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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, 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 30,091,065 shares of Common Stock, and 2,493,046
shares of Class B Stock (which is immediately convertible into Common Stock on a
share-for-share basis) as of December 31, 2002.
-1-
FEDDERS CORPORATION
INDEX
Page Number
-----------
Item 1. Financial Statements
Consolidated Statements of Operations and
Comprehensive Income 3
Consolidated Balance Sheets 4-5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-18
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 19-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Item 4. Controls and Procedures 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
CERTIFICATIONS 23-24
- 2 -
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
NOVEMBER 30,
2002 2001
---- ----
Net sales ......................... $ 39,163 $ 38,097
-------- --------
Cost of sales ..................... 31,332 29,159
Selling, general and administrative
expense ........................... 14,368 14,913
-------- --------
45,700 44,072
-------- --------
Operating loss .................... (6,537) (5,975)
Partners' net interest in joint
venture results .................. (309) (575)
Interest expense, net ............. (4,445) (4,424)
Other income ...................... 37 122
-------- --------
Loss before income taxes .......... (11,254) (10,852)
Benefit from income taxes ......... (3,656) (3,527)
-------- --------
Net loss .......................... $ (7,598) $ (7,325)
Other comprehensive loss
foreign currency translation,
net of tax ....................... (249) (40)
-------- --------
Comprehensive loss ................ (7,847) (7,365)
======== ========
Basic and diluted loss per share .. $ (0.23) $ (0.24)
Dividends per share declared:
New Common Stock ................. $ 0.030 --
Old Common and Class A Stock ..... -- $ 0.030
New Class B Stock ................ $ 0.030 --
Old Class B Stock ................ -- $ 0.027
-------- --------
See accompanying notes to the consolidated financial statements
- 3 -
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2002 2002 2001
-------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 37,895 $ 67,379 $ 20,762
Accounts receivable (net of allowance of $2,127,
$2,613 and $2,637 at November 30, 2002,
August 31, 2002 and November 30, 2001,
respectively) ................................... 24,100 31,768 21,334
Inventories:
Finished goods .................................. 57,543 25,364 63,167
Work-in-process ................................. 3,486 3,042 4,002
Raw materials and supplies ...................... 24,096 20,174 21,974
-------- -------- --------
Net inventory ................................... 85,125 48,580 89,143
Deferred income taxes ........................... 5,607 5,620 8,808
Other current assets ............................ 17,699 13,564 7,676
-------- -------- --------
Total current assets .............................. 170,426 166,911 147,723
Net property, plant and equipment:
Land and improvements ........................... 3,794 3,770 3,793
Buildings and leasehold improvements ............ 40,103 40,246 39,637
Machinery and equipment ......................... 100,313 98,271 107,092
-------- -------- --------
Gross property, plant and equipment ............. 144,210 142,287 150,522
Less accumulated depreciation ................... 77,672 75,441 76,877
-------- -------- --------
Net property, plant and equipment ................. 66,538 66,846 73,645
Deferred income taxes ............................. 2,867 2,867 6,510
Goodwill .......................................... 90,536 90,536 91,915
Other intangible assets ........................... 1,526 1,556 663
Other assets ...................................... 35,270 37,412 27,982
-------- -------- --------
Total assets ...................................... $367,163 $366,128 $348,438
======== ======== ========
See accompanying notes to the consolidated financial statements
- 4 -
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except par value)
(unaudited)
NOVEMBER 30, AUGUST 31, NOVEMBER,
2002 2002 2001
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes ................................................. $ 20,122 $ 9,829 $ 8,092
Current portion of long-term debt ................................ 3,340 3,362 3,013
Accounts payable ................................................. 48,031 41,888 40,990
Income taxes payable ............................................. 3,229 5,955 8,194
Accrued expenses ................................................. 34,155 37,099 33,887
--------- --------- ---------
Total current liabilities ......................................... 108,877 98,133 94,176
Long-term debt .................................................... 163,259 163,769 164,692
Other long-term liabilities ....................................... 21,937 22,225 22,144
Partners' net interest in joint venture ........................... 4,043 4,183 3,010
Stockholders' equity:
Preferred Stock, $1 par value, 15,000 shares
authorized, none issued at November 30, 2002,
August 31, 2002 and November 30, 2001 ............................ -- -- --
New Common Stock, $0.01 par value, 70,000
shares authorized, 38,249, 38,249 and none issued at
November 30, 2002, August 31, 2002 and
November 30, 2001, respectively .................................. 382 382 --
Old Common Stock, $1 par value, 80,000 shares
authorized, none, none and 16,135,
issued at November 30, 2002, and August 31, 2002 and
November 30, 2001, respectively .................................. -- -- 16,135
Class A Stock, $1 par value, 60,000 shares authorized,
none, none and 20,298 issued at November 30, 2002,
August 31, 2002 and November 30, 2001, respectively .............. -- -- 20,298
New Class B Stock, $0.01 par value, 5,000 shares
authorized, 2,493, 2493 and none issued at November 30,
2002, August 31, 2002 and November 30, 2001,
respectively .................................................... 25 25 --
Old Class B Stock, $1 par value, 7,500 shares authorized,
none, none and 2,266 issued at November 30, 2002,
August 31,2002 and November 30, 2001,
respectively ..................................................... -- -- 2,266
Additional paid-in capital......................................... 68,848 68,870 30,759
Retained earnings.................................................. 38,981 47,551 35,073
Accumulated other comprehensive loss............................... (1,561) (1,312) (2,205)
--------- --------- ---------
106,675 115,516 102,326
Treasury stock, at cost, 8,158 shares of New Common
Stock at November 30, 2002 and August 31, 2002,and
7,908 shares of Old Common and Class A Stock at
November 30, 2001 ................................................ (37,322) (37,322) (37,322)
Deferred compensation ............................................. (306) (376) (588)
--------- --------- ---------
Total stockholders' equity ........................................ 69,047 77,818 64,416
Total liabilities and stockholders' equity ........................ $ 367,163 $ 366,128 $ 348,438
========= ========= =========
See accompanying notes to the consolidated financial statements
- 5 -
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
THREE MONTHS ENDED
NOVEMBER 30,
2002 2001
-------- --------
Cash flows from operating activities:
Net loss .................................................................. $ (7,598) $ (7,325)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 2,389 3,488
Deferred income taxes ................................................... (3,656) (75)
Stock option repricing (income) charge .................................. -- (339)
Partners' net interest in joint venture results ......................... 309 575
Changes in operating assets and liabilities:
Accounts receivable ..................................................... 7,668 3,369
Inventories ............................................................. (36,545) (15,433)
Other current assets .................................................... (4,122) (929)
Other assets ............................................................ 2,116 318
Accounts payable ........................................................ 6,143 301
Accrued expenses ........................................................ (2,944) (7,126)
Income taxes payable .................................................... 930 1,867
Other long-term liabilities ............................................. (740) (366)
Other -- net ............................................................ (4) 71
-------- --------
Net cash used in operating activities ..................................... (36,054) (21,604)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment .............................. (2,211) (1,085)
Disposal of property, plant and equipment ............................... 15 140
Acquisition of businesses, net of cash acquired ......................... -- (6,772)
-------- --------
Net cash used in investing activities ..................................... (2,196) (7,717)
-------- --------
Cash flows from financing activities:
Proceeds from short-term notes .......................................... 10,293 622
Repayments of long-term debt ............................................ (532) (757)
Cash dividends .......................................................... (972) (925)
Other ................................................................... (23) (49)
-------- --------
Net cash provided by (used in) financing activities ....................... 8,766 (1,109)
-------- --------
Net decrease in cash and cash equivalents ................................. (29,484) (30,430)
Cash and cash equivalents at beginning of period .......................... 67,379 51,192
-------- --------
Cash and cash equivalents at end of period ................................ $ 37,895 $ 20,762
======== ========
Supplemental disclosure:
Net interest paid ....................................................... $ 385 $ 623
Net income taxes refunded ............................................... (829) (5,096)
======== ========
See accompanying notes to the consolidated financial statements
- 6 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amount in thousands, except for share and per share data)
(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, 2002. The Company's business is seasonal, and consequently,
operating results for the three-month period ending November 30, 2002 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 31, 2003.
2. ASSET IMPAIRMENT, EMPLOYEE SEVERANCE AND OTHER RESTRUCTURING AND RELATED
CHARGES
In the fourth quarter of 2001, the Company announced a plan to restructure its
existing operations, which included the transfer 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
of charges in the fourth quarter of 2001. In the first fiscal quarter of 2003,
the Company expended $114, primarily for facility closing costs.
The following table displays the activity and balances of the restructuring
reserve account from August 31, 2002 to November 30, 2002.
AUGUST 31, NOVEMBER
2002 30, 2002
BALANCE ADDITIONS DEDUCTIONS BALANCE
------- --------- ---------- -------
Workforce
reductions $ 621 -- $ (27) $ 594
Facility
closing costs 661 -- (87) 574
Other costs 403 -- -- 403
------ -- ----- ------
Total $1,685 -- $(114) $1,571
====== == ===== ======
The remaining balance of $1,571, which consists primarily of work force
reduction and facility closing costs, is expected to be expended during fiscal
2003 and 2004. The final amounts will be settled upon the expiration period for
workers' compensation claims and completion of facility clean up and waste
removal.
- 7 -
3. EARNINGS PER SHARE
In the first fiscal quarter of 2003, net loss per share was computed using the
weighted average number of shares of Common and Class B Stock outstanding, which
amounted to approximately 32,584,111 shares. In the first fiscal quarter of
2002, net loss per share was computed using the weighted average number of
shares of Common, Class A and Class B Stock outstanding, which amounted to
approximately 30,792,000 shares. Due to their anti-dilutive effect, none and
36 stock options were excluded from the computation of diluted earnings per
share for the three months ended November 30, 2002 and 2001, respectively.
4. STOCK OPTION REPRICING
In October 2000, the Company's Board of Directors approved the repricing of a
majority of unexercised stock options, reducing the exercise price to $3.625 per
share, which was the fair market value of the Class A Stock on the date of
repricing. The Company recorded a non-cash charge to compensation expense of
$726 due to the repricing in fiscal 2001. In the first quarter of fiscal 2002,
the Company recorded a $339 reduction to compensation expense to reflect changes
in the market price of the Company's stock. In the first quarter of fiscal 2003,
the Company did not record an adjustment to compensation expense as the market
value of the Company's stock was below the exercise price of the options.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 adoption of this statement did not have a material
effect on the Company's financial position, results of operations, and its cash
flows.
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 adoption of
this statement did not have a material effect on the Company's financial
position, results of operations, and its cash flows.
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 adoption of this
statement did not have a material effect on the Company's financial position,
results of operations, and its cash flows.
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 and therefore, the effect of adopting this statement on the
Company's financial position, results of operations, and its cash flows is
prospective.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123" ("SFAS 148"). This
statement amends Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The transition guidance and annual disclosure provisions of
SFAS 148 are effective for fiscal years ending after December 15, 2002, with
earlier application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company is in the
process of evaluating the effect that adopting this statement will have on its
financial position, results of operations and its cash flows.
- 8 -
6. GOODWILL AND INTANGIBLES ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), 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 is 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 value 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 statements of operations. The Company is currently in
the process of evaluating whether its goodwill is impaired as of September 1,
2002.
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
the Company ceased amortization of goodwill as of September 1, 2002. The
following table presents the quarterly results of the Company on a comparable
basis:
For three months ended November 30,
2002 2001
-------------------------------------
Net (loss) income:
Reported net loss $ (7,598) $ (7,325)
Goodwill amortization -- 742
---------------- -----------------
Adjusted net loss $ (7,598) $ (6,583)
================ =================
Basic (loss) earnings per common share:
Reported basic net loss per common share $ (0.23) $ (0.24)
Goodwill amortization -- 0.03
---------------- -----------------
Adjusted basic loss per common share $ (0.23) $ (0.21)
================ =================
Diluted (loss) earnings per common share:
Reported diluted net loss per common share $ (0.23) $ (0.24)
Goodwill amortization -- 0.03
---------------- -----------------
Adjusted diluted loss per common share $ (0.23) $ (0.21)
================ =================
Goodwill and other intangible assets consist of the following:
November 30, August 31,
2002 2002
---- ----
Gross Goodwill 106,245 106,245
Accumulated amortization (15,709) (15,709)
----------- ---------
Net Goodwill 90,536 90,536
=========== =========
Gross other intangibles - amortized 2,787 2,787
Accumulated amortization (1,261) (1,231)
----------- ---------
Net other intangibles 1,526 1,556
=========== =========
As of November 30, 2002, Fedders had net goodwill of $60,133 and $30,403
reflected in its HVACR and Engineered Products reportable segments,
respectively. Estimated amortization expense for other intangibles will be
approximately $120 for each of the next five years.
- 9 -
7. INDUSTRY SEGMENTS
The Company has two reportable segments: Heating, Ventilation, Air Conditioning
and Refrigeration ("HVACR") and Engineered Products. The Company's reportable
segments were determined based upon 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 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
November 30,
----------------------
2002 2001
-------- --------
Net sales:
HVACR ................................ $ 29,450 $ 28,045
Engineered Products .................. 9,713 10,052
-------- --------
Consolidated net sales ............... $ 39,163 $ 38,097
======== ========
Loss before interest and taxes:
HVACR ................................ $ (4,513) $ (4,201)
Engineered Products .................. 37 (190)
-------- --------
Segment loss before interest and taxes (4,476) (4,391)
Non-allocated expenses ............... 2,333 2,037
Interest expense ..................... 4,445 4,424
Benefit for income tax expense ....... (3,656) (3,527)
-------- --------
Consolidated loss ................... $ (7,598) $ (7,325)
======== ========
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2002 2002 2001
---- ---- ----
Total assets:
HVACR $241,134 $212,931 $235,526
Engineered Products 67,276 66,173 68,086
Non-allocated assets 58,753 87,024 44, 826
------ ------ -------
$367,163 $366,128 $348,438
======== ======== ========
8. SUBSEQUENT EVENTS
In October 2002, the Company announced that its Board of Directors had approved
a plan pursuant to which a new class of Cumulative Preferred Stock will be
offered to stockholders in exchange for up to 15,000,000 shares of the Company's
new Common Stock, with .14 shares of Preferred Stock being offered in exchange
for every share of new Common Stock. As of December 27, 2002, 2,315,929 shares
of the Company's Common Stock had been validly tendered and not withdrawn. The
Company will issue a total of approximately 324,230 shares of Series A
Cumulative Preferred Stock. The shares of Series A Cumulative Preferred Stock
will trade on the New York Stock Exchange under the symbol FJCPrA when issued.
The new Preferred Stock will have an annual dividend of $2.15 per share and a
liquidation value of $25 per share.
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 $100,000 were issued in August
1997, and $50,000 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 conjunction with the consolidated
financial statements of the Company.
- 10 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- ------- --------- ------- -----------
Net sales ............................ $ 22,331 $ 21,365 -- $ (4,533) $ 39,163
Cost of sales ........................ 18,932 16,933 -- (4,533) 31,332
Selling, general and administrative
expense(1,3) ...................... 7,682 6,686 -- -- 14,368
-------- -------- -------- -------- --------
Operating loss (4,283) (2,254) -- -- (6,537)
Partners' net interest in
joint venture results ............. -- (309) -- -- (309)
Equity loss in investment ............ -- -- $ (7,481) 7,481 --
Net interest (expense)(2) ............ (3,802) (498) (145) -- (4,445)
Other income (expense) ............... 213 (176) -- -- 37
-------- -------- -------- -------- --------
Loss before income taxes ............. (7,872) (3,237) (7,626) 7,481 (11,254)
Benefit for income taxes ............. (2,646) (982) (28) -- (3,656)
-------- -------- -------- -------- --------
Net loss (5,226) (2,255) (7,598) 7,481 (7,598)
Foreign currency translation, net
of tax ............................ (20) (229) (249) 249 (249)
-------- -------- -------- -------- --------
Comprehensive loss $ (5,246) $ (2,484) $ (7,847) $ 7,730 $ (7,847)
======== ======== ======== ======== ========
- 11 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2001
----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- ------- --------- ------- -----------
Net sales ......................... $ 15,721 $ 22,376 -- -- $ 38,097
Cost of sales ..................... 12,086 17,073 -- -- 29,159
Selling, general and administrative
expense(1, 3) .................. 8,244 6,246 $ 423 -- 14,913
-------- -------- -------- -------- --------
Operating loss .................... (4,609) (943) (423) -- (5,975)
Partners' net interest in
joint venture results .......... -- (575) -- -- (575)
Equity loss in investment ......... -- -- (7,080) $ 7,080 --
Net interest (expense) income(2) .. (3,840) (645) 61 -- (4,424)
Other income ...................... 38 84 -- -- 122
-------- -------- -------- -------- --------
Loss before income taxes .......... (8,411) (2,079) (7,442) 7,080 (10,852)
Benefit for income taxes .......... (2,734) (676) (117) -- (3,527)
-------- -------- -------- -------- --------
Net loss .......................... (5,677) (1,403) (7,325) 7,080 (7,325)
Foreign currency translation, net
of tax ......................... 8 (48) -- -- (40)
-------- -------- -------- -------- --------
Comprehensive loss ................ $ (5,669) $ (1,451) $ (7,325) $ 7,080 $ (7,365)
======== ======== ======== ======== ========
- 12 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF NOVEMBER 30, 2002
---------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ......... $ 31,111 $ 6,784 -- -- $ 37,895
Net accounts receivable ........... 11,123 12,977 -- -- 24,100
Inventories ....................... 51,004 34,121 -- -- 85,125
Other current assets .............. 7,649 9,852 $ 12,828 $ (7,023) 23,306
--------- --------- --------- --------- ---------
Total current assets ................. 100,887 63,734 12,828 (7,023) 170,426
Investments in subsidiaries .......... -- -- 12,853 (12,853) --
Net property, plant and equipment .... 44,861 20,893 784 -- 66,538
Goodwill.............................. 64,791 25,745 -- -- 90,536
Other intangible assets............... 302 1,224 -- -- 1,526
Other long-term assets................ 7,485 4,960 25,692 -- 38,137
--------- --------- --------- --------- ---------
Total assets ......................... $ 218,326 $ 116,556 $ 52,157 $ (19,876) $ 367,163
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes .................. $ 8,764 $ 11,358 -- -- $ 20,122
Current portion of long-term debt . 578 2,665 $ 97 -- 3,340
Accounts and income taxes payable . 27,214 19,822 995 -- 48,031
Accrued expenses .................. 16,215 10,763 10,406 -- 37,384
--------- --------- --------- --------- ---------
Total current liabilities ............ 52,771 44,608 11,498 -- 108,877
Long-term debt ....................... 153,492 9,767 -- -- 163,259
Other long-term liabilities .......... 1,764 11,326 19,913 $ (7,023) 25,980
Net due to (from) affiliates ......... (14,842) 63,143 (48,301) -- --
Stockholders' equity:
Common and Class B Stock .......... 5 -- 407 (5) 407
Additional paid-in capital ........ 21,292 24,642 68,848 (45,934) 68,848
Retained earnings (deficit) ....... 3,852 (35,377) 38,981 31,525 38,981
Deferred compensation
and treasury stock ............. -- -- (37,628) -- (37,628)
Accumulated other
comprehensive loss ............. (8) (1,553) (1,561) 1,561 (1,561)
--------- --------- --------- --------- ---------
Total stockholders' equity ........... 25,141 (12,288) 69,047 (12,853) 69,047
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity .............. $ 218,326 $ 116,556 $ 52,157 $ (19,876) $ 367,163
========= ========= ========= ========= =========
- 13 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF AUGUST 31, 2002
--------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- ------- --------- ------- -----------
ASSETS
Current assets:
Cash and cash equivalents ......... $ 64,166 $ 3,213 -- -- $ 67,379
Net accounts receivable ........... 16,610 15,158 -- -- 31,768
Inventories ....................... 27,633 20,947 -- -- 48,580
Other current assets .............. 5,924 7,806 $ 12,477 $ (7,023) 19,184
--------- --------- --------- --------- ---------
Total current assets ................. 114,333 47,124 12,477 (7,023) 166,911
Investments in subsidiaries .......... -- -- 20,583 (20,583) --
Net property, plant and equipment .... 44,916 21,090 840 -- 66,846
Goodwill.............................. 64,791 25,745 -- -- 90,536
Other intangible assets............... 316 1,240 -- -- 1,556
Other long-term assets ............... 7,943 6,349 25,987 -- 40,279
--------- --------- --------- --------- ---------
Total assets ......................... $ 232,299 $ 101,548 $ 59,887 (27,606) $ 366,128
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes .................. $ 2,432 $ 7,397 -- -- $ 9,829
Current portion of long-term debt . 593 2,662 $ 107 -- 3,362
Accounts and income taxes payable . 22,562 16,260 9,021 -- 47,843
Accrued expenses ................... 20,879 10,295 5,925 -- 37,099
--------- --------- --------- --------- ---------
Total current liabilities ............ 46,466 36,614 15,053 -- 98,133
Long-term debt ....................... 153,624 10,129 16 -- 163,769
Other long-term liabilities .......... 1,822 11,466 20,143 $ (7,023) 26,408
Net due to (from) affiliates ......... -- 53,143 (53,143) -- --
Stockholders' equity:
Common and Class B Stock .......... 5 -- 407 (5) 407
Additional paid-in capital ........ 21,292 24,642 68,870 (45,934) 68,870
Retained earnings (deficit) ....... 9,078 (33,122) 47,551 24,044 47,551
Deferred compensation
and treasury stock ............. -- -- (37,698) -- (37,698)
Accumulated other
comprehensive loss ............. 12 (1,324) (1,312) 1,312 (1,312)
--------- --------- --------- --------- ---------
Total stockholders' equity ........... 30,387 (9,804) 77,818 (20,583) 77,818
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity .............. $ 232,299 $ 101,548 $ 59,887 $ (27,606) $ 366,128
========= ========= ========= ========= =========
- 14 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF NOVEMBER 30, 2001
---------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ......... $ 13,096 $ 6,264 $ 1,402 -- $ 20,762
Net accounts receivable ........... 8,463 12,871 -- -- 21,334
Inventories ....................... 65,940 23,203 -- -- 89,143
Other current assets .............. 2,576 5,054 8,854 -- 16,484
--------- --------- --------- --------- ---------
Total current assets ................. 90,075 47,392 10,256 -- 147,723
Investments in subsidiaries .......... -- -- 10,262 $ (10,262) --
Net property, plant and equipment .... 52,812 19,805 1,028 -- 73,645
Goodwill ............................. 65,703 26,212 -- -- 91,915
Other intangible assets .............. 613 50 -- -- 663
Other long-term assets ............... 3,817 4,849 32,849 (7,023) 34,492
--------- --------- --------- --------- ---------
Total assets ......................... $ 213,020 $ 98,308 $ 54,395 $ (17,285) $ 348,438
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes .................. -- $ 8,092 -- -- $ 8,092
Current portion of long-term debt . $ 586 2,327 $ 100 -- 3,013
Accounts and income taxes payable . 22,178 17,841 9,165 -- 49,184
Accrued expenses .................. 16,104 11,287 6,496 -- 33,887
--------- --------- --------- --------- ---------
Total current liabilities ............ 38,868 39,547 15,761 -- 94,176
Long-term debt ....................... 153,832 10,760 100 -- 164,692
Other long-term liabilities .......... 1,922 10,402 19,853 $ (7,023) 25,154
Net due to (from) affiliates ......... -- 45,735 (45,735) -- --
Stockholders' equity:
Common, Class A and
Class B Stock .................. 5 -- 38,699 (5) 38,699
Additional paid-in capital ........ 21,292 24,642 30,759 (45,934) 30,759
Retained earnings (deficit) ....... (2,696) (30,776) 35,073 33,472 35,073
Deferred compensation
and treasury stock ............. -- -- (37,910) -- (37,910)
Accumulated other
comprehensive loss ............. (203) (2,002) (2,205) 2,205 (2,205)
--------- --------- --------- --------- ---------
Total stockholders' equity ........... 18,398 (8,136) 64,416 (10,262) 64,416
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity .............. $ 213,020 $ 98,308 $ 54,395 $ (17,285) $ 348,438
========= ========= ========= ========= =========
- 15 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
---------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- ------- --------- ------- -----------
Net cash used in
operating activities ............. $(22,740) $ (9,530) $ (3,784) -- $(36,054)
-------- -------- -------- -------- --------
Net additions to property, plant and
equipment ........................ (1,658) (501) (37) -- (2,196)
-------- -------- -------- -------- --------
Net cash used in
investing activities ............ (1,658) (501) (37) -- (2,196)
-------- -------- -------- -------- --------
Proceeds from short-term notes ...... 6,332 3,961 -- -- 10,293
Net repayments of long-term debt .... (147) (359) (26) -- (532)
Cash dividends ...................... -- -- (972) -- (972)
Other ............................... -- -- (23) -- (23)
Change in net due (from) to affiliate (14,842) 10,000 4,842 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities ............. (8,657) 13,602 3,821 -- 8,766
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents ............. (33,055) 3,571 -- -- (29,484)
Cash and cash equivalents at
beginning of period .............. 64,166 3,213 -- -- 67,379
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period .................... $ 31,111 $ 6,784 -- -- $ 37,895
======== ======== ======== ======== ========
- 16 -
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2001
-----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- ------- --------- ------- -----------
Net cash (used in)
provided by operating activities .. $(26,209) $ 2,242 $ 2,363 -- $(21,604)
-------- -------- -------- -------- --------
Net additions to property, plant and
equipment ......................... (529) (416) -- -- (945)
Acquisition of businesses ............ (4,348) (2,424) -- -- (6,772)
-------- -------- -------- -------- --------
Net cash used in investing activities (4,877) (2,840) -- -- (7,717)
-------- -------- -------- -------- --------
Proceeds from short-term notes ....... -- 622 -- -- 622
Net repayments of long-term debt ..... (149) (583) (25) -- (757)
Cash dividends ....................... -- -- (925) -- (925)
Other ................................ -- -- (49) -- (49)
Change in net due to (from) affiliate -- 2,612 (2,612) -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities .............. (149) 2,651 (3,611) -- (1,109)
-------- -------- -------- -------- --------
Net (decrease) increase in cash
and cash equivalents .............. (31,235) 2,053 (1,248) -- (30,430)
Cash and cash equivalents at
beginning of period ............... 44,331 4,211 2,650 -- 51,192
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period ..................... $ 13,096 $ 6,264 $ 1,402 -- $ 20,762
======== ======== ======== ======== ========
- 17 -
FEDDERS CORPORATION
NOTES TO THE 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 $3.1 million and $2.7 million for the three months ended
November 30, 2002 and 2001, respectively.
2) FNA's interest expense reflects actual interest charges on the 9-3/8%
Senior Subordinated Notes due 2007, State of Illinois Promissory Note,
capital lease obligations, and a revolving line of credit.
3) FNA's depreciation and amortization for the three months ended November
30, 2002 and 2001 amounted to approximately $1.6 million and $2.5 million,
respectively. Capital expenditures of FNA amounted to $1.7 million and
$0.5 million in the three months ended November 30, 2002 and 2001,
respectively.
4) The Company guarantees FNA's obligations under FNA's revolving credit
facility.
5) The Company's stock option plans include FNA's employees.
- 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
Operating Results as Percent of Net Sales
-----------------------------------------
First Quarter First Quarter
Fiscal 2003 Fiscal 2002
----------- -----------
Gross profit 20.0% 23.5%
Selling, general and administrative
expense 36.7% 39.1%
Operating loss 16.7% 15.7%
Net interest expense 11.3% 11.6%
Pre-tax loss 28.7% 28.5%
==== ====
FIRST QUARTER RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
VERSUS THE THREE MONTHS ENDED NOVEMBER 30, 2001.
Net sales in the first quarter of fiscal 2003 increased by 2.8% to $39.2 million
compared to $38.1 million in the prior year period. The improvement was the
result of an increase of $1.4 million or 5.0% in sales within the HVACR
reporting segment due to improving market conditions in North America and Asia
for air conditioners. The gain in sales was partially offset by a decline in
sales within the Engineered Products reporting segment of $0.3 million or 3.4%
from the prior year period due to continued weak demand in the capital equipment
market for commercial and industrial air cleaners.
The gross profit margin in the first quarter of fiscal 2003 decreased to 20.0%
from 23.5% in the prior year period. The lower gross margin was the result of
two primary factors: 1) decreased sales of commercial and industrial air
cleaners, which typically carry a higher gross margin than products within the
HVACR segment, and 2) start-up costs associated with new factories in Asia.
Selling, general and administrative ("SG&A") expenses in the first quarter of
fiscal 2003 were $14.4 million compared to $14.9 million in the prior year
period. SG&A expenses in the fiscal 2003 period were lower as a percentage of
net sales primarily due to higher sales and no amortization expense for goodwill
beginning with the new fiscal year. In the first fiscal quarter of 2002, the
amortization expense for goodwill was $742. The exclusion of this expense would
reduce the SG&A expense for the period to $14.2 million or 37.1% of the net
sales.
The operating loss in the first quarter of fiscal 2003 was $6.5 million compared
to an operating loss of $6.0 million in the fiscal 2002 period.
Net interest expense in the quarter of $4.4 million was approximately equal to
prior year. Although cash balances were higher, interest income was lower due to
lower interest rates.
The net loss for the normally unprofitable off-season first quarter was $7.6
million or 23 cents per diluted share compared to a net loss of $7.3 million or
24 cents per share in the fiscal 2002 period.
- 19 -
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 $37.9
million at November 30, 2002 compared to $20.8 million a year earlier.
Net cash used in operations for the three-months ended November 30, 2002
amounted to $36.1 million, compared to $21.6 million in the prior period. A
build-up in inventory to support seasonal requirements was the main use of cash
during the period. Net inventories at the end of the first quarter were $85.1
million compared to $48.6 million at the beginning of the fiscal year and $89.1
million at the end of the first quarter last fiscal year.
Net cash used in investing activities was $2.2 million and consisted of capital
expenditures primarily to support production in Asia versus $7.7 million used in
investing activities in the fiscal 2002 period. In the 2002 period, 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. The Company also completed two joint ventures in the prior
year quarter to produce room air conditioners in India and thermoelectric
modules in China.
Net cash provided by financing activities during the first quarter was $8.8
million and consisted primarily of $10.3 million in short-term borrowings to
support production in Asia. $1.0 million in cash dividends were paid in the
quarter. Net cash used in financing activities during the prior fiscal year
period was $1.1 million, due to $0.9 million of cash dividends and the repayment
of $0.8 million of long-term debt offset by proceeds from short-term borrowing
of $0.6 million.
The Company declared quarterly dividends of 3.0 cents on each share of
outstanding Common and Class B Stock in the first quarter. In fiscal 2002, the
Company declared quarterly dividends of 3.0 cents on each share of outstanding
Class A and Common Stock and 2.7 cents on each share of outstanding Class B
Stock.
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 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 and reliance on key customers. 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.
- 20 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-14 (c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating
to the Company, including its consolidated subsidiaries required to
be included in the Company's reports filed or submitted under the
Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls
or in other factors that could significantly affect such controls.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification by Sal Giordano, Jr., Chief Executive Officer
99.2 Certification by Michael Giordano, Chief Financial Officer
(b) Reports on Form 8-K
None
- 21 -
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.
January 14, 2003
- 22 -
CERTIFICATIONS
I, Sal Giordano, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fedders Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 14, 2003
/s/ Sal Giordano, Jr.
- -----------------------
Sal Giordano, Jr.
Chief Executive Officer
- 23 -
CERTIFICATIONS
I, Michael Giordano, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fedders Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 14, 2003
/s/ Michael Giordano
- -----------------------
Michael Giordano
Chief Financial Officer
- 24 -