<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, 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 17,307,298 shares of Common Stock,
19,356,812 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 June 30,1998.
<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 7-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-20
Part II OTHER INFORMATION
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>
THIRD QUARTER NINE MONTHS
ENDED MAY 31, ENDED MAY 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales and other income $172,061 $143,776 $231,132 $237,456
Cost of sales 135,075 112,934 182,272 185,158
Selling, general and
administrative expense 9,884 10,221 27,909 28,904
Restructuring charge - - 16,750 -
144,959 123,155 226,931 214,062
Operating income 27,102 20,621 4,201 23,394
Minority interest in joint
venture loss 96 - 323 457
Net interest expense (2,806) (1,468) (6,992) (2,782)
Income (loss) before income
taxes 24,392 19,153 (2,468) 21,069
Federal, state and foreign
income taxes (benefit) 8,538 6,513 (863) 7,164
Net income (loss) 15,854 12,640 (1,605) 13,905
Less: Preferred stock dividend
requirement - 726 - 2,178
Income (loss) attributable to
common stockholders $ 15,854 $ 11,914 $(1,605) $ 11,727
Earnings (loss) per share:
Basic $ 0.38 $ 0.32 $(0.04) $ 0.30
Diluted $ 0.37 $ 0.26 - 0.29
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 - 0.285
</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,
1998 1997 1997
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 54,027 $110,393 $ 7,528
Accounts receivable (less
allowance of $1,638, $1,834,
and $2,984 at May 31, 1998,
August 31, 1997 and
May 31, 1997, respectively 74,449 9,060 67,506
Inventories:
Finished goods 33,315 32,233 53,633
Work in process 4,597 6,631 5,929
Raw materials and supplies 28,991 24,023 31,033
66,903 62,887 90,595
Deferred tax benefit 4,070 4,070 3,584
Prepaid expenses 3,073 8,917 4,541
Total current assets 202,522 195,327 173,754
Property, plant and equipment
at cost:
Land and improvements 2,994 3,924 3,929
Buildings 22,216 24,349 24,117
Machinery and equipment 72,019 87,421 85,271
Machinery and equipment under
capital lease 8,945 8,647 8,191
106,174 124,341 121,508
Accumulated depreciation 51,799 60,347 58,237
54,375 63,994 63,271
Deferred income taxes 6,374 6,374 7,364
Goodwill 55,583 56,858 57,329
Other assets 12,426 6,461 3,557
$ 331,280 $329,014 $305,275
</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,
1998 1997 1997
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowing $ - $ - $ 26,271
Current portion of long-term debt 2,182 1,891 1,843
Accounts payable 33,445 10,591 20,891
Income taxes payable 11,844 10,027 10,361
Accrued expenses 45,863 31,082 42,576
Total current liabilities 93,334 53,591 101,942
Long-term debt 108,738 113,489 37,286
Other long-term liabilities 10,932 11,207 13,510
Minority interest in joint venture 4,717 5,040 5,151
Stockholders' equity:
Preferred Stock, $1 par value,
15,000,000 shares authorized,
6,809,184 and 7,514,461 issued
at August 31 and May 31, 1997,
respectively - 6,809 7,514
Common Stock, $1 par value,
80,000,000 shares authorized
17,626,398 issued at May 31,
1998 and 18,989,798 issued at
August 31 and May 31, 1997, 17,626 18,990 18,990
respectively
Class A Stock, $1 par value,
60,000,000 shares authorized,
29,527,369; 20,074,281 and
19,944,987 issued at May 31,
1998, August 31, 1997 and
May 31, 1997, respectively 29,527 20,074 19,945
Class B Stock, $1 par value,
7,500,000 shares authorized,
2,266,606 issued at May 31,
1998, August 31, 1997 and
May 31, 1997, respectively 2,267 2,267 2,267
Additional paid-in capital 85,391 85,702 88,595
Retained earnings 32,875 37,024 33,579
Cumulative translation adjustment (242) (138) (181)
167,444 170,728 170,709
Less treasury stock, at cost,
9,419,282, 4,334,800 and 4,052,600
shares at May 31, 1998,
August 31, 1997 and May 31,
1997, respectively (53,885) (25,041) (23,323)
Total stockholders' equity 113,559 145,687 147,386
$331,280 $329,014 $305,275
</TABLE>
See accompanying notes
<PAGE> 6
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION> NINE MONTHS
ENDED MAY 31,
1998 1997
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ (1,605) $ 13,905
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 6,636 7,433
Restructuring charge:
Provision for facility closing 9,850 -
Write-off of long-lived assets 6,900 -
Changes in operating assets and liabilities:
Accounts receivable (65,389) (59,531)
Inventories (4,716) (37,149)
Other current assets 5,844 (1,175)
Other assets (6,026) (900)
Accounts payable 22,854 4,377
Accrued expenses 5,475 4,521
Income tax payable 1,817 (5,030)
Other long-term liabilities (275) (985)
Other (92) (23)
Net cash used in operations (18,727) (74,557)
Cash flows from investing activities:
Additions to property, plant and equipment (6,155) (6,574)
Disposals of property, plant and equipment 3,701 74
Minority interest in joint venture (323) (457)
Net cash used in investing activities (2,777) (6,957)
Cash flows from financing activities:
Increase in short-term borrowing - 26,271
Repayments of long-term debt (4,496) (1,277)
Proceeds from stock options exercised 3,317 1,267
Repurchase of capital stock (buy back plan) (29,301) (23,323)
Repurchase of capital stock (other) (1,838) -
Cash dividends (2,544) (4,191)
Net cash used in financing
activities (34,862) (1,253)
Net decrease in cash and cash equivalents (56,366) (82,767)
Cash and cash equivalents at beginning of period 110,393 90,295
Cash and cash equivalents at end of period $ 54,027 $ 7,528
Supplemental disclosure:
Interest paid $ 5,746 $ 1,996
Net income taxes paid (refunded) (2,872) 12,047
</TABLE>
See accompanying notes
<PAGE> 7
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
A. In the third quarter of 1998 and 1997, basic earnings per share was
computed using the weighted average number of shares of Common, Class A and
Class B Stock outstanding which amounted to approximately 41,679,000 and
37,813,000 shares, respectively. In the current period, options on
approximately 1,665,000 shares of capital stock were included in computing
diluted earnings per share.
In the prior year period, options on approximately 1,792,000 shares of
capital stock were included in computing diluted earnings per share. Also,
debentures and Preferred Stock convertible into approximately 2,587,000 and
7,679,000 shares of Class A Stock, respectively, were included in computing
diluted earnings per share in the prior year period. Therefore, in the third
quarter of 1998 and 1997, diluted earnings per share was computed using
approximately 43,344,000 and 49,871,000 weighted average shares outstanding,
respectively.
In the first nine months of 1998 and 1997, net income (loss) per share was
computed using the weighted average number of shares outstanding which
amounted to approximately 41,806,000 and 39,546,000 shares, respectively. Due
to the net loss available to common stockholders in the current year
period, options on approximately 1,820,000 shares of Class A Stock were not
included in computing diluted earnings per share in the current-year period.
In the prior year period, options on approximately 1,704,000 shares of Class
A Stock were included in computing diluted earnings per share. Also,
debentures and Preferred Stock convertible into approximately 2,857,000 and
7,679,000 shares of Class A Stock, respectively, were included in the
computation of diluted earnings per share in the prior year period.
Therefore, for the nine months of 1997, diluted earnings per share was
computed using approximately 51,516,000 weighted average shares outstanding.
B. Pursuant to Fedders Corporation (the "Company") stock option plans,
options to purcahse 2,550,000 and 400,471 shares of Class A Stock were
exercised during the first nine months of fiscal 1998 and 1997,
respectively. Of the total shares purchased in the 1998 period, 1,605,938
shares were purchased through the cashless exchange of previously
outstanding Class A and Common Stocks. No such exchange occurred in the
1997 period.
C. In January 1998, Fedders Corporation 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 consisted of fixed asset write-offs ($6.9 million) an
amount for lease terminations ($4.3 million), personnel related costs
($2.9million), and facility closings costs ($2.7 million).
<PAGE> 8
The restructuring did 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 were 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.
At May 31, 1998, the restructuring reserve balance was approximately $7.4
million and consisted principally of amounts for termination of various
equipment and facility leases and facility closing costs.
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. The Company contributed its portion of the investment
in June 1998.
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 and the issuance of 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 May 31, 1998.
At May 31, 1997, there were approximately 7.5 million shares of Preferred Stock
outstanding.
F. In July 1997, the Company announced that the Board of Directors had
authorized the repurchase of up to $50 million of outstanding stock. Under
this plan, in the first nine months of fiscal 1998, the Company purchased
approximately 5.2 million shares of Class A, Preferred and Common Stock for
approximately $29.3 million or an average of $5.63 per share. Total repurchases
under the current program amount to $33.7 million.
G. 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 nine month
periods ending May 31, 1998 are not necessarily indications of the results that
may be expected for the fiscal year ending August 31, 1998.
<Page 9>
H. 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 effective 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, other than FNA, are inconsequential, individually
and in the aggregate, to the consolidated financial statements. Management has
determined that separate financial statements for the guarantor and subsidiaries
would not be meaningful.
<PAGE> 10
H. Continued
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Three Months Ended
May 31, 1998
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $161,537 $ 10,524 $172,061
Cost of sales 126,654 8,421 135,075
Selling, general and
administrative expense (1) 6,329 3,555 9,884
Operating income (loss) 28,554 (1,452) 27,102
Minority interest in joint
venture - 96 96
Net interest expense (2,605) (201) (2,806)
Income (loss) before
income taxes 25,949 (1,557) 24,392
Income taxes (benefit) 9,082 (544) 8,538
Net income (loss) $ 16,867 $ (1,013) $ 15,854
For the Three Months Ended
May 31, 1997
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $132,870 $ 10,906 $143,776
Cost of sales 104,411 8,523 112,934
Selling, general and
administrative expense (1) 5,195 5,026 10,221
Operating income (loss) 23,264 (2,643) (20,621)
Minority interest in joint
venture - - -
Net interest income
(expense) (1,782) 314 (1,468)
Income (loss) before income
taxes 21,482 (2,329) 19,153
Income taxes (benefit) 7,304 (791) 6,513
Net income (loss) 14,178 (1,538) 12,640
Preferred stock dividend
requirement - 726 726
Net income (loss) attributable
to common stockholders $ 14,178 $ (2,264) $ 11,914
</TABLE>
See accompanying notes
<PAGE> 11
H. Continued
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Nine Months Ended
May 31, 1998
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $207,292 $ 23,840 $231,132
Cost of sales 163,928 18,344 182,272
Selling, general and
administrative expense (1) 18,539 9,370 27,909
Restructuring charge 14,488 2,262 16,750
Operating income (loss) 10,337 (6,136) 4,201
Minority interest in joint
venture - 323 323
Net interest income
(expense) (7,849) 857 (6,992)
Income (loss) before taxes 2,488 (4,956) (2,468)
Income taxes (benefit) 871 (1,734) (863)
Net income (loss) $ 1,617 $ (3,222) $ (1,605)
For the Nine Months Ended
May 31, 1997
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $208,298 $ 29,158 $237,456
Cost of sales 161,532 23,626 185,158
Selling, general and
administrative expense (1) 18,959 9,945 28,904
Operating income (loss) 27,807 (4,413) 23,394
Minority interest in joint
venture - 457 457
Net interest income
(expense) (3,493) 711 (2,782)
Income (loss) before income
taxes 24,314 (3,245) 21,069
Income taxes (benefit) 8,267 (1,103) 7,164
Net income (loss) 16,047 (2,142) 13,905
Preferred stock dividend
requirement - 2,178 2,178
Net income (loss) attributable
to common stockholders $ 16,047 $ (4,320) $ 11,727
</TABLE>
See accompanying notes
<PAGE> 12
H. Continued
Condensed Consolidating Balance Sheets(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> May 31, 1998
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 2,944 $ 51,083 $ $ 54,027
Accounts receivable, net 67,914 6,535 74,449
Inventories 51,066 15,837 66,903
Other current assets 920 6,223 7,143
Total current assets 122,844 79,678 202,522
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment, net 43,444 10,931 54,375
Goodwill 49,225 6,358 55,583
Other long-term assets 3,960 14,840 18,800
$219,473 $216,113 $(104,306) $331,280
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-
term debt $ 2,166 $ 16 $ $ 2,182
Accounts and income tax
payable 42,514 2,775 45,289
Accrued expenses 41,899 3,964 45,863
Total current liabilities 86,579 6,755 - 93,334
Net due to (from) affiliates 1,615 (1,615) -
Long-term debt 105,726 3,012 108,738
Other long-term liabilities 2,772 12,877 15,649
Stockholders' equity:
Common, Class A and Class B
Stock 5 49,421 (5) 49,421
Paid-in capital 21,292 237,317 (173,219) 85,390
Retained earnings (deficit) 1,617 (37,660) 68,918 32,875
Treasury stock - (53,885) (53,885)
Cumulative translation
adjustment (133) (109) (242)
Total stockholders' equity 22,781 195,084 (104,306) 113,559
$219,473 $216,113 $(104,306) $331,280
</TABLE>
See accompanying notes
<PAGE> 13
H. Continued
Condensed Consolidating Balance Sheets (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> August 31, 1997
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<S> <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 41,331 (5) 41,331
Paid-in capital 21,292 237,629 (173,219) 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> 14
H. Continued
Condensed Consolidating Balance Sheets(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> May 31, 1997
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ - $ 7,528 $ - $ 7,528
Accounts receivable, net 62,730 4,776 67,506
Inventories 71,469 19,126 90,595
Other current assets 960 7,165 8,125
otal current assets 135,159 38,595 - 173,754
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment, net 52,102 11,169 63,271
Goodwill 50,713 6,616 57,329
Other long-term assets 4,551 6,370 10,921
$242,525 $167,056 $(104,306) $305,275
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 26,271 $ - $ - $ 26,271
Current portion of long-
term debt 1,820 23 1,843
Accounts and income taxes
payable 24,068 7,184 31,252
Accrued expenses 33,608 8,968 42,576
Total current liabilities 85,767 16,175 101,942
Net due to (from) affiliates (96,304) 96,304 -
Long-term debt 8,313 28,973 37,286
Other long-term liabilities 4,267 14,394 18,661
Stockholders' equity:
Preferred Stock - 7,514 7,514
Common, Class A and Class B
Stock 5 41,202 (5) 41,202
Paid-in capital 109,637 88,425 (109,467) 88,595
Retained earnings (deficit) 130,982 (102,569) 5,166 33,579
Treasury stock - (23,323) (23,323)
Cumulative translation
adjustment (142) (39) (181)
Total stockholders' equity 240,482 11,210 (104,306) 147,386
$242,525 $167,056 $(104,306) $305,275
</TABLE>
See accompanying notes
<PAGE> 15
H. Continued
Condensed Consolidating Statements of Cash Flows (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Nine Months Ended
May 31, 1998
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net cash used in operations $ (5,027) $(13,700) $(18,727)
Net disposals of property, plant,
and equipment, being cash used
in investing activities (2,283) (494) (2,777)
Net repayments of short- and long-
term borrowings (1,324) (3,172) (4,496)
Cash dividends - (2,544) (2,544)
Proceeds from stock options
exercised - 3,317 3,317
Repurchase of capital stock - (31,139) (31,139)
Change in net due to (from)
affiliate 11,578 (11,578) -
Net cash provided by (used in)
financing activities 10,254 (45,116) (34,862)
Net increase (decrease) in cash
and cash equivalents 2,944 (59,310) (56,366)
Cash and cash equivalents at
beginning of year - 110,393 110,393
Cash and cash equivalents at
end of period $ 2,944 $ 51,083 $ 54,027
</TABLE>
See accompanying notes
<PAGE> 16
H. Continued
Condensed Consolidating Statements of Cash Flows (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION> For the Nine Months Ended
May 31, 1997
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net cash used in operations $(57,010) $(18,004) $(75,014)
Net disposals of property, plant,
and equipment, being cash used
in investing activities (5,384) (1,116) (6,500)
Net repayments of short- and long-
term borrowings 25,412 (418) 24,994
Cash dividends - (4,191) (4,191)
Proceeds from stock options
exercised - 1,267 1,267
Repurchase of capital stock - (23,323) (23,323)
Change in net due to (from)
affiliate 36,982 (36,982) -
Net cash provided by (used in)
financing activities 62,394 (63,647) (1,253)
Net decrease in cash and cash
equivalents - (82,767) (82,767)
Cash and cash equivalents at
beginning of year - 90,295 90,295
Cash and cash equivalents at
end of period $ - $ 7,528 $ 7,528
</TABLE>
See accompanying notes
<PAGE> 17
H. Continued
Intercompany transactions
The historical condensed consolidating financial statements presented above
include the following transactions between the Company and FNA.
1) The Company charges corporate overhead essentially on a cost basis
allocated in proportion to sales. Such charges to FNA amounted to approximately
$7.2 million and $6.8 million for the nine months ended May 31, 1998 and 1997,
respectively. For the three month periods, such charges amounted to $2.2
million and $1.3 million, respectively.
2) FNA's depreciation and amortization for the nine months ended May 31,
1998 and 1997 amounted to approximately $5.3 million and $6.0 million,
respectively. For the three month period, such costs amounted to $1.7 million
and $2.5 million, respectively. Capital expenditures of FNA for the nine month
period amounted to $4.8 million and $5.5 million, respectively.
I. On June 23, 1998, the Board of Directors of the Company, approved a spin-
off of its Melcor subsidiary, subject to a favorable ruling by the Internal
Revenue Service on the tax-free status of the transaction. Melcor Corporation,
a leading manufacturer of thermoelectric modules, was acquired by the Company
in 1996 inconnection with the strategic acquisition of Rotorex Company. The
Company believes Melcor's different customer and supplier base and channels of
distribution do not fit synergistically with the Company's consumer-oriented
business. It is expected that each of the Company's stockholders will receive
one share of Melcor stock for every ten shares of the Company's Common, Class A
and Class B Stock Owned.
<PAGE> 18
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 additional production from North America to China and increasing
component outsourcing. The charge consists of fixed asset write-offs ($6.9
million), an amount for lease terminations ($4.3 million), personnel-related
costs ($2.9 million) and facility closing costs ($2.7 million).
In March 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. The
Company contributed its portion of the investment in June.
In June 1998, the Board of Directors of the Company, approved a spin-off of its
Melcor subsidiary, subject to a favorable ruling by the Internal Revenue Service
on the tax-free status of the transaction. Melcor Corporation, a leading
manufacturer of thermoelectric modules, was acquired by the Company in 1996 in
connection with the strategic acquisition of Rotorex Company. The Company
believes Melcor's different customer and supplier base and channels of
distribution do not fit synergistically with the Company's consumer-oriented
business. It is expected that each of the Company's stockholders will receive
one share of Melcor stock for every ten shares of the Company's Common, Class A
or Class B owned.
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>
<CAPTION> Operating Results as Percent of Net Sales
Third Fiscal Quarter Nine Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross profit 21.5% 21.5% 21.1% 22.0%
Selling, general
and administrative
expense 5.7% 7.1% 12.1% 12.2%
Operating income before
restructuring charge 15.8% 14.3% 9.0% 9.9%
Restructuring charge - - 7.2% -
Operating income 15.8% 14.3% 1.8% 9.9%
Net interest expense 1.6% 1.0% 3.0% 1.2%
Pre-tax income (loss) 14.2% 13.3% (1.1%) 8.9%
</TABLE>
Third Quarter
Net sales in the third quarter ended May 31, 1998, amounted to $172.1 million,
an increase of 20% from $143.8 million in the same period a year earlier.
During fiscal 1998, Fedders' domestic sales reflect an increasingly seasonal
pattern, with more shipments occurring in the second half of the fiscal year and
fewer in the off-season first half.
<PAGE> 19
This is because major domestic retailers, who continue to gain market share,
require delivery of room air conditioners closer to the time of sale to
customers.
Gross profit percentage remained unchanged from the prior year at 21.5%.
In the 1998 quarter, selling, general and administrative expenses decreased $.3
million from the prior year quarter due to the Company's previously discussed
restructuring. These expenses decreased as a percentage of net sales from the
prior year as a result of the sales increase.
Operating income was $27.1 million or 15.8% of net sales in the current year
period compared to $20.6 million or 14.3% of net sales in the prior year period,
reflecting the sales increase.
Net interest expense of $2.8 million increased primarily due to interest on the
9 3/8% Senior Subordinated Notes 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 and to very limited short-term borrowings
in the current period compared to the prior year quarter, which ended with
$26.3 million of short-term debt outstanding at May 31, 1997. Also, the
increase in interest expense was offset, in part, by the absence of preferred
stock dividends.
Net income increased $4.0 million to $15.9 million compared to net income
available to common stockholders of $11.9 million during the same period in the
prior year. Earnings per share increased by 42% in the quarter as total shares
outstanding declined by 10.5% at May 31, 1998 to 40.0 million from 44.7 million
in the prior year, including preferred shares.
Nine Months
For the first nine months of fiscal 1998, sales were $231.1 million, a decline
of 2.7% from $237.5 million in the comparable 1997 period. The sales decrease
during the nine-month period primarily reflects a decrease in sales outside of
North America.
Gross profit margin percentage decreased during the first nine 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 decreased as a percentage of net
sales from the prior year as a result of the previously discussed restructuring.
For the nine-month period, these expenses amounted to a net decrease of $1.0
million, when compared to the same period in fiscal 1997.
Operating income before restructuring was $21.0 million or 9.0% of net sales
in the current year compared to income of $23.4 million or 9.9% of net sales in
the prior year due to lower gross profit margin.
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 Subordinated Notes
due in 2007, offset, in part, by the previously discussed redemption of the
Company's 8-1/2%convertible subordinated debentures due in 2007, very limited
short-term borrowings in fiscal 1998 compared to fiscal 1997 and the absence of
preferred dividends.
<PAGE> 20
Including the restructuring charge, the Company's net income decreased $15.5
million to a loss of $1.6 million from $13.9 million in fiscal 1997. The net
income before the restructuring charge, net of tax effect, was $9.3 million or
21 cents per diluted share, in the current year compared to net income available
to common stockholders of $11.7 million or 29 cents per diluted 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 typically occurring early in the calendar year. Cash on hand at May 31,
1998 amounted to $54.0 million and there were no short-term borrowings compared
to cash on hand of $7.5million and short-term borrowings of $26.3 million at
May 31, 1997. The increase in cash was due, in part, to proceeds of the $100
million senior note offering completed in August 1997 which reduced short-term
borrowings for seasonal working capital in fiscal 1998. Cash included $4.3
million and $4.1 million at Fedders Xinle, the Company's Chinese joint venture,
at May 31, 1998 and 1997, respectively.
Net cash used in operations for the nine months ended May 31, 1998 amounted to
$18.7 million, compared to $74.6 million in the prior year period. The Company
required less cash due to its operations ability to match in-season production
to the previously discussed sales shift into the second half of the fiscal year.
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 $66.9 million at May 31, 1998 versus $90.6 million a year
earlier.
Net cash used in investing activities consisted primarily of capital
expenditures of $6.2 million in the first nine months of fiscal 1998.
Net cash used in financing activities during the nine-month period amounted to
$34.9 million, primarily for stock repurchases under the previously announced
stock repurchase plan of up to $50 million and for payment of dividends.
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 program is
currently under way to insure that the Company's systems continue to meet its
internal needs and those of its customers. The Company has incurred expenses in
fiscal 1998 to resolve this issue and believes that such costs will not have a
material impact on the Company's future 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
10-K. The Company disclaims any obligation to update any forward-looking
statements to incorporate subsequent events.
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Date 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/ Robert L. Laurent, Jr.
Executive Vice President
Finance & Administration and
Chief Financial Officer
Date: July 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 54,027
<SECURITIES> 0
<RECEIVABLES> 76,087
<ALLOWANCES> 1,638
<INVENTORY> 66,903
<CURRENT-ASSETS> 7,143
<PP&E> 106,174
<DEPRECIATION> 51,799
<TOTAL-ASSETS> 331,280
<CURRENT-LIABILITIES> 93,334
<BONDS> 108,738
0
0
<COMMON> 49,420
<OTHER-SE> 31,264
<TOTAL-LIABILITY-AND-EQUITY> 331,280
<SALES> 231,132
<TOTAL-REVENUES> 231,132
<CGS> 182,272
<TOTAL-COSTS> 44,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,992
<INCOME-PRETAX> (2,468)
<INCOME-TAX> (863)
<INCOME-CONTINUING> (1,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,605)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following information is being submitted to update previously disclosed
earnings per share amounts. The amounts shown below represent Basic and Diluted
Earnings Per Share under SFAS 128.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> AUG-31-1997 AUG-31-1997 AUG-31-1997 AUG-31-1997
<PERIOD-END> AUG-31-1997 MAY-31-1997 FEB-28-1997 NOV-30-1996
<CASH> 110,393 7,528 5,751 28,188
<SECURITIES> 0 0 0 0
<RECEIVABLES> 10,894 70,490 39,134 12,366
<ALLOWANCES> 1,834 2,984 2,135 2,630
<INVENTORY> 62,887 173,754 133,721 95,772
<CURRENT-ASSETS> 12,987 8,125 7,441 6,572
<PP&E> 124,341 121,508 121,722 123,003
<DEPRECIATION> 60,347 58,237 57,664 59,605
<TOTAL-ASSETS> 329,014 305,275 316,949 272,036
<CURRENT-LIABILITIES> 53,591 101,942 114,032 57,319
<BONDS> 113,489 37,286 37,817 38,101
0 0 0 0
6,809 7,514 7,517 7,517
<COMMON> 41,331 41,202 40,909 40,887
<OTHER-SE> 60,523 65,091 74,785 87,501
<TOTAL-LIABILITY-AND-EQUITY> 329,014 305,275 316,949 272,036
<SALES> 314,100 237,456 93,680 33,087
<TOTAL-REVENUES> 314,100 237,456 93,680 33,087
<CGS> 244,024 185,158 72,224 25,908
<TOTAL-COSTS> 38,347 28,904 18,683 9,358
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,430 2,782 1,314 (3)
<INCOME-PRETAX> 28,867 21,069 1,916 (1,668)
<INCOME-TAX> 10,103 7,164 651 (422)
<INCOME-CONTINUING> 18,764 13,905 1,265 (1,246)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 18,764 13,905 1,265 (1,246)
<EPS-PRIMARY> 0.42 0.30 0.00 (0.05)
<EPS-DILUTED> 0.39 0.29 0.00 (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This following information is being submitted to update previously disclosed
earnings per share amounts. The amounts shown below represent Basic and Diluted
Earnings Per Share under SFAF 128.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1996 AUG-31-1996
<PERIOD-END> AUG-31-1996 MAY-31-1996 FEB-28-1996
<CASH> 90,295 24,064 13,347
<SECURITIES> 0 0 0
<RECEIVABLES> 9,927 88,744 45,059
<ALLOWANCES> 1,952 2,133 1,735
<INVENTORY> 53,446 50,964 106,786
<CURRENT-ASSETS> 6,950 6,161 5,104
<PP&E> 120,823 79,390 75,561
<DEPRECIATION> 57,951 42,032 40,754
<TOTAL-ASSETS> 290,220 213,048 211,236
<CURRENT-LIABILITIES> 71,849 84,733 96,495
<BONDS> 38,517 10,733 14,440
0 0 0
7,643 0 0
<COMMON> 40,673 40,508 40,284
<OTHER-SE> 87,570 47,406 46,887
<TOTAL-LIABILITY-AND-EQUITY> 290,220 213,048 211,236
<SALES> 371,772 290,004 116,136
<TOTAL-REVENUES> 371,772 290,004 116,136
<CGS> 288,744 227,363 91,354
<TOTAL-COSTS> 32,040 22,686 13,651
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 952 1,164 456
<INCOME-PRETAX> 50,266 39,028 10,828
<INCOME-TAX> 19,108 14,885 4,115
<INCOME-CONTINUING> 31,158 24,123 6,713
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 31,158 24,123 6,713
<EPS-PRIMARY> 0.77 0.60 0.17
<EPS-DILUTED> 0.73 0.58 0.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This following information is being submitted to update previously disclosed
earnings per share amounts. The amounts shown below represent Basic and Diluted
Earnings Per Share under SFAS 128.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 55,609
<SECURITIES> 0
<RECEIVABLES> 15,430
<ALLOWANCES> 1,189
<INVENTORY> 84,577
<CURRENT-ASSETS> 12,271
<PP&E> 123,839
<DEPRECIATION> 60,750
<TOTAL-ASSETS> 299,173
<CURRENT-LIABILITIES> 46,176
<BONDS> 111,112
0
0
<COMMON> 49,349
<OTHER-SE> 11,241
<TOTAL-LIABILITY-AND-EQUITY> 299,173
<SALES> 25,491
<TOTAL-REVENUES> 25,491
<CGS> 20,758
<TOTAL-COSTS> 9,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,836
<INCOME-PRETAX> (6,043)
<INCOME-TAX> 2,112
<INCOME-CONTINUING> (3,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,931)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
