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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
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 December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-15299
NYCOR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 22-2748564
(State of Incorporation) (I.R.S. Employer Identification No.)
287 CHILDS ROAD, BASKING RIDGE, NEW JERSEY 07920
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (908) 953-8200
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None
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Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, $1 par value
Class A Stock, $1 par value
Class B Stock, $1 par value
$1.70 Convertible Exchangeable Preferred Stock, $1 par value
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 and 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 [X]
As of the close of business on March 15, 1995, there were outstanding
2,799,594 shares of registrant's Common Stock, 4,051,376 shares of its Class A
Stock and 714,100 shares of its Class B Stock. The approximate aggregate market
value (based upon the closing sale price of such stock) of these shares held by
non-affiliates of the registrant as of March 15, 1995 was $15,768,407. (The
value of a share of Common Stock is used as the value of 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.)
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1994 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II.
PORTIONS OF THE COMPANY'S PROXY STATEMENT FILED IN CONNECTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 28, 1995 ARE INCORPORATED BY
REFERENCE INTO PART III.
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NYCOR, INC.
FORM 10-K ANNUAL REPORT -- 1994
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business...........................................................
Item 2. Properties.........................................................
Item 3. Legal Proceedings..................................................
Item 4. Submission of Matters to a Vote of Security Holders................
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................
Item 6. Selected Financial Data............................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................
Item 8. Financial Statements and Supplementary Data........................
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................
PART III
Item 10. Directors and Executive Officers of the Registrant.................
Item 11. Executive Compensation.............................................
Item 12. Security Ownership of Certain Beneficial Owners and Management.....
Item 13. Certain Relationships and Related Transactions.....................
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....
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ITEM 1. BUSINESS
(a) General Development of Business
NYCOR, Inc. (the "Company" or the "Registrant") is a holding company
currently comprising two operating companies, Rotorex Company, Inc. ("Rotorex")
and Melcor Corporation ("Melcor"). Rotorex manufactures rotary compressors
principally for use in room air conditioners. Melcor produces thermoelectric
heating and cooling modules used in a variety of applications in which space and
weight are considerations or precise temperature control is required. The
Company acquired both Rotorex and Melcor in September 1992. Unless otherwise
indicated, all references herein to the Company or the Registrant are to NYCOR,
Inc. and its subsidiaries.
(c) Narrative Description Of Business
Rotorex and Melcor manufacture and sell components for use in cooling and
heating applications to original equipment manufacturers in the air conditioning
and refrigeration industries. Rotorex compressors use vapor compression to
create a cooling effect while Melcor's thermoelectric modules utilize
electricity, the Peltier effect, to perform cooling and heating functions.
ROTOREX
Products
Rotorex manufactures and sells a broad line of rotary compressors,
principally for the air conditioning and refrigeration markets.
Compressors are used as a principal component in a variety of cooling and
heating applications. Their function is to compress gas which is introduced into
the compressor, causing the temperature of the gas to rise. The change in
temperature of the gas permits a heat transfer to occur within the cooling and
heating system. Rotary compressors are characterized by a circular, or rotary,
motion and are generally smaller, quieter and more energy efficient than the
traditional reciprocating compressors.
Rotorex's product line consists of two basic series of compressors,
designated as the 39 Frame and 48 Frame, with capacities ranging from 5,100 to
18,500 BTUs. Models within each series, with specific cooling capacities within
the indicated range, are produced by varying the mechanical pump assembly and
motor. By varying the motors, Rotorex also creates compressors capable of
operating with different voltages for applications in various parts of the
world.
The air conditioners in which Rotorex's compressors are used are subject to
regulations providing for minimum energy efficiency rating ("EER") requirements.
Achieving required EERs results from a combination of an efficient compressor
and the design of the air conditioning system in which the compressor is
installed. Current proposed rulemaking by the Energy Department under the
National Appliance Energy Conservation Act would have the effect of increasing
minimum required EERs. Rotorex's compressors currently provide efficiencies
which enable its customers to meet EER requirements applicable to their air
conditioners. In the event that the new regulations are adopted, the efficiency
of certain models of Rotorex's compressors would have to be improved. It is not
certain at present if the proposed regulations will be adopted and, if they are,
when the requirements would become effective. Regardless of the adoption of
these proposed regulations, Rotorex is continually seeking to improve the
efficiency of its compressors in order to remain competitive in the markets it
serves. Investments have been made in 1995 to upgrade its laboratory facilities.
These investments, which totaled approximately $1.6 million, coupled with a
strong design staff with many years of compressor experience, give Rotorex the
design capability necessary to make such improvements. Investments in an
automated assembly system are expected to help improve mechanical efficiency and
an ongoing motor design program further enhances Rotorex's ability to improve
the efficiency of its compressors.
Freon is used as a refrigerant in air conditioning systems. Freon is one of
the ozone-depleting chemicals that are currently being phased out of use. The
type of freon used in room air conditioners is an HCFC which is currently an
acceptable substitute for the CFC refrigerants which have a much more harmful
effect on the
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environment. Rotorex does not expect that requirements to ultimately phase out
the use of HCFC refrigerants will have a material effect on its operations or
expenditures.
Marketing
Rotorex compressors are currently sold in the United States principally to
the residential room air conditioning market, with sales concentrated to Fedders
Corporation ("Fedders"). Fedders has been the major customer for Rotorex
compressors for approximately 20 years. Rotorex expects that, with the
implementation of programs designed to capitalize on the growing international
market, international sales may become a greater percentage of Rotorex's overall
sales; however, there can be no assurance as to the extent of such sales.
Rotorex has entered into a supply agreement (the "Supply Agreement") with
Fedders, pursuant to which Rotorex is required to sell to Fedders up to 800,000
rotary compressors annually and Fedders is required to purchase 80% of its
requirements for rotary compressors from Rotorex up to 800,000 compressors,
subject to certain exceptions. The terms of sales to Fedders under the Supply
Agreement are negotiated annually and must be no less favorable than sales to
other customers. This requirement for sales to Fedders leaves Rotorex with
substantial capacity to expand its markets and customer base. Rotorex believes
that its agreement with Fedders provides it with a substantial base of sales
from which to expand its sales in the international markets for room air
conditioners. Rotorex participates in a substantial portion of the relatively
mature United States market for room air conditioners and it intends to
capitalize on this base to increase its sales in the more rapidly growing
international markets. In 1994, Rotorex's sales were favorably impacted as a
result of back-to-back successful years enjoyed by the domestic air conditioning
industry. As previously indicated, as Rotorex's efforts in the international
markets continue, sales in these markets may represent a greater percentage of
Rotorex's overall sales.
Rotorex believes that significant growth opportunities exist in the
international market, particularly in Asia. Rotorex has been active in the
international market for a number of years through its technology licensing
program. Currently, Rotorex has three licensees in mainland China and one each
in Taiwan and South Korea. The license agreements require Rotorex to provide
technology to the licensees and the licensees to pay royalties to Rotorex based
upon sales of finished compressors. In early 1995, Rotorex established a
representative office in Beijing which is expected to enhance Rotorex's presence
in the important China market. Rotorex has also opened a branch office in
England to serve the European, Middle Eastern and North African markets and
expects to establish a sales office in Singapore. Rotorex will continue to
assess the international markets to determine how best to participate in those
markets.
A number of countries in which Rotorex is pursuing sales opportunities,
including China, impose tariffs on imported compressors. At present, Rotorex
believes that the demand for compressors in these markets will continue to
provide opportunities to increase sales in these markets. Rotorex will
continually assess the impact of tariffs on its markets to determine how best to
effectively serve such markets.
Rotorex promotes its products through the use of product literature,
catalogs and advertising in industry publications and exhibits its products at
industry and target market trade shows.
Production
Rotorex currently manufactures all of its compressors and pump assemblies
in a 200,000 square foot facility owned by Rotorex in Frederick, Maryland.
Efforts to improve efficiency and productivity at this facility and the quality
of the products manufactured are ongoing. In early 1995, Rotorex obtained the
highest level of certification, ISO 9001, for its quality management system
under the International Standards Organization. The ISO 9000 program is an
internationally recognized benchmark of quality management systems within a
production facility.
During 1995, Rotorex will complete several investments which are expected
to enhance manufacturing efficiencies. An automated compressor assembly system
is expected to increase capacity and improve quality and efficiency. New gauging
systems will automate gauging of parts prior to their assembly in the pump
component of the compressor. Plant wide air conditioning will provide better
temperature and humidity control which is beneficial in the manufacture of high
tolerance parts. It is expected that these investments
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which along with site preparation, will be approximately $10.3 million will be
substantially completed by October 1995.
MELCOR
Products
Melcor manufactures solid state heat pump modules that utilize the Peltier
effect to perform the same cooling and heating functions as freon-based
compressors and absorption refrigerators.
Melcor's modules are typically used in spaces with special requirements,
such as limited space, lightweight cooling requirements or a space existing
under special environmental conditions. They are also used for precise
temperature control by reversing the electric current to cycle from cooling to
heating.
Melcor's customers are original equipment manufacturers that primarily use
the modules for cooling purposes in applications such as portable beverage
coolers and refrigerators, laboratory, scientific, medical and restaurant
equipment and telecommunications and computer equipment.
Melcor's products are sold under the trademark FRIGICHIP.
Marketing
Melcor's modules are currently sold by salaried salespeople and a network
of sales representative firms located throughout the world. The representative
firms purchase products from Melcor and resell them to their own customers. The
sales representatives provide all technical support and engineering design
required by their customers.
Over the past two years, softness in the Japanese and European economies
has impacted Melcor's sales in those markets. Additionally, Melcor has begun to
experience increased competition in certain product markets it serves. This
increased competition is being addressed by an aggressive sales effort.
Melcor advertises its products in a variety of national and international
technical and trade publications, principally in the electronics and
electro-optical industries, and participates in international trade exhibitions.
Production
Melcor manufactures its modules in facilities near Lawrence Township, New
Jersey, comprising 53,000 square feet. The Company believes that the production
capacity available at Melcor's facilities is sufficient for its needs for the
foreseeable future.
Melcor designs and builds internally certain module producing equipment.
Melcor has a program in place to maintain, upgrade and replace equipment as
necessary and seeks to selectively automate its processes on an ongoing basis to
improve productivity.
SEASONALITY
Rotorex's results of operations and financial condition currently are
substantially dependent on its sales to the domestic room air conditioner
market, which is highly seasonal. In addition, Rotorex's working capital needs
are seasonal, with its greatest utilization of lines of credit early in the
calendar year. Melcor's sales are moderately seasonal. Demand for its products
is lowest in the third calendar quarter.
RAW MATERIALS AND PURCHASED COMPONENTS
The most important material purchased by Rotorex is steel. However, steel
is a relatively small part of the overall cost of a compressor and increases in
its cost have not had a material impact on Rotorex's cost of production. Rotorex
also purchases from other domestic and foreign manufacturers certain components,
the most important of which is motors. Melcor's primary purchases of materials
are the elements that comprise the metal ingots, ceramic plates, stampings and
plating.
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Neither Rotorex nor Melcor is dependent upon any one source for major
components of its manufactured products, except that General Electric Company
and Rotomatika are major suppliers of motors used by Rotorex in manufacturing
compressors.
COMPETITION
Rotorex competes against approximately eight domestic and foreign
companies, many of which are substantially larger and have greater resources
than Rotorex. Competition in the market for Rotorex compressors is generally on
the basis of price and quality. The Company believes that its pricing and
warranty policies are competitive with those of similar manufacturers. In the
markets in which Rotorex competes, it faces competition from large manufacturers
from the United States, Japan and Korea. The Company believes that its pricing,
design and quality allow it to be competitive in these markets. In addition, the
investments previously described are expected to allow Rotorex to remain
competitive while improving operating margins. Purchasers of rotary compressors
generally require high efficiency, low noise and long-term reliability. The
Company believes that Rotorex is generally competitive based on these criteria.
A new design engineering laboratory and the other investments previously
described herein will allow Rotorex to continually improve its compressors to
remain competitive.
Melcor competes against several other manufacturers of thermoelectric
modules and believes it is one of the world's leading producers of
thermoelectric heat pump modules, in terms of unit sales and revenues, and
maintains this position on the basis of the price and quality of its products.
The quality of thermoelectric heat pump modules is measured by, among other
things, the change in temperature which can be produced by the modules and the
long-term reliability of the modules, which do not contain any moving parts.
BACKLOG
Orders for the Company's products are entered into the production sequence
as they are received. Generally, there is only a short production time necessary
to satisfy customer orders. Based on the foregoing, the Company does not believe
that recorded order backlog is a significant factor in understanding or
evaluating its business.
RESEARCH AND DEVELOPMENT
Information with respect to amounts spent on research and development by
the Company is included in Note 1 of the Notes to Consolidated Financial
Statements at page 8 of the Company's 1994 Annual Report to Stockholders (the
"Annual Report"), which note is incorporated herein by reference. During the
past two years, the expenses for research and development have increased
significantly, primarily as a result of increased expenditures at Rotorex
necessary to staff and equip its design engineering group in a manner
appropriate to Rotorex's operations following the Company's acquisition of
Rotorex in September 1992. It is expected that these costs will continue to
increase but on a more moderate scale. At Melcor, there is also a strong
research and development effort and certain costs previously otherwise
classified were reclassified to research and development in 1994.
TRADEMARKS
Rotorex sells its compressors under the trademark ROTOREX. Melcor's modules
are sold under the trademark FRIGICHIPS. While the Company believes that these
trademarks are well known and enhance the marketing of Rotorex's and Melcor's
products, the Company does not consider that the successful conduct of either
operation is dependent upon such trademarks.
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. Sales of both Rotorex compressors and Melcor modules are
currently weighted toward the first half of the calendar year, and the Company's
working capital requirements are greatest during this period. Information with
respect to the Company's warranty and
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return policies is included in Note 1 of the Notes to Consolidated Financial
Statements at page 8 of the Annual Report, which note is incorporated herein by
reference.
ENVIRONMENTAL MATTERS
It is the Company's policy to take all practicable measures to minimize air
and water pollution resulting from its operations. Neither Rotorex nor Melcor
made capital expenditures on environmental protection related items during 1994
which were material to their total capital expenditures, earnings and
competitive position or anticipate making material capital expenditures on such
items in 1995.
EMPLOYEES
The Company has approximately 812 employees. The contract with the union
representing Rotorex employees expires in August 1997. The current agreement,
which was negotiated in 1994, created a new classification for employees who
work in operations in which high precision is a requirement and which are most
important from a quality standpoint. This and certain other work-rules changes,
are expected to be a factor in improving efficiency at the Rotorex facility.
Melcor's employees are non-union. The Company considers its relations with its
employees to be satisfactory.
ITEM 2. PROPERTIES
The Company's executive offices are located in facilities owned by the
Company in Basking Ridge, New Jersey. Rotorex and Melcor own or lease the
following facilities:
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APPROXIMATE
SQUARE FEET
LOCATION PRINCIPAL FUNCTION OF FLOOR AREA
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Frederick, Maryland manufacture of rotary 200,000
(owned by Rotorex) compressors
780 North Clinton Ave. manufacture of 15,000
Trenton, New Jersey components
(leased by Melcor)
990 Spruce Street manufacture of 15,000
Lawrence Twp, New Jersey components
(owned by Melcor)
1040 Spruce Street assembly of modules 22,400
Lawrence Twp, New Jersey and executive offices
(leased by Melcor)
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The Company believes that Rotorex's and Melcor's machinery, equipment and
facilities are in good operating condition. Certain of the investments at the
Rotorex facility described previously coupled with additional selected
investments and process changes are expected to increase Rotorex's capacity by
the fourth quarter of 1995, enabling Rotorex to support growing international
sales opportunities. Melcor has sufficient capacity to support sales growth for
the foreseeable future and continually seeks to selectively automate processes
at its facilities.
ITEM 3. LEGAL PROCEEDINGS
On June 28, 1989, Rotorex received notice that it was named as a
potentially responsible party in a proceeding pending before the United States
Environmental Protection Agency captioned In the Matter of Spectron, Inc. Site.
This proceeding involves a Superfund site in Elkton, Maryland which is currently
being remediated. Rotorex, without admitting liability, has agreed to
participate in the removal of materials from the site. Under this agreement,
Rotorex's share of the remediation costs at this site is 0.0023793, based upon
the relatively small quantity of material at the site attributable to Rotorex.
The estimate cost of removal of materials is $9 million. Therefore, the Company
does not anticipate that its liability in this matter will exceed $25,000. The
Company is currently on appeal in the United States Court of Appeals for the
Second Circuit from a judgment, in the amount of $1.2 million, exclusive of
interests and costs rendered against Rotorex in
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the United States District Court for the Northern District of New York in a case
captioned Delchi Carrier SpA v Rotorex Corporation. The appeal was filed in
October 1994 and seeks to overturn a judgment for lost profits and certain costs
arising out of a contract to supply compressors in 1988. For additional
information on legal proceedings, see Note 10 of the Notes to Consolidated
Financial Statements at Page 11 of the Annual Report, which note is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 1, 1995 with
respect to each person who is an executive officer of the Company. Officers are
elected annually for a term of one year and until their successors have been
elected and qualified.
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NAME AGE POSITION HELD
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Salvatore Giordano......................... 84 Chairman of the Board
Sal Giordano, Jr........................... 56 Vice Chairman and Chief Executive
Officer
Joseph Giordano............................ 62 President
Kent E. Hansen............................. 47 Vice President-Finance and General
Counsel, Chief Financial Officer;
Secretary
Edwin Diaz................................. 32 Controller
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Messrs. Salvatore Giordano and Sal Giordano, Jr. have held their present
positions since November 1986. Mr. Joseph Giordano has been President of the
Company since May 1990 and, prior thereto, Senior Vice President of the Company
from November 1986. Messrs. Salvatore Giordano and Sal Giordano, Jr. are
executive officers of Fedders and they and Mr. Joseph Giordano are directors and
stockholders of Fedders. Messrs. Sal Giordano, Jr. and Joseph Giordano are sons
of Mr. Salvatore Giordano.
Mr. Hansen has held his present position since August 1992. Previously, he
was Vice President and General Counsel of Fedders from October 1989 and, prior
thereto, Associate General Counsel of Fedders from September 1985.
Mr. Diaz was elected Controller of the Company in October 1994. Prior to
joining the Company, Mr. Diaz was Controller of Lancer Industries, Inc. from
October 1990 and Assistant Controller of The Alfieri Organization from May 1988.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Class A Stock trade on the Nasdaq Stock
Market. There is no established public trading market for the Company's Class B
Stock, as there are restrictions on its transfer. As of March 15, 1995, there
were 2,783 record holders of Common Stock, 2,785 record holders of Class A Stock
and 44 record holders of Class B Stock. For information with respect to the
Company's Common Stock, Class A Stock and Class B Stock, see Notes 4, 5 and 11
of the Notes to Consolidated Financial Statements at pages 10 and 12 of the
Annual Report, which notes are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See the table entitled "Selected Financial Data" at page 9 herein.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses factors which influenced the financial
position and operating results of NYCOR, Inc. (the "Company") during the periods
included in the accompanying consolidated financial statements. Results of
operations for 1994 and 1993 are not comparable to the 1992 results as the
Company did not have revenues from operations in the first nine months of 1992
and its earnings were from investments. The Company acquired Rotorex Company,
Inc. ("Rotorex") and Melcor Corporation ("Melcor") in September 1992.
Results of Operations. The Company's revenues increased by $16,011,000 to
$75,237,000 in 1994. The net growth in revenue was due to higher sales of rotary
compressors under Rotorex's ten year supply agreement with Fedders Corporation
resulting from increased demand for room air conditioners (see note 2).
Management believes the agreement with Fedders to provide rotary compressors at
negotiated market prices continues to provide a substantial base of sales from
which its presence in the international market can be expanded. Growth in
compressor sales was offset by lower sales of thermoelectric heating and cooling
modules caused by increased competition in certain of Melcor's markets. Melcor's
management team, which collectively has many years of experience in
thermoelectrics, is addressing this new marketplace reality. The Company had
revenues of $59,226,000 in 1993, its first full year of operations with Rotorex
and Melcor. Revenues in 1992 of $14,210,000 included interest and other income
of $9,586,000 and net sales of $4,624,000 for the last three months of the year
for the acquired companies.
The gross profit margin decreased in 1994 due to manufacturing
inefficiencies in the production of rotary compressors as a result of ramping up
to and sustaining a higher level of production than has been required at Rotorex
in more than five years. During 1995, Rotorex will complete investments in
automated parts gauging and compressor assembly systems, and improved plant wide
air conditioning which are expected to increase capacity and improve production
quality and efficiency. Gross margin was also impacted by severe winter weather,
which affected production at both subsidiaries, and by lower sales of
thermoelectric heating and cooling modules in 1994.
Selling, general and administrative expense of $9,460,000 in 1994
represents an increase over 1993, primarily due to an increase in a provision
for certain litigation resulting from a judgement rendered against the Company
for approximately $1,200,000, exclusive of interest and costs (see note 10).
Also contributing to this increase were $1,444,000 in research and development
costs (($745,000 in 1994) primarily attributable to staffing and equiping
Rotorex's design engineering group) to an annual level which management believes
is necessary and will be moderately increased in the future. Selling, general
and administrative expense of $3,384,000 in 1992 reflects the inclusion of the
acquired companies' administrative expense in the fourth quarter of 1992.
The 1994 earnings of $635,000 were influenced by the factors described
above. In 1993, the Company produced earnings of $4,244,000 in the first full
year of operations with Rotorex and Melcor. The Company's earnings for 1992 of
$5,240,000 were primarily from high yields on certain investments (see note 2)
and the gain on the sale of Zenith Electronics Corporation stock.
The Company adopted Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" as of January 1, 1993. The cumulative effect of
accounting change reflects the utilization of tax loss carryforwards in the
first quarter of 1993.
Liquidity and Capital Resources. The Company's working capital
requirements are currently heaviest in the first three months of the year as
operations reflect the seasonal demands of the air conditioner market. Accounts
receivable increased to $7,323,000 at December 31, 1994 from $4,946,000 a year
earlier, reflecting increased sales at Rotorex. Inventories decreased from
$12,979,000 to $10,745,000, primarily due to increased sales in the fourth
quarter of 1994.
The Company has a $3,000,000 working capital facility with a commercial
bank, which bears interest at the prime rate plus one percent. The facility
expires April 30, 1995. The line was last used in April 1994. In management's
opinion, the Company's cash flow form operations and financing arrangements are
adequate to meet its future requirements. At Rotorex, investment in plant
improvements during 1995 will be approximately $10,300,000 and will be financed
primarily by operating leases.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company at December 31, 1994
and 1993 and for each of the three years in the period ended December 31, 1994,
the notes thereto and the report of the Company's independent auditors thereon
are included at pages 10 through 22 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 Annual Meeting of Stockholders of the Company to be held on
April 28, 1995, which section is incorporated herein by reference. For
information with respect to the Company's executive officers, see Part I herein.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" in the Company's Proxy
Statement, filed in connection with the Annual Meeting of Stockholders of the
Company to be held on April 28, 1995, 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 Executive
Officers" and "Principal Stockholders" in the Company's Proxy Statement, filed
in connection with the Annual Meeting of Stockholders of the Company to be held
on April 28, 1995, 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 Annual Meeting of Stockholders of the
Company to be held on April 28, 1995, 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
The following Consolidated Financial Statements of the Company are
included at pages 10 through 22 herein:
Consolidated Balance Sheets at December 31, 1994 and 1993.
Consolidated Statements of Operations for the years ended December 31,
1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
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(a) 2. Financial Statement Schedules
Consolidated Schedules as of and for each of the years ended December
31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
FORM 10-K
PAGE
---------
<S> <C>
II. Valuation and Qualifying Accounts............................. S-1
</TABLE>
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.
SELECTED FINANCIAL DATA(A)
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales................................ $75,237 $59,226 $ 4,624 -- --
Interest and other income................ -- -- $ 9,586 $ 6,380 $ 5,984
Net income............................... $ 635 $ 4,244(b) $ 5,240 $ 4,065 $ 5,422(c)
Net income (loss) per share.............. $ (0.17) $ 0.30 $ 0.48 $ 0.30 $ 0.49
Cash dividends per share declared:
Preferred Stock........................ $ 2.98 $ 0.850 $ 1.275 $ 1.700 $ 1.700
Common Stock........................... -- -- 0.120 0.160 0.160
Class A Stock.......................... -- -- 0.120 0.160 --
Class B Stock.......................... -- -- 0.108 0.144 0.144
AT DECEMBER 31
Cash and cash equivalents................ $ 1,981 $ 1,336 $ 1,495 $12,214 $62,871
Total assets............................. 88,994 90,956 89,073 75,642 75,297
Long-term debt........................... 23 13 369 -- --
Stockholders equity...................... 78,746 81,565 76,524 74,056 73,971
</TABLE>
- ---------------
(a) The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes
thereto.
(b) In 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes,
which resulted in income of $627,000 or $0.09 per share from the cumulative
effect of an accounting change.
(c) Includes income from discontinued operations of $1,176,000 or $0.16 per
share.
9
<PAGE> 12
NYCOR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1993
------- -------
(AMOUNTS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,981 $ 1,336
Accounts receivable, net of allowance for doubtful accounts of $409 and
$336 in 1994 and 1993, respectively................................. 1,353 1,963
Accounts receivable from Fedders Corporation........................... 5,970 2,983
Inventories............................................................ 10,745 12,979
Other current assets................................................... 820 408
------- -------
Total current assets........................................... 20,869 19,669
Property, plant and equipment, net....................................... 23,854 25,532
Goodwill................................................................. 42,240 43,363
Other assets............................................................. 2,031 2,392
------- -------
Total assets................................................... $88,994 $90,956
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 4,364 $ 3,855
Accrued expenses....................................................... 5,164 4,418
Current portion of long-term debt...................................... 10 13
Other current liabilities.............................................. 71 55
------- -------
Total current liabilities...................................... 9,609 8,341
Long-term debt........................................................... 23 13
Non-current portion of warranty expense.................................. 616 1,037
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1 par value, 5,000,000 shares authorized, 1,150,000
issued and outstanding at December 31, 1994 and 1993 with a
liquidation preference of $23,000,000............................... 1,150 1,150
Common Stock, $1 par value, 115,000,000 shares authorized, 2,882,155
and 2,834,005 issued at December 31, 1994 and 1993, respectively.... 2,882 2,834
Class A Stock, $1 par value, 100,000,000 shares authorized, 4,229,971
and 4,154,885 issued at December 31, 1994 and 1993, respectively.... 4,230 4,155
Class B Stock, $1 par value, 7,500,000 shares authorized, 714,100 and
714,750 issued and outstanding at December 31, 1994 and 1993,
respectively........................................................ 714 715
Additional paid-in capital............................................. 37,779 37,091
Retained earnings from January 1, 1988................................. 33,144 36,412
Less-treasury stock, at cost:
82,561 and 77,900 shares of Common Stock and 178,596 and 79,382
shares of Class A Stock at December 31, 1994 and 1993,
respectively........................................................ (1,153) (792)
------- -------
Total stockholders' equity..................................... 78,746 81,565
Total liabilities and stockholders' equity..................... $88,994 $90,956
======= =======
</TABLE>
See accompanying notes
10
<PAGE> 13
NYCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
---- ---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Net sales................................................... $75,237 $59,226 $ 4,624
Interest and other income................................... -- -- 9,586
------- ------- -------
75,237 59,226 14,210
Cost of goods sold............................................ 64,921 46,554 5,437
Selling, general and administrative expense................... 9,460 8,293 3,384
------- ------- -------
Income before income taxes and cumulative effect of an
accounting change........................................... 856 4,379 5,389
Federal, foreign and state income taxes....................... 221 762 149
------- ------- -------
Income before cumulative effect of an accounting change....... 635 3,617 5,240
Cumulative effect of an accounting change..................... -- 627 --
------- ------- -------
Net income.................................................... 635 4,244 5,240
Preferred Stock dividend requirement.......................... (1,955) (1,955) (1,955)
------- ------- -------
Net income (loss) attributable to common stockholders......... $(1,320) $ 2,289 $ 3,285
======= ======= =======
Primary earnings (loss) per share:
Income (loss) before cumulative effect of an accounting
change................................................... $ (0.17) $ 0.21 $ 0.48
Cumulative effect of an accounting change................... -- 0.09 --
------- ------- -------
Net income (loss) per share................................... $ (0.17) $ 0.30 $ 0.48
======= ======= =======
</TABLE>
See accompanying notes
11
<PAGE> 14
NYCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operations:
Net Income................................................. $ 635 $ 4,244 $ 5,240
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation.......................................... 2,966 2,877 705
Amortization.......................................... 1,557 1,365 328
Gain on sale of Zenith Electronics common stock....... -- -- (3,156)
Changes in operating assets and liabilities:
Increase in accounts receivable....................... (2,377) (2,074) (1,479)
Decrease (increase) in inventories.................... 2,234 (2,963) 567
Decrease (increase) in other current assets........... (412) (243) 115
Increase in other assets.............................. (73) (47) (2,047)
Increase (decrease) in accounts payable............... 509 (780) 202
Increase (decrease) in accrued expenses and other
current liabilities................................ 341 (969) 507
------- ------- --------
Net cash provided by operations.................... 5,380 1,410 982
------- ------- --------
Cash flows from investing activities:
Purchase of Melcor Corporation............................. -- -- (14,875)
Investment in Fedders note................................. -- -- (10,000)
Sale of Zenith Electronics common stock.................... -- -- 15,335
Proceeds from sale of equipment............................ 439 -- 4,500
Additions to property, plant and equipment................. (1,707) (957) (430)
------- ------- --------
Net cash used in investing activities.............. (1,268) (957) (5,470)
------- ------- --------
Cash flows from financing activities:
Dividends paid............................................. (3,421) (978) (2,285)
Payments on capital lease.................................. (13) (67) (4,245)
Proceeds from stock options exercised...................... 228 120 --
Proceeds from sale of stock................................ -- 1,166 --
Acquisition of treasury stock.............................. (261) -- --
Increase (decrease) in short-term borrowing................ -- (400) 400
Repayment of long-term debt................................ -- (453) (101)
------- ------- --------
Net cash used in financing activities.............. (3,467) (612) (6,231)
------- ------- --------
Net increase (decrease) in cash and cash equivalents......... 645 (159) (10,719)
Cash and cash equivalents, beginning of year................. 1,336 1,495 12,214
------- ------- --------
Cash and cash equivalents, end of year....................... $ 1,981 $ 1,336 $ 1,495
======= ======= ========
Supplemental disclosure:
Interest paid.............................................. $ 20 $ 30 $ 51
Income taxes paid.......................................... $ 226 $ 300 $ 194
</TABLE>
See accompanying notes
12
<PAGE> 15
NYCOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON CLASS A CLASS B PAID-IN TREASURY RETAINED
STOCK STOCK STOCK STOCK CAPITAL STOCK EARNINGS
--------- ------ ------- ------- ---------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991...... $ 1,150 $2,807 $ 3,524 $ 716 $ 32,977 $ (792) $ 33,674
Net income........................ -- -- -- -- -- -- 5,240
Preferred Stock dividend.......... -- -- -- -- -- -- (1,955)
Common Stock dividend............. -- -- -- -- -- -- (328)
Class A Stock dividend............ -- -- -- -- -- -- (413)
Class B Stock dividend............ -- -- -- -- -- -- (77)
Conversion adjustment............. -- 2 -- (1) -- -- --
Reclassification of additional
paid-in capital................. -- -- -- -- 1,821 -- (1,821)
------ ------ ------ ---- ------- ------- -------
Balance at December 31, 1992...... $ 1,150 $2,809 $ 3,524 $ 715 $ 34,798 $ (792) $ 34,320
====== ====== ====== ==== ======= ======= =======
Net income........................ -- -- -- -- -- -- 4,244
Preferred Stock dividend.......... -- -- -- -- -- -- (489)
Reclassification of additional
paid-in capital................. -- -- -- -- 1,663 -- (1,663)
Limited stock offering............ -- -- 606 -- 560 -- --
Stock options exercised........... -- 25 25 -- 70 -- --
------ ------ ------ ---- ------- ------- -------
Balance at December 31, 1993...... $ 1,150 $2,834 $ 4,155 $ 715 $ 37,091 $ (792) $ 36,412
====== ====== ====== ==== ======= ======= =======
Net income........................ -- -- -- -- -- -- 635
Preferred Stock dividend.......... -- -- -- -- -- -- (3,421)
Conversion of stock............... -- 1 -- (1) -- -- --
Purchase of treasury stock........ -- -- -- -- -- (361) --
Stock issuance.................... -- -- 28 -- 72 -- --
Stock options exercised........... -- 47 47 -- 134 -- --
Reclassification of additional
paid-in capital................. -- -- -- -- 482 -- (482)
------ ------ ------ ---- ------- ------- -------
Balance at December 31, 1994...... $ 1,150 $2,882 $ 4,230 $ 714 $ 37,779 $ (1,153) $ 33,144
====== ====== ====== ==== ======= ======= =======
</TABLE>
See accompanying notes
13
<PAGE> 16
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: Until September 1992, NYCOR, Inc. (the
"Company"), had been solely engaged in a search for businesses to acquire. On
September 25, 1992, the Company acquired Melcor Corporation ("Melcor"), a
manufacturer of solid state thermoelectric heat pump modules, which are used for
special cooling and heating applications. On September 28, 1992, the Company
acquired Rotorex Company, Inc. ("Rotorex"), which manufactures compressors for
room air conditioners.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
NET SALES: Sales are recorded at the time of shipment net of provisions
for sales allowances, warranty and similar items.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents are stated at cost,
which is equal to market, and include highly liquid debt instruments with
maturities of less than 90 days.
WARRANTY AND RETURN POLICY: Rotorex's warranty policy provides two-year
coverage for compressors. The Company's products may only be returned with the
consent of the Company. The Company's policy is to accrue the estimated cost of
warranty coverage and returns at the time the sale is recorded.
INVENTORIES: Inventories are stated at the lower of the first-in,
first-out (FIFO) cost or market. The Company periodically reviews inventory 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 December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................... $ 897 $ 5,245
Work in process.................................................. 4,660 3,194
Raw materials and supplies....................................... 5,188 4,540
------- -------
$10,745 $12,979
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT: Replacements, betterments and additions to
property, plant and equipment are capitalized at cost. Expenditures for
maintenance and repairs are charged to expense as incurred. Upon sale or
retirement of property, plant and equipment, the cost and related accumulated
depreciation are removed from the respective accounts and any gain or loss is
reflected in income. Property, plant and equipment consist of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land and improvements............................................ $ 2,664 $ 2,664
Buildings and improvements....................................... 7,951 7,947
Machinery and equipment.......................................... 19,622 18,556
------- -------
Property, plant and equipment at cost............................ 30,237 29,167
Accumulated depreciation......................................... (6,383) (3,635)
------- -------
$23,854 $25,532
======= =======
</TABLE>
Depreciation is calculated using the straight-line method over the
estimated useful life of each asset which is 7 to 30 years for building and
improvements, and 3 to 20 years for machinery and equipment.
14
<PAGE> 17
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
GOODWILL AND OTHER ASSETS: Other assets consist primarily of intangible
assets which, other than goodwill, are amortized over periods from 5 to 37 years
using the straight-line method. Goodwill is amortized over 40 years using the
straight-line method and is net of accumulated amortization of $2,536,000 and
$1,413,000 at December 31, 1994 and 1993, respectively. Other assets are net of
accumulated amortization of $714,000 and $280,000 at December 31, 1994 and 1993,
respectively, and consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
License agreements................................................. $ 522 $ 674
Customer relationships............................................. 1,033 1,063
Other intangibles.................................................. 383 572
Other.............................................................. 93 83
------ ------
Total other assets............................................ $2,031 $2,392
====== ======
</TABLE>
The recoverability of goodwill is evaluated periodically based upon the
expected, undiscounted net cash flows from the related businesses.
LONG-TERM INVESTMENTS: During 1992, the Company sold 2.2 million shares of
Zenith Electronics Corporation for $15,335,000, recording a gain of $4,352,000,
less $1,196,000 in deferred costs associated with the Company's 1991 proxy
contest, for a net gain of $3,156,000.
ACCRUED EXPENSES: Accrued expenses consist of the following at December
31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits................................. $1,772 $1,634
Professional and consulting fees................................... 484 448
Income taxes payable............................................... 17 22
Current portion of warranty expense................................ 361 746
Litigation and contingencies....................................... 1,942 800
Other.............................................................. 588 768
------ ------
$5,164 $4,418
====== ======
</TABLE>
RESEARCH AND DEVELOPMENT COSTS: All research and development costs are
charged to expense as incurred and amount to $1,444,000 in 1994, $745,000 in
1993 and $132,000 in 1992.
AMOUNTS PER SHARE: Primary earnings per share are computed by dividing net
income, less Preferred Stock dividends, by the weighted average number of shares
of Common Stock, Class A Stock, Class B Stock and other common stock equivalents
outstanding during the year: 7,583,000, 7,544,000, and 6,890,000 in 1994, 1993
and 1992, respectively (notes 4 and 5).
Fully diluted earnings per share are computed by dividing net income by the
weighted average number of shares of Common Stock, Class A Stock, Class B Stock
and other common stock equivalents (assuming conversion of Preferred Stock)
outstanding during the year: 10,136,000, 10,097,000, and 9,443,000 in 1994, 1993
and 1992, respectively. In 1994, 1993 and 1992, fully diluted earnings per share
were anti-dilutive.
15
<PAGE> 18
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
2 -- TRANSACTIONS WITH FEDDERS
Certain officers and directors of the Company are also officers and
directors of Fedders Corporation ("Fedders") and have stockholdings in both
companies. The Company had significant transactions with Fedders, as follows:
On September 28, 1992, a $40,000,000 short-term note with Fedders, a
$20,000,000 long-term note with Emerson Quiet Kool, a subsidiary of
Fedders, and $1,226,000 in interest receivable were extinguished in
connection with the Company's acquisition of the assets of Rotorex. In
connection with these notes, the Company received $5,983,778 in interest in
1992.
Since being acquired Rotorex has supplied Fedders with rotary
compressors under a ten year supply agreement which requires Fedders to
purchase certain minimum quantities, up to 800,000 units, on an annual
basis. Sales to Fedders are at negotiated market prices and amount to
$60,381,000, $36,697,000 and $1,111,000 during 1994, 1993 and between the
date of acquisition and December 31, 1992, respectively.
3 -- INCOME TAXES
At December 31, 1994, the Company had tax operating loss carryforwards of
approximately $12,150,000, of which $10,912,000 expires in 1996 and the
remainder of which expires between 1997 and 2007. The Company also had
investment tax credit carryforwards of approximately $220,000 which expire in
the period from 1995 through 2000 and alternative minimum tax ("AMT") credit
carryforwards of approximately $1,373,000.
Deferred tax liabilities and assets, which reflect the net tax effects of
temporary differences between assets and liabilities for financial reporting and
income tax purposes, consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities -- tax over book amortization.......... $ 1,082 $ 540
------- -------
Total deferred tax liabilities................................ $ 1,082 $ 540
------- -------
Deferred tax assets:
Net operating loss carryforwards.............................. 4,131 4,700
AMT carryforwards............................................. 1,373 1,300
Book over tax depreciation.................................... 709 359
Warranty...................................................... 332 136
Other......................................................... 816 --
Valuation allowance for deferred tax assets..................... (6,279) (5,955)
------- -------
Total deferred tax assets..................................... 1,082 540
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
16
<PAGE> 19
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The reconciliation of the provision for income taxes, at the U.S. federal
statutory tax rates, to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $ 291 $1,531 $ 1,821
Goodwill amortization.................................... 87 87 132
Utilization of tax loss carryforwards.................... (362) (946) (1,953)
Alternative minimum tax.................................. 20 95 122
Refund of federal tax.................................... -- (91) --
Foreign tax.............................................. 155
State taxes, net of federal benefit...................... 30 86 27
----- ------ -------
$ 221 $ 762 $ 149
===== ====== =======
</TABLE>
The provision for income taxes for 1994 consists of current federal, state
and foreign taxes of $20,000, $46,000 and $155,000, respectively. The provision
for income taxes for 1993 consists of deferred federal taxes of $627,000 and
current state taxes of $135,000. Federal taxes of $122,000 and state taxes of
$27,000 in 1992, are all current.
The Company adopted Statement of Financial Accounting Standard No. 109
("FAS 109") "Accounting for Income Taxes" as of January 1, 1993. The adoption of
FAS 109 did not have a material effect on pretax income. however, the cumulative
effect of adopting FAS 109 was to increase net income by $627,000.
At December 31, 1987, the Company adopted Statement of Financial Accounting
Standard No. 96, ("FAS 96") "Accounting for Income Taxes," which allows the
recognition of the tax benefits of net operating loss carryforwards in the
statement of operations as a reduction of income tax expense. In September 1989,
the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
("SAB") No. 86. In the SEC staff's view, tax benefits of net operating loss
carryforwards must be reported as an addition to additional paid-in capital
rather than being recorded in the statement of operations.
Based on the circumstances that existed when the Company reclassified its
accumulated deficit to additional paid-in capital in 1988 and adopted FAS 96,
the SEC staff has indicated that they would not object to the Company's
continued reporting of the tax benefit of its net operating loss carryforwards
in the statement of operations. If SAB No. 86 had been applied, net income for
1994, 1993, and 1992 would have been reduced by $362,000, $946,000, and
$1,953,000, respectively. There would have been no effect on the balance sheet.
4 -- 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 to directors who are not
employees. Stock options are exercisable at a price no less than the market
value on the date of grant. Existing stock option plans permit the granting of
options to purchase up to 571,890 shares of common stock and up to 721,890
shares of Class A stock.
Stock options are exercisable one year after the date of grant and, if not
exercised, will expire five years from the original date of grant. Most of the
stock options are exercisable only when the Company meets a specified earnings
target or at the end of five years.
17
<PAGE> 20
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
EXERCISE
(IN THOUSANDS OF SHARES) # OPTIONS PRICE
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1991........................... 579 $2.94 to $3.31
Granted............................................................ 15
Cancelled.......................................................... 221
Exercised.......................................................... --
---
Options outstanding at December 31, 1992........................... 373 $2.31 to $2.50
Granted............................................................ 368
Cancelled.......................................................... 1
Exercised.......................................................... 50
---
Options outstanding at December 31, 1993........................... 690 $2.31 to $2.50
Exercised.......................................................... 95
---
Options outstanding at December 31, 1994........................... 595 $2.31 to $2.50
===
Options exercisable at December 31, 1994........................... 15
</TABLE>
5 -- CAPITAL STOCK
PREFERRED STOCK: The Preferred Stock is convertible into Common Stock and
Class A Stock at a rate of 1.11 shares of Common Stock and 1.11 shares of Class
A Stock for each share of Preferred Stock. Accordingly, at December 31, 1994,
1,276,500 shares of Common Stock and 1,276,500 shares of Class A Stock are
reserved for issuance upon conversion. The Preferred Stock is also exchangeable
in whole, but not in part, at the option of the Company for the Company's
unissued 8 1/2% Convertible Subordinated Debentures due 2012 at the rate of $20
principal amount of Debentures for each share of Preferred Stock. The
Debentures, if issued, will be convertible into Common Stock and Class A Stock
at the conversion rate applicable to the Preferred Stock. The holders of
Preferred Stock are entitled to receive upon liquidation $20 per share, plus
accumulated and unpaid dividends to the date of distribution, before any
distribution is made on the Common Stock, Class A Stock or Class B Stock. The
Preferred Stock has an annual, cumulative dividend rate of $1.70 per share and
has no voting rights.
COMMON STOCK: Shares of Common Stock are reserved for the conversion of
Preferred Stock, Class A Stock and Class B Stock. At December 31, 1994, 571,890
shares are also reserved for issuance in connection with options not yet granted
or exercised under the Company's stock option plans (note 4).
CLASS A STOCK: Class A Stock has rights, including dividend rights,
substantially identical to Common Stock, except that the Class A Stock is not
entitled to vote except to the extent provided under Delaware law. Class A Stock
will automatically be converted into Common Stock on a share-for-share basis
whenever all of the Class B Stock converts into Common Stock and, accordingly,
at December 31, 1994, 4,229,971 shares are reserved for such conversion.
Additionally, 721,890 shares are reserved for issuance in connection with
options not yet granted or exercised under the Company's stock option plans
(note 4). In January 1993, the Company offered to sell to three non-employee
directors and 32 key employees of the Company, shares of the Company's Class A
Stock at discounts ranging from 5% to 10%. Twenty-eight of these directors and
employees purchased 606,129 shares pursuant to the offer. The Company received
$1,166,000 during the first quarter of 1993 from the sale of the shares, which
it used for working capital requirements. The shares purchased were not
registered under the Securities Act of 1933, as amended, and were, therefore,
restricted stock in the hands of the purchasers. The Company registered these
shares in May 1993.
18
<PAGE> 21
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
CLASS B STOCK: Class B Stock is immediately convertible into Common Stock
on a share-for-share basis and accordingly, at December 31, 1994, 714,100 shares
of Common Stock are reserved for such conversion. Class B Stock has, in certain
circumstances, greater voting power in the election of directors (10 votes per
share) but receives a lower dividend (90%), if declared, than Common Stock and
Class A Stock, and has limited transferability.
6 -- SHORT-TERM BORROWING
The Company has a $3,000,000 revolving credit facility with a commercial
bank collateralized by all tangible and intangible assets, except for the
machinery and equipment of Rotorex, which expires April 30, 1995. The interest
rate on the credit facility is one percentage point above the bank s prime rate
(8.5% at December 31, 1994).
7 -- LONG TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligation............................................. $33 $26
Capital lease obligation, current portion............................ 10 13
--- ---
Long-term debt....................................................... $23 $13
=== ===
</TABLE>
Aggregate amounts of long-term debt maturing in each of the three years
after December 31, 1995 are: 1996 -- $8,000, 1997 -- $8,000, 1998 -- $5,000, and
1999 -- $2,000.
8 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under operating leases
which expire over the next seven 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 market value for a period of one
month to seven years. The Company has granted the lessor under the lease at
Rotorex a security interest in machinery and equipment owned by Rotorex. Minimum
payments for operating leases having initial or remaining non-cancelable terms
in excess of one year are as follows: $1,159,000 in 1995, $1,135,000 in 1996,
$962,000 in 1997, $911,000 in 1998 and $829,000 in 1999. Minimum lease payments
total $4,994,000. Total rent expenses for all operating leases amounted to
$1,208,000 in 1994, $819,000 in 1993 and $195,000 in 1992.
As of December 31, 1994, the Company has contracted to acquire
approximately $8,800,000 of production equipment and building improvements,
which the Company intends to finance primarily with operating leases.
The Company has an employment agreement with an officer. The agreement has
a term of ten years from any point in time and provides for salary during the
employment period, a disability program, postretirement benefits and a death
benefit in an amount equal to ten times the prior year's compensation, payable
by the Company over ten years. The estimated present value of future non-salary
benefits payable under the agreement has been determined based upon certain
assumptions and is being amortized over the expected remaining years of service
to the Company.
19
<PAGE> 22
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
9 -- ACQUISITIONS
On September 25, 1992, the Company acquired all of the outstanding shares
of Melcor. The shareholders of Melcor exchanged their shares for a cash payment
totaling $14,875,000. The acquisition was accounted for using the purchase
method, with the purchase price allocated to the assets acquired based on their
estimated fair market values. The excess of the purchase price over the fair
value of the tangible assets was allocated to goodwill and other intangible
items.
On September 28, 1992, the Company acquired the assets of Rotorex. The
purchase price for Rotorex was approximately $72,788,000, and was paid by the
assignment of two promissory notes due to the Company by Fedders and its
subsidiaries in the total principal amount of $60,000,000 plus interest
receivable of $1,226,000 and assumed liabilities of $11,562,000. The acquisition
was accounted for using the purchase method, with the purchase price allocated
to the assets acquired based on their estimated fair values at the date of
acquisition. The excess of the purchase price over the fair value of the
tangible assets was allocated to goodwill and other intangible items, including
license agreements.
The following unaudited pro forma combined results of operations for the
year ended December 31, 1992 account for the acquisitions as if they occurred on
January 1, 1992. Pro forma adjustments to the historical financial information
include adjustments to intangible amortization and adjustments to depreciation
to reflect purchase acquisition accounting. Adjustments were also made to
exclude interest expense on liabilities not assumed, interest income on
investments and to give effect to changes in financing arrangements resulting
from the acquisition. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would actually have
happened had the acquisitions been made as of such date, or of results which may
occur in the future.
PRO FORMA COMBINED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
-----------------
(UNAUDITED)
<S> <C>
Net sales.................................................... $57,187
Net income................................................... 4,221
Earnings per share........................................... $ 0.33
</TABLE>
10 -- LITIGATION
The Company is involved in litigation 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 materially adverse effect on the
financial statements. In 1994, a judgment for approximately $1,200,000,
exclusive of interest and costs, was rendered against the Company in a lawsuit
dating from 1987. The Company believes that the judgment should be overturned
and has filed an appeal.
20
<PAGE> 23
NYCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
11 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994 QUARTERS 1993 QUARTERS
--------------------------------------- -------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH*
--- --- --- --- --- --- --- ---
(IN THOUSANDS, EXCEPT PER SHARE AND MARKET PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $21,457 $23,083 $11,575 $19,122 $15,566 $22,393 $7,374 $13,893
Net income (loss) before effect
of accounting change.......... $ 1,227 $ 660 $(1,312) $ 60 $ 970 $ 2,496 $ (679) $ 830
Cumulative effect of accounting
change........................ -- -- -- -- 627 -- -- --
------- ------- ------- ------- ------- ------- ------ -------
Net income (loss)............... $ 1,227 $ 660 $(1,312) $ 60 $ 1,597 $ 2,496 $ (679) $ 830
======= ======= ======= ======= ======= ======= ====== =======
Primary net income (loss) per
share before effect of
accounting change............. $ 0.10 $ 0.02 $ (0.24) $ (0.05) $ 0.06 $ 0.26 $(0.15) $ 0.04
Cumulative effect of accounting
change........................ -- -- -- -- 0.09 -- -- --
------- ------- ------- ------- ------- ------- ------ -------
Primary net income (loss) per
share......................... $ 0.10 $ 0.02 $(0.24) $ (0.05) $ 0.15 $ 0.26 $(0.15) $ 0.04
======= ======= ======= ======= ======= ======= ====== =======
Market price per share:
Common: High................ 5 1/2 4 3/4 5 1/8 3 3 3 3/8 6 3/4 6 1/4
Low................. 3 7/8 3 1/2 2 3/4 2 1/8 2 1/8 2 1/2 3 3 3/4
Class A: High............... 4 3/4 4 1/2 5 2 7/8 2 13/16 3 3/8 5 3/8 4 3/4
Low.................. 3 1/4 3 1/8 2 1/2 2 2 1/8 2 1/2 2 7/8 3 1/4
Preferred: High............. 19 3/4 18 3/4 18 1/2 16 13 15 18 3/4 18 3/4
Low................. 17 1/4 17 15 1/4 13 1/4 9 3/4 12 1/4 14 1/2 17
Cash dividends declared:
Preferred Stock............... $ 0.850 $ 0.850 $ 0.850 $ 0.425 -- -- $0.425 $ 0.425
Common Stock.................. -- -- -- -- -- -- -- --
Class A Stock................. -- -- -- -- -- -- -- --
Class B Stock................. -- -- -- -- -- -- -- --
</TABLE>
- ---------------
* The 1993 4th Quarter results include a gain of approximately $400,000
associated with continued improvements from the Company's quality programs
21
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of NYCOR, Inc.
We have audited the accompanying consolidated balance sheets of NYCOR, Inc.
at December 31, 1994 and 1993 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NYCOR, Inc. at December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in note 3 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes to conform with
Statement of Accounting Standard No. 109.
ERNST & YOUNG
January 20, 1995
Princeton, New Jersey
22
<PAGE> 25
(A) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(3)(i) Certificate of Incorporation of NYCOR, Inc., included as Annex A to the
Information Statement forming a part of the Company's Registration Statement on
Form 10 and incorporated herein by reference.
(ii) Certificate of the Powers, Designation, Preference, Rights and Limitations of
$1.70 Convertible Exchangeable Preferred Stock of NYCOR, Inc., filed as Exhibit
(4) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1987 and incorporated herein by reference.
(iii) Certificate of Amendment of Certificate of Incorporation of NYCOR, Inc., filed as
Exhibit (3)(iii) to the Company's Annual Report on Form 10-K for 1992 and
incorporated herein by reference.
(iv) By-Laws of NYCOR, Inc., included as Annex B to the Information Statement forming a
part of the Company's Registration Statement on Form 10 and incorporated herein by
reference.
(10)(i) NYCOR, Inc. Stock Option Plan, included as Annex C to the Information Statement
forming a part of the Company's Registration Statement on Form 10 and incorporated
herein by reference.
(ii) NYCOR, Inc. Stock Option Plan I, filed as Exhibit (10)(ii) to the Company's Annual
Report on Form 10-K for 1987 and incorporated herein by reference.
(iii) NYCOR, Inc. Stock Option Plan II, filed as Exhibit (10)(iii) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein by reference.
(iv) NYCOR, Inc. Stock Option Plan III, filed as Exhibit (10)(iv) to the Company's
Annual Report on Form 10-K for 1989 and incorporated herein by reference.
(v) NYCOR, Inc. Stock Option Plan IV, filed as Exhibit (10)(v) to the Company's Annual
Report on Form 10-K for 1990 and incorporated herein by reference
(vi) Supply Agreement between Rotorex Company, Inc. and Fedders Nyorth America, Inc.
dated September 28, 1992, filed as Exhibit (10)(vi) to the Company's Annual Report
on Form 10-K for 1992 and incorporated herein by reference.
</TABLE>
23
