<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, 1999 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 - 0813
(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 16,135,159 shares of Common Stock, 17,606,036
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, 1999.
<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 7-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-21
Item 3. Quantitative and Qualitative Disclosures 21
about Market Risk
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales and other income $175,632 $172,061 $260,221 $231,132
Cost of sales 134,973 135,075 200,084 182,272
Selling, general and
administrative expense 10,712 9,884 29,272 27,909
Restructuring charge - - - 16,750
----------------------------------------
145,685 144,959 229,356 226,931
Operating income 29,947 27,102 30,865 4,201
Partner's net interest in
joint venture results (71) 96 534 323
Net interest expense (2,981) (2,806) (7,758) (6,992)
-------------------------------------------
Income (loss) before income
taxes 26,895 24,392 23,641 (2,468)
Federal, state and foreign
income taxes (benefit) 8,825 8,538 7,691 (863)
-------------------------------------------
Net income (loss) $ 18,070 $ 15,854 $ 15,950 $ (1,605)
===========================================
Earnings (loss) per share:
Basic $ 0.50 $ 0.38 $ 0.44 $ (0.04)
===========================================
Diluted $ 0.48 $ 0.37 $ 0.42 $ (0.04)
===========================================
Dividends per share declared:
Common $ 0.0250 $ 0.020 $ 0.0750 $ 0.060
Class A 0.0250 0.020 0.0750 0.060
Class B 0.0225 0.018 0.0675 0.054
</TABLE>
See accompanying notes
<PAGE> 4
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31, MAY 31,
1999 1998 1998
----------------------------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 51,664 $ 90,986 $ 54,027
Accounts receivable (less
allowance of $1,977, $2,032,
and $1,638 at May 31, 1999,
August 31, 1998 and
May 31, 1998, respectively 69,172 14,520 74,449
Inventories:
Finished goods 13,423 25,553 33,315
Work in process 4,946 4,132 4,597
Raw materials and supplies 33,857 22,576 28,991
-------------------------------------
52,226 52,261 66,903
Deferred tax benefit 5,902 5,902 4,070
Prepaid expenses 3,026 4,308 3,073
-------------------------------------
Total current assets 181,990 167,977 202,522
Property, plant and equipment
at cost:
Land and improvements 2,994 2,994 2,994
Buildings 22,205 22,326 22,216
Machinery and equipment 84,758 79,454 72,019
Machinery and equipment under
capital lease 8,446 8,647 8,945
-------------------------------------
118,403 113,421 106,174
Less accumulated depreciation 61,729 57,103 51,799
-------------------------------------
56,674 56,318 54,375
Deferred income taxes 8,838 8,838 6,374
Goodwill 53,884 55,159 55,583
Other assets 16,019 16,337 12,426
-------------------------------------
$ 317,405 $304,629 $331,280
=====================================
</TABLE>
See accompanying notes
<PAGE> 5
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)(unaudited)
<TABLE>
<CAPTION>
May 31, August 31, May 31,
1999 1998 1998
----------------------------------
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 3,072 $ 2,065 $ 2,182
Accounts payable 25,501 25,769 33,445
Income taxes payable 20,775 14,406 11,844
Accrued expenses 42,219 32,101 45,863
----------------------------------
Total current liabilities 91,567 74,341 93,334
Long-term debt 106,914 108,948 108,738
Other long-term liabilities 9,672 11,911 10,932
Minority interest in joint venture 2,625 4,637 4,717
Stockholders' equity:
Common Stock,
(all classes $1 par value):
80,000 shares authorized
16,322, 16,972 and 17,626 issued
at May 31,1999; August 31, 1998
and May 31, 1998, respectively 16,347 16,972 17,626
Class A Stock,
60,000 shares authorized,
19,370; 19,381 and 29,527 issued
at May 31, 1999, August 31, 1998
and May 31, 1998, respectively 19,445 19,381 29,527
Class B Stock,
7,500 shares authorized,
2,267 issued at May 31, 1999,
August 31, 1998 and May 31, 1998,
respectively 2,267 2,267 2,267
Additional paid-in capital 29,305 31,619 85,391
Retained earnings 49,654 36,496 32,875
Cumulative translation adjustment (391) (430) (242)
----------------------------------
116,627 106,305 167,444
Less: treasury stock, at cost,
1,690 and 7,775 shares at
at May 31, 1999, and May 31, 1998,
respectively (8,702) - (53,885)
Deferred compensation (1,298) (1,513) -
---------------------------------
Total stockholders' equity 106,627 104,792 113,559
---------------------------------
$317,405 $304,629 $331,280
==================================
</TABLE>
See accompanying notes
<PAGE> 6
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED May 31,
1999 1998
----------------------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 15,950 $ (1,605)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 6,976 6,636
and deferred income taxes
Restructuring charge:
Provision for facility closing - 9,850
Write-off of long-lived assets - 6,900
Changes in operating assets and liabilities:
Accounts receivable (54,652) (65,389)
Inventories 35 (4,716)
Other current assets 1,475 5,844
Other assets (163) (6,026)
Accounts payable (268) 22,854
Accrued expenses 9,868 5,475
Income tax payable 6,369 1,817
Other long-term liabilities (1,996) (275)
Other 262 (92)
------------------------
Net cash used in operations (16,144) (18,727)
------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (6,257) (6,155)
Disposals of property, plant and equipment - 3,701
Partner's net interest in joint venture results (2,012) (323)
------------------------
Net cash used in investing activities (8,269) (2,777)
------------------------
Cash flows from financing activities:
Repayments of long-term debt (546) (4,496)
Proceeds from stock options exercised 179 3,317
Repurchase of capital stock (buy-back plan) (11,756) (29,301)
Repurchase of capital stock (other) - (1,838)
Cash dividends (2,786) (2,544)
-----------------------
Net cash used in financing
activities (14,909) (34,862)
------------------------
Net decrease in cash and cash equivalents (39,322) (56,366)
Cash and cash equivalents at beginning
of period 90,986 110,393
-----------------------
Cash and cash equivalents at end of period $ 51,664 $ 54,027
======================
Supplemental disclosure:
Interest paid $ 8,120 $ 5,746
Net income taxes paid (refunded) 2,441 (2,872)
</TABLE>
See accompanying notes
<PAGE> 7
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
A. The financial information included herein is unaudited and prepared in
accordance with the instructions for Form 10-Q; 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. Reference should be made to the annual
financial statements, including footnotes thereto, included in Fedders
Corporation's (the "Company") Annual Report on Form 10-K for the fiscal year
ended August 31, 1998. The Company's business is seasonal, and consequently,
operating results for the three-month and nine month periods ending May 31, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 1999.
B. 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 nine
months of fiscal 1998, the Company purchased approximately 3.4 million shares of
Common, Class A, and Preferred Stock for $19.9 million or $5.87 per share. Total
repurchases under this plan which were complete by August 1998 amounted to
approximately 8.4 million shares of Common, Class A and Preferred Stock for
$50.1 million or $5.93 per share.
In August 1998, the Company announced that it had been authorized to repurchase
up to an additional $30 million of outstanding stock. Under this plan, in the
first nine months of fiscal 1999, the Company repurchased approximately 2.4
million shares of Common and Class A Stock for $11.7 million or $4.86 per share.
C. In the third quarter of 1999 and 1998, net income (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 36,153,000 and
41,679,000 shares, respectively. Options on approximately 1,701,000 shares of
capital stock were included in computing diluted earnings per share in the 1999
quarter. In the prior year period, options on approximately 1,665,000 shares of
capital stock were included in computing diluted earnings per share.
In the first nine months of 1999 and 1998, net income (loss) per share was
computed using the weighted average number of shares outstanding, which amounted
to approximately 36,268,000 and 41,806,000 shares, respectively. Options on
approximately 1,666,000 shares of capital stock were included in computing
diluted earnings per share in 1999. Options on approximately 1,820,000 shares of
capital stock were not included in computing diluted earnings per share due to
the net loss in the 1998 period.
<PAGE> 8
D. 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 of 1998. At May 31, 1999, the restructuring
reserve balance was approximately $3.0 million and consisted principally of
amounts for terminations of various equipment and facility leases.
E. The Company adopted Statement of Financial Accounting Standards (SFAS) 130, "
Reporting Comprehensive Income", on September 1, 1998. This statement
established standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Comprehensive income of the Company is as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
May 31, May 31,
1999 1998 1999 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $18,070 $15,854 $15,950 $ (1,605)
Other comprehensive loss,
net of tax:
Foreign currency translation
adjustment 28 23 39 (104)
------- ------- ------- ---------
Comprehensive income (loss) $18,098 $15,877 $15,989 $ (1,709)
======= ======= ======= =========
</TABLE>
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information". This standard supersedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise" and establishes standards for the way
that public companies report information about operating segments and standards
for disclosures regarding products and services, geographic areas and major
customers. As permitted by SFAS 131, the Company will not apply this statement
to interim periods in the initial year of adoption. Results of operations and
financial position will be unaffected by implementation of this standard.
In February 1998, the FASB issued SFAS 132 "Employers Disclosures About Pensions
and Other Post-Retirement Benefits" - an Amendment of SFAS 87, 88 and 106, which
revises disclosure about pension and other post-retirement benefits. The
statement is effective for the Company's financial statements for the fiscal
year ending August 31, 1999. The Company does not expect this statement to have
a material impact on the Company's financial statements.
<PAGE> 9
F. Subsequent Event:
In July 1999, Fedders Corporation entered into an agreement providing
for Fedders' acquisition (by way of a cash tender offer and a subsequent
merger of Trion into a subsidiary of Fedders) of Trion, Inc., a manufacturer
of indoor air quality products, at a price of $5.50 per share in cash for
all (approximately 7.2 million) outstanding shares of Trion's common
stock. The agreement is conditioned upon the tender of at least 80.0% of
the shares of Trion common stock outstanding on a fully diluted basis,
certain regulatory filings and other customary conditions. Following the
acquisition, Trion will continue as an indirect wholly-owned subsidiary of
Fedders.
G. In August 1997, Fedders North America, Inc.("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 following condensed consolidating financial statements present
separate information for FNA (including its subsidiaries) and the Company and
its subsidiaries, other than FNA. The subsidiaries of the Company other than FNA
(including its subsidiaries) 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> 10
G. Continued
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
May 31, 1999
Fedders Other Fedders
North America Fedders Corporation
-----------------------------------------
<S> <C> <C> <C>
Net sales $164,894 $ 10,738 $175,632
Cost of sales 126,629 8,344 134,973
Selling, general and
administrative expense (1,3) 8,614 2,098 10,712
--------------------------------------
Operating income 29,651 296 29,947
Partner's net interest in
joint venture results - (71) (71)
Net interest expense (2) (2,464) (517) (2,981)
---------------------------------------
Income (loss) before
income taxes 27,187 (292) 26,895
Income taxes (benefit) 8,762 (63) 8,825
--------------------------------------
Net income (loss) $ 18,425 $ (355) $ 18,070
======================================
<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 (1,3) 6,329 3,555 9,884
--------------------------------------
Operating income (loss) 28,554 (1,452) 27,102
Partner's net interest in
joint venture results - 96 96
Net interest expense (2) (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
======================================
</TABLE>
See accompanying notes
<PAGE> 11
G. Continued
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
May 31, 1999
Fedders Other Fedders
North America Fedders Corporation
-----------------------------------------
<S> <C> <C> <C>
Net sales $237,615 $ 22,606 $260,221
Cost of sales 181,521 18,563 200,084
Selling, general and
administrative expense (1,3) 20,668 8,604 29,272
---------------------------------------
Operating income (loss) 35,426 (4,561) 30,865
Partner's net interest in
joint venture results - 534 534
Net interest expense (2) (7,684) (74) (7,758)
------------------------------------------
Income (loss) before
income taxes 27,742 (4,101) 23,641
Income taxes (benefit) 8,956 (1,265) 7,691
---------------------------------------
Net income (loss) $ 18,786 $ (2,836) $ 15,950
=======================================
<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
Partner's net interest in
joint venture results - 323 323
Net interest income
(expense) (2) (7,849) 857 (6,992)
----------------------------------------
Income (loss) before
income taxes 2,488 (4,956) (2,468)
Income taxes (benefit) 871 (1,734) (863)
----------------------------------------
Net income (loss) $ 1,617 $ (3,222) $ (1,605)
========================================
</TABLE>
See accompanying notes
<PAGE> 12
G. Continued
Condensed Consolidating Balance Sheets(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
May 31, 1999
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
-----------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 32,528 $ 19,136 $ 51,664
Accounts Receivable, net 64,591 4,581 69,172
Inventories 40,322 11,904 52,226
Other current assets 6,589 2,339 8,928
--------------------------------------------------
Total current assets 144,030 37,960 181,990
Investment in subsidiaries - 104,306 $(104,306) -
Property, plant and
equipment, net 46,070 10,604 56,674
Goodwill 47,814 6,070 53,884
Other long-term assets 7,020 17,837 24,857
--------------------------------------------------
$244,934 $176,777 $(104,306) $317,405
==================================================
Liabilities and Stockholders'
Equity Current liabilities:
Current portion of long-
term debt $ 1,501 $ 1,571 $ 3,072
Accounts and income tax
payable 47,624 (1,348) 46,276
Accrued expenses 42,547 (328) 42,219
-------------------------------------------------
Total current liabilities 91,672 (105) - 91,567
Long-term debt 104,263 2,651 106,914
Other long-term liabilities 2,457 9,840 12,297
Stockholders' equity:
Common, Class A and Class B
Stock 5 38,059 (5) 38,059
Paid-in capital 21,292 112,315 $(173,219) (39,612)
Retained earnings 25,619 24,033 68,918 118,570
Treasury stock - (8,702) (8,702)
Deferred compensation - (1,298) (1,298)
Cumulative translation
adjustment (374) (16) (390)
---------------------------------------------------
Total stockholders' equity 46,542 164,391 (104,306) 106,627
--------------------------------------------------
$244,934 $176,777 $(104,306) $317,405
==================================================
</TABLE>
See accompanying notes
<PAGE> 13
G. Continued
Condensed Consolidating Balance Sheets (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
August 31, 1998
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
-----------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash - $ 90,986 $ 90,986
Accounts receivable, net 11,328 3,192 14,520
Inventories 39,335 12,926 52,261
Other current assets 6,952 3,258 10,210
--------------------------------------------------
Total current assets 57,615 110,362 167,977
Investment in subsidiaries - 104,306 (104,306) -
Property, plant and
equipment, net 45,446 10,872 56,318
Goodwill 48,873 6,286 55,159
Other long-term assets 7,460 17,715 25,175
--------------------------------------------------
$159,394 $249,541 $(104,306) $304,629
==================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-
term debt $ 2,060 $ 5 $ 2,065
Accounts and income tax
payable 38,773 1,402 40,175
Accrued expenses 28,571 3,530 32,101
--------------------------------------------------
Total current liabilities 69,404 4,937 - 74,341
Net due to (from) affiliates (46,905) 46,905 -
Long-term debt 105,334 3,614 108,948
Other long-term liabilities 3,391 13,157 16,548
Stockholders' equity:
Common, Class A and Class B
Stock 5 38,620 (5) 38,620
Paid-in capital 21,292 183,546 $(173,219) 31,619
Retained earnings (deficit) 7,231 (39,653) 68,918 36,496
Deferred compensation - (1,513) (1,513)
Cumulative translation
adjustment (358) (72) (430)
---------------------------------------------------
Total stockholders' equity 28,170 180,928 (104,306) 104,792
--------------------------------------------------
$159,394 $249,541 $(104,306) $304,629
==================================================
</TABLE>
See accompanying notes
<PAGE> 14
G. 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 taxes
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> 15
G. Continued
Condensed Consolidating Statements of Cash Flows (unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
May 31, 1999
Fedders Other Fedders
North America Fedders Corporation
---------------------------------------
<S> <C> <C> <C>
Net cash used in operations $ (9,453) $ (6,691) $(16,144)
-------------------------------------
Net additions to property, plant,
and equipment, being cash used
in investing activities (3,294) (4,975) (8,269)
-------------------------------------
Net (repayments) proceeds of
short and long-term borrowings (1,630) 1,084 (546)
Cash dividends - (2,786) (2,786)
Proceeds from stock options
exercised - 179 179
Repurchase of capital stock - (11,756) (11,756)
Change in net due to (from)
affiliate 40,891 (40,891) -
-------------------------------------
Net cash provided by (used in)
financing activities 39,261 (54,170) (14,909)
-------------------------------------
Net decrease in cash and cash
equivalents (26,514) (65,836) (39,322)
-------------------------------------
Cash and cash equivalents at
beginning of year 6,014 84,972 90,986
------------------------------------
Cash and cash equivalents at
end of period $32,528 $ 19,136 $ 51,664
====================================
</TABLE>
See accompanying notes
<PAGE> 16
G. 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 (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> 17
G. 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 $4.1
million and $2.2 million for the three months ended May 31, 1999 and 1998,
respectively. Such charges to FNA amounted to $8.7 million and $7.2 million for
the nine months ended May 31, 1999 and 1998, respectively.
2) FNA's interest expense reflects actual interest charges on the 9-3/8% Senior
Subordinated Notes due 2007, a revolving line of credit, a promissory note and
capital lease obligations.
3) FNA's depreciation and amortization for the three months ended May 31, 1999
and 1998 amounted to approximately $1.8 million and $1.7 million, respectively.
For the nine months ended May 31, 1999 and 1998, such costs amounted to $5.6
million and $5.3 million, respectively. Capital expenditures of FNA for the
three-month period amounted to $2.2 million and $2.4 million, respectively. For
the nine-month period such expenditures amounted to approximately $5.5 million
and $4.8 million, respectively.
<PAGE> 18
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
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
1999 1998 1999 1998
--------------------------------------------
<S> <C> <C> <C> <C>
Gross profit 23.2% 21.5% 23.1% 21.1%
Selling, general
and administrative
expense 6.1% 5.7% 11.3% 12.1%
Operating income before
restructuring charge 17.1% 15.8% 11.8% 9.0%
Restructuring charge - - - 7.2%
Operating income 17.1% 15.8% 11.8% 1.8%
Net interest expense 1.7% 1.6% 3.0% 3.0%
Pre-tax income (loss) 15.4% 14.2% 8.8% (1.2%)
</TABLE>
Third Quarter
Net sales in the third quarter ended May 31, 1999, amounted to $175.6 million,
an increase of 2% from $172.1 million in the same period a year earlier. This
increase is primarily attributable to air conditioning sales.
Gross profit percentage increased to 23.2% from 21.5% primarily due to change in
sales mix.
In the 1999 quarter, selling, general and administrative expenses increased due
to higher administrative and R&D spending.
Operating income was $29.9 million or 17.1% of net sales in the current year
period compared to $27.1 million or 15.8% of net sales in the prior year period,
reflecting the sales increase and higher gross profit.
Net interest expense was slightly higher in the current quarter and reflects the
seasonal short-term borrowings.
Net income increased $2.1 million to $18.1 million compared to net income of
$15.9 million during the same period in the prior year. Total shares outstanding
declined by 9.3% at May 31, 1999 to 36.3 million from 40.0 million in the prior
year as a result of the Company's stock repurchase plan.
<PAGE> 19
Nine Months
For the first nine months of fiscal 1999, sales were $260.2 million, an increase
of 12.6% from $231.5 million in the comparable 1998 period. The sales increase
during the nine-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. Further, sales to international customers
increased.
Gross profit margin percentage increased during the first nine months of the
current year, compared to the same period in fiscal 1998, due to increased
absorption of fixed costs and expenses as a result of increased production.
Selling, general and administrative expenses increased $1.4 million from the
prior year as a result of increased administration and R&D costs, but decreased
as a percent of net sales to 11.3% from 12.1% in the prior year due to higher
sales.
Operating income before restructuring was $30.9 million or 11.9% of net sales in
the current year compared to income of $21.0 million or 9.0% of net sales in the
prior year due to higher sales and gross margins.
Net interest expense was slightly higher in the current year due to the
increase in short-term borrowings.
The Company's net income increased $17.6 million to a profit of $16.0 million
from a loss of $1.6 million in fiscal 1998. The net income was $16.0 million or
44 cents per share, in the current year compared to net income, before the
restructuring charge, of $9.3 million or 22 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 May 31, 1999
amounted to $51.6 million and there were no short-term borrowings compared to
cash on hand of $54.0 million and no short-term borrowings at May 31, 1998. Cash
included $3.5 million and $4.3 million at Fedders Xinle, the Company's joint
venture in China, at May 31, 1999 and 1998, respectively.
<PAGE> 20
Net cash used in operations for the nine months ended May 31, 1999, amounted to
$16.1 million, compared to $18.7 million in the prior year period. The Company's
operations required less cash due to it's 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 $52.2 million at May 31, 1999 versus $66.9 million a year
earlier.
Net cash used in investing activities consisted primarily of capital
expenditures of $6.2 million and $2.0 million for the Company's joint venture in
the first nine months of fiscal 1999.
Net cash used in financing activities during the nine-month period amounted to
$14.9 million, primarily for stock repurchases under the previously announced
stock repurchase plans of up to $30 million and for payment of dividends. At May
31, 1999, the Company had no short-term borrowings.
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.
Subsequent Event:
In July 1999, Fedders Corporation entered into an agreement providing for
Fedders' acquisition (by way of a cash tender offer and a subsequent merger
of Trion into a subsidiary of Fedders) of Trion, Inc., a manufacturer
of indoor air quality products, at a price of $5.50 per share in cash for
all (approximately 7.2 million) outstanding shares of Trion's common stock.
The agreement is conditioned upon the tender of at least 80.0% of the shares
of Trion common stock outstanding on a fully diluted basis, certain
regulatory filings and other customary conditions. Following the
acquisition, Trion will continue as an indirect wholly-owned subsidiary of
Fedders.
Strategic Business Plan - At August 31, 1996 the Company had approximately 48.4
million shares of Preferred, Common, Class A and Class B Stock outstanding at a
weighted average closing price of $5.55. Since August 1996, the Company has
taken several strategic actions to improve its capital structure, operating
performance and increase shareholder value. A chronology of the major actions
are listed below.
In August 1997, a subsidiary of the Company issued $100 million principle amount
of 9 3/8% Senior Subordinated Notes. A portion of the proceeds of the Notes
($72.3 million) was received by the Company as a dividend from the subsidiary
and used to satisfy the Company's obligation on its 8 1/2% Convertible
Subordinated Debentures, repurchases of the Company's capital stock (discussed
below) and for general operating purposes.
Three stock repurchase plans have been announced totaling $105 million ($25
million in September 1996, $50 million in July 1997 and $30 million in August of
1998). Under these plans, approximately $87 million of capital stock has been
repurchased to-date totaling 15.2 million shares at an average price of $5.72
per share.
At May 31, 1999 the Company had approximately 36.3 million shares of Common,
Class A and Class B Stock outstanding at a weighted average closing price of
$5.50.
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. The restructuring plan and its timing were designed to proactively
enhance the Company's competitiveness in global markets and further position it
to take full advantage of opportunities in the global room air conditioner
market. The restructuring did not result in factory closings. However, it did
involve shifting some additional production from North America to China and
increasing component outsourcing.
<PAGE> 21
Year 2000 - The inventory and assessment phases of the Company's Year 2000 plan
are materially complete with respect to internal information technology ("IT")
and non-IT systems, such as embedded technology and micro controllers. Testing
and resolution phases, except with respect to business partner's and service
providers, of the plan were scheduled to be completed by June 30, 1999. One
system within the Company's IT systems was still being tested at June 30, 1999.
The Company now expects to complete testing and resolution of this remaining IT
system in the first week of August 1999. The National Retail Federation has
listed the Company as being a compliant Year 2000 EDI vendor.
The Company's principle Year 2000 uncertainty relates to material third-party
relationships with customers and suppliers. Assessment of these relationships,
in part through on-site audits, is ongoing and contingency plans are being
developed to minimize the effect of any such issues. Contingency planning
includes the use of alternate suppliers, which the Company has in place for all
significant components. In addition, the Company is developing plans to protect
its facilities from any damage that could occur if a utility supplying that
facility were unable to provide service. Because the company's business is
seasonal, and most customers in the domestic market do not take product until
close to the summer season, the Company will have a period of time to react to
any adverse consequences caused by a vendor or service provider who is not Year
2000 compliant. The Company cannot estimate lost revenues at this time, if any,
that are reasonably likely to be a result of Year 2000 issues.
The Company has not delayed any IT projects that are material to its operations
due to its Year 2000 efforts, nor does it believe that any delay in
implementation of these projects will have any material financial impact on the
Company. Related costs are being expensed as incurred, and in the first nine
months of fiscal 1999 amounted to $.1 million. The Company estimates incurring
an additional $.1 million in remediation of its Year 2000 issues.
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.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
None
<PAGE> 22
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> 23
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 15, 1999 Signing both in his capacity as
Corporate Controller and on behalf
of the registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 51,664
<SECURITIES> 0
<RECEIVABLES> 71,149
<ALLOWANCES> 1,977
<INVENTORY> 52,226
<CURRENT-ASSETS> 181,990
<PP&E> 118,403
<DEPRECIATION> 61,729
<TOTAL-ASSETS> 317,405
<CURRENT-LIABILITIES> 91,567
<BONDS> 106,914
0
0
<COMMON> 38,059
<OTHER-SE> 68,568
<TOTAL-LIABILITY-AND-EQUITY> 317,405
<SALES> 260,221
<TOTAL-REVENUES> 260,221
<CGS> 200,084
<TOTAL-COSTS> 29,272
<OTHER-EXPENSES> (534)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,758
<INCOME-PRETAX> 23,641
<INCOME-TAX> 7,691
<INCOME-CONTINUING> 15,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,950
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.42
</TABLE>
