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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8831
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FEDDERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 604-8686
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
CLASS A STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
</TABLE>
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, 2000, there were outstanding
15,567,459 shares of the Registrant's Common Stock, 15,644,186 shares of Class A
Stock and 2,266,406 shares of its Class B Stock. The approximate aggregate
market value (based upon the closing price on the New York Stock Exchange) of
these shares held by non-affiliates of the Registrant as of November 22, 2000
was $127,893,910. (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.)
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FEDDERS CORPORATION
FORM 10-K ANNUAL REPORT
YEAR ENDED AUGUST 31, 2000
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5. Market for Registrant's Common Equity and Related Matters... 5
Item 6. Selected Financial Data..................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 9
Item 8. Financial Statements and Supplementary Data................. 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 9
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 10
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......................................................... 11
</TABLE>
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Fedders Corporation (the "Company" or the "Registrant") is a leading global
manufacturer of air treatment products, including air conditioners, air
cleaners, dehumidifiers and humidifiers, and thermal technology products. The
Company was established more than 100 years ago and has been in the air
treatment business for more than 50 years. The Company has been expanding into a
broad variety of air treatment businesses.
In 1994, the Company opened a research and development center in Singapore
and in 1998 all international activities were headquartered in the Singapore
facility.
In November 1995, the Company established a joint venture, Fedders Xinle
Co., Ltd., in Ningbo, China to manufacture air conditioners for the domestic
market and for export.
In June 1998, the Company established a joint venture in Spain to produce
portable air conditioners.
In November 1999, the Company completed its acquisition of Trion, Inc.
("Trion") a manufacturer of air treatment equipment for cleanroom, residential,
commercial and industrial environments.
In January 2000, the Company acquired the capital stock of ABB Koppel, Inc.
(now named Fedders Koppel, Inc. ("Fedders Koppel")), a leading manufacturer of
air conditioners in the Philippines.
In February 2000, the Company acquired Sun Manufacturing, Inc. (now named
Sun Air Conditioning, Inc. ("Sun")). Sun is a leading manufacturer of
specialized air conditioning equipment used in telecommunications equipment
enclosures.
In May 2000, the Company entered into a ten-year licensing agreement with
Maytag Corporation, which gives the Company exclusive rights to market room air
conditioners under the Maytag brand in North America.
Unless otherwise indicated, all references herein to the "Company" or the
"Registrant" include Fedders Corporation and its principal operating
subsidiaries.
(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 F-12 herein.
(c) Narrative Description of Business
The Company manufactures and sells, worldwide, a wide variety of air
treatment products, including air conditioners, humidifiers, dehumidifiers, air
cleaners and thermal technology products.
The Company manufactures and sells a complete line of air conditioners
including window, split, multi-split, through-the-wall, portable, vertical, and
floor/ceiling and packaged units. The Company's air conditioners are
manufactured in capacities ranging from 5,000 BTUs to 200,000 BTUs. The Company
manufactures and sells household humidifiers, dehumidifiers, media filters and
air cleaners that improve air quality.
Trion manufactures and sells products for industrial and commercial air
cleaning applications including media filters, electronic filters, humidifiers,
dust collectors, and packaged solutions to remove contaminants and provide
humidification for industrial and commercial settings.
Envirco manufactures HEPA/ULPA filters, fan filter units and lab and
medical equipment that provide ultra-clean air environments for applications
such as cleanroom manufacturing and medical and laboratory processes.
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Through Sun, the Company manufactures and sells specialized air
conditioning equipment for the telecommunications industry.
The Company's Melcor subsidiary manufactures solid-state heat pump modules,
liquid industrial chillers and solid-state thermoelectric air conditioners that
are typically used by original equipment manufacturers and end users in
microelectronics, semiconductor, laboratory, medical device,biotechnology,
cleanroom and telecommunication applications with limited space and precision
temperature control requirements.
The Company's air conditioners, dehumidifiers, humidifiers and air cleaners
are marketed globally, primarily by the Company's salaried salesforce, under the
Fedders, Emerson Quiet Kool, Sun, Airtemp, Trion, Koppel, Envirco and
Herrmidifier brands, as well as under private label. In 2001, air conditioners
will also be marketed under the Maytag brand.
Solid-state heat pump modules, liquid industrial chillers and solid-state
thermoelectric air conditioner products are currently sold by salaried
salespeople and a network of sales representative firms located around the
world. Cleanroom products are marketed to microelectronics, semiconductor and
medical products manufacturers and hospitals through sales representatives,
distributors and directly to end users.
The Company currently manufactures air conditioners in China, Georgia,
Illinois, Philippines, Spain and Tennessee. The Company's Rotorex subsidiary
manufactures compressors for use in the Company's air conditioners in Maryland.
The Company manufactures its appliance, residential and
commercial/industrial air cleaning products in New Mexico, North Carolina, and
Maryland.
Melcor manufactures its solid-state heat pump modules, thermoelectric air
conditioners and industrial chillers in New Jersey.
QUALITY ASSURANCE
One of the key elements of the Company's strategy is a commitment to a
single worldwide standard of quality. The Company's U.S. air conditioning
manufacturing facilities (except the newly-acquired Sun facility), its Melcor,
Rotorex and Singapore facilities and the joint ventures in China and Spain have
earned the highest level of certification, ISO 9001, for their quality
management systems under the International Standards Organization.
As part of its acquisition integration program, the Company has implemented
plans to obtain ISO certification for its newly-acquired facilities.
The ISO 9000 program is an internationally recognized benchmark of quality
management systems within a production facility. The same level of quality will
be required at all of the Company's manufacturing facilities.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used for production are steel, copper, aluminum
and filter paper, which the Company obtains from domestic and foreign suppliers.
The Company also purchases certain components used in its products from other
manufacturers including thermostats, compressors, motors and electrical
controls. 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.
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, AIRTEMP, SUN, KOPPEL,
ROTOREX, MELCOR, TRION and MAC-10 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. The Company aggressively protects
its trademark and intellectual property rights worldwide.
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SEASONALITY OF BUSINESS
The Company's results of operations and financial condition are currently
principally dependent on the manufacture and sale of room air conditioners, the
demand for which is highly seasonal in North American markets. Seasonally low
sales volumes are not sufficient to offset fixed costs, resulting in operating
losses at certain times of the year. In addition, the Company's working capital
needs are seasonal, with the greatest utilization of lines of credit occurring
early in the calendar year. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition," at pages 7 through 9 herein.
See also the discussion under "Working Capital Practices."
WORKING CAPITAL PRACTICES
The Company regularly reviews working capital components with a view to
maintaining the lowest level consistent with requirements of anticipated levels
of operations. The Company's sales peak in April through July. Production is
weighted towards the selling season, accordingly the greatest use of credit
lines occurs early in the calendar year. Cash levels are at their highest in
August.
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 F-5
herein.
See also the information entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition" at pages 7 through 9 herein.
BACKLOG
The Company's fiscal year end (August 31) coincides with the end of the
seasonal room air conditioner sales cycle. Accordingly, backlog at this time of
the year is insignificant.
COMPETITION
All of the markets in which the Company does business are very competitive.
Many of the Company's competitors are larger and have greater resources than the
Company. The Company competes principally on the basis of technology, quality,
price and its ability to deliver product and service to its customers on a
just-in-time basis based upon its accurate-response manufacturing program.
RESEARCH AND DEVELOPMENT
The Company's product development activities include ongoing research and
development programs to redesign existing products, reduce manufacturing cost,
increase product efficiencies and create new products. In fiscal 2000, the
Company spent approximately $9.5 million on research and development.
ENVIRONMENTAL PROTECTION
The Company's operations are subject to various United States (federal and
state) and foreign environmental statutes and regulations, including laws and
regulations dealing with storage, treatment, discharge and disposal of hazardous
materials, substances and wastes and that affect the production of chemical
refrigerants used in the operation of some of the Company's products. The
refrigerant used in air conditioners is an HCFC that is to be phased out of use
in new products on January 1, 2010 in the United States. Chemical producers are
currently developing environmentally acceptable alternative refrigerants for use
in air conditioners that are expected to be available in advance of any
now-proposed phase-out deadlines for the current refrigerant. Modifications to
the design of the Company's products may be necessary in order to utilize
alternative refrigerants. The cost of the substitution of alternative
refrigerants is not currently expected to have a material adverse impact on the
Company.
The Company believes it is currently in material compliance with applicable
environmental laws and regulations. The Company did not make capital
expenditures on environmental matters during the year ended
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August 31, 2000 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, 2001.
The Company has been identified as a potentially responsible party ("PRP")
by the federal Environmental Protection Agency under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), at the PCB Treatment Inc. Site (the "Site") located in Kansas City,
Kansas and in Kansas City, Missouri, based on the delivery there of certain
materials from its Effingham, Illinois facility. CERCLA imposes strict and, in
certain circumstances, joint and several liability on PRP's for response costs
and natural resource damages at waste sites. In view of the substantial number
of other PRP's at the Site and the relatively small volume of material sent by
the Company to the Site (approximately 0.182% of the total), the Company does
not believe it will incur any material liability for this matter.
The Company has identified a groundwater problem at its Walkersville,
Maryland facility. Based upon available information, the Company does not expect
the cost of investigation or any required remediation relating to this matter to
have a material adverse effect on its results of operations.
EMPLOYEES
The Company has approximately 3,250 employees worldwide. The contract with
the union representing substantially all of the production employees of the
Effingham, Illinois plant is scheduled to expire in October 2001. Union
contracts covering Fedders Koppel and Rotorex employees expire in March and
August 2005, respectively. The Company considers its relations with its
employees to be generally satisfactory.
INTERNATIONAL SALES
Future international sales are subject to the risks inherent in such
activities, such as foreign regulations, unsettled political conditions and
exchange rate fluctuations. See Note 8 of the Notes to Consolidated Financial
Statements at page F-12 herein.
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ITEM 2. PROPERTIES
The Company owns or leases the following primary facilities:
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APPROXIMATE
SQUARE FEET
LOCATION PRINCIPAL FUNCTION OF FLOOR AREA
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Liberty Corner, New Jersey (Leased) Corporate Headquarters 25,000
Branchburg, New Jersey (Leased) Engineered Products Headquarters 5,000
Singapore (Leased) International Headquarters and Research 14,000
and Design Center
Effingham, Illinois (Owned) Manufacture of air conditioners 650,000
Columbia, Tennessee (Owned) Manufacture of air conditioners 232,000
Ningbo, China (60% owned) Manufacture of air conditioners 323,000
Estella, Spain (Leased) Manufacture of air conditioners 40,000
Frederick, Maryland (Owned) Manufacture of rotary compressors and 200,000
of air cleaners
Lawrence Township, New Jersey (Owned) Manufacture of thermoelectric devices 37,400
Sanford, North Carolina (Owned) Manufacture of air cleaning products 263,000
and humidifiers
Albuquerque, New Mexico (Leased) Manufacture of cleanroom products 63,000
Vienna, Georgia (Owned) Manufacture of air conditioning 40,000
equipment for telecommunication
enclosures
Manila, Philippines (Leased) Manufacture of air conditioners 41,000
</TABLE>
The Effingham, Illinois facility is subject to a mortgage securing a note
payable to the State of Illinois. The Sanford, North Carolina and 22,400 square
foot Lawrence, Township facility are each subject to a mortgage securing
repayment of economic development bonds. The Company believes that productive
capacity at its major manufacturing facilities is adequate to meet production
needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Common and Class A Stock are listed on the New York Stock
Exchange. There is no established public trading market for the Company's Class
B Stock, as there are restrictions on its transfer. As of October 31, 2000,
there were 2,637 holders of Common Stock, 2,540 holders of Class A Stock and 13
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 of the Notes to
Consolidated Financial Statements on pages F-12 and F-13.
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ITEM 6. SELECTED FINANCIAL DATA(1)
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(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------
2000 1999 1998 1997 1996
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Net sales................................. $409,809 $355,956 $322,121 $314,100 $371,772
Gross profit.............................. 104,956 84,591 69,770 70,076 83,028
Percent of net sales...................... 25.6 23.8 21.7 22.3 22.3
Operating income(2)....................... 46,854 40,258 12,810 31,729 50,988
Percent of net sales...................... 11.4 11.3 4.0 10.1 13.7
Income before income taxes................ 30,474 30,986 4,603 28,867 50,266
Percent of net sales...................... 7.4 8.7 1.4 9.2 13.5
Net income................................ $ 20,401 $ 20,724 $ 2,992 $ 18,764 $ 31,158
Net income attributable to common
stockholders............................ 20,401 20,724 2,992 16,344 31,007
EARNINGS PER SHARE:
Basic................................... $ 0.58 $ 0.56 $ 0.07 $ 0.42 $ 0.77
Diluted................................. 0.57 0.56 0.07 0.39 0.74
DIVIDENDS PER SHARE DECLARED:
Convertible Preferred(3)................ -- -- -- $ 0.318 $ 0.050
Common/Class A.......................... $ 0.120 $ 0.105 $ 0.085 0.080 0.080
Class B................................. 0.108 0.095 0.077 0.072 0.072
Cash and cash equivalents................. $ 87,193 $117,509 $ 90,986 $110,393 $ 90,295
Total assets.............................. 378,957 382,342 304,629 329,014 290,220
Long-term debt (including current
portion)(4)............................. 166,434 161,363 111,013 115,380 40,406
Stockholders' equity(5)................... 112,260 108,933 104,792 145,687 159,751
Capital expenditures...................... 9,858 9,378 8,497 9,236 7,043
Depreciation and amortization............. 13,076 10,279 9,263 9,935 6,578
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OTHER DATA:
Earnings before interest, taxes,
depreciation and amortization(6)(7)..... $ 58,786 $ 54,613 $ 41,757 $ 42,232 $ 57,796
-------- -------- -------- -------- --------
CASH FLOW PROVIDED BY (USED IN):
Operating activities.................... $ 4,619 $ 51,989 $ 39,302 $ (8,826) $ 41,871
Investing activities.................... (15,037) (48,778) (6,650) (8,808) (6,508)
Financing activities.................... (19,898) 23,312 (52,059) 37,732 (2,775)
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</TABLE>
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(1) 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.
(2) In 1999, operating income reflects a $3,100 restructuring charge. In 1998,
operating income reflects a $16,750 restructuring charge relating to actions
taken by the Company to enhance competitiveness in global markets and a
$2,891 provision for the implementation of an early retirement program.
(3) In September 1997, the Company redeemed each share of its Convertible
Preferred Stock for 1.022 shares of Class A Stock.
(4) In August 1999, a subsidiary of the Company issued $50,000 of 9 3/8% Senior
Subordinated Notes, proceeds of which were utilized in part, to replenish
cash used to acquire Trion. In August 1997, the same subsidiary of the
Company issued $100,000 of 9 3/8% Senior Subordinated Notes, proceeds of
which were utilized, in part, to fully redeem $22,100 of 8.5% Convertible
Subordinated Debentures, including accrued interest.
(5) During fiscal 2000, the Company repurchased 2,768 shares of Common and Class
A Stock at an average price of $4.87 per share for a total of $13,484.
During fiscal 1999, the Company repurchased 2,601 shares of Common and Class
A Stock at an average price of $5.08 per share for a total of $13,215.
During fiscal
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1998, the Company repurchased 7,720 shares of Preferred, Common and Class A
Stock at an average price of $5.93 per share for a total of $45,750. During
fiscal 1997, the Company repurchased 4,335 shares of Class A Stock at an
average price of $5.78 per share for a total of $25,041 and 705 shares of
Convertible Preferred Stock at $6.25 per share for a total of $4,408.
(6) In fiscal 1999, the amount shown excludes a one-time charge for the
restructuring ($3,100). For fiscal 1998, the amount shown excludes a
one-time charge for the 1998 restructuring ($16,750) and early retirement
program ($2,891).
(7) EBITDA represents income before income taxes plus net interest expense and
depreciation and amortization (excluding amortization of debt discounts and
deferred financing costs). While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. In addition, the Company believes that certain investors find
EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's
ability to fund cash needs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Fedders Corporation (the "Company") is a leading global manufacturer of
products for the treatment of indoor air, including air conditioners, air
cleaners, dehumidifiers and humidifiers, and thermal technology products.
The Company recognized record net sales in fiscal 2000 as a result of
international sales of air treatment products as well as sales to the domestic
telecommunications and semiconductor markets.
Presently, the Company's business is still largely the manufacture and sale
of room air conditioners. In fiscal 2000, domestic U.S. room air conditioner
sales declined as a result of unusually cool weather in northern domestic
regions. The decline was more than offset by increases in room air conditioner
sales to major international markets, sales of specialized air conditioning
equipment used in telecommunication equipment enclosures and sales of cleanroom
fan filter units used in the production of semiconductors.
In November 1999, the acquisition of Trion, Inc. was completed, expanding
Fedders' market share in indoor air treatment with Trion electronic air
cleaners, Herrmidifier commercial, industrial and residential humidification
systems and Envirco HEPA filtration systems for cleanroom manufacturing.
In January 2000, the Company acquired ABB Koppel, Inc., now renamed Fedders
Koppel, Inc.("Fedders Koppel"), a leading air conditioner manufacturer in the
Philippines. The acquisition strengthens the Company's international operations,
which are headquartered in Singapore and which have their primary manufacturing
base in China.
In February 2000, the Company acquired the net assets of Sun Manufacturing,
Inc.("Sun"), a leading manufacturer of specialized air conditioning equipment
used in telecommunication equipment enclosures.
In May 2000, the Company entered into a ten-year licensing agreement with
Maytag Corporation, which gives the Company exclusive rights to market room air
conditioners under the Maytag brand in North America.
In August 1999, the Company incurred a restructuring charge related to
transferring production of pumps for compressors from the U.S. to Taiwan and
China. The restructuring enabled the Company to further reduce operating costs
at its automated compressor assembly operation in Maryland. Amounts covered by
the charge were paid out in fiscal 2000.
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RESULTS OF OPERATIONS
Net sales in fiscal 2000 totaled $409.8 million, an increase of 15.1% from
sales of $356.0 million in fiscal 1999 and an increase of 27.2% from sales of
$322.1 million in fiscal 1998. The sales increase in fiscal 2000 reflects
increased sales of air treatment products internationally and at acquired
companies.
OPERATING RESULTS AS A PERCENT OF NET SALES
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2000 1999 1998
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Gross profit................................................ 25.6% 23.8% 21.7%
Selling, general and administrative expense................. 14.2 11.6 12.5
Restructuring............................................... -- 0.9 5.2
Operating income............................................ 11.4 11.3 4.0
Interest expense............................................ 3.8 2.7 2.7
Income before income taxes.................................. 7.4 8.7 1.4
</TABLE>
The gross profit in fiscal 2000 increased $20.4 million, or 24.1% from
fiscal 1999. The gross profit as a percent of net sales increased in fiscal 2000
due primarily to sales of higher margin products at acquired companies and to
cost reduction efforts. In fiscal 1999, gross profit as a percent of net sales
increased from fiscal 1998 due primarily to cost reduction efforts.
Selling, general and administrative expenses ("SG&A") increased as a
percent of net sales in fiscal 2000 primarily due to higher selling and
marketing costs as a percent of sales of the acquired companies. In fiscal 1999,
SG&A decreased as a percent of net sales primarily due to a $2.9 million
provision for the implementation of an early retirement program in fiscal 1998.
The restructuring charge in fiscal 1999 of $3.1 million consisted of costs
related to transferring production of pumps for compressors from the U.S. to
Taiwan and China. The 1998 restructuring charge of $16.8 million consisted of a
write-down of fixed assets ($5.6 million), lease terminations ($4.9 million),
personnel-related costs ($3.8 million) and administrative facility closing costs
($2.5 million).
Net interest expense in fiscal 2000 increased $5.9 million from fiscal 1999
due primarily to the interest on the additional $50 million principal amount of
9 3/8% Senior Subordinated Notes due in 2007 (the "Notes") issued in August
1999. Net interest expense in fiscal 1999 as a percent of net sales equaled the
fiscal 1998 percentage.
Net income decreased to $20.4 million in fiscal 2000 from $20.7 million in
fiscal 1999. Full-year earnings were affected by cool summer weather in the
northern U.S. markets and higher interest expense associated with the Notes, the
proceeds of which were used to replenish cash used for acquisitions. Fiscal 1999
results included the restructuring charge of $3.1 million. Net income, excluding
the after-tax effect of the restructuring charge, would have been approximately
$22.8 million in fiscal 1999. Net income in fiscal 1998 was $3.0 million. Net
income, excluding the after-tax effect of charges for the 1998 restructuring and
early retirement program, would have been approximately $15.8 million in fiscal
1998. Net income in fiscal 2000 reflects an effective tax rate of 33%, the same
as in fiscal 1999 and less than the 35% in fiscal 1998, principally due to the
valuation allowance reflected in current income and the release of prior-year
tax provisions no longer required.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are seasonal. Cash balances peak in August,
while greatest use of credit lines occurs early in the calendar year. The
Company ended fiscal 2000 with cash and cash equivalents of $87.2 million
compared to $117.5 million at August 31 a year earlier.
Net cash provided by operations in fiscal 2000 amounted to $4.6 million.
Accounts receivable increased by $1.1 million due to increased sales of air
treatment products and increased international sales. Inventories increased by
$9.5 million due to acquired inventory at companies, as well as reduced sales of
room air
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conditioners in the fourth quarter in the U.S. Other current assets increased by
$3.8 million in part due to a licensing agreement. Accrued expenses decreased by
$12.9 million primarily due to a decrease in accruals related to acquisition
costs and restructuring.
Net cash used in investing activities by the Company consisted primarily of
net capital expenditures and acquisition costs of $15.0 million.
Net cash used in financing activities in fiscal 2000 amounted to $19.9
million. The Company used $13.5 million to repurchase 2.8 million shares of its
Common and Class A Stock under a program authorized in August 1998 for the
repurchase of up to $30 million of its outstanding stock. In October 2000, the
Company announced an increase in the stock repurchase program from $30 million
to $40 million. Dividend payments amounted to $4.2 million in fiscal 2000.
In fiscal 2000, the Company's $100 million, prime rate, revolving credit
facility was utilized during the five-month period from January through early
May, with a maximum amount outstanding during the year of $44.9 million.
Management believes that cash, earnings and borrowing capacity of the Company
are adequate to meet the needs of its operations and long-term credit
requirements, including capital expenditures and debt maturities.
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. This statement has been adopted effective September
1, 2000 and will not have a material impact on the Company's financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company at August 31, 2000 and
1999, and for the years ended August 31, 2000, 1999 and 1998, the notes thereto
and the reports of the Company's independent auditors thereon are included at
pages F-1 through F-29, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 20, 2000, the Company retained Deloitte & Touche LLP, as its
independent accountants replacing BDO Seidman, LLP. The former accountants
report for each of the past two years did not contain any adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. The change was approved by the Board of Directors of the
Company, upon recommendation of its Audit Committee.
During the Company's two most recent fiscal years and any subsequent
interim period, there were no disagreements between the Company and the former
accountants on any matter of accounting principles or practices, financial
statement disclosures or auditing scope or procedures, nor were there any
"Reportable Events" within the meaning of Item 304(a)(1)(iv) of Regulation S-K.
9
<PAGE> 12
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 filed in
connection with the Company's Annual Meeting of Stockholders to be held on
December 19, 2000, which section is incorporated herein by reference.
<TABLE>
<CAPTION>
NAME AND AGE POSITION HELD EXECUTIVE OFFICER
------------ -------------------------------------- -----------------
<S> <C> <C>
Salvatore Giordano, 90................ Chairman of the Board 1945
Sal Giordano, Jr., 62(1).............. Vice Chairman and Chief Executive 1965
Officer
Nancy DiGiovanni, 49.................. Treasurer 1998
Robert N. Edwards, 53................. Vice President and General Counsel 2000
Daryl G. Erbs, 43..................... Vice President, Technology 1999
Michael B. Etter, 45.................. President and Chief Operating Officer 1997
Michael Giordano, 36(2)............... Executive Vice President, Finance and 1997
Administration and Chief Financial
Officer
Sal Giordano III, 41(2)............... Group Vice President, Engineered 1996
Products
Kent E. Hansen, 53.................... Executive Vice President and Secretary 1996
Judy A. Katz, 49...................... Vice President, Strategic Planning 2000
Robert L. Laurent, Jr., 45............ Executive Vice President, Acquisitions 1989
and Alliances
Joseph B. Noselli, 44................. Corporate Controller 2000
Gary J. Nahai, 49..................... Group Vice President and President, 1993
Fedders International
John T. Salerno, 36................... Vice President, Information Systems 2000
Marlene M. Volpe, 65.................. Vice President, Human Resources 2000
</TABLE>
---------------
(1) Son of Salvatore Giordano
(2) Grandson of Salvatore Giordano
BUSINESS EXPERIENCE DURING LAST FIVE YEARS
Messrs. Salvatore Giordano, Sal Giordano, Jr., Robert L. Laurent, Jr. and
Gary J. Nahai have been associated in executive capacities with the Company for
more than five years.
Ms. DiGiovanni was elected to her position in October 1998. Previously she
was Assistant Treasurer of the Company since 1989.
Mr. Edwards was elected to his present position in June 2000. He has been
General Counsel of the Company for more than five years.
Mr. Erbs has been Vice President, Technology of the Company since August
1999. Prior to his joining the Company in February 1999, Mr. Erbs was with
Carrier Corporation for many years, serving in a variety of engineering
management positions.
Mr. Etter was elected President and Chief Operating Officer in June 2000.
Previously, he was Senior Vice President of the Company and Chairman and Chief
Executive Officer of Fedders Air Conditioning since May 1, 1999. He served as
Vice President of Global Purchasing for the Company from December 1997 to May
1999 and, prior thereto, Vice President, Purchasing of Fedders North America.
Mr. Giordano was elected Executive Vice President, Finance and
Administration and Chief Financial Officer in June 2000. Previously, he was Vice
President, Finance and Chief Financial Officer of the Company since July 1,
1999. Mr. Giordano also served as Senior Vice President of Fedders
International, Inc. from 1998
10
<PAGE> 13
until being elected to his current position and, prior thereto, Managing
Director of the Singapore office of Fedders International.
Mr. Sal Giordano III was elected to his present position in December 1999.
He was a Vice President of the Company since August 1996 and President of Melcor
from 1995.
Mr. Hansen was elected to his present position in June 2000. Previously he
was Senior Vice President and Secretary from August 1996 and, prior thereto,
Vice President, Finance and General Counsel of NYCOR, Inc.
Ms. Katz was elected Vice President, Strategic Planning in June 2000.
Previously, she held the position of Vice President, Communications and Planning
since August 1998 and, prior thereto, Director, Strategic Support since
September 1995.
Mr. Noselli was elected Corporate Controller in June 2000. Previously, he
was with Ingersoll-Rand Co. from 1980, most recently as Vice President and
Controller of its production equipment group.
Mr. Salerno was elected to his present position in June 2000. Previously,
he had been an appointed officer with responsibility for Information Systems
since July 1999 and, prior thereto, Director of Information Technology for
Calvin Klein Cosmetics Company.
Ms. Volpe was elected Vice President, Human Resources in June 2000.
Previously, she was Vice President, Recruitment and Leadership Development for
more than five years.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" in the Company's Proxy
Statement, filed in connection with the Company's Annual Meeting of Stockholders
to be held on December 19, 2000, 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, filed in
connection with the Company's Annual Meeting of Stockholders to be held on
December 19, 2000, 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, filed in connection with the Company's Annual Meeting of Stockholders
to be held on December 19, 2000, which section is incorporated herein by
reference.
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
11
<PAGE> 14
The following Consolidated Financial Statements of the Company and its
subsidiaries are included:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statements of Operations and Comprehensive
Income for the years ended August 31, 2000, 1999 and
1998...................................................... F-1
Consolidated Balance Sheets at August 31, 2000 and 1999..... F-2
Consolidated Statements of Cash Flows for the years ended
August 31, 2000, 1999 and 1998............................ F-3
Consolidated Statements of Stockholders' Equity for the
years ended August 31, 2000, 1999 and 1998................ F-4
Notes to Consolidated Financial Statements.................. F-5-F-23
Reports of Independent Auditors............................. F-24-F-25
Quarterly Financial Data.................................... F-26
(a) 2. Financial Statement Schedule
Consolidated Schedule as of and for the years ended August
31, 2000, 1999 and 1998
II. Valuation and Qualifying Accounts....................... F-27
Reports of Independent Auditors............................. F-28-F-29
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.
(a) 3. Exhibits
Exhibit 21 Subsidiaries..................................... F-30
Exhibits 23 Consents of Independent Auditors................ F-31-F-32
</TABLE>
<TABLE>
<C> <C> <S>
(3)(i) -- Restated Certificate of Incorporation of the Company dated
November 18, 1997 filed as Exhibit (3)(i) to the Company's
Annual Report on Form 10-K for 1997 and incorporated herein
by reference.
(ii) -- 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) -- Registration statement on Form S-4 filed with the Securities
and Exchange Commission on September 10, 1997 and
incorporated herein by reference.
(ii) -- Registration statement on Form S-4 filed with the Securities
and Exchange Commission on January 24, 2000 and incorporated
herein by reference.
(10)(i) -- 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.
(ii) -- Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement -- Prospectus dated May 10, 1996 and
incorporated herein by reference.
(iii) -- Employment Contract between The Company 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.
(iv) -- Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995 filed as Exhibit 10 (viii) on the Form 10-K 1996 and
incorporated herein by reference.
(v) -- Employment Agreement between the Company and Sal Giordano,
Jr. effective October 1, 1997, filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1997 and incorporated herein by
reference.
(21) -- Subsidiaries.
(23)(i) -- Consent of Deloitte & Touche LLP.
(ii) -- Consent of BDO Seidman, LLP.
(27) -- Financial data schedule.
</TABLE>
The Company filed a Report on Form 8-K dated June 14, 2000 regarding a
change in independent auditors.
12
<PAGE> 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/ MICHAEL GIORDANO
------------------------------------
Michael Giordano
Executive Vice President, Finance
and Administration and Chief
Financial Officer
November 29, 2000
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SALVATORE GIORDANO Chairman of the Board November 29, 2000
---------------------------------------------------
Salvatore Giordano
/s/ SALVATORE GIORDANO, JR. Vice Chairman and Chief November 29, 2000
--------------------------------------------------- Executive Officer and a
Salvatore Giordano, Jr. Director (Principal
Executive Officer)
/s/ WILLIAM J. BRENNAN Director November 29, 2000
---------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG Director November 29, 2000
---------------------------------------------------
David C. Chang
/s/ JOSEPH GIORDANO Director November 29, 2000
---------------------------------------------------
Joseph Giordano
/s/ C.A. KEEN Director November 29, 2000
---------------------------------------------------
C.A. Keen
/s/ HOWARD S. MODLIN Director November 29, 2000
---------------------------------------------------
Howard S. Modlin
/s/ CLARENCE RUSSEL MOLL Director November 29, 2000
---------------------------------------------------
Clarence Russel Moll
/s/ S.A. MUSCARNERA Director November 29, 2000
---------------------------------------------------
S.A. Muscarnera
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANTHONY PULEO Director November 29, 2000
---------------------------------------------------
Anthony Puleo
/s/ MICHAEL GIORDANO Executive Vice President, November 29, 2000
--------------------------------------------------- Finance and Administration
Michael Giordano (Principal Financial
Officer)
</TABLE>
14
<PAGE> 17
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $409,809 $355,956 $322,121
Costs and expenses:
Cost of sales.......................................... 304,853 271,365 252,351
Selling, general and administrative expense............ 58,102 41,233 40,210
Restructuring.......................................... -- 3,100 16,750
-------- -------- --------
362,955 315,698 309,311
-------- -------- --------
Operating income............................................ 46,854 40,258 12,810
Partners' net interest in joint venture results............. (796) 412 403
Interest expense (net of interest income of $2,316, $1,524
and $2,599 in 2000, 1999 and 1998, respectively).......... (15,584) (9,684) (8,610)
-------- -------- --------
Income before income taxes.................................. 30,474 30,986 4,603
Provision for income taxes.................................. 10,073 10,262 1,611
-------- -------- --------
Net income.................................................. $ 20,401 $ 20,724 $ 2,992
Other comprehensive (loss) income:
Foreign currency translation, net of tax benefits...... (562) 97 (190)
-------- -------- --------
Comprehensive income........................................ $ 19,839 $ 20,821 $ 2,802
======== ======== ========
Earnings per share:
Basic.................................................. $ 0.58 $ 0.56 $ 0.07
Diluted................................................ 0.57 0.56 0.07
Weighted average shares:
Basic.................................................. 35,325 36,870 41,355
Diluted................................................ 35,490 37,098 42,557
Dividends per share declared:
Common/Class A......................................... $ 0.120 $ 0.105 $ 0.085
Class B................................................ 0.108 0.095 0.077
</TABLE>
See accompanying notes
F-1
<PAGE> 18
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 87,193 $117,509
Accounts receivable (less allowances of $2,138 and $1,373
in 2000 and 1999, respectively)........................ 25,394 21,028
Inventories............................................ 75,171 61,614
Deferred income taxes.................................. 4,811 10,161
Other current assets................................... 5,568 1,496
-------- --------
Total current assets................................. 198,137 211,808
Net property, plant and equipment........................... 72,268 70,771
Deferred income taxes....................................... 4,482 7,676
Goodwill.................................................... 85,308 73,999
Other assets................................................ 18,762 18,088
-------- --------
Total assets......................................... $378,957 $382,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes and current portion of long-term debt.... $ 6,275 $ 4,598
Accounts payable.......................................... 36,436 35,432
Income taxes payable...................................... 10,958 13,049
Accrued expenses.......................................... 37,309 46,463
-------- --------
Total current liabilities............................ 90,978 99,542
Long-term debt.............................................. 163,912 156,765
Other long-term liabilities:
Warranty.................................................. 1,541 4,843
Other..................................................... 8,287 8,397
Partners' interest in joint venture......................... 1,979 3,862
Commitments and contingencies
Stockholders' equity:
Common Stock, $1 par value, 80,000,000 shares authorized,
16,135,459 and 16,135,159 shares issued at August 31,
2000 and 1999.......................................... 16,135 16,135
Class A Stock, $1 par value, 60,000,000 shares authorized,
19,824,663 and 19,399,741 shares issued at August 31,
2000 and 1999.......................................... 19,825 19,400
Class B Stock, $1 par value, 7,500,000 shares authorized
2,266,406 and 2,266,706 shares issued at August 31,
2000 and 1999.......................................... 2,267 2,267
Additional paid-in capital................................ 29,591 28,069
Retained earnings......................................... 69,575 53,379
Accumulated other comprehensive loss...................... (1,128) (288)
-------- --------
136,265 118,962
Deferred compensation....................................... (940) (1,227)
Treasury stock, at cost, 4,686,000 shares of Common and
Class A Stock in 2000 and 1,764,000 shares of Class A
Stock in 1999............................................. (23,065) (8,802)
-------- --------
Total stockholders' equity........................... 112,260 108,933
-------- --------
Total liabilities and stockholders' equity........ $378,957 $382,342
======== ========
</TABLE>
See accompanying notes
F-2
<PAGE> 19
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 20,401 $ 20,724 $ 2,992
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 13,076 10,279 9,263
Deferred income taxes................................... 9,153 5,803 (4,296)
Partners' interest in joint venture results............. (1,883) -- (3,347)
Tax benefit related to stock options exercised.......... 109 47 3,825
Restructuring charge -- fixed asset write-down.......... -- -- 5,590
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,119) 2,811 (5,460)
Inventories............................................. (9,535) 1,115 10,626
Other current assets.................................... (3,819) 3,399 6,263
Other assets............................................ (1,210) 1,860 (7,281)
Income taxes payable.................................... (2,091) (1,357) 4,379
Accounts payable........................................ (1,318) 8,085 15,178
Accrued expenses........................................ (12,893) 503 1,269
Other long-term liabilities............................. (3,412) (1,175) 704
Other -- net............................................ (840) (105) (403)
-------- -------- --------
Net cash provided by operating activities............. 4,619 51,989 39,302
-------- -------- --------
Cash flows from investing activities:
Purchase of Trion, Inc.................................... -- (39,400) --
Additions to property, plant and equipment................ (9,858) (9,378) (8,497)
Disposal of property, plant and equipment................. 2,237 -- 1,847
Acquisition of businesses................................. (7,416) -- --
-------- -------- --------
Net cash used in investing activities................... (15,037) (48,778) (6,650)
-------- -------- --------
Cash flows from financing activities:
Proceeds from short-term notes............................ 3,753 -- --
Net proceeds from issuance of 9 3/8% Senior Subordinated
Notes................................................... -- 47,652 --
Repayments of long-term debt.............................. (7,021) (2,685) (1,903)
Proceeds from stock options exercised..................... 1,059 254 5,289
Net proceeds from (repayment of) Fedders Xinle
financing............................................... -- 1,447 (2,517)
Repayment of Trion, Inc. debt............................. -- (6,300) --
Cash dividends............................................ (4,205) (3,841) (3,520)
Repurchases of capital stock.............................. (13,484) (13,215) (49,408)
-------- -------- --------
Net cash (used in) provided by financing activities..... (19,898) 23,312 (52,059)
Net(decease)increase in cash and cash equivalents........... (30,316) 26,523 (19,407)
Cash and cash equivalents at beginning of year.............. 117,509 90,986 110,393
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 87,193 $117,509 $ 90,986
-------- -------- --------
Supplemental disclosure:
Interest paid............................................. $ 16,610 $ 12,283 $ 10,654
Net income taxes paid (refunded).......................... 5,201 6,218 (2,788)
-------- -------- --------
Non-cash investing and financing activity:
Building acquired under a capital lease................... $ 2,002 -- --
Exchange of 6,754,000 shares of Preferred Stock for Class
A Stock on a 1 for 1.022 basis.......................... -- -- $ 6,904
</TABLE>
See accompanying notes
F-3
<PAGE> 20
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
2000 1999 1998
-------- ------- --------
<S> <C> <C> <C>
Convertible Preferred Stock
Balance at beginning of year.............................. -- -- $ 6,809
Redemption for Class A Stock.............................. -- -- (6,754)
Repurchase and retirement of stock........................ -- -- (55)
-------- ------- --------
Balance at end of year.................................... -- -- --
-------- ------- --------
Common Stock
Balance at beginning of year.............................. $ 16,135 $16,972 $ 18,990
Shares relinquished or purchased.......................... -- -- (100)
Repurchase and retirement of stock........................ -- (837) (1,918)
-------- ------- --------
Balance at end of year.................................... $ 16,135 $16,135 $ 16,972
-------- ------- --------
Class A Stock
Balance at beginning of year.............................. $ 19,400 $19,381 $ 20,074
Redemption of Convertible Preferred Stock................. -- -- 6,904
Stock options exercised................................... 425 19 4,251
Issuance of restricted stock.............................. -- -- 300
Retirement of Class A treasury shares..................... -- -- (12,148)
-------- ------- --------
Balance at end of year.................................... $ 19,825 $19,400 $ 19,381
-------- ------- --------
Class B Stock
Balance at beginning of year.............................. $ 2,267 $ 2,267 $ 2,267
-------- ------- --------
Balance at end of year.................................... $ 2,267 $ 2,267 $ 2,267
-------- ------- --------
Additional paid-in capital
Balance at beginning of year.............................. $ 28,069 $31,619 $ 85,702
Stock options exercised................................... 1,413 235 10,287
Tax benefit related to stock options exercised............ 109 47 3,825
Repurchase and retirement of stock........................ -- (3,832) (9,917)
Retirement of treasury shares............................. -- -- (59,591)
Issuance of restricted stock.............................. -- -- 1,463
Redemption of Convertible Preferred Stock................. -- -- (150)
-------- ------- --------
Balance at end of year.................................... $ 29,591 $28,069 $ 31,619
-------- ------- --------
Retained earnings
Balance at beginning of year.............................. $ 53,379 $36,496 $ 37,024
Net income................................................ 20,401 20,724 2,992
Dividends................................................. (4,205) (3,841) (3,520)
-------- ------- --------
Balance at end of year.................................... $ 69,575 $53,379 $ 36,496
-------- ------- --------
Accumulated other comprehensive loss
Balance at beginning of year.............................. $ (288) $ (430) $ (138)
Foreign currency translation adjustment, net of tax....... (840) 142 (292)
-------- ------- --------
Balance at end of year.................................... $ (1,128) $ (288) $ (430)
-------- ------- --------
Deferred compensation
Balance at beginning of year.............................. $ (1,227) $(1,513) --
Issuance of restricted stock.............................. -- -- $ (1,763)
Amortization of deferred compensation..................... 287 286 250
-------- ------- --------
Balance at end of year.................................... $ (940) $(1,227) $ (1,513)
-------- ------- --------
Treasury stock
Balance at beginning of year.............................. $ (8,802) -- $(25,041)
Repurchase and retirement of stock........................ (13,484) $(8,546) (37,504)
Shares relinquished or purchased.......................... (779) (256) (9,194)
Retirement of treasury shares............................. -- -- 71,739
-------- ------- --------
Balance at end of year.................................... $(23,065) $(8,802) --
-------- ------- --------
</TABLE>
See accompanying notes
F-4
<PAGE> 21
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Fedders Corporation (the "Company") and all of its wholly-owned and
majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Net Sales
Sales are recorded, at time of shipment, net of provisions for sales
allowances and warranties.
Warranty and Return Policy
The Company's policy is to accrue the estimated cost of warranty coverage
and returns at the time the sale is recorded.
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 in other comprehensive loss as a separate
component of stockholders' equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of the first-in, first-out (FIFO) cost
or market. The Company reviews inventory periodically for slow-moving and
obsolete items. Write-downs, which have historically been insignificant, are
recorded in the period in which they are identified. Inventories consist of the
following at August 31:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Finished goods.............................................. $39,062 $29,328
Work-in-process............................................. 4,104 3,298
Raw materials and supplies.................................. 32,005 28,988
------- -------
$75,171 $61,614
------- -------
</TABLE>
Long-Lived Assets
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
F-5
<PAGE> 22
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
accounts and any gain or loss is reflected in income. Property, plant and
equipment at cost consist of the following at August 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 2000 1999
----------- -------- --------
<S> <C> <C> <C>
Land and improvements $ 3,730 $ 4,042
Buildings (including capital leases) 20 to 30 years 33,767 31,257
Machinery and equipment 5 to 12 years 109,362 102,380
Machinery and equipment under capital leases 12 years 1,203 6,657
-------- --------
Property, plant and equipment 148,062 144,336
Accumulated depreciation (75,794) (73,565)
-------- --------
$ 72,268 $ 70,771
-------- --------
</TABLE>
Depreciation is provided on the straight-line basis over the estimated
useful life of each asset as noted above. Accumulated depreciation includes
$2,359 and $1,966 of depreciation related to equipment under capital leases in
2000 and 1999, respectively.
Goodwill is amortized over 40 years using the straight-line method. Other
intangible assets primarily related to trademarks and patents are amortized over
periods ranging from 2 to 10 years using the straight-line method. Goodwill and
other intangible assets are net of accumulated amortization of $17,242 and
$14,011 at August 31, 2000 and 1999, respectively.
Long-lived assets of foreign entities, including joint venture operations,
were $19,572, $7,193 and $7,962 at August 31, 2000, 1999 and 1998, respectively.
Long-lived assets of domestic operations were $142,490, $141,885 and $106,298 at
August 31, 2000, 1999 and 1998, respectively. The Company, using estimates based
on reasonable assumptions and projections, reviews for impairment of long-lived
assets and certain identifiable intangibles to be held and used whenever events
or changes in circumstances indicate the carrying amount of its assets might not
be recoverable and appropriately records any necessary adjustments.
Other assets
Other assets consist of the following at August 31:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Note due from an executive officer (note 11)................ $ 4,000 $ 4,000
Unamortized deferred finance costs, amortized over the life
of the debt............................................... 4,273 3,281
Cash surrender value of life insurance...................... 5,105 4,136
Investment in joint venture................................. 898 2,363
Other....................................................... 4,486 4,308
------- -------
$18,762 $18,088
------- -------
</TABLE>
F-6
<PAGE> 23
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
Accrued expenses
Accrued expenses consist of the following at August 31:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Warranty.................................................... $ 4,890 $ 4,269
Marketing programs.......................................... 11,637 9,812
Salaries and benefits....................................... 8,642 12,389
Restructuring, principally lease termination................ -- 2,310
Insurance and taxes......................................... 3,705 3,115
Acquisition costs........................................... -- 4,999
Other....................................................... 8,435 9,569
------- -------
$37,309 $46,463
------- -------
</TABLE>
Income taxes
Deferred income taxes are provided to reflect the tax effects of temporary
differences between assets and liabilities for financial reporting purposes and
income tax purposes. Provisions are also made for U.S. income taxes on
undistributed earnings of foreign subsidiaries not considered to be indefinitely
reinvested (note 7).
Research and development costs
All research and development costs are charged to expense as incurred and
amount to $9,521, $6,742, and $6,557 in 2000, 1999 and 1998, respectively.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and uncertainties
Approximately 2% of the Company's employees are covered by a collective
bargaining agreement which expires in August 2005. Another 20% of the Company's
employees are covered by a separate collective bargaining agreement which
expires in October 2001.
Earnings per share
Basic earnings per share are computed by dividing net income by the
weighted average number of shares outstanding for the period. Diluted earnings
per share are computed by adjusting outstanding shares assuming
F-7
<PAGE> 24
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
conversion of all potentially dilutive stock options. The computation of basic
earnings per share and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Net income................................................ $20,401 $20,724 $2,992
------- ------- ------
Weighted average shares outstanding (amounts in
thousands).............................................. 35,325 36,870 41,355
Assumed conversion of stock options....................... 165 228 1,202
------- ------- ------
Diluted average shares outstanding (amounts in
thousands).............................................. 35,490 37,098 42,557
------- ------- ------
Earnings per share:
Basic................................................ $ 0.58 $ 0.56 $ 0.07
Diluted.............................................. 0.57 0.56 0.07
------- ------- ------
</TABLE>
Fair Value of Financial Instruments
The carrying amount for cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to the short
maturity of these instruments. At August 31, 2000, the fair value of long-term
debt (including current portion), is estimated to be $161,867 based on the
current market rates obtained by the Company.
Effect of New Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. This statement has been adopted effective September
1, 2000 and will not have a material impact on the Company's financial
statements.
Reclassification
Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.
2. RESTRUCTURING
In August 1999, the Company added to the 1998 restructuring of its
operations to include a one-time net charge of $3,100. The charge consisted of a
machinery and equipment write-down to estimated recoverable value ($44), an
amount for production equipment leases ($629), other contractual obligations
($2,218) and personnel-related costs ($209). The restructuring related to
transferring production of pumps for compressors from the U.S. to Taiwan and
China.
In January 1998, the Company announced a plan to restructure its
operations, which resulted in the Company recording a one-time expense totaling
$16,750 in the second fiscal quarter ended February 28, 1998. The charge
consisted of production machinery and equipment write-downs to estimated
recoverable value ($5,590), an amount for production machinery and equipment
lease terminations ($4,030) primarily related to outsourcing, other
administrative facility lease terminations ($826), personnel-related outsourcing
costs including a contract settlement ($2,505) and severance payments ($1,298)
and administrative facility closing costs ($2,501). The restructuring did not
result in factory closings. However, it did involve shifting some additional
production from North America to China and increasing component outsourcing. As
part of the restructuring, all of Fedders International, Inc.'s activities,
including executive management located at the Company's headquarters in New
Jersey, were relocated to the Company's Asian headquarters in Singapore.
F-8
<PAGE> 25
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
The sales, marketing, research and design, service and administrative support
functions of Fedders North America, Inc. were relocated to the Company's
facility in Illinois.
All amounts were paid out on the restructuring by the Company by the second
fiscal quarter ended February 29, 2000.
3. COMMITMENTS AND CONTINGENCIES
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 consolidated financial
statements.
4. SHORT-TERM BORROWING
At August 31, 2000, Fedders Xinle had short-term notes of $3,753
outstanding under a loan agreement with a People's Republic of China bank. The
notes bear interest at approximately 6.50% and expire April 2001. At August 31,
2000 and 1999, the Company had no short-term borrowing under its U.S. revolving
credit facility with a commercial finance company. Availability under the U.S.
facility of $100,000 at August 31, 2000 and is based on accounts receivable and
inventory and requires maintenance of certain financial covenants. The maximum
amount outstanding under the credit facility was $44,944 and $33,899 during
fiscal 2000 and 1999, respectively. The average amount outstanding and average
rate of interest charged on outstanding borrowings under the credit facility
were $8,652 and 8.51% in fiscal 2000 and $5,347 and 7.75% in fiscal 1999. The
credit facility is collateralized by substantially all of the Company's assets
and is in effect until February 2003. The rate of interest on the facility is
prime rate or LIBOR plus 2.25%.
5. LONG-TERM DEBT
Long-term debt consists of the following at August 31:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
9 3/8% Senior Subordinated Notes due 2007:
$100,000 principal amount less unamortized discount of
$333 and $381.......................................... $ 99,667 $ 99,619
$50,000 principal amount less unamortized discount of
$2,054 and $2,348...................................... 47,946 47,652
Fedders Koppel promissory note.............................. 7,090 --
Fedders Xinle promissory note............................... -- 5,061
Promissory note payable to the State of Illinois............ 2,832 3,389
Trion Industrial Revenue Bond............................... 3,200 3,200
Sun Air Conditioning, Inc. promissory note.................. 1,911 --
Melcor, State of New Jersey Economic Development Bond....... 1,301 --
Capital lease obligations................................... 2,487 2,442
-------- --------
166,434 161,363
Less current maturities..................................... 2,522 4,598
-------- --------
$163,912 $156,765
-------- --------
</TABLE>
Aggregate amounts of long-term debt, excluding capital leases of $2,487,
maturing in each of the years ending August 31 are: 2001 -- $2,222,
2002 -- $2,226, 2003 -- $2,329, 2004 -- $2,333, 2005 -- $1,598 and thereafter
$153,239.
In August 1997, a subsidiary of the Company issued $100,000 principal
amount of 9 3/8% Senior Subordinated Notes due 2007. In August 1999, the same
subsidiary issued an additional $50,000 principal
F-9
<PAGE> 26
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
amount of 9 3/8% Senior Subordinated Notes due 2007. The notes are guaranteed by
the Company on a senior subordinated basis. The notes may be redeemed by the
subsidiary after August 2002 at a redemption price of 104.688% of principal
amount. The provisions of the notes limit, among other things, the payment of
dividends by the subsidiary.
In 2000, Fedders Xinle refinanced a long-term promissory note payable to a
People's Republic of China bank.
The loan from the State of Illinois has an interest rate of 1%, is to be
paid over the next eight years, and is collateralized by a mortgage on the
Company's Illinois facility.
The Trion Industrial Revenue Bond is due in November 2011, bears interest
at approximately 5.0% and requires no principal payments until maturity. This
bond is collateralized by Trion's Sanford, North Carolina facility, including
real property and equipment.
The Fedders Koppel promissory note payable to a Philippines bank is to be
paid over the next five years, bears interest at PHIBOR plus 3% and is
guaranteed by the Company.
The Sun Air Conditioning, Inc. promissory note due to Citizens National is
to be paid over the next seven years and bears interest at the prime rate.
The loan from the New Jersey Economic Development Corporation to Melcor
Corporation has an interest rate of 6.6%, is to be paid over the next 10 years
and is collateralized by Melcor's facility and certain equipment.
6. LEASES
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 non-cancelable
terms are as follows: $1,165, $929, $682, $572 and $8 in 2001, 2002, 2003, 2004
and 2005, respectively. Minimum lease payments total $3,356. Total rent expense
for all operating leases amounted to $1,647, $1,513 and $3,940 in 2000, 1999 and
1998, respectively.
Capital Leases
Aggregate future minimum rental payments under capital leases for the years
ending August 31 are as follows: $255, $276, $262, $118 and $108 in 2001, 2002,
2003, 2004 and 2005, respectively. The present value of minimum lease payments
is $2,487. In 2000, a capital lease was bought out by the Company at maturity
for $1,018.
F-10
<PAGE> 27
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
7. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Current:
Federal................................................. $ 1,076 $ 3,816 $1,854
State................................................... 69 281 170
Foreign................................................. 275 315 58
------- ------- ------
1,420 4,412 2,082
------- ------- ------
Charge in lieu of income taxes............................ 109 47 3,825
------- ------- ------
Deferred:
Federal................................................. 8,436 5,741 (3,970)
State................................................... 108 62 (326)
------- ------- ------
8,544 5,803 (4,296)
------- ------- ------
$10,073 $10,262 $1,611
------- ------- ------
</TABLE>
The exercise of stock options to acquire shares of the Company's Class A
Stock creates a compensation deduction for income tax purposes for which there
is no corresponding expense required for financial reporting purposes. The tax
benefits related to these deductions are reflected as a charge in lieu of income
taxes and a credit to additional paid-in capital.
Deferred tax assets result from temporary differences between assets and
liabilities for financial reporting and income tax purposes, and include the
components related to acquired companies. The components are as follows at
August 31:
<TABLE>
<CAPTION>
2000 1999
------ -------
<S> <C> <C>
Warranty.................................................... $2,386 $ 3,838
Depreciation................................................ (3,533) (2,666)
Employee benefit programs................................... 5,544 6,024
Inventory................................................... 2,623 3,875
Net operating loss and tax credit carryforwards............. 2,085 3,846
Restructuring............................................... 42 1,990
Other....................................................... 1,179 3,017
------ -------
10,326 19,924
Valuation allowance......................................... (1,033) (2,087)
------ -------
$9,293 $17,837
------ -------
</TABLE>
F-11
<PAGE> 28
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
The difference between the United States statutory income tax rate and the
consolidated effective income tax rate is due to the following items:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Expected tax at statutory rate.............................. $10,666 $10,845 $1,611
Tax difference on foreign earnings.......................... 319 -- --
Valuation allowance reflected in current income............. (1,054) -- --
State taxes, less federal income tax benefit................ 115 151 95
Prior year provisions no longer required.................... (435) (1,029) (297)
Other....................................................... 462 295 202
------- ------- ------
$10,073 $10,262 $1,611
------- ------- ------
</TABLE>
At August 31, 2000, the Company has foreign net operating loss
carryforwards of approximately $900 and U.S. net operating loss and tax credit
carryforwards of approximately $3,500 and $200, respectively, which are
restricted as to use and expire in the years 2001 through 2010. The valuation
allowance reflects the uncertainty associated with the realization of deferred
tax assets.
8. INDUSTRY SEGMENT
The Company operates in one industry segment, air treatment products, and
sells primarily direct to retailers and also through manufacturers'
representatives, private label arrangements and distributors. In 2000, one
customer accounted for 25% of net sales and a second customer accounted for 24%
of net sales. In 1999, two customers each accounted for 29% of net sales. In
1998, one customer accounted for 30% of net sales and a second customer
accounted for 27% of net sales.
International sales were approximately $54,404 in 2000, $38,168 in 1999 and
$38,078 in 1998 and were made principally to Asia, Europe, Canada and Mexico.
9. CAPITAL STOCK
On October 11, 2000, the Company announced an increase in the stock
repurchase plan (the "$30 Million Plan") from $30,000 to $40,000 for the
Company's Common and Class A Stock, authorized in August 1998. The $50,000 stock
repurchase plan authorized in 1997 (the "$50 Million Plan") for the Company's
Common and Class A Stock has been completed.
Common Stock (80,000,000 shares authorized): During fiscal 2000, 567,900
shares were repurchased for $3,580 under the $30 Million Plan. In fiscal 1999,
837,000 shares were repurchased and retired for $4,669 under the $30 Million
Plan. During fiscal 1998, 1,917,500 shares were repurchased for $11,487 and
retired under the $50 Million Plan. Shares of Common Stock are reserved for the
conversion of Class A and Class B Stock as indicated herein.
Class A Stock (60,000,000 shares authorized): In fiscal 2000, 2,200,100
shares were repurchased for $9,904 under the $30 Million Plan. An additional
154,071 shares were received from employees in connection with the exercise of
stock options. In fiscal 1999, 1,763,600 shares were repurchased for $8,546
under the $30 Million Plan. In fiscal 1998, 5,750,132 shares were repurchased
for $33,937 under the $50 Million Plan. An additional 2,063,173 shares were
received from employees and retired in connection with the exercise of stock
options under the Company's stock option plans and amounted to $12,772. All
Class A shares that were repurchased during fiscal 1998 have been retired as of
August 31, 1998. Shares of Class A Stock reserved under the Company's stock
option plans amounted to 5,573,000 and 5,819,933 at August 31, 2000 and 1999,
respectively. Class A Stock has rights, including dividend rights, substantially
identical to the Common Stock,
F-12
<PAGE> 29
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
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, 25,337,663 and 22,792,082 shares of Common Stock are
reserved for such conversion at August 31, 2000 and 1999, respectively. In 1998,
the Company granted 300,000 shares of restricted stock to an executive officer,
the value of which was $1,763 (note 11).
Class B Stock (7,500,000 shares authorized): Class B Stock is immediately
convertible into Common Stock on a share-for-share basis and accordingly, at
August 31, 2000 and 1999, 2,266,406 and 2,266,706 shares of Common Stock,
respectively, are reserved for such conversion. Class B Stock has greater voting
power, in certain circumstances (ten-to-one in the election of directors), but
receives a lower dividend, if declared, equal to 90% of the dividend on Common
Stock, and has limited transferability. Class B Stock also votes separately, as
a class, on certain significant issues.
10. STOCK OPTION PLANS
All stock option plans, as approved by the stockholders, provide for the
granting to employees and officers of incentive stock options (as defined under
current tax laws) and non-qualified stock options. All of the plans provide for
the granting of non-qualified stock options to directors who are not employees.
Stock options are exercisable one year after the date of grant and, if not
exercised, will expire five years from the date of grant. Certain options are
only exercisable at the end of five years unless a sales target is achieved
prior thereto.
The Company adopted SFAS 123, "Accounting for Stock Based Compensation,"
and chose to continue the application of APB Opinion 25 and related
interpretations in accounting for its stock options issued to employees.
Accordingly, the adoption of SFAS 123 did not have a material effect on the
Company's consolidated financial statements. Had compensation cost for the
Company's stock option plans been determined consistent with SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Net Income:
As reported............................................... $20,401 $20,724 $2,992
Pro forma................................................. 19,257 20,676 2,553
Basic earnings per share:
As reported............................................... $ 0.58 $ 0.56 $ 0.07
Pro forma................................................. 0.55 0.56 0.06
Diluted earnings per share:
As reported............................................... $ 0.57 $ 0.56 $ 0.07
Pro forma................................................. 0.54 0.56 0.06
</TABLE>
F-13
<PAGE> 30
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
The stock option plan summary and changes during each year are presented
below:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year.................... 1,644 1,675 5,992
Granted..................................................... 1,295 54 21
Canceled.................................................... (71) -- (91)
Exercised................................................... (385) (85) (4,247)
-------- -------- --------
Options outstanding at end of year.......................... 2,483 1,644 1,675
Options exercisable at end of year.......................... 1,411 1,588 1,655
-------- -------- --------
Exercise price per share.................................... $ 2.84 $ 2.67 $ 2.67
to 5.94 to 5.75 to 5.75
-------- -------- --------
</TABLE>
Options exercisable at August 31, 2000 have an average exercise price of
$4.85. The weighted average fair value of the stock options granted during 2000,
1999 and 1998 was $1.31, $1.33 and $1.71, respectively. The fair value of each
option granted is estimated on the date of grant using the Binomial option
pricing model in 2000 and the Black-Scholes option pricing model in 1999 and
1998 with the following weighted-average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Expected dividend........................................... $.120 $.105 $.085
Risk-free rate.............................................. 6.1% 6.1% 6.1%
Expected life in years...................................... 4 4 4
Volatility.................................................. 30% 32% 32%
</TABLE>
The following table summarizes information on stock options outstanding at
August 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE(1) PRICE(1) EXERCISABLE PRICE(1)
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.77-5.56.................................. 1,137 4.45 $4.96 66 $5.43
$2.84-5.75.................................. 511 1.36 4.78 511 4.78
$4.75-5.94.................................. 466 1.72 4.93 466 4.93
$4.50-5.13.................................. 369 0.50 4.74 368 4.74
----- ---- ----- ----- -----
2,483 2.72 $4.88 1,411 $4.85
</TABLE>
---------------
(1) weighted average
11. PENSION PLANS AND OTHER COMPENSATION ARRANGEMENTS
The Company maintains a 401(k) defined contribution plan covering all U.S.
employees except union employees at one subsidiary. Company matching
contributions under the plan are based on the level of individual participant
contributions and amounted to $1,287, $1,096 and $1,328 in 2000, 1999 and 1998,
respectively.
The Company has an agreement with an officer that has a term of ten years
from any point in time and provides for annual base and incentive compensation
during the employment period, a disability program, post-retirement 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
F-14
<PAGE> 31
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
under the agreement has been determined based upon certain assumptions and is
being amortized over the expected remaining years of service to the Company.
The Company has an agreement with another officer that has a term that
extends through September 2003. The agreement provides for annual base and
incentive compensation, a non-interest bearing, uncollateralized loan maturing
in September 2004 (note 1), a retirement contribution that vests over the life
of the agreement and restricted stock that vests in January 2004. The Company is
amortizing the retirement contribution and the restricted stock over the life of
the agreement.
The Company provides a portion of health care and life insurance benefits
for retired employees who elect to participate in the Company's plan. SFAS 106
requires accrual accounting for all post-retirement benefits other than
pensions. At August 31, 2000 and 1999, post-retirement benefits, although
immaterial, were fully accrued with no significant change between these dates.
12. ACQUISITIONS
In fiscal 2000, a subsidiary of the Company acquired the capital stock of
ABB Koppel, Inc. (now called Fedders Koppel), a manufacturer of room and
packaged air conditioners in the Philippines, for total consideration of $11.6
million in cash and notes. Also during fiscal 2000, another subsidiary of the
Company acquired the net assets of Sun Manufacturing, Inc. for $1.0 million of
cash plus the assumption of $2.2 million of debt. Sun is a manufacturer of air
conditioners that cool telecommunications equipment in cellular towers. Both
acquisitions were accounted for using the purchase method with the purchase
price allocated to net assets acquired based on their estimated fair values as
of the acquisition date. The excess of purchase price over the fair value of the
net assets acquired ($9,586) was allocated to goodwill which is being amortized
on a straight-line basis over 40 years. The Company's consolidated financial
statements including the operating results of the acquired businesses from the
date of acquisition.
In August 1999, a subsidiary of the Company acquired substantially all
outstanding shares of common stock of Trion, Inc., a manufacturer of indoor air
quality products by way of a cash tender offer totaling $39.4 million. The
acquisition was completed in November 1999. The acquisition was accounted for
using the purchase method, with the purchase price allocated to net assets
acquired based on their estimated fair values as of the acquisition date. The
excess of purchase price over the fair value of the acquired net assets
($25,620) was allocated to goodwill ($19,768), which is being amortized on a
straight-line basis over 40 years.
The Company's consolidated financial statements include the operating
results of Trion, Inc., since August 1999. The following table presents the
unaudited pro forma results of operations as if the Trion acquisition occurred
on September 1, 1998. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have actually
occurred had the acquisition been consummated at the beginning of fiscal 1999 or
of results which may occur in the future.
<TABLE>
<CAPTION>
(UNAUDITED) 1999
----------- --------
<S> <C>
Net Sales................................................... $410,444
Operating income.......................................... 42,053
Net income................................................ 20,646
--------
Earnings per share:
Basic.................................................. $0.56
--------
Diluted................................................ $0.56
--------
</TABLE>
F-15
<PAGE> 32
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
13. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Fedders North America, Inc. ("FNA") is a wholly-owned subsidiary of the
Company. FNA and the Company are the Issuer and the Guarantor, respectively, of
the senior subordinated notes due 2007, of which $100,000 were issued in August
1997, and $50,000 were issued in August, 1999 (the "Offering") (note 5). The
Company's guarantee is full and unconditional. The following condensed
consolidating financial statements present separate information for FNA and for
the Company and its subsidiaries other than FNA, and should be read in
connection with the consolidated financial statements of the Company.
The amounts shown for FNA (presented under the caption "Fedders North
America") in the following historical condensed consolidating financial
statements include the accounts of Trion, Inc., which was acquired by FNA by way
of a cash tender offer totaling $39.4 million. (note 12). The amounts presented
under the caption "Other Fedders" include the parent and its subsidiaries.
Certain prior year amounts have been reclassified to conform to current
year presentation.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 2000
---------------------------------------------------
FEDDERS OTHER ELIMINATION FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................ $355,077 $59,617 $(4,885) $409,809
Cost of sales.................................... 269,656 40,082 (4,885) 304,853
Selling, general and administrative expense(a)... 40,321 17,781 -- 58,102
-------- ------- ------- --------
Operating income................................. 45,100 1,754 -- 46,854
Partners' net interest in joint venture
results........................................ -- (796) -- (796)
Net interest income (expense)(b)................. (16,513) 929 -- (15,584)
Dividend income(f)............................... -- 9,708 (9,708) --
-------- ------- ------- --------
Income (loss) before income taxes................ 28,587 11,595 (9,708) 30,474
Provision for income taxes....................... 9,170 903 -- 10,073
-------- ------- ------- --------
Net income (loss)................................ 19,417 10,692 (9,708) 20,401
Other comprehensive income (loss):
Foreign currency translation, net of tax....... 62 (624) -- (562)
-------- ------- ------- --------
Comprehensive income (loss)...................... $ 19,479 $10,068 $(9,708) $ 19,839
======== ======= ======= ========
</TABLE>
F-16
<PAGE> 33
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1999
---------------------------------------------------
FEDDERS OTHER ELIMINATION FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................ $326,793 $29,163 -- $355,956
Cost of sales.................................... 247,158 24,207 -- 271,365
Selling, general and administrative expense(a)... 31,282 9,951 -- 41,233
Restructuring charge............................. 3,100 -- -- 3,100
-------- ------- -------- --------
Operating income (loss).......................... 45,253 (4,995) -- 40,258
Partners' net interest in joint venture
results........................................ -- 412 -- 412
Net interest income (expense)(b)................. (10,121) 437 -- (9,684)
Dividend income(f)............................... -- 25,714 (25,714) --
-------- ------- -------- --------
Income (loss) before income taxes................ 35,132 21,568 (25,714) 30,986
Provision for income taxes (benefit)............. 11,512 (1,250) -- 10,262
-------- ------- -------- --------
Net income (loss)................................ 23,620 22,818 (25,714) 20,724
Other comprehensive income:
Foreign currency translation, net of tax....... 42 55 -- 97
-------- ------- -------- --------
Comprehensive income (loss)...................... $ 23,662 $22,873 $(25,714) $ 20,821
======== ======= ======== ========
</TABLE>
F-17
<PAGE> 34
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1998
---------------------------------------------------
FEDDERS OTHER ELIMINATION FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................ $289,412 $32,709 -- $322,121
Cost of sales.................................... 226,805 25,546 -- 252,351
Selling, general and administrative expense(a)... 5,768 14,442 -- 40,210
Restructuring charge............................. 15,360 1,390 -- 16,750
-------- ------- -- --------
Operating income (loss).......................... 21,479 (8,669) -- 12,810
Partners' net interest in joint venture
results........................................ -- 403 -- 403
Net interest income (expense)(b)................. (10,354) 1,744 -- (8,610)
-------- ------- -- --------
Income (loss) before income taxes................ 11,125 (6,522) -- 4,603
Provision for income taxes (benefit)............. 3,894 (2,283) -- 1,611
-------- ------- -- --------
Net income (loss)................................ 7,231 (4,239) -- 2,992
Other comprehensive loss:
Foreign currency translation, net of tax....... -- (190) -- (190)
-------- ------- -- --------
Comprehensive income (loss):..................... $ 7,231 $(4,429) -- $ 2,802
======== ======= == ========
</TABLE>
F-18
<PAGE> 35
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 2000
----------------------------------------------------
FEDDERS OTHER ELIMINATION FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $ 59,716 $ 27,477 -- $ 87,193
Net accounts receivable....................... 15,352 10,042 -- 25,394
Inventories................................... 56,027 19,144 -- 75,171
Other current assets.......................... 2,623 7,756 -- 10,379
-------- -------- --------- --------
Total current assets.................. $133,718 $ 64,419 -- $198,137
Investments in subsidiaries..................... -- 104,306 $(104,306) --
Property, plant and equipment, net.............. 56,686 15,582 -- 72,268
Goodwill........................................ 72,196 13,112 -- 85,308
Other long-term assets.......................... 5,635 17,609 -- 23,244
-------- -------- --------- --------
$268,235 $215,028 $(104,306) $378,957
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion long-term debt................ $ 527 $ 5,748 -- $ 6,275
Accounts and income taxes payable............. 48,691 (1,297) -- 47,394
Accrued expenses.............................. 25,284 12,025 -- 37,309
-------- -------- --------- --------
Total current liabilities............. $ 74,502 $ 16,476 -- $ 90,978
Long-term debt.................................. 153,676 10,236 -- 163,912
Other long-term liabilities..................... 2,513 9,294 -- 11,807
Stockholders' equity:
Common, Class A, and Class B Stock............ 5 38,227 $ (5) 38,227
Paid-in capital............................... 21,292 181,518 (173,219) 29,591
Retained earnings (deficit)(f)................ 16,470 (15,813) 68,918 69,575
Deferred compensation and Treasury Stock...... -- (24,005) -- (24,005)
Accumulated other comprehensive loss............ (223) (905) -- (1,128)
-------- -------- --------- --------
Total stockholders' equity............ 37,544 179,022 (104,306) 112,260
-------- -------- --------- --------
$268,235 $215,028 $(104,306) $378,957
======== ======== ========= ========
</TABLE>
F-19
<PAGE> 36
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1999
----------------------------------------------------
FEDDERS OTHER ELIMINATION FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash......................................... $ 76,092 $ 41,417 -- $117,509
Net accounts receivable...................... 13,655 7,373 -- 21,028
Inventories.................................. 46,991 14,623 -- 61,614
Other current assets......................... 5,714 5,943 -- 11,657
-------- -------- ---------- --------
Total current assets................. $142,452 $ 69,356 -- $211,808
Investments in subsidiaries.................... -- 104,306 $ (104,306) --
Property, plant and equipment, net............. 60,226 10,545 -- 70,771
Goodwill....................................... 67,228 6,771 -- 73,999
Other long-term assets......................... 9,835 15,929 -- 25,764
-------- -------- ---------- --------
$279,741 $206,907 $ (104,306) $382,342
======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion long-term debt............... $ 2,188 $ 2,410 -- $ 4,598
Accounts and income taxes payable............ 52,436 (3,955) -- 48,481
Accrued expenses............................. 40,960 5,503 -- 46,463
-------- -------- ---------- --------
Total current liabilities............ $ 95,584 $ 3,958 -- $ 99,542
Long-term debt................................. 154,114 2,651 -- 156,765
Other long-term liabilities.................... 2,301 14,801 -- 17,102
Stockholders' equity:
Common, Class A, and Class B Stock........... 5 37,802 $ (5) 37,802
Paid-in capital.............................. 21,292 179,996 (173,219) 28,069
Retained earnings (deficit) (f).............. 6,761 (22,300) 68,918 53,379
Deferred compensation and Treasury Stock..... -- (10,029) -- (10,029)
Accumulated other comprehensive income
(loss)....................................... (316) 28 -- (288)
-------- -------- ---------- --------
Total stockholders' equity........... 27,742 185,497 (104,306) 108,933
-------- -------- ---------- --------
$279,741 $206,907 $ (104,306) $382,342
======== ======== ========== ========
</TABLE>
F-20
<PAGE> 37
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 2000
-------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
------------- ------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operations................... $(10,407) $15,026 $ 4,619
-------- ------- --------
Net additions to property, plant and equipment.............. (3,870) (3,751) (7,621)
Acquisition of businesses................................... -- (7,416) (7,416)
-------- ------- --------
Net cash used in investing activities....................... (3,870) (11,167) (15,037)
-------- ------- --------
Net repayments of short and long-term borrowings............ (2,099) (1,169) (3,268)
Cash dividends.............................................. -- (4,205) (4,205)
Proceeds from stock options exercised....................... -- 1,059 1,059
Repurchase of capital stock................................. -- (13,484) (13,484)
-------- ------- --------
Net cash used in financing activities....................... (2,099) (17,799) (19,898)
-------- ------- --------
Net decrease in cash and cash equivalents................... (16,376) (13,940) (30,316)
Cash and cash equivalents at beginning of year.............. 76,092 41,417 117,509
-------- ------- --------
Cash and cash equivalents at end of year.................... $ 59,716 $27,477 $ 87,193
======== ======= ========
</TABLE>
F-21
<PAGE> 38
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1999
--------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
------------- -------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operations.................. $ 56,243 $ (4,254) $ 51,989
-------- -------- --------
Net additions to property, plant and equipment............. (5,713) (3,665) (9,378)
Purchase of Trion, Inc..................................... (39,400) -- (39,400)
-------- -------- --------
Net cash used in investing activities...................... (45,113) (3,665) (48,778)
-------- -------- --------
Net repayments of short and long-term borrowings........... (6,300) (2,685) (8,985)
Net proceeds from senior subordinated notes................ 47,652 -- 47,652
Net proceeds from Xinle financing.......................... -- 1,447 1,447
Cash dividends............................................. (25,714) 21,873 (3,841)
Proceeds from stock options exercised...................... -- 254 254
Repurchase of capital stock................................ -- (13,215) (13,215)
Change in net due to (from) affiliate...................... 43,310 (43,310) --
-------- -------- --------
Net cash provided by (used in) financing activities........ 58,948 (35,636) 23,312
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 70,078 (43,555) 26,523
Cash and cash equivalents at beginning of year............. 6,014 84,972 90,986
-------- -------- --------
Cash and cash equivalents at end of year................... $ 76,092 $ 41,417 $117,509
======== ======== ========
</TABLE>
F-22
<PAGE> 39
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1998
--------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
------------- -------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operations.................. $ 43,320 $ (4,018) $ 39,302
-------- -------- --------
Net additions to property, plant and equipment, being cash
used in investing activities............................. (5,351) (1,299) (6,650)
-------- -------- --------
Net repayments of short and long-term borrowings........... (1,822) (2,598) (4,420)
Cash dividends............................................. -- (3,520) (3,520)
Proceeds from stock options exercised...................... -- 5,289 5,289
Repurchase of capital stock................................ -- (49,408) (49,408)
Change in net due to (from) affiliate...................... (30,133) 30,133 --
-------- -------- --------
Net cash used in financing activities...................... (31,955) (20,104) (52,059)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 6,014 (25,421) (19,407)
Cash and cash equivalents at beginning of year............. -- 110,393 110,393
-------- -------- --------
Cash and cash equivalents at end of year................... $ 6,014 $ 84,972 $ 90,986
======== ======== ========
</TABLE>
INTERCOMPANY TRANSACTIONS
The historical condensed consolidating financial statements presented above
include the following transactions between FNA and the Company;
a) The Company charges corporate overhead to FNA essentially on a cost
basis allocated in proportion to sales. Such charges to FNA amounted to $13,468,
$14,090 and $9,383 for the years ended August 31, 2000, 1999 and 1998,
respectively.
b) FNA's interest expense reflects actual interest charges on the 9 3/8%
Senior Subordinated Notes due 2007, State of Illinois Promissory Note and
capital lease obligations.
c) FNA's depreciation and amortization for the years ended August 31, 2000,
1999 and 1998 amounted to $7,410, $6,990 and $7,500, respectively. Capital
expenditures of FNA for the same periods amounted to $9,361, $5,713 and $8,083,
respectively.
d) The Company guarantees FNA's obligations under FNA's revolving credit
facility.
e) The Company's stock option plans include FNA's employees.
f) On August 31, 2000 and 1999, FNA declared a dividend of $9,708 and
$25,714 to the Company.
F-23
<PAGE> 40
REPORTS OF INDEPENDENT AUDITORS
To The Shareholders and Board of Directors of Fedders Corporation:
We have audited the accompanying consolidated balance sheet of Fedders
Corporation and its subsidiaries as of August 31, 2000 and the related
consolidated statement of operations and comprehensive income, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fedders Corporation and its
subsidiaries at August 31, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/
Deloitte & Touche LLP
Parsippany, New Jersey
October 13, 2000
F-24
<PAGE> 41
To The Shareholders and Board of Directors of Fedders Corporation:
We have audited the accompanying consolidated balance sheet of Fedders
Corporation as of August 31, 1999, and the related consolidated statements of
operations and comprehensive income, cash flows and stockholders' equity for
each of the two years in the period ended August 31, 1999. 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 significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fedders
Corporation as of August 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
August 31, 1999, in conformity with generally accepted accounting principles.
/s/
BDO Seidman, LLP
Woodbridge, New Jersey
October 12, 1999
F-25
<PAGE> 42
QUARTERLY FINANCIAL DATA (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND MARKET PRICE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL YEAR
------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
2000
Net sales.................................... $44,683 $70,371 $195,195 $99,560 $409,809
Gross profit................................. 13,258 22,152 44,250 25,296 104,956
Income (loss) before income taxes............ (3,116) 1,859 25,088 6,643 30,474
Net income (loss)............................ $(2,133) $ 1,284 $ 16,935 $ 4,315 $ 20,401
Basic earnings (loss) per share(a)........... $ (0.06) $ 0.04 $ 0.47 $ 0.12 $ 0.58
Diluted earnings (loss) per share(a)......... $ (0.06) $ 0.04 $ 0.47 $ 0.12 $ 0.57
Market price per share:
Common Stock (FJC)
High....................................... 6 9/16 6 6 1/4 6 3/16 6 9/16
Low........................................ 5 1/4 5 1/16 5 1/4 4 3/4 4 3/4
Class A Stock (FJA)
High....................................... 5 3/4 5 1/4 5 7/8 5 15/16 5 15/16
Low........................................ 4 5/8 4 5/8 4 7/8 4 1/2 4 1/2
------- ------- -------- ------- --------
1999
Net sales.................................... $25,702 $58,887 $175,632 $95,735 $355,956
Gross profit................................. 6,592 12,886 40,659 24,454 84,591
Income (loss) before income taxes............ (4,504) 1,250 26,895 7,345 30,986
Net income (loss)............................ $(2,935) $ 815 $ 18,070 $ 4,774 $ 20,724
Basic earnings (loss) per share(a)........... $ (0.08) $ 0.02 $ 0.50 $ 0.13 $ 0.56
Diluted earnings (loss) per share(a)......... $ (0.08) $ 0.02 $ 0.50 $ 0.13 $ 0.56
Market price per share:
Common Stock (FJC)
High....................................... 6 5 7/8 6 1/16 6 15/16 6 15/16
Low........................................ 3 15/16 4 13/16 5 5 3/16 3 15/16
Class A Stock (FJA)
High....................................... 5 5/8 5 3/4 5 13/16 6 3/4 6 3/4
Low........................................ 3 1/2 4 3/8 4 5/8 5 3/16 3 1/2
</TABLE>
---------------
(a) Quarterly earnings per share may not add to earnings per share for the year
due to rounding and changes in the number of weighted average shares
outstanding
F-26
<PAGE> 43
FEDDERS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
FOR THE YEARS ENDED AUGUST 31, 2000, 1999 AND 1998
<TABLE>
BALANCE ADDITIONS BALANCE
AT CHARGED AT END
BEGINNING TO OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD EXPENSE DEDUCTIONS OTHER PERIOD
------------------------------------------- --------- ------ ------- ---- -------
<S> <C> <C> <C> <C> <C>
Year ended:
August 31, 2000............................ $1,373 $ 922 $ (290) $133 $2,138
August 31, 1999............................ $2,032 $ 14 $ (592) $(81) $1,373
August 31, 1998............................ $1,834 $1,812 $(1,614) -- $2,032
</TABLE>
F-27
<PAGE> 44
REPORTS OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Fedders Corporation
Westgate Corporate Center
505 Martinsville Road
Liberty Corner, New Jersey
We have audited the financial statements of Fedders Corporation as of
August 31, 2000, and for the year in the period ended August 31, 2000, and have
issued our report thereon dated October 13, 2000; such report is included
elsewhere in this Form 10-K. Our audit also included the financial statement
schedule of Fedders Corporation, listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 13, 2000
F-28
<PAGE> 45
REPORTS OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
FEDDERS CORPORATION
The audits referred to in our report dated October 12, 1999 relating to the
consolidated financial statements of Fedders Corporation, which is contained in
Item 14 of this Form 10-K, included the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
Woodbridge, New Jersey
October 12, 1999
F-29
