<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(XX) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended May 31, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ____________
Commission file number 1-8831
FEDDERS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-2572390
(State of incorporation) (I.R.S. Employer Identification No.)
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<TABLE>
<S> <C>
P.O. Box 813
505 Martinsville Road, Liberty Corner, NJ 07938-0813
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: 908/604-8686
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of June 30, 1997, the registrant has outstanding 18,989,798 shares of
Common Stock, 15,934,984 shares of Class A Stock (which is immediately
convertible into Common Stock on a share-for-share basis upon conversion of
all of Class B Stock), 2,266,606 shares of Class B Stock (which is
immediately convertible into Common Stock on a share-for-share basis) and
7,514,461 shares of Convertible Preferred Stock (which is convertible into
Class A Stock on a share-for-share basis.)
<PAGE> 2
FEDDERS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4-5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security
Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
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<PAGE> 3
PART I FINANCIAL INFORMATION
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
MAY 31, MAY 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales and other income $143,776 $173,868 $237,456 $290,004
Cost of sales 112,934 136,009 185,158 227,363
Selling, general and
administrative expense 10,221 9,035 28,904 22,686
123,155 145,044 214,062 250,049
Operating income 20,621 28,824 23,394 39,955
Minority interest in joint
venture loss - 84 457 237
Net interest expense (1,468) (708) (2,782) (1,164)
Income before income taxes 19,153 28,200 21,069 39,028
Federal, state and foreign
income taxes 6,513 10,770 7,164 14,885
Net income 12,640 17,430 13,905 24,123
Less: Preferred Stock dividend
requirement 726 - 2,178 -
Income attributable to common
stockholders $ 11,914 $ 17,430 $ 11,727 $ 24,143
Primary earnings per share $ 0.30 $ 0.42 $ 0.28 $ 0.58
Fully diluted earnings
per share $ 0.27 $ 0.42 $ 0.29 $ 0.58
Dividends per share declared:
Common $ 0.020 0.020 $ 0.060 $ 0.060
Class A 0.020 0.020 0.060 0.060
Class B 0.018 0.018 0.054 0.054
Convertible Preferred 0.095 - 0.190 -
</TABLE>
See accompanying notes
<PAGE> 4
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31, MAY 31,
1997 1996 1996
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 7,528 $ 90,295 $ 24,064
Accounts receivable (less
allowance of $2,984, $1,952,
and $2,133 at May 31, 1997,
August 31, 1996 and
May 31, 1996, respectively) 67,506 7,975 86,611
Inventories:
Finished goods 53,633 21,711 25,537
Work in process 5,929 6,652 3,475
Raw materials and supplies 31,033 25,083 21,682
90,595 53,446 50,694
Deferred tax benefit 3,584 3,584 2,954
Prepaid expenses 4,541 3,366 3,207
Total current assets 173,754 158,666 167,530
Property, plant and equipment
at cost:
Land and improvements 3,929 3,830 1,365
Buildings 24,117 23,915 14,078
Machinery and equipment 85,271 84,887 63,947
Machinery and equipment under
capital lease 8,191 8,191 -
121,508 120,823 79,390
Less accumulated depreciation 58,237 57,951 42,032
63,271 62,872 37,358
Deferred income taxes 7,364 7,364 1,277
Goodwill 57,329 58,556 -
Other assets 3,557 2,762 6,883
$ 305,275 $290,220 $213,048
</TABLE>
See accompanying notes
<PAGE> 5
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except share data) (unaudited)
<TABLE>
<CAPTION> MAY 31, AUGUST 31, MAY 31,
1997 1996 1996
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowing $ 26,271 - $ -
Current portion of long-term debt 1,843 $ 1,889 590
Accounts payable 20,891 16,514 24,040
Income taxes payable 10,361 15,391 17,132
Accrued expenses 42,576 38,055 42,971
Total current liabilities 101,942 71,849 84,733
Long-term debt 37,286 38,517 10,733
Other long-term liabilities 13,510 14,495 6,542
Minority interest in joint venture 5,151 5,608 5,425
Stockholders' equity:
Preferred Stock, $1 par value,
15,000,000 shares authorized,
7,514,461 and 7,643,061 issued
at May 31, 1997 and
August 31, 1996, respectively 7,514 7,643 -
Common Stock, $1 par value,
80,000,000 shares authorized
18,989,798 issued at May 31,
1997 and August 31, 1996 and
18,989,306 issued at May 31, 18,990 18,990 18,989
1996, respectively
Class A Stock, $1 par value,
60,000,000 shares authorized,
19,944,987, 19,415,916 and
19,251,531 issued at May 31,
1997, August 31, 1996 and
May 31, 1996, respectively 19,945 19,416 19,252
Class B Stock, $1 par value,
7,500,000 shares authorized,
2,266,606, 2,266,706 and
2,267,198 issued at May 31,
1997, August 31, 1996 and
May 31, 1996, respectively 2,267 2,267 2,267
Additional paid-in capital 88,595 87,728 47,558
Retained earnings 33,579 23,865 17,701
Cumulative translation adjustment (181) (158) (152)
170,709 159,751 105,615
Less treasury stock, at cost,
4,052,600 shares of Class A Stock (23,323) - -
Total stockholders' equity 147,386 159,751 105,615
$305,275 $290,220 $213,048
</TABLE>
See accompanying notes
<PAGE> 6
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands) (unaudited)
<TABLE>
<CAPTION> NINE MONTHS ENDED MAY 31,
1997 1996
<S> <C> <C>
Cash flows from operations:
Net income $ 13,905 $ 24,143
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 7,433 3,281
Changes in operating assets and liabilities:
Accounts receivable (59,531) (76,335)
Inventories (37,149) (15,972)
Other current assets (1,175) (1,213)
Other assets (900) (721)
Accounts payable 4,377 15,790
Accrued expenses 4,521 22,092
Income tax payable (5,030) -
Other long-term liabilities (985) 123
Other (23) (167)
Net cash used in operations (74,557) (28,979)
Cash flows from investing activities:
Additions to property, plant and equipment (6,574) (6,379)
Disposals of property, plant and equipment 74 34
Minority interest in joint venture (457) (237)
Net cash used in investing activities (6,957) (6,582)
Cash flows from financing activities:
Increase in short-term borrowing 26,271 -
Repayments of long-term debt (1,277) (493)
Proceeds from stock options exercised 1,267 1,498
Repayment of Fedders Xinle short-term debt - (3,396)
Net proceeds from Fedders Xinle
long-term financing - 6,710
Repurchase of Class A Stock (23,323) -
Cash dividends (4,191) (2,401)
Net cash (used in) provided by
financing activities (1,253) 1,918
Net decrease in cash and cash equivalents (82,767) (33,643)
Cash and cash equivalents at beginning of period 90,295 57,707
Cash and cash equivalents at end of period $ 7,528 $ 24,064
Supplemental disclosure:
Net interest paid $ 1,996 $ 1,824
Net income taxes paid 12,047 1,989
</TABLE>
See accompanying notes
<PAGE> 7
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In August 1996, following stockholder approval, NYCOR, Inc ("NYCOR"), a
manufacturer of rotary compressors through its subsidiary Rotorex Company,
Inc. and thermoelectric modules through its subsidiary Melcor Corporation,
was merged into the Company. The accounts of the merged operations are
reflected in the consolidated financial statements of the Company for the
periods ended May 31, 1997.
B. Primary earnings per share are computed by dividing income attributable
to common stockholders by the weighted average number of shares of Common,
Class A and Class B Stock and other common stock equivalents outstanding:
39,605,000 and 41,704,000 in the third quarter of 1997 and 1996 and
41,250,000 and 41,281,000 for the nine months ended May 31, 1997 and May 31,
1996, respectively. Fully-diluted earnings per share are computed by dividing
net income by the weighted average number of Common, Class A, Class B and
other common stock equivalents outstanding (assuming conversion of the
Convertible Preferred Stock): 47,123,000 and 41,704,000 in the third quarter
of 1997 and 1996 and 48,768,000 and 41,281,000 for the nine months ended May
31, 1997 and 1996, respectively.
C. Pursuant to the Company's stock option plans, options to purchase 400,471
shares of Class A Stock were exercised during the first nine months of fiscal
1997.
D. In September 1996, the Company announced a stock repurchase of up to $25
million of Common and/or Class A Stock. For the year, the Company has
purchased a total of 4.0 million shares of Class A Stock for $23.3 million
or approximately $5.75 per share.
E. During the second quarter, the Company's revolving credit facility was
increased to $50 million. The rate of interest charged on outstanding
borrowings under the credit facility was reduced to the prime rate of
interest from the prime rate plus 1.5% and the expiration of the facility
was extended to February 1, 2000.
F. The financial information included herein is unaudited; however, such
information reflects all adjustments which consist solely of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The Company's business is
seasonal. Operating results for the quarter and nine-month period ended May
31, 1997 are not necessarily indicative of the results that may be expected
for the fiscal year ending August 31, 1997.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
In August 1996, following stockholder approval, NYCOR, Inc. ("NYCOR"), a
manufacturer of rotary compressors through its subsidiary Rotorex Company,
Inc. and thermoelectric modules through its subsidiary Melcor Corporation,
was merged into the Company. The management's discussion for fiscal 1997
includes the results of these operations.
Cool summer weather in key U.S. markets in fiscal 1996 increased industry
inventories at some manufacturers, excluding the Company, and at retailers at
the beginning of fiscal 1997. As previously announced, these higher industry
inventories have reduced industry domestic shipments in 1997 and are
impacting the Company's domestic revenues and earnings. Sales for the full
fiscal year 1997 will decline from fiscal 1996 - even including international
sales in excess of $40 million plus domestic sales from operations acquired
last August.
The following is management's discussion and analysis of certain significant
factors which affected the Company's financial position and operating results
during the periods included in the accompanying consolidated financial
statements.
Results of Operations
<TABLE> Operating Results as Percent of Net Sales
<CAPTION> Third Fiscal Quarter Nine Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Gross profit 21.5% 21.8% 22.0% 21.6%
Selling, general
and administrative
expense 7.1% 5.2% 12.2% 7.8%
Operating income 14.3% 16.6% 9.9% 13.8%
Net interest expense 1.0% 0.4% 1.2% 0.4%
Pre-tax income 13.3% 16.2% 8.9% 13.5%
</TABLE>
Third Quarter
Net sales in the third quarter ended May 31, 1997 amounted to $143.8 million,
a decrease of 17% from $173.9 million in the same period a year earlier and
about the same as sales of $145.9 million in the third quarter of fiscal
1995. The 1996 third quarter results reflected strong domestic demand for
room air conditioners following three consecutive hot summers. Lower sales in
the fiscal 1997 quarter reflect the impact of the end-of-season industry
inventories following the cool summer of 1996.
Gross profit percentage decreased only slightly in the 1997 quarter to 21.5%
compared with 21.8% in the prior period, despite the sales decline.
<Page 9>
Selling, general and administrative expense ("SG&A") increased by $1.2
million as a result of expenses related to the merged operations and the
Company's expanding infrastructure to support its growing international
business.
Net interest expense of $1.5 million increased from $708,000 in the 1996
quarter, primarily due to the assumption of 8.5% Convertible Subordinated
Debentures due 2012 from the merger of NYCOR into the Company and also due to
increased borrowings in the quarter.
Net income decreased to $12.6 million compared to net income of $17.4 million
during the same period in the prior year.
Nine Months
For the first nine months of fiscal 1997, sales totaled $237.5 million, a
decline of 18% from $290.0 million in the comparable 1996 period and similar
to the $238.4 million of net sales in the 1995 nine-month period. The sales
decrease during the nine-month period reflects the large end-of-season
industry inventories of room air conditioners at some manufacturers,
excluding the Company, and at retailers due to cool summer weather in 1996.
This compared to the prior year when industry inventory levels were low
following three hot summers in a row. The domestic sales decline was offset,
in part, by an increase in other sales, primarily international.
Gross profit decreased by $10.3 million in the period due to lower sales.
Gross profit as a percentage of sales increased slightly during the first
nine months, compared to the same period in fiscal 1996. The margin increase
is due to changes in customer and product mix offset, in part, by lower
absorption of factory overhead expense as a result of lower production
levels.
SG&A increased to 12.2% of net sales due, in part, to lower sales. SG&A
increased by $6.2 million from the prior year primarily due to expenses
related to the merged operations, including $1.2 million for amortization of
goodwill and research and development expense of $1.5 million. SG&A in fiscal
1997 also increased due to the Company's expanding infrastructure to support
the future growth of international business.
Net interest expense increased by $1.6 million during the fiscal 1997 period
due primarily to the 8.5% Convertible Subordinated Debentures due 2012
assumed in the merger of NYCOR into the Company.
<Page 10>
The Company's net income decreased to $13.9 million from $24.1 million in
fiscal 1996 and reflects an estimated tax rate of 34% versus 38% in the prior
year.
The Preferred Stock dividend requirement of $2.2 million is due to issuance
of Preferred Convertible Stock as payment for the NYCOR merger.
Liquidity and Capital Resources
Working capital requirements of the Company are seasonal, with cash balances
peaking in the fourth quarter and the greatest utilization of its lines of
credit occurring early in the calendar year. Cash on hand at May 31, 1997 of
$7.5 million includes $4.1 million at the Chinese joint venture, Fedders
Xinle Co. Ltd. ("Fedders Xinle").
Net cash used in operations for the nine months ended May 31, 1997, amounted
to $74.6 million. The principal use of this cash was to produce finished
goods for seasonal requirements, which are heaviest in the third fiscal
quarter. Inventories increased to $90.6 million at May 31, 1997 versus $50.7
million a year earlier. The increase includes $20.0 million of inventory
related to the merged operations and to support international requirements.
Net cash used in investing activities of $7.0 million consisted primarily of
capital expenditures of $6.6 million in the first nine months of fiscal 1997.
Net cash used in financing activities during the nine-month period amounted
to $1.3 million. The Company's short-term revolving credit facility was
increased to $50 million from $40 million and the rate of interest on the
facility was reduced to the prime rate from the prime rate plus 1.5%. At May
31, 1997 the Company had short-term borrowings of $26.3 million, all of which
was repaid as of June 30, 1997. In September 1996, the Company announced its
intention to repurchase up to $25 million of Class A and/or Common Stock.
Through May 1997, the Company acquired 4.0 million shares of Class A Stock at
an average price of approximately $5.75, or a total of $23.3 million.
Dividend payments amounted to $4.2 million in the first nine months of fiscal
1997.
Management believes that the Company's cash, earnings and borrowing capacity
are adequate to meet the demands of its operations and its long-term credit
requirements.
<PAGE> 11
Recent Pronouncements of the Financial Accounting Standards Board
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share"
( FASB 128"), which establishes standards for computing and presenting
earnings per share. FASB 128 replaces the presentation of primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively. Basic earnings per share are computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share are computed
similarly to fully diluted earnings per share. The standard is effective for
financial statements for periods ending after December 15, 1997, with earlier
application not permitted. For the three and nine month periods ended May
31, 1997, pro-forma basic earnings per share would have been $0.32 and $0.30
under the provision of FASB 128 and diluted earnings per share would have
been $0.33 and $0.36 respectively. For the quarter and nine month periods
ended May 31, 1996 pro-forma basic earnings per share, under the provisions
of FASB 128, would have been $0.43 and $0.60, respectively and pro-forma
diluted earnings per share, under the provisions of FASB 128, would have been
$0.42 and $0.58, respectively.
Forward looking statements are made within the "safe-harbor" clause of the
Private Securities Litigation Reform Act of 1995.
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<PAGE> 12
PART II OTHER INFORMATION
Item 4. Submission of Matter to a Vote Of Security Holders
The Company reconvened its Annual Meeting of Stockholders on June 11, 1997
to vote on the proposal Number Three to repeal Article EIGHTH of the Company's.
Restated Certificate of Incorporation. The proposal passed by a vote of
17,020,463 for, and 675,062 against, with 349,739 abstaining.
Item 6. Exhibits and Reports on Form 8-K
(b)Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEDDERS CORPORATION
By /s/ Thomas A. Kroll
Corporate Controller
Date: July 14, 1997 Signing both in his capacity as
Corporate Controller and on behalf
of the registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000744106
<NAME> FEDDERS CORPORATION
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> AUG-31-1997 AUG-31-1997
<PERIOD-END> MAY-31-1997 MAY-31-1997
<CASH> 0 7,528
<SECURITIES> 0 0
<RECEIVABLES> 0 70,490
<ALLOWANCES> 00 (2,984)
<INVENTORY> 0 90,595
<CURRENT-ASSETS> 0 173,754
<PP&E> 0 121,508
<DEPRECIATION> 0 (58,237)
<TOTAL-ASSETS> 0 305,275
<CURRENT-LIABILITIES> 0 101,942
<BONDS> 0 37,286
0 0
0 7,514
<COMMON> 0 41,202
<OTHER-SE> 0 121,993
<TOTAL-LIABILITY-AND-EQUITY> 0 305,275
<SALES> 143,776 237,456
<TOTAL-REVENUES> 143,776 237,456
<CGS> 112,934 185,158
<TOTAL-COSTS> 123,155 214,062
<OTHER-EXPENSES> 0 (457)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,468) (2,782)
<INCOME-PRETAX> 19,153 21,069
<INCOME-TAX> 6,513 7,164
<INCOME-CONTINUING> 12,640 13,905
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,640 13,905
<EPS-PRIMARY> 0.30 0.28
<EPS-DILUTED> 0.27 0.29
</TABLE>
