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Fedders Corporation

Fedders Corporation

Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, New Jersey 07938
U.S.A.
Telephone: (908) 604-8686
Toll Free: (800) 345-4494
Fax: (908) 604-0715
Web site:http://www.fedders.com

Public Company
Incorporated:
1913 as Fedders Manufacturing Co., Inc.
Employees: 3,420
Sales: $409.8 million (2000)
Stock Exchanges: New York Boston Philadelphia Midwest Pacific
Ticker Symbol: FJA FJC
NAIC: 334413 Semiconductors & Related Device Manufacturing; 333415 Air-conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment

Fedders Corporation is the largest U.S. manufacturer of room air conditioners, primarily for the residential market. Its sales and earnings in this business have fluctuated considerably, partly because of the unpredictability of North American summer weather and partly because of the cyclical nature of the recession-prone housing market. To increase its market base, Fedders has expanded into Asia and the Middle East, bringing its cooling products to millions in sweltering cities. Fedders has also employed an ambitious international strategic acquisition and joint venture program to reposition itself as a leader in a broad variety of air treatment businesses, including air cleaners, humidifiers, dehumidifiers, and thermal technology products, extending its reach beyond its traditional customers and markets.

Before Air Conditioners, 1890s-1940s

Fedders began as a metal working shop started by Theodore C. Fedders in 1896 in Buffalo, New York. At first it made milk cans and kerosene tanks for Standard Oil Co. and bread pans for National Biscuit Co. Shortly after the turn of the century Buffalo became the home of such automobile makers as Pierce-Arrow and the Thomas Five. Fedders converted his plant to making radiators for these models and, in time, other automobile makers as well. During World War I the company also made radiators for airplanes, and, in addition, it manufactured appliances for heating and electrical refrigeration. In 1924 Fedders had net income of $241,000 on sales of $3.2 million. It went public in December 1926, offering 50,000 nonvoting shares at $25 a share.

Fedderss stock was caught in the great 1929 Wall Street crash, sinking to $3 a share from a high that year of $50. The company lost money the following four years, with sales falling by half between 1931 and 1933, when they reached a low of $1.8 million. In 1934, however, sales nearly doubled, and Fedders became profitable again, as it was during the successive years of the decade. Westinghouse Electric Corp. began distributing the companys refrigerator coils and accessories in 1936. Three years later Fedders erected a $200,000 plant in Owosso, Michigan, to produce radiators closer to the auto factories. Net sales reached nearly $6 million in 1940, and net income was $270,000. That year the company had branch offices in seven cities.

Fedderss sales reached $9.1 million, with net income of $386,000, in 1941, but the subsequent halt to automobile manufacturing because of World War II cut deeply into the business, and the company sold the Owosso plant in 1942. Although Fedders received contracts to make links and clips for machine-gun belts and Garand-rifle bullets, in 1944 it earned only $15,498 on sales of $5.7 million. Before the company could retool for the postwar period, the Fedders family decided to sell a majority interest in the firm to Frank J. Quigan, Inc. This private company, the worlds leading manufacturer of handbag frames, was based in the New York City borough of Queens. Frank J. Quigan, chairman of the board, became board chairman of the renamed Fedders-Quigan Corp., and Salvatore Giordano, president of Quigan, became president of Fedders-Quigan. There was no formal merger of the two companies, however, until 1949.

Air-Conditioning Pioneer, 1940s-1960s

In 1947, Fedders-Quigan moved aggressively into the manufacture of newly introduced room air conditioners and two years later also began to market under its own name the electric water coolers it had been manufacturing for Cordley & Hayes since 1932. Besides Queens and Buffalo, it operated plants in Trenton and Newark, New Jersey. Sales shot up from $11.6 million in 1946 to $33.6 million in 1950, while profits rose from $905,000 to nearly $2 million in this period. The number of employees rose to about 3,000. In 1951, however, Quigan reportedly began speculating in the companys stock and wound up owing Giordano about $500,000. Quigan resigned from the company in order to vacate the court judgments for this amount that Giordano had secured. Giordano, who had joined Quigan as a $16-a-week floor boy in 1927, became chairman as well as president of Fedders-Quigan in 1952.

By the mid-1950s well over a million room air conditioners were being sold each year in the United States. In 1955 Fedders-Quigan sold 120,000 of these units under the Fedders name, far more than any other company, and also made air conditioners for the Whirlpool-Seeger Corp. and the Crosley division of Avco Manufacturing Corp. Almost 15,000 small stores were selling Fedders units in 1956. The company also was making heaters, radiators, and radiator cores for Chrysler Corporation automobiles and home radiators, convectors, and hot-water boilers. In 1956 it began making year-round central air conditioners for five- and six-room ranch-style houses. It also was turning out thousands of womens handbag frames a year, a business it maintained, Giordano said, out of sentiment. He held more than 10 percent of the companys common stock in 1956.

Giordano was a great believer in offering junkets to Fedders-Quigans dealers and distributors as an incentive to push the product. During the 1950s dealers who had bought 45 Fedders air conditioners were flown by the company for a weeklong all-expenses-paid vacation at a Florida beach resort, and those who doubled the number were entitled to take their wives along. A distributor with ten eligible dealers was entitled to come along himself. In the fall of 1953 more than 500 people made the trip to the Hollywood Beach Hotel. By 1960 some super sales representatives were earning enough points for two overseas trips a year. That fall a crowd of 4,000 spent a week at Grand Bahama Island, while nearly 1,000 vacationed in Paris, and the supersalesmen spent ten days in Israel.

Fedders-Quigan, which shortened its name to Fedders in 1958, peaked in sales at $70.7 million in fiscal 1957 (the year ended August 31, 1957), when it earned $3.6 million. After two relatively poor years it earned a record $4.5 million on net sales of $68.8 million in fiscal 1960. From 1955 to 1960 the national dollar volume in manufacturing and installing air-conditioning equipment rose by more than 50 percent, but Fedders had to share the market with a growing number of competitors: more than 50 in all. Increasingly Fedders began to focus its hopes on central residential systems. It also had organized a subsidiary, Fedders Financial Corp., to finance wholesale purchases of Fedders air-conditioning equipment.

Diversification and Expansion, 1960s-70s

By 1964 Fedders was stagnating, both its sales and profits having slipped from the 1960 levels. On the plus side, finances were sound, despite a long-term debt of $8.6 million, and dividends had been paid each year since 1945. However, management began casting around for additions to its existing products: air conditioners; automobile radiators, heater cores, and oil coolers (still principally for Chrysler); and heat-transfer equipment, including convectors, condensors, evaporators, and dehu-midifiers. (The manufacture of frames for womens handbags and pocketbooks was discontinued in 1966.)

A decision was made to diversify into home appliances in 1964, when Fedders signed a five-year contract with the Franklin Appliance division of Studebaker Industries. Under the agreement Studebaker would manufacture a full line of home appliances under the Fedders name, to be sold by Fedders network of 77 distributors and 15,000 dealers. Fedders introduced a 15-model line of its own manufactured home appliances in 1967. As a result, company sales increased from $62.3 million in fiscal 1966 to $88.9 million in fiscal 1967, and net income from $1.2 million to $4.6 million. In 1966 Fedders vacated its leased Newark plant, erecting a large facility for the manufacture of air conditioners at Edison, New Jersey, where it also established corporate headquarters.

Fedders expanded its home appliance operations by purchasing Borg-Warner Corporations Norge division in 1968 for about $45 million in cash, stock, and notes. Chicago-based Norge, which had sales of $114 million in 1967, was making a full line of laundry equipment such as washers and dryers, as well as air conditioners and kitchen ranges. Included in its operations were nearly 3,400 franchised Norge Village coin-operated, self-service laundry and dry-cleaning units, containing 20 to 50 machines each.

The expanded Fedders was an industry giant with 9,000 employees in fiscal 1970, when it had net sales of $295.8 million and net income of $15.6 million. It was still the largest producer of room air conditioners but saw greater growth potential for engineered central air-conditioning systems, not only in homes but also in industrial plants, hospitals, schools, and mass transportation systems. Fedders expanded its stake in this business sector by purchasing Climatrol Industries, Inc., a manufacturer of unitary central air-conditioning systems, in 1970 for $27.7 million worth of stock. During this period a share of Fedders stock rose from a low of $3 to as high as $50. To finance its expansion, however, Fedders had raised its long-term debt to $60 million by the end of fiscal 1970.

Company Perspectives:

We at Fedders Corporation are pledged to make our products and services the standard of excellence around the globe. Fedders will accomplish this objective by providing to our customers and fellow employees defect-free products and services, on time, every time, at competitive prices. We willfully understand the requirements of our customers and will strive to comply with them at all times. The result of our actions will be products and services which meet or exceed our customers standards for performance, delivery, reliability, and excellence.

Nine Consecutive Losses, 1970s-80s

After a record fiscal 1971, in which it earned nearly $17 million on income of $346.6 million, Fedders fell on hard times. Fiscal 1972 ended with lower earnings and profits due to a seven-and-a-half-month strike at the Edison plant. Business failed to reach the record 1971 level in fiscal 1973. The Arab oil embargo imposed in late 1973 touched off an energy crisis, resulting in sharply higher electricity costs, a national recession, and the collapse of the housing market. In fiscal 1974 Fedders lost $10.5 million and dropped its line of manufactured ranges and refrigerators. The company, in fiscal 1975 (the year ended October 31, 1975), lost nearly $12 million on disastrously low income of $170.2 millionless than half the 1971 total.

Fedders could take some consolation in the fact that it was not the only company in its industry suffering the downturn in market conditions, for between 1970 and 1975 national shipments of room air conditioners fell from nearly six million to fewer than three million. Accordingly, Fedders raised its commitment to central air-conditioning systems by purchasing the domestic assets of Chrysler Corporations unprofitable Airtemp division in 1976 for about $58.5 million in cash, notes, and stock. Airtemp was producing air-conditioning systems up to 1,100 tons, compared with Fedders top limit of 200 tons. Fedders ended the fiscal year with a profit of $249,000 on sales of $291.3 million, but it lost money on continuing operations.

Fedders downsized itself in early 1979 by selling the Norge division, which accounted for 22 percent of its fiscal 1978 sales, to Magic Chef Inc. The very modest purchase price of about $13.3 million in cash and notes indicated that Norge, which had only five percent of the laundry-machine market, was performing poorly. The Norge plant in Effingham, Illinois, was converted to the manufacture of room air conditioners. Fedders ended fiscal 1979 with a catastrophic loss of $36.5 million on income of $176.8 million and lost nearly $29 million more the following year on revenue of only $137.9 million. By the end of fiscal 1980 it had divested itself of the Fedders Refrigeration Co., which made freezers.

The severe recession of the early 1980s compounded Fedders woes. In 1982 it recorded its ninth consecutive loss (in terms of continuing operations) and, based on its long-term-debenture debt of $66.6 million, had a negative net worth of $42.8 million. In 1983 it put on the market its three central air-conditioning businesses, which had lost $37.8 million the previous fiscal year, and also placed on the block its 90-acre Edison office and manufacturing complex. There was no buyer for the businesses (which still had sales of $12.4 million in 1984), so their assets had to be sold off piecemeal with the Edison real estate. These properties fetched a total of $42.6 million during 1984 and 1985 and left Fedders with three businesses: room air conditioners under the Airtemp, Climatrol, and Fedders brands, made in Effingham; rotary compressors for powering air conditioners, manufactured in Frederick, Maryland; and replacement radiators, heaters, and additional components for the automotive aftermarket, still being made in Buffalo. Corporate headquarters were moved to Peapack, New Jersey.

Key Dates:

1896:
Fedders begins as metalworking shop in Buffalo, New York.
1924:
The company, primarily manufacturing automobile and airplane radiators, has a net income of $241,000 on sales of $3.2 million.
1926:
Fedders goes public.
1947:
Fedders begins manufacturing a new consumer product: the room air conditioner.
1949:
Fedders and the private company Frank J. Quigan, Inc. formally merge.
1960:
Net sales of the companys room air conditioners peak at $68.8 million.
1964:
Fedders looks to diversify, signing an agreement with Franklin Appliance to manufacture a full line of home appliances.
1968:
Fedders acquires Borg-Warner Corporations Norge division.
1970:
The company is the largest producer of room air conditioners, but expands into other markets with the acquisition of Climatrol Industries, Inc.
1976:
Fedders purchases Chrysler Corporations unprofitable Airtemp division.
1980:
The company ends its fiscal year with continued losses due to a shrinking domestic market for room air conditioners and a recession in the U.S. economy.
1985:
Fedders becomes profitable again, resuming the payment of dividends which it had suspended since 1974.
1987:
Fedders spins off its compressor and automotive-components division into a company named NYCOR, Inc.
1988:
Salvatore Giordano, Jr., succeeds his father as CEO of both Fedders and NYCOR.
1991:
Fedders acquires the Emerson Quiet Kool brand from The Jepson Corp.
1993:
The company begins exporting air conditioners to Asia and the Middle East.
1994:
Corporate headquarters move to Liberty Corner, New Jersey.
1998:
Fedders and Bosch-Siemens Havsgerate GmbH enter into a 50-50 joint venture to manufacture room air conditioners in Spain.
1999:
Trion, Inc., producer of humidification systems and Envirco HEPA filtration systems for cleanroom manufacturing, is acquired.
2000:
Fedders buys ABB Koppel, Inc., a leading air conditioner manufacturer in the Philippines, and Sun Manufacturing, Inc., manufacturer of specialized air-conditioning equipment used in the telecommunications industry.
2001:
Fedders begins a 10-year licensing agreement to produce room air-conditioning units under the Maytag name; acquires Polenz GmbH, a distributor of air treatment products in Germany.

Renewed Prosperity in the 1980s

Fedders became profitable again in 1983, when it earned (after discounting extraordinary credits) $1.4 million on drastically reduced income of $80.8 million. The next two years were even better, and in 1985 the company resumed paying dividends, which it had omitted since 1974. Its share of the domestic room air conditioner market almost doubled between 1984 and 1986, to 16 percent. Although Fedders also found a profitable market in many parts of the world that wanted air-conditioning, installing central systems with ducts in those markets was not easy.

In 1987 Fedders spun off the compressor and automotive-components divisions into a company named NYCOR, Inc. This company remained under Fedders management and was initially located at Fedderss corporate headquarters. In 1989 NYCOR sold its compressor subsidiary, Rotorex Corp., back to Fedders for about $45 million in cash and the assumption of $49.5 million in Rotorex debt. It sold the automotive-components business (FEDCO) in 1990 and became for a time a shell company with a pile of cash. Salvatore Giordano, Jr., succeeded his father as chief executive officer of both Fedders and NYCOR in 1988. His 78-year-old father remained chairman of the board.

By the end of the decade Fedders was once again riding high, finishing 1989 with a record $367.6 million in net sales and record net income of $23.7 million. Its share of the North American market for residential room air conditioners had grown from eight percent in 1982 to about 30 percent. To handle its increased business Fedders had acquired additional manufacturing facilities in Tennessee and Ontario, modernized its largest manufacturing plant (at Effingham), and established an international subsidiary. It was marketing its air conditioners under the Tempair name and private labels as well as under the Fedders, Airtemp, and Climatrol brands. The acquisition from General Electric Co. of a Columbia, Tennessee, facility in 1988 for $17.3 million made Fedders the only high-volume producer in the world of plastic-cabinet window air conditioners. Among North American manufacturers of room air conditioners, only Fedders was making its own rotary compressors, which were in short supply. The companys long-term debt had declined to $53.9 million.

Roller-Coaster Ride During the 1990s

However, as the 1990s dawned, Fedders was again headed downward. In fiscal 1990, which ended with a cool summer, it lost $15.6 millionthe first of four consecutive years of losseson net sales of only $241.4 million. Despite this poor year, in January 1991 the company acquired the Emerson Quiet Kool brand from The Jepson Corporation for $56 million in cash plus the assumption of certain liabilities. This left Fedders, according to columnist Dan Dorfman in April 1991, with no cash, a $170-million debt, and the imminent prospect of bankruptcyall at a time of huge unsold inventories of air conditioners.

The nadir of Fedders plight was fiscal 1992, when it lost $24.9 million on revenues of $192 million. During that year it sold Rotorex back to NYCOR for $72.8 million and closed the Emerson Quiet Kool plant in Woodbridge, New Jersey, plus another facility in Dover, New Jersey. The company lost another $1.8 million in fiscal 1993 on net sales of $158.6 million. The sale to NYCOR, however, helped Fedders reduce its long-term debt from $173 million to $25 million by May 1993, and it took aim at the international market to decrease its dependence on the vagaries of summer weather in North America.

Exports had made up only 7.6 percent of Fedderss sales in fiscal 1992 and were limited to the Americas. In 1993, however, the company focused on Southeast Asia, the sweltering Middle East, and the southern part of China, notorious for its Oven Cities. A Fedders Asia subsidiary was created in 1994, and the following year this unit entered into a $24-million, 60-40 percent Fedders Xinle joint venture with Chinas Ningbo Air Conditioner Factory to manufacture air conditioners at this facility. Initial production was 200,000 units a year, with Fedders hoping to increase the level to 500,000 by 1999. Much of the output was to be exported to such countries as Japan and India.

Domestic business also picked up, with three consecutive hot summers, at least in some areas, from 1993 through 1995. Sales were also helped by the companys ability to meet the just-in-time demands of such retailers as Wal-Mart, Best Buy, and Home Depot, who were increasingly vital to Fedders sales. Net sales shot up to $231.5 million in fiscal 1994 and $316.5 million in fiscal 1995, while net incomeaided by tax-loss carryovers from previous yearswas $21 million and $29.5 million, respectively. In 1995 Fedders paid its first cash dividend since 1991 and, at the end of the year, decided to reintegrate itself with NYCOR, which lost $7.8 million on sales of $32.9 million in 1995. The merger was accomplished in 1996. Fedders ended the fiscal year with record sales of $371.8 million and record net income of $31.2 million.

In 1995 Fedders was manufacturing room air conditioners, primarily for the residential market, in models ranging in capacity from 5,000 to 40,000 BTUs. These were made and marketed under the Fedders, Airtemp, and Emerson Quiet Kool brands and also under private labels. Its manufacturing facilities were in Effingham, Illinois, and Columbia, Tennessee. In 1994 Fedders moved its corporate headquarters to Liberty Corner, New Jersey. Fedders North America had its headquarters in Whitehouse, New Jersey, and a new subsidiary of Fedders International, Inc., Fedders Asia, Pte., moved into Singapore quarters.

Rotorex was manufacturing compressors and pump assemblies, chiefly for Fedders air conditioners, in Frederick, Maryland. Materials Electronic Products Corp. (Melcor), a business acquired by NYCOR in 1992 for $14.9 million, was manufacturing solid-state heat-pump modules performing the same cooling and heating functions as freon-based compressors and absorption refrigerators in Trenton, New Jersey, and near Lawrence Township, New Jersey. These products, sold under the trademark FRIGICHIP, were primarily being used in portable beverage coolers and refrigerators; laboratory, scientific, medical, and restaurant equipment; and telecommunications and computer equipment.

In 1995 the Giordano family owned about 15 percent of Fedders Class A (nonvoting) common stock and about 95 percent of Class B (nontradable but voting) common stock. The companys long-term debt was $14.4 million in early 1996.

An Expanding Global Presence During the Late 1990s

An abnormally cool summer in North America in 1996 was blamed for a sharp decline in U.S. sales of room air conditioners and larger than normal end-of-season inventories at the retail level. Consequently, Fedders experienced a downturn in revenues the following year. For its 1997 fiscal year ending August 31, the company posted net earnings of $18.8 million, down 39.8 percent from its 1996 fiscal year earnings of $31.2 million. To guard against further declines, the company implemented a business strategy to diversify revenues, income, and profits through an ambitious acquisition and restructuring effort.

In January 1998, Fedders shifted more of its air conditioner production to China and increased its practice of outsourcing components. At the same time it reorganized its corporate structure, closing three offices, laying off employees, and moving its North American sales, marketing, service, and administrative support functions to Effingham, Illinois. Additionally, the company looked at increasing its international presence. By 1998, the overseas market for room air conditioners was reported to be five times larger than U.S. unit demand (20 million units vs. 4 million units) and nearly 15 times the U.S dollar volume. More importantly, international markets presented better long-term growth potential.

While other companies struggled, Fedders actually benefited from the Asian economic crisis of 1997. The fallout from the crisis resulted in lowered prices for components Fedders purchased from Asian manufacturers in following years, helping the company to boost its bottom line. According to Fedders CEO Sal Giordano, Jr., the Asian situation had positive implications for Fedders for both the short and long term.

Strategic Acquisitions and Alliances for the New Millennium

At the close of the 1990s, Fedders continued pursing strategic acquisitions and alliances to support growth in new and existing markets. In August 1999, Fedders transferred production of pumps for compressors from the United States to Taiwan and China, enabling the company to reduce operating costs at its automated compressor assembly operation in Maryland. Next, Trion, Inc. was acquired in November 1999. Trions electronic air cleaners, industrial and residential humidification systems, and Envirco HEPA filtration systems for cleanroom manufacturing substantially expanded Fedders presence in the air treatment industry. In January 2000 Fedders bought ABB Koppel, Inc., a leading air conditioner manufacturer in the Philippines (renamed Fedders Koppel, Inc.). The company quickly followed up that acquisition with its purchase of Sun Manufacturing, Inc., a leading manufacturer of specialized air-conditioning equipment used in the telecommunications industry. In November 2000, Fedders subsidiary, Melcor Corporation, acquired Eubank Manufacturing, Inc. of Longview, Texas, maker of cooling systems used to control the environment in cellular tower transmission equipment rooms. Eubank is a strategic acquisition that strengthens our push into the telecom equipment cooling market, reported Fedders CEO, Sal Giordano, Jr. The companys strategy to diversify revenues seemed to be paying off. Fedders sales for 2000 hit a record high of $409.8 million, while earnings before interest, taxes, depreciation, and amortization soared to $58.8 million.

But even a company with sizzling sales figures must continue to plan for the future. Looking at strengthening its leadership position in the North American room air-conditioning market, Fedders entered into a ten-year licensing agreement with the Maytag Corporation. In 2001, Fedders held the exclusive rights to produce air conditioners under the Maytag brand to be sold to consumers in the United States, Canada, and Mexico. Both Fedders and Maytag worked together to aggressively promote the new line, with the joint goal of obtaining significant market share within the first five years. In addition to the Maytag name, Fedders consumer products such as air conditioners, humidifiers, dehumidifiers, and electronic air purifiers, are marketed globally under the Emerson Quiet Kool, Airtemp, Trion, Koppel, and Herrmidifier brands, as well as under private labels.

In March 2001, the company acquired Polenz GmbH, a distributor of air treatment products in Germany, and announced plans to construct a research and development facility and a production plant in China, further expanding its international presence. A restructuring plan announced in April 2001 organized the company into four principal operating units: Fedders Unitary Products, Fedders Appliances, Fedders Engineered Products, and Fedders International. That same year, joint ventures were announced with Quanzhou Hua Yu in China to manufacture thermoelectric modules, which are used to precisely control temperatures in applications such as fiber-optic communications and biotechnology, and with Voltas in India to produce room air conditioners.

Principal Operating Units

Fedders Unitary Products; Fedders Appliances; Fedders Engineered Products; Fedders International (Singapore).

Principal Subsidiaries

Sun Air Conditioning; Eubank Manufacturing Enterprises; Melcor Corporation; Envirco; Fedders North America; Trion, Inc.; Herrmidifier; Fedders Koppel (Phillipines); Polenz GmbH (Germany); Trion Ltd. (U.K.)

Principal Competitors

Matsushita; Toshiba; Whirlpool.

Further Reading

Abelson, Reed, Companies to Watch, Fortune, September 11, 1989, p. 152.

Alexander, Louis, Airlifts for Private Industry, Flying, January1961, pp. 44, 70.

Beatty, Gerry, Fedders-Maytag Room Air Tie-In: Will Consumers Buy the Value? HFN: The Weekly Newspaper for the Home Furnishing Network, June 5, 2000, p. 53.

Chrysler Sells Airtemp Assets to Fedders Corp., Wall Street Journal, February 24, 1976, p. 3.

Cuff, Daniel F., Fedders Chief Finds Use for Spinoffs Nest Egg, New York Times, November 5, 1990, p. D4.

Doherty, Ed, Welcome to a Long, Hot Summer, Financial World, August 31, 1983, pp. 28-29.

Dorfman, Dan, Fedders Getting Cool Reception, USA Today, April 12, 1991, p. B3.

Fedders, Wall Street Transcript, August 12, 1968, pp. 14029-30.

Fedders Acquires Borg-Warners Norge Division, Wall Street Journal, July 3, 1968, p. 2.

Fedders Corp., Wall Street Transcript, August 19, 1968, p. 14162.

, Wall Street Transcript, December 28, 1987, p. 87845.

Fedders Corporation, Wall Street Transcript, December 4, 1989, p. 95582.

, Wall Street Transcript, March 12, 1990, p. 96605.

Fedders Enjoys a Brisk Rebound from Strike-Dampened Showing, Barrons, July 20, 1964, p. 18.

Fedders-Quigan Gets a Break, Business Week, December 8, 1951, pp. 114-16.

Kimelman, John, Company Watch, Financial World, November 22, 1994, p. 18.

Lazo, Shirley A., Payouts Heat Up at Fedders, Barrons, July 3, 1995, p. 38.

Magic Chef Buys Unit of Fedders for $13.3 Million, Wall Street Journal, February 13, 1979, p. 17.

Management Brief: Keeping Cool in China, Economist, April 6, 1996, pp. 73-74.

OBrian, Bridget, Fedders Insiders Selling Shares This Summer, Wall Street Journal, August 9, 1995, pp. C1, C13.

Pine, Michael C., Fedders: Straw Hats in Summer? Financial World, August 12, 1996, p. 20.

Savona, Dave, Global Go-Getters, International Business, May 1993, p. 22.

Sullivan, Barbara, Torrid Weather Warmly Received in Effingham, Chicago Tribune, July 24, 1995, pp. 1, 3.

We Got Razzle-Dazzle, Forbes, November 1, 1973, p. 45.

Why Everybody Likes a Prize Trip, Business Week, November 21, 1953, pp. 56-57.

Zipser, Alfred R., Air Conditioners in Heavy Demand, New York Times, June 3, 1956, pp. 1, 9.

Robert Halasz

update: Suzanne L. Rowe

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Fedders Corp.

Fedders Corp.

505 Martinsville Road
P.O. Box 813
Liberty Corner, New Jersey 07938
U.S.A.
(908) 604-8686
Fax: (908) 604-9715

Public Company
Incorporated:
1913 as Fedders Manufacturing Co., Inc.
Employees: 3,420
Sales: $371.8 million (1996)
Stock Exchanges: New York Boston Philadelphia Midwest Pacific
SICs: 3674 Semiconductors & Related Devices; 3585 Air Conditioning & Warm Air Heating Equipment & Commercial & Industrial Refrigeration Equipment

Fedders Corp. is the largest U.S. manufacturer of room air conditioners, primarily for the residential market. Its sales and earnings in this business have fluctuated considerably, partly because of the unpredictability of North American summer weather and partly because of the cyclical nature of the recession-prone housing market. The companys entry into related businesses in the 1960s was not successful. In the mid-1990s Fedders was basing its hopes for expanded sales on the potential market for air conditioners in Asian countries with reliably steamy summer weather. The company, in 1996, was also manufacturing rotary compressors, principally for room air conditioners, and thermoelectric heating and cooling modules used in a variety of applications.

Before Air Conditioners, 18961945

Fedders began as a metalworking shop started by Theodore C. Fedders in 1896 in Buffalo, New York. At first it made milk cans and kerosene tanks for Standard Oil Co. and bread pans for National Biscuit Co. Shortly after the turn of the century Buffalo became the home of such automobile makers as Pierce-Arrow and the Thomas Five. Fedders converted his plant to making radiators for these models and, in time, other automobile makers as well. During World War I the company also made radiators for airplanes, and in addition it manufactured appliances for heating and electrical refrigeration. In 1924 Fedders had net income of $241,000 on sales of $3.2 million. It went public in December 1926, offering 50,000 nonvoting shares at $25 a share.

Fedderss stock was caught in the great 1929 Wall Street crash, sinking to $3 a share from a high that year of $50. The company lost money the following four years, with sales falling by half between 1931 and 1933, when they reached a low of $1.8 million. In 1934, however, sales nearly doubled, and Fedders became profitable again, as it was during the successive years of the decade. Westinghouse Electric Corp. began distributing the companys refrigerator coils and accessories in 1936. Three years later Fedders erected a $200,000 plant in Owosso, Michigan, to produce radiators closer to the auto factories. Net sales reached nearly $6 million in 1940, and net income was $270,000. That year the company had branch offices in seven cities.

Fedderss sales reached $9.1 million, with net income of $386,000, in 1941, but the subsequent halt to automobile manufacturing because of World War II cut deeply into the business, and the company sold the Owosso plant in 1942. Although Fedders received contracts to make links and clips for machine-gun belts and Garand-rifle bullets, in 1944 it earned only $15,498 on sales of $5.7 million. Before the company could retool for the postwar period the Fedders family decided to sell a majority interest in the firm to Frank J. Quigan, Inc. This private company, the worlds leading manufacturer of handbag frames, was based in the New York City borough of Queens. Frank J. Quigan, chairman of the board, became board chairman of the renamed Fedders-Quigan Corp., and Salvatore Giordano, president of Quigan, became president of Fedders-Quigan. There was no formal merger of the two companies, however, until 1949.

Air Conditioning Pioneer, 194760

Fedders-Quigan, in 1947, moved aggressively into the manufacture of newly introduced room air conditioners and two years later also began to market under its own name the electric water coolers it had been manufacturing for Cordley & Hayes since 1932. Besides Queens and Buffalo, it operated plants in Trenton and Newark, New Jersey. Sales shot up from $11.6 in 1946 to $33.6 million in 1950, while profits rose from $905,000 to nearly $2 million in this period. The number of employees rose to about 3,000. In 1951, however, Quigan reportedly began speculating in the companys stock and wound up owing Giordano about $500,000. Quigan resigned from the company in order to vacate the court judgments for this amount that Giordano had secured. Giordano, who had joined Quigan as a $16-a-week floor boy in 1927, became chairman as well as president of Fedders-Quigan in 1952.

By the mid-1950s well over a million room air conditioners were being sold each year in the United States. In 1955 Fedders-Quigan sold 120,000 of these units under the Fedders name, far more than any other company, and also made air conditioners for the Whirlpool-Seeger Corp. and the Crosley division of Avco Manufacturing Corp. Almost 15,000 small stores were selling Fedders units in 1956. The company also was making heaters, radiators, and radiator cores for Chrysler Corp. automobiles and home radiators, convectors, and hot-water boilers. In 1956 it began making year-round central air conditioners for five- and six-room ranch-style houses. It also was turning out thousands of womens handbag frames a year, a business it maintained, Giordano said, out of sentiment. He held more than 10 percent of the companys common stock in 1956.

Giordano was a great believer in offering junkets to Fedders-Quigans dealers and distributors as an incentive to push the product. During the 1950s dealers who had bought 45 Fedders air conditioners were flown by the company for a week-long all-expenses-paid vacation at a Florida beach resort, and those who doubled the number were entitled to take their wives along. A distributor with 10 eligible dealers was entitled to come along himself. In the fall of 1953 more than 500 people made the trip to the Hollywood Beach Hotel. By 1960 some super sales representatives were earning enough points for two overseas trips a year. That fall a crowd of 4,000 spent a week at Grand Bahama Island, while nearly 1,000 vacationed in Paris and the supersalesmen spent 10 days in Israel.

Fedders-Quigan, which shortened its name to Fedders in 1958, peaked in sales at $70.7 million in fiscal 1957 (the year ended August 31, 1957), when it earned $3.6 million. After two relatively poor years it earned a record $4.5 million on net sales of $68.8 million in fiscal 1960. From 1955 to 1960 the national dollar volume in manufacturing and installing air-conditioning equipment rose by more than 50 percent, but Fedders had to share the market with a growing number of competitors: more than 50 in all. Increasingly it began to focus its hopes on central residential systems. It also had organized a subsidiary, Fedders Financial Corp., to finance wholesale purchases of Fedders air-conditioning equipment,

Diversification and Expansion, 196470

By 1964 Fedders was stagnating, both its sales and profits having slipped from the 1960 levels. On the plus side, finances were sound, despite a long-term debt of $8.6 million, and dividends had been paid each year since 1945. However, management began casting around for additions to its existing products: air conditioners; automobile radiators, heater cores, and oil coolers (still principally for Chrysler); and heat-transfer equipment, including convectors, condensors, evaporators, and dehumidifiers. (The manufacture of frames for womens handbags and pocketbooks was discontinued in 1966.)

A decision was made to diversify into home appliances in 1964, when Fedders signed a five-year contract with the Franklin Appliance division of Studebaker Industries. Under the agreement Studebaker would manufacture a full line of home appliances under the Fedders name, to be sold by Fedderss network of 77 distributors and 15,000 dealers. Fedders introduced a 15-model line of its own manufactured home appliances in 1967. As a result company sales increased from $62.3 million in fiscal 1966 to $88.9 million in fiscal 1967, and net income from $1.2 million to $4.6 million. In 1966 Fedders vacated its leased Newark plant, erecting a large facility for the manufacture of air conditioners at Edison, New Jersey, where it also established corporate headquarters.

Fedders expanded its home-appliance operations by purchasing Borg-Warner Corp.s Norge division in 1968 for about $45 million in cash, stock, and notes. Chicago-based Norge, which had sales of $114 million in 1967, was making a full line of laundry equipment such as washers and dryers as well as air conditioners and kitchen ranges. Included in its operations were nearly 3,400 franchised Norge Village coin-operated, selfservice laundry and dry-cleaning units, containing 20 to 50 machines each.

The expanded Fedders was an industry giant with 9,000 employees in fiscal 1970, when it had net sales of $295.8 million and net income of $15.6 million. It was still the largest producer of room air conditioners but saw greater growth potential for engineered central air-conditioning systems, not only in homes but also in industrial plants, hospitals, schools, and mass-transportation systems. Fedders expanded its stake in this business sector by purchasing Climatrol Industries, Inc., a manufacturer of unitary central air-conditioning systems, in 1970 for $27.7 million worth of stock. During this period a share of Fedders stock rose from a low of $3 to as high as $50. To finance its expansion, however, Fedders had raised its long-term debt to $60 million by the end of fiscal 1970.

Company Perspectives:

We at Fedders Corporation are pledged to make our products and services the standard of excellence around the globe. Fedders will accomplish this objective by providing to our customers and fellow employees defect-free products and services, on time, every time, at competitive prices. We will fully understand the requirements of our customers and will strive to comply with them at all times. The result of our actions will be products and services which meet or exceed our customers standards for performance, delivery, reliability, and excellence.

Nine Consecutive Losses, 197482

After a record fiscal 1971, in which it earned nearly $17 million on income of $346.6 million, Fedders fell on hard times. Fiscal 1972 ended with lower earnings and profits due to a seven-and-a-half-month strike at the Edison plant. Business failed to reach the record 1971 level in fiscal 1973. The Arab oil embargo imposed in late 1973 touched off an energy crisis, with consequent sharply higher electricity costs, a national recession, and the collapse of the housing market. In fiscal 1974 Fedders lost $10.5 million and dropped its line of manufactured ranges and refrigerators. The company, in fiscal 1975 (the year ended October 31, 1975), lost nearly $12 million on disastrously low income of $170.2 millionless than half the 1971 total.

Fedders could take some consolation in the fact that it was not the only company in its industry suffering the downturn in market conditions, for between 1970 and 1975 national shipments of room air conditioners fell from nearly six million to fewer than three million. Accordingly, it raised its commitment to central air-conditioning systems by purchasing the domestic assets of Chrysler Corp.s unprofitable Airtemp division in 1976 for about $58.5 million in cash, notes, and stock. Airtemp was producing air-conditioning systems up to 1,100 tons, compared to Fedderss top limit of 200 tons. Fedders ended the fiscal year with a profit of $249,000 on sales of $291.3 million, but it lost money on continuing operations.

Fedders downsized itself in early 1979 by selling the Norge division, which accounted for 22 percent of its fiscal 1978 sales, to Magic Chef Inc. The very modest purchase price of about $13.3 million in cash and notes indicated that Norge, which had only five percent of the laundry-machine market, was performing poorly. The Norge plant in Effingham, Illinois, was converted to the manufacture of room air conditioners. Fedders ended fiscal 1979 with a catastrophic loss of $36.5 million on income of $176.8 million and lost nearly $29 million more the following year on revenue of only $137.9 million. By the end of fiscal 1980 it had divested itself of the Fedders Refrigeration Co., which made freezers.

The severe recession of the early 1980s compounded Fedderss woes. In 1982 it recorded its ninth consecutive loss (in terms of continuing operations) and, based on its long-term-debenture debt of $66.6 million, had a negative net worth of $42.8 million. In 1983 it put on the market its three central-air-conditioning businesses, which had lost $37.8 million the previous fiscal year, and also placed on the block its 90-acre Edison office and manufacturing complex. There was no buyer for the businesses (which still had sales of $12.4 million in 1984), so their assets had to be sold off piecemeal with the Edison real estate. These properties fetched a total of $42.6 million during 1984 and 1985 and left Fedders with three businesses: room air conditioners under the Airtemp, Climatrol, and Fedders brands, made in Effingham; rotary compressors for powering air conditioners, manufactured in Frederick, Maryland; and replacement radiators, heaters, and additional components for the automotive aftermarket, still being made in Buffalo. Corporate headquarters were moved to Peapack, New Jersey.

Renewed Prosperity in the 1980s

Fedders became profitable again in 1983, when it earned (after discounting extraordinary credits) $1.4 million on drastically reduced income of $80.8 million. The next two years were even better, and in 1985 the company resumed paying dividends, which it had omitted since 1974. Its share of the domestic room air-conditioner market almost doubled between 1984 and 1986, to 16 percent. Fedders also found a profitable market in many parts of the world that wanted air conditioning but where installing central systems with ducts was not easy.

In 1987 Fedders spun off the compressor and automotive components divisions into a company named NYCOR, Inc. This company remained under Fedders management and was initially located at Fedderss corporate headquarters. In 1989 NYCOR sold its compressor subsidiary, Rotorex Corp., back to Fedders for about $45 million in cash and the assumption of $49.5 million in Rotorex debt. It sold the automotive-components business (FEDCO) in 1990 and became for a time a shell company with a pile of cash. Salvatore Giordano, Jr. succeeded his father as chief executive officer of both Fedders and NYCOR in 1988. His 78-year-old father remained chairman of the board, and was still chairman in 1996.

By the end of the decade Fedders was once again riding high, finishing 1989 with a record $367.6 million in net sales and record net income of $23.7 million. Its share of the North American market for residential room air conditioners had grown from eight percent in 1982 to about 30 percent. To handle its increased business Fedders had acquired additional manufacturing facilities in Tennessee and Ontario, modernized its largest manufacturing plant (at Effingham), and established an international subsidiary. It was marketing its air conditioners under the Tempair name and private labels as well as under the Fedders, Airtemp, and Climatrol brands. The acquisition from General Electric Co. of a Columbia, Tennessee, facility in 1988 for $17.3 million made Fedders the only high-volume producer in the world of plastic-cabinet window air conditioners. Among North American manufacturers of room air conditioners, only Fedders was making its own rotary compressors, which were in short supply. The companys long-term debt had declined to $53.9 million.

Roller-Coaster Ride, 199096

However, as the 1990s dawned, Fedders was again headed downward. In fiscal 1990, which ended with a cool summer, it lost $15.6 millionthe first of four consecutive years of losseson net sales of only $241.4 million. Despite this poor year the company, in January 1991, acquired the Emerson Quiet Kool brand from The Jepson Corp. for $56 million in cash plus the assumption of certain liabilities. This left Fedders, according to columnist Dan Dorfman in April 1991, with no cash, a $170-million debt, and the imminent prospect of bankruptcyall at a time of huge unsold inventories of air conditioners.

The nadir of Fedderss plight was fiscal 1992, when it lost $24.9 million on revenues of $192 million. During that year it sold Rotorex back to NYCOR for $72.8 million and closed the Emerson Quiet Kool plant in Woodbridge, New Jersey, plus another facility in Dover, New Jersey. The company lost another $1.8 million in fiscal 1993 on net sales of $158.6 million. The sale to NYCOR, however, helped Fedders reduce its long term debt from $173 million to $25 million by May 1993, and it took aim at the international market to decrease its dependence on the vagaries of summer weather in North America.

Exports had made up only 7.6 percent of Fedderss sales in fiscal 1992 and were limited to the Americas. In 1993, however, the company focused on Southeast Asia, the sweltering Middle East, and the southern part of China, notorious for its Oven Cities. A Fedders Asia subsidiary was created in 1994, and the following year this unit entered into a $24-million, 60-40 percent Fedders Xinle joint venture with Chinas Ningbo Air Conditioner Factory to manufacture air conditioners at this facility. Initial production was 200,000 units a year, with Fedders hoping to increase the level to 500,000 by 1999. Much of the output was slated to be exported to such countries as Japan and India.

Domestic business also picked up, with three consecutive hot summers, at least in some areas, from 1993 through 1995. Sales were also helped by the companys ability to meet the just-in-time demands of such retailers as Wal-Mart, Best Buy, and Home Depot who were increasingly vital to Fedderss sales. Net sales shot up to $231.5 million in fiscal 1994 and $316.5 million in fiscal 1995, while net incomeaided by tax-loss carryovers from previous yearswas $21 million and $29.5 million, respectively. In 1995 Fedders paid its first cash dividend since 1991 and, at the end of the year, decided to reintegrate itself with NYCOR, which lost $7.8 million on sales of $32.9 million in 1995. The merger was accomplished in 1996. Fedders ended the fiscal year with record sales of $371.8 million and record net income of $31.2 million.

In 1995 Fedders was manufacturing room air conditioners, primarily for the residential market, in models ranging in capacity from 5,000 to 40,000 BTUs. These were made and marketed under the Fedders, Airtemp, and Emerson Quiet Kool brands and also under private labels. Its manufacturing facilities were in Effingham, Illinois, and Columbia, Tennessee. In 1994 Fedders moved its corporate headquarters to Liberty Corner, New Jersey. Fedders North America had its headquarters in Whitehouse, New Jersey, and a new subsidiary of Fedders International, Inc., Fedders Asia, Pte., moved into Singapore quarters.

Rotorex was manufacturing compressors and pump assemblies, chiefly for Fedderss air conditioners, in Frederick, Maryland. Materials Electronic Products Corp. (Melcor), a business acquired by NYCOR in 1992 for $14.9 million, was manufacturing solid-state heat-pump modules performing the same cooling and heating functions as freon-based compressors and absorption refrigerators in Trenton, New Jersey, and near Lawrence Township, New Jersey. These products, sold under the trademark FRIGICHIP, were primarily being used in portable beverage coolers and refrigerators; laboratory, scientific, medical, and restaurant equipment; and telecommunications and computer equipment.

In 1995 the Giordano family owned about 15 percent of Fedderss Class A (nonvoting) common stock and about 95 percent of Class B (nontradable but voting) common stock. The companys long-term debt was $14.4 million in early 1996.

Principal Subsidiaries

Fedders Exporting, Inc. (Barbados); Fedders International, Inc.; Fedders Investment Corp.; Fedders North America, Inc.; NYCOR North America, Inc.

Principal Operating Units

Fedders Asia Pte. Ltd. (Singapore); Emerson Quiet Kool Corp.; Fedders, Inc. (Canada); Fedders De Mexico S.A. de C.V. (Mexico); and RTXX Corp.; Columbia Specialties, Inc.; Fedders Capital, N.V. (Netherlands Antilles); Melcor Corp.; Melcor International Sales Corp.; Rotorex Co., Inc.; Rotorex International, Inc.; Rotorex Technologies, Inc.

Further Reading

Abelson, Reed, Companies to Watch, Fortune, September 11, 1989, p. 152.

Alexander, Louis, Airlifts for Private Industry, Flying, January 1961, pp. 44, 70.

Chrysler Sells Airtemp Assets to Fedders Corp., Wall Street Journal, February 24, 1976, p. 3.

Cuff, Daniel F., Fedders Chief Finds Use for Spinoffs Nest Egg, New York Times, November 5, 1990, p. D4.

Doherty, Ed, Welcome to a Long, Hot Summer, Financial World, August 31, 1983, pp. 2829.

Dorfman, Dan, Fedders Getting Cool Reception, USA Today, April 12, 1991, p. B3.

Fedders, Wall Street Transcript, August 12, 1968, pp. 1402930.

Fedders Acquires Borg-Warners Norge Division, Wall Street Journal, July 3, 1968, p. 2.

Fedders Corp., Wall Street Transcript, August 19, 1968, p. 14162.

, Wall Street Transcript, December 28, 1987, p. 87845.

Fedders Corporation, Wall Street Transcript, March 12, 1990, p. 96605.

, Wall Street Transcript, December 4, 1989, p. 95582.

Fedders Enjoys a Brisk Rebound from Strike-Dampened Showing, Barrons, July 20, 1964, p. 18.

Fedders-Quigan Gets a Break, Business Week, December 8, 1951, pp. 11416.

Kimelman, John, Company Watch, Financial World, November 22, 1994, p. 18.

Lazo, Shirley A., Payouts Heat Up at Fedders, Barrons, July 3, 1995, p. 38.

Magic Chef Buys Unit of Fedders for $13.3 Million, Wall Street Journal, February 13, 1979, p. 17.

Management Brief: Keeping Cool in China, Economist, April 6, 1996, pp. 7374.

OBrian, Bridget, Fedders Insiders Selling Shares This Summer, Wall Street Journal, August 9, 1995, pp. C1, C13.

Pine, Michael C., Fedders: Straw Hats in Summer? Financial World, August 12, 1996, p. 20.

Savona, Dave, Global Go-Getters, International Business, May 1993, p. 22.

Sullivan, Barbara, Torrid Weather Warmly Received in Effingham, Chicago Tribune, July 24, 1995, Sec. IV, pp. 1, 3.

We Got Razzle-Dazzle, Forbes, November 1, 1973, p. 45.

Why Everybody Likes a Prize Trip, Business Week, November 21, 1953, pp. 5657.

Zipser, Alfred R., Air Conditioners in Heavy Demand, New York Times, June 3, 1956, Sec. 3, pp. 1, 9.

Robert Halasz

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