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 February 28, 1998 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.)
</TABLE>
<TABLE>
<S> <C>
505 Martinsville Road, Liberty Corner, NJ 07938
(Address of principal executive offices) (Zip Code)
</TABLE>
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
The registrant has outstanding 18,778,898 shares of Common Stock,
21,095,877 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) and 2,266,606 shares of Class B Stock (which is immediately
convertible into Common Stock on a share-for-share basis) as of March 31,1998.
<PAGE> 2
FEDDERS CORPORATION
INDEX
<TABLE> 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 7-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-19
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
FEB. 28, FEB. 28, FEB. 28, FEB 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales and other income $ 33,580 $ 60,593 $ 59,071 $ 93,680
Cost of sales 26,439 46,316 47,197 72,224
Selling, general and
administrative expense 8,990 9,325 18,025 18,683
Restructuring charge 16,750 - 16,750 -
52,179 55,641 81,972 90,907
Operating income (loss) (18,599) 4,952 (22,901) 2,773
Minority interest in joint
venture (income)/loss 132 (51) 227 457
Net interest expense (2,350) (1,317) (4,186) (1,314)
Income (loss) before income
taxes (20,817) 3,584 (26,860) 1,916
Federal, state and foreign
income taxes (benefit) (7,289) 1,073 (9,401) 651
Net income (loss) (13,528) 2,511 (17,459) 1,265
Less: Preferred stock dividend
requirement - 726 - 1,452
Income (loss) attributable to
common stockholders $(13,528) $ 1,785 $(17,459) $ (187)
Earnings (loss) per share $ (0.32) $ 0.04 $ (0.42) $ 0.00
Dividends per share declared:
Common $ 0.020 0.020 $ 0.040 $ 0.040
Class A 0.020 0.020 0.040 0.040
Class B 0.018 0.018 0.036 0.036
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> February 28, August 31, February 28,
1998 1997 1997
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 13,977 $110,393 $ 5,751
Accounts receivable (less
allowance of $1,260, $1,834,
and $2,135 at February 28, 1998,
August 31, 1997 and
February 28, 1997, respectively) 22,043 9,060 36,999
Inventories:
Finished goods 85,432 32,233 80,001
Work in process 5,622 6,631 6,277
Raw materials and supplies 26,311 24,023 47,443
117,365 62,887 133,721
Deferred tax benefit 4,070 4,070 3,584
Prepaid expenses 8,673 8,917 3,857
Total current assets 166,128 195,327 183,912
Land and improvements 3,703 3,924 3,935
Buildings 24,029 24,349 23,501
Machinery and equipment 72,040 87,421 86,095
Machinery and equipment under
capital lease 8,945 8,647 8,191
108,717 124,341 121,722
Less accumulated depreciation 52,405 60,347 57,664
56,312 63,994 64,058
Deferred income taxes 6,374 6,374 7,364
Goodwill 56,008 56,858 57,783
Other assets 7,735 6,461 3,832
292,557 $329,014 $316,949
</TABLE>
See accompanying notes
<PAGE> 5
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except share data) (unaudited)
<TABLE>
<CAPTION> February 28, August 31, February 28,
1998 1997 1997
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowing $ - $ - $ 46,513
Current portion of long-term debt 1,963 1,891 1,822
Accounts payable 24,798 10,591 26,801
Income taxes payable 3,416 10,027 5,876
Accrued expenses 25,859 31,082 33,020
Total current liabilities 56,036 53,591 114,032
Long-term debt 110,623 113,489 37,817
Other long-term liabilities 11,043 11,207 14,109
Minority interest in joint venture 4,813 5,040 5,381
Stockholders' equity:
Preferred Stock, $1 par value,
15,000,000 shares authorized,
6,809,184 and 7,516,561 issued
at August 31, 1997 and February
28, 1997, respectively - 6,809 7,517
Common Stock, $1 par value,
80,000,000 shares authorized
18,778,898 issued at February 28,
1998 and 18,989,798 issued at
August 31,1997 and February 28, 18,779 18,990 18,990
1997, respectively
Class A Stock, $1 par value,
60,000,000 shares authorized,
28,688,832; 20,074,281 and
19,652,000 issued at February 28,
1998, August 31, 1997 and 28,689 20,074 19,652
Class B Stock, $1 par value,
7,500,000 shares authorized,
2,266,606 issued at February 28,
1998, August 31, 1997 and
February 28, 1997, respectively 2,267 2,267 2,267
Additional paid-in capital 88,600 85,702 87,911
Retained earnings 17,021 37,024 22,399
Cumulative translation adjustment (265) (138) (131)
155,091 170,728 158,605
Less treasury stock, at cost,
7,775,083; 4,334,800 and 2,250,100
shares at February 28, 1998,
August 31, 1997 and February
28, 1997, respectively (45,049) (25,041) (12,995)
Total stockholders' equity 110,042 145,687 145,610
$ 292,557 $329,014 $316,949
</TABLE>
See accompanying notes
<PAGE> 6
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands) (unaudited)
<TABLE>
<CAPTION> SIX MONTHS ENDED
FEB. 28, FEB. 28,
1998 1997
<S> <C> <C>
Cash flows from operations:
Net income $(17,459) $ 1,265
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 4,532 4,772
Restructuring charge:
Provision for facility closing 9,850 -
Write-off of long-lived assets 6,900 -
Changes in operating assets and liabilities:
Accounts receivable (12,983) (29,024)
Inventories (55,178) (80,275)
Other current assets 244 (491)
Other assets (1,335) (1,143)
Accounts payable 14,207 10,287
Accrued expenses (15,324) (5,035)
Income tax payable (6,611) (9,515)
Other long-term liabilities (164) (386)
Other (124) 27
Net cash used in operations (73,445) (109,518)
Cash flows from investing activities:
Additions to property, plant and equipment (3,744) (5,154)
Disposals of property, plant and equipment 1,032 42
Minority interest in joint venture (227) (227)
Net cash used in investing activities (2,939) (5,339)
Cash flows from financing activities:
Increase in short-term borrowing - 46,513
Repayments of long-term debt (2,818) (767)
Proceeds from stock options exercised 1,276 293
Repurchase of capital stock (16,791) (12,995)
Cash dividends (1,699) (2,731)
Net cash provided by (used in)
financing activities (20,032) 30,313
Net decrease in cash and cash equivalents (96,416) (84,544)
Cash and cash equivalents at beginning of period 110,393 90,295
Cash and cash equivalents at end of period $ 13,977 $ 5,751
Supplemental disclosure:
Interest paid $ 5,488 $ 1,676
Net income taxes paid (refunded) (2,970) 9,162
</TABLE>
See accompanying notes
<PAGE> 7
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
A. In the second quarter of 1998 and 1997, net loss per share was computed
using the weighted average number of shares of Common, Class A and Class B
Stock outstanding which amounted to approximately 41,944,000 and 40,076,000
shares, respectively. Due to the net loss in the current period, options on
approximately 1,650,000 shares of capital stock were not included in computing
diluted earnings per share. In the prior year period, options on approximately
1,786,000 shares were not included in computing diluted earnings per share,
since these options had no effect on such computation. Also, debentures and
Preferred Stock convertible into approximately 2,587,000 and 7,682,000 shares of
Class A shares, respectively, were not included in computing diluted earnings
per share in the prior year period because their effects were antidilutive. All
of the common stock equivalents in both periods are antidilutive and therefore
were not used to calculate diluted earnings per share.
In the first six months of 1998 and 1997, net loss per share was computed
using the weighted average number of shares outstanding which amounted to
approximately 41,870,000 and 40,392,000 shares, respectively. Due to the net
loss available to common stockholders in both periods, options on
approximately 1,724,000 and 1,798,000 shares of Class A stock, respectively,
were not included in computing diluted earnings per share. In the prior year
period, the debentures and Preferred Stock convertible into the Class A
shares stated above were not included in computing diluted earnings per
share, due to the net loss. All of the common stock equivalents in both periods
are antidilutive and therefore were not used to calculate diluted earnings
per share.
B. Pursuant to the Fedders Corporation (the "Company") stock option plan,
options to purchase 1,711,601 and 110,000 shares of Class A Stock were
exercised during the first six months of fiscal 1998 and 1997, respectively.
Of the total shares purchased in the 1998 period, 1,329,375 shares were
purchased through a cashless exchange of previously outstanding Class A and
Common shares. No such exchanges occured in the 1997 period.
C. In January, 1998, the Company announced a plan to restructure its
operations, which resulted in the Company recording a one-time expense
totaling $16.8 million in the second fiscal quarter ending February 28, 1998.
The charge consists of fixed asset write-offs ($6.9 million), amount for
lease terminations ($4.3 million), personnel related costs ($2.9million) and
facility closings costs ($2.7 million). The restructuring will not result in
factory closings. However, it will involve shifting some additional
production from Fedders North America ("FNA") factories to China. As part
of the restructuring, sales, marketing, service, research and development and
administrative support functions of FNA will be relocated to the Company's
factory in Effingham Illinois, resulting in the closing of several
administrative leased facilities. At Fedders International, marketing and
operations-related activities will be transferred to the Company's Asian
headquarters in Singapore.
<PAGE> 8
At February 28, 1998, the restructuring reserve balance was $8.8 million
and consisted primarily of amounts for termination of various equipment
and facility leases ($4.0 million), personnel related costs ($2.8 million)
and facility closing costs ($2.0 million). In conjunction with the
restructuring, the Company wrote-off certain fixed assets which totaled
$6.9 million.
D. On March 24, 1998, the Company announced an agreement to form a joint
venture with Bosch-Siemens Hausgerate Gmbh ("BSH") to manufacture room air
conditioners in Spain. The Company and BSH will each have a fifty percent
interest in the joint venture which will be initially capitalized with
approximately $6 million.
E. In September 1997, the Company redeemed its Preferred Stock for 1.022
shares of Class A Stock based on the average closing price of $6.113 of the
Class A Stock. The redemption resulted in the surrender of 6,492,778 shares
of Preferred Stock for 6,635,619 shares of Class A stock. Fractional shares
and all accounts holding 100 shares or less were paid in cash at the rate of
$6.25 per share which amounted to $0.3 million at February 28, 1998. At
February 28, 1997, there were approximately 7.5 million shares of Preferred
Stock outstanding.
F. In August, 1997 FNA, a subsidiary of the Company, issued $100 million
principal amount of 9 3/8% senior subordinated notes due in 2007. The notes
are guaranteed by the Company on a senior subordinated basis. The Company
received a dividend payment of approximately $72.3 million from FNA to
support a $50 million stock repurchase program and to redeem its 8 1/2%
Convertible Subordinated Debentures due 2012, in the aggregate amount of
approximately $22.3 million, which was completed in August 1997. The
following condensed consolidating financial statements present separate
information for FNA and the Company and its subsidiaries, other than FNA.
The guarantor and subsidiaries of the Company are inconsequential,
individually and in the aggregate, to the consolidated financial statements,
and management has determined that separate financial statements of the
Company would not be meaningful.
<PAGE> 9
F. Continued
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Three Months Ended
February 28, 1998
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net sales $ 27,274 $ 6,306 $ 33,580
Cost of sales 19,969 6,470 26,439
Selling, general and
administrative expense (a) 5,865 3,125 8,990
Restructuring charge 14,488 2,262 16,750
Operating loss (13,048) (5,551) (18,599)
Minority interest in joint
venture - 132 132
Net interest income
(expense) (2,616) 266 (2,350)
Loss before income taxes (15,664) (5,153) (20,817)
Income tax benefit (5,482) (1,807) (7,289)
Net loss $(10,182) $ (3,346) $(13,528)
For the Three Months Ended
February 28, 1997
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net sales $ 49,039 $ 11,554 $ 60,593
Cost of sales 35,814 10,502 46,316
Selling, general and
administrative expense (a) 6,841 2,484 9,325
Operating income (loss) 6,384 (1,432) 4,952
Minority interest in joint
venture - (51) (51)
Net interest expense (1,234) (83) (1,317)
Income (loss) before income
taxes 5,150 (1,566) 3,584
Income taxes (benefit) 1,547 (474) 1,073
Net income (loss) 3,603 (1,092) 2,511
Preferred stock dividend
requirement - 726 726
Net income (loss) attributable
to common stockholders $ 3,603 $ (1,818) $ 1,785
</TABLE>
See accompanying notes
<PAGE> 10
F. Continued
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Six Months Ended
February 28, 1998
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net sales $ 44,938 $ 14,133 $ 59,071
Cost of sales 35,234 11,963 47,197
Selling, general and
administrative expense (a) 12,210 5,815 18,025
Restructuring charge 14,488 2,262 16,750
Operating loss (16,994) (5,907) (22,901)
Minority interest in joint
venture - 227 227
Net interest income
(expense) (5,244) 1,058 (4,186)
Loss before income taxes (22,238) (4,622) (26,860)
Income tax benefit (7,783) (1,618) (9,401)
Net loss $(14,455) $ (3,004) $(17,459)
For the Six Months Ended
February 28, 1997
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net sales $ 75,428 $ 18,252 $ 93,680
Cost of sales 57,121 15,103 72,224
Selling, general and
administrative expense (a) 13,764 4,919 18,683
Operating income (loss) 4,543 (1,770) 2,773
Minority interest in joint
venture - 457 457
Net interest income
(expense) (1,711) 397 (1,314)
Income (loss) before income
taxes 2,832 (916) 1,916
Income taxes (benefit) 963 (312) 651
Net income (loss) 1,869 (604) 1,265
Preferred stock dividend
requirement - 1,452 1,452
Net income (loss) attributable
to common stockholders $ 1,869 $ (2,056) $ (187)
</TABLE>
See accompanying notes
<PAGE> 11
F. Continued
Condensed Consolidating Balance Sheets(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> February 28, 1998
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<C> <C> <C> <C>
Assets
Current assets:
Cash $ - $ 13,977 $ $13,977
Accounts Receivable, net 19,408 2,635 22,043
Inventories 102,357 15,008 117,365
Other current assets 687 12,056 12,743
Total current assets 122,452 43,676 166,128
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment,net 45,228 11,084 56,312
Goodwill 49,578 6,430 56,008
Other long term assets 3,843 10,266 14,109
$221,101 $175,762 $(104,306) $292,557
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-
term debt $ 1,946 $ 17 $ $ 1,963
Accounts and income tax
payable 23,697 4,517 28,214
Accrued expenses 21,646 4,213 25,859
Total current liabilities 47,289 8,747 - 56,036
Net due to (from) affiliates 57,925 (57,925) -
Long-term debt 106,407 4,216 110,623
Other long-term liabilities 2,793 13,063 15,856
Stockholders' equity:
Common, Class A and Class B
Stock 5 49,730 49,735
Paid-in capital 21,292 240,532 (173,224) 88,600
Retained earnings (deficit) (14,455) (37,442) 68,918 17,021
Treasury stock - (45,049) (45,049)
Cumulative translation
adjustment (155) (110) (265)
Total stockholders' equity 6,687 207,661 (104,306) 110,042
$221,101 $175,762 $(104,306) $292,557
</TABLE>
See accompanying notes
<PAGE> 12
F. Continued
Condensed Consolidating Balance Sheets (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> August 31, 1997
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<C> <C> <C> <C>
Assets
Current assets:
Cash $ - $110,393 $ $110,393
Accounts receivable,net 5,461 3,599 9,060
Inventories 50,303 12,584 62,887
Other current assets 584 12,403 12,987
Total current assets 56,348 138,979 195,327
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment, net 51,466 12,528 63,994
Goodwill 50,284 6,574 56,858
Other long term assets 7,794 5,041 12,835
$165,892 $267,428 $(104,306) $329,014
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-
term debt $ 1,870 $ 21 $ $ 1,891
Accounts and income tax
payable 20,747 (129) 20,618
Accrued expenses 22,752 8,330 31,082
Total current liabilities 45,369 8,222 - 53,591
Net due to (from) affiliates (10,758) 10,758 -
Long-term debt 107,346 6,143 113,489
Other long-term liabilities 2,780 13,467 16,247
Stockholders' equity:
Preferred stock - 6,809 6,809
Common, Class A and Class B
Stock 5 41,326 41,331
Paid-in capital 21,292 237,634 (173,224) 85,702
Retained earnings (deficit) - (31,894) 68,918 37,024
Treasury stock - (25,041) (25,041)
Cumulative translation
adjustment (142) 4 (138)
Total stockholders' equity 21,155 228,838 (104,306) 145,687
$165,892 $267,428 $(104,306) $329,014
</TABLE>
See accompanying notes
<PAGE> 13
F. Continued
Condensed Consolidating Balance Sheets(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> February 28, 1997
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<C> <C> <C> <C>
Assets
Current assets:
Cash $ - $ 5,751 $ $ 5,751
Accounts receivable,net 31,601 5,398 36,999
Inventories 109,282 24,439 133,721
Other current assets 543 6,898 7,441
Total current assets 141,426 42,486 - 183,912
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment, net 51,141 12,917 64,058
Goodwill 51,118 6,665 57,783
Other long term assets 562 10,634 11,196
$244,247 $177,008 $(104,306) $316,949
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ - $ 46,513 $ $ 46,513
Current portion of long-
term debt 1,799 23 1,822
Accounts and income taxes
payable 30,047 2,630 32,677
Accrued expenses 25,237 7,783 33,020
Total current liabilities 57,083 56,949 114,032
Net due to (from) affiliates (52,253) 52,253 -
Long-term debt 8,827 28,990 37,817
Other long-term liabilities 4,259 15,231 19,490
Stockholders' equity
Preferred stock - 7,517 7,517
Common, Class A and Class B
stock 5 40,904 40,909
Paid-in capital 109,637 87,746 (109,472) 87,911
Retained earnings (deficit) 116,804 (99,571) 5,166 22,399
Treasury stock - (12,995) (12,995)
Cumulative translation
adjustment (115) (16) (131)
Total stockholders' equity 226,331 23,585 (104,306) 145,610
$244,247 $177,008 $(104,306) $316,949
</TABLE>
See accompanying notes
<PAGE> 14
F. Continued
Condensed Consolidating Statements of Cash Flows (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
February 28, 1998
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net cash proved by (used in)
operations $(76,825) $ 3,380 $(73,445)
Net disposals of property, plant,
and equipment, being cash used
in investing activities (2,732) (207) (2,939)
Net repayments of short and long-
term borrowings (863) (1,955) (2,818)
Cash dividends - (1,699) (1,699)
Proceeds from stock options
exercised - 1,276 1,276
Repurchase of capital stock - (16,791) (16,791)
Change in net due to (from)
affiliate 80,420 (80,420) -
Net cash provided by (used in)
financing activities 79,557 (99,589) (20,032)
Net decrease in cash and cash
equivalents - (96,416) (96,416)
Cash and cash equivalents at
beginning of year - 110,393 110,393
Cash and cash equivalents at
end of year $ - $ 13,977 $ 13,977
</TABLE>
See accompanying notes
<PAGE> 15
F. Continued
Condensed Consolidating Statements of Cash Flows (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
February 28, 1997
Fedders Other Fedders
North America Fedders Corporation
<C> <C> <C>
Net cash proved by (used in)
operations $(81,037) $(28,481) $(109,518)
Net disposals of property, plant,
and equipment, being cash used
in investing activities (3,471) (1,868) (5,339)
Net repayments of short and long-
term borrowings (624) 46,370 45,746
Cash dividends - (2,731) (2,731)
Proceeds from stock options
exercised - 293 293
Repurchase of capital stock - (12,995) (12,995)
Change in net due to (from)
affiliate 85,132 (85,132) -
Net cash provided by (used in)
financing activities 84,508 (54,195) 30,313
Net decrease in cash and cash
equivalents - (84,544) (84,544)
Cash and cash equivalents at
beginning of year - 90,295 90,295
Cash and cash equivalents at
end of year $ - $ 5,751 $ 5,751
</TABLE>
See accompanying notes
<PAGE> 16
F. Continued
Intercompany transactions
The historical condensed consolidating financial statements presented
above include the following transactions between the Company and FNA.
a) The Company charges corporate overhead essentially on a cost basis
allocated in proportion to sales. Such charges to FNA amounted to
approximately $5.0 million and $5.5 million for the six months ended
February 28, 1998 and 1997, respectively. For the three month periods, such
charges amounted to $2.2 million and $2.9 million,respectively.
b) FNA's depreciation and amortization for the six months ended
February 28, 1998 and 1997 amounted to approximately $3.6 million and $3.5
million, respectively. For the three month period, such costs amounted to
$2.0 million and $1.6 million, respectively. Capital expenditures of FNA
for the six month period amounted to $2.7 million and $3.5 million,
respectively. For the three month period such expenditures amounted to
$1.5 million and $.9 million, respectively.
G. In July 1997, the Company announced that it had been authorized to
repurchase up to $50 million of outstanding stock. Under this plan, in the
first six months of fiscal 1998, the Company purchased approximately 2.9
million shares of Class A, Preferred and Common Stock for approximately $16.8
million or approximately $5.81 per share. Total repurchases under the
program amount to $19.6 million.
H. 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 and consequently, operating results for the three and six month
periods ending February 28, 1998 are not necessarily indications of the
results that may be expected for the fiscal year ending August 31, 1998.
<PAGE> 17
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
In January 1998, the Company announced a plan to restructure its operations.
As part of the plan the Company recorded a one-time charge of $16.8 million.
The restructuring will not result in factory closings. However, it will
involve shifting some production from North America to China and increasing
component outsourcing. The charge consists of fixed asset write-offs ($6.9
million), amount for lease terminations ($4.3 million), personnel related
costs ($2.9 million) and facility closing costs ($2.7 million).
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> Second Fiscal Quarter Six Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross profit 21.3% 23.6% 20.1% 22.9%
Selling, general
and administrative
expenses 26.8% 15.4% 30.5% 19.9%
Operating income before
restructuring charge (5.5%) 8.2% (10.4%) 3.0%
Restructuring charge 49.9% - 28.4% -
Operating income (loss) (55.4%) 8.2% (38.8%) 3.0%
Net interest expense 7.0% 2.2% 7.1% 1.4%
Pre-tax income (loss) (62.0%) 5.9% (45.5%) 2.0%
</TABLE>
Second Quarter
Net sales in the second quarter ended February 28, 1998, amounted to $33.6
million, a decrease of 45% from $60.6 million in the same period a year
earlier. This decrease is attributable to a more pronounced seasonal shift
in domestic sales into the second half of the Company's fiscal year, primarily
because major retailers, who continue to gain market share, require delivery
closer to the air conditioning season.
Gross profit percentage decreased to 21.3% from 23.6% in the prior period
primarily due to lower absorption of fixed costs and expenses related to the
lower production.
In the 1998 quarter, selling, general and administrative expenses decreased
$.3 million from the prior year quarter but increased as a percentage of net
sales from the prior year as a result of the sales decrease.
Operating income before restructuring charge was a loss of $1.8 million or
(5.5%) of net sales in the current year period compared to income of $5.0
million or 8.2% of net sales in the prior year period, reflecting the off-season
sales decrease.
<PAGE> 18
Net interest expense of $2.4 million increased primarily due to interest on the
9 3/8% Senior subordinated debentures due in 2007, offset, in part, by a
reduction in interest expense related to the redemption of the Company's 8 1/2%
convertible subordinated debentures. Also, the Company had no short-term
borrowings in the current period compared to $46.5 million in the prior year.
Net income decreased $15.3 million to a loss of $13.5 million compared to net
income available to common stockholders of $1.8 million during the same period
in the prior year. The net loss before restructuring, net of tax effect, was
$2.6 million, or six cents per share, in the current quarter compared to net
income available to common stockholders of $1.8 million, or four cents per
share, in the prior year quarter. Total shares outstanding declined by 9.1% at
February 28, 1998 to 41.9 million from 46.2 million in the prior year, including
preferred shares.
Six Months
For the first six months of fiscal 1998, sales were $59.1 million, a decline of
37% from $93.7 million in the comparable 1997 period. The sales decrease during
the off-season six-month period reflects a more pronounced seasonal shift in
domestic sales into the second half of the Company's fiscal year, primarily
because major retailers who continue to gain market share, require delivery
closer to the air conditioning season.
Gross profit margin percentage decreased during the first six months of the
current year, compared to the same period in fiscal 1997, due to lower
absorption of fixed costs and expenses as a result of lower production.
Selling, general and administrative expenses increased as a percentage of net
sales from the prior year as a result of the sales decrease. For the six-month
period, these expenses amounted to a net decrease of $.7 million, when compared
to the same period in fiscal 1997.
Operating income before restructuring was a loss of $6.2 million or (10.4%) of
net sales in the current year compared to income of $2.8 million or 3.0% of net
sales in the prior year due to the off-season sales decrease.
Net interest expense increased as a percentage of net sales during the fiscal
1998 period due primarily to interest on the 9 3/8% Senior convertible
subordinated debentures due in 2007, offset by the previously discussed
redemption and the absence of short-term borrowings in fiscal 1998 versus $46.5
million in fiscal 1997.
The Company's net loss decreased $17.3 million to $17.5 million from $0.2
million in fiscal 1997. The net loss before the restructuring charge, net of
tax effect, was $6.6 million, or 16 cents per share, in the current year
compared to a net loss available to common stockholders of $0.2 million, or zero
cents per share, in the prior year period.
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 February 28, 1998
amounted to $14.0 million and there were no short-term borrowings compared to
cash on hand of $5.8 million and short-term borrowings of $46.5 million at
February 28, 1997. The increase in cash was due to proceeds of the $100 million
senior note offering completed in August 1997. Cash included $1.6 million and
$2.4 million at Fedders Xinle, the Company's Chinese joint venture, at February
28, 1998 and 1997, respectively.
<PAGE> 19
Net cash used in operations for the six months ended February 28, 1998, amounted
to $73.4 million, compared to $109.5 million in the prior year period. The
Company's operations required less cash due to lower production as a result of
the timing of sales volume. The principal use of cash in each period was to
produce finished goods for the seasonal requirements, which are heaviest in the
third fiscal quarter. Inventories were $117.4 million at February 28, 1998
versus $133.7 million a year earlier.
Net cash used in investing activities consisted primarily of capital
expenditures of $3.7 million in the first six months of fiscal 1998.
Net cash used in financing activities during the six-month period amounted to
$20.0 million, primarily for stock repurchases under the previously announced
stock repurchase plan of up to $50 million and for payment of dividends. At
February 28, 1998, the Company had no short-term borrowings, compared to
borrowings of $46.5 million in the prior year period.
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.
The Company utilizes some software and related technology in its businesses that
maybe affected by the date change in the year 2000. An internal study is
currently under way to determine the full scope and related costs necessary to
insure that the Company's systems continue to meet its internal needs and those
of its customers. The Company has begun to incur expenses in fiscal 1998 to
resolve this issue, which it believes will have an immaterial impact on the
Company's earnings and cash flows.
Forward-looking statements are covered under the "Safe-Harbor" clause of
the Private Securities Litigation Reform Act of 1995. Such statements are based
upon current expectations and assumptions. Actual results could differ
materially from those currently anticipated as a result of known and unknown
risks and uncertainties including, but not limited to, weather and economic,
political, market and industry conditions. Such factors are described in
Fedders' SEC filings, including its most recently filed annual report on Form
10K. The Company disclaims any obligation to update any forward-looking
statements to incorporate subsequent events.
<Page 20>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on December 16, 1997 to:
i. Consider and act on a proposal to approve the actions of the Board of
Directors to elect each current Director to hold office until the next Annual
Meeting of Stockholders and until each such Director's successor shall have
been elected and qualified ; and
ii. ratify the appointment of BDO Seidman, LLP as the Company's independent
auditors for the fiscal year ending August 31, 1998.
On the Election of Directors, the vote was:
Salvator Giordano, nominee for Director: 18,688,258 for, and 471,406
withheld;
Sal Giordano, Jr., nominee for Director: 18,718,160 for, and 441,405
withheld;
Joseph Giordano, nominee for Director: 18,706,636 for, and 453,028
withheld;
Howard S. Modlin, nominee for Director: 18,725,758 for, and 433,906
withheld;
Clarence Russel Moll, nominee for Director: 18,706,913 for, and 452,751
withheld;
William J. Brennan, nominee for Director: 18,722,238 for, and 437,426
withheld;
Anthony E. Puleo, nominee for Director: 18,726,321 for, and 433,343
withheld;
S. A. Muscarneera, nominee for Director: 18,724,982 for, and 434,682
withheld; and
C. A. Keen, nominee for Director: 18,718,844 for, and 440,820 withheld.
On the ratification of BDO Seidman, LLP as independent auditors, the vote
was 18,728,746 for, 179,014 against, and 251,904 abstained.
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
None
<PAGE> 22
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: April 14, 1998 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> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 13,977
<SECURITIES> 0
<RECEIVABLES> 23,303
<ALLOWANCES> 1,260
<INVENTORY> 117,365
<CURRENT-ASSETS> 166,128
<PP&E> 108,717
<DEPRECIATION> 52,405
<TOTAL-ASSETS> 292,557
<CURRENT-LIABILITIES> 56,036
<BONDS> 110,623
0
0
<COMMON> 49,735
<OTHER-SE> 60,307
<TOTAL-LIABILITY-AND-EQUITY> 292,557
<SALES> 59,071
<TOTAL-REVENUES> 59,071
<CGS> 47,197
<TOTAL-COSTS> 34,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,186
<INCOME-PRETAX> (26,860)
<INCOME-TAX> (9,401)
<INCOME-CONTINUING> (17,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,459)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
