Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002
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)
DELAWARE 22-2572390
(State of incorporation) (I.R.S. Employer Identification No.)
505 MARTINSVILLE ROAD, LIBERTY CORNER, NJ 07938-0813
(Address of principal executive offices) (Zip Code)
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 29,888,621 shares of Common Stock, and
2,493,047 shares of Class B Stock (which is immediately convertible into Common
Stock on a share-for-share basis) as of June 30, 2002.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDDERS CORPORATION
INDEX
PAGE
NUMBER
------
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive
Income.................................................... 2
Consolidated Balance Sheets................................. 3-4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6-20
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 21-24
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 24
SIGNATURE............................................................ 25
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales.......................................... $170,688 $189,357 $281,866 $314,990
Cost of sales...................................... 130,829 157,406 215,729 254,046
Selling, general and administrative expense........ 16,458 16,762 47,345 48,095
-------- -------- -------- --------
147,287 174,168 263,074 302,141
-------- -------- -------- --------
Operating income................................... 23,401 15,189 18,792 12,849
Partners' net interest in joint venture results.... 496 205 420 (462)
Interest expense, net.............................. (5,032) (5,236) (14,414) (13,663)
Other income....................................... 288 -- 647 --
-------- -------- -------- --------
Income (loss) before income taxes.................. 19,153 10,158 5,445 (1,276)
Provision (benefit) for income taxes............... 6,225 3,288 1,770 (414)
-------- -------- -------- --------
Net income (loss).................................. $ 12,928 $ 6,870 $ 3,675 $ (862)
Other comprehensive income (loss)-foreign currency
translation, net of tax.......................... 218 (356) 285 (803)
-------- -------- -------- --------
Comprehensive income (loss)........................ $ 13,146 $ 6,514 $ 3,960 $ (1,665)
======== ======== ======== ========
Basic and diluted earnings (loss) per share........ $ 0.40 $ 0.22 $ 0.12 $ (0.03)
Dividends per share declared:
New Common Stock................................. $ 0.030 -- $ 0.030 --
Old Common and Class A Stock..................... -- $ 0.030 0.060 $ 0.090
New Class B Stock................................ 0.030 -- 0.030 --
Old Class B Stock................................ $ -- $ 0.027 $ 0.054 $ 0.081
======== ======== ======== ========
See accompanying notes to the consolidated financial statements
2
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
-------- ---------- --------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 15,713 $ 51,192 $ 20,934
Accounts receivable (net of allowance of $2,751, $2,494, and
$2,957 at May 31, 2002, August 31, 2001 and May 31, 2001,
respectively)............................................. 82,440 24,703 89,868
Inventories:
Finished goods............................................ 52,868 48,929 46,703
Work-in-process........................................... 3,391 3,865 6,636
Raw materials and supplies................................ 20,650 19,952 31,510
-------- -------- --------
76,909 72,746 84,849
Deferred income taxes....................................... 8,830 8,819 4,751
Other current assets........................................ 9,824 6,747 6,675
-------- -------- --------
Total current assets........................................ 193,716 164,207 207,077
Property, plant and equipment:
Land and improvements..................................... 3,802 3,770 3,730
Buildings and leasehold improvements...................... 39,722 39,661 35,055
Machinery and equipment................................... 108,860 103,294 120,158
-------- -------- --------
152,384 146,725 158,943
Less accumulated depreciation............................... 80,055 74,974 79,704
-------- -------- --------
72,329 71,751 79,239
Deferred income taxes....................................... 6,510 6,424 5,088
Goodwill.................................................... 92,665 92,798 93,705
Other assets................................................ 34,186 27,152 28,213
-------- -------- --------
Total assets................................................ $399,406 $362,332 $413,322
======== ======== ========
See accompanying notes to the consolidated financial statements
3
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE)
(UNAUDITED)
MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
-------- ---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes.......................................... $ 8,591 $ 7,470 $ 7,708
Current portion of long-term debt......................... 3,381 3,055 2,986
Accounts payable.......................................... 61,236 40,689 58,476
Income taxes payable...................................... 9,173 6,327 10,599
Accrued expenses.......................................... 51,563 41,023 48,211
-------- -------- --------
Total current liabilities................................... 133,944 98,564 127,980
Long-term debt.............................................. 164,582 165,400 166,219
Other long-term liabilities................................. 22,632 22,510 18,041
Partners' net interest in joint venture..................... 4,517 2,844 3,231
Stockholders' equity
Preferred Stock, $1 par value, 15,000 shares authorized,
none issued at May 31, 2002, August 31, 2001 and May 31,
2001...................................................... -- -- --
New Common Stock, $0.01 par value, 70,000 shares authorized,
38,047 issued at May 31, 2002, none issued at August 31,
2001 and May 31, 2001..................................... 380 -- --
Old Common Stock, $1 par value, 80,000 shares authorized,
none issued at May 31, 2002, 16,135 issued August 31, 2001
and
May 31, 2001.............................................. -- 16,135 16,135
Class A Stock, $1 par value, 60,000 shares authorized, none
issued at May 31, 2002, 20,298 and 19,988 issued at August
31, 2001 and May 31, 2001, respectively................... -- 20,298 19,988
New Class B Stock, $0.01 par value, 5,000 shares authorized,
2,493 issued at May 31, 2002, none issued at August 31,
2001 and May 31, 2001..................................... 25 -- --
Old Class B Stock, $1 par value, 7,500 shares authorized,
none issued at May 31, 2002, 2,266 issued August 31, 2001
and May 31, 2001.......................................... -- 2,266 2,266
Additional paid-in capital.................................. 68,789 31,147 30,641
Retained earnings........................................... 44,186 43,313 65,819
Accumulated other comprehensive loss........................ (1,880) (2,165) (2,317)
-------- -------- --------
111,500 110,994 132,532
Treasury stock, at cost, 8,158 shares of new Common Stock at
May 31, 2002, 7,908 and 7,197 shares of Old Common and
Class A Stock at August 31, 2001 and May 31, 2001,
respectively.............................................. (37,322) (37,322) (33,952)
Deferred compensation....................................... (447) (658) (729)
-------- -------- --------
Total stockholders' equity.................................. 73,731 73,014 97,851
-------- -------- --------
Total liabilities and stockholders' equity.................. $399,406 $362,332 $413,322
======== ======== ========
See accompanying notes to the consolidated financial statements
4
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MAY 31,
-------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net income (loss)......................................... $ 3,675 $ (862)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 10,572 11,685
Deferred income taxes..................................... (97) --
Stock option repricing charge............................. (339) 1,064
Partners' net interest in joint venture results........... (420) 1,252
Changes in operating assets and liabilities:
Accounts receivable....................................... (57,627) (61,300)
Inventories............................................... (2,965) (3,847)
Other current assets...................................... (3,077) (1,088)
Other assets.............................................. (4,930) (1,982)
Accounts payable.......................................... 20,321 18,338
Accrued expenses.......................................... 11,990 8,128
Income taxes payable...................................... 2,846 (359)
Other long-term liabilities............................... 122 (671)
Other -- net.............................................. -- (651)
-------- --------
Net cash used in operating activities....................... (19,929) (30,293)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (4,557) (9,267)
Disposal of property, plant and equipment................. 150 --
Acquisition of businesses, net of cash acquired........... (8,211) (19,449)
-------- --------
Net cash used in investing activities....................... (12,618) (28,716)
-------- --------
Cash flows from financing activities:
Proceeds from short-term notes............................ 1,000 3,955
Proceeds from long-term borrowings........................ 2,000 4,519
Repayments of long-term debt.............................. (2,863) (2,009)
Repurchases of capital stock.............................. -- (10,573)
Cash dividends............................................ (2,756) (2,976)
Proceeds from stock options exercised..................... 1 275
Other..................................................... (314) (441)
-------- --------
Net cash used in financing activities....................... (2,932) (7,250)
-------- --------
Net decrease in cash and cash equivalents................. (35,479) (66,259)
Cash and cash equivalents at beginning of period.......... 51,192 87,193
-------- --------
Cash and cash equivalents at end of period................ $ 15,713 $ 20,934
======== ========
Supplemental disclosure:
Net interest paid......................................... $ 9,487 $ 9,323
Net income taxes refunded................................. (4,915) (525)
======== ========
See accompanying notes to the consolidated financial statements
5
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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, 2001. The Company's business is seasonal, and consequently,
operating results for the three-month and nine-month periods ended May 31, 2002
are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 2002.
2. ASSET IMPAIRMENT, EMPLOYEE SEVERANCE AND OTHER RESTRUCTURING CHARGES
In the fourth quarter of fiscal 2001, the Company announced a plan to
restructure its existing operations which included the movement of a majority of
the Company's room air conditioner production, as well as all production of
dehumidifiers and compressors from its Illinois, Tennessee and Maryland
facilities to facilities in China in order to lower costs and improve
profitability. The Company's plan resulted in charges for fixed asset
impairments, employee severance costs, inventory write-downs, and other
restructuring charges directly related to the restructuring plan, including
facility closing costs and lease termination costs. In conjunction with the
restructuring plan, the Company recorded $13,694,000 of charges in the fourth
quarter of 2001.
Of the $13,694,000 in total charges recorded, $10,445,000 represented
non-cash charges primarily related to the fixed asset impairments and inventory
write-downs. The remaining charge of $3,249,000 represented future cash payments
that will be required to be made in connection with employee severance and
facility closing costs. The total cash expended in fiscal 2001 was $172,000, of
which $100,000 was related to severance charges. In the first nine months of
fiscal 2002, the Company expended an additional $733,000, of which $608,000
related to severance and other workforce reduction charges.
The following table summarizes the activity and balances of the
restructuring reserve account from September 1, 2001 to May 31, 2002:
(amounts in thousands)
SEPTEMBER 1, MAY 31,
2001 2002
BALANCE ADDITIONS DEDUCTIONS BALANCE
------------ --------- ---------- -------
Workforce reductions........................ $1,773 $-- $(608) $1,165
Facility closing costs...................... 787 -- (124) 663
Other costs................................. 517 -- (1) 516
------ -- ----- ------
Total....................................... $3,077 $-- $(733) $2,344
====== == ===== ======
The timing and cost of the restructuring plan are generally on schedule
with the original time and dollar estimates disclosed in the fourth quarter of
fiscal 2001. The original employee severance cost of $1,873,000 was due to the
elimination of 800 factory workers in the U.S. As of the end of the first
quarter of fiscal 2002 all of these workers had been terminated.
3. STOCKHOLDERS EQUITY
On March 26, 2002, the Company's stockholders approved a recapitalization
plan (the "plan"), which became effective the same day. Under the plan the
holder of each share of Common Stock received 1.1 shares of new Common Stock,
the holder of each share of Class A Stock received 1 share of new Common Stock,
6
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the holder of each share of Class B Stock received 1.1 shares of new Class B
Stock. The par value of the new Common Stock and the new Class B Stock is $0.01
while, the par value of the old common and Class B Stock was $1.00. The new
Common Stock and the new Class B Stock have alternating preferences with respect
to payments or distributions in the event of any dissolution, liquidation, or
winding up of the Company. No such liquidation preference existed previously.
Each share of new Class B Stock shares equally with each share of new Common
Stock in payments of dividends while, each share of old Class B Stock received
90% of the dividends paid to each share of old Common Stocks. The new Class B
Stock will automatically be converted into shares of new Common Stock if the
number of outstanding shares of new Class B Stock falls below 2.5% of the
aggregate number of issued and outstanding shares of new Common Stock and new
Class B Stock. The old Class B Stock automatically converted into shares of old
Common Stock if the number of outstanding shares of old Class B Stock fell below
5.0 % of the aggregate number of issued and outstanding shares of old Common
Stock and old Class B Stock.
4. EARNINGS PER SHARE
As discussed in Footnote 3, the Company issued new Common Stock and new
Class B Stock on March 26, 2002. Basic earnings per share is computed by
dividing net income by the weighted average shares outstanding for each period.
For the third quarter and first nine months of fiscal 2002, weighted average
shares outstanding is computed using the number of old Common, Class A and old
Class B stock outstanding from the beginning of the period through March 25,
2002, and the new Common and new Class B Stock outstanding from March 26, 2002
through May 31, 2002. For the third quarter and first nine months of fiscal
2001, the weighted average shares outstanding is computed using the number of
old Common, Class A and Class B Stock outstanding. For the third fiscal quarters
ended 2002 and 2001, the weighted average shares outstanding amounted to
approximately 31,932,000 and 31,485,000, respectively. In the third fiscal
quarter of 2002 and 2001, stock options included in computing diluted earnings
per share amounted to approximately 10,000 shares and 397,000 shares,
respectively. The weighted average number of shares outstanding for the first
nine months of fiscal 2002 and 2001 amounted to approximately 31,176,000 and
32,093,000, respectively. Stock options included in computing diluted earnings
per share amounted to approximately 4,000 shares for the nine months ended May
31, 2002. Stock options were not included in the computation of diluted earnings
per share in the nine months ended May 31, 2001 due to their anti-dilutive
effect given the net loss in the period. If the recapitalization plan had been
effective on September 1, 2000, basic earnings per share for the third quarter
of fiscal 2002 and 2001 would have been $0.40 and $0.21, respectively. Diluted
earnings per share for the third quarter of fiscal 2002 and 2001 would have been
$0.40 and $0.20, respectively. For the first nine months of fiscal 2002 basic
and diluted earnings per share would have been $0.11. For the first nine months
of fiscal 2001, basic and diluted loss per share would have been $0.03.
5. STOCK OPTION REPRICING
In October 2000, the Company's Board of Directors approved the repricing of
a majority of unexercised stock options. In the first quarter of fiscal 2002,
the Company recorded a $339,000 reduction to compensation expense to reflect
changes in the market price of the Company's Class A Stock. No adjustment was
necessary in the second or third quarter of fiscal 2002. In the third quarter of
fiscal 2001, the Company recorded a $37,000 non-cash charge due to the
repricing. For the nine months ended May 31, 2001, the Company recorded a total
non-cash charge of $1,064,000 due to the repricing.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142").
7
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method for business combinations. SFAS 141 also specifies
the types of acquired intangible assets that are required to be recognized and
reported separately from goodwill and those intangible assets that are required
to be included in goodwill. SFAS 141 will be effective for all business
combinations completed by the Company after June 30, 2001. Under the provisions
of SFAS 141, goodwill and intangible assets determined to have an indefinite
useful life that are acquired in a business combination completed after June 30,
2001, may not be amortized. Goodwill and intangible assets acquired in business
combinations completed prior to July 1, 2001, will continue to be amortized
until August 31, 2002.
SFAS 142 requires the use of a non-amortization approach to account for
purchased goodwill and certain intangibles. Under the non-amortization approach,
goodwill and certain intangibles will not be amortized but instead would be
reviewed for impairment and written down with a resulting charge to operations
only in the period in which the recorded value of goodwill and certain
intangibles are more than their fair value. SFAS 142 requires the Company to
perform an evaluation of whether goodwill is impaired as of September 1, 2002,
the effective date of the statement for the Company. Additionally, SFAS 142
requires the Company to reassess the useful lives and residual values of all
intangible assets and make any necessary amortization adjustments. Any
transitional impairment loss resulting from the adoption of SFAS 142 will be
recognized as a cumulative effect of a change in accounting principle in the
Company's statement of operations. The Company is in the process of evaluating
the effect that adopting SFAS 142 will have on its financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This
statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company is required to adopt the provisions of SFAS
143 at the beginning of its fiscal year 2003. The Company has not determined the
impact, if any, the adoption of this statement will have on its financial
position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". The
provisions of this statement are required to be adopted by the Company at the
beginning of its fiscal year 2003. The Company has not determined the impact, if
any, the adoption of this statement will have on its financial position or
results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). The Company is in the
process of evaluating the effect that adopting SFAS 145 will have on its
financial statements.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146
will be effective for the Company for disposal activities initiated after
December 31, 2002. The Company is in the process of evaluating the effect that
adopting SFAS 146 will have on its financial statements.
7. INDUSTRY SEGMENT
The Company has two reportable segments: Heating, Ventilating, Air
Conditioning and Refrigeration ("HVACR") and Engineered Products. The Company's
reportable segments were determined based upon
8
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
several factors including the nature of the products provided and markets
served. Each reportable segment is managed separately and includes various
operating segments which have been aggregated due to similar economic
characteristics. The 2001 segment presentation has been restated to conform to
the current year, two-segment presentation.
The HVACR segment designs, manufactures and distributes window, split,
multi-split, through-the-wall, portable and vertical packaged unit air
conditioners and dehumidifiers. HVACR products are distributed through a variety
of sales channels including national retailers, regional retailers, wholesale
distributors, catalog supply houses, private label/OEM, government direct and
the Internet.
The Engineered Products segment designs, manufactures and distributes media
filters, electronic filters, humidifiers, dust collectors, fan filter units, and
solid-state thermoelectric heat pump modules. These products are sold through
manufacturers' representatives, distributors and direct sales to end-users.
SUMMARY OF BUSINESS BY SEGMENT:
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net Sales
HVACR...................................... $159,776 $177,630 $250,758 $278,676
Engineered Products........................ 10,912 11,727 31,108 36,314
-------- -------- -------- --------
Consolidated net sales................... $170,688 $189,357 $281,866 $314,990
======== ======== ======== ========
Income (loss) before interest and taxes
HVACR...................................... $ 22,971 $ 13,211 $ 21,543 $ 15,369
Engineered Products........................ 15 538 (671) 1,089
-------- -------- -------- --------
Segment income before interest and taxes... 22,986 13,749 20,872 16,458
Non-allocated (income) expenses............ (1,199) (1,645) 1,013 4,071
Interest expense........................... 5,032 5,236 14,414 13,663
Provision (benefit) for income taxes....... 6,225 3,288 1,770 (414)
-------- -------- -------- --------
Consolidated net income (loss)........... $ 12,928 $ 6,870 $ 3,675 $ (862)
======== ======== ======== ========
MAY 31, AUG. 31, MAY 31,
2002 2001 2001
-------- -------- --------
Total Assets
HVACR................................................ $278,854 $224,914 $304,856
Engineered Products.................................. 68,655 57,712 60,004
Non-allocated assets, including non-allocated cash... 51,897 79,706 48,462
-------- -------- --------
Consolidated assets.................................. $399,406 $362,332 $413,322
======== ======== ========
9
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENT
On June 25, 2002, the board of directors granted options to purchase
approximately 1,327,000 shares of the Common Stock of the Company to 77
employees under a stock option plan approved by stockholders in 1996. The
exercise price of the options is equal to the fair market value of the Common
Stock of the Company on the date of the grant. These options have a term of 5
years and vest in increments of 25% per year over a four-year period on the
yearly anniversary date of the grant.
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Fedders North America, Inc. ("FNA") is a wholly-owned subsidiary of the
Company. FNA and the Company are the Issuer and the Guarantor, respectively, of
the Senior Subordinated Notes due 2007, of which $100 million were issued in
August 1997, and $50 million were issued in August 1999. The Company's guarantee
is full and unconditional. The following condensed consolidating financial
statements present separate information for FNA and for the Company and its
subsidiaries other than FNA, and should be read in connection with the
consolidated financial statements of the Company.
10
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MAY 31, 2002
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------
Net sales................................ $142,232 $28,456 -- -- $170,688
Cost of sales............................ 109,938 20,891 -- -- 130,829
Selling, general and administrative
expense(1)(3).......................... 11,421 6,903 $(1,866) -- 16,458
-------- ------- ------- -------- --------
Operating income......................... 20,873 662 1,866 -- 23,401
Partners' net interest in joint venture
results................................ -- 496 -- -- 496
Equity income in investment.............. -- -- 11,646 $(11,646) --
Net interest (expense) income(2)......... (4,528) (572) 68 -- (5,032)
Other income (expense)................... 90 232 (34) -- 288
-------- ------- ------- -------- --------
Income before income taxes............... 16,435 818 13,546 (11,646) 19,153
Provision for income taxes............... 5,341 266 618 -- 6,225
-------- ------- ------- -------- --------
Net income............................... 11,094 552 12,928 (11,646) 12,928
Foreign currency translation, net of
tax.................................... (74) 292 218 (218) 218
-------- ------- ------- -------- --------
Comprehensive income..................... $ 11,020 $ 844 $13,146 $(11,864) $ 13,146
======== ======= ======= ======== ========
11
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MAY 31, 2001
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------
Net sales................................ $157,366 $31,991 -- -- $189,357
Cost of sales............................ 135,233 22,173 -- -- 157,406
Selling, general and administrative
expense(1)(3).......................... 10,730 6,739 $ (707) -- 16,762
-------- ------- ------ ------- --------
Operating income......................... 11,403 3,079 707 -- 15,189
Partners' net interest in joint venture
results................................ -- 205 -- -- 205
Equity income in investment.............. -- -- 5,524 $(5,524) --
Net interest (expense) income(2)......... (5,884) (639) 1,287 -- (5,236)
-------- ------- ------ ------- --------
Income before income taxes............... 5,519 2,645 7,518 (5,524) 10,158
Provision for income taxes............... 1,788 852 648 -- 3,288
-------- ------- ------ ------- --------
Net income............................... 3,731 1,793 6,870 (5,524) 6,870
Foreign currency translation, net of
tax.................................... 31 (387) -- -- (356)
-------- ------- ------ ------- --------
Comprehensive income..................... $ 3,762 $ 1,406 $6,870 $(5,524) $ 6,514
======== ======= ====== ======= ========
12
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED MAY 31, 2002
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------
Net sales................................ $211,767 $70,099 -- -- $281,866
Cost of sales............................ 162,394 53,335 -- -- 215,729
Selling, general and administrative
expense(1)(3).......................... 27,431 19,914 -- -- 47,345
-------- ------- ------ ------- --------
Operating income (loss).................. 21,942 (3,150) -- -- 18,792
Partners' net interest in joint venture
results................................ -- 420 -- -- 420
Equity income in investment.............. -- -- $3,656 $(3,656) --
Net interest (expense) income(2)......... (12,651) (1,826) 63 -- (14,414)
Other income (expense)................... 291 390 (34) -- 647
-------- ------- ------ ------- --------
Income (loss) before income taxes........ 9,582 (4,166) 3,685 (3,656) 5,445
Provision (benefit) for income taxes..... 3,114 (1,354) 10 -- 1,770
-------- ------- ------ ------- --------
Net income (loss)........................ 6,468 (2,812) 3,675 (3,656) 3,675
Foreign currency translation, net of
tax.................................... (27) 312 285 (285) 285
-------- ------- ------ ------- --------
Comprehensive income (loss).............. $ 6,441 $(2,500) $3,960 $(3,941) $ 3,960
======== ======= ====== ======= ========
13
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED MAY 31, 2001
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------
Net sales................................ $246,273 $68,717 -- -- $314,990
Cost of sales............................ 206,053 47,993 -- -- 254,046
Selling, general and administrative
expense(1)(3).......................... 29,658 16,466 $ 1,971 -- 48,095
-------- ------- ------- ---- --------
Operating income (loss).................. 10,562 4,258 (1,971) -- 12,849
Partners' net interest in joint venture
results................................ -- (462) -- -- (462)
Equity loss in investment................ -- -- (380) $380 --
Net interest (expense) income(2)......... (13,318) (1,602) 1,257 -- (13,663)
-------- ------- ------- ---- --------
(Loss) income before income taxes........ (2,756) 2,194 (1,094) 380 (1,276)
(Benefit) provision for income taxes..... (896) 714 (232) -- (414)
-------- ------- ------- ---- --------
Net (loss) income........................ (1,860) 1,480 (862) 380 (862)
Foreign currency translation, net of
tax.................................... (12) (791) -- -- (803)
-------- ------- ------- ---- --------
Comprehensive (loss) income.............. $ (1,872) $ 689 $ (862) $380 $ (1,665)
======== ======= ======= ==== ========
14
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MAY 31, 2002
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 6,767 $ 3,462 $ 5,484 -- $ 15,713
Accounts receivable, net............. 64,947 17,493 -- -- 82,440
Inventories.......................... 55,426 21,483 -- -- 76,909
Other current assets................. 3,894 5,818 8,942 -- 18,654
-------- -------- -------- -------- --------
Total current assets................... 131,034 48,256 14,426 -- 193,716
Investments in subsidiaries............ -- -- 21,323 $(21,323) --
Net property, plant and equipment...... 51,423 19,990 916 -- 72,329
Goodwill............................... 65,163 27,502 -- -- 92,665
Other long-term assets................. 4,304 6,602 36,813 (7,023) 40,696
-------- -------- -------- -------- --------
Total assets........................... $251,924 $102,350 $ 73,478 $(28,346) $399,406
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes....................... $ 3,020 $ 5,571 -- -- $ 8,591
Current portion of long-term debt...... 583 2,691 $ 107 -- 3,381
Accounts and income taxes payable...... 28,791 33,075 8,543 -- 70,409
Accrued expenses....................... 33,253 11,181 7,129 -- 51,563
-------- -------- -------- -------- --------
Total current liabilities.............. 65,647 52,518 15,779 -- 133,944
Long-term debt......................... 153,855 10,685 42 -- 164,582
Other long-term liabilities............ 1,914 11,800 20,458 $ (7,023) 27,149
Net due to (from) affiliates........... -- 36,532 (36,532) -- --
Stockholders' equity:
New Common and Class B Stock......... 5 -- 405 (5) 405
Additional paid-in capital........... 21,292 24,642 68,789 (45,934) 68,789
Retained earnings (deficit).......... 9,449 (32,185) 44,186 22,736 44,186
Deferred compensation and Treasury
stock............................. -- -- (37,769) -- (37,769)
Accumulated other comprehensive
loss.............................. (238) (1,642) (1,880) 1,880 (1,880)
-------- -------- -------- -------- --------
Total stockholders' equity............. 30,508 (9,185) 73,731 (21,323) 73,731
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................... $251,924 $102,350 $ 73,478 $(28,346) $399,406
======== ======== ======== ======== ========
15
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF AUGUST 31, 2001
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 44,331 $ 4,211 $ 2,650 -- $ 51,192
Accounts receivable, net............. 8,095 16,608 -- -- 24,703
Inventories.......................... 50,537 22,209 -- -- 72,746
Other current assets................. 1,721 5,326 8,519 -- 15,566
-------- -------- -------- -------- --------
Total current assets................... 104,684 48,354 11,169 -- 164,207
Investments in subsidiaries............ -- -- 17,382 $(17,382) --
Net property, plant and equipment...... 50,805 19,841 1,105 -- 71,751
Goodwill............................... 66,092 26,706 -- -- 92,798
Other long-term assets................. 4,753 2,740 33,106 (7,023) 33,576
-------- -------- -------- -------- --------
Total assets........................... $226,334 $ 97,641 $ 62,762 $(24,405) $362,332
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes....................... -- $ 7,470 -- -- $ 7,470
Current portion of long-term debt...... $ 586 2,369 $ 100 -- 3,055
Accounts and income taxes payable...... 24,423 17,994 4,599 -- 47,016
Accrued expenses....................... 21,438 11,727 7,858 -- 41,023
-------- -------- -------- -------- --------
Total current liabilities.............. 46,447 39,560 12,557 -- 98,564
Long-term debt......................... 153,896 11,379 125 -- 165,400
Other long-term liabilities............ 1,924 10,264 20,189 $ (7,023) 25,354
Net due to (from) affiliates........... -- 43,123 (43,123) -- --
Stockholders' equity:
Common, Class A, and Class B Stock... 5 -- 38,699 (5) 38,699
Additional paid-in capital........... 21,292 24,642 31,147 (45,934) 31,147
Retained earnings (deficit).......... 2,981 (29,373) 43,313 26,392 43,313
Deferred compensation and Treasury
stock............................. -- -- (37,980) -- (37,980)
Accumulated other comprehensive
loss.............................. (211) (1,954) (2,165) 2,165 (2,165)
-------- -------- -------- -------- --------
Total stockholders' equity............. 24,067 (6,685) 73,014 (17,382) 73,014
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................... $226,334 $ 97,641 $ 62,762 $(24,405) $362,332
======== ======== ======== ======== ========
16
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MAY 31, 2001
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 4,743 $ 5,715 $ 10,476 -- $ 20,934
Accounts receivable, net............. 72,218 17,650 -- -- 89,868
Inventories.......................... 58,709 26,140 -- -- 84,849
Other current assets................. 2,267 4,475 4,684 -- 11,426
-------- -------- -------- -------- --------
Total current assets................... 137,937 53,980 15,160 -- 207,077
Investments in subsidiaries............ -- -- 33,042 $(33,042) --
Net property, plant and equipment...... 58,570 19,439 1,230 -- 79,239
Goodwill............................... 66,621 27,084 -- -- 93,705
Other long-term assets................. 5,558 2,904 31,862 (7,023) 33,301
-------- -------- -------- -------- --------
Total assets........................... $268,686 $103,407 $ 81,294 $(40,065) $413,322
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes....................... -- $ 7,708 -- -- $ 7,708
Current portion of long-term debt...... $ 579 2,320 $ 87 -- 2,986
Accounts and income taxes payable...... 40,913 24,140 4,022 -- 69,075
Accrued expenses....................... 35,050 10,068 3,093 -- 48,211
-------- -------- -------- -------- --------
Total current liabilities.............. 76,542 44,236 7,202 -- 127,980
Long-term debt......................... 153,995 12,102 122 -- 166,219
Other long-term liabilities............ 2,482 11,211 14,602 $ (7,023) 21,272
Net due to (from) affiliates........... -- 38,483 (38,483) -- --
Stockholders' equity:
Common, Class A, and Class B Stock... 5 -- 38,389 (5) 38,389
Additional paid-in capital........... 21,292 24,642 30,641 (45,934) 30,641
Retained earnings (deficit).......... 14,610 (25,190) 65,819 10,580 65,819
Deferred compensation and treasury
stock............................. -- -- (34,681) -- (34,681)
Accumulated other comprehensive
loss.............................. (240) (2,077) (2,317) 2,317 (2,317)
-------- -------- -------- -------- --------
Total stockholders' equity............. 35,667 (2,625) 97,851 (33,042) 97,851
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................... $268,686 $103,407 $ 81,294 $(40,065) $413,322
======== ======== ======== ======== ========
17
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 2002
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------
Net cash (used in) provided by operating
activities............................. $(33,006) $13,606 $ (529) $-- $(19,929)
-------- ------- ------- -- --------
Net additions to property, plant and
equipment.............................. (2,658) (1,666) (83) -- (4,407)
Acquisition of businesses................ (4,620) (3,591) -- -- (8,211)
-------- ------- ------- -- --------
Net cash used in investing activities.... (7,278) (5,257) (83) -- (12,618)
-------- ------- ------- -- --------
Net proceeds from (payments of)
short-term notes....................... 3,020 (2,020) -- -- 1,000
Net payments of long-term debt........... (300) (487) (76) -- (863)
Cash dividends........................... -- -- (2,756) -- (2,756)
Other.................................... -- -- (313) -- (313)
Change in net due to (from) affiliate.... -- (6,591) 6,591 -- --
-------- ------- ------- -- --------
Net cash provided by (used in) financing
activities............................. 2,720 (9,098) 3,446 -- (2,932)
-------- ------- ------- -- --------
Net (decrease) increase in cash and cash
equivalents............................ (37,564) (749) 2,834 -- (35,479)
Cash and cash equivalents at beginning of
period................................. 44,331 4,211 2,650 -- 51,192
-------- ------- ------- -- --------
Cash and cash equivalents at end of
period................................. $ 6,767 $ 3,462 $ 5,484 $-- $ 15,713
======== ======= ======= == ========
18
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 2001
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
Net cash (used in) provided by
operating activities................. $(47,472) $ 19,965 $ (2,786) $ -- $(30,293)
-------- -------- -------- -------- --------
Net additions to property, plant and
equipment............................ (7,111) (1,897) (259) -- (9,267)
Acquisition of businesses.............. -- (19,449) -- -- (19,449)
-------- -------- -------- -------- --------
Net cash used in investing
activities........................... (7,111) (21,346) (259) -- (28,716)
-------- -------- -------- -------- --------
Net proceeds from short-term notes..... -- 3,955 -- -- 3,955
Net (repayments of) proceeds from long-
term debt............................ (390) 2,691 209 -- 2,510
Cash dividends......................... -- -- (2,976) -- (2,976)
Repurchase of capital stock............ -- -- (10,573) -- (10,573)
Other.................................. -- -- (166) -- (166)
Change in net due to (from)
affiliate............................ -- (5,869) 5,869 -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities................. (390) 777 (7,637) -- (7,250)
-------- -------- -------- -------- --------
Net decrease in cash and cash
equivalents.......................... (54,973) (604) (10,682) -- (66,259)
Cash and cash equivalents at beginning
of period............................ 59,716 6,319 21,158 -- 87,193
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period............................... $ 4,743 $ 5,715 $ 10,476 $ -- $ 20,934
======== ======== ======== ======== ========
19
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 $3.5 million and $4.4 million for the three months ended May
31, 2002 and 2001, respectively. Such charges to FNA amounted to
approximately $9.3 million and $10.5 million for the nine months ended May
31, 2002 and 2001, respectively.
2) FNA's interest expense reflects actual interest charges on the
9 3/8% Senior Subordinated Notes due 2007, a promissory note, an industrial
revenue bond, capital lease obligations and a revolving line of credit.
3) FNA's depreciation and amortization for the three months ended May
31, 2002 and 2001 amounted to $2.4 million and $2.5 million, respectively.
Capital expenditures of FNA for the three months ended May 31, 2002 and
2001 amounted to $1.3 million for both periods. FNA's depreciation and
amortization for the nine months ended May 31, 2002 and 2001 amounted to
approximately $7.5 million and $8.4 million, respectively. Capital
expenditures of FNA amounted to $2.7 million and $7.1 million in the
nine-month period of 2002 and 2001, respectively.
20
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.
OPERATING RESULTS AS
PERCENT OF NET SALES
---------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, MAY 31,
------------- -----------
2002 2001 2002 2001
----- ----- ---- ----
Gross profit............................................... 23.4% 16.9% 23.5% 19.3%
Selling, general and administrative expense:............... 9.6% 8.9% 16.8% 15.3%
Operating income........................................... 13.7% 8.0% 6.7% 4.1%
Interest expense, net...................................... 2.9% 2.8% 5.1% 4.3%
Income (loss) before taxes................................. 11.2% 5.4% 1.9% (0.4)%
==== ==== ==== ====
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2002 VERSUS THE THREE
MONTHS ENDED MAY 31, 2001.
Net sales in the third quarter of fiscal 2002 declined by approximately 10%
to $170.7 million compared to $189.4 million in the third quarter of fiscal
2001. The sales decline was mainly a result of a decrease in HVACR sales to
$159.8 million for the quarter, compared to $177.6 million in the third quarter
of fiscal 2001. Sales declined in the HVACR segment in the quarter due to a
decline in pricing and weakness in demand in telecommunications and
international markets. Sales in the quarter were also affected by a decline in
sales in the Engineered Products segment to $10.9 million compared to $11.7
million in the prior-year period. The decline was primarily the result of a
decrease in sales of fan filter units used in semi-conductor cleanroom
applications.
Despite the decline in sales, the gross profit percentage for the third
fiscal quarter improved to 23.4% from 16.9% in the prior year period due to the
ongoing positive impact from the Company's previously announced restructuring
plan.
Selling, general and administrative expenses in the quarter were $16.5
million versus $16.8 million in the prior year. The decrease reflects on going
cost reduction efforts.
Operating income in the quarter improved 54% to $23.4 million versus $15.2
million in the prior period.
Net interest expense decreased in the third fiscal quarter to $5.0 million
versus $5.2 million in the prior period mainly due to lower interest rates
during the peak borrowing period. There were no borrowings on the Company's $100
million revolving credit facility at the end of May 2002.
Despite the lower sales, net income improved approximately 88% for the
third quarter of fiscal 2002 to $12.9 million, or 40 cents per share, compared
to net income in fiscal 2001 of $6.9 million, or 22 cents per share.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2002 VERSUS THE NINE
MONTHS ENDED
MAY 31, 2001.
In the first nine months of fiscal 2002, sales were $281.9 million, a 10.5%
decrease from sales of $315.0 million in the comparable fiscal 2001 period.
HVACR sales of $250.8 million declined from $278.7 million in the prior year
primarily due to a decline in pricing and weakness in demand in
telecommunications and international markets. In the Engineered Products
segment, sales of $31.1 million decreased from sales of $36.3 million in the
prior year period mainly due to a decrease in sales of fan filter units used in
semi-conductor cleanroom applications and of solid-state cooling modules used in
fiber-optic applications.
21
Gross profit margins improved to 23.5% from 19.3% in the prior year period
due to the ongoing positive impact from the Company's previously announced
restructuring plan.
Selling, general and administrative expenses in the nine months were $47.3
million versus $48.1 million in the prior year. The prior year period included a
non-cash charge of $1.1 million for the re-pricing of a majority of unexercised
stock options. Net of the non-cash charge, the increase reflects the effect of
acquisitions made during the past fiscal year.
The operating income year-to-date was $18.8 million versus $12.8 million in
the prior period.
Net interest expense increased to $14.4 million versus $13.7 million in the
prior period due primarily to lower interest income as a result of lower cash
balances due to acquisitions and lower interest rates.
The net income for year-to-date fiscal 2002 was $3.7 million, or 12 cents
per share, compared to a net loss in the fiscal 2001 period of $0.9 million, or
3 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
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 $15.7 million at May 31, 2002 compared to $20.9 million at the end of May
2001.
Net cash used in operations for the nine months ended May 31, 2002 amounted
to $19.9 million, compared to $30.3 million in the prior period. The improvement
in net earnings, lower net inventories and general improvements in working
capital management were the primary reason for the lower use of cash from the
prior year. Net inventories at the end of the third quarter were $76.9 million
compared to $84.8 million at the end of the third quarter last year.
Net cash used in investing activities was $12.6 million versus $28.7
million in the prior period. Investments in acquisitions amounted to $8.2
million for the first nine months of fiscal 2002. The Company completed the
acquisition, in the first quarter, of a wholly-owned air conditioning
manufacturing operation in Shanghai, China, now called Fedders Shanghai, Co.,
Ltd. This plant has fully replaced the production of room air conditioners
previously produced at the Company's Tennessee plant, which ceased production as
part of the 2001 restructuring plan. The Company also completed two joint
ventures this fiscal year during the first quarter. In October 2001, the Company
entered into a joint venture with Voltas Limited to produce room air
conditioners in India. Fedders and Voltas each have a 50 percent interest in the
joint venture, which produces room and ductless split system air conditioners.
In November 2001, Melcor Corporation ("Melcor"), a subsidiary of the Company,
and Quanzhou Hua Yu Electrical Component Factory formed a joint venture,
Quanzhou Melcor Hua Yu Thermoelectric Company Ltd., to manufacture
thermoelectric modules in China. Melcor has a 65% interest in the joint venture.
Capital expenditures for the nine-month period ended May 31, 2002 were $4.6
million compared to $9.3 million during the same period in fiscal 2001, mainly
due to the timing of expenditures relating to investments in tooling, machinery
and equipment to support production in Asia.
Net cash used in financing activities during the nine-month period was $2.9
million, which consisted primarily of $2.8 million of cash dividends.
The Company declared quarterly dividends of 3.0 cents on each share of
outstanding New Common and New Class B Stock in the third quarter of fiscal
2002. The Company declared dividends of 3.0 cents on each share of outstanding
Class A and Old Common stock and 2.7 cents on each share of outstanding Old
Class B Stock in the third quarter of fiscal 2001.
In the fourth quarter of fiscal 2001, the Company announced a plan to
restructure its existing operations, which included the movement of a majority
of the Company's room air conditioner production, as well as all production of
dehumidifiers and compressors, from its Illinois, Tennessee and Maryland
facilities to facilities in China in order to lower costs and improve
profitability. The Company's plan resulted in charges for fixed asset
impairments, employee severance costs, inventory write-downs, and other
restructuring charges directly related to the restructuring plan, including
facility closing costs and lease termination costs. The timing and
22
cost of the restructuring plan are generally on schedule with the original time
and dollar estimates disclosed in the fourth quarter of fiscal 2001 and have
positively impacted third quarter results.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method for business combinations. SFAS 141 also specifies
the types of acquired intangible assets that are required to be recognized and
reported separately from goodwill and those intangible assets that are required
to be included in goodwill. SFAS 141 will be effective for all business
combinations completed by the Company after June 30, 2001. Under the provisions
of SFAS 141, goodwill and intangible assets determined to have an indefinite
useful life that are acquired in a business combination completed after June 30,
2001, may not be amortized. Goodwill and intangible assets acquired in business
combinations completed prior to July 1, 2001, will continue to be amortized
until August 31, 2002.
SFAS 142 requires the use of a non-amortization approach to account for
purchased goodwill and certain intangibles. Under the non-amortization approach,
goodwill and certain intangibles will not be amortized but instead would be
reviewed for impairment and written down with a resulting charge to operations
only in the period in which the recorded value of goodwill and certain
intangibles are more than their fair value. SFAS 142 requires the Company to
perform an evaluation of whether goodwill is impaired as of September 1, 2002,
the effective date of the statement for the Company. Additionally, SFAS 142
requires the Company to reassess the useful lives and residual values of all
intangible assets and make any necessary amortization adjustments. Any
transitional impairment loss resulting from the adoption of SFAS 142 will be
recognized as a cumulative effect of a change in accounting principle in the
Company's statement of operations. The Company is in the process of evaluating
the effect that adopting SFAS 142 will have on its financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This
statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company is required to adopt the provisions of SFAS
143 at the beginning of its fiscal year 2003. The Company has not determined the
impact, if any, the adoption of this statement will have on its financial
position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". The
provisions of this statement are required to be adopted by the Company at the
beginning of its fiscal year 2003. The Company has not determined the impact, if
any, the adoption of this statement will have on its financial position or
results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). The Company is in the
process of evaluating the effect that adopting SFAS 145 will have on its
financial statements.
23
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146
will be effective for the Company for disposal activities initiated after
December 31, 2002. The Company is in the process of evaluating the effect that
adopting SFAS 146 will have on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
24
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/ MICHAEL GIORDANO
------------------------------------
Executive Vice President,
Finance and Administration
and Chief Financial Officer
Signing both in his capacity as
Executive Vice President,
Finance and Administration
and Chief Financial Officer
and on behalf of the registrant.
July 15 , 2002
25