<PAGE>
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 November 30, 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
(Exact name of registrant as specified in its charter)
FEDDERS CORPORATION
<TABLE>
<S> <C>
Delaware 22-2572390
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
<TABLE>
<S>
P. O. Box 813 <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
As of December 31, 1998, the registrant has outstanding 16,379,459 shares of
Common Stock, 18,124,773 shares of Class A Stock (which is immediately
convertible into Common Stock on a share-for-share basis upon conversion of all
of the 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).
<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 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 17
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended November 30,
1998 1997
<S> <C> <C>
Net sales $ 25,702 $ 25,491
Costs and expenses:
Cost of sales 19,110 20,758
Selling, general and
administrative expenses 8,970 9,035
28,080 29,793
Operating loss (2,378) (4,302)
Partners' net interest in
joint venture results (99) 95
Net interest expense (2,027) (1,836)
Loss before income taxes (4,504) (6,043)
Federal, state and foreign
income tax benefit (1,569) (2,112)
Net Loss $ (2,935) $ (3,931)
Net loss per share $ (0.08) $ (0.09)
Dividends per share declared:
Common Stock $ 0.0250 $ 0.0200
Class A Stock 0.0250 0.0200
Class B Stock 0.0225 0.0180
</TABLE>
See accompanying notes
<PAGE> 4
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
November 30, August 31, November 30,
1998 1998 1997
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 39,985 $ 90,986 $ 55,609
Accounts receivable (less
allowance of $2,055,$2,032 and
$1,189 at November 30, 1998,
August 31, 1998 and
November 30, 1997, respectively) 15,186 14,520 14,241
Inventories:
Finished goods 43,637 25,553 49,762
Work in process 5,120 4,132 5,147
Raw materials and supplies 35,339 22,576 29,668
84,096 52,261 84,577
Deferred income taxes 5,902 5,902 4,070
Prepaid expenses 3,601 4,308 8,201
Total current assets 148,770 167,977 166,698
Property, plant and equipment at cost:
Land and improvements 2,994 2,994 3,701
Buildings 22,387 22,326 23,516
Machinery and equipment 81,018 79,454 87,677
Machinery and equipment under
capital lease 8,647 8,647 8,945
115,046 113,421 123,839
Less accumulated depreciation 58,119 57,103 60,750
56,927 56,318 63,089
Deferred income taxes 8,838 8,838 6,374
Goodwill 54,733 55,159 56,432
Other assets 15,749 16,337 6,580
$285,017 $304,629 $299,173
</TABLE>
See accompanying notes
<PAGE> 5
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
November 30, August 31, November 30,
1998 1998 1997
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 1,941 $ 2,065 $ 1,926
Accounts payable 24,424 25,769 14,984
Income taxes payable 12,387 14,406 10,875
Accrued expenses 26,506 32,101 18,391
Total current liabilities 65,258 74,341 46,176
Long-term debt 108,109 108,948 111,112
Other long-term liabilities 10,947 11,911 11,118
Minority interest in joint venture 4,415 4,637 4,945
Commitments and contingencies
Stockholders' equity:
(all classes $1 par value)
Common Stock, 80,000 shares
authorized, 16,766, 16,972,
and 18,840, issued at November
30, 1998, August 31, 1998 and
November 30, 1997, respectively 16,766 16,972 18,840
Class A Stock, 60,000 shares authorized,
19,385, 19,381, and 28,242, issued at
November 30, 1998, August 31,
1997 and November 30, 1997,
respectively 19,385 19,381 28,242
Class B Stock, 7,500 shares
authorized, 2,267 issued at
November 30, 1998, August 31, 1998
and November 30, 1997, respectively 2,267 2,267 2,267
Additional paid-in capital 30,808 31,619 87,684
Retained earnings 32,625 36,496 32,219
Cumulative translation adjustment (580) (430) (190)
101,271 106,305 169,062
Less:
Treasury stock, at cost,
728 and 7,447 shares
at November 30, 1998 and
November 30,1997 (3,542) - (43,240)
Deferred compensation (1,441) (1,513) -
Total stockholders' equity 96,288 104,792 125,822
$285,017 $304,629 $299,173
</TABLE>
See accompanying notes
<PAGE> 6
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
Three months ended November 30,
1998 1997
<S> <C> <C>
Cash flows from operations:
Net loss $ (2,935) $(3,931)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,389 2,288
Changes in operating assets and liabilities:
Accounts receivable (666) (5,181)
Inventories (31,835) (21,690)
Other current assets 707 716
Other assets 107 (119)
Accounts payable (1,345) 4,393
Income taxes payable (2,019) 848
Accrued expenses (5,845) (12,701)
Other long-term liabilities (716) (89)
Other (76) (52)
Net cash used in operations (42,234) (35,518)
Cash flows from investing activities:
Additions to property, plant and equipment (2,572) (1,967)
Disposals of property, plant and equipment - 1,032
Partners' net interest in joint venture results (222) (95)
Net cash used in investing activities (2,794) (1,030)
Cash flows from financing activities:
Repayments of long-term debt (482) (2,354)
Proceeds from stock options exercised 17 73
Repurchase of capital stock (4,572) (15,081)
Cash dividends (936) (874)
Net cash used in financing activities (5,973) (18,236)
Net decrease in cash and cash equivalents (51,001) (54,784)
Cash and cash equivalents at beginning of period 90,986 110,393
Cash and cash equivalents at end of period $ 39,985 $ 55,609
Supplemental disclosure:
Interest paid $ 188 $ 466
Net income tax paid (refunded) 542 (3,121)
Non-cash investing and financing activities:
Exchange of 6,754 shares of Preferred Stock
for Class A Stock on a 1 for 1.022 basis $ - $ 6,904
</TABLE>
See accompanying notes
<PAGE> 7
FEDDERS CORPORATION
NOTES TO THE 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 adjustment's 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 (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 period ending November 30, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 31, 1999. Certain prior year amounts have been re-classified to
conform with the current year presentation.
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 quarter
of fiscal 1998, the Company purchased approximately 2.3 million shares of
Common, Class A, and Preferred Stock for $13.4 million or $5.83 per share. Total
repurchases under this plan amounted to approximately 1.9 million shares of
Common Stock for $11.5 million or $5.99 per share, 5.8 million shares of Class A
Stock for $33.9 million or $5.90 per share and .8 million shares of Preferred
Stock for $4.7 million or $6.25 per share. Repurchases under this plan were
complete by August 1998.
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 quarter of fiscal 1999, the Company repurchased approximately .2 million
shares of Common Stock for $1.0 million, or $4.99 per share, and approximately
.7 million shares of Class A Stock for $3.5 million, or $4.87 per share.
C. Net loss per share was computed using the weighted average number of Common,
Class A and Class B shares outstanding in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) 128 EARNINGS PER SHARE. The
weighted average number of shares used in the calculation for both basic and
diluted net loss per share at November 30, 1998 and 1997 was 37,689,000 and
41,797,000 shares, respectively. Due to the net loss for the periods ended
November 30, 1998 and 1997, stock options are excluded from the calculation of
net loss per share.
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 November 30, 1998, the
restructuring reserve balance was approximately $4.2 million and consisted
principally of amounts for termination of various equipment and facility leases.
<PAGE> 8
E. The Company adopted SFAS 130, REPORTING COMPREHENSIVE INCOME, on September
1, 1998. This statement establishes 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 November 30,
1998 1997
<S> <C> <C>
Net loss $ (2,935) $ (3,931)
Other comprehensive loss,
net of tax
Foreign currency translation
adjustment (98) (34)
Comprehensive loss $ (3,033) $ (3,965)
</TABLE>
F. The Company adopted SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION. This Statement 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 Financial Accounting Standards Board (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.
In June 1998, the FASB issued SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. This Statement is effective for fiscal years beginning
after June 15, 1999. The Company does not expect this Statement to have a
material impact on the Company's financial statements.
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 and the Company and its subsidiaries, other
than FNA. The non-guarantor subsidiaries of the Company are inconsequential,
individually and in the aggregate, to the consolidated financial statments
and management has determined that separate financial statements of the Company
would not be meaningful.
<PAGE> 9
G. Continued
(Amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
Condensed Consolidating Statements of Operations
For the Three Months Ended
November 30, 1998
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $ 18,178 $ 7,524 $ 25,702
Cost of sales 13,039 6,071 19,110
Selling, general and
administrative expenses (1) 3,500 5,470 8,970
Operating income (loss) 1,639 (4,017) (2,378)
Partners' net interest in
joint venture results - (99) (99)
Net interest income (expense) (2) (2,590) 563 (2,027)
Loss before income taxes (951) (3,553) (4,504)
Income tax benefit (332) (1,237) (1,569)
Net loss $ (619) $ (2,316) $ (2,935)
For the Three Months Ended
November 30, 1997
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net sales $ 17,664 $ 7,827 $ 25,491
Cost of sales 15,265 5,493 20,758
Selling, general and
administrative expenses (1) 6,345 2,690 9,035
Operating loss (3,946) (356) (4,302)
Partners' net interest in
joint venture results - 95 95
Net interest income (expense) (2) (3,229) 1,393 (1,836)
Income (loss) before income taxes (7,175) 1,132 (6,043)
Income taxes (benefit) (2,511) 399 (2,112)
Net income (loss) $ (4,664) $ 733 $ (3,931)
</TABLE>
See accompanying notes
<PAGE> 10
G. Continued
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheets
November 30, 1998
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash $ - $ 39,985 $ $ 39,985
Accounts receivable, net 9,923 5,263 15,186
Inventories 70,137 13,959 84,096
Other current assets 6,481 3,022 9,503
Total current assets 86,541 62,229 - 148,770
Investments in subsidiaries - 104,306 (104,306) -
Property, plant and equipment,
net 46,318 10,609 56,927
Goodwill 48,519 6,214 54,733
Other long-term assets 7,315 17,272 24,587
$ 188,693 $200,630 $ (104,306) $285,017
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt $ 1,936 $ 5 $ $ 1,941
Accounts and income taxes
payable 37,482 (671) 36,811
Accrued expenses 22,817 3,689 26,506
Total current liabilities 62,235 3,023 - 65,258
Net due to (from) affiliate (8,895) 8,895 -
Long-term debt 104,976 3,133 108,109
Other long-term liabilities 2,999 12,363 15,362
Stockholders' equity:
Common, Class A and
Class B Stock 5 38,418 (5) 38,418
Paid-in capital 21,292 182,735 (173,219) 30,808
Retained earnings (deficit) 6,609 (42,902) 68,918 32,625
Treasury stock - (3,542) (3,542)
Deferred compensation - (1,441) (1,441)
Cumulative translation
adjustment (528) (52) (580)
Total stockholders' equity 27,378 173,216 (104,306) 96,288
$ 188,693 $200,630 $ (104,306) $285,017
</TABLE>
See accompanying notes
<PAGE> 11
G. Continued
(Amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheets
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
Investments 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 taxes
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) affiliate (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> 12
G. Continued
(Amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheets
November 30, 1997
Fedders Other Eliminating Fedders
North America Fedders Entries Corporation
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash $ - $ 55,609 $ $ 55,609
Accounts receivable, net 11,180 3,061 14,241
Inventories 70,676 13,901 84,577
Other current assets 926 11,345 12,271
Total current assets 82,782 83,916 - 166,698
Investments in subsidiaries - 104,306 (104,306) -
Property, plant and equipment,
net 51,588 11,501 63,089
Goodwill 49,930 6,502 56,432
Other long-term assets 3,646 9,308 12,954
$ 187,946 $ 215,533 $ (104,306)$ 299,173
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt $ 1,907 $ 19 $ $ 1,926
Accounts and income taxes
payable 20,981 4,878 25,859
Accrued expenses 15,036 3,355 18,391
Total current liabilities 37,924 8,252 - 46,176
Net due to (from) affiliate 23,820 (23,820) -
Long-term debt 106,895 4,217 111,112
Other long-term liabilities 2,832 13,231 16,063
Stockholders' equity:
Common, Class A and
Class B Stock 5 49,349 (5) 49,349
Paid-in capital 21,292 239,611 (173,219) 87,684
Retained earnings (deficit) (4,664) (32,035) 68,918 32,219
Treasury stock - (43,240) (43,240)
Cumulative translation
adjustment (158) (32) (190)
Total stockholders' equity 16,475 213,653 (104,306) 125,822
$ 187,946 $ 215,533 $ (104,306)$ 299,173
</TABLE>
See accompanying notes
<PAGE> 13
E. Continued
(Amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended
November 30, 1998
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net cash used in operations $ (35,246) $ (6,988) $ (42,234)
Net additions of property,
plant, and equipment, being
cash used in investing activities (2,282) (512) (2,794)
Net repayments of short and long-
term borrowings (482) - (482)
Cash dividends - (936) (936)
Proceeds from stock options
exercised - 17 17
Repurchase of capital stock - (4,572) (4,572)
Change in net due to (from)
affiliate 38,010 (38,010) -
Net cash provided by (used in)
financing activities 37,528 (43,501) (5,973)
Net decrease in cash and cash
equivalents - (51,001) (51,001)
Cash and cash equivalents at
beginning of year - 90,986 90,986
Cash and cash equivalents at
end of period $ - $ 39,985 $ 39,985
For the Three Months Ended
November 30, 1997
Fedders Other Fedders
North America Fedders Corporation
<S> <C> <C> <C>
Net cash used in operations $ (32,987) $ (2,531) $ (35,518)
Net additions (disposals) of property,
plant, and equipment, being
cash used in investing activities (1,177) 147 (1,030)
Net repayments of short and long-
term borrowings (414) (1,940) (2,354)
Cash dividends - (874) (874)
Proceeds from stock options
exercised - 73 73
Repurchase of capital stock - (15,081) (15,081)
Change in net due to (from)
affiliate 34,578 (34,578) -
Net cash provided by (used in)
financing activities 34,164 (52,400) (18,236)
Net decrease in cash and cash
equivalents - (54,784) (54,784)
Cash and cash equivalents at
beginning of year - 110,393 110,393
Cash and cash equivalents at
end of period $ - $ 55,609 $ 55,609
</TABLE>
See accompanying notes
<PAGE> 14
G. Continued
(Amounts in thousands) (unaudited)
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 $1.6
million and $2.8 million for the three months ended November 30, 1998 and 1997,
respectively.
2) FNA's interest expense reflects actual interest charges on the 9-3/8% Senior
Subordinated Notes due 2007, a promissory note and capital lease obligations.
3) FNA's depreciation and amortization for the three months ended November 30,
1998 and 1997 amounted to approximately $1.9 million and $1.6 million,
respectively. Capital expenditures of FNA for the same periods amounted to $2.3
million and $1.2 million, respectively.
<PAGE> 15
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.
Fiscal First Quarter
Results of Operations
<TABLE>
<CAPTION>
Operating Results as Percent of Net Sales
1999 1998
<S> <C> <C>
Gross profit 25.6% 18.6%
Selling, general and
administrative expenses 34.9% 35.4%
Operating loss (9.3%) (16.9%)
Interest expense (7.9%) (7.2%)
Pre-tax loss (17.5%) (23.7%)
</TABLE>
Net sales in the seasonally low-volume first quarter of fiscal 1999 of $25.7
million increased approximately 1% from sales of $25.5 million in the first
quarter of 1998.
The gross profit margin increased in the first quarter of 1999 due primarily to
changes in customer and product mix.
Selling, general and administrative expenses were $9.0 million in each period.
These expenses decreased as a percentage of net sales from the prior year as a
result of the sales increase.
Net interest expense increased in the first fiscal quarter due to a decrease in
interest income in the current year period. This decrease is attributable to a
lower cash balance in the current year than in the prior year due mainly to
repurchases of capital stock under the previously announced stock repurchase
plans.
The net loss for the normally unprofitable off-season first quarter of fiscal
1999 was $2.9 million, or 8 cents per share, compared to a net loss in fiscal
1998 of $3.9 million, or 9 cents per share.
<PAGE> 16
Liquidity and Capital Resources
Working Capital - The working capital requirements of the Company are seasonal
with cash balances peaking in the fourth fiscal quarter and the greatest
utilization of its lines of credit occurring early in the calendar year. Cash
on hand amounted to $40.0 million at November 30,1998, compared to $55.6 million
a year earlier. The decrease was mainly due to repurchases of capital stock
under the Company's $50 million and $30 million stock repurchase plans. Cash
included $4.0 million and $2.4 million at Fedders Xinle, the Company's Chinese
joint venture, at November 30, 1998 and 1997, respectively.
Net cash used in operations for the three-months ended November 30, 1998
amounted to $42.2 million. During the seasonally slow first fiscal quarter,
the Company utilized cash to produce compressors and finished goods. Inventories
increased to $84.1 million at November 30, 1998 from $52.3 million at year end,
while decreasing from $84.6 million a year earlier. Finished goods decreased by
$6.1 million from the prior year-end due to warmer than normal weather in the
domestic southern market in fiscal 1998 resulting in lower invnetory levels
entering fiscal 1999 than in the previous year's period. Work-in-process and
raw materials increased by $5.6 million as the Company adjusted production.
Accounts receivable increased to $15.2 million from $14.2 million in the prior
year.
Net cash used in investing activities consisted primarily of capital
expenditures of $2.6 million in the first three months of fiscal 1999.
Net cash used in financing activities amounted to $6.0 million, primarily due to
$4.6 million of stock repurchases under the previously announced stock
repurchase plan of up to $30 million. At November 30, 1998 and 1977, the
Company had no short-term borrowings.
The Company declared quarterly dividends of 2.50 cents and 2.00 cents on each
share of outstanding Class A and Common Stock and 2.25 cents and 1.80 cents on
each share of outstanding Class B Stock in the first quarter of fiscal 1999 and
1998, respectively,
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 (the Notes) (Note G). 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 $80 million of capital stock have
been repurchased to date totaling 13.7 million shares at an average price of
$5.83 per share.
<PAGE> 17
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.
At December 31, 1998 the Company had approximately 36.8 million shares of
Common, Class A and Class B Stock outstanding at a weighted average closing
price of $5.54.
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 of the plan are scheduled to be complete in the 1999 third
fiscal quarter, which ends May 31. The Company has material third-party
relationships with customers and suppliers that would have a material effect on
its business if the customer or supplier were to have significant Year 2000
issues. 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. The Company's
plan is to be Year 2000 compliant in the third fiscal quarter of 1999. The
National Retail Federation has listed the Company as being a Year 2000 EDI
vendor.
Many of the Company's IT systems are already compliant. Non-compliant IT
systems are being replaced in the normal course of business and are not a cost
of Year 2000. Related costs are being expensed as incurred and in the first
quarter of fiscal 1999 were immaterial to the Company's operating results and
are not expected to have a material impact on its future earnings or cash flow.
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.
Forward looking statements are made within 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 the Company's
SEC filings, including its most recently filed anual report on Form 10-K. The
Company disclaims any obligation to update any forward-looking statemnts to
incorporate subsequent events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
<PAGE> 18
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule (EDGAR filing only)
Reports on Form 8-K
None
<PAGE> 19
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
Thomas A. Kroll
Corporate Controller
Date: January 14, 1999 Signing in his capacity as
Corporate Controller and on behalf
of the Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 39,985
<SECURITIES> 0
<RECEIVABLES> 17,241
<ALLOWANCES> (2,055)
<INVENTORY> 84,096
<CURRENT-ASSETS> 148,770
<PP&E> 115,046
<DEPRECIATION> 58,119
<TOTAL-ASSETS> 285,017
<CURRENT-LIABILITIES> 65,258
<BONDS> 108,109
0
0
<COMMON> 38,418
<OTHER-SE> 57,870
<TOTAL-LIABILITY-AND-EQUITY> 285,017
<SALES> 25,702
<TOTAL-REVENUES> 25,702
<CGS> 19,110
<TOTAL-COSTS> 8,970
<OTHER-EXPENSES> (99)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,027)
<INCOME-PRETAX> (4,504)
<INCOME-TAX> (1,569)
<INCOME-CONTINUING> (2,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,935)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>