to the Company's executive officers, see Page 9 herein. Through inadvertence, Dr. Clarence R. Moll reported, in an untimely manner, one transaction on Form 4 covering one sale of shares of the Common Stock of the Company during the fiscal year. The Company is not aware of any failure of Dr. Moll to file any required Form. Through inadvertence, Mr. Norman W. Swartz was late in filing a required report on Form 4. covering one sale of shares of the Common Stock of the Company during the fiscal year. The Company is not aware of any failure on Mr. Swartz's part to file any required Form. ITEM 11. EXECUTIVE COMPENSATION See the section entitled "Executive Compensation" in the Company's Proxy Statement, to be filed in connection with the Annual Meeting of Stockholders of the Company to be held on December 20, 1994, which section is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the sections entitled "Security Ownership of Directors and Officers" and "Principal Stockholders" in the Company's Proxy Statement, to be filed in connection with the Annual Meeting of Stockholders of the Company to be held on December 20, 1994, which sections are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the section entitled "Election of Directors" in the Company's Proxy Statement, to be filed in connection with the Annual Meeting of Stockholders of the Company to be held on December 20, 1994, which section is incorporated herein by reference. -11- 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 at pages 6 through 15 of the Annual Report and incorporated hereby reference: Consolidated Statements of Operations and Stockholders' Equity for the years ended August 31, 1994, 1993 and 1992. Consolidated Balance Sheets at August 31, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements Report of Independent Auditors (a) 2. Financial Statement Schedules Consolidated Schedules as of and for the years ended August 31, 1994, 1993 and 1992. Form 10-K Page II. Accounts Receivable from Related Parties S-1 V. Property, Plant and Equipment S-2 VI. Accumulated Depreciation of Property, Plant and Equipment S-3 VIII. Valuation and Qualifying Accounts and Reserves S-4 IX. Short-term Borrowings S-5 X. Supplementary Income Statement Information S-6 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. -12- (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 hereby 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. (4) (i) Indenture dated April 22, 1971 with Chemical Bank as Trustee covering Rotorex Corporation's 5% Convertible Subordinated Debentures due 1996, filed as Exhibit (4) (i) to Annual Report on Form 10-K for 1985 of Fedders, and incorporated herein by reference. (ii) Appointment of Bradford Trust Company as successor trustee to Chemical Bank, filed as Exhibit 13C to Annual Report on Form 10-K for 1977 of Rotorex Corporation and incorporated herein by reference. -13- (iii) First Supplemental Indenture with Bradford Trust Company, filed as Exhibit 12C to Annual Report on Form 10-K for 1978 of Rotorex Corporation and incorporated herein by reference. (iv) Appointment of Schroder Trust Company as successor trustee to Bradford Trust Company, filed as Exhibit 4.3 to Annual Report on Form 10-K for 1983 of Rotorex Corporation and incorporated herein by reference. (v) Second Supplemental Indenture dated as of January 1, 1985 with J. Henry Schroder Bank & Trust Company filed as Exhibit (iv) to Quarterly Report on Form 10-Q of Rotorex Corporation for the quarter ended March 31, 1985 and incorporated herein by reference. (vi) Third Supplemental Indenture dated as of June 12, 1989 between Rotorex Acquisition Corp. and IBJ Schroder Bank & Trust Company, filed as Exhibit 10 (v) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 and incorporated herein by reference. (vii) Indenture dated May 23, 1974 with The Chase Manhattan Bank, N.A. as Trustee covering Rotorex Corporation's 8-7/8% Subordinated Debentures due 1994, filed as Exhibit 4.4 to Annual Report on Form 10-K for 1981 of Rotorex Corporation and incorporated herein by reference. (viii) Appointment of J. Henry Schroder Bank & Trust Company as successor trustee to The Chase Manhattan Bank, N.A., filed as Exhibit 13B to Annual Report on Form 10-K for 1977 of Rotorex Corporation and incorporated herein by reference. (ix) First Supplemental Indenture with J. Henry Schroder Bank & Trust Company, filed as Exhibit 12B to Annual Report on Form 10-K for 1978 of Rotorex Corporation and incorporated herein by reference. (x) Second Supplemental Indenture dated as of June 12, 1989 between Rotorex Acquisition Corp. and IBJ Schroder Bank & Trust Company, filed as Exhibit 10 (iv) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 and incorporated here by reference. (xiv) Second Supplemental Indenture dated as of June, 1989 between Rotorex Acquisition Corp. and Mellon Bank, N.A., filed as Exhibit (10) (iii) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 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. -14- (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. (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) Promissory Note of Salvatore Giordano, Jr. dated July 27, 1992, filed as Exhibit 10 (viii) to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference. (viii) 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. (ix) Promissory Note of Salvatore Giordano, Jr., dated August 4, 1994 for stock purchases. (x) Promissory Note of Robert Laurent, Jr. dated August 31, 1994 for stock purchases. (xi) Promissory Note of Joseph Giordano dated August 31, 1994 for stock purchases. (xii) Promissory Note of N.W. Swartz dated August 31, 1994 for stock purchases. (xiii) Promissory Note of N.W. Swartz dated September 30, 1994 for relocation assistance. (11) Statement re computation of per share earnings. (13) 1994 Annual Report to Stockholders. (21) Subsidiaries. (23) Consent of Ernst & Young (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 31, 1994. -15- 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 Date: November 4, 1994 Chief Financial 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 November 4, 1994 /s/Salvatore Giordano, Jr. ----------------------- Salvatore Giordano, Jr. Vice Chairman, President November 4, 1994 and Chief Executive Officer and a Director (Principal Executive Officer) /s/Joseph Giordano --------------- Joseph Giordano Director November 4, 1994 /s/Howard S. Modlin ---------------- Howard S. Modlin Director November 4, 1994 /s/Clarence Russel Moll -------------------- Clarence Russel Moll Director November 4, 1994 /s/William J. Brennan ------------------ William J. Brennan Director November 4, 1994 /s/S.A. Muscarnera --------------- S.A. Muscarnera Director November 4, 1994 /s/Robert L. Laurent, Jr. ---------------------- Robert L. Laurent, Jr. Executive Vice President November 4, 1994 - Finance and Administration (Principal Financial and Accounting Officer)
-16- FEDDERS CORPORATION AMOUNTS RECEIVABLE FROM RELATED PARTIES SCHEDULE II For The Years Ended August 31, 1994, 1993 and 1992 (Amounts in thousands)
Deductions Balance at end of period ----------------- --------------------------- Balance at Amounts beginning Amounts written Not of period Additions collected off Current current Name of Debtor --------- --------- --------- ------- ------------ ------------ Year ended: August 31,1994: Sal Giordano, Jr. $429 $270(1) -- -- $270 $429 Joseph Giordano -- 187(1) -- -- 187 -- Robert Laurent, Jr. -- 143(1) -- -- 143 -- N.W. Swartz -- 195(1&2) -- $30 45 120 ---- ---- ---- --- ------------ ------------ $429 $795 -- $30 $645 $549 ==== ==== ==== === ============ ============ Year ended: August 31, 1994: Sal Giordano, Jr. (3) $429 -- -- -- -- $429 ==== ==== ==== === ============ ============ Year ended: August 31, 1992: Sal Giordano, Jr. (3) -- $429 -- -- -- $429 ==== ==== ==== === ============ ============
(1) For stock 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 capital stock of the Company received from the exercise of such options. Such optionees executed non-recourse interest- bearing notes. (2) Includes a $150 relocation assistance loan which is secured by a non- interest bearing note due August 30, 1998, and a second mortgage on his residence. The Company has forgiven $30 in 1994. (3) Promissory note, payable upon the sale of capital stock received from exercised stock options but no later then July 1997, which bears interest at the prevailing prime rate S-1 FEDDERS CORPORATION PROPERTY, PLANT AND EQUIPMENT SCHEDULE V For The Years Ended August 31, 1994, 1993 and 1992 (Amounts in Thousands)
Balance at Additions Balance beginning at Other at end of period cost Retirements changes of period ---------- --------- ----------- -------- --------- Year Ended August 31, 1994 Land and improvements $ 1,393 -- -- ($30) $1,363 Buildings 11.844 $244 $60 (23) 12,005 Machinery and equipment 44,799 2,390 911 (83) 46,195 Machinery and equipment -- 951 -- -- 951 under capital lease -------- ------ ---- -------- -------- $58,036 $3,585 $971 ($136)(1) $60,514 ======== ====== ==== ======== ======== Year Ended August 31, 1993 Land and improvements $5,378 -- -- ($3,985) $1,393 Buildings 19,791 $122 -- (8,069) 11,844 Machinery and equipment 63,756 2,602 $257 (21,302) 44,799 Machinery and equipment 12,626 -- -- (12,626) -- under capital lease -------- ------ ---- -------- -------- $101,551 $2,724 $257 ($45,982)(1&2) $58,036 ======== ====== ==== ======== ======== Year Ended August 31, 1992 Land and improvements $5,417 -- -- ($39) $5,378 Buildings 19,848 -- -- (57) 19,791 Machinery and Equipment 61,019 $3,695 $958 -- 63,756 Machinery and equipment 12,629 -- 3 -- 12,626 under capital lease -------- ------ ---- -------- -------- $98,913 $3,695 $961 ($96)(1) $101,551 ======== ====== ==== ======== ========
(1) Decrease due to computation of cumulative translation adjustment for assets at the Ontario, Canada facility amounting to $136, $345 and $96 in 1994, 1993 and 1992, respectively (see note 1 of the Notes to Consolidated Financial Statements in the Annual Report). (2) Decrease due to sale of compressor operations including property, plant and equipment in the amount of $45,637 on September 28, 1992 (see note 12 of the Notes to Consolidated Financial Statements in the Annual Report). S-2 FEDDERS CORPORATION ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT SCHEDULE VI For the Years Ended August 31, 1994, 1993 and 1992 (Amounts in Thousands)
Balance at Charges Balance beginning to cost Other at end of period and expenses Retirements Changes of period ---------- ------------ ----------- -------- --------- Year Ended August 31, 1994 Land and improvements $ 58 $ 12 -- -- $ 70 Buildings 4,869 996 $ 41 $ 78 5,902 Machinery and equipment 21,472 2,429 603 3,824 27,122 Machinery and equipment under -- 48 -- -- 48 capital lease ------- ------ ---- -------- ------- $26,399 $3,485 $644 $ 3,902 (1) $33,142 ======= ====== ==== ======== ======= Year Ended August 31, 1993 Land and improvements $ 46 $ 12 -- -- $ 58 Buildings 4,999 459 -- ($589) 4,869 Machinery and equipment 26,567 1,877 $168 (6,804) 21,472 Machinery and equipment under 4,325 108 -- (4,433) -- capital lease ------- ------ ---- -------- ------- $35,937 $2,456 $168 ($11,826)(2) $26,399 ======= ====== ==== ======== ======= Year Ended August 31, 1992 Land and improvements $ 29 $ 17 -- -- $ 46 Buildings 3,730 1,269 -- -- 4,999 Machinery and equipment 22,737 4,116 $286 -- 26,567 Machinery and equipment under 3,025 1,301 1 -- 4,325 capital lease ------- ------ ---- -------- ------- $29,521 $6,703 $287 -- $35,937 ======= ====== ==== ======== =======
- - -------- (1) Reduction due to write down of certain idled equipment to estimated net realizable value (see note 1 to the Notes to Consolidated Financial Statements in the Annual Report). (2) Reduction due to sale of the compressor operation (see note 12 to the Notes to Consolidated Financial Statements in the Annual Report). S-3 FEDDERS CORPORATION VALUATION & QUALIFYING ACCOUNTS AND RESERVES SCHEDULE VIII For The Years Ended August 31, 1994, 1993 and 1992 (Amounts in thousands)
Balance Additions Balance at charged at end beginning to of of period expense Deductions period --------- --------- ---------- ------- Allowance for Doubtful Accounts: Year ended:August 31, 1994 $1,078 $171 $ 505 $ 744 ====== ==== ======= ====== August 31, 1993 $3,356 $ 63 $2,341 (1) $1,078 ====== ==== ======= ====== August 31, 1992 $3,496 $242 $ 382 $3,356 ====== ==== ======= ======
- - -------- (1) Deductions include $474 related to the sale of the compressor operations (see note 12 of the Notes to Consolidated Financial Statements in the Annual Report). S-4 FEDDERS CORPORATION SHORT-TERM BORROWING SCHEDULE IX For The Years Ended August 31, 1994, 1993 and 1992 (Amounts In Thousands)
Maximum Average (3) Weighted (2) Balance Weighted Amount Amount Average at End Average Outstanding Outstanding Interest of Interest During the During the Rate During Category of Aggregate Period Rate Period Period the Period Short-term Borrowing(1) ------- -------- ----------- ----------- ------------ Year Ended: August 31, 1994 -- -- $28,404 $11,425 8.7% ======= ==== ======= ======= ==== August 31, 1993 -- -- $20,479 $ 7,419 9.0% ======= ==== ======= ======= ==== August 31, 1992 $40,000 10.5% $68,597 $50,657 11.4% ======= ==== ======= ======= ====
- - -------- (1) For a description of credit facilities see note 4 of the Notes to Consolidated Financial Statements in the Annual Report. (2) Aggregate interest expense divided by daily average loans outstanding during the period. (3) Aggregate month-end balance divided by twelve months. S-5 FEDDERS CORPORATION SUPPLEMENTARY INCOME STATEMENT INFORMATION(1) SCHEDULE X For The Years Ended August 31, 1994, 1993 and 1992 (Amounts in thousands) Charged to Costs and Expenses
Years ended August 31, ------------------------ 1994 1993 1992 ------ ------ ------ Advertising costs $2,272 $1,452 $2,944 ====== ====== ====== Maintenance and repairs $1,860 $1,326 $1,889 ====== ====== ====== Amortization: Intangibles $1,334 $2,550 $6,927 Debt discount 631 640 1,246 ------ ------ ------ Total amortization $1,965 $3,190 $8,173 ====== ====== ======
- - -------- (1) All other information required by this schedule has been omitted because the amounts involved are not in excess of 1% of total sales and revenues. S-6 EXHIBIT INDEX
Exhibit No. Description 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 hereby 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 26, 1988, filed as Exhibit (3) (vii) to the Company's Annual Report on Form 10-K for 1987 and incorporated herein by reference. (4) (i) Indenture dated April 22, 1971 with Chemical Bank as Trustee covering Rotorex Corporation's 5% Convertible Subordinated Debentures due 1996, filed as Exhibit (4) (i) to Annual Report on Form 10-K for 1985 of Fedders, and incorporated herein by reference. (ii) Appointment of Bradford Trust Company as successor trustee to Chemical Bank, filed as Exhibit 13C to Annual Report on Form 10-K for 1977 of Rotorex Corporation and incorporated herein by reference.
(iii) First Supplemental Indenture with Bradford Trust Company, filed as Exhibit 12C to Annual Report on Form 10-K for 1978 of Rotorex Corporation and incorporated herein by reference. (iv) Appointment of Schroder Trust Company as successor trustee to Bradford Trust Company, filed as Exhibit 4.3 to Annual Report on Form 10-K for 1983 of Rotorex Corporation and incorporated herein by reference. (v) Second Supplemental Indenture dated as of January 2, 1985 with J. Henry Schroder Bank & Trust Company filed as Exhibit (iv) to Quarterly Report on Form 10-Q of Rotorex Corporation for the quarter ended March 31, 1985 and incorporated herein by reference. (vi) Third Supplemental Indenture dated as of June 12, 1989 between Rotorex Acquisition Corp. and IBJ Schroder Bank & Trust Company, filed as Exhibit 10 (v) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 and incorporated herein by reference. (vii) Indenture dated May 23, 1974 with The Chase Manhattan Bank, N.A. as Trustee covering Rotorex Corporation's 8-7/8% Subordinated Debentures due 1994, filed as Exhibit 4.4 to Annual Report on Form 10-K for 1981 of Rotorex Corporation and incorporated herein by reference. (viii) Appointment of J. Henry Schroder Bank & Trust Company as successor trustee to The Chase Manhattan Bank, N.A., filed as Exhibit 13B to Annual Report on Form 10-K for 1977 of Rotorex Corporation and incorporated herein by reference. (ix) First Supplemental Indenture with J. Henry Schroder Bank & Trust Company, filed as Exhibit 12B to Annual Report on Form 10-K for 1978 of Rotorex Corporation and incorporated herein by reference. (x) Second Supplemental Indenture dated as of June 12, 1989 between Rotorex Acquisition Corp. and IBJ Schroder Bank & Trust Company, filed as Exhibit 10 (iv) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989 and incorporated here by reference. (xi) Indenture dated as of January 1, 1983 with Bradford Trust Company as Trustee covering Rotorex Corporation's 11-7/8% Senior Subordinated Debentures due 1995, filed as Exhibit 4.10 to Annual Report on From 10-K for 1983 of Rotorex Corporation and incorporated herein by reference. (xii) First Supplemental Indenture with Bradford Trust Company covering Rotorex Corporation's 11-7/8% Senior Subordinated Debentures due 1995, filed as an exhibit to Quarterly Report on Form 10-Q of Rotorex Company for the quarter ended June 30, 1984 and incorporated herein by reference. (xiii) Instrument or Resignation, Appointment and Acceptance dated October 4, 1987 among Rotorex Corporation, Fidata Trust Company New York and Mellon Bank, N.A. appointing Mellon Bank, N.A. successor trustee of Rotorex Corporation's 11-7/8% Senior Subordinated Debentures due 1995, filed as Exhibit (4) (xii) to Annual Report on Form 10-K on NYCOR, Inc. for 1987 and incorporated herein by reference. (xiv) Second Supplemental Indenture dated as of June, 1989 between Rotorex Acquisition Corp. and Mellon Bank, N.A., filed as Exhibit (10) (iii) to Fedders Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 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.
(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) Promissory Note of Salvatore Giordano, Jr. dated July 27, 1992, filed as Exhibit 10 (viii) to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference,. (viii) 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. (ix) Promissory Note of Salvatore Giordano, Jr., dated August 4, 1994. (x) Promissory Note of Robert Laurent, Jr. dated August 4, 1994. (xi) Promissory Note of Joseph Giordano dated August 4, 1994. (xii) Promissory Note of N. W. Swartz dated August 4, 1994. (xiii) Promissory Note of N. W. Swartz dated September 30, 1994. (11) Statement re computation of per share earnings. (13) 1994 Annual Report to Stockholders. (21) Subsidiaries. (23) Consent of Ernst & Young (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 31, 1994.
EX-10.(IX) 2 PROMISSORY NOTE-SALVATORE GIORDANO, JR. 8/4/94 Exhibit 10 (ix) DATE: August 4, 1994 TO: Sal Giordano, Jr. FROM: Robert L. Laurent, Jr. SUBJECT: Loan to Exercise Options =============================================================== Our records indicate that you took advantage of a program instituted by the Board of Directors of Fedders Corporation (the "Company") on January 3, 1994, whereby you were permitted to exercise some or all of your stock options and pay two thirds of the amount due on exercise at the time of the exercise, and the remaining one third on or before July 31, 1994 or within 10 days of the date of the sale of the stock whichever occurred first (the "Program"). On July 26, 1994, the Board passed a resolution allowing each Optionee who has not yet paid the remaining one third balance from their participation in the Program, to immediately convert such balance into a loan from the Company with the loan becoming due and payable on or before July 31, 1995, or within 10 days after sale of the underlying shares of stock, whichever occurs first. The loan will bear interest at the prime rate in effect at the beginning of each month (as published in Wall Street Journal), and interest will be payable monthly to the Company. If you would like to convert your remaining one third balance from the Program into a loan under the terms and conditions stated above, kindly countersign this memo in the space provided below and return it to Anne Reed on or before August 12, 1994. If you do not desire to convert your balance into a loan, kindly remit the balance of $269,730.00 to the Company. ACCEPTANCE OF LOAN: I, Sal Giordano, Jr., promise to pay the remaining balance of $269,730.00 to the Company under the terms and conditions stated above. /s/S. Giordano, Jr. - - ------------------- Dated: August 5, 1994 EX-10.(X) 3 PROMISSORY NOTE-ROBERT LAURENT, JR. 8/4/94 Exhibit 10 (x) DATE: August 4, 1994 TO: Robert L. Laurent, Jr. FROM: S. A. Muscarnera SUBJECT: Loan to Exercise Options =============================================================== Our records indicate that you took advantage of a program instituted by the Board of Directors of Fedders Corporation (the "Company") on January 3, 1994, whereby you were permitted to exercise some or all of your stock options and pay two thirds of the amount due on exercise at the time of the exercise, and the remaining one third on or before July 31, 1994 or within 10 days of the date of the sale of the stock whichever occurred first (the "Program"). On July 26, 1994, the Board passed a resolution allowing each Optionee who has not yet paid the remaining one third balance from their participation in the Program, to immediately convert such balance into a loan from the Company with the loan becoming due and payable on or before July 31, 1995, or within 10 days after sale of the underlying shares of stock, whichever occurs first. The loan will bear interest at the prime rate in effect at the beginning of each month (as published in Wall Street Journal), and interest will be payable monthly to the Company. If you would like to convert your remaining one third balance from the Program into a loan under the terms and conditions stated above, kindly countersign this memo in the space provided below and return it to Anne Reed on or before August 12, 1994. If you do not desire to convert your balance into a loan, kindly remit the balance of $143,397.00 to the Company. ACCEPTANCE OF LOAN: I, Robert L. Laurent, Jr., promise to pay the remaining balance of $143,397.00 to the Company under the terms and conditions stated above. /s/Robert L. Laurent, Jr. - - ------------------------- Dated: August 21, 1994 EX-10.(XI) 4 PROMISSORY NOTE-JOSEPH GIORDANO 8/4/94 Exhibit 10 (xi) DATE: August 4, 1994 TO: Joe Giordano FROM: Robert L. Laurent, Jr. SUBJECT: Loan to Exercise Options =============================================================== Our records indicate that you took advantage of a program instituted by the Board of Directors of Fedders Corporation (the "Company") on January 3, 1994, whereby you were permitted to exercise some or all of your stock options and pay two thirds of the amount due on exercise at the time of the exercise, and the remaining one third on or before July 31, 1994 or within 10 days of the date of the sale of the stock whichever occurred first (the "Program"). On July 26, 1994, the Board passed a resolution allowing each Optionee who has not yet paid the remaining one third balance from their participation in the Program, to immediately convert such balance into a loan from the Company with the loan becoming due and payable on or before July 31, 1995, or within 10 days after sale of the underlying shares of stock, whichever occurs first. The loan will bear interest at the prime rate in effect at the beginning of each month (as published in Wall Street Journal), and interest will be payable monthly to the Company. If you would like to convert your remaining one third balance from the Program into a loan under the terms and conditions stated above, kindly countersign this memo in the space provided below and return it to Anne Reed on or before August 12, 1994. If you do not desire to convert your balance into a loan, kindly remit the balance of $186,584.00 to the Company. ACCEPTANCE OF LOAN: I, Joe Giordano, promise to pay the remaining balance of $186,584.00 to the Company under the terms and conditions stated above. /s/Joseph Giordano - - ------------------ Dated: August 9, 1994 EX-10.(XII) 5 PROMISSORY NOTE-N.W. SCHWARTZ 8/4/94 Exhibit 10 (xii) DATE: August 4, 1994 TO: N. W. Swartz FROM: Robert L. Laurent, Jr. SUBJECT: Loan to Exercise Options =============================================================== Our records indicate that you took advantage of a program instituted by the Board of Directors of Fedders Corporation (the "Company") on January 3, 1994, whereby you were permitted to exercise some or all of your stock options and pay two thirds of the amount due on exercise at the time of the exercise, and the remaining one third on or before July 31, 1994 or within 10 days of the date of the sale of the stock whichever occurred first (the "Program"). On July 26, 1994, the Board passed a resolution allowing each Optionee who has not yet paid the remaining one third balance from their participation in the Program, to immediately convert such balance into a loan from the Company with the loan becoming due and payable on or before July 31, 1995, or within 10 days after sale of the underlying shares of stock, whichever occurs first. The loan will bear interest at the prime rate in effect at the beginning of each month (as published in Wall Street Journal), and interest will be payable monthly to the Company. If you would like to convert your remaining one third balance from the Program into a loan under the terms and conditions stated above, kindly countersign this memo in the space provided below and return it to Anne Reed on or before August 12, 1994. If you do not desire to convert your balance into a loan, kindly remit the balance of $45,052.50 to the Company. ACCEPTANCE OF LOAN: I, N. W. Swartz, promise to pay the remaining balance of $45,052.50 to the Company under the terms and conditions stated above. /s/N. W. Swartz - - --------------- Dated: August 8, 1994 EX-10.(XIII) 6 PROMISSORY NOTE-N.W. SCHWARTZ 9/30/94 Exhibit (10) (xiii) PROMISSORY NOTE U.S. $120,000 September 30, 1994 FOR VALUE RECEIVED, receipt and sufficiency of which are hereby acknowledged, the undersigned hereby promise to pay to the order of FEDDERS CORPORATION, or its designee, (the "Payee") the sum of ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000) in such coin of the United States of America as shall be legal tender for the payment of public and private debts, at the offices of FEDDERS CORPORATION in the State of New Jersey, payable in yearly installments, without interest, as follows: Schedule of Payments -------------------- $30,000 on or before August 30, 1995 $30,000 on or before August 30, 1996 $30,000 on or before August 30, 1997 $30,000 on or before August 30, 1998 Loan payments will be forgiven at the rate indicated on each anniversary date provided the undersigned, Norman W. Swartz, is employed by the Payee or any of its subsidiaries on each such date. If Mr. Swartz voluntarily terminates his employment with the Payee or any of its subsidiaries, the undersigned will be obligated to pay the full balance of this Note within thirty (30) days of such termination. In the event Mr. Swartz's employment is involuntarily terminated, for any reason other than cause, the balance of this Note will be due and payable in full three (3) years from the date of such termination or upon the sale of the undersigned's home at 74 Alder Lane, Bernards Township, New Jersey 07921, whichever occurs first. The makers, endorsers and all guarantors of this Note severely waive demand, protest, and presentation of payment and notice of non-payment and protest, and also waive any and all defenses on the ground of any extensions or partial payments which may be granted or accepted by the holder before or after the maturity of this Note or any part thereof. /s/ Robert N. Edwards /s/ Norman W. Swartz - - ---------------------- -------------------- Witness Norman W. Swartz /s/ Robert N. Edwards /s/ Linda P. Swartz - - ---------------------- ------------------- Witness Linda P. Swartz EX-11 7 COMPUTATION/PER SHARE EARNINGS EXHIBIT 11 FEDDERS CORPORATION COMPUTATION OF PER SHARE EARNINGS For The Years Ended August 31, 1994, 1993 and 1992 (Amounts in thousand except per share data)
1994 1993 1992 ------- -------- --------- Average number of common, class A and other common equivalent shares outstanding 31,509 29,838 28,313 ======= ======= ======== Net income (loss) $20,989 $(1,775) $(24,931) ======= ======= ======== Net income (loss) per share $0.67 $(0.06) $(0.88) ======= ======= ======== Fully diluted: Average number of common, class A and other common equivalent shares outstanding 31,509 29,838 28,313 Additional average number of common shares assuming the conversion of the 5% convertible subordinated debentures due 1996 582 582 582 ------- ------- -------- Average common, class A and common other equivalent shares outstanding 32,091 30,429 28,895 ======= ======= ======== Net income (loss) $20,989 $(1,775) $(24,931) Interest relating to the 5% convertible subordinated debentures due 1996 net of applicable taxes and tax credits 661 661 661 Net income (loss) assuming full dilution $21,650 $(1,114) $(24,270) ======= ======= ======== Net income (loss) per share $ 0.67 $ (0.04) $ (0.84) ======= ======= ======== Fully diluted income (loss) per share excluding anti- dilutive effect of conversion of debentures $ 0.67 $ (0.06) $ (0.88) ======= ======= ========
EX-13 8 1994 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13 Fedders Corporation - - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Results of Operations and Financial Condition For the second consecutive year, Fedders Corporation significantly improved its profitability, following a period marked by cool summer weather and consolidation in the room air conditioner industry in the early 1990's. The improved profitability in 1994 and 1993 is the result of lower fixed costs, higher sales and the Company's concentration on flexible manufacturing to accommodate customers' increasingly seasonal delivery requirements. The Company's business is affected by summer weather in major markets, with product now shipped primarily in the second half of the fiscal year. New retail leaders in room air conditioners prefer frequent, just-in-time deliveries during their peak selling season (April through July), rather than the past practice of pre-season inventory build-up. Favorable weather in 1994 and 1993 virtually depleted industry inventories at manufacturers and retailers. Abnormally cool summer weather in 1992 and 1990 -- compounded by retailers' credit constraints and consolidation in that industry -- reduced room air conditioner manufacturers' sales and created significant excess inventories industrywide from August 1990 into the 1993 season. Manufacturers' shipments of room air conditioners during Fedders' fiscal periods totaled 3.8 million units in 1994 and 3.0 million in 1993 and 1992. Results of Operations Entering 1994, Fedders carried minimal inventories as a consequence of the Company's transition to flexible manufacturing. With industry inventories depleted, Fedders' sales increased 46% in 1994 due to increased orders from existing customers in addition to orders from new accounts, including heat- generated orders that were produced and shipped during the retailers' selling season. Fiscal 1993 sales declined 17.6% from the 1992 level due to the impact of excess industry inventories carried over from 1992 and a 1.2 million-unit reduction in those inventories during the 1993 season. Unfavorable weather affected 1992 sales. Operating Results as a Percent of Net Sales
1994 1993 1992 ---- ---- ----- Gross profit 21.3% 17.5% 13.3% Selling, general and administrative expense 11.0 16.3 16.5 Operating income (loss) 10.3 1.2 (4.9) Interest expense 1.8 2.7 8.1 Pre-tax income (loss) 8.6 (1.5) (13.0) ==== ==== =====
The gross profit margin increased in fiscal 1994 due to efficiencies in plant utilization due to higher sales and continuous cost reduction. The 1993 gross profit margin reflects lower costs than in prior years as a result of a 1992 restructuring, offset, in part, by low sales volume. The 1992 gross profit margin was reduced by an extended period of shutdown due to excess industry inventories. Selling, general and administrative expense decreased as a percent of net sales in fiscal 1994 due to the higher sales volume and further consolidation of the Fedders North America sales and marketing functions during the fourth quarter of fiscal 1993. Selling, general and administrative expense decreased as a percent of net sales during fiscal 1993, despite lower sales, as a result of expense reduction associated with the restructuring. In fiscal 1992, selling, general and administrative expense included lower marketing costs, reflecting the shift in the Company's mix of customers, which are now primarily retailers. Interest expense decreased as a percent of net sales in the past two years as long-term debt declined, the interest rate on the working capital line of credit was reduced and just-in-time manufacturing minimized borrowing for working capital even as sales increased in 1994. Income before income taxes in 1994 totaled 8.6% of net sales compared with losses in the two prior years. The 1992 results included a net restructuring charge of $3.3 million, reflecting a $10.4 million provision to close two New Jersey plants, offset, in part, by a $7.1 million profit on the sale of the Company's compressor operations. The plant closings permanently laid off approximately 600 employees, and the Company consolidated production into two remaining facilities. The restructuring reduced costs of production, operating expense and interest expense. During fiscal 1994, the Company adopted Financial Accounting Standard ("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 Company had a 3% tax rate during fiscal 1994 reflecting utilization of tax loss carryforwards resulting in a net tax provision of $594,000 in 1994. The Company had net tax benefits of $565,000 in fiscal 1993 and $34,000 in fiscal 1992 due to pre-tax losses. Earnings per share information was restated to reflect a 50% Class A Stock dividend distributed in September 1994. 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 1994 was strong with cash increasing to $34.9 million at August 31, from $8.6 million in the prior year. Accounts receivable are also seasonal and at August 31 are typically near the low point of the year as most collections occur prior to August 31. Ending inventories were further reduced by $1.2 million from August 31, 1993 to August 31, 1994 as the Company 4 Fedders Corporation - - -------------------------------------------------------------------------------- has increased its manufacturing flexibility to produce in-season to customer requirements and to minimize its year end inventory. During fiscal 1994, the Company's accounts payable increased modestly as the Company operated its factories longer in 1994, into August. Investing activities during fiscal 1994 were for capital expenditures of $2.6 million, excluding a capital lease of $951,000. The Company received proceeds of $4.1 million from the exercise of employee stock options during fiscal 1994. As a result of strong cash flow, the Company fully redeemed at par $6.7 million of principal, plus accrued interest outstanding, of its 11 7/8% senior subordinated debentures due in May 1995. The Company also redeemed $1.9 million of 8 7/8% subordinated debentures during the year. Remaining total long-term debt of $19.0 million has an average rate of interest of 4.2%. The Company's revolving credit facility of $30 million is renewable in December 1995. The credit facility is collateralized by substantially all of the Company's assets. Management believes that the Company's earnings and borrowing capacity are adequate to meet the needs of its operation and long-term credit requirements, including capital expenditures and debt maturities. - - -------------------------------------------------------------------------------- Selected Financial Data (a)
Eight Months Ended Years Ended Years Ended August 31, August 31, December 31, ------------------------------------ -------- ----------------------- (Amounts in thousands, except per share data) 1994 1993 1992 1991 (e) 1990 1989 (h) -------- -------- -------- -------- -------- -------- Net sales $231,572 $158,602 $192,365 $191,423 $241,383 $367,637 Gross profit 49,263 27,744 25,607 27,750 41,037 69,419 Percent of net sales 21.3 17.5 13.3 14.5 17.0 18.9 Operating income (loss) 23,905 1,907 (9,392) (1,883) (4,370) 41,513 Percent of net sales 10.3 1.2 (4.9) (.01) (1.8) 11.3 Pre-tax income (loss) 19,803 (2,340) (24,965) (13,666) (16,980) 35,757 Percent of net sales 8.6 (1.5) (12.7) (7.1) (7.0) 9.7 -------- -------- -------- -------- -------- -------- Net income (loss) $ 20,989 (c) $ (1,775) $(24,931) (d) $(11,178) (f) $(15,566) (g) $ 23,654 Per share (b) $ 0.67 (c) $ (0.06) $ (0.88) $ (0.40) $ (0.56) $ 0.83 ======== ======== ======== ======== ======== ======== Cash dividends declared per share: Common Stock -- -- -- $ 0.360 $ 0.480 $ 0.400 Class B Stock -- -- -- 0.324 0.432 0.360 ======== ======== ======== ======== ======== ======== Cash $ 34,869 $ 8,553 $ 8,738 $ 2,908 -- -- Total assets 100,653 81,285 179,249 197,243 $215,367 $281,275 Short-term borrowing -- -- 40,000 29,900 31,781 43,275 Long-term debt, including current portion 17,943 25,590 49,588 65,073 90,641 83,654 Stockholders' equity 49,317 24,229 19,039 44,181 61,524 82,616 Capital expenditures 2,634 (i) 2,379 3,599 3,607 7,118 8,879 Depreciation and amortization 9,374 5,646 14,876 10,580 16,481 9,991 Earnings before interest, taxes, depreciation and amortization 32,252 6,317 2,675 6,269 10,719 50,758 ======== ======== ======== ======== ======== ========
(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) Per share data are restated to reflect a 50% stock dividend distributed in September 1994. (c) In 1994, the Company adopted SFAS No. 109, Accounting for Income Taxes, which resulted in income of $1,780,000 or $0.06 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) In 1991, the Company changed to a fiscal year ending August 31 in order to conform financial reporting to the room air conditioner season. (f) Includes a pre-tax provision of $5,000,000 for a product recall. (g) Includes a restructuring charge of $14,311,000 related to the shutdown of assembly operations at the Ontario facility, including a write-off of $10.1 million of intangible assets. (h) The 1989 net income includes $1,516,000 of extraordinary income from the utilization of tax loss carryforwards. The cash dividends do not reflect Preferred Stock dividends of $0.438 per share paid in 1989 prior to conversion of the Convertible Exchangeable Preferred Stock into Common Stock. (i) Excludes $951,000 of equipment under capital lease. 5 Fedders Corporation - - -------------------------------------------------------------------------------- Consolidated Statements of Operations
Years Ended August 31, ------------------------------ (Amounts in thousands, except per share data) 1994 1993 1992 -------- -------- -------- Net sales $231,572 $158,602 $192,365 Costs and expenses: Cost of sales 182,309 130,858 166,758 Selling, general and administrative expense 25,358 25,837 31,699 Restructuring charge (note 12) -- -- 3,300 -------- -------- -------- 207,667 156,695 201,757 -------- -------- -------- Operating income (loss) 23,905 1,907 (9,392) Interest expense (4,102) (4,247) (15,573) -------- -------- -------- Income (loss) before income taxes 19,803 (2,340) (24,965) Federal, state and foreign income tax (benefit) (note 7) 594 (565) (34) -------- -------- -------- Income (loss) before cumulative effect of an accounting change 19,209 (1,775) (24,931) Cumulative effect of an accounting change (note 7) 1,780 -- -- -------- -------- -------- Net income (loss) $ 20,989 $ (1,775) $(24,931) ======== ======== ======== Earnings per share: Income (loss) before cumulative effect of an accounting change $ 0.61 $ (0.06) $ (0.88) Cumulative effect of an accounting change 0.06 -- -- -------- -------- -------- Net income (loss) per share $ 0.67 $ (0.06) $ (0.88) ======== ======== ========
See accompanying notes 6 Fedders Corporation - - -------------------------------------------------------------------------------- Consolidated Balance Sheets
August 31, ------------------- (Amounts in thousands, except per share data) 1994 1993 -------- -------- Assets Current assets: Cash $ 34,869 $ 8,553 Accounts receivable (less allowance of $744 in 1994 and $1,078 in 1993) 12,840 8,901 Inventories 18,048 19,270 Deferred income taxes (note 7) -- 3,882 Other current assets 674 917 -------- -------- Total current assets 66,431 41,523 Net property, plant and equipment 27,372 31,637 Other assets 6,850 8,125 -------- -------- $100,653 $ 81,285 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt (note 5) $ 616 $ 2,206 Accounts payable 5,315 5,174 Accrued expenses 22,127 17,184 -------- -------- Total current liabilities 28,058 24,564 Long-term debt (note 5) 17,327 23,384 Deferred income taxes (note 7) 1,175 6,019 Other long-term liabilities: Warranty 2,852 2,473 Other 1,924 616 Commitments and contingencies (notes 3, 4, 6 and 11) Stockholders' equity (notes 9 and 10): Common Stock, $1 par value, 60,000,000 shares authorized, 19,641,659 and 18,613,559 issued at August 31, 1994 and 1993, respectively 19,642 18,614 Class A Stock, $1 par value, 30,000,000 shares authorized, 10,625,029 shares issued on September 9, 1994 10,625 -- Class B Stock, $1 par value, 7,500,000 shares authorized, 2,268,206 issued and outstanding at August 31, 1994 and 1993, respectively 2,268 2,268 Additional paid-in capital 51,423 47,571 Accumulated deficit (24,764) (35,128) Cumulative translation adjustment (169) (130) Notes due on Common Stock purchases (note 10) (742) -- -------- -------- 58,283 33,195 Less treasury stock, at cost, 654,410 shares of Common Stock (8,966) (8,966) -------- -------- Total stockholders' equity 49,317 24,229 -------- -------- $100,653 $ 81,285 ======== ========
See accompanying notes 7 Fedders Corporation - - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flow
Years Ended August 31, ------------------------------ (Amounts in thousands) 1994 1993 1992 ------- -------- --------- Cash flows from operations: Net income (loss) $20,989 $ (1,775) $ (24,931) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 9,374 5,646 14,876 Deferred income taxes (962) 566 1,781 Changes in operating assets and liabilities: Accounts receivable (3,939) 5,574 (534) Current income tax receivable -- -- 2,291 Inventory 1,222 25,864 11,994 Other current assets 243 (832) 1,611 Other assets (59) (1,156) (2,642) Accounts payable 141 (23,051) 14,376 Accrued expenses 4,943 (15,439) (2,852) Other long-term liabilities 1,687 272 (373) Other (39) (778) (342) ------- -------- --------- Net cash provided by (used in) operations 33,600 (5,109) 15,255 ------- -------- --------- Cash flows from investing activities: Additions to property, plant and equipment (excludes $951 of equipment acquired under capital lease in 1994) (2,634) (2,379) (3,599) Disposal of property, plant and equipment 441 89 674 ------- -------- --------- Net cash used in investing activities (2,193) (2,290) (2,925) ------- -------- --------- Cash flows from financing activities: Increase in short-term borrowing -- -- 40,000 Proceeds from long-term debt -- -- 107,167 Repayments of long-term debt (9,229) (529) (153,798) Proceeds from stock options exercised 4,138 7,743 131 ------- -------- --------- Net cash (used in) provided by financing activities (5,091) 7,214 (6,500) ------- -------- --------- Net increase (decrease) in cash and cash equivalents 26,316 (185) 5,830 Cash and cash equivalents at beginning of year 8,553 8,738 2,908 ------- -------- --------- Cash and cash equivalents at end of year $34,869 $ (8,553) $ 8,738 ======= ======== ========= Supplemental disclosure: Interest paid $ 3,766 $ (3,248) $ 12,781 Income taxes refunded (1,196) (1,155) (4,166)
See accompanying notes 8 Fedders Corporation - - -------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity
Notes Due Additional Retained Cumulative on Com- Common Class A Class B Paid-in Earnings Translation mon Stock Treasury (Amounts in thousands) Stock Stock Stock Capital (Deficit) Adjustment Purchases Stock ------- ------- ------- ---------- --------- ----------- ---------- -------- August 31, 1991 $16,836 -- $2,270 $41,657 $ (8,422) $990 -- $(9,150) ======= ======= ======= ========== ========= =========== ========== ======== Net loss -- -- -- -- (24,931) -- -- -- Conversion of Class B Stock to Common Stock 2 -- (2) -- -- -- -- -- Stock options exercised -- -- -- (74) -- -- -- 205 Foreign currency translation -- -- -- -- -- (342) -- -- ------- ------- ------- ---------- --------- ----------- ---------- -------- 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) ======= ======= ======= ========== ========= =========== ========== ========
See accompanying notes 9 Fedders Corporation - - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (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 net of provisions for sales allowances, warranty and similar items. Restructuring charge In 1992, the Company recorded a net restructuring charge of $3,300,000 for costs associated with the shutdown of its two New Jersey manufacturing facilities offset, in part, by the benefit from the sale of its compressor business to NYCOR, Inc. (note 12). Warranty and return policy The Company's warranty policy 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 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 with a maturity of three months or less when purchased to be cash equivalents. Inventories Inventories are stated at the lower of the first-in, first-out (FIFO) cost or market. Inventories consist of the following at August 31:
1994 1993 ------- ------- Finished goods $ 9,596 $11,597 Work in process 1,242 842 Raw materials and supplies 7,210 6,831 ------- ------- $18,048 $19,270 ======= =======
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:
1994 1993 ------- ------- Land and improvements $ 1,363 $ 1,393 Buildings 12,005 11,844 Machinery and equipment 47,146 44,799 ------- ------- Property, plant and equipment 60,514 58,036 Accumulated depreciation 33,142 26,399 ------- ------- $27,372 $31,637 ======= =======
Depreciation is provided on the straight-line basis over the estimated useful life of each item. In 1994, depreciation includes $3,902,000 related to a write down of certain idle fixed assets to estimated realizable value. Other assets Other assets consist primarily of intangible assets which, other than goodwill, are amortized over periods from one to nine years using the straight-line method. Goodwill is amortized over 40 years using the straight-line method. Long-term receivables include receivables from employees including an officer. Other assets are net of accumulated amortization of $8,072,000 and $6,738,000 at August 31, 1994 and 1993, respectively, and consist of the following at August 31:
1994 1993 ------ ------ Goodwill $5,669 $5,823 Other 631 1,345 ------ ------ Intangible assets 6,300 7,168 Long-term receivables 550 957 ------ ------ $6,850 $8,125 ====== ======
Accrued expenses Accrued expenses consist of the following at August 31:
1994 1993 ------- ------- Warranty $ 6,393 $ 5,016 Marketing programs 5,946 4,482 Salaries and benefits 3,082 2,430 Other 6,706 5,256 ------- ------- $22,127 $17,184 ======= =======
10 Fedders Corporation - - -------------------------------------------------------------------------------- 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 have not been restated to apply the provisions of SFAS No. 109. Deferred income taxes for fiscal 1994 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 $2,233,000, $2,164,000 and $2,995,000 in 1994, 1993 and 1992, 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: 31,509,000, 29,838,000, and 28,313,000 in 1994, 1993, and 1992, respectively. Prior-period earnings per share have been restated to reflect the Class A Stock dividend distributed in September 1994 (notes 9 and 10). 2. Transactions with NYCOR On September 28, 1992, the Company sold the assets and business related to its rotary compressor operations to NYCOR, Inc. ("NYCOR"). In conjunction with the sale, $60,000,000 of notes due to NYCOR from the Company were eliminated (note 12). Interest paid to NYCOR under these notes amounted to $6,025,000 in 1992. The Company has an agreement with NYCOR for the supply of compressors. Total purchases from NYCOR amounted to $52,108,000 and $28,801,000 in 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. 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, 1994 and 1993, the Company had no short-term borrowing under its $30,000,000 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 $28,404,000 during fiscal 1994. The credit facility is collateralized by substantially all of the Company's assets and is in effect until December 1995. The rate of interest on the facility is at the prime rate plus 2.5%. 5. Long-term Debt Aggregate amounts of long-term debt, excluding capital leases of $712,000, maturing in each of the four years after August 31, 1995 are: 1996-$13,569,000, 1997-$363,000, 1998-$369,000 and 1999-$370,000. The 5% convertible subordinated debentures due in 1996 are convertible into the Company's Common Stock at $34.00 per share and may be redeemed by the Company at 100% of principal, at any time. Upon conversion, bondholders are entitled to an additional half-share of Class A Stock for each share of Common Stock received. The loan from the State of Illinois has an interest rate of 1%, is to be paid over the next 14 years, and is collateralized by a mortgage on the Illinois facility. The loan from the State of Tennessee and Maury County, Tennessee is to be repaid over the next six years bearing interest at 8% through 1995 and 9% through 2000. The 11 7/8% senior subordinated debentures due May 1995 were prepaid by the Company on August 30, 1994 at 100% of principal. The unamortized debt discount related to the 11 7/8% debentures was not material at August 30, 1994. The 8 7/8% subordinated debentures were paid at maturity in May 1994. The provisions of certain long-term debt arrangements of one of the Company's subsidiaries limit, among other things, the payment of cash dividends on the subsidiary's common stock. In 1994, the Company acquired equipment under a capital lease. The aggregate future minimum lease payments for the years ending August 31 are as follows: $347,000, $256,000 and $196,000 in 1995, 1996 and 1997, respectively. The present value of minimum lease payments is $712,000 excluding $87,000 of interest. 11 Fedders Corporation - - -------------------------------------------------------------------------------- Long-term debt consists of the following at August 31:
1994 1993 ------- ------- 5% convertible subordinated debentures due in 1996: $13,211 principal amount less unamortized discount of $1,029 and $1,600 at August 31, 1994 and 1993, respectively (note 9) $12,182 $11,611 Promissory note payable to the State of Illinois, interest at 1% 4,856 5,181 Capital lease obligation 712 -- Promissory note payable to the State of Tennessee and Maury County, Tennessee, at 8% 193 216 11 7/8% senior subordinated debentures due in 1995 -- 6,701 8 7/8% subordinated debentures due in 1994 -- 1,881 ------- ------- 17,943 25,590 Less current maturities 616 2,206 ------- ------- $17,327 $23,384 ======= =======
6. Operating Leases The Company leases certain property and equipment under operating leases which expire over the next five 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 in excess of one year are as follows: $3,132,000, $2,030,000 $953,000, $854,000 and $866,000 in 1995, 1996, 1997, 1998 and 1999, respectively. Minimum lease payments total $7,834,000. Total rent expense for all operating leases amounted to $3,559,000, $3,783,000 and $3,486,000 in 1994, 1993 and 1992, respectively. 7. Income Taxes The provision for income tax (benefit) consists of the following components:
1994 1993 1992 ---- ----- ----- Current: Federal $396 -- -- State 198 -- -- Foreign -- $(870) $(248) ---- ----- ----- 594 (870) (248) Deferred: Foreign -- 305 214 ---- ----- ----- -- 305 214 ---- ----- ----- $594 $(565) $ (34) ==== ===== =====
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:
1994 -------- Net operating loss and tax credit carryforwards $ 12,800 Depreciation (4,400) Warranty 3,100 All other 125 -------- 11,625 Valuation allowance (12,800) -------- Total deferred taxes $ (1,175) ========
The difference between the United States statutory income tax rate and the Company's consolidated effective income tax rate is as follows:
1994 1993 1992 ------- ----- ------- Expected tax (benefit) at statutory rate $ 6,733 $(796) $(8,488) Effect of Canadian operations -- (123) (37) Change in valuation reserve (6,799) -- -- Alternative minimum tax 396 -- -- State and local taxes 198 -- -- Losses for which no benefits can be provided -- 295 8,303 Other 66 59 188 ------- ----- ------- Consolidated income tax (benefit) $ 594 $(565) $ (34) ======= ===== =======
12 Fedders Corporation - - -------------------------------------------------------------------------------- At August 31, 1994, the Company has U.S. net operating loss carryforwards of approximately $29,000,000. The U.S. net operating loss carryforwards expire in the years 2006 through 2008. The Company has investment tax credit carryforwards of approximately $370,000 that expire in the years 1994 through 2001. The Company has alternative minimum tax credit carryforwards of approximately $1,400,000. 8. Industry Segments 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 28% of net sales in 1994 and 1993. Another customer accounted for 11% of net sales in 1994. Two customers each accounted for more than 10% of net sales in 1992. International sales were approximately $8,250,000 in 1994, $5,769,000 in 1993, and $14,743,000 in 1992, and were made principally to Canada, the Far East and Mexico. 9. Capital Stock Common Stock: Shares of Common Stock are reserved for the conversion of Class A and Class B Stock as indicated herein. At August 31, 1994, 757,000 shares are also reserved under the Company's stock option plans (note 10). In addition, at August 31, 1994, 388,000 shares of Common Stock are reserved for issuance upon conversion of the Company's 5% convertible subordinated debentures due in 1996 (note 5). Class A Stock: In fiscal year 1992, 30,000,000 shares of Class A Stock were authorized. On September 9, 1994, 10,625,029 shares of Class A 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, 1994, 5,358,000 shares of Class A Stock are reserved under the Company's stock option plans. In addition, 194,000 shares of Class A Stock are reserved for issuance upon conversion of the Company's 5% convertible subordinated debentures due in 1996 (note 5). Class A Stock has 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, 1994, 16,177,000 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, 1994, 2,268,206 shares of Common Stock are reserved for such conversion. Class B Stock has, in certain circumstances, greater voting power in the election of directors but receives a lower dividend, 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 when certain financial goals are met or at the end of five years. 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. The stock option plan summary is as follows:
1994 1993 1992 ------- ------- ------ Options outstanding beginning of year 2,987 3,200 3,401 Granted 752 2,299 12 Canceled (109) (736) (197) Exercised (1,028) (1,776) (16) ------- ------- ------ Options outstanding prior to dividend-related adjustment 2,602 2,987 3,200 Dividend-related adjustment (a) 1,301 -- -- ------- ------- ------ Options outstanding at end of year 3,903 2,987 3,200 Options exercisable at end of year 1,862 688 1,493 ------- ------- ------ Exercise price $2.90(a) $4.36 $4.38 per share to 5.66 to 7.63 ======= ======= ======
(a) In conjunction with the stock dividend (note 9), substantially all Common Stock options were converted to Class A Stock options and increased by 50% with a corresponding reduction in exercise price to 67% of the original price in order to maintain the equivalent economic position of optionees. 13 Fedders Corporation - - -------------------------------------------------------------------------------- 11. Pension Plans and Other Retirement Benefits The Company maintains defined benefit pension plans, which were curtailed in 1993, covering its union employees, which plans pay benefits to retirees based upon the length of continuous service. At July 31, 1994, the assumed discount rate (the estimated rate at which the pension plans could have settled their liabilities) and the expected long- term rate of return on plan assets were estimated to be 8% and 9%, respectively, per year. The majority of the trust assets are invested in cash equivalents. The Company's funding policy is to satisfy the minimum statutory funding requirements. Net periodic pension cost for the Company's pension plan consists of the following:
1994 1993 1992 ----- ------- ------- Normal service cost -- $ 241 $ 384 Interest cost on projected benefit obligation $ 745 738 785 Actual gain on plan assets (741) (1,511) (1,602) Actual gain (under) over expected gain (305) 601 712 Amortization of unrecognized net obligation -- (54) 87 ----- ------- ------- Net periodic pension (benefit) cost $(301) $ 15 $ 366 ===== ======= =======
The reconciliation of the funded status of the plans to the amount on the Company's balance sheet is as follows:
1994 1993 ------- ------- Actuarial present value of accumulated and projected vested benefit obligation $(9,900) $(9,556) Market value of plan assets 11,354 11,186 ------- ------- Excess of plan assets over the projected benefit obligation 1,454 1,630 Unrecognized gain (1,239) (1,820) ------- ------- Pension benefit (accrual) on balance sheet $ 215 $ (190) ======= =======
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 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. In addition to providing pension benefits, 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, 1994 postretirement benefits were fully accrued. The effect of adoption of SFAS No. 106 was not material. 12. Restructuring Charge In August 1992, the Company undertook a restructuring program whereby its two New Jersey manufacturing facilities were permanently closed and the compressor operations were sold. On September 28, 1992, the Company completed the sale of the assets and business related to the rotary compressor operations to NYCOR for approximately $72,800,000. In consideration of the purchase price, two outstanding promissory notes due NYCOR in the total amount of $60,000,000 plus accrued interest of $1,226,000 were eliminated. Additionally, the Company transferred a capital lease obligation and certain operating liabilities to NYCOR. The Company realized a gain of approximately $7,100,000 on the sale. The Company recorded a net restructuring charge of $3,300,000, reflecting a $10,400,000 provision in connection with the closing of the manufacturing facilities, offset, in part, by the gain on the sale. 14 Fedders Corporation - - -------------------------------------------------------------------------------- 13. Quarterly Financial Data (unaudited)
First Second Third Fourth Fiscal Year ------------------ ------------------ ----------------- ----------------- ------------------- 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 ------- -------- -------- ------- ------- ------- ------- ------- -------- -------- Net sales $10,527 $ 13,277 $ 36,959 $36,625 $95,812 $50,464 $88,274 $58,236 $231,572 $158,602 Gross profit 2,074 2,390 7,710 5,502 19,869 8,326 19,610 11,526 49,263 27,744 ------- -------- -------- ------- ------- ------- ------- ------- -------- -------- Income (loss) before cumulative effect of accounting change (3,891) (2,561) 1,128 (886) 11,640 480 10,332 1,192 19,209 (1,775) Cumulative effect of accounting change 1,780 -- -- -- -- -- -- -- 1,780 -- ------- -------- -------- ------- ------- ------- ------- ------- -------- -------- Net income (loss) $(2,111) $ (2,561) $ 1,128 $ (886) $11,640 $ 480 $10,332 $ 1,192 $ 20,989 $ (1,775) Per share (a)(b) (0.07) $ (0.09) $ 0.04 $ (0.03) $ 0.37 $ 0.02 $ 0.32 $ 0.04 $ 0.67 $ (0.06) ======= ======== ======== ======= ======= ======= ======= ======= ======== ======== Market price (a) per share: High 4 1/8 4 1/4 5 1/8 4 5/8 5 7/8 5 1/8 5 1/2 4 1/2 5 7/8 5 1/8 Low 3 1/8 2 1/4 3 7/8 3 3/8 4 3/8 3 5/8 4 3/8 2 7/8 3 1/8 2 1/4 ------- -------- -------- ------- ------- ------- ------- ------- -------- --------
(a) Restated to reflect a 50% stock dividend distributed on September 9, 1994. (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 number of shares outstanding during the year. - - -------------------------------------------------------------------------------- Report of Independent Auditors To the Board of Directors and Stockholders of Fedders Corporation We have audited the accompanying consolidated balance sheets of Fedders Corporation as of August 31, 1994 and 1993, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended August 31, 1994. 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 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fedders Corporation as of August 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 1994, in conformity with generally accepted accounting principles. 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 & Young LLP MetroPark, New Jersey October 6, 1994 15 EX-21 9 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES State or Other Jurisdiction --------------------------- Name of Incorporation - - ---- --------------------------- Fedders North America, Inc. (1) Delaware Fedders International, Inc. (1) Delaware Fedders Exporting, Inc. (1) Barbados Fedders Investment Corporation (1) Delaware Fedders, Inc. (2) Ontario Emerson Quiet Kool Corporation (2) Delaware RTXX Corporation (2) Delaware Fedders Capital N.V. (3) Netherlands Antilles Columbia, Specialties, Inc. (3) Delaware Fedders Asia Pte. Ltd. (4) Singapore Fedders De Mexico S.A. de C.V. (2) Mexico (1) Wholly owned subsidiary of Fedders Corporation (2) Wholly owned subsidiary of Fedders North America, Inc. (3) Wholly owned subsidiary of RTXX Corporation (4) Wholly owned subsidiary of Fedders International EX-23 10 CONSENT/ERNST & YOUNG Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K of Fedders Corporation of our report dated October 6, 1994, included in the 1994 Annual Report to Shareholders of Fedders Corporation. Our audits also included the financial statement schedules of Fedders Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-98475, No. 33-4628, No. 33-26740, No. 33-31332 and No. 33-55054) pertaining to the Employee Stock Option Plans of Fedders Corporation of our report dated October 6, 1994 with respect to the consolidated financial statements and schedules of Fedders Corporation incorporated by reference in the Annual Report (Form 10-K) for the year ended August 31, 1994. /s/Ernst & Young Ernst & Young MetroPark, New Jersey November 4, 1994 -----END PRIVACY-ENHANCED MESSAGE-----